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[G.R. No. 125041. June 30, 2006.] MA. BELEN B.

MANGONON, for and in behalf of her minor children REBECCA ANGELA DELGADO and REGINA ISABEL DELGADO, petitioner, vs. HON. COURT OF APPEALS, HON. JUDGE JOSEFINA GUEVARA-SALONGA, Presiding Judge, RTCMakati, Branch 149, FEDERICO C. DELGADO and FRANCISCO C. DELGADO, respondents.

and Western New England College. Despite their admissions to said universities, Rica and Rina were, however, financially incapable of pursuing collegiate education because of the following: i)The average annual cost for college education in the US is about US$22,000/year, broken down as follows: Tuition FeesUS$13,000.00 Room & Board5,000.00

DECISION

Books1,000.00 Yearly Transportation & Meal Allowance3,000.00 Total US$22,000.00 or a total of US$44,000.00, more or less, for both Rica and Rina ii)Additionally, Rica and Rina need general maintenance support each in the amount of US$3,000.00 per year or a total of US$6,000 per year. iii)Unfortunately, petitioner's monthly income from her 2 jobs is merely US$1,200 after taxes which she can hardly give general support to Rica and Rina, much less their required college educational support. iv)Neither can petitioner's present husband be compelled to share in the general support and college education of Rica and Rina since he has his own son with petitioner and own daughter (also in college) to attend to. v)Worse, Rica and Rina's petitions for Federal Student Aid have been rejected by the U.S. Department of Education. 6 Petitioner likewise averred that demands 7 were made upon Federico and the latter's father, Francisco, 8 for general support and for the payment of the required college education of Rica and Rina. The twin sisters even exerted efforts to work

CHICO-NAZARIO, J p: Before Us is a Petition for Review on Certiorari assailing the Decision 1 of the Court of Appeals dated 20 March 1996, affirming the Order, dated 12 September 1995 2 of the Regional Trial Court (RTC), Branch 149, Makati, granting support pendente lite to Rebecca Angela (Rica) and Regina Isabel (Rina), both surnamed Delgado. The generative facts leading to the filing of the present petition are as follows: On 17 March 1994, petitioner Ma. Belen B. Mangonon filed, in behalf of her then minor children Rica and Rina, a Petition for Declaration of Legitimacy and Support, with application for support pendente lite with the RTC Makati. 3 In said petition, it was alleged that on 16 February 1975, petitioner and respondent Federico Delgado were civilly married by then City Court Judge Eleuterio Agudo in Legaspi City, Albay. At that time, petitioner was only 21 years old while respondent Federico was only 19 years old. As the marriage was solemnized without the required consent per Article 85 of the New Civil Code, 4 it was annulled on 11 August 1975 by the Quezon City Juvenile and Domestic Relations Court. 5 On 25 March 1976, or within seven months after the annulment of their marriage, petitioner gave birth to twins Rica and Rina. According to petitioner, she, with the assistance of her second husband Danny Mangonon, raised her twin daughters as private respondents had totally abandoned them. At the time of the institution of the petition, Rica and Rina were about to enter college in the United States of America (USA) where petitioner, together with her daughters and second husband, had moved to and finally settled in. Rica was admitted to the University of Massachusetts (Amherst) while Rina was accepted by the Long Island University

out a settlement concerning these matters with respondent Federico and respondent Francisco, the latter being generally known to be financially welloff. 9 These demands, however, remained unheeded. Considering the impending deadline for admission to college and the opening of classes, petitioner and her then minor children had no choice but to file the petition before the trial court. ASICDH Petitioner also alleged that Rica and Rina are her legitimate daughters by respondent Federico since the twin sisters were born within seven months from the date of the annulment of her marriage to respondent Federico. However, as respondent Federico failed to sign the birth certificates of Rica and Rina, it was imperative that their status as legitimate children of respondent Federico, and as granddaughters of respondent Francisco, be judicially declared pursuant to Article 173 of the Family Code. 10 As legitimate children and grandchildren, Rica and Rina are entitled to general and educational support under Articles 174 11 and 195(b) 12 in relation to Articles 194(1 and 2) 13 and 199(c) 14 of the Family Code. Petitioner alleged that under these provisions, in case of default on the part of the parents, the obligation to provide support falls upon the grandparents of the children; thus, respondent Federico, or in his default, respondent Francisco should be ordered to provide general and educational support for Rica and Rina in the amount of US$50,000.00, more or less, per year. Petitioner also claimed that she was constrained to seek support pendente lite from private respondents who are millionaires with extensive assets both here and abroad in view of the imminent opening of classes, the possibility of a protracted litigation, and Rica and Rina's lack of financial means to pursue their college education in the USA. In his Answer, 15 respondent Francisco stated that as the birth certificates of Rica and Rina do not bear the signature of respondent Federico, it is essential that their legitimacy be first established as "there is no basis to claim support until a final and executory judicial declaration has been made as to the civil status of the children." 16 Whatever good deeds he may have done to Rica and Rina, according to respondent Francisco, was founded on pure acts of Christian charity. He, likewise, averred that the order of liability for support under Article 199 of the Family Code is not concurrent such that the obligation must be borne by those more closely related to the recipient. In this case, he maintained that responsibility should rest on the shoulders of petitioner and her second husband, the latter having voluntarily assumed the duties and responsibilities of a natural father. Even assuming that he is responsible for support, respondent Francisco contends that he could not be made to answer beyond what petitioner and the father could afford.

On 24 May 1994, petitioner filed a Motion to Declare Defendant (respondent herein) Federico in Default. 17 This was favorably acted upon by the trial court in the Order dated 16 June 1994. 18 On 5 August 1994, respondent Federico filed a Motion to Lift Order of Default alleging that the summons and a copy of the petition were not served in his correct address. 19 Attached thereto was his Answer 20 where he claimed that petitioner had no cause of action against him. According to him, he left for abroad and stayed there for a long time "[w]ithin the first one hundred twenty (120) days of the three hundred days immediately preceding March 25, 1976" and that he only came to know about the birth of Rica and Rina when the twins introduced themselves to him seventeen years later. In order not to antagonize the two, respondent Federico claimed he did not tell them that he could not be their father. Even assuming that Rica and Rina are, indeed, his daughters, he alleged that he could not give them the support they were demanding as he was only making P40,000.00 a month. Finding sufficient ground in the motion filed by respondent Federico, the trial court lifted its Order dated 16 June 1994 and admitted his Answer. 21 In the meantime, on 25 April 1994, petitioner filed an Urgent Motion to Set Application for Support Pendente Lite for Hearing because Rica and Rina both badly needed immediate financial resources for their education. 22 This Motion was opposed by respondent Francisco. 23 After both parties submitted supplemental pleadings to bolster their respective positions, the trial court resolved the motion in an Order dated 12 September 1995 in this wise: WHEREFORE, in the light of the foregoing considerations, respondents are hereby directed to provide a monthly support (pendente lite) of P5,000.00 each or a total of P10,000.00 for the education of Rebecca Angela and Regina Isabel Delgado to be delivered within the first five days of each month without need of demand. 24 Unsatisfied with the Order of the trial court, petitioner brought the case to the Court of Appeals via Petition for Certiorari. The Court of Appeals affirmed the holding of the trial court and disposed the petition in the following manner: WHEREFORE, the petition for certiorari is hereby DISMISSED and the Order of the lower court dated September 12, 1995 is hereby AFFIRMED. 25 Petitioner's Motion for Reconsideration was denied through the Resolution of the Court of Appeals dated 16 May 1996. 26

Petitioner is now before this Court claiming that the Decision of the Court of Appeals was tainted with the following errors: RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT RESPONDENT JUDGE DID NOT COMMIT GRAVE ABUSE OF DISCRETION IN FIXING THE AMOUNT OF MONTHLY SUPPORT PENDENTE LITE GRANTED TO PETITIONER'S CHILDREN AT A MEASLEY P5,000.00 PER CHILD. I. RESPONDENT COURT IGNORED EVIDENCE ON RECORD OF THE FINANCIAL INCAPACITY OF RICA AND RINA'S PARENTS IN DEFAULT OF WHOM THE OBLIGATION TO GIVE SUPPORT DEVOLVES ON THE GRANDFATHER. II. IT BEING ESTABLISHED THAT THE PERSON OBLIGED TO GIVE SUPPORT GRANDFATHER DON PACO IS UNDOUBTEDLY CAPABLE OF GIVING THE AMOUNT DEMANDED, RESPONDENT COURT ERRED IN NOT HOLDING THAT RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION IN FIXING AN AMOUNT OF SUPPORT PENDENTE LITE THAT IS OBVIOUSLY INADEQUATE TO SUPPORT THE EDUCATIONAL REQUIREMENTS OF THE RECIPIENTS. 27

Petitioner concedes that under the law, the obligation to furnish support to Rica and Rina should be first imposed upon their parents. She contends, however, that the records of this case demonstrate her as well as respondent Federico's inability to give the support needed for Rica and Rina's college education. Consequently, the obligation to provide support devolves upon respondent Francisco being the grandfather of Rica and Rina. Petitioner also maintains that as respondent Francisco has the financial resources to help defray the cost of Rica and Rina's schooling, the Court of Appeals then erred in sustaining the trial court's Order directing respondent Federico to pay Rica and Rina the amount of award P5,000.00 each as monthly support pendente lite. On the other hand, respondent Francisco argues that the trial court correctly declared that petitioner and respondent Federico should be the ones to provide the support needed by their twin daughters pursuant to Article 199 of the Family Code. He also maintains that aside from the financial package availed of by Rica and Rina in the form of state tuition aid grant, work study program and federal student loan program, petitioner herself was eligible for, and had availed herself of, the federal parent loan program based on her income and properties in the USA. He, likewise, insists that assuming he could be held liable for support, he has the option to fulfill the obligation either by paying the support or receiving and maintaining in the dwelling here in the Philippines the person claiming support. 30 As an additional point to be considered by this Court, he posits the argument that because petitioner and her twin daughters are now US citizens, they cannot invoke the Family Code provisions on support as "[l]aws relating to family rights and duties, or to the status, condition and legal capacity of persons are binding upon citizens of the Philippines, even though living abroad." 31 Respondent Federico, for his part, continues to deny having sired Rica and Rina by reiterating the grounds he had previously raised before the trial court. Like his father, respondent Federico argues that assuming he is indeed the father of the twin sisters, he has the option under the law as to how he would provide support. Lastly, he assents with the declaration of the trial court and the Court of Appeals that the parents of a child should primarily bear the burden of providing support to their offspring. The petition is meritorious. As a preliminary matter, we deem it necessary to briefly discuss the essence of support pendente lite. The pertinent portion of the Rules of Court on the matter provides: Rule 61

At the time of the filing of the present Petition, it is alleged that Rica had already entered Rutgers University in New Jersey with a budget of US$12,500.00 for academic year 1994-1995. She was able to obtain a tuition fee grant of US$1,190.00 and a Federal Stafford loan from the US government in the amount of US$2,615.00. 28 In order to defray the remaining balance of Rica's education for said school year, petitioner claims that she had to secure a loan under the Federal Direct Student Loan Program. HEISca Meanwhile, Rina entered CW Post, Long Island University, where she was expected to spend US$20,000.00 for the school year 1994-1995. She was given a financial grant of US$6,000.00, federal work study assistance of US$2,000.00, and a Federal Stafford loan of US$2,625.00. 29 Again, petitioner obtained a loan to cover the remainder of Rinas school budget for the year.

SUPPORT 'PENDENTE LITE' SECTION 1. Application. At the commencement of the proper action or proceeding, or at any time prior to the judgment or final order, a verified application for support pendente lite may be filed by any party stating the grounds for the claim and the financial conditions of both parties, and accompanied by affidavits, depositions or other authentic documents in support thereof. xxx xxx xxx SEC. 4.Order. The court shall determine provisionally the pertinent facts, and shall render such orders as justice and equity may require, having due regard to the probable outcome of the case and such other circumstances as may aid in the proper resolution of the question involved. If the application is granted, the court shall fix the amount of money to be provisionally paid or such other forms of support as should be provided, taking into account the necessities of the applicant and the resources or means of the adverse party, and the terms of payment or mode for providing the support. If the application is denied, the principal case shall be tried and decided as early as possible. Under this provision, a court may temporarily grant support pendente lite prior to the rendition of judgment or final order. Because of its provisional nature, a court does not need to delve fully into the merits of the case before it can settle an application for this relief. All that a court is tasked to do is determine the kind and amount of evidence which may suffice to enable it to justly resolve the application. It is enough that the facts be established by affidavits or other documentary evidence appearing in the record. 32 After the hearings conducted on this matter as well as the evidence presented, we find that petitioner was able to establish, by prima facie proof, the filiation of her twin daughters to private respondents and the twins' entitlement to support pendente lite. In the words of the trial court By and large, the status of the twins as children of Federico cannot be denied. They had maintained constant communication with their grandfather Francisco. As a matter of fact, respondent Francisco admitted having wrote several letters to Rica and Rina (Exhs. A, B, C, D, E, F, G, G-1 to G-30). In

the said letters, particularly at the bottom thereof, respondent Francisco wrote the names of Rica and Rina Delgado. He therefore was very well aware that they bear the surname Delgado. Likewise, he referred to himself in his letters as either "Lolo Paco" or "Daddy Paco." In his letter of October 13, 1989 (Exh. G-21), he said "as the grandfather, am extending a financial help of US$1,000.00." On top of this, respondent Federico even gave the twins a treat to Hongkong during their visit to the Philippines. Indeed, respondents, by their actuations, have shown beyond doubt that the twins are the children of Federico. 33 Having addressed the issue of the propriety of the trial court's grant of support pendente lite in favor of Rica and Rina, the next question is who should be made liable for said award. The pertinent provision of the Family Code on this subject states: ART. 199.Whenever two or more persons are obliged to give support, the liability shall devolve upon the following persons in the order herein provided: (1)The spouse; (2)The descendants in the nearest degree; (3)The ascendants in the nearest degree; and (4)The brothers and sisters. An eminent author on the subject explains that the obligation to give support rests principally on those more closely related to the recipient. However, the more remote relatives may be held to shoulder the responsibility should the claimant prove that those who are called upon to provide support do not have the means to do so. 34 In this case, both the trial court and the Court of Appeals held respondent Federico liable to provide monthly support pendente lite in the total amount of P10,000.00 by taking into consideration his supposed income of P30,000.00 to P40,000.00 per month. We are, however, unconvinced as to the veracity of this ground relied upon by the trial court and the Court of Appeals. ScAaHE

It is a basic procedural edict that questions of fact cannot be the proper subject of a petition for review under Rule 45 of the 1997 Rules of Civil Procedure. The rule finds a more stringent application where the Court of Appeals upholds the findings of fact of the trial court; in such a situation, this Court, as the final arbiter, is generally bound to adopt the facts as determined by the appellate and the lower courts. This rule, however, is not ironclad as it admits of the following recognized exceptions: "(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to that of the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion." 35 The case at bar falls within the seventh and eleventh exceptions. The trial court gave full credence to respondent Federico's allegation in his Answer 36 and his testimony 37 as to the amount of his income. We have, however, reviewed the records of this case and found them bereft of evidence to support his assertions regarding his employment and his earning. Notably, he was even required by petitioner's counsel to present to the court his income tax return and yet the records of this case do not bear a copy of said document. 38 This, to our mind, severely undermines the truthfulness of respondent Federico's assertion with respect to his financial status and capacity to provide support to Rica and Rina.

xxx xxx xxx WITNESS: A:I do remember this letter because it really irritated me so much that I threw it away in a waste basket. It is a very demanding letter, that is what I do not like at all. ATTY. LOPEZ: Q:It is stated in this letter that "I am making this request to you and not to your son, Rico, for reasons we both are aware of." Do you know what reason that is? A:Yes. The reason is that my son do not have fix employment and do not have fix salary and income and they want to depend on the lolo. xxx xxx xxx Q:Would you have any knowledge if Federico owns a house and lot? A:Not that I know. I do not think he has anything. Q:How about a car? A:Well, his car is owned by my company. 39 Respondent Federico himself admitted in court that he had no property of his own, thus: Q:You also mentioned that you are staying at Mayflower Building and you further earlier testified that this building belongs to Citadel Corporation. Do you confirm that? A:Yes, sir. Q:What car are you driving, Mr. Witness? A:I am driving a lancer, sir.

In addition, respondent Francisco himself stated in the witness stand that as far as he knew, his son, respondent Federico did not own anything "Atty. Lopez: I have here another letter under the letter head of Mr. & Mrs. Dany Mangonon, dated October 19, 1991 addressed to Mr. Francisco Delgado signed by "sincerely, Danny Mangonon, can you remember."

Q:What car, that registered in the name of the corporation? A:In the corporation, sir. Q:What corporation is that? A:Citadel Commercial, Inc., sir. Q:What properties, if any, are registered in your name, do you have any properties, Mr. Witness? A:None, sir." 40 (Emphasis supplied.) Meanwhile, respondent Francisco asserts that petitioner possessed the capacity to give support to her twin daughters as she has gainful employment in the USA. He even went as far as to state that petitioner's income abroad, when converted to Philippine peso, was much higher than that received by a trial court judge here in the Philippines. In addition, he claims that as she qualified for the federal parent loan program, she could very well support the college studies of her daughters. We are unconvinced. Respondent Francisco's assertion that petitioner had the means to support her daughters' education is belied by the fact that petitioner was even forced by her financial status in the USA to secure the loan from the federal government. If petitioner were really making enough money abroad, she certainly would not have felt the need to apply for said loan. The fact that petitioner was compelled to take out a loan is enough indication that she did not have enough money to enable her to send her daughters to college by herself. Moreover, even Rica and Rina themselves were forced by the circumstances they found themselves in to secure loans under their names so as not to delay their entrance to college. There being prima facie evidence showing that petitioner and respondent Federico are the parents of Rica and Rina, petitioner and respondent Federico are primarily charged to support their children's college education. In view however of their incapacities, the obligation to furnish said support should be borne by respondent Francisco. Under Article 199 of the Family Code, respondent Francisco, as the next immediate relative of Rica and Rina, is tasked to give support to his granddaughters in default of their parents. It bears stressing that respondent Francisco is the majority stockholder and Chairman of the Board of Directors of Citadel Commercial, Incorporated, which owns and manages twelve gasoline stations, substantial real estate, and is engaged in shipping, brokerage and freight forwarding. He is also the majority stockholder and Chairman of the Board of Directors of Citadel Shipping which does business with Hyundai of Korea. Apart from these, he also owns the Citadel Corporation which, in turn, owns real

properties in different parts of the country. He is likewise the Chairman of the Board of Directors of Isla Communication Co. and he owns shares of stocks of Citadel Holdings. In addition, he owns real properties here and abroad. 41 It having been established that respondent Francisco has the financial means to support his granddaughters' education, he, in lieu of petitioner and respondent Federico, should be held liable for support pendente lite. cEHSTC Anent respondent Francisco and Federico's claim that they have the option under the law as to how they could perform their obligation to support Rica and Rina, respondent Francisco insists that Rica and Rina should move here to the Philippines to study in any of the local universities. After all, the quality of education here, according to him, is at par with that offered in the USA. The applicable provision of the Family Code on this subject provides: Art. 204.The person obliged to give support shall have the option to fulfill the obligation either by paying the allowance fixed, or by receiving and maintaining in the family dwelling the person who has a right to receive support. The latter alternative cannot be availed of in case there is a moral or legal obstacle thereto. Under the abovecited provision, the obligor is given the choice as to how he could dispense his obligation to give support. Thus, he may give the determined amount of support to the claimant or he may allow the latter to stay in the family dwelling. The second option cannot be availed of in case there are circumstances, legal or moral, which should be considered. In this case, this Court believes that respondent Francisco could not avail himself of the second option. From the records, we gleaned that prior to the commencement of this action, the relationship between respondent Francisco, on one hand, and petitioner and her twin daughters, on the other, was indeed quite pleasant. The correspondences exchanged among them expressed profound feelings of thoughtfulness and concern for one another's well-being. The photographs presented by petitioner as part of her exhibits presented a seemingly typical family celebrating kinship. All of these, however, are now things of the past. With the filing of this case, and the allegations hurled at one another by the parties, the relationships among the parties had certainly been affected. Particularly difficult for Rica and Rina must be the fact that those who they had considered and claimed as family denied having any familial relationship with them. Given all these, we could not see Rica and Rina moving back here in the Philippines in the company of those who have disowned them.

Finally, as to the amount of support pendente lite, we take our bearings from the provision of the law mandating the amount of support to be proportionate to the resources or means of the giver and to the necessities of the recipient. 42 Guided by this principle, we hold respondent Francisco liable for half of the amount of school expenses incurred by Rica and Rina as support pendente lite. As established by petitioner, respondent Francisco has the financial resources to pay this amount given his various business endeavors. Considering, however, that the twin sisters may have already been done with their education by the time of the promulgation of this decision, we deem it proper to award support pendente lite in arrears 43 to be computed from the time they entered college until they had finished their respective studies. The issue of the applicability of Article 15 of the Civil Code on petitioner and her twin daughters raised by respondent Francisco is best left for the resolution of the trial court. After all, in case it would be resolved that Rica and Rina are not entitled to support pendente lite, the court shall then order the return of the amounts already paid with legal interest from the dates of actual payment. 44 WHEREFORE, premises considered, this Petition is PARTIALLY GRANTED. The Decision of the Court of Appeals dated 20 March 1996 and Resolution dated 16 May 1996 affirming the Order dated 12 September 1995 of the Regional Trial Court, Branch 149, Makati, fixing the amount of support pendente lite to P5,000.00 for Rebecca Angela and Regina Isabel, are hereby MODIFIED in that respondent Francisco Delgado is hereby held liable for supportpendente lite in the amount to be determined by the trial court pursuant to this Decision. Let the records of this case be remanded to the trial court for the determination of the proper amount of support pendente lite for Rebecca Angela and Regina Isabel as well as the arrearages due them in accordance with this Decision within ten (10) days from receipt hereof. Concomitantly, the trial court is directed to proceed with the trial of the main case and the immediate resolution of the same with deliberate dispatch. The RTC Judge, Branch 149, Makati, is further directed to submit a report of his compliance with the directive regarding the support pendente lite within ten (10) days from compliance thereof. SO ORDERED. [G.R. No. 84698. February 4, 1992.] PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, JUAN D. LIM, BENJAMIN P. PAULINO, ANTONIO M. MAGTALAS, COL. PEDRO SACRO, AND LT. M. SORIANO, petitioners, vs. COURT

OF APPEALS, HON. REGINA ORDOEZ-BENITEZ, in her capacity as Presiding Judge of Branch 47, Regional Trial Court, Manila, SEGUNDA R. BAUTISTA, and ARSENIA D. BAUTISTA, respondents.

Balgos and Perez for petitioners. Collantes, Ramirez & Associates for private respondents.

SYLLABUS 1.CIVIL LAW; QUASI-DELICTS; DOCTRINE OF IN LOCO PARENTIS. Article 2180, in conjunction with Article 2176 of the Civil Code, establishes the rule in in loco parentis. This Court discussed this doctrine in the afore-cited cases of Exconde, (101 Phil. 843) Mendoza, (101 Phil. 414), Palisoc (G.R. No.L-29025, 4 October, 1971, 41 SCRA 548) and, more recently, in Amadora vs. Court of Appeals, (G.R. No. L-47745, 15 April 1988, 160 SCRA 315). In all such cases, it had been stressed that the law (Article 2180) plainly provides that the damage should have been caused or inflicted by pupils or students of the educational institution sought to be held liable for the acts of its pupils or students while in its custody. 2.ID.; OBLIGATIONS AND CONTRACTS; CONTRACTS RESULTING IN BILATERAL OBLIGATIONS ESTABLISHED WHEN ACADEMIC INSTITUTION ACCEPTS STUDENTS FOR ENROLLMENT. When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral obligations which both parties are bound to comply with. For its part, the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the school's academic requirements and observe its rules and regulations. Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb. Necessarily, the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof.

3.ID.; QUASI-DELICTS; OBLIGATIONS ARISING FROM QUASI-DELICTS OR TORTS ARISE ONLY BETWEEN PARTIES NOT BOUND BY CONTRACT. Because the circumstances of the present case evince a contractual relation between the PSBA and Carlitos Bautista, the rules on quasi-delict do not really govern. A perusal of Article 2176 shows that obligations arising from quasi-delicts or tort, also known as extra-contractual obligations, arise only between parties not otherwise bound by contract, whether express or implied. 4.ID.; ID.; VIEW THAT LIABILITY FROM TORT MAY EXIST EVEN IF THERE IS A CONTRACT. In Air France vs. Carroscoso (124 Phil. 722), the private respondent was awarded damages for his unwarranted expulsion from a first-class seat aboard the petitioner airline. It is noted, however, that the Court referred to the petitioner-airline's liability as one arising from tort, not one arising from a contract of carriage. In effect, Air France is authority for the view that liability from tort may exist even if there is a contract, for the act that breaks the contract may be also a tort. (Austro-America S.S. Co. vs. Thomas, 248 Fed. 231). 5.ID.; ID.; AN ACT WHICH BREACHES A CONTRACT IN BAD FAITH AND IN VIOLATION OF ART. 21 CONSTITUTES QUASI-DELICT. Air Francepenalized the racist policy of the airline which emboldened the petitioner's employee to forcibly oust the private respondent to cater to the comfort of a white man who allegedly "had a better right to the seat." In Austro-American, supra, the public embarrassment caused to the passenger was the justification for the Circuit Court of Appeals, (Second Circuit), to award damages to the latter. From the foregoing, it can be concluded that should the act which breaches a contract be done in bad faith and be violative of Article 21, then there is a cause to view the act as constituting a quasi-delict. 6.ID.; ID.; CONTRACTUAL RELATION, A CONDITION SINE QUA NON TO SCHOOL'S LIABILITY. A contractual relation is a condition sine qua non to the school's liability. The negligence of the school cannot exist independently on the contract, unless the negligence occurs under the circumstances set out in Article 21 of the Civil Code. 7.ID.; ID.; ID.; SCHOOL MAY STILL AVOID LIABILITY BY PROVING THAT THE BREACH OF CONTRACTUAL OBLIGATION TO STUDENTS WAS NOT DUE TO ITS NEGLIGENCE. Conceptually a school, like a common carrier, cannot be an insurer of its students against all risks. It would not be equitable to expect of schools to anticipate all types of violent trespass upon their premises, for notwithstanding the security measures installed, the same may still fail against an individual or group determined to carry out a nefarious deed inside school premises and environs. Should this be the case, the school may still avoid liability by proving that the breach of its contractual obligation to the students was not due to its negligence.

8.ID.; ID.; NEGLIGENCE; DEFINED. Negligence is statutorily defined to be the omission of that degree of diligence which is required by the nature of the obligation and corresponding to the circumstances of persons, time and place.

DECISION

PADILLA, J p: A stabbing incident on 30 August 1985 which caused the death of Carlitos Bautista while on the second-floor premises of the Philippine School of Business Administration (PSBA) prompted the parents of the deceased to file suit in the Regional Trial Court of Manila (Branch 47) presided over by Judge (now Court of Appeals justice) Regina Ordoez-Benitez, for damages against the said PSBA and its corporate officers. At the time of his death, Carlitos was enrolled in the third year commerce course at the PSBA. It was established that his assailants were not members of the schools academic community but were elements from outside the school. Specifically, the suit impleaded the PSBA and the following school authorities: Juan D. Lim (President), Benjamin P. Paulino (Vice-President), Antonio M. Magtalas (Treasurer/Cashier), Col. Pedro Sacro (Chief of Security) and a Lt. M. Soriano (Assistant Chief of Security). Substantially, the plaintiffs (now private respondents) sought to adjudge them liable for the victim's untimely demise due to their alleged negligence, recklessness and lack of security precautions, means and methods before, during and after the attack on the victim. During the proceedings a quo, Lt. M. Soriano terminated his relationship with the other petitioners by resigning from his position in the school. Defendants a quo (now petitioners) sought to have the suit dismissed, alleging that since they are presumably sued under Article 2180 of the Civil Code, the complaint states no cause of action against them, as jurisprudence on the subject is to the effect that academic institutions, such as the PSBA, are beyond the ambit of the rule in the afore-stated article. The respondent trial court, however, overruled petitioners' contention and thru an order dated 8 December 1987, denied their motion to dismiss. A subsequent motion for reconsideration was similarly dealt with by an order dated 25 January 1988. Petitioners then assailed the trial court's dispositions before the respondent appellate court which, in a decision * promulgated on 10 June 1988, affirmed the

trial court's orders. On 22 August 1988, the respondent appellate court resolved to deny the petitioners' motion for reconsideration. Hence, this petition. At the outset, it is to be observed that the respondent appellate court primarily anchored its decision on the law of quasi-delicts, as enunciated in Articles 2176 and 2180 of the Civil Code. 1 Pertinent portions of the appellate court's now assailed ruling state: "Article 2180 (formerly Article 1903) of the Civil Code is an adoptation from the old Spanish Civil Code. The comments of Manresa and learned authorities on its meaning should give way to present day changes. The law is not fixed and flexible (sic); it must be dynamic. In fact, the greatest value and significance of law as a rule of conduct in (sic) its flexibility to adopt to changing social conditions and its capacity to meet the new challenges of progress. Construed in the light of modern day educational systems, Article 2180 cannot be construed in its narrow concept as held in the old case ofExconde vs. Capuno 2 and Mercado vs. Court of Appeals 3 ; hence, the ruling in the Palisoc 4 case that it should apply to all kinds of educational institutions, academic or vocational. At any rate, the law holds the teachers and heads of the school staff liable unless they relieve themselves of such liability pursuant to the last paragraph of Article 2180 by 'proving that they observed all the diligence to prevent damage.' This can only be done at a trial on the merits of the case." 5 While we agree with the respondent appellate court that the motion to dismiss the complaint was correctly denied and the complaint should be tried on the merits, we do not however agree with the premises of the appellate court's ruling. Article 2180, in conjunction with Article 2176 of the Civil Code, establishes the rule of in loco parentis. This Court discussed this doctrine in the afore-cited cases of Exconde, Mendoza, Palisoc and, more recently, in Amadora vs. Court of Appeals. 6 In all such cases, it had been stressed that the law (Article 2180) plainly provides that the damage should have been caused or inflicted by pupils or students of the educational institution sought to be held liable for the acts of its pupils or students while in its custody. However, this material situation does not

exist in the present case for, as earlier indicated, the assailants of Carlitos were not students of the PSBA, for whose acts the school could be made liable.

However, does the appellate court's failure to consider such material facts mean the exculpation of the petitioners from liability? It does not necessarily follow. When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral obligations which both parties are bound to comply with. 7 For its part, the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the school's academic requirements and observe its rules and regulations. Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb. Necessarily, the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof. Because the circumstances of the present case evince a contractual relation between the PSBA and Carlitos Bautista, the rules on quasi-delict do not really govern. 8 A perusal of Article 2176 shows that obligations arising from quasi-delicts or tort, also known as extra-contractual obligations, arise only between parties not otherwise bound by contract, whether express or implied. However, this impression has not prevented this Court from determining the existence of a tort even when there obtains a contract. In Air France vs. Carroscoso (124 Phil. 722), the private respondent was awarded damages for his unwarranted expulsion from a first-class seat aboard the petitioner airline. It is noted, however, that the Court referred to the petitioner-airline's liability as one arising from tort, not one arising from a contract of carriage. In effect, Air France is authority for the view that liability from tort may exist even if there is a contract, for the act that breaks the contract may be also a tort. (Austro-America S.S. Co. vs. Thomas, 248 Fed. 231). This view was not all that revolutionary, for even as early as 1918, this Court was already of a similar mind. In Cangco vs. Manila Railroad (38 Phil. 780), Mr. Justice Fisher elucidated thus:

"The field of non-contractual obligation is much more broader than that of contractual obligation, comprising, as it does, the whole extent of juridical human relations. These two fields, figuratively speaking, concentric; that is to say, the mere fact that a person is bound to another by contract does not relieve him from extra-contractual liability to such person. When such a contractual relation exists the obligor may break the contract under such conditions that the same act which constitutes a breach of the contract would have constituted the source of an extra-contractual obligation had no contract existed between the parties." Immediately what comes to mind is the chapter of the Civil Code on Human Relations, particularly Article 21, which provides: "Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage." (emphasis supplied) Air France penalized the racist policy of the airline which emboldened the petitioner's employee to forcibly oust the private respondent to cater to the comfort of a white man who allegedly "had a better right to the seat." In AustroAmerican, supra, the public embarrassment caused to the passenger was the justification for the Circuit Court of Appeals, (Second Circuit), to award damages to the latter. From the foregoing, it can be concluded that should the act which breaches a contract be done in bad faith and be violative of Article 21, then there is a cause to view the act as constituting a quasi-delict. In the circumstances obtaining in the case at bar, however, there is, as yet, no finding that the contract between the school and Bautista had been breached thru the former's negligence in providing proper security measures. This would be for the trial court to determine. And, even if there be a finding of negligence, the same could give rise generally to a breach of contractual obligation only. Using the test of Cangco, supra, the negligence of the school would not be relevant absent a contract. In fact, that negligence becomes material only because of the contractual relation between PSBA and Bautista. In other words, a contractual relation is a condition sine qua non to the school's liability. The negligence of the school cannot exist independently on the contract, unless the negligence occurs under the circumstances set out in Article 21 of the Civil Code. This Court is not unmindful of the attendant difficulties posed by the obligation of schools, above-mentioned, for conceptually a school, like a common carrier,

cannot be an insurer of its students against all risks. This is specially true in the populous student communities of the so-called "university belt" in Manila where there have been reported several incidents ranging from gang wars to other forms of hooliganism. It would not be equitable to expect of schools to anticipate all types of violent trespass upon their premises, for notwithstanding the security measures installed, the same may still fail against an individual or group determined to carry out a nefarious deed inside school premises and environs. Should this be the case, the school may still avoid liability by proving that the breach of its contractual obligation to the students was not due to its negligence, here statutorily defined to be the omission of that degree of diligence which is required by the nature of the obligation and corresponding to the circumstances of persons, time and place. 9 As the proceedings a quo have yet to commence on the substance of the private respondents' complaint, the record is bereft of all the material facts. Obviously, at this stage, only the trial court can make such a determination from the evidence still to unfold. WHEREFORE, the foregoing premises considered, the petition is DENIED. The Court of origin (RTC, Manila, Br. 47) is hereby ordered to continue proceedings consistent with this ruling of the Court. Costs against the petitioners. SO ORDERED. [G.R. No. 126780. February 17, 2005.] YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, petitioners, vs. THE COURT OF APPEALS and MAURICE McLOUGHLIN, respondents.

DECISION

TINGA, J p: The primary question of interest before this Court is the only legal issue in the case: It is whether a hotel may evade liability for the loss of items left with it for safekeeping by its guests, by having these guests execute written waivers holding the establishment or its employees free from blame for such loss in light of Article 2003 of the Civil Code which voids such waivers.

Before this Court is a Rule 45 petition for review of the Decision 1 dated 19 October 1995 of the Court of Appeals which affirmed the Decision 2 dated 16 December 1991 of the Regional Trial Court (RTC), Branch 13, of Manila, finding YHT Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and Anicia Payam (Payam) jointly and solidarily liable for damages in an action filed by Maurice McLoughlin (McLoughlin) for the loss of his American and Australian dollars deposited in the safety deposit box of Tropicana Copacabana Apartment Hotel, owned and operated by YHT Realty Corporation. The factual backdrop of the case follow. IHcSCA Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at Sheraton Hotel during his trips to the Philippines prior to 1984 when he met Tan. Tan befriended McLoughlin by showing him around, introducing him to important people, accompanying him in visiting impoverished street children and assisting him in buying gifts for the children and in distributing the same to charitable institutions for poor children. Tan convinced McLoughlin to transfer from Sheraton Hotel to Tropicana where Lainez, Payam and Danilo Lopez were employed. Lopez served as manager of the hotel while Lainez and Payam had custody of the keys for the safety deposit boxes of Tropicana. Tan took care of McLoughlin's booking at the Tropicana where he started staying during his trips to the Philippines from December 1984 to September 1987. 3 On 30 October 1987, McLoughlin arrived from Australia and registered with Tropicana. He rented a safety deposit box as it was his practice to rent a safety deposit box every time he registered at Tropicana in previous trips. As a tourist, McLoughlin was aware of the procedure observed by Tropicana relative to its safety deposit boxes. The safety deposit box could only be opened through the use of two keys, one of which is given to the registered guest, and the other remaining in the possession of the management of the hotel. When a registered guest wished to open his safety deposit box, he alone could personally request the management who then would assign one of its employees to accompany the guest and assist him in opening the safety deposit box with the two keys. 4 McLoughlin allegedly placed the following in his safety deposit box: Fifteen Thousand US Dollars (US$15,000.00) which he placed in two envelopes, one envelope containing Ten Thousand US Dollars (US$10,000.00) and the other envelope Five Thousand US Dollars (US$5,000.00); Ten Thousand Australian Dollars (AUS$10,000.00) which he also placed in another envelope; two (2) other envelopes containing letters and credit cards; two (2) bankbooks; and a checkbook, arranged side by side inside the safety deposit box. 5

On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin opened his safety deposit box with his key and with the key of the management and took therefrom the envelope containing Five Thousand US Dollars (US$5,000.00), the envelope containing Ten Thousand Australian Dollars (AUS$10,000.00), his passports and his credit cards. 6 McLoughlin left the other items in the box as he did not check out of his room at the Tropicana during his short visit to Hongkong. When he arrived in Hongkong, he opened the envelope which contained Five Thousand US Dollars (US$5,000.00) and discovered upon counting that only Three Thousand US Dollars (US$3,000.00) were enclosed therein. 7 Since he had no idea whether somebody else had tampered with his safety deposit box, he thought that it was just a result of bad accounting since he did not spend anything from that envelope. 8 After returning to Manila, he checked out of Tropicana on 18 December 1987 and left for Australia. When he arrived in Australia, he discovered that the envelope with Ten Thousand US Dollars (US$10,000.00) was short of Five Thousand US Dollars (US$5,000). He also noticed that the jewelry which he bought in Hongkong and stored in the safety deposit box upon his return to Tropicana was likewise missing, except for a diamond bracelet. 9 When McLoughlin came back to the Philippines on 4 April 1988, he asked Lainez if some money and/or jewelry which he had lost were found and returned to her or to the management. However, Lainez told him that no one in the hotel found such things and none were turned over to the management. He again registered at Tropicana and rented a safety deposit box. He placed therein one (1) envelope containing Fifteen Thousand US Dollars (US$15,000.00), another envelope containing Ten Thousand Australian Dollars (AUS$10,000.00) and other envelopes containing his traveling papers/documents. On 16 April 1988, McLoughlin requested Lainez and Payam to open his safety deposit box. He noticed that in the envelope containing Fifteen Thousand US Dollars (US$15,000.00), Two Thousand US Dollars (US$2,000.00) were missing and in the envelope previously containing Ten Thousand Australian Dollars (AUS$10,000.00), Four Thousand Five Hundred Australian Dollars (AUS$4,500.00) were missing. 10 When McLoughlin discovered the loss, he immediately confronted Lainez and Payam who admitted that Tan opened the safety deposit box with the key assigned to him. 11 McLoughlin went up to his room where Tan was staying and confronted her. Tan admitted that she had stolen McLoughlin's key and was able to open the safety deposit box with the assistance of Lopez, Payam and Lainez. 12 Lopez also told McLoughlin that Tan stole the key assigned to McLoughlin while the latter was asleep. 13

McLoughlin requested the management for an investigation of the incident. Lopez got in touch with Tan and arranged for a meeting with the police and McLoughlin. When the police did not arrive, Lopez and Tan went to the room of McLoughlin at Tropicana and thereat, Lopez wrote on a piece of paper a promissory note dated 21 April 1988. The promissory note reads as follows: I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and US$2,000.00 or its equivalent in Philippine currency on or before May 5, 1988. 14 Lopez requested Tan to sign the promissory note which the latter did and Lopez also signed as a witness. Despite the execution of promissory note by Tan, McLoughlin insisted that it must be the hotel who must assume responsibility for the loss he suffered. However, Lopez refused to accept the responsibility relying on the conditions for renting the safety deposit box entitled "Undertaking For the Use Of Safety Deposit Box," 15 specifically paragraphs (2) and (4) thereof, to wit: 2.To release and hold free and blameless TROPICANA APARTMENT HOTEL from any liability arising from any loss in the contents and/or use of the said deposit box for any cause whatsoever, including but not limited to the presentation or use thereof by any other person should the key be lost; xxx xxx xxx 4.To return the key and execute the RELEASE in favor of TROPICANA APARTMENT HOTEL upon giving up the use of the box. 16 On 17 May 1988, McLoughlin went back to Australia and he consulted his lawyers as to the validity of the abovementioned stipulations. They opined that the stipulations are void for being violative of universal hotel practices and customs. His lawyers prepared a letter dated 30 May 1988 which was signed by McLoughlin and sent to President Corazon Aquino. 17 The Office of the President referred the letter to the Department of Justice (DOJ) which forwarded the same to the Western Police District (WPD). 18 After receiving a copy of the indorsement in Australia, McLoughlin came to the Philippines and registered again as a hotel guest of Tropicana. McLoughlin went to Malacaang to follow up on his letter but he was instructed to go to the DOJ. The DOJ directed him to proceed to the WPD for documentation. But McLoughlin went back to Australia as he had an urgent business matter to attend to.

For several times, McLoughlin left for Australia to attend to his business and came back to the Philippines to follow up on his letter to the President but he failed to obtain any concrete assistance. 19 McLoughlin left again for Australia and upon his return to the Philippines on 25 August 1989 to pursue his claims against petitioners, the WPD conducted an investigation which resulted in the preparation of an affidavit which was forwarded to the Manila City Fiscal's Office. Said affidavit became the basis of preliminary investigation. However, McLoughlin left again for Australia without receiving the notice of the hearing on 24 November 1989. Thus, the case at the Fiscal's Office was dismissed for failure to prosecute. McLoughlin requested the reinstatement of the criminal charge for theft. In the meantime, McLoughlin and his lawyers wrote letters of demand to those having responsibility to pay the damage. Then he left again for Australia. Upon his return on 22 October 1990, he registered at the Echelon Towers at Malate, Manila. Meetings were held between McLoughlin and his lawyer which resulted to the filing of a complaint for damages on 3 December 1990 against YHT Realty Corporation, Lopez, Lainez, Payam and Tan (defendants) for the loss of McLoughlin's money which was discovered on 16 April 1988. After filing the complaint, McLoughlin left again for Australia to attend to an urgent business matter. Tan and Lopez, however, were not served with summons, and trial proceeded with only Lainez, Payam and YHT Realty Corporation as defendants. jur2005cd

After defendants had filed their Pre-Trial Brief admitting that they had previously allowed and assisted Tan to open the safety deposit box, McLoughlin filed an Amended/Supplemental Complaint 20 dated 10 June 1991 which included another incident of loss of money and jewelry in the safety deposit box rented by McLoughlin in the same hotel which took place prior to 16 April 1988. 21 The trial court admitted the Amended/Supplemental Complaint. IcDESA During the trial of the case, McLoughlin had been in and out of the country to attend to urgent business in Australia, and while staying in the Philippines to attend the hearing, he incurred expenses for hotel bills, airfare and other transportation expenses, long distance calls to Australia, Meralco power expenses, and expenses for food and maintenance, among others. 22 After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the dispositive portion of which reads:

WHEREFORE, above premises considered, judgment is hereby rendered by this Court in favor of plaintiff and against the defendants, to wit: 1.Ordering defendants, jointly and severally, to pay plaintiff the sum of US$11,400.00 or its equivalent in Philippine Currency of P342,000.00, more or less, and the sum of AUS$4,500.00 or its equivalent in Philippine Currency of P99,000.00, or a total of P441,000.00, more or less, with 12% interest from April 16, 1988 until said amount has been paid to plaintiff (Item 1, Exhibit CC); 2.Ordering defendants, jointly and severally to pay plaintiff the sum of P3,674,238.00 as actual and consequential damages arising from the loss of his Australian and American dollars and jewelries complained against and in prosecuting his claim and rights administratively and judicially (Items II, III, IV, V, VI, VII, VIII, and IX, Exh. "CC"); 3.Ordering defendants, jointly and severally, to pay plaintiff the sum of P500,000.00 as moral damages (Item X, Exh. "CC"); 4.Ordering defendants, jointly and severally, to pay plaintiff the sum of P350,000.00 as exemplary damages (Item XI, Exh. "CC"); 5.And ordering defendants, jointly and severally, to pay litigation expenses in the sum of P200,000.00 (Item XII, Exh. "CC"); 6.Ordering defendants, jointly and severally, to pay plaintiff the sum of P200,000.00 as attorney's fees, and a fee of P3,000.00 for every appearance; and

7.Plus costs of suit. SO ORDERED. 23 The trial court found that McLoughlin's allegations as to the fact of loss and as to the amount of money he lost were sufficiently shown by his direct and straightforward manner of testifying in court and found him to be credible and worthy of belief as it was established that McLoughlin's money, kept in Tropicana's safety deposit box, was taken by Tan without McLoughlin's consent. The taking was effected through the use of the master key which was in the possession of the management. Payam and Lainez allowed Tan to use the master key without authority from McLoughlin. The trial court added that if McLoughlin had not lost his dollars, he would not have gone through the trouble and personal inconvenience of seeking aid and assistance from the Office of the President, DOJ, police authorities and the City Fiscal's Office in his desire to recover his losses from the hotel management and Tan. 24 As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry worth approximately One Thousand Two Hundred US Dollars (US$1,200.00) which allegedly occurred during his stay at Tropicana previous to 4 April 1988, no claim was made by McLoughlin for such losses in his complaint dated 21 November 1990 because he was not sure how they were lost and who the responsible persons were. But considering the admission of the defendants in their pre-trial brief that on three previous occasions they allowed Tan to open the box, the trial court opined that it was logical and reasonable to presume that his personal assets consisting of Seven Thousand US Dollars (US$7,000.00) and jewelry were taken by Tan from the safety deposit box without McLoughlin's consent through the cooperation of Payam and Lainez. 25 The trial court also found that defendants acted with gross negligence in the performance and exercise of their duties and obligations as innkeepers and were therefore liable to answer for the losses incurred by McLoughlin. 26 Moreover, the trial court ruled that paragraphs (2) and (4) of the " Undertaking For The Use Of Safety Deposit Box" are not valid for being contrary to the express mandate of Article 2003 of the New Civil Code and against public policy. 27 Thus, there being fraud or wanton conduct on the part of defendants, they should be responsible for all damages which may be attributed to the non-performance of their contractual obligations. 28 The Court of Appeals affirmed the disquisitions made by the lower court except as to the amount of damages awarded. The decretal text of the appellate court's decision reads:

THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but modified as follows: The appellants are directed jointly and severally to pay the plaintiff/appellee the following amounts: 1)P153,200.00 representing the peso equivalent of US$2,000.00 and AUS$4,500.00; 2)P308,880.80, representing the peso value for the air fares from Sidney [sic] to Manila and back for a total of eleven (11) trips; 3)One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Apartment Hotel; 4)One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower; 5)One-half of P179,863.20 or P89,931.60 for the taxi . . . transportation from the residence to Sidney [sic] Airport and from MIA to the hotel here in Manila, for the eleven (11) trips; 6)One-half of P7,801.94 or P3,900.97 representing Meralco power expenses; 7)One-half of P356,400.00 or P178,000.00 representing expenses for food and maintenance; 8)P50,000.00 for moral damages; 9)P10,000.00 as exemplary damages; and 10)P200,000 representing attorney's fees. With costs. SO ORDERED. 29 Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in this appeal by certiorari. cACEHI

Petitioners submit for resolution by this Court the following issues: (a) whether the appellate court's conclusion on the alleged prior existence and subsequent loss of the subject money and jewelry is supported by the evidence on record; (b) whether the finding of gross negligence on the part of petitioners in the performance of their duties as innkeepers is supported by the evidence on record; (c) whether the "Undertaking For The Use of Safety Deposit Box" admittedly executed by private respondent is null and void; and (d) whether the damages awarded to private respondent, as well as the amounts thereof, are proper under the circumstances. 30 The petition is devoid of merit. It is worthy of note that the thrust of Rule 45 is the resolution only of questions of law and any peripheral factual question addressed to this Court is beyond the bounds of this mode of review. Petitioners point out that the evidence on record is insufficient to prove the fact of prior existence of the dollars and the jewelry which had been lost while deposited in the safety deposit boxes of Tropicana, the basis of the trial court and the appellate court being the sole testimony of McLoughlin as to the contents thereof. Likewise, petitioners dispute the finding of gross negligence on their part as not supported by the evidence on record. We are not persuaded. We adhere to the findings of the trial court as affirmed by the appellate court that the fact of loss was established by the credible testimony in open court by McLoughlin. Such findings are factual and therefore beyond the ambit of the present petition. The trial court had the occasion to observe the demeanor of McLoughlin while testifying which reflected the veracity of the facts testified to by him. On this score, we give full credence to the appreciation of testimonial evidence by the trial court especially if what is at issue is the credibility of the witness. The oft-repeated principle is that where the credibility of a witness is an issue, the established rule is that great respect is accorded to the evaluation of the credibility of witnesses by the trial court. 31 The trial court is in the best position to assess the credibility of witnesses and their testimonies because of its unique opportunity to observe the witnesses firsthand and note their demeanor, conduct and attitude under grilling examination. 32 We are also not impressed by petitioners' argument that the finding of gross negligence by the lower court as affirmed by the appellate court is not supported by evidence. The evidence reveals that two keys are required to open the safety deposit boxes of Tropicana. One key is assigned to the guest while the other

remains in the possession of the management. If the guest desires to open his safety deposit box, he must request the management for the other key to open the same. In other words, the guest alone cannot open the safety deposit box without the assistance of the management or its employees. With more reason that access to the safety deposit box should be denied if the one requesting for the opening of the safety deposit box is a stranger. Thus, in case of loss of any item deposited in the safety deposit box, it is inevitable to conclude that the management had at least a hand in the consummation of the taking, unless the reason for the loss is force majeure. Noteworthy is the fact that Payam and Lainez, who were employees of Tropicana, had custody of the master key of the management when the loss took place. In fact, they even admitted that they assisted Tan on three separate occasions in opening McLoughlin's safety deposit box. 33 This only proves that Tropicana had prior knowledge that a person aside from the registered guest had access to the safety deposit box. Yet the management failed to notify McLoughlin of the incident and waited for him to discover the taking before it disclosed the matter to him. Therefore, Tropicana should be held responsible for the damage suffered by McLoughlin by reason of the negligence of its employees.

morning. Tan's acts should have prompted the management to investigate her relationship with McLoughlin. Then, petitioners would have exercised due diligence required of them. Failure to do so warrants the conclusion that the management had been remiss in complying with the obligations imposed upon hotel-keepers under the law. TEDHaA Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, are guilty of negligence, are liable for damages. As to who shall bear the burden of paying damages, Article 2180, paragraph (4) of the same Code provides that the owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Also, this Court has ruled that if an employee is found negligent, it is presumed that the employer was negligent in selecting and/or supervising him for it is hard for the victim to prove the negligence of such employer. 35 Thus, given the fact that the loss of McLoughlin's money was consummated through the negligence of Tropicana's employees in allowing Tan to open the safety deposit box without the guest's consent, both the assisting employees and YHT Realty Corporation itself, as owner and operator of Tropicana, should be held solidarily liable pursuant to Article 2193. 36 The issue of whether the "Undertaking For The Use of Safety Deposit Box" executed by McLoughlin is tainted with nullity presents a legal question appropriate for resolution in this petition. Notably, both the trial court and the appellate court found the same to be null and void. We find no reason to reverse their common conclusion. Article 2003 is controlling, thus: Art. 2003.The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 200137 is suppressed or diminished shall be void. Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely to apply to situations such as that presented in this case. The hotel business like the common carrier's business is imbued with public interest. Catering to the public, hotelkeepers are bound to provide not only lodging for hotel guests and security to their persons and belongings. The twin duty constitutes the essence of the business. The law in turn does not allow such duty to the public to be negated or diluted by any contrary stipulation in so-called "undertakings" that ordinarily appear in prepared forms imposed by hotel keepers on guests for their signature.

The management should have guarded against the occurrence of this incident considering that Payam admitted in open court that she assisted Tan three times in opening the safety deposit box of McLoughlin at around 6:30 A.M. to 7:30 A.M. while the latter was still asleep. 34 In light of the circumstances surrounding this case, it is undeniable that without the acquiescence of the employees of Tropicana to the opening of the safety deposit box, the loss of McLoughlin's money could and should have been avoided. The management contends, however, that McLoughlin, by his act, made its employees believe that Tan was his spouse for she was always with him most of the time. The evidence on record, however, is bereft of any showing that McLoughlin introduced Tan to the management as his wife. Such an inference from the act of McLoughlin will not exculpate the petitioners from liability in the absence of any showing that he made the management believe that Tan was his wife or was duly authorized to have access to the safety deposit box. Mere close companionship and intimacy are not enough to warrant such conclusion considering that what is involved in the instant case is the very safety of McLoughlin's deposit. If only petitioners exercised due diligence in taking care of McLoughlin's safety deposit box, they should have confronted him as to his relationship with Tan considering that the latter had been observed opening McLoughlin's safety deposit box a number of times at the early hours of the

In an early case, 38 the Court of Appeals through its then Presiding Justice (later Associate Justice of the Court) Jose P. Bengzon, ruled that to hold hotelkeepers or innkeeper liable for the effects of their guests, it is not necessary that they be actually delivered to the innkeepers or their employees. It is enough that such effects are within the hotel or inn. 39 With greater reason should the liability of the hotelkeeper be enforced when the missing items are taken without the guest's knowledge and consent from a safety deposit box provided by the hotel itself, as in this case. Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article 2003 of the New Civil Code for they allow Tropicana to be released from liability arising from any loss in the contents and/or use of the safety deposit box for any cause whatsoever. 40 Evidently, the undertaking was intended to bar any claim against Tropicana for any loss of the contents of the safety deposit box whether or not negligence was incurred by Tropicana or its employees.The New Civil Code is explicit that the responsibility of the hotel-keeper shall extend to loss of, or injury to, the personal property of the guests even if caused by servants or employees of the keepers of hotels or inns as well as by strangers, except as it may proceed from any force majeure. 41 It is the loss through force majeure that may spare the hotelkeeper from liability. In the case at bar, there is no showing that the act of the thief or robber was done with the use of arms or through an irresistible force to qualify the same as force majeure. 42 Petitioners likewise anchor their defense on Article 2002 43 which exempts the hotel-keeper from liability if the loss is due to the acts of his guest, his family, or visitors. Even a cursory reading of the provision would lead us to reject petitioners' contention. The justification they raise would render nugatory the public interest sought to be protected by the provision. What if the negligence of the employer or its employees facilitated the consummation of a crime committed by the registered guest's relatives or visitor? Should the law exculpate the hotel from liability since the loss was due to the act of the visitor of the registered guest of the hotel? Hence, this provision presupposes that the hotel-keeper is not guilty of concurrent negligence or has not contributed in any degree to the occurrence of the loss. A depositary is not responsible for the loss of goods by theft, unless his actionable negligence contributes to the loss. 44 In the case at bar, the responsibility of securing the safety deposit box was shared not only by the guest himself but also by the management since two keys are necessary to open the safety deposit box. Without the assistance of hotel employees, the loss would not have occurred. Thus, Tropicana was guilty of concurrent negligence in allowing Tan, who was not the registered guest, to open the safety deposit box of McLoughlin, even assuming that the latter was also guilty of negligence in allowing another person to use his key. To rule otherwise would

result in undermining the safety of the safety deposit boxes in hotels for the management will be given imprimatur to allow any person, under the pretense of being a family member or a visitor of the guest, to have access to the safety deposit box without fear of any liability that will attach thereafter in case such person turns out to be a complete stranger. This will allow the hotel to evade responsibility for any liability incurred by its employees in conspiracy with the guest's relatives and visitors. DaECST Petitioners contend that McLoughlin's case was mounted on the theory of contract, but the trial court and the appellate court upheld the grant of the claims of the latter on the basis of tort. 45 There is nothing anomalous in how the lower courts decided the controversy for this Court has pronounced a jurisprudential rule that tort liability can exist even if there are already contractual relations. The act that breaks the contract may also be tort. 46 As to damages awarded to McLoughlin, we see no reason to modify the amounts awarded by the appellate court for the same were based on facts and law. It is within the province of lower courts to settle factual issues such as the proper amount of damages awarded and such finding is binding upon this Court especially if sufficiently proven by evidence and not unconscionable or excessive. Thus, the appellate court correctly awarded McLoughlin Two Thousand US Dollars (US$2,000.00) and Four Thousand Five Hundred Australian dollars (AUS$4,500.00) or their peso equivalent at the time of payment,47 being the amounts duly proven by evidence. 48 The alleged loss that took place prior to 16 April 1988 was not considered since the amounts alleged to have been taken were not sufficiently established by evidence. The appellate court also correctly awarded the sum of P308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a total of eleven (11) trips; 49 one-half of P336,207.05 or P168,103.52 representing payment to Tropicana; 50 one-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower; 51 one-half of P179,863.20 or P89,931.60 for the taxi or transportation expenses from McLoughlin's residence to Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11) trips; 52 onehalf of P7,801.94 or P3,900.97 representing Meralco power expenses; 53 one-half of P356,400.00 or P178,000.00 representing expenses for food and maintenance. 54 The amount of P50,000.00 for moral damages is reasonable. Although trial courts are given discretion to determine the amount of moral damages, the appellate court may modify or change the amount awarded when it is palpably and scandalously excessive. Moral damages are not intended to enrich a complainant at the expense of a defendant. They are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone, by reason of defendants' culpable action. 55

[G.R. No. 150157. January 25, 2007.] The awards of P10,000.00 as exemplary damages and P200,000.00 representing attorney's fees are likewise sustained. WHEREFORE, foregoing premises considered, the Decision of the Court of Appeals dated 19 October 1995 is hereby AFFIRMED. Petitioners are directed, jointly and severally, to pay private respondent the following amounts: (1)US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of payment; (2)P308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a total of eleven (11) trips; (3)One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Copacabana Apartment Hotel; (4)One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower; (5)One-half of P179,863.20 or P89,931.60 for the taxi or transportation expense from McLoughlin's residence to Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11) trips; (6)One-half of P7,801.94 or P3,900.97 representing Meralco power expenses; (7)One-half of P356,400.00 or P178,200.00 representing expenses for food and maintenance; (8)P50,000.00 for moral damages; (9)P10,000.00 as exemplary damages; and (10)P200,000 representing attorney's fees. With costs. SO ORDERED. MAURICIO MANLICLIC and PHILIPPINE RABBIT BUS LINES, INC., petitioners, vs. MODESTO CALAUNAN, respondent.

DECISION

CHICO-NAZARIO, J p: Assailed before Us is the decision 1 of the Court of Appeals in CA-G.R. CV No. 55909 which affirmed in toto the decision 2 of the Regional Trial Court (RTC) of Dagupan City, Branch 42, in Civil Case No. D-10086, finding petitioners Mauricio Manliclic and Philippine Rabbit Bus Lines, Inc. (PRBLI) solidarily liable to pay damages and attorney's fees to respondent Modesto Calaunan. The factual antecedents are as follows: The vehicles involved in this case are: (1) Philippine Rabbit Bus No. 353 with plate number CVD-478, owned by petitioner PRBLI and driven by petitioner Mauricio Manliclic; and (2) owner-type jeep with plate number PER-290, owned by respondent Modesto Calaunan and driven by Marcelo Mendoza. At around 6:00 to 7:00 o'clock in the morning of 12 July 1988, respondent Calaunan, together with Marcelo Mendoza, was on his way to Manila from Pangasinan on board his owner-type jeep. The Philippine Rabbit Bus was likewise bound for Manila from Concepcion, Tarlac. At approximately Kilometer 40 of the North Luzon Expressway in Barangay Lalangan, Plaridel, Bulacan, the two vehicles collided. The front right side of the Philippine Rabbit Bus hit the rear left side of the jeep causing the latter to move to the shoulder on the right and then fall on a ditch with water resulting to further extensive damage. The bus veered to the left and stopped 7 to 8 meters from point of collision. Respondent suffered minor injuries while his driver was unhurt. He was first brought for treatment to the Manila Central University Hospital in Kalookan City by Oscar Buan, the conductor of the Philippine Rabbit Bus, and was later transferred to the Veterans Memorial Medical Center. By reason of such collision, a criminal case was filed before the RTC of Malolos, Bulacan, charging petitioner Manliclic with Reckless Imprudence Resulting in

Damage to Property with Physical Injuries, docketed as Crim. Case No. 684-M-89. Subsequently on 2 December 1991, respondent filed a complaint for damages against petitioners Manliclic and PRBLI before the RTC of Dagupan City, docketed as Civil Case No. D-10086. The criminal case was tried ahead of the civil case. Among those who testified in the criminal case were respondent Calaunan, Marcelo Mendoza and Fernando Ramos. HICSaD In the civil case (now before this Court), the parties admitted the following: 1.The parties agreed on the capacity of the parties to sue and be sued as well as the venue and the identities of the vehicles involved; 2.The identity of the drivers and the fact that they are duly licensed; 3.The date and place of the vehicular collision; 4.The extent of the injuries suffered by plaintiff Modesto Calaunan and the existence of the medical certificate; 5.That both vehicles were going towards the south; the private jeep being ahead of the bus; 6.That the weather was fair and the road was well paved and straight, although there was a ditch on the right side where the jeep fell into. 3 When the civil case was heard, counsel for respondent prayed that the transcripts of stenographic notes (TSNs) 4 of the testimonies of respondent Calaunan, Marcelo Mendoza and Fernando Ramos in the criminal case be received in evidence in the civil case in as much as these witnesses are not available to testify in the civil case. Francisco Tuliao testified that his brother-in-law, respondent Calaunan, left for abroad sometime in November, 1989 and has not returned since then. Rogelio Ramos took the stand and said that his brother, Fernando Ramos, left for Amman, Jordan, to work. Rosalia Mendoza testified that her husband, Marcelo Mendoza, left their residence to look for a job. She narrated that she thought her husband went to his hometown in Panique, Tarlac, when he did not return after one month. She went to her husband's hometown to look for him but she was informed that he did not go there.

The trial court subpoenaed the Clerk of Court of Branch 8, RTC, Malolos, Bulacan, the court where Criminal Case No. 684-M-89 was tried, to bring the TSNs of the testimonies of respondent Calaunan, 5 Marcelo Mendoza 6 and Fernando Ramos 7 in said case, together with other documentary evidence marked therein. Instead of the Branch Clerk of Court, it was Enrique Santos Guevara, Court Interpreter, who appeared before the court and identified the TSNs of the three afore-named witnesses and other pertinent documents he had brought. 8 Counsel for respondent wanted to mark other TSNs and documents from the said criminal case to be adopted in the instant case, but since the same were not brought to the trial court, counsel for petitioners compromised that said TSNs and documents could be offered by counsel for respondent as rebuttal evidence. For the defendants, petitioner Manliclic and bus conductor Oscar Buan testified. The TSN 9 of the testimony of Donato Ganiban, investigator of the PRBLI, in Criminal Case No. 684-M-89 was marked and allowed to be adopted in the civil case on the ground that he was already dead. Respondent further marked, among other documents, as rebuttal evidence, the TSNs 10 of the testimonies of Donato Ganiban, Oscar Buan and petitioner Manliclic in Criminal Case No. 684-M-89. The disagreement arises from the question: Who is to be held liable for the collision? Respondent insists it was petitioner Manliclic who should be liable while the latter is resolute in saying it was the former who caused the smash up. TEDaAc The versions of the parties are summarized by the trial court as follows: The parties differed only on the manner the collision between the two (2) vehicles took place. According to the plaintiff and his driver, the jeep was cruising at the speed of 60 to 70 kilometers per hour on the slow lane of the expressway when the Philippine Rabbit Bus overtook the jeep and in the process of overtaking the jeep, the Philippine Rabbit Bus hit the rear of the jeep on the left side. At the time the Philippine Rabbit Bus hit the jeep, it was about to overtake the jeep. In other words, the Philippine Rabbit Bus was still at the back of the jeep when the jeep was hit. Fernando Ramos corroborated the testimony of the plaintiff and Marcelo Mendoza. He said that he was on another jeep following the Philippine Rabbit Bus and the jeep of plaintiff when the incident took place. He said, the jeep of the plaintiff overtook them and the said jeep of the plaintiff

was followed by the Philippine Rabbit Bus which was running very fast. The bus also overtook the jeep in which he was riding. After that, he heard a loud sound. He saw the jeep of the plaintiff swerved to the right on a grassy portion of the road. The Philippine Rabbit Bus stopped and they overtook the Philippine Rabbit Bus so that it could not moved (sic), meaning they stopped in front of the Philippine Rabbit Bus. He testified that the jeep of plaintiff swerved to the right because it was bumped by the Philippine Rabbit bus from behind. Both Mauricio Manliclic and his driver, Oscar Buan admitted that the Philippine Rabbit Bus bumped the jeep in question. However, they explained that when the Philippine Rabbit bus was about to go to the left lane to overtake the jeep, the latter jeep swerved to the left because it was to overtake another jeep in front of it. Such was their testimony before the RTC in Malolos in the criminal case and before this Court in the instant case. [Thus, which of the two versions of the manner how the collision took place was correct, would be determinative of who between the two drivers was negligent in the operation of their respective vehicles.] 11 Petitioner PRBLI maintained that it observed and exercised the diligence of a good father of a family in the selection and supervision of its employee, specifically petitioner Manliclic. On 22 July 1996, the trial court rendered its decision in favor of respondent Calaunan and against petitioners Manliclic and PRBLI. The dispositive portion of its decision reads: WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants ordering the said defendants to pay plaintiff jointly and solidarily the amount of P40,838.00 as actual damages for the towing as well as the repair and the materials used for the repair of the jeep in question; P100,000.00 as moral damages and another P100,000.00 as exemplary damages and P15,000.00 as attorney's fees, including appearance fees of the lawyer. In addition, the defendants are also to pay costs. 12 Petitioners appealed the decision via Notice of Appeal to the Court of Appeals. 13

In a decision dated 28 September 2001, the Court of Appeals, finding no reversible error in the decision of the trial court, affirmed it in all respects. 14 Petitioners are now before us by way of petition for review assailing the decision of the Court of Appeals. They assign as errors the following: I THE COURT OF APPEALS ERRED ON A QUESTION OF LAW IN AFFIRMING THE TRIAL COURT'S QUESTIONABLE ADMISSION IN EVIDENCE OF THE TSN's AND OTHER DOCUMENTS PRESENTED IN THE CRIMINAL CASE. EaCSTc II THE COURT OF APPEALS ERRED ON A QUESTION OF LAW IN AFFIRMING THE TRIAL COURT'S RELIANCE ON THE VERSION OF THE RESPONDENT ON HOW THE ACCIDENT SUPPOSEDLY OCCURRED. III THE COURT OF APPEALS ERRED ON A QUESTION OF LAW IN AFFIRMING THE TRIAL COURT'S UNFAIR DISREGARD OF HEREIN PETITIONER PRBL's DEFENSE OF EXERCISE OF DUE DILIGENCE IN THE SELECTION AND SUPERVISION OF ITS EMPLOYEES. IV THE COURT OF APPEALS ERRED ON A QUESTION OF LAW IN AFFIRMING THE TRIAL COURT'S QUESTIONABLE AWARD OF DAMAGES AND ATTORNEY'S FEE. With the passing away of respondent Calaunan during the pendency of this appeal with this Court, we granted the Motion for the Substitution of Respondent filed by his wife, Mrs. Precila Zarate Vda. De Calaunan, and children, Virgilio Calaunan, Carmelita Honeycomb, Evelyn Calaunan, Marko Calaunan and Liwayway Calaunan. 15

In their Reply to respondent's Comment, petitioners informed this Court of a Decision 16 of the Court of Appeals acquitting petitioner Manliclic of the charge 17 of Reckless Imprudence Resulting in Damage to Property with Physical Injuries attaching thereto a photocopy thereof. On the first assigned error, petitioners argue that the TSNs containing the testimonies of respondent Calaunan, 18 Marcelo Mendoza 19 and Fernando Ramos 20 should not be admitted in evidence for failure of respondent to comply with the requisites of Section 47, Rule 130 of the Rules of Court. For Section 47, Rule 130 21 to apply, the following requisites must be satisfied: (a) the witness is dead or unable to testify; (b) his testimony or deposition was given in a former case or proceeding, judicial or administrative, between the same parties or those representing the same interests; (c) the former case involved the same subject as that in the present case, although on different causes of action; (d) the issue testified to by the witness in the former trial is the same issue involved in the present case; and (e) the adverse party had an opportunity to cross-examine the witness in the former case. 22 Admittedly, respondent failed to show the concurrence of all the requisites set forth by the Rules for a testimony given in a former case or proceeding to be admissible as an exception to the hearsay rule. Petitioner PRBLI, not being a party in Criminal Case No. 684-M-89, had no opportunity to cross-examine the three witnesses in said case. The criminal case was filed exclusively against petitioner Manliclic, petitioner PRBLI's employee. The cases dealing with the subsidiary liability of employers uniformly declare that, strictly speaking, they are not parties to the criminal cases instituted against their employees. 23 Notwithstanding the fact that petitioner PRBLI was not a party in said criminal case, the testimonies of the three witnesses are still admissible on the ground that petitioner PRBLI failed to object on their admissibility. It is elementary that an objection shall be made at the time when an alleged inadmissible document is offered in evidence; otherwise, the objection shall be treated as waived, since the right to object is merely a privilege which the party may waive. Thus, a failure to except to the evidence because it does not conform to the statute is a waiver of the provisions of the law. Even assuming ex gratia argumenti that these documents are inadmissible for being hearsay, but on account of failure to object thereto, the same may be admitted and considered as sufficient to prove the facts therein asserted. 24Hearsay evidence alone may be insufficient to establish a fact in a suit but, when no objection is made thereto, it is, like any other evidence, to be considered and given the importance it deserves. 25

In the case at bar, petitioner PRBLI did not object to the TSNs containing the testimonies of respondent Calaunan, Marcelo Mendoza and Fernando Ramos in the criminal case when the same were offered in evidence in the trial court. In fact, the TSNs of the testimonies of Calaunan and Mendoza were admitted by both petitioners. 26 Moreover, petitioner PRBLI even offered in evidence the TSN containing the testimony of Donato Ganiban in the criminal case. If petitioner PRBLI argues that the TSNs of the testimonies of plaintiff's witnesses in the criminal case should not be admitted in the instant case, why then did it offer the TSN of the testimony of Ganiban which was given in the criminal case? It appears that petitioner PRBLI wants to have its cake and eat it too. It cannot argue that the TSNs of the testimonies of the witnesses of the adverse party in the criminal case should not be admitted and at the same time insist that the TSN of the testimony of the witness for the accused be admitted in its favor. To disallow admission in evidence of the TSNs of the testimonies of Calaunan, Marcelo Mendoza and Fernando Ramos in the criminal case and to admit the TSN of the testimony of Ganiban would be unfair. ASHEca We do not subscribe to petitioner PRBLI's argument that it will be denied due process when the TSNs of the testimonies of Calaunan, Marcelo Mendoza and Fernando Ramos in the criminal case are to be admitted in the civil case. It is too late for petitioner PRBLI to raise denial of due process in relation to Section 47, Rule 130 of the Rules of Court, as a ground for objecting to the admissibility of the TSNs. For failure to object at the proper time, it waived its right to object that the TSNs did not comply with Section 47. In Mangio v. Court of Appeals, 27 this Court, through Associate Justice Reynato S. Puno, 28 admitted in evidence a TSN of the testimony of a witness in another case despite therein petitioner's assertion that he would be denied due process. In admitting the TSN, the Court ruled that the raising of denial of due process in relation to Section 47, Rule 130 of the Rules of Court, as a ground for objecting to the admissibility of the TSN was belatedly done. In so doing, therein petitioner waived his right to object based on said ground. Petitioners contend that the documents in the criminal case should not have been admitted in the instant civil case because Section 47 of Rule 130 refers only to "testimony or deposition." We find such contention to be untenable. Though said section speaks only of testimony and deposition, it does not mean that documents from a former case or proceeding cannot be admitted. Said documents can be admitted they being part of the testimonies of witnesses that have been admitted. Accordingly, they shall be given the same weight as that to which the testimony may be entitled. 29

On the second assigned error, petitioners contend that the version of petitioner Manliclic as to how the accident occurred is more credible than respondent's version. They anchor their contention on the fact that petitioner Manliclic was acquitted by the Court of Appeals of the charge of Reckless Imprudence Resulting in Damage to Property with Physical Injuries. To be resolved by the Court is the effect of petitioner Manliclic's acquittal in the civil case. From the complaint, it can be gathered that the civil case for damages was one arising from, or based on, quasi-delict. 30 Petitioner Manliclic was sued for his negligence or reckless imprudence in causing the collision, while petitioner PRBLI was sued for its failure to exercise the diligence of a good father in the selection and supervision of its employees, particularly petitioner Manliclic. The allegations read: "4.That sometime on July 12, 1988 at around 6:20 A.M. plaintiff was on board the above-described motor vehicle travelling at a moderate speed along the North Luzon Expressway heading South towards Manila together with MARCELO MENDOZA, who was then driving the same; "5.That approximately at kilometer 40 of the North Luzon Express Way, the above-described motor vehicle was suddenly bumped from behind by a Philippine Rabbit Bus with Body No. 353 and with plate No. CVD 478 then being driven by one Mauricio Manliclic of San Jose, Concepcion, Tarlac, who was then travelling recklessly at a very fast speed and had apparently lost control of his vehicle; "6.That as a result of the impact of the collision the abovedescribed motor vehicle was forced off the North Luzon Express Way towards the rightside where it fell on its driver's side on a ditch, and that as a consequence, the abovedescribed motor vehicle which maybe valued at EIGHTY THOUSAND PESOS (P80,000) was rendered a total wreck as shown by pictures to be presented during the pre-trial and trial of this case; "7.That also as a result of said incident, plaintiff sustained bodily injuries which compounded plaintiff's frail physical condition and required his hospitalization from July 12, 1988 up to and until July 22, 1988, copy of the medical certificate is

hereto attached as Annex "A" and made an integral part hereof; "8.That the vehicular collision resulting in the total wreckage of the above-described motor vehicle as well as bodily (sic) sustained by plaintiff, was solely due to the reckless imprudence of the defendant driver Mauricio Manliclic who drove his Philippine Rabbit Bus No. 353 at a fast speed without due regard or observance of existing traffic rules and regulations; "9.That defendant Philippine Rabbit Bus Line Corporation failed to exercise the diligence of a good father of (sic) family in the selection and supervision of its drivers; . . ." 31 Can Manliclic still be held liable for the collision and be found negligent notwithstanding the declaration of the Court of Appeals that there was an absence of negligence on his part? In exonerating petitioner Manliclic in the criminal case, the Court of Appeals said: To the following findings of the court a quo, to wit: that accused-appellant was negligent "when the bus he was driving bumped the jeep from behind"; that "the proximate cause of the accident was his having driven the bus at a great speed while closely following the jeep"; . . . We do not agree. The swerving of Calaunan's jeep when it tried to overtake the vehicle in front of it was beyond the control of accusedappellant. ECDaAc xxx xxx xxx Absent evidence of negligence, therefore, accused-appellant cannot be held liable for Reckless Imprudence Resulting in Damage to Property with Physical Injuries as defined in Article 365 of the Revised Penal Code. 32 From the foregoing declaration of the Court of Appeals, it appears that petitioner Manliclic was acquitted not on reasonable doubt, but on the ground that he is not

the author of the act complained of which is based on Section 2 (b) of Rule 111 of the Rules of Criminal Procedure which reads: (b)Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist.

declaration in a final judgment that the fact from which the civil liability might arise did not exist). The responsibility arising from fault or negligence in a quasi-delict is entirely separate and distinct from the civil liability arising from negligence under the Penal Code. 36 An acquittal or conviction in the criminal case is entirely irrelevant in the civil case 37 based on quasi-delict or culpa aquiliana. Petitioners ask us to give credence to their version of how the collision occurred and to disregard that of respondent's. Petitioners insist that while the PRBLI bus was in the process of overtaking respondent's jeep, the latter, without warning, suddenly swerved to the left (fast) lane in order to overtake another jeep ahead of it, thus causing the collision. As a general rule, questions of fact may not be raised in a petition for review. The factual findings of the trial court, especially when affirmed by the appellate court, are binding and conclusive on the Supreme Court. 38 Not being a trier of facts, this Court will not allow a review thereof unless: (1)the conclusion is a finding grounded entirely on speculation, surmise and conjecture; (2) the inference made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings of fact are conflicting; (6) the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both appellant and appellees; (7) the findings of fact of the Court of Appeals are contrary to those of the trial court; (8) said findings of fact are conclusions without citation of specific evidence on which they are based; (9) the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondents; and (10) the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record. 39 After going over the evidence on record, we do not find any of the exceptions that would warrant our departure from the general rule. We fully agree in the finding of the trial court, as affirmed by the Court of Appeals, that it was petitioner Manliclic who was negligent in driving the PRBLI bus which was the cause of the collision. In giving credence to the version of the respondent, the trial court has this say: . . . Thus, which of the two versions of the manner how the collision took place was correct, would be determinative of who between the two drivers was negligent in the operation of their respective vehicle. aIcSED

In spite of said ruling, petitioner Manliclic can still be held liable for the mishap. The afore-quoted section applies only to a civil action arising from crime or ex delicto and not to a civil action arising from quasi-delict or culpa aquiliana. The extinction of civil liability referred to in Par. (e) of Section 3, Rule 111 [now Section 2 (b) of Rule 111], refers exclusively to civil liability founded on Article 100 of the Revised Penal Code, whereas the civil liability for the same act considered as a quasi-delict only and not as a crime is not extinguished even by a declaration in the criminal case that the criminal act charged has not happened or has not been committed by the accused. 33 A quasi-delict or culpa aquiliana is a separate legal institution under the Civil Code with a substantivity all its own, and individuality that is entirely apart and independent from a delict or crime a distinction exists between the civil liability arising from a crime and the responsibility for quasi-delicts or culpa extracontractual. The same negligence causing damages may produce civil liability arising from a crime under the Penal Code, or create an action for quasi-delicts or culpa extra-contractual under the Civil Code. 34 It is now settled that acquittal of the accused, even if based on a finding that he is not guilty, does not carry with it the extinction of the civil liability based on quasi delict. 35 In other words, if an accused is acquitted based on reasonable doubt on his guilt, his civil liability arising from the crime may be proved by preponderance of evidence only. However, if an accused is acquitted on the basis that he was not the author of the act or omission complained of (or that there is declaration in a final judgment that the fact from which the civil might arise did not exist), said acquittal closes the door to civil liability based on the crime or ex delicto. In this second instance, there being no crime or delict to speak of, civil liability based thereon or ex delicto is not possible. In this case, a civil action, if any, may be instituted on grounds other than the delict complained of. As regards civil liability arising from quasi-delict or culpa aquiliana, same will not be extinguished by an acquittal, whether it be on ground of reasonable doubt or that accused was not the author of the act or omission complained of (or that there is

In this regard, it should be noted that in the statement of Mauricio Manliclic (Exh. 15) given to the Philippine Rabbit Investigator CV Cabading no mention was made by him about the fact that the driver of the jeep was overtaking another jeep when the collision took place. The allegation that another jeep was being overtaken by the jeep of Calaunan was testified to by him only in Crim. Case No. 684-M-89 before the Regional Trial Court in Malolos, Bulacan and before this Court. Evidently, it was a product of an afterthought on the part of Mauricio Manliclic so that he could explain why he should not be held responsible for the incident. His attempt to veer away from the truth was also apparent when it would be considered that in his statement given to the Philippine Rabbit Investigator CV Cabading (Exh. 15), he alleged that the Philippine Rabbit Bus bumped the jeep of Calaunan while the Philippine Rabbit Bus was behind the said jeep. In his testimony before the Regional Trial Court in Malolos, Bulacan as well as in this Court, he alleged that the Philippine Rabbit Bus was already on the left side of the jeep when the collision took place. For this inconsistency between his statement and testimony, his explanation regarding the manner of how the collision between the jeep and the bus took place should be taken with caution. It might be true that in the statement of Oscar Buan given to the Philippine Rabbit Investigator CV Cabading, it was mentioned by the former that the jeep of plaintiff was in the act of overtaking another jeep when the collision between the latter jeep and the Philippine Rabbit Bus took place. But the fact, however, that his statement was given on July 15, 1988, one day after Mauricio Manliclic gave his statement should not escape attention. The one-day difference between the giving of the two statements would be significant enough to entertain the possibility of Oscar Buan having received legal advise before giving his statement. Apart from that, as between his statement and the statement of Manliclic himself, the statement of the latter should prevail. Besides, in his Affidavit of March 10, 1989, (Exh. 14), the unreliability of the statement of Oscar Buan (Exh. 13) given to CV Cabading rear its "ugly head" when he did not mention in said affidavit that the jeep of Calaunan was trying to overtake another jeep when the collision between the jeep in question and the Philippine Rabbit bus took place. xxx xxx xxx

If one would believe the testimony of the defendant, Mauricio Manliclic, and his conductor, Oscar Buan, that the Philippine Rabbit Bus was already somewhat parallel to the jeep when the collision took place, the point of collision on the jeep should have been somewhat on the left side thereof rather than on its rear. Furthermore, the jeep should have fallen on the road itself rather than having been forced off the road. Useless, likewise to emphasize that the Philippine Rabbit was running very fast as testified to by Ramos which was not controverted by the defendants. 40 Having ruled that it was petitioner Manliclic's negligence that caused the smash up, there arises the juris tantum presumption that the employer is negligent, rebuttable only by proof of observance of the diligence of a good father of a family. 41 Under Article 2180 42 of the New Civil Code, when an injury is caused by the negligence of the employee, there instantly arises a presumption of law that there was negligence on the part of the master or employer either in the selection of the servant or employee, or in supervision over him after selection or both. The liability of the employer under Article 2180 is direct and immediate; it is not conditioned upon prior recourse against the negligent employee and a prior showing of the insolvency of such employee. Therefore, it is incumbent upon the private respondents to prove that they exercised the diligence of a good father of a family in the selection and supervision of their employee. 43 In the case at bar, petitioner PRBLI maintains that it had shown that it exercised the required diligence in the selection and supervision of its employees, particularly petitioner Manliclic. In the matter of selection, it showed the screening process that petitioner Manliclic underwent before he became a regular driver. As to the exercise of due diligence in the supervision of its employees, it argues that presence of ready investigators (Ganiban and Cabading) is sufficient proof that it exercised the required due diligence in the supervision of its employees. DACIHc In the selection of prospective employees, employers are required to examine them as to their qualifications, experience and service records. In the supervision of employees, the employer must formulate standard operating procedures, monitor their implementation and impose disciplinary measures for the breach thereof. To fend off vicarious liability, employers must submit concrete proof, including documentary evidence, that they complied with everything that was incumbent on them. 44

In Metro Manila Transit Corporation v. Court of Appeals, 45 it was explained that:

Due diligence in the supervision of employees on the other hand, includes the formulation of suitable rules and regulations for the guidance of employees and the issuance of proper instructions intended for the protection of the public and persons with whom the employer has relations through his or its employees and the imposition of necessary disciplinary measures upon employees in case of breach or as may be warranted to ensure the performance of acts indispensable to the business of and beneficial to their employer. To this, we add that actual implementation and monitoring of consistent compliance with said rules should be the constant concern of the employer, acting through dependable supervisors who should regularly report on their supervisory functions. In order that the defense of due diligence in the selection and supervision of employees may be deemed sufficient and plausible, it is not enough to emptily invoke the existence of said company guidelines and policies on hiring and supervision. As the negligence of the employee gives rise to the presumption of negligence on the part of the employer, the latter has the burden of proving that it has been diligent not only in the selection of employees but also in the actual supervision of their work. The mere allegation of the existence of hiring procedures and supervisory policies, without anything more, is decidedly not sufficient to overcome such presumption. We emphatically reiterate our holding, as a warning to all employers, that "the formulation of various company policies on safety without showing that they were being complied with is not sufficient to exempt petitioner from liability arising from negligence of its employees. It is incumbent upon petitioner to show that in recruiting and employing the erring driver the recruitment procedures and company policies on efficiency and safety were followed." . . . . The trial court found that petitioner PRBLI exercised the diligence of a good father of a family in the selection but not in the supervision of its employees. It expounded as follows: From the evidence of the defendants, it seems that the Philippine Rabbit Bus Lines has a very good procedure of recruiting its driver as well as in the maintenance of its

vehicles. There is no evidence though that it is as good in the supervision of its personnel. There has been no iota of evidence introduced by it that there are rules promulgated by the bus company regarding the safe operation of its vehicle and in the way its driver should manage and operate the vehicles assigned to them. There is no showing that somebody in the bus company has been employed to oversee how its driver should behave while operating their vehicles without courting incidents similar to the herein case. In regard to supervision, it is not difficult to observe that the Philippine Rabbit Bus Lines, Inc. has been negligent as an employer and it should be made responsible for the acts of its employees, particularly the driver involved in this case. We agree. The presence of ready investigators after the occurrence of the accident is not enough to exempt petitioner PRBLI from liability arising from the negligence of petitioner Manliclic. Same does not comply with the guidelines set forth in the cases above-mentioned. The presence of the investigators after the accident is not enough supervision. Regular supervision of employees, that is, prior to any accident, should have been shown and established. This, petitioner failed to do. The lack of supervision can further be seen by the fact that there is only one set of manual containing the rules and regulations for all the drivers of PRBLI. 46 How then can all the drivers of petitioner PRBLI know and be continually informed of the rules and regulations when only one manual is being lent to all the drivers? For failure to adduce proof that it exercised the diligence of a good father of a family in the selection and supervision of its employees, petitioner PRBLI is held solidarily responsible for the damages caused by petitioner Manliclic's negligence. ISDHEa We now go to the award of damages. The trial court correctly awarded the amount of P40,838.00 as actual damages representing the amount paid by respondent for the towing and repair of his jeep. 47 As regards the awards for moral and exemplary damages, same, under the circumstances, must be modified. The P100,000.00 awarded by the trial court as moral damages must be reduced to P50,000.00. 48 Exemplary damages are imposed by way of example or correction for the public good. 49 The amount awarded by the trial court must, likewise, be lowered to P50,000.00. 50 The award of P15,000.00 for attorney's fees and expenses of litigation is in order and authorized by law. 51 WHEREFORE, premises considered, the instant petition for review is DENIED. The decision of the Court of Appeals in CA-G.R. CV No. 55909 is AFFIRMED with the MODIFICATION that (1) the award of moral damages shall be reduced to

P50,000.00; and (2) the award of exemplary damages shall be lowered to P50,000.00. Costs against petitioners. SO ORDERED. [G.R. No. 48006. July 8, 1942.] FAUSTO BARREDO, petitioner, vs. SEVERINO GARCIA and TIMOTEA ALMARIO, respondents.

as culpa aquiliana. The Partidas also contributed to the genealogy of the present fault or negligence under the Civil Code: for instance, Law 6, Title 15, of Partida 7, says: "Tenudo es de fazer emienda, porque, como quier que el non fizo a sabiendas el dao al otro, pero acaescio por su culpa." 4.ID.; ID.; ID. The distinctive nature of cuasi-delitos survives in the Civil Code. According to article 1089, one of the five sources of obligations is this legal institution of cuasi-delito or culpa extra- contractual: "los actos . . . en que intervenga cualquier genero de culpa o negligencia." Then article 1093 provides that this kind of obligation shall be governed by Chapter II of Title XVI of Book IV, meaning articles 1902-1910. This portion of the Civil Code is exclusively devoted to the legal institution of culpa aquiliana. 5.ID.; ID.; ID.; DISTINCTION BETWEEN CRIMES UNDER THE PENAL CODE AND THE "CULPA AQUILIANA" OR "CUASI-DELITO" UNDER THE CIVIL CODE. A distinction exists between the civil liability arising from a crime and the responsibility for cuasi-delitos or culpa extra-contractual. The same negligent act causing damages may produce civil liability arising from a crime under article 100 of the Revised Penal Code, or create an action for cuasidelito or culpa extra-contractual under articles 1902-1910 of the Civil Code. Plaintiffs were free to choose which remedy to enforce. Some of the differences between crimes under the Penal Code and the culpa aquiliana or cuasi-delito under the Civil Code are enumerated in the decision. 6.ID.; ID.; ID.; OPINIONS OF JURISTS. The decision sets out extracts from opinions of jurists on the separate existence of cuasi- delicts and the employer's primary and direct liability under article 1903 of the Civil Code. 7.ID.; ID.; ID.; SENTENCES OF THE SUPREME TRIBUNAL OF SPAIN. The decision cites sentences of the Supreme Tribunal of Spain upholding the principles above set forth: that a cuasi-delict or culpa extra- contractual is a separate and distinct legal institution, independent from the civil responsibility arising from criminal liability, and that an employer is, under article 1903 of the Civil Code, primarily and directly responsible for the negligent acts of his employee. 8.ID.; ID.; ID.; DECISIONS OF THIS COURT. Decisions of this Court are also cited holding that, in this jurisdiction, the separate individuality of a cuasi-delito or culpa aquiliana under the Civil Code has been fully and clearly recognized, even with regard to a negligent act for which the wrongdoer could have been prosecuted and convicted in a criminal case and for which, after such a conviction, he could have been sued for his civil liability arising from his crime. 9.ID.; ID.; ID.; FOUNDATIONS OF DOCTRINES ABOVE SET FORTH; LITERAL MEANING OF THE LAW. The Revised Penal Code punishes not only reckless but also simple negligence; if it should be held that articles 1902-1910,

Celedonio P. Gloria and Antonio Barredo for petitioner. Jose G. Advincula for respondents. SYLLABUS 1.DAMAGES; QUASI-DELICT OR "CULPA AQUILIANA"; PRIMARY AND DIRECT RESPONSIBILITY OF EMPLOYERS UNDER ARTICLES 1902-1910 OF THE CIVIL CODE. A head-on collision between a taxi and a carretela resulted in the death of a 16-year-old boy, one of the passengers of the carretela. A criminal action was filed against the taxi driver and he was convicted and sentenced accordingly. The court in the criminal case granted the petition that the right to bring a separate civil action be reserved. Thereafter the parents of the deceased brought suit for damages against the proprietor of the taxi, the employer of the taxi driver, under article 1903 of the Civil Code. Defendant contended that his liability was governed by the Revised Penal Code, according to which his responsibility was only secondary, but no civil action had been brought against the taxi driver. Held:That this separate civil action lies, the employer being primarily and directly responsible in damages under articles 1902 and 1903 of the Civil Code. 2.ID.; ID.; ID. A quasi-delict or "culpa aquiliana" is a separate legal institution under the Civil Code, with a substantivity all its own, and individuality that is entirely apart and independent from a delict or crime. Upon this principle, and on the wording and spirit of article 1903 of the Civil Code, the primary and direct responsibility of employers may be safely anchored. 3.ID.; ID.; ID. The individuality of cuasi-delito or culpa extracontractual looms clear and unmistakable. This legal institution is of ancient lineage, one of its early ancestors being the Lex Aquilia in the Roman Law. In fact, in Spanish legal terminology, this responsibility is often referred to

Civil Code, apply only to negligence not punishable by law,culpa aquiliana would have very little application in actual life. The literal meaning of the law will not be used to smother a principle of such ancient origin and such full-grown development as culpa aquiliana. 10.ID.; ID.; ID.; ID.; DEGREE OF PROOF. There are numerous cases of criminal negligence which can not be shown beyond reasonable doubt, but can be proved by a preponderance of evidence. In such cases, defendant can and should be made responsible in a civil action under articles 1902 to 1910, Civil Code. Ubi jus ibi remedium. 11.ID.; ID.; ID.; ID.; EXPEDITIOUS REMEDY. The primary and direct responsibility of employer under article 1903, Civil Code, is more likely to facilitate remedy for civil wrongs. Such primary and direct responsibility of employers is calculated to protect society. 12.ID.; ID.; ID.; ID.; PRACTICE OF RELYING SOLELY ON CIVIL RESPONSIBILITY FOR A CRIME. The harm done by such practice is pointed out, and the principle of responsibility for fault or negligence under articles 1902 et seq., of the Civil Code is restored to its full vigor.

of the Malate Taxicab and employer of Pedro Fontanilla. On July 8, 1939, the Court of First Instance of Manila awarded damages in favor of the plaintiffs for P2,000 plus legal interest from the date of the complaint. This decision was modified by the Court of Appeals by reducing the damages to P1,000 with legal interest from the time the action was instituted. It is undisputed that Fontanilla's negligence was the cause of the mishap, as he was driving on the wrong side of the road, and at high speed. As to Barredo's responsibility, the Court of Appeals found: ". . . It is admitted that defendant is Fontanilla's employer. There is no proof that he exercised the diligence of a good father of a family to prevent the damage. (See p. 22, appellant's brief.) In fact it is shown he was careless in employing Fontanilla who had been caught several times for violation of the Automobile Law and speeding (Exhibit A) violations which appeared in the records of the Bureau of Public Works available to the public and to himself. Therefore, he must indemnify plaintiffs under the provisions of article 1903 of the Civil Code." The main theory of the defense is that the liability of Fausto Barredo is governed by the Revised Penal Code; hence, his liability is only subsidiary, and as there has been no civil action against Pedro Fontanilla, the person criminally liable, Barredo cannot be held responsible in this case. The petitioner's brief states on page 10: ". . . The Court of Appeals holds that the petitioner is being sued for his failure to exercise all the diligence of a good father of a family in the selection and supervision of Pedro Fontanilla to prevent damages suffered by the respondents. In other words, the Court of Appeals insists on applying in this case article 1903 of the Civil Code. Article 1903 of the Civil Code is found in Chapter II, Title 16, Book IV of the Civil Code. This fact makes said article inapplicable to a civil liability arising from a crime as in the case at bar simply because Chapter II of Title 16 of Book IV of the Civil Code, in the precise words of article 1903 of the Civil Code itself, is applicable only to "those (obligations) arising from wrongful or negligent acts or omissions not punishable by law.'" The gist of the decision of the Court of Appeals is expressed thus: ". . . We cannot agree to the defendant's contention. The liability sought to be imposed upon him in this action is not a civil obligation arising from a felony or a misdemeanor (the crime of Pedro Fontanilla), but an obligation imposed in article

DECISION

BOCOBO, J p: This case comes up from the Court of Appeals which held the petitioner herein, Fausto Barredo, liable in damages for the death of FaustinoGarcia caused by the negligence of Pedro Fontanilla, a taxi driver employed by said Fausto Barredo. At about half past one in the morning of May 3, 1936, on the road between Malabon and Navotas, Province of Rizal, there was a head-on collision between a taxi of the Malate Taxicab driven by Pedro Fontanilla and a carretela guided by Pedro Dimapilis. The carretela was overturned, and one of its passengers, 16-year-old boy Faustino Garcia, suffered injuries from which he died two days later. A criminal action was filed against Fontanilla in the Court of First Instance of Rizal, and he was convicted and sentenced to an indeterminate sentence of one year and one day to two years of prision correccional. The court in the criminal case granted the petition that the right to bring a separate civil action be reserved. The Court of Appeals affirmed the sentence of the lower court in the criminal case. Severino Garcia and Timotea Almario, parents of the deceased, on March 7, 1939, brought an action in the Court of First Instance of Manila against Fausto Barredo as the sole proprietor

1903 of the Civil Code by reason of his negligence in the selection or supervision of his servant or employee." The pivotal question in this case is whether the plaintiffs may bring this separate civil action against Fausto Barredo, thus making him primarily and directly responsible under article 1903 of the Civil Code as an employer of Pedro Fontanilla. The defendant maintains that Fontanilla's negligence being punishable by the Penal Code, his (defendant's) liability as an employer is only subsidiary, according to said Penal Code, but Fontanilla has not been sued in a civil action and his property has not been exhausted. To decide the main issue, we must cut through the tangle that has, in the minds of many, confused and jumbled together delitos and cuasi delitos, or crimes under the Penal Code and fault or negligence under articles 1902-1910 of the Civil Code. This should be done, because justice may be lost in a labyrinth, unless principles and remedies are distinctly envisaged. Fortunately, we are aided in our inquiry by the luminous presentation of this perplexing subject by renown jurists and we are likewise guided by the decisions of this Court in previous cases as well as by the solemn clarity of the considerations in several sentences of the Supreme Tribunal of Spain. Authorities support the proposition that a quasi-delict or "culpa aquiliana" is a separate legal institution under the Civil Code, with a substantivity all its own, and individuality that is entirely apart and independent from a delict or crime. Upon this principle, and on the wording and spirit of article 1903 of the Civil Code, the primary and direct responsibility of employers may be safely anchored. The pertinent provisions of the Civil Code and Revised Penal Code are as follows: CIVIL CODE "ART. 1089.Obligations arise from law, from contracts and quasi- contracts, and from acts and omissions which are unlawful or in which any kind of fault or negligence intervenes." xxx xxx xxx "ART. 1092.Civil obligations arising from felonies or misdemeanors shall be governed by the provisions of the Penal Code. "ART. 1093.Those which are derived from acts or omissions in which fault or negligence, not punishable by law, intervenes shall be subject to the provisions of Chapter II, Title XVI of this book."

xxx xxx xxx "ART. 1902.Any person who by an act or omission causes damage to another by his fault or negligence shall be liable for the damage so done. "ART. 1903.The obligation imposed by the next preceding article is enforcible, not only for personal acts and omissions, but also for those of persons for whom another is responsible. "The father, and, in case of his death or incapacity, the mother, are liable for any damages caused by the minor children who live with them. "Guardians are liable for damages done by minors or incapacitated persons subject to their authority and living with them. "Owners or directors of an establishment or business are equally liable for any damages caused by their employees while engaged in the branch of the service in which employed, or on occasion of the performance of their duties. "The State is subject to the same liability when it acts through a special agent, but not if the damage shall have been caused by the official upon whom properly devolved the duty of doing the act performed, in which case the provisions of the next preceding article shall be applicable. "Finally, teachers or directors of arts and trades are liable for any damages caused by their pupils or apprentices while they are under their custody. "The liability imposed by this article shall cease in case the persons mentioned therein prove that they exercised all the diligence of a good father of a family to prevent the damage.". "Art. 1904.Any person who pays for damage caused by his employees may recover from the latter what he may have paid.". REVISED PENAL CODE "Art. 100.Civil liability of a person guilty of felony. Every person criminally liable for a felony is also civilly liable. "Art. 101.Rules regarding civil liability in certain cases. The exemption from criminal liability established in subdivisions 1, 2, 3, 5, and 6 of article 12 and in subdivision 4 of

article 11 of this Code does not include exemption from civil liability, which shall be enforced subject to the following rules: "First. In cases of subdivisions 1, 2 and 3 of article 12 the civil liability for acts committed by any imbecile or insane person, and by a person under nine years of age, or by one over nine but under fifteen years of age, who has acted without discernment, shall devolve upon those having such person under their legal authority or control, unless it appears that there was no fault or negligence on their part. "Should there be no person having such insane, imbecile or minor under his authority, legal guardianship, or control, or if such person be insolvent, said insane, imbecile, or minor shall respond with their own property, excepting property exempt from execution, in accordance with the civil law. "Second. In cases falling within subdivision 4 of article 11, the persons for whose benefit the harm has been prevented shall be civilly liable in proportion to the benefit which they may have received. "The courts shall determine, in their sound discretion, the proportionate amount for which each one shall be liable. "When the respective shares can not be equitably determined, even approximately, or when the liability also attaches to the Government, or to the majority of the inhabitants of the town, and, in all events, whenever the damage has been caused with the consent of the authorities or their agents, indemnification shall be made in the manner prescribed by special laws or regulations. "Third. In cases falling within subdivisions 5 and 6 of article 12, the persons using violence or causing the fear shall be primarily liable and secondarily, or, if there be no such persons, those doing the act shall be liable, saving always to the latter that part of their property exempt from execution. "ART. 102.Subsidiary civil liability of innkeepers, tavern keepers and proprietors of establishment. In default of persons criminally liable, innkeepers, tavern keepers, and any other persons or corporations shall be civilly liable for crimes committed in their establishments, in all cases where a violation of municipal ordinances or some general or special police regulation shall have been committed by them or their employees.

"Innkeepers are also subsidiarily liable for the restitution of goods taken by robbery or theft within their houses from guests lodging therein, or for the payment of the value thereof, provided that such guests shall have notified in advance the innkeeper himself, or the person representing him, of the deposit of such goods within the inn; and shall furthermore have followed the directions which such innkeeper or his representative may have given them with respect to the care of and vigilance over such goods. No liability shall attach in case of robbery with violence against or intimidation of persons unless committed by the innkeeper's employees. "ART. 103.Subsidiary civil liability of other persons. The subsidiary liability established in the next preceding article shall also apply to employers, teachers, persons, and corporations engaged in any kind of industry for felonies committed by their servants, pupils, workmen, apprentices, or employees in the discharge of their duties." xxx xxx xxx "ART. 365.Imprudence and negligence. Any person who, by reckless imprudence, shall commit any act which, had it been intentional, would constitute a grave felony, shall suffer the penalty of arresto mayor in its maximum period to prision correccional in its minimum period; if it would have constituted a less grave felony, the penalty of arresto mayor in its minimum and medium periods shall be imposed. "Any person who, by simple imprudence or negligence, shall commit an act which would otherwise constitute a grave felony, shall suffer the penalty of arresto mayor in its medium and maximum periods; if it would have constituted a less serious felony, the penalty of arresto mayorin its minimum period shall be imposed." It will thus be seen that while the terms of article 1902 of the Civil Code seem to be broad enough to cover the driver's negligence in the instant case, nevertheless article 1093 limits cuasi-delitos to acts or omissions "not punishable by law." But inasmuch as article 365 of the Revised Penal Code punishes not only reckless but even simple imprudence or negligence, the fault or negligence under article 1902 of the Civil Code has apparently been crowded out. It is this overlapping that makes the "confusion worse confounded." However, a closer study shows that such a concurrence of scope in regard to negligent acts does not destroy the distinction between the civil liability arising from a crime and the responsibility for cuasi- delitos or culpa

extra-contractual. The same negligent act causing damages may produce civil liability arising from a crime under article 100 of the Revised Penal Code, or create an action for cuasi-delito or culpa extra-contractual under articles 19021910 of the Civil Code. The individuality of cuasi-delito or culpa extra-contractual looms clear and unmistakable. This legal institution is of ancient lineage, one of its early ancestors being the Lex Aquilia in the Roman Law. In fact, in Spanish legal terminology, this responsibility is often referred to as culpa aquiliana.The Partidas also contributed to the genealogy of the present fault or negligence under the Civil Code, for instance, Law 6, Title 15, of Partida 7, says: "Tenudo es de fazer emienda, porque, como quier que el non fizo a sabiendas el dao al otro, pero acaescio por su culpa." The distinctive nature of cuasi-delitos survives in the Civil Code. According to article 1089, one of the five sources of obligations is this legal institution of cuasi-delito or culpa extra- contractual: "los actos . . . en que intervenga cualquier genero de culpa o negligencia." Then article 1093 provides that this kind of obligation shall be governed by Chapter II of Title XVI of Book IV, meaning articles 1902-1910. This portion of the Civil Code is exclusively devoted to the legal institution of culpa aquiliana. Some of the differences between crimes under the Penal Code and the culpa aquiliana or cuasi-delito under the Civil Code are:. 1.That crimes affect the public interest, while cuasi-delitos are only of private concern. 2.That, consequently, the Penal Code punishes or corrects the criminal act, while the Civil Code, by means of indemnification, merely repairs the damage. 3.That delicts are not as broad as quasi-delicts, because the former are punished only if there is a penal law clearly covering them, while the latter, cuasi-delitos, include all acts in which "any kind of fault or negligence intervenes." However, it should be noted that not all violations of the penal law produce civil responsibility, such as begging in contravention of ordinances, violation of the game laws, infraction of the rules of traffic when nobody is hurt. (See Colin and Capitant, "Curso Elemental de Derecho Civil," Vol. 3, p. 728.). Let us now ascertain what some jurists say on the separate existence of quasi-delicts and the employer's primary and direct liability under article 1903 of the Civil Code. Dorado Montero in his essay on "Responsabilidad" in the "Enciclopedia Juridica Espaola" (Vol. XXVII, p. 414) says:

"El concepto juridico de la responsabilidad civil abarca diversos aspectos y comprende a diferentes personas. Asi, existe una responsabilidad civil propiamente dicha, que en ningun caso lleva aparejada responsabilidad criminal alguna, y otra que es consecuencia indeclinable de la penal que nace de todo delito o falta." "The juridical concept of civil responsibility has various aspects and comprises different persons. Thus, there is a civil responsibility, properly speaking, which in no case carries with it any criminal responsibility, and another which is a necessary consequence of the penal liability as a result of every felony or misdemeanor." Maura, an outstanding authority, was consulted on the following case: There had been a collision between two trains belonging respectively to the Ferrocarril Cantabrico and the Ferrocarril del Norte. An employee of the latter had been prosecuted in a criminal case, in which the company had been made a party as subsidiarily responsible in civil damages. The employee had been acquitted in the criminal case, and the employer, the Ferrocarril del Norte, had also been exonerated. The question asked was whether the Ferrocarril Cantabrico could still bring a civil action for damages against the Ferrocarril del Norte. Maura's opinion was in the affirmative, stating in part (Maura, Dictamenes, Vol. 6, pp. 511-513): "Quedando las cosas asi, a proposito de la realidad pura y neta de los hechos, todavia menos parece sostenible que exista cosa juzgadaacerca de la obligacion civil de indemnizar los quebrantos y menoscabos inferidos por el choque de los trenes. El titulo en que se funda la accion para demandar el resarcimiento, no puede confundirse con las responsabilidades civiles nacidas de delito, siquiera exista en este, sea el cual sea, una culpa rodeada de notas agravatorias que motivan sanciones penales, mas o menos severas. La lesion causada por delito o falta en los derechos civiles, requiere restituciones, reparaciones o indemnizaciones, que cual la pena misma ataen al orden publico; por tal motivo vienen encomendadas, de ordinario, al Ministerio Fiscal; y claro es que si por esta via se enmiendan los quebrantos y menoscabos, el agraviado excusa procurar el ya conseguido desagravio; pero esta eventual coincidencia de los efectos, no borra la diversidad originaria de las acciones civiles para pedir indemnizacion. "Estas, para el caso actual (prescindiendo de culpas contractuales, que no vendrian a cuento y que tienen

otro regimen), dimanan, segun el articulo 1902 del Codigo Civil, de toda accion u omision, causante de daos o perjuicios, en que intervenga culpa o negligencia. Es trivial que acciones semejantes son ejercitadas ante los Tribunales de lo civil cotidianamente, sin que la Justicia punitiva tenga que mezclarse en los asuntos. Los articulos 18 al 21 y 121 al 128 del Codigo Penal, atentos al espiritu y a los fines sociales y politicos del mismo, desenvuelven y ordenan la materia de responsabilidades civiles nacidas de delito, en terminos separados del regimen por ley comun de la culpa que se denomina aquiliana, por alusion a precedentes legislativos del Corpus Juris. Seria intempestivo un paralelo entre aquellas ordenaciones, y la de la obligacion de indemnizar a titulo de culpa civil; pero viene al caso y es necesaria una de las diferenciaciones que en el tal paralelo se notarian. "Los articulos 20 y 21 del Codigo Penal, despues de distribuir a su modo las responsabilidades civiles, entre los que sean por diversos conceptos culpables del delito o falta, las hacen extensivas a las empresas y los establecimientos al servicio de los cuales estan los delincuentes; pero con caracter subsidiario, o sea, segun el texto literal, en defecto de los que sean responsables criminalmente. No coincide en ello el Codigo Civil, cuyo articulo 1903, dice; La obligacion que impone el articulo anterior es exigible, no solo por los actos y omisiones propios, sino por los de aquellas personas de quienes se debe responder; personas en la enumeracion de las cuales figuran los dependientes y empleados de los establecimientos o empresas, sea por actos del servicio, sea con ocasion de sus funciones. Por esto acontece, y se observa en la jurisprudencia, que las empresas, despues de intervenir en las causas criminales con el caracter subsidiario de su responsabilidad civil por razon del delito, son demandadas y condenadas directa y aisladamente, cuando se trata de la obligacion, ante los tribunales civiles. "Siendo como se ve, diverso el titulo de esta obligacion, y formando verdadero postulado de nuestro regimen judicial la separacion entre justicia punitiva y tribunales de lo civil, de suerte que tienen unos y otros normas de fondo en distintos cuerpos legales, y diferentes modos de proceder, habiendose por aadidura, abstenido de asistir al juicio criminal la Compaia del Ferrocarril Cantabrico, que se reservo ejercitar sus acciones, parece innegable que la de indemnizacion por los daos y perjuicios que le irrogo el

choque, no estuvo sub judice ante el Tribunal del Jurado, ni fue sentenciada, sino que permanecio intacta, al pronunciarse el fallo de 21 de marzo. Aun cuando el veredicto no hubiese sido de inculpabilidad, mostrose mas arriba, que tal accion quedaba legitimamente reservada para despues del proceso; pero al declararse que no existio delito, ni responsabilidad dimanada de delito, materia unica sobre que tenian jurisdiccion aquellos juzgadores, se redobla el motivo para la obligacion civil ex lege, y se patentiza mas y mas que la accion para pedir su cumplimiento permanece incolume, extraa a la cosa juzgada." "As things are, apropos of the reality pure and simple of the facts, it seems less tenable that there should be res judicata with regard to the civil obligation for damages on account of the losses caused by the collision of the trains. The title upon which the action for reparation is based cannot be confused with the civil responsibilities born of a crime, because there exists in the latter, whatever each nature, a culpa surrounded with aggravating aspects which give rise to penal measures that are more or less severe. The injury caused by a felony or misdemeanor upon civil rights requires restitutions, reparations, or indemnifications which, like the penalty itself, affect public order; for this reason, they are ordinarily entrusted to the office of the prosecuting attorney; and it is clear that if by this means the losses and damages are repaired, the injured party no longer desires to seek another relief; but this coincidence of effects does not eliminate the peculiar nature of civil actions to ask for indemnity. "Such civil actions in the present case (without referring to contractual faults which are not pertinent and belong to another scope) are derived, according to article 1902 of the Civil Code, from every act or omission causing losses and damages in which culpa or negligence intervenes. It is unimportant that such actions are every day filed before the civil courts without the criminal courts interfering therewith. Articles 18 to 21 and 121 to 128 of the Penal Code, bearing in mind the spirit and the social and political purposes of that Code, develop and regulate the matter of civil responsibilities arising from a crime, separately from the regime under common law, of culpa which is known as aquiliana, in accordance with legislative precedent of the Corpus Juris. It would be unwarranted to make a detailed comparison between the former provisions and that regarding the obligation to indemnify on account of civil culpa; but it is

pertinent and necessary to point out to one of such differences. "Articles 20 and 21 of the Penal Code, after distributing in their own way the civil responsibilities among those who, for different reasons, are guilty of felony or misdemeanor, make such civil responsibilities applicable to enterprises and establishments for which the guilty parties render service, but with subsidiary character, that is to say, according to the wording of the Penal Code, in default of those who are criminally responsible. In this regard, the Civil Code does not coincide because article 1903 says: 'The obligation imposed by the next preceding article is demandable, not only for personal acts and omissions, but also for those of persons for whom another is responsible.' Among the persons enumerated are the subordinates and employees of establishments or enterprises, either for acts during their service or on the occasion of their functions. It is for this reason that it happens, and it is so observed in judicial decisions, that the companies or enterprises, after taking part in the criminal cases because of their subsidiary civil responsibility by reason of the crime, are sued and sentenced directly and separately with regard to the obligation, before the civil courts. "Seeing that the title of this obligation is different, and the separation between punitive justice and the civil courts being a true postulate of our judicial system, so that they have different fundamental norms in different codes, as well as different modes of procedure, and inasmuch as the Compaia del Ferrocarril Cantabrico has abstained from taking part in the criminal case and has reserved the right to exercise its actions, it seems undeniable that the action for indemnification for the loses and damages caused to it by the collision was not sub judice before the Tribunal del Jurado, nor was it the subject of a sentence, but it remained intact when the decision of March 21 was rendered. Even if the verdict had not been that of acquittal, it has already been shown that such action had been legitimately reserved till after the criminal prosecution; but because of the declaration of the non-existence of the felony and the non- existence of the responsibility arising from the crime, which was the sole subject matter upon which the Tribunal del Jurado had jurisdiction, there is greater reason for the civil obligation ex lege, and it becomes clearer that the

action for its enforcement remain intact and is not res judicata." Laurent, a jurist who has written a monumental work on the French Civil Code, on which the Spanish Civil Code is largely based and whose provisions on cuasi-delito or culpa extra-contractual are similar to those of the Spanish Civil Code, says, referring to article 1384 of the French Civil Code which corresponds to article 1903, Spanish Civil Code: "The action can be brought directly against the person responsible (for another), without including the author of the act. The action against the principal is accessory in the sense that it implies the existence of a prejudicial act committed by the employee, but it is not subsidiary in the sense that it can not be instituted till after the judgment against the author of the act or at least, that it is subsidiary to the principal action; the action for responsibility (of the employer) is in itself a principal action." (Laurent, Principles of French Civil Law, Spanish translation, Vol. 20, pp. 734-735.) Amandi, in his "Cuestionario del Codigo Civil Reformado" (Vol. 4, pp. 429, 430), declares that the responsibility of the employer is principal and not subsidiary. He writes: "Cuestion 1. La responsabilidad declarada en el articulo 1903 por las acciones u omisiones de aquellas personas por las que se debe responder, es subsidiaria? es principal? Para contestar a esta pregunta es necesario saber, en primer lugar, en que se funda el precepto legal. Es que realmente se impone una responsabilidad por una falta ajena? Asi parece a primera vista; pero semejante afirmacion seria contraria a la justicia y a la maxima universal, segun la que las faltas son personales, y cada uno responde de aquellas que le son imputables. La responsabilidad de que tratamos se impone con ocasion de un delito o culpa, pero no por causa de ellos, sino por causa del cuasi delito, esto es, de la imprudencia o de la negligencia del padre, del tutor, del dueo o director del establecimiento, del maestro, etc. Cuando cualquiera de las personas que enumera el articulo citado (menores de edad, incapacitados, dependientes, aprendices) causan un dao, la ley presume que el padre, el tutor, el maestro, etc., han cometido una falta de negligencia para prevenir o evitar el dao. Esta falta es la que la ley castiga. No hay, pues, responsabilidad por un hecho ajeno, sino en la apariencia; en realidad la responsabilidad se exige por un hecho propio. La

idea de que esa responsabilidad sea subsidiaria es, por lo tanto, completamente inadmisible." "Question No. 1. Is the responsibility declared in article 1903 for the acts or omissions of those persons for whom one is responsible, subsidiary or principal? In order to answer this question it is necessary to know, in the first place, on what the legal provision is based. Is it true that there is a responsibility for the fault of another person? It seems so at first sight; but such assertion would be contrary to justice and to the universal maxim that all faults are personal, and that everyone is liable for those faults that can be imputed to him. The responsibility in question is imposed on the occasion of a crime or fault, but not because of the same, but because of the cuasi-delito, that is to say, the imprudence or negligence of the father, guardian, proprietor or manager of the establishment, of the teacher, etc. Whenever anyone of the persons enumerated in the article referred to (minors, incapacitated persons, employees, apprentices) causes any damage, the law presumes that the father, guardian, teacher, etc. have committed an act of negligence in not preventing or avoiding the damage. It is this fault that is condemned by the law. It is, therefore, only apparent that there is a responsibility for the act of another; in reality the responsibility exacted is for one's own act. The idea that such responsibility is subsidiary is, therefore, completely inadmissible." Oyuelos, in his "Digesto: Principios, Doctrina y Jurisprudencia, Referentes al Codigo Civil Espaol," says in Vol. VII, p. 743: "Es decir, no se responde de hechos ajenos, porque se responde solo de su propia culpa, doctrina del articulo 1902; mas por excepcion, se responde de la ajena respecto de aquellas personas con las que media algun nexo o vinculo, que motiva o razona la responsabilidad. Esta responsabilidad, es directa o es subsidiaria? En el orden penal, el Codigo de esta clase distingue entre menores e incapacitados y los demas, declarando directa la primera (articulo 19) y subsidiaria la segunda (articulos 20 y 21); pero en el orden civil, en el caso del articulo 1903, ha de entenderse directa, por el tenor del articulo que impone la responsabilidad precisamente por los actos de aquellas personas de quienes se deba responder.'" "That is to say, one is not responsible for the acts of others, because one is liable only for his own faults, this being the doctrine of article 1902; but, by exception, one is liable for

the acts of those persons with whom there is a bond or tie which gives rise to the responsibility. Is this responsibility direct or subsidiary? In the order of the penal law, the Penal Code distinguishes between minors and incapacitated persons on the one hand, and other persons on the other, declaring that the responsibility for the former is direct (article 19), and for the latter, subsidiary (articles 20 and 21); but in the scheme of the civil law, in the case of article 1903, the responsibility should be understood as direct, according to the tenor of that article, for precisely it imposes responsibility 'for the acts of those persons for whom one should be responsible." Coming now to the sentences of the Supreme Tribunal of Spain, that court has upheld the principles above set forth: that a quasi- delict or culpa extra-contractual is a separate and distinct legal institution, independent from the civil responsibility arising from criminal liability, and that an employer is, under article 1903 of the Civil Code, primarily and directly responsible for the negligent acts of his employee. One of the most important of those Spanish decisions is that of October 21, 1910. In that case, Ramon Lafuente died as the result of having been run over by a street car owned by the "Compaia Electrica Madrilea de Traccion." The conductor was prosecuted in a criminal case but he was acquitted. Thereupon, the widow filed a civil action against the street car company, praying for damages in the amount of 15,000 pesetas. The lower court awarded damages; so the company appealed to the Supreme Tribunal, alleging violation of articles 1902 and 1903 of the Civil Code because by final judgment the non-existence of fault or negligence had been declared. The Supreme Court of Spain dismissed the appeal, saying:. "Considerando que el primer motivo del recurso se funda en el equivocado supuesto de que el Tribunal a quo, al condenar a la Compaia Electrica Madrilea al pago del dao causado con la muerte de Ramon Lafuente Izquierdo, desconoce el valor y efectos juridicos de la sentencia absolutoria dictada en la causa criminal que se siguio por el mismo hecho, cuando es lo cierto que de este han conocido las dos jurisdicciones bajo diferentes aspectos, y como la de lo criminal declaro dentro de los limites de su competencia que el hecho de que se trata no era constitutivo de delito por no haber mediado descuido o negligencia graves, lo que no excluye, siendo este el unico fundamento del fallo absolutorio, el concurso de la culpa o negligencia no calificadas, fuente de obligaciones civiles segun el articulo 1902 del Codigo Civil, y que alcanzan, segun el 1903, entre otras personas, a los Directores de establecimientos o empresas por los daos

causados por sus dependientes en determinadas condiciones, es manifiesto que la de lo civil, al conocer del mismo hecho bajo este ultimo aspecto y al condenar a la Compaia recurrente a la indemnizacion del dao causado por uno de sus empleados, lejos de infringir los mencionados textos, en relacion con el articulo 116 de la Ley de Enjuiciamiento Criminal, se ha atenido estrictamente a ellos, sin invadir atribuciones ajenas a su jurisdiccion propia, ni contrariar en lo mas minimo el fallo recaido en la causa." "Considering that the first ground of the appeal is based on the mistaken supposition that the trial court, in sentencing the Compaia Madrilea to the payment of the damage caused by the death of Ramon Lafuente Izquierdo, disregards the value and juridical effects of the sentence of acquittal rendered in the criminal case instituted on account of the same act, when it is a fact that the two jurisdictions had taken cognizance of the same act in its different aspects, and as the criminal jurisdiction declared within the limits of its authority that the act in question did not constitute a felony because there was no grave carelessness or negligence, and this being the only basis of acquittal, it does not exclude the coexistence of fault or negligence which is not qualified, and is a source of civil obligations according to article 1902 of the Civil Code,affecting, in accordance with article 1903, among other persons, the managers of establishments or enterprises by reason of the damages caused by employees under certain conditions, it is manifest that the civil jurisdiction in taking cognizance of the same act in this latter aspect and in ordering the company, appellant herein, to pay an indemnity for the damage caused by one of its employees, far from violating said legal provisions, in relation with article 116 of the Law of Criminal Procedure, strictly followed the same, without invading attributes which are beyond its own jurisdiction, and without in any way contradicting the decision in that cause." (Italics supplied.). It will be noted, as to the case just cited: First. That the conductor was not sued in a civil case, either separately or with the street car company. This is precisely what happens in the present case: the driver, Fontanilla, has not been sued in a civil action, either alone or with his employer.

Second. That the conductor had been acquitted of grave criminal negligence, but the Supreme Tribunal of Spain said that this did not exclude the co-existence of fault or negligence, which is not qualified, on the part of the conductor, under article 1902 of the Civil Code. In the present case, the taxi driver was found guilty of criminal negligence, so that if he had even sued for his civil responsibility arising from the crime, he would have been held primarily liable for civil damages, and Barredo would have been held subsidiarily liable for the same. But the plaintiffs are directly suing Barredo, on his primary responsibility because of his own presumed negligence which he did not overcome under article 1903. Thus, there were two liabilities of Barredo: first, the subsidiary one because of the civil liability of the taxi driver arising from the latter's criminal negligence; and, second,Barredo's primary liability as an employer under article 1903. The plaintiffs were free to choose which course to take, and they preferred the second remedy. In so doing, they were acting within their rights. It might be observed in passing, that the plaintiffs chose the more expeditious and effective method of relief, because Fontanilla was either in prison, or had just been released, and besides, he was probably without property which might be seized in enforcing any judgment against him for damages. Third. That inasmuch as in the above sentence of October 21, 1910, the employer was held liable civilly, notwithstanding the acquittal of the employee (the conductor) in a previous criminal case, with greater reason should Barredo, the employer in the case at bar, be held liable for damages in a civil suit filed against him because his taxi driver had been convicted. The degree of negligence of the conductor in the Spanish case cited was less than that of the taxi driver, Fontanilla, because the former was acquitted in the previous criminal case while the latter was found guilty of criminal negligence and was sentenced to an indeterminate sentence of one year and one day to two years of prision correccional. (See also Sentence of February 19, 1902, which is similar to the one above quoted.). In the Sentence of the Supreme Court of Spain, dated February 14, 1919, an action was brought against a railroad company for damages because the station agent, employed by the company, had unjustly and fraudulently, refused to deliver certain articles consigned to the plaintiff. The Supreme Court of Spain held that this action was properly under article 1902 of the Civil Code, the court saying: "Considerando que la sentencia discutida reconoce, en virtud de los hechos que consigna con relacion a las pruebas del pleito: 1., que las expediciones facturadas por la compaia ferroviaria a la consignacion del actor de las vasijas vacias que en su demanda relacionan tenian como fin el que este las

devolviera a sus remitentes con vinos y alcoholes; 2., que llegadas a su destino tales mercancias no se quisieron entregar a dicho consignatario por el jefe de la estacion sin motivo justificado y con intencion dolosa, y 3., que la falta de entrega de estas expediciones al tiempo de reclamarlas el demandante le originaron daos y perjuicios en cantidad de bastante importancia como expendedor al por mayor que era de vinos y alcoholes por las ganancias que dejo de obtener al verse privado de servir los pedidos que se le habian hecho por los remitentes en los envases: "Considerando que sobre esta base hay necesidad de estimar los cuatro motivos que integran este recurso, porque la demanda inicial del pleito a que se contrae no contiene accion que nazca del incumplimiento del contrato de transporte, toda vez que no se funda en el retraso de la llegada de las mercancias ni de ningun otro vinculo contractual entre las partes contendientes, careciendo, por tanto, de aplicacion el articulo 371 del Codigo de Comercio, en que principalmente descansa el fallo recurrido, sino que se limita a pedir la reparacion de los daos y perjuicios producidos en el patrimonio del actor por la injustificada y dolosa negativa del porteador a la entrega de las mercancias a su nombre consignadas, segun lo reconoce la sentencia, y cuya responsabilidad esta claramente sancionada en el articulo 1902 del Codigo Civil, que obliga por el siguiente a la Compaia demandada como ligada con el causante de aquellos por relaciones de caracter economico y de jerarquia administrativa." "Considering that the sentence in question recognizes, in virtue of the facts which it declares, in relation to the evidence in the case: (1) that the invoice issued by the railroad company in favor of the plaintiff contemplated that the empty receptacles referred to in the complaint should be returned to the consignors with wines and liquors; (2) that when the said merchandise reached their destination, their delivery to the consignee was refused by the station agent without justification and with fraudulent intent, and (3) that the lack of delivery of these goods when they were demanded by the plaintiff caused him losses and damages of considerable importance, as he was a wholesale vendor of wines and liquors and he failed to realize the profits when he was unable to fill the orders sent to him by the consignors of the receptacles:

"Considering that upon this basis there is need of upholding the four assignments of error, as the original complaint did not contain any cause of action arising from nonfulfilment of a contract of transportation, because the action was not based on the delay of the goods nor on any contractual relation between the parties litigant and, therefore, article 371 of the Code of Commerce, on which the decision appealed from is based, is not applicable; but it limits itself to asking for reparation for losses and damages produced on the patrimony of the plaintiff on account of the unjustified and fraudulent refusal of the carrier to deliver the goods consigned to the plaintiff as stated by the sentence, and the carrier's responsibility is clearly laid down in article 1902 of the Civil Code which binds, in virtue of the next article, the defendant company, because the latter is connected with the person who caused the damage by relations of economic character and by administrative hierarchy." (Emphasis supplied.) The above case is pertinent because it shows that the same act may come under both the Penal Code and the Civil Code. In that case, the action of the agent was unjustified and fraudulent and therefore could have been the subject of a criminal action. And yet, it was held to be also a proper subject of a civil action under article 1902 of the Civil Code. It is also to be noted that it was the employer and not the employee who was being sued. Let us now examine the cases previously decided by this Court. In the leading case of Rakes vs. Atlantic Gulf and Pacific Co. (7 Phil., 359, 362-365 [year 1907]), the trial court awarded damages to the plaintiff, a laborer of the defendant, because the latter had negligently failed to repair a tramway, in consequence of which the rails slid off while iron was being transported, and caught the plaintiff whose leg was broken. This Court held:. "It is contended by the defendant, as its first defense to the action that the necessary conclusion from these collated laws is that the remedy for injuries through negligence lies only in a criminal action in which the official criminally responsible must be made primarily liable and his employer held only subsidiarily to him. According to this theory the plaintiff should have procured the arrest of the representative of the company accountable for not repairing the track, and on his prosecution a suitable fine should have been imposed, payable primarily by him and secondarily by his employer. "This reasoning misconceived the plan of the Spanish codes upon this subject. Article 1093 of the Civil Code makes

obligations arising from faults or negligence not punished by the law, subject to the provisions of Chapter II of Title XVI. Section 1902 of that chapter reads: " 'A person who by an act or omission causes damage to another when there is fault or negligence shall be obliged to repair the damage so done. " 'SEC. 1903.The obligation imposed by the preceding article is demandable, not only for personal acts and omissions, but also for those of the persons for whom they should be responsible. " 'The father, and on his death or incapacity, the mother, is liable for the damages caused by the minors who live with them. xxx xxx xxx " 'Owners or directors of an establishment or enterprise are equally liable for the damages caused by their employees in the service of the branches in which the latter may be employed or in the performance of their duties. xxx xxx xxx " 'The liability referred to in this article shall cease when the persons mentioned therein prove that they employed all the diligence of a good father of a family to avoid the damage.'" "As an answer to the argument urged in this particular action it may be sufficient to point out that nowhere in our general statutes is the employer penalized for failure to provide or maintain safe appliances for his workmen. His obligation therefore is one 'not punished by the laws' and falls under civil rather than criminal jurisprudence. But the answer may be a broader one. We should be reluctant, under any conditions, to adopt a forced construction of these scientific codes, such as is proposed by the defendant, that would rob some of these articles of effect, would shut out litigants against their will from the civil courts, would make the assertion of their rights dependent upon the selection for prosecution of the proper criminal offender, and render recovery doubtful by reason of the strict rules of proof prevailing in criminal actions. Even if these articles had always stood alone, such a construction would be unnecessary, but clear light is thrown upon their meaning by the provisions of the Law of Criminal

Procedure of Spain (Ley de Enjuiciamiento Criminal), which, though never in actual force in these Islands, was formerly given a suppletory or explanatory effect. Under article 111 of this law, both classes of action, civil and criminal, might be prosecuted jointly or separately, but while the penal action was pending the civil was suspended. According to article 112, the penal action once started, the civil remedy should be sought therewith, unless it had been waived by the party injured or been expressly reserved by him for civil proceedings for the future. If the civil action alone was prosecuted, arising out of a crime that could be enforced only on private complaint, the penal action thereunder should be extinguished. These provisions are in harmony with those of articles 23 and 133 of our Penal Code on the same subject. "An examination of this topic might be carried much further, but the citation of these articles suffices to show that the civil liability was not intended to be merged in the criminal nor even to be suspended thereby, except as expressly provided in the law. Where an individual is civilly liable for a negligent act or omission, it is not required that the injured party should seek out a third person criminally liable whose prosecution must be a condition precedent to the enforcement of the civil right. "Under article 20 of the Penal Code the responsibility of an employer may be regarded as subsidiary in respect of criminal actions against his employees only while they are in process of prosecution, or in so far as they determine the existence of the criminal act from which liability arises, and his obligation under the civil law and its enforcement in the civil courts is not barred thereby unless by the election of the injured person. Inasmuch as no criminal proceeding had been instituted, growing out of the accident in question, the provisions of the Penal Code can not affect this action. This construction renders it unnecessary to finally determine here whether this subsidiary civil liability in penal actions has survived the laws that fully regulated it or has been abrogated by the American civil and criminal procedure now in force in the Philippines. "The difficulty in construing the articles of the code above cited in this case appears from the briefs before us to have arisen from the interpretation of the words of article

1093, 'fault or negligence not punished by law,' as applied to the comprehensive definition of offenses in articles 568 and 590 of the Penal Code. It has been shown that the liability of an employer arising out of his relation to his employee who is the offender is not to be regarded as derived from negligence punished by the law, within the meaning of articles 1902 and 1093. More than this, however, it cannot be said to fall within the class of acts unpunished by the law, the consequences of which are regulated by articles 1902 and 1903 of the Civil Code. The acts to which these articles are applicable are understood to be those not growing out of pre-existing duties of the parties to one another. But where relations already formed give rise to duties, whether springing from contract or quasi contract, then breaches of those duties are subject to articles 1101, 1103, and 1104 of the same code. A typical application of this distinction may be found in the consequences of a railway accident due to defective machinery supplied by the employer. His liability to his employee would arise out of the contract of employment, that to the passengers out of the contract for passage, while that to the injured bystander would originate in the negligent act itself." In Manzanares vs. Moreta, 38 Phil., 821 (year 1918), the mother of the 8 or 9-year-old child Salvador Bona brought a civil action against Moreta to recover damages resulting from the death of the child, who had been run over by an automobile driven and managed by the defendant. The trial court rendered judgment requiring the defendant to pay the plaintiff the sum of P1,000 as indemnity: This Court in affirming the judgment, said in part: "If it were true that the defendant, in coming from the southern part of Solana Street, had to stop his auto before crossing Real Street, because he had met vehicles which were going along the latter street or were coming from the opposite direction along Solana Street, it is to be believed that, when he again started to run his auto across said Real Street and to continue its way along Solana Street northward, he should have adjusted the speed of the auto which he was operating until he had fully crossed Real Street and had completely reached a clear way on Solana Street. But, as the child was run over by the auto precisely at the entrance of Solana Street, this accident could not have occurred if the auto had been running at a slow speed, aside from the fact that the defendant, at the moment of crossing Real Street and entering Solana Street, in a northward direction, could have seen the child in the act of crossing the latter street from the sidewalk on the right to that

on the left, and if the accident had occurred in such a way that after the automobile had run over the body of the child, and the child's body had already been stretched out on the ground, the automobile still moved along a distance of about 2 meters, this circumstance shows the fact that the automobile entered Solana Street from Real Street, at a high speed without the defendant having blown the horn. If these precautions had been taken by the defendant, the deplorable accident which caused the death of the child would not have occurred." It will be noticed that the defendant in the above case could have been prosecuted in a criminal case because his negligence causing the death of the child was punishable by the Penal Code. Here is therefore a clear instance of the same act of negligence being a proper subject-matter either of a criminal action with its consequent civil liability arising from a crime or of an entirely separate and independent civil action for fault or negligence under article 1902 of the Civil Code. Thus, in this jurisdiction, the separate individuality of a cuasi-delito or culpa aquiliana under the Civil Code has been fully and clearly recognized, even with regard to a negligent act for which the wrongdoer could have been prosecuted and convicted in a criminal case and for which, after such a conviction, he could have been sued for this civil liability arising from his crime. Years later (in 1930) this Court had another occasion to apply the same doctrine. In Bernal and Enverso vs. House and Tacloban Electric & Ice Plant, Ltd., 54 Phil., 327, the parents of the five- year-old child, Purificacion Bernal, brought a civil action to recover damages for the child's death as a result of burns caused by the fault and negligence of the defendants. On the evening of April 10, 1925, the Good Friday procession was held in Tacloban, Leyte. Fortunata Enverso with her daughter Purificacion Bernal had come from another municipality to attend the same. After the procession the mother and the daughter with two others were passing along Gran Capitan Street in front of the offices of the Tacloban Electric & Ice Plant, Ltd., owned by defendant J. V. House, when an automobile appeared from the opposite direction. The little girl, who was slightly ahead of the rest, was so frightened by the automobile that she turned to run, but unfortunately she fell into the street gutter where hot water from the electric plant was flowing. The child died that same night from the burns. The trial court dismissed the action because of the contributory negligence of the plaintiffs. But this Court held, on appeal, that there was no contributory negligence, and allowed the parents P1,000 in damages from J. V. House who at the time of the tragic occurrence was the holder of the franchise for the electric plant. This Court said in part: "Although the trial judge made the findings of fact hereinbefore outlined, he nevertheless was led to order the dismissal of the action because of the contributory negligence

of the plaintiffs. It is from this point that a majority of the court depart from the stand taken by the trial judge. The mother and her child had a perfect right to be on the principal street of Tacloban, Leyte, on the evening when the religious procession was held. There was nothing abnormal in allowing the child to run along a few paces in advance of the mother. No one could foresee the coincidence of an automobile appearing and of a frightened child running and falling into a ditch filled with hot water. The doctrine announced in the much debated case of Rakes vs. Atlantic Gulf and Pacific Co. ([1907], 7 Phil., 359), still rule. Article 1902 of the Civil Code must again be enforced. The contributory negligence of the child and her mother, if any, does not operate as a bar to recovery, but in its strictest sense could only result in reduction of the damages." It is most significant that in the case just cited, this Court specifically applied article 1902 of the Civil Code. It is thus that although J. V. House could have been criminally prosecuted for reckless or simple negligence and not only punished but also made civilly liable because of his criminal negligence, nevertheless this Court awarded damages in an independent civil action for fault or negligence under article 1902 of the Civil Code. In Bahia vs. Litonjua and Leynes (30 Phil., 624 [year 1915]), the action was for damages for the death of the plaintiff's daughter alleged to have been caused by the negligence of the servant in driving an automobile over the child. It appeared that the cause of the mishap was a defect in the steering gear. The defendant Leynes had rented the automobile from the International Garage of Manila, to be used by him in carrying passengers during the fiesta of Tuy, Batangas. Leynes was ordered by the lower court to pay P1,000 as damages to the plaintiff. On appeal this Court reversed the judgment as to Leynes on the ground that he had shown that he exercised the care of a good father of a family, thus overcoming the presumption of negligence under article 1903. This Court said: "As to selection, the defendant has clearly shown that he exercised the care and diligence of a good father of a family. He obtained the machine from a reputable garage and it was, so far as appeared, in good condition. The workmen were likewise selected from a standard garage, were duly licensed by the Government in their particular calling, and apparently thoroughly competent. The machine had been used but a few hours when the accident occurred and it is clear from the evidence that the defendant had no notice, either actual or constructive, of the defective condition of the steering gear."

The legal aspect of the case was discussed by this Court thus:. "Article 1903 of the Civil Code not only establishes liability in cases of negligence, but also provides when the liability shall cease. It says: " 'The liability referred to in this article shall cease when the persons mentioned therein prove that they employed all the diligence of a good father of a family to avoid the damage.'" "From this article two things are apparent: (1) That when an injury is caused by the negligence of a servant or employee there instantly arises a presumption of law that there was negligence on the part of the master or employer either in the selection of the servant or employee, or in supervision over him after the selection, or both; and (2) that that presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It follows necessarily that if the employer shows to the satisfaction of the court that in selection and supervision he has exercised the care and diligence of a good father of a family, the presumption is overcome and he is relieved from liability. "This theory bases the responsibility of the master ultimately on his own negligence and not on that of his servant." The doctrine of the case just cited was followed by this Court in Cerf vs. Medel (33 Phil., 37 [year 1915]). In the latter case, the complaint alleged that the defendant's servant had so negligently driven an automobile, which was operated by defendant as a public vehicle, that said automobile struck and damaged the plaintiff's motorcycle. This Court, applying article 1903 and following the rule in Bahia vs. Litonjua and Leynes, said in part (p. 41) that: "The master is liable for the negligent acts of his servant where he is the owner or director of a business or enterprise and the negligent acts are committed while the servant is engaged in his master's employment as such owner" Another case which followed the decision in Bahia vs. Litonjua and Leynes was Cuison vs. Norton & Harrison Co., 55 Phil., 18 (year 1930). The latter case was an action for damages brought by Cuison for the death of his seven-year-old son Moises. The little boy was on his way to school with his sister Marciana. Some large pieces of lumber fell from a truck and pinned the boy underneath, instantly killing him. Two youths, Telesforo Binoya and Francisco Bautista, who were working for Ora, an employee of defendant

Norton & Harrison Co., pleaded guilty to the crime of homicide through reckless negligence and were sentenced accordingly. This Court, applying articles 1902 and 1903, held: "The basis of civil law liability is not respondent superior but the relationship of pater familias. This theory bases the liability of the master ultimately on his own negligence and not on that of his servant." (Bahia vs. Litonjua and Leynes [1915], 30 Phil., 624; Cangco vs. Manila Railroad Co. [1918], 38 Phil., 768.) In Walter A. Smith & Co. vs. Cadwallader Gibson Lumber Co., 55 Phil., 517 (year 1930) the plaintiff brought an action for damages for the demolition of its wharf, which had been struck by the steamer Helen C belonging to the defendant. This Court held (p. 526): "The evidence shows that Captain Lasa at the time the plaintiff's wharf collapsed was a duly licensed captain, authorized to navigate and direct a vessel of any tonnage, and that the appellee contracted his services because of his reputation as a captain, according to F. C. Cadwallader. This being so, we are of the opinion that the presumption of liability against the defendant has been overcome by the exercise of the care and diligence of a good father of a family in selecting Captain Lasa, in accordance with the doctrines laid down by this court in the cases cited above, and the defendant is therefore absolved from all liability." It is, therefore, seen that the defendant's theory about his secondary liability is negatived by the six cases above set forth. He is, on the authority of these cases, primarily and directly responsible in damages under article 1903, in relation to article 1902, of the Civil Code. Let us now take up the Philippine decisions relied upon by the defendant. We study first, City of Manila vs. Manila Electric Co., 52 Phil., 586 (year 1928). A collision between a truck of the City of Manila and a street car of the Manila Electric Co. took place on June 8, 1925. The truck was damaged in the amount of P1,788.27. Sixto Eustaquio, the motorman, was prosecuted for the crime of damage to property and slight injuries through reckless imprudence. He was found guilty and sentenced to pay a fine of P900, to indemnify the City of Manila for P1,788.27, with subsidiary imprisonment in case of insolvency. Unable to collect the indemnity from Eustaquio, the City of Manila filed an action against the Manila Electric Company to obtain payment, claiming that the defendant was subsidiarily liable. The main defense was that the defendant had exercised the diligence of a good father of a family to prevent the damage. The lower court rendered judgment in favor of the

plaintiff. This Court held, in part, that this case was governed by the Penal Code, saying: "With this preliminary point out of the way, there is no escaping the conclusion that the provisions of the Penal Code govern. The Penal Code in easily understandable language authorizes the determination of subsidiary liability. The Civil Code negatives its application by providing that civil obligations arising from crimes or misdemeanors shall be governed by the provisions of the Penal Code. The conviction of the motorman was a misdemeanor falling under article 604 of the Penal Code. The act of the motorman was not a wrongful or negligent act or omission not punishable by law. Accordingly, the civil obligation connected up with the Penal Code and not with article 1903 of the Civil Code. In other words, the Penal Code affirms its jurisdiction while the Civil Code negatives its jurisdiction. This is a case of criminal negligence out of which civil liability arises and not a case of civil negligence." xxx xxx xxx "Our deduction, therefore, is that the case relates to the Penal Code and not to the Civil Code. Indeed, as pointed out by the trial judge, any different ruling would permit the master to escape scot- free by simply alleging and proving that the master had exercised all diligence in the selection and training of its servants to prevent the damage. That would be a good defense to a strictly civil action, but might or might not be to a civil action either as a part of or predicated on conviction for a crime or misdemeanor. (By way of parenthesis, it may be said further that the statements here made are offered to meet the argument advanced during our deliberations to the effect that article 1902 of the Civil Code should be disregarded and codal articles 1093 and 1903 applied.)" It is not clear how the above case could support the defendant's proposition, because the Court of Appeals based its decision in the present case on the defendant's primary responsibility under article 1903 of the Civil Code and not on his subsidiary liability arising from Fontanilla's criminal negligence. In other words, the case of City of Manila vs. Manila Electric Co., supra, is predicated on an entirely different theory, which is the subsidiary liability of an employer arising from a criminal act of his employee, whereas the foundation of the decision of the Court of Appeals in the present case is the employer's primary liability under article 1903 of the Civil Code. We have already seen that this is a proper and independent remedy.

Arambulo vs. Manila Electric Co. (55 Phil., 75), is another case invoked by the defendant. A motorman in the employ of the Manila Electric Company had been convicted of homicide by simple negligence and sentenced, among other things, to pay the heirs of the deceased the sum of P1,000. An action was then brought to enforce the subsidiary liability of the defendant as employer under the Penal Code. The defendant attempted to show that it had exercised the diligence of a good father of a family in selecting the motorman, and therefore claimed exemption from civil liability. But this Court held: "In view of the foregoing considerations, we are of opinion and so hold, (1) that the exemption from civil liability established in article 1903 of the Civil Code for all who have acted with the diligence of a good father of a family, is not applicable to the subsidiary civil liability provided in article 20 of the Penal Code." The above case is also extraneous to the theory of the defendant in the instant case, because the action there had for its purpose the enforcement of the defendant's subsidiary liability under the Penal Code, while in the case at bar, the plaintiff's cause of action is based on the defendant's primary and direct responsibility under article 1903 of the Civil Code. In fact, the above case destroys the defendant's contention because that decision illustrates the principle that the employer's primary responsibility under article 1903 of the Civil Code is different in character from his subsidiary liability under the Penal Code. In trying to apply the two cases just referred to, counsel for the defendant has failed to recognize the distinction between civil liability arising from a crime, which is governed by the Penal Code, and the responsibility for cuasi-delito or culpa aquiliana under the Civil Code, and has likewise failed to give due importance to the latter type of civil action. The defendant-petitioner also cites Francisco vs. Onrubia (46 Phil., 327). That case need not be set forth. Suffice it to say that the question involved was also civil liability arising from a crime. Hence, it is as inapplicable as the two cases above discussed. The foregoing authorities clearly demonstrate the separate individuality of cuasi-delitos or culpa aquiliana under the Civil Code. Specifically they show that there is a distinction between civil liability arising from criminal negligence (governed by the Penal Code) and responsibility for fault or negligence under articles 1902 to 1910 of the Civil Code, and that the same negligent act may produce either a civil liability arising from a crime under the Penal Code, or a separate responsibility for fault or negligence under articles 1902 to 1910 of the Civil Code. Still more concretely, the authorities above cited render it inescapable to conclude that the employer in this case

the defendant-petitioner is primarily and directly liable under article 1903 of the Civil Code. The legal provisions, authors, and cases already invoked should ordinarily be sufficient to dispose of this case. But inasmuch as we are announcing doctrines that have been little understood in the past, it might not be inappropriate to indicate their foundations. Firstly, the Revised Penal Code in article 365 punishes not only reckless but also simple negligence. If we were to hold that articles 1902 to 1910 of the Civil Code refer only to fault or negligence not punished by law, according to the literal import of article 1093 of the Civil Code, the legal institution of culpa aquiliana would have very little scope and application in actual life. Death or injury to persons and damage to property through any degree of negligence even the slightest would have to be indemnified only through the principle of civil liability arising from a crime. In such a state of affairs, what sphere would remain for cuasi-delito or culpa aquiliana? We are loath to impute to the lawmaker any intention to bring about a situation so absurd and anomalous. Nor are we, in the interpretation of the laws, disposed to uphold the letter that killeth rather than the spirit that giveth life. We will not use the literal meaning of the law to smother and render almost lifeless a principle of such ancient origin and such full-grown development as culpa aquiliana or cuasi-delito, which is conserved and made enduring in articles 1902 to 1910 of the Spanish Civil Code. Secondly, to find the accused guilty in a criminal case, proof of guilt beyond reasonable doubt is required, while in a civil case, preponderance of evidence is sufficient to make the defendant pay in damages. There are numerous cases of criminal negligence which can not be shown beyond reasonable doubt, but can be proved by a preponderance of evidence. In such cases, the defendant can and should be made responsible in a civil action under articles 1902 to 1910 of the Civil Code. Otherwise, there would be many instances of unvindicated civil wrongs. Ubi jus ibi remedium. Thirdly, to hold that there is only one way to make defendant's liability effective, and that is, to sue the driver and exhaust his (the latter's) property first, would be tantamount to compelling the plaintiff to follow a devious and cumbersome method of obtaining relief. True, there is such a remedy under our laws, but there is also a more expeditious way, which is based on the primary and direct responsibility of the defendant under article 1903 of the Civil Code. Our view of the law is more likely to facilitate remedy for civil wrongs, because the procedure indicated by the defendant is wasteful and productive of delay, it being a matter of common knowledge that professional drivers of taxis and similar public conveyances usually do not have sufficient means with which to pay damages. Why then, should the plaintiff be

required in all cases to go through this roundabout, unnecessary, and probably useless procedure? In construing the laws, courts have endeavored to shorten and facilitate the pathways of right and justice. At this juncture, it should be said that the primary and direct responsibility of employers and their presumed negligence are principles calculated to protect society. Workmen and employees should be carefully chosen and supervised in order to avoid injury to the public. It is the masters or employers who principally reap the profits resulting from the services of these servants and employees. It is but right that they should guarantee the latter's careful conduct for the personnel and patrimonial safety of others. As Theilhard has said, "they should reproach themselves, at least, some for their weakness, others for their poor selection and all for their negligence." And according to Manresa, "It is much more equitable and just that such responsibility should fall upon the principal or director who could have chosen a careful and prudent employee, and not upon the injured person who could not exercise such selection and who used such employee because of his confidence in the principal or director." (Vol. 12, p. 622, 2nd Ed.) Many jurists also base this primary responsibility of the employer on the principle of representation of the principal by the agent. Thus, Oyuelos says in the work already cited (Vol. 7, p. 747) that before third persons the employer and employee "vienen a ser como una sola personalidad, por refundicion de la del dependiente en la de quien le emplea y utiliza." ("become as one personality by the merging of the person of the employee in that of him who employs and utilizes him.") All these observations acquire a peculiar force and significance when it comes to motor accidents, and there is need of stressing and accentuating the responsibility of owners of motor vehicles. Fourthly, because of the broad sweep of the provisions of both the Penal Code and the Civil Code on this subject, which has given rise to the overlapping or concurrence of spheres already discussed, and for lack of understanding of the character and efficacy of the action for culpa aquiliana, there has grown up a common practice to seek damages only by virtue of the civil responsibility arising from a crime, forgetting that there is another remedy, which is by invoking articles 1902-1910 of the Civil Code. Although this habitual method is allowed by our laws, it has nevertheless rendered practically useless and nugatory the more expeditious and effective remedy based on culpa aquiliana or culpa extra-contractual. In the present case, we are asked to help perpetuate this usual course. But we believe it is high time we pointed out to the harm done by such practice and to restore the principle of responsibility for fault or negligence under articles 1902 et seq. of the Civil Code to its full rigor. It is high time we caused the stream of quasi-delict or culpa aquiliana to flow on its own natural channel, so that its waters may no longer be diverted into that of a crime under the Penal Code. This will, it is believed, make for the better safeguarding of private rights because it re-

establishes an ancient and additional remedy, and for the further reason that an independent civil action, not depending on the issues, limitations and results of a criminal prosecution, and entirely directed by the party wronged or his counsel, is more likely to secure adequate and efficacious redress. In view of the foregoing, the judgment of the Court of Appeals should be and is hereby affirmed, with costs against the defendant- petitioner. [G.R. No. L-32599. June 29, 1979.] EDGARDO E. MENDOZA, petitioner, vs. HON. ABUNDIO Z. ARRIETA, Presiding Judge of Branch VIII, Court of First Instance of Manila, FELINO TIMBOL, and RODOLFO SALAZAR, respondents.

David G. Nitafan for petitioner. Arsenio R. Reyes for respondent Timbol. Armando M. Pulgado for respondent Salazar.

DECISION

MELENCIO-HERRERA, J p: Petitioner, Edgardo Mendoza, seeks a review on Certiorari of the Orders of respondent Judge in Civil Case No. 80803 dismissing his Complaint for Damages based on quasi-delict against respondents Felino Timbol and Rodolfo Salazar. The facts which spawned the present controversy may be summarized as follows: On October 22, 1969, at about 4:00 o'clock in the afternoon, a three-way vehicular accident occurred along Mac-Arthur Highway, Marilao, Bulacan, involving a Mercedes Benz owned and driven by petitioner; a private jeep owned and driven by respondent Rodolfo Salazar; and a gravel and sand truck owned by respondent Felipino Timbol and driven by Freddie Montoya. As a consequence of said mishap, two separate Informations for Reckless Imprudence Causing Damage to Property were filed against Rodolfo Salazar and Freddie Montoya with the Court of First Instance of Bulacan. The case against truck-driver Montoya, docketed as Criminal Case No. SM-227, was for causing damage to the jeep owned by Salazar, in the

amount of P1,604.00, by hitting it at the right rear portion thereby causing said jeep to hit and bump an oncoming car, which happened to be petitioner's Mercedes Benz. The case against jeep-owner-driver Salazar, docketed as Criminal Case No. SM-228, was for causing damage to the Mercedes Benz of petitioner in the amount of P8,890.00. At the joint trial of the above cases, petitioner testified that jeep-owner-driver Salazar overtook the truck driven by Montoya, swerved to the left going towards the poblacion of Marilao, and hit his car which was bound for Manila. Petitioner further testified that before the impact, Salazar had jumped from the jeep and that he was not aware that Salazar's jeep was bumped from behind by the truck driven by Montoya. Petitioner's version of the accident was adopted by truck-driver Montoya. Jeep-owner-driver Salazar, on the other hand, tried to show that, after overtaking the truck driven by Montoya, he flashed a signal indicating his intention to turn left towards the poblacion of Marilao but was stopped at the intersection by a policeman who was directing traffic; that while he was at a stop position, his jeep was bumped at the rear by the truck driven by Montoya causing him to be thrown out of the jeep, which then swerved to the left and hit petitioner's car, which was coming from the opposite direction. On July 31, 1970, the Court of First Instance of Bulacan, Branch V, Sta. Maria, rendered judgment, stating in its decretal portion: LLpr "IN VIEW OF THE FOREGOING, this Court finds the accused Freddie Montoya GUILTY beyond reasonable doubt of the crime of damage to property thru reckless imprudence in Crim. Case No. SM-227, and hereby sentences him to pay a fine of P972.50 and to indemnify Rodolfo Salazar in the same amount of P972.50 as actual damages, with subsidiary imprisonment in case of insolvency, both as to fine and indemnity, with costs. "Accused Rodolfo Salazar is hereby ACQUITTED from the offense charged in Crim. Case No. SM-228, with costs de oficio, and his bond is ordered cancelled. "SO ORDERED." 1 Thus, the trial Court absolved jeep-owner-driver Salazar of any liability, civil and criminal, in view of its findings that the collision between Salazar's jeep and petitioner's car was the result of the former having been bumped from behind by the truck driven by Montoya. Neither was petitioner awarded damages as he was not a complainant against truck-driver Montoya but only against jeep-owner-driver Salazar.

On August 22, 1970, or after the termination of the criminal cases, petitioner filed Civil Case No. 80803 with the Court of First Instance of Manila against respondents jeep-owner-driver Salazar and Felino Timbol, the latter being the owner of the gravel and sand truck driven by Montoya, for indemnification for the damages sustained by his car as a result of the collision involving their vehicles. Jeep-ownerdriver Salazar and truck-owner Timbol were joined as defendants, either in the alternative or in solidum, allegedly for the reason that petitioner was uncertain as to whether he was entitled to relief against both on only one of them. On September 9, 1970, truck-owner Timbol filed a Motion to Dismiss Civil Case No. 80803 on the grounds that the Complaint is barred by a prior judgment in the criminal cases and that it fails to state a cause of action. An Opposition thereto was filed by petitioner. In an Order dated September 12, 1970, respondent Judge dismissed the Complaint against truck-owner Timbol for reasons stated in the afore-mentioned Motion to Dismiss. On September 30, 1970, petitioner sought before this Court the review of that dismissal, to which petition we gave due course. prcd On January 30, 1971, upon motion of jeep-owner-driver Salazar, respondent Judge also dismissed the case as against the former. Respondent Judge reasoned out that "while it is true that an independent civil action for liability under Article 2177 of the Civil Code could be prosecuted independently of the criminal action for the offense from which it arose, the New Rules of Court, which took effect on January 1, 1964, requires an express reservation of the civil action to be made in the criminal action; otherwise, the same would be barred pursuant to Section 2, Rule 111 . . ." 2 Petitioner's Motion for Reconsideration thereof was denied in the order dated February 23, 1971, with respondent Judge suggesting that the issue be raised to a higher Court "for a more decisive interpretation of the rule." 3 On March 25, 1971, petitioner then filed a Supplemental Petition before us, also to review the last two mentioned Orders, to which we required jeep-owner-driver Salazar to file an Answer. The Complaint against truck-owner Timbol We shall first discuss the validity of the Order, dated September 12, 1970, dismissing petitioner's Complaint against truck-owner Timbol. In dismissing the Complaint against the truck-owner, respondent Judge sustained Timbol's allegations that the civil suit is barred by the prior joint judgment in Criminal Cases Nos. SM-227 and SM-228, wherein no reservation to file a separate civil case was made by petitioner and where the latter actively participated in the

trial and tried to prove damages against jeep-driver Salazar only; and that the Complaint does not state a cause of action against truck-owner Timbol inasmuch as petitioner prosecuted jeep-owner-driver Salazar as the one solely responsible for the damage suffered by his car. Well-settled is the rule that for a prior judgment to constitute a bar to a subsequent case, the following requisites must concur: (1) it must be a final judgment; (2) it must have been rendered by a Court having jurisdiction over the subject matter and over the parties; (3) it must be a judgment on the merit; and (4) there must be, between the first and second actions, identity of parties, identity of subject matter and identity of cause of action. It is conceded that the first three requisites of res judicata are present. However, we agree with petitioner that there is no identity of cause of action between Criminal Case No. SM-227 and Civil Case No. 80803. Obvious is the fact that in said criminal case truck-driver Montoya was not prosecuted for damage to petitioner's car but for damage to the jeep. Neither was truck-owner Timbol a party in said case. In fact as the trial Court had put it "the owner of the Mercedes Benz cannot recover any damages from the accused Freddie Montoya, he (Mendoza) being a complainant only against Rodolfo Salazar in Criminal Case No. SM-228." 4 And more importantly, in the criminal cases, the cause of action was the enforcement of the civil liability arising from criminal negligence under Article 100 of the Revised Penal Code, whereas Civil Case No. 80803 is based on quasi-delict under Article 2180, in relation to Article 2176 of the Civil Code. As held in Barredo vs. Garcia, et al.: 5 "The foregoing authorities clearly demonstrate the separate individuality of cuasi-delitos or culpa aquiliana under the Civil Code. Specifically they show that there is a distinction between civil liability arising from criminal negligence (governed by the Penal Code) and responsibility for fault or negligence under articles 1902 to 1910 of the Civil Code, and that the same negligent act may produce either a civil liability arising from a crime under the Penal Code, or a separate responsibility for fault or negligence under articles 1902 to 1910 of the Civil Code. Still more concretely, the authorities above cited render it inescapable to conclude that the employer in this case the defendant petitioner is primarily and directly liable under article 1903 of the Civil Code." That petitioner's cause of action against Timbol in the civil case is based on quasidelict is evident from the recitals in the complaint, to wit: that while petitioner was driving his car along MacArthur Highway at Marilao, Bulacan, a jeep owned and

driven by Salazar suddenly swerved to his (petitioner's) lane and collided with his car; That the sudden swerving of Salazar's jeep was caused either by the negligence and lack of skill of Freddie Montoya, Timbol's employee, who was then driving a gravel and sand truck in the same direction as Salazar's jeep; and that as a consequence of the collision, petitioner's car suffered extensive damage amounting to P12,248.20 and that he likewise incurred actual and moral damages, litigation expenses and attorney's fees. Clearly, therefore, the two factors that a cause of action must consist of, namely: (1) plaintiff's primary right, i.e., that he is the owner of a Mercedes Benz, and (2) defendant's delict or wrongful act or omission which violated plaintiff's primary right, i.e., the negligence or lack of skill either of jeep-owner Salazar or of Timbol's employee, Montoya, in driving the truck, causing Salazar's jeep to swerve and collide with petitioner's car, were alleged in the Complaint. 6

Consequently, petitioner's cause of action being based on quasi-delict, respondent Judge committed reversible error when he dismissed the civil suit against the truckowner, as said case may proceed independently of the criminal proceedings and regardless of the result of the latter. prcd "Art. 31.When the civil action is based on an obligation not arising from the act or omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter." But it is truck-owner Timbol's submission (as well as that of jeep-owner-driver Salazar) that petitioner's failure to make a reservation in the criminal action of his right to file an independent civil action bars the institution of such separate civil action, invoking section 2, Rule 111, Rules of Court, which says: "Section 2. Independent civil action. In the cases provided for in Articles 31, 32, 33, 34 and 2177 of the Civil Code of the Philippines, an independent civil action entirely separate and distinct from the criminal action, may be brought by the injured party during the pendency of the criminal case, provided the right is reserved as required in the preceding section. Such civil action shall proceed independently of the criminal prosecution, and shall require only a preponderance of evidence." Interpreting the above provision, this Court, in Garcia vs. Florido, 7 said:

"As we have stated at the outset, the same negligent act causing damages may produce a civil liability arising from crime or create an action for quasi-delict or culpa extra-contractual. The former is a violation of the criminal law, while the latter is a distinct and independent negligence, having always had its own foundation and individuality. Some legal writers are of the view that in accordance with Article 31, the civil action based upon quasi-delict may proceed independently of the criminal proceeding for criminal negligence and regardless of the result of the latter. Hence, 'the proviso in Section 2 of Rule 111 with reference to . . . Articles 32, 33 and 34 of the Civil Code is contrary to the letter and spirit of the said articles, for these articles were drafted . . . and are intended to constitute as exceptions to the general rule stated in what is now Section 1 of Rule 111. The proviso, which is procedural, may also be regarded as an unauthorized amendment of substantive law, Articles 32, 33 and 34 of the Civil Code, which do not provide for the reservation required in the proviso.' . . ." In his concurring opinion in the above case, Mr. Justice Antonio Barredo further observed that inasmuch as Articles 2176 and 2177 of the Civil Code create a civil liability distinct and different from the civil action arising from the offense of negligence under the Revised Penal Code, no reservation, therefore, need be made in the criminal case; that Section 2 of Rule 111 is inoperative, "it being substantive in character and is not within the power of the Supreme Court to promulgate; and even if it were not substantive but adjective, it cannot stand because of its inconsistency with Article 2177, an enactment of the legislature superseding the Rules of 1940." We declare, therefore, that in so far as truck-owner Timbol is concerned, Civil Case No. 80803 is not barred by the fact that petitioner failed to reserve, in the criminal action, his right to file an independent civil action based on quasi-delict. LibLex The suit against jeep-owner-driver Salazar The case as against jeep-owner-driver Salazar, who was acquitted in Criminal Case No. SM-228, presents a different picture altogether. At the outset it should be clarified that inasmuch as civil liability coexists with criminal responsibility in negligence cases, the offended party has the option between an action for enforcement of civil liability based on culpa criminal under Article 100 of the Revised Penal Code, and an action for recovery of damages based on culpa aquiliana under Article 2177 of the Civil Code. The action for enforcement

of civil liability based on culpa criminal under section 1 of Rule 111 of the Rules of Court is deemed simultaneously instituted with the criminal action, unless expressly waived or reserved for separate application by the offended party. 8 The circumstances attendant to the criminal case yields the conclusion that petitioner had opted to base his cause of action against jeep-owner-driver Salazar on culpa criminal and not on culpa aquiliana, as evidenced by his active participation and intervention in the prosecution of the criminal suit against said Salazar. The latter's civil liability continued to be involved in the criminal action until its termination. Such being the case, there was no need for petitioner to have reserved his right to file a separate civil action as his action for civil liability was deemed impliedly instituted in Criminal Case No. SM-228. Neither would an independent civil action be. Noteworthy is the basis of the acquittal of jeep-owner-driver Salazar in the criminal case, expounded by the trial Court in this wise: "In view of what has been proven and established during the trial, accused Freddie Montoya would be held liable for having bumped and hit the rear portion of the jeep driven by the accused Rodolfo Salazar. "Considering that the collision between the jeep driven by Rodolfo Salazar and the car owned and driven by Edgardo Mendoza was the result of the hitting on the rear of the jeep by the truck driven by Freddie Montoya, this Court believes that accused Rodolfo Salazar cannot be held liable for the damages sustained by Edgardo Mendoza's car." 9 Crystal clear is the trial Court's pronouncement that under the facts of the case, jeep-owner driver Salazar cannot be held liable for the damages sustained by petitioner's car. In other words, "the fact from which the civil might arise did not exist." Accordingly, inasmuch as petitioner's cause of action as against jeep-ownerdriver Salazar is ex-delictu, founded on Article 100 of the Revised Penal Code, the civil action must be held to have been extinguished in consonance with Section 3(c), Rule 111 of t he Rules of Court 10 which provides: "Sec. 3.Other civil actions arising from offenses. In all cases not included in the preceding section the following rules shall be observed: xxxxxxxxx

(c)Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist. . . ." And even if petitioner's cause of action as against jeep-owner-driver Salazar were not ex-delictu, the end result would be the same, it being clear from the judgment in the criminal case that Salazar's acquittal was not based upon reasonable doubt, consequently, a civil action for damages can no longer be instituted. This is explicitly provided for in Article 29 of the Civil Code quoted hereunder: "Art. 29.When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action requires only a preponderance of evidence. . . . "If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the absence of any declaration to that effect, it may be inferred from the text of the decision whether or not the acquittal is due to that ground." In so far as the suit against jeep-owner-driver Salazar is concerned, therefore, we sustain respondent Judge's Order dated January 30, 1971 dismissing the complaint, albeit on different grounds. LLphil WHEREFORE, 1) the Order dated September 12, 1970 dismissing Civil Case No. 80803 against private respondent Felino Timbol is set aside, and respondent Judge, or his successor, hereby ordered to proceed with the hearing on the merits; 2) but the Orders dated January 30, 1971 and February 23, 1971 dismissing the Complaint in Civil Case No. 80803 against respondent Rodolfo Salazar are hereby upheld. No costs. [G.R. No. L-47745. April 15, 1988.] AMADORA, petitioners, vs. HONORABLE COURT OF APPEALS respondents.

Padilla Law Office for respondents. SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; QUASI-DELICT; LIABILITY OF TEACHERS AND HEADS OF ESTABLISHMENTS; APPLIES TO ALL SCHOOLS, WHETHER ACADEMIC OR NOT; RATIONALE. The provision in Article 2180 of the Civil Code should apply to all schools, academic as well as non-academic. Where the school is academic rather than technical or vocational in nature, responsibility for the tort committed by the student will attach to the teacher in charge of such student, following the first part of the provision. This is the general rule. In other words, teachers in general shall be liable for the acts of their students except where the school is technical in nature, in which case it is the head thereof who shall be answerable. There is really no substantial distinction between the academic and the non-academic schools insofar as torts committed by their students are concerned. The same vigilance is expected from the teacher over the students under his control and supervision, whatever the nature of the school where he is teaching. 2.STATUTORY CONSTRUCTION AND INTERPRETATION; REDDENDO SINGULA SINGULIS; APPLIED IN ARTICLE 2180 OF THE CIVIL CODE. Article 2180 of the Civil Code provides: "Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or apprentices so long as they remain in their custody." Following the canon of reddendo singula singulis, "teachers should apply to the words "pupils and student's and "heads of establishments of arts and trades" to the word "apprentices." 3.CIVIL LAW; OBLIGATIONS AND CONTRACTS; QUASI-DELICT; LIABILITY OF TEACHERS AND HEADS OF ESTABLISHMENTS CO-EXTENSIVE WITH THE PERIOD THE STUDENT IS IN SCHOOL PREMISES IN PURSUANCE OF LEGITIMATE OBJECTIVE. The student is in the custody of the school authorities as long as he is under the control and influence of the school and within its premises, whether the semester has not yet begun or has already ended. As long as it can be shown that the student is in the school premises in pursuance of a legitimate student objective, in the exercise of a legitimate student right, and even in the enjoyment of a legitimate student right, and even in the enjoyment of a legitimate student privilege, the responsibility of the school authorities over the student continues. 4.ID.; ID.; ID.; ID.; TEACHER-IN-CHARGE, DEFINED. The teacher-in-charge is the one designated by the dean, principal, or other administrative superior to exercise supervision over the pupils in the specific classes or sections to which they are assigned.

Jose S. Amadora & Associates for petitioners.

5.ID.; ID.; ID.; ID.; LIABILITY FALLS DIRECTLY ON THE TEACHER OR HEAD OF SCHOOL. It should be noted that the liability imposed by this article is supposed to fall directly on the teacher or the head of the school of arts and trades and not on the school itself. 6.ID.; ID.; ID.; ID.; RESPONDEAT SUPERIOR, BASIS OF LIABILITY OF SCHOOL FOR NEGLIGENCE OF TEACHERS AND HEADS. If at all, the school, whatever its nature, may be held to answer for the acts of its teachers or even of the head thereof under the general principle of respondeat superior, but then it may exculpate itself from liability by proof that it had exercised the diligence of a bonus paterfamilias. 7.ID.; ID.; ID.; ID.; DILIGENCE OF A GOOD FATHER OF A FAMILY, PROPER DEFENSE. Such defense of bonus pater familias is also available to the teacher or the head of the school of arts and trades directly held to answer for the tort committed by the student. As long as the defendant can show that he had taken the necessary precautions to prevent the injury complained of, he can exonerate himself from the liability imposed by Article 2180. 8.ID.; ID.; ID.; ID.; LIABILITY ATTACHES REGARDLESS OF AGE OF STUDENT. It should be observed that the teacher will be held liable not only when he is acting in loco parentis for the law does not require that the offending student be of minority age. Unlike the parent, who will be liable only if his child is still a minor, the teacher is held answerable by the law for the act of the student under him regardless of the student's age. MELENCIO-HERRERA, J., concurring and dissenting: 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; QUASI-DELICT; LIABILITY OF TEACHERS AND HEADS OF ESTABLISHMENTS; TERM NOT LIMITED TO TEACHER-INCHARGE; EMBRACES ONE THAT STANDS IN LOCO PARENTIS. I concur, except with respect to the restricted meaning given the term "teacher" in Article 2180 of the Civil Code as "teacher-in-charge." This would limit liability to occasions where there are classes under the immediate charge of a teacher, which does not seem to be the intendment of the law. The philosophy of the law is that whoever stands in loco parentis will have the same duties and obligations as parents whenever in such a standing. Those persons are mandatorily held liable for the tortious acts of pupils and students so long as the latter remain in their custody, meaning their protective and supervisory custody. 2.ID.; ID.; ID.; ID.; RATIONALE OF LIABILITY. "The protective custody of the school heads and teachers is mandatorily substituted for that of the parents, and hence, it becomes their obligation as well as that of the school itself to provide proper supervision of the students' activities during the whole time that they are at

attendance in the school, including recess time, as well as to take the necessary precautions to protect the students in their custody from dangers and hazards that would reasonably be anticipated, including injuries that some students themselves may inflict wilfully or through negligence on their fellow students. (Palisoc vs, Brillantes, 41 SCRA 548) 3.ID.; ID.; ID.; ID.; DEFENSE AGAINST LIABILITY. As provided for in the same Article 2180, the responsibility treated of shall cease when the persons mentioned prove that they observed all the diligence of a good father of a family to prevent damage. 4.ID.; ID.; ID.; ID.; LIABILITY OF SCHOOLS, EXPLAINED; DEFENSE AVAILABLE. And while a school is, admittedly, not directly liable since Article 2180 speaks only of teachers and schools heads, yet, by virtue of the same provision, the school, as their employer, may be held liable for the failure of its teachers or school heads to perform their mandatory legal duties as substitute parents (Sangco, Philippine Law on Torts & Damages, 1978 ed., p. 201). Again, the school may exculpate itself from liability by proving that it had exercised the diligence of a good father of the family.

DECISION

CRUZ, J p: Like any prospective graduate, Alfredo Amadora was looking forward to the commencement exercises where he would ascend the stage and in the presence of his relatives and friends receive his high school diploma. These ceremonies were scheduled on April 16, 1972. As it turned out, though, fate would intervene and deny him that awaited experience. On April 13, 1972, while they were in the auditorium of their school, the Colegio de San Jose-Recoletes, a classmate, Pablito Daffon, fired a gun that mortally hit Alfredo, ending all his expectations and his life as well. The victim was only seventeen years old. 1 Daffon was convicted of homicide thru reckless imprudence. 2 Additionally, the herein petitioners, as the victim's parents, filed a civil action for damages under Article 2180 of the Civil Code against the Colegio de San Jose-Recoletos, its rector, the high school principal, the dean of boys, and the physics teacher, together with Daffon and two other students, through their respective parents. The complaint against the students was later dropped. After trial, the Court of First Instance of Cebu held the remaining defendants liable to the plaintiffs in the sum of P294,984.00, representing death compensation, loss of earning capacity, costs of

litigation, funeral expenses, moral damages, exemplary damages, and attorney's fees. 3 On appeal to the respondent court, however, the decision was reversed and all the defendants were completely absolved. 4 In its decision, which is now the subject of this petition for certiorari under Rule 45 of the Rules of Court, the respondent court found that Article 2180 was not applicable as the Colegio de San Jose-Recoletos was not a school of arts and trades but an academic institution of learning. It also held that the students were not in the custody of the school at the time of the incident as the semester had already ended, that there was no clear identification of the fatal gun, and that in any event the defendants had exercised the necessary diligence in preventing the injury. 5 The basic undisputed facts are that Alfredo Amadora went to the San JoseRecoletos on April 13, 1972, and while in its auditorium was shot to death by Pablito Daffon, a classmate. On the implications and consequences of these facts, the parties sharply disagree. prLL The petitioners contend that their son was in the school to finish his physics experiment as a prerequisite to his graduation; hence, he was then under the custody of the private respondents. The private respondents submit that Alfredo Amadora had gone to the school only for the purpose of submitting his physics report and that he was no longer in their custody because the semester had already ended.

"Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or apprentices so long as they remain in their custody." Three cases have so far been decided by the Court in connection with the abovequoted provision, to wit: Exconde v. Capuno, 7 Mercado v. Court ofAppeals, 8 and Palisoc v. Brillantes. 9 These will be briefly reviewed in this opinion for a better resolution of the case at bar. In the Exconde Case, Dante Capuno, a student of the Balintawak Elementary School and a Boy Scout, attended a Rizal Day parade on instructions of the city school supervisor. After the parade, the boy boarded a jeep, took over its wheel and drove it so recklessly that it turned turtle, resulting in the death of two of its passengers. Dante was found guilty of double homicide with reckless imprudence. In the separate civil action filed against them, his father was held solidarily liable with him in damages under Article 1903 (now Article 2180) of the Civil Code for the tort committed by the 15-year old boy. This decision, which was penned by Justice Bautista Angelo on June 29, 1957, exculpated the school in an obiter dictum (as it was not a party to the case) on the ground that it was not a school of arts and trades. Justice J.B.L. Reyes, with whom Justices Sabino Padilla and Alex Reyes concurred, dissented, arguing that it was the school authorities who should be held liable. Liability under this role, he said, was imposed on (1) teachers in general; and (2) heads of schools of arts and trades in particular. The modifying clause "of establishments of arts and trades" should apply only to "heads" and not "teachers." Exconde was reiterated in the Mercado Case, and with an elaboration. A student cut a classmate with a razor blade during recess time at the Lourdes Catholic School in Quezon City, and the parents of the victim sued the culprit's parents for damages. Through Justice Labrador, the Court declared in another obiter (as the school itself had also not been sued) that the school was not liable because it was not an establishment of arts and trades. Moreover, the custody requirement had not been proved as this "contemplates a situation where the student lives and boards with the teacher, such that the control, direction and influences on the pupil supersede those of the parents." Justice J.B.L. Reyes did not take part but the other members of thecourt concurred in this decision promulgated on May 30, 1960. cdrep In Palisoc vs. Brillantes, decided on October 4, 1971, a 16-year old student was killed by a classmate with fist blows in the laboratory of the Manila Technical Institute. Although the wrongdoer who was already of age was not boarding

There is also the question of the identity of the gun used which the petitioners consider important because of an earlier incident which they claim underscores the negligence of the school and at least one of the private respondents. It is not denied by the respondents that on April 7, 1972, Sergio Damaso, Jr., the dean of boys, confiscated from Jose Gumban an unlicensed pistol but later returned it to him without making a report to the principal or taking any further action. 6 As Gumban was one of the companions of Daffon when the latter fired the gun that killed Alfredo, the petitioners contend that this was the same pistol that had been confiscated from Gumban and that their son would not have been killed if it had not been returned by Damaso. The respondents say, however, that there is no proof that the gun was the same firearm that killed Alfredo. Resolution of all these disagreements will depend on the interpretation of Article 2180 which, as it happens, is invoked by both parties in support of their conflicting positions. The pertinent part of this article reads as follows:

in the school, the head thereof and the teacher in charge were held solidarily liable with him. The Court declared through Justice Teehankee: "The phrase used in the cited article 'so long as (the students) remain in their custody' means the protective and supervisory custody that the school and its heads and teachers exercise over the pupils and students for as long as they are at attendance in the school, including recess time. There is nothing in the law that requires that for such liability to attach, the pupil or student who commits the tortious act must live and board in the school, as erroneously held by the lower court, and the dicta in Mercado (as well as in Exconde) on which it relied, must now be deemed to have been set aside by the present decision." This decision was concurred in by five other members, 10 including Justice J.B.L. Reyes, who stressed, in answer to the dissenting opinion, that even students already of age were covered by the provision since they were equally in the custody of the school and subject to its discipline. Dissenting with three others, 11 Justice Makalintal was for retaining the custody interpretation in Mercado and submitted that the rule should apply only to torts committed by students not yet of age as the school would be acting only in loco parentis. In a footnote, Justice Teehankee said he agreed with Justice Reyes' dissent in the Exconde Case but added that "since the school involved at bar is a non-academic school, the question as to the applicability of the cited codal provision to academic institutions will have to await another case wherein it may properly be raised." This is the case. Unlike in Exconde and Mercado, the Colegio de San Jose-Recoletos has been directly impleaded and is sought to be held liable under Article 2180; and unlike in Palisoc, it is not a school of arts and trades but an academic institution of learning. The parties herein have also directly raised the question of whether or not Article 2180 covers even establishments which are technically not schools of arts and trades, and, if so, when the offending student is supposed to be "in its custody." After an exhaustive examination of the problem, the Court has come to the conclusion that the provision in question should apply to all schools, academic as well as non-academic. Where the school is academic rather than technical or vocational in nature, responsibility for the tort committed by the student will attach to the teacher in charge of such student, following the first part of the provision. This is the general rule. In the case of establishments of arts and trades,

it is the head thereof, and only he, who shall be held liable as an exception to the general rule. In other words, teachers in general shall be liable for the acts of their students except where the school is technical in nature, in which case it is the head thereof who shall be answerable. Following the canon of reddendo singula singulis, "teachers" should apply to the words "pupils and students" and "heads of establishments of arts and trades" to the word "apprentices." The Court thus conforms to the dissenting opinion expressed by Justice J.B.L. Reyes in Exconde where he said in part: "I can see no sound reason for limiting Art. 1903 of the Old Civil Code to teachers of arts and trades and not to academic ones. What substantial difference is there between them insofar as concerns the proper supervision and vigilance over their pupils? It cannot be seriously contended that an academic teacher is exempt from the duty of watching that his pupils do not commit a tort to the detriment of third persons, so long as they are in a position to exercise authority and supervision over the pupil. In my opinion, in the phrase 'teachers or heads of establishments of arts and trades' used in Art. 1903 of the old Civil Code, the words 'arts and trades' does not qualify 'teachers' but only 'heads of establishments.' The phrase is only an updated version of the equivalent terms `preceptores y artesanos' used in the Italian and French Civil Codes. cdrep "If, as conceded by all commentators, the basis of the presumption of negligence of Art. 1903 in some culpa in vigilando that the parents, teachers, etc. are supposed to have incurred in the exercise of their authority, it would seem clear that where the parent places the child under the effective authority of the teacher, the latter, and not the parent, should be the one answerable for the torts committed while under his custody, for the very reason that the parent is not supposed to interfere with the discipline of the school nor with the authority and supervision of the teacher while the child is under instruction. And if there is no authority, there can be no responsibility.' There is really no substantial distinction between the academic and the nonacademic schools insofar as torts committed by their students are concerned. The same vigilance is expected from the teacher over the students under his control and supervision, whatever the nature of the school where he is teaching. The suggestion in the Exconde and Mercado Cases is that the provision would make the

teacher or even the head of the school of arts and trades liable for an injury caused by any student in its custody but if that same tort were committed in an academic school, no liability would attach to the teacher or the school head. All other circumstances being the same, the teacher or the head of the academic school would be absolved whereas the teacher and the head of the non-academic school would be held liable, and simply because the latter is a school of arts and trades. The Court cannot see why different degrees of vigilance should be exercised by the school authorities on the basis only of the nature of their respective schools. There does not seem to be any plausible reason for relaxing that vigilance simply because the school is academic in nature and for increasing such vigilance where the school is non-academic. Notably, the injury subject of liability is caused by the student and not by the school itself nor is it a result of the operations of the school or its equipment. The injury contemplated may be caused by any student regardless of the school where he is registered. The teacher certainly should not be able to excuse himself by simply showing that he is teaching in an academic school where, on the other hand, the head would be held liable if the school were non-academic.

enrollment, and the corresponding diminution of the direct and personal contact of their heads with the students. Article 2180, however, remains unchanged. In its present state, the provision must be interpreted by the Court according to its clear and original mandate until the legislature, taking into account the changes in the situation subject to be regulated, sees fit to enact the necessary amendment. LLpr The other matter to be resolved is the duration of the responsibility of the teacher or the head of the school of arts and trades over the students. Is such responsibility co-extensive with the period when the student is actually undergoing studies during the school term, as contended by the respondents and impliedly admitted by the petitioners themselves? From a reading of the provision under examination, it is clear that while the custody requirement, to repeat Palisoc v. Brillantes, does not mean that the student must be boarding with the school authorities, it does signify that the student should be within the control and under the influence of the school authorities at the time of the occurrence of the injury. This does not necessarily mean that such, custody be co-terminous with the semester, beginning with the start of classes and ending upon the close thereof, and excluding the time before or after such period, such as the period of registration, and in the case of graduating students, the period before the commencement exercises. In the view of the Court, the student is in the custody of the school authorities as long as he is under the control and influence of the school and within its premises, whether the semester has not yet begun or has already ended. It is too tenuous to argue that the student comes under the discipline of the school only upon the start of classes notwithstanding that before that day he has already registered and thus placed himself under its rules. Neither should such discipline be deemed ended upon the last day of classes notwithstanding that there may still be certain requisites to be satisfied for completion of the course, such as submission of reports, term papers, clearances and the like. During such periods, the student is still subject to the disciplinary authority of the school and cannot consider himself released altogether from observance of its rules. As long as it can be shown that the student is in the school premises in pursuance of a legitimate student objective, in the exercise of a legitimate student right, and even in the enjoyment of a legitimate student right, and even in the enjoyment of a legitimate student privilege, the responsibility of the school authorities over the student continues. Indeed, even if the student should be doing nothing more than relaxing in the campus in the company of his classmates and friends and enjoying the ambience and atmosphere of the school, he is still within the custody and subject to the discipline of the school authorities under the provisions of Article 2180.

These questions, though, may be asked: If the teacher of the academic school is to be held answerable for the torts committed by his students, why is it the head of the school only who is held liable where the injury is caused in a school of arts and trades? And in the case of the academic or non-technical school, why not apply the rule also to the head thereof instead of imposing the liability only on the teacher? The reason for the disparity can be traced to the fact that historically the head of the school of arts and trades exercised a closer tutelage over his pupils than the head of the academic school. The old schools of arts and trades were engaged in the training of artisans apprenticed to their master who personally and directly instructed them on the technique and secrets of their craft. The head of the school of arts and trades was such a master and so was personally involved in the task of teaching his students, who usually even boarded with him and so came under his constant control, supervision and influence. By contrast, the head of the academic school was not as involved with his students and exercised only administrative duties over the teachers who were the persons directly dealing with the students. The head of the academic school had then (as now) only a vicarious relationship with the students. Consequently, while he could not be directly faulted for the acts of the students, the head of the school of arts and trades, because of his closer ties with them, could be so blamed. It is conceded that the distinction no longer obtains at present in view of the expansion of the schools of arts and trades, the consequent increase in their

During all these occasions, it is obviously the teacher-in-charge who must answer for his students' torts, in practically the same way that the parents are responsible for the child when he is in their custody. The teacher-in-charge is the one designated by the dean, principal, or other administrative superior to exercise supervision over the pupils in the specific classes or sections to which they are assigned. It is not necessary that at the time of the injury, the teacher be physically present and in a position to prevent it. Custody does not connote immediate and actual physical control but refers more to the influence exerted on the child and the discipline instilled in him as a result of such influence. Thus, for the injuries caused by the student, the teacher and not the parent shall be held responsible if the tort was committed within the premises of the school at any time when its authority could be validly exercised over him. In any event, it should be noted that the liability imposed by this article is supposed to fall directly on the teacher or the head of the school of arts and trades and not on the school itself. If at all, the school, whatever its nature, may be held to answer for the acts of its teachers or even of the head thereof under the general principle of respondeat superior, but then it may exculpate itself from liability by proof that it had exercised the diligence of a bonus paterfamilias. Such defense is, of course, also available to the teacher or the head of the school of arts and trades directly held to answer for the tort committed by the student. As long as the defendant can show that he had taken the necessary precautions to prevent the injury complained of, he can exonerate himself from the liability imposed by Article 2180, which also states that: "The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damages." In this connection, it should be observed that the teacher will be held liable not only when he is acting in loco parentis for the law does not require that the offending student be of minority age. Unlike the parent, who will be liable only if his child is still a minor, the teacher is held answerable by the law for the act of the student under him regardless of the student's age. Thus, in the Palisoc Case, liability attached to the teacher and the head of the technical school although the wrongdoer was already of age. In this sense, Article 2180 treats the parent more favorably than the teacher. The Court is not unmindful of the apprehensions expressed by Justice Makalintal in his dissenting opinion in Palisoc that the school may be unduly exposed to liability under this article in view of the increasing activism among the students that is likely to cause violence and resulting injuries in the school premises. That is a valid

fear, to be sure. Nevertheless, it should be repeated that, under the present ruling, it is not the school that will be held directly liable. Moreover, the defense of due diligence is available to it in case it is sought to be held answerable as principal for the acts or omission of its head or the teacher in its employ. cdll The school can show that it exercised proper measures in selecting the head or its teachers and the appropriate supervision over them in the custody and instruction of the pupils pursuant to its rules and regulations for the maintenance of discipline among them. In almost all cases now, in fact, these measures are effected through the assistance of an adequate security force to help the teacher physically enforce those rules upon the students. This should bolster the claim of the school that it has taken adequate steps to prevent any injury that may be committed by its students. A fortiori, the teacher himself may invoke this defense as it would otherwise be unfair to hold him directly answerable for the damage caused by his students as long as they are in the school premises and presumably under his influence. In this respect, the Court is disposed not to expect from the teacher the same measure of responsibility imposed on the parent for their influence over the child is not equal in degree. Obviously, the parent can expect more obedience from the child because the latter's dependence on him is greater than on the teacher. It need not be stressed that such dependence includes the child's support and sustenance whereas submission to the teacher's influence, besides being co-terminous with the period of custody, is usually enforced only because of the students' desire to pass the course. The parent can instill more lasting discipline on the child than the teacher and so should be held to a greater accountability than the teacher for the tort committed by the child. And if it is also considered that under the article in question, the teacher or the head of the school of arts and trades is responsible for the damage caused by the student or apprentice even if he is already of age and therefore less tractable than the minor then there should all the more be justification to require from the school authorities less accountability as long as they can prove reasonable diligence in preventing the injury. After all, if the parent himself is no longer liable for the student's acts because he has reached majority age and so is no longer under the former's control, there is then all the more reason for leniency in assessing the teacher's responsibility for the acts of the student.

Applying the foregoing considerations, the Court has arrived at the following conclusions:

1.At the time Alfredo Amadora was fatally shot, he was still in the custody of the authorities of Colegio de San Jose-Recoletos notwithstanding that the fourth year classes had formally ended. It was immaterial if he was in the school auditorium to finish his physics experiment or merely to submit his physics report for what is important is that he was there for a legitimate purpose. As previously observed, even the mere savoring of the company of his friends in the premises of the school is a legitimate purpose that would have also brought him in the custody of the school authorities. 2.The rector, the high school principal and the dean of boys cannot be held liable because none of them was the teacher-in-charge as previously defined. Each of them was exercising only a general authority over the student body and not the direct control and influence exerted by the teacher placed in charge of particular classes or sections and thus immediately involved in its discipline. The evidence of the parties does not disclose who the teacher-in-charge of the offending student was. The mere fact that Alfredo Amadora had gone to school that day in connection with his physics report did not necessarily make the physics teacher, respondent Celestino Dicon, the teacher-in-charge of Alfredo's killer. 3.At any rate, assuming that he was the teacher-in-charge, there is no showing that Dicon was negligent in enforcing discipline upon Daffon or that he had waived observance of the rules and regulations of the school or condoned their nonobservance. His absence when the tragedy happened cannot be considered against him because he was not supposed or required to report to school on that day. And while it is true that the offending student was still in the custody of the teacher-incharge even if the latter was physically absent when the tort was committed, it has not been established that it was caused by his laxness in enforcing discipline upon the student. On the contrary, the private respondents have proved that they had exercised due diligence, through the enforcement of the school regulations, in maintaining that discipline. llcd 4.In the absence of a teacher-in-charge, it is probably the dean of boys who should be held liable, especially in view of the unrefuted evidence that he had earlier confiscated an unlicensed gun from one of the students and returned the same later to him without taking disciplinary action or reporting the matter to higher authorities. While this was clearly negligence on his part, for which he deserves sanctions from the school, it does not necessarily link him to the shooting of Amador as it has not been shown that the confiscated and returned pistol was the gun that killed the petitioners' son. 5.Finally, as previously observed, the Colegio de San Jose-Recoletos cannot be held directly liable under the article because only the teacher or the head of the school of arts and trades is made responsible for the damage caused by the student or

apprentice. Neither can it be held to answer for the tort committed by any of the other private respondents for none of them has been found to have been charged with the custody of the offending student or has been remiss in the discharge of his duties in connection with such custody. In sum, the Court finds under the facts as disclosed by the record and in the light of the principles herein announced that none of the respondents is liable for the injury inflicted by Pablito Daffon on Alfredo Amadora that resulted in the latter's death at the auditorium of the Colegio de San Jose-Recoletos on April 13, 1972. While we deeply sympathize with the petitioners over the loss of their son under the tragic circumstances here related, we nevertheless are unable to extend them the material relief they seek, as a balm to their grief, under the law they have invoked. WHEREFORE, the petition is DENIED, without any pronouncement as to costs. It is so ordered. [G.R. No. 108346. July 11, 2001.] Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners, vs. COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO, respondents.

Marciano J. Cagatan and Mariano R. Logarta for petitioners. M.B. Tomacruz for private respondents. SYNOPSIS Petitioners entered into a deed of sale with assumption of mortgage with private respondents paying a downpayment of P800,000 and assuming the mortgage amount of P1.8M in favor of BPI. Petitioners further agreed "to strictly and faithfully comply with all the terms and conditions appearing in the real estate mortgage signed and executed by the vendor in favor of BPI . . . as if the same were originally signed and executed by the vendee." As part of the deed, petitioner Avelina with her husband's consent executed an undertaking that during the pendency of the application for the assumption of mortgage she agreed to continue paying said loan in accordance with the mortgage deed and that in the event of violation of any of the terms and conditions of the deed of real estate mortgage, she agreed that the P800,000 downpayment shall be forfeited as

liquidated damages and the deed of sale with assumption of mortgage shall be deemed automatically cancelled. When the bank denied the application for assumption of mortgage, petitioners stopped making payments. Thus, notice of cancellation/rescission was sent to petitioners for non-performance of their obligation. Aggrieved, petitioners filed a complaint against private respondent for specific performance, nullity of cancellation, writ of possession and damages. Both parties admitted that their agreement mandated that petitioners should pay the purchase price balance of P1.8M to private respondents in case the request to assume the mortgage would be disapproved. The trial court dismissed the complaint, but on reconsideration, directed the parties to proceed with the sale. On appeal, the Court of Appeals upheld the validity of the rescission. Hence, this recourse. ADCIca The failure of the vendee to pay the balance of the purchase price constitutes a breach on the performance of a reciprocal obligation, and not a violation of the terms and conditions of the mortgage contract. This gave rise to the vendor's right to rescind the contract. However, the automatic rescission and forfeiture of payment clauses in the mortgage contract does not apply. Considering that the rescission of the contract was based on Article 1191 of the Civil Code, mutual restitution by the parties is required. SYLLABUS 1.CIVIL LAW; SPECIAL CONTRACTS; SALES; CONSTRUED; CASE AT BAR. In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer to pay therefor a price certain in money or its equivalent. Private respondents had already performed their obligation through the execution of the Deed of Sale, which effectively transferred ownership of the property to petitioner through constructive delivery. Prior physical delivery or possession is not legally required, and the execution of the Deed of Sale is deemed equivalent to delivery. 2.ID.; ID.; RESCISSION; OBLIGOR'S FAILURE TO COMPLY WITH EXISTING OBLIGATION. The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the said provision is the obligor's failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission. IEHScT

3.ID.; ID.; ID.; ID.; CASE AT BAR. In the present case, private respondents validly exercised their right to rescind the contract, because of the failure of petitioners to comply with their obligation to pay the balance of the purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract of sale, a violation that consequently gave rise to private respondents' right to rescind the same in accordance with law. 4.ID.; ID.; ID.; FORFEITURE OF PAYMENT DOES NOT APPLY WHERE BREACH WAS NON-PERFORMANCE; MUTUAL RESTITUTION, REQUIRED. As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this controversy. Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is required to bring back the parties to their original situation prior to the inception of the contract. Accordingly, the initial payment of P800,000 and the corresponding mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners should be returned by private respondents, lest the latter unjustly enrich themselves at the expense of the former. 5.ID.; ID.; ID.; OBLIGATION CREATED. Rescission creates the obligation to return the object of the contract. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. To rescind is to declare a contract void at its inception and to put an end to it as though it never was. It is not merely to terminate it and release the parties from further obligations to each other, but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been made. IDAEHT

DECISION

PANGANIBAN, J p: A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by the contract, entitles the injured party to rescind the obligation. Rescission abrogates the contract from its inception and requires a mutual restitution of benefits received. The Case

Before us is a Petition for Review on Certiorari 1 questioning the Decision 2 of the Court of Appeals (CA) in CA-GR CV No. 32991 dated October 9, 1992, as well as its Resolution 3 dated December 29, 1992 denying petitioner's motion for reconsideration. 4 The dispositive portion of the assailed Decision reads: "WHEREFORE, the Order dated May 15, 1991 is hereby ANNULLED and SET ASIDE and the Decision dated November 14, 1990 dismissing the [C]omplaint is REINSTATED. The bonds posted by plaintiffs-appellees and defendants-appellants are hereby RELEASED." 5 The Facts The factual antecedents of the case, as found by the CA, are as follows: " . . .. David Raymundo [herein private respondent] is the absolute and registered owner of a parcel of land, together with the house and other improvements thereon, located at 1918 Kamias St., Dasmarias Village, Makati and covered by TCT No. 142177. Defendant George Raymundo [herein private respondent] is David's father who negotiated with plaintiffs Avelina and Mariano Velarde [herein petitioners] for the sale of said property, which was, however, under lease (Exh. '6', p. 232, Record of Civil Case No. 15952). "On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. 'A'; Exh. '1', pp. 11-12, Record) was executed by defendant David Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee, with the following terms and conditions: 'xxx xxx xxx 'That for and in consideration of the amount of EIGHT HUNDRED THOUSAND PESOS (P800,000.00), Philippine currency, receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, to his entire and complete satisfaction, by these presents the VENDOR hereby SELLS, CEDES, TRANSFERS, CONVEYS AND DELIVERS, freely and voluntarily, with full warranty of a legal and valid title as provided by

law, unto the VENDEE, her heirs, successors and assigns, the parcel of land mentioned and described above, together with the house and other improvements thereon. 'That the aforesaid parcel of land, together with the house and other improvements thereon, were mortgaged by the VENDOR to the BANK OF THE PHILIPPINE ISLANDS, Makati, Metro Manila, to secure the payment of a loan of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, as evidenced by a Real Estate Mortgage signed and executed by the VENDOR in favor of the said Bank of the Philippine Islands, on _________ and which Real Estate Mortgage was ratified before Notary Public for Makati, _________, as Doc. No. _____, Page No. ____, Book No. ____, Series of 1986 of his Notarial Register. 'That as part of the consideration of this sale, the VENDEE hereby assumes to pay the mortgage obligations on the property herein sold in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in favor of Bank of the Philippine Islands, in the name of the VENDOR, and further agrees to strictly and faithfully comply with all the terms and conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI, including interests and other charges for late payment levied by the Bank, as if the same were originally signed and executed by the VENDEE. 'It is further agreed and understood by the parties herein that the capital gains tax and documentary stamps on the sale shall be for the account of the VENDOR; whereas, the registration fees and transfer tax thereon shall be for the account of the VENDEE.' (Exh. 'A', pp. 11-12, Record).' "On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the consent of her husband, Mariano, executed an Undertaking (Exh. 'C', pp. 13-14, Record). the pertinent Portions of which read, as follows:

'xxx xxx xxx 'Whereas, as per Deed of Sale with Assumption of Mortgage, I paid Mr. David A. Raymundo the sum of EIGHT HUNDRED THOUSAND PESOS (P800,000.00), Philippine currency, and assume the mortgage obligations on the property with the Bank of the Philippine Islands in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in accordance with the terms and conditions of the Deed of Real Estate Mortgage dated _________, signed and executed by Mr. David A. Raymundo with the said Bank, acknowledged before Notary Public for Makati, ______, as Doc. No. ___, Page No. ____, Book No. _____, Series of 1986 of his Notarial Register.

'1.That until such time as my assumption of the mortgage obligations on the property purchased is approved by the mortgagee bank, the Bank of the Philippine Islands, I shall continue to pay the said loan in accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of Mr. David A. Raymundo, the original Mortgagor. '2.That, in the event I violate any of the terms and conditions of the said Deed of Real Estate Mortgage, I hereby agree that my downpayment of P800,000.00, plus all payments made with the Bank of the Philippine Islands on the mortgage loan, shall be forfeited in favor of Mr. David A. Raymundo, as and by way of liquidated damages, without necessity of notice or any judicial declaration to that effect, and Mr. David A. Raymundo shall resume total and complete ownership and possession of the property sold by way of Deed of Sale with Assumption of Mortgage, and the same shall be deemed automatically cancelled and be of no further force or effect, in the same manner as if (the) same had never been executed or entered into. '3.That I am executing this Undertaking for purposes of binding myself, my heirs, successors and assigns, to strictly and faithfully comply with the terms and conditions of the mortgage obligations with the Bank of the Philippine Islands, and the covenants, stipulations and provisions of this Undertaking. 'That, David A. Raymundo, the vendor of the property mentioned and identified above, [does] hereby confirm and agree to the undertakings of the Vendee pertinent to the assumption of the mortgage obligations by the Vendee with the Bank of the Philippine Islands. (Exh. 'C', pp. 13-14, Record).' "This undertaking was signed by Avelina and Mariano Velarde and David Raymundo. "It appears that the negotiated terms for the payment of the balance of P1.8 million was from the proceeds of a loan that

'WHEREAS, while my application for the assumption of the mortgage obligations on the property is not yet approved by the mortgagee Bank, I have agreed to pay the mortgage obligations on the property with the Bank in the name of Mr. David A. Raymundo, in accordance with the terms and conditions of the said Deed of Real Estate Mortgage, including all interests and other charges for late payment. 'WHEREAS, this undertaking is being executed in favor of Mr. David A. Raymundo, for purposes of attesting and confirming our private understanding concerning the said mortgage obligations to be assumed. cCEAHT 'NOW, THEREFORE, for and in consideration of the foregoing premises, and the assumption of the mortgage obligations of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, with the Bank of the Philippine islands, I, Mrs. Avelina D.Velarde, with the consent of my husband, Mariano Z. Velarde, do hereby bind and obligate myself, my heirs, successors and assigns, to strictly and faithfully comply with the following terms and conditions:

plaintiffs were to secure from a bank with defendant's help. Defendants had a standing approved credit line with the Bank of the Philippine Islands (BPI). The parties agreed to avail of this, subject to BPI's approval of an application for assumption of mortgage by plaintiffs. Pending BPI's approval o[f] the application, plaintiffs were to continue paying the monthly interests of the loan secured by a real estate mortgage. "Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the aforementioned mortgage for three (3) months as follows: September 19, 1986 at P27,225.00; October 20, 1986 at P23,000.00; and November 19, 1986 at P23,925.00 (Exh. 'E', 'H' & 'J', pp. 15, 17 and 18, Record). "On December 15, 1986, plaintiffs were advised that the Application for Assumption of Mortgage with BPI was not approved (Exh. 'J', p. 133, Record). This prompted plaintiffs not to make any further payment. "On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that their non-payment to the mortgage bank constitute[d] non-performance of their obligation (Exh. '3', p. 220, Record). "In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows: 'This is to advise you, therefore, that our client is willing to pay the balance in cash not later than January 21, 1987 provided: (a) you deliver actual possession of the property to her not later than January 15, 1987 for her immediate occupancy; (b) you cause the release of title and mortgage from the Bank of P.I. and make the title available and free from any liens and encumbrances; and (c) you execute an absolute deed of sale in her favor free from any liens or encumbrances not later than January 21, 1987.' (Exhs. 'K', '4', p. 223, Record). "On January 8, 1987, defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended sale of the subject property allegedly due to the latter's failure to comply with the

terms and conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking (Exh. '5', pp. 225-226, Record)." '6 Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents for specific performance, nullity of cancellation, writ of possession and damages. This was docketed as Civil Case No. 15952 at the Regional Trial Court of Makati, Branch 149. The case was tried and heard by then Judge Consuelo Ynares-Santiago (now an associate justice of this Court), who dismissed the Complaint in a Decision dated November 14, 1990. 7Thereafter, petitioners filed a Motion for Reconsideration. 8 Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge Salvador S. A. Abad Santos was assigned to the sala she vacated. In an Order dated May 15, 1991, 9 Judge Abad Santos granted petitioners' Motion for Reconsideration and directed the parties to proceed with the sale. He instructed petitioners to pay the balance of P1.8 million to private respondents who, in turn, were ordered to execute a deed of absolute sale and to surrender possession of the disputed property to petitioners. Private respondents appealed to the CA. Ruling of the Court of Appeals The CA set aside the Order of Judge Abad Santos and reinstated then Judge YnaresSantiago's earlier Decision dismissing petitioners' Complaint. Upholding the validity of the rescission made by private respondents, the CA explained its ruling in this wise: "In the Deed of Sale with Assumption of Mortgage, it was stipulated that 'as part of the consideration of this sale, the VENDEE (Velarde)' would assume to pay the mortgage obligation on the subject property in the amount of P1.8 million in favor of BPI in the name of the Vendor (Raymundo). Since the price to be paid by the Vendee Velarde includes the downpayment of P800,000.00 and the balance of P1.8 million, and the balance of P1.8 million cannot be paid in cash, Vendee Velarde, as part of the consideration of the sale, had to assume the mortgage obligation on the subject property. In other words, the assumption of the mortgage obligation is part of the obligation of Velarde, as vendee, under the contract. Velarde further agreed 'to strictly and faithfully comply with all the terms and conditions appearing in the Real

Estate Mortgage signed and executed by the VENDOR in favor of BPI . . . as if the same were originally signed and executed by the Vendee.' (p. 2, thereof, p. 12, Record). This was reiterated by Velarde in the document entitled 'Undertaking' wherein the latter agreed to continue paying said loan in accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of Raymundo. Moreover, it was stipulated that in the event of violation byVelarde of any terms and conditions of said deed of real estate mortgage, the downpayment of P800,000.00 plus all payments made with BPI or the mortgage loan would be forfeited and the [D]eed of [S]ale with [A]ssumption of [M]ortgage would thereby be cancelled automatically and of no force and effect (pars. 2 & 3, thereof, pp. 13-14, Record). "From these 2 documents, it is therefore clear that part of the consideration of the sale was the assumption by Velarde of the mortgage obligation of Raymundo in the amount of P1.8 million. This would mean that Velarde had to make payments to BPI under the [D]eed of [R]eal [E]state [M]ortgage in the name of Raymundo. The application with BPI for the approval of the assumption of mortgage would mean that, in case of approval, payment of the mortgage obligation will now be in the name of Velarde. And in the event said application is disapproved, Velarde had to pay in full. This is alleged and admitted in Paragraph 5 of the Complaint. Mariano Velarde likewise admitted this fact during the hearing on September 15, 1997 (p. 47, t.s.n., September 15, 1987; see also pp. 16-26, t.s.n., October 8, 1989). This being the case, the non-payment of the mortgage obligation would result in a violation of the contract. And, upon Velarde's failure to pay the agreed price, the[n] Raymundo may choose either of two (2) actions (1) demand fulfillment of the contract, or (2) demand its rescission (Article 1191, Civil Code). "The disapproval by BPI of the application for assumption of mortgage cannot be used as an excuse for Velarde's nonpayment of the balance of the purchase price. As borne out by the evidence, Velarde had to pay in full in case of BPI's disapproval of the application for assumption of mortgage. What Velarde should have done was to pay the balance of P1.8 million. Instead, Velarde sent Raymundo a letter dated January 7, 1987 (Exh. 'K', '4') which was strongly given weight by the

lower court in reversing the decision rendered by then Judge Ynares-Santiago. In said letter,Velarde registered their willingness to pay the balance in cash but enumerated 3 new conditions which, to the mind of this Court, would constitute a new undertaking or new agreement which is subject to the consent or approval of Raymundo. These 3 conditions were not among those previously agreed upon by Velarde and Raymundo. These are mere offers or, at most, an attempt to novate. But then again, there can be no novation because there was no agreement of all the parties to the new contract (Garcia, Jr. vs. Court of Appeals, 191 SCRA 493).

"It was likewise agreed that in case of violation of the mortgage obligation, the Deed of Sale with Assumption of Mortgage would be deemed 'automatically cancelled and of no further force and effect, as if the same had never been executed or entered into.' While it is true that even if the contract expressly provided for automatic rescission upon failure to pay the price, the vendee may still pay, he may do so only for as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act (Article 1592, Civil Code). In the case at bar, Raymundo sent Velarde a notarial notice dated January 8, 1987 of cancellation/rescission of the contract due to the latter's failure to comply with their obligation. The rescission was justified in view of Velarde's failure to pay the price (balance) which is substantial and fundamental as to defeat the object of the parties in making the agreement. As adverted to above, the agreement of the parties involved a reciprocal obligation wherein the obligation of one is a resolutory condition of the obligation of the other, the nonfulfillment of which entitles the other party to rescind the contract (Songcuan vs. IAC, 191 SCRA 28). Thus, the nonpayment of the mortgage obligation by appellees Velarde would create a right to demand payment or to rescind the contract, or to criminal prosecution (Edca Publishing & Distribution Corporation vs. Santos, 184 SCRA 614). Upon appellees' failure, therefore, to pay the balance, the contract was properly rescinded (Ruiz vs. IAC, 184 SCRA 720). Consequently, appelleesVelarde having violated the contract, they have lost their right to its enforcement and

hence, cannot avail of the action for specific performance (Voysaw vs. Interphil Promotions, Inc., 148 SCRA 635)." 10 Hence, this appeal. 11 The Issues Petitioners, in their Memorandum, 12 interpose the following assignment of errors: "I The Court of Appeals erred in holding that the non-payment of the mortgage obligation resulted in a breach of the contract. "II The Court of Appeals erred in holding that the rescission (resolution) of the contract by private respondents was justified. "III The Court of Appeals erred in holding that petitioners' January 7, 1987 letter gave three 'new conditions' constituting mere offers or an attempt to novate necessitating a new agreement between the parties." The Court's Ruling The Petition is partially meritorious. First Issue: Breach of Contract Petitioners aver that their nonpayment of private respondents' mortgage obligation did not constitute a breach of contract, considering that their request to assume the obligation had been disapproved by the mortgagee bank. Accordingly, payment of the monthly amortizations ceased to be their obligation and, instead, it devolved upon private respondents again.

However, petitioners did not merely stop paying the mortgage obligations; they also failed to pay the balance of the purchase price. As admitted by both parties, their agreement mandated that petitioners should pay the purchase price balance of P1.8 million to private respondents in case the request to assume the mortgage would be disapproved. Thus, on December 15, 1986, when petitioners received notice of the bank's disapproval of their application to assume respondents' mortgage, they should have paid the balance of the P1.8 million loan. Instead of doing so, petitioners sent a letter to private respondents offering to make such payment only upon the fulfillment of certain conditions not originally agreed upon in the contract of sale. Such conditional offer to pay cannot take the place of actual payment as would discharge the obligation of a buyer under a contract of sale. In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer to pay therefor a price certain in money or its equivalent. 13 Private respondents had already performed their obligation through the execution of the Deed of Sale, which effectively transferred ownership of the property to petitioner through constructive delivery. Prior physical delivery or possession is not legally required, and the execution of the Deed of Sale is deemed equivalent to delivery. 14 Petitioners, on the other hand, did not perform their correlative obligation of paying the contract price in the manner agreed upon. Worse, they wanted private respondents to perform obligations beyond those stipulated in the contract before fulfilling their own obligation to pay the full purchase price. IHcTDA Second Issue Validity of the Rescission Petitioners likewise claim that the rescission of the contract by private respondents was not justified, inasmuch as the former had signified their willingness to pay the balance of the purchase price only a little over a month from the time they were notified of the disapproval of their application for assumption of mortgage. Petitioners also aver that the breach of the contract was not substantial as would warrant a rescission. They cite several cases15 in which this Court declared that rescission of a contract would not be permitted for a slight or casual breach. Finally, they argue that they have substantially performed their obligation in good faith, considering that they have already made the initial payment of P800,000 and three (3) monthly mortgage payments.

As pointed out earlier, the breach committed by petitioners was not so much their nonpayment of the mortgage obligations, as their nonperformance of their reciprocal obligation to pay the purchase price under the contract of sale. Private respondents' right to rescind the contract finds basis in Article 1191 of the Civil Code, which explicitly provides as follows: "ARTICLE 1191.The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should become impossible." The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them. 16 The breach contemplated in the said provision is the obligor's failure to comply with an existing obligation. 17 When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission. 18 In the present case, private respondents validly exercised their right to rescind the contract, because of the failure of petitioners to comply with their obligation to pay the balance of the purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract of sale, a violation that consequently gave rise to private respondents' right to rescind the same in accordance with law. True, petitioners expressed their willingness to pay the balance of the purchase price one month after it became due; however, this was not equivalent to actual payment as would constitute a faithful compliance of their reciprocal obligation. Moreover, the offer to pay was conditioned on the performance by private respondents of additional burdens that had not been agreed upon in the original contract. Thus, it cannot be said that the breach committed by petitioners was merely slight or casual as would preclude the exercise of the right to rescind. Misplaced is petitioners' reliance on the cases 19 they cited, because the factual circumstances in those cases are not analogous to those in the present one. In Song Fo there was, on the part of the buyer, only a delay of twenty (20) days to pay for the goods delivered. Moreover, the buyer's offer to pay was unconditional and was accepted by the seller. In Zepeda, the breach involved a mere one-week delay in paying the balance of P1,000, which was actually paid. In Tan, the alleged

breach was private respondent's delay of only a few days, which was for the purpose of clearing the title to the property; there was no reference whatsoever to the nonpayment of the contract price. In the instant case, the breach committed did not merely consist of a slight delay in payment or an irregularity; such breach would not normally defeat the intention of the parties to the contract. Here, petitioners not only failed to pay the P1.8 million balance, but they also imposed upon private respondents new obligations as preconditions to the performance of their own obligation. In effect, the qualified offer to pay was a repudiation of an existing obligation, which was legally due and demandable under the contract of sale. Hence, private respondents were left with the legal option of seeking rescission to protect their own interest. Mutual Restitution Required in Rescission As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this controversy. Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is required to bring back the parties to their original situation prior to the inception of the contract. Accordingly, the initial payment of P800,000 and the corresponding mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners should be returned by private respondents, lest the latter unjustly enrich themselves at the expense of the former.

Rescission creates the obligation to return the object of the contract. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. 20 To rescind is to declare a contract void at its inception and to put an end to it as though it never was. It is not merely to terminate it and release the parties from further obligations to each other, but to abrogate it. from the beginning and restore the parties to their relative positions as if no contract has been made. 21 Third Issue Attempt to Novate

In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third issue raised by petitioners. Suffice it to say that the three conditions appearing on the January 7, 1987 letter of petitioners to private respondents were not part of the original contract. By that time, it was already incumbent upon the former to pay the balance of the sale price. They had no right to demand preconditions to the fulfillment of their obligation, which had become due. WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that private respondents are ordered to return to petitioners the amount of P874,150, which the latter paid as a consequence of the rescinded contract, with legal interest thereon from January 8, 1987, the date of rescission. No pronouncement as to costs. SO ORDERED. [G.R. No. 23769. September 16, 1925.]

4.ID.; ID.; ID.; ID.; ID. A delay in payment for a small quantity of molasses for some twenty days is not such a violation of an essential condition of the contract as warrants rescission for non-performance. 5.ID.; ID.; ID.; MEASURE OF DAMAGES FOR BREACH OF CONTRACT. The facts examined and Song Fo & Company allowed P3,000 on account of the greater expense to which it was put in being compelled to secure molasses in the open market. 6.ID.; ID.; ID. The facts examined and Song Fo & Company allowed nothing for lost profits on account of the breach of the contract, because of failure of proof.

DECISION

MALCOLM, J p: SONG FO & COMPANY, plaintiff-appellee, vs. HAWAIIAN PHILIPPINE CO., defendant-appellant. In the Court of First Instance of Iloilo, Song Fo & Company, plaintiff, presented a complaint with two causes of action for breach of contract against the Hawaiian-Philippine Co., defendant, in which judgment was asked for P70,369.50, with legal interest, and costs. In an amended answer and crosscomplaint, the defendant set up the special defense that since the plaintiff had defaulted in the payment for the molasses delivered to it by the defendant under the contract between the parties, the latter was compelled to cancel and rescind the said contract. The case was submitted for decision on a stipulation of facts and the exhibits therein mentioned. The judgment of the trial court condemned the defendant to pay for the plaintiff a total of P35,317.93, with legal interest from the date of the presentation of the complaint, and with costs. From the judgment of the Court of First Instance the defendant only has appealed. In this court it has made the following assignment of errors: "I. The lower court erred in finding that the appellant had agreed to sell to the appellee 400,000, and not only 300,000, gallons of molasses. II. The lower court erred in finding that the appellant rescinded without sufficient cause the contract for the sale of molasses executed by it and the appellee. III. The lower court erred in rendering judgment in favor of the appellee and not in favor of the appellant in accordance with the prayer of its answer and cross-complaint. IV. The lower court erred in denying appellant's motion for a new trial." The specified errors raise three questions which we will consider in the order suggested by the appellant.

Hilado & Hilado, Ross, Lawrence & Selph and Antonio T. Carrascoso, Jr., for appellant. Arroyo, Gurrea & Muller for appellee. SYLLABUS 1.CONTRACTS; SALES; INSTANT CASE. The written contract examined and found to provide for the delivery by the Hawaiian-Philippine Co. to Song Fo & Company of 300,000 gallons of molasses. 2.ID.; ID,.; ID.; PAYMENT. The terms of payment fixed by the parties are controlling. The time of payment stipulated for in the contract should be treated as of the essence of the contract. 3.ID.; ID.; ID.; ID.; RESCISSION. The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement.

1.Did the defendant agree to sell to the plaintiff 400,000 gallons of molasses or 300,000 gallons of molasses? The trial court found the former amount to be correct. The appellant contends that the smaller amount was the basis of the agreement. The contract of the parties is in writing. It is found principally in the documents, Exhibits F and G. The first mentioned exhibit is a letter addressed by the administrator of the Hawaiian-Philippine Co. to Song Fo & Company on December 13, 1922. It reads: "SILAY, OCC. NEGROS, P. I. "December 13, 1922. "MESSRS. SONG FO AND CO. "Iloilo, Iloilo. "DEAR SIRS: Confirming our conversation we had today with your Mr. Song Fo, who visited this Central, we wish to state as follows: "He agreed to the delivery of 300,000 gallons of molasses at the same price as last year under the same condition, and the same to start after the completion of our grinding season. He requested if possible to let you have molasses during January, February and March or in other words, while we are grinding, and we agreed with him that we would to the best of our ability, altho we are somewhat handicapped. But we believe we can let you have 25,000 gallons during each of the milling months, altho it interfere with the shipping of our own and planters sugars to Iloilo. Mr. Song Fo also asked if we could supply him with another 100,000 gallons of molasses, and we stated we believe that this is possible and will do our best to let you have these extra 100,000 gallons during the next year the same to be taken by you before November 1st, 1923, along with the 300,000, making 400,000 gallons in all. "Regarding the payment for our molasses, Mr. Song Fo gave us to understand that you would pay us at the end of each month for molasses delivered to you. "Hoping that this is satisfactorily and awaiting your answer regarding this matter, we remain. "Yours very truly, "HAWAIIAN-PHILIPPINE COMPANY "By: R.C. PITCAIRN

"Administrator." Exhibit G is the answer of the manager of Song Fo & Company to the Hawaiian-Philippine Co. on December 16, 1922. This letter reads: "December 16th, 1922. "MESSRS. HAWAIIAN-PHILIPPINE CO., "Silay, Neg. Occ., P. I. "DEAR SIRS: We are in receipt of your favors dated the 9th and the 13th inst. and understood all their contents. "In connection to yours of the 13th inst, we regret to hear that you mentioned Mr. Song Fo the one who visited your Central, but it was not for he was Mr. Song Heng, the representative and the manager of Messrs. Song Fo & Co. "With reference to the contents of your letter dated the 13th inst. we confirm all the arrangements you have stated and in order to make the contract clear, we hereby quote below our old contract as amended, as per our new arrangements. "(a)Price, at 2 cents per gallon delivered at the central. "(b)All handling charges and expenses at the central and at the dock at Mambaguid for our account. "(c) For services of one locomotive and flat cars necessary for our six tanks at the rate of P48 for the round trip dock to central and central to dock. This service to be restricted to one trip for the six tanks. "Yours very truly, "SONG FO & COMPANY "By__________________ "Manager." We agree with appellant that the above quoted correspondence is susceptible of but one interpretation. The Hawaiian-Philippine Co. agreed to deliver to Song Fo & Company 300,000 gallons of molasses. The HawaiianPhilippine Co. also believed it possible to accommodate Song Fo & Company by supplying the latter company with an extra 100,000 gallons. But the language used with reference to the additional 100,000 gallons was not a definite promise. Still less did it constitute an obligation. If Exhibit T relied upon by the trial court shows anything, it is simply that the defendant did not consider itself obliged to deliver to the plaintiff

molasses in any amount. On the other hand, Exhibit A, a letter written by the manager of Song Fo & Company on October 17, 1922, expressly mentions an understanding between the parties of a contract for 300,000 gallons of molasses. We sustain appellant's point of view on the first question and rule that the contract between the parties provided for the delivery by the Hawaiian-Philippine Co. to Song Fo & Company of 300,000 gallons of molasses. 2.Had the Hawaiian-Philippine Co. the right to rescind the contract of sale made with Song Fo & Company? The trial judge answers No, the appellant Yes. Turning to Exhibit F, we note this sentence: "Regarding the payment for our molasses, Mr. Song Fo (Mr. Song Heng) gave us to understand that you would pay us at the end of each month for molasses delivered to you." In Exhibit G, we find Song Fo & Company stating that they understand the contents of Exhibit F, and that they "confirm all the arrangements you have stated, and in order to make the contract clear, we hereby quote below our old contract as amended, as per our new arrangements. (a) Price, at 2 cents per gallon delivered at the central." In connection with the portion of the contract having reference to the payment for the molasses, the parties have agreed on a table showing the date of delivery of the molasses, the account and date thereof, the date of receipt of account by plaintiff, and date of payment. The table mentioned is as follows: Date of receipt Date of deliveryAccount and dateof account byDate of payment thereofplaintiff 192219231923 Dec. 18P206.16Dec. 26/22Jan. 5Feb. 20 Dec. 29206.16Jan. 3/23doDo. 1923 Jan. 5206.16Jan. 9/23Mar. 7 or 8Mar. 31 Feb. 12206.16Mar. 12/23doDo. Feb. 27206.16dodoDo. Mar. 5206.16dodoDo. Mar. 16206.16Mar. 20/23Apr. 2/23Apr. 19

Mar. 24206.16Mar. 31/23doDo. Mar. 29206.16dodoDo. Some doubt has risen as to when Song Fo & Company was expected to make payments for the molasses delivered. Exhibit F speaks of payments "at the end of each month." Exhibit G is silent on the point. Exhibit M, a letter of March 28, 1923, from Warner, Barnes & Co., Ltd., the agent of the HawaiianPhilippine Co. to Song Fo & Company, mentions "payment on presentation of bills for each delivery." Exhibit O, another letter from Warner, Barnes & Co., Ltd. to Song Fo & Company dated April 2, 1923, is of a similar tenor. Exhibit P, a communication sent direct by the Hawaiian-Philippine Co. to Song Fo & Company on April 2, 1923, by which the Hawaiian-Philippine Co. gave notice of the termination of the contract, gave as the reason for the rescission, the breach of Song Fo & Company of this condition: "You will recall that under the arrangements made for taking our molasses, you were to meet our accounts upon presentation and at each delivery." Not far removed from this statement, is the allegation of plaintiff in its complaint that "plaintiff agreed to pay defendant, at the end of each month upon presentation of accounts." Resolving such ambiguity as exists and having in mind ordinary business practice, a reasonable deduction is that Song Fo & Company was to pay the Hawaiian-Philippine Co. upon presentation of accounts at the end of each month. Under this hypothesis, Song Fo & Company should have paid for the molasses delivered in December, 1922, and for which accounts were received by it on January 5, 1923, not later than January 31 of that year. Instead, payment was not made until February 20, 1923. All the rest of the molasses was paid for either on time or ahead of time. The terms of payment fixed by the parties are controlling. The time of payment stipulated for in the contract should be treated as of the essence of the contract. Theoretically, agreeable to certain conditions which could easily be imagined, the Hawaiian-Philippine Co. would have had the right to rescind the contract because of the breach of Song Fo & Company. But actually, there is her present no outstanding fact which would legally sanction the rescission of the contract by the Hawaiian-Philippine Co. The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement. A delay in payment for a small quantity of molasses for some twenty days is not such a violation of an essential condition of the contract as warrants rescission for non-performance. Not only this, but the HawaiianPhilippine Co. waived this condition when it arose by accepting payment of the overdue accounts and continuing with the contract. Thereafter, Song Fo &

Company was not in default in payment so that the Hawaiian-Philippine Co. had in reality no excuse for writing its letter of April 2, 1923, cancelling the contract. (Warner, Barnes & Co. vs. Inza [1922], 43 Phil., 505.) We rule that the appellant had no legal right to rescind the contract of sale because of the failure of Song Fo & Company to pay for the molasses within the time agreed upon by the parties. We sustain the finding of the trial judge in this respect. 3.On the basis first, of a contract for 300,000 gallons of molasses, and second, of a contract imprudently breached by the Hawaiian-Philippine Co., what is the measure of damages? We again turn to the facts as agreed upon by the parties. The first cause of action of the plaintiff is based on the greater expense to which it was put in being compelled to secure molasses from other sources. Three hundred thousand gallons of molasses was the total of the agreement, as we have seen. As conceded by the plaintiff 55,006 gallons of molasses were delivered by the defendant to the plaintiff before the breach. This leaves 244,994 gallons of molasses undelivered which the plaintiff had to purchase in the open market. As expressly conceded by the plaintiff at page 25 of its brief 100,000 gallons of molasses were secured from the Central North Negros Sugar Co., Inc., at two centavos a gallon. As this is the same price specified in the contract between the plaintiff and the defendant, the plaintiff accordingly suffered no material loss in having to make this purchase. So 244,994 gallons minus the 100,000 gallons just mentioned leaves as a result 144,994 gallons. As to this amount, the plaintiff admits that it could have secured it and more than the Central Victorias Milling Company one and onehalf centavos per gallon. In other words, the plaintiff had to pay the Central Victorias Milling Company one and one-half centavos a gallon more for the molasses than it would have had to pay the Hawaiian-Philippine Co. Translated into pesos and centavos, this meant a loss to the plaintiff of approximately P2,174.91. As the conditions existing at the central of the Hawaiian-Philippine Co. may have been different than those found at the Central North Negros Sugar Co., Inc., and the Central Victorias Milling Company, and as not alone through the delay but through expenses of transportation and incidental expenses, the plaintiff may have been put to greater cost in making the purchase of the molasses in the open market, we would concede under the first cause of action in round figures P3,000. The second cause of action relates to lost profits on account of the breach of the contract. The only evidence in the record on this question is the stipulation of counsel to the effect that had Mr. Song Heng, the manager of Song Fo & Company, been called as a witness, he would have testified that the plaintiff would have realized a profit of P14,948.43, if the contract of December 13, 1922, had been fulfilled by the defendant. Indisputably, this

statement falls far short of presenting proof on which to make a finding as to damages. In the first place, the testimony which Mr. Song Heng would have given undoubtedly would follow the same line of thought as found in the decision of the trial court, which we have found to be unsustainable. In the second place, had Mr. Song Heng taken the witness-stand and made the statement attributed to him, it would have been insufficient proof of the allegations of the complaint, and the fact that it is a part of the stipulation by counsel does not change this result. And lastly, the testimony of the witness Song Heng, if we may dignify it as such, is a mere conclusion, not a proven fact. As to what items make up the more than P14,000 of alleged lost profits, whether loss of sales or loss of customers, or what not, we have no means of knowing. We rule that the plaintiff is entitled to recover damages from the defendant for breach of contract on the first cause of action in the amount of P3,000 and on the second cause of action in no amount. Appellant's assignments of error are accordingly found to be well in taken in part and not well taken in part. Agreeable to the foregoing, the judgment appealed from shall be modified and the plaintiff shall have and recover from the defendant the sum of P3,000, with legal interest from October 2, 1923, until payment. Without special finding as to costs in either instance, it is ordered. [G.R. No. 101762. July 6, 1993.] VERMEN REALTY DEVELOPMENT CORPORATION, petitioner, vs. THE COURT OF APPEALS and SENECA HARDWARE CO., INC.,respondents.

Ramon P. Gutierrez for petitioner. Adriano Velasco for private respondent. SYLLABUS 1.CIVIL LAW; OBLIGATION AND CONTRACTS; RECIPROCAL OBLIGATION; ITS NATURE. Reciprocal obligations are those created or established at the same time, out of the same cause, and which results in a mutual relationship of creditor and debtor between parties. In reciprocal obligations, the performance of one is

conditioned on the simultaneous fulfillment of the other obligation (Abaya vs. Standard Vacuum Oil Co., 101 Phil. 1262 [1957]). Under the agreement, private respondent shall deliver to petitioner construction materials worth P552,000.00 under the conditions set forth in the Offsetting Agreement. Petitioner's obligation under the agreement is three-fold: he shall pay private respondent P276,000.00 in cash; he shall deliver possession of units 601 and 602, Phase I, Vermen Pines Condominiums (with total value of P276,000.00) to private respondent; upon completion ofVermen Pines Condominiums Phase II, private respondent shall be given option to transfer to similar units therein. 2.ID.; RESCISSION (BETTER TERM IS "RESOLUTION") OF RECIPROCAL OBLIGATION UNDER ARTICLE 1191 OF THE CIVIL CODE; GENERAL RULE; PETITIONER'S NONFULFILLMENT OF ITS OBLIGATION UNDER THE OFFSETTING AGREEMENT CONSTITUTES SUBSTANTIAL BREACH, NECESSITATING RESOLUTION OF THE CONTRACT. Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the term is "resolution") in case of reciprocal obligations, where one of the obligors fails to comply with what is incumbent upon him. The general rule is that rescission of a contract will not be permitted for a slight or causal breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in executing the agreement. The question of whether a breach of contract is substantial depends upon the attendant circumstances (Universal Food Corp.vs. Court of Appeals, 33 SCRA 1, [1970]). The impossibility of fulfillment of the obligation on the part of petitioner necessitates resolution of the contract for indeed, the non-fulfillment of the obligation aforementioned constitutes substantial breach of the Offsetting Agreement. The possibility of exercising the option of whether or not to transfer to condominium units in Phase II was one of the factors which were considered by private respondent when it entered into the agreement. Since the construction of the Vermen Pines Condominium Phase II has stopped, petitioner would be in no position to perform its obligation to give private respondent the option to transfer to Phase II. It would be the height of injustice to make private respondent wait for something that may never come.

Branch 92 in Civil Case No. Q-45232. The dispositive portion of the assailed decision reads as follows: "WHEREFORE, the decision a quo is set aside. As prayed for by plaintiff-appellant, the 'Offsetting Agreement' (Exhibit "E" or "2") is hereby rescinded. Room 601 of Phase I of the Vermen Pines Condominium should be returned by plaintiff-appellant to defendant-appellee upon payment by the latter of the sum of P330,855.25 to the former, plus damages in the sum of P5,000.00 and P50.00 for the furnishings of Phase I of Condo (sic) Units Nos. 601 and 602, and three (3) day rental of Room 402 during the Holy Week of 1982, respectively. In addition, defendant-appellee is hereby ordered to pay plaintiffappellant, who was compelled to litigate and hire the services of counsel to protect its interests against defendant-appellee's violation of their Offsetting Agreement, the sum of P10,000.00 as an award for attorney's fee (sic) and other expenses of litigation. The claim for unrealized profits in a sum equivalent to 10% to 20% percent or P522,000.00 not having been duly proved, is therefore DENIED. No costs." (Rollo, p. 31) On March 2, 1981, petitioner Vermen Realty and Development Corporation, as First Party, and private respondent Seneca Hardware Co., Inc., as Second Party, entered into a contract denominated as "Offsetting Agreement". The said agreement contained the following stipulations: "1.That the FIRST PARTY is the owner/developer of VERMEN PINES CONDOMINIUM located at Bakakeng Road, Baguio City; "2.That the SECOND PARTY is in business of construction materials and other hardware items; "3.That the SECOND PARTY desires to buy from the FIRST PARTY two (2) residential condominium units, studio type, with a total floor area of 76.22 square meter (sic) more or less worth TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS only; "4.That the FIRST PARTY desires to buy from the SECOND PARTY construction materials mostly steel bars, electrical materials and other related items worth FIVE HUNDRED FIFTY TWO THOUSAND (P552,000.00) PESOS only;

DECISION

BIDIN, J p: Petitioner seeks a review of the decision of the Court of Appeals in CA-G.R. CV No. 15730, which set aside the decision of the Regional Trial Court of Quezon City,

"5.That the FIRST PARTY shall pay the SECOND PARTY TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS in cash upon delivery of said construction materials and the other TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS shall be paid in the form of two (2) residential condominium units, studio type, with a total floor area of 76.22 square meter (sic) more or less also worth P276,000.00; "6.That, for every staggered delivery of construction materials, fifty percent (50%) shall be paid by the FIRST PARTY to the SECOND PARTY C.O.D. and, fifty percent (50%) shall be credited to the said condominium unit in favor of the SECOND PARTY; "7.That the SECOND PARTY shall deliver to the FIRST PARTY said construction materials under the agreed price and conditions stated in the price quotation approved by both parties and made an integral part of this document; "8.That the SECOND PARTY is obliged to start delivering to the FIRST PARTY all items in the purchase order seven (7) days from receipt of said purchase order until such time that the whole amount of P552,000.00 is settled; "9.That the place of delivery shall be Vermen Pines Condominium at Bakakeng Road, Baguio City; "10.That the freight cost of said materials shall be borne fifty percent (50%) by the FIRST PARTY and fifty percent (50%) by the SECOND PARTY; "11.That the FIRST PARTY pending completion of the VERMEN PINES CONDOMINIUM PHASE II which is the subject of this contract, shall deliver to the SECOND PARTY the possession of residential condominium, Phase I, Unit Nos. 601 and 602, studio type with a total area of 76.2 square meters or less, worth P276,000.00; "12.That after the completion of Vermen Pines Condominium Phase II, the SECOND PARTY shall be given by the FIRST PARTY the first option to transfer from Phase I to Phase II under the same price, terms and conditions." (Rollo, pp. 26-28).

As found by the appellate court and admitted by both parties, private respondent had paid petitioner the amount of P110,151.75, and at the same time delivered construction materials worth P219,727.00. Pending completion of Phase II of the Vermen Pines Condominiums, petitioner delivered to private respondent units 601 and 602 at Phase I of the Vermen Pines Condominiums (Rollo, p. 28). In 1982, the petitioner repossessed unit 602. As a consequence of the repossession, the officers of the private respondent corporation had to rent another unit for their use when they went to Baguio on April 8, 1982. On May 10, 1982, the officers of the private respondent corporation requested for a clarification of the petitioner's action of preventing them and their families from occupying condominium unit 602. In its reply dated May 24, 1982, the petitioner corporation averred that Room 602 was leased to another tenant because private respondent corporation had not paid anything for purchase of the condominium unit. Petitioner corporation demanded payment of P27,848.25 representing the balance of the purchase price of Room 601. In 1983, the loan application for the construction of the Vermen Pines Condominium Phase II was denied. Consequently, construction of the condominium project stopped and has not been resumed since then. On June 21, 1985, private respondent filed a complaint with the Regional Trial Court of Quezon City (Branch 92) for rescission of the Offsetting Agreement with damages. In said complaint, private respondent alleged that petitioner Vermen Realty Corporation had stopped issuing purchase orders of construction materials after April, 1982, without valid reason, thus resulting in the stoppage of deliveries of construction materials on its (Seneca Hardware) part, in violation of the Offsetting Agreement. In its Answer filed on August 15, 1985, petitioner alleged that the fault lay with private respondent (plaintiff therein): although petitioner issued purchase orders, it was private respondent who could not deliver the supplies ordered, alleging that they were out of stock. (However, during a hearing on January 28, 1987, the Treasurer of petitioner corporation, when asked where the purchase orders were, alleged that she was going to produce the same in court, but the same was never produced (Rollo. p. 30). Moreover, private respondent quoted higher prices for the construction materials which were available. Thus, petitioner had to resort to its other suppliers. Anent the query as to why Unit 602 was leased to another tenant, petitioner averred that this was done because private respondent had not paid anything for it. cdphil

As of December 16, 1986, private respondent had paid petitioner P110,151.75 in cash, made deliveries of construction materials worth P219,727.00, leaving a balance of P27,848.25 representing the purchase price of unit 601 (Rollo, p. 28). The price of one condominium unit was P138,000.00.

III "THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS REVIEWABLE BY THIS HONORABLE COURT, WHEN IT CONCLUDED THAT IT WAS PETITIONER WHICH BREACHED THE 'OFFSETTING AGREEMENT' DESPITE THE ADMISSION MADE BY PRIVATE RESPONDENT'S OWN WITNESS THAT PETITIONER HAD THE DISCRETION TO ORDER OR NOT TO ORDER THE CONSTRUCTION MATERIAL (SIC) FROM THE FORMER." (Rollo, p. ) The issue presented before the Court is whether or not the circumstances of the case warrant rescission of the Offsetting Agreement as prayed for by Private Respondent when he instituted the case before the trial court. We rule in favor of private respondent. There is no controversy that the provisions of the Offsetting Agreement are reciprocal in nature. Reciprocal obligations are those created or established at the same time, out of the same cause, and which results in a mutual relationship of creditor and debtor between parties. In reciprocal obligations, the performance of one is conditioned on the simultaneous fulfillment of the other obligation (Abaya vs. Standard Vacuum Oil Co., 101 Phil. 1262 [1957]). Under the agreement, private respondent shall deliver to petitioner construction materials worth P552,000.00 under the conditions set forth in the Offsetting Agreement. Petitioner's obligation under the agreement is three-fold: he shall pay private respondent P276,000.00 in cash; he shall deliver possession of units 601 and 602, Phase I, Vermen Pines Condominiums (with total value of P276,000.00) to private respondent; upon completion of Vermen Pines Condominiums Phase II, private respondent shall be given option to transfer to similar units therein. Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the term is "resolution") in case of reciprocal obligations, where one of the obligors fails to comply with what is incumbent upon him. The general rule is that rescission of a contract will not be permitted for a slight or causal breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in executing the agreement. The question of whether a breach of contract is substantial depends upon the attendant circumstances (Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, [1970]). In the case at bar, petitioner argues that it was private respondent who failed to perform its obligation in the Offsetting Agreement. It averred that contrary to the appellate court's ruling, the mere stoppage of the loan for the construction of

After conducting hearings, the trial court rendered a decision dismissing the complaint and ordering the plaintiff (private respondent in this petition) to pay defendant (petitioner in this petition) on its counterclaim in the amount of P27,848.25 representing the balance due on the purchase price of condominium unit 601. On appeal, respondent court reversed the trial court's decision as adverted to above. Petitioner now comes before Us with the following assignment of errors: I "THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS REVIEWABLE BY THIS HONORABLE COURT, WHEN IT SUPPLANTED CONTRARY TO THE EVIDENCE ON RECORD, THE TRIAL COURT'S CONCLUSIONS THAT PETITIONER DID NOT VIOLATE THE 'OFFSETTING AGREEMENT' IT ENTERED INTO WITH THE SENECA HARDWARE CO., INC. WITH ITS TOTALLY BASELESS 'PERCEPTION' THAT IT WAS PETITIONER WHICH DISCONTINUED TO ISSUE PURCHASE ORDERS DUE TO THE STOPPAGE OF THE CONSTRUCTION OF PHASE II OF THE CONDOMINIUM PROJECT WHEN THE LOAN ON THE SAID PROJECT WAS STOPPED. II "THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS REVIEWABLE BY THIS HONORABLE COURT, WHEN IT CONCLUDED THAT IT WAS PETITIONER WHICH BREACHED THE 'OFFSETTING AGREEMENT' BECAUSE IT DID NOT SEND PURCHASE ORDERS TO PRIVATE RESPONDENT AND DISCONTINUED THE CONSTRUCTION OF THE CONDOMINIUM PROJECT DESPITE THE FACT THAT THE EXHIBITS ATTESTING TO THIS FACT WAS FORMALLY OFFERED IN EVIDENCE IN COURT AND MENTIONED BY IT IN ITS DECISION.

Phase II of the Vermen Pines Condominiums should not have had any effect on the fulfillment of the obligations set forth in the Offsetting Agreement. Petitioner moreover stresses that contrary to private respondent's averments, purchase orders were sent, but there was failure to deliver the materials ordered because they were allegedly out of stock. Petitioner points out that, as admitted by private respondent's witness, petitioner had the discretion to order or not to order constructions materials, and that it was only after petitioner approved the price, after making a canvass from other suppliers, that the latter would issue a purchase order. Petitioner argues that this was the agreement, and therefore the law between the parties, hence, when no purchase orders were issued, no provision of the agreement was violated. llcd Private respondent, on the other hand, points out that the subject of the Offsetting Agreement is Phase II of the Vermen Pines Condominiums. It alleges that since construction of Phase II of the Vermen Pines Condominiums has failed to begin (Rollo, p. 104), it has reason to move for rescission of the Offsetting Agreement, as it cannot forever wait for the delivery of the condominium units to it. It is evident from the facts of the case that private respondent did not fail to fulfill its obligation in the Offsetting Agreement. The discontinuance of delivery of construction materials to petitioner stemmed from the failure of petitioner to send purchase orders to private respondent. The allegation that petitioner had been sending purchase orders to private respondent, which the latter could not fill, cannot be given credence. Perhaps in the beginning, it would send purchase orders to private respondent (as evidenced by the purchase orders presented in court), and the latter would deliver the construction materials ordered. However, according to private respondent, after April, 1982, petitioner stopped sending purchase orders. Petitioner failed to refute this allegation. When petitioner's witness, Treasurer of the petitioner corporation, was asked to produce the purchase orders in court, the latter promised to do so, but this was never complied with. On the other hand, petitioner would never be able to fulfill its obligation in allowing private respondent to exercise the option to transfer from Phase I to Phase II, as the construction of Phase II has ceased and the subject condominium units will never be available. The impossibility of fulfillment of the obligation on the part of petitioner necessitates resolution of the contract for indeed, the non-fulfillment of the obligation aforementioned constitutes substantial breach of the Offsetting Agreement. The possibility of exercising the option of whether or not to transfer to condominium units in Phase II was one of the factors which were considered by private respondent when it entered into the agreement. Since the construction of

the Vermen Pines Condominium Phase II has stopped, petitioner would be in no position to perform its obligation to give private respondent the option to transfer to Phase II. It would be the height of injustice to make private respondent wait for something that may never come. WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner. LexLib SO ORDERED. [G.R. No. L-4811. July 31, 1953.] CHARLES F. WOODHOUSE, plaintiff-appellant, vs. FORTUNATO F. HALILI, defendant-appellant.

Taada, Pelaez & Teehankee for defendant and appellant. Gibbs, Gibbs, Chuidian & Quasha for plaintiff and appellant. SYLLABUS 1.EVIDENCE; PAROL EVIDENCE RULE; INTEGRATION OF JURAL ACTS. Plaintiff entered into a written agreement with the defendant to the effect that they shall organize a partnership for the bottling and distribution of soft drinks, plaintiff to act as industrial partner or manager, and the defendant a capitalist furnishing the capital necessary therefor. The defendant claims that his consent to the agreement was secured by the representation of plaintiff that he was the owner, or was about to become owner, of an exclusive bottling franchise, which representation was false. The fraud and false representation is sought to be proven by means, among others, of the drafts of the agreement prior to the final one, which drafts are presumed to have already been integrated into the final agreement. Are those prior drafts excluded from the prohibition of the parol evidence rule? Held: The purpose of considering the drafts is not to vary, alter, or modify the agreement, but to discover the intent of the parties thereto and the circumstances surrounding the execution of the contract. The issue of fact is, did plaintiff represent to defendant that he had an exclusive franchise? Certainly, his acts or statements prior to the agreement are essential and relevant to the determination of said issue. The act or statement of the plaintiff was not sought to be introduced to change or alter the terms of the agreement, but to prove how he induced the

defendant to enter into it - to prove the representations or inducements, or fraud, with which or by which he secured the other party's consent thereto. These are expressly excluded from the parol evidence rule. (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil., 209; Port Banga Lumber Co., vs. Export & Import Lumber Co., 26 Phil., 602; 3 Moran 221, 1952 rev. ed.) Fraud and false representation are an incident to the creation of a jural act, not to its integration, and are not governed by the rules on integration. Where parties prohibited from proving said representations or inducements, on the ground that the agreement had already been entered into, it would be impossible to prove misrepresentation or fraud. The parol evidence rule expressly allows the evidence to be introduced when the validity of an instrument is put in issue by the pleadings (sec. 22-a of Rule 123). 2.ID.; INTERPRETATION OF DOCUMENTS. AS plaintiff knew what defendant believed about his (plaintiff's exclusive franchise, as he induced him to that belief, plaintiff may not be allowed to deny that defendant was induced by that belief (sec. 63 of Rule 123). 3.FRAUD; FALSE REPRESENTATION; DOLO CAUSANTE AND DOLO INCIDENTE; IT IS THE FORMER THAT VITIATES CONSENT. Fraud is manifested in illimitable number of degrees or gradations from the innocent praises of a salesman about the excellence of his wares to those malicious machinations and representations that the law punishes as a crime. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud which may be a ground for the annulment of a contract, and the incidental deceit which only renders the party who employs it liable for damages. In order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract (art. 1270, Span. Civ. Code; Hill vs. Veloso, 31 Phil., 160). In the case at bar, inasmuch as the principal consideration, the main cause that induced defendant to enter into the partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the partnership, the false representation made by the plaintiff was not the casual consideration, or the principal inducement, that led the defendant to enter into the partnership agreement. 4.ID.; ID.; ID.; DAMAGES FOR DOLO INCIDENTE; PARTNERSHIP. While the representation that plaintiff had the exclusive franchise did not vitiate defendant' consent to the contract, it was used by plaintiff to get from defendant a share of 30 per cent of the net profits; in other words, by pretending that he had the exclusive franchise and promising to transfer it to defendant, he obtained the consent of the latter to give him (plaintiff) a big slice in the net profits. This is the dolo incidente defined in article 1270 of the Spanish Civil Code, because it was used to get the other party's consent to a big share in the profits, an incidental matter in the agreement. (8 Manresa, 602.)

5.CONTRACTS AND OBLIGATIONS; CONSENT, NOT VITIATED BY DOLO INCIDENTE; PARTNERSHIP; AGREEMENT TO FORM PARTNERSHIP, CANNOT BE ENFORCED. Having arrived at the conclusion that the agreement to organize a partnership may not be declared null and void, may the agreement be carried out or executed? Held: Under the Spanish Civil Code, the defendant has an obligation to do, not to give. The law recognizes the individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases. This is a very personal act (acto personalisimo) of which courts may not compel compliance, as it is considered as an act of violence to do so. (29 as it is considered as an act of violence to do so. (19 Scaevolla, 428, 431-432.) 6.FALSE REPRESENTATION; DAMAGES FOR DOLO INCIDENTE. Plaintiff is entitled under the terms of the agreement to 30 per cent of the net profits of the business. Against this amount of damages, the damage the defendant suffered by plaintiff's misrepresentation that he had the exclusive franchise, must be set off. (Art. 1101, Span. Civ. Code.) When the defendant learned, in Los Angeles, California, that plaintiff did not have the exclusive franchise which he pretended he had and which he had agreed to transfer to the partnership, his spontaneous reaction was to reduce the plaintiff's share from 30 per cent to 15 per cent only, to which reduction plaintiff appears to have readily given his assent. Held: By the misrepresentation of the plaintiff, he obtained a very high percentage (30%) of share in the profits. Upon learning of the misrepresentation, defendant reduced plaintiff's share to 15 per cent, to which defendant assented. The court can do no better than follow such appraisal of the damages as the parties themselves had adopted.

DECISION

LABRADOR, J p: On November 29, 1947, the plaintiff entered into a written agreement, Exhibit A, with the defendant, the most important provisions of which are (1) that they shall organize a partnership for the bottling and distribution of Mission soft drinks, plaintiff to act as industrial partner or manager, and the defendant as a capitalist, furnishing the capital necessary therefor; (2) that the defendant was to decide matters of general policy regarding the business, while the plaintiff was to attend to the operation and development of the bottling plant; (3) that the plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the proposed partnership; and (4) that the plaintiff was to receive 30 per cent of the net profits of the business. The above agreement was arrived at after various conferences and

consultations by and between them, with the assistance of their respective attorneys. Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los Angeles, California, U. S. A., manufacturers of the bases and ingredients of the beverages bearing its name, that he had interested a prominent financier (defendant herein) in the business, who was willing to invest half a million dollars in the bottling and distribution of the said beverages, and requested, in order that he may close the deal with him, that the right to bottle and distribute be granted him for a limited time under the condition that it will finally be transferred to the corporation (Exhibit H). Pursuant to this request, plaintiff was given "a thirty days' option on exclusive bottling and distribution rights for the Philippines" (Exhibit H). Formal negotiations between plaintiff and defendant began at a meeting on November 27, 1947, at the Manila Hotel, with their lawyers attending. Before this meeting plaintiff's lawyer had prepared a draft of the agreement, Exhibit II or OO, but this was not satisfactory because a partnership, instead of a corporation, was desired. Defendant's lawyer prepared after the meeting his own draft, Exhibit HH. This last draft appears to be the main basis of the agreement, Exhibit A. The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the United States without the agreement being first signed. On that day plaintiff and defendant went to the United States, and on December 10, 1947, a franchise agreement (Exhibit V) was entered into between the Mission Dry Corporation and Fortunato F. Halili and/or Charles F. Woodhouse, granting defendant the exclusive right, license, and authority to produce, bottle, distribute, and sell Mission beverages in the Philippines. The plaintiff and the defendant thereafter returned to the Philippines. Plaintiff reported for duty in January, 1948, but operations were not begun until the first week of February, 1948. In January plaintiff was given as advance, on account of profits, the sum of P2,000, besides the use of a car; in February, 1948, also P2,000, and in March only P1,000. The car was withdrawn from plaintiff on March 9, 1948. When the bottling plant was already in operation, plaintiff demanded of defendant that the partnership papers be executed. At first defendant excused himself, saying there was no hurry. Then he promised to do so after the sales of the products had been increased to P50,000. As nothing definite was forthcoming, after this condition was attained, and as defendant refused to give further allowances to plaintiff, the latter caused his attorneys to take up the matter with defendant with a view to a possible settlement. As none could be arrived at, the present action was instituted. In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of the profits, and a share thereof of 30 per cent, as

well as damages in the amount of P200,000. In his answer defendant alleges by way of defense (1) that defendant's consent to the agreement, Exhibit A, was secured by the representation of plaintiff that he was the owner, or was about to become owner of an exclusive bottling franchise, which representation was false, and that plaintiff did not secure the franchise, but was given to defendant himself; (2) that defendant did not fail to carry out his undertakings, bus that it was plaintiff who failed; (3) that plaintiff agreed to contribute the exclusive franchise to the partnership, but plaintiff failed to do so. He also presented a counterclaim for P200,000 as damages. On these issues the parties went to trial, and thereafter the Court of First Instance rendered judgment ordering defendant to render an accounting of the profits of the bottling and distribution business, subject of the action, and to pay plaintiff 15 per cent thereof. It held that the execution of the contract of partnership could not be enforced upon the parties, but it also held that the defense of fraud was not proved. Against this judgment both parties have appealed. The most important question of fact to be determined is whether defendant had falsely represented that he had an exclusive franchise to bottle Mission beverages, and whether this false representation or fraud, if it existed, annuls the agreement to form the partnership. The trial court found that it is improbable that defendant was never shown the letter, Exhibit J, granting plaintiff the option; that defendant would not have gone to the United States without knowing what authority plaintiff had; that the drafts of the contract prior to the final one can not be considered for the purpose of determining the issue, as they are presumed to have been already integrated into the final agreement; that fraud is never presumed and must be proved; that the parties were represented by attorneys, and that if any party thereto got the worse part of the bargain, this fact alone would not invalidate the agreement. On this appeal the defendant, as appellant, insists that plaintiff did represent to the defendant that he had an exclusive franchise, when as a matter of fact, at the time of its execution, he no longer had it as the same had expired, and that, therefore, the consent of the defendant to the contract was vitiated by fraud and it is, consequently, null and void. Our study of the record and a consideration of all the surrounding circumstances lead us to believe that defendant's contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse presented himself as being the exclusive grantee of a franchise, thus: "A.I don't recall any discussion about that matter. I took along with me the file of the office with regards to this matter. I notice from the first draft of the document which I prepared which calls for the organization of a corporation, that the manager, that is, Mr. Woodhouse, is represented as being

the exclusive grantee of a franchise from the Mission Dry Corporation. . . . "(t.s.n., p. 518) As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila Hotel conference on November 27th, expressly states that plaintiff had the exclusive franchise. Thus, the first paragraph states: 'Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry Corporation San Francisco, California, for the bottling of Mission products and their sale to the public throughout the Philippines; xxx xxx xxx "3.That the manager, upon the organization of the said corporation, shall forthwith transfer to the said corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines." xxx xxx xxx (Exhibit II; emphasis ours) The trial court did not consider this draft on the principle of integration of jural acts. We find that the principle invoked is inapplicable, since the purpose of considering the prior draft is not to vary, alter, or modify the agreement, but to discover the intent of the parties thereto and the circumstances surrounding the execution of the contract. The issue of fact is: Did plaintiff represent to defendant that he had an exclusive franchise? Certainly, his acts or statements prior to the agreement are essential and relevant to the determination of said issue. The act or statement of the plaintiff was not sought to be introduced to change or alter the terms of the agreement, but to prove how he induced the defendant to enter into it to prove the representations or inducements, or fraud, with which or by which he secured the other party's consent thereto. These are expressly excluded from the parol evidence rule. (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil., 209; Port Banga Lumber Co. vs. Export & Import Lumber Co., 26 Phil., 602; III Moran 221, 1952 rev. ed.) Fraud and false representation are an incident to the creation of a jural act, not to its integration, and are not governed by the rules on integration. Were parties prohibited from proving said representations or inducements, on the ground that the agreement had already been entered into, it would be impossible to prove misrepresentation or fraud. Furthermore, the parol evidence rule expressly allows the evidence to be introduced when the validity of an instrument is put in issue by the pleadings (section 22, par. (a), Rule 123, Rules of Court), as in this case.

That plaintiff did make the representation can also be easily gleaned from his own letters and his own testimony. In his letter to Mission Dry Corporation, Exhibit H, he said: ". . . He told me to come back to him when I was able to speak with authority so that we could come to terms as far as he and I were concerned. That is the reason why the cable was sent. Without this authority, I am in a poor bargaining position. . . . "I would propose that you grant me the exclusive bottling and distributing rights for a limited period of time, during which I may consummate my plans. . . .. " By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14, 1947. (See Exhibit J.) If this option for an exclusive franchise was intended by plaintiff as an instrument with which to bargain with defendant and close the deal with him, he must have used his said option for the above-indicated purpose, especially as it appears that he was able to secure, through its use, what he wanted. Plaintiff's own version of the preliminary conversation he had with defendant is to the effect that when plaintiff called on the latter, the latter answered, "Well, come back to me when you have the authority to operate. I am definitely interested in the bottling business." (t.s.n., pp. 60-61). When after the elections of 1949 plaintiff went to see the defendant (and at the time he had already the option), he must have exultantly told defendant that he had the authority already. It is improbable and incredible for him to have disclosed the fact that he had only an option to the exclusive franchise, which was to last thirty days only, and still more improbable for him to have disclosed that, at the time of the signing of the formal agreement, his option had already expired. Had he done so, he would have destroyed all his bargaining power and authority, and in all probability lost the deal itself. The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement "to secure the Mission Dry franchise for and in behalf of the proposed partnership." The existence of this provision in the final agreement does not militate against plaintiff having represented that he had the exclusive franchise; it rather strengthens belief that he did actually make the representation. How could plaintiff assure defendant that he would get the franchise for the latter if he had not actually obtained it for himself? Defendant would not have gone into the business unless the franchise was raised in his name, or at least in the name of the partnership. Plaintiff assured defendant he could get the franchise. Thus, in the draft prepared by defendant's attorney, Exhibit HH, the above provision is inserted, with the difference that instead of securing the franchise for the defendant, plaintiff was to secure it for the partnership. To show that the insertion of the

above provision does not eliminate the probability of plaintiff representing himself as the exclusive grantee of the franchise, the final agreement contains in its third paragraph the following: ". . . and the manager is ready and willing to allow the capitalists to use the exclusive franchise . . . . and in paragraph 11 it also expressly states: "1.In the event of dissolution or termination of the partnership, . . . the franchise from Mission Dry Corporation shall be reassigned to the manager." These statements confirm the conclusion that defendant believed, or was made to believe, the plaintiff was the grantee of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was to be transferred to the name of the partnership, and that, upon its dissolution or termination, the same shall be reassigned to the plaintiff. Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the exclusive franchise, was to reduce, as he himself testified, plaintiff's participation in the net profits to one half of that agreed upon. He could not have had such a feeling had not plaintiff actually made him believe that he (plaintiff) was the exclusive grantee of the franchise. The learned trial judge reasons in his decision that the assistance of counsel in the making of the contract made fraud improbable. Not necessarily, because the alleged representation took place before the conferences were had; in other words, plaintiff had already represented to defendant, and the latter had already believed in, the existence of plaintiff's exclusive franchise before the formal negotiations, and they were assisted by their lawyers only when said formal negotiations actually took place. Furthermore, plaintiff's attorney testified that plaintiff had said that he had the exclusive franchise; and defendant's lawyer testified that plaintiff explained to him, upon being asked for the franchise, that he had left the papers evidencing it. (t. s. n., p. 266.) We conclude from all the foregoing that plaintiff did actually represent to defendant that he was the holder of the exclusive franchise. The defendant was made to believe, and he actually believed, that plaintiff had the exclusive franchise. Defendant would not perhaps have gone to California and incurred expenses for the trip, unless he believed that plaintiff did have that exclusive privilege, and that the latter would be able to get the same from the Mission Dry Corporation itself. Plaintiff knew what defendant believed about his (plaintiff's) exclusive franchise, as he induced him to that belief, and he

may not be allowed to deny that defendant was induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of Court.) We now come to the legal aspect of the false representation. Does it amount to a fraud that would vitiate the contract? It must be noted that fraud is manifested in illimitable number of degrees or gradations, from the innocent praises of a salesman about the excellence of his wares to those malicious machinations and representations that the law punishes as a crime. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be a ground for the annulment of a contract, and the incidental deceit, which only renders the party who employs it liable for damages. This Court has held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. (Article 1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.) The record abounds with circumstances indicative of the fact that the principal consideration, the main cause that induced defendant to enter into the partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the partnership. The original draft prepared by defendant's counsel was to the effect that plaintiff obligated himself to secure a franchise for the defendant. Correction appears in this same original draft, but the change is made not as to the said obligation but as to the grantee. In the corrected draft the word "capitalist" (grantee) is changed to "partnership." The contract in its final form retains the substituted term "partnership." The defendant was, therefore, led to the belief that plaintiff had the exclusive franchise, but that the same was to be secured for or transferred to the partnership. The plaintiff no longer had the exclusive franchise, or the option thereto, at the time the contract was perfected. But while he had already lost his option thereto (when the contract was entered into), the principal obligation that he assumed or undertook was to secure said franchise for the partnership, as the bottler and distributor for the Mission Dry Corporation. We declare, therefore, that if he was guilty of a false representation, this was not thecausal consideration, or the principal inducement, that led plaintiff to enter into the partnership agreement. But, on the other hand, this supposed ownership of an exclusive franchise was actually the consideration or price plaintiff gave in exchange for the share of 30 per cent granted him in the net profits of the partnership business. Defendant agreed to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive franchise to the partnership. Thus, in the draft prepared by plaintiff's lawyer, Exhibit II, the following provision exists: "3.That the MANAGER, upon the organization of the said corporation, shall forthwith transfer to the said corporation his exclusive right to bottle Mission products and

to sell them throughout the Philippines. As a consideration for such transfer, the CAPITALIST shall transfer to the Manager full paid non-assessable shares of the said corporation . . . twentyfive per centum of the capital stock of the said corporation." (Par. 3, Exhibit II; emphasis ours.) Plaintiff had never been a bottler or a chemist; he never had experience in the production or distribution of beverages. As a matter of fact, when the bottling plant was being built, all that he suggested was about the toilet facilities for the laborers. We conclude from the above that while the representation that plaintiff had the exclusive franchise did not vitiate defendant's consent to the contract, it was used by plaintiff to get from defendant a share of 30 per cent of the net profits; in other words, by pretending that he had the exclusive franchise and promising to transfer it to defendant, he obtained the consent of the latter to give him (plaintiff) a big slice in the net profits. This is the dolo incidente defined in article 1270 of the Spanish Civil Code, because it was used to get the other party's consent to a big share in the profits, an incidental matter in the agreement. "El dolo incidental no es el que puede producirse en el cumplimiento del contrato sino que significa aqui, el que concurriendo en el consentimiento, o precediendolo, no influyo para arrancar por si solo el consentimiento ni en la totalidad de la obligacion, sino en algun extremo o accidente de esta, dando lugar tan solo a una accion para reclamar indemnizacion de perjuicios." (8 Manresa 602.) Having arrived at the conclusion that the agreement may not be declared null and void, the question that next comes before us is, May the agreement be carried out or executed? We find no merit in the claim of plaintiff that the partnership was already a fiat accompli from the time of the operation of the plant, as it is evident from the very language of the agreement that the parties intended that the execution of the agreement to form a partnership was to be carried out at a later date. They expressly agreed that they shall form a partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the time that the franchise from the Mission Dry Corporation was obtained in California, plaintiff himself had been demanding that defendant comply with the agreement. And plaintiff's present action seeks the enforcement of this agreement. Plaintiff's claim, therefore, is both inconsistent with their intention and incompatible with his own conduct and suit. As the trial court correctly concluded, the defendant may not be compelled against his will to carry out the agreement nor execute the partnership papers. Under the Spanish Civil Code, the defendant has an obligation to do, not to give. The law recognizes the individual's freedom or

liberty to do an act he has promised to do, or not to do it, as he pleases. It falls within what Spanish commentators call a very personal act (acto personalisimo), of which courts may not compel compliance, as it is considered an act of violence to do so. "Efectos de las obligaciones consistentes en hechos personalisimo. Tratamos de la ejecucion de las obligaciones de hacer en el solo caso de su incumplimiento por parte del deudor, y sean los hechos personalisimos, ya se hallen en la facultad de un tercero; porque el complimiento espontaneo de las mismas esta regido por los preceptos relativos al pago, y en nada les afectan las disposiciones del art. 1.098. "Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor puede ser precisado a realizar el hecho y por que medios. "Se tiene por corriente entre los autores, y se traslada generalmente sin observacion el pricipio romano nemo potest precise cogi ad factum. Los que perciben la posibilidad de la destruccion de este principio, aaden que, aun cuando se pudiera obligar al deudor, no deberia hacerse, porque esto constituiria una violencia, y no es la violencia modo propio de cumplir las obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo mismo cuando decia que obligar por la violencia seria infringir la libertad e imponer una especie de esclavitud." xxx xxx xxx "En efecto; las obligaciones contractuales no se acomodan bien con el empleo de la fuerza fisica, no ya precisamente porque se constituya de este modo una especie de esclavitud, segun el dicho de Antonio Gomez, sino porque se supone que el acreedor tuvo en cuenta el caracter personalisimo del hecho ofrecido, y calculo sobre la posibilidad de que por alguna razon no se realizase. Repugna, ademas, a la conciencia social el empleo de la fuerza publica, mediante coaccion sobre las pesonas, en las relaciones puramente particulares; porque la evolucion de las ideas ha ido poniendo mas de relieve cada dia el respeto a la personalidad humana, y no se admite bien la violencia sobre el indivicuo la cual tiene caracter visiblemente penal, sino por motivos que interesen a la colectividad de ciudadanos. Es, pues, posible y licita esta violencia cuando se trata de las obligaciones que hemos llamado ex lege, que afectan al orden social y a la entidad de Estado, y aparecen impuestas sin consideracion a las

conveniencias particulares, y sin que por este motivo puedan tampoco ser modificadas; pero no debe serlo cuando la obligacion reviste un interes puramente particular, como sucede en las contractuales, y cuando, por consecuencia, pareceria salirse el Estado de su esfera propia, entrado a dirimir, con apoyo de la fuerza colectiva, las diferencias producidas entre los ciudadanos. (19 Scaevola 428, 431- 432.)" The last question for us to decide is that of damages, damages that plaintiff is entitled to receive because of defendant's refusal to form the partnership, and damages that defendant is also entitled to collect because of the falsity of plaintiff's representation. (Article 1101, Spanish Civil Code.) Under article 1106 of the Spanish Civil Code the measure of damages is the actual loss suffered and the profits reasonably expected to be received, embraced in the terms dao emergente and lucro cesante. Plaintiff is entitled under the terms of the agreement to 30 per cent of the net profits of the business. Against this amount of damages, we must set off the damage defendant suffered by plaintiff's misrepresentation that he had the exclusive franchise, by which misrepresentation he obtained a very high percentage of share in the profits. We can do no better than follow the appraisal that the parties themselves had adopted. When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which he pretended he had and which he had agreed to transfer to the partnership, his spontaneous reaction was to reduce plaintiff's share from 30 per cent to 15 per cent only, to which reduction defendant appears to have readily given his assent. It was under this understanding, which amounts to a virtual modification of the contract, that the bottling plant was established and plaintiff worked as Manager for the first three months. If the contract may not be considered modified as to plaintiff's share in the profits, by the decision of defendant to reduce the same to one-half and the assent thereto of plaintiff, then we may consider the said amount as a fair estimate of the damages plaintiff is entitled to under the principle enunciated in the case of Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce plaintiff's share and plaintiff's consent thereto amount to an admission on the part of each of the reasonableness of this amount as plaintiff's share. This same amount was fixed by the trial court. The agreement contains the stipulation that upon the termination of the partnership, defendant was to convey the franchise back to plaintiff (Par. 11, Exhibit A). The judgment of the trial court does not fix the period within which these damages shall be paid to plaintiff. In view of paragraph 11 of Exhibit A, we declare that plaintiff's share of 15 per cent of the net profits shall continue to be paid while defendant uses the franchise from the Mission Dry Corporation.

With the modification above indicated, the judgment appealed from is hereby affirmed. Without costs. [G.R. No. 34840. September 23, 1931.] NARCISO GUTIERREZ, plaintiff-appellee, vs. BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO VELASCO, and SATURNINO CORTEZ, defendants-appellants.

L. D. Lockwood, for appellants Velasco and Cortez. San Agustin & Roxas, for other appellants. Ramon Diokno, for appellee. SYLLABUS 1.DAMAGES; MASTER AND SERVANT; MOTOR VEHICLES; LIABILITY OF HEAD OF HOUSE FOR ACTS OF DRIVER WHO IS HIS MINOR CHILD. The head of a house, the owner of an automobile, who maintains it for the general use of his family, is liable for its negligent operation by one of his children, whom he designates or permits to run it, where the car is occupied and being used at the time of the injury for the pleasure of other members of the owner's family than the child driving it. 2.ID.; ID.; ID.; ID.; CASE AT BAR. One G, a passenger in a truck, recovers damages in the amount of P5,000 from the owner of a private automobile not in the car, the machine being operated by a son 18 years of age, with other members of the family accommodated therein, and from the chauffeur and owner of the truck which collided with the private automobile on a bridge, causing physical injuries to G as a result of the automobile accident.

DECISION

MALCOLM, J p:

This is an action brought by the plaintiff in the Court of First Instance of Manila against the five defendants, to recover damages in the amount of P10,000, for physical injuries suffered as a result of an automobile accident. On judgment being rendered as prayed for by the plaintiff, both sets of defendants appealed. On February 2, 1930, a passenger truck and an automobile of private ownership collided while attempting to pass each other on the Talon bridge on the Manila South Road in the municipality of Las Pinas, Province of Rizal. The truck was driven by the chauffeur Abelardo Velasco, and was owned by Saturnino Cortez. The automobile was being operated by Bonifacio Gutierrez, a lad 18 years of age, and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez. At the time of the collision, the father was not in the car, but the mother, together with several other members of the Gutierrez family, seven in all, were accommodated therein. A passenger in the autobus, by the name of Narciso Gutierrez, was en route from San Pablo, Laguna, to Manila. The collision between the bus and the automobile resulted in Narciso Gutierrez suffering a fractured right leg which required medical attendance for a considerable period of time, and which even at the date of the trial appears not to have healed properly. It is conceded that the collision was caused by negligence pure and simple. The difference between the parties is that, while the plaintiff blames both sets of defendants, the owner of the passenger truck blames the automobile, and the owner of the automobile, in turn, blames the truck. We have given close attention to these highly debatable points, and having done so, a majority of the court are of the opinion that the findings of the trial judge on all controversial questions of fact find sufficient support in the record, and so should be maintained. With this general statement set down, we turn to consider the respective legal obligations of the defendants. In amplification of so much of the above pronouncement as concerns the Gutierrez family, it may be explained that the youth Bonifacio was an incompetent chauffeur, that he was driving at an excessive rate of speed, and that, on approaching the bridge and the truck, he lost his head and so contributed by his negligence to the accident. The guaranty given by the father at the time the son was granted a license to operate motor vehicles made the father responsible for the acts of his son. Based on these facts, pursuant to the provisions of article 1903 of the Civil Code, the father alone and not the minor or the mother, would be liable for the damages caused by the minor. We are here dealing with the civil law liability of parties for obligations which arise from fault or negligence. At the same time, we believe that, as has been done in other cases, we can take cognizance of the common law rule on the same subject. In the United States, it is uniformly held that the head of a house, the owner of an automobile, who maintains it for the general

use of his family is liable for its negligent operation by one of his children, whom he designates or permits to run it, where the car is occupied and being used at the time of the injury for the pleasure of other members of the owner's family than the child driving it. The theory of the law is that the running of the machine by a child to carry other members of the family is within the scope of the owner's business, so that he is liable for the negligence of the child because of the relationship of master and servant. (Huddy On Automobiles, 6th ed., sec. 660; Missell vs. Hayes [1914], 91 Alt., 322.) The liability of Saturnino Cortez, the owner of the truck, and of his chauffeur Abelardo Velasco rests on a different basis, namely, that of contract which, we think, has been sufficiently demonstrated by the allegations of the complaint, not controverted, and the evidence. The reason for this conclusion reaches to the findings of the trial court concerning the position of the truck on the bridge, the speed in operating the machine, and the lack of care employed by the chauffeur. While these facts are not as clearly evidenced as are those which convict the other defendant, we nevertheless hesitate to disregard the points emphasized by the trial judge. In its broader aspects, the case is one of two drivers approaching a narrow bridge from opposite directions, with neither being willing to slow up and give the right of way to the other, with the inevitable result of a collision and an accident. The defendants Velasco and Cortez further contend that there existed contributory negligence on the part of the plaintiff, consisting principally of his keeping his foot outside the truck, which occasioned his injury. In this connection, it is sufficient to state that, aside from the fact that the defense of contributory negligence was not pleaded, the evidence bearing out this theory of the case is contradictory in the extreme and leads us far afield into speculative matters. The last subject for consideration relates to the amount of the award. The appellee suggests that the amount could justly be raised to P16,517, but naturally is not serious in asking for this sum, since no appeal was taken by him from the judgment. The other parties unit in challenging the award of P10,000, as excessive. All facts considered, including actual expenditures and damages for the injury to the leg of the plaintiff, which may cause him permanent lameness, in connection with other adjudications of this court, lead us to conclude that a total sum for the plaintiff of P5,000 would be fair and reasonable. The difficulty in approximating the damages by monetary compensation is well elucidated by the divergence of opinion among the members of the court, three of whom have inclined to the view that P3,000 would be amply sufficient, while a fourth member has argued that P7,500 would be none too much. In consonance with the foregoing rulings, the judgment appealed from will be modified, and the plaintiff will have judgment in his favor against

the defendants Manuel Gutierrez, Abelardo Velasco, and Saturnino Cortez, jointly and severally, for the sum of P5,000, and the costs of both instances. [G.R. No. 48930. February 23, 1944.] ANTONIO VAZQUEZ, petitioner, vs. FRANCISCO DE BORJA, respondent.

[G.R. No. 48931. February 23, 1944.] FRANCISCO DE BORJA, petitioner, vs. ANTONIO VAZQUEZ, respondent.

holding. They have manifestly failed to distinguish a contractual from an extracontractual obligation, or an obligation arising from contract from an obligation arising from culpa aquiliana. The fault and negligence referred to in articles 1101-1104 of the Civil Code are those incidental to the fulfillment or nonfulfillment of a contractual obligation; while the fault or negligence referred to in article 1902 is the culpa aquiliana of the civil law, homologous but not identical to tort of the common law, which gives rise to an obligation independently of any contract. (Cf. Manila R. R. Co. vs. Cia. Trasatlantica, 38 Phil., 875, 887-890; Cangco vs. Manila R. R. Co., 38 Phil., 768.) The fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence in the fulfillment of the contract, did not make Vazquez principally or even subsidiarily liable for such negligence. Since it was the corporation's contract, its nonfulfillment, whether due to negligence or fault or to any other cause, made the corporation and not its agent liable. 3.ID.; ID.; ID. On the other hand, independently of the contract Vazquez by his fault or negligence caused damage to the plaintiff, he would be liable to the latter under article 1902 of the Civil Code. But then the plaintiff's cause of action should be based on culpa aquiliana and not on the contract alleged in his complaint herein; and Vazquez' liability would be principal and not merely subsidiary, as the Court of Appeals has erroneously held. 4.ID.; ID.; ID.; NO CAUSE OF ACTION BASED ON "CULPA AQUILIANA" ALLEGED IN COMPLAINT OR LITIGATED IN TRIAL COURT; NO JURISDICTION OVER THE ISSUE. No such cause of action was alleged in the complaint or tried by express or implied consent of the parties by virtue of section 4 of Rule 17. Hence the trial court had no jurisdiction over the issue and could not adjudicate upon it. (Reyes vs. Diaz, G. R. No. 48754.) Consequently it was error for the Court of Appeals to remand the case to the trial court to try and decide such issue.

SYLLABUS 1.CORPORATIONS; OFFICERS' PERSONAL LIABILITY ON CONTRACTS. It is well known that a corporation is an artificial being invested by law with a personality of its own, separate and distinct from that of its stockholders and from that of its officers who manage and run its affairs. The mere fact that its personality is owing to a legal fiction and that it necessarily has to act thru its agents, does not make the latter personally liable on a contract duly entered into, or for an act lawfully performed, by them for and in its behalf. The legal fiction by which the personality of a corporation is created is a practical reality and necessity. Without it no corporate entities may exist and no corporate business may be transacted. Such legal fiction may be disregarded only when an attempt is made to use it as a cloak to hide an unlawful or fraudulent purpose. No such thing has been alleged or proven in this case. It has not been alleged nor even intimated that Vazquez personally benefited by the contract of sale in question and that he is merely invoking the legal fiction to avoid personal liability. Neither is it contended that he entered into said contract for the corporation in bad faith and with intent to defraud the plaintiff. We find no legal and factual basis upon which to hold him liable on the contract either principally or subsidiarily. 2.ID.; ID.; NEGLIGENCE. The trial court found him guilty of negligence in the performance of the contract and held him personally liable on that account. On the other hand, the Court of Appeals found that he "no solamente obro con negligencia, sino interviniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago de la cantidad objeto de la demanda." We think both the trial court and the Court of Appeals erred in law in so

DECISION

OZAETA, J p: This action was commenced in the Court of First Instance of Manila by Francisco de Borja against Antonio Vazquez and Fernando Busuego to recover from them jointly and severally the total sum of P4,702.70 upon three alleged causes of action, to wit: First, that in or about the month of January, 1932, the defendants jointly and severally obligated themselves to sell to the plaintiff 4,000 cavans of palay at P2.10 per cavan, to be delivered during the month of February, 1932, the said defendants having subsequently received from the

plaintiff in virtue of said agreement the sum of P8,400; that the defendants delivered to the plaintiff during the months of February, March, and April, 1932, only 2,488 cavans of palay of the value of P5,224.80 and refused to deliver the balance of 1,512 cavans of the value of P3,175.20 notwithstanding repeated demands. Second, that because of defendants' refusal to deliver to the plaintiff the said 1,512 cavans of palay within the period above mentioned, the plaintiff suffered damages in the sum of P1,000. And, third, that on account of the agreement above mentioned the plaintiff delivered to the defendants 4,000 empty sacks, of which they returned to the plaintiff only 2,490 and refused to deliver to the plaintiff the balance of 1,510 sacks or to pay their value amounting to P377.50; and that on account of such refusal the plaintiff suffered damages in the sum of P150. The defendant Antonio Vazquez answered the complaint, denying having entered into the contract mentioned in the first cause of action in his own individual and personal capacity, either solely or together with his codefendant Fernando Busuego, and alleging that the agreement for the purchase of 4,000 cavans of palay and the payment of the price of P8,400 were made by the plaintiff with and to the Natividad-Vazquez Sabani Development Co., Inc., a corporation organized and existing under the laws of the Philippines, of which the defendant Antonio Vazquez was the acting manager at the time the transaction took place. By way of counterclaim, the said defendant alleged that he suffered damages in the sum of P1,000 on account of the filing of this action against him by the plaintiff with full knowledge that the said defendant had nothing to do whatever with any and all of the transactions mentioned in the complaint in his own individual and personal capacity. The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to the plaintiff the sum of P3,175.20 plus the sum of P377.50, with legal interest on both sums, and absolving the defendant Fernando Busuego (treasurer of the corporation) from the complaint and the plaintiff from the defendant Antonio Vazquez' counterclaim. Upon appeal to the Court of Appeals, the latter modified that judgment by reducing it to the total sum of P3,314.78, with legal interest thereon and the costs. But by a subsequent resolution upon the defendant's motion for reconsideration, the Court of Appeals set aside its judgment and ordered that the case be remanded to the court of origin for further proceedings. The defendant Vazquez, not being agreeable to that result, filed the present petition for certiorari (G.R. No. 48930) to review and reverse the judgment of the Court of Appeals; and the plaintiff Francisco de Borja, excepting to the resolution of the Court of Appeals whereby its original judgment was set aside and the case was ordered remanded to the court of origin for further proceedings, filed a cross-petition for certiorari (G.R. No. 48931) to maintain the original judgment of the Court of Appeals.

The original decision of the Court of Appeals and its subsequent resolutions on reconsideration read as follows: "Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-apelante vendio al demandante 4,000 cavanes de palay al precio de P2.10 el cavan, de los cuales, dicho demandante solamente recibio 2,583 cavanes; y que asimismo recibio para su envase 4,000 sacos vacios. Esta probado que de dichos 4,000 sacos vacios solamente se entregaron, 2,583 quedando en poder del demandado el resto, y cuyo valor es el de P0.24 cada uno. Presentada la demanda contra los demandados Antonio Vazquez y Fernando Busuego para el pago de la cantidad de P4,702.70, con sus intereses legales desde el 1.0 de marzo de 1932 hasta su completeo pago y las costas, el Juzgado de Primera Instancia de Manila fallo el asunto condenando a Antonio Vazquez a pagar al demandante la cantidad de P3,175.20, mas la cantidad de P377.50, con sus intereses legales, absolviendo al demandado Fernando Busuego de la demanda y al demandante de la reconvencion de los demandados, sin especial pronunciamiento en cuanto a las costas. De dicha decision apelo el demandado Antonio Vazquez, apuntando como principal error el de que el habia sido condenado personalmente, y no la corporacion por el representada. "Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a favor de Francisco de Borja de los 4,000 cavanes de palay fue en su capacidad de Presidente interino y Manager de la corporacion NatividadVazquez Sabani Development Co., Inc. Asi resulta del Exh. 1, que es la copia al carbon del recibo otorgado por el demandado Vazquez, y cuyo original lo habia perdido el demandante, segun el. Asi tambien consta en los libros de la corporacion arriba mencionada, puesto que en los mismos se ha asentado tanto la entrada de los P8,400, precio del palay, como su envio al gobierno en pago de los alquileres de la Hacienda Sabani. Asi mismo lo admitio Francisco de Borja al abogado Sr. Jacinto Tomacruz, posterior presidente de la corporacion sucesora en el arrendamiento de la Sabani Estate, cuando el solicito sus buenos oficios para el cobro del precio del palay no entregado. Asi igualmente lo declaro el que hizo entrega de parte del palay a Borja, Felipe Veneracion, cuyo testimonio no ha sido refutado. Y asi se deduce de la misma demanda, cuando se incluyo en ella a Fernando Busuego, tesorero de la Natividad-Vazquez Sabani Development Co., Inc. "Siendo esto asi, la principal responsable debe ser la NatividadVazquez Sabani Development Co., Inc., que quedo insolvente y dejo de existir. El Juez sentenciador declaro, sin embargo, al demandado Vazquez responsable del pago de la cantidad reclamada por su negligencia al vender los referidos 4,000 cavanes de palay sin averiguar antes si o no dicha cantidad existia en las bodegas de la corporacion.

"Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a Francisco de Borja, el mismo demandado vendio a Kwong Ah Phoy 1,500 cavanes al precio de P2.00 el cavan, y decimos 'despues' porque esta ultima venta aparece asentada despues de la primera. Segun esto, el apelante no solamente obro con negligencia, sino interviniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago de la cantidad objeto de la demanda. "En meritos de todo lo expuesto, se confirma la decision apelada con la modificacion de que el apelante debe pagar al apelado la suma de P2,975.70 como valor de los 1,417 cavanes de palay que dejo de entregar al demandante, mas la suma de P339.08 como importe de los 1,417 sacos vacios, que dejo de devolver, a razon de P0.24 el saco, total P3,314.78, con sus intereses legales desde la interposicion de la demanda y las costas de ambas instancias." "Vista la mocion de reconsideracion de nuestra decision de fecha 13 de Octubre de 1942, y alegandose en la misma que cuando el apelante vendio los 1,500 cavanes de palay a Ah Phoy, la corporacion todavia tenia bastante existencia de dicho grano, y no estando dicho extremo suficientemente discutido y probado, y pudiendo variar el resultado del asunto, dejamos sin efecto nuestra citada decision, y ordenamos la devolucion de la causa al Juzgado de origen para que reciba pruebas al efecto y dicte despues la decision correspondiente." "Upon consideration of the motion of the attorney for the plaintiffappellee in case CA-G.R. No. 8676, Francisco de Borja vs. Antonio Vazquez et al., praying, for the reasons therein given, that the resolution of December 22, 1942, be reconsidered: Considering that said resolution remanding the case to the lower court is for the benefit of the plaintiff-appellee to afford him opportunity to refute the contention of the defendant-appellant Antonio Vazquez, motion denied." The action is on a contract, and the only issue pleaded and tried is whether the plaintiff entered into the contract with the defendant Antonio Vazquez in his personal capacity or as manager of the Natividad-Vazquez Sabani Development Co., Inc. The Court of Appeals found that according to the preponderance of the evidence "the sale made by Antonio Vazquez in favor of Francisco de Borja of 4,000 cavans of palay was in his capacity as acting president and manager of the corporation Natividad-Vazquez Sabani Development Co., Inc." That finding of fact is final and, it resolving the only issue involved, should be determinative of the result. The Court of Appeals doubly erred in ordering that the cause be remanded to the court of origin for further trial to determine whether the corporation had sufficient stock of palay at the time appellant sold 1,500 cavans of palay to Kwong Ah Phoy. First, if that point was material to the issue, it should have been proven during the trial; and the statement of the court

that it had not been sufficiently discussed and proven was no justification for ordering a new trial, which, by the way, neither party had solicited but against which, on the contrary, both parties now vehemently protest. Second, the point is, in any event, beside the issue, and this we shall now discuss in connection with the original judgment of the Court of Appeals which the plaintiff cross-petitioner seeks to maintain. The action being on a contract, and it appearing from the preponderance of the evidence that the party liable on the contract is the Natividad-Vazquez Sabani Development Co., Inc., which is not a party herein, the complaint should have been dismissed. Counsel for the plaintiff, in his brief as respondent, argues that altho by the preponderance of the evidence the trial court and the Court of Appeals found that Vazquez celebrated the contract in his capacity as acting president of the corporation and altho it was the latter, thru Vazquez, with which the plaintiff had contracted and which, thru Vazquez, had received the sum of P8,400 from Borja, and altho that was true from the point of view of a legal fiction, "ello no impide que tambien sea verdad lo alegado en la demanda de que la persona de Vazquez fue la que contrato con Borja y que la misma persona de Vazquez fue quien recibio la suma de P8,400." But such argument is invalid and insufficient to show that the president of the corporation is personally liable on the contract duly and lawfully entered into by him in its behalf. It is well known that a corporation is an artificial being invested by law with a personality of its own, separate and distinct from that of its stockholders and from that of its officers who manage and run its affairs. The mere fact that its personality is owing to a legal fiction and that it necessarily has to act thru its agents, does not make the latter personally liable on a contract duly entered into, or for an act lawfully performed, by them for and in its behalf. The legal fiction by which the personality of a corporation is created is a practical reality and necessity. Without it no corporate entities may exist and no corporate business may be transacted. Such legal fiction may be disregarded only when an attempt is made to use it as a cloak to hide an unlawful or fraudulent purpose. No such thing has been alleged or proven in this case. It has not been alleged nor even intimated that Vazquez personally benefited by the contract of sale in question and that he is merely invoking the legal fiction to avoid personal liability. Neither is it contended that he entered into said contract for the corporation in bad faith and with intent to defraud the plaintiff. We find no legal and factual basis upon which to hold him liable on the contract either principally or subsidiarily. The trial court found him guilty of negligence in the performance of the contract and held him personally liable on that account. On the other hand, the Court of Appeals found that he "no solamente obro con negligencia, sino interviniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del

pago de la cantidad objeto de la demanda." We think both the trial court and the Court of Appeals erred in law in so holding. They have manifestly failed to distinguish a contractual from an extracontractual obligation, or an obligation arising from contract from an obligation arising from culpa aquiliana. The fault and negligence referred to in articles 1101-1104 of the Civil Code are those incidental to the fulfillment or nonfulfillment of a contractual obligation; while the fault or negligence referred to in article 1902 is the culpa aquiliana of the civil law, homologous but not identical to tort of the common law, which gives rise to an obligation independently of any contract. (Cf. Manila R. R. Co. vs. Cia. Trasatlantica, 38 Phil., 875, 887-890; Cangco vs. Manila R. R. Co., 38 Phil., 768.) The fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence in the fulfillment of the contract, did not make Vazquez principally or even subsidiarily liable for such negligence. Since it was the corporation's contract, its nonfulfillment, whether due to negligence or fault or to any other cause, made the corporation and not its agent liable. On the other hand, if independently of the contract Vazquez by his fault or negligence caused damage to the plaintiff, he would be liable to the latter under article 1902 of the Civil Code. But then the plaintiff's cause of action should be based on culpa aquiliana and not on the contract alleged in his complaint herein; and Vazquez' liability would be principal and not merely subsidiary, as the Court of Appeals has erroneously held. No such cause of action was alleged in the complaint or tried by express or implied consent of the parties by virtue of section 4 of Rule 17. Hence the trial court had no jurisdiction over the issue and could not adjudicate upon it. (Reyes vs. Diaz, G. R. No. 48754.) Consequently it was error for the Court of Appeals to remand the case to the trial court to try and decide such issue. It only remains for us to consider petitioner's second assignment of error referring to the lower courts' refusal to entertain his counterclaim for damages against the respondent Borja arising from the bringing of this action. The lower courts having sustained plaintiff's action, they naturally could not have entertained defendant's counterclaim for damages on account of the bringing of the action. The finding of the Court of Appeals that according to the preponderance of the evidence the defendant Vazquez celebrated the contract not in his personal capacity but as acting president and manager of the corporation, does not warrant his contention that the suit against him is malicious and tortious; and since we have to decide defendant's counterclaim upon the facts found by the Court of Appeals, we find no sufficient basis upon which to sustain said counterclaim. Indeed, we feel that as a matter of moral justice we ought to state here that the indignant attitude adopted by the defendant towards the plaintiff for having brought this action against him is in our estimation not wholly right. Altho from the legal point of view he was not personally liable for the fulfillment of the contract entered into by him on behalf of the corporation of which he was the acting president and manager,

we think it was his moral duty towards the party with whom he contracted in said capacity to see to it that the corporation represented by him fulfilled the contract by delivering the palay it had sold, the price of which it had already received. Recreant to such duty as a moral person, he has no legitimate cause for indignation. We feel that under the circumstances he not only has no cause of action against the plaintiff for damages but is not even entitled to costs. The judgment of the Court of Appeals is reversed, and the complaint is hereby dismissed, without any finding as to costs. G.R. No. L-14335 January 28, 1920

MANUEL DE GUIA, plaintiff-appellant, vs. THE MANILA ELECTRIC RAILROAD & LIGHT COMPANY, defendant-appellant. Sumulong and Estrada, Crossfield and O'Brien and Francisco A. Delgado for plaintiff-appellant. Lawrence and Ross for defendant-appellant. STREET, J.: This is an appeal prosecuted both by the plaintiff and the defendant from a judgment of the Court of First Instance of the City of Manila, whereby the plaintiff was awarded the sum of P6,100, with interest and costs, as damages incurred by him in consequence of physical injuries sustained while riding on one of the defendant's car. The accident which gave rise to the litigation occurred on September 4, 1915, near the end of the street-car line in Caloocan, Rizal, a northern suburb of the city of Manila. It appears that, at about 8 o'clock p.m., of the date mentioned, the plaintiff Manuel de Guia, a physician residing in Caloocan, boarded a car at the end of the line with the intention of coming to the city. At about 30 meters from the starting point the car entered a switch, the plaintiff remaining on the back platform holding the handle of the right-hand door. Upon coming out of the switch, the small wheels of the rear truck left the track, ran for a short distance along the macadam filling, which was flush with the rails, and struck a concrete post at the left of the tract. The post was shattered; and as the car stopped the plaintiff was thrown against the door with some violence, receiving bruises and possibly certain internal injuries, the extent of which is a subject of dispute.

The trial court found that the motorman of the derailed car was negligent in having maintained too rapid a speed. This inference appears to be based chiefly upon the results of the shock, involving the shattering of the post and the bending of the kingpost of the car. It is insisted for the defendant company that the derailment was due to the presence of a stone, somewhat larger than a goose egg, which had become accidentally lodged between the rails at the juncture of the switch and which was unobserved by the motorman. In this view the derailment of the car is supposed to be due to casus fortuitos and not chargeable to the negligence of the motorman. Even supposing that the derailment of the car was due to the accidental presence of such a stone as suggested, we do not think that the existence of negligence is disproved. The motorman says that upon approaching the switch he reduced the electrical energy to the point that the car barely entered the switch under its own momentum, and this operation was repeated as he passed out. Upon getting again on the straight tract he put the control successively at points one, two, three and lastly at point four. At the moment when the control was placed at point four he perceived that the rear wheels were derailed and applied the brake; but at the same instant the car struck the post, some 40 meters distant from the exit of the switch. One of the defendant's witnesses stated in court that the rate of a car propelled by electricity with the control at point "four" should be about five or 6 miles per hour. There was some other evidence to the effect that the car was behind schedule time and that it was being driven after leaving the switch, at a higher rate than would ordinarily be indicated by the control at point four. This inference is rendered more tenable by the circumstance that the car was practically empty. On the whole, we are of the opinion that the finding of negligence in the operation of the car must be sustained, as not being clearly contrary to the evidence; not so much because of excessive speed as because of the distance which the car was allowed to run with the front wheels of the rear truck derailed. It seems to us than an experienced and attentive motorman should have discovered that something was wrong and would have stopped before he had driven the car over the entire distance from the point where the wheels left the track to the place where the post was struck. The conclusion being accepted that there was negligence on the part of the motorman in driving the car, it results that the company is liable for the damage resulting to the plaintiff as a consequence of that negligence. The plaintiff had boarded the car as a passenger for the city of Manila and the company undertook to convey him for hire. The relation between the parties was, therefore, of a contractual nature, and the duty of the carrier is to be determined with reference to the principles of contract law, that is, the company was bound to convey and deliver the plaintiff safely and securely with reference to the degree of care which, under the circumstances, is required by law and custom applicable to the case (art.

1258, Civil Code). Upon failure to comply with that obligation the company incurred the liability defined in articles 1103-1107 of the Civil Code. (Cangco vs. Manila Railroad Company, 38 Phil. Rep., 768; Manila Railroad Company vs. Compaia Transatlantica, and Atlantic, Gulf & Pacific Co., 38 Phil. Rep., 875.) From the nature of the liability thus incurred, it is clear that the defendant company can not avail itself of the last paragraph of article 1903 of the Civil Code, since that provision has reference to liability incurred by negligence in the absence of contractual relation, that is, to the culpa aquiliana of the civil law. It was therefore irrelevant for the defendant company to prove, as it did, that the company had exercised due care in the selection and instruction of the motorman who was in charge of its car and that he was in fact an experienced and reliable servant. At this point, however, it should be observed that although in case like this the defendant must answer for the consequences of the negligence of its employee, the court has the power to moderate liability according to the circumstances of the case (art. 1103, Civ. Code): Furthermore, we think it obvious that an employer who has in fact displayed due diligence in choosing and instructing his servants is entitled to be considered a debtor in good faith, within the meaning of article 1107 of the same Code. Construing these two provisions together, applying them to the facts of this case, it results that the defendant's liability is limited to such damages as might, at the time of the accident, have been reasonably foreseen as a probable consequence of the physical injuries inflicted upon the plaintiff and which were in fact a necessary result of those injuries. There is nothing novel in this proposition, since both the civil and the common law are agreed upon the point that the damages ordinarily recoverable for the breach of a contractual obligation, against a person who has acted in good faith, are such as can reasonably be foreseen at the time the obligation is contracted. In Daywalt vs. Corporacion de PP. Agustinos Recoletos (39 Phil., 587), we said: "The extent of the liability for the breach of a contract must be determined in the light of the situation in existence at the time the contract is made; and the damages ordinarily recoverable are in all events limited to such as might be reasonably foreseen in the light of the facts then known to the contracting parties." This brings us to consider the amount which may be awarded to the plaintiff as damages. Upon this point the trial judge found that, as a result of the physical and nervous derangement resulting from the accident, Dr. De Guia was unable properly to attend to his professional labors for three months and suspended his practice for that period. It was also proved by the testimony of the plaintiff that his customary income, as a physician, was about P300 per month. The trial judge accordingly allowed P900, as damages for loss of professional earnings. This

allowance is attacked upon appeal by the defendant as excessive both as to the period and rate of allowance. Upon examining the evidence we fell disinclined to disturb this part of the judgment, though it must be conceded that the estimate of the trial judge on this point was liberal enough to the plaintiff. Another item allowed by the trial judge consists of P3,900, which the plaintiff is supposed to have lost by reason of his inability to accept a position as district health officer in Occidental Negros. It appears in this connection that Mr. Alunan, representative from Occidental Negros, had asked Dr. Montinola, who supposedly had the authority to make the appointment, to nominate the plaintiff to such position. The job was supposed to be good for two years, with a salary of P1,600 per annum, and possibility of outside practice worth P350. Accepting these suggestions as true, it is evident that the damages thus incurred are too speculative to be the basis of recovery in a civil action. This element of damages must therefore be eliminated. It goes without saying that damage of this character could not, at the time of the accident, have been foreseen by the delinquent party as a probable consequence of the injury inflicted a circumstance which makes applicable article 1107 of the Civil Code, as already expounded. The last element of damages to be considered is the item of the plaintiff's doctor's bills, a subject which we momentarily pass for discussion further on, since the controversy on this point can be more readily understood in connection with the question raised by the plaintiff's appeal. The plaintiff alleges in the complaint that the damages incurred by him as a result of the injuries in question ascend to the amount of P40,000. Of this amount the sum of P10,000 is supposed to represent the cost of medical treatment and other expenses incident to the plaintiff's cure, while the remainder (P30,000) represents the damage resulting from the character of his injuries, which are supposedly such as to incapacitate him for the exercise of the medical profession in the future. In support of these claims the plaintiff introduced evidence, consisting of his own testimony and that of numerous medical experts, tending to show that as a result of the injuries in question he had developed infarct of the liver and traumatic neurosis, accompanied by nervousness, vertigo, and other disturbing symptoms of a serious and permanent character, it being claimed that these manifestations of disorder rendered him liable to a host of other dangerous diseases, such as pleuresy, tuberculosis, pneumonia, and pulmonary gangrene, and that restoration to health could only be accomplished, if at all, after long years of complete repose. The trial judge did not take these pretensions very seriously, and, as already stated, limited the damages to the three items of professional earnings, expenses of medical treatment, and the loss of the appointment as medical treatment, and the loss of the appointment as medical inspector in Occidental Negros. As the appeal of the plaintiff opens the whole case upon the question of damages, it is desirable to

present a somewhat fuller statement than that already given with respect to extent and character of the injuries in question. The plaintiff testified that, at the time the car struck against the concrete post, he was standing on the rear platform, grasping the handle of the right-hand door. The shock of the impact threw him forward, and the left part of his chest struck against the door causing him to fall. In falling, the plaintiff says, his head struck one of the seats and he became unconscious. He was presently taken to his home which was only a short distance away, where he was seen at about 10 o'clock p. m., by a physician in the employment of the defendant company. This physician says that the plaintiff was then walking about and apparently suffering somewhat from bruises on his chest. He said nothing about his head being injured and refused to go to a hospital. Later, during the same night Dr. Carmelo Basa was called in to see the plaintiff. This physician says that he found Doctor De Guia lying in bed and complaining of a severe pain in the side. During the visit of Doctor Basa the plaintiff several times spit up blood, a manifestation no doubt due to the effects of the bruises received in his side. The next day Doctor De Guia went into Manila to consult another physician, Doctor Miciano, and during the course of a few weeks he called into consultation other doctors who were introduced as witnesses in his behalf at the trial of this case. According to the testimony of these witnesses, as well as that of the plaintiff himself, the symptoms of physical and nervous derangement in the plaintiff speedily developed in portentous degree. Other experts were introduced by the defendant whose testimony tended to show that the plaintiff's injuries, considered in their physical effects, were trivial and that the attendant nervous derangement, with its complicated train of ailments, was merely simulated. Upon this question the opposing medical experts ventilated a considerable mass of professional learning with reference to the nature and effects of the baffling disease known as traumatic neurosis, or traumatic hysteria a topic which has been the occasion of much controversy in actions of this character in the tribunals of Europe and America. The subject is one of considerable interest from a medicolegal point of view, but we deem it unnecessary in this opinion to enter upon a discussion of its voluminous literature. It is enough to say that in our opinion the plaintiff's case for large damages in respect to his supposed incapacitation for future professional practice is not made out. Of course in this jurisdiction damages can not be assessed in favor of the plaintiff as compensation for the physical or mental pain which he may have endured (Marcelo vs. Velasco, 11 Phil. Rep. 287); and the evidence relating to the injuries, both external and internal, received by him must be examined chiefly in its bearing upon his material welfare, that is, in its results upon his earning capacity and the expenses incurred in restoration to the usual condition of health.

The evidence before us shows that immediately after the accident in question Doctor De Guia, sensing in the situation a possibility of profit, devoted himself with great assiduity to the promotion of this litigation; and with the aid of his own professional knowledge, supplemented by suggestions obtained from his professional friends and associates, he enveloped himself more or less unconsciously in an atmosphere of delusion which rendered him incapable of appreciating at their true value the symptoms of disorder which he developed. The trial court was in our opinion fully justified in rejecting the exaggerated estimate of damages thus created. We now pass to the consideration of the amount allowed to the plaintiff by the trial judge as the expense incurred for medical service. In this connection Doctor Montes testified that he was first called to see the plaintiff upon September 14, 1915, when he found him suffering from traumatic neurosis. Three months later he was called upon to treat the same patient for an acute catarrhal condition, involving disturbance in the pulmonary region. The treatment for this malady was successful after two months, but at the end of six months the same trouble recurred and required further treatment. In October of the year 1916, or more than a year after the accident in question occurred, Doctor Montes was called in consultation with Doctor Guerrero to make an examination of the plaintiff. Doctor Montes says that his charges altogether for services rendered to the plaintiff amount to P350, of which the sum of P200 had been paid by the plaintiff upon bills rendered from time to time. This physician speaks in the most general terms with respect to the times and extent of the services rendered; and it is by no means clear that those services which were rendered many months, or year, after the accident had in fact any necessary or legitimate relation to the injuries received by the plaintiff. In view of the vagueness and uncertainty of the testimony relating to Doctor Montes' services, we are of the opinion that the sum of P200, or the amount actually paid to him by the plaintiff, represents the extent of the plaintiff's obligation with respect to treatment for said injuries. With regard to the obligation supposedly incurred by the plaintiff to three other physicians, we are of the opinion that they are not a proper subject of recovery in this action; and this for more than one reason. In the first place, it does not appear that said physicians have in fact made charges for those services with the intention of imposing obligations on the plaintiff to pay for them. On the contrary it would seem that said services were gratuitously rendered out of courtesy to the plaintiff as a member of the medical profession. The suggestions made on the stand by these physicians to the effect that their services were worth the amounts stated by them are not sufficient to proved that the plaintiff had incurred the obligation to pay those amounts. In the second place, we are convinced that in employing so many physicians the plaintiff must have had in view of the successful promotion of the issue of this lawsuit rather than the bona fide purpose of effecting the cure of

his injuries. In order to constitute a proper element of recovery in an action of this character, the medical service for which reimbursement is claimed should not only be such as to have created a legal obligation upon the plaintiff but such as was reasonably necessary in view of his actual condition. It can not be permitted that a litigant should retain an unusual and unnecessary number of professional experts with a view to the successful promotion of a lawsuit and expect to recover against his adversary the entire expense thus incurred. His claim for medical services must be limited to such expenditures as were reasonably suited to the case. The second error assigned in the brief of the defendant company presents a question of practice which, though not vital to the solution of this case, is of sufficient general importance to merit notice. It appears that four of the physicians examined as witnesses for the plaintiff had made written statements at various dates certifying the results of their respective examinations into the condition of the plaintiff. When these witnesses were examined in court the identified their respective signatures to these certificates and the trial judge, over the defendant's objection, admitted the documents as primary evidence in the case. This was undoubtedly erroneous. A document of this character is not primary evidence in any sense, since it is fundamentally of a hearsay nature; and the only legitimate use to which one of these certificates could be put, as evidence for the plaintiff, was to allow the physician who issued it to refer thereto to refresh his memory upon details which he might have forgotten. InZwangizer vs. Newman (83 N. Y. Supp., 1071) which was also an action to recover damages for personal injury, it appeared that a physician, who had been sent by one of the parties to examine the plaintiff, had made at the time a written memorandum of the results of the examination; and it was proposed to introduce this document in evidence at the trial. It was excluded by the trial judge, and it was held upon appeal that this was proper. Said the court: "There was no failure or exhaustion of the memory, and no impeachment of the memorandum on cross-examination; and the document was clearly incompetent as evidence in chief." It results from the foregoing that the judgment appealed from must be modified by reducing the amount of the recovery to eleven hundred pesos (1,100), with legal interest from November 8, 1916. As thus modified the judgment is affirmed, without any special pronouncement as to costs of this instance. So ordered. [G.R. No. 141258. April 9, 2003.] TOMASA SARMIENTO, petitioner, vs. SPS. LUIS & ROSE SUNCABRIDO and MARIA LOURDES SUN, respondents.

Liberato G. Casilan, Jr. for petitioner.

Victor dela Serna for respondents. SYNOPSIS The controversy herein arose when a piece of diamond was broken by Zenon Santos, an employee at the jewelry shop, in the process of dismounting it from an original setting. The diamond was claimed to be .33 carat and almost perfect in cut and clarity. As a result of the incident, the petitioner herein was forced to replace the broken diamond to its owner in the amount of P30,000.00. The petitioner filed a complaint for damages with the Metropolitan Trial Court in Cities (MTCC) and claimed that the dismounting of the diamond from its original setting was part of the obligation assumed by the respondents under the contract of service, the respondent spouses being the owner of the jewelry shop and the other respondent their employee. Thus, they should be held liable for the damages arising from its breakage. The MTCC decided in favor of the petitioner herein. But on appeal, the Regional Trial Court (RTC) reversed the decision; thus absolving the respondents of any responsibility arising from breach of contract. The Court of Appeals affirmed the judgment of the RTC, hence, this petition for review. According to the Supreme Court, preponderance of evidence supported the view that Marilou and Zenon Santos were employed at the jewelry shop in order to perform activities, which were usually necessary or desirable in its business. The Court, therefore, held that an obligation to pay actual damages arose in favor of the petitioner against the respondent spouses who admittedly owned and managed the jewelry shop. It was proven that petitioner replaced the damaged jewelry in the amount of P30,000.00. The facts of the case also justified the award of moral damages. The petition was granted and the assailed decision of the Court of Appeals was reversed and set aside by the Supreme Court ordering the respondent spouses to pay petitioner actual damages of P30,000.00 and moral damages of P10,000.00. SYLLABUS 1.CIVIL LAW; OBLIGATIONS; SHALL HAVE THE FORCE OF LAW BETWEEN PARTIES WHEN THE SAME AROSE FROM CONTRACTS; EFFECT OF FAULT OR NEGLIGENCE IN THE PERFORMANCE THEREOF. Obligations arising from contracts have the force of law between the contracting parties. Corollarily, those who in the performance of their obligations are guilty of fraud, negligence or delay and those who in any manner contravene the tenor thereof, are liable for damages. The fault or negligence of the obligor consists in the omission of that diligence which is

required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. 2.ID.; DAMAGES; MORAL DAMAGES; GENERALLY NOT RECOVERABLE IN ACTIONS FOR BREACH OF CONTRACT; EXCEPTION. As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract for it is not one of the items enumerated under Article 2219 of the Civil Code. Moral damages may be awarded in a breach of contract only when there is proof that defendant acted in bad faith, or was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation. TSacCH

DECISION

CORONA, J p: This appeal by certiorari stems from the Decision 1 of respondent Court of Appeals promulgated on November 26, 1999 in CA-G.R. SP No. 47431 declaring the private respondents not liable for damages. Petitioner, Tomasa Sarmiento, states that sometime in April 1994, a friend, Dra. Virginia Lao, requested her to find somebody to reset a pair of diamond earrings into two gold rings. 2 Accordingly, petitioner sent a certain Tita Payag with the pair of earrings to Dingding's Jewelry Shop, owned and managed by respondent spouses Luis and Rose Cabrido, 3 which accepted the job order for P400. 4 Petitioner provided 12 grams of gold to be used in crafting the pair of ring settings. 5 After 3 days, Tita Payag delivered to the jewelry shop one of Dra. Lao's diamond earrings which was earlier appraised as worth .33 carat and almost perfect in cut and clarity. 6 Respondent Ma. Lourdes (Marilou) Sun went on to dismount the diamond from its original setting. Unsuccessful, she asked their goldsmith, Zenon Santos, to do it. Santos removed the diamond by twisting the setting with a pair of pliers, breaking the gem in the process. 7 Petitioner required the respondents to replace the diamond with the same size and quality. When they refused, the petitioner was forced to buy a replacement in the amount of P30,000. 8 Respondent Rose Cabrido, manager of Dingding's Jewelry Shop, denied having entered into any transaction with Tita Payag whom she met only after the latter

came to the jewelry shop to seek compensation from Santos for the broken piece of jewelry. 9 However, it was possible that Payag may have availed of their services as she could not have known every customer who came to their shop. Rose disclosed that she usually arrived at 11:00 a.m. When she was not around, her mother and sister tended the shop. 10 Marilou admitted knowing Payag who came to Dingding's Jewelry Shop to avail of their services regarding a certain piece of jewelry. After a short conversation, Payag went inside the shop to see Santos. When the precious stone was broken by Santos, Payag demanded P15,000 from him. As the latter had no money, she turned to Marilou for reimbursement apparently thinking that Marilou was the owner of the shop. 11 For his part, Santos recalled that Payag requested him to dismount what appeared to him was a sapphire. While clipping the setting with the use of a small pair of pliers, the stone accidentally broke. Santos denied being an employee of Dingding's Jewelry Shop. 12 Attempts to settle the controversy before the barangay lupon proved futile. 13 Consequently, petitioner filed a complaint for damages on June 28, 1994 with the Municipal Trial Court in Cities (MTCC) of Tagbilaran City docketed as Civil Case No. 2339 which rendered a decision 14 in favor of the petitioner, the dispositive portion of which reads: WHEREFORE, Decision is hereby rendered in favor of plaintiff Tomasa Sarmiento and against defendants Spouses Luis and Rose Sun-Cabrido, ordering defendants to pay jointly and severally the amount of Thirty Thousand Pesos (P30,000.00) as actual or compensatory damages; Three Thousand Pesos (P3,000.00) as moral damages; Five Thousand Pesos (P5,000.00) as attorney's fees; Two Thousand Pesos (P2,000.00) as litigation expenses, with legal interest of 6% per annum from the date of this decision and 12% per annum from the date when this decision becomes final until the amounts shall have been fully paid and to pay the costs. This case as against defendant Maria Lourdes Sun as well as defendants' counterclaim are dismissed for lack of merit. SO ORDERED. On appeal, the Regional Trial Court (RTC) of Tagbilaran City, Branch 3, reversed the decision of the MTCC, thus absolving the respondents of any responsibility arising

from breach of contract. 15 Finding no reversible error, the Court of Appeals (CA) affirmed the judgment of the RTC in its Decision promulgated on November 26, 1999. 16 Unable to accept the decision, the petitioner filed the instant petition for review with the following assigned errors: I THE COURT OF APPEALS ERRED IN MAINTAINING AND SO HOLDING THAT ZENON SANTOS IS NOT AN EMPLOYEE OF DEFENDANT (herein respondent) ROSE SUN-CABRIDO, AND IS THEREFORE ANSWERABLE FOR HIS OWN ACTS OR OMISSIONS II THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE REGIONAL TRIAL COURT'S PRONOUNCEMENTS THAT THERE EXISTS NO AGREEMENT BETWEEN THE PETITIONER AND RESPONDENTS THAT THE LATTER WOULD ANSWER FOR ANY LIABILITY SHOULD THE DIAMOND BE DAMAGED IN THE PROCESS OF DISMOUNTING THEM FROM THE EARRINGS. Essentially, petitioner claims that the dismounting of the diamond from its original setting was part of the obligation assumed by the private respondents under the contract of service. Thus, they should be held liable for damages arising from its breakage. On the other hand, the version of the private respondents, upheld by the RTC and the CA, is that their agreement with the petitioner was for crafting two gold rings mounted with diamonds only and did not include the dismounting of the said diamonds from their original setting. 17 Consequently, the crux of the instant controversy is the scope of the obligation assumed by the private respondents under the verbal contract of service with the petitioner. The Court notes that, during the trial, private respondents vigorously denied any transaction between Dingding's' Jewelry Shop and the petitioner, through Tita Payag. Rose Cabrido, for instance, denied having ever met Payag before the latter came to seek reimbursement for the value of the broken diamond. Likewise, while Marilou acknowledged acquaintance with Payag, she nevertheless denied accepting any job order from her. Debunking their protestations, however, the MTCC of Tagbilaran City rendered its decision on November 26, 1999 in favor of herein petitioner.

Apparently realizing the weakness and futility of their position, private respondents conceded, on appeal, the existence of an agreement with the petitioner for crafting a pair of gold rings mounted with diamonds. This apparent concession by the private respondents, however, was really nothing but an ingenious maneuver, designed to preclude, just the same, any recovery for damages by the petitioner. Thus, while ostensibly admitting the existence of the said agreement, private respondents, nonetheless denied assuming any obligation to dismount the diamonds from their original settings. 18 The inconsistent position of the private respondents impugns their credibility. They cannot be permitted to adopt a certain stance, only to vacillate later to suit their interest. We are therefore inclined to agree with the MTCC in giving credence to the version of the petitioner. The MTCC had the unique opportunity to actually observe the behavior and demeanor of the witnesses as they testified during the trial. 19

the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. 24 In the case at bar, it is beyond doubt that Santos acted negligently in dismounting the diamond from its original setting. It appears to be the practice of the trade to use a miniature wire saw in dismounting precious gems, such as diamonds, from their original settings. 25 However, Santos employed a pair of pliers in clipping the original setting, thus resulting in breakage of the diamond. The jewelry shop failed to perform its obligation with the ordinary diligence required by the circumstances. It should be pointed out that Marilou examined the diamond before dismounting it from the original setting and found the same to be in order. Its subsequent breakage in the hands of Santos could only have been caused by his negligence in using the wrong equipment. Res ipsa loquitur. Private respondents seek to avoid liability by passing the buck to Santos who claimed to be an independent worker. They also claim, rather lamely, that Marilou simply happened to drop by at Dingding's Jewelry Shop when Payag arrived to place her job order. 26 We do not think so. The facts show that Santos had been working at Dingding's Jewelry Shop as goldsmith for about 6 months accepting job orders through referrals from private respondents. 27 On the other hand, Payag stated that she had transacted with Dingding's Jewelry Shop on at least 10 previous occasions, always through Marilou. 28 The preponderance of evidence supports the view that Marilou and Zenon Santos were employed at Dingding's Jewelry Shop in order to perform activities which were usually necessary or desirable in its business. 29 We therefore hold that an obligation to pay actual damages arose in favor of the petitioner against the respondents spouses who admittedly owned and managed Dingding's Jewelry Shop. It was proven that petitioner replaced the damaged jewelry in the amount of P30,000. 30 The facts of the case also justify the award of moral damages. As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract for it is not one of the items enumerated under Article 2219 of the Civil Code. 31 Moral damages may be awarded in a breach of contract only when there is proof that defendant acted in bad faith, or was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation. 32 Santos was a goldsmith for more than 40 years. 33 Given his long experience in the trade, he should have known that using a pair of pliers instead of

At any rate, the contemporaneous and subsequent acts of the parties 20 support the version of the petitioner. Thus, when Tita Payag asked Marilou of Dingding's Jewelry Shop to reset a pair of diamond earrings, she brought with her the said pieces of jewelry so that the diamonds which were still mounted could be measured and the new ring settings crafted accordingly. On the said occasion, Marilou expressed no reservation regarding the dismounting of the diamonds which, after all, was an integral part of petitioner's job order. She should have instructed Payag to have them dismounted first if Marilou had actually intended to spare the jewelry shop of the task but she did not. Instead, petitioner was charged P400 for the job order which was readily accepted. Thus, a perfected contract to reset the pair of diamond earrings arose between the petitioner, through Payag, and Dingding's Jewelry Shop, through Marilou. Marilou's subsequent actuations were even more revealing as regards the scope of obligation assumed by the jewelry shop. After the new settings were completed in 3 days, she called up the petitioner to bring the diamond earrings to be reset. 21 Having initially examined one of them, Marilou went on to dismount the diamond from its original setting. Unsuccessful, she then delegated the task to their goldsmith, Zenon Santos. Having acted the way she did, Marilou cannot now deny the shop's obligation to reset the pair of earrings. Obligations arising from contracts have the force of law between the contracting parties. 22 Corollarily, those who in the performance of their obligations are guilty of fraud, negligence or delay and those who in any manner contravene the tenor thereof, are liable for damages. 23 The fault or negligence of the obligor consists in

a miniature wire saw in dismounting a precious stone like a diamond would have entailed an unnecessary risk of breakage. He went on with it anyway. Hence, respondent spouses are liable for P10,000 as moral damages due to the gross negligence of their employee. However, private respondent's refusal to pay the value of the damaged jewelry emanated from an honest belief that they were not responsible therefor, hence, negating any basis for the award of attorney's fees. 34 WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of Appeals dated November 26, 1999 is hereby reversed and set aside. Private respondents Luis Cabrido and Rose Sun-Cabrido are hereby ordered to pay, jointly and severally, the amount of P30,000 as actual damages and P10,000 as moral damages in favor of the petitioner. TIcEDC No costs. SO ORDERED. [G.R. No. 138334. August 25, 2003.] ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF APPEALS and CARAVAN TRAVEL & TOURS INTERNATIONAL, INC.,respondents.

reimbursement of P61,421.70 representing the difference between the sum she paid for "Jewels of Europe" and the amount she owed respondent for the "British Pageant" tour, but despite several demands, respondent company refused to reimburse the amount, contending that the same was non-refundable. Thus, she filed a complaint against respondent for breach of contract of carriage and damages. In its answer, respondent denied the responsibility and insisted that petitioner was duly informed of the correct departure as legibly printed on the plane ticket two days ahead of the scheduled trip. After trial, the lower court awarded damages to the petitioner on the basis that the respondent was negligent, but it deducted 10% from the amount for the contributory negligence of petitioner. On appeal, the Court of Appeals found petitioner to be more negligent, hence, it directed her to pay the balance of the price for the "British Pageant." Hence, this petition. The Court did not agree with the finding of the lower court that Menor's negligence concurred with the negligence of petitioner and resultantly caused damage to the latter. Menor's negligence was not sufficiently proved, considering that the only evidence presented was petitioner's uncorroborated narration of the events. It is well-settled that the party alleging a fact has the burden of proving it and a mere allegation cannot take the place of evidence. If the plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner facts upon which he bases his claim, the defendant is under no obligation to prove his exception or defense. Contrary to petitioner's claim, the evidence on record showed that respondent exercised due diligence in performing its obligation under the contract and followed standard procedure in rendering its services to petitioner. Accordingly, petitioner was ordered to pay respondent the amount of P12,901.00 representing the balance of the price of the British Pageant Package tour. SYLLABUS 1.CIVIL LAW; LEASE; COMMON CARRIERS; CONTRACT OF CARRIAGE; ELUCIDATED. By definition, a contract of carriage or transportation is one whereby a certain person or association of persons obligate themselves to transport persons, things, or news from one place to another for a fixed price. Such person or association of persons are regarded as carriers and are classified as private or special carriers and common or public carriers. A common carrier is defined under Article 1732 of the Civil Code as persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for compensation, offering their services to the public.

Bonifacio Law Office for petitioner. Cabochan Reyes & Capones Law Offices for private respondent. SYNOPSIS Petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and Tours International, Inc. to facilitate her tour known as "Jewels of Europe." On June 12, 1991, Meriam Menor, respondent's ticketing manager as well as petitioner's niece, delivered petitioner's travel documents and plane tickets and informed her to be at the airport on June 15, 1991, two hours before departure. On the stated date when the petitioner went to the airport, the flight that she was supposed to take had departed the previous day. She complained to Menor, but the latter prevailed upon her to take another tour known as "British Pageant." Upon petitioner's return from Europe, she demanded from respondent the

2.ID.; ID.; ID.; TRAVEL AGENCY IS NOT A COMMON CARRIER. It is obvious from the above definition that respondent is not an entity engaged in the business of transporting either passengers or goods and is therefore, neither a private nor a common carrier. Respondent did not undertake to transport petitioner from one place to another since its covenant with its customers is simply to make travel arrangements in their behalf. Respondent's services as a travel agency include procuring tickets and facilitating travel permits or visas as well as booking customers for tours. While petitioner concededly bought her plane ticket through the efforts of respondent company, this does not mean that the latter ipso facto is a common carrier. At most, respondent acted merely as an agent of the airline, with whom petitioner ultimately contracted for her carriage to Europe. 3.ID.; OBLIGATIONS AND CONTRACTS; CONTRACT BETWEEN THE TRAVEL AGENCY AND ITS CLIENT IS ONE FOR SERVICES AND NOT ONE OF CARRIAGE. Respondent's obligation to petitioner in this regard was simply to see to it that petitioner was properly booked with the airline for the appointed date and time. Her transport to the place of destination, meanwhile, pertained directly to the airline. The object of petitioner's contractual relation with respondent is the latter's service of arranging and facilitating petitioner's booking, ticketing and accommodation in the package tour. In contrast, the object of a contract of carriage is the transportation of passengers or goods. It is in this sense that the contract between the parties in this case was an ordinary one for services and not one of carriage. Petitioner's submission is premised on a wrong assumption. 4.ID.; ID.; TRAVEL AGENCY IS NOT BOUND TO OBSERVE EXTRAORDINARY DILIGENCE IN THE PERFORMANCE OF ITS OBLIGATION. The nature of the contractual relation between petitioner and respondent is determinative of the degree of care required in the performance of the latter's obligation under the contract. For reasons of public policy, a common carrier in a contract of carriage is bound by law to carry passengers as far as human care and foresight can provide using the utmost diligence of very cautious persons and with due regard for all the circumstances. As earlier stated, however, respondent is not a common carrier but a travel agency. It is thus not bound under the law to observe extraordinary diligence in the performance of its obligation, as petitioner claims. 5.ID.; ID.; STANDARD OF CARE REQUIRED FOR THE TRAVEL AGENCY IS THAT OF A GOOD FATHER OF A FAMILY. Since the contract between the parties is an ordinary one for services, the standard of care required of respondent is that of a good father of a family under Article 1173 of the Civil Code. This connotes reasonable care consistent with that which an ordinarily prudent person would have observed when confronted with a similar situation. The test to determine whether negligence attended the performance of an obligation is: did the defendant in doing the alleged negligent act use that reasonable care and caution

which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. 6.REMEDIAL LAW; EVIDENCE; PRESUMPTIONS; EVIDENCE WILLFULLY SUPPRESSED WOULD BE ADVERSE IF PRODUCED; EXCEPTIONS. Respondent's failure to present Menor as witness to rebut petitioner's testimony could not give rise to an inference unfavorable to the former. Menor was already working in France at the time of the filing of the complaint, thereby making it physically impossible for respondent to present her as a witness. Then too, even if it were possible for respondent to secure Menor's testimony, the presumption under Rule 131, Section 3(e) would still not apply. The opportunity and possibility for obtaining Menor's testimony belonged to both parties, considering that Menor was not just respondent's employee, but also petitioner's niece. It was thus error for the lower court to invoke the presumption that respondent willfully suppressed evidence under Rule 131, Section 3(e). Said presumption would logically be inoperative if the evidence is not intentionally omitted but is simply unavailable, or when the same could have been obtained by both parties. 7.ID.; ID.; WEIGHT AND SUFFICIENCY; MERE ALLEGATION CANNOT TAKE THE PLACE OF EVIDENCE. In sum, we do not agree with the finding of the lower court that Menor's negligence concurred with the negligence of petitioner and resultantly caused damage to the latter. Menor's negligence was not sufficiently proved, considering that the only evidence presented on this score was petitioner's uncorroborated narration of the events. It is well-settled that the party alleging a fact has the burden of proving it and a mere allegation cannot take the place of evidence. If the plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner facts upon which he bases his claim, the defendant is under no obligation to prove his exception or defense. 8.CIVIL LAW; OBLIGATIONS AND CONTRACTS; TRAVEL AGENCY EXERCISED DUE DILIGENCE IN PERFORMING ITS OBLIGATIONS UNDER THE CONTRACT; CASE AT BAR. Contrary to petitioner's claim the evidence on record shows that respondent exercised due diligence in performing its obligations under the contract and followed standard procedure in rendering its services to petitioner. As correctly observed by the lower court, the plane ticket issued to petitioner clearly reflected the departure date and time, contrary to petitioner's contention. The travel documents, consisting of the tour itinerary, vouchers and instructions, were likewise delivered to petitioner two days prior to the trip. Respondent also properly booked petitioner for the tour, prepared the necessary documents and procured the plane tickets. It arranged petitioner's hotel accommodation as well as food, land transfers and sightseeing excursions, in accordance with its avowed undertaking. Therefore, it is clear that respondent performed its prestation under the contract as well as everything else that was essential to book petitioner for the

tour. Had petitioner exercised due diligence in the conduct of her affairs, there would have been no reason for her to miss the flight. Needless to say, after the travel papers were delivered to petitioner, it became incumbent upon her to take ordinary care of her concerns. This undoubtedly would require that she at least read the documents in order to assure herself of the important details regarding the trip.

waived because petitioner's niece, Meriam Menor, was respondent company's ticketing manager. Pursuant to said contract, Menor went to her aunt's residence on June 12, 1991 a Wednesday to deliver petitioner's travel documents and plane tickets. Petitioner, in turn, gave Menor the full payment for the package tour. Menor then told her to be at the Ninoy Aquino International Airport (NAIA) on Saturday, two hours before her flight on board British Airways. Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991, to take the flight for the first leg of her journey from Manila to Hongkong. To petitioner's dismay, she discovered that the flight she was supposed to take had already departed the previous day. She learned that her plane ticket was for the flight scheduled on June 14, 1991. She thus called up Menor to complain. Subsequently, Menor prevailed upon petitioner to take another tour the "British Pageant" which included England, Scotland and Wales in its itinerary. For this tour package, petitioner was asked anew to pay US$785.00 or P20,881.00 (at the then prevailing exchange rate of P26.60). She gave respondent US$300 or P7,980.00 as partial payment and commenced the trip in July 1991. Upon petitioner's return from Europe, she demanded from respondent the reimbursement of P61,421.70, representing the difference between the sum she paid for "Jewels of Europe" and the amount she owed respondent for the "British Pageant" tour. Despite several demands, respondent company refused to reimburse the amount, contending that the same was non-refundable. 1 Petitioner was thus constrained to file a complaint against respondent for breach of contract of carriage and damages, which was docketed as Civil Case No. 92-133 and raffled to Branch 59 of the Regional Trial Court of Makati City. In her complaint, 2 petitioner alleged that her failure to join "Jewels of Europe" was due to respondent's fault since it did not clearly indicate the departure date on the plane ticket. Respondent was also negligent in informing her of the wrong flight schedule through its employee Menor. She insisted that the "British Pageant" was merely a substitute for the "Jewels of Europe" tour, such that the cost of the former should be properly set-off against the sum paid for the latter. For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied responsibility for petitioner's failure to join the first tour. Chipeco insisted that petitioner was informed of the correct departure date, which was clearly and legibly printed on the plane ticket. The travel documents were given to petitioner two days ahead of the scheduled trip. Petitioner had only herself to

9.ID.; ID.; NEGLIGENCE OF THE OBLIGOR IN THE PERFORMANCE OF THE OBLIGATION RENDERS HIM LIABLE FOR DAMAGES FOR THE RESULTING LOSS SUFFERED BY THE OBLIGEE. The negligence of the obligor in the performance of the obligation renders him liable for damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to exercise due care and prudence in the performance of the obligation as the nature of the obligation so demands. There is no fixed standard of diligence applicable to each and every contractual obligation and each case must be determined upon its particular facts. The degree of diligence required depends on the circumstances of the specific obligation and whether one has been negligent is a question of fact that is to be determined after taking into account the particulars of each case. 10.REMEDIAL LAW; EVIDENCE; CREDIBILITY OF WITNESSES; FACTUAL FINDINGS OF THE TRIAL COURT ARE GENERALLY CONCLUSIVE UPON THE SUPREME COURT; EXCEPTIONS. The lower court declared that respondent's employee was negligent. This factual finding, however, is not supported by the evidence on record. While factual findings below are generally conclusive upon this court, the rule is subject to certain exceptions, as when the trial court overlooked, misunderstood, or misapplied some facts or circumstances of weight and substance which will affect the result of the case.

DECISION

YNARES-SANTIAGO, J p: In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and Tours International, Inc. to arrange and facilitate her booking, ticketing and accommodation in a tour dubbed "Jewels of Europe." The package tour included the countries of England, Holland, Germany, Austria, Liechtenstein, Switzerland and France at a total cost of P74,322.70. Petitioner was given a 5% discount on the amount, which included airfare, and the booking fee was also

blame for missing the flight, as she did not bother to read or confirm her flight schedule as printed on the ticket. Respondent explained that it can no longer reimburse the amount paid for "Jewels of Europe," considering that the same had already been remitted to its principal in Singapore, Lotus Travel Ltd., which had already billed the same even if petitioner did not join the tour. Lotus' European tour organizer, Insight International Tours Ltd., determines the cost of a package tour based on a minimum number of projected participants. For this reason, it is accepted industry practice to disallow refund for individuals who failed to take a booked tour. 3 Lastly, respondent maintained that the "British Pageant" was not a substitute for the package tour that petitioner missed. This tour was independently procured by petitioner after realizing that she made a mistake in missing her flight for "Jewels of Europe." Petitioner was allowed to make a partial payment of only US$300.00 for the second tour because her niece was then an employee of the travel agency. Consequently, respondent prayed that petitioner be ordered to pay the balance of P12,901.00 for the "British Pageant" package tour. After due proceedings, the trial court rendered a decision, 4 the dispositive part of which reads: WHEREFORE, premises considered, judgment is hereby rendered as follows: 1.Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty Three Thousand Nine Hundred Eighty Nine Pesos and Forty Three Centavos (P53,989.43) with legal interest thereon at the rate of twelve percent (12%) per annum starting January 16, 1992, the date when the complaint was filed; 2.Ordering the defendant to pay the plaintiff the amount of Five Thousand (P5,000.00) Pesos as and for reasonable attorney's fees; 3.Dismissing the defendant's counterclaim, for lack of merit; and 4.With costs against the defendant. SO ORDERED. 5

The trial court held that respondent was negligent in erroneously advising petitioner of her departure date through its employee, Menor, who was not presented as witness to rebut petitioner's testimony. However, petitioner should have verified the exact date and time of departure by looking at her ticket and should have simply not relied on Menor's verbal representation. The trial court thus declared that petitioner was guilty of contributory negligence and accordingly, deducted 10% from the amount being claimed as refund. Respondent appealed to the Court of Appeals, which likewise found both parties to be at fault. However, the appellate court held that petitioner is more negligent than respondent because as a lawyer and well-traveled person, she should have known better than to simply rely on what was told to her. This being so, she is not entitled to any form of damages. Petitioner also forfeited her right to the "Jewels of Europe" tour and must therefore pay respondent the balance of the price for the "British Pageant" tour. The dispositive portion of the judgment appealed from reads as follows: WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26, 1995 is hereby REVERSED and SET ASIDE. A new judgment is hereby ENTERED requiring the plaintiff-appellee to pay to the defendant-appellant the amount of P12,901.00, representing the balance of the price of the British Pageant Package Tour, the same to earn legal interest at the rate of SIX PERCENT (6%) per annum, to be computed from the time the counterclaim was filed until the finality of this decision. After this decision becomes final and executory, the rate of TWELVE PERCENT (12%) interest per annum shall be additionally imposed on the total obligation until payment thereof is satisfied. The award of attorney's fees is DELETED. Costs against the plaintiff-appellee. SO ORDERED. 6 Upon denial of her motion for reconsideration, 7 petitioner filed the instant petition under Rule 45 on the following grounds: I It is respectfully submitted that the Honorable Court of Appeals committed a reversible error in reversing and setting aside the decision of the trial court by ruling that the petitioner is not entitled to a refund of the cost of unavailed "Jewels of Europe" tour she being equally, if not more, negligent than the

private respondent, for in the contract of carriage the common carrier is obliged to observe utmost care and extra-ordinary diligence which is higher in degree than the ordinary diligence required of the passenger. Thus, even if the petitioner and private respondent were both negligent, the petitioner cannot be considered to be equally, or worse, more guilty than the private respondent. At best, petitioner's negligence is only contributory while the private respondent [is guilty] of gross negligence making the principle of pari delicto inapplicable in the case; II The Honorable Court of Appeals also erred in not ruling that the "Jewels of Europe" tour was not indivisible and the amount paid therefor refundable; III The Honorable Court erred in not granting to the petitioner the consequential damages due her as a result of breach of contract of carriage. 8 Petitioner contends that respondent did not observe the standard of care required of a common carrier when it informed her wrongly of the flight schedule. She could not be deemed more negligent than respondent since the latter is required by law to exercise extraordinary diligence in the fulfillment of its obligation. If she were negligent at all, the same is merely contributory and not the proximate cause of the damage she suffered. Her loss could only be attributed to respondent as it was the direct consequence of its employee's gross negligence.

It is obvious from the above definition that respondent is not an entity engaged in the business of transporting either passengers or goods and is therefore, neither a private nor a common carrier. Respondent did not undertake to transport petitioner from one place to another since its covenant with its customers is simply to make travel arrangements in their behalf. Respondent's services as a travel agency include procuring tickets and facilitating travel permits or visas as well as booking customers for tours. While petitioner concededly bought her plane ticket through the efforts of respondent company, this does not mean that the latter ipso facto is a common carrier. At most, respondent acted merely as an agent of the airline, with whom petitioner ultimately contracted for her carriage to Europe. Respondent's obligation to petitioner in this regard was simply to see to it that petitioner was properly booked with the airline for the appointed date and time. Her transport to the place of destination, meanwhile, pertained directly to the airline. The object of petitioner's contractual relation with respondent is the latter's service of arranging and facilitating petitioner's booking, ticketing and accommodation in the package tour. In contrast, the object of a contract of carriage is the transportation of passengers or goods. It is in this sense that the contract between the parties in this case was an ordinary one for services and not one of carriage. Petitioner's submission is premised on a wrong assumption. The nature of the contractual relation between petitioner and respondent is determinative of the degree of care required in the performance of the latter's obligation under the contract. For reasons of public policy, a common carrier in a contract of carriage is bound by law to carry passengers as far as human care and foresight can provide using the utmost diligence of very cautious persons and with due regard for all the circumstances. 11 As earlier stated, however, respondent is not a common carrier but a travel agency. It is thus not bound under the law to observe extraordinary diligence in the performance of its obligation, as petitioner claims. Since the contract between the parties is an ordinary one for services, the standard of care required of respondent is that of a good father of a family under Article 1173 of the Civil Code. 12 This connotes reasonable care consistent with that which an ordinarily prudent person would have observed when confronted with a similar situation. The test to determine whether negligence attended the performance of an obligation is: did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. 13

Petitioner's contention has no merit. By definition, a contract of carriage or transportation is one whereby a certain person or association of persons obligate themselves to transport persons, things, or news from one place to another for a fixed price. 9 Such person or association of persons are regarded as carriers and are classified as private or special carriers and common or public carriers. 10 A common carrier is defined under Article 1732 of the Civil Code as persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for compensation, offering their services to the public.

In the case at bar, the lower court found Menor negligent when she allegedly informed petitioner of the wrong day of departure. Petitioner's testimony was accepted as indubitable evidence of Menor's alleged negligent act since respondent did not call Menor to the witness stand to refute the allegation. The lower court applied the presumption under Rule 131, Section 3 (e) 14 of the Rules of Court that evidence willfully suppressed would be adverse if produced and thus considered petitioner's uncontradicted testimony to be sufficient proof of her claim. On the other hand, respondent has consistently denied that Menor was negligent and maintains that petitioner's assertion is belied by the evidence on record. The date and time of departure was legibly written on the plane ticket and the travel papers were delivered two days in advance precisely so that petitioner could prepare for the trip. It performed all its obligations to enable petitioner to join the tour and exercised due diligence in its dealings with the latter. We agree with respondent. Respondent's failure to present Menor as witness to rebut petitioner's testimony could not give rise to an inference unfavorable to the former. Menor was already working in France at the time of the filing of the complaint, 15 thereby making it physically impossible for respondent to present her as a witness. Then too, even if it were possible for respondent to secure Menor's testimony, the presumption under Rule 131, Section 3(e) would still not apply. The opportunity and possibility for obtaining Menor's testimony belonged to both parties, considering that Menor was not just respondent's employee, but also petitioner's niece. It was thus error for the lower court to invoke the presumption that respondent willfully suppressed evidence under Rule 131, Section 3(e). Said presumption would logically be inoperative if the evidence is not intentionally omitted but is simply unavailable, or when the same could have been obtained by both parties. 16 In sum, we do not agree with the finding of the lower court that Menor's negligence concurred with the negligence of petitioner and resultantly caused damage to the latter. Menor's negligence was not sufficiently proved, considering that the only evidence presented on this score was petitioner's uncorroborated narration of the events. It is well-settled that the party alleging a fact has the burden of proving it and a mere allegation cannot take the place of evidence. 17 If the plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner facts upon which he bases his claim, the defendant is under no obligation to prove his exception or defense. 18 Contrary to petitioner's claim, the evidence on record shows that respondent exercised due diligence in performing its obligations under the contract and

followed standard procedure in rendering its services to petitioner. As correctly observed by the lower court, the plane ticket 19 issued to petitioner clearly reflected the departure date and time, contrary to petitioner's contention. The travel documents, consisting of the tour itinerary, vouchers and instructions, were likewise delivered to petitioner two days prior to the trip. Respondent also properly booked petitioner for the tour, prepared the necessary documents and procured the plane tickets. It arranged petitioner's hotel accommodation as well as food, land transfers and sightseeing excursions, in accordance with its avowed undertaking. Therefore, it is clear that respondent performed its prestation under the contract as well as everything else that was essential to book petitioner for the tour. Had petitioner exercised due diligence in the conduct of her affairs, there would have been no reason for her to miss the flight. Needless to say, after the travel papers were delivered to petitioner, it became incumbent upon her to take ordinary care of her concerns. This undoubtedly would require that she at least read the documents in order to assure herself of the important details regarding the trip. The negligence of the obligor in the performance of the obligation renders him liable for damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to exercise due care and prudence in the performance of the obligation as the nature of the obligation so demands. 20 There is no fixed standard of diligence applicable to each and every contractual obligation and each case must be determined upon its particular facts. The degree of diligence required depends on the circumstances of the specific obligation and whether one has been negligent is a question of fact that is to be determined after taking into account the particulars of each case. 21 The lower court declared that respondent's employee was negligent. This factual finding, however, is not supported by the evidence on record. While factual findings below are generally conclusive upon this court, the rule is subject to certain exceptions, as when the trial court overlooked, misunderstood, or misapplied some facts or circumstances of weight and substance which will affect the result of the case. 22 In the case at bar, the evidence on record shows that respondent company performed its duty diligently and did not commit any contractual breach. Hence, petitioner cannot recover and must bear her own damage. WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay respondent the amount of P12,901.00 representing the balance of the price of the British Pageant Package Tour, with legal interest thereon at the

rate of 6% per annum, to be computed from the time the counterclaim was filed until the finality of this Decision. After this Decision becomes final and executory, the rate of 12% per annum shall be imposed until the obligation is fully settled, this interim period being deemed to be by then an equivalent to a forbearance of credit. 23 SO ORDERED. [G.R. No. 107631. February 26, 1996.] NATIONAL POWER CORPORATION, petitioner, vs. HON. COURT OF APPEALS and PECORP, INC. (Formerly Pacific Equipment Corp.),respondents.

The Solicitor General for petitioner. Arturo D. Valar for private respondent.

the NPC-PECORP contract. PECORP manifested its objection to the NPC-GROGUN contract insofar as it deprives PECORP of fees on drilling and grouting. When PECORP presented to NPC four (4) claims, a board of arbitrators was convened. But it appeared that NPC was willing to arbitrate on claims (3) and (4) only. NPC resisted claim and argued that PECORP withdrew claim (2) from arbitration. As NPC was uncompromising, PECORP filed an action to compel NPC to confirm all the four (4) claims for arbitration. Judgment was rendered in favor of PECORP. The trial court's short raison d' etre for its order that all four (4) claims of PECORP against NPCbe arbitrated upon by the arbitration board constituted by them, as merely prayed for by PECORP in its complaint, suffices in resolving the immediate conflict between NPC and PECORP. Indeed, PECORP's two subject claims (1 and 2), together with the other two undisputed claims (3 and 4), directly and exclusively emanate from what PECORP firmly believes as contractually due it under the NPC-PECORP "Cost-Plus a Percentage" contract. Conversely therefore, had there been no NPC-PECORP contract, there would have been no dispute between NPC and PECORP that precipitated the suit for arbitration, as PECORP's claims for fees, in such instance, would be inexistent in the first place.

DECISION SYLLABUS CIVIL LAW; CONTRACTS, "COST-PLUS A PERCENTAGE" BASED ON "ACTUAL FINAL COST"; CLAIMS OF PECORP FROM NPC CAN BE BROUGHT FOR ARBITRATION AS PER CONTRACT. The sole query here is whether or not the two (2) claims from a total of four (4) presented by private respondent PECORP, INC. can be brought for arbitration expressly provided for in the contract it entered into with petitioner National Power Corporation (NPC). The contract is of a "Cost-Plus a Percentage" type meaning, PECORP will be paid a certain percentage as fee based on the "Actual Final Cost" of the work. And what constitutes "Actual Final Cost" is "the total cost to NPC of all the work performed by PECORP which includes cost of materials and supplies, structures, furnitures, charges, etc. and all other expenses as are inherent in a Cost-Plus and Percentage Contract and necessary for the prosecution of the work that are approved by NPC . . ." The rift arose when NPC communicated to PECORP that it was inclined to contract directly and separately with Philippine Grouting and Guniting Co., Inc (GROGUN) for the drilling and grouting work on the construction project and consequently, PECORP will not be entitled to any fees for said task. Contending that such arrangement will violate its rights under the NPC-PECORP contract, PECORP made known to NPCits desire to bring the matter to arbitration, under Article VI of their contract. The NPCGROGUN drilling and grouting contract, nonetheless, pushed through. As a result of such purported "withdrawal," the drilling and grouting work ceased to be a part of FRANCISCO, J p: The sole query here is whether or not the following two (2) claims : 1.Fee on the cost of drilling and grouting which is ten percent (10%) of the Actual Final Cost of P6,962,519.50 P696,251.95 2.Fee on the minimum guaranteed equipment rental which is ten percent (10%) of the Actual Final Cost of P1.67 million P167,000.00 from a total of four (4) presented by herein private respondent PECORP, INC. (PECORP for brevity), can be brought for arbitration expressly provided for in the contract it entered into with herein petitioner National Power Corporation (NPC). That contract forged between the government through the NPC and PECORP as party-CONTRACTOR on June 27, 1974 was for the construction of the Mariveles Dam No. 1 and appurtenant structures of the water supply system of the Bataan Export Processing Zone at Mariveles, Bataan.

It was agreed upon that the contract is of a "Cost-Plus a Percentage" type meaning, PECORP will be paid a certain percentage as fee based on the "Actual Final Cost" of the work. And what constitutes "Actual Final Cost" has been aptly simplified by the trial court as "the total cost to the defendant (NPC) of all the work performed by the plaintiff (PECORP) which includes cost of materials and supplies, structures, furnitures, charges, etc. and all other expenses as are inherent in a Cost-Plus a Percentage Contract and necessary for the prosecution of the work that are approved by the defendant . . . ." The rift arose when NPC, in a letter dated July 11, 1974, communicated to PECORP that it was inclined to contract directly and separately with Philippine Grouting and Guniting Co., Inc. (GROGUN) for the drilling and grouting work on the construction project and consequently, PECORP will not be entitled to any fees for said task. Contending that such NPC-GROGUN arrangement will violate its rights under the NPC-PECORP contract, PECORP made known to NPC its desire to bring the matter to arbitration, under Article VI of their contract, which reads: "Should there occur any dispute, controversy, or differences between the parties arising out of this contract that cannot be resolved by them to their mutual satisfaction, the matter shall be submitted to arbitration at the choice of either party upon written demand to the other party. When formal arbitration is requested, an Arbitration Board shall be formed in the following manner: CORPORATION and CONTRACTOR shall each appoint one (1) member of this board and these members shall appoint a third member who shall act as chairman." The NPC-GROGUN drilling and grouting contract, nonetheless, pushed through on August 23, 1974. NPC tendered the following justifications for its execution: 1.The drilling and grouting work equipment were not included in the equipment availability schedules made jointly by NPC and PECORP at the start of the work. 2.PECORP failed to provide and/or rent equipment for the work and NPC could not immediately provide the equipments. 3.GROGUN had all the equipments and personnel required for the work. 4.The work could not suffer any further delay, considering that from the execution of the NPC-PECORP contract on June 27, 1974 up to the date ofNPC's letter to PECORP which was July 11, 1974, PECORP had not performed any drilling and grouting work.

5.NPC was availing of its alleged statutory right under Article 1725 of the Civil Code in removing the drilling and grouting work from the scope of its contract with PECORP (NPC-PECORP contract). Article 1725 reads: "The owner may withdraw at will from the construction of the work, although it may have been commenced, indemnifying the contractor for all the latter's expenses, work, and the usefulness which the owner may obtain therefrom, and damages." As a result of such purported "withdrawal", the drilling and grouting work ceased to be a part of the NPC-PECORP contract and therefore, a)is not an arbitrable matter thereunder, and b)precludes NPC from collecting fees for said work. Besides, the cost of drilling and grouting work under the NPC-GROGUN contract is a direct cost to NPC and thus cannot be included in the "Actual Final Cost" under the NPC-PECORP contract on which PECORP's fees are based. PECORP's objection to the NPC-GROGUN contract insofar as it deprives PECORP of fees on drilling and grouting is essentially anchored on the following: 1.Drilling and grouting work is but a part of its over-all contractual duty, as expressed in Article II of the NPC-PECORP contract, to undertake the construction, complete, of the Mariveles Dam No. 1, 2.PECORP was expressly allowed under the NPC-PECORP contract to sub-contract labor, supplies and/or services, apparently in order to discharge fully its contractual duty. PECORP in fact intended to do just that, when even prior to the NPC's letter of July 11, 1974, PECORP sought authorization fromNPC to sub-contract the very same drilling and grouting work to the very same GROGUN in the proposed NPCGROGUN contract. And even if the proposed PECORP-GROGUN sub-contract was turned down by NPC, PECORP is still entitled to the fees considering that the NPCGROGUN contract would involve identical undertaking and party as that in the rejected sub-contract, not to mention that it was PECORP which actually supervised the drilling and grouting work conducted by GROGUN. Roughly five (5) years after, PECORP on June 14, 1979 presented to NPC four (4) claims two of which are the subject claims mentioned at the beginning of this opinion and the other two are:

3.Fee on the inventory of unused stocks and POL P155,844.95 4.Reimbursement of Medical Hospital expenses re: TK-001 Accident case P50,085.93, coupled with a request for arbitration. A board of arbitrators was thereafter convened. But after a series of written communications among the board, NPC and PECORP, it appeared that NPCwas willing to arbitrate on claims (3) and (4) only. NPC resisted claim (1) (fee for drilling and grouting work) on grounds previously discussed. As to claim (2) (fee on the minimum guaranteed equipment rental), NPC argued that PECORP withdrew this claim from arbitration, as per PECORP's letter to NPCdated May 19, 1980 which reads in full: "We confirm our agreement earlier pertaining to our claim for payment for contractor's fee in connection with the construction of the EPZA Dam No. 1 Project, whereby we are withdrawing our claim for fee on the guaranteed equipment rental hours for P167,000.00 in as much as this is an imputed cost and not direct cost as the rest of the claims. We understand however that the rest of the claims, in the sum of P902,182.58 shall be favorably adjudicated and endorsed." As NPC was uncompromising, PECORP filed an action in the Regional Trial Court of Manila to compel NPC to submit/confirm/certify all the four (4) claims for arbitration, where judgment was thereafter rendered in favor of PECORP, the dispositive portion of which reads:

4.The defendant to pay the plaintiff the amount of P10,000.00 as and for attorney's fees; 5.The defendant to pay the costs of suit; and 6.The counterclaim is hereby dismissed for lack of merit." After the trial court denied NPC's motion for reconsideration of its decision, respondent Court of Appeals, on appeal, affirmed the same but deleted the award of attorney's fees. However, in affirming said decision which merely ordered NPC and PECORP to arbitrate on all four (4) claims, respondent CAwent further in disposing of issues which could have been appropriately ventilated and passed upon in the arbitration proceedings a course of action apparently prompted by PECORP's request as contained in its "Motion For Early Resolution" and reiterated in a "Reiteration Motion For Early Resolution," that respondent CA make: 1.a definitive ruling on whether or not the withdrawal by NPC from PECORP of the drilling and grouting work in favor of GROGUN is a valid withdrawal of work under Article 1725 of the Civil Code, and 2.an outright resolution of PECORP's claims against NPC, in order to obviate further prolonged proceedings or multiplicity of suits. Thus, in its now-assailed judgment, respondent CA resolved PECORP's claims for fees for drilling and grouting work (claim no. 1) and on the minimum guaranteed equipment rental hours (claim no. 2) in this wise: As to claim no. 1:

"IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered in favor of the plaintiff PECORP, INC. and against National Power Corporation, ordering: 1.The Board of Administrators (sic) to reconvene and to arbitrate, the four (4) claims of the plaintiff against the defendant; 2.The defendant to submit and/or confirm and certify the four (4) claims for arbitration; 3.The parties to shoulder equally the expenses for arbitration;

"Art. II of the contract executed between appellee and appellant provides: 'SCOPE OF WORK AND COMPLETION, DELAYS AND EXTENSION OF TIME. For and in consideration of the payment or payments to be made by CORPORATION in accordance with the provisions of this contract, CONTRACTOR shall fully and faithfully furnish all labor, plant and materials and construct, complete, all works required for the Project, in accordance with the terms and conditions of all the documents mentioned under Art. I above.'

"Under the above-quoted provision, the NPC-Pecorp Contract is for the construction, complete, of the Mariveles Dam No. 1. Drilling and grouting work is just a part of the complete construction of the total project, hence, covered by and within the scope of the NPC-Pecorp Contract. "The word 'Project' is defined in the contract to mean the Dam and Appurtenant Structures. Drilling and Grouting is part of the dam or appurtenant structures, and therefore a part of PECORP's scope of work. "Appellant invokes Art. 1725 of the Civil Code to justify its claim that drilling and grouting is not included within the scope of the NPC-Grogun Contract with appellee. "Art. 1725 reads: 'The owner may withdraw at will from the construction of the work, although it may have been commenced, indemnifying the contractor for all the latter's expenses, work and the usefulness which the owner may obtain therefrom, and damages.' "Art. 1725 of the Civil Code is not applicable in the instant case, for the following reasons: a)there was actually no withdrawal from the 'construction of the work', but only a transfer of a part of the construction, which is the drilling and grouting work; b)said drilling and grouting still forms part of the project as a mere NPC-Grogun sub-contract. "Since the NPC-Grogun Contract did not amend nor nullify the 'cost plus' provision of the NPC-Pecorp Contract, therefore, appellee Pecorp is still entitled to the said 10% fee." As to claim no. 2: ". . . , appellant contends that since plaintiff-appellee had previously withdrawn (through its letter dated May 19, 1980),

the claim for the minimum guaranteed equipment rentals hours for P167,000.00, the same is not covered by arbitration. "The contention is likewise without merit. "The letter dated May 19, 1980 (Annex "2"), written by appellee to appellant partly reads: 'We confirm our agreement earlier pertaining to our claim for payment of contractor's fees in connection with the construction of the EPZA Dam No. 1 Project, whereby we are withdrawing our claim for fee on the minimum guaranteed equipment rental hours of P167,000.00, inasmuch as this is an imputed cost and not a direct cost of the rest of the claims. We understand however, that the rest of the claims, in the sum of P902,182.56 shall be favorably adjudicated and endorsed.' "The above-quoted letter states that appellee was withdrawing its claim for fees in the minimum guaranteed equipment rental hours for P167,000.00, only upon the condition that NPC will favorably adjudicate and endorse the three other PECORP claims, amounting to P902,182.58. "Thus, it is clear that withdrawal is only a proposal conditioned upon NPC's adjudication, endorsement and approval of all the three (3) other claims. However, as the record shows, NPC refused to certify for arbitration all the said three (3) other claims, hence, the withdrawal was rendered null and void." And from this second adverse judgment, NPC filed the instant petition raising the following errors: I Respondent court of appeals gravely erred in affirming the trial court's judgment with respect to the issue of private respondent's right to claim percentage fee from the NPCGROGUN Contract for Drilling and Grouting Work.

II Respondent Court of Appeals erred in not holding that private respondent's claim for a fee on the minimum guaranteed equipment rental hours in the amount of P167,000.00 is not subject to arbitration since said claim had been previously withdrawn from arbitration by private respondent. The petition must fail. The trial court's short raison d' etre for its order that all four (4) claims of PECORP against NPC be arbitrated upon by the arbitration board constituted by them, as merely prayed for by PECORP in its complaint, suffices in resolving the immediate conflict between NPC and PECORP. Indeed, PECORP's two subject claims (1 and 2), together with the other two undisputed claims (3 and 4), directly and exclusively emanate from what PECORP firmly believes as contractually due it under the NPCPECORP "Cost-Plus a Percentage" contract. Conversely therefore, had there been no NPC-PECORP contract, there would have been no dispute between NPC and PECORP that precipitated the suit for arbitration, as PECORP's claims for fees, in such instance, would be inexistent in the first place. We thus quote with approval the trial court's findings and conclusion, that: "The contract between the parties specifically provides as follows: 'ARTICLE VI ARBITRATION Should there occur any dispute controversy, or differences between the parties arising out of this contract that cannot be resolved by them to their mutual satisfaction, the matter shall be submitted for arbitration at the choice of either party upon written demand to the other party. When formal arbitration is requested, an Arbitration Board shall be formed in the following manner: CORPORATION and CONTRACTOR shall each appoint one (1) member of this Board and these members shall appoint a third member who shall act

as Chairman. . . . (Italics supplied for emphasis).' "It will be noted that the above-quoted provision mentions any dispute, controversy and differences between the parties and without qualification as to the nature of the dispute or controversy or differences. Thus, having arisen from the contract, the four (4) claims are, therefore, arbitrable. "Philippine Law and Jurisprudence recognize arbitration agreements as valid, binding, enforceable and not contrary to public policy, thus 'Any stipulation that the arbitrators' award or decision shall be final is valid, without prejudice to Articles 2036, 2039 and 2040 (Art. 200044, Now Civil Codes [sic]).' 'An agreement to arbitrate is a contract, the relation of the parties is contractual and the rights and liabilities of the parties are controlled by the law of contracts. (5 AM. JUR. 2d 11).' " The Court likewise accords the same approval to respondent CA's brief and straight to the point disquisitions (as quoted earlier) on why NPC cannot validly invoke Article 1725 of the Civil Code to prevent PECORP from collecting fees for drilling and grouting work conducted by GROGUN under the NPC-GROGUN contract, and why PECORP cannot be deemed to have abandoned or withdrawn its claim for fees on the minimum guaranteed equipment rental against NPC. Said judgment deserves full affirmance without further elaboration. WHEREFORE, the petition for review is hereby DENIED, and respondent CA's assailed decision is AFFIRMED. SO ORDERED. [G.R. No. 77647. August 7, 1989.] CETUS DEVELOPMENT INC., petitioner, vs. COURT OF APPEALS and EDERLINA NAVALTA, respondents.

SYLLABUS 1.REMEDIAL LAW; SPECIAL CIVIL ACTION; UNLAWFUL DETAINER; DEMAND A JURISDICTIONAL REQUIREMENT FOR THE PURPOSE OF BRINGING THE SUIT. We hold that the demand required and contemplated in Section 2, aforequoted, is a jurisdictional requirement for the purpose of bringing an unlawful detainer suit for failure to pay rent or comply with the conditions of lease. It partakes of an extrajudicial remedy that must be pursued before resorting to judicial action so much so that when there is full compliance with the demand, there arises no necessity for court action. 2.ID.; ID.; ID.; ID.; REQUISITES THAT MUST CONCUR BEFORE AN ACTION MAY BE FILED. For the purpose of bringing an ejectment suit, two requisites must concur, namely: (1) there must be failure to pay rent or comply with the conditions of the lease and (2) there must be demand both to pay or to comply and vacate with in the period specified in Section 2, Rule 70, namely 15 days in case of lands and 5 days in case of buildings. The first requisite refers to the existence of the cause of action for unlawful detainer while the second refers to the jurisdictional requirement of demand in order that said cause of action may be pursued. 3.CIVIL LAW; OBLIGATIONS AND CONTRACTS; ARTICLE 1169 OF THE CIVIL CODE; APPLICABLE IN CASE AT BAR. It is very clear that in the case at bar, no cause of action for ejectment has accrued. There was no failure yet on the part of private respondents to pay rents for three consecutive months. As the terms of the individual verbal leases which were on a month-to-month basis were not alleged and proved, the general rule on necessity of demand applies, to wit: there is default in the fulfillment of an obligation when the creditor demands payment at the maturity of the obligation or at anytime thereafter. This is explicit in Article 1169, New Civil Code which provides that "(t)hose obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation." Petitioner has not shown that its case falls on any of the following exceptions where demand is not required: (a) when the obligation or the law so declares; (b) when from the nature and circumstances of the obligation it can be inferred that time is of the essence of the contract; and (c) when demand would be useless, as when the obligor has rendered it beyond his power to perform. 4.ID.; ID.; ID.; DEMAND REQUIRED UNDER ART. 1169 CIVIL CODE; MAY BE ORAL OR WRITTEN. The demand required in Article 1169 of the Civil Code may be in any form, provided that it can be proved. The proof of this demand lies upon the creditor. Without such demand, oral or written, the effects of default do not arise. This demand is different from the demand required under Section 2, Rule 70,

which is merely a jurisdictional requirement before an existing cause of action may be pursued. 5.ID.; ID.; FAILURE TO SEND COLLECTOR WHEN CUSTOMARY, CONSIDERED VALID DEFENSE FOR NON-PAYMENT OF RENT; DOMICILE OF LESSEE, PLACE OF PAYMENT IN THE ABSENT OF AGREEMENT. Petitioner claims that its failure to send a collector to collect the rentals cannot be considered a valid defense for the reason that sending a collector is not one of the obligations of the lessor under Article 1654. While it is true that a lessor is not obligated to send a collector, it has been duly established that it has been customary for private respondents to pay the rentals through a collector. Besides Article 1257, New Civil Code provides that where no agreement has been designated for the payment of the rentals, the place of payment is at the domicile of the defendants. Hence, it could not be said that they were in default in the payment of their rentals as the delay in paying the same was not imputable to them. Rather, it was attributable to petitioner's omission or neglect to collect. 6.ID.; WHERE THERE IS LACK OF DEMAND FOR PAYMENT, ARTICLE 1256 OF THE CIVIL CODE, NOT APPLICABLE; CASE AT BAR. Petitioner argues that neither is its refusal to accept the rentals a defense for non-payment as Article 1256 provides that "[i]f the creditor to whom the tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing due." It bears emphasis that in this case there was no unjustified on the part of petitioner or non-acceptance without reason that would constitute mora accipiendi and warrant consignation. There was simply lack of demand for payment of the rentals.

DECISION

MEDIALDEA, J p: This is a petition for review on certiorari of the decision dated January 30, 1987 of the Court of Appeals in CA-GR Nos. SP-079450 entitled, "Cetus Development, Inc., Petitioner vs. Hon. Conrado T. Limcaoco, Presiding Judge, Regional Trial Court of Manila, Branch XI, Ederlina Navalta, et. al., respondents." The following facts appear in the records: The private respondents, Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas, Victoria Sudario, and Flora Nagbuya were the lessees of the premises

located at No. 512 Quezon Boulevard, Quiapo, Manila, originally owned by the Susana Realty. These individual verbal leases were on a month-to-month basis at the following rates: Ederlina Navalta at the rate of P80.50; Ong Teng at the rate of P96.10; Jose Liwanag at the rate of P40.35; Leandro Canlas at the rate of P80.55; Victoria Sudario at the rate of P50.45 and Flora Nagbuya at the rate of P80.55. The payments of the rentals were paid by the lessees to a collector of the Susana Realty who went to the premises monthly. Sometime in March, 1984, the Susana Realty sold the leased premises to the petitioner, Cetus Development, Inc., a corporation duly organized and existing under the laws of the Philippines. From April to June, 1984, the private respondents continued to pay their monthly rentals to a collector sent by the petitioner. In the succeeding months of July, August and September 1984, the respondents failed to pay their monthly individual rentals as no collector came. On October 9, 1984, the petitioner sent a letter to each of the private respondents demanding that they vacate the subject premises and to pay the back rentals for the months of July, August and September, 1984, within fifteen (15) days from the receipt thereof. Immediately upon the receipt of the said demand letters on October 10, 1984, the private respondents paid their respective arrearages in rent which were accepted by the petitioner subject to the unilateral condition that the acceptance was without prejudice to the filing of an ejectment suit. Subsequent monthly rental payments were likewise accepted by the petitioner under the same condition. For failure of the private respondents to vacate the premises as demanded in the latter dated October 9, 1984, the petitioner with the Metropolitan Trial Court of Manila complaints for ejectment against the former, as follows: (1) 105972-CV, against Ederlina Navalta; (2) 105973-CV, against Jose Liwanag; (3) 4 CV, against Flora Nagbuya; (4) 105975-CV, against Leandro Canlas; (5) 105976-CV, against Victoria Sudario and (6) 105977-CV, against Ong Teng. In their respective answers, the six (6) private respondents interposed a common defense. They claimed that since the occupancy of the premises they paid their monthly rental regularly through a collector of the lessor; that their non-payment of the rentals for the months of July, August and September, 1984, was due to the failure of the petitioner (as the new owner) to send its collector; that they were at a loss as to where they should pay their rentals; that sometime later, one of the respondent called the office of the petitioner to inquire as to where they would make such payments and he was told that a collector would be sent to receive the same; that no collector was ever sent by the petitioner; and that instead they received a uniform demand letter dated October 9, 1984.

The private respondents, thru counsel, later filed a motion for was consolidation of the six cases and as a result thereof, the said cases were consolidated in The Metropolitan Trial Court of Manila, Branch XII, presided over by Judge Eduardo S. Quintos, Jr. On June 4, 1985, the trial court rendered its decision dismissing the six cases, a pertinent portion of which reads, as follow: Cdpr "The records of this case show how that the time of the filing of this complaints, the rental had all been paid. Hence, the plaintiff cannot eject the defendants from the leased premises, because at the time these cases were instituted, there are no rentals in arrears. "The acceptance of the back rental by the plaintiff before the filing of the complaint, as in these case, the alleged rental arrearages were paid immediately after receipt of the demand letter, removes its cause of action in an unlawful detainer case, even if the acceptance was without prejudice. xxx xxx xxx "Furthermore, the court has observed that the account involved which constitutes the rentals of the tenants are relatively small to which the ejectment may not lie on grounds of equity and for humanitarian reasons.

"Defendants' counterclaim for litigation expenses has no legal and factual basis for assessing the same against plaintiff. "WHEREFORE, judgment is hereby rendered dismissing these cases, without pronouncement as to costs. "Defendants' counterclaim is likewise dismissed. "SO ORDERED." (pp 32-33, Rollo, G.R. No. 77647) Not satisfied with the decision of the Metropolitan Trial Court, the petitioner appealed to the Regional Trial Court of Manila and the same was assigned to Branch IX thereof presided over by Judge Conrado T. Limcaoco (now Associate Justice of the Court of Appeals). In its decision dated November 19, 1985, the Regional Trial Court dismissed the appeal for lack of merit.

In due time, a petition for review of the decision of the Regional Trial Court was filed by the petitioner with the Court of Appeals. Said petition was dismissed on January 30, 1987, for lack of merit. Aggrieved by the decision of the Court of Appeals, petitioner now comes to Us in this petition, assigning the following errors: ASSIGNMENT OF ERRORS "I "RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, WHEN IT ERRED IN HOLDING THAT THE CAUSE OF ACTION FOR UNLAWFUL DETAINER IN THESE CASES DID NOT EXIST WHEN THE COMPLAINTS WERE FILED BECAUSE PRIVATE RESPONDENTS TENDERED, AND PETITIONER ACCEPTED, THE PAYMENT OF THE THREE (3) MONTHS RENTAL IN ARREARS WITHIN THE FIFTEEN (15) DAY PERIOD FROM PRIVATE RESPONDENTS' RECEIPT OF PETITIONER'S DEMAND LETTERS TO VACATE THE SUBJECT' PREMISES AND TO PAY THE RENTALS IN ARREARS. "II RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, WEN IT ERRED IN AFFIRMING THE DISMISSAL OF THE COMPLAINTS IN THESE CASES NOTWITHSTANDING THE EXISTENCE OF VALID GROUNDS FOR THE JUDICIAL EJECTMENT OF PRIVATE RESPONDENT. "III "RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, WHEN IT ERRED IN HOLDING THAT THESE CASES ARE CLASSIC EXAMPLES TO CIRCUMVENT THE RENT CONTROL LAW." (pp. 164-165, Rollo, G.R. No.77647) The Court of Appeals defined the basic issue in this case as follows: whether or not there exists a cause of action when the complaints for unlawful detainer were filed considering the fact that upon demand by petitioner from private respondents for payment of their back rentals, the latter immediately tendered payment which was accepted by petitioner.

In holding that there was no cause of action, the respondent Court relied on Section 2, Rule 70 of the Rules of Court, which provides: "Sec. 2.Landlord to proceed against tenant only after demand . No landlord or his legal representative or assign, shall bring such action against a tenant for failure to pay rent due or to comply with the conditions of his lease, unless the tenant shall have failed to pay such rent or comply with such conditions for a period of fifteen (15) days or five (5) days in case of building, after demand therefor, made upon him personally, or by serving written notice of such demand upon the person found on the premises, or by posting such notice on the premises if no persons be found thereon." It interpreted the said provision as follows: ". . . the right to bring an action of ejectment or unlawful detainer must be counted from the time the defendants failed to pay rent after the demand therefor. It is not the failure per se to pay rent as agreed in the contract, but the failure to pay the rent after a demand therefor is made, that entitles the lessor to bring an action for unlawful detainer. In other words, the demand contemplated by the above-quoted provision is not a demand to vacate, but a demand made by the landlord upon his tenant for the latter to pay the rent due. If the tenant fails to comply with the said demand within the period provided, his possession becomes unlawful and the landlord may then bring the action for ejectment." (p. 28, Rollo, G.R. No. 77647) We hold that the demand required and contemplated in Section 2, aforequoted, is a jurisdictional requirement for the purpose of bringing an unlawful detainer suit for failure to pay rent or comply with the conditions of lease. It partakes of an extrajudicial remedy that must be pursued before resorting to judicial action so much so that when there is full compliance with the demand, there arises no necessity for court action. LLpr As to whether this demand is merely a demand to pay rent or comply with the conditions of the lease or also a demand to vacate, the answer can be gleaned from said Section 2. This section presupposes the existence of a cause of action for unlawful detainer as it speaks of "failure to pay rent due or comply with the conditions of the lease." The existence of said cause of action gives the lessor the right under Article 1659 of the New Civil Code to ask for the rescission of the

contract of lease and indemnification for damages, or only the latter, allowing the contract to remain in force. Accordingly, if the option chosen is for specific performance, then the demand referred to is obviously to pay rent or to comply with the conditions of the lease violated. However, if rescission is the option chosen, the demand must be for the lessee to pay rents or to comply with the conditions of the lease and to vacate. Accordingly, the rule that has been followed in our jurisprudence where rescission is clearly the option taken, is that both demands to pay rent and to vacate are necessary to make a lessee a deforciant in order that an ejectment suit may be filed (Casilan, et al. vs. Tomassi, L-16574, February 28, 1964, 10 SCRA 261; Rickards vs. Gonzales, 109 Phil. 423; Dikit vs. Icasiano, 89 Phil. 44). Thus, for the purpose of bringing an ejectment suit, two requisites must concur, namely: (1) there must be failure to pay rent or comply with the conditions of the lease and (2) there must be demand both to pay or to comply and vacate with in the period specified in Section 2, Rule 70, namely 15 days in case of lands and 5 days in case of buildings. The first requisite refers to the existence of the cause of action for unlawful detainer while the second refers to the jurisdictional requirement of demand in order that said cause of action may be pursued. It is very clear that in the case at bar, no cause of action for ejectment has accrued. There was no failure yet on the part of private respondents to pay rents for three consecutive months. As the terms of the individual verbal leases which were on a month-to-month basis were not alleged and proved, the general rule on necessity of demand applies, to wit: there is default in the fulfillment of an obligation when the creditor demands payment at the maturity of the obligation or at anytime thereafter. This is explicit in Article 1169, New Civil Code which provides that "(t)hose obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation." Petitioner has not shown that its case falls on any of the following exceptions where demand is not required: (a) when the obligation or the law so declares; (b) when from the nature and circumstances of the obligation it can be inferred that time is of the essence of the contract; and (c) when demand would be useless, as when the obligor has rendered it beyond his power to perform. The demand required in Article 1169 of the Civil Code may be in any form, provided that it can be proved. The proof of this demand lies upon the creditor. Without such demand, oral or written, the effects of default do not arise. This demand is different from the demand required under Section 2, Rule 70, which is merely a jurisdictional requirement before an existing cause of action may be pursued.

The facts on record fail to show proof that petitioner demanded the payment of the rentals when the obligation matured. Coupled with the fact that no collector was sent as previously done in the past, the private respondents cannot be held guilty of mora solvendi or delay in the payment of rentals. Thus, when petitioner first demanded the payment of the 3-month arrearages and private respondents lost no time in making tender and payment, which petitioner accepted, no cause of action for ejectment accrued. Hence, its demand to vacate was premature as it was an exercise of a non-existing right to rescind. In contradistinction, where the right of rescission exists, payment of the arrearages in rental after the demand to pay and to vacate under Section 2, Rule 70 does not extinguish The cause of action for ejectment as the lessor is not only entitled to recover the unpaid rents but also to eject the lessee. Petitioner correctly argues that acceptance of tendered payment does not constitute a waiver of the cause of action for ejectment especially when accepted with the written condition that it was "without prejudice to the filing of an ejectment suit". Indeed, it is illogical or ridiculous not to accept the tender of payment of rentals merely to preserve the right to file an action for unlawful detainer. However, this line of argument presupposes that a cause of action for ejectment has already accrued, which is not true in the instant case. Petitioner likewise claims that its failure to send a collector to collect the rentals cannot be considered a valid defense for the reason that sending a collector is not one of the obligations of the lessor under Article 1654. While it is true that a lessor is not obligated to send a collector, it has been duly established that it has been customary for private respondents to pay the rentals through a collector. Besides Article 1257, New Civil Code provides that where no agreement has been designated for the payment of the rentals, the place of payment is at the domicile of the defendants. Hence, it could not be said that they were in default in the payment of their rentals as the delay in paying the same was not imputable to them. Rather, it was attributable to petitioner's omission or neglect to collect. LLjur

Petitioner also argues that neither is its refusal to accept the rentals a defense for non-payment as Article 1256 provides that "[i]f the creditor to whom the tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing due." It bears emphasis that in this case there was no unjustified on the part of petitioner or nonacceptance without reason that would constitutemora accipiendi and warrant consignation. There was simply lack of demand for payment of the rentals.

In sum, We hold that respondent court of appeals did not commit grave abuse of discretion amounting to lack of jurisdiction in its conclusion affirming the trail court's decision dismissing petitioner's complaint for lack of cause of action. We do not agree, however the reasons relied upon. ACCORDINGLY, the petition for review on certiorari is hereby DENIED for lack of merit and the decision dated January 30, 1987 of respondent Court of Appeals is hereby AFFIRMED. SO ORDERED. [G.R. No. 32336. December 20, 1930.] JULIO C. ABELLA, plaintiff-appellant, vs. GUILLERMO B. FRANCISCO, defendant-appellee.

Defendant Guillermo B. Francisco purchased from the Government on installments, lots 937 to 945 of the Tala Estate in Novaliches, Caloocan, Rizal. He was in arrears for some of these installments. On the 31st of October, 1928, he signed the following document: "MANILA, October 31, 1928 "Received from Mr. Julio C. Abella the amount of five hundred pesos (500), payment on account of lots Nos. 937, 938, 939, 940, 941, 942, 943, 944, and 945 of the Tala Estate, barrio of Novaliches, Caloocan, Rizal, containing an area of about 221 hectares, at the rate of one hundred pesos (P100) per hectare, the balance being due on or before the fifteenth day of December, 1928, extendible fifteen days thereafter. (Sgd.) G. B. FRANCISCO P500 Phone 67125." After having made this agreement, the plaintiff proposed the sale of these lots at a higher price to George C. Sellner, collecting P10,000 on account thereof on December 29, 1928. Besides the P500 which, according to the instrument quoted above, the plaintiff paid, he made another payment of P415.31 on November 13, 1928, upon demand made by the defendant. On December 27th of the same year, the defendant, being in the Province of Cebu, wrote to Roman Mabanta of this City of Manila, attaching a power of attorney authorizing him to sign in behalf of the defendant all the documents required by the Bureau of Lands for the transfer of the lots to the plaintiff. In that letter the defendant instructed Roman Mabanta, in the event that the plaintiff failed to pay the remainder of the selling price, to inform him that the option would be considered cancelled, and to return to him the amount of P915.31 already delivered. On January 3, 1929, Mabanta notified the plaintiff that he had received the power of attorney to sign the deed of conveyance of the lots to him, and that he was willing go execute the proper deed of sale upon payment of the balance due. The plaintiff asked for a few days' time, but Mabanta, following the instructions he had received from the defendant, only gave him until the 5th of that month. The plaintiff did not pay the rest of the price on the 5th of January, but on the 9th of the month attempted to do so; Mabanta, however, refused to accept it, and gave him to understand that he regarded the contract as rescinded. On the same day, Mabanta returned by check the sum of P915.31 which the plaintiff had paid. The plaintiff brought this action to compel the defendant to execute the deed of sale of the lots in question, upon receipt of the balance of the price, and asks that he be judicially declared the owner of said lots and that the defendant be ordered to deliver them to him.

Antonio T. Carrascoso jr., for appellant. Camus & Delgado for Mooney. SYLLABUS 1.CONTRACT OF SALE; PERIOD FOR PAYMENT OF SELLING PRICE; RESOLUTION OF CONTRACT. Having agreed that the selling price (even supposing it was a contract of sale) would be paid not later than December, 1928, and in view of the fact that the vendor executed said contract in order to pay off with the proceeds thereof certain obligations which fell due in the same month of December, it is held that the time fixed for the payment of the selling price was essential in the transaction, and, therefore, the vendor, under article 1124 of the Civil Code, is entitled to resolve the contract for failure to pay the price within the time specified.

DECISION

AVANCEA, C. J p:

The court below absolved the defendant from the complaint, and the plaintiff appealed. In rendering that judgment, the court relied on the fact that the plaintiff had failed to pay the price of the lots within the stipulated time; and that since the contract between plaintiff and defendant was an option for the purchase of the lots, time was an essential element in it. It is to be noted that in the document signed by the defendant, the 15th of December was fixed as the date, extendible for fifteen days, for the payment by the plaintiff of the balance of the selling price. It has been admitted that the plaintiff did not offer to complete the payment until January 9, 1929. He contends that Mabanta, as attorney-in-fact for the defendant in this transaction, granted him an extension of time until the 9th of January. But Mabanta has stated that he only extended the time until the 5th of that month. Mabanta's testimony on this point is corroborated by that of Paz Vicente and by the plaintiff's own admission to Narciso Javier that his option to purchase those lots expired on January 5, 1929. In holding that the period was an essential element of the transaction between plaintiff and defendant, the trial court considered that the contract in question was an option for the purchase that the contract in question was an option for the purchase of the lots, and that in an agreement of this nature the period is deemed essential. The opinion of the court is divided upon the question of whether the agreement was an option or a sale, but even supposing it was a sale, the court holds that time was an essential element in the transaction. The defendant wanted to sell those lots to the plaintiff in order to pay off certain obligation which fell due in the month of December, 1928. The time fixed for the payment of the price was therefore essential for the defendant, and this view in borne out by his letter to his representative Mabanta instructing him to consider the contract rescinded if the price was not completed in time. In accordance with article 1124 of the Civil Code, the defendant is entitled to resolve the contract for failure to pay the price within the time specified. The judgment appealed from is affirmed, with costs against the appellant. So ordered. [G.R. No. L-10394. December 13, 1958.] CLAUDINA VDA. DE VILLARUEL, ET AL., plaintiffs-appellees, vs. MANILA MOTOR CO., INC. and ARTURO COLMENARES,defendants-appellants.

Ozaeta, Gibbs & Ozaeta for appellant company. Jose L. Gamboa and Napoleon Garcia for appellant Arturo Colmenares. SYLLABUS 1.INTERNATIONAL LAW; SEQUESTRATION OF PRIVATE PROPERTY BY BELLIGERENT OCCUPANT RECOGNIZED; LESSOR OF SEIZED PROPERTY LIABLE FOR DISTURBANCE. Under the generally accepted principles of international law, which are made part of the law of the Philippines, a belligerent occupant (like the Japanese) may legitimately billet or quarter its troops in privately owned land and buildings for the duration of its military operations, or as military necessity should demand. Thus, when the Japanese forces evicted appellant lessee company from the leased buildings and occupied the same as quarters for its troops, the Japanese authorities acted pursuant to a right recognized by international and domestic law. Its act of dispossession, therefore, did not constitute a mere act of trespass (perturbacion de mero hecho) but a trespass under color of title (perturbacion de derecho) chargeable to the lessors of the seized premises, since the belligerent occupant acted pursuant to a right that the law recognizes. 2.ID.; ID.; ID.; LIABILITY OF LESSEE FOR RENTS DURING OCCUPATION OF PROPERTY. Such dispossession, though not due to the fault of the lessors or lessee nevertheless deprived the lessee of the enjoyment of the thing leased. Wherefore, the lessee's corresponding obligation to pay rentals ceased during such deprivation. 3.ID.; ID.; ID.; IMPORTER REFUSAL TO ACCEPT RENTS PLACES LESSORS IN DEFAULT; LIABILITY FOR SUPERVENING RISK. Since the lessee was exempt from paying the rents for the period of its ouster, the insistence of the lessors to collect the rentals corresponding to said period was unwarranted and their refusal to accept the currant rents tendered by the lessee was unjustified. Such refusal places the lessors in default (mora) and they must shoulder the subsequent accidental loss of the premises leased. 4.ID.; ID.; ID.; ID.; ID.; MORA OF LESSORS NOT CURED BY FAILURE OF LESSEE TO CONSIGN RENTS IN COURT. The mora of the lessors was not cured by the failure of the lessee to make the consignation of the rejected payments, but the lessee remained obligated to pay the amounts tendered and not consigned by it in court. 5.PLEADING AND PRACTICE; CHANGE IN THE RELIEF PRAYED DURING THE PENDENCY OF THE ACTION. A change in the relief prayed, brought about by circumstances occurring during the pendency of the action, is not

Hilado & Hilado for appellees.

improper. This is justified under Section 2, Rule 17 of the Rules of Court (on amendments) "to the end that the real matter in dispute and all matters in the action in dispute between the parties may, as far as possible be completely determined in a single proceeding." 6.ID.; DISMISSAL WITHOUT PREJUDICE. The dismissal of plaintiffs' two causes of action in the case at bar was premised on the existence of the "Debt Moratorium" which suspended the enforcement of the obligation up to a certain time. The reference thereto by the court amounted to a dismissal "without prejudice", since in effect it ruled that the plaintiffs could not, at the time they sought it, enforce their right of action against the defendants, but they must wait until the moratorium was lifted. In this way, the court qualified its dismissal.

(c)A 5-bedroom house of strong materials for residence of the Bacolod Branch Manager of the defendant company. The term of the lease was five (5) years, to commence from the time that the building were delivered and placed at the disposal of the lessee company, ready for immediate occupancy. The contract was renewable for an additional period of five (5) years. The Manila Motor Company, in consideration of the above covenants, agreed to pay to the lessors, or their duly authorized representative, a monthly rental of Three Hundred (P300) pesos payable in advance before the fifth day of each month, and for the residential house of its branch manager, a monthly rental not to exceed Fifty (P50) pesos "payable separately by the Manager". The leased premises were placed in the possession of the lessee on the 31st day of October, 1940, from which date, the period of the lease started to run under their agreement. This situation, the Manila Motor Co., Inc. and its branch manager enjoying the premises, and the lessors receiving the corresponding rentals as stipulated, continued until the invasion of 1941; and shortly after the Japanese military occupation of the Provincial Capital of Bacolod the enemy forces held and used the properties leased as part of their quarters from June 1, 1942 to March 29, 1945, ousting the lessee therefrom. No payment of rentals were made at any time during the said period. Immediately upon the liberation of the said city in 1945, the American Forces occupied the same buildings that were vacated by the Japanese, including those leased by the plaintiffs, until October 31, 1945. Monthly rentals were paid by the said occupants to the owners during the time that they were in possession, as the same rate that the defendant company used to pay. Thereafter, when the United States Army finally gave up the occupancy the premises, the Manila Motor Co., Inc., through their branch manager, Rafael B. Grey, decided to exercise their option to renew the contract for the additional period of five (5) years, and the parties agreed that the seven months occupancy by the U. S. Army would not be counted as part of the new 5-year term. Simultaneously with such renewal, the company sublet the same buildings, except that used for the residence of the branch manager, to the other defendant, Arturo Colmenares. However, before resuming the collection of rentals, Dr. Alfredo Villaruel, who was entrusted with the same, consulted Atty. Luis Hilado on whether they (the lessors) had the right to collect, from the defendant company, rentals corresponding to the time during which the Japanese military forces had control over the leased premises. Upon being advised that

DECISION

REYES, J.B.L., J p: Manila Motor Co., Inc., and Arturo Colmenares interpose this appeal against the decision of the Court of First Instance of Negros Occidental, in its Civil Case No. 648, ordering the defendant Manila Motor Co., Inc. to pay to the plaintiffs Villaruel the sum of (a) P11,900 with legal interest from May 18, 1953, on which date, the court below declared invalid the continued operation of the Debt Moratorium, under the first cause of action; (b) P38,395 with legal interest from the date of filing of the original complaint on April 26, 1947, on the second cause of action; and against both the Manila Motor Co., Inc. and its co-defendant, Arturo Colmenares, the sum of P30,000 to be paid, jointly and severally, with respect to the third cause of action. On May 31, 1940, the plaintiffs Villaruel and the defendant Manila Motor Co., Inc. entered into a contract (Exhibit "A") whereby, the former agreed to convey by way of lease to the latter the following described premises; (a)Five hundred (500) square meters of floor space of a building of strong materials for automobile showroom, offices, and store room for automobile spare parts; (b)Another building of strong materials for automobile repair shop; and

they had such a right, Dr. Villaruel demanded payment thereof, but the defendant company refused to pay. As a result, Dr. Villaruel gave notice seeking the rescission of the contract of lease and the payment of rentals from June 1, 1942 to March 31, 1945 totalling P11,900. This was also rejected by the defendant company in its letter to Villaruel, dated July 27, 1946. Sometime on that same month of July, Rafael B. Grey offered to pay to Dr. Villaruel the sum of P350, for which, tenderer requested a receipt that would state that it was in full payment for the said month. The latter expressed willingness to accept the tendered amount provided, however, that his acceptance should be understood to be without prejudice to their demand for the rescission of the contract, and for increased rentals until their buildings were returned to them. Later, Dr. Villaruel indicated his willingness to limit the condition of his acceptance to be that "neither the lessee nor the lessors admit the contention of the other by the mere fact of payment". As no accord could still be reached between the parties as to the context of the receipt, no payment was thereafter tendered until the end of November, 1946. On December 4, 1946 (the day after the defendant company notified Dr. Villaruel by telegram, that it cancelled the power of attorney given to Grey, and that it now authorized Arturo Colmenares, instead, to pay the rent of P350 each month), the Manila Motor Co., Inc. remitted to Dr. Villaruel by letter, the sum of P350.90. For this payment, the latter issued a receipt stating that it was "without prejudice" to their demand for rents in arrears and for the rescission of the contract of lease. After it had become evident that the parties could not settle their case amicably, the lessors commenced this action on April 26, 1947 with the Court of First Instance of Negros Occidental against the appellants herein. During the pendency of the case, a fire originating from the projection room of the City Theatre, into which Arturo Colmenares, (the sublessee) had converted the former repair shop of the Manila Motor Co. Inc., completely razed the building, engulfing also the main building where Colmenares had opened a soda fountain and refreshment parlor, and made partitions for store spaces which he rented to other persons. Because of the aforesaid occurrence, plaintiffs demanded reimbursement from the defendants, but having been refused, they filed a supplemental complaint to include as their third cause of action, the recovery of the value of the burned buildings. Defendants filed their amended answer and also moved for the dismissal of the plaintiffs' first and second causes of action invoking the Debt Moratorium that was then in force. The dismissal was granted by the trial court on February 5, 1951, but hearing was set as regards the third cause of action.

On August 11, 1952, the defendant company filed a motion for summary judgment dismissing the plaintiffs, third cause of action, to which plaintiffs registered objection coupled with a petition for reconsideration of the order of the court dismissing the first and second causes of action. Pending the resolution of this incident, plaintiffs, on October 2, 1953, called the court's attention to the decision in the case of Rutter vs. Esteban (93 Phil., 68; 49 Off. Gaz. [5] 1807) invalidating the continued effectivity of the Moratorium Law (R. A. 342). On November 25, 1953, the trial court denied the defendant company's motion for summary judgment and set aside its previous order dismissing the first and second causes of action. The case was accordingly heard and thereafter, judgment was rendered in plaintiffs' favor in the terms set in the opening paragraph of this decision. Thereafter, the defendants regularly appealed to this Court. The defendants-appellants raise a number of procedural points. The first of these relates to their contention that the supplemental complaint which included a third cause of action, should not have been admitted, as it brought about a change in the original theory of the case and that it raised new issues not theretofore considered. This argument cannot be sustained under the circumstances. This action was inceptionally instituted for the rescission of the contract of lease and for the recovery of unpaid rentals before and after liberation. When the leased buildings were destroyed, the plaintiffs-lessors demanded from the defendants-lessees, instead, the value of the burned premises, basing their right to do so on defendants' alleged default in the payment of post-liberation rentals (which was also their basis in formerly seeking for rescission). This cannot be considered as already altering the theory of the case which is merely a change in the relief prayed for, brought about by circumstances occurring during the pendency of the action, and is not improper. (Southern Pacific Co. vs. Conway, 115 F. 2d 746; Suburban Improvement Company vs. Scott Lumber Co., 87 A.L.R. 555, 59 F. 2d 711). The filing of the supplemental complaint can well be justified also under section 2, Rule 17 of the Rules of Court (on amendments) "to the end that the real matter in dispute and all matters in the action in dispute between the parties may, as far as possible be completely determined in a single proceedings". It is to be noted furthermore, that the admission or rejection of this kind of pleadings is within the sound discretion of the court that will not be disturbed on appeal in the absence of abuse thereof (see Sec. 5, Rule 17, Rules of Court), especially so, as in this case, where no substantial procedural prejudice is caused to the adverse party. It is urged that the dismissal of the first and second causes of action on February 5, 1951 had the effect of a dismissal "with prejudice" as the court did not make any qualification in its dismissal order. Appellants, apparently, lost sight of the fact that the dismissal was premised on the existence of the "Debt Moratorium" which suspended the enforcement of the obligation up to

a certain time. The reference thereto by the lower court amounted to a dismissal "without prejudice", since in effect it ruled that the plaintiffs could not, at the time they sought it, enforce their right of action against the defendants, but plaintiffs must wait until the moratorium was lifted. In this way, the court qualified its dismissal. Taking up the case on its merits, it is readily seen that the key to the entire dispute is the question whether the defendant-appellant Manila Motor Co., Inc. should be held liable for the rentals of the premises leased corresponding to the lapse of time that they were occupied as quarters or barracks by the invading Japanese army, and whether said appellant was placed in default by its refusal to comply with the demand to pay such rents. For if the Motor Company was not so liable, then it never was in default nor was it chargeable for the accidental lose of the buildings, nor for any damages except the rental at the contract rate from its reoccupation of the premises leased until the same were accidentally destroyed by fire on March 2, 1948. The appellees contended, and the court below has held, that the ouster of the lessee company by the Japanese occupation forces from 1942 until liberation, while operating to deprive the lessee of the enjoyment of the thing leased, was, nevertheless, a mere act of trespass ("perturbacion de mero hecho") that, under the Spanish Civil Code of 1889 (in force here until 1950), did not exempt the lessee from the duty to pay rent. We find that contention and ruling erroneous and untenable. The pertinent articles of the Civil Code of Spain of 1889 provide: "ART. 1554.It shall be the duty of the lessor; 1.To deliver to the lessee the thing which is the subject matter of the contract; 2.To make thereon, during the lease, all repairs necessary in order to keep it in serviceable condition for the purpose for which it was intended; 3.To maintain the lessee in the peaceful enjoyment of the lease during the entire term of the contract." "ART. 1560.The lessor shall not be liable for any act of mere disturbance of a third person of the use of the leased property; but the lessee shall have a direct action against the trespasser. If the third person, be it the Government or a private individual, has acted in reliance upon a right, such action shall not be deemed a mere act of disturbance." (Italics supplied) Under the first paragraph of article 1560 the lessor does not answer for a mere act of trespass (perturbacion de mero hecho) as distinguished from

trespass under color of title (perturbacion de derecho). As to what would constitute a mere act of trespass, this Court in the case of Goldstein vs.Roces (34 Phil. 562), made this pronouncement: "Si el hecho perturbador no va acompaado ni precedido de nada que revele una intencion propiamente juridica en el que lo realiza, de tal suerte que el arrendatario solo pueda apreciar el hecho material desnudo de toda forma o motivacion de derecho, entendemos que se trata de una perturbacion de mero hecho." Upon the basis of the distinction thus established between the perturbacion de hecho and the perturbacion de derecho, it is demonstrable that the ouster of the appellant by the Japanese occupying forces belongs to the second class of disturbances, de derecho. For under the generally accepted principles of international law (and it must be remembered that those principles are made by our Constitution a part of the law of our nation 1 ) a belligerent occupant (like the Japanese in 1942-1945) may legitimately billet or quarter its troops in privately owned land and buildings for the duration of its military operations, or as military necessity should demand. The well known writer Oppenheim, discoursing on the laws of war on land, says upon this topic; "Immovable private enemy property may under no circumstances or conditions be appropriated by an invading belligerent. Should he confiscate and sell private land or buildings, the buyer would acquire no right whatever to the property. Article 46 of the Hague Regulations expressly enacts that 'private property may not be confiscated.' But confiscation differs from the temporary use of private land and building for all kinds of purposes demanded by the necessities of war. What has been said above with regard to utilization of public buildings applies equally to private buildings. If necessary, they may be converted into hospitals, barracks, and stables without compensation for the proprietors, and they may also be converted into fortifications. A humane belligerent will not drive the wretched inhabitants into the street if he can help it. But under the pressure of necessity he may be obliged to do this, and he is certainly not prohibited from doing it. (Italics supplied) (Oppenheim & Lauterpach, International Law, Vol. II, p. 312, 1944 Ed.) The view thus expressed is concurred in by other writers. Hyde (International Law, Vol. 3, p. 1893, 2nd Rev. Ed.) quotes the U. S. War Department 1940 Rules of Land Warfare (Rule No. 324) to the effect that

"The measure of permissible devastation is found in the strict necessities of war. As an end in itself, as a separate measure of war, devastation is not sanctioned by the law of war. There must be some reasonably close connection between the destruction of property and the overcoming of the enemy's army. Thus the rule requiring respect for private property is not violated through damage resulting from operations, movements, or combats of the army; that is, real estate may be utilized for marches, camp sites, construction of trenches, etc. Building may be used for shelter for troops, the sick and wounded, for animals, for reconnaisance, cover defense, etc. Fences, woods, crops, buildings, etc., may be demolished, cut down, and removed to clear a field of fire, to construct bridges, to furnish fuel if imperatively needed for the army." (Emphasis supplied) Reference may also be made to Rule 336: "What may be requisitioned. Practically everything may be requisitioned under this article (art. LII of the regulations above quoted) that is necessary for the maintenance of the army and not of direct military use, such as fuel, food, forage, clothing, tobacco, printing presses, type, leather, cloth, etc. Billeting of troops for quarters and subsistence is also authorized." (Emphasis supplied) And Forest and Tucker state: "The belligerent occupant may destroy or appropriate public property which may have a hostile purpose, as forts, arms, armories, etc. The occupying force may enjoy the income from the public sources. Strictly private property should be inviolable, exce pt so for as the necessity of war requires contrary action." (Forest and Tucker, International Law, 9th Ed., p. 277) (Emphasis supplied) The distinction between confiscation and temporary sequestration of private property by a belligerent occupant was also passed upon by this Court in Haw Pia vs. China Banking Corporation, 80 Phil. 604, wherein the right of Japan to sequester or take temporary control over enemy private property in the interest of its military effort was expressly recognized. We are thus forced to conclude that in evicting the lessee, Manila Motor Co., Inc. from the leased buildings and occupying the same as quarters for troops, the Japanese authorities acted pursuant to a right recognized by international and domestic law. Its act of dispossession, therefore, did not

constitute perturbacion de hecho but a perturbacion de derecho for which the lessors Villaruel (and not the appellants lessees) were liable (Art. 1560,su pra) and for the consequences of which said lessors must respond, since the result of the disturbance was the deprivation of the lessee of the peaceful use and enjoyment of the property leased. Wherefore, the latter's corresponding obligation to pay rentals ceased during such deprivation. The Supreme Court of Spain, in its Sentencia of 6 December 1944, squarely declared the resolutory effect of the military sequestration of properties under lease upon the lessee's obligation to pay rent (Jurisprudencia Civil, Segunda Serie, Tomo 8, pp. 583, 608): "Considerando que para resolver acerca de la procedencia del presente recurso es preciso partir de las bases de hecho sentadas en la sentencia recurrida, y no impugnadas al amparo del nmero 7. del articulo 1.692 de la Ley de Enjuiciamiento civil, es decir, de que hallandose vigente el contrato de arrendamiento celebrado entre actor y demandada, en fecha que no se precisa, entre los dias del 18 al 31 de julio de 1936, los locales objeto de dicho contrato de arrendamiento, y en los que no funcionaba de tiempo anterior la industria para cuyo ejercicio se arrendaron, fueron requisados por el Ejercito Nacional, con motivo de la guerra civil, para que se instalara en los mismos la Junta de Donativos al Ejercito del Sur, aun cundo en dicha incautacion, que se hizo a la propiedad de la finca, no se observaron las formalidades legales, a causa de las circunstancias extraordinarias por que a la sazon atravesaba Sevilla, hecho que no consta se hiciera saber por los arrendatarios demandados al actor, pero que fue notorio en aquella capital, donde residia el actor, que de el debio tener concoimiento. Se estima igualmente por la Sala que el hecho de que la industria no funcionara en el local no tuvo iufluencia alguna sobre su incautacion por el Ejercito." "Considerando que sobre tales bases de hecho es de desestimar el primer motivo del recurso: violacion de los articulos 1.254, 1.278 y 1.091 del Codigo civil, que sancionan, en terminos generales, la eficacia de los contratos, puesto que en el presente caso de los que se trata en definitiva es de determinar si por virtud de fuerza mayor, la requisa a que se hace referencia, ajena, por lo tanto, a culpa, asi del arrendatario como del arrendador, se vio aqel privado del posible disfrute de la finca arrendada, y de si por virtud de esta circunstancia este o no exento de la obligacion de abonar la renta pactada durante el tiempo que subsistio la incautacion; y es indudable la afirmativa en cuanto al primer extremo, puesto

que la sentencia recurrida establece que el hecho de que no funcionase la industria y estuvieran los locales cerrados no actuo como causa de la requisa de estos por el Ejercito." "Considerando que la sentencia recurrida, en cuanto no da lugar al pago de las rentas correspondientes al tiempo que duro la incautacion, lejos de infringir, por aplicacion indebida, el art. 1.568 del Codigo civil, se ajusta a la orientacion marcada en el mismo, puesto que este precepto legal dispone que el arrendatario tiene accion contra el tercero perturbador de mero hecho en la posesion de la finca arrendada, pero no contra la Administracion o contra los que obran en virtud de un derecho que les corresponde; y aqui la perturbacion que experimento el arrendador en su posesion, como consecuencia de la requisa, no puede calificarse como de mero hecho, conforme al citado articulo, puesto que la finca fue requisada por la autoridad militar para fines de guerra, de donde se sigue que el arrendatario tenia que soportar la privacion de su tenencia material a traves del arrendador, con quien ha de entenderse la requisa de la cosa arrendada." In addition, the text of Art. 1560, in its first paragraph (jam quot.) assumes that in case of mere disturbance ( perturbacion de mero hecho) "the lessee shall have a direct action against the trespasser." This assumption evidently does not contemplate the case of dispossession of the lessee by a military occupant, as pointed out by Mr. Chief Justice Paras in his dissenting opinion in Reyes vs. Caltex (Phil.) Inc., 84 Phil. 669; for the reason that the lessee could not have a direct action against the military occupant. It would be most unrealistic to expect that the occupation courts, placed under the authority of the occupying belligerent, should entertain at the time a suit for forcible entry against the Japanese army. The plaintiffs, their lawyers, and in all probability, the Judge and court personnel, would face "severest penalties" for such defiance of the invader. The present case is distinguishable from Lo Ching vs. Archbishop of Manila (81 Phil., 601) in that the act of the Japanese military involved in the latter case clearly went beyond the limits set by the Hague Conventions, in seizing the property and delivering it to another private party; and from Reyes vs. Caltex (Phil.) Inc., 84 Phil. 654, in that the rights of the military occupant under international law were not raised or put in issue in said case; and moreover, the lessee there, by failing to rescind the lease upon seizure of the premises by the Japanese military, despite the stipulated power to do so, resumed business and decided to hold unto the long term lease for the balance of its 20-year period, starting from December 23, 1940. In the case before us, the occupation of the leased property by the Japanese army

covered the major portion of the five-year contractual period, without any option to rescind by the lessee. The lessor's position is not improved by regarding the military seizure of the property under lease as a case of force majeure or fortuitous event. Ordinarily, a party may not be held responsible therefor, despite the fact that it prevented compliance of its obligations. But lease being a contract that calls for prestations that are both reciprocal and repetitive (tractum successivum), the obligations of either party are not discharged at any given moment, but must be fulfilled all throughout the term of the contract. As a result, any substantial failure by one party to fulfill its commitments at any time during the contract period gives rise to a failure of consideration (causa) for the obligations of the other party and excuses the latter from the correlative performance, because the causa in lease must exist not only at the perfection but throughout the term of the contract. No lessee would agree to pay rent for premises he could not enjoy. As expressed by Marcel Planiol (quoted in 4 Castan, Derecho Civil, 7th Edition, p. 264) "Como la obligacion del arrendador es sucesiva y se renueva todos los dias, la subsistencia del arrendamiento se hace imposible cuando, por cualquier razon, el arrendador no puede ya procurar al arrendatario el disfrute de la cosa." This effect of the failure of reciprocity appears whether the failure is due to fault or to fortuitous event; the only difference being that in case of fault, the other party is entitled to rescind the contract in toto, and collect damages, while in casual non-performance it becomes entitled only to a suspension pro tanto of its own commitments. This rule is recognized in par. 2 of Art. 1558, authorizing the lessee to demand reduction of the rent in case of repairs depriving him of the possession of part of the property; and in Art. 1575, enabling the lessee of rural property to demand reduction of the rent if more than one-half of the fruits are lost by extraordinary fortuitous event. Of course, where it becomes immediately apparent that the loss of possession or enjoyment will be permanent, as in the case of accidental destruction of a leased building, the lease contract terminates. Applying these principles, the Sentencia of December 1944, already adverted to, ruled as follows: "Considerando que privado el arrendador, por tal hecho, del disfrute de esta, es menifiesta la imposibilidad en que se vio de cumplir la tercera de las obligaciones que el impone el articulo 1.554 del Codigo Civil, obligacion (la de mantener al arrendatario en el disfrute de la cosa arrendada) que ha de entenderse reciproca de la de pago de renta pactada, que impone al arrendatario el nmero primero del

art. 1.555 de dicho Cuerpo legal, y por ello no puede ser exigida." "Considerando que, aunque no sean estrictamente aplicables al caso los articulos 1.124, 1.556 y 1.568, que se citan como infringidos por el recurrente, suponiendo que a ellos ha entendido referirse la Audiencia (lo que impediria, en todo caso, la estimacion del recurso por este motivo, ya que dichos articulos no se citan en la sentencia de instancia), es evidente que ellos proclaman la reciprocidad de las obligaciones entre arrendatario y arrendador, y en este sentido, tratandose de un incumplimiento inculpable de contrato, pueden servir, como tambien el 1.558, en cuanto preven la reduccion de rentas o posible restriccion del contrato cuando el arrendatario se ve privado, por obras realizadas en la finca arrendada, del disfrute de este, de fundamento, con los demas preceptos invocados, a una extencion de renta mientras subsiste la imposibilidad de utilizar la cosa arrendada, sobre todo cuando los articulos 157 y 158 del Reglamento de Requisas de 13 de enero de 1921 estatuyen claramente que les requisas de edificio se hacen a la propiedad, y es el propietario el que puede pedir indemnizacion, uno de cuyos elementos es el precio del alquiler que le sea satisfecho por el inmueble incautado." We are aware that the rule in the common law is otherwise, due to its regarding a lease as a conveyance to the lessee of a temporary estate or title to the leased property so that loss of possession due to war or other fortuitous event leaves the tenant liable for the rent in the absence of stipulation. The fundamental difference between the common law and the civil law concepts has been outlined by the United States in Viterbo vs.Friedlander, 30 L. Ed. (U.S.) pp. 776, 778, in this wise: "But as to the nature and effect of a lease for years, at a certain rent which the lessee agrees to pay, and containing no express covenant on the part of the lessor, the two systems differ materially. The common law regards such a lease as the grant of an estate for years, which the lessee takes a title in, end is bound to pay the stipulated rent for, notwithstanding any injury by flood, fire or external violence, at least unless the injury is such a destruction of the lend as to amount to an eviction; end by that law the lessor is under no implied covenant to repair, or even that the premises shall be fit for the purpose for which they are leased. Fowler vs. Bott, 6 Mass.

63; 3 Kent, Com. 465, 466; Broom, Legal Maxims, 3d ed. 213, 214; Doupe vs. Genin, 45 N. Y. 119; Kingbury vs. Westfall, 61 N. Y. 356. Naumberg vs. Young, 15 Vroom, 331; Bowe vs. Hunking, 135 Mass. 380; Manchester Warehouse Co. vs. Carr, L.R. 5 C.P.D. 507. The civil law, on the other hand, regards a lease for years as a mere transfer of the use and enjoyment of the property; and holds the landlord bound, without any express covenant, to keep it in repair and otherwise fit for use and enjoyment for the purpose for which it is leased, even when the need of repair or the unfitness is caused by an inevitable accident, and if he does not do so, the tenant may have the lease annulled, or the rent abated. Dig. 19, 2, 9, 2; 19, 2, 15, 1, 2; 19, 2, 25, 2; 19, 2, 39; 2 Gomez, Variae Resolutiones c. 3, secs. 1-3, 18, 19: Gregorio Lopes in 5 Partidas, tit. 8, 11. 8, 22; Domat, Droit Civil, pt. 1, lib. 1, tit. 4, sec. 1, no. 1; sec. 3 nos. 1, 3, 6, Pothier, Contract de Louage, nos. 3, 6, 11, 22, 53, 103, 106, 139-155. It is accordingly laid down in the Pandects, on the authority of Julian, 'If anyone has let an estate, that, even if anything happens by vis major, he must make it good, he must stand by his contract,' si quis fundum locaverit, ut, etiamsi quid vi majore accidisset, hoc ei praestaretur, pacto standum esse; Dig. 19, 2, 9, 2; and on the authority of Ulpian, that 'A lease does not change the ownership,' non solet locatio dominium mutare; Dig. 19, 2, 39; and that the lessee has a right of action, if he cannot enjoy the thing which he has hired, si re quam conduxit frui non liceat, whether because his possession, either of the whole or of part of the field, is not made good, or a house, or stable or sheepfold, is not repaired; and the landlord ought to warrant the tenant, dominum colono praestare debere, against every irresistible force, omnim vim cui resisti non potest, such as floods, flocks of birds, or any like cause, or invasion of enemies; and if the whole crop should be destroyed by a heavy rainfall, or the olives should be spoiled by blight, or by extraordinary heat of the sun, solis fervore non assueto, it would be the loss of the landlord, damnum domini futurum; and so if the field falls in by an earthquake, for there must be made good to the tenant a field that he can enjoy, o portere enim agrum praestari conductori, ut frui possit; but if any loss arises from defects in the thing itself, si qua tamen vitia ex i psa re oriantur, as if wine turns sour, or standing corn is spoiled by worms or weeds, or if nothing extraordinary

happens, si vero nihil extra consuetudinem acciderit, it is the loss of the tenant, damnum coloni asse. Dig. 19, 2; 15, 1, 2." (Emphasis supplied) In short, the law applies to leases the rule enunciated by the Canonists and the Bartolist School of Post glossatorse, that "contractus qui tractum successivum habent et de pendentiam de futuro, sub conditione rebus sic stantibus intelliguntur," they are understood entered subject to the condition that things will remain as they are, without material change. It is also worthy of note that the lessors, through Dr. Javier Villaruel, agreed after liberation to a renewal of the contract of lease for another five years (from June 1, 1946 to May 31 of 1951) without making any reservation regarding the alleged liability of the lessee company for the rentals corresponding to the period of occupancy of the premises by the Japanese army, and without insisting that the non-payment of such rental was a breach of the contract of lease. This passivity of the lessors strongly supports the claim of the lessees that the rentals in question were verbally waived. The proffered explanation is that the lessors could not refuse to renew the lease, because the privilege of renewal had been granted to the lessees in the original contract. Such excuse is untenable: if the lessors deemed that the contract had been breached by the lessee's non-payment of the occupation rents how could they admit the lessee's right to renew a contract that the lessee itself had violated? But this is not all. The lessors accepted payment of current rentals from October 1945 to June 1946. It was only in July 1946 that they insisted upon collecting also the 1942-1945 rents, and refused to accept further payments tendered by the lessee unless their right to collect the occupation rental was recognized or reserved. After refusing the rents from July to November 1946, unless the lessee recognized their right to occupation rentals, the appellees (lessors) demanded rescission of the contract and a rental of P1,740 monthly in lieu of the stipulated P350 per month. (Exhibit "C"). This attitude of the lessors was doubly wrongful: first, because as already shown, the dispossession by the Japanese army exempted the lessee from his obligation to pay rent for the period of its ouster; and second, because even if the lessee had been liable for that rent, its collection in 1946 was barred by the moratorium order, Executive Order No. 32, that remained in force until replaced by Rep. Act 342 in 1948. To apply the current rentals to the occupation obligations would amount to enforcing them contrary to the moratorium decreed by the government. Clearly, then, the lessor' insistence upon collecting the occupation rentals for 1942-1945 was unwarranted in law. Hence, their refusal to accept the current rentals without qualification placed them in default (mora creditoris or acci piendi) with the result that thereafter, they had to bear all

supervening risks of accidental injury or destruction of the leased premises. While not expressly declared by the Code of 1889, this result is clearly inferable from the nature and effects of mora, and from Articles 1185, 1452 [par. 3] and 1589). "ART. 1185.When the obligation to deliver a certain and determinate thing arises from the commission of a crime or misdemeanor the obligor shall not be exempted from the payment of its value, whatever the cause of its loss may have been, unless, having offered the thing to the person entitled 'to receive it, the latter should have refused without reason to accept it." "Art. 1452.. . . If fungible things should be sold for a price fixed with relation to weight, number, or measure, they shall not be at the purchaser's risk until they have been weighed, counted, or measured, unless the purchaser should be in default." "ART. 1589.If the person who contracted to do the work bound himself to furnish the materials, he shall bear the loss in case of the destruction of the work before it is delivered, unless its acceptance has been delayed by the default of the other party." While there is a presumption that the loss of the thing leased is due to the fault of the lessee (Civil Code of 1889, Art. 1563), it is noteworthy that the lessors have not invoked that presumption either here or in the court below. On the contrary, the parties and the trial court have all proceeded and discussed the issues taking for granted that the destruction of the leased buildings was purely fortuitous. We see no reason for departing from that assumption and further prolonging this litigation. That the lessee and sublessee did not consign or deposit in court the rentals tendered to and improperly rejected by the lessors, did not render the debtor liable for default (mora solvendi) nor answerable for fortuitous events because, as explained by the Supreme Court of Spain in its Sentenciaof 5 June 1944 "Al exigir el art. 1176 del Codigo Civil la consignacion para liberar al deudor no quiere decir que necesariamente haya de practicarse, y no baste el ofrecimiento de pago que de aquella no fuere seguido, a efectos de exclusion ds las consecuencias de la mora solvendi." (8 Manresa, Comentarios, 5th Ed., Vol. I, p. 136).

In other words, the only effect of the failure to consign the rentals in court was that the obligation to pay them subsisted (P.N.B. vs. Relativo, 92 Phil., 203) and the lessee remained liable for the amount of the unpaid contract rent, corresponding to the period from July to November, 1946; it being undisputed that, from December 1946 up to March 2, 1948, when the commercial buildings were burned, the defendants-appellants have paid the contract rentals at the rate of P350 per month. But the failure to consign did not eradicate the default (mora) of the lessors nor the risk of loss that lay upon them. (3 Castan, Der. Civ., 8th Ed., p. 145; 4 Puig Pea, Der. Civ., part. 1, p. 234; Diaz Pairo, Teoria Gen. de las Obligaciones [3rd Ed.], Vol. 1, pp. 192-193). In view of the foregoing, we hold: (a)That the dispossession of the lessee from the premises by the Japanese army of occupation was not an act of mere trespass ( perturbacion de mero hecho) but one de derecho chargeable to the lessors; (b)That such dispossession, though not due to fault of lessors or lessee, nevertheless resulted in the exemption of the lessee from its obligation to pay rent during the period that it was deprived of the possession and enjoyment of the premises leased; (c)That the insistence of the lessors to collect such rentals was unwarranted; (d)That the lessors were not justified in refusing to accept the tender of current rentals unless the lessee should recognize their right to the rents corresponding to the period that the lessee was not in possession; (e)That by their improper refusal to accept the current rents tendered by the lessee, the lessors incurred in default (mora) and they must shoulder the subsequent accidental loss of the premises leased; (f)That the mora of the lessors was not cured by the failure of the lessee to make the consignation of the rejected payments, but the lessee remained obligated to pay the amounts tendered and not consigned by it in court. Consequently, it was reversible error to sentence the appellants to pay P2,165 a month as reasonable value of the occupation of the premises from July 1946, and the value of the destroyed buildings amounting to P30,000. Wherefore, the decision appealed from is modified in the sense that the appellant Manila Motor Company should pay to the appellees Villaruel only the rents for the leased premises corresponding to the period from July

up to November 1946, at the rate of P350 a month, or a total of P1,750. Costs against appellees in both instances. So ordered. [G.R. No. L-45710. October 3, 1985.] CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island Savings Bank, petitioners, vs. THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents. I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners. Antonio R. Tupaz for private respondent.

DECISION

MAKASIAR, C.J p: This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court of First Instance of Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for injunction, specific performance or rescission, and damages with preliminary injunction. On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which mortgage was annotated on the said title the next day. The approved loan application called for a lump sum P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other property into a subdivision.

On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.), An advance interest for the P80,000.00 loan covering a 6month period amounting to P4,800.00 was deducted from the partial release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113, rec.). On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity problems, issued Resolution No. 1049, which provides: "In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the Board, by unanimous vote, decided as follows: "1)To prohibit the bank from making new loans and investments [except investments in government securities] excluding extensions or renewals of already approved loans, provided that such extensions or renewals shall be subject to review by the Superintendent of Banks, who may impose such limitations as may be necessary to insure correction of the bank's deficiency as soon as possible; . . ." (p. 46, rec.). On June 14, 1968, the Monetary Board, after finding that Island Savings Bank failed to put up the required capital to restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank (pp. 48-49, rec.). On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note, filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction for January 22, 1969.

On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction, specific performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.). On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary restraining order enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp. 86-87, rec.). On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the petition of Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and by the Acting Superintendent of Banks (pp. 65-76, rec.). On February 15, 1972, the trial court, after trial on the merits, rendered its decision, finding unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of P17,000.00 plus legal interest and legal charges due thereon, and lifting the restraining order so that the sheriff may proceed with the foreclosure (pp. 135-136, rec.). On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it ruled that Island Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000.00 loan (pp. 30-31, rec.). prcd Hence, this instant petition by the Central Bank. The issues are: 1.Can the action of Sulpicio M. Tolentino for specific performance prosper? 2.Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note? 3.If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage be foreclosed to satisfy said amount?.

When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs. Pelarca, 29 SCRA 1 [1969]); and when one party has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the Central Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing further business. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June 15, 1948, the validity of which is not in question. The Monetary Board Resolution No. 1049 issued on August 13, 1965 cannot interrupt the default of Island Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank from making new loans and investments, and nowhere did it prohibit Island Savings Bank from releasing the balance of loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it constitute any defense to a decree of specific performance (Gutierrez Repide vs. Afzelins and Afzelins, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but instead it is taken as a breach of the contract by him (Vol. 17A, 1974 ed., CJS p. 650). LexLib The fact that Sulpicio M. Tolentino demanded and accepted the refund of the prededucted interest amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his right to collect the P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for 6 months on the supposed P80,000.00 loan, was improper considering that only P17,000.00 out of the P80,000.00 loan was released. A person cannot be legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio M. Tolentino of the pre-deducted interest was an exercise of his right to it, which right exist independently of his right to demand the completion of the P80,000.00 loan. The

exercise of one right does not affect, much less neutralize, the exercise of the other. The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from complying with its reciprocal obligation to furnish the entire P80,000.00 loan. This Court previously ruled that bank officials and employees are expected to exercise caution and prudence in the discharge of their functions (Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and employees that before they approve the loan application of their customers, they must investigate the existence and valuation of the properties being offered as a loan security. The recent rush of events where collaterals for bank loans turn out to be non-existent or grossly over-valued underscore the importance of this responsibility. The mere reliance by bank officials and employees on their customer's representation regarding the loan collateral being offered as loan security is a patent non-performance of this responsibility. If ever, bank officials and employees totally rely on the representation of their customers as to the valuation of the loan collateral, the bank shall bear the risk in case the collateral turn out to be over-valued. The representation made by the customer is immaterial to the bank's responsibility to conduct its own investigation. Furthermore, the lower court, on objections of Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure to raise the same in their pleadings (pp. 198-199, t.s.n., Sept. 15, 1971). The lower court's action is sanctioned by the Rules of Court, Section 2, Rule 9, which states that "defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise the same issue before the Supreme Court.

Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in either case. But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio M. Tolentino. Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's

reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform his reciprocal obligation to pay. Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages. Cdpr Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his P17,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the interest thereon. WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P17,000.00 debt. The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his obligation to pay is the existence of a debt. Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art. 2052, of the Civil Code). The fact that when Sulpicio M. Tolentino executed his real estate mortgage, no consideration was then in existence, as there was no debt yet because Island Savings Bank had not made any release on the loan, does not make the real estate mortgage void for lack of consideration. It is not necessary that any consideration should pass at the time of the execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). It may either be a prior or subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is created as a binding contract to pay

(Parks vs. Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage becomes unenforceable to the extent of such failure (Dow, et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage, the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 6th ed., Wiltsie on Mortgage, Vol. 1, p. 180). LLpr Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt. The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the facts of this case. Article 2089 provides: "A pledge or mortgage is indivisible even though the debt may be divided among the successors in interest of the debtor or creditor. "Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied. "Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the mortgage, to the prejudice of other heirs who have not been paid." The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply. WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND

1.SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF P17,000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED' FROM AUGUST 22, 1985 UNTIL PAID; 2.IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND 3.THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNENFORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO. NO COSTS. SO ORDERED. [G.R. No. L-27454. April 30, 1970.] ROSENDO O. CHAVES, plaintiff-appellant, vs. FRUCTUOSO GONZALES, defendant-appellee.

3.ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR. Where the defendantappellee contravened the tenor of his obligation because he not only did not repair the typewriter but returned it "in shambles,'' he is liable for the cost of the labor or service expended in the repair of the typewriter, which is in the amount of P58.75, because the obligation or contract was to repair it. In addition, he is likewise liable under Art. 1170 of the Code, for the cost of the missing parts, in the amount of P31.10, for in his obligation to repair the typewriter he was bound, but failed or neglected, to return it in the same condition it was when he received it. 4.ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY'S FEES NOT RECOVERABLE; NOT ALLEGED OR PROVED IN INSTANT CASE. Claims for damages and attorney's fees must be pleaded, and the existence of the actual basis thereof must be proved. As no findings of fact were made on the claims for damages and attorney's fees, there is no factual basis upon which to make an award therefor. 5.REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME COURT; ONLY QUESTIONS OF LAW REVIEWABLE. Where the appellant directly appeals from the decision of the trial court to the Supreme Court on questions of law, he is bound by the judgment of the court a quo on its findings of fact.

Chaves, Elio, Chaves & Associates for plaintiff-appellant. Sulpicio E. Platon for defendant-appellee. REYES, J.B.L., J p: SYLLABUS 1.CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF PERIOD BEFORE FILING OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC. Where the time for compliance had expired and there was breach of contract by non-performance, it was academic for the plaintiff to have first petitioned the court to fix a period for the performance of the contract before filing his complaint. 2.ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF THE PHILIPPINES. Where the defendant virtually admitted non-performance of the contract by returning the typewriter that he was obliged to repair in a nonworking condition, with essential parts missing, Article 1197 of the Civil Code of the Philippines cannot be invoked. The fixing of a period would thus be a mere formality and would serve no purpose than to delay.

DECISION

This is a direct appeal by the party who prevailed in a suit for breach of oral contract and recovery of damages but was unsatisfied with the decision rendered by the Court of First Instance of Manila, in its Civil Case No. 65138, because it awarded him only P31.10 out of his total claim of P690 00 for actual, temperate and moral damages and attorney's fees. The appealed judgment, which is brief, is hereunder quoted in full: "In the early part of July, 1963, the plaintiff delivered to the defendant, who is a typewriter repairer, a portable typewriter for routine cleaning and servicing. The defendant was not able to finish the job after some time despite repeated reminders made by the plaintiff. The defendant merely gave assurances, but failed to comply with the same. In October, 1963, the defendant asked from the plaintiff the sum of P6.00 for the

purchase of spare parts, which amount the plaintiff gave to the defendant. On October 26, 1963, after getting exasperated with the delay of the repair of the typewriter, the plaintiff went to the house of the defendant and asked for the return of the typewriter. The defendant delivered the typewriter in a wrapped package. On reaching home, the plaintiff examined the typewriter returned to him by the defendant and found out that the same was in shambles, with the interior cover and some parts and screws missing. On October 29, 1963. the plaintiff sent a letter to the defendant formally demanding the return of the missing parts, the interior cover and the sum of P6.00 (Exhibit D). The following day, the defendant returned to the plaintiff some of the missing parts, the interior cover and the P6.00. "On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, and the repair job cost him a total of P89.85, including labor and materials (Exhibit C). "On August 23, 1965, the plaintiff commenced this action before the City Court of Manila, demanding from the defendant the payment of P90.00 as actual and compensatory damages, P100.00 for temperate damages, P500.00 for moral damages, and P500.00 as attorney's fees. "In his answer as well as in his testimony given before this court, the defendant made no denials of the facts narrated above, except the claim of the plaintiff that the typewriter was delivered to the defendant through a certain Julio Bocalin, which the defendant denied allegedly because the typewriter was delivered to him personally by the plaintiff. "The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85 should not, however, be fully chargeable against the defendant. The repair invoice, Exhibit C, shows that the missing parts had a total value of only P31.10. "WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P31.10, and the costs of suit. "SO ORDERED."

The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it awarded only the value of the missing parts of the typewriter, instead of the whole cost of labor and materials that went into the repair of the machine, as provided for in Article 1167 of the Civil Code, reading as follows: "ART. 1167.If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore it may be decreed that what has been poorly done he undone." On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not liable at all, not even for the sum of P31.10, because his contract with plaintiff-appellant did not contain a period, so that plaintiff-appellant should have first filed a petition for the court to fix the period, under Article 1197 of the Civil Code, within which the defendant appellee was to comply with the contract before said defendant-appellee could be held liable for breach of contract. Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose any appeal, the facts, as found by the trial court, are now conclusive and non-reviewable. 1 The appealed judgment states that the "plaintiff delivered to the defendant . . . a portable typewriter for routine cleaning and servicing"; that the defendant was not able to finish the job after some time despite repeated reminders made by the plaintiff"; that the "defendant merely gave assurances, but failed to comply with the same"; and that "after getting exasperated with the delay of the repair of the typewriter", the plaintiff went to the house of the defendant and asked for its return, which was done. The inferences derivable from these findings of fact are that the appellant and the appellee had a perfected contract for cleaning and servicing a typewriter; that they intended that the defendant was to finish it at some future time although such time was not specified; and that such time had passed without the work having been accomplished, far the defendant returned the typewriter cannibalized and unrepaired, which in itself is a breach of his obligation, without demanding that he should be given more time to finish the job, or compensation for the work he had already done. The time for compliance having evidently expired, and there being a breach of contract by nonperformance, it was academic for the plaintiff to have first petitioned the court to fix a period for the performance of the contract before filing his complaint in this case. Defendant cannot invoke Article 1197 of the Civil Code for he virtually admitted non-performance by returning the typewriter that he was obliged to repair in a non-working condition, with essential parts missing. The fixing of a

period would thus be a mere formality and would serve no purpose than to delay (cf. Tiglao. et al. V. Manila Railroad Co. 98 Phil. 181). It is clear that the defendant-appellee contravened the tenor of his obligation because he not only did not repair the typewriter but returned it "in shambles", according to the appealed decision. For such contravention, as appellant contends, he is liable under Article 1167 of the Civil Code. jam quot,for the cost of executing the obligation in a proper manner. The cost of the execution of the obligation in this case should be the cost of the labor or service expended in the repair of the typewriter, which is in the amount of P58.75. because the obligation or contract was to repair it. In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of the missing parts, in the amount of P31.10, for in his obligation to repair the typewriter he was bound, but failed or neglected, to return it in the same condition it was when he received it. Appellant's claims for moral and temperate damages and attorney's fees were, however, correctly rejected by the trial court, for these were not alleged in his complaint (Record on Appeal, pages 1-5). Claims for damages and attorney's fees must be pleaded, and the existence of the actual basis thereof must be proved. 2 The appealed judgment thus made no findings on these claims, nor on the fraud or malice charged to the appellee. As no findings of fact were made on the claims for damages and attorney's fees, there is no factual basis upon which to make an award therefor. Appellant is bound by such judgment of the court, a quo, by reason of his having resorted directly to the Supreme Court on questions of law. IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering the defendant-appellee to pay, as he is hereby ordered to pay, the plaintiff-appellant the sum of P89.85, with interest at the legal rate from the filing of the complaint. Costs in all instances against appellee Fructuoso Gonzales. [G.R. No. 73867. February 29, 1988.] TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC., petitioner, vs. IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO CASTRO JR., AURORA CASTRO, SALVADOR CASTRO, MARIO CASTRO, CONRADO CASTRO, ESMERALDA C. FLORO, AGERICO CASTRO, ROLANDO CASTRO, VIRGILIO CASTRO AND GLORIA CASTRO, and HONORABLE INTERMEDIATE APPELLATE COURT, respondents.

SYLLABUS 1.CIVIL LAW; DAMAGES; PARTY WHO FAILED TO TRANSMIT TELEGRAM LIABLE THEREON. In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a contract whereby, for a fee, petitioner undertook to send said private respondent's message overseas by telegram. This, petitioner did not do, despite performance by said private respondent of her obligation by paying the required charges. Petitioner was therefore guilty of contravening its obligation to said private respondent and is thus liable for damages under Articles 1170 and 2196 of the Civil Code. 2.ID.; MORAL DAMAGES; PARTY WHO SUFFERED EMOTIONAL SUFFERING ENTITLED THERETO. We find Art. 2217 of the Civil Code applicable to the case at bar. It states: "Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate results of the defendant's wrongful act or omission." Here, petitioner's act or omission, which amounted to gross negligence, was precisely the cause of the suffering private respondents had to undergo. 3.ID.; COMPENSATORY DAMAGES; AWARDED TO A PARTY WHO INCURRED TRAVEL EXPENSES TO TESTIFY IN A COURT CASE. We also sustain the trial court's award of P16,000.00 as compensatory damages to Sofia C. Crouch representing the expenses she incurred when she came to the Philippines from the United States to testify before the trial court. Had petitioner not been remiss in performing its obligation, there would have been no need for this suit or for Mrs. Crouch's testimony. 4.ID.; EXEMPLARY DAMAGES; AWARDED TO A PARTY AS A WARNING TO ALL TELEGRAM COMPANIES. The award of exemplary damages by the trial court is likewise justified and, therefore, sustained in the amount of P1,000.00 for each of the private respondents, as a warning to all telegram companies to observe due diligence in transmitting the messages of their customers.

DECISION

PADILLA, J p:

Petition for review on certiorari of the decision * of the Intermediate Appellate Court, dated 11 February 1986, in AC-G.R. No. CV-70245, entitled "Ignacio Castro, Sr., et. al., Plaintiffs-Appellees, versus Telefast Communications/Philippine Wireless, Inc., Defendant-Appellant." The facts of the case are as follows: On 2 November 1956, Consolacion Bravo-Castro, wife of plaintiff Ignacio Castro, Sr. and mother of the other plaintiffs, passed away in Lingayen, Pangasinan. On the same day, her daughter Sofia C. Crouch, who was then vacationing in the Philippines, addressed a telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A., 47170 announcing Consolacion's death. The telegram was accepted by the defendant in its Dagupan office, for transmission, after payment of the required fees or charges. The telegram never reached its addressee. Consolacion was interred with only her daughter Sofia in attendance. Neither the husband nor any of the other children of the deceased, then all residing in the United States, returned for the burial. When Sofia returned to the United States, she discovered that the wire she had caused the defendant to send, had not been received. She and the other plaintiffs thereupon brought action for damages arising from defendant's breach of contract. The case was filed in the Court of First Instance of Pangasinan and docketed therein as Civil Case No. 15356. The only defense of the defendant was that it was unable to transmit the telegram because of "technical and atmospheric factors beyond its control." 1 No evidence appears on record that defendant ever made any attempt to advise the plaintiff Sofia C. Crouch as to why it could not transmit the telegram. The Court of First Instance of Pangasinan, after trial, ordered the defendant (now petitioner) to pay the plaintiffs (now private respondents) damages, as follows, with interest at 6% per annum: "1.Sofia C. Crouch, P31.92 and P16,000.00 as compensatory damages and P20,000.00 as moral damages. 2.Ignacio Castro Sr., P20,000.00 as moral damages. 3.Ignacio Castro Jr., P20,000.00 as moral damages. 4.Aurora Castro, P10,000.00 moral damages.

5.Salvador Castro, P10,000.00 moral damages. 6.Mario Castro, P10,000.00 moral damages. 7.Conrado Castro, P10,000 moral damages. 8.Esmeralda C. Floro, P20,000.00 moral damages. 9.Agerico Castro, P10,000.00 moral damages. 10.Rolando Castro, P10,000.00 moral damages. 11.Virgilio Castro, P10,000.00 moral damages. 12.Gloria Castro, P10,000.00 moral damages. Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary damages in the amount of P1,000.00 to each of the plaintiffs and costs." 2 On appeal by petitioner, the Intermediate Appellate Court affirmed the trial court's decision but eliminated the award of P16,000.00 as compensatory damages to Sofia C. Crouch and the award of P1,000.00 to each of the private respondents as exemplary damages. The award of P20,000.00 as moral damages to each of Sofia C. Crouch, Ignacio Castro, Jr. and Esmeralda C. Floro was also reduced to P10,000.00 for each. 3 Petitioner appeals from the judgment of the appellate court, contending that the award of moral damages should be eliminated as defendant's negligent act was not motivated by "fraud, malice or recklessness." In other words, under petitioner's theory, it can only be held liable for P31.92, the fee or charges paid by Sofia C. Crouch for the telegram that was never sent to the addressee thereof. Petitioner's contention is without merit. Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages." Art. 2176 also provides that "whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done."

In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a contract whereby, for a fee, petitioner undertook to send said private respondent's message overseas by telegram. This, petitioner did not do, despite performance by said private respondent of her obligation by paying the required charges. Petitioner was therefore guilty of contravening its obligation to said private respondent and is thus liable for damages. This liability is not limited to actual or quantified damages. To sustain petitioner's contrary position in this regard would result in an inequitous situation where petitioner will only be held liable for the actual cost of a telegram fixed thirty (30) years ago. We find Art. 2217 of the Civil Code applicable to the case at bar. It states: "Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate results of the defendant's wrongful act or omission." (Emphasis supplied). Here, petitioner's act or omission, which amounted to gross negligence, was precisely the cause of the suffering private respondents had to undergo. As the appellate court properly observed: "[Who] can seriously dispute the shock, the mental anguish and the sorrow that the overseas children must have suffered upon learning of the death of their mother after she had already been interred, without being given the opportunity to even make a choice on whether they wanted to pay her their last respects? There is no doubt that these emotional sufferings were proximately caused by appellant's omission and substantive law provides for the justification for the award of moral damages." 4 We also sustain the trial court's award of P16,000.00 as compensatory damages to Sofia C. Crouch representing the expenses she incurred when she came to the Philippines from the United States to testify before the trial court. Had petitioner not been remiss in performing its obligation, there would have been no need for this suit or for Mrs. Crouch's testimony. The award of exemplary damages by the trial court is likewise justified and, therefore, sustained in the amount of P1,000.00 for each of the private

respondents, as a warning to all telegram companies to observe due diligence in transmitting the messages of their customers. WHEREFORE, the petition is DENIED. The decision appealed from is modified so that petitioner is held liable to private respondents in the following amounts: (1)P10,000.00 as moral damages, to each of private respondents; (2)P1,000.00 as exemplary damages, to each of private respondents; (3)P16,000.00 as compensatory damages, to private respondent Sofia C. Crouch; (4)P5,000.00 as attorney's fees; and (5)Costs of suit. SO ORDERED. [G.R. No. L-15645. January 31, 1964.] PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffsappellees, vs. NATIONAL RICE AND CORN CORPORATION, defendant-appellant, MANILA UNDERWRITERS INSURANCE CO., INC., defendant-appellee.

Teehankee & Carreon for plaintiffs-appellees. The Government Corporate Counsel for defendant-appellant. Isidro A. Vera for defendant-appellee. SYLLABUS 1.OBLIGATIONS AND CONTRACTS; LIABILITY FOR NON-PERFORMANCE; FAILURE TO PUT UP LETTER OF CREDIT WITHIN AGREED PERIOD. One who assumes a contractual obligation and fails to perform the same on account of his inability to

meet certain bank requirements, which inability he knew and was aware of when he entered into the contract, should be held liable in damages for breach of contract. 2.OBLIGATIONS AND CONTRACTS; LIABILITY OF NON-PERFORMANCE. Under Article 1170 of the Civil Code, not only debtors guilty of fraud, negligence or default but also every debtor, in general, who fails in the performance of his obligations is bound to indemnify for the losses and damages caused thereby. 3.ID.; ID.; MEANING OF PHRASE "IN ANY MANNER CONTRAVENE THE TENOR" OF THE OBLIGATION IN ART. 1170, CIVIL CODE. The phrase "in any manner contravene the tenor" of the obligation in Art. 1170, Civil Code, includes any illicit task which impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance. 4.ID.; ID.; WAIVER OF BREACH OF CONTRACT NOT PRESUMED. Waivers are not presumed, but must be clearly and convincingly shown, either by express stipulation or acts admitting of no other reasonable explanation. 5.ID.; PAYMENT OF AWARD; PHILIPPINE CURRENCY. In view of Republic Act 529 which specifically requires the discharge of obligations only "in any coin or currency which at the time of payment is legal tender for public and private debt", the award of damages in U.S. dollars made by the lower court in the case at bar is modified by converting it into Philippine pesos at the rate of exchange prevailing at the time the obligation was incurred or when the contract in question was executed.

All references, therefore, to the NARIC in this decision must accordingly be adjusted and read as RCA pursuant to the aforementioned law. On May 19, 1952, plaintiff-appellee participated in the public bidding called by the NARIC for the supply of 20,000 metric tons of Burmese rice. As her bid of $203.00 per metric ton was the lowest, she was awarded the contract for the same. Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta and the appellant corporation entered into a Contract of Sale of Rice, under the terms of which the former obligated herself to deliver to the latter 20,000 metric tons of Burmese Rice at $203.00 per metric ton, CIF Manila. In turn, the defendant Corporation committed itself to pay for the imported rice "by means of an irrevocable, confirmed and assignable letter of credit in U.S. currency in favor of the plaintiffappellee and/or supplier in Burma, immediately." Despite the commitment to pay immediately "by means of an irrevocable, confirmed and assignable Letter of Credit," however, it was only on July 30, 1952, or a full month from the execution of the contract, that the defendant corporation, thru its general manager, took the first step to open a letter of credit by forwarding to the Philippine National Bank its Application for Commercial Letter of Credit. The application was accompanied by a transmittal letter, the relevant paragraphs of which read: "In view of the fact that we do not have sufficient deposit with your institution with which to cover the amount required to be deposited as a condition for the opening of letters of credit, we will appreciate it if this application could be considered a special case. "We understand that our supplier, Mrs. Paz P. Arrieta, has a deadline to meet which is August 4, 1952, and in order to comply therewith, it is imperative that the L/C be opened prior to that date. We would therefore request your full cooperation on this matter." On the same day, July 30, 1952, Mrs. Paz P. Arrieta, thru counsel, advised the appellant corporation of the extreme necessity for the immediate opening of the letter of credit since she had by then made a tender to her supplier in Rangoon, Burma "equivalent to 5% of the F.O.B. price of 20,000 tons at $180.70 and in compliance with the regulations in Rangoon this 5% will be confiscated if the required letter of credit is not received by them before August 4, 1952." On August 4, 1952, the Philippine National Bank informed the appellant corporation that its application, "for a letter of credit for $3,614,000.00 in favor of

DECISION

REGALA, J p: This is an appeal of the defendant-appellant NARIC from the decision of the trial court dated February 20, 1958, awarding to the plaintiffs-appellees the amount of $286,000.00 as damages for breach of contract and dismissing the counterclaim and third party complaint of the defendant-appellant NARIC. In accordance with Section 13 of Republic Act No. 3452, "the National Rice and Corn Administration (NARIC) is hereby abolished and all its assets, liabilities, functions, powers which are not inconsistent with the provisions of this Act, and all personnel are transferred" to the Rice and Corn Administration (RCA).

Thiri Setkya has been approved by the Board of Directors with the condition that 50% marginal cash deposit be paid and that drafts are to be paid upon presentment" (Exh. J-pl.; Exh. 10-def., p. 19, Folder of Exhibits) Furthermore, the Bank represented that it "will hold your application in abeyance pending compliance with the above stated requirement." As it turned out, however, the appellant corporation was not in any financial position to meet the condition. As a matter of fact, in a letter dated August 2, 1952, the NARIC bluntly confessed to the appellee its dilemma: "In this connection, please be advised that our application for the opening of the letter of credit has been presented to the bank since July 30th but the latter requires that we first deposit 50% of the value of the letter amounting to approximately $3,614,000.00 which we are not in a position to meet." (Emphasis supplied. Exh. 9Def.; Exh. 1-Pl., p. 18, Folder of Exhibits) Consequently, the credit instrument applied for was opened only on September 8, 1952 "in favor of Thiri Setkya, Rangoon, Burma, and/or assignee for $3,614,000.00," (which is more than two months from the execution of the contract) the party named by the appellee as beneficiary of the letter of credit. As a result of the delay, the allocation of appellee's supplier in Rangoon was cancelled and the 5% deposit, amounting to 524,000 kyats or approximately P200,000.00 was forfeited. In this connection, it must be made of record that although the Burmese authorities had set August 4, 1952 as the deadline for the remittance of the required letter of credit, the cancellation of the allocation and the confiscation of the 5% deposit were not effected until August 20, 1952, or, a full half month after the expiration of the deadline. And yet, even with that 15-day grace, appellant corporation was unable to make good its commitment to open the disputed letter of credit. The appellee endeavored, but failed, to restore the cancelled Burmese rice allocation. When the futility of reinstating the same became apparent, she offered to substitute Thailand rice instead to the defendant NARIC, communicating at the same time that the offer was "a solution which should be beneficial to the NARIC and to us at the same time." (Exh. Y-Pl.; Exh. 25Def., p. 38, Folder of Exhibits) This offer for substitution, however, was rejected by the appellant in a resolution dated November 15, 1952. On the foregoing, the appellee sent a letter to the appellant, demanding compensation for the damages caused her in the sum of $286,000.00, U.S. currency, representing unrealized profit. The demand having been rejected, she instituted this case now on appeal.

At the instance of the NARIC, a counterclaim was filed and the Manila Underwriters Insurance Company was brought to the suit as a third party defendant to hold it liable on the performance bond it executed in favor of the plaintiff-appellees. We find for the appellee. It is clear upon the records that the sole and principal reason for the cancellation of the allocation contracted by the appellee herein in Rangoon, Burma was the failure of the letter of credit to be opened within the contemplated period. This failure must, therefore, be taken as the immediate cause for the consequent damage which resulted. As it is then, the disposition of this case depends on a determination of who was responsible for such failure. Stated differently, the issue is whether appellant's failure to open immediately the letter of credit in dispute amounted to a breach of the contract of July 1, 1952 for which it may be held liable in damages. Appellant corporation disclaims responsibility for the delay in the opening of the letter of credit. On the contrary, it insists that the fault lies with the appellee. Appellant contends that the disputed negotiable instrument was not promptly secured because the appellee failed to seasonably furnish data necessary and required for opening the same, namely, "(1) the amount of the letter of credit, (2) the person, company or corporation in whose favor it is to be opened, and (3) the place and bank where it may be negotiated." Appellant would have this Court believe, therefore, that had these information been forthwith furnished it, there would have been no delay in securing the instrument. Appellant's explanation has neither force nor merit. In the first place, the explanation reaches into an area of the proceedings into which We are not at liberty to encroach. The explanation refers to a question of fact. Nothing in the record suggests any arbitrary or abusive conduct on the part of the trial judge in the formulation of the ruling. His conclusion on the matter is sufficiently borne out by the evidence presented. We are denied, therefore, the prerogative to disturb that finding, consonant to the time honored tradition of this Tribunal to hold trial judges better situated to make conclusions on questions of fact. For the record, We quote hereunder the lower court's ruling on the point:

"The defense that the delay, if any in opening the letter of credit was due to the failure of plaintiff to name the supplier, the amount and the bank is not tenable. Plaintiff stated in Court that these facts were known to defendant even before the contract was executed because these facts were

necessarily revealed to the defendant before she could qualify as a bidder. She stated too that she had given the necessary data immediately after the execution of Exh. "A" (the contract of July 1, 1952) to Mr. GABRIEL BELMONTE, General Manager of the NARIC, both orally and in writing and that she also pressed for the opening of the letter of credit on these occasions. These statements have not been controverted and defendant NARIC, notwithstanding its previous intention to do so, failed to present Mr. Belmonte to testify or refute this. . . ." Secondly, from the correspondence and communications which form part of the record of this case, it is clear that what singularly delayed the opening of the stipulated letter of credit and which, in turn, caused the cancellation of the allocation in Burma, was the inability of the appellant corporation to meet the condition imposed by the Bank for granting the same. We do not think the appellant corporation can refute the fact that had it been able to put up the 50% marginal cash deposit demanded by the bank, then the letter of credit would have been approved, opened and released as early as August 4, 1952. The letter of the Philippine National Bank to the NARIC was plain and explicit that as of the said date, appellant's "application for a letter of credit . . . has been approved by the Board of Directors with the condition that 50% marginal cash deposit be paid and that drafts are to be paid upon presentment." (Emphasis supplied) The liability of the appellant, however, stems not alone from this failure or inability to satisfy the requirements of the bank. Its culpability arises from its willful and deliberate assumption of contractual obligations even as it was well aware of its financial incapacity to undertake the presentation. We base this judgment upon the letter which accompanied the application filed by the appellant with the bank, a part of which letter was quoted earlier in this decision. In the said accompanying correspondence, appellant admitted and owned that it did "not have sufficient deposit with your institution (the PNB) with which to cover the amount required to be deposited as a condition for the opening of letters of credit. . . ." A number of logical inferences may be drawn from the aforementioned admission. First, that the appellant knew the bank requirements for opening letters of credit; second, that appellant also knew it could not meet those requirements. When, therefore, despite this awareness that it was financially incompetent to open a letter of credit immediately, appellant agreed in paragraph 8 of the contract to pay immediately "by means of an irrevocable, confirmed and assignable letter of credit," it must be similarly be held to have bound itself too answer far all and

every consequences that would result from the representation. As aptly observed by the trial court: ". . . Having called for bids for the importation of rice involving millions, $4,260,000.00 to be exact, it should have ascertained its ability and capacity to comply with the inevitable requirements in cash to pay for such importation. Having announced the bid, it must be deemed to have impliedly assured suppliers of its capacity and facility to finance the importation within the required period, especially since it had imposed on the supplier the 90-day period within which the shipment of the rice must be brought into the Philippines. Having entered into the contract, it should have taken steps immediately to arrange for the letter of credit for the large amount involved and inquired into the possibility of its issuance." In relation to the aforequoted observation of the trial court, We would like to make reference also to Article 1170 of the Civil Code which provides: "Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable in damages." Under this provision, not only debtors guilty of fraud, negligence or default in the performance of obligations are decreed liable: in general, every debtor who fails in the performance of his obligations is bound to indemnify for the losses and damages caused thereby (De la Cruz v. Seminary of Manila, 18 Phil. 330; Municipality of Moncada v. Cajuigan, 21 Phil. 184; De la Cavada v. Diaz, 37 Phil. 982; Maluenda & Co. v. Enriquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil. 1003; Pando v. Gimenez, 54 Phil. 459; Acme Films v. Theaters Supply, 63 Phil. 657.) The phrase "in any manner contravene the tenor" of the obligation includes any illicit act which impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance. (IV Tolentino, Civil Code of the Philippines, citing authorities, p. 103) The NARIC would also have this Court hold that the subsequent offer to substitute Thailand rice for the originally contracted Burmese rice amounted to a waiver by the appellee of whatever rights she might have derived from the breach of the contract. We disagree. Waivers are not presumed, but must be clearly and convincingly shown, either by express stipulation or acts admitting no other reasonable explanation. (Ramirez v. Court of Appeals, 98 Phil., 225; 52 O. G. 779). In the case at bar, no such intent to waive has been established.

We have carefully examined and studied the oral and documentary evidence presented in this case and upon which the lower court based its award. Under the contract, the NARIC bound itself to buy 20,000 metric tons of Burmese rice at "$203.00 U. S. Dollars per metric ton, all net shipped weight, and all in U. S. currency, C.I.F. Manila. . . ." On the other hand, documentary and other evidence establish with equal certainty that the plaintiff-appellee was able to secure the contracted commodity at the cost price of $180.70 per metric ton from her supplier in Burma. Considering freights, insurance and charges incident to its shipment here and the forfeiture of the 5% deposit, the award granted by the lower court is fair and equitable. For a clearer view of the equity of the damages awarded, We reproduce below the testimony of the appellee, adequately supported by the evidence and record: "Q.Will you please tell the court, how much is the damage you suffered? "ABecause the selling price of my rice is $203.00 per metric ton, and the cost price of my rice is $180.00. We had to pay also $6.25 for shipping and about $164 for insurance. So adding the cost of the rice, the freight, the insurance, the total would be about $187.99 that would be $15.01 gross profit per metric ton, multiply by 20,000 equals $300,200, that is my supposed profit if I went through with the contract." The above testimony of the plaintiff was a general approximation of the actual figures involved in the transaction. A precise and more exact demonstration of the equity of the award herein is provided by Exhibit HH of the plaintiff and Exhibit 34 of the defendant, hereunder quoted so far as germane: "It is equally of record of now that as shown in her request, dated July 29, 1959, and other communications subsequent thereto for the opening by your corporation of the required letter of credit, Mrs. Arrieta was supposed to pay her supplier in Burma at the rate of One Hundred Eighty Dollars and Seventy Cents ($180.70) in U.S. Currency, per ton plus Eight Dollars ($8.00) in the same currency per ton for shipping and other handling expenses, so that she is already assured of a net profit of Fourteen Dollars and Thirty Cents ($14.30), U.S. Currency, per ton or a total of Two Hundred and Eighty Six Thousand Dollars ($286,000.00), U.S. Currency, in the aforesaid transaction. . . ."

Lastly, herein appellant filed a counterclaim asserting that it has suffered, likewise by way of unrealized profit, damages in the total sum of $406,000 from the failure of the projected contract to materialize. This counterclaim was supported by a cost study made and submitted by the appellant itself and wherein it was illustrated how indeed, had the importation pushed thru, NARIC would have realized in profit the amount asserted in the counterclaim. And yet, the said amount of P406,000.00 was realizable by the appellant despite a number of expenses which the appellee, under the contract, did not have to incur. Thus, under the cost study submitted by the appellant, banking and unloading charges were to be shouldered by it, including an Import License Fee of 2% and superintendence fee of $0.25 per metric ton. If the NARIC stood to profit over P400,000.00 from the disputed transaction in spite of the above extra expenditures from which the herein appellee was exempt, We are convinced of the fairness of the judgment presently under appeal. In the premises, however, a minor modification must be effected in the dispositive portion of the decision appealed from insofar as it expresses the amount of damages in U.S. currency and not in Philippine Peso. Republic Act 529 specifically requires the discharge of obligations only "in any coin or currency which at the time of payment is legal tender for public and private debts." In view of that law, therefore, the award should be converted into and expressed in Philippine Peso. This brings us to a consideration of what rate of exchange should apply in the conversion here decreed. Should it be at the time of the breach, at the time the obligation was incurred or at the rate of exchange prevailing on the promulgation of this decision. In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in an action for recovery of damages for breach of contract, even if the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in American currency, the indemnity to be allowed should be expressed in Philippine currency at the rate of exchange at the time of the judgment rather than at the rate of exchange prevailing on the date of defendant's breach. This ruling, however, can either be applied nor extended to the case at bar for the same was laid down when there was no law against stipulating foreign currencies in Philippine contracts. But now we have Republic Act No. 529 which expressly declares such stipulations as contrary to public policy, void and of no effect. And, as We already pronounced in the case of Eastboard Navigation, Ltd., v. Juan Ysmael & Co., Inc., G.R. No. L-9090, September 10, 1957, if there is any agreement to pay an obligation in the currency other than Philippine legal tender, the same is null and void as contrary to public policy (Republic Act 529), and the most that could be demanded is to pay said obligation in Philippine currency "to be measured in the prevailing rate of exchange at the time the obligation was incurred (Sec. 1, Idem.)"

UPON ALL THE FOREGOING, the decision appealed from is hereby affirmed, with the sole modification that the award should be converted into the Philippine peso at the rate of exchange prevailing at the time the obligation was incurred or on July 1, 1952 when the contract was executed. The appellee insurance company, in the light of this judgment, is relieved of any liability under this suit. No pronouncement as to costs. [G.R. No. 117190. January 2, 1997.] JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING AND GENERAL MERCHANDISING,petitioner, vs. COURT OF APPEALS and VICENTE HERCE JR., respondents.

3.ID.; ID.; ID.; APPLICATION OF ART. 1167 OF THE CIVIL CODE; WHEN A PERSON OBLIGED TO DO SOMETHING FAILS TO DO IT, THE SAME SHALL BE EXECUTED AT HIS COST. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. (Art. 1169, last par., New Civil Code) When the windmill failed to function properly it became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost. llcd

DECISION

Ricardo C. Valmonte for petitioner. Restituto M. Mendoza for private respondent. SYLLABUS 1.CIVIL LAW; CONTRACT; INTERPRETATION; INTENTION OF THE PARTIES SHALL BE ACCORDED PRIMORDIAL CONSIDERATION. It is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration and, in case of doubt, their contemporaneous and subsequent acts shall be principally considered. prLL 2.OBLIGATION; NATURE AND EFFECTS; EXEMPTION FROM LIABILITY BY REASON OF FORTUITOUS EVENTS; REQUISITES. This Court has consistently held that in order for a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or destruction of the object of the contract. In Nakpil vs. Court of Appeals, Nos. L-47851 and L- 47896, 3 October 1986, 144 SCRA 596, four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any participation in or aggravation of the injury to the creditor.

BELLOSILLO, J p: This case involves the proper interpretation of the contract entered into between the parties. Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and style J.M.T. Engineering and General Merchandising proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After some negotiations they agreed on the construction of the windmill for a consideration of P60,000.00 with a one-year guaranty from the date of completion and acceptance by respondent Herce Jr. of the project. Pursuant to the agreement respondent paid petitioner a down payment of P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00. On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. In his Answer before the trial court respondent denied the claim saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit their place. 1

Petitioner denied that the construction of a deep well was included in the agreement to build the windmill system, for the contract price of P60,000.00 was solely for the windmill assembly and its installation, exclusive of other incidental materials needed for the project. He also disowned any obligation to repair or reconstruct the system and insisted that he delivered it in good and working condition to respondent who accepted the same without protest. Besides, its collapse was attributable to a typhoon, a force majeure, which relieved him of any liability. In finding for plaintiff, the trial court held that the construction of the deep well was not part of the windmill project as evidenced clearly by the letter proposals submitted by petitioner to respondent. 2 It noted that "[i]f the intention of the parties is to include the construction of the deep well in the project, the same should be stated in the proposals. In the absence of such an agreement, it could be safely concluded that the construction of the deep well is not a part of the project undertaken by the plaintiff." 3 With respect to the repair of the windmill, the trial court found that "there is no clear and convincing proof that the windmill system fell down due to the defect of the construction. " 4 The Court of Appeals reversed the trial court. It ruled that the construction of the deep well was included in the agreement of the parties because the term "deep well" was mentioned in both proposals. It also gave credence to the testimony of respondent's witness Guillermo Pili, the proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told him that the cost of constructing the deep well would be deducted from the contract price of P60,000.00. Upon these premises the appellate court concluded that respondent's payment of P15,000.00 to SPGMI should be applied to his remaining balance with petitioner thus effectively extinguishing his contractual obligation. However, it rejected petitioner's claim of force majeure and ordered the latter to reconstruct the windmill in accordance with the stipulated one-year guaranty. His motion for reconsideration having been denied by the Court of Appeals, petitioner now seeks relief from this Court. He raises two issues: firstly, whether the agreement to construct the windmill system included the installation of a deep well and, secondly, whether petitioner is under obligation to reconstruct the windmill after it collapsed. We reverse the appellate court on the first issue but sustain it on the second. The preponderance of evidence supports the finding of the trial court that the installation of a deep well was not included in the proposals of petitioner to construct a windmill system for respondent. There were in fact two (2) proposals: one dated 19 May 1987 which pegged the contract price at P87,000.00 (Exh. "1").

This was rejected by respondent. The other was submitted three days later, i.e., on 22 May 1987 which contained more specifications but proposed a lower contract price of P60,000.00 (Exh. "A"). The latter proposal was accepted by respondent and the construction immediately followed. The pertinent portions of the first letterproposal (Exh. "1") are reproduced hereunder In connection with your Windmill System and Installation, we would like to quote to you as follows: One (1) Set Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in diameter, with 20 pieces blade, Tower 40 feet high, including mechanism which is not advisable to operate during extra-intensity wind. Excluding cylinder pump. UNIT CONTRACT PRICE P87,000.00 The second letter-proposal (Exh. "A") provides as follows: In connection with your Windmill system, Supply of Labor Materials and Installation, operated water pump, we would like to quote to you as follows One (1) set Windmill assembly for 2 inches or 3 inches deepwell pump, 6 Stroke, 14 feet diameter, 1-lot blade materials, 40 feet Tower complete with standard appurtenances up to Cylinder pump, shafting U.S. adjustable International Metal. One (1) lot Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee coupling. One (1) lot Float valve. One (1) lot Concreting materials foundation. F. O. B. Laguna Contract Price P60,000.00 Notably, nowhere in either proposal is the installation of a deep well mentioned, even remotely. Neither is there an itemization or description of the materials to be

used in constructing the deep well. There is absolutely no mention in the two (2) documents that a deep well pump is a component of the proposed windmill system. The contract prices fixed in both proposals cover only the features specifically described therein and no other. While the words " deep well" and "deep well pump" are mentioned in both, these do not indicate that a deep well is part of the windmill system. They merely describe the type of deep well pump for which the proposed windmill would be suitable. As correctly pointed out by petitioner, the words "deep well" preceded by the prepositions "for" and "suitable for" were meant only to convey the idea that the proposed windmill would be appropriate for a deep well pump with a diameter of 2 to 3 inches. For if the real intent of petitioner was to include a deep well in the agreement to construct a windmill, he would have used instead the conjunctions "and" or "with." Since the terms of the instruments are clear and leave no doubt as to their meaning they should not be disturbed. aisadc Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration 5 and, in case of doubt, their contemporaneous and subsequent acts shall be principally considered. 6 An examination of such contemporaneous and subsequent acts of respondent as well as the attendant circumstances does not persuade us to uphold him. Respondent insists that petitioner verbally agreed that the contract price of P60,000.00 covered the installation of a deep well pump. He contends that since petitioner did not have the capacity to install the pump the latter agreed to have a third party do the work the cost of which was to be deducted from the contract price. To prove his point, he presented Guillermo Pili of SPGMI who declared that petitioner Tanguilig approached him with a letter from respondent Herce Jr. asking him to build a deep well pump as "part of the price/contract which Engineer (Herce) had with Mr. Tanguilig." 7

We find it also unusual that Pili would readily consent to build a deep well the payment for which would come supposedly from the windmill contract price on the mere representation of petitioner, whom he had never met before, without a written commitment at least from the former. For if indeed the deep well were part of the windmill project, the contract for its installation would have been strictly a matter between petitioner and Pili himself with the former assuming the obligation to pay the price. That it was respondent Herce Jr. himself who paid for the deep well by handing over to Pili the amount of P15,000.00 clearly indicates that the contract for the deep well was not part of the windmill project but a separate agreement between respondent and Pili. Besides, if the price of P60,000.00 included the deep well, the obligation of respondent was to pay the entire amount to petitioner without prejudice to any action that Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when asked why he tendered payment directly to Pili and not to petitioner, respondent explained, rather lamely, that he did it "because he has (sic) the money, so (he) just paid the money in his possession. 8 Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While the law is clear that "payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it, " 9 it does not appear from the record that Pili and/or SPGMI was so authorized. Respondent cannot claim the benefit of the law "concerning payments made by a third person." 10 The Civil Code provisions do not apply in the instant case because no creditor-debtor relationship between petitioner and Guillermo Pili and/or SPGMI has been established regarding the construction of the deep well. Specifically, witness Pili did not testify that he entered into a contract with petitioner for the construction of respondent's deep well. If SPGMI was really commissioned by petitioner to construct the deep well, an agreement particularly to this effect should have been entered into. The contemporaneous and subsequent acts of the parties concerned effectively belie respondent's assertions. These circumstances only show that the construction of the well by SPGMI was for the sole account of respondent and that petitioner merely supervised the installation of the well because the windmill was to be connected to it. There is no legal nor factual basis by which this Court can impose upon petitioner an obligation he did not expressly assume nor ratify. The second issue is not a novel one. In a long line of cases 11 this Court has consistently held that in order for a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or destruction of the object of the

We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr. wrote him a letter is unsubstantiated. The alleged letter was never presented in court by private respondent for reasons known only to him. But granting that this written communication existed, it could not have simply contained a request for Pili to install a deep well; it would have also mentioned the party who would pay for the undertaking. It strains credulity that respondent would keep silent on this matter and leave it all to petitioner Tanguilig to verbally convey to Pili that the deep well was part of the windmill construction and that its payment would come from the contract price of P60,000.00.

contract. In Nakpil vs. Court of Appeals, 12 four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any participation in or aggravation of the injury to the creditor. Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. Interestingly, the evidence does not disclose that there was actually a typhoon on the day the windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong wind in this case cannot be fortuitous unforeseeable nor unavoidable. On the contrary, a strong wind should be present in places where windmills are constructed, otherwise the windmills will not turn. The appellate court correctly observed that "given the newly-constructed windmill system, the same would not have collapsed had there been no inherent defect in it which could only be attributable to the appellee." 13 It emphasized that respondent had in his favor the presumption that "things have happened according to the ordinary course of nature and the ordinary habits of life." 14 This presumption has not been rebutted by petitioner. Finally, petitioner's argument that private respondent was already in default in the payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. 15 When the windmill failed to function properly it became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest at the legal rate from the date of the filing of the complaint. In return, petitioner is ordered to "reconstruct subject defective windmill system, in accordance with the one-year guaranty" 16 and to complete the same within three (3) months from the finality of this decision. SO ORDERED. [G.R. No. 144169. March 28, 2001.]

KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN KHE, petitioners, vs. COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and PHILAM INSURANCE CO., INC., respondents.

DECISION

KAPUNAN, J p: Before the Court is a Petition for Review on Certiorari under Rule 45, seeking to set aside the decision of the Court of Appeals dated April 10, 2000 and its resolution dated July 11, 2000 denying the motion for reconsideration of the aforesaid decision. The original complaint that is the subject matter of this case is an accion pauliana an action filed by Philam Insurance Company, Inc. (respondent Philam) to rescind or annul the donations made by petitioner Khe Hong Cheng allegedly in fraud of creditors. The main issue for resolution is whether or not the action to rescind the donations has already prescribed. While the first paragraph of Article 1389 of the Civil Code states: "The action to claim rescission must be commenced within four years . . ." the question is, from which point or event does this prescriptive period commence to run? EScIAa The facts are as follows: Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines. It appears that on or about October 4, 1985, the Philippine Agricultural Trading Corporation shipped on board the vessel M/V PRINCE ERIC, owned by petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate, Masbate, for delivery to Dipolog City, Zamboanga del Norte. The said shipment of copra was covered by a marine insurance policy issued by American Home Insurance Company (respondent Philam's assured). M/V PRINCE ERIC, however, sank somewhere between Negros Island and Northeastern Mindanao, resulting in the total loss of the shipment. Because of the loss, the insurer, American Home, paid the amount of P354,000.00 (the value of the copra) to the consignee. Having been subrogated into the rights of the consignee, American Home instituted Civil Case No. 13357 in the Regional Trial Court (RTC) of Makati, Branch 147 to recover the money paid to the consignee, based on breach of contract of carriage. While the case was still pending, or on December 20, 1989, petitioner Khe Hong Cheng executed deeds of donations of parcels of land in favor of his children, herein co-petitioners Sandra Joy and Ray Steven. The parcel of land with an area of

1,000 square meters covered by Transfer Certificate of Title (TCT) No. T-3816 was donated to Ray Steven. Petitioner Khe Hong Cheng likewise donated in favor of Sandra Joy two (2) parcels of land located in Butuan City, covered by TCT No. RT12838. On the basis of said deeds, TCT No. T-3816 was cancelled and in lieu thereof, TCT No. T-5072 was issued in favor of Ray Steven and TCT No. RT-12838 was cancelled and in lieu thereof, TCT No. RT-21054 was issued in the name of Sandra Joy. The trial court rendered judgment against petitioner Khe Hong Cheng in Civil Case No. 13357 on December 29, 1993, four years after the donations were made and the TCTs were registered in the donees' names. The decretal portion of the aforesaid decision reads: "Wherefore, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against the defendant, ordering the latter to pay the former: 1)the sum of P354,000.00 representing the amount paid by the plaintiff to the Philippine Agricultural Trading Corporation with legal interest at 12% from the time of the filing of the complaint in this case; 2)the sum of P50,000.00 as attorney's fees; 3)the costs. 1 After the said decision became final and executory, a writ of execution was forthwith, issued on September 14, 1995. Said writ of execution, however, was not served. An alias writ of execution was, thereafter, applied for and granted in October 1996. Despite earnest efforts, the sheriff found no property under the name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy or garnish for the satisfaction of the trial court's decision. When the sheriff, accompanied by counsel of respondent Philam, went to Butuan City on January 17, 1997, to enforce the alias writ of execution, they discovered that petitioner Khe Hong Cheng no longer had any property and that he had conveyed the subject properties to his children. On February 25, 1997, respondent Philam filed a complaint with the Regional Trial Court of Makati City, Branch 147, for the rescission of the deeds of donation executed by petitioner Khe Hong Cheng in favor of his children and for the nullification of their titles (Civil Case No. 97-415). Respondent Philam alleged, inter alia, that petitioner Khe Hong Cheng executed the aforesaid deeds in fraud of his creditors, including respondent Philam. 2

Petitioners subsequently filed their answer to the complaint a quo. They moved for its dismissal on the ground that the action had already prescribed. They posited that the registration of the deeds of donation on December 27, 1989 constituted constructive notice and since the complaint a quo was filed only on February 25, 1997, or more than four (4) years after said registration, the action was already barred by prescription. 3 Acting thereon, the trial court denied the motion to dismiss. It held that respondent Philam's complaint had not yet prescribed. According to the trial court, the prescriptive period began to run only from December 29, 1993, the date of the decision of the trial court in Civil Case No. 13357. 4 On appeal by petitioners, the CA affirmed the trial court's decision in favor of respondent Philam. The CA declared that the action to rescind the donations had not yet prescribed. Citing Articles 1381 and 1383 of the Civil Code, the CA basically ruled that the four year period to institute the action for rescission began to run only in January 1997, and not when the decision in the civil case became final and executory on December 29, 1993. The CA reckoned the accrual of respondent Philam's cause of action on January 1997, the time when it first learned that the judgment award could not be satisfied because the judgment creditor, petitioner Khe Hong Cheng, had no more properties in his name. Prior thereto, respondent Philam had not yet exhausted all legal means for the satisfaction of the decision in its favor, as prescribed under Article 1383 of the Civil Code. 5 The Court of Appeals thus denied the petition for certiorari filed before it, and held that the trial court did not commit any error in denying petitioners' motion to dismiss. Their motion for reconsideration was likewise dismissed in the appellate court's resolution dated July 11, 2000. Petitioners now assail the aforesaid decision and resolution of the CA alleging that: I PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN GRAVE ABUSE OF DISCRETION WHEN IT DENIED THE PETITION TO DISMISS THE CASE BASED ON THE GROUND OF PRESCRIPTION. cHSIAC II PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT PRESCRIPTION BEGINS TO RUN WHEN IN JANUARY 1997 THE SHERIFF WENT TO BUTUAN CITY IN SEARCH

OF PROPERTIES OF PETITIONER FELIX KHE CHENG TO SATISFY THE JUDGMENT IN CIVIL CASE NO. 13357 AND FOUND OUT THAT AS EARLY AS DEC. 20, 1989, PETITIONERS KHE CHENG EXECUTED THE DEEDS OF DONATIONS IN FAVOR OF HIS COPETITIONERS THAT THE ACTION FOR RESCISSION ACCRUED BECAUSE PRESCRIPTION BEGAN TO RUN WHEN THESE DONATIONS WERE REGISTERED WITH THE REGISTER OF DEEDS IN DECEMBER 1989, AND WHEN THE COMPLAINT WAS FILED ONLY IN FEBRUARY 1997, MORE THAN FOUR YEARS HAVE ALREADY LAPSED AND THEREFORE, IT HAS ALREADY PRESCRIBED. 6 Essentially, the issue for resolution posed by petitioners is this: When did the four (4) year prescriptive period as provided for in Article 1389 of the Civil Code for respondent Philam to file its action for rescission of the subject deeds of donation commence to run? The petition is without merit. Article 1389 of the Civil Code simply provides that, "The action to claim rescission must be commenced within four years." Since this provision of law is silent as to when the prescriptive period would commence, the general rule, i.e, from the moment the cause of action accrues, therefore, applies. Article 1150 of the Civil Code is particularly instructive: ARTICLE 1150.The time for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought. Indeed, this Court enunciated the principle that it is the legal possibility of bringing the action which determines the starting point for the computation of the prescriptive period for the action. 7 Article 1383 of the Civil Code provides as follows: ARTICLE 1383.An action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. It is thus apparent that an action to rescind or an accion pauliana must be of last resort, availed of only after all other legal remedies have been exhausted and have been proven futile. For an accion pauliana to accrue, the following requisites must concur:

1) That the plaintiff asking for rescission, has a credit prior to the alienation, although demandable later; 2) That the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; 3) That the creditor has no other legal remedy to satisfy his claim, but would benefit by rescission of the conveyance to the third person; 4) That the act being impugned is fraudulent; 5) That the third person who received the property conveyed, if by onerous title, has been an accomplice in the fraud. 8 (Emphasis ours) We quote with approval the following disquisition of the CA on the matter: An accion pauliana accrues only when the creditor discovers that he has no other legal remedy for the satisfaction of his claim against the debtor other than an accion pauliana. The accion pauliana is an action of a last resort. For as long as the creditor still has a remedy at law for the enforcement of his claim against the debtor, the creditor will not have any cause of action against the creditor for rescission of the contracts entered into by and between the debtor and another person or persons. Indeed, an accion pauliana presupposes a judgment and the issuance by the trial court of a writ of execution for the satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy the judgment of the court. It presupposes that the creditor has exhausted the property of the debtor. The date of the decision of the trial court against the debtor is immaterial. What is important is that the credit of the plaintiff antedates that of the fraudulent alienation by the debtor of his property. After all, the decision of the trial court against the debtor will retroact to the time when the debtor became indebted to the creditor. 9

Petitioners, however, maintain that the cause of action of respondent Philam against them for the rescission of the deeds of donation accrued as early as December 27, 1989, when petitioner Khe Hong Cheng registered the subject conveyances with the Register of Deeds. Respondent Philam allegedly had constructive knowledge of the execution of said deeds under Section 52 of Presidential Decree No. 1529, quoted infra, as follows: SECTION 52.Constructive knowledge upon registration. Every conveyance, mortgage, lease, lien, attachment, order,

judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the Office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing, or entering. THAICD Petitioners argument that the Civil Code must yield to the Mortgage and Registration Laws is misplaced, for in no way does this imply that the specific provisions of the former may be all together ignored. To count the four year prescriptive period to rescind an allegedly fraudulent contract from the date of registration of the conveyance with the Register of Deeds, as alleged by the petitioners, would run counter to Article 1383 of the Civil Code as well as settled jurisprudence. It would likewise violate the third requisite to file an action for rescission of an allegedly fraudulent conveyance of property, i.e., the creditor has no other legal remedy to satisfy his claim. An accion pauliana thus presupposes the following: 1) A judgment; 2) the issuance by the trial court of a writ of execution for the satisfaction of the judgment, and 3) the failure of the sheriff to enforce and satisfy the judgment of the court. It requires that the creditor has exhausted the property of the debtor. The date of the decision of the trial court is immaterial. What is important is that the credit of the plaintiff antedates that of the fraudulent alienation by the debtor of his property. After all, the decision of the trial court against the debtor will retroact to the time when the debtor became indebted to the creditor. Tolentino, a noted civilist, explained: ". . . [T]herefore, credits with suspensive term or condition are excluded, because the accion pauliana presupposes a judgment and unsatisfied execution, which cannot exist when the debt is not yet demandable at the time the rescissory action is brought. Rescission is a subsidiary action, which presupposes that the creditor has exhausted the property of the debtor which is impossible in credits which cannot be enforced because of a suspensive term or condition. While it is necessary that the credit of the plaintiff in the accion pauliana must be prior to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory with retroactive effect to the date when the credit was constituted." 10

These principles were reiterated by the Court when it explained the requisites of an accion pauliana in greater detail, to wit: "The following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent sale: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana). Without availing of the first and second remedies, i.e., exhausting the properties of the debtor or subrogating themselves in Francisco Bareg's transmissible rights and actions. petitioners simply undertook the third measure and filed an action for annulment of sale. This cannot be done." 11 (Emphasis ours) In the same case, the Court also quoted the rationale of the CA when it upheld the dismissal of the accion pauliana on the basis of lack of cause of action: "In this case, plaintiff's appellants had not even commenced an action against defendants-appellees Bareng for the collection of the alleged indebtedness. Plaintiffs-appellants had not even tried to exhaust the property of defendants-appellees Bareng. Plaintiffs-appellants, in seeking the rescission of the contracts of sale entered into between defendants-appellees, failed to show and prove that defendants-appellees Bareng had no other property, either at the time of the sale or at the time this action was filed, out of which they could have collected this (sic) debts." (Emphasis ours) Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe Hong Cheng had executed the deeds of donation in favor of his children, the complaint against Butuan Shipping Lines and/or petitioner Khe Hong Cheng was still pending before the trial court. Respondent Philam had no inkling, at the time, that the trial court's judgment would be in its favor and further, that such judgment would not be satisfied due to the deeds of donation executed by petitioner Khe Hong Cheng during the pendency of the case. Had respondent Philam filed his complaint on December 27, 1989, such complaint would have been dismissed for being premature. Not only were all other legal remedies for the enforcement of respondent Philam's claims not yet exhausted at the time the deeds of donation were executed and registered. Respondent Philam would also

not have been able to prove then that petitioner Khe Hong Cheng had no more property other than those covered by the subject deeds to satisfy a favorable judgment by the trial court. DCAHcT It bears stressing that petitioner Khe Hong Cheng even expressly declared and represented that he had reserved to himself property sufficient to answer for his debts contracted prior to this date: "That the DONOR further states, for the same purpose as expressed in the next preceding paragraph, that this donation is not made with the object of defrauding his creditors having reserved to himself property sufficient to answer his debts contracted prior to this date". 12 As mentioned earlier, respondent Philam only learned about the unlawful conveyances made by petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the sheriff to Butuan City to attach the properties of petitioner Khe Hong Cheng. There they found that he no longer had any properties in his name. It was only then that respondent Philam's action for rescission of the deeds of donation accrued because then it could be said that respondent Philam had exhausted all legal means to satisfy the trial court's judgment in its favor. Since respondent Philam filed its complaint for accion pauliana against petitioners on February 25, 1997, barely a month from its discovery that petitioner Khe Hong Cheng had no other property to satisfy the judgment award against him, its action for rescission of the subject deeds clearly had not yet prescribed. A final point. Petitioners now belatedly raise on appeal the defense of improper venue claiming that respondent Philam's complaint is a real action and should have been filed with the RTC of Butuan City since the property subject matter of the donations are located therein. Suffice it to say that petitioners are already deemed to have waived their right to question the venue of the instant case. Improper venue should be objected to as follows 1) in a motion to dismiss filed within the time but before the filing of the answer; 13 or 2) in the answer as an affirmative defense over which, in the discretion of the court, a preliminary hearing may be held as if a motion to dismiss had been filed. 14 Having failed to either file a motion to dismiss on the ground of improper of venue or include the same as an affirmative defense in their answer, petitioners are deemed to have their right to object to improper venue. WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit. SO ORDERED.

[G.R. No. 134685. November 19, 1999.] MARIA ANTONIA SIGUAN, petitioner, vs. ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM, respondents.

Florido & Associates for petitioner. Zosa & Quijano Law Offices for respondents. SYNOPSIS Respondent Rosa was charged by petitioner with two counts of violation of Batas Pambansa Blg. 22 for issuing checks, in the total amount of P541,668, dishonored by the bank for the reason of "account closed." The conviction was affirmed by the Court of Appeals and is now pending review with this Court. Petitioner, thereafter filed action pauliana against respondent Rosa to rescind, the notarized deed of donation over 4 parcels of land Rosa executed in favor of her three children, the other respondents. Petitioner claimed that there was fraudulent transfer leaving no sufficient properties to pay her obligations with her and that the deed of donation was not antedated. During the hearing of the case, petitioner presented evidence on Rosa's civil liability to one Victoria Suarez in the amount of P169,000. For her defense, Rosa denied liability and the alleged antedating of the deed. The trial court rendered judgment in favor of petitioner, ordered the rescission of the contract and declared the titles in the name of Rosa's children null and void. On appeal, the Court of Appeals reversed the trial court and dismissed the action pauliana. It ruled that the deed of donation was not fraudulent transfer as respondent debtor Rosa still owns 4 parcels of land sufficient to cover her debts to petitioner, that the notarized deed of donation, a public document in the absence of convincing evidence that the notary and the parties antedated the instrument, is evidence of the fact that gave rise to its execution and of the date thereof. Petitioner's motion for reconsideration having been denied she resorted to this recourse. The Supreme Court held that contracts undertaken in fraud of creditors are rescissible when the latter cannot in any other manner collect the claims due them; that rescission is but a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. In the case at bar, respondent Rosa has 4 other real properties, hence, the presumption of fraud will not come into play; and that a party cannot invoke the credit of others to justify rescission of the deed of donation.

SYLLABUS 1.REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF COURT OF APPEALS GENERALLY CONCLUSIVE ON APPEAL; EXCEPTION. The rule is well settled that the jurisdiction of this Court in cases brought before it from the Court of Appeals via Rule 45 of the Rules of Court is limited to reviewing errors of law. Findings of fact of the latter court are conclusive, except in a number of instances. In the case at bar, one of the recognized exceptions warranting a review by this Court of the factual findings of the Court of Appeals exists, to wit, the factual findings and conclusions of the lower court and Court of Appeals are conflicting, especially on the issue of whether the Deed of Donation in question was in fraud of creditors. HTIEaS 2.ID.; ACTIONS; ACCION PAULIANA; REQUISITE FOR ACTION TO PROSPER. The action to rescind contracts in fraud of creditors is known asaccion pauliana. For this action to prosper, the following requisites must be present: (1) the plaintiff asking for rescission has a credit prior to the alienation, although demandable later; (2) the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor has no other legal remedy to satisfy his claim; (4) the act being impugned is fraudulent; (5) the third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud. 3.ID.; ID.; ID.; CREDIT MUST EXIST PRIOR TO FRAUDULENT ALIENATION. The general rule is that rescission requires the existence of creditors at the time of the alleged fraudulent alienation, and this must be proved as one of the bases of the judicial pronouncement setting aside the contract. Without any prior existing debt, there can neither be injury nor fraud. While it is necessary that the credit of the plaintiff in the accion pauliana must exist prior to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory, with retroactive effect to the date when the credit was constituted. 4.ID.; ID.; ID.; ID.; ALLEGED ANTEDATING OF DOCUMENT NOT PROVED BY LATE REGISTRATION OF ACKNOWLEDGED DOCUMENT. In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990, while the deed of donation was purportedly executed on 10 August 1989. We are not convinced with the allegation of the petitioner that the questioned deed was antedated to make it appear that it was made prior to petitioner's credit. Notably, that deed is a public document, it having been acknowledged before a notary public. As such, it is evidence of the fact which gave rise to its execution and of its date, pursuant to Section 23, Rule 132 of the Rules of Court. In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not enough to overcome the presumption as to the truthfulness of the statement of the date in the questioned

deed, which is 10 August 1989. Petitioner's claim against LIM was constituted only in August 1990, or a year after the questioned alienation. Thus, the first two requisites for the rescission of contracts are absent. 5.ID.; ID.; ID.; CREDITOR CANNOT IN ANY MANNER COLLECT CLAIM. Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of the contract of donation, still her action for rescission would not fare well because the third requisite was not met. Under Article 1381 of the Civil Code, contracts entered into in fraud of creditors may be rescinded only when the creditors cannot in any manner collect the claims due them. Also, Article 1383 of the same Code provides that the action for rescission is but a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. The term "subsidiary remedy" has been defined as "the exhaustion of all remedies by the prejudiced creditor to collect claims due him before rescission is resorted to." It is, therefore, "essential that the party asking for rescission prove that he has exhausted all other legal means to obtain satisfaction of his claim. Petitioner neither alleged nor proved that she did so. On this score, her action for the rescission of the questioned deed is not maintainable even if the fraud charged actually did exist. 6.ID.; ID.; ID.; DEBTOR DID NOT RESERVE SUFFICIENT PROPERTY TO PAY DEBT PRIOR TO DONATION. The fourth requisite for an accion pauliana to prosper is not present either. Article 1387, first paragraph, of the Civil Code provides: "All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors when the donor did not reserve sufficient property to pay all debts contracted before the donation." Likewise, Article 759 of the same Code, second paragraph, states that the donation is always presumed to be in fraud of creditors when at the time thereof the donor did not reserve sufficient property to pay his debts prior to the donation. For this presumption of fraud to apply, it must be established that the donor did not leave adequate properties which creditors might have recourse for the collection of their credits existing before the execution of the donation. As earlier discussed, petitioner's alleged credit existed only a year after the deed of donation was executed. She cannot, therefore, be said to have been prejudiced or defrauded by such alienation. 7.ID.; ID.; ID.; BADGES OF FRAUD. Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles 759 and 1387 of the Civil Code. Under the third paragraph of Article 1387, the design to defraud may be proved in any other manner recognized by the law of evidence. Thus in the consideration of whether certain transfers are fraudulent, the Court has laid down specific rules by which the character of the transaction may be determined. The following have been denominated by the Court as badges of fraud: (1) The fact that the

consideration of the conveyance is fictitious or is inadequate; (2) A transfer made by a debtor after suit has begun and while it is pending against him; (3) A sale upon credit by an insolvent debtor; (4) Evidence of large indebtedness or complete insolvency; (5) The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially; (6) The fact that the transfer is made between father and son, when there are present other of the above circumstances; and (7) The failure of the vendee to take exclusive possession of all the property. The above enumeration, however, is not an exclusive list. The circumstances evidencing fraud are as varied as the men who perpetrate the fraud in each case. This Court has therefore declined to define it, reserving the liberty to deal with it under whatever form it may present itself. 8.ID.; ID.; ID.; RESCISSION SHALL ONLY BE TO EXTENT OF CREDITOR'S UNSATISFIED CREDIT. It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor prior to the questioned alienation, is not a party to this accion pauliana. Article 1384 of the Civil Code provides that rescission shall only be to the extent necessary to cover the damages caused. Under this Article, only the creditor who brought the action for rescission can benefit from the rescission; those who are strangers to the action cannot benefit from its effects. And the revocation is only to the extent of the plaintiff creditors unsatisfied credit; as to the excess, the alienation is maintained. Thus, petitioner cannot invoke the credit of Suarez to justify rescission of the subject deed of donation.

petitioner Maria Antonia Siguan? This is the pivotal issue to be resolved in this petition for review on certiorari under Rule 45 of the Revised Rules of Court. LibLex The relevant facts, as borne out of the records, are as follows: On 25 and 26 August 1990, LIM issued two Metrobank checks in the sums of P300,000 and P241,668, respectively, payable to "cash." Upon presentment by petitioner with the drawee bank, the checks were dishonored for the reason "account closed." Demands to make good the checks proved futile. As a consequence, a criminal case for violation of Batas Pambansa Blg. 22, docketed as Criminal Cases Nos. 22127-28, were filed by petitioner against LIM with Branch 23 of the Regional Trial Court (RTC) of Cebu City. In its decision 1 dated 29 December 1992, the court a quo convicted LIM as charged. The case is pending before this Court for review and docketed as G.R. No. 134685. It also appears that on 31 July 1990 LIM was convicted of estafa by the RTC of Quezon City in Criminal Case No. Q-89-2216 2 filed by a certain Victoria Suarez. This decision was affirmed by the Court of Appeals. On appeal, however, this Court, in a decision 3 promulgated on 7 April 1997, acquitted LIM but held her civilly liable in the amount of P169,000, as actual damages, plus legal interest. Meanwhile, on 2 July 1991, a Deed of Donation 4 conveying the following parcels of land and purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was registered with the Office of the Register of Deeds of Cebu City: (1)a parcel of land situated at Barrio Lahug, Cebu City, containing an area of 563 sq. m. and covered by TCT No. 93433; (2)a parcel of land situated at Barrio Lahug, Cebu City, containing an area of 600 sq. m. and covered by TCT No. 93434; (3)a parcel of land situated at Cebu City containing an area of 368 sq. m. and covered by TCT No. 87019; and (4)a parcel of land situated at Cebu City, Cebu containing an area of 511 sq. m. and covered by TCT No. 87020. New transfer certificates of title were thereafter issued in the names of the donees. 5

9.CIVIL LAW; DAMAGES; MORAL DAMAGES, ATTORNEY'S FEES AND EXPENSES OF LITIGATION; AWARD DELETED FOR WANT OF BASIS IN FACT, LAW OR EQUITY. Now on the propriety of the trial court's awards of moral damages, attorney's fees and expenses of litigation in favor of the petitioner. We have pored over the records and found no factual or legal basis therefor. The trial court made these awards in the dispositive portion of its decision without stating, however, any justification for the same in the ratio decidendi. Hence, the Court of Appeals correctly deleted these awards for want of basis in fact, law or equity.

DECISION

DAVIDE, JR., C.J p: May the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in favor of her children be rescinded for being in fraud of her alleged creditor,

On 23 June 1993, petitioner filed an accion pauliana against LIM and her children before Branch 18 of the RTC of Cebu City to rescind the questioned Deed of Donation and to declare as null and void the new transfer certificates of title issued for the lots covered by the questioned Deed. The complaint was docketed as Civil Case No. CEB-14181. Petitioner claimed therein that sometime in July 1991, LIM, through a Deed of Donation, fraudulently transferred all her real property to her children in bad faith and in fraud of creditors, including her; that LIM conspired and confederated with her children in antedating the questioned Deed of Donation, to petitioner's and other creditors' prejudice; and that LIM, at the time of the fraudulent conveyance, left no sufficient properties to pay her obligations. On the other hand, LIM denied any liability to petitioner. She claimed that her convictions in Criminal Cases Nos. 22127-28 were erroneous, which was the reason why she appealed said decision to the Court of Appeals. As regards the questioned Deed of Donation, she maintained that it was not antedated but was made in good faith at a time when she had sufficient property. Finally, she alleged that the Deed of Donation was registered only on 2 July 1991 because she was seriously ill. In its decision of 31 December 1994, 6 the trial court ordered the rescission of the questioned deed of donation; (2) declared null and void the transfer certificates of title issued in the names of private respondents Linde, Ingrid and Neil Lim; (3) ordered the Register of Deeds of Cebu City to cancel said titles and to reinstate the previous titles in the name of Rosa Lim; and (4) directed the LIMs to pay the petitioner, jointly and severally, the sum of P10,000 as moral damages; P10,000 as attorney's fees; and P5,000 as expenses of litigation. On appeal, the Court of Appeals, in a decision 7 promulgated on 20 February 1998, reversed the decision of the trial court and dismissed petitioner's accion pauliana. It held that two of the requisites for filing an accion pauliana were absent, namely, (1) there must be a credit existing prior to the celebration of the contract; and (2) there must be a fraud, or at least the intent to commit fraud, to the prejudice of the creditor seeking the rescission. According to the Court of Appeals, the Deed of Donation, which was executed and acknowledged before a notary public, appears on its face to have been executed on 10 August 1989. Under Section 23 of Rule 132 of the Rules of Court, the questioned Deed, being a public document, is evidence of the fact which gave rise to its execution and of the date thereof. No antedating of the Deed of Donation was made, there being no convincing evidence on record to indicate that the notary public and the parties did antedate it. Since LIM's indebtedness to petitioner was incurred in August 1990, or a year after the execution of the Deed of Donation, the first requirement for accion pauliana was not met.

Anent petitioner's contention that assuming that the Deed of Donation was not antedated it was nevertheless in fraud of creditors because Victoria Suarez became LIM's creditor on 8 October 1987, the Court of Appeals found the same untenable, for the rule is basic that the fraud must prejudice the creditor seeking the rescission. cdll Her motion for reconsideration having been denied, petitioner came to this Court and submits the following issue: WHETHER OR NOT THE DEED OF DONATION, EXH. 1, WAS ENTERED INTO IN FRAUD OF [THE] CREDITORS OF RESPONDENT ROSA [LIM]. Petitioner argues that the finding of the Court of Appeals that the Deed of Donation was not in fraud of creditors is contrary to well-settled jurisprudence laid down by this Court as early as 1912 in the case of Oria v. McMicking, 8 which enumerated the various circumstances indicating the existence of fraud in a transaction. She reiterates her arguments below, and adds that another fact found by the trial court and admitted by the parties but untouched by the Court of Appeals is the existence of a prior final judgment against LIM in Criminal Case No. Q-89-2216 declaring Victoria Suarez as LIM's judgment creditor before the execution of the Deed of Donation. Petitioner further argues that the Court of Appeals incorrectly applied or interpreted Section 23, 9 Rule 132 of the Rules of Court, in holding that "being a public document, the said deed of donation is evidence of the fact which gave rise to its execution and of the date of the latter." Said provision should be read with Section 30 10 of the same Rule which provides that notarial documents are prima facie evidence of their execution, not "of the facts which gave rise to their execution and of the date of the latter." Finally, petitioner avers that the Court of Appeals overlooked Article 759 of the New Civil Code, which provides: "The donation is always presumed to be in fraud of creditors when at the time of the execution thereof the donor did not reserve sufficient property to pay his debts prior to the donation." In this case, LIM made no reservation of sufficient property to pay her creditors prior to the execution of the Deed of Donation. On the other hand, respondents argue that (a) having agreed on the law and requisites of accion pauliana, petitioner cannot take shelter under a different law; (b) petitioner cannot invoke the credit of Victoria Suarez, who is not a party to this case, to support her accion pauliana; (c) the Court of Appeals correctly applied or interpreted Section 23 of Rule 132 of the Rules of Court; (d) petitioner failed to

present convincing evidence that the Deed of Donation was antedated and executed in fraud of petitioner; and (e) the Court of Appeals correctly struck down the awards of damages, attorney's fees and expenses of litigation because there is no factual basis therefor in the body of the trial court's decision. The primordial issue for resolution is whether the questioned Deed of Donation was made in fraud of petitioner and, therefore, rescissible. A corollary issue is whether the awards of damages, attorney's fees and expenses of litigation are proper. We resolve these issues in the negative. The rule is well settled that the jurisdiction of this Court in cases brought before it from the Court of Appeals via Rule 45 of the Rules of Court is limited to reviewing errors of law. Findings of fact of the latter court are conclusive, except in a number of instances. 11 In the case at bar, one of the recognized exceptions warranting a review by this Court of the factual findings of the Court of Appeals exists, to wit, the factual findings and conclusions of the lower court and Court of Appeals are conflicting, especially on the issue of whether the Deed of Donation in question was in fraud of creditors. Article 1381 of the Civil Code enumerates the contracts which are rescissible, and among them are "those contracts undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them."

judgment be subsequent to the alienation, it is merely declaratory, with retroactive effect to the date when the credit was constituted. 17 In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990, while the deed of donation was purportedly executed on 10 August 1989. We are not convinced with the allegation of the petitioner that the questioned deed was antedated to make it appear that it was made prior to petitioner's credit. Notably, that deed is a public document, it having been acknowledged before a notary public. 18 As such, it is evidence of the fact which gave rise to its execution and of its date, pursuant to Section 23, Rule 132 of the Rules of Court. Petitioner's contention that the public documents referred to in said Section 23 are only those entries in public records made in the performance of a duty by a public officer does not hold water. Section 23 reads: SEC. 23.Public documents as evidence. Documents consisting of entries in public records made in the performance of a duty by a public officer are prima facie evidence of the facts therein stated. All other public documents are evidence, even against a third person, of the fact which gave rise to their execution and of the date of the latter. (Emphasis supplied). The phrase "all other public documents" in the second sentence of Section 23 means those public documents other than the entries in public records made in the performance of a duty by a public officer. And these include notarial documents, like the subject deed of donation. Section 19, Rule 132 of the Rules of Court provides: SEC. 19.Classes of documents. For the purpose of their presentation in evidence, documents are either public or private. Public documents are: (a). . . (b)Documents acknowledged before a notary public except last wills and testaments. . . .

The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to prosper, the following requisites must be present: (1) the plaintiff asking for rescission has a credit prior to the alienation, 12 although demandable later; (2) the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor has no other legal remedy to satisfy his claim; 13 (4) the act being impugned is fraudulent; 14 (5) the third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud. 15 The general rule is that rescission requires the existence of creditors at the time of the alleged fraudulent alienation, and this must be proved as one of the bases of the judicial pronouncement setting aside the contract. 16 Without any prior existing debt, there can neither be injury nor fraud. While it is necessary that the credit of the plaintiff in the accion pauliana must exist prior to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the

It bears repeating that notarial documents, except last wills and testaments, are public documents and are evidence of the facts that gave rise to their execution and of their date. In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not enough to overcome the presumption as to the truthfulness of the statement of the date in the questioned deed, which is 10 August 1989. Petitioner's claim against LIM was constituted only in August 1990, or a year after the questioned alienation. Thus, the first two requisites for the rescission of contracts are absent. Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of the contract of donation, still her action for rescission would not fare well because the third requisite was not met. Under Article 1381 of the Civil Code, contracts entered into in fraud of creditors may be rescinded only when the creditors cannot in any manner collect the claims due them. Also, Article 1383 of the same Code provides that the action for rescission is but a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. The term "subsidiary remedy" has been defined as "the exhaustion of all remedies by the prejudiced creditor to collect claims due him before rescission is resorted to." 19 It is, therefore, essential that the party asking for rescission prove that he has exhausted all other legal means to obtain satisfaction of his claim. 20 Petitioner neither alleged nor proved that she did so. On this score, her action for the rescission of the questioned deed is not maintainable even if the fraud charged actually did exist." 21 The fourth requisite for an accion pauliana to prosper is not present either. Article 1387, first paragraph, of the Civil Code provides: "All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors when the donor did not reserve sufficient property to pay all debts contracted before the donation. Likewise, Article 759 of the same Code, second paragraph, states that the donation is always presumed to be in fraud of creditors when at the time thereof the donor did not reserve sufficient property to pay his debts prior to the donation. prcd For this presumption of fraud to apply, it must be established that the donor did not leave adequate properties which creditors might have recourse for the collection of their credits existing before the execution of the donation. As earlier discussed, petitioner's alleged credit existed only a year after the deed of donation was executed. She cannot, therefore, be said to have been prejudiced or

defrauded by such alienation. Besides, the evidence disclose that as of 10 August 1989, when the deed of donation was executed, LIM had the following properties: (1)A parcel of land containing an area of 220 square meters, together with the house constructed thereon, situated in Sto. Nio Village, Mandaue City, Cebu, registered in the name of Rosa Lim and covered by TCT No. 19706; 22 (2)A parcel of land located in Benros Subdivision, Lawa-an, Talisay, Cebu; 23 (3)A parcel of land containing an area of 2.152 hectares, with coconut trees thereon, situated at Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No. 13572. 24 (4)A parcel of land containing an area of 3.6 hectares, with coconut trees thereon, situated at Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No. 13571. 25 During her cross-examination, LIM declared that the house and lot mentioned in no. 1 was bought by her in the amount of about P800,000 to P900,000. 26Thus: ATTY. FLORIDO: QThese properties at the Sto. Nio Village, how much did you acquire this property? AIncluding the residential house P800,000.00 to P900,000.00. QHow about the lot which includes the house. How much was the price in the Deed of Sale of the house and lot at Sto. Nio Violage [sic]? AI forgot. QHow much did you pay for it? AThat is P800,000.00 to P900,000.00.

Petitioner did not adduce any evidence that the price of said property was lower. Anent the property in no. 2, LIM testified that she sold it in 1990. 27 As to the properties in nos. 3 and 4, the total market value stated in the tax declarations dated 23 November 1993 was P56,871.60. Aside from these tax declarations, petitioner did not present evidence that would indicate the actual market value of said properties. It was not, therefore, sufficiently established that the properties left behind by LIM were not sufficient to cover her debts existing before the donation was made. Hence, the presumption of fraud will not come into play. Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles 759 and 1387 of the Civil Code. Under the third paragraph of Article 1387, the design to defraud may be proved in any other manner recognized by the law of evidence. Thus in the consideration of whether certain transfers are fraudulent, the Court has laid down specific rules by which the character of the transaction may be determined. The following have been denominated by the Court as badges of fraud: (1)The fact that the consideration of the conveyance is fictitious or is inadequate; (2)A transfer made by a debtor after suit has begun and while it is pending against him; (3)A sale upon credit by an insolvent debtor; (4)Evidence of large indebtedness or complete insolvency; (5)The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially; (6)The fact that the transfer is made between father and son, when there are present other of the above circumstances; and (7)The failure of the vendee to take exclusive possession of all the property. 28 The above enumeration, however, is not an exclusive list. The circumstances evidencing fraud are as varied as the men who perpetrate the fraud in each case. This Court has therefore declined to define it, reserving the liberty to deal with it under whatever form it may present itself. 29

Petitioner failed to discharge the burden of proving any of the circumstances enumerated above or any other circumstance from which fraud can be inferred. Accordingly, since the four requirements for the rescission of a gratuitous contract are not present in this case, petitioner's action must fail. In her further attempt to support her action for rescission, petitioner brings to our attention the 31 July 1990 Decision 30 of the RTC of Quezon City, Branch 92, in Criminal Case No. Q-89-2216. LIM was therein held guilty of estafa and was ordered to pay complainant Victoria Suarez the sum of P169,000 for the obligation LIM incurred on 8 October 1987. This decision was affirmed by the Court of Appeals. Upon appeal, however, this Court acquitted LIM of estafa but held her civilly liable for P169,000 as actual damages.

It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor prior to the questioned alienation, is not a party to this accion pauliana. Article 1384 of the Civil Code provides that rescission shall only be to the extent necessary to cover the damages caused. Under this Article, only the creditor who brought the action for rescission can benefit from the rescission; those who are strangers to the action cannot benefit from its effects. 31And the revocation is only to the extent of the plaintiff creditor's unsatisfied credit; as to the excess, the alienation is maintained. 32 Thus, petitioner cannot invoke the credit of Suarez to justify rescission of the subject deed of donation. Now on the propriety of the trial court's awards of moral damages, attorney's fees and expenses of litigation in favor of the petitioner. We have pored over the records and found no factual or legal basis therefor. The trial court made these awards in the dispositive portion of its decision without stating, however, any justification for the same in the ratio decidendi. Hence, the Court of Appeals correctly deleted these awards for want of basis in fact, law or equity. WHEREFORE, the petition is hereby DISMISSED and the challenged decision of the Court of Appeals in CA-G.R. CV. No. 50091 is AFFIRMED in toto. cda No pronouncement as to costs. SO ORDERED.

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