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Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 159617 August 8, 27

RO!ERTO C. SICAM "#$ AGENCIA $% R.C. SICAM, INC., petitioners,

vs.

&U&U V. 'ORGE "#$ CESAR 'ORGE, respondents.

D E C I S I O N

AUSTRIA(MARTINE), J .*

Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam and

Agencia de R.C. Sicam, !nc. (petitioner corporation see"in# to annul the $ecision % of the Court of

&ppeals dated March '%, ))', and its Resolution dated &u#ust *, ))', in C& +.R. C -o. //''.

!t appears that on different dates from September to 0ctober %1*2, 3ulu . Jor#e (respondent 3ulu

pawned several pieces of 4ewelry with Agencia de R. C. Sicam located at -o. %2 &#uirre &ve., B5

6omes Para7a8ue, Metro Manila, to secure a loan in the total amount of P1,)).)).

0n 0ctober %1, %1*2, two armed men entered the pawnshop and too" away whatever cash and 4ewelry

were found inside the pawnshop vault. 9he incident was entered in the police blotter of the Southern

Police $istrict, Para7a8ue Police Station as follows:

!nvesti#ation shows that at above 9$P0, while victims were inside the office, two ( male

unidentified persons entered into the said office with #uns drawn. Suspects(sic (% went strai#ht

inside and po"ed his #un toward Romeo Sicam and thereby tied him with an electric wire while

suspects (sic ( po"ed his #un toward $ivina Mata and !sabelita Rodri#ue; and ordered them

to lay (sic face flat on the floor. Suspects as"ed forcibly the case and assorted pawned 4ewelries

items mentioned above.

Suspects after ta"in# the money and 4ewelries fled on board a Marson 9oyota unidentified plate

number.'

Petitioner Sicam sent respondent 3ulu a letter dated 0ctober %1, %1*2 informin# her of the loss of her

4ewelry due to the robbery incident in the pawnshop. 0n -ovember , %1*2, respondent 3ulu then

wrote a letter< to petitioner Sicam e=pressin# disbelief statin# that when the robbery happened, all

4ewelry pawned were deposited with 5ar >ast Ban" near the pawnshop since it had been the practice

that before they could withdraw, advance notice must be #iven to the pawnshop so it could withdraw

the 4ewelry from the ban". Respondent 3ulu then re8uested petitioner Sicam to prepare the pawned

4ewelry for withdrawal on -ovember /, %1*2 but petitioner Sicam failed to return the 4ewelry.

http://www.lawphil.net/judjuris/juri2007/aug2007/gr_159617_2007.html#fnt1








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0n September *, %1**, respondent 3ulu 4oined by her husband, Cesar Jor#e, filed a complaint a#ainst

petitioner Sicam with the Re#ional 9rial Court of Ma"ati see"in# indemnification for the loss of

pawned 4ewelry and payment of actual, moral and e=emplary dama#es as well as attorney?s fees. 9he

case was doc"eted as Civil Case -o. **@)'.

Petitioner Sicam filed his &nswer contendin# that he is not the real party@in@interest as the pawnshop

was incorporated on &pril ), %1*2 and "nown as Agencia de R.C. Sicam, !ncA that petitionercorporation had e=ercised due care and dili#ence in the safe"eepin# of the articles pled#ed with it and

could not be made liable for an event that is fortuitous.

Respondents subse8uently filed an &mended Complaint to include petitioner corporation.

9hereafter, petitioner Sicam filed a Motion to $ismiss as far as he is concerned considerin# that he is

not the real party@in@interest. Respondents opposed the same. 9he R9C denied the motion in an 0rder

dated -ovember *, %1*1.

&fter trial on the merits, the R9C rendered its $ecision/ dated January %, %11', dismissin#

respondents complaint as well as petitioners counterclaim. 9he R9C held that petitioner Sicam could

not be made personally liable for a claim arisin# out of a corporate transactionA that in the &mended

Complaint of respondents, they asserted that plaintiff pawned assorted 4ewelries in defendants?

pawnshopA and that as a conse8uence of the separate 4uridical personality of a corporation, the

corporate debt or credit is not the debt or credit of a stoc"holder.

9he R9C further ruled that petitioner corporation could not be held liable for the loss of the pawned

4ewelry since it had not been rebutted by respondents that the loss of the pled#ed pieces of 4ewelry in

the possession of the corporation was occasioned by armed robberyA that robbery is a fortuitous eventwhich e=empts the victim from liability for the loss, citin# the case of Austria v. Court of AppealsA2 and

that the parties transaction was that of a pled#or and pled#ee and under &rt. %%2< of the Civil Code,

the pawnshop as a pled#ee is not responsible for those events which could not be foreseen.

Respondents appealed the R9C $ecision to the C&. !n a $ecision dated March '%, ))', the C&

reversed the R9C, the dispositive portion of which reads as follows:

D6>R>50R>, premises considered, the instant &ppeal is +R&-9>$, and the $ecision dated

January %, %11',of the Re#ional 9rial Court of Ma"ati, Branch /, is hereby R>>RS>$ and

S>9 &S!$>, orderin# the appellees to pay appellants the actual value of the lost 4ewelry

amountin# toP2,))).)), and attorney? fees of P2,)).)).*

!n findin# petitioner Sicam liable to#ether with petitioner corporation, the C& applied the doctrine of

piercin# the veil of corporate entity reasonin# that respondents were misled into thin"in# that they were

dealin# with the pawnshop owned by petitioner Sicam as all the pawnshop tic"ets issued to them bear

the words Agencia de R.C. SicamA and that there was no indication on the pawnshop tic"ets that it









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was the petitioner corporation that owned the pawnshop which e=plained why respondents had to

amend their complaint impleadin# petitioner corporation.

9he C& further held that the correspondin# dili#ence re8uired of a pawnshop is that it should ta"e steps

to secure and protect the pled#ed items and should ta"e steps to insure itself a#ainst the loss of articles

which are entrusted to its custody as it derives earnin#s from the pawnshop trade which petitioners

failed to doA that Austria is not applicable to this case since the robbery incident happened in %1/%when the criminality had not as yet reached the levels attained in the present dayA that they are at least

#uilty of contributory ne#li#ence and should be held liable for the loss of 4ewelriesA and that robberies

and hold@ups are foreseeable ris"s in that those en#a#ed in the pawnshop business are e=pected to

foresee.

9he C& concluded that both petitioners should be 4ointly and severally held liable to respondents for

the loss of the pawned 4ewelry.

Petitioners motion for reconsideration was denied in a Resolution dated &u#ust *, ))'.

6ence, the instant petition for review with the followin# assi#nment of errors:

96> C0ER9 05 &PP>&3S >RR>$ &-$ D6>- !9 $!$, !9 0P>->$ !9S>35 90

R>>RS&3, D6>- !9 &$0P9>$ E-CR!9!C&33F (!- 5&C9 !9 R>PR0$EC>$ &S !9S

0D- D!960E9 !- 96> M>&-9!M> &CG-0D3>$+!-+ !9 D6&9 96>

R>SP0-$>-9S &R+E>$ !- 96>!R BR!>5, D6!C6 &R+EM>-9 D&S P&3P&B3F

E-SES9&!-&B3>.

96> C0ER9 05 &PP>&3S >RR>$, &-$ D6>- !9 $!$, !9 0P>->$ !9S>35 90

R>>RS&3 BF 96!S 60-0R&B3> C0ER9, D6>- !9 &+&!- &$0P9>$

E-CR!9!C&33F (BE9 D!960E9 &CG-0D3>$+!-+ !9 96> SEBM!SS!0-S 05 96>

R>SP0-$>-9S !- 96>!R BR!>5 D!960E9 &$$!-+ &-F96!-+ M0R> 96>R>90

$>SP!9> 96> 5&C9 96&9 96> S&!$ &R+EM>-9 05 96> R>SP0-$>-9S C0E3$

-09 6&> B>>- SES9&!->$ !- !>D 05 E-R>BE99>$ >!$>-C> 0- R>C0R$. 1

&nent the first assi#ned error, petitioners point out that the C&s findin# that petitioner Sicam is

personally liable for the loss of the pawned 4ewelries is a virtual and uncritical reproduction of the

ar#uments set out on pp. @/ of the &ppellants brief.%)

Petitioners ar#ue that the reproduced ar#uments of respondents in their &ppellants Brief suffer from

infirmities, as follows:

(% Respondents conclusively asserted in para#raph of their &mended Complaint that &#encia

de R.C. Sicam, !nc. is the present owner of &#encia de R.C. Sicam Pawnshop, and therefore, the

C& cannot rule a#ainst said conclusive assertion of respondentsA

( 9he issue resolved a#ainst petitioner Sicam was not amon# those raised and liti#ated in the






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trial courtA and

(' By reason of the above infirmities, it was error for the C& to have pierced the corporate veil

since a corporation has a personality distinct and separate from its individual stoc"holders or

members.

&nent the second error, petitioners point out that the C& findin# on their ne#li#ence is li"ewise an

unedited reproduction of respondents brief which had the followin# defects:

(% 9here were unrebutted evidence on record that petitioners had observed the dili#ence

re8uired of them, i.e, they wanted to open a vault with a nearby ban" for purposes of

safe"eepin# the pawned articles but was discoura#ed by the Central Ban" (CB since CB rules

provide that they can only store the pawned articles in a vault inside the pawnshop premises and

no other placeA

( Petitioners were ad4ud#ed ne#li#ent as they did not ta"e insurance a#ainst the loss of the

pled#ed 4elweries, but it is 4udicial notice that due to hi#h incidence of crimes, insurance

companies refused to cover pawnshops and ban"s because of hi#h probability of losses due torobberiesA

(' !n Hernandez v. Chairman, Commission on Audit (%21 SCR& '1, <@</, the victim of

robbery was e=onerated from liability for the sum of money belon#in# to others and lost by him

to robbers.

Respondents filed their Comment and petitioners filed their Reply thereto. 9he parties subse8uently

submitted their respective Memoranda.

De find no merit in the petition.

9o be#in with, althou#h it is true that indeed the C& findin#s were e=act reproductions of the

ar#uments raised in respondents (appellants brief filed with the C&, we find the same to be not

fatally infirmed. Epon e=amination of the $ecision, we find that it e=pressed clearly and distinctly the

facts and the law on which it is based as re8uired by Section *, &rticle !!! of the Constitution. 9he

discretion to decide a case one way or another is broad enou#h to 4ustify the adoption of the ar#uments

put forth by one of the parties, as lon# as these are le#ally tenable and supported by law and the facts

on records.%%

0ur 4urisdiction under Rule < of the Rules of Court is limited to the review of errors of law committed

by the appellate court. +enerally, the findin#s of fact of the appellate court are deemed conclusive andwe are not duty@bound to analy;e and calibrate all over a#ain the evidence adduced by the parties in the

court a quo.% 9his rule, however, is not without e=ceptions, such as where the factual findin#s of the

Court of &ppeals and the trial court are conflictin# or contradictory%' as is obtainin# in the instant case.

6owever, after a careful e=amination of the records, we find no 4ustification to absolve petitioner

Sicam from liability.







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9he C& correctly pierced the veil of the corporate fiction and ad4ud#ed petitioner Sicam liable to#ether

with petitioner corporation. 9he rule is that the veil of corporate fiction may be pierced when made as a

shield to perpetrate fraud andHor confuse le#itimate issues. %< 9he theory of corporate entity was not

meant to promote unfair ob4ectives or otherwise to shield them.%

-otably, the evidence on record shows that at the time respondent 3ulu pawned her 4ewelry, the

pawnshop was owned by petitioner Sicam himself. &s correctly observed by the C&, in all the

pawnshop receipts issued to respondent 3ulu in September %1*2, all bear the words Agencia de R. C.

Sicam, notwithstandin# that the pawnshop was alle#edly incorporated in &pril %1*2. 9he receipts

issued after such alle#ed incorporation were still in the name of Agencia de R. C. Sicam, thus

inevitably misleadin#, or at the very least, creatin# the wron# impression to respondents and the public

as well, that the pawnshop was owned solely by petitioner Sicam and not by a corporation.

>ven petitioners counsel, &tty. Marcial 9. Bal#os, in his letter%/ dated 0ctober %, %1*2 addressed to

the Central Ban", e=pressly referred to petitioner Sicam as the proprietor of the pawnshop

notwithstandin# the alle#ed incorporation in &pril %1*2.

De also find no merit in petitioners? ar#ument that since respondents had alle#ed in their &mended

Complaint that petitioner corporation is the present owner of the pawnshop, the C& is bound to decide

the case on that basis.

Section < Rule %1 of the Rules of Court provides that an admission, verbal or written, made by a party

in the course of the proceedin#s in the same case, does not re8uire proof. 9he admission may be

contradicted only by showin# that it was made throu#h palpable mista"e or that no such admission was

made.

9hus, the #eneral rule that a 4udicial admission is conclusive upon the party ma"in# it and does not

re8uire proof, admits of two e=ceptions, to wit: (% when it is shown that such admission was made

throu#h palpable mista"e, and ( when it is shown that no such admission was in fact made.T+%

"tt%- %/%0to# "os o#% to /o#t-"$/t "# "$3sso# 4 $%##g t+"t +% 3"$% su/+ "#

"$3sso#.%2

9he Committee on the Revision of the Rules of Court e=plained the second e=ception in this wise:

= = = if a party invo"es an admission by an adverse party, but cites the admission out of

conte=t, then the one ma"in# the admission may show that he made no such admission, ort+"t +s "$3sso# "s t"%# out o /o#t%t.

t+"t t+% 0"-t /"# "so s+o t+"t +% 3"$% #o su/+ "$3sso#, i.e., #ot # t+% s%#s%

# +/+ t+% "$3sso# s 3"$% to "00%"-.

9hat is the reason for the modifier such because if the rule simply states that the admission

may be contradicted by showin# that no admission was made, the rule would not really be

providin# for a contradiction of the admission but 4ust a denial.%* (>mphasis supplied.












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Dhile it is true that respondents alle#ed in their &mended Complaint that petitioner corporation is the

present owner of the pawnshop, they did so only because petitioner Sicam alle#ed in his &nswer to the

ori#inal complaint filed a#ainst him that he was not the real party@in@interest as the pawnshop was

incorporated in &pril %1*2. Moreover, a readin# of the &mended Complaint in its entirety shows that

respondents referred to both petitioner Sicam and petitioner corporation where they (respondents

pawned their assorted pieces of 4ewelry and ascribed to both the failure to observe due dili#encecommensurate with the business which resulted in the loss of their pawned 4ewelry.

Mar"edly, respondents, in their 0pposition to petitioners Motion to $ismiss &mended Complaint,

insofar as petitioner Sicam is concerned, averred as follows:

Roberto C. Sicam was named the defendant in the ori#inal complaint because the pawnshop

tic"ets involved in this case did not show that the R.C. Sicam Pawnshop was a corporation. !n

para#raph % of his &nswer, he admitted the alle#ations in para#raph % and of the Complaint.

6e merely added that defendant is not now the real party in interest in this case.

!t was defendant Sicam?s omission to correct the pawnshop tic"ets used in the sub4ecttransactions in this case which was the cause of the instant action. 6e cannot now as" for the

dismissal of the complaint a#ainst him simply on the mere alle#ation that his pawnshop

business is now incorporated. !t is a matter of defense, the merit of which can only be reached

after consideration of the evidence to be presented in due course.%1

Enmista"ably, the alle#ed admission made in respondents? &mended Complaint was ta"en out of

conte=t by petitioner Sicam to suit his own purpose. !neluctably, the fact that petitioner Sicam

continued to issue pawnshop receipts under his name and not under the corporation?s name militates forthe piercin# of the corporate veil.

De li"ewise find no merit in petitioners? contention that the C& erred in piercin# the veil of corporate

fiction of petitioner corporation, as it was not an issue raised and liti#ated before the R9C.

Petitioner Sicam had alle#ed in his &nswer filed with the trial court that he was not the real party@in@

interest because since &pril ), %1*2, the pawnshop business initiated by him was incorporated and

"nown as Agencia de R.C. Sicam. !n the pre@trial brief filed by petitioner Sicam, he submitted that as

far as he was concerned, the basic issue was whether he is the real party in interest a#ainst whom the

complaint should be directed.)

!n fact, he subse8uently moved for the dismissal of the complaint as tohim but was not favorably acted upon by the trial court. Moreover, the issue was s8uarely passed upon,

althou#h erroneously, by the trial court in its $ecision in this manner:

= = = 9he defendant Roberto Sicam, Jr li"ewise denies liability as far as he is concerned for the

reason that he cannot be made personally liable for a claim arisin# from a corporate transaction.

9his Court sustains the contention of the defendant Roberto C. Sicam, Jr. 9he amended

complaint itself asserts that plaintiff pawned assorted 4ewelries in defendant?s pawnshop. !t






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has been held that as a conse8uence of the separate 4uridical personality of a corporation, the

corporate debt or credit is not the debt or credit of the stoc"holder, nor is the stoc"holder?s debt

or credit that of a corporation.%

Clearly, in view of the alle#ed incorporation of the pawnshop, the issue of whether petitioner Sicam is

personally liable is ine=tricably connected with the determination of the 8uestion whether the doctrine

of piercin# the corporate veil should or should not apply to the case.

9he ne=t 8uestion is whether petitioners are liable for the loss of the pawned articles in their

possession.

Petitioners insist that they are not liable since robbery is a fortuitous event and they are not ne#li#ent at

all.

De are not persuaded.

&rticle %%2< of the Civil Code provides:

&rt. %%2<. >=cept in cases e=pressly specified by the law, or when it is otherwise declared bystipulation, or when the nature of the obli#ation re8uires the assumption of ris", no person shall

be responsible for those events which could not be foreseen or which, thou#h foreseen, were

inevitable.

5ortuitous events by definition are e=traordinary events not foreseeable or avoidable. !t is therefore, not

enou#h that the event should not have been foreseen or anticipated, as is commonly believed but it

must be one impossible to foresee or to avoid. 9he mere difficulty to foresee the happenin# is not

impossibility to foresee the same.

9o constitute a fortuitous event, the followin# elements must concur: (a the cause of the unforeseen

and une=pected occurrence or of the failure of the debtor to comply with obli#ations must be

independent of human willA (b it must be impossible to foresee the event that constitutes thecaso

fortuito or, if it can be foreseen, it must be impossible to avoidA (c the occurrence must be such as to

render it impossible for the debtor to fulfill obli#ations in a normal mannerA and, (d the obli#or must

be free from any participation in the a##ravation of the in4ury or loss. '

9he burden of provin# that the loss was due to a fortuitous event rests on him who invo"es it.< &nd, in

order for a fortuitous event to e=empt one from liability, it is necessary that one has committed no

ne#li#ence or misconduct that may have occasioned the loss.

!t has been held that an act of +od cannot be invo"ed to protect a person who has failed to ta"e steps to

forestall the possible adverse conse8uences of such a loss. 0ne?s ne#li#ence may have concurred with

an act of +od in producin# dama#e and in4ury to anotherA nonetheless, showin# that the immediate or

pro=imate cause of the dama#e or in4ury was a fortuitous event would not e=empt one from liability.












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Dhen the effect is found to be partly the result of a person?s participation @@ whether by active

intervention, ne#lect or failure to act @@ the whole occurrence is humani;ed and removed from the rules

applicable to acts of +od. /

Petitioner Sicam had testified that there was a security #uard in their pawnshop at the time of the

robbery. 6e li"ewise testified that when he started the pawnshop business in %1*', he thou#ht of

openin# a vault with the nearby ban" for the purpose of safe"eepin# the valuables but was discoura#ed

by the Central Ban" since pawned articles should only be stored in a vault inside the pawnshop. 9he

very measures which petitioners had alle#edly adopted show that to them the possibility of robbery was

not only foreseeable, but actually foreseen and anticipated. Petitioner Sicams testimony, in effect,

contradicts petitioners defense of fortuitous event.

Moreover, petitioners failed to show that they were free from any ne#li#ence by which the loss of the

pawned 4ewelry may have been occasioned.

Robbery per se, 4ust li"e carnappin#, is not a fortuitous event. !t does not foreclose the possibility of

ne#li#ence on the part of herein petitioners. !n Co v. Court of Appeals,2 the Court held:

!t is not a defense for a repair shop of motor vehicles to escape liability simply because the

dama#e or loss of a thin# lawfully placed in its possession was due to carnappin#. Carnappin#

per se cannot be considered as a fortuitous event. T+% "/t t+"t " t+#g "s u#"u "#$

o-/%u t"%# -o3 "#ot+%-s -g+tu 0oss%sso#, "s # /"s%s o /"-#"00#g, $o%s #ot

"uto3"t/" g:% -s% to " o-tutous %:%#t. To 4% /o#s$%-%$ "s su/+, /"-#"00#g %#t"s

3o-% t+"# t+% 3%-% o-/%u t"#g o "#ot+%-s 0-o0%-t. It 3ust 4% 0-o:%$ "#$

%st"4s+%$ t+"t t+% %:%#t "s "# "/t o Go$ o- "s $o#% so% 4 t+-$ 0"-t%s "#$ t+"t

#%t+%- t+% /"3"#t #o- t+% 0%-so# "%g%$ to 4% #%gg%#t +"s "# 0"-t/0"to#. I#

"//o-$"#/% t+ t+% Ru%s o E:$%#/%, t+% 4u-$%# o 0-o:#g t+"t t+% oss "s $u% to "

o-tutous %:%#t -%sts o# +3 +o #:o%s t ; +/+ # t+s /"s% s t+% 0-:"t% -%s0o#$%#t.

6owever, other than the police report of the alle#ed carnappin# incident, no other evidence was

presented by private respondent to the effect that the incident was not due to its fault. & police

report of an alle#ed crime, to which only private respondent is privy, does not suffice to

establish the carnappin#. -either does it prove that there was no fault on the part of private

respondent notwithstandin# the parties? a#reement at the pre@trial that the car was carnapped.

Carnappin# does not foreclose the possibility of fault or ne#li#ence on the part of private

respondent.*

Just li"e in Co, petitioners merely presented the police report of the Para7a8ue Police Station on the

robbery committed based on the report of petitioners? employees which is not sufficient to establish

robbery. Such report also does not prove that petitioners were not at fault.

0n the contrary, by the very evidence of petitioners, the C& did not err in findin# that petitioners are

#uilty of concurrent or contributory ne#li#ence as provided in &rticle %%2) of the Civil Code, to wit:

&rt. %%2). 9hose who in the performance of their obli#ations are #uilty of fraud, ne#li#ence, or










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delay, and those who in any manner contravene the tenor thereof, are liable for dama#es.1

&rticle %' of the Civil Code provides that with re#ard to pawnshops and other establishments which

are en#a#ed in ma"in# loans secured by pled#es, the special laws and re#ulations concernin# them

shall be observed, and subsidiarily, the provisions on pled#e, mort#a#e and antichresis.

9he provision on pled#e, particularly &rticle )11 of the Civil Code, provides that the creditor shallta"e care of the thin# pled#ed with the dili#ence of a #ood father of a family. 9his means that

petitioners must ta"e care of the pawns the way a prudent person would as to his own property.

!n this connection, &rticle %%2' of the Civil Code further provides:

&rt. %%2'. 9he fault or ne#li#ence of the obli#or consists in the omission of that dili#ence which

is re8uired by the nature of the obli#ation and corresponds with the circumstances of the

persons, of time and of the place. Dhen ne#li#ence shows bad faith, the provisions of &rticles

%%2% and )%, para#raph shall apply.

!f the law or contract does not state the dili#ence which is to be observed in the performance,that which is e=pected of a #ood father of a family shall be re8uired.

De e=pounded in Cruz v. Gangan') that ne#li#ence is the omission to do somethin# which a reasonable

man, #uided by those considerations which ordinarily re#ulate the conduct of human affairs, would doA

or the doin# of somethin# which a prudent and reasonable man would not do. '% !t is want of care

re8uired by the circumstances.

& review of the records clearly shows that petitioners failed to e=ercise reasonable care and caution that

an ordinarily prudent person would have used in the same situation. Petitioners were #uilty of

ne#li#ence in the operation of their pawnshop business. Petitioner Sicam testified, thus:

Court:

I. $o you have security #uards in your pawnshop

&. Fes, your honor.

I. 9hen how come that the robbers were able to enter the premises when accordin# to you there

was a security #uard

&. Sir, if these robbers can rob a ban", how much more a pawnshop.

I. ! am as"in# you how were the robbers able to enter despite the fact that there was a security#uard

&. &t the time of the incident which happened about %:)) and :)) o?cloc" in the afternoon and

it happened on a Saturday and everythin# was 8uiet in the area B5 6omes Para7a8ue they

pretended to pawn an article in the pawnshop, so one of my employees allowed him to come in

and it was only when it was announced that it was a hold up.

I. $id you come to "now how the vault was opened







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&. Dhen the pawnshop is official (sic open your honor the pawnshop is partly open. 9he

combination is off.

I. -o one open (sic the vault for the robbers

&. -o one your honor it was open at the time of the robbery.

I. !t is clear now that at the time of the robbery the vault was open the reason why the robberswere able to #et all the items pawned to you inside the vault.

&. Fes sir.'

revealin# that there were no security measures adopted by petitioners in the operation of the pawnshop.

>vidently, no sufficient precaution and vi#ilance were adopted by petitioners to protect the pawnshop

from unlawful intrusion. 9here was no clear showin# that there was any security #uard at all. 0r if

there was one, that he had sufficient trainin# in securin# a pawnshop. 5urther, there is no showin# that

the alle#ed security #uard e=ercised all that was necessary to prevent any untoward incident or to

ensure that no suspicious individuals were allowed to enter the premises. !n fact, it is even doubtful thatthere was a security #uard, since it is 8uite impossible that he would not have noticed that the robbers

were armed with caliber .< pistols each, which were alle#edly po"ed at the employees.'' Si#nificantly,

the alle#ed security #uard was not presented at all to corroborate petitioner Sicam?s claimA not one of

petitioners? employees who were present durin# the robbery incident testified in court.

5urthermore, petitioner Sicam?s admission that the vault was open at the time of robbery is clearly a

proof of petitioners? failure to observe the care, precaution and vi#ilance that the circumstances 4ustly

demanded. Petitioner Sicam testified that once the pawnshop was open, the combination was already

off. Considerin# petitioner Sicam?s testimony that the robbery too" place on a Saturday afternoon and

the area in B5 6omes Para7a8ue at that time was 8uiet, there was more reason for petitioners to havee=ercised reasonable foresi#ht and dili#ence in protectin# the pawned 4ewelries. !nstead of ta"in# the

precaution to protect them, they let open the vault, providin# no difficulty for the robbers to cart away

the pawned articles.

De, however, do not a#ree with the C& when it found petitioners ne#li#ent for not ta"in# steps to

insure themselves a#ainst loss of the pawned 4ewelries.

Ender Section %2 of Central Ban" Circular -o. '2<, Rules and Re#ulations for Pawnshops, which too"

effect on July %', %12', and which was issued pursuant to Presidential $ecree -o. %%<, Pawnshop

Re#ulation &ct, it is provided that pawns pled#ed must be insured, to wit:Sec. %2. !nsurance of 0ffice Buildin# and Pawns@ 9he place of business of a pawnshop and the

pawns pled#ed to it must be insured "g"#st -% "#$ "g"#st 4u-g"- as well as for the

latter(sic, by an insurance company accredited by the !nsurance Commissioner.

6owever, this Section was subse8uently amended by CB Circular -o. 2/< which too" effect on

0ctober %, %1*), to wit:

Sec. %2 !nsurance of 0ffice Buildin# and Pawns K 9he office buildin#Hpremises and pawns of a





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pawnshop must be insured "g"#st -%. (emphasis supplied.

where the re8uirement that insurance a#ainst bur#lary was deleted. 0bviously, the Central Ban"

considered it not feasible to re8uire insurance of pawned articles a#ainst bur#lary.

9he robbery in the pawnshop happened in %1*2, and considerin# the above@8uoted amendment, there is

no statutory duty imposed on petitioners to insure the pawned 4ewelry in which case it was error for the

C& to consider it as a factor in concludin# that petitioners were ne#li#ent.

-evertheless, the preponderance of evidence shows that petitioners failed to e=ercise the dili#ence

re8uired of them under the Civil Code.

9he dili#ence with which the law re8uires the individual at all times to #overn his conduct varies with

the nature of the situation in which he is placed and the importance of the act which he is to perform.'<

9hus, the cases of Austria v. Court of Appeals,' Hernandez v. Chairman, Commission on Audit '/ and

Cruz v. Gangan'2 cited by petitioners in their pleadin#s, where the victims of robbery were e=onerated

from liability, find no application to the present case.

!n Austria, Maria &bad received from +uillermo &ustria a pendant with diamonds to be sold on

commission basis, but which &bad failed to subse8uently return because of a robbery committed upon

her in %1/%. 9he incident became the sub4ect of a criminal case filed a#ainst several persons. &ustria

filed an action a#ainst &bad and her husband (&bads for recovery of the pendant or its value, but the

&bads set up the defense that the robbery e=tin#uished their obli#ation. 9he R9C ruled in favor of

&ustria, as the &bads failed to prove robberyA or, if committed, that Maria &bad was #uilty of

ne#li#ence. 9he C&, however, reversed the R9C decision holdin# that the fact of robbery was duly

established and declared the &bads not responsible for the loss of the 4ewelry on account of a fortuitous

event. De held that for the &bads to be relieved from the civil liability of returnin# the pendant under&rt. %%2< of the Civil Code, it would only be sufficient that the unforeseen event, the robbery, too"

place without any concurrent fault on the debtors part, and this can be done by preponderance of

evidenceA that to be free from liability for reason of fortuitous event, the debtor must, in addition to the

casus itself, be free of any concurrent or contributory fault or ne#li#ence.'*

De found in Austria that under the circumstances prevailin# at the time the $ecision was promul#ated

in %12%, the City of Manila and its suburbs had a hi#h incidence of crimes a#ainst persons and property

that rendered travel after ni#htfall a matter to be sedulously avoided without suitable precaution and

protectionA that the conduct of Maria &bad in returnin# alone to her house in the evenin# carryin#

4ewelry of considerable value would have been ne#li#ence per se and would not e=empt her from

responsibility in the case of robbery. 6owever we did not hold &bad liable for ne#li#ence since, the

robbery happened ten years previouslyA i.e., %1/%, when criminality had not reached the level of

incidence obtainin# in %12%.

!n contrast, the robbery in this case too" place in %1*2 when robbery was already prevalent and

petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby ban" for

safe"eepin#. Moreover, unli"e in Austria, where no ne#li#ence was committed, we found petitioners













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ne#li#ent in securin# their pawnshop as earlier discussed.

!n Hernandez, 9eodoro 6ernande; was the 0!C and special disbursin# officer of the 9ernate Beach

Pro4ect of the Philippine 9ourism in Cavite. !n the mornin# of July %, %1*', a 5riday, he went to Manila

to encash two chec"s coverin# the wa#es of the employees and the operatin# e=penses of the pro4ect.

6owever for some reason, the processin# of the chec" was delayed and was completed at about ' p.m.

-evertheless, he decided to encash the chec" because the pro4ect employees would be waitin# for theirpay the followin# dayA otherwise, the wor"ers would have to wait until July , the earliest time, when

the main office would open. &t that time, he had two choices: (% return to 9ernate, Cavite that same

afternoon and arrive early evenin#A or ( ta"e the money with him to his house in Marilao, Bulacan,

spend the ni#ht there, and leave for 9ernate the followin# day. 6e chose the second option, thin"in# it

was the safer one. 9hus, a little past ' p.m., he too" a passen#er 4eep bound for Bulacan. Dhile the 4eep

was on >pifanio de los Santos &venue, the 4eep was held up and the money "ept by 6ernande; was

ta"en, and the robbers 4umped out of the 4eep and ran. 6ernande; chased the robbers and cau#ht up

with one robber who was subse8uently char#ed with robbery and pleaded #uilty. 9he other robber who

held the stolen money escaped. 9he Commission on &udit found 6ernande; ne#li#ent because he hadnot brou#ht the cash proceeds of the chec"s to his office in 9ernate, Cavite for safe"eepin#, which is

the normal procedure in the handlin# of funds. De held that 6ernande; was not ne#li#ent in decidin# to

encash the chec" and brin#in# it home to Marilao, Bulacan instead of 9ernate, Cavite due to the

lateness of the hour for the followin# reasons: (% he was moved by unselfish motive for his co@

employees to collect their wa#es and salaries the followin# day, a Saturday, a non@wor"in#, because to

encash the chec" on July , the ne=t wor"in# day after July %, would have caused discomfort to

laborers who were dependent on their wa#es for sustenanceA and ( that choosin# Marilao as a safer

destination, bein# nearer, and in view of the comparative ha;ards in the trips to the two places, said

decision seemed lo#ical at that time. De further held that the fact that two robbers attac"ed him in

broad dayli#ht in the 4eep while it was on a busy hi#hway and in the presence of other passen#ers could

not be said to be a result of his imprudence and ne#li#ence.

Enli"e in Hernandez where the robbery happened in a public utility, the robbery in this case too" place

in the pawnshop which is under the control of petitioners. Petitioners had the means to screen the

persons who were allowed entrance to the premises and to protect itself from unlawful intrusion.

Petitioners had failed to e=ercise precautionary measures in ensurin# that the robbers were prevented

from enterin# the pawnshop and for "eepin# the vault open for the day, which paved the way for the

robbers to easily cart away the pawned articles.

!n Cruz, $r. 5ilonila 0. Cru;, Camanava $istrict $irector of 9echnolo#ical >ducation and S"ills

$evelopment &uthority (9>S$&, boarded the 3i#ht Rail 9ransit (3R9 from Sen. Puyat &venue to

Monumento when her handba# was slashed and the contents were stolen by an unidentified person.

&mon# those stolen were her wallet and the #overnment@issued cellular phone. She then reported the

incident to the police authoritiesA however, the thief was not located, and the cellphone was not

recovered. She also reported the loss to the Re#ional $irector of 9>S$&, and she re8uested that she be

freed from accountability for the cellphone. 9he Resident &uditor denied her re8uest on the #round that

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she lac"ed the dili#ence re8uired in the custody of #overnment property and was ordered to pay the

purchase value in the total amount of P<,'*.)). 9he C0& found no sufficient 4ustification to #rant the

re8uest for relief from accountability. De reversed the rulin# and found that ridin# the 3R9 cannot per

se be denounced as a ne#li#ent act more so because Cru;s mode of transit was influenced by time and

money considerationsA that she boarded the 3R9 to be able to arrive in Caloocan in time for her ' pm

meetin#A that any prudent and rational person under similar circumstance can reasonably be e=pected todo the sameA that possession of a cellphone should not hinder one from boardin# the 3R9 coach as

Cru; did considerin# that whether she rode a 4eep or bus, the ris" of theft would have also been presentA

that because of her relatively low position and pay, she was not e=pected to have her own vehicle or to

ride a ta=icabA she did not have a #overnment assi#ned vehicleA that placin# the cellphone in a ba#

away from covetous eyes and holdin# on to that ba# as she did is ordinarily sufficient care of a

cellphone while travelin# on board the 3R9A that the records did not show any specific act of

ne#li#ence on her part and ne#li#ence can never be presumed.

Enli"e in the Cruz case, the robbery in this case happened in petitioners? pawnshop and they were

ne#li#ent in not e=ercisin# the precautions 4ustly demanded of a pawnshop.

D6>R>50R>, e=cept for the insurance aspect, the $ecision of the Court of &ppeals dated March '%,

))' and its Resolution dated &u#ust *, ))', are A<<IRMED.

M"#"

THIRD DIVISION

MANI&A E&ECTRIC COMPAN=, G.R. No. 158911

Petitioner,

Present:

@ versus @ F-&R>S@S&-9!&+0, J.,

Chairperson,

&ES9R!&@M&R9!->L,

MATI&DE MACA!AGDA& RAMO=, C6!C0@-&L&R!0,

!IENVENIDO RAMO=, ROMANA -&C6ER&, and

RAMO=(RAMOS, ROSEMARIE R>F>S, JJ.

RAMO=, O<E&IA DURIAN "#$

C=RENE PANADO, Promul#ated:

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Respondents. March <, ))*

= @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ =

D E C I S I O N

AUSTRIA(MARTINE), J .:

9his resolves the Petition for Review on Certiorari under Rule < of the Rules of Court,

prayin# that the $ecision[1] of the Court of &ppeals (C& dated $ecember %/, )),

orderin# petitioner Manila >lectric Company (M>R&3C0 to pay 3eoncio Ramoy [2]

moral and e=emplary dama#es and attorney?s fees, and the C& Resolution[3] dated July

%, ))', denyin# petitioner?s motion for reconsideration, be reversed and set aside.

9he Re#ional 9rial Court (R9C of Iue;on City, Branch *%, accurately summari;ed the

facts as culled from the records, thus:

9he evidence on record has established that in the year %1*2 the -ational Power Corporation (-PC

filed with the M9C Iue;on City a case for e4ectment a#ainst several persons alle#edly ille#ally

occupyin# its properties in Baesa, Iue;on City. &mon# the defendants in the e4ectment case was

3eoncio Ramoy, one of the plaintiffs in the case at bar. 0n &pril *, %1*1 after the defendants failed to

file an answer in spite of summons duly served, the M9C Branch '/, Iue;on City rendered 4ud#mentfor the plaintiff M>R&3C0N and orderin# the defendants to demolish or remove the buildin# and

structures they built on the land of the plaintiff and to vacate the premises. !n the case of 3eoncio

Ramoy, the Court found that he was occupyin# a portion of 3ot -o. 2@B@@B with the e=act location

of his apartments indicated and encircled in the location map as -o. 2. & copy of the decision was

furnished 3eoncio Ramoy (>=hibits , @&, @B, @C, pp. %*@%'%, RecordA 9S-, July , %11', p. .

0n June ), %11) -PC wrote Meralco re8uestin# for the immediate disconnection of electric power

supply to all residential and commercial establishments beneath the -PC transmission lines alon#

Baesa, Iue;on City (>=h. 2, p. %<', Record. &ttached to the letter was a list of establishments affected

which included plaintiffs 3eoncio and Matilde Ramoy (>=h. 1, as well as a copy of the court decision(>=h. . &fter deliberatin# on -PC?s letter, Meralco decided to comply with -PC?s re8uest (>=hibits /,

/@&, /@&@%, /@B and thereupon issued notices of disconnection to all establishments affected includin#

plaintiffs 3eoncio Ramoy (>=hs. ', '@& to '@C, Matilde RamoyHMatilde Macaba#dal (>=hibits '@$ to

'@>, Rosemarie Ramoy (>=h. '@5, 0felia $urian (>=h. '@+, Jose ali;a (>=h. '@6 and Cyrene S.

Panado (>=h. '@!.

!n a letter dated &u#ust %2, %11) Meralco re8uested -PC for a 4oint survey to determine all the

http://sc.judiciary.gov.ph/jurisprudence/2008/march2008/158911.htm#_ftn1






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establishments which are considered under -PC property in view of the fact that the houses in the area

are very close to each other (>=h. %. Shortly thereafter, a 4oint survey was conducted and the -PC

personnel pointed out the electric meters to be disconnected (>=h. %'A 9S-, 0ctober *, %11', p. 2A

9S-, July %11<, p. *.

!n due time, the electric service connection of the plaintiffs herein respondentsN was disconnected

(>=hibits $ to +, with submar"in#s, pp. */@*2, Record.

Plaintiff 3eoncio Ramoy testified that he and his wife are the re#istered owners of a parcel of land

covered by 9C9 -o. '/'</, a portion of which was occupied by plaintiffs Rosemarie Ramoy, 0felia

$urian, Jose ali;a and Cyrene S. Panado as lessees. Dhen the Meralco employees were disconnectin#

plaintiffs? power connection, plaintiff 3eoncio Ramoy ob4ected by informin# the Meralco foreman that

his property was outside the -PC property and pointin# out the monuments showin# the boundaries of

his property. 6owever, he was threatened and told not to interfere by the armed men who accompanied

the Meralco employees. &fter the electric power in Ramoy?s apartment was cut off, the plaintiffs@

lessees left the premises.

$urin# the ocular inspection ordered by the Court and attended by the parties, it was found out that the

residence of plaintiffs@spouses 3eoncio and Matilde Ramoy was indeed outside the -PC property. 9his

was confirmed by defendant?s witness R.P. Monsale !!! on cross@e=amination (9S-, 0ctober %', %11',

pp. %) and %%. Monsale also admitted that he did not inform his supervisor about this fact nor did he

recommend re@connection of plaintiffs? power supply (!bid., p. %<.

9he record also shows that at the re8uest of -PC, defendant Meralco re@connected the electric service

of four customers previously disconnected none of whom was any of the plaintiffs (>=h. %<. [4]

9he R9C decided in favor of M>R&3C0 by dismissin# herein respondents? claim for

moral dama#es, e=emplary dama#es and attorney?s fees. 6owever, the R9C ordered

M>R&3C0 to restore the electric power supply of respondents.

Respondents then appealed to the C&. !n its $ecision dated $ecember %/, )), the C&

faulted M>R&3C0 for not re8uirin# from -ational Power Corporation (-PC a writ of

e=ecution or demolition and in not coordinatin# with the court sheriff or other proper

officer before complyin# with the -PC?s re8uest. 9hus, the C& held M>R&3C0 liable

for moral and e=emplary dama#es and attorney?s fees. M>R&3C0?s motion for

reconsideration of the $ecision was denied per Resolution dated July %, ))'.

6ence, herein petition for review on certiorari on the followin# #rounds:

!



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96> C0ER9 05 &PP>&3S +R&>3F >RR>$ D6>- !9 50E-$ M>R&3C0 ->+3!+>-9

D6>- !9 $!SC0-->C9>$ 96> SEBJ>C9 >3>C9R!C S>R!C> 05 R>SP0-$>-9S.

!!

96> C0ER9 05 &PP>&3S +R&>3F >RR>$ D6>- !9 &D&R$>$ M0R&3 &-$

>O>MP3&RF $&M&+>S &-$ &990R->F?S 5>>S &+&!-S9 M>R&3C0 E-$>R 96>

C!RCEMS9&-C>S 96&9 96> 3&99>R &C9>$ !- +00$ 5&!96 !- 96> $!SC0-->C9!0-

05 96> >3>C9R!C S>R!C>S 05 96> R>SP0-$>-9S. [5]

9he petition is partly meritorious.

M>R&3C0 admits[6] that respondents are its customers under a Service Contract

whereby it is obli#ed to supply respondents with electricity. -evertheless, upon re8uest

of the -PC, M>R&3C0 disconnected its power supply to respondents on the #round

that they were ille#ally occupyin# the -PC?s ri#ht of way. Ender the Service Contract,

aN customer of electric service must show his ri#ht or proper interest over the property

in order that he will be provided with and assured a continuous electric service. [7]

M>R&3C0 ar#ues that since there is a $ecision of the Metropolitan 9rial Court (M9C

of Iue;on City rulin# that herein respondents were amon# the ille#al occupants of the

-PC?s ri#ht of way, M>R&3C0 was 4ustified in cuttin# off service to respondents.

Clearly, respondents? cause of action a#ainst M>R&3C0 is anchored on culpa

contractual or breach of contract for the latter?s discontinuance of its service to

respondents under &rticle %%2) of the Civil Code which provides:

&rticle %%2). 9hose who in the performance of their obligations are #uilty of fraud,

ne#li#ence, or delay, and those who in any manner contravene the tenor thereof, are liable for

dama#es.

!n Radio Communications of the Philippines, nc. v. !erchez,[8] the Court

e=pounded on the nature of culpa contractual, thus:

!n 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. 9he law, reco#ni;in# the obli#atory

force of contracts, will not permit a party to be set free from liability for any "ind of misperformance of

the contractual underta"in# or a contravention of the tenor thereof. & breach upon the contract confers

upon the in4ured party a valid cause for recoverin# that which may have been lost or suffered. "he









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remed# serves to preserve the interests of the promissee that ma# include his expectation interest ,

which is his interest in havin# the benefit of his bar#ain by bein# put in as #ood a position as he would

have been in had the contract been performed, or his reliance interest , which is his interest in bein#

reimbursed for loss caused by reliance on the contract by bein# put in as #ood a position as he would

have been in had the contract not been madeA or his restitution interest , which is his interest in havin#

restored to him any benefit that he has conferred on the other party. !ndeed, a#reements can accomplishlittle, either for their ma"ers or for society, unless they are made the basis for action. 9he effect of every

infraction is to create a new duty, that is, to ma"e recompense to the one who has been in4ured by the

failure of another to observe his contractual obli#ation unless he can sho$ e%tenuating circumstances,

li&e proof of his exercise of due diligence = = = or of the attendance of fortuitous event , to e=cuse him

from his ensuin# liability.[9] (>mphasis supplied

&rticle %%2' also provides that the fault or ne#li#ence of the obli#or consists in the

omission of that dili#ence which is re8uired by the nature of the obli#ation and

corresponds with the circumstances of the persons, of the time and of the place. 9heCourt emphasi;ed in Rid'o "ape ( Chemical Corporation v. Court of Appeals [10] that as

a public utility, M>R&3C0 has the obli#ation to dischar#e its functions with utmost

care and dili#ence.[11]

9he Court a#rees with the C& that under the factual milieu of the present case,

M>R&3C0 failed to e=ercise the utmost de#ree of care and dili#ence re8uired of it. 9o

repeat, it was not enou#h for M>R&3C0 to merely rely on the $ecision of the M9Cwithout ascertainin# whether it had become final and e=ecutory. erily, only upon

finality of said $ecision can it be said with conclusiveness that respondents have no

ri#ht or proper interest over the sub4ect property, thus, are not entitled to the services of

M>R&3C0.

&lthou#h M>R&3C0 insists that the M9C $ecision is final and e=ecutory, it never

showed any documentary evidence to support this alle#ation. Moreover, if it were truethat the decision was final and e=ecutory, the most prudent thin# for M>R&3C0 to have

done was to coordinate with the proper court officials in determinin# which structures

are covered by said court order. 3i"ewise, there is no evidence on record to show that

this was done by M>R&3C0.







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9he utmost care and dili#ence re8uired of M>R&3C0 necessitates such #reat de#ree of

prudence on its part, and failure to e=ercise the dili#ence re8uired means that

M>R&3C0 was at fault and ne#li#ent in the performance of its obli#ation. !n Rid'o

"ape,[12] the Court e=plained:

BNein# a public utility vested with vital public interest, M>R&3C0 is impressed with certain

obli#ations towards its customers and any omission on its part to perform such duties would be

pre4udicial to its interest. 5or in the final analysis, the bottom line is that those who do not e=ercise

such prudence in the dischar#e of their duties shall be made to bear the conse8uences of such oversi#ht.

[13]

9his bein# so, M>R&3C0 is liable for dama#es under &rticle %%2) of the Civil Code.

9he ne=t 8uestion is: &re respondents entitled to moral and e=emplary dama#es and

attorney?s fees

&rticle ) of the Civil Code provides:

&rticle ). Dillful in4ury to property may be a le#al #round for awardin# moral dama#es if the court

should find that, under the circumstances, such dama#es are 4ustly due. 9he same rule applies to

breaches of contract where the defendant acted fraudulently or in bad faith.

!n the present case, M>R&3C0 wilfully caused in4ury to 3eoncio Ramoy by

withholdin# from him and his tenants the supply of electricity to which they were

entitled under the Service Contract. 9his is contrary to public policy because, as

discussed above, M>R&3C0, bein# a vital public utility, is e=pected to e=ercise utmost

care and dili#ence in the performance of its obli#ation. !t was incumbent upon

M>R&3C0 to do everythin# within its power to ensure that the improvements built by

respondents are within the -PCs ri#ht of way before disconnectin# their power supply.

9he Court emphasi;ed in )amar *lectric Cooperative, nc. v. +ui'ano[14] that:

>lectricity is a basic necessity the #eneration and distribution of which is imbued with public interest,

and its 0-o:$%- s " 0u4/ utt su4>%/t to st-/t -%gu"to# by the State in the e=ercise of police

power. <"u-% to /o30 t+ t+%s% -%gu"to#s g:% -s% to t+% 0-%su30to# o 4"$ "t+ o-

"4us% o -g+t.[15] (>mphasis supplied

9hus, by analo#y, M>R&3C0?s failure to e=ercise utmost care and dili#ence in the










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performance of its obli#ation to 3eoncio Ramoy, its customer, is tantamount to bad faith.

3eoncio Ramoy testified that he suffered wounded feelin#s because of M>R&3C0?s

actions.[16] 5urthermore, due to the lac" of power supply, the lessees of his four

apartments on sub4ect lot left the premises.[17] Clearly, therefore, 3eoncio Ramoy is

entitled to moral dama#es in the amount awarded by the C&.

3eoncio Ramoy, the lone witness for respondents, was the only one who testified

re#ardin# the effects on him of M>R&3C0?s electric service disconnection. 6is co@

respondents Matilde Ramoy, Rosemarie Ramoy, 0felia $urian and Cyrene Panado did

not present any evidence of dama#es they suffered.

!t is a hornboo" principle that dama#es may be awarded only if proven. !n

ahina# v. !elasquez, Jr.,[18] the Court held thus:

!n order that moral dama#es may be awarded, t+%-% 3ust 4% 0%"$#g "#$ 0-oo o 3o-" su%-#g,

3%#t" "#gus+, -g+t "#$ t+% %. Dhile respondent alle#ed in his complaint that he suffered mental

an#uish, serious an=iety, wounded feelin#s and moral shoc", he failed to prove them durin# the trial.

I#$%%$, -%s0o#$%#t s+ou$ +":% t"%# t+% t#%ss st"#$ "#$ s+ou$ +":% t%st%$ on the mental

an#uish, serious an=iety, wounded feelin#s and other emotional and mental sufferin# he purportedly

suffered to sustain his claim for moral dama#es. Mere alle#ations do not sufficeA they must be

substantiated by clear and convincin# proof. No ot+%- 0%-so# /ou$ +":% 0-o:%# su/+ $"3"g%s

%/%0t t+% -%s0o#$%#t +3s% "s t+% %-% %t-%3% 0%-so#" to +3.

!n -eirulf vs. Court of Appeals, we held:

Dhile no proof of pecuniary loss is necessary in order that moral dama#es may

be awarded, the amount of indemnity bein# left to the discretion of the court, it

is nevertheless essential that the claimant should satisfactorily show the

e=istence of the factual basis of dama#es and its causal connection to defendants

acts. 9his is so because moral dama#es, thou#h incapable of pecuniary

estimation, are in the cate#ory of an award desi#ned to compensate the claimant

for actual in4ury suffered and not to impose a penalty on the wron#doer. !n

rancisco vs. G)), the Court held that t+%-% 3ust 4% /%"- t%st3o# o# t+%

"#gus+ "#$ ot+%- o-3s o 3%#t" su%-#g. 9hus, if the plaintiff fails to

ta"e the witness stand and testify as to hisHher social humiliation, wounded

feelin#s and an=iety, moral dama#es cannot be awarded. !n Cocoland

/evelopment Corporation vs. 0ational 1abor Relations Commission, the Court

held that additional facts must be pleaded and proven to warrant the #rant of

moral dama#es under the Civil Code, these bein#, = = = social humiliation,

wounded feelin#s, #rave an=iety, etc. that resulted therefrom.









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= = = 9he award of moral dama#es must be anchored to a clear showin#

that respondent actually e=perienced mental an#uish, besmirched

reputation, sleepless ni#hts, wounded feelin#s or similar in4ury. 9here

was no better witness to this e=perience than respondent himself. S#/%

-%s0o#$%#t "%$ to t%st o# t+% t#%ss st"#$, t+% t-" /ou-t $$

#ot +":% "# "/tu" 4"ss to ""-$ 3o-" $"3"g%s to +3 .[19] (>mphasis supplied

9hus, only respondent 3eoncio Ramoy, who testified as to his wounded feelin#s,

may be awarded moral dama#es.[20]

Dith re#ard to e=emplary dama#es, &rticle ' of the Civil Code provides that in

contracts and 8uasi@contracts, the court may award e=emplary dama#es if the defendant,

in this case M>R&3C0, acted in a wanton, fraudulent, rec"less, oppressive, or

malevolent manner, while &rticle '' of the same Code provides that su/+ $"3"g%s

/"##ot 4% -%/o:%-%$ "s " 3"tt%- o -g+t and the ad4udication of the same is within the

discretion of the court.

9he Court finds that M>R&3C0 fell short of e=ercisin# the due dili#ence

re8uired, but its actions cannot be considered wanton, fraudulent, rec"less, oppressive or

malevolent. Records show that M>R&3C0 did ta"e some measures, i.e., coordinatin#

with -PC officials and conductin# a 4oint survey of the sub4ect area, to verify which

electric meters should be disconnected althou#h these measures are not sufficient,

considerin# the de#ree of dili#ence re8uired of it. 9hus, in this case, e=emplary dama#es

should not be awarded.

Since the Court does #ot deem it proper to award e=emplary dama#es in this case, then

the C&?s award for attorney?s fees should li"ewise be deleted, as &rticle )* of the

Civil Code states that in the absence of stipulation, "tto-#%s %%s /"##ot 4% -%/o:%-%$

%/%0t # /"s%s 0-o:$%$ o- # s"$ A-t/%, to wit:

&rticle )*. !n the absence of stipulation, attorneys fees and e=penses of liti#ation, other than 4udicial

costs, cannot be recovered, e=cept:

(% Dhen e=emplary dama#es are awardedA





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( Dhen the defendants act or omission has compelled the plaintiff to liti#ate with third persons or to

incur e=penses to protect his interestA

(' !n criminal cases of malicious prosecution a#ainst the plaintiffA

(< !n case of a clearly unfounded civil action or proceedin# a#ainst the plaintiffA

( Dhere the defendant acted in #ross and evident bad faith in refusin# to satisfy the plaintiffs plainlyvalid, 4ust and demandable claimA

(/ !n actions for le#al supportA

(2 !n actions for the recovery of wa#es of household helpers, laborers and s"illed wor"ersA

(* !n actions for indemnity under wor"mens compensation and employers liability lawsA

(1 !n a separate civil action to recover civil liability arisin# from a crimeA

(%) Dhen at least double 4udicial costs are awardedA

(%% !n any other case where the court deems it 4ust and e8uitable that attorneys fees and e=penses of

liti#ation should be recovered.

!n all cases, the attorneys fees and e=penses of liti#ation must be reasonable.

-one of the #rounds for recovery of attorney?s fees are present.

?HERE<ORE, the petition is PART&= GRANTED. 9he $ecision of

SO&AR HARVEST, INC.,

Petitioner,

@ versus @

DAVAO CORRUGATED CARTONCORPORATION,

Respondent.

G.R. No. 176868

Present:

C&RP!0, J.,

Chairperson,

-&C6ER&,

P>R&39&,

&B&$, and

M>-$0L&, JJ.

Promul#ated:

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July /, )%)

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J .*

Petitioner see"s a review of the Court of &ppeals (C& $ecision [1] dated September %,

))/ and Resolution[2] dated 5ebruary ', ))2, which denied petitioners motion for

reconsideration. 9he assailed $ecision denied petitioners claim for reimbursement for

the amount it paid to respondent for the manufacture of corru#ated carton bo=es.

9he case arose from the followin# antecedents:

!n the first 8uarter of %11*, petitioner, Solar 6arvest, !nc., entered into an a#reement

with respondent, $avao Corru#ated Carton Corporation, for the purchase of corru#ated

carton bo=es, specifically desi#ned for petitioners business of e=portin# fresh bananas,

at ES%.%) each. 9he a#reement was not reduced into writin#. 9o #et the production

underway, petitioner deposited, on March '%, %11*, ES<),%).)) in respondents ES

$ollar Savin#s &ccount with Destmont Ban", as full payment for the ordered bo=es.

$espite such payment, petitioner did not receive any bo=es from respondent. 0n January

', ))%, petitioner wrote a demand letter for reimbursement of the amount paid.[3] 0n

5ebruary %1, ))%, respondent replied that the bo=es had been completed as early as

&pril ', %11* and that petitioner failed to pic" them up from the formers warehouse ')

days from completion, as a#reed upon. Respondent mentioned that petitioner even

placed an additional order of <,))) bo=es, out of which, %<,))) had been manufactured

without any advanced payment from petitioner. Respondent then demanded petitioner toremove the bo=es from the factory and to pay the balance of ES%,<)).)) for the

additional bo=es and P%',))).)) as stora#e fee.

0n &u#ust %2, ))%, petitioner filed a Complaint for sum of money and dama#es a#ainst

respondent. 9he Complaint averred that the parties a#reed that the bo=es will be

http://sc.judiciary.gov.ph/jurisprudence/2010/july2010/176868.htm#_ftn1






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delivered within ') days from payment but respondent failed to manufacture and deliver

the bo=es within such time. !t further alle#ed

/. 9hat repeated follow@up was made by the plaintiff for the immediate production of the ordered

bo=es, but every time, defendant wouldN only show samples of bo=es and ma"Ne repeated promises to

deliver the said ordered bo=es.

2. 9hat because of the failure of the defendant to deliver the ordered bo=es, plaintiff hadN to cancel the

same and demand payment andHor refund from the defendant but the latter refused to pay andHor refund

the ES<),%).)) payment made by the former for the ordered bo=es .[4]

!n its &nswer with Counterclaim,[5] respondent insisted that, as early as &pril ', %11*, it

had already completed production of the '/,)) bo=es, contrary to petitioners alle#ation.

&ccordin# to respondent, petitioner, in fact, made an additional order of <,))) bo=es,

out of which, %<,))) had been completed without waitin# for petitioners payment.

Respondent stated that petitioner was to pic" up the bo=es at the factory as a#reed upon,

but petitioner failed to do so. Respondent averred that, on 0ctober *, %11*, petitioners

representative, Bobby Iue (Iue, went to the factory and saw that the bo=es were ready

for pic" up. 0n 5ebruary ), %111, Iue visited the factory a#ain and supposedly advised

respondent to sell the bo=es as re4ects to recoup the cost of the unpaid %<,))) bo=es,

because petitioners transaction to ship bananas to did not materiali;e. Respondentclaimed that the bo=es were occupyin# warehouse space and that petitioner should be

made to pay stora#e fee at P/).)) per s8uare meter for every month from &pril %11*. &s

counterclaim, respondent prayed that 4ud#ment be rendered orderin# petitioner to pay

%,<)).)), plus interest, moral and e=emplary dama#es, attorneys fees, and costs of the

suit.

!n reply, petitioner denied that it made a second order of <,))) bo=es and that

respondent already completed the initial order of '/,)) bo=es and %<,))) bo=es out of

the second order. !t maintained that






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respondent only manufactured a sample of the ordered bo=es and that respondent could

not have produced %<,))) bo=es without the re8uired pre@payments.[6]

$urin# trial, petitioner presented Iue as its sole witness. Iue testified that he ordered

the bo=es from respondent and deposited the money in respondents account. [7] 6e

specifically stated that, when he visited respondents factory, he saw that the bo=es had

no print of petitioners lo#o.[8] & few months later, he followed@up the order and was

told that the company had full production, and thus, was promised that production of the

order would be rushed. 6e told respondent that it should indeed rush production because

the need for the bo=es was ur#ent. 9hereafter, he as"ed his partner, &lfred 0n#, to cancel

the order because it was already late for them to meet their commitment to ship the

bananas to .[9] 0n cross@e=amination, Iue further testified that China Lero 5ood, the

Chinese company that ordered the bananas, was sendin# a ship to to #et the bananas, but

since there were no cartons, the ship could not proceed. 6e said that, at that time,

bananas from 9a#um &#ricultural $evelopment Corporation (9&$>C0 were already

there. 6e denied that petitioner made an additional order of <,))) bo=es. 6e e=plained

that it too" three years to refer the matter to counsel because respondent promised to

pay.[10]

5or respondent, Bienvenido >stanislao (>stanislao testified that he met Iue in in

0ctober %11* to inspect the bo=es and that the latter #ot samples of them. !n 5ebruary

))), they inspected the bo=es a#ain and Iue #ot more samples. >stanislao said that

petitioner did not pic" up the bo=es because the ship did not arrive.[11] Jaime 9an (9an,

president of respondent, also testified that his company finished production of the

'/,)) bo=es on &pril ', %11* and that petitioner made a second order of <,))) bo=es.

6e said that the a#reement was for respondent to produce the bo=es and for petitioner to

pic" them up from the warehouse.[12] 6e also said that the reason why petitioner did

not pic" up the bo=es was that the ship that was to carry the bananas did not arrive.[13]

&ccordin# to him, durin# the last visit of Iue and >stanislao, he as"ed them to withdraw

















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the bo=es immediately because they were occupyin# a bi# space in his plant, but they,

instead, told him to sell the cartons as re4ects. 6e was able to sell ,))) bo=es at P).))

each for a total of P%)),))).)). 9hey then told him to apply the said amount to the

unpaid balance.

!n its March , ))< $ecision, the Re#ional 9rial Court (R9C ruled that respondent did

not commit any breach of faith that would 4ustify rescission of the contract and the

conse8uent reimbursement of the amount paid by petitioner. 9he R9C said that

respondent was able to produce the ordered bo=es but petitioner failed to obtain

possession thereof because its ship did not arrive. !t thus dismissed the complaint and

respondents counterclaims, disposin# as follows:

D6>R>50R>, premises considered, 4ud#ment is hereby rendered in favor of defendant and a#ainst

the plaintiff and, accordin#ly, plaintiffs complaint is hereby ordered $!SM!SS>$ without

pronouncement as to cost. $efendants counterclaims are similarly dismissed for lac" of merit.

S0 0R$>R>$.[14]

Petitioner filed a notice of appeal with the C&.

0n September %, ))/, the C& denied the appeal for lac" of merit. [15] 9he appellate

court held that petitioner failed to dischar#e its burden of provin# what it claimed to be

the parties a#reement with respect to the delivery of the bo=es. &ccordin# to the C&, it

was unthin"able that, over a period of more than two years, petitioner did not even

demand for the delivery of the bo=es. 9he C& added that even assumin# that the

a#reement was for respondent to deliver the bo=es, respondent would not be liable for

breach of contract as petitioner had not yet demanded from it the delivery of the bo=es.

[16]

Petitioner moved for reconsideration,[17] but the motion was denied by the C& in its

Resolution of 5ebruary ', ))2.[18]

!n this petition, petitioner insists that respondent did not completely manufacture the

bo=es and that it was respondent which was obli#ed to deliver the bo=es to 9&$>C0.











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De find no reversible error in the assailed $ecision that would 4ustify the #rant of this

petition.

Petitioners claim for reimbursement is actually one for rescission (or resolution of

contract under &rticle %%1% of the Civil Code, which reads:

&rt. %%1%. 9he power to rescind obli#ations is implied in reciprocal ones, in case one of the obli#ors

should not comply with what is incumbent upon him.

9he in4ured party may choose between the fulfillment and the rescission of the obli#ation, with the

payment of dama#es in either case. 6e may also see" rescission, even after he has chosen fulfillment, if

the latter should become impossible.

9he court shall decree the rescission claimed, unless there be 4ust cause authori;in# the fi=in# of a

period.

9his is understood to be without pre4udice to the ri#hts of third persons who have ac8uired the thin#, in

accordance with &rticles %'* and %'** and the Mort#a#e 3aw.

9he ri#ht to rescind a contract arises once the other party defaults in the performance of

his obli#ation. !n determinin# when default occurs, &rt. %%1% should be ta"en in

con4unction with &rt. %%/1 of the same law, which provides:

&rt. %%/1. 9hose obli#ed to deliver or to do somethin# incur in delay from the time the obli#ee

4udicially or e=tra4udicially demands from them the fulfillment of their obli#ation.

6owever, the demand by the creditor shall not be necessary in order that delay may e=ist:

(% Dhen the obli#ation or the law e=pressly so declaresA or

( Dhen from the nature and the circumstances of the obli#ation it appears that the

desi#nation of the time when the thin# is to be delivered or the service is to be rendered was a

controllin# motive for the establishment of the contractA or

(' Dhen demand would be useless, as when the obli#or has rendered it beyond his power to

perform.

!n reciprocal obli#ations, neither party incurs in delay if the other does not comply or is not ready to

comply in a proper manner with what is incumbent upon him. 5rom the moment one of the parties

fulfills his obli#ation, delay by the other be#ins.

!n reciprocal obli#ations, as in a contract of sale, the #eneral rule is that the fulfillment

of the parties respective obli#ations should be simultaneous. 6ence, no demand is

#enerally necessary because, once a party fulfills his obli#ation and the other party does

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not fulfill his, the latter automatically incurs in delay. But when different dates for

performance of the obli#ations are fi=ed, the default for each obli#ation must be

determined by the rules #iven in the first para#raph of the present article,[19] that is, the

other party would incur in delay only from the moment the other party demands

fulfillment of the formers obli#ation. 9hus, even in reciprocal obli#ations, if the period

for the fulfillment of the obli#ation is fi=ed, demand upon the obli#ee is still necessary

before the obli#or can be considered in default and before a cause of action for

rescission will accrue.

>vident from the records and even from the alle#ations in the complaint was the lac" of

demand by petitioner upon respondent to fulfill its obli#ation to manufacture and deliver

the bo=es. 9he Complaint only alle#ed that petitioner made a follow@up upon

respondent, which, however, would not 8ualify as a demand for the fulfillment of the

obli#ation. Petitioners witness also testified that they made a follow@up of the bo=es, but

not a demand. -ote is ta"en of the fact that, with respect to their claim for

reimbursement, the Complaint alle#ed and the witness testified that a demand letter was

sent to respondent. Dithout a previous demand for the fulfillment of the obli#ation,

petitioner would not have a cause of action for rescission a#ainst respondent as the latter

would not yet be considered in breach of its contractual obli#ation.

>ven assumin# that a demand had been previously made before filin# the present case,

petitioners claim for reimbursement would still fail, as the circumstances would show

that respondent was not #uilty of breach of contract.

9he e=istence of a breach of contract is a factual matter not usually reviewed in a

petition for review under Rule <.[20] 9he Court, in petitions for review, limits its

in8uiry only to 8uestions of law. &fter all, it is not a trier of facts, and findin#s of fact

made by the trial court, especially when reiterated by the C&, must be #iven #reat

respect if not considered as final.[21] !n dealin# with this petition, we will not veer away

from this doctrine and will thus sustain the factual findin#s of the C&, which we find to







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be ade8uately supported by the evidence on record.

&s correctly observed by the C&, aside from the pictures of the finished bo=es and the

production report thereof, there is ample showin# that the bo=es had already been

manufactured by respondent. 9here is the testimony of >stanislao who accompanied

Iue to the factory, attestin# that, durin# their first visit to the company, they saw the pile

of petitioners bo=es and Iue too" samples thereof. Iue, petitioners witness, himself

confirmed this incident. 6e testified that 9an pointed the bo=es to him and that he #ot a

sample and saw that it was blan". Iues absolute assertion that the bo=es were not

manufactured is, therefore, implausible and suspicious.

!n fact, we note that respondents counsel manifested in court, durin# trial, that his client

was willin# to shoulder e=penses for a representative of the court to visit the plant and

see the bo=es.[22] 6ad it been true that the bo=es were not yet completed, respondent

would not have been so bold as to challen#e the court to conduct an ocular inspection of

their warehouse. >ven in its Comment to this petition, respondent prays that petitioner

be ordered to remove the bo=es from its factory site,[23] which could only mean that the

bo=es are, up to the present, still in respondents premises.

De also believe that the a#reement between the parties was for petitioner to pic" up the

bo=es from respondents warehouse, contrary to petitioners alle#ation. 9hus, it was due

to petitioners fault that the bo=es were not delivered to 9&$>C0.

Petitioner had the burden to prove that the a#reement was, in fact, for respondent to

deliver the bo=es within ') days from payment, as alle#ed in the Complaint. !ts sole

witness, Iue, was not even competent to testify on the terms of the a#reement and,

therefore, we cannot #ive much credence to his testimony. !t appeared from the

testimony of Iue that he did not personally place the order with 9an, thus:

I. -o, my 8uestion is, you went to and placed your order there

&. ! made a phone call.

I. Fou made a phone call to Mr. 9an





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&. 9he first time, the first call to Mr. &lfreNd 0n#. &lfred 0n# has a contact with Mr. 9an.

I. So, your first statement that you were the one who placed the order is not true

&. 9hats true. 9he Solar 6arvest made a contact with Mr. 9an and ! deposited the money in the ban".

I. Fou said a while a#o tNhat you were the one who called Mr. 9an and placed the order for '/,))

bo=es, isnt it

&. 5irst time it was Mr. &lfred 0n#.

I. !t was Mr. 0n# who placed the order,N not you

&. Fes, sir.[24]

I. !s it not a fact that the cartons were ordered throu#h Mr. Bienvenido >stanislao

&. Fes, sir.[25]

Moreover, assumin# that respondent was obli#ed to deliver the bo=es, it could not have

complied with such obli#ation. Iue, insistin# that the bo=es had not been manufactured,

admitted that he did not #ive respondent the authority to deliver the bo=es to 9&$>C0:

I. $id you #ive authority to Mr. 9an to deliver these bo=es to 9&$>C0

&. -o, sir. &s ! have said, before the delivery, we must have to chec" the carton, the 8uantity and

8uality. But ! have not seen a sin#le carton.

I. &re you tryin# to impress upon the cNourt that it is only after the bo=es are completed, will you #ive

authority to Mr. 9an to deliver the bo=es to 9&$>C0N&. Sir, because when ! chec"ed the plant, ! have not seen any carton. ! as"ed Mr. 9an to rush the carton

but not[26]

I. $id you #ive any authority for Mr. 9an to deliver these bo=es to 9&$>C0

&. Because ! have not seen any of my carton.

I. Fou dont have any authority yet #iven to Mr. 9an

&. -one, your 6onor.[27]

Surely, without such authority, 9&$>C0 would not have allowed respondent to deposit

the bo=es within its premises.

!n sum, the Court finds that petitioner failed to establish a cause of action for rescission,

the evidence havin# shown that respondent did not commit any breach of its contractual

obli#ation. &s previously stated, the sub4ect bo=es are still within respondents premises.









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9o put a rest to this dispute, we therefore relieve respondent from the burden of havin#

to "eep the bo=es within its premises and, conse8uently, #ive it the ri#ht to dispose of

them, after petitioner is #iven a period of time within which to remove them from the

premises.

?HERE<ORE, premises considered, the petition is DENIED. 9he Court of &ppeals

$ecision dated September %, ))/ and Resolution dated 5ebruary ', ))2 are

A<<IRMED. !n addition, petitioner is #iven a period of ') days from notice within

which to cause the removal of the '/,))

bo=es from respondents warehouse. &fter the lapse of said period and petitioner fails to

effect such removal, respondent shall have the ri#ht to dispose of the bo=es in any

manner it may deem fit.

SO ORDERED.

SECOND DIVISION

M!-$&-&0 9>RM!-&3 &-$ +.R. -o. %/</2

BR0G>R&+> S>R!C>, !-C.

Petitioner, Present:

@ versus @ C&RP!0 M0R&3>S ,Q JJ .,

Acting Chairperson,

9!-+&,

P60>-!O &SSER&-C> >3&SC0, JR.,

C0MP&-F 05 ->D F0RGH 3>0-&R$0 $> C&S9R0,QQ and

MC+>> C0., !-C., BR!0-, JJ .

Respondent.

Promul#ated:

May *, ))1

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=@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@=

D E C I S I O N

9!-+&, J .:

Before us is a petition for review on certiorari[1] under Rule < of the %112 Rules ofCivil Procedure of the [2] $ecision of the Court of &ppeals and the Resolution [3] of the

same court denyin# petitioners motion for reconsideration.

9he facts of the case are not disputed.

$el Monte Philippines, !nc. ($el Monte contracted petitioner Mindanao 9erminal and

Bro"era#e Service, !nc. (Mindanao 9erminal, a stevedorin# company, to load and stow

a shipment of %</,** cartons of fresh #reen Philippine bananas and %,) cartons of

fresh pineapples belon#in# to $el Monte 5resh Produce !nternational, !nc. ($el Monte

Produce into the car#o hold of the vessel 2! istrau. 9he vessel was doc"ed at the

port of $avao City and the #oods were to be transported by it to the port of !nchon,

Gorea in favor of consi#nee 9ae#u !ndustries, !nc. $el Monte Produce insured the

shipment under an open car#o policy with private respondent Phoeni= &ssurance

Company of -ew For" (Phoeni=, a non@life insurance company, and private respondentMc+ee Co. !nc. (Mc+ee, the underwritin# mana#erHa#ent of .[4]

Mindanao 9erminal loaded and stowed the car#oes aboard the 2! istrau. 9he vessel

set sail from the of City and arrived at the of , . !t was then discovered upon dischar#e

that some of the car#o was in bad condition. 9he Marine Car#o $ama#e Surveyor of

!nco" 3oss and &vera#e &d4uster of Gorea, throu#h its representative Byeon# Fon# &hn

(Byeon#, surveyed the e=tent of the dama#e of the shipment. !n a survey report, it wasstated that %/,)/1 cartons of the banana shipment and ,%* cartons of the pineapple

shipment were so dama#ed that they no lon#er had commercial value.[5]

$el Monte Produce filed a claim under the open car#o policy for the dama#es to its

shipment. Mc+ees Marine Claims !nsurance &d4uster evaluated the claim and

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recommended that payment in the amount of %),//.<' be made. & chec" for the

recommended amount was sent to $el Monte ProduceA the latter then issued a

subro#ation receipt[6] to and Mc+ee.

and Mc+ee instituted an action for dama#es[7] a#ainst Mindanao 9erminal in the

Re#ional 9rial Court (R9C of , Branch %. &fter trial, the R9C,[8] in a decision dated

) 0ctober %111, held that the only participation of Mindanao 9erminal was to load the

car#oes on board the 2! istrau under the direction and supervision of the ships

officers, who would not have accepted the car#oes on board the vessel and si#ned the

foremans report unless they were properly arran#ed and ti#htly secured to withstand

voya#e across the open seas. &ccordin#ly, Mindanao 9erminal cannot be held liable for

whatever happened to the car#oes after it had loaded and stowed them. Moreover, citin#

the survey report, it was found by the R9C that the car#oes were dama#ed on account of

a typhoon which 2! istrau had encountered durin# the voya#e. !t was further held

that and Mc+ee had no cause of action a#ainst Mindanao 9erminal because the latter,

whose services were contracted by $el Monte, a distinct corporation from $el Monte

Produce, had no contract with the assured $el Monte Produce. 9he R9C dismissed the

complaint and awarded the counterclaim of Mindanao 9erminal in the amount of

P*',1<.*) as actual dama#es and P%)),))).)) as attorneys fees.[9] 9he actual dama#es

were awarded as reimbursement for the e=penses incurred by Mindanao 9erminals

lawyer in attendin# the hearin#s in the case wherein he had to travel all the way from

Metro Manila to .

Phoeni= and Mc+ee appealed to the Court of &ppeals. 9he appellate court reversed and

set aside[10] the decision of the R9C in its decision. 9he same court ordered Mindanao

9erminal to pay and Mc+ee the total amount of %),/.< plus le#al interest from the

filin# of the complaint until fully paid and attorneys fees of ) of the claim. [11] !t

sustained s and Mc+ees ar#ument that the dama#e in the car#oes was the result of

improper stowa#e by Mindanao 9erminal. !t imposed on Mindanao 9erminal, as the













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stevedore of the car#o, the duty to e=ercise e=traordinary dili#ence in loadin# and

stowin# the car#oes. !t further held that even with the absence of a contractual

relationship between Mindanao 9erminal and $el Monte Produce, the cause of action of

and Mc+ee could be based on 8uasi@delict under &rticle %2/ of the Civil Code.[12]

Mindanao 9erminal filed a motion for reconsideration,[13] which the Court of &ppeals

denied in its [14] resolution. 6ence, the present petition for review.

Mindanao 9erminal raises two issues in the case at bar, namely: whether it was careless

and ne#li#ent in the loadin# and stowa#e of the car#oes onboard 2! istrau ma"in# it

liable for dama#esA and, whether and Mc+ee has a cause of action a#ainst Mindanao

9erminal under &rticle %2/ of the Civil Code on 8uasi@delict. 9o resolve the petition,

three 8uestions have to be answered: first, whether Phoeni= and Mc+ee have a cause of

action a#ainst Mindanao 9erminalA second, whether Mindanao 9erminal, as a

stevedorin# company, is under obli#ation to observe the same e=traordinary de#ree of

dili#ence in the conduct of its business as re8uired by law for common carriers [15] and

warehousemenA[16] and third, whether Mindanao 9erminal observed the de#ree of

dili#ence re8uired by law of a stevedorin# company.

De a#ree with the Court of &ppeals that the complaint filed by and Mc+ee a#ainst

Mindanao 9erminal, from which the present case has arisen, states a cause of action. 9he

present action is based on 8uasi@delict, arisin# from the ne#li#ent and careless loadin#

and stowin# of the car#oes belon#in# to $el Monte Produce. >ven assumin# that both

Phoeni= and Mc+ee have only been subro#ated in the ri#hts of $el Monte Produce, who

is not a party to the contract of service between Mindanao 9erminal and $el Monte, still

the insurance carriers may have a cause of action in li#ht of the Courts consistent rulin#

that the act that brea"s the contract may be also a tort.[17] !n fine, a liability for tort may

arise even under a contract, where tort is that which breaches the contract [18]. !n the

present case, and Mc+ee are not suin# for dama#es for in4uries arisin# from the breach

of the contract of service but from the alle#ed ne#li#ent manner by which Mindanao















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9erminal handled the car#oes belon#in# to $el Monte Produce. $espite the absence of

contractual relationship between $el Monte Produce and Mindanao 9erminal, the

alle#ation of ne#li#ence on the part of the defendant should be sufficient to establish a

cause of action arisin# from 8uasi@delict.[19]

9he resolution of the two remainin# issues is determinative of the ultimate result of this

case.

&rticle %%2' of the Civil Code is very clear that if the law or contract does not state the

de#ree of dili#ence which is to be observed in the performance of an obli#ation then that

which is e=pected of a #ood father of a family or ordinary dili#ence shall be re8uired.

Mindanao 9erminal, a stevedorin# company which was char#ed with the loadin# and

stowin# the car#oes of $el Monte Produce aboard 2! istrau, had acted merely as a

labor provider in the case at bar. 9here is no specific provision of law that imposes a

hi#her de#ree of dili#ence than ordinary dili#ence for a stevedorin# company or one

who is char#ed only with the loadin# and stowin# of car#oes. !t was neither alle#ed nor

proven by and Mc+ee that Mindanao 9erminal was bound by contractual stipulation to

observe a hi#her de#ree of dili#ence than that re8uired of a #ood father of a family. De

therefore conclude that followin# &rticle %%2', Mindanao 9erminal was re8uired to

observe ordinary dili#ence only in loadin# and stowin# the car#oes of $el Monte

Produce aboard 2! istrau.

9he Court of &ppeals erred when it cited the case of )umma nsurance Corporation v.

CA and Port )ervice nc.[20] in imposin# a hi#her de#ree of dili#ence,[21] on Mindanao

9erminal in loadin# and stowin# the car#oes. 9he case of )umma nsurance

Corporation v. CA, which involved the issue of whether an arrastre operator is le#ally

liable for the loss of a shipment in its custody and the e=tent of its liability, is

inapplicable to the factual circumstances of the case at bar. 9herein, a vessel owned by

the -ational +alleon Shippin# Corporation (-+SC arrived at Pier ', , , carryin# a

shipment consi#ned to the order of Caterpillar 5ar >ast 3td. with Semirara Coal







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Corporation (Semirara as notify party. 9he shipment, includin# a bundle of PC * E

blades, was dischar#ed from the vessel to the custody of the private respondent, the

e=clusive arrastre operator at the . &ccordin#ly, three #ood@order car#o receipts were

issued by -+SC, duly si#ned by the ship?s chec"er and a representative of private

respondent. Dhen Semirara inspected the shipment at house, it discovered that the

bundle of PC*E blades was missin#. 5rom those facts, the Court observed:

= = = 9he relationship therefore between the /o#sg#%% "#$ t+% "--"st-% o0%-"to- must be e=amined.

9his relationship is much a"in to that e=istin# between the consi#nee or owner of shipped #oods and

the common carrier, or that between a depositor and a warehouseman [22]N. !n the performance of its

obli#ations, "# "--"st-% o0%-"to- s+ou$ o4s%-:% t+% s"3% $%g-%% o $g%#/% "s t+"t -%@u-%$ o "

/o33o# /"--%- "#$ " "-%+ous%3"# as enunciated under &rticle %2'' of the Civil Code and

Section '(b of the Darehouse Receipts 3aw, respectively. !%#g t+% /usto$"# o t+% goo$s$s/+"-g%$ -o3 " :%ss%, "# "--"st-% o0%-"to-s $ut s to t"% goo$ /"-% o t+% goo$s "#$ to tu-#

t+%3 o:%- to t+% 0"-t %#tt%$ to t+%- 0oss%sso# . (>mphasis supplied[23]

9here is a distinction between an arrastre and a stevedore.[24] &rrastre, a Spanish word

which refers to haulin# of car#o, comprehends the handlin# of car#o on the wharf or

between the establishment of the consi#nee or shipper and the ship?s tac"le. 9he

responsibility of the arrastre operator lasts until the delivery of the car#o to the

consi#nee. 9he service is usually performed by lon#shoremen. 0n the other hand,

stevedorin# refers to the handlin# of the car#o in the holds of the vessel or between the

ship?s tac"le and the holds of the vessel. 9he responsibility of the stevedore ends upon

the loadin# and stowin# of the car#o in the vessel.

!t is not disputed that Mindanao 9erminal was performin# purely stevedorin# function

while the private respondent in the )umma case was performin# arrastre function. !n the

present case, Mindanao 9erminal, as a stevedore, was only char#ed with the loadin# and

stowin# of the car#oes from the pier to the ships car#o holdA it was never the custodian

of the shipment of $el Monte Produce. & stevedore is not a common carrier for it does

not transport #oods or passen#ersA it is not a"in to a warehouseman for it does not store

#oods for profit. 9he loadin# and stowin# of car#oes would not have a far reachin#







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public ramification as that of a common carrier and a warehousemanA the public is

ade8uately protected by our laws on contract and on 8uasi@delict. 9he public policy

considerations in le#ally imposin# upon a common carrier or a warehouseman a hi#her

de#ree of dili#ence is not present in a stevedorin# outfit which mainly provides labor in

loadin# and stowin# of car#oes for its clients.

!n the third issue, and Mc+ee failed to prove by preponderance of evidence[25] that

Mindanao 9erminal had acted ne#li#ently. Dhere the evidence on an issue of fact is in

e8uipoise or there is any doubt on which side the evidence preponderates the party

havin# the burden of proof fails upon that issue. 9hat is to say, if the evidence touchin# a

disputed fact is e8ually balanced, or if it does not produce a 4ust, rational belief of its

e=istence, or if it leaves the mind in a state of perple=ity, the party holdin# the

affirmative as to such fact must fail.[26]

De adopt the findin#s[27] of the R9C,[28] which are not disputed by and Mc+ee. 9he

Court of &ppeals did not ma"e any new findin#s of fact when it reversed the decision of

the trial court. 9he only participation of Mindanao 9erminal was to load the car#oes on

board 2! istrau.[29] !t was not disputed by and Mc+ee that the materials, such as

ropes, pallets, and cardboards, used in lashin# and ri##in# the car#oes were all provided

by 2! istrau and these materials meets industry standard.[30]

!t was further established that Mindanao 9erminal loaded and stowed the car#oes of $el

Monte Produce aboard the 2! istrau in accordance with the stowa#e plan, a #uide for

the area assi#nments of the #oods in the vessels hold, prepared by $el Monte Produce

and the officers of 2! istrau.[31] 9he loadin# and stowin# was done under the

direction and supervision of the ship officers. 9he vessels officer would order the closin#

of the hatches only if the loadin# was done correctly after a final inspection. [32] 9he

said ship officers would not have accepted the car#oes on board the vessel if they were

not properly arran#ed and ti#htly secured to withstand the voya#e in open seas. 9hey

would order the stevedore to rectify any error in its loadin# and stowin#. & foremans

















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report, as proof of wor" done on board the vessel, was prepared by the chec"ers of

Mindanao 9erminal and concurred in by the Chief 0fficer of 2! istrau after they

were satisfied that the car#oes were properly loaded.[33]

and Mc+ee relied heavily on the deposition of Byeon# Fon# &hn[34] and on the survey

report[35] of the dama#e to the car#oes. Byeon#, whose testimony was refreshed by the

survey report,[36] found that the cause of the dama#e was improper stowa#e[37] due to

the manner the car#oes were arran#ed such that there were no spaces between cartons,

the use of cardboards as support system, and the use of small rope to tie the cartons

to#ether but not by the ne#li#ent conduct of Mindanao 9erminal in loadin# and stowin#

the car#oes. &s admitted by and Mc+ee in their Comment[38] before us, the latter is

merely a stevedorin# company which was tas"ed by $el Monte to load and stow the

shipments of fresh banana and pineapple of $el Monte Produce aboard the 2! istrau.

6ow and where it should load and stow a shipment in a vessel is wholly dependent on

the shipper and the officers of the vessel. !n other words, the wor" of the stevedore was

under the supervision of the shipper and officers of the vessel. >ven the materials used

for stowa#e, such as ropes, pallets, and cardboards, are provided for by the vessel. >ven

the survey report found that it was because of the boisterous stormy weather due to the

typhoon Seth, as encountered by 2! istrau durin# its voya#e, which caused the

shipments in the car#o hold to collapse, shift and bruise in e=tensive e=tent. [39] >ven

the deposition of Byeon# was not supported by the conclusion in the survey report that:

C&ES> 05 $&M&+>

= = =

5rom the above facts and our survey results, we are of the opinion that dama#e occurred aboard thecarryin# vessel durin# sea transit, bein# caused by ships heavy rollin# and pitchin# under boisterous

weather while proceedin# from %/)) hrs on 2th 0ctober to )2)) hrs on th 0ctober, %11< as described in

the sea protest.[40]

&s it is clear that Mindanao 9erminal had duly e=ercised the re8uired de#ree of

dili#ence in loadin# and stowin# the car#oes, which is the ordinary dili#ence of a #ood

















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father of a family, the #rant of the petition is in order.

6owever, the Court finds no basis for the award of attorneys fees in favor of petitioner.

-one of the circumstances enumerated in &rticle )* of the Civil Code e=ists. 9he

present case is clearly not an unfounded civil action a#ainst the plaintiff as there is no

showin# that it was instituted for the mere purpose of ve=ation or in4ury. !t is not sound

public policy to set a premium to the ri#ht to liti#ate where such ri#ht is e=ercised in

#ood faith, even if erroneously.[41] 3i"ewise, the R9C erred in awardin# P*',1<.*)

actual dama#es to Mindanao 9erminal. &lthou#h actual e=penses were incurred by

Mindanao 9erminal in relation to the trial of this case in , the lawyer of Mindanao

9erminal incurred e=penses for plane fare, hotel accommodations and food, as well as

other miscellaneous e=penses, as he attended the trials comin# all the way from . But

there is no showin# that and Mc+ee made a false claim a#ainst Mindanao 9erminal

resultin# in the protracted trial of the case necessitatin# the incurrence of e=penditures.

[42]

?HERE<ORE, the petition is GRANTED. 9he decision of the Court of &ppeals in

C&@+.R. C -o. //%% is S>9 &S!$> and the decision of the , Branch % in Civil Case

-o. ,'%%.12 is hereby REINSTATED MINUS the awards of P%)),))).)) as

attorneys fees and P*',1<.*) as actual dama#es.

SO ORDERED.

$&-9> 0. 9!-+&

Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice

Act!" C#$%&'%()!

5!RS9 $!!S!0-





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G.R. No. &(56 August , 1988

MARCE&O AGCAOI&I, plaintiff@appellee

vs.

GOVERNMENT SERVICE INSURANCE S=STEM, defendant@appellant.

Artemio 1. Agcaoili for plaintiff3appellee.

4ffice of the Government Corporate Counsel for defendant3appellant.

NARVASA, J.:

9he appellant +overnment Service !nsurance System, (+S!S, for short havin# approved the

application of the appellee &#caoili for the purchase of a house and lot in the +S!S 6ousin# Pro4ect at

-an#"a Mari"ina, Ri;al, sub4ect to the condition that the latter should forthwith occupy the house, a

condition that &#acoili tried to fulfill but could not for the reason that the house was absolutely

uninhabitableA &#caoili, after payin# the first installment and other fees, havin# thereafter refused toma"e further payment of other stipulated installments until +S!S had made the house habitableA and

appellant havin# refused to do so, optin# instead to cancel the award and demand the vacation by

&#caoili of the premisesA and &#caoili havin# sued the +S!S in the Court of 5irst !nstance of Manila

for specific performance with dama#es and havin# obtained a favorable 4ud#ment, the case was

appealled to this Court by the +S!S. !ts appeal must fail.

9he essential facts are not in dispute. &pproval of &#caoili?s aforementioned application for purchase 1

was contained in a letter 2 addressed to Agcaoili and signed by GSIS Manager Archimedes Villanueva in behalf

of the Chairman-General Manager, reading as follows:

Please be informed that your application to purchase a house and lot in our +S!S

6ousin# Pro4ect at -an#"a, Mari"ina, Ri;al, has been approved by this 0ffice. 3ot -o.

/, Bloc" -o. (<* , to#ether with the housin# unit constructed thereon, has been

allocated to you.

Fou are, therefore, advised to occupy the said house immediately.

!f you fail to occupy the same within three (' days from receipt of this notice, your

application shall be considered automatically disapproved and the said house and lot will

be awarded to another applicant.

&#caoili lost no time in occupyin# the house. 6e could not stay in it, however, and had to leave the

very ne=t day, because the house was nothin# more than a shell, in such a state of incompleteness that

civili;ed occupation was not possible: ceilin#, stairs, double wallin#, li#htin# facilities, water

connection, bathroom, toilet "itchen, draina#e, were ine=istent. &#caoili did however as" a homeless

friend, a certain illanueva, to stay in the premises as some sort of watchman, pendin# completion of

the construction of the house. &#caoili thereafter complained to the +S!S, to no avail.

9he +S!S as"ed &#caoili to pay the monthly amorti;ations and other fees. &#caoili paid the first

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monthly installment and the incidental fees, 3 but refused to mae further !ayments until and unless the

GSIS com!leted the housing unit" #hat the GSIS did was to cancel the award and re$uire Agcaoili to vacate the

!remises" 4 Agcaoili reacted by instituting suit in the Court of %irst Instance of Manila for s!ecific !erformance

and damages" 5 &ending the action, a written !rotest was lodged by other awardees of housing units in the

same subdivision, regarding the failure of the System to com!lete construction of their own houses" 6 'udgment

was in due course rendered , 7 on the basis of the evidence adduced by Agcaoili only, the GSIS having o!ted to

dis!ense with !resentation of its own !roofs" (he )udgment was in Agcaoili*s favor and contained the following

dis!ositions, 8 to wit:

% $eclarin# the cancellation of the award (of a house and lot in favor of plaintiff

(Mariano &#caoili ille#al and voidA

0rderin# the defendant (+S!S to respect and enforce the aforesaid award to the

plaintiff relative to 3ot -o. /, Bloc" -o. (<* of the +overnment Service !nsurance

System (+S!S low cost housin# pro4ect at -an#"a Mari"ina, Ri;alA

' 0rderin# the defendant to complete the house in 8uestion so as to ma"e the samehabitable and authori;in# it (defendant to collect the monthly amorti;ation thereon only

after said house shall have been completed under the terms and conditions mentioned in

>=hibit & Aand

< 0rderin# the defendant to pay P%)).)) as dama#es and P')).)) as and for attorney?s

fees, and costs.

&ppellant +S!S would have this Court reverse this 4ud#ment on the ar#ument thatT

% &#caoili had no ri#ht to suspend payment of amorti;ations on account of the incompleteness of his

housin# unit, since said unit had been sold in the condition and state of completion then e=istin# ...(and he is deemed to have accepted the same in the condition he found it when he accepted the

awardA and assumin# indefiniteness of the contract in this re#ard, such circumstance precludes a

4ud#ment for specific performance. 9

Perfection of the contract of sale between it and &#caoili bein# conditioned upon the latter?s

immediate occupancy of the house sub4ect thereof, and the latter havin# failed to comply with the

condition, no contract ever came into e=istence between them A 10

' &#caoili?s act of placin# his homeless friend, illanueva, in possession, without the prior or

subse8uent "nowled#e or consent of the defendant (+S!S operated as a repudiation by &#caoili of the

award and a deprivation of the +S!S at the same time of the reasonable rental value of the property. 11

&#caoili?s offer to buy from +S!S was contained in a printed form drawn up by the latter, entitled

&pplication to Purchase a 6ouse andHor 3ot. &#caoili filled up the form, si#ned it, and submitted it.

12 (he acce!tance of the a!!lication was also set out in a form +mimeogra!hed also !re!ared by the GSIS" As

already mentioned, this form sent to Agcaoili, duly filled u!, advised him of the a!!roval of his a!!lication to

!urchase a house and lot in our GSIS .ousing &ro)ect at /A/G0A, MA1I0I/A, 1I2A3, and that 3ot /o" 45,

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6loc /o" +78 4, together with the housing unit constructed thereon, has been allocated to you" /either the

a!!lication form nor the acce!tance or a!!roval form of the GSIS 9 nor the notice to commence !ayment of a

monthly amortiations, which again refers to the house and lot awarded 9 contained any hint that the house

was incom!lete, and was being sold as is, i"e", in whatever state of com!letion it might be at the time" ;n the

other hand, the condition e<!licitly im!osed on Agcaoili 9 to occu!y the said house immediately, or in any

case within three += days from notice, otherwise his a!!lication shall be considered automatically disa!!roved

and the said house and lot will be awarded to another a!!licant 9 would im!ly that construction of the house

was more or less com!lete, and it was by reasonable standards, habitable, and that indeed, the awardee should

stay and live in it> it could not be inter!reted as meaning that the awardee would occu!y it in the sense of a

!ioneer or settler in a rude wilderness, maing do with whatever he found available in the envirornment"

9here was then a perfected contract of sale between the partiesA there had been a meetin# of the minds

upon the purchase by &#caoili of a determinate house and lot in the +S!S 6ousin# Pro4ect at -an#"a

Mari"ina, Ri;al at a definite price payable in amorti;ations at P'%./ per month, and from that moment

the parties ac8uired the ri#ht to reciprocally demand performance. 13 It was, to be sure, the duty of the

GSIS, as seller, to deliver the thing sold in a condition suitable for its en)oyment by the buyer for the !ur!ose

contem!lated , 14 in other words, to deliver the house sub)ect of the contract in a reasonably livable state" (his it

failed to do"

!t sold a house to &#caoili, and re8uired him to immediately occupy it under pain of cancellation of the

sale. Ender the circumstances there can hardly be any doubt that the house contemplated was one that

could be occupied for purposes of residence in reasonable comfort and convenience. 9here would be no

sense to re8uire the awardee to immediately occupy and live in a shell of a house, a structure consistin#

only of four walls with openin#s, and a roof, and to theori;e, as the +S!S does, that this was what was

intended by the parties, since the contract did not clearly impose upon it the obli#ation to deliver a

habitable house, is to advocate an absurdity, the creation of an unfair situation. By any ob4ective

interpretation of its terms, the contract can only be understood as imposin# on the +S!S an obli#ation

to deliver to &#caoili a reasonably habitable dwellin# in return for his underta"in# to pay the stipulated

price. Since +S!S did not fulfill that obli#ation, and was not willin# to put the house in habitable state,

it cannot invo"e &#caoili?s suspension of payment of amorti;ations as cause to cancel the contract

between them. !t is a=iomatic that (in reciprocal obli#ations, neither party incurs in delay if the other

does not comply or is not ready to comply in a proper manner with what is incumbent upon him. 15

-or may the +S!S succeed in 4ustifyin# its cancellation of the award to &#caoili by the claim that the

latter had not complied with the condition of occupyin# the house within three (' days. 9he record

shows that &#caoili did try to fulfill the conditionA he did try to occupy the house but found it to be so

uninhabitable that he had to leave it the followin# day. 6e did however leave a friend in the structure,who bein# homeless and hence willin# to accept shelter even of the most rudimentary sort, a#reed to

stay therein and loo" after it. 9hus the ar#ument that &#caoili breached the a#reement by failin# to

occupy the house, and by allowin# another person to stay in it without the consent of the +S!S, must be

re4ected as devoid of merit.

5inally, the +S!S should not be heard to say that the a#reement between it and &#caoili is silent, or

imprecise as to its e=act prestation Blame for the imprecision cannot be imputed to &#caoiliA it was

after all the +S!S which caused the contract to come into bein# by its written acceptance of &#caoili?s

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offer to purchase, that offer bein# contained in a printed form supplied by the +S!S. Said appellant

havin# caused the ambi#uity of which it would now ma"e capital, the 8uestion of interpretation arisin#

therefrom, should be resolved a#ainst it.

!t will not do, however, to dispose of the controversy by simply declarin# that the contract between the

parties had not been validly cancelled and was therefore still in force, and that &#caoili could not be

compelled by the +S!S to pay the stipulated price of the house and lot sub4ect of the contract until andunless it had first completed construction of the house. 9his would leave the contract han#in# or in

suspended animation, as it were, &#caoili unwillin# to pay unless the house were first completed, and

the +S!S averse to completin# construction, which is precisely what has been the state of affairs

between the parties for more than twenty () years now. 0n the other hand, assumin# it to be feasible

to still finish the construction of the house at this time, to compel the +S!S to do so so that &#caoili?s

prestation to pay the price mi#ht in turn be demanded, without modifyin# the price therefor, would not

be 8uite fair. 9he cost to the +S!S of completion of construction at present prices would ma"e the

stipulated price disproportionate, unrealistic.

9he situation calls for the e=ercise by this Court of its e8uity 4urisdiction, to the end that it may render

complete 'ustice to both parties.

&s we . . reaffirmed in &ir Manila, !nc. vs. Court of !ndustrial Relations (*' SCR& 21,

*1 %12*N. (>8uity as the complement of le#al 4urisdiction see"s to reach and do

complete 4ustice where courts of law, throu#h the infle=ibility of their rules and want of

power to adapt their 4ud#ments to the special circumstances of cases, are incompetent so

to do. >8uity re#ards the spirit of and not the letter, the intent and not the form, the

substance rather than the circumstance, as it is variously e=pressed by different courts...

16

!n this case, the Court can not re8uire specific performance of the contract in 8uestion accordin# to its

literal terms, as this would result in ine8uity. 9he prevailin# rule is that in decreein# specific

performance e8uity re8uires 17 T

... not only that the contract be 4ust and e8uitable in its provisions, but that the

conse8uences of specific performance li"ewise be e8uitable and 4ust. 9he #eneral rule is

that this e8uitable relief will not be #ranted if, under the circumstances of the case, the

result of the specific enforcement of the contract would be harsh, ine8uitable,

oppressive, or result in an unconscionable advanta#e to the plaintiff . .

!n the e=ercise of its e8uity 4urisdiction, the Court may ad4ust the ri#hts of parties in accordance with

the circumstances obtainin# at the time of rendition of 4ud#ment, when these are si#nificantly different

from those e=istin# at the time of #eneration of those ri#hts.

9he Court is not restricted to an ad4ustment of the ri#hts of the parties as they e=isted

when suit was brou#ht, but will #ive relief appropriate to events occurin# endin# the

suit. 18

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#hile e$uitable )urisdiction is generally to be determined with reference to the situation e<isting

at the time the suit is filed, the relief to be accorded by the decree is governed by the conditions

which are shown to e<ist at the time of maing thereof, and not by the circumstances attending

the ince!tion of the litigation" In maing u! the final decree in an e$uity suit the )udge may rightly

consider matters arising after suit was brought" (herefore, as a general rule, e$uity will

administer such relief as the nature, rights, facts and e<igencies of the case demand at the close

of the trial or at the time of the maing of the decree"19

9hat ad4ustment is entirely consistent with the Civil 3aw principle that in the e=ercise of ri#hts a person

must act with 4ustice, #ive everyone his due, and observe honesty and #ood faith. 20 Ad)ustment of rights

has been held to be !articularly a!!licable when there has been a de!reciation of currency"

$epreciation of the currency or other medium of payment contracted for has fre8uently

been held to 4ustify the court in withholdin# specific performance or at least

conditionin# it upon payment of the actual value of the property contracted for. 9hus, in

an action for the specific performance of a real estate contract, it has been held that

where the currency in which the plaintiff had contracted to pay had #reatly depreciated

before enforcement was sou#ht, the relief would be denied unless the complaint would

underta"e to pay the e8uitable value of the land. (Dillard 9ayloe E.S.N * Dall 2,%1

3. >d )%A $ou#hdrill v. >dwards, 1 &la << 21

!n determinin# the precise relief to #ive, the Court will balance the e8uities or the respective interests

of the parties, and ta"e account of the relative hardship that one relief or another may occasion to them .

22

9he completion of the unfinished house so that it may be put into habitable condition, as one form of

relief to the plaintiff &#caoili, no lon#er appears to be a feasible option in view of the not

inconsiderable time that has already elapsed. 9hat would re8uire an ad4ustment of the price of thesub4ect of the sale to conform to present prices of construction materials and labor. !t is more in

"eepin# with the realities of the situation, and with e8uitable norms, to simply re8uire payment for the

land on which the house stands, and for the house itself, in its unfinished state, as of the time of the

contract. !n fact, this is an alternative relief proposed by &#caoili himself, i.e., that 4ud#ment issue . .

(orderin# the defendant (+S!S to e=ecute a deed of sale that would embody and provide for a

reasonable amorti;ation of payment on the basis of the present actual unfinished and uncompleted

condition, worth and value of the said house. 23

D6>R>50R>, the 4ud#ment of the Court a quo insofar as it invalidates and sets aside the cancellation

by respondent +S!S of the award in favor of petitioner &#caoili of 3ot -o. /, Bloc" -o. (<* of the+S!S low cost housin# pro4ect at -an#"a, Mari"ina, Ri;al, and orders the former to respect the

aforesaid award and to pay dama#es in the amounts specified, is &55!RM>$ as bein# in accord with

the facts and the law. Said 4ud#ments is however modified by deletin# the re8uirement for respondent

+S!S to complete the house in 8uestion so as to ma"e the same habitable, and instead it is hereby

0R$>R>$ that the contract between the parties relative to the property above described be modified

by addin# to the cost of the land, as of the time of perfection of the contract, the cost of the house in its

unfinished state also as of the time of perfection of the contract, and correspondin#ly ad4ustin# the

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amorti;ations to be paid by petitioner &#caoili, the modification to be effected after determination by

the Court a quo of the value of said house on the basis of the a#reement of the parties, or if this is not

possible by such commissioner or commissioners as the Court may appoint. -o pronouncement as to

costs.

S0 0R$>R>$.

Cruz, Ganca#co, Aquino and edialdea, JJ., concur.

Footnotes

% $ated June <, %1/<.

$ated 0ctober , %1/ (>=h. & A 5older of >=hibits,p.%.

' 0.R. -o. %*/*, 0ct. %), %1//.

< >=h. $, 5older of >=hibits, p. <.

$oc"eted as Civil Case -o. /1<%2.

/ 9he letter was sent thru the awardees? Samahan# 3a"as n# Mahihirap, copy havin#

been mar"ed at the trial as >=h. 5A to the letter was attached a resolution of said

Samahan adopted at its meetin# of July ', %1/2 and to which, in turn, was appended a '

pa#e list of uncompleted houses with a specification of items not completed.

2 By 6on. Manuel P. Barcelona, presidin# over Br. !!! of the C5! of ManilaA Record on

&ppeal, pp. @, Rollo, p. %'.

* Parenthetical insertions !dentifyin# the parties, supplied.

1 &ppellant?s brief, pp. %%@%<.

%) d., pp. 2@*.

>- B&-C

G.R. No. &(156B5 '"#u"- 1, 196B

PA) P. ARRIETA "#$ VITA&IADO ARRIETA, plaintiffs@appellees,

vs.

NATIONA& RICE AND CORN CORPORATION, defendant@appellant,MANI&A UNDER?RITERS INSURANCE CO., INC., defendant@appellee.

"eehan&ee and Carreon for plaintiffs3appellees.

"he Government Corporate Counsel for defendant3appellant.

sidro A. !era for defendant3appellee.

REGA&A, J.:

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9his is an appeal of the defendant@appellant -&R!C from the decision of the trial court dated 5ebruary

), %1*, awardin# to the plaintiffs@appellees the amount of */,))).)) as dama#es for breach of

contract and dismissin# the counterclaim and third party complaint of the defendant@appellant -&R!C.

!n accordance with Section %' of Republic &ct -o. '<, the -ational Rice and Corn &dministration

(-&R!C is hereby abolished and all its assets, liabilities, functions, powers which are not inconsistent

with the provisions of this &ct, and all personnel are transferred to the Rice and Corn &dministration(RC&.

&ll references, therefore, to the -&R!C in this decision must accordin#ly be ad4usted and read as RC&

pursuant to the aforementioned law.

0n May %1, %1, plaintiff@appellee participated in the public biddin# called by the -&R!C for the

supply of ),))) metric tons of Burmese rice. &s her bid of )'.)) per metric ton was the lowest, she

was awarded the contract for the same. &ccordin#ly, on July %, %1, plaintiff@appellee Pa; P. &rrieta

and the appellant corporation entered into a Contract of Sale of Rice, under the terms of which the

former obli#ated herself to deliver to the latter ),))) metric tons of Burmess Rice at )'.)) permetric ton, C!5 Manila. !n turn, the defendant corporation committed itself to pay for the imported rice

by means of an irrevocable, confirmed and assi#nable letter of credit in E.S. currency in favor of the

plaintiff@appellee andHor supplier in Burma, immediately. $espite the commitment to pay immediately

by means of an irrevocable, confirmed and assi#nable 3etter of Credit, however, it was only on July

'), %1, or a full month from the e=ecution of the contract, that the defendant corporation, thru its

#eneral mana#er, too" the first to open a letter of credit by forwardin# to the Philippine -ational Ban"

its &pplication for Commercial 3etter Credit. 9he application was accompanied by a transmittal letter,

the relevant para#raphs of which read:

!n view of the fact that we do not have sufficient deposit with your institution with which tocover the amount re8uired to be deposited as a condition for the openin# of letters of credit, we

will appreciate it if this application could be considered special case.

De understand that our supplier, Mrs. Pa; P. &rrieta, has a deadline to meet which is &u#ust <,

%1, and in order to comply therewith, it is imperative that the 3HC be opened prior to that

date. De would therefore re8uest your full cooperation on this matter.

0n the same day, July '), %1, Mrs. Pa; P. &rrieta thru counsel, advised the appellant corporation of

the e=treme necessity for the immediate openin# of the letter credit since she had by then made a tender

to her supplier in Ran#oon, Burma, e8uivalent to of the 5.0.B. price of ),))) tons at %*).2) and

in compliance with the re#ulations in Ran#oon this will be confiscated if the re8uired letter of

credit is not received by them before &u#ust <, %1.

0n &u#ust <, %1, the Philippine -ational Ban" informed the appellant corporation that its

application, for a letter of credit for ',/%<,))).)) in favor of 9hiri Set"ya has been approved by the

Board of $irectors with the condition that mar#inal cash deposit be paid and that drafts are to be paid

upon presentment. (>=h. [email protected] >=h. %)@def., p. %1, 5older of >=hibits. 5urthermore, the Ban"

represented that it will hold your application in abeyance pendin# compliance with the above stated

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re8uirement.

&s it turned out, however, the appellant corporation not in any financial position to meet the condition.

&s matter of fact, in a letter dated &u#ust , %1, the -&R!C bluntly confessed to the appellee its

dilemma: !n this connection, please be advised that our application for openin# of the letter of credit

has been presented to the ban" since July ')th but the latter re8uires that we first deposit ) of the

value of the letter amountin# to apro=imately ',/%<,))).)) $hich $e are not in a position to meet .(>mphasis supplied. >=h. 1@$ef.A >=h. %@Pe., p. %*, 5older of >=hibits

Conse8uently, the credit instrument applied for was opened only on September *, %1 in favor of

9hiri Set"ya, Ran#oon, Burma, andHor assi#nee for ',/%<,))).)), (which is more than two months

from the e=ecution of the contract the party named by the appellee as beneficiary of the letter of

credit.56$ph75.89t

&s a result of the delay, the allocation of appellee?s supplier in Ran#oon was cancelled and the

deposit, amountin# to <,))) "yats or appro=imately P)),))).)) was forfeited. !n this connection, it

must be made of record that althou#h the Burmese authorities had set &u#ust <, %1, as the deadlinefor the remittance of the re8uired letter of credit, the cancellation of the allocation and the confiscation

of the deposit were not effected until &u#ust ), %1, or, a full half month after the e=piration of

the deadline. &nd yet, even with the %@day #race, appellant corporation was unable to ma"e #ood its

commitment to open the disputed letter of credit.

9he appellee endeavored, but failed, to restore the cancelled Burmese rice allocation. Dhen the futility

of reinstatin# the same became apparent, she offered to substitute 9hailand rice instead to the defendant

-&R!C, communicatin# at the same time that the offer was a solution which should be beneficial to

the -&R!C and to us at the same time. (>=h. O@Pe., >=h. T$ef., p. '*, 5older of >=hibits. 9his

offer for substitution, however, was re4ected by the appellant in a resolution dated -ovember %, %1.

0n the fore#oin#, the appellee sent a letter to the appellant, demandin# compensation for the dama#es

caused her in the sum of */,))).)), E.S. currency, representin# unreali;ed profit. 9he demand

havin# been re4ected she instituted this case now on appeal.

&t the instance of the -&R!C, a counterclaim was filed and the Manila Enderwriters !nsurance

Company was brou#ht to the suit as a third party defendant to hold it liable on the performance bond it

e=ecuted in favor of the plaintiff@appellee.

De find for the appellee.

!t is clear upon the records that the sole and principal reason for the cancellation of the allocation

contracted by the appellee herein in Ran#oon, Burma, was the failure of the letter of credit to be opened

with the contemplated period. 9his failure must, therefore, be ta"en as the immediate cause for the

conse8uent dama#e which resulted. &s it is then, the disposition of this case depends on a

determination of who was responsible for such failure. Stated differently, the issue is whether

appellant?s failure to open immediately the letter of credit in dispute amounted to a breach of the

contract of July %, %1 for which it may be held liable in dama#es.

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&ppellant corporation disclaims responsibility for the delay in the openin# of the letter of credit. 0n the

contrary, it insists that the fault lies with the appellee. &ppellant contends that the disputed ne#otiable

instrument was not promptly secured because the appellee , failed to seasonably furnish data necessary

and re8uired for openin# the same, namely, (% the amount of the letter of credit, ( the person,

company or corporation in whose favor it is to be opened, and (' the place and ban" where it may be

ne#otiated. &ppellant would have this Court believe, therefore, that had these informations beenforthwith furnished it, there would have been no delay in securin# the instrument.

&ppellant?s e=planation has neither force nor merit. !n the first place, the e=planation reaches into an

area of the proceedin#s into which De are not at liberty to encroach. 9he e=planation refers to a

8uestion of fact. -othin# in the record su##ests any arbitrary or abusive conduct on the part of the trial

4ud#e in the formulation of the rulin#. 6is conclusion on the matter is sufficiently borne out by the

evidence presented. De are denied, therefore, the prero#ative to disturb that findin#, consonant to the

time@honored tradition of this 9ribunal to hold trial 4ud#es better situated to ma"e conclusions on

8uestions of fact. 5or the record, De 8uote hereunder the lower court?s rulin# on the point:

9he defense that the delay, if any in openin# the letter of credit was due to the failure of plaintiff

to name the supplier, the amount and the ban" is not tenable. Plaintiff stated in Court that these

facts were "nown to defendant even before the contract was e=ecuted because these facts were

necessarily revealed to the defendant before she could 8ualify as a bidder. She stated too that

she had #iven the necessary data immediately after the e=ecution of >=h. & (the contract of

July %, %1 to Mr. +&BR!>3 B>3M0-9>, +eneral Mana#er of the -&R!C, both orally and

in writin# and that she also pressed for the openin# of the letter of credit on these occasions.

9hese statements have not been controverted and defendant -&R!C, notwithstandin# its

previous intention to do so, failed to present Mr. Belmonte to testify or refute this. ...

Secondly, from the correspondence and communications which form part of the record of this case, it is

clear that what sin#ularly delayed the openin# of the stipulated letter of credit and which, in turn,

caused the cancellation of the allocation in Burma, was the inability of the appellant corporation to

meet the condition importation by the Ban" for #rantin# the same. De do not thin" the appellant

corporation can refute the fact that had it been able to put up the ) mar#inal cash deposit demanded

by the ban", then the letter of credit would have been approved, opened and released as early as &u#ust

<, %1. 9he letter of the Philippine -ational Ban" to the -&R!C was plain and e=plicit that as of the

said date, appellant?s application for a letter of credit ... has been approved by the Board of $irectors

with the condition that ) mar#inal cash deposit be paid and that drafts are to be paid upon

presentment. (>mphasis supplied

9he liability of the appellant, however, stems not alone from this failure or inability to satisfy the

re8uirements of the ban". !ts culpability arises from its willful and deliberate assumption of contractual

obli#ations even as it was well aware of its financial incapacity to underta"e the prestation. De base

this 4ud#ment upon the letter which accompanied the application filed by the appellant with the ban", a

part of which letter was 8uoted earlier in this decision. !n the said accompanyin# correspondence,

appellant admitted and owned that it did not have sufficient deposit with your institution (the P-B

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with which to cover the amount re8uired to be deposited as a condition for the openin# of letters of

credit. ... .

& number of lo#ical inferences may be drawn from the aforementioned admission. 5irst, that the

appellant "new the ban" re8uirements for openin# letters of creditA second, that appellant also "new it

could not meet those re8uirement. Dhen, therefore, despite this awareness that was financially

incompetent to open a letter of credit immediately, appellant a#reed in para#raph * of the contract topay immediately by means of an irrevocable, confirm and assi#nable letter of credit, it must be

similarly held to have bound itself to answer for all and every conse8uences that would result from the

representation. aptly observed by the trial court:

... 6avin# called for bids for the importation of rice involvin# millions, <,/),))).)) to be

e=act, it should have a certained its ability and capacity to comply with the inevitably

re8uirements in cash to pay for such importation. 6avin# announced the bid, it must be deemed

to have impliedly assured suppliers of its capacity and facility to finance the importation within

the re8uired period, especially since it had imposed the supplier the 1)@day period within which

the shipment of the rice must be brou#ht into the Philippines. 6avin# entered in the contract, it

should have ta"en steps immediately to arran#e for the letter of credit for the lar#e amount

involved and in8uired into the possibility of its issuance.

!n relation to the afore8uoted observation of the trial court, De would li"e to ma"e reference also to

&rticle %% of the Civil Code which provides:

9hose who in the performance of their obli#ation are #uilty of fraud, ne#li#ence, or delay, and

those who in any manner contravene the tenor thereof, are liable in dama#es.

Ender this provision, not only debtors #uilty of fraud, ne#li#ence or default in the performance of

obli#ations a decreed liableA in #eneral, every debtor who fails in performance of his obli#ations is

bound to indemnify for the losses and dama#es caused thereby ($e la Cru; Seminary of Manila, %*

Phil. '')A Municipality of Moncada v. Ca4ui#an, % Phil. %*<A $e la Cavada v. $ia;, '2 Phil. 1*A

Maluenda Co. v. >nri8ue;, </ Phil. 1%/A Pasumil v. Chon#, <1 Phil. %))'A Pando v. +imene;, <

Phil. <1A &cme 5ilms v. 9heaters Supply, /' Phil. /2. 9he phrase any manner contravene the tenor

of the obli#ation includes any illicit act which impairs the strict and faithful fulfillment of the

obli#ation or every "ind or defective performance. (! 9olentino, Civil Code of the Philippines, citin#

authorities, p. %)'.

9he -&R!C would also have this Court hold that the subse8uent offer to substitute 9hailand rice for the

ori#inally contracted Burmese rice amounted to a waiver by the appellee of whatever ri#hts she mi#ht

have derived from the breach of the contract. De disa#ree. Daivers are not presumed, but must be

clearly and convincin#ly shown, either by e=press stipulation or acts admittin# no other reasonable

e=planation. (Ramire; v. Court of &ppeals, 0.+. 221. !n the case at bar, no such intent to waive has

been established.

De have carefully e=amined and studied the oral and documentary evidence presented in this case and

upon which the lower court based its award. Ender the contract, the -&R!C bound itself to buy ),)))

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metric tons of Burmese rice at )'.)) E.S. $ollars per metric ton, all net shipped wei#ht, and all in

E.S. currency, C.!.5. Manila ... 0n the other hand, documentary and other evidence establish with

e8ual certainty that the plaintiff@appellee was able to secure the contracted commodity at the cost price

of %*).2) per metric ton from her supplier in Burma. Considerin# frei#hts, insurance and char#es

incident to its shipment here and the forfeiture of the deposit, the award #ranted by the lower court

is fair and e8uitable. 5or a clearer view of the e8uity of the dama#es awarded, De reproduce below thetestimony of the appellee, ade8uately supported by the evidence and record:

I. Dill you please tell the court, how much is the dama#e you suffered

&. Because the sellin# price of my rice is )'.)) per metric ton, and the cost price of my rice

is %*).)) De had to pay also /. for shippin# and about %/< for insurance. So addin# the

cost of the rice, the frei#ht, the insurance, the total would be about %*2.11 that would be

%.)% #ross profit per metric ton, multiply by ),))) e8uals ')),)), that is my supposed

profit if ! went throu#h the contract.

9he above testimony of the plaintiff was a #eneral appro=imation of the actual fi#ures involved in thetransaction. & precise and more e=act demonstration of the e8uity of the award herein is provided by

>=hibit 66 of the plaintiff and >=hibit '< of the defendant, hereunder 8uoted so far as #ermane.

!t is e8ually of record now that as shown in her re8uest dated July 1, %11, and other

communications subse8uent thereto for the openin# by your corporation of the re8uired letter of

credit, Mrs. &rrieta was supposed to pay her supplier in Burma at the rate of 0ne 6undred

>i#hty $ollars and Seventy Cents (%*).2) in E.S. Currency, per ton plus >i#ht $ollars

(*.)) in the same currency per ton for shippin# and other handlin# e=penses, so that she is

already assured of a net profit of 5ourteen $ollars and 9hirty Cents (%<.'), E.S., Currency,

per ton or a total of 9wo 6undred and >i#hty Si= 9housand $ollars (*/,))).)), E.S.Currency, in the aforesaid transaction. ...

3astly, herein appellant filed a counterclaim assertin# that it has suffered, li"ewise by way of unreali;ed

profit dama#es in the total sum of <)/,))).)) from the failure of the pro4ected contract to materiali;e.

9his counterclaim was supported by a cost study made and submitted by the appellant itself and

wherein it was illustrated how indeed had the importation pushed thru, -&R!C would have reali;ed in

profit the amount asserted in the counterclaim. &nd yet, the said amount of P<)/,))).)) was reali;able

by appellant despite a number of e=penses which the appellee under the contract, did not have to incur.

9hus, under the cost study submitted by the appellant, ban"in# and unloadin# char#es were to be

shouldered by it, includin# an !mport 3icense 5ee of and superintendence fee of ). per metricton. !f the -&R!C stood to profit over P<)) ))).)) from the disputed transaction inspite of the e=tra

e=penditures from which the herein appellee was e=empt, we are convicted of the fairness of the

4ud#ment presently under appeal.

!n the premises, however, a minor modification must be effected in the dispositive portion of the

decision appeal from insofar as it e=presses the amount of dama#es in E.S. currency and not in

Philippine Peso. Republic &ct 1 specifically re8uires the dischar#e of obli#ations only in any coin

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or currency which at the time of payment is le#al tender for public and private debts. !n view of that

law, therefore, the award should be converted into and e=pressed in Philippine Peso.

9his brin#s us to a consideration of what rate of e=chan#e should apply in the conversion here decreed.

Should it be at the time of the breach, at the time the obli#ation was incurred or at the rate of e=chan#e

prevailin# on the promul#ation of this decision.

!n the case of *ngel v. !elasco ( Co., <2 Phil. %%, De ruled that in an action for recovery of dama#es

for breach of contract, even if the obli#ation assumed by the defendant was to pay the plaintiff a sum of

money e=pressed in &merican currency, the indemnity to be allowed should be e=pressed in Philippine

currency at the rate of e=chan#e at the time of the 4ud#ment rather than at the rate of e=chan#e

prevailin# on the date of defendant?s breach. 9his rulin#, however, can neither be applied nor e=tended

to the case at bar for the same was laid down when there was no law a#ainst stipulatin# forei#n

currencies in Philippine contracts. But now we have Republic &ct -o. 1 which e=pressly declares

such stipulations as contrary to public policy, void and of no effect. &nd, as De already pronounced in

the case of *astboard 0avigation, 1td. v. Juan :smael ( Co., nc., +.R. -o. 3@1)1), September %),

%12, if there is any a#reement to pay an obli#ation in a currency other than Philippine le#al tender, the

same is null and void as contrary to public policy (Republic &ct 1, and the most that could be

demanded is to pay said obli#ation in Philippine currency to be measured in the prevailin# rate of

e=chan#e at the time the obli#ation was incurred (Sec. %, idem.

EP0- &33 96> 50R>+0!-+, the decision appealed from is hereby affirmed, with the sole

modification that the award should be converted into the Philippine peso at the rate of e=chan#e

prevailin# at the time the obli#ation was incurred or on July %, %1 when the contract was e=ecuted.

9he appellee insurance company, in the li#ht of this 4ud#ment, is relieved of any liability under this

suit. -o pronouncement as to costs.

S>C0-$ $!!S!0-

G.R. No. 7867 <%4-u"- 29, 1988

TE&E<AST COMMUNICATIONSPHI&IPPINE ?IRE&ESS, INC., petitioner,

vs.

IGNACIO CASTRO, SR., SO<IA C. CROUCH, IGNACIO CASTRO 'R., AURORA CASTRO,

SA&VADOR CASTRO, MARIO CASTRO, CONRADO CASTRO, ESMERA&DA C. <&ORO,

AGERICO CASTRO, RO&ANDO CASTRO, VIRGI&IO CASTRO AND G&ORIA CASTRO,

"#$ HONORA!&E INTERMEDIATE APPE&&ATE COURT, respondents.

PADI&&A, J.:

Petition for review on certiorari of the decision * of the Intermediate A!!ellate Court, dated ?? %ebruary ?@85, in AC-G"1" /o" CV-

B47, entitled Ignacio Castro, Sr", et al", &laintiffs-A!!ellees, versus (elefast CommunicationD&hili!!ine #ireless, Inc", Eefendant-A!!ellant"

9he facts of the case are as follows:

0n -ovember %1/, Consolacion Bravo@Castro wife of plaintiff !#nacio Castro, Sr. and mother of the

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other plaintiffs, passed away in 3in#ayen, Pan#asinan. 0n the same day, her dau#hter Sofia C. Crouch,

who was then vacationin# in the Philippines, addressed a tele#ram to plaintiff !#nacio Castro, Sr. at /*

Danda, Scottsbur#, !ndiana, E.S.&., <2%2) announcin# Consolacion?s death. 9he tele#ram was

accepted by the defendant in its $a#upan office, for transmission, after payment of the re8uired fees or

char#es.

9he tele#ram never reached its addressee. Consolacion was interred with only her dau#hter Sofia inattendance. -either the husband nor any of the other children of the deceased, then all residin# in the

Enited States, returned for the burial.

Dhen Sofia returned to the Enited States, she discovered that the wire she had caused the defendant to

send, had not been received. She and the other plaintiffs thereupon brou#ht action for dama#es arisin#

from defendant?s breach of contract. 9he case was filed in the Court of 5irst !nstance of Pan#asinan and

doc"eted therein as Civil Case -o. %'/. 9he only defense of the defendant was that it was unable to

transmit the tele#ram because of technical and atmospheric factors beyond its control. 1 /o evidence

a!!ears on record that defendant ever made any attem!t to advise the !laintiff Sofia C" Crouch as to why it

could not transmit the telegram"

9he Court of 5irst !nstance of Pan#asinan, after trial, ordered the defendant (now petitioner to pay the

plaintiffs (now private respondents dama#es, as follows, with interest at / per annum:

%. Sofia C. Crouch, P'%.1 and P%/,))).)) as compensatory dama#es and P),))).)) as

moral dama#es.

. !#nacio Castro Sr., P),))).)) as moral dama#es.

'. !#nacio Castro Jr., P),))).)) as moral dama#es.

<. &urora Castro, P%),))).)) moral dama#es.

. Salvador Castro, P%),))).)) moral dama#es.

/. Mario Castro, P%),))).)) moral dama#es.

2. Conrado Castro, P%),))) moral dama#es.

*. >smeralda C. 5loro, P),))).)) moral dama#es.

1. &#erico Castro, P%),))).)) moral dama#es.

%). Rolando Castro, P%),))).)) moral dama#es.

%%. ir#ilio Castro, P%),))).)) moral dama#es.

%. +loria Castro, P%),))).)) moral dama#es.

$efendant is also ordered to pay P,))).)) attorney?s fees, e=emplary dama#es in the amount of

P%,))).)) to each of the plaintiffs and costs. 2

0n appeal by petitioner, the !ntermediate &ppellate Court affirmed the trial court?s decision but

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eliminated the award of P%/,))).)) as compensatory dama#es to Sofia C. Crouch and the award of

P%,))).)) to each of the private respondents as e=emplary dama#es. 9he award of P),))).)) as moral

dama#es to each of Sofia C. Crouch, !#nacio Castro, Jr. and >smeralda C. 5loro was also reduced to

P%),))). )) for each. 3

Petitioner appeals from the 4ud#ment of the appellate court, contendin# that the award of moral

dama#es should be eliminated as defendant?s ne#li#ent act was not motivated by fraud, malice or

rec"lessness.

!n other words, under petitioner?s theory, it can only be held liable for P '%.1, the fee or char#es paid

by Sofia C. Crouch for the tele#ram that was never sent to the addressee thereof.

Petitioner?s contention is without merit.

&rt. %%2) of the Civil Code provides that those who in the performance of their obli#ations are #uilty

of fraud, ne#li#ence or delay, and those who in any manner contravene the tenor thereof, are liable for

dama#es. &rt. %2/ also provides that whoever by act or omission causes dama#e to another, there

bein# fault or ne#li#ence, is obli#ed to pay for the dama#e done.

!n the case at bar, petitioner and private respondent Sofia C. Crouch entered into a contract whereby,

for a fee, petitioner undertoo" to send said private respondent?s messa#e overseas by tele#ram. 9his,

petitioner did not do, despite performance by said private respondent of her obli#ation by payin# the

re8uired char#es. Petitioner was therefore #uilty of contravenin# its obli#ation to said private

respondent and is thus liable for dama#es.

9his liability is not limited to actual or 8uantified dama#es. 9o sustain petitioner?s contrary position in

this re#ard would result in an ine8uitous situation where petitioner will only be held liable for theactual cost of a tele#ram fi=ed thirty (') years a#o.

De find &rt. %2 of the Civil Code applicable to the case at bar. !t states: Moral dama#es include

physical sufferin#, mental an#uish, fri#ht, serious an=iety, besmirched reputation, wounded feelin#s,

moral shoc", social humiliation, and similar in4ury. "hough incapable of pecuniar# computation, moral

damages ma# be recovered if the# are the pro%imate results of the defendant;s $rongful act or

omission. (>mphasis supplied.

6ere, petitioner?s act or omission, which amounted to #ross ne#li#ence, was precisely the cause of the

sufferin# private respondents had to under#o.&s the appellate court properly observed:

DhoN can seriously dispute the shoc", the mental an#uish and the sorrow that the

overseas children must have suffered upon learnin# of the death of their mother after she

had already been interred, without bein# #iven the opportunity to even ma"e a choice on

whether they wanted to pay her their last respects 9here is no doubt that these

emotional sufferin#s were pro=imately caused by appellant?s omission and substantive

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law provides for the 4ustification for the award of moral dama#es. 4

De also sustain the trial court?s award of P%/,))).)) as compensatory dama#es to Sofia C. Crouch

representin# the e=penses she incurred when she came to the Philippines from the Enited States to

testify before the trial court. 6ad petitioner not been remiss in performin# its obli#ation, there would

have been no need for this suit or for Mrs. Crouch?s testimony.

9he award of e=emplary dama#es by the trial court is li"ewise 4ustified and, therefore, sustained in the

amount of P%,))).)) for each of the private respondents, as a warnin# to all tele#ram companies to

observe due dili#ence in transmittin# the messa#es of their customers.

D6>R>50R>, the petition is $>-!>$. 9he decision appealed from is modified so that petitioner is

held liable to private respondents in the followin# amounts:

(% P%),))).)) as moral dama#es, to each of private respondentsA

( P%,))).)) as e=emplary dama#es, to each of private respondentsA

(' P%/,))).)) as compensatory dama#es, to private respondent Sofia C. CrouchA

(< P,))).)) as attorney?s feesA and

( Costs of suit.

S0 0R$>R>$.

:ap <Chairman=, Paras and )armiento, JJ., concur.

S%0"-"t% O0#o#s

ME&ENCIO(HERRERA, J., concurrin#.

!N concur.!n addition to compensatory and e=emplary dama#es, moral dama#es are recoverable in

actions for breach of contract, as in this case, where the breach has been wanton and rec"less,

tantamount to bad faith.

G.R. Nos. 1BB2(B5 M" 21, 199

NATIONA& PO?ER CORPORATION, ET A&., petitioners,

vs.

THE COURT O< APPEA&S, GAUDENCIO C. RA=O, ET A&., respondents.

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"he )olicitor General for plaintiff3appellee.

Ponciano G. Hernandez for private respondents.

DAVIDE, 'R., J.:

9his is a petition for review on certiorari under Rule < of the Revised Rules of Court ur#in# this

Court to set aside the %1 &u#ust %11% consolidated $ecision of the Court of &ppeals in C&.@+.R. C

-os. 21)@1' 1 which reversed the Eecision of 6ranch of the then Court of %irst Instance +now 1egional

(rial Court of 6ulacan, and held !etitioners /ational &ower Cor!oration +/&C and 6en)amin Chave )ointly and

severally liable to the !rivate res!ondents for actual and moral damages, litigation e<!enses and attorney*s fees"

9his present controversy traces its be#innin#s to four (< separate complaints 2 for damages filed against

the /&C and 6en)amin Chave before the trial court" (he !laintiffs therein, now !rivate res!ondents, sought to

recover actual and other damages for the loss of lives and the destruction to !ro!erty caused by the inundation

of the town of /oragaray, 6ulacan on 45-4 ;ctober ?@8" (he flooding was !ur!ortedly caused by the

negligent release by the defendants of water through the s!illways of the Angat Eam +.ydroelectric &lant" Insaid com!laints, the !laintiffs alleged, inter alia, that: ? defendant /&C o!erated and maintained a multi-

!ur!ose hydroelectric !lant in the Angat 1iver at .illto!, /oragaray, 6ulacan> 4 defendant 6en)amin Chave

was the !lant su!ervisor at the time of the incident in $uestion> = des!ite the defendants* nowledge, as early as

47 ;ctober ?@8, of the im!ending entry of ty!hoon 0ading, they failed to e<ercise due diligence in monitoring

the water level at the dam> 7 when the said water level went beyond the ma<imum allowable limit at the height

of the ty!hoon, the defendants suddenly, negligently and reclessly o!ened three += of the dam*s s!illways,

thereby releasing a large amount of water which inundated the bans of the Angat 1iver> and as a

conse$uence, members of the household of the !laintiffs, together with their animals, drowned, and their

!ro!erties were washed away in the evening of 45 ;ctober and the early hours of 4 ;ctober ?@8" 3

!n their &nswers, the defendants, now petitioners, alle#ed that: % the -PC e=ercised due care,

dili#ence and prudence in the operation and maintenance of the hydroelectric plantA the -PC

e=ercised the dili#ence of a #ood father in the selection of its employeesA ' written notices were sent to

the different municipalities of Bulacan warnin# the residents therein about the impendin# release of a

lar#e volume of water with the onset of typhoon Gadin# and advise them to ta"e the necessary

precautionsA < the water released durin# the typhoon was needed to prevent the collapse of the dam

and avoid #reater dama#e to people and propertyA in spite of the precautions underta"en and the

dili#ence e=ercised, they could still not contain or control the flood that resulted andA / the dama#es

incurred by the private respondents were caused by a fortuitous event or force ma'eure and are in the

nature and character of damnum absque in'uria. By way of special affirmative defense, the defendants

averred that the -PC cannot be sued because it performs a purely #overnmental function. 4

Epon motion of the defendants, a preliminary hearin# on the special defense was conducted. &s a result

thereof, the trial court dismissed the complaints as a#ainst the -PC on the #round that the provision of

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its charter allowin# it to sue and be sued does not contemplate actions based on tort. 9he parties do not,

however, dispute the fact that this Court overruled the trial court and ordered the reinstatement of the

complaints as a#ainst the -PC. 5

Bein# closely interrelated, the cases were consolidated and trial thereafter ensued.

9he lower court rendered its decision on ') &pril %11) dismissin# the complaints for lac" of sufficient

and credible evidence. 6 Conse$uently, the !rivate res!ondents seasonably a!!ealed therefrom to the

res!ondent Court which then doceted the cases as CA-G"1" CV /os" 44@B-@="

!n its 4oint decision promul#ated on %1 &u#ust %11%, the Court of &ppeals reversed the appealed

decision and awarded dama#es in favor of the private respondents. 9he dispositive portion of the

decision reads:

C0-50RM&B3F 90 96> 50R>+0!-+, the 4oint decision appealed from is hereby

R>>RS>$ and S>9 &S!$>, and a new one is hereby rendered:

%. !n Civil Case -o. SM@1), orderin# defendants@appellees to pay, 4ointly and severally,

plaintiffs@appellants, with le#al interest from the date when this decision shall become

final and e=ecutory, the followin#:

&. &ctual dama#es, to wit:

% +audencio C. Rayo, 9wo 6undred 9hirty 0ne 9housand 9wo 6undred

Si=ty Pesos (P'%,/).))A

Bienvenido P. Pascual, 9wo 6undred 5our 9housand 5ive 6undred

Pesos (P)<.)).))A

' 9omas Manuel, 0ne 6undred 5ifty 5ive 9housand Pesos

(P%,))).))A

< Pedro C. Bartolome, 0ne 6undred 5orty Seven 9housand Pesos

(P%<2,))).))A.

Bernardino Cru;, 0ne 6undred 5orty 9hree 9housand 5ive 6undred

5ifty 9wo Pesos and 5ifty Centavos (P%<',.)A

/ Jose Palad, 5ifty Seven 9housand 5ive 6undred Pesos (P2,)).))A

2 Mariano S. Cru;, 5orty 9housand Pesos (P<),))).))A

* 3ucio 5a4ardo, 9wenty nine 9housand >i#hty Pesos (P1,)*).))A and

B. 3iti#ation e=penses of 9en 9housand Pesos (P%),))).))A

. !n Civil case -o. SM@1%, orderin# defendants@appellees to pay 4ointly and severally,

plaintiff@appellant, with le#al interest from the date when this decision shall have

become final and e=ecutory, the followin# :

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&. &ctual dama#es of 5ive 6undred 9wenty 9housand Pesos

(P),))).))A.

B. Moral dama#es of five hundred 9housand Pesos (P)),))).))A and.

C. 3iti#ation e=penses of 9en 9housand Pesos (P%),))).))A.

'. !n Civil Case -o. SM@1', orderin# defendants@appellees to pay, 4ointly and severally,with le#al interest from the date when this decision shall have become final and

e=ecutoryA

&. Plaintiff@appellant &n#el C. 9orres:

% &ctual dama#es of 0ne 6undred -inety -ine 9housand 0ne 6undred 9wenty Pesos

(P%11,%).))A

Moral $ama#es of 0ne 6undred 5ifty 9housand Pesos (P%),))).))A

B. Plaintiff@appellant -orberto 9orres:

% &ctual dama#es of 5ifty 9housand Pesos (P),))).))A

Moral dama#es of 5ifty 9housand Pesos (P),))).))A

C. Plaintiff@appellant Rodelio Joa8uin:

% &ctual dama#es of 0ne 6undred 9housand Pesos (P%)),))).))A

Moral dama#es of 0ne 6undred 9housand Pesos (P%)),))).))A and

$. Plaintifsf@appellants liti#ation e=penses of 9en 9housand Pesos (P%),))).))A

<. !n Civil case -o. SM@%<2, orderin# defendants@appellees to pay, 4ointly andseverally, with le#al interest from the date when this decision shall have become final

and e=ecutory :

&. Plaintiffs@appellants Presentacion 3oren;o and Clodualdo 3oren;o:

% &ctual dama#es of 9wo 6undred 5ifty Si= 9housand Si= 6undred

Pesos (P/,/)).))A


B. Plaintiff@appellant Consolacion +u;man :

% &ctual dama#es of 0ne 6undred forty 9housand Pesos (P%<),))).))A


C. Plaintiff@appellant ir#inia +u;man :

% &ctual dama#es of 9wo 6undred 5ive 6undred 9wenty Pesos

(),).))A and

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$. Plaintiffs@appellants liti#ation e=penses of 9en 9housand Pesos (%),))).)).

!n addition, in all the four (< instant cases, orderin# defendants@appellees to pay, 4ointly

and severally, plaintiffs@appellants attorney fees in an amount e8uivalent to % of the

total amount awarded.

-o pronouncement as to costs. 7

9he fore#oin# 4ud#ment is based on the public respondent?s conclusion that the petitioners were #uilty

of:

. . . a patent #ross and evident lac" of foresi#ht, imprudence and ne#li#ence . . . in the

mana#ement and operation of &n#at $am. 9he unholiness of the hour, the e=tent of the

openin# of the spillways, &nd the ma#nitude of the water released, are all but products

of defendants@appellees? headlessness, slovenliness, and carelessness. 9he resultin# flash

flood and inundation of even areas (sic one (% "ilometer away from the &n#at Riverban" would have been avoided had defendants@appellees prepared the &n#at $am by

maintainin# in the first place, a water elevation which would allow room for the

e=pected torrential rains. 8

9his conclusion, in turn, is anchored on its findin#s of fact, to wit:

&s early as 0ctober %, %12*, defendants@appellees "new of the impendin# onslau#ht of

and imminent dan#er posed by typhoon Gadin#. 5or as alle#ed by defendants@

appellees themselves, the comin# of said super typhoon was bannered by >ulletin "oda#,

a newspaper of national circulation, on 0ctober , %12*, as Super 6owler to hit R.P.9he ne=t day, 0ctober /, %12*, said typhoon once a#ain merited a headline in said

newspaper as Gadin#?s Bi# Blow e=pected this afternoon (&ppellee?s Brief, p. /.

&part from the newspapers, defendants@appellees learned of typhoon Gadin#? throu#h

radio announcements (Civil Case -o. SM@1), 9S-, Ben4amin Chave;, $ecember <,

%1*<, pp. 2@1.

$efendants@appellees doubly "new that the &n#at $am can safel# hold a normal

ma=imum headwater elevation of %2 meters (&ppellee?s brief, p. %A Civil Case -o.

SM@1%, >=hibit !@/A Civil Case -o. SM@1', >=hibit J@/A Civil Case -o. SM@%<2,

>=hibit +@/.

Fet, despite such "nowled#e, defendants@appellees maintained a reservoir water

elevation even beyond its ma=imum and safe level, thereby #ivin# no sufficient

allowance for the reservoir to contain the rain water that will inevitably be brou#ht by

the comin# typhoon.

0n 0ctober <, %12*, before typhoon Gadin# entered the Philippine area of

responsibility, water elevation ran#ed from %2./% to %2.', with very little openin# of

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the spillways, ran#in# from %H to % meter. 0n 0ctober , %12*, when typhoon

Gadin# entered the Philippine area of responsibility, and public storm si#nal number

one was hoisted over Bulacan at %):< a.m., later raised to number two at <:< p.m., and

then to number three at %):< p.m., water elevation ran#ed from %2.<2 to %2.2, with

very little openin# of the spillways, ran#in# from %H to % meter. 0n 0ctober /, %12*,

when public storm si#nal number three remained hoisted over Bulacan, the waterelevation still remained at its ma=imum level of %2.)) to %*.)) with very little

openin# of the spillways ran#in# from %H to meters, until at or about midni#ht, the

spillways were suddenly opened at meters, then increasin# swiftly to *, %), %, %.,

%', %'., %<, %<. in the early mornin# hours of 0ctober 2, %12*, releasin# water at the

rate of <,)) cubic meters per second, more or less. 0n 0ctober 2, %12*, water

elevation remained at a ran#e of %*.') to %2.) (Civil Case -o. SM@1), >=hibits $

and series, 3, M, -, and 0 and >=hibits ' and <A Civil Case -o. SM@1%,

>=hibits 6 and 6@%A Civil Case -o. SM@1', >=hibits ! and !@%A Civil Case -o.

SM %<2, >=hibits 5 and 5@%.

=== === ===

5rom the mass of evidence e=tant in the record, De are convinced, and so hold that the

flash flood on 0ctober 2, %12*, was caused not by rain waters (sic, but by stored

waters (sic suddenly and simultaneously released from the &n#at $am by defendants@

appellees, particularly from midni#ht of 0ctober /, %12* up to the mornin# hours of

0ctober 2,

%12*. 9

9he appellate court re4ected the petitioners? defense that they had sent early warnin# written notices

to the towns of -or;a#aray, &n#at, Bustos, Plaridel, Baliwa# and Calumpit dated < 0ctober %12*

which read:

90 &33 C0-C>R- (sic:

Please be informed that at present our reservoir (dam is full and that we have been

releasin# water intermittently for the past several days.

Dith the comin# of typhoon Rita (Gadin# we e=pect to release #reater (sic volume of

water, if it pass (sic over our place.

!n view of this "indly advise people residin# alon# &n#at River to "eep alert and stay in

safe places.

B>-J&M!- 3. C6&>L

Power Plant Superintendent

10

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because:

Said notice was delivered to the towns of Bulacan on 0ctober /, %12* by defendants@

appellees driver, 3eonardo -epomuceno (Civil Case -o. SM@1), 9S-, Ben4amin

Chave;, $ecember <, %1*<, pp. 2@%% and 9S-, 3eonardo -epomuceno, March 2, %1*,

pp. %)@%.

Said notice is ineffectual, insufficient and inade8uate for purposes of the openin# of the

spillway #ates at midni#ht of 0ctober /, %12* and on 0ctober 2, %12*. !t did not

prepare or warn the persons so served, for the volume of water to be released, which

turned out to be of such ma#nitude, that residents near or alon# the &n#at River, even

those one (% "ilometer away, should have been advised to evacuate. Said notice,

addressed 90 &33 C0-C>R- (sic, was delivered to a policeman (Civil Case -o.

SM@1), pp. %)@% and >=hibit @& for the municipality of -or;a#aray. Said notice

was not thus addressed and delivered to the proper and responsible officials who could

have disseminated the warnin# to the residents directly affected. &s for the municipality

of Sta. Maria, where plaintiffs@appellants in Civil Case -o. SM@%</ reside, said notice

does not appear to have been served. 11

Relyin# on Juan . 0a&pil ( )ons vs. Court of Appeals, 12 !ublic res!ondent re)ected the !etitioners* !lea

that the incident in $uestion was caused by force majeure and that they are, therefore, not liable to the !rivate

res!ondents for any ind of damage 9 such damage being in the nature of damnum absque injuria"

9he motion for reconsideration filed by the petitioners, as well as the motion to modify 4ud#ment filed

by the public respondents, 13 were denied by the !ublic res!ondent in its 1esolution of 4 Eecember ?@@?" 14

Petitioners thus filed the instant petition on % 5ebruary %11.

&fter the Comment to the petition was filed by the private respondents and the Reply thereto was filed

by the petitioners, De #ave due course to the petition on %2 June %11 and directed the parties to

submit their respective Memoranda, 15 which they subse$uently com!lied with"

9he petitioners raised the followin# errors alle#edly committed by the respondent Court :

!. 96> C0ER9 05 &PP>&3S >RR>$ !- &PP3F!-+ 96> RE3!-+ 05 0A-P1 (

)40) !. C4?R" 4 APP*A1) &-$ 603$!-+ 96&9 P>9!9!0->RS D>R>

+E!39F 05 ->+3!+>-C>.

!!. 96> C0ER9 05 &PP>&3S >RR>$ !- 603$!-+ 96&9 96> DR!99>-

-09!C>S 05 D&R-!-+ !SSE>$ BF P>9!9!0->RS D>R> !-SE55!C!>-9.

!!!. 96> C0ER9 05 &PP>&3S >RR>$ !- 603$!-+ 96&9 96> $&M&+>

SE55>R>$ BF PR!&9> R>SP0-$>-9S D&S -09 /A0? A>)+?* 0J?RA.

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!. 96> C0ER9 05 &PP>&3S >RR>$ !- -09 &D&R$!-+ 96>

C0E-9>RC3&!M 05 P>9!9!0->RS 50R &990R->F?S 5>>S &-$ >OP>-S>S

05 3!9!+&9!0-. 16

9hese same errors were raised by herein petitioners in +.R. -o. 1/<%), entitled 0ational Po$er

Corporation, et al., vs. Court of Appeals, et al., 17 which this Court decided on = 'uly ?@@4" (he said case

involved the very same incident sub)ect of the instant !etition" In no uncertain terms, #e declared therein that

the !ro<imate cause of the loss and damage sustained by the !laintiffs therein 9 who were similarly situated as

the !rivate res!ondents herein 9 was the negligence of the !etitioners, and that the 47 ;ctober ?@8 early

warning notice su!!osedly sent to the affected munici!alities, the same notice involved in the case at bar, was

insufficient" #e thus cannot now rule otherwise not only because such a decision binds this Court with res!ect to

the cause of the inundation of the town of /oragaray, 6ulacan on 45-4 ;ctober ?@8 which resulted in the loss

of lives and the destruction to !ro!erty in both cases, but also because of the fact that on the basis of its

meticulous analysis and evaluation of the evidence adduced by the !arties in the cases sub)ect of CA-G"1" CV

/os" 44@B-@=, !ublic res!ondent found as conclusively established that indeed, the !etitioners were guilty of

!atent gross and evident lac of foresight, im!rudence and negligence in the management and o!eration of

Angat Eam, and that the e<tent of the o!ening of the s!illways, and the magnitude of the water released, are

all but !roducts of defendants-a!!ellees* headlessness, slovenliness, and carelessness" 18 Its findings and

conclusions are biding u!on Fs, there being no showing of the e<istence of any of the e<ce!tions to the general

rule that findings of fact of the Court of A!!eals are conclusive u!on this Court" 19 lsewise stated, the

challenged decision can stand on its own merits inde!endently of ;ur decision in G"1" /o" @57?B" In any event,

#e reiterate here in ;ur !ronouncement in the latter case that Juan F. Nakpil & Sons vs. Court of Appeals 20 is

still good law as far as the concurrent liability of an obligor in the case of force majeure is concerned" In the

Nakpil case, #e held:

9o e=empt the obli#or from liability under &rticle %%2< of the Civil Code, for a breach of

an obli#ation due to an act of +od, the followin# must concur: (a the cause of thebreach of the obli#ation must be independent of the will of the debtorA (b the event must

be either unforseeable or unavoidableA (c the event must be such as to render it

impossible for the debtor to fulfill his obli#ation in a moral mannerA and (d the debtor

must be free from any participation in, or a##ravation of the in4ury to the creditor.

(as8ue; v. Court of &ppeals, %'* SCR& 'A >strada v. Consolacion, 2% SCR& <'A

&ustria v. Court of &ppeals, '1 SCR& 2A Republic of the Phil. v. 3u;on Stevedorin#

Corp., % SCR& 21A 3asam v. Smith, < Phil. /2.

9hus, if upon the happenin# of a fortuitous event or an act of +od, there concurs a

correspondin# fraud, ne#li#ence, delay or violation or contravention in any manner of

the tenor of the obli#ation as provided for in &rticle %%2) of the Civil Code, which

results in loss or dama#e, the obli#or cannot escape liability.

9he principle embodied in the act of +od doctrine strictly re8uires that the act must be

one occasioned e=clusively by the violence of nature and all human a#encies are to be

e=cluded from creatin# or enterin# into the cause of the mischief. Dhen the effect, the

cause of which is to be considered, is found to be in part the result of the participation of

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man, whether it be from active intervention or ne#lect, or failure to act, the whole

occurrence is thereby humani;ed, as it were, and removed from the rules applicable to

the acts of +od. (% Corpus Juris, pp. %%2<@%%2.

9hus it has been held that when the ne#li#ence of a person concurs with an act of +od in

producin# a loss, such person is not e=empt from liability by showin# that the immediate

cause of the dama#e was the act of +od. 9o be e=empt from liability for loss because of

an act of +od, he must be free from any previous ne#li#ence or misconduct by which

that loss or dama#e may have been occasioned. (5ish >lective Co. v. Phil. Motors,

Phil. %1A 9uc"er v. Milan, <1 0.+. <'21A 3impan#co Sons v. Fan#co Steamship Co.,

'< Phil. 1<, /)<A 3asam v. Smith, < Phil. /2. 21

&ccordin#ly, petitioners cannot be heard to invo"e the act of +od or force ma'eure to escape liability

for the loss or dama#e sustained by private respondents since they, the petitioners, were #uilty ofne#li#ence. 9he event then was not occasioned e=clusively by an act of +od or force ma'eureA a human

factor T ne#li#ence or imprudence T had intervened. 9he effect then of the force ma'eure in 8uestion

may be deemed to have, even if only partly, resulted from the participation of man. 9hus, the whole

occurrence was thereby humani;ed, as it were, and removed from the laws applicable to acts of +od.

D6>R>50R>, for want of merit, the instant petition is hereby $!SM!SS>$ and the Consolidated

$ecision of the Court of &ppeals in C&@+.R. C -os. 21)@1' is &55!RM>$, with costs a#ainst the

petitioners.

S0 0R$>R>$.

eliciano, >idin, Romero and elo, JJ., concur.

Footnotes

Manila

S>C0-$ $!!S!0-

G.R. No. 71B9 M" 29, 1987

!ERNARDINO 'IMENE), petitioner,

vs.

CIT= O< MANI&A "#$ INTERMEDIATE APPE&&ATE COURT, respondents.

PARAS, J.:

9his is a petition for review on certiorari of: (% the decision * of the Intermediate A!!ellate Court in AC-G"1" /o" B?=88-CV

Bernardino Jimenez v. Asiatic nte!rated Corporation and Cit" of #anila, reversing the decision ** of the Court of %irst Instance of Manila, 6ranch HHII in Civil

Case /o" @5=@B between the same !arties, but only insofar as holding Asiatic Integrated Cor!oration solely liable for damages and attorney*s fees instead of

maing the City of Manila )ointly and solidarily liable with it as !rayed for by the !etitioner and +4 the resolution of the same A!!ellate Court denying his &artial

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Motion for 1econsideration +1ollo, !" 4"

9he dispositive portion of the !ntermediate &ppellate Court?s decision is as follows:

D6>R>50R>, the decision appealed from is hereby R>>RS>$. & new one is hereby

entered orderin# the defendant &siatic !nte#rated Corporation to pay the plaintiff

P%.1) actual medical e=penses, P1)).)) for the amount paid for the operation and

mana#ement of a school bus, P),))).)) as moral dama#es due to pains, sufferin#s andsleepless ni#hts and P l),))).)) as attorney?s fees.

S0 0R$>R>$. (p. ), Rollo

9he findin#s of respondent &ppellate Court are as follows:

9he evidence of the plaintiff (petitioner herein shows that in the mornin# of &u#ust %, %12< he,

to#ether with his nei#hbors, went to Sta. &na public mar"et to buy ba#oon# at the time when the

public mar"et was flooded with an"le deep rainwater. &fter purchasin# the ba#oon# he turned around

to return home but he stepped on an uncovered openin# which could not be seen because of the dirty

rainwater, causin# a dirty and rusty four@ inch nail, stuc" inside the uncovered openin#, to pierce theleft le# of plaintiff@petitioner penetratin# to a depth of about one and a half inches. &fter administerin#

first aid treatment at a nearby dru#store, his companions helped him hobble home. 6e felt ill and

developed fever and he had to be carried to $r. Juanita Mascardo. $espite the medicine administered to

him by the latter, his left le# swelled with #reat pain. 6e was then rushed to the eterans Memorial

6ospital where he had to be confined for twenty () days due to hi#h fever and severe pain.

Epon his dischar#e from the hospital, he had to wal" around with crutches for fifteen (% days. 6is

in4ury prevented him from attendin# to the school buses he is operatin#. &s a result, he had to en#a#e

the services of one Bienvenido alde; to supervise his business for an a##re#ate compensation of nine

hundred pesos (P1)).)). ($ecision, &C@+.R. C -o. )%'*2, Rollo, pp. %'@).

Petitioner sued for dama#es the City of Manila and the &siatic !nte#rated Corporation under whose

administration the Sta. &na Public Mar"et had been placed by virtue of a Mana#ement and 0peratin#

Contract (Rollo, p. <2.

9he lower court decided in favor of respondents, the dispositive portion of the decision readin#:

D6>R>50R>, 4ud#ment is hereby rendered in favor of the defendants and a#ainst the

plaintiff dismissin# the complaint with costs a#ainst the plaintiff. 5or lac" of sufficient

evidence, the counterclaims of the defendants are li"ewise dismissed. ($ecision, Civil

Case -o. 1/'1), Rollo, p. <.

&s above stated, on appeal, the !ntermediate &ppellate Court held the &siatic !nte#rated Corporation

liable for dama#es but absolved respondent City of Manila.

6ence this petition.

9he lone assi#nment of error raised in this petition is on whether or not the !ntermediate &ppellate

Court erred in not rulin# that respondent City of Manila should be 4ointly and severally liable with

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&siatic !nte#rated Corporation for the in4uries petitioner suffered.

!n compliance with the resolution of July %, %1* of the 5irst $ivision of this Court (Rollo, p. 1

respondent City of Manila filed its comment on &u#ust %', %1* (Rollo, p. '< while petitioner filed its

reply on &u#ust %, %1* (Reno, p. %.

9hereafter, the Court in the resolution of September %%, %1* (Rollo, p. / #ave due course to the

petition and re8uired both parties to submit simultaneous memoranda

Petitioner filed his memorandum on 0ctober %, %1* (Rollo, p. / while respondent filed its

memorandum on 0ctober <, %1* (Rollo, p. *.

!n the resolution of 0ctober %', %1*/, this case was transferred to the Second $ivision of this Court,

the same havin# been assi#ned to a member of said $ivision (Rollo, p. 1.

9he petition is impressed with merit.

&s correctly found by the !ntermediate &ppellate Court, there is no doubt that the plaintiff suffered

in4uries when he fell into a draina#e openin# without any cover in the Sta. &na Public Mar"et.$efendants do not deny that plaintiff was in fact in4ured althou#h the &siatic !nte#rated Corporation

tries to minimi;e the e=tent of the in4uries, claimin# that it was only a small puncture and that as a war

veteran, plaintiff?s hospitali;ation at the Dar eteran?s 6ospital was free. ($ecision, &C@+.R. C -o.

)%'*2, Rollo, p. /.

Respondent City of Manila maintains that it cannot be held liable for the in4uries sustained by the

petitioner because under the Mana#ement and 0peratin# Contract, &siatic !nte#rated Corporation

assumed all responsibility for dama#es which may be suffered by third persons for any cause

attributable to it.

!t has also been ar#ued that the City of Manila cannot be held liable under &rticle %, Section < of

Republic &ct -o. <)1 as amended (Revised Charter of Manila which provides:

9he City shall not be liable or held for dama#es or in4uries to persons or property arisin#

from the failure of the Mayor, the Municipal Board, or any other City 0fficer, to enforce

the provisions of this chapter, or any other law or ordinance, or from ne#li#ence of said

Mayor, Municipal Board, or any other officers while enforcin# or attemptin# to enforce

said provisions.

9his issue has been laid to rest in the case of Cit# of anila v. "eotico ( SCR& /1@2 %1/*N

where the Supreme Court s8uarely ruled that Republic &ct -o. <)1 establishes a #eneral rule re#ulatin#

the liability of the City of Manila for dama#es or in4ury to persons or property arisin# from the failure

of city officers to enforce the provisions of said &ct, or any other law or ordinance or from

ne#li#ence of the City Mayor, Municipal Board, or other officers while enforcin# or attemptin# to

enforce said provisions.

Epon the other hand, &rticle %*1 of the Civil Code of the Philippines which provides that:

Provinces, cities and municipalities shall be liable for dama#es for the death of, or

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in4uries suffered by any person by reason of defective conditions of roads, streets,

brid#es, public buildin#s and other public wor"s under their control or supervision.

constitutes a particular prescription ma"in# provinces, cities and municipalities ... liable for dama#es

for the death of, or in4ury suffered by any person by reason T specifically T of the defective

condition of roads, streets, brid#es, public buildin#s, and other public wor"s under their control or

supervision. !n other words, &rt. %, sec. <, R.&. -o. <)1 refers to liability arisin# from ne#li#ence, in#eneral, re#ardless of the ob4ect, thereof, while &rticle %*1 of the Civil Code #overns liability due to

defective streets, public buildin#s and other public wor"s in particular and is therefore decisive on

this specific case.

!n the same suit, the Supreme Court clarified further that under &rticle %*1 of the Civil Code, it is not

necessary for the liability therein established to attach, that the defective public wor"s belon# to the

province, city or municipality from which responsibility is e=acted. Dhat said article re8uires is that the

province, city or municipality has either control or supervision over the public buildin# in 8uestion.

!n the case at bar, there is no 8uestion that the Sta. &na Public Mar"et, despite the Mana#ement and0peratin# Contract between respondent City and &siatic !nte#rated Corporation remained under the

control of the former.

5or one thin#, said contract is e=plicit in this re#ard, when it provides:

!!

9hat immediately after the e=ecution of this contract, the S>C0-$ P&R9F shall start

the paintin#, cleanin#, saniti;in# and repair of the public mar"ets and talipapas and

within ninety (1) days thereof, the S>C0-$ P&R9F shall submit a pro#ram of

improvement, development, rehabilitation and reconstruction of the city public mar"etsand talipapas sub4ect to prior approval of the 5!RS9 P&R9F. (Rollo, p. <<

=== === ===

!

9hat all present personnel of the City public mar"ets and talipapas shall be retained by

the S>C0-$ P&R9F as lon# as their services remain satisfactory and they shall be

e=tended the same ri#hts and privile#es as heretofore en4oyed by them. Provided,

however, that the S>C0-$ P&R9F shall have the ri#ht, sub4ect to prior approval of the

5!RS9 P&R9F to dischar#e any of the present employees for cause. (Rollo, p. <.

!!

9hat the S>C0-$ P&R9F may from time to time be re8uired by the 5!RS9 P&R9F, or

his duly authori;ed representative or representatives, to report, on the activities and

operation of the City public mar"ets and talipapas and the facilities and conveniences

installed therein, particularly as to their cost of construction, operation and maintenance

in connection with the stipulations contained in this Contract. (lbid

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9he fact of supervision and control of the City over sub4ect public mar"et was admitted by Mayor

Ramon Ba#atsin# in his letter to Secretary of 5inance Cesar irata which reads:

9hese cases arose from the controversy over the Mana#ement and 0peratin# Contract

entered into on $ecember *, %12 by and between the City of Manila and the &siatic

!nte#rated Corporation, whereby in consideration of a fi=ed service fee, the City hired

the services of the said corporation to underta"e the physical mana#ement, maintenance,rehabilitation and development of the City?s public mar"ets and? 9alipapas? sub4ect to the

control and supervision of the City.

=== === ===

!t is believed that there is nothin# incon#ruous in the e=ercise of these powers vis@a@vis

the e=istence of the contract, inasmuch as the Cit# retains the po$er of supervision and

control over its public mar&ets and talipapas under the terms of the contract . (>=hibit

2@& (>mphasis supplied. (Rollo, p. 2.

!n fact, the City of Manila employed a mar"et master for the Sta. &na Public Mar"et whose primaryduty is to ta"e direct supervision and control of that particular mar"et, more specifically, to chec" the

safety of the place for the public.

9hus the &sst. Chief of the Mar"et $ivision and $eputy Mar"et &dministrator of the City of Manila

testified as follows:

Court 9his mar"et master is an employee of the City of Manila

Mr. Fmson Fes, Four 6onor.

I Dhat are his functions

& $irect supervision and control over the mar"et area assi#ned to

him.(9.s.n.,pp. <%@<, 6earin# of May ), %122.

=== === ===

Court &s far as you "now there is or is there any specific employee

assi#ned with the tas" of seein# to it that the Sta. &na Mar"et is safe for

the public

Mr. Fmson &ctually, as ! stated, Four 6onor, that the Sta. &na has its own

mar"et master. "he primar# dut# of that mar&et master is to ma&e thedirect supervision and control of that particular mar&et, the chec" or

verifyin# whether the place is safe for public safety is vested in the

mar"et master. (9.s.n., pp. <, 6earin# of July 2, %122. (>mphasis

supplied. (Rollo, p. 2/.

5inally, Section ') (# of the 3ocal 9a= Code as amended, provides:

"he treasurer shall e%ercise direct and immediate supervision administration and

7/21/2019 Civ 2 cases


control over public mar&ets and the personnel thereof, includin# those whose duties

concern the maintenance and up"eep of the mar"et and ordinances and other pertinent

rules and re#ulations. (>mphasis supplied. (Rollo, p. 2/

9he contention of respondent City of Manila that petitioner should not have ventured to #o to Sta. &na

Public Mar"et durin# a stormy weather is indeed untenable. &s observed by respondent Court of

&ppeals, it is an error for the trial court to attribute the ne#li#ence to herein petitioner. Morespecifically stated, the findin#s of appellate court are as follows:

... 9he trial court even chastised the plaintiff for #oin# to mar"et on a rainy day 4ust to

buy ba#oon#. & customer in a store has the ri#ht to assume that the owner will comply

with his duty to "eep the premises safe for customers. !f he ventures to the store on the

basis of such assumption and is in4ured because the owner did not comply with his duty,

no ne#li#ence can be imputed to the customer. ($ecision, &C@+. R. C -o. )%'*2,

Rollo, p. %1.

&s a defense a#ainst liability on the basis of a 8uasi@delict, one must have e=ercised the dili#ence of a#ood father of a family. (&rt. %%2' of the Civil Code.

9here is no ar#ument that it is the duty of the City of Manila to e=ercise reasonable care to "eep the

public mar"et reasonably safe for people fre8uentin# the place for their mar"etin# needs.

Dhile it may be conceded that the fulfillment of such duties is e=tremely difficult durin# storms and

floods, it must however, be admitted that ordinary precautions could have been ta"en durin# #ood

weather to minimi;e the dan#ers to life and limb under those difficult circumstances.

5or instance, the draina#e hole could have been placed under the stalls instead of on the passa#e ways.

>ven more important is the fact, that the City should have seen to it that the openin#s were covered.Sadly, the evidence indicates that lon# before petitioner fell into the openin#, it was already uncovered,

and five ( months after the incident happened, the openin# was still uncovered. (Rollo, pp. 2A 1.

Moreover, while there are findin#s that durin# floods the vendors remove the iron #rills to hasten the

flow of water ($ecision, &C@+.R. C -o. ) %'*2A Rollo, p. %2, there is no showin# that such practice

has ever been prohibited, much less penali;ed by the City of Manila. -either was it shown that any si#n

had been placed thereabouts to warn passersby of the impendin# dan#er.

9o recapitulate, it appears evident that the City of Manila is li"ewise liable for dama#es under &rticle

%*1 of the Civil Code, respondent City havin# retained control and supervision over the Sta. &na

Public Mar"et and as tort@feasor under &rticle %2/ of the Civil Code on 8uasi@delicts

Petitioner had the ri#ht to assume that there were no openin#s in the middle of the passa#eways and if

any, that they were ade8uately covered. 6ad the openin# been covered, petitioner could not have fallen

into it. 9hus the ne#li#ence of the City of Manila is the pro=imate cause of the in4ury suffered, the City

is therefore liable for the in4ury suffered by the peti@ < petitioner.

Respondent City of Manila and &siatic !nte#rated Corporation bein# 4oint tort@feasors are solidarily

liable under &rticle %1< of the Civil Code.

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PR>M!S>S C0-S!$>R>$, the decision of the Court of &ppeals is hereby M0$!5!>$, ma"in# the

City of Manila and the &siatic !nte#rated Corporation solidarily liable to pay the plaintiff P%.1)

actual medical e=penses, P1)).)) for the amount paid for the operation and mana#ement of the school

bus, P),))).)) as moral dama#es due to pain, sufferin#s and sleepless ni#hts and P%),))).)) as

attorney?s fees.

S0 0R$>R>$.

S>C0-$ $!!S!0-

G.R. No. &(B7851 O/to4%- , 1986

'UAN <. NAPI& F SONS, "#$ 'UAN <. NAPI&, petitioners,

vs.

THE COURT O< APPEA&S, UNITED CONSTRUCTION COMPAN=, INC., 'UAN '.

CAR&OS, "#$ t+% PHI&IPPINE !AR ASSOCIATION, respondents.

G.R. No. &(B786 O/to4%- , 1986

THE UNITED CONSTRUCTION CO., INC., 0%tto#%-,

:s.

COURT O< APPEA&S, ET A&., -%s0o#$%#ts.

G.R. No. &(B7896 O/to4%- , 1986

PHI&IPPINE !AR ASSOCIATION, ET A&., 0%tto#%-s,

:s.

COURT O< APPEA&S, ET A&., -%s0o#$%#ts.

PARAS, J.:

T+%s% "-% 0%tto#s o- -%:% o# /%-to-"- o t+% No:%34%- 28, 1977 $%/so# o t+% Cou-t o

A00%"s # CA(G.R. No. 51771(R 3o$#g t+% $%/so# o t+% Cou-t o <-st I#st"#/% o M"#",

!-"#/+ V, # C: C"s% No. 7B958 $"t%$ S%0t%34%- 21, 1971 "s 3o$%$ 4 t+% O-$%- o t+%

o%- /ou-t $"t%$ D%/%34%- 8, 1971. T+% Cou-t o A00%"s # 3o$#g t+% $%/so# o t+% o%-

/ou-t #/u$%$ "# ""-$ o "# "$$to#" "3ou#t o P2,. to t+% P+00#% !"-

Asso/"to# to 4% 0"$ >o#t "#$ s%:%-" 4 t+% $%%#$"#t U#t%$ Co#st-u/to# Co. "#$ 4 t+%

t+-$(0"-t $%%#$"#ts 'u"# <. N"0 "#$ So#s "#$ 'u"# <. N"0.

T+% $s0ost:% 0o-to# o t+% 3o$%$ $%/so# o t+% o%- /ou-t -%"$s*

?HERE<ORE, >u$g3%#t s +%-%4 -%#$%-%$*

" O-$%-#g $%%#$"#t U#t%$ Co#st-u/to# Co., I#/. "#$ t+-$(0"-t $%%#$"#ts

%/%0t Ro3"# O"%t" to 0" t+% 0"#t, >o#t "#$ s%:%-", t+% su3 o

P989,5.68 t+ #t%-%st "t t+% %g" -"t% -o3 No:%34%- 29, 1968, t+% $"t% o t+%

#g o t+% /o30"#t u#t u 0"3%#tJ

7/21/2019 Civ 2 cases


4 Ds3ss#g t+% /o30"#t t+ -%s0%/t to $%%#$"#t 'u"# '. C"-osJ

/ Ds3ss#g t+% t+-$(0"-t /o30"#tJ

$ Ds3ss#g t+% $%%#$"#ts "#$ t+-$(0"-t $%%#$"#ts /ou#t%-/"3s o- "/

o 3%-tJ

% O-$%-#g $%%#$"#t U#t%$ Co#st-u/to# Co., I#/. "#$ t+-$(0"-t $%%#$"#ts%/%0t Ro3"# O"%t" to 0" t+% /osts # %@u" s+"-%s.

SO ORDERED. R%/o-$ o# A00%" 0. 521J Roo, &( B7851, 0. 169.

T+% $s0ost:% 0o-to# o t+% $%/so# o t+% Cou-t o A00%"s -%"$s*

?HERE<ORE, t+% >u$g3%#t "00%"%$ -o3 s 3o$%$ to #/u$% "# ""-$ o

P2,. # ":o- o 0"#t("00%"#t P+00#% !"- Asso/"to#, t+ #t%-%st

"t t+% %g" -"t% -o3 No:%34%- 29, 1968 u#t u 0"3%#t to 4% 0"$ >o#t "#$

s%:%-" 4 $%%#$"#t U#t%$ Co#st-u/to# Co., I#/. "#$ t+-$ 0"-t $%%#$"#ts

%/%0t Ro3"# O"%t". I# " ot+%- -%s0%/ts, t+% >u$g3%#t $"t%$ S%0t%34%- 21,1971 "s 3o$%$ # t+% D%/%34%- 8, 1971 O-$%- o t+% o%- /ou-t s +%-%4

"-3%$ t+ COSTS to 4% 0"$ 4 t+% $%%#$"#t "#$ t+-$ 0"-t $%%#$"#t

%/%0t Ro3"# O"%t" # %@u" s+"-%s.

SO ORDERED.

P%tto#%-s 'u"# <. N"0 F So#s # &(B7851 "#$ U#t%$ Co#st-u/to# Co., I#/. "#$ 'u"# '.

C"-os # &(B786 s%% t+% -%:%-s" o t+% $%/so# o t+% Cou-t o A00%"s, "3o#g ot+%- t+#gs,

o- %o#%-"to# -o3 "4t +% 0%tto#%- P+00#% !"- Asso/"to# # &(B7896 s%%s t+%

3o$/"to# o "o-%s"$ $%/so# to o4t"# "# ""-$ o P1,8,. o- t+% oss o t+% P!A

4u$#g 0us ou- B t3%s su/+ "3ou#t "s $"3"g%s -%sut#g # #/-%"s%$ /ost o t+% 4u$#g,

P1,. "s %%30"- $"3"g%sJ "#$ P1,. "s "tto-#%s %%s.

T+%s% 0%tto#s "-s#g -o3 t+% s"3% /"s% %$ # t+% Cou-t o <-st I#st"#/% o M"#" %-%

/o#so$"t%$ 4 t+s Cou-t # t+% -%souto# o M" 1, 1978 -%@u-#g t+% -%s0%/t:% -%s0o#$%#ts

to /o33%#t. Roo, &(B7851, 0. 172.

T+% "/ts "s ou#$ 4 t+% o%- /ou-t D%/so#, C.C. No. 7B958J R%/o-$ o# A00%", 00. 269(B8J

00. 52(521J Roo, &(B7851, 0. 169 "#$ "-3%$ 4 t+% Cou-t o A00%"s "-% "s oos*

T+% 0"#t, P+00#% !"- Asso/"to#, " /:/(#o#(0-ot "sso/"to#, #/o-0o-"t%$ u#$%- t+%

Co-0o-"to# &", $%/$%$ to /o#st-u/t "# o/% 4u$#g o# ts 8B s@u"-% 3%t%-s ot o/"t%$ "t

t+% /o3%- o A$u"#" "#$ A-o4s0o St-%%ts, I#t-"3u-os, M"#". T+% /o#st-u/to# "s

u#$%-t"%# 4 t+% U#t%$ Co#st-u/to#, I#/. o# "# "$3#st-"to# 4"ss, o# t+% sugg%sto# o

'u"# '. C"-os, t+% 0-%s$%#t "#$ g%#%-" 3"#"g%- o s"$ /o-0o-"to#. T+% 0-o0os" "s

"00-o:%$ 4 0"#ts 4o"-$ o $-%/to-s "#$ sg#%$ 4 ts 0-%s$%#t Ro3"# O"%t", " t+-$(

0"-t $%%#$"#t # t+s /"s%. T+% 0"#s "#$ s0%//"to#s o- t+% 4u$#g %-% 0-%0"-%$ 4 t+%

ot+%- t+-$(0"-t $%%#$"#ts 'u"# <. N"0 F So#s. T+% 4u$#g "s /o30%t%$ # 'u#%, 1966.

7/21/2019 Civ 2 cases


I# t+% %"- 3o-##g o August 2, 1968 "# u#usu" st-o#g %"-t+@u"% +t M"#" "#$ ts

%#:-o#s "#$ t+% 4u$#g # @u%sto# sust"#%$ 3">o- $"3"g%. T+% -o#t /ou3#s o t+% 4u$#g

4u/%$, /"us#g t+% 4u$#g to tt o-"-$ $"#g%-ous. T+% t%#"#ts :"/"t%$ t+% 4u$#g #

:% o ts 0-%/"-ous /o#$to#. As " t%30o-"- -%3%$" 3%"su-%, t+% 4u$#g "s s+o-%$ u0

4 U#t%$ Co#st-u/to#, I#/. "t t+% /ost o P1,661.28.

O# No:%34%- 29, 1968, t+% 0"#t /o33%#/%$ t+s "/to# o- t+% -%/o:%- o $"3"g%s "-s#g-o3 t+% 0"-t" /o"0s% o t+% 4u$#g "g"#st U#t%$ Co#st-u/to#, I#/. "#$ ts P-%s$%#t "#$

G%#%-" M"#"g%- 'u"# '. C"-os "s $%%#$"#ts. P"#t "%g%s t+"t t+% /o"0s% o t+% 4u$#g

"s "//us%$ 4 $%%/ts # t+% /o#st-u/to#, t+% "u-% o t+% /o#t-"/to-s to oo 0"#s "#$

s0%//"to#s "#$ :o"to#s 4 t+% $%%#$"#ts o t+% t%-3s o t+% /o#t-"/t.

D%%#$"#ts # tu-# %$ " t+-$(0"-t /o30"#t "g"#st t+% "-/+t%/ts +o 0-%0"-%$ t+% 0"#s

"#$ s0%//"to#s, "%g#g # %ss%#/% t+"t t+% /o"0s% o t+% 4u$#g "s $u% to t+% $%%/ts #

t+% s"$ 0"#s "#$ s0%//"to#s. Ro3"# O"%t", t+% t+%# 0-%s$%#t o t+% 0"#t !"-

Asso/"to# "s #/u$%$ "s " t+-$(0"-t $%%#$"#t o- $"3"g%s o- +":#g #/u$%$ 'u"# '.

C"-os, P-%s$%#t o t+% U#t%$ Co#st-u/to# Co., I#/. "s 0"-t $%%#$"#t.

O# M"-/+ , 1969, t+% 0"#t "#$ t+-$(0"-t $%%#$"#ts 'u"# <. N"0 F So#s "#$ 'u"# <.

N"0 0-%s%#t%$ " -tt%# st0u"to# +/+ -%"$s*

1. T+"t # -%"to# to $%%#$"#ts "#s%- t+ /ou#t%-/"3s "#$ t+-$( 0"-t

/o30"#ts "#$ t+% t+-$(0"-t $%%#$"#ts N"0 F So#s "#s%- t+%-%to, t+%

0"#t #%%$ #ot "3%#$ ts /o30"#t 4 #/u$#g t+% s"$ 'u"# <. N"0 F So#s

"#$ 'u"# <. N"0 0%-so#" "s 0"-t%s $%%#$"#t.

2. T+"t # t+% %:%#t u#%0%/t%$ 4 t+% u#$%-sg#%$ t+"t t+% Cou-t s+ou$ #$

"t%- t+% t-" t+"t t+% "4o:%(#"3%$ $%%#$"#ts 'u"# '. C"-os "#$ U#t%$

Co#st-u/to# Co., I#/. "-% -%% -o3 "# 4"3% "#$ "4t o- t+% /o"0s% o t+%

P!A !u$#g, "#$ s+ou$ u-t+%- #$ t+"t t+% /o"0s% o s"$ 4u$#g "s $u% to

$%%/ts "#$o- #"$%@u"/ o t+% 0"#s, $%sg#s, "#$ s0%//"to#s 0 4 t+% t+-$(

0"-t $%%#$"#ts, o- # t+% %:%#t t+"t t+% Cou-t 3" #$ 'u"# <. N"0 "#$ So#s

"#$o- 'u"# <. N"0 /o#t-4uto- #%gg%#t o- # "# " >o#t "#$ so$"-

"4% t+ t+% $%%#$"#ts, >u$g3%#t 3" 4% -%#$%-%$ # +o% o- # 0"-t. "s t+%

/"s% 3" 4%, "g"#st 'u"# <. N"0 F So#s "#$o- 'u"# <. N"0 # ":o- o t+%

0"#t to " #t%#ts "#$ 0u-0os%s "s 0"#ts /o30"#t +"s 4%%# $u

"3%#$%$ 4 #/u$#g t+% s"$ 'u"# <. N"0 F So#s "#$ 'u"# <. N"0 "s 0"-t%s$%%#$"#t "#$ 4 "%g#g /"us%s o "/to# "g"#st t+%3 #/u$#g, "3o#g ot+%-s,

t+% $%%/ts o- #"$%@u"/ o t+% 0"#s, $%sg#s, "#$ s0%//"to#s 0-%0"-%$ 4 t+%3

"#$o- "u-% # t+% 0%-o-3"#/% o t+%- /o#t-"/t t+ 0"#t.

. !ot+ 0"-t%s +%-%4 >o#t 0%tto# t+s Ho#o-"4% Cou-t to "00-o:% t+s

st0u"to#. R%/o-$ o# A00%", 00. 27B(275J Roo, &(B7851,0.169.

U0o# t+% ssu%s 4%#g >o#%$, " 0-%(t-" "s /o#$u/t%$ o# M"-/+ 7, 1969, $u-#g +/+ "3o#g

7/21/2019 Civ 2 cases


ot+%-s, t+% 0"-t%s "g-%%$ to -%%- t+% t%/+#/" ssu%s #:o:%$ # t+% /"s% to " Co33sso#%-. M-.

A#$-%s O. Ho#, +o "s ut3"t% "00o#t%$ 4 t+% t-" /ou-t, "ssu3%$ +s o/% "s

Co33sso#%-, /+"-g%$ t+ t+% $ut to t- t+% oo#g ssu%s*

1. ?+%t+%- t+% $"3"g% sust"#%$ 4 t+% P!A 4u$#g $u-#g t+% August 2, 1968

%"-t+@u"% +"$ 4%%# /"us%$, $-%/t o- #$-%/t, 4*

" T+% #"$%@u"/%s o- $%%/ts # t+% 0"#s "#$ s0%//"to#s 0-%0"-%$ 4 t+-$(

0"-t $%%#$"#tsJ

4 T+% $%:"to#s, "#, 3"$% 4 t+% $%%#$"#ts -o3 s"$ 0"#s "#$

s0%//"to#s "#$ +o s"$ $%:"to#s /o#t-4ut%$ to t+% $"3"g% sust"#%$J

/ T+% "%g%$ "u-% o $%%#$"#ts to o4s%-:% t+% -%@ust% @u"t o 3"t%-"s

"#$ o-3"#s+0 # t+% /o#st-u/to# o t+% 4u$#gJ

$ T+% "%g%$ "u-% to %%-/s% t+% -%@ust% $%g-%% o su0%-:so# %0%/t%$ o t+%

"-/+t%/t, t+% /o#t-"/to- "#$o- t+% o#%- o t+% 4u$#gJ

% A# "/t o Go$ o- " o-tutous %:%#tJ "#$

A# ot+%- /"us% #ot +%-%# "4o:% s0%/%$.

2. I t+% /"us% o t+% $"3"g% su%-%$ 4 t+% 4u$#g "-os% -o3 " /o34#"to# o

t+% "4o:%(%#u3%-"t%$ "/to-s, t+% $%g-%% o- 0-o0o-to# # +/+ %"/+ #$:$u"

"/to- /o#t-4ut%$ to t+% $"3"g% sust"#%$J

. ?+%t+%- t+% 4u$#g s #o " tot" oss "#$ s+ou$ 4% /o30%t% $%3os+%$ o-

+%t+%- t 3" st 4% -%0"-%$ "#$ -%sto-%$ to " t%#"#t"4% /o#$to#. I# t+% "tt%-

/"s%, t+% $%t%-3#"to# o t+% /ost o su/+ -%sto-"to# o- -%0"-, "#$ t+% :"u% o "# -%3"##g /o#st-u/to#, su/+ "s t+% ou#$"to#, +/+ 3" st 4% ut%$ o-

":"%$ o R%/o-$ o# A00%", 00. 275(276J Roo, &(B7851, 0. 169.

T+us, t+% ssu%s o t+s /"s% %-% $:$%$ #to t%/+#/" ssu%s "#$ #o#(t%/+#/" ssu%s. As

"o-%st"t%$ t+% t%/+#/" ssu%s %-% -%%--%$ to t+% Co33sso#%-. T+% #o#(t%/+#/" ssu%s %-%

t-%$ 4 t+% Cou-t.

M%"#+%, 0"#t 3o:%$ t/% o- t+% $%3oto# o t+% 4u$#g o# t+% g-ou#$ t+"t t 3"

to00% $o# # /"s% o " st-o#g %"-t+@u"%. T+% 3oto#s %-% o00os%$ 4 t+% $%%#$"#ts "#$ t+%

3"tt%- "s -%%--%$ to t+% Co33sso#%-. <#", o# A0- , 1979 t+% 4u$#g "s "ut+o-%$

to 4% $%3os+%$ "t t+% %0%#s% o t+% 0"#t, 4ut #ot "#ot+%- %"-t+@u"% o +g+ #t%#st o#

A0- 7, 197 oo%$ 4 ot+%- st-o#g %"-t+@u"%s o# A0- 9, "#$ 12, 197, /"us%$ u-t+%-

$"3"g% to t+% 0-o0%-t. T+% "/tu" $%3oto# "s u#$%-t"%# 4 t+% 4u%- o t+% $"3"g%$

4u$#g. R%/o-$ o# A00%", 00. 278(28J Ibid.

At%- t+% 0-ot-"/t%$ +%"-#gs, t+% Co33sso#%- %:%#tu" su43tt%$ +s -%0o-t o# S%0t%34%-

25, 197 t+ t+% #$#gs t+"t +% t+% $"3"g% sust"#%$ 4 t+% P!A 4u$#g "s /"us%$

$-%/t 4 t+% August 2, 1968 %"-t+@u"% +os% 3"g#tu$% "s %st3"t%$ "t 7. t+% %-% "so

7/21/2019 Civ 2 cases


/"us%$ 4 t+% $%%/ts # t+% 0"#s "#$ s0%//"to#s 0-%0"-%$ 4 t+% t+-$(0"-t $%%#$"#ts

"-/+t%/ts, $%:"to#s -o3 s"$ 0"#s "#$ s0%//"to#s 4 t+% $%%#$"#t /o#t-"/to-s "#$ "u-%

o t+% "tt%- to o4s%-:% t+% -%@ust% o-3"#s+0 # t+% /o#st-u/to# o t+% 4u$#g "#$ o t+%

/o#t-"/to-s, "-/+t%/ts "#$ %:%# t+% o#%-s to %%-/s% t+% -%@ust% $%g-%% o su0%-:so# # t+%

/o#st-u/to# o su4>%/t 4u$#g.

A t+% 0"-t%s -%gst%-%$ t+%- o4>%/to#s to "o-%s"$ #$#gs +/+ # tu-# %-% "#s%-%$ 4t+% Co33sso#%-.

T+% t-" /ou-t "g-%%$ t+ t+% #$#gs o t+% Co33sso#%- %/%0t "s to t+% +o$#g t+"t t+%

o#%- s /+"-g%$ t+ u ##% su0%-:so# o t+% /o#st-u/to#. T+% Cou-t s%%s #o %g" o-

/o#t-"/tu" 4"ss o- su/+ /o#/uso#. R%/o-$ o# A00%", 00. 9(28J I4$.

T+us, o# S%0t%34%- 21, 1971, t+% o%- /ou-t -%#$%-%$ t+% "ss"%$ $%/so# +/+ "s 3o$%$

4 t+% I#t%-3%$"t% A00%"t% Cou-t o# No:%34%- 28, 1977.

A t+% 0"-t%s +%-%# "00%"%$ -o3 t+% $%/so# o t+% I#t%-3%$"t% A00%"t% Cou-t. H%#/%,

t+%s% 0%tto#s.

O# M" 11, 1978, t+% U#t%$ A-/+t%/ts o t+% P+00#%s, t+% Asso/"to# o C: E#g#%%-s, "#$

t+% P+00#% I#sttut% o A-/+t%/ts %$ t+ t+% Cou-t " 3oto# to #t%-:%#% "s amicus curiae.

T+% 0-o0os%$ to 0-%s%#t " 0osto# 0"0%- o# t+% "4t o "-/+t%/ts +%# " 4u$#g /o"0s%s

"#$ to su43t %s% " /-t/" "#"ss t+ /o30ut"to#s o# t+% $:%-g%#t :%s o# t+% $%sg#

"#$ 0"#s "s su43tt%$ 4 t+% %0%-ts 0-o/u-%$ 4 t+% 0"-t%s. T+% 3oto# +":#g 4%%# g-"#t%$,

t+% amicus curiae %-% g-"#t%$ " 0%-o$ o 6 $"s t+# +/+ to su43t t+%- 0osto#.

At%- t+% 0"-t%s +"$ " %$ t+%- /o33%#ts, ?% g":% $u% /ou-s% to t+% 0%tto#s # Ou-

R%souto# o 'u 21, 1978.

T+% 0osto# 0"0%-s o t+% amicus curiae su43tt%$ o# No:%34%- 2B, 1978 %-% $u #ot%$.

T+% amicus curiae g":% t+% o0#o# t+"t t+% 0"#s "#$ s0%//"to#s o t+% N"0s %-% #ot

$%%/t:%. !ut t+% Co33sso#%-, +%# "s%$ 4 Us to /o33%#t, -%t%-"t%$ +s /o#/uso# t+"t

t+% $%%/ts # t+% 0"#s "#$ s0%//"to#s #$%%$ %st%$.

Us#g t+% s"3% "ut+o-t%s ":"%$ o 4 t+% amicus curiae su/+ "s t+% M"#" Co$% O-$. No.

B11 "#$ t+% 1966 As%0 Co$%, t+% Co33sso#%- "$$%$ t+"t %:%# t /"# 4% 0-o:%$ t+"t t+%

$%%/ts # t+% construction "o#% "#$ #ot # t+% 0"#s "#$ $%sg# /"us%$ t+% $"3"g% to t+%

4u$#g, st t+% $%/%#/ # t+% o-g#" $%sg# "#$ >"/ o s0%// 0-o:so#s "g"#st to-so## t+% o-g#" 0"#s "#$ t+% o:%-o"$ o# t+% g-ou#$ oo- /ou3#s ou#$ 4 "# t+% %0%-ts

#/u$#g t+% o-g#" $%sg#%- /%-t"# /o#t-4ut%$ to t+% $"3"g% +/+ o//u--%$. Ibid, 0.

17B.

I# t+%- -%s0%/t:% 4-%s 0%tto#%-s, "3o#g ot+%-s, -"s%$ t+% oo#g "ssg#3%#ts o %--o-s*

P+00#% !"- Asso/"to# /"3%$ t+"t t+% 3%"su-% o $"3"g%s s+ou$ #ot 4% 3t%$ to

P1,1,. "s %st3"t%$ /ost o -%0"-s o- to t+% 0%-o$ o s 6 3o#t+s o- oss o -%#t"s

7/21/2019 Civ 2 cases


+% U#t%$ Co#st-u/to# Co., I#/. "#$ t+% N"0s /"3%$ t+"t t "s "# "/t o Go$ t+"t /"us%$

t+% "u-% o t+% 4u$#g +/+ s+ou$ %%30t t+%3 -o3 -%s0o#s4t "#$ #ot t+% $%%/t:%

/o#st-u/to#, 0oo- o-3"#s+0, $%:"to#s -o3 0"#s "#$ s0%//"to#s "#$ ot+%-

30%-%/to#s # t+% /"s% o U#t%$ Co#st-u/to# Co., I#/. o- t+% $%/%#/%s # t+% $%sg#, 0"#s

"#$ s0%//"to#s 0-%0"-%$ 4 0%tto#%-s # t+% /"s% o t+% N"0s. !ot+ UCCI "#$ t+% N"0s

o4>%/t to t+% 0"3%#t o t+% "$$to#" "3ou#t o P2,. 30os%$ 4 t+% Cou-t o A00%"s.UCCI "so /"3%$ t+"t t s+ou$ 4% -%34u-s%$ t+% %0%#s%s o s+o-#g t+% 4u$#g # t+%

"3ou#t o P1,661.28 +% t+% N"0s o00os%$ t+% 0"3%#t o $"3"g%s >o#t "#$ so$"-t

t+ UCCI.

T+% 0:ot" ssu% # t+s /"s% s +%t+%- o- #ot "# "/t o Go$("# u#usu" st-o#g %"-t+@u"%(

+/+ /"us%$ t+% "u-% o t+% 4u$#g, %%30ts -o3 "4t, 0"-t%s +o "-% ot+%-s% "4%

4%/"us% o t+%- #%gg%#/%.

T+% "00/"4% " go:%-##g t+% -g+ts "#$ "4t%s o t+% 0"-t%s +%-%# s A-t/% 172 o t+%

N% C: Co$%, +/+ 0-o:$%s*

A-t. 172. T+% %#g#%%- o- "-/+t%/t +o $-% u0 t+% 0"#s "#$ s0%//"to#s o- "

4u$#g s "4% o- $"3"g%s t+# t%%# %"-s -o3 t+% /o30%to# o t+%

st-u/tu-% t+% s"3% s+ou$ /o"0s% 4 -%"so# o " $%%/t # t+os% 0"#s "#$

s0%//"to#s, o- $u% to t+% $%%/ts # t+% g-ou#$. T+% /o#t-"/to- s %s%

-%s0o#s4% o- t+% $"3"g% t+% %$/% "gs t+# t+% s"3% 0%-o$ o# "//ou#t o

$%%/ts # t+% /o#st-u/to# o- t+% us% o 3"t%-"s o #%-o- @u"t u-#s+%$ 4

+3, o- $u% to "# :o"to# o t+% t%-3s o t+% /o#t-"/t. I t+% %#g#%%- o- "-/+t%/t

su0%-:s%s t+% /o#st-u/to#, +% s+" 4% so$"- "4% t+ t+% /o#t-"/to-.

A//%0t"#/% o t+% 4u$#g, "t%- /o30%to#, $o%s #ot 30 ":%- o "# o t+%/"us%s o "/to# 4 -%"so# o "# $%%/t 3%#to#%$ # t+% 0-%/%$#g 0"-"g-"0+.

T+% "/to# 3ust 4% 4-oug+t t+# t%# %"-s oo#g t+% /o"0s% o t+% 4u$#g.

O# t+% ot+%- +"#$, t+% g%#%-" -u% s t+"t #o 0%-so# s+" 4% -%s0o#s4% o- %:%#ts +/+ /ou$

#ot 4% o-%s%%# o- +/+ t+oug+ o-%s%%#, %-% #%:t"4% A-t/% 117B, N% C: Co$%.

A# "/t o Go$ +"s 4%%# $%#%$ "s "# "//$%#t, $u% $-%/t "#$ %/us:% to #"tu-" /"us%s

t+out +u3"# #t%-:%#to#, +/+ 4 #o "3ou#t o o-%sg+t, 0"#s o- /"-%, -%"so#"4 to +":%

4%%# %0%/t%$, /ou$ +":% 4%%# 0-%:%#t%$. 1 Co-0us 'u-s 117B.

T+%-% s #o $s0ut% t+"t t+% %"-t+@u"% o August 2, 1968 s " o-tutous %:%#t o- "# "/t o Go$.

To %%30t t+% o4go- -o3 "4t u#$%- A-t/% 117B o t+% C: Co$%, o- " 4-%"/+ o "#

o4g"to# $u% to "# "/t o Go$, t+% oo#g 3ust /o#/u-* " t+% /"us% o t+% 4-%"/+ o t+%

o4g"to# 3ust 4% #$%0%#$%#t o t+% o t+% $%4to-J 4 t+% %:%#t 3ust 4% %t+%-

u#o-s%%"4% o- u#":o$"4%J / t+% %:%#t 3ust 4% su/+ "s to -%#$%- t 30oss4% o- t+% $%4to-

to u +s o4g"to# # " #o-3" 3"##%-J "#$ $ t+% $%4to- 3ust 4% -%% -o3 "#

0"-t/0"to# #, o- "gg-":"to# o t+% #>u- to t+% /-%$to-. V"s@u% :. Cou-t o A00%"s, 18

7/21/2019 Civ 2 cases


SCRA 55J Est-"$" :. Co#so"/o#, 71 SCRA B2J Aust-" :. Cou-t o A00%"s, 9 SCRA 527J

R%0u4/ o t+% P+. :. &uo# St%:%$o-#g Co-0., 21 SCRA 279J &"s"3 :. S3t+, B5 P+. 657.

T+us, u0o# t+% +"00%##g o " o-tutous %:%#t o- "# "/t o Go$, t+%-% /o#/u-s " /o--%s0o#$#g

-"u$, #%gg%#/%, $%" o- :o"to# o- /o#t-":%#to# # "# 3"##%- o t+% t%#o- o t+% o4g"to#

"s 0-o:$%$ o- # A-t/% 117 o t+% C: Co$%, +/+ -%suts # oss o- $"3"g%, t+% o4go-

/"##ot %s/"0% "4t.

T+% 0-#/0% %34o$%$ # t+% "/t o Go$ $o/t-#% st-/t -%@u-%s t+"t t+% "/t 3ust 4% o#%

o//"so#%$ %/us:% 4 t+% :o%#/% o #"tu-% "#$ " +u3"# "g%#/%s "-% to 4% %/u$%$ -o3

/-%"t#g o- %#t%-#g #to t+% /"us% o t+% 3s/+%. ?+%# t+% %%/t, t+% /"us% o +/+ s to 4%

/o#s$%-%$, s ou#$ to 4% # 0"-t t+% -%sut o t+% 0"-t/0"to# o 3"#, +%t+%- t 4% -o3 "/t:%

#t%-:%#to# o- #%g%/t, o- "u-% to "/t, t+% +o% o//u--%#/% s t+%-%4 +u3"#%$, "s t %-%,

"#$ -%3o:%$ -o3 t+% -u%s "00/"4% to t+% "/ts o Go$. 1 Co-0us 'u-s, 00. 117B(1175.

T+us t +"s 4%%# +%$ t+"t +%# t+% #%gg%#/% o " 0%-so# /o#/u-s t+ "# "/t o Go$ #

0-o$u/#g " oss, su/+ 0%-so# s #ot %%30t -o3 "4t 4 s+o#g t+"t t+% 33%$"t% /"us% o t+% $"3"g% "s t+% "/t o Go$. To 4% %%30t -o3 "4t o- oss 4%/"us% o "# "/t o Go$, +%

3ust 4% -%% -o3 "# 0-%:ous #%gg%#/% o- 3s/o#$u/t 4 +/+ t+"t oss o- $"3"g% 3" +":%

4%%# o//"so#%$. <s+ F E%/t:% Co. :. P+. Moto-s, 55 P+. 129J Tu/%- :. M"#, B9 O.G.

B79J &30"#g/o F So#s :. ="#g/o St%"3s+0 Co., B P+. 59B, 6BJ &"s"3 :. S3t+, B5 P+.

657.

T+% #%gg%#/% o t+% $%%#$"#t "#$ t+% t+-$(0"-t $%%#$"#ts 0%tto#%-s "s %st"4s+%$

4%o#$ $s0ut% 4ot+ # t+% o%- /ou-t "#$ # t+% I#t%-3%$"t% A00%"t% Cou-t. D%%#$"#t

U#t%$ Co#st-u/to# Co., I#/. "s ou#$ to +":% 3"$% su4st"#t" $%:"to#s -o3 t+% 0"#s "#$

s0%//"to#s. "#$ to +":% "%$ to o4s%-:% t+% -%@ust% o-3"#s+0 # t+% /o#st-u/to# "s %"s to %%-/s% t+% -%@ust% $%g-%% o su0%-:so#J +% t+% t+-$(0"-t $%%#$"#ts %-% ou#$ to

+":% #"$%@u"/%s o- $%%/ts # t+% 0"#s "#$ s0%//"to#s 0-%0"-%$ 4 t+%3. As /o--%/t

"ss%ss%$ 4 4ot+ /ou-ts, t+% $%%/ts # t+% /o#st-u/to# "#$ # t+% 0"#s "#$ s0%//"to#s %-%

t+% 0-o3"t% /"us%s t+"t -%#$%-%$ t+% P!A 4u$#g u#"4% to t+st"#$ t+% %"-t+@u"% o

August 2, 1968. <o- t+s -%"so# t+% $%%#$"#t "#$ t+-$(0"-t $%%#$"#ts /"##ot /"3

%%30to# -o3 "4t. D%/so#, Cou-t o A00%"s, 00. (1.

It s % s%tt%$ t+"t t+% #$#gs o "/ts o t+% Cou-t o A00%"s "-% /o#/us:% o# t+% 0"-t%s

"#$ o# t+s /ou-t /"s%s /t%$ # To%#t#o :s. $% '%sus, 56 SCRA 67J C%s"- :s. S"#$g"#4""#,

'"#u"- 17, 1985, 1B SCRA 15, 121, u#%ss 1 t+% /o#/uso# s " #$#g g-ou#$%$ %#t-% o#s0%/u"to#, su-3s% "#$ /o#>%/tu-%sJ 2 t+% #%-%#/% 3"$% s 3"#%st 3st"%#J t+%-% s

g-":% "4us% o $s/-%to#J B t+% >u$g3%#t s 4"s%$ o# 3s"00-%+%#so# o "/tsJ 5 t+% #$#gs

o "/t "-% /o#/t#g , 6 t+% Cou-t o A00%"s %#t 4%o#$ t+% ssu%s o t+% /"s% "#$ ts #$#gs

"-% /o#t-"- to t+% "$3sso#s o 4ot+ "00%"#t "#$ "00%%%s R"3os :s. P%0s(Co" !ott#g

Co., <%4-u"- 8, 1967, 19 SCRA 289, 291(292J Ro@u% :s. !u"#, O/t. 1, 1967, 21 SCRA 6B8, 651J

7 t+% #$#gs o "/ts o t+% Cou-t o A00%"s "-% /o#t-"- to t+os% o t+% t-" /ou-tJ 8 s"$

#$#gs o "/ts "-% /o#/uso#s t+out /t"to# o s0%// %:$%#/% o# +/+ t+% "-% 4"s%$J 9

7/21/2019 Civ 2 cases


t+% "/ts s%t o-t+ # t+% 0%tto# "s % "s # t+% 0%tto#%-s 3"# "#$ -%0 4-%s "-% #ot

$s0ut%$ 4 t+% -%s0o#$%#ts G"-/" :s. CA, 'u#% , 197, SCRA 622J Asu"(!%tt :s. Cou-t o

A00%"s, 'u , 1979, 92 SCRA 22, 66J 1 t+% #$#g o "/t o t+% Cou-t o A00%"s s

0-%3s%$ o# t+% su00os%$ "4s%#/% o %:$%#/% "#$ s /o#t-"$/t%$ 4 %:$%#/% o# -%/o-$ S"""-

:s. Gut%--%, M" 29, 197, SCRA 2B, 2B7J Ct%$ # G.R. No. 66B97(98, S"/" :.

S"#$g"#4""#, 'u 1, 1986.It s %:$%#t t+"t t+% /"s% "t 4"- $o%s #ot " u#$%- "# o t+% %/%0to#s "4o:%(3%#to#%$. O#

t+% /o#t-"-, t+% -%/o-$s s+o t+"t t+% o%- /ou-t s0"-%$ #o %o-t # "--:#g "t t+% /o--%/t

"00-%/"to# o "/ts 4 t+% -%%--" o t%/+#/" ssu%s to " Co33sso#%- /+os%# 4 t+% 0"-t%s

+os% #$#gs "#$ /o#/uso#s -%3"#%$ /o#:#/#g u#-%4utt%$ 4 t+% #t%-:%#o-s amicus

curiae +o %-% "o%$ to #t%-:%#% # t+% Su0-%3% Cou-t.

I# "# %:%#t, t+% -%%:"#t "#$ og/" o4s%-:"to#s o t+% t-" /ou-t "s "-3%$ 4 t+% Cou-t o

A00%"s t+"t +% t s #ot 0oss4% to st"t% t+ /%-t"#t t+"t t+% 4u$#g ou$ #ot +":%

/o"0s%$ %-% t+os% $%%/ts #ot 0-%s%#t, t+% "/t -%3"#s t+"t s%:%-" 4u$#gs # t+% s"3% "-%"

t+stoo$ t+% %"-t+@u"% to +/+ t+% 4u$#g o t+% 0"#t "s s3"- su4>%/t%$, /"##ot

4% g#o-%$.

T+% #%t ssu% to 4% -%so:%$ s t+% "3ou#t o $"3"g%s to 4% ""-$%$ to t+% P!A o- t+% 0"-t"

/o"0s% "#$ %:%#tu" /o30%t% /o"0s% o ts 4u$#g.

T+% Cou-t o A00%"s "-3%$ t+% #$#g o t+% t-" /ou-t 4"s%$ o# t+% -%0o-t o t+%

Co33sso#%- t+"t t+% tot" "3ou#t -%@u-%$ to -%0"- t+% P!A 4u$#g "#$ to -%sto-% t to

t%#"#t"4% /o#$to# "s P9,. #"s3u/+ "s t "s #ot #t" " tot" oss. Ho%:%-, +%

t+% t-" /ou-t ""-$%$ t+% P!A s"$ "3ou#t "s $"3"g%s, 0us u#-%"%$ -%#t" #/o3% o- o#%(

+" %"-, t+% Cou-t o A00%"s 3o$%$ t+% "3ou#t 4 ""-$#g # ":o- o P!A "# "$$to#"su3 o P2,. -%0-%s%#t#g t+% $"3"g% su%-%$ 4 t+% P!A 4u$#g "s " -%sut o "#ot+%-

%"-t+@u"% t+"t o//u--%$ o# A0- 7, 197 &(B7896, Vo. I, 0. 92.

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:"u% o t+% 4u$#g &(B7896, P!As No. 1 Assg#3%#t o E--o-, 0. 19, +% 4ot+ t+% NAPI&S

"#$ UNITED @u%sto# t+% "$$to#" ""-$ o P2,. # ":o- o t+% P!A &( B7851,

NAPI&s !-% "s P%tto#%-, 0. 6, UNITEDs !-% "s P%tto#%-, 0. 25. T+% P!A u-t+%- u-g%s

t+"t t+% u#-%"%$ -%#t" #/o3% ""-$%$ to t s+ou$ #ot 4% 3t%$ to " 0%-o$ o o#%(+" %"-

4ut s+ou$ 4% /o30ut%$ o# " /o#t#u#g 4"ss "t t+% -"t% o P178,671.76 " %"- u#t t+%

>u$g3%#t o- t+% 0-#/0" "3ou#t s+" +":% 4%%# s"ts%$ &( B7896, P!As No. 11 Assg#3%#to E--o-s, 0. 19.

T+% /o"0s% o t+% P!A 4u$#g "s " -%sut o t+% August 2, 1968 %"-t+@u"% "s o# 0"-t"

"#$ t s u#$s0ut%$ t+"t t+% 4u$#g /ou$ t+%# st 4% -%0"-%$ "#$ -%sto-%$ to ts t%#"#t"4%

/o#$to#. T+% P!A, +o%:%-, # :% o ts "/ o #%%$%$ u#$#g, "s u#"4%, t+-u #o "ut o

ts o#, to +":% t+% 4u$#g -%0"-%$. UNITED, o# t+% ot+%- +"#$, s0%#t P1,661.28 to s+o-% u0

t+% 4u$#g "t%- t+% August 2, 1968 %"-t+@u"% &(B7896, CA D%/so#, 0. B6. !%/"us% o t+%

7/21/2019 Civ 2 cases


%"-t+@u"% o# A0- 7, 197, t+% t-" /ou-t "t%- t+% #%%$%$ /o#sut"to#s, "ut+o-%$ t+% tot"

$%3oto# o t+% 4u$#g &(B7896, Vo. 1, 00. 5(5B.

T+%-% s+ou$ 4% #o @u%sto# t+"t t+% NAPI&S "#$ UNITED "-% "4% o- t+% $"3"g% -%sut#g

-o3 t+% 0"-t" "#$ %:%#tu" /o"0s% o t+% P!A 4u$#g "s " -%sut o t+% %"-t+@u"%s.

?% @uot% t+ "00-o:" t+% oo#g -o3 t+% %-u$t% $%/so# 0%##%$ 4 'ust/% Hugo E.

Gut%--% #o "# Asso/"t% 'ust/% o t+% Su0-%3% Cou-t +% st "# Asso/"t% 'ust/% o t+%

Cou-t o A00%"s*

T+%-% s #o @u%sto# t+"t "# %"-t+@u"% "#$ ot+%- o-/%s o #"tu-% su/+ "s

//o#%s, $-oug+t, oo$s, g+t##g, "#$ 0%-s o t+% s%" "-% "/ts o Go$. It $o%s #ot

#%/%ss"- oo, +o%:%-, t+"t s0%// oss%s "#$ su%-#g -%sut#g -o3 t+%

o//u--%#/% o t+%s% #"tu-" o-/% "-% "so "/ts o Go$. ?% "-% #ot /o#:#/%$ o# t+%

4"ss o t+% %:$%#/% o# -%/o-$ t+"t -o3 t+% t+ous"#$s o st-u/tu-%s # M"#",

Go$ s#g%$ out t+% 4"3%%ss P!A 4u$#g # I#t-"3u-os "#$ "-ou#$ s o- s%:%#

ot+%- 4u$#gs # :"-ous 0"-ts o t+% /t o- /o"0s% o- s%:%-% $"3"g% "#$ t+"tGo$ "o#% "s -%s0o#s4% o- t+% $"3"g%s "#$ oss%s t+us su%-%$.

T+% -%/o-$ s -%0%t% t+ %:$%#/% o $%%/ts "#$ $%/%#/%s # t+% $%sg#s "#$

0"#s, $%%/t:% /o#st-u/to#, 0oo- o-3"#s+0, $%:"to# -o3 0"#s "#$

s0%//"to#s "#$ ot+%- 30%-%/to#s. T+%s% $%/%#/%s "-% "tt-4ut"4% to

#%gg%#t 3%# "#$ #ot to " 0%-%/t Go$.

T+% "/t(o(Go$ "-gu3%#ts o t+% $%%#$"#ts( "00%"#ts "#$ t+-$ 0"-t

$%%#$"#ts("00%"#ts 0-%s%#t%$ # t+%- 4-%s "-% 0-%3s%$ o# %g"

g%#%-""to#s o- s0%/u"to#s "#$ o# t+%oog/" "t"s3 4ot+ o +/+ g#o-% t+%

0"# "/ts. T+% %#gt+ $s/usso# o U#t%$ o# o-$#"- %"-t+@u"%s "#$

u#usu" st-o#g %"-t+@u"%s "#$ o# o-$#"- o-tutous %:%#ts "#$ %t-"o-$#"-

o-tutous %:%#ts %"$s to ts "-gu3%#t t+"t t+% August 2, 1968 %"-t+@u"% "s o

su/+ "# o:%-+%3#g "#$ $%st-u/t:% /+"-"/t%- t+"t 4 ts o# o-/% "#$

#$%0%#$%#t o t+% 0"-t/u"- #%gg%#/% "%g%$, t+% #>u- ou$ +":% 4%%#

0-o$u/%$. I % oo t+s #% o s0%/u"t:% -%"so##g, % 4% o-/%$ to

/o#/u$% t+"t u#$%- su/+ " stu"to# s/o-%s o 4u$#gs # t+% :/#t "#$ # ot+%-

0"-ts o M"#" ou$ +":% to00%$ $o#. <oo#g t+% s"3% #% o -%"so##g,

N"0 "#$ So#s "%g%s t+"t t+% $%sg#s %-% "$%@u"t% # "//o-$"#/% t+ 0-%(

August 2, 1968 #o%$g% "#$ "00%"- #"$%@u"t% o# # t+% g+t o %#g#%%-#g#o-3"to# "/@u-%$ "t%- t+% %"-t+@u"%. I t+s %-% so, +u#$-%$s o "#/%#t

4u$#gs +/+ su-::%$ t+% %"-t+@u"% 4%tt%- t+"# t+% to(%"- o$ P!A 4u$#g

3ust +":% 4%%# $%sg#%$ "#$ /o#st-u/t%$ 4 "-/+t%/ts "#$ /o#t-"/to-s +os%

#o%$g% "#$ o-%sg+t %-% u#%0"#"4 "us0/ous "#$ 0-o0+%t/.

<o-tu#"t%, t+% "/ts o# -%/o-$ "o " 3o-% $o# to %"-t+ %0"#"to# o t+%

/o"0s%. T+% "u-% o t+% P!A 4u$#g, "s " u#@u% "#$ $st#/t /o#st-u/to# t+

#o -%%-%#/% o- /o30"-so# to ot+%- 4u$#gs, to %"t+%- t+% s%:%-% %"-t+@u"%

7/21/2019 Civ 2 cases


o-/%s "s t-"/%$ to $%sg# $%/%#/%s "#$ $%%/t:% /o#st-u/to#, "/to-s +/+

"-% #%t+%- 3st%-ous #o- %sot%-/. T+% t+%oog/" "uso# o "00%"#t U#t%$

t+"t Go$ "/ts # 3st%-ous "s Hs o#$%-s to 0%-o-3 30-%ss%s us to 4%

#"00-o0-"t%. T+% %:$%#/% -%:%"s $%%/ts "#$ $%/%#/%s # $%sg# "#$

/o#st-u/to#. T+%-% s #o 3st%- "4out t+%s% "/ts o #%gg%#/%. T+% /o"0s% o t+%

P!A 4u$#g "s #o o#$%- 0%-o-3%$ 4 Go$. It "s " -%sut o t+%30%-%/to#s # t+% o- o t+% "-/+t%/ts "#$ t+% 0%o0% # t+% /o#st-u/to#

/o30"#. Mo-% -%%:"#t to ou- 3#$ s t+% %sso# -o3 t+% 0"-"4% o t+% s% 3"#

# t+% S%-3o# o# t+% Mou#t +/+ 4ut +s +ous% u0o# " -o/J "#$ t+% -"#

$%s/%#$%$ "#$ t+% oo$s /"3% "#$ t+% #$s 4% "#$ 4%"t u0o# t+"t +ous%J "#$ t

%# #otJ o- t "s ou#$%$ u0o# " -o/ "#$ o t+% oos+ u0o# t+% s"#$. A#$ t+%

-"# $%s/%#$%$ "#$ 3"# +/+ 4ut +s +ous% t+% oo$s /"3%, "#$ t+% #$s 4%,

"#$ 4%"t u0o# t+"t +ous%J "#$ t % "#$ g-%"t "s t+% " o t. St. M"tt+% 7* 2B(

27. T+% -%@u-%3%#t t+"t " 4u$#g s+ou$ t+st"#$ -"#s, oo$s, #$s,

%"-t+@u"%s, "#$ #"tu-" o-/%s s 0-%/s% t+% -%"so# + % +":% 0-o%sso#"

%0%-ts % "-/+t%/ts, "#$ %#g#%%-s. D%sg#s "#$ /o#st-u/to#s :"- u#$%-

:"-#g /-/u3st"#/%s "#$ /o#$to#s 4ut t+% -%@u-%3%#t to $%sg# "#$ 4u$ %

$o%s #ot /+"#g%.

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"//u-"t%. I#st%"$ o "#g t+% 4"3% so% o# t+% 3oto#s "#$ o-/%s g%#%-"t%$ 4

t+% %"-t+@u"%, t "so %"3#%$ t+% "4t o t+% P!A 4u$#g, "s $%sg#%$ "#$

/o#st-u/t%$, to t+st"#$ "#$ su//%ssu %"t+%- t+os% o-/%s.

T+% %:$%#/% su/%#t su00o-ts " /o#/uso# t+"t t+% #%gg%#/% "#$ "ut o

4ot+ U#t%$ "#$ N"0 "#$ So#s, #ot " 3st%-ous "/t o "# #s/-ut"4% Go$, %-%-%s0o#s4% o- t+% $"3"g%s. T+% R%0o-t o t+% Co33sso#%-, P"#ts

O4>%/to#s to t+% R%0o-t, T+-$ P"-t D%%#$"#ts O4>%/to#s to t+% R%0o-t,

D%%#$"#ts O4>%/to#s to t+% R%0o-t, Co33sso#%-s A#s%- to t+% :"-ous

O4>%/to#s, P"#ts R%0 to t+% Co33sso#%-s A#s%-, D%%#$"#ts R%0 to

t+% Co33sso#%-s A#s%-, Cou#t%-(R%0 to D%%#$"#ts R%0, "#$ T+-$(P"-t

D%%#$"#ts R%0 to t+% Co33sso#%-s R%0o-t #ot to 3%#to# t+% %+4ts "#$

t+% t%st3o#%s s+o t+"t t+% 3"# "-gu3%#ts -"s%$ o# "00%" %-% "-%"$ -"s%$

$u-#g t+% t-" "#$ u /o#s$%-%$ 4 t+% o%- Cou-t. A -%t%-"to# o t+%s% s"3%

"-gu3%#ts o# "00%" "s to /o#:#/% us t+"t % s+ou$ -%:%-s% o- $stu-4 t+%o%- Cou-ts "/tu" #$#gs "#$ ts /o#/uso#s $-"# -o3 t+% "/ts, "3o#g

t+%3*

T+% Co33sso#%- "so ou#$ 3%-t # t+% "%g"to#s o t+% $%%#$"#ts "s to t+%

0+s/" %:$%#/% 4%o-% "#$ "t%- t+% %"-t+@u"% s+o#g t+% #"$%@u"/ o

$%sg#, to t*

P+s/" %:$%#/% 4%o-% t+% %"-t+@u"% 0-o:$#g s/ #"$%@u"/ o $%sg#J

7/21/2019 Civ 2 cases


1. #"$%@u"t% $%sg# "s t+% /"us% o t+% "u-% o t+% 4u$#g.

2. Su#(4"%s o# t+% to s$%s "#$ # -o#t o t+% 4u$#gJ

". I#/-%"s% t+% #%-t" o-/%s t+"t 3o:% t+% 4u$#g "t%-" to"-$ t+% M"#"

<-% D%0"-t3%#t.

4. C-%"t% "#ot+%- st#%ss 34""#/%.

. T+% %34%$$%$ B $"3%t%- /"st -o# $o# s0out o# " %t%-o- /ou3#s -%$u/%s

t+% /-oss(s%/to#" "-%" o %"/+ o t+% /ou3#s "#$ t+% st-%#gt+ t+%-%o.

B. To -o#t /o-#%-s, A7 "#$ D7 /ou3#s %-% :%- 3u/+ %ss -%#o-/%$.

P+s/" E:$%#/% At%- t+% E"-t+@u"%, P-o:#g I#"$%@u"/ o $%sg#J

1. Cou3# A7 su%-%$ t+% s%:%-%st -"/tu-% "#$ 3"3u3 s"gg#g. Aso D7.

2. T+%-% "-% 3o-% $"3"g%s # t+% -o#t 0"-t o t+% 4u$#g t+"# to"-$s t+% -%"-,

#ot o# # /ou3#s 4ut "so # s"4s.

. !u$#g %"#%$ "#$ s"gg%$ 3o-% o# t+% -o#t 0"-t o t+% 4u$#g.

B. <oo-s s+o%$ 3"3u3 s"gg#g o# t+% s$%s "#$ to"-$ t+% -o#t /o-#%- 0"-ts

o t+% 4u$#g.

5. T+%-% "s " "t%-" $s0"/%3%#t o t+% 4u$#g o "4out 8, M"3u3 s"gg#g

o//u-s "t t+% /ou3# A7 +%-% t+% oo- s o%- 4 8 /3. t+"# t+% +g+%st s"4

%:%.

6. S"4 "t t+% /o-#%- /ou3# D7 s"gg%$ 4 8 /3.

T+% Co33sso#%- /o#/u$%$ t+"t t+%-% %-% $%/%#/%s o- $%%/ts # t+% $%sg#,

0"#s "#$ s0%//"to#s o t+% P!A 4u$#g +/+ #:o:%$ "00-%/"4% -ss t+

-%s0%/t to t+% "//$%#t" o-/%s +/+ 3" -%sut -o3 %"-t+@u"% s+o/s. H%

/o#/%$%$, +o%:%-, t+"t t+% "/t t+"t t+os% $%/%#/%s o- $%%/ts 3" +":% "-s%#

-o3 "# o4so%t% o- #ot too /o#s%-:"t:% /o$% o- %:%# " /o$% t+"t $o%s #ot -%@u-% "

$%sg# o- %"-t+@u"% o-/%s 3tg"t%s # " "-g% 3%"su-% t+% -%s0o#s4t o-

"4t o t+% "-/+t%/t "#$ %#g#%%- $%sg#%-.

T+% T+-$(0"-t $%%#$"#ts, +o "-% t+% 3ost /o#/%-#%$ t+ t+s 0o-to# o t+%

Co33sso#%-s -%0o-t, :o/%$ o00osto# to t+% s"3% o# t+% g-ou#$s t+"t " t+%#$#g s 4"s%$ o# " 4"s/ %--o#%ous /o#/%0to# "s to t+% $%sg# /o#/%0t o t+%

4u$#g, to t, t+"t t+% $%sg# s %ss%#t" t+"t o " +%": -%/t"#gu"- 4o o#

stts t+ s+%"- "# "t o#% %#$J 4 t+% #$#g t+"t t+%-% %-% $%%/ts "#$ "

$%/%#/ # t+% $%sg# o t+% 4u$#g ou$ "t 4%st 4% 4"s%$ o# "# "00-o3"to#

"#$, t+%-%o-%, -g+t 4%o#g%$ to t+% -%"3 o s0%/u"to#, -"t+%- t+"# o /%-t"#t

"#$ /ou$ :%- 0oss4 4% out-g+t %--o-J / t+% Co33sso#%- +"s "%$ to 4"/

u0 o- su00o-t +s #$#g t+ %t%#s:%, /o30% "#$ +g+ s0%/"%$

7/21/2019 Civ 2 cases


/o30ut"to#s "#$ "#"%s +/+ +% +3s% %30+"s%s "-% #%/%ss"- # t+%

$%t%-3#"to# o su/+ " +g+ t%/+#/" @u%sto#J "#$ $ t+% Co33sso#%- +"s

"#"%$ t+% $%sg# o t+% P!A 4u$#g #ot # t+% g+t o %st#g "#$ ":""4%

%"-t+@u"% %#g#%%-#g #o%$g% "t t+% t3% o t+% 0-%0"-"to# o t+% $%sg#, 4ut

# t+% g+t o -%/%#t "#$ /u--%#t st"#$"-$s.

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+%"-#g t+"t t+% -%so-t to %#g#%%-#g -%%-%#/%s 0ost%-o- to t+% $"t% o t+%

0-%0"-"to# o t+% 0"#s "s #$u/%$ 4 t+% t+-$(0"-t $%%#$"#ts t+%3s%:%s +o

su43tt%$ /o30ut"to#s o t+% t+-$(0"-t $%%#$"#ts "-% %--o#%ous.

T+% ssu% 0-%s%#t /o#s$%-%$ s "$3tt%$ " t%/+#/" o#% o t+% +g+%st $%g-%%. It

#:o:%s @u%sto#s #ot t+# t+% o-$#"- /o30%t%#/% o t+% 4%#/+ "#$ t+% 4"- to

-%so:% 4 t+%3s%:%s. Cou#s% o- t+% t+-$(0"-t $%%#$"#ts +"s "0t -%3"-%$

t+"t %#g#%%-#g, "t+oug+ $%"#g # 3"t+%3"t/s, s #ot "# %"/t s/%#/% "#$ t+"t

t+% 0-%s%#t #o%$g% "s to t+% #"tu-% o %"-t+@u"%s "#$ t+% 4%+":ou- o o-/%s

g%#%-"t%$ 4 t+%3 st %":%s 3u/+ to 4% $%s-%$J so 3u/+ so t+"t t+% %0%-ts o

t+% $%-%#t 0"-t%s, +o "-% " %#g#%%-s, /"##ot "g-%% o# +"t %@u"to# to us%,

"s to +"t %"-t+@u"% /o(%/%#ts "-%, o# t+% /o$%s to 4% us%$ "#$ %:%# "s to t+%

t0% o st-u/tu-% t+"t t+% P!A 4u$#g s "s 0. 29, M%3o, o t+-$( 0"-t

$%%#$"#ts 4%o-% t+% Co33sso#%-.

T+% $/ut %0%/t%$ 4 t+% Cou-t ts t%/+#/" 3"tt%- %-% to 4% t-%$ "#$

#@u-%$ #to 4 t+% Cou-t ts%, /ou0%$ t+ t+% #t-#s/ #"tu-% o t+% @u%sto#s

#:o:%$ t+%-%#, /o#sttut%$ t+% -%"so# o- t+% -%%-%#/% o t+% s"$ ssu%s to "

Co33sso#%- +os% @u"/"to#s "#$ %0%-%#/% +":% %3#%#t @u"%$ +3

o- t+% t"s, "#$ +os% /o30%t%#/% +"$ #ot 4%%# @u%sto#%$ 4 t+% 0"-t%s u#t +%

su43tt%$ +s -%0o-t. ?t+# t+% 0"-$o#"4% 3t o t+% Cou-ts "4t to

/o30-%+%#$ t+% 3%"##g o t+% Co33sso#%-s -%0o-t o# t+s ssu%, "#$ t+%

o4>%/to#s :o/%$ to t+% s"3%, t+% Cou-t s%%s #o /o30%#g -%"so#s to $stu-4 t+%

#$#gs o t+% Co33sso#%- t+"t t+%-% %-% $%%/ts "#$ $%/%#/%s # t+% $%sg#,

0"#s "#$ s0%//"to#s 0-%0"-%$ 4 t+-$(0"-t $%%#$"#ts, "#$ t+"t s"$ $%%/ts

"#$ $%/%#/%s #:o:%$ "00-%/"4% -ss t+ -%s0%/t to t+% "//$%#t" o-/%s

+/+ 3" -%sut -o3 %"-t+@u"% s+o/s.

2 " T+% $%:"to#s, "#, 3"$% 4 t+% $%%#$"#ts -o3 t+% 0"#s "#$

s0%//"to#s, "#$ +o s"$ $%:"to#s /o#t-4ut%$ to t+% $"3"g% sust"#%$ 4 t+%

4u$#g.

4 T+% "%g%$ "u-% o $%%#$"#ts to o4s%-:% t+% -%@ust% @u"t o 3"t%-"s

"#$ o-3"#s+0 # t+% /o#st-u/to# o t+% 4u$#g.

T+%s% to ssu%s, 4%#g #t%--%"t%$ t+ %"/+ ot+%-, 4% $s/uss%$ tog%t+%-.

7/21/2019 Civ 2 cases


T+% #$#gs o t+% Co33sso#%- o# t+%s% ssu%s %-% "s oos*

?% #o tu-# to t+% /o#st-u/to# o t+% P!A !u$#g "#$ t+% "%g%$ $%/%#/%s o-

$%%/ts # t+% /o#st-u/to# "#$ :o"to#s o- $%:"to#s -o3 t+% 0"#s "#$

s0%//"to#s. A t+%s% 3" 4% su33"-%$ "s oos*

". Su33"- o "%g%$ $%%/ts "s -%0o-t%$ 4 E#g#%%- M"-o M. !u#$""#.

1 ?-o#gu "#$ $%%/t:% 0"/#g o -%#o-/#g 4"-s.

2 A4s%#/% o %%/t:% "#$ $%s-"4% #t%g-"to# o t+% 4"-s # t+% /ust%-.

O:%-s% /o"-s% "gg-%g"t%s* 1(1B to 2 %-% us%$. S0%//"to# -%@u-%s #o

"-g%- t+"# 1 #/+.

B R%#o-/%3%#t "ss%34 s #ot /o#/%#t-/ t+ t+% /ou3#, %//%#t-/t 4%#g

o +%# o# o#% "/% t+% 3"# 4"-s "-% o# 1 12 -o3 t+% su-"/%.

5 P-%:"%#/% o +o#%/o34s,

6 Co#t-"4"#$ /o#st-u/to# >o#ts,

7 A4s%#/%, o- o3sso#, o- o:%- s0"/#g o s0-" +oo0s,

8 D%4%-"t% s%:%-"#/% o s0-"s #to s%3(/-/%s # #ot%$ o# Co. A(5, g-ou#$

oo-,

9 D%%/t:% /o#st-u/to# >o#ts # Cou3#s A(, C(7, D(7 "#$ D(B, g-ou#$ oo-,

1 U#$%-g-"$u"t% /o#/-%t% s %:$%#t,

11 !g /":t # /o-% o Cou3# 2A(B, s%/o#$ oo-,12 Cou3#s 4u/%$ "t $%-%#t 0"#%s. Cou3#s 4u/%$ o-st +%-% t+%-% "-%

#o s0-"s o- +%-% s0-"s "-% /ut. Cou3#s su%-%$ o-st $s0"/%3%#t +%-% t+%

%//%#t-/t o t+% /ou3#"- -%#o-/%3%#t "ss%34 s 3o-% "/ut%.

4. Su33"- o "%g%$ $%%/ts "s -%0o-t%$ 4 E#g-. A#to#o A:%/".

Cou3#s "-% -st o- g-ou#$ oo-, u#%ss ot+%-s% st"t%$.

1 Cou3# DB ; S0"/#g o s0-" s /+"#g%$ -o3 2 to 5 o# /%#t%-s,

2 Cou3# D5 ; No s0-" u0 to " +%g+t o 22 -o3 t+% g-ou#$ oo-,

Cou3# D6 ; S0"/#g o s0-" o:%- B 2,

B Cou3# D7 ; &"/ o "t%-" t%s,

5 Cou3# C7 ; A4s%#/% o s0-" to " +%g+t o 2 -o3 t+% g-ou#$ %:%,

S0-"s "-% "t 2 -o3 t+% %t%-o- /ou3# "/% "#$ 6 -o3 t+% ##%- /ou3# "/%,

6 Cou3# !6 ; &"/ o s0-" o# 2 %%t 4%o t+% oo- 4%"3s,

7/21/2019 Civ 2 cases


7 Cou3# !5 ; &"/ o s0-"s "t " $st"#/% o 26 4%o t+% 4%"3,

8 Cou3# !7 ; S0-"s #ot t%$ to :%-t/" -%#o-/#g 4"-s, S0-"s "-% u#%:%#

2 to B,

9 Cou3# A ; &"/ o "t%-" t%s,

1 Cou3# AB ; S0-"s /ut o "#$ %$%$ to to s%0"-"t% /ust%-%$ :%-t/"4"-s,

11 Cou3# AB ; s%/o#$ oo- Cou3# s /o30%t% +oo to " +%g+t o

12 Cou3# A5 ; S0-"s %-% /ut -o3 t+% oo- %:% to t+% 4otto3 o t+%

s0"#$-% 4%"3 to " +%g+t o 6 %%t,

1 Cou3# A6 ; No s0-"s u0 to " +%g+t o "4o:% t+% g-ou#$ oo- %:%,

1B Cou3# A7; &"/ o "t%-"t%s o- s0-"s,

/. Su33"- o "%g%$ $%%/ts "s -%0o-t%$ 4 t+% %0%-ts o t+% T+-$(P"-t$%%#$"#ts.

G-ou#$ oo- /ou3#s.

1 Cou3# AB ; S0-"s "-% /ut,

2 Cou3# A5 ; S0-"s "-% /ut,

Cou3# A6 ; At o%- 18 s0-"s "-% "4s%#t,

B Cou3# A7 ; T%s "-% too "- "0"-t,

5 Cou3# !5 ; At u00%- ou-t+ o /ou3# s0-"s "-% %t+%- "4s%#t o-30-o0%- s0/%$,

6 Cou3# !6 ; At u00%- 2 %%t s0-"s "-% "4s%#t,

7 Cou3# !7 ; At u00%- ou-t+ o /ou3# s0-"s 3ss#g o- 30-o0%- s0/%$.

8 Cou3# C7; S0-"s "-% "4s%#t "t o%st 18

9 Cou3# D5 ; At o%st 2 %%t s0-"s "-% "4s%#t,

1 Cou3# D6 ; S0-"s "-% too "- "0"-t "#$ "00"-%#t 30-o0%- s0/%$,

11 Cou3# D7 ; &"t%-" t%s "-% too "- "0"-t, s0"/%$ 16 o# /%#t%-s.

T+%-% s 3%-t # 3"# o t+%s% "%g"to#s. T+% %0"#"to#s g:%# 4 t+%

%#g#%%-#g %0%-ts o- t+% $%%#$"#ts "-% %t+%- /o#t-"- to g%#%-" 0-#/0%s o

%#g#%%-#g $%sg# o- -%#o-/%$ /o#/-%t% o- #ot "00/"4% to t+% -%@u-%3%#ts o-

$u/tt "#$ st-%#gt+ o -%#o-/%$ /o#/-%t% # %"-t+@u"%(-%sst"#t $%sg# "#$

/o#st-u/to#.

7/21/2019 Civ 2 cases


?% s+" -st /"ss "#$ /o#s$%- $%%/ts +/+ 3" +":% "00-%/"4% 4%"-#g o-

-%"to# to t+% %"-t+@u"%(-%sst"#t 0-o0%-t o t+% 4u$#g.

As +%-%too-% 3%#to#%$, $%t"s +/+ #su-% $u/tt "t o- #%"- t+% /o##%/to#s

4%t%%# /ou3#s "#$ g-$%-s "-% $%s-"4% # %"-t+@u"% -%sst"#t $%sg# "#$

/o#st-u/to#. T+% o3sso# o s0-"s "#$ t%s o- +oo0s "t t+% 4otto3 "#$o- to0s o

/ou3#s /o#t-4ut%$ g-%"t to t+% oss o %"-t+@u"%(-%sst"#t st-%#gt+. T+% 0"#s"#$ s0%//"to#s -%@u-%$ t+"t t+%s% s0-"s "#$ t%s 4% /"--%$ -o3 t+% oo- %:%

to t+% 4otto3 -%#o-/%3%#t o t+% $%%0%- 4%"3 0. 1, S0%//"to#s, 0. 97,

R%%-%#/% 11. T+%-% %-% s%:%-" /%"- %:$%#/%s +%-% t+s "s #ot $o#%

%s0%/" # so3% o t+% g-ou#$ oo- /ou3#s +/+ "%$.

T+%-% %-% "so u#3st""4% %:$%#/%s t+"t t+% s0"/#gs o t+% s0-"s "#$ t%s #

t+% /ou3#s %-% # 3"# /"s%s g-%"t%- t+"# t+os% /"%$ o- # t+% 0"#s "#$

s0%//"to#s -%sut#g "g"# # oss o %"-t+@u"%(-%sst"#t st-%#gt+. T+% "ss%-to#

o t+% %#g#%%-#g %0%-ts o- t+% $%%#$"#ts t+"t t+% 30-o0%- s0"/#gs "#$ t+%

/utt#g o t+% s0-"s $$ #ot -%sut # oss o st-%#gt+ # t+% /ou3# /"##ot 4%

3"#t"#%$ "#$ s /%-t"# /o#t-"- to t+% g%#%-" 0-#/0%s o /ou3# $%sg# "#$

/o#st-u/to#. A#$ %:%# g-"#t#g t+"t t+%-% 4% #o oss # st-%#gt+ "t t+% %$ 0o#t

"# "ssu30to# +/+ s :%- $ou4tu t+% /utt#g o- 30-o0%- s0"/#gs o s0-"s

/%-t"# -%sut # t+% oss o t+% 0"st/ -"#g% o- $u/tt # t+% /ou3# "#$ t

s 0-%/s% t+s 0"st/ -"#g% o- $u/tt +/+ s $%s-"4% "#$ #%%$%$ o-

%"-t+@u"%(-%sst"#t st-%#gt+.

T+%-% s #o %/us% o- t+% /":t o- +oo 0o-to# # t+% /ou3# AB, s%/o#$ oo-,

"#$ "t+oug+ t+s /ou3# $$ #ot ", t+s s /%-t"# "# %:$%#/% o# t+% 0"-t o t+%

/o#t-"/to- o 0oo- /o#st-u/to#.

T+% %%/t o %//%#t-/t%s # t+% /ou3#s +/+ %-% 3%"su-%$ "t "4out 2 12

#/+%s 3"3u3 3" 4% "00-o3"t%$ # -%"to# to /ou3# o"$s "#$ /ou3# "#$

4%"3 3o3%#ts. T+% 3"# %%/t o %//%#t-/t s to /+"#g% t+% 4%"3 o- g-$%-

s0"#. T+% %%/t o# t+% 3%"su-%$ %//%#t-/t o 2 #/+%s, t+%-%o-%, s to #/-%"s% o-

$3#s+ t+% /ou3# o"$ 4 " 3"3u3 o "4out 1K "#$ to #/-%"s% o- $3#s+

t+% /ou3# o- 4%"3 3o:%3%#ts 4 "4out " 3"3u3 o 2K. ?+% t+%s% /"#

/%-t"# 4% "4so-4%$ t+# t+% "/to- o s"%t, t+% #%:%-t+%%ss $3#s+ s"$

"/to- o s"%t.T+% /utt#g o t+% s0-"s # /ou3# A5, g-ou#$ oo- s t+% su4>%/t o g-%"t

/o#t%#to# 4%t%%# t+% 0"-t%s "#$ $%s%-:%s s0%/" /o#s$%-"to#.

T+% 0-o0%- 0"/#g o t+% 3"# -%#o-/%3%#ts "#$ s0-"s # /ou3# A5, g-ou#$

oo-, s t+% -%s0o#s4t o t+% g%#%-" /o#t-"/to- +/+ s t+% UCCI. T+% 4u-$%#

o 0-oo, t+%-%o-%, t+"t t+s /utt#g "s $o#% 4 ot+%-s s u0o# t+% $%%#$"#ts.

Ot+%- t+"# " st-o#g "%g"to# "#$ "ss%-to# t+"t t s t+% 0u34%- o- +s 3%# +o

7/21/2019 Civ 2 cases


3" +":% $o#% t+% /utt#g "#$ t+s "s "t $%#%$ 4 t+% 0u34%- #o

/o#/us:% 0-oo "s 0-%s%#t%$. T+% %#g#%%-#g %0%-ts o- t+% $%%#$"#ts

"ss%-t%$ t+"t t+% /ou$ +":% #o 3ot:"to# o- /utt#g t+% 4"- 4%/"us% t+% /"#

s30 -%0"/% t+% s0-"s 4 -"00#g "-ou#$ " #% s%t o s0-"s. T+s s #ot @ut%

/o--%/t. T+%-% s %:$%#/% to s+o t+"t t+% 0ou-#g o /o#/-%t% o- /ou3#s "s

so3%t3%s $o#% t+-oug+ t+% 4%"3 "#$ g-$%- -%#o-/%3%#ts +/+ %-% "-%"$ #0"/% "s # t+% /"s% o /ou3# AB s%/o#$ oo-. I t+% -%#o-/%3%#t o- t+% g-$%-

"#$ /ou3# s to su4s%@u%#t -"0 "-ou#$ t+% s0-"s, t+s ou$ #ot $o o- t+%

%"st/t o st%% ou$ 0-%:%#t t+% 3"#g o tg+t /ou3# s0-"s "#$ oos% o-

30-o0%- s0-"s ou$ -%sut. T+% 0-o0%- " s to 0-o$u/% /o--%/t s0-"s $o#

-o3 t+% to0 o t+% 3"# /ou3# 4"-s, " 0-o/%$u-% +/+ /"# #ot 4% $o#% %t+%-

t+% 4%"3 o- g-$%- -%#o-/%3%#t s "-%"$ # 0"/%. T+% %#g#%%-#g %0%-ts o-

t+% $%%#$"#ts st-o#g "ss%-t "#$ "00"-%#t 4%%:% t+"t t+% /utt#g o t+% s0-"s

$$ #ot 3"t%-" $3#s+ t+% st-%#gt+ o t+% /ou3#. T+s 4%% tog%t+%- t+ t+%

$/ut o s00#g t+% s0-"s o# t+% to0 o t+% /ou3# o#/% t+% 4%"3

-%#o-/%3%#t s # 0"/% 3" 4% " su/%#t 3ot:"to# o- t+% /utt#g o t+%

s0-"s t+%3s%:%s. T+% $%%#$"#ts, t+%-%o-%, s+ou$ 4% +%$ -%s0o#s4% o- t+%

/o#s%@u%#/%s "-s#g -o3 t+% oss o st-%#gt+ o- $u/tt # /ou3# A5 +/+ 3"

+":% /o#t-4ut%$ to t+% $"3"g%s sust"#%$ 4 t+% 4u$#g.

T+% "/ o 0-o0%- %#gt+ o s0/#g o s0-"s "s "so 0-o:%# # t+% :s4% s0-"s

o t+% /ou3#s +%-% s0"#g o t+% /o#/-%t% /o:%- +"$ t"%# 0"/%. T+s "/ o

0-o0%- s0/#g /o#t-4ut%$ # " s3" 3%"su-% to t+% oss o st-%#gt+.

T+% %%/ts o " t+% ot+%- 0-o:%# "#$ :s4% $%%/ts "t+oug+ #o- /"# /%-t"# 4%

"//u3u"t%$ so t+"t t+% /"# /o#t-4ut% to "# "00-%/"4% oss # %"-t+@u"%(-%sst"#t st-%#gt+. T+% %#g#%%-#g %0%-ts o- t+% $%%#$"#ts su43tt%$ "#

%st3"t% o# so3% o t+%s% $%%/ts # t+% "3ou#t o " % 0%-/%#t. I "//u3u"t%$,

t+%-%o-%, #/u$#g t+% %%/t o %//%#t-/t # t+% /ou3# t+% oss # st-%#gt+ $u%

to t+%s% 3#o- $%%/ts 3" -u# to "s 3u/+ "s t%# 0%-/%#t.

To -%/"0tu"t%* t+% o3sso# o- "/ o s0-"s "#$ t%s "t t+% 4otto3 "#$o- "t t+%

to0 o so3% o t+% g-ou#$ oo- /ou3#s /o#t-4ut%$ g-%"t to t+% /o"0s% o t+%

P!A 4u$#g s#/% t s "t t+%s% 0o#ts +%-% t+% g-%"t%- 0"-t o t+% "u-%

o//u--%$. T+% "4t o- t+% /utt#g o t+% s0-"s # /ou3# A5, g-ou#$ oo-, #

t+% /o#s$%-%$ o0#o# o t+% Co33sso#%- -%sts o# t+% s+ou$%-s o t+%

$%%#$"#ts "#$ t+% oss o st-%#gt+ # t+s /ou3# /o#t-4ut%$ to t+% $"3"g% +/+

o//u--%$.

It s -%"so#"4% to /o#/u$%, t+%-%o-%, t+"t t+% 0-o:%# $%%/ts, $%/%#/%s "#$

:o"to#s o t+% 0"#s "#$ s0%//"to#s o t+% P!A 4u$#g /o#t-4ut%$ to t+%

$"3"g%s +/+ -%sut%$ $u-#g t+% %"-t+@u"% o August 2, 1968 "#$ t+% :/% o

t+%s% $%%/ts "#$ $%/%#/%s s t+"t t+% #ot o# #/-%"s% 4ut "so "gg-":"t% t+%

7/21/2019 Civ 2 cases


%"#%ss 3%#to#%$ # t+% $%sg# o t+% st-u/tu-%. I# ot+%- o-$s, t+%s% $%%/ts

"#$ $%/%#/%s #ot o# t%#$ to "$$ 4ut "so to 3ut0 t+% %%/ts o t+%

s+o-t/o3#gs # t+% $%sg# o t+% 4u$#g. ?% 3" s", t+%-%o-%, t+"t t+% $%%/ts

"#$ $%/%#/%s # t+% /o#st-u/to# /o#t-4ut%$ g-%"t to t+% $"3"g% +/+

o//u--%$.

S#/% t+% %%/uto# "#$ su0%-:so# o t+% /o#st-u/to# o- # t+% +"#$s o t+%/o#t-"/to- s $-%/t "#$ 0ost:%, t+% 0-%s%#/% o %st%#/% o " t+% 3">o- $%%/ts

"#$ $%/%#/%s #ot%$ "#$ 0-o:%# 3"#%sts "# %%3%#t o #%gg%#/% +/+ 3"

"3ou#t to 30-u$%#/% # t+% /o#st-u/to# o-. 00. B2(B9, Co33sso#%-s

R%0o-t.

As t+% 0"-t%s 3ost $-%/t /o#/%-#%$ t+ t+s 0o-to# o t+% Co33sso#%-s -%0o-t, t+%

$%%#$"#ts :o/%$ t+%- o4>%/to#s to t+% s"3% o# t+% g-ou#$s t+"t t+% Co33sso#%- s+ou$ +":%

s0%/%$ t+% $%%/ts ou#$ 4 +3 to 4% 3%-to-ousJ t+"t t+% Co33sso#%- "%$ to #$/"t%

t+% #u34%- o /"s%s +%-% t+% s0-"s "#$ t%s %-% #ot /"--%$ -o3 t+% oo- %:% to t+% 4otto3

-%#o-/%3%#t o t+% $%%0%- 4%"3, o- +%-% t+% s0"/#g o t+% s0-"s "#$ t%s # t+% /ou3#s

%-% g-%"t%- t+"# t+"t /"%$ o- # t+% s0%//"to#sJ t+"t t+% +oo # /ou3# AB, s%/o#$ oo-,

t+% %//%#t-/t%s # t+% /ou3#s, t+% "/ o 0-o0%- %#gt+ o s0/#g o s0-"s, "#$ t+% /ut # t+%

s0-"s # /ou3# A5, g-ou#$ oo-, $$ #ot "gg-":"t% o- /o#t-4ut% to t+% $"3"g% su%-%$ 4 t+%

4u$#gJ t+"t t+% $%%/ts # t+% /o#st-u/to# %-% t+# t+% to%-"4% 3"-g# o s"%tJ "#$ t+"t

t+% /utt#g o t+% s0-"s # /ou3# A5, g-ou#$ oo-, "s $o#% 4 t+% 0u34%- o- +s 3%#, "#$

#ot 4 t+% $%%#$"#ts.

A#s%-#g t+% s"$ o4>%/to#s, t+% Co33sso#%- st"t%$ t+"t, s#/% 3"# o t+% $%%/ts %-%

3#o- o# t+% tot"t o t+% $%%/ts "s /o#s$%-%$. As -%g"-$s t+% o4>%/to# "s to "u-% to

st"t% t+% #u34%- o /"s%s +%-% t+% s0-"s "#$ t%s %-% #ot /"--%$ -o3 t+% oo- %:% to t+%

4otto3 -%#o-/%3%#t, t+% Co33sso#%- s0%/%$ g-ou#$oo- /ou3#s !(6 "#$ C(5 t+% -st o#%

t+out s0-"s o- #/+%s "t t+% to0, "#$ # t+% "tt%-, t+%-% %-% #o s0-"s o- 1 #/+%s "t t+%

4otto3. T+% Co33sso#%- %s% s0%/%$ t+% -st sto-% /ou3#s +%-% t+% s0"/#gs %-%

g-%"t%- t+"# t+"t /"%$ o- # t+% s0%//"to#s to 4% /ou3#s !(5, !(6, C(7, C(6, C(5, D(5 "#$ !(

7. T+% o4>%/to# to t+% "u-% o t+% Co33sso#%- to s0%/ t+% #u34%- o /ou3#s +%-% t+%-%

"s "/ o 0-o0%- %#gt+ o s0/#g o s0-"s, t+% Co33sso#%- 3%#to#%$ g-ou#$oo-

/ou3#s !(6 "#$ !(5 +%-% " t+% s0/%s %-% %ss t+"# 1(12 tu-#s "#$ %-% #ot %$%$,

-%sut#g # so3% oss o st-%#gt+ +/+ /ou$ 4% /-t/" #%"- t+% %#$s o t+% /ou3#s. H%

"#s%-%$ t+% su00osto# o t+% $%%#$"#ts t+"t t+% s0-"s "#$ t+% t%s 3ust +":% 4%%# oot%$, 4

/"#g "tt%#to# to t+% "/t t+"t t+% 3ss#g s0-"s "#$ t%s %-% o# # to out o t+% 25

/ou3#s, +/+ -%#$%-%$ s"$ su00osto# to 4% 30-o4"4%.

T+% Co33sso#%- /o#/%$%$ t+"t t+% +oo # /ou3# A(B, s%/o#$ oo-, $$ #ot "gg-":"t% o-

/o#t-4ut% to t+% $"3"g%, 4ut ":%--%$ t+"t t s %:$%#/% o 0oo- /o#st-u/to#. O# t+% /"3

t+"t t+% %//%#t-/t /ou$ 4% "4so-4%$ t+# t+% "/to- o s"%t, t+% Co33sso#%- "#s%-%$

t+"t, +% t+% s"3% 3" 4% t-u%, t "so /o#t-4ut%$ to o- "gg-":"t%$ t+% $"3"g% su%-%$ 4 t+%

7/21/2019 Civ 2 cases


4u$#g.

T+% o4>%/to# -%g"-$#g t+% /utt#g o t+% s0-"s # Cou3# A(5, g-ou#$oo-, "s "#s%-%$ 4

t+% Co33sso#%- 4 -%t%-"t#g t+% o4s%-:"to# # +s -%0o-t t+"t --%s0%/t:% o +o $$ t+%

/utt#g o t+% s0-"s, t+% $%%#$"#ts s+ou$ 4% +%$ "4% o- t+% s"3% "s t+% g%#%-" /o#t-"/to-

o t+% 4u$#g. T+% Co33sso#%- u-t+%- st"t%$ t+"t t+% oss o st-%#gt+ o t+% /ut s0-"s "#$

#%"st/ $%%/to#s o t+% su00os%$ "tt/% o- $%%"t%$ t+% 0u-0os% o t+% s0-" /o#t"#3%#t# t+% /ou3# "#$ -%sut%$ # t+% oss o st-%#gt+, "s %:$%#/%$ 4 t+% "/tu" "u-% o t+s

/ou3#.

Ag"#, t+% Cou-t /o#/u-s # t+% #$#gs o t+% Co33sso#%- o# t+%s% ssu%s "#$ "s to #$ "#

su/%#t /"us% to $s-%g"-$ o- 3o$ t+% s"3%. As ou#$ 4 t+% Co33sso#%-, t+% $%:"to#s

3"$% 4 t+% $%%#$"#ts -o3 t+% 0"#s "#$ s0%//"to#s /"us%$ #$-%/t t+% $"3"g% sust"#%$

"#$ t+"t t+os% $%:"to#s #ot o# "$$%$ 4ut "so "gg-":"t%$ t+% $"3"g% /"us%$ 4 t+% $%%/ts #

t+% 0"#s "#$ s0%//"to#s 0-%0"-%$ 4 t+-$(0"-t $%%#$"#ts. Roo, Vo. I, 00. 128(1B2

T+% "o-%(3%#to#%$ "/ts /%"- #$/"t% t+% "#to# #%gg%#/% o 4ot+ t+% $%%#$"#t "#$ t+%t+-$(0"-t $%%#$"#ts # %%/t#g t+% 0"#s, $%sg#s, s0%//"to#s, "#$ /o#st-u/to# o t+% P!A

4u$#g "#$ ?% +o$ su/+ #%gg%#/% "s %@u:"%#t to bad faith # t+% 0%-o-3"#/% o t+%-

-%s0%/t:% t"ss.

R%"t:% t+%-%to, t+% -u#g o t+% Su0-%3% Cou-t # Tucker v. Milan B9 O.G. B79, B8 +/+

3" 4% # 0o#t # t+s /"s% -%"$s*

O#% +o #%gg%#t /-%"t%s " $"#g%-ous /o#$to# /"##ot %s/"0% "4t o- t+% #"tu-" "#$

0-o4"4% /o#s%@u%#/%s t+%-%o, "t+oug+ t+% "/t o " t+-$ 0%-so#, o- "# "/t o Go$ o- +/+ +%

s #ot -%s0o#s4%, #t%-:%#%s to 0-%/0t"t% t+% oss.

As "-%"$ $s/uss%$, t+% $%st-u/to# "s #ot 0u-% "# "/t o Go$. T-ut+ to t% +u#$-%$s o

"#/%#t 4u$#gs # t+% :/#t %-% +"-$ "%/t%$ 4 t+% %"-t+@u"%. O# o#% t+#g s0%s out

t+% "t" $%-%#/%J g-oss #%gg%#/% "#$ %:$%#t 4"$ "t+, t+out +/+ t+% $"3"g% ou$ #ot

+":% o//u--%$.

?HERE<ORE, t+% $%/so# "00%"%$ -o3 s +%-%4 MODI<IED "#$ /o#s$%-#g t+% s0%/"

"#$ %#:-o#3%#t" /-/u3st"#/%s o t+s /"s%, ?% $%%3 t -%"so#"4% to -%#$%- " $%/so#

30os#g, "s ?% $o +%-%4 30os%, u0o# t+% $%%#$"#t "#$ t+% t+-$(0"-t $%%#$"#ts t+ t+%

%/%0to# o Ro3"# O"%t" " solidary A-t. 172, C: Co$%, upra, 0. 1 #$%3#t # ":o- o

t+% P+00#% !"- Asso/"to# o <IVE MI&&ION P5,,. P%sos to /o:%- " $"3"g%st+ t+% %/%0to# o "tto-#%s %%s o//"so#%$ 4 t+% oss o t+% 4u$#g #/u$#g #t%-%st

/+"-g%s "#$ ost -%#t"s "#$ "# "$$to#" ONE HUNDRED THOUSAND P1,. P%sos "s

"#$ o- "tto-#%s %%s, t+% tot" su3 4%#g 0""4% u0o# t+% #"t o t+s $%/so#. U0o# "u-%

to 0" o# su/+ #"t, t%:% 12K 0%- /%#t #t%-%st 0%- "##u3 s+" 4% 30os%$ u0o# "o-%(

3%#to#%$ "3ou#ts -o3 #"t u#t 0"$. So$"- /osts "g"#st t+% $%%#$"#t "#$ t+-$(0"-t

$%%#$"#ts %/%0t Ro3"# O"%t".

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SO ORDERED.

UN&AD RESOURCES DEVE&OPMENTCORPORATION, UN&AD RURA& !ANO< NOVE&ETA, INC., UN&AD

COMMODITIES, INC., HE&ENA ).!ENITE), "#$ CONRADO &. !ENITE)II,

Petitioners,

@ versus @

RENATO P. DRAGON, TARCISIUS R.RODRIGUE), VICENTE D. CASAS,

ROMU&O M. VIRATA, <&AVIANOPERDITO, TEOTIMO !ENITE), E&ENA!ENITE), "#$ RO&ANDO SUARE),

Respondents.

G.R. No. 149338

Present:

F-&R>S@S&-9!&+0, J.,

Chairperson,

&ES9R!&@M&R9!->L,

C6!C0@-&L&R!0,

-&C6ER&, and

R>F>S, JJ.

Promul#ated:

July *, ))*

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J .*

Before this Court is a Petition for Review on Certiorari under Rule < of the Rules of

Civil Procedure see"in# the reversal of the -ovember 1, ))) $ecision[1] and &u#ust

, ))% Resolution[2] of the Court of &ppeals (C& in C&@+.R. C -o. </.





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9he facts, as found by the C&, are as follows:

0n $ecember 1, %1*%, the Plaintiffs (herein respondents and defendant (herein petitioner Enlad

Resources, throu#h its Chairman,N 6elena L. Benite;,N entered into a Memorandum of &#reement

wherein it is provided that respondentsN, as controllin# stoc"holders of the Rural Ban" of -oveletaN

shall allow Enlad Resources to invest four million ei#ht hundred thousand pesos (P<,*)),))).)) in the

Rural Ban" in the form of additional e8uity. 0n the other hand, petitionerN Enlad Resources bound

itself to invest the said amount of <.* million pesos in the Rural Ban"A upon si#nin#, it was, li"ewise,

a#reed that petitionerN Enlad Resources shall subscribe to a minimum of four hundred ei#hty thousand

pesos (P<*),))).)) (sic common or preferred non@votin# shares of stoc" with a total par value of four

million ei#ht hundred thousand pesos (P<,*)),))).)) and pay up immediately one million two

hundred thousand pesos (P%,)),))).)) for said subscriptionA that the respondentsN, upon the si#nin#

of the said a#reement shall transfer control and mana#ement over the Rural Ban" to Enlad Resources.

&ccordin# to the respondentsN, immediately after the si#nin# of the a#reement, they complied with

their obli#ation and transferred control of the Rural Ban" to Enlad Resources and its nominees and the

Ban" was renamed the Enlad Rural Ban" of -oveleta, !nc. 6owever, respondentsN claim that despite

repeated demands, Enlad Resources has failed and refused to comply with their obli#ation under the

said Memorandum of &#reement when it did not invest four million ei#ht hundred thousand pesos

(P<,*)),))).)) in the Rural Ban" in the form of additional e8uity and, li"ewise, it failed to

immediately infuse one million two hundred thousand pesos (P%,)),))).)) as paid in capital upon

si#nin# of the Memorandum of &#reement.

0n , the Board of $irectors of petitionerN Enlad Resources passed Resolution -o. *<@)<% authori;in#

the President and the +eneral Mana#er to lease a man#o plantation situated in -aic, . Pursuant to this

Resolution, the Ban" as lesseeN entered into a Contract of 3ease with the petitionerN 6elena L.

Benite; as lessorN. 9he mana#ement of the man#o plantation was underta"en by Enlad Commodities,

!nc., a subsidiary of Enlad Resources,N under a Mana#ement Contract &#reement. 9he Mana#ement

Contract provides that Enlad Commodities, !nc. would receive ei#hty percent (*) of the net profits

#enerated by the operation of the man#o plantation while the Ban"s share is twenty percent (). !t

was further a#reed that at the end of the lease period, the Rural Ban" shall turn over to the lessor all

permanent improvements introduced by it on the plantation.

= = = =

0n May ), %1*2, petitionerN Enlad Rural Ban" wrote respondentsN re#ardin# theN Central Ban"s

approval to retire its $evelopment Ban" of the PhilippinesN preferred shares in the amount ofP%1,))).)) and #ivin# notice for subscription to proportionate shares. 9he respondentsN ob4ected on

the #rounds that there is already a sin"in# fund for the retirement of the said $BP@held preferred shares

provided for annually and that it could deprive the Rural Ban" of a cheap source of fund. (sic

RespondentsN alle#ed compliance with all of their obli#ations under the Memorandum of &#reement

in that they have transferred control and mana#ement over the Rural ban" to the petitionersN and are

ready, willin# and able to allow petitionersN to subscribe to a minimum of four hundred ei#hty

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thousand (P<*),))).)) (sic common or preferred non@votin# shares of stoc"s with a total par value of

four million ei#ht hundred thousand pesos (P<,*)),))).)) in the Rural Ban". 6owever, petitionersN

have failed and refused to subscribe to the said shares of stoc" and to pay the initial amount of one

million two hundred thousand pesos (P%,)),))).)) for said subscription.[3]

0n July ', %1*2, herein respondents filed before the Re#ional 9rial Court (R9C of

Ma"ati City, Branch /% a Complaint[4] for rescission of the a#reement and the return of

control and mana#ement of the Rural Ban" from petitioners to respondents, plus

dama#es. &fter trial, the R9C rendered a $ecision,[5] the dispositive portion of which

provides:

D6>R>50R>, Premises Considered, 4ud#ment is hereby rendered, as follows:

%. 9he Memorandum of &#reement dated (sic is hereby declared rescinded and:

(a $efendant Enlad Resources $evelopment Corporation is

hereby ordered to immediately return control and mana#ement over the

Rural Ban" of -oveleta, !nc. to PlaintiffsA and

(b Enlad Rural Ban" of -oveleta, !nc. is hereby ordered to

return to $efendants the sum of 0ne Million 9hree 9housand Seventy

Pesos (P%,))',)2).))

. 9he $irector for Rural Ban"s of the Ban#"o Sentral n# Pilipinas is hereby appointed as

Receiver of the Rural Ban"A

'. Enlad Rural Ban" of -oveleta, !nc. is hereby en4oined from placin# the retired $BP@held

preferred shares available for subscription and the same is hereby ordered to be placed under a sin"in#

fundA

<. $efendant Enlad Resources $evelopment Corporation is hereby ordered to pay plaintiffs

the followin#:

(a actual compensatory dama#es amountin# to 5our Million

Si= 6undred 0ne 9housand Seven 6undred Si=ty@ 5ive and '*H%))

Pesos (P<,/)%,2/.'*A

(b moral dama#es in the amount of 5ive 6undred 9housand

Pesos (P)),))).))A

(c e=emplary and corrective dama#es in the amount of 0ne

6undred 9housand Pesos (P%)),))).))A and

(d attorneys fees in the sum of (P%)),))).)), plus cost of

suit.

S0 0R$>R>$.[6]

6erein petitioners appealed the rulin# to the C&. Respondents filed a Motion to $ismiss









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and, subse8uently, a Supplemental Motion to $ismiss, which were both denied. 3ater,

however, the C&, in a $ecision dated -ovember 1, ))), dismissed the appeal for lac"

of merit and affirmed the R9C $ecision in all respects. Petitioners motion for

reconsideration was denied in C& Resolution dated &u#ust , ))%.

Petitioners are now before this Court alle#in# that the C& committed a #rave and serious

reversible error in issuin# the assailed $ecision. Petitioners 8uestion the 4urisdiction of

the trial court, somethin# they have done from the be#innin# of the controversy,

contendin# that the issues that respondents raised before the trial court are intra@

corporate in nature and are, therefore, beyond the 4urisdiction of the trial court. 9hey

point out that respondents complaint char#ed them with mismana#ement and alle#ed

dissipation of the assets of the Rural Ban". Since the complaint challen#es corporate

actions and decisions of the Board of $irectors and prays for the recovery of the control

and mana#ement of the Rural Ban", these matters fall outside the 4urisdiction of the trial

court. 9hus, they posit that the 4ud#ment of the trial court, as affirmed by the C&, is null

and void and may be impu#ned at any time.

Petitioners further ar#ue that the action instituted by respondents had already prescribed,

because &rticle %'*1 of the Civil Code provides that an action for rescission must be

commenced within four years. 9hey claim that the trial court and the C& mista"enly

applied &rticle %%<< of the Civil Code which treats of prescription of actions in #eneral.

9hey submit that &rticle %'*1, which deals specifically with actions for rescission, is the

applicable law.

Moreover, petitioners assert that they have fully complied with their underta"in# under

the sub4ect Memorandum of &#reement, but that the underta"in# has become a le#al and

factual impossibility because the authori;ed capital stoc" of the Rural Ban" was

increased from P%.2 million to only P million, and could not accommodate the

subscription by petitioners of P<.* million worth of shares. Such deficiency, petitioners

contend, is with the "nowled#e and approval of respondent Renato P. $ra#on and his

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nominees to the Board of $irectors.

Petitioners, without concedin# the propriety of the 4ud#ment of rescission, also ar#ue

that the sub4ect Memorandum of &#reement could not 4ust be ordered rescinded without

the correspondin# order for the restitution of the parties total contributions andHor

investments in the Rural Ban". 5inally, they assail the award for moral and e=emplary

dama#es, as well as the award for attorneys fees, as bereft of factual and le#al bases

#iven that, in the body of the $ecision, it was merely stated that respondents suffered

moral dama#es without any discussion or e=planation of, nor any 4ustification for such

award. 3i"ewise, the matter of attorneys fees was not at all discussed in the body of the

$ecision. Petitioners claim that pursuant to the prevailin# rule, attorneys fees cannot be

recovered in the absence of stipulation.

0n the other hand, respondents declare that immediately after the si#nin# of the

Memorandum of &#reement, they complied with their obli#ation and transferred control

of the Rural Ban" to petitioner Enlad Resources and its nominees, but that, despite

repeated demands, petitioners have failed and refused to comply with their concomitant

obli#ations under the &#reement.

Respondents narrate that shortly after ta"in# over the Rural Ban", petitioners Conrado 3.

Benite; !! and Jor#e C. Cerbo, as President and +eneral Mana#er, respectively, entered

into a Contract of 3ease over the -aic, Cavite man#o plantation, and that, as a

conse8uence of this venture, the ban" incurred e=penses amountin# to P<2,'2%.2,

e8uivalent to .2/ of its capital and surplus. 9he respondents further assert that the

Central Ban" found this underta"in# not inherently connected with bona fide rural

ban"in# operations, nor does it fall within the allied underta"in#s permitted under

Section / of Central Ban" Circular -o. 2<% and Section ''21 of the Manual of

Re#ulations of the Central Ban". 9hus, respondents contend that this circumstance,

coupled with the fact that petitioners 6elena L. Benite; and Conrado 3. Benite; !! were

also stoc"holders and members of the Board of $irectors of Enlad Resources, Enlad

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Rural Ban", and Enlad Commodities at that time, is ade8uate proof that the Rural Ban"s

mana#ement had every intention of divertin#, dissipatin#, andHor wastin# the ban"s

assets for petitioners own #ain.

9hey li"ewise alle#e that because of the failure of petitioners to comply with their

obli#ations under the Memorandum of &#reement, respondents, with the e=ception of

9arcisius Rodri#ue;, lod#ed a complaint with the Securities and >=chan#e Commission

(S>C, see"in# rescission of the &#reement, dama#es, and the appointment of a

mana#ement committee, but the S>C dismissed the complaint for lac" of 4urisdiction.

5urthermore, when the Rural Ban" informed respondents of the Central Ban"s approval

of its plan to retire its $BP@held preferred shares, #ivin# notices for subscription to

proportionate shares, respondents ob4ected on the #round that there was already a

sin"in# fund for the retirement of said shares provided for annually, and that the

retirement would deprive the petitioner Rural Ban" of a cheap source of fund. !t was at

that point, respondents claim, that they instituted the aforementioned Complaint a#ainst

petitioners before the R9C of Ma"ati.

9he respondents also see" the outri#ht dismissal of this Petition for lac" of verification

as to petitioners 6elena L. Benite; and Conrado 3. Benite; !!A lac" of proper verification

as to petitioners Enlad Resources $evelopment Corporation, Enlad Rural Ban" of

-oveleta, !nc., and Enlad Commodities, !nc.A lac" of proper verified statement of

material datesA and lac" of proper sworn certification of non@forum shoppin#.

9hey support the proposition that "i'am v. )ibonghano#[7] applies, and that petitioners

are indeed estopped from 8uestionin# the 4urisdiction of the trial court. 9hey also share

the lower courts view that it is &rticle %%<< of the Civil Code, and not &rticle %'*1, that

is applicable to this case. 5inally, respondents alle#e that the failure of petitioner Enlad

Resources to comply with its underta"in# under the &#reement, as uniformly found by

the trial court and the C&, may no lon#er be assailed in the instant Petition, and that the

award of moral and e=emplary dama#es and attorneys fees is 4ustified.



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9he Petition is bereft of merit. De uphold the $ecision of the C& affirmin# that of the

R9C.

irst, the sub4ect of 4urisdiction. 9he main issue in this case is the rescission of the

Memorandum of &#reement. 9his is to be distin#uished from respondents alle#ation of

the alle#ed mismana#ement and dissipation of corporate assets by the petitioners which

is based on the prayer for receivership over the ban". 9he two issues, albeit related, are

obviously separate, as they pertain to different acts of the parties involved. 9he issue of

receivership does not arise from the parties obli#ations under the Memorandum of

&#reement, but rather from specific acts attributed to petitioners as members of the

Board of $irectors of the Ban". Clearly, the rescission of the Memorandum of

&#reement is a cause of action within the 4urisdiction of the trial courts, notwithstandin#

the fact that the parties involved are all directors of the same corporation.

Still, the petitioners insist that the trial court had no 4urisdiction over the complaint

because the issues involved are intra@corporate in nature.

9his ar#ument miserably fails to persuade. 9he law in force at the time of the filin# of

the case was Presidential $ecree (P.$. 1)@&, Section (b of which vested the

Securities and >=chan#e Commission with ori#inal and e=clusive 4urisdiction to hear

and decide cases involvin# controversies arisin# out of intra@corporate relations.[8]

!nterpretin# this statutorily conferred 4urisdiction on the S>C, this Court had occasion to

state:

-owhere in said decree do we find even so much as an intimationN that absolute 4urisdiction and

control is vested in the Securities and >=chan#e Commission in all matters affectin# corporations. 9o

uphold the respondents ar#uments would remove without le#al imprimatur from the re#ular courts allconflicts over matters involvin# or affectin# corporations, re#ardless of the nature of the transactions

which #ive rise to such disputes. 9he courts would then be divested of 4urisdiction not by reason of the

nature of the dispute submitted to them for ad4udication, but solely for the reason that the dispute

involves a corporation. 9his cannot be done.[9]

!t is well to remember that the respondents had actually filed with the S>C a case a#ainst

the petitioners which, however, was dismissed for lac" of 4urisdiction due to the





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pendency of the case before the R9C.[10] 9he S>Cs 0rder dismissin# the respondents

complaint is instructive:

5rom the fore#oin# alle#ations, it is apparent that the present action involves two separate causes of

action which are interrelated, and the resolution of which hin#es on the very document sou#ht to be

rescinded. 9he assertion that the defendants failed to comply with their contractual underta"in# and theclaim for rescission of the contract by the plaintiffs has, in effect, put in issue the very status of the

herein defendants as stoc"holders of the Rural Ban". 9he issue as to whether or not the defendants are

stoc"holders of the Rural Ban" is a pivotal issue to be determined on the basis of the Memorandum of

&#reement. !t is a pre4udicial 8uestion and a lo#ical antecedent to confer 4urisdiction to this

Commission.

!t is to be noted, however, that determination of the contractual underta"in# of the parties under a

contract lies with the Re#ional 9rial Courts and not with this Commission. = = =[11]

Be that as it may, this point has been rendered moot by Republic &ct (R.&. -o. *211,also "nown as the )ecurities Regulation Code. 9his law, which too" effect in ))), has

transferred 4urisdiction over such disputes to the R9C. Specifically, R.&. *211 provides:

Sec. . Powers and 5unctions of the Commission

= = = =

.. 9he Commissions 4urisdiction over all cases enumerated under Section of Presidential $ecree

-o. 1)@& is hereby transferred to the Courts of #eneral 4urisdiction or the appropriate Re#ional 9rial

Court: Provided, 9hat the Supreme Court in the e=ercise of its authority may desi#nate the Re#ional9rial Court branches that shall e=ercise 4urisdiction over these cases. 9he Commission shall retain

4urisdiction over pendin# cases involvin# intra@corporate disputes submitted for final resolution which

should be resolved within one (% year from the enactment of this Code. 9he Commission shall retain

4urisdiction over pendin# suspension of paymentsHrehabilitation cases filed as of until finally disposed.

Section of P.$. -o. 1)@& reads, thus:

Sec. . !n addition to the re#ulatory and ad4udicative functions of the Securities and >=chan#e

Commission over corporations, partnerships and other forms of associations re#istered with it as

e=pressly #ranted under e=istin# laws and decrees, it shall have ori#inal and e=clusive 4urisdiction tohear and decide cases involvin#:

a $evices and schemes employed by or any acts of the board of directors, business

associates, its officers or partnership, amountin# to fraud and misrepresentation which may be

detrimental to the interest of the public andHor of the stoc"holder, partners, members of associations or

or#ani;ations re#istered with the CommissionA

b Controversies arisin# out of intra@corporate or partnership relations, between and amon#





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stoc"holders, members, or associatesA between any or all of them and the corporation, partnership or

association of which they are stoc"holders, members or associates, respectivelyA and between such

corporation, partnership or association and the state insofar as it concerns their individual franchise or

ri#ht to e=ist as such entityA

c Controversies in the election or appointment of directors, trustees, officers or mana#ers of

such corporations, partnerships or associations.

Conse8uently, whether the cause of action stems from a contractual dispute or one that

involves intra@corporate matters, the R9C already has 4urisdiction over this case. !n this

li#ht, the 8uestion of whether the doctrine of estoppel by laches applies, as enunciated

by this Court in "i'am v. )ibonghano#, no lon#er finds relevance.

)econd, the issue of prescription. Petitioners further contend that the action for

rescission has prescribed under &rticle %'1* of the Civil Code, which provides:

&rticle %'*1. 9he action to claim rescission must be commenced within four years = = =.

9his is an erroneous proposition. &rticle %'*1 specifically refers to rescissible contracts

as, clearly, this provision is under the chapter entitled Rescissible Contracts.

!n a previous case,[12] this Court has held that &rticle %'*1:

applies to rescissible contracts, as enumerated and defined in &rticles %'*) and %'*%. De must stress

however, that the rescission in &rticle %'*% is not a"in to the term rescission in &rticle %%1% and &rticle

%1. !n &rticles %%1% and %1, the rescission is a principal action which see"s the resolution or

cancellation of the contract while in &rticle %'*%, the action is a subsidiary one limited to cases of

rescission for lesion as enumerated in said article.

9he prescriptive period applicable to rescission under &rticles %%1% and %1, is found in &rticle %%<<,

which provides that the action upon a written contract should be brou#ht within ten years from the time

the ri#ht of action accrues.



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&rticle %'*% sets out what are rescissible contracts, to wit:

&rticle %'*%. 9he followin# contracts are rescissible:

(% 9hose which are entered into by #uardians whenever the wards whom they represent suffer lesion

by more than one@fourth of the value of the thin#s which are the ob4ect thereofA

( 9hose a#reed upon in representation of absentees, if the latter suffer the lesion stated in theprecedin# numberA

(' 9hose underta"en in fraud of creditors when the latter cannot in any other manner collect the claims

due themA

(< 9hose which refer to thin#s under liti#ation if they have been entered into by the defendant without

the "nowled#e and approval of the liti#ants or of competent 4udicial authorityA

( &ll other contracts specially declared by law to be sub4ect to rescission.

9he Memorandum of &#reement sub4ect of this controversy does not fall under the

above enumeration. &ccordin#ly, the prescriptive period that should apply to this case is

that provided for in &rticle %%<<, to wit:

&rticle %%<<. 9he followin# actions must be brou#ht within ten years from the time the ri#ht of action

accrues:

(% Epon a written contractA

= = = =

Based on the records of this case, the action was commenced on July ', %1*2, while the

Memorandum of &#reement was entered into on $ecember 1, %1*%. &rticle %%<<

specifically provides that the %)@year period is counted from the time the ri#ht of action

accrues. 9he ri#ht of action accrues from the moment the breach of ri#ht or duty occurs.

[13] 9hus, the ori#inal Complaint was filed well within the prescriptive period.

De now proceed to determine if the trial court, as affirmed by the C&, correctly ruled for

the rescission of the sub4ect &#reement.

Petitioners contend that they have fully complied with their obli#ation under the

Memorandum of &#reement. 9hey alle#e that due to respondents failure to increase the

capital stoc" of the corporation to an amount that will accommodate their underta"in#, it

had become impossible for them to perform their end of the &#reement.



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&#ain, petitioners contention is untenable. 9here is no 8uestion that petitioners herein

failed to fulfill their obli#ation under the Memorandum of &#reement. >ven they admit

the same, albeit layin# the blame on respondents.

!t is true that respondents increased the Rural Ban"s authori;ed capital stoc" to only P

million, which was not enou#h to accommodate the P<.* million worth of stoc"s that

petitioners were to subscribe to and pay for. 6owever, respondents failure to fulfill their

underta"in# in the a#reement would have #iven rise to the scenario contemplated by

&rticle %%1% of the Civil Code, which reads:

&rticle %%1%. 9he power to rescind reciprocal obli#ations is implied in reciprocal ones, in case one of

the obli#ors should not comply with what is incumbent upon him.

9he in4ured party may choose between the fulfillment and the rescission of the obli#ation, with the

payment of dama#es in either case. 6e may also see" rescission, even after he has chosen fulfillment, if

the latter should become impossible.

9he court shall decree the rescission claimed, unless there be 4ust cause authori;in# the fi=in# of a

period.

9his is understood to be without pre4udice to the ri#hts of third persons who have ac8uired the thin#, in

accordance with &rticles %'* and %'** and the Mort#a#e 3aw.

9hus, petitioners should have e=acted fulfillment from the respondents or as"ed for the

rescission of the contract instead of simply not performin# their part of the &#reement.

But in the course of thin#s, it was the respondents who availed of the remedy under

&rticle %%1%, optin# for the rescission of the &#reement in order to re#ain control of the

Rural Ban".

6avin# determined that the rescission of the sub4ect Memorandum of &#reement was in

order, the trial court ordered petitioner Enlad Resources to return to respondents the

mana#ement and control of the Rural Ban" and for the latter to return the sum of

P%,))',)2).)) to petitioners.

Mutual restitution is re8uired in cases involvin# rescission under &rticle %%1%. 9his

means brin#in# the parties bac" to their ori#inal status prior to the inception of the

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contract.[14] &rticle %'* of the Civil Code provides, thus:

&R9. %'*. Rescission creates the obli#ation to return the thin#s which were the ob4ect of the contract,

to#ether with their fruits, and the price with its interestA conse8uently, it can be carried out only when

he who demands rescission can return whatever he may be obli#ated to restore.

-either shall rescission ta"e place when the thin#s which are the ob4ect of the contract are le#ally in thepossession of third persons who did not act in bad faith.

!n this case, indemnity for dama#es may be demanded from the person causin# the loss.

9his Court has consistently ruled that this provision applies to rescission under &rticle

%%1%:

SNince &rticle %'* of the Civil Code e=pressly and clearly states that rescission creates the obli#ation

to return the thin#s which were the ob4ect of the contract, to#ether with their fruits, and the price with

its interest, the Court finds no 4ustification to sustain petitioners position that said &rticle %'* does notapply to rescission under &rticle %%1%.[15]

Rescission has the effect of unma"in# a contract, or its undoing from the beginning, and

not merel# its termination.[16] 6ence, rescission creates the obli#ation to return the

ob4ect of the contract. !t can be carried out only when the one who demands rescission

can return whatever he may be obli#ed to restore. 9o rescind is to declare a contract void

at its inception and to put an end to it as thou#h it never was. !t is not merely to

terminate it and release the parties from further obli#ations to each other, but to abro#ate

it from the be#innin# and restore the parties to their relative positions as if no contract

has been made.[17]

&ccordin#ly, when a decree for rescission is handed down, it is the duty of the court to

re8uire both parties to surrender that which they have respectively received and to place

each other as far as practicable in his ori#inal situation. 9he rescission has the effect of

abro#atin# the contract in all parts.[18]

Clearly, the petitioners failed to fulfill their end of the a#reement, and thus, there was

4ust cause for rescission. Dith the contract thus rescinded, the parties must be restored to

the status quo ante, that is, before they entered into the Memorandum of &#reement.












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5inally, we must resolve the 8uestion of the propriety of the award for dama#es and

attorneys fees.

9he trial courts $ecision mentioned that the evidence is clear and convincin# that

Plaintiffs (herein respondents suffered actual compensatory dama#es amountin# to 5our

Million Si= 6undred 0ne 9housand Seven 6undred Si=ty@5ive and '*H%)) Pesos

(P<,/)%,2/.'* moral dama#es and attorneys fees.

9hou#h not discussed in the body of the $ecision, the records show that the amount of

P<,/)%,2/.'* pertains to actual losses incurred by respondents as a result of petitioners

non@compliance with their underta"in# under the Memorandum of &#reement. 0n this

point, respondent $ra#on presented testimonial and documentary evidence to prove the

actual amount of dama#es, thus:

&tty. Cru;

I: Das there any conse8uence to you Mr. $ra#on due to any breach of the a#reement mar"ed as

>=hibit &

&: Fes sir ! could have earned thru the shares of stoc" that ! have, or we have or we had by this time

amountin# to several millions pesos (sic. 9hey have only put in the whole amount that we have a#reed

upon (sic.

I: !n this connection did you cause computation of these losses that you incured (sic

&: Fes sir.

= = = =

I: Dill you please "indly #o throu#h this computation and e=plain the same to the 6onorable Court

&: -umber % is an 0r#an (sic income from the sale of /) (sic at only 9hree 6undred -inety -ine

9housand 9wo hundred for -ineteen 9housand -ine 6undred Si=ty shares which should have been

sold if it were sold to others for P).)) each for a total of -ine 6undred -inety >i#ht 9housand but

sold to them for 9hree 6undred -inety nine (sic 9housand two (sic 6undred only and of which only

9hree 6undred 9wenty 5our 9housand Si= 6undred was paid to me. 9herefore, there was a difference

of Si= 6undred Seven 9hree (sic 9housand 5our 6undred (P/2',<)).)). 0n the basis of the

commulative (sic lost income every year from March %1* from the amount of Seven Si= 6undred

(sic Seventy 9hree 9housand four (sic 6undred (P/2',<)). (sic there would be a discommulative

(sic lost (sic of 0ne Million -inety 9hree 9housand -ine 6undred 5ifty 9wo Pesos and forty two

(sic centavos (P%,)1',1.<. Please note that the interest imputed is only at % per annum but it

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should had (sic been much hi#her. !n %1*< to %1*/ (sic alone rates went as hi#her (sic as <) per

annum from the so called (sic Jobo Bills and yet we only computed the imputed income or lost income

at % per annum and then there is a <) participation on the unreali;ed earnin#s due to their failure

to put in an stabili;ed (sic earnin#s. Fou will note that if they put in <.* million Pesos and it would be

earnin# money, <) of that will #o to us because <) of the ban" would be ours and /) would be

there (sic. But because they did put in the <.* million our <) did not earn up to that e=tent andcomputed a#ain on the basis of % the amount (sic on the commulative (sic basis up to September

%11) is million three hundred fifty two thousand si=ty five pesos and four centavos (sic.

(P,',)/.)<. Fou will note a#ain that the avera#e return of investment of any based (sic Rural

Ban" has been no less than ) or about ') per annum. &nd we computed only the earnin#s at %.

= = = =

9here were loans #ranted fraudulently to members of the board and some borrowers which were not all

char#ed interest for several years and on this basis we computed a <) shares (sic on the fore#one

income interest income (sic on all these fraudulently #ranted loans, without interest bein# collected

and none a pro4ect (sic amon# a plantation pro4ect (sic, which was funded by the ban" but nothin#

was #iven bac" to the ban" for several hundred thousand of pesos (sic. &nd we arrived an (sic

estimate of the fore#one interest income a total of 0ne Million 9wo 6undred 5ive 9housand >i#ht

6undred Si=ty -one Pesos and ei#hty one (sic centavos and <) percent share of this (sic would be

5our 6undred >i#hty 9wo 9housand 9hree 6undred 5orty Seven Pesos and -inety 9wo Centavos. &ll

in all our estimate of the dama#es we have suffered is 5our Million Si= 6undred one (sic 9housand

Seven 6undred Si=ty 5ive Pesos and thirty ei#ht (sic centavos (P<,/)%,2/.'*.[19]

More importantly, petitioners never raised in issue before the C& this award of actual

compensatory dama#es. 9hey did not raise the matter of dama#es in their &ppellants

Brief, while in their Motion for Reconsideration, they 8uestioned only the award of

moral and e=emplary dama#es, not the award of actual dama#es. >ven in the present

Petition for Review, what petitioners raised was the propriety of the award of moral and

e=emplary dama#es and attorneys fees.

0n the #rant of moral and e=emplary dama#es and attorneys fees, we note that the trial

courts $ecision did not discuss the basis for the award. -o mention of these dama#es

awarded or their factual basis is made in the body of the $ecision, only in the dispositive

portion. Be that as it may, we have e=amined the records of the case and found that the

award must be sustained.

!t should be remembered that there are two separate causes of action in this case: one for



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rescission of the Memorandum of &#reement and the other for receivership based on

alle#ed mismana#ement of the company by the plaintiffs. Dhile the award of actual

compensatory dama#es was based on the breach of duty under the Memorandum of

&#reement, the award of moral dama#es appears to be based on petitioners

mismana#ement of the company when they became members of the Board of $irectors

of the Rural Ban".

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9hus, the trial court said:

Ender the Rural Ban"s mana#ement, a systematic diversion of the ban"s assets was conceived

whereby: (a 9he Rural Ban"s funds would be funneled in the development and improvements of the

Benite; Man#o Plantation in the #uise of an investment in said plantationA (b 0f the net profits earned

from the plantations operations, the Rural Ban"s share therein, althou#h it shoulders all of the financial

ris"s, would be a measly twenty percent () thereof while EC!, without investin# a sin#le centavo,

would earn ei#hty percent (*) of the said profits. 9hus, the bul" of the profits of the man#o

plantation was also sou#ht to be diverted to an entity wherein 6elena L. Benite; and Conrado 3.

Benite; !! are not only principal stoc"holders but also the Chairman of the Board of $irectors and

President, respectively. Moreover, $efendant 6elena L. Benite; would be entitled to receive, under the

lease contract, rentals in the total amount of 9hree 6undred 9housand Pesos (P')),))).)) or ten

percent (%) of #ross profits, whichever is hi#her. (c 5inally, at the end of the lease period, the Rural

Ban" was obli#ed to turn over to the lessor (6elena L. Benite; all permanent improvements introduced

by it on the plantation at no cost to Ms. Benite;.

5urther, in its report dated March %', %1*, the Central Ban"N after conductin# its #eneral e=amination

upon the Rural Ban" ordered the latter to e=plain satisfactorily why the ban" en#a#e (sic in an

underta"in# not inherently connected with bona fideN rural ban"in# operations nor within the allowed

allied underta"in#s, contrary to the provisions of Section ''21 of the CB Manual of Re#ulations and

Section / of CB Circular -o. 2<%, otherwise "nown as the Circular on Rural Ban"s.N

9he aforestated CB report states that total e=posure to this pro4ect now amounts to P<2,'2%.2 or

.2/ of its capital and surplus.N -otwithstandin# a findin# by the CB of the underta"in#s ille#ality,

the defendants nevertheless persisted in pursuin# the Man#o Plantation Pro4ect and never acceded to

the call of theN CB for it to desist from further implementin# the said pro4ect. !t was only after anotherletter from the CB was received when defendant finally shelved the man#o plantation pro4ect.

9he result of the aforestated report, as well as the actuations of the $efendants in not yieldin# to the

order of the CB, ade8uately establishes not only a violation of CB Rules (specifically Section /,

Circular 2<% and Section ''21 of the CB Manual of Re#ulations, but also, that it has caused undue

dama#e both to the Rural ban" as well as its stoc"holders.

9he initial CB report should have sufficiently apprised $efendants of the ille#ality of the underta"in#.

$efendants, therefore have the duty to terminate the Man#o Plantation Pro4ect. 9hey, however, choseN

to continue it, apparently to further their ownN interest in the scheme for their own personal benefit and

#ain, an act which is clearly contrary to the fiduciary nature of their relationship with the corporation in

which they are officers. Such persistence proves evident bad faith, or a breach of a "nown duty throu#h

some motive or ill@will, which resulted in the further dissipation and wasta#e of the Rural Ban"s assets,

un4ustly deprivin# Plaintiffs of their fair share in the assets of the ban".

&ll the fore#oin# satisfactorily affirms the alle#ations of Plaintiffs to the effect that these contracts

were but part of a device employed by $efendants to siphon offN the Rural ban" for their personal

#ain.[20]



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Moral dama#es include physical sufferin#, mental an#uish, fri#ht, serious an=iety,

besmirched reputation, wounded feelin#s, moral shoc", social humiliation, and similar

in4ury. 9hou#h incapable of precise pecuniary computation, moral dama#es may be

recovered if they are the pro=imate result of the defendants wron#ful act or omission.

[21] &rticle ) of the Civil Code further provides that moral dama#es may be

recovered in case of a breach of contract where the defendant acted in bad faith.[22]

9o award moral dama#es, a court must be satisfied with proof of the followin#

re8uisites: (% an in4ury whether physical, mental, or psycholo#ical clearly sustained by

the claimantA ( a culpable act or omission factually establishedA (' a wron#ful act or

omission of the defendant as the pro=imate cause of the in4ury sustained by the claimantA

and (< the award of dama#es predicated on any of the cases stated in &rticle %1.[23]

&ccordin#ly, based upon the findin#s of the trial court, it is clear that respondents are

entitled to moral dama#es. 9he acts attributed to the petitioners as directors of the Rural

Ban" manifestly pre4udiced the respondents causin# detriment to their standin# as

directors and stoc"holders of the Rural Ban".

>=emplary dama#es cannot be recovered as a matter of ri#ht. [24] Dhile these need not

be proved, respondents must show that they are entitled to moral, temperate or

compensatory dama#es before the court may consider the 8uestion of awardin#

e=emplary dama#es.[25] De find that respondents are indeed entitled to moral dama#esA

thus, the award for e=emplary dama#es is in order.

&nent the award for attorneys fees, &rticle )* of the Civil Code states:

!n the absence of stipulation, attorneys fees and e=penses of liti#ation, other than 4udicial costs, cannotbe recovered, e=cept:

(% Dhen e=emplary dama#es are awarded.

6ence, the award of e=emplary dama#es is in itself sufficient 4ustification for the award

of attorneys fees.[26]

?HERE<ORE, the fore#oin# premises considered, the petition is hereby DENIED.













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9he assailed $ecision and Resolution of the Court of &ppeals in C&@+.R. C -o.

</ are A<<IRMED.

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SO ORDERED.

ANTONIO EDUARDO B. NACHURA

A(()c$t' *+(tc'

?E CONCUR*

G.R. No. &(29155 M" 1, 197

UNIVERSA& <OOD CORPORATION, petitioner,

vs.

THE COURT O< APPEA&S, MAGDA&O V. <RANCISCO, SR., "#$ VICTORIANO N.

<RANCISCO, respondents.

@igberto *. "a8ada for petitioner.

"eofilo endoza for respondents.

CASTRO, J.:

Petition for certiorari by the Eniversal 5ood Corporation a#ainst the decision of the Court of &ppeals

of 5ebruary %', %1/* in C&@+.R. '%<')@R (Ma#dalo . 5rancisco, Sr. and ictoriano . 5rancisco,

plaintiffs@appellants vs. Eniversal 5ood Corporation, defendant@appellee, the dispositive portion of

which reads as follows: D6>R>50R> the appealed decision is hereby reversedA the B!33 05

&SS!+-M>-9 mar"ed >=hibit & is hereby rescinded, and defendant is hereby ordered to return to

plaintiff Ma#dalo . 5rancisco, Sr., his Mafran sauce trademar" and formula sub4ect@matter of >=hibit

&, and to pay him his monthly salary of P')).)) from $ecember %, %1/), until the return to him of said

trademar" and formula, plus attorney?s fees in the amount of P)).)), with costs a#ainst defendant. 1

0n 5ebruary %<, %1/% Ma#dalo . 5rancisco, Sr. and ictoriano . 5rancisco filed with the Court of

5irst !nstance of Manila, a#ainst, the Eniversal 5ood Corporation, an action for rescission of a contract

entitled Bill of &ssi#nment. 9he plaintiffs prayed the court to ad4ud#e the defendant as without any

ri#ht to the use of the Mafran trademar" and formula, and order the latter to restore to them the said

ri#ht of userA to order the defendant to pay Ma#dalo . 5rancisco, Sr. his unpaid salary from $ecember

%, %1/), as well as dama#es in the sum of P<),))), and to pay the costs of suit. 1

0n 5ebruary *, the defendant filed its answer containin# admissions and denials. Para#raph ' thereof

admits the alle#ations contained in para#raph ' of plaintiffs? complaint. 9he answer further alle#ed

that the defendant had complied with all the terms and conditions of the Bill of &ssi#nment and,

conse8uently, the plaintiffs are not entitled to rescission thereofA that the plaintiff Ma#dalo . 5rancisco,

Sr. was not dismissed from the service as permanent chief chemist of the corporation as he is still its

chief chemistA and, by way of special defenses, that the aforesaid plaintiff is estopped from 8uestionin#

% the contents and due e=ecution of the Bill of &ssi#nment, the corporate acts of the petitioner,

particularly the resolution adopted by its board of directors at the special meetin# held on 0ctober %<,

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%1/), to suspend operations to avoid further losses due to increase in the prices of raw materials, since

the same plaintiff was present when that resolution was adopted and even too" part in the consideration

thereof, ' the actuations of its president and #eneral mana#er in enforcin# and implementin# the said

resolution, < the fact that the same plaintiff was ne#li#ent in the performance of his duties as chief

chemist of the corporation, and the further fact that the said plaintiff was delin8uent in the payment

of his subscribed shares of stoc" with the corporation. 9he defendant corporation prayed for thedismissal of the complaint, and as"ed for P2) as attorney?s fees and P,))) in e=emplary or corrective

dama#es.

0n June , %1/ the lower court dismissed the plaintiffs? complaint as well as the defendant?s claim

for dama#es and attorney?s fees, with costs a#ainst the former, who promptly appealed to the Court of

&ppeals. 0n 5ebruary %', %1/1 the appellate court rendered the 4ud#ment now the sub4ect of the

present recourse.

9he Court of &ppeals arrived at the followin# uncontroverted findin#s of fact:

9hat as far bac" as %1'*, plaintiff Ma#dalo . 5rancisco, Sr. discovered or invented aformula for the manufacture of a food seasonin# (sauce derived from banana fruits

popularly "nown as M&5R&- sauceA that the manufacture of this product was used in

commercial scale in %1<, and in the same year plaintiff re#istered his trademar" in his

name as owner and inventor with the Bureau of PatentsA that due to lac" of sufficient

capital to finance the e=pansion of the business, in %1/), said plaintiff secured the

financial assistance of 9irso 9. Reyes who, after a series of ne#otiations, formed with

others defendant Eniversal 5ood Corporation eventually leadin# to the e=ecution on

May %%, %1/) of the afore8uoted Bill of &ssi#nment (>=hibit & or %.

Conformably with the terms and conditions of >=h. &, plaintiff Ma#dalo . 5rancisco,Sr. was appointed Chief Chemist with a salary of P')).)) a month, and plaintiff

ictoriano . 5rancisco was appointed auditor and superintendent with a salary of

P).)) a month. Since the start of the operation of defendant corporation, plaintiff

Ma#dalo . 5rancisco, Sr., when preparin# the secret materials inside the laboratory,

never allowed anyone, not even his own son, or the President and +eneral Mana#er

9irso 9. Reyes, of defendant, to enter the laboratory in order to "eep the formula secret

to himself. 6owever, said plaintiff e=pressed a willin#ness to #ive the formula to

defendant provided that the same should be placed or "ept inside a safe to be opened

only when he is already incapacitated to perform his duties as Chief Chemist, butdefendant never ac8uired a safe for that purpose. 0n July /, %1/), President and

+eneral Mana#er 9irso 9. Reyes wrote plaintiff re8uestin# him to permit one or two

members of his family to observe the preparation of the ?Mafran Sauce? (>=hibit C, but

said re8uest was denied by plaintiff. !n spite of such denial, 9irso 9. Reyes did not

compel or force plaintiff to accede to said re8uest. 9hereafter, however, due to the

alle#ed scarcity and hi#h prices of raw materials, on -ovember *, %1/), Secretary@

9reasurer Ciriaco 3. de +u;man of defendant issued a Memorandum (>=hibit B, duly

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approved by the President and +eneral Mana#er 9irso 9. Reyes that only Supervisor

Ricardo 5rancisco should be retained in the factory and that the salary of plaintiff

Ma#dalo . 5rancisco, Sr., should be stopped for the time bein# until the corporation

should resume its operation. Some five ( days later, that is, on $ecember ', %1/),

President and +eneral Mana#er 9irso 9. Reyes, issued a memorandom to ictoriano

5rancisco orderin# him to report to the factory and produce Mafran Sauce at the rateof not less than %)) cases a day so as to cope with the orders of the corporation?s various

distributors and dealers, and with instructions to ta"e only the necessary daily employees

without employin# permanent employees (>=hibit B. &#ain, on $ecember /, %1/%,

another memorandum was issued by the same President and +eneral Mana#er

instructin# the &ssistant Chief Chemist Ricardo 5rancisco, to recall all daily employees

who are connected in the production of Mafran Sauce and also some additional daily

employees for the production of Por"y Pops (>=hibit B@%. 0n $ecember 1, %1/),

another memorandum was issued by the President and +eneral Mana#er instructin#

Ricardo 5rancisco, as Chief Chemist, and Porfirio Larra#a, as &ctin# Superintendent, to

produce Mafran Sauce and Por"y Pops in full swin# startin# January , %1/% with

further instructions to hire daily laborers in order to cope with the full blast protection

(>=hibit S@. Plaintiff Ma#dalo . 5rancisco, Sr. received his salary as Chief Chemist in

the amount of P')).)) a month only until his services were terminated on -ovember '),

%1/). 0n January 1 and %/, %1/%, defendant, actin# thru its President and +eneral

Mana#er, authori;ed Porfirio Larra#a and Paula de Bacula to loo" for a buyer of the

corporation includin# its trademar"s, formula and assets at a price of not less than

P')),))).)) (>=hibits $ and $@%. $ue to these successive memoranda, without

plaintiff Ma#dalo . 5rancisco, Sr. bein# recalled bac" to wor", the latter filed the

present action on 5ebruary %<, %1/%. &bout a month afterwards, in a letter dated March

), %1/%, defendant, thru its President and +eneral Mana#er, re8uested said plaintiff to

report for duty (>=hibit ', but the latter declined the re8uest because the present action

was already filed in court (>=hibit J.

%. 9he petitioner?s first contention is that the respondents are not entitled to rescission. !t is ar#ued that

under article %%1% of the new Civil Code, the ri#ht to rescind a reciprocal obli#ation is not absolute and

can be demanded only if one is ready, willin# and able to comply with his own obli#ation and the other

is notA that under article %%/1 of the same Code, in reciprocal obli#ations, neither party incurs in delay

if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon

himA that in this case the trial court found that the respondents not only have failed to show that the

petitioner has been #uilty of default in performin# its contractual obli#ations, but the record

sufficiently reveals the fact that it was the plaintiff Ma#dalo . 5rancisco who had been remiss in the

compliance of his contractual obli#ation to cede and transfer to the defendant the formula for Mafran

sauceA that even the respondent Court of &ppeals found that as observed by the lower court, ?the

record is replete with the various attempt made by the defendant (herein petitioner to secure the said

formula from Ma#dalo . 5rancisco to no availA and that upon the fore#oin# findin#s, the respondent

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Court of &ppeals un4ustly concluded that the private respondents are entitled to rescind the Bill of

&ssi#nment.

9he threshold 8uestion is whether by virtue of the terms of the Bill of &ssi#nment the respondent

Ma#dalo . 5rancisco, Sr. ceded and transferred to the petitioner corporation the formula for Mafran

sauce. 2

9he Bill of &ssi#nment sets forth the followin# terms and conditions:

96&9 the Party of the 5irst Part Ma#dalo . 5rancisco, Sr.N is the sole and e=clusive

owner of the M&5R&- trade@mar" and the formula for M&5R&- S&EC>A

96&9 for and in consideration of the royalty of 9D0 ( P>R C>-9EM of the net

annual profit which the P&R9F 05 96> Second Part Eniversal 5ood CorporationN may

reali;e by andHor out of its production of M&5R&- S&EC> and other food products

and from other business which the Party of the Second Part may en#a#e in as defined in

its &rticles of !ncorporation, and which its Board of $irectors shall determine and

declare, said Party of the 5irst Part hereby assi#n, transfer, and convey all its property

ri#hts and interest over said Mafran trademar" and formula for M&5R&- S&EC> unto

the Party of the Second PartA

96&9 the payment for the royalty of 9D0 ( P>R C>-9EM of the annual net profit

which the Party of the Second Part obli#ates itself to pay unto the Party of the 5irst Part

as founder and as owner of the M&5R&- trademar" and formula for M&5R&-

S&EC>, shall be paid at every end of the 5iscal Fear after the proper accountin# and

inventories has been underta"en by the Party of the Second Part and after a competent

auditor desi#nated by the Board of $irectors shall have duly e=amined and audited its

boo"s of accounts and shall have certified as to the correctness of its 5inancial

StatementA

96&9 it is hereby understood that the Party of the 5irst Part, to improve the 8uality of

the products of the Party of the 5irst Part and to increase its production, shall endeavor

or underta"e such research, study, e=periments and testin#, to invent or cause to invent

additional formula or formulas, the property ri#hts and interest thereon shall li"ewise be

assi#ned, transferred, and conveyed unto the Party of the Second Part in consideration of

the fore#oin# premises, covenants and stipulations:

96&9 in the operation and mana#ement of the Party of the 5irst Part, the Party of the5irst Part shall be entitled to the followin# Participation:

(a 96&9 $r. M&+$&30 . 5R&-C!SC0 shall be appointed Second ice@President

and Chief Chemist of the Party of the Second Part, which appointments are permanent in

character and Mr. !C90R!&-0 . 5R&-C!SC0 shall be appointed &uditor thereof

and in the event that the 9reasurer or any officer who may have the custody of the funds,

assets and other properties of the Party of the Second Part comes from the Party of the

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5irst Part, then the &uditor shall not be appointed from the latterA furthermore should the

&uditor be appointed from the Party representin# the ma4ority shares of the Party of the

Second Part, then the 9reasurer shall be appointed from the Party of the 5irst PartA

(b 96&9 in case of death or other disabilities they should become incapacitated to

dischar#e the duties of their respective position, then, their shares or assi#ns and who

may have necessary 8ualifications shall be preferred to succeed themA

(c 9hat the Party of the 5irst Part shall always be entitled to at least two ( membership

in the Board of $irectors of the Party of the Second PartA

(d 96&9 in the manufacture of M&5R&- S&EC> and other food products by the

Party of the Second Part, the Chief Chemist shall have and shall e=ercise absolute

control and supervision over the laboratory assistants and personnel and in the purchase

and safe"eepin# of the Chemicals and other mi=tures used in the preparation of said

productsA

96&9 this assi#nment, transfer and conveyance is absolute and irrevocable in no caseshall the P&R9F 05 96> 5irst Part as", demand or sue for the surrender of its ri#hts

and interest over said M&5R&- trademar" and mafran formula, e=cept when a

dissolution of the Party of the Second Part, voluntary or otherwise, eventually arises, in

which case then the property ri#hts and interests over said trademar" and formula shall

automatically revert the Party of the 5irst Part.

Certain provisions of the Bill of &ssi#nment would seem to support the petitioner?s position that the

respondent patentee, Ma#dalo . 5rancisco, Sr. ceded and transferred to the petitioner corporation the

formula for Mafran sauce. 9hus, the last part of the second para#raph recites that the respondent

patentee assign, transfer and conve# all its propert# rights and interest over said afran trademar&

and formula for ARA0 )A?C* unto the Part# of the )econd Part, and the last paragraph states

that such assignment, transfer and conve#ance is absolute and irrevocable <and= in no case shall the

PAR": 4 "H* irst Part as&, demand or sue for the surrender of its rights and interest over said

ARA0 trademar& and mafran formula.

6owever, a perceptive analysis of the entire instrument and the lan#ua#e employed therein 3 would lead

one to the conclusion that what was actuall" ceded and transferred was only the use of the Mafran sauce

formula" (his was the !recise intention of the !arties, 4 as we shall !resently show"

irstl#, one of the principal considerations of the Bill of &ssi#nment is the payment of ro#alt# of9D0 ( P>R C>-9EM of the net annual profit which the petitioner corporation may reali;e by

andHor out of its production of Mafran sauce and other food products, etc. 9he word royalty, when

employed in connection with a license under a patent, means the compensation paid for the use of a

patented invention.

;Ro#alt#,; $hen used in connection $ith a license under a patent, means the

compensation paid b# the licensee to the licensor for the use of the licensor;s patented

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invention. (6a;eltine Corporation vs. Lenith Radio Corporation, %)) 5. d %), %/. 5

)econdl#, in order to preserve the secrecy of the Mafran formula and to prevent its unauthori;ed

proliferation, it is provided in para#raph @(a of the Bill that the respondent patentee was to be

appointed chief chemist ... permanent in character, and that in case of his death or other disabilities,

then his heirs or assi#ns who may have necessary 8ualifications shall be preferred to succeed him as

such chief chemist. !t is further provided in para#raph @(d that the same respondent shall have and

shall e=ercise absolute control and supervision over the laboratory assistants and personnel and over the

purchase and safe"eepin# of the chemicals and other mi=tures used in the preparation of the said

product. &ll these provisions of the Bill of &ssi#nment clearly show that the intention of the respondent

patentee at the time of its e=ecution was to part, not with the formula for Mafran sauce, but only its use,

to preserve the monopoly and to effectively prohibit anyone from availin# of the invention. 6

"hirdl#, pursuant to the last para#raph of the Bill, should dissolution of the Petitioner corporation

eventually ta"e place, the property ri#hts and interests over said trademar" and formula shall

automatically revert to the respondent patentee. 9his must be so, because there could be no reversion of

the trademar" and formula in this case, if, as contended by the petitioner, the respondent patentee

assi#ned, ceded and transferred the trademar" and formula T and not merely the ri#ht to use it T for

then such assi#nment passes the property in such patent ri#ht to the petitioner corporation to which it is

ceded, which, on the corporation becomin# insolvent, will become part of the property in the hands of

the receiver thereof. 7

ourthl#, it is alle#ed in para#raph ' of the respondents? complaint that what was ceded and transferred

by virtue of the Bill of &ssi#nment is the use of the formula (and not the formula itself. 9his

incontrovertible fact is admitted without e8uivocation in para#raph ' of the petitioner?s answer. 6ence,

it does not re8uire proof and cannot be contradicted. 8 (he last !art of !aragra!h = of the com!laint and

!aragra!h = of the answer are re!roduced below for ready reference:

'. T ... and due to these privile#es, the plaintiff in return assi#ned to said corporation his

interest and ri#hts over the said trademar" and formula so that the defendant corporation

could use the formula in the preparation and manufacture of the mafran sauce, and the

trade name for the mar"etin# of said pro4ect, as appearin# in said contract ....

'. T $efendant admits the alle#ations contained in para#raph ' of plaintiff?s complaint.

ifthl#, the facts of the case compellin#ly demonstrate continued possession of the Mafran sauce

formula by the respondent patentee.

inall#, our conclusion is fortified by the admonition of the Civil Code that a conveyance should be

interpreted to effect the least transmission of ri#ht, 9 and is there a better e<am!le of least transmission of

rights than allowing or !ermitting only the use, without transfer of ownershi!, of the formula for Mafran sauce"

9he fore#oin# reasons support the conclusion of the Court of &ppeals 10 that what was actually ceded

and transferred by the res!ondent !atentee Magdalo V" %rancisco, Sr" in favor of the !etitioner cor!oration was

only the use of the formula" &ro!erly s!eaing, the 6ill of Assignment vested in the !etitioner cor!oration no title

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to the formula" #ithout basis, therefore, is the observation of the lower court that the res!ondent !atentee had

been remiss in the com!liance of his contractual obligation to cede and transfer to the defendant the formula for

Mafran sauce"

. 9he ne=t fundamental 8uestion for resolution is whether the respondent Ma#dalo . 5rancisco, Sr.

was dismissed from his position as chief chemist of the corporation without 4ustifiable cause, and in

violation of para#raph @(a of the Bill of &ssi#nment which in part provides that his appointment is

permanent in character.

9he petitioner submits that there is nothin# in the successive memoranda issued by the corporate

officers of the petitioner, mar"ed e=hibits B, B@% and B@, from which can be implied that the

respondent patentee was bein# dismissed from his position as chief chemist of the corporation. 9he

fact, continues the petitioner, is that at a special meetin# of the board of directors of the corporation

held on 0ctober %<, %1/), when the board decided to suspend operations of the factory for two to four

months and to retain only a s"eletal force to avoid further losses, the two private respondents were

present, and the respondent patentee was even desi#nated as the actin# superintendent, and assi#ned the

mission of e=plainin# to the personnel of the factory why the corporation was stoppin# operationstemporarily and layin# off personnel. 9he petitioner further submits that e=hibit B indicates that the

salary of the respondent patentee would not be paid only durin# the time that the petitioner corporation

was idle, and that he could draw his salary as soon as the corporation resumed operations. 9he clear

import of this e=hibit was alle#edly entirely disre#arded by the respondent Court of &ppeals, which

concluded that since the petitioner resumed partial production of Mafran sauce without notifyin# the

said respondent formally, the latter had been dismissed as chief chemist, without considerin# that the

petitioner had to resume partial operations only to fill its pendin# orders, and that the respondents were

duly notified of that decision, that is, that e=hibit B@% was addressed to Ricardo 5rancisco, and this was

made "nown to the respondent ictoriano . 5rancisco. Besides, the records will show that the

respondent patentee had "nowled#e of the resumption of production by the corporation, but in spite of

such "nowled#e he did not report for wor".

9he petitioner further submits that if the respondent patentee really had un8ualified interest in

propa#atin# the product he claimed he so dearly loved, certainly he would not have waited for a formal

notification but would have immediately reported for wor", considerin# that he was then and still is a

member of the corporation?s board of directors, and insofar as the petitioner is concerned, he is still its

chief chemistA and because Ricardo 5rancisco is a son of the respondent patentee to whom had been

entrusted the performance of the duties of chief chemist, while the respondent ictoriano . 5rancisco

is his brother, the respondent patentee could not fei#n i#norance of the resumption of operations.9he petitioner finally submits that althou#h e=hibit B@ is addressed to Ricardo 5rancisco, and is dated

$ecember 1, %1/), the records will show that the petitioner was set to resume full capacity production

only sometime in March or &pril, %1/%, and the respondent patentee cannot deny that in the very same

month when the petitioner was set to resume full production, he received a copy of the resolution of its

board of directors, directin# him to report immediately for dutyA that e=hibit 6, of a later vinta#e as it is

dated 5ebruary %, %1/%, clearly shows that Ricardo 5rancisco was merely the actin# chemist, and this

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was the situation on 5ebruary %, %1/%, thirteen days before the filin# of the present action for

rescission. 9he desi#nation of Ricardo 5rancisco as the chief chemist carried no wei#ht because the

president and #eneral mana#er of the corporation had no power to ma"e the desi#nation without the

consent of the corporation?s board of directors. 9he fact of the matter is that althou#h the respondent

Ma#dalo . 5rancisco, Sr. was not mentioned in e=hibit 6 as chief chemist, this same e=hibit clearly

indicates that Ricardo 5rancisco was merely the actin# chemist as he was the one assistin# his father.!n our view, the fore#oin# submissions cannot outwei#h the uncontroverted facts. 0n -ovember *,

%1/) the secretary@treasurer of the corporation issued a memorandum (e=h. B, duly approved by its

president and #eneral mana#er, directin# that only Ricardo 5rancisco be retained in the factory and that

the salary of respondent patentee, as chief chemist, be stopped for the time bein# until the corporation

resumed operations. 9his measure was ta"en alle#edly because of the scarcity and hi#h prices of raw

materials. 5ive days later, however, or on $ecember ', the president and #eneral mana#er issued a

memorandum (e=h. B@% orderin# the respondent ictoria . 5rancisco to report to the factory and to

produce Mafran sauce at the rate of no less than %)) cases a day to cope with the orders of the various

distributors and dealers of the corporation, and instructin# him to ta"e only the necessary dailyemployees without employin# permanent ones. 9hen on $ecember /, the same president and #eneral

mana#er issued yet another memorandum (e=h. B@, instructin# Ricardo 5rancisco, as assistant chief

chemist, to recall all daily employees connected with the production of Mafran sauce and to hire

additional daily employees for the production of Por"y Pops. 9wenty@three days afterwards, or on

$ecember 1, the same president and #eneral mana#er issued still another memorandum (e=h. S@,

directin# Ricardo 5rancisco, as Chief Chemist and Porfirio Larra#a, as actin# superintendent, to

produce Mafran sauce and, Por"y Pops in full swin#, startin# January , %1/%, with the further

instruction to hire daily laborers in order to cope with the full blast production. &nd finally, at the

hearin# held on 0ctober <, %1/%, the same president and #eneral mana#er admitted that ! consider

that the two months we paid him (referrin# to respondent Ma#dalo . 5rancisco, Sr. is the separation

pa#.

9he facts narrated in the precedin# para#raph were the prevailin# milieu on 5ebruary %<, %1/% when

the complaint for rescission of the Bill of &ssi#nment was filed. 9hey clearly prove that the petitioner,

actin# throu#h its corporate officers, %% schemed and maneuvered to ease out, separate and dismiss the

said respondent from the service as permanent chief chemist, in fla#rant violation of para#raph @(a

and (b of the Bill of &ssi#nment. 9he fact that a month after the institution of the action for rescission,

the petitioner corporation, thru its president and #eneral mana#er, re8uested the respondent patentee to

report for duty (e=h. ', is of no conse8uence. &s the Court of &ppeals correctly observed, such re8uestwas a recall to placate said plaintiff.

'. De now come to the 8uestion of rescission of the Bill of &ssi#nment. !n this connection, we 8uote

for ready reference the followin# articles of the new Civil Code #overnin# rescission of contracts:

&R9. 55B5. 9he power to rescind obli#ations is implied in reciprocal ones, in case one of

the obli#ors should not comply with what is incumbent upon him.

9he in4ured party may choose between the fulfillment and the rescission of the

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obli#ation, with the payment of dama#es in either case. 6e may also see" rescission

even after he has chosen fulfillment, if the latter should become impossible.

9he court shall decree the rescission claimed, unless there be 4ust cause authori;in# the

fi=in# of a period.

9his is understood to be without pre4udice to the ri#hts of third persons who have

ac8uired the thin#, in accordance with articles %'* and %'** of the Mort#a#e 3aw.

&R9. %'*'. 9he action for rescission is subsidiaryA it cannot be instituted e=cept when

the party sufferin# dama#e has no other le#al means to obtain reparation for the same.

&R9. %'*<. Rescission shall be only to the e=tent necessary to cover the dama#es

caused.

&t the moment, we shall concern ourselves with the first two para#raphs of article %%1%. 9he power to

rescind obli#ations is implied in reciprocal ones, in case one of the obli#ors should not comply with

what is incumbent upon him. 9he in4ured party may choose between fulfillment and rescission of the

obli#ation, with payment of dama#es in either case.

!n this case before us, there is no controversy that the provisions of the Bill of &ssi#nment are

reciprocal in nature. 9he petitioner corporation violated the Bill of &ssi#nment, specifically para#raph

@(a and (b, by terminatin# the services of the respondent patentee Ma#dalo . 5rancisco, Sr., without

lawful and 4ustifiable cause.

Epon the factual milieu, is rescission of the Bill of &ssi#nment proper

9he #eneral rule is that rescission of a contract will not be permitted for a sli#ht or casual breach, but

only for such substantial and fundamental breach as would defeat the very ob4ect of the parties in

ma"in# the a#reement. 12 (he $uestion of whether a breach of a contract is substantial de!ends u!on the

attendant circumstances" 13 (he !etitioner contends that rescission of the 6ill of Assignment should be denied,

because under article ?=8=, rescission is a subsidiary remedy which cannot be instituted e<ce!t when the !arty

suffering damage has no other legal means to obtain re!aration for the same" .owever, in this case the

dismissal of the res!ondent !atentee Magdalo V" %rancisco, Sr" as the !ermanent chief chemist of the

cor!oration is a fundamental and substantial breach of the 6ill of Assignment" .e was dismissed without any

fault or negligence on his !art" (hus, a!art from the legal !rinci!le that the o!tion 9 to demand !erformance or

as for rescission of a contract 9 belongs to the in)ured !arty, 14 the fact remains that the res!ondents-

a!!ellees had no alternative but to file the !resent action for rescission and damages" It is to be em!hasied that

the res!ondent !atentee would not have agreed to the other terms of the 6ill of Assignment were it not for the

basic commitment of the !etitioner cor!oration to a!!oint him as its Second Vice-&resident and Chief Chemist

on a !ermanent basis> that in the manufacture of Mafran sauce and other food !roducts he would have absolute

control and su!ervision over the laboratory assistants and !ersonnel and in the !urchase and safeguarding of

said !roducts> and that only by all these measures could the res!ondent !atentee !reserve effectively the

secrecy of the formula, !revent its !roliferation, en)oy its mono!oly, and, in the !rocess afford and secure for

himself a lifetime )ob and steady income" (he salient !rovisions of the 6ill of Assignment, namely, the transfer to

the cor!oration of only the use of the formula> the a!!ointment of the res!ondent !atentee as Second Vice-

&resident and chief chemist on a !ermanent status> the obligation of the said res!ondent !atentee to continue

research on the !atent to im!rove the $uality of the !roducts of the cor!oration> the need of absolute control and

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su!ervision over the laboratory assistants and !ersonnel and in the !urchase and safeee!ing of the chemicals

and other mi<tures used in the !re!aration of said !roduct 9 all these !rovisions of the 6ill of Assignment are so

interde!endent that violation of one would result in virtual nullification of the rest"

<. 9he petitioner further contends that it was error for the Court of &ppeals to hold that the respondent

patentee is entitled to payment of his monthly salary of P')) from $ecember %, %1/), until the return

to him of the Mafran trademar" and formula, ar#uin# that under articles %%1%, the ri#ht to specific

performance is not con4unctive with the ri#ht to rescind a reciprocal contractA that a plaintiff cannot as"

for both remediesA that the appellate court awarded the respondents both remedies as it held that the

respondents are entitled to rescind the Bill of &ssi#nment and also that the respondent patentee is

entitled to his salary aforesaidA that this is a #ross error of law, when it is considered that such holdin#

would ma"e the petitioner liable to pay respondent patentee?s salary from $ecember %, %1/) to

"in#dom come, as the said holdin# re8uires the petitioner to ma"e payment until it returns the

formula which, the appellate court itself found, the corporation never hadA that, moreover, the fact is

that the said respondent patentee refused to #o bac" to wor", notwithstandin# the call for him to return

T which ne#ates his ri#ht to be paid his bac" salaries for services which he had not renderedA and that

if the said respondent is entitled to be paid any bac" salary, the same should be computed only from

$ecember %, %1/) to March '%, %1/%, for on March ), %1/% the petitioner had already formally called

him bac" to wor".

9he above contention is without merit. Readin# once more the Bill of &ssi#nment in its entirety and the

particular provisions in their proper settin#, we hold that the contract placed the use of the formula for

Mafran sauce with the petitioner, sub4ect to defined limitations. 0ne of the considerations for the

transfer of the use thereof was the underta"in# on the part of the petitioner corporation to employ the

respondent patentee as the Second ice@President and Chief Chemist on a permanent status, at a

monthly salary of P')), unless death or other disabilities supervened. Ender these circumstances, the

petitioner corporation could not escape liability to pay the private respondent patentee his a#reed

monthly salary, as lon# as the use, as well as the ri#ht to use, the formula for Mafran sauce remained

with the corporation.

. 9he petitioner finally contends that the Court of &ppeals erred in orderin# the corporation to return

to the respondents the trademar" and formula for Mafran sauce, when both the decision of the appellate

court and that of the lower court state that the corporation is not aware nor is in possession of the

formula for Mafran sauce, and the respondent patentee admittedly never #ave the same to the

corporation. &ccordin# to the petitioner these findin#s would render it impossible to carry out the order

to return the formula to the respondent patentee. 9he petitioner?s predicament is understandable. &rticle%'* of the new Civil Code provides that rescission creates the obli#ation to return the thin#s which

were the ob4ect of the contract. But that as it may, it is a lo#ical inference from the appellate court?s

decision that what was meant to be returned to the respondent patentee is not the formula itself, but

only its use and the ri#ht to such use. 9hus, the respondents in their complaint for rescission

specifically and particularly pray, amon# others, that the petitioner corporation be ad4ud#ed as without

any ri#ht to use said trademar" and formula.

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&CC0R$!-+3F, conformably with the observations we have above made, the 4ud#ment of the Court

of &ppeals is modified to read as follows: Dherefore the appealed decision is reversed. 9he Bill of

&ssi#nment (>=hibit & is hereby rescinded, and the defendant corporation is ordered to return and

restore to the plaintiff Ma#dalo . 5rancisco, Sr. the ri#ht to the use of his Mafran sauce trademar" and

formula, sub4ect@matter of the Bill of &ssi#nment, and to this end the defendant corporation and all its

assi#ns and successors are hereby permanently en4oined, effective immediately, from usin# in anymanner the said Mafran sauce trademar" and formula. 9he defendant corporation shall also pay to

Ma#dalo . 5rancisco, Sr. his monthly salary of P')) from $ecember %, %1/), until the date of finality

of this 4ud#ment, inclusive, the total amount due to him to earn le#al interest from the date of the

finality of this 4ud#ment until it shall have been fully paid, plus attorney?s fees in the amount of P)),

with costs a#ainst the defendant corporation. &s thus modified, the said 4ud#ment is affirmed, with

costs a#ainst the petitioner corporation.

Concepcion, C.J., /izon, a&alintal, aldivar, ernando, >arredo and !illamor, JJ., concur.

"eehan&ee J., too& no part.

S%0"-"t% O0#o#s

RE=ES, '.!.&., J., concurrin#:

! concur with the opinion penned by Mr. Justice 5red Rui; Castro, but ! would li"e to add that thear#ument of petitioner, that the rescission demanded by the respondent@appellee, Ma#dalo 5rancisco,

should be denied because under &rticle %'*' of the Civil Code of the Philippines rescission can not be

demanded e=cept when the party sufferin# dama#e has no other le#al means to obtain reparation, is

predicated on a failure to distin#uish between a rescission for breach of contract under &rticle %%1% of

the Civil Code and a rescission by reason of lesion or economic pre4udice, under &rticle %'*%, et se8.

9he rescission on account of breach of stipulations is not predicated on in4ury to economic interests of

the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the

parties. !t is not a subsidiary action, and &rticle %%1% may be scanned without disclosin# anywhere that

the action for rescission thereunder is subordinated to anythin# other than the culpable breach of hisobli#ations by the defendant. 9his rescission is in principal action retaliatory in character, it bein#

un4ust that a party be held bound to fulfill his promises when the other violates his. &s e=pressed in the

old 3atin aphorism: 0on servanti fidem, non est fides servanda. 6ence, the reparation of dama#es for

the breach is purely secondary.

0n the contrary, in the rescission by reason of lesion or economic pre4udice, the cause of action is

subordinated to the e=istence of that pre4udice, because it is the raison d;etre as well as the measure of

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the ri#ht to rescind. 6ence, where the defendant ma"es #ood the dama#es caused, the action cannot be

maintained or continued, as e=pressly provided in &rticles %'*' and %'*<. But the operation of these

two articles is limited to the cases of rescission for lesion enumerated in &rticle %'*% of the Civil Code

of the Philippines, and does not, apply to cases under &rticle %%1%.

!t is probable that the petitioner?s confusion arose from the defective techni8ue of the new Code that

terms both instances as rescission without distinctions between themA unli"e the previous Spanish CivilCode of %**1, that differentiated resolution for breach of stipulations from rescission by reason of

lesion or damage. 1 6ut the terminological vagueness does not )ustify confusing one case with the other,

considering the !atent difference in causes and results of either action"

Separate Opinions

RE=ES, '.!.&., J., concurrin#:

! concur with the opinion penned by Mr. Justice 5red Rui; Castro, but ! would li"e to add that the

ar#ument of petitioner, that the rescission demanded by the respondent@appellee, Ma#dalo 5rancisco,

should be denied because under &rticle %'*' of the Civil Code of the Philippines rescission can not be

demanded e=cept when the party sufferin# dama#e has no other le#al means to obtain reparation, is

predicated on a failure to distin#uish between a rescission for breach of contract under &rticle %%1% of

the Civil Code and a rescission by reason of lesion or economic pre4udice, under &rticle %'*%, et se8.

9he rescission on account of breach of stipulations is not predicated on in4ury to economic interests of

the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the

parties. !t is not a subsidiary action, and &rticle %%1% may be scanned without disclosin# anywhere thatthe action for rescission thereunder is subordinated to anythin# other than the culpable breach of his

obli#ations by the defendant. 9his rescission is in principal action retaliatory in character, it bein#

un4ust that a party be held bound to fulfill his promises when the other violates his. &s e=pressed in the

old 3atin aphorism: 0on servanti fidem, non est fides servanda. 6ence, the reparation of dama#es for

the breach is purely secondary.

0n the contrary, in the rescission by reason of lesion or economic pre4udice, the cause of action is

subordinated to the e=istence of that pre4udice, because it is the raison d;etre as well as the measure of

the ri#ht to rescind. 6ence, where the defendant ma"es #ood the dama#es caused, the action cannot be

maintained or continued, as e=pressly provided in &rticles %'*' and %'*<. But the operation of thesetwo articles is limited to the cases of rescission for lesion enumerated in &rticle %'*% of the Civil Code

of the Philippines, and does not, apply to cases under &rticle %%1%.

!t is probable that the petitioner?s confusion arose from the defective techni8ue of the new Code that

terms both instances as rescission without distinctions between themA unli"e the previous Spanish Civil

Code of %**1, that differentiated resolution for breach of stipulations from rescission by reason of

lesion or damage. 1 6ut the terminological vagueness does not )ustify confusing one case with the other,

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considering the !atent difference in causes and results of either action"

Footnotes

% 9he complaint alle#es:

'. T 9hat on the '%st day of May, %1/) plaintiffs and defendant corporation entered into

contract, in which it was stipulated amon# other thin#s, that inasmuch as plaintiff Ma#dalo .5rancisco, Sr. is the owner and author of the formula of mafran sauce as above stated, he will be

appointed as Second ice@President and Chief Chemist of the defendant corporation, which

appointments are permanent in characterA and as such Chief shall have and shall e=ercise

absolute control and supervision over the laboratory assistants and personnel, and in the

purchase and safe@"eepin# of the chemicals and other mi=tures used in the preparation of said

product in order to preserve the secrecy of the said formula in the preparation of the mafran

sauce, in the manufacture of which the defendant corporation will be en#a#ed as its principal

business, and other products which from time to time the plaintiff may discover and prepare as

ChemistA and due to these privile#es, the plaintiff in return assi#ned to said corporation his

interests and ri#hts over the said trademar" and formula, so that the defendant corporation could

use the formula in the preparation and manufacture of the mafran sauce and the trade name for

the mar"etin# of said product, as appearin# in said ContractA

<. T 9hat the defendant corporation, thru the machination of its President and Mana#er, Mr.

9irso 9. Reyes, and in violation of the terms and conditions of the said Contract, as above

stated, and for the purpose of defraudin# the herein plaintiff, said defendant without any

4ustifiable cause dismissed all the assistants and laborers of the plaintiff in said laboratory,

wherein mafran sauce is prepared, with the evident intention to discover the secret of the said

formulaA and when they were not able to do so, due to the precaution made by the plaintiff in thepreparation of said mafran sauce, the aforementioned defendant without 4ustifiable cause and in

violation of the said Contract with re#ard to the permanent character of his appointment as

Chief Chemist, dismissed him as such (Chief Chemist from the service of the defendant

corporation, and appointed other employees in his place in the preparation of the said mafran

sauce, and proceeded with the manufacture and mar"etin# of the said product in the absence of

the herein plaintiffA

. T 9hat in furtherance of the intention of the defendant to deprive the herein plaintiffs of

their ri#ht on the royalty e8uivalent to of the net profit of the corporation that may be

reali;ed in the manufacture of mafran sauce and other li"e products and to complete itsfraudulent scheme to #et at all cost the ownership of the said trade mar" and formula which is

the main ob4ective of the said corporation, said defendant thru machination of its President and

Mana#er, Mr. 9irso 9. Reyes and in connivance with his associates representin# the ma4ority of

the stoc"holders of the said corporation, the latter is now sellin# in favor of a third party, the

assets of the said corporation to#ether with the ownership of the aforementioned trade mar" and

formula, in violation of the conditions of the said Contract.

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/. T 9hat due to this malicious attitude of the defendant, plaintiff Ma#dalo . 5rancisco, Sr.

was deprived of his salary from $ecember %, %1/) up to the present time at the rate of 96R>>

6E-$R>$ (P')).)) P>S0S a month, in violation of the conditions of the said Contract of

&ssi#nmentA

2. T 9hat the defendant in order to add insult to in4ury, prepared or caused the preparation and

manufacture of mafran sauce of inferior 8uality and sold it in the mar"etA and as a result of theseunlawful acts of the defendant, the #ood name and reputation of the mafran sauce went down

causin# thereby irreparable dama#es to the plaintiff as owner and author of the said formula and

trade name, which could be reasonably estimated in an amount not less than 50R9F

960ES&-$ (P<),))).)) P>S0S as of today, plus an additional sum e8uivalent to 9>-

960ES&-$ (P%),))).)) P>S0S a month from this date until the return of the said trade

mar" and formula to the plaintiffsA .

*. T 9hat due to this malicious attitude of the defendant and unlawful machination of its

president and mana#er, Mr. 9irso 9. Reyes, the plaintiffs were constrained to en#a#e the

services of the undersi#ned counsel in the a#reed amount of 5!> 960ES&-$ (P,))).))

P>S0S, Philippine Currency.

& patent is a property (Blum vs. C.!.R., %*' 5. d **%A Marshall vs. Col#ate@Palmolive@Peet

Co., %2 5. d %A 3amar vs. +ran#er, 11 5. Supp. %2? !t has the attributes of personality

(6artley Pen Co. vs. 3indy Pen Co., %/ 5.R.$. %<%, cited in @/th@ $@%'*. & patent ri#ht or

any interest therein may be sold or assi#ned. 9he patentee may assi#n his patent ri#ht in toto or

he may #rant limited ri#hts of manufacture and sale to others (<) &m. Jur., sec. %'', p. /%,

notes % . 9he patentee has the ri#ht to sell it or to "eep itA to manufacture the article himself

or to authori;e others to sell it (<) &m. Jur., sec. <, p. '<, notes 1 %). 9he ri#ht of a patentee

has the characteristics and incidents of other sorts of property, and that it is as much entitled to

the protection of the courts as in any other character of property (> Bennet Sons vs. -ational

6arrow Co., %*/ E.S. 2), </ 3 ed. %)*, S. Ct. 2<2.

' 9he interpretation of public instruments involves a 8uestion of law, since the contract is in the

nature of law between the parties. 9he whole instrument should be read in toto (Pio Sian

Melli;a vs. City of !!oilo et al., 3@<2', &pril '), %1/*A see also Dilson v. 0lsen ') P. (d,

2%), 2%%.

< Ender this section referrin# to par. %, sec. <2, 9itle ', ESC&, which is substantially similar

to sec. ) of R.&. %/N, a patent may be assi#ned only by a written instrument and althou#h noparticular form of words is essential, such instrument must be substantially a ?transfer?, actual or

constructive, with the clear intent of the assi#nor, at the time, to part with his le#al interest, in

whole or in part and with full "nowled#e of the ri#hts so transferred. (0wen vs. Paramount

Productions, $. C. Cal. %1<%, <% 5. Supp. %. See also note ', and Bacordo vs. &lcantara, et

al., 3@))*), July '), %1/. See also Commissioner of !nternal Revenue vs. Clarion 0il Co.,

%<* 5. d /2%, /2'A 22 C.J.S. <@<'.

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/ 9wo constituent property elements, of distinct source, nature, and divisible content in herein

every patented invention. 0ne is the property in the invention itself T the ri#ht to ma"e, use

and sell the patented ob4ect personally or throu#h others T the second is property in the

monopoly @ the ri#ht effectively to prohibit others from practicin# the invention or profitin#

therefrom without owner?s consent. ... Ri#hts in the invention itself may be transferred either

separately or to#ether, upon one person or many, and each may independently of the others usethe ri#hts received. 9he monopoly is indivisible, e=cept as to locality, althou#h several

assi#nees may 4ointly hold the undivided interest in the patent. (Lenith Radio Corp. vs. Radio

Corp. of &merica, %% 5. Supp. *)', *) (May ), %1<.

2 $ou#las vs. Campbell, < 0hio T Cir. Ct. R. <%, cited in P. <', ESC&, 9itle ', on Patents.

* &dmissions made by the parties in the pleadin#s, or in the course of the trial or other

proceedin#s do not re8uire proof and can not be contradicted unless previously shown to have

been made throu#h palpable mista"e (sec. , Rule %1, new Rules of Court.

1 Cf. &n#ela >state, !nc., et al. vs. C5! of -e#ros 0ccidental, et al., 3@2)*<, July '%, %1/*,citin# &rt. %'2*, %st sent., -.C.C., and 0lino vs. Medina, %' Phil. '21.

%) 9he findin#s and conclusions of fact of the Court of &ppeals will not be disturbed by the

Supreme Court so lon# as there is evidence to support the same (&tanacio vs. People, 3@2'2,

0ct. <, %1A see also &rroyo, et al. vs. >l Peaterio del Smo Rosario de &folo, et al., 3@)),

May ', %1/*A &l8ui;a, et al. vs. &l8ui;a, et al., 3@''<, 5eb. %), %1/*A M$ 9ransit 9a=i Co.,

!nc. vs. Court of &ppeals, et al., 3@'**, 5eb. %2, %1/*A City of Manila vs. 9eotico, et al.,

3@'), Jan. 1, %1/*.

%% -ot of de minimis importance in a proper approach to the problem at hand is the nature of a

#eneral mana#er?s position in the corporate structure. & rule that has #ained acceptance throu#h

the years is that a corporate officer ?intrusted with the #eneral mana#ement and control of its

business, has implied authority to ma"e any contract or do any other act which is necessary or

appropriate to the conduct of the ordinary business of the corporation.? &s such officer, ?he may,

without any special authority from the Board of $irectors, perform all acts of an ordinary

nature, which by usa#e or necessity are incident to his office, and may bind the corporation by

contracts in matters arisin# in the usual course of business?. (9he Board of 3i8uidators, etc. vs.

6eirs of Ma=imo M. Galaw, et al., 3@%**), &u#ust %<, %1/2.

% Son# 5o +o. vs. 6awaiian@Philippine Co., <2 Phil. *%, *2.

%' Corpus vs. 6on. &li"pala, et al., 3@'2)2 3@'2), Jan. %2, %1/*.

%< Jacinto vs. Carpenter, </ Phil. *1'.

Reyes, J.B.3., concurrin#:

% See &rticles %%< and %1%, Civil Code of %**1.

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9he 3awphil Pro4ect @ &rellano 3aw 5oundation

>- B&-C

G.R. No. &(B777B M"-/+ 1B, 19B1

MAGDA&ENA ESTATE, INC., petitioner@appellant,vs.

&OUIS '. M=RIC, -%s0o#$%#t("00%%%.

elipe :smael and *usebio C. *ncarnacion for petitioner.

Andres C. Aguilar for respondent.

&AURE&, J.*

0n January , %1*, the Ma#dalena >state, !nc., sold to 3ouis J. Myric" lots -os. * and 1 of Bloc" %,

Parcel 1 of the San Juan Subdivision, San Juan Ri;al, their contract of sale -o. SJ@/'1 (>=hibits B and

% providin# that the price of P2,1' shall be payable in %) e8ual monthly installments of P1/.'1 eachon the second day of every month be#innin# the date of e=ecution of the a#reement. Simultaneously,

the vendee e=ecuted and delivered to the vendor a promissory note (>=hibits C and for the whole

purchase price, wherein it was stipulated that si cual8uier pa#o o pa#os de este pa#are 8uedasen en

mora por mas de dos meses, entonces todos el saldo no pa#ado del mismo con cuales8uiera intereses

8ue hubiese deven#ado, vercera y sera e=i#ible inmediatamente y deven#ara intereses al mismo tipo de

1 por ciento al a7o hasta su completo pa#o, y en tal caso me comprometo, ademas, a pa#ar al tenedor

de este pa#are el %) por ciento de la cantidad en concepto de honorarios de abo#ado.

!n pursuance of said a#reement, the vendee made several monthly payments amountin# to P,1/.)*,

the last bein# on 0ctober <, %1'), althou#h the first installment due and unpaid was that of May ,%1'). By reason of this default, the vendor, throu#h its president, G.6. 6emady, on $ecember %<,

%1', notified the vendee that, in view of his inability to comply with the terms of their contract, said

a#reement had been cancelled as of that date, thereby relievin# him of any further obli#ation

thereunder, and that all amounts paid by him had been forfeited in favor of the vendor, who assumes

the absolute ri#ht over the lots in 8uestion. 9o this communication, the vendee did not reply, and it

appears li"ewise that the vendor thereafter did not re8uire him to ma"e any further disbursements on

account of the purchase price.

0n July , %1'/, 3ouis J. Myric", respondent herein, commenced the present action in the Court of

5irst !nstance of &lbay, prayin# for an entry of 4ud#ment a#ainst the Ma#dalena >state, !nc. for the sum

of P,1/.)* with le#al interest thereon from the filin# of the complaint until its payment, and for costs

of the suit. Said defendant, the herein petitioner, on September 2, %1'/, filed his answer consistin# in a

#eneral denial and a cross@complaint and counterclaim, alle#in# that contract SJ@/'1 was still in full

force and effect and that, therefore, the plaintiff should be condemned to pay the balance plus interest

and attorneys? fees. &fter due trial, the Court of 5irst !nstance of &lbay, on January '%, %1'1, rendered

its decision orderin# the defendant to pay the plaintiff the sum of P,1/.)* with le#al interest from

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$ecember %<, %1' until paid and costs, and dismissin# defendant?s counterclaim. 5rom this 4ud#ment,

the Ma#dalena >state, !nc. appealed to the Court of &ppeals, where the cause was doc"eted as C&@+.R.

-o. )'2, and which, on &u#ust ', %1<), confirmed the decision of the lower court, with the only

modification that the payment of interest was to be computed from the date of the filin# of the

complaint instead of from the date of the cancellation of the contract. & motion for reconsideration was

presented, which was denied on September /, %1<). 6ence, the present petition for a writ of certiorari.Petitioner@appellant assi#ns several errors which we proceed to discuss in the course of this opinion.

Petitioner holds that contract SJ@/'1 has not been rendered inefficacious by its letter to the respondent,

dated $ecember %<, %1', and submits the followin# propositions: (% 9hat the intention of the author

of a written instrument shall always prevail over the literal sense of its wordin#A ( that a bilateral

contract may be resolved or cancelled only by the prior mutual a#reement of the parties, which is

approved by the 4ud#ment of the proper courtA and (' that the letter of $ecember %<, %1' was not

assented to by the respondent, and therefore, cannot be deemed to have produced a cancellation, even if

it ever was intended. Petitioner contends that the letter in dispute is a mere notification and, to this end,

introduced in evidence the disposition of Mr. G.6. 6emady, president of the Ma#dalena >state, !nc.

wherein he stated that the word cancelled in the letter of $ecember %<, %1', es un error de mi

interpretacion sin nin#una intencion de cancelar, and the testimony of Sebastian San &ndres, one of its

employees, that the lots were never offered for sale after the mailin# of the letter aforementioned. Epon

the other hand, the Court of &ppeals, in its decision of &u#ust ', %1<), ma"es the findin# that

notwithstandin# the deposition of G.6. 6emady, president of the defendant corporation, to the effect

that the contract was not cancelled nor was his intention to do so when he wrote the letter of $ecember

%<, %1', mar"ed >=hibit / and $ (pp. /@2, deposition >=hibit %@a, faith and credit cannot be #iven to

such testimony in view of the clear terms of the letter which evince his une8uivocal intent to resolve

the contract. 6is testimony is an afterthou#ht. 9he intent to resolve the contract is e=pressedunmista"ably not only in the letter of $ecember %<, %1', already referred to (>=hibit / and $, but is

reiterated in the letters which the president of the defendant corporation states that plaintiff lost his

ri#hts for the land for bein# behind more than two years, and of &pril %), %)' (>=hibit +, where

defendant?s president ma"es the followin# statements: Confirmin# the verbal arran#ement had

between you and our Mr. G.6. 6emady re#ardin# the account of Mr. 3ouis J. Myric" under contract

-o. SJ@/'1, already cancelled.

9his conclusion of fact of the Court of &ppeals is final and should not be disturbed. (+uico vs. Mayu#a

and 6eirs of Mayu#a, /' Phil., '*A Mamuyac vs. &bena, OOO!!! 0ff. +a;. *<. Dhere the terms of

a writin# are clear, positive and unambi#uous, the intention of the parties should be #leaned from the

lan#ua#e therein employed, which is conclusive in the absence of mista"e (%' C.J. <A City of Manila

vs. Ri;al Par" Co., Phil. %. 9he proposition that the intention of the writer, once ascertained, shall

prevail over the literal sense of the words employed is not absolute and should be deemed secondary to

and limited by the primary rule that, when the te=t of the instrument is e=plicit and leaves no doubt as

to its intention, the court may not read into it any other which would contradict its plain import.

Besides, we have met with some circumstances of record which demonstrate the une8uivocal

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determination of the petitioner to cancel their contract. 9hey are: (% the act of the petitioner in

immediately ta"in# possession of the lots in 8uestion and offerin# to resell them to Jud#e M.. del

Rosario, as demonstrated by his letter mar"ed >=hibit +, shortly after $ecember %<, %1'A ( his

failure to demand from the respondent the balance of the account after the mailin# of the disputed

letterA and (' the letters of January %), %1'' (>=hibit 5@ and &pril %), %1' (>=hibit + reiterate, in

clear terms, the intention to cancel first announced by petitioner since $ecember %<, %1'.!t is ne=t ar#ued that contract SJ@/'1, bein# a bilateral a#reement, in the absence of a stipulation

permittin# its cancellation, may not be resolved by the mere act of the petitioner. 9he fact that the

contractin# parties herein did not provide for resolution is now of no moment, for the reason that the

obli#ations arisin# from the contract of sale bein# reciprocal, such obli#ations are #overned by article

%%< of the Civil Code which declares that the power to resolve, in the event that one of the obli#ors

should not perform his part, is implied. (Mateos vs. 3ope;, / Phil., )/A Corte; vs. Biba7o Beramo,

<% Phil. 1*A Cui. vs. Sun Chan, <% Phil., 'A Po Pauco vs. Si#uen;a, <1 Phil., <)<. Epon the other

hand, where, as in this case, the petitioner cancelled the contract, advised the respondent that he has

been relieved of his obli#ations thereunder, and led said respondent to believe it so and act upon suchbelief, the petitioner may not be allowed, in the lan#ua#e of section ''' of the Code of Civil Procedure

(now section /* (a of Rule %' of the -ew Rules of Court, in any liti#ation the course of liti#ation or

in dealin#s in nais, be permitted to repudiate his representations, or occupy inconsistent positions, or, in

the letter of the Scotch law, to approbate and reprobate. (Bi#elow on >stoppel, pa#e /2'A 9oppan v.

Cleveland, Co. C.R. Co., 5ed. Cas. %<,)11.

9he contract of sale, contract SJ@/'1, contains no provision authori;in# the vendor, in the event of

failure of the vendee to continue in the payment of the stipulated monthly installments, to retain the

amounts paid to him on account of the purchase price. 9he claim, therefore, of the petitioner that it has

the ri#ht to forfeit said sums in its favor is untenable. Ender article %%< of the Civil Code, however, hemay choose between demandin# the fulfillment of the contract or its resolution. 9hese remedies are

alternative and not cumulative, and the petitioner in this case, havin# to cancel the contract, cannot

avail himself of the other remedy of e=actin# performance. (0sorio 9irona vs. Bennet Provincial

Board of Cavite, <% Phil., ')%A Fap En"i vs. Chua Jamco, %< Phil., /). &s a conse8uence of the

resolution, the parties should be restored, as far as practicable, to their ori#inal situation (Po Pauco vs.

Si#uen;a, supra which can be appro=imated only by orderin#, as we do now, the return of the thin#s

which were the ob4ect of the contract, with their fruits and of the price, with its interest (article %1,

Civil Code, computed from the date of the institution of the action. (ercelu; vs. >da7o, </ Phil. *)%.

9he writ prayed for is hereby denied, with costs a#ainst the petitioner. So ordered.

mperial, /iaz, oran, and Horrilleno, JJ., concur.

G.R. No. &(2862 S%0t%34%- 29, 197

UNIVERSIT= O< THE PHI&IPPINES, petitioner,

vs.

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?A&<RIDO DE &OS ANGE&ES, # +s /"0"/t "s 'UDGE o t+% COURT O< <IRST

INSTANCE IN LUE)ON CIT=, %t "., respondents.

4ffice of the )olicitor General Antonio P. >arredo, )olicitor Augusto . Amores and )pecial Counsel

Perfecto !. ernandez for petitioner.

0orberto J. +uisumbing for private respondents.

RE=ES, '.!.&., J.:

9hree (' orders of the Court of 5irst !nstance of Ri;al (Iue;on City, issued in its Civil Case -o.

1<', are sou#ht to be annulled in this petition for certiorari and prohibition, filed by herein petitioner

Eniversity of the Philippines (or EP a#ainst the above@named respondent 4ud#e and the &ssociated

3umber Manufacturin# Company, !nc. (or &3EMC0. 9he first order, dated 5ebruary %1//,

en4oined EP from awardin# lo##in# ri#hts over its timber concession (or 3and +rant, situated at the

3ubayat areas in the provinces of 3a#una and Iue;onA the second order, dated %< January %1/2,

ad4ud#ed EP in contempt of court, and directed Sta. Clara 3umber Company, !nc. to refrain from

e=ercisin# lo##in# ri#hts or conductin# lo##in# operations on the concessionA and the third order, dated

% $ecember %1/2, denied reconsideration of the order of contempt.

&s prayed for in the petition, a writ of preliminary in4unction a#ainst the enforcement or

implementation of the three (' 8uestioned orders was issued by this Court, per its resolution on 1

5ebruary %1/*.

9he petition alle#ed the followin#:

9hat the above@mentioned 3and +rant was se#re#ated from the public domain and #iven as an

endowment to EP, an institution of hi#her learnin#, to be operated and developed for the purpose of

raisin# additional income for its support, pursuant to &ct '/)*A

9hat on or about -ovember %1/), EP and &3EMC0 entered into a lo##in# a#reement under which

the latter was #ranted e=clusive authority, for a period startin# from the date of the a#reement to '%

$ecember %1/, e=tendible for a further period of five ( years by mutual a#reement, to cut, collect

and remove timber from the 3and +rant, in consideration of payment to EP of royalties, forest fees,

etc.A that &3EMC0 cut and removed timber therefrom but, as of * $ecember %1/<, it had incurred an

unpaid account of P%1,'/.1<, which, despite repeated demands, it had failed to payA that after it had

received notice that EP would rescind or terminate the lo##in# a#reement, &3EMC0 e=ecuted aninstrument, entitled &c"nowled#ment of $ebt and Proposed Manner of Payments, dated 1 $ecember

%1/<, which was approved by the president of EP, and which stipulated the followin#:

'. !n the event that the payments called for in -os. % and of this para#raph are not

sufficient to li8uidate the fore#oin# indebtedness of the $>B90R in favor of the

CR>$!90R, the balance outstandin# after the said payments have been applied shall be

paid by the $>B90R in full no later than June '), %1/A

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=== === ===

. !n the event that the $>B90R fails to comply with any of its promises or

underta"in#s in this document, the $>B90R a#rees without reservation that the

CR>$!90R shall have the ri#ht and the power to consider the 3o##in# &#reement dated

$ecember , %1/) as rescinded without the necessity of any 4udicial suit, and the

CR>$!90R shall be entitled as a matter of ri#ht to 5ifty 9housand Pesos (P),))).))by way of and for li8uidated dama#esA

&3EMC0 continued its lo##in# operations, but a#ain incurred an unpaid account, for the period from

1 $ecember %1/< to % July %1/, in the amount of P/%,%''.2<, in addition to the indebtedness that it

had previously ac"nowled#ed.

9hat on %1 July %1/, petitioner EP informed respondent &3EMC0 that it had, as of that date,

considered as rescinded and of no further le#al effect the lo##in# a#reement that they had entered in

%1/)A and on 2 September %1/, EP filed a complaint a#ainst &3EMC0, which was doc"eted as Civil

Case -o. 1<' of the Court of 5irst !nstance of Ri;al (Iue;on City, for the collection or payment ofthe herein before stated sums of money and alle#in# the facts hereinbefore specified, to#ether with

other alle#ationsA it prayed for and obtained an order, dated ') September %1/, for preliminary

attachment and preliminary in4unction restrainin# &3EMC0 from continuin# its lo##in# operations in

the 3and +rant.

9hat before the issuance of the aforesaid preliminary in4unction EP had ta"en steps to have another

concessionaire ta"e over the lo##in# operation, by advertisin# an invitation to bidA that biddin# was

conducted, and the concession was awarded to Sta. Clara 3umber Company, !nc.A the lo##in# contract

was si#ned on %/ 5ebruary %1//.

9hat, meantime, &3EMC0 had filed several motions to dischar#e the writs of attachment and

preliminary in4unction but were denied by the courtA

9hat on % -ovember %1/, &3EMC0 filed a petition to en4oin petitioner Eniversity from conductin#

the biddin#A on 2 -ovember %1/, it filed a second petition for preliminary in4unctionA and, on

5ebruary %1//, respondent 4ud#e issued the first of the 8uestioned orders, en4oinin# EP from awardin#

lo##in# ri#hts over the concession to any other party.

9hat EP received the order of 5ebruary %1// after it had concluded its contract with Sta. Clara

3umber Company, !nc., and said company had started lo##in# operations.

9hat, on motion dated % &pril %1// by &3EMC0 and one Jose Rico, the court, in an order dated %<

January %1/2, declared petitioner EP in contempt of court and, in the same order, directed Sta. Clara

3umber Company, !nc., to refrain from e=ercisin# lo##in# ri#hts or conductin# lo##in# operations in

the concession.

9he EP moved for reconsideration of the aforesaid order, but the motion was denied on % $ecember

%1/2.

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>=cept that it denied "nowled#e of the purpose of the 3and +rant, which purpose, anyway, is embodied

in &ct '/)* and, therefore, conclusively "nown, respondent &3EMC0 did not deny the fore#oin#

alle#ations in the petition. !n its answer, respondent corrected itself by statin# that the period of the

lo##in# a#reement is five ( years @ not seven (2 years, as it had alle#ed in its second amended answer

to the complaint in Civil Case -o. 1<'. !t reiterated, however, its defenses in the court below, which

maybe boiled down to: blamin# its former #eneral mana#er, Cesar +uy, in not turnin# overmana#ement of &3EMC0, thereby renderin# it unable to pay the sum of P%1,'*.1<A that it failed to

pursue the manner of payments, as stipulated in the &c"nowled#ment of $ebt and Proposed Manner

of Payments because the lo#s that it had cut turned out to be rotten and could not be sold to Sta. Clara

3umber Company, !nc., under its contract to buy and sell with said firm, and which contract was

referred and anne=ed to the &c"nowled#ment of $ebt and Proposed Manner of PaymentsA that EP?s

unilateral rescission of the lo##in# contract, without a court order, was invalidA that petitioner?s

supervisor refused to allow respondent to cut new lo#s unless the lo#s previously cut durin# the

mana#ement of Cesar +uy be first soldA that respondent was permitted to cut lo#s in the middle of June

%1/ but petitioner?s supervisor stopped all lo##in# operations on % July %1/A that it had made

several offers to petitioner for respondent to resume lo##in# operations but respondent received no

reply.

9he basic issue in this case is whether petitioner E.P. can treat its contract with &3EMC0 rescinded,

and may disre#ard the same before any 4udicial pronouncement to that effect. Respondent &3EMC0

contended, and the lower court, in issuin# the in4unction order of 5ebruary %1//, apparently

sustained it (althou#h the order e=presses no specific findin#s in this re#ard, that it is only after a final

court decree declarin# the contract rescinded for violation of its terms that E.P. could disre#ard

&3EMC0?s ri#hts under the contract and treat the a#reement as breached and of no force or effect.

De find that position untenable.

!n the first place, EP and &3EMC0 had e=pressly stipulated in the &c"nowled#ment of $ebt and

Proposed Manner of Payments that, upon default by the debtor &3EMC0, the creditor (EP has the

ri#ht and the power to consider, the 3o##in# &#reement dated $ecember %1/) as rescinded without

the necessity of any 4udicial suit. &s to such special stipulation, and in connection with &rticle %%1% of

the Civil Code, this Court stated in roilan vs. Pan 4riental )hipping Co., et al., 3@%%*12, '% 0ctober

%1/<, % SCR& 2/:

there is nothin# in the law that prohibits the parties from enterin# into a#reement that

violation of the terms of the contract would cause cancellation thereof, even withoutcourt intervention. !n other words, it is not always necessary for the in4ured party to

resort to court for rescission of the contract.

0f course, it must be understood that the act of party in treatin# a contract as cancelled or resolved on

account of infractions by the other contractin# party must be made "nown to the other and is always

provisional, bein# ever sub4ect to scrutiny and review by the proper court. !f the other party denies that

rescission is 4ustified, it is free to resort to 4udicial action in its own behalf, and brin# the matter to

court. 9hen, should the court, after due hearin#, decide that the resolution of the contract was not

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warranted, the responsible party will be sentenced to dama#esA in the contrary case, the resolution will

be affirmed, and the conse8uent indemnity awarded to the party pre4udiced.

!n other words, the party who deems the contract violated may consider it resolved or rescinded, and

act accordin#ly, without previous court action, but it proceeds at its o$n ris& . 5or it is only the final

4ud#ment of the correspondin# court that will conclusively and finally settle whether the action ta"en

was or was not correct in law. But the law definitely does not re8uire that the contractin# party whobelieves itself in4ured must first file suit and wait for a 4ud#ment before ta"in# e=tra4udicial steps to

protect its interest. 0therwise, the party in4ured by the other?s breach will have to passively sit and

watch its dama#es accumulate durin# the pendency of the suit until the final 4ud#ment of rescission is

rendered when the law itself re8uires that he should e=ercise due dili#ence to minimi;e its own

dama#es (Civil Code, &rticle )'.

De see no conflict between this rulin# and the previous 4urisprudence of this Court invo"ed by

respondent declarin# that 4udicial action is necessary for the resolution of a reciprocal obli#ation, 1

since in every case where the e<tra)udicial resolution is contested only the final award of the court of com!etent

)urisdiction can conclusively settle whether the resolution was !ro!er or not" It is in this sense that )udicial action

will be necessary, as without it, the e<tra)udicial resolution will remain contestable and sub)ect to )udicial

invalidation, unless attac thereon should become barred by ac$uiescence, esto!!el or !rescri!tion"

5ears have been e=pressed that a stipulation providin# for a unilateral rescission in case of breach of

contract may render nu#atory the #eneral rule re8uirin# 4udicial action (v. 5ootnote, Padilla, Civil 3aw,

Civil Code &nno., %1/2 ed. ol. !, pa#e %<) but, as already observed, in case of abuse or error by the

rescinder the other party is not barred from 8uestionin# in court such abuse or error, the practical effect

of the stipulation bein# merely to transfer to the defaulter the initiative of institutin# suit, instead of the

rescinder.

!n fact, even without e=press provision conferrin# the power of cancellation upon one contractin# party,

the Supreme Court of Spain, in construin# the effect of &rticle %%< of the Spanish Civil Code (of

which &rticle %%1% of our own CivilA Code is practically a reproduction, has repeatedly held that, a

resolution of reciprocal or synalla#matic contracts may be made e=tra4udicially unless successfully

impu#ned in court.

>l articulo %%< del Codi#o Civil establece la facultad de resolver las obli#aciones

reciprocas para el caso de 8ue uno de los obli#ados no cumpliese lo 8ue le incumbe,

facultad que, segun 'urisprudencia de este "ribunal, surge immediatamente despues8ue

la otra parte incumplio su deber, sin necesidad de una declaracion previa de los

"ribunales. (Sent. of the 9r. Sup. of Spain, of %) &pril %11A %)/ Jur. Civ. *12.

Se#un reiterada doctrina de esta Sala, el &rt. %%< re#ula la resolucioncomo una

facultad atribuida a la parte per4udicada por el incumplimiento del contrato, la cual

tiene derecho do opcion entre e=i#ir el cumplimientoo la resolucion de lo convenido,

que puede e'ercitarse, ya en la via 4udicial, #a fuera de ella, por declaracion del

acreedor, a reserva, claro es, 8ue si la declaracion de resolucion hecha por una de las

partes se impu#na por la otra, 8ueda a8uella sometida el e=amen y sancion de los

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9ribunale, 8ue habran de declarar, en definitiva, bien hecha la resolucion o por el

contrario, no a4ustada a $erecho. (Sent. 9S of Spain, %/ -ovember %1/A Jurisp.

&ran;adi, ', <<2.

3a resolucion de los contratos sinala#maticos, fundada en el incumplimiento por una de

las partes de su respectiva prestacion, puedetener lu#ar con eficacia %. o &or la declaracion de

voluntad de la otra hecha e<tra!rocesalmente, si no es im!ugnada en )uicio luego con e<ito" y 4" 0 &or la demanda de la !er)udicada,cuando no o!ta !or el cum!limientocon la indemniacion de danos y !er)uicios realmente causados, siem!re $uese acredite, ademas,

una actitud o conducta !ersistente y rebelde de laadversa o la satisfaccion de lo !actado, a un hecho obstativo $ue de un modoabsoluto,

definitivo o irreformable lo im!ida, segun el art" ?"?47, inter!retado !or la )uris!rudencia de esta Sala, contenida en las Ss" de ?4 mayo

?@ y ?5 /ov" ?@5, entre otras, ins!iradas !or el !rinci!io del Eerecho intermedio, recogido del Canonico, !or el cual fra!enti fidem$

fides non est servanda" +Ss" de 7 /ov" ?@8 y 44 'un" ?@@" +m!hasis su!!lied"

!n the li#ht of the fore#oin# principles, and considerin# that the complaint of petitioner Eniversity

made out a prima facie case of breach of contract and defaults in payment by respondent &3EMC0, to

the e=tent that the court below issued a writ of preliminary in4unction stoppin# &3EMC0?s lo##in#

operations, and repeatedly denied its motions to lift the in4unctionA that it is not denied that the

respondent company had profited from its operations previous to the a#reement of $ecember %1/<

(&c"nowled#ment of $ebt and Proposed Manner of PaymentA that the e=cuses offered in the secondamended answer, such as the misconduct of its former mana#er Cesar +uy, and the rotten condition of

the lo#s in private respondent?s pond, which said respondent was in a better position to "now when it

e=ecuted the ac"nowled#ment of indebtedness, do not constitute on their face sufficient e=cuse for non@

paymentA and considerin# that whatever pre4udice may be suffered by respondent &3EMC0 is

susceptibility of compensation in dama#es, it becomes plain that the acts of the court a 8uo in en4oinin#

petitioner?s measures to protect its interest without first receivin# evidence on the issues tendered by the

parties, and in subse8uently refusin# to dissolve the in4unction, were in #rave abuse of discretion,

correctible by certiorari, since appeal was not available or ade8uate. Such in4unction, therefore, must be

set aside.

5or the reason that the order findin# the petitioner EP in contempt of court has open appealed to the

Court of &ppeals, and the case is pendin# therein, this Court abstains from ma"in# any pronouncement

thereon.

D6>R>50R>, the writ of certiorari applied for is #ranted, and the order of the respondent court of

5ebruary %1//, #rantin# the &ssociated 3umber Company?s petition for in4unction, is hereby set aside.

3et the records be remanded for further proceedin#s conformably to this opinion.

/izon, a&alintal, aldivar, Castro, ernando, "eehan&ee, >arredo, !illamor and a&asiar, JJ.,

concur.

Re#es, J.>.1., Actg. C.J., is on leave.

Footnotes

% 0ce4o Pere; Co. vs. !nternational Ban"in# Corp., '2 Phil. /'%A Republic vs.

6ospital de San Juan de $ios, et al., *< Phil. *).

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5!RS9 $!!S!0-

G.R. No. &(296 '"#u"- , 1982

'OSE C. )U&UETA, petitioner,

vs.

HON. HERMINIO MARIANO, # +s /"0"/t "s P-%s$#g 'u$g% o !-"#/+ o t+% Cou-t o

<-st I#st"#/% o R"J "#$ &AM!ERTO AVE&&ANA, respondents.

ME&ENCIO(HERRERA, J .*

!n this action for mandamus and Prohibition, petitioner see"s to compel respondent Jud#e to assume

appellate, not ori#inal 4urisdiction over an >4ectment case appealed from the Municipal Court of Pasi#

(CC -o. %%1) entitled Jose C. Lulueta vs. 3amberto &vellana, and to issue a Drit of >=ecution in said

case.

9he antecedental facts follow:

Petitioner Jose C. Lulueta is the re#istered owner of a residential house and lot situated within the

&ntonio Subdivision, Pasi#, Ri;al.

0n -ovember /, %1/<, petitioner Lulueta and private respondent 3amberto &vellana, a movie director,

entered into a Contract to Sell the aforementioned property for P2,))).)) payable in twenty years

with respondent buyer assumin# to pay a down payment of P,))).)) and a monthly installment of

P/').)) payable in advance before the th day of the correspondin# month, startin# with $ecember,

%1/<.

!t was further stipulated:

% 9hat upon failure of the BEF>R to fulfill any of the conditions herein stipulated,

BEF>R automatically and irrevocably authori;es 0D->R to recover e=tra@4udicially,

physical possession of the land, buildin# and other improvements which are the sub4ect

of this contract, and to ta"e possession also e=tra@4udicially whatever personal properties

may be found within the aforesaid premises from the date of said failure to answer for

whatever unfulfilled monetary obli#ations BEF>R may have with 0D->RA and this

contract shall be considered as without force and effect also from said dateA all payments

made by the BEF>R to 0D->R shall be deemed as rental payments without pre4udice

to 0D->R?s ri#ht to collect from BEF>R whatever other monthly installments and

other money obli#ations which may have been paid until BEF>R vacates the aforesaid

premisesA upon his failure to comply with any of the herein conditions BEF>R forfeits

all money claims a#ainst 0D->R and shall pay a monthly rental e8uivalent to his

monthly installment under Condition % of this Contract from the date of the said failure

to the date of recovery of physical possession by 0D->R of the land, buildin# and

other improvements which are the sub4ect of this ContractA BEF>R shall not remove his

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personal properties without the previous written consent of 0D->R, who, should he

ta"e possession of such properties followin# the aforesaid failure of BEF>R, shall

return the same to BEF>R only after the latter shall have fulfilled all money claims

a#ainst him by 0D->RA in all cases herein, demand is waivedA

Respondent &vellana occupied the property from $ecember, %1/<, but title remained with petitioner

Lulueta.

Epon the alle#ation that respondent &vellana had failed to comply with the monthly amorti;ations

stipulated in the contract, despite demands to pay and to vacate the premises, and that thereby the

contract was converted into one of lease, petitioner, on June , %1//, commenced an >4ectment suit

a#ainst respondent before the Municipal Court of Pasi# (CC -o. %%1), prayin# that 4ud#ment be

rendered orderin# respondent % to vacate the premisesA to pay petitioner the sum of P%%,2%.')

representin# respondent?s balance owin# as of May, %1//A ' to pay petitioner the sum of P /').))

every month after May, %1//, and costs.

Respondent controverted by contendin# that the Municipal Court had no 4urisdiction over the nature ofthe action as it involved the interpretation andHor rescission of the contractA that prior to the e=ecution

of the contract to sell, petitioner was already indebted to him in the sum of P'%,/1.)) representin# the

cost of two movies respondent made for petitioner and used by the latter in his political campai#n in

%1/< when petitioner ran for Con#ressman, as well as the cost of one %/ millimeter pro4ector petitioner

borrowed from respondent and which had never been returned, which amounts, accordin# to their

understandin#, would be applied as down payment for the property and to whatever obli#ations

respondent had with petitioner. 9he latter stron#ly denied such an understandin#. Respondent?s total

counterclaim a#ainst petitioner was in the amount of P<,/1.11 representin# petitioner?s pleaded

indebtedness to private respondent, claim for moral dama#es, and attorney?s fees.

9he counterclaim was dismissed by the Municipal Court for bein# in an amount beyond its 4urisdiction.

6owever, as a special defense, private respondent sou#ht to offset the sum of P'%,/1.)) a#ainst his

obli#ations to petitioner.

$ecidin# the case on May %), %1/2, the Municipal Court found that respondent &vellana had failed to

comply with his financial obli#ations under the contract and ordered him to vacate the premises and

deliver possession thereof to petitionerA to pay petitioner the sum of P%,)1'.** representin# arreara#es

as of &pril, %1/2, and P/').)) as monthly rental from and after May, %1/2 until delivery of possession

of that premises to petitioner. 9hat conclusion was premised on title findin# that breach of any of the

conditions by private respondent converted the a#reement into a lease contractual and upon thefollowin# considerations:

9he 8uestion involved herein is that of possession, that who of the contendin# parties

has the better ri#ht to possession of the properly in 8uestion. 9he issue in this case bein#

that of possession, the claim of defendant a#ainst plaintiff or P '%,/1.)) indebtedness,

has no place as a defense here. !t should be the sub4ect@ matter of a separate action

a#ainst, plaintiff Jose C. Lulueta. &s it is, said indebtedness is only a claim still

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debatable and controversial and not a final 4ud#ment. ?!t is our considered opinion that to

admit and to allow such a defense would be tantamount to pre4udin# the claim on its

merits prematurely in favor of defendant. 9his court can not do without violatin# some

rules of law. 9his is not the proper court and this is not the proper case in which to

ventilate the claim.

Respondent &vellana appealed to the Court of 5irst !nstance of Ri;al presided by respondent Jud#e.9hereat, petitioner summoned for e=ecution alle#in# private respondent?s failure to deposit in

accordance the monthly rentals, which the latter denied. Respondent Jud#e held resolution thereof in

abeyance.

0n 5ebruary %1, %1/*, respondent &vellana filed a Motion to $ismiss &ppeal alle#in# that, inasmuch

as the defense set up in his &nswer was that he had not breached his contract with petitioner, the case

necessarily involved the interpretation andHor rescission of the contract and, therefore, beyond the

4urisdiction of the Municipal Court. Petitioner opposed claimin# that the Complaint had set out a clear

case of unlawful detainer considerin# that 4udicial action for the rescission of the contract was

unnecessary due to the automatic rescission clause therein and the fact that petitioner had cancelled

said contract so that respondent?s ri#ht to remain in the premises had ceased.

0n March %, %1/*, respondent Jud#e dismissed the case on the #round of lac" of 4urisdiction of the

Municipal Court, e=plainin#:

9he decision of the lower court declared said Contract to Sell to have been converted

into a contract of lease. !t is the contention of the defendant that the lower court had no

4urisdiction to entertain the case as the same involves the interpretation of contract as to

whether or not the same has been converted to lease contract. &lthou#h the contract to

sell ob4ect of this case states that the same may be converted into a lease contract uponthe failure of the defendant to pay the amorti;ation of the property in 8uestion, there is

no showin# that before filin# this case in the lower court, the plaintiff has e=ercised or

has pursued his ri#ht pursuant to the contract which should be the basis of the action in

the lower court.

Petitioner?s Motion for Reconsideration was denied by respondent Jud#e as follows:

9he plaintiff havin# filed a motion for reconsideration of this Court?s 0rder dismissin#

the appeal, the Court, while standin# pat on its 0rder dismissin# this case for lac" of

4urisdiction of the lower court over the sub4ect matter, hereby ta"es co#ni;ance of the

case and will try the case as if it has been filed ori#inally in this Court.

D6>R>50R>, let this case be set for pre@trial on July %, %1/* at *:') a.m. with notice

to an parties.

Petitioner then availed of the instant recourse.

Das the action before the Municipal Court of Pasi# essentially for detainer and, therefore, within its

e=clusive ori#inal 4urisdiction, or one for rescission or annulment of a contract, which should be

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liti#ated before a Court of 5irst !nstance

Epon a review of the attendant circumstances, we uphold the rulin# of respondent Jud#e that the

Municipal Court of Pasi# was bereft of 4urisdiction to ta"e co#ni;ance of the case filed before it. !n his

Complaint, petitioner had alle#ed violation by respondent &vellana of the stipulations of their

a#reement to sell and thus unilaterally considered the contract rescinded. Respondent &vellana denied

any breach on his part and ar#ued that the principal issue was one of interpretation andHor rescission ofthe contract as well as of set@off. Ender those circumstances, proof of violation is a condition precedent

to resolution or rescission. !t is only when the violation has been established that the contract can be

declared resolved or rescinded. Epon such rescission, in turn, hin#es a pronouncement that possession

of the realty has become unlawful. 9hus, the basic issue is not possession but one of rescission or

annulment of a contract. which is beyond the 4urisdiction of the Municipal Court to hear and determine.

& violation by a party of any of the stipulations of a contract on a#reement to sell real

property would entitle the other party to resolved or rescind it. &n alle#ation of such

violation in a detainer suit may be proved by competent evidence. &nd if proved a

4ustice of the peace court mi#ht ma"e a findin# to that effect, but it certainly cannot

declare and hold that the contract is resolved or rescinded. !t is beyond its power so to

do. &nd as the ille#ality of the possession of realty by a party to a contract to sell is

premised upon the resolution of the contract, it follows that an alle#ation and proof of

such violation, a condition precedent to such resolution or rescission, to render unlawful

the possession of the land or buildin# erected thereon by the party who has violated the

contract, cannot be ta"en co#ni;ance of by a 4ustice of the peace court. ... 1

9rue, the contract between the parties provided for e=tra4udicial rescission. 9his has le#al effect,

however, where the other party does not oppose it. 2 #here it is ob)ected to, a )udicial determination of the

issue is still necessary"

& stipulation entitlin# one party to ta"e possession of the land and buildin# if the other

party violates the contract does not e% proprio vigore confer upon the former the ri#ht to

ta"e possession thereof if ob4ected to without 4udicial intervention and? determination. 3

But while respondent Jud#e correctly ruled that the Municipal Court had no 4urisdiction over the case

and correctly dismissed the appeal, he erred in assumin# ori#inal 4urisdiction, in the face of the

ob4ection interposed by petitioner. Section %%, Rule <), leaves no room for doubt on this point:

Section %%. 1ac& of 'urisdiction T& case tried by an inferior court without 4urisdiction

over the sub4ect matter shall be dismiss on appeal by the Court of 5irst !nstance. But

instead of dismissin# the case, the Court of 5irst !nstance may try the case on the merits,

if the parties therein file their pleadin#s and #o to trial without any ob4ection to such

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4urisdiction.

9here was no other recourse left for respondent Jud#e, therefore, e=cept to dismiss the appeal.

!f an inferior court tries a case without 4urisdiction over the sub4ect@matter on appeal, the

only authority of the C5! is to declare the inferior court to have acted without

4urisdiction and dismiss the case, unless the parties a#ree to the e=ercise by the C5! of its

ori#inal 4urisdiction to try the case on the merits. 4

9he fore#oin# premises considered, petitioner?s prayer for a Drit of >=ecution of the 4ud#ment of the

Municipal Court of Pasi# must perforce be denied.

D6>R>50R>, the Drit of mandamus is denied, but the Drit of Prohibition is #ranted and respondent

Court hereby permanently en4oined from ta"in# co#ni;ance of Civil Case -o. %)1 in the e=ercise of

its ori#inal 4urisdiction. -o costs.

S0 0R$>R>$.

a&asiar, ernandez, Guerrero and Plana, JJ., concur.

"eehan&ee, J., concur in the result.

Footnotes

% -era vs. acante, ' SCR& ), %% (%1/%.

9olentino, Civil Code of the Phil., ol. !, %1/ ed, p. %/*,

' -era vs. acante, supra.

< +anancial vs. &tillo, %< SCR& </) (%1/.

5!RS9 $!!S!0-

G.R. No. &(5676 S%0t%34%- 21, 198

PA&A=, INC. "#$ A&!ERT ONSTOTT, petitioner,

vs.

'ACO!O C. C&AVE, P-%s$%#t" E%/ut:% Assst"#t NATIONA& HOUSING AUTHORIT=

"#$ NA)ARIO DUMPIT respondents.

)antos, Calcetas3)antos ( Geronimo 1a$ 4ffice for petitioner.

@ilfredo *. /izon for private respondent.

ME&ENCIO(HERRERA, J.:

9he Resolution, dated May , %1*), issued by Presidential >=ecutive &ssistant Jacobo Clave in 0.P.

Case -o. %<1, directin# petitioners Palay, !nc. and &lberto 0nstott 4ointly and severally, to refund to

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private respondent, -a;ario $umpit, the amount of P%',2.) with % interest per annum, as

resolved by the -ational 6ousin# &uthority in its Resolution of July %), %121 in Case -o. %/2, as

well as the Resolution of 0ctober *, %1*) denyin# petitioners? Motion for Reconsideration of said

Resolution of May , %1*), are bein# assailed in this petition.

0n March *, %1/, petitioner Palay, !nc., throu#h its President, &lbert 0nstott e=ecuted in favor of

private respondent, -a;ario $umpit, a Contract to Sell a parcel of 3and (3ot -o. *, Bloc" ! of theCrestview 6ei#hts Subdivision in &ntipolo, Ri;al, with an area of %,%/ s8uare meters, @ covered by

9C9 -o. 1)<<, and owned by said corporation. 9he sale price was P',')).)) with 1 interest per

annum, payable with a downpayment of P<,//).)) and monthly installments of P</.< until fully

paid. Para#raph / of the contract provided for automatic e=tra4udicial rescission upon default in

payment of any monthly installment after the lapse of 1) days from the e=piration of the #race period

of one month, without need of notice and with forfeiture of all installments paid.

Respondent $umpit paid the downpayment and several installments amountin# to P%',2.). 9he last

payment was made on $ecember , %1/2 for installments up to September %1/2.

0n May %), %12', or almost si= (/ years later, private respondent wrote petitioner offerin# to update

all his overdue accounts with interest, and see"in# its written consent to the assi#nment of his ri#hts to

a certain 3ourdes $i;on. 6e followed this up with another letter dated June ), %12' reiteratin# the

same re8uest. Replyin# petitioners informed respondent that his Contract to Sell had lon# been

rescinded pursuant to para#raph / of the contract, and that the lot had already been resold.

Iuestionin# the validity of the rescission of the contract, respondent filed a letter complaint with the

-ational 6ousin# &uthority (-6& for reconveyance with an altenative prayer for refund (Case -o.

%/2. !n a Resolution, dated July %), %121, the -6&, findin# the rescission void in the absence of

either 4udicial or notarial demand, ordered Palay, !nc. and &lberto 0nstott in his capacity as President

of the corporation, 4ointly and severally, to refund immediately to -a;ario $umpit the amount of

P%',2.) with % interest from the filin# of the complaint on -ovember *, %12<. Petitioners?

Motion for Reconsideration of said Resolution was denied by the -6& in its 0rder dated 0ctober ',

%121. 1

0n appeal to the 0ffice of the President, upon the alle#ation that the -6& Resolution was contrary to

law (0.P. Case -o. %<1, respondent Presidential >=ecutive &ssistant, on May , %1*), affirmed theResolution of the -6&. Reconsideration sou#ht by petitioners was denied for lac" of merit. 9hus, the

present petition wherein the followin# issues are raised:

!

Dhether notice or demand is not mandatory under the circumstances and, therefore, may

be dispensed with by stipulation in a contract to sell.

!!

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Dhether petitioners may be held liable for the refund of the installment payments made

by respondent -a;ario M. $umpit.

!!!

Dhether the doctrine of piercin# the veil of corporate fiction has application to the case

at bar.

!

Dhether respondent Presidential >=ecutive &ssistant committed #rave abuse of

discretion in upholdin# the decision of respondent -6& holdin# petitioners solidarily

liable for the refund of the installment payments made by respondent -a;ario M.

$umpit thereby denyin# substantial 4ustice to the petitioners, particularly petitioner

0nstott

De issued a 9emporary Restrainin# 0rder on 5eb %%, %1*% en4oinin# the enforcement of the 8uestioned

Resolutions and of the Drit of >=ecution that had been issued on $ecember , %1*). 0n 0ctober *,

%1*%, we dismissed the petition but upon petitioners? motion, reconsidered the dismissal and #ave due

course to the petition on March %, %1*.

0n the first issue, petitioners maintain that it was 4ustified in cancellin# the contract to sell without

prior notice or demand upon respondent in view of para#raph / thereof which provides@

/. 9hat in case the BEF>R falls to satisfy any monthly installment or any other

payments herein a#reed upon, the BEF>R shall be #ranted a month of #race within

which to ma"e the payment of the t in arrears to#ether with the one correspondin# to the

said month of #race. @!t shall be understood, however, that should the month of #race

herein #ranted to the BEF>R e=pire, without the payment correspondin# to bothmonths havin# been satisfied, an interest of ten (%) per cent per annum shall be

char#ed on the amounts the BEF>R should have paidA it is understood further, that

should a period of -!->9F (1) $&FS elapse to be#in from the e=piration of the month

of #race hereinbefore mentioned, and the BEF>R shall not have paid all the amounts

that the BEF>R should have paid with the correspondin# interest up to the date, the

S>33>R shall have the ri#ht to declare this contract cancelled and of no effect without

notice, and as a conse8uence thereof, the S>33>R may dispose of the lotHlots covered

by this Contract in favor of other persons, as if this contract had never been entered into.

!n case of such cancellation of this Contract, all the amounts which may have been paidby the BEF>R in accordance with the a#reement, to#ether with all the improvements

made on the premises, shall be considered as rents paid for the use and occupation of the

above mentioned premises and for li8uidated dama#es suffered by virtue of the failure of

the BEF>R to fulfill his part of this a#reement : and the BEF>R hereby renounces his

ri#ht to demand or reclaim the return of the same and further obli#ates peacefully to

vacate the premises and deliver the same to the S>33>R.

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Dell settled is the rule, as held in previous 4urisprudence, 2 that )udicial action for the rescission of a

contract is not necessary where the contract !rovides that it may be revoed and cancelled for violation of any of

its terms and conditions" .owever, even in the cited cases, there was at least a written notice sent to the

defaulter informing him of the rescission" As stressed in %niversit" of te 'ilippines vs. (alfrido de los An!eles

3 the act of a !arty in treating a contract as cancelled should be made nown to the other" #e $uote the

!ertinent e<cer!t:

0f course, it must be understood that the act of a party in treatin# a contract as cancelled

or resolved in account of infractions by the other contractin# party must be made &no$n

to the other and is al$a#s provisional being ever sub'ect to scrutin# and revie$ b# the

proper court. f the other part# denies that rescission is 'ustified it is free to resort to

'udicial action in its o$n behalf, and bring the matter to court. 9hen, should the court,

after due hearin#, decide that the resolution of the contract was not warranted, the

responsible party will be sentenced to dama#esA in the contrary case, the resolution will


!n other words, the party who deems the contract violated may consider it resolved orrescinded, and act accordin#ly, without previous court action, but it proceeds at its o$n

ris&. 5or it is only the final 4ud#ment of the correspondin# court that will conclusively

and finally settle whether the action ta"en was or was not correct in law. But the law

definitely does not re8uire that the contractin# party who believes itself in4ured must

first file suit and wait for a 4ud#ment before ta"in# e=tra4udicial steps to protect its

interest. 0therwise, the party in4ured by the other?s breach will have to passively sit and

watch its dama#es accumulate durin# the pendency of the suit until the final 4ud#ment of

rescission is rendered when the law itself re8uires that he should e=ercise due dili#ence

to minimi;e its own dama#es (Civil Code, &rticle )'.

De see no conflict between this rulin# and the previous 4urisprudence of this Court

invo"ed by respondent declarin# that 4udicial action is necessary for the resolution of a

reciprocal obli#ation (0ce4o Pere; Co., vs. !nternational Ban"in# Corp., '2 Phil. /'%A

Republic vs. 6ospital de San Juan $e $ios, et al., *< Phil *) since in ever# case $here

the e%tra'udicial resolution is contested onl# the final a$ard of the court of competent

'urisdiction can conclusivel# settle $hether the resolution $as proper or not . !t is in this

sense that 4udicial action win be necessary, as without it, the e=tra4udicial resolution will

remain contestable and sub4ect to 4udicial invalidation unless attac" thereon should

become barred by ac8uiescense, estoppel or prescription.

5ears have been e=pressed that a stipulation providin# for a unilateral rescission in case

of breach of contract may render nu#atory the #eneral rule re8uirin# 4udicial action (v.

5ootnote, Padilla Civil 3aw, Civil Code &nno., %1/2 ed. ol. !, pa#e %<) but, as

already observed, in case of abuse or error b# the rescinder the other part# is not barred

from questioning in court such abuse or error, the practical effect of the stipulation

being merel# to transfer to the defaulter the initiative of instituting suit, instead of the

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rescinder (>mphasis supplied.

0f similar import is the rulin# in 0era vs. !acante 4, reading:

& stipulation entitlin# one party to ta"e possession of the land and buildin# if the other

party violates the contract does not e% propio vigore confer upon the former the ri#ht to

ta"e possession thereof if ob4ected to without 4udicial intervention and determination.

9his was reiterated in ulueta vs. ariano 5 where we held that e<tra)udicial rescission has legal effect

where the other !arty does not o!!ose it" 6 #here it is ob)ected to, a )udicial determination of the issue is still

necessary"

!n other words, resolution of reciprocal contracts may be made e=tra4udicially unless successfully

impu#ned in Court. !f the debtor impu#ns the declaration, it shall be sub4ect to 4udicial determination. 7

!n this case, private respondent has denied that rescission is 4ustified and has resorted to 4udicial action.

!t is now for the Court to determine whether resolution of the contract by petitioners was warranted.

De hold that resolution by petitioners of the contract was ineffective and inoperative a#ainst private

respondent for lac" of notice of resolution, as held in the ?.P. vs. Angeles case, supra

Petitioner relies on "orralba vs. /e los Angeles 8 where it was held that there was no contract to rescind in

court because from the moment the !etitioner defaulted in the timely !ayment of the installments, the contract

between the !arties was deemed ipso facto rescinded" .owever, it should be noted that even in that case notice

in writing was made to the vendee of the cancellation and annulment of the contract although the contract

entitled the seller to immediate re!ossessing of the land u!on default by the buyer"

9he indispensability of notice of cancellation to the buyer was to be later underscored in Republic &ct

-o. /% entitled &n &ct to Provide Protection to Buyers of Real >state on !nstallment Payments.which too" effect on September %<, %12, when it specifically provided:

Sec. '(b ... the actual cancellation of the contract shall ta"e place after thirty days from

receipt by the buyer of the notice of cancellation or the demand for rescission of the

contract by a notarial act and upon full payment of the cash surrender value to the buyer.

(>mphasis supplied.

9he contention that private respondent had waived his ri#ht to be notified under para#raph / of the

contract is neither meritorious because it was a contract of adhesion, a standard form of petitioner

corporation, and private respondent had no freedom to stipulate. & waiver must be certain and

une8uivocal, and intelli#ently madeA such waiver follows only where liberty of choice has been fully

accorded. 9 Moreover, it is a matter of !ublic !olicy to !rotect buyers of real estate on installment !ayments

against onerous and o!!ressive conditions" #aiver of notice is one such onerous and o!!ressive condition to

buyers of real estate on installment !ayments"

Re#ardin# the second issue on refund of the installment payments made by private

respondent. &rticle %'* of the Civil Code provides:

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&R9. %'*. Rescission creates the obli#ation to return the thin#s which were the ob4ect

of the contract, to#ether with their fruits, and the price with its interestA conse8uently, it

can be carried out only when he who demands rescission can return whatever he may be

obli#ed to restore.

-either sham rescission ta"e place when the thin#s which are the ob4ect of the contract

are le#ally in the possession of third persons who did not act in bad faith.

!n this case, indemnity for dama#es may be demanded from the person causin# the loss.

&s a conse8uence of the resolution by petitioners, ri#hts to the lot should be restored to private

respondent or the same should be replaced by another acceptable lot. 6owever, considerin# that the

property had already been sold to a third person and there is no evidence on record that other lots are

still available, private respondent is entitled to the refund of installments paid plus interest at the le#al

rate of % computed from the date of the institution of the action. 10 It would be most ine$uitable if

!etitioners were to be allowed to retain !rivate res!ondent*s !ayments and at the same time a!!ro!riate the

!roceeds of the second sale to another"

De come now to the third and fourth issues re#ardin# the personal liability of petitioner 0nstott who

was made 4ointly and severally liable with petitioner corporation for refund to private respondent of the

total amount the latter had paid to petitioner company. !t is basic that a corporation is invested by law

with a personality separate and distinct from those of the persons composin# it as wen as from that of

any other le#al entity to which it may be related. 11 As a general rule, a cor!oration may not be made to

answer for acts or liabilities of its stocholders or those of the legal entities to which it may be connected and

vice versa" .owever, the veil of cor!orate fiction may be !ierced when it is used as a shield to further an end

subversive of )ustice 12 > or for !ur!oses that could not have been intended by the law that created it 13 > or to

defeat !ublic convenience, )ustify wrong, !rotect fraud, or defend crime" 14 > or to !er!etuate fraud or confuse

legitimate issues 15 > or to circumvent the law or !er!etuate dece!tion 16 > or as an alter ego, ad)unct or

business conduit for the sole benefit of the stocholders" 17

De find no bad#es of fraud on petitioners? part. 9hey had literally relied, albeit mista"enly, on

para#raph / (supra of its contract with private respondent when it rescinded the contract to sell

e=tra4udicially and had sold it to a third person.

!n this case, petitioner 0nstott was made liable because he was then the President of the corporation

and he a to be the controllin# stoc"holder. -o sufficient proof e=ists on record that said petitioner usedthe corporation to defraud private respondent. 6e cannot, therefore, be made personally liable 4ust

because he appears to be the controllin# stoc"holder. Mere ownership by a sin#le stoc"holder or by

another corporation is not of itself sufficient #round for disre#ardin# the separate corporate personality.

18 In this res!ect then, a modification of the 1esolution under review is called for"

D6>R>50R>, the 8uestioned Resolution of respondent public official, dated May , %1*), is hereby

modified. Petitioner Palay, !nc. is directed to refund to respondent -a;ario M. $umpit the amount of

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P%',2.), with interest at twelve (% percent per annum from -ovember *, %12<, the date of the

filin# of the Complaint. 9he temporary Restrainin# 0rder heretofore issued is hereby lifted.

-o costs.

G.R. No. &(B228 M"-/+ 18, 1985

!UENAVENTURA ANGE&ES, ET A&., plaintiffs@appellees,vs.

URSU&A TORRES CA&ASAN), ET A&., defendants@appellants.

GUTIERRE), 'R., J.:

9his is an appeal from the decision of the Court of 5irst !nstance of Ri;al, Seventh Judicial $istrict,

Branch O, declarin# the contract to sell as not havin# been validly cancelled and orderin# the

defendants@appellants to e=ecute a final deed of sale in favor of the plaintiffs@appellees, to pay P)).))

attorney?s fees and costs.

9he facts bein# undisputed, the Court of &ppeals certified the case to us since only pure 8uestions of

law have been raised for appellate review.

0n $ecember %1, %12, defendants@appellants Ersula 9orres Calasan; and 9omas Calasan; and

plaintiffs@appellees Buenaventura &n#eles and 9eofila Juani entered into a contract to sell a piece of

land located in Cainta, Ri;al for the amount of P',1).)) plus 2 interest per annum.

9he plaintiffs@appellees made a downpayment of P'1.)) upon the e=ecution of the contract. 9hey

promised to pay the balance in monthly installments of P <%.) until fully paid, the installments bein#

due and payable on the %1th day of each month. 9he plaintiffs@appellees paid the monthly installmentsuntil July %1//, when their a##re#ate payment already amounted to P<,''.'*. 0n numerous

occasions, the defendants@appellants accepted and received delayed installment payments from the

plaintiffs@appellees.

0n $ecember 2, %1//, the defendants@appellants wrote the plaintiffs@appellees a letter re8uestin# the

remittance of past due accounts.

0n January *, %1/2, the defendants@appellants cancelled the said contract because the plaintiffs@

appellees failed to meet subse8uent payments. 9he plaintiffs? letter with their plea for reconsideration of

the said cancellation was denied by the defendants@appellants.

9he plaintiffs@appellees filed Civil Case -o. *1<' with the Court of 5irst !nstance of Ri;al, Seventh

Judicial $istrict, Branch O to compel the defendants@appellants to e=ecute in their favor the final deed

of sale alle#in# inter alia that after computin# all subse8uent payments for the land in 8uestion, they

found out that they have already paid the total amount of P<,''.'* includin# interests, realty ta=es and

incidental e=penses for the re#istration and transfer of the land.

9he defendants@appellants alle#ed in their answer that the complaint states no cause of action and that

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the plaintiffs@appellees violated para#raph si= (/ of the contract to sell when they failed and refused to

pay andHor offer to pay the monthly installments correspondin# to the month of &u#ust, %1// for more

than five ( months, thereby constrainin# the defendants@appellants to cancel the said contract.

9he lower court rendered 4ud#ment in favor of the plaintiffs@appellees. 9he dispositive portion of the

decision reads:

D6>R>50R>, based on the fore#oin# considerations, the Court hereby renders

4ud#ment in favor of the plaintiffs and a#ainst the defendants declarin# that the contract

sub4ect matter of the instant case was -09 &3!$3F cancelled by the defendants.

Conse8uently, the defendants are ordered to e=ecute a final $eed of Sale in favor of the

plaintiffs and to pay the sum of P)).)) by way of attorney?s fees. Costs a#ainst the

defendants.

& motion for reconsideration filed by the defendants@appellants was denied.

&s earlier stated, the then Court of &ppeals certified the case to us considerin# that the appeal involves

pure 8uestions of law.

9he defendants@appellants assi#ned the followin# alle#ed errors of the lower court:

5irst &ssi#nment of >rror

96> 30D>R C0ER9 >RR>$ !- -09 603$!-+ 96> C0-9R&C9 90 S>33

(&-->O & 05 C0MP3!&-C> &S 6&!-+ B>>- 3>+&33F &-$ &3!$3F

C&-C>33>$.

Second &ssi#nment of >rror

>>- &SSEM!-+ &R+E>-$0 96&9 96> S&!$ C0-9R&C9 90 S>33 6&S-09 B>>- 3>+&33F &-$ &3!$3F C&-C>33>$, 96> 30D>R C0ER9

>RR>$ !- 0R$>R!-+ $>5>-$&-9S 90 >O>CE9> & 5!-&3 $>>$ 05 S&3>

!- 5&0R 05 96> P3&!-9!55.

9hird &ssi#nment of >rror

96> 30D>R C0ER9 >RR>$ !- 0R$>R!-+ $>5>-$&-9S 90 P&F

P3&!-9!55S 96> SEM 05 P)).)) &S &990R->F?S 5>>S.

9he main issue to be resolved is whether or not the contract to sell has been automatically and validly

cancelled by the defendants@appellants.

9he defendants@appellants submit that the contract was validly cancelled pursuant to para#raph si= of

the contract which provides:

=== === ===

S!O96.T!n case the party of the S>C0-$ P&R9 fails to satisfy any monthly

installments, or any other payments herein a#reed upon, he is #ranted a month of #race

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&rticle %%1% is e=plicit. !n reciprocal obli#ations, either party the ri#ht to rescind the contract upon the

failure of the other to perform the obli#ation assumed thereunder. Moreover, there is nothin# in the law

that prohibits the parties from enterin# into an a#reement that violation of the terms of the contract

would cause its cancellation even without court intervention (5roilan v. Pan 0riental Shippin#, Co., et

al., % SCR& 2/T

Dell settled is, however, the rule that a 4udicial action for the rescission of a contract isnot necessary where the contract provides that it may be revo"ed and cancelled for

violation of any of its terms and conditions? (3ope; v. Commissioner of Customs, '2

SCR& '2, and cases cited therein

Resort to 4udicial action for rescission is obviously not contemplated . . . 9he validity of

the stipulation can not be seriously disputed. !t is in the nature of a facultative resolutory

condition which in many cases has been upheld by this Court. (Ponce >nrile v. Court of

&ppeals, 1 SCR& )<.

9he rule that it is not always necessary for the in4ured party to resort to court for rescission of thecontract when the contract itself provides that it may be rescinded for violation of its terms and

conditions, was 8ualified by this Court in ?niversit# of the Philippines v. /e los Angeles , (' SCR&

%) where we e=plained that:

0f course, it must be understood that the act of a party in treatin# a contract as cancelled

or resolved on account of infractions by the other contractin# party must be made "nown

to the other and is always provisional, bein# ever sub4ect to scrutiny and review by the

proper court. !f the other party denies that rescission is 4ustified, it is free to resort to

4udicial action in its own behalf, and brin# the matter to court. 9hen, should the court,

after due hearin#, decide that the resolution of the contract was not warranted, theresponsible party will be sentenced to dama#esA in the contrary case, the resolution will


!n other words, the party who deems the contract violated many consider it resolved or

rescinded, and act accordin#ly, without previous court action, but it proceeds at its o$n

ris& . 5or it is only the final 4ud#ment of the correspondin# court that will conclusively

and finally settle whether the action ta"en was or was not correct in law. ... .

De see no conflict between this rulin# and the previous 4urisprudence of this Court

invo"ed by respondent declarin# that 4udicial action is necessary for the resolution of a

reciprocal obli#ationA (0ce4o, Pere; Co. v. !nternational Ban"in# Corp., '2 Phil. /'%A

Republic v. 6ospital de San Juan de $ios, et al., *< Phil. *) since in every case where

the e=tra4udicial resolution is contested only the final award of the court of competent

4urisdiction can conclusively settle whether the resolution was proper or not. !t is in this

sense that 4udicial action will be necessary, as without it, the e=tra4udicial resolution will

remain contestable and sub4ect to 4udicial invalidation, unless attac" thereon should

become barred by ac8uiescence, estoppel or prescription.

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9he ri#ht to rescind the contract for non@performance of one of its stipulations, therefore, is not

absolute. !n ?niversal ood Corp. v. Court of Appeals ('' SCR& % the Court stated thatT

9he #eneral rule is that rescission of a contract will not be permitted for a sli#ht or

casual breach, but only for such substantial and fundamental breach as would defeat the

very ob4ect of the parties in ma"in# the a#reement. (Son# 5o Co. v. 6awaiian@

Philippine Co., <2 Phil. *%, *2 9he 8uestion of whether a breach of a contract issubstantial depends upon the attendant circumstances. (Corpus v. 6on. &li"pala, et al.,

3@'2)2 3@'2), Jan. %2, %1/*. ... .

9he defendants@appellants state that the plaintiffs@appellees violated Section two of the contract to sell

which provides:

S>C0-$.T9hat in consideration of the a#reement of sale of the above described

property, the party of the S>C0-$ P&R9 obli#ates himself to pay to the party of the

5!RS9 P&R9 the Sum of 96R>> 960ES&-$ -!-> 6E-$R>$ 9D>-9F 0-3F

(P',1).)), Philippine Currency, plus interest at the rate of 2 per annum, as follows:(a 9he amount of 96R>> 6E-$R>$ -!->9F 9D0 only (P'1.)) when this

contract is si#nedA and

(b 9he sum of 50R9F 0-> &-$ )H%)) 0-3F (P<l.) on or before the %1th day of

each month, from this date until the total payment of the price above stipulated,

includin# interest.

because they failed to pay the &u#ust installment, despite demand, for more than four (< months.

9he breach of the contract adverted to by the defendants@appellants is so sli#ht and casual when we

consider that apart from the initial downpayment of P'1.)) the plaintiffs@appellees had already paidthe monthly installments for a period of almost nine (1 years. !n other words, in only a short time, the

entire obli#ation would have been paid. 5urthermore, althou#h the principal obli#ation was only P

',1).)) e=cludin# the 2 percent interests, the plaintiffs@ appellees had already paid an a##re#ate

amount of P <,''.'*. 9o sanction the rescission made by the defendants@appellants will wor" in4ustice

to the plaintiffs@ appellees. (See J.M. 9ua;on and Co., !nc. v. Javier, '% SCR& *1 !t would un4ustly

enrich the defendants@appellants.

&rticle %'< of the Civil Code which provides that:

!f the obli#ation has been substantially performed in #ood faith, the obli#or may recoveras thou#h there had been a strict and complete fulfillment, less dama#es suffered by the

obli#ee.

also militates a#ainst the unilateral act of the defendants@appellants in cancellin# the contract.

De a#ree with the observation of the lower court to the effect that:

&lthou#h the primary ob4ect of sellin# subdivided lots is business, yet, it cannot be

denied that this subdivision is li"ewise purposely done to afford those landless, low

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income #roup people of reali;in# their dream of a little parcel of land which they can

really call their own.

9he defendants@appellants cannot rely on para#raph 1 of the contract which provides:

-!-96.@9hat whatever consideration of the party of the 5!RS9 P&R9 may concede to

the party of the S>C0-$ P&R9, as not e=actin# a strict compliance with the conditions

of para#raph / of this contract, as well as any other condonation that the party of the

5!RS9 P&R9 may #ive to the party of the S>C0-$ P&R9 with re#ards to the

obli#ations of the latter, should not be interpreted as a renunciation on the part of the

party of the 5!RS9 P&R9 of any ri#ht #ranted it by this contract, in case of default or

non@compliance by the party of the S>C0-$ P&R9.

9he defendants@appellants ar#ue that para#raph nine clearly allows the seller to waive the observance

of para#raph / not merely once, but for as many times as he wishes.

9he defendants@appellants? contention is without merit. De a#ree with the plaintiffs@appellees that when

the defendants@appellants, instead of availin# of their alle#ed ri#ht to rescind, have accepted andreceived delayed payments of installments, thou#h the plaintiffs@appellees have been in arrears beyond

the #race period mentioned in para#raph / of the contract, the defendants@appellants have waived and

are now estopped from e=ercisin# their alle#ed ri#ht of rescission. !n /e Guzman v. Guieb (<* SCR&

/*, we held that:

=== === ===

But defendants do not deny that in spite of the lon# arreara#es, neither they nor their

predecessor, 9eodoro de +u;man, even too" steps to cancel the option or to e4ect the

appellees from the home@lot in 8uestion. 0n the contrary, it is admitted that the delayedpayments were received without protest or 8ualification. ... Ender these circumstances,

De cannot but a#ree with the lower court that at the time appellees e=ercised their

option, appellants had already forfeited their ri#ht to invo"e the above@8uoted provision

re#ardin# the nullifyin# effect of the non@payment of si= months rentals by appellees by

their havin# accepted without 8ualification on July %, %1/< the full payment by

appellees of all their arreara#es.

9he defendants@appellants contend in the second assi#nment of error that the led#er of payments show

a balance of P/2%,/2 due from the plaintiffs@appellees. 9hey submit that while it is true that the total

monthly installments paid by the plaintiffs@appellees may have e=ceeded P',1).)), a substantialportion of the said payments were applied to the interests since the contract specifically provides for a

2 interest per annum on the remainin# balance. 9he defendants@appellants rely on para#raph of the

contract which provides:

S>C0-$.T9hat in consideration of the a#reement of sale of the above described

property, the party of the S>C0-$ P&R9 obli#ates himself to pay to the party of the

5!RS9 P&R9 the Sum of 96R>> 960ES&-$ -!-> 6E-$R>$ 9D>-9F 0-3F (P

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',1).)), Philippine Currency, plus interest at the rate of EF per annum ... . (>mphasis

supplied

9he plaintiffs@appellees on the other hand are firm in their submission that since they have already paid

the defendants@appellants a total sum of P<,''.'*, the defendants@appellants must now be compelled

to e=ecute the final deed of sale pursuant to para#raph % of the contract which provides:

9D>3596.T9hat once the payment of the sum of P',1).)), the total price of the sale

is completed, the party to the 5!RS9 P&R9 will e=ecute in favor of the party of the

S>C0-$ P&R9, the necessary deed or deeds to transfer to the latter the title of the

parcel of land sold, free from all hens and encumbrances other than those e=pressly

provided in this contractA it is understood, however, that au the e=penses which may be

incurred in the said transfer of title shall be paid by the party of the S>C0-$ P&R9, as

above stated.

Closely related to the second assi#nment of error is the submission of the plaintiffs@appellees that the

contract herein is a contract of adhesion.De a#ree with the plaintiffs@appellees. 9he contract to sell entered into by the parties has some

characteristics of a contract of adhesion. 9he defendants@appellants drafted and prepared the contract.

9he plaintiffs@appellees, ea#er to ac8uire a lot upon which they could build a home, affi=ed their

si#natures and assented to the terms and conditions of the contract. 9hey had no opportunity to

8uestion nor chan#e any of the terms of the a#reement. !t was offered to them on a ta"e it or leave it

basis. !n )$eet 1ines, nc. v. "eves (*' SCR& '/ %, we held that:

=== === ===

... (Dhile #enerally, stipulations in a contract come about after deliberate draftin# by theparties thereto. . . . there are certain contracts almost all the provisions of which have

been drafted only by one party, usually a corporation. Such contracts are called contracts

of adhesion, because the only participation of the party is the si#nin# of his si#nature or

his adhesion thereto. !nsurance contracts, bills of ladin#, contracts of sale of lots on

the installment plan fall into this categor#. (Paras, Civil Code of the Philippines,

Seventh ed., ol. %, p. *). (>mphasis supplied

Dhile it is true that para#raph of the contract obli#ated the plaintiffs@appellees to pay the defendants@

appellants the sum of P',1).)) plus 2 interest per annum, it is li"ewise true that under para#raph %

the seller is obli#ated to transfer the title to the buyer upon payment of the P',1).)) price sale.

9he contract to sell, bein# a contract of adhesion, must be construed a#ainst the party causin# it. De

a#ree with the observation of the plaintiffs@appellees to the effect that the terms of a contract must be

interpreted a#ainst the party who drafted the same, especially where such interpretation will help effect

4ustice to buyers who, after havin# invested a bi# amount of money, are now sou#ht to be deprived of

the same thru the prayed application of a contract clever in its phraseolo#y, condemnable in its

lopsidedness and in4urious in its effect which, in essence, and in its entirety is most unfair to the

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buyers.

9hus, since the principal obli#ation under the contract is only P',1).)) and the plaintiffs@appellees

have already paid an a##re#ate amount of P<,''.'*, the courts should only order the payment of the

few remainin# installments but not uphold the cancellation of the contract. Epon payment of the

balance of P/2%./2 $ithout an# interest thereon, the defendants@appellants must immediately e=ecute

the final deed of sale in favor of the plaintiffs@appellees and e=ecute the necessary transfer documentsas provided in para#raph % of the contract. 9he attorney?s fees are 4ustified.

D6>R>50R>, the instant petition is $>-!>$ for lac" of merit. 9he decision appealed from is

&55!RM>$ with the modification that the plaintiffs@appellees should pay the balance of S!O

6E-$R>$ S>>-9F 0-> P>S0S &-$ S!O9F@S>>- C>-9&0S (P/2%./2 without any

interes

G.R. No. &(2259 M"-/+ 2, 1987

SO&OMON !O=SA? "#$ A&<REDO M. =U&O, 'R., plaintiffs@appellants,

vs.INTERPHI& PROMOTIONS, INC., &OPE SARREA&, SR., "#$ MANUE& NIETO, 'R.,

defendants@appellees.

elipe "orres and Associates for plaintiffs3appellants.

!.*. /el Rosario ( Associates for defendant3appellee . 0ieto, Jr.

A.R. 0aravasa ( Pol "iglao, Jr. for defendant3appellee nterphil Promotions, nc.

R > S 0 3 E 9 ! 0 -

<ERNAN, '.*

9his is an appeal interposed by Solomon Boysaw and &lfredo Fulo, Jr., from the decision dated July

, %1/' and other rulin#s and orders of the then Court of 5irst !nstance C5!N of Ri;al, Iue;on City,

Branch in Civil Case -o. I@)/', entitled Solomon Boysaw and &lfredo M. Fulo, Jr., Plaintiffs

versus !nterphil Promotions, !nc., 3ope Sarreal, Sr. and Manuel -ieto, Jr., $efendants, which, amon#

others, ordered them to 4ointly and severally pay defendant@appellee Manuel -ieto, Jr., the total sum of

P,))).)), bro"en down into P),))).)) as moral dama#es and P,))).)) as attorney?s feesA the

defendants@appellees !nterphil Promotions, !nc. and 3ope Sarreal, Sr., P),))).)) as unreali;ed

profits, P'','/1.2 as actual dama#es and P,))).)) as attorney?s feesA and defendant@appellee 3ope

Sarreal, Sr., the additional amount of P),))).)) as moral dama#es aside from costs.

9he antecedent facts of the case are as follows:

0n May %, %1/%, Solomon Boysaw and his then Mana#er, Dillie Getchum, si#ned with !nterphil

Promotions, !nc. represented by 3ope Sarreal, Sr., a contract to en#a#e +abriel 5lash >lorde in a

bo=in# contest for the 4unior li#htwei#ht championship of the world.

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!t was stipulated that the bout would be held at the Ri;al Memorial Stadium in Manila on September

'), %1/% or not later than thirty ')N days thereafter should a postponement be mutually a#reed upon,

and that Boysaw would not, prior to the date of the bo=in# contest, en#a#e in any other such contest

without the written consent of !nterphil Promotions, !nc.

0n May ', %1/%, a supplemental a#reement on certain details not covered by the principal contract was

entered into by Getchum and !nterphil. 9hereafter, !nterphil si#ned +abriel 5lash >lorde to a similara#reement, that is, to en#a#e Boysaw in a title fi#ht at the Ri;al Memorial Stadium on September '),

%1/%.

0n June %1, %1/%, Boysaw fou#ht and defeated 3ouis &vila in a ten@round non@title bout held in 3as

e#as, -evada, E.S.&. pp. /@2, t.s.n., session of March %<, %1/'N.

0n July , %1/%, Getchum on his own behalf and on behalf of his associate 5ran" Rus"ay, assi#ned to

J. &mado &raneta the mana#erial ri#hts over Solomon Boysaw.

Presumably in preparation for his en#a#ement with !nterphil, Solomon Boysaw arrived in the

Philippines on July '%, %1/%.

0n September %, %1/%, J. &mado &raneta assi#ned to &lfredo J. Fulo, Jr. the mana#erial ri#hts over

Boysaw that he earlier ac8uired from Getchum and Rus"ay. 9he ne=t day, September , %1/%, Boysaw

wrote 3ope Sarreal, Sr. informin# him of his arrival and presence in the Philippines.

0n September , %1/%, &lfredo Fulo, Jr. wrote to Sarreal informin# him of his ac8uisition of the

mana#erial ri#hts over Boysaw and indicatin# his and Boysaw?s readiness to comply with the bo=in#

contract of May %, %1/%. 0n the same date, on behalf of !nterphil Sarreal wrote a letter to the +ames

and &musement Board +&BN e=pressin# concern over reports that there had been a switch of

mana#ers in the case of Boysaw, of which he had not been formally notified, and re8uestin# thatBoysaw be called to an in8uiry to clarify the situation.

9he +&B called a series of conferences of the parties concerned culminatin# in the issuance of its

decision to schedule the >lorde@Boysaw fi#ht for -ovember <, %1/%. 9he ES& -ational Bo=in#

&ssociation which has supervisory control of all world title fi#hts approved the date set by the +&B

Fulo, Jr. refused to accept the chan#e in the fi#ht date, maintainin# his refusal even after Sarreal on

September /, %1/%, offered to advance the fi#ht date to 0ctober *, %1/% which was within the ')@day

period of allowable postponements provided in the principal bo=in# contract of May %, %1/%.

>arly in 0ctober %1/%, Fulo, Jr. e=chan#ed communications with one Mamerto Besa, a local bo=in#promoter, for a possible promotion of the pro4ected >lorde@Boysaw title bout. !n one of such

communications dated 0ctober /, %1/%, Fulo informed Besa that he was willin# to approve the fi#ht

date of -ovember <,%1/% provided the same was promoted by Besa.

Dhile an >lorde@Boysaw fi#ht was eventually sta#ed, the fi#ht contemplated in the May %, %1/%

bo=in# contract never materiali;ed.

&s a result of the fore#oin# occurrences, on 0ctober %, %1/%, Boysaw and Fulo, Jr. sued !nterphil,

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Sarreal, Sr. and Manuel -ieto, Jr. in the C5! of Ri;al Iue;on City BranchN for dama#es alle#edly

occasioned by the refusal of !nterphil and Sarreal, aided and abetted by -ieto, Jr., then +&B Chairman,

to honor their commitments under the bo=in# contract of May %,%1/%.

0n the first scheduled date of trial, plaintiff moved to dis8ualify Solicitor Jor#e Co8uia of the Solicitor

+eneral?s 0ffice and &tty. Romeo >du of the +&B 3e#al $epartment from appearin# for defendant

-ieto, Jr. on the #round that the latter had been sued in his personal capacity and, therefore, was notentitled to be represented by #overnment counsel. 9he motion was denied insofar as Solicitor +eneral

Co8uia was concerned, but was #ranted as re#ards the dis8ualification of &tty. >du.

9he case dra##ed into %1/' when sometime in the early part of said year, plaintiff Boysaw left the

country without informin# the court and, as alle#ed, his counsel. 6e was still abroad when, on May %',

%1/', he was scheduled to ta"e the witness stand. 9hus, the lower court reset the trial for June ), %1/'.

Since Boysaw was still abroad on the later date, another postponement was #ranted by the lower court

for July ', %1/' upon assurance of Boysaw?s counsel that should Boysaw fail to appear on said date,

plaintiff?s case would be deemed submitted on the evidence thus far presented.

0n or about July %/, %1/', plaintiffs represented by a new counsel, filed an ur#ent motion for

postponement of the July ', %1/' trial, pleadin# anew Boysaw?s inability to return to the country on

time. 9he motion was deniedA so was the motion for reconsideration filed by plaintiffs on July ,

%1/'.

9he trial proceeded as scheduled on July ', %1/' with plaintiff?s case bein# deemed submitted after

the plaintiffs declined to submit documentary evidence when they had no other witnesses to present.

Dhen defendant?s counsel was about to present their case, plaintiff?s counsel after as"in# the court?s

permission, too" no further part in the proceedin#s.

&fter the lower court rendered its 4ud#ment dismissin# the plaintiffs? complaint, the plaintiffs moved

for a new trial. 9he motion was denied, hence, this appeal ta"en directly to this Court by reason of the

amount involved.

5rom the errors assi#ned by the plaintiffs, as havin# been committed by the lower court, the followin#

principal issues can be deduced:

%. Dhether or not there was a violation of the fi#ht contract of May %, %1/%A and if there

was, who was #uilty of such violation.

. Dhether or not there was le#al #round for the postponement of the fi#ht date from

September %, %1/%, as stipulated in the May %, %1/% bo=in# contract, to -ovember

<,%1/%,

'. Dhether or not the lower court erred in the refusin# a postponement of the July ',

%1/' trial.

<. Dhether or not the lower court erred in denyin# the appellant?s motion for a new trial.

. Dhether or not the lower court, on the basis of the evidence adduced, erred in

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awardin# the appellees dama#es of the character and amount stated in the decision.

0n the issue pertainin# to the violation of the May %, %1/% fi#ht contract, the evidence established that

the contract was violated by appellant Boysaw himself when, without the approval or consent of

!nterphil, he fou#ht 3ouis &vila on June %1, %1/% in 3as e#as -evada. &ppellant Fulo admitted this

fact durin# the trial. pp. /@2, t.s.n., March %<, %1/'N.

Dhile the contract imposed no penalty for such violation, this does not #rant any of the parties the

unbridled liberty to breach it with impunity. 0ur law on contracts reco#ni;es the principle that

actionable in4ury inheres in every contractual breach. 9hus:

9hose who in the performance of their obli#ations are #uilty of fraud, ne#li#ence or

delay, and those who in any manner contravene the terms thereof, are liable for dama#es.

&rt. %%2), Civil CodeN.

&lso:

9he power to rescind obli#ations is implied, in reciprocal ones, in case one of the

obli#ors should not comply with what is incumbent upon him. Part %, &rt. %%1%, Civil

CodeN.

9here is no doubt that the contract in 8uestion #ave rise to reciprocal obli#ations. Reciprocal

obli#ations are those which arise from the same cause, and in which each party is a debtor and a

creditor of the other, such that the obli#ation of one is dependent upon the obli#ation of the other. 9hey

are to be performed simultaneously, so that the performance of one is conditioned upon the

simultaneous fulfillment of the other 9olentino, Civil Code of the Philippines, ol. !, p. %2.%

9he power to rescind is #iven to the in4ured party. @here the plaintiff is the part# $ho did not perform

the underta&ing $hich he $as bound b# the terms of the agreement to perform he is not entitled to

insist upon the performance of the contract b# the defendant, or recover damages b# reason of his o$n

breach Seva vs. &lfredo Berwin <* Phil. *%, >mphasis suppliedN.

&nother violation of the contract in 8uestion was the assi#nment and transfer, first to J. &mado &raneta,

and subse8uently, to appellant Fulo, Jr., of the mana#erial ri#hts over Boysaw without the "nowled#e

or consent of !nterphil.

9he assi#nments, from Getchum to &raneta, and from &raneta to Fulo, were in fact novations of the

ori#inal contract which, to be valid, should have been consented to by !nterphil.

-ovation which consists in substitutin# a new debtor in the place of the ori#inal one,

may be made even without the "nowled#e or a#ainst the will of the latter, but not

$ithout the consent of the creditor. &rt. %1', Civil Code, emphasis suppliedN.

9hat appellant Fulo, Jr., throu#h a letter, advised !nterphil on September , %1/% of his ac8uisition of

the mana#erial ri#hts over Boysaw cannot chan#e the fact that such ac8uisition, and the prior

ac8uisition of such ri#hts by &raneta were done without the consent of !nterphil. 9here is no showin#

that !nterphil, upon receipt of Fulo?s letter, acceded to the substitution by Fulo of the ori#inal

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principal obli#or, who is Getchum. 9he lo#ical presumption can only be that, with !nterphil?s letter to

the +&B e=pressin# concern over reported mana#erial chan#es and re8uestin# for clarification on the

matter, the appellees were not reliably informed of the chan#es of mana#ers. -ot bein# reliably

informed, appellees cannot be deemed to have consented to such chan#es.

Ender the law when a contract is unlawfully novated by an applicable and unilateral substitution of the

obli#or by another, the a##rieved creditor is not bound to deal with the substitute.

9he consent of the creditor to the chan#e of debtors, whether in e%promision or

delegacion is an, indispensable re8uirement . . . Substitution of one debtor for another

may delay or prevent the fulfillment of the obli#ation by reason of the inability or

insolvency of the new debtor, hence, the creditor should a#ree to accept the substitution

in order that it may be bindin# on him.

9hus, in a contract where = is the creditor and y is the debtor, if y enters into a contract

with ;, under which he transfers to ; all his ri#hts under the first contract, to#ether with

the obli#ations thereunder, but such transfer is not consented to or approved by =, thereis no novation. O can still brin# his action a#ainst y for performance of their contract or

dama#es in case of breach. 9olentino, Civil Code of the Philippines, ol. !, p. '/%%.

5rom the evidence, it is clear that the appellees, instead of availin# themselves of the options #iven to

them by law of rescission or refusal to reco#ni;e the substitute obli#or Fulo, really wanted to postpone

the fi#ht date owin# to an in4ury that >lorde sustained in a recent bout. 9hat the appellees had the

4ustification to rene#otiate the ori#inal contract, particularly the fi#ht date is undeniable from the facts

aforestated. Ender the circumstances, the appellees? desire to postpone the fi#ht date could neither be

unlawful nor unreasonable.

De uphold the appellees? contention that since all the ri#hts on the matter rested with the appellees, and

appellants? claims, if any, to the enforcement of the contract hun# entirely upon the former?s pleasure

and sufferance, the +&B did not act arbitrarily in accedin# to the appellee?s re8uest to reset the fi#ht

date to -ovember <, %1/%. !t must be noted that appellant Fulo had earlier a#reed to abide by the +&B

rulin#.

!n a show of accommodation, the appellees offered to advance the -ovember <, %1/% fi#ht to 0ctober

*, %1/% 4ust to place it within the ')@ day limit of allowable postponements stipulated in the ori#inal

bo=in# contract.

9he refusal of appellants to accept a postponement without any other reason but the implementation ofthe terms of the ori#inal bo=in# contract entirely overloo"s the fact that by virtue of the violations they

have committed of the terms thereof, they have forfeited any ri#ht to its enforcement.

0n the validity of the fi#ht postponement, the violations of the terms of the ori#inal contract by

appellants vested the appellees with the ri#ht to rescind and repudiate such contract alto#ether. 9hat

they sou#ht to see" an ad4ustment of one particular covenant of the contract, is under the

circumstances, within the appellee?s ri#hts.

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Dhile the appellants concede to the +&B?s authority to re#ulate bo=in# contests, includin# the settin#

of dates thereof, pp. <<@<1, t.s.n., Jan. %2, %1/'N, it is their contention that only Manuel -ieto, Jr. made

the decision for postponement, thereby arro#atin# to himself the prero#atives of the whole +&B Board.

9he records do not support appellants? contention. &ppellant Fulo himself admitted that it was the +&B

Board that set the 8uestioned fi#ht date. pp. '@<, t.s.n., Jan. %2, %1/'N. &lso, it must be stated that

one of the stron#est presumptions of law is that official duty has been re#ularly performed. !n this case,the absence of evidence to the contrary, warrants the full application of said presumption that the

decision to set the >lorde@Boysaw fi#ht on -ovember <, %1/% was a +&B Board decision and not of

Manuel -ieto, Jr. alone.

&nent the lower court?s refusal to postpone the July ', %1/' trial, suffice it to say that the same issue

had been raised before Es by appellants in a petition for certiorari and prohibition doc"eted as +.R. -o.

3@%)/. 9he dismissal by the Court of said petition had laid this issue to rest, and appellants cannot

now hope to resurrect the said issue in this appeal.

0n the denial of appellant?s motion for a new trial, we find that the lower court did not commit anyreversible error.

9he alle#ed newly discovered evidence, upon which the motion for new trial was made to rest, consists

merely of clearances which Boysaw secured from the cler" of court prior to his departure for abroad.

Such evidence cannot alter the result of the case even if admitted for they can only prove that Boysaw

did not leave the country without notice to the court or his counsel.

9he ar#ument of appellants is that if the clearances were admitted to support the motion for a new trial,

the lower court would have allowed the postponement of the trial, it bein# convinced that Boysaw did

not leave without notice to the court or to his counsel. Boysaw?s testimony upon his return would, then,

have altered the results of the case.

De find the ar#ument without merit because it confuses the evidence of the clearances and the

testimony of Boysaw. De uphold the lower court?s rulin# that:

9he said documents clearancesN are not evidence to offset the evidence adduced durin#

the hearin# of the defendants. !n fact, the clearances are not even material to the issues

raised. !t is the opinion of the Court that the ?newly discovered evidence? contemplated in

Rule '2 of the Rules of Court, is such "ind of evidence which has reference to the merits

of the case, of such a nature and "ind, that if it were presented, it would alter the result of

the 4ud#ment. &s admitted by the counsel in their pleadin#s, such clearances mi#ht haveimpelled the Court to #rant the postponement prayed for by them had they been

presented on time. 9he 8uestion of the denial of the postponement sou#ht for by counsel

for plaintiffs is a moot issue . . . 9he denial of the petition for certiorari and prohibition

filed by them, had he effect of sustainin# such rulin# of the court . . . pp. 1/@12,

Record on &ppealN.

9he testimony of Boysaw cannot be considered newly discovered evidence for as appellees ri#htly

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contend, such evidence has been in e=istence waitin# only to be elicited from him by 8uestionin#.

De cite with approval appellee?s contention that the two 8ualities that ou#ht to concur or dwell on

each and every of evidence that is invo"ed as a #round for new trial in order to warrant the reopenin# . .

. inhered separately on two unrelated species of proof which creates a le#al monstrosity that deserves

no reco#nition.

0n the issue pertainin# to the award of e=cessive dama#es, it must be noted that because the appellants

wilfully refused to participate in the final hearin# and refused to present documentary evidence after

they no lon#er had witnesses to present, they, by their own acts prevented themselves from ob4ectin# to

or presentin# proof contrary to those adduced for the appellees.

0n the actual dama#es awarded to appellees, the appellants contend that a conclusion or findin# based

upon the uncorroborated testimony of a lone witness cannot be sufficient. De hold that in civil cases,

there is no rule re8uirin# more than one witness or declarin# that the testimony of a sin#le witness will

not suffice to establish facts, especially where such testimony has not been contradicted or rebutted.

9hus, we find no reason to disturb the award of P),))).)) as and for unreali;ed profits to theappellees.

0n the award of actual dama#es to !nterphil and Sarreal, the records bear sufficient evidence presented

by appellees of actual dama#es which were neither ob4ected to nor rebutted by appellants, a#ain

because they adamantly refused to participate in the court proceedin#s.

9he award of attorney?s fees in the amount of P,))).)) in favor of defendant@appellee Manuel -ieto,

Jr. and another P,))).)) in favor of defendants@appellees !nterphil Promotions, !nc. and 3ope Sarreal,

Sr., 4ointly, cannot also be re#arded as e=cessive considerin# the e=tent and nature of defensecounsels?

services which involved le#al wor" for si=teen %/N months.

6owever, in the matter of moral dama#es, we are inclined to uphold the appellant?s contention that the

award is not sanctioned by law and well@ settled authorities. &rt. %1 of the Civil Code provides:

&rt. %1. Moral dama#es may be recovered in the followin# analo#ous cases:

% & criminal offense resultin# in physical in4uriesA

Iuasi@delict causin# physical in4uriesA

' Seduction, abduction, rape or other lascivious actsA

< &dultery or concubina#eA

!lle#al or arbitrary detention or arrestA

/ !lle#al searchA

2 3ibel, slander or any other form of defamationA

* Malicious prosecutionA

1 &cts mentioned in &rt. ')1.

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%) &cts and actions referred to in &rts., %, /, 2, *, 1, '), ', '< and '.

9he award of moral dama#es in the instant case is not based on any of the cases enumerated in &rt.

%1 of the Civil Code. 9he action herein brou#ht by plaintiffs@appellants is based on a perceived

breach committed by the defendants@appellees of the contract of May %, %1/%, and cannot, as such, be

arbitrarily considered as a case of malicious prosecution.

Moral dama#es cannot be imposed on a party liti#ant althou#h such liti#ant e=ercises it erroneously

because if the action has been erroneously filed, such liti#ant may be penali;ed for costs.

9he #rant of moral dama#es is not sub4ect to the whims and caprices of 4ud#es or courts.

9he court?s discretion in #rantin# or refusin# it is #overned by reason and 4ustice. !n

order that a person may be made liable to the payment of moral dama#es, the law

re8uires that his act be wron#ful. 9he adverse result of an action does not per se ma"e

the act wron#ful and sub4ect the actor to the payment of moral dama#es. 9he law could

not have meant to impose a penalty on the ri#ht to liti#ateA such ri#ht is so precious that

moral dama#es may not be char#ed on those who may e=ercise it erroneously. 5or thesethe law ta=es costs. Barreto vs. &revalo, et. al. -o. 3@22<*, &u#. 2, %1/, 0.+., -o.

%', p. *%*.N

D6>R>50R>, e=cept for the award of moral dama#es which is herein deleted, the decision of the

lower court is hereby affirmed.

S0 0R$>R>$.

Manila

S>C0-$ $!!S!0-

G.R. No. &(67881 'u#% , 1987

PI&IPINAS !AN "s Su//%sso-(I#(I#t%-%st O A#$O- I# su4sttuto# to, T+%

MANU<ACTURERS !AN AND TRUST COMPAN=, petitioner@appellant

vs.

INTERMEDIATE APPE&&ATE COURT <ou-t+ C: C"s%s D:so#, "#$ 'OSE ?. DIONO

"#$ CARMEN I. DIONO, respondents@appellees.

PARAS, J.:

9his is an appeal by certiorari from the $ecision 1 of the res!ondent court dated May =?, ?@87 in CA-G"1" CV /o" 54B entitled

'ose #" Eiono and Carmen I" Eiono, !laintiffs-a!!ellees, vs" (he Manufacturers 6an and (rust Com!any, defendant-a!!ellant which affirmed the decision

2 of the Court of %irst Instance of 1ial +&asig 6ranch HHI in Civil Case /o" ?@55B, the dis!ositive !ortion of

which reads:

D6>R>50R>, 4ud#ment is rendered in favor of the plaintiffs and a#ainst the defendant,

orderin# the defendant Manufacturers Ban" 9rust Company:

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%. 9o deliver to the plaintiffs the parcel of land described in Contract to Sell -o. @%*@

(a in the total area of ,1'/ s8uare meters and to e=ecute in their favor the necessary

deed of absolute sale thereforA

. 9o pay the sum of P/,%/).)) less the amount due on the contract (i.e., the unpaid

installments from $ecember, %1// until the contract would have been fully paid to#ether

with interest thereon up to March , %12< with le#al interest on said balance from&pril , %12< until the same is fully paidA

'. P),))).)) by way of moral dama#esA

<. P),))).)) by way of e=emplary dama#esA

. 9en per cent (%) of the 4ud#ment by way of attorney?s feesA and

/. Costs of suit.

S0 0R$>R>$. (Rollo, pp. %<@%

9he followin# are the undisputed facts of the case:

%. 0n &pril %*, %1/%, 6acienda Benito, !nc. (petitioner?s predecessor@in@interest as vendor, and private

respondents, as vendees e=ecuted Contract to Sell -o. @%* (a (>=h. & over a parcel of land with an

area of ,1'/ s8uare meters of the ictoria alley Subdivision in &ntipolo, Ri;al, sub4ect to the

followin# terms and conditions, amon# others, relevant to this petition:

(a 9he total contract price for the entire ,1'/ s8uare@meter@lot was P<2,<**.))A

(b 0f the total sum, an amount of Pl,%*.)) was applied thereto so as to reduce the

balance on the principal to P',')/.))A

(c 9he aforesaid balance, to#ether with the stipulated interest of / per annum, was to

be paid over a period of *@%H years startin# on May %, %1/% at a monthly installment of

P<</.%) until fully paid@althou#h this monthly installment was later ad4usted to the

hi#her amount of P212.*/, startin# on &pril %, %1/A

(d Epon complete payment by the vendee of the total price of the lot the vendor shall

e=ecute a deed of sale in favor of the vendeeA

(e 9he contract shall be considered automatically rescinded and cancelled and of no

further force and effect upon failure of the vendee to pay when due, three or more

consecutive installments as stipulated therein or to comply with any of the terms and

conditions thereof, in which case the vendor shall have ri#ht to resell the said parcel of

land to any person interested, forfeitin# payments made by the vendee as li8uidated

dama#es.

. 0n July 2, %1/, petitioner sent to private respondents a Statement of &ccount (>=h. 5@%

re8uestin# remittance of installment arrears showin# partial payments for the month of &pril %1/ and

May %1/ and complete default for June, July and &u#ust, %1/A

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'. 3i"ewise, on &u#ust '%, %1/, petitioner sent to private respondents another Statement of &ccount

with the additional entries of interests and the incomin# installment for September, %1/A

<. !n partial compliance with the aforesaid Statements of &ccount, private respondents paid on

September ', %1/ the sum of Pl,'12.)) which answers for the installments for the months of June

%1/ to &u#ust %1/A

. 0n March %2, %1/2, petitioner sent private respondents a simple demand letter showin# a

delin8uency in their monthly amorti;ations for %1 months (>=h. 1A

/. 0n &pril %2, %1/2, petitioner a#ain sent private respondents a demand letter showin# total arreara#es

of ) months as of &pril %1/, but this time advisin# that unless they up@date their installment

payments, petitioner shall be constrained to avail of the automatic rescission clause (>=h. %)A

2. 0n May %2, %1/2, private respondents made a partial payment of P,))).)) with the re8uest for an

e=tension of /) days from May %2, %1/2 within which to up@date their account (>=h. %)@aA

*. 0n July %2, %1/2, private respondents wrote a letter to petitioner as"in# another e=tension of si=ty

(/) days to pay all their arreara#es and update their payments under Contract -o. @%* (aA

1. 0n September %*, %1/2, private respondents paid P,))).)) as partial payment and re8uested an

e=tension of another ') days from September %*, %1/2 within which to update their account (>=h. %)@

cA

%). 0n 0ctober %1, %1/2, however, private respondents failed to update their arreara#es and did not

re8uest for any further e=tension of time within which to update their accountA

%%. &fter almost three (' years, or on July %/, %12), private respondents wrote a letter to petitioner

re8uestin# for a Statement of &ccount as of date in arrears and interests(>=h. %)@d, to which petitioner

made a reply on July , %12) (>=h. %%A

%. 0n May %1, %12%, petitioner wrote a letter to private respondents, remindin# them of their balance

which will be due on the '%st instant (>=h. JA

%'. More than two ( years from May %1, %12% or on July , %12', private respondents wrote a letter to

petitioner e=pressin# their desire to fully settle their obli#ation, re8uestin# for a complete statement of

all the balance due includin# interestsA

%<. 0n March %<, %12<, private respondents wrote a letter reiteratin# their re8uest in their letter dated

July , %12', which has not been complied with despite several follow@ups (>=h. 0A

%. 0n March , %12<, private respondent Carmen !. $io"no went to see the Chairman of petitioner?s

Board of $irectors on the matter informin# him that she had a buyer who was ready to purchase the

property,

%/. 0n March 2, %12<, petitioner wrote a letter to private respondents, informin# them that the

contract to sell had been rescindedHcancelled by a notarial act, to which letter was anne=ed a $emand

for Rescission of Contract, notari;ed on March , %12< (>=h. %A

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%2. !n view of the fore#oin#, private respondents filed Complaint for Specific Performance with

$ama#es to compel petitioner to e=ecute a deed of sale in their favor, and to deliver to them the title of

the lot in 8uestion.

%*. Petitioner filed an &nswer with counterclaim for dama#es in the form of attorney?s fees, claimin#

that Contract to Sell -o. @%*(a has been automatically rescinded or cancelled by virtue of private

respondents? failure to pay the installments due in the contract under the automatic rescission clause.

%1. &fter trial, the lower court rendered a decision in private respondents? favor, holdin# that petitioner

could not rescind the contract to sell, because: (a petitioner waived the automatic rescission clause by

acceptin# payment on September %1/2, and by sendin# letters advisin# private respondents of the

balances due, thus, loo"in# forward to receivin# payments thereonA (b in any event, until May %*,

%122 (when petitioner made arran#ements for the ac8uisition of additional *2) s8uare meters

petitioner could not have delivered the entire area contracted for, so, neither could private respondents

be liable in default, citin# &rt. % %*1 of the -ew Civil Code. ($ecision, pp. %<%@%<*, &mended Record

on &ppeal.

Said decision was affirmed on appeal.

6ence, this Petition 5or Review on Certiorari, raisin# the main issue of whether or not the Contract to

Sell -o. @%*(a was rescinded or cancelled, under the automatic rescission clause contained therein.

De find the petition meritless. Dhile it is true that in the leadin# case of 3u;on Bro"era#e Co., !nc. vs.

Maritime Buildin# Co., !nc. and Myers Buildin# Co., <' SCR& 1' the Supreme Court reiterated amon#

other thin#s that a contractual provision allowin# automatic rescission (without prior need of 4udicial

rescission, resolution or cancellation is &3!$, the remedy of one who feels a##rieved bein# to #o to

Court for the cancellation of the rescission itself, in case the rescission is found un4ustified under the

circumstances, still in the instant case there is a clear D&!>R of the stipulated ri#ht of automatic

rescission, as evidenced by the man# e%tensions #ranted private respondents by the petitioner. !n all

these e=tensions, the petitioner never called attention to the proviso on automatic rescission.

D6>R>50R> the assailed decision is hereby &55!RM>$ but the actual dama#es are hereby reduced

to P),))).)) (the profit private respondents could have earned had the land been delivered to them at

the time they were ready to pay all their arreara#es minus whatever private respondents still owe the

petitioner (with the stipulated / annual interest up to March , %12< as a result of the contract.

S0 0R$>R>$.

ernan <Chairman=, Gutierrez, Jr., Padilla and Cortes, JJ., concur.

>idin, J., too& no part.

Footnotes

% Penned by Justice Porfirio . Sison concurred in by Justices &bdulwahid &. Bidin,

Marcelino R. eloso, and $esiderio P. Jurado.

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Penned by Jud#e +re#orio +. Pineda.

9he 3awphil Pro4ect @ &rellano 3aw 5oundation

G.R. No. &(B571 O/to4%- , 1985

CENTRA& !AN O< THE PHI&IPPINES "#$ ACTING DIRECTOR ANTONIO T. CASTRO,

'R. O< THE DEPARTMENT O< COMMERCIA& AND SAVINGS !AN, # +s /"0"/t "s

st"tuto- -%/%:%- o Is"#$ S":#gs !"#, petitioners,

vs.

THE HONORA!&E COURT O< APPEA&S "#$ SU&PICIO M. TO&ENTINO, respondents.

.>. Regalado, Jr., abian ). 1ombos and arino *. *slao for petitioners.

Antonio R. "upaz for private respondent.

MAASIAR, !J.:

9his is a petition for review on certiorari to set aside as null and void the decision of the Court of

&ppeals, in C.&.@+.R. -o. '@R dated 5ebruary %%, %122, modifyin# the decision dated 5ebruary

%, %12 of the Court of 5irst !nstance of &#usan, which dismissed the petition of respondent Sulpicio

M. 9olentino for in4unction, specific performance or rescission, and dama#es with preliminary

in4unction.

0n &pril *, %1/, !sland Savin#s Ban", upon favorable recommendation of its le#al department,

approved the loan application for P*),))).)) of Sulpicio M. 9olentino, who, as a security for the loan,

e=ecuted on the same day a real estate mort#a#e over his %))@hectare land located in Cubo, 3as -ieves,

&#usan, and covered by 9C9 -o. 9@'), and which mort#a#e was annotated on the said title the ne=t

day. 9he approved loan application called for a lump sum P*),))).)) loan, repayable in semi@annual

installments for a period of ' years, with % annual interest. !t was re8uired that Sulpicio M.

9olentino shall use the loan proceeds solely as an additional capital to develop his other property into a

subdivision.

0n May , %1/, a mere P%2,))).)) partial release of the P*),))).)) loan was made by the Ban"A and

Sulpicio M. 9olentino and his wife >dita 9olentino si#ned a promissory note for P%2,))).)) at %

annual interest, payable within ' years from the date of e=ecution of the contract at semi@annual

installments of P',<1.)) (p. /<, rec.. &n advance interest for the P*),))).)) loan coverin# a /@monthperiod amountin# to P<,*)).)) was deducted from the partial release of P%2,))).)). But this pre@

deducted interest was refunded to Sulpicio M. 9olentino on July ', %1/, after bein# informed by the

Ban" that there was no fund yet available for the release of the P/',))).)) balance (p. <2, rec.. 9he

Ban", thru its vice@president and treasurer, promised repeatedly the release of the P/',))).)) balance

(p. %%', rec..

0n &u#ust %', %1/, the Monetary Board of the Central Ban", after findin# !sland Savin#s Ban" was

sufferin# li8uidity problems, issued Resolution -o. %)<1, which provides:

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!n view of the chronic reserve deficiencies of the !sland Savin#s Ban" a#ainst its deposit

liabilities, the Board, by unanimous vote, decided as follows:

% 9o prohibit the ban" from ma"in# new loans and investments e=cept investments in

#overnment securitiesN e=cludin# e=tensions or renewals of already approved loans,

provided that such e=tensions or renewals shall be sub4ect to review by the

Superintendent of Ban"s, who may impose such limitations as may be necessary toinsure correction of the ban"?s deficiency as soon as possibleA

=== === ===

(p. </, rec..

0n June %<, %1/*, the Monetary Board, after findin# that!sland Savin#s Ban" failed to put up the

re8uired capital to restore its solvency, issued Resolution -o. 1/2 which prohibited !sland Savin#s

Ban" from doin# business in the Philippines and instructed the &ctin# Superintendent of Ban"s to ta"e

char#e of the assets of !sland Savin#s Ban" (pp. <*@<1, rec.

0n &u#ust %, %1/*, !sland Savin#s Ban", in view of non@payment of the P%2,))).)) covered by the

promissory note, filed an application for the e=tra@4udicial foreclosure of the real estate mort#a#e

coverin# the %))@hectare land of Sulpicio M. 9olentinoA and the sheriff scheduled the auction for

January , %1/1.

0n January ), %1/1, Sulpicio M. 9olentino filed a petition with the Court of 5irst !nstance of &#usan

for in4unction, specific performance or rescission and dama#es with preliminary in4unction, alle#in#

that since !sland Savin#s Ban" failed to deliver the P/',))).)) balance of the P*),))).)) loan, he is

entitled to specific performance by orderin# !sland Savin#s Ban" to deliver the P/',))).)) with

interest of % per annum from &pril *, %1/, and if said balance cannot be delivered, to rescind thereal estate mort#a#e (pp. '@<', rec..

0n January %, %1/1, the trial court, upon the filin# of a P,))).)) surety bond, issued a temporary

restrainin# order en4oinin# the !sland Savin#s Ban" from continuin# with the foreclosure of the

mort#a#e (pp. */@*2, rec..

0n January 1, %1/1, the trial court admitted the answer in intervention prayin# for the dismissal of the

petition of Sulpicio M. 9olentino and the settin# aside of the restrainin# order, filed by the Central

Ban" and by the &ctin# Superintendent of Ban"s (pp. /@2/, rec..

0n 5ebruary %, %12, the trial court, after trial on the merits rendered its decision, findin#unmeritorious the petition of Sulpicio M. 9olentino, orderin# him to pay !sland Savin#s Ban" the

amount of P! 2 ))).)) plus le#al interest and le#al char#es due thereon, and liftin# the restrainin# order

so that the sheriff may proceed with the foreclosure (pp. %'@%'/. rec.

0n 5ebruary %%, %122, the Court of &ppeals, on appeal by Sulpicio M. 9olentino, modified the Court of

5irst !nstance decision by affirmin# the dismissal of Sulpicio M. 9olentino?s petition for specific

performance, but it ruled that !sland Savin#s Ban" can neither foreclose the real estate mort#a#e nor

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collect the P%2,))).)) loan pp. ')@:'%. rec..

6ence, this instant petition by the central Ban".

9he issues are:

%. Can the action of Sulpicio M. 9olentino for specific performance prosper

. !s Sulpicio M. 9olentino liable to pay the P%2,))).)) debt covered by the promissory

note

'. !f Sulpicio M. 9olentino?s liability to pay the P%2,))).)) subsists, can his real estate

mort#a#e be foreclosed to satisfy said amount

Dhen !sland Savin#s Ban" and Sulpicio M. 9olentino entered into an P*),))).)) loan a#reement on

&pril *, %1/, they undertoo" reciprocal obli#ations. !n reciprocal obli#ations, the obli#ation or

promise of each party is the consideration for that of the other (Penaco vs. Ruaya, %%) SCR& </

%1*%NA da. de Iuirino vs, Pelarca 1 SCR& % %1/1NA and when one party has performed or is ready

and willin# to perform his part of the contract, the other party who has not performed or is not readyand willin# to perform incurs in delay (&rt. %%/1 of the Civil Code. 9he promise of Sulpicio M.

9olentino to pay was the consideration for the obli#ation of !sland Savin#s Ban" to furnish the

P*),))).)) loan. Dhen Sulpicio M. 9olentino e=ecuted a real estate mort#a#e on &pril *, %1/, he

si#nified his willin#ness to pay the P*),))).)) loan. 5rom such date, the obli#ation of !sland Savin#s

Ban" to furnish the P*),))).)) loan accrued. 9hus, the Ban"?s delay in furnishin# the entire loan

started on &pril *, %1/, and lasted for a period of ' years or when the Monetary Board of the Central

Ban" issued Resolution -o. 1/2 on June %<, %1/*, which prohibited !sland Savin#s Ban" from doin#

further business. Such prohibition made it le#ally impossible for !sland Savin#s Ban" to furnish the

P/',))).)) balance of the P*),))).)) loan. 9he power of the Monetary Board to ta"e over insolventban"s for the protection of the public is reco#ni;ed by Section 1 of R.&. -o. /, which too" effect

on June %, %1<*, the validity of which is not in 8uestion.

9he Board Resolution -o. %)<1 issued on &u#ust %',%1/ cannot interrupt the default of !sland

Savin#s Ban" in complyin# with its obli#ation of releasin# the P/',))).)) balance because said

resolution merely prohibited the Ban" from ma"in# new loans and investments, and nowhere did it

prohibit island Savin#s Ban" from releasin# the balance of loan a#reements previously contracted.

Besides, the mere pecuniary inability to fulfill an en#a#ement does not dischar#e the obli#ation of the

contract, nor does it constitute any defense to a decree of specific performance (+utierre; Repide vs.

&f;elius and &f;elius, '1 Phil. %1) %1%*N. &nd, the mere fact of insolvency of a debtor is never ane=cuse for the non@fulfillment of an obli#ation but ?instead it is ta"en as a breach of the contract by him

(vol. %2&, %12< ed., CJS p. /)

9he fact that Sulpicio M. 9olentino demanded and accepted the refund of the pre@deducted interest

amountin# to P<,*)).)) for the supposed P*),))).)) loan coverin# a /@month period cannot be ta"en

as a waiver of his ri#ht to collect the P/',))).)) balance. 9he act of !sland Savin#s Ban", in as"in# the

advance interest for / months on the supposed P*),))).)) loan, was improper considerin# that only

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default as there was no date for him to perform his reciprocal obli#ation to pay.

Since both parties were in default in the performance of their respective reciprocal obli#ations, that is,

!sland Savin#s Ban" failed to comply with its obli#ation to furnish the entire loan and Sulpicio M.

9olentino failed to comply with his obli#ation to pay his P%2,))).)) debt within ' years as stipulated,

they are both liable for dama#es.

&rticle %%1 of the Civil Code provides that in case both parties have committed a breach of their

reciprocal obli#ations, the liability of the first infractor shall be e8uitably tempered by the courts. D>

rule that the liability of !sland Savin#s Ban" for dama#es in not furnishin# the entire loan is offset by

the liability of Sulpicio M. 9olentino for dama#es, in the form of penalties and surchar#es, for not

payin# his overdue P%2,))).)) debt. 9he liability of Sulpicio M. 9olentino for interest on his P!

2,))).)) debt shall not be included in offsettin# the liabilities of both parties. Since Sulpicio M.

9olentino derived some benefit for his use of the P%2,))).)), it is 4ust that he should account for the

interest thereon.

D> hold, however, that the real estate mort#a#e of Sulpicio M. 9olentino cannot be entirely foreclosedto satisfy his P %2,))).)) debt.

9he consideration of the accessory contract of real estate mort#a#e is the same as that of the principal

contract (Banco de 0ro vs. Bayu#a, 1' SCR& <<' %121N. 5or the debtor, the consideration of his

obli#ation to pay is the e=istence of a debt. 9hus, in the accessory contract of real estate mort#a#e, the

consideration of the debtor in furnishin# the mort#a#e is the e=istence of a valid, voidable, or

unenforceable debt (&rt. )*/, in relation to &rt, ), of the Civil Code.

9he fact that when Sulpicio M. ?9olentino e=ecuted his real estate mort#a#e, no consideration was then

in e=istence, as there was no debt yet because !sland Savin#s Ban" had not made any release on the

loan, does not ma"e the real estate mort#a#e void for lac" of consideration. !t is not necessary that any

consideration should pass at the time of the e=ecution of the contract of real mort#a#e (Bonnevie vs.

C.&., % SCR& % %1*'N. lt may either be a prior or subse8uent matter. But when the consideration

is subse8uent to the mort#a#e, the mort#a#e can ta"e effect only when the debt secured by it is created

as a bindin# contract to pay (Par"s vs, Sherman, ol. %2/ -.D. p. *', cited in the *th ed., Jones on

Mort#a#e, ol. , pp. @/. &nd, when there is partial failure of consideration, the mort#a#e becomes

unenforceable to the e=tent of such failure ($ow. et al. vs. Poore, ol. %2 -.>. p. *, cited in ol. 1,

%12< ed. CJS, p. %'*. Dhere the indebtedness actually owin# to the holder of the mort#a#e is less than

the sum named in the mort#a#e, the mort#a#e cannot be enforced for more than the actual sum due

(Metropolitan 3ife !ns. Co. vs. Peterson, ol. %1, 5(d p. **, cited in th ed., Diltsie on Mort#a#e, ol.%, P. %*).

Since !sland Savin#s Ban" failed to furnish the P/',))).)) balance of the P*0,))).)) loan, the real

estate mort#a#e of Sulpicio M. 9olentino became unenforceable to such e=tent. P/',))).)) is 2*.2

of P*),))).)), hence the real estate mort#a#e coverin# %)) hectares is unenforceable to the e=tent of

2*.2 hectares. 9he mort#a#e coverin# the remainder of %. hectares subsists as a security for the

P%2,))).)) debt. %. hectares is more than sufficient to secure a P%2,))).)) debt.

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