Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-14335 January 28, 1920
MANUEL DE GUIA, plaintiff-appellant,
vs.
THE MANILA ELECTRIC RAILROAD & LIGHT COMPANY, defendant-appellant.
Sumulong and Estrada, Crossfield and O'Brien and Francisco A. Delgado for
plaintiff-appellant.
Lawrence and Ross for defendant-appellant.
STREET, J.:
This is an appeal prosecuted both by the plaintiff and the defendant from a judgment of the Court of
First Instance of the City of Manila, whereby the plaintiff was awarded the sum of P6,100, with interest
and costs, as damages incurred by him in consequence of physical injuries sustained while riding on
one of the defendant's car.
The accident which gave rise to the litigation occurred on September 4, 1915, near the end of the street-
car line in Caloocan, Rizal, a northern suburb of the city of Manila. It appears that, at about 8 o'clock
p.m., of the date mentioned, the plaintiff Manuel de Guia, a physician residing in Caloocan, boarded a
car at the end of the line with the intention of coming to the city. At about 30 meters from the starting
point the car entered a switch, the plaintiff remaining on the back platform holding the handle of the
right-hand door. Upon coming out of the switch, the small wheels of the rear truck left the track, ran for
a short distance along the macadam filling, which was flush with the rails, and struck a concrete post at
the left of the tract. The post was shattered; and as the car stopped the plaintiff was thrown against the
door with some violence, receiving bruises and possibly certain internal injuries, the extent of which is
a subject of dispute.
The trial court found that the motorman of the derailed car was negligent in having maintained too
rapid a speed. This inference appears to be based chiefly upon the results of the shock, involving the
shattering of the post and the bending of the kingpost of the car. It is insisted for the defendant
company that the derailment was due to the presence of a stone, somewhat larger than a goose egg,
which had become accidentally lodged between the rails at the juncture of the switch and which was
unobserved by the motorman. In this view the derailment of the car is supposed to be due to casus
fortuitos and not chargeable to the negligence of the motorman.
Even supposing that the derailment of the car was due to the accidental presence of such a stone as
suggested, we do not think that the existence of negligence is disproved. The motorman says that upon
approaching the switch he reduced the electrical energy to the point that the car barely entered the
switch under its own momentum, and this operation was repeated as he passed out. Upon getting again
on the straight tract he put the control successively at points one, two, three and lastly at point four. At
the moment when the control was placed at point four he perceived that the rear wheels were derailed
and applied the brake; but at the same instant the car struck the post, some 40 meters distant from the
exit of the switch. One of the defendant's witnesses stated in court that the rate of a car propelled by
electricity with the control at point "four" should be about five or 6 miles per hour. There was some
other evidence to the effect that the car was behind schedule time and that it was being driven after
leaving the switch, at a higher rate than would ordinarily be indicated by the control at point four. This
inference is rendered more tenable by the circumstance that the car was practically empty. On the
whole, we are of the opinion that the finding of negligence in the operation of the car must be
sustained, as not being clearly contrary to the evidence; not so much because of excessive speed as
because of the distance which the car was allowed to run with the front wheels of the rear truck
derailed. It seems to us than an experienced and attentive motorman should have discovered that
something was wrong and would have stopped before he had driven the car over the entire distance
from the point where the wheels left the track to the place where the post was struck.
The conclusion being accepted that there was negligence on the part of the motorman in driving the car,
it results that the company is liable for the damage resulting to the plaintiff as a consequence of that
negligence. The plaintiff had boarded the car as a passenger for the city of Manila and the company
undertook to convey him for hire. The relation between the parties was, therefore, of a contractual
nature, and the duty of the carrier is to be determined with reference to the principles of contract law,
that is, the company was bound to convey and deliver the plaintiff safely and securely with reference to
the degree of care which, under the circumstances, is required by law and custom applicable to the case
(art. 1258, Civil Code). Upon failure to comply with that obligation the company incurred the liability
defined in articles 1103-1107 of the Civil Code. (Cangco vs. Manila Railroad Company, 38 Phil. Rep.,
768; Manila Railroad Company vs. Compaia Transatlantica, and Atlantic, Gulf & Pacific Co., 38 Phil.
Rep., 875.)
From the nature of the liability thus incurred, it is clear that the defendant company can not avail itself
of the last paragraph of article 1903 of the Civil Code, since that provision has reference to liability
incurred by negligence in the absence of contractual relation, that is, to the culpa aquiliana of the civil
law. It was therefore irrelevant for the defendant company to prove, as it did, that the company had
exercised due care in the selection and instruction of the motorman who was in charge of its car and
that he was in fact an experienced and reliable servant.
At this point, however, it should be observed that although in case like this the defendant must answer
for the consequences of the negligence of its employee, the court has the power to moderate liability
according to the circumstances of the case (art. 1103, Civ. Code): Furthermore, we think it obvious that
an employer who has in fact displayed due diligence in choosing and instructing his servants is entitled
to be considered a debtor in good faith, within the meaning of article 1107 of the same Code.
Construing these two provisions together, applying them to the facts of this case, it results that the
defendant's liability is limited to such damages as might, at the time of the accident, have been
reasonably foreseen as a probable consequence of the physical injuries inflicted upon the plaintiff and
which were in fact a necessary result of those injuries. There is nothing novel in this proposition, since
both the civil and the common law are agreed upon the point that the damages ordinarily recoverable
for the breach of a contractual obligation, against a person who has acted in good faith, are such as can
reasonably be foreseen at the time the obligation is contracted. In Daywalt vs. Corporacion de PP.
Agustinos Recoletos (39 Phil., 587), we said: "The extent of the liability for the breach of a contract
must be determined in the light of the situation in existence at the time the contract is made; and the
damages ordinarily recoverable are in all events limited to such as might be reasonably foreseen in the
light of the facts then known to the contracting parties."
This brings us to consider the amount which may be awarded to the plaintiff as damages. Upon this
point the trial judge found that, as a result of the physical and nervous derangement resulting from the
accident, Dr. De Guia was unable properly to attend to his professional labors for three months and
suspended his practice for that period. It was also proved by the testimony of the plaintiff that his
customary income, as a physician, was about P300 per month. The trial judge accordingly allowed
P900, as damages for loss of professional earnings. This allowance is attacked upon appeal by the
defendant as excessive both as to the period and rate of allowance. Upon examining the evidence we
fell disinclined to disturb this part of the judgment, though it must be conceded that the estimate of the
trial judge on this point was liberal enough to the plaintiff.
Another item allowed by the trial judge consists of P3,900, which the plaintiff is supposed to have lost
by reason of his inability to accept a position as district health officer in Occidental Negros. It appears
in this connection that Mr. Alunan, representative from Occidental Negros, had asked Dr. Montinola,
who supposedly had the authority to make the appointment, to nominate the plaintiff to such position.
The job was supposed to be good for two years, with a salary of P1,600 per annum, and possibility of
outside practice worth P350. Accepting these suggestions as true, it is evident that the damages thus
incurred are too speculative to be the basis of recovery in a civil action. This element of damages must
therefore be eliminated. It goes without saying that damage of this character could not, at the time of
the accident, have been foreseen by the delinquent party as a probable consequence of the injury
inflicted a circumstance which makes applicable article 1107 of the Civil Code, as already
expounded.
The last element of damages to be considered is the item of the plaintiff's doctor's bills, a subject which
we momentarily pass for discussion further on, since the controversy on this point can be more readily
understood in connection with the question raised by the plaintiff's appeal.
The plaintiff alleges in the complaint that the damages incurred by him as a result of the injuries in
question ascend to the amount of P40,000. Of this amount the sum of P10,000 is supposed to represent
the cost of medical treatment and other expenses incident to the plaintiff's cure, while the remainder
(P30,000) represents the damage resulting from the character of his injuries, which are supposedly such
as to incapacitate him for the exercise of the medical profession in the future. In support of these claims
the plaintiff introduced evidence, consisting of his own testimony and that of numerous medical
experts, tending to show that as a result of the injuries in question he had developed infarct of the liver
and traumatic neurosis, accompanied by nervousness, vertigo, and other disturbing symptoms of a
serious and permanent character, it being claimed that these manifestations of disorder rendered him
liable to a host of other dangerous diseases, such as pleuresy, tuberculosis, pneumonia, and pulmonary
gangrene, and that restoration to health could only be accomplished, if at all, after long years of
complete repose. The trial judge did not take these pretensions very seriously, and, as already stated,
limited the damages to the three items of professional earnings, expenses of medical treatment, and the
loss of the appointment as medical treatment, and the loss of the appointment as medical inspector in
Occidental Negros. As the appeal of the plaintiff opens the whole case upon the question of damages, it
is desirable to present a somewhat fuller statement than that already given with respect to extent and
character of the injuries in question.
The plaintiff testified that, at the time the car struck against the concrete post, he was standing on the
rear platform, grasping the handle of the right-hand door. The shock of the impact threw him forward,
and the left part of his chest struck against the door causing him to fall. In falling, the plaintiff says, his
head struck one of the seats and he became unconscious. He was presently taken to his home which
was only a short distance away, where he was seen at about 10 o'clock p. m., by a physician in the
employment of the defendant company. This physician says that the plaintiff was then walking about
and apparently suffering somewhat from bruises on his chest. He said nothing about his head being
injured and refused to go to a hospital. Later, during the same night Dr. Carmelo Basa was called in to
see the plaintiff. This physician says that he found Doctor De Guia lying in bed and complaining of a
severe pain in the side. During the visit of Doctor Basa the plaintiff several times spit up blood, a
manifestation no doubt due to the effects of the bruises received in his side. The next day Doctor De
Guia went into Manila to consult another physician, Doctor Miciano, and during the course of a few
weeks he called into consultation other doctors who were introduced as witnesses in his behalf at the
trial of this case. According to the testimony of these witnesses, as well as that of the plaintiff himself,
the symptoms of physical and nervous derangement in the plaintiff speedily developed in portentous
degree.
Other experts were introduced by the defendant whose testimony tended to show that the plaintiff's
injuries, considered in their physical effects, were trivial and that the attendant nervous derangement,
with its complicated train of ailments, was merely simulated.
Upon this question the opposing medical experts ventilated a considerable mass of professional
learning with reference to the nature and effects of the baffling disease known as traumatic neurosis, or
traumatic hysteria a topic which has been the occasion of much controversy in actions of this
character in the tribunals of Europe and America. The subject is one of considerable interest from a
medico-legal point of view, but we deem it unnecessary in this opinion to enter upon a discussion of its
voluminous literature. It is enough to say that in our opinion the plaintiff's case for large damages in
respect to his supposed incapacitation for future professional practice is not made out. Of course in this
jurisdiction damages can not be assessed in favor of the plaintiff as compensation for the physical or
mental pain which he may have endured (Marcelo vs. Velasco, 11 Phil. Rep. 287); and the evidence
relating to the injuries, both external and internal, received by him must be examined chiefly in its
bearing upon his material welfare, that is, in its results upon his earning capacity and the expenses
incurred in restoration to the usual condition of health.
The evidence before us shows that immediately after the accident in question Doctor De Guia, sensing
in the situation a possibility of profit, devoted himself with great assiduity to the promotion of this
litigation; and with the aid of his own professional knowledge, supplemented by suggestions obtained
from his professional friends and associates, he enveloped himself more or less unconsciously in an
atmosphere of delusion which rendered him incapable of appreciating at their true value the symptoms
of disorder which he developed. The trial court was in our opinion fully justified in rejecting the
exaggerated estimate of damages thus created.
We now pass to the consideration of the amount allowed to the plaintiff by the trial judge as the
expense incurred for medical service. In this connection Doctor Montes testified that he was first called
to see the plaintiff upon September 14, 1915, when he found him suffering from traumatic neurosis.
Three months later he was called upon to treat the same patient for an acute catarrhal condition,
involving disturbance in the pulmonary region. The treatment for this malady was successful after two
months, but at the end of six months the same trouble recurred and required further treatment. In
October of the year 1916, or more than a year after the accident in question occurred, Doctor Montes
was called in consultation with Doctor Guerrero to make an examination of the plaintiff. Doctor
Montes says that his charges altogether for services rendered to the plaintiff amount to P350, of which
the sum of P200 had been paid by the plaintiff upon bills rendered from time to time. This physician
speaks in the most general terms with respect to the times and extent of the services rendered; and it is
by no means clear that those services which were rendered many months, or year, after the accident had
in fact any necessary or legitimate relation to the injuries received by the plaintiff. In view of the
vagueness and uncertainty of the testimony relating to Doctor Montes' services, we are of the opinion
that the sum of P200, or the amount actually paid to him by the plaintiff, represents the extent of the
plaintiff's obligation with respect to treatment for said injuries.
With regard to the obligation supposedly incurred by the plaintiff to three other physicians, we are of
the opinion that they are not a proper subject of recovery in this action; and this for more than one
reason. In the first place, it does not appear that said physicians have in fact made charges for those
services with the intention of imposing obligations on the plaintiff to pay for them. On the contrary it
would seem that said services were gratuitously rendered out of courtesy to the plaintiff as a member of
the medical profession. The suggestions made on the stand by these physicians to the effect that their
services were worth the amounts stated by them are not sufficient to proved that the plaintiff had
incurred the obligation to pay those amounts. In the second place, we are convinced that in employing
so many physicians the plaintiff must have had in view of the successful promotion of the issue of this
lawsuit rather than the bona fide purpose of effecting the cure of his injuries. In order to constitute a
proper element of recovery in an action of this character, the medical service for which reimbursement
is claimed should not only be such as to have created a legal obligation upon the plaintiff but such as
was reasonably necessary in view of his actual condition. It can not be permitted that a litigant should
retain an unusual and unnecessary number of professional experts with a view to the successful
promotion of a lawsuit and expect to recover against his adversary the entire expense thus incurred. His
claim for medical services must be limited to such expenditures as were reasonably suited to the case.
The second error assigned in the brief of the defendant company presents a question of practice which,
though not vital to the solution of this case, is of sufficient general importance to merit notice. It
appears that four of the physicians examined as witnesses for the plaintiff had made written statements
at various dates certifying the results of their respective examinations into the condition of the plaintiff.
When these witnesses were examined in court the identified their respective signatures to these
certificates and the trial judge, over the defendant's objection, admitted the documents as primary
evidence in the case. This was undoubtedly erroneous. A document of this character is not primary
evidence in any sense, since it is fundamentally of a hearsay nature; and the only legitimate use to
which one of these certificates could be put, as evidence for the plaintiff, was to allow the physician
who issued it to refer thereto to refresh his memory upon details which he might have forgotten. In
Zwangizer vs. Newman (83 N. Y. Supp., 1071) which was also an action to recover damages for
personal injury, it appeared that a physician, who had been sent by one of the parties to examine the
plaintiff, had made at the time a written memorandum of the results of the examination; and it was
proposed to introduce this document in evidence at the trial. It was excluded by the trial judge, and it
was held upon appeal that this was proper. Said the court: "There was no failure or exhaustion of the
memory, and no impeachment of the memorandum on cross-examination; and the document was
clearly incompetent as evidence in chief."
It results from the foregoing that the judgment appealed from must be modified by reducing the amount
of the recovery to eleven hundred pesos (1,100), with legal interest from November 8, 1916. As thus
modified the judgment is affirmed, without any special pronouncement as to costs of this instance. So
ordered.
Arellano, C.J., Torres, Araullo, Malcolm and Avancea, JJ., concur.

FIRST DIVISION

[G.R. No. 7567. November 12, 1912. ]

THE UNITED STATES, Plaintiff-Appellee, v. SEGUNDO BARIAS, Defendant-Appellant.

Bruce, Lawrence, Ross & Block for Appellant.

Solicitor-General Harvey for Appellee.

SYLLABUS

1. NEGLIGENCE DEFINED. Negligence is "the failure to observe, for the protection of the
interests of another person, that degree of care, precaution and vigilance which the circumstances justly
demand, whereby such other person suffers injury."cralaw virtua1aw library

2. ID.; ID. Silvelas observation that "if a moments attention and reflexion would have shown a
person that the act which he was about to perform was liable to have the harmful consequences which it
had, such person acted with temerity and may be guilty of imprudencia temeraria," cited with approval.
3. ID.; ID. "The diligence with which the law requires the individual at all times to govern his
conduct varies with the nature of the situation in which he is placed and with the importance of the act
which he is to perform." (U. S. v. Reyes, 1 Phil. Rep., 375, 377.)

4. ID.; STREET RAILWAYS; DUTIES AND RESPONSIBILITIES OF MOTORMEN. Held, that a

motorman operating a street car on a public street in a densely populated section of the city of Manila is
bound to know and to recognize that any negligence on his part in observing the track over which he is
running his car may result in fatal accidents. He has no right, when he starts from a standstill, to assume
that the track before his car is clear. It is his duty to satisfy himself of that fact by keeping a sharp
lookout and doing everything in his power to avoid the danger which is necessarily incident to the
operation of heavy street cars on thoroughfares in populous sections of the city.

5. ID.; ID.; ID. In the absence of some regulation of his employers, a motorman who has brought his
car to a standstill is not bound to keep his eyes directly to the front while the car is stopped, but before
setting it again in motion, it is his duty to satisfy himself that the track is clear, and for that purpose to
look and to see the track just in front of his car.

6. ID.; ID.; ID. The reasons of public policy which impose upon street car companies and their
employees the duty of exercising the utmost degree of diligence in securing the safety of passengers,
apply with equal force to the duty of avoiding infliction of injuries upon pedestrians and others upon
the public streets and thoroughfares over which such companies are authorized to run their cars.

7. ID.; ID.; ID. It is the manifest duty of a motorman operating an electric street car on a public
thoroughfare in as thickly settled district, to satisfy himself that the track is clear immediately in front
of his car before setting it in motion from a standstill and for that purpose to incline his body slightly
forward, if that be necessary, in order to bring the track immediately in front of his car within his line of
vision.

DECISION
CARSON, J. :

This is an appeal from a sentence imposed by the Honorable A. S. Crossfield, judge of the Court of
First Instance of Manila, for homicide resulting from reckless negligence. The information
charges:jgc:chanrobles.com.ph

"That on or about November 2, 1911, in the city of Manila, Philippine Islands, the said Segundo Barias
was a motorman on street car No. 9, run 7, of the Pasay-Cervantes lines of the Manila Electric Railroad
and Light Company, a corporation duly organized and doing business in the city of Manila, Philippine
Islands; as such motorman he was controlling and operating said street car along Rizal Avenue,
formerly Calle Cervantes, of this city, and as such motorman of said street car he was under obligation
to run the same with due care and diligence to avoid any accident that might occur to vehicles and
pedestrians who were traveling on said Rizal Avenue; said accused, at said time and place, did willfully,
with reckless imprudenced and inexcusable negligence and in violation of the regulations promulgated
to that effect, control and operate said street car, without heeding the pedestrians crossing Rizal Avenue
from one side to the other, thus knocking down and causing by his carelessness and imprudent
negligence that said street car No. 9, operated and controlled by said accused, as hereinbefore stated,
should knock down and pass over the body and head of one Fermina Jose, a girl 2 years old, who at
said time and place was crossing the said Rizal Avenue, the body of said girl being dragged along the
street-car track on said Rizal Avenue for a long distance, thus crushing and destroying her head and
causing her sudden death as a result of the injury received; that if the acts executed by the accused had
been done with malice, he would be guilty of the serious crime of homicide."cralaw virtua1aw library

The defendant was a motorman for the Manila Electric Railroad and Light Company. At about 6
oclock on the morning of November 2, 1911, he was driving his car along Rizal Avenue and stopped it
near the intersection of that street with Calle Requesen to take on some passengers. When the car
stopped, the defendant looked backward, presumably to note whether all the passengers were aboard,
and then started his car. At that moment Ferminia Jose, a child about 3 years old, walked or ran in front
of the car. She was knocked down and dragged some little distance underneath the car, and was left
dead upon the track. The motorman proceeded with his car to the end of the track, some distance from
the place of the accident, and apparently knew nothing of it until his return, when he was informed of
what had happened.

There is no substantial dispute as to the facts. It is true that one witness testified that the defendant
started the car without turning his head, and while he was still looking backwards and that this
testimony was directly contradicted by that of another witness. But we do not deem it necessary to
make an express finding as to the precise direction in which the defendants head was turned at the
moment when he started his car. It is sufficient for the purpose of our decision to hold, as we do, that
the evidence clearly discloses that he started his car from a standstill without looking over the track
immediately in front of the car to satisfy himself that it was clear. He did not see the child until after he
had run his car over it, and after he had returned to the place where it was found dead, and we think we
are justified in saying that wherever he was looking at the moment when he started his car, he was not
looking at the track immediately in front of the car, and that he had not satisfied himself that this
portion of the track was clear immediately before putting the car in motion.

The trial court found the defendant guilty of imprudencia temeraria (reckless negligence) as charged in
the information, and sentenced him to one year and one month of imprisonment in Bilibid Prison, and
to pay the costs of the action.

The sole question raised by this appeal is whether the evidence shows such carelessness or want of
ordinary care on the part of the defendant as to amount to reckless negligence (imprudencia temeraria).

Judge Cooley in his work on Torts (3d ed., 1324) defines negligence to be: "The failure to observe, for
the protection of the interests of another person, that degree of care, precaution and vigilance which the
circumstances justly demand, whereby such other person suffers injury."cralaw virtua1aw library
In the case of U. S. v. Nava, (1 Phi. Rep., 580), we held that: "Reckless negligence consists of the
failure to take such precautions or advance measures in the performance of an act as the most common
prudence would suggest whereby injury is caused to persons or to property."cralaw virtua1aw library

Silvela says in his "Derecho Penal," in speaking of reckless imprudence (imprudencia

temeraria):jgc:chanrobles.com.ph

"The word negligencia used in the code, and the term imprudencia with which this punishable act is
defined, express this idea in such a clear manner that it is not necessary to enlarge upon it. He who has
done everything on his part to prevent his actions from causing damage to another, although he has not
succeeded in doing so, notwithstanding his efforts, is the victim of an accident, and cannot be
considered responsible for the same." (Vol. 2, p. 127 [153].)

"Temerario is, in our opinion, one who omits, with regard to his actions, which are liable to cause
injury to another, that care and diligence, that attention, which can be required of the least careful,
attentive, or diligent. If a moments attention and reflection would have shown a person that the act
which he was about to perform was liable to have the harmful consequence which it had, such person
acted with temerity and may be guilty of imprudencia temeraria." It may be that in practice this idea
has been given a greater scope and acts of imprudence which did not show carelessness as carried to
such a high degree, might have been punished as imprudencia temeraria; but in our opinion, the
proper meaning of the word does not authorize another interpretation." (Id., p 133 [161].)

Groizard, commenting upon "imprudencia temeraria," on page 389, volume 8, of his work on the Penal
Code, says:jgc:chanrobles.com.ph

"Prudence is that cardinal virtue which teaches us to discern and distinguish the good from the bad, in
order to adopt or to flee from it. It also means good judgment, temperance, and moderation in ones
action.Temerario without reflection and without examining the same. Consequently, he who from lack
of good judgment, temperance, or moderation in his action, exposes himself without reflection and
examination to the danger of committing a crime, must be held responsible under the provision of law
aforementioned."cralaw virtua1aw library

Negligence is want of the care required by the circumstances. It is a relative or comparative, not an
absolute, term and its application depends upon the situation of the parties and the degree of care and
vigilance which the circumstances reasonably require. Where the danger is great, a high degree of care
is necessary, and the failure to observe it is a want of ordinary care under the circumstances. (Ahern v.
Oregon Telephone Co., 24 Oreg., 276, 294; 35 Pac., 549.)

Ordinary care, if the danger is great, may rise to the grade of a very exact and unchangeable attention.
(Parry Mfg. Co. v. Eaton, 41 Ind. App., 81, 1908; 83 N. E., 510.)
In the case of U. S. v. Reyes (1 Phil. Rep., 375-377), we held that: "The diligence with which the law
requires the individual at all times to govern his conduct varies with the nature of the situation in which
he is placed and with the importance of the act which he is to perform."cralaw virtua1aw library

The question to be determined then, is whether, under all the circumstances, and having in mind the
situation of the defendant when he put his car in motion and ran it over the child, he was guilty of a
failure to take such precautions or advance measures as common prudence would suggest.

The evidence shows that the thoroughfare on which the incident occurred was a public street in a
densely populated section of the city. The hour was six in the morning, or about the time when the
residents of such streets begin to move about. Under such conditions a motorman of an electric street
car was clearly charged with a high degree of diligence in the performance of his duties. He was bound
to know and to recognize that any negligence on his part in observing the track over which he was
running his car might result in fatal accidents. He had no right to assume that the track before his car
was clear. It was his duty to satisfy himself of that fact by keeping a sharp lookout, and to do
everything in his power to avoid the danger which is necessarily incident to the operation of heavy
street cars on public thoroughfares in populous sections of the city.

Did he exercise the degree of diligence required of him? We think this question must be answered in
the negative. We do not go so far as to say that having brought his car to a standstill it was his bounden
duty to keep his eyes directed to the front. Indeed, in the absence of some regulation of his employers,
we can well understand that, at times, it might be highly proper and prudent for him to gland back
before again setting his car in motion, to satisfy himself that he understood correctly a signal to go
forward or that all the passengers had safely alighted or gotten on board. But we do insist that before
setting his car again in motion, it was his duty to satisfy himself that the track was clear, and, for that
purpose, to look and to see the track just in front of his car. This the defendant did not do, and the result
of his negligence was the death of the child.

In the case of Smith v. St. Paul City Ry. Co., (32 Min., p. 1), the supreme court of Minnesota, in
discussing the diligence required of street railway companies in the conduct of their business observed
that: "The defendant was a carrier of passengers for hire, owning and controlling the tracks and cars
operated thereon. It is therefore subject to the rules applicable to passenger carriers. (Thompsons
Carriers, 442; Barrett v. Third Ave. R. Co., 1 Sweeny, 568; 8 Abb. Pr. (N. S.) , 205.) As respects hazards
and dangers incident to the business or employment, the law enjoins upon such carrier the highest
degree of care consistent with its undertaking, and it is responsible for the slightest negligence. (Wilson
v. Northern Pacific R. Co., 26 minn., 278; Warren v. Fitchburg R. Co., 8 Allen, 233; 43 Am. Dec. 354,
356, notes and cases.) . . . The severe rule which enjoins upon the carrier such extraordinary care and
diligence, is intended, for reasons of public policy, to secure the safe carriage of passengers, in so far as
human skill and foresight can affect such result." The case just cited was a civil case, and the doctrine
therein announced d especial reference to the care which should be exercised in securing the safety of
passengers. But we hold that the reasons of public policy which imposed upon street car companies and
their employees the duty of exercising the utmost degree of diligence in securing the safety of
passengers, apply with equal force to the duty of avoiding the infliction of injuries upon pedestrians
and others on the public streets and thoroughfares over which these companies are authorized to run
their cars. And while, in a criminal case, the courts will require proof of the guilt of the company or its
employees beyond a reasonable doubt, nevertheless the care or diligence required of the company and
its employees is the same in both cases, and the only question to be determined is whether the proof
shows beyond a reasonable doubt that the failure to exercise such care or diligence was the cause of the
accident, and that the defendant was guilty thereof.

Counsel for the defendant insist that the accident might have happened despite the exercise of the
utmost care by the defendant, and they have introduced photographs into the record for the purpose of
proving that while the motorman was standing in his proper place on the front platform of the car, a
child might have walked up immediately in front of the car, a child might have walked up immediately
in front of the car without coming within the line of his vision. Examining the photographs, we think
that this contention may have some foundation in fact; but only to this extent, that standing erect, at the
position he would ordinarily assume while the car is in motion, the eye of the average motorman might
just miss seeing the top of the head of a child, about three years old, standing or walking close up to the
front of the car. But it is also very evident that by inclining the head and shoulders forward very
slightly, and glancing in front of the car, a person in the position of a motorman could not fail to see a
child on the track immediately in front of his car; and we hold that it is the manifest duty of a
motorman, who is about to start his car on a public thoroughfare in a thickly-settled district, to satisfy
himself that the track is clear immediately in front of his car, a person in the position of a motorman
could not fail to see a child on the track immediately in front of his car; and we hold that it is the
manifest duty of a motorman, who is about to start his car on a public thoroughfare in a thickly-settled
district, to satisfy himself that the track is clear immediately in front of his car, and to incline his body
slightly forward, if that be necessary, in order to bring the whole track within his line of vision. Of
course, this may not be, and usually is not necessary when the car is in motion, but we think that it is
required by the dictates of the most ordinary prudence in starting from a standstill.

We are not unmindful of our remarks in the case of U. S. v. Bacho (10 Phil. Rep., 577), to which our
attention is directed by counsel for Appellant. In that case we said that:jgc:chanrobles.com.ph

". . . In the general experience of mankind, accidents apparently unavoidable and often inexplicable are
unfortunately too frequent to permit us to conclude that some one must be criminally liable for
negligence in every case where an accident occurs. it is the duty of the prosecution in each case to
prove by competent evidence not only the existence of criminal negligence, but that the accused was
guilty thereof."cralaw virtua1aw library

Nor do we overlook the ruling in the case of U. S. v. Barnes (12 Phil. Rep., 93), to which our attention
is also invited, wherein we held that the defendant was not guilty of reckless negligence, where it
appeared that he killed another by the discharge of his gun under such circumstances that he might have
been held guilty of criminally reckless negligence had he had knowledge at that moment that another
person was in such position as to be in danger if the gun should be discharged. In this latter case the
defendant had no reason to anticipate that the person who was injured was in the line of fire, or that
there was any probability that he or anyone else would place himself in the line of fire. In the case at
bar, however, it was, as we have seen, the manifest duty of the motorman to take reasonable
precautions in starting his car to see that in doing so he was not endangering the life of any pedestrian,
old or young; and to this end it was further his duty to guard against the reasonable possibility that
some one might be on the evidence showing, is it does, that the child was killed at the moment when
the car was set in motion, we are justified in holding that, had the motorman seen the child, he could
have avoided the accident; the accident was not, therefore, "unavoidable or inexplicable," and it
appearing that the motorman, by the exercise of ordinary diligence, might have seen the child before he
set the car in motion, his failure to satisfy himself that the track was clear before doing so was reckless
negligence, of which he was properly convicted in the court below.

We think, however, that the penalty should be reduced to that of six months and one day of prision
correccional. Modified by substituting for so much thereof as imposes the penalty of one year and one
month of imprisonment, the penalty of six months and one day of prision correccional, the judgment of
the lower court convicting and sentencing the appellant is affirmed, with the costs of both instances
against him. So ordered.

Arellano, C.J., Torres and Mapa, JJ., concur.

Johnson, J., concurs in the result.

THIRD DIVISION
[G.R. No. 141258. April 9, 2003]
TOMASA SARMIENTO, petitioner, vs. SPS. LUIS & ROSE SUN-CABRIDO and MARIA
LOURDES SUN, respondents.
DECISION
CORONA, J.:
This appeal by certiorari stems from the Decision[1] of respondent Court of Appeals promulgated on
November 26, 1999 in CA-G.R. SP No. 47431 declaring the private respondents not liable for
damages.
Petitioner, Tomasa Sarmiento, states that sometime in April 1994, a friend, Dra. Virginia Lao, requested
her to find somebody to reset a pair of diamond earrings into two gold rings.[2] Accordingly, petitioner
sent a certain Tita Payag with the pair of earrings to Dingdings Jewelry Shop, owned and managed by
respondent spouses Luis and Rose Cabrido,[3] which accepted the job order for P400.[4]
Petitioner provided 12 grams of gold to be used in crafting the pair of ring settings.[5] After 3 days,
Tita Payag delivered to the jewelry shop one of Dra. Laos diamond earrings which was earlier
appraised as worth .33 carat and almost perfect in cut and clarity.[6] Respondent Ma. Lourdes
(Marilou) Sun went on to dismount the diamond from its original setting. Unsuccessful, she asked their
goldsmith, Zenon Santos, to do it. Santos removed the diamond by twisting the setting with a pair of
pliers, breaking the gem in the process.[7]
Petitioner required the respondents to replace the diamond with the same size and quality. When they
refused, the petitioner was forced to buy a replacement in the amount of P30,000.[8]
Respondent Rose Cabrido, manager of Dingdings Jewelry Shop, denied having entered into any
transaction with Tita Payag whom she met only after the latter came to the jewelry shop to seek
compensation from Santos for the broken piece of jewelry.[9] However, it was possible that Payag may
have availed of their services as she could not have known every customer who came to their shop.
Rose disclosed that she usually arrived at 11:00 a.m. When she was not around, her mother and sister
tended the shop.[10]
Marilou admitted knowing Payag who came to Dingdings Jewelry Shop to avail of their services
regarding a certain piece of jewelry. After a short conversation, Payag went inside the shop to see
Santos. When the precious stone was broken by Santos, Payag demanded P15,000 from him. As the
latter had no money, she turned to Marilou for reimbursement apparently thinking that Marilou was the
owner of the shop.[11]
For his part, Santos recalled that Payag requested him to dismount what appeared to him was a
sapphire. While clipping the setting with the use of a small pair of pliers, the stone accidentally broke.
Santos denied being an employee of Dingdings Jewelry Shop.[12]
Attempts to settle the controversy before the barangay lupon proved futile.[13] Consequently,
petitioner filed a complaint for damages on June 28, 1994 with the Municipal Trial Court in Cities
(MTCC) of Tagbilaran City docketed as Civil Case No. 2339 which rendered a decision[14] in favor of
the petitioner, the dispositive portion of which reads:
WHEREFORE, Decision is hereby rendered in favor of plaintiff Tomasa Sarmiento and against
defendants Spouses Luis and Rose Sun-Cabrido, ordering defendants to pay jointly and severally the
amount of Thirty Thousand Pesos (P30,000.00) as actual or compensatory damages; Three Thousand
Pesos (P3,000.00) as moral damages; Five Thousand Pesos (P5,000.00) as attorneys fees; Two
Thousand Pesos (P2,000.00) as litigation expenses, with legal interest of 6% per annum from the date
of this decision and 12% per annum from the date when this decision becomes final until the amounts
shall have been fully paid and to pay the costs.
This case as against defendant Maria Lourdes Sun as well as defendants counterclaim are dismissed
for lack of merit.
SO ORDERED.
On appeal, the Regional Trial Court (RTC) of Tagbilaran City, Branch 3, reversed the decision of the
MTCC, thus absolving the respondents of any responsibility arising from breach of contract.[15]
Finding no reversible error, the Court of Appeals (CA) affirmed the judgment of the RTC in its
Decision promulgated on November 26, 1999.[16]
Unable to accept the decision, the petitioner filed the instant petition for review with the following
assigned errors:
I
THE COURT OF APPEALS ERRED IN MAINTAINING AND SO HOLDING THAT ZENON
SANTOS IS NOT AN EMPLOYEE OF DEFENDANT (herein respondent) ROSE SUN-CABRIDO,
AND IS THEREFORE ANSWERABLE FOR HIS OWN ACTS OR OMISSIONS
II
THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE REGIONAL TRIAL
COURTS PRONOUNCEMENTS THAT THERE EXISTS NO AGREEMENT BETWEEN THE
PETITIONER AND RESPONDENTS THAT THE LATTER WOULD ANSWER FOR ANY
LIABILITY SHOULD THE DIAMOND BE DAMAGED IN THE PROCESS OF DISMOUNTING
THEM FROM THE EARRINGS.
Essentially, petitioner claims that the dismounting of the diamond from its original setting was part of
the obligation assumed by the private respondents under the contract of service. Thus, they should be
held liable for damages arising from its breakage. On the other hand, the version of the private
respondents, upheld by the RTC and the CA, is that their agreement with the petitioner was for crafting
two gold rings mounted with diamonds only and did not include the dismounting of the said diamonds
from their original setting.[17] Consequently, the crux of the instant controversy is the scope of the
obligation assumed by the private respondents under the verbal contract of service with the petitioner.
The Court notes that, during the trial, private respondents vigorously denied any transaction between
Dingdings Jewelry Shop and the petitioner, through Tita Payag. Rose Cabrido, for instance, denied
having ever met Payag before the latter came to seek reimbursement for the value of the broken
diamond. Likewise, while Marilou acknowledged acquaintance with Payag, she nevertheless denied
accepting any job order from her. Debunking their protestations, however, the MTCC of Tagbilaran
City rendered its decision on November 26, 1999 in favor of herein petitioner.
Apparently realizing the weakness and futility of their position, private respondents conceded, on
appeal, the existence of an agreement with the petitioner for crafting a pair of gold rings mounted with
diamonds. This apparent concession by the private respondents, however, was really nothing but an
ingenious maneuver, designed to preclude, just the same, any recovery for damages by the petitioner.
Thus, while ostensibly admitting the existence of the said agreement, private respondents, nonetheless
denied assuming any obligation to dismount the diamonds from their original settings.[18]
The inconsistent position of the private respondents impugns their credibility. They cannot be permitted
to adopt a certain stance, only to vacillate later to suit their interest. We are therefore inclined to agree
with the MTCC in giving credence to the version of the petitioner. The MTCC had the unique
opportunity to actually observe the behavior and demeanor of the witnesses as they testified during
the trial.[19]
At any rate, the contemporaneous and subsequent acts of the parties[20] support the version of the
petitioner. Thus, when Tita Payag asked Marilou of Dingdings Jewelry Shop to reset a pair of
diamond earrings, she brought with her the said pieces of jewelry so that the diamonds which were still
mounted could be measured and the new ring settings crafted accordingly. On the said occasion,
Marilou expressed no reservation regarding the dismounting of the diamonds which, after all, was an
integral part of petitioners job order. She should have instructed Payag to have them dismounted first
if Marilou had actually intended to spare the jewelry shop of the task but she did not. Instead,
petitioner was charged P400 for the job order which was readily accepted. Thus, a perfected contract
to reset the pair of diamond earrings arose between the petitioner, through Payag, and Dingdings
Jewelry Shop, through Marilou.
Marilous subsequent actuations were even more revealing as regards the scope of obligation assumed
by the jewelry shop. After the new settings were completed in 3 days, she called up the petitioner to
bring the diamond earrings to be reset.[21] Having initially examined one of them, Marilou went on to
dismount the diamond from its original setting. Unsuccessful, she then delegated the task to their
goldsmith, Zenon Santos. Having acted the way she did, Marilou cannot now deny the shops
obligation to reset the pair of earrings.
Obligations arising from contracts have the force of law between the contracting parties.[22]
Corollarily, 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.[23] 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.[24]
In the case at bar, it is beyond doubt that Santos acted negligently in dismounting the diamond from its
original setting. It appears to be the practice of the trade to use a miniature wire saw in dismounting
precious gems, such as diamonds, from their original settings.[25] However, Santos employed a pair of
pliers in clipping the original setting, thus resulting in breakage of the diamond. The jewelry shop
failed to perform its obligation with the ordinary diligence required by the circumstances. It should be
pointed out that Marilou examined the diamond before dismounting it from the original setting and
found the same to be in order. Its subsequent breakage in the hands of Santos could only have been
caused by his negligence in using the wrong equipment. Res ipsa loquitur.
Private respondents seek to avoid liability by passing the buck to Santos who claimed to be an
independent worker. They also claim, rather lamely, that Marilou simply happened to drop by at
Dingdings Jewelry Shop when Payag arrived to place her job order.[26]
We do not think so.
The facts show that Santos had been working at Dingdings Jewelry Shop as goldsmith for about 6
months accepting job orders through referrals from private respondents.[27] On the other hand, Payag
stated that she had transacted with Dingdings Jewelry Shop on at least 10 previews occasions, always
through Marilou.[28] The preponderance of evidence supports the view that Marilou and Zenon Santos
were employed at Dingdings Jewelry Shop in order to perform activities which were usually necessary
or desirable in its business.[29]
We therefore hold that an obligation to pay actual damages arose in favor of the petitioner against the
respondents spouses who admittedly owned and managed Dingdings Jewelry Shop. It was proven that
petitioner replaced the damaged jewelry in the amount of P30,000.[30]
The facts of the case also justify the award of moral damages. As a general rule, moral damages are not
recoverable in actions for damages predicated on a breach of contract for it is not one of the items
enumerated under Article 2219 of the Civil Code.[31] Moral damages may be awarded in a breach of
contract only when there is proof that defendant acted in bad faith, or was guilty of gross negligence
amounting to bad faith, or in wanton disregard of his contractual obligation.[32] Santos was a
goldsmith for more than 40 years.[33] Given his long experience in the trade, he should have known
that using a pair of pliers instead of a miniature wire saw in dismounting a precious stone like a
diamond would have entailed an unnecessary risk of breakage. He went on with it anyway. Hence,
respondent spouses are liable for P10,000 as moral damages due to the gross negligence of their
employee.
However, private respondents refusal to pay the value of the damaged jewelry emanated from an
honest belief that they were not responsible therefor, hence, negating any basis for the award of
attorneys fees.[34]
WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of Appeals
dated November 26, 1999 is hereby reversed and set aside. Private respondents Luis Cabrido and Rose
Sun-Cabrido are hereby ordered to pay, jointly and severally, the amount of P30,000 as actual damages
and P10,000 as moral damages in favor of the petitioner.
No costs.
SO ORDERED.
Puno, (Chairman), Panganiban, Sandoval-Gutierrez, and Carpio-Morales, JJ., concur.

[1] Penned by Associate Justice Ma. Alicia Austria-Martinez and concurred in by Associate Justices
B.A. Adefuin-de la Cruz and Presbitero J. Velasco, Jr., Rollo, pp. 17-23.
[2] TSN, December 14, 1994, pp. 7-8.
[3] Exhibit I; TSN, February 7, 1995, p. 4.
[4] Exhibit 1; TSN, November 8, 1994, pp. 3-4.
[5] Exhibit C.
[6] TSN, December 14, 1995, p. 9.
[7] TSN, November 8, 1994, pp. 6-7.
[8] Exhibit B; TSN, December 14, 1994, pp. 12-14.
[9] TSN, February 7, 1995, p.p. 4-5.
[10]Id., p. 9.
[11] TSN, August 18, 1995, pp. 3-4.
[12] TSN, June 8, 1995, pp. 2-5.
[13] Exhibit D.
[14] Petition, Annex D, Rollo, pp. 29-36. Penned by Judge Emma Eronico-Supremo.
[15] Petition, Annex B, Rollo, pp. 24-28. Penned by Judge Pacito A. Yape.
[16] See footnote no. 1.
[17] Comment, Rollo, p. 57.
[18] Appellants Brief, Original Records, pp. 97-101.
[19]People vs. Lacsa, 339 SCRA 178, 190 [2000]; People vs. Continente, 339 SCRA 1, 29 [2000];
People vs. Barro, Sr. 338 SCRA 312, 322 [2000].
[20] Tangquilig vs. CA, 334 Phil. 68, 74 [1997].
[21] TSN, December 14, 1994, p. 11.
[22] Article 1159, Civil Code of the Philippines.
[23] Article 1170, Civil Code of the Philippines.
[24] Article 1173, Civil Code of the Philippines.
[25] TSN, January 20, 1995, p. 3.
[26] TSN, August 18, 1995, p. 3.
[27] TSN, June 8, 1995, pp. 6-7.
[28] TSN, November 8, 1994, p. 4.
[29] Article 280 of the Labor Code pertinently provides:
Art. 280. Regular and Casual Employment. The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to
be regular where the employee has been engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer xxx.
[30] Exhibits B; F; G.
[31] Calalas vs. Court of Appeals, 302 SCRA 356 [2000].
[32]Magat, Jr. vs. Court of Appeals, 337 SCRA 298, 308 [2000]; Integrated Packaging Corporation vs.
Court of Appeals, 333 SCRA 170 [2000].
[33] TSN, June 8, 1995, p. 4.
[34]Bernardo vs. Court of Appeals, 275 SCRA 413, 432 [1997].

FIRST DIVISION
[G.R. No. 138334. August 25, 2003]
ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF APPEALS and CARAVAN TRAVEL &
TOURS INTERNATIONAL, INC., respondents.
DECISION
YNARES-SANTIAGO, J.:
In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and
Tours International, Inc. to arrange and facilitate her booking, ticketing and accommodation in a tour
dubbed Jewels of Europe. The package tour included the countries of England, Holland, Germany,
Austria, Liechstenstein, Switzerland and France at a total cost of P74,322.70. Petitioner was given a
5% discount on the amount, which included airfare, and the booking fee was also waived because
petitioners niece, Meriam Menor, was respondent companys ticketing manager.
Pursuant to said contract, Menor went to her aunts residence on June 12, 1991 a Wednesday to
deliver petitioners travel documents and plane tickets. Petitioner, in turn, gave Menor the full payment
for the package tour. Menor then told her to be at the Ninoy Aquino International Airport (NAIA) on
Saturday, two hours before her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991, to take
the flight for the first leg of her journey from Manila to Hongkong. To petitioners dismay, she
discovered that the flight she was supposed to take had already departed the previous day. She learned
that her plane ticket was for the flight scheduled on June 14, 1991. She thus called up Menor to
complain.
Subsequently, Menor prevailed upon petitioner to take another tour the British Pageant which
included England, Scotland and Wales in its itinerary. For this tour package, petitioner was asked anew
to pay US$785.00 or P20,881.00 (at the then prevailing exchange rate of P26.60). She gave respondent
US$300 or P7,980.00 as partial payment and commenced the trip in July 1991.
Upon petitioners return from Europe, she demanded from respondent the reimbursement of
P61,421.70, representing the difference between the sum she paid for Jewels of Europe and the
amount she owed respondent for the British Pageant tour. Despite several demands, respondent
company refused to reimburse the amount, contending that the same was non-refundable.[1] Petitioner
was thus constrained to file a complaint against respondent for breach of contract of carriage and
damages, which was docketed as Civil Case No. 92-133 and raffled to Branch 59 of the Regional Trial
Court of Makati City.
In her complaint,[2] petitioner alleged that her failure to join Jewels of Europe was due to
respondents fault since it did not clearly indicate the departure date on the plane ticket. Respondent
was also negligent in informing her of the wrong flight schedule through its employee Menor. She
insisted that the British Pageant was merely a substitute for the Jewels of Europe tour, such that the
cost of the former should be properly set-off against the sum paid for the latter.
For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied
responsibility for petitioners failure to join the first tour. Chipeco insisted that petitioner was informed
of the correct departure date, which was clearly and legibly printed on the plane ticket. The travel
documents were given to petitioner two days ahead of the scheduled trip. Petitioner had only herself to
blame for missing the flight, as she did not bother to read or confirm her flight schedule as printed on
the ticket.
Respondent explained that it can no longer reimburse the amount paid for Jewels of Europe,
considering that the same had already been remitted to its principal in Singapore, Lotus Travel Ltd.,
which had already billed the same even if petitioner did not join the tour. Lotus European tour
organizer, Insight International Tours Ltd., determines the cost of a package tour based on a minimum
number of projected participants. For this reason, it is accepted industry practice to disallow refund for
individuals who failed to take a booked tour.[3]
Lastly, respondent maintained that the British Pageant was not a substitute for the package tour that
petitioner missed. This tour was independently procured by petitioner after realizing that she made a
mistake in missing her flight for Jewels of Europe. Petitioner was allowed to make a partial payment
of only US$300.00 for the second tour because her niece was then an employee of the travel agency.
Consequently, respondent prayed that petitioner be ordered to pay the balance of P12,901.00 for the
British Pageant package tour.
After due proceedings, the trial court rendered a decision,[4] the dispositive part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty
Three Thousand Nine Hundred Eighty Nine Pesos and Forty Three Centavos
(P53,989.43) with legal interest thereon at the rate of twelve percent (12%) per annum
starting January 16, 1992, the date when the complaint was filed;
2. Ordering the defendant to pay the plaintiff the amount of Five Thousand
(P5,000.00) Pesos as and for reasonable attorneys fees;
3. Dismissing the defendants counterclaim, for lack of merit; and
4. With costs against the defendant.
SO ORDERED.[5]
The trial court held that respondent was negligent in erroneously advising petitioner of her departure
date through its employee, Menor, who was not presented as witness to rebut petitioners testimony.
However, petitioner should have verified the exact date and time of departure by looking at her ticket
and should have simply not relied on Menors verbal representation. The trial court thus declared that
petitioner was guilty of contributory negligence and accordingly, deducted 10% from the amount being
claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both parties to be at fault.
However, the appellate court held that petitioner is more negligent than respondent because as a lawyer
and well-traveled person, she should have known better than to simply rely on what was told to her.
This being so, she is not entitled to any form of damages. Petitioner also forfeited her right to the
Jewels of Europe tour and must therefore pay respondent the balance of the price for the British
Pageant tour. The dispositive portion of the judgment appealed from reads as follows:
WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26, 1995
is hereby REVERSED and SET ASIDE. A new judgment is hereby ENTERED requiring the plaintiff-
appellee to pay to the defendant-appellant the amount of P12,901.00, representing the balance of the
price of the British Pageant Package Tour, the same to earn legal interest at the rate of SIX PERCENT
(6%) per annum, to be computed from the time the counterclaim was filed until the finality of this
decision. After this decision becomes final and executory, the rate of TWELVE PERCENT (12%)
interest per annum shall be additionally imposed on the total obligation until payment thereof is
satisfied. The award of attorneys fees is DELETED. Costs against the plaintiff-appellee.
SO ORDERED.[6]
Upon denial of her motion for reconsideration,[7] petitioner filed the instant petition under Rule 45 on
the following grounds:
I
It is respectfully submitted that the Honorable Court of Appeals committed a reversible error in
reversing and setting aside the decision of the trial court by ruling that the petitioner is not entitled to a
refund of the cost of unavailed Jewels of Europe tour she being equally, if not more, negligent than
the private respondent, for in the contract of carriage the common carrier is obliged to observe utmost
care and extra-ordinary diligence which is higher in degree than the ordinary diligence required of the
passenger. Thus, even if the petitioner and private respondent were both negligent, the petitioner cannot
be considered to be equally, or worse, more guilty than the private respondent. At best, petitioners
negligence is only contributory while the private respondent [is guilty] of gross negligence making the
principle of pari delicto inapplicable in the case;
II
The Honorable Court of Appeals also erred in not ruling that the Jewels of Europe tour was not
indivisible and the amount paid therefor refundable;
III
The Honorable Court erred in not granting to the petitioner the consequential damages due her as a
result of breach of contract of carriage.[8]
Petitioner contends that respondent did not observe the standard of care required of a common carrier
when it informed her wrongly of the flight schedule. She could not be deemed more negligent than
respondent since the latter is required by law to exercise extraordinary diligence in the fulfillment of its
obligation. If she were negligent at all, the same is merely contributory and not the proximate cause of
the damage she suffered. Her loss could only be attributed to respondent as it was the direct
consequence of its employees gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is one whereby a certain person or association of
persons obligate themselves to transport persons, things, or news from one place to another for a fixed
price.[9] Such person or association of persons are regarded as carriers and are classified as private or
special carriers and common or public carriers.[10] A common carrier is defined under Article 1732 of
the Civil Code as persons, corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water or air, for compensation, offering their services
to the public.
It is obvious from the above definition that respondent is not an entity engaged in the business of
transporting either passengers or goods and is therefore, neither a private nor a common carrier.
Respondent did not undertake to transport petitioner from one place to another since its covenant with
its customers is simply to make travel arrangements in their behalf. Respondents services as a travel
agency include procuring tickets and facilitating travel permits or visas as well as booking customers
for tours.
While petitioner concededly bought her plane ticket through the efforts of respondent company, this
does not mean that the latter ipso facto is a common carrier. At most, respondent acted merely as an
agent of the airline, with whom petitioner ultimately contracted for her carriage to Europe.
Respondents obligation to petitioner in this regard was simply to see to it that petitioner was properly
booked with the airline for the appointed date and time. Her transport to the place of destination,
meanwhile, pertained directly to the airline.
The object of petitioners contractual relation with respondent is the latters service of arranging and
facilitating petitioners booking, ticketing and accommodation in the package tour. In contrast, the
object of a contract of carriage is the transportation of passengers or goods. It is in this sense that the
contract between the parties in this case was an ordinary one for services and not one of carriage.
Petitioners submission is premised on a wrong assumption.
The nature of the contractual relation between petitioner and respondent is determinative of the degree
of care required in the performance of the latters obligation under the contract. For reasons of public
policy, a common carrier in a contract of carriage is bound by law to carry passengers as far as human
care and foresight can provide using the utmost diligence of very cautious persons and with due regard
for all the circumstances.[11] As earlier stated, however, respondent is not a common carrier but a
travel agency. It is thus not bound under the law to observe extraordinary diligence in the performance
of its obligation, as petitioner claims.
Since the contract between the parties is an ordinary one for services, the standard of care required of
respondent is that of a good father of a family under Article 1173 of the Civil Code.[12] This connotes
reasonable care consistent with that which an ordinarily prudent person would have observed when
confronted with a similar situation. The test to determine whether negligence attended the performance
of an obligation is: did the defendant in doing the alleged negligent act use that reasonable care and
caution which an ordinarily prudent person would have used in the same situation? If not, then he is
guilty of negligence.[13]
In the case at bar, the lower court found Menor negligent when she allegedly informed petitioner of the
wrong day of departure. Petitioners testimony was accepted as indubitable evidence of Menors
alleged negligent act since respondent did not call Menor to the witness stand to refute the allegation.
The lower court applied the presumption under Rule 131, Section 3 (e)[14] of the Rules of Court that
evidence willfully suppressed would be adverse if produced and thus considered petitioners
uncontradicted testimony to be sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was negligent and maintains that
petitioners assertion is belied by the evidence on record. The date and time of departure was legibly
written on the plane ticket and the travel papers were delivered two days in advance precisely so that
petitioner could prepare for the trip. It performed all its obligations to enable petitioner to join the tour
and exercised due diligence in its dealings with the latter.
We agree with respondent.
Respondents failure to present Menor as witness to rebut petitioners testimony could not give rise to
an inference unfavorable to the former. Menor was already working in France at the time of the filing
of the complaint,[15] thereby making it physically impossible for respondent to present her as a
witness. Then too, even if it were possible for respondent to secure Menors testimony, the presumption
under Rule 131, Section 3(e) would still not apply. The opportunity and possibility for obtaining
Menors testimony belonged to both parties, considering that Menor was not just respondents
employee, but also petitioners niece. It was thus error for the lower court to invoke the presumption
that respondent willfully suppressed evidence under Rule 131, Section 3(e). Said presumption would
logically be inoperative if the evidence is not intentionally omitted but is simply unavailable, or when
the same could have been obtained by both parties.[16]
In sum, we do not agree with the finding of the lower court that Menors negligence concurred with the
negligence of petitioner and resultantly caused damage to the latter. Menors negligence was not
sufficiently proved, considering that the only evidence presented on this score was petitioners
uncorroborated narration of the events. It is well-settled that the party alleging a fact has the burden of
proving it and a mere allegation cannot take the place of evidence.[17] If the plaintiff, upon whom rests
the burden of proving his cause of action, fails to show in a satisfactory manner facts upon which he
bases his claim, the defendant is under no obligation to prove his exception or defense.[18]
Contrary to petitioners claim, the evidence on record shows that respondent exercised due diligence in
performing its obligations under the contract and followed standard procedure in rendering its services
to petitioner. As correctly observed by the lower court, the plane ticket[19] issued to petitioner clearly
reflected the departure date and time, contrary to petitioners contention. The travel documents,
consisting of the tour itinerary, vouchers and instructions, were likewise delivered to petitioner two
days prior to the trip. Respondent also properly booked petitioner for the tour, prepared the necessary
documents and procured the plane tickets. It arranged petitioners hotel accommodation as well as
food, land transfers and sightseeing excursions, in accordance with its avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the contract as well as everything
else that was essential to book petitioner for the tour. Had petitioner exercised due diligence in the
conduct of her affairs, there would have been no reason for her to miss the flight. Needless to say, after
the travel papers were delivered to petitioner, it became incumbent upon her to take ordinary care of
her concerns. This undoubtedly would require that she at least read the documents in order to assure
herself of the important details regarding the trip.
The negligence of the obligor in the performance of the obligation renders him liable for damages for
the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to
exercise due care and prudence in the performance of the obligation as the nature of the obligation so
demands.[20] There is no fixed standard of diligence applicable to each and every contractual
obligation and each case must be determined upon its particular facts. The degree of diligence required
depends on the circumstances of the specific obligation and whether one has been negligent is a
question of fact that is to be determined after taking into account the particulars of each case.[21]
The lower court declared that respondents employee was negligent. This factual finding, however, is
not supported by the evidence on record. While factual findings below are generally conclusive upon
this court, the rule is subject to certain exceptions, as when the trial court overlooked, misunderstood,
or misapplied some facts or circumstances of weight and substance which will affect the result of the
case.[22]
In the case at bar, the evidence on record shows that respondent company performed its duty diligently
and did not commit any contractual breach. Hence, petitioner cannot recover and must bear her own
damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals
in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay respondent the
amount of P12,901.00 representing the balance of the price of the British Pageant Package Tour, with
legal interest thereon at the rate of 6% per annum, to be computed from the time the counterclaim was
filed until the finality of this Decision. After this Decision becomes final and executory, the rate of
12% per annum shall be imposed until the obligation is fully settled, this interim period being deemed
to be by then an equivalent to a forbearance of credit.[23]
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.
[1] TSN, March 4, 1993, pp. 4-6.
[2] RTC Records, p. 1.
[3] TSN, August 30, 1994, pp. 6-9.
[4] Rollo, pp. 38-43.
[5]Id. at 43; penned by Judge Lucia Violago Isnani.
[6]Id. at 36.
[7]Id. at 37.
[8]Id. at 15.
[9] Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. 4 (1993
Edition), Aguedo F. Agbayani, p. 1, citing 1 Blanco 640.
[10]Id. at 4.
[11] Civil Code of the Philippines, Article 1755.
[12] Article 1173. 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. When negligence shows bad faith, the provisions of Articles 1171 and 2201,
paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required.
[13] Jarco Marketing Corporation v. Court of Appeals, 378 Phil. 991, 1003 (1999), citing Picart v.
Smith, 37 Phil. 809 (1918).
[14] This rule states:
SEC. 3. Disputable presumptions. The following presumptions are satisfactory if uncontradicted, but
may be contradicted and overcome by other evidence:
xxx xxx xxx
(e) That evidence willfully suppressed would be adverse if produced;
xxx xxx xxx
[15]Supra, note 3 at 10.
[16] The Revised Rules of Court in the Philippines, Vol. VII, Part II (1999 Edition) V. Francisco, p. 92.
[17]Pimentel v. Court of Appeals, 307 SCRA 38.
[18] Castilex Industrial Corporation v. Vasquez, Jr., 378 Phil. 1009, 1018 (1999), citing Belen v. Belen,
13 Phil. 202, 206 (1909), cited in Martin v. Court of Appeals, G.R. No. 82248, 205 SCRA 591 (1992).
[19]Supra, note 2 at 60 & 94.
[20]Bayne Adjusters and Surveyors, Inc. v. Court of Appeals, G.R. No. 116332, 323 SCRA 231 (2000),
citing Articles 1170, 1172-73, Civil Code; Southeastern College, Inc. v. Court of Appeals, 354 Phil 434
(1998).
[21] Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. IV (1999 Edition),
Arturo M. Tolentino, p. 124.
[22]Supra, note 13, citing Borillo v. CA, G.R. No. 55691, 209 SCRA 130 (1992); Mckee v.
Intermediate Appellate Court, G.R. No. 68102, 211 SCRA 517 (1992); and Salvador v. Court of
Appeals, 313 Phil. 36 (1995).
[23] Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78,
97.

Rodzssen Supply Co. Inc. vs. Far East Bank & Trust Co. (357 SCRA 618)
14 Jan
FACTS:
Petitioner opened with respondent a domestic letter of credit (LOC) in favor of Ekman and Company,
Inc. (Ekman) for the purchase of five hydraulic loaders. The first three hydraulic loaders were received
by the petitioner before the expiry of LOC and respondent paid Ekman. The remaining two hydraulic
loaders were received by the petitioner after the expiry of LOC/contract but respondent still paid
Ekman. Petitioner refused to pay respondent. Respondent filed a case. Petitioner answered by way of
affirmative defense that respondent had no cause of action being allegedly in bad faith and breach of
contract. The trial court and Court of Appeals ruled in favor of respondent to recover from the cost of
two hydraulic loaders.

ISSUE:
Whether or not the respondent is entitled of reimbursement from petitioner for its payment out of
mutual negligence.

RULING:
YES. Petitioner should pay respondent bank the amount the latter expended for the equipment
belatedly delivered by Ekman and voluntarily received and kept by petitioner. Respondent banks right
to seek recovery from petitioner is anchored, not upon the inefficacious Letter of Credit, but on Article
2142 of the Civil Code which reads: Certain lawful, voluntary and unilateral acts give rise to the
juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the
expense of another. When both parties to a transaction are mutually negligent in the performance of
their obligations, the fault of one cancels the negligence of the other and, as in this case, their rights and
obligations may be determined equitably under the law proscribing unjust enrichment.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 129792 December 21, 1999

JARCO MARKETING CORPORATION, LEONARDO KONG, JOSE TIOPE and ELISA
PANELO, petitioners,
vs.
HONORABLE COURT OF APPEALS, CONRADO C. AGUILAR and CRISELDA R.
AGUILAR, respondents.

DAVIDE, JR., J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioners seek
the reversal of the 17 June 1996 decision 1 of the Court of Appeals in C.A. G.R. No. CV
37937 and the resolution 2 denying their motion for reconsideration. The assailed decision set
aside the 15 January 1992 judgment of the Regional Trial Court (RTC), Makati City, Branch
60 in Civil Case No. 7119 and ordered petitioners to pay damages and attorney's fees to
private respondents Conrado and Criselda (CRISELDA) Aguilar.
Petitioner Jarco Marketing Corporation is the owner of Syvel's Department Store, Makati City.
Petitioners Leonardo Kong, Jose Tiope and Elisa Panelo are the store's branch manager,
operations manager, and supervisor, respectively. Private respondents are spouses and the
parents of Zhieneth Aguilar (ZHIENETH).
In the afternoon of 9 May 1983, CRISELDA and ZHIENETH were at the 2nd floor of Syvel's
Department Store, Makati City. CRISELDA was signing her credit card slip at the payment
and verification counter when she felt a sudden gust of wind and heard a loud thud. She
looked behind her. She then beheld her daughter ZHIENETH on the floor, her young body
pinned by the bulk of the store's gift-wrapping counter/structure. ZHIENETH was crying and
screaming for help. Although shocked, CRISELDA was quick to ask the assistance of the
people around in lifting the counter and retrieving ZHIENETH from the floor. 3
ZHIENETH was quickly rushed to the Makati Medical Center where she was operated on.
The next day ZHIENETH lost her speech and thereafter communicated with CRISELDA by
writing on a magic slate. The injuries she sustained took their toil on her young body. She died
fourteen (14) days after the accident or on 22 May 1983, on the hospital bed. She was six
years old. 4
The cause of her death was attributed to the injuries she sustained. The provisional medical
certificate 5 issued by ZHIENETH's attending doctor described the extent of her injuries:
Diagnoses:
1. Shock, severe, sec. to intra-abdominal injuries due
to blunt injury
2. Hemorrhage, massive, intraperitoneal sec. to
laceration, (L) lobe liver
3. Rupture, stomach, anterior & posterior walls
4. Complete transection, 4th position, duodenum
5. Hematoma, extensive, retroperitoneal
6. Contusion, lungs, severe
CRITICAL
After the burial of their daughter, private respondents demanded upon petitioners the
reimbursement of the hospitalization, medical bills and wake and funeral expenses 6 which
they had incurred. Petitioners refused to pay. Consequently, private respondents filed a
complaint for damages, docketed as Civil Case No. 7119 wherein they sought the payment of
P157,522.86 for actual damages, P300,000 for moral damages, P20,000 for attorney's fees
and an unspecified amount for loss of income and exemplary damages.
In their answer with counterclaim, petitioners denied any liability for the injuries and
consequent death of ZHIENETH. They claimed that CRISELDA was negligent in exercising
care and diligence over her daughter by allowing her to freely roam around in a store filled
with glassware and appliances. ZHIENETH too, was guilty of contributory negligence since
she climbed the counter, triggering its eventual collapse on her. Petitioners also emphasized
that the counter was made of sturdy wood with a strong support; it never fell nor collapsed for
the past fifteen years since its construction.
Additionally, petitioner Jarco Marketing Corporation maintained that it observed the diligence
of a good father of a family in the selection, supervision and control of its employees. The
other petitioners likewise raised due care and diligence in the performance of their duties and
countered that the complaint was malicious for which they suffered besmirched reputation
and mental anguish. They sought the dismissal of the complaint and an award of moral and
exemplary damages and attorney's fees in their favor.
In its decision 7 the trial court dismissed the complaint and counterclaim after finding that the
preponderance of the evidence favored petitioners. It ruled that the proximate cause of the fall
of the counter on ZHIENETH was her act of clinging to it. It believed petitioners' witnesses
who testified that ZHIENETH clung to the counter, afterwhich the structure and the girl fell
with the structure falling on top of her, pinning her stomach. In contrast, none of private
respondents' witnesses testified on how the counter fell. The trial court also held that
CRISELDA's negligence contributed to ZHIENETH's accident.
In absolving petitioners from any liability, the trial court reasoned that the counter was situated
at the end or corner of the 2nd floor as a precautionary measure hence, it could not be
considered as an attractive nuisance. 8 The counter was higher than ZHIENETH. It has been
in existence for fifteen years. Its structure was safe and well-balanced. ZHIENETH, therefore,
had no business climbing on and clinging to it.
Private respondents appealed the decision, attributing as errors of the trial court its findings
that: (1) the proximate cause of the fall of the counter was ZHIENETH's misbehavior; (2)
CRISELDA was negligent in her care of ZHIENETH; (3) petitioners were not negligent in the
maintenance of the counter; and (4) petitioners were not liable for the death of ZHIENETH.
Further, private respondents asserted that ZHIENETH should be entitled to the conclusive
presumption that a child below nine (9) years is incapable of contributory negligence. And
even if ZHIENETH, at six (6) years old, was already capable of contributory negligence, still it
was physically impossible for her to have propped herself on the counter. She had a small
frame (four feet high and seventy pounds) and the counter was much higher and heavier than
she was. Also, the testimony of one of the store's former employees, Gerardo Gonzales, who
accompanied ZHIENETH when she was brought to the emergency room of the Makati
Medical Center belied petitioners' theory that ZHIENETH climbed the counter. Gonzales
claimed that when ZHIENETH was asked by the doctor what she did, ZHIENETH replied,
"[N]othing, I did not come near the counter and the counter just fell on me." 9 Accordingly,
Gonzales' testimony on ZHIENETH's spontaneous declaration should not only be considered
as part of res gestae but also accorded credit.
Moreover, negligence could not be imputed to CRISELDA for it was reasonable for her to
have let go of ZHIENETH at the precise moment that she was signing the credit card slip.
Finally, private respondents vigorously maintained that the proximate cause of ZHIENETH's
death, was petitioners' negligence in failing to institute measures to have the counter
permanently nailed.
On the other hand, petitioners argued that private respondents raised purely factual issues
which could no longer be disturbed. They explained that ZHIENETH's death while unfortunate
and tragic, was an accident for which neither CRISELDA nor even ZHIENETH could entirely
be held faultless and blameless. Further, petitioners adverted to the trial court's rejection of
Gonzales' testimony as unworthy of credence.
As to private respondent's claim that the counter should have been nailed to the ground,
petitioners justified that it was not necessary. The counter had been in existence for several
years without any prior accident and was deliberately placed at a corner to avoid such
accidents. Truth to tell, they acted without fault or negligence for they had exercised due
diligence on the matter. In fact, the criminal case 10 for homicide through simple negligence
filed by private respondents against the individual petitioners was dismissed; a verdict of
acquittal was rendered in their favor.
The Court of Appeals, however, decided in favor of private respondents and reversed the
appealed judgment. It found that petitioners were negligent in maintaining a structurally
dangerous counter. The counter was shaped like an inverted "L" 11 with a top wider than the
base. It was top heavy and the weight of the upper portion was neither evenly distributed nor
supported by its narrow base. Thus, the counter was defective, unstable and dangerous; a
downward pressure on the overhanging portion or a push from the front could cause the
counter to fall. Two former employees of petitioners had already previously brought to the
attention of the management the danger the counter could cause. But the latter ignored their
concern. The Court of Appeals faulted the petitioners for this omission, and concluded that the
incident that befell ZHIENETH could have been avoided had petitioners repaired the defective
counter. It was inconsequential that the counter had been in use for some time without a prior
incident.
The Court of Appeals declared that ZHIENETH, who was below seven (7) years old at the
time of the incident, was absolutely incapable of negligence or other tort. It reasoned that
since a child under nine (9) years could not be held liable even for an intentional wrong, then
the six-year old ZHIENETH could not be made to account for a mere mischief or reckless act.
It also absolved CRISELDA of any negligence, finding nothing wrong or out of the ordinary in
momentarily allowing ZHIENETH to walk while she signed the document at the nearby
counter.
The Court of Appeals also rejected the testimonies of the witnesses of petitioners. It found
them biased and prejudiced. It instead gave credit to the testimony of disinterested witness
Gonzales. The Court of Appeals then awarded P99,420.86 as actual damages, the amount
representing the hospitalization expenses incurred by private respondents as evidenced by
the hospital's statement of account. 12 It denied an award for funeral expenses for lack of
proof to substantiate the same. Instead, a compensatory damage of P50,000 was awarded
for the death of ZHIENETH.

We quote the dispositive portion of the assailed decision, 13 thus:

WHEREFORE, premises considered, the judgment of the lower court is SET
ASIDE and another one is entered against [petitioners], ordering them to pay
jointly and severally unto [private respondents] the following:
 1. P50,000.00 by way of compensatory damages for
the death of Zhieneth Aguilar, with legal interest (6%
p.a.) from 27 April 1984;
2. P99,420.86 as reimbursement for hospitalization
expenses incurred; with legal interest (6% p.a.) from
27 April 1984;
3. P100,000.00 as moral and exemplary damages;
4. P20,000.00 in the concept of attorney's fees; and
5. Costs.
Private respondents sought a reconsideration of the decision but the same was denied in the
Court of Appeals' resolution 14 of 16 July 1997.
Petitioners now seek the reversal of the Court of Appeals' decision and the reinstatement of
the judgment of the trial court. Petitioners primarily argue that the Court of Appeals erred in
disregarding the factual findings and conclusions of the trial court. They stress that since the
action was based on tort, any finding of negligence on the part of the private respondents
would necessarily negate their claim for damages, where said negligence was the proximate
cause of the injury sustained. The injury in the instant case was the death of ZHIENETH. The
proximate cause was ZHIENETH's act of clinging to the counter. This act in turn caused the
counter to fall on her. This and CRISELDA's contributory negligence, through her failure to
provide the proper care and attention to her child while inside the store, nullified private
respondents' claim for damages. It is also for these reasons that parents are made
accountable for the damage or injury inflicted on others by their minor children. Under these
circumstances, petitioners could not be held responsible for the accident that befell
ZHIENETH.
Petitioners also assail the credibility of Gonzales who was already separated from Syvel's at
the time he testified; hence, his testimony might have been tarnished by ill-feelings against
them.
For their part, private respondents principally reiterated their arguments that neither
ZHIENETH nor CRISELDA was negligent at any time while inside the store; the findings and
conclusions of the Court of Appeals are substantiated by the evidence on record; the
testimony of Gonzales, who heard ZHIENETH comment on the incident while she was in the
hospital's emergency room should receive credence; and finally, ZHIENETH's part of the res
gestae declaration "that she did nothing to cause the heavy structure to fall on her" should be
considered as the correct version of the gruesome events.
We deny the petition.
The two issues to be resolved are: (1) whether the death of ZHIENETH was accidental or
attributable to negligence; and (2) in case of a finding of negligence, whether the same was
attributable to private respondents for maintaining a defective counter or to CRISELDA and
ZHIENETH for failing to exercise due and reasonable care while inside the store premises.
An accident pertains to an unforeseen event in which no fault or negligence attaches to the
defendant. 15 It is "a fortuitous circumstance, event or happening; an event happening
without any human agency, or if happening wholly or partly through human agency, an event
which under the circumstances is unusual or unexpected by the person to whom it
happens."16
On the other hand, negligence is the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct of human affairs, would
do, or the doing of something which a prudent and reasonable man would not do. 17
Negligence is "the failure to observe, for the protection of the interest of another person, that
degree of care, precaution and vigilance which the circumstances justly demand, whereby
such other person suffers injury."18
Accident and negligence are intrinsically contradictory; one cannot exist with the other.
Accident occurs when the person concerned is exercising ordinary care, which is not caused
by fault of any person and which could not have been prevented by any means suggested by
common prudence. 19
The test in determining the existence of negligence is enunciated in the landmark case of
Plicart v. Smith, 20 thus: Did the defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence. 21
We rule that the tragedy which befell ZHIENETH was no accident and that ZHIENETH's death
could only be attributed to negligence.
We quote the testimony of Gerardo Gonzales who was at the scene of the incident and
accompanied CRISELDA and ZHIENETH to the hospital:
Q While at the Makati Medical Center, did you hear or notice
anything while the child was being treated?
A At the emergency room we were all surrounding the child. And
when the doctor asked the child "what did you do," the child said
"nothing, I did not come near the counter and the counter just fell
on me."
Q (COURT TO ATTY. BELTRAN)
You want the words in Tagalog to be translated?
ATTY. BELTRAN
 Yes, your Honor.
COURT
Granted. Intercalate "wala po, hindi po ako lumapit doon. Basta
bumagsak."22
This testimony of Gonzales pertaining to ZHIENETH's statement formed (and should be
admitted as) part of the res gestae under Section 42, Rule 130 of the Rules of Court, thus:
Part of res gestae. Statements made by a person while a startling occurrence is
taking place or immediately prior or subsequent thereto with respect to the
circumstances thereof, may be given in evidence as part of the res gestae. So,
also, statements accompanying an equivocal act material to the issue, and
giving it a legal significance, may be received as part of the res gestae.
It is axiomatic that matters relating to declarations of pain or suffering and statements made to
a physician are generally considered declarations and admissions. 23 All that is required for
their admissibility as part of the res gestae is that they be made or uttered under the influence
of a startling event before the declarant had the time to think and concoct a falsehood as
witnessed by the person who testified in court. Under the circumstances thus described, it is
unthinkable for ZHIENETH, a child of such tender age and in extreme pain, to have lied to a
doctor whom she trusted with her life. We therefore accord credence to Gonzales' testimony
on the matter, i.e., ZHIENETH performed no act that facilitated her tragic death. Sadly,
petitioners did, through their negligence or omission to secure or make stable the counter's
base.
Gonzales' earlier testimony on petitioners' insistence to keep and maintain the structurally
unstable gift-wrapping counter proved their negligence, thus:
Q When you assumed the position as gift wrapper at the second
floor, will you please describe the gift wrapping counter, were you
able to examine?
A Because every morning before I start working I used to clean that
counter and since not nailed and it was only standing on the floor, it
was shaky.
xxx xxx xxx
Q Will you please describe the counter at 5:00 o'clock [sic] in the
afternoon on [sic] May 9 1983?
A At that hour on May 9, 1983, that counter was standing beside
the verification counter. And since the top of it was heavy and
considering that it was not nailed, it can collapse at anytime, since
the top is heavy.
 xxx xxx xxx
Q And what did you do?
A I informed Mr. Maat about that counter which is [sic] shaky and
since Mr. Maat is fond of putting display decorations on tables, he
even told me that I would put some decorations. But since I told
him that it not [sic] nailed and it is shaky he told me "better inform
also the company about it." And since the company did not do
anything about the counter, so I also did not do anything about the
counter. 24 [Emphasis supplied]
Ramon Guevarra, another former employee, corroborated the testimony of Gonzales, thus:
Q Will you please described [sic] to the honorable Court the
counter where you were assigned in January 1983?
xxx xxx xxx
A That counter assigned to me was when my supervisor ordered
me to carry that counter to another place. I told him that the
counter needs nailing and it has to be nailed because it might
cause injury or accident to another since it was shaky.
Q When that gift wrapping counter was transferred at the second
floor on February 12, 1983, will you please describe that to the
honorable Court?
A I told her that the counter wrapper [sic] is really in good [sic]
condition; it was shaky. I told her that we had to nail it.
Q When you said she, to whom are you referring to [sic]?
A I am referring to Ms. Panelo, sir.
Q And what was the answer of Ms. Panelo when you told her that
the counter was shaky?
A She told me "Why do you have to teach me. You are only my
subordinate and you are to teach me?" And she even got angry at
me when I told her that.
xxx xxx xxx
Q From February 12, 1983 up to May 9, 1983, what if any, did Ms.
Panelo or any employee of the management do to that (sic)
xxx xxx xxx
Witness:
 None, sir. They never nailed the counter. They only nailed the
counter after the accident happened. 25 [Emphasis supplied]
Without doubt, petitioner Panelo and another store supervisor were personally informed of the
danger posed by the unstable counter. Yet, neither initiated any concrete action to remedy the
situation nor ensure the safety of the store's employees and patrons as a reasonable and
ordinary prudent man would have done. Thus, as confronted by the situation petitioners
miserably failed to discharge the due diligence required of a good father of a family.
On the issue of the credibility of Gonzales and Guevarra, petitioners failed to establish that
the former's testimonies were biased and tainted with partiality. Therefore, the allegation that
Gonzales and Guevarra's testimonies were blemished by "ill feelings" against petitioners
since they (Gonzales and Guevarra) were already separated from the company at the time
their testimonies were offered in court was but mere speculation and deserved scant
consideration.
It is settled that when the issue concerns the credibility of witnesses, the appellate courts will
not as a general rule disturb the findings of the trial court, which is in a better position to
determine the same. The trial court has the distinct advantage of actually hearing the
testimony of and observing the deportment of the witnesses. 26 However, the rule admits of
exceptions such as when its evaluation was reached arbitrarily or it overlooked or failed to
appreciate some facts or circumstances of weight and substance which could affect the result
of the case. 27 In the instant case, petitioners failed to bring their claim within the exception.
Anent the negligence imputed to ZHIENETH, we apply the conclusive presumption that favors
children below nine (9) years old in that they are incapable of contributory negligence. In his
book, 28 former Judge Cezar S. Sangco stated:
In our jurisdiction, a person under nine years of age is conclusively presumed to
have acted without discernment, and is, on that account, exempt from criminal
liability. The same presumption and a like exemption from criminal liability
obtains in a case of a person over nine and under fifteen years of age, unless it
is shown that he has acted with discernment. Since negligence may be a felony
and a quasi-delict and required discernment as a condition of liability, either
criminal or civil, a child under nine years of age is, by analogy, conclusively
presumed to be incapable of negligence; and that the presumption of lack of
discernment or incapacity for negligence in the case of a child over nine but
under fifteen years of age is a rebuttable one, under our law. The rule, therefore,
is that a child under nine years of age must be conclusively presumed incapable
of contributory negligence as a matter of law. [Emphasis supplied]
Even if we attribute contributory negligence to ZHIENETH and assume that she climbed over
the counter, no injury should have occurred if we accept petitioners' theory that the counter
was stable and sturdy. For if that was the truth, a frail six-year old could not have caused the
counter to collapse. The physical analysis of the counter by both the trial court and Court of
Appeals and a scrutiny of the evidence 29 on record reveal otherwise, i.e., it was not durable
after all. Shaped like an inverted "L," the counter was heavy, huge, and its top laden with
formica. It protruded towards the customer waiting area and its base was not secured. 30
CRISELDA too, should be absolved from any contributory negligence. Initially, ZHIENETH
held on to CRISELDA's waist, later to the latter's hand. 31 CRISELDA momentarily released
the child's hand from her clutch when she signed her credit card slip. At this precise moment,
it was reasonable and usual for CRISELDA to let go of her child. Further, at the time
ZHIENETH was pinned down by the counter, she was just a foot away from her mother; and
the gift-wrapping counter was just four meters away from CRISELDA. 32 The time and
distance were both significant. ZHIENETH was near her mother and did not loiter as
petitioners would want to impress upon us. She even admitted to the doctor who treated her
at the hospital that she did not do anything; the counter just fell on her.
WHEREFORE, in view of all the foregoing, the instant petition is DENIED and the challenged
decision of the Court of Appeals of 17 June 1996 in C.A. G.R. No. CV 37937 is hereby
AFFIRMED.
Costs against petitioners.
SO ORDERED.
Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.
Footnotes
1 Annex "A" of Petition; Rollo, 36-47. Per Justice Godardo A. Jacinto, with Justices
Salome A. Montoya and Maximiano C. Asuncion, concurring.
2 Annex "B" of Petition; Rollo, 49.
3 TSN, 13 February 1985, 5, 6, 7-8, 21-22, 31.
4 Id., 32, 36, 42, 52.
5 Original Record (OR), 8.
6 Exhibit "H."
7 OR, 603-612. Per Judge Pedro N. Lagui.
8 One who maintains on his premises dangerous instrumentalities or appliances of a
character likely to attract children in play, and who fails to exercise ordinary care to
prevent children from playing therewith or resorting thereto, is liable to a child of tender
years who is injured thereby, even if the child is technically a tresspasser in the
premises.
 The principal reason for the doctrine is that the condition or appliance in
question although its danger is apparent to those of age, is so enticing or
alluring to children of tender years as to induce them to approach, get on or use
it, and this attractiveness is an implied invitation to such children. (Hidalgo
Enterprises, Inc. v. Balandan, et al., 488, 490 [1952].
9 TSN, 10 September 1987, 12.
10 Criminal Case No. 118986 filed with the Makati Metropolitan Trial Court, Branch 61.
11 Exhibit "D."
12 Exhibit "F."
13 Supra note 1.
14 Supra note 2.
15 See Novo & Co. v. Ainsworth, 26 Phil. 380, 387 [1913].
16 BLACK'S LAW DICTIONARY, 5th ed. 1979, 14.
17 Mckee v. Intermediate Appellate Court, 211 SCRA 517, 539 [1992] citing Black's
Law Dictionary, 5th ed., 1979, 930.
18 U.S. v. Barias, 23 Phil. 434, 437 [1912] citing Judge Cooley's work on Torts, 3rd ed.,
1324.
19 See Cavanaugh v. Jepson Iowa, 167 N.W. 2d 616, 623 [1969]. See also
Restatement, Second, Torts 8.
20 37 Phil. 809 [1918].
21 Ibid, 813.
22 TSN, 10 September 1987, 12, 13.
23 RICARDO J. FRANCISCO, III EVIDENCE, 1997, 591 citing Keefe v. State of
Arizona, 60 Ariz. 293; Stukas v. Warfield, Pratt, Howell Co., 175 N.W. 81, 85. [1919].
24 TSN, 10 September 1987, 8, 9, 11.
25 TSN, 2 October 1987, 9, 11.
26 See BPI Credit Corporation v. Court of Appeals, 204 SCRA 601, 608 [1991];
Geronimo v. Court of Appeals, 224 SCRA 494, 498 [1993].
27 Borillo v. Court of Appeals, 209 SCRA 130, 140-141 [1992]; McKee v. Intermediate
Appellate Court, supra note 16, 537; Salvador v. Court of Appeals, 243 SCRA 239, 253
[1995].
28 I PHILIPPINE LAW ON TORTS AND DAMAGES, 70-71 (1993).
29 Exhibit "D."
 30 Exhibits "K,""M," and "N." The counter was made of heavy wood measuring about 4
to 5 meters in height; 1 meter in length; and 2 1/2 to 3 meters in width; with four (4)
square legs. Its top was made of 5 1/2 inch thick wood covered by formica about 3/4
inch thick.
31 TSN, 13 February 15, 20.
32 Ibid., 11, 22.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-29889 May 31, 1979
VICTORINO CUSI and PILAR POBRE, plaintiffs-appellees,
vs.
PHILIPPINE NATIONAL RAILWAYS, defendant-appellant.
Leopoldo M. Abellera for appellant.
Francisco V. Marasigan for appellees.

GUERRERO, J.:
Direct appeal from the decision of the Court of First Instance of Rizal ordering defendant-
appellant to indemnify the plaintiffs- appellees in the total amount of Two Hundred Thirty-Nine
Thousand and Six Hundred Forty-Eight Pesos, and Seventy-Two Centavos (P239,648.72) for
injuries received in a collision caused by the gross negligence of defendant-appellant, plus
Ten Thousand Pesos (P10,000.00) as attorney's fees and expenses of litigation.
Upon the amended and supplemental complaints for damages filed by plaintiffs-appellees, the
spouses Victorino Cusi and Pilar Pobre before the Court of First Instance of Rizal against the
Manila Railroad Company, now the Philippine National Railways and duly answered by the
latter and after due hearing. the following facts appear as undisputed: On the night of October
5, 1963, plaintiffs-appellees attended a birthday party inside the United Housing Subdivision
in Paranaque, Rizal. After the party which broke up at about 11 o'clock that evening, the
plaintiffs-appellees proceeded home in their Vauxhall car with Victorino Cusi at the wheel.
Upon reaching the railroad tracks, finding that the level crossing bar was raised and seeing
that there was no flashing red light, and hearing no whistle from any coming train, Cusi merely
slack ened his speed and proceeded to cross the tracks. At the same time, a train bound for
Lucena traversed the crossing, resulting in a collision between the two. The impact threw the
plaintiffs-appellees out of their car which was smashed. One Benjamin Franco, who came
from the same party and was driving a vehicle right behind them, rushed to their aid and
brought them. to San Juan de Dios Hospital for emergency treatment. Later, the plaintiffs-
appellees were transferred to the Philippine General Hospital. A week later, Mrs. Cusi
transferred to the Manila Doctors Hospital where Dr. Manuel Rivera, head of the Orthopedic
and Fracture Service of the Philippine General Hospital performed on her a second operation
and continued to treat her until her discharge from the hospital on November 2, 1963.
Thereafter, Dr. Rivera treated her as an out-patient until the end of February, 1964 although
by that time the fractured bones had not yet healed. Mrs. Cusi was also operated on by Dr.
Francisco Aguilar, Director of the National Orthopedic Hospital, in May, 1964 and in August,
1965, after another operation in her upper body from the chest to the abdomen, she was
placed in cast for some three (3) months and her right arm immobilized by reason of the past
As enumerated in the Medical Certificate (Exh. "J"), Mrs. Cusi suffered the following:
(1) Fracture open middle third humerus right
(2) Fracture mandible right paramedian
(3) Fracture fibula left distal
(4) Concussion, cerebral
(5) Abrasions, multiple (face, head, lumbosacral and extremities)
(6) Lacerations (2) right temporal
(7) Contusions with hematoma left forehead and parieto occipital right.
For these injuries, she underwent a total of four surgical opera. petitions in a period of two
years. As a result of the fracture on her right arm, there was a shortening of about 1 cm. of
that arm. She lost the flexibility of her wrist, elbow and shoulder. Up to the time she took the
witness stand in August, 1966, she still had an intermedullary nail in the bone of her right arm
Likewise, Victorino Cusi suffered brain injuries which affected his speech, memory, sense of
hearing and neck movement. For a long period, he also felt pain all over his body.
Victorino Cusi claimed that prior to the accident he was a successful businessman the
Special Assistant to the Dolor Lopez Enterprises, the managing partner of Cusi and Rivera
Partnership, the manager of his ricemill, and with substantial investments in other business
enterprises. As a result of his injuries, he was unable to properly attend to his various
business undertakings. On the other hand, his wife, Pilar, was a skilled music and piano
teacher. After the accident, she lost the dexterity of her fingers forcing her to quit her
profession. She also bore ugly scars on several parts of her body, and she suffered anxiety of
a possible miscarriage being then five (5) months pregnant at the time of the accident.
The defense is centered on the proposition that the gross negligence of Victorino Cusi was
the proximate cause of the collision; that had he made a full stop before traversing the
crossing as required by section 56(a) of Act 3992 (Motor Vehicle Law), he could have seen
and heard the approach of the train, and thus, there would have been no collision.
After a protracted trial, the lower court rendered the decision now subject of the appeal.
Defendant-appellant seeks the reversal of said decision; but should we affirm the same, that
the award be reduced to a reasonable amount.

As the action is predicated on negligence, the New Civil Code 1making clear that "whoever by
act or omission causes damage to another, there being fault or negligence, is obliged to pay
for the damage done the crucial question posed in the petition at bar is the existence of
negligence on the part of defendant-appellant as found by the lower court.
1. The question of negligence being one of fact, the lower court's finding of negligence on the
part of the defendant-appellant deserves serious consideration by the Court. It commands
great respect and weight, the reason being that the trial judge, having the advantage of
hearing the parties testify and of observing their demeanor on the witness stand, is better
situated to make conclusions of facts. Thus, it has been the standing practice of appellate
courts to accord lower court's judgments the presumption of correctness. And unless it can be
shown that error or errors, substantial in character, be shown in the conclusion arrived at, or
that there was abuse in judicial scrutiny, We are bound by their judgments. On this ground
alone We can rest the affirmance of the judgment appealed from. 2
2. Nor is the result different even if no such presumption were indulged in, that is, even if We
were to resolve whether or not there exist compelling reasons for an ultimate reversal.
The judicial pronouncement below that the gross negligence of defendant-appellant was the
proximate cause of the collision has been thoroughly reviewed by this Court and we fully
affirm the same.

Negligence has been defined by Judge Cooley in his work on Torts 3d ed sec. 1324 3 as "the
failure to observe for the protection of the interests of another person that degree of care,
precaution, and vigilance which the circumstances justly demand, whereby such other person
suffers injury." By such a test, it can readily be seen that there is no hard and fast rule
whereby such degree of care and vigilance is measured, it is dependent upon the
circumstances in which a person finds himself so situated. All that the law requires is that it is
always incumbent upon a person to use that care and diligence expected of reasonable men
under similar circumstances.
These are the circumstances attendant to the collision. Undisputably, the warning devices
installed at the railroad crossing were manually operated; there were only 2 shifts of guards
provided for the operation thereof one, the 7:00 A.M. to 3:00 P. M. shift, and the other, the
3:00 P.M. to 11:00 P.M. shift. On the night of the accident, the train for Lucena was on an
unscheduled trip after 11:00 P.M. During that precise hour, the warning devices were not
operating for no one attended to them. Also, as observed by the lower court, the locomotive
driver did not blow his whistle, thus: "... he simply sped on without taking an extra precaution
of blowing his whistle from a distance of 50 to 10 meters from the crossing. That the train was
running at full speed is attested to by the fact that notwithstanding the application of the
emergency brakes, the train did not stop until it reached a distance of around 100 meters."
These facts assessed together show the inadequacy, nay, the absence, of precautions taken
by the defendant-appellant to warn the travelling public of the impending danger. It is clear to
Us that as the signal devices were wholly manually-operated, there was an urgent need for a
flagman or guard to man the crossing at all times. As it was, the crossing was left unattended
to after eleven o'clock every night and on the night of the accident. We cannot in all reason
justify or condone the act of the defendant-appellant allowing the subject locomotive to travel
through the unattended crossing with inoperative signal devices, but without sending any of
its employees to operate said signal devices so as to warn oncoming motorists of the
approach of one of its locomotives. It is not surprising therefore that the in operation of the
warning devices created a situation which was misunderstood by the riding public to mean
safe passage. Jurisprudence recognizes that if warning devices are installed in railroad
crossings, the travelling public has the right to rely on such warning devices to put them on
their guard and take the necessary precautions before crossing the tracks. A need, therefore,
exists for the railroad company to use reasonable care to keep such devices in good condition
and in working order, or to give notice that they are not operating, since if such a signal is
misunderstood it is a menace. 4 Thus, it has been held that if a railroad company maintains a
signalling device at a crossing to give warning of the approach of a train, the failure of the
device to operate is generally held to be evidence of negligence, which maybe considered
with all the circumstances of the case in determining whether the railroad company was
negligent as a matter of fact. 5
The set of circumstances surrounding the collision subject of this case is very much similar to
that of Lilius v. Manila Railroad Company, 59 Phil. 758 (1934), where this Court upheld the
lower court's finding of negligence on the part of defendant locomotive company upon the
following facts
... on the part of the defendant company, for not having had on that occasion
any semaphore at the crossing at Dayap to serve as a warning to passersby of
its existence in order that they might take the necessary precautions before
crossing the railroad; and, on the part of its employees the flagman and
switchman, for not having remained at his post at the crossing in question to
warn passersby of the approaching train; the station master, for failure to send
the said flagman and switchman to his post on time; and the engineer, for not
having taken the necessary precautions to avoid an accident, in view of the
absence of said flagman and switchman, by slackening his speed and
continuously ringing the bell and blowing the whistle before arriving at the
crossing.
Defendant-appellant rests its defense mainly on Section 56(a) of the Motor Vehicle Law.
Thus:
 Section 56(a) Traversing through streets and railroad crossing, etc, All
vehicles moving on the public highways shall be brought to a full stop before
traversing any 'through street' or railroad crossing. Whenever any such 'through
street' or crossing is so designated and signposted, it shall be unlawful for the
driver of any vehicle to fail to stop within twenty meters but not less than two and
one-half meters from such through street or railroad crossing.
The defense presupposes that the failure of plaintiffs-appellees to stop before proceeding to
traverse the crossing constitutes contributory negligence, thereby precluding them from
recovering indemnity for their injuries and damages.
The candor of defendant-appellant in interposing such a defense is doubtful. As seemingly
observed by the lower court, the defense, through inadvertence or deliberateness, did not
pursue further the excepting clause of the same section thus to go on:
Provided, however, that the driver of a passenger automobile or motorcycle may
instead of coming to a full stop, slow down to not more than ten kilometers per
hour whenever it is apparent that no hazard exists.
After a thorough perusal of the facts attendant to the case, this Court is in fun accord with the
lower court. Plaintiff-appellee Victorino Cusi had exercised all the necessary precautions
required of him as to avoid injury to -himself and to others. We find no need for him to have
made a full stop; relying on his faculties of sight and hearing, Victorino Cusi had no reason to
anticipate the impending danger. The record shows that the spouses Cusi previously knew of
the existence of the railroad crossing, having stopped at the guardhouse to ask for directions
before proceeding to the party. At the crossing, they found the level bar raised, no warning
lights flashing nor warning bells ringing, nor whistle from an oncoming train. They safely
traversed the crossing. On their return home, the situation at the crossing did not in the least
change, except for the absence of the guard or flagman. Hence, on the same impression that
the crossing was safe for passage as before, plaintiff-appellee Victorino Cusi merely
slackened his speed and proceeded to cross the tracks, driving at the proper rate of speed for
going over railroad crossings. Had defendant-appellant been successful in establishing that
its locomotive driver blew his whistle to warn motorists of his approach to compensate for the
absence of the warning signals, and that Victorino Cusi, instead of stopping or slackening his
speed, proceeded with reckless speed and regardless of possible or threatened danger, then
We would have been put in doubt as to the degree of prudence exercised by him and would
have, in all probability, declared him negligent. 6 But as the contrary was established, we
remain convinced that Victorino Cusi had not, through his own negligence, contributed to the
accident so as to deny him damages from the defendant-appellant.
The only question that now remains to be resolved is the reasonableness of the amount
awarded as damages to the plaintiffs- appellees.
The following actual expenses and losses are fully substantiated:
 (a) Hospital bills of Mrs. Cusi from October, 1963 to May, 1964 in the amount of
Thirteen Thousand Five Hundred Fifty Pesos and Five Centavos (P13,550.05);
(b) Another hospital bill of Mrs. Cusi in 1965 in the amount of Three Thousand
and One Pesos and Ninety Centavos (P3,001.90);
(c) Doctor's fees for two surgical operations performed on Mrs. Cusi by one Dr.
Manuel Rivera in the amount of One Thousand and Five Hundred Pesos
(Pl,500.00);
(d) Loss of Victorino's wrist watch valued at Two Hundred and Fifty Pesos
(P250.00);
(e) Loss of Pilar's half of her pair of demand earrings(l-carrats) valued at Two
Thousand Seven Hundred and Fifty Pesos (P2,750,00);
(f) Repair of the damaged Vauxhall car in the amount of Two Thousand Eight
Hundred and Ninety Four Pesos and Seventy- Seven Centavos (P2,894.77).
The total award of actual damages in the amount of Twenty Three Thousand Nine Hundred
Forty-Six Pesos and Seventy-Two Centavos (P23,946.72) is, therefore, correct.
The lower court awarded Twenty-One Thousand Six Hundred Pesos (P21,600.00) to Mrs.
Cusi for loss of income for the three years that she was under constant medical treatment,
and Fourteen Thousand Pesos (P14,000.00) for impairment of her earning capacity; and
Forty Thousand Pesos (P 40,000.00) to Mr. Cusi for loss of income for the eight months that
he was disabled and impairment of his earning capacity. We find the award reasonable. The
records show that Mrs. Cusi, previously a skilled piano teacher averaging a monthly income
of Six Hundred Pesos (P600.00), cannot now teach nor play the piano since the accident
which resulted in the loss of the dexterity of her fingers; likewise, Mr. Cusi cannot now
vigorously attend to his businesses which previously netted him a monthly average income of
Five Thousand Pesos (P5,000.00).
As regards the award of Twenty Thousand Pesos (P20,000.00) for profits which Victorino
Cusi failed to realize from a certain real estate transaction with the Dolor Lopez Enterprises,
we affirm the same as the defendant-appellant has failed to present an iota of evidence to
overcome plaintiffs-appellees' evidence credited by the lower court as to the certainty of the
materialization of the stated transaction.
The award of Seventy Thousand Pesos (P70,000.00) to Mrs. Cusi and Fifty Thousand Pesos
(P50,000.00) to Victorino Cusi as moral damages is not excessive. In their own respective
fields of endeavor, both were successful. Now they have to bear throughout their whole
lifetime the humiliation wrought by their physical deformities which no doubt affected, and will
continue to do so, their social lives, their financial undertakings, and even their mental
attitudes.
Likewise, the amount of Ten Thousand Pesos (P10,000.00) given as attorney's fees and
expenses of litigation is not unreasonable. The total amount of damages awarded by the trial
court should bear legal interest at 6% from the rendition of the j judgment, which was on
March 26, 1968.
WHEREFORE, the judgment of the lower court is hereby AFFIRMED with the modification
that the total amount of damages shall bear legal interest at six per cent (6%) from the
rendition of the decision dated March 26, 1968.
SO ORDERED.
Teehankee, (Chairman), Makasiar, Fernandez, De Castro, and Melencio-Herrera, JJ., concur.

#Footnotes
1 Article 2176.
2 Corliss v. Manila Railroad Co., 27 SCRA 674, citing Medina v. Collector of
Internal Revenue, L-15113, January 28, 1961, Jai-Alai Corporation v Ching Kiat
L-7969, March 30, 1961, Arrieta v. National Rice & Corn Corp., L-15645,
January 31, 1964.
3 Quoted with approval in U.S. v. Juanillo, 23 Phil. 212 (1912) and U.S. v.
Barias, 23 Phil. 434 (1912).
4 See 74 C.J.S., 1347, 1348.
5 44 Am Jur. 766, pp. 8-9.
6 See Yamada v. Manila Railroad Co., et al. 33 Phil. 8 (1915); Corliss v. Manila
Railroad Co. (supra).

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 10765 December 22, 1916
PACIENTE TAMAYO, father of the minor, Brualio Tamayo, plaintiff-appellee,
vs.
CARLOS GSELL, defendant-appellant.
William A. Kincaid and Thomas L. Hartigan for appellant.
Modesto Joaquin for appellee.
TRENT, J.:
This is an action for damages against the defendant Gsell for personal injuries suffered by Braulio
Tamayo, minor son of the plaintiff. From a judgment in favor of the plaintiff in his capacity as guardian
ad litem of Braulio Tamayo for the sum of P400, without costs, except P25 fees for the attorney of the
Bureau of Labor, the defendant appealed and now urges that the trial court erred:
1. In permitting the attorney of the Bureau of Labor to conduct the case and awarding him P25 fees.
2. In finding that Garlos Gsell is the owner of the factory wherein Braulio was injured.
3. In finding that the accident occurred because Braulio Tamayo was assigned to work to which he was
not accustomed and did not understand, without any previous warning as to the dangers thereof or
instructions as to the manner of doing the work, in order to avoid being injured.
4. In finding that the negligence of the defendant or the persons for whom he is responsible was the
cause of the accident.
5. In declining to sustain the defendant's defenses of contributory negligence and assumption of risks.
6. In awarding damages against the defendant in the absence of a showing that the injuries in any way
diminished Braulio Tamayo' earning capacity.
Act No. 1868, approved June 18, 1908, creating the Bureau of Labor, provides in section 2 that the
purpose of the Bureau shall be to see to the proper enforcement of all existing laws and those which
shall be enacted hereafter with reference to labor and capital in the Philippine Islands and to promote
the enactment of all other legislation which shall tend to establish the material, social, intellectual, and
moral improvement of workers; to acquire, collect, compile, systematize, and submit from time to time
reports to the Secretary of Commerce and Police, statistical data relating to the hours and wages of
labor, the number of workers in each trade or occupation, etc., and to inspect all shops, factories,
industrial and commercial establishments and "to take the proper legal steps to prevent the exposure of
the health or lives of laborers and to aid and assist by all proper legal means laborers and workers in
securing just compensation for their labor, and the indemnity prescribed by law for injuries resulting
from accidents when engaged in the performance of their duties." Sections 2 and 3 of Act No. 1868
were amended by Act No. 2258, but such amendments do not affect the issues involved in the instant
case. Act No. 2385 amends subsection (d) of section 2 and section 3 of Act No. 1868 and adds several
paragraphs to the end of section 4 of that Act and repeals Act No. 2258. Subsection (d) of section 2, as
thus amended, reads:
To secure the settlement of difference between employer and laborer and between master and
servant and to avert strikes and lockouts, acting as arbitrator between the parties interested,
summoning them to appear before it, and advising and bringing about, after hearing their
respective allegations and evidence, such arrangement as these may, in his judgment, show to be
just and fair.
The pertinent provision added to section 4 and provide that the Bureau of Labor shall also have an
attorney who shall be paid a fixed salary per annum.
 Said attorney shall assist the Director or Assistant Director of Labor in all legal questions by
them submitted to him, and shall bring suit gratuitously, in the proper courts, for laborers or
servants when he shall deem this proper after the failure of the endeavors to bring about a
friendly settlement made by the Director or Assistant Director of Labor in the performance of
the duties imposed had the exercise of the powers conferred upon them by subsection (d). . . .
Provided, however, That the attorney of the Bureau of Labor shall not bring suit under this Act
unless the plaintiff shall have previously secured a certificate of indigency from the proper
court.
The sentences of the courts trying cases under this Act shall provide, in case of judgment in favor of the
plaintiff, for the payment by the defendant of the sum of twenty-five pesos as costs of the attorney of
the Bureau of Labor, which sum shall be collected in the same manner as other costs and turned into
the Insular Treasury and credited to the general funds.
It is argued that in conferring the power and duty upon the Director of the Bureau of Labor "to secure
the settlement of difference between employer and laborer and between master and servant and to avert
strikes and lockouts" the legislature never intended to bring negligence cases resulting in personal
injuries under the jurisdiction of the Director. If the attorney of the Bureau of Labor is authorized to
represent the plaintiff in actions such as the one under consideration he could, it is said, appear on
behalf of a laborer charged by his employer with larceny of materials or on behalf of an employee
under prosecution for assaulting his master. We think this result does not necessarily follow. The
Director is given the power and it is made his duty to aid and assist by all legal means laborers and
workers in securing the indemnity prescribed by law for injuries resulting from accidents. If this cannot
be done by "a friendly settlement," then the attorney "shall bring suit gratuitously" for the employee if
such employee is too por to employ private counsel. No additional right of action is given laborers and
workers by this legislation.
It was only the intention of the Legislature, as expressed in the acts, to provide the services of an
attorney for pauper employees in certain cased and to tax a portion of the costs of such services against
the defendant if the suit be successful. This, it is true, is advanced legislation when compared with
similar Acts in the United States. In Missouri the Bureau of Labor is in most cases chiefly an
instrument for gathering statistics. The arbitration of disputes between employers and employees is
given to a board distinct form the Bureau of Labor (Ann. Sta., 1906). Minnesota (Statutes of 1894)
provides for a Bureau of Labor to gather statistics and inspect factories, with the power to enforce the
laws pertaining to the welfare of the workingmen, but gives it no power to prosecute civil actions for
individuals. In Nebraska the Bureau of Labor is a statistic gatherer, a factory inspector, and protector of
the laborer to the extent that the commissioner may file a complaint for a violation of the Act creating
the Bureau and defining its powers, which the county attorney must prosecute. (Statutes of Nebraska,
1911.) Other States have similar statues. Some State provide for public defenders in criminal cases. In
this jurisdiction provisions are made for the defense of pauper criminals and section 35 of the Code of
Civil Procedure authorizes the Supreme Court and the Courts of First Instance to assign any lawyer to
render professional aid to a p[arty in any pending action, free of charge, if such court, upon full
investigation, shall find that the party is destitute and unable to employ a lawyer. The statute under
consideration requires a certificate of indigency from the court before an attorney of the Bureau of
Labor can institute the action. The only essential difference between the two systems is a small amount
for the services of the attorney of the Bureau of Labor, which is taxed against defendants when the
plaintiffs are successful, but it cannot be done except in cases where "a friendly settlement" has failed.
Considering the scope and purposes of the Acts, in connection with the fact that the plaintiffs are
paupers, we see no reason for holding that the provisions attacked are in violation of public policy or
transcends the power of the Legislature. Therefore, the first assignment of error is without merit.
The second assignment of error has no merit. The plaintiff testified positively that the defendant is the
owner of the factory and when another witness was asked who the owner was, counsel for the
defendant stated," We do not dispute the ownership." No other testimony was offered on this point and
all proceeded thereafter upon the theory that there was no question about the fact that the defendant is
the owner of the match factory, yet counsel, in their printed brief, say that "there is not one syllable of
evidence in the testimony or anywhere else in the record as to the ownership of this factory."
The other assignments of error raise both questions of fact and law. The trial court's findings of fact are
these:
The facts proven in the case are as follows:
1. That the boy Braulio Tamayo, whose age neither he nor his father, Paciente Tamayo, knows,
nor does it appear of record, but which, in the opinion of the court, is about eleven or twelve
years, was one of the workmen employed in the match factory, situated in Santa Ana, Manila,
and owned by the defendant, Carlos Gsell. On the 13th of March, 1914, the boy met with an
accident which consisted of an injury caused by the knife of one of the machines of the factory
which cut the little ring fingers on the right hand, the latter of which was severed.
2. That the accident arose by reason of his being assigned by Eugenio Murcia, one of the
foremen employed in the factory, to perform work to which he was not accustomed. He was put
at the machine of Arcadio Reyes only the day of the accident, in spite of his persistent and
manifest opposition to assist the machinist; his work was to recover strips, used in the
manufacture of match boxes, from the machine, Exhibit 1, which were extracted from the said
machine from the wood placed therein. At the same time he had to clean out the pieces of wood
form said strips, which stuck in the machine and obstructed its proper working. Prior to the date
in question the only work entrusted to the boy, Braulio Tamayo, was to pick over the piles of
wood from which the strips used in the manufacture of match boxes were made and select the
best pieces for the purpose.
3. Due to his inexperience in the work to which, for the first item and without any preparation or
instruction, he had been assigned in essaying to clean that part of the machine where the pieces
of wood from the strips were stuck, he was caught by the knife of the machine and the right
finger of his right hand was served. He was thereupon taken to the General Hospital, where he
received medical treatment until he was released.
4. The plaintiff complied with the provision contained in section 4 of Act No. 1874, advising the
 employer, who is the defendant herein, of the accident which had occurred to his son.
In view of the facts as they were shown in the record, in spite of the conflicting testimony of the
witnesses of both sides, the court is obliged to give credit to the testimony of the witnesses for
the plaintiff, and since it was not contradicted by Eugenio Murcia, to whom is attributed the
determination to assign Braulio Tamayo, on the date and hour in question, to another machine
and to give him, inspite of his tender years, work of a class to which he was not accustomed, the
responsibility contracted by the employer to indemnify the injured workman, represented by his
father, for the damage and injury which he has suffered, according to the Act cited, is very clear.
Eugenio Murcia was one of the foremen employed in the factory; he knew the kind of work
which was assigned to each of the employees in relation to their respective ages and he must
have known that it is not the same thing to select wood lying on the ground, work in which
Braulio Tamayo had been employed ever since he entered the employ of the factory, as to
receive the strips delivered from the machine, Exhibit 1, and to clean the said machine, even
while it was running, of those parts of the strips which might interfere with its working, and he
should not have suddenly ordered Braulio Tamayo, taking into account his youth, to temporarily
take the place of a workman who ordinarily performed the work we have spoken of on Arcadio
Reyes' machine, especially without first preparing him and giving him the necessary instruction
in order to avoid an accident such as that which occurred and one to which a boy of the age of
Braulio Tamayo would be exposed.
After a careful examination of the record we are convinced that the foregoing findings of fact are
supported by a fair preponderance of the evidence. This being true and the findings being the result
found by the trial court from conflicting testimony, we certainly are not justified in reversing the
judgment upon this branch of the case. In United States vs. Benitez and Lipia (18 Phil. Rep., 513, 517),
Justice Moreland, speaking for the court said:
In a conflict of testimony such as is presented in this case, this court must reopened to a
considerable extent upon the discernment of the judge who sits at the trial. A careful and
discriminating trial judge has unequaled advantages in determining the relative credibility of
opposing witnesses. If he exercises his facilities with shrewdness and sagacity, he performs a
most valuable work for the appellate court. We have considered this case in a very painstaking
manner. We have searched the record for any evidence indicating that the learned trial court was
mistaken in his judgment as to the relative credibility of the witnesses or that he had overlooked
some fact or circumstances of weight or influence in passing upon the evidence, or that he had
misinterpreted the significance of the facts as proved. We have been unable to find from the
record that the learned trial court has fallen into such error; and, in accordance with the rule
which we have so often laid down, namely, that this court will not interfere with the judgment
of the trial court in passing upon the relative credibility of opposing witnesses unless there
appears in the record some fact or circumstance of weight and influence which has been
overlooked or its significance misinterpreted by him, we decline to interfere with the judgment
of the trial court upon the facts in this case.
The foregoing well considered rule is perfectly applicable to the case under consideration.lawphi1.net
Dr. Vasquez of the General Hospital, who attended Braulio Tamayo at the time he was injured, testified
in reference to the nature and character of the injuries as follows:
Q. Do you know in what condition the child's finger was? A. The finger was mashed.
Q. Are you sure that it was mashed? A. Mashed and severed.
During the trial of the case counsel for the defendant made this statement:
I wish to appear of record that the right hand of the child shows that the severed finger was cut
at the first joint. It also bears a diagonal scar inside (interior?) and near the tip of the next finger,
the little finger.
With reference to whether there was a dimunition in the earning capacity of Braulio Tamayo due to the
injuries received and as to the payment of expenses and salary while he was being treated for the
injuries, Geiser, superintendent of the defendant's factory, testified that the defendant paid the hospital
bill and Braulio's regular salary of fifty cents a day during the time he was absent; that after Braulio left
the hospital he (the witness) tried to get him to return to work at the same salary, but he refused to do
so; and that Braulio could occupy any place in the factory which his age would permit, as his hand had
been cured. While this witness did not definitely state that Braulio's injuries did not diminish his
earning capacity for the work he was doing in the factory, yet it may be inferred, and we so decide, that
the boy can perform his former works in the factory just as well as now as he could before the accident,
or in other words, the injuries caused no dimunition of his ability to perform such work. As to the
character of the injuries, we have the finding of the trial court to the effect that the little and ring fingers
on the right hand were cut, the latter of which was severed, and the statement of counsel that the ring
finger was cut off at the first joint and the little finger showed a diagonal scar on the inside of the end.
The result is that we have a case where a foreman of a match factory, owned and operated by the
defendant, put a young ignorant employee to work at dangerous machinery without any previous
preparation or instruction. The boy was only 11 or 12 years old and so ignorant that he did not know
before the accident, which resulted in the severing of his ring finger on his right hand at the first joint,
doing only the very simplest work, in the performance of which he had nothing to do with the
machinery. He was ordered against his persistent and manifest opposition to assist in cleaning out the
pieces of wood "which stuck in the machinery and obstructed its proper working," without any
previous warning of the dangers incident to such work or previous instruction as to how he should do
the work in order to avoid accidents. He was entirely unfamiliar with that kind of work, which required
at least some knowledge of the working of the machine. The machine was not defective and the danger
resulting from putting one's finger under the knife was obvious. To this extent the established facts are
against the contentions of the defendant.
The questions of law require an investigation touching the scope and purposes of Act No. 1874, known
as the Employer's Liability Act. We will first inquire into the origin and history of this Act.
By a joint resolution of the two Houses, dated February 1, 1908, there were appointed on April 30,
1908, a committee of twenty-one for the purpose of "preparing and submitting to the president of the
Commission and the Speaker of the Assembly its recommendations on the Labor Accident Bill
presented by the Representative for the Second District of Manila, Honorable Fernando Ma. Guerrero,
and to study, prepare, and submit also any other recommendations deemed pertinent in the premises."
(Vol. 2, p. 289 of the Commission Journal of 1908.)
Before this committee met for the purpose, as indicated two other bills were drafted, one by another
member of the Assembly and the other by the Secretary of Commerce and Police, who was then a
member of the Legislature. During the sessions of the committee the three bills were discussed and by a
majority vote a fourth bill was prepared and its passage recommended. The Assembly then passed a bill
substantially the same as that recommended by the committee. The committee of the Commission, to
whom the Assembly bill was referred, recommended in its report of June 13, 1908, various
amendments. These amendments were adopted by the Commission and the bill, as thus amended, was
passed by that body. The bill in its amended form was returned to the Assembly and passed by it, and
became law (Act No. 1874) on June 19, 1908. The chairman of the joint committee, in his report to the
President of the Commission and the speaker of the Assembly, in referring to the bill prepared by the
Secretary of Commerce and Police, said:
One of these (bills) was prepared in the Department of Commerce and Police for submission to
the committee, which was drawn substantially along the lines which have prevailed in the State
of Massachusetts some years and upon which interpretations have been made by the
Masachusetts courts defining the exact meaning of the provisions of the law. (Vol. 2, p. 298,
Commission Journal of 1908.)
A comparison of Act No. 1874 with that of the State of Massachusetts of 1902 shows that the former is
essentially a copy of the latter. The first section of each is exactly the same and, in so far as the question
under consideration are concerned, there are no differences in the other sections of the two acts.
It appears from the official proceedings of the joint committee that the Guerrero bill, which was
rejected by the committee and the Legislature, was based on the Spanish law. This is shown from the
following extract from these proceedings:
The clause contained in the Guerrero bill was based on a similar clause found in the Spanish
law, which was put in the same order to make provision for the damage and detriment caused by
work in the mercury mines, and as the Guerrero bill was based on the Spanish law this clause
was put in. . . . For this reason I move that the amendment proposed by Mr. Javier be rejected
but the section as it is drawn up be adopted.
Act No. 1874 does not attempt to define generally the rights of master and servants, and is not a
codification of the law. Reference must be made to some other law to define who are masters, who are
servants, what is the scope of the employment, and whether the injury was the approximate result of the
negligence; and negligence itself must be determined by that other law and not by the Act. The Act
does not impose any obligation on the master to employ competent servants nor to instruct or warn his
servants about their work or the dangers of it. These obligations, if they exist, must be found elsewhere.
Neither does the Act define the word "damages" by setting forth the element thereof, nor does it fix any
general rules for determining the measure of damages in personal injury case brought under it. It does
provide, however, that in those case where damages are awarded for the death of an employee the same
shall be assessed with reference to the degree of culpability of the employer or of the person for whose
negligence the employer is liable. The Act also fixes the minimum and maximum amounts which may
be awarded if deaths results from the injuries, and the maximum amount of damages for personal
injuries not resulting in the death of the employee. In determining the important question here involved
for the purpose of ascertaining the intention of the Legislature, must we look to the Civil Code and the
decision of this court in construing its provisions for our guidance or was the statute adopted with the
construction given to it by the court in the country from which it was copied?
The Massachusetts statute was "copied verbatim, with some variations of detail, from the English
statute (43 and 44 Vict. ch. 42). Therefore, it is proper, if not necessary, to begin by considering how
the English act had been constructed before our statute was enacted." (Ryalls vs. Mechanics' Mills, 150
Mass., 190; 5 L. R. A., 667.)
The Employers' Liability Act of Alabama, first enacted in 1855 (Civil Code 1907, Ch. 80, sec. 3910), is
a substantial, if not an exact copy, of the English Act of 1880.
This court is not finally concluded by the decision of any other State court or the British court,
in their construction of a similar statute, but the opinion of learned courts upon similar questions
are entitled to great weight, and this is specially true when the statute, from which ours was
copied had been construed prior to its enactment by our legislature. (Brimingham Ry & Electric
Co. vs. Allen, 99 Ala., 359, 371; 20 L. R. A., 457.)
The Employers' Liability Act of Colorado (Laws 1893, chap. 77; Mill's Annotated Statutes, Supp.
1891-1896, sec. 1511a) was copied from the Massachusetts Act of 1887 and the Colorado Legislature
"presumably adopted the Act with the construction that had been given it by the courts of that state."
(Colorado Milling & Elevator Co. vs. Mitchell [1899], 26 Colo., 284.)
Generally speaking, when a statute has been adopted from another State or country and such
statute has previously been construed by the courts of such State or country, the statute is
deemed to have been adopted with the construction so given it. (Cerezo vs. Atlantic, Gulf &
Pacific Co., 33 Phil. Rep., 425, citing 2 Lewis Sutherland on Stat. Const., sec. 783.)
The law being so clearly traced to its source and the intention of the Legislature being so apparent, it is
necessary to ascertain and be guided by the decisions of the courts in the United States construing
essentially the same law. Further reference will be made to the same question in considering the sixth
assignment of error.
Dresser on Employers' Liability (vol. 1, sec. 2), says:
It is apparent that the act has not attempted to define generally the rights and duties of master
and servants, and is not a codification of the law. . . . Constant reference must be made to the
common law to define who are master and who servants, what is the scope of the employment,
and whether the injury was the proximate result of the negligence; and negligence itself is
 determined by the common law, and not by the act. The act, moreover, is silent concerning
certain terms of the contract of service. It does not impose any obligations on the master to
employ competent servants, nor to instruct or warn his servants about their work or the dangers
of it. These obligations were too well settled and important to be taken away by implication
merely, and the courts have held that the act was remedial, and a concurrent, instead of an
exclusive remedy. (Citing cases from Massachusetts, Alabama, Colorado, and England.)
The courts in the United States, in order to ascertain what changes have been made by the Employers'
Liability Acts in the "fellow servant rule," held that at common law the master impliedly agreed to
provide competent workmen, and in so doing he was bound to exercise that measure of care which
reasonably prudent men do so under similar circumstances, that the master is not an insurer, and that it
was only necessary that the danger in the work be not enhanced through his fault. The servant on his
part, by entering the employment, was held to impliedly agree to take upon himself the perils arising
from the carelessness and recklessness of those were in the same employment, without regard to their
grade, rank or authority in the service, provided that the act causing the injury was not in the
performance of any personal duty of the master intrusted to the negligent servant. The whole doctrine
in brief was a denial as to the employee of the principle of respondent superior. Under the latter, a
stranger invited upon the master's premises could recover for the injuries received through the
negligence of the employees. It was this right which was denied to the employees. The effect of section
1 of the Employers' Liability Act, the same courts held, is to exempt from the class of fellow servants,
the result of whose negligence the servant was held to have assumed, such persons as are intrusted by
the master with duties of superintendence while in the exercise of them. The persons must be
superintendents within the meaning of the Act and the negligent acts must have been done in the
exercise of the controlling functions of superintendent. Applying these principles to the instant case,
there can be no doubt that Eugenio Murcia, one of the foremen employed in the defendant's factory,
was exercising the controlling functions of superintendent when he ordered Braulio Tamayo to assist in
keeping the machine clean. Consequently, if such act constitutes negligence, the defendant is liable in
damages for the injures caused thereby, if it were, under the circumstances, the duty of the defendant or
the foreman to warn Braulio Tamayo as to the dangers incident to such work and instruct him how the
work should be done in order to avoid accidents.
As to whether it was the duty of the defendant or the superintendent to thus warn and instruct Braulio
Tamayo, it is urged that no such duty was imposed on either of them because, as the danger of putting
one's fingers under the knife was obvious, Braulio assumed all the risks of the work which he was
ordered to do. It is further urged that the defendant is not liable because Braulio Tamayo was not in the
exercise of due care at the time he received the injuries. In other words, the defendant here interposes
the common law defense of assumption of risks and contributory negligence. Some confusion has
arisen with reference to these two defenses. The Supreme Court of the United States explained the
distinction between the two in the following language in the recent case of Seaboard Air Line Railway
vs. Horton (233 U. S., 492, 503):
The distinction, although simple, is sometimes overlooked. Contributory negligence involves
the notion of some fault or breach of duty on the part of the employees, and since it is ordinarily
 his duty to take some precaution for his own safety when engaged in a hazardous occupation,
contributory negligence is sometimes defined as a failure to use such care for his safety as
ordinarily prudent employees in similar circumstances would use. On the other hand, the
assumption of risk, even though the risk be obvious, may be free from any suggestion of fault or
negligence on the part of the employees. The risks may be present, notwithstanding the exercise
of all reasonable care on is part. Some employments danger that must be and is confronted in
the line of his duty. such danger as are normally and necessarily incident to the occupation are
presumably taken into account in fixing the rate of wages. And a workman of mature years is
taken to assume risks of this sort, whether he is actually aware of them or not. But risks of
another sort, not naturally incident to the occupation, may arise put of the failure to providing a
safe place of work and a suitable and safe appliances for the work. These the employee is not
treated as assuming until he becomes aware of the defect and risk alike are so obvious that an
ordinarily prudent person under the circumstance would have observed and appreciated them.
These distinctions have been recognized and applied in numerous decisions of this court.
(Choctaw, Oklahoma & Gulf R. Co. vs. McDade, 191 U. S., 64, 68; Schlemmer vs. Buffalo,
Rochester & Pittsburg Ry. Co., 220 U. S., 590, 596; Tex & Pac. Ry. Co. vs. Harvey, 228 U. S.,
319, 321; Gila Valley Ry. Co. vs. Hall, 232 U. S., 94, 102, and cases cited.)
In Southern Ry. Co. vs. Crockett (234 U. S., 725), the Supreme Court of the United States, in passing
upon the question as to what effect the Federal Employers' Liability Act of April 22, 1908, has had
upon the common law defense of assumption of risks, said:
Upon the merits we of course sustain the contention that by the employers' Liability Act the
defense of assumption of risk remains as at common law, saving in the cases mentioned in
section 4, that is to say: "Any case where the violation by such common carrier of any statute
enacted for the safety of employees contributed to the injury or death of such employee."
In England it was said in the case of Thomas vs. Quartermaine (18 Q. B. D., 685) that the act had not
variated the effect of the maxim volenti non fit injuria, so far as it involves the ordinary risks inherent
in the particular employment. To the same effect is O'Malley vs. South Boston Gas Light Co. (158
Mass., 135); Birmingham Ry. & Electric Co. vs. Allen (99 Ala., 359); Whitcomb vs. Standard Oil Co.
(153 Ins., 513.) There has been, however, a noticeable difference in the application of the doctrine in
favor of the workman since the enactment of the Employers' Liability Act, but this change does not
affect the issues involved in the instant case. So it is quite clear that the Legislature in enacting Act No.
1874 intended to establish in this jurisdiction, if it did not already exist, the defense of assumption of
risks; that is, the servant assumes such dangers as are normally and necessarily incident to the
occupation.
At common law the defense of contributory negligence is always available in actions for compensation
for negligence and if proved, defeats the action. The Act has not deprived the employer of this defense.
(Halsbury's Laws of England, vol. 20, p. 138.) In Massachusetts it was said that assuming the
negligence of the superintendent, the servant could not recover if he were guilty of contributory
negligence. (Regan vs. Lombard, 192 Mass., 319.) This doctrine, however, has been more recently
partially abrogated by statutes. Under the Federal Employers' Liability Act of April 22, 1908 (35 Stat.
65; U. S. Comp. Stat., Supp., 1911, p. 1322), the defense of contributory negligence "is abrogated in all
instances where the employer's violation of a statute enacted for the safety of his employees contributes
to the injury." And in several states the doctrine of comparative negligence, as to some industries, has
been established by statute. (Cerezo vs. Atlantic, Gulf & Pacific Co., supra, and cases cited.) But such
is not the case in this jurisdiction in so far as the application of Act No. 1874 is concerned.
That the defense of contributory negligence, as it is understood in the United States, is
recognized in the Act (Act No. 1874) with all its force and effect, is clear because the first
section requires as an essential requisite that the employee be "in the exercise of due care" at the
time of the injury in order to hold the employer liable for damages. (Cerezo vs. Atlantic, Gulf &
Pacific Co., supra.)
The Civil Code does not recognized such a complete defense. (Rakes vs. Atlantic, Gulf & Pacific Co., 7
Phil. Rep., 359, 366; Eades vs. Atlantic, Gulf & Pacific Co., 19 Phil. Rep., 561.)
While the defenses of assumption of risks and contributory negligence are available to masters in
actions for personal injuries brought under Act No. 1874, these defenses have their limitations when
interposed in actions for personal injuries of minor or infant employees. These limitations rest upon the
well-established principle that it is the duty of masters or their superintendents to warn such employees
as to the dangers of the work and instruct them as to the manner of doing the work in order to avoid
accidents.
The master is bound to warn and instruct his servant as to all dangers which he knows, or in the
exercise of reasonable care ought to know, and which he has reason to believe the servant does
not know and would not by the exercise of reasonable care discover.
The duty continues during the employment, and cannot be delegated by the master. (Dresser on
Employers' Liability, sec. 99.)
In cases where the servant assumes the risks, there is no duty on the part of the master to warn or
instruct him in regard to the work. The obligation of warning "is imposed mainly for the sake of the
young who have not the experience or power to look out for themselves, which are to be expected in
adults, o, in the case of adults, where there are concealed defects." (Robinska vs. Lyman Mills, 174
Mass., 432, 433; O'Neal vs. Chicago & I. C. Ry. Co., 132 Ind., 110.)
And "it is clear that, in respect to all matters wherein a young and inexperienced employee is
competent to understand and avoid the dangers, such employee stands upon the same footing with an
experienced adult." (Levey vs. Bigelow, 6 Ind. App., 677.)
The distinction between the adult and the child becomes important when it is necessary to
presume knowledge from the character of the danger, and determine whether it was obvious to a
person of the plaintiff's apparent capacity. (Dresser on Employers' Liability, sec. 99.)
The dangers of a particular position or mode of doing work are often apparent to a person of capacity
of knowledge of the subject, while other, from youth, inexperience, or want of capacity, may fail to
appreciates them; and a servant, even with his own consent, is not to be exposed to such dangers,
unless with instructions and cautions sufficient to enable him to comprehend them and to do his work
safely, with proper care on his part. This is particularly so when the master employs for a hazardous
work, a child, young person, or other person without experience, and of immature judgment. In such a
case, the master is bound to point out the dangers of which he has, or ought to have, knowledge, and
give to the employee such instructions as will enable him to avoid injury by the exercise of reasonable
care, unless both the danger and the means of avoiding it are apparent, and within the comprehension
of the servant. But a master is not culpable simply because he hires a minor servant for the performance
of dangerous duties. Shearman and Redfield on Negligence (vol. 1, sec. 218) state the rule as follows:
Where a servant is set at dangerous work, the mere fact of his minority does not render the
master liable for the risk, if the servant has sufficient capacity to take care of himself, and
knows and can properly appreciate the risk.
The following statement of the law relating to the employment of young children occurs in 4
Thompson on Negligence, sec. 3826, and is quoted with approval in Fitzgerald vs. Furniture Co. (131
N. C. 636):
The law, says Thompson on Neg., 978 "puts upon a master, when he takes an infant into his
service, the duty of explaining to him fully the hazards and dangers connected with the
business, and of instructing him how to avoid them. Nor is this all; the master will not have
discharged his duty in the regard unless the instructions and precautions given are so graduated
to the youth, ignorance and inexperience of the servant as to make him fully aware of the danger
to him, and to place him, with reference to it, in substantially the same state as if he were an
adult."
In Taylor vs. Wootan (50 Am. St. Rep., 200) it was held that:
It is an actionable wrong for a person to place or employ a child of such immature judgment as
to be unable to comprehend the danger to work with or about a machine of a dangerous
character likely to produce injury, . . .
With reference to the nature and character of the risks assumed by infant employees, the court, in Saller
vs. Friedman Brothers Shoe Co. (130 Mo. App., 712) said:
Generally, an employee assumes such risks as are open and obvious or which he would have
observed he had used ordinary caution; but children are not expected to observe closely the
construction of machines at which they are put to work or to appreciate the ordinary risks
incident to their operation, and for this reason are not held to assume the ordinary risks of their
operation, or such risks as they do not perceive and apprehend, and of which they are not
informed and warned against. (Vansler vs. Boc Co., 108 Mo. App., l. c. 628-9, 84 S. W., 201,
and cases cited.)
The law with reference to contributory negligence on the part of infant employees is fairly well settled
in the United States.
In Wynne vs. Conklin (86 Ga., 40) the court held that whether the plaintiff [a boy of 13 years of age]
knew of the hazard or peril; whether he was of sufficient age and capacity to appreciate the same and to
provide against danger, are questions of fact which ". . . must be left to the consideration of a jury."
In Bare vs. Crane Creek Coal Co. (61 W. Va., 28) the court said:
It is actionable negligence for an employer to engage and place at a dangerous employment a
minor who, although instructed, lacks sufficient age and capacity to comprehend and avoid the
dangers of the employment if the employer has, or should have, notice of the minor's age and
lack of capacity. (Thomp. on Neg. sec. 4689; 20 Am. & Eng. Enc. Law, supra; Golf vs. Norfolk
& W. R. Co. supra; 1 Shear. & Redf. Neg., supra.)
In Saller vs. Friedman Brothers Shoe Co., supra, the court said:
Plaintiff, on cross-examination, testified he knew if his fingers were caught between the upper
and lower halves of the molder when they came together, they would be crushed. Of course he
knew this; the simplest child would know as much if it observed the operation of the machine,
but it might not, and probably would not make the observation. Plaintiff's evidence tends to
prove that though he knew his fingers would be mashed if caught between the two halves of the
molder when they came together, yet he swore he never thought of getting hurt. His evidence
shows that the idea that he might be hurt never entered his mind until he was hurt; while his
evidence shows he knew he might be hurt in the manner he was hurt, yet he never thought of or
appreciated the danger of getting hurt in that manner. It is because of this very thoughtlessness
and on account of the inexperience of minors that the law does not hold them to the exercise of
the same degree of care as it requires of adults.
In the Brand Case (64 Fla., 184) cited in the recent case of Coons vs. Pritchard (L. R. A., 1915 F, 558)
the court held:
As a matter of fact an employees who is an inexperienced youth may not be free from fault
when he is injured, yet in law his youth and inexperience may excuse his fault, and when the
employer has placed him at work the dangers and risks of which the youth does not appreciate,
and the youth is injured because of the dangers of the work, the employer is liable.
The court in Coons vs. Prichard, supra, lays down this rule:
In employing a minor, the duty devolves upon the employer to fully instruct such employee, and
in such cases the master is bound to consider the age, mentality, and lack of capacity and
experience of his infant employee, and make such instructions so full and explicit as to bring the
dangers incident to the employment to the complete comprehension of the minor. The theory
seems to be that a minor presumably ignorant of the use of machinery or dangers incident to his
occupation, or to risks incident to the use of defective machinery, would, without such
instructions, be exposed to those dangers which he could have avoided had his master fully
discharged this duty.
The infant employee's capacity is the criterion of his responsibility. As he grows older, he becomes
more and more amenable to the rules of law in respect to assumption of risk and contributory
negligence applicable to adults, and whether such infant employee has assumed the risks or been
negligent are questions to be answered by the jury in the United States and by the courts in this
jurisdiction.
There is another point ion the case at bar which should be taken into consideration and which bears
upon the defendant's defenses of assumption of risks and contributory negligence, and that is, the
injuries did not occur while Braulio Tamayo was engaged in the particular work and class of work for
which he was employed. On the contrary, he was at the time engaged in a work outside the ordinary
contract of employment and wholly disconnected with it. "To pick from piles of wood from which the
strips used in the manufacture of match boxes were made and select the best pieces" is a very different
thing from assisting in keeping the machine clean in order that it would not be obstructed in its proper
working. While the record is silent as to who made the contract of employment, yet, taking into
consideration the age of the boy and the interest which the father was taking in his welfare, we may at
least presume that the father consented to the boy's entering the factory and doing the ordinary work
which he had been engaged in before he was ordered to work at the machine, and the father, in so
doing, had the right to presume that neither the defendant nor those who represented him would expose
his son to such perils. If the order had been given to a person of mature years, who was not engaged to
do such work, although enjoined to obey the directions of the foremen, it might, with some possibility,
be argued that he should have disobeyed it, as he must have known that its execution was attendant
with danger, or, if he chose to obey that order, he took upon himself the risks incident to such work.
Bur Braulio Tamayo occupied a very different position. He was a mere child without, as we have said,
any experience in that kind of work, and not familiar with the machinery.
In Union Pacific Railroad Co. vs. Fort (84 U. S., 553), Fort brought suit to recover damages for injury
to his son, age 16 years, resulting in the loss of an arm while in the employment of the railroad
company. The boy was employed in the machine shop as a workman or a helper under the
superintendence and control of one Collett and had been chiefly engaged in receiving and putting away
mouldings as they came from a molding machine. After the service had been continued for a few
months, the boy, by order of Collett, ascended a ladder, resting on a shaft, for the purpose of adjusting a
belt by which a portion of the machinery was propelled and which had gotten out of place. While
engaged in an endeavor to execute the order, his arm was caught in the rapidly revolving machinery
and torn from his body. The injury found that he had been engaged to serve under Collett as a workman
or helper and was required to obey his orders; that the order by Collett to the boy (in carrying out which
he lost his arm) was not within the scope of his duty and employment, but was within that of Collett's;
that the order was not a reasonable one; that its execution was attended with hazard to life and limb;
and that a prudent man would not have ordered the boy to execute it. A verdict and judgement in favor
of Fort was sustained.
Applying the foregoing principles, which are founded upon reason and justice, to the case under
consideration, we conclude that the trial court did not err in rejecting the defenses of assumption of
risks and contributory negligence interpose by the defendant.
We now come to the consideration of damages. As above stated, the record fails to disclose to what
extent, if any, the earning capacity of Braulio Tamayo has been diminished by reason of the injuries. He
could not, therefore, recover any amount if this action had been brought under the Civil Code, as the
services for medical attendance and salary during the confinement have been paid by the defendant.
(Marcelo vs. Velasco, 11 Phil. Rep., 287; Algarra vs. Sandejas, 27 Phil. Rep., 284). But this court has
never held that slight lameness or permanent injuries and pain and suffering are not elements of
damages, but simply that damages cannot be allowed for the former, unless the extent of the diminution
of the earning power or capacity is how, and that the Civil Code does not include damages for the latter.
The English rule as to the measure of damages which may be awarded for personal injuries is stated in
Halsbury's Laws of England (vol. 10, p. 323), as follows:
In actions for personal injuries, whether such actions are founded on breach of contract to carry
safely, or upon negligence, the jury are to award damages not only for the actual pecuniary loss
occasioned by the injury, but also for the pain and suffering of the plaintiff and the diminution
of his capacity for the enjoyment of life, as well as in respect of the probable inability of the
plaintiff to earn an income equal to that which he has earned in the past; and the probability that
but for the injury the plaintiff might have earned an increasing income is to be taken into
account.
Shearman and Redfield on the Law of Negligence (vol. 3, p. 1994 [6th ed.]) in discussing the measure
of damages for personal injuries, say:
In an action for negligent injury to the person of the plaintiff, he may recover the expense of his
cure, the value of the time lost by him during his disabilities, and a fair compensation for the
bodily and mental suffering caused by the injury, as well as for any permanent reduction of his
power to earn money, provided, of course, that such damage is a proximate result of the injury.
As already stated, allowance should be made for all such damages, future as well as past, if
reasonably certain to occur. (Citing numerous authorities, including various decisions of the
Supreme Court of the United States.)
As these rules, if not exclusively, upon the Anglo-American common law, it becomes necessary to
inquire just what changes, if any, have been brought about by the enactment of the Employers' Liability
Acts.
Dresser on Employers' Liability, section 18, says:
Subject to the limitation upon the amount, damages are to be measured in accordance with the
common-law rules.
Reno's Employers' Liability Acts (2nd ed.), section 186, says:
The Massachusetts statute limits the amount of damages recoverable by an employee when his
injury does not result in death to a sum not exceeding four thousand dollars. It does not
prescribe any criterion for estimating the amount, but leaves the question to be settled upon
general principles of law.
And further on (sec. 198) the same author states:
In Alabama it has been decided, in an action under its Employers' Liability Act, that such
(Exemplary or punitive) damages are not receivable where the injury results in death. The
statute does not limit the amount of damages recoverable, and the measure of damages is
determined upon common-law principles.
Labatt's Master and Servant ([2d ed.], vol. 5, sec. 1730) lays down this rule:
The provisions specifying the amount recoverable by an injured servant do not give a measure
of damages, but merely fix a limit beyond which the jury cannot award compensation. Within
that limit the measure of damages is left to be determined upon the ordinary principles which
regulate the assessment of the indemnity in actions for personal injuries.
Section 1 of the Federal Employers' Liability Act (Act of Congress of April 22, 1908) provides "That
every common carrier by railroad, while engaging in commerce between any of the several States or
Territories, . . . shall be liable in damages to any person suffering injury while he is employed by such
carrier in such commerce, . . . ." The Supreme Court of the United States in Michigan Central R. R. Co.
vs. Vreeland (227 U. S., 59, 65), in referring to the measure of damages recoverable under the Act, said:
It (the Act) plainly declares the liability of the carrier to its injured servant. If he had survived he
might have recovered such damages as would have compensated him for his expense, loss of
time, suffering, and diminished earning power.
And in St. Louis & Irom Mtn. Ry. vs. Craft (237 U. S., 648) the Supreme Court of the United States
sustained a judgment, in an action brought under the Federal Employers' Liability Act, of the State
court in favor of the father of the deceased employee for $6,000, being $1,000 for the pecuniary loss to
the father and $5,000 for the pain and suffering of the deceased.
What is the scope of the word damages as used in Act No. 1874? Did the Legislature intend that the
measure of damages should be the same as that in the United States, from the country the Act was
copied, or did it intend that the recovery should be limited to those elements of damages provide for by
the Civil Code in personal injury cases?
In determining these questions it must be borne in mind that the intent of the Legislature is the
law; that the legislative meaning is to be extracted from the statute as a whole. Its clauses are
not to be segregated, but every part of a statute is to be construed with reference to every other
part and every word and phrase in connection with its context, and that construction sought
which gives effect to the whole of the statute its every word; that the history of the statute
from the time it was introduced until it was finally passed may afford aid to its construction;
that where one legislature adopts, without change of phraseology, or with only a merely
immaterial change a legislative act of another jurisdiction, if antecedent to its adoption, the
statute has received a settled construction in the jurisdiction from which adopted, the
Legislature is presumed to have adopted the construction along with the statute; and that a
remedial statute is to be liberally construed to accomplish the purpose of its enactment. (Vol. 11,
Encyclopedia of United States Supreme Court Reports under "Construction," and cases cited.)
In Cerezo vs. Atlantic Gulf & Pacific Co. (supra), the court said:
We do not doubt that it was, prior to the passage of Act No. 1874 and still is, the duty of the
employer in this jurisdiction to perform those duties, in reference to providing reasonably safe
places, and safe and suitable ways, works, and machinery, etc., in and about which his
employees are required to work, which, under the common law of England and America, are
termed personal duties, and which in the United States are held to be such that the employer
cannot delegate his responsibility and liability to his subordinates. (Rakes vs. Atlantic, Gulf &
Pacific Co., 7 Phil. Rep., 359.)
The employer or master also impliedly agrees to furnish competent workmen (article 1903 of the Civil
Code; Chaves and Garcia vs. Manila Electric R. R. & Light Co., 31 Phil. Rep., 47). Therefore, the
master, under the Civil Code, can defend against an action by his servant by proving his own freedom
from negligence; that the negligence of the servant was the immediate cause of the injury or that the
accident happened through one of the ordinary risks of employment. On the other hand the servant can
recover a portion of the damages resulting from the injuries, although he may be guilty of contributory
negligence. (Rakes vs. Atlantic, Gulf & Pac. Co., supra.) And the Civil Code does not fit the maximum
amount of the recovery.
Act No. 1874 should be liberally construed in favor of employees. The main purpose of the Act, as its
title indicates, was to extend the liability of employers and to render them liable in damages for certain
classes of personal injuries for which they are not liable under the Civil Code. And one of these classes
of cases is that where injuries are cause to employees through the negligence of the master's
"superintendent," although the master may have used due care in the selection of his superintendent. To
this extent the master's liability or responsibility has, in fact, been extended. But the defense of
contributory negligence, as it is understood in the United States, is recognized in the Act with all its
force and effect, as the first section requires as an essential requisite to recovery that the employee be
"in the exercise of due care" at the time of the injury. The Act does not recognize the rule of
comparative negligence. It fixes the maximum amount which the injured servant may recover. As to
these matters, the Act restricts the master's liability. And if the measure of damages is limited to
conform with the Civil Code, the master's liability would be further restricted.
If reference must be made to the Anglo-American common law to define the rights and duties of master
and servants, as above indicated, what reasons exist for saying that the Legislature intended that the
courts must look to the Civil code for the meaning and scope of the word "damages," a word, according
to the origin and history of the Act, of purely English origin, different in its scope from the Spanish
word "dao"? It is said that the Act is an Employers' Liability Act and not a law of damages. This
contention is without foundation in law because "to extend and regulate the responsibility of employers'
means to enlarge their pecuniary liability, otherwise the phrase would be meaningless. One's
responsibility is his liability or obligation. The Act is remedial. By remedial is not meant that it pertains
to a remedy in the sense of procedure such as the character and form of the action, the admissibility of
evidence, etc. The Act defines certain rights which it will aid, and specifies the way in which it will aid
them. So far as it defines, thereby creating, it is "substantive law." So far as it provides a method of
aiding and protecting, it is "adjective law," or procedure. The right to damages is the essence of the
cause of action. It is a substantive right granted by the Act. Take this away and the injured employee
has nothing of value left. No one in this country has a vested interest in any rule of the Civil Code and
the great office of the Act is to remedy defects in the Civil Code rules as they are developed.
The Congress of the United States, in conferring upon the personal representative of a deceased person,
whose death was the result of a wrongful act, neglect or fault of any person or corporation in the
District of Columbia, a right of action for damages, provided "that in no case shall the recovery under
this Act, exceed the sum of $10,000." (31 Stat. at Large, 1394, chap. 854.) The Federal Employers'
liability Act, referred to above, does not limit the amount of damages which may be recovered in
actions brought thereunder. In Hyde vs. Southern Railway Co. (31 App. D. C., 466) the court held that
the recovery under the last named Act was not limited to $10,000 as provided in the former Act. To the
same effect is the case of Devine vs. C. R. I. & R. R. Co. (266 Ill., 248).
The inevitable conclusion is, therefore, that the Legislature intended that the measure of damages in
personal injury cases brought under Act No. 1874 shall be the same as that in the country from which
the Act was taken. The result is that Braulio Tamayo is entitled to recover, through his guardian ad
litem, damages for pain and suffering and permanent injury, such damages being as they are the
approximate result of the injuries. Bodily disfigurement is included in his permanent injury. It needs no
proof to show that the severing of the ring finger at the first joint caused pain and suffering and a
permanent injury and bodily disfigurement, although slight. The fact that damages for such injuries
cannot be ascertained with mathematical exactness does not and should not defeat recovery for a
reasonable amount.
In Gagnon vs. Klauder-Weldon Dyeing Mach. Co. (174 Fed. Rep., 477), the plaintiff was awarded
$4,000. This was reduced to $3,000, the court saying:
As to the damages, there was no evidence that Gagnon has received less wages since his injury
than he did before. He was out nothing. His wages were continued while laid up, and then he
was given employment by defendant and later by others at no less wages than he had been
receiving. But he suffered pain and permanent disfigurement of one hand. He lost two fingers
and that part of the hand immediately below or behind them. His power to lift and handle things
is interfered with and lessened. In some stations or businesses his earning power or ability to
perform his duties would not be interfered with at all; in others it would be materially. What his
future will demand of him cannot be foretold. As a mechanical blacksmith his ability to do
work, handle things, is impaired. I do not think the jury was affected by passion or prejudice
against corporations. They were carefully cautioned against this. While damages in such cases
are largely discretionary with a jury, still that discretion is always within the control of the court.
The pain and suffering in this case was not of long continuance, the disfigurement is confined to
the one hand, the arm is not injured, the plaintiff can pick up and handle articles and handle all
ordinary tools. I am of the opinion that the damages were excessive, all things considered, and
that they should be reduced to $3,000.
In "City of Panama"vs. Phelps (101 U. S., 453) the court said:
 Damages, in such a case, must depend very much upon the facts and circumstances proved at
the trial. When the suit is brought by the party for personal injuries, there cannot be any fixed
measure of compensation for the pain and anguish of body and mind, nor for the permanent
injury to health and constitution, but the result must be left to turn mainly upon the good sense
and deliberate judgment of the tribunal assigned by law to ascertain what is a just compensation
for the injuries inflicted.
In Gahagan vs. Aeromotor Co. (67 Minn., 252) the plaintiff was awarded $1,800. this was reduced to
$1,200, the court saying:
The only remaining question is whether the damages awarded are excessive. The boy, one of
eight children, was between 8 and 9 years of age. Aside from doing such chores about the house
as he was bidden by his parents, the only work he had ever engaged in was selling newspapers
on the village streets. His father was a buthcer, whose occupation was to peddle through the
country the flesh of animals which he bought and slaughtered. The injury to the boy consisted
of the mangling of the ends of the ring and middle fingers of the left hand so as to require their
amputation, the one at the first joint, and the other just below the first joint. This was
successfully done at one operation, and the fingers healed satisfactorily. Of course, this was
necessarily accompanied by considerable pain; and there is some evidence to the effect that the
ends of the finger may always be somewhat more sensitive to heat and cold than if not
amputated. There was, also, the opinion of a physician that the muscles supplying those fingers
will not develop as fully as they would if the whole fingers were there. It is also true that the
amputation of the ends of these fingers constitutes something of a disfigurement of the person.
We have no desire to belittle the right which every one, even in the humblest walks of life, has
to the possession of all his faculties, both mental and physical, unimpaired. but we are
compelled to the conclusion that, in any view of the case, the damages awarded to the boy are
excessive. There are certain profession, such as that of instrumental music, where the loss of the
ends of two fingers, even on the left hand, would be quite serious; but it is self-evident, without
the aid of evidence, that in all the ordinary occupations of life the injury to the boy will be
almost inappreciable. We have often had occasion to say that the question is not for what sum of
money will compensate for it as far as money can compensate at all; and, where a person asks
for pecuniary compensation, he cannot complain if the loss is estimated on a strictly pecuniary
basis.
In Rittel vs. Souther Iron Co. (127 Mo. App., 463) in reducing the award from $4,500 to $3,000 and in
disposing of the contention of the appellant that there was no evidence that the plaintiff's earning
capacity had been diminished by reason of the injuries, the court said:
Plaintiff, as stated, was a young man twenty-one years old at that time of the accident, and as far
as appears he made his living by work similar to that he was doing when hurt; he was not a
mechanic, but a common laborer. He testified that he had done no work from the date of the
injury to the time of the trial; that prior to said time he had been earning nine dollars a week,
and in his opinion he was unable to do the same kind of work he had been doing theretofore. We
 think it is a matter of general knowledge that a laboring man who has the thumb and forefinger
of his right hand mashed has suffered a diminution of earning power.
Similar holdings appear in Olsen vs. Tacoma Smelting Co. (50 Wash., 128); Rommen vs. Empire
Furniture Mfg. Co. ([1911] 118 Pac., 924); Duskey vs. Green Lake Shingle Co. (51 Wash., 145);
Barclay vs. Puget Sound Lumber Co. (48 Wash., 241); Adams vs. Peterman Mfg. Co. (47 Wash., 484);
Ball vs. Peterman Mfg. Co. (47 Wash., 653); Johnson vs. City of Bay City (164 Mich., 251).
This opinion is quite long, necessarily made so by the importance of the questions raised. The judgment
being strictly in accordance with law and the merits of the case, the same is hereby affirmed, with costs
against the appellant. So ordered.
Torres, Carson and Araullo, JJ., concur.

Separate Opinions

MORELAND, J., dissenting:

The proposition stated in the decision of the court in this case to which I propose to direct my attention
is that the Employers' Liability Act was intended by the Legislature of the Philippine Islands to be not
only a law enunciating the principles of legal liability resulting from negligent acts and omissions in
certain cases, but a law governing the measure of damages in such cases also. The process of reasoning
by which the court reached this conclusion is, in the main, this: the Employers' Liability Act of the
Philippine Islands is a copy of the Employers' Liability Act of the State of Massachusetts; and, says the
court, that being so, it necessarily follows that the Legislature of the Philippine Islands, when it copied
and passed the Employers' Liability Act of the State of Massachusetts, intended, by virtue of the mere
act of copying, to bring to the Islands not only the Employers' Liability Act of the state of
Massachusetts but the law of that State governing the measure of damages also.
I cannot bring myself to agree either with the position or with the arguments adduced to support it.
nothing far short of an express declaration of the Philippine Legislature to that effect ought to be held
to abrogate the settled principles of law governing the measure of damages in personal injury cases laid
down in the Civil Code and to substitute in place thereof the law of a foreign country. There is no such
declaration in the Employers' Liability Act. I can find nothing in the Act which, in the remotest way,
would suggest in my opinion, an intention to that effect.
The question under consideration arises in this way: A young boy working with dangerous machinery
had the ends of some of his fingers of one hand cut off. On the trial he proved no pecuniary or actual
damages. No one disputes this. The sole question is whether he can recover damages other than
pecuniary or actual damages. The Supreme Court in its opinion states expressly that, under the law of
the Philippine Islands as found in the Civil Code, he would not be entitled to recover damages for pain,
suffering or mental anguish; and that, therefore, under the Civil Code, he could not maintain this action
as he could prove no damages apart from those arising from pain and suffering. The court has,
however, met this difficulty by asserting, as I have before indicated, that the law of damages of the
Philippine Islands does not govern the case at bar for the reason that, the Employers' Liability Act
having been taken bodily for the state of Massachusetts and brought to the Philippine Islands, it
necessarily follows that the law of the State of Massachusetts governing the measure of damages was
brought along to the Islands with it; and that it is the law of the state of Massachusetts and not the Civil
Code which governs the measure of damages in the Philippine Islands.
As I have already stated the Supreme Court holds in this very case that, under the law of the Philippine
Islands, the plaintiff is not entitled to damages, as he proved no damages except those arising from pain
and suffering. It says:
We now come to the consideration of damages. As above stated, the record fails to disclose to
what extent, if any, the earning capacity of Braulio Tamayo has been diminished by reason of
the injuries. He could not, therefore, recover any amount if this action had been brought under
the Civil Code, as the services for medical attendance and salary during the confinement have
been paid by the defendant. (Marcelo vs. Velasco, 11 Phil. Rep., 287; Algarra vs. Sandejas, 27
Phil. Rep., 284). But this court has never held that slight lameness or permanent injuries and
pain and suffering are not elements of damages, but simply that damages cannot be allowed for
the former, unless the extent of the diminution of the earning power or capacity is shown, and
that the Civil Code does not include damages for the latter.
Before going forward with the discussion, I regard it necessary to examine the statement contained in
the last sentence of the quotation. I confess that I cannot grasp its meaning except in part. The portion
of the statement which I can not understand is this: "But this court has never held that. . . . pain and
suffering are not element of damages, but
simply . . . that the Civil Code does not include damages for the latter," that is, pain and suffering. If the
court has held that the Civil Code does not authorize, and, therefore, does not permit, damages for pain
and suffering, and, if the Civil Code contains all the law of the Philippine Islands on the subject of
damages, which no one denies, how can it be said that "this court has never held that . . . pain and
suffering are not elements of damages?" This court has held again and again that pain and suffering are
not an element of damage under the law of the Philippine Islands; and has again and again refused to
allow damages therefor. (Marcelo vs. Velasco, 11 Phil. Rep., 287; Algarra vs. Sandejas, 27 Phil. Rep.,
284) The refusal was based on the finding that there was no law in the Philippine Islands authorizing
damages to be given upon that ground. The court admits in the statement quoted that it has heretofore
held "that the Civil Code does not include damages for the latter," that is, for pain and suffering. How,
then, is it possible for the court now to hold that pain and suffering are elements of damage? And how
can it say that the court has not held that pain and suffering are not element of damage? The mere
holding that there was no law in the Philippine Islands authorizing damages on such ground is of itself
a declaration that pain and suffering are not an element of damage. If the court has declared that there is
no law authorizing relief of a certain kind, it is equivalent to a declaration that the courts are not
authorized to grant such relief.
I proceed with the discussion of the position taken by the court on the main question.
It must be said at the outset that the court rests its decision mainly on the statement that the law of
damages of Massachusetts came here by virtue of the mechanical act of the draftsman of the
Legislature of copying a statute of that State a statute, by the way, entirely different from the one
which this court holds was brought over. So far as I can see, there is no discussion of the grounds of
this statement; no examination of the Act copied; no quotation of or even reference to any provision of
law or statute to support the allegations; nothing except a naked statement of the court that it was
brought over. The contention that the mere mechanical act of the copying of the Employers' Liability
Act of the State of Massachusetts by the Philippine Legislature produced necessarily the momentous
result of repealing the law of this country regulating an important subject and of introducing in place
thereof the law of Massachusetts, appears on its face, it seems to me, so unsound, that the most agent
and powerful reason should be assigned to support it. The court has neglected to refer to any Act of the
Philippine Legislature, to any statue, or to any other law to sustain its assertion. It simply says that the
mere act of copying the Massachusetts Employers' Liability Act is all that was necessary to enact into
law not the Massachusetts Employers' Liability Act by the Massachusetts law of damages.
There is possibly one exception to the statement that the court has neither cited nor referred to any
statute, law, decision, principle or custom to support so strange a theory. It has referred to the word
"damages" which it found in the Employers' Liability Act. But that is all. It does not even quote or cite
the sentence in which the word appears. It is wrenched from its setting and torn form the context and
examined as a thing separate and apart, a species with no family or genus, something for a philologist,
but not for a court. This reference by the court to the word "damages" and the argument based upon that
isolated word, may be called an exception to or a qualification of my statement. I hesitate to admit it;
for the reference is of such a nature that it serves only to prove the correctness of the statement. If the
court could find nothing more in the Act of the Philippine Legislature to support its contention than a
lone word taken from the statute, then is my statement, I believe, more than justified.
The quotation made from the opinion of the court is the opening statement in its argument to support
the proposition that the Philippine Legislature brought from the State of Massachusetts with the
Employers' Liability Act the Massachusetts law of damages in negligence cases. As I regard this
conclusion as erroneous I propose to follow the steps of the court in its argument for the purpose of
determining where the difficulty lies. Immediately after the statement quoted comes a discussion of the
rule of damages in negligence cases in England and in the various States of the Union and as set down
by the Federal courts. Cases are cited to show that pain and suffering are element of damage under the
common law. The court quotes from the Federal Employers' Liability Act of the United States in cases
arising under it to show that the rule of damages as laid down by the Federal courts includes
compensation for pain and suffering. It is to be noted, however, that, when the Supreme Court was
discussing and applying the law of damages in those cases it was not discussing, interpreting or
applying the Federal Employers; Liability Act. It was construing and applying the law governing the
measure of damage; and the law of damage has no more relation to the law governing the principles of
legal liability than the law of bailments has to the law property. It must be said, therefore, that the
whole discussion of the court concerning the measure of damages at common law, and its citations of
and quotations from decisions of courts on that subject, are immaterial to the discussion of the very first
proposition necessary to be established in this case to sustain the decision of this court; and that is that
the Massachusetts law governing the measure of damages in personal injury cases was brought to the
Philippine Islands by and along with the Employers' Liability Act and is now force here. Until it is
established that the Massachusetts law is here, it is idle to discuss what that law is. Now, what is the
proof offered to demonstrate the correctness of the contention that the Massachusetts law of damages is
a part of the Philippine law? Until that contention is shown to be correct beyond question, what good, I
repeat, can result from a disquisition on the measure of damage at common law? Again, I ask, what has
been offered on that subject?
Proceeding with its argument, the court says:
What is the scope of the word damages as used in Act No. 1874 (the Employers' Liability Act)?
Did the Legislature intend that the measure of damages should be the same as that in the United
States, from which country the Act was copied, or did it intend that the recovery should be
limited to those elements of damages provided for by the Civil Code in personal injury cases?
With this inquiry before me I see no reason for the existence of the previous steps in the discussion
taken by the court. What may have been the law of damages as laid down by the Federal courts, the
State courts, or the English courts has nothing to do with the discussion as to whether the Legislature of
the Philippine Islands introduced into this country the law of damages of the State of Massachusetts.
The discussion as to what is the measure of damages in England and in the various States of the Union
would be material, as I have already said, only after the proposition had been established that the law of
damages of England and of the United States had been imported into the Philippine Islands. But the
question whether that law was actually imported into the Philippine Islands has nothing to do with the
question as to what that law really is.
I note what I have before intimidated, that the court does not cite the provision or provisions of the
Employers' Liability Act of the Philippine Islands which shows that the law of damages of the State of
Massachusetts or of England or of the United States was brought over to the Islands along with the Act
itself. I should be interested to have the court point out the particular provision on which it relies to
accomplish the striking result which its decision produces. I confess I can find no provision which I can
even remotely construe into producing such an effect. In order that the whole Act be before us I have
reproduced it in a footnote, including the title; 1 and an examination of it discloses instantly that there
is not a provision in it which, so far as I can judge, can be held to introduce into the Philippine Islands
the law of damages of the State of Massachusetts or of any other state or country. Nor can I obtain such
a result by viewing the Act as a whole. The title says that it is "An Act to extend and regulate the
responsibility of employers for personal injuries and deaths suffered by their employees while at work."
In the marginal note of the official Act it is called "Employers' Liability Act." All the Act does or
purports to do is to alter in some particular the principles of legal liability governing negligent acts or
omissions then operative in the Philippine Islands. It does not touch and does not profess to touch the
legal principles upon which damages are assessed in such cases, that is, the law governing the measure
of damage. The law governing legal liability is quite distinct and separate from the law governing
damages. The former tells us whether an action will lie or not; the latter tells us how much plaintiff's
judgment will be. The former tells us what must be proved to establish liability; the latter how to prove
the amount to recovered. While the former lays down the foundation for the latter, they are,
nevertheless, separate branches of the law, wholly unlike, wholly apart from each other, and governed
by principles which have nothing in common. They are treated separately by courts, text books and
encyclopedias. They have no more relation to each other than the law of wills and the law of waters.
This being so, how do the following remarks of the court, which immediately follow the last quotation,
assist it to the conclusion that the law of damages of the State of Massachusetts came to the Philippine
Islands with the Employers' Liability Act?.
In determining these questions it must be borne in mind that the intent of the Legislature is the
law; that the legislative meaning is to be extracted from the statute as a whole. Its clauses are
not to be segregated, but every part of a statute is to be construed with reference to every other
part and every word and phrase in connection with its context, and that construction sought
gives effect to the whole of the statute its every word.
Speaking generally, I have no objection to the principles enunciated in this quotation. But, it seems to
me, the court has not applied them. It would seem, rather, that the court has disregarded them. Let us
examine Act and admit that "the intent of the Legislature is the law," that "the legislative meaning is to
be extracted from the statute as a whole," that "its clauses are not to be segregated," and that we must
give effect to "its every word," and what is the result? Are we, in the light of these principles, to say
that the Legislature intended to enact a law governing the measure of damages in the Philippine Islands
when the title which the Legislature itself gave to the Act for the express purpose of telling us in a
summary way what it proposed to do, shows that it tended to deal solely with the principles of legal
liability and not with a distinct and separate branch of the law known as the measure of damage? Are
we to say this when, so far as my judgment goes, the provisions of the Act are in absolute conformity
with its title and both which seem to refute the contention that the Legislature intended that the Act, in
addition to being a liability Act, should also be an Act dealing with the measure of damage which
should change in a marked degree the present law on that subject? Can the Legislature be said to have
intended such a sweeping change? Is there anything in the Act which justifies the repeal of numerous
and important articles of the Civil Code, and the reversal of the decisions of the Supreme Court
interpreting and supplying them? Where is the provision in the Act which declares that this country, a
country of the Roman law, of the civil law, of the Spanish law, shall be agitated and confounded by a
fundamental change in its century old system of damages in personal injury cases? Read the law, "its
every word," and then say whether the Legislature intended that one law of damages should apply to
personal injuries sustained by one class of persons and a different law to injuries sustained by another
class of persons; or that a person who had both legs cut off through the negligence of his employer
should be able to obtain damages for pain and suffering, while his brother, who had both legs cut off
through the negligence of a railroad company not his employer, should not be able to recover such
damages?
It seems to me that such results should not be held to have been produced except upon the clear and
explicit provisions of the statute. Where are these provision? Is not the invasion of an established and
settled system, by a foreign law, of sufficient importance to require at least a reference to the specific
authority under which the invasion occurs? And if there is any doubt about the authority should the
invasion be permitted to succeed?
But the court seems to think that it has found a sufficient reason for the invasion. It says, as I have
already intimated, that it finds somewhere in the statute the word damages." The discovery of this word
is that which provoked the question put by the court, already quoted, in which it asks "What is the
scope of the word damages as used in Act No. 1874? Did the Legislature intend that the measure of
damages should be the same as that in the United States, from which country the Act was copied, or did
it intend that the recovery should be limited to those elements of damages provided for by the Civil
Code in personal injury cases?"
These questions are immediately followed by the statement, also quoted, of the principles governing
the conduct of one who desires to ascertain the intent of the Legislature; but I am afraid that the court
did not follow those principles when it seized upon the lone word "damages," discovered in the Act as
the talisman which would disclose the intent which governed the Philippine Legislature when it passed
the Employers' Liability Act; for, while the court has just declared that the intent of the Legislature "is
to be extracted from the statute as a whole," that its words and clauses "are not to be segregated," that
"every part . . . is to be construed with reference to every other part and every word and phrase in
common with its neighbors," nevertheless, it seizes upon the single word "damages," and, upon this
word segregated from its "context," and, without even a reference to any other line or word in the
statute, bases a doctrine which changes in large part the nature of the Act. The result thus obtained
violates, it seems to me, the enacting clause, destroys the distinction between legal liability and
measure of damage which the Act respects, introduces into the Philippine Islands a new system of law,
repeals important provisions of the Civil Code, and makes unjust distinctions between employees and
other classes of persons equally deserving.
I cannot agree to this reasoning which is, in my judgment, the only item of argument or discussion in
the opinion which is directed to the point to which my dissent and discussion refer:
If references must be made to the Anglo-American common law to define the rights and duties
of master and servants as above indicated, what reasons exist for saying that the Legislature
intended that the courts must look to the Civil Code for the meaning and scope of the word
"damages," a word, according to the origin and history of the Act, of purely English origin,
different in its scope from the Spanish word "dao?" It is said that the Act is an Employers'
Liability Act and not a law of damages. This contention is without foundation in law because
"to extend and regulate the responsibility of employers" means to enlarge their pecuniary
liability, otherwise the phrase would be meaningless. One's responsibility is his liability or
obligation. The Act is remedial. By remedial is not meant that it pertains to a remedy in the
sense of procedure such as the character and form of the action, the admissibility of evidence,
etc. The act defines certain rights which it will aid, and specified the way in which it will aid
 them. So far as it define, thereby creating, it is "substantive law." So far as it provides a method
of aiding and protecting, it is "adjective law," or procedure. The right to damage is the essence
of the cause of action. It is a substantive right granted by the Act. Take this away and the injured
employee has nothing of value left. No one in this country has a vested interest in any rule of
the Civil Code and the great office of the Act is to remedy defects in the Civil Code rules as
they are developed.
Let us examine the argument in detail. We may start out by doubting the correctness of the inferential
statement found in the very first sentence of the quotation. I did not know that it was necessary to refer
"to the Anglo-American common law to define the rights and duties of master and servant, as indicated
above," I had supposed that the very purpose of the Employers' Liability Act was to define those rights
and duties, so far as they relate to injuries occuring to employees while at work. I had believed that the
precise object of employers' liability acts in the States was the abrogation of the so-called Anglo-
American common law, and of the Employers' Liability Act of the Philippine Islands to abrogate the
civil law as contained in the Civil Code by substituting in its place a statute which specifically and in
detail defines those rights and duties. While the statute may be held to have given an additional remedy,
certainly, when the remedy conferred by the statute is selected by the employee the common law in the
States, the civil law here, ceases to operate. I had supposed, also, that where there is a statute dealing
with a given subject, and which completely covers it, the statute is exclusively that to which we must
look to ascertain the law on that subject. It is true that, if any word or provision of the statute is
ambiguous and needs interpretation or construction before it can be applied, then we might, under
certain circumstances, go to the decisions of the courts of a foreign state to ascertain what ideas they
have expressed under similar conditions. But no such reference is permitted unless the provisions of the
statute to be applied in the particular case are so ambiguous and uncertain as to require interpretation of
construction before application is possible. The statute is the law and the only law concerning the
matter of which it treats.
I must, therefore, doubt the correctness of the first sentence of the court's only argument. There is no
ambiguity in those provisions of the statute applicable to the case at bar. No one claims there is. The
court asserts none. Until we know what provisions the court has held applicable we cannot know
whether they are ambiguous or not. The case before us is a simple one, only three questions being
involved (First.) Was the defendant's superintendent negligent in placing a child at work with
dangerous machinery? (Second.) Was the child guilty of contributory negligence? (Third.) Was there
damage proved and how much? The statute specifically covers every question of law in this case. It
does not, of course, cover the questions of fact. Neither does the common law nor the civil law. But it
covers every legal aspect of he case and clearly and definitely and without ambiguity lays down the
rules which govern it; and I believe it to be erroneous to say that "reference must be made to the Anglo-
American common law to define the rights and duties of master and servants." The Employers'
Liability Act is the sole source of authority on that subject in the Philippine Islands in cases where it is
invoked and is applicable. Reference to the common law is unnecessary. Aside from the fact that, in the
absence of the Act, we would refer to the Civil Code and not to the common law, it may be said that the
Act is itself sufficient for every purpose and the courts have no right to go outside of it on the
assumption that interpretation is necessary. As we said in the case of Lizarraga Hermanos vs. Yap Tico
(24 Phil. Rep., 504, 513):
The first and fundamental duty of courts, in our judgment, is to apply the law. Construction and
interpretation come only after it has been demonstrated that application is impossible or
inadequate without them. They are the very last functions which a court should exercise. The
majority of the laws need no interpretation or construction. They require only application, and if
there were more application and less construction, there would be more stability in the law, and
more people would know what the law is.
Let us proceed to the next sentence. "It is said," continues the court, "that the act is an Employers'
Liability Act and not a law of damages. This contention is without foundation in law because 'to extend
and regulate the responsibility of employers'means to enlarge their pecuniary liability, otherwise the
phrase would be meaningless."
It seems to me that there is here a failure to grasp the difference between extending one's liability and
increasing the amount one must pay after liability is established. All that the Act does is to increase the
number of occasions on which the employer will have to respond in damages. In other words, it makes
it easier for his injured employee to establish his liability. It removes from his path certain hindrances
and obstructions. Where the employer would not have been liable before the act was passed, he is liable
now. Where, before the act was passed, a certain amount of proof was required, now less is required.
The act changes the source from which the injured employee draws his rights; and, in changing the
source, it at the same time increases the number of rights and the ease with which they may be
exercised. But the change in the source of rights and the increase in the ease with which they may be
exercised is very far from an increase in the amount of the judgment the employee will get as the
ultimate result of an exercise of those rights. A right of action has nothing whatever to do with the
amount of recovery; yet these are precisely the two things the court has confused to such an extent as to
call them the same. To increase the number of occasions in which an employer will be liable is an
entirely different thing from increasing the amount of damages which he will have to pay on each of
the increased occasions. 2 Moreover, looked at from a standpoint other than principle, it would be
mulcting the employer from both pockets at the same time. The occasions of his liability would be
increased and the amount he would have to pay on each of those increased occasions would also be
augmented by the amount of damages allowed for pain and suffering. That the Legislature did not
intend such a result is evident from the fact that, while the Act increased the occasions on which
employers would be liable and the ease with which the employee might take advantage of those
occasions, at the same time and as a partial compensation, the act limited the amount of the latter's
recovery in certain cases.
I pass over the intervening sentence of the quotation and come at once to these: "The right to damages
is the essence of the cause of action. It is a substantive right and granted by the Act. Take this away and
the injured employee has nothing of value left.""One's responsibility is his liability or obligation." Let
all this be admitted, and still we may properly put the question, what has it to do with the matter in
hand? Here again, it seems to me, is the confusion between a right of action and the amount of the
recovery. No one is denying the employee his right of action. Indeed, as for myself, I am contending
that the Act increases the number of occasions on which he will have a right of action. All I am doing is
combating the proposition that an increase in the number of occasions on which the employer is liable
means an increase in the amount of the recovery in any given occasion. I desire to maintain the
distinction between a right of action and the amount of the recovery; the liability and the amount to be
paid; the principles governing legal liability and those governing the measure of damages.
Having arrived at the conclusion that no damages was proved, I do not pass on the other questions
discussed by the court.

Footnotes
1 No. 1874. AN ACT TO EXTEND AND REGULATE THE RESPONSIBILITY OF
EMPLOYERS FOR PERSONAL INJURIES AND DEATHS SUFFERED BY THEIR
EMPLOYEES WHILE AT WORK.
By authority of the United States, be it enacted by the Philippine Legislature, that:
SECTION 1. If personal injury is caused to an employee, who, at the time of the injury, is in the
exercise of due care, by reason of
First, a defect in the condition of the ways, works, or machinery connected with or used in the
business of the employer, which arose from, or had not been discovered or remedied in
consequence of, the negligence of the employer or of a person in his service who had been
intrusted by him with the duty of seeing that the ways, works, or machinery were in proper
condition; or
Second, the negligence of a person in the service of the employer who was intrusted with and
was exercising superintendence and whose sole or principal duty was that of superintendence,
or, in the absence of such superintendent, of a person acting as superintendent with the authority
or consent of such employer; or
Third, the negligence of a person in the service of the employer who was incharge or control of
a signal, switch, locomotive engine, or train upon a railroad; the employee, or his legal
representatives, shall, subject to the provisions of this Act, have the same rights to compensation
and of action against the employer as if he had not been an employee, nor in the service, nor
engaged in the work, of the employer.
A car which is in use by, or which is in possession of, a railroad corporation shall be considered
as part of the ways, works, or machinery of the corporation which uses or has it in possession,
within the meaning of clause on of this section, whether it is owned by such corporation or by
some other company or person. One or more cars which are in motion, whether attached to an
engine or not, shall constitute a train within their meaning of clause three of this section, and
whoever, as part of his duty for the time being, physically controls or directs the movements of
a signal, switch, locomotive engine, or train shall be deemed to be a person in charge or control
of a signal, switch, locomotive engine, or train within the meaning of said clause.
SEC. 2. If, as the result of the negligence of the employer or that of a person for whose
negligence the employer is liable under the provisions of section one, an employee is killed or
dies by reason of injuries received, his widow, or legal heirs, or next of kin who at the time of
his death were dependent upon his wages for support, shall have a right of action for damages
against the employer.
SEC. 3. If, under the provisions of this Act, damages are awarded for the death, they shall be
assessed with reference to the degree of culpability of the employer or of the person for whose
negligence the employer is liable.
The amount of damages which may be awarded in an action under the provisions of section one
for a personal injury to an employee, in which no damages for his death are awarded under the
provisions of section two, shall not exceed two thousand pesos.
The amount damages which may be awarded in such action, if damages for his death are
awarded under the provisions of section two, shall not be less than five thousand pesos nor more
than two thousand five hundred pesos for both the injury and the death.
SEC. 4. No action for damages for injuries or death under this Act shall be maintained if a
report thereof is not furnished to the employer within ninety days of the date, place, and cause
of the injury or in the action is not brought within one year from the time of the accident
causing the injury or death. The report required by this section shall be made in writing and
signed by the person injured or by another in his name, or if, on account of physical or mental
disability, it is impossible for the person injured to give the notice within the time provided by
this section, the same may be given within ten days after such disability shall have been
removed, and in case of death without said report having been given and without the person
having for ten days at any time after the period above mentioned been able to give such notice,
the widow, legal heirs, or next of kin dependent upon his wages for support, may give such
notice within thirty days following the death of the laborer. No report given under the provisions
of this Act shall be considered void or insufficient by reason only of some inaccuracy sa regards
the date, place, or cause of the injury, if there was no intention to mislead or the employer has
not been misled by reason of such inaccuracy.
SEC. 5. All actions for damages which may be brought under this Act shall have preference
over all other matters save and except criminal cases and habeas corpus matters on the dockets
of the courts of first instance, and shall be promptly tried by the court and decided within fifteen
days after final submission of the case to the court for decision.
On application to the court by the party injured or by his duly authorized representatives, the
court may make a proper allowance for food and medical attendance during the pendency of the
action and while medical attendance is till necessary by reason of the injury: Provided, however,
That the defendant in the action shall be given an opportunity to be heard before any such
allowance is made.
SEC. 6. If an employer enters into a contract, written or verbal, with an independent contractor
to do part of such employer's work, or if such contractor enters into a contract with a
subcontractor to do all or any part of the work comprised in such contractor's contract with the
employer, such contract or subcontract shall not bar the liability of the employer for injuries to
the employees of such contractor or subcontractor caused by any defect in the condition of the
ways, works, machinery, or plant, if they are the property of the employer or are furnished by
him and if such defect arose or had not been discovered or remedied through the negligence of
the employer or of some person intrusted by him with the duty of seeing that they were in
proper condition.
SEC. 7. An employer who shall have contributed to an insurance fund created and maintained
for the mutual purpose of indemnifying an employee for personal injuries for which
compensation may be recovered under the provisions of this Act or who shall have contributed
to any relief society for the same purpose may prove in mitigation of the damages recoverable
by an employee under the provisions of this Act such proportion of the pecuniary benefit which
has been received by such employee from any fund or society on account of such contribution
of said employer as the contribution of such employer to such fund or society bears to the whole
contribution thereto.
SEC. 8. An employee or his legal representatives shall not be entitled under the provisions of
this Act to any right of action for damages against his employer if such employee knew of the
defect or negligence which caused the injury and failed within a reasonable time to give or
cause to be given information thereof to the employer or to some person superior to himself in
the service of the employer who was intrusted with general superintendence.
SEC. 9. This Act shall not be applicable to domestic servants or agricultural laborers.
SEC. 10. Any agreement to renounce the benefits of this Act made by the laborer prior to the
occurrence of any accident resulting in his injury or death shall be null and void.
SEC. 11. This Act shall take effect on its passage.
Enacted, June 19, 1908.
2 This principle was expressly applied in the recent case of Dharamdas vs. Haroomall (35 Phil.
Rep., 183), where the headnote reads:
"Where a statute deals exclusively with the principles touching the liability of persons in a
specified class of cases it will not be held to affect the law of the land governing damages
applicable in such cases when liability has been established."
In the body of the opinion the court said:
"This, as will be seen at a glance, simply confers the right to bring a civil action to obtain the
relief which, formerly, could be secured only in a criminal action. No rule or measure of
damages is laid down by the Act; and the statute having for its only purpose the giving of an
`additional remedy' and not revoking, repealing or modifying `any other civil remedy which the
 existing law may afford,' affects in no way the law of the land relating to the rule or measure of
damages in such cases. The statute really affects method only. It does not interfere with the
substantive law. The right always existed in all cases. The statute simply offers another method
of making that right effective. The nature of the right and the results flowing therefrom, both
criminally and civilly, are unaffected by the Act."
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 77648 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and ONG TENG, respondents.
G.R. No. 77647 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and EDERLINA NAVALTA, respondents.
G.R. No. 77649 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and JOSE LIWANAG, respondents.
G.R. No. 77650 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and LEANDRO CANLAS, respondents.
G.R. No. 77651 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and VICTORIA SUDARIO respondents.
G.R. No.77652 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and FLORA NAGBUYA respondents.

MEDIALDEA, J.:
This is a petition for review on certiorari of the decision dated January 30, 1987 of the Court of
Appeals in CA-GR Nos. SP-07945-50 entitled, "Cetus Development, Inc., Petitioner vs. Hon.
Conrado T. Limcaoco, Presiding Judge, Regional Trial Court of Manila, Branch Ederlina
Navalta, et. al., respondents.
The following facts appear in the records:
The private respondents, Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas,
Victoria Sudario, and Flora Nagbuya were the lessees of the premises located at No. 512
Quezon Boulevard, Quiapo, Manila, originally owned by the Susana Realty. These individual
verbal leases were on a month-to month basis at the following rates: Ederlina Navalta at the
rate of P80.50; Ong Teng at the rate of P96.10; Jose Liwanag at the rate of P40.35; Leandro
Canlas at the rate of P80.55; Victoria Sudario at the rate of P50.45 and Flora Nagbuya at the
rate of P80.55. The payments of the rentals were paid by the lessees to a collector of the
Susana Realty who went to the premises monthly.
Sometime in March, 1984, the Susana Realty sold the leased premises to the petitioner,
Cetus Development, Inc., a corporation duly organized and existing under the laws of the
Philippines. From April to June, 1984, the private respondents continued to pay their monthly
rentals to a collector sent by the petitioner. In the succeeding months of July, August and
September 1984, the respondents failed to pay their monthly individual rentals as no collector
came.
On October 9, 1984, the petitioner sent a letter to each of the private respondents demanding
that they vacate the subject premises and to pay the back rentals for the months of July,
August and September, 1984, within fifteen (15) days from the receipt thereof. Immediately
upon the receipt of the said demand letters on October 10, 1984, the private respondents paid
their respective arrearages in rent which were accepted by the petitioner subject to the
unilateral condition that the acceptance was without prejudice to the filing of an ejectment suit.
Subsequent monthly rental payments were likewise accepted by the petitioner under the
same condition.
For failure of the private respondents to vacate the premises as demanded in the letter dated
October 9, 1984, the petitioner filed with the Metropolitan Trial Court of Manila complaints for
ejectment against the manner, as follows: (1) 105972-CV, against Ederlina Navalta (2)
105973-CV, against Jose Liwanag; (3) 105974-CV, against Flora Nagbuya; (4) 105975-CV,
against Leandro Canlas; (5) 105976-CV, against Victoria Sudario and (6) 105977-CV, against
Ong Teng.
In their respective answers, the six (6) private respondents interposed a common defense.
They claimed that since the occupancy of the premises they paid their monthly rental
regularly through a collector of the lessor; that their non-payment of the rentals for the months
of July, August and September, 1984, was due to the failure of the petitioner (as the new
owner) to send its collector; that they were at a loss as to where they should pay their rentals;
that sometime later, one of the respondents called the office of the petitioner to inquire as to
where they would make such payments and he was told that a collector would be sent to
receive the same; that no collector was ever sent by the petitioner; and that instead they
received a uniform demand letter dated October 9, 1984.
The private respondents, thru counsel, later filed a motion for consolidation of the six cases
and as a result thereof, the said cases were consolidated in the Metropolitan Trial Court of
Manila, Branch XII, presided over by Judge Eduardo S. Quintos, Jr. On June 4, 1985, the trial
court rendered its decision dismissing the six cases, a pertinent portion of which reads, as
follows:
The records of this case show that at the time of the filing of this complaint, the
rentals had all been paid. Hence, the plaintiff cannot eject the defendants from
the leased premises, because at the time these cases were instituted, there are
no rentals in arrears.
The acceptance of the back rental by the plaintiff before the filing of the
complaint, as in these case, the alleged rental arrearages were paid immediately
after receipt of the demand letter, removes its cause of action in an unlawful
detainer case, even if the acceptance was without prejudice.
x x x.
Furthermore, the court has observed that the account involved which constitutes
the rentals of the tenants are relatively small to which the ejectment may not lie
on grounds of equity and for humanitarian reasons.
Defendants' counterclaim for litigation expenses has no legal and factual basis
for assessing the same against plaintiff.
WHEREFORE, judgment is hereby rendered dismissing these cases, without
pronouncement as to costs.
Defendants' counterclaim is likewise dismissed.
SO ORDERED. (pp. 32-33, Rollo, G.R. No. 77647)
Not satisfied with the decision of the Metropolitan Trial Court, the petitioner appealed to the
Regional Trial Court of Manila and the same was assigned to Branch IX thereof presided over
by Judge Conrado T. Limcaoco (now Associate Justice of the Court of Appeals).lwph1.t In
its decision dated November 19, 1985, the Regional Trial Court dismissed the appeal for lack
of merit.
In due time, a petition for review of the decision of the Regional Trial Court was filed by the
petitioner with the Court of Appeals. Said petition was dismissed on January 30, 1987, for lack
of merit.
Aggrieved by the decision of the Court of Appeals, petitioner now comes to Us in this petition,
assigning the following errors:
ASSIGNMENT OF ERRORS
I
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION, AMOUNTING TO LACK OF JURISDICTION, WHEN IT ERRED
IN HOLDING THAT THE CAUSE OF ACTION FOR UNLAWFUL DETAINER IN
THESE CASES DID NOT EXIST WHEN THE COMPLAINTS WERE FILED
BECAUSE PRIVATE RESPONDENTS TENDERED, AND PETITIONER
ACCEPTED, THE PAYMENT OF THE THREE (3) MONTHS RENTAL IN
ARREARS WITHIN THE FIFTEEN (15) DAY PERIOD FROM PRIVATE
RESPONDENTS' RECEIPT OF PETITIONER'S DEMAND LETTERS TO
VACATE THE SUBJECT PREMISES AND TO PAY THE RENTALS IN
ARREARS.
II
RESPONDENT COURT OF APPEALS COMMITTED A GRAVEABUSE OF
DISCRETION, AMOUNTING TO LACK OF JURISDICTION COMMITTED A
GRAVE WHEN IT ERRED IN AFFIRMING THE DISMISSAL OF THE
COMPLAINTS IN THESE CASES NOTWITHSTANDING THE EXISTENCE OF
VALID GROUNDS FOR THE JUDICIAL EJECTMENT OF PRIVATE
RESPONDENT.
III
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION, AMOUNTING TO LACK OF JURISDICTION, WHEN IT ERRED
IN HOLDING THAT THESE CASES ARE CLASSIC EXAMPLES TO
CIRCUMVENT THE RENT CONTROL LAW. (pp. 164-165, Rollo, G.R. No.
77647)
The Court of Appeals defined the basic issue in this case as follows: whether or not there
exists a cause of action when the complaints for unlawful detainer were filed considering the
fact that upon demand by petitioner from private respondents for payment of their back
rentals, the latter immediately tendered payment which was accepted by petitioner.
In holding that there was no cause of action, the respondent Court relied on Section 2, Rule
70 of the Rules of Court, which provides:
Sec. 2. Landlord to proceed against tenant only after demand. No landlord or
his legal representative or assign, shall be such action against a tenant for
failure to pay rent due or to comply with the conditions of his lease, unless the
tenant shall have failed to pay such rent or comply with such conditions for a
period of fifteen (15) days or five (5) days in case of building, after demand
 therefor, made upon qqqm personally, or by serving written notice of such
demand upon the person found on the premises, or by posting such notice on
the premises if no persons be found thereon.
It interpreted the said provision as follows:
.....the right to bring an action of ejectment or unlawful detainer must be counted
from the time the defendants failed to pay rent after the demand therefor. It is
not the failure per se to pay rent as agreed in the contract, but the failure to pay
the rent after a demand therefor is made, that entitles the lessor to bring an
action for unlawful detainer. In other words, the demand contemplated by the
above-quoted provision is not a demand to vacate, but a demand made by the
landlord upon his tenant for the latter to pay the rent due if the tenant fails to
comply with the said demand with the period provided, his possession becomes
unlawful and the landlord may then bring the action for ejectment. (p. 28, , G.R.
No. 77647)
We hold that the demand required and contemplated in Section 2, aforequoted, is a
jurisdictional requirement for the purpose of bringing an unlawful detainer suit for failure to
pay rent or comply with the conditions of lease. It partakes of an extrajudicial remedy that
must be pursued before resorting for judicial action so much so that when there is full
compliance with the demand, there arises no necessity for court action.
As to whether this demand is merely a demand to pay rent or comply with the conditions of
the lease or also a demand to vacate, the answer can be gleaned from said Section 2. This
section presupposes the existence of a cause of action for unlawful detainer as it speaks of
"failure to pay rent due or comply with the conditions of the lease." The existence of said
cause of action gives the lessor the right under Article 1659 of the New Civil Code to ask for
the rescission of the contract of lease and indemnification for damages, or only the latter,
allowing the contract to remain in force. Accordingly, if the option chosen is for specific
performance, then the demand referred to is obviously to pay rent or to comply with the
conditions of the lease violated. However, if rescission is the option chosen, the demand must
be for the lessee to pay rents or to comply with the conditions of the lease and to vacate.
Accordingly, the rule that has been followed in our jurisprudence where rescission is clearly
the option taken, is that both demands to pay rent and to vacate are necessary to make a
lessee a deforciant in order that an ejectment suit may be filed (Casilan et al. vs. Tomassi, L-
16574, February 28,1964, 10 SCRA 261; Rickards vs. Gonzales, 109 Phil. 423, Dikit vs.
Icasiano, 89 Phil. 44).lwph1.t
Thus, for the purpose of bringing an ejectment suit, two requisites must concur, namely: (1)
there must be failure to pay rent or comply with the conditions of the lease and (2) there must
be demand both to pay or to comply and vacate within the periods specified in Section 2, Rule
70, namely 15 days in case of lands and 5 days in case of buildings. The first requisite refers
to the existence of the cause of action for unlawful detainer while the second refers to the
jurisdictional requirement of demand in order that said cause of action may be pursued.
It is very clear that in the case at bar, no cause of action for ejectment has accrued. There
was no failure yet on the part of private respondents to pay rents for three consecutive
months. As the terms of the individual verbal leases which were on a month-to-month basis
were not alleged and proved, the general rule on necessity of demand applies, to wit: there is
default in the fulfillment of an obligation when the creditor demands payment at the maturity of
the obligation or at anytime thereafter. This is explicit in Article 1169, New Civil Code which
provides that "(t)hose 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."
Petitioner has not shown that its case falls on any of the following exceptions where demand
is not required: (a) when the obligation or the law so declares; (b) when from the nature and
circumstances of the obligation it can be inferred that time is of the essence of the contract;
and (c) when demand would be useless, as when the obligor has rendered it beyond his
power to perform.
The demand required in Article 1169 of the Civil Code may be in any form, provided that it can
be proved. The proof of this demand lies upon the creditor. Without such demand, oral or
written, the effects of default do not arise. This demand is different from the demand required
under Section 2, Rule 70, which is merely a jurisdictional requirement before an existing
cause of action may be pursued.
The facts on record fail to show proof that petitioner demanded the payment of the rentals
when the obligation matured. Coupled with the fact that no collector was sent as previously
done in the past, the private respondents cannot be held guilty of mora solvendi or delay in
the payment of rentals. Thus, when petitioner first demanded the payment of the 3-month
arrearages and private respondents lost no time in making tender and payment, which
petitioner accepted, no cause of action for ejectment accrued. Hence, its demand to vacate
was premature as it was an exercise of a non-existing right to rescind.
In contradistinction, where the right of rescission exists, payment of the arrearages in rental
after the demand to pay and to vacate under Section 2, Rule 70 does not extinguish the
cause of action for ejectment as the lessor is not only entitled to recover the unpaid rents but
also to eject the lessee.
Petitioner correctly argues that acceptance of tendered payment does not constitute a waiver
of the cause of action for ejectment especially when accepted with the written condition that it
was "without prejudice to the filing of an ejectment suit". Indeed, it is illogical or ridiculous not
to accept the tender of payment of rentals merely to preserve the right to file an action for
unlawful detainer. However, this line of argument presupposes that a cause of action for
ejectment has already accrued, which is not true in the instant case.
Petitioner likewise claims that its failure to send a collector to collect the rentals cannot be
considered a valid defense for the reason that sending a collector is not one of the obligations
of the lessor under Article 1654. While it is true that a lessor is not obligated to send a
collector, it has been duly established that it has been customary for private respondents to
pay the rentals through a collector. Besides Article 1257, New Civil Code provides that where
no agreement has been designated for the payment of the rentals, the place of payment is at
the domicile of the defendants. Hence, it could not be said that they were in default in the
payment of their rentals as the delay in paying the same was not imputable to them. Rather, it
was attributable to petitioner's omission or neglect to collect.
Petitioner also argues that neither is its refused to accept the rentals a defense for non-
payment as Article 1256 provides that "[i]f the creditor to whom the tender of payment has
been made refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing due." It bears emphasis that in this case there
was no unjustified refusal on the part of petitioner or non-acceptance without reason that
would constitute mora accipiendi and warrant consignation. There was simply lack of demand
for payment of the rentals.
In sum, We hold that respondent Court of Appeals did not commit grave abuse of discretion
amounting to lack of jurisdiction in its conclusion affirming the trial court's decision dismissing
petitioner's complaint for lack of cause of action. We do not agree, however, with the reasons
relied upon.
ACCORDINGLY, the petition for review on certiorari is hereby DENIED for lack of merit and
the decision dated January 30, 1987 of respondent Court of Appeals is hereby AFFIRMED.
SO ORDERED.
Narvasa, Cruz, Gancayco and Gri;o-Aquino JJ., concur.

FIRST DIVISION

[G.R. No. 4045. August 23, 1909. ]

ILDEFONSO DORONILA, Plaintiff-Appellee, v. GRACIANO GONZAGA, Defendant-Appellant.

Jose Lopez Vito for Appellant.

Montinola & De la Rama for Appellee.

SYLLABUS

1. ACCOUNT; ACTION TO RECOVER; INTEREST. D. became the owner of an account of L. v.

G., by virtue of an agreement by which he (D.) paid to the heirs of L. the amount of said account. D.
was the tutor of the heirs of L. and was managing the estate of the said heirs: Held, That D. was entitled
to recover the amount of said account with interest from the date of the demand for payment, which
was the commencement of the present action. When a contract contains no provision for the payment of
interest (art. 1755, Civil Code) no interest can be collected thereon until a judicial or extrajudicial
demand has been made. (Art. 1100, Civil Code.)

DECISION

JOHNSON, J. :

It appears from the record that some time prior to the commencement of this action the plaintiff herein
had been tutor of the minor heirs of one Pablo Ledesma (see Doronila v. Lopez, 3 Phil. Rep., 360;
Jalbuena v. Ledesma, 8 Phil. Rep., 601; Ledesma v. Doronila, 9 Phil. Rep., 119); that, after Doronila
had administered the property of said minor heirs for a number of years, a settlement was made
between him and the said minor heirs, which was acceded to and accepted by the family council, by
which agreement he (Doronila) became obligated to pay to the said minor heirs a certain sum covering
all of his obligation to the said minor heirs, by virtue of his management of their estate; that, by virtue
of this agreement, Doronila became the owner of all the accounts uncollected in favor of the estate of
the said Pablo Ledesma.

It appears that among the accounts of which the said Doronila became the owner by virtue of his
settlement with the said minor heirs, was the account upon which the present action is based. This
action was brought in the month of May, 1905.

After hearing the evidence adduced during the trial of the cause, the lower court rendered a judgment in
favor of the plaintiff and against the defendant for the sum of P5,117.55 and costs. From this judgment
the defendant duly excepted and presented a motion for a new trial in the lower court, which was
denied; to which ruling the defendant also excepted.

The defendant presents three assignments of error in this court. They are as
follows:jgc:chanrobles.com.ph

"1. The court below erred in considering that the plaintiff had legal capacity to bring the present action
against the defendant.

"2. The court below erred in holding that the defendant is indebted capacity to bring the present action
against the defendant.

"3. The court below erred in sentencing the defendant to pay the legal interest on the capital of
P3,208.50 from January 1, 1897."cralaw virtua1aw library

While the defendant presented a motion for a new trial in the lower court, he has not brought the proof
to this court. In our conclusion, therefore, we are governed by the facts stated in the decision of the
lower court, for the reason that the defendant filed, among his other defenses, a general denial.

The lower court in its decision made the following findings:jgc:chanrobles.com.ph

"In view of all the evidence offered in this case I fine that, at the time of the death of Ledesma, the sum
of P3,208.50 was due his estate. This balance had never been paid, and was due the estate together with
interest thereon at the rate of 6 per cent from the 1st of January, 1897, making a grand total of
P5,117.55 on December 1, 1900.

"Inasmuch as the papers were lost by the plaintiff in the manner mentioned above, he was required to
account for the property received by him as guardian of the heirs. Extensive litigation followed before
the superior provost court under the military government of the United States in these Islands, which
practically resulted in a settlement of the claim of the estate against the plaintiff herein, as shown by
Exhibit 1 which is attached to the record. Under the conditions of said settlement the plaintiff agreed to
pay to said estate the sum of P16,000 in order to extinguish his liability. Said agreement was made by
the president of the family council who, in accordance with the Spanish regulations, had charge of the
settlement. It was subsequently approved by the superior provost court, and since the inauguration of
the civil government has been ratified in a suit in connection with said Exhibit 1 which resulted in a
judgment in favor of the said estate for the amount stipulated in said agreement, together with interest
thereon.

"At the trial of the case the defendant alleged that the plaintiff had no legal capacity to bring this action,
because the said president of the family council had no authority to enter into such an agreement, but I
believe that the actions of the representatives of the estate have repeatedly ratified the said agreement,
even though the president of the family council had no authority to make it, and that this defendant is
so connected with the events that he is not entitled to question the legal capacity of this plaintiff to
maintain an action against him."cralaw virtua1aw library

With reference to the first assignment of error to wit, that the court committed an error in deciding
that the plaintiff was the proper person to bring the present action it appears that the lower court
held that the agreement above referred to, by which the plaintiff became the owner of the account upon
which the present action was based, was agreed to an accepted not only by the heirs of Pablo Ledesma,
but also by the family council. By this agreement the account was transferred to and became the
property of the plaintiff herein, he having settled his responsibility to the heirs by paying an amount
agreed upon. He being the owner, therefore, by reason of this agreement, he certainly was entitled to
maintain an action to cover the said account. The lower court, therefore, committed no error in holding
that the plaintiff was the proper party to maintain the present action.

With reference to the second assignment of error to wit, that the lower court committed an error in
deciding that the defendant was indebted to the plaintiff in the sum of P3,208.50 the lower court
made an express finding upon this question in the first paragraph of the decision above quoted. The
appellant not having brought the evidence to this court, we are bound by this finding of fact.

With reference to the third assignment of error to wit, that the lower court committed an error in
rendering a judgment against the defendant for the payment of interest upon the said amount of
P3,208.50, from the 1st of January, 1897 we are of the opinion, and so hold, that there are no facts in
the decision to justify this conclusion. Under the provisions of the Civil Code, the contract itself
containing no provision for the payment of interest, no interest could be collected upon the same until
after a judicial or extrajudicial demand had been made for the payment of the same. (Arts. 1755 and
1100, Civil Code; Manresas Commentaries on the Civil Code, vol. 8, page 56; La Compaia General
de Tabacos de Filipinas v. Araza, 7 Phil. Rep., 455.)

In the present case it does not appear that the account bore interest; neither does it appear that there was
any judicial or extrajudicial demand made for the payment of the same until the commencement of the
present action, which was in the month of May, 1905. Therefore the plaintiff is not entitled to interest
for any period prior to the demand made by the commencement of the present action. (Bautista v.
Calixto, 7 Phil. Rep., 733.)

The facts set out by the judge in his decision are not sufficient, therefore, to justify his conclusion that
the plaintiff was entitled to interest upon the said amount of P3, 208.50, from the 1st of January, 1897.

The judgment of the lower court is, therefore, hereby modified, and it is hereby directed that a
judgment be entered in favor of the plaintiff and against the defendant for the sum of P3,208.50, with
interest at the rate of 6 per cent per annum, from the 31st day of May, 1905, and costs.

Arellano, C.J., Torres, Carson and Moreland, JJ., concur.

Synopsis/Syllabi
SECOND DIVISION
[G.R. No. 108129. September 23, 1999]
AEROSPACE CHEMICAL INDUSTRIES, INC., petitioner, vs. COURT OF APPEALS, PHILIPPINE
PHOSPHATE FERTILIZER, CORP., respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision[1] dated August 19, 1992, of the Court of Appeals, which
set aside the judgment of the Regional Trial Court of Pasig, Branch 151. The case stemmed from a
complaint filed by the buyer (herein petitioner) against the seller (private respondent) for alleged
breach of contract. Although petitioner prevailed in the trial court, the appellate court reversed and
instead found petitioner guilty of delay and therefore liable for damages, as follows:
WHEREFORE, the Decision of the court a quo is SET ASIDE and a new one rendered, dismissing the
complaint with costs against the plaintiff (herein petitioner) and, on the counterclaim, ordering the
plaintiff Aerospace Chemical Industries, Inc. to pay the defendant, Philippine Phosphate Fertilizer
Corporation the sum of P324,516.63 representing the balance of the maintenance cost and tank rental
charges incurred by the defendant for the failure of the plaintiff to haul the rest of the sulfuric acid on
the designated date.
Costs against plaintiff-appellee.[2]
As gleaned from the records, the following are the antecedents:
On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred (500)
metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation
(Philphos). The contract[3] was in letter-form as follows:
27 June 1986
AEROSPACE INDUSTRIES INC.
203 E. Fernandez St.
San Juan, Metro Manila
Attention : Mr. Melecio Hernandez
Manager.
Subject : Sulfuric Acid Shipment
Gentlemen:
This is to confirm our agreement to supply your Sulfuric Acid requirement under the following terms
and conditions:
A. Commodity : Sulfuric Acid in Bulk
B. Concentration : 98-99% H2SO4
C. Quantity : 500MT -100 MT Ex-Basay
400 MT Ex-Sangi
D. Price : US$50.00/MT - FOB Cotcot, Basay, Negros Or.
US$54.00/MT - FOB Sangi, Cebu
E. Payment : Cash in Philippine currency payable to Philippine Phosphate Fertilizer
Corp. (MAKATI) at PCIB selling rate at the time of payment at least five (5) days prior to shipment
date
F. Shipping Conditions
1. Laycan : July
2. Loadport : Cotcot, Basay, Negros Or. and
Atlas Pier, Sangi, Cebu
xxx
11. Other terms and Conditions: To be mutually agreed upon.
Very truly yours,
Philippine Phosphate Fertilizer Corp.
Signed: Herman J. Rustia
Sr. Manager, Materials & Logistics
CONFORME:
AEROSPACE INDUSTRIES, INC.
Signed: Mr. Melecio Hernandez
Manager
Initially set beginning July 1986, the agreement provided that the buyer shall pay its purchases in
equivalent Philippine currency value, five days prior to the shipment date. Petitioner as buyer
committed to secure the means of transport to pick-up the purchases from private respondents
loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be taken from
Basay, Negros Oriental storage tank, while the remaining four hundred metric tons (400 MT) should be
retrieved from Sangi, Cebu.
On August 6, 1986, private respondent sent an advisory letter[4] to petitioner to withdraw the sulfuric
acid purchased at Basay because private respondent had been incurring incremental expense of two
thousand (P2,000.00) pesos for each day of delay in shipment.
On October 3, 1986, petitioner paid five hundred fifty-three thousand, two hundred eighty
(P553,280.00) pesos for 500 MT of sulfuric acid.
On November 19, 1986, petitioner chartered M/T Sultan Kayumanggi, owned by Ace Bulk Head
Services. The vessel was assigned to carry the agreed volumes of freight from designated loading
areas. M/T Kayumanggi withdrew only 70.009 MT of sulfuric acid from Basay because said vessel
heavily tilted on its port side. Consequently, the master of the ship stopped further loading. Thereafter,
the vessel underwent repairs.
In a demand letter[5] dated December 12, 1986, private respondent asked petitioner to retrieve the
remaining sulfuric acid in Basay tanks so that said tanks could be emptied on or before December 15,
1986. Private respondent said that it would charge petitioner the storage and consequential costs for
the Basay tanks, including all other incremental expenses due to loading delay, if petitioner failed to
comply.
On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51
MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two survey reports
conducted by the Societe Generale de Surveillance (SGS) Far East Limited, dated December 17, 1986
and January 2, 1987, attested to these occurrences.
Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of
sulfuric acid on board.
Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT.[6] On
January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to
private respondent, concerning additional orders of sulfuric acid to replace its sunken purchases, which
letters are hereunder excerpted:
January 26, 1987
xxx
We recently charter another vessel M/T DON VICTOR who will be authorized by us to lift the
balance approximately 272.49 MT.
We request your goodselves to grant us for another Purchase Order with quantity of 227.51 MT and we
are willing to pay the additional order at the prevailing market price, provided the lifting of the total
500 MT be centered/confined to only one safe berth which is Atlas Pier, Sangi, Cebu.[7]
March 20, 1987
This refers to the remaining balance of the above product quantity which were not loaded to the
authorized cargo vessel, M/T Sultan Kayumanggi at your loadport - Sangi, Toledo City.
Please be advised that we will be getting the above product quantity within the month of April 1987
and we are arranging for a 500 MT Sulfuric Acid inclusive of which the remaining balance: 272.49
MT an additional product quantity thereof of 227.51 MT.[8]
Petitioners letter[9] dated May 15, 1987, reiterated the same request to private respondent.
On January 25, 1988, petitioners counsel, Atty. Pedro T. Santos, Jr., sent a demand letter[10] to private
respondent for the delivery of the 272.49 MT of sulfuric acid paid by his client, or the return of the
purchase price of three hundred seven thousand five hundred thirty (P307,530.00) pesos. Private
respondent in reply,[11] on March 8, 1988, instructed petitioner to lift the remaining 30 MT of sulfuric
acid from Basay, or pay maintenance and storage expenses commencing August 1, 1986.
On July 6, 1988, petitioner wrote another letter, insisting on picking up its purchases consisting of
272.49 MT and an additional of 227.51 MT of sulfuric acid. According to petitioner it had paid the
chartered vessel for the full capacity of 500 MT, stating that:
With regard to our balance of sulfuric acid - product at your shore tank/plant for 272.49 metric ton that
was left by M/T Sultana Kayumanggi due to her sinking, we request for an additional quantity of
227.51 metric ton of sulfuric acid, 98% concentration.
The additional quantity is requested in order to complete the shipment, as the chartered vessel schedule
to lift the high grade sulfuric acid product is contracted for her full capacity/load which is 500 metric
tons more or less.
We are willing to pay the additional quantity - 227.51 metric tons high grade sulfuric acid in the
prevailing price of the said product.[12]
xxx
By telephone, petitioner requested private respondents Shipping Manager, Gil Belen, to get its
additional order of 227.51 MT of sulfuric acid at Isabel, Leyte.[13] Belen relayed the information to his
associate, Herman Rustia, the Senior Manager for Imports and International Sales of private
respondent. In a letter dated July 22, 1988, Rustia replied:
Subject: Sulfuric Acid Ex-Isabel
Gentlemen:
Confirming earlier telcon with our Mr. G.B. Belen, we regret to inform you that we cannot
accommodate your request to lift Sulfuric Acid ex-Isabel due to Pyrite limitation and delayed arrival of
imported Sulfuric Acid from Japan.[14]
On July 25, 1988, petitioners counsel wrote to private respondent another demand letter for the
delivery of the purchases remaining, or suffer tedious legal action his client would commence.
On May 4, 1989, petitioner filed a complaint for specific performance and/or damages before the
Regional Trial Court of Pasig, Branch 151. Private respondent filed its answer with counterclaim,
stating that it was the petitioner who was remiss in the performance of its obligation in arranging the
shipping requirements of its purchases and, as a consequence, should pay damages as computed below:
Advanced Payment by Aerospace (Oct. 3, 1986) P553,280.00
Less Shipments
70.009 MT sulfuric acid P 72,830.36
151.51 MT sulfuric acid 176,966.27 (249,796.63)
Balance P303,483.37
Less Charges
Basay Maintenance Expense
from Aug. 15 to Dec. 15, 1986
(P2,000.00/day x 122 days) P244,000.00
Sangi - Tank Rental
from Aug. 15, 1986 to Aug. 15, 1987
(P32,000.00/mo. x 12 mos.) 384,000.00 (628,000.00)
Receivable/Counterclaim (P324,516.63)
Trial ensued and after due proceedings, judgment was rendered by the trial court in petitioners favor,
disposing as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant, directing the
latter to pay the former the following sums:
1. P306,060.77 - representing the value of the undelivered 272.49 metric tons of sulfuric acid plaintiff
paid to defendant;
2. P91,818.23 - representing unrealized profits, both items with 12% interest per annum from May 4,
1989, when the complaint was filed until fully paid;
3. P30,000.00 - as exemplary damages; and
4. P30,000.00 - as attorneys fees and litigation expenses, both last items also with 12% interest per
annum from date hereof until fully paid.
Defendants counterclaims are hereby dismissed for lack of merit.
Costs against defendant.[15]
In finding for the petitioner, the trial court held that the petitioner was absolved in its obligation to pick-
up the remaining sulfuric acid because its failure was due to force majeure. According to the trial
court, it was private respondent who committed a breach of contract when it failed to accommodate the
additional order of the petitioner, to replace those that sank in the sea, thus:
To begin with, even if we assume that it is incumbent upon the plaintiff to lift the sulfuric acid it
ordered from defendant, the fact that force majeure intervened when the vessel which was previouly
(sic) listing, but which the parties, including a representative of the defendant, did not mind, sunk, has
the effect of absolving plaintiff from lifting the sulfuric acid at the designated load port. But even
assuming the plaintiff cannot be held entirely blameless, the allegation that plaintiff agreed to a
payment of a 2,000-peso incremental expenses per day to defendant for delayed lifting has not been
proven. ...
Also, if it were true that plaintiff is indebted to defendant, why did defendant accept a second additional
order after the transaction in litigation? Why also, did defendant not send plaintiff statements of
account until after 3 years?
All these convince the Court that indeed, defendant must return what plaintiff has paid it for the goods
which the latter did not actually receive.[16]
On appeal by private respondent, the Court of Appeals reversed the decision of the trial court, as
follows:
Based on the facts of this case as hereinabove set forth, it is clear that the plaintiff had the obligation
to withdraw the full amount of 500 MT of sulfuric acid from the defendants loadport at Basay and
Sangi on or before August 15, 1986. As early as August 6, 1986 it had been accordingly warned by the
defendant that any delay in the hauling of the commodity would mean expenses on the part of the
defendant amounting to P2,000.00 a day. The plaintiff sent its vessel, the M/T Sultan Kayumanggi,
only on November 19, 1987. The vessel, however, was not capable of loading the entire 500 MT and
in fact, with its load of only 227.519 MT, it sank.
Contrary to the position of the trial court, the sinking of the M/T Sultan Kayumanggi did not absolve
the plaintiff from its obligation to lift the rest of the 272.481 MT of sulfuric acid at the agreed time. It
was the plaintiffs duty to charter another vessel for the purpose. It did contract for the services of a
new vessel, the M/T Don Victor, but did not want to lift the balance of 272.481 MT only but insisted
that its additional order of 227.51 MT be also given by the defendant to complete 500 MT. apparently
so that the vessel may be availed of in its full capacity.
xxx
We find no basis for the decision of the trial court to make the defendant liable to the plaintiff not only
for the cost of the sulfuric acid, which the plaintiff itself failed to haul, but also for unrealized profits as
well as exemplary damages and attorneys fees.[17]
Respondent Court of Appeals found the petitioner guilty of delay and negligence in the performance of
its obligation. It dismissed the complaint of petitioner and ordered it to pay damages representing the
counterclaim of private respondent.
The motion for reconsideration filed by petitioner was denied by respondent court in its Resolution
dated December 21, 1992, for lack of merit.
Petitioner now comes before us, assigning the following errors:
I.
RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT TO
HAVE COMMITTED A BREACH OF CONTRACT WHEN IT IS NOT DISPUTED THAT
PETITIONER PAID IN FULL THE VALUE OF 500 MT OF SULFURIC ACID TO PRIVATE
RESPONDENT BUT THE LATTER WAS ABLE TO DELIVER TO PETITIONER ONLY 227.51
M.T.
II.
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING PETITIONER LIABLE
FOR DAMAGES TO PRIVATE RESPONDENT ON THE BASIS OF A XEROX COPY OF AN
ALLEGED AGREEMENT TO HOLD PETITIONER LIABLE FOR DAMAGES FOR THE DELAY
WHEN PRIVATE RESPONDENT FAILED TO PRODUCE THE ORIGINAL IN CONTRAVENTION
OF THE RULES ON EVIDENCE.
III.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO CONSIDER THE UNDISPUTED
FACTS THAT PETITIONERS PAYMENT FOR THE GOODS WAS RECEIVED BY PRIVATE
RESPONDENT WITHOUT ANY QUALIFICATION AND THAT PRIVATE RESPONDENT
ENTERED INTO ANOTHER CONTRACT TO SUPPLY PETITIONER 227.519 MT OF SULFURIC
ACID IN ADDITION TO THE UNDELIVERED BALANCE AS PROOF THAT ANY DELAY OF
PETITIONER WAS DEEMED WAIVED BY SAID ACTS OF RESPONDENT.
IV.
RESPONDENT COURT OF APPEALS ERRED IN NOT CONSIDERING THE LAW THAT WHEN
THE SALE INVOLVES FUNGIBLE GOODS AS IN THIS CASE THE EXPENSES FOR STORAGE
AND MAINTENANCE ARE FOR THE ACCOUNT OF THE SELLER (ARTICLE 1504 CIVIL
CODE).
V.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO RENDER JUDGMENT FOR
PETITIONER AFFIRMING THE DECISION OF THE TRIAL COURT.
From the assigned errors, we synthesize the pertinent issues raised by the petitioner as follows:
1. Did the respondent court err in holding that the petitioner committed breach of contract, considering
that:
a) the petitioner allegedly paid the full value of its purchases, yet received only a portion of said
purchases?
b) petitioner and private respondent allegedly had also agreed for the purchase and supply of an
additional 227.519 MT of sulfuric acid, hence prior delay, if any, had been waived?
2. Did the respondent court err in awarding damages to private respondent?
3. Should expenses for the storage and preservation of the purchased fungible goods, namely sulfuric
acid, be on sellers account pursuant to Article 1504 of the Civil Code?
To resolve these issues, petitioner urges us to review factual findings of respondent court and its
conclusion that the petitioner was guilty of delay in the performance of its obligation. According to
petitioner, that conclusion is contrary to the factual evidence. It adds that respondent court disregarded
the rule that findings of the trial court are given weight, with the highest degree of respect. Claiming
that respondent courts findings conflict with those of the trial court, petitioner prays that the trial
courts findings be upheld over those of the appellate court.
Petitioner argues that it paid the purchase price of sulfuric acid, five (5) days prior to the withdrawal
thereof, or on October 3, 1986, hence, it had complied with the primary condition set in the sales
contract. Petitioner claims its failure to pick-up the remaining purchases on time was due to a storm, a
force majeure, which sank the vessel. It thus claims exemption from liability to pay damages.
Petitioner also contends that it was actually the private respondents shipping officer, who advised
petitioner to buy the additional 227.51 MT of sulfuric acid, so as to fully utilize the capacity of the
vessel it chartered. Petitioner insists that when its ship was ready to pick-up the remaining balance of
272.49 MT of sulfuric acid, private respondent could not comply with the contract commitment due to
pyrite limitation.
While we agree with petitioner that when the findings of the Court of Appeals are contrary to those of
the trial court,[18] this Court may review those findings, we find the appellate courts conclusion that
petitioner violated the subject contract amply supported by preponderant evidence. Petitioners claim
was predicated merely on the allegations of its employee, Melecio Hernandez, that the storm or force
majeure caused the petitioners delay and failure to lift the cargo of sulfuric acid at the designated
loadports. In contrast, the appellate court discounted Hernandez assertions. For on record, the storm
was not the proximate cause of petitioners failure to transport its purchases on time. The survey report
submitted by a third party surveyor, SGS Far East Limited, revealed that the vessel, which was
unstable, was incapable of carrying the full load of sulfuric acid. Note that there was a premature
termination of loading in Basay, Negros Oriental. The vessel had to undergo several repairs before
continuing its voyage to pick-up the balance of cargo at Sangi, Cebu. Despite repairs, the vessel still
failed to carry the whole lot of 500 MT of sulfuric acid due to ship defects like listing to one side. Its
unfortunate sinking was not due to force majeure. It sunk because it was, based on SGS survey report,
unstable and unseaworthy.
Witness surveyor Eugenio Rabes incident report, dated December 13, 1986 in Basay, Negros Oriental,
elucidated this point:
Loading was started at 1500hrs. November 19. At 1600Hrs. November 20, loading operation was
temporarily stopped by the vessels master due to ships stability was heavily tilted to port side, ships
had tried to transfer the loaded acid to stbdside but failed to do so, due to their auxiliary pump on board
does not work out for acid.
xxx
Note. Attending surveyor arrived BMC Basay on November 22, due to delayed advice of said vessel
Declared quantity loaded onboard based on datas provided by PHILPHOS representative.
On November 26, two representative of shipping company arrived Basay to assist the situation, at
1300Hrs repairing and/or welding of tank number 5 started at 1000Hrs November 27, repairing and/or
welding was suspended due to the explosion of tank no. 5. Explosion ripped about two feet of the
double bottom tank.
November 27 up to date no progress of said vessel[19]
While at Sangi, Cebu, the vessels condition (listing) did not improve as the survey report therein
noted:
Declared quantity loaded on board was based on shore tank withdrawal due to ships incomplete tank
calibration table. Barge displacement cannot be applied due to ship was listing to Stboard side which
has been loaded with rocks to control her stability.[20]
These two vital pieces of information were totally ignored by trial court. The appellate court correctly
took these into account, significantly. As to the weather condition in Basay, the appellate court
accepted surveyor Rabes testimony, thus:
Q. Now, Mr. Witness, what was the weather condition then at Basay, Negros Oriental during the
loading operation of sulfuric acid on board the Sultana Kayumanggi?
A. Fair, sir.[21]
Since the third party surveyor was neither petitioners nor private respondents employee, his
professional report should carry more weight than that of Melecio Hernandez, an employee of
petitioner. Petitioner, as the buyer, was obligated under the contract to undertake the shipping
requirements of the cargo from the private respondents loadports to the petitioners designated
warehouse. It was petitioner which chartered M/T Sultan Kayumanggi. The vessel was petitioners
agent. When it failed to comply with the necessary loading conditions of sulfuric acid, it was
incumbent upon petitioner to immediately replace M/T Sultan Kayumanggi with another seaworthy
vessel. However, despite repeated demands, petitioner did not comply seasonably.
Additionally, petitioner claims that private respondents employee, Gil Belen, had recommended to
petitioner to fully utilize the vessel, hence petitioners request for an additional order to complete the
vessels 500 MT capacity. This claim has no probative pertinence nor solid basis. A party who asserts
that a contract of sale has been changed or modified has the burden of proving the change or
modification by clear and convincing evidence.[22] Repeated requests and additional orders were
contained in petitioners letters to private respondent. In contrast, Belens alleged action was only
verbal; it was not substantiated at all during the trial. Note that, using the vessel to full capacity could
redound to petitioners advantage, not the other partys. If additional orders were at the instance of
private respondent, the same must be properly proved together with its relevance to the question of
delay. Settled is the principle in law that proof of verbal agreements offered to vary the terms of
written agreements is inadmissible, under the parol evidence rule.[23] Belens purported
recommendation could not be taken at face value and, obviously, cannot excuse petitioners default.
Respondent court found petitioners default unjustified, and on this conclusion we agree:
It is not true that the defendant was not in a position to deliver the 272.481 MT which was the balance
of the original 500 MT purchased by the plaintiff. The whole lot of 500 MT was ready for lifting as
early as August 15, 1986. What the defendant could not sell to the plaintiff was the additional 227.51
MT which said plaintiff was ordering, for the reason that the defendant was short of the supply needed.
The defendant, however, had no obligation to agree to this additional order and may not be faulted for
its inability to meet the said additional requirements of the plaintiff. And the defendants incapacity to
agree to the delivery of another 227.51 MT is not a legal justification for the plaintiffs refusal to lift
the remaining 272.481.
It is clear from the plaintiffs letters to the defendant that it wanted to send the M/T Don Victor only if
the defendant would confirm that it was ready to deliver 500 MT. Because the defendant could not sell
another 227.51 MT to the plaintiff, the latter did not send a new vessel to pick up the balance of the 500
MT originally contracted for by the parties. This, inspite the representations made by the defendant for
the hauling thereof as scheduled and its reminders that any expenses for the delay would be for the
account of the plaintiff.[24]
We are therefore constrained to declare that the respondent court did not err when it absolved private
respondent from any breach of contract.
Our next inquiry is whether damages have been properly awarded against petitioner for its unjustified
delay in the performance of its obligation under the contract. Where there has been breach of contract
by the buyer, the seller has a right of action for damages. Following this rule, a cause of action of the
seller for damages may arise where the buyer refuses to remove the goods, such that buyer has to
remove them.[25] Article 1170 of the Civil Code provides:
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.
Delay begins from the time the obligee judicially or extrajudicially demands from the obligor the
performance of the obligation.[26] Art. 1169 states:
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.
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 or extrajudicially.[27]
In the present case, private respondent required petitioner to ship out or lift the sulfuric acid as agreed,
otherwise petitioner would be charged for the consequential damages owing to any delay. As stated in
private respondents letter to petitioner, dated December 12, 1986:
Subject : M/T KAYUMANGGI
Gentlemen:
This is to reiterate our telephone advice and our letter HJR-8612-031 dated 2 December 1986 regarding
your sulfuric acid vessel, M/T KAYUMANGGI.
As we have, in various instances, advised you, our Basay wharf will have to be vacated 15th December
1986 as we are expecting the arrival of our chartered vessel purportedly to haul our equipments and all
other remaining assets in Basay. This includes our sulfuric acid tanks. We regret, therefore, that if
these tanks are not emptied on or before the 15th of December, we either have to charge you for the
tanks waiting time at Basay and its consequential costs (i.e. chartering of another vessel for its second
pick-up at Basay, handling, etc.) as well as all other incremental costs on account of the protracted
loading delay.[28] (Italics supplied)
Indeed the above demand, which was unheeded, justifies the finding of delay. But when did such delay
begin? The above letter constitutes private respondents extrajudicial demand for the petitioner to
fulfill its obligation, and its dateline is significant. Given its date, however, we cannot sustain the
finding of the respondent court that petitioners delay started on August 6, 1986. The Court of Appeals
had relied on private respondents earlier letter to petitioner of that date for computing the
commencement of delay. But as averred by petitioner, said letter of August 6th is not a categorical
demand. What it showed was a mere statement of fact, that [F]for your information any delay in
Sulfuric Acid withdrawal shall cost us incremental expenses of P2,000.00 per day. Noteworthy,
private respondent accepted the full payment by petitioner for purchases on October 3, 1986, without
qualification, long after the August 6th letter. In contrast to the August 6th letter, that of December
12th was a categorical demand.
Records reveal that a tanker ship had to pick-up sulfuric acid in Basay, then proceed to get the
remaining stocks in Sangi, Cebu. A period of three days appears to us reasonable for a vessel to travel
between Basay and Sangi. Logically, the computation of damages arising from the shipping delay
would then have to be from December 15, 1986, given said reasonable period after the December 12th
letter. More important, private respondent was forced to vacate Basay wharf only on December 15th.
Its Basay expenses incurred before December 15, 1986, were necessary and regular business expenses
for which the petitioner should not be obliged to pay.
Note that private respondent extended its lease agreement for Sangi, Cebu storage tank until August 31,
1987, solely for petitioners sulfuric acid. It stands to reason that petitioner should reimburse private
respondents rental expenses of P32,000 monthly, commencing December 15, 1986, up to August 31,
1987, the period of the extended lease. Note further that there is nothing on record refuting the amount
of expenses abovecited. Private respondent presented in court two supporting documents: first, the
lease agreement pertaining to the equipment, and second a letter dated June 15, 1987, sent by Atlas
Fertilizer Corporation to private respondent representing the rental charges incurred. Private
respondent is entitled to recover the payment for these charges. It should be reimbursed the amount of
two hundred seventy two thousand (P272,000.00)[29] pesos, corresponding to the total amount of
rentals from December 15, 1986 to August 31, 1987 of the Sangi, Cebu storage tank.
Finally, we note also that petitioner tries to exempt itself from paying rental expenses and other
damages by arguing that expenses for the preservation of fungible goods must be assumed by the
seller. Rental expenses of storing sulfuric acid should be at private respondents account until
ownership is transferred, according to petitioner. However, the general rule that before delivery, the
risk of loss is borne by the seller who is still the owner, is not applicable in this case because petitioner
had incurred delay in the performance of its obligation. Article 1504 of the Civil Code clearly states:
Unless otherwise agreed, the goods remain at the sellers 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 buyers risk
whether actual delivery has been made or not, except that:
xxx
(2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are
at the risk of the party at fault. (italics supplied)
On this score, we quote with approval the findings of the appellate court, thus:
. . . The defendant [herein private respondent] was not remiss in reminding the plaintiff that it would
have to bear the said expenses for failure to lift the commodity for an unreasonable length of time.
But even assuming that the plaintiff did not consent to be so bound, the provisions of Civil Code come
in to make it liable for the damages sought by the defendant.
Article 1170 of the Civil Code provides:
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..
Certainly, the plaintiff [herein petitioner] was guilty of negligence and delay in the performance of its
obligation to lift the sulfuric acid on August 15, 1986 and had contravened the tenor of its letter-
contract with the defendant.[30]
As pointed out earlier, petitioner is guilty of delay, after private respondent made the necessary
extrajudicial demand by requiring petitioner to lift the cargo at its designated loadports. When
petitioner failed to comply with its obligations under the contract it became liable for its shortcomings.
Petitioner is indubitably liable for proven damages.
Considering, however, that petitioner made an advance payment for the unlifted sulfuric acid in the
amount of three hundred three thousand, four hundred eighty three pesos and thirty seven centavos
(P303,483.37), it is proper to set-off this amount against the rental expenses initially paid by private
respondent. It is worth noting that the adjustment and allowance of private respondents counterclaim
or set-off in the present action, rather than by another independent action, is encouraged by the law.
Such practice serves to avoid circuitry of action, multiplicity of suits, inconvenience, expense, and
unwarranted consumption of the courts time.[31] The trend of judicial decisions is toward a liberal
extension of the right to avail of counterclaims or set-offs.[32] The rules on counterclaims are designed
to achieve the disposition of a whole controversy involving the conflicting claims of interested parties
at one time and in one action, provided all parties can be brought before the court and the matter
decided without prejudicing the right of any party.[33] Set-off in this case is proper and reasonable. It
involves deducting P272,000.00 (rentals) from P303,483.37 (advance payment), which will leave the
amount of P31,483.37 refundable to petitioner.
WHEREFORE, the petition is hereby DENIED. The assailed decision of the Court of Appeals in CA
G.R. CV No. 33802 is AFFIRMED, with MODIFICATION that the amount of damages awarded in
favor of private respondent is REDUCED to Two hundred seventy two thousand pesos (P272,000.00).
It is also ORDERED that said amount of damages be OFFSET against petitioners advance payment of
Three hundred three thousand four hundred eighty three pesos and thirty-seven centavos (P303,483.37)
representing the price of the 272.481 MT of sulfuric acid not lifted. Lastly, it is ORDERED that the
excess amount of thirty one thousand, four hundred eighty three pesos and thirty seven centavos
(P31,483.37) be RETURNED soonest by private respondent to herein petitioner.
Costs against the petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, and Buena, JJ., concur.

[1] Rollo, pp. 36-45, Penned by Justice Associate Justice Salome A. Montoya, concurred in by Justices
Jose C. Campos and Serafin V.C. Guingona, of the Special Fifth Division of the Court of Appeals.
[2] Rollo p. 44.
[3] Records, pp. 5-6.
[4] Id. at 136.
[5] Id. at 137.
[6]TSN, September 1, 1989, pp. 28-29.
[7] Records, pp. 47-48. Emphasis ours.
[8] Id. at 49.
[9] Id. at 50.
[10] Id. at 41.
[11] Id. at 138.
[12]Id. at 40.
[13] Id. at 65, Affidavit of Gil B. Belen.
[14] Id. at 46.
[15] Rollo, p. 51.
[16] Id. at 52-53.
[17] Id. at 41-42.
[18]Mijares vs. CA, 271 SCRA 558, 566 (1997), citing Cuizon vs. Court of Appeals, 260 SCRA 645,
(1996); Floro vs. Llenado, 244 SCRA 713 (1995).
[19] Records, p. 21.
[20]Id. at 23.
[21] TSN, December 20, 1989, p. 6.
[22] 77 Corpus Juris Secundum, Sales, Section 86, Evidence, p. 773.
[23]Gerales vs. Court of Appeals, 218 SCRA 638, 648-649 (1993); citing Continental Airlines Inc. vs.
Santiago, 172 SCRA 490 (1989).
[24]Rollo, p. 42.
[25]78 Corpus Juris Secundum, Sales, Action for Damages, Section 462, Right of Action, p. 112.
[26] SSS vs. Moonwalk Development and Housing Corporation, 221 SCRA 119, 127 (1993).
[27]Id. at 128.
[28] Records, p. 137.
[29] P32,000 x 8.5 months.
[30]Rollo, pp. 43-44.
[31] Development Bank of the Philippines vs. Court of Appeals, 249 SCRA 331, 341 (1995).
[32]Id., citing 20 Am. Jur. 2d, Counterclaim, 237-238.
[33] Id., citing Kuenzel vs. Universal Carloading and Distributing Co., Inc. (1939) 29 F. Supp. 407.

FIRST DIVISION
[G.R. No. 153004. ]
SANTOS VENTURA HOCORMA FOUNDATION, INC., petitioner, vs. ERNESTO V. SANTOS and
RIVERLAND, INC., respondents
DECISION
QUISUMBING, J.:
Subject of the present petition for review on certiorari is the Decision,[1] dated , as well as the ,
Resolution[2] of the Court of Appeals in CA-G.R. CV No. 55122. The appellate court reversed the
Decision,[3] dated , of the , Branch 148, in Civil Case No. 95-811, and likewise denied petitioners
Motion for Reconsideration.
The facts of this case are undisputed.
Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI) were the plaintiff and
defendant, respectively, in several civil cases filed in different courts in the . On , the parties executed a
Compromise Agreement[4] which amicably ended all their pending litigations. The pertinent portions
of the Agreement read as follows:
1. Defendant Foundation shall pay Plaintiff Santos P14.5 Million in the following manner:
a. P1.5 Million immediately upon the execution of this agreement;
 b. The balance of P13 Million shall be paid, whether in one lump sum or in
installments, at the discretion of the Foundation, within a period of not more
than two (2) years from the execution of this agreement; provided, however,
that in the event that the Foundation does not pay the whole or any part of such
balance, the same shall be paid with the corresponding portion of the land or real
properties subject of the aforesaid cases and previously covered by the notices of
lis pendens, under such terms and conditions as to area, valuation, and location
mutually acceptable to both parties; but in no case shall the payment of such
balance be later than two (2) years from the date of this agreement; otherwise,
payment of any unpaid portion shall only be in the form of land aforesaid;
2. Immediately upon the execution of this agreement (and [the] receipt of the P1.5 Million),
plaintiff Santos shall cause the dismissal with prejudice of Civil Cases Nos. 88-743, 1413OR, TC-
1024, 45366 and 18166 and voluntarily withdraw the appeals in Civil Cases Nos. 4968 (C.A.-G.R.
No. 26598) and 88-45366 (C.A.-G.R. No. 24304) respectively and for the immediate lifting of the
aforesaid various notices of lis pendens on the real properties aforementioned (by signing herein
attached corresponding documents, for such lifting); provided, however, that in the event that
defendant Foundation shall sell or dispose of any of the lands previously subject of lis pendens, the
proceeds of any such sale, or any part thereof as may be required, shall be partially devoted to the
payment of the Foundations obligations under this agreement as may still be subsisting and payable at
the time of any such sale or sales;
...
5. Failure of compliance of any of the foregoing terms and conditions by either or both parties to this
agreement shall ipso facto and ipso jure automatically entitle the aggrieved party to a writ of execution
for the enforcement of this agreement. [Emphasis supplied][5]
In compliance with the Compromise Agreement, respondent moved for the dismissal of the aforesaid
civil cases. He also caused the lifting of the notices of lis pendens on the real properties involved. For
its part, petitioner SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13 million.
Subsequently, petitioner SVHFI sold to Development Exchange Livelihood Corporation two real
properties, which were previously subjects of lis pendens. Discovering the disposition made by the
petitioner, respondent sent a letter to the petitioner demanding the payment of the remaining P13
million, which was ignored by the latter. Meanwhile, on , the , Branch 62, issued a Decision[6]
approving the compromise agreement.
On , respondent sent another letter to petitioner inquiring when it would pay the balance of P13
million. There was no response from petitioner. Consequently, respondent applied with the , Branch
62, for the issuance of a writ of execution of its compromise judgment dated . The RTC granted the
writ. Thus, on , the Sheriff levied on the real properties of petitioner, which were formerly subjects of
the lis pendens. Petitioner, however, filed numerous motions to block the enforcement of the said writ.
The challenge of the execution of the aforesaid compromise judgment even reached the Supreme
Court. All these efforts, however, were futile.
On , petitioners real properties located in Mabalacat, Pampanga were auctioned. In the said auction,
Riverland, Inc. was the highest bidder for P12 million and it was issued a Certificate of Sale covering
the real properties subject of the auction sale. Subsequently, another auction sale was held on , for the
sale of real properties of petitioner in . Again, Riverland, Inc. was the highest bidder. The Certificates
of Sale issued for both properties provided for the right of redemption within one year from the date of
registration of the said properties.
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and
Damages[7] alleging that there was delay on the part of petitioner in paying the balance of P13
million. They further alleged that under the Compromise Agreement, the obligation became due on ,
but payment of the remaining P12 million was effected only on . Thus, respondents prayed that
petitioner be ordered to pay legal interest on the obligation, penalty, attorneys fees and costs of
litigation. Furthermore, they prayed that the aforesaid sales be declared final and not subject to legal
redemption.
In its Answer,[8] petitioner countered that respondents have no cause of action against it since it had
fully paid its obligation to the latter. It further claimed that the alleged delay in the payment of the
balance was due to its valid exercise of its rights to protect its interests as provided under the Rules.
Petitioner counterclaimed for attorneys fees and exemplary damages.
On , the trial court rendered a Decision[9] dismissing herein respondents complaint and ordering them
to pay attorneys fees and exemplary damages to petitioner. Respondents then appealed to the Court of
Appeals. The appellate court reversed the ruling of the trial court:
WHEREFORE, finding merit in the appeal, the appealed Decision is hereby REVERSED and
judgment is hereby rendered ordering appellee SVHFI to pay appellants Santos and Riverland, Inc.:
(1) legal interest on the principal amount of P13 million at the rate of 12% per annum from the date of
demand on October 28, 1992 up to the date of actual payment of the whole obligation; and (2) P20,000
as attorneys fees and costs of suit.
SO ORDERED.
Hence this petition for review on certiorari where petitioner assigns the following issues:
I
WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
WHEN IT AWARDED LEGAL INTEREST IN FAVOR OF THE RESPONDENTS, MR.
SANTOS AND RIVERLAND, INC., NOTWITHSTANDING THE FACT THAT NEITHER
IN THE COMPROMISE AGREEMENT NOR IN THE COMPROMISE JUDGEMENT OF
HON. JUDGE DIOKNO PROVIDES FOR PAYMENT OF INTEREST TO THE
RESPONDENT
II
WHETHER OF NOT THE COURT OF APPEALS ERRED IN AWARDING LEGAL
 IN[T]EREST IN FAVOR OF THE RESPONDENTS, MR. SANTOS AND RIVERLAND,
INC., NOTWITHSTANDING THE FACT THAT THE OBLIGATION OF THE
PETITIONER TO RESPONDENT SANTOS TO PAY A SUM OF MONEY HAD BEEN
CONVERTED TO AN OBLIGATION TO PAY IN KIND DELIVERY OF REAL
PROPERTIES OWNED BY THE PETITIONER WHICH HAD BEEN FULLY
PERFORMED
III
WHETHER OR NOT RESPONDENTS ARE BARRED FROM DEMANDING PAYMENT
OF INTEREST BY REASON OF THE WAIVER PROVISION IN THE COMPROMISE
AGREEMENT, WHICH BECAME THE LAW AMONG THE PARTIES[10]
The only issue to be resolved is whether the respondents are entitled to legal interest.
Petitioner SVHFI alleges that where a compromise agreement or compromise judgment does not
provide for the payment of interest, the legal interest by way of penalty on account of fault or delay
shall not be due and payable, considering that the obligation or loan, on which the payment of legal
interest could be based, has been superseded by the compromise agreement.[11] Furthermore, the
petitioner argues that the respondents are barred by res judicata from seeking legal interest on account
of the waiver clause in the duly approved compromise agreement.[12] Article 4 of the compromise
agreement provides:
Plaintiff Santos waives and renounces any and all other claims that he and his family may have
on the defendant Foundation arising from and in connection with the aforesaid civil cases, and
defendant Foundation, on the other hand, also waives and renounces any and all claims that it may have
against plaintiff in connection with such cases.[13] [Emphasis supplied.]
Lastly, petitioner alleges that since the compromise agreement did not provide for a period within
which the obligation will become due and demandable, it is incumbent upon respondent to ask for
judicial intervention for purposes of fixing the period. It is only when a fixed period exists that the
legal interests can be computed.
Respondents profer that their right to damages is based on delay in the payment of the obligation
provided in the Compromise Agreement. The Compromise Agreement provides that payment must be
made within the two-year period from its execution. This was approved by the trial court and became
the law governing their contract. Respondents posit that petitioners failure to comply entitles them to
damages, by way of interest.[14]
The petition lacks merit.
A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or
put an end to one already commenced.[15] It is an agreement between two or more persons, who, for
preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner
which they agree on, and which everyone of them prefers in the hope of gaining, balanced by the
danger of losing.[16]
The general rule is that a compromise has upon the parties the effect and authority of res judicata, with
respect to the matter definitely stated therein, or which by implication from its terms should be deemed
to have been included therein.[17] This holds true even if the agreement has not been judicially
approved.[18]
In the case at bar, the Compromise Agreement was entered into by the parties on .[19] It was judicially
approved on .[20] Applying existing jurisprudence, the compromise agreement as a consensual contract
became binding between the parties upon its execution and not upon its court approval. From the time
a compromise is validly entered into, it becomes the source of the rights and obligations of the parties
thereto. The purpose of the compromise is precisely to replace and terminate controverted claims.[21]
In accordance with the compromise agreement, the respondents asked for the dismissal of the pending
civil cases. The petitioner, on the other hand, paid the initial P1.5 million upon the execution of the
agreement. This act of the petitioner showed that it acknowledges that the agreement was immediately
executory and enforceable upon its execution.
As to the remaining P13 million, the terms and conditions of the compromise agreement are clear and
unambiguous. It provides:
...
b. The balance of P13 Million shall be paid, whether in one lump sum or in installments, at the
discretion of the Foundation, within a period of not more than two (2) years from the execution of
this agreement[22][Emphasis supplied.]
...
The two-year period must be counted from , the date of execution of the compromise agreement, and
not on the judicial approval of the compromise agreement on . When respondents wrote a demand
letter to petitioner on , the obligation was already due and demandable. When the petitioner failed to
pay its due obligation after the demand was made, it incurred delay.
Article 1169 of the New Civil Code provides:
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. [Emphasis supplied]
Delay as used in this article is synonymous to default or mora which means delay in the fulfillment of
obligations. It is the non-fulfillment of the obligation with respect to time.[23]
In order for the debtor to 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 or extrajudicially.[24]
In the case at bar, the obligation was already due and demandable after the lapse of the two-year period
from the execution of the contract. The two-year period ended on . When the respondents gave a
demand letter on , to the petitioner, the obligation was already due and demandable. Furthermore, the
obligation is liquidated because the debtor knows precisely how much he is to pay and when he is to
pay it.
The second requisite is also present. Petitioner delayed in the performance. It was able to fully settle
its outstanding balance only on , which is more than two years after the extra-judicial demand.
Moreover, it filed several motions and elevated adverse resolutions to the appellate court to hinder the
execution of a final and executory judgment, and further delay the fulfillment of its obligation.
Third, the demand letter sent to the petitioner on , was in accordance with an extra-judicial demand
contemplated by law.
Verily, the petitioner is liable for damages for the delay in the performance of its obligation. This is
provided for in Article 1170[25] of the New Civil Code.
When the debtor knows the amount and period when he is to pay, interest as damages is generally
allowed as a matter of right.[26] The complaining party has been deprived of funds to which he is
entitled by virtue of their compromise agreement. The goal of compensation requires that the
complainant be compensated for the loss of use of those funds. This compensation is in the form of
interest.[27] In the absence of agreement, the legal rate of interest shall prevail.[28] The legal interest
for loan as forbearance of money is 12% per annum[29] to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.[30]
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated of the Court of Appeals
and its Resolution in CA-G.R. CV No. 55122 are AFFIRMED. Costs against petitioner.
SO ORDERED.
Davide, Jr. C.J. (Chairman), Ynares-Santiago and Carpio, JJ., concur.
Azcuna, J., on leave.

[1] Rollo, pp. 39-45. Penned by Associate Justice Hilarion L. Aquino, with Associate Justices Edgardo
P. Cruz, and Amelita G. Tolentino concurring.
[2]Id. at 46.
[3]Id. at 77-82.
[4] Records, pp. 118-123.
[5]Id. at 38-40.
[6]Id. at 36-40.
[7]Id. at 1-11.
[8]Id. at 23-35.
[9]Id. at 151-156.
[10] Rollo, p. 218.
[11]Id. at 219-220.
[12]Id. at 221.
[13] Records, pp. 39-40.
[14] Rollo, p. 149.
[15] New Civil Code, Art. 2028.
[16]Cebu International Finance Corp. v. Court of Appeals, G.R. No. 123031, 12 October 1999, 316
SCRA 488, 498-499 citing David v. Court of Appeals, G.R. No. 97240, 16 October 1992, 214 SCRA
644, 650.
[17] Del Rosario v. Madayag, G.R. No. 118531, , 247 SCRA 767, 771.
[18] Mayuga v. Court of Appeals, No. L-46953, , 154 SCRA 309, 320.
[19] Records, pp. 118-123.
[20]Id. at 36-40.
[21] Landoil Resources Corporation v. Tensuan, No. L-77733, , 168 SCRA 569, 578.
[22] Records, pp. 38-39.
[23] IV Arturo M. Tolentino, CIVIL CODE OF THE PHILIPPINES, 101 (1987 ed.).
[24]Id. at 102.
[25] Art. 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.
[26] II J. Cesar S. Sangco, PHILIPPINE LAW ON TORTS AND DAMAGES 1085 (1993 ed.).
[27]Ibid.
[28] Quiros v. Tan-Guinlay, No. 1904, , 5 Phil 675, 680.
[29] Central Bank Circular No. 416, .
[30]Eastern Assurance and Surety Corporation v. Court of Appeals, G.R. No. 127135, 18 January 2000,
322 SCRA 73, 78.

SECOND DIVISION
[G.R. No. 149734. November 19, 2004]
DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners vs. AYALA CORPORATION,
respondent.
DECISION
TINGA, J.:
The rise in value of four lots in one of the countrys prime residential developments, Ayala Alabang
Village in Muntinlupa City, over a period of six (6) years only, represents big money. The huge price
difference lies at the heart of the present controversy. Petitioners insist that the lots should be sold to
them at 1984 prices while respondent maintains that the prevailing market price in 1990 should be the
selling price.
Dr. Daniel Vazquez and Ma. Luisa Vazquez[1] filed this Petition for Review on Certiorari[2] dated
October 11, 2001 assailing the Decision[3] of the Court of Appeals dated September 6, 2001 which
reversed the Decision[4] of the Regional Trial Court (RTC) and dismissed their complaint for specific
performance and damages against Ayala Corporation.
Despite their disparate rulings, the RTC and the appellate court agree on the following antecedents:[5]
On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter, Vasquez spouses)
entered into a Memorandum of Agreement (MOA) with Ayala Corporation (hereafter, AYALA) with
AYALA buying from the Vazquez spouses, all of the latters shares of stock in Conduit Development,
Inc. (hereafter, Conduit). The main asset of Conduit was a 49.9 hectare property in Ayala Alabang,
Muntinlupa, which was then being developed by Conduit under a development plan where the land was
divided into Villages 1, 2 and 3 of the Don Vicente Village. The development was then being
undertaken for Conduit by G.P. Construction and Development Corp. (hereafter, GP Construction).
Under the MOA, Ayala was to develop the entire property, less what was defined as the Retained
Area consisting of 18,736 square meters. This Retained Area was to be retained by the Vazquez
spouses. The area to be developed by Ayala was called the Remaining Area. In this Remaining
Area were 4 lots adjacent to the Retained Area and Ayala agreed to offer these lots for sale to the
Vazquez spouses at the prevailing price at the time of purchase. The relevant provisions of the MOA on
this point are:
5.7. The BUYER hereby commits that it will develop the Remaining Property into a first class
residential subdivision of the same class as its New Alabang Subdivision, and that it intends to
complete the first phase under its amended development plan within three (3) years from the date
of this Agreement. x x x
5.15. The BUYER agrees to give the SELLERS a first option to purchase four developed lots next
to the Retained Area at the prevailing market price at the time of the purchase.
The parties are agreed that the development plan referred to in paragraph 5.7 is not Conduits
development plan, but Ayalas amended development plan which was still to be formulated as of
the time of the MOA. While in the Conduit plan, the 4 lots to be offered for sale to the Vasquez
Spouses were in the first phase thereof or Village 1, in the Ayala plan which was formulated a
year later, it was in the third phase, or Phase II-c.
Under the MOA, the Vasquez spouses made several express warranties, as follows:
3.1. The SELLERS shall deliver to the BUYER:
 xxx
3.1.2. The true and complete list, certified by the Secretary and Treasurer of the Company showing:
xxx
D. A list of all persons and/or entities with whom the Company has pending contracts, if any.
xxx
3.1.5. Audited financial statements of the Company as at Closing date.
4. Conditions Precedent
All obligations of the BUYER under this Agreement are subject to fulfillment prior to or at the Closing,
of the following conditions:
4.1. The representations and warranties by the SELLERS contained in this Agreement shall be
true and correct at the time of Closing as though such representations and warranties were made
at such time; and
xxx
6. Representation and Warranties by the SELLERS
The SELLERS jointly and severally represent and warrant to the BUYER that at the time of the
execution of this Agreement and at the Closing:
xxx
6.2.3. There are no actions, suits or proceedings pending, or to the knowledge of the SELLERS,
threatened against or affecting the SELLERS with respect to the Shares or the Property; and
7. Additional Warranties by the SELLERS
7.1. With respect to the Audited Financial Statements required to be submitted at Closing in accordance
with Par. 3.1.5 above, the SELLER jointly and severally warrant to the BUYER that:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall
own the Remaining Property, free from all liens and encumbrances and that the Company shall
have no obligation to any party except for billings payable to GP Construction & Development
Corporation and advances made by Daniel Vazquez for which BUYER shall be responsible in
accordance with Par. 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the
Company as of Closing, and those disclosed to BUYER, the Company as of the date thereof, has
no liabilities of any nature whether accrued, absolute, contingent or otherwise, including, without
limitation, tax liabilities due or to become due and whether incurred in respect of or measured in
respect of the Companys income prior to Closing or arising out of transactions or state of facts existing
prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion
against the Company as at closing or any liability of any nature and in any amount not fully
reflected or reserved against such Audited Financial Statements referred to above, and those
disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the
Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS,
threatened with, any legal action or other proceedings before any court or administrative body,
nor do the SELLERS know or have reasonable grounds to know of any basis for any such action or
proceeding or of any governmental investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and
observance by the Company of any term, covenant or condition of any instrument or agreement
to which the company is a party or by which it is bound, and no condition exists which, with
notice or lapse of time or both, will constitute such default or breach.
After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the Don Vicente
Project. Ayala then received a letter from one Maximo Del Rosario of Lancer General Builder
Corporation informing Ayala that he was claiming the amount of P1,509,558.80 as the subcontractor of
G.P. Construction...
G.P. Construction not being able to reach an amicable settlement with Lancer, on March 22, 1982,
Lancer sued G.P. Construction, Conduit and Ayala in the then Court of First Instance of Manila in Civil
Case No. 82-8598. G.P. Construction in turn filed a cross-claim against Ayala. G.P. Construction and
Lancer both tried to enjoin Ayala from undertaking the development of the property. The suit was
terminated only on February 19, 1987, when it was dismissed with prejudice after Ayala paid both
Lancer and GP Construction the total of P4,686,113.39.
Taking the position that Ayala was obligated to sell the 4 lots adjacent to the Retained Area within 3
years from the date of the MOA, the Vasquez spouses sent several reminder letters of the
approaching so-called deadline. However, no demand after April 23, 1984, was ever made by the
Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of the letters signed by their
authorized agent, Engr. Eduardo Turla, categorically stated that they expected development of Phase 1
to be completed by February 19, 1990, three years from the settlement of the legal problems with the
previous contractor.
By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for sale. The
four lots were then offered to be sold to the Vasquez spouses at the prevailing price in 1990. This was
rejected by the Vasquez spouses who wanted to pay at 1984 prices, thereby leading to the suit below.
After trial, the court a quo rendered its decision, the dispositive portion of which states:
THEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering
defendant to sell to plaintiffs the relevant lots described in the Complaint in the Ayala Alabang Village
at the price of P460.00 per square meter amounting to P1,349,540.00; ordering defendant to reimburse
to plaintiffs attorneys fees in the sum of P200,000.00 and to pay the cost of the suit.
In its decision, the court a quo concluded that the Vasquez spouses were not obligated to disclose the
potential claims of GP Construction, Lancer and Del Rosario; Ayalas accountants should have opened
the records of Conduit to find out all claims; the warranty against suit is with respect to the shares of
the Property and the Lancer suit does not affect the shares of stock sold to Ayala; Ayala was obligated
to develop within 3 years; to say that Ayala was under no obligation to follow a time frame was to put
the Vasquezes at Ayalas mercy; Ayala did not develop because of a slump in the real estate market; the
MOA was drafted and prepared by the AYALA who should suffer its ambiguities; the option to
purchase the 4 lots is valid because it was supported by consideration as the option is incorporated in
the MOA where the parties had prestations to each other. [Emphasis supplied]
Ayala Corporation filed an appeal, alleging that the trial court erred in holding that petitioners did not
breach their warranties under the MOA[6] dated April 23, 1981; that it was obliged to develop the land
where the four (4) lots subject of the option to purchase are located within three (3) years from the date
of the MOA; that it was in delay; and that the option to purchase was valid because it was incorporated
in the MOA and the consideration therefor was the commitment by Ayala Corporation to petitioners
embodied in the MOA.
As previously mentioned, the Court of Appeals reversed the RTC Decision. According to the appellate
court, Ayala Corporation was never informed beforehand of the existence of the Lancer claim. In fact,
Ayala Corporation got a copy of the Lancer subcontract only on May 29, 1981 from G.P. Constructions
lawyers. The Court of Appeals thus held that petitioners violated their warranties under the MOA when
they failed to disclose Lancers claims. Hence, even conceding that Ayala Corporation was obliged to
develop and sell the four (4) lots in question within three (3) years from the date of the MOA, the
obligation was suspended during the pendency of the case filed by Lancer.
Interpreting the MOAs paragraph 5.7 above-quoted, the appellate court held that Ayala Corporation
committed to develop the first phase of its own amended development plan and not Conduits
development plan. Nowhere does the MOA provide that Ayala Corporation shall follow Conduits
development plan nor is Ayala Corporation prohibited from changing the sequence of the phases of the
property it will develop.
Anent the question of delay, the Court of Appeals ruled that there was no delay as petitioners never
made a demand for Ayala Corporation to sell the subject lots to them. According to the appellate court,
what petitioners sent were mere reminder letters the last of which was dated prior to April 23, 1984
when the obligation was not yet demandable. At any rate, the Court of Appeals found that petitioners in
fact waived the three (3)-year period when they sent a letter through their agent, Engr. Eduardo Turla,
stating that they expect that the development of Phase I will be completed by 19 February 1990, three
years from the settlement of the legal problems with the previous contractor.[7]
The appellate court likewise ruled that paragraph 5.15 above-quoted is not an option contract but a
right of first refusal there being no separate consideration therefor. Since petitioners refused Ayala
Corporations offer to sell the subject lots at the reduced 1990 price of P5,000.00 per square meter, they
have effectively waived their right to buy the same.
In the instant Petition, petitioners allege that the appellate court erred in ruling that they violated their
warranties under the MOA; that Ayala Corporation was not obliged to develop the Remaining
Property within three (3) years from the execution of the MOA; that Ayala was not in delay; and that
paragraph 5.15 of the MOA is a mere right of first refusal. Additionally, petitioners insist that the Court
should review the factual findings of the Court of Appeals as they are in conflict with those of the trial
court.
Ayala Corporation filed a Comment on the Petition[8] dated March 26, 2002, contending that the
petition raises questions of fact and seeks a review of evidence which is within the domain of the Court
of Appeals. Ayala Corporation maintains that the subcontract between GP Construction, with whom
Conduit contracted for the development of the property under a Construction Contract dated October
10, 1980, and Lancer was not disclosed by petitioners during the negotiations. Neither was the liability
for Lancers claim included in the Audited Financial Statements submitted by petitioners after the
signing of the MOA. These justify the conclusion that petitioners breached their warranties under the
afore-quoted paragraphs of the MOA. Since the Lancer suit ended only in February 1989, the three (3)-
year period within which Ayala Corporation committed to develop the property should only be counted
thence. Thus, when it offered the subject lots to petitioners in 1990, Ayala Corporation was not yet in
delay.
In response to petitioners contention that there was no action or proceeding against them at the time of
the execution of the MOA on April 23, 1981, Ayala Corporation avers that the facts and circumstances
which gave rise to the Lancer claim were already extant then. Petitioners warranted that their
representations under the MOA shall be true and correct at the time of Closing which shall take place
within four (4) weeks from the signing of the MOA.[9] Since the MOA was signed on April 23, 1981,
Closing was approximately the third week of May 1981. Hence, Lancers claims, articulated in a
letter which Ayala Corporation received on May 4, 1981, are among the liabilities warranted against
under paragraph 7.1.2 of the MOA.
Moreover, Ayala Corporation asserts that the warranties under the MOA are not just against suits but
against all kinds of liabilities not reflected in the Audited Financial Statements. It cannot be faulted for
relying on the express warranty that except for billings payable to GP Construction and advances made
by petitioner Daniel Vazquez in the amount of P38,766.04, Conduit has no other liabilities. Hence,
petitioners cannot claim that Ayala Corporation should have examined and investigated the Audited
Financial Statements of Conduit and should now assume all its obligations and liabilities including the
Lancer suit and the cross-claim of GP Construction.
Furthermore, Ayala Corporation did not make a commitment to complete the development of the first
phase of the property within three (3) years from the execution of the MOA. The provision refers to a
mere declaration of intent to develop the first phase of its (Ayala Corporations) own development plan
and not Conduits. True to its intention, Ayala Corporation did complete the development of the first
phase (Phase II-A) of its amended development plan within three (3) years from the execution of the
MOA. However, it is not obliged to develop the third phase (Phase II-C) where the subject lots are
located within the same time frame because there is no contractual stipulation in the MOA therefor. It is
free to decide on its own the period for the development of Phase II-C. If petitioners wanted to impose
the same three (3)-year timetable upon the third phase of the amended development plan, they should
have filed a suit to fix the time table in accordance with Article 1197[10] of the Civil Code. Having
failed to do so, Ayala Corporation cannot be declared to have been in delay.
Ayala Corporation further contends that no demand was made on it for the performance of its alleged
obligation. The letter dated October 4, 1983 sent when petitioners were already aware of the Lancer
suit did not demand the delivery of the subject lots by April 23, 1984. Instead, it requested Ayala
Corporation to keep petitioners posted on the status of the case. Likewise, the letter dated March 4,
1984 was merely an inquiry as to the date when the development of Phase 1 will be completed. More
importantly, their letter dated June 27, 1988 through Engr. Eduardo Turla expressed petitioners
expectation that Phase 1 will be completed by February 19, 1990.
Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right of first refusal and not
an option contract.
Petitioners filed their Reply[11] dated August 15, 2002 reiterating the arguments in their Petition and
contending further that they did not violate their warranties under the MOA because the case was filed
by Lancer only on April 1, 1982, eleven (11) months and eight (8) days after the signing of the MOA
on April 23, 1981. Ayala Corporation admitted that it received Lancers claim before the Closing
date. It therefore had all the time to rescind the MOA. Not having done so, it can be concluded that
Ayala Corporation itself did not consider the matter a violation of petitioners warranty.
Moreover, petitioners submitted the Audited Financial Statements of Conduit and allowed an
acquisition audit to be conducted by Ayala Corporation. Thus, the latter bought Conduit with open
eyes.
Petitioners also maintain that they had no knowledge of the impending case against Conduit at the time
of the execution of the MOA. Further, the MOA makes Ayala Corporation liable for the payment of all
billings of GP Construction. Since Lancers claim was actually a claim against GP Construction being
its sub-contractor, it is Ayala Corporation and not petitioners which is liable.
Likewise, petitioners aver that although Ayala Corporation may change the sequence of its
development plan, it is obliged under the MOA to develop the entire area where the subject lots are
located in three (3) years.
They also assert that demand was made on Ayala Corporation to comply with their obligation under the
MOA. Apart from their reminder letters dated January 24, February 18 and March 5, 1984, they also
sent a letter dated March 4, 1984 which they claim is a categorical demand for Ayala Corporation to
comply with the provisions of the MOA.
The parties were required to submit their respective memoranda in the Resolution[12] dated November
18, 2002. In compliance with this directive, petitioners submitted their Memorandum[13] dated
February 14, 2003 on even date, while Ayala Corporation filed its Memorandum[14] dated February 14,
2003 on February 17, 2003.
We shall first dispose of the procedural question raised by the instant petition.
It is well-settled that the jurisdiction of this Court in cases brought to it from the Court of Appeals by
way of petition for review under Rule 45 is limited to reviewing or revising errors of law imputed to it,
its findings of fact being conclusive on this Court as a matter of general principle. However, since in
the instant case there is a conflict between the factual findings of the trial court and the appellate court,
particularly as regards the issues of breach of warranty, obligation to develop and incurrence of delay,
we have to consider the evidence on record and resolve such factual issues as an exception to the
general rule.[15] In any event, the submitted issue relating to the categorization of the right to purchase
granted to petitioners under the MOA is legal in character.
The next issue that presents itself is whether petitioners breached their warranties under the MOA when
they failed to disclose the Lancer claim. The trial court declared they did not; the appellate court found
otherwise.
Ayala Corporation summarizes the clauses of the MOA which petitioners allegedly breached when they
failed to disclose the Lancer claim:
a) Clause 7.1.1. that Conduit shall not be obligated to anyone except to GP Construction for
P38,766.04, and for advances made by Daniel Vazquez;
b) Clause 7.1.2. that except as reflected in the audited financial statements Conduit had no other
liabilities whether accrued, absolute, contingent or otherwise;
c) Clause 7.2. that there is no basis for any assertion against Conduit of any liability of any value not
reflected or reserved in the financial statements, and those disclosed to Ayala;
d) Clause 7.6.3. that Conduit is not threatened with any legal action or other proceedings; and
e) Clause 7.6.4. that Conduit had not breached any term, condition, or covenant of any instrument or
agreement to which it is a party or by which it is bound.[16]
The Court is convinced that petitioners did not violate the foregoing warranties.
The exchanges of communication between the parties indicate that petitioners substantially apprised
Ayala Corporation of the Lancer claim or the possibility thereof during the period of negotiations for
the sale of Conduit.
In a letter[17] dated March 5, 1984, petitioner Daniel Vazquez reminded Ayala Corporations Mr.
Adolfo Duarte (Mr. Duarte) that prior to the completion of the sale of Conduit, Ayala Corporation
asked for and was given information that GP Construction sub-contracted, presumably to Lancer, a
greater percentage of the project than it was allowed. Petitioners gave this information to Ayala
Corporation because the latter intimated a desire to break the contract of Conduit with GP. Ayala
Corporation did not deny this. In fact, Mr. Duartes letter[18] dated March 6, 1984 indicates that Ayala
Corporation had knowledge of the Lancer subcontract prior to its acquisition of Conduit. Ayala
Corporation even admitted that it tried to explorelegal basis to discontinue the contract of Conduit
with GP but found this not feasible when information surfaced about the tacit consent of Conduit to
the sub-contracts of GP with Lancer.
At the latest, Ayala Corporation came to know of the Lancer claim before the date of Closing of the
MOA. Lancers letter[19] dated April 30, 1981 informing Ayala Corporation of its unsettled claim with
GP Construction was received by Ayala Corporation on May 4, 1981, well before the Closing[20]
which occurred four (4) weeks after the date of signing of the MOA on April 23, 1981, or on May 23,
1981.
The full text of the pertinent clauses of the MOA quoted hereunder likewise indicate that certain
matters pertaining to the liabilities of Conduit were disclosed by petitioners to Ayala Corporation
although the specifics thereof were no longer included in the MOA:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall
own the Remaining Property, free from all liens and encumbrances and that the Company shall have
no obligation to any party except for billings payable to GP Construction & Development Corporation
and advances made by Daniel Vazquez for which BUYER shall be responsible in accordance with
Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the
Company as of Closing, and those disclosed to BUYER, the Company as of the date hereof, has no
liabilities of any nature whether accrued, absolute, contingent or otherwise, including, without
limitation, tax liabilities due or to become due and whether incurred in respect of or measured in
respect of the Companys income prior to Closing or arising out of transactions or state of facts existing
prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion
against the Company as at Closing of any liability of any nature and in any amount not fully reflected
or reserved against such Audited Financial Statements referred to above, and those disclosed to
BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the
Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS, threatened
with, any legal action or other proceedings before any court or administrative body, nor do the
SELLERS know or have reasonable grounds to know of any basis for any such action or proceeding or
of any governmental investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and
observance by the Company of any term, covenant or condition of any instrument or agreement to
which the Company is a party or by which it is bound, and no condition exists which, with notice or
lapse of time or both, will constitute such default or breach.[21] [Emphasis supplied]
Hence, petitioners warranty that Conduit is not engaged in, a party to, or threatened with any legal
action or proceeding is qualified by Ayala Corporations actual knowledge of the Lancer claim which
was disclosed to Ayala Corporation before the Closing.
At any rate, Ayala Corporation bound itself to pay all billings payable to GP Construction and the
advances made by petitioner Daniel Vazquez. Specifically, under paragraph 2 of the MOA referred to
in paragraph 7.1.1, Ayala Corporation undertook responsibility for the payment of all billings of the
contractor GP Construction & Development Corporation after the first billing and any payments made
by the company and/or SELLERS shall be reimbursed by BUYER on closing which advances to date is
P1,159,012.87.[22]
The billings knowingly assumed by Ayala Corporation necessarily include the Lancer claim for which
GP Construction is liable. Proof of this is Ayala Corporations letter[23] to GP Construction dated
before Closing on May 4, 1981, informing the latter of Ayala Corporations receipt of the Lancer
claim embodied in the letter dated April 30, 1981, acknowledging that it is taking over the contractual
responsibilities of Conduit, and requesting copies of all sub-contracts affecting the Conduit property.
The pertinent excerpts of the letter read:

In this connection, we wish to inform you that this morning we received a letter from Mr. Maximo D.
Del Rosario, President of Lancer General Builders Corporation apprising us of the existence of
subcontracts that they have with your corporation. They have also furnished us with a copy of their
letter to you dated 30 April 1981.
Since we are taking over the contractual responsibilities of Conduit Development, Inc., we believe that
it is necessary, at this point in time, that you furnish us with copies of all your subcontracts affecting the
property of Conduit, not only with Lancer General Builders Corporation, but all subcontracts with other
parties as well[24]
Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief[25] dated July 9, 1992 a copy of
the letter[26] dated May 28, 1981 of GP Constructions counsel addressed to Conduit furnishing the
latter with copies of all sub-contract agreements entered into by GP Construction. Since it was
addressed to Conduit, it can be presumed that it was the latter which gave Ayala Corporation a copy of
the letter thereby disclosing to the latter the existence of the Lancer sub-contract.
The ineluctable conclusion is that petitioners did not violate their warranties under the MOA. The
Lancer sub-contract and claim were substantially disclosed to Ayala Corporation before the Closing
date of the MOA. Ayala Corporation cannot disavow knowledge of the claim.
Moreover, while in its correspondence with petitioners, Ayala Corporation did mention the filing of the
Lancer suit as an obstacle to its development of the property, it never actually brought up nor sought
redress for petitioners alleged breach of warranty for failure to disclose the Lancer claim until it filed
its Answer[27] dated February 17, 1992.
We now come to the correct interpretation of paragraph 5.7 of the MOA. Does this paragraph express
a commitment or a mere intent on the part of Ayala Corporation to develop the property within three (3)
years from date thereof? Paragraph 5.7 provides:
5.7. The BUYER hereby commits that it will develop the Remaining Property into a first class
residential subdivision of the same class as its New Alabang Subdivision, and that it intends to
complete the first phase under its amended development plan within three (3) years from the date of
this Agreement.[28]
Notably, while the first phrase of the paragraph uses the word commits in reference to the
development of the Remaining Property into a first class residential subdivision, the second phrase
uses the word intends in relation to the development of the first phase of the property within three (3)
years from the date of the MOA. The variance in wording is significant. While commit[29] connotes
a pledge to do something, intend[30] merely signifies a design or proposition.
Atty. Leopoldo Francisco, former Vice President of Ayala Corporations legal division who assisted in
drafting the MOA, testified:
COURT
You only ask what do you mean by that intent. Just answer on that point.
ATTY. BLANCO
Dont talk about standard.
WITNESS
A Well, the word intent here, your Honor, was used to emphasize the tentative character of the period
of development because it will be noted that the sentence refers to and I quote to complete the first
phase under its amended development plan within three (3) years from the date of this agreement, at the
time of the execution of this agreement, your Honor. That amended development plan was not yet in
existence because the buyer had manifested to the seller that the buyer could amend the subdivision
plan originally belonging to the seller to conform with its own standard of development and second,
your Honor, (interrupted)[31]
It is thus unmistakable that this paragraph merely expresses an intention on Ayala Corporations part to
complete the first phase under its amended development plan within three (3) years from the execution
of the MOA. Indeed, this paragraph is so plainly worded that to misunderstand its import is deplorable.
More focal to the resolution of the instant case is paragraph 5.7s clear reference to the first phase of
Ayala Corporations amended development plan as the subject of the three (3)-year intended timeframe
for development. Even petitioner Daniel Vazquez admitted on cross-examination that the paragraph
refers not to Conduits but to Ayala Corporations development plan which was yet to be formulated
when the MOA was executed:
Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is stated as follows: The
Buyer hereby commits that to develop the remaining property into a first class residential subdivision
of the same class as New Alabang Subdivision, and that they intend to complete the first phase under
its amended development plan within three years from the date of this agreement.
Now, my question to you, Dr. Vasquez is that there is no dispute that the amended development plan
here is the amended development plan of Ayala?
A: Yes, sir.
Q: In other words, it is not Exhibit D-5 which is the original plan of Conduit?
A: No, it is not.
Q: This Exhibit D-5 was the plan that was being followed by GP Construction in 1981?
A: Yes, sir.
Q: And point of fact during your direct examination as of the date of the agreement, this amended
development plan was still to be formulated by Ayala?
A: Yes, sir.[32]
As correctly held by the appellate court, this admission is crucial because while the subject lots to be
sold to petitioners were in the first phase of the Conduit development plan, they were in the third or last
phase of the Ayala Corporation development plan. Hence, even assuming that paragraph 5.7 expresses
a commitment on the part of Ayala Corporation to develop the first phase of its amended development
plan within three (3) years from the execution of the MOA, there was no parallel commitment made as
to the timeframe for the development of the third phase where the subject lots are located.
Lest it be forgotten, the point of this petition is the alleged failure of Ayala Corporation to offer the
subject lots for sale to petitioners within three (3) years from the execution of the MOA. It is not that
Ayala Corporation committed or intended to develop the first phase of its amended development plan
within three (3) years. Whether it did or did not is actually beside the point since the subject lots are
not located in the first phase anyway.
We now come to the issue of default or delay in the fulfillment of the obligation.
Article 1169 of the Civil Code provides:
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.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(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 demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
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 or extrajudicially.[33]
Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been fixed
shall be demandable only when that day comes. However, no such day certain was fixed in the MOA.
Petitioners, therefore, cannot demand performance after the three (3) year period fixed by the MOA for
the development of the first phase of the property since this is not the same period contemplated for the
development of the subject lots. Since the MOA does not specify a period for the development of the
subject lots, petitioners should have petitioned the court to fix the period in accordance with Article
1197[34] of the Civil Code. As no such action was filed by petitioners, their complaint for specific
performance was premature, the obligation not being demandable at that point. Accordingly, Ayala
Corporation cannot likewise be said to have delayed performance of the obligation.
Even assuming that the MOA imposes an obligation on Ayala Corporation to develop the subject lots
within three (3) years from date thereof, Ayala Corporation could still not be held to have been in delay
since no demand was made by petitioners for the performance of its obligation.
As found by the appellate court, petitioners letters which dealt with the three (3)-year timetable were
all dated prior to April 23, 1984, the date when the period was supposed to expire. In other words, the
letters were sent before the obligation could become legally demandable. Moreover, the letters were
mere reminders and not categorical demands to perform. More importantly, petitioners waived the three
(3)-year period as evidenced by their agent, Engr. Eduardo Turlas letter to the effect that petitioners
agreed that the three (3)-year period should be counted from the termination of the case filed by
Lancer. The letter reads in part:
I. Completion of Phase I
As per the memorandum of Agreement also dated April 23, 1981, it was undertaken by your goodselves
to complete the development of Phase I within three (3) years. Dr. & Mrs. Vazquez were made to
understand that you were unable to accomplish this because of legal problems with the previous
contractor. These legal problems were resolved as of February 19, 1987, and Dr. & Mrs. Vazquez
therefore expect that the development of Phase I will be completed by February 19, 1990, three years
from the settlement of the legal problems with the previous contractor. The reason for this is, as you
know, that security-wise, Dr. & Mrs. Vazquez have been advised not to construct their residence till the
surrounding area (which is Phase I) is developed and occupied. They have been anxious to build their
residence for quite some time now, and would like to receive assurance from your goodselves regarding
this, in compliance with the agreement.
II. Option on the adjoining lots
We have already written your goodselves regarding the intention of Dr. & Mrs. Vazquez to exercise
their option to purchase the two lots on each side (a total of 4 lots) adjacent to their Retained Area.
They are concerned that although over a year has elapsed since the settlement of the legal problems,
you have not presented them with the size, configuration, etc. of these lots. They would appreciate
being provided with these at your earliest convenience.[35]
Manifestly, this letter expresses not only petitioners acknowledgement that the delay in the
development of Phase I was due to the legal problems with GP Construction, but also their
acquiescence to the completion of the development of Phase I at the much later date of February 19,
1990. More importantly, by no stretch of semantic interpretation can it be construed as a categorical
demand on Ayala Corporation to offer the subject lots for sale to petitioners as the letter merely
articulates petitioners desire to exercise their option to purchase the subject lots and concern over the
fact that they have not been provided with the specifications of these lots.
The letters of petitioners children, Juan Miguel and Victoria Vazquez, dated January 23, 1984[36] and
February 18, 1984[37] can also not be considered categorical demands on Ayala Corporation to develop
the first phase of the property within the three (3)-year period much less to offer the subject lots for sale
to petitioners. The letter dated January 23, 1984 reads in part:
You will understand our interest in the completion of the roads to our property, since we cannot develop
it till you have constructed the same. Allow us to remind you of our Memorandum of Agreement, as per
which you committed to develop the roads to our property as per the original plans of the company,
and that
1. The back portion should have been developed before the front portion which has not been the
case.
2. The whole project front and back portions be completed by 1984.[38]
The letter dated February 18, 1984 is similarly worded. It states:
In this regard, we would like to remind you of Articles 5.7 and 5.9 of our Memorandum of Agreement
which states respectively:[39]
Even petitioner Daniel Vazquez letter[40] dated March 5, 1984 does not make out a categorical
demand for Ayala Corporation to offer the subject lots for sale on or before April 23, 1984. The letter
reads in part:
and that we expect from your goodselves compliance with our Memorandum of Agreement, and a
definite date as to when the road to our property and the development of Phase I will be completed.[41]
At best, petitioners letters can only be construed as mere reminders which cannot be considered
demands for performance because it must appear that the tolerance or benevolence of the creditor must
have ended.[42]
The petition finally asks us to determine whether paragraph 5.15 of the MOA can properly be construed
as an option contract or a right of first refusal. Paragraph 5.15 states:
5.15 The BUYER agrees to give the SELLERS first option to purchase four developed lots next to the
Retained Area at the prevailing market price at the time of the purchase.[43]
The Court has clearly distinguished between an option contract and a right of first refusal. An option is
a preparatory contract in which one party grants to another, for a fixed period and at a determined price,
the privilege to buy or sell, or to decide whether or not to enter into a principal contract. It binds the
party who has given the option not to enter into the principal contract with any other person during the
period designated, and within that period, to enter into such contract with the one to whom the option
was granted, if the latter should decide to use the option. It is a separate and distinct contract from that
which the parties may enter into upon the consummation of the option. It must be supported by
consideration.[44]
In a right of first refusal, on the other hand, while the object might be made determinate, the exercise of
the right would be dependent not only on the grantors eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that are yet to be firmed up.[45]
Applied to the instant case, paragraph 5.15 is obviously a mere right of first refusal and not an option
contract. Although the paragraph has a definite object, i.e., the sale of subject lots, the period within
which they will be offered for sale to petitioners and, necessarily, the price for which the subject lots
will be sold are not specified. The phrase at the prevailing market price at the time of the purchase
connotes that there is no definite period within which Ayala Corporation is bound to reserve the subject
lots for petitioners to exercise their privilege to purchase. Neither is there a fixed or determinable price
at which the subject lots will be offered for sale. The price is considered certain if it may be determined
with reference to another thing certain or if the determination thereof is left to the judgment of a
specified person or persons.[46]
Further, paragraph 5.15 was inserted into the MOA to give petitioners the first crack to buy the subject
lots at the price which Ayala Corporation would be willing to accept when it offers the subject lots for
sale. It is not supported by an independent consideration. As such it is not governed by Articles 1324
and 1479 of the Civil Code, viz:
Art. 1324. When the offeror has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the option
is founded upon a consideration, as something paid or promised.
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
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.
Consequently, the offer may be withdrawn anytime by communicating the withdrawal to the other
party.[47]
In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price of
P6,500.00/square meter, the prevailing market price for the property when the offer was made on June
18, 1990.[48] Insisting on paying for the lots at the prevailing market price in 1984 of P460.00/square
meter, petitioners rejected the offer. Ayala Corporation reduced the price to P5,000.00/square meter but
again, petitioners rejected the offer and instead made a counter-offer in the amount of P2,000.00/square
meter.[49] Ayala Corporation rejected petitioners counter-offer. With this rejection, petitioners lost
their right to purchase the subject lots.
It cannot, therefore, be said that Ayala Corporation breached petitioners right of first refusal and should
be compelled by an action for specific performance to sell the subject lots to petitioners at the
prevailing market price in 1984.
WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

[1] Alternatively spelled Vasquez.

[2]Rollo, pp. 10-187 with Annexes.
[3]Id. at 193-210; Penned by Associate Justice Perlita J. Tria-Tirona and concurred in by Associate
Justices Eugenio S. Labitoria and Eloy R. Bello, Jr.
[4]Id. at 74-79; Dated September 11, 1995.
[5]Id. at 193-198; Culled from the Decision of the Court of Appeals.
[6]Id. at 50-62.
[7]Id. at 206.
[8]Id. at 240-289.
[9]Id. at 53.
[10] Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can
be inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.
[11]Supra, note 2 at 300-323.
[12]Id. at 324-325.
[13]Id. at 331-369.
[14]Id. at 370-433.
[15] Rosario v. Court of Appeals, 369 Phil. 729 (1999), citations omitted.
[16]Supra, note 2 at 401-402.
[17] RTC Records, pp. 60-61.
[18]Id. at 90-91
[19]Id. at 77.
[20]Supra note 2 at 53.
[21]Id. at 58-60.
[22]Id. at 52-53. The full text of paragraph 2 reads:
2. Purchase Price and Mode of Payment
The Purchase Price shall be FIFTY-SIX MILLION SIX HUNDRED TWENTY THREE THOUSAND
THREE HUNDRED THIRTY EIGHT PESOS AND EIGHTY CENTAVOS (P56,623,338.80) and shall
be paid at the Closing by the BUYER by means of a managers check(s) payable to Ma. Luisa M.
Vazquez in her own behalf and as representative of the other SELLERS, less the earnest money of
EIGHT MILLION PESOS (P8,000,000.00) herein paid as mentioned below; provided, however, that
on or before the Closing, SELLERS shall deliver to the BUYER duly executed letters of instruction
from the other SELLERS specifically authorizing Ma. Luisa M. Vazquez to receive on their own behalf
their respective payments by means of a managers check for the entire Purchase Price stated in this
Paragraph payable to SELLERS. In addition to the foregoing, BUYER shall be responsible for the
payment of all billings of the contractor GP Construction & Development Corporation after the first
billing and any payments made by the company and/or SELLERS shall be reimbursed by BUYER on
closing which advances to date is P1,159,012.87.
Earnest money in the sum of EIGHT MILLION PESOS (P8,000,000.00), Philippine Currency, shall be
paid upon signing of this document.
[23]Supra, note 17 at 78.
[24]Ibid.
[25]Supra, note 17 at 69-76.
[26]Id. at 81-82.
[27]Id. at 32-38.
[28]Supra, note 2 at 55.
[29] BLACKS LAW DICTIONARY, Sixth Edition, p. 273.
[30]Id. at 809.
[31] TSN, November 18, 1993, pp. 35-36.
[32] TSN, August 3, 1993, pp. 17-19.
[33] 4 A. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF
THE PHILIPPINES, 102 (1991).
[34]Supra note 10.
[35]Supra, note 17 at 651.
[36]Id. at 151.
[37]Id. at 154.
[38]Supra, note 36.
[39]Supra, note 37.
[40]Supra, note 17 at 157-158.
[41]Id. at 158.
[42] A. TOLENTINO, op. cit. supra, note 33 citing 2 Castan 528 and 3 Valverde 104.
[43]Supra, note 2 at 57.
[44] Litonjua v. L&R Corporation, 385 Phil. 538 (2000); Carceller v. Court of Appeals, 362 Phil. 332
(1999); Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 332 Phil. 525 (1996).
[45] Ang Yu Asuncion v. Court of Appeals, G.R. No. 109125, December 2, 1994, 238 SCRA 602.
[46] Art. 1469, Civil Code.
[47] A. TOLENTINO, op. cit.supra, note 33 at 465.
[48]Supra, note 2 at 63.
[49]Id. at 209-210.
The testimony of petitioner Daniel Vazquez on direct examination reads:
Q Mr. Witness, at the last hearing which was interrupted by the brown-out, we were on Exhibit
L, which I am handing to you, upon receipt of Exhibit L which is the June 18, 1990 letter of Ayala
to you, what did you do, if any?
A We contacted Ayala to tell them we wanted to exercise our option and that we were not
agreeable with the price they are mentioning here, sir.
Q Did you offer any price?
A Yes, sir, we offered them a price.
Q According to the complaint, the price in April 1984 could have been only P460.00 pesos per
square meter. Where did you get that price?
A One of our secretaries, Mr. Eusebio, I believe, contacted the Ayala Corporation and that was the
price the Ayala Corporation was selling it at that time, sir.
Q Did the Ayala Corporation reduce this price for purposes of arriving in an agreeable or
acceptable offer?
A Yes, sir, we did.
Q How much did the Ayala Corporation dropped to?
A Ayala dropped, if I remember right, to I think P4,000.00 pesos, sir.
Q And how about you?
A We increased our price to P2,000.00 pesos based on the selling price of Ayala at that time
converted to dollars and reconverted to pesos at this later dates of 1991. (TSN dated April 20, 1993,
pp. 3-5).
 SECOND DIVISION

[G.R. No. 32336. December 20, 1930.]

JULIO C. ABELLA, Plaintiff-Appellant, v. GUILLERMO B. FRANCISCO, Defendant-Appellee.

Antonio T. Carrascoso jr., for Appellant.

Camus & Delgado for Mooney.

SYLLABUS

1. CONTRACT OF SALE; PERIOD FOR PAYMENT OF SELLING PRICE; RESOLUTION OF

CONTRACT. Having agreed that the selling price (even supposing it was a contract of sale) would
be paid not later than December, 1928, and in view of the fact that the vendor executed said contract in
order to pay off with the proceeds thereof certain obligations which fell due in the same month of
December, it is held that the time fixed for the payment of the selling price was essential in the
transaction, and, therefore, the vendor, under article 1124 of the Civil Code, is entitled to resolve the
contract for failure to pay the price within the time specified.

DECISION

AVANCEA, C.J. :

Defendant Guillermo B. Francisco purchased from the Government on installments, lots 937 to 945 of
the Tala Estate in Novaliches, Caloocan, Rizal. He was in arrears for some of these installments. On the
31st of October, 1928, he signed the following document:jgc:chanrobles.com.ph

"MANILA, October 31, 1928

"Received from Mr. Julio C. Abella the amount of five hundred pesos (500), payment on account of
lots Nos. 937, 938, 939, 940, 941, 942, 943, 944, and 945 of the Tala Estate, barrio of Novaliches,
Caloocan, Rizal, containing an area of about 221 hectares, at the rate of one hundred pesos (P100) per
hectare, the balance being due on or before the fifteenth day of December, 1928, extendible fifteen days
thereafter. (Sgd.) G. B. FRANCISCO P500 Phone 67125."cralaw virtua1aw library

After having made this agreement, the plaintiff proposed the sale of these lots at a higher price to
George C. Sellner, collecting P10,000 on account thereof on December 29, 1928.

Besides the P500 which, according to the instrument quoted above, the plaintiff paid, he made another
payment of P415.31 on November 13, 1928, upon demand made by the defendant. On December 27th
of the same year, the defendant, being in the Province of Cebu, wrote to Roman Mabanta of this City of
Manila, attaching a power of attorney authorizing him to sign in behalf of the defendant all the
documents required by the Bureau of Lands for the transfer of the lots to the plaintiff. In that letter the
defendant instructed Roman Mabanta, in the event that the plaintiff failed to pay the remainder of the
selling price, to inform him that the option would be considered cancelled, and to return to him the
amount of P915.31 already delivered. On January 3, 1929, Mabanta notified the plaintiff that he had
received the power of attorney to sign the deed of conveyance of the lots to him, and that he was
willing go execute the proper deed of sale upon payment of the balance due. The plaintiff asked for a
few days time, but Mabanta, following the instructions he had received from the defendant, only gave
him until the 5th of that month. The plaintiff did not pay the rest of the price on the 5th of January, but
on the 9th of the month attempted to do so; Mabanta, however, refused to accept it, and gave him to
understand that he regarded the contract as rescinded. On the same day, Mabanta returned by check the
sum of P915.31 which the plaintiff had paid.

The plaintiff brought this action to compel the defendant to execute the deed of sale of the lots in
question, upon receipt of the balance of the price, and asks that he be judicially declared the owner of
said lots and that the defendant be ordered to deliver them to him.

The court below absolved the defendant from the complaint, and the plaintiff appealed.

In rendering that judgment, the court relied on the fact that the plaintiff had failed to pay the price of
the lots within the stipulated time; and that since the contract between plaintiff and defendant was an
option for the purchase of the lots, time was an essential element in it.

It is to be noted that in the document signed by the defendant, the 15th of December was fixed as the
date, extendible for fifteen days, for the payment by the plaintiff of the balance of the selling price. It
has been admitted that the plaintiff did not offer to complete the payment until January 9, 1929. He
contends that Mabanta, as attorney-in-fact for the defendant in this transaction, granted him an
extension of time until the 9th of January. But Mabanta has stated that he only extended the time until
the 5th of that month. Mabantas testimony on this point is corroborated by that of Paz Vicente and by
the plaintiffs own admission to Narciso Javier that his option to purchase those lots expired on January
5, 1929.

In holding that the period was an essential element of the transaction between plaintiff and defendant,
the trial court considered that the contract in question was an option for the purchase that the contract in
question was an option for the purchase of the lots, and that in an agreement of this nature the period is
deemed essential. The opinion of the court is divided upon the question of whether the agreement was
an option or a sale, but even supposing it was a sale, the court holds that time was an essential element
in the transaction. The defendant wanted to sell those lots to the plaintiff in order to pay off certain
obligation which fell due in the month of December, 1928. The time fixed for the payment of the price
was therefore essential for the defendant, and this view in borne out by his letter to his representative
Mabanta instructing him to consider the contract rescinded if the price was not completed in time. In
accordance with article 1124 of the Civil Code, the defendant is entitled to resolve the contract for
failure to pay the price within the time specified.

The judgment appealed from is affirmed, with costs against the appellant. So ordered.

Johnson, Street, Malcolm, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.

Republic of the Philippines

 SUPREME COURT
Manila
EN BANC
G.R. No. L-8024 November 29, 1955
EUSEBIO DE LA CRUZ, plaintiff-appellee,
vs.
APOLONIO LEGASPI and CONCORDIA SAMPEROY, defendants-appellants.
Jose A. Fornier for appellants.
Ramon Maza for appellee.
BENGZON, J.:
In the Court of First Instance of Antique, in November, 1950, Eusebio de la Cruz sued Apolonio
Legaspi and his wife to compel delivery of the parcel of land they had sold to him in December, 1949.
The complaint alleged the execution of the contract, the terms thereof, the refusal of defendants to
accept payment of the purchse price of P450 which he had tendered, and undue retention of the realty.
The defendants, in their answer, admitted the sale and the price; but they alleged that before the
document (of sale) "was made, the plaintiff agreed to pay the defendants the amount of P450 right after
the document is executed that very day December 5, 1949, but after the document was signed and
ratified by the Notary Public and after the plaintiff has taken the original of the said document, the sad
plaintiff refused to pay the sum of P450 which is the purchase price of the said land in question." They
asserted that for lack of consideration and for deceit, the document of sald should be annulled.
Plaintiff's next move was a petition for judgment on the pleadings, contending that the allegations of
the answer gave the defendants no excuse to retain the property, rejecting the price.
Joining the motion for judgment on the pleadings, the defendants maintained that the sale should be
annulled pursuant to their answer's allegatios.
The Honorable F. Imperial Reyes, Judge, rendered judgment (a) ordering plaintiff to pay the price of
P450 to defendants: (b) ordering the latter to receive such price and immediately after such receipt, to
deliver possession of the property to plaintiff.
Having failed in a motion to reconsider, defendants appealed in due time. The seven errors assigned in
their printed brief, assail the correctness of the judgment, maintaining two principal propositions,
namely: (1) the trial judge erroneously disregarded their allegations, in their answer, of non-payment of
the price, as hereinbefore quoted; (2) such allegations which must be deemed admitted by plaintiff
when he moved for judgment on the pleadings established a good defense, because the contract was
without consideration, and was resolved by plaintiff's failure to pay the price "right after the document
was executed.
As to the first proposition, the decision does not say so, but there is no reason to doubt that as requested
in the plaintiff's motion, His Honor considered the allegations made both in the complaint and in the
answer.
However, he found that defendants' allegations constituted no defense. He read the law correctly, as we
shall forthwith explain.
On the second proposition, appellants rightly say that the Civil Code not the New Civil Code
regulates the transaction, which occurred in 1949. Yet they err in the assertion that as plaintiff failed to
pay the price after the execution of the document of sale as agreed previously, the contract became null
and void for lack of consideration. It cannot be denied that when the document was signed the cause or
consideration existed: P450. The document specifically said so; and such was undoubtedly the
agreement. Subsequent non-payment of the price at the time agreed upon did not convert the contract
into one without cause or consideration: a nudum pactum. (Levy vs. Johnson, 4 Phil. 650; Puato vs.
Mendoza, 64 Phil, 457.) The situation was rather one in which there is failure to pay the consideration,
with its resultant consequences. In other words, when after the notarization of the contract, plaintiff
fialed to hand the money to defendants as he previously promised, there was default on his part at most,
and defendants' right was to demand interest legal interest for the delay, pursuant to article 1501
(3) of the Civil Code (Villaruel vs. Tan King, 43 Phil. 251), or to demand rescission in court. (Escueta
vs. Pardo, 42 Off. Gaz. 2759; Cortes vs. Bibano, 41 Phil. 298.) Such failure, however, did not ipso facto
resolve the contract, no stipulation to that effect having been alleged. (Cf. Warner Barnes & Co. vs.
Inza, 43 Phil., 505.) Neither was there any agreement nor allegation that payment on time was
essential. (Cf. Abella vs. Francisco, 55 Phil., 447; Berg vs. Magdalena Estate, 92 Phil., 110.
Indeed, even if the contract of sale herein question had expressly provided for "automatic rescission
upon failure to pay the price," the trial judge could allow plaintiff to enforce the contract, as the
judgment does, in effect because defendants had not made a previous demand on him, by suit or
notarial act.
In the sale of real property, even though it may have been stipulated that in default of the price
within the time agreed upon, the resolution of the contract shall take place ipso facto, the vendee
may pay even after the expiration of the period, at any time before demand has been made upon
him either by suit or by notarial act. After such demand has been made the judge cannot grant
him further time. (Art. 1504 Civil Code.).
By the way, this previous demand, Manresa explains, is a demand for rescission. (Manresa Civil Code,
Vol. 10, p. 288, 2d Ed.; Villaruel vs. Tan King, 43 Phil. 251.).
The appealed judgment will therefore be affirmed, with costs against appellants. So ordered.
Paras, C. J., Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador, Concepcion, and Reyes, J. B. L., JJ.,
concur.

EN BANC

[G.R. No. L-10394. December 13, 1958.]

 CLAUDINA VDA. DE VILLARUEL, ET AL., Plaintiffs-Appellees, v. MANILA MOTOR CO.,
INC. and ARTURO COLMENARES, Defendants-Appellants.

Hilado & Hilado for Appellees.

Ozaeta, Gibbs & Ozaeta for appellant company.

Jose L. Gamboa and Napoleon Garcia for appellant Arturo Colmenares.

SYLLABUS

1. INTERNATIONAL LAW; SEQUESTRATION OF PRIVATE PROPERTY BY BELLIGERENT

OCCUPANT RECOGNIZED; LESSOR OF SEIZED PROPERTY LIABLE FOR DISTURBANCE.
Under the generally accepted principles of international law, which are made part of the law of the
Philippines, a belligerent occupant (like the Japanese) may legitimately billet or quarter its troops in
privately owned land and buildings for the duration of its military operations, or as military necessity
should demand. Thus, when the Japanese forces evicted appellant lessee company from the leased
buildings and occupied the same as quarters for its troops, the Japanese authorities acted pursuant to a
right recognized by international and domestic law. Its act of dispossession, therefore, did not constitute
a mere act of trespass (perturbacion de mero hecho) but a trespass under color of title (perturbacion de
derecho) chargeable to the lessors of the seized premises, since the belligerent occupant acted pursuant
to a right that the law recognizes.

2. ID.; ID.; ID.; LIABILITY OF LESSEE FOR RENTS DURING OCCUPATION OF PROPERTY.
Such dispossession, though not due to the fault of the lessors or lessee nevertheless deprived the lessee
of the enjoyment of the thing leased. Wherefore, the lessees corresponding obligation to pay rentals
ceased during such deprivation.

3. ID.; ID.; ID.; IMPORTER REFUSAL TO ACCEPT RENTS PLACES LESSORS IN DEFAULT;
LIABILITY FOR SUPERVENING RISK. Since the lessee was exempt from paying the rents for the
period of its ouster, the insistence of the lessors to collect the rentals corresponding to said period was
unwarranted and their refusal to accept the currant rents tendered by the lessee was unjustified. Such
refusal places the lessors in default (mora) and they must shoulder the subsequent accidental loss of the
premises leased.

4. ID.; ID.; ID.; ID.; ID.; MORA OF LESSORS NOT CURED BY FAILURE OF LESSEE TO
CONSIGN RENTS IN COURT. The mora of the lessors was not cured by the failure of the lessee to
make the consignation of the rejected payments, but the lessee remained obligated to pay the amounts
tendered and not consigned by it in court.

5. PLEADING AND PRACTICE; CHANGE IN THE RELIEF PRAYED DURING THE PENDENCY
OF THE ACTION. A change in the relief prayed, brought about by circumstances occurring during
the pendency of the action, is not improper. This is justified under Section 2, Rule 17 of the Rules of
Court (on amendments) "to the end that the real matter in dispute and all matters in the action in dispute
between the parties may, as far as possible be completely determined in a single proceeding."cralaw
virtua1aw library
6. ID.; DISMISSAL WITHOUT PREJUDICE. The dismissal of plaintiffs two causes of action in
the case at bar was premised on the existence of the "Debt Moratorium" which suspended the
enforcement of the obligation up to a certain time. The reference thereto by the court amounted to a
dismissal "without prejudice", since in effect it ruled that the plaintiffs could not, at the time they
sought it, enforce their right of action against the defendants, but they must wait until the moratorium
was lifted. In this way, the court qualified its dismissal.

DECISION

REYES, J.B.L., J.:

Manila Motor Co., Inc., and Arturo Colmenares interpose this appeal against the decision of the Court
of First Instance of Negros Occidental, in its Civil Case No. 648, ordering the defendant Manila Motor
Co., Inc. to pay to the plaintiffs Villaruel the sum of (a) P11,900 with legal interest from May 18, 1953,
on which date, the court below declared invalid the continued operation of the Debt Moratorium, under
the first cause of action; (b) P38,395 with legal interest from the date of filing of the original complaint
on April 26, 1947, on the second cause of action; and against both the Manila Motor Co., Inc. and its
co-defendant, Arturo Colmenares, the sum of P30,000 to be paid, jointly and severally, with respect to
the third cause of action.

On May 31, 1940, the plaintiffs Villaruel and the defendant Manila Motor Co., Inc. entered into a
contract (Exhibit "A") whereby, the former agreed to convey by way of lease to the latter the following
described premises;

(a) Five hundred (500) square meters of floor space of a building of strong materials for automobile
showroom, offices, and store room for automobile spare parts;

(b) Another building of strong materials for automobile repair shop; and

(c) A 5-bedroom house of strong materials for residence of the Bacolod Branch Manager of the
defendant company.

The term of the lease was five (5) years, to commence from the time that the building were delivered
and placed at the disposal of the lessee company, ready for immediate occupancy. The contract was
renewable for an additional period of five (5) years. The Manila Motor Company, in consideration of
the above covenants, agreed to pay to the lessors, or their duly authorized representative, a monthly
rental of Three Hundred (P300) pesos payable in advance before the fifth day of each month, and for
the residential house of its branch manager, a monthly rental not to exceed Fifty (P50) pesos "payable
separately by the Manager."

The leased premises were placed in the possession of the lessee on the 31st day of October, 1940, from
which date, the period of the lease started to run under their agreement.

This situation, the Manila Motor Co., Inc. and its branch manager enjoying the premises, and the
lessors receiving the corresponding rentals as stipulated, continued until the invasion of 1941; and
shortly after the Japanese military occupation of the Provincial Capital of Bacolod the enemy forces
held and used the properties leased as part of their quarters from June 1, 1942 to March 29, 1945,
ousting the lessee therefrom. No payment of rentals were made at any time during the said period.

Immediately upon the liberation of the said city in 1945, the American Forces occupied the same
buildings that were vacated by the Japanese, including those leased by the plaintiffs, until October 31,
1945. Monthly rentals were paid by the said occupants to the owners during the time that they were in
possession, as the same rate that the defendant company used to pay.

Thereafter, when the United States Army finally gave up the occupancy the premises, the Manila Motor
Co., Inc., through their branch manager, Rafael B. Grey, decided to exercise their option to renew the
contract for the additional period of five (5) years, and the parties agreed that the seven months
occupancy by the U. S. Army would not be counted as part of the new 5-year term. Simultaneously
with such renewal, the company sublet the same buildings, except that used for the residence of the
branch manager, to the other defendant, Arturo Colmenares.

However, before resuming the collection of rentals, Dr. Alfredo Villaruel, who was entrusted with the
same, consulted Atty. Luis Hilado on whether they (the lessors) had the right to collect, from the
defendant company, rentals corresponding to the time during which the Japanese military forces had
control over the leased premises. Upon being advised that they had such a right, Dr. Villaruel demanded
payment thereof, but the defendant company refused to pay. As a result, Dr. Villaruel gave notice
seeking the rescission of the contract of lease and the payment of rentals from June 1, 1942 to March
31, 1945 totalling P11,900. This was also rejected by the defendant company in its letter to Villaruel,
dated July 27, 1946.

Sometime on that same month of July, Rafael B. Grey offered to pay to Dr. Villaruel the sum of P350,
for which, tenderer requested a receipt that would state that it was in full payment for the said month.
The latter expressed willingness to accept the tendered amount provided, however, that his acceptance
should be understood to be without prejudice to their demand for the rescission of the contract, and for
increased rentals until their buildings were returned to them. Later, Dr. Villaruel indicated his
willingness to limit the condition of his acceptance to be that "neither the lessee nor the lessors admit
the contention of the other by the mere fact of payment." As no accord could still be reached between
the parties as to the context of the receipt, no payment was thereafter tendered until the end of
November, 1946. On December 4, 1946 (the day after the defendant company notified Dr. Villaruel by
telegram, that it cancelled the power of attorney given to Grey, and that it now authorized Arturo
Colmenares, instead, to pay the rent of P350 each month), the Manila Motor Co., Inc. remitted to Dr.
Villaruel by letter, the sum of P350.90. For this payment, the latter issued a receipt stating that it was
"without prejudice" to their demand for rents in arrears and for the rescission of the contract of lease.

After it had become evident that the parties could not settle their case amicably, the lessors commenced
this action on April 26, 1947 with the Court of First Instance of Negros Occidental against the
appellants herein. During the pendency of the case, a fire originating from the projection room of the
City Theatre, into which Arturo Colmenares, (the sublessee) had converted the former repair shop of
the Manila Motor Co. Inc., completely razed the building, engulfing also the main building where
Colmenares had opened a soda fountain and refreshment parlor, and made partitions for store spaces
which he rented to other persons.

Because of the aforesaid occurrence, plaintiffs demanded reimbursement from the defendants, but
having been refused, they filed a supplemental complaint to include as their third cause of action, the
recovery of the value of the burned buildings.

Defendants filed their amended answer and also moved for the dismissal of the plaintiffs first and
second causes of action invoking the Debt Moratorium that was then in force. The dismissal was
granted by the trial court on February 5, 1951, but hearing was set as regards the third cause of action.

On August 11, 1952, the defendant company filed a motion for summary judgment dismissing the
plaintiffs, third cause of action, to which plaintiffs registered objection coupled with a petition for
reconsideration of the order of the court dismissing the first and second causes of action. Pending the
resolution of this incident, plaintiffs, on October 2, 1953, called the courts attention to the decision in
the case of Rutter v. Esteban (93 Phil., 68; 49 Off. Gaz. [5] 1807) invalidating the continued effectivity
of the Moratorium Law (R. A. 342). On November 25, 1953, the trial court denied the defendant
companys motion for summary judgment and set aside its previous order dismissing the first and
second causes of action. The case was accordingly heard and thereafter, judgment was rendered in
plaintiffs favor in the terms set in the opening paragraph of this decision. Thereafter, the defendants
regularly appealed to this Court.

The defendants-appellants raise a number of procedural points. The first of these relates to their
contention that the supplemental complaint which included a third cause of action, should not have
been admitted, as it brought about a change in the original theory of the case and that it raised new
issues not theretofore considered. This argument cannot be sustained under the circumstances. This
action was inceptionally instituted for the rescission of the contract of lease and for the recovery of
unpaid rentals before and after liberation. When the leased buildings were destroyed, the plaintiffs-
lessors demanded from the defendants-lessees, instead, the value of the burned premises, basing their
right to do so on defendants alleged default in the payment of post-liberation rentals (which was also
their basis in formerly seeking for rescission). This cannot be considered as already altering the theory
of the case which is merely a change in the relief prayed for, brought about by circumstances occurring
during the pendency of the action, and is not improper. (Southern Pacific Co. v. Conway, 115 F. 2d 746;
Suburban Improvement Company v. Scott Lumber Co., 87 A.L.R. 555, 59 F. 2d 711). The filing of the
supplemental complaint can well be justified also under section 2, Rule 17 of the Rules of Court (on
amendments) "to the end that the real matter in dispute and all matters in the action in dispute between
the parties may, as far as possible be completely determined in a single proceedings." It is to be noted
furthermore, that the admission or rejection of this kind of pleadings is within the sound discretion of
the court that will not be disturbed on appeal in the absence of abuse thereof (see Sec. 5, Rule 17, Rules
of Court), especially so, as in this case, where no substantial procedural prejudice is caused to the
adverse party.

It is urged that the dismissal of the first and second causes of action on February 5, 1951 had the effect
of a dismissal "with prejudice" as the court did not make any qualification in its dismissal order.
Appellants, apparently, lost sight of the fact that the dismissal was premised on the existence of the
"Debt Moratorium" which suspended the enforcement of the obligation up to a certain time. The
reference thereto by the lower court amounted to a dismissal "without prejudice", since in effect it ruled
that the plaintiffs could not, at the time they sought it, enforce their right of action against the
defendants, but plaintiffs must wait until the moratorium was lifted. In this way, the court qualified its
dismissal.

Taking up the case on its merits, it is readily seen that the key to the entire dispute is the question
whether the defendant-appellant Manila Motor Co., Inc. should be held liable for the rentals of the
premises leased corresponding to the lapse of time that they were occupied as quarters or barracks by
the invading Japanese army, and whether said appellant was placed in default by its refusal to comply
with the demand to pay such rents. For if the Motor Company was not so liable, then it never was in
default nor was it chargeable for the accidental lose of the buildings, nor for any damages except the
rental at the contract rate from its reoccupation of the premises leased until the same were accidentally
destroyed by fire on March 2, 1948.

The appellees contended, and the court below has held, that the ouster of the lessee company by the
Japanese occupation forces from 1942 until liberation, while operating to deprive the lessee of the
enjoyment of the thing leased, was, nevertheless, a mere act of trespass ("perturbacion de mero hecho")
that, under the Spanish Civil Code of 1889 (in force here until 1950), did not exempt the lessee from
the duty to pay rent. We find that contention and ruling erroneous and untenable.

The pertinent articles of the Civil Code of Spain of 1889 provide:jgc:chanrobles.com.ph

"ART. 1554. It shall be the duty of the lessor;

1. To deliver to the lessee the thing which is the subject matter of the contract;

2. To make thereon, during the lease, all repairs necessary in order to keep it in serviceable condition
for the purpose for which it was intended;

3. To maintain the lessee in the peaceful enjoyment of the lease during the entire term of the
contract."cralaw virtua1aw library

"ART. 1560. The lessor shall not be liable for any act of mere disturbance of a third person of the use of
the leased property; but the lessee shall have a direct action against the trespasser.

If the third person, be it the Government or a private individual, has acted in reliance upon a right, such
action shall not be deemed a mere act of disturbance." (Italics supplied)

Under the first paragraph of article 1560 the lessor does not answer for a mere act of trespass
(perturbacion de mero hecho) as distinguished from trespass under color of title (perturbacion de
derecho). As to what would constitute a mere act of trespass, this Court in the case of Goldstein v.
Roces (34 Phil. 562), made this pronouncement:jgc:chanrobles.com.ph

"Si el hecho perturbador no va acompaado ni precedido de nada que revele una intencion propiamente
juridica en el que lo realiza, de tal suerte que el arrendatario solo pueda apreciar el hecho material
desnudo de toda forma o motivacion de derecho, entendemos que se trata de una perturbacion de mero
hecho."cralaw virtua1aw library

Upon the basis of the distinction thus established between the perturbacion de hecho and the
perturbacion de derecho, it is demonstrable that the ouster of the appellant by the Japanese occupying
forces belongs to the second class of disturbances, de derecho. For under the generally accepted
principles of international law (and it must be remembered that those principles are made by our
Constitution a part of the law of our nation 1) a belligerent occupant (like the Japanese in 1942-1945)
may legitimately billet or quarter its troops in privately owned land and buildings for the duration of its
military operations, or as military necessity should demand. The well known writer Oppenheim,
discoursing on the laws of war on land, says upon this topic;
"Immovable private enemy property may under no circumstances or conditions be appropriated by an
invading belligerent. Should he confiscate and sell private land or buildings, the buyer would acquire
no right whatever to the property. Article 46 of the Hague Regulations expressly enacts that private
property may not be confiscated. But confiscation differs from the temporary use of private land and
building for all kinds of purposes demanded by the necessities of war. What has been said above with
regard to utilization of public buildings applies equally to private buildings. If necessary, they may be
converted into hospitals, barracks, and stables without compensation for the proprietors, and they may
also be converted into fortifications. A humane belligerent will not drive the wretched inhabitants into
the street if he can help it. But under the pressure of necessity he may be obliged to do this, and he is
certainly not prohibited from doing it. (Italics supplied) (Oppenheim & Lauterpach, International Law,
Vol. II, p. 312, 1944 Ed.)

The view thus expressed is concurred in by other writers. Hyde (International Law, Vol. 3, p. 1893, 2nd
Rev. Ed.) quotes the U. S. War Department 1940 Rules of Land Warfare (Rule No. 324) to the effect
that

"The measure of permissible devastation is found in the strict necessities of war. As an end in itself, as
a separate measure of war, devastation is not sanctioned by the law of war. There must be some
reasonably close connection between the destruction of property and the overcoming of the enemys
army. Thus the rule requiring respect for private property is not violated through damage resulting from
operations, movements, or combats of the army; that is, real estate may be utilized for marches, camp
sites, construction of trenches, etc. Building may be used for shelter for troops, the sick and wounded,
for animals, for reconnaisance, cover defense, etc. Fences, woods, crops, buildings, etc., may be
demolished, cut down, and removed to clear a field of fire, to construct bridges, to furnish fuel if
imperatively needed for the army." (Emphasis supplied)

Reference may also be made to Rule 336:jgc:chanrobles.com.ph

"What may be requisitioned. Practically everything may be requisitioned under this article (art. LII
of the regulations above quoted) that is necessary for the maintenance of the army and not of direct
military use, such as fuel, food, forage, clothing, tobacco, printing presses, type, leather, cloth, etc.
Billeting of troops for quarters and subsistence is also authorized." (Emphasis supplied)

And Forest and Tucker state:jgc:chanrobles.com.ph

"The belligerent occupant may destroy or appropriate public property which may have a hostile
purpose, as forts, arms, armories, etc. The occupying force may enjoy the income from the public
sources. Strictly private property should be inviolable, exce pt so for as the necessity of war requires
contrary action." (Forest and Tucker, International Law, 9th Ed., p. 277) (Emphasis supplied)

The distinction between confiscation and temporary sequestration of private property by a belligerent
occupant was also passed upon by this Court in Haw Pia v. China Banking Corporation, 80 Phil. 604,
wherein the right of Japan to sequester or take temporary control over enemy private property in the
interest of its military effort was expressly recognized.

We are thus forced to conclude that in evicting the lessee, Manila Motor Co., Inc. from the leased
buildings and occupying the same as quarters for troops, the Japanese authorities acted pursuant to a
right recognized by international and domestic law. Its act of dispossession, therefore, did not constitute
perturbacion de hecho but a perturbacion de derecho for which the lessors Villaruel (and not the
appellants lessees) were liable (Art. 1560, su pra) and for the consequences of which said lessors must
respond, since the result of the disturbance was the deprivation of the lessee of the peaceful use and
enjoyment of the property leased. Wherefore, the latters corresponding obligation to pay rentals ceased
during such deprivation.

The Supreme Court of Spain, in its Sentencia of 6 December 1944, squarely declared the resolutory
effect of the military sequestration of properties under lease upon the lessees obligation to pay rent
(Jurisprudencia Civil, Segunda Serie, Tomo 8, pp. 583, 608):jgc:chanrobles.com.ph

"Considerando que para resolver acerca de la procedencia del presente recurso es preciso partir de las
bases de hecho sentadas en la sentencia recurrida, y no impugnadas al amparo del nmero 7. del
articulo 1.692 de la Ley de Enjuiciamiento civil, es decir, de que hallandose vigente el contrato de
arrendamiento celebrado entre actor y demandada, en fecha que no se precisa, entre los dias del 18 al
31 de julio de 1936, los locales objeto de dicho contrato de arrendamiento, y en los que no funcionaba
de tiempo anterior la industria para cuyo ejercicio se arrendaron, fueron requisados por el Ejercito
Nacional, con motivo de la guerra civil, para que se instalara en los mismos la Junta de Donativos al
Ejercito del Sur, aun cundo en dicha incautacion, que se hizo a la propiedad de la finca, no se
observaron las formalidades legales, a causa de las circunstancias extraordinarias por que a la sazon
atravesaba Sevilla, hecho que no consta se hiciera saber por los arrendatarios demandados al actor, pero
que fue notorio en aquella capital, donde residia el actor, que de el debio tener concoimiento. Se estima
igualmente por la Sala que el hecho de que la industria no funcionara en el local no tuvo iufluencia
alguna sobre su incautacion por el Ejercito."cralaw virtua1aw library

"Considerando que sobre tales bases de hecho es de desestimar el primer motivo del recurso: violacion
de los articulos 1.254, 1.278 y 1.091 del Codigo civil, que sancionan, en terminos generales, la eficacia
de los contratos, puesto que en el presente caso de los que se trata en definitiva es de determinar si por
virtud de fuerza mayor, la requisa a que se hace referencia, ajena, por lo tanto, a culpa, asi del
arrendatario como del arrendador, se vio aqel privado del posible disfrute de la finca arrendada, y de si
por virtud de esta circunstancia este o no exento de la obligacion de abonar la renta pactada durante el
tiempo que subsistio la incautacion; y es indudable la afirmativa en cuanto al primer extremo, puesto
que la sentencia recurrida establece que el hecho de que no funcionase la industria y estuvieran los
locales cerrados no actuo como causa de la requisa de estos por el Ejercito."cralaw virtua1aw library

"Considerando que la sentencia recurrida, en cuanto no da lugar al pago de las rentas correspondientes
al tiempo que duro la incautacion, lejos de infringir, por aplicacion indebida, el art. 1.568 del Codigo
civil, se ajusta a la orientacion marcada en el mismo, puesto que este precepto legal dispone que el
arrendatario tiene accion contra el tercero perturbador de mero hecho en la posesion de la finca
arrendada, pero no contra la Administracion o contra los que obran en virtud de un derecho que les
corresponde; y aqui la perturbacion que experimento el arrendador en su posesion, como consecuencia
de la requisa, no puede calificarse como de mero hecho, conforme al citado articulo, puesto que la finca
fue requisada por la autoridad militar para fines de guerra, de donde se sigue que el arrendatario tenia
que soportar la privacion de su tenencia material a traves del arrendador, con quien ha de entenderse la
requisa de la cosa arrendada."cralaw virtua1aw library

In addition, the text of Art. 1560, in its first paragraph (jam quot.) assumes that in case of mere
disturbance (perturbacion de mero hecho) "the lessee shall have a direct action against the trespasser."
This assumption evidently does not contemplate the case of dispossession of the lessee by a military
occupant, as pointed out by Mr. Chief Justice Paras in his dissenting opinion in Reyes v. Caltex (Phil.)
Inc., 84 Phil. 669; for the reason that the lessee could not have a direct action against the military
occupant. It would be most unrealistic to expect that the occupation courts, placed under the authority
of the occupying belligerent, should entertain at the time a suit for forcible entry against the Japanese
army. The plaintiffs, their lawyers, and in all probability, the Judge and court personnel, would face
"severest penalties" for such defiance of the invader.

The present case is distinguishable from Lo Ching v. Archbishop of Manila (81 Phil., 601) in that the
act of the Japanese military involved in the latter case clearly went beyond the limits set by the Hague
Conventions, in seizing the property and delivering it to another private party; and from Reyes v.
Caltex (Phil.) Inc., 84 Phil. 654, in that the rights of the military occupant under international law were
not raised or put in issue in said case; and moreover, the lessee there, by failing to rescind the lease
upon seizure of the premises by the Japanese military, despite the stipulated power to do so, resumed
business and decided to hold unto the long term lease for the balance of its 20-year period, starting
from December 23, 1940. In the case before us, the occupation of the leased property by the Japanese
army covered the major portion of the five-year contractual period, without any option to rescind by the
lessee.

The lessors position is not improved by regarding the military seizure of the property under lease as a
case of force majeure or fortuitous event. Ordinarily, a party may not be held responsible therefor,
despite the fact that it prevented compliance of its obligations. But lease being a contract that calls for
prestations that are both reciprocal and repetitive (tractum successivum), the obligations of either party
are not discharged at any given moment, but must be fulfilled all throughout the term of the contract.
As a result, any substantial failure by one party to fulfill its commitments at any time during the
contract period gives rise to a failure of consideration (causa) for the obligations of the other party and
excuses the latter from the correlative performance, because the causa in lease must exist not only at
the perfection but throughout the term of the contract. No lessee would agree to pay rent for premises
he could not enjoy. As expressed by Marcel Planiol (quoted in 4 Castan, Derecho Civil, 7th Edition, p.
264)

"Como la obligacion del arrendador es sucesiva y se renueva todos los dias, la subsistencia del
arrendamiento se hace imposible cuando, por cualquier razon, el arrendador no puede ya procurar al
arrendatario el disfrute de la cosa."cralaw virtua1aw library

This effect of the failure of reciprocity appears whether the failure is due to fault or to fortuitous event;
the only difference being that in case of fault, the other party is entitled to rescind the contract in toto,
and collect damages, while in casual non-performance it becomes entitled only to a suspension pro
tanto of its own commitments. This rule is recognized in par. 2 of Art. 1558, authorizing the lessee to
demand reduction of the rent in case of repairs depriving him of the possession of part of the property;
and in Art. 1575, enabling the lessee of rural property to demand reduction of the rent if more than one-
half of the fruits are lost by extraordinary fortuitous event. Of course, where it becomes immediately
apparent that the loss of possession or enjoyment will be permanent, as in the case of accidental
destruction of a leased building, the lease contract terminates.

Applying these principles, the Sentencia of December 1944, already adverted to, ruled as
follows:jgc:chanrobles.com.ph

"Considerando que privado el arrendador, por tal hecho, del disfrute de esta, es menifiesta la
imposibilidad en que se vio de cumplir la tercera de las obligaciones que el impone el articulo 1.554 del
Codigo Civil, obligacion (la de mantener al arrendatario en el disfrute de la cosa arrendada) que ha de
entenderse reciproca de la de pago de renta pactada, que impone al arrendatario el nmero primero del
art. 1.555 de dicho Cuerpo legal, y por ello no puede ser exigida."cralaw virtua1aw library

"Considerando que, aunque no sean estrictamente aplicables al caso los articulos 1.124, 1.556 y 1.568,
que se citan como infringidos por el recurrente, suponiendo que a ellos ha entendido referirse la
Audiencia (lo que impediria, en todo caso, la estimacion del recurso por este motivo, ya que dichos
articulos no se citan en la sentencia de instancia), es evidente que ellos proclaman la reciprocidad de las
obligaciones entre arrendatario y arrendador, y en este sentido, tratandose de un incumplimiento
inculpable de contrato, pueden servir, como tambien el 1.558, en cuanto preven la reduccion de rentas o
posible restriccion del contrato cuando el arrendatario se ve privado, por obras realizadas en la finca
arrendada, del disfrute de este, de fundamento, con los demas preceptos invocados, a una extencion de
renta mientras subsiste la imposibilidad de utilizar la cosa arrendada, sobre todo cuando los articulos
157 y 158 del Reglamento de Requisas de 13 de enero de 1921 estatuyen claramente que les requisas
de edificio se hacen a la propiedad, y es el propietario el que puede pedir indemnizacion, uno de cuyos
elementos es el precio del alquiler que le sea satisfecho por el inmueble incautado."cralaw virtua1aw
library

We are aware that the rule in the common law is otherwise, due to its regarding a lease as a conveyance
to the lessee of a temporary estate or title to the leased property so that loss of possession due to war or
other fortuitous event leaves the tenant liable for the rent in the absence of stipulation. The fundamental
difference between the common law and the civil law concepts has been outlined by the United States
in Viterbo v. Friedlander, 30 L. Ed. (U.S.) pp. 776, 778, in this wise:jgc:chanrobles.com.ph

"But as to the nature and effect of a lease for years, at a certain rent which the lessee agrees to pay, and
containing no express covenant on the part of the lessor, the two systems differ materially. The
common law regards such a lease as the grant of an estate for years, which the lessee takes a title in,
end is bound to pay the stipulated rent for, notwithstanding any injury by flood, fire or external
violence, at least unless the injury is such a destruction of the lend as to amount to an eviction; end by
that law the lessor is under no implied covenant to repair, or even that the premises shall be fit for the
purpose for which they are leased. Fowler v. Bott, 6 Mass. 63; 3 Kent, Com. 465, 466; Broom, Legal
Maxims, 3d ed. 213, 214; Doupe v. Genin, 45 N. Y. 119; Kingbury v. Westfall, 61 N. Y. 356. Naumberg
v. Young, 15 Vroom, 331; Bowe v. Hunking, 135 Mass. 380; Manchester Warehouse Co. v. Carr, L.R. 5
C.P.D. 507.

The civil law, on the other hand, regards a lease for years as a mere transfer of the use and enjoyment
of the property; and holds the landlord bound, without any express covenant, to keep it in repair and
otherwise fit for use and enjoyment for the purpose for which it is leased, even when the need of repair
or the unfitness is caused by an inevitable accident, and if he does not do so, the tenant may have the
lease annulled, or the rent abated. Dig. 19, 2, 9, 2; 19, 2, 15, 1, 2; 19, 2, 25, 2; 19, 2, 39; 2 Gomez,
Variae Resolutiones c. 3, secs. 1-3, 18, 19: Gregorio Lopes in 5 Partidas, tit. 8, 11. 8, 22; Domat, Droit
Civil, pt. 1, lib. 1, tit. 4, sec. 1, no. 1; sec. 3 nos. 1, 3, 6, Pothier, Contract de Louage, nos. 3, 6, 11, 22,
53, 103, 106, 139-155.

It is accordingly laid down in the Pandects, on the authority of Julian, If anyone has let an estate, that,
even if anything happens by vis major, he must make it good, he must stand by his contract, si quis
fundum locaverit, ut, etiamsi quid vi majore accidisset, hoc ei praestaretur, pacto standum esse; Dig.
19, 2, 9, 2; and on the authority of Ulpian, that A lease does not change the ownership, non solet
locatio dominium mutare; Dig. 19, 2, 39; and that the lessee has a right of action, if he cannot enjoy the
thing which he has hired, si re quam conduxit frui non liceat, whether because his possession, either of
the whole or of part of the field, is not made good, or a house, or stable or sheepfold, is not repaired;
and the landlord ought to warrant the tenant, dominum colono praestare debere, against every
irresistible force, omnim vim cui resisti non potest, such as floods, flocks of birds, or any like cause, or
invasion of enemies; and if the whole crop should be destroyed by a heavy rainfall, or the olives should
be spoiled by blight, or by extraordinary heat of the sun, solis fervore non assueto, it would be the loss
of the landlord, damnum domini futurum; and so if the field falls in by an earthquake, for there must be
made good to the tenant a field that he can enjoy, o portere enim agrum praestari conductori, ut frui
possit; but if any loss arises from defects in the thing itself, si qua tamen vitia ex i psa re oriantur, as if
wine turns sour, or standing corn is spoiled by worms or weeds, or if nothing extraordinary happens, si
vero nihil extra consuetudinem acciderit, it is the loss of the tenant, damnum coloni asse. Dig. 19, 2; 15,
1, 2." (Emphasis supplied)

In short, the law applies to leases the rule enunciated by the Canonists and the Bartolist School of Post
glossatorse, that "contractus qui tractum successivum habent et de pendentiam de futuro, sub
conditione rebus sic stantibus intelliguntur," they are understood entered subject to the condition that
things will remain as they are, without material change.

It is also worthy of note that the lessors, through Dr. Javier Villaruel, agreed after liberation to a
renewal of the contract of lease for another five years (from June 1, 1946 to May 31 of 1951) without
making any reservation regarding the alleged liability of the lessee company for the rentals
corresponding to the period of occupancy of the premises by the Japanese army, and without insisting
that the non-payment of such rental was a breach of the contract of lease. This passivity of the lessors
strongly supports the claim of the lessees that the rentals in question were verbally waived. The
proffered explanation is that the lessors could not refuse to renew the lease, because the privilege of
renewal had been granted to the lessees in the original contract. Such excuse is untenable: if the lessors
deemed that the contract had been breached by the lessees non-payment of the occupation rents how
could they admit the lessees right to renew a contract that the lessee itself had violated?

But this is not all. The lessors accepted payment of current rentals from October 1945 to June 1946. It
was only in July 1946 that they insisted upon collecting also the 1942-1945 rents, and refused to accept
further payments tendered by the lessee unless their right to collect the occupation rental was
recognized or reserved. After refusing the rents from July to November 1946, unless the lessee
recognized their right to occupation rentals, the appellees (lessors) demanded rescission of the contract
and a rental of P1,740 monthly in lieu of the stipulated P350 per month. (Exhibit "C").

This attitude of the lessors was doubly wrongful: first, because as already shown, the dispossession by
the Japanese army exempted the lessee from his obligation to pay rent for the period of its ouster; and
second, because even if the lessee had been liable for that rent, its collection in 1946 was barred by the
moratorium order, Executive Order No. 32, that remained in force until replaced by Rep. Act 342 in
1948. To apply the current rentals to the occupation obligations would amount to enforcing them
contrary to the moratorium decreed by the government.

Clearly, then, the lessor insistence upon collecting the occupation rentals for 1942-1945 was
unwarranted in law. Hence, their refusal to accept the current rentals without qualification placed them
in default (mora creditoris or acci piendi) with the result that thereafter, they had to bear all
supervening risks of accidental injury or destruction of the leased premises. While not expressly
declared by the Code of 1889, this result is clearly inferable from the nature and effects of mora, and
from Articles 1185, 1452 [par. 3] and 1589).

"ART. 1185. When the obligation to deliver a certain and determinate thing arises from the commission
of a crime or misdemeanor the obligor shall not be exempted from the payment of its value, whatever
the cause of its loss may have been, unless, having offered the thing to the person entitled to receive it,
the latter should have refused without reason to accept it."cralaw virtua1aw library

"Art. 1452. . . .

If fungible things should be sold for a price fixed with relation to weight, number, or measure, they
shall not be at the purchasers risk until they have been weighed, counted, or measured, unless the
purchaser should be in default."cralaw virtua1aw library

"ART. 1589. If the person who contracted to do the work bound himself to furnish the materials, he
shall bear the loss in case of the destruction of the work before it is delivered, unless its acceptance has
been delayed by the default of the other party."cralaw virtua1aw library

While there is a presumption that the loss of the thing leased is due to the fault of the lessee (Civil Code
of 1889, Art. 1563), it is noteworthy that the lessors have not invoked that presumption either here or in
the court below. On the contrary, the parties and the trial court have all proceeded and discussed the
issues taking for granted that the destruction of the leased buildings was purely fortuitous. We see no
reason for departing from that assumption and further prolonging this litigation.

That the lessee and sublessee did not consign or deposit in court the rentals tendered to and improperly
rejected by the lessors, did not render the debtor liable for default (mora solvendi) nor answerable for
fortuitous events because, as explained by the Supreme Court of Spain in its Sentencia of 5 June 1944

"Al exigir el art. 1176 del Codigo Civil la consignacion para liberar al deudor no quiere decir que
necesariamente haya de practicarse, y no baste el ofrecimiento de pago que de aquella no fuere seguido,
a efectos de exclusion ds las consecuencias de la mora solvendi." (8 Manresa, Comentarios, 5th Ed.,
Vol. I, p. 136).

In other words, the only effect of the failure to consign the rentals in court was that the obligation to
pay them subsisted (P.N.B. v. Relativo, 92 Phil., 203) and the lessee remained liable for the amount of
the unpaid contract rent, corresponding to the period from July to November, 1946; it being undisputed
that, from December 1946 up to March 2, 1948, when the commercial buildings were burned, the
defendants-appellants have paid the contract rentals at the rate of P350 per month. But the failure to
consign did not eradicate the default (mora) of the lessors nor the risk of loss that lay upon them. (3
Castan, Der. Civ., 8th Ed., p. 145; 4 Puig Pea, Der. Civ., part. 1, p. 234; Diaz Pairo, Teoria Gen. de las
Obligaciones [3rd Ed. ], Vol. 1, pp. 192-193).

In view of the foregoing, we hold:chanrob1es virtual 1aw library

(a) That the dispossession of the lessee from the premises by the Japanese army of occupation was not
an act of mere trespass (perturbacion de mero hecho) but one de derecho chargeable to the lessors;

(b) That such dispossession, though not due to fault of lessors or lessee, nevertheless resulted in the
exemption of the lessee from its obligation to pay rent during the period that it was deprived of the
possession and enjoyment of the premises leased;

(c) That the insistence of the lessors to collect such rentals was unwarranted;
(d) That the lessors were not justified in refusing to accept the tender of current rentals unless the lessee
should recognize their right to the rents corresponding to the period that the lessee was not in
possession;

(e) That by their improper refusal to accept the current rents tendered by the lessee, the lessors incurred
in default (mora) and they must shoulder the subsequent accidental loss of the premises leased;

(f) That the mora of the lessors was not cured by the failure of the lessee to make the consignation of
the rejected payments, but the lessee remained obligated to pay the amounts tendered and not
consigned by it in court.

Consequently, it was reversible error to sentence the appellants to pay P2,165 a month as reasonable
value of the occupation of the premises from July 1946, and the value of the destroyed buildings
amounting to P30,000.

Wherefore, the decision appealed from is modified in the sense that the appellant Manila Motor
Company should pay to the appellees Villaruel only the rents for the leased premises corresponding to
the period from July up to November 1946, at the rate of P350 a month, or a total of P1,750. Costs
against appellees in both instances. So ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion and Endencia, JJ.,
concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO,
JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as
statutory receiver of Island Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the decision of the Court
of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated
February 15, 1972 of the Court of First Instance of Agusan, which dismissed the petition of
respondent Sulpicio M. Tolentino for injunction, specific performance or rescission, and
damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal
department, approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a
security for the loan, executed on the same day a real estate mortgage over his 100-hectare
land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which
mortgage was annotated on the said title the next day. The approved loan application called
for a lump sum P80,000.00 loan, repayable in semi-annual installments for a period of 3
years, with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan
proceeds solely as an additional capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the
Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for
P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of the
contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance interest for the
P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the
partial release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M.
Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet
available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-
president and treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113,
rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings
Bank was suffering liquidity problems, issued Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank against its
deposit liabilities, the Board, by unanimous vote, decided as follows:
1) To prohibit the bank from making new loans and investments [except
investments in government securities] excluding extensions or renewals of
already approved loans, provided that such extensions or renewals shall be
subject to review by the Superintendent of Banks, who may impose such
limitations as may be necessary to insure correction of the bank's deficiency as
soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up
the required capital to restore its solvency, issued Resolution No. 967 which prohibited Island
Savings Bank from doing business in the Philippines and instructed the Acting Superintendent
of Banks to take charge of the assets of Island Savings Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered
by the promissory note, filed an application for the extra-judicial foreclosure of the real estate
mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled
the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of
Agusan for injunction, specific performance or rescission and damages with preliminary
injunction, alleging that since Island Savings Bank failed to deliver the P63,000.00 balance of
the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to
deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said
balance cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a
temporary restraining order enjoining the Island Savings Bank from continuing with the
foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the
dismissal of the petition of Sulpicio M. Tolentino and the setting aside of the restraining order,
filed by the Central Bank and by the Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding
unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank
the amount of PI 7 000.00 plus legal interest and legal charges due thereon, and lifting the
restraining order so that the sheriff may proceed with the foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the
Court of First Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for
specific performance, but it ruled that Island Savings Bank can neither foreclose the real
estate mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the
promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real
estate mortgage be foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan
agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations,
the obligation or promise of each party is the consideration for that of the other (Penaco vs.
Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one
party has performed or is ready and willing to perform his part of the contract, the other party
who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the
Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the
obligation of Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino
executed a real estate mortgage on April 28, 1965, he signified his willingness to pay the
P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the
P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started on April
28, 1965, and lasted for a period of 3 years or when the Monetary Board of the Central Bank
issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from
doing further business. Such prohibition made it legally impossible for Island Savings Bank to
furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board to
take over insolvent banks for the protection of the public is recognized by Section 29 of R.A.
No. 265, which took effect on June 15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of
Island Savings Bank in complying with its obligation of releasing the P63,000.00 balance
because said resolution merely prohibited the Bank from making new loans and investments,
and nowhere did it prohibit island Savings Bank from releasing the balance of loan
agreements previously contracted. Besides, the mere pecuniary inability to fulfill an
engagement does not discharge the obligation of the contract, nor does it constitute any
defense to a decree of specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39
Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never an excuse for the non-
fulfillment of an obligation but 'instead it is taken as a breach of the contract by him (vol. 17A,
1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted
interest amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period
cannot be taken as a waiver of his right to collect the P63,000.00 balance. The act of Island
Savings Bank, in asking the advance interest for 6 months on the supposed P80,000.00 loan,
was improper considering that only P17,000.00 out of the P80,000.00 loan was released. A
person cannot be legally charged interest for a non-existing debt. Thus, the receipt by
Sulpicio M. 'Tolentino of the pre-deducted interest was an exercise of his right to it, which right
exist independently of his right to demand the completion of the P80,000.00 loan. The
exercise of one right does not affect, much less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral
cannot exempt it from complying with its reciprocal obligation to furnish the entire P80,000.00
loan. 'This Court previously ruled that bank officials and employees are expected to exercise
caution and prudence in the discharge of their functions (Rural Bank of Caloocan, Inc. vs.
C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and employees that
before they approve the loan application of their customers, they must investigate the
existence and evaluation of the properties being offered as a loan security. The recent rush of
events where collaterals for bank loans turn out to be non-existent or grossly over-valued
underscore the importance of this responsibility. The mere reliance by bank officials and
employees on their customer's representation regarding the loan collateral being offered as
loan security is a patent non-performance of this responsibility. If ever bank officials and
employees totally reIy on the representation of their customers as to the valuation of the loan
collateral, the bank shall bear the risk in case the collateral turn out to be over-valued. The
representation made by the customer is immaterial to the bank's responsibility to conduct its
own investigation. Furthermore, the lower court, on objections of' Sulpicio M. Tolentino, had
enjoined petitioners from presenting proof on the alleged over-valuation because of their
failure to raise the same in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower
court's action is sanctioned by the Rules of Court, Section 2, Rule 9, which states that
"defenses and objections not pleaded either in a motion to dismiss or in the answer are
deemed waived." Petitioners, thus, cannot raise the same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan
agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between
specific performance or rescission with damages in either case. But since Island Savings
Bank is now prohibited from doing further business by Monetary Board Resolution No. 967,
WE cannot grant specific performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the
P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as
such amount is concerned, as there is no doubt that the bank failed to give the P63,000.00.
As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and
executed a promissory note to cover it, the bank was deemed to have complied with its
reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio
M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to
pay the overdue amortizations under the promissory note made him a party in default, hence
not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the
promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If
Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within
3 years, he would be entitled to ask for rescission of the entire loan because he cannot
possibly be in default as there was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal obligations,
that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and
Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3
years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of
their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the
courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the
entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of
penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio
M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities
of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the
P17,000.00, it is just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely
foreclosed to satisfy his P 17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the
principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the
consideration of his obligation to pay is the existence of a debt. Thus, in the accessory
contract of real estate mortgage, the consideration of the debtor in furnishing the mortgage is
the existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of
the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration
was then in existence, as there was no debt yet because Island Savings Bank had not made
any release on the loan, does not make the real estate mortgage void for lack of
consideration. It is not necessary that any consideration should pass at the time of the
execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may
either be a prior or subsequent matter. But when the consideration is subsequent to the
mortgage, the mortgage can take effect only when the debt secured by it is created as a
binding contract to pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones
on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage
becomes unenforceable to the extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p.
82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness actually owing to the
holder of the mortgage is less than the sum named in the mortgage, the mortgage cannot be
enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19,
F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan,
the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent.
P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares
is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of
21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than
sufficient to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code
is inapplicable to the facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be divided among
the successors in interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not ask for the
proportionate extinguishment of the pledge or mortgage as long as the debt is
not completely satisfied.
Neither can the creditor's heir who have received his share of the debt return the
pledge or cancel the mortgage, to the prejudice of other heirs who have not
been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted
presupposes several heirs of the debtor or creditor which does not obtain in this case. Hence,
the rule of indivisibility of a mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11,
1977 IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN
PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00 REPRESENTING 12%
INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22,
1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985
UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE
COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL
INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED
UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M.
TOLENTINO.
NO COSTS. SO ORDERED.
Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.
Aquino (Chairman) and Abad Santos, JJ., took no part.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
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.
Yap (Chairman), Paras and Sarmiento, JJ., concur.

Separate Opinions

MELENCIO-HERRERA, J., concurring.

[I] concur.In addition to compensatory and exemplary damages, moral damages are
recoverable in actions for breach of contract, as in this case, where the breach has been
wanton and reckless, tantamount to bad faith.
Separate Opinions
MELENCIO-HERRERA, J., concurring.
[I] concur.In addition to compensatory and exemplary damages, moral damages are
recoverable in actions for breach of contract, as in this case, where the breach has been
wanton and reckless, tantamount to bad faith.
Footnotes
* Penned by Justice Serafin E. Camilon, with the concurrence of Justices
Crisolito Pascual, Jose C. Campos, Jr. and Desiderio P. Jurado.
1 Rollo at 8.
2 Rollo at 9-10.
3 Rollo at 14,
4 Rollo at 13.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-15645 January 31, 1964
PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees,
vs.
NATIONAL RICE AND CORN CORPORATION, defendant-appellant,
MANILA UNDERWRITERS INSURANCE CO., INC., defendant-appellee.
Teehankee and Carreon for plaintiffs-appellees.
The Government Corporate Counsel for defendant-appellant.
Isidro A. Vera for defendant-appellee.
REGALA, J.:
This is an appeal of the defendant-appellant NARIC from the decision of the trial court dated February
20, 1958, awarding to the plaintiffs-appellees the amount of $286,000.00 as damages for breach of
contract and dismissing the counterclaim and third party complaint of the defendant-appellant NARIC.
In accordance with Section 13 of Republic Act No. 3452, "the National Rice and Corn Administration
(NARIC) is hereby abolished and all its assets, liabilities, functions, powers which are not inconsistent
with the provisions of this Act, and all personnel are transferred "to the Rice and Corn Administration
(RCA).
All references, therefore, to the NARIC in this decision must accordingly be adjusted and read as RCA
pursuant to the aforementioned law.
On May 19, 1952, plaintiff-appellee participated in the public bidding called by the NARIC for the
supply of 20,000 metric tons of Burmese rice. As her bid of $203.00 per metric ton was the lowest, she
was awarded the contract for the same. Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta
and the appellant corporation entered into a Contract of Sale of Rice, under the terms of which the
former obligated herself to deliver to the latter 20,000 metric tons of Burmess Rice at $203.00 per
metric ton, CIF Manila. In turn, the defendant corporation committed itself to pay for the imported rice
"by means of an irrevocable, confirmed and assignable letter of credit in U.S. currency in favor of the
plaintiff-appellee and/or supplier in Burma, immediately." Despite the commitment to pay immediately
"by means of an irrevocable, confirmed and assignable Letter of Credit," however, it was only on July
30, 1952, or a full month from the execution of the contract, that the defendant corporation, thru its
general manager, took the first to open a letter of credit by forwarding to the Philippine National Bank
its Application for Commercial Letter Credit. The application was accompanied by a transmittal letter,
the relevant paragraphs of which read:
In view of the fact that we do not have sufficient deposit with your institution with which to
cover the amount required to be deposited as a condition for the opening of letters of credit, we
will appreciate it if this application could be considered special case.
We understand that our supplier, Mrs. Paz P. Arrieta, has a deadline to meet which is August 4,
1952, and in order to comply therewith, it is imperative that the L/C be opened prior to that
date. We would therefore request your full cooperation on this matter.
On the same day, July 30, 1952, Mrs. Paz P. Arrieta thru counsel, advised the appellant corporation of
the extreme necessity for the immediate opening of the letter credit since she had by then made a tender
to her supplier in Rangoon, Burma, "equivalent to 5% of the F.O.B. price of 20,000 tons at $180.70 and
in compliance with the regulations in Rangoon this 5% will be confiscated if the required letter of
credit is not received by them before August 4, 1952."
On August 4, 1952, the Philippine National Bank informed the appellant corporation that its
application, "for a letter of credit for $3,614,000.00 in favor of Thiri Setkya has been approved by the
Board of Directors with the condition that marginal cash deposit be paid and that drafts are to be paid
upon presentment." (Exh. J-pl.; Exh. 10-def., p. 19, Folder of Exhibits). Furthermore, the Bank
represented that it "will hold your application in abeyance pending compliance with the above stated
requirement."
As it turned out, however, the appellant corporation not in any financial position to meet the condition.
As matter of fact, in a letter dated August 2, 1952, the NARIC bluntly confessed to the appellee its
dilemma: "In this connection, please be advised that our application for opening of the letter of credit
has been presented to the bank since July 30th but the latter requires that we first deposit 50% of the
value of the letter amounting to aproximately $3,614,000.00 which we are not in a position to meet."
(Emphasis supplied. Exh. 9-Def.; Exh. 1-Pe., p. 18, Folder of Exhibits)
Consequently, the credit instrument applied for was opened only on September 8, 1952 "in favor of
Thiri Setkya, Rangoon, Burma, and/or assignee for $3,614,000.00," (which is more than two months
from the execution of the contract) the party named by the appellee as beneficiary of the letter of
credit.1wph1.t
As a result of the delay, the allocation of appellee's supplier in Rangoon was cancelled and the 5%
deposit, amounting to 524,000 kyats or approximately P200,000.00 was forfeited. In this connection, it
must be made of record that although the Burmese authorities had set August 4, 1952, as the deadline
for the remittance of the required letter of credit, the cancellation of the allocation and the confiscation
of the 5% deposit were not effected until August 20, 1952, or, a full half month after the expiration of
the deadline. And yet, even with the 15-day grace, appellant corporation was unable to make good its
commitment to open the disputed letter of credit.
The appellee endeavored, but failed, to restore the cancelled Burmese rice allocation. When the futility
of reinstating the same became apparent, she offered to substitute Thailand rice instead to the defendant
NARIC, communicating at the same time that the offer was "a solution which should be beneficial to
the NARIC and to us at the same time." (Exh. X-Pe., Exh. 25Def., p. 38, Folder of Exhibits). This
offer for substitution, however, was rejected by the appellant in a resolution dated November 15, 1952.
On the foregoing, the appellee sent a letter to the appellant, demanding compensation for the damages
caused her in the sum of $286,000.00, U.S. currency, representing unrealized profit. The demand
having been rejected she instituted this case now on appeal.
At the instance of the NARIC, a counterclaim was filed and the Manila Underwriters Insurance
Company was brought to the suit as a third party defendant to hold it liable on the performance bond it
executed in favor of the plaintiff-appellee.
We find for the appellee.
It is clear upon the records that the sole and principal reason for the cancellation of the allocation
contracted by the appellee herein in Rangoon, Burma, was the failure of the letter of credit to be opened
with the contemplated period. This failure must, therefore, be taken as the immediate cause for the
consequent damage which resulted. As it is then, the disposition of this case depends on a
determination of who was responsible for such failure. Stated differently, the issue is whether
appellant's failure to open immediately the letter of credit in dispute amounted to a breach of the
contract of July 1, 1952 for which it may be held liable in damages.
Appellant corporation disclaims responsibility for the delay in the opening of the letter of credit. On the
contrary, it insists that the fault lies with the appellee. Appellant contends that the disputed negotiable
instrument was not promptly secured because the appellee , failed to seasonably furnish data necessary
and required for opening the same, namely, "(1) the amount of the letter of credit, (2) the person,
company or corporation in whose favor it is to be opened, and (3) the place and bank where it may be
negotiated." Appellant would have this Court believe, therefore, that had these informations been
forthwith furnished it, there would have been no delay in securing the instrument.
Appellant's explanation has neither force nor merit. In the first place, the explanation reaches into an
area of the proceedings into which We are not at liberty to encroach. The explanation refers to a
question of fact. Nothing in the record suggests any arbitrary or abusive conduct on the part of the trial
judge in the formulation of the ruling. His conclusion on the matter is sufficiently borne out by the
evidence presented. We are denied, therefore, the prerogative to disturb that finding, consonant to the
time-honored tradition of this Tribunal to hold trial judges better situated to make conclusions on
questions of fact. For the record, We quote hereunder the lower court's ruling on the point:
The defense that the delay, if any in opening the letter of credit was due to the failure of plaintiff
to name the supplier, the amount and the bank is not tenable. Plaintiff stated in Court that these
facts were known to defendant even before the contract was executed because these facts were
necessarily revealed to the defendant before she could qualify as a bidder. She stated too that
she had given the necessary data immediately after the execution of Exh. "A" (the contract of
July 1, 1952) to Mr. GABRIEL BELMONTE, General Manager of the NARIC, both orally and
in writing and that she also pressed for the opening of the letter of credit on these occasions.
These statements have not been controverted and defendant NARIC, notwithstanding its
previous intention to do so, failed to present Mr. Belmonte to testify or refute this. ...
Secondly, from the correspondence and communications which form part of the record of this case, it is
clear that what singularly delayed the opening of the stipulated letter of credit and which, in turn,
caused the cancellation of the allocation in Burma, was the inability of the appellant corporation to
meet the condition importation by the Bank for granting the same. We do not think the appellant
corporation can refute the fact that had it been able to put up the 50% marginal cash deposit demanded
by the bank, then the letter of credit would have been approved, opened and released as early as August
4, 1952. The letter of the Philippine National Bank to the NARIC was plain and explicit that as of the
said date, appellant's "application for a letter of credit ... has been approved by the Board of Directors
with the condition that 50% marginal cash deposit be paid and that drafts are to be paid upon
presentment." (Emphasis supplied)
The liability of the appellant, however, stems not alone from this failure or inability to satisfy the
requirements of the bank. Its culpability arises from its willful and deliberate assumption of contractual
obligations even as it was well aware of its financial incapacity to undertake the prestation. We base
this judgment upon the letter which accompanied the application filed by the appellant with the bank, a
part of which letter was quoted earlier in this decision. In the said accompanying correspondence,
appellant admitted and owned that it did "not have sufficient deposit with your institution (the PNB)
with which to cover the amount required to be deposited as a condition for the opening of letters of
credit. ... .
A number of logical inferences may be drawn from the aforementioned admission. First, that the
appellant knew the bank requirements for opening letters of credit; second, that appellant also knew it
could not meet those requirement. When, therefore, despite this awareness that was financially
incompetent to open a letter of credit immediately, appellant agreed in paragraph 8 of the contract to
pay immediately "by means of an irrevocable, confirm and assignable letter of credit," it must be
similarly held to have bound itself to answer for all and every consequences that would result from the
representation. aptly observed by the trial court:
... Having called for bids for the importation of rice involving millions, $4,260,000.00 to be
exact, it should have a certained its ability and capacity to comply with the inevitably
requirements in cash to pay for such importation. Having announced the bid, it must be deemed
to have impliedly assured suppliers of its capacity and facility to finance the importation within
the required period, especially since it had imposed the supplier the 90-day period within which
the shipment of the rice must be brought into the Philippines. Having entered in the contract, it
should have taken steps immediately to arrange for the letter of credit for the large amount
involved and inquired into the possibility of its issuance.
In relation to the aforequoted observation of the trial court, We would like to make reference also to
Article 11 of the Civil Code which provides:
Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable in damages.
Under this provision, not only debtors guilty of fraud, negligence or default in the performance of
obligations a decreed liable; in general, every debtor who fails in performance of his obligations is
bound to indemnify for the losses and damages caused thereby (De la Cruz Seminary of Manila, 18
Phil. 330; Municipality of Moncada v. Cajuigan, 21 Phil. 184; De la Cavada v. Diaz, 37 Phil. 982;
Maluenda & Co. v. Enriquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil. 1003; Pando v. Gimenez, 54
Phil. 459; Acme Films v. Theaters Supply, 63 Phil. 657). The phrase "any manner contravene the tenor"
of the obligation includes any illicit act which impairs the strict and faithful fulfillment of the
obligation or every kind or defective performance. (IV Tolentino, Civil Code of the Philippines, citing
authorities, p. 103.)
The NARIC would also have this Court hold that the subsequent offer to substitute Thailand rice for the
originally contracted Burmese rice amounted to a waiver by the appellee of whatever rights she might
have derived from the breach of the contract. We disagree. Waivers are not presumed, but must be
clearly and convincingly shown, either by express stipulation or acts admitting no other reasonable
explanation. (Ramirez v. Court of Appeals, 52 O.G. 779.) In the case at bar, no such intent to waive has
been established.
We have carefully examined and studied the oral and documentary evidence presented in this case and
upon which the lower court based its award. Under the contract, the NARIC bound itself to buy 20,000
metric tons of Burmese rice at "$203.00 U.S. Dollars per metric ton, all net shipped weight, and all in
U.S. currency, C.I.F. Manila ..." On the other hand, documentary and other evidence establish with
equal certainty that the plaintiff-appellee was able to secure the contracted commodity at the cost price
of $180.70 per metric ton from her supplier in Burma. Considering freights, insurance and charges
incident to its shipment here and the forfeiture of the 5% deposit, the award granted by the lower court
is fair and equitable. For a clearer view of the equity of the damages awarded, We reproduce below the
testimony of the appellee, adequately supported by the evidence and record:
Q. Will you please tell the court, how much is the damage you suffered?
 A. Because the selling price of my rice is $203.00 per metric ton, and the cost price of my rice
is $180.00 We had to pay also $6.25 for shipping and about $164 for insurance. So adding the
cost of the rice, the freight, the insurance, the total would be about $187.99 that would be
$15.01 gross profit per metric ton, multiply by 20,000 equals $300,200, that is my supposed
profit if I went through the contract.
The above testimony of the plaintiff was a general approximation of the actual figures involved in the
transaction. A precise and more exact demonstration of the equity of the award herein is provided by
Exhibit HH of the plaintiff and Exhibit 34 of the defendant, hereunder quoted so far as germane.
It is equally of record now that as shown in her request dated July 29, 1959, and other
communications subsequent thereto for the opening by your corporation of the required letter of
credit, Mrs. Arrieta was supposed to pay her supplier in Burma at the rate of One Hundred
Eighty Dollars and Seventy Cents ($180.70) in U.S. Currency, per ton plus Eight Dollars
($8.00) in the same currency per ton for shipping and other handling expenses, so that she is
already assured of a net profit of Fourteen Dollars and Thirty Cents ($14.30), U.S., Currency,
per ton or a total of Two Hundred and Eighty Six Thousand Dollars ($286,000.00), U.S.
Currency, in the aforesaid transaction. ...
Lastly, herein appellant filed a counterclaim asserting that it has suffered, likewise by way of unrealized
profit damages in the total sum of $406,000.00 from the failure of the projected contract to materialize.
This counterclaim was supported by a cost study made and submitted by the appellant itself and
wherein it was illustrated how indeed had the importation pushed thru, NARIC would have realized in
profit the amount asserted in the counterclaim. And yet, the said amount of P406,000.00 was realizable
by appellant despite a number of expenses which the appellee under the contract, did not have to incur.
Thus, under the cost study submitted by the appellant, banking and unloading charges were to be
shouldered by it, including an Import License Fee of 2% and superintendence fee of $0.25 per metric
ton. If the NARIC stood to profit over P400 000.00 from the disputed transaction inspite of the extra
expenditures from which the herein appellee was exempt, we are convicted of the fairness of the
judgment presently under appeal.
In the premises, however, a minor modification must be effected in the dispositive portion of the
decision appeal from insofar as it expresses the amount of damages in U.S. currency and not in
Philippine Peso. Republic Act 529 specifically requires the discharge of obligations only "in any coin
or currency which at the time of payment is legal tender for public and private debts." In view of that
law, therefore, the award should be converted into and expressed in Philippine Peso.
This brings us to a consideration of what rate of exchange should apply in the conversion here decreed.
Should it be at the time of the breach, at the time the obligation was incurred or at the rate of exchange
prevailing on the promulgation of this decision.
In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in an action for recovery of damages
for breach of contract, even if the obligation assumed by the defendant was to pay the plaintiff a sum of
money expressed in American currency, the indemnity to be allowed should be expressed in Philippine
currency at the rate of exchange at the time of the judgment rather than at the rate of exchange
prevailing on the date of defendant's breach. This ruling, however, can neither be applied nor extended
to the case at bar for the same was laid down when there was no law against stipulating foreign
currencies in Philippine contracts. But now we have Republic Act No. 529 which expressly declares
such stipulations as contrary to public policy, void and of no effect. And, as We already pronounced in
the case of Eastboard Navigation, Ltd. v. Juan Ysmael & Co., Inc., G.R. No. L-9090, September 10,
1957, if there is any agreement to pay an obligation in a currency other than Philippine legal tender, the
same is null and void as contrary to public policy (Republic Act 529), and the most that could be
demanded is to pay said obligation in Philippine currency "to be measured in the prevailing rate of
exchange at the time the obligation was incurred (Sec. 1, idem)."
UPON ALL THE FOREGOING, the decision appealed from is hereby affirmed, with the sole
modification that the award should be converted into the Philippine peso at the rate of exchange
prevailing at the time the obligation was incurred or on July 1, 1952 when the contract was executed.
The appellee insurance company, in the light of this judgment, is relieved of any liability under this
suit. No pronouncement as to costs.
Bengzon, C.J., Padilla, Concepcion, Paredes, Dizon and Makalintal, JJ., concur.
Barrera, J., took no part.
Reyes, J.B.L., J., reserves his vote.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-37120 April 20, 1983
VICTORINO D. MAGAT, petitioner,
vs.
HON. LEO D. MEDIALDEA and SANTIAGO A. GUERRERO, respondents.
Sinesio S. Vergara for petitioner.
Eladio B. Samson for respondents.

ESCOLIN, J.:
Put to test in this petition for review on certiorari is the sufficiency of the averments contained
in the complaint for alleged breach of contract filed by petitioner Victorino D. Magat against
respondent Santiago A. Guerrero in Civil Case No. 17827 of the Court of First Instance of
Rizal, presided by respondent Judge Leo D. Medialdea, now Deputy Judicial Administrator,
which complaint was dismissed for failure to state a cause of action.
The pertinent allegations in the complaint, subject of inquiry, are as follows: 1
3. That sometime in September 1972, the defendant entered into a contract with
the U.S. Navy Exchange, Subic Bay, Philippines, for the operation of a fleet of
taxicabs, each taxicab to be provided with the necessary taximeter and a radio
transceiver for receiving and sending of messages from mobile taxicab to fixed
base stations within the Naval Base at Subic Bay, Philippines;
4. That Isidro Q. Aligada, acting as agent of the defendant herein conducted the
necessary project studies on how best the defendant may meet the
requirements of his contract with the U.S. Navy Exchange, Subic Bay,
Philippines, and because of the experience of the plaintiff in connection with his
various, contracts with the U.S. Navy, Subic Bay, Philippines, and his goodwill
already established with the Naval personnel of Subic Bay, Philippines,
especially in providing the U.S. Navy with needed materials or goods on time as
specified by the U.S. Navy, be they of local origin or imported either from the
United States or from Japan, the said Isidro Q. Aligada approached the plaintiff
herein in behalf of the defendant and proposed to import from Japan thru the
plaintiff herein or thru plaintiff's Japanese business associates, all taximeters
and radio transceivers needed by the defendant in connection with his contract
with the U.S. Navy Exchange, Subic Bay, Philippines;
5. That the defendant herein and his aforesaid agent Isidro Q. Aligada were able
to import from Japan with the assistance of the plaintiff and his Japanese
business associates the necessary taximeters for defendant's taxicabs in partial
fulfillment of defendant's commitments with the U.S. Navy Exchange, Subic Bay,
Philippines, the plaintiff's assistance in this matter having been given to the
defendant gratis et amore;
6. That Isidro Q. Aligada, also acting as agent of the defendant, made
representations with the plaintiff herein to the effect that defendant desired to
procure from Japan thru the plaintiff herein the needed radio transceivers and to
this end, Isidro Q. Aligada secured a firm offer in writing dated September 25,
1972, a copy of which is hereto attached marked as Annex 'A' and made an
integral part of this complaint, wherein the plaintiff quoted in his offer a total price
of $77,620.59 [U.S. dollars] FOB Yokohama, the goods or articles therein
offered for sale by the plaintiff to the defendant to be delivered sixty to ninety
[60-90] days after receipt of advice from the defendant of the radio frequency
assigned to the defendant by the proper authorities;
7. That the plaintiff received notice of the fact that the defendant accepted
plaintiff's offer to sell to the defendant the items specified in Annex 'A', as well as
the terms and conditions of said offer, as shown by the signed conformity of the
defendant appearing on Annex 'A' which was duly delivered by the defendant's
agent to the plaintiff herein, whereupon all that the plaintiff had to do in the
meantime was to await advice from the defendant as to the radio frequency to
be assigned by the proper authorities to the defendant;
8. That believing that the defendant would faithfully fulfill his contract with the
plaintiff herein, considering his signed conformity appearing in Annex 'A' hereof
as well as the letter dated October 4, 1972, of his agent aforementioned which is
attached hereto and marked as Annex 'B' and made an integral part of this
complaint, and in order that plaintiff's promised delivery would not be delayed,
the plaintiff herein took steps to advise the Japanese entity entrusted with the
manufacture of the items listed in Annex 'A' to the effect that the contract
between the defendant herein and the plaintiff has been perfected and that
advice with regards to radio frequency would follow as soon as same is received
by the plaintiff from the defendant;
9. That in his letter dated October 6, 1972, a copy of which is hereto attached
marked as Annex 'C', the defendant advised his aforementioned agent to the
effect that the U.S. Navy provided him with the radio frequency of 34.2 MHZ
[Megahertz] and defendant requested his said agent to proceed with his order
placed with the plaintiff herein, which fact was duly communicated to the plaintiff
by the defendant's aforementioned agent;
10. That by his letter dated October 7, 1972, addressed to the plaintiff by the
defendant's agent, a copy of which is hereto attached and marked as Annex 'D',
defendant's agent qualified defendant's instructions contained in his letter of
October 6, 1972 [Annex 'C'] in the sense that plaintiff herein should proceed to
fulfill defendant's order only upon receipt by the plaintiff of the defendant's letter
of credit;
11. That it being normal business practice in case of foreign importation that the
buyer opens a letter of credit in favor of the foreign supplier before delivery of
the goods sold, the plaintiff herein awaited the opening of such a letter of credit
by the defendant;
12. That the defendant and his agent have repeatedly assured plaintiff herein of
the defendant's financial capabilities to pay for the goods ordered by him and in
fact he accomplished the necessary application for a letter of credit with his
banker, but he subsequently instructed his banker not to give due course to his
application for a letter of credit and that for reasons only known to the defendant,
he fails and refuses to open the necessary letter of credit to cover payment of
the goods ordered by him;
13. That it has come to the knowledge of the plaintiff herein that the defendant
has been operating his taxicabs without the required radio transceivers and
when the U.S. Navy Authorities of Subic Bay, Philippines, were pressing
defendant for compliance with his commitments with respect to the installations
of radio transceivers on his taxicabs, he impliedly laid the blame for the delay
upon the plaintiff herein, thus destroying the reputation of the plaintiff herein with
the said Naval Authorities of Subic Bay, Philippines, with whom plaintiff herein
transacts business;
14. That on March 27, 1973, plaintiff wrote a letter thru his counsel, copy
attached marked as Annex 'E', to ascertain from the defendant as to whether it is
his intention to fulfill his part of the agreement with the plaintiff herein or whether
he desired to have the contract between them definitely cancelled, but
defendant did not even have the courtesy to answer plaintiff's demand;
15. That the defendant herein entered into a contract with the plaintiff herein as
set forth in Annex 'A' without the least intention of faithfully complying with his
obligation is thereunder, but he did so only in order to obtain the concession
from the U.S. Navy Exchange, Subic Bay, Philippines, of operating a fleet of
taxicabs inside the U.S. Naval Base to his financial benefit and at the expense
and prejudice of third parties such as the plaintiff herein;
16. That in view of the defendant's failure to fulfill his contractual obligations with
the plaintiff herein, the plaintiff will suffer the following damages:
[a] As the radio transceivers ordered by the defendant are now in
the hands of the plaintiff's Japanese representative, the plaintiff will
have to pay for them, thus he will have to suffer as total loss to him
the amount of P523,938.98 (converting the amount of $77,620.59
to pesos at the rate of P6.75 to the dollar) as said radio
transceivers were purposely made or manufactured solely for the
use of the defendant herein and cannot possibly be marketed by
the plaintiff herein to the general public;
[b] The amount of P 52,393.89 or 10% of the purchase price by
way of loss of expected profits from the transaction or contract
between plaintiff and the defendant;
[c] Loss of confidence in him and goodwill of the plaintiff which will
result in the impairment of his business dealings with Japanese
firms, thereby resulting also in loss of possible profits in the future
which plaintiff assess at no less than P200,000.00;
[d] That in view of the defendant's bad faith in inducing plaintiff to
enter into the contract with him as set forth hereinabove, defendant
should be assessed by his Honorable Court in favor of the plaintiff
the sum of P200,000.00 as moral and exemplary damages;
 [e] That in view of the defendant's fault and to protect his interests,
plaintiff herein is constrained to retain the services of counsel with
whom he agreed to pay by way of attorney's fees the sum of
P50,000.00".
Respondent Guerrero filed a motion to dismiss said complaint for lack of cause of action,
which ground is propounded by respondent's counsel thus: 2
... it is clear that plaintiff was merely anticipating his loss or damage which might
result from the alleged failure of defendant to comply with the terms of the
alleged contract. Hence, plaintiff's right of recovery under his cause of action is
premised not on any loss or damage actually suffered by him but on a non-
existing loss or damage which he is expecting to incur in the near future.
Plaintiff's right therefore under his cause of action is not yet fixed or vested.
Inasmuch as there is no other allegation in the present Complaint wherein the
same could be maintained against defendant, the present Complaint should be
dismissed for its failure to state a cause of action against defendant.
The respondent judge, over petitioner's opposition, issued a minute order dismissing the
complaint as follows:3
Acting upon the 'Motion to Dismiss' filed by the defendant, through counsel,
dated June 7, 1973, as well as the opposition thereto filed by the plaintiff,
through counsel, dated June 14, 1973, for the reasons therein alleged, this
Court hereby grants said motion and, as prayed for, the complaint in the above-
entitled case is dismissed.
SO ORDERED.
Both parties are in accord with the view that when a motion to dismiss is based on the ground
of lack of cause of action, the sufficiency of the case of action can only be determined on the
basis of the facts alleged in the complaint 4; that the facts alleged are deemed hypothetically
admitted, including those which are fairly deducible therefrom 5; and that, admitting the facts
as alleged, whether or not the Court can render a valid judgment against the defendant upon
said facts in accordance with the prayer in the complaint 6.
After a thorough examination of the complaint at bar, We find the test of legal sufficiency of
the cause of action adequately satisfied. In a methodical and logical sequence, the complaints
recites the circumstances that led to the perfection of the contract entered into by the parties.
It further avers that while petitioner had fulfilled his part of the bargain [paragraph 8 of the
Complaint], private respondent failed to comply with his correlative obligation by refusing to
open a letter of credit to cover payment of the goods ordered by him [paragraphs 11 & 12 of
the Complaint], and that consequently, petitioner suffered not only loss of his expected profits,
but moral and exemplary damages as well. From these allegations, the essential elements of
a cause of action are present, to wit: [1] the existence of a legal right to the plaintiff; [2] a
correlative duty of the defendant and [3] an act or omission of the defendant in violation of the
plaintiff's right, with consequent injury or damage to the latter for which he may maintain an
action for recovery of damages or other appropriate relief. 7
Indisputably, the parties, both businessmen, entered into the aforesaid contract with the
evident intention of deriving some profits therefrom. Upon breach of the contract by either of
them, the other would necessarily suffer loss of his expected profits. Since the loss comes
into being at the very moment of breach, such loss is real, "fixed and vested" and, therefore,
recoverable under the law.
Article 1170 of the Civil Code provides:
Those who in the performance of their obligation are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof are liable
for damages.
The phrase "in any manner contravene the tenor" of the obligation includes any ilicit act or
omission which impairs the strict and faithful fulfillment of the obligation and every kind of
defective performance. 8
The damages which the obligor is liable for includes not only the value of the loss suffered by
the obligee [dao emergente] but also the profits which the latter failed to obtain [lucro
cesante] 9. If the obligor acted in good faith, he shall be liable for those damages that are the
natural and probable consequences of the breach of the obligation and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was constituted; and in
case of fraud, bad faith, malice or wanton attitude, he shall be liable for all damages which
may be reasonably attributed to the non-performance of the obligation 10.
The same is true with respect to moral and exemplary damages. The applicable legal
provisions on the matter, Articles 2220 and 2232 of the Civil Code, allow the award of such
damages in breaches of contract where the defendant acted in bad faith. To Our mind, the
complaint sufficiently alleges bad faith on the part of the defendant.
In fine, We hold that on the basis of the facts alleged in the complaint, the court could render
a valid judgment in accordance with the prayer thereof.
ACCORDINGLY, the questioned order of dismissal is hereby set aside and the case ordered
remanded to the court of origin for further proceedings. No costs.
SO ORDERED.
Makasiar (Chairman), Concepcion Jr., Guerrero and A bad Santos, JJ., concur.
Aquino, J., is on leave.
De Castro, J., took no part,

Footnotes
1 Annex "A "of the petition.
2 Annex " B " of the petition.
3 Annex " D " of the petition.
4 Mindanao Realty Corp. vs. Kintanar, 6 SCRA 894.
5 Mathay vs. Consolidated Bank & Trust Co., 58 SCRA 559.
6 La Suerte Cigar & Cigarette Factory vs. Central Azucarera de Danao, 23
SCRA 686.
7 Mathay vs. Consolidated Bank & Trust Co., supra.
8 Arrieta vs. National Rice & Corn Corp., 10 SCRA 79.
9 Article 2200, Civil Code.
10 Article 2201, Civil Code.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-47851 October 3, 1986
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J.
CARLOS, and the PHILIPPINE BAR ASSOCIATION, respondents.
G.R. No. L-47863 October 3, 1986
THE UNITED CONSTRUCTION CO., INC., petitioner,
vs.
COURT OF APPEALS, ET AL., respondents.
G.R. No. L-47896 October 3, 1986
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,
vs.
COURT OF APPEALS, ET AL., respondents.
PARAS, J.:
These are petitions for review on certiorari of the November 28, 1977 decision of the
Court of Appeals in CA-G.R. No. 51771-R modifying the decision of the Court of First
Instance of Manila, Branch V, in Civil Case No. 74958 dated September 21, 1971 as
modified by the Order of the lower court dated December 8, 1971. The Court of Appeals
in modifying the decision of the lower court included an award of an additional amount
of P200,000.00 to the Philippine Bar Association to be paid jointly and severally by the
defendant United Construction Co. and by the third-party defendants Juan F. Nakpil
and Sons and Juan F. Nakpil.
The dispositive portion of the modified decision of the lower court reads:
WHEREFORE, judgment is hereby rendered:
(a) Ordering defendant United Construction Co., Inc. and third-party
defendants (except Roman Ozaeta) to pay the plaintiff, jointly and
severally, the sum of P989,335.68 with interest at the legal rate from
November 29, 1968, the date of the filing of the complaint until full
payment;
(b) Dismissing the complaint with respect to defendant Juan J. Carlos;
(c) Dismissing the third-party complaint;
(d) Dismissing the defendant's and third-party defendants' counterclaims
for lack of merit;
(e) Ordering defendant United Construction Co., Inc. and third-party
defendants (except Roman Ozaeta) to pay the costs in equal shares.
SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169).
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, the judgment appealed from is modified to include an award
of P200,000.00 in favor of plaintiff-appellant Philippine Bar Association,
with interest at the legal rate from November 29, 1968 until full payment to
be paid jointly and severally by defendant United Construction Co., Inc.
and third party defendants (except Roman Ozaeta). In all other respects,
the judgment dated September 21, 1971 as modified in the December 8,
1971 Order of the lower court is hereby affirmed with COSTS to be paid by
the defendant and third party defendant (except Roman Ozaeta) in equal
shares.
SO ORDERED.
Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction Co., Inc. and
Juan J. Carlos in L-47863 seek the reversal of the decision of the Court of Appeals,
among other things, for exoneration from liability while petitioner Philippine Bar
Association in L-47896 seeks the modification of aforesaid decision to obtain an award
of P1,830,000.00 for the loss of the PBA building plus four (4) times such amount as
damages resulting in increased cost of the building, P100,000.00 as exemplary
damages; and P100,000.00 as attorney's fees.
These petitions arising from the same case filed in the Court of First Instance of Manila
were consolidated by this Court in the resolution of May 10, 1978 requiring the
respective respondents to comment. (Rollo, L-47851, p. 172).
The facts as found by the lower court (Decision, C.C. No. 74958; Record on Appeal, pp.
269-348; pp. 520-521; Rollo, L-47851, p. 169) and affirmed by the Court of Appeals are
as follows:
The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated
under the Corporation Law, decided to construct an office building on its 840 square
meters lot located at the comer of Aduana and Arzobispo Streets, Intramuros, Manila.
The construction was undertaken by the United Construction, Inc. on an
"administration" basis, on the suggestion of Juan J. Carlos, the president and general
manager of said corporation. The proposal was approved by plaintiff's board of
directors and signed by its president Roman Ozaeta, a third-party defendant in this
case. The plans and specifications for the building were prepared by the other third-
party defendants Juan F. Nakpil & Sons. The building was completed in June, 1966.
In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and
its environs and the building in question sustained major damage. The front columns
of the building buckled, causing the building to tilt forward dangerously. The tenants
vacated the building in view of its precarious condition. As a temporary remedial
measure, the building was shored up by United Construction, Inc. at the cost of
P13,661.28.
On November 29, 1968, the plaintiff commenced this action for the recovery of
damages arising from the partial collapse of the building against United Construction,
Inc. and its President and General Manager Juan J. Carlos as defendants. Plaintiff
alleges that the collapse of the building was accused by defects in the construction,
the failure of the contractors to follow plans and specifications and violations by the
defendants of the terms of the contract.
Defendants in turn filed a third-party complaint against the architects who prepared the
plans and specifications, alleging in essence that the collapse of the building was due
to the defects in the said plans and specifications. Roman Ozaeta, the then president
of the plaintiff Bar Association was included as a third-party defendant for damages for
having included Juan J. Carlos, President of the United Construction Co., Inc. as party
defendant.
On March 3, 1969, the plaintiff and third-party defendants Juan F. Nakpil & Sons and
Juan F. Nakpil presented a written stipulation which reads:
1. That in relation to defendants' answer with counterclaims and third-
party complaints and the third-party defendants Nakpil & Sons' answer
thereto, the plaintiff need not amend its complaint by including the said
Juan F. Nakpil & Sons and Juan F. Nakpil personally as parties defendant.
2. That in the event (unexpected by the undersigned) that the Court should
find after the trial that the above-named defendants Juan J. Carlos and
United Construction Co., Inc. are free from any blame and liability for the
collapse of the PBA Building, and should further find that the collapse of
said building was due to defects and/or inadequacy of the plans, designs,
and specifications p by the third-party defendants, or in the event that the
Court may find Juan F. Nakpil and Sons and/or Juan F. Nakpil
contributorily negligent or in any way jointly and solidarily liable with the
defendants, judgment may be rendered in whole or in part. as the case
may be, against Juan F. Nakpil & Sons and/or Juan F. Nakpil in favor of the
plaintiff to all intents and purposes as if plaintiff's complaint has been duly
amended by including the said Juan F. Nakpil & Sons and Juan F. Nakpil
as parties defendant and by alleging causes of action against them
including, among others, the defects or inadequacy of the plans, designs,
and specifications prepared by them and/or failure in the performance of
their contract with plaintiff.
3. Both parties hereby jointly petition this Honorable Court to approve this
stipulation. (Record on Appeal, pp. 274-275; Rollo, L-47851,p.169).
Upon the issues being joined, a pre-trial was conducted on March 7, 1969, during
which among others, the parties agreed to refer the technical issues involved in the
case to a Commissioner. Mr. Andres O. Hizon, who was ultimately appointed by the trial
court, assumed his office as Commissioner, charged with the duty to try the following
issues:
1. Whether the damage sustained by the PBA building during the August 2,
1968 earthquake had been caused, directly or indirectly, by:
(a) The inadequacies or defects in the plans and specifications prepared
by third-party defendants;
(b) The deviations, if any, made by the defendants from said plans and
specifications and how said deviations contributed to the damage
sustained;
 (c) The alleged failure of defendants to observe the requisite quality of
materials and workmanship in the construction of the building;
(d) The alleged failure to exercise the requisite degree of supervision
expected of the architect, the contractor and/or the owner of the building;
(e) An act of God or a fortuitous event; and
(f) Any other cause not herein above specified.
2. If the cause of the damage suffered by the building arose from a
combination of the above-enumerated factors, the degree or proportion in
which each individual factor contributed to the damage sustained;
3. Whether the building is now a total loss and should be completely
demolished or whether it may still be repaired and restored to a tenantable
condition. In the latter case, the determination of the cost of such
restoration or repair, and the value of any remaining construction, such as
the foundation, which may still be utilized or availed of (Record on Appeal,
pp. 275-276; Rollo, L-47851, p. 169).
Thus, the issues of this case were divided into technical issues and non-technical
issues. As aforestated the technical issues were referred to the Commissioner. The
non-technical issues were tried by the Court.
Meanwhile, plaintiff moved twice for the demolition of the building on the ground that it
may topple down in case of a strong earthquake. The motions were opposed by the
defendants and the matter was referred to the Commissioner. Finally, on April 30, 1979
the building was authorized to be demolished at the expense of the plaintiff, but not
another earthquake of high intensity on April 7, 1970 followed by other strong
earthquakes on April 9, and 12, 1970, caused further damage to the property. The
actual demolition was undertaken by the buyer of the damaged building. (Record on
Appeal, pp. 278-280; Ibid.)
After the protracted hearings, the Commissioner eventually submitted his report on
September 25, 1970 with the findings that while the damage sustained by the PBA
building was caused directly by the August 2, 1968 earthquake whose magnitude was
estimated at 7.3 they were also caused by the defects in the plans and specifications
prepared by the third-party defendants' architects, deviations from said plans and
specifications by the defendant contractors and failure of the latter to observe the
requisite workmanship in the construction of the building and of the contractors,
architects and even the owners to exercise the requisite degree of supervision in the
construction of subject building.
All the parties registered their objections to aforesaid findings which in turn were
answered by the Commissioner.
The trial court agreed with the findings of the Commissioner except as to the holding
that the owner is charged with full nine supervision of the construction. The Court sees
no legal or contractual basis for such conclusion. (Record on Appeal, pp. 309-328;
Ibid).
Thus, on September 21, 1971, the lower court rendered the assailed decision which
was modified by the Intermediate Appellate Court on November 28, 1977.
All the parties herein appealed from the decision of the Intermediate Appellate Court.
Hence, these petitions.
On May 11, 1978, the United Architects of the Philippines, the Association of Civil
Engineers, and the Philippine Institute of Architects filed with the Court a motion to
intervene as amicus curiae. They proposed to present a position paper on the liability
of architects when a building collapses and to submit likewise a critical analysis with
computations on the divergent views on the design and plans as submitted by the
experts procured by the parties. The motion having been granted, the amicus curiae
were granted a period of 60 days within which to submit their position.
After the parties had all filed their comments, We gave due course to the petitions in
Our Resolution of July 21, 1978.
The position papers of the amicus curiae (submitted on November 24, 1978) were duly
noted.
The amicus curiae gave the opinion that the plans and specifications of the Nakpils
were not defective. But the Commissioner, when asked by Us to comment, reiterated
his conclusion that the defects in the plans and specifications indeed existed.
Using the same authorities availed of by the amicus curiae such as the Manila Code
(Ord. No. 4131) and the 1966 Asep Code, the Commissioner added that even if it can be
proved that the defects in the construction alone (and not in the plans and design)
caused the damage to the building, still the deficiency in the original design and jack of
specific provisions against torsion in the original plans and the overload on the ground
floor columns (found by an the experts including the original designer) certainly
contributed to the damage which occurred. (Ibid, p. 174).
In their respective briefs petitioners, among others, raised the following assignments
of errors: Philippine Bar Association claimed that the measure of damages should not
be limited to P1,100,000.00 as estimated cost of repairs or to the period of six (6)
months for loss of rentals while United Construction Co., Inc. and the Nakpils claimed
that it was an act of God that caused the failure of the building which should exempt
them from responsibility and not the defective construction, poor workmanship,
deviations from plans and specifications and other imperfections in the case of United
Construction Co., Inc. or the deficiencies in the design, plans and specifications
prepared by petitioners in the case of the Nakpils. Both UCCI and the Nakpils object to
the payment of the additional amount of P200,000.00 imposed by the Court of Appeals.
UCCI also claimed that it should be reimbursed the expenses of shoring the building in
the amount of P13,661.28 while the Nakpils opposed the payment of damages jointly
and solidarity with UCCI.
The pivotal issue in this case is whether or not an act of God-an unusually strong
earthquake-which caused the failure of the building, exempts from liability, parties who
are otherwise liable because of their negligence.
The applicable law governing the rights and liabilities of the parties herein is Article
1723 of the New Civil Code, which provides:
Art. 1723. The engineer or architect who drew up the plans and
specifications for a building is liable for damages if within fifteen years
from the completion of the structure the same should collapse by reason
of a defect in those plans and specifications, or due to the defects in the
ground. The contractor is likewise responsible for the damage if the
edifice fags within the same period on account of defects in the
construction or the use of materials of inferior quality furnished by him, or
due to any violation of the terms of the contract. If the engineer or
architect supervises the construction, he shall be solidarily liable with the
contractor.
Acceptance of the building, after completion, does not imply waiver of any
of the causes of action by reason of any defect mentioned in the preceding
paragraph.
The action must be brought within ten years following the collapse of the
building.
On the other hand, the general rule is that no person shall be responsible for events
which could not be foreseen or which though foreseen, were inevitable (Article 1174,
New Civil Code).
An act of God has been defined as an accident, due directly and exclusively to natural
causes without human intervention, which by no amount of foresight, pains or care,
reasonably to have been expected, could have been prevented. (1 Corpus Juris 1174).
There is no dispute that the earthquake of August 2, 1968 is a fortuitous event or an act
of God.
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 normal 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).
The negligence of the defendant and the third-party defendants petitioners was
established beyond dispute both in the lower court and in the Intermediate Appellate
Court. Defendant United Construction Co., Inc. was found to have made substantial
deviations from the plans and specifications. and to have failed to observe the
requisite workmanship in the construction as well as to exercise the requisite degree
of supervision; while the third-party defendants were found to have inadequacies or
defects in the plans and specifications prepared by them. As correctly assessed by
both courts, the defects in the construction and in the plans and specifications were
the proximate causes that rendered the PBA building unable to withstand the
earthquake of August 2, 1968. For this reason the defendant and third-party defendants
cannot claim exemption from liability. (Decision, Court of Appeals, pp. 30-31).
It is well settled that the findings of facts of the Court of Appeals are conclusive on the
parties and on this court (cases cited in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs.
Sandiganbayan, January 17, 1985, 134 SCRA 105, 121), unless (1) the conclusion is a
finding grounded entirely on speculation, surmise and conjectures; (2) the inference
made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the judgment is
based on misapprehension of facts; (5) the findings of fact are conflicting , (6) the
Court of Appeals went beyond the issues of the case and its findings are contrary to
the admissions of both appellant and appellees (Ramos vs. Pepsi-Cola Bottling Co.,
February 8, 1967, 19 SCRA 289, 291-292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA 648,
651); (7) the findings of facts of the Court of Appeals are contrary to those of the trial
court; (8) said findings of facts are conclusions without citation of specific evidence on
which they are based; (9) the facts set forth in the petition as well as in the petitioner's
main and reply briefs are not disputed by the respondents (Garcia vs. CA, June 30,
1970, 33 SCRA 622; Alsua-Bett vs. Court of Appeals, July 30, 1979, 92 SCRA 322, 366);
(10) the finding of fact of the Court of Appeals is premised on the supposed absence of
evidence and is contradicted by evidence on record (Salazar vs. Gutierrez, May 29,
1970, 33 SCRA 243, 247; Cited in G.R. No. 66497-98, Sacay v. Sandiganbayan, July 10,
1986).
It is evident that the case at bar does not fall under any of the exceptions above-
mentioned. On the contrary, the records show that the lower court spared no effort in
arriving at the correct appreciation of facts by the referral of technical issues to a
Commissioner chosen by the parties whose findings and conclusions remained
convincingly unrebutted by the intervenors/amicus curiae who were allowed to
intervene in the Supreme Court.
In any event, the relevant and logical observations of the trial court as affirmed by the
Court of Appeals that "while it is not possible to state with certainty that the building
would not have collapsed were those defects not present, the fact remains that several
buildings in the same area withstood the earthquake to which the building of the
plaintiff was similarly subjected," cannot be ignored.
The next issue to be resolved is the amount of damages to be awarded to the PBA for
the partial collapse (and eventual complete collapse) of its building.
The Court of Appeals affirmed the finding of the trial court based on the report of the
Commissioner that the total amount required to repair the PBA building and to restore
it to tenantable condition was P900,000.00 inasmuch as it was not initially a total loss.
However, while the trial court awarded the PBA said amount as damages, plus
unrealized rental income for one-half year, the Court of Appeals modified the amount
by awarding in favor of PBA an additional sum of P200,000.00 representing the damage
suffered by the PBA building as a result of another earthquake that occurred on April 7,
1970 (L-47896, Vol. I, p. 92).
The PBA in its brief insists that the proper award should be P1,830,000.00 representing
the total value of the building (L-47896, PBA's No. 1 Assignment of Error, p. 19), while
both the NAKPILS and UNITED question the additional award of P200,000.00 in favor of
the PBA (L- 47851, NAKPIL's Brief as Petitioner, p. 6, UNITED's Brief as Petitioner, p.
25). The PBA further urges that the unrealized rental income awarded to it should not
be limited to a period of one-half year but should be computed on a continuing basis at
the rate of P178,671.76 a year until the judgment for the principal amount shall have
been satisfied L- 47896, PBA's No. 11 Assignment of Errors, p. 19).
The collapse of the PBA building as a result of the August 2, 1968 earthquake was only
partial and it is undisputed that the building could then still be repaired and restored to
its tenantable condition. The PBA, however, in view of its lack of needed funding, was
unable, thru no fault of its own, to have the building repaired. UNITED, on the other
hand, spent P13,661.28 to shore up the building after the August 2, 1968 earthquake (L-
47896, CA Decision, p. 46). Because of the earthquake on April 7, 1970, the trial court
after the needed consultations, authorized the total demolition of the building (L-47896,
Vol. 1, pp. 53-54).
There should be no question that the NAKPILS and UNITED are liable for the damage
resulting from the partial and eventual collapse of the PBA building as a result of the
earthquakes.
We quote with approval the following from the erudite decision penned by Justice
Hugo E. Gutierrez (now an Associate Justice of the Supreme Court) while still an
Associate Justice of the Court of Appeals:
There is no question that an earthquake and other forces of nature such as
cyclones, drought, floods, lightning, and perils of the sea are acts of God.
It does not necessarily follow, however, that specific losses and suffering
resulting from the occurrence of these natural force are also acts of God.
We are not convinced on the basis of the evidence on record that from the
thousands of structures in Manila, God singled out the blameless PBA
building in Intramuros and around six or seven other buildings in various
parts of the city for collapse or severe damage and that God alone was
responsible for the damages and losses thus suffered.
The record is replete with evidence of defects and deficiencies in the
designs and plans, defective construction, poor workmanship, deviation
from plans and specifications and other imperfections. These deficiencies
are attributable to negligent men and not to a perfect God.
The act-of-God arguments of the defendants- appellants and third party
defendants-appellants presented in their briefs are premised on legal
generalizations or speculations and on theological fatalism both of which
ignore the plain facts. The lengthy discussion of United on ordinary
earthquakes and unusually strong earthquakes and on ordinary fortuitous
events and extraordinary fortuitous events leads to its argument that the
August 2, 1968 earthquake was of such an overwhelming and destructive
character that by its own force and independent of the particular
negligence alleged, the injury would have been produced. If we follow this
line of speculative reasoning, we will be forced to conclude that under
such a situation scores of buildings in the vicinity and in other parts of
Manila would have toppled down. Following the same line of reasoning,
Nakpil and Sons alleges that the designs were adequate in accordance
with pre-August 2, 1968 knowledge and appear inadequate only in the light
of engineering information acquired after the earthquake. If this were so,
hundreds of ancient buildings which survived the earthquake better than
the two-year old PBA building must have been designed and constructed
by architects and contractors whose knowledge and foresight were
unexplainably auspicious and prophetic. Fortunately, the facts on record
allow a more down to earth explanation of the collapse. The failure of the
PBA building, as a unique and distinct construction with no reference or
comparison to other buildings, to weather the severe earthquake forces
was traced to design deficiencies and defective construction, factors
which are neither mysterious nor esoteric. The theological allusion of
appellant United that God acts in mysterious ways His wonders to perform
impresses us to be inappropriate. The evidence reveals defects and
deficiencies in design and construction. There is no mystery about these
acts of negligence. The collapse of the PBA building was no wonder
performed by God. It was a result of the imperfections in the work of the
architects and the people in the construction company. More relevant to
our mind is the lesson from the parable of the wise man in the Sermon on
the Mount "which built his house upon a rock; and the rain descended and
the floods came and the winds blew and beat upon that house; and it fen
not; for it was founded upon a rock" and of the "foolish upon the sand.
And the rain descended and man which built his house the floods came,
and the winds blew, and beat upon that house; and it fell and great was the
fall of it. (St. Matthew 7: 24-27)." The requirement that a building should
withstand rains, floods, winds, earthquakes, and natural forces is
precisely the reason why we have professional experts like architects, and
engineers. Designs and constructions vary under varying circumstances
and conditions but the requirement to design and build well does not
change.
The findings of the lower Court on the cause of the collapse are more
rational and accurate. Instead of laying the blame solely on the motions
and forces generated by the earthquake, it also examined the ability of the
PBA building, as designed and constructed, to withstand and successfully
weather those forces.
The evidence sufficiently supports a conclusion that the negligence and
fault of both United and Nakpil and Sons, not a mysterious act of an
inscrutable God, were responsible for the damages. The Report of the
Commissioner, Plaintiff's Objections to the Report, Third Party Defendants'
Objections to the Report, Defendants' Objections to the Report,
Commissioner's Answer to the various Objections, Plaintiffs' Reply to the
Commissioner's Answer, Defendants' Reply to the Commissioner's
Answer, Counter-Reply to Defendants' Reply, and Third-Party Defendants'
Reply to the Commissioner's Report not to mention the exhibits and the
testimonies show that the main arguments raised on appeal were already
raised during the trial and fully considered by the lower Court. A
reiteration of these same arguments on appeal fails to convince us that we
should reverse or disturb the lower Court's factual findings and its
conclusions drawn from the facts, among them:
The Commissioner also found merit in the allegations of the defendants as
to the physical evidence before and after the earthquake showing the
inadequacy of design, to wit:
Physical evidence before the earthquake providing (sic) inadequacy of
design;
1. inadequate design was the cause of the failure of the building.
2. Sun-baffles on the two sides and in front of the building;
a. Increase the inertia forces that move the building laterally toward the
Manila Fire Department.
b. Create another stiffness imbalance.
3. The embedded 4" diameter cast iron down spout on all exterior columns
reduces the cross-sectional area of each of the columns and the strength
thereof.
4. Two front corners, A7 and D7 columns were very much less reinforced.
Physical Evidence After the Earthquake, Proving Inadequacy of design;
1. Column A7 suffered the severest fracture and maximum sagging. Also
D7.
2. There are more damages in the front part of the building than towards
the rear, not only in columns but also in slabs.
3. Building leaned and sagged more on the front part of the building.
4. Floors showed maximum sagging on the sides and toward the front
corner parts of the building.
5. There was a lateral displacement of the building of about 8", Maximum
sagging occurs at the column A7 where the floor is lower by 80 cm. than
the highest slab level.
6. Slab at the corner column D7 sagged by 38 cm.
The Commissioner concluded that there were deficiencies or defects in
the design, plans and specifications of the PBA building which involved
appreciable risks with respect to the accidental forces which may result
from earthquake shocks. He conceded, however, that the fact that those
deficiencies or defects may have arisen from an obsolete or not too
conservative code or even a code that does not require a design for
earthquake forces mitigates in a large measure the responsibility or
liability of the architect and engineer designer.
The Third-party defendants, who are the most concerned with this portion
of the Commissioner's report, voiced opposition to the same on the
grounds that (a) the finding is based on a basic erroneous conception as
to the design concept of the building, to wit, that the design is essentially
that of a heavy rectangular box on stilts with shear wan at one end; (b) the
finding that there were defects and a deficiency in the design of the
building would at best be based on an approximation and, therefore,
rightly belonged to the realm of speculation, rather than of certainty and
could very possibly be outright error; (c) the Commissioner has failed to
back up or support his finding with extensive, complex and highly
specialized computations and analyzes which he himself emphasizes are
necessary in the determination of such a highly technical question; and (d)
the Commissioner has analyzed the design of the PBA building not in the
light of existing and available earthquake engineering knowledge at the
time of the preparation of the design, but in the light of recent and current
standards.
The Commissioner answered the said objections alleging that third-party
defendants' objections were based on estimates or exhibits not presented
during the hearing that the resort to engineering references posterior to
the date of the preparation of the plans was induced by the third-party
defendants themselves who submitted computations of the third-party
defendants are erroneous.
The issue presently considered is admittedly a technical one of the
highest degree. It involves questions not within the ordinary competence
of the bench and the bar to resolve by themselves. Counsel for the third-
party defendants has aptly remarked that "engineering, although dealing
in mathematics, is not an exact science and that the present knowledge as
to the nature of earthquakes and the behaviour of forces generated by
them still leaves much to be desired; so much so "that the experts of the
different parties, who are all engineers, cannot agree on what equation to
use, as to what earthquake co-efficients are, on the codes to be used and
even as to the type of structure that the PBA building (is) was (p. 29,
Memo, of third- party defendants before the Commissioner).
The difficulty expected by the Court if tills technical matter were to be tried
and inquired into by the Court itself, coupled with the intrinsic nature of
the questions involved therein, constituted the reason for the reference of
the said issues to a Commissioner whose qualifications and experience
have eminently qualified him for the task, and whose competence had not
been questioned by the parties until he submitted his report. Within the
pardonable limit of the Court's ability to comprehend the meaning of the
Commissioner's report on this issue, and the objections voiced to the
same, the Court sees no compelling reasons to disturb the findings of the
Commissioner that there were defects and deficiencies in the design,
plans and specifications prepared by third-party defendants, and that said
defects and deficiencies involved appreciable risks with respect to the
accidental forces which may result from earthquake shocks.
(2) (a) The deviations, if any, made by the defendants from the plans and
specifications, and how said deviations contributed to the damage
sustained by the building.
(b) The alleged failure of defendants to observe the requisite quality of
materials and workmanship in the construction of the building.
These two issues, being interrelated with each other, will be discussed
together.
The findings of the Commissioner on these issues were as follows:
We now turn to the construction of the PBA Building and the alleged
deficiencies or defects in the construction and violations or deviations
from the plans and specifications. All these may be summarized as
follows:
a. Summary of alleged defects as reported by Engineer Mario M.
Bundalian.
(1) Wrongful and defective placing of reinforcing bars.
(2) Absence of effective and desirable integration of the 3 bars in the
cluster.
(3) Oversize coarse aggregates: 1-1/4 to 2" were used. Specification
requires no larger than 1 inch.
(4) Reinforcement assembly is not concentric with the column, eccentricity
being 3" off when on one face the main bars are only 1 1/2' from the
surface.
(5) Prevalence of honeycombs,
(6) Contraband construction joints,
(7) Absence, or omission, or over spacing of spiral hoops,
(8) Deliberate severance of spirals into semi-circles in noted on Col. A-5,
ground floor,
(9) Defective construction joints in Columns A-3, C-7, D-7 and D-4, ground
floor,
(10) Undergraduate concrete is evident,
(11) Big cavity in core of Column 2A-4, second floor,
(12) Columns buckled at different planes. Columns buckled worst where
there are no spirals or where spirals are cut. Columns suffered worst
displacement where the eccentricity of the columnar reinforcement
assembly is more acute.
b. Summary of alleged defects as reported by Engr. Antonio Avecilla.
Columns are first (or ground) floor, unless otherwise stated.
(1) Column D4 Spacing of spiral is changed from 2" to 5" on centers,
(2) Column D5 No spiral up to a height of 22" from the ground floor,
(3) Column D6 Spacing of spiral over 4 l/2,
(4) Column D7 Lack of lateral ties,
(5) Column C7 Absence of spiral to a height of 20" from the ground
level, Spirals are at 2" from the exterior column face and 6" from the inner
column face,
(6) Column B6 Lack of spiral on 2 feet below the floor beams,
(7) Column B5 Lack of spirals at a distance of 26' below the beam,
(8) Column B7 Spirals not tied to vertical reinforcing bars, Spirals are
uneven 2" to 4",
(9) Column A3 Lack of lateral ties,
(10) Column A4 Spirals cut off and welded to two separate clustered
vertical bars,
(11) Column A4 (second floor Column is completely hollow to a height
of 30"
(12) Column A5 Spirals were cut from the floor level to the bottom of the
spandrel beam to a height of 6 feet,
(13) Column A6 No spirals up to a height of 30' above the ground floor
level,
(14) Column A7 Lack of lateralties or spirals,
c. Summary of alleged defects as reported by the experts of the Third-
Party defendants.
Ground floor columns.
(1) Column A4 Spirals are cut,
(2) Column A5 Spirals are cut,
(3) Column A6 At lower 18" spirals are absent,
(4) Column A7 Ties are too far apart,
(5) Column B5 At upper fourth of column spirals are either absent or
improperly spliced,
(6) Column B6 At upper 2 feet spirals are absent,
(7) Column B7 At upper fourth of column spirals missing or improperly
spliced.
(8) Column C7 Spirals are absent at lowest 18"
(9) Column D5 At lowest 2 feet spirals are absent,
(10) Column D6 Spirals are too far apart and apparently improperly
spliced,
(11) Column D7 Lateral ties are too far apart, spaced 16" on centers.
There is merit in many of these allegations. The explanations given by the
engineering experts for the defendants are either contrary to general
principles of engineering design for reinforced concrete or not applicable
to the requirements for ductility and strength of reinforced concrete in
earthquake-resistant design and construction.
We shall first classify and consider defects which may have appreciable
bearing or relation to' the earthquake-resistant property of the building.
As heretofore mentioned, details which insure ductility at or near the
connections between columns and girders are desirable in earthquake
resistant design and construction. The omission of spirals and ties or
hoops at the bottom and/or tops of columns contributed greatly to the loss
of earthquake-resistant strength. The plans and specifications required
that these spirals and ties be carried from the floor level to the bottom
reinforcement of the deeper beam (p. 1, Specifications, p. 970, Reference
11). There were several clear evidences where this was not done especially
in some of the ground floor columns which failed.
There were also unmistakable evidences that the spacings of the spirals
and ties in the columns were in many cases greater than those called for
in the plans and specifications resulting again in loss of earthquake-
resistant strength. The assertion of the engineering experts for the
defendants that the improper spacings and the cutting of the spirals did
not result in loss of strength in the column cannot be maintained and is
certainly contrary to the general principles of column design and
construction. And even granting that there be no loss in strength at the
yield point (an assumption which is very doubtful) the cutting or improper
spacings of spirals will certainly result in the loss of the plastic range or
ductility in the column and it is precisely this plastic range or ductility
which is desirable and needed for earthquake-resistant strength.
There is no excuse for the cavity or hollow portion in the column A4,
second floor, and although this column did not fail, this is certainly an
evidence on the part of the contractor of poor construction.
The effect of eccentricities in the columns which were measured at about 2
1/2 inches maximum may be approximated in relation to column loads and
column and beam moments. The main effect of eccentricity is to change
the beam or girder span. The effect on the measured eccentricity of 2
inches, therefore, is to increase or diminish the column load by a
maximum of about 1% and to increase or diminish the column or beam
movements by about a maximum of 2%. While these can certainly be
absorbed within the factor of safety, they nevertheless diminish said factor
of safety.
The cutting of the spirals in column A5, ground floor is the subject of great
contention between the parties and deserves special consideration.
The proper placing of the main reinforcements and spirals in column A5,
ground floor, is the responsibility of the general contractor which is the
UCCI. The burden of proof, therefore, that this cutting was done by others
is upon the defendants. Other than a strong allegation and assertion that it
is the plumber or his men who may have done the cutting (and this was
flatly denied by the plumber) no conclusive proof was presented. The
engineering experts for the defendants asserted that they could have no
motivation for cutting the bar because they can simply replace the spirals
by wrapping around a new set of spirals. This is not quite correct. There is
evidence to show that the pouring of concrete for columns was sometimes
done through the beam and girder reinforcements which were already in
place as in the case of column A4 second floor. If the reinforcement for the
girder and column is to subsequently wrap around the spirals, this would
not do for the elasticity of steel would prevent the making of tight column
spirals and loose or improper spirals would result. The proper way is to
produce correct spirals down from the top of the main column bars, a
procedure which can not be done if either the beam or girder
reinforcement is already in place. The engineering experts for the
defendants strongly assert and apparently believe that the cutting of the
spirals did not materially diminish the strength of the column. This belief
together with the difficulty of slipping the spirals on the top of the column
once the beam reinforcement is in place may be a sufficient motivation for
the cutting of the spirals themselves. The defendants, therefore, should be
held responsible for the consequences arising from the loss of strength or
ductility in column A5 which may have contributed to the damages
sustained by the building.
The lack of proper length of splicing of spirals was also proven in the
visible spirals of the columns where spalling of the concrete cover had
taken place. This lack of proper splicing contributed in a small measure to
the loss of strength.
The effects of all the other proven and visible defects although nor can
certainly be accumulated so that they can contribute to an appreciable
loss in earthquake-resistant strength. The engineering experts for the
defendants submitted an estimate on some of these defects in the amount
of a few percent. If accumulated, therefore, including the effect of
eccentricity in the column the loss in strength due to these minor defects
may run to as much as ten percent.
To recapitulate: the omission or lack of spirals and ties at the bottom
and/or at the top of some of the ground floor columns contributed greatly
to the collapse of the PBA building since it is at these points where the
greater part of the failure occurred. The liability for the cutting of the
spirals in column A5, ground floor, in the considered opinion of the
Commissioner rests on the shoulders of the defendants and the loss of
strength in this column contributed to the damage which occurred.
It is reasonable to conclude, therefore, that the proven defects,
deficiencies and violations of the plans and specifications of the PBA
building contributed to the damages which resulted during the earthquake
of August 2, 1968 and the vice of these defects and deficiencies is that
 they not only increase but also aggravate the weakness mentioned in the
design of the structure. In other words, these defects and deficiencies not
only tend to add but also to multiply the effects of the shortcomings in the
design of the building. We may say, therefore, that the defects and
deficiencies in the construction contributed greatly to the damage which
occurred.
Since the execution and supervision of the construction work in the hands
of the contractor is direct and positive, the presence of existence of all the
major defects and deficiencies noted and proven manifests an element of
negligence which may amount to imprudence in the construction work.
(pp. 42-49, Commissioners Report).
As the parties most directly concerned with this portion of the Commissioner's report,
the defendants voiced their objections to the same on the grounds that the
Commissioner should have specified the defects found by him to be "meritorious";
that the Commissioner failed to indicate the number of cases where the spirals and ties
were not carried from the floor level to the bottom reinforcement of the deeper beam,
or where the spacing of the spirals and ties in the columns were greater than that
called for in the specifications; that the hollow in column A4, second floor, the
eccentricities in the columns, the lack of proper length of splicing of spirals, and the
cut in the spirals in column A5, ground floor, did not aggravate or contribute to the
damage suffered by the building; that the defects in the construction were within the
tolerable margin of safety; and that the cutting of the spirals in column A5, ground
floor, was done by the plumber or his men, and not by the defendants.
Answering the said objections, the Commissioner stated that, since many of the
defects were minor only the totality of the defects was considered. As regards the
objection as to failure to state the number of cases where the spirals and ties were not
carried from the floor level to the bottom reinforcement, the Commissioner specified
groundfloor columns B-6 and C-5 the first one without spirals for 03 inches at the top,
and in the latter, there were no spirals for 10 inches at the bottom. The Commissioner
likewise specified the first storey columns where the spacings were greater than that
called for in the specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5 and B-7. The
objection to the failure of the Commissioner to specify the number of columns where
there was lack of proper length of splicing of spirals, the Commissioner mentioned
groundfloor columns B-6 and B-5 where all the splices were less than 1-1/2 turns and
were not welded, resulting in some loss of strength which could be critical near the
ends of the columns. He answered the supposition of the defendants that the spirals
and the ties must have been looted, by calling attention to the fact that the missing
spirals and ties were only in two out of the 25 columns, which rendered said
supposition to be improbable.
The Commissioner conceded that the hollow in column A-4, second floor, did not
aggravate or contribute to the damage, but averred that it is "evidence of poor
construction." On the claim that the eccentricity could be absorbed within the factor of
safety, the Commissioner answered that, while the same may be true, it also
contributed to or aggravated the damage suffered by the building.
The objection regarding the cutting of the spirals in Column A-5, groundfloor, was
answered by the Commissioner by reiterating the observation in his report that
irrespective of who did the cutting of the spirals, the defendants should be held liable
for the same as the general contractor of the building. The Commissioner further
stated that the loss of strength of the cut spirals and inelastic deflections of the
supposed lattice work defeated the purpose of the spiral containment in the column
and resulted in the loss of strength, as evidenced by the actual failure of this column.
Again, the Court concurs in the findings of the Commissioner on these issues and fails
to find any sufficient cause to disregard or modify the same. As found by the
Commissioner, the "deviations made by the defendants from the plans and
specifications caused indirectly the damage sustained and that those deviations not
only added but also aggravated the damage caused by the defects in the plans and
specifications prepared by third-party defendants. (Rollo, Vol. I, pp. 128-142)
The afore-mentioned facts clearly indicate the wanton negligence of both the
defendant and the third-party defendants in effecting the plans, designs,
specifications, and construction of the PBA building and We hold such negligence as
equivalent to bad faith in the performance of their respective tasks.
Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379, 4380)
which may be in point in this case reads:
One who negligently creates a dangerous condition cannot escape liability for the
natural and probable consequences thereof, although the act of a third person, or an
act of God for which he is not responsible, intervenes to precipitate the loss.
As already discussed, the destruction was not purely an act of God. Truth to tell
hundreds of ancient buildings in the vicinity were hardly affected by the earthquake.
Only one thing spells out the fatal difference; gross negligence and evident bad faith,
without which the damage would not have occurred.
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the
special and environmental circumstances of this case, We deem it reasonable to
render a decision imposing, as We do hereby impose, upon the defendant and the
third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil
Code, Supra, p. 10) indemnity in favor of the Philippine Bar Association of FIVE
MILLION (P5,000,000.00) Pesos to cover all damages (with the exception of attorney's
fees) occasioned by the loss of the building (including interest charges and lost
rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for
attorney's fees, the total sum being payable upon the finality of this decision. Upon
failure to pay on such finality, twelve (12%) per cent interest per annum shall be
imposed upon afore-mentioned amounts from finality until paid. Solidary costs against
the defendant and third-party defendants (except Roman Ozaeta).
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.