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G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR
ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF
COMMERCIAL AND SAVINGS BANK, in his capacity as statutory
receiver of Island Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M.
TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for
petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void
the decision of the Court of Appeals, in C.A.-G.R. No. 52253-R dated
February 11, 1977, modifying the decision dated February 15, 1972
of the Court of First Instance of Agusan, which dismissed the petition
of respondent Sulpicio M. Tolentino for injunction, specific
performance or rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable
recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a security
for the loan, executed on the same day a real estate mortgage over
his 100-hectare land located in Cubo, Las Nieves, Agusan, and
covered by TCT No. T-305, and which mortgage was annotated on
the said title the next day. The approved loan application called for a
lump sum P80,000.00 loan, repayable in semi-annual installments for
a period of 3 years, with 12% annual interest. It was required that
Sulpicio M. Tolentino shall use the loan proceeds solely as an
additional capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the
P80,000.00 loan was made by the Bank; and Sulpicio M. Tolentino
and his wife Edita Tolentino signed a promissory note for P17,000.00
at 12% annual interest, payable within 3 years from the date of
execution of the contract at semi-annual installments of P3,459.00 (p.
64, rec.). An advance interest for the P80,000.00 loan covering a 6-
month period amounting to P4,800.00 was deducted from the partial
release of P17,000.00. But this pre-deducted interest was refunded
to Sulpicio M. Tolentino on July 23, 1965, after being informed by the
Bank that there was no fund yet available for the release of the
P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president
and treasurer, promised repeatedly the release of the P63,000.00
balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after
finding Island Savings Bank was suffering liquidity problems, issued
Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the
Island Savings Bank against its deposit liabilities,
the Board, by unanimous vote, decided as
follows:
1) To prohibit the bank from making new loans
and investments [except investments in
government securities] excluding extensions or
renewals of already approved loans, provided
that such extensions or renewals shall be subject
to review by the Superintendent of Banks, who
may impose such limitations as may be
necessary to insure correction of the bank's
deficiency as soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland
Savings Bank failed to put up the required capital to restore its
solvency, issued Resolution No. 967 which prohibited Island Savings
Bank from doing business in the Philippines and instructed the Acting
Superintendent of Banks to take charge of the assets of Island
Savings Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of
the P17,000.00 covered by the promissory note, filed an application
for the extra-judicial foreclosure of the real estate mortgage covering
the 100-hectare land of Sulpicio M. Tolentino; and the sheriff
scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the
Court of First Instance of Agusan for injunction, specific performance
or rescission and damages with preliminary injunction, alleging that
since Island Savings Bank failed to deliver the P63,000.00 balance
of the P80,000.00 loan, he is entitled to specific performance by
ordering Island Savings Bank to deliver the P63,000.00 with interest
of 12% per annum from April 28, 1965, and if said balance cannot be
delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00
surety bond, issued a temporary restraining order enjoining the Island
Savings Bank from continuing with the foreclosure of the mortgage
(pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in
intervention praying for the dismissal of the petition of Sulpicio M.
Tolentino and the setting aside of the restraining order, filed by the
Central Bank and by the Acting Superintendent of Banks (pp. 65-76,
rec.).
On February 15, 1972, the trial court, after trial on the merits rendered
its decision, finding unmeritorious the petition of Sulpicio M.
Tolentino, ordering him to pay Island Savings Bank the amount of PI
7 000.00 plus legal interest and legal charges due thereon, and lifting
the restraining order so that the sheriff may proceed with the
foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio
M. Tolentino, modified the Court of First Instance decision by
affirming the dismissal of Sulpicio M. Tolentino's petition for specific
performance, but it ruled that Island Savings Bank can neither
foreclose the real estate mortgage nor collect the P17,000.00 loan
pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for
specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the
P17,000.00 debt covered by the promissory
note?
3. If Sulpicio M. Tolentino's liability to pay the
P17,000.00 subsists, can his real estate
mortgage be foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an
P80,000.00 loan agreement on April 28, 1965, they undertook
reciprocal obligations. In reciprocal obligations, the obligation or
promise of each party is the consideration for that of the other
(Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca
29 SCRA 1 [1969]); and when one party has performed or is ready
and willing to perform his part of the contract, the other party who has
not performed or is not ready and willing to perform incurs in delay
(Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to
pay was the consideration for the obligation of Island Savings Bank
to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed
a real estate mortgage on April 28, 1965, he signified his willingness
to pay the P80,000.00 loan. From such date, the obligation of Island
Savings Bank to furnish the P80,000.00 loan accrued. Thus, the
Bank's delay in furnishing the entire loan started on April 28, 1965,
and lasted for a period of 3 years or when the Monetary Board of the
Central Bank issued Resolution No. 967 on June 14, 1968, which
prohibited Island Savings Bank from doing further business. Such
prohibition made it legally impossible for Island Savings Bank to
furnish the P63,000.00 balance of the P80,000.00 loan. The power
of the Monetary Board to take over insolvent banks for the protection
of the public is recognized by Section 29 of R.A. No. 265, which took
effect on June 15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot
interrupt the default of Island Savings Bank in complying with its
obligation of releasing the P63,000.00 balance because said
resolution merely prohibited the Bank from making new loans and
investments, and nowhere did it prohibit island Savings Bank from

releasing the balance of loan agreements previously contracted.
Besides, the mere pecuniary inability to fulfill an engagement does
not discharge the obligation of the contract, nor does it constitute any
defense to a decree of specific performance (Gutierrez Repide vs.
Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of
insolvency of a debtor is never an excuse for the non-fulfillment of an
obligation but 'instead it is taken as a breach of the contract by him
(vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the
refund of the pre-deducted interest amounting to P4,800.00 for the
supposed P80,000.00 loan covering a 6-month period cannot be
taken as a waiver of his right to collect the P63,000.00 balance. The
act of Island Savings Bank, in asking the advance interest for 6
months on the supposed P80,000.00 loan, was improper considering
that only P17,000.00 out of the P80,000.00 loan was released. A
person cannot be legally charged interest for a non-existing debt.
Thus, the receipt by Sulpicio M. 'Tolentino of the pre-deducted
interest was an exercise of his right to it, which right exist
independently of his right to demand the completion of the
P80,000.00 loan. The exercise of one right does not affect, much less
neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation
of the loan collateral cannot exempt it from complying with its
reciprocal obligation to furnish the entire P80,000.00 loan. 'This Court
previously ruled that bank officials and employees are expected to
exercise caution and prudence in the discharge of their functions
(Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is
the obligation of the bank's officials and employees that before they
approve the loan application of their customers, they must investigate
the existence and evaluation of the properties being offered as a loan
security. The recent rush of events where collaterals for bank loans
turn out to be non-existent or grossly over-valued underscore the
importance of this responsibility. The mere reliance by bank officials
and employees on their customer's representation regarding the loan
collateral being offered as loan security is a patent non-performance
of this responsibility. If ever bank officials and employees totally reIy
on the representation of their customers as to the valuation of the
loan collateral, the bank shall bear the risk in case the collateral turn
out to be over-valued. The representation made by the customer is
immaterial to the bank's responsibility to conduct its own
investigation. Furthermore, the lower court, on objections of' Sulpicio
M. Tolentino, had enjoined petitioners from presenting proof on the
alleged over-valuation because of their failure to raise the same in
their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's
action is sanctioned by the Rules of Court, Section 2, Rule 9, which
states that "defenses and objections not pleaded either in a motion
to dismiss or in the answer are deemed waived." Petitioners, thus,
cannot raise the same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal
obligation under their loan agreement, Sulpicio M. Tolentino, under
Article 1191 of the Civil Code, may choose between specific
performance or rescission with damages in either case. But since
Island Savings Bank is now prohibited from doing further business by
Monetary Board Resolution No. 967, WE cannot grant specific
performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that
rescission is only for the P63,000.00 balance of the P80,000.00 loan,
because the bank is in default only insofar as such amount is
concerned, as there is no doubt that the bank failed to give the
P63,000.00. As far as the partial release of P17,000.00, which
Sulpicio M. Tolentino accepted and executed a promissory note to
cover it, the bank was deemed to have complied with its reciprocal
obligation to furnish a P17,000.00 loan. The promissory note gave
rise to Sulpicio M. Tolentino's reciprocal obligation to pay the
P17,000.00 loan when it falls due. His failure to pay the overdue
amortizations under the promissory note made him a party in default,
hence not entitled to rescission (Article 1191 of the Civil Code). If
there is a right to rescind the promissory note, it shall belong to the
aggrieved party, that is, Island Savings Bank. If Tolentino had not
signed a promissory note setting the date for payment of P17,000.00
within 3 years, he would be entitled to ask for rescission of the entire
loan because he cannot possibly be in default as there was no date
for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their
respective reciprocal obligations, that is, Island Savings Bank failed
to comply with its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his P17,000.00
debt within 3 years as stipulated, they are both liable for damages.
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Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the
first infractor shall be equitably tempered by the courts. WE rule that
the liability of Island Savings Bank for damages in not furnishing the
entire loan is offset by the liability of Sulpicio M. Tolentino for
damages, in the form of penalties and surcharges, for not paying his
overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for
interest on his PI 7,000.00 debt shall not be included in offsetting the
liabilities of both parties. Since Sulpicio M. Tolentino derived some
benefit for his use of the P17,000.00, it is just that he should account
for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M.
Tolentino cannot be entirely foreclosed to satisfy his P 17,000.00
debt.
The consideration of the accessory contract of real estate mortgage
is the same as that of the principal contract (Banco de Oro vs.
Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of
his obligation to pay is the existence of a debt. Thus, in the accessory
contract of real estate mortgage, the consideration of the debtor in
furnishing the mortgage is the existence of a valid, voidable, or
unenforceable debt (Art. 2086, in relation to Art, 2052, of the Civil
Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate
mortgage, no consideration was then in existence, as there was no
debt yet because Island Savings Bank had not made any release on
the loan, does not make the real estate mortgage void for lack of
consideration. It is not necessary that any consideration should pass
at the time of the execution of the contract of real mortgage (Bonnevie
vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or
subsequent matter. But when the consideration is subsequent to the
mortgage, the mortgage can take effect only when the debt secured
by it is created as a binding contract to pay (Parks vs, Sherman, Vol.
176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp.
5-6). And, when there is partial failure of consideration, the mortgage
becomes unenforceable to the extent of such failure (Dow. et al. vs.
Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138).
Where the indebtedness actually owing to the holder of the mortgage
is less than the sum named in the mortgage, the mortgage cannot be
enforced for more than the actual sum due (Metropolitan Life Ins. Co.
vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on
Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance
of the P8O,000.00 loan, the real estate mortgage of Sulpicio M.
Tolentino became unenforceable to such extent. P63,000.00 is
78.75% of P80,000.00, hence the real estate mortgage covering 100
hectares is unenforceable to the extent of 78.75 hectares. The
mortgage covering the remainder of 21.25 hectares subsists as a
security for the P17,000.00 debt. 21.25 hectares is more than
sufficient to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by
Article 2089 of the Civil Code is inapplicable to the facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though
the debt may be divided among the successors in
interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part
of the debt can not ask for the proportionate
extinguishment of the pledge or mortgage as long
as the debt is not completely satisfied.
Neither can the creditor's heir who have received
his share of the debt return the pledge or cancel
the mortgage, to the prejudice of other heirs who
have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089
above-quoted presupposes several heirs of the debtor or creditor
which does not obtain in this case. Hence, the rule of indivisibility of
a mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS
DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND
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1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN

FAVOR OF HEREIN PETITIONERS THE SUM OF P17.000.00,
PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM
COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22,
1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED
FROM AUGUST 22, 1985 UNTIL PAID;

2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL

ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE
FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND

3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES

IS HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY
ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.

NO COSTS. SO ORDERED.

Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.

Aquino (Chairman) and Abad Santos, JJ., took no part.


G.R. No. L-4811 July 31, 1953
CHARLES F. WOODHOUSE, plaintiff-appellant,
vs.
FORTUNATO F. HALILI, defendant-appellant.
Tañada, Pelaez & Teehankee for defendant and appellant.
Gibbs, Gibbs, Chuidian & Quasha for plaintiff and appellant.
LABRADOR, J.:
On November 29, 1947, the plaintiff entered on a written agreement,
Exhibit A, with the defendant, the most important provisions of which
are (1) that they shall organize a partnership for the bottling and
distribution of Mision soft drinks, plaintiff to act as industrial partner
or manager, and the defendant as a capitalist, furnishing the capital
necessary therefor; (2) that the defendant was to decide matters of
general policy regarding the business, while the plaintiff was to attend
to the operation and development of the bottling plant; (3) that the
plaintiff was to secure the Mission Soft Drinks franchise for and in
behalf of the proposed partnership; and (4) that the plaintiff was to
receive 30 per cent of the net profits of the business. The above
agreement was arrived at after various conferences and
consultations by and between them, with the assistance of their
respective attorneys. Prior to entering into this agreement, plaintiff
had informed the Mission Dry Corporation of Los Angeles, California,
U.S.A., manufacturers of the bases and ingridients of the beverages
bearing its name, that he had interested a prominent financier
(defendant herein) in the business, who was willing to invest half a
million dollars in the bottling and distribution of the said beverages,
and requested, in order that he may close the deal with him, that the
right to bottle and distribute be granted him for a limited time under
the condition that it will finally be transferred to the corporation
(Exhibit H). Pursuant for this request, plaintiff was given "a thirty-
days" option on exclusive bottling and distribution rights for the
Philippines" (Exhibit J). Formal negotiations between plaintiff and
defendant began at a meeting on November 27, 1947, at the Manila
Hotel, with their lawyers attending. Before this meeting plaintiff's
lawyer had prepared the draft of the agreement, Exhibit II or OO, but
this was not satisfactory because a partnership, instead of a
corporation, was desired. Defendant's lawyer prepared after the
meeting his own draft, Exhibit HH. This last draft appears to be the
main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947.
Plaintiff did not like to go to the United States without the agreement
being not first signed. On that day plaintiff and defendant went to the
United States, and on December 10, 1947, a franchise agreement
(Exhibit V) was entered into the Mission Dry Corporation and
Fortunato F. Halili and/or Charles F. Woodhouse, granted defendant
the exclusive right, license, and authority to produce, bottle,
distribute, and sell Mision beverages in the Philippines. The plaintiff
and the defendant thereafter returned to the Philippines. Plaintiff
reported for duty in January, 1948, but operations were not begun
until the first week of February, 1948. In January plaintiff was given
as advance, on account of profits, the sum of P2,000, besides the
use of a car; in February, 1948, also P2,000, and in March only
P1,000. The car was withdrawn from plaintiff on March 9, 1948.
When the bottling plant was already on operation, plaintiff demanded
of defendant that the partnership papers be executed. At first
defendant executed himself, saying there was no hurry. Then he
promised to do so after the sales of the product had been increased
to P50,000. As nothing definite was forthcoming, after this condition
was attained, and as defendant refused to give further allowances to
plaintiff, the latter caused his attorneys to take up the matter with the
defendant with a view to a possible settlement. as none could be
arrived at, the present action was instituted.
In his complaint plaintiff asks for the execution of the contract of
partnership, an accounting of the profits, and a share thereof of 30
per cent, as well as damages in the amount of P200,000. In his
answer defendant alleges by way of defense (1) that defendant's
consent to the agreement, Exhibit A, was secured by the
representation of plaintiff that he was the owner, or was about to
become owner of an exclusive bottling franchise, which
representation was false, and plaintiff did not secure the franchise,
but was given to defendant himself; (2) that defendant did not fail to
carry out his undertakings, but that it was plaintiff who failed; (3) that
plaintiff agreed to contribute the exclusive franchise to the
partnership, but plaintiff failed to do so. He also presented a counter-
claim for P200,000 as damages. On these issues the parties went to
trial, and thereafter the Court of First Instance rendered judgment
ordering defendant to render an accounting of the profits of the
bottling and distribution business, subject of the action, and to pay
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plaintiff 15 percent thereof. it held that the execution of the contract
of partnership could not be enforced upon the parties, but it also held
that the defense of fraud was not proved. Against this judgment both
parties have appealed.
The most important question of fact to be determined is whether
defendant had falsely represented that he had an exclusive franchise
to bottle Mission beverages, and whether this false representation or
fraud, if it existed, annuls the agreement to form the partnership. The
trial court found that it is improbable that defendant was never shown
the letter, Exhibit J, granting plaintiff had; that the drafts of the
contract prior to the final one can not be considered for the purpose
of determining the issue, as they are presumed to have been already
integrated into the final agreement; that fraud is never presumed and
must be proved; that the parties were represented by attorneys, and
that if any party thereto got the worse part of the bargain, this fact
alone would not invalidate the agreement. On this appeal the
defendant, as appellant, insists that plaintiff did represent to the
defendant that he had an exclusive franchise, when as a matter of
fact, at the time of its execution, he no longer had it as the same had
expired, and that, therefore, the consent of the defendant to the
contract was vitiated by fraud and it is, consequently, null and void.
Our study of the record and a consideration of all the surrounding
circumstances lead us to believe that defendant's contention is not
without merit. Plaintiff's attorney, Mr. Laurea, testified that
Woodhouse presented himself as being the exclusive grantee of a
franchise, thus:
A. I don't recall any discussion about that matter. I took
along with me the file of the office with regards to this
matter. I notice from the first draft of the document which I
prepared which calls for the organization of a corporation,
that the manager, that is, Mr. Woodhouse, is represented
as being the exclusive grantee of a franchise from the
Mission Dry Corporation. . . . (t.s.n., p.518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was
made before the Manila Hotel conference on November 27th,
expressly states that plaintiff had the exclusive franchise. Thus, the
first paragraph states:
Whereas, the manager is the exclusive grantee of a
franchise from the Mission Dry Corporation San Francisco,
California, for the bottling of Mission products and their sale
to the public throughout the Philippines; . . . .
3. The manager, upon the organization of the said
corporation, shall forthwith transfer to the said corporation
his exclusive right to bottle Mission products and to sell
them throughout the Philippines. . . . .
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration
of jural acts. We find that the principle invoked is inapplicable, since
the purpose of considering the prior draft is not to vary, alter, or
modify the agreement, but to discover the intent of the parties thereto
and the circumstances surrounding the execution of the contract. The
issue of fact is: Did plaintiff represent to defendant that he had an
exclusive franchise? Certainly, his acts or statements prior to the
agreement are essential and relevant to the determination of said
issue. The act or statement of the plaintiff was not sought to be
introduced to change or alter the terms of the agreement, but to prove
how he induced the defendant to enter into it — to prove the
representations or inducements, or fraud, with which or by which he
secured the other party's consent thereto. These are expressly
excluded from the parol evidence rule. (Bough and Bough vs.
Cantiveros and Hanopol, 40 Phil., 209; port Banga Lumber Co. vs.
Export & Import Lumber Co., 26 Phil., 602; III Moran 221,1952 rev.
ed.) Fraud and false representation are an incident to the creation of
a jural act, not to its integration, and are not governed by the rules on
integration. Were parties prohibited from proving said
representations or inducements, on the ground that the agreement
had already been entered into, it would be impossible to prove
misrepresentation or fraud. Furthermore, the parol evidence rule
expressly allows the evidence to be introduced when the validity of
an instrument is put in issue by the pleadings (section 22, par. (a),
Rule 123, Rules of Court),as in this case.
That plaintiff did make the representation can also be easily gleaned
from his own letters and his own testimony. In his letter to Mission
Dry Corporation, Exhibit H, he said:.

. . . He told me to come back to him when I was able to
speak with authority so that we could come to terms as far
as he and I were concerned. That is the reason why the
cable was sent. Without this authority, I am in a poor
bargaining position. . .
I would propose that you grant me the exclusive bottling and
distributing rights for a limited period of time, during which I
may consummate my plants. . . .
By virtue of this letter the option on exclusive bottling was given to
the plaintiff on October 14, 1947. (See Exhibit J.) If this option for an
exclusive franchise was intended by plaintiff as an instrument with
which to bargain with defendant and close the deal with him, he must
have used his said option for the above-indicated purpose, especially
as it appears that he was able to secure, through its use, what he
wanted.
Plaintiff's own version of the preliminary conversation he had with
defendant is to the effect that when plaintiff called on the latter, the
latter answered, "Well, come back to me when you have the authority
to operate. I am definitely interested in the bottling business." (t. s. n.,
pp. 60-61.) When after the elections of 1949 plaintiff went to see the
defendant (and at that time he had already the option), he must have
exultantly told defendant that he had the authority already. It is
improbable and incredible for him to have disclosed the fact that he
had only an option to the exclusive franchise, which was to last thirty
days only, and still more improbable for him to have disclosed that,
at the time of the signing of the formal agreement, his option had
already expired. Had he done so, he would have destroyed all his
bargaining power and authority, and in all probability lost the deal
itself.
The trial court reasoned, and the plaintiff on this appeal argues, that
plaintiff only undertook in the agreement "to secure the Mission Dry
franchise for and in behalf of the proposed partnership." The
existence of this provision in the final agreement does not militate
against plaintiff having represented that he had the exclusive
franchise; it rather strengthens belief that he did actually make the
representation. How could plaintiff assure defendant that he would
get the franchise for the latter if he had not actually obtained it for
himself? Defendant would not have gone into the business unless the
franchise was raised in his name, or at least in the name of the
partnership. Plaintiff assured defendant he could get the franchise.
Thus, in the draft prepared by defendant's attorney, Exhibit HH, the
above provision is inserted, with the difference that instead of
securing the franchise for the defendant, plaintiff was to secure it for
the partnership. To show that the insertion of the above provision
does not eliminate the probability of plaintiff representing himself as
the exclusive grantee of the franchise, the final agreement contains
in its third paragraph the following:
. . . and the manager is ready and willing to allow the
capitalists to use the exclusive franchise . . .
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the
partnership, . . . the franchise from Mission Dry Corporation
shall be reassigned to the manager.
These statements confirm the conclusion that defendant believed, or
was made to believe, that plaintiff was the grantee of an exclusive
franchise. Thus it is that it was also agreed upon that the franchise
was to be transferred to the name of the partnership, and that, upon
its dissolution or termination, the same shall be reassigned to the
plaintiff.
Again, the immediate reaction of defendant, when in California he
learned that plaintiff did not have the exclusive franchise, was to
reduce, as he himself testified, plaintiff's participation in the net profits
to one half of that agreed upon. He could not have had such a feeling
had not plaintiff actually made him believe that he (plaintiff) was the
exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of
counsel in the making of the contract made fraud improbable. Not
necessarily, because the alleged representation took place before
the conferences were had, in other words, plaintiff had already
represented to defendant, and the latter had already believed in, the
existence of plaintiff's exclusive franchise before the formal
negotiations, and they were assisted by their lawyers only when said
formal negotiations actually took place. Furthermore, plaintiff's
OBLICON 1/16/2018 ACJUCO5
attorney testified that plaintiff had said that he had the exclusive
franchise; and defendant's lawyer testified that plaintiff explained to
him, upon being asked for the franchise, that he had left the papers
evidencing it.(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did actually represent
to defendant that he was the holder of the exclusive franchise. The
defendant was made to believe, and he actually believed, that plaintiff
had the exclusive franchise. Defendant would not perhaps have gone
to California and incurred expenses for the trip, unless he believed
that plaintiff did have that exclusive privilege, and that the latter would
be able to get the same from the Mission Dry Corporation itself.
Plaintiff knew what defendant believed about his (plaintiff's) exclusive
franchise, as he induced him to that belief, and he may not be allowed
to deny that defendant was induced by that belief. (IX Wigmore, sec.
2423; Sec. 65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false representation. Does it
amount to a fraud that would vitiate the contract? It must be noted
that fraud is manifested in illimitable number of degrees or
gradations, from the innocent praises of a salesman about the
excellence of his wares to those malicious machinations and
representations that the law punishes as a crime. In consequence,
article 1270 of the Spanish Civil Code distinguishes two kinds of (civil)
fraud, the causal fraud, which may be a ground for the annulment of
a contract, and the incidental deceit, which only renders the party who
employs it liable for damages. This Court had held that in order that
fraud may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo causante), inducement to the making of
the contract. (Article 1270, Spanish Civil Code; Hill vs. Veloso, 31
Phil. 160.) The record abounds with circumstances indicative that the
fact that the principal consideration, the main cause that induced
defendant to enter into the partnership agreement with plaintiff, was
the ability of plaintiff to get the exclusive franchise to bottle and
distribute for the defendant or for the partnership. The original draft
prepared by defendant's counsel was to the effect that plaintiff
obligated himself to secure a franchise for the defendant. Correction
appears in this same original draft, but the change is made not as to
the said obligation but as to the grantee. In the corrected draft the
word "capitalist"(grantee) is changed to "partnership." The contract in
its final form retains the substituted term "partnership." The defendant
was, therefore, led to the belief that plaintiff had the exclusive
franchise, but that the same was to be secured for or transferred to
the partnership. The plaintiff no longer had the exclusive franchise,
or the option thereto, at the time the contract was perfected. But while
he had already lost his option thereto (when the contract was entered
into), the principal obligation that he assumed or undertook was to
secure said franchise for the partnership, as the bottler and distributor
for the Mission Dry Corporation. We declare, therefore, that if he was
guilty of a false representation, this was not the causal consideration,
or the principal inducement, that led plaintiff to enter into the
partnership agreement.
But, on the other hand, this supposed ownership of an exclusive
franchise was actually the consideration or price plaintiff gave in
exchange for the share of 30 percent granted him in the net profits of
the partnership business. Defendant agreed to give plaintiff 30 per
cent share in the net profits because he was transferring his exclusive
franchise to the partnership. Thus, in the draft prepared by plaintiff's
lawyer, Exhibit II, the following provision exists:
3. That the MANAGER, upon the organization of the said
corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission products
and to sell them throughout the Philippines. As a
consideration for such transfer, the CAPITALIST shall
transfer to the Manager fully paid non assessable shares
of the said corporation . . . twenty-five per centum of the
capital stock of the said corporation. (Par. 3, Exhibit II;
emphasis ours.)
Plaintiff had never been a bottler or a chemist; he never had
experience in the production or distribution of beverages. As a matter
of fact, when the bottling plant being built, all that he suggested was
about the toilet facilities for the laborers.
We conclude from the above that while the representation that
plaintiff had the exclusive franchise did not vitiate defendant's
consent to the contract, it was used by plaintiff to get from defendant
a share of 30 per cent of the net profits; in other words, by pretending
that he had the exclusive franchise and promising to transfer it to
defendant, he obtained the consent of the latter to give him (plaintiff)
a big slice in the net profits. This is the dolo incidente defined in article
1270 of the Spanish Civil Code, because it was used to get the other
 OBLICON 1/16/2018 ACJUCO6

party's consent to a big share in the profits, an incidental matter in
the agreement.
El dolo incidental no es el que puede producirse en el
cumplimiento del contrato sino que significa aqui, el que
concurriendoen el consentimiento, o precediendolo, no
influyo para arrancar porsi solo el consentimiento ni en la
totalidad de la obligacion, sinoen algun extremo o
accidente de esta, dando lugar tan solo a una accion para
reclamar indemnizacion de perjuicios. (8 Manresa 602.)
Having arrived at the conclusion that the agreement may not be
declared null and void, the question that next comes before us is,
May the agreement be carried out or executed? We find no merit in
the claim of plaintiff that the partnership was already a fait
accompli from the time of the operation of the plant, as it is evident
from the very language of the agreement that the parties intended
that the execution of the agreement to form a partnership was to be
carried out at a later date. They expressly agreed that they shall form
a partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the
time that the franchise from the Mission Dry Corporation was
obtained in California, plaintiff himself had been demanding that
defendant comply with the agreement. And plaintiff's present action
seeks the enforcement of this agreement. Plaintiff's claim, therefore,
is both inconsistent with their intention and incompatible with his own
conduct and suit.
As the trial court correctly concluded, the defendant may not be
compelled against his will to carry out the agreement nor execute the
partnership papers. Under the Spanish Civil Code, the defendant has
an obligation to do, not to give. The law recognizes the individual's
freedom or liberty to do an act he has promised to do, or not to do it,
as he pleases. It falls within what Spanish commentators call a very
personal act (acto personalismo), of which courts may not compel
compliance, as it is considered an act of violence to do so.
Efectos de las obligaciones consistentes en hechos
personalismo.—Tratamos de la ejecucion de las
obligaciones de hacer en el solocaso de su incumplimiento
por parte del deudor, ya sean los hechos personalisimos,
ya se hallen en la facultad de un tercero; porque el
complimiento espontaneo de las mismas esta regido por
los preceptos relativos al pago, y en nada les afectan las
disposiciones del art. 1.098.
particular, como sucedeen las contractuales, y cuando, por
consecuencia, paraceria salirseel Estado de su esfera
propia, entrado a dirimir, con apoyo dela fuerza colectiva,
las diferencias producidas entre los ciudadanos. (19
Scaevola 428, 431-432.)
The last question for us to decide is that of damages,damages that
plaintiff is entitled to receive because of defendant's refusal to form
the partnership, and damages that defendant is also entitled to collect
because of the falsity of plaintiff's representation. (Article 1101,
Spanish Civil Code.) Under article 1106 of the Spanish Civil Code the
measure of damages is the actual loss suffered and the profits
reasonably expected to be received, embraced in the terms daño
emergente and lucro cesante. Plaintiff is entitled under the terms of
the agreement to 30 per cent of the net profits of the business.
Against this amount of damages, we must set off the damage
defendant suffered by plaintiff's misrepresentation that he had
obtained a very high percentage of share in the profits. We can do no
better than follow the appraisal that the parties themselves had
adopted.
When defendant learned in Los Angeles that plaintiff did not have the
exclusive franchise which he pretended he had and which he had
agreed to transfer to the partnership, his spontaneous reaction was
to reduce plaintiff's share form 30 per cent to 15 per cent only, to
which reduction defendant appears to have readily given his assent.
It was under this understanding, which amounts to a virtual
modification of the contract, that the bottling plant was established
and plaintiff worked as Manager for the first three months. If the
contract may not be considered modified as to plaintiff's share in the
profits, by the decision of defendant to reduce the same to one-half
and the assent thereto of plaintiff, then we may consider the said
amount as a fair estimate of the damages plaintiff is entitled to under
the principle enunciated in the case of Varadero de Manila vs. Insular
Lumber Co., 46 Phil. 176. Defendant's decision to reduce plaintiff's
share and plaintiff's consent thereto amount to an admission on the
part of each of the reasonableness of this amount as plaintiff's share.
This same amount was fixed by the trial court. The agreement
contains the stipulation that upon the termination of the partnership,
defendant was to convey the franchise back to plaintiff (Par. 11,
Exhibit A). The judgment of the trial court does not fix the period within
which these damages shall be paid to plaintiff. In view of paragraph
11 of Exhibit A, we declare that plaintiff's share of 15 per cent of the
net profits shall continue to be paid while defendant uses the
franchise from the Mission Dry Corporation.

Esto supuesto, la primera dificultad del asunto consiste en With the modification above indicated, the judgment appealed from
resolver si el deudor puede ser precisado a realizar el is hereby affirmed. Without costs. Paras, C.J., Pablo, Bengzon,
hecho y porque medios. Tuason, Montemayor, Reyes, Jugo and Bautista Angelo, JJ., concur.

Se tiene por corriente entre los autores, y se traslada

generalmente sin observacion el principio romano nemo
potest precise cogi ad factum. Nadie puede ser obligado
violentamente a haceruna cosa. Los que perciben la
posibilidad de la destruccion deeste principio, añaden que,
aun cuando se pudiera obligar al deudor, no deberia
hacerse, porque esto constituiria una violencia, y noes la
violenciamodo propio de cumplir las obligaciones (Bigot,
Rolland, etc.). El maestro Antonio Gomez opinaba lo
mismo cuandodecia que obligar por la violencia seria
infrigir la libertad eimponer una especie de esclavitud.

xxx xxx xxx

En efecto; las obligaciones contractuales no se acomodan

biencon el empleo de la fuerza fisica, no ya precisamente
porque seconstituya de este modo una especie de
esclavitud, segun el dichode Antonio Gomez, sino porque
se supone que el acreedor tuvo encuenta el caracter
personalisimo del hecho ofrecido, y calculo sobre
laposibilidad de que por alguna razon no se realizase.
Repugna,ademas, a la conciencia social el empleo de la
fuerza publica, mediante coaccion sobre las personas, en
las relaciones puramente particulares; porque la evolucion
de las ideas ha ido poniendo masde relieve cada dia el
respeto a la personalidad humana, y nose admite bien la
violencia sobre el individuo la cual tiene caracter
visiblemente penal, sino por motivos que interesen a la
colectividad de ciudadanos. Es, pues, posible y licita esta
G.R. No. 108253 February 23, 1994
violencia cuando setrata de las obligaciones que hemos
llamado ex lege, que afectanal orden social y a la entidad
de Estado, y aparecen impuestas sinconsideracion a las LYDIA L. GERALDEZ, petitioner,
conveniencias particulares, y sin que por estemotivo vs.
puedan tampoco ser modificadas; pero no debe serlo HON. COURT OF APPEALS and KENSTAR TRAVEL
cuandola obligacion reviste un interes puramente CORPORATION, respondents.

Natividad T. Perez for petitioner.
Bito, Lozada, Ortega & Castillo for private respondent.
REGALADO, J.:
Our tourism industry is not only big business; it is a revenue support
of the nation's economy. It has become a matter of public interest as
to call for its promotion and regulation on a cabinet level. We have
special laws and policies for visiting tourists, but such protective
concern has not been equally extended to Filipino tourists going
abroad. Thus, with the limited judicial relief available within the ambit
of present laws, our tourists often prefer who fail to deliver on their
undertakings. This case illustrates the recourse of one such tourist
who refused to forget.
An action for damages by reason of contractual breach was filed by
petitioner Lydia L. Geraldez against private respondent Kenstar
Travel Corporation, docketed as Civil Case No. Q-90-4649 of the
Regional Trial Court of Quezon City, Branch 80. 1 After the parties
failed to arrive at an amicable settlement, trial on the merits ensued.
Culling from the records thereof, we find that sometime in October,
1989, Petitioner came to know about private respondent from
numerous advertisements in newspapers of general circulation
regarding tours in Europe. She then contacted private respondent by
phone and the latter sent its representative, Alberto Vito Cruz, who
gave her the brochure for the tour and later discussed its highlights.
The European tours offered were classified into four, and petitioner
chose the classification denominated as "VOLARE 3" covering a 22-
day tour of Europe for $2,990.00. She paid the total equivalent
amount of P190,000.00 charged by private respondent for her and
her sister, Dolores.
Petitioner claimed that, during the tour, she was very uneasy and
disappointed when it turned out that, contrary to what was stated in
the brochure, there was no European tour manager for their group of
tourists, the hotels in which she and the group were bullited were not
first-class, the UGC Leather Factory which was specifically added as
a highlight of the tour was not visited, and the Filipino lady tour guide
by private respondent was a first timer, that is, she was performing
her duties and responsibilities as such for the first time. 2
In said action before the Regional Trial Court of Quezon City,
petitioner likewise moved for the issuance of a writ of preliminary
attachment against private respondent on the ground that it
committed fraud in contracting an obligation, as contemplated in
Section 1(d), Rule 57 of the Rules of Court, to which no opposition by
the latter appears on the record. This was granted by the court a
quo3 but the preliminary attachment was subsequently lifted upon the
filing by private respondent of a counterbond amounting to
P990,000.00.4
During the pendency of said civil case for damages, petitioner also
filed other complaints before the Department of Tourism in DOT Case
No. 90-121 and the Securities and Exchange Commission in PED
Case No. 90-3738,5wherein, according to petitioner, herein private
respondent was meted out a fine of P10,000.00 by the Commission
and P5,000.00 by the Department,6 which facts are not disputed by
private respondent in its comment on the present petition.
On July 9, 1991, the court a quo rendered its decision7 ordering
private respondent to pay petitioner P500.000.00 as moral damages,
P200,000.00 as nominal damages, P300,000.00 as exemplary
damages, P50,000.00 as and for attorney's fees, and the costs of the
suit.8 On appeal, respondent court9 deleted the award for moral and
exemplary damages, and reduced the awards for nominal damages
and attorney's fees to P30,000.00 and P10,000.00, respectively. 10
Hence, the instant petition from which, after sifting through the blades
of contentions alternately thrust and parried in the exchanges of the
parties, the pivotal issue that emerges is whether or not private
respondent acted in bad faith or with gross negligence in discharging
its obligations under the contract.
Both the respondent court and the court a quo agree that private
respondent failed to comply faithfully with its commitments under the
Volare 3 tour program, more particularly in not providing the members
of the tour group with a European tour manger whose duty, inter alia,
was to explain the points of interest of and familiarize the tour group
OBLICON 1/16/2018 ACJUCO7
with the places they would visit in Europe, and in assigning instead a
first timer Filipino tour guide, in the person of Rowena Zapanta, 11 to
perform that role which definitely requires experience and knowledge
of such places. It is likewise undisputed that while the group was able
to pay a visit to the site of the UGC Leather Factory, they were
brought there at a very late hour such that the factory was already
closed and they were unable to make purchases at supposedly
discounted prices. 12 As to the first-class hotels, however, while the
court a quo found that the hotels were not fist-class, respondent court
believed otherwise, or that, at least, there was substantial compliance
with such a representation.
While clearly there was therefore a violation of the rights of petitioner
under the aforementioned circumstances, respondent court, contrary
to the findings of the trial court, ruled that no malice or bad faith could
be imputed to private respondent, hence there is no justification for
the award of moral and exemplary damages. Furthermore, it held that
while petitioner is entitled to nominal damages, the amount awarded
by the trial court was unconscionable since petitioner did not suffer
actual or substantial damage from the breach of contract, 13 hence its
reduction of such award as hereinbefore stated.
After thorough and painstaking scrutiny of the case records of both
the trial and appellate courts, we are satisfactorily convinced, and so
hold, that private respondent did commit fraudulent
misrepresentations amounting to bad faith, to the prejudice of
petitioner and the members of the tour group.
By providing the Volare 3 tourist group, of which petitioner was a
member, with an inexperienced and a first timer tour escort, private
respondent manifested its indifference to the convenience,
satisfaction and peace of mind of its clients during the trip, despite its
express commitment to provide such facilities under the Volare 3
Tour Program which had the grandiose slogan "Let your heart sing. 14
Evidently, an inexperienced tour escort, who admittedly had not even
theretofore been to Europe, 15 cannot effectively acquaint the tourists
with the interesting areas in the cities and places included in the
program, or to promptly render necessary assistance, especially
where the latter are complete strangers thereto, like witnesses Luz
Sui Haw and her husband who went to Europe for their
honeymoon. 16
We agree with petitioner that the selection of Zapanta as the group's
tour guide was deliberate and conscious choice on the part of private
respondent in order to afford her an on-the-job training and equip her
with the proper opportunities so as to later qualify her as an
"experienced" tour guide and eventually be an asset of respondent
corporation. 17 Unfortunately, this resulted in a virtual project
experimentation with petitioner and the members of the tour as the
unwitting participants.
We are, therefore, one with respondent court in faulting private
respondent's choice of Zapanta as a qualified tour guide for the
Volare 3 tour package. It brooks no argument that to be true to its
undertakings, private respondent should have selected an
experienced European tour guide, or it could have allowed Zapanta
to go merely as an understudy under the guidance, control and
supervision of an experienced and competent European or Filipino
tour guide, 18 who could give her the desired training.
Moreover, a tour guide is supposed to attend to the routinary needs
of the tourists, not only when the latter ask for assistance but at the
moment such need becomes apparent. In other words, the tour
guide, especially by reason of her experience in previous tours, must
be able to anticipate the possible needs and problems of the tourists
instead of waiting for them to bring it to her attention. While this is
stating the obvious, it is her duty to see to it that basic personal
necessities such as soap, towels and other daily amenities are
provided by the hotels. It is also expected of her to see to it that the
tourists are provided with sanitary surroundings and to actively
arrange for medical attention in case of accidents, as what befell
petitioner's sister and wherein the siblings had to practically fend for
themselves since, after merely calling for an ambulance, Zapanta left
with the other tour participants. 19
Zapanta fell far short of the performance expected by the tour group,
her testimony in open court being revelatory of her inexperience even
on the basic function of a tour guide, to wit:
Q Now, are you aware that
there were times that the
tourists under the "Volare 3"

were not provided with soap
and towels?
A They did not tell me that but
I was able to ask them later on
but then nobody is
complaining. 20 . . . .
The inability of the group to visit the leather factory is likewise
reflective of the neglect and ineptness of Zapanta in attentively
following the itinerary of the day. This incompetence must necessarily
be traced to the lack of due diligence on the part of private respondent
in the selection of its employees. It is true that among the thirty-two
destinations, which included twenty-three cities and special visits to
nine tourist spots, this was the only place that was not visited. 21 It
must be noted, however, that the visit to the UGC Leather Factory
was one of the highlights 22 of the Volare 3 program which even had
to be specifically inserted in the itinerary, hence it was incumbent
upon the organizers of the tour to take special efforts to ensure the
same. Besides, petitioner did expect much from the visit to that
factory since it was represented by private respondent that quality
leather goods could be bought there at lower prices. 23
Private respondent represents Zapanta's act of making daily
overseas calls to Manila as an exercise of prudence and diligence on
the latter's part as a tour guide. 24 It further claims that these calls
were needed so that it could monitor the progress of the tour and
respond to any problem immediately. 25 We are not persuaded. The
truth of the matter is that Zapanta, as an inexperienced trainee-on-
the-job, was required to make these calls to private respondent for
the latter to gauge her ability in coping with her first assignment and
to provide instructions to her. 26
Clearly, therefore, private respondent's choice of Zapanta as the tour
guide is a manifest disregard of its specific assurances to the tour
group, resulting in agitation and anxiety on their part, and which
deliberate omission is contrary to the elementary rules of good faith
and fair play. It is extremely doubtful if any group of Filipino tourists
would knowingly agree to be used in effect as guinea pigs in an
employees' training program of a travel agency, to be conducted in
unfamiliar European countries with their diverse cultures, lifestyles
and languages.
On the matter of the European tour manager, private respondent's
advertisement in its tour contract declares and represents as follows:
FILIPINO TOUR ESCORT!
He will accompany you throughout Europe. He
speaks your language, shares your culture and
feels your excitement.
He won't be alone because you will also be
accompanied by a . . .
EUROPEAN TOUR MANAGER!
You get the best of both worlds. Having done so
may tours in the past with people like you, he
knows your sentiments, too. So knowledgeable
about Europe, there is hardly a question he can't
answer. 27
Private respondent contends that the term "European Tour Manager"
does not refer to an individual but to an organization, allegedly the
Kuoni Travel of Switzerland which supposedly prepared the itinerary
for its "Volare Europe Tour," negotiated with all the hotels in Europe,
selected tourist spots and historical places to visit, and appointed
experienced local tour guides for the tour group. 28
We regret this unseemly quibbling which perforce cannot be allowed
to pass judicial muster.
A cursory reading of said advertisement will readily reveal the
express representation that the contemplated European tour
manager is a natural person, and not a juridical one as private
respondent asserts. A corporate entity could not possibly accompany
the members of the tour group to places in Europe; neither can it
answer questions from the tourists during the tour. Of course, it is
absurd that if a tourist would want to know how he could possibly go
to the nearest store or supermarket, he would still have to call Kuoni
Travel of Switzerland.
OBLICON 1/16/2018 ACJUCO8
Furthermore, both lower courts observed, and we uphold their
observations, that indeed private respondent had the obligation to
provide the tour group not only with a European tour manger, but also
with local European tour guides. The latter, parenthetically, were
likewise never made available. 29 Zapanta claims that she was
accompanied by a European local tour guide in most of the major
cities in Europe. We entertain serious doubts on, and accordingly
reject, this pretension for she could not even remember the name of
said European tour guide. 30 If such a guide really existed, it is
incredible why she could not even identify the former when she
testified a year later, despite the length of their sojourn and the
duration of their association.
As to why the word "he" was used in the aforequoted advertisement,
private respondent maintains that the pronoun "he" also includes the
word "it," as where it is used as a "nominative case form in general
statements (as in statutes) to include females, fictitious persons (as
corporations)." 31 We are constrained to reject this submission as
patently strained and untenable. As already demonstrated, it is
incredible that the word "he" was used by private respondent to
denote an artificial or corporate being. From its advertisement, it is
beyond cavil that the import of the word "he" is a natural and not a
juridical person. There is no need for further interpretation when the
wordings are clear. The meaning that will determine the legal effect
of a contract is that which is arrived at by objective standards; one is
bound, not by what he subjectively intends, but by what he leads
others reasonably to think he intends. 32
In an obvious but hopeless attempt to arrive at a possible justification,
private respondent further contends that it explained the concept of a
European tour manager to its clients at the pre-departure briefing,
which petitioner did not attend. 33 Significantly, however, private
respondent failed to present even one member of the tour group to
substantiate its claim. It is a basic rule of evidence that a party must
prove his own affirmative allegations. 34Besides, if it was really its
intention to provide a juridical European tour manager, it could not
have kept on promising its tourists during the tour that a European
tour manager would come, 35 supposedly to join and assist them.
Veering to another line of defense, private respondent seeks
sanctuary in the delimitation of its responsibility as printed on the face
of its brochure on the Volare 3 program, to wit:
RESPONSIBILITIES: KENSTAR TRAVEL
CORPORATION, YOUR TRAVEL AGENT,
THEIR EMPLOYEES OR SUB-AGENTS SHALL
BE RESPONSIBLE ONLY FOR BOOKING AND
MAKING ARRANGEMENTS AS YOUR
AGENTS. Kenstar Travel Corporation, your travel
Agent, their employees or sub-agents assume no
responsibility or liability arising out of or in
connection with the services or lack of services,
of any train, vessel, other conveyance or station
whatsoever in the performance of their duty to the
passengers or guests, neither will they be
responsible for any act, error or omission, or of
any damages, injury, loss, accident, delay or
irregularity which may be occasioned by reason
(of) or any defect in . . . lodging place or any
facilities . . . . (Emphasis by private
respondent.) 36
While, generally, the terms of a contract result from the mutual
formulation thereof by the parties thereto, it is of common knowledge
that there are certain contracts almost all the provisions of which have
been drafted by only one party, usually a corporation. Such contracts
are called contracts of adhesion, because the only participation of the
party is the affixing of his signature or his "adhesion" thereto. 37 In
situations like these, when a party imposes upon another a ready-
made form of contract, 38 and the other is reduced to the alternative
of taking it or leaving it, giving no room for negotiation and depriving
the latter of the opportunity to bargain on equal footing, a contract of
adhesion results. While it is true that an adhesion contract is not
necessarily void, it must nevertheless be construed strictly against
the one who drafted the same. 39 This is especially true where the
stipulations are printed in fine letters and are hardly legible as is the
case of the tour contract 40 involved in the present controversy.
Yet, even assuming arguendo that the contractual limitation
aforequoted is enforceable, private respondent still cannot be
exculpated for the reason that responsibility arising from fraudulent
acts, as in the instant case, cannot be stipulated against by reason
of public policy. Consequently, for the foregoing reasons, private
respondent cannot rely on its defense of "substantial compliance"
with the contract.
 OBLICON 1/16/2018 ACJUCO9

Private respondent submits likewise that the tour was satisfactory, A One more hotel, sir, in
considering that only petitioner, out of eighteen participants in the Barcelona, Hotel Saint
Volare 3 Tour Program, actually complained. 41 We cannot accept Jacques is also outside the
this argument. Section 28, Rule 130 of the Rules of Court declares city. Suppose Barcelona is in
that the rights of a party cannot be prejudiced by an act, declaration, Quezon City, our hotel is in
or omissionof another, a statutory adaptation of the first branch of the Marilao. We looked for this
hornbook rule of res inter alios acta 42 which we do not have to hotel inside the city of
belabor here. Barcelona for three (3) hours.
We wasted our time looking
Besides, it is a commonly known fact that there are tourists who, for almost all the hotels and
places where to eat. That is
although the tour was far from what the tour operator undertook under
the contract, choose to remain silent and forego recourse to a suit the kind of tour that you
have. 47
just to avoid the expenses, hassle and rancor of litigation, and not
because the tour was in accord with was promised. One does not
relish adding to the bitter memory of a misadventure the Luz Sui Haw, who availed of the Volare 3 tour package with her
unpleasantness of another extended confrontation. Furthermore, husband for their honeymoon, shared the sentiments of petitioner
contrary to private respondent's assertion, not only petitioner but two and testified as follows:
other members of the tour group, Luz Sui Haw and Ercilla Ampil,
confirmed petitioner's complaints when they testified as witnesses for
Q . . . Will you kindly tell us
her as plaintiff in the court below. 43 why the hotels where you
stayed are not considered first
Private respondent likewise committed a grave misrepresentation class hotels?
when it assured in its Volare 3 tour package that the hotels it had
chosen would provide the tourists complete amenities and were A Because the hotels where
conveniently located along the way for the daily itineraries. 44 It turned we went, sir, (are) far from the
out that some of the hotels were not sufficiently equipped with even City and the materials used
the basic facilities and were at a distance from the cities covered by are not first class and at times
the projected tour. Petitioner testified on her disgust with the there were no towels and
conditions and locations of the hotels, thus: soap. And the two (2) hotels in
Nevers and Florence the
Q And that these bathrooms conditions (are) very worse
ha(ve) bath tub(s) and hot and (sic). 48
cold shower(s)?
Q Considering that you are
A Not all, sir. honeymooners together with
your husband, what (were)
Q Did they also provide soap your feelings when you found
and towels? out that the condition were not
fulfilled by the defendant?

A Not all, sir, some (had) no

toilet paper. 45 A I would like to be very
honest. I got sick when I
reached Florence and half of
Q Which one? my body got itch (sic). I think
for a honeymooner I would
A The 2 stars, the 3 stars and like to emphasize that we
some 4 stars (sic) hotels. should enjoy that day of our
life and it seems my feet kept
on itching because of the
Q What I am saying . . . condition of the hotel. And I
was so dissatisfied because
A You are asking a question? the European Tour Manager
I am answering you. 2 stars, 3 was not around there (were)
stars and some 4 stars (sic) beautiful promises. They kept
hotels, no soap, toilet paper on telling us that a European
and (the) bowl Tour Manager will come over;
stinks. . . . until our Paris tour was ended
there was no European tour
manager. 49
xxx xxx xxx

xxx xxx xxx

Q And that except for the fact
that some of these four star
hotels were outside the city Q You will file an action
they provided you with the against the defendant
comfort? because there was a
disruption of your happiness,
in your honeymoon, is that
A Not all, sir. correct?

Q Can you mention some A That is one of my causes of

which did not provide you that (sic) coming up here.
comfort? Secondly, i was very
dissatisfied (with) the
A For example, if Ramada condition. Thirdly, that Volare
Hotel Venezia is in Quezon 89 it says it will let your heart
City, our hotel is in sing. That is not true. There
Meycauayan. And if Florence was no European tour
or Ferenze is in manila, our (manager) and the highlights
hotel is in Muntinlupa. 46 of the tour (were) very poor.
The hotels were worse (sic)
hotels. 50
xxx xxx xxx

Q All the conditions of the

hotels as you . . .

A Not all but as stated in the
brochure that it is first class
hotel. The first class hotels
state that all things are
beautiful and it is neat and
clean with complete amenities
and I encountered the
Luxembourg hotel which is
quite very dilapidated
because of the flooring when
you step on the side
"kumikiring" and the cabinets
(are) antiques and as
honeymooners we don't want
to be disturbed or seen. 51
xxx xxx xxx
Q None of these are first class
hotels?
A Yes, sir.
Q So, for example Ramada
Hotel Venezia which
according to Miss Geraldez is
first class hotel is not first
class hotel?
A Yes, sir.
Q You share the opinion of
Miss Geraldez?
A Yes, sir.
Q The same is true with Grand
Hotel Palatino which is not a
first class hotel?
A Yes, sir.
Q And Hotel Delta Florence is
not first class hotel?
A That is how I got my itch, sir.
Seven (7) days of itch.
Q How about Hotel Saint-
Jacquez, Paris?
A It is far from the city. It is not
first class hotel.
Q So with Hotel Le Prieure Du
Coeur de Jesus neither a first
class hotel?
A Yes, sir.
Q Hotel De Nevers is not a
first class hotel?
A Yes, sir.
Q Hotel Roc Blanc Andorra is
not a first class hotel?
A Yes, sir.
Q Saint Just Hotel, Barcelona
is not a first class hotel?
A Yes, sir.
Q Hotel Pullman Nice neither
is not a first class hotel?
OBLICON 1/16/2018 ACJUCO10
A Yes, sir.
Q Hotel Prinz Eugen and
Austrotel are not first class
hotels?
A Yes, sir. 52
Private respondent cannot escape responsibility by seeking refuge
under the listing of first-class hotels in publications like the "Official
Hotel and Resort Guide" and Worldwide Hotel Guide." 53 Kuoni
Travel, its tour operator, 54 which prepared the hotel listings, is a
European-based travel agency 55 and, as such, could have easily
verified the matter of first-class accommodations. Nor can it logically
claim that the first-class hotels in Europe may not necessarily be the
first-class hotels here in the Philippines. 56 It is reasonable for
petitioner to assume that the promised first-class hotels are
equivalent to what are considered first-class hotels in Manila. Even
assuming arguendo that there is indeed a difference in
classifications, it cannot be gainsaid that a first-class hotel could at
the very least provide basic necessities and sanitary
accommodations. We are accordingly not at all impressed by private
respondent's attempts to trivialize the complaints thereon by
petitioner and her companions.
In a last ditch effort to justify its choice of the hotels, private
respondent contends that it merely provided such "first class" hotels
which are commensurate to the tourists budget, or which were, under
the given circumstances, the "best for their money." It postulated that
it could not have offered better hostelry when the consideration paid
for hotel accommodations by the tour participants was only so
much,57 and the tour price of $2,990.00 covers a European tour for
22 days inclusive of lower room rates and meals. 58 this is
implausible, self-serving and borders on sophistry.
The fact that the tourists were to pay a supposedly lower amount,
such that private respondent allegedly retained hardly enough as
reasonable profit, 59 does not justify a substandard form of service in
return. It was private respondent, in the first place, which fixed the
charges for the package tour and determined the services that could
be availed of corresponding to such price. Hence, it cannot now be
heard to complain that it only made a putative marginal profit out of
the transaction. if it could not provide the tour participants with first-
class lodgings on the basis of the amount that they paid, it could and
should have instead increased the price to enable it to arrange for the
promised first-class accommodations.
On the foregoing considerations, respondent court erred in deleting
the award for moral and exemplary damages. Moral damages may
be awarded in breaches of contract where the obligor acted
fraudulently or in bad faith. 60 From the facts earlier narrated, private
respondent can be faulted with fraud in the inducement, which is
employed by a party to a contract in securing the consent of the other.
This fraud or dolo which is present or employed at the time of birth or
perfection of a contract may either be dolocausante or dolo
incidente. The first, or causal fraud referred to in Article 1338, are
those deceptions or misrepresentations of a serious character
employed by one party and without which the other party would not
have entered into the contract. Dolo incidente, or incidental fraud
which is referred to in Article 1344, are those which are not serious
in character and without which the other party would still have entered
into the contract. 61 Dolo causantedetermines or is the essential
cause of the consent, while dolo incidente refers only to some
particular or accident of the
obligations. 62 The effects of dolo causante are the nullity of the
contract and the indemnification of damages, 63 and dolo
incidente also obliges the person employing it to pay damages. 64
In either case, whether private respondent has committed dolo
causante or dolo incidente by making misrepresentations in its
contracts with petitioner and other members of the tour group, which
deceptions became patent in the light of after-events when, contrary
to its representations, it employed an inexperienced tour guide,
housed the tourist group in substandard hotels, and reneged on its
promise of a European tour manager and the visit to the leather
factory, it is indubitably liable for damages to petitioner.
In the belief that an experienced tour escort and a European tour
manager would accompany them, with the concomitant reassuring
and comforting thought of having security and assistance readily at
hand, petitioner was induced to join the Volare 3 tourists, instead of
travelling alone 65 She likewise suffered serious anxiety and distress
when the group was unable to visit the leather factory and when she
 OBLICON 1/16/2018 ACJUCO11

did not receive first-class accommodations in their lodgings which

were misrepresented as first-class hotels. These, to our mind, justify
the award for moral damages, which are in the category of an award
designed to compensate the claimant for that injury which she had
suffered, and not as a penalty on the wrongdoer, 66 we believe that
an award of P100,000.00 is sufficient and reasonable.

When moral damages are awarded, especially for fraudulent

conduct, exemplary damages may also be decreed. Exemplary
damages are imposed by way of example or correction for the public
good, in addition to moral, temperate, liquidated or compensatory
damages. According to the code Commission, exemplary damages
are required by public policy, for wanton acts must be
suppressed. 67 An award, therefore, of P50,000.00 is called for to
deter travel agencies from resorting to advertisements and
enticements with the intention of realizing considerable profit at the
expense of the public, without ensuring compliance with their express
commitments. While, under the present state of the law, extraordinary
diligence is not required in travel or tour contracts, such as that in the
case at bar, the travel agency acting as tour operator must
nevertheless be held to strict accounting for contracted services,
considering the public interest in tourism, whether in the local or in
the international scene. Consequently, we have to likewise reject the
theory of private respondent that the promise it made in the tour
brochure may be regarded only as "commendatory trade talk." 68

With regard to the honorarium for counsel as an item of damages,

since we are awarding moral and exemplary damages, 69 and
considering the legal importance of the instant litigation and the
efforts of counsel evident from the records of three levels of the
judicial hierarchy, we favorably consider the amount of P20,000.00
therefor.

WHEREFORE, premises considered, the decision of respondent

Court of Appeals is hereby SET ASIDE, and another one rendered,
ordering private respondent Kenstar Travel Corporation to pay
petitioner Lydia L. Geraldez the sums of P100,000.00 by way of moral
damages, P50,000.00 as exemplary damages, and P20,000.00 as
and for attorney's fees, with costs against private respondent. The
award for nominal damages is hereby deleted.

Padilla, Nocon and Puno, JJ., concur.

Narvasa, C.J., took no part.


G.R. No. L-7567 November 12, 1912
THE UNITED STATES, plaintiff-appellee,
vs.
SEGUNDO BARIAS, defendant-appellant.
Bruce, Lawrence, Ross and Block for appellant.
Office of the Solicitor-General Harvey, for appellee.
CARSON, J.:
This is an appeal from a sentence imposed by the Honorable A. S.
Crossfield, judge of the Court of First Instance of Manila, for homicide
resulting from reckless negligence. The information charges:
That on or about November 2, 1911, in the city of Manila,
Philippine Islands, the said Segundo Barias was a
motorman on street car No. 9, run 7 of the Pasay-Cervantes
lines of the Manila Electric Railroad and Light Company, a
corporation duly organized and doing business in the city of
Manila, Philippine Islands; as a such motorman he was
controlling and operating said street car along Rizal
Avenue, formerly Calle Cervantes, of this city, and as such
motorman of the said street car he was under obligation to
run the same with due care and diligence to avoid any
accident that might occur to vehicles and pedestrians who
were travelling on said Rizal Avenue; said accused, at said
time and place, did willfully, with reckless imprudence and
inexcusable negligence and in violation of the regulations
promulgated to that effect, control and operate said street
car, without heeding the pedestrians crossing Rizal Avenue
from one side to the other, thus knocking down and causing
by his carelessness and imprudent negligence that said
street car No. 9, operated and controlled by said accused,
as hereinbefore stated, should knock down and pass over
the body and head of one Fermina Jose, a girl 2 years old,
who at said time and place was crossing the said Rizal
Avenue, the body of said girl being dragged along street-
car on said Rizal Avenue for a long distance, thus crushing
and destroying her head and causing her sudden death as
a result of the injury received; that if the acts executed by
the accused had been done with malice, he would be guilty
of the serious crime of homicide.
The defendant was a motorman for the Manila Electric Railroad and
Light Company. At about 6 o'clock on the morning of November 2,
1911, he was driving his car along Rizal avenue and stopped it near
the intersection of that street with Calle Requesen to take on some
passengers. When the car stopped, the defendant looked backward,
presumably to note whether all the passengers were aboard, and
then started his car. At that moment Fermina Jose, a child about 3
years old, walked or ran in front of he car. She was knocked down
and dragged some little distance underneath the car, and was left
dead upon the track. The motorman proceeded with his car to the
end of the track, some distance from the place of the accident, and
apparently knew nothing of it until his return, when he was informed
of what happened.
There is no substantial dispute as to the facts. It is true that one
witness testified that the defendant started the car without turning his
head, and while he was still looking backwards and that this
testimony was directly contradicted by that of another witness. But
we do not deem it necessary to make an express finding as to the
precise direction in which the defendant's head was turned at the
moment when he started his car. It is sufficient for the purpose of our
decision to hold, as we do, that the evidence clearly discloses that he
started his car from a standstill without looking over the track
immediately in front of the car to satisfy himself that it was clear. he
did not see the child until after he had run his car over it, and after he
had return to the place where it was found dead, and we think we are
justified in saying that whenever he was looking at the moment when
he started his car, he was not looking at the track immediately in front
of the car, and that he had not satisfied himself that this portion of the
tract was clear immediately before putting the car in the motion.
The trial court found the defendant guilty of imprudencia
temeraria (reckless negligence) as charged in the information, and
sentenced him to over one year and one month of imprisonment in
the Bilibid Prison, and to pay the cause of the action.
The sole question raised by this appeal is whether the evidence
shows such carelessness or want of ordinary care on the part of the
defendant as to amount to reckless negligence (imprudencia
temeraria).
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Judge Cooley in his work on Torts (3d ed., 1324) defines negligence
to be: "The failure to observe, for the protection of the interests of
another person, that degree of care, precaution and vigilance which
the circumstances justly demand, whereby such other persons
suffers injury."
In the case of U. S. vs. Nava, (1 Phil. Rep., 580), we held that:
"Reckless negligence consists of the failure to take such precautions
or advance measures in the performance of an act as the most
prudence would suggest whereby injury is caused to persons or to
property."
Silvela says in his "Derecho Penal," in speaking of reckless
imprudence (imprudencia temeraria):
The word "negligencia" used in the code, and the
term "imprudencia" with which this punishable act is
defined, express this idea in such a clear manner that it is
not necessary to enlarge upon it. He who has done
everything on his part to prevent his actions from causing
damage to another, although he has not succeeded in
doing so, notwithstanding his efforts, is the victim of an
accident and can not be considered responsible for the
same. (Vol. 2, p. 127 [153].)
Temerario is, in our opinion, one who omits, with regard to
this actions, which are liable to cause injury to another, that
care and diligence, that attention, which can be required of
the least careful, attentive, or diligent. If a moment's
attention and reflection would have shown a person that the
act which he was about to perform was liable to have the
harmful consequence which it had, such person acted with
temerity and may be guilty of "imprudencia temeraria." It
may be that in practice this idea has been given a greater
scope and the acts of imprudence which did not show
carelessness as carried to such high degree, might have
been punished as "imprudencia temeraria;" but in our
opinion, the proper meaning of the word does not authorize
another interpretation. (Id., p. 133 [161].)
Groizard, commenting upon "imprudencia temeraria," on page 389,
volume 8, of his work on the Penal Code, says:
Prudence is that cardinal virtue which teaches us to discern
and distinguish the good from bad, in order to adopt or flee
from it. It also means good judgment, temperance, and
moderation in one's actions. `Temerario is one who
exposes himself to danger or rushes into it without
reflection and without examining the same. Consequently,
he who from lack of good judgment, temperance, or
moderation in his actions, exposes himself without
reflection and examination to the danger of committing a
crime, must be held responsible under the provision of law
aforementioned.
Negligence is want of the care required by the circumstances. It is a
relative or comparative, not an absolute, term and its application
depends upon the situation of the parties and the degree of care and
vigilance which the circumstances reasonably require. Where the
danger is great, a high degree of care is necessary, and the failure to
observe it is a want of ordinary care under the circumstances.
(Ahern vs. Oregon Telephone Co., 24 Oreg., 276, 294; 35 Pac., 549.)
Ordinary care, if the danger is great, may arise to the grade of a very
exact and unchangeable attention. (Parry Mfg. Co. vs. Eaton, 41 Ind.
App., 81, 1908; 83 N. E., 510.)
In the case of U. S. vs. Reyes (1 Phil. Rep., 375-377), we held that:
"The diligence with which the law requires the individual at all the time
to govern his conduct varies with the nature of the situation in which
he is placed and with the importance of the act which he is to
perform.lawph!l.net
The question to be determined then, is whether, under all the
circumstances, and having in mind the situation of the defendant
when he put his car in motion and ran it over the child, he was guilty
of a failure to take such precautions or advance measures as
common prudence would suggest.
The evidence shows that the thoroughfare on which the incident
occurred was a public street in a densely populated section of the
city. The hour was six in the morning, or about the time when the
residents of such streets begin to move about. Under such conditions
 OBLICON 1/16/2018 ACJUCO13

a motorman of an electric street car was clearly charged with a high
degree of diligence in the performance of his duties. He was bound
to know and to recognize that any negligence on his part in observing
the track over which he was running his car might result in fatal
accidents. He had no right to assume that the track before his car
was clear. It was his duty to satisfy himself of that fact by keeping a
sharp lookout, and to do everything in his power to avoid the danger
which is necessarily incident to the operation of heavy street cars on
public thoroughfares in populous sections of the city.
Did he exercise the degree of diligence required of him? We think this
question must be answered in the negative. We do not go so far as
to say that having brought his car to a standstill it was his bounden
duty to keep his eyes directed to the front. Indeed, in the absence of
some regulation of his employers, we can well understand that, at
times, it might be highly proper and prudent for him to glance back
before again setting his car in motion, to satisfy himself that he
understood correctly a signal to go forward or that all the passengers
had safely alighted or gotten on board. But we do insist that before
setting his car again in motion, it was his duty to satisfy himself that
the track was clear, and, for that purpose, to look and to see the track
just in front of his car. This the defendant did not do, and the result of
his negligence was the death of the child.
In the case of Smith vs. St. Paul City Ry. Co., (32 Minn., p. 1), the
supreme court of Minnesota, in discussing the diligence required of
street railway companies in the conduct of their business observed
that: "The defendant was a carrier of passengers for hire, owing and
controlling the tracks and cars operated thereon. It is therefore
subject to the rules applicable to passenger carriers. (Thompson's
Carriers, 442; Barrett vs. Third Ave. R. Co., 1 Sweeny, 568; 8 Abb.
Pr. (N.S.), 205.) As respects hazards and dangers incident to the
business or employment, the law enjoins upon such carrier the
highest degree of care consistent with its undertaking, and it is
responsible for the slightest negligence. (Wilson vs. Northern Pacific
R. Co., 26 Minn., 278; Warren vs. Fitchburg R. Co., 8 Allen, 233; 43
Am. Dec. 354, 356, notes and cases.) . . . The severe ruled which
enjoins upon the carrier such extraordinary care and diligence, is
intended, for reasons of public policy, to secure the safe carriage of
passengers, in so far as human skill and foresight can affect such
result." The case just cited was a civil case, and the doctrine therein
announced had special reference to the care which should be
exercised in securing the safety of passengers. But we hold that the
reasons of public policy which impose upon street car companies and
their employees the duty of exercising the utmost degree of diligence
in securing the safety of passengers, apply with equal force to the
duty of avoiding the infliction of injuries upon pedestrians and others
on the public streets and thoroughfares over which these companies
are authorized to run their cars. And while, in a criminal case, the
courts will require proof of the guilt of the company or its employees
beyond a reasonable doubt, nevertheless the care or diligence
required of the company and its employees is the same in both cases,
and the only question to be determined is whether the proofs shows
beyond a reasonable doubt that the failure to exercise such care or
diligence was the cause of the accident, and that the defendant was
guilty thereof.
. . . In the general experience of mankind, accidents
apparently avoidable and often inexplicable are
unfortunately too frequent to permit us to conclude that
some one must be criminally liable for negligence in every
case where an accident occurs. It is the duty of the
prosecution in each case to prove by competent evidence
not only the existence of criminal negligence, but that the
accused was guilty thereof.
Nor do we overlook the ruling in the case of U. S. vs. Barnes (12 Phil.
Rep., 93), to which our attention is also invited, wherein we held that
the defendant was not guilty of reckless negligence, where it
appeared that he killed another by the discharge of his gun under
such circumstances that he might have been held guilty of criminally
reckless negligence had he had knowledge at that moment that
another person was in such position as to be in danger if the gun
should be discharged. In this latter case the defendant had no reason
to anticipate that the person who was injured was in the line of fire,
or that there was any probability that he or anyone else would place
himself in the line of fire. In the case at bar, however, it was, as we
have seen, the manifest duty of the motorman to take reasonable
precautions in starting his car to see that in doing so he was not
endangering the life of any pedestrian, old or young; and to this end
it was further his duty to guard against the reasonable possibility that
some one might be on the track immediately in front of the car. We
think that the evidence showing, as it does, that the child was killed
at the moment when the car was set in motion, we are justified in
holding that, had the motorman seen the child, he could have avoided
the accident; the accident was not, therefore, "unavailable or
inexplicable," and it appearing that the motorman, by the exercise of
ordinary diligence, might have seen the child before he set the car in
motion, his failure to satisfy himself that the track was clear before
doing so was reckless negligence, of which he was properly
convicted in the court below.
We think, however, that the penalty should be reduced to that of six
months and one day of prision correccional. Modified by substituting
for so much thereof as imposes the penalty of one year and one
month of imprisonment, the penalty of six months and one day
of prision correccional, the judgment of the lower court convicting and
sentencing the appellant is affirmed, with costs of both instances
against him. So ordered.
Arellano, C.J., Torres and Mapa, JJ., concur.

Counsel for the defendant insist that the accident might have
happened despite the exercise of the utmost care by the defendant,
and they have introduced photographs into the record for the purpose
of proving that while the motorman was standing in his proper place
on the front platform of the car, a child might have walked up
immediately in front of he car without coming within the line of his
vision. Examining the photographs, we think that this contention may
have some foundation in fact; but only to this extent, that standing
erect, at the position he would ordinarily assume while the car is in
motion, the eye of the average motorman might just miss seeing the
top of the head of a child, about three years old, standing or walking
close up to the front of the car. But it is also very evident that by
inclining the head and shoulders forward very slightly, and glancing
in front of the car, a person in the position of a motorman could not
fail to see a child on the track immediately in front of his car; and we
hold that it is the manifest duty of a motorman, who is about to start
his car on a public thoroughfare in a thickly-settled district, to satisfy
himself that the track is clear immediately in front of his car, and to
incline his body slightly forward, if that be necessary, in order to bring
the whole track within his line of vision. Of course, this may not be,
and usually is not necessary when the car is in motion, but we think
that it is required by the dictates of the most ordinary prudence in
starting from a standstill.

We are not unmindful of our remarks in the case of U. S. vs. Bacho

(10 Phil. Rep., 577), to which our attention is directed by counsel for
appellant. In that case we said that:

[G.R. No. 141258. April 9, 2003]
TOMASA SARMIENTO, petitioner, vs. SPS. LUIS & ROSE SUN-
CABRIDO and MARIA LOURDES SUN, respondents.
DECISION
CORONA, J.:
This appeal by certiorari stems from the Decision [1] of
respondent Court of Appeals promulgated on November 26, 1999 in
CA-G.R. SP No. 47431 declaring the private respondents not liable
for damages.
Petitioner, Tomasa Sarmiento, states that sometime in April
1994, a friend, Dra. Virginia Lao, requested her to find somebody to
reset a pair of diamond earrings into two gold rings.[2] Accordingly,
petitioner sent a certain Tita Payag with the pair of earrings to
Dingdings Jewelry Shop, owned and managed by respondent
spouses Luis and Rose Cabrido,[3] which accepted the job order
for P400.[4]
Petitioner provided 12 grams of gold to be used in crafting the
pair of ring settings.[5] After 3 days, Tita Payag delivered to the jewelry
shop one of Dra. Laos diamond earrings which was earlier appraised
as worth .33 carat and almost perfect in cut and clarity. [6]Respondent
Ma. Lourdes (Marilou) Sun went on to dismount the diamond from its
original setting. Unsuccessful, she asked their goldsmith, Zenon
Santos, to do it. Santos removed the diamond by twisting the setting
with a pair of pliers, breaking the gem in the process. [7]
Petitioner required the respondents to replace the diamond with
the same size and quality. When they refused, the petitioner was
forced to buy a replacement in the amount of P30,000.[8]
Respondent Rose Cabrido, manager of Dingdings Jewelry
Shop, denied having entered into any transaction with Tita Payag
whom she met only after the latter came to the jewelry shop to seek
compensation from Santos for the broken piece of
jewelry.[9]However, it was possible that Payag may have availed of
their services as she could not have known every customer who
came to their shop. Rose disclosed that she usually arrived at 11:00
a.m. When she was not around, her mother and sister tended the
shop.[10]
Marilou admitted knowing Payag who came to Dingdings
Jewelry Shop to avail of their services regarding a certain piece of
jewelry. After a short conversation, Payag went inside the shop to
see Santos. When the precious stone was broken by Santos, Payag
demanded P15,000 from him. As the latter had no money, she turned
to Marilou for reimbursement apparently thinking that Marilou was the
owner of the shop.[11]
For his part, Santos recalled that Payag requested him to
dismount what appeared to him was a sapphire. While clipping the
setting with the use of a small pair of pliers, the stone accidentally
broke. Santos denied being an employee of Dingdings Jewelry
Shop.[12]
Attempts to settle the controversy before the barangay
lupon proved futile.[13] Consequently, petitioner filed a complaint for
damages on June 28, 1994 with the Municipal Trial Court in Cities
(MTCC) of Tagbilaran City docketed as Civil Case No. 2339 which
rendered a decision[14] in favor of the petitioner, the dispositive
portion of which reads:
WHEREFORE, Decision is hereby rendered in favor of plaintiff
Tomasa Sarmiento and against defendants Spouses Luis and Rose
Sun-Cabrido, ordering defendants to pay jointly and severally the
amount of Thirty Thousand Pesos (P30,000.00) as actual or
compensatory damages; Three Thousand Pesos (P3,000.00) as
moral damages; Five Thousand Pesos (P5,000.00) as attorneys
fees; Two Thousand Pesos (P2,000.00) as litigation expenses, with
legal interest of 6% per annum from the date of this decision and 12%
per annum from the date when this decision becomes final until the
amounts shall have been fully paid and to pay the costs.
This case as against defendant Maria Lourdes Sun as well as
defendants counterclaim are dismissed for lack of merit.
SO ORDERED.
On appeal, the Regional Trial Court (RTC) of Tagbilaran City,
Branch 3, reversed the decision of the MTCC, thus absolving the
respondents of any responsibility arising from breach of
contract.[15] Finding no reversible error, the Court of Appeals (CA)
OBLICON 1/16/2018 ACJUCO14
affirmed the judgment of the RTC in its Decision promulgated on
November 26, 1999.[16]
Unable to accept the decision, the petitioner filed the instant
petition for review with the following assigned errors:
I
THE COURT OF APPEALS ERRED IN MAINTAINING AND SO
HOLDING THAT ZENON SANTOS IS NOT AN EMPLOYEE OF
DEFENDANT (herein respondent) ROSE SUN-CABRIDO, AND IS
THEREFORE ANSWERABLE FOR HIS OWN ACTS OR
OMISSIONS
II
THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING
THE REGIONAL TRIAL COURTS PRONOUNCEMENTS THAT
THERE EXISTS NO AGREEMENT BETWEEN THE PETITIONER
AND RESPONDENTS THAT THE LATTER WOULD ANSWER FOR
ANY LIABILITY SHOULD THE DIAMOND BE DAMAGED IN THE
PROCESS OF DISMOUNTING THEM FROM THE EARRINGS.
Essentially, petitioner claims that the dismounting of the
diamond from its original setting was part of the obligation assumed
by the private respondents under the contract of service. Thus, they
should be held liable for damages arising from its breakage. On the
other hand, the version of the private respondents, upheld by the
RTC and the CA, is that their agreement with the petitioner was for
crafting two gold rings mounted with diamonds only and did not
include the dismounting of the said diamonds from their original
setting.[17] Consequently, the crux of the instant controversy is the
scope of the obligation assumed by the private respondents under
the verbal contract of service with the petitioner.
The Court notes that, during the trial, private respondents
vigorously denied any transaction between Dingdings Jewelry Shop
and the petitioner, through Tita Payag. Rose Cabrido, for instance,
denied having ever met Payag before the latter came to seek
reimbursement for the value of the broken diamond. Likewise, while
Marilou acknowledged acquaintance with Payag, she nevertheless
denied accepting any job order from her. Debunking their
protestations, however, the MTCC of Tagbilaran City rendered its
decision on November 26, 1999 in favor of herein petitioner.
Apparently realizing the weakness and futility of their position,
private respondents conceded, on appeal, the existence of an
agreement with the petitioner for crafting a pair of gold rings mounted
with diamonds. This apparent concession by the private
respondents, however, was really nothing but an ingenious
maneuver, designed to preclude, just the same, any recovery for
damages by the petitioner. Thus, while ostensibly admitting the
existence of the said agreement, private respondents, nonetheless
denied assuming any obligation to dismount the diamonds from their
original settings.[18]
The inconsistent position of the private respondents impugns
their credibility. They cannot be permitted to adopt a certain stance,
only to vacillate later to suit their interest. We are therefore inclined
to agree with the MTCC in giving credence to the version of the
petitioner. The MTCC had the unique opportunity to actually observe
the behavior and demeanor of the witnesses as they testified during
the trial.[19]
At any rate, the contemporaneous and subsequent acts of the
parties[20] support the version of the petitioner. Thus, when Tita
Payag asked Marilou of Dingdings Jewelry Shop to reset a pair of
diamond earrings, she brought with her the said pieces of jewelry so
that the diamonds which were still mounted could be measured and
the new ring settings crafted accordingly. On the said occasion,
Marilou expressed no reservation regarding the dismounting of the
diamonds which, after all, was an integral part of petitioners job order.
She should have instructed Payag to have them dismounted first if
Marilou had actually intended to spare the jewelry shop of the task
but she did not. Instead, petitioner was charged P400 for the job
order which was readily accepted. Thus, a perfected contract to reset
the pair of diamond earrings arose between the petitioner, through
Payag, and Dingdings Jewelry Shop, through Marilou.
Marilous subsequent actuations were even more revealing as
regards the scope of obligation assumed by the jewelry shop. After
the new settings were completed in 3 days, she called up the
petitioner to bring the diamond earrings to be reset.[21] Having initially
examined one of them, Marilou went on to dismount the diamond
from its original setting. Unsuccessful, she then delegated the task to
their goldsmith, Zenon Santos. Having acted the way she did, Marilou
cannot now deny the shops obligation to reset the pair of earrings.
 OBLICON 1/16/2018 ACJUCO15

Obligations arising from contracts have the force of law

between the contracting parties.[22] Corollarily, those who in the
performance of their obligations are guilty of fraud, negligence or
delay and those who in any manner contravene the tenor thereof, are
liable for damages.[23] The fault or negligence of the obligor consists
in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of
the time and of the place.[24]
In the case at bar, it is beyond doubt that Santos acted
negligently in dismounting the diamond from its original setting. It
appears to be the practice of the trade to use a miniature wire saw in
dismounting precious gems, such as diamonds, from their original
settings.[25] However, Santos employed a pair of pliers in clipping the
original setting, thus resulting in breakage of the diamond. The
jewelry shop failed to perform its obligation with the ordinary diligence
required by the circumstances. It should be pointed out that Marilou
examined the diamond before dismounting it from the original setting
and found the same to be in order. Its subsequent breakage in the
hands of Santos could only have been caused by his negligence in
using the wrong equipment. Res ipsa loquitur.
Private respondents seek to avoid liability by passing the buck
to Santos who claimed to be an independent worker. They also claim,
rather lamely, that Marilou simply happened to drop by at Dingdings
Jewelry Shop when Payag arrived to place her job order. [26]
We do not think so.
The facts show that Santos had been working at Dingdings
Jewelry Shop as goldsmith for about 6 months accepting job orders
through referrals from private respondents. [27] On the other hand,
Payag stated that she had transacted with Dingdings Jewelry Shop
on at least 10 previews occasions, always through Marilou. [28] The
preponderance of evidence supports the view that Marilou and Zenon
Santos were employed at Dingdings Jewelry Shop in order to perform
activities which were usually necessary or desirable in its business. [29]

We therefore hold that an obligation to pay actual damages

arose in favor of the petitioner against the respondents spouses who
admittedly owned and managed Dingdings Jewelry Shop. It was
proven that petitioner replaced the damaged jewelry in the amount
of P30,000.[30]
The facts of the case also justify the award of moral
damages. As a general rule, moral damages are not recoverable in
actions for damages predicated on a breach of contract for it is not
one of the items enumerated under Article 2219 of the Civil
Code.[31] Moral damages may be awarded in a breach of contract
only when there is proof that defendant acted in bad faith, or was
guilty of gross negligence amounting to bad faith, or in wanton
disregard of his contractual obligation.[32] Santos was a goldsmith for
more than 40 years.[33] Given his long experience in the trade, he
should have known that using a pair of pliers instead of a miniature
wire saw in dismounting a precious stone like a diamond would have
entailed an unnecessary risk of breakage. He went on with it
anyway. Hence, respondent spouses are liable for P10,000 as moral
damages due to the gross negligence of their employee.
However, private respondents refusal to pay the value of the
damaged jewelry emanated from an honest belief that they were not
responsible therefor, hence, negating any basis for the award of
attorneys fees.[34]
WHEREFORE, the instant petition is GRANTED and the
assailed decision of the Court of Appeals dated November 26, 1999
is hereby reversed and set aside. Private respondents Luis Cabrido
and Rose Sun-Cabrido are hereby ordered to pay, jointly and
severally, the amount of P30,000 as actual damages and P10,000 as
moral damages in favor of the petitioner.
No costs.
SO ORDERED.
Puno, (Chairman), Panganiban, Sandoval-
Gutierrez, and Carpio-Morales, JJ., concur.

[G.R. No. 138334. August 25, 2003]
ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF
APPEALS and CARAVAN TRAVEL & TOURS INTERNATIONAL,
INC., respondents.
DECISION
YNARES-SANTIAGO, J.:
In May 1991, petitioner Estela L. Crisostomo contracted the
services of respondent Caravan Travel and Tours International, Inc.
to arrange and facilitate her booking, ticketing and accommodation in
a tour dubbed Jewels of Europe. The package tour included the
countries of England, Holland, Germany, Austria, Liechstenstein,
Switzerland and France at a total cost of P74,322.70. Petitioner was
given a 5% discount on the amount, which included airfare, and the
booking fee was also waived because petitioners niece, Meriam
Menor, was respondent companys ticketing manager.
Pursuant to said contract, Menor went to her aunts residence
on June 12, 1991 a Wednesday to deliver petitioners travel
documents and plane tickets. Petitioner, in turn, gave Menor the full
payment for the package tour. Menor then told her to be at the Ninoy
Aquino International Airport (NAIA) on Saturday, two hours before
her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA
on Saturday, June 15, 1991, to take the flight for the first leg of her
journey from Manila to Hongkong. To petitioners dismay, she
discovered that the flight she was supposed to take had already
departed the previous day. She learned that her plane ticket was for
the flight scheduled on June 14, 1991. She thus called up Menor to
complain.
Subsequently, Menor prevailed upon petitioner to take another
tour the British Pageant which included England, Scotland and Wales
in its itinerary. For this tour package, petitioner was asked anew to
pay US$785.00 or P20,881.00 (at the then prevailing exchange rate
of P26.60). She gave respondent US$300 or P7,980.00 as partial
payment and commenced the trip in July 1991.
Upon petitioners return from Europe, she demanded from
respondent the reimbursement of P61,421.70, representing the
difference between the sum she paid for Jewels of Europe and the
amount she owed respondent for the British Pageant tour. Despite
several demands, respondent company refused to reimburse the
amount, contending that the same was non-refundable.[1] Petitioner
was thus constrained to file a complaint against respondent for
breach of contract of carriage and damages, which was docketed as
Civil Case No. 92-133 and raffled to Branch 59 of the Regional Trial
Court of Makati City.
In her complaint,[2] petitioner alleged that her failure to join
Jewels of Europe was due to respondents fault since it did not clearly
indicate the departure date on the plane ticket. Respondent was also
negligent in informing her of the wrong flight schedule through its
employee Menor. She insisted that the British Pageant was merely a
substitute for the Jewels of Europe tour, such that the cost of the
former should be properly set-off against the sum paid for the latter.
For its part, respondent company, through its Operations
Manager, Concepcion Chipeco, denied responsibility for petitioners
failure to join the first tour. Chipeco insisted that petitioner was
informed of the correct departure date, which was clearly and legibly
printed on the plane ticket. The travel documents were given to
petitioner two days ahead of the scheduled trip. Petitioner had only
herself to blame for missing the flight, as she did not bother to read
or confirm her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the
amount paid for Jewels of Europe, considering that the same had
already been remitted to its principal in Singapore, Lotus Travel Ltd.,
which had already billed the same even if petitioner did not join the
tour. Lotus European tour organizer, Insight International Tours Ltd.,
determines the cost of a package tour based on a minimum number
of projected participants. For this reason, it is accepted industry
practice to disallow refund for individuals who failed to take a booked
tour.[3]
Lastly, respondent maintained that the British Pageant was not
a substitute for the package tour that petitioner missed. This tour was
independently procured by petitioner after realizing that she made a
mistake in missing her flight for Jewels of Europe. Petitioner was
allowed to make a partial payment of only US$300.00 for the second
tour because her niece was then an employee of the travel
agency. Consequently, respondent prayed that petitioner be ordered
to pay the balance of P12,901.00 for the British Pageant package
tour.
OBLICON 1/16/2018 ACJUCO16
After due proceedings, the trial court rendered a decision, [4] the
dispositive part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered
as follows:
1. Ordering the defendant to return and/or refund to the
plaintiff the amount of Fifty Three Thousand Nine
Hundred Eighty Nine Pesos and Forty Three
Centavos (P53,989.43) with legal interest thereon
at the rate of twelve percent (12%) per annum
starting January 16, 1992, the date when the
complaint was filed;
2. Ordering the defendant to pay the plaintiff the amount
of Five Thousand (P5,000.00) Pesos as and for
reasonable attorneys fees;
3. Dismissing the defendants counterclaim, for lack of
merit; and
4. With costs against the defendant.
SO ORDERED.[5]
The trial court held that respondent was negligent in
erroneously advising petitioner of her departure date through its
employee, Menor, who was not presented as witness to rebut
petitioners testimony. However, petitioner should have verified the
exact date and time of departure by looking at her ticket and should
have simply not relied on Menors verbal representation. The trial
court thus declared that petitioner was guilty of contributory
negligence and accordingly, deducted 10% from the amount being
claimed as refund.
Respondent appealed to the Court of Appeals, which likewise
found both parties to be at fault. However, the appellate court held
that petitioner is more negligent than respondent because as a lawyer
and well-traveled person, she should have known better than to
simply rely on what was told to her. This being so, she is not entitled
to any form of damages. Petitioner also forfeited her right to the
Jewels of Europe tour and must therefore pay respondent the
balance of the price for the British Pageant tour. The dispositive
portion of the judgment appealed from reads as follows:
WHEREFORE, premises considered, the decision of the Regional
Trial Court dated October 26, 1995 is hereby REVERSED and SET
ASIDE. A new judgment is hereby ENTERED requiring the plaintiff-
appellee to pay to the defendant-appellant the amount of P12,901.00,
representing the balance of the price of the British Pageant Package
Tour, the same to earn legal interest at the rate of SIX PERCENT
(6%) per annum, to be computed from the time the counterclaim was
filed until the finality of this decision. After this decision becomes final
and executory, the rate of TWELVE PERCENT (12%) interest per
annum shall be additionally imposed on the total obligation until
payment thereof is satisfied. The award of attorneys fees is
DELETED. Costs against the plaintiff-appellee.
SO ORDERED.[6]
Upon denial of her motion for reconsideration, [7] petitioner filed
the instant petition under Rule 45 on the following grounds:
I
It is respectfully submitted that the Honorable Court of Appeals
committed a reversible error in reversing and setting aside the
decision of the trial court by ruling that the petitioner is not entitled to
a refund of the cost of unavailed Jewels of Europe tour she being
equally, if not more, negligent than the private respondent, for in the
contract of carriage the common carrier is obliged to observe utmost
care and extra-ordinary diligence which is higher in degree than the
ordinary diligence required of the passenger. Thus, even if the
petitioner and private respondent were both negligent, the petitioner
cannot be considered to be equally, or worse, more guilty than the
private respondent. At best, petitioners negligence is only
contributory while the private respondent [is guilty] of gross
negligence making the principle of pari delicto inapplicable in the
case;
II

The Honorable Court of Appeals also erred in not ruling that the
Jewels of Europe tour was not indivisible and the amount paid
therefor refundable;
III
The Honorable Court erred in not granting to the petitioner the
consequential damages due her as a result of breach of contract of
carriage.[8]
Petitioner contends that respondent did not observe the
standard of care required of a common carrier when it informed her
wrongly of the flight schedule. She could not be deemed more
negligent than respondent since the latter is required by law to
exercise extraordinary diligence in the fulfillment of its obligation. If
she were negligent at all, the same is merely contributory and not the
proximate cause of the damage she suffered. Her loss could only be
attributed to respondent as it was the direct consequence of its
employees gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is one
whereby a certain person or association of persons obligate
themselves to transport persons, things, or news from one place to
another for a fixed price.[9] Such person or association of persons are
regarded as carriers and are classified as private or special carriers
and common or public carriers.[10] A common carrier is defined under
Article 1732 of the Civil Code as persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water or air, for compensation,
offering their services to the public.
It is obvious from the above definition that respondent is not an
entity engaged in the business of transporting either passengers or
goods and is therefore, neither a private nor a common carrier.
Respondent did not undertake to transport petitioner from one place
to another since its covenant with its customers is simply to make
travel arrangements in their behalf. Respondents services as a travel
agency include procuring tickets and facilitating travel permits or
visas as well as booking customers for tours.
While petitioner concededly bought her plane ticket through the
efforts of respondent company, this does not mean that the latter ipso
facto is a common carrier. At most, respondent acted merely as an
agent of the airline, with whom petitioner ultimately contracted for her
carriage to Europe. Respondents obligation to petitioner in this regard
was simply to see to it that petitioner was properly booked with the
airline for the appointed date and time. Her transport to the place of
destination, meanwhile, pertained directly to the airline.
The object of petitioners contractual relation with respondent is
the latters service of arranging and facilitating petitioners booking,
ticketing and accommodation in the package tour. In contrast, the
object of a contract of carriage is the transportation of passengers
or goods. It is in this sense that the contract between the parties in
this case was an ordinary one for services and not one of carriage.
Petitioners submission is premised on a wrong assumption.
The nature of the contractual relation between petitioner and
respondent is determinative of the degree of care required in the
performance of the latters obligation under the contract. For reasons
of public policy, a common carrier in a contract of carriage is bound
by law to carry passengers as far as human care and foresight can
provide using the utmost diligence of very cautious persons and with
due regard for all the circumstances. [11] As earlier stated, however,
respondent is not a common carrier but a travel agency. It is thus not
bound under the law to observe extraordinary diligence in the
performance of its obligation, as petitioner claims.
Since the contract between the parties is an ordinary one for
services, the standard of care required of respondent is that of a good
father of a family under Article 1173 of the Civil Code. [12] This
connotes reasonable care consistent with that which an ordinarily
prudent person would have observed when confronted with a similar
situation. The test to determine whether negligence attended the
performance of an obligation is: did the defendant in doing the alleged
negligent act use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If
not, then he is guilty of negligence.[13]
In the case at bar, the lower court found Menor negligent when
she allegedly informed petitioner of the wrong day of departure.
Petitioners testimony was accepted as indubitable evidence of
Menors alleged negligent act since respondent did not call Menor to
the witness stand to refute the allegation. The lower court applied the
presumption under Rule 131, Section 3 (e)[14] of the Rules of Court
that evidence willfully suppressed would be adverse if produced and
OBLICON 1/16/2018 ACJUCO17
thus considered petitioners uncontradicted testimony to be sufficient
proof of her claim.
On the other hand, respondent has consistently denied that
Menor was negligent and maintains that petitioners assertion is
belied by the evidence on record. The date and time of departure was
legibly written on the plane ticket and the travel papers were delivered
two days in advance precisely so that petitioner could prepare for the
trip. It performed all its obligations to enable petitioner to join the tour
and exercised due diligence in its dealings with the latter.
We agree with respondent.
Respondents failure to present Menor as witness to rebut
petitioners testimony could not give rise to an inference unfavorable
to the former. Menor was already working in France at the time of the
filing of the complaint,[15] thereby making it physically impossible for
respondent to present her as a witness. Then too, even if it were
possible for respondent to secure Menors testimony, the presumption
under Rule 131, Section 3(e) would still not apply. The opportunity
and possibility for obtaining Menors testimony belonged to both
parties, considering that Menor was not just respondents employee,
but also petitioners niece. It was thus error for the lower court to
invoke the presumption that respondent willfully suppressed
evidence under Rule 131, Section 3(e). Said presumption would
logically be inoperative if the evidence is not intentionally omitted but
is simply unavailable, or when the same could have been obtained
by both parties.[16]
In sum, we do not agree with the finding of the lower court that
Menors negligence concurred with the negligence of petitioner and
resultantly caused damage to the latter. Menors negligence was not
sufficiently proved, considering that the only evidence presented on
this score was petitioners uncorroborated narration of the events. It
is well-settled that the party alleging a fact has the burden of proving
it and a mere allegation cannot take the place of evidence. [17] If the
plaintiff, upon whom rests the burden of proving his cause of action,
fails to show in a satisfactory manner facts upon which he bases his
claim, the defendant is under no obligation to prove his exception or
defense.[18]
Contrary to petitioners claim, the evidence on record shows that
respondent exercised due diligence in performing its obligations
under the contract and followed standard procedure in rendering its
services to petitioner. As correctly observed by the lower court, the
plane ticket[19] issued to petitioner clearly reflected the departure date
and time, contrary to petitioners contention. The travel documents,
consisting of the tour itinerary, vouchers and instructions, were
likewise delivered to petitioner two days prior to the trip. Respondent
also properly booked petitioner for the tour, prepared the necessary
documents and procured the plane tickets. It arranged petitioners
hotel accommodation as well as food, land transfers and sightseeing
excursions, in accordance with its avowed undertaking.
Therefore, it is clear that respondent performed its prestation
under the contract as well as everything else that was essential to
book petitioner for the tour. Had petitioner exercised due diligence in
the conduct of her affairs, there would have been no reason for her
to miss the flight. Needless to say, after the travel papers were
delivered to petitioner, it became incumbent upon her to take ordinary
care of her concerns. This undoubtedly would require that she at least
read the documents in order to assure herself of the important details
regarding the trip.
The negligence of the obligor in the performance of the
obligation renders him liable for damages for the resulting loss
suffered by the obligee. Fault or negligence of the obligor consists in
his failure to exercise due care and prudence in the performance of
the obligation as the nature of the obligation so demands.[20] There is
no fixed standard of diligence applicable to each and every
contractual obligation and each case must be determined upon its
particular facts. The degree of diligence required depends on the
circumstances of the specific obligation and whether one has been
negligent is a question of fact that is to be determined after taking into
account the particulars of each case.[21]
The lower court declared that respondents employee was
negligent. This factual finding, however, is not supported by the
evidence on record. While factual findings below are generally
conclusive upon this court, the rule is subject to certain exceptions,
as when the trial court overlooked, misunderstood, or misapplied
some facts or circumstances of weight and substance which will
affect the result of the case.[22]
In the case at bar, the evidence on record shows that
respondent company performed its duty diligently and did not commit
any contractual breach. Hence, petitioner cannot recover and must
bear her own damage.
 OBLICON 1/16/2018 ACJUCO18

WHEREFORE, the instant petition is DENIED for lack of merit.

The decision of the Court of Appeals in CA-G.R. CV No. 51932 is
AFFIRMED. Accordingly, petitioner is ordered to pay respondent the
amount of P12,901.00 representing the balance of the price of the
British Pageant Package Tour, with legal interest thereon at the rate
of 6% per annum, to be computed from the time the counterclaim was
filed until the finality of this Decision. After this Decision becomes final
and executory, the rate of 12% per annum shall be imposed until the
obligation is fully settled, this interim period being deemed to be by
then an equivalent to a forbearance of credit.[23]
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Carpio, and Azcuna,
JJ., concur.

G.R. No. L-15645 January 31, 1964
PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees,
vs.
NATIONAL RICE AND CORN CORPORATION, defendant-
appellant,
MANILA UNDERWRITERS INSURANCE CO., INC., defendant-
appellee.
Teehankee and Carreon for plaintiffs-appellees.
The Government Corporate Counsel for defendant-appellant.
Isidro A. Vera for defendant-appellee.
REGALA, J.:
This is an appeal of the defendant-appellant NARIC from the decision
of the trial court dated February 20, 1958, awarding to the plaintiffs-
appellees the amount of $286,000.00 as damages for breach of
contract and dismissing the counterclaim and third party complaint of
the defendant-appellant NARIC.
In accordance with Section 13 of Republic Act No. 3452, "the National
Rice and Corn Administration (NARIC) is hereby abolished and all its
assets, liabilities, functions, powers which are not inconsistent with
the provisions of this Act, and all personnel are transferred "to the
Rice and Corn Administration (RCA).
All references, therefore, to the NARIC in this decision must
accordingly be adjusted and read as RCA pursuant to the
aforementioned law.
On May 19, 1952, plaintiff-appellee participated in the public bidding
called by the NARIC for the supply of 20,000 metric tons of Burmese
rice. As her bid of $203.00 per metric ton was the lowest, she was
awarded the contract for the same. Accordingly, on July 1, 1952,
plaintiff-appellee Paz P. Arrieta and the appellant corporation entered
into a Contract of Sale of Rice, under the terms of which the former
obligated herself to deliver to the latter 20,000 metric tons of Burmess
Rice at $203.00 per metric ton, CIF Manila. In turn, the defendant
corporation committed itself to pay for the imported rice "by means of
an irrevocable, confirmed and assignable letter of credit in U.S.
currency in favor of the plaintiff-appellee and/or supplier in Burma,
immediately." Despite the commitment to pay immediately "by means
of an irrevocable, confirmed and assignable Letter of Credit,"
however, it was only on July 30, 1952, or a full month from the
execution of the contract, that the defendant corporation, thru its
general manager, took the first to open a letter of credit by forwarding
to the Philippine National Bank its Application for Commercial Letter
Credit. The application was accompanied by a transmittal letter, the
relevant paragraphs of which read:
In view of the fact that we do not have sufficient deposit with
your institution with which to cover the amount required to
be deposited as a condition for the opening of letters of
credit, we will appreciate it if this application could be
considered special case.
We understand that our supplier, Mrs. Paz P. Arrieta, has a
deadline to meet which is August 4, 1952, and in order to
comply therewith, it is imperative that the L/C be opened
prior to that date. We would therefore request your full
cooperation on this matter.
On the same day, July 30, 1952, Mrs. Paz P. Arrieta thru counsel,
advised the appellant corporation of the extreme necessity for the
immediate opening of the letter credit since she had by then made a
tender to her supplier in Rangoon, Burma, "equivalent to 5% of the
F.O.B. price of 20,000 tons at $180.70 and in compliance with the
regulations in Rangoon this 5% will be confiscated if the required
letter of credit is not received by them before August 4, 1952."
On August 4, 1952, the Philippine National Bank informed the
appellant corporation that its application, "for a letter of credit for
$3,614,000.00 in favor of Thiri Setkya has been approved by the
Board of Directors with the condition that marginal cash deposit be
paid and that drafts are to be paid upon presentment." (Exh. J-pl.;
Exh. 10-def., p. 19, Folder of Exhibits). Furthermore, the Bank
represented that it "will hold your application in abeyance pending
compliance with the above stated requirement."
As it turned out, however, the appellant corporation not in any
financial position to meet the condition. As matter of fact, in a letter
OBLICON 1/16/2018 ACJUCO19
dated August 2, 1952, the NARIC bluntly confessed to the appellee
its dilemma: "In this connection, please be advised that our
application for opening of the letter of credit has been presented to
the bank since July 30th but the latter requires that we first deposit
50% of the value of the letter amounting to aproximately
$3,614,000.00 which we are not in a position to meet." (Emphasis
supplied. Exh. 9-Def.; Exh. 1-Pe., p. 18, Folder of Exhibits)
Consequently, the credit instrument applied for was opened only on
September 8, 1952 "in favor of Thiri Setkya, Rangoon, Burma, and/or
assignee for $3,614,000.00," (which is more than two months from
the execution of the contract) the party named by the appellee as
beneficiary of the letter of credit.1äwphï1.ñët
As a result of the delay, the allocation of appellee's supplier in
Rangoon was cancelled and the 5% deposit, amounting to 524,000
kyats or approximately P200,000.00 was forfeited. In this connection,
it must be made of record that although the Burmese authorities had
set August 4, 1952, as the deadline for the remittance of the required
letter of credit, the cancellation of the allocation and the confiscation
of the 5% deposit were not effected until August 20, 1952, or, a full
half month after the expiration of the deadline. And yet, even with the
15-day grace, appellant corporation was unable to make good its
commitment to open the disputed letter of credit.
The appellee endeavored, but failed, to restore the cancelled
Burmese rice allocation. When the futility of reinstating the same
became apparent, she offered to substitute Thailand rice instead to
the defendant NARIC, communicating at the same time that the offer
was "a solution which should be beneficial to the NARIC and to us at
the same time." (Exh. X-Pe., Exh. 25—Def., p. 38, Folder of Exhibits).
This offer for substitution, however, was rejected by the appellant in
a resolution dated November 15, 1952.
On the foregoing, the appellee sent a letter to the appellant,
demanding compensation for the damages caused her in the sum of
$286,000.00, U.S. currency, representing unrealized profit. The
demand having been rejected she instituted this case now on appeal.
At the instance of the NARIC, a counterclaim was filed and the Manila
Underwriters Insurance Company was brought to the suit as a third
party defendant to hold it liable on the performance bond it executed
in favor of the plaintiff-appellee.
We find for the appellee.
It is clear upon the records that the sole and principal reason for the
cancellation of the allocation contracted by the appellee herein in
Rangoon, Burma, was the failure of the letter of credit to be opened
with the contemplated period. This failure must, therefore, be taken
as the immediate cause for the consequent damage which resulted.
As it is then, the disposition of this case depends on a determination
of who was responsible for such failure. Stated differently, the issue
is whether appellant's failure to open immediately the letter of credit
in dispute amounted to a breach of the contract of July 1, 1952 for
which it may be held liable in damages.
Appellant corporation disclaims responsibility for the delay in the
opening of the letter of credit. On the contrary, it insists that the fault
lies with the appellee. Appellant contends that the disputed
negotiable instrument was not promptly secured because the
appellee , failed to seasonably furnish data necessary and required
for opening the same, namely, "(1) the amount of the letter of credit,
(2) the person, company or corporation in whose favor it is to be
opened, and (3) the place and bank where it may be negotiated."
Appellant would have this Court believe, therefore, that had these
informations been forthwith furnished it, there would have been no
delay in securing the instrument.
Appellant's explanation has neither force nor merit. In the first place,
the explanation reaches into an area of the proceedings into which
We are not at liberty to encroach. The explanation refers to a question
of fact. Nothing in the record suggests any arbitrary or abusive
conduct on the part of the trial judge in the formulation of the ruling.
His conclusion on the matter is sufficiently borne out by the evidence
presented. We are denied, therefore, the prerogative to disturb that
finding, consonant to the time-honored tradition of this Tribunal to
hold trial judges better situated to make conclusions on questions of
fact. For the record, We quote hereunder the lower court's ruling on
the point:
The defense that the delay, if any in opening the letter of
credit was due to the failure of plaintiff to name the supplier,

the amount and the bank is not tenable. Plaintiff stated in
Court that these facts were known to defendant even before
the contract was executed because these facts were
necessarily revealed to the defendant before she could
qualify as a bidder. She stated too that she had given the
necessary data immediately after the execution of Exh. "A"
(the contract of July 1, 1952) to Mr. GABRIEL BELMONTE,
General Manager of the NARIC, both orally and in writing
and that she also pressed for the opening of the letter of
credit on these occasions. These statements have not been
controverted and defendant NARIC, notwithstanding its
previous intention to do so, failed to present Mr. Belmonte
to testify or refute this. ...
Secondly, from the correspondence and communications which form
part of the record of this case, it is clear that what singularly delayed
the opening of the stipulated letter of credit and which, in turn, caused
the cancellation of the allocation in Burma, was the inability of the
appellant corporation to meet the condition importation by the Bank
for granting the same. We do not think the appellant corporation can
refute the fact that had it been able to put up the 50% marginal cash
deposit demanded by the bank, then the letter of credit would have
been approved, opened and released as early as August 4, 1952.
The letter of the Philippine National Bank to the NARIC was plain and
explicit that as of the said date, appellant's "application for a letter of
credit ... has been approved by the Board of Directors with the
condition that 50% marginal cash deposit be paid and that drafts are
to be paid upon presentment." (Emphasis supplied)
The liability of the appellant, however, stems not alone from this
failure or inability to satisfy the requirements of the bank. Its
culpability arises from its willful and deliberate assumption of
contractual obligations even as it was well aware of its financial
incapacity to undertake the prestation. We base this judgment upon
the letter which accompanied the application filed by the appellant
with the bank, a part of which letter was quoted earlier in this decision.
In the said accompanying correspondence, appellant admitted and
owned that it did "not have sufficient deposit with your institution (the
PNB) with which to cover the amount required to be deposited as a
condition for the opening of letters of credit. ... .
A number of logical inferences may be drawn from the
aforementioned admission. First, that the appellant knew the bank
requirements for opening letters of credit; second, that appellant also
knew it could not meet those requirement. When, therefore, despite
this awareness that was financially incompetent to open a letter of
credit immediately, appellant agreed in paragraph 8 of the contract to
pay immediately "by means of an irrevocable, confirm and assignable
letter of credit," it must be similarly held to have bound itself to answer
for all and every consequences that would result from the
representation. aptly observed by the trial court:
... Having called for bids for the importation of rice involving
millions, $4,260,000.00 to be exact, it should have a
certained its ability and capacity to comply with the
inevitably requirements in cash to pay for such importation.
Having announced the bid, it must be deemed to have
impliedly assured suppliers of its capacity and facility to
finance the importation within the required period,
especially since it had imposed the supplier the 90-day
period within which the shipment of the rice must be brought
into the Philippines. Having entered in the contract, it
should have taken steps immediately to arrange for the
letter of credit for the large amount involved and inquired
into the possibility of its issuance.
In relation to the aforequoted observation of the trial court, We would
like to make reference also to Article 11 of the Civil Code which
provides:
Those who in the performance of their obligation are guilty
of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable in damages.
Under this provision, not only debtors guilty of fraud, negligence or
default in the performance of obligations a decreed liable; in general,
every debtor who fails in performance of his obligations is bound to
indemnify for the losses and damages caused thereby (De la Cruz
Seminary of Manila, 18 Phil. 330; Municipality of Moncada v.
Cajuigan, 21 Phil. 184; De la Cavada v. Diaz, 37 Phil. 982; Maluenda
& Co. v. Enriquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil. 1003;
Pando v. Gimenez, 54 Phil. 459; Acme Films v. Theaters Supply, 63
Phil. 657). The phrase "any manner contravene the tenor" of the
obligation includes any illicit act which impairs the strict and faithful
OBLICON 1/16/2018 ACJUCO20
fulfillment of the obligation or every kind or defective performance.
(IV Tolentino, Civil Code of the Philippines, citing authorities, p. 103.)
The NARIC would also have this Court hold that the subsequent offer
to substitute Thailand rice for the originally contracted Burmese rice
amounted to a waiver by the appellee of whatever rights she might
have derived from the breach of the contract. We disagree. Waivers
are not presumed, but must be clearly and convincingly shown, either
by express stipulation or acts admitting no other reasonable
explanation. (Ramirez v. Court of Appeals, 52 O.G. 779.) In the case
at bar, no such intent to waive has been established.
We have carefully examined and studied the oral and documentary
evidence presented in this case and upon which the lower court
based its award. Under the contract, the NARIC bound itself to buy
20,000 metric tons of Burmese rice at "$203.00 U.S. Dollars per
metric ton, all net shipped weight, and all in U.S. currency, C.I.F.
Manila ..." On the other hand, documentary and other evidence
establish with equal certainty that the plaintiff-appellee was able to
secure the contracted commodity at the cost price of $180.70 per
metric ton from her supplier in Burma. Considering freights, insurance
and charges incident to its shipment here and the forfeiture of the 5%
deposit, the award granted by the lower court is fair and equitable.
For a clearer view of the equity of the damages awarded, We
reproduce below the testimony of the appellee, adequately supported
by the evidence and record:
Q. Will you please tell the court, how much is the damage
you suffered?
A. Because the selling price of my rice is $203.00 per metric
ton, and the cost price of my rice is $180.00 We had to pay
also $6.25 for shipping and about $164 for insurance. So
adding the cost of the rice, the freight, the insurance, the
total would be about $187.99 that would be $15.01 gross
profit per metric ton, multiply by 20,000 equals $300,200,
that is my supposed profit if I went through the contract.
The above testimony of the plaintiff was a general approximation of
the actual figures involved in the transaction. A precise and more
exact demonstration of the equity of the award herein is provided by
Exhibit HH of the plaintiff and Exhibit 34 of the defendant, hereunder
quoted so far as germane.
It is equally of record now that as shown in her request
dated July 29, 1959, and other communications
subsequent thereto for the opening by your corporation of
the required letter of credit, Mrs. Arrieta was supposed to
pay her supplier in Burma at the rate of One Hundred Eighty
Dollars and Seventy Cents ($180.70) in U.S. Currency, per
ton plus Eight Dollars ($8.00) in the same currency per ton
for shipping and other handling expenses, so that she is
already assured of a net profit of Fourteen Dollars and
Thirty Cents ($14.30), U.S., Currency, per ton or a total of
Two Hundred and Eighty Six Thousand Dollars
($286,000.00), U.S. Currency, in the aforesaid transaction.
...
Lastly, herein appellant filed a counterclaim asserting that it has
suffered, likewise by way of unrealized profit damages in the total
sum of $406,000.00 from the failure of the projected contract to
materialize. This counterclaim was supported by a cost study made
and submitted by the appellant itself and wherein it was illustrated
how indeed had the importation pushed thru, NARIC would have
realized in profit the amount asserted in the counterclaim. And yet,
the said amount of P406,000.00 was realizable by appellant despite
a number of expenses which the appellee under the contract, did not
have to incur. Thus, under the cost study submitted by the appellant,
banking and unloading charges were to be shouldered by it, including
an Import License Fee of 2% and superintendence fee of $0.25 per
metric ton. If the NARIC stood to profit over P400 000.00 from the
disputed transaction inspite of the extra expenditures from which the
herein appellee was exempt, we are convicted of the fairness of the
judgment presently under appeal.
In the premises, however, a minor modification must be effected in
the dispositive portion of the decision appeal from insofar as it
expresses the amount of damages in U.S. currency and not in
Philippine Peso. Republic Act 529 specifically requires the discharge
of obligations only "in any coin or currency which at the time of
payment is legal tender for public and private debts." In view of that
law, therefore, the award should be converted into and expressed in
Philippine Peso.
 OBLICON 1/16/2018 ACJUCO21

This brings us to a consideration of what rate of exchange should

apply in the conversion here decreed. Should it be at the time of the
breach, at the time the obligation was incurred or at the rate of
exchange prevailing on the promulgation of this decision.

In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in
an action for recovery of damages for breach of contract, even if the
obligation assumed by the defendant was to pay the plaintiff a sum
of money expressed in American currency, the indemnity to be
allowed should be expressed in Philippine currency at the rate of
exchange at the time of the judgment rather than at the rate of
exchange prevailing on the date of defendant's breach. This ruling,
however, can neither be applied nor extended to the case at bar for
the same was laid down when there was no law against stipulating
foreign currencies in Philippine contracts. But now we have Republic
Act No. 529 which expressly declares such stipulations as contrary
to public policy, void and of no effect. And, as We already pronounced
in the case of Eastboard Navigation, Ltd. v. Juan Ysmael & Co., Inc.,
G.R. No. L-9090, September 10, 1957, if there is any agreement to
pay an obligation in a currency other than Philippine legal tender, the
same is null and void as contrary to public policy (Republic Act 529),
and the most that could be demanded is to pay said obligation in
Philippine currency "to be measured in the prevailing rate of
exchange at the time the obligation was incurred (Sec. 1, idem)."

UPON ALL THE FOREGOING, the decision appealed from is hereby

affirmed, with the sole modification that the award should be
converted into the Philippine peso at the rate of exchange prevailing
at the time the obligation was incurred or on July 1, 1952 when the
contract was executed. The appellee insurance company, in the light
of this judgment, is relieved of any liability under this suit. No
pronouncement as to costs.

Bengzon, C.J., Padilla, Concepcion, Paredes, Dizon and Makalintal,

JJ., concur.
Barrera, J., took no part.
Reyes, J.B.L., J., reserves his vote.

[G.R. No. L-27454. April 30, 1970.]

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO

GONZALES, Defendant-Appellee.

Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.
Sulpicio E. Platon, for Defendant-Appellee.
SYLLABUS
1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-
PERFORMANCE; FIXING OF PERIOD BEFORE FILING OF
COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.— Where
the time for compliance had expired and there was breach of contract
by non-performance, it was academic for the plaintiff to have first
petitioned the court to fix a period for the performance of the contract
before filing his complaint.
2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF
THE CIVIL CODE OF THE PHILIPPINES.— Where the defendant
virtually admitted non-performance of the contract by returning the
typewriter that he was obliged to repair in a non-working condition,
with essential parts missing, Article 1197 of the Civil Code of the
Philippines cannot be invoked. The fixing of a period would thus be a
mere formality and would serve no purpose than to delay.
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.—
Where the defendant-appellee contravened the tenor of his obligation
because he not only did not repair the typewriter but returned it "in
shambles,’’ he is liable for the cost of the labor or service expended
in the repair of the typewriter, which is in the amount of P58.75,
because the obligation or contract was to repair it. In addition, he is
likewise liable under Art. 1170 of the Code, for the cost of the missing
parts, in the amount of P31.10, for in his obligation to repair the
typewriter he was bound, but failed or neglected, to return it in the
same condition it was when he received it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY’S FEES
NOT RECOVERABLE; NOT ALLEGED OR PROVED IN INSTANT
CASE.— Claims for damages and attorney’s fees must be pleaded,
and the existence of the actual basis thereof must be proved. As no
findings of fact were made on the claims for damages and attorney’s
fees, there is no factual basis upon which to make an award therefor.
5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST
INSTANCE TO SUPREME COURT; ONLY QUESTIONS OF LAW
REVIEWABLE.— Where the appellant directly appeals from the
decision of the trial court to the Supreme Court on questions of law,
he is bound by the judgment of the court a quo on its findings of fact.
DECISION
REYES, J.B.L., J.:
This is a direct appeal by the party who prevailed in a suit for breach
of oral contract and recovery of damages but was unsatisfied with the
decision rendered by the Court of First Instance of Manila, in its Civil
Case No. 65138, because it awarded him only P31.10 out of his total
claim of P690 00 for actual, temperate and moral damages and
attorney’s fees.
The appealed judgment, which is brief, is hereunder quoted in full:
"In the early part of July, 1963, the plaintiff delivered to the defendant,
who is a typewriter repairer, a portable typewriter for routine cleaning
and servicing. The defendant was not able to finish the job after some
time despite repeated reminders made by the plaintiff. The defendant
merely gave assurances, but failed to comply with the same. In
October, 1963, the defendant asked from the plaintiff the sum of
P6.00 for the purchase of spare parts, which amount the plaintiff gave
to the defendant. On October 26, 1963, after getting exasperated with
the delay of the repair of the typewriter, the plaintiff went to the house
of the defendant and asked for the return of the typewriter. The
defendant delivered the typewriter in a wrapped package. On
reaching home, the plaintiff examined the typewriter returned to him
by the defendant and found out that the same was in shambles, with
the interior cover and some parts and screws missing. On October
29, 1963. the plaintiff sent a letter to the defendant formally
demanding the return of the missing parts, the interior cover and the
sum of P6.00 (Exhibit D). The following day, the defendant returned
to the plaintiff some of the missing parts, the interior cover and the
P6.00.
"On August 29, 1964, the plaintiff had his typewriter repaired by
Freixas Business Machines, and the repair job cost him a total of
OBLICON 1/16/2018 ACJUCO22
P89.85, including labor and materials (Exhibit C).
"On August 23, 1965, the plaintiff commenced this action before the
City Court of Manila, demanding from the defendant the payment of
P90.00 as actual and compensatory damages, P100.00 for
temperate damages, P500.00 for moral damages, and P500.00 as
attorney’s fees.
"In his answer as well as in his testimony given before this court, the
defendant made no denials of the facts narrated above, except the
claim of the plaintiff that the typewriter was delivered to the defendant
through a certain Julio Bocalin, which the defendant denied allegedly
because the typewriter was delivered to him personally by the
plaintiff.
"The repair done on the typewriter by Freixas Business Machines
with the total cost of P89.85 should not, however, be fully chargeable
against the defendant. The repair invoice, Exhibit C, shows that the
missing parts had a total value of only P31.10.
"WHEREFORE, judgment is hereby rendered ordering the defendant
to pay the plaintiff the sum of P31.10, and the costs of suit.
"SO ORDERED."
The error of the court a quo, according to the plaintiff-appellant,
Rosendo O. Chaves, is that it awarded only the value of the missing
parts of the typewriter, instead of the whole cost of labor and
materials that went into the repair of the machine, as provided for in
Article 1167 of the Civil Code, reading as follows:
"ART. 1167. If a person obliged to do something fails to do it, the
same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the
tenor of the obligation. Furthermore it may be decreed that what has
been poorly done he undone."
On the other hand, the position of the defendant-appellee, Fructuoso
Gonzales, is that he is not liable at all, not even for the sum of P31.10,
because his contract with plaintiff-appellant did not contain a period,
so that plaintiff-appellant should have first filed a petition for the court
to fix the period, under Article 1197 of the Civil Code, within which the
defendant appellee was to comply with the contract before said
defendant-appellee could be held liable for breach of contract.
Because the plaintiff appealed directly to the Supreme Court and the
appellee did not interpose any appeal, the facts, as found by the trial
court, are now conclusive and non-reviewable. 1
The appealed judgment states that the "plaintiff delivered to the
defendant . . . a portable typewriter for routine cleaning and servicing"
; that the defendant was not able to finish the job after some time
despite repeated reminders made by the plaintiff" ; that the
"defendant merely gave assurances, but failed to comply with the
same" ; and that "after getting exasperated with the delay of the repair
of the typewriter", the plaintiff went to the house of the defendant and
asked for its return, which was done. The inferences derivable from
these findings of fact are that the appellant and the appellee had a
perfected contract for cleaning and servicing a typewriter; that they
intended that the defendant was to finish it at some future time
although such time was not specified; and that such time had passed
without the work having been accomplished, far the defendant
returned the typewriter cannibalized and unrepaired, which in itself is
a breach of his obligation, without demanding that he should be given
more time to finish the job, or compensation for the work he had
already done. The time for compliance having evidently expired, and
there being a breach of contract by non-performance, it was
academic for the plaintiff to have first petitioned the court to fix a
period for the performance of the contract before filing his complaint
in this case. Defendant cannot invoke Article 1197 of the Civil Code
for he virtually admitted non-performance by returning the typewriter
that he was obliged to repair in a non-working condition, with
essential parts missing. The fixing of a period would thus be a mere
formality and would serve no purpose than to delay (cf. Tiglao. Et. Al.
V. Manila Railroad Co. 98 Phil. 18l).
It is clear that the defendant-appellee contravened the tenor of his
obligation because he not only did not repair the typewriter but
returned it "in shambles", according to the appealed decision. For
such contravention, as appellant contends, he is liable under Article
1167 of the Civil Code. jam quot, for the cost of executing the
obligation in a proper manner. The cost of the execution of the
obligation in this case should be the cost of the labor or service
expended in the repair of the typewriter, which is in the amount of
P58.75. because the obligation or contract was to repair it.
In addition, the defendant-appellee is likewise liable, under Article
 OBLICON 1/16/2018 ACJUCO23

1170 of the Code, for the cost of the missing parts, in the amount of
P31.10, for in his obligation to repair the typewriter he was bound, but
failed or neglected, to return it in the same condition it was when he
received it.

Appellant’s claims for moral and temperate damages and attorney’s

fees were, however, correctly rejected by the trial court, for these
were not alleged in his complaint (Record on Appeal, pages 1-5).
Claims for damages and attorney’s fees must be pleaded, and the
existence of the actual basis thereof must be proved. 2 The appealed
judgment thus made no findings on these claims, nor on the fraud or
malice charged to the appellee. As no findings of fact were made on
the claims for damages and attorney’s fees, there is no factual basis
upon which to make an award therefor. Appellant is bound by such
judgment of the court, a quo, by reason of his having resorted directly
to the Supreme Court on questions of law.

IN VIEW OF THE FOREGOING REASONS, the appealed judgment

is hereby modified, by ordering the defendant-appellee to pay, as he
is hereby ordered to pay, the plaintiff-appellant the sum of P89.85,
with interest at the legal rate from the filing of the complaint. Costs in
all instances against appellee Fructuoso Gonzales.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando,

Teehankee and Villamor, JJ., concur.

Barredo, J., did not take part.


G.R. No. L-37120 April 20, 1983
VICTORINO D. MAGAT, petitioner,
vs.
HON. LEO D. MEDIALDEA and SANTIAGO A.
GUERRERO, respondents.
Sinesio S. Vergara for petitioner.
Eladio B. Samson for respondents.
ESCOLIN, J.:
Put to test in this petition for review on certiorari is the sufficiency of
the averments contained in the complaint for alleged breach of
contract filed by petitioner Victorino D. Magat against respondent
Santiago A. Guerrero in Civil Case No. 17827 of the Court of First
Instance of Rizal, presided by respondent Judge Leo D. Medialdea,
now Deputy Judicial Administrator, which complaint was dismissed
for failure to state a cause of action.
The pertinent allegations in the complaint, subject of inquiry, are as
follows: 1
3. That sometime in September 1972, the defendant entered
into a contract with the U.S. Navy Exchange, Subic Bay,
Philippines, for the operation of a fleet of taxicabs, each taxicab
to be provided with the necessary taximeter and a radio
transceiver for receiving and sending of messages from mobile
taxicab to fixed base stations within the Naval Base at Subic
Bay, Philippines;
4. That Isidro Q. Aligada, acting as agent of the defendant
herein conducted the necessary project studies on how best
the defendant may meet the requirements of his contract with
the U.S. Navy Exchange, Subic Bay, Philippines, and because
of the experience of the plaintiff in connection with his various,
contracts with the U.S. Navy, Subic Bay, Philippines, and his
goodwill already established with the Naval personnel of Subic
Bay, Philippines, especially in providing the U.S. Navy with
needed materials or goods on time as specified by the U.S.
Navy, be they of local origin or imported either from the United
States or from Japan, the said Isidro Q. Aligada approached
the plaintiff herein in behalf of the defendant and proposed to
import from Japan thru the plaintiff herein or thru plaintiff's
Japanese business associates, all taximeters and radio
transceivers needed by the defendant in connection with his
contract with the U.S. Navy Exchange, Subic Bay, Philippines;
5. That the defendant herein and his aforesaid agent Isidro Q.
Aligada were able to import from Japan with the assistance of
the plaintiff and his Japanese business associates the
necessary taximeters for defendant's taxicabs in partial
fulfillment of defendant's commitments with the U.S. Navy
Exchange, Subic Bay, Philippines, the plaintiff's assistance in
this matter having been given to the defendant gratis et amore;
6. That Isidro Q. Aligada, also acting as agent of the defendant,
made representations with the plaintiff herein to the effect that
defendant desired to procure from Japan thru the plaintiff
herein the needed radio transceivers and to this end, Isidro Q.
Aligada secured a firm offer in writing dated September 25,
1972, a copy of which is hereto attached marked as Annex 'A'
and made an integral part of this complaint, wherein the plaintiff
quoted in his offer a total price of $77,620.59 [U.S. dollars] FOB
Yokohama, the goods or articles therein offered for sale by the
plaintiff to the defendant to be delivered sixty to ninety [60-90]
days after receipt of advice from the defendant of the radio
frequency assigned to the defendant by the proper authorities;
7. That the plaintiff received notice of the fact that the
defendant accepted plaintiff's offer to sell to the
defendant the items specified in Annex 'A', as well as the
terms and conditions of said offer, as shown by the
signed conformity of the defendant appearing on Annex
'A' which was duly delivered by the defendant's agent to
the plaintiff herein, whereupon all that the plaintiff had to
do in the meantime was to await advice from the
defendant as to the radio frequency to be assigned by
the proper authorities to the defendant;
OBLICON 1/16/2018 ACJUCO24
8. That believing that the defendant would faithfully fulfill
his contract with the plaintiff herein, considering his
signed conformity appearing in Annex 'A' hereof as well
as the letter dated October 4, 1972, of his agent
aforementioned which is attached hereto and marked as
Annex 'B' and made an integral part of this complaint, and
in order that plaintiff's promised delivery would not be
delayed, the plaintiff herein took steps to advise the
Japanese entity entrusted with the manufacture of the
items listed in Annex 'A' to the effect that the contract
between the defendant herein and the plaintiff has been
perfected and that advice with regards to radio frequency
would follow as soon as same is received by the plaintiff
from the defendant;
9. That in his letter dated October 6, 1972, a copy of
which is hereto attached marked as Annex 'C', the
defendant advised his aforementioned agent to the effect
that the U.S. Navy provided him with the radio frequency
of 34.2 MHZ [Megahertz] and defendant requested his
said agent to proceed with his order placed with the
plaintiff herein, which fact was duly communicated to the
plaintiff by the defendant's aforementioned agent;
10. That by his letter dated October 7, 1972, addressed
to the plaintiff by the defendant's agent, a copy of which
is hereto attached and marked as Annex 'D', defendant's
agent qualified defendant's instructions contained in his
letter of October 6, 1972 [Annex 'C'] in the sense that
plaintiff herein should proceed to fulfill defendant's order
only upon receipt by the plaintiff of the defendant's letter
of credit;
11. That it being normal business practice in case of
foreign importation that the buyer opens a letter of credit
in favor of the foreign supplier before delivery of the
goods sold, the plaintiff herein awaited the opening of
such a letter of credit by the defendant;
12. That the defendant and his agent have repeatedly
assured plaintiff herein of the defendant's financial
capabilities to pay for the goods ordered by him and in
fact he accomplished the necessary application for a
letter of credit with his banker, but he subsequently
instructed his banker not to give due course to his
application for a letter of credit and that for reasons only
known to the defendant, he fails and refuses to open the
necessary letter of credit to cover payment of the goods
ordered by him;
13. That it has come to the knowledge of the plaintiff
herein that the defendant has been operating his
taxicabs without the required radio transceivers and
when the U.S. Navy Authorities of Subic Bay, Philippines,
were pressing defendant for compliance with his
commitments with respect to the installations of radio
transceivers on his taxicabs, he impliedly laid the blame
for the delay upon the plaintiff herein, thus destroying the
reputation of the plaintiff herein with the said Naval
Authorities of Subic Bay, Philippines, with whom plaintiff
herein transacts business;
14. That on March 27, 1973, plaintiff wrote a letter thru
his counsel, copy attached marked as Annex 'E', to
ascertain from the defendant as to whether it is his
intention to fulfill his part of the agreement with the
plaintiff herein or whether he desired to have the contract
between them definitely cancelled, but defendant did not
even have the courtesy to answer plaintiff's demand;
15. That the defendant herein entered into a
contract with the plaintiff herein as set forth in
Annex 'A' without the least intention of faithfully
complying with his obligation is thereunder, but he
did so only in order to obtain the concession from
the U.S. Navy Exchange, Subic Bay, Philippines,
of operating a fleet of taxicabs inside the U.S.
Naval Base to his financial benefit and at the
expense and prejudice of third parties such as the
plaintiff herein;
16. That in view of the defendant's failure to fulfill
his contractual obligations with the plaintiff herein,
the plaintiff will suffer the following damages:

[a] As the radio transceivers ordered by the
defendant are now in the hands of the plaintiff's
Japanese representative, the plaintiff will have
to pay for them, thus he will have to suffer as
total loss to him the amount of P523,938.98
(converting the amount of $77,620.59 to pesos
at the rate of P6.75 to the dollar) as said radio
transceivers were purposely made or
manufactured solely for the use of the
defendant herein and cannot possibly be
marketed by the plaintiff herein to the general
public;
[b] The amount of P 52,393.89 or 10% of the
purchase price by way of loss of expected
profits from the transaction or contract between
plaintiff and the defendant;
[c] Loss of confidence in him and goodwill of the
plaintiff which will result in the impairment of his
business dealings with Japanese firms, thereby
resulting also in loss of possible profits in the
future which plaintiff assess at no less than
P200,000.00;
[d] That in view of the defendant's bad faith in
inducing plaintiff to enter into the contract with
him as set forth hereinabove, defendant should
be assessed by his Honorable Court in favor of
the plaintiff the sum of P200,000.00 as moral
and exemplary damages;
[e] That in view of the defendant's fault and to
protect his interests, plaintiff herein is
constrained to retain the services of counsel
with whom he agreed to pay by way of
attorney's fees the sum of P50,000.00".
Respondent Guerrero filed a motion to dismiss said complaint for lack
of cause of action, which ground is propounded by respondent's
counsel thus: 2
... it is clear that plaintiff was merely anticipating
his loss or damage which might result from the
alleged failure of defendant to comply with the
terms of the alleged contract. Hence, plaintiff's
right of recovery under his cause of action is
premised not on any loss or damage actually
suffered by him but on a non-existing loss or
damage which he is expecting to incur in the near
future. Plaintiff's right therefore under his cause of
action is not yet fixed or vested.
Inasmuch as there is no other allegation in the
present Complaint wherein the same could be
maintained against defendant, the present
Complaint should be dismissed for its failure to
state a cause of action against defendant.
The respondent judge, over petitioner's opposition, issued a minute
order dismissing the complaint as follows: 3
Acting upon the 'Motion to Dismiss' filed by the
defendant, through counsel, dated June 7, 1973,
as well as the opposition thereto filed by the
plaintiff, through counsel, dated June 14, 1973,
for the reasons therein alleged, this Court hereby
grants said motion and, as prayed for, the
complaint in the above-entitled case is dismissed.
SO ORDERED.
Both parties are in accord with the view that when a motion to dismiss
is based on the ground of lack of cause of action, the sufficiency of
the case of action can only be determined on the basis of the facts
alleged in the complaint 4 ; that the facts alleged are deemed
hypothetically admitted, including those which are fairly deducible
therefrom 5 ; and that, admitting the facts as alleged, whether or not
the Court can render a valid judgment against the defendant upon
said facts in accordance with the prayer in the complaint 6.
OBLICON 1/16/2018 ACJUCO25
After a thorough examination of the complaint at bar, We find the test
of legal sufficiency of the cause of action adequately satisfied. In a
methodical and logical sequence, the complaints recites the
circumstances that led to the perfection of the contract entered into
by the parties. It further avers that while petitioner had fulfilled his part
of the bargain [paragraph 8 of the Complaint], private respondent
failed to comply with his correlative obligation by refusing to open a
letter of credit to cover payment of the goods ordered by him
[paragraphs 11 & 12 of the Complaint], and that consequently,
petitioner suffered not only loss of his expected profits, but moral and
exemplary damages as well. From these allegations, the essential
elements of a cause of action are present, to wit: [1] the existence of
a legal right to the plaintiff; [2] a correlative duty of the defendant and
[3] an act or omission of the defendant in violation of the plaintiff's
right, with consequent injury or damage to the latter for which he may
maintain an action for recovery of damages or other appropriate
relief. 7
Indisputably, the parties, both businessmen, entered into the
aforesaid contract with the evident intention of deriving some profits
therefrom. Upon breach of the contract by either of them, the other
would necessarily suffer loss of his expected profits. Since the loss
comes into being at the very moment of breach, such loss is real,
"fixed and vested" and, therefore, recoverable under the law.
Article 1170 of the Civil Code provides:
Those who in the performance of their obligation
are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof
are liable for damages.
The phrase "in any manner contravene the tenor" of the obligation
includes any ilicit act or omission which impairs the strict and faithful
fulfillment of the obligation and every kind of defective performance. 8
The damages which the obligor is liable for includes not only the
value of the loss suffered by the obligee [daño emergente] but also
the profits which the latter failed to obtain [lucro cesante] 9. If the
obligor acted in good faith, he shall be liable for those damages that
are the natural and probable consequences of the breach of the
obligation and which the parties have foreseen or could have
reasonably foreseen at the time the obligation was constituted; and
in case of fraud, bad faith, malice or wanton attitude, he shall be liable
for all damages which may be reasonably attributed to the non-
performance of the obligation 10.
The same is true with respect to moral and exemplary damages. The
applicable legal provisions on the matter, Articles 2220 and 2232 of
the Civil Code, allow the award of such damages in breaches of
contract where the defendant acted in bad faith. To Our mind, the
complaint sufficiently alleges bad faith on the part of the defendant.
In fine, We hold that on the basis of the facts alleged in the complaint,
the court could render a valid judgment in accordance with the prayer
thereof.
ACCORDINGLY, the questioned order of dismissal is hereby set
aside and the case ordered remanded to the court of origin for further
proceedings. No costs.
SO ORDERED.
Makasiar (Chairman), Concepcion Jr., Guerrero and A bad Santos,
JJ., concur.
Aquino, J., is on leave.
De Castro, J., took no part,

G.R. No. 144169 March 28, 200
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and
RAY STEVEN KHE, petitioners,
vs.
COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147,
MAKATI CITY and PHILAM INSURANCE CO., INC., respondents.
KAPUNAN, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45,
seeking to set aside the decision of the Court of Appeals dated April
10, 2000 and its resolution dated July 11, 2000 denying the motion
for reconsideration of the aforesaid decision. The original complaint
that is the subject matter of this case is an accion pauliana -- an
action filed by Philam Insurance Company, Inc. (respondent Philam)
to rescind or annul the donations made by petitioner Khe Hong
Cheng allegedly in fraud of creditors. The main issue for resolution is
whether or not the action to rescind the donations has already
prescribed. While the first paragraph of Article 1389 of the Civil Code
states: "The action to claim rescission must be commenced within
four years..." the question is, from which point or event does this
prescriptive period commence to run?
The facts are as follows:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan
Shipping Lines. It appears that on or about October 4, 1985, the
Philippine Agricultural Trading Corporation shipped on board the
vessel M/V PRINCE ERIC, owned by petitioner Khe Hong Cheng,
3,400 bags of copra at Masbate, Masbate, for delivery to Dipolog
City, Zamboanga del Norte. The said shipment of copra was covered
by a marine insurance policy issued by American Home Insurance
Company (respondent Philam's assured). M/V PRINCE ERlC,
however, sank somewhere between Negros Island and Northeastern
Mindanao, resulting in the total loss of the shipment. Because of the
loss, the insurer, American Home, paid the amount of P354,000.00
(the value of the copra) to the consignee.1âwphi1.nêt
Having been subrogated into the rights of the consignee, American
Home instituted Civil Case No. 13357 in the Regional Trial Court
(RTC) of Makati , Branch 147 to recover the money paid to the
consignee, based on breach of contract of carriage. While the case
was still pending, or on December 20, 1989, petitioner Khe Hong
Cheng executed deeds of donations of parcels of land in favor of his
children, herein co-petitioners Sandra Joy and Ray Steven. The
parcel of land with an area of 1,000 square meters covered by
Transfer Certificate of Title (TCT) No. T-3816 was donated to Ray
Steven. Petitioner Khe Hong Cheng likewise donated in favor of
Sandra Joy two (2) parcels of land located in Butuan City, covered by
TCT No. RT-12838. On the basis of said deeds, TCT No. T-3816 was
cancelled and in lieu thereof, TCT No. T-5072 was issued in favor of
Ray Steven and TCT No. RT-12838 was cancelled and in lieu
thereof, TCT No. RT-21054 was issued in the name of Sandra Joy.
The trial court rendered judgment against petitioner Khe Hong Cheng
in Civil Case No.13357 on December 29, 1993, four years after the
donations were made and the TCTs were registered in the donees'
names. The decretal portion of the aforesaid decision reads:
"Wherefore, in view of the foregoing, the Court hereby
renders judgment in favor of the plaintiff and against the
defendant, ordering the latter to pay the former:
1) the sum of P354,000.00 representing the amount paid by
the plaintiff to the Philippine Agricultural Trading
Corporation with legal interest at 12% from the time of the
filing of the complaint in this case;
2) the sum of P50,000.00 as attorney's fees;
3) the costs.1
After the said decision became final and executory, a writ of
execution was forthwith' issued on September 14, 1995. Said writ of
execution however, was not served. An alias writ of execution was,
thereafter, applied for and granted in October 1996. Despite earnest
efforts, the sheriff found no property under the name of Butuan
Shipping Lines and/or petitioner Khe Hong Cheng to levy or garnish
for the satisfaction of the trial court's decision. When the sheriff,
accompanied by counsel of respondent Philam, went to Butuan City
on January 17, 1997, to enforce the alias writ of execution, they
OBLICON 1/16/2018 ACJUCO26
discovered that petitioner Khe Hong Cheng no longer had any
property and that he had conveyed the subject properties to his
children.
On February 25, 1997, respondent Philam filed a complaint with the
Regional Trial Court of Makati City, Branch 147, for the rescission of
the deeds of donation executed by petitioner Khe Hong Cheng in
favor of his children and for the nullification of their titles (Civil Case
No.97-415). Respondent Philam alleged, inter alia, that petitioner
Khe Hong Cheng executed the aforesaid deeds in fraud of his
creditors, including respondent Philam.2
Petitioners subsequently filed their answer to the complaint a
quo. They moved for its dismissal on the ground that the action had
already prescribed. They posited that the registration of the deeds of
donation on December 27, 1989 constituted constructive notice and
since the complaint a quo was filed only on February 25, 1997, or
more than four (4) years after said registration, the action was already
barred by prescription.3
Acting thereon, the trial court denied the motion to dismiss. It held
that respondent Philam's complaint had not yet prescribed. According
to the trial court, the prescriptive period began to run only from
December 29, 1993, the date of the decision of the trial court in Civil
Case No. 13357.4
On appeal by petitioners, the CA affirmed the trial court's decision in
favor of respondent Philam. The CA declared that the action to
rescind the donations had not yet prescribed. Citing Articles 1381 and
1383 of the Civil Code, the CA basically ruled that the four year period
to institute the action for rescission began to run only in January
1997, and not when the decision in the civil case became final and
executory on December 29, 1993. The CA reckoned the accrual of
respondent Philam's cause of action on January 1997, the time when
it first learned that the judgment award could not be satisfied because
the judgment creditor, petitioner Khe Hong Cheng, had no more
properties in his name. Prior thereto, respondent Philam had not yet
exhausted all legal means for the satisfaction of the decision in its
favor, as prescribed under Article 1383 of the Civil Code. 5
The Court of Appeals thus denied the petition for certiorari filed before
it, and held that the trial court did not commit any error in denying
petitioners' motion to dismiss. Their motion for reconsideration was
likewise dismissed in the appellate court's resolution dated July 11,
2000.
Petitioners now assail the aforesaid decision and resolution of the CA
alleging that:
I
PUBLIC RESPONDENT GRAVELY ERRED AND ACTED
IN GRAVE ABUSE OF DISCRETION WHEN IT DENIED
THE PETITION TO DISMISS THE CASE BASED ON THE
GROUND OF PRESCRIPTION.
II
PUBLIC RESPONDENT COURT OF APPEALS GRAVELY
ERRED IN HOLDING THAT PRESCRIPTION BEGINS TO
RUN WHEN IN JANUARY 1997 THE SHERIFF WENT TO
BUTUAN CITY IN SEARCH OF PROPERTIES OF
PETITIONER FELIX KHE CHENG TO SATISFY THE
JUDGMENT IN CIVIL CASE NO.13357 AND FOUND OUT
THAT AS EARLY AS DEC. 20, 1989, PETITIONERS KHE
CHENG EXECUTED THE DEEDS OF DONATIONS IN
FAVOR OF HIS CO-PETITIONERS THAT THE ACTION
FOR RESCISSION ACCRUED BECAUSE
PRESCRIPTION BEGAN TO RUN WHEN THESE
DONATIONS WERE REGISTERED WITH THE
REGISTER OF DEEDS IN DECEMBER 1989, AND WHEN
THE COMPLAINT WAS FILED ONLY IN FEBRUARY
1997, MORE THAN FOUR YEARS HAVE ALREADY
LAPSED AND THEREFORE, IT HAS ALREADY
PRESCRIBED.6
Essentially, the issue for resolution posed by petitioners is this: When
did the four (4) year prescriptive period as provided for in Article 1389
of the Civil Code for respondent Philam to file its action for rescission
of the subject deeds of donation commence to run?
The petition is without merit.

Article 1389 of the Civil Code simply provides that, "The action to
claim rescission must be commenced within four years." Since this
provision of law is silent as to when the prescriptive period would
commence, the general rule, i.e., from the moment the cause of
action accrues, therefore, applies. Article 1150 of the Civil Code is
particularly instructive:
Art. 1150. The time for prescription for all kinds of actions,
when there is no special provision which ordains otherwise,
shall be counted from the day they may be brought.
Indeed, this Court enunciated the principle that it is the legal
possibility of bringing the action which determines the starting point
for the computation of the prescriptive period for the action.7 Article
1383 of the Civil Code provides as follows:
Art. 1383. An action for rescission is subsidiary; it cannot
be instituted except when the party suffering damage has
no other legal means to obtain reparation for the same.
It is thus apparent that an action to rescind or an accion
pauliana must be of last resort, availed of only after all other legal
remedies have been exhausted and have been proven futile. For
an accion pauliana to accrue, the following requisites must concur:
1) That the plaintiff asking for rescission has a credit prior
to, the alienation, although demandable later; 2) That the
debtor has made a subsequent contract conveying a
patrimonial benefit to a third person; 3) That the creditor
has no other legal remedy to satisfy his claim, but would
benefit by rescission of the conveyance to the third person;
4) That the act being impugned is fraudulent; 5) That the
third person who received the property conveyed, if by
onerous title, has been an accomplice in the
fraud.8 (Emphasis ours)
We quote with approval the following disquisition of the CA on the
matter:
An accion pauliana accrues only when the creditor
discovers that he has no other legal remedy for the
satisfaction of his claim against the debtor other than
an accion pauliana. The accion pauliana is an action of a
last resort. For as long as the creditor still has a remedy at
law for the enforcement of his claim against the debtor, the
creditor will not have any cause of action against the
creditor for rescission of the contracts entered into by and
between the debtor and another person or persons. Indeed,
an accion pauliana presupposes a judgment and the
issuance by the trial court of a writ of execution for the
satisfaction of the judgment and the failure of the Sheriff to
enforce and satisfy the judgment of the court. It
presupposes that the creditor has exhausted the property
of the debtor. The date of the decision of the trial court
against the debtor is immaterial. What is important is that
the credit of the plaintiff antedates that of the fraudulent
alienation by the debtor of his property. After all, the
decision of the trial court against the debtor will retroact to
the time when the debtor became indebted to the creditor.9
Petitioners, however, maintain that the cause of action of respondent
Philam against them for the rescission of the deeds of donation
accrued as early as December 27, 1989, when petitioner Khe Hong
Cheng registered the subject conveyances with the Register of
Deeds. Respondent Philam allegedly had constructive knowledge of
the execution of said deeds under Section 52 of Presidential Decree
No. 1529, quoted infra, as follows:
Section 52. Constructive knowledge upon registration. -
Every conveyance, mortgage, lease, lien, attachment,
order, judgment, instrument or entry affecting registered
land shall, if registered, filed or entered in the Office of the
Register of Deeds for the province or city where the land to
which it relates lies, be constructive notice to all persons
from the time of such registering, filing, or entering.
Petitioners argument that the Civil Code must yield to the Mortgage
and Registration Laws is misplaced, for in no way does this imply that
the specific provisions of the former may be all together ignored. To
count the four year prescriptive period to rescind an allegedly
fraudulent contract from the date of registration of the conveyance
with the Register of Deeds, as alleged by the petitioners, would run
counter to Article 1383 of the Civil Code as well as settled
OBLICON 1/16/2018 ACJUCO27
jurisprudence. It would likewise violate the third requisite to file an
action for rescission of an allegedly fraudulent conveyance of
property, i.e., the creditor has no other legal remedy to satisfy his
claim.
An accion pauliana thus presupposes the following: 1) A judgment;
2) the issuance by the trial court of a writ of execution for the
satisfaction of the judgment, and 3) the failure of the sheriff to enforce
and satisfy the judgment of the court. It requires that the creditor has
exhausted the property of the debtor: The date of the decision of the
trial court is immaterial. What is important is that the credit of the
plaintiff antedates that of the fraudulent alienation by the debtor of his
property. After all, the decision of the trial court against the debtor will
retroact to the time when the debtor became indebted to the creditor.
Tolentino, a noted civilist, explained:
"xxx[T]herefore, credits with suspensive term or condition
are excluded, because the accion pauliana presupposes a
judgment and unsatisfied execution, which cannot exist
when the debt is not yet demandable at the time the
rescissory action is brought. Rescission is a subsidiary
action, which presupposes that the creditor has exhausted
the property of the debtor which is impossible in credits
which cannot be enforced because of a suspensive term or
condition.
While it is necessary that the credit of the plaintiff in
the accion pauliana must be prior to the fraudulent
alienation, the date of the judgment enforcing it is
immaterial. Even if the judgment be subsequent to the
alienation, it is merely declaratory with retroactive effect to
the date when the credit was constituted."10
These principles were reiterated by the Court when it explained the
requisites of an accion pauliana in greater detail, to wit:
"The following successive measures must be taken by a
creditor before he may bring an action for rescission of an
allegedly fraudulent sale: (1) exhaust the properties of the
debtor through levying by attachment and execution upon
all the property of the debtor, except such as are exempt
from execution; (2) exercise all the rights and actions of the
debtor, save those personal to him (accion subrogatoria);
and (3) seek rescission of the contracts executed by the
debtor in fraud of their rights (accion pauliana). Without
availing of the first and second remedies, i.e.. exhausting
the properties of the debtor or subrogating themselves in
Francisco Bareg's transmissible rights and actions.
petitioners simply: undertook the third measure and filed an
action for annulment of sale. This cannot be
done."11 (Emphasis ours)
In the same case, the Court also quoted the rationale of the CA when
it upheld the dismissal of the accion pauliana on the basis of lack of
cause of action:
"In this case, plaintiffs appellants had not even commenced
an action against defendants-appellees Bareng for the
collection of the alleged indebtedness, Plaintiffs-appellants
had not even tried to exhaust the property of defendants-
appellees Bareng, Plaintiffs-appellants, in seeking the
rescission of the contracts of sale entered into between
defendants-appellees, failed to show and prove that
defendants-appellees Bareng had no other property, either
at the time of the sale or at the time this action was filed,
out of which they could have collected this (sic) debts."
(Emphasis ours)
Even if respondent Philam was aware, as of December 27, 1989, that
petitioner Khe Hong Cheng had executed the deeds of donation in
favor of his children, the complaint against Butuan Shipping Lines
and/or petitioner Khe Hong Cheng was still pending before the trial
court. Respondent Philam had no inkling, at the time, that the trial
court’s judgment would be in its favor and further, that such judgment
would not be satisfied due to the deeds of donation executed by
petitioner Khe Hong Cheng during the pendency of the case. Had
respondent Philam filed his complaint on December 27, 1989, such
complaint would have been dismissed for being premature. Not only
were all other legal remedies for the enforcement of respondent
Philam's claims not yet exhausted at the time the needs of donation
were executed and registered. Respondent Philam would also not
have been able to prove then that petitioner Khe Hong Cheng had no
 OBLICON 1/16/2018 ACJUCO28

more property other than those covered by the subject deeds to

satisfy a favorable judgment by the trial court.

It bears stressing that petitioner Khe Hong Cheng even expressly

declared and represented that he had reserved to himself property
sufficient to answer for his debts contracted prior to this date:

"That the DONOR further states, for the same purpose as

expressed in the next preceding paragraph, that this
donation is not made with the object of defrauding his
creditors having reserved to himself property sufficient to
answer his debts contracted prior to this date".12

As mentioned earlier, respondent Philam only learned about the

unlawful conveyances made by petitioner Khe Hong Cheng in
January 1997 when its counsel accompanied the sheriff to Butuan
City to attach the properties of petitioner Khe Hong Cheng. There
they found that he no longer had any properties in his name. It was
only then that respondent Philam's action for rescission of the deeds
of donation accrued because then it could be said that respondent
Philam had exhausted all legal means to satisfy the trial court's
judgment in its favor. Since respondent Philam filed its complaint
for accion pauliana against petitioners on February 25, 1997, barely
a month from its discovery that petitioner Khe Hong Cheng had no
other property to satisfy the judgment award against him, its action
for rescission of the subject deeds clearly had not yet
prescribed.1âwphi1.nêt

A final point. Petitioners now belatedly raise on appeal the defense

of improper venue claiming that respondent Philam's complaint is a
real action and should have been filed with the RTC of Butuan City
since the property subject matter or the donations are located therein.
Suffice it to say that petitioners are already deemed to have waived
their right to question the venue of the instant case. Improper venue
should be objected to as follows 1) in a motion to dismiss filed within
the time but before the filing of the answer; 13 or 2) in the answer as
an affirmative defense over which, in the discretion of the court, a
preliminary hearing may be held as if a motion to dismiss had been
filed.14 Having failed to either file a motion to dismiss on the ground
of improper of venue or include the same as an affirmative defense
in their answer, petitioners are deemed to have their right to object to
improper venue.

WHEREFORE, premises considered, the petition is

hereby DENIED for lack of merit.

SO ORDERED.

Davide, Jr., Puno, Pardo, and Ynares-Santiago, JJ., concur.


[G.R. No. 134685. November 19, 1999]
MARIA ANTONIA SIGUAN, petitioner, vs. ROSA LIM, LINDE LIM,
INGRID LIM and NEIL LIM, respondents.
DECISION
DAVIDE, JR., C.J.:
May the Deed of Donation executed by respondent Rosa Lim
(hereafter LIM) in favor of her children be rescinded for being in fraud
of her alleged creditor, petitioner Maria Antonia Siguan? This is the
pivotal issue to be resolved in this petition for review
on certiorari under Rule 45 of the Revised Rules of Court.
The relevant facts, as borne out of the records, are as follows:
On 25 and 26 August 1990, LIM issued two Metrobank checks
in the sums of P300,000 and P241,668, respectively, payable to
cash. Upon presentment by petitioner with the drawee bank, the
checks were dishonored for the reason account closed. Demands to
make good the checks proved futile. As a consequence, a criminal
case for violation of Batas Pambansa Blg. 22, docketed as Criminal
Cases Nos. 22127-28, were filed by petitioner against LIM with
Branch 23 of the Regional Trial Court (RTC) of Cebu City. In its
decision[1] dated 29 December 1992, the court a quoconvicted LIM
as charged. The case is pending before this Court for review and
docketed as G.R. No. 134685.
It also appears that on 31 July 1990 LIM was convicted of estafa
by the RTC of Quezon City in Criminal Case No. Q-89-2216[2] filed by
a certain Victoria Suarez. This decision was affirmed by the Court of
Appeals. On appeal, however, this Court, in a decision[3] promulgated
on 7 April 1997, acquitted LIM but held her civilly liable in the amount
of P169,000, as actual damages, plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation[4] conveying the
following parcels of land and purportedly executed by LIM on 10
August 1989 in favor of her children, Linde, Ingrid and Neil, was
registered with the Office of the Register of Deeds of Cebu City:
(1) a parcel of land situated at Barrio Lahug, Cebu City,
containing an area of 563 sq. m. and covered by TCT
No. 93433;
(2) a parcel of land situated at Barrio Lahug, Cebu City,
containing an area of 600 sq. m. and covered by TCT
No. 93434;
(3) a parcel of land situated at Cebu City containing an
area of 368 sq. m. and covered by TCT No. 87019;
and
(4) a parcel of land situated at Cebu City, Cebu containing
an area of 511 sq. m. and covered by TCT No. 87020.
New transfer certificates of title were thereafter issued in the
names of the donees.[5]
On 23 June 1993, petitioner filed an accion pauliana against
LIM and her children before Branch 18 of the RTC of Cebu City to
rescind the questioned Deed of Donation and to declare as null and
void the new transfer certificates of title issued for the lots covered by
the questioned Deed.The complaint was docketed as Civil Case No.
CEB-14181. Petitioner claimed therein that sometime in July 1991,
LIM, through a Deed of Donation, fraudulently transferred all her real
property to her children in bad faith and in fraud of creditors, including
her; that LIM conspired and confederated with her children in
antedating the questioned Deed of Donation, to petitioners and other
creditors prejudice; and that LIM, at the time of the fraudulent
conveyance, left no sufficient properties to pay her obligations.
On the other hand, LIM denied any liability to petitioner. She
claimed that her convictions in Criminal Cases Nos. 22127-28 were
erroneous, which was the reason why she appealed said decision to
the Court of Appeals. As regards the questioned Deed of Donation,
she maintained that it was not antedated but was made in good faith
at a time when she had sufficient property. Finally, she alleged that
the Deed of Donation was registered only on 2 July 1991 because
she was seriously ill.
In its decision of 31 December 1994, [6] the trial court ordered
the rescission of the questioned deed of donation; (2) declared null
and void the transfer certificates of title issued in the names of private
respondents Linde, Ingrid and Neil Lim; (3) ordered the Register of
Deeds of Cebu City to cancel said titles and to reinstate the previous
titles in the name of Rosa Lim; and (4) directed the LIMs to pay the
petitioner, jointly and severally, the sum of P10,000 as moral
damages; P10,000 as attorneys fees; and P5,000 as expenses of
litigation.
OBLICON 1/16/2018 ACJUCO29
On appeal, the Court of Appeals, in a decision[7] promulgated
on 20 February 1998, reversed the decision of the trial court and
dismissed petitioners accion pauliana. It held that two of the
requisites for filing an accion pauliana were absent, namely, (1) there
must be a credit existing prior to the celebration of the contract; and
(2) there must be a fraud, or at least the intent to commit fraud, to the
prejudice of the creditor seeking the rescission.
According to the Court of Appeals, the Deed of Donation, which
was executed and acknowledged before a notary public, appears on
its face to have been executed on 10 August 1989. Under Section 23
of Rule 132 of the Rules of Court, the questioned Deed, being a public
document, is evidence of the fact which gave rise to its execution and
of the date thereof. No antedating of the Deed of Donation was made,
there being no convincing evidence on record to indicate that the
notary public and the parties did antedate it. Since LIMs
indebtedness to petitioner was incurred in August 1990, or a year
after the execution of the Deed of Donation, the first requirement
for accion pauliana was not met.
Anent petitioners contention that assuming that the Deed of
Donation was not antedated it was nevertheless in fraud of creditors
because Victoria Suarez became LIMs creditor on 8 October 1987,
the Court of Appeals found the same untenable, for the rule is basic
that the fraud must prejudice the creditor seeking the rescission.
Her motion for reconsideration having been denied, petitioner
came to this Court and submits the following issue:
WHETHER OR NOT THE DEED OF DONATION, EXH. 1,
WAS ENTERED INTO IN FRAUD OF [THE] CREDITORS OF
RESPONDENT ROSA [LIM].
Petitioner argues that the finding of the Court of Appeals that
the Deed of Donation was not in fraud of creditors is contrary to well-
settled jurisprudence laid down by this Court as early as 1912 in the
case of Oria v. McMicking,[8] which enumerated the various
circumstances indicating the existence of fraud in a transaction. She
reiterates her arguments below, and adds that another fact found by
the trial court and admitted by the parties but untouched by the Court
of Appeals is the existence of a prior final judgment against LIM in
Criminal Case No. Q-89-2216 declaring Victoria Suarez as LIMs
judgment creditor before the execution of the Deed of Donation.
Petitioner further argues that the Court of Appeals incorrectly
applied or interpreted Section 23,[9] Rule 132 of the Rules of Court, in
holding that being a public document, the said deed of donation is
evidence of the fact which gave rise to its execution and of the date
of the latter. Said provision should be read with Section 30 [10] of the
same Rule which provides that notarial documents are prima
facie evidence of their execution, not of the facts which gave rise to
their execution and of the date of the latter.
Finally, petitioner avers that the Court of Appeals overlooked
Article 759 of the New Civil Code, which provides: The donation is
always presumed to be in fraud of creditors when at the time of the
execution thereof the donor did not reserve sufficient property to pay
his debts prior to the donation. In this case, LIM made no reservation
of sufficient property to pay her creditors prior to the execution of the
Deed of Donation.
On the other hand, respondents argue that (a) having agreed
on the law and requisites of accion pauliana, petitioner cannot take
shelter under a different law; (b) petitioner cannot invoke the credit of
Victoria Suarez, who is not a party to this case, to support her accion
pauliana; (c) the Court of Appeals correctly applied or interpreted
Section 23 of Rule 132 of the Rules of Court; (d) petitioner failed to
present convincing evidence that the Deed of Donation was
antedated and executed in fraud of petitioner; and (e) the Court of
Appeals correctly struck down the awards of damages, attorneys fees
and expenses of litigation because there is no factual basis therefor
in the body of the trial courts decision.
The primordial issue for resolution is whether the questioned
Deed of Donation was made in fraud of petitioner and, therefore,
rescissible. A corollary issue is whether the awards of damages,
attorneys fees and expenses of litigation are proper.
We resolve these issues in the negative.
The rule is well settled that the jurisdiction of this Court in cases
brought before it from the Court of Appeals via Rule 45 of the Rules
of Court is limited to reviewing errors of law. Findings of fact of the
latter court are conclusive, except in a number of instances. [11] In the
case at bar, one of the recognized exceptions warranting a review by
this Court of the factual findings of the Court of Appeals exists, to wit,
the factual findings and conclusions of the lower court and Court of
Appeals are conflicting, especially on the issue of whether the Deed
of Donation in question was in fraud of creditors.

Article 1381 of the Civil Code enumerates the contracts which
are rescissible, and among them are those contracts undertaken in
fraud of creditors when the latter cannot in any other manner collect
the claims due them.
The action to rescind contracts in fraud of creditors is known
as accion pauliana. For this action to prosper, the following requisites
must be present: (1) the plaintiff asking for rescission has a credit
prior to the alienation,[12] although demandable later; (2) the debtor
has made a subsequent contract conveying a patrimonial benefit to
a third person; (3) the creditor has no other legal remedy to satisfy
his claim; [13] (4) the act being impugned is fraudulent; [14] (5) the third
person who received the property conveyed, if it is by onerous title,
has been an accomplice in the fraud.[15]
The general rule is that rescission requires the existence of
creditors at the time of the alleged fraudulent alienation, and this must
be proved as one of the bases of the judicial pronouncement setting
aside the contract.[16] Without any prior existing debt, there can
neither be injury nor fraud.While it is necessary that the credit of the
plaintiff in the accion pauliana must exist prior to the fraudulent
alienation, the date of the judgment enforcing it is immaterial. Even if
the judgment be subsequent to the alienation, it is merely declaratory,
with retroactive effect to the date when the credit was constituted. [17]
In the instant case, the alleged debt of LIM in favor of petitioner
was incurred in August 1990, while the deed of donation was
purportedly executed on 10 August 1989.
We are not convinced with the allegation of the petitioner that
the questioned deed was antedated to make it appear that it was
made prior to petitioners credit. Notably, that deed is a public
document, it having been acknowledged before a notary public. [18] As
such, it is evidence of the fact which gave rise to its execution and of
its date, pursuant to Section 23, Rule 132 of the Rules of Court.
Petitioners contention that the public documents referred to in
said Section 23 are only those entries in public records made in the
performance of a duty by a public officer does not hold water. Section
23 reads:
SEC. 23. Public documents as evidence. Documents consisting of
entries in public records made in the performance of a duty by a
public officer are prima facie evidence of the facts therein stated. All
other public documents are evidence, even against a third person, of
the fact which gave rise to their execution and of the date of the
latter. (Emphasis supplied).
The phrase all other public documents in the second sentence
of Section 23 means those public documents other than the entries
in public records made in the performance of a duty by a public
officer. And these include notarial documents, like the subject deed
of donation. Section 19, Rule 132 of the Rules of Court provides:
SEC. 19. Classes of documents. -- For the purpose of their
presentation in evidence, documents are either public or private.
Public documents are:
(a) . . .
(b) Documents acknowledged before a notary public except last wills
and testaments. . . .
It bears repeating that notarial documents, except last wills and
testaments, are public documents and are evidence of the facts that
gave rise to their execution and of their date.
In the present case, the fact that the questioned Deed was
registered only on 2 July 1991 is not enough to overcome the
presumption as to the truthfulness of the statement of the date in the
questioned deed, which is 10 August 1989. Petitioners claim against
LIM was constituted only in August 1990, or a year after the
questioned alienation. Thus, the first two requisites for the rescission
of contracts are absent.
Even assuming arguendo that petitioner became a creditor of
LIM prior to the celebration of the contract of donation, still her action
for rescission would not fare well because the third requisite was not
met. Under Article 1381 of the Civil Code, contracts entered into in
fraud of creditors may be rescinded only when the creditors cannot
in any manner collect the claims due them. Also, Article 1383 of the
same Code provides that the action for rescission is but a subsidiary
remedy which cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the
same. The term subsidiary remedy has been defined as the
OBLICON 1/16/2018 ACJUCO30
exhaustion of all remedies by the prejudiced creditor to collect claims
due him before rescission is resorted to. [19] It is, therefore, essential
that the party asking for rescission prove that he has exhausted all
other legal means to obtain satisfaction of his claim.[20] Petitioner
neither alleged nor proved that she did so. On this score, her action
for the rescission of the questioned deed is not maintainable even if
the fraud charged actually did exist.[21]
The fourth requisite for an accion pauliana to prosper is not
present either.
Article 1387, first paragraph, of the Civil Code provides: All
contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud of
creditors when the donor did not reserve sufficient property to pay all
debts contracted before the donation. Likewise, Article 759 of the
same Code, second paragraph, states that the donation is always
presumed to be in fraud of creditors when at the time thereof the
donor did not reserve sufficient property to pay his debts prior to the
donation.
For this presumption of fraud to apply, it must be established
that the donor did not leave adequate properties which creditors
might have recourse for the collection of their credits existing before
the execution of the donation.
As earlier discussed, petitioners alleged credit existed only a
year after the deed of donation was executed. She cannot, therefore,
be said to have been prejudiced or defrauded by such
alienation. Besides, the evidence disclose that as of 10 August 1989,
when the deed of donation was executed, LIM had the following
properties:
(1) A parcel of land containing an area of 220 square
meters, together with the house constructed thereon,
situated in Sto. Nio Village, Mandaue City, Cebu,
registered in the name of Rosa Lim and covered by
TCT No. 19706;[22]
(2) A parcel of land located in Benros Subdivision, Lawa-
an, Talisay, Cebu;[23]
(3) A parcel of land containing an area of 2.152 hectares,
with coconut trees thereon, situated at Hindag-an, St.
Bernard, Southern Leyte, and covered by Tax
Declaration No. 13572.[24]
(4) A parcel of land containing an area of 3.6 hectares,
with coconut trees thereon, situated at Hindag-an, St.
Bernard, Southern Leyte, and covered by Tax
Declaration No. 13571.[25]
During her cross-examination, LIM declared that the house and
lot mentioned in no. 1 was bought by her in the amount of
about P800,000 to P900,000.[26] Thus:
ATTY. FLORIDO:
Q These properties at the Sto. Nio Village, how much did you
acquire this property?
A Including the residential house P800,000.00 to P900,000.00.
Q How about the lot which includes the house. How much was
the price in the Deed of Sale of the house and lot at Sto.
Nio Violage [sic]?
A I forgot.
Q How much did you pay for it?
A That is P800,000.00 to P900,000.00.
Petitioner did not adduce any evidence that the price of said
property was lower. Anent the property in no. 2, LIM testified that she
sold it in 1990.[27] As to the properties in nos. 3 and 4, the total market
value stated in the tax declarations dated 23 November 1993
was P56,871.60. Aside from these tax declarations, petitioner did not
present evidence that would indicate the actual market value of said
properties. It was not, therefore, sufficiently established that the
properties left behind by LIM were not sufficient to cover her debts
existing before the donation was made. Hence, the presumption of
fraud will not come into play.
Nevertheless, a creditor need not depend solely upon the
presumption laid down in Articles 759 and 1387 of the Civil
Code. Under the third paragraph of Article 1387, the design to
defraud may be proved in any other manner recognized by the law of
evidence. Thus in the consideration of whether certain transfers are
fraudulent, the Court has laid down specific rules by which the
character of the transaction may be determined. The following have
been denominated by the Court as badges of fraud:
 OBLICON 1/16/2018 ACJUCO31

(1) The fact that the consideration of the conveyance is

fictitious or is inadequate;

(2) A transfer made by a debtor after suit has begun and

while it is pending against him;
(3) A sale upon credit by an insolvent debtor;
(4) Evidence of large indebtedness or complete
insolvency;
(5) The transfer of all or nearly all of his property by a
debtor, especially when he is insolvent or greatly
embarrassed financially;
(6) The fact that the transfer is made between father and
son, when there are present other of the above
circumstances; and

(7) The failure of the vendee to take exclusive possession

of all the property.[28]
The above enumeration, however, is not an exclusive list. The
circumstances evidencing fraud are as varied as the men who
perpetrate the fraud in each case. This Court has therefore declined
to define it, reserving the liberty to deal with it under whatever form it
may present itself.[29]
Petitioner failed to discharge the burden of proving any of the
circumstances enumerated above or any other circumstance from
which fraud can be inferred. Accordingly, since the four requirements
for the rescission of a gratuitous contract are not present in this case,
petitioners action must fail.
In her further attempt to support her action for rescission,
petitioner brings to our attention the 31 July 1990 Decision [30] of the
RTC of Quezon City, Branch 92, in Criminal Case No. Q-89-
2216. LIM was therein held guilty of estafa and was ordered to pay
complainant Victoria Suarez the sum of P169,000 for the obligation
LIM incurred on 8 October 1987. This decision was affirmed by the
Court of Appeals. Upon appeal, however, this Court acquitted LIM of
estafa but held her civilly liable for P169,000 as actual damages.

It should be noted that the complainant in that case, Victoria

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