A.

In General

3. Prescription of Actions

JUAN F. VILLARROEL, vs. BERNARDINO ESTRADA

G.R. No. L-47362 December 19, 1940

The debt legally contracted by his mother even if it has already lost enforceability
due to prescription, has become a moral obligation which is a sufficient consideration
to make the obligation he voluntarily assumed on Aug 9 1930 enforceable and
legally demandable

G.R. No. L-13667 April 29, 1960

PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants,

vs.
THE BOARD OF DIRECTORS OF THE NATIONAL DEVELOPMENT COMPANY,
ET AL., defendants-appellees.

Article 1423 of the New Civil Code classifies obligations into civil or natural. "Civil
obligations are a right of action to compel their performance. Natural obligations, not
being based on positive law but on equity and natural law, do not grant a right of
action to enforce their performance, but after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered or rendered by reason thereof".

It is thus readily seen that an element of natural obligation before it can be

cognizable by the court is voluntary fulfillment by the obligor. Certainly retention can
be ordered but only after there has been voluntary performance. But here there has
been no voluntary performance. In fact, the court cannot order the performance.

From the legal point of view a bonus is not a demandable and enforceable
obligation. It is so when it is made a part of the wage or salary compensation.

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.

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.

B. Sources of Civil Obligations

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.
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

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.

G.R. No. 183204 January 13, 2014

THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,

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

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.

5. Quasi-Delicts

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.

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.

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.

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.

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.

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.

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.

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.

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
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.

… [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.

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.

G.R. No. L-36840 May 22, 1973

PEOPLE'S CAR INC., plaintiff-appellant,

vs.
COMMANDO SECURITY SERVICE AGENCY, defendant-appellee.

Interpretation of the contract, as to the extent of the liability of the defendant to the
plaintiff by reason of the acts of the employees of the defendant is the only issue to
be resolved.

The trial court, misreading the above-quoted contractual provisions, held that "the
liability of the defendant in favor of the plaintiff falls under paragraph 4 of the Guard
Service Contract" and rendered judgment "finding the defendant liable to the plaintiff
in the amount of P1,000.00 with costs."

Hence, this appeal, which, as already indicated, is meritorious and must be granted.

Paragraph 4 of the contract, which limits defendant's liability for the amount of loss or
damage to any property of plaintiff to "P1,000.00 per guard post," is by its own terms
applicable only for loss or damage 'through the negligence of its guards ... during the
watch hours" provided that the same is duly reported by plaintiff within 24 hours of
the occurrence and the guard's negligence is verified after proper investigation with
the attendance of both contracting parties. Said paragraph is manifestly inapplicable
to the stipulated facts of record, which involve neither property of plaintiff that has
been lost or damaged at its premises nor mere negligence of defendant's security
guard on duty.
Here, instead of defendant, through its assigned security guards, complying with its
contractual undertaking 'to safeguard and protect the business premises of (plaintiff)
from theft, robbery, vandalism and all other unlawful acts of any person or persons,"
defendant's own guard on duty unlawfully and wrongfully drove out of plaintiffs
premises a customer's car, lost control of it on the highway causing it to fall into a
ditch, thereby directly causing plaintiff to incur actual damages in the total amount of
P8,489.10.

Defendant is therefore undoubtedly liable to indemnify plaintiff for the entire

damages thus incurred, since under paragraph 5 of their contract it "assumed the
responsibility for the proper performance by the guards employed of their duties and
(contracted to) be solely responsible for the acts done during their watch hours" and
"specifically released (plaintiff) from any and all liabilities ... to the third parties arising
from the acts or omissions done by the guards during their tour of duty."

Plaintiff was in law liable to its customer for the damages caused the customer's car,
which had been entrusted into its custody. Plaintiff therefore was in law justified in
making good such damages and relying in turn on defendant to honor its contract
and indemnify it for such undisputed damages, which had been caused directly by
the unlawful and wrongful acts of defendant's security guard in breach of their
contract. As ordained in Article 1159, Civil Code, "obligations arising from contracts
have the force of law between the contracting parties and should be complied with in
good faith."

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

FAUSTINO CRUZ, plaintiff-appellant,

vs.
J. M. TUASON & COMPANY, INC., and GREGORIO ARANETA, INC.,
defendants-appellees.

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.

G.R. No. L-9188 December 4, 1914

GUTIERREZ HERMANOS, plaintiff-appellee,

vs.
ENGRACIO ORENSE, defendant-appellant.

It having been proven at the trial that he gave his consent to the said sale, it follows
that the defendant conferred verbal, or at least implied, power of agency upon his
nephew Duran, who accepted it in the same way by selling the said property. The
principal must therefore fulfill all the obligations contracted by the agent, who acted
within the scope of his authority. (Civil Code, arts. 1709, 1710 and 1727.)

Even should it be held that the said consent was granted subsequently to the sale, it
is unquestionable that the defendant, the owner of the property, approved the action
of his nephew, who in this case acted as the manager of his uncle's business, and
Orense'r ratification produced the effect of an express authorization to make the said
sale. (Civil Code, arts. 1888 and 1892.)

Article 1259 of the Civil Code prescribes: "No one can contract in the name of
another without being authorized by him or without his legal representation according
to law.

A contract executed in the name of another by one who has neither his authorization
nor legal representation shall be void, unless it should be ratified by the person in
whose name it was executed before being revoked by the other contracting party.

The sworn statement made by the defendant, Orense, while testifying as a witness
at the trial of Duran for estafa, virtually confirms and ratifies the sale of his property
effected by his nephew, Duran, and, pursuant to article 1313 of the Civil Code,
remedies all defects which the contract may have contained from the moment of its
execution.

The sale of the said property made by Duran to Gutierrez Hermanos was indeed null
and void in the beginning, but afterwards became perfectly valid and cured of the
defect of nullity it bore at its execution by the confirmation solemnly made by the said
owner upon his stating under oath to the judge that he himself consented to his
nephew Jose Duran's making the said sale. Moreover, pursuant to article 1309 of the
Code, the right of action for nullification that could have been brought became legally
extinguished from the moment the contract was validly confirmed and ratified, and, in
the present case, it is unquestionable that the defendant did confirm the said
contract of sale and consent to its execution.

The repeated and successive statements made by the defendant Orense in two
actions, wherein he affirmed that he had given his consent to the sale of his property,
meet the requirements of the law and legally excuse the lack of written authority,
and, as they are a full ratification of the acts executed by his nephew Jose Duran,
they produce the effects of an express power of agency.

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.

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.

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.

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.

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.

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.

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

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.]

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.

G.R. No. L-17447 April 30, 1963

GONZALO PUYAT & SONS, INC., plaintiff-appelle,

vs.
CITY OF MANILA AND MARCELO SARMIENTO, as City Treasurer of Manila,
defendants-appellants

Appelle categorically stated that the payment was not voluntarily made, (a fact found
also by the lower court),but on the erronoues belief, that they were due. Under this
circumstance, the amount paid, even without protest is recoverable. "If the payer was
in doubt whether the debt was due, he may recover if he proves that it was not due"
(Art. 2156, NCC). Appellee had duly proved that taxes were not lawfully due. There
is, therefore, no doubt that the provisions of solutio indebtiti, the new Civil Code,
apply to the admitted facts of the case.

"Payment by reason of a mistake in the contruction or application of a doubtful or

difficult question of law may come within the scope of the preceding article" (Art.
21555)..

There is no gainsaying the fact that the payments made by appellee was due to a
mistake in the construction of a doubtful question of law.

"Every person who through an act or performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without
just or legal grounds, shall return the same to him"(Art. 22, Civil Code). It would
seems unedifying for the government, (here the City of Manila), that knowing it has
no right at all to collect or to receive money for alleged taxes paid by mistake, it
would be reluctant to return the same. No one should enrich itself unjustly at the
expense of another (Art. 2125, Civil Code)..

G.R. No. L-12191 October 14, 1918

JOSE CANGCO, plaintiff-appellant,

vs.
MANILA RAILROAD CO., defendant-appellee.

Ramon Sotelo for appellant.

Kincaid & Hartigan for appellee.

FISHER, J.:

At the time of the occurrence which gave rise to this litigation the plaintiff, Jose
Cangco, was in the employment of Manila Railroad Company in the capacity of clerk,
with a monthly wage of P25. He lived in the pueblo of San Mateo, in the province of
Rizal, which is located upon the line of the defendant railroad company; and in
coming daily by train to the company's office in the city of Manila where he worked,
he used a pass, supplied by the company, which entitled him to ride upon the
company's trains free of charge. Upon the occasion in question, January 20, 1915,
the plaintiff arose from his seat in the second class-car where he was riding and,
making, his exit through the door, took his position upon the steps of the coach,
seizing the upright guardrail with his right hand for support.

On the side of the train where passengers alight at the San Mateo station there is a
cement platform which begins to rise with a moderate gradient some distance away
from the company's office and extends along in front of said office for a distance
sufficient to cover the length of several coaches. As the train slowed down another
passenger, named Emilio Zuñiga, also an employee of the railroad company, got off
the same car, alighting safely at the point where the platform begins to rise from the
level of the ground. When the train had proceeded a little farther the plaintiff Jose
Cangco stepped off also, but one or both of his feet came in contact with a sack of
watermelons with the result that his feet slipped from under him and he fell violently
on the platform. His body at once rolled from the platform and was drawn under the
moving car, where his right arm was badly crushed and lacerated. It appears that
after the plaintiff alighted from the train the car moved forward possibly six meters
before it came to a full stop.

The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad
station was lighted dimly by a single light located some distance away, objects on
the platform where the accident occurred were difficult to discern especially to a
person emerging from a lighted car.

The explanation of the presence of a sack of melons on the platform where the
plaintiff alighted is found in the fact that it was the customary season for harvesting
these melons and a large lot had been brought to the station for the shipment to the
market. They were contained in numerous sacks which has been piled on the
platform in a row one upon another. The testimony shows that this row of sacks was
so placed of melons and the edge of platform; and it is clear that the fall of the
plaintiff was due to the fact that his foot alighted upon one of these melons at the
moment he stepped upon the platform. His statement that he failed to see these
objects in the darkness is readily to be credited.

The plaintiff was drawn from under the car in an unconscious condition, and it
appeared that the injuries which he had received were very serious. He was
therefore brought at once to a certain hospital in the city of Manila where an
examination was made and his arm was amputated. The result of this operation was
unsatisfactory, and the plaintiff was then carried to another hospital where a second
operation was performed and the member was again amputated higher up near the
shoulder. It appears in evidence that the plaintiff expended the sum of P790.25 in the
form of medical and surgical fees and for other expenses in connection with the
process of his curation.

Upon August 31, 1915, he instituted this proceeding in the Court of First Instance of
the city of Manila to recover damages of the defendant company, founding his action
upon the negligence of the servants and employees of the defendant in placing the
sacks of melons upon the platform and leaving them so placed as to be a menace to
the security of passenger alighting from the company's trains. At the hearing in the
Court of First Instance, his Honor, the trial judge, found the facts substantially as
above stated, and drew therefrom his conclusion to the effect that, although
negligence was attributable to the defendant by reason of the fact that the sacks of
melons were so placed as to obstruct passengers passing to and from the cars,
nevertheless, the plaintiff himself had failed to use due caution in alighting from the
coach and was therefore precluded form recovering. Judgment was accordingly
entered in favor of the defendant company, and the plaintiff appealed.

It can not be doubted that the employees of the railroad company were guilty of
negligence in piling these sacks on the platform in the manner above stated; that
their presence caused the plaintiff to fall as he alighted from the train; and that they
therefore constituted an effective legal cause of the injuries sustained by the plaintiff.
It necessarily follows that the defendant company is liable for the damage thereby
occasioned unless recovery is barred by the plaintiff's own contributory negligence.
In resolving this problem it is necessary that each of these conceptions of liability, to-
wit, the primary responsibility of the defendant company and the contributory
negligence of the plaintiff should be separately examined.

It is important to note that the foundation of the legal liability of the defendant is the
contract of carriage, and that the obligation to respond for the damage which plaintiff
has suffered arises, if at all, from the breach of that contract by reason of the failure
of defendant to exercise due care in its performance. That is to say, its liability is
direct and immediate, differing essentially, in legal viewpoint from that presumptive
responsibility for the negligence of its servants, imposed by article 1903 of the Civil
Code, which can be rebutted by proof of the exercise of due care in their selection
and supervision. Article 1903 of the Civil Code is not applicable to obligations arising
ex contractu, but only to extra-contractual obligations — or to use the technical form
of expression, that article relates only to culpa aquiliana and not to culpa contractual.

Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil
Code, clearly points out this distinction, which was also recognized by this Court in
its decision in the case of Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359).
In commenting upon article 1093 Manresa clearly points out the difference between
"culpa, substantive and independent, which of itself constitutes the source of an
obligation between persons not formerly connected by any legal tie" and culpa
considered as an accident in the performance of an obligation already existing . . . ."

In the Rakes case (supra) the decision of this court was made to rest squarely upon
the proposition that article 1903 of the Civil Code is not applicable to acts of
negligence which constitute the breach of a contract.

Upon this point the Court said:

The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are
understood to be those not growing out of pre-existing duties of the parties to one
another. But where relations already formed give rise to duties, whether springing
from contract or quasi-contract, then breaches of those duties are subject to article
1101, 1103, and 1104 of the same code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7
Phil. Rep., 359 at 365.)

This distinction is of the utmost importance. The liability, which, under the Spanish
law, is, in certain cases imposed upon employers with respect to damages
occasioned by the negligence of their employees to persons to whom they are not
bound by contract, is not based, as in the English Common Law, upon the principle
of respondeat superior — if it were, the master would be liable in every case and
unconditionally — but upon the principle announced in article 1902 of the Civil Code,
which imposes upon all persons who by their fault or negligence, do injury to
another, the obligation of making good the damage caused. One who places a
powerful automobile in the hands of a servant whom he knows to be ignorant of the
method of managing such a vehicle, is himself guilty of an act of negligence which
makes him liable for all the consequences of his imprudence. The obligation to make
good the damage arises at the very instant that the unskillful servant, while acting
within the scope of his employment causes the injury. The liability of the master is
personal and direct. But, if the master has not been guilty of any negligence
whatever in the selection and direction of the servant, he is not liable for the acts of
the latter, whatever done within the scope of his employment or not, if the damage
done by the servant does not amount to a breach of the contract between the master
and the person injured.

It is not accurate to say that proof of diligence and care in the selection and control of
the servant relieves the master from liability for the latter's acts — on the contrary,
that proof shows that the responsibility has never existed. As Manresa says (vol. 8,
p. 68) the liability arising from extra-contractual culpa is always based upon a
voluntary act or omission which, without willful intent, but by mere negligence or
inattention, has caused damage to another. A master who exercises all possible care
in the selection of his servant, taking into consideration the qualifications they should
possess for the discharge of the duties which it is his purpose to confide to them,
and directs them with equal diligence, thereby performs his duty to third persons to
whom he is bound by no contractual ties, and he incurs no liability whatever if, by
reason of the negligence of his servants, even within the scope of their employment,
such third person suffer damage. True it is that under article 1903 of the Civil Code
the law creates a presumption that he has been negligent in the selection or direction
of his servant, but the presumption is rebuttable and yield to proof of due care and
diligence in this respect.

The supreme court of Porto Rico, in interpreting identical provisions, as found in the
Porto Rico Code, has held that these articles are applicable to cases of extra-
contractual culpa exclusively. (Carmona vs. Cuesta, 20 Porto Rico Reports, 215.)

This distinction was again made patent by this Court in its decision in the case of
Bahia vs. Litonjua and Leynes, (30 Phil. rep., 624), which was an action brought
upon the theory of the extra-contractual liability of the defendant to respond for the
damage caused by the carelessness of his employee while acting within the scope of
his employment. The Court, after citing the last paragraph of article 1903 of the Civil
Code, said:

From this article two things are apparent: (1) That when an injury is caused by the
negligence of a servant or employee there instantly arises a presumption of law that
there was negligence on the part of the master or employer either in selection of the
servant or employee, or in supervision over him after the selection, or both; and (2)
that that presumption is juris tantum and not juris et de jure, and consequently, may
be rebutted. It follows necessarily that if the employer shows to the satisfaction of the
court that in selection and supervision he has exercised the care and diligence of a
good father of a family, the presumption is overcome and he is relieved from liability.

This theory bases the responsibility of the master ultimately on his own negligence
and not on that of his servant. This is the notable peculiarity of the Spanish law of
negligence. It is, of course, in striking contrast to the American doctrine that, in
relations with strangers, the negligence of the servant in conclusively the negligence
of the master.

The opinion there expressed by this Court, to the effect that in case of extra-
contractual culpa based upon negligence, it is necessary that there shall have been
some fault attributable to the defendant personally, and that the last paragraph of
article 1903 merely establishes a rebuttable presumption, is in complete accord with
the authoritative opinion of Manresa, who says (vol. 12, p. 611) that the liability
created by article 1903 is imposed by reason of the breach of the duties inherent in
the special relations of authority or superiority existing between the person called
upon to repair the damage and the one who, by his act or omission, was the cause
of it.
On the other hand, the liability of masters and employers for the negligent acts or
omissions of their servants or agents, when such acts or omissions cause damages
which amount to the breach of a contact, is not based upon a mere presumption of
the master's negligence in their selection or control, and proof of exercise of the
utmost diligence and care in this regard does not relieve the master of his liability for
the breach of his contract.

Every legal obligation must of necessity be extra-contractual or contractual. Extra-

contractual obligation has its source in the breach or omission of those mutual duties
which civilized society imposes upon it members, or which arise from these relations,
other than contractual, of certain members of society to others, generally embraced
in the concept of status. The legal rights of each member of society constitute the
measure of the corresponding legal duties, mainly negative in character, which the
existence of those rights imposes upon all other members of society. The breach of
these general duties whether due to willful intent or to mere inattention, if productive
of injury, give rise to an obligation to indemnify the injured party. The fundamental
distinction between obligations of this character and those which arise from contract,
rests upon the fact that in cases of non-contractual obligation it is the wrongful or
negligent act or omission itself which creates the vinculum juris, whereas in
contractual relations the vinculum exists independently of the breach of the voluntary
duty assumed by the parties when entering into the contractual relation.

With respect to extra-contractual obligation arising from negligence, whether of act or

omission, it is competent for the legislature to elect — and our Legislature has so
elected — whom such an obligation is imposed is morally culpable, or, on the
contrary, for reasons of public policy, to extend that liability, without regard to the
lack of moral culpability, so as to include responsibility for the negligence of those
person who acts or mission are imputable, by a legal fiction, to others who are in a
position to exercise an absolute or limited control over them. The legislature which
adopted our Civil Code has elected to limit extra-contractual liability — with certain
well-defined exceptions — to cases in which moral culpability can be directly imputed
to the persons to be charged. This moral responsibility may consist in having failed
to exercise due care in the selection and control of one's agents or servants, or in the
control of persons who, by reason of their status, occupy a position of dependency
with respect to the person made liable for their conduct.

The position of a natural or juridical person who has undertaken by contract to

render service to another, is wholly different from that to which article 1903 relates.
When the sources of the obligation upon which plaintiff's cause of action depends is
a negligent act or omission, the burden of proof rests upon plaintiff to prove the
negligence — if he does not his action fails. But when the facts averred show a
contractual undertaking by defendant for the benefit of plaintiff, and it is alleged that
plaintiff has failed or refused to perform the contract, it is not necessary for plaintiff to
specify in his pleadings whether the breach of the contract is due to willful fault or to
negligence on the part of the defendant, or of his servants or agents. Proof of the
contract and of its nonperformance is sufficient prima facie to warrant a recovery.
As a general rule . . . it is logical that in case of extra-contractual culpa, a suing
creditor should assume the burden of proof of its existence, as the only fact upon
which his action is based; while on the contrary, in a case of negligence which
presupposes the existence of a contractual obligation, if the creditor shows that it
exists and that it has been broken, it is not necessary for him to prove negligence.
(Manresa, vol. 8, p. 71 [1907 ed., p. 76]).

As it is not necessary for the plaintiff in an action for the breach of a contract to show
that the breach was due to the negligent conduct of defendant or of his servants,
even though such be in fact the actual cause of the breach, it is obvious that proof on
the part of defendant that the negligence or omission of his servants or agents
caused the breach of the contract would not constitute a defense to the action. If the
negligence of servants or agents could be invoked as a means of discharging the
liability arising from contract, the anomalous result would be that person acting
through the medium of agents or servants in the performance of their contracts,
would be in a better position than those acting in person. If one delivers a valuable
watch to watchmaker who contract to repair it, and the bailee, by a personal
negligent act causes its destruction, he is unquestionably liable. Would it be logical
to free him from his liability for the breach of his contract, which involves the duty to
exercise due care in the preservation of the watch, if he shows that it was his servant
whose negligence caused the injury? If such a theory could be accepted, juridical
persons would enjoy practically complete immunity from damages arising from the
breach of their contracts if caused by negligent acts as such juridical persons can of
necessity only act through agents or servants, and it would no doubt be true in most
instances that reasonable care had been taken in selection and direction of such
servants. If one delivers securities to a banking corporation as collateral, and they
are lost by reason of the negligence of some clerk employed by the bank, would it be
just and reasonable to permit the bank to relieve itself of liability for the breach of its
contract to return the collateral upon the payment of the debt by proving that due
care had been exercised in the selection and direction of the clerk?

This distinction between culpa aquiliana, as the source of an obligation, and culpa
contractual as a mere incident to the performance of a contract has frequently been
recognized by the supreme court of Spain. (Sentencias of June 27, 1894; November
20, 1896; and December 13, 1896.) In the decisions of November 20, 1896, it
appeared that plaintiff's action arose ex contractu, but that defendant sought to avail
himself of the provisions of article 1902 of the Civil Code as a defense. The Spanish
Supreme Court rejected defendant's contention, saying:

These are not cases of injury caused, without any pre-existing obligation, by fault or
negligence, such as those to which article 1902 of the Civil Code relates, but of
damages caused by the defendant's failure to carry out the undertakings imposed by
the contracts . . . .

A brief review of the earlier decision of this court involving the liability of employers
for damage done by the negligent acts of their servants will show that in no case has
the court ever decided that the negligence of the defendant's servants has been held
to constitute a defense to an action for damages for breach of contract.
In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of
a carriage was not liable for the damages caused by the negligence of his driver. In
that case the court commented on the fact that no evidence had been adduced in the
trial court that the defendant had been negligent in the employment of the driver, or
that he had any knowledge of his lack of skill or carefulness.

In the case of Baer Senior & Co's Successors vs. Compania Maritima (6 Phil. Rep.,
215), the plaintiff sued the defendant for damages caused by the loss of a barge
belonging to plaintiff which was allowed to get adrift by the negligence of defendant's
servants in the course of the performance of a contract of towage. The court held,
citing Manresa (vol. 8, pp. 29, 69) that if the "obligation of the defendant grew out of
a contract made between it and the plaintiff . . . we do not think that the provisions of
articles 1902 and 1903 are applicable to the case."

In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the
defendant to recover damages for the personal injuries caused by the negligence of
defendant's chauffeur while driving defendant's automobile in which defendant was
riding at the time. The court found that the damages were caused by the negligence
of the driver of the automobile, but held that the master was not liable, although he
was present at the time, saying:

. . . unless the negligent acts of the driver are continued for a length of time as to
give the owner a reasonable opportunity to observe them and to direct the driver to
desist therefrom. . . . The act complained of must be continued in the presence of the
owner for such length of time that the owner by his acquiescence, makes the driver's
acts his own.

In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage & Taxicab Co.
(33 Phil. Rep., 8), it is true that the court rested its conclusion as to the liability of the
defendant upon article 1903, although the facts disclosed that the injury complaint of
by plaintiff constituted a breach of the duty to him arising out of the contract of
transportation. The express ground of the decision in this case was that article 1903,
in dealing with the liability of a master for the negligent acts of his servants "makes
the distinction between private individuals and public enterprise;" that as to the latter
the law creates a rebuttable presumption of negligence in the selection or direction of
servants; and that in the particular case the presumption of negligence had not been
overcome.

It is evident, therefore that in its decision Yamada case, the court treated plaintiff's
action as though founded in tort rather than as based upon the breach of the contract
of carriage, and an examination of the pleadings and of the briefs shows that the
questions of law were in fact discussed upon this theory. Viewed from the standpoint
of the defendant the practical result must have been the same in any event. The
proof disclosed beyond doubt that the defendant's servant was grossly negligent and
that his negligence was the proximate cause of plaintiff's injury. It also affirmatively
appeared that defendant had been guilty of negligence in its failure to exercise
proper discretion in the direction of the servant. Defendant was, therefore, liable for
the injury suffered by plaintiff, whether the breach of the duty were to be regarded as
constituting culpa aquiliana or culpa contractual. As Manresa points out (vol. 8, pp.
29 and 69) whether negligence occurs an incident in the course of the performance
of a contractual undertaking or its itself the source of an extra-contractual
undertaking obligation, its essential characteristics are identical. There is always an
act or omission productive of damage due to carelessness or inattention on the part
of the defendant. Consequently, when the court holds that a defendant is liable in
damages for having failed to exercise due care, either directly, or in failing to
exercise proper care in the selection and direction of his servants, the practical result
is identical in either case. Therefore, it follows that it is not to be inferred, because
the court held in the Yamada case that defendant was liable for the damages
negligently caused by its servants to a person to whom it was bound by contract, and
made reference to the fact that the defendant was negligent in the selection and
control of its servants, that in such a case the court would have held that it would
have been a good defense to the action, if presented squarely upon the theory of the
breach of the contract, for defendant to have proved that it did in fact exercise care in
the selection and control of the servant.

The true explanation of such cases is to be found by directing the attention to the
relative spheres of contractual and extra-contractual obligations. The field of non-
contractual obligation is much more broader than that of contractual obligations,
comprising, as it does, the whole extent of juridical human relations. These two
fields, figuratively speaking, concentric; that is to say, the mere fact that a person is
bound to another by contract does not relieve him from extra-contractual liability to
such person. When such a contractual relation exists the obligor may break the
contract under such conditions that the same act which constitutes the source of an
extra-contractual obligation had no contract existed between the parties.

The contract of defendant to transport plaintiff carried with it, by implication, the duty
to carry him in safety and to provide safe means of entering and leaving its trains
(civil code, article 1258). That duty, being contractual, was direct and immediate, and
its non-performance could not be excused by proof that the fault was morally
imputable to defendant's servants.

The railroad company's defense involves the assumption that even granting that the
negligent conduct of its servants in placing an obstruction upon the platform was a
breach of its contractual obligation to maintain safe means of approaching and
leaving its trains, the direct and proximate cause of the injury suffered by plaintiff was
his own contributory negligence in failing to wait until the train had come to a
complete stop before alighting. Under the doctrine of comparative negligence
announced in the Rakes case (supra), if the accident was caused by plaintiff's own
negligence, no liability is imposed upon defendant's negligence and plaintiff's
negligence merely contributed to his injury, the damages should be apportioned. It is,
therefore, important to ascertain if defendant was in fact guilty of negligence.

It may be admitted that had plaintiff waited until the train had come to a full stop
before alighting, the particular injury suffered by him could not have occurred.
Defendant contends, and cites many authorities in support of the contention, that it is
negligence per se for a passenger to alight from a moving train. We are not disposed
to subscribe to this doctrine in its absolute form. We are of the opinion that this
proposition is too badly stated and is at variance with the experience of every-day
life. In this particular instance, that the train was barely moving when plaintiff alighted
is shown conclusively by the fact that it came to stop within six meters from the place
where he stepped from it. Thousands of person alight from trains under these
conditions every day of the year, and sustain no injury where the company has kept
its platform free from dangerous obstructions. There is no reason to believe that
plaintiff would have suffered any injury whatever in alighting as he did had it not been
for defendant's negligent failure to perform its duty to provide a safe alighting place.

We are of the opinion that the correct doctrine relating to this subject is that
expressed in Thompson's work on Negligence (vol. 3, sec. 3010) as follows:

The test by which to determine whether the passenger has been guilty of negligence
in attempting to alight from a moving railway train, is that of ordinary or reasonable
care. It is to be considered whether an ordinarily prudent person, of the age, sex and
condition of the passenger, would have acted as the passenger acted under the
circumstances disclosed by the evidence. This care has been defined to be, not the
care which may or should be used by the prudent man generally, but the care which
a man of ordinary prudence would use under similar circumstances, to avoid injury."
(Thompson, Commentaries on Negligence, vol. 3, sec. 3010.)

Or, it we prefer to adopt the mode of exposition used by this court in Picart vs. Smith
(37 Phil. rep., 809), we may say that the test is this; Was there anything in the
circumstances surrounding the plaintiff at the time he alighted from the train which
would have admonished a person of average prudence that to get off the train under
the conditions then existing was dangerous? If so, the plaintiff should have desisted
from alighting; and his failure so to desist was contributory negligence.1awph!l.net

As the case now before us presents itself, the only fact from which a conclusion can
be drawn to the effect that plaintiff was guilty of contributory negligence is that he
stepped off the car without being able to discern clearly the condition of the platform
and while the train was yet slowly moving. In considering the situation thus
presented, it should not be overlooked that the plaintiff was, as we find, ignorant of
the fact that the obstruction which was caused by the sacks of melons piled on the
platform existed; and as the defendant was bound by reason of its duty as a public
carrier to afford to its passengers facilities for safe egress from its trains, the plaintiff
had a right to assume, in the absence of some circumstance to warn him to the
contrary, that the platform was clear. The place, as we have already stated, was
dark, or dimly lighted, and this also is proof of a failure upon the part of the defendant
in the performance of a duty owing by it to the plaintiff; for if it were by any possibility
concede that it had right to pile these sacks in the path of alighting passengers, the
placing of them adequately so that their presence would be revealed.

As pertinent to the question of contributory negligence on the part of the plaintiff in

this case the following circumstances are to be noted: The company's platform was
constructed upon a level higher than that of the roadbed and the surrounding
ground. The distance from the steps of the car to the spot where the alighting
passenger would place his feet on the platform was thus reduced, thereby
decreasing the risk incident to stepping off. The nature of the platform, constructed
as it was of cement material, also assured to the passenger a stable and even
surface on which to alight. Furthermore, the plaintiff was possessed of the vigor and
agility of young manhood, and it was by no means so risky for him to get off while the
train was yet moving as the same act would have been in an aged or feeble person.
In determining the question of contributory negligence in performing such act — that
is to say, whether the passenger acted prudently or recklessly — the age, sex, and
physical condition of the passenger are circumstances necessarily affecting the
safety of the passenger, and should be considered. Women, it has been observed,
as a general rule are less capable than men of alighting with safety under such
conditions, as the nature of their wearing apparel obstructs the free movement of the
limbs. Again, it may be noted that the place was perfectly familiar to the plaintiff as it
was his daily custom to get on and of the train at this station. There could, therefore,
be no uncertainty in his mind with regard either to the length of the step which he
was required to take or the character of the platform where he was alighting. Our
conclusion is that the conduct of the plaintiff in undertaking to alight while the train
was yet slightly under way was not characterized by imprudence and that therefore
he was not guilty of contributory negligence.

The evidence shows that the plaintiff, at the time of the accident, was earning P25 a
month as a copyist clerk, and that the injuries he has suffered have permanently
disabled him from continuing that employment. Defendant has not shown that any
other gainful occupation is open to plaintiff. His expectancy of life, according to the
standard mortality tables, is approximately thirty-three years. We are of the opinion
that a fair compensation for the damage suffered by him for his permanent disability
is the sum of P2,500, and that he is also entitled to recover of defendant the
additional sum of P790.25 for medical attention, hospital services, and other
incidental expenditures connected with the treatment of his injuries.

The decision of lower court is reversed, and judgment is hereby rendered plaintiff for
the sum of P3,290.25, and for the costs of both instances. So ordered.

G.R. No. 34840 September 23, 1931

NARCISO GUTIERREZ, plaintiff-appellee,

vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ,
ABELARDO VELASCO, and SATURNINO CORTEZ, defendants-appellants.

L.D. Lockwood for appellants Velasco and Cortez.

San Agustin and Roxas for other appellants.
Ramon Diokno for appellee.

MALCOLM, J.:
This is an action brought by the plaintiff in the Court of First Instance of Manila
against the five defendants, to recover damages in the amount of P10,000, for
physical injuries suffered as a result of an automobile accident. On judgment being
rendered as prayed for by the plaintiff, both sets of defendants appealed.

On February 2, 1930, a passenger truck and an automobile of private ownership

collided while attempting to pass each other on the Talon bridge on the Manila South
Road in the municipality of Las Piñas, Province of Rizal. The truck was driven by the
chauffeur Abelardo Velasco, and was owned by Saturnino Cortez. The automobile
was being operated by Bonifacio Gutierrez, a lad 18 years of age, and was owned by
Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez. At the time of the
collision, the father was not in the car, but the mother, together will several other
members of the Gutierrez family, seven in all, were accommodated therein. A
passenger in the autobus, by the name of Narciso Gutierrez, was en route from San
Pablo, Laguna, to Manila. The collision between the bus and the automobile resulted
in Narciso Gutierrez suffering a fracture right leg which required medical attendance
for a considerable period of time, and which even at the date of the trial appears not
to have healed properly.

It is conceded that the collision was caused by negligence pure and simple. The
difference between the parties is that, while the plaintiff blames both sets of
defendants, the owner of the passenger truck blames the automobile, and the owner
of the automobile, in turn, blames the truck. We have given close attention to these
highly debatable points, and having done so, a majority of the court are of the
opinion that the findings of the trial judge on all controversial questions of fact find
sufficient support in the record, and so should be maintained. With this general
statement set down, we turn to consider the respective legal obligations of the
defendants.

In amplification of so much of the above pronouncement as concerns the Gutierrez

family, it may be explained that the youth Bonifacio was in incompetent chauffeur,
that he was driving at an excessive rate of speed, and that, on approaching the
bridge and the truck, he lost his head and so contributed by his negligence to the
accident. The guaranty given by the father at the time the son was granted a license
to operate motor vehicles made the father responsible for the acts of his son. Based
on these facts, pursuant to the provisions of article 1903 of the Civil Code, the father
alone and not the minor or the mother, would be liable for the damages caused by
the minor.

We are dealing with the civil law liability of parties for obligations which arise from
fault or negligence. At the same time, we believe that, as has been done in other
cases, we can take cognizance of the common law rule on the same subject. In the
United States, it is uniformly held that the head of a house, the owner of an
automobile, who maintains it for the general use of his family is liable for its negligent
operation by one of his children, whom he designates or permits to run it, where the
car is occupied and being used at the time of the injury for the pleasure of other
members of the owner's family than the child driving it. The theory of the law is that
the running of the machine by a child to carry other members of the family is within
the scope of the owner's business, so that he is liable for the negligence of the child
because of the relationship of master and servant. (Huddy On Automobiles, 6th ed.,
sec. 660; Missell vs. Hayes [1914], 91 Atl., 322.) The liability of Saturnino Cortez, the
owner of the truck, and of his chauffeur Abelardo Velasco rests on a different basis,
namely, that of contract which, we think, has been sufficiently demonstrated by the
allegations of the complaint, not controverted, and the evidence. The reason for this
conclusion reaches to the findings of the trial court concerning the position of the
truck on the bridge, the speed in operating the machine, and the lack of care
employed by the chauffeur. While these facts are not as clearly evidenced as are
those which convict the other defendant, we nevertheless hesitate to disregard the
points emphasized by the trial judge. In its broader aspects, the case is one of two
drivers approaching a narrow bridge from opposite directions, with neither being
willing to slow up and give the right of way to the other, with the inevitable result of a
collision and an accident.

The defendants Velasco and Cortez further contend that there existed contributory
negligence on the part of the plaintiff, consisting principally of his keeping his foot
outside the truck, which occasioned his injury. In this connection, it is sufficient to
state that, aside from the fact that the defense of contributory negligence was not
pleaded, the evidence bearing out this theory of the case is contradictory in the
extreme and leads us far afield into speculative matters.

The last subject for consideration relates to the amount of the award. The appellee
suggests that the amount could justly be raised to P16,517, but naturally is not
serious in asking for this sum, since no appeal was taken by him from the judgment.
The other parties unite in challenging the award of P10,000, as excessive. All facts
considered, including actual expenditures and damages for the injury to the leg of
the plaintiff, which may cause him permanent lameness, in connection with other
adjudications of this court, lead us to conclude that a total sum for the plaintiff of
P5,000 would be fair and reasonable. The difficulty in approximating the damages by
monetary compensation is well elucidated by the divergence of opinion among the
members of the court, three of whom have inclined to the view that P3,000 would be
amply sufficient, while a fourth member has argued that P7,500 would be none too
much.

In consonance with the foregoing rulings, the judgment appealed from will be
modified, and the plaintiff will have judgment in his favor against the defendants
Manuel Gutierrez, Abelardo Velasco, and Saturnino Cortez, jointly and severally, for
the sum of P5,000, and the costs of both instances.

D. Kinds of Civil Obligations

1. As to Perfection & Extinguishment

G.R. No. 178610 November 17, 2010

HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF RETIREMENT

PLAN, Retirement Trust Fund, Inc.) Petitioner,
vs.
SPOUSES BIENVENIDO AND EDITHA BROQUEZA, Respondents.

DECISION

CARPIO, J.:

G.R. No. 178610 is a petition for review1 assailing the Decision2 promulgated on 30
March 2006 by the Court of Appeals (CA) in CA-G.R. SP No. 62685. The appellate
court granted the petition filed by Fe Gerong (Gerong) and Spouses Bienvenido and
Editha Broqueza (spouses Broqueza) and dismissed the consolidated complaints
filed by Hongkong and Shanghai Banking Corporation, Ltd. - Staff Retirement Plan
(HSBCL-SRP) for recovery of sum of money. The appellate court reversed and set
aside the Decision3 of Branch 139 of the Regional Trial Court of Makati City (RTC) in
Civil Case No. 00-787 dated 11 December 2000, as well as its Order4 dated 5
September 2000. The RTC’s decision affirmed the Decision5 dated 28 December
1999 of Branch 61 of the Metropolitan Trial Court (MeTC) of Makati City in Civil Case
No. 52400 for Recovery of a Sum of Money.

The Facts

The appellate court narrated the facts as follows:

Petitioners Gerong and [Editha] Broqueza (defendants below) are employees of

Hongkong and Shanghai Banking Corporation (HSBC). They are also members of
respondent Hongkong Shanghai Banking Corporation, Ltd. Staff Retirement Plan
(HSBCL-SRP, plaintiff below). The HSBCL-SRP is a retirement plan established by
HSBC through its Board of Trustees for the benefit of the employees.

On October 1, 1990, petitioner [Editha] Broqueza obtained a car loan in the amount
of Php175,000.00. On December 12, 1991, she again applied and was granted an
appliance loan in the amount of Php24,000.00. On the other hand, petitioner Gerong
applied and was granted an emergency loan in the amount of Php35,780.00 on June
2, 1993. These loans are paid through automatic salary deduction.

Meanwhile [in 1993], a labor dispute arose between HSBC and its employees.
Majority of HSBC’s employees were terminated, among whom are petitioners Editha
Broqueza and Fe Gerong. The employees then filed an illegal dismissal case before
the National Labor Relations Commission (NLRC) against HSBC. The legality or
illegality of such termination is now pending before this appellate Court in CA G.R.
CV No. 56797, entitled Hongkong Shanghai Banking Corp. Employees Union, et al.
vs. National Labor Relations Commission, et al.

Because of their dismissal, petitioners were not able to pay the monthly
amortizations of their respective loans. Thus, respondent HSBCL-SRP considered
the accounts of petitioners delinquent. Demands to pay the respective obligations
were made upon petitioners, but they failed to pay.6
HSBCL-SRP, acting through its Board of Trustees and represented by Alejandro L.
Custodio, filed Civil Case No. 52400 against the spouses Broqueza on 31 July 1996.
On 19 September 1996, HSBCL-SRP filed Civil Case No. 52911 against Gerong.
Both suits were civil actions for recovery and collection of sums of money.

The Metropolitan Trial Court’s Ruling

On 28 December 1999, the MeTC promulgated its Decision7 in favor of HSBCL-

SRP. The MeTC ruled that the nature of HSBCL-SRP’s demands for payment is civil
and has no connection to the ongoing labor dispute. Gerong and Editha Broqueza’s
termination from employment resulted in the loss of continued benefits under their
retirement plans. Thus, the loans secured by their future retirement benefits to which
they are no longer entitled are reduced to unsecured and pure civil obligations. As
unsecured and pure obligations, the loans are immediately demandable.

The dispositive portion of the MeTC’s decision reads:

WHEREFORE, premises considered and in view of the foregoing, the Court finds
that the plaintiff was able to prove by a preponderance of evidence the existence and
immediate demandability of the defendants’ loan obligations as judgment is hereby
rendered in favor of the plaintiff and against the defendants in both cases, ordering
the latter:

1. In Civil Case No. 52400, to pay the amount of Php116,740.00 at six percent
interest per annum from the time of demand and in Civil Case No. 52911, to pay the
amount of Php25,344.12 at six percent per annum from the time of the filing of these
cases, until the amount is fully paid;

2. To pay the amount of Php20,000.00 each as reasonable attorney’s fees;

3. Cost of suit.

SO ORDERED.8

Gerong and the spouses Broqueza filed a joint appeal of the MeTC’s decision before
the RTC. Gerong’s case was docketed Civil Case No. 00-786, while the spouses
Broqueza’s case was docketed as Civil Case No. 00-787.

The Regional Trial Court’s Ruling

The RTC initially denied the joint appeal because of the belated filing of Gerong and
the spouses Broqueza’s memorandum. The RTC later reconsidered the order of
denial and resolved the issues in the interest of justice.

On 11 December 2000, the RTC affirmed the MeTC’s decision in toto.9

The RTC ruled that Gerong and Editha Broqueza’s termination from employment
disqualified them from availing of benefits under their retirement plans. As a
consequence, there is no longer any security for the loans. HSBCL-SRP has a legal
right to demand immediate settlement of the unpaid balance because of Gerong and
Editha Broqueza’s continued default in payment and their failure to provide new
security for their loans. Moreover, the absence of a period within which to pay the
loan allows HSBCL-SRP to demand immediate payment. The loan obligations are
considered pure obligations, the fulfillment of which are demandable at once.

Gerong and the spouses Broqueza then filed a Petition for Review under Rule 42
before the CA.

The Ruling of the Court of Appeals

On 30 March 2006, the CA rendered its Decision10 which reversed the 11

December 2000 Decision of the RTC. The CA ruled that the HSBCL-SRP’s
complaints for recovery of sum of money against Gerong and the spouses Broqueza
are premature as the loan obligations have not yet matured. Thus, no cause of
action accrued in favor of HSBCL-SRP. The dispositive portion of the appellate
court’s Decision reads as follows:

WHEREFORE, the assailed Decision of the RTC is REVERSED and SET ASIDE. A
new one is hereby rendered DISMISSING the consolidated complaints for recovery
of sum of money.

SO ORDERED.11

HSBCL-SRP filed a motion for reconsideration which the CA denied for lack of merit
in its Resolution12 promulgated on 19 June 2007.

On 6 August 2007, HSBCL-SRP filed a manifestation withdrawing the petition

against Gerong because she already settled her obligations. In a Resolution13 of
this Court dated 10 September 2007, this Court treated the manifestation as a
motion to withdraw the petition against Gerong, granted the motion, and considered
the case against Gerong closed and terminated.

Issues

HSBCL-SRP enumerated the following grounds to support its Petition:

I. The Court of Appeals has decided a question of substance in a way not in accord
with law and applicable decisions of this Honorable Court; and

II. The Court of Appeals has departed from the accepted and usual course of judicial
proceedings in reversing the decision of the Regional Trial Court and the
Metropolitan Trial Court.14

The Court’s Ruling

The petition is meritorious. We agree with the rulings of the MeTC and the RTC.
The Promissory Notes uniformly provide:

PROMISSORY NOTE

P_____ Makati, M.M. ____ 19__

FOR VALUE RECEIVED, I/WE _____ jointly and severally promise to pay to THE
HSBC RETIREMENT PLAN (hereinafter called the "PLAN") at its office in the
Municipality of Makati, Metro Manila, on or before until fully paid the sum of PESOS
___ (P___) Philippine Currency without discount, with interest from date hereof at
the rate of Six per cent (6%) per annum, payable monthly.

I/WE agree that the PLAN may, upon written notice, increase the interest rate
stipulated in this note at any time depending on prevailing conditions.

I/WE hereby expressly consent to any extensions or renewals hereof for a portion or
whole of the principal without notice to the other(s), and in such a case our liability
shall remain joint and several.1avvphi1

In case collection is made by or through an attorney, I/WE jointly and severally agree
to pay ten percent (10%) of the amount due on this note (but in no case less than
P200.00) as and for attorney’s fees in addition to expenses and costs of suit.

In case of judicial execution, I/WE hereby jointly and severally waive our rights under
the provisions of Rule 39, Section 12 of the Rules of Court.15

In ruling for HSBCL-SRP, we apply the first paragraph of Article 1179 of the Civil
Code:

Art. 1179. Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is demandable at
once.

x x x. (Emphasis supplied.)

We affirm the findings of the MeTC and the RTC that there is no date of payment
indicated in the Promissory Notes. The RTC is correct in ruling that since the
Promissory Notes do not contain a period, HSBCL-SRP has the right to demand
immediate payment. Article 1179 of the Civil Code applies. The spouses Broqueza’s
obligation to pay HSBCL-SRP is a pure obligation. The fact that HSBCL-SRP was
content with the prior monthly check-off from Editha Broqueza’s salary is of no
moment. Once Editha Broqueza defaulted in her monthly payment, HSBCL-SRP
made a demand to enforce a pure obligation.

In their Answer, the spouses Broqueza admitted that prior to Editha Broqueza’s
dismissal from HSBC in December 1993, she "religiously paid the loan
amortizations, which HSBC collected through payroll check-off."16 A definite amount
is paid to HSBCL-SRP on a specific date. Editha Broqueza authorized HSBCL-SRP
to make deductions from her payroll until her loans are fully paid. Editha Broqueza,
however, defaulted in her monthly loan payment due to her dismissal. Despite the
spouses Broqueza’s protestations, the payroll deduction is merely a convenient
mode of payment and not the sole source of payment for the loans. HSBCL-SRP
never agreed that the loans will be paid only through salary deductions. Neither did
HSBCL-SRP agree that if Editha Broqueza ceases to be an employee of HSBC, her
obligation to pay the loans will be suspended. HSBCL-SRP can immediately demand
payment of the loans at anytime because the obligation to pay has no period.
Moreover, the spouses Broqueza have already incurred in default in paying the
monthly installments.

Finally, the enforcement of a loan agreement involves "debtor-creditor relations

founded on contract and does not in any way concern employee relations. As such it
should be enforced through a separate civil action in the regular courts and not
before the Labor Arbiter."17

WHEREFORE, we GRANT the petition. The Decision of the Court of Appeals in CA-
G.R. SP No. 62685 promulgated on 30 March 2006 is REVERSED and SET ASIDE.
The decision of Branch 139 of the Regional Trial Court of Makati City in Civil Case
No. 00-787, as well as the decision of Branch 61 of the Metropolitan Trial Court of
Makati City in Civil Case No. 52400 against the spouses Bienvenido and Editha
Broqueza, are AFFIRMED. Costs against respondents.

SO ORDERED.

G.R. No. L-29900 June 28, 1974

IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA, Deceased,

GEORGE PAY, petitioner-appellant,
vs.
SEGUNDINA CHUA VDA. DE PALANCA, oppositor-appellee.

Florentino B. del Rosario for petitioner-appellant.

Manuel V. San Jose for oppositor-appellee.

FERNANDO, J.:p

There is no difficulty attending the disposition of this appeal by petitioner on

questions of law. While several points were raised, the decisive issue is whether a
creditor is barred by prescription in his attempt to collect on a promissory note
executed more than fifteen years earlier with the debtor sued promising to pay either
upon receipt by him of his share from a certain estate or upon demand, the basis for
the action being the latter alternative. The lower court held that the ten-year period of
limitation of actions did apply, the note being immediately due and demandable, the
creditor admitting expressly that he was relying on the wording "upon demand." On
the above facts as found, and with the law being as it is, it cannot be said that its
decision is infected with error. We affirm.

From the appealed decision, the following appears: "The parties in this case agreed
to submit the matter for resolution on the basis of their pleadings and annexes and
their respective memoranda submitted. Petitioner George Pay is a creditor of the
Late Justo Palanca who died in Manila on July 3, 1963. The claim of the petitioner is
based on a promissory note dated January 30, 1952, whereby the late Justo Palanca
and Rosa Gonzales Vda. de Carlos Palanca promised to pay George Pay the
amount of P26,900.00, with interest thereon at the rate of 12% per annum. George
Pay is now before this Court, asking that Segundina Chua vda. de Palanca, surviving
spouse of the late Justo Palanca, he appointed as administratrix of a certain piece of
property which is a residential dwelling located at 2656 Taft Avenue, Manila, covered
by Tax Declaration No. 3114 in the name of Justo Palanca, assessed at P41,800.00.
The idea is that once said property is brought under administration, George Pay, as
creditor, can file his claim against the administratrix."1 It then stated that the petition
could not prosper as there was a refusal on the part of Segundina Chua Vda. de
Palanca to be appointed as administratrix; that the property sought to be
administered no longer belonged to the debtor, the late Justo Palanca; and that the
rights of petitioner-creditor had already prescribed. The promissory note, dated
January 30, 1962, is worded thus: " `For value received from time to time since 1947,
we [jointly and severally promise to] pay to Mr. [George Pay] at his office at the
China Banking Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos]
(P26,900.00), with interest thereon at the rate of 12% per annum upon receipt by
either of the undersigned of cash payment from the Estate of the late Don Carlos
Palanca or upon demand'. . . . As stated, this promissory note is signed by Rosa
Gonzales Vda. de Carlos Palanca and Justo Palanca."2 Then came this paragraph:
"The Court has inquired whether any cash payment has been received by either of
the signers of this promissory note from the Estate of the late Carlos Palanca.
Petitioner informed that he does not insist on this provision but that petitioner is only
claiming on his right under the promissory note ."3 After which, came the ruling that
the wording of the promissory note being "upon demand," the obligation was
immediately due. Since it was dated January 30, 1952, it was clear that more "than
ten (10) years has already transpired from that time until to date. The action,
therefore, of the creditor has definitely prescribed."4 The result, as above noted, was
the dismissal of the petition.

In an exhaustive brief prepared by Attorney Florentino B. del Rosario, petitioner did

assail the correctness of the rulings of the lower court as to the effect of the refusal
of the surviving spouse of the late Justo Palanca to be appointed as administratrix,
as to the property sought to be administered no longer belonging to the debtor, the
late Justo Palanca, and as to the rights of petitioner-creditor having already
prescribed. As noted at the outset, only the question of prescription need detain us in
the disposition of this appeal. Likewise, as intimated, the decision must be affirmed,
considering the clear tenor of the promissory note.

From the manner in which the promissory note was executed, it would appear that
petitioner was hopeful that the satisfaction of his credit could he realized either
through the debtor sued receiving cash payment from the estate of the late Carlos
Palanca presumptively as one of the heirs, or, as expressed therein, "upon demand."
There is nothing in the record that would indicate whether or not the first alternative
was fulfilled. What is undeniable is that on August 26, 1967, more than fifteen years
after the execution of the promissory note on January 30, 1952, this petition was
filed. The defense interposed was prescription. Its merit is rather obvious. Article
1179 of the Civil Code provides: "Every obligation whose performance does not
depend upon a future or uncertain event, or upon a past event unknown to the
parties, is demandable at once." This used to be Article 1113 of the Spanish Civil
Code of 1889. As far back as Floriano v. Delgado,5 a 1908 decision, it has been
applied according to its express language. The well-known Spanish commentator,
Manresa, on this point, states: "Dejando con acierto, el caracter mas teorico y grafico
del acto, o sea la perfeccion de este, se fija, para determinar el concepto de la
obligacion pura, en el distinctive de esta, y que es consecuencia de aquel: la
exigibilidad immediata."6

The obligation being due and demandable, it would appear that the filing of the suit
after fifteen years was much too late. For again, according to the Civil Code, which is
based on Section 43 of Act No. 190, the prescriptive period for a written contract is
that of ten years.7 This is another instance where this Court has consistently
adhered to the express language of the applicable norm.8 There is no necessity
therefore of passing upon the other legal questions as to whether or not it did suffice
for the petition to fail just because the surviving spouse refuses to be made
administratrix, or just because the estate was left with no other property. The
decision of the lower court cannot be overturned.

WHEREFORE, the lower court decision of July 24, 1968 is affirmed. Costs against
George Pay.

G.R. No. L-16570 March 9, 1922

SMITH, BELL & CO., LTD., plaintiff-appellant,

vs.
VICENTE SOTELO MATTI, defendant-appellant.

Ross and Lawrence and Ewald E. Selph for plaintiff-appellant.

Ramon Sotelo for defendant-appellant.

ROMUALDEZ, J.:

In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo,
entered into contracts whereby the former obligated itself to sell, and the latter to
purchase from it, two steel tanks, for the total price of twenty-one thousand pesos
(P21,000), the same to be shipped from New York and delivered at Manila "within
three or four months;" two expellers at the price of twenty five thousand pesos
(P25,000) each, which were to be shipped from San Francisco in the month of
September, 1918, or as soon as possible; and two electric motors at the price of two
thousand pesos (P2,000) each, as to the delivery of which stipulation was made,
couched in these words: "Approximate delivery within ninety days. — This is not
guaranteed."

The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of
October, 1918; and the motors on the 27th of February, 1919.

The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these
goods, but Mr. Sotelo refused to receive them and to pay the prices stipulated.

The plaintiff brought suit against the defendant, based on four separate causes of
action, alleging, among other facts, that it immediately notified the defendant of the
arrival of the goods, and asked instructions from him as to the delivery thereof, and
that the defendant refused to receive any of them and to pay their price. The plaintiff,
further, alleged that the expellers and the motors were in good condition. (Amended
complaint, pages 16-30, Bill of Exceptions.)

In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining
and By-Products Co., Inc., denied the plaintiff's allegations as to the shipment of
these goods and their arrival at Manila, the notification to the defendant, Mr. Sotelo,
the latter's refusal to receive them and pay their price, and the good condition of the
expellers and the motors, alleging as special defense that Mr. Sotelo had made the
contracts in question as manager of the intervenor, the Manila Oil Refining and By-
Products Co., Inc which fact was known to the plaintiff, and that "it was only in May,
1919, that it notified the intervenor that said tanks had arrived, the motors and the
expellers having arrived incomplete and long after the date stipulated." As a
counterclaim or set-off, they also allege that, as a consequence of the plaintiff's delay
in making delivery of the goods, which the intervenor intended to use in the
manufacture of cocoanut oil, the intervenor suffered damages in the sums of one
hundred sixteen thousand seven hundred eighty-three pesos and ninety-one
centavos (P116,783.91) for the nondelivery of the tanks, and twenty-one thousand
two hundred and fifty pesos (P21,250) on account of the expellers and the motors
not having arrived in due time.

The case having been tried, the court below absolved the defendants from the
complaint insofar as the tanks and the electric motors were concerned, but rendered
judgment against them, ordering them to "receive the aforesaid expellers and pay
the plaintiff the sum of fifty thousand pesos (P50,00), the price of the said goods,
with legal interest thereon from July 26, 1919, and costs."

Both parties appeal from this judgment, each assigning several errors in the findings
of the lower court.

The principal point at issue in this case is whether or not, under the contracts
entered into and the circumstances established in the record, the plaintiff has
fulfilled, in due time, its obligation to bring the goods in question to Manila. If it has,
then it is entitled to the relief prayed for; otherwise, it must be held guilty of delay and
liable for the consequences thereof.
To solve this question, it is necessary to determine what period was fixed for the
delivery of the goods.

As regards the tanks, the contracts A and B (pages 61 and 62 of the record) are
similar, and in both of them we find this clause:

To be delivered within 3 or 4 months — The promise or indication of shipment

carries with it absolutely no obligation on our part — Government regulations,
railroad embargoes, lack of vessel space, the exigencies of the requirement of the
United States Government, or a number of causes may act to entirely vitiate the
indication of shipment as stated. In other words, the order is accepted on the basis of
shipment at Mill's convenience, time of shipment being merely an indication of what
we hope to accomplish.

In the contract Exhibit C (page 63 of the record), with reference to the expellers, the
following stipulation appears:

The following articles, hereinbelow more particularly described, to be shipped at San

Francisco within the month of September /18, or as soon as possible. — Two
Anderson oil expellers . . . .

And in the contract relative to the motors (Exhibit D, page 64, rec.) the following
appears:

Approximate delivery within ninety days. — This is not guaranteed. — This sale is
subject to our being able to obtain Priority Certificate, subject to the United States
Government requirements and also subject to confirmation of manufactures.

In all these contracts, there is a final clause as follows:

The sellers are not responsible for delays caused by fires, riots on land or on the
sea, strikes or other causes known as "Force Majeure" entirely beyond the control of
the sellers or their representatives.

Under these stipulations, it cannot be said that any definite date was fixed for the
delivery of the goods. As to the tanks, the agreement was that the delivery was to be
made "within 3 or 4 months," but that period was subject to the contingencies
referred to in a subsequent clause. With regard to the expellers, the contract says
"within the month of September, 1918," but to this is added "or as soon as possible."
And with reference to the motors, the contract contains this expression,
"Approximate delivery within ninety days," but right after this, it is noted that "this is
not guaranteed."

The oral evidence falls short of fixing such period.

From the record it appears that these contracts were executed at the time of the
world war when there existed rigid restrictions on the export from the United States
of articles like the machinery in question, and maritime, as well as railroad,
transportation was difficult, which fact was known to the parties; hence clauses were
inserted in the contracts, regarding "Government regulations, railroad embargoes,
lack of vessel space, the exigencies of the requirements of the United States
Government," in connection with the tanks and "Priority Certificate, subject to the
United State Government requirements," with respect to the motors. At the time of
the execution of the contracts, the parties were not unmindful of the contingency of
the United States Government not allowing the export of the goods, nor of the fact
that the other foreseen circumstances therein stated might prevent it.

Considering these contracts in the light of the civil law, we cannot but conclude that
the term which the parties attempted to fix is so uncertain that one cannot tell just
whether, as a matter of fact, those articles could be brought to Manila or not. If that is
the case, as we think it is, the obligations must be regarded as conditional.

Obligations for the performance of which a day certain has been fixed shall be
demandable only when the day arrives.

A day certain is understood to be one which must necessarily arrive, even though its
date be unknown.

If the uncertainty should consist in the arrival or non-arrival of the day, the obligation
is conditional and shall be governed by the rules of the next preceding section.
(referring to pure and conditional obligations). (Art. 1125, Civ. Code.)

And as the export of the machinery in question was, as stated in the contract,
contingent upon the sellers obtaining certificate of priority and permission of the
United States Government, subject to the rules and regulations, as well as to railroad
embargoes, then the delivery was subject to a condition the fulfillment of which
depended not only upon the effort of the herein plaintiff, but upon the will of third
persons who could in no way be compelled to fulfill the condition. In cases like this,
which are not expressly provided for, but impliedly covered, by the Civil Code, the
obligor will be deemed to have sufficiently performed his part of the obligation, if he
has done all that was in his power, even if the condition has not been fulfilled in
reality.

In such cases, the decisions prior to the Civil Code have held that the obligee having
done all that was in his power, was entitled to enforce performance of the obligation.
This performance, which is fictitious — not real — is not expressly authorized by the
Code, which limits itself only to declare valid those conditions and the obligation
thereby affected; but it is neither disallowed, and the Code being thus silent, the old
view can be maintained as a doctrine. (Manresa's commentaries on the Civil Code
[1907], vol. 8, page 132.)

The decisions referred to by Mr. Manresa are those rendered by the supreme court
of Spain on November 19, 1896, and February 23, 1871.

In the former it is held:

First. That when the fulfillment of the conditions does not depend on the will of the
obligor, but on that of a third person who can in no way be compelled to carry it out,
and it is found by the lower court that the obligor has done all in his power to comply
with the obligation, the judgment of the said court, ordering the other party to comply
with his part of the contract, is not contrary to the law of contracts, or to Law 1, Tit. I,
Book 10, of the "Novísima Recopilación," or Law 12, Tit. 11, of Partida 5, when in the
said finding of the lower court, no law or precedent is alleged to have been violated.
(Jurisprudencia Civil published by the directors of the Revista General de Legislacion
y Jurisprudencia [1866], vol. 14, page 656.)

In the second decision, the following doctrine is laid down:

Second. That when the fulfillment of the condition does not depend on the will of the
obligor, but on that of a third person, who can in no way be compelled to carry it out,
the obligor's part of the contract is complied withalf Belisario not having exercised his
right of repurchase reserved in the sale of Basilio Borja mentioned in paragraph (13)
hereof, the affidavit of Basilio Borja for the consolidacion de dominio was presented
for record in the registry of deeds and recorded in the registry on the same date.

(32) The Maximo Belisario left a widow, the opponent Adelina Ferrer and three minor
children, Vitaliana, Eugenio, and Aureno Belisario as his only heirs.

(33) That in the execution and sales thereunder, in which C. H. McClure appears as
the judgment creditor, he was represented by the opponent Peter W. Addison, who
prepared and had charge of publication of the notices of the various sales and that in
none of the sales was the notice published more than twice in a newspaper.

The claims of the opponent-appellant Addison have been very fully and ably argued
by his counsel but may, we think, be disposed of in comparatively few words. As will
be seen from the foregoing statement of facts, he rest his title (1) on the sales under
the executions issued in cases Nos. 435, 450, 454, and 499 of the court of the
justice of the peace of Dagupan with the priority of inscription of the last two sales in
the registry of deeds, and (2) on a purchase from the Director of Lands after the land
in question had been forfeited to the Government for non-payment of taxes under
Act No. 1791.

The sheriff's sales under the execution mentioned are fatally defective for what of
sufficient publication of the notice of sale. Section 454 of the Code of civil Procedure
reads in part as follows:

SEC. 454. Before the sale of property on execution, notice thereof must be given, as
follows:

1. In case of perishable property, by posing written notice of the time and place of
the sale in three public places of the municipality or city where the sale is to take
place, for such time as may be reasonable, considering the character and condition
of the property;
2. * * * * * * *

3. In cases of real property, by posting a similar notice particularly describing the

property, for twenty days in three public places of the municipality or city where the
property is situated, and also where the property is to be sold, and publishing a copy
thereof once a week, for the same period, in some newspaper published or having
general circulation in the province, if there be one. If there are newspaper published
in the province in both the Spanish and English languages, then a like publication for
a like period shall be made in one newspaper published in the Spanish language,
and in one published in the English language: Provided, however, That such
publication in a newspaper will not be required when the assessed valuation of the
property does not exceed four hundred pesos;

4. * * * * * * *

Examining the record, we find that in cases Nos. 435 and 450 the sales took place
on October 14, 1916; the notice first published gave the date of the sale as October
15th, but upon discovering that October 15th was a Sunday, the date was changed
to October 14th. The correct notice was published twice in a local newspaper, the
first publication was made on October 7th and the second and last on October 14th,
the date of the sale itself. The newspaper is a weekly periodical published every
Saturday afternoon.

In case No. 454 there were only two publications of the notice in a newspaper, the
first publication being made only fourteen days before the date of the sale. In case
No. 499, there were also only two publications, the first of which was made thirteen
days before the sale. In the last case the sale was advertised for the hours of from
8:30 in the morning until 4:30 in the afternoon, in violation of section 457 of the Code
of Civil Procedure. In cases Nos. 435 and 450 the hours advertised were from 9:00
in the morning until 4.30 in the afternoon. In all of the cases the notices of the sale
were prepared by the judgment creditor or his agent, who also took charged of the
publication of such notices.

In the case of Campomanes vs. Bartolome and Germann & Co. (38 Phil., 808), this
court held that if a sheriff sells without the notice prescribe by the Code of Civil
Procedure induced thereto by the judgment creditor and the purchaser at the sale is
the judgment creditor, the sale is absolutely void and not title passes. This must now
be regarded as the settled doctrine in this jurisdiction whatever the rule may be
elsewhere.

It appears affirmatively from the evidence in the present case that there is a
newspaper published in the province where the sale in question took place and that
the assessed valuation of the property disposed of at each sale exceeded P400.
Comparing the requirements of section 454, supra, with what was actually done, it is
self-evident that notices of the sales mentioned were not given as prescribed by the
statute and taking into consideration that in connection with these sales the appellant
Addison was either the judgment creditor or else occupied a position analogous to
that of a judgment creditor, the sales must be held invalid.
The conveyance or reconveyance of the land from the Director of Lands is equally
invalid. The provisions of Act No. 1791 pertinent to the purchase or repurchase of
land confiscated for non-payment of taxes are found in section 19 of the Act and
read:

. . . In case such redemption be not made within the time above specified the
Government of the Philippine Islands shall have an absolute, indefeasible title to said
real property. Upon the expiration of the said ninety days, if redemption be not made,
the provincial treasurer shall immediately notify the Director of Lands of the forfeiture
and furnish him with a description of the property, and said Director of Lands shall
have full control and custody thereof to lease or sell the same or any portion thereof
in the same manner as other public lands are leased or sold: Provided, That the
original owner, or his legal representative, shall have the right to repurchase the
entire amount of his said real property, at any time before a sale or contract of sale
has been made by the director of Lands to a third party, by paying therefore the
whole sum due thereon at the time of ejectment together with a penalty of ten per
centum . . . .

The appellant Addison repurchased under the final proviso of the section quoted and
was allowed to do so as the successor in interest of the original owner under the
execution sale above discussed. As we have seen, he acquired no rights under
these sales, was therefore not the successor of the original owner and could only
have obtained a valid conveyance of such titles as the Government might have by
following the procedure prescribed by the Public Land Act for the sale of public
lands. he is entitled to reimbursement for the money paid for the redemption of the
land, with interest, but has acquired no title through the redemption.

The question of the priority of the record of the sheriff's sales over that of the sale
from Belisario to Borja is extensively argued in the briefs, but from our point of view
is of no importance; void sheriff's or execution sales cannot be validated through
inscription in the Mortgage Law registry.

The opposition of Adelina Ferrer must also be overruled. She maintained that the
land in question was community property of the marriage of Eulalio Belisario and
Paula Ira: that upon the death of Paula Ira inealed from is modified, and the
defendant Mr. Vicente Sotelo Matti, sentenced to accept and receive from the
plaintiff the tanks, the expellers and the motors in question, and to pay the plaintiff
the sum of ninety-six thousand pesos (P96,000), with legal interest thereon from July
17, 1919, the date of the filing of the complaint, until fully paid, and the costs of both
instances. So ordered.

[G.R. No. L-27454. April 30, 1970.]

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO GONZALES,

Defendant-Appellee.

Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.

Sulpicio E. Platon, for Defendant-Appellee.

SYLLABUS

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-

PERFORMANCE; FIXING OF PERIOD BEFORE FILING OF COMPLAINT FOR
NON-PERFORMANCE, ACADEMIC.— Where the time for compliance had expired
and there was breach of contract by non-performance, it was academic for the
plaintiff to have first petitioned the court to fix a period for the performance of the
contract before filing his complaint.

2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL
CODE OF THE PHILIPPINES.— Where the defendant virtually admitted non-
performance of the contract by returning the typewriter that he was obliged to repair
in a non-working condition, with essential parts missing, Article 1197 of the Civil
Code of the Philippines cannot be invoked. The fixing of a period would thus be a
mere formality and would serve no purpose than to delay.

3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.— Where the

defendant-appellee contravened the tenor of his obligation because he not only did
not repair the typewriter but returned it "in shambles,’’ he is liable for the cost of the
labor or service expended in the repair of the typewriter, which is in the amount of
P58.75, because the obligation or contract was to repair it. In addition, he is likewise
liable under Art. 1170 of the Code, for the cost of the missing parts, in the amount of
P31.10, for in his obligation to repair the typewriter he was bound, but failed or
neglected, to return it in the same condition it was when he received it.

4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY’S FEES NOT

RECOVERABLE; NOT ALLEGED OR PROVED IN INSTANT CASE.— Claims for
damages and attorney’s fees must be pleaded, and the existence of the actual basis
thereof must be proved. As no findings of fact were made on the claims for damages
and attorney’s fees, there is no factual basis upon which to make an award therefor.

5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO

SUPREME COURT; ONLY QUESTIONS OF LAW REVIEWABLE.— Where the
appellant directly appeals from the decision of the trial court to the Supreme Court on
questions of law, he is bound by the judgment of the court a quo on its findings of
fact.

DECISION

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

This is a direct appeal by the party who prevailed in a suit for breach of oral contract
and recovery of damages but was unsatisfied with the decision rendered by the
Court of First Instance of Manila, in its Civil Case No. 65138, because it awarded him
only P31.10 out of his total claim of P690 00 for actual, temperate and moral
damages and attorney’s fees.

The appealed judgment, which is brief, is hereunder quoted in

full:jgc:chanrobles.com.ph

"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a
typewriter repairer, a portable typewriter for routine cleaning and servicing. The
defendant was not able to finish the job after some time despite repeated reminders
made by the plaintiff. The defendant merely gave assurances, but failed to comply
with the same. In October, 1963, the defendant asked from the plaintiff the sum of
P6.00 for the purchase of spare parts, which amount the plaintiff gave to the
defendant. On October 26, 1963, after getting exasperated with the delay of the
repair of the typewriter, the plaintiff went to the house of the defendant and asked for
the return of the typewriter. The defendant delivered the typewriter in a wrapped
package. On reaching home, the plaintiff examined the typewriter returned to him by
the defendant and found out that the same was in shambles, with the interior cover
and some parts and screws missing. On October 29, 1963. the plaintiff sent a letter
to the defendant formally demanding the return of the missing parts, the interior
cover and the sum of P6.00 (Exhibit D). The following day, the defendant returned to
the plaintiff some of the missing parts, the interior cover and the P6.00.

"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business
Machines, and the repair job cost him a total of P89.85, including labor and materials
(Exhibit C).

"On August 23, 1965, the plaintiff commenced this action before the City Court of
Manila, demanding from the defendant the payment of P90.00 as actual and
compensatory damages, P100.00 for temperate damages, P500.00 for moral
damages, and P500.00 as attorney’s fees.

"In his answer as well as in his testimony given before this court, the defendant
made no denials of the facts narrated above, except the claim of the plaintiff that the
typewriter was delivered to the defendant through a certain Julio Bocalin, which the
defendant denied allegedly because the typewriter was delivered to him personally
by the plaintiff.

"The repair done on the typewriter by Freixas Business Machines with the total cost
of P89.85 should not, however, be fully chargeable against the defendant. The repair
invoice, Exhibit C, shows that the missing parts had a total value of only P31.10.

"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the

plaintiff the sum of P31.10, and the costs of suit.
"SO ORDERED."cralaw virtua1aw library

The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves,
is that it awarded only the value of the missing parts of the typewriter, instead of the
whole cost of labor and materials that went into the repair of the machine, as
provided for in Article 1167 of the Civil Code, reading as
follows:jgc:chanrobles.com.ph

"ART. 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore it may be decreed that what has been poorly done he
undone."cralaw virtua1aw library

On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is

that he is not liable at all, not even for the sum of P31.10, because his contract with
plaintiff-appellant did not contain a period, so that plaintiff-appellant should have first
filed a petition for the court to fix the period, under Article 1197 of the Civil Code,
within which the defendant appellee was to comply with the contract before said
defendant-appellee could be held liable for breach of contract.

Because the plaintiff appealed directly to the Supreme Court and the appellee did
not interpose any appeal, the facts, as found by the trial court, are now conclusive
and non-reviewable. 1

The appealed judgment states that the "plaintiff delivered to the defendant . . . a
portable typewriter for routine cleaning and servicing" ; that the defendant was not
able to finish the job after some time despite repeated reminders made by the
plaintiff" ; that the "defendant merely gave assurances, but failed to comply with the
same" ; and that "after getting exasperated with the delay of the repair of the
typewriter", the plaintiff went to the house of the defendant and asked for its return,
which was done. The inferences derivable from these findings of fact are that the
appellant and the appellee had a perfected contract for cleaning and servicing a
typewriter; that they intended that the defendant was to finish it at some future time
although such time was not specified; and that such time had passed without the
work having been accomplished, far the defendant returned the typewriter
cannibalized and unrepaired, which in itself is a breach of his obligation, without
demanding that he should be given more time to finish the job, or compensation for
the work he had already done. The time for compliance having evidently expired,
and there being a breach of contract by non-performance, it was academic for the
plaintiff to have first petitioned the court to fix a period for the performance of the
contract before filing his complaint in this case. Defendant cannot invoke Article 1197
of the Civil Code for he virtually admitted non-performance by returning the
typewriter that he was obliged to repair in a non-working condition, with essential
parts missing. The fixing of a period would thus be a mere formality and would serve
no purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co. 98 Phil. 18l).
It is clear that the defendant-appellee contravened the tenor of his obligation
because he not only did not repair the typewriter but returned it "in shambles",
according to the appealed decision. For such contravention, as appellant contends,
he is liable under Article 1167 of the Civil Code. jam quot, for the cost of executing
the obligation in a proper manner. The cost of the execution of the obligation in this
case should be the cost of the labor or service expended in the repair of the
typewriter, which is in the amount of P58.75. because the obligation or contract was
to repair it.

In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code,
for the cost of the missing parts, in the amount of P31.10, for in his obligation to
repair the typewriter he was bound, but failed or neglected, to return it in the same
condition it was when he received it.

Appellant’s claims for moral and temperate damages and attorney’s fees were,
however, correctly rejected by the trial court, for these were not alleged in his
complaint (Record on Appeal, pages 1-5). Claims for damages and attorney’s fees
must be pleaded, and the existence of the actual basis thereof must be proved. 2
The appealed judgment thus made no findings on these claims, nor on the fraud or
malice charged to the appellee. As no findings of fact were made on the claims for
damages and attorney’s fees, there is no factual basis upon which to make an award
therefor. Appellant is bound by such judgment of the court, a quo, by reason of his
having resorted directly to the Supreme Court on questions of law.

IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby

modified, by ordering the defendant-appellee to pay, as he is hereby ordered to pay,
the plaintiff-appellant the sum of P89.85, with interest at the legal rate from the filing
of the complaint. Costs in all instances against appellee Fructuoso Gonzales.

G.R. No. L-264 October 4, 1946

VICENTE SINGSON ENCARNACION, plaintiff-appellee,

vs.
JACINTA BALDOMAR, ET AL., defendants-appellants.

Bausa and Ampil for appellants.

Tolentino and Aguas for appellee.

HILADO, J.:

Vicente Singson Encarnacion, owner of the house numbered 589 Legarda Street,
Manila, some six years ago leased said house to Jacinto Baldomar and her son,
Lefrado Fernando, upon a month-to-month basis for the monthly rental of P35. After
Manila was liberated in the last war, specifically on March 16, 1945, and on April 7,
of the same year, plaintiff Singson Encarnacion notified defendants, the said mother
and son, to vacate the house above-mentioned on or before April 15, 1945, because
plaintiff needed it for his offices as a result of the destruction of the building where
said plaintiff had said offices before. Despite this demand, defendants insisted on
continuing their occupancy. When the original action was lodged with the Municipal
Court of Manila on April 20, 1945, defendants were in arrears in the payment of the
rental corresponding to said month, the agrees rental being payable within the first
five days of each month. That rental was paid prior to the hearing of the case in the
municipal court, as a consequence of which said court entered judgment for
restitution and payment of rentals at the rate of P35 a month from May 1, 1945, until
defendants completely vacate the premises. Although plaintiff included in said
original complaint a claim for P500 damages per month, that claim was waived by
him before the hearing in the municipal court, on account of which nothing was said
regarding said damages in the municipal court's decision.

When the case reached the Court of First Instance of Manila upon appeal,
defendants filed therein a motion to dismiss (which was similar to a motion to dismiss
filed by them in the municipal court) based upon the ground that the municipal court
had no jurisdiction over the subject matter due to the aforesaid claim for damages
and that, therefore, the Court of First Instance had no appellate jurisdiction over the
subject matter of the action. That motion to dismiss was denied by His Honor, Judge
Mamerto Roxas, by order dated July 21, 1945, on the ground that in the municipal
court plaintiff had waived said claim for damages and that, therefore, the same
waiver was understood also to have been made in the Court of First
Instance.lawphil.net

In the Court of First Instance the graveman of the defense interposed by defendants,
as it was expressed defendant Lefrado Fernando during the trial, was that the
contract which they had celebrated with plaintiff since the beginning authorized them
to continue occupying the house indefinetly and while they should faithfully fulfill their
obligations as respects the payment of the rentals, and that this agreement had been
ratified when another ejectment case between the parties filed during the Japanese
regime concerning the same house was allegedly compounded in the municipal
court. The Court of First Instance gave more credit to plaintiff's witness, Vicente
Singson Encarnacion, jr., who testified that the lease had always and since the
beginning been upon a month-to-month basis. The court added in its decision that
this defense which was put up by defendant's answer, for which reason the Court
considered it as indicative of an eleventh-hour theory. We think that the Court of First
Instance was right in so declaring. Furthermore, carried to its logical conclusion, the
defense thus set up by defendant Lefrado Fernando would leave to the sole and
exclusive will of one of the contracting parties (defendants in this case) the validity
and fulfillment of the contract of lease, within the meaning of article 1256 of the Civil
Code, since the continuance and fulfillment of the contract would then depend solely
and exclusively upon their free and uncontrolled choice between continuing paying
the rentals or not, completely depriving the owner of all say in the matter. If this
defense were to be allowed, so long as defendants elected to continue the lease by
continuing the payment of the rentals, the owner would never be able to discontinue
it; conversely, although the owner should desire the lease to continue, the lessees
could effectively thwart his purpose if they should prefer to terminate the contract by
the simple expedient of stopping payment of the rentals. This, of course, is prohibited
by the aforesaid article of the Civil Code. (8 Manresa, 3d ed., pp. 626, 627; Cuyugan
vs. Santos, 34 Phil., 100.)

During the pendency of the appeal in the Court of First Instance and before the
judgment appealed from was rendered on October 31, 1945, the rentals in areas
were those pertaining to the month of August, 1945, to the date of said judgment at
the rate of P35 a month. During the pendency of the appeal in that court, certain
deposits were made by defendants on account of rentals with the clerk of said court,
and in said judgment it is disposed that the amounts thus deposited should be
delivered to plaintiff.

Upon the whole, we are clearly of opinion that the judgment appealed from should
be, as it is hereby, affirmed, with the costs of the three instances to appellants. So
ordered.

G.R. No. 967 May 19, 1903

DARIO AND GAUDENCIO ELEIZEGUI, plaintiffs-appellees,

vs.
THE MANILA LAWN TENNIS CLUB, defendant-appellant.

Pillsburry and Sutro for appellant.

Manuel Torres Vergara for appellee.

ARELLANO, C. J.:

This suit concerns the lease of a piece of land for a fixed consideration and to
endure at the will of the lessee. By the contract of lease the lessee is expressly
authorized to make improvements upon the land, by erecting buildings of both
permanent and temporary character, by making fills, laying pipes, and making such
other improvements as might be considered desirable for the comfort and
amusement of the members.

With respect to the term of the lease the present question has arisen. In its decision
three theories have been presented: One which makes the duration depend upon
the will of the lessor, who, upon one month's notice given to the lessee, may
terminate the lease so stipulated; another which, on the contrary, makes it
dependent upon the will of the lessee, as stipulated; and the third, in accordance
with which the right is reversed to the courts to fix the duration of the term.

The first theory is that which has prevailed in the judgment below, as appears from
the language in which the basis of the decision is expressed: "The court is of the
opinion that the contract of lease was terminated by the notice given by the plaintiff
on August 28 of last year . . . ." And such is the theory maintained by the plaintiffs,
which expressly rests upon article 1581 of the Civil Code, the law which was in force
at the time the contract was entered into (January 25, 1890). The judge, in giving to
this notice the effect of terminating the lease, undoubtedly considers that it is
governed by the article relied upon by the plaintiffs, which is of the following tenor:
"When the term has not been fixed for the lease, it is understood to be for years
when an annual rental has been fixed, for months when the rent is monthly. . . ." The
second clause of the contract provides as follows: "The rent of the said land is fixed
at 25 pesos per month." (P. 11, Bill of Exceptions.)

In accordance with such a theory, the plaintiffs might have terminated the lease the
month following the making of the contract — at any time after the first month, which,
strictly speaking, would be the only month with respect to which they were expressly
bound, they not being bound for each successive month except by a tacit renewal
(art. 1566) — an effect which they might prevent by giving the required notice.

Although the relief asked for in the complaint, drawn in accordance with the new
form of procedure established by the prevailing Code, is the restitution of the land to
the plaintiffs (a formula common to various actions), nevertheless the action which is
maintained can be no other than that of desahucio, in accordance with the
substantive law governing the contract. The lessor — says article 1569 of the Civil
Code — may judicially dispossess the lessee upon the expiration of the conventional
term or of the legal term; the conventional term — that is, the one agreed upon by
the parties; the legal term, in defect of the conventional, fixed for leases by articles
1577 and 1581. We have already seen what this legal term is with respect to urban
properties, in accordance with article 1581.

Hence, it follows that the judge has only to determine whether there is or is not
conventional term. If there be a conventional term, he can not apply the legal term
fixed in subsidium to cover a case in which the parties have made no agreement
whatsoever with respect to the duration of the lease. In this case the law interprets
the presumptive intention of the parties, they having said nothing in the contract with
respect to its duration. "Obligations arising from contracts have the force of law
between the contracting parties and must be complied with according to the tenor of
the contracts." (Art. 1091 of the Civil Code.)

The obligations which, with the force of law, the lessors assumed by the contract
entered into, so far as pertaining to the issues, are the following: "First. . . . They
lease the above-described land to Mr. Williamson, who takes it on lease, . . . for all
the time the members of the said club may desire to use it . . . Third. . . . the owners
of the land undertake to maintain the club as tenant as long as the latter shall see fit,
without altering in the slightest degree the conditions of this contract, even though
the estate be sold."

It is necessary, therefore, to answer the first question: Was there, or was there not, a
conventional term, a duration, agreed upon in the contract in question? If there was
an agreed duration, a conventional term, then the legal term — the term fixed in
article 1581 — has no application; the contract is the supreme law of the contracting
parties. Over and above the general law is the special law, expressly imposed upon
themselves by the contracting parties. Without these clauses 1 and 3, the contract
would contain no stipulation with respect to the duration of the lease, and then article
1581, in connection with article 1569, would necessarily be applicable. In view of
these clauses, however, it can not be said that there is no stipulation with respect to
the duration of the lease, or that, notwithstanding these clauses, article 1581, in
connection with article 1569, can be applied. If this were so, it would be necessary to
hold that the lessors spoke in vain — that their words are to be disregarded — a
claim which can not be advanced by the plaintiffs nor upheld by any court without
citing the law which detracts all legal force from such words or despoils them of their
literal sense.

It having been demonstrated that the legal term can not be applied, there being a
conventional term, this destroys the assumption that the contract of lease was wholly
terminated by the notice given by the plaintiffs, this notice being necessary only
when it becomes necessary to have recourse to the legal term. Nor had the plaintiffs,
under the contract, any right to give such notice. It is evident that they had no
intention of stipulating that they reserved the right to give such notice. Clause 3
begins as follows: "Mr. Williamson, or whoever may succeed him as secretary of said
club, may terminate this lease whenever desired without other formality than that of
giving a month's notice. The owners of the land undertake to maintain the club as
tenant as long as the latter shall see fit." The right of the one and the obligation of the
others being thus placed in antithesis, there is something more, much more, than the
inclusio unius, exclusio alterius. It is evident that the lessors did not intend to reserve
to themselves the right to rescind that which they expressly conferred upon the
lessee by establishing it exclusively in favor of the latter.

It would be the greatest absurdity to conclude that in a contract by which the lessor
has left the termination of the lease to the will of the lessee, such a lease can or
should be terminated at the will of the lessor.

It would appear to follow, from the foregoing, that, if such is the force of the
agreement, there can be no other mode of terminating the lease than by the will of
the lessee, as stipulated in this case. Such is the conclusion maintained by the
defendant in the demonstration of the first error of law in the judgment, as alleged by
him. He goes so far, under this theory, as to maintain the possibility of a perpetual
lease, either as such lease, if the name can be applied, or else as an innominate
contract, or under any other denomination, in accordance with the agreement of the
parties, which is, in fine, the law of the contract, superior to all other law, provided
that there be no agreement against any prohibitive statute, morals, or public policy.

It is unnecessary here to enter into a discussion of a perpetual lease in accordance

with the law and doctrine prior to the Civil Code now in force, and which has been
operative since 1889. Hence the judgment of the supreme court of Spain of January
2, 1891, with respect to a lease made in 1887, cited by the defendant, and a decision
stated by him to have been rendered by the Audiencia of Pamplona in 1885 (it
appears to be rather a decision by the head office of land registration of July 1,
1885), and any other decision which might be cited based upon the constitutions of
Cataluna, according to which a lease of more than ten years is understood to create
a life tenancy, or even a perpetual tenancy, are entirely out of point in this case, in
which the subject-matter is a lease entered into under the provisions of the present
Civil Code, in accordance with the principles of which alone can this doctrine be
examined.
It is not to be understood that we admit that the lease entered into was stipulated as
a life tenancy, and still less as a perpetual lease. The terms of the contract express
nothing to this effect. They do, whatever, imply this idea. If the lease could last
during such time as the lessee might see fit, because it has been so stipulated by the
lessor, it would last, first, as long as the will of the lessee — that is, all his life;
second, during all the time that he may have succession, inasmuch as he who
contracts does so for himself and his heirs. (Art. 1257 of the Civil Code.) The lease in
question does not fall within any of the cases in which the rights and obligations
arising from a contract can not be transmitted to heirs, either by its nature, by
agreement, or by provision of law. Furthermore, the lessee is an English association.

Usufruct is a right of superior degree to that which arises from a lease. It is a real
right and includes all the jus utendi and jus fruendi. Nevertheless, the utmost period
for which a usufruct can endure, if constituted in favor a natural person, is the lifetime
of the usufructuary (art. 513, sec. 1); and if in favor of juridical person, it can not be
created for more than thirty years. (Art. 515.) If the lease might be perpetual, in what
would it be distinguished from an emphyteusis? Why should the lessee have a
greater right than the usufructuary, as great as that of an emphyteuta, with respect to
the duration of the enjoyment of the property of another? Why did they not contract
for a usufruct or an emphyteusis? It was repeatedly stated in the document that it
was a lease, and nothing but a lease, which was agreed upon: "Being in the full
enjoyment of the necessary legal capacity to enter into this contract of lease . . . they
have agreed upon the lease of said estate . . . They lease to Mr. Williamson, who
receives it as such. . . . The rental is fixed at 25 pesos a month. . . . The owners bind
themselves to maintain the club as tenant. . . . Upon the foregoing conditions they
make the present contract of lease. . . ." (Pp. 9, 11, and 12, bill of exceptions.) If it is
a lease, then it must be for a determinate period. (Art. 1543.) By its very nature it
must be temporary, just as by reason of its nature an emphyteusis must be
perpetual, or for an unlimited period. (Art. 1608.)

On the other hand, it can not be concluded that the termination of the contract is to
be left completely at the will of the lessee, because it has been stipulated that its
duration is to be left to his will.

The Civil Code has made provision for such a case in all kinds of obligations. In
speaking in general of obligations with a term it has supplied the deficiency of the
former law with respect to the "duration of the term when it has been left to the will of
the debtor," and provides that in this case the term shall be fixed by the courts. (Art.
1128, sec. 2.) In every contract, as laid down by the authorities, there is always a
creditor who is entitled to demand the performance, and a debtor upon whom rests
the obligation to perform the undertaking. In bilateral contracts the contracting parties
are mutually creditors and debtors. Thus, in this contract of lease, the lessee is the
creditor with respect to the rights enumerated in article 1554, and is the debtor with
respect to the obligations imposed by articles 1555 and 1561. The term within which
performance of the latter obligation is due is what has been left to the will of the
debtor. This term it is which must be fixed by the courts.
The only action which can be maintained under the terms of the contract is that by
which it is sought to obtain from the judge the determination of this period, and not
the unlawful detainer action which has been brought — an action which presupposes
the expiration of the term and makes it the duty of the judge to simply decree an
eviction. To maintain the latter action it is sufficient to show the expiration of the term
of the contract, whether conventional or legal; in order to decree the relief to be
granted in the former action it is necessary for the judge to look into the character
and conditions of the mutual undertakings with a view to supplying the lacking
element of a time at which the lease is to expire. In the case of a loan of money or a
commodatum of furniture, the payment or return to be made when the borrower "can
conveniently do so" does not mean that he is to be allowed to enjoy the money or to
make use of the thing indefinitely or perpetually. The courts will fix in each case,
according to the circumstances, the time for the payment or return. This is the theory
also maintained by the defendant in his demonstration of the fifth assignment of
error. "Under article 1128 of the Civil Code," thus his proposition concludes,
"contracts whose term is left to the will of one of the contracting parties must be fixed
by the courts, . . . the conditions as to the term of this lease has a direct legislative
sanction," and he cites articles 1128. "In place of the ruthless method of annihilating
a solemn obligation, which the plaintiffs in this case have sought to pursue, the Code
has provided a legitimate and easily available remedy. . . . The Code has provided
for the proper disposition of those covenants, and a case can hardly arise more
clearly demonstrating the usefulness of that provision than the case at bar." (Pp. 52
and 53 of appellant's brief.)

The plaintiffs, with respect to this conclusion on the part of their opponents, only say
that article 1128 "expressly refers to obligations in contracts in general, and that it is
well known that a lease is included among special contracts." But they do not
observe that if contracts, simply because special rules are provided for them, could
be excepted from the provisions of the articles of the Code relative to obligations and
contracts in general, such general provisions would be wholly without application.
The system of the Code is that of establishing general rules applicable to all
obligations and contracts, and then special provisions peculiar to each species of
contract. In no part of Title VI of Book IV, which treats of the contract of lease, are
there any special rules concerning pure of conditional obligations which may be
stipulated in a lease, because, with respect to these matters, the provisions of
section 1, chapter 3, Title I, on the subject of obligations are wholly sufficient. With
equal reason should we refer to section 2, which deals with obligations with a term,
in the same chapter and title, if a question concerning the term arises out of a
contract of lease, as in the present case, and within this section we find article 1128,
which decides the question.

The judgment was entered below upon the theory of the expiration of a legal term
which does not exist, as the case requires that a term be fixed by the courts under
the provisions of article 1128 with respect to obligations which, as is the present, are
terminable at the will of the obligee. It follows, therefore, that the judgment below is
erroneous.
The judgment is reversed and the case will be remanded to the court below with
directions to enter a judgment of dismissal of the action in favor of the defendant, the
Manila Lawn Tennis Club, without special allowance as to the recovery of costs. So
ordered.

G.R. No. L-17587 September 12, 1967

PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA

SANTOS Y CANON FAUSTINO, deceased, plaintiff-appellant,
vs.
LUI SHE in her own behalf and as administratrix of the intestate estate of Wong
Heng, deceased, defendant-appellant.

Nicanor S. Sison for plaintiff-appellant.

Ozaeta, Gibbs & Ozaeta for defendant-appellant.

CASTRO, J.:

Justina Santos y Canon Faustino and her sister Lorenzo were the owners in
common of a piece of land in Manila. This parcel, with an area of 2,582.30 square
meters, is located on Rizal Avenue and opens into Florentino Torres street at the
back and Katubusan street on one side. In it are two residential houses with
entrance on Florentino Torres street and the Hen Wah Restaurant with entrance on
Rizal Avenue. The sisters lived in one of the houses, while Wong Heng, a Chinese,
lived with his family in the restaurant. Wong had been a long-time lessee of a portion
of the property, paying a monthly rental of P2,620.

On September 22, 1957 Justina Santos became the owner of the entire property as
her sister died with no other heir. Then already well advanced in years, being at the
time 90 years old, blind, crippled and an invalid, she was left with no other relative to
live with. Her only companions in the house were her 17 dogs and 8 maids. Her
otherwise dreary existence was brightened now and then by the visits of Wong's four
children who had become the joy of her life. Wong himself was the trusted man to
whom she delivered various amounts for safekeeping, including rentals from her
property at the corner of Ongpin and Salazar streets and the rentals which Wong
himself paid as lessee of a part of the Rizal Avenue property. Wong also took care of
the payment; in her behalf, of taxes, lawyers' fees, funeral expenses, masses,
salaries of maids and security guard, and her household expenses.

"In grateful acknowledgment of the personal services of the lessee to her," Justina
Santos executed on November 15, 1957 a contract of lease (Plff Exh. 3) in favor of
Wong, covering the portion then already leased to him and another portion fronting
Florentino Torres street. The lease was for 50 years, although the lessee was given
the right to withdraw at any time from the agreement; the monthly rental was P3,120.
The contract covered an area of 1,124 square meters. Ten days later (November
25), the contract was amended (Plff Exh. 4) so as to make it cover the entire
property, including the portion on which the house of Justina Santos stood, at an
additional monthly rental of P360. For his part Wong undertook to pay, out of the
rental due from him, an amount not exceeding P1,000 a month for the food of her
dogs and the salaries of her maids.

On December 21 she executed another contract (Plff Exh. 7) giving Wong the option
to buy the leased premises for P120,000, payable within ten years at a monthly
installment of P1,000. The option, written in Tagalog, imposed on him the obligation
to pay for the food of the dogs and the salaries of the maids in her household, the
charge not to exceed P1,800 a month. The option was conditioned on his obtaining
Philippine citizenship, a petition for which was then pending in the Court of First
Instance of Rizal. It appears, however, that this application for naturalization was
withdrawn when it was discovered that he was not a resident of Rizal. On October
28, 1958 she filed a petition to adopt him and his children on the erroneous belief
that adoption would confer on them Philippine citizenship. The error was discovered
and the proceedings were abandoned.

On November 18, 1958 she executed two other contracts, one (Plff Exh. 5)
extending the term of the lease to 99 years, and another (Plff Exh. 6) fixing the term
of the option of 50 years. Both contracts are written in Tagalog.

In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 & 279), she bade
her legatees to respect the contracts she had entered into with Wong, but in a codicil
(Plff Exh. 17) of a later date (November 4, 1959) she appears to have a change of
heart. Claiming that the various contracts were made by her because of
machinations and inducements practiced by him, she now directed her executor to
secure the annulment of the contracts.

On November 18 the present action was filed in the Court of First Instance of Manila.
The complaint alleged that the contracts were obtained by Wong "through fraud,
misrepresentation, inequitable conduct, undue influence and abuse of confidence
and trust of and (by) taking advantage of the helplessness of the plaintiff and were
made to circumvent the constitutional provision prohibiting aliens from acquiring
lands in the Philippines and also of the Philippine Naturalization Laws." The court
was asked to direct the Register of Deeds of Manila to cancel the registration of the
contracts and to order Wong to pay Justina Santos the additional rent of P3,120 a
month from November 15, 1957 on the allegation that the reasonable rental of the
leased premises was P6,240 a month.

In his answer, Wong admitted that he enjoyed her trust and confidence as proof of
which he volunteered the information that, in addition to the sum of P3,000 which he
said she had delivered to him for safekeeping, another sum of P22,000 had been
deposited in a joint account which he had with one of her maids. But he denied
having taken advantage of her trust in order to secure the execution of the contracts
in question. As counterclaim he sought the recovery of P9,210.49 which he said she
owed him for advances.

Wong's admission of the receipt of P22,000 and P3,000 was the cue for the filing of
an amended complaint. Thus on June 9, 1960, aside from the nullity of the contracts,
the collection of various amounts allegedly delivered on different occasions was
sought. These amounts and the dates of their delivery are P33,724.27 (Nov. 4,
1957); P7,344.42 (Dec. 1, 1957); P10,000 (Dec. 6, 1957); P22,000 and P3,000 (as
admitted in his answer). An accounting of the rentals from the Ongpin and Rizal
Avenue properties was also demanded.

In the meantime as a result of a petition for guardianship filed in the Juvenile and
Domestic Relations Court, the Security Bank & Trust Co. was appointed guardian of
the properties of Justina Santos, while Ephraim G. Gochangco was appointed
guardian of her person.

In his answer, Wong insisted that the various contracts were freely and voluntarily
entered into by the parties. He likewise disclaimed knowledge of the sum of
P33,724.27, admitted receipt of P7,344.42 and P10,000, but contended that these
amounts had been spent in accordance with the instructions of Justina Santos; he
expressed readiness to comply with any order that the court might make with respect
to the sums of P22,000 in the bank and P3,000 in his possession.

The case was heard, after which the lower court rendered judgment as follows:

[A]ll the documents mentioned in the first cause of action, with the exception of the
first which is the lease contract of 15 November 1957, are declared null and void;
Wong Heng is condemned to pay unto plaintiff thru guardian of her property the sum
of P55,554.25 with legal interest from the date of the filing of the amended complaint;
he is also ordered to pay the sum of P3,120.00 for every month of his occupation as
lessee under the document of lease herein sustained, from 15 November 1959, and
the moneys he has consigned since then shall be imputed to that; costs against
Wong Heng.

From this judgment both parties appealed directly to this Court. After the case was
submitted for decision, both parties died, Wong Heng on October 21, 1962 and
Justina Santos on December 28, 1964. Wong was substituted by his wife, Lui She,
the other defendant in this case, while Justina Santos was substituted by the
Philippine Banking Corporation.

Justina Santos maintained — now reiterated by the Philippine Banking Corporation

— that the lease contract (Plff Exh. 3) should have been annulled along with the four
other contracts (Plff Exhs. 4-7) because it lacks mutuality; because it included a
portion which, at the time, was in custodia legis; because the contract was obtained
in violation of the fiduciary relations of the parties; because her consent was
obtained through undue influence, fraud and misrepresentation; and because the
lease contract, like the rest of the contracts, is absolutely simulated.

Paragraph 5 of the lease contract states that "The lessee may at any time withdraw
from this agreement." It is claimed that this stipulation offends article 1308 of the Civil
Code which provides that "the contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them."
We have had occasion to delineate the scope and application of article 1308 in the
early case of Taylor v. Uy Tieng Piao.1 We said in that case:

Article 1256 [now art. 1308] of the Civil Code in our opinion creates no impediment to
the insertion in a contract for personal service of a resolutory condition permitting the
cancellation of the contract by one of the parties. Such a stipulation, as can be
readily seen, does not make either the validity or the fulfillment of the contract
dependent upon the will of the party to whom is conceded the privilege of
cancellation; for where the contracting parties have agreed that such option shall
exist, the exercise of the option is as much in the fulfillment of the contract as any
other act which may have been the subject of agreement. Indeed, the cancellation of
a contract in accordance with conditions agreed upon beforehand is fulfillment.2

And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a lease contract
that the lessee, at any time before he erected any building on the land, might rescind
the lease, can hardly be regarded as a violation of article 1256 [now art. 1308] of the
Civil Code."

The case of Singson Encarnacion v. Baldomar 4 cannot be cited in support of the

claim of want of mutuality, because of a difference in factual setting. In that case, the
lessees argued that they could occupy the premises as long as they paid the rent.
This is of course untenable, for as this Court said, "If this defense were to be
allowed, so long as defendants elected to continue the lease by continuing the
payment of the rentals, the owner would never be able to discontinue it; conversely,
although the owner should desire the lease to continue the lessees could effectively
thwart his purpose if they should prefer to terminate the contract by the simple
expedient of stopping payment of the rentals." Here, in contrast, the right of the
lessee to continue the lease or to terminate it is so circumscribed by the term of the
contract that it cannot be said that the continuance of the lease depends upon his
will. At any rate, even if no term had been fixed in the agreement, this case would at
most justify the fixing of a period5 but not the annulment of the contract.

Nor is there merit in the claim that as the portion of the property formerly owned by
the sister of Justina Santos was still in the process of settlement in the probate court
at the time it was leased, the lease is invalid as to such portion. Justina Santos
became the owner of the entire property upon the death of her sister Lorenzo on
September 22, 1957 by force of article 777 of the Civil Code. Hence, when she
leased the property on November 15, she did so already as owner thereof. As this
Court explained in upholding the sale made by an heir of a property under judicial
administration:

That the land could not ordinarily be levied upon while in custodia legis does not
mean that one of the heirs may not sell the right, interest or participation which he
has or might have in the lands under administration. The ordinary execution of
property in custodia legis is prohibited in order to avoid interference with the
possession by the court. But the sale made by an heir of his share in an inheritance,
subject to the result of the pending administration, in no wise stands in the way of
such administration.6
It is next contended that the lease contract was obtained by Wong in violation of his
fiduciary relationship with Justina Santos, contrary to article 1646, in relation to
article 1941 of the Civil Code, which disqualifies "agents (from leasing) the property
whose administration or sale may have been entrusted to them." But Wong was
never an agent of Justina Santos. The relationship of the parties, although admittedly
close and confidential, did not amount to an agency so as to bring the case within
the prohibition of the law.

Just the same, it is argued that Wong so completely dominated her life and affairs
that the contracts express not her will but only his. Counsel for Justina Santos cites
the testimony of Atty. Tomas S. Yumol who said that he prepared the lease contract
on the basis of data given to him by Wong and that she told him that "whatever Mr.
Wong wants must be followed."7

The testimony of Atty. Yumol cannot be read out of context in order to warrant a
finding that Wong practically dictated the terms of the contract. What this witness
said was:

Q Did you explain carefully to your client, Doña Justina, the contents of this
document before she signed it?

A I explained to her each and every one of these conditions and I also told her these
conditions were quite onerous for her, I don't really know if I have expressed my
opinion, but I told her that we would rather not execute any contract anymore, but to
hold it as it was before, on a verbal month to month contract of lease.

Q But, she did not follow your advice, and she went with the contract just the same?

A She agreed first . . .

Q Agreed what?

A Agreed with my objectives that it is really onerous and that I was really right, but
after that, I was called again by her and she told me to follow the wishes of Mr. Wong
Heng.

xxx xxx xxx

Q So, as far as consent is concerned, you were satisfied that this document was
perfectly proper?

xxx xxx xxx

A Your Honor, if I have to express my personal opinion, I would say she is not,
because, as I said before, she told me — "Whatever Mr. Wong wants must be
followed."8
Wong might indeed have supplied the data which Atty. Yumol embodied in the lease
contract, but to say this is not to detract from the binding force of the contract. For
the contract was fully explained to Justina Santos by her own lawyer. One incident,
related by the same witness, makes clear that she voluntarily consented to the lease
contract. This witness said that the original term fixed for the lease was 99 years but
that as he doubted the validity of a lease to an alien for that length of time, he tried to
persuade her to enter instead into a lease on a month-to-month basis. She was,
however, firm and unyielding. Instead of heeding the advice of the lawyer, she
ordered him, "Just follow Mr. Wong Heng."9 Recounting the incident, Atty. Yumol
declared on cross examination:

Considering her age, ninety (90) years old at the time and her condition, she is a
wealthy woman, it is just natural when she said "This is what I want and this will be
done." In particular reference to this contract of lease, when I said "This is not
proper," she said — "You just go ahead, you prepare that, I am the owner, and if
there is any illegality, I am the only one that can question the illegality."10

Atty. Yumol further testified that she signed the lease contract in the presence of her
close friend, Hermenegilda Lao, and her maid, Natividad Luna, who was constantly
by her side.11 Any of them could have testified on the undue influence that Wong
supposedly wielded over Justina Santos, but neither of them was presented as a
witness. The truth is that even after giving his client time to think the matter over, the
lawyer could not make her change her mind. This persuaded the lower court to
uphold the validity of the lease contract against the claim that it was procured
through undue influence.

Indeed, the charge of undue influence in this case rests on a mere inference12
drawn from the fact that Justina Santos could not read (as she was blind) and did not
understand the English language in which the contract is written, but that inference
has been overcome by her own evidence.

Nor is there merit in the claim that her consent to the lease contract, as well as to the
rest of the contracts in question, was given out of a mistaken sense of gratitude to
Wong who, she was made to believe, had saved her and her sister from a fire that
destroyed their house during the liberation of Manila. For while a witness claimed
that the sisters were saved by other persons (the brothers Edilberto and Mariano
Sta. Ana)13 it was Justina Santos herself who, according to her own witness,
Benjamin C. Alonzo, said "very emphatically" that she and her sister would have
perished in the fire had it not been for Wong.14 Hence the recital in the deed of
conditional option (Plff Exh. 7) that "[I]tong si Wong Heng ang siyang nagligtas sa
aming dalawang magkapatid sa halos ay tiyak na kamatayan", and the equally
emphatic avowal of gratitude in the lease contract (Plff Exh. 3).

As it was with the lease contract (Plff Exh. 3), so it was with the rest of the contracts
(Plff Exhs. 4-7) — the consent of Justina Santos was given freely and voluntarily. As
Atty. Alonzo, testifying for her, said:
[I]n nearly all documents, it was either Mr. Wong Heng or Judge Torres and/or both.
When we had conferences, they used to tell me what the documents should contain.
But, as I said, I would always ask the old woman about them and invariably the old
woman used to tell me: "That's okay. It's all right."15

But the lower court set aside all the contracts, with the exception of the lease
contract of November 15, 1957, on the ground that they are contrary to the
expressed wish of Justina Santos and that their considerations are fictitious. Wong
stated in his deposition that he did not pay P360 a month for the additional premises
leased to him, because she did not want him to, but the trial court did not believe
him. Neither did it believe his statement that he paid P1,000 as consideration for
each of the contracts (namely, the option to buy the leased premises, the extension
of the lease to 99 years, and the fixing of the term of the option at 50 years), but that
the amount was returned to him by her for safekeeping. Instead, the court relied on
the testimony of Atty. Alonzo in reaching the conclusion that the contracts are void
for want of consideration.

Atty. Alonzo declared that he saw no money paid at the time of the execution of the
documents, but his negative testimony does not rule out the possibility that the
considerations were paid at some other time as the contracts in fact recite. What is
more, the consideration need not pass from one party to the other at the time a
contract is executed because the promise of one is the consideration for the other.16

With respect to the lower court's finding that in all probability Justina Santos could
not have intended to part with her property while she was alive nor even to lease it in
its entirety as her house was built on it, suffice it to quote the testimony of her own
witness and lawyer who prepared the contracts (Plff Exhs. 4-7) in question, Atty.
Alonzo:

The ambition of the old woman, before her death, according to her revelation to me,
was to see to it that these properties be enjoyed, even to own them, by Wong Heng
because Doña Justina told me that she did not have any relatives, near or far, and
she considered Wong Heng as a son and his children her grandchildren; especially
her consolation in life was when she would hear the children reciting prayers in
Tagalog.17

She was very emphatic in the care of the seventeen (17) dogs and of the maids who
helped her much, and she told me to see to it that no one could disturb Wong Heng
from those properties. That is why we thought of the ninety-nine (99) years lease; we
thought of adoption, believing that thru adoption Wong Heng might acquire Filipino
citizenship; being the adopted child of a Filipino citizen.18

This is not to say, however, that the contracts (Plff Exhs. 3-7) are valid. For the
testimony just quoted, while dispelling doubt as to the intention of Justina Santos, at
the same time gives the clue to what we view as a scheme to circumvent the
Constitutional prohibition against the transfer of lands to aliens. "The illicit purpose
then becomes the illegal causa"19 rendering the contracts void.
Taken singly, the contracts show nothing that is necessarily illegal, but considered
collectively, they reveal an insidious pattern to subvert by indirection what the
Constitution directly prohibits. To be sure, a lease to an alien for a reasonable period
is valid. So is an option giving an alien the right to buy real property on condition that
he is granted Philippine citizenship. As this Court said in Krivenko v. Register of
Deeds:20

[A]liens are not completely excluded by the Constitution from the use of lands for
residential purposes. Since their residence in the Philippines is temporary, they may
be granted temporary rights such as a lease contract which is not forbidden by the
Constitution. Should they desire to remain here forever and share our fortunes and
misfortunes, Filipino citizenship is not impossible to acquire.

But if an alien is given not only a lease of, but also an option to buy, a piece of land,
by virtue of which the Filipino owner cannot sell or otherwise dispose of his
property,21 this to last for 50 years, then it becomes clear that the arrangement is a
virtual transfer of ownership whereby the owner divests himself in stages not only of
the right to enjoy the land ( jus possidendi, jus utendi, jus fruendi and jus abutendi)
but also of the right to dispose of it ( jus disponendi) — rights the sum total of which
make up ownership. It is just as if today the possession is transferred, tomorrow, the
use, the next day, the disposition, and so on, until ultimately all the rights of which
ownership is made up are consolidated in an alien. And yet this is just exactly what
the parties in this case did within the space of one year, with the result that Justina
Santos' ownership of her property was reduced to a hollow concept. If this can be
done, then the Constitutional ban against alien landholding in the Philippines, as
announced in Krivenko v. Register of Deeds,22 is indeed in grave peril.

It does not follow from what has been said, however, that because the parties are in
pari delicto they will be left where they are, without relief. For one thing, the original
parties who were guilty of a violation of the fundamental charter have died and have
since been substituted by their administrators to whom it would be unjust to impute
their guilt.23 For another thing, and this is not only cogent but also important, article
1416 of the Civil Code provides, as an exception to the rule on pari delicto, that
"When the agreement is not illegal per se but is merely prohibited, and the
prohibition by law is designed for the protection of the plaintiff, he may, if public
policy is thereby enhanced, recover what he has paid or delivered." The
Constitutional provision that "Save in cases of hereditary succession, no private
agricultural land shall be transferred or assigned except to individuals, corporations,
or associations qualified to acquire or hold lands of the public domain in the
Philippines"24 is an expression of public policy to conserve lands for the Filipinos. As
this Court said in Krivenko:

It is well to note at this juncture that in the present case we have no choice. We are
construing the Constitution as it is and not as we may desire it to be. Perhaps the
effect of our construction is to preclude aliens admitted freely into the Philippines
from owning sites where they may build their homes. But if this is the solemn
mandate of the Constitution, we will not attempt to compromise it even in the name
of amity or equity . . . .
For all the foregoing, we hold that under the Constitution aliens may not acquire
private or public agricultural lands, including residential lands, and, accordingly,
judgment is affirmed, without costs.25

That policy would be defeated and its continued violation sanctioned if, instead of
setting the contracts aside and ordering the restoration of the land to the estate of
the deceased Justina Santos, this Court should apply the general rule of pari delicto.
To the extent that our ruling in this case conflicts with that laid down in Rellosa v.
Gaw Chee Hun 26 and subsequent similar cases, the latter must be considered as
pro tanto qualified.

The claim for increased rentals and attorney's fees, made in behalf of Justina
Santos, must be denied for lack of merit.

And what of the various amounts which Wong received in trust from her? It appears
that he kept two classes of accounts, one pertaining to amount which she entrusted
to him from time to time, and another pertaining to rentals from the Ongpin property
and from the Rizal Avenue property, which he himself was leasing.

With respect to the first account, the evidence shows that he received P33,724.27 on
November 8, 1957 (Plff Exh. 16); P7,354.42 on December 1, 1957 (Plff Exh. 13);
P10,000 on December 6, 1957 (Plff Exh. 14) ; and P18,928.50 on August 26, 1959
(Def. Exh. 246), or a total of P70,007.19. He claims, however, that he settled his
accounts and that the last amount of P18,928.50 was in fact payment to him of what
in the liquidation was found to be due to him.

He made disbursements from this account to discharge Justina Santos' obligations

for taxes, attorneys' fees, funeral services and security guard services, but the
checks (Def Exhs. 247-278) drawn by him for this purpose amount to only
P38,442.84.27 Besides, if he had really settled his accounts with her on August 26,
1959, we cannot understand why he still had P22,000 in the bank and P3,000 in his
possession, or a total of P25,000. In his answer, he offered to pay this amount if the
court so directed him. On these two grounds, therefore, his claim of liquidation and
settlement of accounts must be rejected.

After subtracting P38,442.84 (expenditures) from P70,007.19 (receipts), there is a

difference of P31,564 which, added to the amount of P25,000, leaves a balance of
P56,564.3528 in favor of Justina Santos.

As to the second account, the evidence shows that the monthly income from the
Ongpin property until its sale in Rizal Avenue July, 1959 was P1,000, and that from
the Rizal Avenue property, of which Wong was the lessee, was P3,120. Against this
account the household expenses and disbursements for the care of the 17 dogs and
the salaries of the 8 maids of Justina Santos were charged. This account is
contained in a notebook (Def. Exh. 6) which shows a balance of P9,210.49 in favor
of Wong. But it is claimed that the rental from both the Ongpin and Rizal Avenue
properties was more than enough to pay for her monthly expenses and that, as a
matter of fact, there should be a balance in her favor. The lower court did not allow
either party to recover against the other. Said the court:

[T]he documents bear the earmarks of genuineness; the trouble is that they were
made only by Francisco Wong and Antonia Matias, nick-named Toning, — which
was the way she signed the loose sheets, and there is no clear proof that Doña
Justina had authorized these two to act for her in such liquidation; on the contrary if
the result of that was a deficit as alleged and sought to be there shown, of
P9,210.49, that was not what Doña Justina apparently understood for as the Court
understands her statement to the Honorable Judge of the Juvenile Court . . . the
reason why she preferred to stay in her home was because there she did not incur in
any debts . . . this being the case, . . . the Court will not adjudicate in favor of Wong
Heng on his counterclaim; on the other hand, while it is claimed that the expenses
were much less than the rentals and there in fact should be a superavit, . . . this
Court must concede that daily expenses are not easy to compute, for this reason,
the Court faced with the choice of the two alternatives will choose the middle course
which after all is permitted by the rules of proof, Sec. 69, Rule 123 for in the ordinary
course of things, a person will live within his income so that the conclusion of the
Court will be that there is neither deficit nor superavit and will let the matter rest here.

Both parties on appeal reiterate their respective claims but we agree with the lower
court that both claims should be denied. Aside from the reasons given by the court,
we think that the claim of Justina Santos totalling P37,235, as rentals due to her after
deducting various expenses, should be rejected as the evidence is none too clear
about the amounts spent by Wong for food29 masses30 and salaries of her
maids.31 His claim for P9,210.49 must likewise be rejected as his averment of
liquidation is belied by his own admission that even as late as 1960 he still had
P22,000 in the bank and P3,000 in his possession.

ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled and set
aside; the land subject-matter of the contracts is ordered returned to the estate of
Justina Santos as represented by the Philippine Banking Corporation; Wong Heng
(as substituted by the defendant-appellant Lui She) is ordered to pay the Philippine
Banking Corporation the sum of P56,564.35, with legal interest from the date of the
filing of the amended complaint; and the amounts consigned in court by Wong Heng
shall be applied to the payment of rental from November 15, 1959 until the premises
shall have been vacated by his heirs. Costs against the defendant-appellant.

G.R. No. L-34338 November 21, 1984

LOURDES VALERIO LIM, petitioner,

vs.
PEOPLE OF THE PHILIPPINES, respondent.

RELOVA, J.:

Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was
sentenced "to suffer an imprisonment of four (4) months and one (1) day as
minimum to two (2) years and four (4) months as maximum, to indemnify the
offended party in the amount of P559.50, with subsidize imprisonment in case of
insolvency, and to pay the costs." (p. 14, Rollo)

From this judgment, appeal was taken to the then Court of Appeals which affirmed
the decision of the lower court but modified the penalty imposed by sentencing her
"to suffer an indeterminate penalty of one (1) month and one (1) day of arresto
mayor as minimum to one (1) year and one (1) day of prision correccional as
maximum, to indemnify the complainant in the amount of P550.50 without subsidiary
imprisonment, and to pay the costs of suit." (p. 24, Rollo)

The question involved in this case is whether the receipt, Exhibit "A", is a contract of
agency to sell or a contract of sale of the subject tobacco between petitioner and the
complainant, Maria de Guzman Vda. de Ayroso, thereby precluding criminal liability
of petitioner for the crime charged.

The findings of facts of the appellate court are as follows:

... The appellant is a businesswoman. On January 10, 1966, the appellant went to
the house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to
the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a
kilo. The appellant was to receive the overprice for which she could sell the tobacco.
This agreement was made in the presence of plaintiff's sister, Salud G. Bantug.
Salvador Bantug drew the document, Exh. A, dated January 10, 1966, which reads:

To Whom It May Concern:

This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso. of
Gapan, Nueva Ecija, six hundred fifteen kilos of leaf tobacco to be sold at Pl.30 per
kilo. The proceed in the amount of Seven Hundred Ninety Nine Pesos and 50/100 (P
799.50) will be given to her as soon as it was sold.

This was signed by the appellant and witnessed by the complainant's sister, Salud
Bantug, and the latter's maid, Genoveva Ruiz. The appellant at that time was
bringing a jeep, and the tobacco was loaded in the jeep and brought by the
appellant. Of the total value of P799.50, the appellant had paid to Ayroso only
P240.00, and this was paid on three different times. Demands for the payment of the
balance of the value of the tobacco were made upon the appellant by Ayroso, and
particularly by her sister, Salud Bantug. Salud Bantug further testified that she had
gone to the house of the appellant several times, but the appellant often eluded her;
and that the "camarin" the appellant was empty. Although the appellant denied that
demands for payment were made upon her, it is a fact that on October 19, 1966, she
wrote a letter to Salud Bantug which reads as follows:

Dear Salud,

Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang
nasisingil kong pera, magintay ka hanggang dito sa linggo ito at tiak na ako ay
magdadala sa iyo. Gosto ko Salud ay makapagbigay man lang ako ng marami para
hindi masiadong kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna ay
bibigyan kita. Pupunta lang kami ni Mina sa Maynila ngayon. Salud kung talagang
kailangan mo ay bukas ay dadalhan kita ng pera.

Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga
suki ko ng puesto. Huwag kang mabahala at tiyak na babayaran kita.

Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).

Ludy

Pursuant to this letter, the appellant sent a money order for P100.00 on October 24,
1967, Exh. 4, and another for P50.00 on March 8, 1967; and she paid P90.00 on
April 18, 1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of
P240.00. As no further amount was paid, the complainant filed a complaint against
the appellant for estafa. (pp. 14, 15, 16, Rollo)

In this petition for review by certiorari, Lourdes Valerio Lim poses the following
questions of law, to wit:

1. Whether or not the Honorable Court of Appeals was legally right in holding that the
foregoing document (Exhibit "A") "fixed a period" and "the obligation was therefore,
immediately demandable as soon as the tobacco was sold" (Decision, p. 6) as
against the theory of the petitioner that the obligation does not fix a period, but from
its nature and the circumstances it can be inferred that a period was intended in
which case the only action that can be maintained is a petition to ask the court to fix
the duration thereof;

2. Whether or not the Honorable Court of Appeals was legally right in holding that
"Art. 1197 of the New Civil Code does not apply" as against the alternative theory of
the petitioner that the fore. going receipt (Exhibit "A") gives rise to an obligation
wherein the duration of the period depends upon the will of the debtor in which case
the only action that can be maintained is a petition to ask the court to fix the duration
of the period; and

3. Whether or not the honorable Court of Appeals was legally right in holding that the
foregoing receipt is a contract of agency to sell as against the theory of the petitioner
that it is a contract of sale. (pp. 3-4, Rollo)

It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco
should be turned over to the complainant as soon as the same was sold, or, that the
obligation was immediately demandable as soon as the tobacco was disposed of.
Hence, Article 1197 of the New Civil Code, which provides that the courts may fix the
duration of the obligation if it does not fix a period, does not apply.
Anent the argument that petitioner was not an agent because Exhibit "A" does not
say that she would be paid the commission if the goods were sold, the Court of
Appeals correctly resolved the matter as follows:

... Aside from the fact that Maria Ayroso testified that the appellant asked her to be
her agent in selling Ayroso's tobacco, the appellant herself admitted that there was
an agreement that upon the sale of the tobacco she would be given something. The
appellant is a businesswoman, and it is unbelievable that she would go to the extent
of going to Ayroso's house and take the tobacco with a jeep which she had brought if
she did not intend to make a profit out of the transaction. Certainly, if she was doing
a favor to Maria Ayroso and it was Ayroso who had requested her to sell her
tobacco, it would not have been the appellant who would have gone to the house of
Ayroso, but it would have been Ayroso who would have gone to the house of the
appellant and deliver the tobacco to the appellant. (p. 19, Rollo)

The fact that appellant received the tobacco to be sold at P1.30 per kilo and the
proceeds to be given to complainant as soon as it was sold, strongly negates
transfer of ownership of the goods to the petitioner. The agreement (Exhibit "A')
constituted her as an agent with the obligation to return the tobacco if the same was
not sold.

ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit.
With costs.

SO ORDERED.

G.R. No. L-22558 May 31, 1967

GREGORIO ARANETA, INC., petitioner,

vs.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD., respondent.

Araneta and Araneta for petitioner.

Rosauro Alvarez and Ernani Cruz Paño for respondent.

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

Petition for certiorari to review a judgment of the Court of Appeals, in its CA-G.R. No.
28249-R, affirming with modification, an amendatory decision of the Court of First
Instance of Manila, in its Civil Case No. 36303, entitled "Philippine Sugar Estates
Development Co., Ltd., plaintiff, versus J. M. Tuason & Co., Inc. and Gregorio
Araneta, Inc., defendants."

As found by the Court of Appeals, the facts of this case are:

J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon City,
otherwise known as the Sta. Mesa Heights Subdivision, and covered by a Torrens
title in its name. On July 28, 1950, through Gregorio Araneta, Inc., it (Tuason & Co.)
sold a portion thereof with an area of 43,034.4 square meters, more or less, for the
sum of P430,514.00, to Philippine Sugar Estates Development Co., Ltd. The parties
stipulated, among in the contract of purchase and sale with mortgage, that the buyer
will —

Build on the said parcel land the Sto. Domingo Church and Convent

while the seller for its part will —

Construct streets on the NE and NW and SW sides of the land herein sold so that
the latter will be a block surrounded by streets on all four sides; and the street on the
NE side shall be named "Sto. Domingo Avenue;"

The buyer, Philippine Sugar Estates Development Co., Ltd., finished the construction
of Sto. Domingo Church and Convent, but the seller, Gregorio Araneta, Inc., which
began constructing the streets, is unable to finish the construction of the street in the
Northeast side named (Sto. Domingo Avenue) because a certain third-party, by the
name of Manuel Abundo, who has been physically occupying a middle part thereof,
refused to vacate the same; hence, on May 7, 1958, Philippine Sugar Estates
Development Co., Lt. filed its complaint against J. M. Tuason & Co., Inc., and
instance, seeking to compel the latter to comply with their obligation, as stipulated in
the above-mentioned deed of sale, and/or to pay damages in the event they failed or
refused to perform said obligation.

Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered the
complaint, the latter particularly setting up the principal defense that the action was
premature since its obligation to construct the streets in question was without a
definite period which needs to he fixed first by the court in a proper suit for that
purpose before a complaint for specific performance will prosper.

The issues having been joined, the lower court proceeded with the trial, and upon its
termination, it dismissed plaintiff's complaint (in a decision dated May 31, 1960),
upholding the defenses interposed by defendant Gregorio Araneta, Inc.1äwphï1.ñët

Plaintiff moved to reconsider and modify the above decision, praying that the court
fix a period within which defendants will comply with their obligation to construct the
streets in question.

Defendant Gregorio Araneta, Inc. opposed said motion, maintaining that plaintiff's
complaint did not expressly or impliedly allege and pray for the fixing of a period to
comply with its obligation and that the evidence presented at the trial was insufficient
to warrant the fixing of such a period.

On July 16, 1960, the lower court, after finding that "the proven facts precisely
warrants the fixing of such a period," issued an order granting plaintiff's motion for
reconsideration and amending the dispositive portion of the decision of May 31,
1960, to read as follows:
WHEREFORE, judgment is hereby rendered giving defendant Gregorio Araneta,
Inc., a period of two (2) years from notice hereof, within which to comply with its
obligation under the contract, Annex "A".

Defendant Gregorio Araneta, Inc. presented a motion to reconsider the above

quoted order, which motion, plaintiff opposed.

On August 16, 1960, the lower court denied defendant Gregorio Araneta, Inc's.
motion; and the latter perfected its appeal Court of Appeals.

In said appellate court, defendant-appellant Gregorio Araneta, Inc. contended mainly

that the relief granted, i.e., fixing of a period, under the amendatory decision of July
16, 1960, was not justified by the pleadings and not supported by the facts submitted
at the trial of the case in the court below and that the relief granted in effect allowed
a change of theory after the submission of the case for decision.

Ruling on the above contention, the appellate court declared that the fixing of a
period was within the pleadings and that there was no true change of theory after the
submission of the case for decision since defendant-appellant Gregorio Araneta, Inc.
itself squarely placed said issue by alleging in paragraph 7 of the affirmative
defenses contained in its answer which reads —

7. Under the Deed of Sale with Mortgage of July 28, 1950, herein defendant has a
reasonable time within which to comply with its obligations to construct and complete
the streets on the NE, NW and SW sides of the lot in question; that under the
circumstances, said reasonable time has not elapsed;

Disposing of the other issues raised by appellant which were ruled as not meritorious
and which are not decisive in the resolution of the legal issues posed in the instant
appeal before us, said appellate court rendered its decision dated December 27,
1963, the dispositive part of which reads —

IN VIEW WHEREOF, judgment affirmed and modified; as a consequence, defendant

is given two (2) years from the date of finality of this decision to comply with the
obligation to construct streets on the NE, NW and SW sides of the land sold to
plaintiff so that the same would be a block surrounded by streets on all four sides.

Unsuccessful in having the above decision reconsidered, defendant-appellant

Gregorio Araneta, Inc. resorted to a petition for review by certiorari to this Court. We
gave it due course.

We agree with the petitioner that the decision of the Court of Appeals, affirming that
of the Court of First Instance is legally untenable. The fixing of a period by the courts
under Article 1197 of the Civil Code of the Philippines is sought to be justified on the
basis that petitioner (defendant below) placed the absence of a period in issue by
pleading in its answer that the contract with respondent Philippine Sugar Estates
Development Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable time within
which to comply with its obligation to construct and complete the streets." Neither of
the courts below seems to have noticed that, on the hypothesis stated, what the
answer put in issue was not whether the court should fix the time of performance, but
whether or not the parties agreed that the petitioner should have reasonable time to
perform its part of the bargain. If the contract so provided, then there was a period
fixed, a "reasonable time;" and all that the court should have done was to determine
if that reasonable time had already elapsed when suit was filed if it had passed, then
the court should declare that petitioner had breached the contract, as averred in the
complaint, and fix the resulting damages. On the other hand, if the reasonable time
had not yet elapsed, the court perforce was bound to dismiss the action for being
premature. But in no case can it be logically held that under the plea above quoted,
the intervention of the court to fix the period for performance was warranted, for
Article 1197 is precisely predicated on the absence of any period fixed by the parties.

Even on the assumption that the court should have found that no reasonable time or
no period at all had been fixed (and the trial court's amended decision nowhere
declared any such fact) still, the complaint not having sought that the Court should
set a period, the court could not proceed to do so unless the complaint in as first
amended; for the original decision is clear that the complaint proceeded on the
theory that the period for performance had already elapsed, that the contract had
been breached and defendant was already answerable in damages.

Granting, however, that it lay within the Court's power to fix the period of
performance, still the amended decision is defective in that no basis is stated to
support the conclusion that the period should be set at two years after finality of the
judgment. The list paragraph of Article 1197 is clear that the period can not be set
arbitrarily. The law expressly prescribes that —

the Court shall determine such period as may under the circumstances been
probably contemplated by the parties.

All that the trial court's amended decision (Rec. on Appeal, p. 124) says in this
respect is that "the proven facts precisely warrant the fixing of such a period," a
statement manifestly insufficient to explain how the two period given to petitioner
herein was arrived at.

It must be recalled that Article 1197 of the Civil Code involves a two-step process.
The Court must first determine that "the obligation does not fix a period" (or that the
period is made to depend upon the will of the debtor)," but from the nature and the
circumstances it can be inferred that a period was intended" (Art. 1197, pars. 1 and
2). This preliminary point settled, the Court must then proceed to the second step,
and decide what period was "probably contemplated by the parties" (Do., par. 3). So
that, ultimately, the Court can not fix a period merely because in its opinion it is or
should be reasonable, but must set the time that the parties are shown to have
intended. As the record stands, the trial Court appears to have pulled the two-year
period set in its decision out of thin air, since no circumstances are mentioned to
support it. Plainly, this is not warranted by the Civil Code.
In this connection, it is to be borne in mind that the contract shows that the parties
were fully aware that the land described therein was occupied by squatters, because
the fact is expressly mentioned therein (Rec. on Appeal, Petitioner's Appendix B, pp.
12-13). As the parties must have known that they could not take the law into their
own hands, but must resort to legal processes in evicting the squatters, they must
have realized that the duration of the suits to be brought would not be under their
control nor could the same be determined in advance. The conclusion is thus forced
that the parties must have intended to defer the performance of the obligations under
the contract until the squatters were duly evicted, as contended by the petitioner
Gregorio Araneta, Inc.

The Court of Appeals objected to this conclusion that it would render the date of
performance indefinite. Yet, the circumstances admit no other reasonable view; and
this very indefiniteness is what explains why the agreement did not specify any exact
periods or dates of performance.

It follows that there is no justification in law for the setting the date of performance at
any other time than that of the eviction of the squatters occupying the land in
question; and in not so holding, both the trial Court and the Court of Appeals
committed reversible error. It is not denied that the case against one of the squatters,
Abundo, was still pending in the Court of Appeals when its decision in this case was
rendered.

In view of the foregoing, the decision appealed from is reversed, and the time for the
performance of the obligations of petitioner Gregorio Araneta, Inc. is hereby fixed at
the date that all the squatters on affected areas are finally evicted therefrom.

Costs against respondent Philippine Sugar Estates Development, Co., Ltd. So

ordered.

G.R. No. L-55480

PACIFICA MILLARE, petitioner,

vs.
HON. HAROLD M. HERNANDO, In his capacity as Presiding Judge, Court of
Instance of Abra, Second Judicial District, Branch I, ANTONIO CO and ELSA CO,
respondents.

FELICIANO, J.:

On 17 June 1975, a five-year Contract of Lease 1 was executed between petitioner

Pacifica Millare as lessor and private respondent Elsa Co, married to Antonio Co, as
lessee. Under the written agreement, which was scheduled to expire on 31 May
1980, the lessor-petitioner agreed to rent out to thelessee at a monthly rate of
P350.00 the "People's Restaurant", a commercial establishment located at the
corner of McKinley and Pratt Streets in Bangued, Abra.
The present dispute arose from events which transpired during the months of May
and July in 1980. According to the Co spouses, sometime during the last week of
May 1980, the lessor informed them that they could continue leasing the People's
Restaurant so long as they were amenable to paying creased rentals of P1,200.00 a
month. In response, a counteroffer of P700.00 a month was made by the Co
spouses. At this point, the lessor allegedly stated that the amount of monthly rentals
could be resolved at a later time since "the matter is simple among us", which
alleged remark was supposedly taken by the spouses Co to mean that the Contract
of Lease had been renewed, prompting them to continue occupying the subject
premises and to forego their search for a substitute place to rent. 2 In contrast, the
lessor flatly denied ever having considered, much less offered, a renewal of the
Contract of Lease.

The variance in versions notwithstanding, the record shows that on 22 July 1980,
Mrs. Millare wrote the Co spouses requesting them to vacate the leased premises as
she had no intention of renewing the Contract of Lease which had, in the meantime,
already expirecl. 3 In reply, the Co spouses reiterated their unwillingness to pay the
Pl,200.00 monthly rentals supposedly sought bv Mrs. Millare which they considered
"highly excessive, oppressive and contrary to existing laws". They also signified their
intention to deposit the amount of rentals in court, in view of Mrs. Millare's refusal to
accept their counter-offer.4 Another letter of demand from Mrs. Millare was received
on 28 July 1980 by the Co spouses, who responded by depositing the rentals for
June and July (at 700.00 a month) in court.

On 30 August 1980, a Saturday, the Co spouses jumped the gun, as it were, and
filed a Complaint 5 (docketed as Civil Case No. 1434) with the then Court of First
Instance of Abra against Mrs. Millare and seeking judgment (a) ordering the renewal
of the Contract of Lease at a rental rate of P700.00 a nionth and for a period of ten
years, (b) ordering the defendant to collect the sum of P1,400.00 deposited by
plaintiffs with the court, and (c) ordering the defendant to pay damages in the
amount of P50,000.00. The following Monday, on 1 September 1980, Mrs. Millare
filed an ejectment case against the Co spouses in the Municipal Court of Bangued,
Abra, docketed as Civil Case No. 661. The spouses Co, defendants therein,
sut)sequently set up lis pendens as a Civil Case No. 661. The spouses Co,
defendants therein, subsequently set up lis pendens as a defense against the
complaint for ejectment.

Mrs. Millare, defendant in Civil Case No. 1434, countered with an Omnibus Motion to
Dismiss6 rounded on (a) lack of cause of action due to plaintiffs' failure to establish a
valid renewal of the Contract of Lease, and (b) lack of jurisdiction by the trial court
over the complaint for failure of plaintiffs to secure a certification from the Lupong
Tagapayapa of the barangay wherein both disputants reside attesting that no
amicable settlement between them had been reached despite efforts to arrive at one,
as required by Section 6 of Presidential Decree No. 1508. The Co spouses opposed
the motion to dismiss. 7

In an Order dated 15 October 1980, respondent judge denied the motion to dismiss
and ordered the renewal of the Contract of Lease. Furthermore plaintiffs were
allowed to deposit all accruing monthly rentals in court, while defendant Millare was
directed to submit her answer to the complaint. 8 A motion for reconsideration 9 was
subsequently filed which, however, was likewise denied. 10 Hence, on 13 November
1980, Mrs. Millare filed the instant Petition for Certiorari, Prohibition and Mandamus,
seeking injunctive relief from the abovementioned orders. This Court issued a
temporary restraining order on 21 November 1980 enjoining respondent, judge from
conducting further proceedings in Civil Case No. 1434. 11 Apparently, before the
temporary restraining order could be served on the respondent judge, he rendered a
"Judgment by Default" dated 26 November 1980 ordering the renewal of the lease
contract for a term of 5 years counted from the expiration date of the original lease
contract, and fixing monthly rentals thereunder at P700.00 a month, payable in
arrears. On18 March 1981, this Court gave due course to the Petition for Certiorari,
Prohibition and Mandamus. 12

Two issues are presented for resolution: (1) whether or not the trial court acquired
jurisdiction over Civil Case No. 1434; and (2) whether or not private respondents
have a valid cause of action against petitioner.

Turning to the first issue, petitioner's attack on the jurisdiction of the trial court must
fail, though for reasons different from those cited by the respondent judge. 13 We
would note firstly that the conciliation procedure required under P.D. 1508 is not a
jurisdictional requirement in the sense that failure to have prior recourse to such
procedure would not deprive a court of its jurisdiction either over the subject matter
or over the person of the defendant.14 Secondly, the acord shows that two
complaints were submitted to the barangay authorities for conciliation — one by
petitioner for ejectment and the other by private respondents for renewal of the
Contract of Lease. It appears further that both complaints were, in fact, heard by the
Lupong Tagapayapa in the afternoon of 30 August 1980. After attempts at
conciliation had proven fruitless, Certifications to File Action authorizing the parties to
pursue their respective claims in court were then issued at 5:20 p.m. of that same
aftemoon, as attested to by the Barangay Captain in a Certification presented in
evidence by petitioner herself. 15

Petitioner would, nonetheless, assail the proceedings in the trial court on a

technicaety, i.e., private respondents allegedly filed their complaint at 4:00 p.m. of 30
August 1980, or one hour and twenty minutes before the issuance of the requisite
certification by the Lupng Tagapayapa. The defect in procedure admittedly initially
present at that particular moment when private respondents first filed the complaint
in the trial court, was cured by the subsequent issuance of the Certifications to File
Action by the barangay Lupong Tagapayapa Such certifications in any event
constituted substantial comphance with the requirement of P.D. 1508.

We turn to the second issue, that is, whether or not the complaint in Civil Case No.
1434 filed by the respondent Co spouses claiming renewal of the contract of lease
stated a valid cause of action. Paragraph 13 of the Contract of Lease reads as
follows:
13. This contract of lease is subject to the laws and regulations ofthe
goverrunent; and that this contract of lease may be renewed after a period of five (5)
years under the terms and conditions as will be mutually agreed upon by the parties
at the time of renewal; ... (Emphasis supplied.)

The respondent judge, in his Answer and Comment to the Petition, urges that under
paragraph 13 quoted above.

there was already a consummated and finished mutual agreement of the parties to
renew the contract of lease after five years; what is only left unsettled between the
parties to the contract of lease is the amount of the monthly rental; the lessor insists
Pl,200 a month, while the lessee is begging P700 a month which doubled the P350
monthly rental under the original contract .... In short, the lease contract has never
expired because paragraph 13 thereof had expressly mandated that it is renewable.
...16

In the "Judgment by Default" he rendered, the respondent Judge elaborated his

views — obviously highly emotional in character — in the following extraordinary
tatements:

However, it is now the negative posture of the defendant-lessor to block, reject and
refuse to renew said lease contract. It is the defendant-lessor's assertion and
position that she can at the mere click of her fingers, just throw-out the plaintiffs-
lessees from the leased premises and any time after the original term of the lease
contract had already expired; This negative position of the defendantlessor, to the
mind of this Court does not conform to the principles and correct application of the
philosophy underlying the law of lease; for indeed, the law of lease is impressed with
public interest, social justice and equity; reason for which, this Court cannot sanction
lot owner's business and commercial speculations by allowing them with "unbridled
discretion" to raise rentals even to the extent of "extraordinary gargantuan
proportions, and calculated to unreasonably and unjustly eject the helpless lessee
because he cannot afford said inflated monthly rental and thereby said lessee is
placed without any alternative, except to surrender and vacate the premises
mediately,-" Many business establishments would be closed and the public would
directly suffer the direct consequences; Nonetheless, this is not the correct concept
or perspective the law of lease, that is, to place the lessee always at the mercy of the
lessor's "Merchant of Venice" and to agit the latter's personal whims and caprices;
the defendant-lessor's hostile attitude by imposing upon the lessee herein an
"unreasonable and extraordinary gargantuan monthly rental of P1,200.00", to the
mind of this Court, is "fly-by night unjust enrichment" at the expense of said lessees;
but, no Man should unjustly enrich himself at the expense of another; under these
facts and circumstances surrounding this case, the action therefore to renew the
lease contract! is "tenable" because it falls squarely within the coverage and
command of Articles 1197 and 1670 of the New Civil Code, to wit:

xxx xxx xxx

The term "to be renewed" as expressly stipulated by the herein parties in the original
contract of lease means that the lease may be renewed for another term of five (5)
years; its equivalent to a promise made by the lessor to the lessee, and as a
unilateral stipulation, obliges the lessor to fulfill her promise; of course the lessor is
free to comply and honor her commitment or back-out from her promise to renew the
lease contract; but, once expressly stipulated, the lessor shall not be allowed to
evade or violate the obligation to renew the lease because, certainly, the lessor may
be held hable for damages caused to the lessee as a consequence of the
unjustifiable termination of the lease or renewal of the same; In other words, the
lessor is guilty of breach of contract: Since the original lease was fixed for five (5)
years, it follows, therefore, that the lease contract is renewable for another five (5)
years and the lessee is not required before hand to give express notice of this fact to
the lessor because it was expressly stipulated in the original lease contract to be
renewed; Wherefore, the bare refusal of the lessor to renew the lease contract
unless the monthly rental is P1,200.00 is contrary to law, morals, good customs,
public policy, justice and equity because no one should unjustly enrich herself at the
expense of another. Article 1197 and 1670 of the New Civil Code must therefore
govern the case at bar and whereby this Court is authorized to fix the period thereof
by ordering the renewal of the lease contract to another fixed term of five (5)
years.17

Clearly, the respondent judge's grasp of both the law and the Enghsh language is
tenuous at best. We are otherwise unable to comprehend how he arrived at the
reading set forth above. Paragraph 13 of the Contract of Lease can only mean that
the lessor and lessee may agree to renew the contract upon their reaching
agreement on the terms and conditions to be embodied in such renewal contract.
Failure to reach agreement on the terms and conditions of the renewal contract will
of course prevent the contract from being renewed at all. In the instant case, the
lessor and the lessee conspicuously failed to reach agreement both on the amount
of the rental to be payable during the renewal term, and on the term of the renewed
contract.

The respondent judge cited Articles 1197 and 1670 of the Civil Code to sustain the
"Judgment by Default" by which he ordered the renewal of the lease for another term
of five years and fixed monthly rentals thereunder at P700.00 a month. Article 1197
of the Civil Code provides as follows:

If the obligation does not fix a period, but from its nature and the circumstances it
can be inferred that a period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of
the debtor.

In every case, the courts shall determine such period as may, under the
circumstances, have been probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them. (Emphasis supplied.)
The first paragraph of Article 1197 is clearly inapplicable, since the Contract of Lease
did in fact fix an original period of five years, which had expired. It is also clear from
paragraph 13 of the Contract of Lease that the parties reserved to themselves the
faculty of agreeing upon the period of the renewal contract. The second paragraph of
Article 1197 is equally clearly inapplicable since the duration of the renewal period
was not left to the wiu of the lessee alone, but rather to the will of both the lessor and
the lessee. Most importantly, Article 1197 applies only where a contract of lease
clearly exists. Here, the contract was not renewed at all, there was in fact no contract
at all the period of which could have been fixed.

Article 1670 of the Civil Code reads thus:

If at the end of the contract the lessee should continue enjoying the thing left for 15
days with the acquiescence of the lessor and unless a notice to the contrary by
either party has previously been given. It is understood that there is an implied new
lease, not for the period of the original contract but for the time established in Articles
1682 and 1687. The ther terms of the original contract shall be revived. (Emphasis
suplied.)

The respondents themselves, public and private, do not pretend that the continued
occupancy of the leased premises after 31 May 1980, the date of expiration of the
contract, was with the acquiescence of the lessor. Even if it be assumed that tacite
reconduccion had occurred, the implied new lease could not possibly have a period
of five years, but rather would have been a month-to-month lease since the rentals
(under the original contract) were payable on a monthly basis. At the latest, an
implied new lease (had one arisen) would have expired as of the end of July 1980 in
view of the written demands served by the petitioner upon the private respondents to
vacate the previously leased premises.

It follows that the respondent judge's decision requiring renewal of the lease has no
basis in law or in fact. Save in the limited and exceptional situations envisaged
inArticles ll97 and 1670 of the Civil Code, which do not obtain here, courts have no
authority to prescribe the terms and conditions of a contract for the parties. As
pointed out by Mr. Justice J.B.L. Reyes in Republic vs. Philippine Long Distance
Telephone,Co.,[[18

[P]arties cannot be coerced to enter into a contract where no agreement is had

between them as to the principal terms and conditions of the contract. Freedom to
stipulate such terms and conditions is of the essence of our contractual system, and
by express provision of the statute, a contract may be annulled if tainted by violence,
intimidation or undue influence (Article 1306, 1336, 1337, Civil Code of the
Philippines).

Contractual terms and conditions created by a court for two parties are a
contradiction in terms. If they are imposed by a judge who draws upon his own
private notions of what morals, good customs, justice, equity and public policy"
demand, the resulting "agreement" cannot, by definition, be consensual or
contractual in nature. It would also follow that such coerced terms and conditions
cannot be the law as between the parties themselves. Contracts spring from the
volition of the parties. That volition cannot be supplied by a judge and a judge who
pretends to do so, acts tyrannically, arbitrarily and in excess of his jurisdiction. 19

WHEREFORE, the Petition for Certiorari, Prohibition and mandamus is granted. The
Orders of the respondent judge in Civil Case No. 1434 dated 26 September 1980
(denying petitioner's motion to dismiss) and 4 November 1980 (denying petitioner's
motion for reconsideration), and the "Judgment by Default" rendered by the
respondent judge dated 26 November 1980, are hereby annulled and set aside and
Civil Case No. 1434 is hereby dismissed. The temporary restraining order dated 21
November 1980 issued by this ourt, is hereby made permanent. No pronouncement
as to costs.

SO ORDERED.

2. As to Plurality of Prestation

G.R. No. 206806 June 25, 2014

ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, Petitioners,
vs.
DAN T. LIM, doing business under the name and style of QUALITY PAPERS &
PLASTIC PRODUCTS ENTERPRISES, Respondent.

DECISION

LEONEN, J.:

Novation must be stated in clear and unequivocal terms to extinguish an obligation. It

cannot be presumed and may be implied only if the old and new contracts are
incompatible on every point.

Before us is a petition for review on certiorari1 assailing the Court of Appeals’

decision2 in CA-G.R. CV No. 95709, which stemmed from a complaint3 filed in the
Regional Trial Court of Valenzuela City, Branch 171, for collection of sum of money.

The facts are as follows:

Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw
materials, under the name Quality Paper and Plastic Products, Enterprises, to
factories engaged in the paper mill business.4 From February 2007 to March 2007,
he delivered scrap papers worth 7,220,968.31 to Arco Pulp and Paper Company,
Inc. (Arco Pulp and Paper) through its Chief Executive Officer and President,
Candida A. Santos.5 The parties allegedly agreed that Arco Pulp and Paper would
either pay Dan T. Lim the value of the raw materials or deliver to him their finished
products of equivalent value.6
Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper
issued a post-dated check dated April 18, 20077 in the amount of 1,487,766.68 as
partial payment, with the assurance that the check would not bounce.8 When he
deposited the check on April 18, 2007, it was dishonored for being drawn against a
closed account.9

On the same day, Arco Pulp and Paper and a certain Eric Sy executed a
memorandum of agreement10 where Arco Pulp and Paper bound themselves to
deliver their finished products to Megapack Container Corporation, owned by Eric
Sy, for his account. According to the memorandum, the raw materials would be
supplied by Dan T. Lim, through his company, Quality Paper and Plastic Products.
The memorandum of agreement reads as follows:

Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between
Mrs. Candida A. Santos and Mr. Eric Sy that ARCO will deliver 600 tons Test Liner
150/175 GSM, full width 76 inches at the price of ₱18.50 per kg. to Megapack
Container for Mr. Eric Sy’s account. Schedule of deliveries are as follows:

....

It has been agreed further that the Local OCC materials to be used for the
production of the above Test Liners will be supplied by Quality Paper & Plastic
Products Ent., total of 600 Metric Tons at ₱6.50 per kg. (price subject to change per
advance notice). Quantity of Local OCC delivery will be based on the quantity of Test
Liner delivered to Megapack Container Corp. based on the above production
schedule.11

On May 5, 2007, Dan T.Lim sent a letter12 to Arco Pulp and Paper demanding
payment of the amount of 7,220,968.31, but no payment was made to him.13

Dan T. Lim filed a complaint14 for collection of sum of money with prayer for
attachment with the Regional Trial Court, Branch 171, Valenzuela City, on May 28,
2007. Arco Pulp and Paper filed its answer15 but failed to have its representatives
attend the pre-trial hearing. Hence, the trial court allowed Dan T. Lim to present his
evidence ex parte.16

On September 19, 2008, the trial court rendered a judgment in favor of Arco Pulp
and Paper and dismissed the complaint, holding that when Arco Pulp and Paper and
Eric Sy entered into the memorandum of agreement, novation took place, which
extinguished Arco Pulp and Paper’s obligation to Dan T. Lim.17

Dan T. Lim appealed18 the judgment with the Court of Appeals. According to him,
novation did not take place since the memorandum of agreement between Arco Pulp
and Paper and Eric Sy was an exclusive and private agreement between them. He
argued that if his name was mentioned in the contract, it was only for supplying the
parties their required scrap papers, where his conformity through a separate contract
was indispensable.19
On January 11, 2013, the Court of Appeals20 rendered a decision21 reversing and
setting aside the judgment dated September 19, 2008 and ordering Arco Pulp and
Paper to jointly and severally pay Dan T. Lim the amount of ₱7,220,968.31 with
interest at 12% per annum from the time of demand; ₱50,000.00 moral damages;
₱50,000.00 exemplary damages; and ₱50,000.00 attorney’s fees.22

The appellate court ruled that the facts and circumstances in this case clearly
showed the existence of an alternative obligation.23 It also ruled that Dan T. Lim was
entitled to damages and attorney’s fees due to the bad faith exhibited by Arco Pulp
and Paper in not honoring its undertaking.24

Its motion for reconsideration25 having been denied,26 Arco Pulp and Paper and its
President and Chief Executive Officer, Candida A. Santos, bring this petition for
review on certiorari.

On one hand, petitioners argue that the execution of the memorandum of agreement
constituted a novation of the original obligation since Eric Sy became the new debtor
of respondent. They also argue that there is no legal basis to hold petitioner Candida
A. Santos personally liable for the transaction that petitioner corporation entered into
with respondent. The Court of Appeals, they allege, also erred in awarding moral and
exemplary damages and attorney’s fees to respondent who did not show proof that
he was entitled to damages.27

Respondent, on the other hand, argues that the Court of Appeals was correct in
ruling that there was no proper novation in this case. He argues that the Court of
Appeals was correct in ordering the payment of 7,220,968.31 with damages since
the debt of petitioners remains unpaid.28 He also argues that the Court of Appeals
was correct in holding petitioners solidarily liable since petitioner Candida A. Santos
was "the prime mover for such outstanding corporate liability."29 In their reply,
petitioners reiterate that novation took place since there was nothing in the
memorandum of agreement showing that the obligation was alternative. They also
argue that when respondent allowed them to deliver the finished products to Eric Sy,
the original obligation was novated.30

A rejoinder was submitted by respondent, but it was noted without action in view of
A.M. No. 99-2-04-SC dated November 21, 2000.31

The issues to be resolved by this court are as follows:

1. Whether the obligation between the parties was extinguished by novation

2. Whether Candida A. Santos was solidarily liable with Arco Pulp and Paper Co.,
Inc.

3. Whether moral damages, exemplary damages, and attorney’s fees can be

awarded

The petition is denied.

The obligation between the
parties was an alternative
obligation

The rule on alternative obligations is governed by Article 1199 of the Civil Code,
which states:

Article 1199. A person alternatively bound by different prestations shall completely

perform one of them.

The creditor cannot be compelled to receive part of one and part of the other
undertaking.

"In an alternative obligation, there is more than one object, and the fulfillment of one
is sufficient, determined by the choice of the debtor who generally has the right of
election."32 The right of election is extinguished when the party who may exercise
that option categorically and unequivocally makes his or her choice known.33

The choice of the debtor must also be communicated to the creditor who must
receive notice of it since: The object of this notice is to give the creditor . . .
opportunity to express his consent, or to impugn the election made by the debtor,
and only after said notice shall the election take legal effect when consented by the
creditor, or if impugned by the latter, when declared proper by a competent court.34

According to the factual findings of the trial court and the appellate court, the original
contract between the parties was for respondent to deliver scrap papers worth
₱7,220,968.31 to petitioner Arco Pulp and Paper. The payment for this delivery
became petitioner Arco Pulp and Paper’s obligation. By agreement, petitioner Arco
Pulp and Paper, as the debtor, had the option to either (1) pay the price or(2) deliver
the finished products of equivalent value to respondent.35

The appellate court, therefore, correctly identified the obligation between the parties
as an alternative obligation, whereby petitioner Arco Pulp and Paper, after receiving
the raw materials from respondent, would either pay him the price of the raw
materials or, in the alternative, deliver to him the finished products of equivalent
value.

When petitioner Arco Pulp and Paper tendered a check to respondent in partial
payment for the scrap papers, they exercised their option to pay the price.
Respondent’s receipt of the check and his subsequent act of depositing it constituted
his notice of petitioner Arco Pulp and Paper’s option to pay.

This choice was also shown by the terms of the memorandum of agreement, which
was executed on the same day. The memorandum declared in clear terms that the
delivery of petitioner Arco Pulp and Paper’s finished products would be to a third
person, thereby extinguishing the option to deliver the finished products of equivalent
value to respondent.
The memorandum of
agreement did not constitute
a novation of the original
contract

The trial court erroneously ruled that the execution of the memorandum of
agreement constituted a novation of the contract between the parties. When
petitioner Arco Pulp and Paper opted instead to deliver the finished products to a
third person, it did not novate the original obligation between the parties.

The rules on novation are outlined in the Civil Code, thus:

Article 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;

(3) Subrogating a third person in the rights of the creditor. (1203)

Article 1292. In order that an obligation may be extinguished by another which

substitute the same, it is imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point incompatible with each other.
(1204)

Article 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the
latter, but not without the consent of the creditor. Payment by the new debtor gives
him the rights mentioned in Articles 1236 and 1237. (1205a)

Novation extinguishes an obligation between two parties when there is a substitution

of objects or debtors or when there is subrogation of the creditor. It occurs only when
the new contract declares so "in unequivocal terms" or that "the old and the new
obligations be on every point incompatible with each other."36

Novation was extensively discussed by this court in Garcia v. Llamas:37

Novation is a mode of extinguishing an obligation by changing its objects or principal

obligations, by substituting a new debtor in place of the old one, or by subrogating a
third person to the rights of the creditor. Article 1293 of the Civil Code defines
novation as follows:

"Art. 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the
latter, but not without the consent of the creditor. Payment by the new debtor gives
him rights mentioned in articles 1236 and 1237."
In general, there are two modes of substituting the person of the debtor: (1)
expromision and (2) delegacion. In expromision, the initiative for the change does
not come from — and may even be made without the knowledge of — the debtor,
since it consists of a third person’s assumption of the obligation. As such, it logically
requires the consent of the third person and the creditor. In delegacion, the debtor
offers, and the creditor accepts, a third person who consents to the substitution and
assumes the obligation; thus, the consent of these three persons are necessary.
Both modes of substitution by the debtor require the consent of the creditor.

Novation may also be extinctive or modificatory. It is extinctive when an old

obligation is terminated by the creation of a new one that takes the place of the
former. It is merely modificatory when the old obligation subsists to the extent that it
remains compatible with the amendatory agreement. Whether extinctive or
modificatory, novation is made either by changing the object or the principal
conditions, referred to as objective or real novation; or by substituting the person of
the debtor or subrogating a third person to the rights of the creditor, an act known as
subjective or personal novation. For novation to take place, the following requisites
must concur:

1) There must be a previous valid obligation.

2) The parties concerned must agree to a new contract.

3) The old contract must be extinguished.

4) There must be a valid new contract.

Novation may also be express or implied. It is express when the new obligation
declares in unequivocal terms that the old obligation is extinguished. It is implied
when the new obligation is incompatible with the old one on every point. The test of
incompatibility is whether the two obligations can stand together, each one with its
own independent existence.38 (Emphasis supplied)

Because novation requires that it be clear and unequivocal, it is never presumed,

thus:

In the civil law setting, novatio is literally construed as to make new. So it is deeply
rooted in the Roman Law jurisprudence, the principle — novatio non praesumitur —
that novation is never presumed.At bottom, for novation tobe a jural reality, its
animus must be ever present, debitum pro debito — basically extinguishing the old
obligation for the new one.39 (Emphasis supplied) There is nothing in the
memorandum of agreement that states that with its execution, the obligation of
petitioner Arco Pulp and Paper to respondent would be extinguished. It also does not
state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as
respondent’s debtor. It merely shows that petitioner Arco Pulp and Paper opted to
deliver the finished products to a third person instead.

The consent of the creditor must also be secured for the novation to be valid:
Novation must be expressly consented to. Moreover, the conflicting intention and
acts of the parties underscore the absence of any express disclosure or
circumstances with which to deduce a clear and unequivocal intent by the parties to
novate the old agreement.40 (Emphasis supplied)

In this case, respondent was not privy to the memorandum of agreement, thus, his
conformity to the contract need not be secured. This is clear from the first line of the
memorandum, which states:

Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between
Mrs. Candida A. Santos and Mr. Eric Sy. . . .41

If the memorandum of agreement was intended to novate the original agreement

between the parties, respondent must have first agreed to the substitution of Eric Sy
as his new debtor. The memorandum of agreement must also state in clear and
unequivocal terms that it has replaced the original obligation of petitioner Arco Pulp
and Paper to respondent. Neither of these circumstances is present in this case.

Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also
conflicts with their alleged intent to pass on their obligation to Eric Sy. When
respondent sent his letter of demand to petitioner Arco Pulp and Paper, and not to
Eric Sy, it showed that the former neither acknowledged nor consented to the latter
as his new debtor. These acts, when taken together, clearly show that novation did
not take place. Since there was no novation, petitioner Arco Pulp and Paper’s
obligation to respondent remains valid and existing. Petitioner Arco Pulp and Paper,
therefore, must still pay respondent the full amount of ₱7,220,968.31.

Petitioners are liable for

damages

Under Article 2220 of the Civil Code, moral damages may be awarded in case of
breach of contract where the breach is due to fraud or bad faith:

Art. 2220. Willfull 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. (Emphasis supplied)

Moral damages are not awarded as a matter of right but only after the party claiming
it proved that the breach was due to fraud or bad faith. As this court stated:

Moral damages are not recoverable simply because a contract has been breached.
They are recoverable only if the party from whom it is claimed acted fraudulently or
in bad faith or in wanton disregard of his contractual obligations. The breach must be
wanton, reckless, malicious or in bad faith, and oppressive or abusive.42

Further, the following requisites must be proven for the recovery of moral damages:
An award of moral damages would require certain conditions to be met, to wit:
(1)first, there must be an injury, whether physical, mental or psychological, clearly
sustained by the claimant; (2) second, there must be culpable act or omission
factually established; (3) third, the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4) fourth, the award of
damages is predicated on any of the cases stated in Article 2219 of the Civil
Code.43

Here, the injury suffered by respondent is the loss of ₱7,220,968.31 from his
business. This has remained unpaid since 2007. This injury undoubtedly was caused
by petitioner Arco Pulp and Paper’s act of refusing to pay its obligations.

When the obligation became due and demandable, petitioner Arco Pulp and Paper
not only issued an unfunded check but also entered into a contract with a third
person in an effort to evade its liability. This proves the third requirement.

As to the fourth requisite, Article 2219 of the Civil Code provides that moral damages
may be awarded in the following instances:

Article 2219. Moral damages may be recovered in the following and analogous
cases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

(3) Seduction, abduction, rape, or other lascivious acts;

(4) Adultery or concubinage;

(5) Illegal or arbitrary detention or arrest;

(6) Illegal search;

(7) Libel, slander or any other form of defamation;

(8) Malicious prosecution;

(9) Acts mentioned in Article 309;

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

Breaches of contract done in bad faith, however, are not specified within this
enumeration. When a party breaches a contract, he or she goes against Article 19 of
the Civil Code, which states: Article 19. Every person must, in the exercise of his
rights and in the performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith.
Persons who have the right to enter into contractual relations must exercise that right
with honesty and good faith. Failure to do so results in an abuse of that right, which
may become the basis of an action for damages. Article 19, however, cannot be its
sole basis:

Article 19 is the general rule which governs the conduct of human relations. By itself,
it is not the basis of an actionable tort. Article 19 describes the degree of care
required so that an actionable tort may arise when it is alleged together with Article
20 or Article 21.44

Article 20 and 21 of the Civil Code are as follows:

Article 20. Every person who, contrary to law, wilfully or negligently causes damage
to another, shall indemnify the latter for the same.

Article 21.Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.

To be actionable, Article 20 requires a violation of law, while Article 21 only concerns

with lawful acts that are contrary to morals, good customs, and public policy:

Article 20 concerns violations of existing law as basis for an injury. It allows recovery
should the act have been willful or negligent. Willful may refer to the intention to do
the act and the desire to achieve the outcome which is considered by the plaintiff in
tort action as injurious. Negligence may refer to a situation where the act was
consciously done but without intending the result which the plaintiff considers as
injurious.

Article 21, on the other hand, concerns injuries that may be caused by acts which
are not necessarily proscribed by law. This article requires that the act be willful, that
is, that there was an intention to do the act and a desire to achieve the outcome. In
cases under Article 21, the legal issues revolve around whether such outcome
should be considered a legal injury on the part of the plaintiff or whether the
commission of the act was done in violation of the standards of care required in
Article 19.45

When parties act in bad faith and do not faithfully comply with their obligations under
contract, they run the risk of violating Article 1159 of the Civil Code:

Article 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.

Article 2219, therefore, is not an exhaustive list of the instances where moral
damages may be recovered since it only specifies, among others, Article 21. When a
party reneges on his or her obligations arising from contracts in bad faith, the act is
not only contrary to morals, good customs, and public policy; it is also a violation of
Article 1159. Breaches of contract become the basis of moral damages, not only
under Article 2220, but also under Articles 19 and 20 in relation to Article 1159.

Moral damages, however, are not recoverable on the mere breach of the contract.
Article 2220 requires that the breach be done fraudulently or in bad faith. In Adriano
v. Lasala:46

To recover moral damages in an action for breach of contract, the breach must be
palpably wanton, reckless and malicious, in bad faith, oppressive, or abusive. Hence,
the person claiming bad faith must prove its existence by clear and convincing
evidence for the law always presumes good faith.

Bad faith does not simply connote bad judgment or negligence. It imports a
dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach
of known duty through some motive or interest or ill will that partakes of the nature of
fraud. It is, therefore, a question of intention, which can be inferred from one’s
conduct and/or contemporaneous statements.47 (Emphasis supplied)

Since a finding of bad faith is generally premised on the intent of the doer, it requires
an examination of the circumstances in each case.

When petitioner Arco Pulp and Paper issued a check in partial payment of its
obligation to respondent, it was presumably with the knowledge that it was being
drawn against a closed account. Worse, it attempted to shift their obligations to a
third person without the consent of respondent.

Petitioner Arco Pulp and Paper’s actions clearly show "a dishonest purpose or some
moral obliquity and conscious doing of a wrong, a breach of known duty through
some motive or interest or ill will that partakes of the nature of fraud."48 Moral
damages may, therefore, be awarded.

Exemplary damages may also be awarded. Under the Civil Code, exemplary
damages are due in the following circumstances:

Article 2232. In contracts and quasi-contracts, the court may award exemplary
damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner.

Article 2233. Exemplary damages cannot be recovered as a matter of right; the court
will decide whether or not they should be adjudicated.

Article 2234. While the amount of the exemplary damages need not be proven, the
plaintiff must show that he is entitled to moral, temperate or compensatory damages
before the court may consider the question of whether or not exemplary damages
should be awarded.

In Tankeh v. Development Bank of the Philippines,49 we stated that:

The purpose of exemplary damages is to serve as a deterrent to future and
subsequent parties from the commission of a similar offense. The case of People v.
Ranteciting People v. Dalisay held that:

Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or corrective damages

are intended to serve as a deterrent to serious wrong doings, and as a vindication of
undue sufferings and wanton invasion of the rights of an injured or a punishment for
those guilty of outrageous conduct. These terms are generally, but not always, used
interchangeably. In common law, there is preference in the use of exemplary
damages when the award is to account for injury to feelings and for the sense of
indignity and humiliation suffered by a person as a result of an injury that has been
maliciously and wantonly inflicted, the theory being that there should be
compensation for the hurt caused by the highly reprehensible conduct of the
defendant—associated with such circumstances as willfulness, wantonness, malice,
gross negligence or recklessness, oppression, insult or fraud or gross fraud—that
intensifies the injury. The terms punitive or vindictive damages are often used to
refer to those species of damages that may be awarded against a person to punish
him for his outrageous conduct. In either case, these damages are intended in good
measure to deter the wrongdoer and others like him from similar conduct in the
future.50 (Emphasis supplied; citations omitted)

The requisites for the award of exemplary damages are as follows:

(1) they may be imposed by way of example in addition to compensatory damages,

and only after the claimant's right to them has been established;

(2) that they cannot be recovered as a matter of right, their determination depending
upon the amount of compensatory damages that may be awarded to the claimant;
and

(3) the act must be accompanied by bad faith or done in a wanton, fraudulent,
oppressive or malevolent manner.51

Business owners must always be forthright in their dealings. They cannot be allowed
to renege on their obligations, considering that these obligations were freely entered
into by them. Exemplary damages may also be awarded in this case to serve as a
deterrent to those who use fraudulent means to evade their liabilities.

Since the award of exemplary damages is proper, attorney’s fees and cost of the suit
may also be recovered.

Article 2208 of the Civil Code states:

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

(1) When exemplary damages are awarded[.]

Petitioner Candida A. Santos
is solidarily liable with
petitioner corporation

Petitioners argue that the finding of solidary liability was erroneous since no
evidence was adduced to prove that the transaction was also a personal undertaking
of petitioner Santos. We disagree.

In Heirs of Fe Tan Uy v. International Exchange Bank,52 we stated that:

Basic is the rule in corporation law that a corporation is a juridical entity which is
vested with a legal personality separate and distinct from those acting for and in its
behalf and, in general, from the people comprising it. Following this principle,
obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities. A director, officer or employee of a corporation is
generally not held personally liable for obligations incurred by the corporation.
Nevertheless, this legal fiction may be disregarded if it is used as a means to
perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse legitimate issues.

....

Before a director or officer of a corporation can be held personally liable for

corporate obligations, however, the following requisites must concur: (1) the
complainant must allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation, or that the officer was guilty of gross
negligence or bad faith; and (2) the complainant must clearly and convincingly prove
such unlawful acts, negligence or bad faith.

While it is true that the determination of the existence of any of the circumstances
that would warrant the piercing of the veil of corporate fiction is a question of fact
which cannot be the subject of a petition for review on certiorari under Rule 45, this
Court can take cognizance of factual issues if the findings of the lower court are not
supported by the evidence on record or are based on a misapprehension of facts.53
(Emphasis supplied)

As a general rule, directors, officers, or employees of a corporation cannot be held

personally liable for obligations incurred by the corporation. However, this veil of
corporate fiction may be pierced if complainant is able to prove, as in this case, that
(1) the officer is guilty of negligence or bad faith, and (2) such negligence or bad faith
was clearly and convincingly proven.

Here, petitioner Santos entered into a contract with respondent in her capacity as the
President and Chief Executive Officer of Arco Pulp and Paper. She also issued the
check in partial payment of petitioner corporation’s obligations to respondent on
behalf of petitioner Arco Pulp and Paper. This is clear on the face of the check
bearing the account name, "Arco Pulp & Paper, Co., Inc."54 Any obligation arising
from these acts would not, ordinarily, be petitioner Santos’ personal undertaking for
which she would be solidarily liable with petitioner Arco Pulp and Paper.
We find, however, that the corporate veil must be pierced. In Livesey v. Binswanger
Philippines:55

Piercing the veil of corporate fiction is an equitable doctrine developed to address

situations where the separate corporate personality of a corporation is abused or
used for wrongful purposes. Under the doctrine, the corporate existence may be
disregarded where the entity is formed or used for non-legitimate purposes, such as
to evade a just and due obligation, or to justify a wrong, to shield or perpetrate fraud
or to carry out similar or inequitable considerations, other unjustifiable aims or
intentions, in which case, the fiction will be disregarded and the individuals
composing it and the two corporations will be treated as identical.56 (Emphasis
supplied)

According to the Court of Appeals, petitioner Santos was solidarily liable with
petitioner Arco Pulp and Paper, stating that:

In the present case, We find bad faith on the part of the [petitioners] when they
unjustifiably refused to honor their undertaking in favor of the [respondent]. After the
check in the amount of 1,487,766.68 issued by [petitioner] Santos was dishonored
for being drawn against a closed account, [petitioner] corporation denied any privity
with [respondent]. These acts prompted the [respondent] to avail of the remedies
provided by law in order to protect his rights.57

We agree with the Court of Appeals. Petitioner Santos cannot be allowed to hide
behind the corporate veil.1âwphi1 When petitioner Arco Pulp and Paper’s obligation
to respondent became due and demandable, she not only issued an unfunded check
but also contracted with a third party in an effort to shift petitioner Arco Pulp and
Paper’s liability. She unjustifiably refused to honor petitioner corporation’s obligations
to respondent. These acts clearly amount to bad faith. In this instance, the corporate
veil may be pierced, and petitioner Santos may be held solidarily liable with petitioner
Arco Pulp and Paper.

The rate of interest due on

the obligation must be
reduced in view of Nacar v.
Gallery Frames58

In view, however, of the promulgation by this court of the decision dated August 13,
2013 in Nacar v. Gallery Frames,59 the rate of interest due on the obligation must be
modified from 12% per annum to 6% per annum from the time of demand.

Nacar effectively amended the guidelines stated in Eastern Shipping v. Court of

Appeals,60 and we have laid down the following guidelines with regard to the rate of
legal interest:
To recapitulate and for future guidance, the guidelines laid down in the case of
Eastern Shipping Linesare accordingly modified to embody BSP-MB Circular No.
799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,

delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 6% per annum to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the provisions of Article 1169 of the
Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached,

an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is
made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.

And, in addition to the above, judgments that have become final and executory prior
to July 1, 2013, shall not be disturbed and shall continue to be implemented applying
the rate of interest fixed therein.61 (Emphasis supplied; citations omitted.)

According to these guidelines, the interest due on the obligation of ₱7,220,968.31

should now be at 6% per annum, computed from May 5, 2007, when respondent
sent his letter of demand to petitioners. This interest shall continue to be due from
the finality of this decision until its full satisfaction.
WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV No.
95709 is AFFIRMED.

Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are hereby ordered
solidarily to pay respondent Dan T. Lim the amount of ₱7,220,968.31 with interest of
6% per annum at the time of demand until finality of judgment and its full satisfaction,
with moral damages in the amount of ₱50,000.00, exemplary damages in the
amount of ₱50,000.00, and attorney's fees in the amount of ₱50,000.00.

SO ORDERED.

3. As to rights & obligations of multiple parties

G.R. No. L-55138 September 28, 1984

ERNESTO V. RONQUILLO, petitioner,

vs.
HONORABLE COURT OF APPEALS AND ANTONIO P. SO, respondents.

Gloria A. Fortun for petitioner.

Roselino Reyes Isler for respondents.

CUEVAS, J.:

This is a petition to review the Resolution dated June 30, 1980 of the then Court of
Appeals (now the Intermediate Appellate Court) in CA-G.R. No. SP-10573, entitled
"Ernesto V. Ronquillo versus the Hon. Florellana Castro-Bartolome, etc." and the
Order of said court dated August 20, 1980, denying petitioner's motion for
reconsideration of the above resolution.

Petitioner Ernesto V. Ronquillo was one of four (4) defendants in Civil Case No.
33958 of the then Court of First Instance of Rizal (now the Regional Trial Court),
Branch XV filed by private respondent Antonio P. So, on July 23, 1979, for the
collection of the sum of P17,498.98 plus attorney's fees and costs. The other
defendants were Offshore Catertrade Inc., Johnny Tan and Pilar Tan. The amount of
P117,498.98 sought to be collected represents the value of the checks issued by
said defendants in payment for foodstuffs delivered to and received by them. The
said checks were dishonored by the drawee bank.

On December 13, 1979, the lower court rendered its Decision 1 based on the
compromise agreement submitted by the parties, the pertinent portion of which reads
as follows:

1. Plaintiff agrees to reduce its total claim of P117,498-95 to only P11,000 .00
and defendants agree to acknowledge the validity of such claim and further bind
themselves to initially pay out of the total indebtedness of P10,000.00 the amount of
P55,000.00 on or before December 24, 1979, the balance of P55,000.00, defendants
individually and jointly agree to pay within a period of six months from January 1980,
or before June 30, 1980; (Emphasis supplied)

xxx xxx xxx

4. That both parties agree that failure on the part of either party to comply with
the foregoing terms and conditions, the innocent party will be entitled to an execution
of the decision based on this compromise agreement and the defaulting party agrees
and hold themselves to reimburse the innocent party for attorney's fees, execution
fees and other fees related with the execution.

xxx xxx xxx

On December 26, 1979, herein private respondent (then plaintiff filed a Motion for
Execution on the ground that defendants failed to make the initial payment of
P55,000.00 on or before December 24, 1979 as provided in the Decision. Said
motion for execution was opposed by herein petitioner (as one of the defendants)
contending that his inability to make the payment was due to private respondent's
own act of making himself scarce and inaccessible on December 24, 1979.
Petitioner then prayed that private respondent be ordered to accept his payment in
the amount of P13,750.00. 2

During the hearing of the Motion for Execution and the Opposition thereto on
January 16, 1980, petitioner, as one of the four defendants, tendered the amount of
P13,750.00, as his prorata share in the P55,000.00 initial payment. Another
defendant, Pilar P. Tan, offered to pay the same amount. Because private
respondent refused to accept their payments, demanding from them the full initial
installment of P 55,000.00, petitioner and Pilar Tan instead deposited the said
amount with the Clerk of Court. The amount deposited was subsequently withdrawn
by private respondent. 3

On the same day, January 16, 1980, the lower court ordered the issuance of a writ of
execution for the balance of the initial amount payable, against the other two
defendants, Offshore Catertrade Inc. and Johnny Tan 4 who did not pay their shares.

On January 22, 1980, private respondent moved for the reconsideration and/or
modification of the aforesaid Order of execution and prayed instead for the
"execution of the decision in its entirety against all defendants, jointly and severally."
5 Petitioner opposed the said motion arguing that under the decision of the lower
court being executed which has already become final, the liability of the four (4)
defendants was not expressly declared to be solidary, consequently each defendant
is obliged to pay only his own pro-rata or 1/4 of the amount due and payable.

On March 17, 1980, the lower court issued an Order reading as follows:

ORDER
Regardless of whatever the compromise agreement has intended the payment
whether jointly or individually, or jointly and severally, the fact is that only P27,500.00
has been paid. There appears to be a non-payment in accordance with the
compromise agreement of the amount of P27,500.00 on or before December 24,
1979. The parties are reminded that the payment is condition sine qua non to the
lifting of the preliminary attachment and the execution of an affidavit of desistance.

WHEREFORE, let writ of execution issue as prayed for

On March 17, 1980, petitioner moved for the reconsideration of the above order, and
the same was set for hearing on March 25,1980.

Meanwhile, or more specifically on March 19, 1980, a writ of execution was issued
for the satisfaction of the sum of P82,500.00 as against the properties of the
defendants (including petitioner), "singly or jointly hable." 6

On March 20, 1980, Special Sheriff Eulogio C. Juanson of Rizal, issued a notice of
sheriff's sale, for the sale of certain furnitures and appliances found in petitioner's
residence to satisfy the sum of P82,500.00. The public sale was scheduled for April
2, 1980 at 10:00 a.m. 7

Petitioner's motion for reconsideration of the Order of Execution dated March 17,
1980 which was set for hearing on March 25, 1980, was upon motion of private
respondent reset to April 2, 1980 at 8:30 a.m. Realizing the actual threat to property
rights poised by the re-setting of the hearing of s motion for reconsideration for April
2, 1980 at 8:30 a.m. such that if his motion for reconsideration would be denied he
would have no more time to obtain a writ from the appellate court to stop the
scheduled public sale of his personal properties at 10:00 a.m. of the same day, April
2, 1980, petitioner filed on March 26, 1980 a petition for certiorari and prohibition with
the then Court of Appeals (CA-G.R. No. SP-10573), praying at the same time for the
issuance of a restraining order to stop the public sale. He raised the question of the
validity of the order of execution, the writ of execution and the notice of public sale of
his properties to satisfy fully the entire unpaid obligation payable by all of the four (4)
defendants, when the lower court's decision based on the compromise agreement
did not specifically state the liability of the four (4) defendants to be solidary.

On April 2, 1980, the lower court denied petitioner's motion for reconsideration but
the scheduled public sale in that same day did not proceed in view of the pendency
of a certiorari proceeding before the then Court of Appeals.

On June 30, 1980, the said court issued a Resolution, the pertinent portion of which
reads as follows:

This Court, however, finds the present petition to have been filed prematurely. The
rule is that before a petition for certiorari can be brought against an order of a lower
court, all remedies available in that court must first be exhausted. In the case at bar,
herein petitioner filed a petition without waiting for a resolution of the Court on the
motion for reconsideration, which could have been favorable to the petitioner. The
fact that the hearing of the motion for reconsideration had been reset on the same
day the public sale was to take place is of no moment since the motion for
reconsideration of the Order of March 17, 1980 having been seasonably filed, the
scheduled public sale should be suspended. Moreover, when the defendants,
including herein petitioner, defaulted in their obligation based on the compromise
agreement, private respondent had become entitled to move for an execution of the
decision based on the said agreement.

WHEREFORE, the instant petition for certiorari and prohibition with preliminary
injunction is hereby denied due course. The restraining order issued in our resolution
dated April 9, 1980 is hereby lifted without pronouncement as to costs.

SO ORDERED.

Petitioner moved to reconsider the aforesaid Resolution alleging that on April 2,

1980, the lower court had already denied the motion referred to and consequently,
the legal issues being raised in the petition were already "ripe" for determination. 8
The said motion was however denied by the Court of Appeals in its Resolution dated
August 20, 1980.

Hence, this petition for review, petitioner contending that the Court of Appeals erred
in

(a) declaring as premature, and in denying due course to the petition to restrain
implementation of a writ of execution issued at variance with the final decision of the
lower court filed barely four (4) days before the scheduled public sale of the attached
movable properties;

(b) denying reconsideration of the Resolution of June 30, 1980, which declared
as premature the filing of the petition, although there is proof on record that as of
April 2, 1980, the motion referred to was already denied by the lower court and there
was no more motion pending therein;

(c) failing to resolve the legal issues raised in the petition and in not declaring the
liabilities of the defendants, under the final decision of the lower court, to be only
joint;

(d) not holding the lower court's order of execution dated March 17, 1980, the writ
of execution and the notice of sheriff's sale, executing the lower court's decision
against "all defendants, singly and jointly", to be at variance with the lower court's
final decision which did not provide for solidary obligation; and

(e) not declaring as invalid and unlawful the threatened execution, as against the
properties of petitioner who had paid his pro-rata share of the adjudged obligation, of
the total unpaid amount payable by his joint co-defendants.
The foregoing assigned errors maybe synthesized into the more important issues of
—

1. Was the filing of a petition for certiorari before the then Court of Appeals
against the Order of Execution issued by the lower court, dated March 17, 1980,
proper, despite the pendency of a motion for reconsideration of the same questioned
Order?

2. What is the nature of the liability of the defendants (including petitioner), was
it merely joint, or was it several or solidary?

Anent the first issue raised, suffice it to state that while as a general rule, a motion
for reconsideration should precede recourse to certiorari in order to give the trial
court an opportunity to correct the error that it may have committed, the said rule is
not absolutes 9 and may be dispensed with in instances where the filing of a motion
for reconsideration would serve no useful purpose, such as when the motion for
reconsideration would raise the same point stated in the motion 10 or where the
error is patent for the order is void 11 or where the relief is extremely urgent, as in
cases where execution had already been ordered 12 where the issue raised is one
purely of law. 13

In the case at bar, the records show that not only was a writ of execution issued but
petitioner's properties were already scheduled to be sold at public auction on April 2,
1980 at 10:00 a.m. The records likewise show that petitioner's motion for
reconsideration of the questioned Order of Execution was filed on March 17, 1980
and was set for hearing on March 25, 1980 at 8:30 a.m., but upon motion of private
respondent, the hearing was reset to April 2, 1980 at 8:30 a.m., the very same clay
when petitioner's properties were to be sold at public auction. Needless to state that
under the circumstances, petitioner was faced with imminent danger of his properties
being immediately sold the moment his motion for reconsideration is denied. Plainly,
urgency prompted recourse to the Court of Appeals and the adequate and speedy
remedy for petitioner under the situation was to file a petition for certiorari with prayer
for restraining order to stop the sale. For him to wait until after the hearing of the
motion for reconsideration on April 2, 1980 before taking recourse to the appellate
court may already be too late since without a restraining order, the public sale can
proceed at 10:00 that morning. In fact, the said motion was already denied by the
lower court in its order dated April 2, 1980 and were it not for the pendency of the
petition with the Court of Appeals and the restraining order issued thereafter, the
public sale scheduled that very same morning could have proceeded.

The other issue raised refers to the nature of the liability of petitioner, as one of the
defendants in Civil Case No. 33958, that is whether or not he is liable jointly or
solidarily.

In this regard, Article 1207 and 1208 of the Civil Code provides —

Art. 1207. The concurrence of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand, or that
each one of the latter is bound to render, entire compliance with the prestation. Then
is a solidary liability only when the obligation expressly so states, or when the law or
the nature of the obligation requires solidarity.

Art. 1208. If from the law,or the nature or the wording of the obligation to which
the preceding article refers the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors and
debtors, the credits or debts being considered distinct from one another, subject to
the Rules of Court governing the multiplicity of quits.

The decision of the lower court based on the parties' compromise agreement,
provides:

1. Plaintiff agrees to reduce its total claim of P117,498.95 to only P110,000.00

and defendants agree to acknowledge the validity of such claim and further bind
themselves to initially pay out of the total indebtedness of P110,000.00, the amount
of P5,000.00 on or before December 24, 1979, the balance of P55,000.00,
defendants individually and jointly agree to pay within a period of six months from
January 1980 or before June 30, 1980. (Emphasis supply)

Clearly then, by the express term of the compromise agreement and the decision
based upon it, the defendants obligated themselves to pay their obligation
"individually and jointly".

The term "individually" has the same meaning as "collectively", "separately",

"distinctively", respectively or "severally". An agreement to be "individually liable"
undoubtedly creates a several obligation, 14 and a "several obligation is one by
which one individual binds himself to perform the whole obligation. 15

In the case of Parot vs. Gemora 16 We therein ruled that "the phrase juntos or
separadamente or in the promissory note is an express statement making each of
the persons who signed it individually liable for the payment of the fun amount of the
obligation contained therein." Likewise in Un Pak Leung vs. Negorra 17 We held that
"in the absence of a finding of facts that the defendants made themselves
individually hable for the debt incurred they are each liable only for one-half of said
amount

The obligation in the case at bar being described as "individually and jointly", the
same is therefore enforceable against one of the numerous obligors.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the instant petition is hereby

DISMISSED. Cost against petitioner.

SO ORDERED.

G.R. No. L-36413 September 26, 1988

MALAYAN INSURANCE CO., INC., petitioner,

vs.
THE HON. COURT OF APPEALS (THIRD DIVISION) MARTIN C. VALLEJOS, SIO
CHOY, SAN LEON RICE MILL, INC. and PANGASINAN TRANSPORTATION CO.,
INC., respondents.

Freqillana Jr. for petitioner.

B.F. Estrella & Associates for respondent Martin Vallejos.

Vicente Erfe Law Office for respondent Pangasinan Transportation Co., Inc.

Nemesio Callanta for respondent Sio Choy and San Leon Rice Mill, Inc.

PADILLA, J.:

Review on certiorari of the judgment * of the respondent appellate court in CA-G.R.

No. 47319-R, dated 22 February 1973, which affirmed, with some modifications, the
decision, ** dated 27 April 1970, rendered in Civil Case No. U-2021 of the Court of
First Instance of Pangasinan.

The antecedent facts of the case are as follows:

On 29 March 1967, herein petitioner, Malayan Insurance Co., Inc., issued in favor of
private respondent Sio Choy Private Car Comprehensive Policy No. MRO/PV-15753,
effective from 18 April 1967 to 18 April 1968, covering a Willys jeep with Motor No.
ET-03023 Serial No. 351672, and Plate No. J-21536, Quezon City, 1967. The
insurance coverage was for "own damage" not to exceed P600.00 and "third-party
liability" in the amount of P20,000.00.

During the effectivity of said insurance policy, and more particularly on 19 December
1967, at about 3:30 o'clock in the afternoon, the insured jeep, while being driven by
one Juan P. Campollo an employee of the respondent San Leon Rice Mill, Inc.,
collided with a passenger bus belonging to the respondent Pangasinan
Transportation Co., Inc. (PANTRANCO, for short) at the national highway in Barrio
San Pedro, Rosales, Pangasinan, causing damage to the insured vehicle and
injuries to the driver, Juan P. Campollo, and the respondent Martin C. Vallejos, who
was riding in the ill-fated jeep.

As a result, Martin C. Vallejos filed an action for damages against Sio Choy, Malayan
Insurance Co., Inc. and the PANTRANCO before the Court of First Instance of
Pangasinan, which was docketed as Civil Case No. U-2021. He prayed therein that
the defendants be ordered to pay him, jointly and severally, the amount of
P15,000.00, as reimbursement for medical and hospital expenses; P6,000.00, for
lost income; P51,000.00 as actual, moral and compensatory damages; and
P5,000.00, for attorney's fees.
Answering, PANTRANCO claimed that the jeep of Sio Choy was then operated at an
excessive speed and bumped the PANTRANCO bus which had moved to, and
stopped at, the shoulder of the highway in order to avoid the jeep; and that it had
observed the diligence of a good father of a family to prevent damage, especially in
the selection and supervision of its employees and in the maintenance of its motor
vehicles. It prayed that it be absolved from any and all liability.

Defendant Sio Choy and the petitioner insurance company, in their answer, also
denied liability to the plaintiff, claiming that the fault in the accident was solely
imputable to the PANTRANCO.

Sio Choy, however, later filed a separate answer with a cross-claim against the
herein petitioner wherein he alleged that he had actually paid the plaintiff, Martin C.
Vallejos, the amount of P5,000.00 for hospitalization and other expenses, and, in his
cross-claim against the herein petitioner, he alleged that the petitioner had issued in
his favor a private car comprehensive policy wherein the insurance company
obligated itself to indemnify Sio Choy, as insured, for the damage to his motor
vehicle, as well as for any liability to third persons arising out of any accident during
the effectivity of such insurance contract, which policy was in full force and effect
when the vehicular accident complained of occurred. He prayed that he be
reimbursed by the insurance company for the amount that he may be ordered to pay.

Also later, the herein petitioner sought, and was granted, leave to file a third-party
complaint against the San Leon Rice Mill, Inc. for the reason that the person driving
the jeep of Sio Choy, at the time of the accident, was an employee of the San Leon
Rice Mill, Inc. performing his duties within the scope of his assigned task, and not an
employee of Sio Choy; and that, as the San Leon Rice Mill, Inc. is the employer of
the deceased driver, Juan P. Campollo, it should be liable for the acts of its
employee, pursuant to Art. 2180 of the Civil Code. The herein petitioner prayed that
judgment be rendered against the San Leon Rice Mill, Inc., making it liable for the
amounts claimed by the plaintiff and/or ordering said San Leon Rice Mill, Inc. to
reimburse and indemnify the petitioner for any sum that it may be ordered to pay the
plaintiff.

After trial, judgment was rendered as follows:

WHEREFORE, in view of the foregoing findings of this Court judgment is hereby

rendered in favor of the plaintiff and against Sio Choy and Malayan Insurance Co.,
Inc., and third-party defendant San Leon Rice Mill, Inc., as follows:

(a) P4,103 as actual damages;

(b) P18,000.00 representing the unearned income of plaintiff Martin C. Vallejos

for the period of three (3) years;

(c) P5,000.00 as moral damages;

(d) P2,000.00 as attomey's fees or the total of P29,103.00, plus costs.

The above-named parties against whom this judgment is rendered are hereby held
jointly and severally liable. With respect, however, to Malayan Insurance Co., Inc., its
liability will be up to only P20,000.00.

As no satisfactory proof of cost of damage to its bus was presented by defendant

Pantranco, no award should be made in its favor. Its counter-claim for attorney's fees
is also dismissed for not being proved. 1

On appeal, the respondent Court of Appeals affirmed the judgment of the trial court
that Sio Choy, the San Leon Rice Mill, Inc. and the Malayan Insurance Co., Inc. are
jointly and severally liable for the damages awarded to the plaintiff Martin C. Vallejos.
It ruled, however, that the San Leon Rice Mill, Inc. has no obligation to indemnify or
reimburse the petitioner insurance company for whatever amount it has been
ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a privy to the
contract of insurance between Sio Choy and the insurance company. 2

Hence, the present recourse by petitioner insurance company.

The petitioner prays for the reversal of the appellate court's judgment, or, in the
alternative, to order the San Leon Rice Mill, Inc. to reimburse petitioner any amount,
in excess of one-half (1/2) of the entire amount of damages, petitioner may be
ordered to pay jointly and severally with Sio Choy.

The Court, acting upon the petition, gave due course to the same, but "only insofar
as it concerns the alleged liability of respondent San Leon Rice Mill, Inc. to petitioner,
it being understood that no other aspect of the decision of the Court of Appeals shall
be reviewed, hence, execution may already issue in favor of respondent Martin C.
Vallejos against the respondents, without prejudice to the determination of whether
or not petitioner shall be entitled to reimbursement by respondent San Leon Rice
Mill, Inc. for the whole or part of whatever the former may pay on the P20,000.00 it
has been adjudged to pay respondent Vallejos." 3

However, in order to determine the alleged liability of respondent San Leon Rice Mill,
Inc. to petitioner, it is important to determine first the nature or basis of the liability of
petitioner to respondent Vallejos, as compared to that of respondents Sio Choy and
San Leon Rice Mill, Inc.

Therefore, the two (2) principal issues to be resolved are (1) whether the trial court,
as upheld by the Court of Appeals, was correct in holding petitioner and respondents
Sio Choy and San Leon Rice Mill, Inc. "solidarily liable" to respondent Vallejos; and
(2) whether petitioner is entitled to be reimbursed by respondent San Leon Rice Mill,
Inc. for whatever amount petitioner has been adjudged to pay respondent Vallejos
on its insurance policy.

As to the first issue, it is noted that the trial court found, as affirmed by the appellate
court, that petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. are
jointly and severally liable to respondent Vallejos.
We do not agree with the aforesaid ruling. We hold instead that it is only respondents
Sio Choy and San Leon Rice Mill, Inc, (to the exclusion of the petitioner) that are
solidarily liable to respondent Vallejos for the damages awarded to Vallejos.

It must be observed that respondent Sio Choy is made liable to said plaintiff as
owner of the ill-fated Willys jeep, pursuant to Article 2184 of the Civil Code which
provides:

Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the
former, who was in the vehicle, could have, by the use of due diligence, prevented
the misfortune it is disputably presumed that a driver was negligent, if he had been
found guilty of reckless driving or violating traffic regulations at least twice within the
next preceding two months.

If the owner was not in the motor vehicle, the provisions of article 2180 are
applicable.

On the other hand, it is noted that the basis of liability of respondent San Leon Rice
Mill, Inc. to plaintiff Vallejos, the former being the employer of the driver of the Willys
jeep at the time of the motor vehicle mishap, is Article 2180 of the Civil Code which
reads:

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.

xxx xxx xxx

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 ill any business or industry.

xxx xxx xxx

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

It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the
principal tortfeasors who are primarily liable to respondent Vallejos. The law states
that the responsibility of two or more persons who are liable for a quasi-delict is
solidarily.4

On the other hand, the basis of petitioner's liability is its insurance contract with
respondent Sio Choy. If petitioner is adjudged to pay respondent Vallejos in the
amount of not more than P20,000.00, this is on account of its being the insurer of
respondent Sio Choy under the third party liability clause included in the private car
comprehensive policy existing between petitioner and respondent Sio Choy at the
time of the complained vehicular accident.

In Guingon vs. Del Monte, 5 a passenger of a jeepney had just alighted therefrom,
when he was bumped by another passenger jeepney. He died as a result thereof. In
the damage suit filed by the heirs of said passenger against the driver and owner of
the jeepney at fault as well as against the insurance company which insured the
latter jeepney against third party liability, the trial court, affirmed by this Court,
adjudged the owner and the driver of the jeepney at fault jointly and severally liable
to the heirs of the victim in the total amount of P9,572.95 as damages and attorney's
fees; while the insurance company was sentenced to pay the heirs the amount of
P5,500.00 which was to be applied as partial satisfaction of the judgment rendered
against said owner and driver of the jeepney. Thus, in said Guingon case, it was only
the owner and the driver of the jeepney at fault, not including the insurance
company, who were held solidarily liable to the heirs of the victim.

While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer, 6 however,
the direct liability of the insurer under indemnity contracts against third party liability
does not mean that the insurer can be held solidarily liable with the insured and/or
the other parties found at fault. The liability of the insurer is based on contract; that of
the insured is based on tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos,
but it cannot, as incorrectly held by the trial court, be made "solidarily" liable with the
two principal tortfeasors namely respondents Sio Choy and San Leon Rice Mill, Inc.
For if petitioner-insurer were solidarily liable with said two (2) respondents by reason
of the indemnity contract against third party liability-under which an insurer can be
directly sued by a third party — this will result in a violation of the principles
underlying solidary obligation and insurance contracts.

In solidary obligation, the creditor may enforce the entire obligation against one of
the solidary debtors. 7 On the other hand, insurance is defined as "a contract
whereby one undertakes for a consideration to indemnify another against loss,
damage, or liability arising from an unknown or contingent event." 8

In the case at bar, the trial court held petitioner together with respondents Sio Choy
and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total
amount of P29,103.00, with the qualification that petitioner's liability is only up to
P20,000.00. In the context of a solidary obligation, petitioner may be compelled by
respondent Vallejos to pay the entire obligation of P29,013.00, notwithstanding the
qualification made by the trial court. But, how can petitioner be obliged to pay the
entire obligation when the amount stated in its insurance policy with respondent Sio
Choy for indemnity against third party liability is only P20,000.00? Moreover, the
qualification made in the decision of the trial court to the effect that petitioner is
sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is
made solidary, is an evident breach of the concept of a solidary obligation. Thus, We
hold that the trial court, as upheld by the Court of Appeals, erred in holding
petitioner, solidarily liable with respondents Sio Choy and San Leon Rice Mill, Inc. to
respondent Vallejos.

As to the second issue, the Court of Appeals, in affirming the decision of the trial
court, ruled that petitioner is not entitled to be reimbursed by respondent San Leon
Rice Mill, Inc. on the ground that said respondent is not privy to the contract of
insurance existing between petitioner and respondent Sio Choy. We disagree.

The appellate court overlooked the principle of subrogation in insurance contracts.

Thus —

... Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs.
Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment of the loss, the insurer is
entitled to be subrogated pro tanto to any right of action which the insured may have
against the third person whose negligence or wrongful act caused the loss (44 Am.
Jur. 2nd 745, citing Standard Marine Ins. Co. vs. Scottish Metropolitan Assurance
Co., 283 U.S. 284, 75 L. ed. 1037).

The right of subrogation is of the highest equity. The loss in the first instance is that
of the insured but after reimbursement or compensation, it becomes the loss of the
insurer (44 Am. Jur. 2d, 746, note 16, citing Newcomb vs. Cincinnati Ins. Co., 22
Ohio St. 382).

Although many policies including policies in the standard form, now provide for
subrogation, and thus determine the rights of the insurer in this respect, the equitable
right of subrogation as the legal effect of payment inures to the insurer without any
formal assignment or any express stipulation to that effect in the policy" (44 Am. Jur.
2nd 746). Stated otherwise, when the insurance company pays for the loss, such
payment operates as an equitable assignment to the insurer of the property and all
remedies which the insured may have for the recovery thereof. That right is not
dependent upon , nor does it grow out of any privity of contract (emphasis supplied)
or upon written assignment of claim, and payment to the insured makes the insurer
assignee in equity (Shambley v. Jobe-Blackley Plumbing and Heating Co., 264 N.C.
456, 142 SE 2d 18). 9

It follows, therefore, that petitioner, upon paying respondent Vallejos the amount of
riot exceeding P20,000.00, shall become the subrogee of the insured, the
respondent Sio Choy; as such, it is subrogated to whatever rights the latter has
against respondent San Leon Rice Mill, Inc. Article 1217 of the Civil Code gives to a
solidary debtor who has paid the entire obligation the right to be reimbursed by his
co-debtors for the share which corresponds to each.

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation.
If two or more solidary debtors offer to pay, the creditor may choose which offer to
accept.

He who made the payment may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made. If the payment
is made before the debt is due, no interest for the intervening period may be
demanded.

xxx xxx xxx

In accordance with Article 1217, petitioner, upon payment to respondent Vallejos and
thereby becoming the subrogee of solidary debtor Sio Choy, is entitled to
reimbursement from respondent San Leon Rice Mill, Inc.

To recapitulate then: We hold that only respondents Sio Choy and San Leon Rice
Mill, Inc. are solidarily liable to the respondent Martin C. Vallejos for the amount of
P29,103.00. Vallejos may enforce the entire obligation on only one of said solidary
debtors. If Sio Choy as solidary debtor is made to pay for the entire obligation
(P29,103.00) and petitioner, as insurer of Sio Choy, is compelled to pay P20,000.00
of said entire obligation, petitioner would be entitled, as subrogee of Sio Choy as
against San Leon Rice Mills, Inc., to be reimbursed by the latter in the amount of
P14,551.50 (which is 1/2 of P29,103.00 )

WHEREFORE, the petition is GRANTED. The decision of the trial court, as affirmed
by the Court of Appeals, is hereby AFFIRMED, with the modification above-
mentioned. Without pronouncement as to costs.

SO ORDERED.

G.R. No. L-28046 May 16, 1983

PHILIPPINE NATIONAL BANK, plaintiff-appellant,

vs.
INDEPENDENT PLANTERS ASSOCIATION, INC., ANTONIO DIMAYUGA, DELFIN
FAJARDO, CEFERINO VALENCIA, MOISES CARANDANG, LUCIANO CASTILLO,
AURELIO VALENCIA, LAURO LEVISTE, GAVINO GONZALES, LOPE GEVANA
and BONIFACIO LAUREANA, defendants-appellees.

Basa, Ilao, del Rosario Diaz for plaintiff-appellant.

Laurel Law Office for Dimayuga.

Tomas Yumol for Fajardo, defendant-appellee.

PLANA, J.:

Appeal by the Philippine National Bank (PNB) from the Order of the defunct Court of
First Instance of Manila (Branch XX) in its Civil Case No. 46741 dismissing PNB's
complaint against several solidary debtors for the collection of a sum of money on
the ground that one of the defendants (Ceferino Valencia) died during the pendency
of the case (i.e., after the plaintiff had presented its evidence) and therefore the
complaint, being a money claim based on contract, should be prosecuted in the
testate or intestate proceeding for the settlement of the estate of the deceased
defendant pursuant to Section 6 of Rule 86 of the Rules of Court which reads:

SEC. 6. Solidary obligation of decedent.— the obligation of the decedent is solidary

with another debtor, the claim shall be filed against the decedent as if he were the
only debtor, without prejudice to the right of the estate to recover contribution from
the other debtor. In a joint obligation of the decedent, the claim shall be confined to
the portion belonging to him.

The appellant assails the order of dismissal, invoking its right of recourse against
one, some or all of its solidary debtors under Article 1216 of the Civil Code —

ART. 1216. The creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously. The demand made against one of them shall not
be an obstacle to those which may subsequently be directed against the others, so
long as the debt has not been fully collected.

The sole issue thus raised is whether in an action for collection of a sum of money
based on contract against all the solidary debtors, the death of one defendant
deprives the court of jurisdiction to proceed with the case against the surviving
defendants.

It is now settled that the quoted Article 1216 grants the creditor the substantive right
to seek satisfaction of his credit from one, some or all of his solidary debtors, as he
deems fit or convenient for the protection of his interests; and if, after instituting a
collection suit based on contract against some or all of them and, during its
pendency, one of the defendants dies, the court retains jurisdiction to continue the
proceedings and decide the case in respect of the surviving defendants. Thus in
Manila Surety & Fidelity Co., Inc. vs. Villarama et al., 107 Phil. 891 at 897, this Court
ruled:

Construing Section 698 of the Code of Civil Procedure from whence the aforequoted
provision (Sec. 6, Rule 86) was taken, this Court held that where two persons are
bound in solidum for the same debt and one of them dies, the whole indebtedness
can be proved against the estate of the latter, the decedent's liability being absolute
and primary; and if the claim is not presented within the time provided by the rules,
the same will be barred as against the estate. It is evident from the foregoing that
Section 6 of Rule 87 (now Rule 86) provides the procedure should the creditor desire
to go against the deceased debtor, but there is certainly nothing in the said provision
making compliance with such procedure a condition precedent before an ordinary
action against the surviving solidary debtors, should the creditor choose to demand
payment from the latter, could be entertained to the extent that failure to observe the
same would deprive the court jurisdiction to take cognizance of the action against the
surviving debtors. Upon the other hand, the Civil Code expressly allows the creditor
to proceed against any one of the solidary debtors or some or all of them
simultaneously. There is, therefore, nothing improper in the creditor's filing of an
action against the surviving solidary debtors alone, instead of instituting a proceeding
for the settlement of the estate of the deceased debtor wherein his claim could be
filed.

Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323-324, this Court, speaking thru
Mr. Justice Makasiar, reiterated the doctrine.

A cursory perusal of Section 6, Rule 86 of the Revised Rules of Court reveals that
nothing therein prevents a creditor from proceeding against the surviving solidary
debtors. Said provision merely sets up the procedure in enforcing collection in case a
creditor chooses to pursue his claim against the estate of the deceased solidary,
debtor.

It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in
this matter. Said provision gives the creditor the right to 'proceed against anyone of
the solidary debtors or some or all of them simultaneously.' The choice is
undoubtedly left to the solidary, creditor to determine against whom he will enforce
collection. In case of the death of one of the solidary debtors, he (the creditor) may, if
he so chooses, proceed against the surviving solidary debtors without necessity of
filing a claim in the estate of the deceased debtors. It is not mandatory for him to
have the case dismissed against the surviving debtors and file its claim in the estate
of the deceased solidary debtor . . .

As correctly argued by petitioner, if Section 6, Rule 86 of the Revised Rules of Court

were applied literally, Article 1216 of the New Civil Code would, in effect, be repealed
since under the Rules of Court, petitioner has no choice but to proceed against the
estate of Manuel Barredo only. Obviously, this provision diminishes the Bank's right
under the New Civil, Code to proceed against any one, some or all of the solidary
debtors. Such a construction is not sanctioned by the principle, which is too well
settled to require citation, that a substantive law cannot be amended by a procedural
rule. Otherwise stared, Section 6, Rule 86 of the Revised Rules of Court cannot be
made to prevail over Article 1216 of the New Civil Code, the former being merely
procedural, while the latter, substantive.

WHEREFORE the appealed order of dismissal of the court a quo in its Civil Case
No. 46741 is hereby set aside in respect of the surviving defendants; and the case is
remanded to the corresponding Regional Trial Court for proceedings. proceedings.
No costs.

SO ORDERED.

G.R. No. 190696 August 3, 2010

ROLITO CALANG and PHILTRANCO SERVICE ENTERPRISES, INC., Petitioners,

vs.
PEOPLE OF THE PHILIPPINES, Respondent.

RESOLUTION
BRION, J.:

We resolve the motion for reconsideration filed by the petitioners, Philtranco Service
Enterprises, Inc. (Philtranco) and Rolito Calang, to challenge our Resolution of
February 17, 2010. Our assailed Resolution denied the petition for review on
certiorari for failure to show any reversible error sufficient to warrant the exercise of
this Court’s discretionary appellate jurisdiction.

Antecedent Facts

At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving Philtranco Bus No.
7001, owned by Philtranco along Daang Maharlika Highway in Barangay Lambao,
Sta. Margarita, Samar when its rear left side hit the front left portion of a Sarao jeep
coming from the opposite direction. As a result of the collision, Cresencio
Pinohermoso, the jeep’s driver, lost control of the vehicle, and bumped and killed
Jose Mabansag, a bystander who was standing along the highway’s shoulder. The
jeep turned turtle three (3) times before finally stopping at about 25 meters from the
point of impact. Two of the jeep’s passengers, Armando Nablo and an unidentified
woman, were instantly killed, while the other passengers sustained serious physical
injuries.

The prosecution charged Calang with multiple homicide, multiple serious physical
injuries and damage to property thru reckless imprudence before the Regional Trial
Court (RTC), Branch 31, Calbayog City. The RTC, in its decision dated May 21,
2001, found Calang guilty beyond reasonable doubt of reckless imprudence resulting
to multiple homicide, multiple physical injuries and damage to property, and
sentenced him to suffer an indeterminate penalty of thirty days of arresto menor, as
minimum, to four years and two months of prision correccional, as maximum. The
RTC ordered Calang and Philtranco, jointly and severally, to pay ₱50,000.00 as
death indemnity to the heirs of Armando; ₱50,000.00 as death indemnity to the heirs
of Mabansag; and ₱90,083.93 as actual damages to the private complainants.

The petitioners appealed the RTC decision to the Court of Appeals (CA), docketed
as CA-G.R. CR No. 25522. The CA, in its decision dated November 20, 2009,
affirmed the RTC decision in toto. The CA ruled that petitioner Calang failed to
exercise due care and precaution in driving the Philtranco bus. According to the CA,
various eyewitnesses testified that the bus was traveling fast and encroached into
the opposite lane when it evaded a pushcart that was on the side of the road. In
addition, he failed to slacken his speed, despite admitting that he had already seen
the jeep coming from the opposite direction when it was still half a kilometer away.
The CA further ruled that Calang demonstrated a reckless attitude when he drove
the bus, despite knowing that it was suffering from loose compression, hence, not
roadworthy.

The CA added that the RTC correctly held Philtranco jointly and severally liable with
petitioner Calang, for failing to prove that it had exercised the diligence of a good
father of the family to prevent the accident.
The petitioners filed with this Court a petition for review on certiorari. In our
Resolution dated February 17, 2010, we denied the petition for failure to sufficiently
show any reversible error in the assailed decision to warrant the exercise of this
Court’s discretionary appellate jurisdiction.

The Motion for Reconsideration

In the present motion for reconsideration, the petitioners claim that there was no
basis to hold Philtranco jointly and severally liable with Calang because the former
was not a party in the criminal case (for multiple homicide with multiple serious
physical injuries and damage to property thru reckless imprudence) before the RTC.

The petitioners likewise maintain that the courts below overlooked several relevant
facts, supported by documentary exhibits, which, if considered, would have shown
that Calang was not negligent, such as the affidavit and testimony of witness
Celestina Cabriga; the testimony of witness Rodrigo Bocaycay; the traffic accident
sketch and report; and the jeepney’s registration receipt. The petitioners also insist
that the jeep’s driver had the last clear chance to avoid the collision.

We partly grant the motion.

Liability of Calang

We see no reason to overturn the lower courts’ finding on Calang’s culpability. The
finding of negligence on his part by the trial court, affirmed by the CA, is a question
of fact that we cannot pass upon without going into factual matters touching on the
finding of negligence. In petitions for review on certiorari under Rule 45 of the
Revised Rules of Court, this Court is limited to reviewing only errors of law, not of
fact, unless the factual findings complained of are devoid of support by the evidence
on record, or the assailed judgment is based on a misapprehension of facts.

Liability of Philtranco

We, however, hold that the RTC and the CA both erred in holding Philtranco jointly
and severally liable with Calang. We emphasize that Calang was charged criminally
before the RTC. Undisputedly, Philtranco was not a direct party in this case. Since
the cause of action against Calang was based on delict, both the RTC and the CA
erred in holding Philtranco jointly and severally liable with Calang, based on quasi-
delict under Articles 21761 and 21802 of the Civil Code. Articles 2176 and 2180 of
the Civil Code pertain to the vicarious liability of an employer for quasi-delicts that an
employee has committed. Such provision of law does not apply to civil liability arising
from delict.

If at all, Philtranco’s liability may only be subsidiary. Article 102 of the Revised Penal
Code states the subsidiary civil liabilities of innkeepers, tavernkeepers and
proprietors of establishments, as follows:
In default of the persons criminally liable, innkeepers, tavernkeepers, and any other
persons or corporations shall be civilly liable for crimes committed in their
establishments, in all cases where a violation of municipal ordinances or some
general or special police regulations shall have been committed by them or their
employees.1avvphil

Innkeepers are also subsidiary liable for the restitution of goods taken by robbery or
theft within their houses from guests lodging therein, or for the payment of the value
thereof, provided that such guests shall have notified in advance the innkeeper
himself, or the person representing him, of the deposit of such goods within the inn;
and shall furthermore have followed the directions which such innkeeper or his
representative may have given them with respect to the care of and vigilance over
such goods. No liability shall attach in case of robbery with violence against or
intimidation of persons unless committed by the innkeeper’s employees.

The foregoing subsidiary liability applies to employers, according to Article 103 of the
Revised Penal Code, which reads:

The subsidiary liability established in the next preceding article shall also apply to
employers, teachers, persons, and corporations engaged in any kind of industry for
felonies committed by their servants, pupils, workmen, apprentices, or employees in
the discharge of their duties.

The provisions of the Revised Penal Code on subsidiary liability – Articles 102 and
103 – are deemed written into the judgments in cases to which they are applicable.
Thus, in the dispositive portion of its decision, the trial court need not expressly
pronounce the subsidiary liability of the employer.3 Nonetheless, before the
employers’ subsidiary liability is enforced, adequate evidence must exist establishing
that (1) they are indeed the employers of the convicted employees; (2) they are
engaged in some kind of industry; (3) the crime was committed by the employees in
the discharge of their duties; and (4) the execution against the latter has not been
satisfied due to insolvency. The determination of these conditions may be done in
the same criminal action in which the employee’s liability, criminal and civil, has been
pronounced, in a hearing set for that precise purpose, with due notice to the
employer, as part of the proceedings for the execution of the judgment.4

WHEREFORE, we PARTLY GRANT the present motion. The Court of Appeals

decision that affirmed in toto the RTC decision, finding Rolito Calang guilty beyond
reasonable doubt of reckless imprudence resulting in multiple homicide, multiple
serious physical injuries and damage to property, is AFFIRMED, with the
MODIFICATION that Philtranco’s liability should only be subsidiary. No costs.

SO ORDERED.

G.R. No. 204866 January 21, 2015

RUKS KONSULT AND CONSTRUCTION, Petitioner,

vs.
ADWORLD SIGN AND ADVERTISING CORPORATION* and TRANSWORLD
MEDIA ADS, INC., Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated November
16, 2011 and the Resolution3 dated December 10, 2012 of the Court of Appeals
(CA) in CA-G.R. CV No. 94693 which affirmed the Decision4 dated August 25, 2009
of the Regional Trial Court of Makati City, Branch 142 (RTC) in Civil Case No. 03-
1452 holding, inter alia, petitioner Ruks Konsult and Construction (Ruks) and
respondent Transworld Media Ads, Inc. (Transworld) jointly and severally liable to
respondent Adworld Sign and Advertising Corporation (Adworld) for damages.

The Facts

The instant case arose from a complaint for damages filed by Adworld against
Transworld and Comark International Corporation (Comark) before the RTC.5 In the
complaint, Adworld alleged that it is the owner of a 75 ft. x 60 ft. billboard structure
located at EDSA Tulay, Guadalupe, Barangka Mandaluyong, which was misaligned
and its foundation impaired when, on August 11, 2003, the adjacent billboard
structure owned by Transworld and used by Comark collapsed and crashed against
it. Resultantly, on August 19, 2003, Adworld sent Transworld and Comark a letter
demanding payment for the repairs of its billboard as well asloss of rental income.
On August 29, 2003, Transworld sent its reply, admitting the damage caused by its
billboard structure on Adworld’s billboard, but nevertheless, refused and failed to pay
the amounts demanded by Adworld. As Adworld’s final demand letter also went
unheeded, it was constrained to file the instant complaint, praying for damages in the
aggregate amount of ₱474,204.00, comprised of ₱281,204.00 for materials,
₱72,000.00 for labor, and ₱121,000.00 for indemnity for loss of income.6

In its Answer with Counterclaim, Transworld averred that the collapse of its billboard
structure was due to extraordinarily strong winds that occurred instantly and
unexpectedly, and maintained that the damage caused to Adworld’s billboard
structure was hardly noticeable. Transworld likewise filed a Third-Party Complaint
against Ruks, the company which built the collapsed billboard structure in the
former’s favor.1âwphi1 It was alleged therein that the structure constructed by Ruks
had a weak and poor foundation not suited for billboards, thus, prone to collapse,
and as such, Ruks should ultimately be held liable for the damages caused to
Adworld’s billboard structure.7

For its part, Comark denied liability for the damages caused to Adworld’s billboard
structure, maintaining that it does not have any interest on Transworld’s collapsed
billboard structure as it only contracted the use of the same. In this relation, Comark
prayed for exemplary damages from Transworld for unreasonably includingit as a
party-defendant in the complaint.8
Lastly, Ruks admitted that it entered into a contract with Transworld for the
construction of the latter’s billboard structure, but denied liability for the damages
caused by its collapse. It contended that when Transworld hired its services, there
was already an existing foundation for the billboard and that it merely finished the
structure according to the terms and conditions of its contract with the latter.9

The RTC Ruling

In a Decision10 dated August 25, 2009, the RTC ultimately ruled in Adworld’s favor,
and accordingly, declared, inter alia, Transworld and Ruks jointly and severally liable
to Adworld in the amount of ₱474,204.00 as actual damages, with legal interest from
the date of the filing of the complaint until full payment thereof, plus attorney’s fees in
the amount of ₱50,000.00.11 The RTC found both Transworld and Ruks negligent in
the construction of the collapsed billboard as they knew that the foundation
supporting the same was weak and would pose danger to the safety of the motorists
and the other adjacent properties, such as Adworld’s billboard, and yet, they did not
do anything to remedy the situation.12 In particular, the RTC explained that
Transworld was made aware by Ruks that the initial construction of the lower
structure of its billboard did not have the proper foundation and would require
additional columns and pedestals to support the structure. Notwithstanding,
however, Ruks proceeded with the construction of the billboard’s upper structure and
merely assumed that Transworld would reinforce its lower structure.13 The RTC then
concluded that these negligent acts were the direct and proximate cause of the
damages suffered by Adworld’s billboard.14

Aggrieved, both Transworld and Ruks appealed to the CA. In a Resolution dated
February 3, 2011, the CA dismissed Transworld’s appeal for its failure to file an
appellant’s brief on time.15 Transworld elevated its case before the Court, docketed
as G.R. No. 197601.16 However, in a Resolution17 dated November 23, 2011, the
Court declared the case closed and terminated for failure of Transworld to file the
intended petition for review on certiorariwithin the extended reglementary period.
Subsequently, the Court issued an Entry of Judgment18 dated February 22, 2012 in
G.R. No. 197601 declaring the Court’s November 23, 2011 Resolution final and
executory.

The CA Ruling

In a Decision19 dated November 16, 2011, the CA denied Ruks’s appeal and
affirmed the ruling of the RTC. It adhered to the RTC’s finding of negligence on the
part of Transworld and Ruks which brought about the damage to Adworld’s billboard.
It found that Transworld failed to ensure that Ruks will comply with the approved
plans and specifications of the structure, and that Ruks continued to install and finish
the billboard structure despite the knowledge that there were no adequate columns
to support the same.20

Dissatisfied, Ruks moved for reconsideration,21 which was, however, denied in a

Resolution22 dated December 10, 2012,hence, this petition.
On the other hand, Transworld filed another appeal before the Court, docketed as
G.R. No. 205120.23 However, the Court denied outright Transworld’s petition in a
Resolution24 dated April 15, 2013, holding that the same was already bound by the
dismissal of its petition filed in G.R. No. 197601.

The Issue Before the Court

The primordial issue for the Court’s resolution is whether or not the CA correctly
affirmed the ruling of the RTC declaring Ruks jointly and severally liable with
Transworld for damages sustained by Adworld.

The Court’s Ruling

The petition is without merit.

At the outset, it must be stressed that factual findings of the RTC, when affirmed by
the CA, are entitled to great weight by the Court and are deemed final and
conclusive when supported by the evidence on record.25 Absent any exceptions to
this rule – such as when it is established that the trial court ignored, overlooked,
misconstrued, or misinterpreted cogent facts and circumstances that, if considered,
would change the outcome of the case26 – such findings must stand.

After a judicious perusal of the records, the Court sees no cogent reason to deviate
from the findings of the RTC and the CA and their uniform conclusion that both
Transworld and Ruks committed acts resulting in the collapse of the former’s
billboard, which in turn, caused damage to the adjacent billboard of Adworld.

Jurisprudence defines negligence as the omission to do something which a

reasonable man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something which a prudent and
reasonable man would not do.27 It is the failure to observe for the protection of the
interest of another person that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person suffers injury.28

In this case, the CA correctly affirmed the RTC’s finding that Transworld’s initial
construction of its billboard’s lower structure without the proper foundation, and that
of Ruks’s finishing its upper structure and just merely assuming that Transworld
would reinforce the weak foundation are the two (2) successive acts which were the
direct and proximate cause of the damages sustained by Adworld. Worse, both
Transworld and Ruks were fully aware that the foundation for the former’s billboard
was weak; yet, neither of them took any positive step to reinforce the same. They
merely relied on each other’s word that repairs would be done to such foundation,
but none was done at all. Clearly, the foregoing circumstances show that both
Transworld and Ruks are guilty of negligence in the construction of the former’s
billboard, and perforce, should be held liable for its collapse and the resulting
damage to Adworld’s billboard structure. As joint tortfeasors, therefore, they are
solidarily liable to Adworld. Verily, "[j]oint tortfeasors are those who command,
instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the
commission of a tort, or approve of it after it is done, if done for their benefit. They
are also referred to as those who act together in committing wrong or whose acts, if
independent of each other, unite in causing a single injury. Under Article 219429 of
the Civil Code, joint tortfeasors are solidarily liable for the resulting damage. In other
words, joint tortfeasors are each liable as principals, to the same extent and in the
same manner as if they had performed the wrongful act themselves."30 The Court’s
pronouncement in People v. Velasco31 is instructive on this matter, to wit:32

Where several causes producing an injury are concurrent and each is an efficient
cause without which the injury would not have happened, the injury may be
attributed to all or any of the causes and recovery may be had against any or all of
the responsible persons although under the circumstances of the case, it may
appear that one of them was more culpable, and that the duty owed by them to the
injured person was not same. No actor's negligence ceases to be a proximate cause
merely because it does not exceed the negligence of other actors. Each wrongdoer
is responsible for the entire result and is liable as though his acts were the sole
cause of the injury.

There is no contribution between joint [tortfeasors] whose liability is solidary since

both of them are liable for the total damage.1âwphi1 Where the concurrent or
successive negligent acts or omissions of two or more persons, although acting
independently, are in combination the direct and proximate cause of a single injury to
a third person, it is impossible to determine in what proportion each contributed to
the injury and either of them is responsible for the whole injury. x x x. (Emphases
and underscoring supplied)

In conclusion, the CA correctly affirmed the ruling of the RTC declaring Ruks jointly
and severally liable with Transworld for damages sustained by Adworld.

WHEREFORE, the petition is DENIED. The Decision dated November 16, 2011 and
the Resolution dated December 10, 2012 of the Court of Appeals in CA-G.R. CV No.
94693 are hereby AFFIRMED.

SO ORDERED.

5. As to the presence of an accessory undertaking in case of breach

G.R. No. L-28497 November 6, 1928

THE BACHRACH MOTOR CO., INC., plaintiff-appellee,

vs.
FAUSTINO ESPIRITU, defendant-appellant.

------------------------------

G.R. No. L-28498 November 6, 1928

THE BACHRACH MOTOR CO., INC., plaintiff-appellee,

vs.
FAUSTINO ESPIRITU, defendant-appellant, and
ROSARIO ESPIRITU, intervenor-appellant.

Ernesto Zaragoza and Simeon Ramos for defendant-appellant.

Benito Soliven and Jose Varela Calderon for intervenor-appellant.
B. Francisco for appellee.

AVANCEÑA, C. J.:

These two cases, Nos. 28497 and 28948, were tried together.

It appears, in connection with case 28497; that on July 28, 1925 the defendant
Faustino Espiritu purchased of the plaintiff corporation a two-ton White truck for
P11,983.50, paying P1,000 down to apply on account of this price, and obligating
himself to pay the remaining P10,983.50 within the periods agreed upon. To secure
the payment of this sum, the defendants mortgaged the said truck purchased and,
besides, three others, two of which are numbered 77197 and 92744 respectively,
and all of the White make (Exhibit A). These two trucks had been purchased from
the same plaintiff and were fully paid for by the defendant and his brother Rosario
Espiritu. The defendant failed to pay P10,477.82 of the price secured by this
mortgage.

In connection with case 28498, it appears that on February 18, 1925 the defendant
bought a one-ton White truck of the plaintiff corporation for the sum of P7,136.50,
and after having deducted the P500 cash payment and the 12 per cent annual
interest on the unpaid principal, obligated himself to make payment of this sum within
the periods agreed upon. To secure this payment the defendant mortgaged to the
plaintiff corporation the said truck purchased and two others, numbered 77197 and
92744, respectively, the same that were mortgaged in the purchase of the other
truck referred to in the other case. The defendant failed to pay P4,208.28 of this
sum.

In both sales it was agreed that 12 per cent interest would be paid upon the unpaid
portion of the price at the executon of the contracts, and in case of non-payment of
the total debt upon its maturity, 25 per cent thereon, as penalty.

In addition to the mortagage deeds referred to, which the defendant executed in
favor of the plaintiff, the defendant at the same time also signed a promissory note
solidarily with his brother Rosario Espiritu for the several sums secured by the two
mortgages (Exhibits B and D).

Rosario Espiritu appeared in these two cases as intervenor, alleging to be the

exclusive owner of the two White trucks Nos. 77197 and 92744, which appear to
have been mortgaged by the defendants to the plaintiff. lawphi1.net
While these two cases were pending in the lower court the mortgaged trucks were
sold by virtue of the mortgage, all of them together bringing in, after deducting the
sheriff's fees and transportation charges to Manila, the net sum of P3,269.58.

The judgment appealed from ordered the defendants and the intervenor to pay
plaintiff in case 28497 the sum of P7,732.09 with interest at the rate of 12 per cent
per annum from May 1, 1926 until fully paid, and 25 per cent thereof in addition as
penalty. In case 28498, the trial court ordered the defendant and the intervenor to
pay plaintiff the sum of P4,208.28 with interest at 12 per cent per annum from
December 1, 1925 until fully paid, and 25 per cent thereon as penalty.

The appellants contend that trucks 77197 and 92744 were not mortgaged, because,
when the defendant signed the mortgage deeds these trucks were not included in
those documents, and were only put in later, without defendant's knowledge. But
there is positive proof that they were included at the time the defendant signed these
documents. Besides, there were presented two of defendant's letters to Hidalgo, an
employee of the plaintiff's written a few days before the transaction, acquiescing in
the inclusion of all his White trucks already paid for, in the mortgage (Exhibit H-I).

Appellants also alleged that on February 4, 1925, the defendant sold his rights in
said trucks Nos. 77197 and 92744 to the intervenor, and that as the latter did not
sign the mortgage deeds, such trucks cannot be considered as mortgaged. But the
evidence shows that while the intervenor Rosario Espiritu did not sign the two
mortgage deeds (Exhibits A and C), yet, together with the defendants Faustino
Espiritu, he signed the two promissory notes (Exhibits B and D) secured by these
two mortgages. All these instruments were executed at the same time, and when the
trucks 77197 and 92744 were included in the mortgages, the intervenor Rosario
Espiritu was aware of it and consented to such inclusion. These facts are supported
by the testimony of Bachrach, manager of the plaintiff corporation, of Agustin
Ramirez, who witnessed the execution of all these documents, and of Angel Hidalgo,
who witnessed the execution of Exhibits B and D.

We do not find the statement of the intervenor Rosario Espiritu that he did not sign
promissory notes Exhibits B and C to be sufficient to overthrow this evidence. A
comparison of his genuine signature on Exhibit AA with those appearing on
promissory notes B and C, convinces us that the latter are his signatures. And such
is our conclusion, notwithstanding the evidence presented to establish that on the
date when Exhibits B appears to have been signed, that is July 25, 1925, the
intervenor was in Batac, Ilocos Norte, many miles away from Manila. And the fact
that on the 24th of said month of July, the plaintiff sent some truck accessory parts
by rail to Ilocos for the intervenor does not necessarily prove that the latter could not
have been in Manila on the 25th of that month.

In view of his conclusion that the intervenor signed the promissory notes secured by
trucks 77197 and 92744 and consented to the mortgage of the same, it is immaterial
whether he was or was not the exclusive owner thereof.
It is finally contended that the 25 per cent penalty upon the debt, in addition to the
interest of 12 per cent per annum, makes the contract usurious. Such a contention is
not well founded. Article 1152 of the Civil Code permits the agreement upon a
penalty apart from the interest. Should there be such an agreemnet, the penalty, as
was held in the case of Lopez vs. Hernaez (32 Phil., 631), does not include the
interest, and which may be demamded separetely. According to this, the penalty is
not to be added to the interest for the determination of whether the interest exceeds
the rate fixed by the law, since said rate was fixed only for the interest. But
considering that the obligation was partly performed, and making use of the power
given to the court by article 1154 of the Civil Code, this penalty is reduced to 10 per
cent of the unpaid debt.

With the sole modification that instead of 25 per cent upon the sum owed, the
defendants need pay only 10 per cent thereon as penalty, the judgment appealed
from is affired in all other respects without special pronouncement as to costs. So
ordered.

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

ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF FIRST INSTANCE OF RIZAL (BRANCH XXXIV), and LOLITA MILLAN,
respondents.

Purugganan & Bersamin for petitioner.

Salvador N. Beltran for respondent.

MUÑOZ PALMA, J.:

This is a direct appeal on questions of law from a decision of the Court of First
Instance of Rizal, Branch XXXIV, presided by the Honorable Bernardo P. Pardo, the
dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered commanding the defendant to register

the deed of absolute sale it had executed in favor of plaintiff with the Register of
Deeds of Caloocan City and secure the corresponding title in the name of plaintiff
within ten (10) days after finality of this decision; if, for any reason, this not possible,
defendant is hereby sentenced to pay plaintiff the sum of P5,193.63 with interest at
4% per annum from June 22, 1972 until fully paid.

In either case, defendant is sentenced to pay plaintiff nominal damages in the

amount of P20,000.00 plus attorney's fee in the amount of P5,000.00 and costs.

SO ORDERED.

Caloocan City, February 11, 1975. (rollo, p. 21)

Petitioner corporation questions the award for nominal damages of P20,000.00 and
attorney's fee of P5,000.00 which are allegedly excessive and unjustified.

In the Court's resolution of October 20, 1975, We gave due course to the Petition
only as regards the portion of the decision awarding nominal damages. 1

The following incidents are not in dispute:

In May 1962 Robes-Francisco Realty & Development Corporation, now petitioner,

agreed to sell to private respondent Lolita Millan for and in consideration of the sum
of P3,864.00, payable in installments, a parcel of land containing an area of
approximately 276 square meters, situated in Barrio Camarin, Caloocan City, known
as Lot No. 20, Block No. 11 of its Franville Subdivision. 2

Millan complied with her obligation under the contract and paid the installments
stipulated therein, the final payment having been made on December 22, 1971. The
vendee made a total payment of P5,193.63 including interests and expenses for
registration of title.3

Thereafter, Lolita Millan made repeated demands upon the corporation for the
execution of the final deed of sale and the issuance to her of the transfer certificate
of title over the lot. On March 2, 1973, the parties executed a deed of absolute sale
of the aforementioned parcel of land. The deed of absolute sale contained, among
others, this particular provision:

That the VENDOR further warrants that the transfer certificate of title of the above-
described parcel of land shall be transferred in the name of the VENDEE within the
period of six (6) months from the date of full payment and in case the VENDOR fails
to issue said transfer certificate of title, it shall bear the obligation to refund to the
VENDEE the total amount already paid for, plus an interest at the rate of 4% per
annum. (record on appeal, p. 9)

Notwithstanding the lapse of the above-mentioned stipulated period of six (6)

months, the corporation failed to cause the issuance of the corresponding transfer
certificate of title over the lot sold to Millan, hence, the latter filed on August 14, 1974
a complaint for specific performance and damages against Robes-Francisco Realty
& Development Corporation in the Court of First Instance of Rizal, Branch XXXIV,
Caloocan City, docketed therein as Civil Case No. C-3268. 4

The complaint prayed for judgment (1) ordering the reformation of the deed of
absolute sale; (2) ordering the defendant to deliver to plaintiff the certificate of title
over the lot free from any lien or encumbrance; or, should this be not possible, to pay
plaintiff the value of the lot which should not be less than P27,600.00 (allegedly the
present estimated value of the lot); and (3) ordering the defendant to pay plaintiff
damages, corrective and actual in the sum of P15 000.00. 5
The corporation in its answer prayed that the complaint be dismissed alleging that
the deed of absolute sale was voluntarily executed between the parties and the
interest of the plaintiff was amply protected by the provision in said contract for
payment of interest at 4% per annum of the total amount paid, for the delay in the
issuance of the title. 6

At the pretrial conference the parties agreed to submit the case for decision on the
pleadings after defendant further made certain admissions of facts not contained in
its answer. 7

Finding that the realty corporation failed to cause the issuance of the corresponding
transfer certificate of title because the parcel of land conveyed to Millan was included
among other properties of the corporation mortgaged to the GSIS to secure an
obligation of P10 million and that the owner's duplicate certificate of title of the
subdivision was in the possession of the Government Service Insurance System
(GSIS), the trial court, on February 11, 1975, rendered judgment the dispositive
portion of which is quoted in pages 1 and 2 of this Decision. We hold that the trial
court did not err in awarding nominal damages; however, the circumstances of the
case warrant a reduction of the amount of P20,000.00 granted to private respondent
Millan.

There can be no dispute in this case under the pleadings and the admitted facts that
petitioner corporation was guilty of delay, amounting to nonperformance of its
obligation, in issuing the transfer certificate of title to vendee Millan who had fully
paid up her installments on the lot bought by her. Article 170 of the Civil Code
expressly provides that those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable for damages.

Petitioner contends that the deed of absolute sale executed between the parties
stipulates that should the vendor fail to issue the transfer certificate of title within six
months from the date of full payment, it shall refund to the vendee the total amount
paid for with interest at the rate of 4% per annum, hence, the vendee is bound by the
terms of the provision and cannot recover more than what is agreed upon.
Presumably, petitioner in invoking Article 1226 of the Civil Code which provides that
in obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no
stipulation to the contrary.

The foregoing argument of petitioner is totally devoid of merit. We would agree with
petitioner if the clause in question were to be considered as a penal clause.
Nevertheless, for very obvious reasons, said clause does not convey any penalty, for
even without it, pursuant to Article 2209 of the Civil Code, the vendee would be
entitled to recover the amount paid by her with legal rate of interest which is even
more than the 4% provided for in the clause. 7-A
It is therefore inconceivable that the aforecited provision in the deed of sale is a
penal clause which will preclude an award of damages to the vendee Millan. In fact
the clause is so worded as to work to the advantage of petitioner corporation.

Unfortunately, the vendee, now private respondent, submitted her case below
without presenting evidence on the actual damages suffered by her as a result of the
nonperformance of petitioner's obligation under the deed of sale. Nonetheless, the
facts show that the right of the vendee to acquire title to the lot bought by her was
violated by petitioner and this entitles her at the very least to nominal damages.

The pertinent provisions of our Civil Code follow:

Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered
by him.

Art. 2222. The court may award nominal damages in every obligation arising
from any source enumerated in article 1157, or in every case where any property
right has been invaded.

Under the foregoing provisions nominal damages are not intended for
indemnification of loss suffered but for the vindication or recognition of a right
violated or invaded. They are recoverable where some injury has been done the
amount of which the evidence fails to show, the assessment of damages being left to
the discretion of the court according to the circumstances of the case. 8

It is true as petitioner claims that under American jurisprudence nominal damages by

their very nature are small sums fixed by the court without regard to the extent of the
harm done to the injured party.

It is generally held that a nominal damage is a substantial claim, if based upon the
violation of a legal right; in such case, the law presumes a damage, although actual
or compensatory damages are not proven; in truth nominal damages are damages in
name only and not in fact, and are allowed, not as an equivalent of a wrong inflicted,
but simply in recogniton of the existence of a technical injury. (Fouraker v. Kidd
Springs Boating and Fishing Club, 65 S. W. 2d 796-797, citing 17 C.J. 720, and a
number of authorities).9

In this jurisdiction, in Vda. de Medina, et al. v. Cresencia, et al. 1956, which was an
action for damages arising out of a vehicular accident, this Court had occasion to
eliminate an award of P10,000.00 imposed by way of nominal damages, the Court
stating inter alia that the amount cannot, in common sense, be demeed "nominal".10

In a subsequent case, viz: Northwest Airlines, Inc. v. Nicolas L. Cuenca, 1965, this
Court, however, through then Justice Roberto Concepcion who later became Chief
Justice of this Court, sustained an award of P20,000.00 as nominal damages in favor
of respnodent Cuenca. The Court there found special reasons for considering
P20,000.00 as "nominal". Cuenca who was the holder of a first class ticket from
Manila to Tokyo was rudely compelled by an agent of petitioner Airlines to move to
the tourist class notwithstanding its knowledge that Cuenca as Commissioner of
Public Highways of the Republic of the Philippines was travelling in his official
capacity as a delegate of the country to a conference in Tokyo." 11

Actually, as explained in the Court's decision in Northwest Airlines, there is no

conflict between that case and Medina, for in the latter, the P10,000.00 award for
nominal damages was eliminated principally because the aggrieved party had
already been awarded P6,000.00 as compensatory damages, P30,000.00 as moral
damages and P10,000.00 as exemplary damages, and "nominal damages cannot
coexist with compensatory damages," while in the case of Commissioner Cuenca, no
such compensatory, moral, or exemplary damages were granted to the latter. 12

At any rate, the circumstances of a particular case will determine whether or not the
amount assessed as nominal damages is within the scope or intent of the law, more
particularly, Article 2221 of the Civil Code.

In the situation now before Us, We are of the view that the amount of P20,000.00 is
excessive. The admitted fact that petitioner corporation failed to convey a transfer
certificate of title to respondent Millan because the subdivision property was
mortgaged to the GSIS does not in itself show that there was bad faith or fraud. Bad
faith is not to be presumed. Moreover, there was the expectation of the vendor that
arrangements were possible for the GSIS to make partial releases of the subdivision
lots from the overall real estate mortgage. It was simply unfortunate that petitioner
did not succeed in that regard.

For that reason We cannot agree with respondent Millan Chat the P20,000.00 award
may be considered in the nature of exemplary damages.

In case of breach of contract, exemplary damages may be awarded if the guilty party
acted in wanton, fraudulent, reckless, oppressive or malevolent manner. 13
Furthermore, exemplary or corrective damages are to be imposed by way of
example or correction for the public good, only if the injured party has shown that he
is entitled to recover moral, temperate or compensatory damages."

Here, respondent Millan did not submit below any evidence to prove that she
suffered actual or compensatory damages. 14

To conclude, We hold that the sum of Ten Thousand Pesos (P10,000.00) by way of
nominal damages is fair and just under the following circumstances, viz: respondent
Millan bought the lot from petitioner in May, 1962, and paid in full her installments on
December 22, 1971, but it was only on March 2, 1973, that a deed of absolute sale
was executed in her favor, and notwithstanding the lapse of almost three years since
she made her last payment, petitioner still failed to convey the corresponding
transfer certificate of title to Millan who accordingly was compelled to file the instant
complaint in August of 1974.
PREMISES CONSIDERED, We modify the decision of the trial court and reduce the
nominal damages to Ten Thousand Pesos (P10,000.00). In all other respects the
aforesaid decision stands.

Without pronouncement as to costs.

SO ORDERED.

G.R. No. L-26339 December 14, 1979

MARIANO C. PAMINTUAN, petitioner-appellant,

vs.
COURT OF APPEALS and YU PING KUN CO., INC., respondent-appellees.

V. E. del Rosario & Associates for appellant.

Sangco & Sangalang for private respondent.

AQUINO, J.:

This case is about the recovery compensatory, damages for breach of a contract of
sale in addition to liquidated damages.

Mariano C. Pamintuan appealed from the judgment of the Court of Appeals wherein
he was ordered to deliver to Yu Ping Kun Co., Inc. certain plastic sheetings and, if he
could not do so, to pay the latter P100,559.28 as damages with six percent interest
from the date of the filing of the complaint. The facts and the findings of the Court of
Appeals are as follows:

In 1960, Pamintuan was the holder of a barter license wherein he was authorized to
export to Japan one thousand metric tons of white flint corn valued at forty-seven
thousand United States dollars in exchange for a collateral importation of plastic
sheetings of an equivalent value.

By virtue of that license, he entered into an agreement to ship his corn to Tokyo
Menka Kaisha, Ltd. of Osaka, Japan in exchange for plastic sheetings. He
contracted to sell the plastic sheetings to Yu Ping Kun Co., Inc. for two hundred
sixty-five thousand five hundred fifty pesos. The company undertook to open an
irrevocable domestic letter of credit for that amount in favor of Pamintuan.

It was further agreed that Pamintuan would deliver the plastic sheetings to the
company at its bodegas in Manila or suburbs directly from the piers "within one
month upon arrival of" the carrying vessels. Any violation of the contract of sale
would entitle the aggreived party to collect from the offending party liquidated
damages in the sum of ten thousand pesos (Exh. A).
On July 28, 1960, the company received a copy of the letter from the Manila branch
of Toyo Menka Kaisha, Ltd. confirming the acceptance by Japanese suppliers of firm
offers for the consignment to Pamintuan of plastic sheetings valued at forty-seven
thousand dollars. Acting on that information, the company lost no time in securing in
favor of Pamintuan an irrevocable letter of credit for two hundred sixty-five thousand
five hundred fifty pesos.

Pamintuan was apprised by the bank on August 1, 1960 of that letter of credit which
made reference to the delivery to Yu Ping Kun Co., Inc. on or before October 31,
1960 of 336, 360 yards of plastic sheetings (p. 21, Record on Appeal).

On September 27 and 30 and October 4, 1960, the Japanese suppliers shipped to

Pamintuan, through Toyo Menka Kaisha, Ltd., the plastic sheetings in four shipments
to wit: (1) Firm Offer No. 327 for 50,000 yards valued at $9,000; (2) Firm Offer No.
328 for 70,000 yards valued at $8,050; (3) Firm Offers Nos. 329 and 343 for 175,000
and 18,440 yards valued at $22,445 and $2,305, respectively, and (4) Firm Offer No.
330 for 26,000 yards valued at $5,200, or a total of 339,440 yards with an aggregate
value of $47,000 (pp. 4-5 and 239-40, Record on Appeal).

The plastic sheetings arrived in Manila and were received by Pamintuan. Out of the
shipments, Pamintuan delivered to the company's warehouse only the following
quantities of plastic sheetings:

November 11, 1960 — 140 cases, size 48 inches by 50 yards. November 14, 1960
— 258 cases out of 352 cases. November 15, 1960 — 11 cases out of 352 cases.
November 15, 1960 — 10 cases out of 100 cases. November 15, 1960 — 30 cases
out of 100 cases.

Pamintuan withheld delivery of (1) 50 cases of plastic sheetings containing 26,000

yards valued at $5,200; (2) 37 cases containing 18,440 yards valued at $2,305; (3)
60 cases containing 30,000 yards valued at $5,400 and (4) 83 cases containing
40,850 yards valued at $5,236.97. While the plastic sheetings were arriving in
Manila, Pamintuan informed the president of Yu Ping Kun Co., Inc. that he was in
dire need of cash with which to pay his obligations to the Philippine National Bank.
Inasmuch as the computation of the prices of each delivery would allegedly be a long
process, Pamintuan requested that he be paid immediately.

Consequently, Pamintuan and the president of the company, Benito Y.C. Espiritu,
agreed to fix the price of the plastic sheetings at P0.782 a yard, regardless of the
kind, quality or actual invoice value thereof. The parties arrived at that figure by
dividing the total price of P265,550 by 339,440 yards, the aggregate quantity of the
shipments.

After Pamintuan had delivered 224,150 yards of sheetings of interior quality valued
at P163,.047.87, he refused to deliver the remainder of the shipments with a total
value of P102,502.13 which were covered by (i) Firm Offer No. 330, containing
26,000 yards valued at P29,380; (2) Firm Offer No. 343, containing 18,440 yards
valued at P13,023.25; (3) Firm Offer No. 217, containing 30,000 yards valued at
P30,510 and (4) Firm Offer No. 329 containing 40,850 yards valued at P29,588.88
(See pp. 243-2, Record on Appeal).

As justification for his refusal, Pamintuan said that the company failed to comply with
the conditions of the contract and that it was novated with respect to the price.

On December 2, 1960, the company filed its amended complaint for damages
against Pamintuan. After trial, the lower court rendered the judgment mentioned
above but including moral damages.

The unrealized profits awarded as damages in the trial court's decision were
computed as follows (pp. 248-9, Record on Appeal):

(1) 26,000 yards with a contract price of Pl.13 per yard and a selling price at the
time of delivery of Pl.75 a yard........................................................... P16,120.00

(2) 18,000 yards with a contract price of P0.7062 per yard and selling price of Pl.20
per yard at the time of delivery......................................... 9,105.67

(3) 30,000 yards with a contract price of Pl.017 per yard and a selling price of Pl.70
per yard. 20,490.00

(4) 40,850 yards with a contract price of P0.7247 per yard and a selling
price of P1.25 a yard at the time of delivery.............................................. 21,458.50
Total unrealized profits....................... P67,174.17

The overpayment of P12,282.26 made to Pamintuan by Yu Ping Kun Co., Inc. for the
224,150 yards, which the trial court regarded as an item of damages suffered by the
company, was computed as follows (p. 71, Record on Appeal):

Liquidation value of 224,150 yards at P0.7822 a yard

.............................................................................. P175,330.13

Actual peso value of 224,150 yards as per firm offers or as per

contract............................................ 163,047.87

Overpayment................................................................ P 12,282.26

To these two items of damages (P67,174.17 as unrealized profits and P12,282.26 as

overpayment), the trial court added (a) P10,000 as stipulated liquidated damages,
(b) P10,000 as moral damages, (c) Pl,102.85 as premium paid by the company on
the bond of P102,502.13 for the issuance of the writ of preliminary attachment and
(d) P10,000 as attorney's fees, or total damages of P110,559.28) p. 250, Record on
Appeal). The Court of Appeals affirmed that judgment with the modification that the
moral damages were disallowed (Resolution of June 29, 1966).

Pamintuan appealed. The Court of Appeals in its decision of March 18, 1966 found
that the contract of sale between Pamintuan and the company was partly
consummated. The company fulfilled its obligation to obtain the Japanese suppliers'
confirmation of their acceptance of firm offers totalling $47,000. Pamintuan reaped
certain benefits from the contract. Hence, he is estopped to repudiate it; otherwise,
he would unjustly enrich himself at the expense of the company.

The Court of Appeals found that the writ of attachment was properly issued. It also
found that Pamintuan was guilty of fraud because (1) he was able to make the
company agree to change the manner of paying the price by falsely alleging that
there was a delay in obtaining confirmation of the suppliers' acceptance of the offer
to buy; (2) he caused the plastic sheetings to be deposited in the bonded warehouse
of his brother and then required his brother to make him Pamintuan), his attorney-in-
fact so that he could control the disposal of the goods; (3) Pamintuan, as attorney-in-
fact of the warehouseman, endorsed to the customs broker the warehouse receipts
covering the plastic sheetings withheld by him and (4) he overpriced the plastic
sheetings which he delivered to the company.

The Court of Appeals described Pamintuan as a man "who, after having succeeded
in getting another to accommodate him by agreeing to liquidate his deliveries on the
basis of P0.7822 per yard, irrespective of invoice value, on the pretense that he
would deliver what in the first place he ought to deliver anyway, when he knew all the
while that he had no such intention, and in the process delivered only the poorer or
cheaper kind or those which he had predetermined to deliver and did not conceal in
his brother's name and thus deceived the unwary party into overpaying him the sum
of P 1 2,282.26 for the said deliveries, and would thereafter refuse to make any
further delivery in flagrant violation of his plighted word, would now ask us to
sanction his actuation" (pp. 61-62, Rollo).

The main contention of appellant Pamintuan is that the buyer, Yu Ping Kun Co., Inc.,
is entitled to recover only liquidated damages. That contention is based on the
stipulation "that any violation of the provisions of this contract (of sale) shall entitle
the aggrieved party to collect from the offending party liquidated damages in the sum
of P10,000 ".

Pamintuan relies on the rule that a penalty and liquidated damages are the same
(Lambert vs. Fox 26 Phil. 588); that "in obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the payment of interests in case of
non-compliance, if there is no stipulation to the contrary " (1st sentence of Art. 1226,
Civil Code) and, it is argued, there is no such stipulation to the contrary in this case
and that "liquidated damages are those agreed upon by the parties to a contract, to
be paid in case of breach thereof" (Art. 2226, Civil Code).

We hold that appellant's contention cannot be sustained because the second

sentence of article 1226 itself provides that I nevertheless, damages shall be paid if
the obligor ... is guilty of fraud in the fulfillment of the obligation". "Responsibility
arising from fraud is demandable in all obligations" (Art. 1171, Civil Code). "In case
of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for an
damages which may be reasonably attributed to the non-performance of the
obligation" (Ibid, art. 2201).
The trial court and the Court of Appeals found that Pamintuan was guilty of fraud
because he did not make a complete delivery of the plastic sheetings and he
overpriced the same. That factual finding is conclusive upon this Court.

There is no justification for the Civil Code to make an apparent distinction between
penalty and liquidated damages because the settled rule is that there is no difference
between penalty and liquidated damages insofar as legal results are concerned and
that either may be recovered without the necessity of proving actual damages and
both may be reduced when proper (Arts. 1229, 2216 and 2227, Civil Code. See
observations of Justice J.B.L. Reyes, cited in 4 Tolentino's Civil Code, p. 251).

Castan Tobeñas notes that the penal clause in an obligation has three functions: "1.
Una funcion coercitiva o de garantia, consistente en estimular al deudor al
complimiento de la obligacion principal, ante la amenaza de tener que pagar la
pena. 2. Una funcion liquidadora del daño, o sea la de evaluar por anticipado los
perjuicios que habria de ocasionar al acreedor el incumplimiento o cumplimiento
inadecuado de la obligacion. 3. Una funcion estrictamente penal, consistente en
sancionar o castigar dicho incumplimiento o cumplimiento inadecuado, atribuyendole
consecuencias mas onerosas para el deudor que las que normalmente lleva
aparejadas la infraccion contractual. " (3 Derecho Civil Espanol, 9th Ed., p. 128).

The penalty clause is strictly penal or cumulative in character and does not partake
of the nature of liquidated damages (pena sustitutiva) when the parties agree "que el
acreedor podra pedir, en el supuesto incumplimiento o mero retardo de la obligacion
principal, ademas de la pena, los danos y perjuicios. Se habla en este caso de pena
cumulativa, a differencia de aquellos otros ordinarios, en que la pena es sustitutiva
de la reparacion ordinaria." (Ibid, Castan Tobenas, p. 130).

After a conscientious consideration of the facts of the case, as found by Court of

Appeals and the trial court, and after reflecting on the/tenor of the stipulation for
liquidated damages herein, the true nature of which is not easy to categorize, we
further hold that justice would be adequately done in this case by allowing Yu Ping
Kun Co., Inc. to recover only the actual damages proven and not to award to it the
stipulated liquidated damages of ten thousand pesos for any breach of the contract.
The proven damages supersede the stipulated liquidated damages.

This view finds support in the opinion of Manresa (whose comments were the bases
of the new matter found in article 1226, not found in article 1152 of the old Civil
Code) that in case of fraud the difference between the proven damages and the
stipulated penalty may be recovered (Vol. 8, part. 1, Codigo Civil, 5th Ed., 1950, p.
483).

Hence, the damages recoverable by the firm would amount to ninety thousand five
hundred fifty-nine pesos and twenty-eight centavos (P90,559.28), with six percent
interest a year from the filing of the complaint.
With that modification the judgment of the Court of Appeals is affirmed in all
respects. No costs in this instance.

SO ORDERED.