Contents

MEGAWORLD GLOBUS ASIA, INC...........................................................................................................2

FIL-ESTATE PROPERTIES,.......................................................................................................................6
ARCO PULP AND PAPER CO.......................................................................................................................13
METRO CONCAST STEEL CORPORATION...................................................................................................25
INTERNATIONAL HOTEL CORPORATION....................................................................................................30
THE HEIRS OF GEORGE Y. POE...................................................................................................................30
MEGAWORLD GLOBUS ASIA, INC., Petitioner,
vs.
MILA S. TANSECO, Respondent.

DECISION

CARPIO MORALES, J.:

On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S. Tanseco
(Tanseco) entered into a Contract to Buy and Sell1 a 224 square-meter (more or less) condominium unit
at a pre-selling project, "The Salcedo Park," located along Senator Gil Puyat Avenue, Makati City.

The purchase price was P16,802,037.32, to be paid as follows: (1) 30% less the reservation fee
of P100,000, orP4,940,611.19, by postdated check payable on July 14, 1995; (2) P9,241,120.50 through
30 equal monthly installments of P308,037.35 from August 14, 1995 to January 14, 1998; and (3) the
balance of P2,520,305.63 onOctober 31, 1998, the stipulated delivery date of the unit; provided that if
the construction is completed earlier, Tanseco would pay the balance within seven days from receipt of a
notice of turnover.

Section 4 of the Contract to Buy and Sell provided for the construction schedule as follows:

4. CONSTRUCTION SCHEDULE The construction of the Project and the unit/s herein purchased shall
be completed and delivered not later than October 31, 1998 with additional grace period of six (6)
months within which to complete the Project and the unit/s, barring delays due to fire, earthquakes, the
elements, acts of God, war, civil disturbances, strikes or other labor disturbances, government and
economic controls making it, among others, impossible or difficult to obtain the necessary materials, acts
of third person, or any other cause or conditions beyond the control of the SELLER. In this event, the
completion and delivery of the unit are deemed extended accordingly without liability on the part of the
SELLER. The foregoing notwithstanding, the SELLER reserves the right to withdraw from this transaction
and refund to the BUYER without interest the amounts received from him under this contract if for any
reason not attributable to SELLER, such as but not limited to fire, storms, floods, earthquakes, rebellion,
insurrection, wars, coup de etat, civil disturbances or for other reasons beyond its control, the Project
may not be completed or it can only be completed at a financial loss to the SELLER. In any event, all
construction on or of the Project shall remain the property of the SELLER. (Underscoring supplied)

Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of P2,520,305.63
pending delivery of the unit.2 Megaworld, however, failed to deliver the unit within the stipulated period
on October 31, 1998 or April 30, 1999, the last day of the six-month grace period.

A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of turnover),
informed Tanseco that the unit was ready for inspection preparatory to delivery. 3 Tanseco replied through
counsel, by letter of May 6, 2002, that in view of Megaworlds failure to deliver the unit on time, she was
demanding the return ofP14,281,731.70 representing the total installment payment she had made, with
interest at 12% per annum from April 30, 1999, the expiration of the six-month grace period. Tanseco
pointed out that none of the excepted causes of delay existed. 4
Her demand having been unheeded, Tanseco filed on June 5, 2002 with the Housing and Land Use
Regulatory Boards (HLURB) Expanded National Capital Region Field Office a complaint against
Megaworld for rescission of contract, refund of payment, and damages. 5

In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis which was beyond its
control; and argued that default had not set in, Tanseco not having made any judicial or extrajudicial
demand for delivery before receipt of the notice of turnover.6

By Decision of May 28, 2003,7 the HLURB Arbiter dismissed Tansecos complaint for lack of cause of
action, finding that Megaworld had effected delivery by the notice of turnover before Tanseco made a
demand. Tanseco was thereupon ordered to pay Megaworld the balance of the purchase price,
plus P25,000 as moral damages,P25,000 as exemplary damages, and P25,000 as attorneys fees.

On appeal by Tanseco, the HLURB Board of Commissioners, by Decision of November 28,

2003,8 sustained the HLURB Arbiters Decision on the ground of laches for failure to demand rescission
when the right thereto accrued. It deleted the award of damages, however. Tansecos Motion for
Reconsideration having been denied,9 she appealed to the Office of the President which dismissed the
appeal by Decision of April 28, 200610 for failure to show that the findings of the HLURB were tainted with
grave abuse of discretion. Her Motion for Reconsideration having been denied by Resolution dated
August 30, 2006,11 Tanseco filed a Petition for Review under Rule 43 with the Court of Appeals. 12

By Decision of September 28, 2007,13 the appellate court granted Tansecos petition, disposing thus:

WHEREFORE, premises considered, petition is hereby GRANTED and the assailed May 28, 2003
decision of the HLURB Field Office, the November 28, 2003 decision of the HLURB Board of
Commissioners in HLURB Case No. REM-A-030711-0162, the April 28, 2006 Decision and August 30, 2006
Resolution of the Office of the President in O.P. Case No. 05-I-318, are hereby REVERSED and SET
ASIDE and a new one entered: (1) RESCINDING, as prayed for by TANSECO, the aggrieved party, the
contract to buy and sell; (2) DIRECTING MEGAWORLD TO PAY TANSECO the amount she had paid
totaling P14,281,731.70 with Twelve (12%) Percent interest per annum from October 31, 1998;
(3) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 by way of exemplary damages;
(4) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 as attorneys fees; and
(5) ORDERINGMEGAWORLD TO PAY TANSECO the cost of suit. (Emphasis in the original; underscoring
supplied)

The appellate court held that under Article 1169 of the Civil Code, no judicial or extrajudicial demand is
needed to put the obligor in default if the contract, as in the herein parties contract, states the date
when the obligation should be performed; that time was of the essence because Tanseco relied on
Megaworlds promise of timely delivery when she agreed to part with her money; that the delay should
be reckoned from October 31, 1998, there being no force majeure to warrant the application of the April
30, 1999 alternative date; and that specific performance could not be ordered in lieu of rescission as the
right to choose the remedy belongs to the aggrieved party.

The appellate court awarded Tanseco exemplary damages on a finding of bad faith on the part of
Megaworld in forcing her to accept its long-delayed delivery; and attorneys fees, she having been
compelled to sue to protect her rights.

Its Motion for Reconsideration having been denied by Resolution of January 8, 2008, 14 Megaworld filed
the present Petition for Review on Certiorari, echoing its position before the HLURB, adding that Tanseco
had not shown any basis for the award of damages and attorneys fees.15
Tanseco, on the other hand, maintained her position too, and citing Megaworlds bad faith which became
evident when it insisted on making the delivery despite the long delay, 16 insisted that she deserved the
award of damages and attorneys fees.

Article 1169 of the Civil Code provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially
or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that the designation
of the time when the thing is to be delivered or the service is to be rendered was a controlling
motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to
perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills
his obligation, delay by the other begins. (Underscoring supplied)

The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and deliver
the condominium unit on October 31, 1998 or six months thereafter on the part of Megaworld, and to
pay the balance of the purchase price at or about the time of delivery on the part of Tanseco. Compliance
by Megaworld with its obligation is determinative of compliance by Tanseco with her obligation to pay the
balance of the purchase price. Megaworld having failed to comply with its obligation under the contract, it
is liable therefor.17

That Megaworlds sending of a notice of turnover preceded Tansecos demand for refund does not abate
her cause. For demand would have been useless, Megaworld admittedly having failed in its obligation to
deliver the unit on the agreed date.

Article 1174 of the Civil Code provides:

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation,
or when the nature of the obligation requires the assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which, though foreseen, were inevitable. 18

The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the control of
a business corporation. A real estate enterprise engaged in the pre-selling of condominium units is
concededly a master in projections on commodities and currency movements, as well as business risks.
The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday
occurrence, hence, not an instance of caso fortuito. 19 Megaworlds excuse for its delay does not thus lie.

As for Megaworlds argument that Tansecos claim is considered barred by laches on account of her
belated demand, it does not lie too. Laches is a creation of equity and its application is controlled by
equitable considerations.20 It bears noting that Tanseco religiously paid all the installments due up to
January, 1998, whereas Megaworld reneged on its obligation to deliver within the stipulated period. A
circumspect weighing of equitable considerations thus tilts the scale of justice in favor of Tanseco.

Pursuant to Section 23 of Presidential Decree No. 957 21 which reads:

Sec. 23. Non-Forfeiture of Payments. - No installment payment made by a buyer in a subdivision or

condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or
developer when the buyer, after due notice to the owner or developer, desists from further payment due
to the failure of the owner or developer to develop the subdivision or condominium project according to
the approved plans and within the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total amount paid includingamortization interests but
excluding delinquency interests, with interest thereon at the legal rate. (Emphasis and underscoring
supplied),

Tanseco is, as thus prayed for, entitled to be reimbursed the total amount she paid Megaworld.

While the appellate court correctly awarded P14,281,731.70 then, the interest rate should, however, be
6% per annum accruing from the date of demand on May 6, 2002, and then 12% per annum from the
time this judgment becomes final and executory, conformably with Eastern Shipping Lines, Inc. v. Court
of Appeals.22

The award of P200,000 attorneys fees and of costs of suit is in order too, the parties having stipulated in
the Contract to Buy and Sell that these shall be borne by the losing party in a suit based thereon, 23 not to
mention that Tanseco was compelled to retain the services of counsel to protect her interest. And so is
the award of exemplary damages. With pre-selling ventures mushrooming in the metropolis, there is an
increasing need to correct the insidious practice of real estate companies of proffering all sorts of empty
promises to entice innocent buyers and ensure the profitability of their projects.

The Court finds the appellate courts award of P200,000 as exemplary damages excessive, however.
Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a
deterrent against or as a negative incentive to curb socially deleterious actions. 24 The Court finds
that P100,000 is reasonable in this case.

Finally, since Article 119125 of the Civil Code does not apply to a contract to buy and sell, the suspensive
condition of full payment of the purchase price not having occurred to trigger the obligation to convey
title,cancellation, not rescission, of the contract is thus the correct remedy in the premises. 26

WHEREFORE, the challenged Decision of the Court of Appeals is, in light of the foregoing, AFFIRMED with
MODIFICATION.

As modified, the dispositive portion of the Decision reads:

The July 7, 1995 Contract to Buy and Sell between the parties is cancelled. Petitioner, Megaworld Globus
Asia, Inc., is directed to pay respondent, Mila S. Tanseco, the amount of P14,281,731.70, to bear 6%
interest per annum starting May 6, 2002 and 12% interest per annum from the time the judgment
becomes final and executory; and to pay P200,000 attorneys fees, P100,000 exemplary damages, and
costs of suit.

Costs against petitioner.

SO ORDERED.
G.R. No. 185798 January 13, 2014

FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC., Petitioners,

vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents.

DECISION

PEREZ, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules .of Civil Procedure
assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. 100450 which affirmed the Decision of
the Office of the President in O.P. Case No. 06-F-216.

As culled from the records, the facts are as follow:

Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower while co-
petitioner Fil-Estate Network, Inc. is its authorized marketing agent. Respondent Spouses Conrado and
Maria Victoria Ronquillo purchased from petitioners an 82-square meter condominium unit at Central Park
Place Tower in Mandaluyong City for a pre-selling contract price of FIVE MILLION ONE HUNDRED
SEVENTY-FOUR THOUSAND ONLY (P5,174,000.00). On 29 August 1997, respondents executed and
signed a Reservation Application Agreement wherein they deposited P200,000.00 as reservation fee. As
agreed upon, respondents paid the full downpayment of P1,552,200.00 and had been paying
the P63,363.33 monthly amortizations until September 1998.

Upon learning that construction works had stopped, respondents likewise stopped paying their monthly
amortization. Claiming to have paid a total of P2,198,949.96 to petitioners, respondents through two (2)
successive letters, demanded a full refund of their payment with interest. When their demands went
unheeded, respondents were constrained to file a Complaint for Refund and Damages before the Housing
and Land Use Regulatory Board (HLURB). Respondents prayed for reimbursement/refund
of P2,198,949.96 representing the total amortization payments, P200,000.00 as and by way of moral
damages, attorneys fees and other litigation expenses.

On 21 October 2000, the HLURB issued an Order of Default against petitioners for failing to file their
Answer within the reglementary period despite service of summons. 2

Petitioners filed a motion to lift order of default and attached their position paper attributing the delay in
construction to the 1997 Asian financial crisis. Petitioners denied committing fraud or misrepresentation
which could entitle respondents to an award of moral damages.

On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor, rendered judgment ordering
petitioners to jointly and severally pay respondents the following amount:

a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT THOUSAND NINE HUNDRED
FORTY NINE PESOS & 96/100 (P2,198,949.96) with interest thereon at twelve percent (12%) per
 annum to be computed from the time of the complainants demand for refund on October 08,
1998 until fully paid,

b) ONE HUNDRED THOUSAND PESOS (P100,000.00) as moral damages,

c) FIFTY THOUSAND PESOS (P50,000.00) as attorneys fees,

d) The costs of suit, and

e) An administrative fine of TEN THOUSAND PESOS (P10,000.00) payable to this Office fifteen
(15) days upon receipt of this decision, for violation of Section 20 in relation to Section 38 of PD
957.3

The Arbiter considered petitioners failure to develop the condominium project as a substantial breach of
their obligation which entitles respondents to seek for rescission with payment of damages. The Arbiter
also stated that mere economic hardship is not an excuse for contractual and legal delay.

Petitioners appealed the Arbiters Decision through a petition for review pursuant to Rule XII of the 1996
Rules of Procedure of HLURB. On 17 February 2005, the Board of Commissioners of the HLURB
denied4 the petition and affirmed the Arbiters Decision. The HLURB reiterated that the depreciation of
the peso as a result of the Asian financial crisis is not a fortuitous event which will exempt petitioners
from the performance of their contractual obligation.

Petitioners filed a motion for reconsideration but it was denied 5 on 8 May 2006. Thereafter, petitioners
filed a Notice of Appeal with the Office of the President. On 18 April 2007, petitioners appeal was
dismissed6 by the Office of the President for lack of merit. Petitioners moved for a reconsideration but
their motion was denied7 on 26 July 2007.

Petitioners sought relief from the Court of Appeals through a petition for review under Rule 43 containing
the same arguments they raised before the HLURB and the Office of the President:

I.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE
HONORABLE HOUSING AND LAND USE REGULATORY BOARD AND ORDERING PETITIONERS-
APPELLANTS TO REFUND RESPONDENTS-APPELLEES THE SUM OF P2,198,949.96 WITH 12% INTEREST
FROM 8 OCTOBER 1998 UNTIL FULLY PAID, CONSIDERING THAT THE COMPLAINT STATES NO CAUSE
OF ACTION AGAINST PETITIONERS-APPELLANTS.

II.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE OFFICE
BELOW ORDERING PETITIONERS-APPELLANTS TO PAY RESPONDENTS-APPELLEES THE SUM
OF P100,000.00 AS MORAL DAMAGES AND P50,000.00 AS ATTORNEYS FEES CONSIDERING THE
ABSENCE OF ANY FACTUAL OR LEGAL BASIS THEREFOR.

III.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE HOUSING
AND LAND USE REGULATORY BOARD ORDERING PETITIONERS-APPELLANTS TO PAYP10,000.00 AS
ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH
FINDING.8

On 30 July 2008, the Court of Appeals denied the petition for review for lack of merit. The appellate court
echoed the HLURB Arbiters ruling that "a buyer for a condominium/subdivision unit/lot unit which has
not been developed in accordance with the approved condominium/subdivision plan within the time limit
for complying with said developmental requirement may opt for reimbursement under Section 20 in
relation to Section 23 of Presidential Decree (P.D.) 957 x x x." 9 The appellate court supported the HLURB
Arbiters conclusion, which was affirmed by the HLURB Board of Commission and the Office of the
President, that petitioners failure to develop the condominium project is tantamount to a substantial
breach which warrants a refund of the total amount paid, including interest. The appellate court pointed
out that petitioners failed to prove that the Asian financial crisis constitutes a fortuitous event which could
excuse them from the performance of their contractual and statutory obligations. The appellate court also
affirmed the award of moral damages in light of petitioners unjustified refusal to satisfy respondents
claim and the legality of the administrative fine, as provided in Section 20 of Presidential Decree No. 957.

Petitioners sought reconsideration but it was denied in a Resolution 10 dated 11 December 2008 by the
Court of Appeals.

Aggrieved, petitioners filed the instant petition advancing substantially the same grounds for review:

A.

THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN TOTO THE DECISION OF THE
OFFICE OF THE PRESIDENT WHICH SUSTAINED RESCISSION AND REFUND IN FAVOR OF THE
RESPONDENTS DESPITE LACK OF CAUSE OF ACTION.

B.

GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE LIABLE UNDER THE PREMISES,
THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED THE HUGE AMOUNT OF INTEREST
OF TWELVE PERCENT (12%).

C.

THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT AFFIRMED IN TOTO THE DECISION
OF THE OFFICE OF THE PRESIDENT INCLUDING THE PAYMENT OF P100,000.00 AS MORAL
DAMAGES, P50,000.00 AS ATTORNEYS FEES AND P10,000.00 AS ADMINISTRATIVE FINE IN THE
ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH CONCLUSIONS. 11

Petitioners insist that the complaint states no cause of action because they allegedly have not committed
any act of misrepresentation amounting to bad faith which could entitle respondents to a refund.
Petitioners claim that there was a mere delay in the completion of the project and that they only resorted
to "suspension and reformatting as a testament to their commitment to their buyers." Petitioners
attribute the delay to the 1997 Asian financial crisis that befell the real estate industry. Invoking Article
1174 of the New Civil Code, petitioners maintain that they cannot be held liable for a fortuitous event.

Petitioners contest the payment of a huge amount of interest on account of suspension of development
on a project. They liken their situation to a bank which this Court, in Overseas Bank v. Court of
Appeals,12 adjudged as not liable to pay interest on deposits during the period that its operations are
ordered suspended by the Monetary Board of the Central Bank.
Lastly, petitioners aver that they should not be ordered to pay moral damages because they never
intended to cause delay, and again blamed the Asian economic crisis as the direct, proximate and only
cause of their failure to complete the project. Petitioners submit that moral damages should not be
awarded unless so stipulated except under the instances enumerated in Article 2208 of the New Civil
Code. Lastly, petitioners refuse to pay the administrative fine because the delay in the project was
caused not by their own deceptive intent to defraud their buyers, but due to unforeseen circumstances
beyond their control.

Three issues are presented for our resolution: 1) whether or not the Asian financial crisis constitute a
fortuitous event which would justify delay by petitioners in the performance of their contractual
obligation; 2) assuming that petitioners are liable, whether or not 12% interest was correctly imposed on
the judgment award, and 3) whether the award of moral damages, attorneys fees and administrative
fine was proper.

It is apparent that these issues were repeatedly raised by petitioners in all the legal fora. The rulings
were consistent that first, the Asian financial crisis is not a fortuitous event that would excuse petitioners
from performing their contractual obligation; second, as a result of the breach committed by petitioners,
respondents are entitled to rescind the contract and to be refunded the amount of amortizations paid
including interest and damages; and third, petitioners are likewise obligated to pay attorneys fees and
the administrative fine.

This petition did not present any justification for us to deviate from the rulings of the HLURB, the Office
of the President and the Court of Appeals.

Indeed, the non-performance of petitioners obligation entitles respondents to rescission under Article
1191 of the New Civil Code which states:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with payment
of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.

More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of condominiums,
which provides:

Section 23. Non-Forfeiture of Payments.1wphi1 No installment payment made by a buyer in a

subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of
the owner or developer when the buyer, after due notice to the owner or developer, desists from further
payment due to the failure of the owner or developer to develop the subdivision or condominium project
according to the approved plans and within the time limit for complying with the same. Such buyer may,
at his option, be reimbursed the total amount paid including amortization interests but excluding
delinquency interests, with interest thereon at the legal rate. (Emphasis supplied).

Conformably with these provisions of law, respondents are entitled to rescind the contract and demand
reimbursement for the payments they had made to petitioners.

Notably, the issues had already been settled by the Court in the case of Fil-Estate Properties, Inc. v.
Spouses Go13 promulgated on 17 August 2007, where the Court stated that the Asian financial crisis is not
an instance of caso fortuito. Bearing the same factual milieu as the instant case, G.R. No. 165164
involves the same company, Fil-Estate, albeit about a different condominium property. The company
likewise reneged on its obligation to respondents therein by failing to develop the condominium project
despite substantial payment of the contract price. Fil-Estate advanced the same argument that the 1997
Asian financial crisis is a fortuitous event which justifies the delay of the construction project. First off,
the Court classified the issue as a question of fact which may not be raised in a petition for review
considering that there was no variance in the factual findings of the HLURB, the Office of the President
and the Court of Appeals. Second, the Court cited the previous rulings of Asian Construction and
Development Corporation v. Philippine Commercial International Bank 14 and Mondragon Leisure and
Resorts Corporation v. Court of Appeals15 holding that the 1997 Asian financial crisis did not constitute a
valid justification to renege on obligations. The Court expounded:

Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the
control of a business corporation. It is unfortunate that petitioner apparently met with considerable
difficulty e.g. increase cost of materials and labor, even before the scheduled commencement of its real
estate project as early as 1995. However, a real estate enterprise engaged in the pre-selling of
condominium units is concededly a master in projections on commodities and currency movements and
business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an
everyday occurrence, and fluctuations in currency exchange rates happen everyday, thus, not an instance
of caso fortuito.16

The aforementioned decision becomes a precedent to future cases in which the facts are substantially the
same, as in this case. The principle of stare decisis, which means adherence to judicial precedents,
applies.

In said case, the Court ordered the refund of the total amortizations paid by respondents plus 6% legal
interest computed from the date of demand. The Court also awarded attorneys fees. We follow that
ruling in the case before us.

The resulting modification of the award of legal interest is, also, in line with our recent ruling in Nacar v.
Gallery Frames,17 embodying the amendment introduced by the Bangko Sentral ng Pilipinas Monetary
Board in BSP-MB Circular No. 799 which pegged the interest rate at 6% regardless of the source of
obligation.

We likewise affirm the award of attorneys fees because respondents were forced to litigate for 14 years
and incur expenses to protect their rights and interest by reason of the unjustified act on the part of
petitioners.18 The imposition of P10,000.00 administrative fine is correct pursuant to Section 38 of
Presidential Decree No. 957 which reads:

Section 38. Administrative Fines. The Authority may prescribe and impose fines not exceeding ten
thousand pesos for violations of the provisions of this Decree or of any rule or regulation thereunder.
Fines shall be payable to the Authority and enforceable through writs of execution in accordance with the
provisions of the Rules of Court.

Finally, we sustain the award of moral damages. In order that moral damages may be awarded in breach
of contract cases, the defendant must have acted in bad faith, must be found guilty of gross negligence
amounting to bad faith, or must have acted in wanton disregard of contractual obligations. 19 The Arbiter
found petitioners to have acted in bad faith when they breached their contract, when they failed to
address respondents grievances and when they adamantly refused to refund respondents' payment.

In fine, we find no reversible error on the merits in the impugned Court of Appeals' Decision and
Resolution.
WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed
from the time of respondents' demand for refund on 8 October 1998.

SO ORDERED.

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

DECISION

LEONEN, J.:

Novation must be stated in clear and unequivocal terms to extinguish an obligation. It cannot be
presumed and may be implied only if the old and new contracts are incompatible on every point.

Before us is a petition for review on certiorari 1 assailing the Court of Appeals decision2 in CA-G.R. CV No.
95709, which stemmed from a complaint3 filed in the Regional Trial Court of Valenzuela City, Branch 171,
for collection of sum of money.

The facts are as follows:

Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw materials, under the
name Quality Paper and Plastic Products, Enterprises, to factories engaged in the paper mill
business.4 From February 2007 to March 2007, he delivered scrap papers worth 7,220,968.31 to Arco
Pulp and Paper Company, Inc. (Arco Pulp and Paper) through its Chief Executive Officer and President,
Candida A. Santos.5 The parties allegedly agreed that Arco Pulp and Paper would either pay Dan T. Lim
the value of the raw materials or deliver to him their finished products of equivalent value. 6

Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a post-dated
check dated April 18, 20077 in the amount of 1,487,766.68 as partial payment, with the assurance that
the check would not bounce.8 When he deposited the check on April 18, 2007, it was dishonored for
being drawn against a closed account. 9

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

Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos
and Mr. Eric Sy that ARCO will deliver 600 tons Test Liner 150/175 GSM, full width 76 inches at the price
of P18.50 per kg. to Megapack Container for Mr. Eric Sys account. Schedule of deliveries are as follows:

....

It has been agreed further that the Local OCC materials to be used for the production of the above Test
Liners will be supplied by Quality Paper & Plastic Products Ent., total of 600 Metric Tons at P6.50 per kg.
(price subject to change per advance notice). Quantity of Local OCC delivery will be based on the
quantity of Test Liner delivered to Megapack Container Corp. based on the above production schedule. 11

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

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

On September 19, 2008, the trial court rendered a judgment in favor of Arco Pulp and Paper and
dismissed the complaint, holding that when Arco Pulp and Paper and Eric Sy entered into the
memorandum of agreement, novation took place, which extinguished Arco Pulp and Papers obligation to
Dan T. Lim.17

Dan T. Lim appealed18 the judgment with the Court of Appeals. According to him, novation did not take
place since the memorandum of agreement between Arco Pulp and Paper and Eric Sy was an exclusive
and private agreement between them. He argued that if his name was mentioned in the contract, it was
only for supplying the parties their required scrap papers, where his conformity through a separate
contract was indispensable.19

On January 11, 2013, the Court of Appeals20 rendered a decision21 reversing and setting aside the
judgment dated September 19, 2008 and ordering Arco Pulp and Paper to jointly and severally pay Dan
T. Lim the amount of P7,220,968.31 with interest at 12% per annum from the time of
demand; P50,000.00 moral damages;P50,000.00 exemplary damages; and P50,000.00 attorneys fees.22

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

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

On one hand, petitioners argue that the execution of the memorandum of agreement constituted a
novation of the original obligation since Eric Sy became the new debtor of respondent. They also argue
that there is no legal basis to hold petitioner Candida A. Santos personally liable for the transaction that
petitioner corporation entered into with respondent. The Court of Appeals, they allege, also erred in
awarding moral and exemplary damages and attorneys fees to respondent who did not show proof that
he was entitled to damages.27
Respondent, on the other hand, argues that the Court of Appeals was correct in ruling that there was no
proper novation in this case. He argues that the Court of Appeals was correct in ordering the payment of
7,220,968.31 with damages since the debt of petitioners remains unpaid. 28 He also argues that the Court
of Appeals was correct in holding petitioners solidarily liable since petitioner Candida A. Santos was "the
prime mover for such outstanding corporate liability." 29 In their reply, petitioners reiterate that novation
took place since there was nothing in the memorandum of agreement showing that the obligation was
alternative. They also argue that when respondent allowed them to deliver the finished products to Eric
Sy, the original obligation was novated.30

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

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

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

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

3. Whether moral damages, exemplary damages, and attorneys fees can be awarded

The petition is denied.

The obligation between the

parties was an alternative
obligation

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

Article 1199. A person alternatively bound by different prestations shall completely perform one of them.

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

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

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

According to the factual findings of the trial court and the appellate court, the original contract between
the parties was for respondent to deliver scrap papers worth P7,220,968.31 to petitioner Arco Pulp and
Paper. The payment for this delivery became petitioner Arco Pulp and Papers obligation. By agreement,
petitioner Arco Pulp and Paper, as the debtor, had the option to either (1) pay the price or(2) deliver the
finished products of equivalent value to respondent.35

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

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

This choice was also shown by the terms of the memorandum of agreement, which was executed on the
same day. The memorandum declared in clear terms that the delivery of petitioner Arco Pulp and Papers
finished products would be to a third person, thereby extinguishing the option to deliver the finished
products of equivalent value to respondent.

The memorandum of
agreement did not constitute
a novation of the original
contract

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

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

Article 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;

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

Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on
every point incompatible with each other. (1204)

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

Novation extinguishes an obligation between two parties when there is a substitution of objects or
debtors or when there is subrogation of the creditor. It occurs only when the new contract declares so "in
unequivocal terms" or that "the old and the new obligations be on every point incompatible with each
other."36

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

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

substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the
creditor. Article 1293 of the Civil Code defines novation as follows:
"Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be
made even without the knowledge or against the will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237."

In general, there are two modes of substituting the person of the debtor: (1) expromision and (2)
delegacion. In expromision, the initiative for the change does not come from and may even be made
without the knowledge of the debtor, since it consists of a third persons assumption of the obligation.
As such, it logically requires the consent of the third person and the creditor. In delegacion, the debtor
offers, and the creditor accepts, a third person who consents to the substitution and assumes the
obligation; thus, the consent of these three persons are necessary. Both modes of substitution by the
debtor require the consent of the creditor.

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

1) There must be a previous valid obligation.

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

3) The old contract must be extinguished.

4) There must be a valid new contract.

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

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

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

The consent of the creditor must also be secured for the novation to be valid:

Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties
underscore the absence of any express disclosure or circumstances with which to deduce a clear and
unequivocal intent by the parties to novate the old agreement. 40 (Emphasis supplied)
In this case, respondent was not privy to the memorandum of agreement, thus, his conformity to the
contract need not be secured. This is clear from the first line of the memorandum, which states:

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

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

Petitioner Arco Pulp and Papers act of tendering partial payment to respondent also conflicts with their
alleged intent to pass on their obligation to Eric Sy. When respondent sent his letter of demand to
petitioner Arco Pulp and Paper, and not to Eric Sy, it showed that the former neither acknowledged nor
consented to the latter as his new debtor. These acts, when taken together, clearly show that novation
did not take place. Since there was no novation, petitioner Arco Pulp and Papers obligation to respondent
remains valid and existing. Petitioner Arco Pulp and Paper, therefore, must still pay respondent the full
amount of P7,220,968.31.

Petitioners are liable for

damages

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

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

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

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

Further, the following requisites must be proven for the recovery of moral damages:

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

Here, the injury suffered by respondent is the loss of P7,220,968.31 from his business. This has remained
unpaid since 2007. This injury undoubtedly was caused by petitioner Arco Pulp and Papers act of
refusing to pay its obligations.
When the obligation became due and demandable, petitioner Arco Pulp and Paper not only issued an
unfunded check but also entered into a contract with a third person in an effort to evade its liability. This
proves the third requirement.

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

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

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

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

(4) Adultery or concubinage;

(5) Illegal or arbitrary detention or arrest;

(6) Illegal search;

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

(8) Malicious prosecution;

(9) Acts mentioned in Article 309;

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

Breaches of contract done in bad faith, however, are not specified within this enumeration. When a party
breaches a contract, he or she goes against Article 19 of the Civil Code, which states: Article 19. Every
person must, in the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.

Persons who have the right to enter into contractual relations must exercise that right with honesty and
good faith. Failure to do so results in an abuse of that right, which may become the basis of an action for
damages. Article 19, however, cannot be its sole basis:

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

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

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

Article 21.Any person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.
To be actionable, Article 20 requires a violation of law, while Article 21 only concerns with lawful acts that
are contrary to morals, good customs, and public policy:

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

Article 21, on the other hand, concerns injuries that may be caused by acts which are not necessarily
proscribed by law. This article requires that the act be willful, that is, that there was an intention to do
the act and a desire to achieve the outcome. In cases under Article 21, the legal issues revolve around
whether such outcome should be considered a legal injury on the part of the plaintiff or whether the
commission of the act was done in violation of the standards of care required in Article 19. 45

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

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

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

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

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

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

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

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

Petitioner Arco Pulp and Papers actions clearly show "a dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of known duty through some motive or interest or ill will that
partakes of the nature of fraud."48 Moral damages may, therefore, be awarded.
Exemplary damages may also be awarded. Under the Civil Code, exemplary damages are due in the
following circumstances:

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

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

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

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

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

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

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

(1) they may be imposed by way of example in addition to compensatory damages, and only
after the claimant's right to them has been established;

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

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

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

Since the award of exemplary damages is proper, attorneys fees and cost of the suit may also be
recovered.
Article 2208 of the Civil Code states:

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

(1) When exemplary damages are awarded[.]

Petitioner Candida A. Santos
is solidarily liable with
petitioner corporation

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

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

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

....

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

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

As a general rule, directors, officers, or employees of a corporation cannot be held personally liable for
obligations incurred by the corporation. However, this veil of corporate fiction may be pierced if
complainant is able to prove, as in this case, that (1) the officer is guilty of negligence or bad faith, and
(2) such negligence or bad faith was clearly and convincingly proven.

Here, petitioner Santos entered into a contract with respondent in her capacity as the President and Chief
Executive Officer of Arco Pulp and Paper. She also issued the check in partial payment of petitioner
corporations obligations to respondent on behalf of petitioner Arco Pulp and Paper. This is clear on the
face of the check bearing the account name, "Arco Pulp & Paper, Co., Inc." 54 Any obligation arising from
these acts would not, ordinarily, be petitioner Santos personal undertaking for which she would be
solidarily liable with petitioner Arco Pulp and Paper.

We find, however, that the corporate veil must be pierced. In Livesey v. Binswanger Philippines: 55
Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the
separate corporate personality of a corporation is abused or used for wrongful purposes. Under the
doctrine, the corporate existence may be disregarded where the entity is formed or used for non-
legitimate purposes, such as to evade a just and due obligation, or to justify a wrong, to shield or
perpetrate fraud or to carry out similar or inequitable considerations, other unjustifiable aims or
intentions, in which case, the fiction will be disregarded and the individuals composing it and the two
corporations will be treated as identical.56 (Emphasis supplied)

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

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

We agree with the Court of Appeals. Petitioner Santos cannot be allowed to hide behind the corporate
veil.1wphi1 When petitioner Arco Pulp and Papers obligation to respondent became due and
demandable, she not only issued an unfunded check but also contracted with a third party in an effort to
shift petitioner Arco Pulp and Papers liability. She unjustifiably refused to honor petitioner corporations
obligations to respondent. These acts clearly amount to bad faith. In this instance, the corporate veil may
be pierced, and petitioner Santos may be held solidarily liable with petitioner Arco Pulp and Paper.

The rate of interest due on

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

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

Nacar effectively amended the guidelines stated in Eastern Shipping v. Court of Appeals, 60 and we have
laid down the following guidelines with regard to the rate of legal interest:

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Linesare
accordingly modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts
is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of recoverable damages.

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

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

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

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

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

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

According to these guidelines, the interest due on the obligation of P7,220,968.31 should now be at 6%
per annum, computed from May 5, 2007, when respondent sent his letter of demand to petitioners. This
interest shall continue to be due from the finality of this decision until its full satisfaction.

WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV No. 95709 is AFFIRMED.

Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are hereby ordered solidarily to pay
respondent Dan T. Lim the amount of P7,220,968.31 with interest of 6% per annum at the time of
demand until finality of judgment and its full satisfaction, with moral damages in the amount
of P50,000.00, exemplary damages in the amount of P50,000.00, and attorney's fees in the amount
of P50,000.00.

SO ORDERED.
G.R. No. 177921 December 4, 2013

METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO AND TIUOH

YAN, SPOUSES GUILLERMO AND MERCEDES DYCHIAO, AND SPOUSES VICENTE AND
FILOMENA DYCHIAO, Petitioners,
vs.
ALLIED BANK CORPORATION, Respondent.

RESOLUTION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated February 12, 2007 and the
Resolution3dated May 10, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86896 which reversed and
set aside the Decision4 dated January 17, 2006 of the Regional Trial Court of Makati, Branch 57 (RTC) in
Civil Case No. 00-1563, thereby ordering petitioners Metro Concast Steel Corporation (Metro Concast),
Spouses Jose S. Dychiao and Tiu Oh Yan, Spouses Guillermo and Mercedes Dychiao, and Spouses Vicente
and Filomena Duchiao (individual petitioners) to solidarily pay respondent Allied Bank Corporation (Allied
Bank) the aggregate amount ofP51,064,094.28, with applicable interests and penalty charges.

The Facts

On various dates and for different amounts, Metro Concast, a corporation duly organized and existing
under and by virtue of Philippine laws and engaged in the business of manufacturing steel, 5 through its
officers, herein individual petitioners, obtained several loans from Allied Bank. These loan transactions
were covered by a promissory note and separate letters of credit/trust receipts, the details of which are
as follows:

<<Reference: http://www.scribd.com/doc/196404620/177921>>
Date Document Amount

December 13, 1996 Promissory Note No. 96-213016

P2,000,000.00 November 7, 1995 Trust Receipt No. 96-202365 7

P608,603.04 May 13, 1996 Trust Receipt No. 96-9605228

P3,753,777.40 May 24, 1996 Trust Receipt No. 96-9605249

P4,602,648.08 March 21, 1997 Trust Receipt No. 97-20472410

P7,289,757.79 June 7, 1996 Trust Receipt No. 96-203280 11

P17,340,360.73 July 26, 1995 Trust Receipt No. 95-201943 12

P670,709.24 August 31, 1995 Trust Receipt No. 95-202053 13

P313,797.41 November 16, 1995 Trust Receipt No. 96-202439 14

P13,015,109.87 July 3, 1996 Trust Receipt No. 96-203552 15

P401,608.89 June 20, 1995 Trust Receipt No. 95-201710 16

P750,089.25 December 13, 1995 Trust Receipt No. 96-379089 17

P92,919.00 December 13, 1995 Trust Receipt No. 96/202581 18

P224,713.58

The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per annum (p.a.), with
penalty charge of 3% per month in case of default; while the twelve (12) trust receipts uniformly
provided for an interest rate of 14% p.a. and 1% penalty charge. By way of security, the individual
petitioners executed several Continuing Guaranty/Comprehensive Surety Agreements 19 in favor of Allied
Bank. Petitioners failed to settle their obligations under the aforementioned promissory note and trust
receipts, hence, Allied Bank, through counsel, sent them demand letters, 20 all dated December 10, 1998,
seeking payment of the total amount of P51,064,093.62, but to no avail. Thus, Allied Bank was prompted
to file a complaint for collection of sum of money21 (subject complaint) against petitioners before the
RTC, docketed as Civil Case No. 00-1563. In their second22 Amended Answer,23petitioners admitted their
indebtedness to Allied Bank but denied liability for the interests and penalties charged, claiming to have
paid the total sum of P65,073,055.73 by way of interest charges for the period covering 1992 to 1997. 24

They also alleged that the economic reverses suffered by the Philippine economy in 1998 as well as the
devaluation of the peso against the US dollar contributed greatly to the downfall of the steel industry,
directly affecting the business of Metro Concast and eventually leading to its cessation. Hence, in order to
settle their debts with Allied Bank, petitioners offered the sale of Metro Concasts remaining assets,
consisting of machineries and equipment, to Allied Bank, which the latter, however, refused. Instead,
Allied Bank advised them to sell the equipment and apply the proceeds of the sale to their outstanding
obligations. Accordingly, petitioners offered the equipment for sale, but since there were no takers, the
equipment was reduced into ferro scrap or scrap metal over the years. In 2002, Peakstar Oil Corporation
(Peakstar), represented by one Crisanta Camiling (Camiling), expressed interest in buying the scrap
metal. During the negotiations with Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw), a
member of Allied Banks legal department, acted as the latters agent. Eventually, with the alleged
conformity of Allied Bank, through Atty. Saw, a Memorandum of Agreement 25 dated November 8, 2002
(MoA) was drawn between Metro Concast, represented by petitioner Jose Dychiao, and Peakstar, through
Camiling, under which Peakstar obligated itself to purchase the scrap metal for a total consideration
ofP34,000,000.00, payable as follows:

(a) P4,000,000.00 by way of earnest money P2,000,000.00 to be paid in cash and the
other P2,000,000.00 to be paid in two (2) post-dated checks of P1,000,000.00 each;26 and

(b) the balance of P30,000,000.00 to be paid in ten (10) monthly installments of P3,000,000.00, secured
by bank guarantees from Bankwise, Inc. (Bankwise) in the form of separate post-dated checks. 27

Unfortunately, Peakstar reneged on all its obligations under the MoA. In this regard, petitioners
asseverated that:

(a) their failure to pay their outstanding loan obligations to Allied Bank must be considered as force
majeure ; and

(b) since Allied Bank was the party that accepted the terms and conditions of payment proposed by
Peakstar, petitioners must therefore be deemed to have settled their obligations to Allied Bank. To bolster
their defense, petitioner Jose Dychiao (Jose Dychiao) testified 28 during trial that it was Atty. Saw himself
who drafted the MoA and subsequently received29 the P2,000,000.00 cash and the two (2) Bankwise
post-dated checks worthP1,000,000.00 each from Camiling. However, Atty. Saw turned over only the two
(2) checks and P1,500,000.00 in cash to the wife of Jose Dychiao. 30

Claiming that the subject complaint was falsely and maliciously filed, petitioners prayed for the award of
moral damages in the amount of P20,000,000.00 in favor of Metro Concast and at least P25,000,000.00
for each individual petitioner, P25,000,000.00 as exemplary damages, P1,000,000.00 as attorneys
fees, P500,000.00 for other litigation expenses, including costs of suit.

The RTC Ruling

After trial on the merits, the RTC, in a Decision31 dated January 17, 2006, dismissed the subject
complaint, holding that the "causes of action sued upon had been paid or otherwise extinguished." It
ruled that since Allied Bank was duly represented by its agent, Atty. Saw, in all the negotiations and
transactions with Peakstar considering that Atty. Saw

(a) drafted the MoA,

(b) accepted the bank guarantee issued by Bankwise, and

(c) was apprised of developments regarding the sale and disposition of the scrap metal then it stands
to reason that the MoA between Metro Concast and Peakstar was binding upon said bank.

The CA Ruling

Allied Bank appealed to the CA which, in a Decision32 dated February 12, 2007, reversed and set aside
the ruling of the RTC, ratiocinating that there was "no legal basis in fact and in law to declare that when
Bankwise reneged its guarantee under the [MoA], herein [petitioners] should be deemed to be
discharged from their obligations lawfully incurred in favor of [Allied Bank]." 33
The CA examined the MoA executed between Metro Concast, as seller of the ferro scrap, and Peakstar,
as the buyer thereof, and found that the same did not indicate that Allied Bank intervened or was a party
thereto. It also pointed out the fact that the post-dated checks pursuant to the MoA were issued in favor
of Jose Dychiao. Likewise, the CA found no sufficient evidence on record showing that Atty. Saw was duly
and legally authorized to act for and on behalf of Allied Bank, opining that the RTC was "indulging in
hypothesis and speculation"34 when it made a contrary pronouncement. While Atty. Saw received the
earnest money from Peakstar, the receipt was signed by him on behalf of Jose Dychiao. 35

It also added that "[i]n the final analysis, the aforesaid checks and receipts were signed by [Atty.] Saw
either as representative of [petitioners] or as partner of the latters legal counsel, and not in anyway as
representative of [Allied Bank]."36

Consequently, the CA granted the appeal and directed petitioners to solidarily pay Allied Bank their
corresponding obligations under the aforementioned promissory note and trust receipts, plus interests,
penalty charges and attorneys fees. Petitioners sought reconsideration 37 which was, however, denied in a
Resolution38 dated May 10, 2007. Hence, this petition.

The Issue Before the Court

At the core of the present controversy is the sole issue of whether or not the loan obligations incurred by
the petitioners under the subject promissory note and various trust receipts have already been
extinguished.

The Courts Ruling

Article 1231 of the Civil Code states that obligations are extinguished either by payment or performance,
the loss of the thing due, the condonation or remission of the debt, the confusion or merger of the rights
of creditor and debtor, compensation or novation.

In the present case, petitioners essentially argue that their loan obligations to Allied Bank had already
been extinguished due to Peakstars failure to perform its own obligations to Metro Concast pursuant to
the MoA. Petitioners classify Peakstars default as a form of force majeure in the sense that they have,
beyond their control, lost the funds they expected to have received from the Peakstar (due to the MoA)
which they would, in turn, use to pay their own loan obligations to Allied Bank. They further state that
Allied Bank was equally bound by Metro Concasts MoA with Peakstar since its agent, Atty. Saw, actively
represented it during the negotiations and execution of the said agreement. Petitioners arguments are
untenable. At the outset, the Court must dispel the notion that the MoA would have any relevance to the
performance of petitioners obligations to Allied Bank. The MoA is a sale of assets contract, while
petitioners obligations to Allied Bank arose from various loan transactions. Absent any showing that the
terms and conditions of the latter transactions have been, in any way, modified or novated by the terms
and conditions in the MoA, said contracts should be treated separately and distinctly from each other,
such that the existence, performance or breach of one would not depend on the existence, performance
or breach of the other. In the foregoing respect, the issue on whether or not Allied Bank expressed its
conformity to the assets sale transaction between Metro Concast and Peakstar (as evidenced by the MoA)
is actually irrelevant to the issues related to petitioners loan obligations to the bank. Besides, as the CA
pointed out, the fact of Allied Banks representation has not been proven in this case and hence, cannot
be deemed as a sustainable defense to exculpate petitioners from their loan obligations to Allied Bank.
Now, anent petitioners reliance on force majeure, suffice it to state that Peakstars breach of its
obligations to Metro Concast arising from the MoA cannot be classified as a fortuitous event under
jurisprudential formulation. As discussed in Sicam v. Jorge:39
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not
enough that the event should not have been foreseen or anticipated, as is commonly believed but it must
be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility
to foresee the same. To constitute a fortuitous event, the following elements must concur: (a) the cause
of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations
must be independent of human will; (b) it must be impossible to foresee the event that constitutes
the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be
such as to render it impossible for the debtor to fulfill obligations in a normal manner; and (d)
the obligor must be free from any participation in the aggravation of the injury or loss. 40 (Emphases
supplied)

While it may be argued that Peakstars breach of the MoA was unforseen by petitioners, the same us
clearly not "impossible"to foresee or even an event which is independent of human will." Neither has it
been shown that said occurrence rendered it impossible for petitioners to pay their loan obligations to
Allied Bank and thus, negates the formers force majeure theory altogether. In any case, as earlier
stated, the performance or breach of the MoA bears no relation to the performance or breach of the
subject loan transactions, they being separate and distinct sources of obligations. The fact of the matter
is that petitioners loan obligations to Allied Bank remain subsisting for the basic reason that the former
has not been able to prove that the same had already been paid 41 or, in any way, extinguished. In this
regard, petitioners liability, as adjudged by the CA, must perforce stand. Considering, however, that
Allied Banks extra-judicial demand on petitioners appears to have been made only on December 10,
1998, the computation of the applicable interests and penalty charges should be reckoned only from such
date.

WHEREFORE, the petition is DENIED. The Decision dated February 12, 2007 and Resolution dated May
10, 2007 of the Court of Appeals in CA-G.R. CV No. 86896 are hereby AFFIRMED with MODIFICATION
reckoning the applicable interests and penalty charges from the date of the extrajudicial demand or on
December 10, 1998. The rest of the appellate courts dispositions stand.

SO ORDERED.
G.R. No. 158361 April 10, 2013

INTERNATIONAL HOTEL CORPORATION, Petitioner,

vs.
FRANCISCO B. JOAQUIN, JR. and RAFAEL SUAREZ, Respondents.

DECISION

BERSAMIN, J.:

To avoid unjust enrichment to a party from resulting out of a substantially performed contract, the
principle of quantum meruit may be used to determine his compensation in the absence of a written
agreement for that purpose. The principle of quantum meruit justifies the payment of the reasonable
value of the services rendered by him.

The Case

Under review is the decision the Court of Appeals (CA) promulgated on November 8, 2002, 1 disposing:

WHEREFORE, premises considered, the decision dated August 26, 1993 of the Regional Trial Court,
Branch 13, Manila in Civil Case No. R-82-2434 is AFFIRMED with Modification as to the amounts awarded
as follows: defendant-appellant IHC is ordered to pay plaintiff-appellant Joaquin P700,000.00 and
plaintiff-appellant SuarezP200,000.00, both to be paid in cash.

SO ORDERED.

Antecedents
On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to the Board of Directors
of the International Hotel Corporation (IHC) for him to render technical assistance in securing a foreign
loan for the construction of a hotel, to be guaranteed by the Development Bank of the Philippines
(DBP).2 The proposal encompassed nine phases, namely: (1) the preparation of a new project study; (2)
the settlement of the unregistered mortgage prior to the submission of the application for guaranty for
processing by DBP; (3) the preparation of papers necessary to the application for guaranty; (4) the
securing of a foreign financier for the project; (5) the securing of the approval of the DBP Board of
Governors; (6) the actual follow up of the application with DBP3; (7) the overall coordination in
implementing the projections of the project study; (8) the preparation of the staff for actual hotel
operations; and (9) the actual hotel operations.4

The IHC Board of Directors approved phase one to phase six of the proposal during the special board
meeting on February 11, 1969, and earmarked P2,000,000.00 for the project.5 Anent the financing, IHC
applied with DBP for a foreign loan guaranty. DBP processed the application, 6 and approved it on October
24, 1969 subject to several conditions.7

On July 11, 1969, shortly after submitting the application to DBP, Joaquin wrote to IHC to request the
payment of his fees in the amount of P500,000.00 for the services that he had provided and would be
providing to IHC in relation to the hotel project that were outside the scope of the technical proposal.
Joaquin intimated his amenability to receive shares of stock instead of cash in view of IHCs financial
situation.8

On July 11, 1969, the stockholders of IHC met and granted Joaquins request, allowing the payment for
both Joaquin and Rafael Suarez for their services in implementing the proposal. 9

On June 20, 1970, Joaquin presented to the IHC Board of Directors the results of his negotiations with
potential foreign financiers. He narrowed the financiers to Roger Dunn & Company and Materials
Handling Corporation. He recommended that the Board of Directors consider Materials Handling
Corporation based on the more beneficial terms it had offered. His recommendation was accepted. 10

Negotiations with Materials Handling Corporation and, later on, with its principal, Barnes International
(Barnes), ensued. While the negotiations with Barnes were ongoing, Joaquin and Jose Valero, the
Executive Director of IHC, met with another financier, the Weston International Corporation (Weston), to
explore possible financing.11 When Barnes failed to deliver the needed loan, IHC informed DBP that it
would submit Weston for DBPs consideration.12As a result, DBP cancelled its previous guaranty through a
letter dated December 6, 1971.13

On December 13, 1971, IHC entered into an agreement with Weston, and communicated this
development to DBP on June 26, 1972. However, DBP denied the application for guaranty for failure to
comply with the conditions contained in its November 12, 1971 letter. 14

Due to Joaquins failure to secure the needed loan, IHC, through its President Bautista, canceled the
17,000 shares of stock previously issued to Joaquin and Suarez as payment for their services. The latter
requested a reconsideration of the cancellation, but their request was rejected.

Consequently, Joaquin and Suarez commenced this action for specific performance, annulment, damages
and injunction by a complaint dated December 6, 1973 in the Regional Trial Court in Manila (RTC),
impleading IHC and the members of its Board of Directors, namely, Felix Angelo Bautista, Sergio O.
Rustia, Ephraim G. Gochangco, Mario B. Julian, Benjamin J. Bautista, Basilio L. Lirag, Danilo R. Lacerna
and Hermenegildo R. Reyes.15 The complaint alleged that the cancellation of the shares had been illegal,
and had deprived them of their right to participate in the meetings and elections held by IHC; that Barnes
had been recommended by IHC President Bautista, not by Joaquin; that they had failed to meet their
obligation because President Bautista and his son had intervened and negotiated with Barnes instead of
Weston; that DBP had canceled the guaranty because Barnes had failed to release the loan; and that IHC
had agreed to compensate their services with 17,000 shares of the common stock plus cash
of P1,000,000.00.16

IHC, together with Felix Angelo Bautista, Sergio O. Rustia, Mario B. Julian and Benjamin J. Bautista, filed
an answer claiming that the shares issued to Joaquin and Suarez as compensation for their "past and
future services" had been issued in violation of Section 16 of the Corporation Code; that Joaquin and
Suarez had not provided a foreign financier acceptable to DBP; and that they had already
received P96,350.00 as payment for their services.17

On their part, Lirag and Lacerna denied any knowledge of or participation in the cancellation of the
shares.18

Similarly, Gochangco and Reyes denied any knowledge of or participation in the cancellation of the
shares, and clarified that they were not directors of IHC.19 In the course of the proceedings, Reyes died
and was substituted by Consorcia P. Reyes, the administratrix of his estate. 20

Ruling of the RTC

Under its decision rendered on August 26, 1993, the RTC held IHC liable pursuant to the second
paragraph of Article 1284 of the Civil Code, disposing thusly:

WHEREFORE, in the light of the above facts, law and jurisprudence, the Court hereby orders the
defendant International Hotel Corporation to pay plaintiff Francisco B. Joaquin, the amount of Two
Hundred Thousand Pesos (P200,000.00) and to pay plaintiff Rafael Suarez the amount of Fifty Thousand
Pesos (P50,000.00); that the said defendant IHC likewise pay the co-plaintiffs, attorneys fees
of P20,000.00, and costs of suit.

IT IS SO ORDERED.21

The RTC found that Joaquin and Suarez had failed to meet their obligations when IHC had chosen to
negotiate with Barnes rather than with Weston, the financier that Joaquin had recommended; and that
the cancellation of the shares of stock had been proper under Section 68 of the Corporation Code, which
allowed such transfer of shares to compensate only past services, not future ones.

Ruling of the CA

Both parties appealed.22

Joaquin and Suarez assigned the following errors, to wit:

DESPITE HAVING CORRECTLY ACKNOWLEDGED THAT PLAINTIFFS-APPELLANTS FULLY PERFORMED ALL

THAT WAS INCUMBENT UPON THEM, THE HONORABLE JUDGE ERRED IN NOT ORDERING THAT:

A. DEFENDANTS WERE UNJUSTIFIED IN CANCELLING THE SHARES OF STOCK PREVIOUSLY

ISSUED TO PLAINTIFFS-APPELLANTS; AND

B. DEFENDANTS PAY PLAINTIFFS-APPELLANTS TWO MILLION SEVEN HUNDRED PESOS (sic)

(P2,700,000.00), INCLUDING INTEREST THEREON FROM 1973, REPRESENTING THE TOTAL
OBLIGATION DUE PLAINTIFFS-APPELLANTS.23
On the other hand, IHC attributed errors to the RTC, as follows:

I.

THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFFS-APPELLANTS HAVE NOTBEEN COMPLETELY
PAID FOR THEIR SERVICES, AND IN ORDERING THE DEFENDANT-APPELLANT TO PAY TWO HUNDRED
THOUSAND PESOS (P200,000.00) AND FIFTY THOUSAND PESOS (P50,000.00) TO PLAINTIFFS-
APPELLANTS FRANCISCO B. JOAQUIN AND RAFAEL SUAREZ, RESPECTIVELY.

II.

THE LOWER COURT ERRED IN AWARDING PLAINTIFFS-APPELLANTS ATTORNEYS FEES AND COSTS OF
SUIT.24

In its questioned decision promulgated on November 8, 2002, the CA concurred with the RTC, upholding
IHCs liability under Article 1186 of the Civil Code. It ruled that in the context of Article 1234 of the Civil
Code, Joaquin had substantially performed his obligations and had become entitled to be paid for his
services; and that the issuance of the shares of stock was ultra vires for having been issued as
consideration for future services.

Anent how much was due to Joaquin and Suarez, the CA explained thusly:

This Court does not subscribe to plaintiffs-appellants view that defendant-appellant IHC agreed to pay
themP2,000,000.00. Plaintiff-appellant Joaquins letter to defendant-appellee F.A. Bautista, quoting
defendant-appellant IHCs board resolutions which supposedly authorized the payment of such amount
cannot be sustained. The resolutions are quite clear and when taken together show that said amount was
only the "estimated maximum expenses" which defendant-appellant IHC expected to incur in
accomplishing phases 1 to 6, not exclusively to plaintiffs-appellants compensation.This conclusion finds
support in an unnumbered board resolution of defendant-appellant IHC dated July 11, 1969:

"Incidentally, it was also taken up the necessity of giving the Technical Group a portion of the
compensation that was authorized by this corporation in its Resolution of February 11, 1969 considering
that the assistance so far given the corporation by said Technical Group in continuing our project with the
DBP and its request for guaranty for a foreign loan is 70% completed leaving only some details which are
now being processed. It is estimated thatP400,000.00 worth of Common Stock would be reasonable for
the present accomplishments and to this effect, the President is authorized to issue the same in the name
of the Technical Group, as follows:

P200,000.00 in common stock to Rafael Suarez, as associate in the Technical Group, and P200,000.00 in
common stock to Francisco G. Joaquin, Jr., also a member of the Technical Group.

It is apparent that not all of the P2,000,000.00 was allocated exclusively to compensate plaintiffs-
appellants. Rather, it was intended to fund the whole undertaking including their compensation. On the
same date, defendant-appellant IHC also authorized its president to pay-appellant Joaquin P500,000.00
either in cash or in stock or both.

The amount awarded by the lower court was therefore less than what defendant-appellant IHC agreed to
pay plaintiffs-appellants. While this Court cannot decree that the cancelled shares be restored, for they
are without a doubt null and void, still and all, defendant-appellant IHC cannot now put up its own ultra
vires act as an excuse to escape obligation to plaintiffs-appellants. Instead of shares of stock, defendant-
appellant IHC is ordered to pay plaintiff-appellant Joaquin a total of P700,000.00 and plaintiff-appellant
Suarez P200,000.00, both to be paid in cash.

Although the lower court failed to explain why it was granting the attorneys fees, this Court nonetheless
finds its award proper given defendant-appellant IHCs actions. 25

Issues

In this appeal, the IHC raises as issues for our consideration and resolution the following:

WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN AWARDING COMPENSATION AND EVEN
MODIFYING THE PAYMENT TO HEREIN RESPONDENTS DESPITE NON-FULFILLMENT OF THEIR
OBLIGATION TO HEREIN PETITIONER

II

WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN AWARDING ATTORNEYS FEES TO

RESPONDENTS26

IHC maintains that Article 1186 of the Civil Code was erroneously applied; that it had no intention of
preventing Joaquin from complying with his obligations when it adopted his recommendation to negotiate
with Barnes; that Article 1234 of the Civil Code applied only if there was a merely slight deviation from
the obligation, and the omission or defect was technical and unimportant; that substantial compliance
was unacceptable because the foreign loan was material and was, in fact, the ultimate goal of its contract
with Joaquin and Suarez; that because the obligation was indivisible and subject to a suspensive
condition, Article 1181 of the Civil Code 27 applied, under which a partial performance was equivalent to
non-performance; and that the award of attorneys fees should be deleted for lack of legal and factual
bases.

On the part of respondents, only Joaquin filed a comment,28 arguing that the petition was fatally
defective for raising questions of fact; that the obligation was divisible and capable of partial
performance; and that the suspensive condition was deemed fulfilled through IHCs own actions. 29

Ruling

We deny the petition for review on certiorari subject to the ensuing disquisitions.

1.

IHC raises questions of law

We first consider and resolve whether IHCs petition improperly raised questions of fact.

A question of law exists when there is doubt as to what the law is on a certain state of facts, but, in
contrast, a question of fact exists when the doubt arises as to the truth or falsity of the facts alleged. A
question of law does not involve an examination of the probative value of the evidence presented by the
litigants or by any of them; the resolution of the issue must rest solely on what the law provides on the
given set of circumstances.30 When there is no dispute as to the facts, the question of whether or not the
conclusion drawn from the facts is correct is a question of law. 31
Considering that what IHC seeks to review is the CAs application of the law on the facts presented
therein, there is no doubt that IHC raises questions of law. The basic issue posed here is whether the
conclusions drawn by the CA were correct under the pertinent laws.

2.

Article 1186 and Article 1234 of the Civil Code cannot be the source of IHCs obligation to pay
respondents IHC argues that it should not be held liable because: (a) it was Joaquin who had
recommended Barnes; and (b) IHCs negotiation with Barnes had been neither intentional nor willfully
intended to prevent Joaquin from complying with his obligations.

IHCs argument is meritorious.

Article 1186 of the Civil Code reads:

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

This provision refers to the constructive fulfillment of a suspensive condition, 32 whose application calls for
two requisites, namely: (a) the intent of the obligor to prevent the fulfillment of the condition, and (b) the
actual prevention of the fulfillment. Mere intention of the debtor to prevent the happening of the
condition, or to place ineffective obstacles to its compliance, without actually preventing the fulfillment, is
insufficient.33

The error lies in the CAs failure to determine IHCs intent to pre-empt Joaquin from meeting his
obligations. The June 20, 1970 minutes of IHCs special board meeting discloses that Joaquin impressed
upon the members of the Board that Materials Handling was offering more favorable terms for IHC, to
wit:

xxxx

At the meeting all the members of the Board of Directors of the International Hotel Corporation were
present with the exception of Directors Benjamin J. Bautista and Sergio O. Rustia who asked to be
excused because of previous engagements. In that meeting, the President called on Mr. Francisco G.
Joaquin, Jr. to explain the different negotiations he had conducted relative to obtaining the needed
financing for the hotel project in keeping with the authority given to him in a resolution approved by the
Board of Directors.

Mr. Joaquin presently explained that he contacted several local and foreign financiers through different
brokers and after examining the different offers he narrowed down his choice to two (2), to wit: the
foreign financier recommended by George Wright of the Roger Dunn & Company and the offer made by
the Materials Handling Corporation.

After explaining the advantages and disadvantages to our corporation of the two (2) offers specifically
with regard to the terms and repayment of the loan and the rate of interest requested by them, he
concluded that the offer made by the Materials Handling Corporation is much more advantageous
because the terms and conditions of payment as well as the rate of interest are much more reasonable
and would be much less onerous to our corporation. However, he explained that the corporation
accepted, in principle, the offer of Roger Dunn, per the corporations telegrams to Mr. Rudolph Meir of
the Private Bank of Zurich, Switzerland, and until such time as the corporations negotiations with Roger
Dunn is terminated, we are committed, on one way or the other, to their financing.
It was decided by the Directors that, should the negotiations with Roger Dunn materialize, at the same
time as the offer of Materials Handling Corporation, that the funds committed by Roger Dunn may be
diverted to other borrowers of the Development Bank of the Philippines. With this condition, Director
Joaquin showed the advantages of the offer of Materials Handling Corporation. Mr. Joaquin also informed
the corporation that, as of this date, the bank confirmation of Roger Dunn & Company has not been
received. In view of the fact that the corporation is racing against time in securing its financing, he
recommended that the corporation entertain other offers.

After a brief exchange of views on the part of the Directors present and after hearing the clarification and
explanation made by Mr. C. M. Javier who was present and who represented the Materials Handling
Corporation, the Directors present approved unanimously the recommendation of Mr. Joaquin to
entertain the offer of Materials Handling Corporation. 34

Evidently, IHC only relied on the opinion of its consultant in deciding to transact with Materials Handling
and, later on, with Barnes. In negotiating with Barnes, IHC had no intention, willful or otherwise, to
prevent Joaquin and Suarez from meeting their undertaking. Such absence of any intention negated the
basis for the CAs reliance on Article 1186 of the Civil Code.

Nor do we agree with the CAs upholding of IHCs liability by virtue of Joaquin and Suarezs substantial
performance. In so ruling, the CA applied Article 1234 of the Civil Code, which states:

Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment, less damages suffered by the obligee.

It is well to note that Article 1234 applies only when an obligor admits breaching the contract 35 after
honestly and faithfully performing all the material elements thereof except for some technical aspects
that cause no serious harm to the obligee.36 IHC correctly submits that the provision refers to an omission
or deviation that is slight, or technical and unimportant, and does not affect the real purpose of the
contract.

Tolentino explains the character of the obligors breach under Article 1234 in the following manner, to
wit:

In order that there may be substantial performance of an obligation, there must have been an attempt in
good faith to perform, without any willful or intentional departure therefrom. The deviation from the
obligation must be slight, and the omission or defect must be technical and unimportant, and must not
pervade the whole or be so material that the object which the parties intended to accomplish in a
particular manner is not attained. The non-performance of a material part of a contract will prevent the
performance from amounting to a substantial compliance.

The party claiming substantial performance must show that he has attempted in good faith to perform his
contract, but has through oversight, misunderstanding or any excusable neglect failed to completely
perform in certain negligible respects, for which the other party may be adequately indemnified by an
allowance and deduction from the contract price or by an award of damages. But a party who knowingly
and wilfully fails to perform his contract in any respect, or omits to perform a material part of it, cannot
be permitted, under the protection of this rule, to compel the other party, and the trend of the more
recent decisions is to hold that the percentage of omitted or irregular performance may in and of itself be
sufficient to show that there had not been a substantial performance. 37

By reason of the inconsequential nature of the breach or omission, the law deems the performance as
substantial, making it the obligees duty to pay. 38 The compulsion of payment is predicated on the
substantial benefit derived by the obligee from the partial performance. Although compelled to pay, the
obligee is nonetheless entitled to an allowance for the sum required to remedy omissions or defects and
to complete the work agreed upon.39

Conversely, the principle of substantial performance is inappropriate when the incomplete performance
constitutes a material breach of the contract. A contractual breach is material if it will adversely affect the
nature of the obligation that the obligor promised to deliver, the benefits that the obligee expects to
receive after full compliance, and the extent that the non-performance defeated the purposes of the
contract.40 Accordingly, for the principle embodied in Article 1234 to apply, the failure of Joaquin and
Suarez to comply with their commitment should not defeat the ultimate purpose of the contract.

The primary objective of the parties in entering into the services agreement was to obtain a foreign loan
to finance the construction of IHCs hotel project. This objective could be inferred from IHCs approval of
phase 1 to phase 6 of the proposal. Phase 1 and phase 2, respectively the preparation of a new project
study and the settlement of the unregistered mortgage, would pave the way for Joaquin and Suarez to
render assistance to IHC in applying for the DBP guaranty and thereafter to look for an able and willing
foreign financial institution acceptable to DBP. All the steps that Joaquin and Suarez undertook to
accomplish had a single objective to secure a loan to fund the construction and eventual operations of
the hotel of IHC. In that regard, Joaquin himself admitted that his assistance was specifically sought to
seek financing for IHCs hotel project.41

Needless to say, finding the foreign financier that DBP would guarantee was the essence of the parties
contract, so that the failure to completely satisfy such obligation could not be characterized as slight and
unimportant as to have resulted in Joaquin and Suarezs substantial performance that consequentially
benefitted IHC. Whatever benefits IHC gained from their services could only be minimal, and were even
probably outweighed by whatever losses IHC suffered from the delayed construction of its hotel.
Consequently, Article 1234 did not apply.

3.

IHC is nonetheless liable to pay under the rule on constructive fulfillment of a mixed
conditional obligation

Notwithstanding the inapplicability of Article 1186 and Article 1234 of the Civil Code, IHC was liable based
on the nature of the obligation.

Considering that the agreement between the parties was not circumscribed by a definite period, its
termination was subject to a condition the happening of a future and uncertain event. 42 The prevailing
rule in conditional obligations is that the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event that constitutes the condition. 43

To recall, both the RTC and the CA held that Joaquin and Suarezs obligation was subject to the
suspensive condition of successfully securing a foreign loan guaranteed by DBP. IHC agrees with both
lower courts, and even argues that the obligation with a suspensive condition did not arise when the
event or occurrence did not happen. In that instance, partial performance of the contract subject to the
suspensive condition was tantamount to no performance at all. As such, the respondents were not
entitled to any compensation.

We have to disagree with IHCs argument.

To secure a DBP-guaranteed foreign loan did not solely depend on the diligence or the sole will of the
respondents because it required the action and discretion of third persons an able and willing foreign
financial institution to provide the needed funds, and the DBP Board of Governors to guarantee the loan.
Such third persons could not be legally compelled to act in a manner favorable to IHC. There is no
question that when the fulfillment of a condition is dependent partly on the will of one of the contracting
parties,44 or of the obligor, and partly on chance, hazard or the will of a third person, the obligation is
mixed.45 The existing rule in a mixed conditional obligation is that when the condition was not fulfilled but
the obligor did all in his power to comply with the obligation, the condition should be deemed satisfied. 46

Considering that the respondents were able to secure an agreement with Weston, and subsequently tried
to reverse the prior cancellation of the guaranty by DBP, we rule that they thereby constructively fulfilled
their obligation.

4.

Quantum meruit should apply in the absence of an express agreement on the fees

The next issue to resolve is the amount of the fees that IHC should pay to Joaquin and Suarez.

Joaquin claimed that aside from the approved P2,000,000.00 fee to implement phase 1 to phase 6, the
IHC Board of Directors had approved an additional P500,000.00 as payment for his services. The RTC
declared that he and Suarez were entitled to P200,000.00 each, but the CA revised the amounts
to P700,000.00 for Joaquin andP200,000.00 for Suarez.

Anent the P2,000,000.00, the CA rightly concluded that the full amount of P2,000,000.00 could not be
awarded to respondents because such amount was not allocated exclusively to compensate respondents,
but was intended to be the estimated maximum to fund the expenses in undertaking phase 6 of the
scope of services. Its conclusion was unquestionably borne out by the minutes of the February 11, 1969
meeting, viz:

xxxx

II

The preparation of the necessary papers for the DBP including the preparation of the application, the
presentation of the mechanics of financing, the actual follow up with the different departments of the
DBP which includes the explanation of the feasibility studies up to the approval of the loan, conditioned
on the DBPs acceptance of the project as feasible. The estimated expenses for this particular phase
would be contingent, i.e. upon DBPs approval of the plan now being studied and prepared, is somewhere
around P2,000,000.00.

After a brief discussion on the matter, the Board on motion duly made and seconded, unanimously
adopted a resolution of the following tenor:

RESOLUTION NO. ______

(Series of 1969)

"RESOLVED, as it is hereby RESOLVED, that if the Reparations allocation and the plan being negotiated
with the DBP is realized the estimated maximum expenses of P2,000,000.00 for this phase is hereby
authorized subject to the sound discretion of the committee composed of Justice Felix Angelo Bautista,
Jose N. Valero and Ephraim G. Gochangco."47 (Emphasis supplied)
Joaquins claim for the additional sum of P500,000.00 was similarly without factual and legal bases. He
had requested the payment of that amount to cover services rendered and still to be rendered to IHC
separately from those covered by the first six phases of the scope of work. However, there is no reason
to hold IHC liable for that amount due to his failure to present sufficient proof of the services rendered
towards that end. Furthermore, his July 11, 1969 letter revealed that the additional services that he had
supposedly rendered were identical to those enumerated in the technical proposal, thus:

The Board of Directors

International Hotel Corporation

Thru: Justice Felix Angelo Bautista

President & Chairman of the Board

Gentlemen:

I have the honor to request this Body for its deliberation and action on the fees for my services rendered
and to be rendered to the hotel project and to the corporation. These fees are separate from the fees
you have approved in your previous Board Resolution, since my fees are separate. I realize the position
of the corporation at present, in that it is not in a financial position to pay my services in cash, therefore,
I am requesting this Body to consider payment of my fees even in the form of shares of stock, as you
have done to the other technical men and for other services rendered to the corporation by other people.

Inasmuch as my fees are contingent on the successful implementation of this project, I request that my
fees be based on a percentage of the total project cost. The fees which I consider reasonable for the
services that I have rendered to the project up to the completion of its construction isP500,000.00. I
believe said amount is reasonable since this is approximately only of 1% of the total project cost.

So far, I have accomplished Phases 1-5 of my report dated February 1, 1969 and which you authorized
us to do under Board Resolution of February 11, 1969. It is only Phase 6 which now remains to be
implemented. For my appointment as Consultant dated May 12, 1969 and the Board Resolution dated
June 23, 1969 wherein I was appointed to the Technical Committee, it now follows that I have been also
authorized to implement part of Phases 7 & 8.

A brief summary of my accomplished work has been as follows:

1. I have revised and made the new Project Study of your hotel project, making it bankable and
feasible.

2. I have reduced the total cost of your project by approximately P24,735,000.00.

3. I have seen to it that a registered mortgage with the Reparations Commission did not affect
the application with the IBP for approval to processing.

4. I have prepared the application papers acceptable to the DBP by means of an advance
analysis and the presentation of the financial mechanics, which was accepted by the DBP.

5. I have presented the financial mechanics of the loan wherein the requirement of the DBP for
an additional P19,000,000.00 in equity from the corporation became unnecessary.
 6. The explanation of the financial mechanics and the justification of this project was
instrumental in changing the original recommendation of the Investment Banking Department of
the DBP, which recommended disapproval of this application, to the present recommendation of
the Real Estate Department which is for the approval of this project for proceeding.

7. I have submitted to you several offers already of foreign financiers which are in your files. We
are presently arranging the said financiers to confirm their funds to the DBP for our project,

8. We have secured the approval of the DBP to process the loan application of this corporation as
per its letter July 2, 1969.

9. We have performed other services for the corporation which led to the cooperation and
understanding of the different factions of this corporation.

I have rendered services to your corporation for the past 6 months with no clear understanding as to the
compensation of my services. All I have drawn from the corporation is the amount of P500.00 dated May
12, 1969 and personal payment advanced by Justice Felix Angelo Bautista in the amount of P1,000.00.

I am, therefore, requesting this Body for their approval of my fees. I have shown my good faith and
willingness to render services to your corporation which is evidenced by my continued services in the past
6 months as well as the accomplishments above mentioned. I believe that the final completion of this
hotel, at least for the processing of the DBP up to the completion of the construction, will take
approximately another 2 years. In view of the above, I again reiterate my request for your approval of
my fees. When the corporation is in a better financial position, I will request for a withdrawal of a
monthly allowance, said amount to be determined by this Body.

Very truly yours,

(Sgd.)
Francisco G., Joaquin, Jr.48
(Emphasis supplied)

Joaquin could not even rest his claim on the approval by IHCs Board of Directors. The approval
apparently arose from the confusion between the supposedly separate services that Joaquin had
rendered and those to be done under the technical proposal. The minutes of the July 11, 1969 board
meeting (when the Board of Directors allowed the payment for Joaquins past services and for the 70%
project completion by the technical group) showed as follows:

III

The Third order of business is the compensation of Mr. Francisco G. Joaquin, Jr. for his services in the
corporation.

After a brief discussion that ensued, upon motion duly made and seconded, the stockholders
unanimously approved a resolution of the following tenor:

RESOLUTION NO. ___

(Series of 1969)

"RESOLVED that Mr. Francisco G. Joaquin, Jr. be granted a compensation in the amount of Five Hundred
Thousand (P500,000.00) Pesos for his past services and services still to be rendered in the future to the
corporation up to the completion of the Project.1wphi1 The President is given full discretion to discuss
with Mr. Joaquin the manner of payment of said compensation, authorizing him to pay part in stock and
part in cash."

Incidentally, it was also taken up the necessity of giving the Technical Group a portion of the
compensation that was authorized by this corporation in its Resolution of February 11, 1969 considering
that the assistance so far given the corporation by said Technical Group in continuing our project with the
DBP and its request for guaranty for a foreign loan is 70% completed leaving only some details which are
now being processed. It is estimated thatP400,000.00 worth of Common Stock would be reasonable for
the present accomplishments and to this effect, the President is authorized to issue the same in the name
of the Technical Group, as follows:

P200,000.00 in Common Stock to Rafael Suarez, an associate in the Technical Group, and P200,000.00 in
Common stock to Francisco G. Joaquin, Jr., also a member of the Technical Group. 49

Lastly, the amount purportedly included services still to be rendered that supposedly extended until the
completion of the construction of the hotel. It is basic, however, that in obligations to do, there can be no
payment unless the obligation has been completely rendered. 50

It is notable that the confusion on the amounts of compensation arose from the parties inability to agree
on the fees that respondents should receive. Considering the absence of an agreement, and in view of
respondents constructive fulfillment of their obligation, the Court has to apply the principle of quantum
meruit in determining how much was still due and owing to respondents. Under the principle of quantum
meruit, a contractor is allowed to recover the reasonable value of the services rendered despite the lack
of a written contract.51 The measure of recovery under the principle should relate to the reasonable value
of the services performed.52 The principle prevents undue enrichment based on the equitable postulate
that it is unjust for a person to retain any benefit without paying for it. Being predicated on equity, the
principle should only be applied if no express contract was entered into, and no specific statutory
provision was applicable.53

Under the established circumstances, we deem the total amount of P200,000.00 to be reasonable
compensation for respondents services under the principle of quantum meruit.

Finally, we sustain IHCs position that the grant of attorneys fees lacked factual or legal basis. Attorneys
fees are not awarded every time a party prevails in a suit because of the policy that no premium should
be placed on the right to litigate. There should be factual or legal support in the records before the award
of such fees is sustained. It is not enough justification for the award simply because respondents were
compelled to protect their rights.54

ACCORDINGLY, the Court DENIES the petition for review on certiorari; and AFFIRMS the decision of the
Court of Appeals promulgated on November 8, 2002 in C.A.-G.R. No. 47094 subject to the
MODIFICATIONS that: (a) International Hotel Corporation is ordered to. pay Francisco G. Joaquin, Jr. and
Rafael Suarez P100,000.00 each as compensation for their services, and (b) the award of P20,000.00 as
attorney's fees is deleted.

No costs of suit.

SO ORDERED.
G.R. No. 156302 April 7, 2009

THE HEIRS OF GEORGE Y. POE, Petitioners,

vs.
MALAYAN INSURANCE COMPANY, INC., Respondent.

DECISION

CHICO-NAZARIO, J.:

The instant Petition for Review under Rule 451 of the Rules of Court assails the Decision2 dated 26 June
2002 of the Court of Appeals in CA-G.R. SP No. 67297, which granted the Petition for Certiorari of
respondent Malayan Insurance Company, Inc. (MICI) and recalled and set aside the Order 3 dated 6
September 2001 of the Regional Trial Court (RTC), Branch 73, of Antipolo City, in Civil Case No. 93-2705.
The RTC, in its recalled Order, denied the Notice of Appeal of MICI and granted the Motion for the
Issuance of a Writ of Execution filed by petitioners Heirs of George Y. Poe. The present Petition also
challenges the Resolution4 dated 29 November 2002 of the appellate court denying petitioners Motion for
Reconsideration.

Records show that on 26 January 1996 at about 4:45 a.m., George Y. Poe (George) while waiting for a
ride to work in front of Capital Garments Corporation, Ortigas Avenue Extension, Barangay Dolores,
Taytay, Rizal, was run over by a ten-wheeler Isuzu hauler truck with Plate No. PMH-858 owned by Rhoda
Santos (Rhoda), and then being driven by Willie Labrador (Willie). 5 The said truck was insured with
respondent MICI under Policy No. CV-293-007446-8.
To seek redress for Georges untimely death, his heirs and herein petitioners, namely, his widow
Emercelinda, and their children Flerida and Fernando, filed with the RTC a Complaint for damages against
Rhoda and respondent MICI, docketed as Civil Case No. 93-2705.6 Petitioners identified Rhoda and
respondent MICI, as follows:

Defendant RHODA SANTOS is likewise of legal age, Filipino and a resident of Real Street, Pamplona, Las
Pias, Metro Manila where she may be served with summons and other court processes.

[Herein respondent] MALAYAN INSURANCE COMPANY, INC. (hereinafter "[MICI]" for brevity) is a
corporation duly organized and existing under Philippine law with address at Yuchengco Bldg., 484 Q.
Paredes Street, Binondo, Manila where it may be served with summons and other processes of this
Honorable Court;

Defendant Rhoda Santos, who is engaged in the business, among others, of selling gravel and sand is the
registered owner of one Isuzu Truck, with Plate No. PMH-858 and is the employer of Willie Labrador the
authorized driver of the aforesaid truck.

[Respondent MICI] on the other hand is the insurer of Rhoda Santos under a valid and existing insurance
policy duly issued by said [MICI], Policy No. CV-293-007446-8 over the subject vehicle owned by Rhoda
Santos, Truck-Hauler Isuzu 10 wheeler with plate no. PMH-858, serial no. SRZ451-1928340 and motor
no. 10PA1-403803. Under said insurance policy, [MICI] binds itself, among others, to be liable for
damages as well as any bodily injury to third persons which may be caused by the operation of the
insured vehicle.7

And prayed that:

[J]udgment issue in favor of [herein petitioners] ordering [Rhoda and herein respondent MICI] jointly and
solidarily to pay the [petitioners] the following:

1. Actual damages in the total amount of THIRTY SIX THOUSAND (P36,000.00) PESOS for
funeral and burial expenses;

2. Actual damages in the amount of EIGHT HUNDRED FIVE THOUSAND NINE HUNDRED EIGHTY
FOUR (P805,984.00) PESOS as loss of earnings and financial support given by the deceased by
reason of his income and employment;

3. Moral damages in the amount of FIFTY THOUSAND (P50,000.00) PESOS;

4. Exemplary damages in the amount of FIFTY THOUSAND (P50,000.00) PESOS;

5. Attorneys fees in the amount of FIFTY THOUSAND (P50,000.00) PESOS and litigation expense
in the amount of ONE THOUSAND FIVE HUNDRED (P1,500.00) PESOS for each court
appearance;

6. The costs of suit.

Other reliefs just and equitable in the premises are likewise prayed for. 8

Rhoda and respondent MICI made the following admissions in their Joint Answer 9 :
That [Rhoda and herein respondent MICI] admit the allegations in paragraphs 2, 3 and 4 of the
complaint;

That [Rhoda and respondent MICI] admit the allegations in paragraph 5 of the complaint that the cargo
truck is insured with [respondent] Malayan Insurance Company, Inc. [(MICI)] however, the liability of the
insured company attached only if there is a judicial pronouncement that the insured and her driver are
liable and moreover, the liability of the insurance company is subject to the limitations set forth in the
insurance policy.10

Rhoda and respondent MICI denied liability for Georges death averring, among other defenses, that: a)
the accident was caused by the negligent act of the victim George, who surreptitiously and unexpectedly
crossed the road, catching the driver Willie by surprise, and despite the latters effort to swerve the truck
to the right, the said vehicle still came into contact with the victim; b) the liability of respondent MICI, if
any, would attach only upon a judicial pronouncement that the insured Rhoda and her driver Willie are
liable; c) the liability of MICI should be based on the extent of the insurance coverage as embodied in
Rhodas policy; and d) Rhoda had always exercised the diligence of a good father of a family in the
selection and supervision of her driver Willie.

After the termination of the pre-trial proceedings, trial on the merits ensued.

Petitioners introduced and offered evidence in support of their claims for damages against MICI, and then
rested their case. Thereafter, the hearings for the reception of the evidence of Rhoda and respondent
MICI were scheduled, but they failed to adduce their evidence despite several postponements granted by
the trial court. Thus, during the hearing on 9 June 1995, the RTC, upon motion of petitioners counsel,
issued an Order11declaring that Rhoda and respondent MICI had waived their right to present evidence,
and ordering the parties to already submit their respective Memorandum within 15 days, after which, the
case would be deemed submitted for decision.1avvphi1.zw+

Rhoda and respondent MICI filed a Motion for Reconsideration12 of the Order dated 9 June 1995, but it
was denied by the RTC in another Order dated 11 August 1995.13

Consequently, Rhoda and respondent MICI filed a Petition for Certiorari, Mandamus, 14 Prohibition and
Injunction with Prayer for a Temporary Restraining Order and Writ of Preliminary Injunction, assailing the
Orders dated 9 June 1995 and 11 August 1995 of the RTC foreclosing their right to adduce evidence in
support of their defense. The Petition was docketed as CA-G.R. SP No. 38948.

The Court of Appeals, through its Third Division, promulgated a Decision 15 on 29 April 1996, denying due
course to the Petition in CA-G.R. SP No. 38948. Rhoda and respondent MICI elevated the matter to the
Supreme Court via a Petition for Certiorari, 16 docketed as G.R. No. 126244. This Court likewise dismissed
the Petition in G.R. No. 126244 in a Resolution dated 30 September 1996. 17 Entry of Judgment was made
in G.R. No. 126244 on 8 November 1996.18

On 28 February 2000, the RTC rendered a Decision in Civil Case No. 93-2705, the dispositive portion of
which reads:

Wherefore, [Rhoda and herein respondent MICI] are hereby ordered to pay jointly and solidarily to the
[herein petitioners] the following:

1. Moral damages amounting to P100,000.00;

2. Actual damages for loss of earning capacity amounting to P805,984.00;

 3. P36,000.00 for funeral expenses;

4. P50,000.00 as exemplary damages;

5. P50,000.00 for attorneys fees plus P1,500 per court appearance; and

6. Cost of suit.19

Rhoda and respondent MICI received their copy of the foregoing RTC Decision on 14 March 2000. 20 On
22 March 2000, respondent MICI and Rhoda filed a Motion for Reconsideration 21 of said Decision,
averring therein that the RTC erred in ruling that the obligation of Rhoda and respondent MICI to
petitioners was solidary or joint and several; in computing Georges loss of earning capacity not in accord
with established jurisprudence; and in awarding moral damages although it was not buttressed by
evidence.

Resolving the Motion of respondent MICI and Rhoda, the RTC issued an Order 22 on 24 January 2001
modifying and amending its Decision dated 28 February 2000, and dismissing the case against
respondent MICI.

The RTC held that:

After a careful evaluation of the issues at hand, the contention of the [herein respondent MICI] as far as
the solidary liability of the insurance company with the other defendant [Rhoda] is meritorious. However,
the assailed Decision can be modified or amended to correct the same honest inadvertence without
necessarily reversing it and set aside to conform with the evidence on hand.

The RTC also re-computed Georges loss of earning capacity, as follows:

The computation of actual damages for loss of earning capacity was determined by applying the formula
adopted in the American Expectancy Table of Mortality or the actuarial of Combined Experience Table of
Mortality applied in x x x Villa Rey Transit, Inc. v. Court of Appeals (31 SCRA 521). Moral damages is
awarded in accordance with Article 2206 of the New Civil Code of the Philippines. While death indemnity
in the amount of P50,000.00 is automatically awarded in cases where the victim had died (People v.
Sison, September 14, 1990 [189 SCRA 643]).23

In the end, the RTC decreed:

WHEREFORE, in view of the foregoing consideration, the Decision of this Court dated 28 February 2000 is
hereby amended or modified. Said Decision should read as follows:

"Wherefore, defendant Rhoda Santos is hereby ordered to pay to the [herein petitioners] the following:

1. Moral damages amounting to P100,000.00;

2. Actual damages for loss of earning capacity amounting to P102,106.00;

3. P36,000.00 for funeral expenses;

4. P50,000.00 as death indemnity;

 5. P50,000.00 for attorneys fees plus P1,500.00 per court appearance;

6. Costs of the suit.

The case against Malayan Insurance Company, Inc. is hereby dismissed." 24

It was petitioners turn to file a Motion for Reconsideration 25 of the 24 January 2001 Order, to which
respondent MICI filed a "Vigorous Opposition to the Plaintiffs Motion for Reconsideration." 26

On 15 June 2001, the RTC issued an Order reinstating its Decision dated 28 February 2000, relevant
portions of which state:

Finding the arguments raised by the [herein petitioners] in their Motion for Reconsideration of the Order
of this Court dated January 24, 2001 to be more meritorious to [herein respondents] Malayan Insurance
Co., Inc. (sic) arguments in its vigorous opposition thereto, said motion is hereby granted.

Accordingly, the Order under consideration is hereby reconsidered and set aside. The decision of this
Court dated February 28, 2000 is hereby reinstated.

Notify parties herein.27

Respondent MICI received a copy of the 15 June 2001 Order of the RTC on 27 June 2001.

Aggrieved by the latest turn of events, respondent MICI filed on 9 July 2001 a Notice of Appeal 28 of the
28 February 2000 Decision of the RTC, reinstated by the 15 June 2001 Resolution of the same court.
Rhoda did not join respondent MICI in its Notice of Appeal. 29

Petitioners filed their Opposition30 to the Notice of Appeal of respondent MICI, with a Motion for the
Issuance of Writ of Execution.

After considering the recent pleadings of the parties, the RTC, in its Order dated 6 September 2001,
denied the Notice of Appeal of respondent MICI and granted petitioners Motion for the Issuance of Writ
of Execution. The RTC reasoned in its Order:

The records disclosed that on February 28, 2000 this Court rendered a Decision in favor of the [herein
petitioners] and against [Rhoda and herein respondent MICI]. The Decision was said to have been
received by MICI on March 14, 2000. Eight days after or on March 22, 2000, MICI mailed its Motion for
Reconsideration to this Court and granted the same in the Order dated January 24, 2001. From this
Order, [petitioners] filed a Motion for Reconsideration on February 21, 2001 to which MICI filed a
vigorous opposition. On June 15, 2001 this Court granted [petitioners] motion reinstating the Decision
dated February 28, 2000. According to MICI, the June 15, 2001 order was received by it on June 27,
2001. MICI filed a Notice of Appeal on July 9, 2001 or twelve (12) days from receipt of said Order.

[Petitioners] contend that the Notice of Appeal was filed out of time while [respondent] MICI opposes,
arguing otherwise. The latter interposed that the Order dated June 15, 2001 is in reality a new Decision
thereby giving it a fresh fifteen (15) days within which to file notice of appeal.

[Respondent] MICIs contention is not meritorious. The fifteen (15) day period within which to file a
notice of appeal should be reckoned from the date it received the Decision on March 14, 2000. So that
when MICI mailed its Motion for Reconsideration on March 22, 2000, eight (8) days had already lapsed,
MICI has remaining seven (7) days to file a notice of appeal. However, when it received the last Order of
this Court it took [respondent] MICI twelve (12) days to file the same. Needless to say, MICIs Notice of
Appeal was filed out of time. The Court cannot countenance the argument of MICI that a resolution to a
motion for a final order or judgment will have the effect of giving a fresh reglementary period. This would
be contrary to what was provided in the rules of procedure.31

Accordingly, the RTC adjudged:

WHEREFORE, premises considered, [herein respondent] MICIs Notice of Appeal is hereby Denied for
having filed out of time making the Decision of this Court dated February 28, 2000 as final and executory.
Accordingly, the Motion for Issuance of Writ of Execution filed by [herein petitioners] is hereby Granted.

Notify parties herein.32

Respondent MICI filed a Petition for Certiorari 33 under Rule 65 of the Rules of Court before the Court of
Appeals, which was docketed as CA-G.R. SP No. 67297. The Petition assailed, for having been rendered
by the RTC with grave abuse of discretion amounting to lack or excess of jurisdiction, the following: (1)
the Order dated 6 September 2001, denying the Notice of Appeal of respondent MICI and granting
petitioners Motion for the Issuance of Writ of Execution; (2) the Decision dated 28 February 2000,
holding Rhoda and respondent MICI jointly and severally liable for Georges death; and (3) the Order
dated 15 June 2001, reinstating the Decision dated 28 February 2000.

The Court of Appeals granted the Petition for Certiorari of respondent MICI in a Decision dated 26 June
2000, ratiocinating thus:

Prescinding therefrom, we hold that the fifteen (15) day period to appeal must be reckoned
from the time the [herein respondent] Malayan received the order dated 15 June 2001
reversing in toto the order of 24 January 2000 and reinstating in full the Decision dated 28
February 2000. Thus, [respondent] Malayan had until 12 July 2001 within which to file its notice of
appeal. Therefore, when [respondent] Malayan filed its notice of appeal on 09 July 2001, it was well
within the reglementary period and should have been given due course by the public respondent court.

It was therefore, an excess of jurisdiction on the part of the public respondent court when it reckoned the
[respondent] Malayans period to appeal on the date it received on 14 March 2000 the formers decision
dated 28 February 2000. As earlier expostulated, the said decision was completely vacated insofar as the
[respondent] Malayan is concerned when the public respondent court in its order dated 24 January 2001
dismissed the case against the former. Thus, to reckon the fifteen (15) days to appeal from the day the
[respondent] Malayan received the said decision on 14 March 2000, is the height of absurdity because
there was nothing for the [respondent] Malayan to appeal inasmuch as the public respondent court
vacated the said decision in favor of the former.

The aforesaid conclusion finds support in Sta. Romana vs. Lacson (104 SCRA 93), where the court,
relying on the case of Magdalena Estate, Inc. vs. Caluag, 11 SCRA 334, held that where the court of
origin made a thoroughly (sic) restudy of the original judgment and rendered the amended and clarified
judgment only after considering all the factual and legal issues, the amended and clarified decision was
an entirely new decision which superseded (sic). For all intents and purposes, the court concluded the
trial court rendered a new judgment from which the time to appeal must be reckoned.

In the instant case, what is involved is not merely a substantial amendment or modification of the original
decision, but the total reversal thereof in the order dated 24 January 2000. Given the rationale in the
aforecited cases, it is only logical that the period of appeal be counted from 27 June 2001, the date that
[respondent] Malayan received the order dated 15 June 2001 reversing in toto the order of 24 January
2000 and reinstating the Decision dated 28 February 2000.34 (Emphasis supplied.)
The fallo of the Decision of the Court of Appeals reads:

WHEREFORE, in consideration of the foregoing premises, the petition for certiorari is partially GRANTED.
Accordingly, the public respondent courts order dated 06 September 2001 is hereby RECALLED and SET
ASIDE.

Public respondent court is hereby directed to approve the petitioner Malayans notice of appeal and to
refrain from executing the writ of execution granted on 06 September 2001. 35

The Court of Appeals denied petitioners Motion for Reconsideration in a Resolution dated 29 November
2002.

Understandably distraught, petitioners come before this Court in this Petition for Review, which raise the
following issues:

I.

Whether or not the respondent Court of Appeals committed grave abuse of discretion when it ruled that
private respondent could file a Petition for Certiorari even though its Motion for Reconsideration was still
pending resolution with the lower court.

II.

Whether or not the respondent Court of Appeals committed grave abuse of discretion when it ruled that
the private respondent had filed its Notice of Appeal with the trial court within the reglementary period. 36

The Court first turns its attention to the primary issue for its resolution: whether the Notice of Appeal
filed by respondent MICI before the RTC was filed out of time.

The period for filing a Notice of Appeal is set by Rule 41, Section 3 of the 1997 Rules of Court:

SEC. 3. Period of ordinary appeal. The appeal shall be taken within fifteen (15) days from notice of the
judgment or final order appealed from. Where a record on appeal is required, the appellants shall file a
notice of appeal and a record on appeal within thirty (30) days from notice of the judgment or final order.
x x x.

The period of appeal shall be interrupted by a timely motion for new trial or reconsideration. No motion
for extension of time to file a motion for new trial or reconsideration shall be allowed.

It is clear under the Rules that an appeal should be taken within 15 days from the notice of judgment or
final order appealed from.37 A final judgment or order is one that finally disposes of a case, leaving
nothing more for the court to do with respect to it. It is an adjudication on the merits which, considering
the evidence presented at the trial, declares categorically what the rights and obligations of the parties
are; or it may be an order or judgment that dismisses an action. 38

Propitious to petitioners is Neypes v. Court of Appeals,39 which the Court promulgated on 14 September
2005, and wherein it laid down the fresh period rule:

To standardize the appeal periods provided in the Rules and to afford litigants fair opportunity to appeal
their cases, the Court deems it practical to allow a fresh period of 15 days within which to file the
notice of appeal in the Regional Trial Court, counted from receipt of the order dismissing a motion for a
new trial or motion for reconsideration.

Henceforth, this "fresh period rule" shall also apply to Rule 40 governing appeals from the Municipal
Trial Courts to the Regional Trial Courts; Rule 42 on petitions for review from the Regional Trial
Courts to the Court of Appeals; Rule 43 on appeals from quasi-judicial agencies to the Court of
Appeals and Rule 45 governing appeals by certiorari to the Supreme Court. The new rule aims to
regiment or make the appeal period uniform, to be counted from receipt of the order denying the motion
for new trial, motion for reconsideration (whether full or partial) or any final order or resolution.
(Emphases ours.)

The fresh period of 15 days becomes significant when a party opts to file a motion for new trial or motion
for reconsideration. In this manner, the trial court which rendered the assailed decision is given another
opportunity to review the case and, in the process, minimize and/or rectify any error of judgment. 40 With
the advent of the fresh period rule, parties who availed themselves of the remedy of motion for
reconsideration are now allowed to file a notice of appeal within fifteen days from the denial of that
motion.41

The Court has accentuated that the fresh period rule is not inconsistent with Rule 41, Section 3 of the
Rules of Court which states that the appeal shall be taken "within fifteen (15) days from notice of
judgment or final order appealed from." The use of the disjunctive word "or" signifies disassociation and
independence of one thing from another. It should, as a rule, be construed in the sense which it
ordinarily implies.42 Hence, the use of "or" in the above provision supposes that the notice of appeal may
be filed within 15 days from the notice of judgment or within 15 days from notice of the final order in the
case.

Applying the fresh period rule, the Court agrees with the Court of Appeals and holds that respondent
MICI seasonably filed its Notice of Appeal with the RTC on 9 July 2001, just 12 days from 27 June 2001,
when it received the denial of its Motion for Reconsideration of the 15 June 2001 Resolution reinstating
the 28 February 2000 Decision of the RTC.

The fresh period rule may be applied to the case of respondent MICI, although the events which
transpired concerning its Notice of Appeal took place in June and July 2001, inasmuch as rules of
procedure may be given retroactive effect on actions pending and undetermined at the time of their
passage. The Court notes that Neypes was promulgated on 14 September 2005, while the instant Petition
was still pending before this Court.

Reference may be made to Republic v. Court of Appeals,43 involving the retroactive application of A.M.
No. 00-2-03-SC which provided that the 60-day period within which to file a petition for certiorari shall be
reckoned from receipt of the order denying the motion for reconsideration. In said case, the Court
declared that rules of procedure "may be given retroactive effect to actions pending and undetermined at
the time of their passage and this will not violate any right of a person who may feel that he is adversely
affected, inasmuch as there is no vested rights in rules of procedure."

Hence, the fresh period rule laid down in Neypes was applied by the Court in resolving the subsequent
cases ofSumaway v. Urban Bank, Inc.,44 Elbia v. Ceniza,45 First Aqua Sugar Traders, Inc. v. Bank of the
Philippine Islands,46 even though the antecedent facts giving rise to said cases transpired before the
promulgation of Neypes.

In De los Santos v. Vda de Mangubat,47 particularly, the Court applied the fresh period rule, elucidating
that procedural law refers to the adjective law which prescribes rules and forms of procedure in order
that courts may be able to administer justice. Procedural laws do not come within the legal conception of
a retroactive law, or the general rule against the retroactive operation of statutes. The fresh period rule is
irrefragably procedural, prescribing the manner in which the appropriate period for appeal is to be
computed or determined and, therefore, can be made applicable to actions pending upon its effectivity
without danger of violating anyone elses rights.

Since the Court affirms the ruling of the Court of Appeals that respondent MICI filed its Notice of Appeal
with the RTC within the reglementary period, the appropriate action, under ordinary circumstances,
would be for the Court to remand the case to the RTC so that the RTC could approve the Notice of
Appeal of respondent MICI and respondent MICI could already file its appeal with the Court of Appeals.

However, considering that the case at bar has been pending for almost sixteen years, 48 and the records
of the same are already before this Court, remand is no longer necessary.

Jurisprudence dictates that remand of a case to a lower court does not follow if, in the interest of justice,
the Supreme Court itself can resolve the dispute based on the records before it. As a rule, remand is
avoided in the following instances: (a) where the ends of justice would not be subserved by a remand; or
(b) where public interest demands an early disposition of the case; or (c) where the trial court has
already received all the evidence presented by both parties, and the Supreme Court is in a position,
based upon said evidence, to decide the case on its merits. 49 In Lao v. People,50 the Supreme Court, in
consideration of the years that it had taken for the controversy therein to reach it, concluded that remand
of the case to a lower court was no longer the more expeditious and practical route to follow, and it then
decided the said case based on the evidentiary record before it.

The consistent stand of the Court has always been that a case should be decided in its totality, resolving
all interlocking issues in order to render justice to all concerned and to end the litigation once and for all.
Verily, courts should always strive to settle the entire controversy in a single proceeding, leaving no root
or branch to bear the seed of future litigation. 51 Where the public interest so demands, the court will
broaden its inquiry into a case and decide the same on the merits rather than merely resolve the
procedural question raised.52 Such rule obtains in this case.

The Court is convinced that the non-remanding of the case at bar is absolutely justified. Petitioners have
already suffered from the tragic loss of a loved one, and must not be made to endure more pain and
uncertainty brought about by the continued pendency of their claims against those liable. The case has
been dragging on for almost 16 years now without the petitioners having been fully compensated for
their loss. The Court cannot countenance such a glaring indifference to petitioners cry for justice. To be
sure, they deserve nothing less than full compensation to give effect to their substantive rights. 53

The complete records of the present case have been elevated to this Court, and the pleadings and
evidence therein could fully support its factual adjudication. Indeed, after painstakingly going over the
records, the Court finds that the material and decisive facts are beyond dispute: George was killed when
he was hit by the truck driven by Willie, an employee of Rhoda; and the truck is insured with respondent
MICI. The only issue left for the Court to resolve is the extent of the liability of Rhoda and respondent
MICI for Georges death and the appropriate amount of the damages to be awarded to petitioners.

The Court now turns to the issue of who is liable for damages for the death of George.

Respondent MICI does not deny that it is the insurer of the truck. Nevertheless, it asserts that its liability
is limited, and it should not be held solidarily liable with Rhoda for all the damages awarded to
petitioners.

A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and
each creditor is entitled to demand the whole obligation. In a joint obligation, each obligor answers only
for a part of the whole liability and to each obligee belongs only a part of the correlative rights. Well-
entrenched is the rule that solidary obligation cannot lightly be inferred. There is solidary liability only
when the obligation expressly so states, when the law so provides or when the nature of the obligation
so requires.54

It is settled that where the insurance contract provides for indemnity against liability to third persons, the
liability of the insurer is direct and such third persons can directly sue the insurer. The direct liability of
the insurer under indemnity contracts against third party liability does not mean, however, that the
insurer can be held solidarily liable with the insured and/or the other parties found at fault, since they are
being held liable under different obligations. The liability of the insured carrier or vehicle owner is based
on tort, in accordance with the provisions of the Civil Code; 55 while that of the insurer arises from
contract, particularly, the insurance policy. The third-party liability of the insurer is only up to the extent
of the insurance policy and that required by law; and it cannot be held solidarily liable for anything
beyond that amount.56 Any award beyond the insurance coverage would already be the sole liability of
the insured and/or the other parties at fault.57

In Vda. de Maglana v. Consolacion,58 it was ruled that an insurer in an indemnity contract for third-party
liability is directly liable to the injured party up to the extent specified in the agreement, but it cannot be
held solidarily liable beyond that amount. According to respondent MICI, its liability as insurer of Rhodas
truck is limited. Following Vda. de Maglana, petitioners would have had the option either (1) to claim the
amount awarded to them from respondent MICI, up to the extent of the insurance coverage, and the
balance from Rhoda; or (2) to enforce the entire judgment against Rhoda, subject to reimbursement
from respondent MICI to the extent of the insurance coverage. The Court, though, is precluded from
applying its ruling in Vda. de Maglana by the difference in one vital detail between the said case and the
one at bar. The insurer was able to sufficiently establish its limited liability in Vda. de Maglana, while the
same cannot be said for respondent MICI herein.

The Court highlights that in this case, the insurance policy between Rhoda and respondent MICI,
covering the truck involved in the accident which killed George, was never presented. There is no means,
therefore, for this Court to ascertain the supposed limited liability of respondent MICI under said policy.
Without the presentation of the insurance policy, the Court cannot determine the existence of any
limitation on the liability of respondent MICI under said policy, and the extent or amount of such
limitation.

It should be remembered that respondent MICI readily admits that it is the insurer of the truck that hit
and killed George, except that it insists that its liability under the insurance policy is limited. As the party
asserting its limited liability, respondent MICI then has the burden of evidence to establish its claim. In
civil cases, the party that alleges a fact has the burden of proving it. Burden of proof is the duty of a
party to present evidence on the facts in issue necessary to prove its claim or defense by the amount of
evidence required by law.59 Regrettably, respondent MICI failed to discharge this burden.60 The Court
cannot rely on mere allegations of limited liability sans proof.

The failure of respondent MICI to present the insurance policy which, understandably, is not in
petitioners possession, but in the custody and absolute control of respondent MICI as the insurer and/or
Rhoda as the insured gives rise to the presumption that its presentation is prejudicial to the cause of
respondent MICI.61 When the evidence tends to prove a material fact which imposes a liability on a party,
and he has it in his power to produce evidence which, from its very nature, must overthrow the case
made against him if it is not founded on fact, and he refuses to produce such evidence, the presumption
arises that the evidence, if produced, would operate to his prejudice and support the case of his
adversary.62
Respondent MICI had all the opportunity to prove before the RTC that its liability under the insurance
policy it issued to Rhoda, was limited; yet, respondent MICI failed to do so. The failure of respondent
MICI to rebut that which would have naturally invited an immediate, pervasive, and stiff opposition from
it created an adverse inference that either the controverting evidence to be presented by respondent
MICI would only prejudice its case, or that the uncontroverted evidence of petitioners indeed speaks of
the truth. And such adverse inference, recognized and adhered to by courts in judging the weight of
evidence in all kinds of proceedings, surely is not without basis its rationale and effect rest on sound,
logical and practical considerations, viz:

The presumption that a man will do that which tends to his obvious advantage, if he possesses the
means, supplies a most important test for judging of the comparative weight of evidence x x x If, on the
supposition that a charge or claim is unfounded, the party against whom it is made has evidence within
his reach by which he may repel that which is offered to his prejudice, his omission to do so supplies a
strong presumption that the charge or claim is well founded; it would be contrary to every principle of
reason, and to all experience of human conduct, to form any other conclusion." (Starkie on Evidence, p.
846, Moore on Facts, Vol. I, p. 544)

xxxx

The ordinary rule is that one who has knowledge peculiarly within his own control, and refuses to divulge
it, cannot complain if the court puts the most unfavorable construction upon his silence, and infers that a
disclosure would have shown the fact to be as claimed by the opposing party." (Societe, etc., v. Allen, 90
Fed. Rep. 815, 817, 33 C.C.A. 282, per Taft, C.J., Moore on Facts, Vol. I, p. 561).63

The inference still holds even if it be assumed, for argument's sake, that the solidary liability of
respondent MICI with Rhoda is improbable, for it has likewise been said that:

Weak evidence becomes strong by the neglect of the party against whom it is put in, in not showing by
means within the easy control of that party that the conclusion drawn from such evidence is untrue.
(Pittsburgh, etc., R. Co. v. Callaghan, 50 III. App. 676, 681, Moore on Facts, Vol. I, p. 572). 64

Given the admission of respondent MICI that it is the insurer of the truck involved in the accident that
killed George, and in the utter absence of proof to establish both the existence and the extent/amount of
the alleged limited liability of respondent MICI as insurer, the Court could only conclude that respondent
MICI had agreed to fully indemnify third-party liabilities. Consequently, there is no more difference in the
amounts of damages which petitioners can recover from Rhoda or respondent MICI; petitioners can
recover the said amounts in full from either of them, thus, making their liabilities solidary or joint and
several.

The Court now comes to the issue of the amounts of the damages awarded.

In its Decision dated 22 February 2000, the RTC awarded petitioners moral and actual damages, as well
as funeral expenses and attorneys fees. Subsequently, in its Order dated 24 January 2001, the RTC
reduced the amount of actual damages from P805,984.00 to P102,106.00, but additionally awarded
death indemnity in the amount of P50,000.00. Its award of moral damages and funeral expenses as well
as attorneys fees remained constant in its 28 February 2000 decision and was carried over to its 24
January 2001 Order.

The Court shall now proceed to scrutinize said award of damages.

As regards the award of actual damages, Article 2199 of the Civil Code provides that "[e]xcept as
provided by law or by stipulation one is entitled to an adequate compensation only for such pecuniary
loss suffered by him as he has duly proved x x x."

The RTC awarded P36,000.00 for burial expenses. The award of P36,000.00 for burial expenses is duly
supported by receipts evidencing that petitioners did incur this expense. The petitioners held a wake for
two days at their residence and another two days at the Loyola Memorial Park. 65 The amount covered the
expenses by petitioners for the wake, funeral and burial of George. 66

As to compensation for loss of earning capacity, the RTC initially awarded P805,984.00 in its 28 February
2000 Decision, which it later reduced to P102,106.00 on 24 January 2001.

Article 2206 of the Civil Code provides that in addition to the indemnity for death caused by a crime or
quasi-delict, the "defendant shall be liable for the loss of the earning capacity of the deceased, and the
indemnity shall be paid to the heirs of the latter, x x x." Compensation of this nature is awarded not for
loss of earnings but for loss of capacity to earn money. Hence, it is proper that compensation for loss of
earning capacity should be awarded to the petitioners in accordance with the formula established in
decided cases for computing net earning capacity, to wit:

The formula for the computation of unearned income is:

Net Earning Capacity = life expectancy x (gross annual income -reasonable and necessary living
expenses).

Life expectancy is determined in accordance with the formula:

2 / 3 x [80 - age of deceased at the time of death] 67

Jurisprudence provides that the first factor, i.e., life expectancy, shall be computed by applying the
formula (2/3 x [80 - age at death]) adopted in the American Expectancy Table of Mortality or the
Actuarial of Combined Experience Table of Mortality.

The second factor is computed by multiplying the life expectancy by the net earnings of the deceased,
i.e., the total earnings less expenses necessary in the creation of such earnings or income and less living
and other incidental expenses. The loss is not equivalent to the entire earnings of the deceased, but only
such portion that he would have used to support his dependents or heirs. Hence, the Court deducts from
his gross earnings the necessary expenses supposed to be used by the deceased for his own needs. The
Court explained in Villa Rey Transit v. Court of Appeals 68 :

[The award of damages for loss of earning capacity is] concerned with the determination of the losses or
damages sustained by the private respondents, as dependents and intestate heirs of the deceased, and
that said damages consist, not of the full amount of his earnings, but of the support they received or
would have received from him had he not died in consequence of the negligence of petitioner's agent. In
fixing the amount of that support, we must reckon with the "necessary expenses of his own living," which
should be deducted from his earnings. Thus, it has been consistently held that earning capacity, as an
element of damages to one's estate for his death by wrongful act is necessarily his net earning capacity
or his capacity to acquire money, "less necessary expense for his own living." Stated otherwise, the
amount recoverable is not the loss of the entire earning, but rather the loss of that portion of the
earnings which the beneficiary would have received. In other words, only net earnings, and not gross
earnings are to be considered that is, the total of the earnings less expenses necessary in the creation of
such earnings or income and less living and other incidental expenses."
Applying the aforestated jurisprudential guidelines in the computation of the amount of award for
damages set out in Villa Rey, the Court computes the award for the loss of Georges earning capacity as
follows:

Life expectancy = 2/3 x [80 - age of deceased at the time of death]

2/3 x [80 56]
2/3 x [24]

FORMULA NET EARNING CAPACITY (NEC)

If:

Age at time of death of George Poe = 5869

Monthly Income at time of death = P6,94670

Gross Annual Income (GAI) = [(6,946) (12)] = P83,352

Reasonable/Necessary Living Expenses (R/NLE) = 50%71 of GAI = P41,676

NEC = [2/3 (80-58)] [83,352-41,676]

= [2/3 (22)] [41,676]
= [14.67] [41,676]
= P611,386.92

Therefore, Georges lost net earning capacity is equivalent to P611,386.92

The RTC awarded moral damages72 in the amount of P100,000.00. With respect to moral damages, the
same are awarded under the following circumstances:

The award of moral damages is aimed at a restoration, within the limits of the possible, of the spiritual
status quo ante. Moral damages are designed to compensate and alleviate in some way the physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury unjustly caused a person. Although incapable of pecuniary
computation, they must be proportionate to the suffering inflicted. The amount of the award bears no
relation whatsoever with the wealth or means of the offender.

In the instant case, petitioners testimonies reveal the intense suffering which they continue to
experience as a result of Georges death.73 It is not difficult to comprehend that the sudden and
unexpected loss of a husband and father would cause mental anguish and serious anxiety in the wife and
children he left behind. Moral damages in the amount of P100,000.00 are proper for Georges
death.741avvphi1.zw+

The RTC also awarded P50,000.00 as death indemnity which the Court shall not disturb. The award
of P50,000.00 as death indemnity is in accordance with current rulings of the Court. 75

Finally, the RTC awarded attorneys fees to petitioners. Petitioners are entitled to attorneys fees. Under
Article 2008 of the Civil Code, attorneys fees may be granted when a party is compelled to litigate or
incur expenses to protect his interest by reason of an unjustified act of the other party. 76 In Metro Manila
Transit Corporation v. Court of Appeals,77 the Court held that an award of P50,000.00 as attorneys fees
was reasonable. Hence, petitioners are entitled to attorneys fees in that amount. 78

WHEREFORE, premises considered, the instant Petition is PARTIALLY GRANTED. While the Court
AFFIRMS the Decision, dated 26 June 2002, and Resolution, dated 29 November 2002, of the Court of
Appeals in CA-G.R. SP No. 67297, granting the Petition for Certiorari of respondent Malayan Insurance
Company, Inc., the Court, nonetheless, RESOLVES, in consideration of the speedy administration of
justice, and the peculiar circumstances of the case, to give DUE COURSE to the present Petition and
decide the same on its merits.

Rhoda Santos and respondent Malayan Insurance Company, Inc. are hereby ordered to pay jointly and
severally the petitioners Heirs of George Y. Poe the following:

(1) Funeral expenses P36,000.00;

(2) Actual damages for loss of earning capacity P611,386.92;

(3) Moral damages amounting to P100,000.00;

(4) Death indemnity P50,000.00; and

(5) Attorneys fees P50,000.00 plus P1,500.00 per court appearance.

No costs.

SO ORDERED.