aMAKATI STOCK EXCHANGE, INC., G.R. No. 138814 and Antonio Garcia, Jr.

G.R. No. 138814
MA. VIVIAN YUCHENGCO, ADOLFO
M. DUARTE, MYRON C. PAPA,
NORBERTO C. NAZARENO, GEORGE
UY-TIOCO, ANTONIO A. LOPA,
RAMON B. ARNAIZ, LUIS J.L.
VIRATA, and ANTONIO GARCIA, JR.
Petitioners,
- versus -
MIGUEL V. CAMPOS, substituted by
JULIA ORTIGAS VDA. DE CAMPOS,[1]
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
and Antonio Garcia, Jr. Respondent, in said Petition, sought: (1) the nullification
of the Resolution dated 3 June 1993 of the MKSE Board of Directors, which
allegedly deprived him of his right to participate equally in the allocation of Initial
Present:
Public Offerings (IPO) of corporations registered with MKSE; (2) the delivery of
the IPO shares he was allegedly deprived of, for which he would pay IPO prices;
YNARES-SANTIAGO, J., and (3) the payment of P2 million as moral damages, P1 million as exemplary
Chairperson, damages, and P500,000.00 as attorneys fees and litigation expenses.
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
On 14 February 1994, the SICD issued an Order granting respondents
NACHURA, and
PERALTA, JJ. prayer for the issuance of a Temporary Restraining Order to enjoin petitioners
from implementing or enforcing the 3 June 1993 Resolution of the MKSE Board
of Directors.
The SICD subsequently issued another Order on 10 March 1994 granting
respondents application for a Writ of Preliminary Injunction, to continuously
Promulgated:
enjoin, during the pendency of SEC Case No. 02-94-4678, the implementation or
April 16, 2009 enforcement of the MKSE Board Resolution in question. Petitioners assailed this
SICD Order dated 10 March 1994 in a Petition for Certiorari filed with the SEC en
banc, docketed as SEC-EB No. 393.

DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 seeking the
reversal of the Decision[2] dated 11 February 1997 and Resolution dated 18 May
1999 of the Court of Appeals in CA-G.R. SP No. 38455.
The facts of the case are as follows:
SEC Case No. 02-94-4678 was instituted on 10 February 1994 by
respondent Miguel V. Campos, who filed with the Securities, Investigation and
Clearing Department (SICD) of the Securities and Exchange Commission (SEC), a
Petition against herein petitioners Makati Stock Exchange, Inc. (MKSE) and MKSE
directors, Ma. Vivian Yuchengco, Adolfo M. Duarte, Myron C. Papa, Norberto C.
Nazareno, George Uy-Tioco, Antonio A, Lopa, Ramon B. Arnaiz, Luis J.L. Virata,
On 11 March 1994, petitioners filed a Motion to Dismiss respondents
Petition in SEC Case No. 02-94-4678, based on the following grounds: (1) the
Petition became moot due to the cancellation of the license of MKSE; (2) the SICD
had no jurisdiction over the Petition; and (3) the Petition failed to state a cause
of action.
aThe SICD denied petitioners Motion to Dismiss in an Order dated 4 May
1994. Petitioners again challenged the 4 May 1994 Order of SICD before the
SEC en banc through another Petition for Certiorari, docketed as SEC-EB No. 403.
In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en
banc nullified the 10 March 1994 Order of SICD in SEC Case No. 02-94-4678
granting a Writ of Preliminary Injunction in favor of respondent. Likewise, in an
Order dated 14 August 1995 in SEC-EB No. 403, the SEC en banc annulled the 4
May 1994 Order of SICD in SEC Case No. 02-94-4678 denying petitioners Motion
to Dismiss, and accordingly ordered the dismissal of respondents Petition before
the SICD.

Respondent filed a Petition for Certiorari with the Court of Appeals
assailing the Orders of the SEC en banc dated 31 May 1995 and 14 August
1995 in SEC-EB No. 393 and SEC-EB No. 403, respectively. Respondents Petition
before the appellate court was docketed as CA-G.R. SP No. 38455.
On 11 February 1997, the Court of Appeals promulgated its Decision in
CA-G.R. SP No. 38455, granting respondents Petition for Certiorari, thus:
WHEREFORE, the petition in so far as it prays for
annulment of the Orders dated May 31, 1995 and August 14,
1995 in SEC-EB Case Nos. 393 and 403 is GRANTED.The said
orders are hereby rendered null and void and set aside.
Petitioners filed a Motion for Reconsideration of the foregoing Decision
but it was denied by the Court of Appeals in a Resolution dated 18 May 1999.
Hence, the present Petition for Review raising the following arguments:
I.
THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
WHEN IT DISMISSED THE PETITION FILED BY RESPONDENT
BECAUSE ON ITS FACE, IT FAILED TO STATE A CAUSE OF ACTION.
II.
THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF
RESPONDENT WAS A MERE ACCOMMODATION GIVEN TO HIM
BY THE BOARD OF [DIRECTORS] OF THE MAKATI STOCK
EXCHANGE, INC.
III.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN
BANC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING
TO LACK OR EXCESS OF JURISDICTION WHEN IT MADE AN
EXTENDED INQUIRY AND PROCEEDED TO MAKE A
DETERMINATION AS TO THE TRUTH OF RESPONDENTS
ALLEGATIONS IN HIS PETITION AND USED AS BASIS THE
EVIDENCE ADDUCED DURING THE HEARING ON THE
APPLICATION FOR THE WRIT OF PRELIMINARY INJUNCTION TO
DETERMINE THE EXISTENCE OR VALIDITY OF A STATED CAUSE
OF ACTION.
IV.
IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE
BOUGHT BY THE BROKERS FOR THEMSELVES BUT ARE TO BE
DISTRIBUTED TO THE INVESTING PUBLIC. HENCE,
RESPONDENTS CLAIM FOR DAMAGES IS ILLUSORY AND HIS
PETITION A NUISANCE SUIT.[3]
On 18 September 2001, counsel for respondent manifested to this Court
that his client died on 7 May 2001. In a Resolution dated 24 October 2001, the
Court directed the substitution of respondent by his surviving spouse, Julia
Ortigas vda. de Campos.
Petitioners want this Court to affirm the dismissal by the SEC en banc of
respondents Petition in SEC Case No. 02-94-4678 for failure to state a cause of
action.On the other hand, respondent insists on the sufficiency of his Petition and
seeks the continuation of the proceedings before the SICD.
A cause of action is the act or omission by which a party violates a right
of another.[4] A complaint states a cause of action where it contains three
essential elements of a cause of action, namely: (1) the legal right of the plaintiff,
(2) the correlative obligation of the defendant, and (3) the act or omission of the
defendant in violation of said legal right. If these elements are absent, the
complaint becomes vulnerable to dismissal on the ground of failure to state a
cause of action.
If a defendant moves to dismiss the complaint on the ground of lack of
cause of action, he is regarded as having hypothetically admitted all the
averments thereof. The test of sufficiency of the facts found in a complaint as
constituting a cause of action is whether or not admitting the facts alleged, the
court can render a valid judgment upon the same in accordance with the prayer WHEREAS, as such, the Board of
thereof. The hypothetical admission extends to the relevant and material facts Governors in its meeting held on February 09,
1989 has correspondingly adopted a resolution
well pleaded in the complaint and inferences fairly deducible therefrom. Hence,
recognizing his valuable service to the
if the allegations in the complaint furnish sufficient basis by which the complaint Exchange, reward the same, and preserve for
can be maintained, the same should not be dismissed regardless of the defense posterity such recognition by proposing a
that may be assessed by the defendant.[5] resolution to the membership body which
Given the foregoing, the issue of whether respondents Petition in SEC would make him as Chairman Emeritus for life
Case No. 02-94-4678 sufficiently states a cause of action may be alternatively and install in the Exchange premises a
commemorative bronze plaque in his honor;
stated as whether, hypothetically admitting to be true the allegations in
respondents Petition in SEC Case No. 02-94-4678, the SICD may render a valid NOW, THEREFORE, for and in
judgment in accordance with the prayer of said Petition. consideration of the above premises, the
position of the Chairman Emeritus to be
A reading of the exact text of respondents Petition in SEC Case No. 02- occupied by Mr. Miguel Campos during his
94-4678 is, therefore, unavoidable. Pertinent portions of the said Petition reads: lifetime and irregardless of his continued
membership in the Exchange with the Privilege
to attend all membership meetings as well as
7. In recognition of petitioners invaluable services, the
the meetings of the Board of Governors of the
general membership of respondent corporation [MKSE] passed a
Exchange, is hereby created.
resolution sometime in 1989 amending its Articles of
Incorporation, to include the following provision therein:
8. Hence, to this day, petitioner is not only an active
member of the respondent corporation, but its Chairman
ELEVENTH WHEREAS, Mr. Miguel
Emeritus as well.
Campos is the only surviving incorporator of
the Makati Stock Exchange, Inc. who has
9. Correspondingly, at all times material to this petition,
maintained his membership;
as an active member and Chairman Emeritus of respondent
corporation, petitioner has always enjoyed the right given to all
WHEREAS, he has unselfishly served
the other members to participate equally in the Initial Public
the Exchange in various capacities, as governor
Offerings (IPOs for brevity) of corporations.
from 1977 to the present and as President
from 1972 to 1976 and again as President from
10. IPOs are shares of corporations offered for sale to
1988 to the present;
the public, prior to the listing in the trading floor of the countrys
two stock exchanges. Normally, Twenty Five Percent (25%) of
WHEREAS, such dedicated service and
these shares are divided equally between the two stock
leadership which has contributed to the
exchanges which in turn divide these equally among their
advancement and well being not only of the
members, who pay therefor at the offering price.
Exchange and its members but also to the
Securities industry, needs to be recognized and
11. However, on June 3, 1993, during a meeting of the
appreciated;
Board of Directors of respondent-corporation, individual
respondents passed a resolution to stop giving petitioner the
IPOs he is entitled to, based on the ground that these shares
 were allegedly benefiting Gerardo O. Lanuza, Jr., who these
individual respondents wanted to get even with, for having filed
cases before the Securities and Exchange (SEC) for their
disqualification as member of the Board of Directors of
respondent corporation.
12. Hence, from June 3, 1993 up to the present time,
petitioner has been deprived of his right to subscribe to the IPOs
of corporations listing in the stock market at their offering prices.
13. The collective act of the individual respondents in
depriving petitioner of his right to a share in the IPOs for the
aforementioned reason, is unjust, dishonest and done in bad
faith, causing petitioner substantial financial damage.[6]
There is no question that the Petition in SEC Case No. 02-94-4678 asserts
a right in favor of respondent, particularly, respondents alleged right to
subscribe to the IPOs of corporations listed in the stock market at their offering
prices; and stipulates the correlative obligation of petitioners to respect
respondents right, specifically, by continuing to allow respondent to subscribe to
the IPOs of corporations listed in the stock market at their offering prices.
However, the terms right and obligation in respondents Petition are not
magic words that would automatically lead to the conclusion that such Petition
sufficiently states a cause of action. Right and obligation are legal terms with
specific legal meaning. A right is a claim or title to an interest in anything
whatsoever that is enforceable by law.[7] An obligation is defined in the Civil Code
as a juridical necessity to give, to do or not to do.[8] For every right enjoyed by
any person, there is a corresponding obligation on the part of another person to
respect such right. Thus, Justice J.B.L. Reyes offers[9] the definition given by Arias
Ramos as a more complete definition:
An obligation is a juridical relation whereby a person
(called the creditor) may demand from another (called the
debtor) the observance of a determinative conduct (the giving,
doing or not doing), and in case of breach, may demand
satisfaction from the assets of the latter.
The Civil Code enumerates the sources of obligations:
Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
Therefore, an obligation imposed on a person, and the corresponding
right granted to another, must be rooted in at least one of these five sources. The
mere assertion of a right and claim of an obligation in an initiatory pleading,
whether a Complaint or Petition, without identifying the basis or source thereof,
is merely a conclusion of fact and law. A pleading should state the ultimate
facts essential to the rights of action or defense asserted, as distinguished from
mere conclusions of factor conclusions of law.[10] Thus, a Complaint or Petition
filed by a person claiming a right to the Office of the President of this Republic,
but without stating the source of his purported right, cannot be said to have
sufficiently stated a cause of action. Also, a person claiming to be the owner of a
parcel of land cannot merely state that he has a right to the ownership thereof,
but must likewise assert in the Complaint either a mode of acquisition of
ownership or at least a certificate of title in his name.
In the case at bar, although the Petition in SEC Case No. 02-94-4678 does
allege respondents right to subscribe to the IPOs of corporations listed in the
stock market at their offering prices, and petitioners obligation to continue
respecting and observing such right, the Petition utterly failed to lay down the
source or basis of respondents right and/or petitioners obligation.
Respondent merely quoted in his Petition the MKSE Board Resolution,
passed sometime in 1989, granting him the position of Chairman Emeritus of
MKSE for life. However, there is nothing in the said Petition from which the Court
can deduce that respondent, by virtue of his position as Chairman Emeritus of
MKSE, was granted by law, contract, or any other legal source, the right to
subscribe to the IPOs of corporations listed in the stock market at their offering
prices.
 A meticulous review of the Petition reveals that the allocation of IPO
shares was merely alleged to have been done in accord with a practice normally
observed by the members of the stock exchange, to wit:
IPOs are shares of corporations offered for sale to the public,
prior to their listing in the trading floor of the countrys two stock
exchanges. Normally, Twenty-Five Percent (25%) of these
shares are divided equally between the two stock exchanges
which in turn divide these equally among their members, who
pay therefor at the offering price.[11](Emphasis supplied)
A practice or custom is, as a general rule, not a source of a legally
demandable or enforceable right.[12] Indeed, in labor cases, benefits which were
voluntarily given by the employer, and which have ripened into company
practice, are considered as rights that cannot be diminished by the
employer.[13] Nevertheless, even in such cases, the source of the employees right
is not custom, but ultimately, the law, since Article 100 of the Labor Code
explicitly prohibits elimination or diminution of benefits.
There is no such law in this case that converts the practice of allocating
IPO shares to MKSE members, for subscription at their offering prices, into an
enforceable or demandable right. Thus, even if it is hypothetically admitted
that normally, twenty five percent (25%) of the IPOs are divided equally between
the two stock exchanges -- which, in turn, divide their respective allocation
equally among their members, including the Chairman Emeritus, who pay for IPO
shares at the offering price -- the Court cannot grant respondents prayer for
damages which allegedly resulted from the MKSE Board Resolution dated 3 June
1993 deviating from said practice by no longer allocating any shares to
respondent.
Accordingly, the instant Petition should be granted. The Petition in SEC
Case No. 02-94-4678 should be dismissed for failure to state a cause of action. It
does not matter that the SEC en banc, in its Order dated 14 August 1995 in SEC-
EB No. 403, overstepped its bounds by not limiting itself to the issue of whether
respondents Petition before the SICD sufficiently stated a cause of action. The
SEC en banc may have been mistaken in considering extraneous evidence in
granting petitioners Motion to Dismiss, but its discussion thereof are merely
superfluous and obiter dictum. In the main, the SEC en banc did correctly dismiss
the Petition in SEC Case No. 02-94-4678 for its failure to state the basis for
respondents alleged right, to wit:
Private respondent Campos has failed to establish the
basis or authority for his alleged right to participate equally in
the IPO allocations of the Exchange. He cited paragraph 11 of
the amended articles of incorporation of the Exchange in
support of his position but a careful reading of the said provision
shows nothing therein that would bear out his claim. The
provision merely created the position of chairman emeritus of
the Exchange but it mentioned nothing about conferring upon
the occupant thereof the right to receive IPO allocations.[14]
With the dismissal of respondents Petition in SEC Case No. 02-94-4678,
there is no more need for this Court to resolve the propriety of the issuance by
SCID of a writ of preliminary injunction in said case.
WHEREFORE, the Petition is GRANTED. The Decision of the Court of
Appeals dated 11 February 1997 and its Resolution dated 18 May 1999 in CA-G.R.
SP No. 38455 are REVERSED and SET ASIDE. The Orders dated 31 May
1995 and 14 August 1995 of the Securities and Exchange Commission en banc in
SEC-EB Case No. 393 and No. 403, respectively, are hereby reinstated. No
pronouncement as to costs.
SO ORDERED.
G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.
VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals, dated
04 December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without
force and effect the orders of execution of the trial court, dated 30 August 1991
and 27 September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific
Performance was filed by Ang Yu Asuncion and Keh Tiong, et al.,
against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before
the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-
41058, alleging, among others, that plaintiffs are tenants or
lessees of residential and commercial spaces owned by
defendants described as Nos. 630-638 Ongpin Street, Binondo,
Manila; that they have occupied said spaces since 1935 and
have been religiously paying the rental and complying with all
the conditions of the lease contract; that on several occasions
before October 9, 1986, defendants informed plaintiffs that
they are offering to sell the premises and are giving them
priority to acquire the same; that during the negotiations,
Bobby Cu Unjieng offered a price of P6-million while plaintiffs
made a counter offer of P5-million; that plaintiffs thereafter
asked the defendants to put their offer in writing to which
request defendants acceded; that in reply to defendant's letter,
plaintiffs wrote them on October 24, 1986 asking that they
specify the terms and conditions of the offer to sell; that when
plaintiffs did not receive any reply, they sent another letter
dated January 28, 1987 with the same request; that since
defendants failed to specify the terms and conditions of the
offer to sell and because of information received that
defendants were about to sell the property, plaintiffs were
compelled to file the complaint to compel defendants to sell the
property to them.
Defendants filed their answer denying the material allegations
of the complaint and interposing a special defense of lack of
cause of action.
After the issues were joined, defendants filed a motion for
summary judgment which was granted by the lower court. The
trial court found that defendants' offer to sell was never
accepted by the plaintiffs for the reason that the parties did not
agree upon the terms and conditions of the proposed sale,
hence, there was no contract of sale at all. Nonetheless, the
lower court ruled that should the defendants subsequently
offer their property for sale at a price of P11-million or below,
plaintiffs will have the right of first refusal. Thus the dispositive
portion of the decision states:
WHEREFORE, judgment is hereby rendered in
favor of the defendants and against the
plaintiffs summarily dismissing the complaint
subject to the aforementioned condition that
if the defendants subsequently decide to offer
their property for sale for a purchase price of
Eleven Million Pesos or lower, then the
plaintiffs has the option to purchase the
property or of first refusal, otherwise,
defendants need not offer the property to the
plaintiffs if the purchase price is higher than
Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September
21, 1990 (penned by Justice Segundino G. Chua and concurred
in by Justices Vicente V. Mendoza and Fernando A. Santiago),
this Court affirmed with modification the lower court's
judgment, holding:
In resume, there was no meeting of the minds
between the parties concerning the sale of the
property. Absent such requirement, the claim
for specific performance will not lie.
 Appellants' demand for actual, moral and
exemplary damages will likewise fail as there
exists no justifiable ground for its award.
Summary judgment for defendants was
properly granted. Courts may render summary
judgment when there is no genuine issue as to
any material fact and the moving party is
entitled to a judgment as a matter of law
(Garcia vs. Court of Appeals, 176 SCRA 815). All
requisites obtaining, the decision of the
court a quo is legally justifiable.
WHEREFORE, finding the appeal
unmeritorious, the judgment appealed from is
hereby AFFIRMED, but subject to the following
modification: The court a quo in the
aforestated decision gave the plaintiffs-
appellants the right of first refusal only if the
property is sold for a purchase price of Eleven
Million pesos or lower; however, considering
the mercurial and uncertain forces in our
market economy today. We find no reason not
to grant the same right of first refusal to herein
appellants in the event that the subject
property is sold for a price in excess of Eleven
Million pesos. No pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by
petition for review on certiorari. The Supreme Court denied the
appeal on May 6, 1991 "for insufficiency in form and
substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was
pending consideration by this Court, the Cu Unjieng spouses
executed a Deed of Sale (Annex D, Petition) transferring the
property in question to herein petitioner Buen Realty and
Development Corporation, subject to the following terms and
conditions:
1. That for and in consideration of the sum of
FIFTEEN MILLION PESOS (P15,000,000.00),
receipt of which in full is hereby
acknowledged, the VENDORS hereby sells,
transfers and conveys for and in favor of the
VENDEE, his heirs, executors, administrators or
assigns, the above-described property with all
the improvements found therein including all
the rights and interest in the said property free
from all liens and encumbrances of whatever
nature, except the pending ejectment
proceeding;
2. That the VENDEE shall pay the Documentary
Stamp Tax, registration fees for the transfer of
title in his favor and other expenses incidental
to the sale of above-described property
including capital gains tax and accrued real
estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the
name of the Cu Unjieng spouses was cancelled and, in lieu
thereof, TCT No. 195816 was issued in the name of petitioner
on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject
property wrote a letter to the lessees demanding that the latter
vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating
that petitioner brought the property subject to the notice of lis
pendens regarding Civil Case No. 87-41058 annotated on TCT
No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991
of the Decision in Civil Case No. 87-41058 as modified by the
Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex
A, Petition) quoted as follows:
Presented before the Court is a Motion for
Execution filed by plaintiff represented by Atty.
Antonio Albano. Both defendants Bobby Cu
Unjieng and Rose Cu Unjieng represented by
Atty. Vicente Sison and Atty. Anacleto Magno
respectively were duly notified in today's
consideration of the motion as evidenced by
the rubber stamp and signatures upon the
copy of the Motion for Execution.
The gist of the motion is that the Decision of
the Court dated September 21, 1990 as
modified by the Court of Appeals in its decision
in CA G.R. CV-21123, and elevated to the
Supreme Court upon the petition for review
and that the same was denied by the highest
tribunal in its resolution dated May 6, 1991 in
G.R. No.
L-97276, had now become final and executory.
As a consequence, there was an Entry of
Judgment by the Supreme Court as of June 6,
1991, stating that the aforesaid modified
decision had already become final and
executory.
It is the observation of the Court that this
property in dispute was the subject of
the Notice of Lis Pendens and that the
modified decision of this Court promulgated by
the Court of Appeals which had become final
to the effect that should the defendants decide
to offer the property for sale for a price of P11
Million or lower, and considering the mercurial
and uncertain forces in our market economy
today, the same right of first refusal to herein
plaintiffs/appellants in the event that the
subject property is sold for a price in excess of
Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered
to execute the necessary Deed of Sale of the
property in litigation in favor of plaintiffs Ang
Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in
recognition of plaintiffs' right of first refusal
and that a new Transfer Certificate of Title be
issued in favor of the buyer.
All previous transactions involving the same
property notwithstanding the issuance of
another title to Buen Realty Corporation, is
hereby set aside as having been executed in
bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order,
the dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution
issue in the above-entitled case directing the
Deputy Sheriff Ramon Enriquez of this Court to
implement said Writ of Execution ordering the
defendants among others to comply with the
aforesaid Order of this Court within a period of
one (1) week from receipt of this Order and for
defendants to execute the necessary Deed of
Sale of the property in litigation in favor of the
plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go for the consideration of
P15,000,000.00 and ordering the Register of
Deeds of the City of Manila, to cancel and set
aside the title already issued in favor of Buen
Realty Corporation which was previously
executed between the latter and defendants
and to register the new title in favor of the
aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong
and Arthur Go.
SO ORDERED.
 On the same day, September 27, 1991 the corresponding writ
of execution (Annex C, Petition) was issued.1
On 04 December 1991, the appellate court, on appeal to it by private respondent,
set aside and declared without force and effect the above questioned orders of
the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can
be held bound by the writ of execution by virtue of the notice of lis pendens,
carried over on TCT No. 195816 issued in the name of Buen Realty, at the time of
the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of such
arrangements as the right of first refusal, a purchase option and a contract to sell.
For ready reference, we might point out some fundamental precepts that may
find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil
Code). The obligation is constituted upon the concurrence of the essential
elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient
cause established by the various sources of obligations (law, contracts, quasi-
contracts, delicts and quasi-delicts); (b) the object which is the prestation or
conduct; required to be observed (to give, to do or not to do); and (c) the subject-
persons who, viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is
a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service (Art. 1305, Civil
Code). A contract undergoes various stages that include its negotiation or
preparation, its perfection and, finally, its consummation. Negotiation covers the
period from the time the prospective contracting parties indicate interest in the
contract to the time the contract is concluded (perfected). The perfection of the
contract takes place upon the concurrence of the essential elements thereof. A
contract which is consensual as to perfection is so established upon a mere
meeting of minds, i.e., the concurrence of offer and acceptance, on the object
and on the cause thereof. A contract which requires, in addition to the above,
the delivery of the object of the agreement, as in a pledge or commodatum, is
commonly referred to as a real contract. In a solemn contract, compliance with
certain formalities prescribed by law, such as in a donation of real property, is
essential in order to make the act valid, the prescribed form being thereby an
essential element thereof. The stage of consummation begins when the parties
perform their respective undertakings under the contract culminating in the
extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation. In sales, particularly, to which the topic for
discussion about the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer, over which
the latter agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain
in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell"
where invariably the ownership of the thing sold is retained until the fulfillment
of a positive suspensive condition (normally, the full payment of the purchase
price), the breach of the condition will prevent the obligation to convey title from
acquiring an obligatory force.2 In Dignos vs. Court of Appeals (158 SCRA 375), we
have said that, although denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any proviso that title is reserved or the
right to unilaterally rescind is stipulated, e.g., until or unless the price is paid.
Ownership will then be transferred to the buyer upon actual or constructive
delivery (e.g., by the execution of a public document) of the property sold. Where
the condition is imposed upon the perfection of the contract itself, the failure of
the condition would prevent such perfection.3 If the condition is imposed on the
obligation of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code).4
An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is fixed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted.5
An accepted unilateral promise which specifies the thing to be sold and the price
to be paid, when coupled with a valuable consideration distinct and separate
from the price, is what may properly be termed a perfected contract of option.
This contract is legally binding, and in sales, it conforms with the second
paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.
(1451a)6
Observe, however, that the option is not the contract of sale itself.7 The optionee
has the right, but not the obligation, to buy. Once the option is exercised timely,
i.e., the offer is accepted before a breach of the option, a bilateral promise to sell
and to buy ensues and both parties are then reciprocally bound to comply with
their respective undertakings.8
Let us elucidate a little. A negotiation is formally initiated by an offer. An
imperfect promise (policitacion) is merely an offer. Public advertisements or
solicitations and the like are ordinarily construed as mere invitations to make
offers or only as proposals. These relations, until a contract is perfected, are not
considered binding commitments. Thus, at any time prior to the perfection of the
contract, either negotiating party may stop the negotiation. The offer, at this
stage, may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the offeree learns
of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the
offeree within which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the
offeror is still free and has the right to withdraw the offer before its acceptance,
or, if an acceptance has been made, before the offeror's coming to know of such
fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code;
see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art. 1479, modifying the previous
decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319,
Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez
vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a damage claim under
Article 19 of the Civil Code which ordains 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."
(2) If the period has a separate consideration, a contract of "option" is
deemed perfected, and it would be a breach of that contract to withdraw the
offer during the agreed period. The option, however, is an independent contract
by itself, and it is to be distinguished from the projected main agreement (subject
matter of the option) which is obviously yet to be concluded. If, in fact, the
optioner-offeror withdraws the offer before its acceptance (exercise of the
option) by the optionee-offeree, the latter may not sue for specific
performance on the proposed contract ("object" of the option) since it has failed
to reach its own stage of perfection. The optioner-offeror, however, renders
himself liable for damages for breach of the option. In these cases, care should
be taken of the real nature of the consideration given, for if, in fact, it has been
intended to be part of the consideration for the main contract with a right of
withdrawal on the part of the optionee, the main contract could be deemed
perfected; a similar instance would be an "earnest money" in a contract of sale
that can evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical
relation. Needless to point out, it cannot be deemed a perfected contract of sale
under Article 1458 of the Civil Code. Neither can the right of first refusal,
understood in its normal concept, per se be brought within the purview of an
option under the second paragraph of Article 1479, aforequoted, or possibly of
an offer under Article 13199 of the same Code. An option or an offer would
require, among other things,10 a clear certainty on both the object and the cause
or consideration of the envisioned contract. In a right of first refusal, while the
object might be made determinate, the exercise of the right, however, would be
dependent not only on the grantor's eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that
obviously are yet to be later firmed up. Prior thereto, it can at best be so
described as merely belonging to a class of preparatory juridical relations
governed not by contracts (since the essential elements to establish the vinculum
juris would still be indefinite and inconclusive) but by, among other laws of
general application, the pertinent scattered provisions of the Civil Code on
human conduct.
Even on the premise that such right of first refusal has been decreed under a final
judgment, like here, its breach cannot justify correspondingly an issuance of a
writ of execution under a judgment that merely recognizes its existence, nor
would it sanction an action for specific performance without thereby negating
the indispensable element of consensuality in the perfection of contracts.11 It is
not to say, however, that the right of first refusal would be inconsequential for,
such as already intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 1912 of the Civil Code, can WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the
warrant a recovery for damages. questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a
quo. Costs against petitioners.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely
accorded a "right of first refusal" in favor of petitioners. The consequence of such SO ORDERED.
a declaration entails no more than what has heretofore been said. In fine, if, as it
is here so conveyed to us, petitioners are aggrieved by the failure of private
respondents to honor the right of first refusal, the remedy is not a writ of
execution on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.
G.R. No. 73345. April 7, 1993.
Furthermore, whether private respondent Buen Realty Development
Corporation, the alleged purchaser of the property, has acted in good faith or bad SOCIAL SECURITY SYSTEM, petitioner,
faith and whether or not it should, in any case, be considered bound to respect vs.
the registration of the lis pendens in Civil Case No. 87-41058 are matters that MOONWALK DEVELOPMENT & HOUSING CORPORATION, ROSITA U. ALBERTO,
must be independently addressed in appropriate proceedings. Buen Realty, not ROSITA U. ALBERTO, JMA HOUSE, INC., MILAGROS SANCHEZ SANTIAGO, in her
having been impleaded in Civil Case No. 87-41058, cannot be held subject to the capacity as Register of Deeds for the Province of Cavite, ARTURO SOLITO, in his
writ of execution issued by respondent Judge, let alone ousted from the capacity as Register of Deeds for Metro Manila District IV, Makati, Metro Manila
ownership and possession of the property, without first being duly afforded its and the INTERMEDIATE APPELLATE COURT, respondents.
day in court.
The Solicitor General for petitioner.
We are also unable to agree with petitioners that the Court of Appeals has erred K.V. Faylona & Associates for private respondents.
in holding that the writ of execution varies the terms of the judgment in Civil Case
No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this DECISION
regard, has observed:
CAMPOS, JR., J p:
Finally, the questioned writ of execution is in variance with the
decision of the trial court as modified by this Court. As already
Before Us is a petition for review on certiorari of decision 1 of the then
stated, there was nothing in said decision 13 that decreed the
Intermediate Appellate Court affirming in toto the decision of the former Court
execution of a deed of sale between the Cu Unjiengs and
of First Instance of Rizal, Seventh Judicial District, Branch XXIX, Pasay City.
respondent lessees, or the fixing of the price of the sale, or the
cancellation of title in the name of petitioner (Limpin vs. IAC,
The facts as found by the Appellate Court are as follows:
147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143
SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122
SCRA 885). "On February 20, 1980, the Social Security System, SSS for brevity, filed a
complaint in the Court of First Instance of Rizal against Moonwalk Development
& Housing Corporation, Moonwalk for short, alleging that the former had
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could
committed an error in failing to compute the 12% interest due on delayed
not have decreed at the time the execution of any deed of sale between the Cu
payments on the loan of Moonwalk — resulting in a chain of errors in the
Unjiengs and petitioners.
application of payments made by Moonwalk and, in an unpaid balance on the
principal loan agreement in the amount of P7,053.77 and, also in not reflecting
in its statement or account an unpaid balance on the said penalties for delayed
payments in the amount of P7,517,178.21 as of October 10, 1979.
Moonwalk answered denying SSS' claims and asserting that SSS had the
opportunity to ascertain the truth but failed to do so.
The trial court set the case for pre-trial at which pre-trial conference, the court
issued an order giving both parties thirty (30) days within which to submit a
stipulation of facts.
The Order of October 6, 1980 dismissing the complaint followed the submission
by the parties on September 19, 1980 of the following stipulation of Facts:
"1. On October 6, 1971, plaintiff approved the application of defendant
Moonwalk for an interim loan in the amount of THIRTY MILLION PESOS
(P30,000,000.00) for the purpose of developing and constructing a housing
project in the provinces of Rizal and Cavite;
"2. Out of the approved loan of THIRTY MILLION PESOS (P30,000,000.00), the
sum of P9,595,000.00 was released to defendant Moonwalk as of November 28,
1973;
"3. A third Amended Deed of First Mortgage was executed on December 18, 1973
Annex `D' providing for restructuring of the payment of the released amount of
P9,595,000.00.
"4. Defendants Rosita U. Alberto and Rosita U. Alberto, mother and daughter
respectively, under paragraph 5 of the aforesaid Third Amended Deed of First
Mortgage substituted Associated Construction and Surveys Corporation,
Philippine Model Homes Development Corporation, Mariano Z. Velarde and
Eusebio T. Ramos, as solidary obligors;
"5. On July 23, 1974, after considering additional releases in the amount of
P2,659,700.00, made to defendant Moonwalk, defendant Moonwalk delivered
to the plaintiff a promissory note for TWELVE MILLION TWO HUNDRED FIFTY
FOUR THOUSAND SEVEN HUNDRED PESOS (P12,254,700.00) Annex `E', signed by
Eusebio T. Ramos, and the said Rosita U. Alberto and Rosita U. Alberto;
"6. Moonwalk made a total payment of P23,657,901.84 to SSS for the loan
principal of P12,254,700.00 released to it. The last payment made by Moonwalk
in the amount of P15,004,905.74 were based on the Statement of Account,
Annex "F" prepared by plaintiff SSS for defendant;
"7. After settlement of the account stated in Annex 'F' plaintiff issued to
defendant Moonwalk the Release of Mortgage for Moonwalk's mortgaged
properties in Cavite and Rizal, Annexes 'G' and 'H' on October 9, 1979 and
October 11, 1979 respectively.
"8. In letters to defendant Moonwalk, dated November 28, 1979 and followed up
by another letter dated December 17, 1979, plaintiff alleged that it committed
an honest mistake in releasing defendant.
"9. In a letter dated December 21, 1979, defendant's counsel told plaintiff that it
had completely paid its obligations to SSS;
"10. The genuineness and due execution of the documents marked as Annex (sic)
'A' to 'O' inclusive, of the Complaint and the letter dated December 21, 1979 of
the defendant's counsel to the plaintiff are admitted.
"Manila for Pasay City, September 2, 1980." 2
On October 6, 1990, the trial court issued an order dismissing the complaint on
the ground that the obligation was already extinguished by the payment by
Moonwalk of its indebtedness to SSS and by the latter's act of cancelling the real
estate mortgages executed in its favor by defendant Moonwalk. The Motion for
Reconsideration filed by SSS with the trial court was likewise dismissed by the
latter.
These orders were appealed to the Intermediate Appellate Court. Respondent
Court reduced the errors assigned by the SSS into this issue: ". . . are defendants-
appellees, namely, Moonwalk Development and Housing Corporation, Rosita U.
Alberto, Rosita U. Alberto, JMA House, Inc. still liable for the unpaid penalties as
claimed by plaintiff-appellant or is their obligation extinguished?" 3 As We have
stated earlier, the respondent Court held that Moonwalk's obligation was
extinguished and affirmed the trial court.
Hence, this Petition wherein SSS raises the following grounds for review:
"First, in concluding that the penalties due from Moonwalk are "deemed waived
and/or barred," the appellate court disregarded the basic tenet that waiver of a
right must be express, made in a clear and unequivocal manner. There is no
evidence in the case at bar to show that SSS made a clear, positive waiver of the
penalties, made with full knowledge of the circumstances.
Second, it misconstrued the ruling that SSS funds are trust funds, and SSS, being
a mere trustee, cannot perform acts affecting the same, including condonation
of penalties, that would diminish property rights of the owners and beneficiaries
thereof. (United Christian Missionary Society v. Social Security Commission, 30
SCRA 982, 988 [1969]).
Third, it ignored the fact that penalty at the rate of 12% p.a. is not inequitable.
Fourth, it ignored the principle that equity will cancel a release on the ground of
mistake of fact." 4
The same problem which confronted the respondent court is presented before
Us: Is the penalty demandable even after the extinguishment of the principal
obligation?
The former Intermediate Appellate Court, through Justice Eduard P. Caguioa,
held in the negative. It reasoned, thus:
"2. As we have explained under No. 1, contrary to what the plaintiff-appellant
states in its Brief, what is sought to be recovered in this case is not the 12%
interest on the loan but the 12% penalty for failure to pay on time the
amortization. What is sought to be enforced therefore is the penal clause of the
contract entered into between the parties.
Now, what is a penal clause. A penal clause has been defined as
"an accessory obligation which the parties attach to a principal obligation for the
purpose of insuring the performance thereof by imposing on the debtor a special
presentation (generally consisting in the payment of a sum of money) in case the
obligation is not fulfilled or is irregularly or inadequately fulfilled" (3 Castan 8th
Ed. p. 118).
Now an accessory obligation has been defined as that attached to a principal
obligation in order to complete the same or take its place in the case of breach
(4 Puig Peña Part 1 p. 76). Note therefore that an accessory obligation is
dependent for its existence on the existence of a principal obligation. A principal
obligation may exist without an accessory obligation but an accessory obligation
cannot exist without a principal obligation. For example, the contract of
mortgage is an accessory obligation to enforce the performance of the main
obligation of indebtedness. An indebtedness can exist without the mortgage but
a mortgage cannot exist without the indebtedness, which is the principal
obligation. In the present case, the principal obligation is the loan between the
parties. The accessory obligation of a penal clause is to enforce the main
obligation of payment of the loan. If therefore the principal obligation does not
exist the penalty being accessory cannot exist.
Now then when is the penalty demandable? A penalty is demandable in case of
non performance or late performance of the main obligation. In other words in
order that the penalty may arise there must be a breach of the obligation either
by total or partial non fulfillment or there is non fulfillment in point of time which
is called mora or delay. The debtor therefore violates the obligation in point of
time if there is mora or delay. Now, there is no mora or delay unless there is a
demand. It is noteworthy that in the present case during all the period when the
principal obligation was still subsisting, although there were late amortizations
there was no demand made by the creditor, plaintiff-appellant for the payment
of the penalty. Therefore up to the time of the letter of plaintiff-appellant there
was no demand for the payment of the penalty, hence the debtor was no in mora
in the payment of the penalty.
However, on October 1, 1979, plaintiff-appellant issued its statement of account
(Exhibit F) showing the total obligation of Moonwalk as P15,004,905.74, and
forthwith demanded payment from defendant-appellee. Because of the demand
for payment, Moonwalk made several payments on September 29, October 9
and 19, 1979 respectively, all in all totalling P15,004,905.74 which was a
complete payment of its obligation as stated in Exhibit F. Because of this payment
the obligation of Moonwalk was considered extinguished, and pursuant to said
extinguishment, the real estate mortgages given by Moonwalk were released on
October 9, 1979 and October 10, 1979 (Exhibits G and H). For all purposes
therefore the principal obligation of defendant-appellee was deemed
extinguished as well as the accessory obligation of real estate mortgage; and that
is the reason for the release of all the Real Estate Mortgages on October 9 and
10, 1979 respectively.
Now, besides the Real Estate Mortgages, the penal clause which is also an
accessory obligation must also be deemed extinguished considering that the
principal obligation was considered extinguished, and the penal clause being an
accessory obligation. That being the case, the demand for payment of the penal
clause made by plaintiff-appellant in its demand letter dated November 28, 1979
and its follow up letter dated December 17, 1979 (which parenthetically are the
only demands for payment of the penalties) are therefore ineffective as there
was nothing to demand. It would be otherwise, if the demand for the payment
of the penalty was made prior to the extinguishment of the obligation because
then the obligation of Moonwalk would consist of: 1) the principal obligation 2)
the interest of 12% on the principal obligation and 3) the penalty of 12% for late
payment for after demand, Moonwalk would be in mora and therefore liable for
the penalty.
Let it be emphasized that at the time of the demand made in the letters of
November 28, 1979 and December 17, 1979 as far as the penalty is concerned,
the defendant-appellee was not in default since there was no mora prior to the
demand. That being the case, therefore, the demand made after the
extinguishment of the principal obligation which carried with it the
extinguishment of the penal clause being merely an accessory obligation, was an
exercise in futility.
3. At the time of the payment made of the full obligation on October 10, 1979
together with the 12% interest by defendant-appellee Moonwalk, its obligation
was extinguished. It being extinguished, there was no more need for the penal
clause. Now, it is to be noted that penalty at anytime can be modified by the
Court. Even substantial performance under Art. 1234 authorizes the Court to
consider it as complete performance minus damages. Now, Art, 1229 Civil Code
of the Philippines provides:
"ART. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the courts
if it is iniquitous or unconscionable."
If the penalty can be reduced after the principal obligation has been partly or
irregularly complied with by the debtor, which is nonetheless a breach of the
obligation, with more reason the penal clause is not demandable when full
obligation has been complied with since in that case there is no breach of the
obligation. In the present case, there has been as yet no demand for payment of
the penalty at the time of the extinguishment of the obligation, hence there was
likewise an extinguishment of the penalty.
Let Us emphasize that the obligation of defendant-appellee was fully complied
with by the debtor, that is, the amount loaned together with the 12% interest
has been fully paid by the appellee. That being so, there is no basis for demanding
the penal clause since the obligation has been extinguished. Here there has been
a waiver of the penal clause as it was not demanded before the full obligation
was fully paid and extinguished. Again, emphasis must be made on the fact that
plaintiff-appellant has not lost anything under the contract since in got back in
full the amount loan (sic) as well as the interest thereof. The same thing would
have happened if the obligation was paid on time, for then the penal clause,
under the terms of the contract would not apply. Payment of the penalty does
not mean gain or loss of plaintiff-appellant since it is merely for the purpose of
enforcing the performance of the main obligation has been fully complied with
and extinguished, the penal clause has lost its raison d' entre." 5
We find no reason to depart from the appellate court's decision. We, however,
advance the following reasons for the denial of this petition.
Article 1226 of the Civil Code provides:
"Art. 1226. In obligations with a penal clause, he penalty shall substitute the
indemnity for damages and the payment of interests in case of noncompliance,
if there is no stipulation to the contrary. Nevertheless, damages shall be paid if
the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation.
The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code." (Emphasis Ours.)
A penal clause is an accessory undertaking to assume greater liability in case of
breach. 6 It has a double function: (1) to provide for liquidated damages, and (2)
to strengthen the coercive force of the obligation by the threat of greater
responsibility in the event of breach. 7 From the foregoing, it is clear that a penal
clause is intended to prevent the obligor from defaulting in the performance of
his obligation. Thus, if there should be default, the penalty may be enforced. One
commentator of the Civil Code wrote:
"Now when is the penalty deemed demandable in accordance with the
provisions of the Civil Code? We must make a distinction between a positive and
a negative obligation. With regard to obligations which are positive (to give and
to do), the penalty is demandable when the debtor is in mora; hence, the
necessity of demand by the debtor unless the same is excused . . ." 8
When does delay arise? Under the Civil Code, delay begins from the time the
obligee judicially or extrajudicially demands from the obligor the performance of
the obligation.
"Art. 1169. Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the fulfillment
of their obligation."
There are only three instances when demand is not necessary to render the
obligor in default. These are the following:
"(1) When the obligation or the law expressly so declares;
(2) When from the nature and the circumstances of the obligation it appears that
the designation of the time when the thing is to be delivered or the service is to
be rendered was a controlling motive for the establishment of the contract; or
(3) When the demand would be useless, as when the obligor has rendered it
beyond his power to perform." 9
This case does not fall within any of the established exceptions. Hence, despite
the provision in the promissory note that "(a)ll amortization payments shall be
made every first five (5) days of the calendar month until the principal and
interest on the loan or any portion thereof actually released has been fully paid,"
10 petitioner is not excused from making a demand. It has been established that
at the time of payment of the full obligation, private respondent Moonwalk has
long been delinquent in meeting its monthly arrears and in paying the full
amount of the loan itself as the obligation matured sometime in January, 1977.
But mere delinquency in payment does not necessarily mean delay in the legal
concept. To be in default ". . . is different from mere delay in the grammatical
sense, because it involves the beginning of a special condition or status which has
its own peculiar effects or results." 11 In order that the debtor may be in default
it is necessary that the following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays performance; and
(3) that the creditor requires the performance judicially and extrajudicially. 12
Default generally begins from the moment the creditor demands the
performance of the obligation. 13
Nowhere in this case did it appear that SSS demanded from Moonwalk the
payment of its monthly amortizations. Neither did it show that petitioner
demanded the payment of the stipulated penalty upon the failure of Moonwalk
to meet its monthly amortization. What the complaint itself showed was that SSS
tried to enforce the obligation sometime in September, 1977 by foreclosing the
real estate mortgages executed by Moonwalk in favor of SSS. But this foreclosure
did not push through upon Moonwalk's requests and promises to pay in full. The
next demand for payment happened on October 1, 1979 when SSS issued a
Statement of Account to Moonwalk. And in accordance with said statement,
Moonwalk paid its loan in full. What is clear, therefore, is that Moonwalk was
never in default because SSS never compelled performance. Though it tried to
foreclose the mortgages, SSS itself desisted from doing so upon the entreaties of
Moonwalk. If the Statement of Account could properly be considered as demand
for payment, the demand was complied with on time. Hence, no delay occurred
and there was, therefore, no occasion when the penalty became demandable
and enforceable. Since there was no default in the performance of the main
obligation — payment of the loan — SSS was never entitled to recover any
penalty, not at the time it made the Statement of Account and certainly, not after
the extinguishment of the principal obligation because then, all the more that
SSS had no reason to ask for the penalties. Thus, there could never be any
occasion for waiver or even mistake in the application for payment because there
was nothing for SSS to waive as its right to enforce the penalty did not arise.
SSS, however, in buttressing its claim that it never waived the penalties, argued
that the funds it held were trust funds and as trustee, the petitioner could not
perform acts affecting the funds that would diminish property rights of the
owners and beneficiaries thereof. To support its claim, SSS cited the case of
United Christian Missionary Society v. Social Security Commission. 14
We looked into the case and found out that it is not applicable to the present
case as it dealt not with the right of the SSS to collect penalties which were
provided for in contracts which it entered into but with its right to collect
premiums and its duty to collect the penalty for delayed payment or non-
payment of premiums. The Supreme Court, in that case, stated:
"No discretion or alternative is granted respondent Commission in the
enforcement of the law's mandate that the employer who fails to comply with
his legal obligation to remit the premiums to the System within the prescribed
period shall pay a penalty of three (3%) per month. The prescribed penalty is
evidently of a punitive character, provided by the legislature to assure that
employers do not take lightly the State's exercise of the police power in the
implementation of the Republic's declared policy "to develop, establish gradually
and perfect a social security system which shall be suitable to the needs of the
people throughout the Philippines and (to) provide protection to employers
against the hazards of disability, sickness, old age and death . . ."
Thus, We agree with the decision of the respondent court on the matter which
We quote, to wit:
"Note that the above case refers to the condonation of the penalty for the non
remittance of the premium which is provided for by Section 22(a) of the Social
Security Act . . . In other words, what was sought to be condoned was the penalty
provided for by law for non remittance of premium for coverage under the Social
Security Act.

The case at bar does not refer to any penalty provided for by law nor does it refer G.R. No. L-48889 May 11, 1989
to the non remittance of premium. The case at bar refers to a contract of loan
entered into between plaintiff and defendant Moonwalk Development and DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner,
Housing Corporation. Note, therefore, that no provision of law is involved in this vs.
case, nor is there any penalty imposed by law nor a case about non-remittance THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch of the Court
of premium required by law. The present case refers to a contract of loan payable of First Instance of Iloilo and SPOUSES PATRICIO CONFESOR and JOVITA
in installments not provided for by law but by agreement of the parties. VILLAFUERTE, respondents.
Therefore, the ratio decidendi of the case of United Christian Missionary Society
vs. Social Security Commission which plaintiff-appellant relies is not applicable in
this case; clearly, the Social Security Commission, which is a creature of the Social
Security Act cannot condone a mandatory provision of law providing for the
GANCAYCO, J.:
payment of premiums and for penalties for non remittance. The life of the Social
Security Act is in the premiums because these are the funds from which the Social
The issue posed in this petition for review on certiorari is the validity of a
Security Act gets the money for its purposes and the non-remittance of the
promissory note which was executed in consideration of a previous promissory
premiums is penalized not by the Social Security Commission but by law.
note the enforcement of which had been barred by prescription.
xxx xxx xxx
On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained
an agricultural loan from the Agricultural and Industrial Bank (AIB), now the
It is admitted that when a government created corporation enters into a contract
Development of the Philippines (DBP), in the sum of P2,000.00, Philippine
with private party concerning a loan, it descends to the level of a private person.
Currency, as evidenced by a promissory note of said date whereby they bound
Hence, the rules on contract applicable to private parties are applicable to it. The
themselves jointly and severally to pay the account in ten (10) equal yearly
argument therefore that the Social Security Commission cannot waive or
amortizations. As the obligation remained outstanding and unpaid even after the
condone the penalties which was applied in the United Christian Missionary
lapse of the aforesaid ten-year period, Confesor, who was by then a member of
Society cannot apply in this case. First, because what was not paid were
the Congress of the Philippines, executed a second promissory note on April 11,
installments on a loan but premiums required by law to be paid by the parties
1961 expressly acknowledging said loan and promising to pay the same on or
covered by the Social Security Act. Secondly, what is sought to be condoned or
before June 15, 1961. The new promissory note reads as follows —
waived are penalties not imposed by law for failure to remit premiums required
by law, but a penalty for non payment provided for by the agreement of the
I hereby promise to pay the amount covered by my promissory
parties in the contract between them . . ." 15
note on or before June 15, 1961. Upon my failure to do so, I
hereby agree to the foreclosure of my mortgage. It is
WHEREFORE, in view of the foregoing, the petition is DISMISSED and the decision
understood that if I can secure a certificate of indebtedness
of the respondent court is AFFIRMED. LLpr
from the government of my back pay I will be allowed to pay the
amount out of it.
SO ORDERED.
Said spouses not having paid the obligation on the specified date, the DBP filed a
complaint dated September 11, 1970 in the City Court of Iloilo City against the
spouses for the payment of the loan.
After trial on the merits a decision was rendered by the inferior court on
December 27, 1976, the dispositive part of which reads as follows:
WHEREFORE, premises considered, this Court renders
judgment, ordering the defendants Patricio Confesor and Jovita
Villafuerte Confesor to pay the plaintiff Development Bank of
the Philippines, jointly and severally, (a) the sum of P5,760.96
plus additional daily interest of P l.04 from September 17, 1970,
the date Complaint was filed, until said amount is paid; (b) the
sum of P576.00 equivalent to ten (10%) of the total claim by way
of attorney's fees and incidental expenses plus interest at the
legal rate as of September 17,1970, until fully paid; and (c) the
costs of the suit.
Defendants-spouses appealed therefrom to the Court of First Instance of Iloilo
wherein in due course a decision was rendered on April 28, 1978 reversing the
appealed decision and dismissing the complaint and counter-claim with costs
against the plaintiff.
A motion for reconsideration of said decision filed by plaintiff was denied in an
order of August 10, 1978. Hence this petition wherein petitioner alleges that the
decision of respondent judge is contrary to law and runs counter to decisions of
this Court when respondent judge (a) refused to recognize the law that the right
to prescription may be renounced or waived; and (b) that in signing the second
promissory note respondent Patricio Confesor can bind the conjugal partnership;
or otherwise said respondent became liable in his personal capacity. The petition
is impressed with merit. The right to prescription may be waived or renounced.
Article 1112 of Civil Code provides:
Art. 1112. Persons with capacity to alienate property may
renounce prescription already obtained, but not the right to
prescribe in the future.
Prescription is deemed to have been tacitly renounced when
the renunciation results from acts which imply the
abandonment of the right acquired.
There is no doubt that prescription has set in as to the first promissory note of
February 10, 1940. However, when respondent Confesor executed the second
promissory note on April 11, 1961 whereby he promised to pay the amount
covered by the previous promissory note on or before June 15, 1961, and upon
failure to do so, agreed to the foreclosure of the mortgage, said respondent
thereby effectively and expressly renounced and waived his right to the
prescription of the action covering the first promissory note.
This Court had ruled in a similar case that –
... when a debt is already barred by prescription, it cannot be
enforced by the creditor. But a new contract recognizing and
assuming the prescribed debt would be valid and enforceable ...
.1
Thus, it has been held —
Where, therefore, a party acknowledges the correctness of a
debt and promises to pay it after the same has prescribed and
with full knowledge of the prescription he thereby waives the
benefit of prescription. 2
This is not a mere case of acknowledgment of a debt that has prescribed but a
new promise to pay the debt. The consideration of the new promissory note is
the pre-existing obligation under the first promissory note. The statutory
limitation bars the remedy but does not discharge the debt.
A new express promise to pay a debt barred ... will take the case
from the operation of the statute of limitations as this proceeds
upon the ground that as a statutory limitation merely bars the
remedy and does not discharge the debt, there is something
more than a mere moral obligation to support a promise, to wit
a – pre-existing debt which is a sufficient consideration for the
new the new promise; upon this sufficient consideration
constitutes, in fact, a new cause of action. 3
... It is this new promise, either made in express terms or
deduced from an acknowledgement as a legal implication,
which is to be regarded as reanimating the old promise, or as
imparting vitality to the remedy (which by lapse of time had
 become extinct) and thus enabling the creditor to recover upon
his original contract. 4
However, the court a quo held that in signing the promissory note alone,
respondent Confesor cannot thereby bind his wife, respondent Jovita Villafuerte,
citing Article 166 of the New Civil Code which provides:
Art. 166. Unless the wife has been declared a non compos
mentis or a spend thrift, or is under civil interdiction or is
confined in a leprosarium, the husband cannot alienate or
encumber any real property of the conjugal partnership
without, the wife's consent. If she ay compel her to refuses
unreasonably to give her consent, the court m grant the same.
We disagree. Under Article 165 of the Civil Code, the husband is the administrator
of the conjugal partnership. As such administrator, all debts and obligations
contracted by the husband for the benefit of the conjugal partnership, are
chargeable to the conjugal partnership. 5 No doubt, in this case, respondent
Confesor signed the second promissory note for the benefit of the conjugal
partnership. Hence the conjugal partnership is liable for this obligation.
WHEREFORE, the decision subject of the petition is reversed and set aside and
another decision is hereby rendered reinstating the decision of the City Court of
Iloilo City of December 27, 1976, without pronouncement as to costs in this
instance. This decision is immediately executory and no motion for extension of
time to file motion for reconsideration shall be granted.
SO ORDERED.
G.R. No. 133347 October 15, 2008
ABS-CBN BROADCASTING CORPORATION, EUGENIO LOPEZ, JR., AUGUSTO
ALMEDA-LOPEZ, and OSCAR M. LOPEZ, petitioners,
vs.
OFFICE OF THE OMBUDSMAN, ROBERTO S. BENEDICTO,* EXEQUIEL B. GARCIA,
MIGUEL V. GONZALES, and SALVADOR (BUDDY) TAN,* respondent.
DECISION
NACHURA, J.:
At bar is a petition for certiorari under Rule 65 of the Rules of Court challenging
the Joint Resolution1 dated May 2, 1997 of then Ombudsman Aniano Desierto in
OMB-0-94-1109, dismissing the complaint filed by petitioners against private
respondents, and the Order2 denying their motion for reconsideration.
This case stems from an all too familiar chapter in Philippine history, i.e., the
declaration of martial law by then President Ferdinand Marcos and the
simultaneous sequestration of not a few private corporations, including one of
the petitioners herein, ABS-CBN Broadcasting Corporation (ABS-CBN).
On April 18 and 26, 1994, petitioners Eugenio, Jr., Oscar and Augusto Almeda, all
surnamed Lopez, as officers and on behalf of ABS-CBN, executed separate
complaint-affidavits charging private respondents Roberto S. Benedicto, Exequiel
B. Garcia, Miguel V. Gonzalez, and Salvador (Buddy) Tan with the following crimes
penalized under the Revised Penal Code (RPC): (a) Article 298 - Execution of
Deeds by Means of Violence or Intimidation; (b) Article 315 paragraphs 1[b], 2[a],
3[a] - Estafa; (c) Article 308 - Theft; (d) Article 302 - Robbery; (e) Article 312 -
Occupation of Real Property or Usurpation of Real Rights in Property; and (f)
Article 318 - Other Deceits.
Individual petitioners' complaint-affidavits3 uniformly narrated the following
facts:
1. The day after the declaration of martial law, or on September 22, 1972, just
before midnight, military troops arrived at the ABS-CBN Broadcast Center in
Bohol Avenue, Quezon City, and informed the officers and personnel thereat of
the seizure and closure of the premises by virtue of Letter of Instruction (LOI) No.
1 issued by President Marcos ordering the closure of all radio and television
stations in the country.
2. LOI No. 1 authorized the Secretary of National Defense to "take over or control,
or cause the taking over and control of all x x x newspapers, magazines, radio and
television facilities and all other media of communications" throughout the
country. Consequently, a total of seven (7) television stations owned and
operated by ABS-CBN were closed down by the government.4
3. When it became apparent that petitioners would not be granted a permit to
re-open, ABS-CBN on October 31, 1972, terminated the services of all its
employees, giving each employee his/her retirement benefits. Corollary thereto,
sometime in November 1972, Eugenio Lopez, Jr., then president of ABS-CBN,
wrote then Secretary of National Defense, Juan Ponce Enrile,5 of their desire to
sell ABS-CBN to the government. In that same month, however, Eugenio Lopez,
Jr. was arrested by the military, and detained at Fort Bonifacio for almost five (5)
years until his escape therefrom on September 30, 1977.
4. Subsequently, after the proposal to sell ABS-CBN to the Marcos government
did not materialize, ABS-CBN started negotiations with then Governor of Leyte,
Benjamin "Kokoy" Romualdez, who expressed his desire and intention to acquire
the former. However, the negotiations with Kokoy Romualdez in 1973 likewise
did not result in the sale and re-opening of ABS-CBN.
5. On June 6, 1973, the television and radio stations of Kanlaon Broadcasting
System (KBS) on Roxas Boulevard, Pasay City were consumed by fire. KBS was the
umbrella corporation of the Benedicto Group of broadcasting companies,
including Radio Philippines Network (RPN),6 which operated TV Channel 9, the
only television station allowed to continue operating during the early years of the
martial law regime. Respondent Benedicto, then Philippine Ambassador to
Japan, managed, controlled, and was one of the principal stockholders of RPN.
6. On even date, both Benedicto and Alfredo Montelibano, who at that time was
Chairperson of the Board of Directors (BOD) of ABS-CBN, were in Bacolod.
Benedicto constituted Montelibano as his emissary to the Lopezes, relaying his
plan to temporarily use ABS-CBN's broadcast studios in Quezon City, from which
to operate TV Channel 9, for such period of time as may be necessary to rebuild
KBS' burned studios.
7. On June 8, 1973, Montelibano met with other officers and executives of ABS-
CBN, including herein petitioners Oscar and Augusto Lopez, informing them of
Benedicto's request. Oscar and Augusto, and the rest of the ABS-CBN
management team, strongly opposed the request. Eventually, however, when
Montelibano mentioned that Malacañang and Romualdez had cleared said
request, the possibility of a government-ordered confiscation of ABS-CBN, and
not least of all, the possible release of Eugenio Lopez, Jr., petitioners Oscar and
Augusto, as with the rest of ABS-CBN's executives, acquiesced to Benedicto's
request.
8. Thus, at noontime on the same day, representatives of KBS headed by Jose
Montalvo arrived at the Meralco Building to finalize the proposed arrangement
with ABS-CBN. The transaction between ABS-CBN and KBS is evidenced by a
letter-agreement dated June 8, 1973, which reads in relevant part:
This is to confirm the agreement arrived at between RPN and ABS-CBN
to the following effect:
1. Commencing on the date hereof, ABS-CBN hereby conveys to RPN by
way of lease its TV and radio equipment (excluding TV channels and
radio frequencies) and its premises at the ABS-CBN Broadcast Center,
Bohol Avenue, Quezon City (collectively called the "leased facilities")
listed in the schedule attached hereto and marked as Annex "A".
2. RPN shall pay ABS-CBN monthly rental as is reasonable compensation
for the use of the leased facilities. The amount of the rental shall be
determined after a discussion with Ambassador Roberto Benedicto.
3. The term of this lease shall commence on the date hereof and
continue for such reasonable time as may be normally necessary for the
rehabilitation of RPN's facilities unless an earlier period may be fixed by
RPN and ABS-CBN after discussion with Ambassador Benedicto.
4. RPN hereby assumes full and complete responsibility for the leased
facilities and shall be answerable for any and all losses and damages to
such facilities.
xxxx
6. Upon termination of this lease, RPN shall return the possession of the
leased facilities to ABS-CBN and vacate the same without the need of
notice or demand.
7. ABS-CBN, through its Chairman, Mr. Alfredo Montelibano, shall have
the right to select and designate the personnel (not to exceed 20 at any
one time) to maintain and operate all specialized TV and radio
equipment.
 xxxx
10. ABS-CBN shall have the right to enter the Broadcast Center at any
reasonable time during the term of this lease for the purpose of
determining compliance by RPN of the terms hereof.
xxxx
12. RPN shall not, without the prior written consent of ABS-CBN, sub-
lease the leased facilities or any part thereof nor shall any part be
removed from the premises except the equipment, which are intended
for operation the Broadcast Center in due course of operations.
9. Meanwhile, it appears that the parties were hard pressed to negotiate and fix
the monthly rental rate. Several attempts by Oscar to set up a meeting with
Benedicto for the fixing of the monthly rentals proved unsuccessful.
10. After more than four months of trying, a meeting between Oscar and
Benedicto finally materialized on October 31, 1973. At that meeting, the
discussion not only covered fixing of reasonable rentals for the lease of the ABS-
CBN studios, but likewise included the possibility of an outright sale.
11. Thereafter, the discussions and negotiations stopped as none of the
petitioners were able to meet anew with Benedicto who had supposedly referred
the matter to "people above" and the "man on top."
12. Frustrated, then Senator Lorenzo Tañada, as counsel for ABS-CBN, in May
1976, wrote Benedicto demanding vacation of the ABS-CBN Broadcast Center
and payment of back rentals for the use of the ABS-CBN studios and facilities.
13. In response, Senator Estanislao Fernandez, on behalf of Benedicto, met with
Senator Tañada in June 1976. Another meeting took place between the parties'
respective counsels which included respondent Gonzales, another counsel for
Benedicto. Despite these meetings, no agreement was reached between
Benedicto and ABS-CBN. On the whole, from June 8, 1973, the time KBS occupied
the ABS-CBN studios in Quezon City, no rental was paid by the former to the
latter.
14. In the years following until the Marcos government was toppled in 1986, the
ABS-CBN stations were transferred to the National Media Production Center
(NMPC) headed by Gregorio Cendaña of the Ministry of Information. Starting in
January 1980, KBS, on a staggered basis, transferred possession, control and
management of ABS-CBN's provincial television stations to NMPC. Some of the
radio stations of ABS-CBN were turned over to the government's Bureau of
Broadcast, while some were retained by KBS thru the Banahaw Broadcasting
Corporation (BBC) and Radio Philippines Network (RPN).
15. Parenthetically, during a military inventory in 1979-1980, and a visit by ABS-
CBN executives at ABS-CBN's radio transmitting stations in Meycauayan, Bulacan,
headed by petitioner Augusto, on August 13, 1984, ABS-CBN properties and
massive equipment were found to be missing. In addition, the musical records
and radio dramas accumulated by ABS-CBN in a span of twenty-five (25) years
and stored in its library were now gone.
16. In June 1986, President Corazon Aquino, acting on the request of ABS-CBN
through Senator Tañada, returned to ABS-CBN these radio and TV stations on a
gradual and scheduled basis.
As required by the Ombudsman, the respondents, except for Garcia, filed their
respective counter-affidavits,7 with Benedicto adopting that of Gonzales',
denying petitioners' charges, and averring that:
1. The execution of the June 8, 1973 letter-agreement was a free and voluntary
act of ABS-CBN which agreed thereto fully expecting remuneration in the form of
rentals, thus:
2. RPN shall pay ABS-CBN monthly rental as is reasonable compensation
for the use of the lease facilities. The amount of the rental shall be
determined after a discussion with Ambassador Roberto Benedicto.
2. In that regard, respondent Gonzales, counsel for KBS, RPN and Benedicto,
participated in the negotiations and was present at three (3) meetings for the
fixing of rentals. Also in attendance were former Senator Estanislao Fernandez,
specially engaged to represent RPN and Benedicto, and Senator Tañada and
petitioner Augusto for ABS-CBN.
3. Initially, the discussions centered on the possible formulas for the fixing of
rentals. Later on, however, before an agreement on the rental rate could be
reached, the discussions shifted to the possibility of an outright sale. The
discussions on the sale were expanded as various creditors of ABS-CBN had made
and presented claims before respondent Garcia, then Comptroller of KBS-RPN.
4. However, the discussions were discontinued when then Secretary of National
Defense Juan Ponce Enrile reminded KBS of the sequestered status of ABS-CBN
facilities such that arrangements undertaken for the use and lease thereof should
be taken up with the government.8
5. Meanwhile, in July 1974, Secretary Ponce Enrile authorized KBS, acting on
behalf of BBC, to make use of the ABS-CBN provincial stations which were not
covered by the June 8, 1973 letter-agreement. The authorization was granted in
connection with the increased undertakings assigned by the Department of
National Defense (DND) to KBS, specifically, for the government's mass-media
developmental peace and order nationwide campaign.
7. Thereafter, in October 1977, RPN vacated the ABS-CBN studios and turned
over the properties to George Viduya, the general manager of the government
station GTV-4. Viduya continued operations of GTV-4 at the ABS-CBN properties,
after which, the properties were all delivered in 1979 to the NMPC headed by
Cendaña. The provincial stations were delivered and turned over on a staggered
basis, with the DZRI station in Dagupan handed over in 1979. The successive
transfer of all ABS-CBN studios and stations, in Quezon City and the provinces,
were covered by receipts which were collated by the law firm of respondent
Gonzales retained by KBS for that purpose.
8. The use of the ABS-CBN studios involved only three (3) juridical entities, RPN,
ABS-CBN and the government. The charges leveled by petitioners in their
complaint-affidavits merely point to civil liability as specified in the letter-
agreement itself:
4. RPN hereby assumes full and complete responsibility for the leased
facilities and shall be answerable for any and all losses and damages to
such facilities.
On the whole, the allegations of petitioners do not support the elements of the
crimes charged.
9. Lastly, respondents invoke the grant of absolute immunity to Benedicto as part
of the Compromise Agreement in Sandiganbayan Civil Case No. 34 which states:
The Government hereby extends absolute immunity, as authorized
under the pertinent provisions of Executive Orders Nos. 1, 2, 14 and 14-
A, to Benedicto, the members of his family, officers and employees of
the corporations above mentioned, who are included in past, present
and future cases and investigations of the Philippine Government, such
that there shall be no criminal investigation or prosecution against said
persons for acts, omissions committed prior to February 25, 1986 that
may be alleged to have violated any penal law, including but not limited
to Republic Act No. 3019, in relation to the acquisition of any asset
treated, mentioned or included in this Agreement.
Expectedly, the petitioners in their joint reply-affidavit refuted respondents'
counter-affidavits. Contrary to respondents' allegations, petitioners reiterated
Benedicto's over-all ploy, in conspiracy with the other respondents who were
officers of KBS and/or RPN, to use and occupy ABS-CBN properties without paying
compensation therefor. Petitioners maintain that respondents' grand scheme
was to take-over ABS-CBN, albeit ostensibly covered by the letter-lease
agreement, giving the take over a semblance of legality.
Thereafter, with the issues having been joined, the Ombudsman issued the
herein assailed Joint Resolution dismissing petitioners' complaints. To the
Ombudsman, the following circumstances did not give rise to probable cause
necessary to indict respondents for the various felonies charged:
1. The Letter-Agreement of June 8, 1973 belie any illegal take-over of the
ABS-CBN complex.
While the Lopezes are now complaining that the letter-agreement was
virtually forced unto them thru intimidation, hence, the vitiated consent
of Mr. Montelibano, there is nothing however which the complainants
adduced to prove this allegation except their threadbare allegations of
threats. On the contrary, it appears that the Lopezes blessed the letter-
agreement hoping that their financial difficulties with respect to the
affairs of the ABS-CBN and their problem concerning the continued
detention of Eugenio Lopez, Jr. by the military, would at least be
mitigated. x x x
It is thus clear that the ABS-CBN complex was freely leased by
Montelibano upon consultation with the Lopezes who entertained some
ulterior motives of their own which they expect would result from the
agreement, either directly or indirectly. Of course, the Lopezes may not
have realized some of these expectations (i.e., the rentals, the release of
Eugenio, Jr. from detention) but this does not change the fact that the
parties' consent to the contract appears to have been freely given.
Perforce, the complaint under Article 298 of the Revised Penal Code of
the Philippines must fail.
2. Other TV and radio stations were taken over pursuant to LOI 1-A,
hence no violations of Art. 312, 302 and 308 of RPC.
To the alleged violation of Art. 312 of the Revised Penal Code, the
respondents contended that their use of ABS-CBN's facilities other than
those included in the lease-agreement, was in fact with the authority of
the then Department of National Defense (DND). There is no denying
that all of the ABS-CBN properties including the provincial ones are
under sequestration pursuant to Presidential Letter of Instruction No. 1-
A, issued on September 28, 1972. It was under the strength of this
Presidential Letter of Instruction that KBS-RPN was authorized to enter,
occupy and operate the facilities of ABS-CBN. This was also confirmed by
DND Secretary Juan Ponce Enrile in his letter to RPN dated June 26, 1976.
Unmistakably, KBS-RPN's possession of the ABS-CBN's property other
than those in the ABS-CBN complex is primarily anchored on the
authority pursuant to LOI 1-A. With this apparent authority, this
investigation can not see in any which way how the respondents could
have illegally taken over the properties of the [petitioners], particularly
those in the province; there is therefore no convincing proof to support
a charge under Article 312 of the Revised Penal Code. It may come to
mind that "occupation of real property or usurpation of real rights in
property" under Article 312 requires as one of its elements the presence
of violence against or intimidation of persons as a means in securing real
property or rights belonging to another. Plainly, this element is not
shown. The complainants may have felt intimidated by the
sequestration order, but it is in the nature of such Order to be coercive.
It was an act flowing from the martial law powers of then President
Marcos.
3. No unlawful taking as to justify charges for Robbery or Theft.
Robbery and Theft under Articles 302 and 308 of the Revised Penal Code
were also attributed by the [petitioners] against the respondents. From
the records, it is clear that KBS-RPN has juridical possession of the ABS-
CBN properties subject of this complaint; a right which can be validly set-
up even against ABS-CBN itself. It can be recalled that KBS-RPN was
authorized to enter, occupy and operate ABS-CBN facilities by virtue of
the authority granted by the President, pursuant to LOI No. 1-A. Aside,
the Broadcast Center itself was covered by the lease-agreement. Under
these situations, there is obviously no basis to charge the respondents
for robbery and theft; for these penal offense require as an element the
act of unlawful taking or asportation. Asportation is simply poles apart
from the juridical possession which KBS-RPN enjoyed over the
properties.
4. No deceit was employed to gain possession of the Broadcast Center
and the provincial TV and radio stations.
In the prosecution for estafa under [Articles 315, paragraphs 2(a), 3(a)
and 318] of the Revised Penal Code, it is indispensable that the element
of deceit, consisting in the false statement of fraudulent representation
of the accused, be made prior to, or, at least simultaneously with, the
delivery of the thing by the complainants, it being essential that such
false statement or fraudulent representation constitutes the very cause
or the only motive which induces the complainants to part with the
thing. If there be no such prior or simultaneous false statement or
fraudulent representation, any subsequent act of the respondent,
however fraudulent or suspicious it may appear, can not serve as basis
for the prosecution of these crimes.
[From petitioners' complaint-affidavits], it is very clear that the late
Alfredo Montelibano was the one who talked with Roberto Benedicto,
preparatory to the signing of the lease-agreement. As the complainants
did not identify exactly which constitute the deceitful act (or the
intimidation) which could have induced the Lopezes into accepting the
lease agreement, in most probability, the occurrences which vitiated
their consent happened during this preliminary discussion. Noticeably
however, it is not Alfredo Montelibano, the one who supposedly talked
with Benedicto, who is testifying on the alleged "veiled threat" or
deceits, if there are. Precisely, because he is already dead.
x x x [I]t is submitted that the Lopezes can not now testify on something
which are not derived from their own personal perception. The
bottomline is that what they are now trying to adduce, pertaining to the
alleged deceits [or intimidation] attending the negotiation of the lease
agreement are purely hearsay. This is a matter which only Alfredo
Montelibano could testify competently.9
The Ombudsman saw no need to discuss the defenses of prescription and
immunity from suit raised by the respondents given his dismissal of the
complaint-affidavits on the merits. However, in a subsequent Order denying
petitioners Motion for Reconsideration of the Joint Resolution, the Ombudsman
lifted the Office of the Chief Legal Counsel's ratiocination for dismissing the
complaint-affidavits, thus:
Incidentally, RPN has been identified as among the corporation in which
respondent Benedicto has substantial interests. In fact, it was one of the
subject matters of the Compromise Agreement reached by the
government and respondent Benedicto in Sandiganbayan Civil Case no.
34.
In that Compromise Agreement, for and in consideration of respondent
Benedicto's cession of equities, and assignment of his rights and interest
in corporations therein listed, among them RPN, the government
extended "absolute immunity" to Benedicto, including officers of his
corporations as therein mentioned, "such that there shall be no criminal
investigation or prosecution against said persons for acts or omissions
committed prior to February 25, 1986 that may be alleged to have
violated any penal law, including but not limited to Republic Act No.
3019, in relation to the acquisition of any asset treated or included in
this Agreement."
In effect, the People of the Philippines as the offended party in criminal
cases has waived its right to proceed criminally against Benedicto, et. al.,
for whatever crime they may have committed relative to, among others,
the alleged plunder of ABS-CBN properties. Again, whatever liability that
remains thereabout on respondents' part is perforce only civil in
nature.10
Hence, this recourse by the petitioners alleging grave abuse of discretion in the
Ombudsman's Joint Resolution and Order.
Before anything else, we note that on April 5, 1999 and June 13, 2000, the
respective counsel for respondents Tan and Benedicto, in compliance with
Section 16,11 Rule 3 of the Rules of Court, filed pleadings informing the Court of
their clients' demise. Benedicto's counsel filed a Notice of Death (With Prayer for
Dismissal)12 moving that Benedicto be dropped as respondent in the instant case
for the reason "that the pending criminal cases subject of this appeal are actions
which do not survive the death of the party accused."
Petitioners opposed the move to drop Benedicto as respondent, citing Torrijos v.
Court of Appeals13 which held that "civil liability of the accused survives his death;
because death is not a valid cause for the extinguishment of civil obligations."
Our ruling on this issue need not be arduous. The rules on whether the civil
liability of an accused, upon death, is extinguished together with his criminal
liability, has long been clarified and settled in the case of People v. Bayotas:14
1. Death of an accused pending appeal of his conviction extinguishes his
criminal liability as well as the civil liability based solely thereon. As
opined by Justice Regalado, in this regard, "the death of the accused
prior to final judgment terminates his criminal liability and only the civil
liability directly arising from and based solely on the offense committed,
i.e., civil liability ex delicto in senso strictiore."
2. Corollarily, the claim for civil liability survives notwithstanding the
death of accused, if the same may also be predicated on a source of
obligation other than delict. Article 1157 of the Civil Code enumerates
these other sources of obligation from which the civil liability may arise
as a result of the same act or omission:
a) Law
b) Contracts
c) Quasi-contracts
d) x x x
e) Quasi-delicts
3. Where the civil liability survives, as explained in Number 2 above, an
action for recovery therefor may be pursued but only by way of filing a
separate civil action and subject to Section 1, Rule 111 of the 1985 Rules
on Criminal Procedure15 as amended. The separate civil action may be
enforced either against the executor/administrator or the estate of the
accused, depending on the source of obligation upon which the same is
based as explained above.
4. Finally, the private offended party need not fear a forfeiture of his
right to file this separate civil action by prescription, in cases where
 during the prosecution of the criminal action and prior to its extinction,
the private-offended party instituted together therewith the civil action.
In such case, the statute of limitations on the civil liability is deemed
interrupted during the pendency of the criminal case, conformably with
provisions of Article 1155 of the Civil Code, that should thereby avoid
any apprehension on a possible [de]privation of right by prescription.
Applying the foregoing rules, ABS-CBN's insistence that the case at bench
survives because the civil liability of the respondents subsists is stripped of merit.
To begin with, there is no criminal case as yet against the respondents. The
Ombudsman did not find probable cause to prosecute respondents for various
felonies in the RPC. As such, the rule that a civil action is deemed instituted along
with the criminal action unless the offended party: (a) waives the civil action, (b)
reserves the right to institute it separately, or (c) institutes the civil action prior
to the criminal action,16 is not applicable.
In any event, consistent with People v. Bayotas,17 the death of the accused
necessarily calls for the dismissal of the criminal case against him, regardless of
the institution of the civil case with it. The civil action which survives the death
of the accused must hinge on other sources of obligation provided in Article 1157
of the Civil Code. In such a case, a surviving civil action against the accused
founded on other sources of obligation must be prosecuted in a separate civil
action. In other words, civil liability based solely on the criminal action is
extinguished, and a different civil action cannot be continued and prosecuted in
the same criminal action.
Significantly, this Court in Benedicto v. Court of Appeals,18
taking cognizance of
respondent Benedicto's death on May 15, 2000, has ordered that the latter be
dropped as a party, and declared extinguished any criminal as well as civil liability
ex delicto that might be attributable to him in Criminal Cases Nos. 91-101879 to
91-101883, 91-101884 to 101892, and 92-101959 to 92-101969 pending before
the Regional Trial Court of Manila.
Lastly, we note that petitioners appear to have already followed our ruling in
People v. Bayotas19 by filing a separate civil action to enforce a claim against the
estate of respondent Benedicto.20 The claim against the estate of Benedicto is
based on contract-the June 8, 1973 letter- agreement-in consonance with
Section 5,21 Rule 86 of the Rules of Court. Plainly, the dropping of respondents
Benedicto and Tan as parties herein is in order.
We now come to the core issue of whether the Ombudsman committed grave
abuse of discretion in dismissing petitioners' complaint against the respondents.
We rule in the negative and, accordingly, dismiss the petition.
We cannot overemphasize the fact that the Ombudsman is a constitutional
officer duty bound to "investigate on its own, or on complaint by any person, any
act or omission of any public official, employee, office or agency, when such act
or omission appears to be illegal, unjust, improper, or inefficient."22 The raison d
'etre for its creation and endowment of broad investigative authority is to
insulate it from the long tentacles of officialdom that are able to penetrate
judges' and fiscals' offices, and others involved in the prosecution of erring public
officials, and through the execution of official pressure and influence, quash,
delay, or dismiss investigations into malfeasances and misfeasances committed
by public officers.23
In Presidential Commission on Good Government (PCGG) v. Desierto,24 we dwelt
on the powers, functions and duties of the Ombudsman, to wit:
The prosecution of offenses committed by public officers is vested
primarily in the Office of the Ombudsman. It bears emphasis that the
Office has been given a wide latitude of investigatory and prosecutory
powers under the Constitution and Republic Act No. 6770 (The
Ombudsman Act of 1989). This discretion is all but free from legislative,
executive or judicial intervention to ensure that the Office is insulated
from any outside pressure and improper influence.
Indeed, the Ombudsman is empowered to determine whether there
exist reasonable grounds to believe that a crime has been committed
and that the accused is probably guilty thereof and, thereafter, to file
the corresponding information with the appropriate courts. The
Ombudsman may thus conduct an investigation if the complaint filed is
found to be in the proper form and substance. Conversely, the
Ombudsman may also dismiss the complaint should it be found
insufficient in form or substance.
Unless there are good and compelling reasons to do so, the Court will
refrain from interfering with the exercise of the Ombudsman's powers,
and respect the initiative and independence inherent in the latter who,
beholden to no one, acts as the champion of the people and the
preserver of the integrity of public service.
 The pragmatic basis for the general rule was explained in Ocampo v.
Ombudsman:
The rule is based not only upon respect for the investigatory and
prosecutory powers granted by the Constitution to the Office of
the Ombudsman but upon practicality as well. Otherwise, the
functions of the courts will be grievously hampered by
innumerable petitions assailing the dismissal of investigatory
proceedings conducted by the Office of the Ombudsman with
regard to complaints filed before it, in much the same way that
the courts would be extremely swamped if they would be
compelled to review the exercise of discretion on the part of the
fiscals or prosecuting attorneys each time they decide to file an
information in court or dismiss a complaint by private
complainants.25
From the foregoing, it is crystal clear that we do not interfere with the
Ombudsman's exercise of his investigatory and prosecutory powers vested by
the Constitution. In short, we do not review the Ombudsman's exercise of
discretion in prosecuting or dismissing a complaint except when the exercise
thereof is tainted with grave abuse of discretion.
By grave abuse of discretion is meant such capricious and whimsical exercise of
judgment tantamount to lack of jurisdiction. The abuse of discretion must be so
patent and gross as to amount to an evasion of a positive duty or a virtual refusal
to perform a duty enjoined by law, or to act at all in contemplation of law, as
where the power is exercised in an arbitrary and despotic manner by reason of
passion or hostility.26 In this regard, petitioners utterly failed to demonstrate the
Ombudsman's abuse, much less grave abuse, of discretion.
Apart from a blanket and general charge that remaining respondents herein,
Gonzales and Garcia, are officers of KBS/RPN and/or alter egos of Benedicto,
petitioners' complaint-affidavits are bereft of sufficient ground to engender a
well-founded belief that crimes have been committed and the respondents,
namely, Gonzales and Garcia, are probably guilty thereof and should be held for
trial.27 Certainly, the Ombudsman did not commit grave abuse of discretion in
dismissing petitioners' complaint-affidavits.
From the entirety of the records, it is beyond cavil that petitioners seek to attach
criminal liability to an unequivocally civil undertaking gone awry. As pointed out
by the Ombudsman, although the petitioners may not have realized their
expectations in entering into the June 8, 1973 letter-agreement, such does not
render their consent thereto defective.
The execution and validity of this letter-agreement is connected with
respondents' culpability for the felonies charged as these include the element of
whether they had juridical possession of the ABS-CBN properties. Essentially,
petitioners claim they did not freely give their consent to the letter-agreement.
However, on more than one occasion, petitioners have invoked the letter-
agreement's provisions, and made claims thereunder.
First, petitioners met and discussed with respondents the fixing of the rental rate
for the ABS-CBN studios in Quezon City as provided in paragraph 2 of the letter-
lease agreement. Next, petitioners' counsel wrote a demand letter to
respondents for the payment of rentals for the latter's occupation and use of
ABS-CBN properties pursuant to the letter-agreement. Last and most
importantly, petitioners have made a claim against the estate of Benedicto based
on the same June 8, 1973 letter-agreement.
This action of petitioners clearly evinces their ratification of the letter-
agreement. As previously discussed, the civil liability of respondents Benedicto
and Tan hinging on the charged criminal acts herein was extinguished upon their
death. But other civil liabilities founded on other sources of obligations under
Article 1157 of the Civil Code may still be prosecuted either against the estate of
the deceased if based on contract,28 or against the executors and administrators
of the deceased's estate if based on quasi-delict.29
As petitioners have ratified the letter-agreement, even after the lifting of martial
law and the toppling of the Marcos government, and advanced the validity of the
letter-agreement in their claim against the estate of Benedicto, they cannot, in
the same breath, aver that respondents' actuations in the execution of the letter-
agreement were criminal in nature, or that the letter-agreement was more
ostensible than real and to insist on the prosecution of respondents for felonies
supposedly committed in connection with this ubiquitous letter-agreement.30
In fine, the Ombudsman did not abuse his discretion in determining that the
allegations of petitioners against respondents are civil in nature, bereft of
criminal character. Perforce, he was correct in dismissing petitioners' complaint-
affidavits.
WHEREFORE, premises considered, the petition is hereby DISMISSED. Roberto S.
Benedicto and Salvador Tan are dropped as private respondents without
prejudice to the filing of separate civil actions against their respective estates.
The assailed Joint Resolution and Order of the Ombudsman in OMB-0-94-1109
are AFFIRMED.
SO ORDERED.
G.R. No. L-4089 January 12, 1909
ARTURO PELAYO, plaintiff-appellant,
vs.
MARCELO LAURON, ET AL., defendants-appellees.
J.H. Junquera, for appellant.
Filemon Sotto, for appellee.
TORRES, J.:
On the 23rd of November, 1906, Arturo Pelayo, a physician residing in Cebu, filed
a complaint against Marcelo Lauron and Juana Abella setting forth that on or
about the 13th of October of said year, at night, the plaintiff was called to the
house of the defendants, situated in San Nicolas, and that upon arrival he was
requested by them to render medical assistance to their daughter-in-law who
was about to give birth to a child; that therefore, and after consultation with the
attending physician, Dr. Escaño, it was found necessary, on account of the
difficult birth, to remove the fetus by means of forceps which operation was
performed by the plaintiff, who also had to remove the afterbirth, in which
services he was occupied until the following morning, and that afterwards, on
the same day, he visited the patient several times; that the just and equitable
value of the services rendered by him was P500, which the defendants refuse to
pay without alleging any good reason therefor; that for said reason he prayed
that the judgment be entered in his favor as against the defendants, or any of
them, for the sum of P500 and costs, together with any other relief that might be
deemed proper.
In answer to the complaint counsel for the defendants denied all of the allegation
therein contained and alleged as a special defense, that their daughter-in-law
had died in consequence of the said childbirth, and that when she was alive she
lived with her husband independently and in a separate house without any
relation whatever with them, and that, if on the day when she gave birth she was
in the house of the defendants, her stay their was accidental and due to
fortuitous circumstances; therefore, he prayed that the defendants be absolved
of the complaint with costs against the plaintiff.
The plaintiff demurred to the above answer, and the court below sustained the
demurrer, directing the defendants, on the 23rd of January, 1907, to amend their
answer. In compliance with this order the defendants presented, on the same
date, their amended answer, denying each and every one of the allegations
contained in the complaint, and requesting that the same be dismissed with
costs.
As a result of the evidence adduced by both parties, judgment was entered by
the court below on the 5th of April, 1907, whereby the defendants were absolved
from the former complaint, on account of the lack of sufficient evidence to
establish a right of action against the defendants, with costs against the plaintiff,
who excepted to the said judgment and in addition moved for a new trial on the
ground that the judgment was contrary to law; the motion was overruled and the
plaintiff excepted and in due course presented the corresponding bill of
exceptions. The motion of the defendants requesting that the declaration
contained in the judgment that the defendants had demanded therefrom, for the
reason that, according to the evidence, no such request had been made, was also
denied, and to the decision the defendants excepted.
Assuming that it is a real fact of knowledge by the defendants that the plaintiff,
by virtue of having been sent for by the former, attended a physician and
rendered professional services to a daughter-in-law of the said defendants during
a difficult and laborious childbirth, in order to decide the claim of the said
physician regarding the recovery of his fees, it becomes necessary to decide who
is bound to pay the bill, whether the father and mother-in-law of the patient, or
the husband of the latter.
According to article 1089 of the Civil Code, obligations are created by law, by
contracts, by quasi-contracts, and by illicit acts and omissions or by those in
which any kind of fault or negligence occurs.
Obligations arising from law are not presumed. Those expressly determined in
the code or in special laws, etc., are the only demandable ones. Obligations
arising from contracts have legal force between the contracting parties and must
be fulfilled in accordance with their stipulations. (Arts. 1090 and 1091.)
The rendering of medical assistance in case of illness is comprised among the
mutual obligations to which the spouses are bound by way of mutual support.
(Arts. 142 and 143.)
If every obligation consists in giving, doing or not doing something (art. 1088),
and spouses are mutually bound to support each other, there can be no question
but that, when either of them by reason of illness should be in need of medical
assistance, the other is under the unavoidable obligation to furnish the necessary
services of a physician in order that health may be restored, and he or she may
be freed from the sickness by which life is jeopardized; the party bound to furnish
such support is therefore liable for all expenses, including the fees of the medical
expert for his professional services. This liability originates from the above-cited
mutual obligation which the law has expressly established between the married
couple.
In the face of the above legal precepts it is unquestionable that the person bound
to pay the fees due to the plaintiff for the professional services that he rendered
to the daughter-in-law of the defendants during her childbirth, is the husband of
the patient and not her father and mother- in-law, the defendants herein. The
fact that it was not the husband who called the plaintiff and requested his
assistance for his wife is no bar to the fulfillment of the said obligation, as the
defendants, in view of the imminent danger, to which the life of the patient was
at that moment exposed, considered that medical assistance was urgently
needed, and the obligation of the husband to furnish his wife in the indispensable
services of a physician at such critical moments is specially established by the law,
as has been seen, and compliance therewith is unavoidable; therefore, the
plaintiff, who believes that he is entitled to recover his fees, must direct his action
against the husband who is under obligation to furnish medical assistance to his
lawful wife in such an emergency.
From the foregoing it may readily be understood that it was improper to have
brought an action against the defendants simply because they were the parties
who called the plaintiff and requested him to assist the patient during her
difficult confinement, and also, possibly, because they were her father and
mother-in-law and the sickness occurred in their house. The defendants were
not, nor are they now, under any obligation by virtue of any legal provision, to
pay the fees claimed, nor in consequence of any contract entered into between
them and the plaintiff from which such obligation might have arisen.
In applying the provisions of the Civil Code in an action for support, the supreme
court of Spain, while recognizing the validity and efficiency of a contract to
furnish support wherein a person bound himself to support another who was not
his relative, established the rule that the law does impose the obligation to pay
for the support of a stranger, but as the liability arose out of a contract, the
stipulations of the agreement must be held. (Decision of May 11, 1897.)
Within the meaning of the law, the father and mother-in-law are strangers with
respect to the obligation that devolves upon the husband to provide support,
among which is the furnishing of medical assistance to his wife at the time of her
confinement; and, on the other hand, it does not appear that a contract existed
between the defendants and the plaintiff physician, for which reason it is obvious
that the former can not be compelled to pay fees which they are under no liability
to pay because it does not appear that they consented to bind themselves.
The foregoing suffices to demonstrate that the first and second errors assigned
to the judgment below are unfounded, because, if the plaintiff has no right of
action against the defendants, it is needless to declare whether or not the use of
forceps is a surgical operation.
Therefore, in view of the consideration hereinbefore set forth, it is our opinion
that the judgment appealed from should be affirmed with the costs against the
appellant. So ordered.
G.R. No. 183204 January 13, 2014
THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.
DECISION
DEL CASTILLO, J.:
Bank deposits, which are in the nature of a simple loan or mutuum,1 must be paid
upon demand by the depositor.2
This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails
the April 2, 2008 Decision4 and the May 30, 2008 Resolution5 of he Court of
Appeals CA) in CA-G.R. CV No. 89086.
Factual Antecedents
Petitioner Metropolitan Bank and Trust Company is a domestic banking
corporation duly organized and existing under the laws of the
Philippines.6 Respondent Ana Grace Rosales (Rosales) is the owner of China
Golden Bridge Travel Services,7 a travel agency.8 Respondent Yo Yuk To is the
mother of respondent Rosales.9
In 2000, respondents opened a Joint Peso Account10 with petitioner’s Pritil-
Tondo Branch.11 As of August 4, 2004, respondents’ Joint Peso Account showed
a balance of ₱2,515,693.52.12
In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a
Taiwanese National applying for a retiree’s visa from the Philippine Leisure and
Retirement Authority (PLRA), to petitioner’s branch in Escolta to open a savings
account, as required by the PLRA.13 Since Liu Chiu Fang could speak only in
Mandarin, respondent Rosales acted as an interpreter for her.14
On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a
Joint Dollar Account15 with an initial deposit of US$14,000.00.16
On July 31, 2003, petitioner issued a "Hold Out" order against respondents’
accounts.17
On September 3, 2003, petitioner, through its Special Audit Department Head
Antonio Ivan Aguirre, filed before the Office of the Prosecutor of Manila a
criminal case for Estafa through False Pretences, Misrepresentation, Deceit, and
Use of Falsified Documents, docketed as I.S. No. 03I-25014,18 against respondent
Rosales.19 Petitioner accused respondent Rosales and an unidentified woman as
the ones responsible for the unauthorized and fraudulent withdrawal of
US$75,000.00 from Liu Chiu Fang’s dollar account with petitioner’s Escolta
Branch.20Petitioner alleged that on February 5, 2003, its branch in Escolta
received from the PLRA a Withdrawal Clearance for the dollar account of Liu Chiu
Fang;21 that in the afternoon of the same day, respondent Rosales went to
petitioner’s Escolta Branch to inform its Branch Head, Celia A. Gutierrez
(Gutierrez), that Liu Chiu Fang was going to withdraw her dollar deposits in
cash;22 that Gutierrez told respondent Rosales to come back the following day
because the bank did not have enough dollars;23 that on February 6, 2003,
respondent Rosales accompanied an unidentified impostor of Liu Chiu Fang to
the bank;24 that the impostor was able to withdraw Liu Chiu Fang’s dollar deposit
in the amount of US$75,000.00;25 that on March 3, 2003, respondents opened a
dollar account with petitioner; and that the bank later discovered that the serial
numbers of the dollar notes deposited by respondents in the amount of
US$11,800.00 were the same as those withdrawn by the impostor.26
Respondent Rosales, however, denied taking part in the fraudulent and
unauthorized withdrawal from the dollar account of Liu Chiu Fang.27 Respondent
Rosales claimed that she did not go to the bank on February 5, 2003.28Neither
did she inform Gutierrez that Liu Chiu Fang was going to close her
account.29 Respondent Rosales further claimed that after Liu Chiu Fang opened
an account with petitioner, she lost track of her.30 Respondent Rosales’ version
of the events that transpired thereafter is as follows:
On February 6, 2003, she received a call from Gutierrez informing her that Liu
Chiu Fang was at the bank to close her account.31 At noon of the same day,
respondent Rosales went to the bank to make a transaction.32 While she was
transacting with the teller, she caught a glimpse of a woman seated at the desk
of the Branch Operating Officer, Melinda Perez (Perez).33 After completing her
transaction, respondent Rosales approached Perez who informed her that Liu
Chiu Fang had closed her account and had already left.34 Perez then gave a copy
of the Withdrawal Clearance issued by the PLRA to respondent Rosales.35 On
June 16, 2003, respondent Rosales received a call from Liu Chiu Fang inquiring
about the extension of her PLRA Visa and her dollar account.36 It was only then
that Liu Chiu Fang found out that her account had been closed without her
knowledge.37 Respondent Rosales then went to the bank to inform Gutierrez and
Perez of the unauthorized withdrawal.38 On June 23, 2003, respondent Rosales
and Liu Chiu Fang went to the PLRA Office, where they were informed that the
Withdrawal Clearance was issued on the basis of a Special Power of Attorney
(SPA) executed by Liu Chiu Fang in favor of a certain Richard So.39 Liu Chiu Fang,
however, denied executing the SPA.40 The following day, respondent Rosales, Liu
Chiu Fang, Gutierrez, and Perez met at the PLRA Office to discuss the
unauthorized withdrawal.41 During the conference, the bank officers assured Liu
Chiu Fang that the money would be returned to her.42
On December 15, 2003, the Office of the City Prosecutor of Manila issued a
Resolution dismissing the criminal case for lack of probable cause.43 Unfazed,
petitioner moved for reconsideration.
On September 10, 2004, respondents filed before the Regional Trial Court (RTC)
of Manila a Complaint44 for Breach of Obligation and Contract with Damages,
docketed as Civil Case No. 04110895 and raffled to Branch 21, against petitioner.
Respondents alleged that they attempted several times to withdraw their
deposits but were unable to because petitioner had placed their accounts under
"Hold Out" status.45 No explanation, however, was given by petitioner as to why
it issued the "Hold Out" order.46 Thus, they prayed that the "Hold Out" order be
lifted and that they be allowed to withdraw their deposits.47 They likewise prayed
for actual, moral, and exemplary damages, as well as attorney’s fees.48
Petitioner alleged that respondents have no cause of action because it has a valid
reason for issuing the "Hold Out" order.49 It averred that due to the fraudulent
scheme of respondent Rosales, it was compelled to reimburse Liu Chiu Fang the
amount of US$75,000.0050 and to file a criminal complaint for Estafa against
respondent Rosales.51
While the case for breach of contract was being tried, the City Prosecutor of
Manila issued a Resolution dated February 18, 2005, reversing the dismissal of
the criminal complaint.52 An Information, docketed as Criminal Case No. 05-
236103,53 was then filed charging respondent Rosales with Estafa before Branch
14 of the RTC of Manila.54
Ruling of the Regional Trial Court
On January 15, 2007, the RTC rendered a Decision55 finding petitioner liable for
damages for breach of contract.56The RTC ruled that it is the duty of petitioner to
release the deposit to respondents as the act of withdrawal of a bank deposit is
an act of demand by the creditor.57 The RTC also said that the recourse of
petitioner is against its negligent employees and not against respondents.58 The
dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering
[petitioner] METROPOLITAN BANK & TRUST COMPANY to allow [respondents]
ANA GRACE ROSALES and YO YUK TO to withdraw their Savings and Time
Deposits with the agreed interest, actual damages of ₱50,000.00, moral damages
of ₱50,000.00, exemplary damages of ₱30,000.00 and 10% of the amount due
[respondents] as and for attorney’s fees plus the cost of suit.
The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.
SO ORDERED.59
Ruling of the Court of Appeals
Aggrieved, petitioner appealed to the CA.
On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of
actual damages because "the basis for [respondents’] claim for such damages is
the professional fee that they paid to their legal counsel for [respondent] Rosales’
defense against the criminal complaint of [petitioner] for estafa before the Office
of the City Prosecutor of Manila and not this case."60 Thus, the CA disposed of
the case in this wise:
WHEREFORE, premises considered, the Decision dated January 15, 2007 of the
RTC, Branch 21, Manila in Civil Case No. 04-110895 is AFFIRMED with
MODIFICATION that the award of actual damages to [respondents] Rosales and
Yo Yuk To is hereby DELETED.
SO ORDERED.61
Petitioner sought reconsideration but the same was denied by the CA in its May
30, 2008 Resolution.62
Issues
Hence, this recourse by petitioner raising the following issues:
A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION IN THE
APPLICATION AND AGREEMENT FOR DEPOSIT ACCOUNT DOES NOT
APPLY IN THIS CASE.
B. THE [CA] ERRED WHEN IT RULED THAT PETITIONER’S EMPLOYEES
WERE NEGLIGENT IN RELEASING LIU CHIU FANG’S FUNDS.
C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES,
EXEMPLARY DAMAGES, AND ATTORNEY’S FEES.63
Petitioner’s Arguments
Petitioner contends that the CA erred in not applying the "Hold Out" clause
stipulated in the Application and Agreement for Deposit Account.64 It posits that
the said clause applies to any and all kinds of obligation as it does not distinguish
between obligations arising ex contractu or ex delictu.65 Petitioner also contends
that the fraud committed by respondent Rosales was clearly established by
evidence;66 thus, it was justified in issuing the "Hold-Out" order.67 Petitioner
likewise denies that its employees were negligent in releasing the dollars.68 It
claims that it was the deception employed by respondent Rosales that caused
petitioner’s employees to release Liu Chiu Fang’s funds to the impostor.69
Lastly, petitioner puts in issue the award of moral and exemplary damages and
attorney’s fees. It insists that respondents failed to prove that it acted in bad faith
or in a wanton, fraudulent, oppressive or malevolent manner.70
Respondents’ Arguments
Respondents, on the other hand, argue that there is no legal basis for petitioner
to withhold their deposits because they have no monetary obligation to
petitioner.71 They insist that petitioner miserably failed to prove its accusations
against respondent Rosales.72 In fact, no documentary evidence was presented
to show that respondent Rosales participated in the unauthorized
withdrawal.73 They also question the fact that the list of the serial numbers of the
dollar notes fraudulently withdrawn on February 6, 2003, was not signed or
acknowledged by the alleged impostor.74Respondents likewise maintain that
what was established during the trial was the negligence of petitioner’s
employees as they allowed the withdrawal of the funds without properly
verifying the identity of the depositor.75Furthermore, respondents contend that
their deposits are in the nature of a loan; thus, petitioner had the obligation to
return the deposits to them upon demand.76 Failing to do so makes petitioner
liable to pay respondents moral and exemplary damages, as well as attorney’s
fees.77
Our Ruling
The Petition is bereft of merit.
At the outset, the relevant issues in this case are (1) whether petitioner breached
its contract with respondents, and (2) if so, whether it is liable for damages. The
issue of whether petitioner’s employees were negligent in allowing the
withdrawal of Liu Chiu Fang’s dollar deposits has no bearing in the resolution of
this case. Thus, we find no need to discuss the same.
The "Hold Out" clause does not apply
to the instant case.
Petitioner claims that it did not breach its contract with respondents because it
has a valid reason for issuing the "Hold Out" order. Petitioner anchors its right to
withhold respondents’ deposits on the Application and Agreement for Deposit
Account, which reads:
Authority to Withhold, Sell and/or Set Off:
The Bank is hereby authorized to withhold as security for any and all obligations
with the Bank, all monies, properties or securities of the Depositor now in or
which may hereafter come into the possession or under the control of the Bank,
whether left with the Bank for safekeeping or otherwise, or coming into the
hands of the Bank in any way, for so much thereof as will be sufficient to pay any
or all obligations incurred by Depositor under the Account or by reason of any
other transactions between the same parties now existing or hereafter
contracted, to sell in any public or private sale any of such properties or securities
of Depositor, and to apply the proceeds to the payment of any Depositor’s
obligations heretofore mentioned.
xxxx
JOINT ACCOUNT
xxxx
The Bank may, at any time in its discretion and with or without notice to all of
the Depositors, assert a lien on any balance of the Account and apply all or any
part thereof against any indebtedness, matured or unmatured, that may then be
owing to the Bank by any or all of the Depositors. It is understood that if said
indebtedness is only owing from any of the Depositors, then this provision
constitutes the consent by all of the depositors to have the Account answer for
the said indebtedness to the extent of the equal share of the debtor in the
amount credited to the Account.78
Petitioner’s reliance on the "Hold Out" clause in the Application and Agreement
for Deposit Account is misplaced.
The "Hold Out" clause applies only if there is a valid and existing obligation arising
from any of the sources of obligation enumerated in Article 115779 of the Civil
Code, to wit: law, contracts, quasi-contracts, delict, and quasi-delict. In this case,
petitioner failed to show that respondents have an obligation to it under any law,
contract, quasi-contract, delict, or quasi-delict. And although a criminal case was
filed by petitioner against respondent Rosales, this is not enough reason for
petitioner to issue a "Hold Out" order as the case is still pending and no final
judgment of conviction has been rendered against respondent Rosales. In fact, it
is significant to note that at the time petitioner issued the "Hold Out" order, the
criminal complaint had not yet been filed. Thus, considering that respondent
Rosales is not liable under any of the five sources of obligation, there was no legal
basis for petitioner to issue the "Hold Out" order. Accordingly, we agree with the
findings of the RTC and the CA that the "Hold Out" clause does not apply in the
instant case.
In view of the foregoing, we find that petitioner is guilty of breach of contract
when it unjustifiably refused to release respondents’ deposit despite demand.
Having breached its contract with respondents, petitioner is liable for damages.
Respondents are entitled to moral and
exemplary damages and attorney’s fees.1âwphi1
In cases of breach of contract, moral damages may be recovered only if the
defendant acted fraudulently or in bad faith,80 or is "guilty of gross negligence
amounting to bad faith, or in wanton disregard of his contractual obligations."81
In this case, a review of the circumstances surrounding the issuance of the "Hold
Out" order reveals that petitioner issued the "Hold Out" order in bad faith. First
of all, the order was issued without any legal basis. Second, petitioner did not
inform respondents of the reason for the "Hold Out."82 Third, the order was
issued prior to the filing of the criminal complaint. Records show that the "Hold
Out" order was issued on July 31, 2003,83 while the criminal complaint was filed
only on September 3, 2003.84 All these taken together lead us to conclude that
petitioner acted in bad faith when it breached its contract with respondents. As
we see it then, respondents are entitled to moral damages.
As to the award of exemplary damages, Article 222985 of the Civil Code provides
that exemplary damages may be imposed "by way of example or correction for
the public good, in addition to the moral, temperate, liquidated or compensatory
damages." They are awarded only if the guilty party acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner.86
In this case, we find that petitioner indeed acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner when it refused to release the
deposits of respondents without any legal basis. We need not belabor the fact
that the banking industry is impressed with public interest.87 As such, "the
highest degree of diligence is expected, and high standards of integrity and
performance are even required of it."88 It must therefore "treat the accounts of
its depositors with meticulous care and always to have in mind the fiduciary
nature of its relationship with them."89 For failing to do this, an award of
exemplary damages is justified to set an example.
The award of attorney's fees is likewise proper pursuant to paragraph 1, Article
220890 of the Civil Code.
In closing, it must be stressed that while we recognize that petitioner has the
right to protect itself from fraud or suspicions of fraud, the exercise of his right
should be done within the bounds of the law and in accordance with due process,
and not in bad faith or in a wanton disregard of its contractual obligation to
respondents.
WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision
and the May 30, 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 89086
are hereby AFFIRMED. SO ORDERED.
G.R. No. 158911 March 4, 2008
MANILA ELECTRIC COMPANY, Petitioner,
vs.
MATILDE MACABAGDAL RAMOY, BIENVENIDO RAMOY, ROMANA RAMOY-
RAMOS, ROSEMARIE RAMOY, OFELIA DURIAN and CYRENE
PANADO, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of
Court, praying that the Decision1 of the Court of Appeals (CA) dated December
16, 2002, ordering petitioner Manila Electric Company (MERALCO) to pay Leoncio
Ramoy2 moral and exemplary damages and attorney's fees, and the CA
Resolution3 dated July 1, 2003, denying petitioner's motion for reconsideration,
be reversed and set aside.
The Regional Trial Court (RTC) of Quezon City, Branch 81, accurately summarized
the facts as culled from the records, thus:
The evidence on record has established that in the year 1987 the National Power
Corporation (NPC) filed with the MTC Quezon City a case for ejectment against
several persons allegedly illegally occupying its properties in Baesa, Quezon City.
Among the defendants in the ejectment case was Leoncio Ramoy, one of the
plaintiffs in the case at bar. On April 28, 1989 after the defendants failed to file
an answer in spite of summons duly served, the MTC Branch 36, Quezon City
rendered judgment for the plaintiff [MERALCO] and "ordering the defendants to
demolish or remove the building and structures they built on the land of the
plaintiff and to vacate the premises." In the case of Leoncio Ramoy, the Court
found that he was occupying a portion of Lot No. 72-B-2-B with the exact location
of his apartments indicated and encircled in the location map as No. 7. A copy of
the decision was furnished Leoncio Ramoy (Exhibits 2, 2-A, 2-B, 2-C, pp. 128-131,
Record; TSN, July 2, 1993, p. 5).
On June 20, 1990 NPC wrote Meralco requesting for the "immediate
disconnection of electric power supply to all residential and commercial
establishments beneath the NPC transmission lines along Baesa, Quezon City
(Exh. 7, p. 143, Record). Attached to the letter was a list of establishments
affected which included plaintiffs Leoncio and Matilde Ramoy (Exh. 9), as well as
a copy of the court decision (Exh. 2). After deliberating on NPC's letter, Meralco
decided to comply with NPC's request (Exhibits 6, 6-A, 6-A-1, 6-B) and thereupon
issued notices of disconnection to all establishments affected including plaintiffs
Leoncio Ramoy (Exhs. 3, 3-A to 3-C), Matilde Ramoy/Matilde Macabagdal
(Exhibits 3-D to 3-E), Rosemarie Ramoy (Exh. 3-F), Ofelia Durian (Exh. 3-G), Jose
Valiza (Exh. 3-H) and Cyrene S. Panado (Exh. 3-I).
In a letter dated August 17, 1990 Meralco requested NPC for a joint survey to
determine all the establishments which are considered under NPC property in
view of the fact that "the houses in the area are very close to each other" (Exh.
12). Shortly thereafter, a joint survey was conducted and the NPC personnel
pointed out the electric meters to be disconnected (Exh. 13; TSN, October 8,
1993, p. 7; TSN, July 1994, p. 8).
In due time, the electric service connection of the plaintiffs [herein respondents]
was disconnected (Exhibits D to G, with submarkings, pp. 86-87, Record).
Plaintiff Leoncio Ramoy testified that he and his wife are the registered owners
of a parcel of land covered by TCT No. 326346, a portion of which was occupied
by plaintiffs Rosemarie Ramoy, Ofelia Durian, Jose Valiza and Cyrene S. Panado
as lessees. When the Meralco employees were disconnecting plaintiffs' power
connection, plaintiff Leoncio Ramoy objected by informing the Meralco foreman
that his property was outside the NPC property and pointing out the monuments
showing the boundaries of his property. However, he was threatened and told
not to interfere by the armed men who accompanied the Meralco employees.
After the electric power in Ramoy's apartment was cut off, the plaintiffs-lessees
left the premises.
During the ocular inspection ordered by the Court and attended by the parties, it
was found out that the residence of plaintiffs-spouses Leoncio and Matilde
Ramoy was indeed outside the NPC property. This was confirmed by defendant's
witness R.P. Monsale III on cross-examination (TSN, October 13, 1993, pp. 10 and
11). Monsale also admitted that he did not inform his supervisor about this fact
nor did he recommend re-connection of plaintiffs' power supply (Ibid., p. 14).
The record also shows that at the request of NPC, defendant Meralco re-
connected the electric service of four customers previously disconnected none
of whom was any of the plaintiffs (Exh. 14).4
The RTC decided in favor of MERALCO by dismissing herein respondents' claim
for moral damages, exemplary damages and attorney's fees. However, the RTC
ordered MERALCO to restore the electric power supply of respondents.
Respondents then appealed to the CA. In its Decision dated December 16, 2002,
the CA faulted MERALCO for not requiring from National Power Corporation
(NPC) a writ of execution or demolition and in not coordinating with the court
sheriff or other proper officer before complying with the NPC's request. Thus, the
CA held MERALCO liable for moral and exemplary damages and attorney's fees.
MERALCO's motion for reconsideration of the Decision was denied per
Resolution dated July 1, 2003.
Hence, herein petition for review on certiorari on the following grounds:
I the contract confers upon the injured party a valid cause for recovering that
THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND MERALCO NEGLIGENT
WHEN IT DISCONNECTED THE SUBJECT ELECTRIC SERVICE OF RESPONDENTS.
II
THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY'S FEES AGAINST MERALCO UNDER THE
CIRCUMSTANCES THAT THE LATTER ACTED IN GOOD FAITH IN THE
DISCONNECTION OF THE ELECTRIC SERVICES OF THE RESPONDENTS. 5
The petition is partly meritorious.
MERALCO admits6 that respondents are its customers under a Service Contract
whereby it is obliged to supply respondents with electricity. Nevertheless, upon
request of the NPC, MERALCO disconnected its power supply to respondents on
the ground that they were illegally occupying the NPC's right of way. Under the
Service Contract, "[a] customer of electric service must show his right or proper
interest over the property in order that he will be provided with and assured a
continuous electric service."7 MERALCO argues that since there is a Decision of
the Metropolitan Trial Court (MTC) of Quezon City ruling that herein respondents
were among the illegal occupants of the NPC's right of way, MERALCO was
justified in cutting off service to respondents.
Clearly, respondents' cause of action against MERALCO is anchored on culpa
contractual or breach of contract for the latter's discontinuance of its service to
respondents under Article 1170 of the Civil Code which provides:
Article 1170. 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.
In Radio Communications of the Philippines, Inc. v. Verchez,8 the Court
expounded on the nature of culpa contractual, thus:
"In culpa contractual x x x the mere proof of the existence of the contract and
the failure of its compliance justify, prima facie, a corresponding right of
relief. The law, recognizing the obligatory force of contracts, will not permit a
party to be set free from liability for any kind of misperformance of the
contractual undertaking or a contravention of the tenor thereof. A breach upon
which may have been lost or suffered. The remedy serves to preserve the
interests of the promissee that may include his "expectation interest," which is his
interest in having the benefit of his bargain by being put in as good a position as
he would have been in had the contract been performed, or his "reliance
interest," which is his interest in being reimbursed for loss caused by reliance on
the contract by being put in as good a position as he would have been in had the
contract not been made; or his "restitution interest," which is his interest in
having restored to him any benefit that he has conferred on the other party.
Indeed, agreements can accomplish little, either for their makers or for society,
unless they are made the basis for action. The effect of every infraction is to
create a new duty, that is, to make recompense to the one who has been injured
by the failure of another to observe his contractual obligation unless he can show
extenuating circumstances, like proof of his exercise of due diligence x x x or of
the attendance of fortuitous event, to excuse him from his ensuing
liability.9 (Emphasis supplied)
Article 1173 also provides that the fault or negligence of the obligor consists in
the omission of that diligence which is required by the nature of the obligation
and corresponds with the circumstances of the persons, of the time and of the
place. The Court emphasized in Ridjo Tape & Chemical Corporation v. Court of
Appeals10 that "as a public utility, MERALCO has the obligation to discharge its
functions with utmost care and diligence."11
The Court agrees with the CA that under the factual milieu of the present case,
MERALCO failed to exercise the utmost degree of care and diligence required of
it. To repeat, it was not enough for MERALCO to merely rely on the Decision of
the MTC without ascertaining whether it had become final and executory. Verily,
only upon finality of said Decision can it be said with conclusiveness that
respondents have no right or proper interest over the subject property, thus, are
not entitled to the services of MERALCO.
Although MERALCO insists that the MTC Decision is final and executory, it never
showed any documentary evidence to support this allegation. Moreover, if it
were true that the decision was final and executory, the most prudent thing for
MERALCO to have done was to coordinate with the proper court officials in
determining which structures are covered by said court order. Likewise, there is
no evidence on record to show that this was done by MERALCO.
The utmost care and diligence required of MERALCO necessitates such great
degree of prudence on its part, and failure to exercise the diligence required
means that MERALCO was at fault and negligent in the performance of its
obligation. In Ridjo Tape,12 the Court explained:
[B]eing a public utility vested with vital public interest, MERALCO is impressed
with certain obligations towards its customers and any omission on its part to
perform such duties would be prejudicial to its interest. For in the final analysis,
the bottom line is that those who do not exercise such prudence in the discharge
of their duties shall be made to bear the consequences of such oversight.13
This being so, MERALCO is liable for damages under Article 1170 of the Civil Code.
The next question is: Are respondents entitled to moral and exemplary damages
and attorney's fees?
Article 2220 of the Civil Code provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such damages
are justly due. The same rule applies to breaches of contract where the
defendant acted fraudulently or in bad faith.
In the present case, MERALCO wilfully caused injury to Leoncio Ramoy by
withholding from him and his tenants the supply of electricity to which they were
entitled under the Service Contract. This is contrary to public policy because, as
discussed above, MERALCO, being a vital public utility, is expected to exercise
utmost care and diligence in the performance of its obligation. It was incumbent
upon MERALCO to do everything within its power to ensure that the
improvements built by respondents are within the NPC’s right of way before
disconnecting their power supply. The Court emphasized in Samar II Electric
Cooperative, Inc. v. Quijano14 that:
Electricity is a basic necessity the generation and distribution of which is imbued
with public interest, and its provider is a public utility subject to strict
regulation by the State in the exercise of police power. Failure to comply with
these regulations will give rise to the presumption of bad faith or abuse of
right.15 (Emphasis supplied)
Thus, by analogy, MERALCO's failure to exercise utmost care and diligence in the
performance of its obligation to Leoncio Ramoy, its customer, is tantamount to
bad faith. Leoncio Ramoy testified that he suffered wounded feelings because of
MERALCO's actions.16 Furthermore, due to the lack of power supply, the lessees
of his four apartments on subject lot left the premises.17 Clearly, therefore,
Leoncio Ramoy is entitled to moral damages in the amount awarded by the CA.
Leoncio Ramoy, the lone witness for respondents, was the only one who testified
regarding the effects on him of MERALCO's electric service disconnection. His co-
respondents Matilde Ramoy, Rosemarie Ramoy, Ofelia Durian and Cyrene
Panado did not present any evidence of damages they suffered.
It is a hornbook principle that damages may be awarded only if proven.
In Mahinay v. Velasquez, Jr.,18 the Court held thus:
In order that moral damages may be awarded, there must be pleading and proof
of moral suffering, mental anguish, fright and the like. While respondent alleged
in his complaint that he suffered mental anguish, serious anxiety, wounded
feelings and moral shock, he failed to prove them during the trial. Indeed,
respondent should have taken the witness stand and should have testified on
the mental anguish, serious anxiety, wounded feelings and other emotional and
mental suffering he purportedly suffered to sustain his claim for moral damages.
Mere allegations do not suffice; they must be substantiated by clear and
convincing proof. No other person could have proven such damages except the
respondent himself as they were extremely personal to him.
In Keirulf vs. Court of Appeals, we held:
"While no proof of pecuniary loss is necessary in order that moral damages may
be awarded, the amount of indemnity being left to the discretion of the court, it
is nevertheless essential that the claimant should satisfactorily show the
existence of the factual basis of damages and its causal connection to
defendant’s acts. This is so because moral damages, though incapable of
pecuniary estimation, are in the category of an award designed to compensate
the claimant for actual injury suffered and not to impose a penalty on the
wrongdoer. In Francisco vs. GSIS, the Court held that there must be clear
testimony on the anguish and other forms of mental suffering. Thus, if the
plaintiff fails to take the witness stand and testify as to his/her social humiliation,
wounded feelings and anxiety, moral damages cannot be awarded. In Cocoland
Development Corporation vs. National Labor Relations Commission, the Court
held that "additional facts must be pleaded and proven to warrant the grant of
moral damages under the Civil Code, these being, x x x social humiliation,
wounded feelings, grave anxiety, etc. that resulted therefrom."
x x x The award of moral damages must be anchored to a clear showing that (4) In case of a clearly unfounded civil action or proceeding against the
respondent actually experienced mental anguish, besmirched reputation, plaintiff;
sleepless nights, wounded feelings or similar injury. There was no better witness
to this experience than respondent himself. Since respondent failed to testify on (5) Where the defendant acted in gross and evident bad faith in refusing
the witness stand, the trial court did not have any factual basis to award moral to satisfy the plaintiff’s plainly valid, just and demandable claim;
damages to him.19 (Emphasis supplied)
(6) In actions for legal support;
Thus, only respondent Leoncio Ramoy, who testified as to his wounded feelings,
may be awarded moral damages.20 (7) In actions for the recovery of wages of household helpers, laborers
and skilled workers;
With regard to exemplary damages, Article 2232 of the Civil Code provides that
in contracts and quasi-contracts, the court may award exemplary damages if the (8) In actions for indemnity under workmen’s compensation and
defendant, in this case MERALCO, acted in a wanton, fraudulent, reckless, employer’s liability laws;
oppressive, or malevolent manner, while Article 2233 of the same Code provides
that such damages cannot be recovered as a matter of right and the (9) In a separate civil action to recover civil liability arising from a crime;
adjudication of the same is within the discretion of the court.1avvphi1
(10) When at least double judicial costs are awarded;
The Court finds that MERALCO fell short of exercising the due diligence required,
but its actions cannot be considered wanton, fraudulent, reckless, oppressive or (11) In any other case where the court deems it just and equitable that
malevolent. Records show that MERALCO did take some measures, i.e., attorney’s fees and expenses of litigation should be recovered.
coordinating with NPC officials and conducting a joint survey of the subject area,
to verify which electric meters should be disconnected although these measures
In all cases, the attorney’s fees and expenses of litigation must be reasonable.
are not sufficient, considering the degree of diligence required of it. Thus, in this
case, exemplary damages should not be awarded.
None of the grounds for recovery of attorney's fees are present.
Since the Court does not deem it proper to award exemplary damages in this
WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of
case, then the CA's award for attorney's fees should likewise be deleted, as
Appeals is AFFIRMED with MODIFICATION. The award for exemplary damages
Article 2208 of the Civil Code states that in the absence of stipulation, attorney's
and attorney's fees is DELETED.
fees cannot be recovered except in cases provided for in said Article, to wit:

No costs.
Article 2208. In the absence of stipulation, attorney’s fees and expenses of
litigation, other than judicial costs, cannot be recovered, except:
SO ORDERED
(1) When exemplary damages are awarded;

(2) When the defendant’s act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;


G.R. No. L-23749 April 29, 1977
FAUSTINO CRUZ, plaintiff-appellant,
vs.
J. M. TUASON & COMPANY, INC., and GREGORIO ARANETA, INC., defendants-
appellees.
BARREDO, J.:
Appeal from the order dated August 13, 1964 of the Court of First Instance of
Quezon City in Civil Case No. Q-7751, Faustino Cruz vs. J.M. Tuason & Co.,
Inc., and Gregorio Araneta, Inc., dismissing the complaint of appellant Cruz for
the recovery of improvements he has made on appellees' land and to compel
appellees to convey to him 3,000 square meters of land on three grounds: (1)
failure of the complaint to state a cause of action; (2) the cause of action of
plaintiff is unenforceable under the Statute of Frauds; and (3) the action of the
plaintiff has already prescribed.
Actually, a perusal of plaintiff-appellant's complaint below shows that he alleged
two separate causes of action, namely: (1) that upon request of the Deudors (the
family of Telesforo Deudor who laid claim on the land in question on the strength
of an "informacion posesoria" ) plaintiff made permanent improvements valued
at P30,400.00 on said land having an area of more or less 20 quinones and for
which he also incurred expenses in the amount of P7,781.74, and since
defendants-appellees are being benefited by said improvements, he is entitled
to reimbursement from them of said amounts and (2) that in 1952, defendants
availed of plaintiff's services as an intermediary with the Deudors to work for the
amicable settlement of Civil Case No. Q-135, then pending also in the Court of
First Instance of Quezon City, and involving 50 quinones of land, of Which the 20
quinones aforementioned form part, and notwithstanding his having performed
his services, as in fact, a compromise agreement entered into on March 16, 1963
between the Deudors and the defendants was approved by the court, the latter
have refused to convey to him the 3,000 square meters of land occupied by him,
(a part of the 20 quinones above) which said defendants had promised to do
"within ten years from and after date of signing of the compromise agreement",
as consideration for his services.
Within the Period allowed by the rules, the defendants filed separate motions to
dismiss alleging three Identical grounds: (1) As regards that improvements made
by plaintiff, that the complaint states no cause of action, the agreement
regarding the same having been made by plaintiff with the Deudors and not with
the defendants, hence the theory of plaintiff based on Article 2142 of the Code
on unjust enrichment is untenable; and (2) anent the alleged agreement about
plaintiffs services as intermediary in consideration of which, defendants
promised to convey to him 3,000 square meters of land, that the same is
unenforceable under the Statute of Frauds, there being nothing in writing about
it, and, in any event, (3) that the action of plaintiff to compel such conveyance
has already prescribed.
Plaintiff opposed the motion, insisting that Article 2142 of the applicable to his
case; that the Statute of Frauds cannot be invoked by defendants, not only
because Article 1403 of the Civil Code refers only to "sale of real property or of
an interest therein" and not to promises to convey real property like the one
supposedly promised by defendants to him, but also because, he, the plaintiff
has already performed his part of the agreement, hence the agreement has
already been partly executed and not merely executory within the contemplation
of the Statute; and that his action has not prescribed for the reason that
defendants had ten years to comply and only after the said ten years did his cause
of action accrue, that is, ten years after March 16, 1963, the date of the approval
of the compromise agreement, and his complaint was filed on January 24, 1964.
Ruling on the motion to dismiss, the trial court issued the herein impugned order
of August 13, 1964:
In the motion, dated January 31, 1964, defendant Gregorio
Araneta, Inc. prayed that the complaint against it be dismissed
on the ground that (1) the claim on which the action is founded
is unenforceable under the provision of the Statute of Frauds;
and (2) the plaintiff's action, if any has already prescribed. In the
other motion of February 11, 1964, defendant J. M. Tuason &
Co., Inc. sought the dismissal of the plaintiffs complaint on the
ground that it states no cause of action and on the Identical
grounds stated in the motion to dismiss of defendant Gregorio
Araneta, Inc. The said motions are duly opposed by the plaintiff.
From the allegations of the complaint, it appears that, by virtue
of an agreement arrived at in 1948 by the plaintiff and the
Deudors, the former assisted the latter in clearing, improving,
subdividing and selling the large tract of land consisting of 50
quinones covered by the informacion posesoria in the name of
the late Telesforo Deudor and incurred expenses, which are
valued approximately at P38,400.00 and P7,781.74,
respectively; and, for the reasons that said improvements are
being used and enjoyed by the defendants, the plaintiff is
seeking the reimbursement for the services and expenses
stated above from the defendants.
Defendant J. M. Tuason & Co., Inc. claimed that, insofar as the
plaintiffs claim for the reimbursement of the amounts of
P38,400.00 and P7,781.74 is concerned, it is not a privy to the
plaintiff's agreement to assist the Deudors n improving the 50
quinones. On the other hand, the plaintiff countered that, by
holding and utilizing the improvements introduced by him, the
defendants are unjustly enriching and benefiting at the expense
of the plaintiff; and that said improvements constitute a lien or
charge of the property itself
On the issue that the complaint insofar as it claims the
reimbursement for the services rendered and expenses
incurred by the plaintiff, states no cause of action, the Court is
of the opinion that the same is well-founded. It is found that the
defendants are not parties to the supposed express contract
entered into by and between the plaintiff and the Deudors for
the clearing and improvement of the 50 quinones. Furthermore
in order that the alleged improvement may be considered a lien
or charge on the property, the same should have been made in
good faith and under the mistake as to the title. The Court can
take judicial notice of the fact that the tract of land supposedly
improved by the plaintiff had been registered way back in 1914
in the name of the predecessors-in-interest of defendant J. M.
Tuason & Co., Inc. This fact is confirmed in the decision rendered
by the Supreme Court on July 31, 1956 in Case G. R. No. L-5079
entitled J.M. Tuason & Co. Inc. vs. Geronimo Santiago, et al.,
Such being the case, the plaintiff cannot claim good faith and
mistake as to the title of the land.
On the issue of statute of fraud, the Court believes that same is
applicable to the instant case. The allegation in par. 12 of the
complaint states that the defendants promised and agreed to
cede, transfer and convey unto the plaintiff the 3,000 square
meters of land in consideration of certain services to be
rendered then. it is clear that the alleged agreement involves an
interest in real property. Under the provisions of See. 2(e) of
Article 1403 of the Civil Code, such agreement is not
enforceable as it is not in writing and subscribed by the party
charged.
On the issue of statute of limitations, the Court holds that the
plaintiff's action has prescribed. It is alleged in par. 11 of the
complaint that, sometime in 1952, the defendants approached
the plaintiff to prevail upon the Deudors to enter to a
compromise agreement in Civil Case No. Q-135 and allied cases.
Furthermore, par. 13 and 14 of the complaint alleged that the
plaintiff acted as emissary of both parties in conveying their
respective proposals and couter-proposals until the final
settlement was effected on March 16, 1953 and approved by
Court on April 11, 1953. In the present action, which was
instituted on January 24, 1964, the plaintiff is seeking to enforce
the supposed agreement entered into between him and the
defendants in 1952, which was already prescribed.
WHEREFORE, the plaintiffs complaint is hereby ordered
DISMISSED without pronouncement as to costs.
SO ORDERED. (
G.R. No. L-44546 January 29, 1988
RUSTICO ADILLE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, EMETERIA ASEJO, TEODORICA ASEJO,
DOMINGO ASEJO, JOSEFA ASEJO and SANTIAGO ASEJO, respondents.
SARMIENTO, J.:
In issue herein are property and property rights, a familiar subject of controversy
and a wellspring of enormous conflict that has led not only to protracted legal
entanglements but to even more bitter consequences, like strained relationships
and even the forfeiture of lives. It is a question that likewise reflects a tragic
commentary on prevailing social and cultural values and institutions, where, as
one observer notes, wealth and its accumulation are the basis of self-fulfillment
and where property is held as sacred as life itself. "It is in the defense of his
property," says this modern thinker, that one "will mobilize his deepest
protective devices, and anybody that threatens his possessions will arouse his
most passionate enmity." 1
The task of this Court, however, is not to judge the wisdom of values; the burden
of reconstructing the social order is shouldered by the political leadership-and
the people themselves.
The parties have come to this Court for relief and accordingly, our responsibility
is to give them that relief pursuant to the decree of law.
The antecedent facts are quoted from the decision 2 appealed from:
xxx xxx xxx
... [T]he land in question Lot 14694 of Cadastral Survey of Albay
located in Legaspi City with an area of some 11,325 sq. m.
originally belonged to one Felisa Alzul as her own private
property; she married twice in her lifetime; the first, with one
Bernabe Adille, with whom she had as an only child, herein
defendant Rustico Adille; in her second marriage with one
Procopio Asejo, her children were herein plaintiffs, — now,
sometime in 1939, said Felisa sold the property in pacto de
retro to certain 3rd persons, period of repurchase being 3 years,
but she died in 1942 without being able to redeem and after her
death, but during the period of redemption, herein defendant
repurchased, by himself alone, and after that, he executed a
deed of extra-judicial partition representing himself to be the
only heir and child of his mother Felisa with the consequence
that he was able to secure title in his name alone also, so that
OCT. No. 21137 in the name of his mother was transferred to
his name, that was in 1955; that was why after some efforts of
compromise had failed, his half-brothers and sisters, herein
plaintiffs, filed present case for partition with accounting on the
position that he was only a trustee on an implied trust when he
redeemed,-and this is the evidence, but as it also turned out
that one of plaintiffs, Emeteria Asejo was occupying a portion,
defendant counterclaimed for her to vacate that, —
Well then, after hearing the evidence, trial Judge sustained
defendant in his position that he was and became absolute
owner, he was not a trustee, and therefore, dismissed case and
also condemned plaintiff occupant, Emeteria to vacate; it is
because of this that plaintiffs have come here and contend that
trial court erred in:
I. ... declaring the defendant absolute owner of the property;
II. ... not ordering the partition of the property; and
III. ... ordering one of the plaintiffs who is in possession of the
portion of the property to vacate the land, p. 1 Appellant's brief.
which can be reduced to simple question of whether or not on the basis of
evidence and law, judgment appealed from should be maintained. 3
xxx xxx xxx
The respondent Court of appeals reversed the trial Court, 4 and ruled for the
plaintiffs-appellants, the private respondents herein. The petitioner now
appeals, by way of certiorari, from the Court's decision.
We required the private respondents to file a comment and thereafter, having
given due course to the petition, directed the parties to file their briefs. Only the
petitioner, however, filed a brief, and the private respondents having failed to
file one, we declared the case submitted for decision.
The petition raises a purely legal issue: May a co-owner acquire exclusive
ownership over the property held in common?
Essentially, it is the petitioner's contention that the property subject of dispute
devolved upon him upon the failure of his co-heirs to join him in its redemption
within the period required by law. He relies on the provisions of Article 1515 of
the old Civil Article 1613 of the present Code, giving the vendee a retro the right
to demand redemption of the entire property.
There is no merit in this petition.
The right of repurchase may be exercised by a co-owner with aspect to his share
alone. 5 While the records show that the petitioner redeemed the property in its
entirety, shouldering the expenses therefor, that did not make him the owner of
all of it. In other words, it did not put to end the existing state of co-ownership.
Necessary expenses may be incurred by one co-owner, subject to his right to
collect reimbursement from the remaining co-owners. 6 There is no doubt that
redemption of property entails a necessary expense. Under the Civil Code:
ART. 488. Each co-owner shall have a right to compel the other
co-owners to contribute to the expenses of preservation of the
thing or right owned in common and to the taxes. Any one of
the latter may exempt himself from this obligation by
renouncing so much of his undivided interest as may be
equivalent to his share of the expenses and taxes. No such
waiver shall be made if it is prejudicial to the co-ownership.
The result is that the property remains to be in a condition of co-ownership.
While a vendee a retro, under Article 1613 of the Code, "may not be compelled
to consent to a partial redemption," the redemption by one co-heir or co-owner
of the property in its totality does not vest in him ownership over it. Failure on
the part of all the co-owners to redeem it entitles the vendee a retro to retain
the property and consolidate title thereto in his name. 7 But the provision does
not give to the redeeming co-owner the right to the entire property. It does not
provide for a mode of terminating a co-ownership.
Neither does the fact that the petitioner had succeeded in securing title over the
parcel in his name terminate the existing co-ownership. While his half-brothers
and sisters are, as we said, liable to him for reimbursement as and for their shares
in redemption expenses, he cannot claim exclusive right to the property owned
in common. Registration of property is not a means of acquiring ownership. It
operates as a mere notice of existing title, that is, if there is one.
The petitioner must then be said to be a trustee of the property on behalf of the
private respondents. The Civil Code states:
ART. 1456. If property is acquired through mistake or fraud, the
person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the
property comes.
We agree with the respondent Court of Appeals that fraud attended the
registration of the property. The petitioner's pretension that he was the sole heir
to the land in the affidavit of extrajudicial settlement he executed preliminary to
the registration thereof betrays a clear effort on his part to defraud his brothers
and sisters and to exercise sole dominion over the property. The aforequoted
provision therefore applies.
It is the view of the respondent Court that the petitioner, in taking over the
property, did so either on behalf of his co-heirs, in which event, he had
constituted himself a negotiorum gestor under Article 2144 of the Civil Code, or
for his exclusive benefit, in which case, he is guilty of fraud, and must act as
trustee, the private respondents being the beneficiaries, under the Article 1456.
The evidence, of course, points to the second alternative the petitioner having
asserted claims of exclusive ownership over the property and having acted in
fraud of his co-heirs. He cannot therefore be said to have assume the mere
management of the property abandoned by his co-heirs, the situation Article
2144 of the Code contemplates. In any case, as the respondent Court itself
affirms, the result would be the same whether it is one or the other. The
petitioner would remain liable to the Private respondents, his co-heirs.
This Court is not unaware of the well-established principle that prescription bars
any demand on property (owned in common) held by another (co-owner)
following the required number of years. In that event, the party in possession
acquires title to the property and the state of co-ownership is ended . 8 In the
case at bar, the property was registered in 1955 by the petitioner, solely in his
name, while the claim of the private respondents was presented in 1974. Has
prescription then, set in?
We hold in the negative. Prescription, as a mode of terminating a relation of co-
ownership, must have been preceded by repudiation (of the co-ownership). The
act of repudiation, in turn is subject to certain conditions: (1) a co-owner
repudiates the co-ownership; (2) such an act of repudiation is clearly made
known to the other co-owners; (3) the evidence thereon is clear and conclusive,
and (4) he has been in possession through open, continuous, exclusive, and
notorious possession of the property for the period required by law. 9
The instant case shows that the petitioner had not complied with these SO ORDERED,
requisites. We are not convinced that he had repudiated the co-ownership; on
the contrary, he had deliberately kept the private respondents in the dark by DOMETILA M. ANDRES, doing business under the name and style "IRENE'S
feigning sole heirship over the estate under dispute. He cannot therefore be said WEARING APPAREL," petitioner,
to have "made known" his efforts to deny the co-ownership. Moreover, one of vs.
the private respondents, Emeteria Asejo, is occupying a portion of the land up to MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF
the present, yet, the petitioner has not taken pains to eject her therefrom. As a APPEALS, respondents.
matter of fact, he sought to recover possession of that portion Emeteria is
occupying only as a counterclaim, and only after the private respondents had first Roque A. Tamayo for petitioner.
sought judicial relief.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private respondent.
It is true that registration under the Torrens system is constructive notice of
title, 10 but it has likewise been our holding that the Torrens title does not furnish
a shield for fraud. 11 It is therefore no argument to say that the act of registration
is equivalent to notice of repudiation, assuming there was one, notwithstanding CORTES, J.:
the long-standing rule that registration operates as a universal notice of title.
Assailed in this petition for review on certiorari is the judgment of the Court of
For the same reason, we cannot dismiss the private respondents' claims Appeals, which, applying the doctrine of solutio indebiti, reversed the decision of
commenced in 1974 over the estate registered in 1955. While actions to enforce the Regional Trial Court, Branch CV, Quezon City by deciding in favor of private
a constructive trust prescribes in ten years, 12 reckoned from the date of the respondent.
registration of the property, 13 we, as we said, are not prepared to count the
period from such a date in this case. We note the petitioner's sub rosa efforts to
Petitioner, using the business name "Irene's Wearing Apparel," was engaged in
get hold of the property exclusively for himself beginning with his fraudulent
the manufacture of ladies garments, children's wear, men's apparel and linens
misrepresentation in his unilateral affidavit of extrajudicial settlement that he is
for local and foreign buyers. Among its foreign buyers was Facets Funwear, Inc.
"the only heir and child of his mother Feliza with the consequence that he was
(hereinafter referred to as FACETS) of the United States.
able to secure title in his name also." 14 Accordingly, we hold that the right of the
private respondents commenced from the time they actually discovered the
In the course of the business transaction between the two, FACETS from time to
petitioner's act of defraudation. 15 According to the respondent Court of Appeals,
time remitted certain amounts of money to petitioner in payment for the items
they "came to know [of it] apparently only during the progress of the
it had purchased. Sometime in August 1980, FACETS instructed the First National
litigation." 16 Hence, prescription is not a bar.
State Bank of New Jersey, Newark, New Jersey, U.S.A. (hereinafter referred to as
FNSB) to transfer $10,000.00 to petitioner via Philippine National Bank, Sta. Cruz
Moreover, and as a rule, prescription is an affirmative defense that must be
Branch, Manila (hereinafter referred to as PNB).
pleaded either in a motion to dismiss or in the answer otherwise it is deemed
waived, 17 and here, the petitioner never raised that defense. 18 There are
Acting on said instruction, FNSB instructed private respondent Manufacturers
recognized exceptions to this rule, but the petitioner has not shown why they
Hanover and Trust Corporation to effect the above- mentioned transfer through
apply.
its facilities and to charge the amount to the account of FNSB with private
respondent. Although private respondent was able to send a telex to PNB to pay
WHEREFORE, there being no reversible error committed by the respondent Court
petitioner $10,000.00 through the Pilipinas Bank, where petitioner had an
of Appeals, the petition is DENIED. The Decision sought to be reviewed is hereby
account, the payment was not effected immediately because the payee
AFFIRMED in toto. No pronouncement as to costs.
designated in the telex was only "Wearing Apparel." Upon query by PNB, private
respondent sent PNB another telex dated August 27, 1980 stating that the
payment was to be made to "Irene's Wearing Apparel." On August 28, 1980,
petitioner received the remittance of $10,000.00 through Demand Draft No.
225654 of the PNB.
Meanwhile, on August 25, 1980, after learning about the delay in the remittance
of the money to petitioner, FACETS informed FNSB about the situation. On
September 8, 1980, unaware that petitioner had already received the
remittance, FACETS informed private respondent about the delay and at the
same time amended its instruction by asking it to effect the payment through the
Philippine Commercial and Industrial Bank (hereinafter referred to as PCIB)
instead of PNB.
Accordingly, private respondent, which was also unaware that petitioner had
already received the remittance of $10,000.00 from PNB instructed the PCIB to
pay $10,000.00 to petitioner. Hence, on September 11, 1980, petitioner received
a second $10,000.00 remittance.
Private respondent debited the account of FNSB for the second $10,000.00
remittance effected through PCIB. However, when FNSB discovered that private
respondent had made a duplication of the remittance, it asked for a recredit of
its account in the amount of $10,000.00. Private respondent complied with the
request.
Private respondent asked petitioner for the return of the second remittance of
$10,000.00 but the latter refused to pay. On May 12, 1982 a complaint was filed
with the Regional Trial Court, Branch CV, Quezon City which was decided in favor
of petitioner as defendant. The trial court ruled that Art. 2154 of the New Civil
Code is not applicable to the case because the second remittance was made not
by mistake but by negligence and petitioner was not unjustly enriched by virtue
thereof [Record, p. 234]. On appeal, the Court of Appeals held that Art. 2154 is
applicable and reversed the RTC decision. The dispositive portion of the Court of
Appeals' decision reads as follows:
WHEREFORE, the appealed decision is hereby REVERSED and
SET ASIDE and another one entered in favor of plaintiff-
appellant and against defendant-appellee Domelita (sic) M.
Andres, doing business under the name and style "Irene's
Wearing Apparel" to reimburse and/or return to plaintiff-
appellant the amount of $10,000.00, its equivalent in Philippine
currency, with interests at the legal rate from the filing of the
complaint on May 12, 1982 until the whole amount is fully paid,
plus twenty percent (20%) of the amount due as attomey's fees;
and to pay the costs.
With costs against defendant-appellee.
SO ORDERED. [Rollo, pp. 29-30.]
Thereafter, this petition was filed. The sole issue in this case is whether or not
the private respondent has the right to recover the second $10,000.00
remittance it had delivered to petitioner. The resolution of this issue would hinge
on the applicability of Art. 2154 of the New Civil Code which provides that:
Art. 2154. If something received when there is no right to
demand it, and it was unduly delivered through mistake, the
obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil Code which provided
that:
Art. 1895. If a thing is received when there was no right to claim
it and which, through an error, has been unduly delivered, an
obligation to restore it arises.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice
Bocobo explained the nature of this article thus:
Article 1895 [now Article 2154] of the Civil Code abovequoted,
is therefore applicable. This legal provision, which determines
the quasi-contract of solution indebiti, is one of the concrete
manifestations of the ancient principle that no one shall enrich
himself unjustly at the expense of another. In the Roman Law
Digest the maxim was formulated thus: "Jure naturae acquum
est, neminem cum alterius detrimento et injuria fieri
locupletiorem." And the Partidas declared: "Ninguno non deue
enriquecerse tortizeramente con dano de otro." Such axiom has
grown through the centuries in legislation, in the science of law
and in court decisions. The lawmaker has found it one of the
helpful guides in framing statutes and codes. Thus, it is unfolded
in many articles scattered in the Spanish Civil Code. (See for
example, articles, 360, 361, 464, 647, 648, 797, 1158, 1163,
1295, 1303, 1304, 1893 and 1895, Civil Code.) This time-
 honored aphorism has also been adopted by jurists in their
study of the conflict of rights. It has been accepted by the courts,
which have not hesitated to apply it when the exigencies of right
and equity demanded its assertion. It is a part of that affluent
reservoir of justice upon which judicial discretion draws
whenever the statutory laws are inadequate because they do
not speak or do so with a confused voice. [at p. 632.]
For this article to apply the following requisites must concur: "(1) that he who
paid was not under obligation to do so; and, (2) that payment was made by
reason of an essential mistake of fact" [City of Cebu v. Piccio, 110 Phil. 558, 563
(1960)].
It is undisputed that private respondent delivered the second $10,000.00
remittance. However, petitioner contends that the doctrine of solutio indebiti,
does not apply because its requisites are absent.
First, it is argued that petitioner had the right to demand and therefore to retain
the second $10,000.00 remittance. It is alleged that even after the two
$10,000.00 remittances are credited to petitioner's receivables from FACETS, the
latter allegedly still had a balance of $49,324.00. Hence, it is argued that the last
$10,000.00 remittance being in payment of a pre-existing debt, petitioner was
not thereby unjustly enriched.
The contention is without merit.
The contract of petitioner, as regards the sale of garments and other textile
products, was with FACETS. It was the latter and not private respondent which
was indebted to petitioner. On the other hand, the contract for the transmittal
of dollars from the United States to petitioner was entered into by private
respondent with FNSB. Petitioner, although named as the payee was not privy to
the contract of remittance of dollars. Neither was private respondent a party to
the contract of sale between petitioner and FACETS. There being no contractual
relation between them, petitioner has no right to apply the second $10,000.00
remittance delivered by mistake by private respondent to the outstanding
account of FACETS.
Petitioner next contends that the payment by respondent bank of the second
$10,000.00 remittance was not made by mistake but was the result of negligence
of its employees. In connection with this the Court of Appeals made the following
finding of facts:
The fact that Facets sent only one remittance of $10,000.00 is
not disputed. In the written interrogatories sent to the First
National State Bank of New Jersey through the Consulate
General of the Philippines in New York, Adelaide C. Schachel,
the investigation and reconciliation clerk in the said bank
testified that a request to remit a payment for Facet Funwear
Inc. was made in August, 1980. The total amount which the First
National State Bank of New Jersey actually requested the
plaintiff-appellant Manufacturers Hanover & Trust Corporation
to remit to Irene's Wearing Apparel was US $10,000.00. Only
one remittance was requested by First National State Bank of
New Jersey as per instruction of Facets Funwear (Exhibit "J", pp.
4-5).
That there was a mistake in the second remittance of US
$10,000.00 is borne out by the fact that both remittances have
the same reference invoice number which is 263 80. (Exhibits
"A-1- Deposition of Mr. Stanley Panasow" and "A-2-Deposition
of Mr. Stanley Panasow").
Plaintiff-appellant made the second remittance on the wrong
assumption that defendant-appellee did not receive the first
remittance of US $10,000.00. [Rollo, pp. 26-27.]
It is evident that the claim of petitioner is anchored on the appreciation of the
attendant facts which petitioner would have this Court review. The Court holds
that the finding by the Court of Appeals that the second $10,000.00 remittance
was made by mistake, being based on substantial evidence, is final and
conclusive. The rule regarding questions of fact being raised with this Court in a
petition for certiorari under Rule 45 of the Revised Rules of Court has been stated
in Remalante v. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be
raised in a petition for certiorari under Rule 45 of the Revised
Rules of Court. "The jurisdiction of the Supreme Court in cases
brought to it from the Court of Appeals is limited to reviewing
and revising the errors of law imputed to it, its findings of fact
being conclusive" [Chan v. Court of Appeals, G.R. No. L-27488,
June 30, 1970, 33 SCRA 737, reiterating a long line of decisions].
This Court has emphatically declared that "it is not the function
of the Supreme Court to analyze or weigh such evidence all over
 again, its jurisdiction being limited to reviewing errors of law
that might have been committed by the lower court" [Tiongco
v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89;
Corona v. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121
SCRA 865; Baniqued v. Court of Appeals, G. R. No. L-47531,
February 20, 1984, 127 SCRA 596]. "Barring, therefore, a
showing that the findings complained of are totally devoid of
support in the record, or that they are so glaringly erroneous as
to constitute serious abuse of discretion, such findings must
stand, for this Court is not expected or required to examine or
contrast the oral and documentary evidence submitted by the
parties" [Santa Ana, Jr. v. Hernandez, G.R. No. L-16394,
December 17, 1966, 18 SCRA 9731. [at pp. 144-145.]
Finally, in her attempt to defeat private respondent's claim, petitioner makes
much of the fact that from the time the second $10,000.00 remittance was made,
five hundred and ten days had elapsed before private respondent demanded the
return thereof. Needless to say, private respondent instituted the complaint for
recovery of the second $10,000.00 remittance well within the six years
prescriptive period for actions based upon a quasi-contract [Art. 1145 of the New
Civil Code].
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is
hereby AFFIRMED.
SO ORDERED.

Petitioner invokes the equitable principle that when one of two innocent persons
must suffer by the wrongful act of a third person, the loss must be borne by the
one whose negligence was the proximate cause of the loss.

The rule is that principles of equity cannot be applied if there is a provision of law G.R. Nos. 103442-45 May 21, 1993
specifically applicable to a case [Phil. Rabbit Bus Lines, Inc. v. Arciaga, G.R. No. L-
29701, March 16, 1987,148 SCRA 433; Zabat, Jr. v. Court of Appeals, G.R. No. NATIONAL POWER CORPORATION, ET AL., petitioners,
L36958, July 10, 1986, 142 SCRA 587; Rural Bank of Paranaque, Inc. v. Remolado, vs.
G.R. No. 62051, March 18, 1985, 135 SCRA 409; Cruz v. Pahati, 98 Phil. 788 THE COURT OF APPEALS, GAUDENCIO C. RAYO, ET AL., respondents.
(1956)]. Hence, the Court in the case of De Garcia v. Court of Appeals, G.R. No. L-
20264, January 30, 1971, 37 SCRA 129, citing Aznar v. Yapdiangco, G.R. No. L- The Solicitor General for plaintiff-appellee.
18536, March 31, 1965, 13 SCRA 486, held:
Ponciano G. Hernandez for private respondents.
... The common law principle that where one of two innocent
persons must suffer by a fraud perpetrated by another, the law
imposes the loss upon the party who, by his misplaced
confidence, has enabled the fraud to be committed, cannot be
DAVIDE, JR., J.:
applied in a case which is covered by an express provision of the
new Civil Code, specifically Article 559. Between a common law
principle and a statutory provision, the latter must prevail in this This is a petition for review on certiorari under Rule 45 of the Revised Rules of
jurisdiction. [at p. 135.] Court urging this Court to set aside the 19 August 1991 consolidated Decision of
the Court of Appeals in CA.-G.R. CV Nos. 27290-931 which reversed the Decision
of Branch 5 of the then Court of First Instance (now Regional Trial Court) of
Having shown that Art. 2154 of the Civil Code, which embodies the doctrine
Bulacan, and held petitioners National Power Corporation (NPC) and Benjamin
of solutio indebiti, applies in the case at bar, the Court must reject the common
Chavez jointly and severally liable to the private respondents for actual and moral
law principle invoked by petitioner.
damages, litigation expenses and attorney's fees.
This present controversy traces its beginnings to four (4) separate complaints2 for
damages filed against the NPC and Benjamin Chavez before the trial court. The
plaintiffs therein, now private respondents, sought to recover actual and other
damages for the loss of lives and the destruction to property caused by the
inundation of the town of Norzagaray, Bulacan on 26-27 October 1978. The
flooding was purportedly caused by the negligent release by the defendants of
water through the spillways of the Angat Dam (Hydroelectric Plant). In said
complaints, the plaintiffs alleged, inter alia, that: 1) defendant NPC operated and
maintained a multi-purpose hydroelectric plant in the Angat River at Hilltop,
Norzagaray, Bulacan; 2) defendant Benjamin Chavez was the plant supervisor at
the time of the incident in question; 3) despite the defendants' knowledge, as
early as 24 October 1978, of the impending entry of typhoon "Kading," they failed
to exercise due diligence in monitoring the water level at the dam; 4) when the
said water level went beyond the maximum allowable limit at the height of the
typhoon, the defendants suddenly, negligently and recklessly opened three (3)
of the dam's spillways, thereby releasing a large amount of water which
inundated the banks of the Angat River; and 5) as a consequence, members of
the household of the plaintiffs, together with their animals, drowned, and their
properties were washed away in the evening of 26 October and the early hours
of 27 October 1978.3
In their Answers, the defendants, now petitioners, alleged that: 1) the NPC
exercised due care, diligence and prudence in the operation and maintenance of
the hydroelectric plant; 2) the NPC exercised the diligence of a good father in the
selection of its employees; 3) written notices were sent to the different
municipalities of Bulacan warning the residents therein about the impending
release of a large volume of water with the onset of typhoon "Kading" and advise
them to take the necessary precautions; 4) the water released during the
typhoon was needed to prevent the collapse of the dam and avoid greater
damage to people and property; 5) in spite of the precautions undertaken and
the diligence exercised, they could still not contain or control the flood that
resulted and; 6) the damages incurred by the private respondents were caused
by a fortuitous event or force majeure and are in the nature and character
of damnum absque injuria. By way of special affirmative defense, the defendants
averred that the NPC cannot be sued because it performs a purely governmental
function.4
Upon motion of the defendants, a preliminary hearing on the special defense was
conducted. As a result thereof, the trial court dismissed the complaints as against
the NPC on the ground that the provision of its charter allowing it to sue and be
sued does not contemplate actions based on tort. The parties do not, however,
dispute the fact that this Court overruled the trial court and ordered the
reinstatement of the complaints as against the NPC.5
Being closely interrelated, the cases were consolidated and trial thereafter
ensued.
The lower court rendered its decision on 30 April 1990 dismissing the complaints
"for lack of sufficient and credible evidence."6 Consequently, the private
respondents seasonably appealed therefrom to the respondent Court which then
docketed the cases as CA-G.R. CV Nos. 27290-93.
In its joint decision promulgated on 19 August 1991, the Court of Appeals
reversed the appealed decision and awarded damages in favor of the private
respondents. The dispositive portion of the decision reads:
CONFORMABLY TO THE FOREGOING, the joint decision
appealed from is hereby REVERSED and SET ASIDE, and a new
one is hereby rendered:
1. In Civil Case No. SM-950, ordering defendants-appellees to
pay, jointly and severally, plaintiffs-appellants, with legal
interest from the date when this decision shall become final and
executory, the following:
A. Actual damages, to wit:
1) Gaudencio C. Rayo, Two Hundred Thirty One
Thousand Two Hundred Sixty Pesos
(P231,260.00);
2) Bienvenido P. Pascual, Two Hundred Four
Thousand Five Hundred Pesos (P204.500.00);
3) Tomas Manuel, One Hundred Fifty Five
Thousand Pesos (P155,000.00);
4) Pedro C. Bartolome, One Hundred Forty
Seven Thousand Pesos (P147,000.00);.
 5) Bernardino Cruz, One Hundred Forty Three
Thousand Five Hundred Fifty Two Pesos and
Fifty Centavos (P143,552.50);
6) Jose Palad, Fifty Seven Thousand Five
Hundred Pesos (P57,500.00);
7) Mariano S. Cruz, Forty Thousand Pesos
(P40,000.00);
8) Lucio Fajardo, Twenty nine Thousand Eighty
Pesos (P29,080.00); and
B. Litigation expenses of Ten Thousand Pesos (P10,000.00);
2. In Civil case No. SM-951, ordering defendants-appellees to
pay jointly and severally, plaintiff-appellant, with legal interest
from the date when this decision shall have become final and
executory, the following :
A. Actual damages of Five Hundred Twenty
Thousand Pesos (P520,000.00);.
B. Moral damages of five hundred Thousand
Pesos (P500,000.00); and.
C. Litigation expenses of Ten Thousand Pesos
(P10,000.00);.
3. In Civil Case No. SM-953, ordering defendants-appellees to
pay, jointly and severally, with legal interest from the date when
this decision shall have become final and executory;
A. Plaintiff-appellant Angel C. Torres:
1) Actual damages of One Hundred Ninety Nine Thousand One
Hundred Twenty Pesos (P199,120.00);
2) Moral Damages of One Hundred Fifty Thousand Pesos
(P150,000.00);
B. Plaintiff-appellant Norberto Torres:
1) Actual damages of Fifty Thousand Pesos (P50,000.00);
2) Moral damages of Fifty Thousand Pesos (P50,000.00);
C. Plaintiff-appellant Rodelio Joaquin:
1) Actual damages of One Hundred Thousand
Pesos (P100,000.00);
2) Moral damages of One Hundred Thousand
Pesos (P100,000.00); and
D. Plaintifsf-appellants litigation expenses of Ten Thousand
Pesos (P10,000.00);
4. In Civil case No. SM-1247, ordering defendants-appellees to
pay, jointly and severally, with legal interest from the date when
this decision shall have become final and executory :
A. Plaintiffs-appellants Presentacion Lorenzo and Clodualdo
Lorenzo:
1) Actual damages of Two Hundred Fifty Six
Thousand Six Hundred Pesos (P256,600.00);
2) Moral damages of Fifty Thousand Pesos
(P50,000.00);
B. Plaintiff-appellant Consolacion Guzman :
1) Actual damages of One Hundred forty
Thousand Pesos (P140,000.00);
2) Moral damages of Fifty Thousand Pesos
(P50,000.00);
C. Plaintiff-appellant Virginia Guzman :
 1) Actual damages of Two Hundred Five
Hundred Twenty Pesos (205,520.00); and
D. Plaintiffs-appellants litigation expenses of Ten Thousand
Pesos (10,000.00).
In addition, in all the four (4) instant cases, ordering defendants-
appellees to pay, jointly and severally, plaintiffs-appellants
attorney fees in an amount equivalent to 15% of the total
amount awarded.
No pronouncement as to costs.7
The foregoing judgment is based on the public respondent's conclusion that the
petitioners were guilty of:
. . . a patent gross and evident lack of foresight, imprudence and
negligence . . . in the management and operation of Angat Dam.
The unholiness of the hour, the extent of the opening of the
spillways, And the magnitude of the water released, are all but
products of defendants-appellees' headlessness, slovenliness,
and carelessness. The resulting flash flood and inundation of
even areas (sic) one (1) kilometer away from the Angat River
bank would have been avoided had defendants-appellees
prepared the Angat Dam by maintaining in the first place, a
water elevation which would allow room for the expected
torrential rains.8
This conclusion, in turn, is anchored on its findings of fact, to wit:
As early as October 21, 1978, defendants-appellees knew of the
impending onslaught of and imminent danger posed by typhoon
"Kading". For as alleged by defendants-appellees themselves,
the coming of said super typhoon was bannered by Bulletin
Today, a newspaper of national circulation, on October 25,
1978, as "Super Howler to hit R.P." The next day, October 26,
1978, said typhoon once again merited a headline in said
newspaper as "Kading's Big Blow expected this afternoon"
(Appellee's Brief, p. 6). Apart from the newspapers, defendants-
appellees learned of typhoon "Kading' through radio
announcements (Civil Case No. SM-950, TSN, Benjamin Chavez,
December 4, 1984, pp. 7-9).
Defendants-appellees doubly knew that the Angat Dam
can safely hold a normal maximum headwater elevation of 217
meters (Appellee's brief, p. 12; Civil Case No. SM-951, Exhibit "I-
6"; Civil Case No. SM-953, Exhibit "J-6"; Civil Case No. SM-1247,
Exhibit "G-6").
Yet, despite such knowledge, defendants-appellees maintained
a reservoir water elevation even beyond its maximum and safe
level, thereby giving no sufficient allowance for the reservoir to
contain the rain water that will inevitably be brought by the
coming typhoon.
On October 24, 1978, before typhoon "Kading" entered the
Philippine area of responsibility, water elevation ranged from
217.61 to 217.53, with very little opening of the spillways,
ranging from 1/2 to 1 meter. On October 25, 1978, when
typhoon "Kading" entered the Philippine area of responsibility,
and public storm signal number one was hoisted over Bulacan
at 10:45 a.m., later raised to number two at 4:45 p.m., and then
to number three at 10:45 p.m., water elevation ranged from
217.47 to 217.57, with very little opening of the spillways,
ranging from 1/2 to 1 meter. On October 26, 1978, when public
storm signal number three remained hoisted over Bulacan, the
water elevation still remained at its maximum level of 217.00 to
218.00 with very little opening of the spillways ranging from 1/2
to 2 meters, until at or about midnight, the spillways were
suddenly opened at 5 meters, then increasing swiftly to 8, 10,
12, 12.5, 13, 13.5, 14, 14.5 in the early morning hours of October
27, 1978, releasing water at the rate of 4,500 cubic meters per
second, more or less. On October 27, 1978, water elevation
remained at a range of 218.30 to 217.05 (Civil Case No. SM-950,
Exhibits "D" and series, "L", "M", "N", and "O" and Exhibits "3"
and "4"; Civil Case No. SM-951, Exhibits "H" and "H-1"; Civil Case
No. SM-953, Exhibits "I" and "I-1"; Civil Case No. SM 1247,
Exhibits "F" and "F-1").
xxx xxx xxx
 From the mass of evidence extant in the record, We are
convinced, and so hold that the flash flood on October 27, 1978,
was caused not by rain waters (sic), but by stored waters (sic)
suddenly and simultaneously released from the Angat Dam by
defendants-appellees, particularly from midnight of October 26,
1978 up to the morning hours of October 27,
1978.9

The appellate court rejected the petitioners' defense that they had sent "early
warning written notices" to the towns of Norzagaray, Angat, Bustos, Plaridel,
Baliwag and Calumpit dated 24 October 1978 which read:

TO ALL CONCERN (sic):

Please be informed that at present our reservoir (dam) is full

and that we have been releasing water intermittently for the
past several days.

With the coming of typhoon "Rita" (Kading) we expect to

release greater (sic) volume of water, if it pass (sic) over our
place.

In view of this kindly advise people residing along Angat River to

keep alert and stay in safe places.

B
E
because:
N
J
Said notice was
A delivered to the "towns of Bulacan" on October
26, 1978 Mby defendants-appellees driver, Leonardo
NepomucenoI (Civil Case No. SM-950, TSN, Benjamin Chavez,
December 4,N1984, pp. 7-11 and TSN, Leonardo Nepomuceno,
March 7, 1985,
L pp. 10-12).
.
Said notice Cis ineffectual, insufficient and inadequate for
purposes of Hthe opening of the spillway gates at midnight of
October 26, A1978 and on October 27, 1978. It did not prepare
or warn the Vpersons so served, for the volume of water to be
released, which
E turned out to be of such magnitude, that
residents near
Z or along the Angat River, even those one (1)
 kilometer away, should have been advised to evacuate. Said
notice, addressed "TO ALL CONCERN (sic)," was delivered to a
policeman (Civil Case No. SM-950, pp. 10-12 and Exhibit "2-A")
for the municipality of Norzagaray. Said notice was not thus
addressed and delivered to the proper and responsible officials
who could have disseminated the warning to the residents
directly affected. As for the municipality of Sta. Maria, where
plaintiffs-appellants in Civil Case No. SM-1246 reside, said
notice does not appear to have been served.11
Relying on Juan F. Nakpil & Sons vs. Court of Appeals,12 public respondent
rejected the petitioners' plea that the incident in question was caused by force
majeure and that they are, therefore, not liable to the private respondents for
any kind of damage — such damage being in the nature of damnum absque
injuria.
The motion for reconsideration filed by the petitioners, as well as the motion to
modify judgment filed by the public respondents,13 were denied by the public
respondent in its Resolution of 27 December 1991.14
Petitioners thus filed the instant petition on 21 February 1992.
After the Comment to the petition was filed by the private respondents and the
Reply thereto was filed by the petitioners, We gave due course to the petition on
17 June 1992 and directed the parties to submit their respective
Memoranda,15 which they subsequently complied with.
The petitioners raised the following errors allegedly committed by the
respondent Court :
I. THE COURT OF APPEALS ERRED IN APPLYING THE RULING
OF NAKPIL & SONS V. COURT OF APPEALS AND HOLDING THAT
PETITIONERS WERE GUILTY OF NEGLIGENCE.
II. THE COURT OF APPEALS ERRED IN HOLDING THAT THE
WRITTEN NOTICES OF WARNING ISSUED BY PETITIONERS WERE
INSUFFICIENT.
III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE
DAMAGE SUFFERED BY PRIVATE RESPONDENTS WAS
NOT DAMNUM ABSQUE INJURIA.
IV. THE COURT OF APPEALS ERRED IN NOT AWARDING THE
COUNTERCLAIM OF PETITIONERS FOR ATTORNEY'S FEES AND
EXPENSES OF LITIGATION.16
These same errors were raised by herein petitioners in G.R. No. 96410,
entitled National Power Corporation, et al., vs. Court of Appeals, et al.,17 which
this Court decided on 3 July 1992. The said case involved the very same incident
subject of the instant petition. In no uncertain terms, We declared therein that
the proximate cause of the loss and damage sustained by the plaintiffs therein —
who were similarly situated as the private respondents herein — was the
negligence of the petitioners, and that the 24 October 1978 "early warning
notice" supposedly sent to the affected municipalities, the same notice involved
in the case at bar, was insufficient. We thus cannot now rule otherwise not only
because such a decision binds this Court with respect to the cause of the
inundation of the town of Norzagaray, Bulacan on 26-27 October 1978 which
resulted in the loss of lives and the destruction to property in both cases, but also
because of the fact that on the basis of its meticulous analysis and evaluation of
the evidence adduced by the parties in the cases subject of CA-G.R. CV Nos.
27290-93, public respondent found as conclusively established that indeed, the
petitioners were guilty of "patent gross and evident lack of foresight, imprudence
and negligence in the management and operation of Angat Dam," and that "the
extent of the opening of the spillways, and the magnitude of the water released,
are all but products of defendants-appellees' headlessness, slovenliness, and
carelessness."18 Its findings and conclusions are biding upon Us, there being no
showing of the existence of any of the exceptions to the general rule that findings
of fact of the Court of Appeals are conclusive upon this Court.19 Elsewise stated,
the challenged decision can stand on its own merits independently of Our
decision in G.R. No. 96410. In any event, We reiterate here in Our
pronouncement in the latter case that Juan F. Nakpil & Sons vs. Court of
Appeals20 is still good law as far as the concurrent liability of an obligor in the case
of force majeure is concerned. In the Nakpil case, We held:
To exempt the obligor from liability under Article 1174 of the
Civil Code, for a breach of an obligation due to an "act of God,"
the following must concur: (a) the cause of the breach of the
obligation must be independent of the will of the debtor; (b) the
event must be either unforseeable or unavoidable; (c) the event
must be such as to render it impossible for the debtor to fulfill
his obligation in a moral manner; and (d) the debtor must be
free from any participation in, or aggravation of the injury to the
creditor. (Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v.
 Consolacion, 71 SCRA 423; Austria v. Court of Appeals, 39 SCRA
527; Republic of the Phil. v. Luzon Stevedoring Corp., 21 SCRA
279; Lasam v. Smith, 45 Phil. 657).
Thus, if upon the happening of a fortuitous event or an act of
God, there concurs a corresponding fraud, negligence, delay or
violation or contravention in any manner of the tenor of the
obligation as provided for in Article 1170 of the Civil Code, which
results in loss or damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly
requires that the act must be one occasioned exclusively by the
violence of nature and all human agencies are to be excluded
from creating or entering into the cause of the mischief. When
the effect, the cause of which is to be considered, is found to be
in part the result of the participation of man, whether it be from
active intervention or neglect, or failure to act, the whole
occurrence is thereby humanized, as it were, and removed from
the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-
1175).
Thus it has been held that when the negligence of a person
concurs with an act of God in producing a loss, such person is
not exempt from liability by showing that the immediate cause
of the damage was the act of God. To be exempt from liability
for loss because of an act of God, he must be free from any
previous negligence or misconduct by which that loss or damage
may have been occasioned. (Fish & Elective Co. v. Phil. Motors,
55 Phil. 129; Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons
v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45
Phil. 657). 21
Accordingly, petitioners cannot be heard to invoke the act of God or force
majeure to escape liability for the loss or damage sustained by private
respondents since they, the petitioners, were guilty of negligence. The event
then was not occasioned exclusively by an act of God or force majeure; a human
factor — negligence or imprudence — had intervened. The effect then of
the force majeure in question may be deemed to have, even if only partly,
resulted from the participation of man. Thus, the whole occurrence was thereby
humanized, as it were, and removed from the laws applicable to acts of God.
WHEREFORE, for want of merit, the instant petition is hereby DISMISSED and the
Consolidated Decision of the Court of Appeals in CA-G.R. CV Nos. 27290-93 is
AFFIRMED, with costs against the petitioners.
SO ORDERED.
BERNARDINO JIMENEZ, petitioner,
vs.
CITY OF MANILA and INTERMEDIATE APPELLATE COURT, respondents.
PARAS, J.:
This is a petition for review on certiorari of: (1) the decision * of the Intermediate
Appellate Court in AC-G.R. No. 013887-CV Bernardino Jimenez v. Asiatic
Integrated Corporation and City of Manila, reversing the decision ** of the Court
of First Instance of Manila, Branch XXII in Civil Case No. 96390 between the same
parties, but only insofar as holding Asiatic Integrated Corporation solely liable for
damages and attorney's fees instead of making the City of Manila jointly and
solidarily liable with it as prayed for by the petitioner and (2) the resolution of
the same Appellate Court denying his Partial Motion for Reconsideration (Rollo,
p. 2).
The dispositive portion of the Intermediate Appellate Court's decision is as
follows:
WHEREFORE, the decision appealed from is hereby REVERSED.
A new one is hereby entered ordering the defendant Asiatic
Integrated Corporation to pay the plaintiff P221.90 actual
medical expenses, P900.00 for the amount paid for the
operation and management of a school bus, P20,000.00 as
moral damages due to pains, sufferings and sleepless nights and
P l0,000.00 as attorney's fees.
SO ORDERED. (p. 20, Rollo)
The findings of respondent Appellate Court are as follows:
The evidence of the plaintiff (petitioner herein) shows that in the morning of
August 15, 1974 he, together with his neighbors, went to Sta. Ana public market
to buy "bagoong" at the time when the public market was flooded with ankle
deep rainwater. After purchasing the "bagoong" he turned around to return
home but he stepped on an uncovered opening which could not be seen because
of the dirty rainwater, causing a dirty and rusty four- inch nail, stuck inside the
uncovered opening, to pierce the left leg of plaintiff-petitioner penetrating to a
depth of about one and a half inches. After administering first aid treatment at a
nearby drugstore, his companions helped him hobble home. He felt ill and
developed fever and he had to be carried to Dr. Juanita Mascardo. Despite the
medicine administered to him by the latter, his left leg swelled with great pain.
He was then rushed to the Veterans Memorial Hospital where he had to be
confined for twenty (20) days due to high fever and severe pain.
Upon his discharge from the hospital, he had to walk around with crutches for
fifteen (15) days. His injury prevented him from attending to the school buses he
is operating. As a result, he had to engage the services of one Bienvenido Valdez
to supervise his business for an aggregate compensation of nine hundred pesos
(P900.00). (Decision, AC-G.R. CV No. 01387, Rollo, pp. 13-20).
Petitioner sued for damages the City of Manila and the Asiatic Integrated
Corporation under whose administration the Sta. Ana Public Market had been
placed by virtue of a Management and Operating Contract (Rollo, p. 47).
The lower court decided in favor of respondents, the dispositive portion of the
decision reading:
WHEREFORE, judgment is hereby rendered in favor of the
defendants and against the plaintiff dismissing the complaint
with costs against the plaintiff. For lack of sufficient evidence,
the counterclaims of the defendants are likewise dismissed.
(Decision, Civil Case No. 96390, Rollo, p. 42).
As above stated, on appeal, the Intermediate Appellate Court held the Asiatic
Integrated Corporation liable for damages but absolved respondent City of
Manila.
Hence this petition.
The lone assignment of error raised in this petition is on whether or not the
Intermediate Appellate Court erred in not ruling that respondent City of Manila
should be jointly and severally liable with Asiatic Integrated Corporation for the
injuries petitioner suffered.
In compliance with the resolution of July 1, 1985 of the First Division of this Court
(Rollo, p. 29) respondent City of Manila filed its comment on August 13, 1985
(Rollo, p. 34) while petitioner filed its reply on August 21, 1985 (Reno, p. 51).
Thereafter, the Court in the resolution of September 11, 1985 (Rollo, p. 62) gave
due course to the petition and required both parties to submit simultaneous
memoranda
Petitioner filed his memorandum on October 1, 1985 (Rollo, p. 65) while
respondent filed its memorandum on October 24, 1985 (Rollo, p. 82).
In the resolution of October 13, 1986, this case was transferred to the Second
Division of this Court, the same having been assigned to a member of said
Division (Rollo, p. 92).
The petition is impressed with merit.
As correctly found by the Intermediate Appellate Court, there is no doubt that
the plaintiff suffered injuries when he fell into a drainage opening without any
cover in the Sta. Ana Public Market. Defendants do not deny that plaintiff was in
fact injured although the Asiatic Integrated Corporation tries to minimize the
extent of the injuries, claiming that it was only a small puncture and that as a war
veteran, plaintiff's hospitalization at the War Veteran's Hospital was free.
(Decision, AC-G.R. CV No. 01387, Rollo, p. 6).
Respondent City of Manila maintains that it cannot be held liable for the injuries
sustained by the petitioner because under the Management and Operating
Contract, Asiatic Integrated Corporation assumed all responsibility for damages
which may be suffered by third persons for any cause attributable to it.
It has also been argued that the City of Manila cannot be held liable under Article
1, Section 4 of Republic Act No. 409 as amended (Revised Charter of Manila)
which provides:
The City shall not be liable or held for damages or injuries to
persons or property arising from the failure of the Mayor, the
 Municipal Board, or any other City Officer, to enforce the
provisions of this chapter, or any other law or ordinance, or
from negligence of said Mayor, Municipal Board, or any other
officers while enforcing or attempting to enforce said
provisions.
This issue has been laid to rest in the case of City of Manila v. Teotico (22 SCRA
269-272 [1968]) where the Supreme Court squarely ruled that Republic Act No.
409 establishes a general rule regulating the liability of the City of Manila for
"damages or injury to persons or property arising from the failure of city officers"
to enforce the provisions of said Act, "or any other law or ordinance or from
negligence" of the City "Mayor, Municipal Board, or other officers while enforcing
or attempting to enforce said provisions."
Upon the other hand, Article 2189 of the Civil Code of the Philippines which
provides that:
Provinces, cities and municipalities shall be liable for damages
for the death of, or injuries suffered by any person by reason of
defective conditions of roads, streets, bridges, public buildings
and other public works under their control or supervision.
constitutes a particular prescription making "provinces, cities and municipalities
... liable for damages for the death of, or injury suffered by any person by reason"
— specifically — "of the defective condition of roads, streets, bridges, public
buildings, and other public works under their control or supervision." In other
words, Art. 1, sec. 4, R.A. No. 409 refers to liability arising from negligence, in
general, regardless of the object, thereof, while Article 2189 of the Civil Code
governs liability due to "defective streets, public buildings and other public
works" in particular and is therefore decisive on this specific case.
In the same suit, the Supreme Court clarified further that under Article 2189 of
the Civil Code, it is not necessary for the liability therein established to attach,
that the defective public works belong to the province, city or municipality from
which responsibility is exacted. What said article requires is that the province,
city or municipality has either "control or supervision" over the public building in
question.
In the case at bar, there is no question that the Sta. Ana Public Market, despite
the Management and Operating Contract between respondent City and Asiatic
Integrated Corporation remained under the control of the former.
For one thing, said contract is explicit in this regard, when it provides:
II
That immediately after the execution of this contract, the
SECOND PARTY shall start the painting, cleaning, sanitizing and
repair of the public markets and talipapas and within ninety (90)
days thereof, the SECOND PARTY shall submit a program of
improvement, development, rehabilitation and reconstruction
of the city public markets and talipapas subject to prior approval
of the FIRST PARTY. (Rollo, p. 44)
xxx xxx xxx
VI
That all present personnel of the City public markets and
talipapas shall be retained by the SECOND PARTY as long as their
services remain satisfactory and they shall be extended the
same rights and privileges as heretofore enjoyed by them.
Provided, however, that the SECOND PARTY shall have the right,
subject to prior approval of the FIRST PARTY to discharge any of
the present employees for cause. (Rollo, p. 45).
VII
That the SECOND PARTY may from time to time be required by
the FIRST PARTY, or his duly authorized representative or
representatives, to report, on the activities and operation of the
City public markets and talipapas and the facilities and
conveniences installed therein, particularly as to their cost of
construction, operation and maintenance in connection with
the stipulations contained in this Contract. (lbid)
The fact of supervision and control of the City over subject public market was
admitted by Mayor Ramon Bagatsing in his letter to Secretary of Finance Cesar
Virata which reads:
These cases arose from the controversy over the Management
and Operating Contract entered into on December 28, 1972 by
and between the City of Manila and the Asiatic Integrated
 Corporation, whereby in consideration of a fixed service fee, the
City hired the services of the said corporation to undertake the
physical management, maintenance, rehabilitation and
development of the City's public markets and' Talipapas' subject
to the control and supervision of the City.
xxx xxx xxx
It is believed that there is nothing incongruous in the exercise of
these powers vis-a-vis the existence of the contract, inasmuch
as the City retains the power of supervision and control over its
public markets and talipapas under the terms of the contract.
(Exhibit "7-A") (Emphasis supplied.) (Rollo, p. 75).
In fact, the City of Manila employed a market master for the Sta. Ana Public
Market whose primary duty is to take direct supervision and control of that
particular market, more specifically, to check the safety of the place for the
public.
Thus the Asst. Chief of the Market Division and Deputy Market Administrator of
the City of Manila testified as follows:
Court This market master is an employee of
the City of Manila?
Mr. Ymson Yes, Your Honor.
Q What are his functions?
A Direct supervision and control over the
market area assigned to him."(T.s.n.,pp. 41-42,
Hearing of May 20, 1977.)
xxx xxx xxx
Court As far as you know there is or is there any
specific employee assigned with the task of
seeing to it that the Sta. Ana Market is safe for
the public?
Mr. Ymson Actually, as I stated, Your Honor,
that the Sta. Ana has its own market
master. The primary duty of that market
master is to make the direct supervision and
control of that particular market, the check or
verifying whether the place is safe for public
safety is vested in the market master. (T.s.n.,
pp. 2425, Hearing of July 27, 1977.) (Emphasis
supplied.) (Rollo, p. 76).
Finally, Section 30 (g) of the Local Tax Code as amended, provides:
The treasurer shall exercise direct and immediate supervision
administration and control over public markets and the
personnel thereof, including those whose duties concern the
maintenance and upkeep of the market and ordinances and
other pertinent rules and regulations. (Emphasis supplied.)
(Rollo, p. 76)
The contention of respondent City of Manila that petitioner should not have
ventured to go to Sta. Ana Public Market during a stormy weather is indeed
untenable. As observed by respondent Court of Appeals, it is an error for the trial
court to attribute the negligence to herein petitioner. More specifically stated,
the findings of appellate court are as follows:
... The trial court even chastised the plaintiff for going to market
on a rainy day just to buy bagoong. A customer in a store has
the right to assume that the owner will comply with his duty to
keep the premises safe for customers. If he ventures to the store
on the basis of such assumption and is injured because the
owner did not comply with his duty, no negligence can be
imputed to the customer. (Decision, AC-G. R. CV No. 01387,
Rollo, p. 19).
As a defense against liability on the basis of a quasi-delict, one must have
exercised the diligence of a good father of a family. (Art. 1173 of the Civil Code).
There is no argument that it is the duty of the City of Manila to exercise
reasonable care to keep the public market reasonably safe for people
frequenting the place for their marketing needs.
While it may be conceded that the fulfillment of such duties is extremely difficult
during storms and floods, it must however, be admitted that ordinary
precautions could have been taken during good weather to minimize the dangers
to life and limb under those difficult circumstances.
For instance, the drainage hole could have been placed under the stalls instead
of on the passage ways. Even more important is the fact, that the City should
have seen to it that the openings were covered. Sadly, the evidence indicates
that long before petitioner fell into the opening, it was already uncovered, and
five (5) months after the incident happened, the opening was still uncovered.
(Rollo, pp. 57; 59). Moreover, while there are findings that during floods the
vendors remove the iron grills to hasten the flow of water (Decision, AC-G.R. CV
No. 0 1387; Rollo, p. 17), there is no showing that such practice has ever been
prohibited, much less penalized by the City of Manila. Neither was it shown that
any sign had been placed thereabouts to warn passersby of the impending
danger.
To recapitulate, it appears evident that the City of Manila is likewise liable for
damages under Article 2189 of the Civil Code, respondent City having retained
control and supervision over the Sta. Ana Public Market and as tort-feasor under
Article 2176 of the Civil Code on quasi-delicts
Petitioner had the right to assume that there were no openings in the middle of
the passageways and if any, that they were adequately covered. Had the opening
been covered, petitioner could not have fallen into it. Thus the negligence of the
City of Manila is the proximate cause of the injury suffered, the City is therefore
liable for the injury suffered by the peti- 4 petitioner.
Respondent City of Manila and Asiatic Integrated Corporation being joint tort-
feasors are solidarily liable under Article 2194 of the Civil Code.
PREMISES CONSIDERED, the decision of the Court of Appeals is hereby
MODIFIED, making the City of Manila and the Asiatic Integrated Corporation
solidarily liable to pay the plaintiff P221.90 actual medical expenses, P900.00 for
the amount paid for the operation and management of the school bus,
P20,000.00 as moral damages due to pain, sufferings and sleepless nights and
P10,000.00 as attorney's fees.
SO ORDERED.
G.R. No. 147839 June 8, 2006
GAISANO CAGAYAN, INC. Petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision1 dated
October 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set
aside the Decision dated August 31, 1998 of the Regional Trial Court, Branch 138,
Makati (RTC) in Civil Case No. 92-322 and upheld the causes of action for damages
of Insurance Company of North America (respondent) against Gaisano Cagayan,
Inc. (petitioner); and the CA Resolution dated April 11, 2001 which denied
petitioner's motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans.
Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing
trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained from
respondent fire insurance policies with book debt endorsements. The insurance
policies provide for coverage on "book debts in connection with ready-made
clothing materials which have been sold or delivered to various customers and
dealers of the Insured anywhere in the Philippines."2 The policies defined book
debts as the "unpaid account still appearing in the Book of Account of the Insured
45 days after the time of the loss covered under this Policy."3 The policies also
provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid
account in respect of the merchandise sold and delivered by the Insured
which are outstanding at the date of loss for a period in excess of six (6)
months from the date of the covering invoice or actual delivery of the
merchandise whichever shall first occur.
 2. Warranted that the Insured shall submit to the Company within
twelve (12) days after the close of every calendar month all amount
shown in their books of accounts as unpaid and thus become receivable
item from their customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February
25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by
petitioner, was consumed by fire. Included in the items lost or destroyed in the
fire were stocks of ready-made clothing materials sold and delivered by IMC and
LSPI.
On February 4, 1992, respondent filed a complaint for damages against
petitioner. It alleges that IMC and LSPI filed with respondent their claims under
their respective fire insurance policies with book debt endorsements; that as of
February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of
ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it
was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue
thereof, respondent was subrogated to their rights against petitioner; that
respondent made several demands for payment upon petitioner but these went
unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it
could not be held liable because the property covered by the insurance policies
were destroyed due to fortuities event or force majeure; that respondent's right
of subrogation has no basis inasmuch as there was no breach of contract
committed by it since the loss was due to fire which it could not prevent or
foresee; that IMC and LSPI never communicated to it that they insured their
properties; that it never consented to paying the claim of the insured.6
At the pre-trial conference the parties failed to arrive at an amicable
settlement.7 Thus, trial on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's
complaint.8 It held that the fire was purely accidental; that the cause of the fire
was not attributable to the negligence of the petitioner; that it has not been
established that petitioner is the debtor of IMC and LSPI; that since the sales
invoices state that "it is further agreed that merely for purpose of securing the
payment of purchase price, the above-described merchandise remains the
property of the vendor until the purchase price is fully paid", IMC and LSPI
retained ownership of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA
rendered its decision setting aside the decision of the RTC. The dispositive
portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and
SET ASIDE and a new one is entered ordering defendant-appellee Gaisano
Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the
plaintiff-appellant to the insured Inter Capitol Marketing Corporation,
plus legal interest from the time of demand until fully paid;
2. the amount of P535,613.00 representing the amount paid by the
plaintiff-appellant to the insured Levi Strauss Phil., Inc., plus legal
interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements
of the nature, quantity and cost of the thing sold; that loss of the goods in the
fire must be borne by petitioner since the proviso contained in the sales invoices
is an exception under Article 1504 (1) of the Civil Code, to the general rule that if
the thing is lost by a fortuitous event, the risk is borne by the owner of the thing
at the time the loss under the principle of res perit domino; that petitioner's
obligation to IMC and LSPI is not the delivery of the lost goods but the payment
of its unpaid account and as such the obligation to pay is not extinguished, even
if the fire is considered a fortuitous event; that by subrogation, the insurer has
the right to go against petitioner; that, being a fire insurance with book debt
endorsements, what was insured was the vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in its
Resolution dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the following
Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE
INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT
GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON
DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC
SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF
RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present case
cannot be deemed to be over credit since an insurance "on credit" belies not only
the nature of fire insurance but the express terms of the policies; that it was not
credit that was insured since respondent paid on the occasion of the loss of the
insured goods to fire and not because of the non-payment by petitioner of any
obligation; that, even if the insurance is deemed as one over credit, there was no
loss as the accounts were not yet due since no prior demands were made by IMC
and LSPI against petitioner for payment of the debt and such demands came from
respondent only after it had already paid IMC and LSPI under the fire insurance
policies.15
As to the second error, petitioner avers that despite delivery of the goods,
petitioner-buyer IMC and LSPI assumed the risk of loss when they secured fire
insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no subrogation in
favor of respondent as no valid insurance could be maintained thereon by IMC
and LSPI since all risk had transferred to petitioner upon delivery of the goods;
that petitioner was not privy to the insurance contract or the payment between
respondent and its insured nor was its consent or approval ever secured; that
this lack of privity forecloses any real interest on the part of respondent in the
obligation to pay, limiting its interest to keeping the insured goods safe from fire.
For its part, respondent counters that while ownership over the ready- made
clothing materials was transferred upon delivery to petitioner, IMC and LSPI have
insurable interest over said goods as creditors who stand to suffer direct
pecuniary loss from its destruction by fire; that petitioner is liable for loss of the
ready-made clothing materials since it failed to overcome the presumption of
liability under Article 126516 of the Civil Code; that the fire was caused through
petitioner's negligence in failing to provide stringent measures of caution, care
and maintenance on its property because electric wires do not usually short
circuit unless there are defects in their installation or when there is lack of proper
maintenance and supervision of the property; that petitioner is guilty of gross
and evident bad faith in refusing to pay respondent's valid claim and should be
liable to respondent for contracted lawyer's fees, litigation expenses and cost of
suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases
brought before it from the CA is limited to reviewing questions of law which
involves no examination of the probative value of the evidence presented by the
litigants or any of them.18 The Supreme Court is not a trier of facts; it is not its
function to analyze or weigh evidence all over again.19 Accordingly, findings of
fact of the appellate court are generally conclusive on the Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in which factual
issues may be resolved by this Court, such as: (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 a misapprehension of facts; (5)
when the findings of facts are conflicting; (6) when in making its findings the CA
went beyond the issues of the case, or its findings are contrary to the admissions
of both the appellant and the appellee; (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 petitioner's main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record; and (11) when
the CA manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion.21 Exceptions
(4), (5), (7), and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy.
Petitioner claims that the CA erred in construing a fire insurance policy on book
debts as one covering the unpaid accounts of IMC and LSPI since such insurance
applies to loss of the ready-made clothing materials sold and delivered to
petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily
understood, there is no room for construction.22 In this case, the questioned
insurance policies provide coverage for "book debts in connection with ready-
made clothing materials which have been sold or delivered to various customers
and dealers of the Insured anywhere in the Philippines."23 ; and defined book
debts as the "unpaid account still appearing in the Book of Account of the Insured
45 days after the time of the loss covered under this Policy."24 Nowhere is it
provided in the questioned insurance policies that the subject of the insurance is
the goods sold and delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not
justify an attempt to read into it any alleged intention of the parties, the terms
are to be understood literally just as they appear on the face of the
contract.25 Thus, what were insured against were the accounts of IMC and LSPI
with petitioner which remained unpaid 45 days after the loss through fire, and
not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved
ownership of the goods by stipulating in the sales invoices that "[i]t is further
agreed that merely for purpose of securing the payment of the purchase price
the above described merchandise remains the property of the vendor until the
purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until
the ownership therein is transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at the buyer's risk whether
actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the
buyer, in pursuance of the contract and the ownership in the goods has been
retained by the seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the buyer's risk from the time of
such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its
debt, the risk of loss is borne by the buyer.27 Accordingly, petitioner bears the
risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an
insurable interest until full payment of the value of the delivered goods. Unlike
the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one's interest
is not determined by concept of title, but whether insured has substantial
economic interest in the property.28
Section 13 of our Insurance Code defines insurable interest as "every interest in
property, whether real or personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might directly damnify the
insured." Parenthetically, under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing interest; (b) an inchoate
interest founded on existing interest; or (c) an expectancy, coupled with an
existing interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property
interest in, or a lien upon, or possession of, the subject matter of the insurance,
and neither the title nor a beneficial interest is requisite to the existence of such
an interest, it is sufficient that the insured is so situated with reference to the
property that he would be liable to loss should it be injured or destroyed by the
peril against which it is insured.29 Anyone has an insurable interest in property
who derives a benefit from its existence or would suffer loss from its
destruction.30Indeed, a vendor or seller retains an insurable interest in the
property sold so long as he has any interest therein, in other words, so long as he
would suffer by its destruction, as where he has a vendor's lien.31 In this case, the
insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in
their Books of Account 45 days after the time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event
under Article 117432 of the Civil Code is misplaced. As held earlier, petitioner
bears the loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of
goods by fire but for petitioner's accounts with IMC and LSPI that remained
unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the
payment of money. As correctly stated by the CA, where the obligation consists
in the payment of money, the failure of the debtor to make the payment even by
reason of a fortuitous event shall not relieve him of his liability.33 The rationale
for this is that the rule that an obligor should be held exempt from liability when
the loss occurs thru a fortuitous event only holds true when the obligation As to LSPI, respondent failed to present sufficient evidence to prove its cause of
consists in the delivery of a determinate thing and there is no stipulation holding action. No evidentiary weight can be given to Exhibit "F Levi Strauss",42 a letter
him liable even in case of fortuitous event. It does not apply when the obligation dated April 23, 1991 from petitioner's General Manager, Stephen S. Gaisano, Jr.,
is pecuniary in nature.34 since it is not an admission of petitioner's unpaid account with LSPI. It only
confirms the loss of Levi's products in the amount of P535,613.00 in the fire that
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, razed petitioner's building on February 25, 1991.
the loss or destruction of anything of the same kind does not extinguish the
obligation." If the obligation is generic in the sense that the object thereof is Moreover, there is no proof of full settlement of the insurance claim of LSPI; no
designated merely by its class or genus without any particular designation or subrogation receipt was offered in evidence. Thus, there is no evidence that
physical segregation from all others of the same class, the loss or destruction of respondent has been subrogated to any right which LSPI may have against
anything of the same kind even without the debtor's fault and before he has petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's
incurred in delay will not have the effect of extinguishing the obligation.35 This case for recovery of the amount of P535,613.00.
rule is based on the principle that the genus of a thing can never perish. Genus
nunquan perit.36 An obligation to pay money is generic; therefore, it is not WHEREFORE, the petition is partly GRANTED. The assailed Decision dated
excused by fortuitous loss of any specific property of the debtor.37 October 11, 2000 and Resolution dated April 11, 2001 of the Court of Appeals in
CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATION that the order to
Thus, whether fire is a fortuitous event or petitioner was negligent are matters pay the amount of P535,613.00 to respondent is DELETED for lack of factual
immaterial to this case. What is relevant here is whether it has been established basis.
that petitioner has outstanding accounts with IMC and LSPI.
No pronouncement as to costs.
With respect to IMC, the respondent has adequately established its claim.
Exhibits "C" to "C-22"38 show that petitioner has an outstanding account with SO ORDERED.
IMC in the amount of P2,119,205.00. Exhibit "E"39 is the check voucher
evidencing payment to IMC. Exhibit "F"40 is the subrogation receipt executed by
IMC in favor of respondent upon receipt of the insurance proceeds. All these
documents have been properly identified, presented and marked as exhibits in
court. The subrogation receipt, by itself, is sufficient to establish not only the
relationship of respondent as insurer and IMC as the insured, but also the amount
paid to settle the insurance claim. The right of subrogation accrues simply upon
payment by the insurance company of the insurance claim.41 Respondent's
action against petitioner is squarely sanctioned by Article 2207 of the Civil Code
which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who
has violated the contract. x x x

Petitioner failed to refute respondent's evidence.


G.R. No. 73867 February 29, 1988
TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC., petitioner,
vs.
IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO CASTRO JR., AURORA
CASTRO, SALVADOR CASTRO, MARIO CASTRO, CONRADO CASTRO,
ESMERALDA C. FLORO, AGERICO CASTRO, ROLANDO CASTRO, VIRGILIO
CASTRO AND GLORIA CASTRO, and HONORABLE INTERMEDIATE APPELLATE
COURT, respondents.
PADILLA, J.:
Petition for review on certiorari of the decision * of the Intermediate Appellate
Court, dated 11 February 1986, in AC-G.R. No. CV-70245, entitled "Ignacio Castro,
Sr., et al., Plaintiffs-Appellees, versus Telefast Communication/Philippine
Wireless, Inc., Defendant-Appellant."
The facts of the case are as follows:
On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff Ignacio Castro,
Sr. and mother of the other plaintiffs, passed away in Lingayen, Pangasinan. On
the same day, her daughter Sofia C. Crouch, who was then vacationing in the
Philippines, addressed a telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda,
Scottsburg, Indiana, U.S.A., 47170 announcing Consolacion's death. The telegram
was accepted by the defendant in its Dagupan office, for transmission, after
payment of the required fees or charges.
The telegram never reached its addressee. Consolacion was interred with only
her daughter Sofia in attendance. Neither the husband nor any of the other
children of the deceased, then all residing in the United States, returned for the
burial.
When Sofia returned to the United States, she discovered that the wire she had
caused the defendant to send, had not been received. She and the other plaintiffs
thereupon brought action for damages arising from defendant's breach of
contract. The case was filed in the Court of First Instance of Pangasinan and
docketed therein as Civil Case No. 15356. The only defense of the defendant was
that it was unable to transmit the telegram because of "technical and
atmospheric factors beyond its control." 1 No evidence appears on record that
defendant ever made any attempt to advise the plaintiff Sofia C. Crouch as to
why it could not transmit the telegram.
The Court of First Instance of Pangasinan, after trial, ordered the defendant (now
petitioner) to pay the plaintiffs (now private respondents) damages, as follows,
with interest at 6% per annum:
1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory
damages and P20,000.00 as moral damages.
2. Ignacio Castro Sr., P20,000.00 as moral damages.
3. Ignacio Castro Jr., P20,000.00 as moral damages.
4. Aurora Castro, P10,000.00 moral damages.
5. Salvador Castro, P10,000.00 moral damages.
6. Mario Castro, P10,000.00 moral damages.
7. Conrado Castro, P10,000 moral damages.
8. Esmeralda C. Floro, P20,000.00 moral damages.
9. Agerico Castro, P10,000.00 moral damages.
10. Rolando Castro, P10,000.00 moral damages.
 11. Virgilio Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.
Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary damages
in the amount of P1,000.00 to each of the plaintiffs and costs. 2
On appeal by petitioner, the Intermediate Appellate Court affirmed the trial
court's decision but eliminated the award of P16,000.00 as compensatory
damages to Sofia C. Crouch and the award of P1,000.00 to each of the private
respondents as exemplary damages. The award of P20,000.00 as moral damages
to each of Sofia C. Crouch, Ignacio Castro, Jr. and Esmeralda C. Floro was also
reduced to P120,000. 00 for each. 3
Petitioner appeals from the judgment of the appellate court, contending that the
award of moral damages should be eliminated as defendant's negligent act was
not motivated by "fraud, malice or recklessness."
In other words, under petitioner's theory, it can only be held liable for P 31.92,
the fee or charges paid by Sofia C. Crouch for the telegram that was never sent
to the addressee thereof.
Petitioner's contention is without merit.
Art. 1170 of the Civil Code 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." Art. 2176 also provides
that "whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done."
In the case at bar, petitioner and private respondent Sofia C. Crouch entered into
a contract whereby, for a fee, petitioner undertook to send said private
respondent's message overseas by telegram. This, petitioner did not do, despite
performance by said private respondent of her obligation by paying the required
charges. Petitioner was therefore guilty of contravening its obligation to said
private respondent and is thus liable for damages.
This liability is not limited to actual or quantified damages. To sustain petitioner's
contrary position in this regard would result in an inequitous situation where
petitioner will only be held liable for the actual cost of a telegram fixed thirty (30)
years ago.
We find Art. 2217 of the Civil Code applicable to the case at bar. It states: "Moral
damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury. Though incapable of pecuniary computation, moral damages may
be recovered if they are the proximate results of the defendant's wrongful act or
omission." (Emphasis supplied).
Here, petitioner's act or omission, which amounted to gross negligence, was
precisely the cause of the suffering private respondents had to undergo.
As the appellate court properly observed:
[Who] can seriously dispute the shock, the mental anguish and
the sorrow that the overseas children must have suffered upon
learning of the death of their mother after she had already been
interred, without being given the opportunity to even make a
choice on whether they wanted to pay her their last respects?
There is no doubt that these emotional sufferings were
proximately caused by appellant's omission and substantive law
provides for the justification for the award of moral damages. 4
We also sustain the trial court's award of P16,000.00 as compensatory damages
to Sofia C. Crouch representing the expenses she incurred when she came to the
Philippines from the United States to testify before the trial court. Had petitioner
not been remiss in performing its obligation, there would have been no need for
this suit or for Mrs. Crouch's testimony.
The award of exemplary damages by the trial court is likewise justified and,
therefore, sustained in the amount of P1,000.00 for each of the private
respondents, as a warning to all telegram companies to observe due diligence in
transmitting the messages of their customers.
WHEREFORE, the petition is DENIED. The decision appealed from is modified so
that petitioner is held liable to private respondents in the following amounts:
(1) P10,000.00 as moral damages, to each of private
respondents;
(2) P1,000.00 as exemplary damages, to each of private
respondents;
 (3) P16,000.00 as compensatory damages, to private
respondent Sofia C. Crouch;

(4) P5,000.00 as attorney's fees; and

(5) Costs of suit.

SO ORDERED.