NOMINAL DAMAGES

1. PNOC vs CA
PNOC SHIPPING AND TRANSPORT CORPORATION, petitioner, vs. HONORABLE
COURT OF APPEALS and MARIA EFIGENIA FISHING CORPORATION,
respondents.
DECISION
ROMERO, J.:

A party is entitled to adequate compensation only for such pecuniary loss

actually suffered and duly proved.[1] Indeed, basic is the rule that to recover
actual damages, the amount of loss must not only be capable of proof but
must actually be proven with a reasonable degree of certainty, premised
upon competent proof or best evidence obtainable of the actual amount
thereof.[2] The claimant is duty-bound to point out specific facts that afford a
basis for measuring whatever compensatory damages are borne.[3] A court
cannot merely rely on speculations, conjectures, or guesswork as to the fact
and amount of damages[4] as well as hearsay[5] or uncorroborated
testimony whose truth is suspect.[6] Such are the jurisprudential precepts
that the Court now applies in resolving the instant petition.

The records disclose that in the early morning of September 21, 1977, the
M/V Maria Efigenia XV, owned by private respondent Maria Efigenia Fishing
Corporation, was navigating the waters near Fortune Island in Nasugbu,
Batangas on its way to Navotas, Metro Manila when it collided with the
vessel Petroparcel which at the time was owned by the Luzon Stevedoring
Corporation (LSC).

After investigation was conducted by the Board of Marine Inquiry, Philippine

Coast Guard Commandant Simeon N. Alejandro rendered a decision finding
the Petroparcel at fault. Based on this finding by the Board and after
unsuccessful demands on petitioner,[7] private respondent sued the LSC and
the Petroparcel captain, Edgardo Doruelo, before the then Court of First
Instance of Caloocan City, paying thereto the docket fee of one thousand two
hundred fifty-two pesos (P1,252.00) and the legal research fee of two pesos
(P2.00).[8] In particular, private respondent prayed for an award of
P692,680.00, allegedly representing the value of the fishing nets, boat
equipment and cargoes of M/V Maria Efigenia XV, with interest at the legal
rate plus 25% thereof as attorneys fees. Meanwhile, during the pendency of
the case, petitioner PNOC Shipping and Transport Corporation sought to be
substituted in place of LSC as it had already acquired ownership of the
Petroparcel.[9]

For its part, private respondent later sought the amendment of its complaint
on the ground that the original complaint failed to plead for the recovery of
the lost value of the hull of M/V Maria Efigenia XV.[10] Accordingly, in the
amended complaint, private respondent averred that M/V Maria Efigenia XV

1
had an actual value of P800,000.00 and that, after deducting the insurance
payment of P200,000.00, the amount of P600,000.00 should likewise be
claimed. The amended complaint also alleged that inflation resulting from
the devaluation of the Philippine peso had affected the replacement value of
the hull of the vessel, its equipment and its lost cargoes, such that there
should be a reasonable determination thereof. Furthermore, on account of
the sinking of the vessel, private respondent supposedly incurred unrealized
profits and lost business opportunities that would thereafter be proven.[11]

Subsequently, the complaint was further amended to include petitioner as a

defendant[12] which the lower court granted in its order of September 16,
1985.[13] After petitioner had filed its answer to the second amended
complaint, on February 5, 1987, the lower court issued a pre-trial order[14]
containing, among other things, a stipulations of facts, to wit:

1. On 21 September 1977, while the fishing boat `M/V MARIA EFIGENIA

owned by plaintiff was navigating in the vicinity of Fortune Island in Nasugbu,
Batangas, on its way to Navotas, Metro Manila, said fishing boat was hit by
the LSCO tanker Petroparcel causing the former to sink.

2. The Board of Marine Inquiry conducted an investigation of this marine

accident and on 21 November 1978, the Commandant of the Philippine Coast
Guard, the Honorable Simeon N. Alejandro, rendered a decision finding the
cause of the accident to be the reckless and imprudent manner in which
Edgardo Doruelo navigated the LSCO Petroparcel and declared the latter
vessel at fault.

3. On 2 April 1978, defendant Luzon Stevedoring Corporation (LUSTEVECO),

executed in favor of PNOC Shipping and Transport Corporation a Deed of
Transfer involving several tankers, tugboats, barges and pumping stations,
among which was the LSCO Petroparcel.

4. On the same date on 2 April 1979 (sic), defendant PNOC STC again
entered into an Agreement of Transfer with co-defendant Lusteveco whereby
all the business properties and other assets appertaining to the tanker and
bulk oil departments including the motor tanker LSCO Petroparcel of
defendant Lusteveco were sold to PNOC STC.

5. The aforesaid agreement stipulates, among others, that PNOC-STC

assumes, without qualifications, all obligations arising from and by virtue of
all rights it obtained over the LSCO `Petroparcel.

6. On 6 July 1979, another agreement between defendant LUSTEVECO and

PNOC-STC was executed wherein Board of Marine Inquiry Case No. 332
(involving the sea accident of 21 September 1977) was specifically identified
and assumed by the latter.

2
7. On 23 June 1979, the decision of Board of Marine Inquiry was affirmed by
the Ministry of National Defense, in its decision dismissing the appeal of
Capt. Edgardo Doruelo and Chief mate Anthony Estenzo of LSCO
`Petroparcel.

8. LSCO `Petroparcel is presently owned and operated by PNOC-STC and

likewise Capt. Edgardo Doruelo is still in their employ.

9. As a result of the sinking of M/V Maria Efigenia caused by the reckless and
imprudent manner in which LSCO Petroparcel was navigated by defendant
Doruelo, plaintiff suffered actual damages by the loss of its fishing nets, boat
equipments (sic) and cargoes, which went down with the ship when it sank
the replacement value of which should be left to the sound discretion of this
Honorable Court.

After trial, the lower court[15] rendered on November 18, 1989 its decision
disposing of Civil Case No. C-9457 as follows:

WHEREFORE, and in view of the foregoing, judgment is hereby rendered in

favor of the plaintiff and against the defendant PNOC Shipping & Transport
Corporation, to pay the plaintiff:

a. The sum of P6,438,048.00 representing the value of the fishing boat with
interest from the date of the filing of the complaint at the rate of 6% per
annum;

b. The sum of P50,000.00 as and for attorneys fees; and

c. The costs of suit.

The counterclaim is hereby DISMISSED for lack of merit. Likewise, the case
against defendant Edgardo Doruelo is hereby DISMISSED, for lack of
jurisdiction.

SO ORDERED.

In arriving at the above disposition, the lower court cited the evidence
presented by private respondent consisting of the testimony of its general
manager and sole witness, Edilberto del Rosario. Private respondents witness
testified that M/V Maria Efigenia XV was owned by private respondent per
Exhibit A, a certificate of ownership issued by the Philippine Coast Guard
showing that M/V Maria Efigenia XV was a wooden motor boat constructed in
1965 with 128.23 gross tonnage. According to him, at the time the vessel
sank, it was then carrying 1,060 tubs (baeras) of assorted fish the value of
which was never recovered. Also lost with the vessel were two cummins

3
engines (250 horsepower), radar, pathometer and compass. He further
added that with the loss of his flagship vessel in his fishing fleet of fourteen
(14) vessels, he was constrained to hire the services of counsel whom he
paid P10,000 to handle the case at the Board of Marine Inquiry and
P50,000.00 for commencing suit for damages in the lower court.

As to the award of P6,438,048.00 in actual damages, the lower court took

into account the following pieces of documentary evidence that private
respondent proffered during trial:

(a) Exhibit A certified xerox copy of the certificate of ownership of M/V Maria
Efigenia XV;

(b) Exhibit B a document titled Marine Protest executed by Delfin Villarosa, Jr.
on September 22, 1977 stating that as a result of the collision, the M/V Maria
Efigenia XV sustained a hole at its left side that caused it to sink with its
cargo of 1,050 baeras valued at P170,000.00;

(c) Exhibit C a quotation for the construction of a 95-footer trawler issued by

Isidoro A. Magalong of I. A. Magalong Engineering and Construction on
January 26, 1987 to Del Rosario showing that construction of such trawler
would cost P2,250,000.00;

(d) Exhibit D pro forma invoice No. PSPI-05/87-NAV issued by E.D. Daclan of
Power Systems, Incorporated on January 20, 1987 to Del Rosario showing
that two (2) units of CUMMINS Marine Engine model N855-M, 195 bhp. at
1800 rpm. would cost P1,160,000.00;

(e) Exhibit E quotation of prices issued by Scan Marine Inc. on January 20,
1987 to Del Rosario showing that a unit of Furuno Compact Daylight Radar,
Model FR-604D, would cost P100,000.00 while a unit of Furuno Color Video
Sounder, Model FCV-501 would cost P45,000.00 so that the two units would
cost P145,000.00;

(f) Exhibit F quotation of prices issued by Seafgear Sales, Inc. on January 21,
1987 to Del Rosario showing that two (2) rolls of nylon rope (5 cir. X 300fl.)
would cost P140,000.00; two (2) rolls of nylon rope (3 cir. X 240fl.),
P42,750.00; one (1) binocular (7 x 50), P1,400.00, one (1) compass (6),
P4,000.00 and 50 pcs. of floats, P9,000.00 or a total of P197, 150.00;

(g) Exhibit G retainer agreement between Del Rosario and F. Sumulong

Associates Law Offices stipulating an acceptance fee of P5,000.00, per
appearance fee of P400.00, monthly retainer of P500.00, contingent fee of
20% of the total amount recovered and that attorneys fee to be awarded by
the court should be given to Del Rosario; and

4
(h) Exhibit H price quotation issued by Seafgear Sales, Inc. dated April 10,
1987 to Del Rosario showing the cost of poly nettings as: 50 rolls of 400/18
3kts. 100md x 100mtrs., P70,000.00; 50 rolls of 400/18 5kts. 100md x
100mtrs., P81,500.00; 50 rolls of 400/18 8kts. 100md x 100mtrs.,
P116,000.00, and 50 rolls of 400/18 10kts. 100md x 100mtrs., P146,500 and
banera (tub) at P65.00 per piece or a total of P414,065.00

The lower court held that the prevailing replacement value of P6,438,048.00
of the fishing boat and all its equipment would regularly increase at 30%
every year from the date the quotations were given.

On the other hand, the lower court noted that petitioner only presented
Lorenzo Lazaro, senior estimator at PNOC Dockyard & Engineering
Corporation, as sole witness and it did not bother at all to offer any
documentary evidence to support its position. Lazaro testified that the price
quotations submitted by private respondent were excessive and that as an
expert witness, he used the quotations of his suppliers in making his
estimates. However, he failed to present such quotations of prices from his
suppliers, saying that he could not produce a breakdown of the costs of his
estimates as it was a sort of secret scheme. For this reason, the lower court
concluded:

Evidently, the quotation of prices submitted by the plaintiff relative to the

replacement value of the fishing boat and its equipments in the tune of
P6,438,048.00 which were lost due to the recklessness and imprudence of
the herein defendants were not rebutted by the latter with sufficient
evidence. The defendants through their sole witness Lorenzo Lazaro relied
heavily on said witness bare claim that the amount afore-said is excessive or
bloated, but they did not bother at all to present any documentary evidence
to substantiate such claim. Evidence to be believed, must not only proceed
from the mouth of the credible witness, but it must be credible in itself. (Vda.
de Bonifacio vs. B. L. T. Bus Co., Inc. L-26810, August 31, 1970).

Aggrieved, petitioner filed a motion for the reconsideration of the lower

courts decision contending that: (1) the lower court erred in holding it liable
for damages; that the lower court did not acquire jurisdiction over the case
by paying only P1,252.00 as docket fee; (2) assuming that plaintiff was
entitled to damages, the lower court erred in awarding an amount greater
than that prayed for in the second amended complaint; and (3) the lower
court erred when it failed to resolve the issues it had raised in its
memorandum.[16] Petitioner likewise filed a supplemental motion for
reconsideration expounding on whether the lower court acquired jurisdiction
over the subject matter of the case despite therein plaintiffs failure to pay
the prescribed docket fee.[17]

5
On January 25, 1990, the lower court declined reconsideration for lack of
merit.[18] Apparently not having received the order denying its motion for
reconsideration, petitioner still filed a motion for leave to file a reply to
private respondents opposition to said motion.[19] Hence, on February 12,
1990, the lower court denied said motion for leave to file a reply on the
ground that by the issuance of the order of January 25, 1990, said motion
had become moot and academic.[20]

Unsatisfied with the lower courts decision, petitioner elevated the matter to
the Court of Appeals which, however, affirmed the same in toto on October
14, 1992.[21] On petitioners assertion that the award of P6,438,048.00 was
not convincingly proved by competent and admissible evidence, the Court of
Appeals ruled that it was not necessary to qualify Del Rosario as an expert
witness because as the owner of the lost vessel, it was well within his
knowledge and competency to identify and determine the equipment
installed and the cargoes loaded on the vessel. Considering the documentary
evidence presented as in the nature of market reports or quotations, trade
journals, trade circulars and price lists, the Court of Appeals held, thus:

Consequently, until such time as the Supreme Court categorically rules on

the admissibility or inadmissibility of this class of evidence, the reception of
these documentary exhibits (price quotations) as evidence rests on the
sound discretion of the trial court. In fact, where the lower court is confronted
with evidence which appears to be of doubtful admissibility, the judge should
declare in favor of admissibility rather than of non-admissibility (The
Collector of Palakadhari, 124 [1899], p. 43, cited in Francisco, Revised Rules
of Court, Evidence, Volume VII, Part I, 1990 Edition, p. 18). Trial courts are
enjoined to observe the strict enforcement of the rules of evidence which
crystallized through constant use and practice and are very useful and
effective aids in the search for truth and for the effective administration of
justice. But in connection with evidence which may appear to be of doubtful
relevancy or incompetency or admissibility, it is the safest policy to be
liberal, not rejecting them on doubtful or technical grounds, but admitting
them unless plainly irrelevant, immaterial or incompetent, for the reason that
their rejection places them beyond the consideration of the court. If they are
thereafter found relevant or competent, can easily be remedied by
completely discarding or ignoring them. (Banaria vs. Banaria, et al., C.A. No.
4142, May 31, 1950; cited in Francisco, Supra). [Underscoring supplied].

Stressing that the alleged inadmissible documentary exhibits were never

satisfactorily rebutted by appellants own sole witness in the person of
Lorenzo Lazaro, the appellate court found that petitioner ironically situated
itself in an inconsistent posture by the fact that its own witness, admittedly
an expert one, heavily relies on the very same pieces of evidence (price
quotations) appellant has so vigorously objected to as inadmissible evidence.
Hence, it concluded:

6
x x x. The amount of P6,438,048.00 was duly established at the trial on the
basis of appellees documentary exhibits (price quotations) which stood
uncontroverted, and which already included the amount by way of
adjustment as prayed for in the amended complaint. There was therefore no
need for appellee to amend the second amended complaint in so far as to
the claim for damages is concerned to conform with the evidence presented
at the trial. The amount of P6,438,048.00 awarded is clearly within the relief
prayed for in appellees second amended complaint.

On the issue of lack of jurisdiction, the respondent court held that following
the ruling in Sun Insurance Ltd. v. Asuncion,[22] the additional docket fee
that may later on be declared as still owing the court may be enforced as a
lien on the judgment.

Hence, the instant recourse.

In assailing the Court of Appeals decision, petitioner posits the view that the
award of P6,438,048 as actual damages should have been in light of these
considerations, namely: (1) the trial court did not base such award on the
actual value of the vessel and its equipment at the time of loss in 1977; (2)
there was no evidence on extraordinary inflation that would warrant an
adjustment of the replacement cost of the lost vessel, equipment and cargo;
(3) the value of the lost cargo and the prices quoted in respondents
documentary evidence only amount to P4,336,215.00; (4) private
respondents failure to adduce evidence to support its claim for unrealized
profit and business opportunities; and (5) private respondents failure to
prove the extent and actual value of damages sustained as a result of the
1977 collision of the vessels.[23]

Under Article 2199 of the Civil Code, actual or compensatory damages are
those awarded in satisfaction of, or in recompense for, loss or injury
sustained. They proceed from a sense of natural justice and are designed to
repair the wrong that has been done, to compensate for the injury inflicted
and not to impose a penalty.[24] In actions based on torts or quasi-delicts,
actual damages include all the natural and probable consequences of the act
or omission complained of.[25] There are two kinds of actual or
compensatory damages: one is the loss of what a person already possesses
(dao emergente), and the other is the failure to receive as a benefit that
which would have pertained to him (lucro cesante).[26] Thus:

Where goods are destroyed by the wrongful act of the defendant the plaintiff
is entitled to their value at the time of destruction, that is, normally, the sum
of money which he would have to pay in the market for identical or
essentially similar goods, plus in a proper case damages for the loss of use
during the period before replacement. In other words, in the case of profit-

7
earning chattels, what has to be assessed is the value of the chattel to its
owner as a going concern at the time and place of the loss, and this means,
at least in the case of ships, that regard must be had to existing and pending
engagements.x x x.

x x x. If the market value of the ship reflects the fact that it is in any case
virtually certain of profitable employment, then nothing can be added to that
value in respect of charters actually lost, for to do so would be pro tanto to
compensate the plaintiff twice over. On the other hand, if the ship is valued
without reference to its actual future engagements and only in the light of its
profit-earning potentiality, then it may be necessary to add to the value thus
assessed the anticipated profit on a charter or other engagement which it
was unable to fulfill. What the court has to ascertain in each case is the
`capitalised value of the vessel as a profit-earning machine not in the
abstract but in view of the actual circumstances, without, of course, taking
into account considerations which were too remote at the time of the loss.
[27] [Underscoring supplied].

As stated at the outset, to enable an injured party to recover actual or

compensatory damages, he is required to prove the actual amount of loss
with reasonable degree of certainty premised upon competent proof and on
the best evidence available.[28] The burden of proof is on the party who
would be defeated if no evidence would be presented on either side. He must
establish his case by a preponderance of evidence which means that the
evidence, as a whole, adduced by one side is superior to that of the other.
[29] In other words, damages cannot be presumed and courts, in making an
award must point out specific facts that could afford a basis for measuring
whatever compensatory or actual damages are borne.[30]

In this case, actual damages were proven through the sole testimony of
private respondents general manager and certain pieces of documentary
evidence. Except for Exhibit B where the value of the 1,050 baeras of fish
were pegged at their September 1977 value when the collision happened,
the pieces of documentary evidence proffered by private respondent with
respect to items and equipment lost show similar items and equipment with
corresponding prices in early 1987 or approximately ten (10) years after the
collision. Noticeably, petitioner did not object to the exhibits in terms of the
time index for valuation of the lost goods and equipment. In objecting to the
same pieces of evidence, petitioner commented that these were not duly
authenticated and that the witness (Del Rosario) did not have personal
knowledge on the contents of the writings and neither was he an expert on
the subjects thereof.[31] Clearly ignoring petitioners objections to the
exhibits, the lower court admitted these pieces of evidence and gave them
due weight to arrive at the award of P6,438,048.00 as actual damages.

8
The exhibits were presented ostensibly in the course of Del Rosarios
testimony. Private respondent did not present any other witnesses especially
those whose signatures appear in the price quotations that became the
bases of the award. We hold, however, that the price quotations are ordinary
private writings which under the Revised Rules of Court should have been
proffered along with the testimony of the authors thereof. Del Rosario could
not have testified on the veracity of the contents of the writings even though
he was the seasoned owner of a fishing fleet because he was not the one
who issued the price quotations. Section 36, Rule 130 of the Revised Rules of
Court provides that a witness can testify only to those facts that he knows of
his personal knowledge.

For this reason, Del Rosarios claim that private respondent incurred losses in
the total amount of P6,438,048.00 should be admitted with extreme caution
considering that, because it was a bare assertion, it should be supported by
independent evidence. Moreover, because he was the owner of private
respondent corporation[32] whatever testimony he would give with regard to
the value of the lost vessel, its equipment and cargoes should be viewed in
the light of his self-interest therein. We agree with the Court of Appeals that
his testimony as to the equipment installed and the cargoes loaded on the
vessel should be given credence[33] considering his familiarity thereto.
However, we do not subscribe to the conclusion that his valuation of such
equipment, cargo and the vessel itself should be accepted as gospel truth.
[34] We must, therefore, examine the documentary evidence presented to
support Del Rosarios claim as regards the amount of losses.

The price quotations presented as exhibits partake of the nature of hearsay

evidence considering that the persons who issued them were not presented
as witnesses.[35] Any evidence, whether oral or documentary, is hearsay if
its probative value is not based on the personal knowledge of the witness but
on the knowledge of another person who is not on the witness stand.
Hearsay evidence, whether objected to or not, has no probative value unless
the proponent can show that the evidence falls within the exceptions to the
hearsay evidence rule.[36] On this point, we believe that the exhibits do not
fall under any of the exceptions provided under Sections 37 to 47 of Rule
130.[37]

It is true that one of the exceptions to the hearsay rule pertains to

commercial lists and the like under Section 45, Rule 130 of the Revised Rules
on Evidence. In this respect, the Court of Appeals considered private
respondents exhibits as commercial lists. It added, however, that these
exhibits should be admitted in evidence until such time as the Supreme
Court categorically rules on the admissibility or inadmissibility of this class of
evidence because the reception of these documentary exhibits (price
quotations) as evidence rests on the sound discretion of the trial court.[38]
Reference to Section 45, Rule 130, however, would show that the conclusion

9
of the Court of Appeals on the matter was arbitrarily arrived at. This rule
states:

Commercial lists and the like. Evidence of statements of matters of interest

to persons engaged in an occupation contained in a list, register, periodical,
or other published compilation is admissible as tending to prove the truth of
any relevant matter so stated if that compilation is published for use by
persons engaged in that occupation and is generally used and relied upon by
them there.

Under Section 45 of the aforesaid Rule, a document is a commercial list if: (1)
it is a statement of matters of interest to persons engaged in an occupation;
(2) such statement is contained in a list, register, periodical or other
published compilation; (3) said compilation is published for the use of
persons engaged in that occupation, and (4) it is generally used and relied
upon by persons in the same occupation.

Based on the above requisites, it is our considered view that Exhibits B, C, D,

E, F and H[39] are not commercial lists for these do not belong to the
category of other published compilations under Section 45 aforequoted.
Under the principle of ejusdem generis, (w)here general words follow an
enumeration of persons or things, by words of a particular and specific
meaning, such general words are not to be construed in their widest extent,
but are to be held as applying only to persons or things of the same kind or
class as those specifically mentioned.[40] The exhibits mentioned are mere
price quotations issued personally to Del Rosario who requested for them
from dealers of equipment similar to the ones lost at the collision of the two
vessels. These are not published in any list, register, periodical or other
compilation on the relevant subject matter. Neither are these market reports
or quotations within the purview of commercial lists as these are not
standard handbooks or periodicals, containing data of everyday professional
need and relied upon in the work of the occupation.[41] These are simply
letters responding to the queries of Del Rosario. Thus, take for example
Exhibit D which reads:

January 20, 1987

PROFORMA INVOICE NO. PSPI-05/87-NAV

MARIA EFIGINIA FISHING CORPORATION

Navotas, Metro Manila

Attention: MR. EDDIE DEL ROSARIO

Gentlemen:

10
In accordance to your request, we are pleased to quote our Cummins Marine
Engine, to wit.

Two (2) units CUMMINS Marine Engine model N855-M, 195 bhp.
at 1800 rpm., 6-cylinder in-line, 4-stroke cycle, natural aspirated, 5 in. x 6 in.
bore and stroke, 855 cu. In. displacement, keel-cooled, electric starting
coupled with Twin-Disc Marine gearbox model MG-509, 4.5:1 reduction ratio,
includes oil cooler, companion flange, manual and standard accessories as
per attached sheet.

Price FOB Manila - - - - - - - - - - - - - - - P 580,000.00/unit

Total FOB Manila - - - - - - - - - - - - - - - P 1,160,000.00
vvvvvvvvv

T E R M S : CASH

DELIVERY : 60-90 days from date of order.

VALIDITY : Subject to our final confirmation.

WARRANTY : One (1) full year against factory defect.

Very truly yours,

POWER SYSTEMS, INC.

(Sgd.)
E. D. Daclan
To be sure, letters and telegrams are admissible in evidence but these are,
however, subject to the general principles of evidence and to various rules
relating to documentary evidence.[42] Hence, in one case, it was held that a
letter from an automobile dealer offering an allowance for an automobile
upon purchase of a new automobile after repairs had been completed, was
not a price current or commercial list within the statute which made such
items presumptive evidence of the value of the article specified therein. The
letter was not admissible in evidence as a commercial list even though the
clerk of the dealer testified that he had written the letter in due course of
business upon instructions of the dealer.[43]

But even on the theory that the Court of Appeals correctly ruled on the
admissibility of those letters or communications when it held that unless
plainly irrelevant, immaterial or incompetent, evidence should better be
admitted rather than rejected on doubtful or technical grounds,[44] the same
pieces of evidence, however, should not have been given probative weight.
This is a distinction we wish to point out. Admissibility of evidence refers to
the question of whether or not the circumstance (or evidence) is to
considered at all.[45] On the other hand, the probative value of evidence

11
refers to the question of whether or not it proves an issue.[46] Thus, a letter
may be offered in evidence and admitted as such but its evidentiary weight
depends upon the observance of the rules on evidence. Accordingly, the
author of the letter should be presented as witness to provide the other party
to the litigation the opportunity to question him on the contents of the letter.
Being mere hearsay evidence, failure to present the author of the letter
renders its contents suspect. As earlier stated, hearsay evidence, whether
objected to or not, has no probative value. Thus:

The courts differ as to the weight to be given to hearsay evidence admitted

without objection. Some hold that when hearsay has been admitted without
objection, the same may be considered as any other properly admitted
testimony. Others maintain that it is entitled to no more consideration than if
it had been excluded.

The rule prevailing in this jurisdiction is the latter one. Our Supreme Court
held that although the question of admissibility of evidence can not be raised
for the first time on appeal, yet if the evidence is hearsay it has no probative
value and should be disregarded whether objected to or not. `If no objection
is made quoting Jones on Evidence - `it (hearsay) becomes evidence by
reason of the want of such objection even though its admission does not
confer upon it any new attribute in point of weight. Its nature and quality
remain the same, so far as its intrinsic weakness and incompetency to satisfy
the mind are concerned, and as opposed to direct primary evidence, the
latter always prevails.

The failure of the defense counsel to object to the presentation of

incompetent evidence, like hearsay evidence or evidence that violates the
rules of res inter alios acta, or his failure to ask for the striking out of the
same does not give such evidence any probative value. But admissibility of
evidence should not be equated with weight of evidence. Hearsay evidence
whether objected to or not has no probative value.[47]

Accordingly, as stated at the outset, damages may not be awarded on the

basis of hearsay evidence.[48]

Nonetheless, the non-admissibility of said exhibits does not mean that it

totally deprives private respondent of any redress for the loss of its vessel.
This is because in Lufthansa German Airlines v. Court of Appeals,[49] the
Court said:

In the absence of competent proof on the actual damage suffered, private

respondent is `entitled to nominal damages which, as the law says, is
adjudicated in order that a right of the plaintiff, which has been violated or
invaded by defendant, may be vindicated and recognized, and not for the

12
purpose of indemnifying the plaintiff for any loss suffered. [Underscoring
supplied].

Nominal damages are awarded in every obligation arising from law,

contracts, quasi-contracts, acts or omissions punished by law, and quasi-
delicts, or in every case where property right has been invaded.[50] Under
Article 2223 of the Civil Code, (t)he adjudication of nominal damages shall
preclude further contest upon the right involved and all accessory questions,
as between the parties to the suit, or their respective heirs and assigns.

Actually, nominal damages are damages in name only and not in fact. Where
these are allowed, they are not treated as an equivalent of a wrong inflicted
but simply in recognition of the existence of a technical injury.[51] However,
the amount to be awarded as nominal damages shall be equal or at least
commensurate to the injury sustained by private respondent considering the
concept and purpose of such damages.[52] The amount of nominal damages
to be awarded may also depend on certain special reasons extant in the
case.[53]

Applying now such principles to the instant case, we have on record the fact
that petitioners vessel Petroparcel was at fault as well as private respondents
complaint claiming the amount of P692,680.00 representing the fishing nets,
boat equipment and cargoes that sunk with the M/V Maria Efigenia XV. In its
amended complaint, private respondent alleged that the vessel had an
actual value of P800,000.00 but it had been paid insurance in the amount of
P200,000.00 and, therefore, it claimed only the amount of P600,000.00.
Ordinarily, the receipt of insurance payments should diminish the total value
of the vessel quoted by private respondent in his complaint considering that
such payment is causally related to the loss for which it claimed
compensation. This Court believes that such allegations in the original and
amended complaints can be the basis for determination of a fair amount of
nominal damages inasmuch as a complaint alleges the ultimate facts
constituting the plaintiff's cause of action.[54] Private respondent should be
bound by its allegations on the amount of its claims.

With respect to petitioners contention that the lower court did not acquire
jurisdiction over the amended complaint increasing the amount of damages
claimed to P600,000.00, we agree with the Court of Appeals that the lower
court acquired jurisdiction over the case when private respondent paid the
docket fee corresponding to its claim in its original complaint. Its failure to
pay the docket fee corresponding to its increased claim for damages under
the amended complaint should not be considered as having curtailed the
lower courts jurisdiction. Pursuant to the ruling in Sun Insurance Office, Ltd.
(SIOL) v. Asuncion,[55] the unpaid docket fee should be considered as a lien
on the judgment even though private respondent specified the amount of
P600,000.00 as its claim for damages in its amended complaint.

13
Moreover, we note that petitioner did not question at all the jurisdiction of
the lower court on the ground of insufficient docket fees in its answers to
both the amended complaint and the second amended complaint. It did so
only in its motion for reconsideration of the decision of the lower court after
it had received an adverse decision. As this Court held in Pantranco North
Express, Inc. v. Court of Appeals,[56] participation in all stages of the case
before the trial court, that included invoking its authority in asking for
affirmative relief, effectively barred petitioner by estoppel from challenging
the courts jurisdiction. Notably, from the time it filed its answer to the second
amended complaint on April 16, 1985,[57] petitioner did not question the
lower courts jurisdiction. It was only on December 29, 1989[58] when it filed
its motion for reconsideration of the lower courts decision that petitioner
raised the question of the lower courts lack of jurisdiction. Petitioner thus
foreclosed its right to raise the issue of jurisdiction by its own inaction.

WHEREFORE, the challenged decision of the Court of Appeals dated October

14, 1992 in CA-G. R. CV No. 26680 affirming that of the Regional Trial Court
of Caloocan City, Branch 121, is hereby MODIFIED insofar as it awarded
actual damages to private respondent Maria Efigenia Fishing Corporation in
the amount of P6,438,048.00 for lack of evidentiary bases therefor.
Considering the fact, however, that: (1) technically petitioner sustained
injury but which, unfortunately, was not adequately and properly proved, and
(2) this case has dragged on for almost two decades, we believe that an
award of Two Million (P2,000,000.00)[59] in favor of private respondent as
and for nominal damages is in order.

No pronouncement as to costs.

SO ORDERED.
-----
G.R. No. 107518 October 8, 1998
Lessons Applicable: Kinds of Damages (Torts and Damages)
Laws Applicable:

FACTS:

September 21, 1977 early morning: M/V Maria Efigenia XV, owned by Maria
Efigenia Fishing Corporation on its way to Navotas, Metro Manila collided with
the vessel Petroparcel owned by the Luzon Stevedoring Corporation (LSC)
Board of Marine Inquiry, Philippine Coast Guard Commandant Simeon N.
Alejandro found Petroparcel to be at fault
Maria Efigenia sued the LSC and the Petroparcel captain, Edgardo Doruelo
praying for an award of P692,680.00 representing the value of the fishing
nets, boat equipment and cargoes of M/V Maria Efigenia XV with interest at
the legal rate plus 25% as attorneys fees and later on amended to add the

14
lost value of the hull less the P200K insurance and unrealized profits and
lost business opportunities
During the pendency of the case, PNOC Shipping and Transport Corporation
sought to be substituted in place of LSC as it acquired Petroparcel
Lower Court: against PNOC ordering it to pay P6,438,048 value of the fishing
boat with interest plus P50K attorney's fees and cost of suit
CA: affirmed in toto
ISSUE: W/N the damage was adequately proven

HELD: YES. affirming with modification actual damages of P6,438,048.00 for

lack of evidentiary bases therefor. P2M nominal damages instead.

in connection with evidence which may appear to be of doubtful relevancy or

incompetency or admissibility, it is the safest policy to be liberal, not
rejecting them on doubtful or technical grounds, but admitting them unless
plainly irrelevant, immaterial or incompetent, for the reason that their
rejection places them beyond the consideration of the court.
If they are thereafter found relevant or competent, can easily be remedied
by completely discarding or ignoring them
two kinds of actual or compensatory damages:
loss of what a person already possesses (dao emergente)
failure to receive as a benefit that which would have pertained to him
in the case of profit-earning chattels, what has to be assessed is the value of
the chattel to its owner as a going concern at the time and place of the loss,
and this means, at least in the case of ships, that regard must be had to
existing and pending engagements
If the market value of the ship reflects the fact that it is in any case virtually
certain of profitable employment, then nothing can be added to that value in
respect of charters actually lost, for to do so would be pro tanto to
compensate the plaintiff twice over.
if the ship is valued without reference to its actual future engagements and
only in the light of its profit-earning potentiality, then it may be necessary to
add to the value thus assessed the anticipated profit on a charter or other
engagement which it was unable to fulfill.
damages cannot be presumed and courts, in making an award must point
out specific facts that could afford a basis for measuring whatever
compensatory or actual damages are borne
proven through sole testimony of general manager without objection from
LSC
Admissibility of evidence refers to the question of whether or not the
circumstance (or evidence) is to considered at all. On the other hand, the
probative value of evidence refers to the question of whether or not it proves
an issue
Hearsay evidence whether objected to or not has no probative value.
In the absence of competent proof on the actual damage suffered, private
respondent is `entitled to nominal damages which, as the law says, is

15
adjudicated in order that a right of the plaintiff, which has been violated or
invaded by defendant, may be vindicated and recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered
awarded in every obligation arising from law, contracts, quasi-contracts, acts
or omissions punished by law, and quasi-delicts, or in every case where
property right has been invaded.
damages in name only and not in fact
amount to be awarded as nominal damages shall be equal or at least
commensurate to the injury sustained by private respondent considering the
concept and purpose of such damages
Ordinarily, the receipt of insurance payments should diminish the total value
of the vessel quoted by private respondent in his complaint considering that
such payment is causally related to the loss for which it claimed
compensation.
Its failure to pay the docket fee corresponding to its increased claim for
damages under the amended complaint should not be considered as having
curtailed the lower courts jurisdiction since the unpaid docket fee should be
considered as a lien on the judgment.
-------------------------

2. G.R. No. 95536 March 23, 1992

ANICETO G. SALUDO, JR., MARIA SALVACION SALUDO, LEOPOLDO G.

SALUDO and SATURNINO G. SALUDO, petitioners,
vs.
HON. COURT OF APPEALS, TRANS WORLD AIRLINES, INC., and
PHILIPPINE AIRLINES, INC., respondents.

REGALADO, J.:

Assailed in this petition for review on certiorari is the decision in CA-G.R. CV

No. 20951 of respondent Court of Appeals 1 which affirmed the decision of
the trial court 2 dismissing for lack of evidence herein petitioners' complaint
in Civil Case No R-2101 of the then Court of First Instance of Southern Leyte,
Branch I.

The facts, as recounted by the court a quo and adopted by respondent court
after "considering the evidence on record," are as follows:

After the death of plaintiffs' mother, Crispina Galdo Saludo, in Chicago

Illinois, (on) October 23, 1976 (Exh. A), Pomierski and Son Funeral Home of
Chicago, made the necessary preparations and arrangements for the
shipment, of the remains from Chicago to the Philippines. The funeral home
had the remains embalmed (Exb. D) and secured a permit for the disposition
of dead human body on October 25, 1976 (Exh. C), Philippine Vice Consul in
Chicago, Illinois, Bienvenido M. Llaneta, at 3:00 p.m. on October 26, 1976 at

16
the Pomierski & Son Funeral Home, sealed the shipping case containing a
hermetically sealed casket that is airtight and waterproof wherein was
contained the remains of Crispina Saludo Galdo (sic) (Exb. B). On the same
date, October 26, 1976, Pomierski brought the remains to C.M.A.S.
(Continental Mortuary Air Services) at the airport (Chicago) which made the
necessary arrangements such as flights, transfers, etc.; C.M.A.S. is a national
service used by undertakers to throughout the nation (U.S.A.), they furnish
the air pouch which the casket is enclosed in, and they see that the remains
are taken to the proper air freight terminal (Exh. 6-TWA). C.M.A.S. booked the
shipment with PAL thru the carrier's agent Air Care International, with
Pomierski F.H. as the shipper and Mario (Maria) Saludo as the consignee. PAL
Airway Bill No. 079-01180454 Ordinary was issued wherein the requested
routing was from Chicago to San Francisco on board TWA Flight 131 of
October 27, 1976 and from San Francisco to Manila on board PAL Flight No.
107 of the same date, and from Manila to Cebu on board PAL Flight 149 of
October 29, 1976 (See Exh. E., Also Exh. 1-PAL).

In the meantime, plaintiffs Maria Salvacion Saludo and Saturnino Saludo, thru
a travel agent, were booked with United Airlines from Chicago to California,
and with PAL from California to Manila. She then went to the funeral director
of Pomierski Funeral Home who had her mother's remains and she told the
director that they were booked with United Airlines. But the director told her
that the remains were booked with TWA flight to California. This upset her,
and she and her brother had to change reservations from UA to the TWA
flight after she confirmed by phone that her mother's remains should be on
that TWA flight. They went to the airport and watched from the look-out area.
She saw no body being brought. So, she went to the TWA counter again, and
she was told there was no body on that flight. Reluctantly, they took the TWA
flight upon assurance of her cousin, Ani Bantug, that he would look into the
matter and inform her about it on the plane or have it radioed to her. But no
confirmation from her cousin reached her that her mother was on the West
Coast.

Upon arrival at San Francisco at about 5:00 p.m., she went to the TWA
counter there to inquire about her mother's remains. She was told they did
not know anything about it.

She then called Pomierski that her mother's remains were not at the West
Coast terminal, and Pomierski immediately called C.M.A.S., which in a matter
of 10 minutes informed him that the remains were on a plane to Mexico City,
that there were two bodies at the terminal, and somehow they were
switched; he relayed this information to Miss Saludo in California; later
C.M.A.S. called and told him they were sending the remains back to
California via Texas (see Exh. 6-TWA).

17
It-turned out that TWA had carried a shipment under PAL Airway Bill No. 079-
ORD-01180454 on TWA Flight 603 of October 27, 1976, a flight earlier than
TWA Flight 131 of the same date. TWA delivered or transferred the said
shipment said to contain human remains to PAL at 1400H or 2:00 p.m. of the
same date, October 27, 1976 (Bee Exh. 1- TWA). "Due to a switch(ing) in
Chicago", this shipment was withdrawn from PAL by CMAS at 1805H (or 6:05
p.m.) of the same date, October 27 (Exh. 3-PAL, see Exh. 3-a-PAL).

What transpired at the Chicago (A)irport is explained in a memo or incident

report by Pomierski (Exh. 6-TWA) to Pomierski's lawyers who in turn referred
to said' memo and enclosed it in their (Pomierski's lawyers) answer dated
July 18, 1981 to herein plaintiff's counsel (See Exh. 5-TWA). In that memo or
incident report (Exh. 6-TWA), it is stated that the remains (of Crispina Saludo)
were taken to CMAS at the airport; that there were two bodies at the
(Chicago Airport) terminal, and somehow they were switched, that the
remains (of Crispina Saludo) were on a plane to Mexico City; that CMAS is a
national service used by undertakers throughout the nation (U.S.A.), makes
all the necessary arrangements, such as flights, transfers, etc., and see(s) to
it that the remains are taken to the proper air freight terminal.

The following day October 28, 1976, the shipment or remains of Crispina
Saludo arrived (in) San Francisco from Mexico on board American Airlines.
This shipment was transferred to or received by PAL at 1945H or 7:45 p.m.
(Exh. 2-PAL, Exh. 2-a-PAL). This casket bearing the remains of Crispina
Saludo, which was mistakenly sent to Mexico and was opened (there), was
resealed by Crispin F. Patagas for shipment to the Philippines (See Exh. B-1).
The shipment was immediately loaded on PAL flight for Manila that same
evening and arrived (in) Manila on October 30, 1976, a day after its expected
arrival on October 29, 1976. 3

In a letter dated December 15, 1976, 4 petitioners' counsel informed private

respondent Trans World Airlines (TWA) of the misshipment and eventual
delay in the delivery of the cargo containing the remains of the late Crispin
Saludo, and of the discourtesy of its employees to petitioners Maria
Salvacion Saludo and Saturnino Saludo. In a separate letter on June 10, 1977
addressed to co-respondent Philippine Airlines (PAL), 5 petitioners stated that
they were holding PAL liable for said delay in delivery and would commence
judicial action should no favorable explanation be given.

Both private respondents denied liability. Thus, a damage suit 6 was filed by
petitioners before the then Court of First Instance, Branch III, Leyte, praying
for the award of actual damages of P50,000.00, moral damages of
P1,000,000.00, exemplary damages, attorney's fees and costs of suit.

As earlier stated, the court below absolved the two respondent airlines
companies of liability. The Court of Appeals affirmed the decision of the lower

18
court in toto, and in a subsequent resolution, 7 denied herein petitioners'
motion for reconsideration for lack of merit.

In predictable disagreement and dissatisfaction with the conclusions reached

by respondent appellate court, petitioners now urge this Court to review the
appealed decision and to resolve whether or not (1) the delay in the delivery
of the casketed remains of petitioners' mother was due to the fault of
respondent airline companies, (2) the one-day delay in the delivery of the
same constitutes contractual breach as would entitle petitioners to damages,
(3) damages are recoverable by petitioners for the humiliating, arrogant and
indifferent acts of the employees of TWA and PAL, and (4) private
respondents should be held liable for actual, moral and exemplary damages,
aside from attorney's fees and litigation expenses. 8

At the outset and in view of the spirited exchanges of the parties on this
aspect, it is to be stressed that only questions of law may be raised in a
petition filed in this Court to review on certiorari the decision of the Court of
Appeals. 9 This being so, the factual findings of the Court of Appeals are final
and conclusive and cannot be reviewed by the Supreme Court. The rule,
however, admits of established exceptions, to wit: (a) where there is grave
abuse of discretion; (b) when the finding is grounded entirely on
speculations, surmises or conjectures;(c) when the inference made is
manifestly-mistaken, absurd or impossible; (d) when the judgment of the
Court of Appeals was based on a misapprehension of facts; (e) when the
factual findings are conflicting; (f) when the Court of Appeals, in making its
findings, went beyond the issues of the case and the same are contrary to
the admissions of both appellant and appellee; 10 (g) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the
parties and which, if properly considered, would justify a different conclusion;
11 and (h) where the findings of fact of the Court of Appeals are contrary to
those of the trial court, or are mere conclusions without citation of specific
evidence, or where the facts of set forth by the petitioner are not disputed by
the respondent, or where the findings of fact of the Court of Appeals are
premised on the absence of evidence and are contradicted by the evidence
on record. 12

To distinguish, a question of law is one which involves a doubt or controversy

on what the law is on a certain state of facts; and, a question of fact,
contrarily, is one in which there is a doubt or difference as to the truth or
falsehood of the alleged facts. 13 One test, it has been held, is whether the
appellate court can determine the issue raised without reviewing or
evaluating the evidence, in which case it is a question of law, otherwise it will
be a question of fact. 14

Respondent airline companies object to the present recourse of petitioners

on the ground that this petition raises only factual questions. 15 Petitioners

19
maintain otherwise or, alternatively, they are of the position that, assuming
that the petition raises factual questions, the same are within the recognized
exceptions to the general rule as would render the petition cognizable and
worthy of review by the Court. 16

Since it is precisely the soundness of the inferences or conclusions that may

be drawn from the factual issues which are here being assayed, we find that
the issues raised in the instant petition indeed warrant a second look if this
litigation is to come to a reasonable denouement. A discussion seriatim of
said issues will further reveal that the sequence of the events involved is in
effect disputed. Likewise to be settled is whether or not the conclusions of
the Court of Appeals subject of this review indeed find evidentiary and legal
support.

I. Petitioners fault respondent court for "not finding that private

respondents failed to exercise extraordinary diligence required by law which
resulted in the switching and/or misdelivery of the remains of Crispina Saludo
to Mexico causing gross delay in its shipment to the Philippines, and
consequently, damages to petitioners." 17

Petitioner allege that private respondents received the casketed remains of

petitioners' mother on October 26, 1976, as evidenced by the issuance of
PAL Air Waybill No. 079-01180454 18 by Air Care International as carrier's
agent; and from said date, private respondents were charged with the
responsibility to exercise extraordinary diligence so much so that for the
alleged switching of the caskets on October 27, 1976, or one day after
private respondents received the cargo, the latter must necessarily be liable.

To support their assertion, petitioners rely on the jurisprudential dictum, both

under American and Philippine law, that "(t)he issuance of a bill of lading
carries the presumption that the goods were delivered to the carrier issuing
the bill, for immediate shipment, and it is nowhere questioned that a bill of
lading is prima facie evidence of the receipt of the goods by the carrier. . . .
In the absence of convincing testimony establishing mistake, recitals in the
bill of lading showing that the carrier received the goods for shipment on a
specified date control (13 C.J.S. 235)." 19

A bill of lading is a written acknowledgment of the receipt of the goods and

an agreement to transport and deliver them at a specified place to a person
named or on his order. Such instrument may be called a shipping receipt,
forwarder's receipt and receipt for transportation. 20 The designation,
however, is immaterial. It has been hold that freight tickets for bus
companies as well as receipts for cargo transported by all forms of
transportation, whether by sea or land, fall within the definition. Under the
Tariff and Customs Code, a bill of lading includes airway bills of lading. 21
The two-fold character of a bill of lading is all too familiar; it is a receipt as to

20
the quantity and description of the goods shipped and a contract to transport
the goods to the consignee or other person therein designated, on the terms
specified in such instrument. 22

Logically, since a bill of lading acknowledges receipt of goods to be

transported, delivery of the goods to the carrier normally precedes the
issuance of the bill; or, to some extent, delivery of the goods and issuance of
the bill are regarded in commercial practice as simultaneous acts. 23
However, except as may be prohibited by law, there is nothing to prevent an
inverse order of events, that is, the execution of the bill of lading even prior
to actual possession and control by the carrier of the cargo to be
transported. There is no law which requires that the delivery of the goods for
carriage and the issuance of the covering bill of lading must coincide in point
of time or, for that matter, that the former should precede the latter.

Ordinarily, a receipt is not essential to a complete delivery of goods to the

carrier for transportation but, when issued, is competent and prima facie, but
not conclusive, evidence of delivery to the carrier. A bill of lading, when
properly executed and delivered to a shipper, is evidence that the carrier has
received the goods described therein for shipment. Except as modified by
statute, it is a general rule as to the parties to a contract of carriage of goods
in connection with which a bill of lading is issued reciting that goods have
been received for transportation, that the recital being in essence a receipt
alone, is not conclusive, but may be explained, varied or contradicted by
parol or other evidence. 24

While we agree with petitioners' statement that "an airway bill estops the
carrier from denying receipt of goods of the quantity and quality described in
the bill," a further reading and a more faithful quotation of the authority cited
would reveal that "(a) bill of lading may contain constituent elements of
estoppel and thus become something more than a contract between the
shipper and the carrier. . . . (However), as between the shipper and the
carrier, when no goods have been delivered for shipment no recitals in the
bill can estop the carrier from showing the true facts . . . Between the
consignor of goods and receiving carrier, recitals in a bill of lading as to the
goods shipped raise only a rebuttable presumption that such goods were
delivered for shipment. As between the consignor and a receiving carrier, the
fact must outweigh the recital." 25 (Emphasis supplied)

For this reason, we must perforce allow explanation by private respondents

why, despite the issuance of the airway bill and the date thereof, they deny
having received the remains of Crispina Saludo on October 26, 1976 as
alleged by petitioners.

The findings of the trial court, as favorably adopted by the Court of Appeals
and which we have earner quoted, provide us with the explanation that

21
sufficiently over comes the presumption relied on by petitioners in insisting
that the remains of their mother were delivered to and received by private
respondents on October 26, 1976. Thus

. . . Philippine Vice Consul in Chicago, Illinois, Bienvenido M. Llaneta, at 3:00

p.m. on October 26, 1976 at the Pomierski & Son Funeral Home, sealed the
shipping case containing a hermetically sealed casket that is airtight and
waterproof wherein was contained the remains of Crispina Saludo Galdo (sic)
(Exh. B). On the same date October 26, 1976, Pomierski brought the remains
to C.M.A.S. (Continental Mortuary Air Services) at the airport (Chicago) which
made the necessary arrangements such as flights, transfers, etc; C.M.A.S. is
a national service used by undertakers throughout the nation (U.S.A.), they
furnish the air pouch which the casket is enclosed in, and they see that the
remains are taken to the proper air freight terminal (Exh. G-TWA). C.M.A.S.
booked the shipment with PAL thru the carrier's agent Air Care International,
with Pomierski F.H. as the shipper and Mario (Maria) Saludo as the consignee.
PAL Airway Bill No. 079- 01180454 Ordinary was issued wherein the
requested routing was from Chicago to San Francisco on board TWA Flight-
131 of October 27;1976, and from San Francisco to Manila on board PAL
Flight No. 107 of the same date, and from Manila to Cebu on board PAL Flight
149 of October 29, 1976 (See Exh. E, also Exh. 1-PAL). 26 (Emphasis ours.)

Moreover, we are persuaded to believe private respondent PAL's account as

to what transpired October 26, 1976:

. . . Pursuant thereto, on 26 October 1976, CMAS acting upon the instruction

of Pomierski, F.H., the shipper requested booking of the casketed remains of
Mrs. Cristina (sic) Saludo on board PAL's San Francisco-Manila Flight No. PR
107 on October 27, 1976.

2. To signify acceptance and confirmation of said booking, PAL issued to

said Pomierski F.H., PAL Airway Bill No. 079-01180454 dated October 27,
1976 (sic, "10/26/76"). PAL confirmed the booking and transporting of the
shipment on board of its Flight PR 107 on October 27, 1976 on the basis of
the representation of the shipper and/or CMAS that the said cargo would
arrive in San Francisco from Chicago on board United Airlines Flight US 121
on 27 October 1976. 27

In other words, on October 26, 1976 the cargo containing the casketed
remains of Crispina Saludo was booked for PAL Flight Number PR-107 leaving
San Francisco for Manila on October 27, 1976, PAL Airway Bill No. 079-
01180454 was issued, not as evidence of receipt of delivery of the cargo on
October 26, 1976, but merely as a confirmation of the booking thus made for
the San Francisco-Manila flight scheduled on October 27, 1976. Actually, it
was not until October 28, 1976 that PAL received physical delivery of the

22
body at San Francisco, as duly evidenced by the Interline Freight Transfer
Manifest of the American Airline Freight System and signed for by Virgilio
Rosales at 1945H, or 7:45 P.M. on said date. 28

Explicit is the rule under Article 1736 of the Civil Code that the extraordinary
responsibility of the common carrier begins from the time the goods are
delivered to the carrier. This responsibility remains in full force and effect
even when they are temporarily unloaded or stored in transit, unless the
shipper or owner exercises the right of stoppage in transitu, 29 and
terminates only after the lapse of a reasonable time for the acceptance, of
the goods by the consignee or such other person entitled to receive them. 30
And, there is delivery to the carrier when the goods are ready for and have
been placed in the exclusive possession, custody and control of the carrier
for the purpose of their immediate transportation and the carrier has
accepted them. 31 Where such a delivery has thus been accepted by the
carrier, the liability of the common carrier commences eo instanti. 32

Hence, while we agree with petitioners that the extraordinary diligence

statutorily required to be observed by the carrier instantaneously
commences upon delivery of the goods thereto, for such duty to commence
there must in fact have been delivery of the cargo subject of the contract of
carriage. Only when such fact of delivery has been unequivocally established
can the liability for loss, destruction or deterioration of goods in the custody
of the carrier, absent the excepting causes under Article 1734, attach and
the presumption of fault of the carrier under Article 1735 be invoked.

As already demonstrated, the facts in the case at bar belie the averment that
there was delivery of the cargo to the carrier on October 26, 1976. Rather, as
earlier explained, the body intended to be shipped as agreed upon was really
placed in the possession and control of PAL on October 28, 1976 and it was
from that date that private respondents became responsible for the agreed
cargo under their undertakings in PAL Airway Bill No. 079-01180454.
Consequently, for the switching of caskets prior thereto which was not
caused by them, and subsequent events caused thereby, private
respondents cannot be held liable.

Petitioners, proceeding on the premise that there was delivery of the cargo
to private respondents on October 26,1976 and that the latter's
extraordinary responsibility had by then become operative, insist on foisting
the blame on private respondents for the switching of the two caskets which
occurred on October 27, 1976. It is argued that since there is no clear
evidence establishing the fault Continental Mortuary Air Services (CMAS) for
the mix-up, private respondents are presumably negligent pursuant to Article
1735 of the Civil Code and, for failure to rebut such presumption, they must
necessarily be held liable; or, assuming that CMAS was at fault, the same
does not absolve private respondents of liability because whoever brought

23
the cargo to the airport or loaded it on the plane did so as agent of private
respondents.

This contention is without merit. As pithily explained by the Court of Appeals:

The airway bill expressly provides that "Carrier certifies goods described
below were received for carriage", and said cargo was "casketed human
remains of Crispina Saludo," with "Maria Saludo as Consignee; Pomierski F.H.
as Shipper; Air Care International as carrier's agent." On the face of the said
airway bill, the specific flight numbers, specific routes of shipment and dates
of departure and arrival were typewritten, to wit: Chicago TWA Flight 131/27
to San Francisco and from San Francisco by PAL 107 on, October 27, 1976 to
Philippines and to Cebu via PAL Flight 149 on October 29, 1976. The airway
bill also contains the following typewritten words, as follows: all documents
have been examined (sic). Human remains of Crispina Saludo. Please return
back (sic) first available flight to SFO.

But, as it turned out and was discovered later the casketed human remains
which was issued PAL Airway Bill #079-1180454 was not the remains of
Crispina Saludo, the casket containing her remains having been shipped to
Mexico City.

However, it should be noted that, Pomierski F.H., the shipper of Mrs. Saludo's
remains, hired Continental Mortuary Services (hereafter referred to as
C.M.A.S.), which is engaged in the business of transporting and forwarding
human remains. Thus, C.M.A.S. made all the necessary arrangements such
as flights, transfers, etc. for shipment of the remains of Crispina Saludo.

The remains were taken on October 26th, 1976, to C.M.A.S. at the airport.
These people made all the necessary arrangements, such as flights,
transfers, etc. This is a national service used by undertakers throughout the
nation. They furnished the air pouch which the casket is enclosed in, and
they see that the remains are taken to the proper air frieght terminal. I was
very surprised when Miss Saludo called me to say that the remains were not
at the west coast terminal. I immediately called C.M.A.S. They called me
back in a matter of ten minutes to inform me that the remains were on a
plane to Mexico City. The man said that there were two bodies at the
terminal, and somehow they were switched. . . . (Exb. 6 "TWA", which is
the memo or incident report enclosed in the stationery of Walter Pomierski &
Sons Ltd.)

Consequently, when the cargo was received from C.M.A.S. at the Chicago
airport terminal for shipment, which was supposed to contain the remains of
Crispina Saludo, Air Care International and/or TWA, had no way of
determining its actual contents, since the casket was hermetically sealed by
the Philippine Vice-Consul in Chicago and in an air pouch of C.M.A.S., to the

24
effect that Air Care International and/or TWA had to rely on the information
furnished by the shipper regarding the cargo's content. Neither could Air
Care International and/or TWA open the casket for further verification, since
they were not only without authority to do so, but even prohibited.

Thus, under said circumstances, no fault and/or negligence can be attributed

to PAL (even if Air Care International should be considered as an agent of
PAL) and/or TWA, the entire fault or negligence being exclusively with
C.M.A.S. 33 (Emphasis supplied.)

It can correctly and logically be concluded, therefore, that the switching

occurred or, more accurately, was discovered on October 27, 1976; and
based on the above findings of the Court of appeals, it happened while the
cargo was still with CMAS, well before the same was place in the custody of
private respondents.

Thus, while the Air Cargo Transfer Manifest of TWA of October 27, 1976 34
was signed by Garry Marcial of PAL at 1400H, or 2:00 P.M., on the same date,
thereby indicating acknowledgment by PAL of the transfer to them by TWA of
what was in truth the erroneous cargo, said misshipped cargo was in fact
withdrawn by CMAS from PAL as shown by the notation on another copy of
said manifest 35 stating "Received by CMAS Due to switch in Chicago
10/27-1805H," the authenticity of which was never challenged. This shows
that said misshipped cargo was in fact withdrawn by CMAS from PAL and the
correct shipment containing the body of Crispina Saludo was received by PAL
only on October 28, 1976, at 1945H, or 7:45 P.M., per American Airlines
Interline Freight Transfer Manifest No. AA204312. 36

Witness the deposition of TWA's ramp serviceman, Michael Giosso, on this

matter:

ATTY. JUAN COLLAS, JR.:

On that date, do (sic) you have occasion to handle or deal with the transfer
of cargo from TWA Flight No. 603 to PAL San Francisco?

MICHAEL GIOSSO:

Yes, I did.

ATTY. JUAN COLLAS, JR.:

What was your participation with the transfer of the cargo?

MICHAEL GIOSSO:

25
I manifested the freight on a transfer manifest and physically moved it to PAL
and concluded the transfer by signing it off.

ATTY. JUAN COLLAS, JR.:

You brought it there yourself?

MICHAEL GIOSSO:

Yes sir.

ATTY. JUAN COLIAS, JR.:

Do you have anything to show that PAL received the cargo from TWA on
October 27, 1976?

MICHAEL GIOSSO:

Yes, I do.

(Witness presenting a document)

ATTY. JUAN COLLAS, JR.:

For purposes of clarity, Exhibit I is designated as Exhibit I-TWA.

xxx xxx xxx

ATTY. JUAN COLLAS, JR.:

This Exhibit I-TWA, could you tell what it is, what it shows?

MICHAEL GIOSSO:

It shows transfer of manifest on 10-27-76 to PAL at 1400 and verified with

two signatures as it completed the transfer.

ATTY. JUAN COLLAS, JR.:

Very good,. Who was the PAL employee who received the cargo?

MICHAEL GIOSSO:

The name is Garry Marcial." 37

26
The deposition of Alberto A. Lim, PAL's cargo supervisor at San Francisco, as
deponent-witness for PAL, makes this further clarification:

ATTY. CESAR P. MANALAYSAY:

You mentioned Airway Bill, Mr. Lim. I am showing to you a PAL Airway Bill
Number 01180454 which for purposes of evidence, I would like to request
that the same be marked as evidence Exhibit I for PAL.

xxx xxx xxx

In what circumstances did you encounter Exhibit I-PAL?

ALBERTO A. LIM:

If I recall correctly, I was queried by Manila, our Manila office with regard to a
certain complaint that a consignee filed that this shipment did not arrive on
the day that the consignee expects the shipment to arrive.

ATTY CESAR P. MANALAYSAY:

Okay. Now, upon receipt of that query from your Manila office, did you
conduct any investigation to pinpoint the possible causes of mishandling?

ALBERTO A. LIM:

Yes.

xxx xxx xxx

ATTY. CESAR P. MANALAYSAY:

What is the result of your investigation?

ALBERTO A. LIM:

In the course of my investigation, I found that we received the body on

October 28, 1976, from American Airlines.

ATTY. CESAR P. MANALAYSAY:

What body are you referring to?

xxx xxx xxx

ALBERTO A. LIM:

27
The remains of Mrs. Cristina (sic) Saludo.

ATTY. CESAR P. MANALAYSAY:

Is that the same body mentioned in this Airway Bill?

ALBERTO A. LIM:

Yes.

ATTY. CESAR P. MANALAYSAY:

What time did you receive said body on October 28, 1976?

ALBERTO A. LIM:

If I recall correctly, approximately 7:45 of October 28, 1976.

ATTY. CESAR P. MANALAYSAY:

Do you have any proof with you to back the statement?

ALBERTO A. LIM:

Yes. We have on our records a Transfer Manifest from American Airlines

Number 204312 showing that we received a human remains shipment
belong to Mrs. Cristina (sic) Saludo or the human remains of Mrs. Cristina
(sic) Saludo.

ATTY. CESAR P. MAIALAYSAY:

At this juncture, may I request that the Transfer Manifest referred to by the
witness be marked as an evidence as Exhibit II-PAL.

xxx xxx xxx

Mr. Lim, yesterday your co-defendant TWA presented as their Exhibit I

evidence tending to show that on October 27, 1976 at about 2:00 in the,
afternoon they delivered to you a cargo bearing human remains. Could you
go over this Exhibit I and please give us your comments as to that exhibit?

ATTY. ALBERTO C. MENDOZA:

That is a vague question. I would rather request that counsel propound

specific questions rather than asking for comments on Exhibit I-TWA.

28
ATTY. CESAR P. MANALAYSAY:

In that case, I will reform my question. Could you tell us whether TWA in fact
delivered to you the human remains as indicated in that Transfer Manifest?

ALBERTO A. LIM:

Yes, they did.

ATTY. CESAR P. MANALAYSAY:

I noticed that the Transfer Manifest of TWA marked as Exhibit I-TWA bears the
same numbers or the same entries as the Airway Bill marked as Exhibit I-A
PAL tending to show that this is the human remains of Mrs Cristina (sic)
Saludo. Could you tell us whether this is true?

ALBERTO A. LIM:

It is true that we received human remains shipment from TWA as indicated

on this Transfer Manifest. But in the course of investigation, it was found out
that the human remains transferred to us is not the remains of Mrs. Cristina
(sic) Saludo this is the reason why we did not board it on our flight. 38

Petitioners consider TWA's statement that "it had to rely on the information
furnished by the shipper" a lame excuse and that its failure to prove that its
personnel verified and identified the contents of the casket before loading
the same constituted negligence on the part of TWA. 39

We upbold the favorable consideration by the Court of Appeals of the

following findings of the trial court:

It was not (to) TWA, but to C.M.A.S. that the Pomierski & Son Funeral Home
delivered the casket containing the remains of Crispina Saludo. TWA would
have no knowledge therefore that the remains of Crispina Saludo were not
the ones inside the casket that was being presented to it for shipment. TWA
would have to rely on there presentations of C.M.A.S. The casket was
hermetically sealed and also sealed by the Philippine Vice Consul in Chicago.
TWA or any airline for that matter would not have opened such a sealed
casket just for the purpose of ascertaining whose body was inside and to
make sure that the remains inside were those of the particular person
indicated to be by C.M.A.S. TWA had to accept whatever information was
being furnished by the shipper or by the one presenting the casket for
shipment. And so as a matter of fact, TWA carried to San Francisco and
transferred to defendant PAL a shipment covered by or under PAL Airway Bill
No. 079-ORD-01180454, the airway bill for the shipment of the casketed

29
remains of Crispina Saludo. Only, it turned out later, while the casket was
already with PAL, that what was inside the casket was not the body of
Crispina Saludo so much so that it had to be withdrawn by C.M.A.S. from PAL.
The body of Crispina Saludo had been shipped to Mexico. The casket
containing the remains of Crispina Saludo was transshipped from Mexico and
arrived in San Francisco the following day on board American Airlines. It was
immediately loaded by PAL on its flight for Manila.

The foregoing points at C.M.A.S., not defendant TWA much less defendant
PAL, as the ONE responsible for the switching or mix-up of the two bodies at
the Chicago Airport terminal, and started a chain reaction of the
misshipment of the body of Crispina Saludo and a one-day delay in the
delivery thereof to its destination. 40

Verily, no amount of inspection by respondent airline companies could have

guarded against the switching that had already taken place. Or, granting that
they could have opened the casket to inspect its contents, private
respondents had no means of ascertaining whether the body therein
contained was indeed that of Crispina Saludo except, possibly, if the body
was that of a male person and such fact was visually apparent upon opening
the casket. However, to repeat, private respondents had no authority to
unseal and open the same nor did they have any reason or justification to
resort thereto.

It is the right of the carrier to require good faith on the part of those persons
who deliver goods to be carried, or enter into contracts with it, and inasmuch
as the freight may depend on the value of the article to be carried, the
carrier ordinarily has the right to inquire as to its value. Ordinarily, too, it is
the duty of the carrier to make inquiry as to the general nature of the articles
shipped and of their value before it consents to carry them; and its failure to
do so cannot defeat the shipper's right to recovery of the full value of the
package if lost, in the absence of showing of fraud or deceit on the part of
the shipper. In the absence of more definite information, the carrier has a the
right to accept shipper's marks as to the contents of the package offered for
transportation and is not bound to inquire particularly about them in order to
take advantage of a false classification and where a shipper expressly
represents the contents of a package to be of a designated character, it is
not the duty of the carrier to ask for a repetition of the statement nor
disbelieve it and open the box and see for itself. 41 However, where a
common carrier has reasonable ground to suspect that the offered goods are
of a dangerous or illegal character, the carrier has the right to know the
character of such goods and to insist on an inspection, if reasonable and
practical under the circumstances, as a condition of receiving and
transporting such goods. 42

30
It can safely be said then that a common carrier is entitled to fair
representation of the nature and value of the goods to be carried, with the
concomitant right to rely thereon, and further noting at this juncture that a
carrier has no obligation to inquire into the correctness or sufficiency of such
information. 43 The consequent duty to conduct an inspection thereof arises
in the event that there should be reason to doubt the veracity of such
representations. Therefore, to be subjected to unusual search, other than the
routinary inspection procedure customarily undertaken, there must exist
proof that would justify cause for apprehension that the baggage is
dangerous as to warrant exhaustive inspection, or even refusal to accept
carriage of the same; and it is the failure of the carrier to act accordingly in
the face of such proof that constitutes the basis of the common carrier's
liability. 44

In the case at bar, private respondents had no reason whatsoever to doubt

the truth of the shipper's representations. The airway bill expressly providing
that "carrier certifies goods received below were received for carriage," and
that the cargo contained "casketed human remains of Crispina Saludo," was
issued on the basis of such representations. The reliance thereon by private
respondents was reasonable and, for so doing, they cannot be said to have
acted negligently. Likewise, no evidence was adduced to suggest even an
iota of suspicion that the cargo presented for transportation was anything
other than what it was declared to be, as would require more than routine
inspection or call for the carrier to insist that the same be opened for
scrutiny of its contents per declaration.

Neither can private respondents be held accountable on the basis of

petitioners' preposterous proposition that whoever brought the cargo to the
airport or loaded it on the airplane did so as agent of private respondents, so
that even if CMAS whose services were engaged for the transit arrangements
for the remains was indeed at fault, the liability therefor would supposedly
still be attributable to private respondents.

While we agree that the actual participation of CMAS has been sufficiently
and correctly established, to hold that it acted as agent for private
respondents would be both an inaccurate appraisal and an unwarranted
categorization of the legal position it held in the entire transaction.

It bears repeating that CMAS was hired to handle all the necessary shipping
arrangements for the transportation of the human remains of Crispina Saludo
to Manila. Hence, it was to CMAS that the Pomierski & Son Funeral Home, as
shipper, brought the remains of petitioners' mother for shipment, with Maria
Saludo as consignee. Thereafter, CMAS booked the shipment with PAL
through the carrier's agent, Air Care International. 45 With its aforestated
functions, CMAS may accordingly be classified as a forwarder which, by
accepted commercial practice, is regarded as an agent of the shipper and

31
not of the carrier. As such, it merely contracts for the transportation of goods
by carriers, and has no interest in the freight but receives compensation from
the shipper as his agent. 46

At this point, it can be categorically stated that, as culled from the findings of
both the trial court and appellate courts, the entire chain of events which
culminated in the present controversy was not due to the fault or negligence
of private respondents. Rather, the facts of the case would point to CMAS as
the culprit. Equally telling of the more likely possibility of CMAS' liability is
petitioners' letter to and demanding an explanation from CMAS regarding the
statement of private respondents laying the blame on CMAS for the incident,
portions of which, reading as follows:

. . . we were informed that the unfortunate a mix-up occurred due to your

negligence. . . .

Likewise, the two airlines pinpoint the responsibility upon your agents.
Evidence were presented to prove that allegation.

On the face of this overwhelming evidence we could and should have filed a
case against you. . . . 47

clearly allude to CMAS as the party at fault. This is tantamount to an

admission by petitioners that they consider private respondents without
fault, or is at the very least indicative of the fact that petitioners entertained
serious doubts as to whether herein private respondents were responsible for
the unfortunate turn of events.

Undeniably, petitioners' grief over the death of their mother was aggravated
by the unnecessary inconvenience and anxiety that attended their efforts to
bring her body home for a decent burial. This is unfortunate and calls for
sincere commiseration with petitioners. But, much as we would like to give
them consolation for their undeserved distress, we are barred by the inequity
of allowing recovery of the damages prayed for by them at the expense of
private respondents whose fault or negligence in the very acts imputed to
them has not been convincingly and legally demonstrated.

Neither are we prepared to delve into, much less definitively rule on, the
possible liability of CMAS as the evaluation and adjudication of the same is
not what is presently at issue here and is best deferred to another time and
addressed to another forum.

II. Petitioners further fault the Court of Appeals for ruling that there was
no contractual breach on the part of private respondents as would entitle
petitioners to damages.

32
Petitioners hold that respondent TWA, by agreeing to transport the remains
of petitioners' mother on its Flight 131 from Chicago to San Francisco on
October 27, 1976, made itself a party to the contract of carriage and,
therefore, was bound by the terms of the issued airway bill. When TWA
undertook to ship the remains on its Flight 603, ten hours earlier than
scheduled, it supposedly violated the express agreement embodied in the
airway bill. It was allegedly this breach of obligation which compounded, if
not directly caused, the switching of the caskets.

In addition, petitioners maintain that since there is no evidence as to who

placed the body on board Flight 603, or that CMAS actually put the cargo on
that flight, or that the two caskets at the Chicago airport were to be
transported by the same airline, or that they came from the same funeral
home, or that both caskets were received by CMAS, then the employees or
agents of TWA presumably caused the mix-up by loading the wrong casket
on the plane. For said error, they contend, TWA must necessarily be
presumed negligent and this presumption of negligence stands undisturbed
unless rebutting evidence is presented to show that the switching or
misdelivery was due to circumstances that would exempt the carrier from
liability.

Private respondent TWA professes otherwise. Having duly delivered or

transferred the cargo to its co-respondent PAL on October 27, 1976 at 2:00
P.M., as supported by the TWA Transfer Manifest, TWA faithfully complied
with its obligation under the airway bill. Said faithful compliance was not
affected by the fact that the remains were shipped on an earlier flight as
there was no fixed time for completion of carriage stipulated on. Moreover,
the carrier did not undertake to carry the cargo aboard any specified aircraft,
in view of the condition on the back of the airway bill which provides:

CONDITIONS OF CONTRACT

xxx xxx xxx

It is agreed that no time is fixed for the completion of carriage hereunder and
that Carrier may without notice substitute alternate carriers or aircraft.
Carrier assumes no obligation to carry the goods by any specified aircraft or
over any particular route or routes or to make connection at any point
according to any particular schedule, and Carrier is hereby authorized to
select, or deviate from the route or routes of shipment, notwithstanding that
the same may be stated on the face hereof. The shipper guarantees payment
of all charges and advances. 48

Hence, when respondent TWA shipped the body on earlier flight and on a
different aircraft, it was acting well within its rights. We find this argument
tenable.

33
The contention that there was contractual breach on the part of private
respondents is founded on the postulation that there was ambiguity in the
terms of the airway bill, hence petitioners' insistence on the application of
the rules on interpretation of contracts and documents. We find no such
ambiguity. The terms are clear enough as to preclude the necessity to probe
beyond the apparent intendment of the contractual provisions.

The hornbook rule on interpretation of contracts consecrates the primacy of

the intention of the parties, the same having the force of law between them.
When the terms of the agreement are clear and explicit, that they do not
justify an attempt to read into any alleged intention of the parties, the terms
are to be understood literally just as they appear on the face of the contract.
49 The various stipulations of a contract shall be interpreted together 50 and
such a construction is to be adopted as will give effect to all provisions
thereof. 51 A contract cannot be construed by parts, but its clauses should
be interpreted in relation to one another. The whole contract must be
interpreted or read together in order to arrive at its true meaning. Certain
stipulations cannot be segregated and then made to control; neither do
particular words or phrases necessarily determine the character of a
contract. The legal effect of the contract is not to be determined alone by
any particular provision disconnected from all others, but in the ruling
intention of the parties as gathered from all the language they have used
and from their contemporaneous and subsequent acts. 52

Turning to the terms of the contract at hand, as presented by PAL Air Waybill
No. 079-01180454, respondent court approvingly quoted the trial court's
disquisition on the aforequoted condition appearing on the reverse side of
the airway bill and its disposition of this particular assigned error:

The foregoing stipulation fully answers plaintiffs' objections to the one-day

delay and the shipping of the remains in TWA Flight 603 instead of TWA
Flight 131. Under the stipulation, parties agreed that no time was fixed to
complete the contract of carriage and that the carrier may, without notice,
substitute alternate carriers or aircraft. The carrier did not assume the
obligation to carry the shipment on any specified aircraft.

xxx xxx xxx

Furthermore, contrary to the claim of plaintiffs-appellants, the conditions of

the Air Waybill are big enough to be read and noticed. Also, the mere fact
that the cargo in question was shipped in TWA Flight 603, a flight earlier on
the same day than TWA Flight 131, did not in any way cause or add to the
one-day delay complained of and/or the switching or mix-up of the bodies.
53

34
Indubitably, that private respondent can use substitute aircraft even without
notice and without the assumption of any obligation whatsoever to carry the
goods on any specified aircraft is clearly sanctioned by the contract of
carriage as specifically provided for under the conditions thereof.

Petitioners' invocation of the interpretative rule in the Rules of Court that

written words control printed words in documents, 54 to bolster their
assertion that the typewritten provisions regarding the routing and flight
schedule prevail over the printed conditions, is tenuous. Said rule may be
considered only when there is inconsistency between the written and printed
words of the contract.

As previously stated, we find no ambiguity in the contract subject of this case

that would call for the application of said rule. In any event, the contract has
provided for such a situation by explicitly stating that the above condition
remains effective "notwithstanding that the same (fixed time for completion
of carriage, specified aircraft, or any particular route or schedule) may be
stated on the face hereof." While petitioners hinge private respondents'
culpability on the fact that the carrier "certifies goods described below were
received for carriage," they may have overlooked that the statement on the
face of the airway bill properly and completely reads

Carrier certifies goods described below were received for carriage subject to
the Conditions on the reverse hereof the goods then being in apparent good
order and condition except as noted hereon. 55 (Emphasis ours.)

Private respondents further aptly observe that the carrier's certification

regarding receipt of the goods for carriage "was of a smaller print than the
condition of the Air Waybill, including Condition No. 5 and thus if plaintiffs-
appellants had recognized the former, then with more reason they were
aware of the latter. 56

In the same vein, it would also be incorrect to accede to the suggestion of

petitioners that the typewritten specifications of the flight, routes and dates
of departures and arrivals on the face of the airway bill constitute a special
contract which modifies the printed conditions at the back thereof. We
reiterate that typewritten provisions of the contract are to be read and
understood subject to and in view of the printed conditions, fully reconciling
and giving effect to the manifest intention of the parties to the agreement.

The oft-repeated rule regarding a carrier's liability for delay is that in the
absence of a special contract, a carrier is not an insurer against delay in
transportation of goods. When a common carrier undertakes to convey
goods, the law implies a contract that they shall be delivered at destination
within a reasonable time, in the absence, of any agreement as to the time of
delivery. 57 But where a carrier has made an express contract to transport

35
and deliver property within a specified time, it is bound to fulfill its contract
and is liable for any delay, no matter from what cause it may have arisen. 58
This result logically follows from the well-settled rule that where the law
creates a duty or charge, and the party is disabled from performing it without
any default in himself, and has no remedy over, then the law will excuse him,
but where the party by his own contract creates a duty or charge upon
himself, he is bound to make it good notwithstanding any accident or delay
by inevitable necessity because he might have provided against it by
contract. Whether or not there has been such an undertaking on the part of
the carrier to be determined from the circumstances surrounding the case
and by application of the ordinary rules for the interpretation of contracts. 59

Echoing the findings of the trial court, the respondent court correctly
declared that

In a similar case of delayed delivery of air cargo under a very similar

stipulation contained in the airway bill which reads: "The carrier does not
obligate itself to carry the goods by any specified aircraft or on a specified
time. Said carrier being hereby authorized to deviate from the route of the
shipment without any liability therefor", our Supreme Court ruled that
common carriers are not obligated by law to carry and to deliver
merchandise, and persons are not vested with the right to prompt delivery,
unless such common carriers previously assume the obligation. Said rights
and obligations are created by a specific contract entered into by the parties
(Mendoza vs. PAL, 90 Phil. 836).

There is no showing by plaintiffs that such a special or specific contract had

been entered into between them and the defendant airline companies.

And this special contract for prompt delivery should call the attention of the
carrier to the circumstances surrounding the case and the approximate
amount of damages to be suffered in case of delay (See Mendoza vs. PAL,
supra). There was no such contract entered into in the instant case. 60

Also, the theory of petitioners that the specification of the flights and dates
of departure and arrivals constitute a special contract that could prevail over
the printed stipulations at the back of the airway bill is vacuous. To
countenance such a postulate would unduly burden the common carrier for
that would have the effect of unilaterally transforming every single bill of
lading or trip ticket into a special contract by the simple expedient of filling it
up with the particulars of the flight, trip or voyage, and thereby imposing
upon the carrier duties and/or obligations which it may not have been ready
or willing to assume had it been timely, advised thereof.

Neither does the fact that the challenged condition No. 5 was printed at the
back of the airway bill militate against its binding effect on petitioners as

36
parties to the contract, for there were sufficient indications on the face of
said bill that would alert them to the presence of such additional condition to
put them on their guard. Ordinary prudence on the part of any person
entering or contemplating to enter into a contract would prompt even a
cursory examination of any such conditions, terms and/or stipulations.

There is a holding in most jurisdictions that the acceptance of a bill of lading

without dissent raises a presumption that all terms therein were brought to
the knowledge of the shipper and agreed to by him, and in the absence of
fraud or mistake, he is estopped from thereafter denying that he assented to
such terms. This rule applies with particular force where a shipper accepts a
bill of lading with full knowledge of its contents, and acceptance under such
circumstances makes it a binding contract. In order that any presumption of
assent to a stipulation in a bill of lading limiting the liability of a carrier may
arise, it must appear that the clause containing this exemption from liability
plainly formed a part of the contract contained in the bill of lading. A
stipulation printed on the back of a receipt or bill of lading or on papers
attached to such receipt will be quite as effective as if printed on its face, if it
is shown that the consignor knew of its terms. Thus, where a shipper accepts
a receipt which states that its conditions are to be found on the back, such
receipt comes within the general rule, and the shipper is held to have
accepted and to be bound by the conditions there to be found. 61

Granting arguendo that Condition No. 5 partakes of the nature of a contract

of adhesion and as such must be construed strictly against the party who
drafted the same or gave rise to any ambiguity therein, it should be borne in
mind that a contract of adhesion may be struck down as void and
unenforceable, for being subversive of public policy, only when the weaker
party is imposed upon in dealing with the dominant bargaining party and is
reduced to the alternative of taking it or leaving it, completely deprived of
the opportunity to bargain on equal footing. 62 However, Ong Yiu vs. Court of
Appeals, et al 63 instructs us that contracts of adhesion are not entirely
prohibited. The one who adheres to the contract is in reality free to reject it
entirely; if he adheres, be gives his consent. Accordingly, petitioners, far from
being the weaker party in this situation, duly signified their presumed assent
to all terms of the contract through their acceptance of the airway bill and
are consequently bound thereby. It cannot be gainsaid that petitioners' were
not without several choices as to carriers in Chicago with its numerous
airways and airliner servicing the same.

We wish to allay petitioners' apprehension that Condition No. 5 of the airway

bill is productive of mischief as it would validate delay in delivery, sanction
violations of contractual obligations with impunity or put a premium on
breaches of contract.

37
Just because we have said that condition No. 5 of the airway bill is binding
upon the parties to and fully operative in this transaction, it does not mean,
and let this serve as fair warning to respondent carriers, that they can at all
times whimsically seek refuge from liability in the exculpatory sanctuary of
said Condition No. 5 or arbitrarily vary routes, flights and schedules to the
prejudice of their customers. This condition only serves to insulate the carrier
from liability in those instances when changes in routes, flights and
schedules are clearly justified by the peculiar circumstances of a particular
case, or by general transportation practices, customs and usages, or by
contingencies or emergencies in aviation such as weather turbulence,
mechanical failure, requirements of national security and the like. And even
as it is conceded that specific routing and other navigational arrangements
for a trip, flight or voyage, or variations therein, generally lie within the
discretion of the carrier in the absence of specific routing instructions or
directions by the shipper, it is plainly incumbent upon the carrier to exercise
its rights with due deference to the rights, interests and convenience of its
customers.

A common carrier undertaking to transport property has the implicit duty to

carry and deliver it within reasonable time, absent any particular stipulation
regarding time of delivery, and to guard against delay. In case of any
unreasonable delay, the carrier shall be liable for damages immediately and
proximately resulting from such neglect of duty. 64 As found by the trial
court, the delay in the delivery of the remains of Crispina Saludo, undeniable
and regrettable as it was, cannot be attributed to the fault, negligence or
malice of private respondents, 65 a conclusion concurred in by respondent
court and which we are not inclined to disturb.

We are further convinced that when TWA opted to ship the remains of
Crispina Saludo on an earlier flight, it did so in the exercise of sound
discretion and with reasonable prudence, as shown by the explanation of its
counsel in his letter of February 19, 1977 in response to petitioners' demand
letter:

Investigation of TWA's handling of this matter reveals that although the

shipment was scheduled on TWA Flight 131 of October 27, 1976, it was
actually boarded on TWA Flight 603 of the same day, approximately 10 hours
earlier, in order to assure that the shipment would be received in San
Francisco in sufficient time for transfer to PAL. This transfer was effected in
San Francisco at 2:00 P.M. on October 27, 1976. 66

Precisely, private respondent TWA knew of the urgency of the shipment by

reason of this notation on the lower portion of the airway bill: "All documents
have been certified. Human remains of Cristina (sic) Saludo. Please return
bag first available flight to SFO." Accordingly, TWA took it upon itself to carry
the remains of Crispina Saludo on an earlier flight, which we emphasize it

38
could do under the terms of the airway bill, to make sure that there would be
enough time for loading said remains on the transfer flight on board PAL.

III. Petitioners challenge the validity of respondent court's finding that

private respondents are not liable for tort on account of the humiliating,
arrogant and indifferent acts of their officers and personnel. They posit that
since their mother's remains were transported ten hours earlier than
originally scheduled, there was no reason for private respondents' personnel
to disclaim knowledge of the arrival or whereabouts of the same other than
their sheer arrogance, indifference and extreme insensitivity to the feelings
of petitioners. Moreover, being passengers and not merely consignors of
goods, petitioners had the right to be treated with courtesy, respect,
kindness and due consideration.

In riposte, TWA claims that its employees have always dealt politely with all
clients, customers and the public in general. PAL, on the other hand, declares
that in the performance of its obligation to the riding public, other customers
and clients, it has always acted with justice, honesty, courtesy and good
faith.

Respondent appellate court found merit in and reproduced the trial court's
refutation of this assigned error:

About the only evidence of plaintiffs that may have reference to the manner
with which the personnel of defendants treated the two plaintiffs at the San
Francisco Airport are the following pertinent portions of Maria Saludo's
testimony:

Q When you arrived there, what did you do, if any?

A I immediately went to the TWA counter and I inquired about whether

my mother was there or if' they knew anything about it.

Q What was the answer?

A They said they do not know. So, we waited.

Q About what time was that when you reached San Francisco from
Chicago?

A I think 5 o'clock. Somewhere around that in the afternoon.

Q You made inquiry it was immediately thereafter?

A Right after we got off the plane.

39
Q Up to what time did you stay in the airport to wait until the TWA people
could tell you the whereabouts?

A Sorry, Sir, but the TWA did not tell us anything. We stayed there until
about 9 o'clock. They have not heard anything about it. They did not say
anything.

Q Do you want to convey to the Court that from 5 up to 9 o'clock in the

evening you yourself went back to the TWA and they could not tell you where
the remains of your mother were?

A Yes sir.

Q And after nine o'clock, what did you do?

A I told my brother my Mom was supposed to be on the Philippine

Airlines flight. "Why don't" we check with PAL instead to see if she was
there?" We tried to comfort each other. I told him anyway that was a shortest
flight from Chicago to California. We will be with our mother on this longer
flight. So, we checked with the PAL.

Q What did you find?

A We learned, Yes, my Mom would be on the flight.

Q Who was that brother?

A Saturnino Saludo.

Q And did you find what was your flight from San Francisco to the
Philippines?

A I do not know the number. It was the evening flight of the Philippine
Airline(s) from San Francisco to Manila.

Q You took that flight with your mother?

A We were scheduled to, Sir.

Q Now, you could not locate the remains of your mother in San Francisco
could you tell us what did you feel?

A After we were told that my mother was not there?

Q After you learned that your mother could not fly with you from Chicago
to California?

40
A Well, I was very upset. Of course, I wanted the confirmation that my
mother was in the West Coast. The fliqht was about 5 hours from Chicago to
California. We waited anxiously all that time on the plane. I wanted to be
assured about my mother's remains. But there was nothing and we could not
get any assurance from anyone about it.

Q Your feeling when you reached San Francisco and you could not find
out from the TWA the whereabouts of the remains, what did you feel?

A Something nobody would be able to describe unless he experiences it

himself. It is a kind of panic. I think it's a feeling you are about to go crazy. It
is something I do not want to live through again. (Inting, t.s.n., Aug. 9, 1983,
pp. 14-18).

The foregoing does not show any humiliating or arrogant manner with which
the personnel of both defendants treated the two plaintiffs. Even their
alleged indifference is not clearly established. The initial answer of the TWA
personnel at the counter that they did not know anything about the remains,
and later, their answer that they have not heard anything about the remains,
and the inability of the TWA counter personnel to inform the two plaintiffs of
the whereabouts of the remains, cannot be said to be total or complete
indifference to the said plaintiffs. At any rate, it is any rude or discourteous
conduct, malfeasance or neglect, the use of abusive or insulting language
calculated to humiliate and shame passenger or had faith by or on the part
of the employees of the carrier that gives the passenger an action for
damages against the carrier (Zulueta vs. Pan American World Airways, 43
SCRA 397; Air France vs. Carrascoso, et al., 18 SCRA 155; Lopez, et al. vs.
Pan American World Airways, 16 SCRA 431; Northwest Airlines, Inc. vs.
Cuenca, 14 SCRA 1063), and none of the above is obtaining in the instant
case. 67

We stand by respondent court's findings on this point, but only to the extent
where it holds that the manner in which private respondent TWA's employees
dealt with petitioners was not grossly humiliating, arrogant or indifferent as
would assume the proportions of malice or bad faith and lay the basis for an
award of the damages claimed. It must however, be pointed out that the
lamentable actuations of respondent TWA's employees leave much to be
desired, particularly so in the face of petitioners' grief over the death of their
mother, exacerbated by the tension and anxiety wrought by the impasse and
confusion over the failure to ascertain over an appreciable period of time
what happened to her remains.

Airline companies are hereby sternly admonished that it is their duty not only
to cursorily instruct but to strictly require their personnel to be more
accommodating towards customers, passengers and the general public. After

41
all, common carriers such as airline companies are in the business of
rendering public service, which is the primary reason for their
enfranchisement and recognition in our law. Because the passengers in a
contract of carriage do not contract merely for transportation, they have a
right to be treated with kindness, respect, courtesy and consideration. 68 A
contract to transport passengers is quite different in kind and degree from
any other contractual relation, and generates a relation attended with public
duty. The operation of a common carrier is a business affected with public
interest and must be directed to serve the comfort and convenience of
passengers. 69 Passengers are human beings with human feelings and
emotions; they should not be treated as mere numbers or statistics for
revenue.

The records reveal that petitioners, particularly Maria and Saturnino Saludo,
agonized for nearly five hours, over the possibility of losing their mother's
mortal remains, unattended to and without any assurance from the
employees of TWA that they were doing anything about the situation. This is
not to say that petitioners were to be regaled with extra special attention.
They were, however, entitled to the understanding and humane
consideration called for by and commensurate with the extraordinary
diligence required of common carriers, and not the cold insensitivity to their
predicament. It is hard to believe that the airline's counter personnel were
totally helpless about the situation. Common sense would and should have
dictated that they exert a little extra effort in making a more extensive
inquiry, by themselves or through their superiors, rather than just shrug off
the problem with a callous and uncaring remark that they had no knowledge
about it. With all the modern communications equipment readily available to
them, which could have easily facilitated said inquiry and which are used as
a matter of course by airline companies in their daily operations, their
apathetic stance while not legally reprehensible is morally deplorable.

Losing a loved one, especially one's, parent, is a painful experience. Our

culture accords the tenderest human feelings toward and in reverence to the
dead. That the remains of the deceased were subsequently delivered, albeit
belatedly, and eventually laid in her final resting place is of little consolation.
The imperviousness displayed by the airline's personnel, even for just that
fraction of time, was especially condemnable particularly in the hour of
bereavement of the family of Crispina Saludo, intensified by anguish due to
the uncertainty of the whereabouts of their mother's remains. Hence, it is
quite apparent that private respondents' personnel were remiss in the
observance of that genuine human concern and professional attentiveness
required and expected of them.

The foregoing observations, however, do not appear to be applicable or

imputable to respondent PAL or its employees. No attribution of discourtesy
or indifference has been made against PAL by petitioners and, in fact,

42
petitioner Maria Saludo testified that it was to PAL that they repaired after
failing to receive proper attention from TWA. It was from PAL that they
received confirmation that their mother's remains would be on the same
flight to Manila with them.

We find the following substantiation on this particular episode from the

deposition of Alberto A. Lim, PAL's cargo supervisor earlier adverted to,
regarding their investigation of and the action taken on learning of
petitioner's problem:

ATTY. ALBERTO C. MENDOZA:

Yes.

Mr. Lim, what exactly was your procedure adopted in your so called
investigation?

ALBERTO A. LIM:

I called the lead agent on duty at that time and requested for a copy of
airway bill, transfer manifest and other documents concerning the shipment.

ATTY ALBERTO C. MENDOZA:

Then, what?

ALBERTO A. LIM:

They proceeded to analyze exactly where PAL failed, if any, in forwarding the
human remains of Mrs. Cristina (sic) Saludo. And I found out that there was
not (sic) delay in shipping the remains of Mrs. Saludo to Manila. Since we
received the body from American Airlines on 28 October at 7:45 and we
expedited the shipment so that it could have been loaded on our flight
leaving at 9:00 in the evening or just barely one hour and 15 minutes prior to
the departure of the aircraft. That is so (sic) being the case, I reported to
Manila these circumstances. 70

IV. Finally, petitioners insist, as a consequence of the delay in the

shipment of their mother's remains allegedly caused by wilful contractual
breach, on their entitlement to actual, moral and exemplary damages as well
as attorney's fees, litigation expenses, and legal interest.

The uniform decisional tenet in our jurisdiction bolds that moral damages
may be awarded for wilful or fraudulent breach of contract 71 or when such
breach is attended by malice or bad faith. 72 However, in the absence of
strong and positive evidence of fraud, malice or bad faith, said damages

43
cannot be awarded. 73 Neither can there be an award of exemplary damages
74 nor of attorney's fees 75 as an item of damages in the absence of proof
that defendant acted with malice, fraud or bad faith.

The censurable conduct of TWA's employees cannot, however, be said to

have approximated the dimensions of fraud, malice or bad faith. It can be
said to be more of a lethargic reaction produced and engrained in some
people by the mechanically routine nature of their work and a racial or
societal culture which stultifies what would have been their accustomed
human response to a human need under a former and different ambience.

Nonetheless, the facts show that petitioners' right to be treated with due
courtesy in accordance with the degree of diligence required by law to be
exercised by every common carrier was violated by TWA and this entitles
them, at least, to nominal damages from TWA alone. Articles 2221 and 2222
of the Civil Code make it clear that nominal damages are not intended for
indemnification of loss suffered but for the vindication or recognition of a
right violated of invaded. They are recoverable where some injury has been
done but the amount of which the evidence fails to show, the assessment of
damages being left to the discretion of the court according to the
circumstances of the case. 76 In the exercise of our discretion, we find an
award of P40,000.00 as nominal damages in favor of, petitioners to be a
reasonable amount under the circumstances of this case.

WHEREFORE, with the modification that an award of P40,000.00 as and by

way of nominal damages is hereby granted in favor of petitioners to be paid
by respondent Trans World Airlines, the appealed decision is AFFIRMED in all
other respects.

SO ORDERED.
-----------------------------------------------
3. G.R. No. 108997 April 21, 1995

LUFTHANSA GERMAN AIRLINE, petitioner,

vs.
COURT OF APPEALS and DON M. FERRY, respondents.

MENDOZA, J.:

Lufthansa German Airlines, petitioner herein, seeks a review of the Decision

of the Court of Appeals promulgated on January 29,1992 in CA-G.R. No.
22494. 1 That decision affirmed in toto the judgment of the Regional Trial
Court of Makati (Branch 145) rendered on July 25, 1988 in Civil Case No.
13306, 2 condemning Lufthansa to pay Don M. Ferry, herein private
respondent, the following amounts:

44
(a) US$75,000.00 or its peso equivalent at the time of payment as actual
damages;

(b) USS75,000.00, or its peso equivalent at the time of payment, as moral

damages;

(c) US$25,000.00 or its peso equivalent at the time of payment, as

exemplary damages;

(d) US$25,000,00 peso equivalent at the time of payment, as attorney's

fees and litigation expenses;

(e) All the foregoing amounts to bear interest at the legal rate from the
date of filing of the complaint until fully paid; and

(f) Costs of suit.

The relevant facts recited in the appealed judgment, we, and adopted by the
Court of Appeals from the summary setforth by Lufthansa in its brief: 3
"Stripped of non-essentials," said the Appellate Court, "and as disclosed from
defendant-appellant's brief, the antecedent facts of the case are as follows:

5. On 16 May 1985, plaintiff-appellee (Don Ferry) purchased from the

defendant-appellant a San Francisco/ New York/ Paris/ Frankfurt/Manila first
class open dated ticket (Exh. "B" and Exh. "1").

(a) There was no carrier indicated for the San Francisco/New York/Paris
portions of the journey.

(b) The carrier box for the Paris/ Frankfurt/Manila portion of the ticket
shows the letter "LH" which indicates that plaintiff- appellee agreed to fly
those portions or legs of his journey on defendant-appellant Lufthansa.

6. On June 3, 1985, plaintiff-appellee went to Lufthansa's San Francisco

office allegedly to get Lufthansa to endorse the San Francisco/New York
portion of his journey to Trans World Airlines ("TWA" for brevity).

(a) But, there was no need to secure said endorsement since no carrier
was indicated in the ticket for the San Francisco/New York leg of the journey
(Exh. "B" or "1").

(b) Thus, plaintiff-appellee was told by Mrs. Ingrid Egger Lufthansa's ticket
agent in its San Francisco office, that no endorsement was required or
necessary and that he should go back to TWA and request them to accept
the ticket without any endorsement (t.s.n. of Aug. 26, 1987, pp. 20-23 in
relation to Exh. "B" and Exh. "1").

45
7 Instead of going to TWA as advised, plaintiff requested Mrs. Egger for a
different routing which omitted the New York/Paris leg of his original itinerary.

(a) Said new routing would require the endorsement of the ticket.

(b) Hence, Mrs. Egger advised the plaintiff-appellee that she would need to
get an authorization from Lufthansa's Manila office in order to endorse
plaintiff-appellee's ticket, She also explained to plaintiff-appellee the
procedure for obtaining the authorization and the reason why it was
required.

(c) Upon being advised that securing the necessary authorization could
possibly take a day or more, plaintiff-appellee advised Mrs. Egger that he
could not wait (t.s.n. of Aug. 26, 1987, pp. 27, 40, 46, 73, 74 and 76).

8. Thereafter. plaintiff-appellee settled on a new routing of San

Francisco/Frankfurt/Cologne/Frankfurt/Manila thereby omitting the New
York/Paris legs of his original itinerary.

(a) Instead of writing "LH" on the carrier's boxes opposite each portion of
plaintiffs new ticket (Exh; "C" and Exh. "2") starting with the San Francisco
portion up to Manila, Mrs. Egger simplified matters by indicating on the
restriction box the phrase "LH only" (Ibid., pp. 29-34).

9 On. 10 June 1985, plaintiff-appellee went to Baden-Baden GmbH, a

travel agency, to make arrangements for his. return to Manila on June
12,1985.

(a) Since no Lufthansa flights were scheduled to leave for Manila on June
12, 1985; plaintiff made a booking on a Cathay Pacific Airlines flight ("CPA")
which was supposed to leave the Frankfurt Airport for Hong Kong at noon at
12 June 1985.

10 On June 12, 1985, plaintiff-appeIlee went to the Frankfurt Airport.

(a) The CPA ticket agent informed the plaintiff that an endorsement from
the defendant-appellant Lufthansa was required for him to travel on CPA.

(b) Plaintiff-appellee then proceeded to the Lufthansa's ticket counter at

the Frankfurt Airport.

11. Plaintiff-appellee met with Miss Petra Wilhelm, Lufthansa's ticket agent
therein.

46
(a) Miss Wilhelm reiterated Ms. Egger's previous advise that due to
currency restrictions, authorization from Lufthansa's Manila office was
required before she could endorse plaintiffs ticket to CPA (t.s.n. of Oct. 10,
1987, pp. 21-26).

(b) The reason for the need to get an endorsement from Lufthansa's
Manila office and the procedure for obtaining such endorsement was fully
explained to the plaintiff-appellee for the second time by Miss Wilhelm (ibid,
in relation to Exhs. "10" and "10-A").

(c) Since it would take Miss Wilhelm sometime to communicate and obtain
the endorsement from the defendant's Manila office, it was obvious at that
time that plaintiff-appellee would be unable to board the CPA flight which he
booked.

12. Consequently, upon plaintiff-appellee's request Miss Wilhelm booked

him on a Lufthansa flight leaving Frankfurt Airport in the afternoon of the
same day, 12 June 1985 for Bangkok and for the Bangkok/Manila portion of
his journey, Miss Wilhelm booked plaintiff on a Thai Airways flight (Ibid., pp.
36-37).

13. Plaintiff-appellee was able to depart Frankfurt Airport in the afternoon

of 12 June 1985 on the Lufthansa flight and was able to board the Thai
Airways flight from Bangkok to Manila, arriving thereat in the afternoon of
the following day. (Appellant's Brief, pp. 4-8).

Evidently in the belief that the facts created a right of action in his favor, Don
Ferry filed a complaint against Lufthansa on April 1,1986 in the Regional Trial
Court of Makati, for recovery of damages arising from breach of contract. 4
Lufthansa filed its Answer on May 28, 1986, setting up a compulsory
counterclaim for compensatory and exemplary damages, attorney's fees,
expenses of litigation and costs of suit.

On July 25, 1988, the trial court rendered its decision earlier adverted to,
awarding to private respondent the amount of damages prayed for in his
complaint. The decision was affirmed in toto by the Court of Appeals. Hence,
this petition, in which it is contended that respondent Court of Appeals
committed errors of law in:

(a) applying the rule that "findings of the lower court are generally final"
and that the "testimonies of petitioner's witnesses are open to criticism as
interested witnesses" since respondent Court of Appeals accepted the
testimonies of petitioner's witnesses in its statement of facts;

(b) ruling that petitioner "is duty-bound to provide plaintiff-appellee air

transport" for the San Francisco/New York/Paris route when it made the

47
Francisco/New York/Paris portions of the journey and private respondent had
omitted the New York/Paris leg of his original itinerary;

(c) ruling that petitioner is guilty of bad faith when it "changed plaintiff-
appellee's unrestricted ticket to a partly restricted ticket without informing
the plaintiff-appellee.

(d) ruling that petitioner "violated its contract of air carriage with plaintiff-
appellee by refusing to endorse plaintiff-appellee's first class full fare
Lufthansa ticket to Cathay Pacific Airways," since it also made the factual
findings that "Miss Wilhelm reiterated Ms. Egger's previous advice that due
to currency restrictions, authorization from Lufthansa's Manila office was
required" and that "since it would take Miss Wilhelm sometime to
communicate and obtain the endorsement from the defendant's Manila
office, it was obvious that plaintiff-appellee would be unable to board the CPA
flight which he booked;

(e) awarding actual damages of US$75,000.00 or its peso equivalent in

favor of private respondent when there is no proof that would justify the
exorbitant award;

(f) awarding moral damages of US$75,000.00 or its peso equivalent in

favor of prlvate, respondent when there is no proof of bad faith or malice
Moreover, granting arguendo that there is basis for the award of moral
damages, the award is "outrageously exorbitant";

(g) awarding exemplary damages of, US$25,000.00 or its peso equivalent

in favor of private respondent when there is no proof that petitioner or its
employees acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner, Moreover, granting arguendo that there is basis for the award of
exemplary damages, the award is outrageously exorbitant;

(h) awarding attorney's fees and litigation expenses of US$25.000.00 or its

peso equivalent in favor of private respondent when there is no proof that
petitioner acted in gross and evident bad faith. Furthermore, there is also no
proof presented as to the attorney's fees and expenses of litigation claimed
by private respondent; and,

(i) awarding interests.

The established rule is that the findings of the trial court as to the credibility
of witnesses are accorded much respect, if not indeed conclusive effect, save
only in those exceptional instances where they are clearly shown to be
arbitrary. 5 In the case at bench, the Trial Court refused to accord any credit
to petitioner Airline's "three (3) foreign witnesses" because they are "all long-
time employees of defendant which also shouldered all their expenses" (in

48
coming to this country to give evidence) and hence, their testimonies "are
tained polluted and should be seen with disfavor. 6

While it may be true, as the trial court opines, "that testimony of employees
of a party is 'of course open to the criticism that they would naturally testify,
as far as they possibly could in favor of their employers; and in weighing
testimony such a relation between a witness and a party is frequently
noticed by the court, 7 it is equally true that the fact that the witness is an
employee or an overseer of a party is not of itself sufficient to discredit his
testimony. 8

This Court has intensively analyzed the testimonies of petitioner's saidthree

(3) witnesses and found them to be clear, straightforward and convincing.
They spoke authoritatively of their respective lines of work, and candidly of
their dealings with private respondent, without betraying any trace of
falsehood or partiality, or any attempt to exculpate petitioner from the
alleged breach of contract; in fact, it may even be said that some of their
statements were somewhat damaging to their employer's cause.

That petitioner paid for its witnesses expenses in coming to the Philippines to
testify, is not a valid cause for disbelieving their testimonies; it seems but
natural and reasonable under the peculiar circumstances of the case that
petitioner should do so. For the record, however, only the expenses of Mrs.
Ingrid Egger and Mrs. Petra Wilhelm were shouldered by petitioner, the third
witness, Mr. Berndt Loewe, then being based in Manila as petitioner's
passenger sales manager. Considering the known disinclination of persons to
be involved in court litigations, even if it be only as witnesses. it is hardly
reasonable to expect petitioner's witnesses to agree to bear the cost of flying
to and staying in Manila to testify in the case. At any rate, there is no
showing whatever that petitioner's witnesses were otherwise so materially
benefited by their travel to the Philippines, or were so fanatically loyal to
Lufthansa, as to be motivated to distort the thruth and testify falsely in the
latter's favor.

The trial court as well as the appellate court gravely erred therefore, in
totally disregarding the testimonies of petitioner's witnesses on the basis
alone of the employment relationship between them. Their factual findings
cannot consequently be accorded binding effect, 9 and this Court is thus
constrained to itself weigh and evaluate the evidence presented by the
parties.

To begin with, private respondent was bound by the conditions of the

contract of carriage purchased by him from Lufthansa. 10 The ticket 11 did
not indicate any carrier for the San Francisco/New York leg of respondent
Ferry's journey. He was therefore free to choose his airline for that leg. With

49
respect, however, to the Paris/Frankfurt /manila portion of his journey,
private respondent was deemed to have agreed to fly Lufthansa as shown by
the letters "LH" written on the carrier box.

Thus, in San Francisco, when private respondent chose to take a TWA flight
to New York, no endorsement from petitioner Airline was required because,
as just mentioned, his ticket did not indicate any carrier for the San
Francisco/New York leg. It was only in the Paris/Frankfurt/Manila leg that an
endorsement was needed if private respondent desired to fly with an airline
other than Lufthansa. These conditions were communicated to private
respondent by Ingrid Egger, petitioner's ticket agent:

Q Now, during his testimony in Court on February 17, 1987, the plaintiff,
Mr. Don Ferry testified in Court that he went to the Lufthansa office in San
Francisco, was able to talk to you, presented a ticket which was originally
issued in Manila requested you to give him an endorsement as required by
TWA so that he could use the ticket for his flight from San Francisco to new
York, what can you say about that allegation of the plaintiff?

A I told the passenger that an endorsement is not necessary on that

ticket when he presented to me for the portion he wanted to use it for.

Q Now, you said that you told Mr. Ferry that there was no need for a
Lufthansa endorsement for him to use the ticket for the San Francisco/New
York portion of his journey, why did you say that?

A There was no carrier entered into the carrier block. It was open,
therefore, any carrier should have accepted that portion of the ticket
between San Francisco and New York.

Q What did he tell you, that this was a requirement being imposed by the
TWA?

A I told him that he should go back to TWA and tell them what I told him
that it does not need any endorsement for the portion of the ticket. 12

xxx xxx xxx

Q Did the plaintiff, Mr. Ferry tell you that he-went to the TWA offices in
the same building to have a domestic flight from San Francisco to New York
and that the TWA offices said that it was necessary to get a Lufthansa
endorsement?

A Yes.

Q And what was your reply?

50
A I told him that it was not necessary for that endorsement.

Q Yes, but could you have given him an endorsement?

A Yes, if he wanted to go to San Francisco/New York and New York to

Paris, I could give him an endorsement.

Q Yes, but the point is, he asked for an endorsement but you did not give
him an endorsement, is that not correct?

A I told him he could go back to TWA because he does not need any
endorsement.

Q But the fact is despite his request for endorsement, you did not give
him such endorsement, is that not correct?

A His request for endorsement was for a different routing. 13

xxx xxx xxx

Q Now, when Mr. Don Ferry went to see you on June 3, 1985 and
informed you that the TWA downstairs needed an endorsement of Lufthansa,
you could have given him an endorsement s you said but instead, you told
him there was no need, is that correct?

A That is right.

Q Why did you not give him an endorsement?

A Because after we have a conversation, he told me that he wanted to

have a different routing.

Q Yes, but when he requested you for an endorsement. It was very easy
for you to give him an endorsement, was it not?

A That is not what he wanted. He wanted a different routing.

Q That was after when you did not want to give him an endorsement?

A That is not right. He came out and he said he wanted an endorsement

and I said, if you want to fly to New York. you don't need an endorsement,
and then he said, that is not what I want. I want to have a different routing.

Q You mean to say in the same conversation. he told you he did not like
to fly from San Francisco to New York?

51
A He told me he needed a different routing. 14

From the testimony of Mrs. Egger, it is clear that the there was no refusal on
the part of petitioner airline to give the endorsement required by TWA. The
reason no endorsement was given was that there was no requirement for
such endorsement. At this point, petitioner Airline did not refuse to give him
an endorsement being required by TWA. It is one thing to say that petitioner
airline refused to give a required endorsement, and another to say that since
no endorsement was needed, none was given.

The same cannot, however, be said with respect to the Frankfurt/Manila

portion of respondent Ferry's journey. Petitioner's witness, Mr. Berndt Loewe,
admitted that the Baden-Baden GMBH was a Lufthansa-appointed travel
agent, authorized to make reservations and confirmations, 15 and that
despite the fact that Exhibit "E" was a page of a notebook produced by
German Railway Company referring to train connections. 16 the same should
be deemed a confirmation of the flight arrangement contained thereon:

Q Now, if you look at Exhibit "E" as an expert, would you believe that
there was confirmed reservation of Cathay Pacific Airways for the flight
Frankfurt-Hongkong, Hongkong-Manila?

A Yes, it say here okay, Frankfurt Hongkong, there is a word "okay" so, it
seems that Cathay Pacific gave okay to the travel agent.

Q Frankfurt/Hongkong okay for June 12?

A Yes.

Q Hongkong - Manila okay for June 13?

A Yes.

Q For first class?

A Yes.

Q With seat?

A yes, with seat number 7-K to Hongkong and I-a to Manila.

Q So, you would say that this Exhibit "E" is a confirmed flight for Cathay
Pacific from Frankfurt Hongkong, Hongkong, Manila?

A Yes, according to what is written here.

52
Q And this travel is authorized to make confirmation?

Private respondent having previously obtained a flight confirmation from a

Lufthansa-appointed travel agent, there was no reason why the Frankfurt
Lufthansa office should not give the endorsement needed by private
respondent fly Cathay Pacific Airways. That confirmation necessarily carried
with it the prior approval of Lufthansa for private respondent to employ
another airline so that all that was needed was the actual, physical
signification of said approval through an endorsement which should have
been given as a matter of course. Petitioner's failure in this regard
constituted breach of its contract of carriage with private respondent.

The breach was not attended by fraud or bad faith, however. When Petra
Wilhelm; petitioner airline's ticket agent at its Frankfurt Airport office,
informed private respondent that an authorization from Manila was needed
before she could give an endorsement, what was foremost in her mind was
the policy regarding currency restrictions in effect at that time, which was
made known and explained to private respondent in San Francisco.
Apparently, the significance of the previously confirmed reservation
completely escaped Mrs. Wilhelm on that occasion. The omission or failure of
petitioner airline then to give private respondent the required endorsement
was thus evidently due to a misappreciation of the significance of private
respondent's previously confirmed reservation, and not to any willful desire
to deny private respondent the night to utilize another airline.

We cannot give credence to private respondent's claim that he was treated

rudely by petitioner airline's personnel. His testimony on the matter is
equivocal, to say the least reservation and:

Q Now, what did you do when you went to Lufthansa counter at the
airport for the endorsement?

A The woman in the counter was most interesting in one way.

Q Why?

A She gave me the impression of totally impolite. When I presented the

ticket to her, I said I need an endorsement for Cathay Pacific. She said, I
cannot give an endorsement. I wonder why she immediately showed that
impolite attitude.

Q What did you do next?

A I said, what seems to be the problem? She said well, you have a
restricted ticket. What that does mean, I said. It means that you cannot get

53
endorsement and even if I give you endorsement I still have to communicate
in Manila, and then you have to wait.

xxx xxx xxx

Q What did you do next?

A Then I said I have a problem about Frankfurt because I don't have to go

anywhere. If she could help me to get a hotel and she said that is not our
business. So, I said, what can I do. I don't really know. And finally, I asked her
if there was any Lufthansa flight to anywhere near Manila to region.

xxx xxx xxx

Q What happened next?

A Then she looked at my ticket and she said that I will have to pay extra
for the flight. I said this is impossible. I have a first class ticket and fully paid.
If I have gone direct from Frankfurt to Manila, I don't have to be charged
anything. How come that I will be charged now for the Thai connection and
she said well, that is a special rate.

Q What was your reply?

A I disagree. I denied. I said I paid the full amount of this ticket and I did
not get any special rate.

Q What was the tenor of your conversation between you and the German
Lufthansa stewardess?

A We were both getting every excited. I was getting very excited because
I had fever and she was totally unfriendly to my mind.

Q What happened next?

A Finally, she looked at my ticket. I said why don't you compute? What
additional amount I have to pay so that I can see if I can afford it. So she did.
And finally, she said, you can be accommodated. 18

This allegation was directly rebutted by Mrs. Wilhelm, to whose

testimony 19 we lend credence as it conforms to normal human behavior:

Q . . . My question to you Mrs. witness is: Were you very impolite to the
plaintiff?

54
A No; sir. There is no reason to be impolite to a person or to passenger I
never has (sic) seen before and if there was no discussion between us, there
is no reason to be impolite.

Q Would you be impolite to a passenger who merely asks for an

endorsement?.

A No, sir.

Q Have you received request for endorsement of tickets before?

A Often, sir.

Q What do you do upon receipt of such request for endorsement?

A I looked at the ticket and checked whether we can get the

endorsement and if I can I would give the endorsement and if I cannot, I will
explain why I cannot and I would not be impolite to him.

Where the defendant is not shown to have acted fraudulently or in bad faith
in breaching the contract, liability for damages is limited to the natural and
probable consequences of the breach of the obligation, and which the parties
had foreseen or could reasonably have foreseen. In such a case, liability
would not include the payment of moral and exemplary damages. Under
Article 2232 of the Civil Code, in a contractual or quasi-contractual
relationship, moral or exemplary damages may be awarded only if the
defendant had acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner. 20

The trial Court's award of actual damages for unrealized profits in the
amount of US$75,000.00, must also be disallowed, private respondent's
claim thereto being highly speculative. The realization of profits by
respondent Ferry from a real estate development project in Foster City was
not a certainty, but depended on a number of factors, foremost of which was
his ability to invite investors and to win the bid. Even private respondent
himself could only speculate on the amount of profit he might have earned
from said transaction: 21

Q From this estimated profit of $687.000.00 if the land were developed.

how much would have been your share?

A Well, I can only speculate on that depending on the fact on how much
money I would get in the form of commission. I can only surmise that I could
get for at least $200.000.00 dollars.

Q If the land would have been developed, how much would be the profit?

55
A Based on what was reported to me by Mr. Navarete when the original
buyer turned around, maybe million dollar, 550 thousand dollars or 800
thousand, the profit was 200 thousand on the land alone. And I again
speculate my share would be 100 thousand dollars.

"Actual or compensatory damages cannot be presumed, but must be duly

proved, and proved with reasonable degree of certainty. A court cannot rely
on speculations, conjecture or guesswork as to the fact and amount of
damages, but must depend upon competent proof that they have (been)
suffered and on evidence of the actual amount thereof." 22

There is no room to doubt that some species of injury was caused to private
respondent because of petitioner airline's failure to endorse his ticket to
Cathay Pacific Airways. In the absence of competent proof on the actual
damage suffered, private respondent is "entitled to nominal damages
which, as the law says, is adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated and
recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered." 23 We consider the amount of P50,000.00 just and reasonable
under the circumstances.

An award of P20,000.00 for and as attorney's fees is likewise just and

equitable, private respondent having been compelled to incur expenses to
protect his interests.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 22494

dated January 29, 1993 is hereby MODIFIED by the deletion of the awards of
actual, moral and exemplary damages, as well as the interest thereon.
Petitioner Lufthansa German Airlines is hereby ORDERED to pay private
respondent Don Ferry the amount of P50,000.00 as nominal damages and
the amount of P20,000.00 as and for attorney's fees. No pronouncement as
to costs.

SO ORDERED.
------------------------------------------------------------------------------------------------
4. [G.R. No. L-8194. July 11, 1956.]

EMERENCIANA M. VDA. DE MEDINA, ET AL., Plaintiffs-Appellees, vs.

GUILLERMO CRESENCIA, ET AL., Defendants. GUILLERMO
CRESENCIA, Appellant.

DECISION

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

56
Appeal by Defendant Guillermo Cresencia from the judgment of the Court of
First Instance of Manila in its civil case No. 19890, sentencing Appellant,
jointly and severally with his co-Defendant Brigido Avorque, to pay Plaintiffs
Emerencia M. Vda. de Medina and her minor children damages in the total
amount of P56,000, P5,000 attorneys fees, and costs.

It appears that on May 31, 1953, passenger jeepney bearing plate No. TPU-
2232 (Manila), driven by Brigido Avorque, smashed into a Meralco post on
Azcarraga Street, resulting in the death of Vicente Medina, one of its
passengers. A criminal case for homicide through reckless imprudence was
filed against Avorque (criminal case No. 22775 of the Court of First Instance
of Manila), to which he pleaded guilty on September 9, 1953. The heirs of the
deceased, however, reserved their right to file a separate action for
damages, and on June 16, 1953, brought suit against the driver Brigido
Avorque and Appellant Guillermo Cresencia, the registered owner and
operator of the jeepney in question. Defendant Brigido Avorque did not file
any answer; chan roblesvirtualawlibrarywhile Defendant Cresencia answered,
disclaiming liability on the ground that he had sold the jeepney in question
on October 14, 1950 to one Maria A. Cudiamat; chan
roblesvirtualawlibrarythat the jeepney had been repeatedly sold by one
buyer after another, until the vehicle was purchased on January 29, 1953 by
Rosario Avorque, the absolute owner thereof at the time of the accident. In
view of Cresencias answer, Plaintiffs filed leave, and was allowed, to amend
their complaint making Rosario Avorque a co-Defendant; chan
roblesvirtualawlibraryand the latter, by way of answer, admitted having
purchased the aforesaid jeepney on May 31, 1953, but alleged in defense
that she was never the public utility operator thereof. The case then
proceeded to trial, during which, after the Plaintiffs had presented their
evidence, Defendants Guillermo Cresencia and Rosario Avorque made
manifestations admitting that the former was still the registered operator of
the jeepney in question in the records of the Motor Vehicles Office and the
Public Service Commission, while the latter was the owner thereof at the
time of the accident; chan roblesvirtualawlibraryand submitted the case for
the decision on the question of who, as between the two, should be held
liable to Plaintiffs for damages. The lower court, by Judge Jose Zulueta, held
that as far as the public is concerned, Defendant Cresencia, in the eyes of
the law, continued to be the legal owner of the jeepney in question; chan
roblesvirtualawlibraryand rendered judgment against him, jointly and
severally with the driver Brigido Avorque, for P6,000 compensatory damages,
P30,000 moral damages, P10,000 exemplary damages, P10,000 nominal
damages, P5,000 attorneys fees, and costs, while Defendant Rosario Avorque
was absolved from liability. From this judgment, Defendant Cresencia
appealed.

We have already held in the case of Montoya vs. Ignacio, 94 Phil., 182
(December 29, 1953), which the court below cited, that the law (section 20

57
[g], C. A. No. 146 as amended) requires the approval of the Public Service
Commission in order that a franchise, or any privilege pertaining thereto,
may be sold or leased without infringing the certificate issued to the grantee;
chan roblesvirtualawlibraryand that if property covered by the franchise is
transferred or leased without this requisite approval, the transfer is not
binding against the public or the Service Commission; chan
roblesvirtualawlibraryand in contemplation of law, the grantee of record
continues to be responsible under the franchise in relation to the
Commission and to the public. There we gave the reason for this rule to be
as follows:chanroblesvirtuallawlibrary

cralaw Since a franchise is personal in nature any transfer or lease thereof

should be notified to the Public Service Commission so that the latter may
take proper safeguards to protect the interest of the public. In fact, the law
requires that, before the approval is granted, there should be a public
hearing, with notice to all interested parties, in order that the Commission
may determine if there are good and reasonable grounds justifying the
transfer or lease of the property covered by the franchise, or if the sale or
lease is detrimental to public interest cralaw .

The above ruling was later reiterated in the cases of Timbol vs. Osias, L-
7547, April 30, 1955 and Roque vs. Malibay Transit Inc., L- 8561, November
18, 1955.

As the sale of the jeepney here in question was admittedly without the
approval of the Public Service Commission, Appellant herein, Guillermo
Cresencia, who is the registered owner and operator thereof, continued to be
liable to the Commission and the public for the consequences incident to its
operation. Wherefore, the lower court did not err in holding him, and not the
buyer Rosario Avorque, responsible for the damages sustained by Plaintiff by
reason of the death of Vicente Medina resulting from the reckless negligence
of the jeepneys driver, Brigido Avorque.

Appellant also argues that the basis of Plaintiffs action being the employers
subsidiary liability under the Revised Penal Code for damages arising from
his employees criminal acts, it is Defendant Rosario Avorque who should
answer subsidiarily for the damages sustained by Plaintiffs, since she admits
that she, and not Appellant, is the employer of the negligent driver Brigido
Avorque. The argument is untenable, because Plaintiffs action for damages
is independent of the criminal case filed against Brigido Avorque, and based,
not on the employers subsidiary liability under the Revised Penal Code, but
on a breach of the carriers contractual obligation to carry his passengers
safely to their destination (culpa contractual). And it is also for this reason
that there is no need of first proving the insolvency of the driver Brigido
Avorque before damages can be recovered from the carrier, for in culpa

58
contractual, the liability of the carrier is not merely subsidiary or secondary,
but direct and immediate (Articles 1755, 1756, and 1759, New Civil Code).

The propriety of the damages awarded has not been questioned,

Nevertheless, it is patent upon the record that the award of P10,000 by way
of nominal damages is untenable as a matter of law, since nominal damages
cannot co-exist with compensatory damages. The purpose of nominal
damages is to vindicate or recognize a right that has been violated, in order
to preclude further contest thereon; chan roblesvirtualawlibraryand not for
the purpose of indemnifying the Plaintiff for any loss suffered by him
(Articles 2221, 2223, new Civil Code.) Since the court below has already
awarded compensatory and exemplary damages that are in themselves a
judicial recognition that Plaintiffs right was violated, the award of nominal
damages is unnecessary and improper. Anyway, ten thousand pesos cannot,
in common sense, be deemed nominal.

With the modification that the award of P10,000 nominal damages be

eliminated, the decision appealed from is affirmed. Costs against Appellant.
SO ORDERED.
--------------------------------------------------------

5. Serrano vs. NLRC / ISETANN - GR No. 117040 Case Digest

FACTS:

Serrano was a regular employee of Isetann Department Store as the head of

Security Checker. In 1991, as a cost-cutting measure, Isetann phased out its
entire security section and engaged the services of an independent security
agency. Petitioner filed a complaint for illegal dismissal among others. Labor
arbiter ruled in his favor as Isetann failed to establish that it had retrenched
its security section to prevent or minimize losses to its business; that private
respondent failed to accord due process to petitioner; that private
respondent failed to use reasonable standards in selecting employees whose
employment would be terminated. NLRC reversed the decision and ordered
petitioner to be given separation pay.

ISSUE:

Whether or not the hiring of an independent security agency by the private

respondent to replace its current security section a valid ground for the
dismissal of the employees classed under the latter.

RULING:

An employers good faith in implementing a redundancy program is not

necessarily put in doubt by the availment of the services of an independent
contractor to replace the services of the terminated employees to promote

59
economy and efficiency. Absent proof that management acted in a malicious
or arbitrary manner, the Court will not interfere with the exercise of
judgment by an employer.

If termination of employment is not for any of the cause provided by law, it is

illegal and the employee should be reinstated and paid backwages. To
contend that even if the termination is for a just cause, the employee
concerned should be reinstated and paid backwages would be to amend Art
279 by adding another ground for considering dismissal illegal.

If it is shown that the employee was dismissed for any of the causes
mentioned in Art 282, the in accordance with that article, he should not be
reinstated but must be paid backwages from the time his employment was
terminated until it is determined that the termination of employment is for a
just cause because the failure to hear him before he is dismissed renders the
termination without legal effect.
----------------------------------------------------------
6. CLARION PRINTING HOUSE, INC., and YUTINGCO vs. NLRC and
MICLAT

G.R. No. 148372

June 27, 2005

FACTS: Respondent Miclat was employed on a probationary basis as

marketing assistant by petitioner Clarion which is owned by Yutingco.

The EYCO Group of Companies of which CLARION formed part filed with the
SEC a Petition for the Declaration of Suspension of Payment, Formation and
Appointment of Rehabilitation Receiver/ Committee, Approval of
Rehabilitation Plan with Alternative Prayer for Liquidation and Dissolution of
Corporation. The SEC issued an Order approving the creation of an interim
receiver for the EYCO Group of Companies.

The Assistant Personnel Manager of CLARION informed Miclat by telephone

that her employment contract had been terminated. No reason was given for
the termination.

In her Position Paper filed before the labor arbiter, Miclat claimed that
assuming that her termination was necessary, the manner in which it was
carried out was illegal, no written notice thereof having been served on her,
and she merely learned of it only a day before it became effective.

On the other hand, petitioners claimed that they could not be faulted for
retrenching some of its employees including Miclat, they drawing attention to
the EYCO Group of Companies being placed under receivership, notice of

60
which was sent to its supervisors and rank and file employees via a
Memorandum.

The Labor arbiter found that Miclat was illegally dismissed and directed her
reinstatement. The NLRC affirmed the labor arbiters decision. The CA
sustained the resolutions of the NLRC; it also denied petitioners MR of the
decision.

HELD: WHEREFORE, the CA Decision, together (sustaining NLRC) is SET

ASIDE and another rendered declaring the legality of the dismissal of
respondent Miclat. Petitioners are ORDERED, however, to PAY her the
following in accordance with the foregoing discussions: nominal, separation
pay; and 13th month pay. Let a copy of this Decision be furnished the SEC
Hearing Panel charged with the liquidation and dissolution of petitioner
corporation for inclusion, in the list of claims of its creditors, respondent
Miclats claims..

On Miclats termination:

According to P.D. No. 902-A, as amended, the appointment of a receiver or

management committee by the SEC presupposes a finding that, inter alia, a
company possesses sufficient property to cover all its debts but foresees
the impossibility of meeting them when they respectively fall due and
there is imminent danger of dissipation, loss, wastage or destruction of
assets of other properties or paralization of business operations.

However, ART. 283 of the Labor Code states:

CLOSURE OF ESTABLISHMENT AND REDUCTION OF PERSONNEL. The

employer may also terminate the employment of any employee due to the
installation of labor saving devices, redundancy,retrenchment to prevent
losses or the closing or cessation of operation of the establishment or
undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the worker and the
Ministry of Labor and Employment at least one (1) month before the
intended date thereof. x x x (Emphasis and underscoring supplied)

CLARION [however] failed to comply with the notice requirement provided for
in Article 283 of the Labor Code.

Stated differently, Miclats termination is justified, because of financial

difficulties of the company, but failure to give the required notice by Clarion
is sufficient to entitle her to payment of 13th month pay, separation pay and
others.

**

61
With the appointment of a management receiver, all claims and proceedings
against CLARION, including labor claims, were deemed suspended during the
existence of the receivership. The labor arbiter, the NLRC, as well as the CA
should not have proceeded to resolve respondents complaint for illegal
dismissal and should instead have directed respondent to lodge her claim
before the then duly-appointed receiver of CLARION. To still require
respondent, however, at this time to refile her labor claim against CLARION
under the peculiar circumstances of the case that 8 years have lapsed
since her termination and that all the arguments and defenses of both
parties were already ventilated before the labor arbiter, NLRC and the CA;
and that CLARION is already in the course of liquidation this Court deems
it most expedient and advantageous for both parties that CLARIONs liability
be determined with finality, instead of still requiring respondent to lodge her
claim at this time before the liquidators of CLARION which would just entail a
mere reiteration of what has been already argued and pleaded. Furthermore,
it would be in the best interest of the other creditors of CLARION that claims
against the company be finally settled and determined so as to further
expedite the liquidation proceedings. For the lesser number of claims to be
proved, the sooner the claims of all creditors of CLARION are processed and
settled.

NOTES:

Sections 5 and 6 of P.D. 902-A (reorganization of the SEC with additional

powers and placing said agency under the administrative supervision of the
office of the president), as amended, read:

SEC. 5 In addition to the regulatory and adjudicative functions of THE

SECURITIES AND EXCHANGE COMMISSION over corporations, partnerships
and other forms of associations registered with it as expressly granted under
existing laws and decrees, it shall have original and exclusive jurisdiction to
hear and decide cases involving:

xxx

(d) Petitions of corporations, partnerships or associations declared in the

state of suspension of payments in cases where the corporation, partnership
or association possesses sufficient property to cover all debts but foresees
the impossibility of meeting them when they respectively fall due or in cases
where the corporation, partnership, association has no sufficient assets to
cover its liabilities, but is under the management of a Rehabilitation Receiver
or Management Committee created pursuant to this Decree.

SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall

possess the following powers:

62
xxx

(c) To appoint one or more receivers of the property, real and personal, which
is the subject of the action pending before the Commission in accordance
with the provisions of the Rules of Court in such other cases whenever
necessary in order to preserve the rights of the parties-litigants and/or
protect the interest of the investing public and creditors: Provided, however,
That the Commission may in appropriate cases, appoint a rehabilitation
receiver of corporations, partnerships or other associations not supervised or
regulated by other government agencies who shall have, in addition to
powers of the regular receiver under the provisions of the Rules of Court,
such functions and powers as are provided for in the succeeding paragraph
(d) hereof: x x x

(d) To create and appoint a management committee, board or body upon

petition or motu propio to undertake the management of corporations,
partnership or other associations not supervised or regulated by other
government agencies in appropriate cases when there is imminent danger of
dissipation, loss, wastage or destruction of assets or other properties or
paralization of business operations of such corporations or entities which
may be prejudicial to the interest of minority stockholders, parties-litigants of
the general public: x x x (Emphasis and underscoring supplied).
----------------------------------------------------------------------------------
7. HEIRS OF EDUARDO MANLAPAT, G.R. No. 125585
represented by GLORIA MANLAPAT-
BANAAG and LEON M. BANAAG, JR., Petitioners, Present:

PUNO, J.,*
Chairman,
- versus - AUSTRIA-MARTINEZ,
Acting Chairman,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
HON. COURT OF APPEALS,
RURAL BANK OF SAN PASCUAL,
INC., and JOSE B. SALAZAR,
CONSUELO CRUZ and Promulgated:
ROSALINA CRUZ-BAUTISTA,
and the REGISTER OF DEEDS of
Meycauayan, Bulacan, June 8, 2005
Respondents.

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

63
DECISION

TINGA, J.:

Before this Court is a Rule 45 petition assailing the Decision[1] dated 29

September 1994 of the Court of Appeals that reversed the Decision[2] dated
30 April 1991 of the Regional Trial Court (RTC) of Bulacan, Branch 6, Malolos.
The trial court declared Transfer Certificates of Title (TCTs) No. T-9326-P(M)
and No. T-9327-P(M) as void ab initio and ordered the restoration of Original
Certificate of Title (OCT) No. P-153(M) in the name of Eduardo Manlapat
(Eduardo), petitioners predecessor-in-interest.

The controversy involves Lot No. 2204, a parcel of land with an area of 1,058
square meters, located at Panghulo, Obando, Bulacan. The property had
been originally in the possession of Jose Alvarez, Eduardos grandfather, until
his demise in 1916. It remained unregistered until 8 October 1976 when OCT
No. P-153(M) was issued in the name of Eduardo pursuant to a free patent
issued in Eduardos name[3] that was entered in the Registry of Deeds of
Meycauayan, Bulacan.[4] The subject lot is adjacent to a fishpond owned by
one

Ricardo Cruz (Ricardo), predecessor-in-interest of respondents Consuelo Cruz

and Rosalina Cruz-Bautista (Cruzes).[5]

On 19 December 1954, before the subject lot was titled, Eduardo sold a
portion thereof with an area of 553 square meters to Ricardo. The sale is
evidenced by a deed of sale entitled Kasulatan ng Bilihang Tuluyan ng
Lupang Walang Titulo (Kasulatan)[6] which was signed by Eduardo himself as
vendor and his wife Engracia Aniceto with a certain Santiago Enriquez
signing as witness. The deed was notarized by Notary Public Manolo Cruz.[7]
On 4 April 1963, the Kasulatan was registered with the Register of Deeds of
Bulacan.[8]

On 18 March 1981, another Deed of Sale[9] conveying another portion of the

subject lot consisting of 50 square meters as right of way was executed by
Eduardo in favor of Ricardo in order to reach the portion covered by the first
sale executed in 1954 and to have access to his fishpond from the provincial
road.[10] The deed was signed by Eduardo himself and his wife Engracia
Aniceto, together with Eduardo Manlapat, Jr. and Patricio Manlapat. The same
was also duly notarized on 18 July 1981 by Notary Public Arsenio Guevarra.
[11]

In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of his

father-in-law Eduardo, executed a mortgage with the Rural Bank of San

64
Pascual, Obando Branch (RBSP), for P100,000.00 with the subject lot as
collateral. Banaag deposited the owners duplicate certificate of OCT No. P-
153(M) with the bank.

On 31 August 1986, Ricardo died without learning of the prior issuance of

OCT No. P-153(M) in the name of Eduardo.[12] His heirs, the Cruzes, were
not immediately aware of the consummated sale between Eduardo and
Ricardo.

Eduardo himself died on 4 April 1987. He was survived by his heirs, Engracia
Aniceto, his spouse; and children, Patricio, Bonifacio, Eduardo, Corazon,
Anselmo, Teresita and Gloria, all surnamed Manlapat.[13] Neither did the
heirs of Eduardo (petitioners) inform the Cruzes of the prior sale in favor of
their predecessor-in-interest, Ricardo. Yet subsequently, the Cruzes came to
learn about the sale and the issuance of the OCT in the name of Eduardo.

Upon learning of their right to the subject lot, the Cruzes immediately tried to
confront petitioners on the mortgage and obtain the surrender of the OCT.
The Cruzes, however, were thwarted in their bid to see the heirs. On the
advice of the Bureau of Lands, NCR Office, they brought the matter to the
barangay captain of Barangay Panghulo, Obando, Bulacan. During the
hearing, petitioners were informed that the Cruzes had a legal right to the
property covered by OCT and needed the OCT for the purpose of securing a
separate title to cover the interest of Ricardo. Petitioners, however, were
unwilling to surrender the OCT.[14]

Having failed to physically obtain the title from petitioners, in July 1989, the
Cruzes instead went to RBSP which had custody of the owners duplicate
certificate of the OCT, earlier surrendered as a consequence of the
mortgage. Transacting with RBSPs manager, Jose Salazar (Salazar), the
Cruzes sought to borrow the owners duplicate certificate for the purpose of
photocopying the same and thereafter showing a copy thereof to the
Register of Deeds. Salazar allowed the Cruzes to bring the owners duplicate
certificate outside the bank premises when the latter showed the Kasulatan.
[15] The Cruzes returned the owners duplicate certificate on the same day
after having copied the same. They then brought the copy of the OCT to
Register of Deeds Jose Flores (Flores) of Meycauayan and showed the same
to him to secure his legal opinion as to how the Cruzes could legally protect
their interest in the property and register the same.[16] Flores suggested the
preparation of a subdivision plan to be able to segregate the area purchased
by Ricardo from Eduardo and have the same covered by a separate title.[17]

Thereafter, the Cruzes solicited the opinion of Ricardo Arandilla (Arandilla),

Land Registration Officer, Director III, Legal Affairs Department, Land
Registration Authority at Quezon City, who agreed with the advice given by
Flores.[18] Relying on the suggestions of Flores and Arandilla, the Cruzes

65
hired two geodetic engineers to prepare the corresponding subdivision plan.
The subdivision plan was presented to the Land Management Bureau, Region
III, and there it was approved by a certain Mr. Pambid of said office on 21 July
1989.

After securing the approval of the subdivision plan, the Cruzes went back to
RBSP and again asked for the owners duplicate certificate from Salazar. The
Cruzes informed him that the presentation of the owners duplicate certificate
was necessary, per advise of the Register of Deeds, for the cancellation of
the OCT and the issuance in lieu thereof of two separate titles in the names
of Ricardo and Eduardo in accordance with the approved subdivision plan.
[19] Before giving the owners duplicate certificate, Salazar required the
Cruzes to see Atty. Renato Santiago (Atty. Santiago), legal counsel of RBSP, to
secure from the latter a clearance to borrow the title. Atty. Santiago would
give the clearance on the condition that only Cruzes put up a substitute
collateral, which they did.[20] As a result, the Cruzes got hold again of the
owners duplicate certificate.

After the Cruzes presented the owners duplicate certificate, along with the
deeds of sale and the subdivision plan, the Register of Deeds cancelled the
OCT and issued in lieu thereof TCT No. T-9326-P(M) covering 603 square
meters of Lot No. 2204 in the name of Ricardo and TCT No. T-9327-P(M)
covering the remaining 455 square meters in the name of Eduardo.[21]

On 9 August 1989, the Cruzes went back to the bank and surrendered to
Salazar TCT No. 9327-P(M) in the name of Eduardo and retrieved the title
they had earlier given as substitute collateral. After securing the new
separate titles, the Cruzes furnished petitioners with a copy of TCT No. 9327-
P(M) through the barangay captain and paid the real property tax for 1989.
[22]

The Cruzes also sent a formal letter to Guillermo Reyes, Jr., Director,
Supervision Sector, Department III of the Central Bank of the Philippines,
inquiring whether they committed any violation of existing bank laws under
the circumstances. A certain Zosimo Topacio, Jr. of the Supervision Sector
sent a reply letter advising the Cruzes, since the matter is between them and
the bank, to get in touch with the bank for the final settlement of the case.
[23]

In October of 1989, Banaag went to RBSP, intending to tender full payment

of the mortgage obligation. It was only then that he learned of the dealings
of the Cruzes with the bank which eventually led to the subdivision of the
subject lot and the issuance of two separate titles thereon. In exchange for
the full payment of the loan, RBSP tried to persuade petitioners to accept
TCT No. T-9327-P(M) in the name of Eduardo.[24]

66
As a result, three (3) cases were lodged, later consolidated, with the trial
court, all involving the issuance of the TCTs, to wit:

(1) Civil Case No. 650-M-89, for reconveyance with damages filed by the
heirs of Eduardo Manlapat against Consuelo Cruz, Rosalina Cruz-Bautista,
Rural Bank of San Pascual, Jose Salazar and Jose Flores, in his capacity as
Deputy Registrar, Meycauayan Branch of the Registry of Deeds of Bulacan;

(2) Civil Case No. 141-M-90 for damages filed by Jose Salazar against
Consuelo Cruz, et. [sic] al.; and

(3) Civil Case No. 644-M-89, for declaration of nullity of title with damages
filed by Rural Bank of San Pascual, Inc. against the spouses Ricardo Cruz and
Consuelo Cruz, et al.[25]

After trial of the consolidated cases, the RTC of Malolos rendered a decision
in favor of the heirs of Eduardo, the dispositive portion of which reads:

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

1.Declaring Transfer Certificates of Title Nos. T-9326-P(M) and T-9327-P(M) as

void ab initio and ordering the Register of Deeds, Meycauayan Branch to
cancel said titles and to restore Original Certificate of Title No. P-153(M) in
the name of plaintiffs predecessor-in-interest Eduardo Manlapat;

2.-Ordering the defendants Rural Bank of San Pascual, Jose Salazar, Consuelo
Cruz and Rosalina Cruz-Bautista, to pay the plaintiffs Heirs of Eduardo
Manlapat, jointly and severally, the following:

a)P200,000.00 as moral damages;

b)P50,000.00 as exemplary damages;
c)P20,000.00 as attorneys fees; and
d)the costs of the suit.

3.Dismissing the counterclaims.

SO ORDERED.[26]

The trial court found that petitioners were entitled to the reliefs of
reconveyance and damages. On this matter, it ruled that petitioners were
bona fide mortgagors of an unclouded title bearing no annotation of any lien
and/or encumbrance. This fact, according to the trial court, was confirmed by
the bank when it accepted the mortgage unconditionally on 25 November
1981. It found that petitioners were complacent and unperturbed, believing
that the title to their property, while serving as security for a loan, was safely
vaulted in the impermeable confines of RBSP. To their surprise and prejudice,

67
said title was subdivided into two portions, leaving them a portion of 455
square meters from the original total area of 1,058 square meters, all
because of the fraudulent and negligent acts of respondents and RBSP. The
trial court ratiocinated that even assuming that a portion of the subject lot
was sold by Eduardo to Ricardo, petitioners were still not privy to the
transaction between the bank and the Cruzes which eventually led to the
subdivision of the OCT into TCTs No. T-9326-P(M) and No. T-9327-P(M), clearly
to the damage and prejudice of petitioners.[27]

Concerning the claims for damages, the trial court found the same to be
bereft of merit. It ruled that although the act of the Cruzes could be deemed
fraudulent, still it would not constitute intrinsic fraud. Salazar, nonetheless,
was clearly guilty of negligence in letting the Cruzes borrow the owners
duplicate certificate of the OCT. Neither the bank nor its manager had
business entrusting to strangers titles mortgaged to it by other persons for
whatever reason. It was a clear violation of the mortgage and banking laws,
the trial court concluded.

The trial court also ruled that although Salazar was personally responsible for
allowing the title to be borrowed, the bank could not escape liability for it
was guilty of contributory negligence. The evidence showed that RBSPs legal
counsel was sought for advice regarding respondents request. This could
only mean that RBSP through its lawyer if not through its manager had
known in advance of the Cruzes intention and still it did nothing to prevent
the eventuality. Salazar was not even summarily dismissed by the bank if he
was indeed the sole person to blame. Hence, the banks claim for damages
must necessarily fail.[28]

The trial court granted the prayer for the annulment of the TCTs as a
necessary consequence of its declaration that reconveyance was in order. As
to Flores, his work being ministerial as Deputy Register of the Bulacan
Registry of Deeds, the trial court absolved him of any liability with a stern
warning that he should deal with his future transactions more carefully and in
the strictest sense as a responsible government official.[29]

Aggrieved by the decision of the trial court, RBSP, Salazar and the Cruzes
appealed to the Court of Appeals. The appellate court, however, reversed the
decision of the RTC. The decretal text of the decision reads:

THE FOREGOING CONSIDERED, the appealed decision is hereby reversed and

set aside, with costs against the appellees.

SO ORDERED.[30]

The appellate court ruled that petitioners were not bona fide mortgagors
since as early as 1954 or before the 1981 mortgage, Eduardo already sold to

68
Ricardo a portion of the subject lot with an area of 553 square meters. This
fact, the Court of Appeals noted, is even supported by a document of sale
signed by Eduardo Jr. and Engracia Aniceto, the surviving spouse of Eduardo,
and registered with the Register of Deeds of Bulacan. The appellate court
also found that on 18 March 1981, for the second time, Eduardo sold to
Ricardo a separate area containing 50 square meters, as a road right-of-way.
[31] Clearly, the OCT was issued only after the first sale. It also noted that
the title was given to the Cruzes by RBSP voluntarily, with knowledge even of
the banks counsel.[32] Hence, the imposition of damages cannot be justified,
the Cruzes themselves being the owners of the property. Certainly, Eduardo
misled the bank into accepting the entire area as a collateral since the 603-
square meter portion did not anymore belong to him. The appellate court,
however, concluded that there was no conspiracy between the bank and
Salazar.[33]

Hence, this petition for review on certiorari.

Petitioners ascribe errors to the appellate court by asking the following

questions, to wit: (a) can a mortgagor be compelled to receive from the
mortgagee a smaller portion of the originally encumbered title partitioned
during the subsistence of the mortgage, without the knowledge of, or
authority derived from, the registered owner; (b) can the mortgagee question
the veracity of the registered title of the mortgagor, as noted in the owners
duplicate certificate, and thus, deliver the certificate to such third persons,
invoking an adverse, prior, and unregistered claim against the registered title
of the mortgagor; (c) can an adverse prior claim against a registered title be
noted, registered and entered without a competent court order; and (d) can
belief of ownership justify the taking of property without due process of law?
[34]

The kernel of the controversy boils down to the issue of whether the
cancellation of the OCT in the name of the petitioners predecessor-in-interest
and its splitting into two separate titles, one for the petitioners and the other
for the Cruzes, may be accorded legal recognition given the peculiar factual
backdrop of the case. We rule in the affirmative.

Private respondents (Cruzes) own

the portion titled in their names

Consonant with law and justice, the ultimate denouement of the property
dispute lies in the determination of the respective bases of the warring
claims. Here, as in other legal disputes, what is written generally deserves
credence.

69
A careful perusal of the evidence on record reveals that the Cruzes have
sufficiently proven their claim of ownership over the portion of Lot No. 2204
with an area of 553 square meters. The duly notarized instrument of
conveyance was executed in 1954 to which no less than Eduardo was a
signatory. The execution of the deed of sale was rendered beyond doubt by
Eduardos admission in his Sinumpaang Salaysay dated 24 April 1963.[35]
These documents make the affirmance of the right of the Cruzes ineluctable.
The apparent irregularity, however, in the obtention of the owners duplicate
certificate from the bank, later to be presented to the Register of Deeds to
secure the issuance of two new TCTs in place of the OCT, is another matter.

Petitioners argue that the 1954 deed of sale was not annotated on the OCT
which was issued in 1976 in favor of Eduardo; thus, the Cruzes claim of
ownership based on the sale would not hold water. The Court is not
persuaded.

Registration is not a requirement for validity of the contract as between the

parties, for the effect of registration serves chiefly to bind third persons.[36]
The principal purpose of registration is merely to notify other persons not
parties to a contract that a transaction involving the property had been
entered into. Where the party has knowledge of a prior existing interest
which is unregistered at the time he acquired a right to the same land, his
knowledge of that prior unregistered interest has the effect of registration as
to him.[37]

Further, the heirs of Eduardo cannot be considered third persons for

purposes of applying the rule. The conveyance shall not be valid against any
person unless registered, except (1) the grantor, (2) his heirs and devisees,
and (3) third persons having actual notice or knowledge thereof.[38] Not only
are petitioners the heirs of Eduardo, some of them were actually parties to
the Kasulatan executed in favor of Ricardo. Thus, the annotation of the
adverse claim of the Cruzes on the OCT is no longer required to bind the
heirs of Eduardo, petitioners herein.

Petitioners had no right to constitute

mortgage over disputed portion

The requirements of a valid mortgage are clearly laid down in Article 2085 of
the New Civil Code, viz:

ART. 2085. The following requisites are essential to the contracts of pledge
and mortgage:

(1) That they be constituted to secure the fulfillment of a principal

obligation;

70
(2) That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property. (emphasis supplied)

For a person to validly constitute a valid mortgage on real estate, he must be

the absolute owner thereof as required by Article 2085 of the New Civil Code.
[39] The mortgagor must be the owner, otherwise the mortgage is void.[40]
In a contract of mortgage, the mortgagor remains to be the owner of the
property although the property is subjected to a lien.[41] A mortgage is
regarded as nothing more than a mere lien, encumbrance, or security for a
debt, and passes no title or estate to the mortgagee and gives him no right
or claim to the possession of the property.[42] In this kind of contract, the
property mortgaged is merely delivered to the mortgagee to secure the
fulfillment of the principal obligation.[43] Such delivery does not empower
the mortgagee to convey any portion thereof in favor of another person as
the right to dispose is an attribute of ownership.[44] The right to dispose
includes the right to donate, to sell, to pledge or mortgage. Thus, the
mortgagee, not being the owner of the property, cannot dispose of the whole
or part thereof nor cause the impairment of the security in any manner
without violating the foregoing rule.[45] The mortgagee only owns the
mortgage credit, not the property itself.[46]

Petitioners submit as an issue whether a mortgagor may be compelled to

receive from the mortgagee a smaller portion of the lot covered by the
originally encumbered title, which lot was partitioned during the subsistence
of the mortgage without the knowledge or authority of the mortgagor as
registered owner. This formulation is disingenuous, baselessly assuming, as it
does, as an admitted fact that the mortgagor is the owner of the mortgaged
property in its entirety. Indeed, it has not become a salient issue in this case
since the mortgagor was not the owner of the entire mortgaged property in
the first place.

Issuance of OCT No. P-153(M), improper

It is a glaring fact that OCT No. P-153(M) covering the property mortgaged
was in the name of Eduardo, without any annotation of any prior disposition
or encumbrance. However, the property was sufficiently shown to be not
entirely owned by Eduardo as evidenced by the Kasulatan. Readily apparent
upon perusal of the records is that the OCT was issued in 1976, long after the
Kasulatan was executed way back in 1954. Thus, a portion of the property

71
registered in Eduardos name arising from the grant of free patent did not
actually belong to him. The utilization of the Torrens system to perpetrate
fraud cannot be accorded judicial sanction.

Time and again, this Court has ruled that the principle of indefeasibility of a
Torrens title does not apply where fraud attended the issuance of the title, as
was conclusively established in this case. The Torrens title does not furnish a
shied for fraud.[47] Registration does not vest title. It is not a mode of
acquiring ownership but is merely evidence of such title over a particular
property. It does not give the holder any better right than what he actually
has, especially if the registration was done in bad faith. The effect is that it is
as if no registration was made at all.[48] In fact, this Court has ruled that a
decree of registration cut off or extinguished a right acquired by a person
when such right refers to a lien or encumbrance on the landnot to the right
of ownership thereofwhich was not annotated on the certificate of title issued
thereon.[49]

Issuance of TCT Nos. T-9326-P(M)

and T-9327-P(M), Valid

The validity of the issuance of two TCTs, one for the portion sold to the
predecessor-in-interest of the Cruzes and the other for the portion retained
by petitioners, is readily apparent from Section 53 of the Presidential Decree
(P.D.) No. 1529 or the Property Registration Decree. It provides:

SEC 53. Presentation of owners duplicate upon entry of new certificate. No

voluntary instrument shall be registered by the Register of Deeds, unless the
owners duplicate certificate is presented with such instrument, except in
cases expressly provided for in this Decree or upon order of the court, for
cause shown.

The production of the owners duplicate certificate, whenever any voluntary

instrument is presented for registration, shall be conclusive authority from
the registered owner to the Register of Deeds to enter a new certificate or to
make a memorandum of registration in accordance with such instrument,
and the new certificate or memorandum shall be binding upon the registered
owner and upon all persons claiming under him, in favor of every purchaser
for value and in good faith.

In all cases of registration procured by fraud, the owner may pursue all his
legal and equitable remedies against the parties to such fraud without
prejudice, however, to the rights of any innocent holder of the decree of
registration on the original petition or application, any subsequent
registration procured by the presentation of a forged duplicate certificate of

72
title, or a forged deed or instrument, shall be null and void. (emphasis
supplied)

Petitioners argue that the issuance of the TCTs violated the third paragraph
of Section 53 of P.D. No. 1529. The argument is baseless. It must be noted
that the provision speaks of forged duplicate certificate of title and forged
deed or instrument. Neither instance obtains in this case. What the Cruzes
presented before the Register of Deeds was the very genuine owners
duplicate certificate earlier deposited by Banaag, Eduardos attorney-in-fact,
with RBSP. Likewise, the instruments of conveyance are authentic, not
forged. Section 53 has never been clearer on the point that as long as the
owners duplicate certificate is presented to the Register of Deeds together
with the instrument of conveyance, such presentation serves as conclusive
authority to the Register of Deeds to issue a transfer certificate or make a
memorandum of registration in accordance with the instrument.

The records of the case show that despite the efforts made by the Cruzes in
persuading the heirs of Eduardo to allow them to secure a separate TCT on
the claimed portion, their ownership being amply evidenced by the
Kasulatan and Sinumpaang Salaysay where Eduardo himself acknowledged
the sales in favor of Ricardo, the heirs adamantly rejected the notion of
separate titling. This prompted the Cruzes to approach the bank manager of
RBSP for the purpose of protecting their property right. They succeeded in
persuading the latter to lend the owners duplicate certificate. Despite the
apparent irregularity in allowing the Cruzes to get hold of the owners
duplicate certificate, the bank officers consented to the Cruzes plan to
register the deeds of sale and secure two new separate titles, without
notifying the heirs of Eduardo about it.

Further, the law on the matter, specifically P.D. No. 1529, has no explicit
requirement as to the manner of acquiring the owners duplicate for purposes
of issuing a TCT. This led the Register of Deeds of Meycauayan as well as the
Central Bank officer, in rendering an opinion on the legal feasibility of the
process resorted to by the Cruzes. Section 53 of P.D. No. 1529 simply
requires the production of the owners duplicate certificate, whenever any
voluntary instrument is presented for registration, and the same shall be
conclusive authority from the registered owner to the Register of Deeds to
enter a new certificate or to make a memorandum of registration in
accordance with such instrument, and the new certificate or memorandum
shall be binding upon the registered owner and upon all persons claiming
under him, in favor of every purchaser for value and in good faith.
Quite interesting, however, is the contention of the heirs of Eduardo that the
surreptitious lending of the owners duplicate certificate constitutes fraud
within the ambit of the third paragraph of Section 53 which could nullify the
eventual issuance of the TCTs. Yet we cannot subscribe to their position.

73
Impelled by the inaction of the heirs of Eduardo as to their claim, the Cruzes
went to the bank where the property was mortgaged. Through its manager
and legal officer, they were assured of recovery of the claimed parcel of land
since they are the successors-in-interest of the real owner thereof. Relying on
the bank officers opinion as to the legality of the means sought to be
employed by them and the suggestion of the Central Bank officer that the
matter could be best settled between them and the bank, the Cruzes
pursued the titling of the claimed portion in the name of Ricardo. The
Register of Deeds eventually issued the disputed TCTs.

The Cruzes resorted to such means to protect their interest in the property
that rightfully belongs to them only because of the bank officers
acquiescence thereto. The Cruzes could not have secured a separate TCT in
the name of Ricardo without the banks approval. Banks, their business being
impressed with public interest, are expected to exercise more care and
prudence than private individuals in their dealings, even those involving
registered lands.[50] The highest degree of diligence is expected, and high
standards of integrity and performance are even required of it.[51]

Indeed, petitioners contend that the mortgagee cannot question the veracity
of the registered title of the mortgagor as noted in the owners duplicate
certificate, and, thus, he cannot deliver the certificate to such third persons
invoking an adverse, prior, and unregistered claim against the registered title
of the mortgagor. The strength of this argument is diluted by the peculiar
factual milieu of the case.

A mortgagee can rely on what appears on the certificate of title presented by

the mortgagor and an innocent mortgagee is not expected to conduct an
exhaustive investigation on the history of the mortgagors title. This rule is
strictly applied to banking institutions. A mortgagee-bank must exercise due
diligence before entering into said contract. Judicial notice is taken of the
standard practice for banks, before approving a loan, to send representatives
to the premises of the land offered as collateral and to investigate who the
real owners thereof are.[52]

Banks, indeed, should exercise more care and prudence in dealing even with
registered lands, than private individuals, as their business is one affected
with public interest. Banks keep in trust money belonging to their depositors,
which they should guard against loss by not committing any act of
negligence that amounts to lack of good faith. Absent good faith, banks
would be denied the protective mantle of the land registration statute, Act
496, which extends only to purchasers for value and good faith, as well as to
mortgagees of the same character and description.[53] Thus, this Court
clarified that the rule that persons dealing with registered lands can rely
solely on the certificate of title does not apply to banks.[54]

74
Bank Liable for Nominal Damages

Of deep concern to this Court, however, is the fact that the bank lent the
owners duplicate of the OCT to the Cruzes when the latter presented the
instruments of conveyance as basis of their claim of ownership over a
portion of land covered by the title. Simple rationalization would dictate that
a mortgagee-bank has no right to deliver to any stranger any property
entrusted to it other than to those contractually and legally entitled to its
possession. Although we cannot dismiss the banks acknowledgment of the
Cruzes claim as legitimized by instruments of conveyance in their
possession, we nonetheless cannot sanction how the bank was inveigled to
do the bidding of virtual strangers. Undoubtedly, the banks cooperative
stance facilitated the issuance of the TCTs. To make matters worse, the bank
did not even notify the heirs of Eduardo. The conduct of the bank is as
dangerous as it is unthinkably negligent. However, the aspect does not
impair the right of the Cruzes to be recognized as legitimate owners of their
portion of the property.

Undoubtedly, in the absence of the banks participation, the Register of

Deeds could not have issued the disputed TCTs. We cannot find fault on the
part of the Register of Deeds in issuing the TCTs as his authority to issue the
same is clearly sanctioned by law. It is thus ministerial on the part of the
Register of Deeds to issue TCT if the deed of conveyance and the original
owners duplicate are presented to him as there appears on theface of the
instruments no badge of irregularity or

nullity.[55] If there is someone to blame for the shortcut resorted to by the

Cruzes, it would be the bank itself whose manager and legal officer helped
the Cruzes to facilitate the issuance of the TCTs.

The bank should not have allowed complete strangers to take possession of
the owners duplicate certificate even if the purpose is merely for
photocopying for a danger of losing the same is more than imminent. They
should be aware of the conclusive presumption in
Section 53. Such act constitutes manifest negligence on the part of the bank
which would necessarily hold it liable for damages under Article 1170 and
other relevant provisions of the Civil Code.[56]

In the absence of evidence, the damages that may be awarded may be in

the form of nominal damages. Nominal damages are adjudicated in order
that a right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him.[57] This award rests
on the mortgagors right to rely on the banks observance of the highest
diligence in the conduct of its business. The act of RBSP of entrusting to
respondents the owners duplicate certificate entrusted to it by the mortgagor

75
without even notifying the mortgagor and absent any prior investigation on
the veracity of respondents claim and

character is a patent failure to foresee the risk created by the act in view of
the provisions of Section 53 of P.D. No. 1529. This act runs afoul of every
banks mandate to observe the highest degree of diligence in dealing with its
clients. Moreover, a mortgagor has also the right to be afforded due process
before deprivation or diminution of his property is effected as the OCT was
still in the name of Eduardo. Notice and hearing are indispensable elements
of this right which the bank miserably ignored.

Under the circumstances, the Court believes the award of P50,000.00 as

nominal damages is appropriate.

Five-Year Prohibition against alienation

or encumbrance under the Public Land Act

One vital point. Apparently glossed over by the courts below and the parties
is an aspect which is essential, spread as it is all over the record and
intertwined with the crux of the controversy, relating as it does to the validity
of the dispositions of the subject property and the mortgage thereon.
Eduardo was issued a title in 1976 on the basis of his free patent application.
Such application implies the recognition of the public dominion character of
the land and, hence, the five (5)-year prohibition imposed by the Public Land
Act against alienation or encumbrance of the land covered by a free patent
or homestead[58] should have been considered.

The deed of sale covering the fifty (50)-square meter right of way executed
by Eduardo on 18 March 1981 is obviously covered by the proscription, the
free patent having been issued on 8 October 1976. However, petitioners may
recover the portion sold since the prohibition was imposed in favor of the
free patent holder. In Philippine National Bank v. De los Reyes,[59] this Court
ruled squarely on the point, thus:

While the law bars recovery in a case where the object of the contract is
contrary to law and one or both parties acted in bad faith, we cannot here
apply the doctrine of in pari delicto which admits of an exception, namely,
that when the contract is merely prohibited by law, not illegal per se, and the
prohibition is designed for the protection of the party seeking to recover, he
is entitled to the relief prayed for whenever public policy is enhanced
thereby. Under the Public Land Act, the prohibition to alienate is predicated
on the fundamental policy of the State to preserve and keep in the family of
the homesteader that portion of public land which the State has gratuitously
given to him, and recovery is allowed even where the land acquired under

76
the Public Land Act was sold and not merely encumbered, within the
prohibited period.[60]

The sale of the 553 square meter portion is a different story. It was executed
in 1954, twenty-two (22) years before the issuance of the patent in 1976.
Apparently, Eduardo disposed of the portion even before he thought of
applying for a free patent. Where the sale or transfer took place before the
filing of the free patent application, whether by the vendor or the vendee,
the prohibition should not be applied. In such situation, neither the
prohibition nor the rationale therefor which is
to keep in the family of the patentee that portion of the public land which the
government has gratuitously given him, by shielding him from the
temptation to dispose of his landholding, could be relevant. Precisely, he had
disposed of his rights to the lot even before the government could give the
title to him.

The mortgage executed in favor of RBSP is also beyond the pale of the
prohibition, as it was forged in December 1981 a few months past the period
of prohibition.

WHEREFORE, the Decision of the Court of Appeals is AFFIRMED, subject to

the modifications herein. Respondent Rural Bank of San Pascual is hereby
ORDERED to PAY petitioners Fifty Thousand Pesos (P50,000.00) by way of
nominal damages. Respondents Consuelo Cruz and Rosalina Cruz-Bautista
are hereby DIVESTED of title to, and respondent Register of Deeds of
Meycauayan, Bulacan is accordingly ORDERED to segregate, the portion of
fifty (50) square meters of the subject Lot No. 2204, as depicted in the
approved plan covering the lot, marked as Exhibit A, and to issue a new title
covering the said portion in the name of the petitioners at the expense of the
petitioners. No costs.

SO ORDERED.
-------------------------------------------------------------------------------------------------
8. SOLID HOMES, INC., petitioner, vs. HON. COURT OF APPEALS,
STATE FINANCING CENTER, INC., and REGISTER OF DEEDS FOR
RIZAL, respondents.
DECISION
PANGANIBAN, J.:

Is the failure to annotate the vendor a retros right of repurchase in the

certificates of title of the real estate properties subject of dacion en pago
conclusive evidence of the vendee a retros malice and bad faith, entitling the
former to damages? In a sale with pacto de retro, is the repurchase price
limited by Article 1616 of the Civil Code?

77
These are the basic questions raised in this petition for review on certiorari
under Rule 45 of the Rules of Court assailing the Court of Appeals[1]
Decision[2] promulgated on April 25, 1994 and Resolution[3] of September
26, 1994 in CA-G.R. CV No. 39154, affirming the decision[4] of the Regional
Trial Court of Pasig, Branch 157 in Civil Case No. 51214. The said RTC
decision sustained the validity of the subject dacion en pago agreement and
declared the same as a true sale with right of repurchase.

The Facts

The facts of the case as narrated by the trial court and reproduced in the
assailed Decision of the Court of Appeals are undisputed by the parties.
These are the relevant portions:

It appears that on June 4, 1979, Solid Homes executed in favor of State

Financing (Center, Inc.) a Real Estate Mortgage (Exhibit 3) on its properties
embraced in Transfer Certificate of Title No. 9633 (Exhibit 9) and Transfer
Certificate of Title No. (492194) -11938 (Exhibit 8) of the Registry of Deeds in
Pasig, Metro Manila, in order to secure the payment of a loan of
P10,000,000.00 which the former obtained from the latter. A year after, Solid
Homes applied for and was granted an additional loan of P1,511,270.03 by
State Financing, and to secure its payment, Solid Homes executed the
Amendment to Real Estate Mortgage dated June 4, 1980 (Exhibit 4) whereby
the credits secured by the first mortgage on the abovementioned properties
were increased from P10,000,000.00 to P11,511,270.03. Sometime
thereafter, Solid Homes obtained additional credits and financing facilities
from State Financing in the sum of P1,499,811,97, and to secure its payment,
Solid Homes executed in favor of State Financing the Amendment to Real
Estate Mortgage dated March 5, 1982 (Exhibit 5) whereby the mortgage
executed on its properties on June 4, 1979 was again amended so that the
loans or credits secured thereby were further increased from P11,511,270.03
to P13,011,082.00.

When the loan obligations abovementioned became due and payable, State
Financing made repeated demands upon Solid Homes for the payment
thereof, but the latter failed to do so. So, on December 16, 1982, State
Financing filed a petition for extrajudicial foreclosure of the mortgages
abovementioned with the Provincial Sheriff of Rizal, who, in pursuance of the
petition, issued a Notice of Sheriffs Sale dated February 4, 1983 (Exhibit 6),
whereby the mortgaged properties of Solid Homes and the improvements
existing thereon, including the V.V. Soliven Towers II Building, were set for
public auction sale on March 7, 1983 in order to satisfy the full amount of
Solid Homes mortgage indebtedness, the interest thereon, and the fees and
expenses incidental to the foreclosure proceedings.

78
Before the scheduled public auction sale x x x, the mortgagor Solid Homes
made representations and induced State Financing to forego with the
foreclosure of the real estate mortgages referred to above. By reason
thereof, State Financing agreed to suspend the foreclosure of the mortgaged
properties, subject to the terms and conditions they agreed upon, and in
pursuance of their said agreement, they executed a document entitled
MEMORANDUM OF AGREEMENT/DACION EN PAGO (Memorandum) dated
February 28, 1983 (Exhibits C and 7) x x x. Among the terms and conditions
that said parties agreed upon were x x x:

1. (Solid Homes) acknowledges that it has an outstanding obligation due and

payable to (State Financing) and binds and obligates to pay (State Financing)
the totality of its outstanding obligation in the amount of P14,225,178.40,
within one hundred eighty (180) days from date of signing of this instrument.
However, it is understood and agreed that the principal obligation of
P14,225,178.40 shall earn interest at the rate of 14% per annum and penalty
of 16% per annum counted from March 01, 1983 until fully paid.

2. The parties agree that should (Solid Homes) be able to pay (State
Financing) an amount equivalent to sixty per centum (60%) of the principal
obligation, or the amount of P8,535,107.04, within the first one hundred
eighty (180) days, (State Financing) shall allow the remaining obligation of
(Solid Homes) to be restructured at a rate of interest to be mutually agreed
between the parties.

3. It is hereby understood and agreed that in the event (Solid Homes) fails to
comply with the provisions of the preceding paragraphs, within the said
period of one hundred eighty (180) days, this document shall automatically
operate to be an instrument of dacion en pago without the need of executing
any document to such an effect and (Solid Homes) hereby obligates and
binds itself to transfer, convey and assign to (State Financing), by way of
dacion en pago, its heirs, successors and assigns, and (State Financing) does
hereby accept the conveyance and transfer of the above-described real
properties, including all the improvements thereon, free from all liens and
encumbrances, in full payment of the outstanding indebtedness of (Solid
Homes) to (State Financing) x x x.

xxxxxxxxx

6. (State Financing) hereby grants (Solid Homes) the right to repurchase the
aforesaid real properties, including the condominium units and other
improvements thereon, within ten (10) months counted from and after the
one hundred eighty (180) days from date of signing hereof at an agreed price
of P14,225,178.40, or as reduced pursuant to par. 5 (d), plus all cost of
money equivalent to 30% per annum, registration fees, real estate and
documentary stamp taxes and other incidental expenses incurred by (State

79
Financing) in the transfer and registration of its ownership via dacion en pago
x x x.

xxx xxx xxx

Subsequently, Solid Homes failed to pay State Financing an amount

equivalent to 60% (or P8,535,107.04) of the principal obligation of
P14,225,178.40 within 180 days from the signing of the (Memorandum) on
February 28, 1983, as provided under paragraph 2 of the said document.
Hence, and in pursuance of paragraph 3 thereof which provided that this
document shall automatically operate to be an instrument of dacion en pago
without the need of executing any document to such an effect x x x(,) State
Financing registered the said (Memorandum) with the Register of Deeds in
Pasig, Metro Manila on September 15, 1983. Consequently, the said Register
of Deeds cancelled TCT No. 9633 and TCT No. (492194) 11938 in the name of
Solid Homes which were the subject matter of the (Memorandum)
abovementioned, and in lieu thereof, the said office issued Transfer
Certificate of Title No. 40533 (Exhibits J and 11) and Transfer Certificate of
Title No. 40534 (Exhibits K and 12) in the name of State Financing. x x x

In a letter dated October 11, 1983 (Exhibit 16), State Financing informed
Solid Homes of the transfer in its name of the titles to all the properties
subject matter of the (Memorandum) and demanded among other things,
that Solid Homes turn over to State Financing the possession of the V.V.
Soliven Towers II Building erected on two of the said properties. Solid Homes
replied with a letter dated October 14, 1983, (Exhibit 20) asking for a period
of ten (10) days within which to categorize its position on the matter; and in
a subsequent letter dated October 24, 1983, Solid Homes made known to
State Financing its position that the (Memorandum) is null and void because
the essence thereof is that State Financing, as mortgagee creditor, would be
able to appropriate unto itself the properties mortgaged by Solid Homes
which is in contravention of Article 2088 of the Civil Code. State Financing
then sent to Solid Homes another letter dated November 3, 1983 (Exhibit
17), whereby it pointed out that Art. 2088 of the Civil Code is not applicable
to the (Memorandum) they have executed, and also reiterated its previous
demand that Solid Homes turn over to it the possession of the V.V. Soliven
Towers II Building within five (5) days, but Solid Homes did not comply with
the said demand.

x x x and within that period of repurchase, Solid Homes wrote to State

Financing a letter dated April 30, 1984 containing its proposal for repayment
schemes under terms and conditions indicated therein for the repurchase of
the properties referred to. In reply to said letter, State Financing sent a letter
dated May 17, 1984 (Exhibit 18) advising Solid Homes that State Financings
management was not amenable to its proposal, and that by way of granting
it some concessions, said management made a counter-proposal requiring

80
Solid Homes to make an initial payment of P10 million until 22 May 1984 and
the balance payable within the remaining period to repurchase the properties
as provided for under the (Memorandum) x x x. Thereafter, a number of
conferences were held among the corporate officers of both companies
wherein they discussed the payment arrangement of Solid Homes
outstanding obligation, x x x. In a letter dated June 7, 1984 (Exhibit 19),
State Financing reiterated the counter-proposal in its previous letter dated
May 17, 1984 to Solid Homes as a way of making good its account, and at
the same time reminded Solid Homes that it has until 27 June 1984 to
exercise its right to repurchase the properties pursuant to the terms and
conditions of the (Memorandum), otherwise, it will have to vacate and turn
over the possession of said properties to State Financing. In return, Solid
Homes sent to State Financing a letter dated June 18, 1984 (Exhibits N and
22) containing a copy of the written offer made by C.L. Alma Jose & Sons,
Inc. (Exhibits M and 22-A) to avail of Solid Homes right to repurchase the V.V.
Soliven Towers II pursuant to the terms of the Dacion En Pago. The letter also
contained a request that the repurchase period under said Dacion En Pago
which will expire on June 27, 1984 be extended by sixty (60) days to enable
Solid Homes to comply with the conditions in the offer of Alma Jose & Sons,
Inc. referred to, and thereafter, to avail of the one year period to pay the
balance based on the verbal commitment of State Financings President. x x x

However, on June 26, 1984, a day before the expiry date of its right to
repurchase the properties involved in the (Memorandum) on June 27, 1984,
Solid Homes filed the present action against defendants State Financing and
the Register of Deeds for Metro Manila District II (Pasig), seeking the
annulment of said (Memorandum) and the consequent reinstatement of the
mortgages over the same properties; x x x[5]

As earlier stated, the trial court held that the Memorandum of

Agreement/Dacion En Pago executed by the parties was valid and binding,
and that the registration of said instrument in the Register of Deeds was in
accordance with law and the agreement of the parties. It disposed of the
case thus:

WHEREFORE, this Court hereby renders judgment, as follows:

1. Declaring that the Memorandum of Agreement/Dacion En Pago entered

into by and between plaintiff Solid Homes and defendant State Financing on
February 28, 1983 is a valid and binding document which does not violate
the prohibition against pactum commisorium under Art. 2088 of the Civil
Code;

2. Declaring that the said Memorandum of Agreement/Dacion En Pago is a

true sale with right of repurchase, and not an equitable mortgage;

81
3. Declaring that the registration of the said Memorandum of
Agreement/Dacion En Pago with the defendant Register of Deeds in Pasig,
Metro Manila by defendant State Financing on September 15, 1983 is in
accordance with law and the agreement of the parties in the said document;
but the annotation of the said document by the said Register of Deeds on the
certificates of title over the properties subject of the Memorandum of
Agreement/Dacion En Pago without any mention of the right of repurchase
and the period thereof, is improper, and said Register of Deeds cancellation
of the certificates of title in the name of Solid Homes over the properties
referred to and issuance of new titles in lieu thereof in the name of State
Financing - during the period of repurchase and without any judicial order - is
in violation of Art. 1607 of the Civil Code, which renders said titles null and
void;

4. Ordering the defendant State Financing to surrender to the defendant

Register of Deeds in Pasig, Metro Manila for the cancellation thereof, all the
certificates of title issued in its name over the properties subject of the
Memorandum of Agreement/Dacion En Pago, including those titles covering
the fully paid condominium units and the substitute collateral submitted in
exchange for said condominium units;

5. Ordering the said defendant Register of Deeds to cancel all the titles in the
name of State Financing referred to and to reinstate the former titles over
the same properties in the name of Solid Homes, with the proper annotation
thereon of the Memorandum of Agreement/Dacion En Pago together with the
right of repurchase and the period thereof - as provided in said document -
and to return the said reinstated former titles (owners copies) in the name of
Solid Homes to State Financing;

6. Ordering the defendant State Financing to release to plaintiff Solid Homes

all the certificates of title over the fully paid condominium units in the name
of Solid Homes, free from all liens and encumbrances by releasing the
mortgage thereon;

7. Granting the plaintiff Solid Homes the opportunity to exercise its right to
repurchase the properties subject of the Memorandum of Agreement/Dacion
En Pago within thirty (30) days from the finality of this Decision, by paying to
defendant State Financing the agreed price of P14,225,178.40 plus all cost of
money equivalent to 30% (interest of 14% and penalty of 16% from March 1,
1983) per annum, registration fees, real estate and documentary stamp
taxes and other incidental expenses incurred by State Financing in the
transfer and registration of its ownership via the Dacion En Pago, as provided
in the said document and in pursuance of Articles 1606 and 1616 of the Civil
Code; and

82
8. Ordering the defendant Register of Deeds in Pasig, Metro Manila - should
plaintiff Solid Homes fail to exercise the abovementioned right to repurchase
within 30 days from the finality of this judgment - to record the consolidation
of ownership in State Financing over the properties subject of the
Memorandum of Agreement/Dacion En Pago in the Registry of Property, in
pursuance of this Order, but excluding therefrom the fully paid condominium
units and their corresponding titles to be released by State Financing.

For lack of merit, the respective claims of both parties for damages,
attorneys fees, expenses of litigation and costs of suit are hereby denied.[6]

Both parties appealed from the trial courts decision. Solid Homes raised a
lone question contesting the denial of its claim for damages. Such damages
allegedly resulted from the bad faith and malice of State Financing in
deliberately failing to annotate Solid Homes right to repurchase the subject
properties in the formers consolidated titles thereto. As a result of the non-
annotation, Solid Homes claimed to have been prevented from generating
funds from prospective buyers to enable it to comply with the Agreement
and to redeem the subject properties.

State Financing, on the other hand, assigned three errors against the RTC
decision: (1) granting Solid Homes a period of thirty (30) days from finality of
the judgment within which to exercise its right of repurchase; (2) ordering
Solid Homes to pay only 30% per annum as interest and penalty on the
principal obligation, rather than reasonable rental value from the time
possession of the properties was illegally withheld from State Financing; and
(3) failing to order the immediate turnover of the possession of the
properties to State Financing as the purchaser a retro from whom no
repurchase has been made.

As to the lone issue raised by Solid Homes, the Court of Appeals agreed with
the trial court that the failure to annotate the right of repurchase of the
vendor a retro is not by itself an indication of bad faith or malice. State
Financing was not legally bound to cause its annotation, and Solid Homes
could have taken steps to protect its own interests. The evidence shows that
after such registration and transfer of titles, State Financing willingly
negotiated with Solid Homes to enable the latter to exercise its right to
repurchase the subject properties,[7] an act that negates bad faith.

Anent the first error assigned by State Financing, Respondent Court likewise
upheld the trial court in applying Article 1606, paragraph 3[8] of the Civil
Code. Solid Homes was not in bad faith in filing the complaint for the
declaration of nullity of the Memorandum of Agreement/Dacion En Pago.
There is statutory basis for petitioners claim that an equitable mortgage
existed since it believed that (1) the price of P14 million was grossly
inadequate, considering that the building alone was allegedly built at a cost

83
of P60 million in 1979 and the lot was valued at P5,000.00 per square meter
and (2) it remained in possession of the subject properties.[9] Furthermore,
Article 1607[10] of the Civil Code abolished automatic consolidation of
ownership in the vendee a retro upon expiration of the redemption period by
requiring the vendee to institute an action for consolidation where the
vendor a retro may be duly heard. If the vendee succeeds in proving that the
transaction was indeed a pacto de retro, the vendor is still given a period of
thirty days from the finality of the judgment within which to repurchase the
property.[11]

Respondent Court also affirmed the trial courts imposition of the 30%
interest per annum on top of the redemption price in accordance with
paragraph 6 of the parties Memorandum of Agreement.[12]

However, Respondent Court of Appeals ruled favorably on State Financings

last assigned error by ordering Solid Homes to deliver possession of the
subject properties to the private respondent, citing jurisprudence that in a
sale with pacto de retro, the vendee shall immediately acquire title over and
possession of the real property sold, subject only to the vendors right of
redemption.[13] The full text of the dispositive portion of the assailed
Decision is as follows:

WHEREFORE, the judgment appealed from is affirmed with the modification

that plaintiff Solid Homes is further ordered to deliver the possession of the
subject property to State Financing.[14]

The two opposing parties filed their respective motions for reconsideration of
the assailed Decision. Both were denied by said Court for lack of merit. Both
parties thereafter filed separate petitions for review before this Court. In a
minute Resolution[15] dated December 5, 1994, this Court (Third Division)
denied State Financing Centers petition because of its failure to show that a
reversible error was committed by the appellate court. Its motion for
reconsideration of said resolution was likewise denied for lack of merit. This
case disposes only of the petition filed by Solid Homes, Inc.

Issues

In its petition, Solid Homes repeats its arguments before the Court of
Appeals. It claims damages allegedly arising from the non-annotation of its
right of repurchase in the consolidated titles issued to private respondent.
Petitioner reiterates its attack against the inclusion of 30% interest per
annum as part of the redemption price. It asserts that Article 1616 of the
Civil Code authorizes only the return of the (1) price of the sale, (2) expenses
of the contract and any other legitimate payments by reason of the sale and
(3) necessary and useful expenses made on the thing sold. Considering that
the transfer of titles was null and void, it was thus erroneous to charge

84
petitioner the registration fees, documentary stamp taxes and other
incidental expenses incurred by State Financing in the transfer and
registration of the subject properties via the dacion en pago. Lastly,
petitioner argues that there is no need for the immediate turnover of the
properties to State Financing since the same was not stipulated under their
Agreement, and the latters rights were amply protected by the issuance of
new certificates of title in its name.

The Courts Ruling

First Issue: Damages

To resolve the issue of damages, an examination of factual circumstances

would be necessary, a task that is clearly beyond this Courts dominion. It is
elementary that in petitions for review on certiorari, only questions of law
may be brought by the parties and passed upon by this Court. Findings of
fact of lower courts are deemed conclusive and binding upon the Supreme
Court except when the findings are grounded on speculation, surmises or
conjectures; when the inference made is manifestly mistaken, absurd or
impossible; when there is grave abuse of discretion in the appreciation of
facts; when the factual findings of the trial and appellate courts are
conflicting; when the Court of Appeals, in making its findings, has gone
beyond the issues of the case and such findings are contrary to the
admissions of both appellant and appellee;[16] when the judgment of the
appellate court is premised on a misapprehension of facts or when it has
failed to notice certain relevant facts which, if properly considered, will justify
a different conclusion; when the findings of fact are conclusions without
citation of specific evidence upon which they are based; and when findings of
fact of the Court of Appeals are premised on the absence of evidence but are
contradicted by the evidence on record.[17]

The petitioner has not shown any -- and indeed the Court finds none -- of the
above-mentioned exceptions to warrant a departure from the general rule.

In fact, petitioner has not even bothered to support with evidence its claim
for actual, moral and punitive/nominal damages as well as exemplary
damages and attorneys fees. It is basic that the claim for these damages
must each be independently identified and justified; such claims cannot be
dealt with in the aggregate, since they are neither kindred or analogous
terms nor governed by a coincident set of rules.[18]

The trial court found, and the Court of Appeals affirmed, that petitioners
claim for actual damages was baseless. Solid Homes utterly failed to prove
that respondent corporation had maliciously and in bad faith caused the non-
annotation of petitioners right of repurchase so as to prevent the latter from
exercising such right. On the contrary, it is admitted by both parties that

85
State Financing informed petitioner of the registration with the Register of
Deeds of Pasig of their Memorandum of Agreement/Dacion en Pago and the
issuance of new certificates of title in the name of the respondent
corporation. Petitioner exchanged communications and held conferences
with private respondent in order to draw a mutually acceptable payment
arrangement for the formers repurchase of the subject properties. A written
offer from another corporation alleging willingness to avail itself of
petitioners right of repurchase was even attached to one of these
communications. Clearly, petitioner was not prejudiced by the non-
annotation of such right in the certificates of titles issued in the name of
State Financing. Besides, as the Court of Appeals noted, it was not the
function of respondent corporation to cause said annotation. It was equally
the responsibility of petitioner to protect its own rights by making sure that
its right of repurchase was indeed annotated in the consolidated titles of
private respondent.

The only legal transgression of State Financing was its failure to observe the
proper procedure in effecting the consolidation of the titles in its name. But
this does not automatically entitle the petitioner to damages absent
convincing proof of malice and bad faith[19] on the part of private
respondent and actual damages suffered by petitioner as a direct and
probable consequence thereof. In fact, the evidence proffered by petitioner
consist of mere conjectures and speculations with no factual moorings.
Furthermore, such transgression was addressed by the lower courts when
they nullified the consolidation of ownership over the subject properties in
the name of respondent corporation, because it had been effected in
contravention of the provisions of Article 1607[20] of the Civil Code. Such
rulings are consistent with law and jurisprudence.

Neither can moral damages be awarded to petitioner. Time and again, we

have held that a corporation -- being an artificial person which has no
feelings, emotions or senses, and which cannot experience physical suffering
or mental anguish -- is not entitled to moral damages.[21]

While the amount of exemplary damages need not be proved, petitioner

must show that he is entitled to moral or actual damages;[22] but the
converse obtains in the instant case. Award of attorneys fees is likewise not
warranted when moral and exemplary damages are eliminated and
entitlement thereto is not demonstrated by the claimant.[23]

Lastly, (n)ominal damages are adjudicated in order that a right of the

plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him.[24] As elaborated above and in the
decisions of the two lower courts, no right of petitioner was violated or
invaded by respondent corporation.

86
Second Issue: Redemption Price

Another fundamental principle of procedural law precludes higher courts

from entertaining matters neither alleged in the pleadings nor raised during
the proceedings below, but ventilated for the first time only in a motion for
reconsideration or on appeal.[25] On appeal, only errors specifically assigned
and properly argued in the brief will be considered, with the exception of
those affecting jurisdiction over the subject matter as well as plain and
clerical errors.[26]

As stated earlier, the single issue raised by petitioner in its appeal of the RTC
decision to the Court of Appeals concerned only the denial of its claim for
damages. Petitioner succinctly stated such issue in its brief as follows:

I. LONE ASSIGNMENT OF ERROR

The trial court erred in that after having found that the registration of the
Memorandum of Agreement/Dacion en Pago on September 15, 1983 [and the
consequent cancellation of the titles of plaintiff-appellant Solid Homes, Inc.
and issuance in lieu thereof of titles to defendant-appellant State Financing
Center, Inc. (SFCI)] was null and void because of failure to duly annotate the
right to repurchase granted to plaintiff-appellant Solid Homes, Inc. under par.
6 thereof still then subsisting up to June 28, 1984 and the failure to comply
with the provisions of Art. 1607, Civil Code x x x

I[t] nonetheless did not rule that such irregular registration unduly deprived
plaintiff-appellant Solid Homes, Inc. of its right of repurchase and that it
further erred in not having declared that defendant-appellant SFCI liable in
favor of said plaintiff-appellant for damages.[27]

Petitioner is thus barred from raising a new issue in its appeal before this
Court. Nevertheless, in the interest of substantial justice, we now resolve the
additional question posed with respect to the composition of the redemption
price prescribed by the trial court and affirmed by the Court of Appeals, as
follows:

7. Granting the plaintiff Solid Homes the opportunity to exercise its right to
repurchase the properties x x x by paying to defendant State Financing the
agreed price of P14,225,178.40 plus all cost of money equivalent to 30%
(interest of 14% and penalty of 16% from March 1, 1983) per annum,
registration fees, real estate and documentary stamp taxes and other
incidental expenses incurred by State Financing in the transfer and
registration of its ownership via the Dacion En Pago, as provided in the said
document and in pursuance of Articles 1606 and 1616 of the Civil Code;[28]

87
Petitioner argues that such total redemption price is in contravention of Art.
1616 of the Civil Code. We do not, however, find said legal provision to be
restrictive or exclusive, barring additional amounts that the parties may
agree upon. Said provision should be construed together with Art. 1601 of
the same Code which provides as follows:

Art. 1601. Conventional redemption shall take place when the vendor
reserves the right to repurchase the thing sold, with the obligation to comply
with the provisions of article 1616 and other stipulations which may have
been agreed upon. (emphasis supplied)

It is clear, therefore, that the provisions of Art. 1601 require petitioner to

comply with x x x the other stipulations of the Memorandum of
Agreement/Dacion en Pago it freely entered into with private respondent.
The said Memorandums provision on redemption states:

6. The FIRST PARTY (State Financing) hereby grants the SECOND PARTY (Solid
Homes) the right to repurchase the aforesaid real properties, including the
condominium units and other improvements thereon, within ten (10) months
counted from and after the one hundred eighty (180) days from date of
signing hereof at an agreed price of P14,225,178.40, or as reduced pursuant
to par. 5 (d), plus all cost of money equivalent to 30% per annum,
registration fees, real estate and documentary stamp taxes and other
incidental expenses incurred by the FIRST PARTY (State Financing) in the
transfer and registration of its ownership via dacion en pago x x x[29]
(underscoring supplied)

Contracts have the force of law between the contracting parties who may
establish such stipulations, clauses, terms and conditions as they may want,
subject only to the limitation that their agreements are not contrary to law,
morals, customs, public policy or public order[30] -- and the above-quoted
provision of the Memorandum does not appear to be so.

Petitioner, however, is right in its observation that the Court of Appeals

inclusion of registration fees, real estate and documentary stamp taxes and
other incidental expenses incurred by State Financing in the transfer and
registration of its ownership (of the subject properties) via dacion en pago
was vague, if not erroneous, considering that such transfer and issuance of
the new titles were null and void. Thus, the redemption price shall include
only those expenses relating to the registration of the dacion en pago, but
not the registration and other expenses incurred in the issuance of new
certificates of title in the name of State Financing.

Possession of the Subject Properties During the Redemption Period

88
The Court of Appeals Decision modified that of the trial court only insofar as
it ordered petitioner to deliver possession of the subject properties to State
Financing, the vendee a retro. We find no legal error in this holding. In a
contract of sale with pacto de retro, the vendee has a right to the immediate
possession of the property sold, unless otherwise agreed upon. It is basic
that in a pacto de retro sale, the title and ownership of the property sold are
immediately vested in the vendee a retro, subject only to the resolutory
condition of repurchase by the vendor a retro within the stipulated period.
[31]

WHEREFORE, the assailed Decision of the Court of Appeals is hereby

AFFIRMED with the MODIFICATION that the redemption price shall not include
the registration and other expenses incurred by State Financing Center, Inc.
in the issuance of new certificates of title in its name, as this was done
without the proper judicial order required under Article 1607 of the Civil
Code.

SO ORDERED.
----------------------------------------------------------------------------------
TEMPERATE DAMAGES

9. G.R. No. 112576 October 26, 1994

(CA-GR CV No. 26571)

METROPOLITAN BANK AND TRUST COMPANY, petitioner,

vs.
THE HON. COURT OF APPEALS, RURAL BANK OF PADRE GARCIA, INC.
and ISABEL R. KATIGBAK, respondents.

Makalintal, Barot, Torres & Ibarra for petitioner.

Fornier, Lava & Fornier for private respondents.

ROMERO, J.:

This petition for certiorari seeks to annul the decision of respondent Court of
Appeals dated October 29, 1992 in CA GR CV No. 26571 affirming the
decision of the Regional Trial Court of Lipa, Batangas Branch XIII for
damages, and the Resolution dated November 11, 1993 denying petitioner's
motion for reconsideration of the aforesaid decision.

The case emanated from a dispute between the Rural Bank of Padre Garcia,
Inc. (RBPG) and Metropolitan Bank and Trust Company (MBTC) relative to a

89
credit memorandum dated April 5, 1982 from the Central Bank in the amount
of P304,000.00 in favor of RBPG.

The records show that Isabel Katigbak is the president and director of RBPG,
owning 65% of the shares thereof. Metropolitan Bank and Trust Company
(MBTC) is the rural bank's depository bank, where Katigbak maintains current
accounts with MBTC's main office in Makati as well as its Lipa City branch.

On April 6, 1982, MBTC received from the Central Bank a credit memo dated
April 5, 1982 that its demand deposit account was credited with P304,000.00
for the account of RBPG, representing loans granted by the Central Bank to
RBPG. On the basis of said credit memo, Isabel Katigbak issued several
checks against its account with MBTC in the total amount of P300,000.00,
two (2) of which (Metrobank Check Nos. 0069 and 0070) were payable to Dr.
Felipe C. Roque and Mrs. Eliza Roque for P25,000.00 each. Said checks issued
to Dr. and Mrs. Roque were deposited by the Roques with the Philippine
Banking Corporation, Novaliches Branch in Quezon City. When these checks
were forwarded to MBTC on April 12, 1982 for payment (six (6) days from
receipt of the Credit Memo), the checks were returned by MBTC with the
annotations "DAIF TNC" (Drawn Against Insufficient Funds Try Next
Clearing) so they were redeposited on April 14, 1982. These
were however again dishonored and returned unpaid for the following
reason: "DAIF TNC NO ADVICE FROM CB."

After the second dishonor of the two (2) checks, Dr. Felipe Roque, a member
of the Board of Directors of Philippine Banking Corporation, allegedly went to
the Office of Antonio Katigbak, an officer of RBPG, chiding him for the
bouncing checks. In order to appease the doctor, RBPG paid Dr. Roque
P50,000.00 in cash to replace the aforesaid checks.

On April 13, 1982, Isabel Katigbak who was in Hongkong on a

business-vacation trip together with her sons Alfredo and Antonio, both of
whom were also officers of RBPG, received overseas phone calls from Mrs.
Maris Katigbak-San Juan at her residence in San Lorenzo Village, Makati,
informing Isabel Katigbak that a certain Mr. Rizal Dungo, Assistant Cashier of
MBTC insisted on talking to her (Mrs. San Juan), berating her about the
checks which bounced, saying "Nag-issue kayo ng tseke, wala namang
pondo," even if it was explained to Mr. Dungo that Mrs. San Juan was not in
any way connected with RBPG.

Mrs. Katigbak testified that she informed Mrs. San Juan to request defendant
MBTC to check and verify the records regarding the aforementioned Central
Bank credit memo for P304,000.00 in favor of RBPG as she was certain that
the checks were sufficiently covered by the CB credit memo as early as April
6, 1994, but the following day, Mrs. San Juan received another insulting call
from Mr. Dungo ("Bakit kayo nag-issue ng tseke na wala namang pondo,

90
Three Hundred Thousand na.") 1 When Mrs. San Juan explained to him the
need to verify the records regarding the Central Bank memo, he merely
brushed it aside, telling her sarcastically that he was very sure that no such
credit memo existed. Mrs. San Juan was constrained to place another long
distance call to Mrs. Katigbak in Hongkong that evening. Tense and angered,
the Katigbaks had to cut short their Hongkong stay with their respective
families and flew back to Manila, catching the first available flight on April
15, 1982.

Immediately upon arrival, Mrs. Katigbak called up MBTC, through a

Mr. Cochico, for a re-examination of the records of MBTC regarding the
Central Bank credit memo dated April 5, 1982 for P304,000.00. Mr. Dungo, to
whom Cochico handed over the phone, allegedly arrogantly said: "Bakit kayo
magagalit, wala naman kayong pondo?" These remarks allegedly so shocked
Mrs. Katigbak that her blood pressure rose to a dangerous level and she had
to undergo medical treatment at the Makati Medical Center for two (2) days.

Metrobank not only dishonored the checks issued by RBPG, the latter was
issued four (4) debit memos representing service and penalty charges for the
returned checks.

RBPG and Isabel Katigbak filed Civil Case No. V-329 in the RTC of Lipa,
Batangas Branch XIII against the Metropolitan Bank and Trust Company for
damages on April 26, 1983.

The ultimate facts as alleged by the defendant MBTC in its answer are as
follows: that on April 6, 1982, its messenger, Elizer Gonzales, received from
the Central Bank several credit advices on rural bank accounts, which
included that of plaintiff RBPG in the amount of P304,000.00; that due to the
inadvertence of said messenger, the credit advice issued in favor of plaintiff
RBPG was not delivered to the department in charge of processing the same;
consequently, when MBTC received from the clearing department the checks
in question, the stated balance in RBPG's account was only P5,498.58 which
excluded the unprocessed credit advice of P304,000.00 resulting in the
dishonor of the aforementioned checks; that as regards the P304,000.00
which was
a re-discounting loan from the Central Bank, the same was credited only on
April 15, 1982 after the Central Bank finally confirmed that a credit advice
was indeed issued in favor of RBPG; that after the confirmation, MBTC
credited the amount of the credit advice to plaintiff RBPG's account and thru
its officers, allegedly conveyed personally on two occasions its apologies to
plaintiffs to show that the bank and its officers acted with no deliberate
intent on their part to cause injury or damage to plaintiffs, explaining the
circumstances that gave rise to the bouncing checks situation. Metrobank's
negligence arising from their messenger's misrouting of the credit advice
resulting in the return of the checks in question, despite daily reporting of

91
credit memos and a corresponding daily radio message confirmation, (as
shown by Exhibit "I," the Investigation Report of the bank's Mr. Valentino
Elevado) and Mr. Dungo's improper handling of clients led to the messenger's
dismissal from service and Mr. Dungo's transfer from Metro Manila to
Mindoro.

The threshold issue was whether or not, under the facts and circumstances
of the case, plaintiff may be allowed to recover actual, moral and exemplary
damages, including attorney's fees, litigation expenses and the costs of the
suit. On August 25, 1989, the RTC of Lipa City rendered a decision 2 in favor
of plaintiffs and against the defendant MBTC, ordering the latter to:

1. pay plaintiff Isabel Katigbak P50,000.00 as temperate damages;

2. pay P500,000.00 as moral damages, considering that RBPG's credit

standing and business reputation were damaged by the wrongful acts of
defendant's employees, coupled with the rude treatment received by Isabel
Katigbak at the hands of Mr. Dungo, all of which impelled her to seek medical
treatment;

3. pay P100,000.00 as attorney's fees and litigation expenses; and.

4. pay the costs of suit.

The lower court did not award actual damages in the amount of P50,000.00
representing the amount of the two (2) checks payable to Dr. Felipe C. Roque
and Mrs. Elisa Roque for P25,000 each, as it found no showing that Mr.
Antonio Katigbak who allegedly paid the amount was actually reimbursed by
plaintiff RBPG. Moreover, the court held that no actual damages could have
been suffered by plaintiff RBPG because on April 15, 1982, the Central Bank
credit advice in the amount of P304,000 which included the two (2) checks
issued to the Roque spouses in the sum of P50,000.00 were already credited
to the account of RBPG and the service, as well as penalty charges, were all
reversed.

MBTC appealed from the decision to the Court of Appeals in CA GR CV No.

26571, alleging that the trial court erred in awarding temperate and moral
damages, as well as attorney's fees, plus costs and expenses of litigation
without factual or legal basis therefor.

On October 29, 1992, the Court of Appeals rendered a decision 3 affirming

that of the trial court, except for the deletion of the award of temperate
damages, the reduction of moral damages from P500,000.00 to P50,000.00
in favor of RBPG and P100,000.00 for Isabel Katigbak and P50,000.00, as
attorney's fees. Plaintiffs-appellees filed a motion for reconsideration of the
decision, questioning the deletion of the award of temperate damages and

92
the reduction of the award of moral damages and attorney's fees. The
motion was denied.

MBTC filed this petition, presenting the following issues for resolution:

1. whether or not private respondents RBPG and Isabel Rodriguez are

legally entitled to moral damages and attorney's fees, and

2. assuming that they are so entitled, whether or not the amounts

awarded are excessive and unconscionable.

The petition is devoid of merit.

The case at bench was instituted to seek damages caused by the dishonor
through negligence of respondent bank's checks which were actually
sufficiently funded, and the insults from petitioner bank's officer directed
against private respondent Isabel R. Katigbak. The presence of malice and
the evidence of besmirched reputation or loss of credit and business
standing, as well as a reappraisal of its probative value, involves factual
matters which, having been already thoroughly discussed and analyzed in
the courts below, are no longer reviewable here. While this rule admits of
exceptions, this case does not fall under any of these.

There is no merit in petitioner's argument that it should not be considered

negligent, much less be held liable for damages on account of the
inadvertence of its bank employee as Article 1173 of the Civil Code only
requires it to exercise the diligence of a good pater familias.

As borne out by the records, the dishonoring of the respondent's checks

committed through negligence by the petitioner bank on April 6, 1982 was
rectified only on April 15, 1992 or nine (9) days after receipt of the credit
memo. Clearly, petitioner bank was remiss in its duty and obligation to treat
private respondent's account with the highest degree of care, considering
the fiduciary nature of their relationship. The bank is under obligation to treat
the accounts of its depositors with meticulous care, whether such account
consists only of a few hundred pesos or of millions. It must bear the blame
for failing to discover the mistake of its employee despite the established
procedure requiring bank papers to pass through bank personnel whose duty
it is to check and countercheck them for possible errors. 4 Responsibility
arising from negligence in the performance of every kind of obligation is
demandable. 5 While the bank's negligence may not have been attended
with malice and bad faith, nevertheless, it caused serious anxiety,
embarrassment and humiliation to private respondents for which they are
entitled to recover reasonable moral damages. 6

93
As the records bear out, insult was added to injury by petitioner bank's
issuance of debit memoranda representing service and penalty charges for
the returned checks, not to mention the insulting remarks from its Assistant
Cashier.

In the case of Leopoldo Araneta v. Bank of America, 7 we held that:

The financial credit of a businessman is a prized and valuable asset, it being

a significant part of the foundation of his business. Any adverse reflection
thereon constitutes some financial loss to him. As stated in the case of
Atlanta National Bank vs. Davis, 96 Ga 334, 23 SE 190, citing 2 Morse Banks,
Sec. 458, "it can hardly be possible that a customer's check can be
wrongfully refused payment without some impeachment of his credit, which
must in fact be an actual injury, though he cannot, from the nature of the
case, furnish independent, distinct proof thereof".

It was established that when Mrs. Katigbak learned that her checks were not
being honored and Mr. Dungo repeatedly made the insulting phone calls, her
wounded feelings and the mental anguish suffered by her caused her blood
pressure to rise beyond normal limits, necessitating medical attendance for
two (2) days at a hospital.

The damage to private respondents' reputation and social standing entitles

them to moral damages. Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation and similar injury. 8 Temperate or moderate
damages which are more than nominal but less than compensatory
damages, may be recovered when the court finds that some pecuniary loss
has been suffered but its amount cannot, from the nature of the case, be
proved with certainty. 9 Temperate damages may be allowed in cases where
from the nature of the case, definite proof of pecuniary loss cannot be
adduced, although the court is convinced that there has been such loss. The
appellate court, however, justified its deletion when MBTC reasoned out that
the amount of P50,000.00 is not part of the relief prayed for in the complaint,
aside from the fact that the amount allegedly suffered by Mrs. Katigbak is
susceptible of proof. 10

Moral and temperate damages which are not susceptible of pecuniary

estimation are not awarded to penalize the petitioner but to compensate the
respondents for injuries suffered as a result of the former's fault and
negligence, taking into account the latter's credit and social standing in the
banking community, particularly since this is the very first time such
humiliation has befallen private respondents. The amount of such losses
need not be established with exactitude, precisely due to their nature. 11

94
The carelessness of petitioner bank, aggravated by the lack of promptness in
repairing the error and the arrogant attitude of the bank officer handling the
matter, justifies the grant of moral damages, which are clearly not excessive
and unconscionable.

Moreover, considering the nature and extent of the services rendered by

private respondent's counsel, both in the trial and appellate courts, the Court
deems it just and equitable that attorney's fees in the amount of P50,000.00
be awarded.

WHEREFORE, the decision of respondent Court of Appeals is AFFIRMED in all

respects.

SO ORDERED.
----------------------------------------------------------------------------------------------
10. IGNACIO BARZAGA, petitioner, vs. COURT OF APPEALS and
ANGELITO ALVIAR, respondents.
DECISION
BELLOSILLO, J.:

The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his
family. On the nineteenth of December Ignacio's wife succumbed to a
debilitating ailment after prolonged pain and suffering. Forewarned by her
attending physicians of her impending death, she expressed her wish to be
laid to rest before Christmas day to spare her family from keeping lonely vigil
over her remains while the whole of Christendom celebrate the Nativity of
their Redeemer.

Drained to the bone from the tragedy that befell his family yet preoccupied
with overseeing the wake for his departed wife, Ignacio Barzaga set out to
arrange for her interment on the twenty-fourth of December in obedience
semper fidelis to her dying wish. But her final entreaty, unfortunately, could
not be carried out. Dire events conspired to block his plans that forthwith
gave him and his family their gloomiest Christmas ever.

This is Barzaga's story. On 21 December 1990, at about three o`clock in the

afternoon, he went to the hardware store of respondent Angelito Alviar to
inquire about the availability of certain materials to be used in the
construction of a niche for his wife. He also asked if the materials could be
delivered at once. Marina Boncales, Alviar's storekeeper, replied that she had
yet to verify if the store had pending deliveries that afternoon because if
there were then all subsequent purchases would have to be delivered the
following day. With that reply petitioner left.

At seven o' clock the following morning, 22 December, Barzaga returned to

Alviar's hardware store to follow up his purchase of construction materials.

95
He told the store employees that the materials he was buying would have to
be delivered at the Memorial Cemetery in Dasmarias, Cavite, by eight o'clock
that morning since his hired workers were already at the burial site and time
was of the essence. Marina Boncales agreed to deliver the items at the
designated time, date and place. With this assurance, Barzaga purchased the
materials and paid in full the amount of P2,110.00. Thereafter he joined his
workers at the cemetery, which was only a kilometer away, to await the
delivery.

The construction materials did not arrive at eight o'clock as promised. At

nine o' clock, the delivery was still nowhere in sight. Barzaga returned to the
hardware store to inquire about the delay. Boncales assured him that
although the delivery truck was not yet around it had already left the garage
and that as soon as it arrived the materials would be brought over to the
cemetery in no time at all. That left petitioner no choice but to rejoin his
workers at the memorial park and wait for the materials.

By ten o'clock, there was still no delivery. This prompted petitioner to return
to the store to inquire about the materials. But he received the same answer
from respondent's employees who even cajoled him to go back to the burial
place as they would just follow with his construction materials.

After hours of waiting - which seemed interminable to him - Barzaga became

extremely upset. He decided to dismiss his laborers for the day. He
proceeded to the police station, which was just nearby, and lodged a
complaint against Alviar. He had his complaint entered in the police blotter.
When he returned again to the store he saw the delivery truck already there
but the materials he purchased were not yet ready for loading. Distressed
that Alviar's employees were not the least concerned, despite his
impassioned pleas, Barzaga decided to cancel his transaction with the store
and look for construction materials elsewhere.

In the afternoon of that day, petitioner was able to buy from another store.
But since darkness was already setting in and his workers had left, he made
up his mind to start his project the following morning, 23 December. But he
knew that the niche would not be finish in time for the scheduled burial the
following day. His laborers had to take a break on Christmas Day and they
could only resume in the morning of the twenty-sixth. The niche was
completed in the afternoon and Barzaga's wife was finally laid to rest.
However, it was two-and-a-half (2-1/2) days behind schedule.

On 21 January 1991, tormented perhaps by his inability to fulfill his wife's

dying wish, Barzaga wrote private respondent Alviar demanding recompense
for the damage he suffered. Alviar did not respond. Consequently, petitioner
sued him before the Regional Trial Court.[1]

96
Resisting petitioner's claim, private respondent contended that legal delay
could not be validly ascribed to him because no specific time of delivery was
agreed upon between them. He pointed out that the invoices evidencing the
sale did not contain any stipulation as to the exact time of delivery and that
assuming that the materials were not delivered within the period desired by
petitioner, the delivery truck suffered a flat tire on the way to the store to
pick up the materials. Besides, his men were ready to make the delivery by
ten-thirty in the morning of 22 December but petitioner refused to accept
them. According to Alviar, it was this obstinate refusal of petitioner to accept
delivery that caused the delay in the construction of the niche and the
consequent failure of the family to inter their loved one on the twenty-fourth
of December, and that, if at all, it was petitioner and no other who brought
about all his personal woes.

Upholding the proposition that respondent incurred in delay in the delivery of

the construction materials resulting in undue prejudice to petitioner, the trial
court ordered respondent Alviar to pay petitioner (a) P2,110.00 as refund for
the purchase price of the materials with interest per annum computed at the
legal rate from the date of the filing of the complaint, (b) P5,000.00 as
temperate damages, (c) P20,000.00 as moral damages, (d) P5,000.00 as
litigation expenses, and (e) P5,000.00 as attorney's fees.

On appeal, respondent Court of Appeals reversed the lower court and ruled
that there was no contractual commitment as to the exact time of delivery
since this was not indicated in the invoice receipts covering the sale.[2]

The arrangement to deliver the materials merely implied that delivery should
be made within a reasonable time but that the conclusion that since
petitioner's workers were already at the graveyard the delivery had to be
made at that precise moment, is non-sequitur. The Court of Appeals also held
that assuming that there was delay, petitioner still had sufficient time to
construct the tomb and hold his wife's burial as she wished.

We sustain the trial court. An assiduous scrutiny of the record convinces us

that respondent Angelito Alviar was negligent and incurred in delay in the
performance of his contractual obligation. This sufficiently entitles petitioner
Ignacio Barzaga to be indemnified for the damage he suffered as a
consequence of delay or a contractual breach. The law expressly provides
that 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 for damages.[3]

Contrary to the appellate court's factual determination, there was a specific

time agreed upon for the delivery of the materials to the cemetery. Petitioner
went to private respondent's store on 21 December precisely to inquire if the
materials he intended to purchase could be delivered immediately. But he

97
was told by the storekeeper that if there were still deliveries to be made that
afternoon his order would be delivered the following day. With this in mind
Barzaga decided to buy the construction materials the following morning
after he was assured of immediate delivery according to his time frame. The
argument that the invoices never indicated a specific delivery time must fall
in the face of the positive verbal commitment of respondent's storekeeper.
Consequently it was no longer necessary to indicate in the invoices the exact
time the purchased items were to be brought to the cemetery. In fact,
storekeeper Boncales admitted that it was her custom not to indicate the
time of delivery whenever she prepared invoices.[4]

Private respondent invokes fortuitous event as his handy excuse for that "bit
of delay" in the delivery of petitioner's purchases. He maintains that Barzaga
should have allowed his delivery men a little more time to bring the
construction materials over to the cemetery since a few hours more would
not really matter and considering that his truck had a flat tire. Besides,
according to him, Barzaga still had sufficient time to build the tomb for his
wife.

This is a gratuitous assertion that borders on callousness. Private respondent

had no right to manipulate petitioner's timetable and substitute it with his
own. Petitioner had a deadline to meet. A few hours of delay was no piddling
matter to him who in his bereavement had yet to attend to other pressing
family concerns. Despite this, respondent's employees still made light of his
earnest importunings for an immediate delivery. As petitioner bitterly
declared in court " x x x they (respondent's employees) were making a fool
out of me."[5]

We also find unacceptable respondent's justification that his truck had a flat
tire, for this event, if indeed it happened, was forseeable according to the
trial court, and as such should have been reasonably guarded against. The
nature of private respondent's business requires that he should be ready at
all times to meet contingencies of this kind. One piece of testimony by
respondent's witness Marina Boncales has caught our attention - that the
delivery truck arrived a little late than usual because it came from a delivery
of materials in Langcaan, Dasmarias, Cavite.[6] Significantly, this information
was withheld by Boncales from petitioner when the latter was negotiating
with her for the purchase of construction materials. Consequently, it is not
unreasonable to suppose that had she told petitioner of this fact and that the
delivery of the materials would consequently be delayed, petitioner would
not have bought the materials from respondent's hardware store but
elsewhere which could meet his time requirement. The deliberate
suppression of this information by itself manifests a certain degree of bad
faith on the part of respondent's storekeeper.

98
The appellate court appears to have belittled petitioner's submission that
under the prevailing circumstances time was of the essence in the delivery of
the materials to the grave site. However, we find petitioner's assertion to be
anchored on solid ground. The niche had to be constructed at the very least
on the twenty-second of December considering that it would take about two
(2) days to finish the job if the interment was to take place on the twenty-
fourth of the month. Respondent's delay in the delivery of the construction
materials wasted so much time that construction of the tomb could start only
on the twenty-third. It could not be ready for the scheduled burial of
petitioner's wife. This undoubtedly prolonged the wake, in addition to the
fact that work at the cemetery had to be put off on Christmas day.

This case is clearly one of non-performance of a reciprocal obligation.[7] In

their contract of purchase and sale, petitioner had already complied fully
with what was required of him as purchaser, i.e., the payment of the
purchase price of P2,110.00. It was incumbent upon respondent to
immediately fulfill his obligation to deliver the goods otherwise delay would
attach.

We therefore sustain the award of moral damages. It cannot be denied that

petitioner and his family suffered wounded feelings, mental anguish and
serious anxiety while keeping watch on Christmas day over the remains of
their loved one who could not be laid to rest on the date she herself had
chosen. There is no gainsaying the inexpressible pain and sorrow Ignacio
Barzaga and his family bore at that moment caused no less by the
ineptitude, cavalier behavior and bad faith of respondent and his employees
in the performance of an obligation voluntarily entered into.

We also affirm the grant of exemplary damages. The lackadaisical and

feckless attitude of the employees of respondent over which he exercised
supervisory authority indicates gross negligence in the fulfillment of his
business obligations. Respondent Alviar and his employees should have
exercised fairness and good judgment in dealing with petitioner who was
then grieving over the loss of his wife. Instead of commiserating with him,
respondent and his employees contributed to petitioner's anguish by causing
him to bear the agony resulting from his inability to fulfill his wife's dying
wish.

We delete however the award of temperate damages. Under Art. 2224 of the
Civil Code, temperate damages are more than nominal but less than
compensatory, and may be recovered when the court finds that some
pecuniary loss has been suffered but the amount cannot, from the nature of
the case, be proved with certainty. In this case, the trial court found that
plaintiff suffered damages in the form of wages for the hired workers for 22
December 1990 and expenses incurred during the extra two (2) days of the
wake. The record however does not show that petitioner presented proof of

99
the actual amount of expenses he incurred which seems to be the reason the
trial court awarded to him temperate damages instead. This is an erroneous
application of the concept of temperate damages. While petitioner may have
indeed suffered pecuniary losses, these by their very nature could be
established with certainty by means of payment receipts. As such, the claim
falls unequivocally within the realm of actual or compensatory damages.
Petitioner's failure to prove actual expenditure consequently conduces to a
failure of his claim. For in determining actual damages, the court cannot rely
on mere assertions, speculations, conjectures or guesswork but must depend
on competent proof and on the best evidence obtainable regarding the
actual amount of loss.[8]

We affirm the award of attorney's fees and litigation expenses. Award of

damages, attorney's fees and litigation costs is left to the sound discretion of
the court, and if such discretion be well exercised, as in this case, it will not
be disturbed on appeal.[9]

WHEREFORE, the decision of the Court of Appeals is REVERSED and SET

ASIDE except insofar as it GRANTED on a motion for reconsideration the
refund by private respondent of the amount of P2,110.00 paid by petitioner
for the construction materials. Consequently, except for the award of
P5,000.00 as temperate damages which we delete, the decision of the
Regional Trial Court granting petitioner (a) P2,110.00 as refund for the value
of materials with interest computed at the legal rate per annum from the
date of the filing of the case; (b) P20,000.00 as moral damages; (c)
P10,000.00 as exemplary damages; (d) P5,000.00 as litigation expenses; and
(4) P5,000.00 as attorney's fees, is AFFIRMED. No costs.

SO ORDERED.
--------------------------------------------------------------------------------------
11. G.R. No. 111263 May 21, 1998

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
MARIO PADLAN @ "MARCOS," ROMEO MAGLEO @ "MOTMOT," and
ALFREDO MAGLEO @ "BOY," accused-appellants.

MENDOZA, J.:

This is an appeal from the decision, 1 dated June 30, 1993, rendered by the
Regional Trial Court, Branch 56 of San Carlos City Pangasinan, in Criminal
Case No. SCC-1960, finding accused-appellants Mario "Marcos" Padlan,
Romeo "Motmot" Magleo, and Alfredo "Boy" Magleo guilty of two counts of
murder and sentencing each of them

to suffer an imprisonment of:

100
1. Reclusion perpetua, for the death of Rodolfo Manzon.

2. Reclusion perpetua, for the death of Mateo Manzon.

and to indemnify the heirs of the deceased as follows:

1) P60,000,00 for the death of Rodolfo Manzon.

2) P50,000.00 for the death of Mateo Manzon.

3) P100,000.00 far actual and temperate damages.

4) P200,000.00 as moral damages.

5) P5,000.00 as exemplary damages.

The information filed against accused-appellants charged

That on or about the 15th day of November, 1992, at around 1:15 o'clock in
the morning at Barangay Libas, San Carlos City in Pangasinan, and within the
jurisdiction of this Honorable Court, the above-named accused, conspiring,
confederating, and mutually aiding each other, with evident premeditation,
treachery, and intent to kill, did then and there wilfully, unlawfully and
feloniously, with the use of high-powered long firearm, attack and shoot
Rodolfo Manzon and Mateo Manzon, killing them instantaneously as a
consequence, to the damage and prejudice of the heirs of the said victims in
the amount of P________.

Contrary to Article 248 of the Revised Penal Code. 2

When arraigned on June 7, 1993, accused-appellants pleaded not guilty,

whereupon trial was held. The prosecution's main witnesses were Carlito
Manzon and Jordan Pagsolingan. Carlito Manzon is a nephew of the deceased
Rodolfo Manzon. Carlito's father being the brother of Rodolfo Manzon, Jordan
Pagsolingan is the son of Carlito Manzon's sister, Flora Pagsolingan, and
therefore is a grandnephew of the deceased Rodolfo Manzon.

Per their testimonies, 3 at around 11 p.m. of November 14, 1992, at a pre-

wedding dance in Barangay Libas, San Carlos City, Rufo Manzon was beaten
up by accused-appellant Mario Padlan and a certain Lito Fernandez. He was
saved from further punishment by the timely intervention of Carlito Manzon
and Jordan Pagsolingan who took him away and led him to the house of Flora
Pagsolingan in Barangay Anando. Carlito Manzon and Jordan Pagsolingan
then went to Barangay Payar to fetch Rufo's father, Rodolfo Manzon, Mateo,
a brother of Rufo, came along in response.

101
At Sitio Caniogon of Barangay Libas, the four saw accused-appellants Mario
Padlan, Romeo Magleo, and Alfredo Magleo. They tried to avoid them, but
they were pursued by the three, Romeo Magleo ordered them to stop,
shouting "Hoy!" at them. Carlito and Jordan saw that Mario Padlan was armed
with a rifle. Jordan also saw that accused-appellant Alfredo Magleo had a
knife.

Carlito and Jordan were young boys aged 16 and 15, respectively. Mario
Padlan "went around" the two boys to get near Rodolfo Manzon and then
shot the latter. Mario Padlan fired three times at Rodolfo Manzon, 4 as the
other accused-appellants watched. 5

Frightened, Jordan Pagsolingan and Carlito Manzon ran away. As they were
fleeing, Jordan Pagsolingan said he heard two more shots fired. 6 He and
Carlito went home to Barangay Anando to report the incident. Upon learning
of the incident. Jordan's mother, Flora Pagsolingan, and Eling Manzon lost no
time and went to the city proper to report the matter to the police.

Flora Pagsolingan corroborated the testimonies of her son Jordan and her
brother Carlito Manzon. 7 She testified that the incident was entered in the
blotter of the police. 8

SPO4 Alberto Castro of the Philippine National Police in San Carlos City also
testified. 9 He said that upon receipt of Flora Pagsolingan's report, at 3:20
a.m. of November 15, 1991, a team of policemen went to the scene of the
crime and afterwards to the residence of Mario Padlan in Barangay Libas, but
was told by the latter's wife that he did not go home that night. The police
finally found him at about 7 a.m.. in the house of his father-in-law. Alejandro
Magleo. Magleo, a former barangay captain, surrendered Mario Padlan to the
police. SPO4 Castro said that the report mentioning the participation of the
two other accused-appellants. Romeo and Alfredo Magleo, came only at
about 5 in the morning. 10

SPO Virgilio G. Cardioza, who was a member of the team, testified that they
recovered from the scene of the crime four empty shells tired from an
armalite rifle. 11 Rodolfo Manzon had a short bolo which the police found to
be in its scabbard, 12 while Mateo Manzon had a slingshot with darts. 13
Near the feet of Rodolfo Manzon the police found a knife. 14 SPO Cardioza
said he interviewed Jordan Pagsolingan and was told that Mario Padlan fired
at them and that with Padlan were Romeo and Alfredo Magleo. 15 SPO
Cardioza said that he and his companions after sometime found Mario
Padlan in the house of his father-in-law, but they were unable to locate the
other accused-appellants Romeo and Alfredo Magleo in their residences. 16

102
Lolita Manzon, the wife and mother of the victims, testified 17 that prior to
their death, Rodolfo Manzon worked as a tenant farmer on land that
produced eight cavans a year, while her son Mateo, 15 years of age, was a
high school sophomore who helped his father farm the land. She bought
coffins but could not remember how much she paid for them because of her
shock and grief. The deaths of her husband and son were for her "very
painful because there were two of them." 18

Dr. Juan I. Pizarro, who conducted the postmortem examination of the bodies
of the victims, found Rodolfo Manzon to have suffered the following wounds:

1. Lacerated wound, anterior surface of left forearm, 3 inches from the

elbow, measuring 1 1/2 by 1 1/2 inch.

2. Incised wound rectangular in shape 1/2 inch by 1/2 inch, 3/4 inch deep
located 1/2 inch just below wound No. 1.

3. Gunshot wound with point of entrance, circular in shape, 10 mm, in

diameter, located at the left epigastric area along anterior axillary line 3
inches below the coastal line with irregular borders penetrating the
abdominal cavity with portion of the intestine protruding outside through this
wound.

Point of Exit None. 19

Dr. Pizarro testified that wound no. 1 could have been caused by a pointed
instrument and wound no. 2 by a sharp-bladed instrument. Wound no. 3 was
the fatal wound, which caused massive internal hemorrhage. 20

Dr. Pizarro found Mateo Manzon to have suffered a "[g]aping incised wound 2
1/2 inches long and 1 1/2 inches wide and 5 1/2 inches deep horizontally
across the anterior chest wall just below the medial end of the right clavicle
lacerating the right first rib and right portion of the sternum, directed
posteriorily to the left lacerating the lungs and the heart." 21 According to Dr.
Pizarro, the wound, which was caused by a sharp-pointed instrument, was
fatal. 22

Accused-appellant Alfredo Magleo admitted 23 that he was at the pre-

wedding party in Barangay Libas in the evening of November 14, 1992. He
claimed, however, that he and accused-appellant Mario Padlan and others
did not leave the place until 4 a.m. of the following day, November 15, 1992.
Alfredo said that from the party he went home to Barangay Anando, and that
in the morning, while the police officers went to the house of his father and
arrested his brother-in-law, accused-appellant Mario Padlan, they did not
arrest him (Alfredo Magleo) despite the fact that his house was only 15
meters away.

103
Accused-appellants Mario Padlan and Romeo Magleo also interposed the
defense of alibi. Padlan claimed 24 that they were in the house of Aniceto de
la Cruz for the pre-wedding party for the latter's daughter, Evangeline de la
Cruz, and Roly Domingo which lasted from 7 p.m. of November 14, 1992 up
to 4 a.m. of November 15, 1992; and that after the party, accused-appellant
Romeo Magleo stayed behind, as he had been asked by Aniceto de la Cruz to
help prepare the food for the guests on the day of the wedding.

Padlan claimed that from the party, he went to the house of his father-in-law
Alejandro Magleo because his wife was there. It was there that the police
found him and "invited" him to go with them to the police station for
questioning. He said he denied involvement in the killing and even asked to
be given a paraffin test by the National Bureau of Investigation, but that
although he was taken to the NBI, he could not be tested because of lack of
equipment. Padlan also testified that he had no misunderstanding with the
Pagsolingan family.

For his part, Romeo Magleo testified 25 that before he left the house of
Aniceto de la Cruz (where the party was held) at 8:30 a.m. of November 15,
1992, Flora Pagsolingan arrived with some policemen and asked if any
untoward incident had happened during the celebration, to which Romeo
Magleo said he answered in the negative; and that he (Romeo Magleo) was
not apprehended by the police officers.

Aniceto de la Cruz, in whose house the party was held, testified that none of
the accused-appellants had left the party before it ended at 4 a.m. of
November 15, 1992. 26

The defense also presented as witnesses three farmers, Rodolfo Lavarias,

Tomas Lavarias, and Ernesto Lavarias, all of whom were residents of
Barangay Anando, Ernesto Lavarias testified 27 that at around midnight of
November 14, 1992, he heard cries coming from the house of Flora
Pagsolingan less than 30 meters away. For this reason, he said, he fetched
his brother Tomas and the two of them then went to Flora's house. There
they learned that Rufo Manzon had been beaten up. Rufo was brought to the
house of Flora. According to Ernesto Lavarias, Flora Pagsolingan sent her son
Jordan Pagsolingan and Carlito Manzon to fetch Rufo's parents. In no time,
Jordan and Lito were back with news that Rufo's parents were coming.

On rebuttal, Flora Pagsolingan testified 28 that actually Ernesto and Tomas

Lavarias went to her house only at about 1:15 in the morning of November
15, 1992, and that was because of the news that Rodolfo Manzon had been
shot.

104
The trial court found accused-appellants guilty as charged in its decision, the
dispositive portion of which was quoted earlier herein. Hence, this appeal.
Accused-appellants contend:

THE LOWER COURT ERRED IN NOT FINDING THE EVIDENCE OF THE

PROSECUTION SUBSTANTIALLY INSUFFICIENT TO ESTABLISH THE GUILT OF
THE HEREIN ACCUSED-APPELLANTS BEYOND REASONABLE DOUBT IN THE
CASE AT BAR.

II

THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE EVIDENCE OF THE
HEREIN ACCUSED-APPELLANTS.

The contentions are without merit.

First. Accused-appellants were positively identified by prosecution witnesses

Jordan Pagsolingan and Carlito Manzon as the ones who had stopped them
on the way on the day of the incident. While accused-appellants claimed
they were in the house of Aniceto de la Cruz attending a pre-wedding party,
their alibi cannot prevail over the testimonies of the prosecution witnesses
positively identifying them as the assailants. The place where accused-
appellants were at the time of the killing is in Barangay Libas where the
crime also took place. It was not at all physically impossible for them to have
committed the crime. 29 Each of the accused-appellants claimed he had no
quarrel with the deceased or the prosecution's main witnesses. Their
identification, however, makes it irrelevant that there is no proof of ill motive
on their part to commit the crime. Motive assumes significance only where
there is no showing of who the perpetrators of the crimes were. 30

It is contended that the testimonies of the two prosecution eyewitnesses,

Carlito Manzon and Jordan Pagsolingan, are at odds with the entry in the
police blotter. Accused-appellants Romeo and Alfredo Magleo contend that
entry in the police blotter does not name them as among those involved in
the killing of Rodolfo Manzon and his son Mateo.

The entry reads:

FIRST, SECOND & THIRD SHIFT : 0800h-0800h 14-15 NOVEMBER 1992.

Entry Nr-496

Date: 11-15-92

105
Time: 0320H = Flora Pagsolingan y Manzon, 39 years old, widow,
housekeeper, high school graduate, and resident of Brgy. Anando, this city
came and reported to this office that Rodolfo Manzon and Mateo Manzon,
Carlito Manzon and Jordan Pagsolingan were fired upon by Marcos
Pagsolingan in company w/ two other whom they do not know their names.
Reportee further reported that they do not know whether Mateo Manzon and
Rodolfo Manzon were hit. Incident happened at about 1:15 A.M. today
November 15, 1992 at Brgy. Libas, this city per her signature appear herein.

SGD: Flora Pagsolingan

SPO4 Albert Castro, SPO4 A. Patayan PO3 Viduya, PO3 Cardinoza, SPO2
Tamayo and PO3 Lazaro were dispatched to investigate.

SGD: SPO4 ANDRES O. ELERTA

Desk Officer 31

Flora Pagsolingan explained that at the time she made the report, she was
"in [a] state of shock . . . confused, and did not know what [she] was doing."
32 She must have been in such a state of agitation that even the police
investigator, who took down her statement, identified accused-appellant
Mario "Marcos" Padlan as "Marcos Pagsolingan,"' although Flora maintains
she never said the assailant was "Marcos" Pagsolingan. As she testified:

COURT:

Q Now, in this police blotter, it was entered by the police, which you also
confirmed, that it was Marcos Pagsolingan who fired his gun?

A What I said was Marcos Padlan, sir.

Q So, in other words, this entry in this police blotter is not accurate?

A I said Marcos Padlan, your Honor, and I did not put so much attention
on the two because my mind was confused.

Q In other words, you confirmed the fact that your son Jordan
Pagsolingan and this Carlito Manzon told you that it was Marcos Padlan who
fired his gun at Rodolfo Manzon and Mateo Manzon?

A It was what they were telling me, sir. 33

Accused-appellants contend that Flora's son, Jordan, and Carlito Manzon

could have corrected her or otherwise helped her since the two boys were
with her when she gave her statement to the police. But the two boys said

106
they were themselves agitated if not in shock as well as in fear 34 and so
possibly could not have corrected Flora's mistakes.

Accused-appellants cite the testimony of SPO4 Alberto Castro which

allegedly corroborates the blotter entry naming accused-appellant Mario
Padlan as the only assailant. That is not so. SPO4 Castro's testimony is as
follows:

Q Aside from Marcos Padlan, did [Jordan Pagsolingan] also mention

others?

A Actually, at the crime scene when we conducted an investigation, Flora

Pagsolingan and her son were only mentioning Marcos Padlan, sir.

Q Now, what time did you receive that report from Flora Pagsolingan on
November 15, 1992?

A If I am not mistaken, before 5:00 o'clock, sir.

Q 5:00 o'clock in the morning?

A Yes, sir.

Q And you immediately formed a team and investigated the veracity of

the report, can you tell us further what time more or less did you go to the
place of the incident?

A 3:20 o'clock in the morning of November 15, sir.

Q So that, do we understand from you senior police officer that the report
was made at 5:00 o'clock in the morning of November 15?

A No, sir, what I mean, I am referring to the other accused that if I am

not mistaken, there were three (3) accused in this particular case. We
received a report only at about 5:00 o'clock in the morning mentioning the
two (2) accused.

Q Who were the two (2) accused?

A Magleo brothers, sir.

Q In what manner are they accused of?

A In the first place, this Flora Pagsolingan and her son only mentioned
Marcos Padlan, so, we concentrated on Marcos Padlan, we invited him to the
police station, sir. 35

107
Thus what SPO4 Castro said was that while in the beginning only accused-
appellant Mario Padlan was named by Flora Pagsolingan and her son Jordan,
the police later received a report at 5 a.m. that accused-appellants Romeo
Magleo and Alfredo (Boy) Magleo were also involved in the killing of Rodolfo
Manzon and his son Mateo. In fact, according to the police blotter, Rodolfo
Manzon, his son Mateo, Carlito Manzon, and Jordan Pagsolingan were fired at
by Mario "Marcos" Padlan (erroneously identified therein as "Marcos
Pagsolingan") and two unidentified men. Another member of the police team,
SPO Virgilio G. Cardioza, also testified that, during their investigation at the
scene of the crime, Jordan Pagsolingan named the two Magleos as the
companions of Mario Padlan. 36

It is not surprising that attention should focus on Mario Padlan because he

was the one seen by Jordan Pagsolingan and Carlito Manzon shooting Rodolfo
Manzon. In the process, the participation of the other two as coconspirators
was obscured. But when it came to their turn to make their sworn statements
and later to testify in court. Jordan Pagsolingan and Carlito Manzon
categorically stated that the Magleo brothers were present at the shooting.

Moreover, it should not be forgotten that entries in police blotters, though

regularly done in the course of the performance of official duty, are not
conclusive proof of the truth stated in such entries and should not be given
undue significance or probative value because they are usually incomplete
and inaccurate. Sometimes they are based on partial suggestion or
inaccurate reporting and hearsay, untested in the crucible of a trial on the
merits. 37 But an indication of the guilt of the Magleos is the fact that shortly
after the killing they went into hiding. They could not be found in their
respective residences for which reason an alias warrant had to be issued by
the trial court for their arrest. Flight has been held to be evidence of guilt. 38

Second. Accused-appellants focus on the credibility of the prosecution

witnesses. Accused-appellants point out a discrepancy between Jordan
Pagsolingan and Carlito Manzon's testimonies to the effect that they were
with Rufo Manzon when the latter was attacked by Mario Padlan and Lito
Fernandez and their affidavits 39 in which they stated that they were on their
way to the pre-wedding dance party when they came upon Rufo Manzon
being beaten up. There really appears to be a discrepancy concerning this
matter. However, it is not denied that Rufo Manzon had been beaten up by
Mario Padlan and Lito Fernandez, and this was the reason his father, the
deceased Rodolfo Manzon, was summoned. Whether Rufo Manzon was with
Carlito Manzon and Jordan Pagsolingan when he was set upon or whether he
was then alone is therefore of little moment.

Accused-appellants point out other "discrepancies" in the evidence of the

prosecution. Accused-appellants cite Jordan Pagsolingan's testimony that

108
accused-appellant Mario Padlan fired three times at Rodolfo Manzon and
that, as he and Carlito Manzon were fleeing, he heard two more gunshots, so
that in all accused-appellant fired at the victims five times. Accused-
appellants say that this is contrary to the evidence that Rodolfo Manzon
sustained only one gunshot wound.

The number of wounds does not have to be equal to the number of shots,
because some of the shots may have missed their mark. It is also possible
that in the excitement of the moment, Jordan Pagsolingan may have made a
mistake as to the number of shots he heard. What is important is that
although Rodolfo Manzon suffered only one gunshot wound, the fact is that
the police recovered four empty shells from the scene of the crime. This
confirms the statement of Jordan Pagsolingan that several gunshots had
been fired by accused-appellant Mario Padlan.

Accused-appellants claim that had it been their intention to kill the victims,
they could easily have ambushed the victims instead of openly confronting
them, considering that they are known to the witnesses and the victims. This
assumes that accused-appellants knew that the Manzons were going to pass
the place where they were so as to enable them to waylay their victims. The
fact, however, is that it was the Manzons who saw accused-appellants at a
distance and who tried to run away from them, but accused-appellants, using
a shortcut, were able to overtake the Manzons.

Accused-appellants doubt whether the prosecution witnesses really

recognized them. Accused-appellants argue that if Mario Padlan trained his
flashlight on the group of the eyewitnesses and the Manzons, the
prosecution witnesses would not have recognized accused-appellants. As
Jordan Pagsolingan explained, however, it was quite bright that early
morning because there was a moon and accused-appellants were known to
them because "we usually joke together." 40 Carlito Manzon also testified
that the moon was bright at that time. 41

Finally, accused-appellants brand the prosecution evidence as fabricated

because of the close relationship of the prosecution's main witnesses to the
victims. In the absence of proof of improper motive, the mere relationship of
the prosecution witnesses to the victims is not a ground for doubting their
truthfulness. On the contrary, their natural interest to secure the conviction
of the real culprits could have deterred them from implicating otherwise
innocent persons, for then the real culprits would go scot free. 42 In this
case, there is additional reason for rejecting accused-appellants' contention
that because of their relationship to the deceased the prosecution witnesses
concocted stories to lay the blame for the killing on accused-appellants:
accused-appellants admitted that they had no quarrel or misunderstanding
with the Pagsolingan family which could make Jordan Pagsolingan and Carlito
Manzon testify falsely against them.

109
The various criticisms made by accused-appellants against the testimonies
of Jordan Pagsolingan and Carlito Manzon boil down to a question of
their credibility. The trial court, which was in the unique position to hear the
witnesses and observe their deportment and manner of testifying. believed
their testimonies. 43 We have considered the contrary view of accused-
appellants which we find to be without merit. Accused-appellants have not
shown that, in the evaluation of the testimonies of the witnesses for both
parties, the trial court overlooked matters of substance and weight justifying
reversal of the findings of the trial court. 44 Accordingly, we give its findings
full faith and credit.

Third. Accused-appellants claim that even if all of them were present at the
scene of the crime, no inference of conspiracy can be drawn since the two
prosecution eyewitnesses did not see Romeo and Alfredo Magleo attack the
victims. Several circumstances indicate, however, that there was a
conspiracy to kill Rodolfo Manzon and his son, Mateo, in addition to the fact
that all of accused-appellants were at the scene of the crime, to wit:(1)
accused-appellant Romeo Magleo shouted "Hoy!" at the Manzons to make
them stop as the latter were running away; (2) accused-appellants pursued
the Manzons when the latter tried to flee from them; and (3) accused-
appellant Alfredo Magleo was seen by Jordan Pagsolingan with a knife, which
fits the description of the weapon used in wounding Rodolfo Manzon and
Mateo Manzon: "pointed" and "sharp-bladed." 45

Nevertheless, we do not think that the crime committed was murder. The
qualifying circumstances of evident premeditation and treachery have not
been shown in this case. Proof of conspiracy does not imply the existence of
evident premeditation. Evident premeditation can be presumed only where
conspiracy is directly established, not where, as in this case, conspiracy is
only implied. 46 Nor was treachery established with certainty. 47 The
prosecution has not shown that there was that swift and unexpected attack
of an unarmed victim, which is the essence of treachery. 48 First, the victims
were not defenseless, since they too were armed. Rodolfo had a bolo, while
Mateo had a slingshot with darts. Second, the sight of accused-appellants at
a distance must have sufficiently warned the Manzons of accused-appellants
and their intentions; that was why they tried to evade them. Thus, an
important condition for the existence of treachery under Art. 14(16) of the
Revised Penal Code has not been proven: that the means of execution
employed was deliberately and consciously adopted so as to give the person
attacked no opportunity to defend himself or to retaliate. Accordingly, the
killing of Rodolfo Manzon and his son Mateo constitutes not murder but only
homicide.

The trial court found that the killing was attended by the aggravating
circumstances of (1) abuse of superior strength, (2) aid of armed men, and

110
(3) nocturnity. Indeed, there was abuse of superior strength in this case.
Whatever superiority in number the victims had over accused-appellants
(four to three) was more than offset by the fact that the latter group was
composed of adult males in their physical prime. Accused-appellant Mario
Padlan was 28, 49 while accused-appellants Romeo and Alfredo Magleo were
26 50 and 32, 51 respectively. In contrast, the former group, with the sole
exception of Rodolfo Manzon, who was 43, 52 was composed of youths
barely in their early teens. Mateo Manzon and Jordan Pagsolingan were both
15 years old, 53 while Carlito Manzon was 16 years of age. 54 More
importantly, the group of accused-appellants had a firearm and a knife which
gave them a clear advantage over the bolo and slingshot of the victims.

But we do not think the aggravating circumstance of nocturnity can be

appreciated as nocturnity was not shown to have been purposely sought by
accused-appellants the better to commit the crime. 55 Nor can the
aggravating circumstance of "aid of armed men" be appreciated, considering
that accused-appellants, as coconspirators, acted under the same plan and
for the same purpose. 56

Under An. 249 of the Revised Penal Code the penalty for homicide is
reclusion temporal. As there was one aggravating circumstance (abuse of
superior strength), the penalty should be fixed in its maximum period, the
duration of which is from 17 years, 4 months, and 1 day to 20 years. Under
the Indeterminate Sentence Law, the minimum of the penalty is prision
mayor, which is from 6 years and 1 day to 12 years, as the penalty next
lower in degree to reclusion temporal.

In addition, we find errors committed by the trial court in awarding damages

for the death of Rodolfo Manzon and his son Mateo. The indemnity for death
as currently fixed 57 is P50,000.00 so the trial court's award of P60,000.00
for the death of Rodolfo Manzon should be reduced accordingly.

The award of P100,000.00 for actual and temperate damages cannot be

allowed. Damages cannot be both actual and temperate. Temperate or
moderate damages are allowed because, while some pecuniary loss has
been suffered, from the nature of the case its amount cannot be proved with
certain. 58 This is not the case here. The trial court awarded the P100,000.00
as temperate damages apparently because the prosecution failed to adduce
proof of expenses in connection with the death, wake, or burial of Rodolfo
and Mateo Manzon but not because from the nature of the case it was not
possible to show with certainty the amount of the damage done. For the
same reason, no award of actual damages can be made. 59

The award of P200,000.00 for moral damages is excessive. As moral

damages are not intended to enrich the prevailing party, 60 an award of
P50,000.00 would be in keeping with this purpose of the law.

111
The award of exemplary damages is warranted under Art. 230 of the Civil
Code in view of the presence of the aggravating circumstance of abuse of
superior strength. Imposition of exemplary damages is also justified under
An. 2229 of the Civil Code in order to set an example for the public good. For
this purpose, we believe that the amount of P20,000.00 can be appropriately
awarded. 61

In reviewing the records of this case, we noticed a variance between the

allegation in the information and the evidence presented regarding the
manner in which Mateo Manzon was killed. The information alleged that he
and his father Rodolfo Manzon were killed "with the use of high-powered long
firearm," but the medical certificate indicates that while Rodolfo Manzon
suffered both incised and lacerated wounds as well as a gunshot wound, his
son Mateo suffered only a "[g]aping incised wound 2 1/2 inches long and 1
1/2 inches wide and 5 1/2 inches deep horizontally across the anterior chest
wall just below the medial end of the right clavicle lacerating the right first
rib and right portion of the sternum, directed posteriorily to the left
lacerating the lungs and the heart." The variance, however, is not an
obstacle to finding the accused-appellants liable for double homicide. The
variance does not affect or change the nature of the crime charged, namely,
murder, which in view of our finding is actually homicide. The variance
concerns merely the manner of execution of the crime. The defense could
have objected to the presentation of the evidence, in which event the court
could have ordered the amendment of the information so as to make the
allegation conform to the evidence presented and the accused-appellants
would be none the worse for it. Accordingly, we hold that accused-appellants
are liable for two counts of homicide.

WHEREFORE, the decision of the Regional Trial Court is AFFIRMED with the
MODIFICATION that the accused-appellants are found guilty of two counts of
homicide and each one is sentenced to two prison terms of 12 years of
prision mayor, as minimum, to 20 years of reclusion temporal, as maximum,
and to pay to the heirs of the victims P50,000.00 as indemnity for the death
of Rodolfo Manzon, P50,000.00 as indemnity for the death of Mateo Manzon,
P50,000.00 as moral damages, and P20,000.00 as exemplary damages.

SO ORDERED.
------------------------------------------------------------------------------------------------

12. PEOPLE OF THE PHILIPPINES, appellee, vs. ALVIN VILLANUEVA,

appellant.

DECISION

112
CORONA, J.:

For automatic review is the decision[1] of the Regional Trial Court, Branch 32,
stationed in Agoo, La Union, finding appellant guilty beyond reasonable
doubt of the crime of murder and sentencing him to suffer the penalty of
death and to indemnify the heirs of the victim in the amounts of P50,000 as
civil indemnity, P600,000 for actual damages and P1,000,000 for lost
earnings.

The information that charged appellant for the offense alleged:

That on or about the 16th day of November, 1996, in the Municipality of

Rosario, Province of La Union, Philippines and within the jurisdiction of this
Honorable Court, the above-named accused, with intent to kill, evident
premeditation and treachery and being then armed with a knife, did then and
there wilfully, unlawfully and feloniously attack, assault and stab with said
knife one OTO-LEO BINAY-AN BRABANTE from behind, inflicting three (3) stab
wounds upon the latter, one of which penetrated his heart, which directly
resulted to (sic) his death, to the damage and prejudice of his heirs.

CONTRARY TO LAW.[2]

On arraignment, appellant pleaded not guilty to the charge. Forthwith, trial

on the merits ensued. While the prosecution was adducing its evidence,
appellant escaped from detention on October 9, 1997. The lower court thus
proceeded with the trial of the case in absentia in accordance with Section
14(2), Article III of the 1987 Constitution.

The facts follow.

On November 15, 1996, at around 12 midnight, Marife Brabante was

attending to her duties as cashier of the Highlander Store owned by her
mother, Rita Binay-an, at Barangay Saitan, Camp 1, Rosario, La Union. She
was assisted by Cheryl Dapiaoen and George Bautista. They were about to
close the store when appellant, together with a certain Jerry, Teddy and an
unidentified person, arrived. They occupied one of the tables and started
drinking the liquor which they brought with them. Appellant then asked
Marife if they could stay until 5:00 a.m. but Marife refused since they were
unruly. When the group was about to leave, Cheryl asked appellant to pay
the amount of P35 as cover charge. At this point, appellant became angry
and threw two bottles of gin on the floor. Marifes brother, Orland, who was
sleeping in one of the rooms of the store, was awakened by the noise. He
went out and told appellant not to create trouble. But appellant shoved him
and left with a warning that he would return to kill somebody. Appellant got

113
on his tricycle and bumped the door of the store while his companions threw
rocks at it.

Meanwhile, Marifes other brother, Otoleo, got up from his bed and asked
Cheryl to go with him to buy balut at the nearby Seven Star Store, which was
only eight meters away from their store. After 30 minutes, appellant returned
to Highlander Store with a knife. He walked past Marife and told her that she
was not the one he was going to kill. Appellant went toward the Seven Star
Store where Otoleo and Cheryl were then buying balut. Upon reaching the
store, appellant suddenly stabbed Otoleo at the back. The victim turned to
face appellant but the latter again stabbed him twice on the left armpit.
Otoleo fell to the ground and appellant ran away. Marife, who was outside the
Highlander Store, rushed to the bloodied body of her brother and hugged
him. She brought the victim to the Rosario District Hospital in Rosario, La
Union where he was declared dead on arrival.

Dr. Godofredo Garcia of the Rosario District Hospital, La Union conducted a

post mortem examination on the cadaver of Otoleo and prepared his findings
and the death certificate showing the following:

Rigor mortis, stabbed (sic) wound, 2 cm. arm, clavicular area (L), 3 inches
deep 2 cm. arm posterior aspect (L), axilla 2 inches; penetrating wound thru
the 5th intercostal space, anterior axillary line with hemothorax (L) lung with
clotted blood; penetrating wound, lung (L), pericardial sac with hematoma,
penetrating (L) auricle and ventricle.[3]

Rita Binay-an, mother of the victim and owner of the Highlander Store,
testified on the civil aspect of the case. She claimed to have spent the
amount of P600,000 in connection with the death of her son. According to
Rita, Otoleo was a second lieutenant in the Philippine Marines at the time of
his death.

As earlier noted, appellant escaped from prison before the prosecution had
completed the presentation of its evidence. Hence, he was deemed to have
waived his right to present his evidence to dispute the charge.[4]

After trial on the merits, a decision was rendered by the trial court on
November 20, 1997 convicting appellant of the offense charged:

WHEREFORE, in view of all the foregoing considerations, the accused ALVIN

VILLANUEVA is hereby found GUILTY of the crime of MURDER as charged in
the Information. He is hereby sentenced to DEATH, and to pay P50,000.00 for
the death of the victim, indemnify the heirs of the victim in the amount of
P600,000.00 actual damages, P1,000,000.00 in loss of earning and to pay
the cost of the proceedings.

114
SO ORDERED.[5]

In his Brief, appellant insists that the trial court erred:

IN GIVING FULL FAITH AND CREDIT TO THE INCREDIBLE AND HIGHLY

INCONSISTENT, IF NOT CONFLICTING, TESTIMONIES OF THE PROSECUTION
WITNESSES ANENT THE INCIDENT IN QUESTION.

II

IN CONVICTING ACCUSED-APPELLANT OF THE CRIME CHARGED DESPITE THE

FAILURE OF THE PROSECUTION TO ESTABLISH HIS GUILT BEYOND
REASONABLE DOUBT.

III

IN CONVICTING HIM OF MURDER SINCE THE QUALIFYING CIRCUMSTANCES OF

TREACHERY, EVIDENT PREMEDITATION AND NIGHTTIME ARE WANTING AND
IN ERRONEOUSLY CONSIDERING FURTHER THE ACCUSED-APPELLANTS
ESCAPE AS AN AGGRAVATING CIRCUMSTANCE, THUS THE PENALTY IMPOSED
UPON HIM MUST BE ACCORDINGLY REDUCED.[6]

We shall jointly discuss the assigned errors since they are interrelated.

Appellant questions the credibility of prosecution witnesses Marife Brabante

and Cheryl Dapiaoen as their testimonies were patently inconsistent and
conflicting on material details. Appellant points out the following
inconsistencies and contradictions in the testimonies of Marife and Cheryl:

(1) Marife first testified that appellant and his group arrived at the
Highlander Store at around 12 midnight[7] but later on declared that they
arrived at around 12:45 a.m.[8]

(2) Marife stated on direct examination that her brother, Orland, did not go
out of his room when appellant became unruly.[9] On cross-examination,
however, she admitted that Orland went out of his room.[10]

(3) Marife averred that appellant had three companions when he entered the
Highlander Store.[11] On the other hand, Cheryl testified that appellant had
four companions at that time.[12]

(4) Marife insisted that appellants companions were nearby and laughing
when he stabbed Otoleo.[13] This was contrary to Cheryls testimony that
appellants companions were merely observing the incident .[14]

115
(5) Marife claimed that she rushed to help her brother, Otoleo, when he fell
down,[15] while Cheryl declared that she had to call Marife to inform her that
Otoleo was stabbed by appellant.[16]

While the testimonies of the two prosecution witnesses differed in some

respects, the aforementioned inconsistencies and discrepancies referred to
collateral and minor matters. The details cited by appellant such as the exact
time of their arrival at the store, the number of companions he had at the
time he entered the store and the demeanor of his companions when he
stabbed Otoleo, are all insignificant and inconsequential considering that
they had nothing to do with the main scope of the inquiry the murder
allegedly committed by appellant. Further, a miscalculation of time is too
flimsy a reason to discredit a witness, especially where the exact hour is not
an essential element of the offense, as in this case. Likewise, since several
months had passed before Marife and Cheryl recounted their story before the
trial court, it was impossible for them to have a total recall of the incident.

Indeed, neither inconsistencies on trivial matters nor innocent lapses affect

the credibility of witnesses and the veracity of their declarations. On the
contrary, they may even be considered badges of truth on material points in
the testimony.[17] The testimonies of witnesses must be considered and
calibrated in their entirety and not in truncated portions or isolated
passages.[18] In the instant case, the testimonies of Marife and Cheryl were
clearly consistent vis-a-vis the substantial aspects of the crime, i.e., the
identification of appellant as the perpetrator of Otoleos death and the
manner by which the crime was committed.

Although it is incumbent on the prosecution to establish the guilt of the

accused beyond reasonable doubt, to justify acquittal based on such ground,
the doubt should relate to the facts constitutive of the crime charged.[19]
Discrepancies should touch on significant matters crucial to the guilt or
innocence of the accused. Conversely, inconsistencies in details irrelevant to
the elements of the crime are not grounds for acquittal.[20] Besides, as held
in numerous decisions, when there is no evidence that the principal witness
for the prosecution is moved by improper motives, such witness is entitled to
full faith and credit.[21] Certainly, Marife and Cheryl, in identifying appellant
as the assailant, had no other motive than to seek justice for the death of
Otoleo.

It should also be noted that the testimonies of Marife and Cheryl were
corroborated on material points by the expert testimony of Dr. Garcia who
conducted the post mortem examination on the body of Otoleo Brabante. He
declared:

PROECUTOR CATBAGAN:

116
Q: And what was your finding in the person of the victim?

A: Post mortem examination reveals that the victim is already rigor mortis.
There is stabbed (sic) wound in the arm, clavicular area left armpit. And the
most fatal wound is in the armpit. The penetrating wound entering the heart
and the lungs. There is a presence of clotted blood in the left lung. And the
pericardial sac with hematoma, the cause of heart cardiac, left uricle and
ventricle.

Q: How many wounds were there, doctor?

A: There were three wounds.

Q: And how deep are those wounds?

A: The two wounds in the left is 3 inches deep and the left axillary
penetrating and almost left the heart and fatal wound. So that caused the
death.

Q: Could you determine by those wounds what was the weapon used?

A: Sharp bladed weapon, sir.

COURT:

Q: Is it bladed?

A: Yes, sharp pointed bladed weapon, sir.

PROSECUTOR CATBAGAN:

Q: By the location of the wounds, could you determine the position of the
assailant at the time he hit the victim?

A: The assailant is at the back because of the posterior arm, while this axilla,
the fatal wound is on the side. So when the assailant is raising hand he
thrust and injured him at the side. Supposing the assailant is right handed
the possibility is in front or on the side.[22]

Clearly, the physical evidence amply reinforced the testimonies of Marife and
Cheryl that appellant stabbed Otoleo with a hunting knife, once at the back
and twice at the side. Physical evidence is a mute but eloquent testimony of
the truth and rates high in the hierarchy of trustworthy evidence.[23]

117
The case of the prosecution was greatly strengthened by appellants escape
from confinement during trial and by his failure to turn himself in despite
subsequent conviction by the trial court. It was only on November 2, 1998,
one year after the trial court had promulgated its decision, when appellant
was finally recaptured.[24] It is well-established that the flight of an accused
is competent evidence of guilt and culpability, and, when unexplained, flight
is a circumstance from which an inference of guilt may be drawn.[25] It must
be stressed nonetheless that appellants conviction in this case was premised
not on this legal inference alone but on the overwhelming evidence
presented against him. The witnesses positive identification of appellant and
narration of the circumstances of the victims death were sufficiently
corroborated by the testimony of the physician who examined the victims
body, and by the autopsy report. These considerations convince the Court
beyond reasonable doubt that appellant was the perpetrator of the crime.

The trial court, in imposing the death penalty on appellant, found that
treachery, evident premeditation and nighttime attended the commission of
the crime. It also considered appellants escape from detention as an
aggravating circumstance.

The court a quo properly appreciated treachery against appellant which

qualified the crime to murder, as evidenced by the salient parts of Marifes
testimony, thus:

COURT:

Q: Did you see Alvin Villanueva was armed when he approached you?

A: Yes, sir.

Q: What is that arm or what kind of arm is that?

A: Rambo knife, sir.

Q: Can you describe this Rambo knife?

A: The length is long, like this (Witness demonstrating the length more than a
foot and bladed knife).

ATTY. SAN JUAN:

Q: So when you saw them running towards your brother, what happened
next?

A: He suddenly stabbed him at the back, sir.

118
Q: What else happened?

A: And he also stabbed at the left armpit.

COURT:

Q: Demonstrate how? (Witness going down from the witness stand and
demonstrate (sic) how the accused stabbed Otoleo Brabante. Witness
thrusting the knife).

A: Then Alvin Villanueva stabbed Otoleo at the back with his right hand. Then
the brother turned to face the assailant and the assailant thrust the victim at
the left armpit.[26]

It was clearly established that appellant attacked the victim suddenly,

without warning and from behind, and when the unarmed victim tried to face
appellant, the latter stabbed him again twice on his left armpit, thus giving
the victim no time to flee or to prepare for his defense or enable him to offer
the least resistance to the sudden assault. Treachery exists when the means,
method or manner of attack employed by the accused assures no risk to
himself from any defensive or retaliatory act which the victim might take.
[27]

We do not, however, agree with the trial court that evident premeditation
attended the commission of the crime in this case. The qualifying
circumstance of evident premeditation must be established with equal
certainty and clearness as the criminal act itself. It must be based on
external acts which are evident, not merely suspected, and which indicate
deliberate planning. In this case, no sufficient evidence exists to show that
the requisites of evident premeditation were present, to wit: (a) the time
when the offender decided to commit the crime; (b) an act manifestly
indicating that he held on to his determination to commit it; and (c) a
sufficient lapse of time between determination and execution to allow him to
reflect upon the consequences of his act and for his conscience to overcome
the resolution of his will after he decided to hearken to its warnings.[28] This
circumstance cannot be appreciated against appellant as no evidence was
adduced to show that the killing was the result of meditation, calculation or
resolution on his part. There was no proof that, when appellant went to the
Highlander Store, he already had plans to kill Otoleo. Neither was there any
evidence of the time when the intent to commit the crime was engendered in
the mind of appellant. Likewise, the time interval of 30 minutes between the
altercation at the Highlander Store and the actual assault on Otoleo was too
brief to have enabled appellant to ponder over the consequences of his
intended act.

119
The trial court also erred in appreciating nighttime as an aggravating
circumstance. At the outset, it should be noted that the circumstance of
nighttime was not alleged in the information as mandated by Section 8, Rule
110 of the Revised Rules of Criminal Procedure. And even if alleged,
nighttime cannot properly be considered in this case because, although the
crime was committed late at night, there was no evidence that nighttime
facilitated the commission of the crime, or that it was specially sought by the
offender to ensure the commission thereof, or that the offender took
advantage of it for impunity.[29] The record does not show that appellant
deliberately sought the cover of darkness when he assaulted Otoleo
Brabante. The prosecution established no more than the simple fact that the
crime was committed at night.

Moreover, the lower court improperly considered appellants escape from

detention as an aggravating circumstance. The enumeration of aggravating
circumstances under Article 14 of the Revised Penal Code is exclusive[30]
and flight is certainly not one of those specified in said article.

The penalty for murder under Article 248 of the Revised Penal Code as
amended by RA 7659 is reclusion perpetua to death. Inasmuch as the crime
was not attended by any aggravating circumstance, the penalty to be
imposed upon appellant must be the lesser penalty of reclusion perpetua.
[31]

The award of P50,000 as civil indemnity should be upheld without need of

proof, the same being in accordance with prevailing jurisprudence and the
policy of the Court.[32]

However, we do not find the grant of P600,000 for actual damages to be

properly substantiated by evidence. The trial court based its award mainly on
the testimony of the victims mother and on the submitted list of expenses
allegedly incurred in connection with the death, wake and burial of the
victim. The award of actual damages may not be made on the basis alone of
a handwritten enumeration of the supposed expenses incurred.

The recent case of People vs. Abrazaldo[33] allows the grant of temperate
damages in the amount of P25,000 if there is no evidence of burial and
funeral expenses. This is in lieu of actual damages as it would be unfair for
the victims heirs to get nothing, despite the death of their kin, for the reason
alone that they cannot produce any receipts. We also ruled there that
temperate and actual damages are mutually exclusive in that both may not
be awarded at the same time, hence, no temperate damages may be
granted if actual damages have already been granted.

In the present case, only the amount of P13,100 was supported by receipts.
[34] Ordinarily, this is all Otoleo Brabantes heirs should be entitled to by way

120
of actual damages. However, we find this anomalous and unfair because the
victims heirs who tried but succeeded in proving actual damages to the
extent of P13,100 only, would be in a worse situation than, say, those who
might have presented no receipts at all but would now be entitled to P25,000
temperate damages.

We therefore rule that when actual damages proven by receipts during the
trial amount to less than P25,000, as in this case, the award of temperate
damages for P25,000 is justified in lieu of actual damages of a lesser
amount. Conversely, if the amount of actual damages proven exceeds
P25,000, then temperate damages may no longer be awarded; actual
damages based on the receipts presented during trial should instead be
granted.

Likewise, we cannot sustain the grant of P1,000,000 for loss of earnings. No

document whatsoever was submitted to support such an award. The
indemnification for loss of earning capacity partakes of the nature of actual
damages, which must be duly proven.[35] In this case, Rita Binay-an, mother
of the victim, merely declared that her son was a second lieutenant in the
Philippine Marines but gave no statement of her sons monthly salary. Thus,
the trial court simply presumed the amount of Otoleos earnings. Since the
prosecution did not present any evidence of the current income of the victim,
the indemnity for lost earnings was speculative and must be rejected.

Moral damages cannot also be awarded because no evidence, testimonial or

otherwise, was presented by the prosecution to support it. As to exemplary
damages, the law is clear that they can be recovered in criminal cases only
when the crime is committed with one or more aggravating circumstances,
[36] none of which was present in this case.

WHEREFORE, the decision of the court a quo is hereby AFFIRMED with

MODIFICATION. Appellant Alvin Villanueva is found guilty of murder and is
accordingly sentenced to reclusion perpetua. He is also ordered to pay the
heirs of the victim the amounts of P50,000 as civil indemnity and P25,000 as
temperate damages. The award for the loss of earning capacity of the
deceased is deleted.

SO ORDERED.

13. PHILIPPINE TELEGRAPH & TELEPHONE CORPORATION and LOUIE

CABALIT, petitioners, vs. HON. COURT OF APPEALS and LOLITA SIPE
ESCARA, respondents.

DECISION

VITUG, J.:

121
Assailed in the instant petition of the Philippine Telegraph & Telephone
Corporation (PT&T) and Louie Cabalit is the judgment of the Court of Appeals
in CA G.R. CV No. 48313, promulgated on 15 March 1999, which has affirmed
with modification the decision of the Regional Trial Court of Makati awarding
damages to respondent Lolita Sipe Escara.

The facts were synthesized by the appellate court in its decision under
review.

On July 13, 1990, Felicitas B. Sipe, a resident of Surralah, South Cotabato,

remitted to her sister-in-law, Lolita Sipe Escara, two telegraphic money
orders through the facilities of Philippine Telegraph and Telephone Company
(PT&T, for brevity). The money orders, one for P2,000.00 and the other for
P1,000.00, originated from Marbel, South Cotabato, and were transmitted to
the Cubao branch of PT&T. Plaintiff was then studying for a doctoral degree
in Education at the University of the Philippines (U.P., for brevity), Diliman,
Quezon City and was residing in one of its dormitories, the Ipil Residence
Hall. According to the plaintiff, the money was sent for the purpose of paying
for her tuition fee for one semester at the U.P.; paying for her fare to go back
to Cotabato to enable her to complete the requirements for a job promotion;
and paying for the cost of the medical consultation of her son who is sick of
diabetes.

On July 22, 1990, plaintiffs husband sent her a telegram advising her to
inform him if she has received a remittance of P3,000.00. She made several
phone calls to PT&T to inquire about the money but was told that no money
was transmitted in her favor. On August 10, 1990, plaintiff sent her husband
a telegram to inform him of her non-receipt of the money. On August 18,
1990, plaintiffs husband again sent her a telegram instructing her to claim at
the PT&T Cubao branch the money transmitted on July 13, 1990.

On August 20, 1990, plaintiff went to the PT&T office to inquire about the
remittance in her favor. Since Louie Cabalit, the branch cashier, was not
around, plaintiff was constrained to return the next day. It was only in the
afternoon of August 21, 1990, that she was able to talk to Louie Cabalit
about the remittance. Cabalit looked into his records, after which, the branch
security guard informed plaintiff that no money was transmitted to her. Upon
plaintiffs request, Cabalit issued a certification that no telegraphic money
order in favor of plaintiff was received from Surralah by PT&T. Nevertheless,
Cabalit told her that he would re-examine his records to determine whether a
remittance was made in her name.

Subsequently, Cabalit informed plaintiff that the money being claimed by her
did not come from Surralah but from Marbel, South Cotabato. On August 22,

122
1990, an attempt was made by PT&T to deliver the telegraphic money order
at plaintiffs dormitory but she was not around. On September 10, 1990,
plaintiff received from PT&T two checks representing the amount remitted to
her. However, plaintiff was not able to encash the checks at once because
the bank did not have a clearance from PT&T. Finally, on September 14,
1990, plaintiff was able to encash the checks.

Aggrieved by the delay in the delivery of the remittance, plaintiff filed a

complaint for damages against PT&T and Louie Cabalit. In her complaint, she
alleged that the delay was the cause of her failure to enroll for one semester
at the U.P.; to complete her requirements for a job promotion; and to bring
her son to the doctor for medical consultation. On November 29, 1994, the
lower court rendered the questioned decision, the dispositive portion of
which reads:

`WHEREFORE, this Court renders judgment in favor of the plaintiff and

against the defendants, ordering the defendants, jointly and severally, to pay
the plaintiff:

`1. The sum of P100,000.00 in actual/compensatory damages;

`2. The sum of P50,000 in moral damages;

`3. The sum of P10,000.00 in exemplary damages;

`4. No attorneys fees awarded being a pro bono publica case; and

`5. To pay costs of suits.[1]

Petitioners appealed the decision of the trial court to the Court of Appeals.
The appellate court affirmed the decision with modification. Finding to be
inadequate the evidence submitted by respondent Lolita Sipe Escara to
prove pecuniary loss suffered by her, the Court of Appeals deleted the award
of actual damages. The appellate court, however, sustained the award of
moral and exemplary damages in favor of private respondent, ratiocinating
thusly:

Article 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. In the case
at bar, appellant PT&T, for a fee, undertook to send plaintiff two telegraphic
money orders in the sum of P3,000.00. Appellant, however, failed to deliver
the money to plaintiff immediately after the money order was transmitted to
its Cubao branch. It was only on September 14, 1990, or almost two months
from transmittal that plaintiff was finally able to have her money.

123
We find PT&T negligent when it did not take steps to ensure the prompt
delivery of the money to plaintiff from the time the checks were issued in her
favor. It is quite clear that PT&T did not act with any sense of urgency but
with indifference and nonchalance with respect to plaintiffs case. First of all,
after Louie Cabalit endorsed the two checks to the dispatch section of PT&T
and subsequently took an emergency leave, the personnel at the Cubao
branch did not exert enough effort to effect the delivery of the money. In
fact, the Cubao branch wired its Marbel branch only on August 3, 1990 to
request for the complete address of the recipient from the sender.
Apparently, it took them eighteen days to realize that the address of the
recipient was insufficient.

Furthermore, the claim of PT&T that it made several attempts to deliver the
money between July 17, 1990 and August 3, 1990 is open to doubt because
there is no proof showing to what extent PT&T endeavored to locate the
plaintiff. Francisco Dumlao, administrative officer of the Registrars Office of
U.P., testified that the addressee of letters or telegrams labeled only as `U.P.
Diliman, is located by referring to the records of currently enrolled students
under the active file or to the records of its alumni under the inactive file. It
appears that PT&T did not attempt to inquire from the Registrars Office
regarding plaintiffs whereabouts since it obviously failed to draw the
inference that the University of the Philippines is a school with facilities that
can be of assistance in locating its own students.[2]

In the instant appeal, petitioners would strongly urge that the appellate court
be reversed in awarding moral and exemplary damages to respondent Lolita
Escara with the latters failure to present evidence that she had suffered
wounded feelings, serious anxiety, and mental anguish or that the act she
had ascribed to petitioners was done in bad faith, or in wanton, fraudulent,
oppressive or malevolent manner. Private respondent, however, would insist
that the clearly established culpable conduct of petitioners warranted the
award of both moral and exemplary damages.

There is merit in the petition.

The breach of an obligation because of fraud, negligence or delay or of a

contravention by any means of the tenor of that obligation does open the
defaulting obligor to possible liability for damages. The right to those
damages and the extent of their recovery would depend on the kind and
nature of the damages and the manner in which the injury causing it is
brought about.

The Court of Appeals was correct in deleting the award made by the trial
court of actual damages where proof of pecuniary loss, in an action based on
culpa contractual, is essential. Finding the evidence to be wanting in this
respect, the appellate court did not err in its judgment.

124
In the case of moral damages, recovery is more an exception rather than the
rule. Moral damages are not punitive in nature but are designed to
compensate and alleviate the physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar harm unjustly caused to a person. In order that
an award of moral damages can be aptly justified, the claimant must be able
to satisfactorily prove that he has suffered such damages and that the injury
causing it has sprung from any of the cases listed in Articles 2219[3] and
2220[4] of the Civil Code.[5] Then, too, the damages must be shown to be
the proximate result of a wrongful act or omission. The claimant must
establish the factual basis of the damages and its causal tie with the acts of
the defendant. In fine, an award of moral damages would require, firstly,
evidence of besmirched reputation or physical, mental or psychological
suffering sustained by the claimant; secondly, a culpable act or omission
factually established; thirdly, proof that the wrongful act or omission of the
defendant is the proximate cause of the damages sustained by the claimant;
and fourthly, that the case is predicated on any of the instances expressed or
envisioned by Article 2219 and Article 2220 of the Civil Code. In culpa
contractual or breach of contract, particularly, moral damages may be
recovered when the defendant has acted in bad faith or is found to be guilty
of gross negligence (amounting to bad faith) or in wanton disregard of his
contractual obligation.[6]

In the case at bar, the appellate court itself did not see any clear indication
of bad faith or gross negligence amounting to bad faith on the part of
petitioners. It would be error to make an award of moral damages to private
respondent merely because petitioner corporation was unable to effect
immediate delivery of the money sent through it in two money orders, one
for P2,000.00 and the other for P1,000.00. Indeed, it would appear that the
address given by the sender was merely and vaguely stated to be U.P.
Diliman Quezon City. So, also, when private respondent went to the office of
petitioner PT&T to inquire about the money order she erroneously mentioned
it to have been sent from Surralah, South Cotabato. It was only upon
verification made by petitioners that the latter were able to discover that the
money transfers did originate, not, however, from Surralah, but from Marbel,
South Cotabato. Given all the circumstances found by the appellate court,
the delay of less than two months in the remittance to private respondent of
the amounts due her could hardly be said as being constitutive of bad faith
or gross negligence amounting to bad faith.

Neither can the award of exemplary damages be sustained. Exemplary

damages are not recoverable as a matter of right.[7] Although such damages
need not be proved, plaintiff must first show that he is entitled to moral,
temperate, or compensatory damages before a court can favorably consider
an award of exemplary damages.[8] In contracts and quasi-contracts,

125
specifically, exemplary damages may be justified if the defendant is shown
to have acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.[9] Petitioner corporation might have been remiss in the prompt
delivery of the sums sent through it to respondent; however, the Court would
be hardput to say that such delay under the facts obtaining can be described
as being wanton, fraudulent, reckless, or oppressive in character.

Still, of course, petitioner corporation is not totally free from liability. It may
have had good reasons, but it has not been able to overcome thereby its
burden to prove a valid excuse, for the breach of agreement such as by
proving, among other possible legal grounds, fortuitous event to account for
its failure. The breach would have justified a recovery of actual damages but,
there being no adequate proof of pecuniary loss found by the appellate
court, such damages cannot be awarded. Neither moral nor exemplary
damages have been justified, as hereinbefore explained, as to warrant any
recovery thereof. The Court thus is left with two alternative possibilities an
award of temperate or moderate damages or an award of nominal damages.

Temperate or moderate damages may only be given if the court finds that
some pecuniary loss has been suffered but that its amount cannot, from the
nature of the case, be proved with certainty.[10] The factual findings of the
appellate court that respondent has failed to establish such pecuniary loss
or, if proved, cannot from their nature be precisely quantified precludes the
application of the rule on temperate or moderate damages. The result comes
down to only a possible award of nominal damages. Nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or recognized and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.[11] The
court may award nominal damages in every obligation arising from any
source enumerated in article 1157 of the Civil Code or, generally, in every
case where property right is invaded.

In the instant case, for the violation of the right of private respondent to
receive timely delivery of the money transmitted through petitioner
corporation an award of nominal damages is appropriate. An amount of
P20,000.00 by way of nominal damages, considering all that private
respondent has had to go through, is in the Courts view reasonable and fair.

There is, however, neither enough factual nor adequate legal basis to hold
petitioner Louie Cabalit, PT&Ts branch cashier, solidarily liable with petitioner
corporation.

WHEREFORE, the instant petition is GRANTED. The appealed decision is

reversed and set aside and, in its stead, petitioner Philippine Telegraph &
Telephone Corporation is ordered to pay respondent Lolita Sipe Escara the

126
sum of P20,000.00 by way of nominal damages. Costs against petitioner
corporation.

SO ORDERED.

14. G.R. No. 84281 May 27, 1994

CITYTRUST BANKING CORPORATION, petitioner,

vs.
THE INTERMEDIATE APPELLATE COURT and EMME HERRERO,
respondents.

Agcaoili and Associates for petitioner.

David B. Agoncillo for private respondent.

Humberto B. Basco, collaborating counsel for private respondent.

VITUG, J.:

This case emanated from a complaint filed by private respondent Emme

Herrero for damages against petitioner Citytrust Banking Corporation. In her
complaint, private respondent averred that she, a businesswoman, made
regular deposits, starting September of 1979, with petitioner Citytrust
Banking Corporation at its Burgos branch in Calamba, Laguna. On 15 May
1980, she deposited with petitioner the amount of Thirty One Thousand Five
Hundred Pesos (P31,500.00), in cash, in order to amply cover six (6)
postdated checks she issued, viz:

Check No. Amount

007383 P1,507.00
007384 1,262.00
007387 4,299.00
007387 2,204.00
007492 6,281.00
007400 4,716.00

When presented for encashment upon maturity, all the checks were
dishonored due to "insufficient funds." The last check No. 007400, however,
was personally redeemed by private respondent in cash before it could be
redeposited.

127
Petitioner, in its answer, asserted that it was due to private respondent's
fault that her checks were dishonored. It averred that instead of stating her
correct account number, i.e., 29000823, in her deposit slip, she inaccurately
wrote 2900823.

The Regional Trial Court (Branch XXXIV) of Calamba, Laguna, on

27 February 1984, dismissed the complaint for lack of merit; thus:

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

against the plaintiff, DISMISSING the complaint for lack of merit, plaintiff is
hereby adjudged to pay the defendant reasonable attorney's fee in the
amount of FIVE THOUSAND PESOS (P5,000.00) plus cost of suit.

Private respondent went to the Court of Appeals, which found the appeal
meritorious. Hence, it rendered judgment, on 15 July 1988, reversing the trial
court's decision. The appellate court ruled:

WHEREFORE, the judgment appealed from is REVERSED and a new one

entered thereby ordering defendant to pay plaintiff nominal damages of
P2,000.00, temperate and moderate damages of P5,000.00, and attorney's
fees of P4,000.00.

The counterclaim of defendant is dismissed for lack of merit, with costs

against him.

Petitioner Citytrust Banking Corporation is now before us in this petition for

review on certiorari.

Petitioner bank concedes that it is its obligation to honor checks issued by

private respondent which are sufficiently funded, but, it contends, private
respondent has also the duty to use her account in accordance with the rules
of petitioner bank to which she has contractually acceded. Among such rules,
contained in its "brochures" governing current account deposits, is the
following printed provision:

In making a deposit . . . kindly insure accuracy in filing said deposit slip forms
as we hold ourselves free of any liability for loss due to an incorrect account
number indicated in the deposit slip although the name of the depositor is
correctly written.

Exactly the same issue was addressed by the appellate court, which, after its
deliberations, made the following findings and conclusions: 1

We cannot uphold the position of defendant. For, even if it be true that there
was error on the part of the plaintiff in omitting a "zero" in her account
number, yet, it is a fact that her name, "Emme E. Herrero", is clearly written

128
on said deposit slip (Exh. "B"). This is controlling in determining in whose
account the deposit is made or should be posted. This is so because it is not
likely to commit an error in one's name than merely relying on numbers
which are difficult to remember, especially a number with eight (8) digits as
the account numbers of defendant's depositors. We view the use of numbers
as simply for the convenience of the bank but was never intended to
disregard the real name of its depositors. The bank is engaged in business
impressed with public interest, and it is its duty to protect in return its many
clients and depositors who transact business with it. It should not be a
matter of the bank alone receiving deposits, lending out money and
collecting interests. It is also its obligation to see to it that all funds invested
with it are properly accounted for and duly posted in its ledgers.

In the case before Us, We are not persuaded that defendant bank was not
free from blame for the fiasco. In the first place, the teller should not have
accepted plaintiff's deposit without correcting the account number on the
deposit slip which, obviously, was erroneous because, as pointed out by
defendant, it contained only seven (7) digits instead of eight (8). Second, the
complete name of plaintiff depositor appears in bold letters on the deposit
slip (Exh. "B"). There could be no mistaking in her name, and that the deposit
was made in her name, "Emma E. Herrero." In fact, defendant's teller should
not have fed her deposit slip to the computer knowing that her account
number written thereon was wrong as it contained only seven (7) digits. As it
happened, according to defendant, plaintiff's deposit had to be consigned to
the suspense accounts pending verification. This, indeed, could have been
avoided at the first instance had the teller of defendant bank performed her
duties efficiently and well. For then she could have readily detected that the
account number in the name of "Emma E. Herrero" was erroneous and would
be rejected by the computer. That is, or should be, part of the training and
standard operating procedure of the bank's employees. On the other hand,
the depositors are not concerned with banking procedure. That is the
responsibility of the bank and its employees. Depositors are only concerned
with the facility of depositing their money, earning interest thereon, if any,
and withdrawing therefrom, particularly businessmen, like plaintiff, who are
supposed to be always "on-the-go". Plaintiff's account is a "current account"
which should immediately be posted. After all, it does not earn interest. At
least, the forbearance should be commensurated with prompt, efficient and
satisfactory service.

Bank clients are supposed to rely on the services extended by the bank,
including the assurance that their deposits will be duly credited them as soon
as they are made. For, any delay in crediting their account can be
embarrassing to them as in the case of plaintiff.

We agree with plaintiff that

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. . . even in computerized systems of accounts, ways and means are
available whereby deposits with erroneous account numbers are properly
credited depositor's correct account numbers. They add that failure on the
part of the defendant to do so is negligence for which they are liable. As
proof thereof plaintiff alludes to five particular incidents where plaintiff
admittedly wrongly indicated her account number in her deposit slips
(Exhs. "J", "L", "N", "O" and "P"), but were nevertheless properly credited her
deposit (pp. 4-5, Decision).

We have already ruled in Mundin v. Far East Bank & Trust Co., AC-G.R. CV No.
03639, prom. Nov. 2, 1985, quoting the court a quo in an almost identical set
of facts, that

Having accepted a deposit in the course of its business transactions, it

behooved upon defendant bank to see to it and without recklessness that
the depositor was accurately credited therefor. To post a deposit in
somebody else's name despite the name of the depositor clearly written on
the deposit slip is indeed sheer negligence which could have easily been
avoided if defendant bank exercised due diligence and circumspection in the
acceptance and posting of plaintiff's deposit.

We subscribe to the above disquisitions of the appellate court. In Simex

International (Manila), Inc. vs. Court of Appeals, 183 SCRA 360, reiterated in
Bank of Philippine Islands vs. Intermediate Appellate Court, 206 SCRA 408,
we similarly said, in cautioning depository banks on their fiduciary
responsibility, that

In every case, the depositor expects the bank to treat his account with
utmost fidelity, whether such account consists only of a few hundred pesos
or of millions. The bank must record every single transaction accurately,
down to the last centavo, and as promptly as possible. This has to be done if
the account is to reflect at any given time the amount of money the
depositor can dispose of as he sees fit, confident that the bank will deliver it
as and to whomever he directs. A blunder on the part of the bank, such as
the dishonor of a check without good reason, can cause the depositor not a
little embarrassment if not also financial loss and perhaps even civil and
criminal litigation.

The point is that as a business affected with public interest and because of
the nature of its functions, the bank is under obligation to treat the accounts
of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship.

We agree with petitioner, however, that it is wrong to award, along with

nominal damages, temperate or moderate damages. The two awards are
incompatible and cannot be granted concurrently. Nominal damages are

130
given in order that a right of the plaintiff, which has been violated or invaded
by the defendant, may be vindicated or recognized, and not for the purpose
of indemnifying the plaintiff for any loss suffered by him (Art. 2221, New Civil
Code; Manila Banking Corp. vs. Intermediate Appellate Court, 131 SCRA 271).
Temperate or moderate damages, which are more than nominal but less than
compensatory damages, on the other hand, may be recovered when the
court finds that some pecuniary loss has been suffered but its amount
cannot, from the nature of the case, be proved with reasonable certainty
(Art. 2224, New Civil Code).

In the instant case, we also find need for vindicating the wrong done on
private respondent, and we accordingly agree with the Court of Appeals in
granting to her nominal damages but not in similarly awarding temperate or
moderate damages.

WHEREFORE, the appealed decision is MODIFIED by deleting the award of

temperate or moderate damages. In all other respects, the appellate court's
decision is AFFIRMED. No costs in this instance.

SO ORDERED.

LIQUIDATED DAMAGES

15. H.L. CARLOS CONSTRUCTION, INC., petitioner, vs. MARINA

PROPERTIES CORPORATION, JESUS K. TYPOCO SR. and TAN YU,
respondents.

DECISION

PANGANIBAN, J.:

There is unjust enrichment when a building contractor is denied payment for

increased labor cost validly incurred and additional work validly rendered
with the owners express or implied agreement.

The Case

The Petition for Review[1] before the Court, filed under Rule 45, seeks the
reversal of the Decision[2] dated March 29, 2001, issued by the Court of
Appeals[3] in CA-GR CV No. 60975. The assailed Decision disposed as
follows:

WHEREFORE, the judgment appealed from is hereby REVERSED and SET

ASIDE, and a new one entered DISMISSING the [petitioners] Complaint, AND
PARTIALLY GRANTING THE [RESPONDENT-CORPORATIONS] COUNTERCLAIM,
IN THAT THE [PETITIONER] IS DIRECTED TO PAY UNTO THE [RESPONDENT-

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CORPORATION] THE SUM OF P4,604,579.00 in ACTUAL DAMAGES PLUS
P3,549,416.00 AS AND FOR LIQUIDATED DAMAGES.[4]

The Facts

The facts of the case, summarized by the Court of Appeals (CA), are as
follows:

[Respondent] MARINA PROPERTIES CORPORATION (MPC for brevity) is

engaged in the business of real estate development. On May 10, 1988, MPC
entered into a contract[5] with [Petitioner] H.[L.] CARLOS CONSTRUCTION,
INC. (HLC) to construct Phase III of a condominium complex called MARINA
BAYHOMES CONDOMINIUM PROJECT, consisting of townhouses and villas,
totaling 31 housing units, for a total consideration of P38,580,609.00, within
a period of 365 days from receipt of Notice to Proceed. The original
completion date of the project was May 16, 1989, but it was extended to
October 31, 1989 with a grace period until November 30, 1989.[6]

The contract was signed by Jovencio F. Cinco, president of MPC, and Honorio
L. Carlos, president of HLC.

On December 15, 1989, HLC instituted this case for sum of money against
not only MPC but also against the latters alleged president, [Respondent]
Jesus K. Typoco, Sr. (Typoco) and [Respondent] Tan Yu (Tan), seeking the
payment of various sums with an aggregate amount of P14 million pesos,
broken down as follows:

a) P7,065,885.03 for costs of labor escalation, change orders and material

price escalation;

b) P2,000,000.00 as additional compensatory damages, exclusive of the cost

of suit.

c) P3,147,992.00 representing retention money allegedly withheld by MPC on

HLCs Progress Billings as of January 1990, and

d) P2,000,000.00 representing the value of construction materials allegedly

withheld/detained by MPC.

Traversing the allegations of the complaint, [respondents] filed separate

answers, whereby the two individual [respondents] alleged that they are not
parties to the Construction Contract and Amendatory Contract and are
therefore not liable to HLC. [Respondent] MPC on the other hand alleged that
the [petitioner] has no cause of action against it and that it (HLC) is not
entitled to its various claims. MPC interposed a counterclaim in the

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aggregate sum of P68,296,227.14 for actual and compensatory damages,
liquidated damages, unliquidated advances, and attorneys fees.[7]

On May 15, 1997, the trial court[8] ruled as follows:[9]

WHEREFORE, premises above considered, judgment is hereby rendered for

[Petitioner] H.L. CARLOS CONSTRUCTION, INC. and as against [Respondents]
MARINA PROPERTIES CORPORATION, TAN YU, and JESUS K. TYPOCO, SR., who
are hereby ordered to pay, jointly and severally, the [petitioner], as follows:

1. the amount of P7,065,885.03, representing unpaid labor escalation costs,

change orders and material price escalations, plus 12% interest per annum
from date of filing of the complaint, until fully paid;

2. the amount of P3,147,992.39 representing the 10% retention money

withheld by the [respondents] [from] [petitioners] progress billing as of
January 1990, plus 12% interest per annum from the date of filing of the
complaint, until fully paid;

3. the amount of P2,000,000.00 representing the value of construction

materials and the like detained by the [respondents], plus 12% legal interest
from the date of filing of the complaint, until fully paid;

4. the sum equivalent to 15% of the principal sum as and by way of

attorneys fees; and to

5. [p]ay the costs of this suit.

The counterclaim for liquidated damages, are hereby DISMISSED for lack of
evidence. Liquidated damages can only be awarded under paragraph 2 of
the amended construction contract that extended the completion period and
mainly on the finding of the 85% substantial completion of the project, and
that the delay and stoppage of the project was caused by [respondents]
default in payment of [the] progress billings that would have allowed
[petitioner] to have the capability to continue and complete the project.

Ruling of the Court of Appeals

On appeal, the CA held that respondents were not liable for escalations in
the cost of labor and construction materials, because of the following
reasons: (1) the contract between the parties was for a lump sum
consideration, which did not allow for cost escalation; and (2) petitioner
failed to show any basis for the award sought.

Respondents were also absolved from paying for change orders and extra
work, inasmuch as there was no supplemental agreement covering them as

133
required in the main Construction Contract. Although Progress Billing No. 24
apparently indicates that extra work was rendered by petitioner, this claim is
not supported by sufficient evidence.

The CA further failed to find any basis for the release of the 10 percent
retention fee. The Construction Contract had provided that such release
would be made only under certain conditions, none of which was complied
with, as petitioner failed to complete the work required. Furthermore, MPC
was not held liable for detained or withheld construction materials, since
petitioner had eventually withdrawn them.

Nothing in the records indicated any personal liability on the part of Typoco
and Tan. Moreover, they had nothing to assume, as MPC was not held liable
to petitioner.

Furthermore, the CA ruled that petitioner was liable for actual and liquidated
damages. The latter had abandoned the project prior to its completion;
hence, MPC contracted out the work to another entity and incurred actual
damages in excess of the remaining balance of the contract price. In
addition, the Construction Contract had stipulated payment of liquidated
damages in an amount equivalent to 1/1000 of the contract price for each
calendar day of delay.

Hence, this Petition.[10]

Issues

In its Memorandum, petitioner raises the following issues:

a. Whether or not the respondents are liable to pay the petitioner its claim
for price escalation of construction materials and labor cost escalation.

b. Whether or not the respondents are liable to the petitioner for cost of
change orders and extra works.

c. Whether or not the respondents are liable to the petitioner for the ten
percent retention money.

d. Whether or not the respondents are liable to pay the petitioner attorneys
fees.

e. Whether or not the respondents are liable to the petitioner for the cost of
illegally detained materials.

f. Whether or not the respondents Jesus Typoco Sr., and Tan Yu are jointly and
solidarily liable to the petitioner for the latters claims.

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g. Whether or not the petitioner is liable to the respondents for actual and
liquidated damages.[11]

In simpler terms, the issues to be resolved are as follows:

(1) Whether petitioner is entitled to (a) a price escalation for labor and
material cost, (b) the cost of change orders and extra work, (c) the release of
the 10 percent retention money, (d) the cost of illegally detained materials,
and (e) attorneys fees

(2) Whether Typoco and Tan are solidarily liable with MPC

(3) Whether petitioner is liable for actual and liquidated damages

The Courts Ruling

The Petition is partly meritorious.

First Issue:
Liability for Additional Costs

Petitioner argues that it is entitled to price escalation for both labor and
materials, because MPC was delayed in paying for its obligations. The former
admits that it is normally not entitled to any price increase for labor and
materials, because a contractor is expected to build into its price a
contingency factor to protect it from cost increases that may occur during
the contract period.[12] It justifies its claim, however, on the ground that a
contractor cannot be expected to anticipate price increases beyond the
original contract period. Respondents, on the other hand, aver that it was
delayed in finishing the project; hence, it is not entitled to any price increase.

It must be pointed out that the reason for the CAs denial of petitioners claim
was that the contract between the parties was for a lump sum consideration,
and petitioner was guilty of delay in completing the project.

Labor and Material

Cost Escalation

We agree with petitioner that it is entitled to price escalation, but only for the
labor component of Progress Billing No. 24. The Construction Contract
contains the following provision on the considerations therefor:

6.1 For and in consideration of the true and faithful performance of the work
by the CONTRACTOR, the OWNER shall pay the Lump Sum Contract Price of

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PESOS: THIRTY EIGHT MILLION FIVE HUNDRED EIGHTY THOUSAND SIX
HUNDRED NINE (P38,580,609.00) broken down as shown in the Bid Form. No
cost escalation shall be allowed except on the labor component of the work x
x x.[13]

Since the Contract allows escalation only of the labor component, the
implication is that material cost escalations are barred. There appears to be
no provision, either in the original or in the amended contract, that would
justify billing of increased cost of materials. Furthermore, no evidence -- like
official economic data showing an increase in the price index of construction
materials -- was even adduced by petitioner to prove that there had indeed
been increases in material costs.[14]

Petitioner attempts to pass off these cost escalations as a form of damages

suffered by it as a natural consequence of the delay in the payment of
billings and claims for additional work. It argues that the baseless and
malicious refusal to pay for those claims renders respondents liable for
damages under Article 2201 of the Civil Code.

We disagree. Without tackling the issue of delay, we find that the contentious
Progress Billing No. 24 contains no claim for material cost escalation. The
other unsettled bills claimed by petitioner are those for change orders or
extra work, which have not been shown to be related to the increase in cost
of materials. Dealt with in separate contracts between the parties were such
claims, the costs of which were to be determined and agreed upon only when
required by MPC. Materials used for those additional jobs were to be
purchased only when the work was contracted, not prior thereto. As admitted
by petitioner, expenses for change orders/additional work were not included
in the agreed contract price[15] and, hence, were not subject to increases.

MPC admits that the labor cost escalation clause was adopted by the parties
to safeguard the contractor against losses in the event that, during the
execution of the Contract, the government would order a minimum wage
adjustment, which would then inflate the labor cost.[16] Respondents deny
liability for this added expense because, according to the Contract, the
allowance for labor cost escalation is available only within the duration of the
original construction period.

We clarify. The claimed cost of labor escalation pertains to the period

September 1 to December 15, 1989, in the amount of P170,722.10; and
December 16 to January 27, 1990, P45,983.91. During those periods,
petitioner had not yet incurred any delay in the project, originally stipulated
to be finished by May 16, 1989. But by mutual agreement, the period was
extended up to October 31, 1989, with a grace period until November 30,
1989.

136
Furthermore, a legislated wage increase became effective after the
expiration of the original period.[17] Respondents are, therefore, liable for
this increase in labor cost, because they allowed petitioner to continue
working on the project until April 20, 1990 (even beyond November 30,
1989).

MPC argues that to allow the claim for labor cost escalation would be to
reward petitioner for incurring delay, thereby breaching a contractual
obligation.

This contention is untenable. Before the expiration of the extended period,

petitioner was not yet in delay. It was granted by MPC an extension to
complete the project until November 30, 1989. Moreover, despite the
expiration of the extended period, MPC allowed it to continue working on the
project until the former took over and awarded that project to another
contractor. Hence, labor costs were actually incurred by petitioner until April
20, 1990. It was thus entitled to reimbursement for labor cost escalation until
that date. MPC cannot now be allowed to question the true valuation of the
additional labor because, instead of submitting to an independent evaluator,
it violated the Temporary Restraining Order (TRO) issued by the trial court
and hired another contractor to finish the project.

Noteworthy is the fact that MPC paid for the labor cost escalation during the
period August 1-15, 1989,[18] which was past the expiration of the original
period. Apparently, it thereafter stopped paying for labor cost escalation in
response to the suit filed against it by petitioner.

The CA denied the labor cost escalation claim because, despite having billed
MPC therefor, petitioner accepted payments that did not include such claim.
The appellate court construed the acceptance by petitioner as a waiver of
the latters right to be reimbursed for the increased labor cost.

We believe that this position is untenable. The CA mistook Exhibits C-7-B[19]

and D-1[20] as bills coming from petitioner, when in truth they were
Accomplishment Evaluation Sheets issued by MPC. The notation labor
escalation not included in the said Exhibits was an admission on the part of
MPC that it had not paid such amount, upon the advice of Atty. Jose C.
Laureta, its resident counsel. According to him, petitioner should be faulted
for having incurred labor cost increases after the expiration of the original
period (after May 16, 1989). Not having waived such increases, it should thus
bear them.[21]

To allow MPC to acquire the partially accomplished project without paying for
labor cost escalation validly incurred would constitute unjust enrichment at
the expense of petitioner.[22] There is unjust enrichment under Article 22 of
the Civil Code when (1) a person is unjustly benefited, and (2) such benefit is

137
derived at the expense of or with damages to another.[23] Since petitioner
had rendered services that were accepted by MPC, then the former should be
compensated for them. Labor cost escalation, in this case, has already been
earned by petitioner.

Change Orders and Extra Work

Petitioner claims entitlement to compensation for change orders and extra

work that were covered by construction memoranda. MPC counters,
however, that the former never presented any cost estimate for additional
work. The estimate would have formed the basis for a consensual agreement
and a computation of actual accomplishment, for which MPC could have
been unilaterally billed. Worse, the extra work was allegedly assessed by its
engineer to be worth only P705.41.

We side with petitioner. The General Conditions to the Construction Contract

provides:

13. CLAIMS FOR EXTRA AND FORCE ACCOUNT WORK:

If the Contractor claims that any construction by drawings or otherwise

involve extra cost under this Contract, he shall give the Owner and/or the
Architect, written notice thereof within a reasonable time after receipt of
such instructions, and in any event before proceeding to execute the work,
except in emergency endangering life or property. No such claim shall be
valid unless so made.

Extra work for which no price is provided in the proposal shall be covered by
a supplementary agreement to be signed by both parties before such work is
commenced. [24]

The CA is correct in holding that there is no supplemental agreement

covering the claimed extra work and change orders. Exhibits C-1, C-2, C-2-A,
C-3 and C-4 show billings for extra work sent by petitioner to MPC. But the
former did not submit in evidence the alleged construction memoranda
covering them. Neither were they mentioned in the letter[25] of Roilo Golez
dated November 24, 1989.

Progress Billing No. 24, which pertained to the project as covered by the
Construction Contract, did not mention any claim for extra work or change
orders. These additional jobs were covered by separate bills other than the
twenty-four Progress Billings sent by petitioner.

MPC, however, never denied having ordered additional work. In Item No. 12
of its Amended Answer,[26] it averred that petitioners claim for change
orders and extra work were premature. Limneo P. Miranda, respondents work

138
engineer, manifested that additional work was indeed done, but that claims
therefor were not settled for the following reasons: (1) reconciliation between
the parties was never completed due to the absence of petitioners
representative in scheduled meetings; (2) difference in opinion on the proper
valuation of the additional work, as MPC wanted to use the net quantity
method, while petitioner preferred the gross method; and (3) some claims
were rejected by MPC, because they had not been properly approved in
accordance with the Contract.[27]

Evidence on record further reveals that MPC approved some change order
jobs despite the absence of any supplementary agreement. In its Over-all
Summary of Reconciled Quantities as of September 6, 1989 (Annex C),[28] it
valued petitioners valid claim therefor at P79,340.52. After noting that the
claim had extremely been bloated, Atty. Laureta, in-house counsel for
respondent corporation, affirmed as valid the amount stated in the summary.
[29]

Petitioner may have failed to show the construction memoranda covering its
claim, but it inarguably performed extra work that was accepted by MPC.
Hence, we will consider Annex C as the proper valuation thereof.

Under the principle of quantum meruit, a contractor is allowed to recover the

reasonable value of the thing or services rendered despite the lack of a
written contract, in order to avoid unjust enrichment.[30] Quantum meruit
means that in an action for work and labor, payment shall be made in such
amount as the plaintiff reasonably deserves.[31] To deny payment for a
building almost completed and already occupied would be to permit unjust
enrichment at the expense of the contractor.[32]

The CA held that since Billing No. 24 did not include any claim for additional
work, such work had presumably been previously paid for. This reasoning is
not correct. It is beyond dispute that the change orders and extra work were
billed separately from the usual progress billings petitioner sent to MPC.

Retention Money

The CA denied the claim for the 10 percent retention money, because
petitioner had failed to comply with the conditions under paragraph 6.3 of
the Construction Contract. On the other hand, the latter avers that these
conditions were deemed fulfilled under Article 1186 of the Civil Code
because, when its contract was terminated, MPC prevented the fulfillment of
those conditions. It would allegedly be unfair and unreasonable for petitioner
to guarantee a project finished by another contractor.

We disagree with petitioner. In the construction industry, the 10 percent

retention money is a portion of the contract price automatically deducted

139
from the contractors billings, as security for the execution of corrective work
-- if any -- becomes necessary. This amount is to be released one year after
the completion of the project, minus the cost of corrective work.[33] The
conditions for its release are stated in the Construction Contract as follows:

6.3 In all cases, however, payment of the progress billings shall be subject to
deduction of twenty percent (20%) recoupment of the downpayment, ten
percent (10%) retention and expanded withholding tax on CONTRACTORS
income. Upon issuance of the Certificate of Completion of the work by the
OWNER and upon submission of Guaranty Bond, Ninety Percent (90%) of the
retained amount shall be released to the CONTRACTOR and the balance
thereof shall be released by the OWNER within thirty (30) days after the
expiration of the guaranty period which is 365 days after issuance of the
certificate of completion. [34]

None of the foregoing conditions were satisfied; hence, the CA was correct in
forfeiting the retention fee. The completion of the work was stipulated in the
Contract to be within 365 days from the issuance of a Notice to Proceed or
until May 16, 1989. Then the period was extended up to November 30, 1989.
Petitioner worked on the project till April 20, 1990. It was given by MPC
ample time and two extensions to complete the project. The simple truth is
that in failing to finish the project, the former failed to fulfill a prerequisite for
the release of the retention money.

Detained Materials

Petitioner claims cost reimbursement of illegally detained materials, as it was

allowed to withdraw them from the site only after two years from the
unilateral termination of the Contract. By 1992, only 30 percent of the
materials detained were salvageable, while the rest had depreciated.

This contention has no merit. According to the CAs ruling, the only proof that
MPC detained materials belonging to petitioner was the denial of the request,
contained in the latters February 1990 letter,[35] for the release of used form
lumber. Aside from that letter, however, no other attempt was shown to have
been made by petitioner to obtain its request. It should have tried again to
do so before claiming that respondents unreasonably prevented it from
removing its construction materials from the premises. As to the other
materials, there was absolutely no attempt to remove them from the
construction site. Hence, we cannot say that these were ever withheld from
petitioner.

Detention is not proved by Atty. Lauretas letter[36] dated July 4, 1992,

allowing petitioner to remove its materials from the site. The letter was
merely a directive for it to clear out its belongings therefrom, in view of the
hiring of a second contractor to finish the project.

140
Moreover, in a specifically designated yard inside the construction site,
petitioner maintained a warehouse that was guarded by its own security
complement and completely inaccessible to MPC personnel.[37] It therefore
had control over those materials and should have made provisions to keep
them safe from the elements and from pilferage.

Attorneys Fees

Petitioner argues that it is entitled to attorneys fees based on Article 2208 of

the Civil Code, because (1) respondents act or omission has compelled it to
litigate with third persons or to incur expenses to protect its interest; and (2)
respondents acted in gross and evident bad faith in refusing to satisfy its
plainly valid, just and demandable claim.

The grant of some of the claims of petitioner does not change the fact that it
did not finish the project. Attorneys fees are not granted every time a party
prevails in a suit, because no premium should be placed on the right to
litigate.[38] Petitioner is not, after all, blameless in the present controversy.
Just because MPC withheld some payments from petitioner does not mean
that the former was in gross or evident bad faith. MPC had claims that it
wanted to offset with those of the latter.

Second Issue:
Typoco and Tans Liabilities

Petitioner claims that Respondents Jesus Typoco and Tan Yu are solidarily
liable with MPC.

We concur with the CA that these two respondents are not liable. Section 31
of the Corporation Code (Batas Pambansa Blg. 68) provides:

Section 31. Liability of directors, trustees or officers. Directors or trustees

who willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith x x x shall be
liable jointly and severally for all damages resulting therefrom suffered by
the corporation, its stockholders and other persons.

The personal liability of corporate officers validly attaches only when (a) they
assent to a patently unlawful act of the corporation; or (b) they are guilty of
bad faith or gross negligence in directing its affairs; or (c) they incur conflict
of interest, resulting in damages to the corporation, its stockholders or other
persons.[39]

The records are bereft of any evidence that Typoco acted in bad faith with
gross or inexcusable negligence, or that he acted outside the scope of his

141
authority as company president. The unilateral termination of the Contract
during the existence of the TRO was indeed contemptible -- for which MPC
should have merely been cited for contempt of court at the most -- and a
preliminary injunction would have then stopped work by the second
contractor. Besides, there is no showing that the unilateral termination of the
Contract was null and void.

Respondent Tan is not an officer or a director of MPC. His participation is

limited to an alleged conversation between him and Engineer Mario Cornista,
petitioners project manager. Supposedly, the former verbally agreed therein
to guarantee the payment of the latters progress billings. We find no
satisfactory evidence to show respondents alleged solidary liability to
petitioner.

Third Issue:
Liability for Actual and Liquidated Damages

Petitioner avers that it should be exonerated from the counterclaims for

actual and liquidated damages, because its failure to complete the project
was due to respondents acts.

Central to the resolution of this issue is the question of which party was in
delay. Aside from the contentious Progress Billing No. 24, there are no other
unpaid claims. The bills for extra work and change orders, aside from those
for the beams and columns, were premature and still subject to reconciliation
and adjustment. Hence, we cannot hold MPC liable for them.

In comparison, petitioner did not fulfill its contractual obligations. It could not
totally pass the blame to MPC for hiring a second contractor, because the
latter was allowed to terminate the services of the contractor.

10.1 The OWNER shall have the right to terminate this Contract in the event
that the CONTRACTOR incurs a fifteen percent (15%) or greater slippage in
the prosecution of the overall work evaluated against the Project schedule as
indicated by the critical path of the approved PERT/CPM network for the
Project or as amended by Art. II herein.

Either party shall have the right to terminate this Contract for reason of
violation or non-compliance by the other party of the terms and conditions
herein agreed upon.[40]

As of November 30, 1989, petitioner accomplished only approximately 80

percent of the project. In other words, it was already in delay at the time. In
addition, Engineer Miranda testified that it would lose money even if it
finished the project;[41] thus, respondents already suspected that it had no
intention of finishing the project at all.

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Petitioner was in delay and in breach of contract. Clearly, the obligor is liable
for damages that are the natural and probable consequences of its breach of
obligation.[42] Petitioner was already paid by MPC in the amount of
P31,435,187 out of the total contract price of P38,580,609; thus, only
P7,145,422 remained outstanding. In order to finish the project, the latter
had to contract the services of a second construction firm for P11,750,000.
Hence, MPC suffered actual damages in the amount of P4,604,579 for the
completion of the project.

Petitioner is also liable for liquidated damages as provided in the Contract,

[43] the pertinent portion of which is quoted as follows:

4.1 Time is an essential feature of this Contract and in the event that the
CONTRACTOR fails to complete the contracted work within the stipulated
time inclusive of any granted extension of time, the CONTRACTOR shall pay
the OWNER, as liquidated damages, the amount of one over one thousand
(1/1000) of the value of the contract price for each and every calendar day of
delay (Sundays and Holidays included), not to exceed 15% of [the] Contract
amount, in the completion of the work as specified in Article II above. It is
understood that the liquidated damages herein provided are fixed, agreed
upon and not by way of penalty, and as such, the OWNER shall not be further
required to prove that he has incurred actual damages to be entitled thereto.
In the case of such delays, the OWNER is hereby authorized to deduct the
amount of liquidated damages from any money due or which may become
due the CONTRACTOR in this or any other contract or to collect such amount
from the CONTRACTORs performance bond whichever is convenient and
expeditious to the OWNER.

Liquidated damages are those that the parties agree to be paid in case of a
breach.[44] As worded, the amount agreed upon answers for damages
suffered by the owner due to delays in the completion of the project. Under
Philippine laws, these damages take the nature of penalties.[45] A penal
clause is an accessory undertaking to assume greater liability in case of a
breach. It is attached to an obligation in order to ensure performance.

Thus, as held by the CA, petitioner is bound to pay liquidated damages for 92
days, or from the expiration of the grace period in the Amended Contract
until February 1, 1990, when it effectively abandoned the project.

WHEREFORE, the Petition is partly GRANTED and the assailed Decision

MODIFIED. Petitioner is AWARDED labor cost escalation in the sum of
P1,196,202 and cost of extra work in the sum of P79,340.52. In all other
respects, the appealed Decision is AFFIRMED.

SO ORDERED.

143
15. G.R. No. 112916 March 16, 1995

SCOTT CONSULTANTS & RESOURCE DEVELOPMENT CORPORATION,

INC., petitioner,
vs.
COURT OF APPEALS and PHILIPPINE ROCK PRODUCTS, INC.,
respondents.

DAVIDE, JR., J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court,
the petitioner seeks to review and set aside the decision of 28 August 1992
and the resolution of 9 December 1993 of the Court of Appeals in CA-G.R. CV
No. 31376. 1

In the assailed decision, the Court of Appeals modified the decision of 23

November 1990 of Branch 75 of the Regional Trial Court (RTC) at San Mateo,
Rizal, in Civil Case No. 658-90. 2 The petitioner was the plaintiff in the said
case.

The factual and procedural antecedents of this case are summarized by the
trial court in its decision as follows:

The Complaint filed on April 2, 1990, in essence, alleged that plaintiff

[petitioner] is a corporation organized under and by virtue of the laws of the
Philippines with office at Ermita Centre Bldg., 1350 Roxas Blvd., Ermita,
Manila; that on November 21, 1988, plaintiff entered into an Option
Agreement for a twelve-month period with Lourdes Yaneza, a representative
of Kadakilaan Estate, owner of a mining claim at Rodriguez, Rizal which was
registered with the Office of the Mining Recorder of the DENR, "to develop,
operate, mine and market the products therefrom, and otherwise exploit
properties with respect to their alluvial precious metals", under government
laws and regulations and under the terms and conditions of the Option
Agreement; on February 14, 1990, plaintiff and Juana B. Santos, a duly
authorized representative of San Mateo Mines Exploration, Inc., (SMMEI, for
short), an entity that has the "possession and beneficial use of the mining
claim" situated at San Isidro, Rodriguez, Rizal, entered into an agreement,

144
granting the plaintiff "the exclusive and irrevocable right and privilege, to do
all or any of the acts" mentioned in the Agreement; that the mining claims
and the operating agreement between plaintiff and the claim-owners herein
mentioned, were registered with the Mines and Geosciences Sector, Dept. of
Environment and Natural Resources; that defendant [private respondent]
used to hold an operating agreement with the San Mateo Mines Exploration,
Inc., a holder of an Industrial Permit No. 40 dated August 21, 1989 and
Commercial Permit No. 968 dated March 19, 1987 by the Bureau of Mines
and Geosciences for a five-year period; that on February 9, 1990, San Mateo
Mines Exploration, Inc. notified the defendant of the termination of their
operating agreement for the reasons stated in the letter; that defendant has
"prevented plaintiff from gaining access, occupying, exploring and
developing the existing mining claims and despite a cease and desist order
and a letter from the Bureau of Mines to the defendant dated December 12,
1989, the latter "has prevented, impeded and/or otherwise denied plaintiff
access to its legitimate area of activity"; that by reasons of the act of the
defendant alleged in the next preceding paragraphs, plaintiff sustained
damage of not less than P300,000.00 a day and asked for P500,000.00
exemplary damages and P200,000.00 as attorney's fees.

The Court issued a temporary restraining order on April 2, 1990 and a Writ of
preliminary Mandatory Injunction on April 23, 1990 which was dissolved by
the Order of the Court dated June 7, 1990 upon the filing by the defendant of
a bond in the amount of P4,000,000.00.

After the Motion to Declare the Defendant in Default was denied by the Court
in its Order dated May 4, 1990, defendant, on May 14, 1990, filed its Answer
denying the allegations contained in paragraphs two, three, four, five, six,
seven, eleven, twelve, thirteen and fourteen, and, as Affirmative Defense,
averred that the Puray Plant was constructed on the land of Eligio Bautista,
who had a lease contract with Philrock; the site where the defendant
performs extraction process of retrum materials for the aggregate products,
by virtue of an operating permit issued by the Bureau of Mines, is located
about five (5) kilometers further from the plant site which is also located five
hundred (500) meters away from the nearest national road the land to be
traversed from the national road to the plant site and from the latter to the
extraction site, are privately owned; that with the acquisition of easement
rights from the owners of the land in favor of the defendant, the latter
constructed access routes to provide ingress to and egress from the
extraction site and caused the construction of a spillway, a private property
of the defendant devoted to its exclusible use to facilitate the delivery of
aggregate products to its various projects; that the contract granting
easement rights to defendant which is recognized under P.D. No. 463 carries
with it the stipulation that such grant shall be exclusive and before any third-
party make use of these access routes, the said third-party must first secure
written permission from the defendant, and, as Counterclaim, defendant

145
alleges that as a result of the malicious acts of the plaintiff, the employees
and officers of the defendant-corporation, experienced serious anxiety and
mental anguish for which plaintiff is liable for moral damages in the amount
of P1,000,000.00; P500,000.00 as exemplary damages and P200,000.00 as
and for attorney's fees.

On May 21, 1990, plaintiff filed its Comment to defendant's Answer with
Motion for Dissolution of the Writ of Preliminary Mandatory Injunction and
Answer with Counterclaim.

On May 24, 1990, the Court granted the Motion for Leave to File Third-Party
Complaint and the Motion for Intervention and, accordingly, admitted the
Third-Party Complaint filed by the defendant Philrock against the San Mateo
Mines Exploration, Inc. and the Complaint in Intervention filed by the land
owners.

In its Third-Party Complaint filed on April 17, 1990, Philrock averred that on
November 18, 1987, the latter and the third-party defendant, San Mateo
Mines Exploration, Inc., entered into an operating agreement wherein
Philrock shall extract gravel and sand materials and other aggregate
products for a period of five (5) years; that on February 9, 1990, San Mateo
Mines Exploration, Inc. sent a letter unilaterally terminating the agreement;
on February 14, 1990, San Mateo Mines Exploration, Inc. entered into a
substantially the same agreement with the plaintiff for a higher consideration
and that Philrock suffered damages.

On April 10, 1990, the intervenors flied a Complaint in Intervention which

was amended on August 28, 1990 and alleged that the intervenors have a
legal interest in the matter now in litigation considering that the mining
claims being asserted by the plaintiff are located in intervenors' private
property and that the plaintiff had been using the same without the
permission of the intervenors as owners of the property.

On April 18, 1990, plaintiff filed its Opposition to the Motion for Intervention
by alleging, in the main, that it obtained a written permission from the land
owners on whose property exploration is currently conducted.

During the pre-trial conference of the Third-Party Complaint on October 24,

1990, third-party plaintiff and third-party defendant agreed to submit for
decision the Third-Party Complaint based on the stipulations and issues
agreed upon by the parties.

During the hearing of the main case, plaintiff manifested that it will be
adopting the evidence in the hearing on the petition for the issuance of a
writ of preliminary mandatory injunction as part of its evidence in the main
case. Luz Zaldivia was again called to testify on certain documents issued by

146
the Bureau of Mines which recognizes the right of the plaintiff to conduct
mining exploration within the claimed area (Exhibits "F" to "K"), the lease
and rental contracts and that it has entailed actual expenses in the pursuit of
its exploration, in support of the claim for actual and moral damages
(Exhibits "L" to "I").

Defendant, on the other hand, adopted certain exhibits of the plaintiff as its
own, such as Exhibit "A", the Option Agreement between the plaintiff and the
Kadakilaan Estate; Exhibit "D", the locational map of Montalban; Annex "H"
of the main complaint, the letter of indorsement from the Bureau of Mines to
defendant Philrock; Exhibit "I", the letter of the Bureau of Mines to Luz
Zaldivia; and presented other evidence to show that plaintiff has no right to
conduct exploration activities within Montalban (Exhibits "3", "4", "5", "6",
and "9") and also (Exhibits "8", "17" to "17-g") to prove that plaintiff is not
entitled to use the access routes constructed by the defendant within the
privately owned lands at the Montalban Fan Area.

Testimonial evidence (Claro San Juan, Antonio Ayson and Marciano Magtoto),
were presented on the illegal acts of trespass of the plaintiff and the fact that
the employees and officers of the company suffered actual and moral
damages (Exhibits "14" and "16"). 3

The trial court then resolved what it perceived to be the issue and
determined the liabilities of the parties thus:

The core of the problem the Court is called upon to resolve simply stated
is:

WHETHER OR NOT THE PLAINTIFF IS ENTITLED TO CONDUCT EXPLORATION

AND SIMILAR ACTIVITIES WITHIN THE MINING CLAIMS.

The recording of a declaration of location for a mining claim gives the claim
owner or his assigns, the right to occupy, explore and develop said claim
from the date of the recording thereof subject to the rights of the landowners
and occupants (Section 12, Pres. Decree No. 463). In this case, plaintiff is the
lessee of the two registered mining locators, Kadakilaan Estate and the San
Mateo Mines Exploration, Inc. by virtue of the two (2) contracts entered into
by the plaintiff with the Kadakilaan Estate and the San Mateo Mines
Exploration, Inc. (Exhibits "A" and "B" respectively). It becomes necessary,
therefore, to look into the contracts themselves in order to determine what
are the rights and privileges the plaintiff may have acquired by virtue of the
same.

From the contract entered into by the plaintiff with the San Mateo Mines
Exploration, Inc., the following are undisputed: San Mateo Mines Exploration,
Inc. entered into a contract with defendant Philrock on November 18, 1987

147
for the latter to operate San Mateo Mines Exploration, Inc.'s Industrial Permit
No. 40 for a period of five (5) years. Subsequently, on February 9, 1990, San
Mateo Mines Exploration, Inc. notified the defendant that it is unilaterally
terminating the contract for being "one-sided." Five days thereafter, or on
February 14, 1990, San Mateo Mines Exploration, Inc. entered into a mining
exploration contract with the plaintiff, which includes the operation of
Industrial Permit No. 40.

A letter-directive was issued on April 10, 1990, by the Mines and Geo-Science
Sector, Region VI, of the Department of Environment and Natural Resources,
recognizing the validity and enforcement of San Mateo Mines Exploration,
Inc.'s agreement with the defendant (Defendant's Exhibit "9"), which states:

In reply thereto, we take exception to your assertion in the Letter that the
Office has no jurisdiction on the Operating Agreement executed by and
between your client San Mateo Mines Expl. Inc. and Philrock.

xxx xxx xxx

Once an operating agreement is registered with our Office, the registration

thereof partakes of official cognizance of the agreement of the area covered
thereby and said area should not be the subject of another operating
agreement while the former is still operative.

Corollary to the above, a mining permit is for the exclusive use of the
permittee. As a consequence thereof, the permittee can take one operator at
a time, and he is to operate within the area while the agreement subsists . . .

The special law being cited by the Mines and Geo-Sciences Bureau in support
of such directive is Pres. Decree No. 1281, creating the Bureau of Mines. Said
decree, in addition to its regulatory and adjudicatory functions over mining
operations, also grants the Bureau of Mines, the original and exclusive
jurisdiction to hear and decide all cases involving "a mining property subject
of different agreements entered into by the claim holder thereof with several
mining operators." (Sec. 7[a])

This matter of having two (2) operating agreements covering the same
mining area is properly taken cognizant [sic] of by the Bureau of Mines, being
the specialized agency most equipped to deal on these matters. This Court
has no recourse but to lend fealty to its directive. As held in the case of R.B.
Industrial Development Corp. vs. the Hon. Enage and Eastern Timber Corp.,
24 SCRA 365:

A doctrine long recognized is that where the law confines in an

administrative office the power to determine particular questions or matters,

148
upon the facts to be presented, the jurisdiction of such office shall prevail
over the courts.

As such, all the parties to this case are bound by the directive of the Mines
and Geo-Sciences Bureau. The remedy of plaintiff, in this light, is to seek a
reconsideration of the directive before the Bureau. Should the same be
denied, plaintiff may still enforce the warranty stipulated in its operating
agreement against San Mateo Mines Exploration, Inc.

This Court is of the view that a party cannot unilaterally terminate a contract
it entered into with another without justifiable cause. Going over the records
of the case, San Mateo Mines Exploration, Inc.'s basis for unilaterally
terminating its contract with defendant Philrock is the one-sidedness and
partiality of said agreement (Annex "E" of the complaint). To the mind of this
Court, such does not constitute a justifiable cause as San Mateo Mines
Exploration, Inc. voluntarily entered into the said agreement. In fact, a
party's unilateral termination of a contract without legal justification makes it
liable for damages suffered pursuant to Article 1170 of the New Civil Code
(Pacmac, Inc. vs. IAC, 150 SCRA 555).

As regards the contract entered into by the plaintiff with the Kadakilaan
Estate, the same is in the nature of an Option Agreement, giving plaintiff the
right of exploration over the mining claim area. The contract, however,
stipulates that "such right shall be for a period of twelve (12) months
counted from the date of this agreement." Paragraph 3 of the contract sets a
pre-condition on plaintiff the delivery of a written notice to exercise the
option within the twelve-month period before it may be given the
exclusive right to develop, operate and mine the minerals found in the claim
area. This pre-condition, as observed by the Court, has never been met by
the plaintiff. As correctly pointed out by the defendant, the option period
expired on November 22, 1989, without plaintiff having exercised its option.

Under the law, if the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of its stipulations
shall control (Art. 1370 of the New Civil Code). Only when the terms of a
contract are susceptible of various interpretations, and the intention of the
parties is in doubt, may the authority of the Court be invoked to rule on the
same. In this case, there is no occasion which could call for such
determination by this Court, as the words of the Option Agreement are clear
and unequivocable.

The Court has taken cognizance of certain facts appearing in the records that
bears significant consideration on the rights of the parties. Assuming
arguendo that plaintiff has valid operating agreements, there are still certain
requirements of the law which, in the Court's belief, has never been satisfied.
As previously-found in the injunction hearings, and which forms the reason

149
for the filing of this complaint, the Court was made to understand that
plaintiff does not pretend to conduct mining exploration/ operation on the
access routes. These areas, i.e., access routes, are to be utilized only as a
means to go to and come from on the plaintiff's legitimate area of activity.

The Court finds, as amply supported by preponderance of proof, that these

access routes have been built by defendant Philrock after having entered
into contracts granting easement rights with the various landowners of
Rodriguez, Rizal. Plaintiff now claims that under the law, it is entitled to make
use of these access routes built by the defendant. Plaintiff's intention, in
effect, is to ask this Court that it grant plaintiff similar easement rights
already obtained by defendant from the landowners.

As such, plaintiff's remedy, under the law, is to file an action for Eminent
Domain before the Court, against the proper parties. . . .

xxx xxx xxx

A look into the locational map of the Montalban Fan area shows that the
mining claim area of the plaintiff is extensive (Exhibit "D"). Yet, the evidence
of the plaintiff shows that the blockades were limited on the access routes.
To be sure, the plaintiff does not contest that the access routes were built at
the expense of the defendant. What the plaintiff objects to is that all other
persons/vehicles are allowed to pass and make use of these routes, to its
exclusion. But that is a prerogative of the defendant being the builder and
owner thereof. Attention should also be called to the fact that the operating
agreements speak only of the mining rights. Said agreements do not vest on
plaintiff the right to make use of these access routes, as these are not owned
nor built by the Kadakilaan Estate nor by the San Mateo Mines Exploration,
Inc. The remedy afforded to the plaintiff, therefore, is to file the proper suit
for Eminent Domain to compel the defendant to allow it to make use of the
access routes and after payment of just compensation. Or, the more prudent
way, is build their own access routes to their legitimate area of activity after
entering into arrangements with the landowners.

As to the defendant's counterclaim, the Court resolves to treat the same as a

compulsory counterclaim as the evidence adduced by the defendant to
refute the cause of action alleged in the plaintiff's complaint, is also the
evidence used to sustain the defendant's counterclaim (Lim Tanhu vs.
Ramolete, 66 SCRA 425).

The Court finds that there is ample proof to grant the defendant's claim for
actual damages. There is no doubt that the defendant sustained pecuniary
loss due to the acts of the plaintiff, including the filing of this complaint. The
only question that confronts this Court is the amount to be awarded.

150
Due to the filing of this complaint, it was adequately shown that the
employees of the defendant Philrock became the object of ridicule by the
general public, and that they suffered mental anxiety due to the same. A
defending party may set up a claim for money or any other relief which he
may have against the opposing party in a counterclaim. And the Court may,
if warranted, grant actual, moral or exemplary damages as prayed (Agustin
vs. Bacalan and the Provincial Sheriff of Cebu, 135 SCRA 340).

In respect to attorney's fees, it should be held also that where a claim

therefore [sic] arises out of the filing of the complaint, they, too, should be
considered as in the nature of a compulsory counterclaim (Tie Po vs.
Bautista, 103 SCRA 388). Attorney's fees should be held reasonable under
the Circumstances. 4

On the basis of its findings of fact and conclusions of law, the trial court then
decreed as follows:

WHEREFORE, premises considered, this Court hereby renders judgment in

favor of the defendant Philippine Rock Products, Inc. and against the plaintiff
Scott Consultants & Resource Development Corp., Inc., as follows:

(1) Ordering the dismissal of the case and the dissolution of the Writ of
Preliminary Mandatory Injunction;

(2) Sentencing the plaintiff to pay the defendant the sum of Eight Hundred
Thousand (P800,000.00) Pesos as compensatory or actual damages;
P300,00.00 as moral damages and the sum of P50,000.00 as exemplary
damages;

(3) Condemning the plaintiff to pay the defendant the sum of P50,000:00
as and for attorney's fees; and

(4) To pay the costs.

SO ORDERED.

The petitioner then appealed to the Court of Appeals. The case was docketed
as CA-G.R. CV No. 31376. In its brief, 5 the petitioner alleges that the trial
court erred

I. IN HOLDING THAT THE MAIN ISSUE TO BE RESOLVED IS WHETHER OR

NOT PLAINTIFF-APPELLANT IS ENTITLED TO CONDUCT EXPLORATION AND
SIMILAR ACTIVITIES WITHIN THE MINING CLAIMS.

II. IN FAILING TO HOLD DEFENDANT-APPELLEE LIABLE TO PLAINTIFF-

APPELLANT FOR DAMAGES;

151
III. IN HOLDING PLAINTIFF-APPELLANT LIABLE TO DEFENDANT-APPELLEE
FOR DAMAGES; AND

IV. IN EVENTUALLY DISMISSING THE CASE.

In its decision of 28 August 1992, the Court of Appeals affirmed the decision
of the trial court except as to the award of moral damages which it deleted
on the ground that the testimonies of the witnesses did not prove that the
private respondent's good reputation was besmirched. 6

However, like the trial court, the Court of Appeals sustained the award of
actual damages, although not on the testimony of Marcial Magtoto, the
private respondent's Accounting Manager (on whose testimony the petitioner
based its claim that no proof of actual damages was adduced), but on the
testimony of the two other witnesses of the private respondent, namely,
Antonio Ayson and Claro San Juan.

Its motion for reconsideration having been denied by the Court of Appeals in
its resolution of 9 December 1993, 7 the petitioner filed this petition wherein
it prays that we set aside the decision of the Court of Appeals because the
said court erred:

I. IN RULING THAT THERE WAS NEED FOR THE PETITIONER TO ESTABLISH

THAT (1) IT HAD THE RIGHT TO USE THE ACCESS AND (2) IN NOT FINDING
THAT PHILROCK HAD VIOLATED SUCH RIGHT

II. IN RULING THAT PHILROCK IS NOT LIABLE FOR DAMAGES BECAUSE IT

DID NOT ILLEGALLY PREVENT PETITIONER FROM USING THE ACCESS ROADS

III. IN FINDING PETITIONER LIABLE FOR DAMAGES. 8

There is no merit in the first two assigned errors. The petitioner's reliance on
Section 2 of P.D. No. 512, Section 12 of P.D. No. 463, and Section 10 of the
Consolidated Mines Administrative Order (CMAO) is misplaced. These
provisions apply to entry into land (public or private) where prospecting,
exploring, or exploiting is to be done, and enjoin the surface owners or
occupants of such land from preventing any entry for such purpose. They do
not apply to land or a portion thereof which may be used for ingress to or
egress from the land where the prospecting, exploration, or exploitation is to
be made. In the instant case, the petitioner was not prevented by the surface
owners or occupants of the land covered by its mining claims. As to the
private respondent's access routes, the petitioner was unable to prove its
right to use it.

152
The third assigned error, however, is impressed with merit. Just as in the
case of moral damages, there was no credible proof of actual damages. The
trial court made no specific finding on the extent thereof. All that it could
state was:

The Court finds that there is ample proof to grant the defendant's claim for
moral damages. There is no doubt that the defendant sustained pecuniary
loss due to the acts of the plaintiff, including the filing. The only question
that confronts this Court is the amount to be awarded. 9

The trial court did not answer this question by making specific references to
the testimonies of the witnesses or to the documentary evidence. Yet, in the
dispositive portion of its decision, it awarded compensatory and actual
damages in the staggering amount of P800,000.00. In sustaining this award,
the Court of Appeals quoted portions of the testimonies of Antonio Ayson and
Claro San Juan, the Operations Manager of the Materials Division and the
Plant Superintendent of the Aggregate Crushing Plant, respectively, of the
private respondent. Such quoted portions 10 do not at all support the award.
Ayson cites the private respondent's "non-full" operation because the private
respondent was unable to extract aggregates from its own area due to the
fence constructed by the petitioner. San Juan speaks of "attention, diverted
to the entering of Scott Consultants to [our] area" and lack of "sleep" and
"anxiety" because of public ridicule. How the award of P800,000.00 was
arrived at was never shown. It remains a pure speculation. Article 2199 of
the Civil Code provides that one is entitled to adequate compensation only
for such pecuniary loss suffered by him as is duly proved.

Both decisions do not as well state the justification for the award of
exemplary damages of P50,000.00. Under Article 2229 of the Civil Code,
exemplary or corrective damages are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated, or
compensatory damages. Article 2234 of the Civil Code expressly provides:

Art. 2234. While the amount of the exemplary damages need not be
proved, the plaintiff must show that he is entitled to moral, temperate or
compensatory damages before the court may consider the question of
whether or not exemplary damages should be awarded. In case liquidated
damages have been agreed upon, although no proof of loss is necessary in
order that such liquidated damages may be recovered, nevertheless, before
the court may consider the question of granting exemplary in addition to the
liquidated damages, the plaintiff must show that he would be entitled to
moral, temperate or compensatory damages were it not for the stipulation
for liquidated damages.

153
There was, therefore, no legal basis for the award of exemplary damages
since the private respondent was not entitled to moral, temperate, or
compensatory damages and there was no agreement on stipulated damages.

Nor can we affirm the award for attorney's fees in the sum of P50,000.00.
Under Article 2208 of the Civil Code, in the absence of stipulation, there can
be no recovery of attorney's fees and expenses of litigation other than
judicial costs except in the instances therein enumerated. The closet
instance which could be considered here is paragraph 11 of Article 2208
which provides for such recovery where the court deems it just and
equitable. The body of the decision of the trial court, however, is devoid of
any statement that it would be just and equitable to award attorney's fees
and of any finding on the amount to be so awarded. All that was stated was
the following:

In respect to attorney's fees, it should be held also that where a claim

therefore [sic] arises out of the filing of the complaint, they, too, should be
considered as in the nature of a compulsory counterclaim (Tio Po vs.
Bautista, 103 SCRA 388). Attorney's fees should be held reasonable under
the circumstances.

It is settled that the award of attorney's fees is the exception rather than the
rule and counsel's fees are not to be awarded every time a party wins a suit.
The power of the court to award attorney's fees under Article 2208 of the
Civil Code demands factual, legal, and equitable justification; its basis cannot
be left to speculation or conjecture. Where granted, the court must explicitly
state in the body of the decision, and not only in the dispositive portion
thereof, the legal reason for the award of attorney's fees. 11

Thus for lack of factual and legal basis, the award of attorney's fees must
likewise be deleted.

WHEREFORE, the instant petition is partly GRANTED and the awards of actual
damages, exemplary damages, and attorney's fees in the challenged
decision are DELETED. In all other respects, the challenged decision is
AFFIRMED.

SO ORDERED.

154
16. NATIONAL POWER CORPORATION, Plaintiff-Appellant, v.
NATIONAL MERCHANDISING CORPORATION and DOMESTIC
INSURANCE COMPANY OF THE PHILIPPINES, Defendants-Appellants.

The Solicitor General, for Plaintiff-Appellant.

Sycip, Salazar, Luna Manalo & Feliciano, for Defendants-Appellants.

SYNOPSIS

Plaintiff-appellant National Power Corporation (NPC) and defendant-

appellant National Merchandising Corporation (NAMERCO), the Philippine
representative of New York-based International Commodities Corporation,
executed a contract of sale of sulfur with a stipulation for liquidated damages
in case of breach. Defendant-appellant Domestic Insurance Company
executed a performance bond in favor of NPC to guarantee the sellers
obligation. In entering into the contract, Namerco, however, did not disclose
to NPC that Namercos principal, in a cabled instruction, stated that the sale
was subject to availability of a steamer, and contrary to its principals
instruction, Namerco agreed that non-availability of a steamer was not a
justification for non-payment of liquidated damages. The New York supplier
was not able to deliver the sulfur due to its inability to secure shipping space.
Consequently, the Government Corporate Counsel rescinded the contract of
sale due to the suppliers non-performance of its obligations, and demanded
payment of liquidated damages from both Namerco and the surety.
Thereafter, NPC sued for recovery of the stipulated liquidated damages. After
trial, the Court of First Instance rendered judgment ordering defendants-
appellants to pay solidarity to the NPC reduced liquidated damages with
interest.

The Supreme Court held that Namerco is liable fur damages because under
Article 1897 of the Civil Code the agent who exceeds the limits of his
authority without giving the party with whom he contracts sufficient notice of
his powers is personally liable to such party. The Court, however, further
reduced the solidary liability of defendants-appellants for liquidated
damages.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; AN AGENT WHO

EXCEEDS THE LIMITS OF HIS AUTHORITY IS PERSONALLY LIABLE. Under
Article 1897 of the Civil Code the agent who exceeds the limits of his
authority without giving the party with whom he contracts sufficient notice of
his powers is personally liable to such party.

155
2. ID.; ID.; ID.; ID.; CASE AT BAR. In the present case, Namerco, the
agent of a New York-based principal, entered into a contract of sale with the
National Power Corporation without disclosing to the NPC the limits of its
powers and, contrary to its principals prior cabled instructions that the sale
should be subject to availability of a steamer, it agreed that non-availability
of a steamer was not a justification for nonpayment of the liquidated
damages. Namerco. therefore, is liable for damages.

3. ID.; ID.; ID.; THE RULE THAT EVERY PERSON DEALING WITH AN AGENT
IS PUT UPON AN INQUIRY AND MUST DISCOVER UPON HIS PERIL THE
AUTHORITY OF THE AGENT IS NOT APPLICABLE WHERE THE AGENT, NOT THE
PRINCIPAL, IS SOUGHT TO BE HELD LIABLE ON THE CONTRACT. The rule
that every person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent would apply only in cases
where the principal is sought to be held liable on the contract entered into by
the agent. The said rule is not applicable in the instant case since it is the
agent, not the principal, that is sought to be held liable on the contract of
sale which was expressly repudiated by the principal because the agent took
chances, it exceeded its authority and, in effect. it acted in its own name.

4. ID.; ID.; ID.; THE CONTRACT ENTERED INTO BY AN AGENT WHO ACTED
BEYOND HIS POWERS IS UNENFORCEABLE ONLY AS AGAINST THE PRINCIPAL
BUT NOT AGAINST THE AGENT AND ITS SURETY. Article 1403 of the Civil
Code which provides that a contract entered into in the name of another
person by one who has acted beyond his powers is unenforceable, refers to
the unenforceability of the contract against the principal. In the instant case,
the contract containing the stipulation for liquidated damages is not being
enforced against its principal but against the agent and its surety. It being
enforced against the agent because Article 1897 implies that the agent who
acts in excess of his authority is personally liable to the party with whom he
contracted. And that rule is complimented by Article 1898 of the Civil Code
which provides that "if the agent contracts, in the name of the principal,
exceeding the scope of his authority, and the principal does not ratify the
contract, it shall be void if the party with whom the agent contracted is
aware of the limits of the powers granted by the principal." Namerco never
disclosed to the NPC the cabled or written instructions of its principal. For
that reason and because Namerco exceeded the limits of its authority, it
virtually acted in its own name and not as agent and it is, therefore, bound
by the contract of sale which, however, it not enforceable against its
principal. If, as contemplated in Articles 1897 and 1898, Namerco is bound
under the contract of sale, then it follows that it is bound by the stipulation
for liquidated damages in that contract.

5. ID.; ID.; ID.; THE LIABILITY OF AN AGENT WHO EXCEEDS THE LIMITS OF
HIS AUTHORITY IS BASED ON CONTRACT AND NOT ON TORT OR QUASI-

156
DELICT; CASE AT BAR. Defendants contention that Namercos liability
should be based on tort or quasi-delict, as held in some American cases, like
Mendelson v. Holton, 149 N.E. 38,42 ACR 1307, is not well-taken. As correctly
argued by the NPC, it would be unjust and inequitable for Namerco to escape
liability of the contract after it had deceived the NPC by not disclosing the
limits of its powers and entering into the contract with stipulations contrary
to its principals instructions.

6. ID.; ID.; ID.; LIABILITY OF THE SURETY ON THE OBLIGATION

CONTRACTED BY AN AGENT WHO EXCEEDED HIS AUTHORITY IS NOT
AFFECTED THEREBY. The contention of the defendants that the Domestic
Insurance Company is not liable to the NPC because its bond was posted, not
to Namerco, the agent, but for the New York firm which is not liable on the
contract of sale, cannot be sustained because it was Namerco that actually
solicited the bond from the Domestic Insurance Company and, Namerco is
being held liable under the contract of sale because it virtually acted in its
own name. In the last analysis, the Domestic Insurance Company acted as
surety for Namerco. The rule is that "want of authority of the person who
executes an obligation as the agent or representative of the principal will
not, as a general rule, affect the surety thereon, especially in the absence of
fraud, even though the obligation is not binding on the principal." (72 C.J.S.
525).

7. CIVIL LAW; DAMAGES; IMPOSITION OF INTEREST THEREON NOT

WARRANTED WHERE THE DISPOSITION OF THE CASE HAS BEEN DELAYED
DUE TO NO FAULT OF DEFENDANTS. With respect to the imposition of the
legal rate of interest on the damages from the filing of the complaint in 1957,
or a quarter of a century ago, defendants contention that interest should not
be collected on the amount of damages is meritorious. It should be
manifestly iniquitous to collect interest on the damages especially
considering that the disposition of this case has been considerably delayed
due to no fault of the defendants

8. ID.; ID.; LIQUIDATED DAMAGES; NO PROOF OF PECUNIARY LOSS IS

REQUIRED FOR RECOVERY THEREOF. No proof of pecuniary lost is required
for the recovery of liquited damages. The stipulatian for liquidated damages
is intended to obviate controversy on the amount of damages. There can be
no question that the NPC suffered damages because its production of
fertilizer was disrupted or diminished by reason of the non-delivery of the
sulfur. The parties foresaw that it might be difficult to ascertain the exact
amount of damages for non-delivey of the sulfur. So, they fixed the liquidated
damages to be paid as indemnity to the NPC.

9. ID.; ID.; NOMINAL DAMAGES; NOT A CASE OF. Nominal damages are
damages in name only or are in fact the same as no damages (25 C.J.S. 466).
It would not be correct to hold in this case that the NPC suffered damages in

157
name only or that the breach of contract "as merely technical in character
since the NPC suffered damages because its production of fertilizer "as
disrupted or diminished by reason of the non-delivery of the sulfur.

DECISION

AQUINO, J.:

This case is about the recovery of liquidated damages from a sellers agent
that allegedly exceeded its authority in negotiating the sale.

Plaintiff National Power Corporation appealed on questions of law from the

decision of the Court of First Instance of Manila dated October 10, 1966,
ordering defendants National Merchandising Corporation and Domestic
Insurance Company of the Philippines to pay solidarily to the National Power
Corporation reduced liquidated damages in the sum of P72,114.66 plus legal,
rate of interest from the filing of the complaint and the costs (Civil Case No.
33114).

The two defendants appealed from the same decision allegedly because it is
contrary to law and the evidence. As the amount originally involved is
P360,572.80 and defendants appeal is tied up with plaintiffs appeal on
questions of law, defendants appeal can be entertained under Republic Act
No. 2613 which amended section 17 of the Judiciary Law.

On October 17, 1956, the National Power Corporation and National

Merchandising Corporation (Namerco) of 3111 Nagtahan Street, Manila, as
the representative of the International Commodities Corporation of 11 Mercer
Street, New York City (Exh. C), executed in Manila a contract for the purchase
by the NPC from the New York firm of four thousand long tons of crude sulfur
for its Maria Cristina Fertilizer Plant in Iligan City at a total price of (450,716
(Exh. E).

On that same date, a performance bond in the sum of P90,143.20 was

executed by the Domestic Insurance Company in favor of the NPC to
guarantee the sellers obligations (Exh. F).

It was stipulated in the contract of sale that the seller would deliver the
sulfur at Iligan City within sixty days from notice of the establishment in its
favor of a letter of credit for $212,120 and that failure to effect delivery
would subject the seller and its surety to the payment of liquidated damages
at the rate of two-fifth of one percent of the full contract price for the first
thirty days of default and four-fifth of one percent for every day thereafter

158
until complete delivery is made (Art. 8, p. 111, Defendants Record on
Appeal).

In a letter dated November 12, 1956, the NPC advised John Z. Sycip, the
president of Namerco, of the opening on November 8 of a letter of credit for
$212,120 in favor of International Commodities Corporation which would
expire on January 31, 1957 (Exh. I). Notice of that letter of credit was,
received by cable by the New York firm on November 15, 1956 (Exh. 80-
Wallick). Thus, the deadline for the delivery of the sulfur was January 15,
1957.

The New York supplier was not able to deliver the sulfur due to its inability to
secure shipping space. During the period from January 20 to 26, 1957 there
was a shutdown of the NPCs fertilizer plant because there was no sulfur. No
fertilizer was produced (Exh. K).

In a letter dated February 27, 1957, the general manager of the NPC advised
Namerco and the Domestic Insurance Company that under Article 9 of the
contract of sale "non-availability of bottom or vessel" was not a fortuitous
event that would excuse non-performance and that the NPC would resort to
legal remedies to enforce its rights (Exh. L and M).

The Government Corporate Counsel in his letter to Sycip dated May 8, 1957
rescinded the contract of sale due to the New York suppliers non-
performance of its obligations (Exh. G). The same counsel in his letter of June
8, 1957 demanded from Namerco the payment of P360,572.80 as liquidated
damages. He explained that time was of the essence of the contract. A
similar demand was made upon the surety (Exh. H and H-1).

The liquidated damages were computed on the basis of the 115-day period
between January 15, 1957, the deadline for the delivery of the sulfur at Iligan
City, and May 9, 1957 when Namerco was notified of the rescission of the
contract, or P54,085.92 for the first thirty days and P306,486.88 for the
remaining eighty-five days. Total: P360,572.80.

On November 5, 1957, the NPC sued the New York firm, Namerco and the
Domestic Insurance Company for the recovery of the stipulated liquidated
damages (Civil Case No. 33114).

The trial court in its order of January 17, 1958 dismissed the case as to the
New York firm for lack of jurisdiction because it was not doing business in the
Philippines (p. 60, Defendants Record on Appeal).

On the other hand, Melvin Wallick, as the assignee of the New York
corporation and after the latter was dropped as a defendant in Civil Case No.
33114, sued Namerco for damages in connection with the same sulfur

159
transaction (Civil Case No. 37019). The two cases, both filed in the Court of
First Instance of Manila, were consolidated. A joint trial was held. The lower
court rendered separate decisions in the two cases on the same date.

In Civil Case No. 37019, the trial court dismissed Wallicks action for
damages against Namerco because the assignment in favor of Wallick was
champertous in character. Wallick appealed to this Court. The appeal was
dismissed because the record on appeal did not disclose that the appeal was
perfected on time (Res. of July 11, 1972 in L-33893).In this Civil Case No.
33114, although the records on appeal were approved in 1967, inexplicably,
they were elevated to this Court in 1971. That anomaly initially contributed
to the delay in the adjudication of this case.

Defendants appeal L-33819. They contend that the delivery of the sulfur
was conditioned on the availability of a vessel to carry the shipment and that
Namerco acted within the scope of its authority as agent in signing the
contract of sale.

The documentary evidence belies these contentions. The invitation to bid

issued by the NPC provides that non-availability of a steamer to transport the
sulfur is not a ground for non-payment of the liquidated damages in case of
non-performance by the seller.

"4. Responsibility for availability of vessel. The availability of vessel to

transport the quantity of sulfur within the time specified in item 14 of this
specification shall be the responsibility of the bidder. In case of award of
contract, failure to ship on time allegedly due to non-availability of vessels
shall not exempt the Contractor from payment of liquidated damages
provided in item 15 of this specification."cralaw virtua1aw library

"15. Liquidated damages. . . .

"Availability of vessel being a responsibility of the Contractor as specified in

item 4 of this specification, the terms unforeseeable causes beyond the
control and without the fault or negligence of the Contractor and force
majeure as used herein shall not be deemed to embrace or include lack or
nonavailability of bottom or vessel. It is agreed that prior to making his bid, a
bidder shall have made previous arrangements regarding shipments within
the required time. It is clearly understood that in no event shall the
Contractor be exempt from the payment of liquidated damages herein
specified for reason of lack of bottom or vessel. Lack of bottom or
nonavailability of vessel shall, in no case, be considered as a ground for
extension of time. . . . ."cralaw virtua1aw library

Namercos bid or offer is even more explicit. It provides that it was

"responsible for the availability of bottom or vessel" and that it "guarantees

160
the availability of bottom or vessel to ship the quantity of sulfur within the
time specified in this bid" (Exh. B, p. 22, Defendants Record on Appeal).

In the contract of sale itself item 15 of the invitation to bid is reproduced in

Article 9 which provides that "it is clearly understood that in no event shall
the seller be entitled to an extension of time or be exempt from the payment
of liquidated damages herein specified for reason of lack of bottom or vessel"
(Exh. E, p. 36, Record on Appeal).

It is true that the New York corporation in its cable to Namerco dated August
9, 1956 stated that the sale was subject to availability of a steamer (Exh. N).
However, Namerco did not disclose that cable to the NPC and, contrary to its
principals instruction, it agreed that nonavailability of a steamer was not a
justification for nonpayment of the liquidated damages.

The trial court rightly concluded that Namerco acted beyond the bounds of
its authority because it violated its principals cabled instructions (1) that the
delivery of the sulfur should be "C & F Manila", not "C & F Iligan City" ; (2)
that the sale be subject to the availability of a steamer and (3) that the seller
should be allowed to withdraw right away the full amount of the letter of
credit and not merely eighty percent thereof (pp- 123-124, Record on
Appeal).

The defendants argue that it was incumbent upon the NPC to inquire into the
extent of the agents authority and, for its failure to do so, it could not claim
any liquidated damages which, according to the defendants, were provided
for merely to make the seller more diligent in looking for a steamer to
transport the sulfur.

The NPC counter-argues that Namerco should have advised the NPC of the
limitations on its authority to negotiate the sale.

We agree with the trial court that Namerco is liable for damages because
under article 1897 of the Civil Code the agent who exceeds the limits of his
authority without giving the party with whom he contracts sufficient notice of
his powers is personally liable to such party.

The truth is that even before the contract of sale was signed Namerco was
already aware that its principal was having difficulties in booking shipping
space. In a cable dated October 16, 1956, or one day before the contract of
sale was signed, the New York supplier advised Namerco that the latter
should not sign the contract unless it (Namerco) wished to assume sole
responsibility for the shipment (Exh. T).

Sycip, Namercos president, replied in his letter to the seller dated also
October 16, 1956, that he had no choice but to finalize the contract of sale

161
because the NPC would forfeit Namercos bidders bond in the sum of
P45,100 posted by the Domestic Insurance Company if the contract was not
formalized (Exh. 14, 14-A and Exh. V).

Three days later, or on October 19, the New York firm cabled Namerco that
the firm did not consider itself bound by the contract of sale and that
Namerco signed the contract on its own responsibility (Exh. W).

In its letters dated November 8 and 19, 1956, the New York corporation
informed Namerco that since the latter acted contrary to the formers cabled
instructions, the former disclaimed responsibility for the contract and that
the responsibility for the sale rested on Namerco (Exh. Y and Y-1).

The letters of the New York firm dated November 26 and December 11, 1956
were even more revealing. It bluntly told Namerco that the latter was never
authorized to enter into the contract and that it acted contrary to the
repeated instructions of the former (Exh. U and Z). Said the vice-president of
the New York firm to Namerco:chanrobles virtual lawlibrary

"As we have pointed out to you before, you have acted strictly contrary to
our repeated instructions and, however regretfully, you have no one but
yourselves to blame."cralaw virtua1aw library

The rule relied upon by the defendants-appellants that every person dealing
with an agent is put upon inquiry and must discover upon his peril the
authority of the agent would apply in this case if the principal is sought to be
held liable on the contract entered into by the agent.

That is not so in this case. Here, it is the agent that it sought to be held liable
on a contract of sale which was expressly repudiated by the principal
because the agent took chances, it exceeded its authority, and, in effect, it
acted in its own name.

As observed by Castan Tobeas, an agent "que haya traspasado los limites

dew mandato, lo que equivale a obrar sin mandato" (4 Derecho Civil Espaol,
8th Ed., 1956, p. 520).

As opined by Olivieri, "si el mandante contesta o impugna el negocio juridico

concluido por el mandatario con el tercero, aduciendo el exceso de los
limites impuestos, es justo que el mandatario, que ha tratado con engao al
tercero, sea responsable personalmente respecto de el des las
consecuencias de tal falta de aceptacion por parte del mandate. Tal
responsabilidad del mandatario se informa en el principio de la falta de
garantia de la existencia del mandato y de la cualidad de mandatario,
garantia impuesta coactivamente por la ley, que quire que aquel que
contrata como mandatario este obligado a garantizar al tercero la efectiva

162
existencia de los poderes que afirma se halla investido, siempre que el
tercero mismo sea de buena fe. Efecto de tal garantia es el resarcimiento de
los daos causados al tercero como consecuencia de la negativa del
mandante a reconocer lo actuado por el mandatario." (26, part II, Scaveola,
Codigo Civil, 1951, pp. 358-9).

Manresa says that the agent who exceeds the limits of his authority is
personally liable "porque realmente obra sin poderes" and the third person
who contracts with the agent in such a case would be defrauded if he would
not be allowed to sue the agent (11 Codigo Civil, 6th Ed., 1972, p. 725).

The defendants also contend that the trial court erred in holding as
enforceable the stipulation for liquidated damages despite its finding that the
contract was executed by the agent in excess of its authority and is,
therefore, allegedly unenforceable.

In support of that contention, the defendants cite article 1403 of the Civil
Code which provides that a contract entered into in the name of another
person by one who has acted beyond his powers is unenforceable.

We hold that defendants contention is untenable because article 1403 refers

to the unenforceability of the contract against the principal. In the instant
case, the contract containing the stipulation for liquidated damages is not
being enforced against it principal but against the agent and its surety.

It is being enforced against the agent because article 1807 implies that the
agent who acts in excess of his authority is personally liable to the party with
whom he contracted.

And that rule is complemented by article 1898 of the Civil Code which
provides that "if the agent contracts in the name of the principal, exceeding
the scope of his authority, and the principal does not ratify the contract, it
shall be void if the party with whom the agent contracted is aware of the
limits of the powers granted by the principal."

It is being enforced against the agent because article 1897 implies that the
agent who acts in excess of his authority is personally liable to the party with
whom he contracted.

And the rule is complemented by article 1898 of the Civil Code which
provides that "if the agent contracts in the name of the principal, exceeding
the scope of his authority, and the principal does not ratify the contract, it
shall be void if the party with whom the agent contracted is aware of the
limits of the powers granted by the principal."

163
As priorly discussed, namerco, as agent, exceeded the limits of its authority
in contracting with the NPC in the name of its principal. The NPC was
unaware of the limitations on the powers granted by the New York firm to
Namerco.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

The New York corporation in its letter of April 26, 1956

said:jgc:chanrobles.com.ph

"We hereby certify that National Merchandising Corporation . . . are our

exclusive representatives in the Philippines for the sale of our products.

"Furthermore, we certify that they are empowered to present our offers in

our behalf in accordance with our cabled or written instructions." (Exh. C).

Namerco never disclosed to the NPC the cabled or written instructions of its
principal. For that reason and because Namerco exceeded the limits of its
authority, it virtually acted in its own name and not as agent and it is,
therefore, bound by the contract of sale which, however, is not enforceable
against its principal.

If, as contemplated in articles 1897 and 1898, Namerco is bound under the
contract of sale, then it follows that it is bound by the stipulation for
liquidated damages in that contract.

Defendants contention that Namercos liability should be based on tort or

quasi-delict, as held in some American cases, like Mendelsohn v. Holton, 149
N.E. 38, 42 ALR 1307, is not well-taken. As correctly argued by the NPC, it
would be unjust and inequitable for Namerco to escape liability after it had
deceived the NPC.

Another contention of the defendants is that the Domestic Insurance

Company is not liable to the NPC because its bond was posted, not for
Namerco, the agent, but for the New York firm which is not liable on the
contract of sale.

That contention cannot be sustained because it was Namerco that actually

solicited the bond from the Domestic Insurance Company and, as explained
already, Namerco is being held liable under the contract of sale because it
virtually acted in its own name. It became the principal in the performance
bond. In the last analysis, the Domestic Insurance Company acted as surety
for Namerco.

The rule is that "want of authority of the person who executes an obligation
as the agent or representative of the principal will not, as a general rule,
affect the suretys liability thereon, especially in the absence of fraud, even
though the obligation is not binding on the principal" (72 C.J.S. 525).

164
Defendants other contentions are that they should be held liable only for
nominal damages, that interest should not be collected on the amount of
damages and that the damages should be computed on the basis of a forty-
five day period and not for a period of one hundred fifteen days.

With respect to the imposition of the legal rate of interest on the damages
from the filing of the complaint in 1957, or a quarter of a century ago,
defendants contention is meritorious. It would be manifestly inequitable to
collect interest on the damages especially considering that the disposition of
this case has been considerably delayed due to no fault of the defendants.

The contention that only nominal damages should be adjudged is contrary to

the intention of the parties (NPC, Namerco and its surety) because it is
clearly provided that liquidated damages are recoverable for delay in the
delivery of the sulfur and, with more reason, for nondelivery.

No proof of pecuniary loss is required for the recovery of liquidated damages.

the stipulation for liquidated damages is intended to obviate controversy on
the amount of damages. There can be no question that the NPC suffered
damages because its production of fertilizer was disrupted or diminished by
reason of the nondelivery of the sulfur.chanrobles.com.ph : virtual law library

The parties foresaw that it might be difficult to ascertain the exact amount of
damages for nondelivery of the sulfur. So, they fixed the liquidated damages
to be paid as indemnity to the NPC.

On the other hand, nominal damages are damages in name only or are in
fact the same as no damages (25 C.J.S. 466). It would not be correct to hold
in this case that the NPC suffered damages in name only or that the breach
of contract was merely technical in character.

As to the contention that the damages should be computed on the basis of

forty-five days, the period required by a vessel leaving Galveston, Texas to
reach Iligan City, that point need not be resolved in view of our conclusion
that the liquidated damages should be equivalent to the amount of the
bidders bond posted by Namerco.

NPCs appeal, L-33897. The trial court reduced the liquidated damages to
twenty percent of the stipulated amount. the NPC contends the it is entitled
to the full amount of liquidated damages in the sum of P360,572.80.

In reducing the liquidated damages, the trial court relied on article 2227 of
the Civil Code which provides that "liquidated damages, whether intended as
an indemnity or a penalty, shall be equitably reduced if they are iniquitous or
unconscionable."

165
Apparently, the trial court regarded as an equitable consideration the
persistent efforts of Namerco and its principal to charter a steamer and that
the failure of the New York firm to secure shipping space was not attributable
to its fault or negligence.

The trial court also took into account the fact that the selling price of the
sulfur was P450,716 and that to award as liquidated damages more than
eighty percent of the price would not be altogether reasonable.

The NPC contends that Namerco was an obligor in bad faith and, therefore, it
should be responsible for all damages which could be reasonably attributed
to its nonperformance of the obligation as provided in article 2201 of the
Civil Code.

On the other hand, the defendants argue that Namerco having acted as a
mere agent, was not liable for the liquidated damages stipulated in the
alleged unenforceable contract of sale; that, as already noted, Namercos
liability should be based on tort or quasi-delict and not on the contract of
sale; that if Namerco is not liable, then the insurance company, its surety, is
likewise not liable; that the NPC is entitled only to nominal damages because
it was able to secure the sulfur from another source (58-59 tsn November 10,
1960) and that the reduced award of stipulated damages is highly iniquitous,
considering that Namerco acted in good faith and that the NPC did not suffer
any actual damages.chanrobles law library : red

These contentions have already been resolved in the preceding discussion.

We find no sanction or justification for NPCs claim that it is entitled to the
full payment of the liquidated damages computed by its official.

Ruling on the amount of damages. A painstaking evaluation of the equities

of the case in the light of the arguments of the parties as expounded in their
five briefs leads to the conclusion that the damages due from the defendants
should be further reduced to P45,100 which is equivalent to their bidders
bond or to about ten percent of the selling price of the sulfur.

WHEREFORE, the lower courts judgment is modified and defendants

National Merchandising Corporation and Domestic Insurance Company of the
Philippines are ordered to pay solidarily to the National Power Corporation
the sum of P45,100.00 as liquidated damages. No costs.

SO ORDERED.

17. JOSE MENCHAVEZ, JUAN MENCHAVEZ JR., SIMEON MENCHAVEZ,

RODOLFO MENCHAVEZ, CESAR MENCHAVEZ, REYNALDO,

166
MENCHAVEZ, ALMA MENCHAVEZ, ELMA MENCHAVEZ, CHARITO M.
MAGA, FE M. POTOT, THELMA M. REROMA, MYRNA M. YBAEZ, and
SARAH M. VILLABER, petitioners, vs. FLORENTINO TEVES JR.,
respondent.

DECISION

PANGANIBAN, J.:

Avoid contract is deemed legally nonexistent. It produces no legal effect. As

a general rule, courts leave parties to such a contract as they are, because
they are in pari delicto or equally at fault. Neither party is entitled to legal
protection.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,

assailing the February 28, 2001 Decision[2] and the April 16, 2002
Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 51144. The
challenged Decision disposed as follows:

WHEREFORE, the assailed decision is hereby MODIFIED, as follows:

1. Ordering [petitioners] to jointly and severally pay the [respondent] the

amount of P128,074.40 as actual damages, and P50,000.00 as liquidated
damages;

2. Dismissing the third party complaint against the third party defendants;

3. Upholding the counterclaims of the third party defendants against the

[petitioners. Petitioners] are hereby required to pay [the] third party
defendants the sum of P30,000.00 as moral damages for the clearly
unfounded suit;

4. Requiring the [petitioners] to reimburse the third party defendants the

sum of P10,000.00 in the concept of attorneys fees and appearance fees of
P300.00 per appearance;

5. Requiring the [petitioners] to reimburse the third party defendants the

sum of P10,000.00 as exemplary damages pro bono publico and litigation
expenses including costs, in the sum of P5,000.00.[4]

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

167
On February 28, 1986, a Contract of Lease was executed by Jose S.
Menchavez, Juan S. Menchavez Sr., Juan S. Menchavez Jr., Rodolfo
Menchavez, Simeon Menchavez, Reynaldo Menchavez, Cesar Menchavez,
Charito M. Maga, Fe M. Potot, Thelma R. Reroma, Myrna Ybaez, Sonia S.
Menchavez, Sarah Villaver, Alma S. Menchavez, and Elma S. Menchavez, as
lessors; and Florentino Teves Jr. as lessee. The pertinent portions of the
Contract are herein reproduced as follows:

WHEREAS, the LESSORS are the absolute and lawful co-owners of that area
covered by FISHPOND APPLICATION No. VI-1076 of Juan Menchavez, Sr., filed
on September 20, 1972, at Fisheries Regional Office No. VII, Cebu City
covering an area of 10.0 hectares more or less located at Tabuelan, Cebu;

xxxxxxxxx

NOW, THEREFORE, for and in consideration of the mutual covenant and

stipulations hereinafter set forth, the LESSORS and the LESSEE have agreed
and hereby agree as follows:

1. The TERM of this LEASE is FIVE (5) YEARS, from and after the execution of
this Contract of Lease, renewable at the OPTION of the LESSORS;

2. The LESSEE agrees to pay the LESSORS at the residence of JUAN

MENCHAVEZ SR., one of the LESSORS herein, the sum of FORTY THOUSAND
PESOS (P40,000.00) Philippine Currency, annually x x x;

3. The LESSORS hereby warrant that the above-described parcel of land is fit
and good for the intended use as FISHPOND;

4. The LESSORS hereby warrant and assure to maintain the LESSEE in the
peaceful and adequate enjoyment of the lease for the entire duration of the
contract;

5. The LESSORS hereby further warrant that the LESSEE can and shall enjoy
the intended use of the leased premises as FISHPOND FOR THE ENTIRE
DURATION OF THE CONTRACT;

6. The LESSORS hereby warrant that the above-premises is free from all liens
and encumbrances, and shall protect the LESSEE of his right of lease over
the said premises from any and all claims whatsoever;

7. Any violation of the terms and conditions herein provided, more

particularly the warranties above-mentioned, the parties of this Contract
responsible thereof shall pay liquidated damages in the amount of not less
than P50,000.00 to the offended party of this Contract; in case the LESSORS

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violated therefor, they bound themselves jointly and severally liable to the
LESSEE;

x x x x x x x x x.[5]

On June 2, 1988, Cebu RTC Sheriffs Gumersindo Gimenez and Arturo Cabigon
demolished the fishpond dikes constructed by respondent and delivered
possession of the subject property to other parties.[6] As a result, he filed a
Complaint for damages with application for preliminary attachment against
petitioners. In his Complaint, he alleged that the lessors had violated their
Contract of Lease, specifically the peaceful and adequate enjoyment of the
property for the entire duration of the Contract. He claimed P157,184.40 as
consequential damages for the demolition of the fishpond dikes, P395,390.00
as unearned income, and an amount not less than P100,000.00 for rentals
paid.[7]

Respondent further asserted that the lessors had withheld from him the
findings of the trial court in Civil Case No. 510-T, entitled Eufracia Colongan
and Paulino Pamplona v. Juan Menchavez Sr. and Sevillana S. Menchavez. In
that case involving the same property, subject of the lease, the Menchavez
spouses were ordered to remove the dikes illegally constructed and to pay
damages and attorneys fees.[8]

Petitioners filed a Third Party Complaint against Benny and Elizabeth Allego,
Albino Laput, Adrinico Che and Charlemagne Arendain Jr., as agents of
Eufracia Colongan and Paulino Pamplona. The third-party defendants
maintained that the Complaint filed against them was unfounded. As agents
of their elderly parents, they could not be sued in their personal capacity.
Thus, they asserted their own counterclaims.[9]

After trial on the merits, the RTC ruled thus:

[The court must resolve the issues one by one.] As to the question of
whether the contract of lease between Teves and the [petitioners] is valid,
we must look into the present law on the matter of fishponds. And this is
Pres. Decree No. 704 which provides in Sec. 24:

Lease of fishponds-Public lands available for fishpond development including

those earmarked for family-size fishponds and not yet leased prior to
November 9, 1972 shall be leased only to qualified persons, associations,
cooperatives or corporations, subject to the following conditions.

1. The lease shall be for a period of twenty five years (25), renewable for
another twenty five years;

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2. Fifty percent of the area leased shall be developed and be producing in
commercial scale within three years and the remaining portion shall be
developed and be producing in commercial scale within five years; both
periods begin from the execution of the lease contract;

3. All areas not fully developed within five years from the date of the
execution of the lease contract shall automatically revert to the public
domain for disposition of the bureau; provided that a lessee who failed to
develop the area or any portion thereof shall not be permitted to reapply for
said area or any portion thereof or any public land under this decree; and/or
any portion thereof or any public land under this decree;

4. No portion of the leased area shall be subleased.

The Constitution, (Sec. 2 & 3, Art. XII of the 1987 Constitution) states:

Sec. 2 - All lands of the public domain, waters, minerals, coal, petroleum and
other mineral oils, all forces of potential energy, fisheries, forests, or timber,
wild life, flora and fauna and other natural resources are owned by the state.

Sec. 3 - Lands of the public domain are classified into agricultural, forest or
timber, mineral lands and national parks. Agricultural lands of the public
domain may be further classified by law according to the uses to which they
may be devoted. Alienable lands of the public domain shall be limited to
agricultural lands x x x.

As a consequence of these provisions, and the declared public policy of the

State under the Regalian Doctrine, the lease contract between Florentino
Teves, Jr. and Juan Menchavez Sr. and his family is a patent nullity. Being a
patent nullity, [petitioners] could not give any rights to Florentino Teves, Jr.
under the principle: NEMO DAT QUOD NON HABET - meaning ONE CANNOT
GIVE WHAT HE DOES NOT HAVE, considering that this property in litigation
belongs to the State and not to [petitioners]. Therefore, the first issue is
resolved in the negative, as the court declares the contract of lease as
invalid and void ab-initio.

On the issue of whether [respondent] and [petitioners] are guilty of mutual

fraud, the court rules that the [respondent] and [petitioners] are in pari-
delicto. As a consequence of this, the court must leave them where they are
found. x x x.

xxxxxxxxx

x x x. Why? Because the defendants ought to have known that they cannot
lease what does not belong to them for as a matter of fact, they themselves

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are still applying for a lease of the same property under litigation from the
government.

On the other hand, Florentino Teves, being fully aware that [petitioners were]
not yet the owner[s], had assumed the risks and under the principle of
VOLENTI NON FIT INJURIA NEQUES DOLUS - He who voluntarily assumes a
risk, does not suffer damage[s] thereby. As a consequence, when Teves
leased the fishpond area from [petitioners]- who were mere holders or
possessors thereof, he took the risk that it may turn out later that his
application for lease may not be approved.

Unfortunately however, even granting that the lease of [petitioners] and

[their] application in 1972 were to be approved, still [they] could not
sublease the same. In view therefore of these, the parties must be left in the
same situation in which the court finds them, under the principle IN PARI
DELICTO NON ORITOR ACTIO, meaning[:] Where both are at fault, no one can
found a claim.

On the third issue of whether the third party defendants are liable for
demolishing the dikes pursuant to a writ of execution issued by the lower
court[, t]his must be resolved in the negative, that the third party defendants
are not liable. First, because the third party defendants are mere agents of
Eufracia Colongan and Eufenio Pamplona, who are the ones who should be
made liable if at all, and considering that the demolition was pursuant to an
order of the court to restore the prevailing party in that Civil Case 510-T,
entitled: Eufracia Colongan v. Menchavez.

After the court has ruled that the contract of lease is null and void ab-initio,
there is no right of the [respondent] to protect and therefore[,] there is no
basis for questioning the Sheriffs authority to demolish the dikes in order to
restore the prevailing party, under the principle VIDETUR NEMO QUISQUAM
ID CAPERE QUOD EI NECESSE EST ALII RESTITUERE - He will not be
considered as using force who exercise his rights and proceeds by the force
of law.

WHEREFORE, in view of all foregoing [evidence] and considerations, this

court hereby renders judgment as follows:

1. Dismissing the x x x complaint by the [respondent] against the

[petitioners];

2. Dismissing the third party complaint against the third party defendants;

3. Upholding the counterclaims of the third party defendants against the

[petitioners. The petitioners] are hereby required to pay third party

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defendants the sum of P30,000.00 as moral damages for this clearly
unfounded suit;

4. Requiring the [petitioners] to reimburse the third party defendants the

sum of P10,000.00 in the concept of attorneys fees and appearance fees of
P300.00 per appearance;

5. Requiring the [petitioners] to pay to the third party defendants the sum of
P10,000.00 as exemplary damages probono publico and litigation expenses
including costs, in the sum of P5,000.00.[10] (Underscoring in the original)

Respondent elevated the case to the Court of Appeals, where it was docketed
as CA-GR CV No. 51144.

Ruling of the Court of Appeals

The CA disagreed with the RTCs finding that petitioners and respondent were
in pari delicto. It contended that while there was negligence on the part of
respondent for failing to verify the ownership of the subject property, there
was no evidence that he had knowledge of petitioners lack of ownership.[11]
It held as follows:

x x x. Contrary to the findings of the lower court, it was not duly proven and
established that Teves had actual knowledge of the fact that [petitioners]
merely usurped the property they leased to him. What Teves admitted was
that he did not ask for any additional document other than those shown to
him, one of which was the fishpond application. In fact, [Teves] consistently
claimed that he did not bother to ask the latter for their title to the property
because he relied on their representation that they are the lawful owners of
the fishpond they are holding for lease. (TSN, July 11, 1991, pp. 8-11)[12]

The CA ruled that respondent could recover actual damages in the amount of
P128,074.40. Citing Article 1356[13] of the Civil Code, it further awarded
liquidated damages in the amount of P50,000, notwithstanding the nullity of
the Contract.[14]

Hence, this Petition.[15]

The Issues

Petitioners raise the following issues for our consideration:

1. The Court of Appeals disregarded the evidence, the law and jurisprudence
when it modified the trial courts decision when it ruled in effect that the trial
court erred in holding that the respondent and petitioners are in pari delicto,
and the courts must leave them where they are found;

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2. The Court of Appeals disregarded the evidence, the law and jurisprudence
in modifying the decision of the trial court and ruled in effect that the
Regional Trial Court erred in dismissing the respondents Complaint.[16]

The Courts Ruling

The Petition has merit.

Main Issue:
Were the Parties in Pari Delicto?

The Court shall discuss the two issues simultaneously.

In Pari Delicto Rule

on Void Contracts

The parties do not dispute the finding of the trial and the appellate courts
that the Contract of Lease was void.[17] Indeed, the RTC correctly held that it
was the State, not petitioners, that owned the fishpond. The 1987
Constitution specifically declares that all lands of the public domain, waters,
fisheries and other natural resources belong to the State.[18] Included here
are fishponds, which may not be alienated but only leased.[19] Possession
thereof, no matter how long, cannot ripen into ownership.[20]

Being merely applicants for the lease of the fishponds, petitioners had no
transferable right over them. And even if the State were to grant their
application, the law expressly disallowed sublease of the fishponds to
respondent.[21] Void are all contracts in which the cause, object or purpose
is contrary to law, public order or public policy.[22]

A void contract is equivalent to nothing; it produces no civil effect.[23] It

does not create, modify or extinguish a juridical relation.[24] Parties to a void
agreement cannot expect the aid of the law; the courts leave them as they
are, because they are deemed in pari delicto or in equal fault.[25] To this
rule, however, there are exceptions that permit the return of that which may
have been given under a void contract.[26] One of the exceptions is found in
Article 1412 of the Civil Code, which states:

Art. 1412. If the act in which the unlawful or forbidden cause consists does
not constitute a criminal offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may
recover what he has given by virtue of the contract, or demand the
performance of the others undertaking;

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(2) When only one of the contracting parties is at fault, he cannot recover
what he has given by reason of the contract, or ask for the fulfillment of what
has been promised him. The other, who is not at fault, may demand the
return of what he has given without any obligation to comply with his
promise.

On this premise, respondent contends that he can recover from petitioners,

because he is an innocent party to the Contract of Lease.[27] Petitioners
allegedly induced him to enter into it through serious misrepresentation.[28]

Finding of In Pari Delicto:

A Question of Fact

The issue of whether respondent was at fault or whether the parties were in
pari delicto is a question of fact not normally taken up in a petition for review
on certiorari under Rule 45 of the Rules of Court.[29] The present case,
however, falls under two recognized exceptions to this rule.[30] This Court is
compelled to review the facts, since the CAs factual findings are (1) contrary
to those of the trial court;[31] and (2) premised on an absence of evidence, a
presumption that is contradicted by the evidence on record.[32]

Unquestionably, petitioners leased out a property that did not belong to

them, one that they had no authority to sublease. The trial court correctly
observed that petitioners still had a pending lease application with the State
at the time they entered into the Contract with respondent.[33]

Respondent, on the other hand, claims that petitioners misled him into
executing the Contract.[34] He insists that he relied on their assertions
regarding their ownership of the property. His own evidence, however, rebuts
his contention that he did not know that they lacked ownership. At the very
least, he had notice of their doubtful ownership of the fishpond.

Respondent himself admitted that he was aware that the petitioners lease
application for the fishpond had not yet been approved.[35] Thus, he
knowingly entered into the Contract with the risk that the application might
be disapproved. Noteworthy is the fact that the existence of a fishpond lease
application necessarily contradicts a claim of ownership. That respondent did
not know of petitioners lack of ownership is therefore incredible.

The evidence of respondent himself shows that he negotiated the lease of

the fishpond with both Juan Menchavez Sr. and Juan Menchavez Jr. in the
office of his lawyer, Atty. Jorge Esparagoza.[36] His counsels presence during
the negotiations, prior to the parties meeting of minds, further debunks his
claim of lack of knowledge. Lawyers are expected to know that fishponds
belong to the State and are inalienable. It was reasonably expected of the
counsel herein to advise his client regarding the matter of ownership.

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Indeed, the evidence presented by respondent demonstrates the
contradictory claims of petitioners regarding their alleged ownership of the
fishpond. On the one hand, they claimed ownership and, on the other, they
assured him that their fishpond lease application would be approved.[37]
This circumstance should have been sufficient to place him on notice. It
should have compelled him to determine their right over the fishpond,
including their right to lease it.

The Contract itself stated that the area was still covered by a fishpond
application.[38] Nonetheless, although petitioners declared in the Contract
that they co-owned the property, their erroneous declaration should not be
used against them. A cursory examination of the Contract suggests that it
was drafted to favor the lessee. It can readily be presumed that it was he or
his counsel who prepared it -- a matter supported by petitioners evidence.
[39] The ambiguity should therefore be resolved against him, being the one
who primarily caused it.[40]

The CA erred in finding that petitioners had failed to prove actual knowledge
of respondent of the ownership status of the property that had been leased
to him. On the contrary, as the party alleging the fact, it was he who had the
burden of proving through a preponderance of evidence[41] -- that they
misled him regarding the ownership of the fishpond. His evidence fails to
support this contention. Instead, it reveals his fault in entering into a void
Contract. As both parties are equally at fault, neither may recover against
the other.[42]

Liquidated Damages
Not Proper

The CA erred in awarding liquidated damages, notwithstanding its finding

that the Contract of Lease was void. Even if it was assumed that respondent
was entitled to reimbursement as provided under paragraph 1 of Article 1412
of the Civil Code, the award of liquidated damages was contrary to
established legal principles.

Liquidated damages are those agreed upon by the parties to a contract, to

be paid in case of a breach thereof.[43] Liquidated damages are identical to
penalty insofar as legal results are concerned.[44] Intended to ensure the
performance of the principal obligation, such damages are accessory and
subsidiary obligations.[45] In the present case, it was stipulated that the
party responsible for the violation of the terms, conditions and warranties of
the Contract would pay not less than P50,000 as liquidated damages. Since
the principal obligation was void, there was no contract that could have been
breached by petitioners; thus, the stipulation on liquidated damages was

175
inexistent. The nullity of the principal obligation carried with it the nullity of
the accessory obligation of liquidated damages.[46]

As explained earlier, the applicable law in the present factual milieu is Article
1412 of the Civil Code. This law merely allows innocent parties to recover
what they have given without any obligation to comply with their prestation.
No damages may be recovered on the basis of a void contract; being
nonexistent, the agreement produces no juridical tie between the parties
involved. Since there is no contract, the injured party may only recover
through other sources of obligations such as a law or a quasi-contract.[47] A
party recovering through these other sources of obligations may not claim
liquidated damages, which is an obligation arising from a contract.

WHEREFORE, the Petition is GRANTED and the assailed Decision and

Resolution SET ASIDE. The Decision of the trial court is hereby REINSTATED.

No pronouncement as to costs.

SO ORDERED.

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