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Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-48889 May 11, 1989

DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner,


vs.
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch of the Court of First
Instance of Iloilo and SPOUSES PATRICIO CONFESOR and JOVITA VILLAFUERTE, respondents.

GANCAYCO, J.:

The issue posed in this petition for review on certiorari is the validity of a promissory note
which was executed in consideration of a previous promissory note the enforcement of which
had been barred by prescription.

On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural
loan from the Agricultural and Industrial Bank (AIB), now the Development of the Philippines
(DBP), in the sum of P2,000.00, Philippine Currency, as evidenced by a promissory note of said
date whereby they bound themselves jointly and severally to pay the account in ten (10) equal
yearly amortizations. As the obligation remained outstanding and unpaid even after the lapse
of the aforesaid ten-year period, Confesor, who was by then a member of the Congress of the
Philippines, executed a second promissory note on April 11, 1961 expressly acknowledging said
loan and promising to pay the same on or before June 15, 1961. The new promissory note reads
as follows —

I hereby promise to pay the amount covered by my promissory note on or


before June 15, 1961. Upon my failure to do so, I hereby agree to the foreclosure
of my mortgage. It is understood that if I can secure a certificate of indebtedness
from the government of my back pay I will be allowed to pay the amount out of
it.

Said spouses not having paid the obligation on the specified date, the DBP filed a complaint
dated September 11, 1970 in the City Court of Iloilo City against the spouses for the payment of
the loan.

After trial on the merits a decision was rendered by the inferior court on December 27, 1976,
the dispositive part of which reads as follows:
WHEREFORE, premises considered, this Court renders judgment, ordering the
defendants Patricio Confesor and Jovita Villafuerte Confesor to pay the plaintiff
Development Bank of the Philippines, jointly and severally, (a) the sum of
P5,760.96 plus additional daily interest of P l.04 from September 17, 1970, the
date Complaint was filed, until said amount is paid; (b) the sum of P576.00
equivalent to ten (10%) of the total claim by way of attorney's fees and
incidental expenses plus interest at the legal rate as of September 17,1970, until
fully paid; and (c) the costs of the suit.

Defendants-spouses appealed therefrom to the Court of First Instance of Iloilo wherein in due
course a decision was rendered on April 28, 1978 reversing the appealed decision and
dismissing the complaint and counter-claim with costs against the plaintiff.

A motion for reconsideration of said decision filed by plaintiff was denied in an order of August
10, 1978. Hence this petition wherein petitioner alleges that the decision of respondent judge is
contrary to law and runs counter to decisions of this Court when respondent judge (a) refused
to recognize the law that the right to prescription may be renounced or waived; and (b) that in
signing the second promissory note respondent Patricio Confesor can bind the conjugal
partnership; or otherwise said respondent became liable in his personal capacity. The petition is
impressed with merit. The right to prescription may be waived or renounced. Article 1112 of
Civil Code provides:

Art. 1112. Persons with capacity to alienate property may renounce prescription
already obtained, but not the right to prescribe in the future.

Prescription is deemed to have been tacitly renounced when the renunciation


results from acts which imply the abandonment of the right acquired.

There is no doubt that prescription has set in as to the first promissory note of February 10,
1940. However, when respondent Confesor executed the second promissory note on April 11,
1961 whereby he promised to pay the amount covered by the previous promissory note on or
before June 15, 1961, and upon failure to do so, agreed to the foreclosure of the mortgage, said
respondent thereby effectively and expressly renounced and waived his right to the
prescription of the action covering the first promissory note.

This Court had ruled in a similar case that –

... when a debt is already barred by prescription, it cannot be enforced by the


creditor. But a new contract recognizing and assuming the prescribed debt
would be valid and enforceable ... . 1

Thus, it has been held —


Where, therefore, a party acknowledges the correctness of a debt and promises
to pay it after the same has prescribed and with full knowledge of the
prescription he thereby waives the benefit of prescription. 2

This is not a mere case of acknowledgment of a debt that has prescribed but a new promise to
pay the debt. The consideration of the new promissory note is the pre-existing obligation under
the first promissory note. The statutory limitation bars the remedy but does not discharge the
debt.

A new express promise to pay a debt barred ... will take the case from the
operation of the statute of limitations as this proceeds upon the ground that as a
statutory limitation merely bars the remedy and does not discharge the debt,
there is something more than a mere moral obligation to support a promise, to
wit a – pre-existing debt which is a sufficient consideration for the new the new
promise; upon this sufficient consideration constitutes, in fact, a new cause of
action. 3

... It is this new promise, either made in express terms or deduced from an
acknowledgement as a legal implication, which is to be regarded as reanimating
the old promise, or as imparting vitality to the remedy (which by lapse of time
had become extinct) and thus enabling the creditor to recover upon his original
contract. 4

However, the court a quo held that in signing the promissory note alone, respondent Confesor
cannot thereby bind his wife, respondent Jovita Villafuerte, citing Article 166 of the New Civil
Code which provides:

Art. 166. Unless the wife has been declared a non compos mentis or a spend
thrift, or is under civil interdiction or is confined in a leprosarium, the husband
cannot alienate or encumber any real property of the conjugal partnership
without, the wife's consent. If she ay compel her to refuses unreasonably to give
her consent, the court m grant the same.

We disagree. Under Article 165 of the Civil Code, the husband is the administrator of the
conjugal partnership. As such administrator, all debts and obligations contracted by the
husband for the benefit of the conjugal partnership, are chargeable to the conjugal
partnership. 5 No doubt, in this case, respondent Confesor signed the second promissory note
for the benefit of the conjugal partnership. Hence the conjugal partnership is liable for this
obligation.

WHEREFORE, the decision subject of the petition is reversed and set aside and another decision
is hereby rendered reinstating the decision of the City Court of Iloilo City of December 27, 1976,
without pronouncement as to costs in this instance. This decision is immediately executory and
no motion for extension of time to file motion for reconsideration shall be granted.
SO ORDERED.

Narvasa and Cruz, JJ., concur.

Griño-Aquino, J., took no part.

Footnotes

1 Villaroel vs. Estrada, 71 Phil. 140.

2 Tauch vs. Gondram, 20 Labor. Ann. 156, cited on page 7, Vol. 4, Tolentino's
New Civil Code of the Philippines.

3 Johnsons vs. Evasions, 50 Am. Dec. 669.

4 Mattingly vs. Boyd, 20 How (US) 128, 15 Led 845; St. John vs. Garrow, 4 Port.
(Ala) 223, 29 Am. Dec. 280. American Jurisprudence Vol. 34, page 233 (Statute of
Limitations).

5 Article 161(l), Civil Code.


238 SCRA 602
ANG YU ASUNCION VS. CA G.R. No. 109125 December 2, 1994 Obligations and Contracts,
Sources of an Obligation, Lis Pendens, Art. 1156, Civil Code

FACTS:

A complaint for Specific Performance was filed by Ang Yu Asuncion et al., against Bobby Cu
Unjieng and Jose Tan. The plaintiffs were tenants or lessees of residential and commercial
spaces owned by defendants in Binondo. On several conditions defendants informed the
plaintiffs that they are offering to sell the premises and are giving them priority to acquire the
same.

During negotiations, Cu Unjieng offered a price of P6- million while plaintiffs made a counter of
offer of P5-million. Plaintiff thereafter asked the defendants to put their offer in writing to
which the defendants acceded. In reply to defendants’ letter, plaintiffs wrote, asking thatthey
specify the terms and conditions of the offer to sell. When the plaintiffs did not receive any
reply, they sent another letter with the same request. Since defendants failed to specify the
terms and conditions of the offer to sell and because of information received that the
defendants were about to sell the property, plaintiffs were compelled to file the complaint to
compel defendants to sell the property to them.

The court dismissed the complaint on the ground that the parties did not agree upon the terms
and conditions of the proposed sale, hence, there was no contact of sale atall. The Cu Unjieng
spouses executed a Deed of Sale transferring the property inquestion to Buen Realty and
Development Corporation. Buen Realty, as the new owner of the subject property, wrote to the
lessees demanding the latter to vacate the premises. In its reply, it stated that Buen Realty and
Development Corporation brought the property subject to the notice of lis pendens.

ISSUE:

Can Buen Realty be bound by the writ of execution by virtue of the notice of lis pendens?

RULING:

No. An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code).

The obligation is upon the concurrence of the essential elements thereof, viz:
(a) the vinculum juris or juridical tie which is the efficient cause established by the various
sources of obligations; (b) the object which is the prestation or conduct, required to be
observed; and (c) the subject-persons who, viewed demandability of the obligation are the
active (oblige) andthe passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157), which is a meeting of minds
between two persons whereby one binds himself, with respect to the other, to give something
or to render some service.

A contract undergoes various stages that include its negotiation or preparation, its perfection
and, finally, its consummation. Until the contract is perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation. In sales, particularly, to which the case
at bench belongs, the contract is perfected when a person, called the seller, obligates himself,
for a price certain, to deliver and to transfer ownership of a thing or right to another, called the
buyer, over which the latter agrees.

The registration of lis pendens must be independently addressed in appropriate proceedings.


Therefore, Buen Realty cannot be held subject to the writ of execution issued by the
respondent Judge, let alone ousted from the ownership and possession of the property,
without first being duly afforded its day in court.
THIRD DIVISION

MAKATI STOCK EXCHANGE, INC., MA. G.R. No. 138814


VIVIAN YUCHENGCO, ADOLFO M.
DUARTE, MYRON C. PAPA, NORBERTO C.
NAZARENO, GEORGE UY-TIOCO, Present:
ANTONIO A. LOPA, RAMON B. ARNAIZ,
LUIS J.L. VIRATA, and ANTONIO GARCIA,
JR.
YNARES-SANTIAGO, J.,
Petitioners, Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
- versus -
PERALTA, JJ.
MIGUEL V. CAMPOS, substituted by
JULIA ORTIGAS VDA. DE CAMPOS,[1]

Respondent.

Promulgated:

April 16, 2009


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DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 seeking the reversal of the
Decision[2] dated 11 February 1997 and Resolution dated 18 May 1999 of the Court of Appeals in
CA-G.R. SP No. 38455.
The facts of the case are as follows:
SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent Miguel V.
Campos, who filed with the Securities, Investigation and Clearing Department (SICD) of the
Securities and Exchange Commission (SEC), a Petition against herein petitioners Makati Stock
Exchange, Inc. (MKSE) and MKSE directors, Ma. Vivian Yuchengco, Adolfo M. Duarte, Myron C.
Papa, Norberto C. Nazareno, George Uy-Tioco, Antonio A, Lopa, Ramon B. Arnaiz, Luis J.L. Virata,
and Antonio Garcia, Jr. Respondent, in said Petition, sought: (1) the nullification of the Resolution
dated 3 June 1993 of the MKSE Board of Directors, which allegedly deprived him of his right to
participate equally in the allocation of Initial Public Offerings (IPO) of corporations registered with
MKSE; (2) the delivery of the IPO shares he was allegedly deprived of, for which he would pay IPO
prices; and (3) the payment of P2 million as moral damages, P1 million as exemplary damages,
and P500,000.00 as attorneys fees and litigation expenses.

On 14 February 1994, the SICD issued an Order granting respondents prayer for the
issuance of a Temporary Restraining Order to enjoin petitioners from implementing or enforcing
the 3 June 1993 Resolution of the MKSE Board of Directors.
The SICD subsequently issued another Order on 10 March 1994 granting respondents
application for a Writ of Preliminary Injunction, to continuously enjoin, during the pendency of
SEC Case No. 02-94-4678, the implementation or enforcement of the MKSE Board Resolution in
question. Petitioners assailed this SICD Order dated 10 March 1994 in a Petition
for Certiorari filed with the SEC en banc, docketed as SEC-EB No. 393.

On 11 March 1994, petitioners filed a Motion to Dismiss respondents Petition in SEC Case
No. 02-94-4678, based on the following grounds: (1) the Petition became moot due to the
cancellation of the license of MKSE; (2) the SICD had no jurisdiction over the Petition; and (3) the
Petition failed to state a cause of action.

The SICD denied petitioners Motion to Dismiss in an Order dated 4 May 1994. Petitioners
again challenged the 4 May 1994 Order of SICD before the SEC en banc through another Petition
for Certiorari, docketed as SEC-EB No. 403.

In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en banc nullified the 10 March
1994 Order of SICD in SEC Case No. 02-94-4678 granting a Writ of Preliminary Injunction in favor
of respondent.Likewise, in an Order dated 14 August 1995 in SEC-EB No. 403, the SEC en
banc annulled the 4 May 1994 Order of SICD in SEC Case No. 02-94-4678 denying petitioners
Motion to Dismiss, and accordingly ordered the dismissal of respondents Petition before the
SICD.
Respondent filed a Petition for Certiorari with the Court of Appeals assailing the Orders
of the SEC en banc dated 31 May 1995 and 14 August 1995 in SEC-EB No. 393 and SEC-EB No.
403, respectively.Respondents Petition before the appellate court was docketed as CA-G.R. SP
No. 38455.
On 11 February 1997, the Court of Appeals promulgated its Decision in CA-G.R. SP No.
38455, granting respondents Petition for Certiorari, thus:

WHEREFORE, the petition in so far as it prays for annulment of the Orders


dated May 31, 1995 and August 14, 1995 in SEC-EB Case Nos. 393 and 403 is
GRANTED. The said orders are hereby rendered null and void and set aside.

Petitioners filed a Motion for Reconsideration of the foregoing Decision but it was denied
by the Court of Appeals in a Resolution dated 18 May 1999.

Hence, the present Petition for Review raising the following arguments:

I.

THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF DISCRETION AMOUNTING
TO LACK OR EXCESS OF JURISDICTION WHEN IT DISMISSED THE PETITION FILED BY
RESPONDENT BECAUSE ON ITS FACE, IT FAILED TO STATE A CAUSE OF ACTION.

II.

THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF RESPONDENT WAS A MERE


ACCOMMODATION GIVEN TO HIM BY THE BOARD OF [DIRECTORS] OF THE
MAKATI STOCK EXCHANGE, INC.

III.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN BANC COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
WHEN IT MADE AN EXTENDED INQUIRY AND PROCEEDED TO MAKE A
DETERMINATION AS TO THE TRUTH OF RESPONDENTS ALLEGATIONS IN HIS
PETITION AND USED AS BASIS THE EVIDENCE ADDUCED DURING THE HEARING ON
THE APPLICATION FOR THE WRIT OF PRELIMINARY INJUNCTION TO DETERMINE
THE EXISTENCE OR VALIDITY OF A STATED CAUSE OF ACTION.

IV.

IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE BOUGHT BY THE


BROKERS FOR THEMSELVES BUT ARE TO BE DISTRIBUTED TO THE INVESTING
PUBLIC. HENCE, RESPONDENTS CLAIM FOR DAMAGES IS ILLUSORY AND HIS
PETITION A NUISANCE SUIT.[3]

On 18 September 2001, counsel for respondent manifested to this Court that his client
died on 7 May 2001. In a Resolution dated 24 October 2001, the Court directed the substitution
of respondent by his surviving spouse, Julia Ortigas vda. de Campos.

Petitioners want this Court to affirm the dismissal by the SEC en banc of respondents
Petition in SEC Case No. 02-94-4678 for failure to state a cause of action. On the other hand,
respondent insists on the sufficiency of his Petition and seeks the continuation of the proceedings
before the SICD.

A cause of action is the act or omission by which a party violates a right of another.[4] A
complaint states a cause of action where it contains three essential elements of a cause of action,
namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3)
the act or omission of the defendant in violation of said legal right. If these elements are absent,
the complaint becomes vulnerable to dismissal on the ground of failure to state a cause of action.

If a defendant moves to dismiss the complaint on the ground of lack of cause of action,
he is regarded as having hypothetically admitted all the averments thereof. The test of sufficiency
of the facts found in a complaint as constituting a cause of action is whether or not admitting the
facts alleged, the court can render a valid judgment upon the same in accordance with the prayer
thereof. The hypothetical admission extends to the relevant and material facts well pleaded in
the complaint and inferences fairly deducible therefrom. Hence, if the allegations in the
complaint furnish sufficient basis by which the complaint can be maintained, the same should
not be dismissed regardless of the defense that may be assessed by the defendant.[5]
Given the foregoing, the issue of whether respondents Petition in SEC Case No. 02-94-
4678 sufficiently states a cause of action may be alternatively stated as whether, hypothetically
admitting to be true the allegations in respondents Petition in SEC Case No. 02-94-4678, the SICD
may render a valid judgment in accordance with the prayer of said Petition.

A reading of the exact text of respondents Petition in SEC Case No. 02-94-4678 is,
therefore, unavoidable. Pertinent portions of the said Petition reads:

7. In recognition of petitioners invaluable services, the general membership


of respondent corporation [MKSE] passed a resolution sometime in 1989 amending
its Articles of Incorporation, to include the following provision therein:

ELEVENTH WHEREAS, Mr. Miguel Campos is the only


surviving incorporator of the Makati Stock Exchange, Inc. who has
maintained his membership;

WHEREAS, he has unselfishly served the Exchange in various


capacities, as governor from 1977 to the present and as President
from 1972 to 1976 and again as President from 1988 to the present;

WHEREAS, such dedicated service and leadership which has


contributed to the advancement and well being not only of the
Exchange and its members but also to the Securities industry,
needs to be recognized and appreciated;

WHEREAS, as such, the Board of Governors in its meeting


held on February 09, 1989 has correspondingly adopted a
resolution recognizing his valuable service to the Exchange, reward
the same, and preserve for posterity such recognition by proposing
a resolution to the membership body which would make him as
Chairman Emeritus for life and install in the Exchange premises a
commemorative bronze plaque in his honor;
NOW, THEREFORE, for and in consideration of the above
premises, the position of the Chairman Emeritus to be occupied by
Mr. Miguel Campos during his lifetime and irregardless of his
continued membership in the Exchange with the Privilege to attend
all membership meetings as well as the meetings of the Board of
Governors of the Exchange, is hereby created.

8. Hence, to this day, petitioner is not only an active member of the


respondent corporation, but its Chairman Emeritus as well.

9. Correspondingly, at all times material to this petition, as an active


member and Chairman Emeritus of respondent corporation, petitioner has always
enjoyed the right given to all the other members to participate equally in the Initial
Public Offerings (IPOs for brevity) of corporations.

10. IPOs are shares of corporations offered for sale to the public, prior to
the listing in the trading floor of the countrys two stock exchanges. Normally,
Twenty Five Percent (25%) of these shares are divided equally between the two
stock exchanges which in turn divide these equally among their members, who pay
therefor at the offering price.

11. However, on June 3, 1993, during a meeting of the Board of Directors


of respondent-corporation, individual respondents passed a resolution to stop
giving petitioner the IPOs he is entitled to, based on the ground that these shares
were allegedly benefiting Gerardo O. Lanuza, Jr., who these individual respondents
wanted to get even with, for having filed cases before the Securities and Exchange
(SEC) for their disqualification as member of the Board of Directors of respondent
corporation.

12. Hence, from June 3, 1993 up to the present time, petitioner has been
deprived of his right to subscribe to the IPOs of corporations listing in the stock
market at their offering prices.
13. The collective act of the individual respondents in depriving petitioner
of his right to a share in the IPOs for the aforementioned reason, is unjust,
dishonest and done in bad faith, causing petitioner substantial financial damage.[6]

There is no question that the Petition in SEC Case No. 02-94-4678 asserts a right in favor
of respondent, particularly, respondents alleged right to subscribe to the IPOs of corporations
listed in the stock market at their offering prices; and stipulates the correlative obligation of
petitioners to respect respondents right, specifically, by continuing to allow respondent to
subscribe to the IPOs of corporations listed in the stock market at their offering prices.

However, the terms right and obligation in respondents Petition are not magic words that
would automatically lead to the conclusion that such Petition sufficiently states a cause of
action. Right and obligation are legal terms with specific legal meaning. A right is a claim or title
to an interest in anything whatsoever that is enforceable by law.[7] An obligation is defined in the
Civil Code as a juridical necessity to give, to do or not to do. [8]For every right enjoyed by any
person, there is a corresponding obligation on the part of another person to respect such
right. Thus, Justice J.B.L. Reyes offers[9] the definition given by Arias Ramos as a more complete
definition:

An obligation is a juridical relation whereby a person (called the creditor)


may demand from another (called the debtor) the observance of a determinative
conduct (the giving, doing or not doing), and in case of breach, may demand
satisfaction from the assets of the latter.

The Civil Code enumerates the sources of obligations:

Art. 1157. Obligations arise from:


(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
Therefore, an obligation imposed on a person, and the corresponding right granted to
another, must be rooted in at least one of these five sources. The mere assertion of a right and
claim of an obligation in an initiatory pleading, whether a Complaint or Petition, without
identifying the basis or source thereof, is merely a conclusion of fact and law. A pleading should
state the ultimate facts essential to the rights of action or defense asserted, as distinguished from
mere conclusions of fact or conclusions of law.[10] Thus, a Complaint or Petition filed by a person
claiming a right to the Office of the President of this Republic, but without stating the source of
his purported right, cannot be said to have sufficiently stated a cause of action. Also, a person
claiming to be the owner of a parcel of land cannot merely state that he has a right to the
ownership thereof, but must likewise assert in the Complaint either a mode of acquisition of
ownership or at least a certificate of title in his name.

In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege
respondents right to subscribe to the IPOs of corporations listed in the stock market at their
offering prices, and petitioners obligation to continue respecting and observing such right, the
Petition utterly failed to lay down the source or basis of respondents right and/or petitioners
obligation.

Respondent merely quoted in his Petition the MKSE Board Resolution, passed sometime
in 1989, granting him the position of Chairman Emeritus of MKSE for life. However, there is
nothing in the said Petition from which the Court can deduce that respondent, by virtue of his
position as Chairman Emeritus of MKSE, was granted by law, contract, or any other legal source,
the right to subscribe to the IPOs of corporations listed in the stock market at their offering prices.

A meticulous review of the Petition reveals that the allocation of IPO shares was merely
alleged to have been done in accord with a practice normally observed by the members of the
stock exchange, to wit:

IPOs are shares of corporations offered for sale to the public, prior to their listing
in the trading floor of the countrys two stock exchanges. Normally, Twenty-Five
Percent (25%) of these shares are divided equally between the two stock
exchanges which in turn divide these equally among their members, who pay
therefor at the offering price.[11] (Emphasis supplied)

A practice or custom is, as a general rule, not a source of a legally demandable or


enforceable right.[12] Indeed, in labor cases, benefits which were voluntarily given by the
employer, and which have ripened into company practice, are considered as rights that cannot
be diminished by the employer.[13] Nevertheless, even in such cases, the source of the employees
right is not custom, but ultimately, the law, since Article 100 of the Labor Code explicitly prohibits
elimination or diminution of benefits.

There is no such law in this case that converts the practice of allocating IPO shares to
MKSE members, for subscription at their offering prices, into an enforceable or demandable
right. Thus, even if it is hypothetically admitted that normally, twenty five percent (25%) of the
IPOs are divided equally between the two stock exchanges -- which, in turn, divide their
respective allocation equally among their members, including the Chairman Emeritus, who pay
for IPO shares at the offering price -- the Court cannot grant respondents prayer for damages
which allegedly resulted from the MKSE Board Resolution dated 3 June 1993 deviating from said
practice by no longer allocating any shares to respondent.

Accordingly, the instant Petition should be granted. The Petition in SEC Case No. 02-94-
4678 should be dismissed for failure to state a cause of action. It does not matter that the SEC en
banc, in its Order dated 14 August 1995 in SEC-EB No. 403, overstepped its bounds by not limiting
itself to the issue of whether respondents Petition before the SICD sufficiently stated a cause of
action. The SEC en banc may have been mistaken in considering extraneous evidence in granting
petitioners Motion to Dismiss, but its discussion thereof are merely superfluous and obiter
dictum. In the main, the SEC en banc did correctly dismiss the Petition in SEC Case No. 02-94-
4678 for its failure to state the basis for respondents alleged right, to wit:

Private respondent Campos has failed to establish the basis or authority


for his alleged right to participate equally in the IPO allocations of the
Exchange. He cited paragraph 11 of the amended articles of incorporation of the
Exchange in support of his position but a careful reading of the said provision
shows nothing therein that would bear out his claim. The provision merely created
the position of chairman emeritus of the Exchange but it mentioned nothing about
conferring upon the occupant thereof the right to receive IPO allocations.[14]

With the dismissal of respondents Petition in SEC Case No. 02-94-4678, there is no more
need for this Court to resolve the propriety of the issuance by SCID of a writ of preliminary
injunction in said case.

WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 11
February 1997 and its Resolution dated 18 May 1999 in CA-G.R. SP No. 38455
are REVERSED and SET ASIDE. The Orders dated 31 May 1995 and 14 August 1995 of the
Securities and Exchange Commission en banc in SEC-EB Case No. 393 and No. 403, respectively,
are hereby reinstated. No pronouncement as to costs.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-


MARTINEZ ANTONIO EDUARDO B.
NACHURA
Associate Justice Associate Justice

DIOSDADO M. PERALTA
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation,
it is hereby certified that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
143 SCRA 657 – Civil Law – Torts and Damages – Human Relations – Article
19 and 20 of the Civil Code – Negligence

Loreto Dionela received a telegram via the Radio Communications of the Philippines, Inc. (RCPI).
However, at the end of the telegram were the following:
The said portion of the telegram was not intended for Loreto. Loreto sued RCPI for damages
based on Article 19 and 20 of the Civil Code which provides:
ART. 19.- Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith.
ART. 20.-Every person who, contrary to law, wilfully or negligently causes damage to another,
shall indemnify the latter for the same.
In its defense, RCPI averred that there was no intention to malign Loreto and that the attached
message was an insider joke between RCPI employees which was not meant to be attached. RCPI
also disclaimed liability as it insisted it should be held liable for the libelous acts of its employees.
Loreto however averred that the said message was read by his employees and it affected greatly
his business reputation. The trial court ruled in favor of Loreto. The Court of Appeals affirmed the
trial court.
ISSUE: Whether or not the Court of Appeals erred in holding that the liability of RCPI is predicated
under Article 19 and 20 of the Civil Code.
HELD: No. The Supreme Court affirmed the judgment of the appellate court. The cause of action
of private respondent is based on Articles 19 and 20 of the new Civil Code as well as respondent’s
breach of contract thru negligence of its own employees. RCPI is not being sued for its subsidiary
liability.
RCPI was negligent as it failed to take the necessary or precautionary steps to avoid the
occurrence of the humiliating incident now complained of. The company had not imposed any
safeguard against such eventualities and this void in its operating procedure does not speak well
of its concern for their clientele’s interests. Negligence here is very patent. This negligence is
imputable to appellant and not to its employees. RCPI should be held liable for the acts of its
employees. As a corporation, RCPI acts and conducts its business through its employees. It cannot
now disclaim liability for the acts of its employees. To hold that the RCPI is not liable directly for
the acts of its employees in the pursuit of its business is to deprive the general public availing of
the services of RCPI of an effective and adequate remedy.

FULL TEXT of (143 SCRA 657)


Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-44748 August 29, 1986
RADIO COMMUNICATIONS OF THE PHILS., INC. (RCPI), petitioner,
vs.
COURT OF APPEALS and LORETO DIONELA, respondents.
O. Pythogoras Oliver for respondents.
DECISION
PARAS, J.:
Before Us, is a Petition for Review by certiorari of the decision of the Court of Appeals, modifying
the decision of the trial court in a civil case for recovery of damages against petitioner corporation
by reducing the award to private respondent Loreto Dionela of moral damages from P40,000 to
P15,000, and attorney’s fees from P3,000 to P2,000.
The basis of the complaint against the defendant corporation is a telegram sent through its
Manila Office to the offended party, Loreto Dionela, reading as follows:
176 AS JR 1215PM 9 PAID MANDALUYONG JUL 22-66 LORETO DIONELA CABANGAN LEGASPI CITY
WIRE ARRIVAL OF CHECK FER
LORETO DIONELA-CABANGAN-WIRE ARRIVAL OF CHECK-PER
115 PM
SA IYO WALANG PAKINABANG DUMATING KA DIYAN-WALA-KANG PADALA DITO KAHIT BULBUL
MO
(p. 19, Annex “A”)
Plaintiff-respondent Loreto Dionela alleges that the defamatory words on the telegram sent to
him not only wounded his feelings but also caused him undue embarrassment and affected
adversely his business as well because other people have come to know of said defamatory
words. Defendant corporation as a defense, alleges that the additional words in Tagalog was a
private joke between the sending and receiving operators and that they were not addressed to
or intended for plaintiff and therefore did not form part of the telegram and that the Tagalog
words are not defamatory. The telegram sent through its facilities was received in its station at
Legaspi City. Nobody other than the operator manned the teletype machine which automatically
receives telegrams being transmitted. The said telegram was detached from the machine and
placed inside a sealed envelope and delivered to plaintiff, obviously as is. The additional words
in Tagalog were never noticed and were included in the telegram when delivered.
The trial court in finding for the plaintiff ruled as follows:
There is no question that the additional words in Tagalog are libelous. They clearly impute a vice
or defect of the plaintiff. Whether or not they were intended for the plaintiff, the effect on the
plaintiff is the same. Any person reading the additional words in Tagalog will naturally think that
they refer to the addressee, the plaintiff. There is no indication from the face of the telegram
that the additional words in Tagalog were sent as a private joke between the operators of the
defendant.
The defendant is sued directly not as an employer. The business of the defendant is to transmit
telegrams. It will open the door to frauds and allow the defendant to act with impunity if it can
escape liability by the simple expedient of showing that its employees acted beyond the scope of
their assigned tasks.
The liability of the defendant is predicated not only on Article 33 of the Civil Code of the
Philippines but on the following articles of said Code:
ART. 19.- Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith.
ART. 20.-Every person who, contrary to law, wilfully or negligently causes damage to another,
shall indemnify the latter for the same.
There is sufficient publication of the libelous Tagalog words. The office file of the defendant
containing copies of telegrams received are open and held together only by a metal fastener.
Moreover, they are open to view and inspection by third parties.
It follows that the plaintiff is entitled to damages and attorney’s fees. The plaintiff is a
businessman. The libelous Tagalog words must have affected his business and social standing in
the community. The Court fixes the amount of P40,000.00 as the reasonable amount of moral
damages and the amount of P3,000.00 as attorney’s fee which the defendant should pay the
plaintiff. (pp. 15-16, Record on Appeal)
The respondent appellate court in its assailed decision confirming the aforegoing findings of the
lower court stated:
The proximate cause, therefore, resulting in injury to appellee, was the failure of the appellant
to take the necessary or precautionary steps to avoid the occurrence of the humiliating incident
now complained of. The company had not imposed any safeguard against such eventualities and
this void in its operating procedure does not speak well of its concern for their clientele’s
interests. Negligence here is very patent. This negligence is imputable to appellant and not to its
employees.
The claim that there was no publication of the libelous words in Tagalog is also without merit.
The fact that a carbon copy of the telegram was filed among other telegrams and left to hang for
the public to see, open for inspection by a third party is sufficient publication. It would have been
otherwise perhaps had the telegram been placed and kept in a secured place where no one may
have had a chance to read it without appellee’s permission.
The additional Tagalog words at the bottom of the telegram are, as correctly found by the lower
court, libelous per se, and from which malice may be presumed in the absence of any showing of
good intention and justifiable motive on the part of the appellant. The law implies damages in
this instance (Quemel vs. Court of Appeals, L-22794, January 16, 1968; 22 SCRA 44). The award
of P40,000.00 as moral damages is hereby reduced to P15,000.00 and for attorney’s fees the
amount of P2,000.00 is awarded. (pp. 22-23, record)
After a motion for reconsideration was denied by the appellate court, petitioner came to Us with
the following:
ASSIGNMENT OF ERRORS
I
The Honorable Court of Appeals erred in holding that Petitioner-employer should answer directly
and primarily for the civil liability arising from the criminal act of its employee.
II
The Honorable Court of Appeals erred in holding that there was sufficient publication of the
alleged libelous telegram in question, as contemplated by law on libel.
III
The Honorable Court of Appeals erred in holding that the liability of petitioner-company-
employer is predicated on Articles 19 and 20 of the Civil Code, Articles on Human Relations.
IV
The Honorable Court of Appeals erred in awarding Atty’s. fees. (p. 4, Record)
Petitioner’s contentions do not merit our consideration. The action for damages was filed in the
lower court directly against respondent corporation not as an employer subsidiarily liable under
the provisions of Article 1161 of the New Civil Code in relation to Art. 103 of the Revised Penal
Code. The cause of action of the private respondent is based on Arts. 19 and 20 of the New Civil
Code (supra). As well as on respondent’s breach of contract thru the negligence of its own
employees. 1
Petitioner is a domestic corporation engaged in the business of receiving and transmitting
messages. Everytime a person transmits a message through the facilities of the petitioner, a
contract is entered into. Upon receipt of the rate or fee fixed, the petitioner undertakes to
transmit the message accurately. There is no question that in the case at bar, libelous matters
were included in the message transmitted, without the consent or knowledge of the sender.
There is a clear case of breach of contract by the petitioner in adding extraneous and libelous
matters in the message sent to the private respondent. As a corporation, the petitioner can act
only through its employees. Hence the acts of its employees in receiving and transmitting
messages are the acts of the petitioner. To hold that the petitioner is not liable directly for the
acts of its employees in the pursuit of petitioner’s business is to deprive the general public
availing of the services of the petitioner of an effective and adequate remedy. In most cases,
negligence must be proved in order that plaintiff may recover. However, since negligence may
be hard to substantiate in some cases, we may apply the doctrine of RES IPSA LOQUITUR (the
thing speaks for itself), by considering the presence of facts or circumstances surrounding the
injury.
WHEREFORE, premises considered, the judgment of the appellate court is hereby AFFIRMED.
SO ORDERED.
Feria (Chairman), Fernan, Alampay, and Gutierrez, Jr., JJ., concur.
Footnotes
1 In contracts the negligence of the employee (servant) is the negligence of the employer
(master). This is the master and servant rule.

91 PHIL 503
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-3756 June 30, 1952

SAGRADA ORDEN DE PREDICADORES DEL SANTISMO ROSARIO DE FILIPINAS, plaintiff-


appellee,
vs.
NATIONAL COCONUT CORPORATION, defendant-appellant.

First Assistant Corporate Counsel Federico C. Alikpala and Assistant Attorney Augusto Kalaw for
appellant.
Ramirez and Ortigas for appellee.

LABRADOR, J.:

This is an action to recover the possession of a piece of real property (land and warehouses)
situated in Pandacan Manila, and the rentals for its occupation and use. The land belongs to the
plaintiff, in whose name the title was registered before the war. On January 4, 1943, during the
Japanese military occupation, the land was acquired by a Japanese corporation by the name of
Taiwan Tekkosho for the sum of P140,00, and thereupon title thereto issued in its name
(transfer certificate of title No. 64330, Register of Deeds, Manila). After liberation, more
specifically on April 4, 1946, the Alien Property Custodian of the United States of America took
possession, control, and custody thereof under section 12 of the Trading with the Enemy Act,
40 Stat., 411, for the reason that it belonged to an enemy national. During the year 1946 the
property was occupied by the Copra Export Management Company under a custodianship
agreement with United States Alien Property Custodian (Exhibit G), and when it vacated the
property it was occupied by the defendant herein. The Philippine Government made
representations with the Office Alien Property Custodian for the use of property by the
Government (see Exhibits 2, 2-A, 2-B, and 1). On March 31, 1947, the defendant was authorized
to repair the warehouse on the land, and actually spent thereon the repairs the sum of
P26,898.27. In 1948, defendant leased one-third of the warehouse to one Dioscoro Sarile at a
monthly rental of P500, which was later raised to P1,000 a month. Sarile did not pay the rents,
so action was brought against him. It is not shown, however, if the judgment was ever
executed.

Plaintiff made claim to the property before the Alien Property Custodian of the United States,
but as this was denied, it brought an action in court (Court of First Instance of Manila, civil case
No. 5007, entitled "La Sagrada Orden Predicadores de la Provinicia del Santisimo Rosario de
Filipinas," vs. Philippine Alien Property Administrator, defendant, Republic of the Philippines,
intervenor) to annul the sale of property of Taiwan Tekkosho, and recover its possession. The
Republic of the Philippines was allowed to intervene in the action. The case did not come for
trial because the parties presented a joint petition in which it is claimed by plaintiff that the sale
in favor of the Taiwan Tekkosho was null and void because it was executed under threats,
duress, and intimidation, and it was agreed that the title issued in the name of the Taiwan
Tekkosho be cancelled and the original title of plaintiff re-issued; that the claims, rights, title,
and interest of the Alien Property Custodian be cancelled and held for naught; that the
occupant National Coconut Corporation has until February 28, 1949, to recover its equipment
from the property and vacate the premises; that plaintiff, upon entry of judgment, pay to the
Philippine Alien Property Administration the sum of P140,000; and that the Philippine Alien
Property Administration be free from responsibility or liability for any act of the National
Coconut Corporation, etc. Pursuant to the agreement the court rendered judgment releasing
the defendant and the intervenor from liability, but reversing to the plaintiff the right to
recover from the National Coconut Corporation reasonable rentals for the use and occupation
of the premises. (Exhibit A-1.)

The present action is to recover the reasonable rentals from August, 1946, the date when the
defendant began to occupy the premises, to the date it vacated it. The defendant does not
contest its liability for the rentals at the rate of P3,000 per month from February 28, 1949 (the
date specified in the judgment in civil case No. 5007), but resists the claim therefor prior to this
date. It interposes the defense that it occupied the property in good faith, under no obligation
whatsoever to pay rentals for the use and occupation of the warehouse. Judgment was
rendered for the plaintiff to recover from the defendant the sum of P3,000 a month, as
reasonable rentals, from August, 1946, to the date the defendant vacates the premises. The
judgment declares that plaintiff has always been the owner, as the sale of Japanese purchaser
was void ab initio; that the Alien Property Administration never acquired any right to the
property, but that it held the same in trust until the determination as to whether or not the
owner is an enemy citizen. The trial court further declares that defendant can not claim any
better rights than its predecessor, the Alien Property Administration, and that as defendant has
used the property and had subleased portion thereof, it must pay reasonable rentals for its
occupation.
Against this judgment this appeal has been interposed, the following assignment of error
having been made on defendant-appellant's behalf:

The trial court erred in holding the defendant liable for rentals or compensation for the
use and occupation of the property from the middle of August, 1946, to December 14,
1948.

1. Want to "ownership rights" of the Philippine Alien Property Administration did not
render illegal or invalidate its grant to the defendant of the free use of property.

2. the decision of the Court of First Instance of Manila declaring the sale by the plaintiff
to the Japanese purchaser null and void ab initio and that the plaintiff was and has
remained as the legal owner of the property, without legal interruption, is not
conclusive.

3. Reservation to the plaintiff of the right to recover from the defendant corporation not
binding on the later;

4. Use of the property for commercial purposes in itself alone does not justify payment
of rentals.

5. Defendant's possession was in good faith.

6. Defendant's possession in the nature of usufruct.

In reply, plaintiff-appellee's counsel contends that the Philippine Allien Property Administration
(PAPA) was a mere administrator of the owner (who ultimately was decided to be plaintiff), and
that as defendant has used it for commercial purposes and has leased portion of it, it should be
responsible therefore to the owner, who had been deprived of the possession for so many
years. (Appellee's brief, pp. 20, 23.)

We can not understand how the trial court, from the mere fact that plaintiff-appellee was the
owner of the property and the defendant-appellant the occupant, which used for its own
benefit but by the express permission of the Alien Property Custodian of the United States, so
easily jumped to the conclusion that the occupant is liable for the value of such use and
occupation. If defendant-appellant is liable at all, its obligations, must arise from any of the four
sources of obligations, namley, law, contract or quasi-contract, crime, or negligence. (Article
1089, Spanish Civil Code.) Defendant-appellant is not guilty of any offense at all, because it
entered the premises and occupied it with the permission of the entity which had the legal
control and administration thereof, the Allien Property Administration. Neither was there any
negligence on its part. There was also no privity (of contract or obligation) between the Alien
Property Custodian and the Taiwan Tekkosho, which had secured the possession of the
property from the plaintiff-appellee by the use of duress, such that the Alien Property
Custodian or its permittee (defendant-appellant) may be held responsible for the supposed
illegality of the occupation of the property by the said Taiwan Tekkosho. The Allien Property
Administration had the control and administration of the property not as successor to the
interests of the enemy holder of the title, the Taiwan Tekkosho, but by express provision of law
(Trading with the Enemy Act of the United States, 40 Stat., 411; 50 U.S.C.A., 189). Neither is it a
trustee of the former owner, the plaintiff-appellee herein, but a trustee of then Government of
the United States (32 Op. Atty. Gen. 249; 50 U.S.C.A. 283), in its own right, to the exclusion of,
and against the claim or title of, the enemy owner. (Youghioheny & Ohio Coal Co. vs. Lasevich
[1920], 179 N.W., 355; 171 Wis., 347; U.S.C.A., 282-283.) From August, 1946, when defendant-
appellant took possession, to the late of judgment on February 28, 1948, Allien Property
Administration had the absolute control of the property as trustee of the Government of the
United States, with power to dispose of it by sale or otherwise, as though it were the absolute
owner. (U.S vs. Chemical Foundation [C.C.A. Del. 1925], 5 F. [2d], 191; 50 U.S.C.A., 283.)
Therefore, even if defendant-appellant were liable to the Allien Property Administration for
rentals, these would not accrue to the benefit of the plaintiff-appellee, the owner, but to the
United States Government.

But there is another ground why the claim or rentals can not be made against defendant-
appellant. There was no agreement between the Alien Property Custodian and the defendant-
appellant for the latter to pay rentals on the property. The existence of an implied agreement
to that effect is contrary to the circumstances. The copra Export Management Company, which
preceded the defendant-appellant, in the possession and use of the property, does not appear
to have paid rentals therefor, as it occupied it by what the parties denominated a
"custodianship agreement," and there is no provision therein for the payment of rentals or of
any compensation for its custody and or occupation and the use. The Trading with the Enemy
Act, as originally enacted, was purely a measure of conversation, hence, it is very unlikely that
rentals were demanded for the use of the property. When the National coconut Corporation
succeeded the Copra Export Management Company in the possession and use of the property,
it must have been also free from payment of rentals, especially as it was Government
corporation, and steps where then being taken by the Philippine Government to secure the
property for the National Coconut Corporation. So that the circumstances do not justify the
finding that there was an implied agreement that the defendant-appellant was to pay for the
use and occupation of the premises at all.

The above considerations show that plaintiff-appellee's claim for rentals before it obtained the
judgment annulling the sale of the Taiwan Tekkosho may not be predicated on any negligence
or offense of the defendant-appellant, or any contract, express or implied, because the Allien
Property Administration was neither a trustee of plaintiff-appellee, nor a privy to the
obligations of the Taiwan Tekkosho, its title being based by legal provision of the seizure of
enemy property. We have also tried in vain to find a law or provision thereof, or any principle in
quasi contracts or equity, upon which the claim can be supported. On the contrary, as
defendant-appellant entered into possession without any expectation of liability for such use
and occupation, it is only fair and just that it may not be held liable therefor. And as to the rents
it collected from its lessee, the same should accrue to it as a possessor in good faith, as this
Court has already expressly held. (Resolution, National Coconut Corporation vs. Geronimo, 83
Phil. 467.)

Lastly, the reservation of this action may not be considered as vesting a new right; if no right to
claim for rentals existed at the time of the reservation, no rights can arise or accrue from such
reservation alone.

Wherefore, the part of the judgment appealed from, which sentences defendant-appellant to
pay rentals from August, 1946, to February 28, 1949, is hereby reversed. In all other respects
the judgment is affirmed. Costs of this appeal shall be against the plaintiff-appellee.

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Montemayor, and Bautista Angelo, JJ, concur.

12 PHIL 453
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-4089 January 12, 1909

ARTURO PELAYO, plaintiff-appellant,


vs.
MARCELO LAURON, ET AL., defendants-appellees.

J.H. Junquera, for appellant.


Filemon Sotto, for appellee.

TORRES, J.:

On the 23rd of November, 1906, Arturo Pelayo, a physician residing in Cebu, filed a complaint
against Marcelo Lauron and Juana Abella setting forth that on or about the 13th of October of
said year, at night, the plaintiff was called to the house of the defendants, situated in San
Nicolas, and that upon arrival he was requested by them to render medical assistance to their
daughter-in-law who was about to give birth to a child; that therefore, and after consultation
with the attending physician, Dr. Escaño, it was found necessary, on account of the difficult
birth, to remove the fetus by means of forceps which operation was performed by the plaintiff,
who also had to remove the afterbirth, in which services he was occupied until the following
morning, and that afterwards, on the same day, he visited the patient several times; that the
just and equitable value of the services rendered by him was P500, which the defendants refuse
to pay without alleging any good reason therefor; that for said reason he prayed that the
judgment be entered in his favor as against the defendants, or any of them, for the sum of P500
and costs, together with any other relief that might be deemed proper.

In answer to the complaint counsel for the defendants denied all of the allegation therein
contained and alleged as a special defense, that their daughter-in-law had died in consequence
of the said childbirth, and that when she was alive she lived with her husband independently
and in a separate house without any relation whatever with them, and that, if on the day when
she gave birth she was in the house of the defendants, her stay their was accidental and due to
fortuitous circumstances; therefore, he prayed that the defendants be absolved of the
complaint with costs against the plaintiff.

The plaintiff demurred to the above answer, and the court below sustained the demurrer,
directing the defendants, on the 23rd of January, 1907, to amend their answer. In compliance
with this order the defendants presented, on the same date, their amended answer, denying
each and every one of the allegations contained in the complaint, and requesting that the same
be dismissed with costs.

As a result of the evidence adduced by both parties, judgment was entered by the court below
on the 5th of April, 1907, whereby the defendants were absolved from the former complaint,
on account of the lack of sufficient evidence to establish a right of action against the
defendants, with costs against the plaintiff, who excepted to the said judgment and in addition
moved for a new trial on the ground that the judgment was contrary to law; the motion was
overruled and the plaintiff excepted and in due course presented the corresponding bill of
exceptions. The motion of the defendants requesting that the declaration contained in the
judgment that the defendants had demanded therefrom, for the reason that, according to the
evidence, no such request had been made, was also denied, and to the decision the defendants
excepted.

Assuming that it is a real fact of knowledge by the defendants that the plaintiff, by virtue of
having been sent for by the former, attended a physician and rendered professional services to
a daughter-in-law of the said defendants during a difficult and laborious childbirth, in order to
decide the claim of the said physician regarding the recovery of his fees, it becomes necessary
to decide who is bound to pay the bill, whether the father and mother-in-law of the patient, or
the husband of the latter.

According to article 1089 of the Civil Code, obligations are created by law, by contracts, by
quasi-contracts, and by illicit acts and omissions or by those in which any kind of fault or
negligence occurs.

Obligations arising from law are not presumed. Those expressly determined in the code or in
special laws, etc., are the only demandable ones. Obligations arising from contracts have legal
force between the contracting parties and must be fulfilled in accordance with their
stipulations. (Arts. 1090 and 1091.)
The rendering of medical assistance in case of illness is comprised among the mutual
obligations to which the spouses are bound by way of mutual support. (Arts. 142 and 143.)

If every obligation consists in giving, doing or not doing something (art. 1088), and spouses are
mutually bound to support each other, there can be no question but that, when either of them
by reason of illness should be in need of medical assistance, the other is under the unavoidable
obligation to furnish the necessary services of a physician in order that health may be restored,
and he or she may be freed from the sickness by which life is jeopardized; the party bound to
furnish such support is therefore liable for all expenses, including the fees of the medical expert
for his professional services. This liability originates from the above-cited mutual obligation
which the law has expressly established between the married couple.

In the face of the above legal precepts it is unquestionable that the person bound to pay the
fees due to the plaintiff for the professional services that he rendered to the daughter-in-law of
the defendants during her childbirth, is the husband of the patient and not her father and
mother- in-law, the defendants herein. The fact that it was not the husband who called the
plaintiff and requested his assistance for his wife is no bar to the fulfillment of the said
obligation, as the defendants, in view of the imminent danger, to which the life of the patient
was at that moment exposed, considered that medical assistance was urgently needed, and the
obligation of the husband to furnish his wife in the indispensable services of a physician at such
critical moments is specially established by the law, as has been seen, and compliance
therewith is unavoidable; therefore, the plaintiff, who believes that he is entitled to recover his
fees, must direct his action against the husband who is under obligation to furnish medical
assistance to his lawful wife in such an emergency.

From the foregoing it may readily be understood that it was improper to have brought an
action against the defendants simply because they were the parties who called the plaintiff and
requested him to assist the patient during her difficult confinement, and also, possibly, because
they were her father and mother-in-law and the sickness occurred in their house. The
defendants were not, nor are they now, under any obligation by virtue of any legal provision, to
pay the fees claimed, nor in consequence of any contract entered into between them and the
plaintiff from which such obligation might have arisen.

In applying the provisions of the Civil Code in an action for support, the supreme court of Spain,
while recognizing the validity and efficiency of a contract to furnish support wherein a person
bound himself to support another who was not his relative, established the rule that the law
does impose the obligation to pay for the support of a stranger, but as the liability arose out of
a contract, the stipulations of the agreement must be held. (Decision of May 11, 1897.)

Within the meaning of the law, the father and mother-in-law are strangers with respect to the
obligation that devolves upon the husband to provide support, among which is the furnishing of
medical assistance to his wife at the time of her confinement; and, on the other hand, it does
not appear that a contract existed between the defendants and the plaintiff physician, for
which reason it is obvious that the former can not be compelled to pay fees which they are
under no liability to pay because it does not appear that they consented to bind themselves.

The foregoing suffices to demonstrate that the first and second errors assigned to the judgment
below are unfounded, because, if the plaintiff has no right of action against the defendants, it is
needless to declare whether or not the use of forceps is a surgical operation.

Therefore, in view of the consideration hereinbefore set forth, it is our opinion that the
judgment appealed from should be affirmed with the costs against the appellant. So ordered.

Mapa and Tracey, JJ., concur.


Arellano, C.J., and Carson, J., concurs in the result.
Willard, J., dissents.

185 PHIL 741


Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 96452 May 7, 1992

PERLA COMPANIA DE SEGUROS, INC. petitioner,


vs.
THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents.

G.R. No. 96493 May 7, 1992

FCP CREDIT CORPORATION, petitioner,

vs.

THE COURT OF APPEALS, Special Third Division, HERMINIO LIM and EVELYN LIM, respondents.

Yolanda Quisumbing-Javellana and Nelson A. Loyola for petitioner.

Wilson L. Tee for respondents Herminio and Evelyn Lim.


NOCON, J.:

These are two petitions for review on certiorari, one filed by Perla Compania de Seguros, Inc. in
G.R. No. 96452, and the other by FCP Credit Corporation in G.R. No. 96493, both seeking to
annul and set aside the decision dated July 30, 1990 1 of the Court of Appeals in CA-G.R. No.
13037, which reversed the decision of the Regional Trial Court of Manila, Branch VIII in Civil
Case No. 83-19098 for replevin and damages. The dispositive portion of the decision of the
Court of Appeals reads, as follows:

WHEREFORE, the decision appealed from is reversed; and appellee Perla


Compania de Seguros, Inc. is ordered to indemnify appellants Herminio and
Evelyn Lim for the loss of their insured vehicle; while said appellants are ordered
to pay appellee FCP Credit Corporation all the unpaid installments that were due
and payable before the date said vehicle was carnapped; and appellee Perla
Compania de Seguros, Inc. is also ordered to pay appellants moral damages of
P12,000.00 for the latter's mental sufferings, exemplary damages of P20,000.00
for appellee Perla Compania de Seguros, Inc.'s unreasonable refusal on sham
grounds to honor the just insurance claim of appellants by way of example and
correction for public good, and attorney's fees of P10,000.00 as a just and
equitable reimbursement for the expenses incurred therefor by appellants, and
the costs of suit both in the lower court and in this appeal. 2

The facts as found by the trial court are as follows:

On December 24, 1981, private respondents spouses Herminio and Evelyn Lim executed a
promissory note in favor Supercars, Inc. in the sum of P77,940.00, payable in monthly
installments according to the schedule of payment indicated in said note, 3 and secured by a
chattel mortgage over a brand new red Ford Laser 1300 5DR Hatchback 1981 model with motor
and serial No. SUPJYK-03780, which is registered under the name of private respondent
Herminio Lim 4 and insured with the petitioner Perla Compania de Seguros, Inc. (Perla for
brevity) for comprehensive coverage under Policy No. PC/41PP-QCB-43383. 5

On the same date, Supercars, Inc., with notice to private respondents spouses, assigned to
petitioner FCP Credit Corporation (FCP for brevity) its rights, title and interest on said
promissory note and chattel mortgage as shown by the Deed of Assignment. 6

At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped while parked at the back
of Broadway Centrum along N. Domingo Street, Quezon City. Private respondent Evelyn Lim,
who was driving said car before it was carnapped, immediately called up the Anti-Carnapping
Unit of the Philippine Constabulary to report said incident and thereafter, went to the nearest
police substation at Araneta, Cubao to make a police report regarding said incident, as shown
by the certification issued by the Quezon City police. 7
On November 10, 1982, private respondent Evelyn Lim reported said incident to the Land
Transportation Commission in Quezon City, as shown by the letter of her counsel to said
office, 8 in compliance with the insurance requirement. She also filed a complaint with the
Headquarters, Constabulary Highway Patrol Group. 9

On November 11, 1982, private respondent filed a claim for loss with the petitioner Perla but
said claim was denied on November 18, 1982 10 on the ground that Evelyn Lim, who was using
the vehicle before it was carnapped, was in possession of an expired driver's license at the time
of the loss of said vehicle which is in violation of the authorized driver clause of the insurance
policy, which states, to wit:

AUTHORIZED DRIVER:

Any of the following: (a) The Insured (b) Any person driving on the Insured's
order, or with his permission. Provided that the person driving is permitted, in
accordance with the licensing or other laws or regulations, to drive the
Scheduled Vehicle, or has been permitted and is not disqualified by order of a
Court of Law or by reason of any enactment or regulation in that behalf. 11

On November 17, 1982, private respondents requests from petitioner FCP for a suspension of
payment on the monthly amortization agreed upon due to the loss of the vehicle and, since the
carnapped vehicle insured with petitioner Perla, said insurance company should be made to
pay the remaining balance of the promissory note and the chattel mortgage contract.

Perla, however, denied private respondents' claim. Consequently, petitioner FCP demanded
that private respondents pay the whole balance of the promissory note or to return the
vehicle 12 but the latter refused.

On July 25, 1983, petitioner FCP filed a complaint against private respondents, who in turn filed
an amended third party complaint against petitioner Perla on December 8, 1983. After trial on
the merits, the trial court rendered a decision, the dispositive portion which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:

1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly and
severally, plaintiff the sum of P55,055.93 plus interest thereon at the rate of
24% per annum from July 2, 1983 until fully paid;

2. Ordering defendants to pay plaintiff P50,000.00 as and for attorney's fees; and
the costs of suit.

Upon the other hand, likewise, ordering the DISMISSAL of the Third-Party
Complaint filed against Third-Party Defendant. 13
Not satisfied with said decision, private respondents appealed the same to the Court of
Appeals, which reversed said decision.

After petitioners' separate motions for reconsideration were denied by the Court of Appeals in
its resolution of December 10, 1990, petitioners filed these separate petitions for review
on certiorari.

Petitioner Perla alleged that there was grave abuse of discretion on the part of the appellate
court in holding that private respondents did not violate the insurance contract because the
authorized driver clause is not applicable to the "Theft" clause of said Contract.

For its part, petitioner FCP raised the issue of whether or not the loss of the collateral
exempted the debtor from his admitted obligations under the promissory note particularly the
payment of interest, litigation expenses and attorney's fees.

We find no merit in Perla's petition.

The comprehensive motor car insurance policy issued by petitioner Perla undertook to
indemnify the private respondents against loss or damage to the car (a) by accidental collision
or overturning, or collision or overturning consequent upon mechanical breakdown or
consequent upon wear and tear; (b) by fire, external explosion, self-ignition or lightning or
burglary, housebreaking or theft; and (c) by malicious act.14

Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner's
consent or knowledge, such taking constitutes theft, and, therefore, it is the "THEFT"' clause,
and not the "AUTHORIZED DRIVER" clause that should apply. As correctly stated by the
respondent court in its decision:

. . . Theft is an entirely different legal concept from that of accident. Theft is


committed by a person with the intent to gain or, to put it in another way, with
the concurrence of the doer's will. On the other hand, accident, although it may
proceed or result from negligence, is the happening of an event without the
concurrence of the will of the person by whose agency it was caused. (Bouvier's
Law Dictionary, Vol. I, 1914 ed., p. 101).

Clearly, the risk against accident is distinct from the risk against theft. The
"authorized driver clause" in a typical insurance policy is in contemplation or
anticipation of accident in the legal sense in which it should be understood, and
not in contemplation or anticipation of an event such as theft. The distinction —
often seized upon by insurance companies in resisting claims from their assureds
— between death occurring as a result of accident and death occurring as a
result of intent may, by analogy, apply to the case at bar. Thus, if the insured
vehicle had figured in an accident at the time she drove it with an expired
license, then, appellee Perla Compania could properly resist appellants' claim for
indemnification for the loss or destruction of the vehicle resulting from the
accident. But in the present case. The loss of the insured vehicle did not result
from an accident where intent was involved; the loss in the present case was
caused by theft, the commission of which was attended by intent. 15

It is worthy to note that there is no causal connection between the possession of a valid driver's
license and the loss of a vehicle. To rule otherwise would render car insurance practically a
sham since an insurance company can easily escape liability by citing restrictions which are not
applicable or germane to the claim, thereby reducing indemnity to a shadow.

We however find the petition of FCP meritorious.

This Court agrees with petitioner FCP that private respondents are not relieved of their
obligation to pay the former the installments due on the promissory note on account of the loss
of the automobile. The chattel mortgage constituted over the automobile is merely an
accessory contract to the promissory note. Being the principal contract, the promissory note is
unaffected by whatever befalls the subject matter of the accessory contract. Therefore, the
unpaid balance on the promissory note should be paid, and not just the installments due and
payable before the automobile was carnapped, as erronously held by the Court of Appeals.

However, this does not mean that private respondents are bound to pay the interest, litigation
expenses and attorney's fees stipulated in the promissory note. Because of the peculiar
relationship between the three contracts in this case, i.e., the promissory note, the chattel
mortgage contract and the insurance policy, this Court is compelled to construe all three
contracts as intimately interrelated to each other, despite the fact that at first glance there is
no relationship whatsoever between the parties thereto.

Under the promissory note, private respondents are obliged to pay Supercars, Inc. the amount
stated therein in accordance with the schedule provided for. To secure said promissory note,
private respondents constituted a chattel mortgage in favor of Supercars, Inc. over the
automobile the former purchased from the latter. The chattel mortgage, in turn, required
private respondents to insure the automobile and to make the proceeds thereof payable to
Supercars, Inc. The promissory note and chattel mortgage were assigned by Supercars, Inc. to
petitioner FCP, with the knowledge of private respondents. Private respondents were able to
secure an insurance policy from petitioner Perla, and the same was made specifically payable to
petitioner FCP. 16

The insurance policy was therefore meant to be an additional security to the principal contract,
that is, to insure that the promissory note will still be paid in case the automobile is lost through
accident or theft. The Chattel Mortgage Contract provided that:

THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE THE
PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST LOSS OR
DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE YEAR FROM
DATE HEREOF AND EVERY YEAR THEREAFTER UNTIL THE MORTGAGE
OBLIGATION IS FULLY PAID WITH AN INSURANCE COMPANY OR COMPANIES
ACCEPTABLE TO THE MORTGAGEE IN AN AMOUNT NOT LESS THAN THE
OUTSTANDING BALANCE OF THE MORTGAGE OBLIGATION; THAT HE/IT WILL
MAKE ALL LOSS, IF ANY, UNDER SUCH POLICY OR POLICIES, PAYABLE TO THE
MORTGAGE OR ITS ASSIGNS AS ITS INTERESTS MAY APPEAR AND FORTHWITH
DELIVER SUCH POLICY OR POLICIES TO THE MORTGAGEE, . . . . 17

It is clear from the abovementioned provision that upon the loss of the insured vehicle, the
insurance company Perla undertakes to pay directly to the mortgagor or to their assignee, FCP,
the outstanding balance of the mortgage at the time of said loss under the mortgage contract.
If the claim on the insurance policy had been approved by petitioner Perla, it would have paid
the proceeds thereof directly to petitioner FCP, and this would have had the effect of
extinguishing private respondents' obligation to petitioner FCP. Therefore, private respondents
were justified in asking petitioner FCP to demand the unpaid installments from petitioner Perla.

Because petitioner Perla had unreasonably denied their valid claim, private respondents should
not be made to pay the interest, liquidated damages and attorney's fees as stipulated in the
promissory note. As mentioned above, the contract of indemnity was procured to insure the
return of the money loaned from petitioner FCP, and the unjustified refusal of petitioner Perla
to recognize the valid claim of the private respondents should not in any way prejudice the
latter.

Private respondents can not be said to have unduly enriched themselves at the expense of
petitioner FCP since they will be required to pay the latter the unpaid balance of its obligation
under the promissory note.

In view of the foregoing discussion, We hold that the Court of Appeals did not err in requiring
petitioner Perla to indemnify private respondents for the loss of their insured vehicle. However,
the latter should be ordered to pay petitioner FCP the amount of P55,055.93, representing the
unpaid installments from December 30, 1982 up to July 1, 1983, as shown in the statement of
account prepared by petitioner FCP, 18 plus legal interest from July 2, 1983 until fully paid.

As to the award of moral damages, exemplary damages and attorney's fees, private
respondents are legally entitled to the same since petitioner Perla had acted in bad faith by
unreasonably refusing to honor the insurance claim of the private respondents. Besides, awards
for moral and exemplary damages, as well as attorney's fees are left to the sound discretion of
the Court. Such discretion, if well exercised, will not be disturbed on appeal. 19

WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to require
private respondents to pay petitioner FCP the amount of P55,055.93, with legal interest from
July 2, 1983 until fully paid. The decision appealed from is hereby affirmed as to all other
respects. No pronouncement as to costs.
SO ORDERED.

Melencio-Herrera, Paras, Padilla and Regalado, JJ., concu

27 PHIL 263
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-21676 February 28, 1969

VICENTE ALDABA, ET AL., petitioners,


vs.
COURT OF APPEALS, CESAR ALDABA, ET AL., respondents.

Rodas and Almeda for petitioners.


Dakila F. Castro and Associates for respondents.

ZALDIVAR, J.:

This is a petition to review the decision of the Court of Appeals in case CA-G.R. No. 27561-R,
entitled "Vicente Aldaba, et al., plaintiffs-appellants, versus Cesar Aldaba, et al., defendants-
appellees", affirming the decision of the Court of First Instance of Manila in its Civil Case No.
41260.

When Belen Aldaba, a rich woman of Malolos, Bulacan, died on February 25, 1955, she left as
her presumptive heirs her surviving husband Estanislao Bautista, and her brother Cesar Aldaba.
Belen Aldaba was childless. Among the properties that she left were the two lots involved in
this case, situated at 427 Maganda Street, Santa Mesa, Manila.

Petitioners Dr. Vicente Aldaba and Jane Aldaba, father and daughter, respectively, lived during
the last war in their house in Malate, Manila. Belen Aldaba used to go to their house to seek the
advice and medical assistance of Dr. Vicente Aldaba. When the latter's house was burned
during the liberation of Manila in 1945, Belen Aldaba invited Dr. Aldaba and his daughter, who
was then a student in medicine, to live in one of her two houses standing on the lots in
question, and the Aldaba father and daughter accepted the offer of Belen and they actually
lived in one of those two houses until sometime in 1957 when respondent Emmanuel Bautista
filed an ejectment case against them in the city court of Manila. Dr. Vicente Aldaba continued
to act as a sort of adviser of Belen and Jane, after becoming a qualified doctor of medicine,
became the personal physician of Belen until the latter's death on February 25, 1955.
On June 24, 1955, the presumptive heirs Estanislao Bautista and Cesar Aldaba, executed a deed
of extrajudicial partition of the properties left by the deceased Belen Aldaba, by virtue of which
deed the two lots in question were alloted to Cesar Aldaba. Subsequently, on August 26, 1957,
herein respondents Cesar Aldaba and Emmanuel Bautista, the latter being a grandson of
Estanislao Bautista by his first marriage, executed a deed whereby the two lots that were
alloted to Cesar Aldaba were ceded to Emmanuel Bautista in exchange of the latter's lot
situated at San Juan, Rizal. By virtue of the deed of extra-judicial partition and the deed of
exchange, Transfer certificates of Title Nos. 1334 and 1335, respectively, covering lots Nos. 32
and 34 — now in question — both in the name of Belen Aldaba, were cancelled by the Register
of Deeds of Manila, and Transfer Certificates of Title Nos. 49996 and 49997 in the name of
Emmanuel Bautista were issued in lieu thereof.

Emmanuel Bautista then required Dr. Vicente Aldaba to vacate the lots in question and, upon
the latter's refusal, filed an ejectment case against him in the City Court of Manila. Without
awaiting the final result of the ejectment case, herein petitioners filed, on August 22, 1959, a
complaint in the Court of First Instance of Manila, docketed as Civil Case No. 41260, against
herein respondents Cesar Aldaba and Emmanuel Bautista and the Register of Deeds of Manila,
alleging that they had become the owners of the two lots in question, and praying that the
deed of partition entered into by Estanislao Bautista and Cesar Aldaba be declared null and void
with respect to Lot No. 32, covered by Transfer Certificate of Title No. 1334, and lot No. 34
covered by Transfer Certificate of Title No 1335; that said lots be declared the property of
therein plaintiffs (herein petitioners); and that the Register of Deeds of Manila be ordered to
cancel TCT Nos. 49996 and 49997 in the name of Emmanuel Bautista and in lieu thereof issue
two new TCTs in the name of therein plaintiffs.

After hearing, the court a quo rendered a decision dismissing the complaint, and declaring,
among others, that if the deceased Belen Aldaba intended to convey the lots in question to
Vicente Aldaba and Jane Aldaba, by way of donation, the conveyance should be considered a
donation inter vivos, for the validity of which a public instrument was necessary pursuant to
Article 749 of the Civil Code. The dispositive portion of the decision of the trial court reads as
follows:

IN VIEW WHEREOF both complaint and counterclaim dismissed; the Court holds
Emmanuel Bautista to be the absolute owner of the property in question, land
and improvement, but with the right of plaintiffs to stay until they should have
been reimbursed of P5,000.00 but without any obligation, until such
reimbursement, to pay any rental unto defendant Emmanuel Bautista. No
pronouncement as to costs.

From this decision, therein plaintiffs appealed to the Court of Appeals, and the latter court
rendered a decision, on June 21, 1963, raising from P5,000 to P8,000 the amount to be
reimbursed to plaintiffs-appellants, but affirming in all other respects the decision of the lower
court. Herein petitioners' motion for reconsideration of the decision having been denied by the
Court of Appeals, they forthwith filed the present petition in this Court.
Before this Court, petitioners now contend that the Court of Appeals erred: (1) in affirming the
decision of the Court of First Instance; (2) in holding that the donation, as found by the Court of
First Instance of Manila, was a simple donation inter vivos and not a donation "con causa
onerosa and so it was void for it did not follow the requirements of Article 749 of the Civil Code;
(3) in not holding that the property in question had already been donated to herein petitioners
in consideration of the latter's services; (4) in not declaring petitioners to be the absolute
owners of the property in dispute; and (5) in considering testimonies which had been stricken
out.

The errors assigned by petitioners being interrelated, We are going to discuss them together.

Petitioners contend that petitioners Dr. Vicente Aldaba and Jane Aldaba had rendered services
to the deceased Belen Aldaba for more than ten years without receiving any compensation, and
so in compensation for their services Belen Aldaba gave them the lots in dispute including the
improvements thereon. It is the stand of petitioners that the property in question was
conveyed to them by way of an onerous donation which is governed by Article 733, and not
Article 749, of the Civil Code. Under Article 733 of the Civil Code an onerous donation does not
have to be done by virtue of a public instrument. The petitioners point to the note, Exhibit 6, as
indicating that a donation had been made, which note reads as follows:

June 18, 1953

Jane,

Huag kayong umalis diyan. Talagang iyan ay para sa inyo.


Alam nila na iyan ay sa inyo.

Belen A. Bautista.

Petitioners maintain that the note, although it could not transmit title, showed, nevertheless,
that a donation had already been made long before its writing, in consideration of the services
rendered before the writing and to be rendered after its writing. And the donation being with
an onerous cause, petitioners maintain that it was valid even if it was done orally. Petitioners
further maintain that if Exhibit 6 labors under some ambiguity, this ambiguity is cured by
Exhibit 7, which reads as follows:

June 27, 1956

Dear Nana Tering,

Narito po ang notice tungkol sa amillaramiento na


pagbabayaran diyan sa lupa at bahay na kinatatayuan
ninyo. Sa Malolos po ito tinanggap. Ang pagbabayaran po
ng Inkong ay bayad na.
Gumagalang,
"Cely."

The addressee, Tering, was the wife of Dr. Vicente Aldaba, and the sender, Cely was the wife of
respondent Emmanuel Bautista. This note, petitioners argue, proves that respondents had
recognized the ownership of the petitioners of the house and lot, for, otherwise, Cely should
have sent the notice of real estate tax to respondent Cesar Aldaba, to whom was alloted the
property in question by virtue of the extra-judicial partition.

Respondents, Cesar Aldaba and Emmanuel Bautista, on the other hand, contend that the
evidence of the plaintiff does not disclose clearly that a donation had been made. Respondents
point out that the note, Exhibit 6, as worded, is vague, in that it could not be interpreted as
referring to the lots in question, or that which was given therein was given for a valuable
consideration. And finally, respondents contend that if the property had really been given to
petitioners, why did they not take any step to transfer the property in their names?

The Court of Appeals, in its decision, made the following findings and conclusions:

(1) The note Exhibit 6 did not make any reference to the lots in question, nor to the
services rendered, or to be rendered, in favor of Belen. The note was insufficient is a
conveyance, and hence could not be considered as evidence of a donation with onerous
cause. This note can be considered, at most, as indicative of the intention to donate.

(2) There is no satisfactory explanation why from 1945 to 1955, no notarial document
was executed by Belen in favor of petitioners who were educated persons. The reason
given was "extremada delicadeza" which reason the Court of Appeals considered as
unsatisfactory.

(3) The evidence regarding the value of the services (P53,000.00) rendered by
petitioners (father and daughter) to Belen does not improve the proof regarding the
alleged donation. If petitioners believed that the gratuitous use of the property was not
sufficient to compensate them for their services, they could have presented their claims
in the intestate proceedings, which they themselves could have initiated, if none was
instituted.

The conclusion of the Court of Appeals, as well as that of the trial court, that there was no
onerous donation made by Belen Aldaba to petitioners is based upon their appreciation of the
evidence, and this Court will not disturb the factual findings of those courts.lawphi1.nêt

The question to be resolved in the instant case is: Was there a disposition of the property in
question made by the deceased Belen Aldaba in favor of herein petitioners? The note, Exhibit 6,
considered alone, was, as held by the Court of Appeals, confirming the opinion of the lower
court, only an indication of the intention of Belen Aldaba to donate to the petitioners the
property occupied by the latter. We agree with this conclusion of the trial court and the Court
of Appeals. The note, in fact, expressed that the property was really intended for the
petitioners, "talagang iyan ay para sa inyo." If the property was only intended for petitioners
then, at the time of its writing, the property had not yet been disposed of in their favor. There is
no evidence in the record that such intention was effectively carried out after the writing of the
note. Inasmuch as the mere expression of an intention is not a promise, because a promise is
an undertaking to carry the intention into effect, 1 We cannot, considering Exhibit 6 alone,
conclude that the deceased promised, much less did convey, the property in question to the
petitioners. That the note, Exhibit 6, was only an indication of an intention to give was also the
interpretation given by petitioners themselves, when they said in their memorandum, dated
February 2, 1960, in the lower court 2 thus:

Legally speaking, there was a contractual relation created between Belen Aldaba and
the plaintiff since 1945 whereby the former would give to the latter the two parcels of
land, together with the house standing thereon, upon the rendition of said services. This
fact can be gleaned from the note (Exh. "6", Plaintiffs) which in part says: TALAGANG
IYAN AY PARA SAINYO

We have said that Exhibit 6 expressed only the intention to donate. Let us suppose, for the sake
of argument, that previous to the writing of the note there had already been a disposition of
the property in favor of the petitioners. This disposition alone, would not make the donation a
donation for a valuable consideration. We still have to ask: What was the consideration of such
disposition? We do not find in the record that there had been an express agreement between
petitioners and Belen Aldaba that the latter would pay for the services of the former. If there
was no express agreement, could it not be at least implied? There could not be an implied
contract for payment because We find in the record that Jane did not expect to be paid for her
services. In the memorandum of counsel for the petitioners in the trial court We find this
statement:

For all she did to her aunt she expected not to be paid.3

When a person does not expect to be paid for his services, there cannot be a contract implied
in fact to make compensation for said services.

However, no contract implied in fact to make compensation for personal services


performed for another arises unless the party furnishing the services then expected or
had reason to expect the payment or compensation by the other party. To give rise to
an implied contract to pay for services, they must have been rendered by one party in
expectation that the other party would pay for them, and have been accepted by the
other party with knowledge of that expectation. (58 Am. Jur. p. 512 and cases cited
therein).

In the same manner when the person rendering the services has renounced his fees, the
services are not demandable obligations. 4
Even if it be assumed for the sake of argument that the services of petitioners constituted a
demandable debt, We still have to ask whether in the instant case this was the consideration
for which the deceased made the (alleged) disposition of the property to the petitioners. As we
have adverted to, we have not come across in the record even a claim that there was an
express agreement between petitioners and Belen Aldaba that the latter would give the
property in question in consideration of the services of petitioners. All that petitioners could
claim regarding this matter was that "it was impliedly understood" between them. 5 How said
agreement was implied and from what facts it was implied, petitioners did not make clear. The
question of whether or not what is relied upon as a consideration had been knowingly accepted
by the parties as a consideration, is a question of fact, 6and the Court of Appeals has not found
in the instant case that the lots in question were given to petitioners in consideration of the
services rendered by them to Belen Aldaba.

We find, therefore, that the conditions to constitute a donation cum causa onerosa are not
present in the instant case, and the claim of petitioners that the two lots in question were
donated to them by Belen Aldaba cannot be sustained.

WHEREFORE, the decision of the Court of Appeals is affirmed, with costs against the
petitioners. It is so ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Castro, Fernando, Capistrano, Teehankee and
Barredo, JJ., concur.
Sanchez, J., took no part.

99 PHIL 729
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-8171 August 16, 1956

EMILIO MANALO and CARLA SALVADOR, plaintiffs-appellees,


vs.
ROBLES TRANSPORTATION COMPANY, INC., defendant-appellant.

Cornelio S. Ruperto and Lazaro Pormarejo for appellant.


San Juan, Africa, Yñiguez and Benedicto for appellees.

MONTEMAYOR, J.:
Robles Transportation Company, Inc., later referred to as the Company, is appealing from the
decision of the Court of First Instance of Rizal, civil case No. 2013, ordering it to pay plaintiffs
Emilio Manalo and his wife, Clara Salvador, the sum of P3,000 with interest at 12 per cent per
annum from November 14, 1952 plus the amount of P600 for attorney's fee and expenses of
litigation, with cost.

The facts involved in this case are simple and without dispute. On August 9, 1947, a taxicab
owned and operated by defendant appellant Company and driven by Edgardo Hernandez its
driver, collided with a passenger truck at Parañaque, Rizal. In the course of and a result of the
accident, the taxicab ran over Armando Manalo, an eleven year old, causing him physical
injuries which resulted in his death several days later. Edgardo Hernandez was prosecuted for
homicide through reckless imprudence and after trial was found guilty of the charge and
sentenced to one year prision correccional, to indemnify the heirs of the deceased in the
amount of P3,000, in the case of insolvency to suffer subsidiary imprisonment, and to pay costs.
Edgardo Hernandez served out his sentence but failed to pay the indemnity. Two writs of
execution were issued against him to satisfy the amount of the indemnity, but both writs were
returned unsatisfied by the sheriff who certified that property, real or personal in Hernandez"
name could be found.

On February 17, 1953, plaintiffs Emilio Manalo and his wife Clara Salvador, father and mother
respectively of Armando filed the present action against the Company to enforce its subsidiary
liability, pursuant to Articles 102 and 103 of the Revised Penal Code. The Company filed its
appearance and answer and later an amended answer with special defenses and counterclaim.
It also filed a motion to dismiss the complaint unless and until the convicted driver Hernandez
was included as a party defendant, the Company considering him an indispensable party. The
trial court denied the motion to dismiss, holding that Hernandez was not an indispensable party
defendant. Dissatisfied with this ruling, the Company filed certiorari proceedings with the Court
of Appeals, but said appellate court held that Hernandez was not an indispensable party
defendant, and consequently, the trial court in denying the motion to dismiss acted within the
proper limits of its discretion. Eventually, the trial court rendered judgment sentencing the
defendant Company to pay to plaintiffs damages in the amount P3,000 with interest at 12 per
cent per annum from November 14, 1952, plus P600 for attorney's fee and expenses for
litigation, with cost. As aforesaid, the Company is appealing from this decision.

To prove their case against the defendant Company, the plaintiffs introduced a copy of the
decision in the criminal case convicting Hernandez of homicide through reckless imprudence,
the writs of execution to enforce the civil liability, and the returns of the sheriff showing that
the two writs of execution were not satisfied because of the insolvency of Hernandez, the
sheriff being unable to locate any property in his name. Over the objections of the Company,
the trial court admitted this evidence and based its decision in the present case on the same.

Defendant-appellant now contends that this kind of evidence is inadmissible and cities in
support of its contention the cases of City of Manila vs. Manila Electric Company (52 Phil., 586),
and Arambulo vs. Manila Electric decided by this tribunal in the case of Martinez vs. Barredo (81
Phil., 1). After considering the same two cases now cited by appellant, this court held that the
judgment of conviction, in the absence of any collusion between the defendant and offended
party, is binding upon the party subsidiarily liable.

The appelant also claims that in admitting as evidence the sheriff's return of the writs of
execution to prove the insolvency of Hernandez, without requiring said opportunity to cross-
examine said sheriff. A sheriff's return is an official statement made by a public official in the
performance of a duty specially enjoined by the law and forming part of official records, and
is prima facie evidence of the facts stated therein. (Rule 39, section 11 and Rule 123, section 35,
Rules of Court.) The sheriff's making the return need not testify in court as to the facts stated in
his entry. In the case of Antillon vs. Barcelon, 37 Phil., 151 citing Wigmore on Evidence, this
court said:

To the foregoing rules with reference to the method of proving private documents an
exception is made with reference to the method of proving public documents executed
before and certified to, under the land of seal of certain public officials. The courts and
the legislature have recognized the valid reason for such an exception. The litigation is
unlimited in which testimony by officials is daily needed, the occasion in which the
officials would be summoned from his ordinary duties to declare as a witness are
numberless. The public officers are few in whose daily work something is not done in
which testimony is not needed from official statements, host of official would be found
devoting the greater part of their time to attending as witness in court or delivering
their depositions before an officer. The work of Administration of government and the
interest of the public having business with officials would alike suffer in consequence.

And this Court added:

The law reposes a particular confidence in public officers that it presumes they will
discharge their several trust with accuracy and fidelity; and therefore, whatever acts
they do in discharge of their public duty may be given in evidence and shall be taken of
their public duty may be given in evidence and shall be taken to be true under such a
degree of caution as the nature and circumstances of each a case may appear to
require.

The appellant also contends that Article 102 and 103 of the Revised Penal Code were repealed
by the New Civil Code, promulgated in 1950, particularly, by the repealing clause under which
comes Article 2270 of the said code. We find the contention untenable. Article 2177 of the New
Civil Code expressly recognizes civil liabilities arising from negligence under the Penal Code,
only that it provides that plaintiff cannot recover damages twice for the same act of omission of
the defendant.

ART. 2177. Responsibility for fault or negligence under the preceding article is entirely
separate and distinct from the civil liability arising from negligence under the Penal
Code. But the plaintiff cannot recover damages twice for the same act of omission of the
defendant.

Invoking prescription, appellant claims that the present action is barred by the Statute of
Limitations for the reason that it is an action either upon a quasi delict, and that according to
Article 1146 of the New Civil Code, such action must be instituted within four years. We agree
with the appellee that the present action is based upon a judgement, namely, that in the
criminal case, finding Hernandez guilty of homicide through reckless imprudence and
sentencing him to indemnify the heirs of the deceased in the sum of P3,000, and, consequently
may be instituted within ten years.

As regards the other errors assigned by appellant, we find it unnecessary to discuss and rule
upon them.

Finding the decision appealed from to be in accordance with law, the same is hereby affirmed,
with costs.

Paras, C. J., Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J. B. L.,
and Endencia, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 183204 January 13, 2014

THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,


vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.

DECISION

DEL CASTILLO, J.:

Bank deposits, which are in the nature of a simple loan or mutuum, 1 must be paid upon
demand by the depositor.2

This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the April 2,
2008 Decision4 and the May 30, 2008 Resolution5 of he Court of Appeals CA) in CA-G.R. CV No.
89086.

Factual Antecedents

Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly
organized and existing under the laws of the Philippines.6 Respondent Ana Grace Rosales
(Rosales) is the owner of China Golden Bridge Travel Services,7 a travel agency.8 Respondent Yo
Yuk To is the mother of respondent Rosales.9

In 2000, respondents opened a Joint Peso Account10 with petitioner’s Pritil-Tondo Branch.11 As
of August 4, 2004, respondents’ Joint Peso Account showed a balance of ₱2,515,693.52. 12

In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National
applying for a retiree’s visa from the Philippine Leisure and Retirement Authority (PLRA), to
petitioner’s branch in Escolta to open a savings account, as required by the PLRA.13 Since Liu
Chiu Fang could speak only in Mandarin, respondent Rosales acted as an interpreter for her. 14

On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a Joint Dollar
Account15 with an initial deposit of US$14,000.00.16

On July 31, 2003, petitioner issued a "Hold Out" order against respondents’ accounts.17
On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan
Aguirre, filed before the Office of the Prosecutor of Manila a criminal case for Estafa through
False Pretences, Misrepresentation, Deceit, and Use of Falsified Documents, docketed as I.S.
No. 03I-25014,18 against respondent Rosales.19 Petitioner accused respondent Rosales and an
unidentified woman as the ones responsible for the unauthorized and fraudulent withdrawal of
US$75,000.00 from Liu Chiu Fang’s dollar account with petitioner’s Escolta Branch.20Petitioner
alleged that on February 5, 2003, its branch in Escolta received from the PLRA a Withdrawal
Clearance for the dollar account of Liu Chiu Fang;21 that in the afternoon of the same day,
respondent Rosales went to petitioner’s Escolta Branch to inform its Branch Head, Celia A.
Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her dollar deposits in
cash;22 that Gutierrez told respondent Rosales to come back the following day because the
bank did not have enough dollars;23 that on February 6, 2003, respondent Rosales accompanied
an unidentified impostor of Liu Chiu Fang to the bank;24 that the impostor was able to withdraw
Liu Chiu Fang’s dollar deposit in the amount of US$75,000.00;25 that on March 3, 2003,
respondents opened a dollar account with petitioner; and that the bank later discovered that
the serial numbers of the dollar notes deposited by respondents in the amount of
US$11,800.00 were the same as those withdrawn by the impostor.26

Respondent Rosales, however, denied taking part in the fraudulent and unauthorized
withdrawal from the dollar account of Liu Chiu Fang.27 Respondent Rosales claimed that she did
not go to the bank on February 5, 2003.28Neither did she inform Gutierrez that Liu Chiu Fang
was going to close her account.29 Respondent Rosales further claimed that after Liu Chiu Fang
opened an account with petitioner, she lost track of her.30 Respondent Rosales’ version of the
events that transpired thereafter is as follows:

On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu Fang was at
the bank to close her account.31 At noon of the same day, respondent Rosales went to the bank
to make a transaction.32 While she was transacting with the teller, she caught a glimpse of a
woman seated at the desk of the Branch Operating Officer, Melinda Perez (Perez). 33 After
completing her transaction, respondent Rosales approached Perez who informed her that Liu
Chiu Fang had closed her account and had already left.34 Perez then gave a copy of the
Withdrawal Clearance issued by the PLRA to respondent Rosales.35 On June 16, 2003,
respondent Rosales received a call from Liu Chiu Fang inquiring about the extension of her PLRA
Visa and her dollar account.36 It was only then that Liu Chiu Fang found out that her account
had been closed without her knowledge.37 Respondent Rosales then went to the bank to inform
Gutierrez and Perez of the unauthorized withdrawal.38 On June 23, 2003, respondent Rosales
and Liu Chiu Fang went to the PLRA Office, where they were informed that the Withdrawal
Clearance was issued on the basis of a Special Power of Attorney (SPA) executed by Liu Chiu
Fang in favor of a certain Richard So.39 Liu Chiu Fang, however, denied executing the SPA.40 The
following day, respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez met at the PLRA Office
to discuss the unauthorized withdrawal.41 During the conference, the bank officers assured Liu
Chiu Fang that the money would be returned to her.42
On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution
dismissing the criminal case for lack of probable cause.43 Unfazed, petitioner moved for
reconsideration.

On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a
Complaint44 for Breach of Obligation and Contract with Damages, docketed as Civil Case No.
04110895 and raffled to Branch 21, against petitioner. Respondents alleged that they
attempted several times to withdraw their deposits but were unable to because petitioner had
placed their accounts under "Hold Out" status.45 No explanation, however, was given by
petitioner as to why it issued the "Hold Out" order.46 Thus, they prayed that the "Hold Out"
order be lifted and that they be allowed to withdraw their deposits.47 They likewise prayed for
actual, moral, and exemplary damages, as well as attorney’s fees.48

Petitioner alleged that respondents have no cause of action because it has a valid reason for
issuing the "Hold Out" order.49 It averred that due to the fraudulent scheme of respondent
Rosales, it was compelled to reimburse Liu Chiu Fang the amount of US$75,000.00 50 and to file
a criminal complaint for Estafa against respondent Rosales.51

While the case for breach of contract was being tried, the City Prosecutor of Manila issued a
Resolution dated February 18, 2005, reversing the dismissal of the criminal complaint.52 An
Information, docketed as Criminal Case No. 05-236103,53 was then filed charging respondent
Rosales with Estafa before Branch 14 of the RTC of Manila.54

Ruling of the Regional Trial Court

On January 15, 2007, the RTC rendered a Decision55 finding petitioner liable for damages for
breach of contract.56The RTC ruled that it is the duty of petitioner to release the deposit to
respondents as the act of withdrawal of a bank deposit is an act of demand by the
creditor.57 The RTC also said that the recourse of petitioner is against its negligent employees
and not against respondents.58 The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering [petitioner]


METROPOLITAN BANK & TRUST COMPANY to allow [respondents] ANA GRACE ROSALES and YO
YUK TO to withdraw their Savings and Time Deposits with the agreed interest, actual damages
of ₱50,000.00, moral damages of ₱50,000.00, exemplary damages of ₱30,000.00 and 10% of
the amount due [respondents] as and for attorney’s fees plus the cost of suit.

The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.

SO ORDERED.59

Ruling of the Court of Appeals

Aggrieved, petitioner appealed to the CA.


On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of actual damages
because "the basis for [respondents’] claim for such damages is the professional fee that they
paid to their legal counsel for [respondent] Rosales’ defense against the criminal complaint of
[petitioner] for estafa before the Office of the City Prosecutor of Manila and not this
case."60 Thus, the CA disposed of the case in this wise:

WHEREFORE, premises considered, the Decision dated January 15, 2007 of the RTC, Branch 21,
Manila in Civil Case No. 04-110895 is AFFIRMED with MODIFICATION that the award of actual
damages to [respondents] Rosales and Yo Yuk To is hereby DELETED.

SO ORDERED.61

Petitioner sought reconsideration but the same was denied by the CA in its May 30, 2008
Resolution.62

Issues

Hence, this recourse by petitioner raising the following issues:

A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION IN THE APPLICATION
AND AGREEMENT FOR DEPOSIT ACCOUNT DOES NOT APPLY IN THIS CASE.

B. THE [CA] ERRED WHEN IT RULED THAT PETITIONER’S EMPLOYEES WERE NEGLIGENT
IN RELEASING LIU CHIU FANG’S FUNDS.

C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES, EXEMPLARY


DAMAGES, AND ATTORNEY’S FEES.63

Petitioner’s Arguments

Petitioner contends that the CA erred in not applying the "Hold Out" clause stipulated in the
Application and Agreement for Deposit Account.64 It posits that the said clause applies to any
and all kinds of obligation as it does not distinguish between obligations arising ex contractu or
ex delictu.65 Petitioner also contends that the fraud committed by respondent Rosales was
clearly established by evidence;66 thus, it was justified in issuing the "Hold-Out"
order.67 Petitioner likewise denies that its employees were negligent in releasing the dollars. 68 It
claims that it was the deception employed by respondent Rosales that caused petitioner’s
employees to release Liu Chiu Fang’s funds to the impostor.69

Lastly, petitioner puts in issue the award of moral and exemplary damages and attorney’s fees.
It insists that respondents failed to prove that it acted in bad faith or in a wanton, fraudulent,
oppressive or malevolent manner.70

Respondents’ Arguments
Respondents, on the other hand, argue that there is no legal basis for petitioner to withhold
their deposits because they have no monetary obligation to petitioner.71 They insist that
petitioner miserably failed to prove its accusations against respondent Rosales.72 In fact, no
documentary evidence was presented to show that respondent Rosales participated in the
unauthorized withdrawal.73 They also question the fact that the list of the serial numbers of the
dollar notes fraudulently withdrawn on February 6, 2003, was not signed or acknowledged by
the alleged impostor.74Respondents likewise maintain that what was established during the
trial was the negligence of petitioner’s employees as they allowed the withdrawal of the funds
without properly verifying the identity of the depositor.75Furthermore, respondents contend
that their deposits are in the nature of a loan; thus, petitioner had the obligation to return the
deposits to them upon demand.76 Failing to do so makes petitioner liable to pay respondents
moral and exemplary damages, as well as attorney’s fees.77

Our Ruling

The Petition is bereft of merit.

At the outset, the relevant issues in this case are (1) whether petitioner breached its contract
with respondents, and (2) if so, whether it is liable for damages. The issue of whether
petitioner’s employees were negligent in allowing the withdrawal of Liu Chiu Fang’s dollar
deposits has no bearing in the resolution of this case. Thus, we find no need to discuss the
same.

The "Hold Out" clause does not apply

to the instant case.

Petitioner claims that it did not breach its contract with respondents because it has a valid
reason for issuing the "Hold Out" order. Petitioner anchors its right to withhold respondents’
deposits on the Application and Agreement for Deposit Account, which reads:

Authority to Withhold, Sell and/or Set Off:

The Bank is hereby authorized to withhold as security for any and all obligations with the Bank,
all monies, properties or securities of the Depositor now in or which may hereafter come into
the possession or under the control of the Bank, whether left with the Bank for safekeeping or
otherwise, or coming into the hands of the Bank in any way, for so much thereof as will be
sufficient to pay any or all obligations incurred by Depositor under the Account or by reason of
any other transactions between the same parties now existing or hereafter contracted, to sell in
any public or private sale any of such properties or securities of Depositor, and to apply the
proceeds to the payment of any Depositor’s obligations heretofore mentioned.

xxxx
JOINT ACCOUNT

xxxx

The Bank may, at any time in its discretion and with or without notice to all of the Depositors,
assert a lien on any balance of the Account and apply all or any part thereof against any
indebtedness, matured or unmatured, that may then be owing to the Bank by any or all of the
Depositors. It is understood that if said indebtedness is only owing from any of the Depositors,
then this provision constitutes the consent by all of the depositors to have the Account answer
for the said indebtedness to the extent of the equal share of the debtor in the amount credited
to the Account.78

Petitioner’s reliance on the "Hold Out" clause in the Application and Agreement for Deposit
Account is misplaced.

The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of
the sources of obligation enumerated in Article 115779 of the Civil Code, to wit: law, contracts,
quasi-contracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents
have an obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And
although a criminal case was filed by petitioner against respondent Rosales, this is not enough
reason for petitioner to issue a "Hold Out" order as the case is still pending and no final
judgment of conviction has been rendered against respondent Rosales. In fact, it is significant to
note that at the time petitioner issued the "Hold Out" order, the criminal complaint had not yet
been filed. Thus, considering that respondent Rosales is not liable under any of the five sources
of obligation, there was no legal basis for petitioner to issue the "Hold Out" order. Accordingly,
we agree with the findings of the RTC and the CA that the "Hold Out" clause does not apply in
the instant case.

In view of the foregoing, we find that petitioner is guilty of breach of contract when it
unjustifiably refused to release respondents’ deposit despite demand. Having breached its
contract with respondents, petitioner is liable for damages.

Respondents are entitled to moral and


exemplary damages and attorney’s fees.1âwphi1

In cases of breach of contract, moral damages may be recovered only if the defendant acted
fraudulently or in bad faith,80 or is "guilty of gross negligence amounting to bad faith, or in
wanton disregard of his contractual obligations."81

In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order
reveals that petitioner issued the "Hold Out" order in bad faith. First of all, the order was issued
without any legal basis. Second, petitioner did not inform respondents of the reason for the
"Hold Out."82 Third, the order was issued prior to the filing of the criminal complaint. Records
show that the "Hold Out" order was issued on July 31, 2003,83 while the criminal complaint was
filed only on September 3, 2003.84 All these taken together lead us to conclude that petitioner
acted in bad faith when it breached its contract with respondents. As we see it then,
respondents are entitled to moral damages.

As to the award of exemplary damages, Article 222985 of the Civil Code provides that exemplary
damages may be imposed "by way of example or correction for the public good, in addition to
the moral, temperate, liquidated or compensatory damages." They are awarded only if the
guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 86

In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive
or malevolent manner when it refused to release the deposits of respondents without any legal
basis. We need not belabor the fact that the banking industry is impressed with public
interest.87 As such, "the highest degree of diligence is expected, and high standards of integrity
and performance are even required of it."88 It must therefore "treat the accounts of its
depositors with meticulous care and always to have in mind the fiduciary nature of its
relationship with them."89 For failing to do this, an award of exemplary damages is justified to
set an example.

The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 220890 of the
Civil Code.

In closing, it must be stressed that while we recognize that petitioner has the right to protect
itself from fraud or suspicions of fraud, the exercise of his right should be done within the
bounds of the law and in accordance with due process, and not in bad faith or in a wanton
disregard of its contractual obligation to respondents.

WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision and the May
30, 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED. SO
ORDERED.

MARIANO C. DEL CASTILLO


Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION JOSE PORTUGAL PEREZ


Associate Justice Associate Justice
ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T CARPIO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson s
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s Division.

MARIA LOURDES P. A. SERENO

Republic of the Philippines


SUPREME COURT
Baguio City

THIRD DIVISION

G.R. No. 179337 April 30, 2008

JOSEPH SALUDAGA, petitioner,


vs.
FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity as President of
FEU, respondents.

DECISION

YNARES-SANTIAGO, J.:

This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the June 29,
2007 Decision2 of the Court of Appeals in CA-G.R. CV No. 87050, nullifying and setting aside the
November 10, 2004 Decision3 of the Regional Trial Court of Manila, Branch 2, in Civil Case No.
98-89483 and dismissing the complaint filed by petitioner; as well as its August 23, 2007
Resolution4 denying the Motion for Reconsideration.5

The antecedent facts are as follows:


Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University
(FEU) when he was shot by Alejandro Rosete (Rosete), one of the security guards on duty at the
school premises on August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical
Foundation (FEU-NRMF) due to the wound he sustained.6Meanwhile, Rosete was brought to
the police station where he explained that the shooting was accidental. He was eventually
released considering that no formal complaint was filed against him.

Petitioner thereafter filed a complaint for damages against respondents on the ground that
they breached their obligation to provide students with a safe and secure environment and an
atmosphere conducive to learning. Respondents, in turn, filed a Third-Party Complaint7 against
Galaxy Development and Management Corporation (Galaxy), the agency contracted by
respondent FEU to provide security services within its premises and Mariano D. Imperial
(Imperial), Galaxy's President, to indemnify them for whatever would be adjudged in favor of
petitioner, if any; and to pay attorney's fees and cost of the suit. On the other hand, Galaxy and
Imperial filed a Fourth-Party Complaint against AFP General Insurance.8

On November 10, 2004, the trial court rendered a decision in favor of petitioner, the dispositive
portion of which reads:

WHEREFORE, from the foregoing, judgment is hereby rendered ordering:

1. FEU and Edilberto de Jesus, in his capacity as president of FEU to pay jointly
and severally Joseph Saludaga the amount of P35,298.25 for actual damages
with 12% interest per annum from the filing of the complaint until fully paid;
moral damages of P300,000.00, exemplary damages of P500,000.00, attorney's
fees of P100,000.00 and cost of the suit;

2. Galaxy Management and Development Corp. and its president, Col. Mariano
Imperial to indemnify jointly and severally 3rd party plaintiffs (FEU and Edilberto
de Jesus in his capacity as President of FEU) for the above-mentioned amounts;

3. And the 4th party complaint is dismissed for lack of cause of action. No
pronouncement as to costs.

SO ORDERED.9

Respondents appealed to the Court of Appeals which rendered the assailed Decision, the
decretal portion of which provides, viz:

WHEREFORE, the appeal is hereby GRANTED. The Decision dated November 10, 2004 is
hereby REVERSED and SET ASIDE. The complaint filed by Joseph Saludaga against
appellant Far Eastern University and its President in Civil Case No. 98-89483 is
DISMISSED.
SO ORDERED.10

Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition
based on the following grounds:

THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY TO LAW AND


JURISPRUDENCE IN RULING THAT:

5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;

5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE INJURY RESULTING FROM
A GUNSHOT WOUND SUFFERED BY THE PETITIONER FROM THE HANDS OF NO LESS
THAN THEIR OWN SECURITY GUARD IN VIOLATION OF THEIR BUILT-IN CONTRACTUAL
OBLIGATION TO PETITIONER, BEING THEIR LAW STUDENT AT THAT TIME, TO PROVIDE
HIM WITH A SAFE AND SECURE EDUCATIONAL ENVIRONMENT;

5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT PETITIONER WHILE HE WAS
WALKING ON HIS WAY TO THE LAW LIBRARY OF RESPONDENT FEU IS NOT THEIR
EMPLOYEE BY VIRTUE OF THE CONTRACT FOR SECURITY SERVICES BETWEEN GALAXY
AND FEU NOTWITHSTANDING THE FACT THAT PETITIONER, NOT BEING A PARTY TO IT,
IS NOT BOUND BY THE SAME UNDER THE PRINCIPLE OF RELATIVITY OF CONTRACTS; and

5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY AS THE AGENCY


WHICH WOULD PROVIDE SECURITY SERVICES WITHIN THE PREMISES OF RESPONDENT
FEU.11

Petitioner is suing respondents for damages based on the alleged breach of student-school
contract for a safe learning environment. The pertinent portions of petitioner's Complaint read:

6.0. At the time of plaintiff's confinement, the defendants or any of their representative
did not bother to visit and inquire about his condition. This abject indifference on the
part of the defendants continued even after plaintiff was discharged from the hospital
when not even a word of consolation was heard from them. Plaintiff waited for more
than one (1) year for the defendants to perform their moral obligation but the wait was
fruitless. This indifference and total lack of concern of defendants served to exacerbate
plaintiff's miserable condition.

xxxx

11.0. Defendants are responsible for ensuring the safety of its students while the latter
are within the University premises. And that should anything untoward happens to any
of its students while they are within the University's premises shall be the responsibility
of the defendants. In this case, defendants, despite being legally and morally bound,
miserably failed to protect plaintiff from injury and thereafter, to mitigate and
compensate plaintiff for said injury;

12.0. When plaintiff enrolled with defendant FEU, a contract was entered into between
them. Under this contract, defendants are supposed to ensure that adequate steps are
taken to provide an atmosphere conducive to study and ensure the safety of the
plaintiff while inside defendant FEU's premises. In the instant case, the latter breached
this contract when defendant allowed harm to befall upon the plaintiff when he was
shot at by, of all people, their security guard who was tasked to maintain peace inside
the campus.12

In Philippine School of Business Administration v. Court of Appeals,13 we held that:

When an academic institution accepts students for enrollment, there is established a


contract between them, resulting in bilateral obligations which both parties are bound
to comply with. For its part, the school undertakes to provide the student with an
education that would presumably suffice to equip him with the necessary tools and
skills to pursue higher education or a profession. On the other hand, the student
covenants to abide by the school's academic requirements and observe its rules and
regulations.

Institutions of learning must also meet the implicit or "built-in" obligation of providing
their students with an atmosphere that promotes or assists in attaining its primary
undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of
physics or higher mathematics or explore the realm of the arts and other sciences when
bullets are flying or grenades exploding in the air or where there looms around the
school premises a constant threat to life and limb. Necessarily, the school must ensure
that adequate steps are taken to maintain peace and order within the campus premises
and to prevent the breakdown thereof.14

It is undisputed that petitioner was enrolled as a sophomore law student in respondent FEU. As
such, there was created a contractual obligation between the two parties. On petitioner's part,
he was obliged to comply with the rules and regulations of the school. On the other hand,
respondent FEU, as a learning institution is mandated to impart knowledge and equip its
students with the necessary skills to pursue higher education or a profession. At the same time,
it is obliged to ensure and take adequate steps to maintain peace and order within the campus.

It is settled that in culpa contractual, the mere proof of the existence of the contract and the
failure of its compliance justify, prima facie, a corresponding right of relief.15 In the instant case,
we find that, when petitioner was shot inside the campus by no less the security guard who was
hired to maintain peace and secure the premises, there is a prima facie showing that
respondents failed to comply with its obligation to provide a safe and secure environment to its
students.
In order to avoid liability, however, respondents aver that the shooting incident was a
fortuitous event because they could not have reasonably foreseen nor avoided the accident
caused by Rosete as he was not their employee;16and that they complied with their obligation
to ensure a safe learning environment for their students by having exercised due diligence in
selecting the security services of Galaxy.

After a thorough review of the records, we find that respondents failed to discharge the burden
of proving that they exercised due diligence in providing a safe learning environment for their
students. They failed to prove that they ensured that the guards assigned in the campus met
the requirements stipulated in the Security Service Agreement. Indeed, certain documents
about Galaxy were presented during trial; however, no evidence as to the qualifications of
Rosete as a security guard for the university was offered.

Respondents also failed to show that they undertook steps to ascertain and confirm that the
security guards assigned to them actually possess the qualifications required in the Security
Service Agreement. It was not proven that they examined the clearances, psychiatric test
results, 201 files, and other vital documents enumerated in its contract with Galaxy. Total
reliance on the security agency about these matters or failure to check the papers stating the
qualifications of the guards is negligence on the part of respondents. A learning institution
should not be allowed to completely relinquish or abdicate security matters in its premises to
the security agency it hired. To do so would result to contracting away its inherent obligation to
ensure a safe learning environment for its students.

Consequently, respondents' defense of force majeure must fail. In order for force majeure to be
considered, respondents must show that no negligence or misconduct was committed that may
have occasioned the loss. An act of God cannot be invoked to protect a person who has failed
to take steps to forestall the possible adverse consequences of such a loss. One's negligence
may have concurred with an act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate cause of the damage or injury was a
fortuitous event would not exempt one from liability. When the effect is found to be partly the
result of a person's participation - whether by active intervention, neglect or failure to act - the
whole occurrence is humanized and removed from the rules applicable to acts of God.17

Article 1170 of the Civil Code provides that those who are negligent in the performance of their
obligations are liable for damages. Accordingly, for breach of contract due to negligence in
providing a safe learning environment, respondent FEU is liable to petitioner for damages. It is
essential in the award of damages that the claimant must have satisfactorily proven during the
trial the existence of the factual basis of the damages and its causal connection to defendant's
acts.18

In the instant case, it was established that petitioner spent P35,298.25 for his hospitalization
and other medical expenses.19 While the trial court correctly imposed interest on said amount,
however, the case at bar involves an obligation arising from a contract and not a loan or
forbearance of money. As such, the proper rate of legal interest is six percent (6%) per annum
of the amount demanded. Such interest shall continue to run from the filing of the complaint
until the finality of this Decision.20 After this Decision becomes final and executory, the
applicable rate shall be twelve percent (12%) per annum until its satisfaction.

The other expenses being claimed by petitioner, such as transportation expenses and those
incurred in hiring a personal assistant while recuperating were however not duly supported by
receipts.21 In the absence thereof, no actual damages may be awarded. Nonetheless,
temperate damages under Art. 2224 of the Civil Code may be recovered where it has been
shown that the claimant suffered some pecuniary loss but the amount thereof cannot be
proved with certainty. Hence, the amount of P20,000.00 as temperate damages is awarded to
petitioner.

As regards the award of moral damages, there is no hard and fast rule in the determination of
what would be a fair amount of moral damages since each case must be governed by its own
peculiar circumstances.22 The testimony of petitioner about his physical suffering, mental
anguish, fright, serious anxiety, and moral shock resulting from the shooting incident 23 justify
the award of moral damages. However, moral damages are in the category of an award
designed to compensate the claimant for actual injury suffered and not to impose a penalty on
the wrongdoer. The award is not meant to enrich the complainant at the expense of the
defendant, but to enable the injured party to obtain means, diversion, or amusements that will
serve to obviate the moral suffering he has undergone. It is aimed at the restoration, within the
limits of the possible, of the spiritual status quo ante, and should be proportionate to the
suffering inflicted. Trial courts must then guard against the award of exorbitant damages; they
should exercise balanced restrained and measured objectivity to avoid suspicion that it was due
to passion, prejudice, or corruption on the part of the trial court.24 We deem it just and
reasonable under the circumstances to award petitioner moral damages in the amount of
P100,000.00.

Likewise, attorney's fees and litigation expenses in the amount of P50,000.00 as part of
damages is reasonable in view of Article 2208 of the Civil Code.25 However, the award of
exemplary damages is deleted considering the absence of proof that respondents acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.

We note that the trial court held respondent De Jesus solidarily liable with respondent FEU.
In Powton Conglomerate, Inc. v. Agcolicol,26 we held that:

[A] corporation is invested by law with a personality separate and distinct from those of
the persons composing it, such that, save for certain exceptions, corporate officers who
entered into contracts in behalf of the corporation cannot be held personally liable for
the liabilities of the latter. Personal liability of a corporate director, trustee or officer
along (although not necessarily) with the corporation may so validly attach, as a rule,
only when - (1) he assents to a patently unlawful act of the corporation, or when he is
guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict
of interest resulting in damages to the corporation, its stockholders or other persons; (2)
he consents to the issuance of watered down stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto; (3) he
agrees to hold himself personally and solidarily liable with the corporation; or (4) he is
made by a specific provision of law personally answerable for his corporate action. 27

None of the foregoing exceptions was established in the instant case; hence, respondent De
Jesus should not be held solidarily liable with respondent FEU.

Incidentally, although the main cause of action in the instant case is the breach of the school-
student contract, petitioner, in the alternative, also holds respondents vicariously liable under
Article 2180 of the Civil Code, which provides:

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own
acts or omissions, but also for those of persons for whom one is responsible.

xxxx

Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or industry.

xxxx

The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to
prevent damage.

We agree with the findings of the Court of Appeals that respondents cannot be held liable for
damages under Art. 2180 of the Civil Code because respondents are not the employers of
Rosete. The latter was employed by Galaxy. The instructions issued by respondents' Security
Consultant to Galaxy and its security guards are ordinarily no more than requests commonly
envisaged in the contract for services entered into by a principal and a security agency. They
cannot be construed as the element of control as to treat respondents as the employers of
Rosete.28

As held in Mercury Drug Corporation v. Libunao:29

In Soliman, Jr. v. Tuazon,30 we held that where the security agency recruits, hires and
assigns the works of its watchmen or security guards to a client, the employer of such
guards or watchmen is such agency, and not the client, since the latter has no hand in
selecting the security guards. Thus, the duty to observe the diligence of a good father of
a family cannot be demanded from the said client:
… [I]t is settled in our jurisdiction that where the security agency, as here,
recruits, hires and assigns the work of its watchmen or security guards, the
agency is the employer of such guards or watchmen. Liability for illegal or
harmful acts committed by the security guards attaches to the employer agency,
and not to the clients or customers of such agency. As a general rule, a client or
customer of a security agency has no hand in selecting who among the pool of
security guards or watchmen employed by the agency shall be assigned to it; the
duty to observe the diligence of a good father of a family in the selection of the
guards cannot, in the ordinary course of events, be demanded from the client
whose premises or property are protected by the security guards.

xxxx

The fact that a client company may give instructions or directions to the security guards
assigned to it, does not, by itself, render the client responsible as an employer of the
security guards concerned and liable for their wrongful acts or omissions.31

We now come to respondents' Third Party Claim against Galaxy. In Firestone Tire and Rubber
Company of the Philippines v. Tempengko,32 we held that:

The third-party complaint is, therefore, a procedural device whereby a 'third party' who
is neither a party nor privy to the act or deed complained of by the plaintiff, may be
brought into the case with leave of court, by the defendant, who acts as third-party
plaintiff to enforce against such third-party defendant a right for contribution,
indemnity, subrogation or any other relief, in respect of the plaintiff's claim. The third-
party complaint is actually independent of and separate and distinct from the plaintiff's
complaint. Were it not for this provision of the Rules of Court, it would have to be filed
independently and separately from the original complaint by the defendant against the
third-party. But the Rules permit defendant to bring in a third-party defendant or so to
speak, to litigate his separate cause of action in respect of plaintiff's claim against a
third-party in the original and principal case with the object of avoiding circuitry of
action and unnecessary proliferation of law suits and of disposing expeditiously in one
litigation the entire subject matter arising from one particular set of facts.33

Respondents and Galaxy were able to litigate their respective claims and defenses in the course
of the trial of petitioner's complaint. Evidence duly supports the findings of the trial court that
Galaxy is negligent not only in the selection of its employees but also in their supervision.
Indeed, no administrative sanction was imposed against Rosete despite the shooting incident;
moreover, he was even allowed to go on leave of absence which led eventually to his
disappearance.34 Galaxy also failed to monitor petitioner's condition or extend the necessary
assistance, other than the P5,000.00 initially given to petitioner. Galaxy and Imperial failed to
make good their pledge to reimburse petitioner's medical expenses.
For these acts of negligence and for having supplied respondent FEU with an unqualified
security guard, which resulted to the latter's breach of obligation to petitioner, it is proper to
hold Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned
amounts awarded to petitioner.

Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being
grossly negligent in directing the affairs of the security agency. It was Imperial who assured
petitioner that his medical expenses will be shouldered by Galaxy but said representations were
not fulfilled because they presumed that petitioner and his family were no longer interested in
filing a formal complaint against them.35

WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of the Court of Appeals in
CA-G.R. CV No. 87050 nullifying the Decision of the trial court and dismissing the complaint as
well as the August 23, 2007 Resolution denying the Motion for Reconsideration are REVERSED
and SET ASIDE. The Decision of the Regional Trial Court of Manila, Branch 2, in Civil Case No.
98-89483 finding respondent FEU liable for damages for breach of its obligation to provide
students with a safe and secure learning atmosphere, is AFFIRMED with the
following MODIFICATIONS:

a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner actual damages in the
amount of P35,298.25, plus 6% interest per annum from the filing of the complaint until the
finality of this Decision. After this decision becomes final and executory, the applicable rate
shall be twelve percent (12%) per annum until its satisfaction;

b. respondent FEU is also ORDERED to pay petitioner temperate damages in the amount of
P20,000.00; moral damages in the amount of P100,000.00; and attorney's fees and litigation
expenses in the amount of P50,000.00;

c. the award of exemplary damages is DELETED.

The Complaint against respondent Edilberto C. De Jesus is DISMISSED. The counterclaims of


respondents are likewise DISMISSED.

Galaxy Development and Management Corporation (Galaxy) and its president, Mariano D.
Imperial are ORDEREDto jointly and severally pay respondent FEU damages equivalent to the
above-mentioned amounts awarded to petitioner.

SO ORDERED.

Republic of the Philippines


Supreme Court
Manila
THIRD DIVISION

MANILA ELECTRIC COMPANY,


G.R. No. 158911
Petitioner,
Present:

- versus - YNARES-SANTIAGO, J.,


Chairperson,
AUSTRIA-MARTINEZ,
MATILDE MACABAGDAL RAMOY, CHICO-NAZARIO,
BIENVENIDO RAMOY, ROMANA NACHURA, and
RAMOY-RAMOS, ROSEMARIE REYES, JJ.
RAMOY, OFELIA DURIAN and
CYRENE PANADO, Promulgated:
Respondents. March 4, 2008
x--------------------------------------------------x
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the
Decision[1]of the Court of Appeals (CA) dated December 16, 2002, ordering petitioner Manila Electric
Company (MERALCO) to pay Leoncio Ramoy[2] moral and exemplary damages and attorney's fees, and the
CA Resolution[3] dated July 1, 2003, denying petitioner's motion for reconsideration, be reversed and set
aside.

The Regional Trial Court (RTC) of Quezon City, Branch 81, accurately summarized the facts as culled from
the records, thus:

The evidence on record has established that in the year 1987 the National Power Corporation (NPC) filed
with the MTC Quezon City a case for ejectment against several persons allegedly illegally occupying its
properties in Baesa, Quezon City.Among the defendants in the ejectment case was Leoncio Ramoy, one of
the plaintiffs in the case at bar. On April 28, 1989after the defendants failed to file an answer in spite of
summons duly served, the MTC Branch 36, Quezon City rendered judgment for the plaintiff [MERALCO]
and ordering the defendants to demolish or remove the building and structures they built on the land of
the plaintiff and to vacate the premises. In the case of Leoncio Ramoy, the Court found that he was
occupying a portion of Lot No. 72-B-2-B with the exact location of his apartments indicated and encircled
in the location map as No. 7. A copy of the decision was furnished Leoncio Ramoy (Exhibits 2, 2-A, 2-B, 2-C,
pp. 128-131, Record; TSN, July 2, 1993, p. 5).

On June 20, 1990 NPC wrote Meralco requesting for the immediate disconnection of
electric power supply to all residential and commercial establishments beneath the NPC
transmission lines along Baesa, Quezon City (Exh. 7, p. 143, Record).Attached to the letter
was a list of establishments affected which included
plaintiffs Leoncio and Matilde Ramoy (Exh. 9), as well as a copy of the court decision (Exh.
2). After deliberating on NPC's letter, Meralco decided to comply with NPC'srequest
(Exhibits 6, 6-A, 6-A-1, 6-B) and thereupon issued notices of disconnection to all
establishments affected including plaintiffs Leoncio Ramoy (Exhs. 3, 3-A to 3-
C), Matilde Ramoy/Matilde Macabagdal (Exhibits 3-D to 3-E), Rosemarie Ramoy (Exh. 3-F),
Ofelia Durian (Exh. 3-G), Jose Valiza (Exh. 3-H) and Cyrene S. Panado (Exh. 3-I).

In a letter dated August 17, 1990 Meralco requested NPC for a joint survey to determine all
the establishments which are considered under NPC property in view of the fact that the
houses in the area are very close to each other (Exh. 12). Shortly thereafter, a joint survey
was conducted and the NPC personnel pointed out the electric meters to be disconnected
(Exh. 13; TSN, October 8, 1993, p. 7; TSN, July 1994, p. 8).

In due time, the electric service connection of the plaintiffs [herein respondents] was
disconnected (Exhibits D to G, with submarkings, pp. 86-87, Record).

Plaintiff Leoncio Ramoy testified that he and his wife are the registered owners of a parcel
of land covered by TCT No. 326346, a portion of which was occupied by plaintiffs
Rosemarie Ramoy, Ofelia Durian, Jose Valiza and Cyrene S. Panadoas lessees. When
the Meralco employees were disconnecting plaintiffs' power connection,
plaintiff Leoncio Ramoy objected by informing the Meralco foreman that his property was
outside the NPC property and pointing out the monuments showing the boundaries of his
property. However, he was threatened and told not to interfere by the armed men who
accompanied the Meralco employees. After the electric power in Ramoy's apartment was
cut off, the plaintiffs-lessees left the premises.

During the ocular inspection ordered by the Court and attended by the parties, it was found
out that the residence of plaintiffs-spouses Leoncio and Matilde Ramoy was indeed outside
the NPC property. This was confirmed by defendant's witness R.P. Monsale III on cross-
examination (TSN, October 13, 1993, pp. 10 and 11). Monsale also admitted that he did not
inform his supervisor about this fact nor did he recommend re-connection of plaintiffs'
power supply (Ibid., p. 14).
The record also shows that at the request of NPC, defendant Meralco re-connected the
electric service of four customers previously disconnected none of whom was any of the
plaintiffs (Exh. 14).[4]

The RTC decided in favor of MERALCO by dismissing herein respondents' claim for moral damages,
exemplary damages and attorney's fees. However, the RTC ordered MERALCO to restore the electric power
supply of respondents.

Respondents then appealed to the CA. In its Decision dated December 16, 2002, the CA faulted MERALCO
for not requiring from National Power Corporation (NPC) a writ of execution or demolition and in not
coordinating with the court sheriff or other proper officer before complying with the NPC's request. Thus,
the CA held MERALCO liable for moral and exemplary damages and attorney's fees. MERALCO's motion for
reconsideration of the Decision was denied per Resolution dated July 1, 2003.

Hence, herein petition for review on certiorari on the following grounds:

I
THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND MERALCO NEGLIGENT WHEN
IT DISCONNECTED THE SUBJECT ELECTRIC SERVICE OF RESPONDENTS.

II
THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED MORAL AND EXEMPLARY
DAMAGES AND ATTORNEY'S FEES AGAINST MERALCO UNDER THE CIRCUMSTANCES
THAT THE LATTER ACTED IN GOOD FAITH IN THE DISCONNECTION OF THE ELECTRIC
SERVICES OF THE RESPONDENTS. [5]

The petition is partly meritorious.

MERALCO admits[6] that respondents are its customers under a Service Contract whereby it is obliged to
supply respondents with electricity. Nevertheless, upon request of the NPC, MERALCO disconnected its
power supply to respondents on the ground that they were illegally occupying the NPC's right of way. Under
the Service Contract, [a] customer of electric service must show his right or proper interest over the property
in order that he will be provided with and assured a continuous electric service.[7] MERALCO argues that
since there is a Decision of the Metropolitan Trial Court (MTC) of Quezon City ruling that herein respondents
were among the illegal occupants of the NPC's right of way, MERALCO was justified in cutting off service to
respondents.

Clearly, respondents' cause of action against MERALCO is anchored on culpa contractual or breach of
contract for the latter's discontinuance of its service to respondents under Article 1170 of the Civil Code
which provides:

Article 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are liable
for damages.

In Radio Communications of the Philippines, Inc. v. Verchez,[8] the Court expounded on the nature
of culpa contractual, thus:
In culpa contractual x x x the mere proof of the existence of the contract and the failure of
its compliance justify, prima facie, a corresponding right of relief. The law, recognizing the
obligatory force of contracts, will not permit a party to be set free from liability for any kind
of misperformance of the contractual undertaking or a contravention of the tenor
thereof. A breach upon the contract confers upon the injured party a valid cause for
recovering that which may have been lost or suffered. The remedy serves to preserve the
interests of the promissee that may include his expectation interest, which is his interest in
having the benefit of his bargain by being put in as good a position as he would have been
in had the contract been performed, or his reliance interest, which is his interest in being
reimbursed for loss caused by reliance on the contract by being put in as good a position as
he would have been in had the contract not been made; or his restitution interest, which
is his interest in having restored to him any benefit that he has conferred on the other
party. Indeed, agreements can accomplish little, either for their makers or for society,
unless they are made the basis for action. The effect of every infraction is to create a new
duty, that is, to make recompense to the one who has been injured by the failure of another
to observe his contractual obligation unless he can show extenuating circumstances,
like proof of his exercise of due diligence x x x or of the attendance of fortuitous event, to
excuse him from his ensuing liability.[9] (Emphasis supplied)
Article 1173 also provides that the fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of the persons, of
the time and of the place. The Court emphasized in Ridjo Tape & Chemical Corporation v. Court
of Appeals[10] that as a public utility, MERALCO has the obligation to discharge its functions with utmost care
and diligence.[11]

The Court agrees with the CA that under the factual milieu of the present case, MERALCO failed to exercise
the utmost degree of care and diligence required of it. To repeat, it was not enough for MERALCO to merely
rely on the Decision of the MTC without ascertaining whether it had become final and executory. Verily,
only upon finality of said Decision can it be said with conclusiveness that respondents have no right or proper
interest over the subject property, thus, are not entitled to the services of MERALCO.

Although MERALCO insists that the MTC Decision is final and executory, it never showed any documentary
evidence to support this allegation. Moreover, if it were true that the decision was final and executory, the
most prudent thing for MERALCO to have done was to coordinate with the proper court officials in
determining which structures are covered by said court order. Likewise, there is no evidence on record to
show that this was done by MERALCO.

The utmost care and diligence required of MERALCO necessitates such great degree of prudence on its
part, and failure to exercise the diligence required means that MERALCO was at fault and negligent in the
performance of its obligation. In Ridjo Tape,[12] the Court explained:

[B]eing a public utility vested with vital public interest, MERALCO is impressed with certain
obligations towards its customers and any omission on its part to perform such duties
would be prejudicial to its interest. For in the final analysis, the bottom line is that those
who do not exercise such prudence in the discharge of their duties shall be made to bear
the consequences of such oversight.[13]

This being so, MERALCO is liable for damages under Article 1170 of the Civil Code.

The next question is: Are respondents entitled to moral and exemplary damages and attorney's fees?

Article 2220 of the Civil Code provides:


Article 2220. Willful injury to property may be a legal ground for
awarding moral damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract where the defendant
acted fraudulently or in bad faith.

In the present case, MERALCO wilfully caused injury to Leoncio Ramoy by withholding from him and
his tenants the supply of electricity to which they were entitled under the Service Contract. This is contrary
to public policy because, as discussed above, MERALCO, being a vital public utility, is expected to exercise
utmost care and diligence in the performance of its obligation. It was incumbent upon MERALCO to do
everything within its power to ensure that the improvements built by respondents are within the NPCs right
of way before disconnecting their power supply.The Court emphasized in Samar II Electric Cooperative, Inc.
v. Quijano[14] that:

Electricity is a basic necessity the generation and distribution of which is imbued with public
interest, and its provider is a public utility subject to strict regulation by the State in the
exercise of police power. Failure to comply with these regulations will give rise to the
presumption of bad faith or abuse of right.[15] (Emphasis supplied)

Thus, by analogy, MERALCO's failure to exercise utmost care and diligence in the performance of its
obligation to Leoncio Ramoy, its customer, is tantamount to bad faith. Leoncio Ramoy testified that he
suffered wounded feelings because of MERALCO's actions.[16] Furthermore, due to the lack of power supply,
the lessees of his four apartments on subject lot left the premises.[17] Clearly, therefore, Leoncio Ramoy is
entitled to moral damages in the amount awarded by the CA.

Leoncio Ramoy, the lone witness for respondents, was the only one who testified regarding the effects on
him ofMERALCO's electric service disconnection. His co-respondents Matilde Ramoy,
Rosemarie Ramoy, Ofelia Durian and Cyrene Panado did not present any evidence of damages they
suffered.

It is a hornbook principle that damages may be awarded only if proven. In Mahinay v. Velasquez,
Jr.,[18] the Court held thus:
In order that moral damages may be awarded, there must be pleading and proof of moral
suffering, mental anguish, fright and the like. While respondent alleged in his complaint
that he suffered mental anguish, serious anxiety, wounded feelings and moral shock, he
failed to prove them during the trial. Indeed, respondent should have taken the witness
stand and should have testified on the mental anguish, serious anxiety, wounded feelings
and other emotional and mental suffering he purportedly suffered to sustain his claim for
moral damages. Mere allegations do not suffice; they must be substantiated by clear and
convincing proof. No other person could have proven such damages except the
respondent himself as they were extremely personal to him.

In Keirulf vs. Court of Appeals, we held:

While no proof of pecuniary loss is necessary in order that moral damages


may be awarded, the amount of indemnity being left to the discretion of
the court, it is nevertheless essential that the claimant should satisfactorily
show the existence of the factual basis of damages and its causal
connection to defendants acts. This is so because moral damages, though
incapable of pecuniary estimation, are in the category of an award
designed to compensate the claimant for actual injury suffered and not to
impose a penalty on the wrongdoer. In Francisco vs. GSIS, the Court held
that there must be clear testimony on the anguish and other forms of
mental suffering. Thus, if the plaintiff fails to take the witness stand and
testify as to his/her social humiliation, wounded feelings and anxiety,
moral damages cannot be awarded. In Cocoland Development
Corporation vs. National Labor Relations Commission, the Court held that
additional facts must be pleaded and proven to warrant the grant of moral
damages under the Civil Code, these being, x x x social humiliation,
wounded feelings, grave anxiety, etc. that resulted therefrom.

x x x The award of moral damages must be anchored to a clear showing that


respondent actually experienced mental anguish, besmirched reputation,
sleepless nights, wounded feelings or similar injury. There was no better witness
to this experience than respondent himself. Since respondent failed to testify on
the witness stand, the trial court did not have any factual basis to award moral
damages to him.[19] (Emphasis supplied)

Thus, only respondent Leoncio Ramoy, who testified as to his wounded feelings, may be
awarded moral damages.[20]
With regard to exemplary damages, Article 2232 of the Civil Code provides that in contracts and quasi-
contracts, the court may award exemplary damages if the defendant, in this case MERALCO, acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner, while Article 2233 of the same Code
provides that such damages cannot be recovered as a matter of right and the adjudication of the same is
within the discretion of the court.

The Court finds that MERALCO fell short of exercising the due diligence required, but its actions
cannot be considered wanton, fraudulent, reckless, oppressive or malevolent. Records show that MERALCO
did take some measures, i.e., coordinating with NPC officials and conducting a joint survey of the subject
area, to verify which electric meters should be disconnected although these measures are not sufficient,
considering the degree of diligence required of it. Thus, in this case, exemplary damages should not be
awarded.

Since the Court does not deem it proper to award exemplary damages in this case, then the CA's award for
attorney's fees should likewise be deleted, as Article 2208 of the Civil Code states that in the absence of
stipulation, attorney's fees cannot be recovered except in cases provided for in said Article, to wit:

Article 2208. In the absence of stipulation, attorneys fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;


(2) When the defendants act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy
the plaintiffs plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;
(8) In actions for indemnity under workmens compensation and employers liability
laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorneys
fees and expenses of litigation should be recovered.

In all cases, the attorneys fees and expenses of litigation must be reasonable.

None of the grounds for recovery of attorney's fees are present.

WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of Appeals
is AFFIRMEDwith MODIFICATION. The award for exemplary damages and attorney's fees is DELETED.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-23749 April 29, 1977


FAUSTINO CRUZ, plaintiff-appellant,
vs.
J. M. TUASON & COMPANY, INC., and GREGORIO ARANETA, INC., defendants-appellees.

BARREDO, J.:

Appeal from the order dated August 13, 1964 of the Court of First Instance of Quezon City in
Civil Case No. Q-7751, Faustino Cruz vs. J.M. Tuason & Co., Inc., and Gregorio Araneta, Inc.,
dismissing the complaint of appellant Cruz for the recovery of improvements he has made on
appellees' land and to compel appellees to convey to him 3,000 square meters of land on three
grounds: (1) failure of the complaint to state a cause of action; (2) the cause of action of
plaintiff is unenforceable under the Statute of Frauds; and (3) the action of the plaintiff has
already prescribed.

Actually, a perusal of plaintiff-appellant's complaint below shows that he alleged two separate
causes of action, namely: (1) that upon request of the Deudors (the family of Telesforo Deudor
who laid claim on the land in question on the strength of an "informacion posesoria" ) plaintiff
made permanent improvements valued at P30,400.00 on said land having an area of more or
less 20 quinones and for which he also incurred expenses in the amount of P7,781.74, and since
defendants-appellees are being benefited by said improvements, he is entitled to
reimbursement from them of said amounts and (2) that in 1952, defendants availed of
plaintiff's services as an intermediary with the Deudors to work for the amicable settlement of
Civil Case No. Q-135, then pending also in the Court of First Instance of Quezon City, and
involving 50 quinones of land, of Which the 20 quinones aforementioned form part, and
notwithstanding his having performed his services, as in fact, a compromise agreement entered
into on March 16, 1963 between the Deudors and the defendants was approved by the court,
the latter have refused to convey to him the 3,000 square meters of land occupied by him, (a
part of the 20 quinones above) which said defendants had promised to do "within ten years
from and after date of signing of the compromise agreement", as consideration for his services.

Within the Period allowed by the rules, the defendants filed separate motions to dismiss
alleging three Identical grounds: (1) As regards that improvements made by plaintiff, that the
complaint states no cause of action, the agreement regarding the same having been made by
plaintiff with the Deudors and not with the defendants, hence the theory of plaintiff based on
Article 2142 of the Code on unjust enrichment is untenable; and (2) anent the alleged
agreement about plaintiffs services as intermediary in consideration of which, defendants
promised to convey to him 3,000 square meters of land, that the same is unenforceable under
the Statute of Frauds, there being nothing in writing about it, and, in any event, (3) that the
action of plaintiff to compel such conveyance has already prescribed.

Plaintiff opposed the motion, insisting that Article 2142 of the applicable to his case; that the
Statute of Frauds cannot be invoked by defendants, not only because Article 1403 of the Civil
Code refers only to "sale of real property or of an interest therein" and not to promises to
convey real property like the one supposedly promised by defendants to him, but also because,
he, the plaintiff has already performed his part of the agreement, hence the agreement has
already been partly executed and not merely executory within the contemplation of the
Statute; and that his action has not prescribed for the reason that defendants had ten years to
comply and only after the said ten years did his cause of action accrue, that is, ten years after
March 16, 1963, the date of the approval of the compromise agreement, and his complaint was
filed on January 24, 1964.

Ruling on the motion to dismiss, the trial court issued the herein impugned order of August 13,
1964:

In the motion, dated January 31, 1964, defendant Gregorio Araneta, Inc. prayed
that the complaint against it be dismissed on the ground that (1) the claim on
which the action is founded is unenforceable under the provision of the Statute
of Frauds; and (2) the plaintiff's action, if any has already prescribed. In the other
motion of February 11, 1964, defendant J. M. Tuason & Co., Inc. sought the
dismissal of the plaintiffs complaint on the ground that it states no cause of
action and on the Identical grounds stated in the motion to dismiss of defendant
Gregorio Araneta, Inc. The said motions are duly opposed by the plaintiff.

From the allegations of the complaint, it appears that, by virtue of an agreement


arrived at in 1948 by the plaintiff and the Deudors, the former assisted the latter
in clearing, improving, subdividing and selling the large tract of land consisting of
50 quinones covered by the informacion posesoria in the name of the late
Telesforo Deudor and incurred expenses, which are valued approximately at
P38,400.00 and P7,781.74, respectively; and, for the reasons that said
improvements are being used and enjoyed by the defendants, the plaintiff is
seeking the reimbursement for the services and expenses stated above from the
defendants.

Defendant J. M. Tuason & Co., Inc. claimed that, insofar as the plaintiffs claim for
the reimbursement of the amounts of P38,400.00 and P7,781.74 is concerned, it
is not a privy to the plaintiff's agreement to assist the Deudors n improving the
50 quinones. On the other hand, the plaintiff countered that, by holding and
utilizing the improvements introduced by him, the defendants are unjustly
enriching and benefiting at the expense of the plaintiff; and that said
improvements constitute a lien or charge of the property itself

On the issue that the complaint insofar as it claims the reimbursement for the
services rendered and expenses incurred by the plaintiff, states no cause of
action, the Court is of the opinion that the same is well-founded. It is found that
the defendants are not parties to the supposed express contract entered into by
and between the plaintiff and the Deudors for the clearing and improvement of
the 50 quinones. Furthermore in order that the alleged improvement may be
considered a lien or charge on the property, the same should have been made in
good faith and under the mistake as to the title. The Court can take judicial
notice of the fact that the tract of land supposedly improved by the plaintiff had
been registered way back in 1914 in the name of the predecessors-in-interest of
defendant J. M. Tuason & Co., Inc. This fact is confirmed in the decision rendered
by the Supreme Court on July 31, 1956 in Case G. R. No. L-5079 entitled J.M.
Tuason & Co. Inc. vs. Geronimo Santiago, et al., Such being the case, the plaintiff
cannot claim good faith and mistake as to the title of the land.

On the issue of statute of fraud, the Court believes that same is applicable to the
instant case. The allegation in par. 12 of the complaint states that the
defendants promised and agreed to cede, transfer and convey unto the plaintiff
the 3,000 square meters of land in consideration of certain services to be
rendered then. it is clear that the alleged agreement involves an interest in real
property. Under the provisions of See. 2(e) of Article 1403 of the Civil Code, such
agreement is not enforceable as it is not in writing and subscribed by the party
charged.

On the issue of statute of limitations, the Court holds that the plaintiff's action
has prescribed. It is alleged in par. 11 of the complaint that, sometime in 1952,
the defendants approached the plaintiff to prevail upon the Deudors to enter to
a compromise agreement in Civil Case No. Q-135 and allied cases. Furthermore,
par. 13 and 14 of the complaint alleged that the plaintiff acted as emissary of
both parties in conveying their respective proposals and couter-proposals until
the final settlement was effected on March 16, 1953 and approved by Court on
April 11, 1953. In the present action, which was instituted on January 24, 1964,
the plaintiff is seeking to enforce the supposed agreement entered into between
him and the defendants in 1952, which was already prescribed.

WHEREFORE, the plaintiffs complaint is hereby ordered DISMISSED without


pronouncement as to costs.

SO ORDERED. (Pp. 65-69, Rec. on Appeal,)


On August 22, 1964, plaintiff's counsel filed a motion for reconsideration dated August 20, 1964
as follows:

Plaintiff through undersigned counsel and to this Honorable Court, respectfully


moves to reconsider its Order bearing date of 13 August 1964, on the following
grounds:

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION AGAINST


DEFENDANTS IN SO FAR AS PLAINTIFF'S CLAIM PAYMENT OF SERVICES AND
REIMBURSEMENT OF HIS EXPENSES, IS CONCERNED;

II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS., THE SAME HAS
NOT PRESCRIBED AND THE STATUTE OF FRAUDS IS NOT APPLICABLE THERETO;

ARGUMENT

Plaintiff's complaint contains two (2) causes of action — the first being an action
for sum of money in the amount of P7,781.74 representing actual expenses and
P38,400.00 as reasonable compensation for services in improving the 50
quinones now in the possession of defendants. The second cause of action deals
with the 3,000 sq. ms. which defendants have agreed to transfer into Plaintiff for
services rendered in effecting the compromise between the Deudors and
defendants;

Under its order of August 3, 1964, this Honorable Court dismissed the claim for
sum of money on the ground that the complaint does not state a cause of action
against defendants. We respectfully submit:

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION AGAINST


DEFENDANTS IN SO FAR AS PLAINTIFF'S CLAIM FOR PAYMENT OF SERVICES AND
REIMBURSEMENT OF HIS EXPENSES IS CONCERNED.

Said this Honorable Court (at p. 2, Order):

ORDER

xxx xxx xxx

On the issue that the complaint, in so far as it claims the reimbursement for the
services rendered and expenses incurred by the plaintiff, states no cause of
action, the Court is of the opinion that the same is well-founded. It is found that
the defendants are not parties to the supposed express contract entered into by
and between the plaintiff and the Deudors for the clearing and improvement of
the 50 quinones. Furthermore, in order that the alleged improvement may he
considered a lien or charge on the property, the same should have been made in
good faith and under the mistake as to title. The Court can take judicial notice of
the fact that the tract of land supposedly improved by the plaintiff had been
registered way back in 1914 in the name of the predecessors-in-interest of
defendant J. M. Tuason & Co., Inc. This fact is confirmed in the decision rendered
by the Supreme Court on July 31, 1956 in case G. R. No. L-5079 entitled 'J M.
Tuason & Co., Inc. vs, Geronimo Santiago, et al.' Such being the case, the plaintiff
cannot claim good faith and mistake as to the title of the land.

The position of this Honorable Court (supra) is that the complaint does not state
a cause of action in so far as the claim for services and expenses is concerned
because the contract for the improvement of the properties was solely between
the Deudors and plaintiff, and defendants are not privies to it. Now, plaintiff's
theory is that defendants are nonetheless liable since they are utilizing and
enjoying the benefit's of said improvements. Thus under paragraph 16 of "he
complaint, it is alleged:

(16) That the services and personal expenses of plaintiff


mentioned in paragraph 7 hereof were rendered and in fact paid
by him to improve, as they in fact resulted in considerable
improvement of the 50 quinones, and defendants being now in
possession of and utilizing said improvements should reimburse
and pay plaintiff for such services and expenses.

Plaintiff's cause of action is premised inter alia, on the theory of unjust


enrichment under Article 2142 of the civil Code:

ART. 2142. Certain lawful voluntary and unilateral acts give rise to
the juridical relation of quasi-contract to the end that no one shill
be unjustly enriched or benefited at the expense of another.

In like vein, Article 19 of the same Code enjoins that:

ART. 19. Every person must, in the exercise of his rights and in the performance
of his duties, act with justice, give every-one his due and observe honesty and
good faith.

We respectfully draw the attention of this Honorable Court to the fact that
ARTICLE 2142 (SUPRA) DEALS WITH QUASI-CONTRACTS or situations WHERE
THERE IS NO CONTRACT BETWEEN THE PARTIES TO THE ACTION. Further, as we
can readily see from the title thereof (Title XVII), that the Same bears the
designation 'EXTRA CONTRACTUAL OBLIGATIONS' or obligations which do not
arise from contracts. While it is true that there was no agreement between
plaintiff and defendants herein for the improvement of the 50 quinones since
the latter are presently enjoying and utilizing the benefits brought about through
plaintiff's labor and expenses, defendants should pay and reimburse him
therefor under the principle that 'no one may enrich himself at the expense of
another.' In this posture, the complaint states a cause of action against the
defendants.

II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS. THE SAME HAS
NOT PRESCRIBED AND THE STATUTE OF FRAUDS IS NOT APPLICABLE THERETO.

The Statute of Frauds is CLEARLY inapplicable to this case:

At page 2 of this Honorable Court's order dated 13 August 1964, the Court ruled
as follows:

ORDER

xxx xxx xxx

On the issue of statute of fraud, the Court believes that same is


applicable to the instant Case, The allegation in par. 12 of the
complaint states that the defendants promised and agree to cede,
transfer and convey unto the plaintiff, 3,000 square meters of
land in consideration of certain services to be rendered then. It is
clear that the alleged agreement involves an interest in real
property. Under the provisions of Sec. 2(e) of Article 1403 of the
Civil Code, such agreement is not enforceable as it is not in writing
and subscribed by the party charged.

To bring this issue in sharper focus, shall reproduce not only paragraph 12 of the
complaint but also the other pertinent paragraphs therein contained. Paragraph
12 states thus:

COMPLAINT

xxx xxx xxx

12). That plaintiff conferred with the aforesaid representatives of defendants


several times and on these occasions, the latter promised and agreed to cede,
transfer and convey unto plaintiff the 3,000 sq. ms. (now known as Lots 16-B, 17
and 18) which plaintiff was then occupying and continues to occupy as of this
writing, for and in consideration of the following conditions:

(a) That plaintiff succeed in convincing the DEUDORS to enter into


a compromise agreement and that such agreement be actually
entered into by and between the DEUDORS and defendant
companies;

(b) That as of date of signing the compromise agreement, plaintiff


shall be the owner of the 3,000 sq. ms. but the documents
evidencing his title over this property shall be executed and
delivered by defendants to plaintiff within ten (10) years from and
after date of signing of the compromise agreement;

(c) That plaintiff shall, without any monetary expense of his part,
assist in clearing the 20 quinones of its occupants;

13). That in order to effect a compromise between the parties. plaintiff not only
as well acted as emissary of both parties in conveying their respective proposals
and counter- proposals until succeeded in convinzing the DEUDORS to settle with
defendants amicably. Thus, on March 16, 1953, a Compromise Agreement was
entered into by and between the DEUDORS and the defendant companies; and
on April 11, 1953, this agreement was approved by this Honorable Court;

14). That in order to comply with his other obligations under his agreement with
defendant companies, plaintiff had to confer with the occupants of the property,
exposing himself to physical harm, convincing said occupants to leave the
premises and to refrain from resorting to physical violence in resisting
defendants' demands to vacate;

That plaintiff further assisted defendants' employees in the actual


demolition and transferof all the houses within the perimeter of
the 20 quinones until the end of 1955, when said area was totally
cleared and the houses transferred to another area designated by
the defendants as 'Capt. Cruz Block' in Masambong, Quezon City.
(Pars. 12, 13 and 14, Complaint; Emphasis supplied)

From the foregoing, it is clear then the agreement between the parties
mentioned in paragraph 12 (supra) of the complaint has already been fully
EXECUTED ON ONE PART, namely by the plaintiff. Regarding the applicability of
the statute of frauds (Art. 1403, Civil Code), it has been uniformly held that the
statute of frauds IS APPLICABLE ONLY TO EXECUTORY CONTRACTS BUT NOT
WHERE THE CONTRACT HAS BEEN PARTLY EXECUTED:

SAME ACTION TO ENFORCE. — The statute of frauds has


been uniformly interpreted to be applicable to executory and not
to completed or contracts. Performance of the contracts takes it
out of the operation of the statute. ...
The statute of the frauds is not applicable to contracts which are
either totally or partially performed, on the theory that there is a
wide field for the commission of frauds in executory contracts
which can only be prevented by requiring them to be in writing, a
facts which is reduced to a minimum in executed contracts
because the intention of the parties becomes apparent buy their
execution and execution, in mots cases, concluded the right the
parties. ... The partial performance may be proved by either
documentary or oral evidence. (At pp. 564-565, Tolentino's Civil
Code of the Philippines, Vol. IV, 1962 Ed.; Emphasis supplied).

Authorities in support of the foregoing rule are legion. Thus Mr. Justice Moran in
his 'Comments on the Rules of Court', Vol. III, 1974 Ed., at p. 167, states:

2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO EXECUTORY


CONTRACTS: CONTRACTS WHICH ARE EITHER TOTALLY OR
PARTIALLY PERFORMED ARE WITHOUT THE STATUE. The statute
of frauds is applicable only to executory contracts. It is neither
applicable to executed contracts nor to contracts partially
performed. The reason is simple. In executory contracts there is a
wide field for fraud because unless they be in writing there is no
palpable evidence of the intention of the contracting parties. The
statute has been enacted to prevent fraud. On the other hand the
commission of fraud in executed contracts is reduced to minimum
in executed contracts because (1) the intention of the parties is
made apparent by the execution and (2) execution concludes, in
most cases, the rights of the parties. (Emphasis supplied)

Under paragraphs 13 and 14 of the complaint (supra) one can readily see that
the plaintiff has fulfilled ALL his obligation under the agreement between him
defendants concerning the 3,000 sq. ms. over which the latter had agreed to
execute the proper documents of transfer. This fact is further projected in
paragraph 15 of the complaint where plaintiff states;

15). That in or about the middle of 1963, after all the conditions
stated in paragraph 12 hereof had been fulfilled and fully
complied with, plaintiff demanded of said defendants that they
execute the Deed of Conveyance in his favor and deliver the title
certificate in his name, over the 3,000 sq. ms. but defendants
failed and refused and continue to fail and refuse to heed his
demands. (par. 15, complaint; Emphasis supplied).

In view of the foregoing, we respectfully submit that this Honorable court erred
in holding that the statute of frauds is applicable to plaintiff's claim over the
3,000 sq. ms. There having been full performance of the contract on plaintiff's
part, the same takes this case out of the context of said statute.

Plaintiff's Cause of Action had NOT Prescribed:

With all due respect to this Honorable court, we also submit that the Court
committed error in holding that this action has prescribed:

ORDER

xxx xxx xxx

On the issue of the statute of limitations, the Court holds that the
plaintiff's action has prescribed. It is alleged in par. III of the
complaint that, sometime in 1952, the defendants approached
the plaintiff to prevail upon the Deudors to enter into a
compromise agreement in Civil Case No. Q-135 and allied cases.
Furthermore, pars. 13 and 14 of the complaint alleged that
plaintiff acted as emissary of both parties in conveying their
respective proposals and counter-proposals until the final
settlement was affected on March 16, 1953 and approved by the
Court on April 11, 1953. In the present actin, which was instituted
on January 24, 1964, the plaintiff is seeking to enforce the
supposed agreement entered into between him and the
defendants in 1952, which has already proscribed. (at p. 3, Order).

The present action has not prescribed, especially when we consider carefully the
terms of the agreement between plaintiff and the defendants. First, we must
draw the attention of this Honorable Court to the fact that this is an action to
compel defendants to execute a Deed of Conveyance over the 3,000 sq. ms.
subject of their agreement. In paragraph 12 of the complaint, the terms and
conditions of the contract between the parties are spelled out. Paragraph 12 (b)
of the complaint states:

(b) That as of date of signing the compromise agreement, plaintiff


shall be the owner of the 3,000 sq. ms. but the documents
evidencing his title over this property shall be executed and
delivered by defendants to plaintiff within ten (10) years from and
after date of signing of the compromise agreement. (Emphasis
supplied).

The compromise agreement between defendants and the Deudors which was
conclude through the efforts of plaintiff, was signed on 16 March 1953.
Therefore, the defendants had ten (10) years signed on 16 March 1953.
Therefore, the defendants had ten (10) years from said date within which to
execute the deed of conveyance in favor of plaintiff over the 3,000 sq. ms. As
long as the 10 years period has not expired, plaintiff had no right to compel
defendants to execute the document and the latter were under no obligation to
do so. Now, this 10-year period elapsed on March 16, 1963. THEN and ONLY
THEN does plaintiff's cause of action plaintiff on March 17, 1963. Thus, under
paragraph 15, of the complaint (supra) plaintiff made demands upon defendants
for the execution of the deed 'in or about the middle of 1963.

Since the contract now sought to be enforced was not reduced to writing,
plaintiff's cause of action expires on March 16, 1969 or six years from March 16,
1963 WHEN THE CAUSE OF ACTION ACCRUED (Art. 1145, Civil Code).

In this posture, we gain respectfully submit that this Honorable Court erred in
holding that plaintiff's action has prescribed.

PRAYER

WHEREFORE, it is respectfully prayed that " Honorable Court reconsider its Order
dated August 13, 1964; and issue another order denying the motions to dismiss
of defendants G. Araneta, Inc. and J. M. Tuason Co. Inc. for lack of merit. (Pp. 70-
85, Record on Appeal.)

Defendants filed an opposition on the main ground that "the arguments adduced by the
plaintiff are merely reiterations of his arguments contained in his Rejoinder to Reply and
Opposition, which have not only been refuted in herein defendant's Motion to Dismiss and
Reply but already passed upon by this Honorable Court."

On September 7, 1964, the trial court denied the motion for reconsiderations thus:

After considering the plaintiff's Motion for Reconsideration of August 20, 1964
and it appearing that the grounds relied upon in said motion are mere repetition
of those already resolved and discussed by this Court in the order of August 13,
1964, the instant motion is hereby denied and the findings and conclusions
arrived at by the Court in its order of August 13, 1964 are hereby reiterated and
affirmed.

SO ORDERED. (Page 90, Rec. on Appeal.)

Under date of September 24, 1964, plaintiff filed his record on appeal.

In his brief, appellant poses and discusses the following assignments of error:
I. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT ON THE
GROUND THAT APPELLANT'S CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY
UNENFORCEABLE UNDER THE STATUTE OF FRAUDS;

II. THAT THE COURT A QUO FURTHER COMMITTED ERROR IN DISMISSING


APPELLANT'S COMPLAINT ON THE GROUND THAT HIS CLAIM OVER THE 3,000
SQ. MS. IS ALLEGEDLY BARRED BY THE STATUTE OF LIMITATIONS; and

III. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT FOR
FAILURE TO STATE A CAUSE OF ACTION IN SO FAR AS APPELLANT'S CLAIM FOR
REIMBURSEMENT OF EXPENSES AND FOR SERVICES RENDERED IN THE
IMPROVEMENT OF THE FIFTY (50) QUINONES IS CONCERNED.

We agree with appellant that the Statute of Frauds was erroneously applied by the trial court. It
is elementary that the Statute refers to specific kinds of transactions and that it cannot apply to
any that is not enumerated therein. And the only agreements or contracts covered thereby are
the following:

(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;

(2) Those do not comply with the Statute of Frauds as set forth in this number, In
the following cases an agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum thereof, be in writing,
and subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of
its contents:

(a) An agreement that by its terms is not to be performed within a


year from the making thereof;

(b) A special promise to answer for the debt, default, or


miscarriage of another;

(c) An agreement made in consideration of marriage, other than a


mutual promise to marry;

(d) An agreement for the sale of goods, chattels or things in


action, at a price not less than five hundred pesos, unless the
buyer accept and receive part of such goods and chattels, or the
evidences, or some of them of such things in action, or pay at the
time some part of the purchase money; but when a sale is made
by auction and entry is made by the auctioneer in his sales book,
at the time of the sale, of the amount and kind of property sold,
terms of sale, price, names of the purchasers and person on
whose account the sale is made, it is a sufficient memorandum:

(e) An agreement for the leasing for a longer period than one
year, or for the sale of real property or of an interest therein:

(f) a representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract. (Art.
1403, civil Code.)

In the instant case, what appellant is trying to enforce is the delivery to him of 3,000 square
meters of land which he claims defendants promised to do in consideration of his services as
mediator or intermediary in effecting a compromise of the civil action, Civil Case No. 135,
between the defendants and the Deudors. In no sense may such alleged contract be considered
as being a "sale of real property or of any interest therein." Indeed, not all dealings involving
interest in real property come under the Statute.

Moreover, appellant's complaint clearly alleges that he has already fulfilled his part of the
bargains to induce the Deudors to amicably settle their differences with defendants as, in fact,
on March 16, 1963, through his efforts, a compromise agreement between these parties was
approved by the court. In other words, the agreement in question has already been partially
consummated, and is no longer merely executory. And it is likewise a fundamental principle
governing the application of the Statute that the contract in dispute should be purely executory
on the part of both parties thereto.

We cannot, however, escape taking judicial notice, in relation to the compromise agreement
relied upon by appellant, that in several cases We have decided, We have declared the same
rescinded and of no effect. In J. M. Tuason & Co., Inc. vs. Bienvenido Sanvictores, 4 SCRA 123,
the Court held:

It is also worthy of note that the compromise between Deudors and Tuason,
upon which Sanvictores predicates his right to buy the lot he occupies, has been
validly rescinded and set aside, as recognized by this Court in its decision in G.R.
No. L-13768, Deudor vs. Tuason, promulgated on May 30, 1961.

We repeated this observation in J.M. Tuason & Co., Inc. vs. Teodosio Macalindong, 6 SCRA 938.
Thus, viewed from what would be the ultimate conclusion of appellant's case, We entertain
grave doubts as to whether or not he can successfully maintain his alleged cause of action
against defendants, considering that the compromise agreement that he invokes did not
actually materialize and defendants have not benefited therefrom, not to mention the
undisputed fact that, as pointed out by appellees, appellant's other attempt to secure the same
3,000 square meters via the judicial enforcement of the compromise agreement in which they
were supposed to be reserved for him has already been repudiated by the courts. (pp. 5-7. Brief
of Appellee Gregorio Araneta, Inc.)

As regards appellant's third assignment of error, We hold that the allegations in his complaint
do not sufficiently Appellants' reliance. on Article 2142 of Civil Code is misplaced. Said article
provides:

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.

From the very language of this provision, it is obvious that a presumed qauasi-contract cannot
emerge as against one party when the subject mater thereof is already covered by an existing
contract with another party. Predicated on the principle that no one should be allowed to
unjustly enrich himself at the expense of another, Article 2124 creates the legal fiction of a
quasi-contract precisely because of the absence of any actual agreement between the parties
concerned. Corollarily, if the one who claims having enriched somebody has done so pursuant
to a contract with a third party, his cause of action should be against the latter, who in turn
may, if there is any ground therefor, seek relief against the party benefited. It is essential that
the act by which the defendant is benefited must have been voluntary and unilateral on the
part of the plaintiff. As one distinguished civilian puts it, "The act is voluntary. because the actor
in quasi-contracts is not bound by any pre-existing obligation to act. It is unilateral, because it
arises from the sole will of the actor who is not previously bound by any reciprocal or bilateral
agreement. The reason why the law creates a juridical relations and imposes certain obligation
is to prevent a situation where a person is able to benefit or take advantage of such lawful,
voluntary and unilateral acts at the expense of said actor." (Ambrosio Padilla, Civil Law, Vol. VI,
p. 748, 1969 ed.) In the case at bar, since appellant has a clearer and more direct recourse
against the Deudors with whom he had entered into an agreement regarding the
improvements and expenditures made by him on the land of appellees. it Cannot be said, in the
sense contemplated in Article 2142, that appellees have been enriched at the expense of
appellant.

In the ultimate. therefore, Our holding above that appellant's first two assignments of error are
well taken cannot save the day for him. Aside from his having no cause of action against
appellees, there is one plain error of omission. We have found in the order of the trial court
which is as good a ground as any other for Us to terminate this case favorably to appellees. In
said order Which We have quoted in full earlier in this opinion, the trial court ruled that "the
grounds relied upon in said motion are mere repetitions of those already resolved and
discussed by this Court in the order of August 13, 1964", an observation which We fully share.
Virtually, therefore. appellant's motion for reconsideration was ruled to be pro-forma. Indeed,
a cursory reading of the record on appeal reveals that appellant's motion for reconsideration
above-quoted contained exactly the same arguments and manner of discussion as his February
6, 1964 "Opposition to Motion to Dismiss" of defendant Gregorio Araneta, Inc. ((pp. 17-25, Rec.
on Appeal) as well as his February 17, 1964 "Opposition to Motion to Dismiss of Defendant J. M.
Tuason & Co." (pp. 33-45, Rec. on Appeal and his February 29, 1964 "Rejoinder to Reply Oil
Defendant J. M. Tuason & Co." (pp. 52-64, Rec. on Appeal) We cannot see anything in said
motion for reconsideration that is substantially different from the above oppositions and
rejoinder he had previously submitted and which the trial court had already considered when it
rendered its main order of dismissal. Consequently, appellant's motion for reconsideration did
not suspend his period for appeal. (Estrada vs. Sto. Domingo, 28 SCRA 890, 905-6.) And as this
point was covered by appellees' "Opposition to Motion for Reconsideration" (pp. 8689), hence,
within the frame of the issues below, it is within the ambit of Our authority as the Supreme
Court to consider the same here even if it is not discussed in the briefs of the parties. (Insular
Life Assurance Co., Ltd. Employees Association-NATU vs. Insular Life Assurance Co., Ltd.
[Resolution en banc of March 10, 1977 in G. R. No. L-25291).

Now, the impugned main order was issued on August 13, 1964, while the appeal was made on
September 24, 1964 or 42 days later. Clearly, this is beyond the 30-day reglementary period for
appeal. Hence, the subject order of dismissal was already final and executory when appellant
filed his appeal.

WHEREFORE, the appeal of Faustino Cruz in this case is dismissed. No costs.

Fernando (Chairman), Antonio, Aquino and Martin, .JJ., concur.

Concepcion, Jr., JJ., took no part.

Martin, J., was designated to sit in the Second Division.

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-44546 January 29, 1988


RUSTICO ADILLE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, EMETERIA ASEJO, TEODORICA ASEJO, DOMINGO
ASEJO, JOSEFA ASEJO and SANTIAGO ASEJO, respondents.

SARMIENTO, J.:

In issue herein are property and property rights, a familiar subject of controversy and a
wellspring of enormous conflict that has led not only to protracted legal entanglements but to
even more bitter consequences, like strained relationships and even the forfeiture of lives. It is
a question that likewise reflects a tragic commentary on prevailing social and cultural values
and institutions, where, as one observer notes, wealth and its accumulation are the basis of
self-fulfillment and where property is held as sacred as life itself. "It is in the defense of his
property," says this modern thinker, that one "will mobilize his deepest protective devices, and
anybody that threatens his possessions will arouse his most passionate enmity." 1

The task of this Court, however, is not to judge the wisdom of values; the burden of
reconstructing the social order is shouldered by the political leadership-and the people
themselves.

The parties have come to this Court for relief and accordingly, our responsibility is to give them
that relief pursuant to the decree of law.

The antecedent facts are quoted from the decision 2 appealed from:

xxx xxx xxx

... [T]he land in question Lot 14694 of Cadastral Survey of Albay located in
Legaspi City with an area of some 11,325 sq. m. originally belonged to one Felisa
Alzul as her own private property; she married twice in her lifetime; the first,
with one Bernabe Adille, with whom she had as an only child, herein defendant
Rustico Adille; in her second marriage with one Procopio Asejo, her children
were herein plaintiffs, — now, sometime in 1939, said Felisa sold the property
in pacto de retro to certain 3rd persons, period of repurchase being 3 years, but
she died in 1942 without being able to redeem and after her death, but during
the period of redemption, herein defendant repurchased, by himself alone, and
after that, he executed a deed of extra-judicial partition representing himself to
be the only heir and child of his mother Felisa with the consequence that he was
able to secure title in his name alone also, so that OCT. No. 21137 in the name of
his mother was transferred to his name, that was in 1955; that was why after
some efforts of compromise had failed, his half-brothers and sisters, herein
plaintiffs, filed present case for partition with accounting on the position that he
was only a trustee on an implied trust when he redeemed,-and this is the
evidence, but as it also turned out that one of plaintiffs, Emeteria Asejo was
occupying a portion, defendant counterclaimed for her to vacate that, —

Well then, after hearing the evidence, trial Judge sustained defendant in his
position that he was and became absolute owner, he was not a trustee, and
therefore, dismissed case and also condemned plaintiff occupant, Emeteria to
vacate; it is because of this that plaintiffs have come here and contend that trial
court erred in:

I. ... declaring the defendant absolute owner of the property;


II. ... not ordering the partition of the property; and

III. ... ordering one of the plaintiffs who is in possession of the portion of the
property to vacate the land, p. 1 Appellant's brief.

which can be reduced to simple question of whether or not on the basis of evidence and law,
judgment appealed from should be maintained. 3

xxx xxx xxx

The respondent Court of appeals reversed the trial Court, 4 and ruled for the plaintiffs-
appellants, the private respondents herein. The petitioner now appeals, by way of certiorari,
from the Court's decision.

We required the private respondents to file a comment and thereafter, having given due course
to the petition, directed the parties to file their briefs. Only the petitioner, however, filed a
brief, and the private respondents having failed to file one, we declared the case submitted for
decision.

The petition raises a purely legal issue: May a co-owner acquire exclusive ownership over the
property held in common?

Essentially, it is the petitioner's contention that the property subject of dispute devolved upon
him upon the failure of his co-heirs to join him in its redemption within the period required by
law. He relies on the provisions of Article 1515 of the old Civil Article 1613 of the present Code,
giving the vendee a retro the right to demand redemption of the entire property.

There is no merit in this petition.

The right of repurchase may be exercised by a co-owner with aspect to his share alone. 5 While
the records show that the petitioner redeemed the property in its entirety, shouldering the
expenses therefor, that did not make him the owner of all of it. In other words, it did not put to
end the existing state of co-ownership.

Necessary expenses may be incurred by one co-owner, subject to his right to collect
reimbursement from the remaining co-owners. 6 There is no doubt that redemption of property
entails a necessary expense. Under the Civil Code:

ART. 488. Each co-owner shall have a right to compel the other co-owners to
contribute to the expenses of preservation of the thing or right owned in
common and to the taxes. Any one of the latter may exempt himself from this
obligation by renouncing so much of his undivided interest as may be equivalent
to his share of the expenses and taxes. No such waiver shall be made if it is
prejudicial to the co-ownership.
The result is that the property remains to be in a condition of co-ownership. While a vendee a
retro, under Article 1613 of the Code, "may not be compelled to consent to a partial
redemption," the redemption by one co-heir or co-owner of the property in its totality does not
vest in him ownership over it. Failure on the part of all the co-owners to redeem it entitles the
vendee a retro to retain the property and consolidate title thereto in his name. 7 But the
provision does not give to the redeeming co-owner the right to the entire property. It does not
provide for a mode of terminating a co-ownership.

Neither does the fact that the petitioner had succeeded in securing title over the parcel in his
name terminate the existing co-ownership. While his half-brothers and sisters are, as we said,
liable to him for reimbursement as and for their shares in redemption expenses, he cannot
claim exclusive right to the property owned in common. Registration of property is not a means
of acquiring ownership. It operates as a mere notice of existing title, that is, if there is one.

The petitioner must then be said to be a trustee of the property on behalf of the private
respondents. The Civil Code states:

ART. 1456. If property is acquired through mistake or fraud, the person obtaining
it is, by force of law, considered a trustee of an implied trust for the benefit of
the person from whom the property comes.

We agree with the respondent Court of Appeals that fraud attended the registration of the
property. The petitioner's pretension that he was the sole heir to the land in the affidavit of
extrajudicial settlement he executed preliminary to the registration thereof betrays a clear
effort on his part to defraud his brothers and sisters and to exercise sole dominion over the
property. The aforequoted provision therefore applies.

It is the view of the respondent Court that the petitioner, in taking over the property, did so
either on behalf of his co-heirs, in which event, he had constituted himself a negotiorum
gestor under Article 2144 of the Civil Code, or for his exclusive benefit, in which case, he is
guilty of fraud, and must act as trustee, the private respondents being the beneficiaries, under
the Article 1456. The evidence, of course, points to the second alternative the petitioner having
asserted claims of exclusive ownership over the property and having acted in fraud of his co-
heirs. He cannot therefore be said to have assume the mere management of the property
abandoned by his co-heirs, the situation Article 2144 of the Code contemplates. In any case, as
the respondent Court itself affirms, the result would be the same whether it is one or the other.
The petitioner would remain liable to the Private respondents, his co-heirs.

This Court is not unaware of the well-established principle that prescription bars any demand
on property (owned in common) held by another (co-owner) following the required number of
years. In that event, the party in possession acquires title to the property and the state of co-
ownership is ended . 8 In the case at bar, the property was registered in 1955 by the petitioner,
solely in his name, while the claim of the private respondents was presented in 1974. Has
prescription then, set in?
We hold in the negative. Prescription, as a mode of terminating a relation of co-ownership,
must have been preceded by repudiation (of the co-ownership). The act of repudiation, in turn
is subject to certain conditions: (1) a co-owner repudiates the co-ownership; (2) such an act of
repudiation is clearly made known to the other co-owners; (3) the evidence thereon is clear and
conclusive, and (4) he has been in possession through open, continuous, exclusive, and
notorious possession of the property for the period required by law. 9

The instant case shows that the petitioner had not complied with these requisites. We are not
convinced that he had repudiated the co-ownership; on the contrary, he had deliberately kept
the private respondents in the dark by feigning sole heirship over the estate under dispute. He
cannot therefore be said to have "made known" his efforts to deny the co-ownership.
Moreover, one of the private respondents, Emeteria Asejo, is occupying a portion of the land
up to the present, yet, the petitioner has not taken pains to eject her therefrom. As a matter of
fact, he sought to recover possession of that portion Emeteria is occupying only as a
counterclaim, and only after the private respondents had first sought judicial relief.

It is true that registration under the Torrens system is constructive notice of title, 10 but it has
likewise been our holding that the Torrens title does not furnish a shield for fraud. 11 It is
therefore no argument to say that the act of registration is equivalent to notice of repudiation,
assuming there was one, notwithstanding the long-standing rule that registration operates as a
universal notice of title.

For the same reason, we cannot dismiss the private respondents' claims commenced in 1974
over the estate registered in 1955. While actions to enforce a constructive trust prescribes in
ten years, 12 reckoned from the date of the registration of the property, 13 we, as we said, are
not prepared to count the period from such a date in this case. We note the petitioner's sub
rosa efforts to get hold of the property exclusively for himself beginning with his fraudulent
misrepresentation in his unilateral affidavit of extrajudicial settlement that he is "the only heir
and child of his mother Feliza with the consequence that he was able to secure title in his name
also." 14 Accordingly, we hold that the right of the private respondents commenced from the
time they actually discovered the petitioner's act of defraudation. 15 According to the
respondent Court of Appeals, they "came to know [of it] apparently only during the progress of
the litigation." 16 Hence, prescription is not a bar.

Moreover, and as a rule, prescription is an affirmative defense that must be pleaded either in a
motion to dismiss or in the answer otherwise it is deemed waived, 17 and here, the petitioner
never raised that defense. 18 There are recognized exceptions to this rule, but the petitioner has
not shown why they apply.

WHEREFORE, there being no reversible error committed by the respondent Court of Appeals,
the petition is DENIED. The Decision sought to be reviewed is hereby AFFIRMED in toto. No
pronouncement as to costs.

SO ORDERED,
Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 82670 September 15, 1989


DOMETILA M. ANDRES, doing business under the name and style "IRENE'S WEARING
APPAREL," petitioner,
vs.
MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF APPEALS, respondents.

Roque A. Tamayo for petitioner.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private respondent.

CORTES, J.:

Assailed in this petition for review on certiorari is the judgment of the Court of Appeals, which,
applying the doctrine of solutio indebiti, reversed the decision of the Regional Trial Court,
Branch CV, Quezon City by deciding in favor of private respondent.

Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the
manufacture of ladies garments, children's wear, men's apparel and linens for local and foreign
buyers. Among its foreign buyers was Facets Funwear, Inc. (hereinafter referred to as FACETS)
of the United States.

In the course of the business transaction between the two, FACETS from time to time remitted
certain amounts of money to petitioner in payment for the items it had purchased. Sometime
in August 1980, FACETS instructed the First National State Bank of New Jersey, Newark, New
Jersey, U.S.A. (hereinafter referred to as FNSB) to transfer $10,000.00 to petitioner via
Philippine National Bank, Sta. Cruz Branch, Manila (hereinafter referred to as PNB).

Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and
Trust Corporation to effect the above- mentioned transfer through its facilities and to charge
the amount to the account of FNSB with private respondent. Although private respondent was
able to send a telex to PNB to pay petitioner $10,000.00 through the Pilipinas Bank, where
petitioner had an account, the payment was not effected immediately because the payee
designated in the telex was only "Wearing Apparel." Upon query by PNB, private respondent
sent PNB another telex dated August 27, 1980 stating that the payment was to be made to
"Irene's Wearing Apparel." On August 28, 1980, petitioner received the remittance of
$10,000.00 through Demand Draft No. 225654 of the PNB.

Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the money
to petitioner, FACETS informed FNSB about the situation. On September 8, 1980, unaware that
petitioner had already received the remittance, FACETS informed private respondent about the
delay and at the same time amended its instruction by asking it to effect the payment through
the Philippine Commercial and Industrial Bank (hereinafter referred to as PCIB) instead of PNB.

Accordingly, private respondent, which was also unaware that petitioner had already received
the remittance of $10,000.00 from PNB instructed the PCIB to pay $10,000.00 to petitioner.
Hence, on September 11, 1980, petitioner received a second $10,000.00 remittance.

Private respondent debited the account of FNSB for the second $10,000.00 remittance effected
through PCIB. However, when FNSB discovered that private respondent had made a duplication
of the remittance, it asked for a recredit of its account in the amount of $10,000.00. Private
respondent complied with the request.

Private respondent asked petitioner for the return of the second remittance of $10,000.00 but
the latter refused to pay. On May 12, 1982 a complaint was filed with the Regional Trial Court,
Branch CV, Quezon City which was decided in favor of petitioner as defendant. The trial court
ruled that Art. 2154 of the New Civil Code is not applicable to the case because the second
remittance was made not by mistake but by negligence and petitioner was not unjustly
enriched by virtue thereof [Record, p. 234]. On appeal, the Court of Appeals held that Art. 2154
is applicable and reversed the RTC decision. The dispositive portion of the Court of Appeals'
decision reads as follows:

WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and
another one entered in favor of plaintiff-appellant and against defendant-
appellee Domelita (sic) M. Andres, doing business under the name and style
"Irene's Wearing Apparel" to reimburse and/or return to plaintiff-appellant the
amount of $10,000.00, its equivalent in Philippine currency, with interests at the
legal rate from the filing of the complaint on May 12, 1982 until the whole
amount is fully paid, plus twenty percent (20%) of the amount due as attomey's
fees; and to pay the costs.

With costs against defendant-appellee.

SO ORDERED. [Rollo, pp. 29-30.]


Thereafter, this petition was filed. The sole issue in this case is whether or not the private
respondent has the right to recover the second $10,000.00 remittance it had delivered to
petitioner. The resolution of this issue would hinge on the applicability of Art. 2154 of the New
Civil Code which provides that:

Art. 2154. If something received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises.

This provision is taken from Art. 1895 of the Spanish Civil Code which provided that:

Art. 1895. If a thing is received when there was no right to claim it and which,
through an error, has been unduly delivered, an obligation to restore it arises.

In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice Bocobo
explained the nature of this article thus:

Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore
applicable. This legal provision, which determines the quasi-contract of solution
indebiti, is one of the concrete manifestations of the ancient principle that no
one shall enrich himself unjustly at the expense of another. In the Roman Law
Digest the maxim was formulated thus: "Jure naturae acquum est, neminem cum
alterius detrimento et injuria fieri locupletiorem." And the Partidas
declared: "Ninguno non deue enriquecerse tortizeramente con dano de
otro." Such axiom has grown through the centuries in legislation, in the science
of law and in court decisions. The lawmaker has found it one of the helpful
guides in framing statutes and codes. Thus, it is unfolded in many articles
scattered in the Spanish Civil Code. (See for example, articles, 360, 361, 464, 647,
648, 797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This time-
honored aphorism has also been adopted by jurists in their study of the conflict
of rights. It has been accepted by the courts, which have not hesitated to apply it
when the exigencies of right and equity demanded its assertion. It is a part of
that affluent reservoir of justice upon which judicial discretion draws whenever
the statutory laws are inadequate because they do not speak or do so with a
confused voice. [at p. 632.]

For this article to apply the following requisites must concur: "(1) that he who paid was not
under obligation to do so; and, (2) that payment was made by reason of an essential mistake of
fact" [City of Cebu v. Piccio, 110 Phil. 558, 563 (1960)].

It is undisputed that private respondent delivered the second $10,000.00 remittance. However,
petitioner contends that the doctrine of solutio indebiti, does not apply because its requisites
are absent.
First, it is argued that petitioner had the right to demand and therefore to retain the second
$10,000.00 remittance. It is alleged that even after the two $10,000.00 remittances are
credited to petitioner's receivables from FACETS, the latter allegedly still had a balance of
$49,324.00. Hence, it is argued that the last $10,000.00 remittance being in payment of a pre-
existing debt, petitioner was not thereby unjustly enriched.

The contention is without merit.

The contract of petitioner, as regards the sale of garments and other textile products, was with
FACETS. It was the latter and not private respondent which was indebted to petitioner. On the
other hand, the contract for the transmittal of dollars from the United States to petitioner was
entered into by private respondent with FNSB. Petitioner, although named as the payee was
not privy to the contract of remittance of dollars. Neither was private respondent a party to the
contract of sale between petitioner and FACETS. There being no contractual relation between
them, petitioner has no right to apply the second $10,000.00 remittance delivered by mistake
by private respondent to the outstanding account of FACETS.

Petitioner next contends that the payment by respondent bank of the second $10,000.00
remittance was not made by mistake but was the result of negligence of its employees. In
connection with this the Court of Appeals made the following finding of facts:

The fact that Facets sent only one remittance of $10,000.00 is not disputed. In
the written interrogatories sent to the First National State Bank of New Jersey
through the Consulate General of the Philippines in New York, Adelaide C.
Schachel, the investigation and reconciliation clerk in the said bank testified that
a request to remit a payment for Facet Funwear Inc. was made in August, 1980.
The total amount which the First National State Bank of New Jersey actually
requested the plaintiff-appellant Manufacturers Hanover & Trust Corporation to
remit to Irene's Wearing Apparel was US $10,000.00. Only one remittance was
requested by First National State Bank of New Jersey as per instruction of Facets
Funwear (Exhibit "J", pp. 4-5).

That there was a mistake in the second remittance of US $10,000.00 is borne out
by the fact that both remittances have the same reference invoice number which
is 263 80. (Exhibits "A-1- Deposition of Mr. Stanley Panasow" and "A-2-
Deposition of Mr. Stanley Panasow").

Plaintiff-appellant made the second remittance on the wrong assumption that


defendant-appellee did not receive the first remittance of US $10,000.00. [Rollo,
pp. 26-27.]

It is evident that the claim of petitioner is anchored on the appreciation of the attendant facts
which petitioner would have this Court review. The Court holds that the finding by the Court of
Appeals that the second $10,000.00 remittance was made by mistake, being based on
substantial evidence, is final and conclusive. The rule regarding questions of fact being raised
with this Court in a petition for certiorari under Rule 45 of the Revised Rules of Court has been
stated in Remalante v. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:

The rule in this jurisdiction is that only questions of law may be raised in a
petition for certiorari under Rule 45 of the Revised Rules of Court. "The
jurisdiction of the Supreme Court in cases brought to it from the Court of
Appeals is limited to reviewing and revising the errors of law imputed to it, its
findings of fact being conclusive" [Chan v. Court of Appeals, G.R. No. L-27488,
June 30, 1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has
emphatically declared that "it is not the function of the Supreme Court to
analyze or weigh such evidence all over again, its jurisdiction being limited to
reviewing errors of law that might have been committed by the lower court"
[Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona v.
Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued v.
Court of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596]. "Barring,
therefore, a showing that the findings complained of are totally devoid of
support in the record, or that they are so glaringly erroneous as to constitute
serious abuse of discretion, such findings must stand, for this Court is not
expected or required to examine or contrast the oral and documentary evidence
submitted by the parties" [Santa Ana, Jr. v. Hernandez, G.R. No. L-16394,
December 17, 1966, 18 SCRA 9731. [at pp. 144-145.]

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

The rule is that principles of equity cannot be applied if there is a provision of law specifically
applicable to a case [Phil. Rabbit Bus Lines, Inc. v. Arciaga, G.R. No. L-29701, March 16,
1987,148 SCRA 433; Zabat, Jr. v. Court of Appeals, G.R. No. L36958, July 10, 1986, 142 SCRA
587; Rural Bank of Paranaque, Inc. v. Remolado, G.R. No. 62051, March 18, 1985, 135 SCRA
409; Cruz v. Pahati, 98 Phil. 788 (1956)]. Hence, the Court in the case of De Garcia v. Court of
Appeals, G.R. No. L-20264, January 30, 1971, 37 SCRA 129, citing Aznar v. Yapdiangco, G.R. No.
L-18536, March 31, 1965, 13 SCRA 486, held:

... The common law principle that where one of two innocent persons must
suffer by a fraud perpetrated by another, the law imposes the loss upon the
party who, by his misplaced confidence, has enabled the fraud to be committed,
cannot be applied in a case which is covered by an express provision of the new
Civil Code, specifically Article 559. Between a common law principle and a
statutory provision, the latter must prevail in this jurisdiction. [at p. 135.]
Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio indebiti,
applies in the case at bar, the Court must reject the common law principle invoked by
petitioner.

Finally, in her attempt to defeat private respondent's claim, petitioner makes much of the fact
that from the time the second $10,000.00 remittance was made, five hundred and ten days had
elapsed before private respondent demanded the return thereof. Needless to say, private
respondent instituted the complaint for recovery of the second $10,000.00 remittance well
within the six years prescriptive period for actions based upon a quasi-contract [Art. 1145 of the
New Civil Code].

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is hereby
AFFIRMED.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr. and Bidin, JJ., concur.

SECOND DIVISION

[G.R. No. 124378. March 8, 2005]


NATIONAL POWER CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS
(Ninth Division), HADJI ABDUL CARIM ABDULLAH, CARIS ABDULLAH, HADJI ALI LANGCO[1] and
DIAMAEL PANGCATAN, respondents.
DECISION
CHICO-NAZARIO, J.:

In this petition for review, petitioner seeks the reversal of the Decision[2] dated 21 December
1995 of the Court of Appeals in CA-G.R. CV No. 44639, which affirmed with modification the
Decision[3] dated 29 July 1991 of the Regional Trial Court (RTC), 12th Judicial Region, Branch 9,
Marawi City, in Civil Case No. 115-87, for Damages. The Resolution[4] dated 27 March 1996 that
denied petitioners motion for reconsideration is likewise assailed.
The factual milieu, as gleaned from the records, follows:
Petitioner National Power Corporation (NPC) is a government-owned and controlled
corporation created under Commonwealth Act No. 120, as amended.[5] It is tasked to undertake
the development of hydroelectric generations of power and the production of electricity from
nuclear, geothermal and other sources, as well as the transmission of electric power on a
nationwide basis.[6] Concomitant to its mandate, petitioner has, among other things, the power
to construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains,
transmission lines, power stations, and substations, and other works for the purpose of
developing hydraulic power from any river, creek, lake, spring, and waterfalls in the Philippines,
and supplying such power to the inhabitants.[7]
On 15 November 1973, the Office of the President of the Philippines issued Memorandum
Order No. 398 - Prescribing Measures to Preserve the Lake Lanao Watershed, To Enforce the
Reservation of Areas Around the Lake Below Seven Hundred And Two Meters Elevation, and for
Other Purposes. Said decree instructed the NPC to build the Agus Regulation Dam at the mouth
of Agus River in Lanao del Sur, at a normal maximum water level of Lake Lanao at 702 meters
elevation.[8] Pursuant thereto, petitioner built and operated the said dam in 1978.
Private respondents Hadji Abdul Carim Abdullah and Caris Abdullah were owners of
fishponds in BarangayBacong, Municipality of Marantao, Lanao del Sur, while private
respondents Hadji Ali Langco and Diamael Pangcatan had their fishponds built in Poona-
Marantao, also in the same province. All of these fishponds were sited along the Lake Lanao
shore. Private respondents have spent substantial amounts to construct, maintain, and stock
their respective fishponds with fish fingerlings, and make plantings along the adjoining foreshore
areas between 1984 and 1986.[9]
In October and November of 1986, all the improvements were washed away when the water
level of the lake escalated and the subject lakeshore area was flooded. Private respondents
blamed the inundation on the Agus Regulation Dam built and operated by the NPC in 1978. They
theorized that NPC failed to increase the outflow of water even as the water level of the lake rose
due to the heavy rains.[10]
Thus, in December of 1986, the private respondents, except for Caris Abdullah, wrote
separate letters to the NPCs Vice-President, a certain R.B. Santos, who was based in Ditucalan,
Iligan City. They sought assistance and compensation for the damage suffered by each of
them.[11] The private respondents pleas were shorn off by NPC on the ground that it was
mandated under Memorandum Order No. 398 dated 15 November 1973 to build the dam and
maintain the normal maximum lake level of 702 meters, and that since its operation in 1978, the
water level never rose beyond 702 meters. Furthermore, NPC retorted that visible monuments
and benchmarks indicating the 702-meter elevation had been established around the lake from
1974 to 1983, which should have served as a warning to the private respondents not to introduce
any improvements below the 702-meter level as this was outlawed.[12]
Left with no other recourse, the private respondents filed a complaint for damages before
the RTC of Marawi City, Branch 9, on 24 February 1987, docketed as Civil Case No. 115-87. They
alleged that the negligence and inexperience of NPCs employees assigned to operate the Agus
Regulation Dam were the proximate causes of the damage caused to their properties and
livelihood. They prayed for damages corresponding to the cost of their lost fishes plus the value
of their destroyed fishpond and the expenses and the fishes thereof. They, too, asked for
reimbursement of necessary expenses as may be proved in the trial, moral and exemplary
damages, and the costs.[13]
NPC denied the private respondents allegations, and tossed back the disputations that: (a)
the water level of Lake Lanao never went beyond 702 meters, (b) NPC employees were never
remiss in the performance of their duties, and (c) the private respondents alleged fishponds were
either located below the 702-meter level, or must have been introduced when the water level
was abnormally low and as such, were within the prohibited area as defined in Memorandum
Order No. 398. In fine, the NPC posited that the private respondents had no cause of action
against it.[14]
The trial court created a committee composed of representatives of both parties to conduct
an ocular inspection of the dam and its surrounding areas. On 29 July 1991, the trial court
rendered a Decision in favor of the private respondents. Thus, the trial court disposed:

WHEREFORE, for all the foregoing consideration, judgment is hereby rendered in favor of
plaintiffs Hadji Abdul Carim Abdullah, Caris Abdullah, Hadji Langco and Diamael Pangcatan and
against defendant National Power Corporation directing said defendant National Power
Corporation to pay unto Plaintiff Hadji Abdul Carim Abdullah the sum of P410,000.00 in actual or
compensatory damages; to pay unto plaintiff Caris Abdullah the sum of P208,000.00 in actual or
compensatory damages; to pay unto plaintiff Hadji Ali Langco or his substitutes Said Langco; Jalila
Langco; Raga Langco; Namolawan Langco; Alikan Langco; Dibolawan Langco; Binolawan Langco;
Ismael Langco; Bokari Langco; and Diamael Pangcatan the total sum of P260,000.00 in actual or
compensatory damages; and the further sum of P20,000.00 in litigation expenses and the
costs.[15]

Unflinched, the petitioner appealed to the Court of Appeals, which in a Decision dated 21
December 1995, affirmed the decision of the court a quo with modification on the award of
damages, to wit:

WHEREFORE, for all the foregoing considerations, judgment is hereby rendered in


favor of plaintiffs Hadji Abdul Carim Abdullah, Caris Abdullah, Hadji Langco and Diamael
Pangcatan and against defendant National Power Corporation directing said defendant
National Power Corporation to pay unto plaintiff Hadji Abdul Carim Abdullah the sum
of P350,000.00; unto plaintiff Caris Abdullah the sum of P150,000.00; unto plaintiff Hadji
Ali Langcos heirs and Diamael Pangcatan the sum of P210,000.00 as and for temperate or
moderate damages; as well as P20,000.00 as and for litigation expenses and costs.

Costs against appellant.[16]

The subsequent motion for reconsideration having been denied, petitioner interposes this
appeal, contending that the Court of Appeals seriously erred when it:

I. DISREGARDED THE MANDATE OF PRESIDENTIAL MEMORANDUM ORDER NO. 398.

II. CONCLUDED THAT PETITIONER WAS NEGLIGENT IN APPLYING PRESIDENTIAL


MEMORANDUM ORDER NO. 398, DESPITE THE CLEAR ABSENCE OF EVIDENCE OF
SUCH ALLEGED NEGLIGENCE.

III. CONCLUDED THAT THE ADVERSE RESULT OF AN OCULAR INSPECTION CONDUCTED


BY THE TRIAL COURT AT A MUCH LATER DATE AND DURING THE TRIAL COULD BE
USED, AS IT DID, AS PROOF OF THE ALLEGED FLOODING IN OCTOBER/NOVEMBER
1986.

IV. CONCLUDED AND SO HELD THAT PETITIONER ALLEGEDLY FAILED TO PROVE THAT
PRIVATE RESPONDENTS FISHPONDS WERE SITUATED BELOW THE 702-METER
ELEVATION OF THE LAKE.

V. AWARDED TEMPERATE AND MODERATE DAMAGES IN LIEU OF ACTUAL AND


COMPENSATORY DAMAGES, AT UNREASONABLE AMOUNTS AT THAT, DESPITE
THE CLEAR ABSENCE OF LEGAL AND FACTUAL BASES FOR SUCH AWARD.[17]

Despite the manifold spin-off subjects raised, the pertinent issue worthy of exploration at
the core is whether or not the Court of Appeals erred in affirming the trial courts verdict that
petitioner was legally answerable for the damages endured by the private respondents.
From the above-mentioned assignment of errors, petitioner palpably disputes the findings
of facts and the appreciation of evidence made by the trial court and later affirmed by respondent
court. It is apodictic that in a petition for review, only questions of law may be raised[18] for the
reason that the Supreme Court is not a trier of facts and generally does not weigh anew the
evidence already passed upon by the Court of Appeals.[19]Corollarily, the factual findings of the
Court of Appeals affirming those of the trial court bind this Court when such findings are
supported by substantial evidence. In the case at hand, no reversible error could be attributed to
the Court of Appeals in espousing conclusions of facts similar to the trial court on petitioners
liability for the damages suffered by private respondents.[20]
Here are the reasons why:
Memorandum Order No. 398, also known as the law Prescribing Measures to Preserve the
Lake Lanao Watershed, To Enforce the Reservation of Areas Around the Lake Below Seven
Hundred And Two Meters Elevation, and for Other Purposes, clothes the NPC with the power to
build the Agus Regulation Dam and to operate it for the purpose of generating energy. Twin to
such power are the duties: (1) to maintain the normal maximum lake elevation at 702 meters,
and (2) to build benchmarks to warn the inhabitants in the area that cultivation of land below
said elevation is forbidden. The wordings of the said presidential order cannot be any clearer on
this point. Thus
4. The National Power Corporation shall render financial assistance to forest
protection, tree farming, reforestation and other conservation measures
in coordination with private timber concessionaires and the Bureau of
Forest Development. With the assistance and cooperation of provincial
and municipal officials, as well as the Provincial Commander of the
Philippine Constabulary, NPC shall place in every town around the lake, at
the normal maximum lake elevation of seven hundred and two meters,
benchmarks warning that cultivation of land below said elevation is
prohibited. (Emphasis supplied)
By the bulk of evidence, NPC ostensibly reneged on both duties.
With respect to its job to maintain the normal maximum level of the lake at 702 meters, the
Court of Appeals, echoing the trial court, observed with alacrity that when the water level rises
due to the rainy season, the NPC ought to release more water to the Agus River to avoid flooding
and prevent the water from going over the maximum level. And yet, petitioner failed to do so,
resulting in the inundation of the nearby estates.[21] The facts, as unraveled by the trial court from
the evidence on record, established that before the construction of the Agus Regulation Dam
across the Agus River just beyond the Marawi City Bridge, no report of damages to landowners
around the lake was ever heard. After its construction and when it started functioning in 1978,
reports and complaints of damages sustained by landowners around the lake due to overflooding
became widespread. The factual findings of the trial court rightly support its conclusions on this
respect -
Lake Lanao has only one outlet, the Agus River which in effect is the natural
regulator. When the Lake level is high, more water leaves the lakes towards the
Agus River. Under such a natural course, overflooding is remote because excess in
water level of the lake, there is a corresponding increase in the volume of water
drain down towards the Agus River and vice versa.
In order to achieve its goal of generating hydroelectric power, defendant NPC
constructed the Intake Regulation Dam, the purpose of which being to control and
regulate the amount of water discharged into the Agus River. With this dam,
defendant NPC is able to either increase or decrease the volume of water
discharged into the Agus River depending on the amount of power to be
generated. When the lake level rises, specially during rainy days, it is indispensable
to wide open the dam to allow more water to flow to the Agus River to prevent
overflowing of the lakeshore and the land around it. But the NPC cannot allow the
water to flow freely into its outlet the Agus River, because it will adversely affect
its hydroelectric power plants. It has to hold back the water by its dam in order to
maintain the volume of water required to generate the power supply. As a
consequence of holding back the water, the lands around the lake are inundated.
This is even admitted by defendants witness Mama Manongguiring. Consequently,
in October, November and December of 1986 when the lake level increased,
farmlands in the Basak area around Lake Lanao and fishponds were inundated as
a result of such holding back of water by defendant NPC.[22] (Emphasis supplied)
Petitioner adduced in evidence its company records to bear out its claim that the water level
of the lake was, at no point in time, higher than 702 meters. The trial court and the Court of
Appeals, however, did not lend credence to this piece of evidence. Both courts below held that
the data contained in petitioners records collapse in the face of the actual state of the affected
areas. During the ocular inspection conducted by the lower court where representatives of both
parties were present, it was established that in the subject areas, the benchmarks as pointed out
by the NPC representative, could not be seen nor reached because they were totally covered
with water.[23] This fact, by itself, constitutes an unyielding proof that the water level did rise
above the benchmarks and inundated the properties in the area.
In the absence of any clear explanation on what other factors could have explained the
flooding in the neighboring properties of the dam, it is fair to reasonably infer that the incident
happened because of want of care on the part of NPC to maintain the water level of the dam
within the benchmarks at the maximum normal lake elevation of 702 meters. An application of
the doctrine of res ipsa loquitur, the thing speaks for itself, comes to fore.[24] Where the thing
which causes injury is shown to be under the management of the defendant, and the accident is
such as in the ordinary course of things does not happen if those who have the management use
proper care, it affords reasonable evidence, in the absence of an explanation by the defendant,
that the accident arose from want of care. [25]
NPC further attempts to dodge its burden by turning the tables against private respondents.
Petitioner would entice this Court to believe that private respondents brought the catastrophe
upon themselves by constructing their fishponds below the 702-meter level in defiance of
Memorandum Order No. 398. Yet, petitioner failed to demonstrate that the subject fishponds
were situated at an area below the 702-meter level yardstick. Allegation is one thing; proof is
another. Save for its bare claim, NPC was unable to indicate the position of the fishponds vis--
vis its benchmarks. But, how can it do so when it cannot show its own benchmarks as they were
submerged in water?
This brings us to the second duty of NPC under Memorandum Order No. 398 - to build and
maintain benchmarks to warn the inhabitants in the area that cultivation of land below the 702-
meter elevation is forbidden.
Notably, despite the clear mandate of Memorandum Order No. 398, petitioners own
witness, Principal Hydrologist Mama Manongguiring, testified that although the dam was built
in 1978, the benchmarks were installed only in July and August of 1984 and that apparently,
many had already worn-out, to be replaced only in October of 1986.[26] As adroitly observed by
the Court of Appeals, it was only after many years from the time it was built that NPC installed
said benchmarks. At that time, many farms and houses were already swamped and many
fishponds, including those of the private respondents, damaged. [27]
Consequently, even assuming that the fishponds were erected below the 702-meter level,
NPC must, nonetheless, bear the brunt for such damages inasmuch as it has the duty
to erect and maintain the benchmarks precisely to warn the owners of the neighboring
properties not to build fishponds below these marks. Such benchmarks, likewise, serve the
evidentiary purpose of extricating NPC from liability in cases of overflooding in the neighboring
estates because all NPC would have to do is point out that such constructions are below the 702-
meter allowable elevation. Without such points of reference, the inhabitants in said areas are
clueless whether or not their improvements are within the prohibited area. Conversely, without
such benchmarks, NPC has no way of telling if the fishponds, subject matter of the present
controversy, are indeed below the prescribed maximum level of elevation.
NPC staunchly asserts that the damages, if any, were due to a fortuitous event. Again, we
cannot agree with petitioner. We defer instead to the findings and opinions expressed by the
Court of Appeals that NPC cannot escape liability on the mere excuse that the rise of water was
due to heavy rains that were acts of God. The rainy season is an expected occurrence and the
NPC cannot stop doing its duty when the rains fall. In fact, it is during these critical times that the
NPC needs to be vigilant to make sure that the lake level does not exceed the maximum
level.[28] Indeed, negligence or imprudence is human factor which makes the whole occurrence
humanized, as it were, and removed from the rules applicable to acts of God.[29]
NPC further enthuses that the principle of damnum absque injuria, or damage without injury,
applies in the present case.
Again, we disagree. This principle means that although there was physical damage, there
was no legal injury, as there was no violation of a legal right. The negligence of NPC as a result of
its inability to maintain the level of water in its dams has been satisfactorily and extensively
established.
Article 2176 of the New Civil Code provides that whoever by act or omission causes damage
to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-
delict. In crimes and quasi-delicts, the defendant shall be liable for all damages, which are the
natural and probable consequences of the act or omission complained of. It is not necessary that
such damages have been foreseen or could have reasonably been foreseen by the defendant. [30]
In the case at bar, both the appellate court and the trial court uniformly found that it was
such negligence on the part of NPC which directly caused the damage to the fishponds of private
respondents. The degree of damages suffered by the latter remains unrebutted and there exists
adequate documentary evidence that the private respondents did have fishponds in their
respective locations and that these were inundated and damaged when the water level escalated
in October 1986.[31]
However, as observed by the Court of Appeals, while the private respondents claim
reimbursement for actual or compensatory damages, they failed to present independent
evidence to prove with a reasonable degree of certainty the actual amount of loss. The private
respondents could only testify as to the amounts they had spent to build and stock their
respective fishponds and as to the amount of earnings they would have made had the fish been
sold at current market prices. We find no reason to deflect from the award of temperate or
moderate damages by the Court of Appeals in reduced amounts, but are reasonable under the
circumstances conformably with Articles 2224 and 2225 of the New Civil Code.[32]
WHEREFORE, the instant petition is DENIED. The Decision dated 21 December 1995 and the
Resolution dated 27 March 1996 of the Court of Appeals in CA-G.R. CV No. 44639 are hereby
AFFIRMED. Costs against petitioner.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 71049 May 29, 1987


BERNARDINO JIMENEZ, petitioner,
vs.
CITY OF MANILA and INTERMEDIATE APPELLATE COURT, respondents.

PARAS, J.:

This is a petition for review on certiorari of: (1) the decision * of the Intermediate Appellate
Court in AC-G.R. No. 013887-CV Bernardino Jimenez v. Asiatic Integrated Corporation and City
of Manila, reversing the decision ** of the Court of First Instance of Manila, Branch XXII in Civil
Case No. 96390 between the same parties, but only insofar as holding Asiatic Integrated
Corporation solely liable for damages and attorney's fees instead of making the City of Manila
jointly and solidarily liable with it as prayed for by the petitioner and (2) the resolution of the
same Appellate Court denying his Partial Motion for Reconsideration (Rollo, p. 2).

The dispositive portion of the Intermediate Appellate Court's decision is as follows:

WHEREFORE, the decision appealed from is hereby REVERSED. A new one is


hereby entered ordering the defendant Asiatic Integrated Corporation to pay the
plaintiff P221.90 actual medical expenses, P900.00 for the amount paid for the
operation and management of a school bus, P20,000.00 as moral damages due
to pains, sufferings and sleepless nights and P l0,000.00 as attorney's fees.

SO ORDERED. (p. 20, Rollo)

The findings of respondent Appellate Court are as follows:

The evidence of the plaintiff (petitioner herein) shows that in the morning of August 15, 1974
he, together with his neighbors, went to Sta. Ana public market to buy "bagoong" at the time
when the public market was flooded with ankle deep rainwater. After purchasing the
"bagoong" he turned around to return home but he stepped on an uncovered opening which
could not be seen because of the dirty rainwater, causing a dirty and rusty four- inch nail, stuck
inside the uncovered opening, to pierce the left leg of plaintiff-petitioner penetrating to a depth
of about one and a half inches. After administering first aid treatment at a nearby drugstore, his
companions helped him hobble home. He felt ill and developed fever and he had to be carried
to Dr. Juanita Mascardo. Despite the medicine administered to him by the latter, his left leg
swelled with great pain. He was then rushed to the Veterans Memorial Hospital where he had
to be confined for twenty (20) days due to high fever and severe pain.

Upon his discharge from the hospital, he had to walk around with crutches for fifteen (15) days.
His injury prevented him from attending to the school buses he is operating. As a result, he had
to engage the services of one Bienvenido Valdez to supervise his business for an aggregate
compensation of nine hundred pesos (P900.00). (Decision, AC-G.R. CV No. 01387, Rollo, pp. 13-
20).

Petitioner sued for damages the City of Manila and the Asiatic Integrated Corporation under
whose administration the Sta. Ana Public Market had been placed by virtue of a Management
and Operating Contract (Rollo, p. 47).

The lower court decided in favor of respondents, the dispositive portion of the decision
reading:

WHEREFORE, judgment is hereby rendered in favor of the defendants and


against the plaintiff dismissing the complaint with costs against the plaintiff. For
lack of sufficient evidence, the counterclaims of the defendants are likewise
dismissed. (Decision, Civil Case No. 96390, Rollo, p. 42).

As above stated, on appeal, the Intermediate Appellate Court held the Asiatic Integrated
Corporation liable for damages but absolved respondent City of Manila.

Hence this petition.

The lone assignment of error raised in this petition is on whether or not the Intermediate
Appellate Court erred in not ruling that respondent City of Manila should be jointly and
severally liable with Asiatic Integrated Corporation for the injuries petitioner suffered.

In compliance with the resolution of July 1, 1985 of the First Division of this Court (Rollo, p. 29)
respondent City of Manila filed its comment on August 13, 1985 (Rollo, p. 34) while petitioner
filed its reply on August 21, 1985 (Reno, p. 51).

Thereafter, the Court in the resolution of September 11, 1985 (Rollo, p. 62) gave due course to
the petition and required both parties to submit simultaneous memoranda

Petitioner filed his memorandum on October 1, 1985 (Rollo, p. 65) while respondent filed its
memorandum on October 24, 1985 (Rollo, p. 82).

In the resolution of October 13, 1986, this case was transferred to the Second Division of this
Court, the same having been assigned to a member of said Division (Rollo, p. 92).
The petition is impressed with merit.

As correctly found by the Intermediate Appellate Court, there is no doubt that the plaintiff
suffered injuries when he fell into a drainage opening without any cover in the Sta. Ana Public
Market. Defendants do not deny that plaintiff was in fact injured although the Asiatic
Integrated Corporation tries to minimize the extent of the injuries, claiming that it was only a
small puncture and that as a war veteran, plaintiff's hospitalization at the War Veteran's
Hospital was free. (Decision, AC-G.R. CV No. 01387, Rollo, p. 6).

Respondent City of Manila maintains that it cannot be held liable for the injuries sustained by
the petitioner because under the Management and Operating Contract, Asiatic Integrated
Corporation assumed all responsibility for damages which may be suffered by third persons for
any cause attributable to it.

It has also been argued that the City of Manila cannot be held liable under Article 1, Section 4 of
Republic Act No. 409 as amended (Revised Charter of Manila) which provides:

The City shall not be liable or held for damages or injuries to persons or property
arising from the failure of the Mayor, the Municipal Board, or any other City
Officer, to enforce the provisions of this chapter, or any other law or ordinance,
or from negligence of said Mayor, Municipal Board, or any other officers while
enforcing or attempting to enforce said provisions.

This issue has been laid to rest in the case of City of Manila v. Teotico (22 SCRA 269-272 [1968])
where the Supreme Court squarely ruled that Republic Act No. 409 establishes a general rule
regulating the liability of the City of Manila for "damages or injury to persons or property arising
from the failure of city officers" to enforce the provisions of said Act, "or any other law or
ordinance or from negligence" of the City "Mayor, Municipal Board, or other officers while
enforcing or attempting to enforce said provisions."

Upon the other hand, Article 2189 of the Civil Code of the Philippines which provides that:

Provinces, cities and municipalities shall be liable for damages for the death of,
or injuries suffered by any person by reason of defective conditions of roads,
streets, bridges, public buildings and other public works under their control or
supervision.

constitutes a particular prescription making "provinces, cities and municipalities ... liable for
damages for the death of, or injury suffered by any person by reason" — specifically — "of the
defective condition of roads, streets, bridges, public buildings, and other public works under
their control or supervision." In other words, Art. 1, sec. 4, R.A. No. 409 refers to liability arising
from negligence, in general, regardless of the object, thereof, while Article 2189 of the Civil
Code governs liability due to "defective streets, public buildings and other public works" in
particular and is therefore decisive on this specific case.
In the same suit, the Supreme Court clarified further that under Article 2189 of the Civil Code, it
is not necessary for the liability therein established to attach, that the defective public works
belong to the province, city or municipality from which responsibility is exacted. What said
article requires is that the province, city or municipality has either "control or supervision" over
the public building in question.

In the case at bar, there is no question that the Sta. Ana Public Market, despite the
Management and Operating Contract between respondent City and Asiatic Integrated
Corporation remained under the control of the former.

For one thing, said contract is explicit in this regard, when it provides:

II

That immediately after the execution of this contract, the SECOND PARTY shall
start the painting, cleaning, sanitizing and repair of the public markets and
talipapas and within ninety (90) days thereof, the SECOND PARTY shall submit a
program of improvement, development, rehabilitation and reconstruction of the
city public markets and talipapas subject to prior approval of the FIRST PARTY.
(Rollo, p. 44)

xxx xxx xxx

VI

That all present personnel of the City public markets and talipapas shall be
retained by the SECOND PARTY as long as their services remain satisfactory and
they shall be extended the same rights and privileges as heretofore enjoyed by
them. Provided, however, that the SECOND PARTY shall have the right, subject to
prior approval of the FIRST PARTY to discharge any of the present employees for
cause. (Rollo, p. 45).

VII

That the SECOND PARTY may from time to time be required by the FIRST PARTY,
or his duly authorized representative or representatives, to report, on the
activities and operation of the City public markets and talipapas and the facilities
and conveniences installed therein, particularly as to their cost of construction,
operation and maintenance in connection with the stipulations contained in this
Contract. (lbid)

The fact of supervision and control of the City over subject public market was admitted by
Mayor Ramon Bagatsing in his letter to Secretary of Finance Cesar Virata which reads:
These cases arose from the controversy over the Management and Operating
Contract entered into on December 28, 1972 by and between the City of Manila
and the Asiatic Integrated Corporation, whereby in consideration of a fixed
service fee, the City hired the services of the said corporation to undertake the
physical management, maintenance, rehabilitation and development of the
City's public markets and' Talipapas' subject to the control and supervision of the
City.

xxx xxx xxx

It is believed that there is nothing incongruous in the exercise of these powers


vis-a-vis the existence of the contract, inasmuch as the City retains the power of
supervision and control over its public markets and talipapas under the terms of
the contract. (Exhibit "7-A") (Emphasis supplied.) (Rollo, p. 75).

In fact, the City of Manila employed a market master for the Sta. Ana Public Market whose
primary duty is to take direct supervision and control of that particular market, more
specifically, to check the safety of the place for the public.

Thus the Asst. Chief of the Market Division and Deputy Market Administrator of the City of
Manila testified as follows:

Court This market master is an employee of the City of Manila?

Mr. Ymson Yes, Your Honor.

Q What are his functions?

A Direct supervision and control over the market area assigned to


him."(T.s.n.,pp. 41-42, Hearing of May 20, 1977.)

xxx xxx xxx

Court As far as you know there is or is there any specific employee


assigned with the task of seeing to it that the Sta. Ana Market is
safe for the public?

Mr. Ymson Actually, as I stated, Your Honor, that the Sta. Ana has
its own market master. The primary duty of that market master is
to make the direct supervision and control of that particular
market, the check or verifying whether the place is safe for public
safety is vested in the market master. (T.s.n., pp. 2425, Hearing of
July 27, 1977.) (Emphasis supplied.) (Rollo, p. 76).
Finally, Section 30 (g) of the Local Tax Code as amended, provides:

The treasurer shall exercise direct and immediate supervision administration and
control over public markets and the personnel thereof, including those whose
duties concern the maintenance and upkeep of the market and ordinances and
other pertinent rules and regulations. (Emphasis supplied.) (Rollo, p. 76)

The contention of respondent City of Manila that petitioner should not have ventured to go to
Sta. Ana Public Market during a stormy weather is indeed untenable. As observed by
respondent Court of Appeals, it is an error for the trial court to attribute the negligence to
herein petitioner. More specifically stated, the findings of appellate court are as follows:

... The trial court even chastised the plaintiff for going to market on a rainy day
just to buy bagoong. A customer in a store has the right to assume that the
owner will comply with his duty to keep the premises safe for customers. If he
ventures to the store on the basis of such assumption and is injured because the
owner did not comply with his duty, no negligence can be imputed to the
customer. (Decision, AC-G. R. CV No. 01387, Rollo, p. 19).

As a defense against liability on the basis of a quasi-delict, one must have exercised the
diligence of a good father of a family. (Art. 1173 of the Civil Code).

There is no argument that it is the duty of the City of Manila to exercise reasonable care to keep
the public market reasonably safe for people frequenting the place for their marketing needs.

While it may be conceded that the fulfillment of such duties is extremely difficult during storms
and floods, it must however, be admitted that ordinary precautions could have been taken
during good weather to minimize the dangers to life and limb under those difficult
circumstances.

For instance, the drainage hole could have been placed under the stalls instead of on the
passage ways. Even more important is the fact, that the City should have seen to it that the
openings were covered. Sadly, the evidence indicates that long before petitioner fell into the
opening, it was already uncovered, and five (5) months after the incident happened, the
opening was still uncovered. (Rollo, pp. 57; 59). Moreover, while there are findings that during
floods the vendors remove the iron grills to hasten the flow of water (Decision, AC-G.R. CV No.
0 1387; Rollo, p. 17), there is no showing that such practice has ever been prohibited, much less
penalized by the City of Manila. Neither was it shown that any sign had been placed
thereabouts to warn passersby of the impending danger.

To recapitulate, it appears evident that the City of Manila is likewise liable for damages under
Article 2189 of the Civil Code, respondent City having retained control and supervision over the
Sta. Ana Public Market and as tort-feasor under Article 2176 of the Civil Code on quasi-delicts
Petitioner had the right to assume that there were no openings in the middle of the
passageways and if any, that they were adequately covered. Had the opening been covered,
petitioner could not have fallen into it. Thus the negligence of the City of Manila is the
proximate cause of the injury suffered, the City is therefore liable for the injury suffered by the
peti- 4 petitioner.

Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are
solidarily liable under Article 2194 of the Civil Code.

PREMISES CONSIDERED, the decision of the Court of Appeals is hereby MODIFIED, making the
City of Manila and the Asiatic Integrated Corporation solidarily liable to pay the plaintiff
P221.90 actual medical expenses, P900.00 for the amount paid for the operation and
management of the school bus, P20,000.00 as moral damages due to pain, sufferings and
sleepless nights and P10,000.00 as attorney's fees.

SO ORDERED.

Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortes JJ., concur.