[G.R. Nos. L-21477-81. April 29, 1966.] court in the assessment of liabilities of the parties.
court in the assessment of liabilities of the parties. In its view only petitioner Francisca Viluan,
FRANCISCA VILUAN, Petitioner, v. THE COURT OF APPEALS, PATRICIO
HUFANA AND GREGORIO HUFANA, Respondents.
REGALA, J.:
Seven persons were killed and thirteen others were injured in Bangar, La Union, on February
16, 1958, when a passenger bus on which they were riding caught fire after hitting a post and
crashing against a tree. The bus, owned by petitioner and driven by Hermenegildo Aquino,
came from San Fernando, La Union and was on its way to Candon, Ilocos Sur. It appears that,
as the bus neared the gate of the Gabaldon school building in the municipality of Bangar,
another passenger bus owned by Patricio Hufana and driven by Gregorio Hufana tried to
overtake it but that instead of giving way, Aquino increased the speed of his bus and raced
with the overtaking bus. Aquino lost control of his bus as a result of which it hit a post, crashed
against a tree and then burst into flames.
Among those who perished were Timoteo Mapanao, Francisca Lacsamana , Narcisa Mendoza
and Gregorio Sibayan, whose heirs sued petitioner and the latter’s driver, Hermenegildo
Aquino, for damages for breach of contract of carriage. Carolina Sabado, one of those injured,
also sued petitioner and the driver for damages. The complaints were filed in the Court of
First Instance of La Union.
In their answer, petitioner and her driver blamed respondent Gregorio Hufana for the
accident. With leave of court, they filed third party complaints against Hufana and the latter’s
employer, Patricio Hufana.
After trial, the court found that the accident was due to the concurrent negligence of the
drivers of the two buses and held both, together with their respective employers, jointly and
severally liable for damages.
"IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered, declaring the plaintiffs
entitled to damages to be paid jointly and severally by the defendants and third-party
defendants as follows:
All such amounts awarded as damages shall bear interest at the legal rate of six per cent (6)
per annum from the date of this decision until the same shall have been duly paid in full.
Defendants and third-party defendants are further ordered to pay proportionate
costs."cralaw virtua1aw library
Both petitioner and her driver and the respondents herein appealed to the Court of Appeals.
While affirming the finding that the accident was due to the concurrent negligence of the
drivers of both the Viluan and the Hufana buses, the Court of Appeals differed with the trial
as operator of the bus, is liable for breach of contract of carriage. The driver, Hermenegildo
Aquino cannot be made jointly and severally liable with petitioner because he is merely the
latter’s employee and is in no way a party to the contract of carriage. The court added,
however — "Hermenegildo Aquino is not entirely free from liability. He may be held liable,
criminally and civilly, under the Revised Penal Code (Articles 100 and 103), but not in a civil
suit for damages predicated upon a breach of contract, such as this one (Aguas, Et. Al. v.
Vargas, Et Al., CA G.R. No. 27161-R, January 22, 1963). furthermore, the common carrier,
Francisca Viluan, could recover from Aquino any damages that she might have suffered by
reason of the latter’s negligence."cralaw virtua1aw library
Neither may respondents Patricio Hufana and Gregorio Hufana be held liable in the opinion
of the appellate court because the plaintiffs did not amend complaints in the main action so
as to assert a claim against respondents as third party defendants.
The appellate court likewise disallowed the award of moral damages for P1,000.00 to Carolina
Sabado, there being no showing that the common carrier was guilty of fraud or bad faith in
the performance of her obligation. Accordingly, it rendered judgment as
follows:jgc:chanrobles.com.ph
"IN VIEW OF ALL THE FOREGOING, we hereby find defendant-appellant Francisca Viluan solely
liable to the plaintiffs-appellees for the damages and attorney’s fees awarded to them by the
court below and further declare null and void the lower court’s award of moral damages in
the amount of P1,000.00 in favor of plaintiff Carolina Sabado. Thus modified, the judgment
appealed from is affirmed in all other respects, with costs in this instance against defendant-
appellant Francisca Viluan."cralaw virtua1aw library
From this judgment petitioner brought this appeal. In brief, her position is that since the
proximate cause of the accident was found to be the concurrent negligence of the drivers of
the two buses, then she and respondents Patricio and Gregorio Hufana should have been held
equally liable to the plaintiffs in the damage suits. The fact that the respondents were not
sued as principal defendants but were brought into the cases as third party defendants should
not preclude a finding of their liability.
We agree with petitioner’s contention. To begin with, the Court of Appeal’s ruling is based on
section 5 of Rule 12 of the former Rules of Court, 1 which was adopted from Rule 14-A of the
Federal Rules of Civil Procedure. While the latter provision has indeed been helpful to
preclude a judgment in favor of a plaintiff and against a third party defendant where the
plaintiff has not amended his complaint to assert a claim against a third party defendant, 2
yet, as held in subsequent decisions, this rule applies only to cases where the third party
defendant is brought in on an allegation of liability to the defendants. The rule does not apply
where a third party defendant is impleaded on the ground of direct liability to the plaintiffs,
in which case no amendment of the plaintiff’s complaint is necessary. 3 As explained in the
Atlantic Coast Line R. Co. v. U.S. Fidelity and Guaranty Co., 52 F. Supp. 177
(1943):jgc:chanrobles.com.ph
"From the sources of Rule 14 and the decisions herein cited, it is clear that this rule, like the
admiralty rule, ‘covers two distinct subjects, the addition of parties defendant to the main
cause of action, and the bringing in of a third party for a defendant’s remedy over.’. . .
"If the third party complaint alleged facts showing a third party’s direct liability to plaintiff on
the claim set out in plaintiff’s petition, then third party "shall" make his defenses as provided
in Rule 12 and his counterclaims against plaintiff as provided in Rule 13. In the case of alleged
direct liability, no amendment is necessary or required. The subject-matter of the claim is
contained in plaintiff’s complaint, the ground of third party’s liability on that claim is alleged
in third party complaint, and third party’s defense to his alleged liability on the claim is set up
in his answer to plaintiff’s complaint. At that point and without amendment, the plaintiff and
third party are at issue as to their rights respecting the claim.
"The provision in the rule that, "The third-party defendant may assert any defense which the
third-party plaintiff may assert to the plaintiff’s claim,’ applies to the other subject, namely,
the alleged liability of third party defendant. The next sentence in the rule, "The third-party
defendant is bound by the adjudication of the third- party plaintiff’s liability to the plaintiff,
as well as of his own to the plaintiff or to the third-party plaintiff,’ applies to both subjects. If
third party is brought in as liable only to defendant and judgment is rendered adjudicating
plaintiff’s right to recover against defendant and defendant’s right to recover against third
party, he is bound by both adjudications. That part of the sentence refers to the second
subject. If third party is brought in as liable to plaintiff, then third party is bound by the
adjudication as between him and plaintiff. That refers to the first subject. If third party is
brought in as liable to plaintiff and also over to defendant, then third party is bound by both
adjudications. The next sentence in the rule, `The plaintiff may amend his pleadings to assert
against the third-party defendant any claim which the plaintiff might have asserted against
the third-party defendant had he been joined originally as a defendant,’ refers to the second
subject, that is, to bringing in third party as liable to defendant only, and does not apply to
the alleged liability of third party directly to plaintiff."cralaw virtua1aw library
In this case the third party complaints filed by petitioner and her driver charged respondents
with direct liability to the plaintiffs. It was contended that the accident was due "to the fault,
negligence, carelessness and imprudence of the third party defendant Gregorio Hufana" and,
in petitioner’s motion for leave to file a third party complaint, it was stated that "Patricio
Hufana and Gregorio Hufana were not made parties to this action, although the defendants
are entitled to indemnify and/or subrogation against them in respect of plaintiff’s
claim."cralaw virtua1aw library
It should make no difference therefore whether the respondents were brought in as principal
defendants or as third-party defendants. As Moran points out, since the liability of the third-
party defendant is already asserted in the third-party complaint, the amendment of the
complaint to assert such liability is merely a matter of form, to insist on which would not be
in keeping with the liberal spirit of the Rules of Court. 4
Nor should it make any difference that the liability of petitioner springs from contract while
that of respondents arises from quasi-delict. As early as 1931, we already ruled in Gutierrez
v. Gutierrez, 56 Phil., 177, 5 that in case of injury to a passenger due to the negligence of the
driver of the bus on which he was riding and of the driver of another vehicle, the drivers as
well as the owners of the two vehicles are jointly and severally liable for damages. Some
members of the Court, though are of the view that under the circumstances they are liable
on quasi-delict.
Wherefore, the decision appealed from is hereby modified in the sense that petitioner as well
as respondents Patricio Hufana and Gregorio Hufana are jointly and severally liable for the
damages awarded by the trial court. The disallowance of moral damages in the amount of
P1,000.00 is correct and should be affirmed. No costs.
G.R. No. L-6291 April 29, 1954
THE SAN PEDRO BUS LINE, PAULINO DE LA CRUZ, and TEODOLO LACDAN, doing business
under the name of "THE SAN PEDRO BUS LINE," petitioners,
vs. NICOLAS NAVARRO, and the HON. ASSOCIATE JUSTICES OF THE FIRST DIVISION, COURT
OF APPEALS, respondents.
PARAS, C.J.:
Nicolas Navarro filed a complaint in the court of First Instance of Rizal against the San Pedro
Bus Line, Paulino de la Cruz and Teodulo Lacdan, doing business in the name of the San Pedro
Bus Line, alleging that the plaintiff, on April 21, 1943, rode as a passenger in Manila bound
bus No. TPU-7654 owned and operated by the defendants; that while on its way the bus
collided with another vehicle, causing serious physical injuries to the plaintiff, with
subsequent post-traumatic psychosis which might incapacitate him for life; that as a result
thereof the plaintiff suffered damages, for actual medical and hospital expenses and loss of
earning power, in the total sum of P4,500 which the plaintiff sought to recover from the
defendants. In their answer the defendants admitted the occurrence of the accident and the
injuries received the plaintiff, but disclaimed responsibility for the accident. After trial, the
court dismissed the complaint on the ground that there was "no proof whatsoever of the
relation of the defendants San Pedro Bus Line and Paulino de la Cruz with the damages
claimed by the plaintiff." The plaintiff appealed to the Court of Appeals which, on part of
which reads as follows: "WHEREFORE, it appearing that the trial court erred as charged, and
that the facts and the lawfully warrant a recovery by the appellant, the judgment appealed in
the total sum of P9,500, with interests thereon from the date this action was commenced.
Costs are charged against the appellees." The defendants have elevated the case by way of a
petition for certiorari.
It is contended for the herein petitioners that they cannot be held civilly liable to respondents
Nicolas Navarro, for the reason that the Court of First Instance of Rizal had dismissed the
criminal charge against petitioner Paulino de la Cruz, driver of the bus involved in the accident,
citing the case of Martinez vs. Barredo,* Off. Gaz., 4922. In answer to this contention, it is
enough to advert to the conclusion of the Court of Appeals — which is correct — that the
action was not based on tort or quasi delict, but was one for breach of a carrier's contract,
there being a clear distinction between culpa as a source and creator of obligations (aquiliana)
and culpa in the performance of an already existing obligation (contractual). As already held
in the case of Castro vs. Acro Taxicab Co.** 46 Off. Gaz., 2023, "para que prosperase la accion
del demandante pidiendo indemnizacion de daños y perjuicios bastaba que probase la
existencia del contrato de pasaje esto es, que causo lesiones y daños en el pasajero. De
acuerdo con la doctrina enunciada, para el exito de la accion de daños no era necesario que
se probase la culpa, desuido a negligencia del chofer que guiaba el taximetro No. 962." The
case of Martinez vs. Barredo is not controlling, since it referred to an action based on criminal
negligence.
The other contention of the petitioners is that it was erroneous for the Court of Appeals to
award in favor of respondent Navarro damages in the amount of P9,500, his claim in the
complaint being only for P4,500. It appears, however, that the complaint prayed for "such
further relief as may be deemed just and equitable," and this of course warranted the granting
in the complaint. Indeed, under section 9, Rule 35, of the Rules of Court, "the judgment shall
grant the relief to which the party in whose favor it is rendered is entitled, even if the party
has not demanded such relief in his pleadings."
It is also urged by counsel for the petitioners that the finding of the Court of Appeals that
respondent Navarro is insane, is not supported by any evidence, and that on the other hand,
in the motion for new trial filed by the petitioners, accompanied by the affidavits of Marcelo
Legaspi and Ceferino Terello, respondent Navarro is shown not to be insane, with the result
that there is no basis for awarding the additional amount of P5,000. However, apart from the
fact that the finding of the Court of Appeals is factual and therefore conclusive, the said sum
was granted by the Court of Appeals, not only for the resulting insanity of respondent Navarro
but for his pain and suffering in general; and we are not prepared to hold that the award is
excessive as compensation for moral damages.
Wherefore, the decision complained of is affirmed, and it is so ordered with costs against
petitioners.
[G.R. Nos. L-12634 & L-12720. May 29, 1959.]
JOSE G. TAMAYO, Petitioner, v. INOCENCIO AQUINO, ET AL., and SILVESTRE RAYOS,
Respondents. SILVESTRE RAYOS, Petitioner, v. JOSE G. TAMAYO and INOCENCIO AQUINO
ET AL., Respondents.
LABRADOR, J.:
Inocencio Aquino and his children brought this action against Jose G. Tamayo, holder of a
certificate of public convenience to operate two trucks for damages for the death of
Inocencio’s wife, Epifania Gonzales, while riding aboard Tamayo’s truck. It is alleged that while
his (Inocencio Aquino) wife was making a trip aboard truck with Plate No. TPU-735, it bumped
against a culvert on the side of the road in Bugallon, Pangasinan; that as a consequence of
this accident Epifania Gonzales was thrown away from the vehicle and two pieces of wood
embeded in her skull as a result of which she died; that the impact of the truck against the
culvert was so violent that the roof of the vehicle was ripped off from its body, one fender
was smashed and the engine damaged beyond repair. Complaint was filed for the recovery of
P10,000 as actual damages, P10,000 as moral damages, and costs.
Upon being summoned, defendant Tamayo answered alleging that the truck is owned by
Silvestre Rayos, so he filed a third-party complaint against the latter, alleging that he no longer
had any interest whatsoever in the said truck, as he had sold the same before the accident to
the third-party defendant Silvestre Rayos. Answering the third-party complaint, Rayos alleged
that if any indemnity is due, it should come from Jose G. Tamayo, because he did not have
any transaction with him regarding such sale.
The Court of First Instance found that the truck with plate No. TPU-735 was one of the trucks
of Tamayo under a certificate of public convenience issued to him; that he had sold it to Rayos
in March, 1953, but did not inform the Public Service Commission of the sale until June 30,
1953, one month after the accident. On the basis of the above facts, the Court of First Instance
ordered the defendant Tamayo and the third-party defendant Rayos to pay plaintiffs jointly
and severally the sum of P6,000 as compensatory damages, and another sum of P5,000 as
moral damages, with interest, and authorized the defendant or third-party defendant,
whoever should pay the entire amount, to recover from the other any sum in excess of one-
half of the amount ordered to be paid, with interest. The court also dismissed the third-party
complaint. Appeal against the above decision was made to the Court of Appeals. This court
affirmed the judgment of the Court of First Instance in all respects, and against this judgment
certiorari was issued by us on separate petitions of Tamayo and Rayos.
Tamayo claims exemptionn from liability, arguing that the owner and operator of the truck at
the time the accident was not he but Rayos. In answer we state that we have already held in
the cases of Medina v. Cresencia, 99 Phil., 506; 52 Off. Gaz., (11) 4606; Timbol v. Osias, 98
Phil., 432; 52 Off. Gaz. (3) 1392; Montoya v. Ignacio, 94 Phil., 182; 50 Off. Gaz., 108, and Roque
v. Malibay, L-8561, Nov. 18, 1955, that the registered owner of a public service vehicle is
responsible for damages that may be caused to any of the passengers therein, even if the said
vehicle had already been sold, leased or transferred to another person who was, at the time
of the accident, actually operating the vehicle. This principle was also reafirmed in the case of
Erezo v. Jepte, 102 Phil., 103. The reason given by us for the above liability imposed upon the
registered owner of the vehicle under a certificate of public convenience is as
follows:jgc:chanrobles.com.ph
". . . we hold with the trial court that the law does not allow him to do so; the law, with its
aim and policy in mind, does not relieve him directly of the responsibility that the law fixes
and places upon him as an incident or consequence of registration. Were a registered owner
allowed to evade responsibility by proving who the supposed transferre or owner is, it would
be easy for him by collusion with others or otherwise, to escape said responsibility and
transfer the same to an indefinite person, or to one who possesses no property with which to
respond financially for the damage or injury done. A victim of recklessness on the public
highways is usually without means to discover or identify the person actually causing the
injury or damage. He has no means other than by a recourse to the registration in the Motor
Vehicles Office to determine who is the owner. The protection that the law aims to extend to
him would become illusory were the registered owner given the opportunity to escape
liability by disproving his ownership. If the policy of the law is to be enforced and carried out,
the registered owner should not be allowed to prove the contrary to the prejudice of the
person injured, that is, to prove that a third person or another has become the owner, so that
he may therebyy be relieved of the responsibility to the injured." (Erezo v. Jepte, supra).
The decision of the Court of Appeals is alsoo attacked insofar as it holdds that inasmuch as
the third-party defendant had used the truck on a route not covered by the registered owner’s
franchise, both the registered owner and the actual owner and operator should be considered
as joint tortfeasors and should be made liable in accordance with Article 2194 of the Civil
Code. "Art. 2194. The responsibility of two or more persons who are liable for a quasi-delict
is solidary."cralaw virtua1aw library
But the action instituted in the case at bar is one for breach of contract, for failure of the
defendant to carry safety the deceased to her destination. The liability for which he is made
responsible, i. e., for the death of the passenger, may not be considered as arising from a
quasi-delict. As the registered owner Tamayo and his tranferee Rayos may not be held guilty
of tort or a quasi-delict; their responsibility is not solidary as held by the Court of Appeals.
The question that poses, therefore, is how should the holder of the certificate of public
convenience Tamayo participate with his transferee, operator Rayos, in the damages
recoverable by the heirs of the deceased passenger, if their liability is not that of joint
tortfeasors in accordance with Article 2194 of the Civil Code. The following considerations
must be borne in mind in determining this question. As Tamayo is the registered owner of the
truck, his responsibility to the public or to any passenger riding in the vehicle or truck must
be direct, for the reasons given in our decision in the case of Erezo v. Jepte, supra, as quoted
above. But as the transferee, who operated the vehicle when the passenger died, is the one
directly responsible for the accident and death he should in turn be made responsible to the
registered owner for what the latter may have been adjudged to pay. In operating the truck
without transfer thereof having been approved by the Public Service Commission, the
transferee acted merely as agent of the registered owner and should be responsible to him
(the registered owner), for any damages that he may cause the latter by his negligence.
In the case at bar, the court found, furthermore, that inspite of the fact that the agreement
between Tamayo and Rayos was for Rayos to use the truck in carrying of gasoline, the latter
used the same in transporting passengers outside the route covered by the franchise of
Tamayo. For this additional reason, the agent or Rayos must be held responsible to the
registered owner, to the extent that the latter may suffer damage by reason of the death
caused during the accident. The responsibility of the transferee was already adverted to by
us in the case of Erezo v. Jepte, supra, when we held expressly.
"In synthesis, we hold that the registered owner, the defendant appellant herein, is primarily
responsible for the damage caused to the vehicle of the plaintiff-appellee, but he (defendant-
appellant) has a right to be indemnified by the real or actual owner of the amount that he
may be required to pay as damage for the injury caused to the plaintiff-appellant." (Erezo v.
Jepte, supra.)
We hereby affirm that the responsibility of the transferee of the public vehicle be as above
denied.
The procedural means by which the liability of the transferee to the holder of the certificate
should be enforced is that indicated by us in the above-quoted portion of the case of Erezo v.
Jepte. This procedure was adopted by Tamayo, the defendant herein, when he presented
third-party complaint against Rayos. The courts below should not have dismissed this third-
party complaint, and should have adjudged the responsibility to make indemnity in
accordance therewith. The transferee is liable to indemnify the registered owner for the
damages that the latter may be required to pay for the accident, hence the remedy is by third-
party complaint (See Rule 12, Rules of Court).
We now come to the question of the damages that the Court of Appeals and the Court of First
Instance awarded to the plaintiffs. The actual or compensatory damage of P6,000 is not
seriously questioned by any of the defendants, but the award of P5,000 as moral damages is
questioned by them in this appeal. We agree with the appellants that as the responsibility of
Tamayo and his agent Rayos is culpa-contractual, no award of moral damages can be given.
The law on this matter is expressed in Article 2220 of the Civil Code, which
provides:jgc:chanrobles.com.ph
"Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies
to breaches of contract where the defendant acted fraudulently or in bad faith."cralaw
virtua1aw library
Both the Court of First Intance and the Court of Appeals considered the violation of the rules
of the Public Service Commission prohibiting transfer of public vehicles without approval by
the Commission as justifying the award of moral damages. We believe that both courts erred.
The law expressly provides that award of moral damages can be made in a suit for breach of
contract only when the defendants acted fraudulently or in bad faith. We do not believe that
the holder of the certificate, defendant Tamayo, was guilty of fraud or bad faith. There
appears to be no fraud at all in the transfer. Transfers are prohibited only if made without
approval by the Public Service Commission. There may have been a violation of the
regulations because Tamayo did not secure a previous authority to transfer from said
Commission, but he actually applied for and obtained said permission or approval about a
month after the accident. Besides, the truck was transferred to Rayos with the understanding
that the same was not to be used as a public convenience, so that insofar as Tamayo is
concerned, there could have been no shade or tint of bad faith at all. Consequently, the
ground upon which moral damages may be demanded from him by the plaintiffs does not
exist.
Neither can wee find that there was fraud or bad faith committed on the part of the transferee
or agent. There may have been a breach of the agreement between Tamayo and Rayos, but
this was not the immediate cause of the accident. It was the negligence of the driver. What
the law would seem to consider as bad faith which may furnish a ground for the award of
moral damages in the case at bar would be bad faith in the securing and in the execution of
the contract and in the enforcement of its terms (Article 1338, Civil Code), or any other kind
of deceit which may have been used by both defendants. None can be said to have been
present in the case at bar. There was no bad faith on the part of the agent Rayos, there was
negligence of the driver employed by him, but this is certainly not bad faith on defendants’
part contemplated by law.
For the foregoing considerations, the judgment appealed from is hereby modified, in that the
defendant-appellant Tamayo is hereby ordered to pay to the plaintiff-appellees the sum of
P6,000 as compensatory damages for the death of the deceased, but that he (Tamayo) has
the right to be indemnified by third-party defendant-appellant Rayos of the amount he is
hereby ordered to pay. With costs against appellants.
[G.R. No. 31339. November 27, 1929.]
THOS. N. POWELL, Plaintiff-Appellee, v. THE PHILIPPINE NATIONAL BANK, Defendant-
Appellant.
VILLA-REAL, J.:
The present appeal was taken by the Philippine National Bank from a judgment of the Court
of First Instance of Iloilo ordering it to pay the sum of P7,926.18 to the plaintiff, Thomas N.
Powell, together with the legal interest thereon from October 9, 1928 until fully paid, with
the costs of the trial.
In support of its appeal, the bank assigns the following alleged errors as committed by the
lower court in its decision, to wit:jgc:chanrobles.com.ph
"The lower court erred:jgc:chanrobles.com.ph
"1. In not holding that the fact that the fertilizer purchased by Severino Aldeguer of Felipe
Gomez was used on the sugar cane planted on the land in question, has created a lien upon
said sugar cane to secure the payment of the promissory notes issued for the fertilizers.
"2. In holding that there is no legal provision in force in these Islands applicable to said lien.
"3. In not holding that the provisions of articles 356 and 1922 of the Civil Code are applicable
to the instant case.
"4. In not absolving the Philippine National Bank from the complaint with costs against the
plaintiff."cralaw virtua1aw library
The following facts, agreed upon by the parties, are pertinent and necessary to the solution
of the questions raised in this appeal:chanrob1es virtual 1aw library
On December 17, 1920, in order o secure the payment of the sum of P17,000 with 12 per cent
interest per annum, Severino P. Aldeguer executed a mortgage deed in favor of the Philippine
National Bank on lots Nos. 1318 and 470 of the cadastral survey of Pontevedra, Occidental
Negros, appearing upon the original certificates of title Nos. 10977 and 10978, issued by the
registrar of deeds of said Province of Occidental Negros (Exhibit E).
On July 5, 1923, after a liquidation of accounts between Severino P. Aldeguer and the
Philippine National Bank, from which it appeared that the former owned the latter the sum
of P33,348.75, the former mortgage deed (Exhibit E) was amended making the mortgaged
property liable for the new amount with 8 per cent interest per annum, and retaining the
other conditions of the contract (Exhibit F).
On July 6, 1923, in order to secure the payment to the Philippine National Bank of the
additional sum of P12,000 with interest, Severino P. Aldeguer executed a second mortgage in
favor of said bank of the said lots, Nos. 1318 and 470 of the Pontevedra cadastre, and a first
mortgage on the sugar-cane harvest of 1923-1924 on said land, as well as on twenty-two head
of labor cattle (Exhibit G).
On February 23, 1925, in pursuance of a writ of execution issued by the Court of First Instance
of Manila, dated October 31, 1924, in civil case No. 25663 of said court, wherein the Asia
Banking Corporation was the plaintiff, and Severino P. Aldeguer and others were the
defendants, the sheriff of the Province of Occidental Negros levied execution on the
aforementioned lots, Nos. 1318 and 470, mortgaged to the Philippine National Bank (Exhibit
B).
Following the procedure prescribed by law, the provincial sheriff of Occidental Negros on
March 30, 1925 sold at public auction, all Severino P. Aldeguer’s rights, title and interest in
said lots Nos. 1318 and 470 to the Asia Banking Corporation, as the highest bidder for the sum
of P4,000. The writ of execution was for the sum of P4,625 with interest at 9 per centum per
annum from September 20, 1920, plus the cost, which amounted to P58.52 (Exhibits C and
D). The sheriff issued a deed of sale of said lands, which were described in certificates of title
Nos. 10977 and 10978, in favor of the Asia Banking Corporation and sent it to the register of
deeds of Occidental Negros by registered main on May 29, 1925, having been recorded upon
receipt thereof in Bacolod.
On March 28, 1925, Severino P. Aldeguer bought 40 tons of fertilizer from Felipe Gomez for
use in the cultivation of the two parcels of land mortgaged by him to the Philippine National
Bank, executing a promissory note for P5,200 payable on February 28, 1926.
On February 15, 1926, Severino P. Aldeguer again bought 3 tons of fertilizer from Felipe
Gomez for use upon the said land, executing a promissory note for P390, payable on January
15, 1927.
These promissory notes were endorsed by Felipe Gomez to the Philippine National Bank.
For some reason or other Severino P. Aldeguer failed to exercise his right of repurchase, and
on April 23, 1928, the provincial sheriff of Occidental Negros executed the final deed of sale
of Severino P. Aldeguer’s land mortgaged to the Philippine National Bank, in favor of the Asia
Banking Corporation (Exhibit 1).
On April 25, 1928, the Asia Banking Corporation sold said lots Nos. 1318 and 470 to Urquijo
Hermanos for P45,000, after undertaking to liberate them from all liens (Exhibit J).
On April 25, 1928, the Philippine National Bank furnished the Asia Banking Corporation the
following statement of Severino P. Aldeguer’s account up to April 25, 1928:
To remaining balance of P/Note signed by
Mr. Severino P. Aldeguer on July 5, 1923
for P32,373.64 P29,500.00
On April 26, 1928, the Asia Banking Corporation, through its attorneys tendered the Philippine
National Bank a check for P29,307 in payment of Severino P. Aldeguer’s debt to the latter,
secured by the mortgage of the lands abovementioned.
On April 27, 1928, the Philippine National Bank returned the check to the Asia Banking
Corporation with the following statement of Severino P. Aldeguer’s account with it:
To remaining balance of P/Note signed by Mr. Severino P. Aldeguer on July 5, 1923 for
P32,373.64 Total 37,459.87
Upon receipt of said statement, and on the same day, April 27, 1928, the attorneys of the Asia
Banking Corporation addressed a letter to the Philippine National Bank requesting the
reconsideration thereof.
The Philippine National Bank declined to make the reconsideration but expressed its
willingness to accept an additional sum of P7,511.36 in full payment. In order to comply with
its obligation to Urquijo Hermanos, the Asia Banking Corporation was forced to pay the
Philippine National Bank the amount of P7,511.36 under protest, made in a letter dated April
28, 1928.
On receipt of said amount, the Philippine National Bank, on May 3, 1928, executed in favor of
the Asia Banking Corporation a release of the mortgages on the lands in question (Exhibit H).
The real and exact state of accounts of Severino P. Aldeguer with the Philippine National Bank
from September 4, 1924 to April 25, 1928, is as follows:
With respect to the first assignment of error, the pertinent part of article 1922 of the Civil
Code states:jgc:chanrobles.com.ph
"ART. 1922. With respect to determinate personal property of the debtor, the following are
preferred:chanrob1es virtual 1aw library
"6. Credits for seed and expenses of cultivation and harvesting, advanced to the debtor, with
respect to the fruits of the crops which they were used to produce;
"If the personal property, with respect to which the preferences is allowed, has been
removed, the creditor may claim it from the person who has the same, within the terms of
thirty days counted from the time it was so removed."cralaw virtua1aw library
According to this legal provision, the Philippine National Bank, having acquired the promissory
notes executed by Severino P. Aldeguer is payment of the fertilizer used in the cultivation of
the two parcels of land mortgaged to said Bank, had a preferred right to the crops harvested
on said lands from February 28, 1926 and January 15, 1927, on which dates the promissory
notes fell due, and also the dates in which the crops produced by the fertilizer were
presumably harvested. According to the agreed statement of facts, Ynchausti & Co. delivered
to the Philippine National Bank sugar milled in its central from the cane grown upon Severino
P. Aldeguer’s land mortgaged to said bank. Instead of applying that sugar to the payment of
the promissory notes acquired by it from Felipe Gomez, applied it to the payment of its credit
against Severino P. Aldeguer secured by the two parcels of land that produced said crops. In
doing so, it waived its preferred right to said sugar for the payment of said promissory notes,
because that preferred right subsisted in so far as the sugar continued to belong to the debtor.
From the time the Philippine National Bank applied it to the payment of its credit against
Severino P. Aldeguer, with the latter’s consent, said sugar ceased to belong to said Severino
P. Aldeguer, and became the property of the aforesaid Philippine National Bank. (12 Manresa,
685.)
With regard to the defendant-appellant’s contention that Severino P. Aldeguer had a right to
compel the Philippine National Bank to apply said sugar to the payment of the promissory
notes for the fertilizer, such debts being the most burdensome to him, in accordance with the
provisions of articles 1172 and 1174 of the Civil Code, suffice it to say that such application
should have been made at the time of payment, and not afterwards, when his account with
the bank had already been credited.
The second question to be decided in this appeal is whether the Asia Banking Corporation had
any right to the fruit and rents of the lands purchased at public auction, up to the 25th of
April, 1928, when the sheriff of Occidental Negros issued the final deed of sale of said lands
in its favor.
The pertinent part of the English text of section 463 of the Code of Civil Procedure,
says:jgc:chanrobles.com.ph
"SEC. 463. Sale of real property and certificate thereof. — Upon a sale of real property, the
purchaser shall be substituted, to, and acquire all the right, interest, title, and claim of the
judgment debtor thereto, subject to the right of redemption as hereinafter provided. . .
."cralaw virtua1aw library
In the case of Riosa v. Verzosa and Bulan (26 Phil., 86), this court laid down the following
doctrine:jgc:chanrobles.com.ph
"SALE OF REALTY UNDER EXECUTION; RIGHT OF OWNER TO RETAIN POSSESSION DURING
PERIOD OF EQUITY OF REDEMPTION; EJECTMENT OF OWNER BY PURCHASER. — When real
estate is sold under an execution and the owner is in possession thereof, he is entitled to
remain in possession of the property sold and to collect the rents and profits of the same
during the period of the equity of redemption. (Section 464, 465, 468, and 469 of Act No. 190;
De la Rosa v. Santos, 10 Phil., 148.) By virtue of the provisions of section 469 (Act No. 190)
where the land is in possession of a tenant at the time of the sale under execution, a different
rule prevails."cralaw virtua1aw library
In the case of Velasco v. Rosenberg’s Incorporated (32 Phil., 72), this court like wise laid down
the following doctrine:jgc:chanrobles.com.ph
"EXECUTION SALE; RIGHT OF PURCHASER TO COLLECT RENT DURING PERIOD OF
REDEMPTION. — The judgment debtor who is in possession of property sold under execution
cannot be required to pay the purchaser rent for such property, during the period of
redemption."cralaw virtua1aw library
And in the case of Pabico v. Ong Pauco (43 Phil., 572), this court also laid down the following
doctrine:jgc:chanrobles.com.ph
"1. SHERIFF’S EXECUTION SALES; PLACING PURCHASER IN POSSESSION. — The doctrine of
caveat emptor applies to execution sales and the sheriff has no authority to place a purchaser
of land under such a sale in possession. In attempting to do so he becomes a trespasser and
an action for forcible entry and detainer may be maintained against the person so placed in
possession.
"2. TRANSLATION. — Correction of the Spanish translation of section 463 of the Code of Civil
Procedure."cralaw virtua1aw library
Section 465 of the Code of Civil Procedure, provides as follows:jgc:chanrobles.com.ph
"SEC. 465. Time and manner of redemption. — The judgment debtor, or redemptioner, may
redeem the property from the purchaser, at any time within twelve months after the sale, on
paying the purchaser the amount of his purchase, with one per cent per month interest
thereon in addition, up to the time of redemption, together with the amount of any
assessments or taxes which the purchaser may have paid thereon after purchase, and interest
on such last-named amount at the same rate. . . ."cralaw virtua1aw library
According to the doctrines quoted above, the purchaser of a debtor’s real property at public
action by virtue of a writ of execution of a judgment, has no right to collect the rents or receive
the products thereof during the period of legal redemption where said debtor is in possession
of them. Nothing could be more just or equitable; for, if by section 465 of the Code of Civil
Procedure quoted above, the debtor must pay 1 per centum monthly interest on the purchase
price, at the time of the redemption, the purchaser would profit twice, if in addition to said
interest he were entitled to the rents and fruits of the land sold which remained in the
possession of the debtor. It the debtor is unable to make the repurchase, the interest of the
purchaser’s capital during the period of redemption, is compensated by the difference
between the true value of the land sold and the purchase price; for, it is well-known that the
price obtained at judicial sales for land subject to execution is usually less than the market
value. Now then, from what time is the purchaser entitled to the fruits and rents of the real
property purchased remaining in possession of the debtor in case the debtor failed to take
advantage of his right to repurchase?
Section 465 of the Code of Civil Procedure, quoted above, provides that the judgment debtor
may redeem the thing sold from the purchaser within twelve months following the day of the
sale, by paying the selling price plus interest at the rate of one per centum per month; and
section 466 of the same law provides that if within the twelve months following the sale no
redemption is made, the purchaser or his successor in interest is entitled to the proper deed
of conveyance, or, what amounts to the same thing, the purchaser becomes the owner of the
property purchased, otherwise he would not be entitled to the proper deed of conveyance.
As absolute owner of the land, the purchaser is entitled to its possession and to receive the
rents and fruits thereof, and the judgment debtor is obliged to deliver said land, together with
the fruits and rents collected since the ownership was consolidated by reason of failure of
redemption, except that he is entitled to reimbursement for expenses of cultivation,
harvesting, and preservation, according to article 356 of the Civil Code.
In the instant case, while it is true that the judgment debtor Severino P. Aldeguer was entitled
to retain possession of the parcels of land acquired by the Asia Banking Corporation at public
auction by virtue of execution, and to collect the fruits and rents pending the expiration of
the period of redemption, inasmuch as he failed to exercise his right of redemption within the
twelve months following the day of the sale, which took place on March 30, 1925, the
ownership of the same became consolidated in the purchasers, the Asia Banking Corporation,
and from March 30, 1926, said bank was entitled to collect the fruits and rents of said lands,
until the final delivery of the latter to it own April 23, 1928, when the final deed of sale of the
lands was executed in favor of said Asia Banking Corporation.
According to the statement of Severino P. Aldeguer’s account with the Philippine National
Bank, submitted by the latter to the Asia Banking Corporation, all the products of said lands
up to April 4, 1928 were delivered by Ynchausti & Co. to said Philippine National Bank, and
credited to said Severino P. Aldeguer’s account with the latter. When said Philippine National
Bank, then applied the products of the lands mortgaged to it to secure the payment of
Severino P. Aldeguer’s mortgage debt, from 1927 to 1928, said products already belonged to
the Asia Banking Corporation.
Summarizing, then: (1) When the Philippine National Bank, as mortgage creditor of Severino
P. Aldeguer and assignee of Felipe Gomez’s right to the promissory notes for the fertilizer
used by Severino P. Aldeguer in the cultivation of the lands mortgages to said bank, applied
the products of said lands to the payment of its mortgage credits, it waived its preferential
right over said products for the amount of the aforesaid promissory notes; (2) from March 30,
1925 when Severino P. Aldeguer’s right of the redemption of the two parcels of land in
question was sold at public auction to the Asia Banking Corporation by virtue of execution,
until March 30, 1926, when the period of redemption expired, the fruits and rents collected
from said lands belonged to said Severino P. Aldeguer as judgment debtor in possession
thereof; and 93) that from March 30, 1926, when the ownership of the Asia Banking
Corporation was consolidated, the latter the purchaser at public auction of Severino P.
Aldeguer’s right of redemption, until April 23, 1928, when the final deed of sale of the fruits
and rents was issued in favor of said Asia Banking Corporation, the said fruits and rents from
said lands, belonged to the last mentioned banking corporation.
Wherefore, we are of opinion and so hold: (1) That a mortgagee who, at the same time, is a
holder of promissory notes for the value of fertilizer used in the cultivation of the mortgaged
lands, and who collects said products and applies them to his mortgage credit, waives the
preferential right granted to him by articles 1922, case 6, of the Civil Code, upon said products,
the amount of said promissory notes becoming an ordinary credit: (2) that the judgment
debtor in possession of land by virtue of execution is entitled to collect its fruits and rents
during the year fixed by the law for the redemption (Riosa v. Verzosa and Bulan, 26 Phil., 86;
Velasco v. Rosenberg’s Incorporated, 32 Phil., 72); and (3) that if the period for redemption
expires without the judgment debtor having made use of this right, the ownership of the land
sold becomes consolidated in the purchaser, who thereupon becomes entitled to collect its
fruits and rents, paying the judgment debtor the expenses of cultivation, harvesting and
preservation (article 356, Civil Code).
As to the question of procedure raised by the defendant- appellant, who contends that to
affirm the judgment appealed from would amount to ordering Severino P. Aldeguer, who is
not a party in this case, to pay the amount of said judgment, we hold that there is no merit in
such contention, because, as he is not a party to this case, the decision cannot affect him;
and, furthermore, as he is not a necessary party for the final solution of the questions raised
by the parties herein between themselves, he need not be impleaded.
For the foregoing considerations, and finding no error in the judgment appealed from, the
same is affirmed in its dispositive part, with costs against the appellant. So ordered.
G.R. No. L-39427 February 24, 1934
TIRSO GARCIA, in his capacity as receiver of the Mercantile Bank of China, plaintiff-appellee,
vs.LIM CHU SING, defendant-appellant.
VILLA-REAL, J.:
This is an appeal taken by the defendant Lim Chu Sing from the judgment rendered by the
Court of First Instance of Manila, the dispositive part of which reads as follows:
Wherefore, judgment is rendered sentencing the defendant to pay the sum of P9,105.17 with
interest thereon at the rate of six per cent per annum from September 1, 1932, until fully
paid, plus the sum of P910.51, as attorney's fees, with the costs of this suit.
In conformity with the stipulation, this judgment shall be subject to execution after ninety
(90) days. So ordered.
In support of his appeal, the appellant assigns the following alleged errors as committed by
the court a quo in its decision, to wit:
1. In denying the motion dated December 27, 1932, praying for the inclusion of Lim Cuan Sy,
being the principal debtor, as party to this suit.
2. In holding as improper the compensation of the defendant's debt of P9,106.17, claimed in
the complaint, with his credit amounting to P10,000 with the Mercantile Bank of China.
3. In not ordering that after the compensation the plaintiff-appellee, as receiver of the
Mercantile Bank of China, should liquidate the dividends of the defendant-appellant's shares.
4. In sentencing the defendant-appellant to pay to the plaintiff-appellee the sum of P910.51
as attorney's fees, plus interest at 6 per cent per annum on the sum of P9,105.17, with costs.
5. In denying the motion for a new trial.
When the case was called for hearing, the parties submitted the following stipulation of facts
for the consideration of the trial court, to wit:
Come now both parties and to this Honorable Court respectfully submit the following
stipulation:
1. The defendant admits the facts alleged in the complaint.
2. The plaintiff admits the allegations in the answer, particularly with reference to the fact
that the defendant is the owner of two hundred shares at a par value of fifty pesos (P50) each,
that is (Pl0,000).
3. The court may render judgment in accordance with this stipulation, but the same shall be
subject to execution after ninety (90) days.
Wherefore, they respectfully submit this stipulation and pray that judgment be rendered in
accordance therewith.
The facts alleged in the complaint and admitted by both parties under the above quoted
stipulation of facts are as follows:
On June 20, 1930, the defendant-appellant Lim Chu Sing executed and delivered to the
Mercantile Bank of China promissory note for the sum of P19,605.17 with interest thereon at
6 per cent per annum, payable monthly as follows: P1,000 on July 1, 1930; P500 on August 1,
1930; and P500 on the first of every month thereafter until the amount of the promissory
note together with the interest thereon is fully paid (Exhibit A). One of the conditions
stipulated in said promissory note is that in case of defendant's default in the payment of any
of the monthly installments, as they become due, the entire amount or the unpaid balance
thereof together with interest thereon at 6 per cent per annum, shall become due and
payable on demand. The defendant had been, making several partial payments thereon,
leaving an unpaid balance of P9,105.17. However, he defaulted in the payment of several
installments by reason of which the unpaid balance of P9,105.17 on the promissory note has
ipso facto become due and demandable.
The facts alleged in the answer and admitted by both parties under the same stipulation of
facts are as follows:
The debt which is the subject matter of the complaint was not really an indebtedness of the
defendant but of Lim Cuan Sy, who had an account with the plaintiff bank in the form of "trust
receipts" guaranteed by the defendant as surety and with chattel mortgage securities. The
plaintiff bank, without the knowledge and consent of the defendant, foreclosed the chattel
mortgage and privately sold the property covered thereby. Inasmuch as Lim Cuan Sy failed to
comply with his obligations, the plaintiff required the defendant, as surety, to sign a
promissory note for the sum of P19,105.17 payable in the manner hereinbefore stated
(Exhibit A). The defendant had been paying the corresponding installments until the debt was
reduced to the sum of P9,105.17 claimed in the complaint. The defendant is the owner of
shares of stock of the plaintiff Mercantile Bank of China amounting to P10,000. The plaintiff
bank is now under liquidation.
On December 27, 1932, the defendant-appellant Lim Chu Sing filed a motion praying for the
inclusion of the principal debtor Lim Cuan Sy as party defendant so that he could avail himself
of the benefit of the exhaustion of the property of said Lim Cuan Sy. Said motion was denied
in open court by the presiding judge without the defendant-appellant having excepted to such
order of denial.
The proceeds of the sale of the mortgaged chattels together with other payments made were
applied to the amount of the promissory note in question, leaving the balance which the
plaintiff now seeks to collect.
The first question to be decided in this appeal is whether or not the court a quo erred in
denying the motion for inclusion of a party a defendant, filed by the defendant-appellant.
According to the provisions of section 141 of the Code of Civil Procedure, ". . . Rulings of the
court upon minor matters, such as adjournments, postponements of trials, the extension of
time for filing pleadings or motions, and other matters addressed to the discretion of the
court in the performance of its duty, shall not be subject to exception. But exception may be
taken to any other ruling, order, or judgment of the court made during the pendency of the
action in the Court of First Instance." "An `exception' has been defined as an objection taken
to the decision of the trial court upon a matter of law, and is a notice that the party taking it
preserves for the consideration of the appellate court a ruling deemed erroneous. (8 Am. Enc.
P. and P., 157.)" " `Errors in a judgment or decree will not be noticed on appeal in the absence
of objections and exceptions taken below, and they should be sufficiently specific to direct
the attention of the court to the alleged defects.' (8 Enc. Pl and Pr., 289.)" (Garcia de Lara vs.
Gonzales de Lara, 2 Phil., 297.) Inasmuch as an exception is an objection taken to the decision
of the trial court upon a matter of law and is a notice that the party taking it will submit for
the consideration of the appellate court the ruling deemed erroneous, failure to interpose it
deprived the appellant of the right to raise the question whether or not the court a quo
committed the alleged error attributed to it in its ruling which had not been excepted to by
the said appellant. The inclusion in, or exclusion from an action of a certain party is a question
of law. The herein defendant-appellant, not having excepted to the order of the Court of First
Instance of Manila denying his motion for the inclusion of Lim Cuan Sy as party defendant, is process. Therefore, the defendant-appellant should not again be made to pay for them (Bank
estopped from raising such question upon appeal (Roman Catholic Bishop of Lipa vs. of the Philippine Islands vs. Yulo, 31 Phil., 476).
Municipality of San Jose, 27 Phil., 571; Vergara vs. Laciapag, 28 Phil., 439; Andrews vs. In view of the foregoing, this court is of the opinion and so holds: (1) That failure to file an
Morente Rosario, 9 Phil., 634). exception to a ruling rendered in open court denying a motion for the inclusion of a party as
The second question to be decided is whether or not it is proper to compensate the defendant deprives the petitioner, upon appeal of the right to raise the question whether
defendant-appellant's indebtedness of P9,105.17, which is claimed in the complaint, with the such denial proper or improper; (2) that the shares of a banking corporation do not constitute
sum of P10,000 representing the value of his shares of stock with the plaintiff entity, the an indebtedness of the corporation to the stockholder and, therefore, the latter is not a
Mercantile Bank of China. creditor of the former for such shares; (3) that the indebtedness of a shareholder to a banking
According to the weight of authority, a share of stock or the certificate thereof is not an corporation cannot be compensated with the amount of his shares therein, there being no
indebtedness to the owner nor evidence of indebtedness and, therefore, it is not a credit (14 relation of creditor and debtor with respect to such shares; and (4) that the percentage
Corpus Juris, p. 388, see. 511). Stockholders, as such, are not creditors of the corporation (14 stipulated in a contract, for costs and attorney's fees for the collection of an indebtedness,
Corpus Juris, p. 848, Sec. 1289). It is the prevailing doctrine of the American courts, repeatedly includes judicial costs.
asserted in the broadest terms, that the capital stock of a corporation is a trust fund to be Wherefore, with the sole modification that the costs be eliminated from the appealed
used more particularly for the security of creditors of the corporation, who presumably deal judgment, the same is hereby affirmed, without special pronouncement as to costs of this
with it on the credit of its capital stock (14 Corpus Juris, p. 383, sec. 505). Therefore, the instance. So ordered.
defendant-appellant Lim Chu Sing not being a creditor of the Mercantile Bank of China,
although the latter is a creditor of the former, there is no sufficient ground to justify a
compensation (art. 1195, Civil Code; Acuña Co Chongco vs. Dievas, 12 Phil., 250).
The third question to be decided in this appeal is whether or not the court a quo erred in
sentencing the said defendant-appellant to pay the sum of P910.51 as attorney's fees in
addition to interest at 6 per cent per annum on the amount sought in the complaint.
The pertinent clause of the promissory note Exhibit A reads as follows: "In case of default of
any of the above installments, the total amount of the balance still unpaid of this note will
become due and payable on demand plus interest thereon at the rate of 6 per cent per annum
from date of this note until payment is made. And I further agree to pay an additional sum
equivalent to 10 per cent of the said note to cover cost and attorney's fees for collection."
The stipulation relative to the payment of interest at the rate of 6 per cent per annum on the
unpaid balance of the promissory note Exhibit A refers to the capital and the 10 per cent
stipulated for costs and attorney's fees cannot be considered as interest but an indemnity for
damages occasioned by the collection of the indebtedness through judicial process. Therefore
the two rates in question cannot be combined and considered usurious interest.
With reference to the costs, the 10 per cent stipulated in the promissory note is for costs and
attorney's fees which may be incurred in the collection of the indebtedness through judicial