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1.JUAN F.

VILLARROEL, appellant-appellant,

vs.

BERNARDINO ESTRADA, appealed-appealed.

On May 9, 1912, Alejandro F. Callao, the mother of the defendant Juan F. Villarroel, obtained
from the Mariano Estrada and Severina spouses a loan of P1,000 payable after seven years
(Exhibit A). Alejandra passed away, leaving the defendant as the sole heir. The spouses Mariano
Estrada and Severina also died, leaving the plaintiff Bernardino Estrada as the sole heir. On
August 9, 1930, the defendant signed a document (Exhibit B) declaring the applicant P1,000 in
duty, with an interest of 12 percent per year. This action is about the collection of this amount.

The Court of First Instance of Laguna, in which this action was filed, ordered the defendant to
pay the plaintiff the amount claimed of P1,000 with its legal interests of 12 percent a year from
August 9, 1930 until its full payment. Appeal of this sentence.

It will be noted that the parties in the present case are, respectively, the sole heirs of the original
creditors and the debtor. This action is exercised by virtue of the obligation that the defendant, as
the only son of the original debtor, contracted in favor of the plaintiff, the only heir of the
original creditors. It is admitted that the amount of P1,000 to which this obligation is contracted
is the same debt of the defendant's mother to the parents of the plaintiff.lawphil.net

Although the action to recover the original debt has already prescribed when the claim was filed
in this case, the question that arises in this appeal is mainly the question of whether,
notwithstanding such a prescription, the action is appropriate. However, the present action is not
based on the original obligation contracted by the defendant's mother, which has already been
prescribed, but on the one contracted by the defendant on August 9, 1930 (Exhibit B) upon
assuming compliance with that obligation, already prescribed. Being the defendant the only heir
of the original debtor, with the right to succeed her in her inheritance, that debt legally brought
by her mother, although it lost its effectiveness by prescription, is now, however, for the moral
obligation, which is considered enough to create and make effective and enforceable its
obligation voluntarily contracted on August 9, 1930 in Exhibit B.

The rule that a new promise to pay a prescreened debt must be made by the same obligated
person or by another legally authorized by it, is not applicable to the present case in which it is

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not required compliance with the obligation of the obligor originally, but which you des
voluntarily wanted to assume this obligation.

The sentence appealed is confirmed, with the costs to the appellant. This is how it is ordered.

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


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

Celso A. Fernandez for appellants.


Juan C. Jimenez, for appellees.

PARAS, C. J.:

On July 25, 1956, appellants filed against appellees in the Court of First Instance of Manila a
complaint praying for a 20% Christmas bonus for the years 1954 and 1955. The court a quo on
appellees' motion to dismiss, issued the following order:

Considering the motion to dismiss filed on 15 August, 1956, set for this morning;
considering that at the hearing thereof, only respondents appeared thru counsel and there
was no appearance for the plaintiffs although the court waited for sometime for them;
considering, however, that petitioners have submitted an opposition which the court will
consider together with the arguments presented by respondents and the Exhibits marked
and presented, namely, Exhibits 1 to 5, at the hearing of the motion to dismiss;
considering that the action in brief is one to compel respondents to declare a Christmas
bonus for petitioners workers in the National Development Company; considering that
the Court does not see how petitioners may have a cause of action to secure such bonus
because:

(a) A bonus is an act of liberality and the court takes it that it is not within its judicial
powers to command respondents to be liberal;

(b) Petitioners admit that respondents are not under legal duty to give such bonus but that
they had only ask that such bonus be given to them because it is a moral obligation of
respondents to give that but as this Court understands, it has no power to compel a party
to comply with a moral obligation (Art. 142, New Civil Code.).

IN VIEW WHEREOF, dismissed. No pronouncement as to costs.

A motion for reconsideration of the afore-quoted order was denied. Hence this appeal.

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Appellants contend that there exists a cause of action in their complaint because their claim rests
on moral grounds or what in brief is defined by law as a natural obligation.

Since appellants admit that appellees are not under legal obligation to give such claimed bonus;
that the grant arises only from a moral obligation or the natural obligation that they discussed in
their brief, this Court feels it urgent to reproduce at this point, the definition and meaning of
natural obligation.

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

It is thus readily seen that an element of natural obligation before it can be cognizable by the
court is voluntary fulfillment by the obligor. Certainly retention can be ordered but only after
there has been voluntary performance. But here there has been no voluntary performance. In fact,
the court cannot order the performance.

At this point, we would like to reiterate what we said in the case of Philippine Education
Co. vs. CIR and the Union of Philippine Education Co., Employees (NUL) (92 Phil., 381; 48
Off. Gaz., 5278) —

xxx xxx xxx

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

And while it is true that the subsequent case of H. E. Heacock vs. National Labor Union, et al.,
95 Phil., 553; 50 Off. Gaz., 4253, we stated that:

Even if a bonus is not demandable for not forming part of the wage, salary or
compensation of an employee, the same may nevertheless, be granted on equitable
consideration as when it was given in the past, though withheld in succeeding two years
from low salaried employees due to salary increases.

still the facts in said Heacock case are not the same as in the instant one, and hence the ruling
applied in said case cannot be considered in the present action.

Premises considered, the order appealed from is hereby affirmed, without pronouncement as to
costs.

3. DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner,


vs.
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch of the Court of

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First Instance of Iloilo and SPOUSES PATRICIO CONFESOR and JOVITA
VILLAFUERTE, respondents.

GANCAYCO, J.:

The issue posed in this petition for review on certiorari is the validity of a promissory note which
was executed in consideration of a previous promissory note the enforcement of which had been
barred by prescription.

On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural
loan from the Agricultural and Industrial Bank (AIB), now the Development of the Philippines
(DBP), in the sum of P2,000.00, Philippine Currency, as evidenced by a promissory note of said
date whereby they bound themselves jointly and severally to pay the account in ten (10) equal
yearly amortizations. As the obligation remained outstanding and unpaid even after the lapse of
the aforesaid ten-year period, Confesor, who was by then a member of the Congress of the
Philippines, executed a second promissory note on April 11, 1961 expressly acknowledging said
loan and promising to pay the same on or before June 15, 1961. The new promissory note reads
as follows —

I hereby promise to pay the amount covered by my promissory note on or before


June 15, 1961. Upon my failure to do so, I hereby agree to the foreclosure of my
mortgage. It is understood that if I can secure a certificate of indebtedness from
the government of my back pay I will be allowed to pay the amount out of it.

Said spouses not having paid the obligation on the specified date, the DBP filed a complaint
dated September 11, 1970 in the City Court of Iloilo City against the spouses for the payment of
the loan.

After trial on the merits a decision was rendered by the inferior court on December 27, 1976, the
dispositive part of which reads as follows:

WHEREFORE, premises considered, this Court renders judgment, ordering the


defendants Patricio Confesor and Jovita Villafuerte Confesor to pay the plaintiff
Development Bank of the Philippines, jointly and severally, (a) the sum of
P5,760.96 plus additional daily interest of P l.04 from September 17, 1970, the
date Complaint was filed, until said amount is paid; (b) the sum of P576.00
equivalent to ten (10%) of the total claim by way of attorney's fees and incidental
expenses plus interest at the legal rate as of September 17,1970, until fully paid;
and (c) the costs of the suit.

Defendants-spouses appealed therefrom to the Court of First Instance of Iloilo wherein in due
course a decision was rendered on April 28, 1978 reversing the appealed decision and dismissing
the complaint and counter-claim with costs against the plaintiff.

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A motion for reconsideration of said decision filed by plaintiff was denied in an order of August
10, 1978. Hence this petition wherein petitioner alleges that the decision of respondent judge is
contrary to law and runs counter to decisions of this Court when respondent judge (a) refused to
recognize the law that the right to prescription may be renounced or waived; and (b) that in
signing the second promissory note respondent Patricio Confesor can bind the conjugal
partnership; or otherwise said respondent became liable in his personal capacity. The petition is
impressed with merit. The right to prescription may be waived or renounced. Article 1112 of
Civil Code provides:

Art. 1112. Persons with capacity to alienate property may renounce prescription
already obtained, but not the right to prescribe in the future.

Prescription is deemed to have been tacitly renounced when the renunciation


results from acts which imply the abandonment of the right acquired.

There is no doubt that prescription has set in as to the first promissory note of February 10, 1940.
However, when respondent Confesor executed the second promissory note on April 11, 1961
whereby he promised to pay the amount covered by the previous promissory note on or before
June 15, 1961, and upon failure to do so, agreed to the foreclosure of the mortgage, said
respondent thereby effectively and expressly renounced and waived his right to the prescription
of the action covering the first promissory note.

This Court had ruled in a similar case that –

... when a debt is already barred by prescription, it cannot be enforced by the


creditor. But a new contract recognizing and assuming the prescribed debt would
be valid and enforceable ... . 1

Thus, it has been held —

Where, therefore, a party acknowledges the correctness of a debt and promises to


pay it after the same has prescribed and with full knowledge of the prescription he
thereby waives the benefit of prescription. 2

This is not a mere case of acknowledgment of a debt that has prescribed but a new promise to
pay the debt. The consideration of the new promissory note is the pre-existing obligation under
the first promissory note. The statutory limitation bars the remedy but does not discharge the
debt.

A new express promise to pay a debt barred ... will take the case from the
operation of the statute of limitations as this proceeds upon the ground that as a
statutory limitation merely bars the remedy and does not discharge the debt, there
is something more than a mere moral obligation to support a promise, to wit a –
pre-existing debt which is a sufficient consideration for the new the new promise;
upon this sufficient consideration constitutes, in fact, a new cause of action. 3

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... It is this new promise, either made in express terms or deduced from an
acknowledgement as a legal implication, which is to be regarded as reanimating
the old promise, or as imparting vitality to the remedy (which by lapse of time had
become extinct) and thus enabling the creditor to recover upon his original
contract. 4

However, the court a quo held that in signing the promissory note alone, respondent Confesor
cannot thereby bind his wife, respondent Jovita Villafuerte, citing Article 166 of the New Civil
Code which provides:

Art. 166. Unless the wife has been declared a non compos mentis or a spend thrift,
or is under civil interdiction or is confined in a leprosarium, the husband cannot
alienate or encumber any real property of the conjugal partnership without, the
wife's consent. If she ay compel her to refuses unreasonably to give her consent,
the court m grant the same.

We disagree. Under Article 165 of the Civil Code, the husband is the administrator of the
conjugal partnership. As such administrator, all debts and obligations contracted by the husband
for the benefit of the conjugal partnership, are chargeable to the conjugal partnership. 5 No doubt,
in this case, respondent Confesor signed the second promissory note for the benefit of the
conjugal partnership. Hence the conjugal partnership is liable for this obligation.

WHEREFORE, the decision subject of the petition is reversed and set aside and another decision
is hereby rendered reinstating the decision of the City Court of Iloilo City of December 27, 1976,
without pronouncement as to costs in this instance. This decision is immediately executory and
no motion for extension of time to file motion for reconsideration shall be granted.

SO ORDERED.

4. SAGRADA ORDEN DE PREDICADORES DEL SANTISMO ROSARIO DE


FILIPINAS, plaintiff-appellee,
vs.
NATIONAL COCONUT CORPORATION, defendant-appellant.

First Assistant Corporate Counsel Federico C. Alikpala and Assistant Attorney Augusto Kalaw
for appellant.
Ramirez and Ortigas for appellee.

LABRADOR, J.:

This is an action to recover the possession of a piece of real property (land and warehouses)
situated in Pandacan Manila, and the rentals for its occupation and use. The land belongs to the
plaintiff, in whose name the title was registered before the war. On January 4, 1943, during the
Japanese military occupation, the land was acquired by a Japanese corporation by the name of
Taiwan Tekkosho for the sum of P140,00, and thereupon title thereto issued in its name (transfer
certificate of title No. 64330, Register of Deeds, Manila). After liberation, more specifically on

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April 4, 1946, the Alien Property Custodian of the United States of America took possession,
control, and custody thereof under section 12 of the Trading with the Enemy Act, 40 Stat., 411,
for the reason that it belonged to an enemy national. During the year 1946 the property was
occupied by the Copra Export Management Company under a custodianship agreement with
United States Alien Property Custodian (Exhibit G), and when it vacated the property it was
occupied by the defendant herein. The Philippine Government made representations with the
Office Alien Property Custodian for the use of property by the Government (see Exhibits 2, 2-A,
2-B, and 1). On March 31, 1947, the defendant was authorized to repair the warehouse on the
land, and actually spent thereon the repairs the sum of P26,898.27. In 1948, defendant leased
one-third of the warehouse to one Dioscoro Sarile at a monthly rental of P500, which was later
raised to P1,000 a month. Sarile did not pay the rents, so action was brought against him. It is not
shown, however, if the judgment was ever executed.

Plaintiff made claim to the property before the Alien Property Custodian of the United States, but
as this was denied, it brought an action in court (Court of First Instance of Manila, civil case No.
5007, entitled "La Sagrada Orden Predicadores de la Provinicia del Santisimo Rosario de
Filipinas," vs. Philippine Alien Property Administrator, defendant, Republic of the Philippines,
intervenor) to annul the sale of property of Taiwan Tekkosho, and recover its possession. The
Republic of the Philippines was allowed to intervene in the action. The case did not come for
trial because the parties presented a joint petition in which it is claimed by plaintiff that the sale
in favor of the Taiwan Tekkosho was null and void because it was executed under threats,
duress, and intimidation, and it was agreed that the title issued in the name of the Taiwan
Tekkosho be cancelled and the original title of plaintiff re-issued; that the claims, rights, title,
and interest of the Alien Property Custodian be cancelled and held for naught; that the occupant
National Coconut Corporation has until February 28, 1949, to recover its equipment from the
property and vacate the premises; that plaintiff, upon entry of judgment, pay to the Philippine
Alien Property Administration the sum of P140,000; and that the Philippine Alien Property
Administration be free from responsibility or liability for any act of the National Coconut
Corporation, etc. Pursuant to the agreement the court rendered judgment releasing the defendant
and the intervenor from liability, but reversing to the plaintiff the right to recover from the
National Coconut Corporation reasonable rentals for the use and occupation of the premises.
(Exhibit A-1.)

The present action is to recover the reasonable rentals from August, 1946, the date when the
defendant began to occupy the premises, to the date it vacated it. The defendant does not contest
its liability for the rentals at the rate of P3,000 per month from February 28, 1949 (the date
specified in the judgment in civil case No. 5007), but resists the claim therefor prior to this date.
It interposes the defense that it occupied the property in good faith, under no obligation
whatsoever to pay rentals for the use and occupation of the warehouse. Judgment was rendered
for the plaintiff to recover from the defendant the sum of P3,000 a month, as reasonable rentals,
from August, 1946, to the date the defendant vacates the premises. The judgment declares that
plaintiff has always been the owner, as the sale of Japanese purchaser was void ab initio; that the
Alien Property Administration never acquired any right to the property, but that it held the same
in trust until the determination as to whether or not the owner is an enemy citizen. The trial court
further declares that defendant can not claim any better rights than its predecessor, the Alien

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Property Administration, and that as defendant has used the property and had subleased portion
thereof, it must pay reasonable rentals for its occupation.

Against this judgment this appeal has been interposed, the following assignment of error having
been made on defendant-appellant's behalf:

The trial court erred in holding the defendant liable for rentals or compensation for the
use and occupation of the property from the middle of August, 1946, to December 14,
1948.

1. Want to "ownership rights" of the Philippine Alien Property Administration did not
render illegal or invalidate its grant to the defendant of the free use of property.

2. the decision of the Court of First Instance of Manila declaring the sale by the plaintiff
to the Japanese purchaser null and void ab initio and that the plaintiff was and has
remained as the legal owner of the property, without legal interruption, is not conclusive.

3. Reservation to the plaintiff of the right to recover from the defendant corporation not
binding on the later;

4. Use of the property for commercial purposes in itself alone does not justify payment of
rentals.

5. Defendant's possession was in good faith.

6. Defendant's possession in the nature of usufruct.

In reply, plaintiff-appellee's counsel contends that the Philippine Allien Property Administration
(PAPA) was a mere administrator of the owner (who ultimately was decided to be plaintiff), and
that as defendant has used it for commercial purposes and has leased portion of it, it should be
responsible therefore to the owner, who had been deprived of the possession for so many years.
(Appellee's brief, pp. 20, 23.)

We can not understand how the trial court, from the mere fact that plaintiff-appellee was the
owner of the property and the defendant-appellant the occupant, which used for its own benefit
but by the express permission of the Alien Property Custodian of the United States, so easily
jumped to the conclusion that the occupant is liable for the value of such use and occupation. If
defendant-appellant is liable at all, its obligations, must arise from any of the four sources of
obligations, namley, law, contract or quasi-contract, crime, or negligence. (Article 1089, Spanish
Civil Code.) Defendant-appellant is not guilty of any offense at all, because it entered the
premises and occupied it with the permission of the entity which had the legal control and
administration thereof, the Allien Property Administration. Neither was there any negligence on
its part. There was also no privity (of contract or obligation) between the Alien Property
Custodian and the Taiwan Tekkosho, which had secured the possession of the property from the
plaintiff-appellee by the use of duress, such that the Alien Property Custodian or its permittee
(defendant-appellant) may be held responsible for the supposed illegality of the occupation of the

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property by the said Taiwan Tekkosho. The Allien Property Administration had the control and
administration of the property not as successor to the interests of the enemy holder of the title,
the Taiwan Tekkosho, but by express provision of law (Trading with the Enemy Act of the
United States, 40 Stat., 411; 50 U.S.C.A., 189). Neither is it a trustee of the former owner, the
plaintiff-appellee herein, but a trustee of then Government of the United States (32 Op. Atty.
Gen. 249; 50 U.S.C.A. 283), in its own right, to the exclusion of, and against the claim or title of,
the enemy owner. (Youghioheny & Ohio Coal Co. vs. Lasevich [1920], 179 N.W., 355; 171
Wis., 347; U.S.C.A., 282-283.) From August, 1946, when defendant-appellant took possession,
to the late of judgment on February 28, 1948, Allien Property Administration had the absolute
control of the property as trustee of the Government of the United States, with power to dispose
of it by sale or otherwise, as though it were the absolute owner. (U.S vs. Chemical Foundation
[C.C.A. Del. 1925], 5 F. [2d], 191; 50 U.S.C.A., 283.) Therefore, even if defendant-appellant
were liable to the Allien Property Administration for rentals, these would not accrue to the
benefit of the plaintiff-appellee, the owner, but to the United States Government.

But there is another ground why the claim or rentals can not be made against defendant-
appellant. There was no agreement between the Alien Property Custodian and the defendant-
appellant for the latter to pay rentals on the property. The existence of an implied agreement to
that effect is contrary to the circumstances. The copra Export Management Company, which
preceded the defendant-appellant, in the possession and use of the property, does not appear to
have paid rentals therefor, as it occupied it by what the parties denominated a "custodianship
agreement," and there is no provision therein for the payment of rentals or of any compensation
for its custody and or occupation and the use. The Trading with the Enemy Act, as originally
enacted, was purely a measure of conversation, hence, it is very unlikely that rentals were
demanded for the use of the property. When the National coconut Corporation succeeded the
Copra Export Management Company in the possession and use of the property, it must have
been also free from payment of rentals, especially as it was Government corporation, and steps
where then being taken by the Philippine Government to secure the property for the National
Coconut Corporation. So that the circumstances do not justify the finding that there was an
implied agreement that the defendant-appellant was to pay for the use and occupation of the
premises at all.

The above considerations show that plaintiff-appellee's claim for rentals before it obtained the
judgment annulling the sale of the Taiwan Tekkosho may not be predicated on any negligence or
offense of the defendant-appellant, or any contract, express or implied, because the Allien
Property Administration was neither a trustee of plaintiff-appellee, nor a privy to the obligations
of the Taiwan Tekkosho, its title being based by legal provision of the seizure of enemy property.
We have also tried in vain to find a law or provision thereof, or any principle in quasi contracts
or equity, upon which the claim can be supported. On the contrary, as defendant-appellant
entered into possession without any expectation of liability for such use and occupation, it is only
fair and just that it may not be held liable therefor. And as to the rents it collected from its lessee,
the same should accrue to it as a possessor in good faith, as this Court has already expressly held.
(Resolution, National Coconut Corporation vs. Geronimo, 83 Phil. 467.)

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Lastly, the reservation of this action may not be considered as vesting a new right; if no right to
claim for rentals existed at the time of the reservation, no rights can arise or accrue from such
reservation alone.

Wherefore, the part of the judgment appealed from, which sentences defendant-appellant to pay
rentals from August, 1946, to February 28, 1949, is hereby reversed. In all other respects the
judgment is affirmed. Costs of this appeal shall be against the plaintiff-appellee.

5. THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,


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

DECISION

DEL CASTILLO, J.:

Bank deposits, which are in the nature of a simple loan or mutuum,1 must be paid upon demand
by the depositor.2

This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the April 2,
2008 Decision4 and the May 30, 2008 Resolution5 of he Court of Appeals CA) in CA-G.R. CV
No. 89086.

Factual Antecedents

Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly
organized and existing under the laws of the Philippines.6 Respondent Ana Grace Rosales
(Rosales) is the owner of China Golden Bridge Travel Services,7 a travel agency.8 Respondent
Yo Yuk To is the mother of respondent Rosales.9

In 2000, respondents opened a Joint Peso Account10 with petitioner’s Pritil-Tondo Branch.11 As
of August 4, 2004, respondents’ Joint Peso Account showed a balance of ₱2,515,693.52.12

In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National
applying for a retiree’s visa from the Philippine Leisure and Retirement Authority (PLRA), to
petitioner’s branch in Escolta to open a savings account, as required by the PLRA.13 Since Liu
Chiu Fang could speak only in Mandarin, respondent Rosales acted as an interpreter for her.14

On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a Joint Dollar
Account15 with an initial deposit of US$14,000.00.16

On July 31, 2003, petitioner issued a "Hold Out" order against respondents’ accounts.17

On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan
Aguirre, filed before the Office of the Prosecutor of Manila a criminal case for Estafa through
False Pretences, Misrepresentation, Deceit, and Use of Falsified Documents, docketed as I.S. No.

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03I-25014,18 against respondent Rosales.19 Petitioner accused respondent Rosales and an
unidentified woman as the ones responsible for the unauthorized and fraudulent withdrawal of
US$75,000.00 from Liu Chiu Fang’s dollar account with petitioner’s Escolta Branch.20Petitioner
alleged that on February 5, 2003, its branch in Escolta received from the PLRA a Withdrawal
Clearance for the dollar account of Liu Chiu Fang;21 that in the afternoon of the same day,
respondent Rosales went to petitioner’s Escolta Branch to inform its Branch Head, Celia A.
Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her dollar deposits in
cash;22 that Gutierrez told respondent Rosales to come back the following day because the bank
did not have enough dollars;23 that on February 6, 2003, respondent Rosales accompanied an
unidentified impostor of Liu Chiu Fang to the bank;24 that the impostor was able to withdraw Liu
Chiu Fang’s dollar deposit in the amount of US$75,000.00;25 that on March 3, 2003, respondents
opened a dollar account with petitioner; and that the bank later discovered that the serial numbers
of the dollar notes deposited by respondents in the amount of US$11,800.00 were the same as
those withdrawn by the impostor.26

Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal
from the dollar account of Liu Chiu Fang.27 Respondent Rosales claimed that she did not go to
the bank on February 5, 2003.28Neither did she inform Gutierrez that Liu Chiu Fang was going to
close her account.29 Respondent Rosales further claimed that after Liu Chiu Fang opened an
account with petitioner, she lost track of her.30 Respondent Rosales’ version of the events that
transpired thereafter is as follows:

On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu Fang was at
the bank to close her account.31 At noon of the same day, respondent Rosales went to the bank to
make a transaction.32 While she was transacting with the teller, she caught a glimpse of a woman
seated at the desk of the Branch Operating Officer, Melinda Perez (Perez).33 After completing
her transaction, respondent Rosales approached Perez who informed her that Liu Chiu Fang had
closed her account and had already left.34 Perez then gave a copy of the Withdrawal Clearance
issued by the PLRA to respondent Rosales.35 On June 16, 2003, respondent Rosales received a
call from Liu Chiu Fang inquiring about the extension of her PLRA Visa and her dollar
account.36 It was only then that Liu Chiu Fang found out that her account had been closed
without her knowledge.37 Respondent Rosales then went to the bank to inform Gutierrez and
Perez of the unauthorized withdrawal.38 On June 23, 2003, respondent Rosales and Liu Chiu
Fang went to the PLRA Office, where they were informed that the Withdrawal Clearance was
issued on the basis of a Special Power of Attorney (SPA) executed by Liu Chiu Fang in favor of
a certain Richard So.39 Liu Chiu Fang, however, denied executing the SPA.40 The following day,
respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez met at the PLRA Office to discuss the
unauthorized withdrawal.41 During the conference, the bank officers assured Liu Chiu Fang that
the money would be returned to her.42

On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution
dismissing the criminal case for lack of probable cause.43 Unfazed, petitioner moved for
reconsideration.

On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a
Complaint44 for Breach of Obligation and Contract with Damages, docketed as Civil Case No.

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04110895 and raffled to Branch 21, against petitioner. Respondents alleged that they attempted
several times to withdraw their deposits but were unable to because petitioner had placed their
accounts under "Hold Out" status.45 No explanation, however, was given by petitioner as to why
it issued the "Hold Out" order.46 Thus, they prayed that the "Hold Out" order be lifted and that
they be allowed to withdraw their deposits.47 They likewise prayed for actual, moral, and
exemplary damages, as well as attorney’s fees.48

Petitioner alleged that respondents have no cause of action because it has a valid reason for
issuing the "Hold Out" order.49 It averred that due to the fraudulent scheme of respondent
Rosales, it was compelled to reimburse Liu Chiu Fang the amount of US$75,000.0050 and to file
a criminal complaint for Estafa against respondent Rosales.51

While the case for breach of contract was being tried, the City Prosecutor of Manila issued a
Resolution dated February 18, 2005, reversing the dismissal of the criminal complaint.52 An
Information, docketed as Criminal Case No. 05-236103,53 was then filed charging respondent
Rosales with Estafa before Branch 14 of the RTC of Manila.54

Ruling of the Regional Trial Court

On January 15, 2007, the RTC rendered a Decision55 finding petitioner liable for damages for
breach of contract.56The RTC ruled that it is the duty of petitioner to release the deposit to
respondents as the act of withdrawal of a bank deposit is an act of demand by the creditor.57 The
RTC also said that the recourse of petitioner is against its negligent employees and not against
respondents.58 The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering [petitioner]


METROPOLITAN BANK & TRUST COMPANY to allow [respondents] ANA GRACE
ROSALES and YO YUK TO to withdraw their Savings and Time Deposits with the agreed
interest, actual damages of ₱50,000.00, moral damages of ₱50,000.00, exemplary damages of
₱30,000.00 and 10% of the amount due [respondents] as and for attorney’s fees plus the cost of
suit.

The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.

SO ORDERED.59

Ruling of the Court of Appeals

Aggrieved, petitioner appealed to the CA.

On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of actual
damages because "the basis for [respondents’] claim for such damages is the professional fee that
they paid to their legal counsel for [respondent] Rosales’ defense against the criminal complaint
of [petitioner] for estafa before the Office of the City Prosecutor of Manila and not this
case."60 Thus, the CA disposed of the case in this wise:

12
WHEREFORE, premises considered, the Decision dated January 15, 2007 of the RTC, Branch
21, Manila in Civil Case No. 04-110895 is AFFIRMED with MODIFICATION that the award of
actual damages to [respondents] Rosales and Yo Yuk To is hereby DELETED.

SO ORDERED.61

Petitioner sought reconsideration but the same was denied by the CA in its May 30, 2008
Resolution.62

Issues

Hence, this recourse by petitioner raising the following issues:

A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION IN THE


APPLICATION AND AGREEMENT FOR DEPOSIT ACCOUNT DOES NOT APPLY
IN THIS CASE.

B. THE [CA] ERRED WHEN IT RULED THAT PETITIONER’S EMPLOYEES


WERE NEGLIGENT IN RELEASING LIU CHIU FANG’S FUNDS.

C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES,


EXEMPLARY DAMAGES, AND ATTORNEY’S FEES.63

Petitioner’s Arguments

Petitioner contends that the CA erred in not applying the "Hold Out" clause stipulated in the
Application and Agreement for Deposit Account.64 It posits that the said clause applies to any
and all kinds of obligation as it does not distinguish between obligations arising ex contractu or
ex delictu.65 Petitioner also contends that the fraud committed by respondent Rosales was clearly
established by evidence;66 thus, it was justified in issuing the "Hold-Out" order.67 Petitioner
likewise denies that its employees were negligent in releasing the dollars.68 It claims that it was
the deception employed by respondent Rosales that caused petitioner’s employees to release Liu
Chiu Fang’s funds to the impostor.69

Lastly, petitioner puts in issue the award of moral and exemplary damages and attorney’s fees. It
insists that respondents failed to prove that it acted in bad faith or in a wanton, fraudulent,
oppressive or malevolent manner.70

Respondents’ Arguments

Respondents, on the other hand, argue that there is no legal basis for petitioner to withhold their
deposits because they have no monetary obligation to petitioner.71 They insist that petitioner
miserably failed to prove its accusations against respondent Rosales.72 In fact, no documentary
evidence was presented to show that respondent Rosales participated in the unauthorized
withdrawal.73 They also question the fact that the list of the serial numbers of the dollar notes
fraudulently withdrawn on February 6, 2003, was not signed or acknowledged by the alleged

13
impostor.74Respondents likewise maintain that what was established during the trial was the
negligence of petitioner’s employees as they allowed the withdrawal of the funds without
properly verifying the identity of the depositor.75Furthermore, respondents contend that their
deposits are in the nature of a loan; thus, petitioner had the obligation to return the deposits to
them upon demand.76 Failing to do so makes petitioner liable to pay respondents moral and
exemplary damages, as well as attorney’s fees.77

Our Ruling

The Petition is bereft of merit.

At the outset, the relevant issues in this case are (1) whether petitioner breached its contract with
respondents, and (2) if so, whether it is liable for damages. The issue of whether petitioner’s
employees were negligent in allowing the withdrawal of Liu Chiu Fang’s dollar deposits has no
bearing in the resolution of this case. Thus, we find no need to discuss the same.

The "Hold Out" clause does not apply

to the instant case.

Petitioner claims that it did not breach its contract with respondents because it has a valid reason
for issuing the "Hold Out" order. Petitioner anchors its right to withhold respondents’ deposits on
the Application and Agreement for Deposit Account, which reads:

Authority to Withhold, Sell and/or Set Off:

The Bank is hereby authorized to withhold as security for any and all obligations with the Bank,
all monies, properties or securities of the Depositor now in or which may hereafter come into the
possession or under the control of the Bank, whether left with the Bank for safekeeping or
otherwise, or coming into the hands of the Bank in any way, for so much thereof as will be
sufficient to pay any or all obligations incurred by Depositor under the Account or by reason of
any other transactions between the same parties now existing or hereafter contracted, to sell in
any public or private sale any of such properties or securities of Depositor, and to apply the
proceeds to the payment of any Depositor’s obligations heretofore mentioned.

xxxx

JOINT ACCOUNT

xxxx

The Bank may, at any time in its discretion and with or without notice to all of the Depositors,
assert a lien on any balance of the Account and apply all or any part thereof against any
indebtedness, matured or unmatured, that may then be owing to the Bank by any or all of the
Depositors. It is understood that if said indebtedness is only owing from any of the Depositors,
then this provision constitutes the consent by all of the depositors to have the Account answer for

14
the said indebtedness to the extent of the equal share of the debtor in the amount credited to the
Account.78

Petitioner’s reliance on the "Hold Out" clause in the Application and Agreement for Deposit
Account is misplaced.

The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of
the sources of obligation enumerated in Article 115779 of the Civil Code, to wit: law, contracts,
quasi-contracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents
have an obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And
although a criminal case was filed by petitioner against respondent Rosales, this is not enough
reason for petitioner to issue a "Hold Out" order as the case is still pending and no final judgment
of conviction has been rendered against respondent Rosales. In fact, it is significant to note that
at the time petitioner issued the "Hold Out" order, the criminal complaint had not yet been filed.
Thus, considering that respondent Rosales is not liable under any of the five sources of
obligation, there was no legal basis for petitioner to issue the "Hold Out" order. Accordingly, we
agree with the findings of the RTC and the CA that the "Hold Out" clause does not apply in the
instant case.

In view of the foregoing, we find that petitioner is guilty of breach of contract when it
unjustifiably refused to release respondents’ deposit despite demand. Having breached its
contract with respondents, petitioner is liable for damages.

Respondents are entitled to moral and


exemplary damages and attorney’s fees.1âwphi1

In cases of breach of contract, moral damages may be recovered only if the defendant acted
fraudulently or in bad faith,80 or is "guilty of gross negligence amounting to bad faith, or in
wanton disregard of his contractual obligations."81

In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order
reveals that petitioner issued the "Hold Out" order in bad faith. First of all, the order was issued
without any legal basis. Second, petitioner did not inform respondents of the reason for the "Hold
Out."82 Third, the order was issued prior to the filing of the criminal complaint. Records show
that the "Hold Out" order was issued on July 31, 2003,83 while the criminal complaint was filed
only on September 3, 2003.84 All these taken together lead us to conclude that petitioner acted in
bad faith when it breached its contract with respondents. As we see it then, respondents are
entitled to moral damages.

As to the award of exemplary damages, Article 222985 of the Civil Code provides that exemplary
damages may be imposed "by way of example or correction for the public good, in addition to
the moral, temperate, liquidated or compensatory damages." They are awarded only if the guilty
party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.86

In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner when it refused to release the deposits of respondents without any legal basis.

15
We need not belabor the fact that the banking industry is impressed with public interest.87 As
such, "the highest degree of diligence is expected, and high standards of integrity and
performance are even required of it."88 It must therefore "treat the accounts of its depositors with
meticulous care and always to have in mind the fiduciary nature of its relationship with
them."89 For failing to do this, an award of exemplary damages is justified to set an example.

The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 220890 of the
Civil Code.

In closing, it must be stressed that while we recognize that petitioner has the right to protect itself
from fraud or suspicions of fraud, the exercise of his right should be done within the bounds of
the law and in accordance with due process, and not in bad faith or in a wanton disregard of its
contractual obligation to respondents.

WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision and the
May 30, 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 89086 are hereby
AFFIRMED. SO ORDERED.

6. JOSEPH SALUDAGA, petitioner,


vs.
FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity as
President of FEU, respondents.

DECISION

YNARES-SANTIAGO, J.:

This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the June 29,
2007 Decision2 of the Court of Appeals in CA-G.R. CV No. 87050, nullifying and setting aside
the November 10, 2004 Decision3 of the Regional Trial Court of Manila, Branch 2, in Civil Case
No. 98-89483 and dismissing the complaint filed by petitioner; as well as its August 23, 2007
Resolution4 denying the Motion for Reconsideration.5

The antecedent facts are as follows:

Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University
(FEU) when he was shot by Alejandro Rosete (Rosete), one of the security guards on duty at the
school premises on August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical
Foundation (FEU-NRMF) due to the wound he sustained.6Meanwhile, Rosete was brought to the
police station where he explained that the shooting was accidental. He was eventually released
considering that no formal complaint was filed against him.

Petitioner thereafter filed a complaint for damages against respondents on the ground that they
breached their obligation to provide students with a safe and secure environment and an
atmosphere conducive to learning. Respondents, in turn, filed a Third-Party Complaint7 against
Galaxy Development and Management Corporation (Galaxy), the agency contracted by

16
respondent FEU to provide security services within its premises and Mariano D. Imperial
(Imperial), Galaxy's President, to indemnify them for whatever would be adjudged in favor of
petitioner, if any; and to pay attorney's fees and cost of the suit. On the other hand, Galaxy and
Imperial filed a Fourth-Party Complaint against AFP General Insurance.8

On November 10, 2004, the trial court rendered a decision in favor of petitioner, the dispositive
portion of which reads:

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

1. FEU and Edilberto de Jesus, in his capacity as president of FEU to pay jointly
and severally Joseph Saludaga the amount of P35,298.25 for actual damages with
12% interest per annum from the filing of the complaint until fully paid; moral
damages of P300,000.00, exemplary damages of P500,000.00, attorney's fees of
P100,000.00 and cost of the suit;

2. Galaxy Management and Development Corp. and its president, Col. Mariano
Imperial to indemnify jointly and severally 3rd party plaintiffs (FEU and
Edilberto de Jesus in his capacity as President of FEU) for the above-mentioned
amounts;

3. And the 4th party complaint is dismissed for lack of cause of action. No
pronouncement as to costs.

SO ORDERED.9

Respondents appealed to the Court of Appeals which rendered the assailed Decision, the decretal
portion of which provides, viz:

WHEREFORE, the appeal is hereby GRANTED. The Decision dated November 10,
2004 is hereby REVERSED and SET ASIDE. The complaint filed by Joseph Saludaga
against appellant Far Eastern University and its President in Civil Case No. 98-89483 is
DISMISSED.

SO ORDERED.10

Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition based
on the following grounds:

THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY TO


LAW AND JURISPRUDENCE IN RULING THAT:

5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;

5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE INJURY
RESULTING FROM A GUNSHOT WOUND SUFFERED BY THE PETITIONER

17
FROM THE HANDS OF NO LESS THAN THEIR OWN SECURITY GUARD IN
VIOLATION OF THEIR BUILT-IN CONTRACTUAL OBLIGATION TO
PETITIONER, BEING THEIR LAW STUDENT AT THAT TIME, TO PROVIDE HIM
WITH A SAFE AND SECURE EDUCATIONAL ENVIRONMENT;

5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT PETITIONER


WHILE HE WAS WALKING ON HIS WAY TO THE LAW LIBRARY OF
RESPONDENT FEU IS NOT THEIR EMPLOYEE BY VIRTUE OF THE CONTRACT
FOR SECURITY SERVICES BETWEEN GALAXY AND FEU
NOTWITHSTANDING THE FACT THAT PETITIONER, NOT BEING A PARTY TO
IT, IS NOT BOUND BY THE SAME UNDER THE PRINCIPLE OF RELATIVITY OF
CONTRACTS; and

5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY AS


THE AGENCY WHICH WOULD PROVIDE SECURITY SERVICES WITHIN THE
PREMISES OF RESPONDENT FEU.11

Petitioner is suing respondents for damages based on the alleged breach of student-school
contract for a safe learning environment. The pertinent portions of petitioner's Complaint read:

6.0. At the time of plaintiff's confinement, the defendants or any of their representative
did not bother to visit and inquire about his condition. This abject indifference on the part
of the defendants continued even after plaintiff was discharged from the hospital when
not even a word of consolation was heard from them. Plaintiff waited for more than one
(1) year for the defendants to perform their moral obligation but the wait was fruitless.
This indifference and total lack of concern of defendants served to exacerbate plaintiff's
miserable condition.

xxxx

11.0. Defendants are responsible for ensuring the safety of its students while the latter are
within the University premises. And that should anything untoward happens to any of its
students while they are within the University's premises shall be the responsibility of the
defendants. In this case, defendants, despite being legally and morally bound, miserably
failed to protect plaintiff from injury and thereafter, to mitigate and compensate plaintiff
for said injury;

12.0. When plaintiff enrolled with defendant FEU, a contract was entered into between
them. Under this contract, defendants are supposed to ensure that adequate steps are
taken to provide an atmosphere conducive to study and ensure the safety of the plaintiff
while inside defendant FEU's premises. In the instant case, the latter breached this
contract when defendant allowed harm to befall upon the plaintiff when he was shot at
by, of all people, their security guard who was tasked to maintain peace inside the
campus.12

In Philippine School of Business Administration v. Court of Appeals,13 we held that:

18
When an academic institution accepts students for enrollment, there is established a
contract between them, resulting in bilateral obligations which both parties are bound to
comply with. For its part, the school undertakes to provide the student with an education
that would presumably suffice to equip him with the necessary tools and skills to pursue
higher education or a profession. On the other hand, the student covenants to abide by the
school's academic requirements and observe its rules and regulations.

Institutions of learning must also meet the implicit or "built-in" obligation of providing
their students with an atmosphere that promotes or assists in attaining its primary
undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of
physics or higher mathematics or explore the realm of the arts and other sciences when
bullets are flying or grenades exploding in the air or where there looms around the school
premises a constant threat to life and limb. Necessarily, the school must ensure that
adequate steps are taken to maintain peace and order within the campus premises and to
prevent the breakdown thereof.14

It is undisputed that petitioner was enrolled as a sophomore law student in respondent FEU. As
such, there was created a contractual obligation between the two parties. On petitioner's part, he
was obliged to comply with the rules and regulations of the school. On the other hand,
respondent FEU, as a learning institution is mandated to impart knowledge and equip its students
with the necessary skills to pursue higher education or a profession. At the same time, it is
obliged to ensure and take adequate steps to maintain peace and order within the campus.

It is settled that in culpa contractual, the mere proof of the existence of the contract and the
failure of its compliance justify, prima facie, a corresponding right of relief.15 In the instant case,
we find that, when petitioner was shot inside the campus by no less the security guard who was
hired to maintain peace and secure the premises, there is a prima facie showing that respondents
failed to comply with its obligation to provide a safe and secure environment to its students.

In order to avoid liability, however, respondents aver that the shooting incident was a fortuitous
event because they could not have reasonably foreseen nor avoided the accident caused by
Rosete as he was not their employee;16and that they complied with their obligation to ensure a
safe learning environment for their students by having exercised due diligence in selecting the
security services of Galaxy.

After a thorough review of the records, we find that respondents failed to discharge the burden of
proving that they exercised due diligence in providing a safe learning environment for their
students. They failed to prove that they ensured that the guards assigned in the campus met the
requirements stipulated in the Security Service Agreement. Indeed, certain documents about
Galaxy were presented during trial; however, no evidence as to the qualifications of Rosete as a
security guard for the university was offered.

Respondents also failed to show that they undertook steps to ascertain and confirm that the
security guards assigned to them actually possess the qualifications required in the Security
Service Agreement. It was not proven that they examined the clearances, psychiatric test results,
201 files, and other vital documents enumerated in its contract with Galaxy. Total reliance on the

19
security agency about these matters or failure to check the papers stating the qualifications of the
guards is negligence on the part of respondents. A learning institution should not be allowed to
completely relinquish or abdicate security matters in its premises to the security agency it hired.
To do so would result to contracting away its inherent obligation to ensure a safe learning
environment for its students.

Consequently, respondents' defense of force majeure must fail. In order for force majeure to be
considered, respondents must show that no negligence or misconduct was committed that may
have occasioned the loss. An act of God cannot be invoked to protect a person who has failed to
take steps to forestall the possible adverse consequences of such a loss. One's negligence may
have concurred with an act of God in producing damage and injury to another; nonetheless,
showing that the immediate or proximate cause of the damage or injury was a fortuitous event
would not exempt one from liability. When the effect is found to be partly the result of a person's
participation - whether by active intervention, neglect or failure to act - the whole occurrence is
humanized and removed from the rules applicable to acts of God.17

Article 1170 of the Civil Code provides that those who are negligent in the performance of their
obligations are liable for damages. Accordingly, for breach of contract due to negligence in
providing a safe learning environment, respondent FEU is liable to petitioner for damages. It is
essential in the award of damages that the claimant must have satisfactorily proven during the
trial the existence of the factual basis of the damages and its causal connection to defendant's
acts.18

In the instant case, it was established that petitioner spent P35,298.25 for his hospitalization and
other medical expenses.19 While the trial court correctly imposed interest on said amount,
however, the case at bar involves an obligation arising from a contract and not a loan or
forbearance of money. As such, the proper rate of legal interest is six percent (6%) per annum of
the amount demanded. Such interest shall continue to run from the filing of the complaint until
the finality of this Decision.20 After this Decision becomes final and executory, the applicable
rate shall be twelve percent (12%) per annum until its satisfaction.

The other expenses being claimed by petitioner, such as transportation expenses and those
incurred in hiring a personal assistant while recuperating were however not duly supported by
receipts.21 In the absence thereof, no actual damages may be awarded. Nonetheless, temperate
damages under Art. 2224 of the Civil Code may be recovered where it has been shown that the
claimant suffered some pecuniary loss but the amount thereof cannot be proved with certainty.
Hence, the amount of P20,000.00 as temperate damages is awarded to petitioner.

As regards the award of moral damages, there is no hard and fast rule in the determination of
what would be a fair amount of moral damages since each case must be governed by its own
peculiar circumstances.22 The testimony of petitioner about his physical suffering, mental
anguish, fright, serious anxiety, and moral shock resulting from the shooting incident23 justify the
award of moral damages. However, moral damages are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.
The award is not meant to enrich the complainant at the expense of the defendant, but to enable
the injured party to obtain means, diversion, or amusements that will serve to obviate the moral

20
suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the
spiritual status quo ante, and should be proportionate to the suffering inflicted. Trial courts must
then guard against the award of exorbitant damages; they should exercise balanced restrained
and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption
on the part of the trial court.24 We deem it just and reasonable under the circumstances to award
petitioner moral damages in the amount of P100,000.00.

Likewise, attorney's fees and litigation expenses in the amount of P50,000.00 as part of damages
is reasonable in view of Article 2208 of the Civil Code.25 However, the award of exemplary
damages is deleted considering the absence of proof that respondents acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.

We note that the trial court held respondent De Jesus solidarily liable with respondent FEU.
In Powton Conglomerate, Inc. v. Agcolicol,26 we held that:

[A] corporation is invested by law with a personality separate and distinct from those of
the persons composing it, such that, save for certain exceptions, corporate officers who
entered into contracts in behalf of the corporation cannot be held personally liable for the
liabilities of the latter. Personal liability of a corporate director, trustee or officer along
(although not necessarily) with the corporation may so validly attach, as a rule, only
when - (1) he assents to a patently unlawful act of the corporation, or when he is guilty of
bad faith or gross negligence in directing its affairs, or when there is a conflict of interest
resulting in damages to the corporation, its stockholders or other persons; (2) he consents
to the issuance of watered down stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto; (3) he agrees to
hold himself personally and solidarily liable with the corporation; or (4) he is made by a
specific provision of law personally answerable for his corporate action.27

None of the foregoing exceptions was established in the instant case; hence, respondent De Jesus
should not be held solidarily liable with respondent FEU.

Incidentally, although the main cause of action in the instant case is the breach of the school-
student contract, petitioner, in the alternative, also holds respondents vicariously liable under
Article 2180 of the Civil Code, which provides:

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own
acts or omissions, but also for those of persons for whom one is responsible.

xxxx

Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or industry.

xxxx

21
The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.

We agree with the findings of the Court of Appeals that respondents cannot be held liable for
damages under Art. 2180 of the Civil Code because respondents are not the employers of Rosete.
The latter was employed by Galaxy. The instructions issued by respondents' Security Consultant
to Galaxy and its security guards are ordinarily no more than requests commonly envisaged in
the contract for services entered into by a principal and a security agency. They cannot be
construed as the element of control as to treat respondents as the employers of Rosete.28

As held in Mercury Drug Corporation v. Libunao:29

In Soliman, Jr. v. Tuazon,30 we held that where the security agency recruits, hires and
assigns the works of its watchmen or security guards to a client, the employer of such
guards or watchmen is such agency, and not the client, since the latter has no hand in
selecting the security guards. Thus, the duty to observe the diligence of a good father of a
family cannot be demanded from the said client:

… [I]t is settled in our jurisdiction that where the security agency, as here,
recruits, hires and assigns the work of its watchmen or security guards, the agency
is the employer of such guards or watchmen. Liability for illegal or harmful acts
committed by the security guards attaches to the employer agency, and not to the
clients or customers of such agency. As a general rule, a client or customer of a
security agency has no hand in selecting who among the pool of security guards
or watchmen employed by the agency shall be assigned to it; the duty to observe
the diligence of a good father of a family in the selection of the guards cannot, in
the ordinary course of events, be demanded from the client whose premises or
property are protected by the security guards.

xxxx

The fact that a client company may give instructions or directions to the security guards
assigned to it, does not, by itself, render the client responsible as an employer of the
security guards concerned and liable for their wrongful acts or omissions.31

We now come to respondents' Third Party Claim against Galaxy. In Firestone Tire and Rubber
Company of the Philippines v. Tempengko,32 we held that:

The third-party complaint is, therefore, a procedural device whereby a 'third party' who is
neither a party nor privy to the act or deed complained of by the plaintiff, may be brought
into the case with leave of court, by the defendant, who acts as third-party plaintiff to
enforce against such third-party defendant a right for contribution, indemnity,
subrogation or any other relief, in respect of the plaintiff's claim. The third-party
complaint is actually independent of and separate and distinct from the plaintiff's
complaint. Were it not for this provision of the Rules of Court, it would have to be filed
independently and separately from the original complaint by the defendant against the

22
third-party. But the Rules permit defendant to bring in a third-party defendant or so to
speak, to litigate his separate cause of action in respect of plaintiff's claim against a third-
party in the original and principal case with the object of avoiding circuitry of action and
unnecessary proliferation of law suits and of disposing expeditiously in one litigation the
entire subject matter arising from one particular set of facts.33

Respondents and Galaxy were able to litigate their respective claims and defenses in the course
of the trial of petitioner's complaint. Evidence duly supports the findings of the trial court that
Galaxy is negligent not only in the selection of its employees but also in their supervision.
Indeed, no administrative sanction was imposed against Rosete despite the shooting incident;
moreover, he was even allowed to go on leave of absence which led eventually to his
disappearance.34 Galaxy also failed to monitor petitioner's condition or extend the necessary
assistance, other than the P5,000.00 initially given to petitioner. Galaxy and Imperial failed to
make good their pledge to reimburse petitioner's medical expenses.

For these acts of negligence and for having supplied respondent FEU with an unqualified
security guard, which resulted to the latter's breach of obligation to petitioner, it is proper to hold
Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned amounts
awarded to petitioner.

Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being
grossly negligent in directing the affairs of the security agency. It was Imperial who assured
petitioner that his medical expenses will be shouldered by Galaxy but said representations were
not fulfilled because they presumed that petitioner and his family were no longer interested in
filing a formal complaint against them.35

WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of the Court of
Appeals in CA-G.R. CV No. 87050 nullifying the Decision of the trial court and dismissing the
complaint as well as the August 23, 2007 Resolution denying the Motion for Reconsideration
are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Manila, Branch
2, in Civil Case No. 98-89483 finding respondent FEU liable for damages for breach of its
obligation to provide students with a safe and secure learning atmosphere, is AFFIRMED with
the following MODIFICATIONS:

a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner actual damages in
the amount of P35,298.25, plus 6% interest per annum from the filing of the complaint until the
finality of this Decision. After this decision becomes final and executory, the applicable rate
shall be twelve percent (12%) per annum until its satisfaction;

b. respondent FEU is also ORDERED to pay petitioner temperate damages in the amount of
P20,000.00; moral damages in the amount of P100,000.00; and attorney's fees and litigation
expenses in the amount of P50,000.00;

c. the award of exemplary damages is DELETED.

23
The Complaint against respondent Edilberto C. De Jesus is DISMISSED. The counterclaims of
respondents are likewise DISMISSED.

Galaxy Development and Management Corporation (Galaxy) and its president, Mariano D.
Imperial are ORDEREDto jointly and severally pay respondent FEU damages equivalent to the
above-mentioned amounts awarded to petitioner.

SO ORDERED.

7. PEOPLE'S CAR INC., plaintiff-appellant,


vs.
COMMANDO SECURITY SERVICE AGENCY, defendant-appellee.

TEEHANKEE, J.:

In this appeal from the adverse judgment of the Davao court of first instance limiting plaintiff-
appellant's recovery under its complaint to the sum of P1,000.00 instead of the actual damages of
P8,489.10 claimed and suffered by it as a direct result of the wrongful acts of defendant security
agency's guard assigned at plaintiff's premises in pursuance of their "Guard Service Contract",
the Court finds merit in the appeal and accordingly reverses the trial court's judgment.

The appeal was certified to this Court by a special division of the Court of Appeals on a four-to-
one vote as per its resolution of April 14, 1973 that "Since the case was submitted to the court a
quo for decision on the strength of the stipulation of facts, only questions of law can be involved
in the present appeal."

The Court has accepted such certification and docketed this appeal on the strength of its own
finding from the records that plaintiff's notice of appeal was expressly to this Court (not to the
appellate court)" on pure questions of law"1 and its record on appeal accordingly prayed that" the
corresponding records be certified and forwarded to the Honorable Supreme Court."2 The trial
court so approved the same3 on July 3, 1971 instead of having required the filing of a petition for
review of the judgment sought to be appealed from directly with this Court, in accordance with
the provisions of Republic Act 5440. By some unexplained and hitherto undiscovered error of
the clerk of court, furthermore, the record on appeal was erroneously forwarded to the appellate
court rather than to this Court.

The parties submitted the case for judgment on a stipulation of facts. There is thus no dispute as
to the factual bases of plaintiff's complaint for recovery of actual damages against defendant, to
wit, that under the subsisting "Guard Service Contract" between the parties, defendant-appellee
as a duly licensed security service agency undertook in consideration of the payments made by
plaintiff to safeguard and protect the business premises of (plaintiff) from theft, pilferage,
robbery, vandalism and all other unlawful acts of any person or person prejudicial to the interest
of (plaintiff)."4

24
On April 5, 1970 at around 1:00 A.M., however, defendant's security guard on duty at plaintiff's
premises, "without any authority, consent, approval, knowledge or orders of the plaintiff and/or
defendant brought out of the compound of the plaintiff a car belonging to its customer, and drove
said car for a place or places unknown, abandoning his post as such security guard on duty inside
the plaintiff's compound, and while so driving said car in one of the City streets lost control of
said car, causing the same to fall into a ditch along J.P. Laurel St., Davao City by reason of
which the plaintiff's complaint for qualified theft against said driver, was blottered in the office
of the Davao City Police Department."5

As a result of these wrongful acts of defendant's security guard, the car of plaintiff's customer,
Joseph Luy, which had been left with plaintiff for servicing and maintenance, "suffered extensive
damage in the total amount of P7,079."6 besides the car rental value "chargeable to defendant" in
the sum of P1,410.00 for a car that plaintiff had to rent and make available to its said customer to
enable him to pursue his business and occupation for the period of forty-seven (47) days (from
April 25 to June 10, 1970) that it took plaintiff to repair the damaged car,7 or total actual
damages incurred by plaintiff in the sum of P8,489.10.

Plaintiff claimed that defendant was liable for the entire amount under paragraph 5 of their
contract whereunder defendant assumed "sole responsibility for the acts done during their watch
hours" by its guards, whereas defendant contended, without questioning the amount of the actual
damages incurred by plaintiff, that its liability "shall not exceed one thousand (P1,000.00) pesos
per guard post" under paragraph 4 of their contract.

The parties thus likewise stipulated on this sole issue submitted by them for adjudication, as
follows:

Interpretation of the contract, as to the extent of the liability of the defendant to


the plaintiff by reason of the acts of the employees of the defendant is the only
issue to be resolved.

The defendant relies on Par. 4 of the contract to support its contention while the
plaintiff relies on Par. 5 of the same contract in support of its claims against the
defendant. For ready reference they are quoted hereunder:

'Par. 4. — Party of the Second Part (defendant) through the


negligence of its guards, after an investigation has been conducted
by the Party of the First Part (plaintiff) wherein the Party of the
Second Part has been duly represented shall assume full
responsibilities for any loss or damages that may occur to any
property of the Party of the First Part for which it is accountable,
during the watch hours of the Party of the Second Part, provided
the same is reported to the Party of the Second Part within twenty-
four (24) hours of the occurrence, except where such loss or
damage is due to force majeure, provided however that after the
proper investigation to be made thereof that the guard on post is

25
found negligent and that the amount of the loss shall not exceed
ONE THOUSAND (P1,000.00) PESOS per guard post.'

'Par. 5 — The party of the Second Part assumes the responsibility


for the proper performance by the guards employed, of their duties
and (shall) be solely responsible for the acts done during their
watch hours, the Party of the First Part being specifically released
from any and all liabilities to the former's employee or to the third
parties arising from the acts or omissions done by the guard during
their tour of
duty.' ...8

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

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

Paragraph 4 of the contract, which limits defendant's liability for the amount of loss or damage to
any property of plaintiff to "P1,000.00 per guard post," is by its own terms applicable only for
loss or damage 'through the negligenceof its guards ... during the watch hours" provided that the
same is duly reported by plaintiff within 24 hours of the occurrence and the guard's negligence is
verified after proper investigation with the attendance of both contracting parties. Said paragraph
is manifestly inapplicable to the stipulated facts of record, which involve neither property of
plaintiff that has been lost or damaged at its premises nor mere negligence of defendant's security
guard on duty.

Here, instead of defendant, through its assigned security guards, complying with its contractual
undertaking 'to safeguard and protect the business premises of (plaintiff) from theft, robbery,
vandalism and all other unlawful acts of any person or persons," defendant's own guard on duty
unlawfully and wrongfully drove out of plaintiffs premises a customer's car, lost control of it on
the highway causing it to fall into a ditch, thereby directly causing plaintiff to incur actual
damages in the total amount of P8,489.10.

Defendant is therefore undoubtedly liable to indemnify plaintiff for the entire damages thus
incurred, since under paragraph 5 of their contract it "assumed the responsibility for the proper
performance by the guards employed of their duties and (contracted to) be solely responsible for
the acts done during their watch hours" and "specifically released (plaintiff) from any and all
liabilities ... to the third parties arising from the acts or omissions done by the guards during their
tour of duty." As plaintiff had duly discharged its liability to the third party, its customer, Joseph
Luy, for the undisputed damages of P8,489.10 caused said customer, due to the wanton and
unlawful act of defendant's guard, defendant in turn was clearly liable under the terms of
paragraph 5 of their contract to indemnify plaintiff in the same amount.

26
The trial court's approach that "had plaintiff understood the liability of the defendant to fall under
paragraph 5, it should have told Joseph Luy, owner of the car, that under the Guard Service
Contract, it was not liable for the damage but the defendant and had Luy insisted on the liability
of the plaintiff, the latter should have challenged him to bring the matter to court. If Luy
accepted the challenge and instituted an action against the plaintiff, it should have filed a third-
party complaint against the Commando Security Service Agency. But if Luy instituted the action
against the plaintiff and the defendant, the plaintiff should have filed a crossclaim against the
latter,"9 was unduly technical and unrealistic and untenable.

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

Plaintiff in law could not tell its customer, as per the trial court's view, that "under the Guard
Service Contract it was not liable for the damage but the defendant" — since the customer could
not hold defendant to account for the damages as he had no privity of contract with defendant.
Such an approach of telling the adverse party to go to court, notwithstanding his plainly valid
claim, aside from its ethical deficiency among others, could hardly create any goodwill for
plaintiff's business, in the same way that defendant's baseless attempt to evade fully discharging
its contractual liability to plaintiff cannot be expected to have brought it more business. Worse,
the administration of justice is prejudiced, since the court dockets are unduly burdened with
unnecessary litigation.

ACCORDINGLY, the judgment appealed from is hereby reversed and judgment is hereby
rendered sentencing defendant-appellee to pay plaintiff-appellant the sum of P8,489.10 as and by
way of reimbursement of the stipulated actual damages and expenses, as well as the costs of suit
in both instances. It is so ordered.

Makalintal, Zaldivar, Castro, Fernando, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

8. FAUSTINO CRUZ, plaintiff-appellant,


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

BARREDO, J.:

Appeal from the order dated August 13, 1964 of the Court of First Instance of Quezon City in
Civil Case No. Q-7751, Faustino Cruz vs. J.M. Tuason & Co., Inc., and Gregorio Araneta, Inc.,

27
dismissing the complaint of appellant Cruz for the recovery of improvements he has made on
appellees' land and to compel appellees to convey to him 3,000 square meters of land on three
grounds: (1) failure of the complaint to state a cause of action; (2) the cause of action of plaintiff
is unenforceable under the Statute of Frauds; and (3) the action of the plaintiff has already
prescribed.

Actually, a perusal of plaintiff-appellant's complaint below shows that he alleged two separate
causes of action, namely: (1) that upon request of the Deudors (the family of Telesforo Deudor
who laid claim on the land in question on the strength of an "informacion posesoria" ) plaintiff
made permanent improvements valued at P30,400.00 on said land having an area of more or less
20 quinones and for which he also incurred expenses in the amount of P7,781.74, and since
defendants-appellees are being benefited by said improvements, he is entitled to reimbursement
from them of said amounts and (2) that in 1952, defendants availed of plaintiff's services as an
intermediary with the Deudors to work for the amicable settlement of Civil Case No. Q-135, then
pending also in the Court of First Instance of Quezon City, and involving 50 quinones of land, of
Which the 20 quinones aforementioned form part, and notwithstanding his having performed his
services, as in fact, a compromise agreement entered into on March 16, 1963 between the
Deudors and the defendants was approved by the court, the latter have refused to convey to him
the 3,000 square meters of land occupied by him, (a part of the 20 quinones above) which said
defendants had promised to do "within ten years from and after date of signing of the
compromise agreement", as consideration for his services.

Within the Period allowed by the rules, the defendants filed separate motions to dismiss alleging
three Identical grounds: (1) As regards that improvements made by plaintiff, that the complaint
states no cause of action, the agreement regarding the same having been made by plaintiff with
the Deudors and not with the defendants, hence the theory of plaintiff based on Article 2142 of
the Code on unjust enrichment is untenable; and (2) anent the alleged agreement about plaintiffs
services as intermediary in consideration of which, defendants promised to convey to him 3,000
square meters of land, that the same is unenforceable under the Statute of Frauds, there being
nothing in writing about it, and, in any event, (3) that the action of plaintiff to compel such
conveyance has already prescribed.

Plaintiff opposed the motion, insisting that Article 2142 of the applicable to his case; that the
Statute of Frauds cannot be invoked by defendants, not only because Article 1403 of the Civil
Code refers only to "sale of real property or of an interest therein" and not to promises to convey
real property like the one supposedly promised by defendants to him, but also because, he, the
plaintiff has already performed his part of the agreement, hence the agreement has already been
partly executed and not merely executory within the contemplation of the Statute; and that his
action has not prescribed for the reason that defendants had ten years to comply and only after
the said ten years did his cause of action accrue, that is, ten years after March 16, 1963, the date
of the approval of the compromise agreement, and his complaint was filed on January 24, 1964.

Ruling on the motion to dismiss, the trial court issued the herein impugned order of August 13,
1964:

28
In the motion, dated January 31, 1964, defendant Gregorio Araneta, Inc. prayed
that the complaint against it be dismissed on the ground that (1) the claim on
which the action is founded is unenforceable under the provision of the Statute of
Frauds; and (2) the plaintiff's action, if any has already prescribed. In the other
motion of February 11, 1964, defendant J. M. Tuason & Co., Inc. sought the
dismissal of the plaintiffs complaint on the ground that it states no cause of action
and on the Identical grounds stated in the motion to dismiss of defendant Gregorio
Araneta, Inc. The said motions are duly opposed by the plaintiff.

From the allegations of the complaint, it appears that, by virtue of an agreement


arrived at in 1948 by the plaintiff and the Deudors, the former assisted the latter in
clearing, improving, subdividing and selling the large tract of land consisting of
50 quinones covered by the informacion posesoria in the name of the late
Telesforo Deudor and incurred expenses, which are valued approximately at
P38,400.00 and P7,781.74, respectively; and, for the reasons that said
improvements are being used and enjoyed by the defendants, the plaintiff is
seeking the reimbursement for the services and expenses stated above from the
defendants.

Defendant J. M. Tuason & Co., Inc. claimed that, insofar as the plaintiffs claim
for the reimbursement of the amounts of P38,400.00 and P7,781.74 is concerned,
it is not a privy to the plaintiff's agreement to assist the Deudors n improving the
50 quinones. On the other hand, the plaintiff countered that, by holding and
utilizing the improvements introduced by him, the defendants are unjustly
enriching and benefiting at the expense of the plaintiff; and that said
improvements constitute a lien or charge of the property itself

On the issue that the complaint insofar as it claims the reimbursement for the
services rendered and expenses incurred by the plaintiff, states no cause of action,
the Court is of the opinion that the same is well-founded. It is found that the
defendants are not parties to the supposed express contract entered into by and
between the plaintiff and the Deudors for the clearing and improvement of the 50
quinones. Furthermore in order that the alleged improvement may be considered a
lien or charge on the property, the same should have been made in good faith and
under the mistake as to the title. The Court can take judicial notice of the fact that
the tract of land supposedly improved by the plaintiff had been registered way
back in 1914 in the name of the predecessors-in-interest of defendant J. M.
Tuason & Co., Inc. This fact is confirmed in the decision rendered by the
Supreme Court on July 31, 1956 in Case G. R. No. L-5079 entitled J.M. Tuason
& Co. Inc. vs. Geronimo Santiago, et al., Such being the case, the plaintiff cannot
claim good faith and mistake as to the title of the land.

On the issue of statute of fraud, the Court believes that same is applicable to the
instant case. The allegation in par. 12 of the complaint states that the defendants
promised and agreed to cede, transfer and convey unto the plaintiff the 3,000
square meters of land in consideration of certain services to be rendered then. it is

29
clear that the alleged agreement involves an interest in real property. Under the
provisions of See. 2(e) of Article 1403 of the Civil Code, such agreement is not
enforceable as it is not in writing and subscribed by the party charged.

On the issue of statute of limitations, the Court holds that the plaintiff's action has
prescribed. It is alleged in par. 11 of the complaint that, sometime in 1952, the
defendants approached the plaintiff to prevail upon the Deudors to enter to a
compromise agreement in Civil Case No. Q-135 and allied cases. Furthermore,
par. 13 and 14 of the complaint alleged that the plaintiff acted as emissary of both
parties in conveying their respective proposals and couter-proposals until the final
settlement was effected on March 16, 1953 and approved by Court on April 11,
1953. In the present action, which was instituted on January 24, 1964, the plaintiff
is seeking to enforce the supposed agreement entered into between him and the
defendants in 1952, which was already prescribed.

WHEREFORE, the plaintiffs complaint is hereby ordered DISMISSED without


pronouncement as to costs.

SO ORDERED. (Pp. 65-69, Rec. on Appeal,)

On August 22, 1964, plaintiff's counsel filed a motion for reconsideration dated August 20, 1964
as follows:

Plaintiff through undersigned counsel and to this Honorable Court, respectfully


moves to reconsider its Order bearing date of 13 August 1964, on the following
grounds:

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION


AGAINST DEFENDANTS IN SO FAR AS PLAINTIFF'S CLAIM PAYMENT
OF SERVICES AND REIMBURSEMENT OF HIS EXPENSES, IS
CONCERNED;

II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS.,
THE SAME HAS NOT PRESCRIBED AND THE STATUTE OF FRAUDS IS
NOT APPLICABLE THERETO;

ARGUMENT

Plaintiff's complaint contains two (2) causes of action — the first being an action
for sum of money in the amount of P7,781.74 representing actual expenses and
P38,400.00 as reasonable compensation for services in improving the 50 quinones
now in the possession of defendants. The second cause of action deals with the
3,000 sq. ms. which defendants have agreed to transfer into Plaintiff for services
rendered in effecting the compromise between the Deudors and defendants;

30
Under its order of August 3, 1964, this Honorable Court dismissed the claim for
sum of money on the ground that the complaint does not state a cause of action
against defendants. We respectfully submit:

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION


AGAINST DEFENDANTS IN SO FAR AS PLAINTIFF'S CLAIM FOR
PAYMENT OF SERVICES AND REIMBURSEMENT OF HIS EXPENSES IS
CONCERNED.

Said this Honorable Court (at p. 2, Order):

ORDER

xxx xxx xxx

On the issue that the complaint, in so far as it claims the reimbursement for the
services rendered and expenses incurred by the plaintiff, states no cause of action,
the Court is of the opinion that the same is well-founded. It is found that the
defendants are not parties to the supposed express contract entered into by and
between the plaintiff and the Deudors for the clearing and improvement of the 50
quinones. Furthermore, in order that the alleged improvement may he considered
a lien or charge on the property, the same should have been made in good faith
and under the mistake as to title. The Court can take judicial notice of the fact that
the tract of land supposedly improved by the plaintiff had been registered way
back in 1914 in the name of the predecessors-in-interest of defendant J. M.
Tuason & Co., Inc. This fact is confirmed in the decision rendered by the
Supreme Court on July 31, 1956 in case G. R. No. L-5079 entitled 'J M. Tuason
& Co., Inc. vs, Geronimo Santiago, et al.' Such being the case, the plaintiff cannot
claim good faith and mistake as to the title of the land.

The position of this Honorable Court (supra) is that the complaint does not state a
cause of action in so far as the claim for services and expenses is concerned
because the contract for the improvement of the properties was solely between the
Deudors and plaintiff, and defendants are not privies to it. Now, plaintiff's theory
is that defendants are nonetheless liable since they are utilizing and enjoying the
benefit's of said improvements. Thus under paragraph 16 of "he complaint, it is
alleged:

(16) That the services and personal expenses of plaintiff mentioned


in paragraph 7 hereof were rendered and in fact paid by him to
improve, as they in fact resulted in considerable improvement of
the 50 quinones, and defendants being now in possession of and
utilizing said improvements should reimburse and pay plaintiff for
such services and expenses.

31
Plaintiff's cause of action is premised inter alia, on the theory of unjust
enrichment under Article 2142 of the civil Code:

ART. 2142. Certain lawful voluntary and unilateral acts give rise
to the juridical relation of quasi-contract to the end that no one shill
be unjustly enriched or benefited at the expense of another.

In like vein, Article 19 of the same Code enjoins that:

ART. 19. Every person must, in the exercise of his rights and in the performance
of his duties, act with justice, give every-one his due and observe honesty and
good faith.

We respectfully draw the attention of this Honorable Court to the fact that
ARTICLE 2142 (SUPRA) DEALS WITH QUASI-CONTRACTS or situations
WHERE THERE IS NO CONTRACT BETWEEN THE PARTIES TO THE
ACTION. Further, as we can readily see from the title thereof (Title XVII), that
the Same bears the designation 'EXTRA CONTRACTUAL OBLIGATIONS' or
obligations which do not arise from contracts. While it is true that there was no
agreement between plaintiff and defendants herein for the improvement of the 50
quinones since the latter are presently enjoying and utilizing the benefits brought
about through plaintiff's labor and expenses, defendants should pay and reimburse
him therefor under the principle that 'no one may enrich himself at the expense of
another.' In this posture, the complaint states a cause of action against the
defendants.

II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS.
THE SAME HAS NOT PRESCRIBED AND THE STATUTE OF FRAUDS IS
NOT APPLICABLE THERETO.

The Statute of Frauds is CLEARLY inapplicable to this case:

At page 2 of this Honorable Court's order dated 13 August 1964, the Court ruled
as follows:

ORDER

xxx xxx xxx

On the issue of statute of fraud, the Court believes that same is


applicable to the instant Case, The allegation in par. 12 of the
complaint states that the defendants promised and agree to cede,
transfer and convey unto the plaintiff, 3,000 square meters of land
in consideration of certain services to be rendered then. It is clear
that the alleged agreement involves an interest in real property.
Under the provisions of Sec. 2(e) of Article 1403 of the Civil

32
Code, such agreement is not enforceable as it is not in writing and
subscribed by the party charged.

To bring this issue in sharper focus, shall reproduce not only paragraph 12 of the
complaint but also the other pertinent paragraphs therein contained. Paragraph 12
states thus:

COMPLAINT

xxx xxx xxx

12). That plaintiff conferred with the aforesaid representatives of defendants


several times and on these occasions, the latter promised and agreed to cede,
transfer and convey unto plaintiff the 3,000 sq. ms. (now known as Lots 16-B, 17
and 18) which plaintiff was then occupying and continues to occupy as of this
writing, for and in consideration of the following conditions:

(a) That plaintiff succeed in convincing the DEUDORS to enter


into a compromise agreement and that such agreement be actually
entered into by and between the DEUDORS and defendant
companies;

(b) That as of date of signing the compromise agreement, plaintiff


shall be the owner of the 3,000 sq. ms. but the documents
evidencing his title over this property shall be executed and
delivered by defendants to plaintiff within ten (10) years from and
after date of signing of the compromise agreement;

(c) That plaintiff shall, without any monetary expense of his part,
assist in clearing the 20 quinones of its occupants;

13). That in order to effect a compromise between the parties. plaintiff not only as
well acted as emissary of both parties in conveying their respective proposals and
counter- proposals until succeeded in convinzing the DEUDORS to settle with
defendants amicably. Thus, on March 16, 1953, a Compromise Agreement was
entered into by and between the DEUDORS and the defendant companies; and on
April 11, 1953, this agreement was approved by this Honorable Court;

14). That in order to comply with his other obligations under his agreement with
defendant companies, plaintiff had to confer with the occupants of the property,
exposing himself to physical harm, convincing said occupants to leave the
premises and to refrain from resorting to physical violence in resisting defendants'
demands to vacate;

That plaintiff further assisted defendants' employees in the actual


demolition and transferof all the houses within the perimeter of the

33
20 quinones until the end of 1955, when said area was totally
cleared and the houses transferred to another area designated by
the defendants as 'Capt. Cruz Block' in Masambong, Quezon City.
(Pars. 12, 13 and 14, Complaint; Emphasis supplied)

From the foregoing, it is clear then the agreement between the parties mentioned
in paragraph 12 (supra) of the complaint has already been fully EXECUTED ON
ONE PART, namely by the plaintiff. Regarding the applicability of the statute of
frauds (Art. 1403, Civil Code), it has been uniformly held that the statute of
frauds IS APPLICABLE ONLY TO EXECUTORY CONTRACTS BUT NOT
WHERE THE CONTRACT HAS BEEN PARTLY EXECUTED:

SAME ACTION TO ENFORCE. — The statute of frauds has


been uniformly interpreted to be applicable to executory and not to
completed or contracts. Performance of the contracts takes it out of
the operation of the statute. ...

The statute of the frauds is not applicable to contracts which are


either totally or partially performed, on the theory that there is a
wide field for the commission of frauds in executory contracts
which can only be prevented by requiring them to be in writing, a
facts which is reduced to a minimum in executed contracts because
the intention of the parties becomes apparent buy their execution
and execution, in mots cases, concluded the right the parties. ...
The partial performance may be proved by either documentary or
oral evidence. (At pp. 564-565, Tolentino's Civil Code of the
Philippines, Vol. IV, 1962 Ed.; Emphasis supplied).

Authorities in support of the foregoing rule are legion. Thus Mr. Justice Moran in
his 'Comments on the Rules of Court', Vol. III, 1974 Ed., at p. 167, states:

2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO


EXECUTORY CONTRACTS: CONTRACTS WHICH ARE
EITHER TOTALLY OR PARTIALLY PERFORMED ARE
WITHOUT THE STATUE. The statute of frauds is applicable only
to executory contracts. It is neither applicable to executed
contracts nor to contracts partially performed. The reason is
simple. In executory contracts there is a wide field for fraud
because unless they be in writing there is no palpable evidence of
the intention of the contracting parties. The statute has been
enacted to prevent fraud. On the other hand the commission of
fraud in executed contracts is reduced to minimum in executed
contracts because (1) the intention of the parties is made apparent
by the execution and (2) execution concludes, in most cases, the
rights of the parties. (Emphasis supplied)

34
Under paragraphs 13 and 14 of the complaint (supra) one can readily see that the
plaintiff has fulfilled ALL his obligation under the agreement between him
defendants concerning the 3,000 sq. ms. over which the latter had agreed to
execute the proper documents of transfer. This fact is further projected in
paragraph 15 of the complaint where plaintiff states;

15). That in or about the middle of 1963, after all the conditions
stated in paragraph 12 hereof had been fulfilled and fully complied
with, plaintiff demanded of said defendants that they execute the
Deed of Conveyance in his favor and deliver the title certificate in
his name, over the 3,000 sq. ms. but defendants failed and refused
and continue to fail and refuse to heed his demands. (par. 15,
complaint; Emphasis supplied).

In view of the foregoing, we respectfully submit that this Honorable court erred in
holding that the statute of frauds is applicable to plaintiff's claim over the 3,000
sq. ms. There having been full performance of the contract on plaintiff's part, the
same takes this case out of the context of said statute.

Plaintiff's Cause of Action had NOT Prescribed:

With all due respect to this Honorable court, we also submit that the Court
committed error in holding that this action has prescribed:

ORDER

xxx xxx xxx

On the issue of the statute of limitations, the Court holds that the
plaintiff's action has prescribed. It is alleged in par. III of the
complaint that, sometime in 1952, the defendants approached the
plaintiff to prevail upon the Deudors to enter into a compromise
agreement in Civil Case No. Q-135 and allied cases. Furthermore,
pars. 13 and 14 of the complaint alleged that plaintiff acted as
emissary of both parties in conveying their respective proposals
and counter-proposals until the final settlement was affected on
March 16, 1953 and approved by the Court on April 11, 1953. In
the present actin, which was instituted on January 24, 1964, the
plaintiff is seeking to enforce the supposed agreement entered into
between him and the defendants in 1952, which has already
proscribed. (at p. 3, Order).

The present action has not prescribed, especially when we consider carefully the
terms of the agreement between plaintiff and the defendants. First, we must draw
the attention of this Honorable Court to the fact that this is an action to compel
defendants to execute a Deed of Conveyance over the 3,000 sq. ms. subject of

35
their agreement. In paragraph 12 of the complaint, the terms and conditions of the
contract between the parties are spelled out. Paragraph 12 (b) of the complaint
states:

(b) That as of date of signing the compromise agreement, plaintiff


shall be the owner of the 3,000 sq. ms. but the documents
evidencing his title over this property shall be executed and
delivered by defendants to plaintiff within ten (10) years from and
after date of signing of the compromise agreement. (Emphasis
supplied).

The compromise agreement between defendants and the Deudors which was
conclude through the efforts of plaintiff, was signed on 16 March 1953.
Therefore, the defendants had ten (10) years signed on 16 March 1953. Therefore,
the defendants had ten (10) years from said date within which to execute the deed
of conveyance in favor of plaintiff over the 3,000 sq. ms. As long as the 10 years
period has not expired, plaintiff had no right to compel defendants to execute the
document and the latter were under no obligation to do so. Now, this 10-year
period elapsed on March 16, 1963. THEN and ONLY THEN does plaintiff's
cause of action plaintiff on March 17, 1963. Thus, under paragraph 15, of the
complaint (supra) plaintiff made demands upon defendants for the execution of
the deed 'in or about the middle of 1963.

Since the contract now sought to be enforced was not reduced to writing,
plaintiff's cause of action expires on March 16, 1969 or six years from March 16,
1963 WHEN THE CAUSE OF ACTION ACCRUED (Art. 1145, Civil Code).

In this posture, we gain respectfully submit that this Honorable Court erred in
holding that plaintiff's action has prescribed.

PRAYER

WHEREFORE, it is respectfully prayed that " Honorable Court reconsider its


Order dated August 13, 1964; and issue another order denying the motions to
dismiss of defendants G. Araneta, Inc. and J. M. Tuason Co. Inc. for lack of merit.
(Pp. 70-85, Record on Appeal.)

Defendants filed an opposition on the main ground that "the arguments adduced by the plaintiff
are merely reiterations of his arguments contained in his Rejoinder to Reply and Opposition,
which have not only been refuted in herein defendant's Motion to Dismiss and Reply but already
passed upon by this Honorable Court."

On September 7, 1964, the trial court denied the motion for reconsiderations thus:

After considering the plaintiff's Motion for Reconsideration of August 20, 1964
and it appearing that the grounds relied upon in said motion are mere repetition of

36
those already resolved and discussed by this Court in the order of August 13,
1964, the instant motion is hereby denied and the findings and conclusions arrived
at by the Court in its order of August 13, 1964 are hereby reiterated and affirmed.

SO ORDERED. (Page 90, Rec. on Appeal.)

Under date of September 24, 1964, plaintiff filed his record on appeal.

In his brief, appellant poses and discusses the following assignments of error:

I. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT


ON THE GROUND THAT APPELLANT'S CLAIM OVER THE 3,000 SQ. MS.
IS ALLEGEDLY UNENFORCEABLE UNDER THE STATUTE OF FRAUDS;

II. THAT THE COURT A QUO FURTHER COMMITTED ERROR IN


DISMISSING APPELLANT'S COMPLAINT ON THE GROUND THAT HIS
CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY BARRED BY THE
STATUTE OF LIMITATIONS; and

III. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT


FOR FAILURE TO STATE A CAUSE OF ACTION IN SO FAR AS
APPELLANT'S CLAIM FOR REIMBURSEMENT OF EXPENSES AND FOR
SERVICES RENDERED IN THE IMPROVEMENT OF THE FIFTY (50)
QUINONES IS CONCERNED.

We agree with appellant that the Statute of Frauds was erroneously applied by the trial court. It is
elementary that the Statute refers to specific kinds of transactions and that it cannot apply to any
that is not enumerated therein. And the only agreements or contracts covered thereby are the
following:

(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;

(2) Those do not comply with the Statute of Frauds as set forth in this number, In
the following cases an agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of its
contents:

(a) An agreement that by its terms is not to be performed within a


year from the making thereof;

(b) A special promise to answer for the debt, default, or


miscarriage of another;

37
(c) An agreement made in consideration of marriage, other than a
mutual promise to marry;

(d) An agreement for the sale of goods, chattels or things in action,


at a price not less than five hundred pesos, unless the buyer accept
and receive part of such goods and chattels, or the evidences, or
some of them of such things in action, or pay at the time some part
of the purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale, price,
names of the purchasers and person on whose account the sale is
made, it is a sufficient memorandum:

(e) An agreement for the leasing for a longer period than one year,
or for the sale of real property or of an interest therein:

(f) a representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract. (Art.
1403, civil Code.)

In the instant case, what appellant is trying to enforce is the delivery to him of 3,000 square
meters of land which he claims defendants promised to do in consideration of his services as
mediator or intermediary in effecting a compromise of the civil action, Civil Case No. 135,
between the defendants and the Deudors. In no sense may such alleged contract be considered as
being a "sale of real property or of any interest therein." Indeed, not all dealings involving
interest in real property come under the Statute.

Moreover, appellant's complaint clearly alleges that he has already fulfilled his part of the
bargains to induce the Deudors to amicably settle their differences with defendants as, in fact, on
March 16, 1963, through his efforts, a compromise agreement between these parties was
approved by the court. In other words, the agreement in question has already been partially
consummated, and is no longer merely executory. And it is likewise a fundamental principle
governing the application of the Statute that the contract in dispute should be purely executory
on the part of both parties thereto.

We cannot, however, escape taking judicial notice, in relation to the compromise agreement
relied upon by appellant, that in several cases We have decided, We have declared the same
rescinded and of no effect. In J. M. Tuason & Co., Inc. vs. Bienvenido Sanvictores, 4 SCRA 123,
the Court held:

It is also worthy of note that the compromise between Deudors and Tuason, upon
which Sanvictores predicates his right to buy the lot he occupies, has been validly
rescinded and set aside, as recognized by this Court in its decision in G.R. No. L-
13768, Deudor vs. Tuason, promulgated on May 30, 1961.

38
We repeated this observation in J.M. Tuason & Co., Inc. vs. Teodosio Macalindong, 6 SCRA
938. Thus, viewed from what would be the ultimate conclusion of appellant's case, We entertain
grave doubts as to whether or not he can successfully maintain his alleged cause of action against
defendants, considering that the compromise agreement that he invokes did not actually
materialize and defendants have not benefited therefrom, not to mention the undisputed fact that,
as pointed out by appellees, appellant's other attempt to secure the same 3,000 square meters via
the judicial enforcement of the compromise agreement in which they were supposed to be
reserved for him has already been repudiated by the courts. (pp. 5-7. Brief of Appellee Gregorio
Araneta, Inc.)

As regards appellant's third assignment of error, We hold that the allegations in his complaint do
not sufficiently Appellants' reliance. on Article 2142 of Civil Code is misplaced. Said article
provides:

Certain lawful, voluntary and unilateral acts give rise to the juridical relation of
quasi-contract to the end that no one shall be unjustly enriched or benefited at the
expense of another.

From the very language of this provision, it is obvious that a presumed qauasi-contract cannot
emerge as against one party when the subject mater thereof is already covered by an existing
contract with another party. Predicated on the principle that no one should be allowed to unjustly
enrich himself at the expense of another, Article 2124 creates the legal fiction of a quasi-contract
precisely because of the absence of any actual agreement between the parties concerned.
Corollarily, if the one who claims having enriched somebody has done so pursuant to a contract
with a third party, his cause of action should be against the latter, who in turn may, if there is any
ground therefor, seek relief against the party benefited. It is essential that the act by which the
defendant is benefited must have been voluntary and unilateral on the part of the plaintiff. As one
distinguished civilian puts it, "The act is voluntary. because the actor in quasi-contracts is not
bound by any pre-existing obligation to act. It is unilateral, because it arises from the sole will of
the actor who is not previously bound by any reciprocal or bilateral agreement. The reason why
the law creates a juridical relations and imposes certain obligation is to prevent a situation where
a person is able to benefit or take advantage of such lawful, voluntary and unilateral acts at the
expense of said actor." (Ambrosio Padilla, Civil Law, Vol. VI, p. 748, 1969 ed.) In the case at
bar, since appellant has a clearer and more direct recourse against the Deudors with whom he
had entered into an agreement regarding the improvements and expenditures made by him on the
land of appellees. it Cannot be said, in the sense contemplated in Article 2142, that appellees
have been enriched at the expense of appellant.

In the ultimate. therefore, Our holding above that appellant's first two assignments of error are
well taken cannot save the day for him. Aside from his having no cause of action against
appellees, there is one plain error of omission. We have found in the order of the trial court
which is as good a ground as any other for Us to terminate this case favorably to appellees. In
said order Which We have quoted in full earlier in this opinion, the trial court ruled that "the
grounds relied upon in said motion are mere repetitions of those already resolved and discussed
by this Court in the order of August 13, 1964", an observation which We fully share. Virtually,
therefore. appellant's motion for reconsideration was ruled to be pro-forma. Indeed, a cursory

39
reading of the record on appeal reveals that appellant's motion for reconsideration above-quoted
contained exactly the same arguments and manner of discussion as his February 6, 1964
"Opposition to Motion to Dismiss" of defendant Gregorio Araneta, Inc. ((pp. 17-25, Rec. on
Appeal) as well as his February 17, 1964 "Opposition to Motion to Dismiss of Defendant J. M.
Tuason & Co." (pp. 33-45, Rec. on Appeal and his February 29, 1964 "Rejoinder to Reply Oil
Defendant J. M. Tuason & Co." (pp. 52-64, Rec. on Appeal) We cannot see anything in said
motion for reconsideration that is substantially different from the above oppositions and
rejoinder he had previously submitted and which the trial court had already considered when it
rendered its main order of dismissal. Consequently, appellant's motion for reconsideration did
not suspend his period for appeal. (Estrada vs. Sto. Domingo, 28 SCRA 890, 905-6.) And as this
point was covered by appellees' "Opposition to Motion for Reconsideration" (pp. 8689), hence,
within the frame of the issues below, it is within the ambit of Our authority as the Supreme Court
to consider the same here even if it is not discussed in the briefs of the parties. (Insular Life
Assurance Co., Ltd. Employees Association-NATU vs. Insular Life Assurance Co., Ltd.
[Resolution en banc of March 10, 1977 in G. R. No. L-25291).

Now, the impugned main order was issued on August 13, 1964, while the appeal was made on
September 24, 1964 or 42 days later. Clearly, this is beyond the 30-day reglementary period for
appeal. Hence, the subject order of dismissal was already final and executory when appellant
filed his appeal.

WHEREFORE, the appeal of Faustino Cruz in this case is dismissed. No costs.

9. GUTIERREZ HERMANOS, plaintiff-appellee,


vs.
ENGRACIO ORENSE, defendant-appellant.

William A. Kincaid, Thos. L. Hartigan, and Ceferino M. Villareal for appellant.


Rafael de la Sierra for appellee.

TORRES, J.:

Appeal through bill of exceptions filed by counsel for the appellant from the judgment on April
14, 1913, by the Honorable P. M. Moir, judge, wherein he sentenced the defendant to make
immediate delivery of the property in question, through a public instrument, by transferring and
conveying to the plaintiff all his rights in the property described in the complaint and to pay it the
sum of P780, as damages, and the costs of the suit.

On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint, afterwards amended, in
the Court of First Instance of Albay against Engacio Orense, in which he set forth that on and
before February 14, 1907, the defendant Orense had been the owner of a parcel of land, with the
buildings and improvements thereon, situated in the pueblo of Guinobatan, Albay, the location,
area and boundaries of which were specified in the complaint; that the said property has up to

40
date been recorded in the new property registry in the name of the said Orense, according to
certificate No. 5, with the boundaries therein given; that, on February 14, 1907, Jose Duran, a
nephew of the defendant, with the latter's knowledge and consent, executed before a notary a
public instrument whereby he sold and conveyed to the plaintiff company, for P1,500, the
aforementioned property, the vendor Duran reserving to himself the right to repurchase it for the
same price within a period of four years from the date of the said instrument; that the plaintiff
company had not entered into possession of the purchased property, owing to its continued
occupancy by the defendant and his nephew, Jose Duran, by virtue of a contract of lease
executed by the plaintiff to Duran, which contract was in force up to February 14, 1911; that the
said instrument of sale of the property, executed by Jose Duran, was publicly and freely
confirmed and ratified by the defendant Orense; that, in order to perfect the title to the said
property, but that the defendant Orense refused to do so, without any justifiable cause or reason,
wherefore he should be compelled to execute the said deed by an express order of the court, for
Jose Duran is notoriously insolvent and cannot reimburse the plaintiff company for the price of
the sale which he received, nor pay any sum whatever for the losses and damages occasioned by
the said sale, aside from the fact that the plaintiff had suffered damage by losing the present
value of the property, which was worth P3,000; that, unless such deed of final conveyance were
executed in behalf of the plaintiff company, it would be injured by the fraud perpetrated by the
vendor, Duran, in connivance with the defendant; that the latter had been occupying the said
property since February 14, 1911, and refused to pay the rental thereof, notwithstanding the
demand made upon him for its payment at the rate of P30 per month, the just and reasonable
value for the occupancy of the said property, the possession of which the defendant likewise
refused to deliver to the plaintiff company, in spite of the continuous demands made upon him,
the defendant, with bad faith and to the prejudice of the firm of Gutierrez Hermanos, claiming to
have rights of ownership and possession in the said property. Therefore it was prayed that
judgment be rendered by holding that the land and improvements in question belong legitimately
and exclusively to the plaintiff, and ordering the defendant to execute in the plaintiff's behalf the
said instrument of transfer and conveyance of the property and of all the right, interest, title and
share which the defendant has therein; that the defendant be sentenced to pay P30 per month for
damages and rental of the property from February 14, 1911, and that, in case these remedies
were not granted to the plaintiff, the defendant be sentenced to pay to it the sum of P3,000 as
damages, together with interest thereon since the date of the institution of this suit, and to pay the
costs and other legal expenses.

The demurrer filed to the amended complaint was overruled, with exception on the part of the
defendant, whose counsel made a general denial of the allegations contained in the complaint,
excepting those that were admitted, and specifically denied paragraph 4 thereof to the effect that
on February 14, 1907, Jose Duran executed the deed of sale of the property in favor of the
plaintiff with the defendant's knowledge and consent.1awphil.net

As the first special defense, counsel for the defendant alleged that the facts set forth in the
complaint with respect to the execution of the deed did not constitute a cause of action, nor did
those alleged in the other form of action for the collection of P3,000, the value of the realty.

As the second special defense, he alleged that the defendant was the lawful owner of the property
claimed in the complaint, as his ownership was recorded in the property registry, and that, since

41
his title had been registered under the proceedings in rem prescribed by Act No. 496, it was
conclusive against the plaintiff and the pretended rights alleged to have been acquired by Jose
Duran prior to such registration could not now prevail; that the defendant had not executed any
written power of attorney nor given any verbal authority to Jose Duran in order that the latter
might, in his name and representation, sell the said property to the plaintiff company; that the
defendant's knowledge of the said sale was acquired long after the execution of the contract of
sale between Duran and Gutierrez Hermanos, and that prior thereto the defendant did not
intentionally and deliberately perform any act such as might have induced the plaintiff to believe
that Duran was empowered and authorized by the defendant and which would warrant him in
acting to his own detriment, under the influence of that belief. Counsel therefore prayed that the
defendant be absolved from the complaint and that the plaintiff be sentenced to pay the costs and
to hold his peace forever.

After the hearing of the case and an examination of the evidence introduced by both parties, the
court rendered the judgment aforementioned, to which counsel for the defendant excepted and
moved for a new trial. This motion was denied, an exception was taken by the defendant and,
upon presentation of the proper bill of exceptions, the same was approved, certified and
forwarded to the clerk of his court.

This suit involves the validity and efficacy of the sale under right of redemption of a parcel of
land and a masonry house with the nipa roof erected thereon, effected by Jose Duran, a nephew
of the owner of the property, Engracio Orense, for the sum of P1,500 by means of a notarial
instrument executed and ratified on February 14, 1907.

After the lapse of the four years stipulated for the redemption, the defendant refused to deliver
the property to the purchaser, the firm of Gutierrez Hermanos, and to pay the rental thereof at the
rate of P30 per month for its use and occupation since February 14, 1911, when the period for its
repurchase terminated. His refusal was based on the allegations that he had been and was then
the owner of the said property, which was registered in his name in the property registry; that he
had not executed any written power of attorney to Jose Duran, nor had he given the latter any
verbal authorization to sell the said property to the plaintiff firm in his name; and that, prior to
the execution of the deed of sale, the defendant performed no act such as might have induced the
plaintiff to believe that Jose Duran was empowered and authorized by the defendant to effect the
said sale.

The plaintiff firm, therefore, charged Jose Duran, in the Court of First Instance of the said
province, with estafa, for having represented himself in the said deed of sale to be the absolute
owner of the aforesaid land and improvements, whereas in reality they did not belong to him, but
to the defendant Orense. However, at the trial of the case Engracio Orense, called as a witness,
being interrogated by the fiscal as to whether he and consented to Duran's selling the said
property under right of redemption to the firm of Gutierrez Hermanos, replied that he had. In
view of this statement by the defendant, the court acquitted Jose Duran of the charge of estafa.

As a result of the acquittal of Jose Duran, based on the explicit testimony of his uncle, Engacio
Orense, the owner of the property, to the effect that he had consented to his nephew Duran's
selling the property under right of repurchase to Gutierrez Hermanos, counsel for this firm filed a

42
complainant praying, among other remedies, that the defendant Orense be compelled to execute
a deed for the transfer and conveyance to the plaintiff company of all the right, title and interest
with Orense had in the property sold, and to pay to the same the rental of the property due from
February 14, 1911.itc-alf

Notwithstanding the allegations of the defendant, the record in this case shows that he did give
his consent in order that his nephew, Jose Duran, might sell the property in question to Gutierrez
Hermanos, and that he did thereafter confirm and ratify the sale by means of a public instrument
executed before a notary.

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

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

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

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

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

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

On the testimony given by Engacio Orense at the trial of Duran for estafa, the latter was
acquitted, and it would not be just that the said testimony, expressive of his consent to the sale of
his property, which determined the acquittal of his nephew, Jose Duran, who then acted as his
business manager, and which testimony wiped out the deception that in the beginning appeared

43
to have been practiced by the said Duran, should not now serve in passing upon the conduct of
Engracio Orense in relation to the firm of Gutierrez Hermanos in order to prove his consent to
the sale of his property, for, had it not been for the consent admitted by the defendant Orense, the
plaintiff would have been the victim of estafa.

If the defendant Orense acknowledged and admitted under oath that he had consented to Jose
Duran's selling the property in litigation to Gutierrez Hermanos, it is not just nor is it permissible
for him afterward to deny that admission, to the prejudice of the purchaser, who gave P1,500 for
the said property.

The contract of sale of the said property contained in the notarial instrument of February 14,
1907, is alleged to be invalid, null and void under the provisions of paragraph 5 of section 335 of
the Code of Civil Procedure, because the authority which Orense may have given to Duran to
make the said contract of sale is not shown to have been in writing and signed by Orense, but the
record discloses satisfactory and conclusive proof that the defendant Orense gave his consent to
the contract of sale executed in a public instrument by his nephew Jose Duran. Such consent was
proven in a criminal action by the sworn testimony of the principal and presented in this civil suit
by other sworn testimony of the same principal and by other evidence to which the defendant
made no objection. Therefore the principal is bound to abide by the consequences of his agency
as though it had actually been given in writing (Conlu vs. Araneta and Guanko, 15 Phil. Rep.,
387; Gallemit vs. Tabiliran, 20 Phil. Rep., 241; Kuenzle & Streiff vs. Jiongco, 22 Phil. Rep.,
110.)

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

The judgment appealed from in harmony with the law and the merits of the case, and the errors
assigned thereto have been duly refuted by the foregoing considerations, so it should be affirmed.

The judgment appealed from is hereby affirmed, with the costs against the appellant.

10. RUSTICO ADILLE, petitioner,


vs.
THE HONORABLE COURT OF APPEALS, EMETERIA ASEJO, TEODORICA ASEJO,
DOMINGO ASEJO, JOSEFA ASEJO and SANTIAGO ASEJO, respondents.

SARMIENTO, J.:

In issue herein are property and property rights, a familiar subject of controversy and a
wellspring of enormous conflict that has led not only to protracted legal entanglements but to
even more bitter consequences, like strained relationships and even the forfeiture of lives. It is a

44
question that likewise reflects a tragic commentary on prevailing social and cultural values and
institutions, where, as one observer notes, wealth and its accumulation are the basis of self-
fulfillment and where property is held as sacred as life itself. "It is in the defense of his
property," says this modern thinker, that one "will mobilize his deepest protective devices, and
anybody that threatens his possessions will arouse his most passionate enmity." 1

The task of this Court, however, is not to judge the wisdom of values; the burden of
reconstructing the social order is shouldered by the political leadership-and the people
themselves.

The parties have come to this Court for relief and accordingly, our responsibility is to give them
that relief pursuant to the decree of law.

The antecedent facts are quoted from the decision 2 appealed from:

xxx xxx xxx

... [T]he land in question Lot 14694 of Cadastral Survey of Albay located in
Legaspi City with an area of some 11,325 sq. m. originally belonged to one Felisa
Alzul as her own private property; she married twice in her lifetime; the first, with
one Bernabe Adille, with whom she had as an only child, herein defendant
Rustico Adille; in her second marriage with one Procopio Asejo, her children
were herein plaintiffs, — now, sometime in 1939, said Felisa sold the property
in pacto de retro to certain 3rd persons, period of repurchase being 3 years, but
she died in 1942 without being able to redeem and after her death, but during the
period of redemption, herein defendant repurchased, by himself alone, and after
that, he executed a deed of extra-judicial partition representing himself to be the
only heir and child of his mother Felisa with the consequence that he was able to
secure title in his name alone also, so that OCT. No. 21137 in the name of his
mother was transferred to his name, that was in 1955; that was why after some
efforts of compromise had failed, his half-brothers and sisters, herein plaintiffs,
filed present case for partition with accounting on the position that he was only a
trustee on an implied trust when he redeemed,-and this is the evidence, but as it
also turned out that one of plaintiffs, Emeteria Asejo was occupying a portion,
defendant counterclaimed for her to vacate that, —

Well then, after hearing the evidence, trial Judge sustained defendant in his
position that he was and became absolute owner, he was not a trustee, and
therefore, dismissed case and also condemned plaintiff occupant, Emeteria to
vacate; it is because of this that plaintiffs have come here and contend that trial
court erred in:

I. ... declaring the defendant absolute owner of the property;

II. ... not ordering the partition of the property; and

45
III. ... ordering one of the plaintiffs who is in possession of the portion of the
property to vacate the land, p. 1 Appellant's brief.

which can be reduced to simple question of whether or not on the basis of evidence and law,
judgment appealed from should be maintained. 3

xxx xxx xxx

The respondent Court of appeals reversed the trial Court, 4 and ruled for the plaintiffs-appellants,
the private respondents herein. The petitioner now appeals, by way of certiorari, from the Court's
decision.

We required the private respondents to file a comment and thereafter, having given due course to
the petition, directed the parties to file their briefs. Only the petitioner, however, filed a brief, and
the private respondents having failed to file one, we declared the case submitted for decision.

The petition raises a purely legal issue: May a co-owner acquire exclusive ownership over the
property held in common?

Essentially, it is the petitioner's contention that the property subject of dispute devolved upon
him upon the failure of his co-heirs to join him in its redemption within the period required by
law. He relies on the provisions of Article 1515 of the old Civil Article 1613 of the present Code,
giving the vendee a retro the right to demand redemption of the entire property.

There is no merit in this petition.

The right of repurchase may be exercised by a co-owner with aspect to his share alone. 5 While
the records show that the petitioner redeemed the property in its entirety, shouldering the
expenses therefor, that did not make him the owner of all of it. In other words, it did not put to
end the existing state of co-ownership.

Necessary expenses may be incurred by one co-owner, subject to his right to collect
reimbursement from the remaining co-owners. 6 There is no doubt that redemption of property
entails a necessary expense. Under the Civil Code:

ART. 488. Each co-owner shall have a right to compel the other co-owners to
contribute to the expenses of preservation of the thing or right owned in common
and to the taxes. Any one of the latter may exempt himself from this obligation by
renouncing so much of his undivided interest as may be equivalent to his share of
the expenses and taxes. No such waiver shall be made if it is prejudicial to the co-
ownership.

The result is that the property remains to be in a condition of co-ownership. While a vendee a
retro, under Article 1613 of the Code, "may not be compelled to consent to a partial
redemption," the redemption by one co-heir or co-owner of the property in its totality does not
vest in him ownership over it. Failure on the part of all the co-owners to redeem it entitles the

46
vendee a retro to retain the property and consolidate title thereto in his name. 7 But the provision
does not give to the redeeming co-owner the right to the entire property. It does not provide for a
mode of terminating a co-ownership.

Neither does the fact that the petitioner had succeeded in securing title over the parcel in his
name terminate the existing co-ownership. While his half-brothers and sisters are, as we said,
liable to him for reimbursement as and for their shares in redemption expenses, he cannot claim
exclusive right to the property owned in common. Registration of property is not a means of
acquiring ownership. It operates as a mere notice of existing title, that is, if there is one.

The petitioner must then be said to be a trustee of the property on behalf of the private
respondents. The Civil Code states:

ART. 1456. If property is acquired through mistake or fraud, the person obtaining
it is, by force of law, considered a trustee of an implied trust for the benefit of the
person from whom the property comes.

We agree with the respondent Court of Appeals that fraud attended the registration of the
property. The petitioner's pretension that he was the sole heir to the land in the affidavit of
extrajudicial settlement he executed preliminary to the registration thereof betrays a clear effort
on his part to defraud his brothers and sisters and to exercise sole dominion over the property.
The aforequoted provision therefore applies.

It is the view of the respondent Court that the petitioner, in taking over the property, did so either
on behalf of his co-heirs, in which event, he had constituted himself a negotiorum gestor under
Article 2144 of the Civil Code, or for his exclusive benefit, in which case, he is guilty of fraud,
and must act as trustee, the private respondents being the beneficiaries, under the Article 1456.
The evidence, of course, points to the second alternative the petitioner having asserted claims of
exclusive ownership over the property and having acted in fraud of his co-heirs. He cannot
therefore be said to have assume the mere management of the property abandoned by his co-
heirs, the situation Article 2144 of the Code contemplates. In any case, as the respondent Court
itself affirms, the result would be the same whether it is one or the other. The petitioner would
remain liable to the Private respondents, his co-heirs.

This Court is not unaware of the well-established principle that prescription bars any demand on
property (owned in common) held by another (co-owner) following the required number of
years. In that event, the party in possession acquires title to the property and the state of co-
ownership is ended . 8 In the case at bar, the property was registered in 1955 by the petitioner,
solely in his name, while the claim of the private respondents was presented in 1974. Has
prescription then, set in?

We hold in the negative. Prescription, as a mode of terminating a relation of co-ownership, must


have been preceded by repudiation (of the co-ownership). The act of repudiation, in turn is
subject to certain conditions: (1) a co-owner repudiates the co-ownership; (2) such an act of
repudiation is clearly made known to the other co-owners; (3) the evidence thereon is clear and

47
conclusive, and (4) he has been in possession through open, continuous, exclusive, and notorious
possession of the property for the period required by law. 9

The instant case shows that the petitioner had not complied with these requisites. We are not
convinced that he had repudiated the co-ownership; on the contrary, he had deliberately kept the
private respondents in the dark by feigning sole heirship over the estate under dispute. He cannot
therefore be said to have "made known" his efforts to deny the co-ownership. Moreover, one of
the private respondents, Emeteria Asejo, is occupying a portion of the land up to the present, yet,
the petitioner has not taken pains to eject her therefrom. As a matter of fact, he sought to recover
possession of that portion Emeteria is occupying only as a counterclaim, and only after the
private respondents had first sought judicial relief.

It is true that registration under the Torrens system is constructive notice of title, 10 but it has
likewise been our holding that the Torrens title does not furnish a shield for fraud. 11 It is
therefore no argument to say that the act of registration is equivalent to notice of repudiation,
assuming there was one, notwithstanding the long-standing rule that registration operates as a
universal notice of title.

For the same reason, we cannot dismiss the private respondents' claims commenced in 1974 over
the estate registered in 1955. While actions to enforce a constructive trust prescribes in ten
years, 12 reckoned from the date of the registration of the property, 13 we, as we said, are not
prepared to count the period from such a date in this case. We note the petitioner's sub
rosa efforts to get hold of the property exclusively for himself beginning with his fraudulent
misrepresentation in his unilateral affidavit of extrajudicial settlement that he is "the only heir
and child of his mother Feliza with the consequence that he was able to secure title in his name
also." 14 Accordingly, we hold that the right of the private respondents commenced from the time
they actually discovered the petitioner's act of defraudation. 15 According to the respondent Court
of Appeals, they "came to know [of it] apparently only during the progress of the
litigation." 16 Hence, prescription is not a bar.

Moreover, and as a rule, prescription is an affirmative defense that must be pleaded either in a
motion to dismiss or in the answer otherwise it is deemed waived, 17 and here, the petitioner
never raised that defense. 18 There are recognized exceptions to this rule, but the petitioner has
not shown why they apply.

WHEREFORE, there being no reversible error committed by the respondent Court of Appeals,
the petition is DENIED. The Decision sought to be reviewed is hereby AFFIRMED in toto. No
pronouncement as to costs.

11. DOMETILA M. ANDRES, doing business under the name and style "IRENE'S
WEARING APPAREL," petitioner,
vs.
MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF
APPEALS, respondents.

Roque A. Tamayo for petitioner.

48
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private respondent.

CORTES, J.:

Assailed in this petition for review on certiorari is the judgment of the Court of Appeals, which,
applying the doctrine of solutio indebiti, reversed the decision of the Regional Trial Court,
Branch CV, Quezon City by deciding in favor of private respondent.

Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the manufacture
of ladies garments, children's wear, men's apparel and linens for local and foreign buyers.
Among its foreign buyers was Facets Funwear, Inc. (hereinafter referred to as FACETS) of the
United States.

In the course of the business transaction between the two, FACETS from time to time remitted
certain amounts of money to petitioner in payment for the items it had purchased. Sometime in
August 1980, FACETS instructed the First National State Bank of New Jersey, Newark, New
Jersey, U.S.A. (hereinafter referred to as FNSB) to transfer $10,000.00 to petitioner via
Philippine National Bank, Sta. Cruz Branch, Manila (hereinafter referred to as PNB).

Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and
Trust Corporation to effect the above- mentioned transfer through its facilities and to charge the
amount to the account of FNSB with private respondent. Although private respondent was able
to send a telex to PNB to pay petitioner $10,000.00 through the Pilipinas Bank, where petitioner
had an account, the payment was not effected immediately because the payee designated in the
telex was only "Wearing Apparel." Upon query by PNB, private respondent sent PNB another
telex dated August 27, 1980 stating that the payment was to be made to "Irene's Wearing
Apparel." On August 28, 1980, petitioner received the remittance of $10,000.00 through Demand
Draft No. 225654 of the PNB.

Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the money to
petitioner, FACETS informed FNSB about the situation. On September 8, 1980, unaware that
petitioner had already received the remittance, FACETS informed private respondent about the
delay and at the same time amended its instruction by asking it to effect the payment through the
Philippine Commercial and Industrial Bank (hereinafter referred to as PCIB) instead of PNB.

Accordingly, private respondent, which was also unaware that petitioner had already received the
remittance of $10,000.00 from PNB instructed the PCIB to pay $10,000.00 to petitioner. Hence,
on September 11, 1980, petitioner received a second $10,000.00 remittance.

Private respondent debited the account of FNSB for the second $10,000.00 remittance effected
through PCIB. However, when FNSB discovered that private respondent had made a duplication
of the remittance, it asked for a recredit of its account in the amount of $10,000.00. Private
respondent complied with the request.

49
Private respondent asked petitioner for the return of the second remittance of $10,000.00 but the
latter refused to pay. On May 12, 1982 a complaint was filed with the Regional Trial Court,
Branch CV, Quezon City which was decided in favor of petitioner as defendant. The trial court
ruled that Art. 2154 of the New Civil Code is not applicable to the case because the second
remittance was made not by mistake but by negligence and petitioner was not unjustly enriched
by virtue thereof [Record, p. 234]. On appeal, the Court of Appeals held that Art. 2154 is
applicable and reversed the RTC decision. The dispositive portion of the Court of Appeals'
decision reads as follows:

WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE


and another one entered in favor of plaintiff-appellant and against defendant-
appellee Domelita (sic) M. Andres, doing business under the name and style
"Irene's Wearing Apparel" to reimburse and/or return to plaintiff-appellant the
amount of $10,000.00, its equivalent in Philippine currency, with interests at the
legal rate from the filing of the complaint on May 12, 1982 until the whole
amount is fully paid, plus twenty percent (20%) of the amount due as attomey's
fees; and to pay the costs.

With costs against defendant-appellee.

SO ORDERED. [Rollo, pp. 29-30.]

Thereafter, this petition was filed. The sole issue in this case is whether or not the private
respondent has the right to recover the second $10,000.00 remittance it had delivered to
petitioner. The resolution of this issue would hinge on the applicability of Art. 2154 of the New
Civil Code which provides that:

Art. 2154. If something received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises.

This provision is taken from Art. 1895 of the Spanish Civil Code which provided that:

Art. 1895. If a thing is received when there was no right to claim it and which,
through an error, has been unduly delivered, an obligation to restore it arises.

In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice Bocobo
explained the nature of this article thus:

Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore
applicable. This legal provision, which determines the quasi-contract of solution
indebiti, is one of the concrete manifestations of the ancient principle that no one
shall enrich himself unjustly at the expense of another. In the Roman Law Digest
the maxim was formulated thus: "Jure naturae acquum est, neminem cum alterius
detrimento et injuria fieri locupletiorem." And the Partidas declared: "Ninguno
non deue enriquecerse tortizeramente con dano de otro." Such axiom has grown
through the centuries in legislation, in the science of law and in court decisions.

50
The lawmaker has found it one of the helpful guides in framing statutes and
codes. Thus, it is unfolded in many articles scattered in the Spanish Civil Code.
(See for example, articles, 360, 361, 464, 647, 648, 797, 1158, 1163, 1295, 1303,
1304, 1893 and 1895, Civil Code.) This time-honored aphorism has also been
adopted by jurists in their study of the conflict of rights. It has been accepted by
the courts, which have not hesitated to apply it when the exigencies of right and
equity demanded its assertion. It is a part of that affluent reservoir of justice upon
which judicial discretion draws whenever the statutory laws are inadequate
because they do not speak or do so with a confused voice. [at p. 632.]

For this article to apply the following requisites must concur: "(1) that he who paid was not
under obligation to do so; and, (2) that payment was made by reason of an essential mistake of
fact" [City of Cebu v. Piccio, 110 Phil. 558, 563 (1960)].

It is undisputed that private respondent delivered the second $10,000.00 remittance. However,
petitioner contends that the doctrine of solutio indebiti, does not apply because its requisites are
absent.

First, it is argued that petitioner had the right to demand and therefore to retain the second
$10,000.00 remittance. It is alleged that even after the two $10,000.00 remittances are credited to
petitioner's receivables from FACETS, the latter allegedly still had a balance of $49,324.00.
Hence, it is argued that the last $10,000.00 remittance being in payment of a pre-existing debt,
petitioner was not thereby unjustly enriched.

The contention is without merit.

The contract of petitioner, as regards the sale of garments and other textile products, was with
FACETS. It was the latter and not private respondent which was indebted to petitioner. On the
other hand, the contract for the transmittal of dollars from the United States to petitioner was
entered into by private respondent with FNSB. Petitioner, although named as the payee was not
privy to the contract of remittance of dollars. Neither was private respondent a party to the
contract of sale between petitioner and FACETS. There being no contractual relation between
them, petitioner has no right to apply the second $10,000.00 remittance delivered by mistake by
private respondent to the outstanding account of FACETS.

Petitioner next contends that the payment by respondent bank of the second $10,000.00
remittance was not made by mistake but was the result of negligence of its employees. In
connection with this the Court of Appeals made the following finding of facts:

The fact that Facets sent only one remittance of $10,000.00 is not disputed. In the
written interrogatories sent to the First National State Bank of New Jersey through
the Consulate General of the Philippines in New York, Adelaide C. Schachel, the
investigation and reconciliation clerk in the said bank testified that a request to
remit a payment for Facet Funwear Inc. was made in August, 1980. The total
amount which the First National State Bank of New Jersey actually requested the
plaintiff-appellant Manufacturers Hanover & Trust Corporation to remit to Irene's

51
Wearing Apparel was US $10,000.00. Only one remittance was requested by First
National State Bank of New Jersey as per instruction of Facets Funwear (Exhibit
"J", pp. 4-5).

That there was a mistake in the second remittance of US $10,000.00 is borne out
by the fact that both remittances have the same reference invoice number which is
263 80. (Exhibits "A-1- Deposition of Mr. Stanley Panasow" and "A-2-Deposition
of Mr. Stanley Panasow").

Plaintiff-appellant made the second remittance on the wrong assumption that


defendant-appellee did not receive the first remittance of US $10,000.00. [Rollo,
pp. 26-27.]

It is evident that the claim of petitioner is anchored on the appreciation of the attendant facts
which petitioner would have this Court review. The Court holds that the finding by the Court of
Appeals that the second $10,000.00 remittance was made by mistake, being based on substantial
evidence, is final and conclusive. The rule regarding questions of fact being raised with this
Court in a petition for certiorari under Rule 45 of the Revised Rules of Court has been stated in
Remalante v. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:

The rule in this jurisdiction is that only questions of law may be raised in a
petition for certiorari under Rule 45 of the Revised Rules of Court. "The
jurisdiction of the Supreme Court in cases brought to it from the Court of Appeals
is limited to reviewing and revising the errors of law imputed to it, its findings of
fact being conclusive" [Chan v. Court of Appeals, G.R. No. L-27488, June 30,
1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has
emphatically declared that "it is not the function of the Supreme Court to analyze
or weigh such evidence all over again, its jurisdiction being limited to reviewing
errors of law that might have been committed by the lower court" [Tiongco v. De
la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona v. Court of
Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued v. Court
of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596]. "Barring,
therefore, a showing that the findings complained of are totally devoid of support
in the record, or that they are so glaringly erroneous as to constitute serious abuse
of discretion, such findings must stand, for this Court is not expected or required
to examine or contrast the oral and documentary evidence submitted by the
parties" [Santa Ana, Jr. v. Hernandez, G.R. No. L-16394, December 17, 1966, 18
SCRA 9731. [at pp. 144-145.]

Petitioner invokes the equitable principle that when one of two innocent persons must suffer by
the wrongful act of a third person, the loss must be borne by the one whose negligence was the
proximate cause of the loss.

The rule is that principles of equity cannot be applied if there is a provision of law specifically
applicable to a case [Phil. Rabbit Bus Lines, Inc. v. Arciaga, G.R. No. L-29701, March 16,
1987,148 SCRA 433; Zabat, Jr. v. Court of Appeals, G.R. No. L36958, July 10, 1986, 142

52
SCRA 587; Rural Bank of Paranaque, Inc. v. Remolado, G.R. No. 62051, March 18, 1985, 135
SCRA 409; Cruz v. Pahati, 98 Phil. 788 (1956)]. Hence, the Court in the case of De Garcia v.
Court of Appeals, G.R. No. L-20264, January 30, 1971, 37 SCRA 129, citing Aznar v.
Yapdiangco, G.R. No. L-18536, March 31, 1965, 13 SCRA 486, held:

... The common law principle that where one of two innocent persons must suffer
by a fraud perpetrated by another, the law imposes the loss upon the party who,
by his misplaced confidence, has enabled the fraud to be committed, cannot be
applied in a case which is covered by an express provision of the new Civil Code,
specifically Article 559. Between a common law principle and a statutory
provision, the latter must prevail in this jurisdiction. [at p. 135.]

Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio indebiti,
applies in the case at bar, the Court must reject the common law principle invoked by petitioner.

Finally, in her attempt to defeat private respondent's claim, petitioner makes much of the fact that
from the time the second $10,000.00 remittance was made, five hundred and ten days had
elapsed before private respondent demanded the return thereof. Needless to say, private
respondent instituted the complaint for recovery of the second $10,000.00 remittance well within
the six years prescriptive period for actions based upon a quasi-contract [Art. 1145 of the New
Civil Code].

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is hereby
AFFIRMED.

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


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

Feria, Manglapus & Associates for plainttiff-appelle.Asst. City Fiscal Manuel T. Reyes for
defendants-appellants.

PAREDES, J.:

This is an appeal from the judgment of the CFI of Manila, the dispostive portion of which reads:

"xxx Of the payments made by the plaintiff, only that made on October 25, 1950 in the
amount of P1,250.00 has prescribed Payments made in 1951 and thereafter are still
recoverable since the extra-judicial demand made on October 30, 1956 was well within
the six-year prescriptive period of the New CivilCode.

In view of the foregoing considerations, judgment is hereby rendered in favor of the


plaintiff, ordering the defendants to refund the amount of P29,824.00, without interest.
No costs.

53
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted
and approved by this Honorable Court, without prejudice to the parties adducing other
evidence to prove their case not covered by this stipulation of facts. 1äwphï1.ñët

Defendants' counterclaim is hereby dismissed for not having been substantiated."

On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed an action for refund of Retail
DealerlsTaxes paid by it, corresponding to the first Quarter of 1950 up to the third Quarter of
1956, amounting to P33,785.00, against the City of Manila and its City Treasurer.The case was
submitted on the following stipulation of facts, to wit--

"1. That the plaintiff is a corporation duly organized and existing according to the laws of
the Philippines, with offices at Manila; while defendant City Manila is a Municipal
Corporation duly organized in accordance with the laws of the Philippines, and defendant
Marcelino Sarmiento is the dulyqualified incumbent City Treasurer of Manila;

"2. That plaintiff is engaged in the business of manufacturing and selling all kinds of
furniture at its factory at 190 Rodriguez-Arias, San Miguel, Manila, and has a display
room located at 604-606 Rizal Avenue, Manila, wherein it displays the various kind of
furniture manufactured by it and sells some goods imported by it, such as billiard balls,
bowling balls and other accessories;

"3. That acting pursuant to the provisions of Sec. 1. group II, of Ordinance No. 3364,
defendant City Treasurer of Manilaassessed from plaintiff retail dealer's tax
corresponding to the quarters hereunder stated on the sales of furniture manufactured and
sold by it at its factory site, all of which assessments plaintiff paid without protest in the
erroneous belief that it was liable therefor, on the dates and in the amount enumerated
herein below:

Amount
Period Date Paid O.R. No. Assessed
and Paid.
First Quarter 1950 Jan. 25, 1950 436271X P1,255.00
Second Quarter 1950 Apr. 25, 1950 215895X 1,250.00
Third Quarter 1950 Jul. 25, 1950 243321X 1,250.00
Fourth Quarter 1950 Oct. 25, 1950 271165X 1,250.00
(Follows the assessment for different quarters in 1951, 1952,
1953, 1954 and 1955, fixing the same amount quarterly.) x x x..
First Quarter 1956 Jan. 25, 1956 823047X 1,250.00
Second Quarter 1956 Apr. 25, 1956 855949X 1,250.00

54
Third Quarter 1956 Jul. 25, 1956 880789X 1,250.00

TOTAL ............. P33,785.00


===========

"4. That plaintiff, being a manufacturer of various kinds of furniture, is exempt from the
payment of taxes imposed under the provisions of Sec. 1, Group II, of Ordinance No.
3364,which took effect on September 24, 1956, on the sale of the various kinds of
furniture manufactured by it pursuant to the provisions of Sec. 18(n) of Republic Act No.
409 (Revised Charter of Manila), as restated in Section 1 of Ordinance No.3816.

"5. That, however, plaintiff, is liable for the payment of taxes prescribed in Section 1,
Group II or Ordinance No. 3364mas amended by Sec. 1, Group II of Ordinance No.
3816, which took effect on September 24, 1956, on the sales of imported billiard balls,
bowling balls and other accessories at its displayroom. The taxes paid by the plaintiff on
the sales of said article are as follows:

xxx xxx xxx

"6. That on October 30, 1956, the plaintiff filed with defendant City Treasurer of Manila,
a formal request for refund of the retail dealer's taxes unduly paid by it as aforestated in
paragraph 3, hereof.

"7. That on July 24, 1958, the defendant City Treasurer of Maniladefinitely denied said
request for refund.

"8. Hence on August 21, 1958, plaintiff filed the present complaint.

"9. Based on the above stipulation of facts, the legal issues to be resolved by this
Honorable Court are: (1) the period of prescription applicable in matters of refund of
municipal taxes errenously paid by a taxpayer and (2) refund of taxes not paid under
protest. x x x."

Said judgment was directly appealed to this Court on two dominant issues to wit: (1) Whether or
not the amounts paid by plaintiff-appelle, as retail dealer's taxes under Ordinance 1925, as
amended by Ordinance No. 3364of the City of Manila, without protest, are refundable;(2)
Assuming arguendo, that plaintiff-appellee is entitled to the refund of the retail taxes in question,
whether or not the claim for refund filed in October 1956, in so far as said claim refers to taxes
paid from 1950 to 1952 has already prescribed. .

Under the first issue, defendants-appellants contend tht the taxes in question were voluntarily
paid by appellee company and since, in this jurisdiction, in order that a legal basis arise for claim
of refund of taxes erroneously assessed, payment thereof must be made under protest, and this
being a condition sine qua non, and no protest having been made, -- verbally or in writing,
therebyindicating that the payment was voluntary, the action must fail. Cited in support of the

55
above contention, are the cases of Zaragoza vs. Alfonso, 46 Phil. 160-161, and Gavino v.
Municipality of Calapan, 71 Phil. 438..

In refutation of the above stand of appellants, appellee avers tht the payments could not have
been voluntary.At most, they were paid "mistakenly and in good faith"and "without protest in the
erroneous belief that it was liable thereof." Voluntariness is incompatible with protest and
mistake. It submits that this is a simple case of "solutio indebiti"..

Appellants do not dispute the fact that appellee-companyis exempted from the payment of the tax
in question.This is manifest from the reply of appellant City Treasurer stating that sales of
manufactured products at the factory site are not taxable either under the Wholesalers Ordinance
or under the Retailers' Ordinance. With this admission, it would seem clear that the taxes
collected from appellee were paid, thru an error or mistake, which places said act of payment
within the pale of the new Civil Code provision on solutio indebiti. The appellant City of Manila,
at the very start, notwithstanding the Ordinance imposing the Retailer's Tax, had no right to
demand payment thereof..

"If something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligationto retun it arises" (Art. 2154, NCC)..

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

With all, appellant quoted Manresa as saying: "x x x De la misma opinion son el Sr. Sanchez
Roman y el Sr. Galcon, et cual afirma que si la paga se hizo por error de derecho, ni existe el
cuasi-contrato ni esta obligado a la restitucion el que cobro, aunque no se debiera lo que se pago"
(Manresa, Tomo 12, paginas 611-612). This opinion, however, has already lost its
persuasiveness, in view of the provisions of the Civil Code, recognizing "error de derecho" as a
basis for the quasi-contract, of solutio indebiti. .

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


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

There is no gainsaying the fact that the payments made by appellee was due to a mistake in the
construction of a doubtful question of law. The reason underlying similar provisions, as applied
to illegal taxation, in the United States, is expressed in the case of Newport v. Ringo, 37 Ky. 635,
636; 10 S.W. 2, in the following manner:.

"It is too well settled in this state to need the citation of authority that if money be paid through a
clear mistake of law or fact, essentially affecting the rights of the parties, and which in law or
conscience was not payable, and should not be retained by the party receiving it, it may be
recovered. Both law and sound morality so dictate. Especially should this be the rule as to illegal

56
taxation. The taxpayer has no voice in the impositionof the burden. He has the right to presume
that the taxing power has been lawfully exercised. He should not be required to know more than
those in authority over him, nor should he suffer loss by complying with what he bona fide
believe to be his duty as a good citizen. Upon the contrary, he should be promoted to its ready
performance by refunding to him any legal exaction paid by him in ignorance of its illegality;
and, certainly, in such a case, if be subject to a penalty for nonpayment, his compliance under
belief of its legality, and without awaitinga resort to judicial proceedings should not be regrded
in law as so far voluntary as to affect his right of recovery.".

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

Admittedly, plaintiff-appellee paid the tax without protest.Equally admitted is the fact that
section 76 of the Charter of Manila provides that "No court shall entertain any suit assailing the
validity of tax assessed under this article until the taxpayer shall have paid, under protest the
taxes assessed against him, xx". It should be noted, however, that the article referred to in said
section is Article XXI, entitled Department of Assessment and the sections thereunder manifestly
show that said article and its sections relate to asseessment, collection and recovery of real estate
taxes only. Said section 76, therefor, is not applicable to the case at bar, which relates to the
recover of retail dealer taxes..

In the opinion of the Secretary of Justice (Op. 90,Series of 1957, in a question similar to the case
at bar, it was held that the requiredment of protest refers only to the payment of taxes which are
directly imposed by the charter itself, that is, real estate taxes, which view was sustained by
judicial and administrative precedents, one of which is the case of Medina, et al., v. City of
Baguio, G.R. No. L-4269, Aug. 29, 1952. In other words, protest is not necessary for the
recovery of retail dealer's taxes, like the present, because they are not directly imposed by the
charter. In the Medina case, the Charter of Baguio (Chap. 61, Revised Adm. Code), provides that
"no court shall entertain any suit assailing the validity of a tax assessed unde this charter until the
tax-payer shall have paid, under protest, the taxes assessed against him (sec.25474[b], Rev. Adm.
Code), a proviso similar to section 76 of the Manila Charter. The refund of specific taxes paid
under a void ordinance was ordered, although it did not appear that payment thereof was made
under protest..

In a recent case, We said: "The appellants argue that the sum the refund of which is sought by
the appellee, was not paid under protest and hence is not refundable. Again, the trial court
correctly held that being unauthorized, it is not a tax assessed under the Charter of the Appellant
City of Davao and for that reason, no protest is necessary for a claim or demand for its refund"
(Citing the Medina case, supra; East Asiatic Co., Ltd. v. City of Davao, G.R. No. L-16253, Aug.
21, 1962). Lastly, being a case of solutio indebiti, protest is not required as a condition sine qua
non for its application..

57
The next issue in discussion is that of prescription. Appellants maintain that article 1146 (NCC),
which provides for a period of four (4) years (upon injury to the rights of the plaintiff), apply to
the case. On the other hand, appellee contends that provisions of Act 190 (Code of Civ.
Procedure) should apply, insofar as payments made before the effectivity of the New Civil Code
on August 30, 1950, the period of which is ten (10) years, (Sec. 40,Act No. 190; Osorio v. Tan
Jongko, 51 O.G. 6211) and article 1145 (NCC), for payments made after said effectivity,
providing for a period of six (6) years (upon quasi-contracts like solutio indebiti). Even if the
provisionsof Act No. 190 should apply to those payments made before the effectivity of the new
Civil Code, because "prescription already runnig before the effectivity of this Code shall be
governed by laws previously in force x x x" (art. 1116, NCC), for payments made after said
effectivity,providing for a period of six (6) years (upon quasi-contracts like solutio indebiti).
Even if the provisions of Act No. 190should apply to those payments made before the effectivity
of the new Civil Code, because "prescription already running before the effectivity of of this
Code shall be govern by laws previously in force xxx " (Art. 1116, NCC), Still payments made
before August 30, 1950 are no longer recoverable in view of the second paragraph of said article
(1116), which provides:"but if since the time this Code took effect the entire period herein
required for prescription should elapse the present Code shall be applicable even though by the
former laws a longer period might be required". Anent the payments made after August 30,
1950, it is abvious that the action has prescribed with respect to those made before October 30,
1950 only, considering the fact that the prescription of action is interrupted xxx when is a
writteen extra-judicial demand x x x" (Art. 1155, NCC), and the written demand in the case at
bar was made on October 30, 1956 (Stipulation of Facts).MODIFIED in the sense that only
payments made on or after October 30, 1950 should be refunded, the decision appealed from is
affirmed, in all other respects. No costs. .

13. CBK POWER COMPANY LIMITED, Petitioner, v. COMMISSIONER OF


INTERNAL REVENUE, Respondent.

[G.R. NOS. 193407-08]

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. CBK POWER COMPANY


LIMITED, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in these consolidated petitions for review on certiorari1 are the Decision2 dated March
29, 2010 and the Resolution3 dated August 16, 2010 of the Court of Tax Appeals (CTA) En
Banc in C.T.A. E.B. Nos. 469 and 494, which affirmed the Decision4 dated August 28, 2008, the
Amended Decision5 dated February 12, 2009, and the Resolution6 dated May 7, 2009 of the CTA
First Division in CTA Case Nos. 6699, 6884, and 7166 granting CBK Power Company Limited
(CBK Power) a refund of its excess final withholding tax for the taxable years 2001 to
2003.cralawred

The Facts

58
CBK Power is a limited partnership duly organized and existing under the laws of the
Philippines, and primarily engaged in the development and operation of the Caliraya, Botocan,
and Kalayaan hydroelectric power generating plants in Laguna (CBK Project). It is registered
with the Board of Investments (BOI) as engaged in a preferred pioneer area of investment under
the Omnibus Investment Code of 1987.7chanRoblesvirtualLawlibrary

To finance the CBK Project, CBK Power obtained in August 2000 a syndicated loan from
several foreign banks,8 i.e., BNP Paribas, Dai-ichi Kangyo Bank, Limited, Industrial Bank of
Japan, Limited, and Societe General (original lenders), acting through an Inter-Creditor Agent,
Dai-ichi Kangyo Bank, a Japanese bank that subsequently merged with the Industrial Bank of
Japan, Limited (Industrial Bank of Japan) and the Fuji Bank, Limited (Fuji Bank), with the
merged entity being named as Mizuho Corporate Bank (Mizuho Bank). One of the merged
banks, Fuji Bank, had a branch in the Philippines, which became a branch of Mizuho Bank as a
result of the merger. The Industrial Bank of Japan and Mizuho Bank are residents of Japan for
purposes of income taxation, and recognized as such under the relevant provisions of the income
tax treaties between the Philippines and Japan.9chanRoblesvirtualLawlibrary

Certain portions of the loan were subsequently assigned by the original lenders to various other
banks, including Fortis Bank (Nederland) N.V. (Fortis-Netherlands) and Raiffesen Zentral Bank
Osterreich AG (Raiffesen Bank). Fortis-Netherlands, in turn, assigned its portion of the loan to
Fortis Bank S.A./N.V. (Fortis-Belgium), a resident of Belgium. Fortis-Netherlands and Raiffesen
Bank, on the other hand, are residents of Netherlands and Austria,
respectively.10chanRoblesvirtualLawlibrary

In February 2001, CBK Power borrowed money from Industrial Bank of Japan, Fortis-
Netherlands, Raiffesen Bank, Fortis-Belgium, and Mizuho Bank for which it remitted interest
payments from May 2001 to May 2003.11 It allegedly withheld final taxes from said payments
based on the following rates, and paid the same to the Revenue District Office No. 55 of the
Bureau of Internal Revenue (BIR): (a) fifteen percent (15%) for Fortis-Belgium, Fortis-
Netherlands, and Raiffesen Bank; and (b) twenty percent (20%) for Industrial Bank of Japan and
Mizuho Bank.12chanRoblesvirtualLawlibrary

However, according to CBK Power, under the relevant tax treaties between the Philippines
and the respective countries in which each of the banks is a resident, the interest income derived
by the aforementioned banks are subject only to a preferential tax rate of
10%, viz.:13chanRoblesvirtualLawlibrary

BANK COUNTRY OF PREFERENTIAL RATE


RESIDENCE UNDER THE RELEVANT TAX TREATY
Fortis Bank S.A./N.V. Belgium 10% (Article 111, RP-Belgium Tax Treaty)
Industrial Bank of Japan Japan 10% (Article 113, RP-Japan Tax Treaty)
Raiffesen Zentral Bank Austria 10% (Article 113, RP-Austria Tax Treaty)
Osterreich AG
Mizuho Corporate Bank Japan 10% (Article 113, RP-Japan Tax Treaty)

59
Accordingly, on April 14, 2003, CBK Power filed a claim for refund of its excess final
withholding taxes allegedly erroneously withheld and collected for the years 2001 and 2002 with
the BIR Revenue Region No. 9. The claim for refund of excess final withholding taxes in 2003
was subsequently filed on March 4, 2005.14chanRoblesvirtualLawlibrary

The Commissioner of Internal Revenue’s (Commissioner) inaction on said claims prompted


CBK Power to file petitions for review before the CTA, viz.:15chanRoblesvirtualLawlibrary

(1) CTA Case No. 6699 was filed by CBK Power on June 6, 2003 seeking the refund of excess
final withholding tax in the total amount of P6,393,267.20 covering the year 2001 with respect to
interest income derived by [Fortis-Belgium], Industrial Bank of Japan, and [Raiffesen Bank]. An
Answer was filed by the Commissioner on July 25, 2003.

(2) CTA Case No. 6884 was filed by CBK Power on March 5, 2004 seeking for the refund of
the amount of P8,136,174.31 covering [the] year 2002 with respect to interest income derived by
[Fortis-Belgium], Industrial Bank of Japan, [Mizuho Bank], and [Raiffesen Bank]. The
Commissioner filed his Answer on May 7, 2004.

xxxx

(3) CTA Case No. 7166 was filed by CBK [Power] on March 9, 2005 seeking for the refund of
[the amount of] P1,143,517.21 covering [the] year 2003 with respect to interest income derived
by [Fortis-Belgium], and [Raiffesen Bank]. The Commissioner filed his Answer on May 9, 2005.
(Emphases supplied)

CTA Case Nos. 6699 and 6884 were consolidated first on June 18, 2004. Subsequently,
however, all three cases – CTA Case Nos. 6699, 6884, and 7166 – were consolidated in a
Resolution dated August 3, 2005.16chanRoblesvirtualLawlibrary

The CTA First Division Rulings

In a Decision17 dated August 28, 2008, the CTA First Division granted the petitions and ordered
the refund of the amount of P15,672,958.42 upon a finding that the relevant tax treaties were
applicable to the case.18 It cited DA-ITAD Ruling No. 099-0319 dated July 16, 2003, issued by
the BIR, confirming CBK Power’s claim that the interest payments it made to Industrial Bank of
Japan and Raiffesen Bank were subject to a final withholding tax rate of only 10% of the gross
amount of interest, pursuant to Article 11 of the Republic of the Philippines (RP)-Austria and
RP-Japan tax treaties. However, in DA-ITAD Ruling No. 126-0320 dated August 18, 2003, also
issued by the BIR, interest payments to Fortis-Belgium were likewise subjected to the same rate
pursuant to the Protocol Amending the RP-Belgium Tax Treaty, the provisions of which apply
on income derived or which accrued beginning January 1, 2000. With respect to interest
payments made to Fortis-Netherlands before it assigned its portion of the loan to Fortis-Belgium,
the CTA First Division likewise granted the preferential rate.21chanRoblesvirtualLawlibrary

The CTA First Division categorically declared in the August 28, 2008 Decision that the required
International Tax Affairs Division (ITAD) ruling was not a condition sine qua non for the

60
entitlement of the tax relief sought by CBK Power,22 however, upon motion for
reconsideration23 filed by the Commissioner, the CTA First Division amended its earlier
decision by reducing the amount of the refund from P15,672,958.42 to P14,835,720.39 on the
ground that CBK Power failed to obtain an ITAD ruling with respect to its transactions with
Fortis-Netherlands.24 In its Amended Decision25 dated February 12, 2009, the CTA First
Division adopted26 the ruling in the case of Mirant (Philippines) Operations Corporation
(formerly: Southern Energy Asia-Pacific Operations [Phils.], Inc.) v. Commissioner of Internal
Revenue (Mirant),27 cited by the Commissioner in his motion for reconsideration, where the
Court categorically pronounced in its Resolution dated February 18, 2008 that an ITAD ruling
must be obtained prior to availing a preferential tax rate.

CBK Power moved for the reconsideration28 of the Amended Decision dated February 12, 2009,
arguing in the main that the Mirant case, which was resolved in a minute resolution, did not
establish a legal precedent. The motion was denied, however, in a Resolution29 dated May 7,
2009 for lack of merit.

Undaunted, CBK Power elevated the matter to the CTA En Banc on petition for
review,30 docketed as C.T.A E.B. No. 494. The Commissioner likewise filed his own petition for
review,31 which was docketed as C.T.A. E.B. No. 469. Said petitions were subsequently
consolidated.32chanRoblesvirtualLawlibrary

CBK Power raised the lone issue of whether or not an ITAD ruling is required before it can avail
of the preferential tax rate. On the other hand, the Commissioner claimed that CBK Power failed
to exhaust administrative remedies when it filed its petitions before the CTA First Division, and
that said petitions were not filed within the two-year prescriptive period for initiating judicial
claims for refund.33chanRoblesvirtualLawlibrary

The CTA En Banc Ruling

In a Decision34 dated March 29, 2010, the CTA En Banc affirmed the ruling of the CTA First
Division that a prior application with the ITAD is indeed required by Revenue Memorandum
Order (RMO) 1-2000,35which administrative issuance has the force and effect of law and is just
as binding as a tax treaty. The CTA En Banc declared the Mirant case as without any binding
effect on CBK Power, having been resolved by this Court merely through minute resolutions,
and relied instead on the mandatory wording of RMO 1-2000, as
follows:36chanRoblesvirtualLawlibrary

III. Policies:

xxxx

2. Any availment of the tax treaty relief shall be preceded by an application by filing BIR
Form No. 0901 (Application for Relief from Double Taxation) with ITAD at least 15
days before the transaction i.e. payment of dividends, royalties, etc.,accompanied by
supporting documents justifying the relief. x x x.

61
The CTA En Banc further held that CBK Power’s petitions for review were filed within the two-
year prescriptive period provided under Section 22937 of the National Internal Revenue Code of
199738 (NIRC), and that it was proper for CBK Power to have filed said petitions without
awaiting the final resolution of its administrative claims for refund before the BIR; otherwise, it
would have completely lost its right to seek judicial recourse if the two-year prescriptive period
lapsed with no judicial claim filed.

CBK Power’s motion for partial reconsideration and the Commissioner’s motion for
reconsideration of the foregoing Decision were both denied in a Resolution39 dated August 16,
2010 for lack of merit; hence, the present consolidated petitions.

The Issues Before the Court

In G.R. Nos. 193383-84, CBK Power submits the sole legal issue of whether the BIR may add a
requirement – prior application for an ITAD ruling – that is not found in the income tax treaties
signed by the Philippines before a taxpayer can avail of preferential tax rates under said
treaties.40chanRoblesvirtualLawlibrary

On the other hand, in G.R. Nos. 193407-08, the Commissioner maintains that CBK Power is not
entitled to a refund in the amount of P1,143,517.21 for the period covering taxable year 2003 as
it allegedly failed to exhaust administrative remedies before seeking judicial
redress.41chanRoblesvirtualLawlibrary

The Court’s Ruling

The Court resolves the foregoing in seriatim.

A. G.R. Nos. 193383-84

The Philippine Constitution provides for adherence to the general principles of international law
as part of the law of the land. The time-honored international principle of pacta sunt
servanda demands the performance in good faith of treaty obligations on the part of the states
that enter into the agreement. In this jurisdiction, treaties have the force and effect of
law.42chanRoblesvirtualLawlibrary

The issue of whether the failure to strictly comply with RMO No. 1-2000 will deprive persons or
corporations of the benefit of a tax treaty was squarely addressed in the recent case of Deutsche
Bank AG Manila Branch v. Commissioner of Internal Revenue43 (Deutsche Bank), where the
Court emphasized that the obligation to comply with a tax treaty must take precedence over
the objective of RMO No. 1-2000, viz.:chanroblesvirtuallawlibrary

We recognize the clear intention of the BIR in implementing RMO No. 1-2000, but the CTA’s
outright denial of a tax treaty relief for failure to strictly comply with the prescribed period is not
in harmony with the objectives of the contracting state to ensure that the benefits granted under
tax treaties are enjoyed by duly entitled persons or corporations.

62
Bearing in mind the rationale of tax treaties, the period of application for the availment of tax
treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the
relief as it would constitute a violation of the duty required by good faith in complying with a
tax treaty. The denial of the availment of tax relief for the failure of a taxpayer to apply within
the prescribed period under the administrative issuance would impair the value of the tax treaty.
At most, the application for a tax treaty relief from the BIR should merely operate to
confirm the entitlement of the taxpayer to the relief.

The obligation to comply with a tax treaty must take precedence over the objective of RMO
No. 1-2000. Logically, noncompliance with tax treaties has negative implications on
international relations, and unduly discourages foreign investors. While the consequences sought
to be prevented by RMO No. 1-2000 involve an administrative procedure, these may be
remedied through other system management processes, e.g., the imposition of a fine or
penalty. But we cannot totally deprive those who are entitled to the benefit of a treaty for
failure to strictly comply with an administrative issuance requiring prior application for
tax treaty relief.44 (Emphases and underscoring supplied)

The objective of RMO No. 1-2000 in requiring the application for treaty relief with the ITAD
before a party’s availment of the preferential rate under a tax treaty is to avert the consequences
of any erroneous interpretation and/or application of treaty provisions, such as claims for
refund/credit for overpayment of taxes, or deficiency tax liabilities for
underpayment.45 However, as pointed out in Deutsche Bank, the underlying principle of prior
application with the BIR becomes moot in refund cases – as in the present case – where the
very basis of the claim is erroneous or there is excessive payment arising from the non-
availment of a tax treaty relief at the first instance. Just as Deutsche Bank was not faulted by the
Court for not complying with RMO No. 1-2000 prior to the transaction,46 so should CBK Power.
In parallel, CBK Power could not have applied for a tax treaty relief 15 days prior to its payment
of the final withholding tax on the interest paid to its lenders precisely because it erroneously
paid said tax on the basis of the regular rate as prescribed by the NIRC, and not on the
preferential tax rate provided under the different treaties. As stressed by the Court, the prior
application requirement under RMO No. 1-2000 then
becomes illogical.47chanRoblesvirtualLawlibrary

Not only is the requirement illogical, but it is also an imposition that is not found at all in the
applicable tax treaties. In Deutsche Bank, the Court categorically held that the BIR should not
impose additional requirements that would negate the availment of the reliefs provided for under
international agreements, especially since said tax treaties do not provide for any prerequisite at
all for the availment of the benefits under said agreements.48chanRoblesvirtualLawlibrary

It bears reiterating that the application for a tax treaty relief from the BIR should merely operate
to confirm the entitlement of the taxpayer to the relief.49 Since CBK Power had requested for
confirmation from the ITAD on June 8, 2001 and October 28, 200250 before it filed on April 14,
2003 its administrative claim for refund of its excess final withholding taxes, the same should
be deemed substantial compliance with RMO No. 1-2000, as in Deutsche Bank. To rule
otherwise would defeat the purpose of Section 229 of the NIRC in providing the taxpayer a
remedy for erroneously paid tax solely on the ground of failure to make prior application for tax

63
treaty relief.51 As the Court exhorted in Republic v. GST Philippines, Inc.,52 while the taxpayer
has an obligation to honestly pay the right taxes, the government has a corollary duty to
implement tax laws in good faith; to discharge its duty to collect what is due to it; and to justly
return what has been erroneously and excessively given to it.53chanRoblesvirtualLawlibrary

In view of the foregoing, the Court holds that the CTA En Banc committed reversible error in
affirming the reduction of the amount of refund to CBK Power from P15,672,958.42 to
P14,835,720.39 to exclude its transactions with Fortis-Netherlands for which no ITAD ruling
was obtained.54 CBK Power’s petition in G.R. Nos. 193383-84 is therefore granted.

The opposite conclusion is, however, reached with respect to the Commissioner’s petition in
G.R. Nos. 193407-08.

B. G.R. Nos. 193407-08

The Commissioner laments55 that he was deprived of the opportunity to act on the
administrative claim for refund of excess final withholding taxes covering taxable year 2003
which CBK Power filed on March 4, 2005, a Friday, then the following Wednesday, March 9,
2005, the latter hastily elevated the case on petition for review before the CTA. He argues56 that
the failure on the part of CBK Power to give him a reasonable time to act on said claim is
violative of the doctrines of exhaustion of administrative remedies and of primary jurisdiction.

For its part, CBK Power maintains57 that it would be prejudicial to wait for the Commissioner’s
ruling before it files its judicial claim since it only has 2 years from the payment of the tax within
which to file both its administrative and judicial claims.

The Court rules for CBK Power.

Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected
taxes. Section 204 applies to administrative claims for refund, while Section 229 to judicial
claims for refund. In both instances, the taxpayer’s claim must be filed within two (2) years from
the date of payment of the tax or penalty. However, Section 229 of the NIRC further states the
condition that a judicial claim for refund may not be maintained until a claim for refund or credit
has been duly filed with the Commissioner. These provisions respectively
read:chanroblesvirtuallawlibrary

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit
Taxes. – The Commissioner may -

xxxx

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good condition
by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered
unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for
credit or refund within two (2) years after the payment of the tax or penalty: Provided, however,

64
That a return filed showing an overpayment shall be considered as a written claim for credit or
refund.

xxxx

SEC. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, of any sum alleged to have been excessively or in any manner
wrongfully collected without authority, or of any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty,
or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from
the date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: x x x. (Emphases and underscoring supplied)

Indubitably, CBK Power’s administrative and judicial claims for refund of its excess final
withholding taxes covering taxable year 2003 were filed within the two-year prescriptive
period, as shown by the table below:58chanRoblesvirtualLawlibrary

WHEN FINAL WHEN LAST DAY OF WHEN WHEN


INCOME REMITTANCE THE 2-YEAR PETITION
TAXES WERE RETURN ADMINISTRATIVE FOR REVIEW
WITHHELD FILED PRESCRIPTIVE CLAIM WAS WAS FILED
PERIOD FILED
February 2003 03/10/03 03/10/05 March 4, 2005 03/09/05
May 2003 06/10/03 06/10/05 March 4, 2005 03/09/05

With respect to the remittance filed on March 10, 2003, the Court agrees with the ratiocination of
the CTA En Banc in debunking the alleged failure to exhaust administrative remedies. Had CBK
Power awaited the action of the Commissioner on its claim for refund prior to taking court action
knowing fully well that the prescriptive period was about to end, it would have lost not only its
right to seek judicial recourse but its right to recover the final withholding taxes it erroneously
paid to the government thereby suffering irreparable damage.59chanRoblesvirtualLawlibrary

Also, while it may be argued that, for the remittance filed on June 10, 2003 that was to prescribe
on June 10, 2005, CBK Power could have waited for, at the most, three (3) months from the
filing of the administrative claim on March 4, 2005 until the last day of the two-year prescriptive
period ending June 10, 2005, that is, if only to give the BIR at the administrative level an
opportunity to act on said claim, the Court cannot, on that basis alone, deny a legitimate claim
that was, for all intents and purposes, timely filed in accordance with Section 229 of the NIRC.
There was no violation of Section 229 since the law, as worded, only requires that an
administrative claim be priorly filed.

65
In the foregoing instances, attention must be drawn to the Court’s ruling in P.J. Kiener Co., Ltd.
v. David60(Kiener), wherein it was held that in no wise does the law, i.e., Section 306 of the old
Tax Code (now, Section 229 of the NIRC), imply that the Collector of Internal Revenue first act
upon the taxpayer’s claim, and that the taxpayer shall not go to court before he is notified of the
Collector’s action. In Kiener, the Court went on to say that the claim with the Collector of
Internal Revenue was intended primarily as a notice of warning that unless the tax or penalty
alleged to have been collected erroneously or illegally is refunded, court action will
follow, viz.:chanroblesvirtuallawlibrary

The controversy centers on the construction of the aforementioned section of the Tax Code
which reads:ChanRoblesVirtualawlibrary
SEC. 306. Recovery of tax erroneously or illegally collected. — No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Collector of
Internal Revenue; but such suit or proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding
shall be begun after the expiration of two years from the date of payment of the tax or penalty.
The preceding provisions seem at first blush conflicting. It will be noticed that, whereas the first
sentence requires a claim to be filed with the Collector of Internal Revenue before any suit is
commenced, the last makes imperative the bringing of such suit within two years from the date
of collection. But the conflict is only apparent and the two provisions easily yield to
reconciliation, which it is the office of statutory construction to effectuate, where possible, to
give effect to the entire enactment.

To this end, and bearing in mind that the Legislature is presumed to have understood the
language it used and to have acted with full idea of what it wanted to accomplish, it is fair and
reasonable to say without doing violence to the context or either of the two provisions, that by
the first is meant simply that the Collector of Internal Revenue shall be given an opportunity to
consider his mistake, if mistake has been committed, before he is sued, but not, as the appellant
contends that pending consideration of the claim, the period of two years provided in the last
clause shall be deemed interrupted. Nowhere and in no wise does the law imply that the
Collector of Internal Revenue must act upon the claim, or that the taxpayer shall not go to
court before he is notified of the Collector’s action. x x x. We understand the filing of the
claim with the Collector of Internal Revenue to be intended primarily as a notice of
warning that unless the tax or penalty alleged to have been collected erroneously or
illegally is refunded, court action will follow. x x x.61 (Emphases supplied)

That being said, the foregoing refund claims of CBK Power should all be granted, and, the
petition of the Commissioner in G.R. Nos. 193407-08 be denied for lack of merit.chanrobleslaw

WHEREFORE, the petition in G.R. Nos. 193383-84 is GRANTED. The Decision dated
March 29, 2010 and the Resolution dated August 16, 2010 of the Court of Tax Appeals (CTA)
En Banc in C.T.A. E.B. Nos. 469 and 494 are hereby REVERSED and SET ASIDE and a new
one entered REINSTATING the Decision of the CTA First Division dated August 28, 2008

66
ordering the refund in favor of CBK Power Company Limited the amount of P15,672,958.42
representing its excess final withholding taxes for the taxable years 2001 to 2003. On the other
hand, the petition in G.R. Nos. 193407-08 is DENIED for lack of merit.

14. JOSE CANGCO, plaintiff-appellant,


vs.
MANILA RAILROAD CO., defendant-appellee.

Ramon Sotelo for appellant.


Kincaid & Hartigan for appellee.

FISHER, J.:

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

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

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

The explanation of the presence of a sack of melons on the platform where the plaintiff alighted
is found in the fact that it was the customary season for harvesting these melons and a large lot
had been brought to the station for the shipment to the market. They were contained in numerous
sacks which has been piled on the platform in a row one upon another. The testimony shows that

67
this row of sacks was so placed of melons and the edge of platform; and it is clear that the fall of
the plaintiff was due to the fact that his foot alighted upon one of these melons at the moment he
stepped upon the platform. His statement that he failed to see these objects in the darkness is
readily to be credited.

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

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

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

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

Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code,
clearly points out this distinction, which was also recognized by this Court in its decision in the

68
case of Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359). In commenting upon article
1093 Manresa clearly points out the difference between "culpa, substantive and independent,
which of itself constitutes the source of an obligation between persons not formerly connected by
any legal tie" and culpa considered as an accident in the performance of an obligation already
existing . . . ."

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

Upon this point the Court said:

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

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

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

69
negligent in the selection or direction of his servant, but the presumption is rebuttable and yield
to proof of due care and diligence in this respect.

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

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

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

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

The opinion there expressed by this Court, to the effect that in case of extra-
contractual culpa based upon negligence, it is necessary that there shall have been some fault
attributable to the defendant personally, and that the last paragraph of article 1903 merely
establishes a rebuttable presumption, is in complete accord with the authoritative opinion of
Manresa, who says (vol. 12, p. 611) that the liability created by article 1903 is imposed by reason
of the breach of the duties inherent in the special relations of authority or superiority existing
between the person called upon to repair the damage and the one who, by his act or omission,
was the cause of it.

On the other hand, the liability of masters and employers for the negligent acts or omissions of
their servants or agents, when such acts or omissions cause damages which amount to the breach
of a contact, is not based upon a mere presumption of the master's negligence in their selection or
control, and proof of exercise of the utmost diligence and care in this regard does not relieve the
master of his liability for the breach of his contract.

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


obligation has its source in the breach or omission of those mutual duties which civilized society
imposes upon it members, or which arise from these relations, other than contractual, of certain
members of society to others, generally embraced in the concept of status. The legal rights of

70
each member of society constitute the measure of the corresponding legal duties, mainly negative
in character, which the existence of those rights imposes upon all other members of society. The
breach of these general duties whether due to willful intent or to mere inattention, if productive
of injury, give rise to an obligation to indemnify the injured party. The fundamental distinction
between obligations of this character and those which arise from contract, rests upon the fact that
in cases of non-contractual obligation it is the wrongful or negligent act or omission itself which
creates the vinculum juris, whereas in contractual relations the vinculum exists independently of
the breach of the voluntary duty assumed by the parties when entering into the contractual
relation.

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

The position of a natural or juridical person who has undertaken by contract to render service to
another, is wholly different from that to which article 1903 relates. When the sources of the
obligation upon which plaintiff's cause of action depends is a negligent act or omission, the
burden of proof rests upon plaintiff to prove the negligence — if he does not his action fails. But
when the facts averred show a contractual undertaking by defendant for the benefit of plaintiff,
and it is alleged that plaintiff has failed or refused to perform the contract, it is not necessary for
plaintiff to specify in his pleadings whether the breach of the contract is due to willful fault or to
negligence on the part of the defendant, or of his servants or agents. Proof of the contract and of
its nonperformance is sufficient prima facie to warrant a recovery.

As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor


should assume the burden of proof of its existence, as the only fact upon which his action
is based; while on the contrary, in a case of negligence which presupposes the existence
of a contractual obligation, if the creditor shows that it exists and that it has been broken,
it is not necessary for him to prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).

As it is not necessary for the plaintiff in an action for the breach of a contract to show that the
breach was due to the negligent conduct of defendant or of his servants, even though such be in
fact the actual cause of the breach, it is obvious that proof on the part of defendant that the
negligence or omission of his servants or agents caused the breach of the contract would not
constitute a defense to the action. If the negligence of servants or agents could be invoked as a
means of discharging the liability arising from contract, the anomalous result would be that
person acting through the medium of agents or servants in the performance of their contracts,

71
would be in a better position than those acting in person. If one delivers a valuable watch to
watchmaker who contract to repair it, and the bailee, by a personal negligent act causes its
destruction, he is unquestionably liable. Would it be logical to free him from his liability for the
breach of his contract, which involves the duty to exercise due care in the preservation of the
watch, if he shows that it was his servant whose negligence caused the injury? If such a theory
could be accepted, juridical persons would enjoy practically complete immunity from damages
arising from the breach of their contracts if caused by negligent acts as such juridical persons can
of necessity only act through agents or servants, and it would no doubt be true in most instances
that reasonable care had been taken in selection and direction of such servants. If one delivers
securities to a banking corporation as collateral, and they are lost by reason of the negligence of
some clerk employed by the bank, would it be just and reasonable to permit the bank to relieve
itself of liability for the breach of its contract to return the collateral upon the payment of the
debt by proving that due care had been exercised in the selection and direction of the clerk?

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

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

A brief review of the earlier decision of this court involving the liability of employers for
damage done by the negligent acts of their servants will show that in no case has the court ever
decided that the negligence of the defendant's servants has been held to constitute a defense to an
action for damages for breach of contract.

In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage
was not liable for the damages caused by the negligence of his driver. In that case the court
commented on the fact that no evidence had been adduced in the trial court that the defendant
had been negligent in the employment of the driver, or that he had any knowledge of his lack of
skill or carefulness.

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

In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to
recover damages for the personal injuries caused by the negligence of defendant's chauffeur

72
while driving defendant's automobile in which defendant was riding at the time. The court found
that the damages were caused by the negligence of the driver of the automobile, but held that the
master was not liable, although he was present at the time, saying:

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

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

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

The true explanation of such cases is to be found by directing the attention to the relative spheres
of contractual and extra-contractual obligations. The field of non- contractual obligation is much
more broader than that of contractual obligations, comprising, as it does, the whole extent of

73
juridical human relations. These two fields, figuratively speaking, concentric; that is to say, the
mere fact that a person is bound to another by contract does not relieve him from extra-
contractual liability to such person. When such a contractual relation exists the obligor may
break the contract under such conditions that the same act which constitutes the source of an
extra-contractual obligation had no contract existed between the parties.

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

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

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

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

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

74
Or, it we prefer to adopt the mode of exposition used by this court in Picart vs. Smith (37 Phil.
rep., 809), we may say that the test is this; Was there anything in the circumstances surrounding
the plaintiff at the time he alighted from the train which would have admonished a person of
average prudence that to get off the train under the conditions then existing was dangerous? If so,
the plaintiff should have desisted from alighting; and his failure so to desist was contributory
negligence.1awph!l.net

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

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

The evidence shows that the plaintiff, at the time of the accident, was earning P25 a month as a
copyist clerk, and that the injuries he has suffered have permanently disabled him from
continuing that employment. Defendant has not shown that any other gainful occupation is open
to plaintiff. His expectancy of life, according to the standard mortality tables, is approximately

75
thirty-three years. We are of the opinion that a fair compensation for the damage suffered by him
for his permanent disability is the sum of P2,500, and that he is also entitled to recover of
defendant the additional sum of P790.25 for medical attention, hospital services, and other
incidental expenditures connected with the treatment of his injuries.

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

Arellano, C.J., Torres, Street and Avanceña, JJ., concur.

15. NARCISO GUTIERREZ, plaintiff-appellee,


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

L.D. Lockwood for appellants Velasco and Cortez.


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

MALCOLM, J.:

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

On February 2, 1930, a passenger truck and an automobile of private ownership collided while
attempting to pass each other on the Talon bridge on the Manila South Road in the municipality
of Las Piñas, Province of Rizal. The truck was driven by the chauffeur Abelardo Velasco, and
was owned by Saturnino Cortez. The automobile was being operated by Bonifacio Gutierrez, a
lad 18 years of age, and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel
Gutierrez. At the time of the collision, the father was not in the car, but the mother, together will
several other members of the Gutierrez family, seven in all, were accommodated therein. A
passenger in the autobus, by the name of Narciso Gutierrez, was en route from San Pablo,
Laguna, to Manila. The collision between the bus and the automobile resulted in Narciso
Gutierrez suffering a fracture right leg which required medical attendance for a considerable
period of time, and which even at the date of the trial appears not to have healed properly.

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

76
In amplification of so much of the above pronouncement as concerns the Gutierrez family, it
may be explained that the youth Bonifacio was in incompetent chauffeur, that he was driving at
an excessive rate of speed, and that, on approaching the bridge and the truck, he lost his head and
so contributed by his negligence to the accident. The guaranty given by the father at the time the
son was granted a license to operate motor vehicles made the father responsible for the acts of
his son. Based on these facts, pursuant to the provisions of article 1903 of the Civil Code, the
father alone and not the minor or the mother, would be liable for the damages caused by the
minor.

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

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

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

77
In consonance with the foregoing rulings, the judgment appealed from will be modified, and the
plaintiff will have judgment in his favor against the defendants Manuel Gutierrez, Abelardo
Velasco, and Saturnino Cortez, jointly and severally, for the sum of P5,000, and the costs of both
instances.

Avanceña, C.J., Johnson, Street, Villamor, Ostrand, Romualdez, and Imperial, JJ., concur.

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


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

Florentino B. del Rosario for petitioner-appellant.

Manuel V. San Jose for oppositor-appellee.

FERNANDO, J.:p

There is no difficulty attending the disposition of this appeal by petitioner on questions of law.
While several points were raised, the decisive issue is whether a creditor is barred by prescription
in his attempt to collect on a promissory note executed more than fifteen years earlier with the
debtor sued promising to pay either upon receipt by him of his share from a certain estate or
upon demand, the basis for the action being the latter alternative. The lower court held that the
ten-year period of limitation of actions did apply, the note being immediately due and
demandable, the creditor admitting expressly that he was relying on the wording "upon demand."
On the above facts as found, and with the law being as it is, it cannot be said that its decision is
infected with error. We affirm.

From the appealed decision, the following appears: "The parties in this case agreed to submit the
matter for resolution on the basis of their pleadings and annexes and their respective memoranda
submitted. Petitioner George Pay is a creditor of the Late Justo Palanca who died in Manila on
July 3, 1963. The claim of the petitioner is based on a promissory note dated January 30, 1952,
whereby the late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay
George Pay the amount of P26,900.00, with interest thereon at the rate of 12% per annum.
George Pay is now before this Court, asking that Segundina Chua vda. de Palanca, surviving
spouse of the late Justo Palanca, he appointed as administratrix of a certain piece of property
which is a residential dwelling located at 2656 Taft Avenue, Manila, covered by Tax Declaration
No. 3114 in the name of Justo Palanca, assessed at P41,800.00. The idea is that once said
property is brought under administration, George Pay, as creditor, can file his claim against the
administratrix."1 It then stated that the petition could not prosper as there was a refusal on the
part of Segundina Chua Vda. de Palanca to be appointed as administratrix; that the property

78
sought to be administered no longer belonged to the debtor, the late Justo Palanca; and that the
rights of petitioner-creditor had already prescribed. The promissory note, dated January 30, 1962,
is worded thus: " `For value received from time to time since 1947, we [jointly and severally
promise to] pay to Mr. [George Pay] at his office at the China Banking Corporation the sum of
[Twenty Six Thousand Nine Hundred Pesos] (P26,900.00), with interest thereon at the rate of
12% per annum upon receipt by either of the undersigned of cash payment from the Estate of the
late Don Carlos Palanca or upon demand'. . . . As stated, this promissory note is signed by Rosa
Gonzales Vda. de Carlos Palanca and Justo Palanca."2 Then came this paragraph: "The Court has
inquired whether any cash payment has been received by either of the signers of this promissory
note from the Estate of the late Carlos Palanca. Petitioner informed that he does not insist on this
provision but that petitioner is only claiming on his right under the promissory note ."3 After
which, came the ruling that the wording of the promissory note being "upon demand," the
obligation was immediately due. Since it was dated January 30, 1952, it was clear that more
"than ten (10) years has already transpired from that time until to date. The action, therefore, of
the creditor has definitely prescribed."4 The result, as above noted, was the dismissal of the
petition.

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

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

The obligation being due and demandable, it would appear that the filing of the suit after fifteen
years was much too late. For again, according to the Civil Code, which is based on Section 43 of
Act No. 190, the prescriptive period for a written contract is that of ten years.7 This is another
instance where this Court has consistently adhered to the express language of the applicable
norm.8 There is no necessity therefore of passing upon the other legal questions as to whether or

79
not it did suffice for the petition to fail just because the surviving spouse refuses to be made
administratrix, or just because the estate was left with no other property. The decision of the
lower court cannot be overturned.

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

Zaldivar (Chairman), Barredo, Antonio, Fernandez and Aquino, JJ., concur.

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


vs.
VICENTE SOTELO MATTI, defendant-appellant.

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


Ramon Sotelo for defendant-appellant.

ROMUALDEZ, J.:

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

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

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

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

In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining and By-
Products Co., Inc., denied the plaintiff's allegations as to the shipment of these goods and their
arrival at Manila, the notification to the defendant, Mr. Sotelo, the latter's refusal to receive them
and pay their price, and the good condition of the expellers and the motors, alleging as special
defense that Mr. Sotelo had made the contracts in question as manager of the intervenor, the
Manila Oil Refining and By-Products Co., Inc which fact was known to the plaintiff, and that "it
was only in May, 1919, that it notified the intervenor that said tanks had arrived, the motors and
the expellers having arrived incomplete and long after the date stipulated." As a counterclaim or

80
set-off, they also allege that, as a consequence of the plaintiff's delay in making delivery of the
goods, which the intervenor intended to use in the manufacture of cocoanut oil, the intervenor
suffered damages in the sums of one hundred sixteen thousand seven hundred eighty-three pesos
and ninety-one centavos (P116,783.91) for the nondelivery of the tanks, and twenty-one
thousand two hundred and fifty pesos (P21,250) on account of the expellers and the motors not
having arrived in due time.

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

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

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

To solve this question, it is necessary to determine what period was fixed for the delivery of the
goods.

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

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


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

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

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


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

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

81
Approximate delivery within ninety days. — This is not guaranteed. — This sale is
subject to our being able to obtain Priority Certificate, subject to the United States
Government requirements and also subject to confirmation of manufactures.

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

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

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

The oral evidence falls short of fixing such period.

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

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

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

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

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

82
And as the export of the machinery in question was, as stated in the contract, contingent upon the
sellers obtaining certificate of priority and permission of the United States Government, subject
to the rules and regulations, as well as to railroad embargoes, then the delivery was subject to a
condition the fulfillment of which depended not only upon the effort of the herein plaintiff, but
upon the will of third persons who could in no way be compelled to fulfill the condition. In cases
like this, which are not expressly provided for, but impliedly covered, by the Civil Code, the
obligor will be deemed to have sufficiently performed his part of the obligation, if he has done
all that was in his power, even if the condition has not been fulfilled in reality.

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

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

In the former it is held:

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

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

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

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

(33) That in the execution and sales thereunder, in which C. H. McClure appears as the
judgment creditor, he was represented by the opponent Peter W. Addison, who prepared

83
and had charge of publication of the notices of the various sales and that in none of the
sales was the notice published more than twice in a newspaper.

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

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

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

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

2. * * * * * * *

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


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

4. * * * * * * *

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

In case No. 454 there were only two publications of the notice in a newspaper, the first
publication being made only fourteen days before the date of the sale. In case No. 499, there

84
were also only two publications, the first of which was made thirteen days before the sale. In the
last case the sale was advertised for the hours of from 8:30 in the morning until 4:30 in the
afternoon, in violation of section 457 of the Code of Civil Procedure. In cases Nos. 435 and 450
the hours advertised were from 9:00 in the morning until 4.30 in the afternoon. In all of the cases
the notices of the sale were prepared by the judgment creditor or his agent, who also took
charged of the publication of such notices.

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

It appears affirmatively from the evidence in the present case that there is a newspaper published
in the province where the sale in question took place and that the assessed valuation of the
property disposed of at each sale exceeded P400. Comparing the requirements of section
454, supra, with what was actually done, it is self-evident that notices of the sales mentioned
were not given as prescribed by the statute and taking into consideration that in connection with
these sales the appellant Addison was either the judgment creditor or else occupied a position
analogous to that of a judgment creditor, the sales must be held invalid.

The conveyance or reconveyance of the land from the Director of Lands is equally invalid. The
provisions of Act No. 1791 pertinent to the purchase or repurchase of land confiscated for non-
payment of taxes are found in section 19 of the Act and read:

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

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

85
The question of the priority of the record of the sheriff's sales over that of the sale from Belisario
to Borja is extensively argued in the briefs, but from our point of view is of no importance; void
sheriff's or execution sales cannot be validated through inscription in the Mortgage Law registry.

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

Araullo, C.J., Johnson, Street, Malcolm, Avanceña, Villamor, Ostrand, and Johns, JJ., concur.

19.

EN BANC

86
FRANCISCO CHAVEZ, G.R. No. 168338
Petitioner,
Present:

PUNO, C.J.,
QUISUMBING,
YNARES-SANTIAGO,
- versus - SANDOVAL-GUTIERREZ,
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,
AZCUNA,
TINGA,
CHICO-NAZARIO,
RAUL M. GONZALES, VELASCO, JR.,
in his capacity as the NACHURA,
Secretary of the REYES, and
Department of Justice; LEONARDO-DE CASTRO, JJ.
and NATIONAL
TELECOMMUNICATIONS Promulgated:
COMMISSION (NTC),
Respondents. February 15, 2008

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

DECISION

PUNO, C.J.:

A. Precis

In this jurisdiction, it is established that freedom of the press is crucial and so inextricably woven
into the right to free speech and free expression, that any attempt to restrict it must be met with

87
an examination so critical that only a danger that is clear and present would be allowed to curtail
it.
Indeed, we have not wavered in the duty to uphold this cherished freedom. We have
struck down laws and issuances meant to curtail this right, as in Adiong v. COMELEC,[1]Burgos
v. Chief of Staff,[2] Social Weather Stations v. COMELEC,[3] and Bayan v. Executive Secretary
Ermita.[4] When on its face, it is clear that a governmental act is nothing more than a naked
means to prevent the free exercise of speech, it must be nullified.

B. The Facts

1. The case originates from events that occurred a year after the 2004 national and local
elections. On June 5, 2005, Press Secretary Ignacio Bunye told reporters that the
opposition was planning to destabilize the administration by releasing an audiotape of a
mobile phone conversation allegedly between the President of the Philippines, Gloria
Macapagal Arroyo, and a high-ranking official of the Commission on Elections
(COMELEC). The conversation was audiotaped allegedly through wire-tapping.[5]Later,
in a Malacaang press briefing, Secretary Bunye produced two versions of the tape, one
supposedly the complete version, and the other, a spliced, doctored or altered version,
which would suggest that the President had instructed the COMELEC official to
manipulate the election results in the Presidents favor. [6] It seems that Secretary Bunye
admitted that the voice was that of President Arroyo, but subsequently made a
retraction. [7]

2. On June 7, 2005, former counsel of deposed President Joseph Estrada, Atty. Alan
Paguia, subsequently released an alleged authentic tape recording of the wiretap.Included
in the tapes were purported conversations of the President, the First Gentleman Jose
Miguel Arroyo, COMELEC Commissioner Garcillano, and the late Senator Barbers.[8]

3. On June 8, 2005, respondent Department of Justice (DOJ) Secretary Raul Gonzales


warned reporters that those who had copies of the compact disc (CD) and those
broadcasting or publishing its contents could be held liable under the Anti-Wiretapping
Act. These persons included Secretary Bunye and Atty. Paguia. He also stated that

88
persons possessing or airing said tapes were committing a continuing offense, subject to
arrest by anybody who had personal knowledge if the crime was committed or was being
committed in their presence.[9]

4. On June 9, 2005, in another press briefing, Secretary Gonzales ordered the National
Bureau of Investigation (NBI) to go after media organizations found to have caused the
spread, the playing and the printing of the contents of a tape of an alleged wiretapped
conversation involving the President about fixing votes in the 2004 national
elections. Gonzales said that he was going to start with Inq7.net, a joint venture between
the Philippine Daily Inquirer and GMA7 television network, because by the very
nature of the Internet medium, it was able to disseminate the contents of the tape more
widely. He then expressed his intention of inviting the editors and managers of Inq7.net
and GMA7 to a probe, and supposedly declared, I [have] asked the NBI to conduct a
tactical interrogation of all concerned. [10]
5. On June 11, 2005, the NTC issued this press release: [11]
NTC GIVES FAIR WARNING TO RADIO AND TELEVISION
OWNERS/OPERATORS TO OBSERVE ANTI-WIRETAPPING LAW
AND PERTINENT CIRCULARS ON PROGRAM STANDARDS

xxx xxx xxx

Taking into consideration the countrys unusual situation, and in order not
to unnecessarily aggravate the same, the NTC warns all radio stations and
television network owners/operators that the conditions of the authorization
and permits issued to them by Government like the Provisional Authority
and/or Certificate of Authority explicitly provides that said companies shall
not use [their] stations for the broadcasting or telecasting of false
information or willful misrepresentation. Relative thereto, it has come to
the attention of the [NTC] that certain personalities are in possession of
alleged taped conversations which they claim involve the President of the
Philippines and a Commissioner of the COMELEC regarding supposed
violation of election laws.

These personalities have admitted that the taped conversations are products
of illegal wiretapping operations.

Considering that these taped conversations have not been duly


authenticated nor could it be said at this time that the tapes contain an
accurate or truthful representation of what was recorded therein, it is the
position of the [NTC] that the continuous airing or broadcast of the said

89
taped conversations by radio and television stations is a continuing
violation of the Anti-Wiretapping Law and the conditions of the
Provisional Authority and/or Certificate of Authority issued to these radio
and television stations. It has been subsequently established that the said
tapes are false and/or fraudulent after a prosecution or appropriate
investigation, the concerned radio and television companies are
hereby warned that their broadcast/airing of such false information
and/or willful misrepresentation shall be just cause for the suspension,
revocation and/or cancellation of the licenses or authorizations issued
to the said companies.

In addition to the above, the [NTC] reiterates the pertinent NTC circulars
on program standards to be observed by radio and television stations. NTC
Memorandum Circular 111-12-85 explicitly states, among others, that all
radio broadcasting and television stations shall, during any broadcast or
telecast, cut off from the air the speech, play, act or scene or other matters
being broadcast or telecast the tendency thereof is to disseminate false
information or such other willful misrepresentation, or to propose and/or
incite treason, rebellion or sedition. The foregoing directive had been
reiterated by NTC Memorandum Circular No. 22-89, which, in addition
thereto, prohibited radio, broadcasting and television stations from using
their stations to broadcast or telecast any speech, language or scene
disseminating false information or willful misrepresentation, or inciting,
encouraging or assisting in subversive or treasonable acts.

The [NTC] will not hesitate, after observing the requirements of due
process, to apply with full force the provisions of said Circulars and
their accompanying sanctions on erring radio and television stations
and their owners/operators.

6. On June 14, 2005, NTC held a dialogue with the Board of Directors of the Kapisanan
ng mga Brodkaster sa Pilipinas (KBP). NTC allegedly assured the KBP that the press
release did not violate the constitutional freedom of speech, of expression, and of the
press, and the right to information. Accordingly, NTC and KBP issued a Joint Press
Statement which states, among others, that: [12]

NTC respects and will not hinder freedom of the press and the right to
information on matters of public concern. KBP & its members have
always been committed to the exercise of press freedom with high sense
of responsibility and discerning judgment of fairness and honesty.

NTC did not issue any MC [Memorandum Circular] or Order constituting a


restraint of press freedom or censorship. The NTC further denies and

90
does not intend to limit or restrict the interview of members of the
opposition or free expression of views.

What is being asked by NTC is that the exercise of press freedom [be] done
responsibly.

KBP has program standards that KBP members will observe in the treatment
of news and public affairs programs. These include verification of
sources, non-airing of materials that would constitute inciting to sedition
and/or rebellion.

The KBP Codes also require that no false statement or willful


misrepresentation is made in the treatment of news or commentaries.

The supposed wiretapped tapes should be treated with sensitivity and


handled responsibly giving due consideration to the process being
undertaken to verify and validate the authenticity and actual content of
the same.

C. The Petition

Petitioner Chavez filed a petition under Rule 65 of the Rules of Court against respondents
Secretary Gonzales and the NTC, praying for the issuance of the writs of certiorari and
prohibition, as extraordinary legal remedies, to annul void proceedings, and to prevent the
unlawful, unconstitutional and oppressive exercise of authority by the respondents.[13]

Alleging that the acts of respondents are violations of the freedom on expression and of
the press, and the right of the people to information on matters of public concern,[14] petitioner
specifically asked this Court:

[F]or [the] nullification of acts, issuances, and orders of respondents committed or


made since June 6, 2005 until the present that curtail the publics rights to freedom
of expression and of the press, and to information on matters of public concern
specifically in relation to information regarding the controversial taped
conversion of President Arroyo and for prohibition of the further commission of
such acts, and making of such issuances, and orders by respondents. [15]

91
Respondents[16] denied that the acts transgress the Constitution, and questioned
petitioners legal standing to file the petition. Among the arguments they raised as to the validity
of the fair warning issued by respondent NTC, is that broadcast media enjoy lesser constitutional
guarantees compared to print media, and the warning was issued pursuant to the NTCs mandate
to regulate the telecommunications industry. [17] It was also stressed that most of the [television]
and radio stations continue, even to this date, to air the tapes, but of late within the parameters
agreed upon between the NTC and KBP. [18]

D. THE PROCEDURAL THRESHOLD: LEGAL STANDING

To be sure, the circumstances of this case make the constitutional challenge peculiar.
Petitioner, who is not a member of the broadcast media, prays that we strike down the acts and
statements made by respondents as violations of the right to free speech, free expression and a
free press. For another, the recipients of the press statements have not come forwardneither
intervening nor joining petitioner in this action. Indeed, as a group, they issued a joint statement
with respondent NTC that does not complain about restraints on freedom of the press.

It would seem, then, that petitioner has not met the requisite legal standing, having failed
to allege such a personal stake in the outcome of the controversy as to assure that concrete
adverseness which sharpens the presentation of issues upon which the Court so largely depends
for illumination of difficult constitutional questions. [19]

But as early as half a century ago, we have already held that where serious constitutional
questions are involved, the transcendental importance to the public of these cases demands that
they be settled promptly and definitely, brushing aside if we must, technicalities of
procedure. [20] Subsequently, this Court has repeatedly and consistently refused to wield
procedural barriers as impediments to its addressing and resolving serious legal questions that
greatly impact on public interest,[21] in keeping with the Court's duty under the 1987 Constitution
to determine whether or not other branches of government have kept themselves within the limits
of the Constitution and the laws and that they have not abused the discretion given to them.

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Thus, in line with the liberal policy of this Court on locus standi when a case involves an issue of
overarching significance to our society,[22] we therefore brush aside technicalities of procedure
and take cognizance of this petition,[23] seeing as it involves a challenge to the most exalted of all
the civil rights, the freedom of expression. The petition raises other issues like the extent of
the right to information of the public. It is fundamental, however, that we need not address
all issues but only the most decisive one which in the case at bar is whether the acts of the
respondents abridge freedom of speech and of the press.

But aside from the primordial issue of determining whether free speech and freedom
of the press have been infringed, the case at bar also gives this Court the opportunity: (1) to
distill the essence of freedom of speech and of the press now beclouded by the vagaries of
motherhood statements; (2) to clarify the types of speeches and their differing restraints
allowed by law; (3) to discuss the core concepts of prior restraint, content-neutral and
content-based regulations and their constitutional standard of review; (4) to examine the
historical difference in the treatment of restraints between print and broadcast media and
stress the standard of review governing both; and (5) to call attention to the ongoing
blurring of the lines of distinction between print and broadcast media.

E. RE-EXAMINING THE LAW ON FREEDOM OF SPEECH,


OF EXPRESSION AND OF THE PRESS

No law shall be passed abridging the freedom of speech, of expression, or of the


press, or the right of the people peaceably to assemble and petition the
government for redress of grievances.[24]

Freedom of expression has gained recognition as a fundamental principle of every


democratic government, and given a preferred right that stands on a higher level than substantive
economic freedom or other liberties. The cognate rights codified by Article III, Section 4 of the
Constitution, copied almost verbatim from the First Amendment of the U.S. Bill of
Rights,[25] were considered the necessary consequence of republican institutions and the
complement of free speech.[26] This preferred status of free speech has also been codified at the
international level, its recognition now enshrined in international law as a customary norm that
binds all nations.[27]

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In the Philippines, the primacy and high esteem accorded freedom of expression is a
fundamental postulate of our constitutional system. [28] This right was elevated to constitutional
status in the 1935, the 1973 and the 1987 Constitutions, reflecting our own lesson of history,
both political and legal, that freedom of speech is an indispensable condition for nearly every
other form of freedom.[29] Moreover, our history shows that the struggle to protect the freedom of
speech, expression and the press was, at bottom, the struggle for the indispensable preconditions
for the exercise of other freedoms.[30] For it is only when the people have unbridled access to
information and the press that they will be capable of rendering enlightened judgments. In the
oft-quoted words of Thomas Jefferson, we cannot both be free and ignorant.

E.1. ABSTRACTION OF FREE SPEECH

Surrounding the freedom of speech clause are various concepts that we have adopted as
part and parcel of our own Bill of Rights provision on this basic freedom.[31]What is embraced
under this provision was discussed exhaustively by the Court in Gonzales v. Commission on
Elections, [32] in which it was held:

At the very least, free speech and free press may be identified with the liberty to
discuss publicly and truthfully any matter of public interest without censorship
and punishment. There is to be no previous restraint on the communication of
views or subsequent liability whether in libel suits, prosecution for sedition, or
action for damages, or contempt proceedings unless there be a clear and present
danger of substantive evil that Congress has a right to prevent. [33]

Gonzales further explained that the vital need of a constitutional democracy for freedom
of expression is undeniable, whether as a means of assuring individual self-fulfillment; of
attaining the truth; of assuring participation by the people in social, including political, decision-
making; and of maintaining the balance between stability and change.[34] As early as the 1920s,
the trend as reflected in Philippine and American decisions was to recognize the broadest scope
and assure the widest latitude for this constitutional guarantee. The trend represents a profound
commitment to the principle that debate on public issue should be uninhibited, robust, and wide-
open. [35]

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Freedom of speech and of the press means something more than the right to approve
existing political beliefs or economic arrangements, to lend support to official measures, and to
take refuge in the existing climate of opinion on any matter of public consequence. [36] When
atrophied, the right becomes meaningless.[37] The right belongs as well -- if not more to those
who question, who do not conform, who differ.[38] The ideas that may be expressed under this
freedom are confined not only to those that are conventional or acceptable to the majority. To be
truly meaningful, freedom of speech and of the press should allow and even encourage the
articulation of the unorthodox view, though it be hostile to or derided by others; or though such
view induces a condition of unrest, creates dissatisfaction with conditions as they are, or even
stirs people to anger.[39] To paraphrase Justice Holmes, it is freedom for the thought that we hate,
no less than for the thought that agrees with us. [40]

The scope of freedom of expression is so broad that it extends protection to nearly all forms of
communication. It protects speech, print and assembly regarding secular as well as political
causes, and is not confined to any particular field of human interest. The protection covers
myriad matters of public interest or concern embracing all issues, about which information is
needed or appropriate, so as to enable members of society to cope with the exigencies of their
period. The constitutional protection assures the broadest possible exercise of free speech and
free press for religious, political, economic, scientific, news, or informational ends, inasmuch as
the Constitution's basic guarantee of freedom to advocate ideas is not confined to the expression
of ideas that are conventional or shared by a majority.

The constitutional protection is not limited to the exposition of ideas. The protection
afforded free speech extends to speech or publications that are entertaining as well as instructive
or informative. Specifically, in Eastern Broadcasting Corporation (DYRE) v. Dans,[41] this Court
stated that all forms of media, whether print or broadcast, are entitled to the broad protection of
the clause on freedom of speech and of expression.

While all forms of communication are entitled to the broad protection of freedom of
expression clause, the freedom of film, television and radio broadcasting is somewhat lesser
in scope than the freedom accorded to newspapers and other print media, as will be
subsequently discussed.

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E.2. DIFFERENTIATION: THE LIMITS & RESTRAINTS OF FREE SPEECH
From the language of the specific constitutional provision, it would appear that the right to free
speech and a free press is not susceptible of any limitation. But the realities of life in a complex
society preclude a literal interpretation of the provision prohibiting the passage of a law that
would abridge such freedom. For freedom of expression is not an absolute, [42] nor is it an
unbridled license that gives immunity for every possible use of language and prevents the
punishment of those who abuse this freedom.

Thus, all speech are not treated the same. Some types of speech may be subjected to some
regulation by the State under its pervasive police power, in order that it may not be injurious to
the equal right of others or those of the community or society.[43] The difference in treatment is
expected because the relevant interests of one type of speech, e.g., political speech, may vary
from those of another, e.g., obscene speech. Distinctions have therefore been made in the
treatment, analysis, and evaluation of the permissible scope of restrictions on various categories
of speech. [44] We have ruled, for example, that in our jurisdiction slander or libel, lewd and
obscene speech, as well as fighting words are not entitled to constitutional protection and may be
penalized.[45]
Moreover, the techniques of reviewing alleged restrictions on speech (overbreadth,
vagueness, and so on) have been applied differently to each category, either consciously or
unconsciously. [46] A study of free speech jurisprudencewhether here or abroadwill reveal that
courts have developed different tests as to specific types or categories of speech in
concrete situations; i.e., subversive speech; obscene speech; the speech of the broadcast media
and of the traditional print media; libelous speech; speech affecting associational rights; speech
before hostile audiences; symbolic speech; speech that affects the right to a fair trial; and speech
associated with rights of assembly and petition. [47]

Generally, restraints on freedom of speech and expression are evaluated by either or a


combination of three tests, i.e., (a) the dangerous tendency doctrine which permits limitations
on speech once a rational connection has been established between the speech restrained and the
danger contemplated; [48] (b) the balancing of interests tests, used as a standard when courts
need to balance conflicting social values and individual interests, and requires a conscious and

96
detailed consideration of the interplay of interests observable in a given situation of type of
situation; [49] and (c) the clear and present danger rule which rests on the premise that speech
may be restrained because there is substantial danger that the speech will likely lead to an evil
the government has a right to prevent. This rule requires that the evil consequences sought to be
prevented must be substantive, extremely serious and the degree of imminence extremely
high. [50]

As articulated in our jurisprudence, we have applied either the dangerous tendency


doctrine or clear and present danger test to resolve free speech challenges. More recently, we
have concluded that we have generally adhered to the clear and present danger test. [51]

E.3. IN FOCUS: FREEDOM OF THE PRESS

Much has been written on the philosophical basis of press freedom as part of the larger
right of free discussion and expression. Its practical importance, though, is more easily grasped.
It is the chief source of information on current affairs. It is the most pervasive and perhaps most
powerful vehicle of opinion on public questions. It is the instrument by which citizens keep their
government informed of their needs, their aspirations and their grievances. It is the sharpest
weapon in the fight to keep government responsible and efficient. Without a vigilant press, the
mistakes of every administration would go uncorrected and its abuses unexposed. As Justice
Malcolm wrote in United States v. Bustos:[52]

The interest of society and the maintenance of good government demand a full
discussion of public affairs. Complete liberty to comment on the conduct of
public men is a scalpel in the case of free speech. The sharp incision of its probe
relieves the abscesses of officialdom. Men in public life may suffer under a
hostile and unjust accusation; the wound can be assuaged with the balm of clear
conscience.

Its contribution to the public weal makes freedom of the press deserving of extra protection.
Indeed, the press benefits from certain ancillary rights. The productions of writers are classified
as intellectual and proprietary. Persons who interfere or defeat the freedom to write for the press
or to maintain a periodical publication are liable for damages, be they private individuals or
public officials.

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E.4. ANATOMY OF RESTRICTIONS: PRIOR RESTRAINT, CONTENT-NEUTRAL AND
CONTENT-BASED REGULATIONS

Philippine jurisprudence, even as early as the period under the 1935 Constitution, has recognized
four aspects of freedom of the press. These are (1) freedom from prior restraint; (2) freedom
from punishment subsequent to publication; [53] (3) freedom of access to information; [54] and (4)
freedom of circulation.[55]

Considering that petitioner has argued that respondents press statement constitutes a form of
impermissible prior restraint, a closer scrutiny of this principle is in order, as well as its sub-
specie of content-based (as distinguished from content-neutral) regulations.

At this point, it should be noted that respondents in this case deny that their acts
constitute prior restraints. This presents a unique tinge to the present challenge, considering that
the cases in our jurisdiction involving prior restrictions on speech never had any issue of whether
the governmental act or issuance actually constituted prior restraint. Rather, the determinations
were always about whether the restraint was justified by the Constitution.

Be that as it may, the determination in every case of whether there is an impermissible restraint
on the freedom of speech has always been based on the circumstances of each case, including the
nature of the restraint. And in its application in our jurisdiction, the parameters of this
principle have been etched on a case-to-case basis, always tested by scrutinizing the
governmental issuance or act against the circumstances in which they operate, and then
determining the appropriate test with which to evaluate.

Prior restraint refers to official governmental restrictions on the press or other forms of
expression in advance of actual publication or dissemination.[56] Freedom from prior restraint is
largely freedom from government censorship of publications, whatever the form of censorship,
and regardless of whether it is wielded by the executive, legislative or judicial branch of the
government. Thus, it precludes governmental acts that required approval of a proposal to
publish; licensing or permits as prerequisites to publication including the payment of license

98
taxes for the privilege to publish; and even injunctions against publication. Even the closure of
the business and printing offices of certain newspapers, resulting in the discontinuation of
their printing and publication, are deemed as previous restraint or censorship. [57] Any law or
official that requires some form of permission to be had before publication can be made,
commits an infringement of the constitutional right, and remedy can be had at the courts.

Given that deeply ensconced in our fundamental law is the hostility against all prior restraints on
speech, and any act that restrains speech is presumed invalid,[58] and any act that restrains speech
is hobbled by the presumption of invalidity and should be greeted with furrowed brows, [59] it is
important to stress not all prior restraints on speech are invalid. Certain previous restraints
may be permitted by the Constitution, but determined only upon a careful evaluation of the
challenged act as against the appropriate test by which it should be measured against.

Hence, it is not enough to determine whether the challenged act constitutes some form of
restraint on freedom of speech. A distinction has to be made whether the restraint is (1)
a content-neutral regulation, i.e., merely concerned with the incidents of the speech, or one that
merely controls the time, place or manner, and under well defined standards;[60] or (2) a content-
based restraint or censorship, i.e., the restriction is based on the subject matter of the utterance or
speech. [61] The cast of the restriction determines the test by which the challenged act is assayed
with.

When the speech restraints take the form of a content-neutral regulation, only a substantial
governmental interest is required for its validity.[62] Because regulations of this type are not
designed to suppress any particular message, they are not subject to the strictest form of judicial
scrutiny but an intermediate approachsomewhere between the mere rationality that is required
of any other law and the compelling interest standard applied to content-based
restrictions.[63] The test is called intermediate because the Court will not merely rubberstamp
the validity of a law but also require that the restrictions be narrowly-tailored to promote an
important or significant governmental interest that is unrelated to the suppression of
expression. The intermediate approach has been formulated in this manner:

A governmental regulation is sufficiently justified if it is within the


constitutional power of the Government, if it furthers an important or

99
substantial governmental interest; if the governmental interest is unrelated to the
suppression of free expression; and if the incident restriction on alleged
[freedom of speech & expression] is no greater than is essential to the
furtherance of that interest. [64]

On the other hand, a governmental action that restricts freedom of speech or of the press based
on content is given the strictest scrutiny in light of its inherent and invasive impact. Only when
the challenged act has overcome the clear and present danger rule will it pass constitutional
muster,[65] with the government having the burden of overcoming the presumed
unconstitutionality.

Unless the government can overthrow this presumption, the content-based restraint will be
struck down.[66]
With respect to content-based restrictions, the government must also show the type of harm the
speech sought to be restrained would bring about especially the gravity and the imminence of the
threatened harm otherwise the prior restraint will be invalid. Prior restraint on speech based on
its content cannot be justified by hypothetical fears, but only by showing a substantive and
imminent evil that has taken the life of a reality already on ground.[67] As formulated, the
question in every case is whether the words used areused in such circumstances and are of such a
nature as to create a clear and present danger that they will bring about the substantive evils that
Congress has a right to prevent. It is a question of proximity and degree.[68]

The regulation which restricts the speech content must also serve an important or substantial
government interest, which is unrelated to the suppression of free expression. [69]

Also, the incidental restriction on speech must be no greater than what is essential to the
furtherance of that interest. [70] A restriction that is so broad that it encompasses more than what
is required to satisfy the governmental interest will be invalidated. [71] The regulation, therefore,
must be reasonable and narrowly drawn to fit the regulatory purpose, with the least restrictive
means undertaken. [72]

Thus, when the prior restraint partakes of a content-neutral regulation, it is subjected to an


intermediate review. A content-based regulation,[73] however, bears a heavy presumption of
invalidity and is measured against the clear and present danger rule. The latter will pass

100
constitutional muster only if justified by a compelling reason, and the restrictions imposed are
neither overbroad nor vague. [74]

Applying the foregoing, it is clear that the challenged acts in the case at bar need to be subjected
to the clear and present danger rule, as they are content-based restrictions.The acts of
respondents focused solely on but one objecta specific content fixed as these were on the alleged
taped conversations between the President and a COMELEC official. Undoubtedly these did not
merely provide regulations as to the time, place or manner of the dissemination of speech or
expression.
E.5. Dichotomy of Free Press: Print v. Broadcast Media

Finally, comes respondents argument that the challenged act is valid on the ground that
broadcast media enjoys free speech rights that are lesser in scope to that of print media. We next
explore and test the validity of this argument, insofar as it has been invoked to validate a content-
based restriction on broadcast media.

The regimes presently in place for each type of media differ from one
other. Contrasted with the regime in respect of books, newspapers, magazines and traditional
printed matter, broadcasting, film and video have been subjected to regulatory schemes.

The dichotomy between print and broadcast media traces its origins in the United States.
There, broadcast radio and television have been held to have limited First Amendment
protection,[75] and U.S. Courts have excluded broadcast media from the application of the strict
scrutiny standard that they would otherwise apply to content-based restrictions.[76] According to
U.S. Courts, the three major reasons why broadcast media stands apart from print media are:
(a) the scarcity of the frequencies by which the medium operates [i.e., airwaves are physically
limited while print medium may be limitless]; [77] (b) its pervasiveness as a medium; and (c) its
unique accessibility to children.[78] Because cases involving broadcast media need not follow
precisely the same approach that [U.S. courts] have applied to other media, nor go so far as to
demand that such regulations serve compelling government interests,[79] they are decided on
whether the governmental restriction is narrowly tailored to further a substantial
governmental interest,[80] or the intermediate test.

101
As pointed out by respondents, Philippine jurisprudence has also echoed a differentiation
in treatment between broadcast and print media. Nevertheless, a review of Philippine case law
on broadcast media will show thatas we have deviated with the American conception of the
Bill of Rights[81] we likewise did not adopt en massethe U.S. conception of free speech as it
relates to broadcast media, particularly as to which test would govern content-based prior
restraints.

Our cases show two distinct features of this dichotomy. First, the difference in treatment,
in the main, is in the regulatory scheme applied to broadcast media that is not imposed on
traditional print media, and narrowly confined to unprotected speech (e.g., obscenity,
pornography, seditious and inciting speech), or is based on a compelling government interest that
also has constitutional protection, such as national security or the electoral process.

Second, regardless of the regulatory schemes that broadcast media is subjected to, the
Court has consistently held that the clear and present danger test applies to content-based
restrictions on media, without making a distinction as to traditional print or broadcast media.

The distinction between broadcast and traditional print media was first enunciated in Eastern
Broadcasting Corporation (DYRE) v. Dans,[82] wherein it was held that [a]ll forms of media,
whether print or broadcast, are entitled to the broad protection of the freedom of speech and
expression clause. The test for limitations on freedom of expression continues to be the clear and
present danger rule[83]

Dans was a case filed to compel the reopening of a radio station which had been
summarily closed on grounds of national security. Although the issue had become moot and
academic because the owners were no longer interested to reopen, the Court still proceeded to do
an analysis of the case and made formulations to serve as guidelines for all inferior courts and
bodies exercising quasi-judicial functions. Particularly, the Court made a detailed exposition as
to what needs be considered in cases involving broadcast media. Thus:[84]

xxx xxx xxx

102
(3) All forms of media, whether print or broadcast, are entitled to the broad
protection of the freedom of speech and expression clause. The test for
limitations on freedom of expression continues to be the clear and
present danger rule, that words are used in such circumstances and are of
such a nature as to create a clear and present danger that they will bring
about the substantive evils that the lawmaker has a right to prevent, In
his Constitution of the Philippines (2nd Edition, pp. 569-570) Chief
Justice Enrique M. Fernando cites at least nine of our decisions which
apply the test. More recently, the clear and present danger test was applied
in J.B.L. Reyes in behalf of the Anti-Bases Coalition v. Bagatsing. (4) The
clear and present danger test, however, does not lend itself to a simplistic
and all embracing interpretation applicable to all utterances in all forums.
Broadcasting has to be licensed. Airwave frequencies have to be allocated
among qualified users. A broadcast corporation cannot simply appropriate
a certain frequency without regard for government regulation or for the
rights of others.
All forms of communication are entitled to the broad protection of the
freedom of expression clause. Necessarily, however, the freedom of
television and radio broadcasting is somewhat lesser in scope than the
freedom accorded to newspaper and print media.
The American Court in Federal Communications Commission v. Pacifica
Foundation (438 U.S. 726), confronted with a patently offensive and
indecent regular radio program, explained why radio broadcasting, more
than other forms of communications, receives the most limited protection
from the free expression clause. First, broadcast media have established a
uniquely pervasive presence in the lives of all citizens, Material presented
over the airwaves confronts the citizen, not only in public, but in the
privacy of his home. Second, broadcasting is uniquely accessible to
children. Bookstores and motion picture theaters may be prohibited from
making certain material available to children, but the same selectivity
cannot be done in radio or television, where the listener or viewer is
constantly tuning in and out.
Similar considerations apply in the area of national security.
The broadcast media have also established a uniquely pervasive presence
in the lives of all Filipinos. Newspapers and current books are found only
in metropolitan areas and in the poblaciones of municipalities accessible
to fast and regular transportation. Even here, there are low income masses
who find the cost of books, newspapers, and magazines beyond their
humble means. Basic needs like food and shelter perforce enjoy high
priorities.
On the other hand, the transistor radio is found everywhere. The television
set is also becoming universal. Their message may be simultaneously
received by a national or regional audience of listeners including the

103
indifferent or unwilling who happen to be within reach of a blaring radio
or television set. The materials broadcast over the airwaves reach every
person of every age, persons of varying susceptibilities to persuasion,
persons of different I.Q.s and mental capabilities, persons whose reactions
to inflammatory or offensive speech would be difficult to monitor or
predict. The impact of the vibrant speech is forceful and immediate.
Unlike readers of the printed work, the radio audience has lesser
opportunity to cogitate analyze, and reject the utterance.
(5) The clear and present danger test, therefore, must take the particular
circumstances of broadcast media into account. The supervision of radio
stations-whether by government or through self-regulation by the industry
itself calls for thoughtful, intelligent and sophisticated handling.
The government has a right to be protected against broadcasts which incite
the listeners to violently overthrow it. Radio and television may not be
used to organize a rebellion or to signal the start of widespread uprising.
At the same time, the people have a right to be informed. Radio and
television would have little reason for existence if broadcasts are limited
to bland, obsequious, or pleasantly entertaining utterances. Since they are
the most convenient and popular means of disseminating varying views on
public issues, they also deserve special protection.
(6) The freedom to comment on public affairs is essential to the vitality of a
representative democracy. In the 1918 case of United States v. Bustos (37
Phil. 731) this Court was already stressing that.
The interest of society and the maintenance of good government demand a
full discussion of public affairs. Complete liberty to comment on the
conduct of public men is a scalpel in the case of free speech. The sharp
incision of its probe relieves the abscesses of officialdom. Men in public
life may suffer under a hostile and an unjust accusation; the wound can be
assuaged with the balm of a clear conscience. A public officer must not be
too thin-skinned with reference to comment upon his official acts. Only
thus can the intelligence and dignity of the individual be exalted.
(7) Broadcast stations deserve the special protection given to all forms of media
by the due process and freedom of expression clauses of the Constitution.
[Citations omitted]

It is interesting to note that the Court in Dans adopted the arguments found in U.S. jurisprudence
to justify differentiation of treatment (i.e., the scarcity, pervasiveness and accessibility to
children), but only after categorically declaring that the test for limitations on freedom of
expression continues to be the clear and present danger rule, for all forms of media,
whether print or broadcast. Indeed, a close reading of the above-quoted provisions would

104
show that the differentiation that the Court in Dans referred to was narrowly restricted to what is
otherwise deemed as unprotected speech (e.g., obscenity, national security, seditious and inciting
speech), or to validate a licensing or regulatory scheme necessary to allocate the limited
broadcast frequencies, which is absent in print media. Thus, when this Court declared
in Dans that the freedom given to broadcast media was somewhat lesser in scope than the
freedom accorded to newspaper and print media, it was not as to what test should be applied, but
the context by which requirements of licensing, allocation of airwaves, and application of norms
to unprotected speech. [85]
In the same year that the Dans case was decided, it was reiterated in Gonzales v.
Katigbak,[86] that the test to determine free expression challenges was the clear and present
danger, again without distinguishing the media.[87] Katigbak, strictly speaking, does not treat of
broadcast media but motion pictures. Although the issue involved obscenity standards as applied
to movies,[88] the Court concluded its decision with the following obiter dictum that a less liberal
approach would be used to resolve obscenity issues in television as opposed to motion pictures:
All that remains to be said is that the ruling is to be limited to the concept of
obscenity applicable to motion pictures. It is the consensus of this Court that
where television is concerned, a less liberal approach calls for observance. This
is so because unlike motion pictures where the patrons have to pay their way,
television reaches every home where there is a set. Children then will likely be
among the avid viewers of the programs therein shown..It cannot be denied
though that the State as parens patriae is called upon to manifest an attitude of
caring for the welfare of the young.

More recently, in resolving a case involving the conduct of exit polls and dissemination of the
results by a broadcast company, we reiterated that the clear and present danger rule is the test we
unquestionably adhere to issues that involve freedoms of speech and of the press.[89]

This is not to suggest, however, that the clear and present danger rule has been applied to
all cases that involve the broadcast media. The rule applies to all media, including broadcast,
but only when the challenged act is a content-based regulation that infringes on free speech,
expression and the press. Indeed, in Osmena v. COMELEC,[90] which also involved broadcast
media, the Court refused to apply the clear and present danger rule to a COMELEC regulation of
time and manner of advertising of political advertisements because the challenged restriction was
content-neutral.[91] And in a case involving due process and equal protection issues, the Court
in Telecommunications and Broadcast Attorneys of the Philippines v. COMELEC[92] treated a

105
restriction imposed on a broadcast media as a reasonable condition for the grant of the medias
franchise, without going into which test would apply.
That broadcast media is subject to a regulatory regime absent in print media is observed also in
other jurisdictions, where the statutory regimes in place over broadcast media include elements
of licensing, regulation by administrative bodies, and censorship. As explained by a British
author:

The reasons behind treating broadcast and films differently from the print
media differ in a number of respects, but have a common historical basis. The
stricter system of controls seems to have been adopted in answer to the view
that owing to their particular impact on audiences, films, videos and
broadcasting require a system of prior restraints, whereas it is now accepted that
books and other printed media do not. These media are viewed as beneficial to
the public in a number of respects, but are also seen as possible sources of
harm.[93]

Parenthetically, these justifications are now the subject of debate. Historically, the scarcity of
frequencies was thought to provide a rationale. However, cable and satellite television have
enormously increased the number of actual and potential channels. Digital technology will
further increase the number of channels available. But still, the argument persists that
broadcasting is the most influential means of communication, since it comes into the home, and
so much time is spent watching television. Since it has a unique impact on people and affects
children in a way that the print media normally does not, that regulation is said to be necessary in
order to preserve pluralism. It has been argued further that a significant main threat to free
expressionin terms of diversitycomes not from government, but from private corporate
bodies. These developments show a need for a reexamination of the traditional notions of the
scope and extent of broadcast media regulation. [94]

The emergence of digital technology -- which has led to the convergence of broadcasting,
telecommunications and the computer industry -- has likewise led to the question of whether the
regulatory model for broadcasting will continue to be appropriate in the converged
environment.[95] Internet, for example, remains largely unregulated, yet the Internet and the
broadcast media share similarities, [96] and the rationales used to support broadcast regulation

106
apply equally to the Internet.[97] Thus, it has been argued that courts, legislative bodies and the
government agencies regulating media must agree to regulate both, regulate neither or develop a
new regulatory framework and rationale to justify the differential treatment. [98]

F. The Case At Bar

Having settled the applicable standard to content-based restrictions on broadcast media, let us go
to its application to the case at bar. To
recapitulate, a governmental action thatrestricts freedom of speech
or of the press based on content is given the strictest
scrutiny, with the government having the burden of overcoming the
presumed unconstitutionality by the clear and present danger rule. This rule applies equally
to all kinds of media, including broadcast media.

This outlines the procedural map to follow in cases like the one at bar as it spells out the
following: (a) the test; (b) the presumption; (c) the burden of proof; (d) the party to discharge the
burden; and (e) the quantum of evidence necessary. On the basis of the records of the case at bar,
respondents who have the burden to show that these acts do not abridge freedom of speech and
of the press failed to hurdle the clear and present danger test. It appears that the great evil which
government wants to prevent is the airing of a tape recording in alleged violation of the anti-
wiretapping law. The records of the case at bar, however, are confused and confusing, and
respondents evidence falls short of satisfying the clear and present danger test. Firstly, the
various statements of the Press Secretary obfuscate the identity of the voices in the tape
recording. Secondly, the integrity of the taped conversation is also suspect. The Press Secretary
showed to the public two versions, one supposed to be a complete version and the other, an
altered version. Thirdly, the evidence of the respondents on the whos and the hows of the
wiretapping act is ambivalent, especially considering the tapes different versions. The identity of
the wire-tappers, the manner of its commission and other related and relevant proofs are some of
the invisibles of this case. Fourthly, given all these unsettled facets of the tape, it is even
arguable whether its airing would violate the anti-wiretapping law.

107
We rule that not every violation of a law will justify straitjacketing the exercise of freedom
of speech and of the press. Our laws are of different kinds and doubtless, some of them
provide norms of conduct which even if violated have only an adverse effect on a persons private
comfort but does not endanger national security. There are laws of great significance but their
violation, by itself and without more, cannot support suppression of free speech and free press.
In fine, violation of law is just a factor, a vital one to be sure, which should be
weighed in adjudging whether to restrain freedom of speech and of the press. The totality of the
injurious effects of the violation to private and public interest must be calibrated in light of the
preferred status accorded by the Constitution and by related international covenants protecting
freedom of speech and of the press. In calling for a careful and calibrated measurement of the
circumference of all these factors to determine compliance with the clear and present danger
test, the Court should not be misinterpreted as devaluing violations of law. By all
means, violations of law should be vigorously prosecuted by the State for they breed their own
evil consequence. But to repeat, the need to prevent their violation cannot per se trump the
exercise of free speech and free press, a preferred right whose breach can lead to greater
evils. For this failure of the respondents alone to offer proof to satisfy the clear and present
danger test, the Court has no option but to uphold the exercise of free speech and free press.
There is no showing that the feared violation of the anti-wiretapping law clearly endangers
the national security of the State.

This is not all the faultline in the stance of the respondents. We slide to the issue of whether
the mere press statements of the Secretary of Justice and of the NTC in question constitute a
form of content-based prior restraint that has transgressed the Constitution. In
resolving this issue, we hold that it is not decisive that the press statements made by
respondents were not reduced in or followed up with formal orders or circulars. It is
sufficient that the press statements were made by respondents while in the exercise of their
official functions. Undoubtedly, respondent Gonzales made his statements as Secretary of
Justice, while the NTC issued its statement as the regulatory body of media. Any act done, such
as a speech uttered, for and on behalf of the government in an official capacity is covered
by the rule on prior restraint. The concept of an act does not limit itself to acts already
converted to a formal order or official circular. Otherwise, the non formalization of an act
into an official order or circular will result in the easy circumvention of the prohibition on

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prior restraint. The press statements at bar are acts that should be struck down as they
constitute impermissible forms of prior restraints on the right to free speech and press.

There is enough evidence of chilling effect of the complained acts on


record. The warnings given to media came from no less the NTC, a regulatory agency that can
cancel the Certificate of Authority of the radio and broadcast media. They also came from the
Secretary of Justice, the alter ego of the Executive, who wields the awesome power to prosecute
those perceived to be violating the laws of the land. After the warnings, the KBP inexplicably
joined the NTC in issuing an ambivalent Joint Press Statement. After the warnings, petitioner
Chavez was left alone to fight this battle for freedom of speech and of the press. This silence on
the sidelines on the part of some media practitioners is too deafening to be the subject of
misinterpretation.

The constitutional imperative for us to strike down unconstitutional acts should always be
exercised with care and in light of the distinct facts of each case. For there are no hard and fast
rules when it comes to slippery constitutional questions, and the limits and construct of relative
freedoms are never set in stone. Issues revolving on their construct must be decided on a case to
case basis, always based on the peculiar shapes and shadows of each case. But in cases where the
challenged acts are patent invasions of a constitutionally protected right, we should be swift in
striking them down as nullities per se. A blow too soon struck for freedom is preferred than a
blow too late.

In VIEW WHEREOF, the petition is GRANTED. The writs of certiorari and prohibition are
hereby issued, nullifying the official statements made by respondents on June 8, and 11, 2005
warning the media on airing the alleged wiretapped conversation between the President and other
personalities, for constituting unconstitutional prior restraint on the exercise of freedom of
speech and of the press

SO ORDERED.

20. VICENTE SINGSON ENCARNACION, plaintiff-appellee,


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

109
Bausa and Ampil for appellants.
Tolentino and Aguas for appellee.

HILADO, J.:

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

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

In the Court of First Instance the graveman of the defense interposed by defendants, as it was
expressed defendant Lefrado Fernando during the trial, was that the contract which they had
celebrated with plaintiff since the beginning authorized them to continue occupying the house
indefinetly and while they should faithfully fulfill their obligations as respects the payment of the
rentals, and that this agreement had been ratified when another ejectment case between the
parties filed during the Japanese regime concerning the same house was allegedly compounded
in the municipal court. The Court of First Instance gave more credit to plaintiff's witness,
Vicente Singson Encarnacion, jr., who testified that the lease had always and since the beginning
been upon a month-to-month basis. The court added in its decision that this defense which was
put up by defendant's answer, for which reason the Court considered it as indicative of an
eleventh-hour theory. We think that the Court of First Instance was right in so declaring.

110
Furthermore, carried to its logical conclusion, the defense thus set up by defendant Lefrado
Fernando would leave to the sole and exclusive will of one of the contracting parties (defendants
in this case) the validity and fulfillment of the contract of lease, within the meaning of article
1256 of the Civil Code, since the continuance and fulfillment of the contract would then depend
solely and exclusively upon their free and uncontrolled choice between continuing paying the
rentals or not, completely depriving the owner of all say in the matter. If this defense were to be
allowed, so long as defendants elected to continue the lease by continuing the payment of the
rentals, the owner would never be able to discontinue it; conversely, although the owner should
desire the lease to continue, the lessees could effectively thwart his purpose if they should prefer
to terminate the contract by the simple expedient of stopping payment of the rentals. This, of
course, is prohibited by the aforesaid article of the Civil Code. (8 Manresa, 3d ed., pp. 626, 627;
Cuyugan vs. Santos, 34 Phil., 100.)

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

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

21. DARIO AND GAUDENCIO ELEIZEGUI, plaintiffs-appellees,


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

Pillsburry and Sutro for appellant.


Manuel Torres Vergara for appellee.

ARELLANO, C. J.:

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

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

The first theory is that which has prevailed in the judgment below, as appears from the language
in which the basis of the decision is expressed: "The court is of the opinion that the contract of

111
lease was terminated by the notice given by the plaintiff on August 28 of last year . . . ." And
such is the theory maintained by the plaintiffs, which expressly rests upon article 1581 of the
Civil Code, the law which was in force at the time the contract was entered into (January 25,
1890). The judge, in giving to this notice the effect of terminating the lease, undoubtedly
considers that it is governed by the article relied upon by the plaintiffs, which is of the following
tenor: "When the term has not been fixed for the lease, it is understood to be for years when an
annual rental has been fixed, for months when the rent is monthly. . . ." The second clause of the
contract provides as follows: "The rent of the said land is fixed at 25 pesos per month." (P. 11,
Bill of Exceptions.)

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

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

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

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

It is necessary, therefore, to answer the first question: Was there, or was there not, a conventional
term, a duration, agreed upon in the contract in question? If there was an agreed duration, a
conventional term, then the legal term — the term fixed in article 1581 — has no application; the
contract is the supreme law of the contracting parties. Over and above the general law is the
special law, expressly imposed upon themselves by the contracting parties. Without these clauses

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1 and 3, the contract would contain no stipulation with respect to the duration of the lease, and
then article 1581, in connection with article 1569, would necessarily be applicable. In view of
these clauses, however, it can not be said that there is no stipulation with respect to the duration
of the lease, or that, notwithstanding these clauses, article 1581, in connection with article 1569,
can be applied. If this were so, it would be necessary to hold that the lessors spoke in vain — that
their words are to be disregarded — a claim which can not be advanced by the plaintiffs nor
upheld by any court without citing the law which detracts all legal force from such words or
despoils them of their literal sense.

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

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

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

It is unnecessary here to enter into a discussion of a perpetual lease in accordance with the law
and doctrine prior to the Civil Code now in force, and which has been operative since 1889.
Hence the judgment of the supreme court of Spain of January 2, 1891, with respect to a lease
made in 1887, cited by the defendant, and a decision stated by him to have been rendered by the
Audiencia of Pamplona in 1885 (it appears to be rather a decision by the head office of land
registration of July 1, 1885), and any other decision which might be cited based upon the
constitutions of Cataluna, according to which a lease of more than ten years is understood to
create a life tenancy, or even a perpetual tenancy, are entirely out of point in this case, in which
the subject-matter is a lease entered into under the provisions of the present Civil Code, in
accordance with the principles of which alone can this doctrine be examined.

113
It is not to be understood that we admit that the lease entered into was stipulated as a life
tenancy, and still less as a perpetual lease. The terms of the contract express nothing to this
effect. They do, whatever, imply this idea. If the lease could last during such time as the lessee
might see fit, because it has been so stipulated by the lessor, it would last, first, as long as the
will of the lessee — that is, all his life; second, during all the time that he may have succession,
inasmuch as he who contracts does so for himself and his heirs. (Art. 1257 of the Civil Code.)
The lease in question does not fall within any of the cases in which the rights and obligations
arising from a contract can not be transmitted to heirs, either by its nature, by agreement, or by
provision of law. Furthermore, the lessee is an English association.

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

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

The Civil Code has made provision for such a case in all kinds of obligations. In speaking in
general of obligations with a term it has supplied the deficiency of the former law with respect to
the "duration of the term when it has been left to the will of the debtor," and provides that in this
case the term shall be fixed by the courts. (Art. 1128, sec. 2.) In every contract, as laid down by
the authorities, there is always a creditor who is entitled to demand the performance, and a debtor
upon whom rests the obligation to perform the undertaking. In bilateral contracts the contracting
parties are mutually creditors and debtors. Thus, in this contract of lease, the lessee is the creditor
with respect to the rights enumerated in article 1554, and is the debtor with respect to the
obligations imposed by articles 1555 and 1561. The term within which performance of the latter
obligation is due is what has been left to the will of the debtor. This term it is which must be
fixed by the courts.

The only action which can be maintained under the terms of the contract is that by which it is
sought to obtain from the judge the determination of this period, and not the unlawful detainer
action which has been brought — an action which presupposes the expiration of the term and

114
makes it the duty of the judge to simply decree an eviction. To maintain the latter action it is
sufficient to show the expiration of the term of the contract, whether conventional or legal; in
order to decree the relief to be granted in the former action it is necessary for the judge to look
into the character and conditions of the mutual undertakings with a view to supplying the lacking
element of a time at which the lease is to expire. In the case of a loan of money or
a commodatum of furniture, the payment or return to be made when the borrower "can
conveniently do so" does not mean that he is to be allowed to enjoy the money or to make use of
the thing indefinitely or perpetually. The courts will fix in each case, according to the
circumstances, the time for the payment or return. This is the theory also maintained by the
defendant in his demonstration of the fifth assignment of error. "Under article 1128 of the Civil
Code," thus his proposition concludes, "contracts whose term is left to the will of one of the
contracting parties must be fixed by the courts, . . . the conditions as to the term of this lease has
a direct legislative sanction," and he cites articles 1128. "In place of the ruthless method of
annihilating a solemn obligation, which the plaintiffs in this case have sought to pursue, the Code
has provided a legitimate and easily available remedy. . . . The Code has provided for the proper
disposition of those covenants, and a case can hardly arise more clearly demonstrating the
usefulness of that provision than the case at bar." (Pp. 52 and 53 of appellant's brief.)

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

The judgment was entered below upon the theory of the expiration of a legal term which does
not exist, as the case requires that a term be fixed by the courts under the provisions of article
1128 with respect to obligations which, as is the present, are terminable at the will of the obligee.
It follows, therefore, that the judgment below is erroneous.

The judgment is reversed and the case will be remanded to the court below with directions to
enter a judgment of dismissal of the action in favor of the defendant, the Manila Lawn Tennis
Club, without special allowance as to the recovery of costs. So ordered.

Mapa and Ladd, JJ., concur.


Torres, J., disqualified.

115
22. PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA
SANTOS Y CANON FAUSTINO, deceased, plaintiff-appellant,
vs.
LUI SHE in her own behalf and as administratrix of the intestate estate of Wong Heng,
deceased, defendant-appellant.

Nicanor S. Sison for plaintiff-appellant.


Ozaeta, Gibbs & Ozaeta for defendant-appellant.

CASTRO, J.:

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

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

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

On December 21 she executed another contract (Plff Exh. 7) giving Wong the option to buy the
leased premises for P120,000, payable within ten years at a monthly installment of P1,000. The
option, written in Tagalog, imposed on him the obligation to pay for the food of the dogs and the

116
salaries of the maids in her household, the charge not to exceed P1,800 a month. The option was
conditioned on his obtaining Philippine citizenship, a petition for which was then pending in the
Court of First Instance of Rizal. It appears, however, that this application for naturalization was
withdrawn when it was discovered that he was not a resident of Rizal. On October 28, 1958 she
filed a petition to adopt him and his children on the erroneous belief that adoption would confer
on them Philippine citizenship. The error was discovered and the proceedings were abandoned.

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

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

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

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

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

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

117
In his answer, Wong insisted that the various contracts were freely and voluntarily entered into
by the parties. He likewise disclaimed knowledge of the sum of P33,724.27, admitted receipt of
P7,344.42 and P10,000, but contended that these amounts had been spent in accordance with the
instructions of Justina Santos; he expressed readiness to comply with any order that the court
might make with respect to the sums of P22,000 in the bank and P3,000 in his possession.

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

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

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

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

Paragraph 5 of the lease contract states that "The lessee may at any time withdraw from this
agreement." It is claimed that this stipulation offends article 1308 of the Civil Code which
provides that "the contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them."

We have had occasion to delineate the scope and application of article 1308 in the early case
of Taylor v. Uy Tieng Piao.1 We said in that case:

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

118
And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a lease contract that the
lessee, at any time before he erected any building on the land, might rescind the lease, can hardly
be regarded as a violation of article 1256 [now art. 1308] of the Civil Code."

The case of Singson Encarnacion v. Baldomar 4 cannot be cited in support of the claim of want
of mutuality, because of a difference in factual setting. In that case, the lessees argued that they
could occupy the premises as long as they paid the rent. This is of course untenable, for as this
Court said, "If this defense were to be allowed, so long as defendants elected to continue the
lease by continuing the payment of the rentals, the owner would never be able to discontinue it;
conversely, although the owner should desire the lease to continue the lessees could effectively
thwart his purpose if they should prefer to terminate the contract by the simple expedient of
stopping payment of the rentals." Here, in contrast, the right of the lessee to continue the lease or
to terminate it is so circumscribed by the term of the contract that it cannot be said that the
continuance of the lease depends upon his will. At any rate, even if no term had been fixed in the
agreement, this case would at most justify the fixing of a period5 but not the annulment of the
contract.

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

That the land could not ordinarily be levied upon while in custodia legis does not mean
that one of the heirs may not sell the right, interest or participation which he has or might
have in the lands under administration. The ordinary execution of property in custodia
legis is prohibited in order to avoid interference with the possession by the court. But the
sale made by an heir of his share in an inheritance, subject to the result of the pending
administration, in no wise stands in the way of such administration.6

It is next contended that the lease contract was obtained by Wong in violation of his fiduciary
relationship with Justina Santos, contrary to article 1646, in relation to article 1941 of the Civil
Code, which disqualifies "agents (from leasing) the property whose administration or sale may
have been entrusted to them." But Wong was never an agent of Justina Santos. The relationship
of the parties, although admittedly close and confidential, did not amount to an agency so as to
bring the case within the prohibition of the law.

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

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

119
Q Did you explain carefully to your client, Doña Justina, the contents of this document
before she signed it?

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

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

A She agreed first . . .

Q Agreed what?

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

xxx xxx xxx

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

xxx xxx xxx

A Your Honor, if I have to express my personal opinion, I would say she is not, because,
as I said before, she told me — "Whatever Mr. Wong wants must be followed."8

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

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

Atty. Yumol further testified that she signed the lease contract in the presence of her close friend,
Hermenegilda Lao, and her maid, Natividad Luna, who was constantly by her side.11 Any of
them could have testified on the undue influence that Wong supposedly wielded over Justina

120
Santos, but neither of them was presented as a witness. The truth is that even after giving his
client time to think the matter over, the lawyer could not make her change her mind. This
persuaded the lower court to uphold the validity of the lease contract against the claim that it was
procured through undue influence.

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

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

As it was with the lease contract (Plff Exh. 3), so it was with the rest of the contracts (Plff Exhs.
4-7) — the consent of Justina Santos was given freely and voluntarily. As Atty. Alonzo,
testifying for her, said:

[I]n nearly all documents, it was either Mr. Wong Heng or Judge Torres and/or both.
When we had conferences, they used to tell me what the documents should contain. But,
as I said, I would always ask the old woman about them and invariably the old woman
used to tell me: "That's okay. It's all right."15

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

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

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

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

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

This is not to say, however, that the contracts (Plff Exhs. 3-7) are valid. For the testimony just
quoted, while dispelling doubt as to the intention of Justina Santos, at the same time gives the
clue to what we view as a scheme to circumvent the Constitutional prohibition against the
transfer of lands to aliens. "The illicit purpose then becomes the illegal causa"19 rendering the
contracts void.

Taken singly, the contracts show nothing that is necessarily illegal, but considered collectively,
they reveal an insidious pattern to subvert by indirection what the Constitution directly prohibits.
To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien the
right to buy real property on condition that he is granted Philippine citizenship. As this Court
said in Krivenko v. Register of Deeds:20

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

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

122
alien landholding in the Philippines, as announced in Krivenko v. Register of Deeds,22 is indeed
in grave peril.

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

It is well to note at this juncture that in the present case we have no choice. We are
construing the Constitution as it is and not as we may desire it to be. Perhaps the effect of
our construction is to preclude aliens admitted freely into the Philippines from owning
sites where they may build their homes. But if this is the solemn mandate of the
Constitution, we will not attempt to compromise it even in the name of amity or equity . .
..

For all the foregoing, we hold that under the Constitution aliens may not acquire private
or public agricultural lands, including residential lands, and, accordingly, judgment is
affirmed, without costs.25

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

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

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

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

123
He made disbursements from this account to discharge Justina Santos' obligations for taxes,
attorneys' fees, funeral services and security guard services, but the checks (Def Exhs. 247-278)
drawn by him for this purpose amount to only P38,442.84.27 Besides, if he had really settled his
accounts with her on August 26, 1959, we cannot understand why he still had P22,000 in the
bank and P3,000 in his possession, or a total of P25,000. In his answer, he offered to pay this
amount if the court so directed him. On these two grounds, therefore, his claim of liquidation and
settlement of accounts must be rejected.

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


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

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

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

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

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

23. ROSA LIM, petitioner, vs., PEOPLE OF THE PHILIPPINES, respondent.

DECISION
PARDO, J.:

The case is an appeal from the decision[1] of the Court of Appeals affirming in toto that of
the Regional Trial Court, Cebu City.[2] Both courts found petitioner Rosa Lim guilty of twice
violating Batas Pambansa Bilang 22[3] and imposing on her two one-year imprisonment for each
of the two violations and ordered her to pay two fines, each amounting to two hundred thousand
pesos (P200,000.00). The trial court also ordered petitioner to return to Maria Antonia Seguan,
the jewelry received or its value with interest, to pay moral damages, attorney's fees and costs.[4]
We state the relevant facts.[5]
On August 25, 1990, petitioner called Maria Antonia Seguan by phone. Petitioner thereafter
went to Seguan's store. She bought various kinds of jewelry -- Singaporean necklaces, bracelets
and rings worth P300,000.00. She wrote out a check dated August 25, 1990, payable to "cash"
drawn on Metrobank in the amount of P300,000.00[6] and gave the check to Seguan.
On August 26, 1990, petitioner again went to Seguan's store and purchased jewelry valued
at P241,668.00. Petitioner issued another check payable to "cash" dated August 16, 1990 drawn
on Metrobank in the amount of P241,668.00[7] and sent the check to Seguan through a certain
Aurelia Nadera.
Seguan deposited the two checks with her bank. The checks were returned with a notice of
dishonor. Petitioner's account in the bank from which the checks were drawn was closed.
Upon demand, petitioner promised to pay Seguan the amounts of the two dishonored
checks. She never did.
On June 5, 1991,[8] an Assistant City Prosecutor of Cebu filed with the Regional Trial Court,
Cebu City, Branch 23 two informations against petitioner. Both informations were similarly
worded. The difference is that in Criminal Case No. 22128, the bouncing checks is Metro Bank
Check No. CLN 094244392 dated August 26, 1990 in the amount of P241,668.00. The
informations read:[9]

Criminal Case No. 22127-

"The undersigned Prosecutor I of the City of Cebu, accuses ROSA LIM for VIOLATION OF
BATAS PAMBANSA BILANG 22 committed as follows:

125
"That on or about the 20th day of August, 1990, and for sometime subsequent thereto, in the City
of Cebu Philippines, and within the jurisdiction of this Honorable Court, the said accused,
knowing at the time of issue of the check she does not have sufficient funds in the drawee bank
for the payment of such check in full upon its presentment, with deliberate intent, with intent of
gain and of causing damage, did then and there issue, make or draw Metro Bank Check NO. 1
CLN 094244391 dated August 25, 1990 in the amount of P300,000.00 payable to Maria Antonia
Seguan which check was issued in payment of an obligation of said accused, but when the said
check was presented with the bank the same was dishonored for reason "Account Closed" and
despite notice and demands made to redeem or make good said check, said accused failed and
refused, and up to the present time still fails and refuses to do so, to the damage and prejudice of
said Maria Antonia Seguan in the amount of P300,000.00, Philippine Currency.

"CONTRARY TO LAW."

Criminal Case No. 22128-

"The undersigned Prosecutor I of the City of Cebu, accuses ROSA LIM for VIOLATION OF
BATAS PAMBANSA BILANG 22, COMMITTED AS FOLLOWS:

"That on or about the 20th day of August, 1990, and for sometime subsequent thereto, in this
City of Cebu, Philippines, and within the jurisdiction of this Honorable Court, the said accused,
knowing at the time of issue of the check she does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its presentment, with deliberate intent,
with intent of gain and of causing damage, did then and there issue, make or draw Metro Bank
Check No. CLN-094244392 dated August 26, 1990 in the amount of P241,668.00 payable to
Maria Antonia Seguan which check was issued in payment of an obligation of said accused, but
when the said check was presented with the bank, the same was dishonored for reason "Account
Closed" and despite notice and demands made to redeem or make good said check, said accused
failed and refused, and up to the present time still fails and refuses to do so, to the damage and
prejudice of said Maria Antonia Seguan in the amount of P241,668.00, Philippine Currency.

"CONTRARY TO LAW.

"Cebu City, Philippines, 30 May 1991."[10]

Upon arraignment, petitioner pleaded "not guilty" in both cases.


After due trial, on December 29, 1992, the trial court rendered a decision in the two cases
convicting petitioner, to wit:[11]

"WHEREFORE, prosecution having established the guilt of the accused beyond reasonable
doubt, judgment is hereby rendered convicting the accused, Rosa Lim and sentencing her in
Criminal Case No. CBU-22127, to suffer the penalty of imprisonment for a period of ONE (1)
YEAR and a fine of TWO HUNDRED THOUSAND (P200,000.00) PESOS and in Criminal
Case No. CBO-22128, the same penalty of imprisonment for ONE YEAR and fine of TWO
HUNDRED THOUSAND (P200,000.00) is likewise imposed.

126
"The accused is hereby ordered to pay private complainant Maria Antonia Seguan, the sum
of P541,668.00 which is the value of the jewelries bought by the accused from the latter with
interest based on the legal rate to be counted from June 5, 1991, the date of the filing of the
informations, or return the subject jewelries; and further to pay private complainant:

"(a) The sum of P50,000.00 as moral damages in compensation for the latter's worries with the
freezing of her business capital involved in these litigated transactions;

"(b) The sum of P10,000.00 for attorney's fees, plus costs.

"SO ORDERED."[12]

In due time, petitioner appealed to the Court of Appeals.[13]


On October 15, 1996, the Court of Appeals rendered a decision, dismissing the appeal in this
wise:

"WHEREFORE, premises considered, the appeal is DISMISSED. The decision appealed from is
AFFIRMED in toto.

"SO ORDERED."[14]

Hence, this appeal.[15]


In this appeal, petitioner argues that she never knew Seguan and much more, had any
"transaction" with her. According to petitioner, she issued the two checks and gave them to
Aurelia Nadera, not to Seguan. She gave the two checks to Aurelia Nadera from whom she got
two sets of jewelry, as a "security arrangement" or "guarantee" that she would return the jewelry
received if she would not be able to sell them.[16]
The appeal has no merit.
The elements of B.P. Blg. 22 are:[17]

"(1) The making, drawing and issuance of any check to apply for account or for value;

"(2) The knowledge of the maker, drawer, or issuer that at the time of issue he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full upon its
presentment; and

"(3) The subsequent dishonor of the check by the drawee bank for insufficiency of funds or
credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the
bank to stop payment."

Petitioner never denied issuing the two checks. She argued that the checks were not issued
to Seguan and that they had no pre-existing transaction. The checks were issued to Aurelia
Nadera as mere guarantee and as a security arrangement to cover the value of jewelry she was to
sell on consignment basis.[18] These defenses cannot save the day for her. The first and last

127
elements of the offense are admittedly present. To escape liability, she must prove that the
second element was absent, that is, at the time of issue of the checks, she did not know that her
funds in the bank account were insufficient. She did not prove this.
B.P. No. 22, Section 2 creates a presumption juris tantum that the second element prima
facie exists when the first and third elements of the offense are present. [19] If not rebutted, it
suffices to sustain a conviction.[20]
The gravamen of B.P. No. 22 is the act of making and issuing a worthless check or one that
is dishonored upon its presentment for payment. And the accused failed to satisfy the amount of
the check or make arrangement for its payment within five (5) banking days from notice of
dishonor.[21] The act is malum prohibitum, pernicious and inimical to public welfare.[22]Laws are
created to achieve a goal intended and to guide and prevent against an evil or mischief.[23] Why
and to whom the check was issued is irrelevant in determining culpability. The terms and
conditions surrounding the issuance of the checks are also irrelevant.[24]
Unlike in estafa,[25] under B. P. No. 22, one need not prove that the check was issued in
payment of an obligation, or that there was damage. The damage done is to the banking
system.[26]
In United States v. Go Chico, we ruled that in acts mala prohibita, the only inquiry is, "has
the law been violated?" When dealing with acts mala prohibita[27]--

" it is not necessary that the appellant should have acted with criminal intent. In many crimes,
made such by statutory enactment, the intention of the person who commits the crime is entirely
immaterial.This is necessarily so. If it were not, the statute as a deterrent influence would be
substantially worthless. It would be impossible of execution. In many cases, the act complained
of is itself that which produces the pernicious effect the statute seeks to avoid. In those cases the
pernicious effect is produced with precisely the same force and result whether the intention of
the person performing the act is good or bad."

This case is a perfect example of an act mala prohibita. Petitioner issued two checks. They
were dishonored upon presentment for payment due to the fact that the account was
closed. Petitioner failed to rebut the presumption that she knew her funds were insufficient at the
time of issue of the checks. And she failed to pay the amount of the checks or make arrangement
for its payment within five (5) banking days from receipt of notice of dishonor. B.P. No. 22 was
clearly violated. Hoc quidem per quam durum est sed ita lex scripta est. The law may be
exceedingly hard but so the law is written.
However, we resolve to modify the penalty imposed on petitioner. B.P. No. 22 provides a
penalty of "imprisonment of not less than thirty days but not more than one year or a fine of not
less than, but not more than double, the amount of the check which fine shall in no case exceed
two hundred thousand pesos, or both such fine and imprisonment at the discretion of the
Court."[28]
In Vaca v. Court of Appeals,[29] we held that in determining the penalty to be imposed for
violation of B.P. No. 22, the philosophy underlying the Indeterminate Sentence Law applies.The
philosophy is to redeem valuable human material, and to prevent unnecessary deprivation of
personal liberty and economic usefulness with due regard to the protection of the social

128
order. There, we deleted the prison sentence imposed on petitioners. We imposed on them only a
fine double the amount of the check issued. We considered the fact that petitioners brought the
appeal, believing in good faith, that no violation of B.P. No. 22 was committed, "otherwise, they
would have simply accepted the judgment of the trial court and applied for probation to evade
prison term."[30] We do the same here. We believe such would best serve the ends of criminal
justice.
Consequently, we delete the prison sentences imposed on petitioner. The two fines imposed
for each violation, each amounting to P200,000.00 are appropriate and sufficient.
The award of moral damages and order to pay attorney's fees are deleted for lack of
sufficient basis.
WHEREFORE, we AFFIRM with modification the decision of the Court of
Appeals.[31] We find petitioner Rosa Lim guilty beyond reasonable doubt of two counts of
violation of Batas Pambansa Bilang 22. We SET ASIDE the sentence of imprisonment and
hereby sentence her only to pay a fine of P200,000.00 in each case, with subsidiary
imprisonment in case of insolvency or non-payment not to exceed six (6) months.[32] We
DELETE the award of moral damages and attorney's fees. The rest of the judgment of the trial
court as affirmed by the Court of Appeals shall stand. Costs against petitioner.
SO ORDERED.

24. GREGORIO ARANETA, INC., petitioner,


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

Araneta and Araneta for petitioner.


Rosauro Alvarez and Ernani Cruz Paño for respondent.

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

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

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

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

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

129
while the seller for its part will —

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

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

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

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

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

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

On July 16, 1960, the lower court, after finding that "the proven facts precisely warrants the
fixing of such a period," issued an order granting plaintiff's motion for reconsideration and
amending the dispositive portion of the decision of May 31, 1960, to read as follows:

WHEREFORE, judgment is hereby rendered giving defendant Gregorio Araneta, Inc., a


period of two (2) years from notice hereof, within which to comply with its obligation
under the contract, Annex "A".

Defendant Gregorio Araneta, Inc. presented a motion to reconsider the above quoted order,
which motion, plaintiff opposed.

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

130
In said appellate court, defendant-appellant Gregorio Araneta, Inc. contended mainly that the
relief granted, i.e., fixing of a period, under the amendatory decision of July 16, 1960, was not
justified by the pleadings and not supported by the facts submitted at the trial of the case in the
court below and that the relief granted in effect allowed a change of theory after the submission
of the case for decision.

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

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

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

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


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

Unsuccessful in having the above decision reconsidered, defendant-appellant Gregorio Araneta,


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

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

131
Even on the assumption that the court should have found that no reasonable time or no period at
all had been fixed (and the trial court's amended decision nowhere declared any such fact) still,
the complaint not having sought that the Court should set a period, the court could not proceed to
do so unless the complaint in as first amended; for the original decision is clear that the
complaint proceeded on the theory that the period for performance had already elapsed, that the
contract had been breached and defendant was already answerable in damages.

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

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

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

It must be recalled that Article 1197 of the Civil Code involves a two-step process. The Court
must first determine that "the obligation does not fix a period" (or that the period is made to
depend upon the will of the debtor)," but from the nature and the circumstances it can be inferred
that a period was intended" (Art. 1197, pars. 1 and 2). This preliminary point settled, the Court
must then proceed to the second step, and decide what period was "probably contemplated by the
parties" (Do., par. 3). So that, ultimately, the Court can not fix a period merely because in its
opinion it is or should be reasonable, but must set the time that the parties are shown to have
intended. As the record stands, the trial Court appears to have pulled the two-year period set in
its decision out of thin air, since no circumstances are mentioned to support it. Plainly, this is not
warranted by the Civil Code.

In this connection, it is to be borne in mind that the contract shows that the parties were fully
aware that the land described therein was occupied by squatters, because the fact is expressly
mentioned therein (Rec. on Appeal, Petitioner's Appendix B, pp. 12-13). As the parties must
have known that they could not take the law into their own hands, but must resort to legal
processes in evicting the squatters, they must have realized that the duration of the suits to be
brought would not be under their control nor could the same be determined in advance. The
conclusion is thus forced that the parties must have intended to defer the performance of the
obligations under the contract until the squatters were duly evicted, as contended by the
petitioner Gregorio Araneta, Inc.

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

It follows that there is no justification in law for the setting the date of performance at any other
time than that of the eviction of the squatters occupying the land in question; and in not so

132
holding, both the trial Court and the Court of Appeals committed reversible error. It is not denied
that the case against one of the squatters, Abundo, was still pending in the Court of Appeals
when its decision in this case was rendered.

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

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

25. PACIFICA MILLARE, petitioner,


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

FELICIANO, J.:

On 17 June 1975, a five-year Contract of Lease 1 was executed between petitioner Pacifica
Millare as lessor and private respondent Elsa Co, married to Antonio Co, as lessee. Under the
written agreement, which was scheduled to expire on 31 May 1980, the lessor-petitioner agreed
to rent out to thelessee at a monthly rate of P350.00 the "People's Restaurant", a commercial
establishment located at the corner of McKinley and Pratt Streets in Bangued, Abra.

The present dispute arose from events which transpired during the months of May and July in
1980. According to the Co spouses, sometime during the last week of May 1980, the lessor
informed them that they could continue leasing the People's Restaurant so long as they were
amenable to paying creased rentals of P1,200.00 a month. In response, a counteroffer of P700.00
a month was made by the Co spouses. At this point, the lessor allegedly stated that the amount of
monthly rentals could be resolved at a later time since "the matter is simple among us", which
alleged remark was supposedly taken by the spouses Co to mean that the Contract of Lease had
been renewed, prompting them to continue occupying the subject premises and to forego their
search for a substitute place to rent. 2 In contrast, the lessor flatly denied ever having considered,
much less offered, a renewal of the Contract of Lease.

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

133
On 30 August 1980, a Saturday, the Co spouses jumped the gun, as it were, and filed a
Complaint 5 (docketed as Civil Case No. 1434) with the then Court of First Instance of Abra
against Mrs. Millare and seeking judgment (a) ordering the renewal of the Contract of Lease at a
rental rate of P700.00 a nionth and for a period of ten years, (b) ordering the defendant to collect
the sum of P1,400.00 deposited by plaintiffs with the court, and (c) ordering the defendant to pay
damages in the amount of P50,000.00. The following Monday, on 1 September 1980, Mrs.
Millare filed an ejectment case against the Co spouses in the Municipal Court of Bangued, Abra,
docketed as Civil Case No. 661. The spouses Co, defendants therein, sut)sequently set up lis
pendens as a Civil Case No. 661. The spouses Co, defendants therein, subsequently set up lis
pendens as a defense against the complaint for ejectment.

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

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

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

Turning to the first issue, petitioner's attack on the jurisdiction of the trial court must fail, though
for reasons different from those cited by the respondent judge. 13 We would note firstly that the
conciliation procedure required under P.D. 1508 is not a jurisdictional requirement in the sense
that failure to have prior recourse to such procedure would not deprive a court of its jurisdiction
either over the subject matter or over the person of the defendant.14 Secondly, the acord shows
that two complaints were submitted to the barangay authorities for conciliation — one by
petitioner for ejectment and the other by private respondents for renewal of the Contract of
Lease. It appears further that both complaints were, in fact, heard by the Lupong Tagapayapa in
the afternoon of 30 August 1980. After attempts at conciliation had proven fruitless,

134
Certifications to File Action authorizing the parties to pursue their respective claims in court
were then issued at 5:20 p.m. of that same aftemoon, as attested to by the Barangay Captain in a
Certification presented in evidence by petitioner herself. 15

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

We turn to the second issue, that is, whether or not the complaint in Civil Case No. 1434 filed by
the respondent Co spouses claiming renewal of the contract of lease stated a valid cause of
action. Paragraph 13 of the Contract of Lease reads as follows:

13. This contract of lease is subject to the laws and regulations ofthe goverrunent; and
that this contract of lease may be renewed after a period of five (5) years under the terms
and conditions as will be mutually agreed upon by the parties at the time of renewal; ...
(Emphasis supplied.)

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

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

In the "Judgment by Default" he rendered, the respondent Judge elaborated his views —
obviously highly emotional in character — in the following extraordinary tatements:

However, it is now the negative posture of the defendant-lessor to block, reject and refuse
to renew said lease contract. It is the defendant-lessor's assertion and position that she can
at the mere click of her fingers, just throw-out the plaintiffs-lessees from the leased
premises and any time after the original term of the lease contract had already expired;
This negative position of the defendantlessor, to the mind of this Court does not conform
to the principles and correct application of the philosophy underlying the law of lease; for
indeed, the law of lease is impressed with public interest, social justice and equity; reason
for which, this Court cannot sanction lot owner's business and commercial speculations
by allowing them with "unbridled discretion" to raise rentals even to the extent of
"extraordinary gargantuan proportions, and calculated to unreasonably and unjustly
eject the helpless lessee because he cannot afford said inflated monthly rental and
thereby said lessee is placed without any alternative, except to surrender and vacate the

135
premises mediately,-" Many business establishments would be closed and the public
would directly suffer the direct consequences; Nonetheless, this is not the correct concept
or perspective the law of lease, that is, to place the lessee always at the mercy of the
lessor's "Merchant of Venice" and to agit the latter's personal whims and caprices; the
defendant-lessor's hostile attitude by imposing upon the lessee herein an "unreasonable
and extraordinary gargantuan monthly rental of P1,200.00", to the mind of this Court, is
"fly-by night unjust enrichment" at the expense of said lessees; but, no Man should
unjustly enrich himself at the expense of another; under these facts and circumstances
surrounding this case, the action therefore to renew the lease contract! is "tenable"
because it falls squarely within the coverage and command of Articles 1197 and 1670 of
the New Civil Code, to wit:

xxx xxx xxx

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

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

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

136
If the obligation does not fix a period, but from its nature and the circumstances it can be
inferred that a period was intended, the courts may fix the duration thereof.

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

In every case, the courts shall determine such period as may, under the circumstances,
have been probably contemplated by the parties. Once fixed by the courts, the period
cannot be changed by them. (Emphasis supplied.)

The first paragraph of Article 1197 is clearly inapplicable, since the Contract of Lease did in fact
fix an original period of five years, which had expired. It is also clear from paragraph 13 of the
Contract of Lease that the parties reserved to themselves the faculty of agreeing upon the period
of the renewal contract. The second paragraph of Article 1197 is equally clearly inapplicable
since the duration of the renewal period was not left to the wiu of the lessee alone, but rather to
the will of both the lessor and the lessee. Most importantly, Article 1197 applies only where a
contract of lease clearly exists. Here, the contract was not renewed at all, there was in fact no
contract at all the period of which could have been fixed.

Article 1670 of the Civil Code reads thus:

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

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

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

[P]arties cannot be coerced to enter into a contract where no agreement is had between
them as to the principal terms and conditions of the contract. Freedom to stipulate such
terms and conditions is of the essence of our contractual system, and by express provision

137
of the statute, a contract may be annulled if tainted by violence, intimidation or undue
influence (Article 1306, 1336, 1337, Civil Code of the Philippines).

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

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

SO ORDERED.

26. ERNESTO V. RONQUILLO, petitioner,


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

Gloria A. Fortun for petitioner.

Roselino Reyes Isler for respondents.

CUEVAS, J.:

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

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

138
On December 13, 1979, the lower court rendered its Decision 1 based on the compromise
agreement submitted by the parties, the pertinent portion of which reads as follows:

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

xxx xxx xxx

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

xxx xxx xxx

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

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

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

On January 22, 1980, private respondent moved for the reconsideration and/or modification of
the aforesaid Order of execution and prayed instead for the "execution of the decision in its
entirety against all defendants, jointly and severally." 5 Petitioner opposed the said motion
arguing that under the decision of the lower court being executed which has already become
final, the liability of the four (4) defendants was not expressly declared to be solidary,

139
consequently each defendant is obliged to pay only his own pro-rata or 1/4 of the amount due
and payable.

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

ORDER

Regardless of whatever the compromise agreement has intended the payment


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

WHEREFORE, let writ of execution issue as prayed for

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

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

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

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

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

140
On June 30, 1980, the said court issued a Resolution, the pertinent portion of which reads as
follows:

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

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

SO ORDERED.

Petitioner moved to reconsider the aforesaid Resolution alleging that on April 2, 1980, the lower
court had already denied the motion referred to and consequently, the legal issues being raised in
the petition were already "ripe" for determination. 8 The said motion was however denied by the
Court of Appeals in its Resolution dated August 20, 1980.

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

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

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

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

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

141
(e) not declaring as invalid and unlawful the threatened execution, as against the properties of
petitioner who had paid his pro-rata share of the adjudged obligation, of the total unpaid amount
payable by his joint co-defendants.

The foregoing assigned errors maybe synthesized into the more important issues of —

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

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

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

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

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

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

Art. 1207. The concurrence of two or more debtors in one and the same obligation
does not imply that each one of the former has a right to demand, or that each one

142
of the latter is bound to render, entire compliance with the prestation. Then is a
solidary liability only when the obligation expressly so states, or when the law or
the nature of the obligation requires solidarity.

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

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

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


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

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

The term "individually" has the same meaning as "collectively", "separately", "distinctively",
respectively or "severally". An agreement to be "individually liable" undoubtedly creates a
several obligation, 14 and a "several obligation is one by which one individual binds himself to
perform the whole obligation. 15

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

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

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


DISMISSED. Cost against petitioner.

SO ORDERED.

27. MALAYAN INSURANCE CO., INC., petitioner,


vs.
THE HON. COURT OF APPEALS (THIRD DIVISION) MARTIN C. VALLEJOS, SIO

143
CHOY, SAN LEON RICE MILL, INC. and PANGASINAN TRANSPORTATION CO.,
INC., respondents.

Freqillana Jr. for petitioner.

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

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

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

PADILLA, J.:

Review on certiorari of the judgment * of the respondent appellate court in CA-G.R. No. 47319-
R, dated 22 February 1973, which affirmed, with some modifications, the decision, ** dated 27
April 1970, rendered in Civil Case No. U-2021 of the Court of First Instance of Pangasinan.

The antecedent facts of the case are as follows:

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

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

As a result, Martin C. Vallejos filed an action for damages against Sio Choy, Malayan Insurance
Co., Inc. and the PANTRANCO before the Court of First Instance of Pangasinan, which was
docketed as Civil Case No. U-2021. He prayed therein that the defendants be ordered to pay him,
jointly and severally, the amount of P15,000.00, as reimbursement for medical and hospital
expenses; P6,000.00, for lost income; P51,000.00 as actual, moral and compensatory damages;
and P5,000.00, for attorney's fees.

Answering, PANTRANCO claimed that the jeep of Sio Choy was then operated at an excessive
speed and bumped the PANTRANCO bus which had moved to, and stopped at, the shoulder of
the highway in order to avoid the jeep; and that it had observed the diligence of a good father of

144
a family to prevent damage, especially in the selection and supervision of its employees and in
the maintenance of its motor vehicles. It prayed that it be absolved from any and all liability.

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

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

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

After trial, judgment was rendered as follows:

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


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

(a) P4,103 as actual damages;

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


for the period of three (3) years;

(c) P5,000.00 as moral damages;

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

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

145
As no satisfactory proof of cost of damage to its bus was presented by defendant
Pantranco, no award should be made in its favor. Its counter-claim for attorney's
fees is also dismissed for not being proved. 1

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

Hence, the present recourse by petitioner insurance company.

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

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

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

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

As to the first issue, it is noted that the trial court found, as affirmed by the appellate court, that
petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. are jointly and severally liable
to respondent Vallejos.

We do not agree with the aforesaid ruling. We hold instead that it is only respondents Sio Choy
and San Leon Rice Mill, Inc, (to the exclusion of the petitioner) that are solidarily liable to
respondent Vallejos for the damages awarded to Vallejos.

146
It must be observed that respondent Sio Choy is made liable to said plaintiff as owner of the ill-
fated Willys jeep, pursuant to Article 2184 of the Civil Code which provides:

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

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

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

Art. 2180. The obligation imposed by article 2176 is demandable not only for
one's own acts or omissions, but also for those of persons for whom one is
responsible.

xxx xxx xxx

Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though the
former are not engaged ill any business or industry.

xxx xxx xxx

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

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

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

In Guingon vs. Del Monte, 5 a passenger of a jeepney had just alighted therefrom, when he was
bumped by another passenger jeepney. He died as a result thereof. In the damage suit filed by the
heirs of said passenger against the driver and owner of the jeepney at fault as well as against the
insurance company which insured the latter jeepney against third party liability, the trial court,

147
affirmed by this Court, adjudged the owner and the driver of the jeepney at fault jointly and
severally liable to the heirs of the victim in the total amount of P9,572.95 as damages and
attorney's fees; while the insurance company was sentenced to pay the heirs the amount of
P5,500.00 which was to be applied as partial satisfaction of the judgment rendered against said
owner and driver of the jeepney. Thus, in said Guingon case, it was only the owner and the
driver of the jeepney at fault, not including the insurance company, who were held solidarily
liable to the heirs of the victim.

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

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

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

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

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

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

148
... Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs.
Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment of the loss, the insurer is
entitled to be subrogated pro tanto to any right of action which the insured may
have against the third person whose negligence or wrongful act caused the loss
(44 Am. Jur. 2nd 745, citing Standard Marine Ins. Co. vs. Scottish Metropolitan
Assurance Co., 283 U.S. 284, 75 L. ed. 1037).

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

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

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

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

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

xxx xxx xxx

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

149
To recapitulate then: We hold that only respondents Sio Choy and San Leon Rice Mill, Inc. are
solidarily liable to the respondent Martin C. Vallejos for the amount of P29,103.00. Vallejos may
enforce the entire obligation on only one of said solidary debtors. If Sio Choy as solidary debtor
is made to pay for the entire obligation (P29,103.00) and petitioner, as insurer of Sio Choy, is
compelled to pay P20,000.00 of said entire obligation, petitioner would be entitled, as subrogee
of Sio Choy as against San Leon Rice Mills, Inc., to be reimbursed by the latter in the amount of
P14,551.50 (which is 1/2 of P29,103.00 )

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

SO ORDERED.

28. PHILIPPINE NATIONAL BANK, plaintiff-appellant,


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

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

Laurel Law Office for Dimayuga.

Tomas Yumol for Fajardo, defendant-appellee.

PLANA, J.:

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

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


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

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

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

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

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

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

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

A cursory perusal of Section 6, Rule 86 of the Revised Rules of


Court reveals that nothing therein prevents a creditor from
proceeding against the surviving solidary debtors. Said provision
merely sets up the procedure in enforcing collection in case a

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creditor chooses to pursue his claim against the estate of the
deceased solidary, debtor.

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

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


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

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

SO ORDERED.

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


vs.
PEOPLE OF THE PHILIPPINES, Respondent.

RESOLUTION

BRION, J.:

We resolve the motion for reconsideration filed by the petitioners, Philtranco Service
Enterprises, Inc. (Philtranco) and Rolito Calang, to challenge our Resolution of February 17,
2010. Our assailed Resolution denied the petition for review on certiorari for failure to show any

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reversible error sufficient to warrant the exercise of this Court’s discretionary appellate
jurisdiction.

Antecedent Facts

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

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

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

The CA added that the RTC correctly held Philtranco jointly and severally liable with petitioner
Calang, for failing to prove that it had exercised the diligence of a good father of the family to
prevent the accident.

The petitioners filed with this Court a petition for review on certiorari. In our Resolution dated
February 17, 2010, we denied the petition for failure to sufficiently show any reversible error in
the assailed decision to warrant the exercise of this Court’s discretionary appellate jurisdiction.

The Motion for Reconsideration

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

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

We partly grant the motion.

Liability of Calang

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

Liability of Philtranco

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

If at all, Philtranco’s liability may only be subsidiary. Article 102 of the Revised Penal Code
states the subsidiary civil liabilities of innkeepers, tavernkeepers and proprietors of
establishments, as follows:

In default of the persons criminally liable, innkeepers, tavernkeepers, and any other persons or
corporations shall be civilly liable for crimes committed in their establishments, in all cases
where a violation of municipal ordinances or some general or special police regulations shall
have been committed by them or their employees.1avvphil

Innkeepers are also subsidiary liable for the restitution of goods taken by robbery or theft within
their houses from guests lodging therein, or for the payment of the value thereof, provided that

154
such guests shall have notified in advance the innkeeper himself, or the person representing him,
of the deposit of such goods within the inn; and shall furthermore have followed the directions
which such innkeeper or his representative may have given them with respect to the care of and
vigilance over such goods. No liability shall attach in case of robbery with violence against or
intimidation of persons unless committed by the innkeeper’s employees.

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

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

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

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

SO ORDERED.

30. RUKS KONSULT AND CONSTRUCTION, Petitioner,


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

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated November 16, 2011 and
the Resolution3dated December 10, 2012 of the Court of Appeals (CA) in CA-G.R. CV No.
94693 which affirmed the Decision4dated August 25, 2009 of the Regional Trial Court of Makati
City, Branch 142 (RTC) in Civil Case No. 03-1452 holding, inter alia, petitioner Ruks Konsult

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and Construction (Ruks) and respondent Transworld Media Ads, Inc. (Transworld) jointly and
severally liable to respondent Adworld Sign and Advertising Corporation (Adworld) for
damages.

The Facts

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

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

For its part, Comark denied liability for the damages caused to Adworld’s billboard structure,
maintaining that it does not have any interest on Transworld’s collapsed billboard structure as it
only contracted the use of the same. In this relation, Comark prayed for exemplary damages from
Transworld for unreasonably includingit as a party-defendant in the complaint.8

Lastly, Ruks admitted that it entered into a contract with Transworld for the construction of the
latter’s billboard structure, but denied liability for the damages caused by its collapse. It
contended that when Transworld hired its services, there was already an existing foundation for
the billboard and that it merely finished the structure according to the terms and conditions of its
contract with the latter.9

The RTC Ruling

In a Decision10 dated August 25, 2009, the RTC ultimately ruled in Adworld’s favor, and
accordingly, declared, inter alia, Transworld and Ruks jointly and severally liable to Adworld in
the amount of ₱474,204.00 as actual damages, with legal interest from the date of the filing of
the complaint until full payment thereof, plus attorney’s fees in the amount of ₱50,000.00.11 The

156
RTC found both Transworld and Ruks negligent in the construction of the collapsed billboard as
they knew that the foundation supporting the same was weak and would pose danger to the
safety of the motorists and the other adjacent properties, such as Adworld’s billboard, and yet,
they did not do anything to remedy the situation.12 In particular, the RTC explained that
Transworld was made aware by Ruks that the initial construction of the lower structure of its
billboard did not have the proper foundation and would require additional columns and pedestals
to support the structure. Notwithstanding, however, Ruks proceeded with the construction of the
billboard’s upper structure and merely assumed that Transworld would reinforce its lower
structure.13 The RTC then concluded that these negligent acts were the direct and proximate
cause of the damages suffered by Adworld’s billboard.14

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

The CA Ruling

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

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


Resolution22 dated December 10, 2012,hence, this petition.

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

The Issue Before the Court

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

The Court’s Ruling

The petition is without merit.

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

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

Jurisprudence defines negligence as the omission to do something which a reasonable man,


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

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

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

158
There is no contribution between joint [tortfeasors] whose liability is solidary since both of them
are liable for the total damage.1âwphi1 Where the concurrent or successive negligent acts or
omissions of two or more persons, although acting independently, are in combination the direct
and proximate cause of a single injury to a third person, it is impossible to determine in what
proportion each contributed to the injury and either of them is responsible for the whole injury. x
x x. (Emphases and underscoring supplied)

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

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

159