Republic of the Philippines
In fact, the
SUPREME COURT
Manila
EN BANC
G.R. No. L-13667 April 29, 1960
PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants,
vs.
THE BOARD OF DIRECTORS OF THE NATIONAL
DEVELOPMENT COMPANY, ET AL., defendants-appellees.
Celso A. Fernandez for appellants.
Juan C. Jimenez, for appellees.
PARAS, C. J.:
On July 25, 1956, appellants filed against appellees in the Court of First
Instance of Manila a complaint praying for a 20% Christmas bonus for the
years 1954 and 1955. The court a quo on appellees' motion to dismiss,
issued the following order:
Considering the motion to dismiss filed on 15 August, 1956, set
for this morning; considering that at the hearing thereof, only
respondents appeared thru counsel and there was no appearance
for the plaintiffs although the court waited for sometime for
them; considering, however, that petitioners have submitted an
opposition which the court will consider together with the
arguments presented by respondents and the Exhibits marked
and presented, namely, Exhibits 1 to 5, at the hearing of the
motion to dismiss; considering that the action in brief is one to
compel respondents to declare a Christmas bonus for petitioners
workers in the National Development Company; considering
that the Court does not see how petitioners may have a cause of
action to secure such bonus because:
(a) A bonus is an act of liberality and the court takes it that it is
not within its judicial powers to command respondents to be
liberal;
(b) Petitioners admit that respondents are not under legal duty to
give such bonus but that they had only ask that such bonus be
given to them because it is a moral obligation of respondents to
give that but as this Court understands, it has no power to
compel a party to comply with a moral obligation (Art. 142,
New Civil Code.).
IN VIEW WHEREOF, dismissed. No pronouncement as to
costs.
A motion for reconsideration of the afore-quoted order was denied. Hence
this appeal.
Appellants contend that there exists a cause of action in their complaint
because their claim rests on moral grounds or what in brief is defined by
law as a natural obligation.
Since appellants admit that appellees are not under legal obligation to give
such claimed bonus; that the grant arises only from a moral obligation or
the natural obligation that they discussed in their brief, this Court feels it
urgent to reproduce at this point, the definition and meaning of natural
obligation.
Article 1423 of the New Civil Code classifies obligations into civil or
natural. "Civil obligations are a right of action to compel their performance.
Natural obligations, not being based on positive law but on equity and
natural law, do not grant a right of action to enforce their performance, but
after voluntary fulfillment by the obligor, they authorize the retention of
what has been delivered or rendered by reason thereof".
It is thus readily seen that an element of natural obligation before it can be
cognizable by the court is voluntary fulfillment by the obligor. Certainly
retention can be ordered but only after there has been voluntary
1 OBLICON CASES
performance. But here there has been no voluntary performance.
court cannot order the performance.
At this point, we would like to reiterate what we said in the case of
Philippine Education Co. vs. CIR and the Union of Philippine Education
Co., Employees (NUL) (92 Phil., 381; 48 Off. Gaz., 5278) —
xxx xxx xxx
From the legal point of view a bonus is not a demandable and
enforceable obligation. It is so when it is made a part of the
wage or salary compensation.
And while it is true that the subsequent case of H. E. Heacock vs. National
Labor Union, et al., 95 Phil., 553; 50 Off. Gaz., 4253, we stated that:
Even if a bonus is not demandable for not forming part of the
wage, salary or compensation of an employee, the same may
nevertheless, be granted on equitable consideration as when it
was given in the past, though withheld in succeeding two years
from low salaried employees due to salary increases.
still the facts in said Heacock case are not the same as in the instant one,
and hence the ruling applied in said case cannot be considered in the
present action.
Premises considered, the order appealed from is hereby affirmed, without
pronouncement as to costs.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. Nos. 198729-30 January 15, 2014
CBK POWER COMPANY LIMITED, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
SERENO, CJ:
This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules
of Civil Procedure filed by CBK Power Company Limited (petitioner). The
Petition assails the Decision2 dated 27 June 2011 and Resolution3 dated 16
September 2011 of the Court of Tax Appeals En Banc (CTA En Banc in
C.T.A. EB Nos. 658 and 659. The assailed Decision and Resolution
reversed and set aside the Decision4 dated 3 March 2010 and
Resolution5 dated 6 July 2010 rendered by the CTA Special Second
Division in C.T.A. Case No. 7621, which partly granted the claim of
petitioner for the issuance of a tax credit certificate representing the latter's
alleged unutilized input taxes on local purchases of goods and services
attributable to effectively zero-rated sales to National Power Corporation
(NPC) for the second and third quarters of 2005.
The Facts
Petitioner is engaged, among others, in the operation, maintenance, and
management of the Kalayaan II pumped-storage hydroelectric power plant,
the new Caliraya Spillway, Caliraya, Botocan; and the Kalayaan I
hydroelectric power plants and their related facilities located in the
Province of Laguna.6
On 29 December 2004, petitioner filed an Application for VAT Zero-Rate
with the Bureau of Internal Revenue (BIR) in accordance with Section
108(B)(3) of the National Internal Revenue Code (NIRC) of 1997, as
amended. The application was duly approved by the BIR. Thus, petitioner
’s sale of electr icity to the NPC from 1 January 2005 to 31 October 2005
 was declared to be entitled to the benefit of effectively zero-rated value
added tax (VAT).7
Petitioner filed its administrative claims for the issuance of tax credit
certificates for its alleged unutilized input taxes on its purchase of capital
goods and alleged unutilized input taxes on its local purchases and/or
importation of goods and services, other than capital goods, pursuant to
Sections 112(A) and (B) of the NIRC of 1997, as amended, with BIR
Revenue District Office (RDO) No. 55 of Laguna, as follows:8
Period Covered Date Of Filing
1st quarter of 2005 30-Jun-05
2nd quarter of 2005 15-Sep-05
3rd quarter of 2005 28-Oct-05
Alleging inaction of the Commissioner of Internal Revenue (CIR),
petitioner filed a Petition for Review with the CTA on 18 April 2007.
THE CTA SPECIAL SECOND DIVISION RULING
After trial on the merits, the CTA Special Second Division rendered a
Decision on 3 March 2010. Applying Commissioner of Internal Revenue v.
Mirant Pagbilao Corporation (Mirant),9 the court
a quo ruled that petitioner had until the following dates within which to file
both administrative and judicial claims:
Hence, this Petition.ISSUE
Petitioner’s assigned errors boil down to the principal issue of the
applicable prescriptive period on its claim for refund of unutilized input
VAT for the first to third quarters of 2005.11
THE COURT’S RULING
The pertinent provision of the NIRC at the time when petitioner filed its
claim for refund provides:
SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-
registered person, whose sales are zero-rated or effectively zero-
rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output
tax: Provided, however, That in the case of zero-rated sales
under Section 106(A)(2)(a)(1),(2) and (B) and Section 108
(B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in
zero-rated or effectively zero-rated sale and also in taxable or
exempt sale of goods or properties or services, and the amount
of creditable input tax due or paid cannot be directly and entirely
attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.

xxxx
Taxable Quarter Last Day to
File Claim for (D) Period within which Refund or Tax Credit of Input Taxes
Refund shall be Made. - In proper cases, the Commissioner shall grant a
refund or issue the tax credit certificate for creditable input taxes
2005 Close of within one hundred twenty (120) days from the date of
the submission of complete documents in support of the application
quarter filed in accordance with Subsections (A) and (B) hereof.

1st quarter 31-Mar- 31-Mar-07 In case of full or partial denial of the claim for tax refund or tax credit, or
05 the failure on the part of the Commissioner to act on the application within
the period prescribed above, the taxpayer affected may, within thirty (30)
2nd quarter 30-Jun-05 30-Jun-07 days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal the decision or the
3rd quarter 30-Sep-05 30-Sep-07 unacted claim with the Court of Tax Appeals.

Petitioner’s sales to NPC are effectively zero-rated

Accordingly, petitioner timely filed its administrative claims for the three
quarters of 2005. However, considering that the judicial claim was filed on
18 April 2007, the CTA Division denied the claim for the first quarter of
2005 for having been filed out of time.
After an evaluation of petitioner’s claim for the second and third quarters of
2005, the court a quo partly granted the claim and ordered the issuance of a
tax credit certificate in favor of petitioner in the reduced amount of
₱27,170,123.36.
The parties filed their respective Motions for Partial Reconsideration,
which were both denied by the CTA Division.
THE CTA EN BANC RULING
As aptly ruled by the CTA Special Second Division, petitioner’s sales to
NPC are effectively subject to zero percent (0%) VAT. The NPC is an
entity with a special charter, which categorically exempts it from the
payment of any tax, whether direct or indirect, including VAT. Thus,
services rendered to NPC by a VAT-registered entity are effectively zero-
rated. In fact, the BIR itself approved the application for zero-rating on 29
December 2004, filed by petitioner for its sales to NPC covering January to
October 2005.12 As a consequence, petitioner claims for the refund of the
alleged excess input tax attributable to its effectively zero-rated sales to
NPC.
In Panasonic Communications Imaging Corporation of the Philippines v.
Commissioner of Internal Revenue,13 this Court ruled:

On appeal, relying on Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc. (Aichi),10 the CTA En Banc ruled that petitioner’s
judicial claim for the first, second, and third quarters of 2005 were
belatedly filed.
The CTA Special Second Division Decision and Resolution were reversed
and set aside, and the Petition for Review filed in CTA Case No. 7621 was
dismissed. Petitioner’s Motion for Reconsideration was likewise denied for
lack of merit.
Under the 1997 NIRC, if at the end of a taxable quarter the seller charges
output taxes equal to the input taxes that his suppliers passed on to him, no
payment is required of him. It is when his output taxes exceed his input
taxes that he has to pay the excess to the BIR. If the input taxes exceed the
output taxes, however, the excess payment shall be carried over to the
succeeding quarter or quarters. Should the input taxes result from zero-rated
or effectively zero-rated transactions or from the acquisition of capital
goods, any excess over the output taxes shall instead be refunded to the
taxpayer.

2 OBLICON CASES
 The crux of the controversy arose from the proper application of the
prescriptive periods set forth in Section 112 of the NIRC of 1997, as
amended, and the interpretation of the applicable jurisprudence.
Although the ponente in this case expressed a different view on the
mandatory application of the 120+30 day period as prescribed in Section
112, with the finality of the Court’s pronouncement on the consolidated tax
cases Commissioner of Internal Revenue v. San Roque Power Corporation,
Taganito Mining Corporation v. Commissioner of Internal Revenue, and
Philex Mining Corporation v. Commissioner of Internal Revenue14 (hereby
collectively referred as San Roque), we are constrained to apply the
dispositions therein to the facts herein which are similar.
Administrative Claim
Section 112(A) provides that after the close of the taxable quarter when the
sales were made, there is a two-year prescriptive period within which a
VAT-registered person whose sales are zero-rated or effectively zero-rated
may apply for the issuance of a tax credit certificate or refund of creditable
input tax.
Our VAT Law provides for a mechanism that would allow VAT-registered
persons to recover the excess input taxes over the output taxes they had
paid in relation to their sales. For the refund or credit of excess or unutilized
input tax, Section 112 is the governing law. Given the distinctive nature of
creditable input tax, the law under Section 112 (A) provides for a different
reckoning point for the two-year prescriptive period, specifically for the
refund or credit of that tax only.
We agree with petitioner that Mirant was not yet in existence when their
administrative claim was filed in 2005; thus, it should not retroactively be
applied to the instant case.
However, the fact remains that Section 112 is the controlling provision for
the refund or credit of input tax during the time that petitioner filed its
claim with which they ought to comply. It must be emphasized that the
Court merely clarified in Mirant that Sections 204 and 229, which
prescribed a different starting point for the two-year prescriptive limit for
filing a claim for a refund or credit of excess input tax, were not applicable.
Input tax is neither an erroneously paid nor an illegally collected internal
revenue tax.15
Section 112(A) is clear that for VAT-registered persons whose sales are
zero-rated or effectively zero-rated, a claim for the refund or credit of
creditable input tax that is due or paid, and that is attributable to zero-rated
or effectively zero-rated sales, must be filed within two years after the close
of the taxable quarter when such sales were made. The reckoning frame
would always be the end of the quarter when the pertinent sale or
transactions were made, regardless of when the input VAT was paid. 16
Pursuant to Section 112(A), petitioner’s administrative claims were filed
well within the two-year period from the close of the taxable quarter when
the effectively zero-rated sales were made, to wit:
Period Covered Close of Last day to File Date of
the Administrative Filing
Taxable Claim
Quarter
1st quarter 2005 31-Mar-05 31-Mar-07 30-Jun-
05
2nd quarter 2005 30-Jun-05 30-Jun-07 15-
Sep-05
3rd quarter 2005 30-Sep-05 30-Sep-07 28-Oct-
05
Judicial Claim
Section 112(D) further provides that the CIR has to decide on an
administrative claim within one hundred twenty (120) days from the date of
submission of complete documents in support thereof.
3 OBLICON CASES
Bearing in mind that the burden to prove entitlement to a tax refund is on
the taxpayer, it is presumed that in order to discharge its burden, petitioner
had attached complete supporting documents necessary to prove its
entitlement to a refund in its application, absent any evidence to the
contrary.
Thereafter, the taxpayer affected by the CIR’s decision or inaction may
appeal to the CTA within 30 days from the receipt of the decision or from
the expiration of the 120-day period within which the claim has not been
acted upon.
Considering further that the 30-day period to appeal to the CTA is
dependent on the 120-day period, compliance with both periods is
jurisdictional. The period of 120 days is a prerequisite for the
commencement of the 30-day period to appeal to the CTA.
Prescinding from San Roque in the consolidated case Mindanao II
Geothermal Partnership v. Commissioner of Internal Revenue and
Mindanao I Geothermal Partnership v. Commissioner of Internal
Revenue,17 this Court has ruled thus:
Notwithstanding a strict construction of any claim for tax exemption or
refund, the Court in San Roque recognized that BIR Ruling No. DA-489-03
constitutes equitable estoppel in favor of taxpayers. BIR Ruling No. DA-
489-03 expressly states that the "taxpayer-claimant need not wait for the
lapse of the 120-day period before it could seek judicial relief with the CTA
by way of Petition for Review." This Court discussed BIR Ruling No. DA-
489-03 and its effect on taxpayers, thus:
Taxpayers should not be prejudiced by an erroneous interpretation by the
Commissioner, particularly on a difficult question of law. The abandonment
of the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the
prescriptive periods for input VAT tax refund or credit is a difficult
question of law. The abandonment of the Atlas doctrine did not result in
Atlas, or other taxpayers similarly situated, being made to return the tax
refund or credit they received or could have received under Atlas prior to its
abandonment. This Court is applying Mirant and Aichi prospectively.
Absent fraud, bad faith or misrepresentation, the reversal by this Court of a
general interpretative rule issued by the Commissioner, like the reversal of
a specific BIR ruling under Section 246, should also apply prospectively. x
x x.
xxxx
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general
interpretative rule applicable to all taxpayers or a specific ruling applicable
only to a particular taxpayer. BIR Ruling No. DA-489-03 is a general
interpretative rule because it was a response to a query made, not by a
particular taxpayer, but by a government agency asked with processing tax
refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and
Drawback Center of the Department of Finance. This government agency is
also the addressee, or the entity responded to, in BIR Ruling No. DA-489-
03. Thus, while this government agency mentions in its query to the
Commissioner the administrative claim of Lazi Bay Resources
Development, Inc., the agency was in fact asking the Commissioner what to
do in cases like the tax claim of Lazi Bay Resources Development, Inc.,
where the taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative
rule.1âwphi1 Thus, all taxpayers can rely on BIR Ruling No. DA-489-03
from the time of its issuance on 10 December 2003 up to its reversal by this
Court in Aichi on 6 October 2010, where this Court held that the 120+30
day periods are mandatory and jurisdictional. (Emphasis supplied)
In applying the foregoing to the instant case, we consider the following
pertinent dates:
1âwphi1
Period Administrative Expiration Last day Judicial
Covered Claim Filed of 120-days to file Claim
Judicial Filed
Claim
1st quarter 30-Jun-05 28-Oct-05 27-Nov- 18-Apr-07
2005 05
 There is solutio indebiti when:
2nd quarter 15-Sep-05 13-Jan-06 13-Feb-06
2005
(1) Payment is made when there exists no binding relation
3rd quarter 28-Oct-05 26-Feb-06 28-Mar-06 between the payor, who has no duty to pay, and the person who
2005 received the payment; and

(2) Payment is made through mistake, and not through liberality

It must be emphasized that this is not a case of premature filing of a judicial
claim. Although petitioner did not file its judicial claim with the CTA prior
to the expiration of the 120-day waiting period, it failed to observe the 30-
day prescriptive period to appeal to the CTA counted from the lapse of the
120-day period.
or some other cause.23
Though the principle of solutio indebiti may be applicable to some
instances of claims for a refund, the elements thereof are wanting in this
case.

Petitioner is similarly situated as Philex in the same case, San Roque, 18 in First, there exists a binding relation between petitioner and the CIR, the
which this Court ruled: former being a taxpayer obligated to pay VAT.

Unlike San Roque and Taganito, Philex’s case is not one of premature Second, the payment of input tax was not made through mistake, since
filing but of late filing. Philex did not file any petition with the CTA within petitioner was legally obligated to pay for that liability. The entitlement to a
the 120-day period. Philex did not also file any petition with the CTA refund or credit of excess input tax is solely based on the distinctive nature
within 30 days after the expiration of the 120-day period. Philex filed its of the VAT system. At the time of payment of the input VAT, the amount
judicial claim long after the expiration of the 120-day period, in fact 426 paid was correct and proper.24
days after the lapse of the 120-day period. In any event, whether governed
by jurisprudence before, during, or after the Atlas case, Philex’s judicial
claim will have to be rejected because of late filing. Whether the two-year Finally, equity, which has been aptly described as "a justice outside
prescriptive period is counted from the date of payment of the output VAT legality," is applied only in the absence of, and never against, statutory law
following the Atlas doctrine, or from the close of the taxable quarter when or judicial rules of procedure.25 Section 112 is a positive rule that should
the sales attributable to the input VAT were made following the Mirant and preempt and prevail over all abstract arguments based only on equity. Well-
Aichi doctrines, Philex’s judicial claim was indisputably filed late. settled is the rule that tax refunds or credits, just like tax exemptions, are
strictly construed against the taxpayer.26 The burden is on the taxpayer to
show strict compliance with the conditions for the grant of the tax refund or
The Atlas doctrine cannot save Philex from the late filing of its judicial credit.27
claim. The inaction of the Commissioner on Philex’s claim during the 120-
day period is, by express provision of law, "deemed a denial" of Philex’s
claim. Philex had 30 days from the expiration of the 120-day period to file WHEREFORE, premises considered, the instant Petition is DENIED.
its judicial claim with the CTA. Philex’s failure to do so rendered the
"deemed a denial" decision of the Commissioner final and inappealable. SO ORDERED.
The right to appeal to the CTA from a decision or "deemed a denial"
decision of the Commissioner is merely a statutory privilege, not a
constitutional right. The exercise of such statutory privilege requires strict Republic of the Philippines
compliance with the conditions attached by the statute for its exercise. SUPREME COURT
Philex failed to comply with the statutory conditions and must thus bear the Manila
consequences. (Emphases in the original)
EN BANC
Likewise, while petitioner filed its administrative and judicial claims during
the period of applicability of BIR Ruling No. DA-489-03, it cannot claim
G.R. No. 34840 September 23, 1931
the benefit of the exception period as it did not file its judicial claim
prematurely, but did so long after the lapse of the 30-day period following
the expiration of the 120-day period. Again, BIR Ruling No. DA-489-03 NARCISO GUTIERREZ, plaintiff-appellee,
allowed premature filing of a judicial claim, which means non-exhaustion vs.
of the 120-day period for the Commissioner to act on an administrative BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL
claim,19 but not its late filing. GUTIERREZ, ABELARDO VELASCO, and SATURNINO
CORTEZ, defendants-appellants.
As this Court enunciated in San Roque , petitioner cannot rely on Atlas
either, since the latter case was promulgated only on 8 June 2007. L.D. Lockwood for appellants Velasco and Cortez.
Moreover, the doctrine in Atlas which reckons the two-year period from the San Agustin and Roxas for other appellants.
date of filing of the return and payment of the tax, does not interpret − Ramon Diokno for appellee.
expressly or impliedly − the 120+30 day periods.20 Simply stated, Atlas
referred only to the reckoning of the prescriptive period for filing an
MALCOLM, J.:
administrative claim.

This is an action brought by the plaintiff in the Court of First Instance of

For failure of petitioner to comply with the 120+30 day mandatory and
jurisdictional period, petitioner lost its right to claim a refund or credit of its
alleged excess input VAT.
With regard to petitioner’s argument that Aichi should not be applied
retroactively, we reiterate that even without that ruling, the law is explicit
on the mandatory and jurisdictional nature of the 120+30 day period.
Also devoid of merit is the applicability of the principle of solutio indebiti
to the present case. According to this principle, if something is received
when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises. In that situation, a creditor-debtor
relationship is created under a quasi-contract, whereby the payor becomes
the creditor who then has the right to demand the return of payment made
by mistake, and the person who has no right to receive the payment
becomes obligated to return it.21 The quasi-contract of solutio indebiti is
based on the ancient principle that no one shall enrich oneself unjustly at
the expense of another.22
4 OBLICON CASES
Manila against the five defendants, to recover damages in the amount of
P10,000, for physical injuries suffered as a result of an automobile accident.
On judgment being rendered as prayed for by the plaintiff, both sets of
defendants appealed.
On February 2, 1930, a passenger truck and an automobile of private
ownership collided while attempting to pass each other on the Talon bridge
on the Manila South Road in the municipality of Las Piñas, Province of
Rizal. The truck was driven by the chauffeur Abelardo Velasco, and was
owned by Saturnino Cortez. The automobile was being operated by
Bonifacio Gutierrez, a lad 18 years of age, and was owned by Bonifacio's
father and mother, Mr. and Mrs. Manuel Gutierrez. At the time of the
collision, the father was not in the car, but the mother, together will several
other members of the Gutierrez family, seven in all, were accommodated
therein. A passenger in the autobus, by the name of Narciso Gutierrez, was
en route from San Pablo, Laguna, to Manila. The collision between the bus
and the automobile resulted in Narciso Gutierrez suffering a fracture right
leg which required medical attendance for a considerable period of time,
and which even at the date of the trial appears not to have healed properly.
It is conceded that the collision was caused by negligence pure and simple.
The difference between the parties is that, while the plaintiff blames both
sets of defendants, the owner of the passenger truck blames the automobile,
and the owner of the automobile, in turn, blames the truck. We have given
close attention to these highly debatable points, and having done so, a
majority of the court are of the opinion that the findings of the trial judge on
all controversial questions of fact find sufficient support in the record, and
so should be maintained. With this general statement set down, we turn to
consider the respective legal obligations of the defendants.
In amplification of so much of the above pronouncement as concerns the
Gutierrez family, it may be explained that the youth Bonifacio was in
incompetent chauffeur, that he was driving at an excessive rate of speed,
and that, on approaching the bridge and the truck, he lost his head and so
contributed by his negligence to the accident. The guaranty given by the
father at the time the son was granted a license to operate motor vehicles
made the father responsible for the acts of his son. Based on these facts,
pursuant to the provisions of article 1903 of the Civil Code, the father alone
and not the minor or the mother, would be liable for the damages caused by
the minor.
We are dealing with the civil law liability of parties for obligations which
arise from fault or negligence. At the same time, we believe that, as has
been done in other cases, we can take cognizance of the common law rule
on the same subject. In the United States, it is uniformly held that the head
of a house, the owner of an automobile, who maintains it for the general use
of his family is liable for its negligent operation by one of his children,
whom he designates or permits to run it, where the car is occupied and
being used at the time of the injury for the pleasure of other members of the
owner's family than the child driving it. The theory of the law is that the
running of the machine by a child to carry other members of the family is
within the scope of the owner's business, so that he is liable for the
negligence of the child because of the relationship of master and servant.
(Huddy On Automobiles, 6th ed., sec. 660; Missell vs. Hayes [1914], 91
Atl., 322.) The liability of Saturnino Cortez, the owner of the truck, and of
his chauffeur Abelardo Velasco rests on a different basis, namely, that of
contract which, we think, has been sufficiently demonstrated by the
allegations of the complaint, not controverted, and the evidence. The reason
for this conclusion reaches to the findings of the trial court concerning the
position of the truck on the bridge, the speed in operating the machine, and
the lack of care employed by the chauffeur. While these facts are not as
clearly evidenced as are those which convict the other defendant, we
nevertheless hesitate to disregard the points emphasized by the trial judge.
In its broader aspects, the case is one of two drivers approaching a narrow
bridge from opposite directions, with neither being willing to slow up and
give the right of way to the other, with the inevitable result of a collision
and an accident.
The defendants Velasco and Cortez further contend that there existed
contributory negligence on the part of the plaintiff, consisting principally of
his keeping his foot outside the truck, which occasioned his injury. In this
connection, it is sufficient to state that, aside from the fact that the defense
of contributory negligence was not pleaded, the evidence bearing out this
theory of the case is contradictory in the extreme and leads us far afield into
speculative matters.
The last subject for consideration relates to the amount of the award. The
appellee suggests that the amount could justly be raised to P16,517, but
naturally is not serious in asking for this sum, since no appeal was taken by
him from the judgment. The other parties unite in challenging the award of
P10,000, as excessive. All facts considered, including actual expenditures
and damages for the injury to the leg of the plaintiff, which may cause him
permanent lameness, in connection with other adjudications of this court,
lead us to conclude that a total sum for the plaintiff of P5,000 would be fair
and reasonable. The difficulty in approximating the damages by monetary
compensation is well elucidated by the divergence of opinion among the
members of the court, three of whom have inclined to the view that P3,000
would be amply sufficient, while a fourth member has argued that P7,500
would be none too much.
In consonance with the foregoing rulings, the judgment appealed from will
be modified, and the plaintiff will have judgment in his favor against the
defendants Manuel Gutierrez, Abelardo Velasco, and Saturnino Cortez,
jointly and severally, for the sum of P5,000, and the costs of both instances.
5 OBLICON CASES
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-17587 September 12, 1967
PHILIPPINE BANKING CORPORATION, representing the estate of
JUSTINA SANTOS Y CANON FAUSTINO, deceased, plaintiff-
appellant,
vs.
LUI SHE in her own behalf and as administratrix of the intestate estate
of Wong Heng, deceased, defendant-appellant.
Nicanor S. Sison for plaintiff-appellant.
Ozaeta, Gibbs & Ozaeta for defendant-appellant.
CASTRO, J.:
Justina Santos y Canon Faustino and her sister Lorenzo were the owners in
common of a piece of land in Manila. This parcel, with an area of 2,582.30
square meters, is located on Rizal Avenue and opens into Florentino Torres
street at the back and Katubusan street on one side. In it are two residential
houses with entrance on Florentino Torres street and the Hen Wah
Restaurant with entrance on Rizal Avenue. The sisters lived in one of the
houses, while Wong Heng, a Chinese, lived with his family in the
restaurant. Wong had been a long-time lessee of a portion of the property,
paying a monthly rental of P2,620.
On September 22, 1957 Justina Santos became the owner of the entire
property as her sister died with no other heir. Then already well advanced
in years, being at the time 90 years old, blind, crippled and an invalid, she
was left with no other relative to live with. Her only companions in the
house were her 17 dogs and 8 maids. Her otherwise dreary existence was
brightened now and then by the visits of Wong's four children who had
become the joy of her life. Wong himself was the trusted man to whom she
delivered various amounts for safekeeping, including rentals from her
property at the corner of Ongpin and Salazar streets and the rentals which
Wong himself paid as lessee of a part of the Rizal Avenue property. Wong
also took care of the payment; in her behalf, of taxes, lawyers' fees, funeral
expenses, masses, salaries of maids and security guard, and her household
expenses.
"In grateful acknowledgment of the personal services of the lessee to her,"
Justina Santos executed on November 15, 1957 a contract of lease (Plff
Exh. 3) in favor of Wong, covering the portion then already leased to him
and another portion fronting Florentino Torres street. The lease was for 50
years, although the lessee was given the right to withdraw at any time from
the agreement; the monthly rental was P3,120. The contract covered an area
of 1,124 square meters. Ten days later (November 25), the contract was
amended (Plff Exh. 4) so as to make it cover the entire property, including
the portion on which the house of Justina Santos stood, at an additional
monthly rental of P360. For his part Wong undertook to pay, out of the
rental due from him, an amount not exceeding P1,000 a month for the food
of her dogs and the salaries of her maids.
On December 21 she executed another contract (Plff Exh. 7) giving Wong
the option to buy the leased premises for P120,000, payable within ten
years at a monthly installment of P1,000. The option, written in Tagalog,
imposed on him the obligation to pay for the food of the dogs and the
salaries of the maids in her household, the charge not to exceed P1,800 a
month. The option was conditioned on his obtaining Philippine citizenship,
a petition for which was then pending in the Court of First Instance of
Rizal. It appears, however, that this application for naturalization was
withdrawn when it was discovered that he was not a resident of Rizal. On
October 28, 1958 she filed a petition to adopt him and his children on the
erroneous belief that adoption would confer on them Philippine citizenship.
The error was discovered and the proceedings were abandoned.
On November 18, 1958 she executed two other contracts, one (Plff Exh. 5)
extending the term of the lease to 99 years, and another (Plff Exh. 6) fixing
the term of the option of 50 years. Both contracts are written in Tagalog.
In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 & 279), Paragraph 5 of the lease contract states that "The lessee may at any time
she bade her legatees to respect the contracts she had entered into with withdraw from this agreement." It is claimed that this stipulation offends
Wong, but in a codicil (Plff Exh. 17) of a later date (November 4, 1959) she article 1308 of the Civil Code which provides that "the contract must bind
appears to have a change of heart. Claiming that the various contracts were both contracting parties; its validity or compliance cannot be left to the will
made by her because of machinations and inducements practiced by him, of one of them."
she now directed her executor to secure the annulment of the contracts.
We have had occasion to delineate the scope and application of article 1308
On November 18 the present action was filed in the Court of First Instance in the early case of Taylor v. Uy Tieng Piao.1 We said in that case:
of Manila. The complaint alleged that the contracts were obtained by Wong
"through fraud, misrepresentation, inequitable conduct, undue influence and
Article 1256 [now art. 1308] of the Civil Code in our opinion
abuse of confidence and trust of and (by) taking advantage of the
creates no impediment to the insertion in a contract for personal
helplessness of the plaintiff and were made to circumvent the constitutional
service of a resolutory condition permitting the cancellation of
provision prohibiting aliens from acquiring lands in the Philippines and also
the contract by one of the parties. Such a stipulation, as can be
of the Philippine Naturalization Laws." The court was asked to direct the
readily seen, does not make either the validity or the fulfillment
Register of Deeds of Manila to cancel the registration of the contracts and
of the contract dependent upon the will of the party to whom is
to order Wong to pay Justina Santos the additional rent of P3,120 a month
conceded the privilege of cancellation; for where the contracting
from November 15, 1957 on the allegation that the reasonable rental of the
parties have agreed that such option shall exist, the exercise of
leased premises was P6,240 a month.
the option is as much in the fulfillment of the contract as any
other act which may have been the subject of agreement. Indeed,
In his answer, Wong admitted that he enjoyed her trust and confidence as the cancellation of a contract in accordance with conditions
proof of which he volunteered the information that, in addition to the sum agreed upon beforehand is fulfillment.2
of P3,000 which he said she had delivered to him for safekeeping, another
sum of P22,000 had been deposited in a joint account which he had with
And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a lease
one of her maids. But he denied having taken advantage of her trust in order
contract that the lessee, at any time before he erected any building on the
to secure the execution of the contracts in question. As counterclaim he
land, might rescind the lease, can hardly be regarded as a violation of article
sought the recovery of P9,210.49 which he said she owed him for advances.
1256 [now art. 1308] of the Civil Code."

Wong's admission of the receipt of P22,000 and P3,000 was the cue for the
filing of an amended complaint. Thus on June 9, 1960, aside from the
nullity of the contracts, the collection of various amounts allegedly
delivered on different occasions was sought. These amounts and the dates
of their delivery are P33,724.27 (Nov. 4, 1957); P7,344.42 (Dec. 1, 1957);
P10,000 (Dec. 6, 1957); P22,000 and P3,000 (as admitted in his answer).
An accounting of the rentals from the Ongpin and Rizal Avenue properties
was also demanded.
In the meantime as a result of a petition for guardianship filed in the
Juvenile and Domestic Relations Court, the Security Bank & Trust Co. was
appointed guardian of the properties of Justina Santos, while Ephraim G.
Gochangco was appointed guardian of her person.
In his answer, Wong insisted that the various contracts were freely and
voluntarily entered into by the parties. He likewise disclaimed knowledge
of the sum of P33,724.27, admitted receipt of P7,344.42 and P10,000, but
contended that these amounts had been spent in accordance with the
instructions of Justina Santos; he expressed readiness to comply with any
order that the court might make with respect to the sums of P22,000 in the
bank and P3,000 in his possession.
The case was heard, after which the lower court rendered judgment as
follows:
The case of Singson Encarnacion v. Baldomar 4 cannot be cited in support
of the claim of want of mutuality, because of a difference in factual setting.
In that case, the lessees argued that they could occupy the premises as long
as they paid the rent. This is of course untenable, for as this Court said, "If
this defense were to be allowed, so long as defendants elected to continue
the lease by continuing the payment of the rentals, the owner would never
be able to discontinue it; conversely, although the owner should desire the
lease to continue the lessees could effectively thwart his purpose if they
should prefer to terminate the contract by the simple expedient of stopping
payment of the rentals." Here, in contrast, the right of the lessee to continue
the lease or to terminate it is so circumscribed by the term of the contract
that it cannot be said that the continuance of the lease depends upon his
will. At any rate, even if no term had been fixed in the agreement, this case
would at most justify the fixing of a period 5 but not the annulment of the
contract.
Nor is there merit in the claim that as the portion of the property formerly
owned by the sister of Justina Santos was still in the process of settlement
in the probate court at the time it was leased, the lease is invalid as to such
portion. Justina Santos became the owner of the entire property upon the
death of her sister Lorenzo on September 22, 1957 by force of article 777 of
the Civil Code. Hence, when she leased the property on November 15, she
did so already as owner thereof. As this Court explained in upholding the
sale made by an heir of a property under judicial administration:

That the land could not ordinarily be levied upon while

[A]ll the documents mentioned in the first cause of action, with
in custodia legis does not mean that one of the heirs may not sell
the exception of the first which is the lease contract of 15
the right, interest or participation which he has or might have in
November 1957, are declared null and void; Wong Heng is
the lands under administration. The ordinary execution of
condemned to pay unto plaintiff thru guardian of her property
property in custodia legis is prohibited in order to avoid
the sum of P55,554.25 with legal interest from the date of the
interference with the possession by the court. But the sale made
filing of the amended complaint; he is also ordered to pay the
by an heir of his share in an inheritance, subject to the result of
sum of P3,120.00 for every month of his occupation as lessee
the pending administration, in no wise stands in the way of such
under the document of lease herein sustained, from 15
administration.6
November 1959, and the moneys he has consigned since then
shall be imputed to that; costs against Wong Heng.
It is next contended that the lease contract was obtained by Wong in
violation of his fiduciary relationship with Justina Santos, contrary to article
From this judgment both parties appealed directly to this Court. After the
1646, in relation to article 1941 of the Civil Code, which disqualifies
case was submitted for decision, both parties died, Wong Heng on October
"agents (from leasing) the property whose administration or sale may have
21, 1962 and Justina Santos on December 28, 1964. Wong was substituted
been entrusted to them." But Wong was never an agent of Justina Santos.
by his wife, Lui She, the other defendant in this case, while Justina Santos
The relationship of the parties, although admittedly close and confidential,
was substituted by the Philippine Banking Corporation.
did not amount to an agency so as to bring the case within the prohibition of
the law.
Justina Santos maintained — now reiterated by the Philippine Banking
Corporation — that the lease contract (Plff Exh. 3) should have been
Just the same, it is argued that Wong so completely dominated her life and
annulled along with the four other contracts (Plff Exhs. 4-7) because it
affairs that the contracts express not her will but only his. Counsel for
lacks mutuality; because it included a portion which, at the time, was
Justina Santos cites the testimony of Atty. Tomas S. Yumol who said that
in custodia legis; because the contract was obtained in violation of the
he prepared the lease contract on the basis of data given to him by Wong
fiduciary relations of the parties; because her consent was obtained through
and that she told him that "whatever Mr. Wong wants must be followed."7
undue influence, fraud and misrepresentation; and because the lease
contract, like the rest of the contracts, is absolutely simulated.

6 OBLICON CASES
The testimony of Atty. Yumol cannot be read out of context in order to
warrant a finding that Wong practically dictated the terms of the contract.
What this witness said was:
Q Did you explain carefully to your client, Doña Justina, the
contents of this document before she signed it?
A I explained to her each and every one of these conditions and
I also told her these conditions were quite onerous for her, I
don't really know if I have expressed my opinion, but I told her
that we would rather not execute any contract anymore, but to
hold it as it was before, on a verbal month to month contract of
lease.
Q But, she did not follow your advice, and she went with the
contract just the same?
A She agreed first . . .
Q Agreed what?
A Agreed with my objectives that it is really onerous and that I
was really right, but after that, I was called again by her and she
told me to follow the wishes of Mr. Wong Heng.
xxx xxx xxx
Q So, as far as consent is concerned, you were satisfied that this
document was perfectly proper?
xxx xxx xxx
A Your Honor, if I have to express my personal opinion, I
would say she is not, because, as I said before, she told me —
"Whatever Mr. Wong wants must be followed."8
Wong might indeed have supplied the data which Atty. Yumol embodied in
the lease contract, but to say this is not to detract from the binding force of
the contract. For the contract was fully explained to Justina Santos by her
own lawyer. One incident, related by the same witness, makes clear that she
voluntarily consented to the lease contract. This witness said that the
original term fixed for the lease was 99 years but that as he doubted the
validity of a lease to an alien for that length of time, he tried to persuade her
to enter instead into a lease on a month-to-month basis. She was, however,
firm and unyielding. Instead of heeding the advice of the lawyer, she
ordered him, "Just follow Mr. Wong Heng."9 Recounting the incident, Atty.
Yumol declared on cross examination:
Considering her age, ninety (90) years old at the time and her
condition, she is a wealthy woman, it is just natural when she
said "This is what I want and this will be done." In particular
reference to this contract of lease, when I said "This is not
proper," she said — "You just go ahead, you prepare that, I am
the owner, and if there is any illegality, I am the only one that
can question the illegality."10
Atty. Yumol further testified that she signed the lease contract in the
presence of her close friend, Hermenegilda Lao, and her maid, Natividad
Luna, who was constantly by her side.11 Any of them could have testified
on the undue influence that Wong supposedly wielded over Justina Santos,
but neither of them was presented as a witness. The truth is that even after
giving his client time to think the matter over, the lawyer could not make
her change her mind. This persuaded the lower court to uphold the validity
of the lease contract against the claim that it was procured through undue
influence.
Indeed, the charge of undue influence in this case rests on a mere
inference12 drawn from the fact that Justina Santos could not read (as she
was blind) and did not understand the English language in which the
contract is written, but that inference has been overcome by her own
evidence.
Nor is there merit in the claim that her consent to the lease contract, as well
as to the rest of the contracts in question, was given out of a mistaken sense
7 OBLICON CASES
of gratitude to Wong who, she was made to believe, had saved her and her
sister from a fire that destroyed their house during the liberation of Manila.
For while a witness claimed that the sisters were saved by other persons
(the brothers Edilberto and Mariano Sta. Ana)13 it was Justina Santos
herself who, according to her own witness, Benjamin C. Alonzo, said "very
emphatically" that she and her sister would have perished in the fire had it
not been for Wong.14 Hence the recital in the deed of conditional option
(Plff Exh. 7) that "[I]tong si Wong Heng ang siyang nagligtas sa aming
dalawang magkapatid sa halos ay tiyak na kamatayan", and the equally
emphatic avowal of gratitude in the lease contract (Plff Exh. 3).
As it was with the lease contract (Plff Exh. 3), so it was with the rest of the
contracts (Plff Exhs. 4-7) — the consent of Justina Santos was given freely
and voluntarily. As Atty. Alonzo, testifying for her, said:
[I]n nearly all documents, it was either Mr. Wong Heng or Judge
Torres and/or both. When we had conferences, they used to tell
me what the documents should contain. But, as I said, I would
always ask the old woman about them and invariably the old
woman used to tell me: "That's okay. It's all right."15
But the lower court set aside all the contracts, with the exception of the
lease contract of November 15, 1957, on the ground that they are contrary
to the expressed wish of Justina Santos and that their considerations are
fictitious. Wong stated in his deposition that he did not pay P360 a month
for the additional premises leased to him, because she did not want him to,
but the trial court did not believe him. Neither did it believe his statement
that he paid P1,000 as consideration for each of the contracts (namely, the
option to buy the leased premises, the extension of the lease to 99 years,
and the fixing of the term of the option at 50 years), but that the amount
was returned to him by her for safekeeping. Instead, the court relied on the
testimony of Atty. Alonzo in reaching the conclusion that the contracts are
void for want of consideration.
Atty. Alonzo declared that he saw no money paid at the time of the
execution of the documents, but his negative testimony does not rule out the
possibility that the considerations were paid at some other time as the
contracts in fact recite. What is more, the consideration need not pass from
one party to the other at the time a contract is executed because the promise
of one is the consideration for the other.16
With respect to the lower court's finding that in all probability Justina
Santos could not have intended to part with her property while she was
alive nor even to lease it in its entirety as her house was built on it, suffice it
to quote the testimony of her own witness and lawyer who prepared the
contracts (Plff Exhs. 4-7) in question, Atty. Alonzo:
The ambition of the old woman, before her death, according to
her revelation to me, was to see to it that these properties be
enjoyed, even to own them, by Wong Heng because Doña
Justina told me that she did not have any relatives, near or far,
and she considered Wong Heng as a son and his children her
grandchildren; especially her consolation in life was when she
would hear the children reciting prayers in Tagalog.17
She was very emphatic in the care of the seventeen (17) dogs
and of the maids who helped her much, and she told me to see to
it that no one could disturb Wong Heng from those properties.
That is why we thought of the ninety-nine (99) years lease; we
thought of adoption, believing that thru adoption Wong Heng
might acquire Filipino citizenship; being the adopted child of a
Filipino citizen.18
This is not to say, however, that the contracts (Plff Exhs. 3-7) are valid. For
the testimony just quoted, while dispelling doubt as to the intention of
Justina Santos, at the same time gives the clue to what we view as a scheme
to circumvent the Constitutional prohibition against the transfer of lands to
aliens. "The illicit purpose then becomes the illegal causa"19 rendering the
contracts void.
Taken singly, the contracts show nothing that is necessarily illegal, but
considered collectively, they reveal an insidious pattern to subvert by
indirection what the Constitution directly prohibits. To be sure, a lease to an
alien for a reasonable period is valid. So is an option giving an alien the
right to buy real property on condition that he is granted Philippine
citizenship. As this Court said in Krivenko v. Register of Deeds:20
 [A]liens are not completely excluded by the Constitution from
the use of lands for residential purposes. Since their residence in
the Philippines is temporary, they may be granted temporary
rights such as a lease contract which is not forbidden by the
Constitution. Should they desire to remain here forever and
share our fortunes and misfortunes, Filipino citizenship is not
impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a piece
of land, by virtue of which the Filipino owner cannot sell or otherwise
dispose of his property,21 this to last for 50 years, then it becomes clear that
the arrangement is a virtual transfer of ownership whereby the owner
divests himself in stages not only of the right to enjoy the land ( jus
possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to
dispose of it ( jus disponendi) — rights the sum total of which make up
ownership. It is just as if today the possession is transferred, tomorrow, the
use, the next day, the disposition, and so on, until ultimately all the rights of
which ownership is made up are consolidated in an alien. And yet this is
just exactly what the parties in this case did within the space of one year,
with the result that Justina Santos' ownership of her property was reduced
to a hollow concept. If this can be done, then the Constitutional ban against
alien landholding in the Philippines, as announced in Krivenko v. Register
of Deeds,22 is indeed in grave peril.
It does not follow from what has been said, however, that because the
parties are in pari delicto they will be left where they are, without relief. For
one thing, the original parties who were guilty of a violation of the
fundamental charter have died and have since been substituted by their
administrators to whom it would be unjust to impute their guilt.23 For
another thing, and this is not only cogent but also important, article 1416 of
the Civil Code provides, as an exception to the rule on pari delicto, that
"When the agreement is not illegal per se but is merely prohibited, and the
prohibition by law is designed for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has paid or delivered."
The Constitutional provision that "Save in cases of hereditary succession,
no private agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire or hold lands
of the public domain in the Philippines"24 is an expression of public policy
to conserve lands for the Filipinos. As this Court said in Krivenko:
It is well to note at this juncture that in the present case we have
no choice. We are construing the Constitution as it is and not as
we may desire it to be. Perhaps the effect of our construction is
to preclude aliens admitted freely into the Philippines from
owning sites where they may build their homes. But if this is the
solemn mandate of the Constitution, we will not attempt to
compromise it even in the name of amity or equity . . . .
For all the foregoing, we hold that under the Constitution aliens
may not acquire private or public agricultural lands, including
residential lands, and, accordingly, judgment is affirmed,
without costs.25
That policy would be defeated and its continued violation sanctioned if,
instead of setting the contracts aside and ordering the restoration of the land
to the estate of the deceased Justina Santos, this Court should apply the
general rule of pari delicto. To the extent that our ruling in this case
conflicts with that laid down in Rellosa v. Gaw Chee Hun 26 and subsequent
similar cases, the latter must be considered as pro tanto qualified.
The claim for increased rentals and attorney's fees, made in behalf of
Justina Santos, must be denied for lack of merit.
And what of the various amounts which Wong received in trust from her? It
appears that he kept two classes of accounts, one pertaining to amount
which she entrusted to him from time to time, and another pertaining to
rentals from the Ongpin property and from the Rizal Avenue property,
which he himself was leasing.
He made disbursements from this account to discharge Justina Santos'
obligations for taxes, attorneys' fees, funeral services and security guard
services, but the checks (Def Exhs. 247-278) drawn by him for this purpose
amount to only P38,442.84.27 Besides, if he had really settled his accounts
with her on August 26, 1959, we cannot understand why he still had
P22,000 in the bank and P3,000 in his possession, or a total of P25,000. In
his answer, he offered to pay this amount if the court so directed him. On
these two grounds, therefore, his claim of liquidation and settlement of
accounts must be rejected.
After subtracting P38,442.84 (expenditures) from P70,007.19 (receipts),
there is a difference of P31,564 which, added to the amount of P25,000,
leaves a balance of P56,564.3528 in favor of Justina Santos.
As to the second account, the evidence shows that the monthly income from
the Ongpin property until its sale in Rizal Avenue July, 1959 was P1,000,
and that from the Rizal Avenue property, of which Wong was the lessee,
was P3,120. Against this account the household expenses and
disbursements for the care of the 17 dogs and the salaries of the 8 maids of
Justina Santos were charged. This account is contained in a notebook (Def.
Exh. 6) which shows a balance of P9,210.49 in favor of Wong. But it is
claimed that the rental from both the Ongpin and Rizal Avenue properties
was more than enough to pay for her monthly expenses and that, as a matter
of fact, there should be a balance in her favor. The lower court did not
allow either party to recover against the other. Said the court:
[T]he documents bear the earmarks of genuineness; the trouble
is that they were made only by Francisco Wong and Antonia
Matias, nick-named Toning, — which was the way she signed
the loose sheets, and there is no clear proof that Doña Justina
had authorized these two to act for her in such liquidation; on
the contrary if the result of that was a deficit as alleged and
sought to be there shown, of P9,210.49, that was not what Doña
Justina apparently understood for as the Court understands her
statement to the Honorable Judge of the Juvenile Court . . . the
reason why she preferred to stay in her home was because there
she did not incur in any debts . . . this being the case, . . . the
Court will not adjudicate in favor of Wong Heng on his
counterclaim; on the other hand, while it is claimed that the
expenses were much less than the rentals and there in fact
should be a superavit, . . . this Court must concede that daily
expenses are not easy to compute, for this reason, the Court
faced with the choice of the two alternatives will choose the
middle course which after all is permitted by the rules of proof,
Sec. 69, Rule 123 for in the ordinary course of things, a person
will live within his income so that the conclusion of the Court
will be that there is neither deficit nor superavit and will let the
matter rest here.
Both parties on appeal reiterate their respective claims but we agree with
the lower court that both claims should be denied. Aside from the reasons
given by the court, we think that the claim of Justina Santos totalling
P37,235, as rentals due to her after deducting various expenses, should be
rejected as the evidence is none too clear about the amounts spent by Wong
for food29 masses30 and salaries of her maids.31 His claim for P9,210.49
must likewise be rejected as his averment of liquidation is belied by his
own admission that even as late as 1960 he still had P22,000 in the bank
and P3,000 in his possession.
ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled
and set aside; the land subject-matter of the contracts is ordered returned to
the estate of Justina Santos as represented by the Philippine Banking
Corporation; Wong Heng (as substituted by the defendant-appellant Lui
She) is ordered to pay the Philippine Banking Corporation the sum of
P56,564.35, with legal interest from the date of the filing of the amended
complaint; and the amounts consigned in court by Wong Heng shall be
applied to the payment of rental from November 15, 1959 until the
premises shall have been vacated by his heirs. Costs against the defendant-
appellant.

With respect to the first account, the evidence shows that he received
P33,724.27 on November 8, 1957 (Plff Exh. 16); P7,354.42 on December
1, 1957 (Plff Exh. 13); P10,000 on December 6, 1957 (Plff Exh. 14) ; and
P18,928.50 on August 26, 1959 (Def. Exh. 246), or a total of P70,007.19.
He claims, however, that he settled his accounts and that the last amount of
P18,928.50 was in fact payment to him of what in the liquidation was found
to be due to him.

8 OBLICON CASES
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11311 May 28, 1958
MARTA C. ORTEGA, plaintiff-appellant,
vs.
DANIEL LEONARDO, defendant-appellee.
Jose Ma. Reyes for appellant.
Tomas A. Leonardo for appellee.
BENGZON, J.:
Well known is the general rule in the Statute of Frauds precluding
enforcement of oral contracts for the sale of land. Not so well known is
exception concerning the partially executed contracts1 — least our
jurisprudence offers few, if any, apposite illustrations. This appeal
exemplifies such exception.
Alleging partial performance, plaintiff sought to compel defendant to
comply with their oral contract of sale of a parcel of land. Upon a motion to
dismiss, the Manila court of first instance ordered dismissal following the
above general rule.
Hence this appeal. It should be sustained if the allegations of the complaint
— which the motion to dismiss admitted — set out an instance of partial
performance.
Stripped of non-essentials, the complaint averred that long before and until
her house had been completely destroyed during the liberation of the City
of Manila, plaintiff occupied a parcel of land, designated as Lot 1, Block 3
etc. (hereinafter called Lot I) located at San Andres Street, Malate, Manila;
that after liberation she re-occupied it; that when the administration and
disposition of the said Lot I (together with other lots in the Ana Sarmiento
Estate) were assigned by the Government to the Rural Progress
Administration2 plaintiff asserted her right thereto (as occupant) for
purposes of purchase; that defendant also asserted a similar right, alleging
occupancy of a portion of the land subsequent to plaintiff's; that during the
investigation of such conflicting interests, defendant asked plaintiff to
desist from pressing her claim and definitely promised that if and when he
succeeded in getting title to Lot I3 , he would sell to her a portion thereof
with an area of 55.60 square meters (particularly described) at the rate of
P25.00 per square meter, provided she paid for the surveying and
subdivision of the Lot and provided further that after he acquired title, she
could continue holding the lot as tenant by paying a monthly rental of
P10.00 until said portion shall have been segregated and the purchase price
fully paid; that plaintiff accepted defendant's offer, and desisted from
further claiming Lot I; that defendant finally acquired title thereto; that
relying upon their agreement, plaintiff caused the survey and segregation of
the portion which defendant had promised to sell incurring expenses
therefor, said portion being now designated as Lot I-B in a duly prepared
and approved subdivision plan; that in remodelling her son's house
constructed on a lot adjoining Lot I she extended it over said Lot I-B; that
after defendant had acquired Lot I plaintiff regularly paid him the monthly
rental of P10.00; that in July 1954, after the plans of subdivision and
segregation of the lot had been approved by the Bureau of Lands, plaintiff
tendered to defendant the purchase price which the latter refused to accept,
without cause or reason.
The court below explained in its order of dismissal:
It is admitted by both parties that an oral agreement to sell a
piece of land is not enforceable. (Art. 1403, Civil Code, Section
21, Rule 123, Rules of Court.) Plaintiff, however, argues that the
contract in question, although verbal, was partially performed
because plaintiff desisted from claiming the portion of lot I in
question due to the promise of defendant to transfer said portion
to her after the issuance of title to defendant. The court thinks
that even granting that plaintiff really desisted to claim not on
oral promise to sell made by defendant, the oral promise to sell
cannot be enforced. The desistance to claim is not a part of the
contract of sale of the land. Only in essential part of the
executory contract will, if it has already been performed, make
9 OBLICON CASES
the verbal contract enforceable, payment of price being an
essential part of the contract of sale.
If the above means that partial performance of a sale contract
occurs only when part of the purchase price is paid, it surely constitutes a
defective statement of the law. American Jurisprudence in its title "Statute
of Frauds" lists other acts of partial performance, such as possession, the
making of improvements, rendition of services, payment of taxes,
relinquishment of rights, etc.
Thus, it is stated that "The continuance in possession may, in a proper case,
be sufficiently referable to the parol contract of sale to constitute a part
performance thereof. There may be additional acts or peculiar
circumstances which sufficiently refer the possession to the contract. . . .
Continued possession under an oral contract of sale, by one already in
possession as a tenant, has been held a sufficient part performance, where
accompanied by other acts which characterize the continued possession and
refer it to the contract of purchase. Especially is this true where the
circumstances of the case include the making of substantial, permanent, and
valuable improvements." (49 American Jurisprudence — 44)
It is also stated that "The making of valuable permanent improvements on
the land by the purchaser, in pursuance of the agreement and with the
knowledge of the vendor, has been said to be the strongest and the most
unequivocal act of part performance by which a verbal contract to sell land
is taken out of the statute of frauds, and is ordinarily an important element
in such part performance. . . . Possession by the purchaser under a parol
contract for the purchase of real property, together with his making
valuable and permanent improvements on the property which are referable
exclusively to the contract, in reliance on the contract, in the honest belief
that he has a right to make them, and with the knowledge and consent or
acquiescence of the vendor, is deemed a part performance of the contract.
The entry into possession and the making of the improvements are held on
amount to such an alteration in the purchaser's position as will warrant the
court's entering a degree of specific performance." (49 American
Jurisprudence p.755, 756.)
Again, it is stated that "A tender or offer of payment, declined by the
vendor, has been said to be equivalent to actual payment, for the purposes
of determining whether or not there has been a part performance of the
contract. This is apparently true where the tender is by a purchaser who has
made improvements. But the doctrine now generally accepted, that not even
the payment of the purchase price, without something more, . . . is a
sufficient part performance. (49 American Jurisprudence p. 772.)
And the relinquishment of rights or the compromise thereof has likewise
been held to constitute part performance. (See same title secs. 473, 474,
475.)
In the light of the above four paragraphs, it would appear that the complaint
in this case described several circumstance indicating partial performance:
relinquishment of rights4 continued possession, building of improvements,
tender of payment plus the surveying of the lot at plaintiff's expense and the
payment of rentals.
We shall not take, time to discuss whether one or the other or any two or
three of them constituted sufficient performance to take the matter away
from the operation of the Statute of Frauds. Enough to hold that the
combination of all of them amounted to partial performance; and we do so
line with the accepted basis of the doctrine, that it would be a fraud upon
the plaintiff if the defendant were permitted to oppose performance of his
part after he has allowed or induced the former to perform in reliance upon
the agreement. (See 49 American Jurisprudence p. 725.)
The paragraph immediately preceding will serve as our comment on the
appellee's quotations from American Jurisprudence itself to the effect that
"relinquishment" is not part performance, and that neither "surveying the
land"5nor tender of payment is sufficient. The precedents hereinabove
transcribed oppose or explain away or qualify the appellee's citations. And
at the risk of being repetitious we say: granting that none of the three
circumstances indicated by him, (relinquishment, survey, tender)
would separately suffice, still the combination of the three with the others
already mentioned, amounts to more than enough.
Hence, as there was partial performance, the principle excluding parol
contracts for the sale of realty, does not apply.
The judgment will accordingly be reversed and the record remanded for
further proceedings. With costs against appellee.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-26339 December 14, 1979
MARIANO C. PAMINTUAN, petitioner-appellant,
vs.
COURT OF APPEALS and YU PING KUN CO., INC., respondent-
appellees.
V. E. del Rosario & Associates for appellant.
Sangco & Sangalang for private respondent.
AQUINO, J.:
This case is about the recovery compensatory, damages for breach of a
contract of sale in addition to liquidated damages.
Mariano C. Pamintuan appealed from the judgment of the Court of Appeals
wherein he was ordered to deliver to Yu Ping Kun Co., Inc. certain plastic
sheetings and, if he could not do so, to pay the latter P100,559.28 as
damages with six percent interest from the date of the filing of the
complaint. The facts and the findings of the Court of Appeals are as
follows:
In 1960, Pamintuan was the holder of a barter license wherein he was
authorized to export to Japan one thousand metric tons of white flint corn
valued at forty-seven thousand United States dollars in exchange for a
collateral importation of plastic sheetings of an equivalent value.
By virtue of that license, he entered into an agreement to ship his corn to
Tokyo Menka Kaisha, Ltd. of Osaka, Japan in exchange for plastic
sheetings. He contracted to sell the plastic sheetings to Yu Ping Kun Co.,
Inc. for two hundred sixty-five thousand five hundred fifty pesos. The
company undertook to open an irrevocable domestic letter of credit for that
amount in favor of Pamintuan.
It was further agreed that Pamintuan would deliver the plastic sheetings to
the company at its bodegas in Manila or suburbs directly from the piers
"within one month upon arrival of" the carrying vessels. Any violation of
the contract of sale would entitle the aggreived party to collect from the
offending party liquidated damages in the sum of ten thousand pesos (Exh.
A).
On July 28, 1960, the company received a copy of the letter from the
Manila branch of Toyo Menka Kaisha, Ltd. confirming the acceptance by
Japanese suppliers of firm offers for the consignment to Pamintuan of
plastic sheetings valued at forty-seven thousand dollars. Acting on that
information, the company lost no time in securing in favor of Pamintuan an
irrevocable letter of credit for two hundred sixty-five thousand five hundred
fifty pesos.
Pamintuan was apprised by the bank on August 1, 1960 of that letter of
credit which made reference to the delivery to Yu Ping Kun Co., Inc. on or
before October 31, 1960 of 336, 360 yards of plastic sheetings (p. 21,
Record on Appeal).
On September 27 and 30 and October 4, 1960, the Japanese suppliers
shipped to Pamintuan, through Toyo Menka Kaisha, Ltd., the plastic
sheetings in four shipments to wit: (1) Firm Offer No. 327 for 50,000 yards
valued at $9,000; (2) Firm Offer No. 328 for 70,000 yards valued at $8,050;
(3) Firm Offers Nos. 329 and 343 for 175,000 and 18,440 yards valued at
10 OBLICON CASES
$22,445 and $2,305, respectively, and (4) Firm Offer No. 330 for 26,000
yards valued at $5,200, or a total of 339,440 yards with an aggregate value
of $47,000 (pp. 4-5 and 239-40, Record on Appeal).
The plastic sheetings arrived in Manila and were received by Pamintuan.
Out of the shipments, Pamintuan delivered to the company's warehouse
only the following quantities of plastic sheetings:
November 11, 1960 — 140 cases, size 48 inches by
50 yards. November 14, 1960 — 258 cases out of
352 cases. November 15, 1960 — 11 cases out of
352 cases. November 15, 1960 — 10 cases out of
100 cases. November 15, 1960 — 30 cases out of
100 cases.
Pamintuan withheld delivery of (1) 50 cases of plastic sheetings containing
26,000 yards valued at $5,200; (2) 37 cases containing 18,440 yards valued
at $2,305; (3) 60 cases containing 30,000 yards valued at $5,400 and (4) 83
cases containing 40,850 yards valued at $5,236.97. While the plastic
sheetings were arriving in Manila, Pamintuan informed the president of Yu
Ping Kun Co., Inc. that he was in dire need of cash with which to pay his
obligations to the Philippine National Bank. Inasmuch as the computation
of the prices of each delivery would allegedly be a long process, Pamintuan
requested that he be paid immediately.
Consequently, Pamintuan and the president of the company, Benito Y.C.
Espiritu, agreed to fix the price of the plastic sheetings at P0.782 a yard,
regardless of the kind, quality or actual invoice value thereof. The parties
arrived at that figure by dividing the total price of P265,550 by 339,440
yards, the aggregate quantity of the shipments.
After Pamintuan had delivered 224,150 yards of sheetings of interior
quality valued at P163,.047.87, he refused to deliver the remainder of the
shipments with a total value of P102,502.13 which were covered by (i)
Firm Offer No. 330, containing 26,000 yards valued at P29,380; (2) Firm
Offer No. 343, containing 18,440 yards valued at P13,023.25; (3) Firm
Offer No. 217, containing 30,000 yards valued at P30,510 and (4) Firm
Offer No. 329 containing 40,850 yards valued at P29,588.88 (See pp. 243-
2, Record on Appeal).
As justification for his refusal, Pamintuan said that the company failed to
comply with the conditions of the contract and that it was novated with
respect to the price.
On December 2, 1960, the company filed its amended complaint for
damages against Pamintuan. After trial, the lower court rendered the
judgment mentioned above but including moral damages.
The unrealized profits awarded as damages in the trial court's decision were
computed as follows (pp. 248-9, Record on Appeal):
(1) 26,000 yards with a contract price of Pl.13 per
yard and a selling price at the time of delivery of
Pl.75 a yard...........................................................
P16,120.00
(2) 18,000 yards with a contract price of P0.7062 per
yard and selling price of Pl.20 per yard at the time of
delivery......................................... 9,105.67
(3) 30,000 yards with a contract price of Pl.017 per
yard and a selling price of Pl.70 per yard. 20,490.00
(4) 40,850 yards with a contract price of P0.7247 per
yard and a selling price of P1.25 a yard at the time of
delivery......... 21,458.50 Total unrealized
profits....................... P67,174.17
The overpayment of P12,282.26 made to Pamintuan by Yu Ping Kun Co.,
Inc. for the 224,150 yards, which the trial court regarded as an item of
damages suffered by the company, was computed as follows (p. 71, Record
on Appeal):
 Liquidation value of 224,150 yards at P0.7822 a yard and he overpriced the same. That factual finding is conclusive upon this
.............................................................................. Court.
P175,330.13
There is no justification for the Civil Code to make an apparent distinction
Actual peso value of 224,150 yards as per firm offers between penalty and liquidated damages because the settled rule is that
or as per there is no difference between penalty and liquidated damages insofar as
contract............................................163,047.87 legal results are concerned and that either may be recovered without the
necessity of proving actual damages and both may be reduced when proper
(Arts. 1229, 2216 and 2227, Civil Code. See observations of Justice J.B.L.
Overpayment................................................................
Reyes, cited in 4 Tolentino's Civil Code, p. 251).
P 12,282.26

Castan Tobeñas notes that the penal clause in an obligation has three
To these two items of damages (P67,174.17 as unrealized profits and
functions: "1. Una funcion coercitiva o de garantia, consistente en estimular
P12,282.26 as overpayment), the trial court added (a) P10,000 as stipulated
al deudor al complimiento de la obligacion principal, ante la amenaza de
liquidated damages, (b) P10,000 as moral damages, (c) Pl,102.85 as
tener que pagar la pena. 2. Una funcion liquidadora del daño, o sea la de
premium paid by the company on the bond of P102,502.13 for the issuance
evaluar por anticipado los perjuicios que habria de ocasionar al acreedor el
of the writ of preliminary attachment and (d) P10,000 as attorney's fees, or
incumplimiento o cumplimiento inadecuado de la obligacion. 3. Una
total damages of P110,559.28) p. 250, Record on Appeal). The Court of
funcion estrictamente penal, consistente en sancionar o castigar dicho
Appeals affirmed that judgment with the modification that the moral
incumplimiento o cumplimiento inadecuado, atribuyendole consecuencias
damages were disallowed (Resolution of June 29, 1966).
mas onerosas para el deudor que las que normalmente lleva aparejadas la
infraccion contractual. " (3 Derecho Civil Espanol, 9th Ed., p. 128).
Pamintuan appealed. The Court of Appeals in its decision of March 18,
1966 found that the contract of sale between Pamintuan and the company
The penalty clause is strictly penal or cumulative in character and does not
was partly consummated. The company fulfilled its obligation to obtain the
partake of the nature of liquidated damages (pena sustitutiva) when the
Japanese suppliers' confirmation of their acceptance of firm offers totalling
parties agree "que el acreedor podra pedir, en el supuesto incumplimiento o
$47,000. Pamintuan reaped certain benefits from the contract. Hence, he is
mero retardo de la obligacion principal, ademas de la pena, los danos y
estopped to repudiate it; otherwise, he would unjustly enrich himself at the
perjuicios. Se habla en este caso de pena cumulativa, a differencia de
expense of the company.
aquellos otros ordinarios, en que la pena es sustitutiva de la reparacion
ordinaria." (Ibid, Castan Tobenas, p. 130).
The Court of Appeals found that the writ of attachment was properly
issued. It also found that Pamintuan was guilty of fraud because (1) he was
After a conscientious consideration of the facts of the case, as found by
able to make the company agree to change the manner of paying the price
Court of Appeals and the trial court, and after reflecting on the/tenor of the
by falsely alleging that there was a delay in obtaining confirmation of the
stipulation for liquidated damages herein, the true nature of which is not
suppliers' acceptance of the offer to buy; (2) he caused the plastic sheetings
easy to categorize, we further hold that justice would be adequately done in
to be deposited in the bonded warehouse of his brother and then required
this case by allowing Yu Ping Kun Co., Inc. to recover only the actual
his brother to make him Pamintuan), his attorney-in-fact so that he could
damages proven and not to award to it the stipulated liquidated damages of
control the disposal of the goods; (3) Pamintuan, as attorney-in-fact of the
ten thousand pesos for any breach of the contract. The proven damages
warehouseman, endorsed to the customs broker the warehouse receipts
supersede the stipulated liquidated damages.
covering the plastic sheetings withheld by him and (4) he overpriced the
plastic sheetings which he delivered to the company.
This view finds support in the opinion of Manresa (whose comments were
the bases of the new matter found in article 1226, not found in article 1152
The Court of Appeals described Pamintuan as a man "who, after having
of the old Civil Code) that in case of fraud the difference between the
succeeded in getting another to accommodate him by agreeing to liquidate
proven damages and the stipulated penalty may be recovered (Vol. 8, part.
his deliveries on the basis of P0.7822 per yard, irrespective of invoice
1, Codigo Civil, 5th Ed., 1950, p. 483).
value, on the pretense that he would deliver what in the first place he ought
to deliver anyway, when he knew all the while that he had no such
intention, and in the process delivered only the poorer or cheaper kind or Hence, the damages recoverable by the firm would amount to ninety
those which he had predetermined to deliver and did not conceal in his thousand five hundred fifty-nine pesos and twenty-eight centavos
brother's name and thus deceived the unwary party into overpaying him the (P90,559.28), with six percent interest a year from the filing of the
sum of P 1 2,282.26 for the said deliveries, and would thereafter refuse to complaint.
make any further delivery in flagrant violation of his plighted word, would
now ask us to sanction his actuation" (pp. 61-62, Rollo).
With that modification the judgment of the Court of Appeals is affirmed in
all respects. No costs in this instance.
The main contention of appellant Pamintuan is that the buyer, Yu Ping Kun
Co., Inc., is entitled to recover only liquidated damages. That contention is
SO ORDERED.
based on the stipulation "that any violation of the provisions of this contract
(of sale) shall entitle the aggrieved party to collect from the offending party
liquidated damages in the sum of P10,000 ". Republic of the Philippines
SUPREME COURT
Manila
Pamintuan relies on the rule that a penalty and liquidated damages are the
same (Lambert vs. Fox 26 Phil. 588); that "in obligations with a penal
clause, the penalty shall substitute the indemnity for damages and the FIRST DIVISION
payment of interests in case of non-compliance, if there is no stipulation to
the contrary " (1st sentence of Art. 1226, Civil Code) and, it is argued, there
is no such stipulation to the contrary in this case and that "liquidated G.R. No. 184458 January 14, 2015
damages are those agreed upon by the parties to a contract, to be paid in
case of breach thereof" (Art. 2226, Civil Code). RODRIGO RIVERA, Petitioner,
vs.
We hold that appellant's contention cannot be sustained because the second SPOUSES SALVADOR CHUA AND VIOLETA S.
sentence of article 1226 itself provides that I nevertheless, damages shall be CHUA, Respondents.
paid if the obligor ... is guilty of fraud in the fulfillment of the obligation".
"Responsibility arising from fraud is demandable in all obligations" (Art. x-----------------------x
1171, Civil Code). "In case of fraud, bad faith, malice or wanton attitude,
the obligor shall be responsible for an damages which may be reasonably
attributed to the non-performance of the obligation" (Ibid, art. 2201). G.R. No. 184472

The trial court and the Court of Appeals found that Pamintuan was guilty of
fraud because he did not make a complete delivery of the plastic sheetings
11 OBLICON CASES
SPS. SALVADOR CHUA and VIOLETA S. CHUA, Petitioners,
vs.
RODRIGO RIVERA, Respondent.
DECISION
PEREZ, J.:
Before us are consolidated Petitions for Review on Certiorari under Rule 45
of the Rules of Court assailing the Decision1 of the Court of Appeals in CA-
G.R. SP No. 90609 which affirmed with modification the separate rulings
of the Manila City trial courts, the Regional Trial Court, Branch 17 in Civil
Case No. 02-1052562 and the Metropolitan Trial Court (MeTC), Branch 30,
in Civil Case No. 163661,3 a case for collection of a sum of money due a
promissory note. While all three (3) lower courts upheld the validity and
authenticity of the promissory note as duly signed by the obligor, Rodrigo
Rivera (Rivera), petitioner in G.R. No. 184458, the appellate court modified
the trial courts’ consistent awards: (1) the stipulated interest rate of sixty
percent (60%) reduced to twelve percent (12%) per annumcomputed from
the date of judicial or extrajudicial demand, and (2) reinstatement of the
award of attorney’s fees also in a reduced amount of ₱50,000.00.
In G.R. No. 184458, Rivera persists in his contention that there was no
valid promissory note and questions the entire ruling of the lower courts.
On the other hand, petitioners in G.R. No. 184472, Spouses Salvador and
Violeta Chua (Spouses Chua), take exception to the appellate court’s
reduction of the stipulated interest rate of sixty percent (60%) to twelve
percent (12%) per annum.
We proceed to the facts.
The parties were friends of long standing having known each other since
1973: Rivera and Salvador are kumpadres, the former is the godfather of
the Spouses Chua’s son.
On 24 February 1995, Rivera obtained a loan from the Spouses Chua:
PROMISSORY NOTE
120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses
SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of One
Hundred Twenty Thousand Philippine Currency (₱120,000.00) on
December 31, 1995.
It is agreed and understood that failure on my part to pay the amount of
(120,000.00) One Hundred Twenty Thousand Pesos on December 31, 1995.
(sic) I agree to pay the sum equivalent to FIVE PERCENT (5%) interest
monthly from the date of default until the entire obligation is fully paid for.
Should this note be referred to a lawyer for collection, I agree to pay the
further sum equivalent to twenty percent (20%) of the total amount due and
payable as and for attorney’s fees which in no case shall be less than
₱5,000.00 and to pay in addition the cost of suit and other incidental
litigation expense.
Any action which may arise in connection with this note shall be brought in
the proper Court of the City of Manila.
Manila, February 24, 1995[.]
(SGD.) RODRIGO RIVERA4
In October 1998, almost three years from the date of payment stipulated in
the promissory note, Rivera, as partial payment for the loan, issued and
delivered to the SpousesChua, as payee, a check numbered 012467, dated
30 December 1998, drawn against Rivera’s current account with the
Philippine Commercial International Bank (PCIB) in the amount of
₱25,000.00.
On 21 December 1998, the Spouses Chua received another check
presumably issued by Rivera, likewise drawn against Rivera’s PCIB current
12 OBLICON CASES
account, numbered 013224, duly signed and dated, but blank as to payee
and amount. Ostensibly, as per understanding by the parties, PCIB Check
No. 013224 was issued in the amount of ₱133,454.00 with "cash" as payee.
Purportedly, both checks were simply partial payment for Rivera’s loan in
the principal amount of ₱120,000.00.
Upon presentment for payment, the two checks were dishonored for the
reason "account closed."
As of 31 May 1999, the amount due the Spouses Chua was pegged at
₱366,000.00 covering the principal of ₱120,000.00 plus five percent (5%)
interest per month from 1 January 1996 to 31 May 1999.
The Spouses Chua alleged that they have repeatedly demanded payment
from Rivera to no avail. Because of Rivera’s unjustified refusal to pay, the
Spouses Chua were constrained to file a suit on 11 June 1999. The case was
raffled before the MeTC, Branch 30, Manila and docketed as Civil Case
No. 163661.
In his Answer with Compulsory Counterclaim, Rivera countered that: (1)
he never executed the subject Promissory Note; (2) in all instances when he
obtained a loan from the Spouses Chua, the loans were always covered by a
security; (3) at the time of the filing of the complaint, he still had an
existing indebtedness to the Spouses Chua, secured by a real estate
mortgage, but not yet in default; (4) PCIB Check No. 132224 signed by him
which he delivered to the Spouses Chua on 21 December 1998, should have
been issued in the amount of only 1,300.00, representing the amount he
received from the Spouses Chua’s saleslady; (5) contrary to the supposed
agreement, the Spouses Chua presented the check for payment in the
amount of ₱133,454.00; and (6) there was no demand for payment of the
amount of ₱120,000.00 prior to the encashment of PCIB Check No.
0132224.5
In the main, Rivera claimed forgery of the subject Promissory Note and
denied his indebtedness thereunder.
The MeTC summarized the testimonies of both parties’ respective
witnesses:
[The spouses Chua’s] evidence include[s] documentary evidence and oral
evidence (consisting of the testimonies of [the spouses] Chua and NBI
Senior Documents Examiner Antonio Magbojos). x x x
xxxx
Witness Magbojos enumerated his credentials as follows: joined the NBI
(1987); NBI document examiner (1989); NBI Senior Document Examiner
(1994 to the date he testified); registered criminologist; graduate of 18th
Basic Training Course [i]n Questioned Document Examination conducted
by the NBI; twice attended a seminar on US Dollar Counterfeit Detection
conducted by the US Embassy in Manila; attended a seminar on Effective
Methodology in Teaching and Instructional design conducted by the NBI
Academy; seminar lecturer on Questioned Documents, Signature
Verification and/or Detection; had examined more than a hundred thousand
questioned documents at the time he testified.
Upon [order of the MeTC], Mr. Magbojos examined the purported
signature of [Rivera] appearing in the Promissory Note and compared the
signature thereon with the specimen signatures of [Rivera] appearing on
several documents. After a thorough study, examination, and comparison of
the signature on the questioned document (Promissory Note) and the
specimen signatures on the documents submitted to him, he concluded that
the questioned signature appearing in the Promissory Note and the
specimen signatures of [Rivera] appearing on the other documents
submitted were written by one and the same person. In connection with his
findings, Magbojos prepared Questioned Documents Report No. 712-1000
dated 8 January 2001, with the following conclusion: "The questioned and
the standard specimen signatures RODGRIGO RIVERA were written by
one and the same person."
[Rivera] testified as follows: he and [respondent] Salvador are
"kumpadres;" in May 1998, he obtained a loan from [respondent] Salvador
and executed a real estate mortgage over a parcel of land in favor of
[respondent Salvador] as collateral; aside from this loan, in October, 1998
he borrowed ₱25,000.00 from Salvador and issued PCIB Check No.
126407 dated 30 December 1998; he expressly denied execution of the
Promissory Note dated 24 February 1995 and alleged that the signature
appearing thereon was not his signature; [respondent Salvador’s] claim that
PCIB Check No. 0132224 was partial payment for the Promissory Note
was not true, the truth being that he delivered the check to [respondent
Salvador] with the space for amount left blank as he and [respondent]
Salvador had agreed that the latter was to fill it in with the amount of
₱1,300.00 which amount he owed [the spouses Chua]; however, on 29
December 1998 [respondent] Salvador called him and told him that he had
written ₱133,454.00 instead of ₱1,300.00; x x x. To rebut the testimony of
NBI Senior Document Examiner Magbojos, [Rivera] reiterated his
averment that the signature appearing on the Promissory Note was not his
signature and that he did not execute the Promissory Note.6
After trial, the MeTC ruled in favor of the Spouses Chua:
WHEREFORE, [Rivera] is required to pay [the spouses Chua]:
₱120,000.00 plus stipulated interest at the rate of 5% per month from 1
January 1996, and legal interest at the rate of 12% percent per annum from
11 June 1999, as actual and compensatory damages; 20% of the whole
amount due as attorney’s fees.7
On appeal, the Regional Trial Court, Branch 17, Manila affirmed the
Decision of the MeTC, but deleted the award of attorney’s fees to the
Spouses Chua:
WHEREFORE, except as to the amount of attorney’s fees which is hereby
deleted, the rest of the Decision dated October 21, 2002 is hereby
AFFIRMED.8
Both trial courts found the Promissory Note as authentic and validly bore
the signature of Rivera. Undaunted, Rivera appealed to the Court of
Appeals which affirmed Rivera’s liability under the Promissory Note,
reduced the imposition of interest on the loan from 60% to 12% per annum,
and reinstated the award of attorney’s fees in favor of the Spouses Chua:
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject
to the MODIFICATION that the interest rate of 60% per annum is hereby
reduced to12% per annum and the award of attorney’s fees is reinstated
atthe reduced amount of ₱50,000.00 Costs against [Rivera].9
Hence, these consolidated petitions for review on certiorariof Rivera in
G.R. No. 184458 and the Spouses Chua in G.R. No. 184472, respectively
raising the following issues:
A. In G.R. No. 184458
1. WHETHER OR NOT THE HONORABLE
COURT OF APPEALS ERRED IN UPHOLDING
THE RULING OF THE RTC AND M[e]TC THAT
THERE WAS A VALID PROMISSORY NOTE
EXECUTED BY [RIVERA].
2. WHETHER OR NOT THE HONORABLE
COURT OF APPEALS ERRED IN HOLDING
THAT DEMAND IS NO LONGER NECESSARY
AND IN APPLYING THE PROVISIONS OF THE
NEGOTIABLE INSTRUMENTS LAW.
3. WHETHER OR NOT THE HONORABLE
COURT OF APPEALS ERRED IN AWARDING
ATTORNEY’S FEES DESPITE THE FACT THAT
THE SAME HAS NO BASIS IN FACT AND IN
LAW AND DESPITE THE FACT THAT [THE
SPOUSES CHUA] DID NOT APPEAL FROM THE
DECISION OF THE RTC DELETING THE
AWARD OF ATTORNEY’S FEES.10
B. In G.R. No. 184472
[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS
COMMITTED GROSS LEGAL ERROR WHEN IT MODIFIED THE
APPEALED JUDGMENT BY REDUCING THE INTEREST RATE
FROM 60% PER ANNUM TO 12% PER ANNUM IN SPITE OF THE
FACT THAT RIVERA NEVER RAISED IN HIS ANSWER THE
DEFENSE THAT THE SAID STIPULATED RATE OF INTEREST IS
13 OBLICON CASES
EXORBITANT, UNCONSCIONABLE, UNREASONABLE,
INEQUITABLE, ILLEGAL, IMMORAL OR VOID.11
As early as 15 December 2008, wealready disposed of G.R. No. 184472
and denied the petition, via a Minute Resolution, for failure to sufficiently
show any reversible error in the ruling of the appellate court specifically
concerning the correct rate of interest on Rivera’s indebtedness under the
Promissory Note.12
On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.
Thus, what remains for our disposition is G.R. No. 184458, the appeal of
Rivera questioning the entire ruling of the Court of Appeals in CA-G.R. SP
No. 90609.
Rivera continues to deny that heexecuted the Promissory Note; he claims
that given his friendship withthe Spouses Chua who were money lenders,
he has been able to maintain a loan account with them. However, each of
these loan transactions was respectively "secured by checks or sufficient
collateral."
Rivera points out that the Spouses Chua "never demanded payment for the
loan nor interest thereof (sic) from [Rivera] for almost four (4) years from
the time of the alleged default in payment [i.e., after December 31,
1995]."13
On the issue of the supposed forgery of the promissory note, we are not
inclined to depart from the lower courts’ uniform rulings that Rivera indeed
signed it.
Rivera offers no evidence for his asseveration that his signature on the
promissory note was forged, only that the signature is not his and varies
from his usual signature. He likewise makes a confusing defense of having
previously obtained loans from the Spouses Chua who were money lenders
and who had allowed him a period of "almost four (4) years" before
demanding payment of the loan under the Promissory Note.
First, we cannot give credence to such a naked claim of forgery over the
testimony of the National Bureau of Investigation (NBI) handwriting expert
on the integrity of the promissory note. On that score, the appellate court
aptly disabled Rivera’s contention:
[Rivera] failed to adduce clear and convincing evidence that the signature
on the promissory note is a forgery. The fact of forgery cannot be presumed
but must be proved by clear, positive and convincing evidence. Mere
variance of signatures cannot be considered as conclusive proof that the
same was forged. Save for the denial of Rivera that the signature on the
note was not his, there is nothing in the records to support his claim of
forgery. And while it is true that resort to experts is not mandatory or
indispensable to the examination of alleged forged documents, the opinions
of handwriting experts are nevertheless helpful in the court’s determination
of a document’s authenticity.
To be sure, a bare denial will not suffice to overcome the positive value of
the promissory note and the testimony of the NBI witness. In fact, even a
perfunctory comparison of the signatures offered in evidence would lead to
the conclusion that the signatures were made by one and the same person.
It is a basic rule in civil cases that the party having the burden of proof must
establish his case by preponderance of evidence, which simply means
"evidence which is of greater weight, or more convincing than that which is
offered in opposition to it."
Evaluating the evidence on record, we are convinced that [the Spouses
Chua] have established a prima faciecase in their favor, hence, the burden
of evidence has shifted to [Rivera] to prove his allegation of forgery.
Unfortunately for [Rivera], he failed to substantiate his defense.14 Well-
entrenched in jurisprudence is the rule that factual findings of the trial
court, especially when affirmed by the appellate court, are accorded the
highest degree of respect and are considered conclusive between the
parties.15 A review of such findings by this Court is not warranted except
upon a showing of highly meritorious circumstances, such as: (1) when the
findings of a trial court are grounded entirely on speculation, surmises or
conjectures; (2) when a lower court's inference from its factual findings is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when the findings of the appellate
court go beyond the issues of the case, or fail to notice certain relevant facts
which, if properly considered, will justify a different conclusion; (5) when
there is a misappreciation of facts; (6) when the findings of fact are
conclusions without mention of the specific evidence on which they are
based, are premised on the absence of evidence, or are contradicted by
evidence on record.16 None of these exceptions obtains in this instance.
There is no reason to depart from the separate factual findings of the three
(3) lower courts on the validity of Rivera’s signature reflected in the
Promissory Note.
Indeed, Rivera had the burden ofproving the material allegations which he
sets up in his Answer to the plaintiff’s claim or cause of action, upon which
issue is joined, whether they relate to the whole case or only to certain
issues in the case.17
In this case, Rivera’s bare assertion is unsubstantiated and directly disputed
by the testimony of a handwriting expert from the NBI. While it is true that
resort to experts is not mandatory or indispensable to the examination or the
comparison of handwriting, the trial courts in this case, on its own, using
the handwriting expert testimony only as an aid, found the disputed
document valid.18
Hence, the MeTC ruled that:
[Rivera] executed the Promissory Note after consideration of the following:
categorical statement of [respondent] Salvador that [Rivera] signed the
Promissory Note before him, in his ([Rivera’s]) house; the conclusion of
NBI Senior Documents Examiner that the questioned signature (appearing
on the Promissory Note) and standard specimen signatures "Rodrigo
Rivera" "were written by one and the same person"; actual view at the
hearing of the enlarged photographs of the questioned signature and the
standard specimen signatures.19
Specifically, Rivera insists that: "[i]f that promissory note indeed exists, it
is beyond logic for a money lender to extend another loan on May 4, 1998
secured by a real estate mortgage, when he was already in default and has
not been paying any interest for a loan incurred in February 1995." 20
We disagree.
It is likewise likely that precisely because of the long standing friendship of
the parties as "kumpadres," Rivera was allowed another loan, albeit this
time secured by a real estate mortgage, which will cover Rivera’s loan
should Rivera fail to pay. There is nothing inconsistent with the Spouses
Chua’s two (2) and successive loan accommodations to Rivera: one,
secured by a real estate mortgage and the other, secured by only a
Promissory Note.
Also completely plausible is thatgiven the relationship between the parties,
Rivera was allowed a substantial amount of time before the Spouses Chua
demanded payment of the obligation due under the Promissory Note.
In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim
of forgery and a discordant defense to assail the authenticity and validity of
the Promissory Note. Although the burden of proof rested on the Spouses
Chua having instituted the civil case and after they established a prima facie
case against Rivera, the burden of evidence shifted to the latter to establish
his defense.21 Consequently, Rivera failed to discharge the burden of
evidence, refute the existence of the Promissory Note duly signed by him
and subsequently, that he did not fail to pay his obligation thereunder. On
the whole, there was no question left on where the respective evidence of
the parties preponderated—in favor of plaintiffs, the Spouses Chua. Rivera
next argues that even assuming the validity of the Promissory Note,
demand was still necessary in order to charge him liable thereunder. Rivera
argues that it was grave error on the part of the appellate court to apply
Section 70 of the Negotiable Instruments Law (NIL). 22
We agree that the subject promissory note is not a negotiable instrument
and the provisions of the NIL do not apply to this case. Section 1 of the NIL
requires the concurrence of the following elements to be a negotiable
instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
14 OBLICON CASES
(c) Must be payable on demand, or at a fixed or determinable
future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
On the other hand, Section 184 of the NIL defines what negotiable
promissory note is: SECTION 184. Promissory Note, Defined. – A
negotiable promissory note within the meaning of this Act is an
unconditional promise in writing made by one person to another, signed by
the maker, engaging to pay on demand, or at a fixed or determinable future
time, a sum certain in money to order or to bearer. Where a note is drawn to
the maker’s own order, it is not complete until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein
respondents, the Spouses Chua, and not to order or to bearer, or to the order
of the Spouses Chua as payees. However, even if Rivera’s Promissory Note
is not a negotiable instrument and therefore outside the coverage of Section
70 of the NIL which provides that presentment for payment is not necessary
to charge the person liable on the instrument, Rivera is still liable under the
terms of the Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the obligation
falls due and becomes demandable—31 December 1995. As of 1 January
1996, Rivera had already incurred in delay when he failed to pay the
amount of ₱120,000.00 due to the Spouses Chua on 31 December 1995
under the Promissory Note.
Article 1169 of the Civil Code explicitly provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from
the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that
delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins. (Emphasis supplied)
There are four instances when demand is not necessary to constitute the
debtor in default: (1) when there is an express stipulation to that effect; (2)
where the law so provides; (3) when the period is the controlling motive or
the principal inducement for the creation of the obligation; and (4) where
demand would be useless. In the first two paragraphs, it is not sufficient
that the law or obligation fixes a date for performance; it must further state
expressly that after the period lapses, default will commence.
We refer to the clause in the Promissory Note containing the stipulation of
interest:
It is agreed and understood that failure on my part to pay the amount of
(₱120,000.00) One Hundred Twenty Thousand Pesos on December 31,
1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT (5%)
interest monthly from the date of default until the entire obligation is fully
paid for.23
which expressly requires the debtor (Rivera) to pay a 5% monthly interest
from the "date of default" until the entire obligation is fully paid for. The
parties evidently agreed that the maturity of the obligation at a date certain,
31 December 1995, will give rise to the obligation to pay interest. The
Promissory Note expressly provided that after 31 December 1995, default
commences and the stipulation on payment of interest starts.
The date of default under the Promissory Note is 1 January 1996, the day
following 31 December 1995, the due date of the obligation. On that date,
Rivera became liable for the stipulated interest which the Promissory Note
says is equivalent to 5% a month. In sum, until 31 December 1995, demand
was not necessary before Rivera could be held liable for the principal
amount of ₱120,000.00. Thereafter, on 1 January 1996, upon default,
Rivera became liable to pay the Spouses Chua damages, in the form of
stipulated interest.
The liability for damages of those who default, including those who are
guilty of delay, in the performance of their obligations is laid down on
Article 117024 of the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment of
interest as an indemnity for damages when the obligor incurs in delay:
Art. 2209. If the obligation consists inthe payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon,
and in the absence of stipulation, the legal interest, which is six percent per
annum. (Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1) the
obligation is for a sum of money; (2) the debtor, Rivera, incurred in delay
when he failed to pay on or before 31 December 1995; and (3) the
Promissory Note provides for an indemnity for damages upon default of
Rivera which is the payment of a 5%monthly interest from the date of
default.
We do not consider the stipulation on payment of interest in this case as a
penal clause although Rivera, as obligor, assumed to pay additional 5%
monthly interest on the principal amount of ₱120,000.00 upon default.
Article 1226 of the Civil Code provides:
Art. 1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of
noncompliance, if there isno stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the penalty or is guilty of
fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance
with the provisions of this Code.
The penal clause is generally undertaken to insure performance and works
as either, or both, punishment and reparation. It is an exception to the
general rules on recovery of losses and damages. As an exception to the
general rule, a penal clause must be specifically set forth in the obligation. 25
In high relief, the stipulation in the Promissory Note is designated as
payment of interest, not as a penal clause, and is simply an indemnity for
damages incurred by the Spouses Chua because Rivera defaulted in the
payment of the amount of ₱120,000.00. The measure of damages for the
Rivera’s delay is limited to the interest stipulated in the Promissory Note. In
apt instances, in default of stipulation, the interest is that provided by law. 26
In this instance, the parties stipulated that in case of default, Rivera will pay
interest at the rate of 5% a month or 60% per annum. On this score, the
appellate court ruled:
It bears emphasizing that the undertaking based on the note clearly states
the date of payment tobe 31 December 1995. Given this circumstance,
demand by the creditor isno longer necessary in order that delay may exist
since the contract itself already expressly so declares. The mere failure of
[Spouses Chua] to immediately demand or collect payment of the value of
the note does not exonerate [Rivera] from his liability therefrom. Verily, the
trial court committed no reversible error when it imposed interest from 1
January 1996 on the ratiocination that [Spouses Chua] were relieved from
making demand under Article 1169 of the Civil Code.
xxxx
15 OBLICON CASES
As observed by [Rivera], the stipulated interest of 5% per month or 60%
per annum in addition to legal interests and attorney’s fees is, indeed,
highly iniquitous and unreasonable. Stipulated interest rates are illegal if
they are unconscionable and the Court is allowed to temper interest rates
when necessary. Since the interest rate agreed upon is void, the parties are
considered to have no stipulation regarding the interest rate, thus, the rate of
interest should be 12% per annum computed from the date of judicial or
extrajudicial demand.27
The appellate court found the 5% a month or 60% per annum interest rate,
on top of the legal interest and attorney’s fees, steep, tantamount to it being
illegal, iniquitous and unconscionable. Significantly, the issue on payment
of interest has been squarely disposed of in G.R. No. 184472 denying the
petition of the Spouses Chua for failure to sufficiently showany reversible
error in the ruling of the appellate court, specifically the reduction of the
interest rate imposed on Rivera’s indebtedness under the Promissory Note.
Ultimately, the denial of the petition in G.R. No. 184472 is res judicata in
its concept of "bar by prior judgment" on whether the Court of Appeals
correctly reduced the interest rate stipulated in the Promissory Note.
Res judicata applies in the concept of "bar by prior judgment" if the
following requisites concur: (1) the former judgment or order must be final;
(2) the judgment or order must be on the merits; (3) the decision must have
been rendered by a court having jurisdiction over the subject matter and the
parties; and (4) there must be, between the first and the second action,
identity of parties, of subject matter and of causes of action.28
In this case, the petitions in G.R. Nos. 184458 and 184472 involve an
identity of parties and subject matter raising specifically errors in the
Decision of the Court of Appeals. Where the Court of Appeals’ disposition
on the propriety of the reduction of the interest rate was raised by the
Spouses Chua in G.R. No. 184472, our ruling thereon affirming the Court
of Appeals is a "bar by prior judgment."
At the time interest accrued from 1 January 1996, the date of default under
the Promissory Note, the then prevailing rate of legal interest was 12% per
annum under Central Bank (CB) Circular No. 416 in cases involving the
loan or for bearance of money.29 Thus, the legal interest accruing from the
Promissory Note is 12% per annum from the date of default on 1 January
1996. However, the 12% per annumrate of legal interest is only applicable
until 30 June 2013, before the advent and effectivity of Bangko Sentral ng
Pilipinas (BSP) Circular No. 799, Series of 2013 reducing the rate of legal
interest to 6% per annum. Pursuant to our ruling in Nacar v. Gallery
Frames,30 BSP Circular No. 799 is prospectively applied from 1 July 2013.
In short, the applicable rate of legal interest from 1 January 1996, the date
when Rivera defaulted, to date when this Decision becomes final and
executor is divided into two periods reflecting two rates of legal interest:
(1) 12% per annum from 1 January 1996 to 30 June 2013; and (2) 6% per
annum FROM 1 July 2013 to date when this Decision becomes final and
executory.
As for the legal interest accruing from 11 June 1999, when judicial demand
was made, to the date when this Decision becomes final and executory,
such is likewise divided into two periods: (1) 12% per annum from 11 June
1999, the date of judicial demand to 30 June 2013; and (2) 6% per annum
from 1 July 2013 to date when this Decision becomes final and
executor.31 We base this imposition of interest on interest due earning legal
interest on Article 2212 of the Civil Code which provides that "interest due
shall earn legal interest from the time it is judicially demanded, although
the obligation may be silent on this point."
From the time of judicial demand, 11 June 1999, the actual amount owed
by Rivera to the Spouses Chua could already be determined with reasonable
certainty given the wording of the Promissory Note.32
We cite our recent ruling in Nacar v. Gallery Frames:33
I. When an obligation, regardless of its source, i.e., law,
contracts, quasicontracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept
of actual and compensatory damages, the rate of interest, as well
as the accrual thereof, is imposed, as follows:
 1. When the obligation is breached, and it consists in
the payment of a sum of money, i.e., a loan or for
bearance of money, the interest due should be that
which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be
6% per annum to be computed from default, i.e.,
from judicial or extra judicial demand under and
subject to the provisions ofArticle 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per
annum.1âwphi1 No interest, however, shall be
adjudged on unliquidated claims or damages, except
when or until the demand can be established with
reasonable certainty. Accordingly, where the demand
is established with reasonable certainty, the interest
shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code),
but when such certainty cannot be so reasonably
established at the time the demand is made, the
interest shall begin to run only from the date the
judgment of the court is made (at which time the
quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on
the amount finally adjudged. 3. When the judgment
of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above,
shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be
by then an equivalent to a for bearance of credit.
And, in addition to the above, judgments that have
become final and executory prior to July 1, 2013,
shall not be disturbed and shall continue to be
implemented applying the rate of interest fixed
therein. (Emphasis supplied)
On the reinstatement of the award of attorney’s fees based on the
stipulation in the Promissory Note, weagree with the reduction thereof but
not the ratiocination of the appellate court that the attorney’s fees are in the
nature of liquidated damages or penalty. The interest imposed in the
Promissory Note already answers as liquidated damages for Rivera’s
default in paying his obligation. We award attorney’s fees, albeit in a
reduced amount, in recognition that the Spouses Chua were compelled to
litigate and incurred expenses to protect their interests. 34 Thus, the award of
₱50,000.00 as attorney’s fees is proper.
For clarity and to obviate confusion, we chart the breakdown of the total
amount owed by Rivera to the Spouses Chua:
The total amount owing to the Spouses Chua set forth in this Decision shall
further earn legal interest at the rate of 6% per annum computed from its
finality until full payment thereof, the interim period being deemed to be a
forbearance of credit.
WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision
of the Court of Appeals in CA-G.R. SP No. 90609 is MODIFIED.
Petitioner Rodrigo Rivera is ordered to pay respondents Spouse Salvador
and Violeta Chua the following:
(1) the principal amount of ₱120,000.00;
(2) legal interest of 12% per annumof the principal amount of
₱120,000.00 reckoned from 1 January 1996 until 30 June 2013;
(3) legal interest of 6% per annumof the principal amount of
₱120,000.00 form 1 July 2013 to date when this Decision
becomes final and executory;
(4) 12% per annumapplied to the total of paragraphs 2 and 3
from 11 June 1999, date of judicial demand, to 30 June 2013, as
interest due earning legal interest;
16 OBLICON CASES
(5) 6% per annumapplied to the total amount of paragraphs 2
and 3 from 1 July 2013 to date when this Decision becomes
final and executor, asinterest due earning legal interest;
(6) Attorney’s fees in the amount of ₱50,000.00; and
(7) 6% per annum interest on the total of the monetary awards
from the finality of this Decision until full payment thereof.
Costs against petitioner Rodrigo Rivera.
SO ORDERED.
G.R. No. 209969, September 27, 2017
JOSE SANICO AND VICENTE
CASTRO, Petitioners, v. WERHERLINA P. COLIPANO, Respondent.
DECISION
CAGUIOA, J.:
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of
the Rules of Court filed by petitioners Jose Sanico (Sanico) and Vicente
Castro (Castro), assailing the Decision2 dated September 30, 2013 of the
Court of Appeals (CA) in CA-G.R. CEB-CV No. 01889. The CA affirmed
with modification the Decision3 dated October 27, 2006 of the Regional
Trial Court, Branch 25, Danao City (RTC) which found Sanico and Castro
liable for breach of' contract of carriage and awarded actual and
compensatory damages for loss of income in favor of respondent
Werherlina P. Colipano (Colipano). The CA reduced the compensatory
damages that the RTC awarded.
Antecedents
Colipano filed a complaint on January 7, 1997 for breach of contract of
carriage and damages against Sanico and Castro.4 In her complaint,
Colipano claimed that at 4:00 P.M. more or less of December 25,
1993, Christmas Day, she and her daughter were; paying passengers in the
jeepney operated by Sanico, which was driven by Castro. 5 Colipano
claimed she was made to sit on an empty beer case at the edge of the rear
entrance/exit of the jeepney with her sleeping child on her lap. 6 And, at an
uphill incline in the road to Natimao-an, Carmen, Cebu, the jeepney slid
backwards because it did not have the power to reach the top. 7 Colipano
pushed both her feet against the step board to prevent herself and her child
from being thrown out of the exit, but because the step board was wet, her
left foot slipped and got crushed between the step board and a coconut tree
which the jeepney bumped, causing the jeepney to stop its backward
movement.8 Colipano's leg was badly injured and was eventually
amputated.9 Colipano prayed for actual damages, loss of income, moral
damages, exemplary damages, and attorney's fees.10
In their answer, Sanico and Castro admitted that Colipano's leg was crushed
and amputated but claimed that it! was Colipano's fault that her leg was
crushed.11 They admitted that the jeepney slid backwards because the
jeepney lost power.12 The conductor then instructed everyone not to panic
but Colipano tried to disembark and her foot got caught in between the step
board and the coconut tree.13 Sanico claimed that he paid for all the hospital
and medical expenses of Colipano,14 and that Colipano eventually freely
and voluntarily executed an Affidavit of Desistance and Release of Claim.15
After trial, the RTC found that Sanico and Castro breached the contract of
carriage between them and Colipano but only awarded actual and
compensatory damages in favor of Colipano. The dispositive portion of the
RTC Decision states:
WHEREFORE, premises considered, this Court finds the
defendants LIABLE for breach of contract of carriage and are solidarily
liable to pay plaintiff:
1. Actual damages in the amount of P2,098.80; and
2. Compensatory damages for loss of income in the amount of
P360,000.00.
No costs.
SO ORDERED.16
Only Sanico and Castro appealed to the CA, which affirmed with
modification the RTC Decision. The dispositive portion of the CA Decision
states:
IN LIGHT OF ALL THE FOREGOING, the instant appeal is PARTIALLY
GRANTED. The Decision dated October 27, 2006 of the Regional Trial
Court, Branch 25, Danao City, in Civil Case No. DNA-418, is AFFIRMED
with MODIFICATION in that the award for compensatory damages for
loss of income in paragraph 2 of the dispositive portion of the RTC's
decision, is reduced to P200,000.00.
SO ORDERED.17
Without moving for the reconsideration of the CA Decision, Sanico and
Castro filed this petition before the Court assailing the CA Decision.
Issues
a. Whether the CA erred in finding that Sanico and Castro
breached the contract of carriage with Colipano;
b. Whether the Affidavit of Desistance and Release of Claim is
binding on Colipano; and
c. Whether the CA erred in the amount of damages awarded.
The Court's Ruling
The Court partly grants the petition.
Only Sanico breached the contract of carriage.
Here, it is beyond dispute that Colipano was injured while she was a
passenger in the jeepney owned and operated by Sanico that was being
driven by Castro. Both the CA and RTC found Sanico and Castro
jointly and severally liable. This, however, is erroneous because only
Sanico was the party to the contract of carriage with Colipano.
Since the cause of action is based on a breach of a contract of carriage,
the liability of Sanico is direct as the contract is between him and
Colipano. Castro, being merely the driver of Sanico's jeepney, cannot
be made liable as he is not a party to the contract of carriage.
In Soberano v. Manila Railroad Co.,18 the Court ruled that a complaint
for breach of a contract of carriage is dismissible as against the
employee who was driving the bus because the parties to the contract
of carriage are only the passenger, the bus owner, and the
operator, viz.:
The complaint against Caccam was therefore properly dismissed. He
was not a party to the contract; he was a mere employee of the BAL.
The parties to that contract are Juana Soberano, the passenger, and
the MRR and its subsidiary, the BAL, the bus owner and operator,
respectively; and consequent to the inability of the defendant
companies to carry Juana Soberano and her baggage arid personal
effects securely and safely to her destination as imposed by law (art.
1733, in relation to arts. 1736 and 1755, N.C.C.), their liability to her
becomes direct and immediate.19
Since Castro was not a party to the contract of carriage, Colipano had
no cause of action against him and the pomplaint against him should be
dismissed. Although he was driving the jeepney, he was a mere
employee of Sanico, who was the operator and owner of the jeepney.
The obligation to carry Colipano safely to her destination was with
Sanico. In fact, the elements of a contract of carriage existeid between
Colipano and Sanico: consent, as shown when Castro, as employee of
Sanico, accepted Colipano as a passenger when he allowed Colipano to
board the jeepney, and as to Colipano, when she boarded the
jeepney; cause or consideration, when Colipano, for her part, paid her
fare; and, object, the transportation of Colipano from the place of
departure to the place of destination.20
Having established that the contract of carriage was only between
Sanico and Colipano and that therefore Colipano had no cause of
action against Castro, the Court next determines whether Sanico
breached his obligations to Colipano under the contract.
Sanico is liable as operator and owner of a common carrier.
Specific to a contract of carriage, ithe Civil Code requires common
carriers to observe extraordinary diligence in safely transporting their
passengers. Article 1733 of the Civil Code states:
17 OBLICON CASES
ART. 1733. Common carriers, fijpm the nature of their business and
for reasons of public policy, are bbund to observe extraordinary
diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of
each case.
Such extraordinary diligence in the vigilance over the goods is further
expressed in Articles 1734, 1735 and 1745, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of the passengers is further set
forth in Articles 1755 and 1756.
This extraordinary diligence, following Article 1755 of the Civil Code,
means that common carriers have the obligation to carry passengers
safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the
circumstances.
In case of death of or injury to their passengers, Article 1756 of the
Civil Code provides that common carriers are presumed to have been
at fault or negligent, and this presumption can be overcome only by
proof of the extraordinary diligence exercised to ensure the safety of
the passengers.21
Being an operator and owner of a common carrier, Sanico was
required to observe extraordinary diligence in safely transporting
Colipano. When Colipano's leg was injured while she was a passenger
in Sanico's jeepney, the presumption of fault or negligence on Sanico's
part arose and he had the burden to prove that he exercised the
extraordinary diligence required of him. He failed to do this.
In Calalas v. Court of Appeals,22 the Court found that allowing the
respondent in that case to be seated in an extension seat, which was a
wooden stool at the rear of the jeepney, "placed [the respondent] in a
peril greater than that to which the other passengers were
exposed."23 The Court further ruled that the petitioner in Calalaswas
not only "unable to overcome the presumption of negligence imposed
on him for the injury sustained by [the respondent], but also, the
evidence shows he was actually negligent in transporting passengers."24
Calalas squarely applies here. Sanico failed to rebut the presumption of
fault or negligence under the Civil Code. More than this, the evidence
indubitably established Sanico's negligence when Castro made
Colipano sit on an empty beer case at the edge of the rear entrance/exit
of the jeepney with her sleeping child on her lap, which put her and her
child in greater peril than the other passengers. As the CA correctly
held:
For the driver, Vicente Castro, to allow a seat extension made of an
empty case of beer clearly indicates lack of prudence. Permitting
Werherlina to occupy an improvised seat in the rear portion of the
jeepney, with a child on her lap to boot, exposed her and her child in a
peril greater than that to which the other passengers were exposed.
The use of an improvised seat extension is undeniable, in view of the
testimony of plaintiffs witness, which is consistent with Werherlina's
testimonial assertion. Werherlina and her witness's testimony were
accorded belief by the RTC. Factual findings of the trial court are
entitled to great weight on appeal and should not be disturbed except
for strong and valid reasons, because the trial court ip in a better
position to examine the demeanor of the witnesses while testifying. 25
The CA also correctly held that the!defense of engine failure, instead of
exonerating Sanico, only aggravated his already precarious
position.26 The engine failure "hinted lack of regular check and
maintenance to ensure that the engine is at its best, considering that the
jeepney regularly passes through a mountainous area."27 This failure
to ensure that the jeepney can safely transport passengers through its
route which required navigation through a mountainous area is proof
of fault on Sanico's part. In the face of such evidence, there is no
question as to Sanico's fault or negligence.
Further, common carriers may also be liable for damages when they
contravene the tenor of their obligations. Article 1170 of the Civil Code
states:
ART. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
In Magat v. Medialdea,28 the Court ruled: "The phrase 'in any manner
contravene the tenor' of the obligation includes any illicit act or
omission which impairs the strict and faithful fulfillment of the
obligation and every kind of defective performance."29 There is no
question here that making Colipano sit on the empty beer case was a
clear showing of how Sanico contravened the tenor of his obligation to
safely transport Colipano from the place of departure to the place of
destination 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.
Sanico's attempt to evade liability by arguing that he exercised
extraordinary diligence when he hired; Castro, who was allegedly an
experienced and time-tested driver, whom he had even accompanied on
a test-drive and in whom he was personally convinced of the driving
skills,30 are not enough to exonerate him from liability - because the
liability of common carriers does not cease upon p!roof that they
exercised all the diligence of a good father of a family irii the selection.
and supervision of their employees. This is the express mandate of
Article 1759 of the Civil Code:
ART. 1759. Common carriers are liable for the death of or injuries to
passengers through the negligence or willful acts of the former's
employees, although such employees may have acted beyond the scope
of their authority or in violation of the orders of the common carriers.
This liability of the common carriers does not cease upon proof that
they exercised all the diligence of a good father of a family in the
selection and supervision of their employees.
The only defenses available to common carriers are (1) proof that they
observed extraordinary diligence as prescribed in Article 1756,31 and
(2) following Article 1174 of the Civil Code, proof that the injury or
death was brought about by an event which "could not be foreseen, or
which, though foreseen, were inevitable," or a fortuitous event.
The Court finds that neither of these defenses obtain. Thus, Sanico is
liable for damages to Colipano because of the injury that Colipano
suffered as a passenger of Sanico's jeepney.
The Affidavit of Desistance and Release of Claim is void.
Sanico cannot be exonerated from liability under the Affidavit of
Desistance and Release of Claim32and his payment of the hospital and
medical bills of Colipano amounting to P44,900.00.33
The RTC ruled that "the Affidavit of Desistance and Release of Claim
is not binding on plaintiff [Colipano] in the absence of proof that the
contents thereof were sufficiently translated and explained to
her."34 The CA affirmed the findings of the RTC and ruled that the
document was not binding on Colipano, as follows:
Finally, We sustain the RTC's finding that the affidavit of desistance
and release of claim, offered by defendants-appellants, are not binding
on Werherlina, quoting with approval its reflection on the matter,
saying:
xxx this Court finds that the Affidavit of Desistance and Release of
Claim is not binding on plaintiff in the absence of proof that the
contents thereof were sufficiently explained to her. It is clear from the
plaintiffs circumstances that she is not able to understand English,
more so stipulations stated in the said Affidavit and Release. It is
understandable that in her pressing need, the plaintiff may have been
easily convinced to sign the document with the promise that she will be
compensated for her injuries.35
The Court finds no reason to depart from these findings of the CA and
the RTC.
For there to be a valid waiver, the following requisites are essential:
(1) that the person making the waiver possesses the right, (2) that he
has the capacity and power to dispose of the right, (3) that the waiver
must be clear and unequivocal although it may be made expressly or
impliedly, and (4) that the waiver is not contrary to law, public policy,
public order, morals, good customs or prejudicial to a third person
with a right recognized by law.36
While the first two requirements can be said to exist in this case, the
third and fourth requirements are, however, lacking.
For the waiver to be clear and unequivocal, the person waiving the
right should understand what she is waiving and the effect of such
waiver. Both the CA and RTC made the factual deitermination that
Colipano was not able to understand English and that there was no
proof that the documents and their contents and effects were explained
to her. These findings of the RTC, affirmed by the CA, are entitled to
great weight and respect.37 As this Court held in Philippine National
Railways Corp. v. Vizcara38:
It is a well-established rule that factual fill dings by the CA are
conclusive on the parties and are not reviewable byj this Court. They
are entitled to great weight and respect, even finality, especially when,
as in this case, the CA affirmed the factual findings arrived at by the
trial court.39
Although there are exceptions to this rule, 40 the exceptions are absent
here.
Colipano could not have clearly and unequivocally waived her right to
18 OBLICON CASES
claim damages when she had no understanding of the right she was
waiving and the extent of that right. Worse, she was made to sign a
document written in a language she did not understand.
The fourth requirement for a valid waiver is also lacking as the waiver,
based on the attendant facts, can only be construed as contrary to
public policy. The doctrine in Gatchalian v. Delim,41 which the CA
correctly cited,42 is applicable here:
Finally, because what is involved here is the liability of a common
carrier for injuries sustained by passengers in respect of whose safety a
common carrier must exercise extraordinary diligence, we must
construe any such purported waiver most strictly against the common
carrier. For a waiver to be valid and effective, it must not be contrary
to law, morals, public policy or good customs. To uphold a supposed
waiver of any right to claim damages by an injured passenger, under
circumstances like those exhibited in this case, would be to dilute and
weaken the standard of extraordinary diligence exacted by the law
from common carriers and hence to render that standard
unenforceable. We believe such a purported waiver is offensive to
public policy.43
"[P]ublic policy refers to the aims of the state to promote the social and
general well-being of the inhabitants."44The Civil Code requires
extraordinary diligence from common carriers because the nature of
their business requires the public to put their safety and lives in the
hands of these common carriers. The State imposes this extraordinary
diligence to promote the well-being of the public who avail themselves
of the services of common carriers. Thus, in instances of injury or
death, a waiver of the right to claim damages is strictly construed
against the common carrier so as not to dilute or weaken the public
policy behind the required standard of extraordinary diligence.
It was for this reason that in Gatchalian, the waiver was considered
offensive to public policy because it was shown that the passenger was
still in the hospital and was dizzy when she signed the document. It was
also shown that when she saw the other passengers signing the
document, she signed it without reading it. .
Similar to Gatchalian, Colipano testified that she did not understand
the document she signed.45 She also did not understand the nature and
extent of her waiver as the content of the document was not explained
to her.46The waiver is therefore void because it is contrary to public
policy.47
The Court reiterates that waivers executed under similar
circumstances are indeed contrary to public policy and are void. 48 To
uphold waivers taken from injured passengers who have no knowledge
of their entitlement under the law and the extent of liability of common
carriers would indeed dilute the extraordinary diligence required from
common carriers, and contravene a public policy reflected in the Civil
Code.
Amount of compensatory damages granted is incorrect.
On the amount of damages, the RiTC awarded P2,098.80 as actual
damages and P360,000.00 as compensatoiy damages for loss of income,
as follows:
[T]his Court can only award actual damages in the amount that is duly
supported by receipts, that is, P2,098.80 mid not P7,277.80 as prayed
for by plaintiff as there is no basis for the amount prayed for. However,
considering that plaintiff has suffered the loss of one leg which has
caused her to be limited in her movement thus resulting in loss of
livelihood, she is entitled to compensatory damages for lost income at
the rate of P12,000.00/year for thirty years in the amount of
P360,000.00.49
The CA, on the other hand, modified the award of the RTC by
reducing the compensatory damages from P360,000.00 to P200,000.00,
thus:
By virtue of their negligence, defendants-appellants are liable to pay
Werheiiina compensatory damages for loss of earning capacity. In
arriving at the proper amount, the Supremip Court has consistently
used the following formula:
Net Earning Capacity
=
Life Expectancy x [Gross Annual Income - Living Expenses (50% of
gross annual income)]
where life expectancy
=
2/3 (80 - the age of the deceased).
Based on the stated formula, the damages due to Werherlina for loss of
earning capacity is:
Net Earning Capacity
= a loan or forbearance of money, is breached, an interest on the amount
[2/3 x (80-30)] x (P12,000.00 x (50%) of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum."61 Further, upon finality of the judgment
awarding a sum of money, the rate of interest shall be 12% per annum
= from such finality until satisfaction because the interim period is
(2/3 x 50) x P6,000.00 considered a forbearance of credit.62 Subsequently, in Nacar v. Gallery
Frames,63 the rate of legal interest for loans or forbearance of any
money, goods or credits and the rate allowed in judgments was lowered
= from 12% to 6%. Thus, the applicable rate of interest to the award of
33.33 x P6,000.00 damages to Colipano is 6%.

= WHEREFORE, premises considered, the petition for review is

P200,000.00 hereby PARTLY GRANTED. As to petitioner Vicente Castro, the
The award of the sum of P200,000.00 as compensatory damages for loss Decision of the Court of Appeals dated September 30, 2013
of earning capacity is in order, notwithstanding the objections of is REVERSED and SET ASIDEand the complaint against him is
defendants-appellants with respect to lack of evidence on Werherlina's dismissed for lack of cause of action. As to petitioner Jose Sanico, the
age and annual income.50 Decision of the Court of Appeals is hereby AFFIRMED with
Sanico argues that Colipano failed to present documentary evidence to MODIFICATIONS, Petitioner Jose Sanico is liable and ordered to pay
support her age and her income, so that her testimony is self-serving respondent Werherlina Colipano the following amounts:Actual
and that there was no basis for the award of compensatory damages in damages in the amount of P2,098.80;
her favor.51Sanico is gravely mistaken.
Compensatory damages for loss of income in the amount of
The Court has held in Heirs of Pedro Clemeña y Zurbano v. Heirs of P212,000.00;
Irene B. Bien52 that testimonial evidence cannot be objected to on the
ground of being self-serving, thus: Interest on the total amount of the damages awarded in 1 and 2 at the
"Self-serving evidence" is not to be taken literally to mean any rate of 6% per annum reckoned from October 27, 2006 until finality of
evidence that serves its proponent's interest. The term, if used with any this Decision. The total amount of the foregoing shall, in turn, earn
legal sense, refers only to acts or declarations made by a party in his interest at the rate of 6% per annum from finality of this Decision until
own interest at some place and time out of court, and it does not full payment thereof.
include testimony that he gives as a witness in court. Evidence of this
sort is excluded on the same ground as any hearsay evidence, that is, SO ORDERED.
lack of opportunity for cross-examination by the adverse party and on
the consideration that its admission would open the door to fraud and
fabrication. In contrast, a party's testimony in court is sworn and
subject to cross-examination by the other party, and therefore, not
susceptible to an objection on the ground that it is self-serving.53
Colipano was subjected to cross-examination and both the RTC and
CA believed her testimony on her age and annual income. In fact, as
these are questions of facts, these findings of the RTC and CA are
likewise binding on the Court.54

Further, although as a general rule, documentary evidence is required

to prove loss of earning capacity, Colipano's testimony on her annual
earnings of P12,000.00 is an allowed exception. There are two
exceptions to the general rule and Colipano's testimonial evidence falls
under the second exception, viz.:
By way of exception, damages for loss of earning capacity may be
awarded despite the absence of documentary evidence when (1) the
deceased is self-employed earning less than the minimum wage under
current labor laws, and judicial notice may be taken of the fact that in
the deceased's line of work no documentary evidence is available; or (2)
the deceased is employed as a daily wage worker earning less than the
minimum wage under current labor laws.55
The CA applied the correct formula for computing the loss of
Colipano's earning capacity:
Net earning capacity = Life expectancy x [Gross Annual Income -
Living Expenses (50% of gross annual income)], where life expectancy
= 2/3 (80-the age of the deceased).56
However, the CA erred when it used Colipano's age at the time she
testified as basis for computing the loss of earning capacity. 57 The loss
of earning capacity commenced when Colipano's leg was crushed on
December 25, 1993. Given that Colipano was 30 years old when she
testified on October 14, 1997, she was roughly 27 years old on
December 25, 1993 when the injury was sustained. Following the
foregoing formula, the net earning capacity of Colipano is
P212,000.00.58

Sanico is liable to pay interest.

Interest is a form of actual or compensatory damages as it belongs to

Chapter 259 of Title XVIII on Damages of the Civil Code. Under
Article 2210 of the Civil Code, "[i]nterest may, in the discretion of the
court, be allowed upon damages awarded for breach of contract."
Here, given the gravity of the breach of the contract of carriage causing
the serious injury to the leg of Colipano that resulted in its amputation,
the Court deems it just and equitable to award interest from the date of
the RTC decision. Since the award of damages was given by the RTC
in its Decision dated October 27, 2006, the interest on the amount
awarded shall be deemed to run beginning October 27, 2006.

As to the rate of interest, in Eastern Shipping Lines, Inc. v. Court of

Appeals,60 the Court ruled that "[w]hen an obligation, not constituting

19 OBLICON CASES