G.R. No.

L-65935 September 30, 1988

FILINVEST CREDIT CORPORATION, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and NESTOR B. SUGA JR., respondents.
Labaguis, Loyola, Angara Law Offices for
petitioner. Juan C. Navarro, Jr. for private
respondent.

SARMIENTO, J.:
In this special civil action for certiorari, Filinvest Credit Corporation implores us to declare the nullity of the
Decision 1 dated September 30, 1983 and the Resolution 2 dated December 16, 1983 of the Intermediate
Appellate Courts3 (now Court of Appeals) which were allegedly issued with grave abuse of discretion, amounting
to lack of jurisdiction, or in excess of jurisdiction, and with patent denial of due process. 4
The facts as found by the trial court are as follows: 5
This is a case for damages filed by Nestor B. Sunga Jr., businessman and owner of the NBS
Machineries Marketing and the NAP-NAP Transit. Plaintiff alleged that he purchased a
passenger minibus Mazda from the Motor center, Inc. at Calasiao, Pangasinan on March 21,
1978 and for which he executed a promissory note (Exhibit "B") to cover the amount of
P62,592.00 payable monthly in the amount of P2,608.00 for 24 months due and payable the
1st day of each month starting May 1, 1978 thru and inclusive of May 1, 1980. On the same
date, however, a chattel mortgage was executed by him in favor of the Motor center, Inc.
(Exhibit "A"). The Chattel Mortgage and Assignment was assigned to the Filinvest Credit
Corporation with the conformity of the plaintiff. Nestor Sunga claimed that on October 21,
1978, the minibus was seized by two (2) employees of the defendant Filinvest Credit
Corporation upon orders of the branch manager Mr. Gaspar de los Santos, without any
receipt, who claimed that he was delinquent in the payments of his vehicle. The plaintiff
reported the loss to the PC (Exhibit "Y") and after proper verification from the office of the
Filinvest, the said vehicle was recovered from the Crisologo Compound which was later
released by Rosario Fronda Assistant Manager of the Filinvest, and Arturo Balatbat as
caretaker of the compound. The police blotter of the Integrated National Police of Dagupan
City shows that Nestor Sunga and T/Sgt. Isidro Pascual of the 153rd PC Company sought the
assistance of the Dagupan police and one Florence Onia of the Filinvest explained that the
minibus was confiscated because the balance was already past due. After verification that his
accounts are all in order, Florence Onia admitted it was their fault. The motor vehicle was
returned to the plaintiff upon proper receipt.
After trial, the court a quo rendered its decision 6 the decretal portion of which reads:
WHEREFORE, premises considered, this Court hereby renders judgment as follows, to wit:

(1) ORDERING the defendant Filinvest Credit Corporation to pay the plaintiff Nestor Sunga Jr.
the following damages, to wit:
(a) Moral Damages P30,000.00
(b) Loss on Income of the minibus for three days 600.00
(c) Actual damages 500.00
(d) Litigation expenses 5,000.00
(e) Attorney's Fees 10,000.00
(2) And to pay the costs.
SO ORDERED.
Dissatisfied with the aforecited decision, the defendant (petitioner herein), interposed a timely appeal with the
respondent court. On September 30, 1983, the latter promulgated its decision affirming in toto the decision of the
trial court dated July 17, 1981, "except with regard to the moral damages which, under the circumstances of the
accounting error incurred by Filinvest, is hereby increased from P30,000.00 to P50,000.00." 7 As the
reconsideration of said decision proved futile in view of its denial by the respondent court in its resolution of
December 16, 1983, the petitioners come to us thru this instant petition for certiorari under Rule 65 of the Rules
of Court.
The petitioner alleges the following errors: 8
It is a patent grave abuse of discretion amounting to lack of jurisdiction and a bare denial
of petitioner's constitutional right to due process of law, when the respondent Court
completely ignored the assigned errors in the petitioner's Brief upon which private
respondent had joined issues with petitioner.
In resolving the appeal before it thru matters and questions not raised at the trial or on
appeal, by either of the parties, respondent Court exceeded its jurisdiction and acted with
grave abuse of discretion.
When the respondent Court granted private respondent MORAL DAMAGES in an
exaggerated and unconscionable amount, respondent Court exceeded the bounds of its
discretion, amounting to an absence or lack of jurisdiction.
Respondent Court had NO authority to increase the award of DAMAGES to private
respondent when the latter did not appeal the decision because private respondent
considered the judgment (questioned by petitioner on appeal) as "perfect", "sound" and
"wise" (at pp. 17 to 20, Brief for Appellee).
In relying upon a BILL pending before the Batasan Pambansa to buttress its judgment, the
respondent Court acted contrary to law and jurisprudence, making of its judgment a
NULLITY.
The extensive citation and adherence by the respondent Court on (sic) its decision in the
case of "Edilberto Rebosura, et al. versus Rogaciano Oropeza, CA-G.R. No. 63048-R,
December 17, 1983" (which is non-doctrinal and under question in the Honorable Supreme
Court) is not warranted in law and jurisprudence, and amounts to a grave abuse of
discretion.

The various assignments of error may be synthesized into the sole issues 9 of. Whether or not the respondent
court
a) in allegedly ignoring the various assigned errors in petitioners brief; b) in resolving issues not raised at the trial
and on appeal; c) in increasing the amount of moral damages; and (d) in adhering to its decision in Edilberto
Rebosura et al. vs. Rogaciano Oropeza, CA-G.R. No. 63048-R, as well as to Batasan Bill No. 3075, which is yet to
be enacted into law, acted with grave abuse of discretion amounting to lack of jurisdiction.
Contrary views are espoused by the parties in this case. Petitioner maintains that it was patent grave abuse of
discretion amounting to lack of jurisdiction and a bare denial of the petitioner's constitutional right to due process
of law, when the respondent court completely brushed aside the assigned errors in its brief. 10 It asserts that the
constitutionality of the contractual stipulation between the parties embodied in the documents denominated as
Promissory Note and Deed of Mortgage was not in issue in the court a quo and neither was the same raised on
appea 11 and therefore should not have been passed upon based on the premise that the appellate court should

not consider any error other than those assigned or specified. 12 Further, it submits that the controversy on appeal
is capable of adjudication on other substantive grounds, without necessarily treading into constitutional questions.
13 It is also the petitioner's submission that the increase in the award of moral damages from the P30,000.00
adjudged by the trial court which was not appealed by respondent Sunga who felt that the award was "perfect,"
"sound," and "wise," to a "whopping P50,000.00" imposed by the respondent Intermediate Appellate Court (now
Court of Appeals) amounted to a grave abuse of discretion. 14 Thus, the increase in the award which the
respondent appellate court justified by the accounting error committed by the petitioner, should not be
countenanced, as the same had no legal basis. 15 It rationalizes that the respondent court's invocation of a

pending bill in the legislature, Batasan Bill 3075, to support its decision, is untenable. 16 Lastly, it deposits that
Rebosura is riot on all fours with the case at bar and therefore adherence thereto was misplaced, 17 citing the
following distinctions: 181) In Rebosura, there was unlawful entry while in this case, there was none; 2) in the

former, the plaintiff did not breach the contract whereas in this case there is a finding by the court a quo of such
violation; 3) in the former, the contract was denominated Deed of Sale with Reservation of Title, while in this case,
the contracts referred to are the Promissory Note and Deed of Mortgage; 4) in the former, the defendant Oropeza
was an unpaid seller while the plaintiff Rebosura was the buyer, whereas, in this case, the petitioner is the
promissor-mortgagee while Sunga is the promissor-mortgagor; 5) in the former, there was no notice of
delinquency and repossession, whereas, in this case, there is notice and demand; and 6) in the former, the
contract was in fine print, whereas, in this case, it is not so.
On the other side, the private respondent maintains that the respondent court did not abuse its discretion,
stressing that a careful reading and understanding of the assailed decision would manifest that all assigned errors
were resolved, citing portions of the decision which dealt specifically with each of the errors assigned. 19 He
maintains that the award of moral damages, impeached as exaggerated and unconscionable, is justified by the
prayer in the appellee's (respondent Sunga's brief, to wit: FURTHER REMEDIES AND RELIEFS DEEMED JUST
AND EQUITABLE UNDER AND WITHIN THE PREMISES ARE PRAYED FOR. 20 Lastly, the private respondent

submits that the references to Batasan Bill No. 3075 and Rebosura were mere passing comments which did not in
any way detract from the validity of the assailed decision. 21
After carefully considering and weighing all the arguments of both protagonists, we hold that the respondent court
committed a grave abuse of discretion in increasing extravagantly the award of moral damages and in granting
litigation expenses. In those respects, the petition is granted and to that extent the questioned decision is
modified.
There is no gainsaying that the plaintiff-appellee (respondent Sunga did not appeal from the decision of the courta
quo which awarded him the sum of P30,000.00 by way of moral damages. "Well settled is the rule in this
jurisdiction that whenever an appeal is taken in a civil case an appellee who has not himself appealed cannot
obtain from the appellate court any affirmative relief other than the ones granted in the decision of the court
below." 22 Verily the respondent court disregarded such a well settled rule when it increased the award for moral

damages from P30,000.00 to P50,000.00, notwithstanding the fact that the private respondent did not appeal from
the judgment of the trial court, an act indicative of grave abuse of discretion amounting to lack of jurisdiction.
Certiorari lies when a court has acted without or in excess of jurisdiction or with grave abuse
of discretion. 'without jurisdiction' means that the court acted with absolute want of jurisdiction.
There is "excess of jurisdiction" where the court has jurisdiction but has transcended the same
or acted without any statutory authority Leung Ben vs. O'Brien, 38 Phils., 182; Salvador
Campos y CIA vs. Del Rosario, 41 Phil., 45). "Grave abuse of discretion" implies such
capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction (Abad
Santos vs. Province of Tarlac, 38 Off. Gaz., 83.) or in other words, where the power is
exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it
must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal
to perform the duty enjoined or to act at all in contemplation of law. (Talavera-Luna vs. Nable,
38 Off. Gaz., 62). 23
Or, as held in the recent case of Robert Young vs. Julio A. Sulit, Jr., 24 "(F)or certiorari to lie, there must be
capricious, arbitrary, and whimsical exercise of power, the very antithesis of the judicial prerogative in
accordance with centuries of civil law and common law tradition."
We had occasion to state that "there is no hard and fast rule in the determination of what would be a fair amount of
moral damages, since each case must be governed by its own peculiar circumstances." 25 Be that as it may and
in amplification of this generalization, we set the criterion that "in the case of moral damages, the yardstick should
be that the "amount awarded should not be palpably and scandalously excessive" so as to indicate that it was the
result of passion, prejudice or corruption on the part of the trial court ... . Moreover, the actual losses sustained by
the aggrieved parties and the gravity of the injuries must be considered in arriving at reasonable levels ... ." 26
There is no dispute that the private respondent, a businessman and owner of the NBS Machineries Marketing
and NAP-NAP Transit, is entitled to moral damages due to the unwarranted seizure of the minibus Mazda,
allegedly because he was delinquent in the payment of its monthly amortizations, which as stated above,
turned out to be incorrect. 27 No doubt such intent tainted private respondent Sunga's reputation in the
business community, thus causing him mental anguish, serious anxiety, besmirched reputation, wounded
feelings, moral shock, and social humiliation. Considering, however, that respondent Sunga was dispossessed
of his motor vehicle for barely three days, that is, from October 21, 1978 to October 23, 1978, possession of
which was restored to him soon after the accounting errors were ironed out, we find that the award of moral
damages even in the sum of P30,000.00 is excessive for it must be emphasized that "damages are not intended
to enrich the complainant at the expense of a defendant. They are awarded only to enable the injured parties to
obtain means, diversions or amusem ents that will serve to alleviate the moral sufferings the injured parties
have undergone by reason of defendant's culpable action. In other words, the award of moral damages is aimed
at a restoration within the limits of the possible, of the spiritual status quo ante; and therefore it must be
proportionate to the suffering inflicted." 28 Moreover, "(M)oral damages though not incapable of pecuniary
estimations, are in the category of an award designed to compensate the claimant for actual injury suffered and
not to impose a penalty on the wrongdoer. 29
It behooves us therefore to reiterate the caveat to lower courts "to guard against the award of exorbitant damages
that are way out of proportion to the environmental circumstances of a case and which time and again, this Court
has reduced or eliminated. Judicial discretion granted to the courts in the assessment of damages must always be
exercised with balanced restraints and measured objectivity. 30

We do not agree with private respondent's argument that the increase in the award of moral damages is justified
by the prayer in its brief, to wit: FURTHER REMEDIES AND RELIEFS DEEMED JUST AND EQUITABLE UNDER
AND
WITHIN THE PREMISES ARE PRAYED FOR. Such statement is usually extant in practically all pleadings as a
final statement; it is rhetorical flourish as it were and could not be a substitute for appeal as required by the rules
for "the appellee cannot seek modification or reversal of the judgment or affirmative relief, unless he has also
appealed therefrom." 31
ERNESTO DICHOSO, Petitioner, vs. The HONORABLE COURT OF APPEALS and TEODOLFO RAMOS,
Respondents.
DECISION
PARAS, J.:
This is a petition for Certiorari of the July 8, 1980 decision ** of the Court of Appeals which affirmed the November
3, 1975 decision *** of the then Court of First Instance of Camarines Sur, the dispositive portion of which reads, as
follows:
"WHEREFORE, judgment is hereby rendered declaring the plaintiff owner of the land described in
paragraph 2 of the complaint; and ordering the defendants, Ernesto Dichoso and Marcelino Enciso, to
restitute the possession of the land to the plaintiff and to deliver to the plaintiff 40 cavans of palay for
every year from 1964 until the land in question is returned to the latter or their equivalent value of
P15.00 per cavan of palay. With costs against the said defendants.
SO ORDERED."
(CA Decision, Rollo,
p. 14).- nad The facts of the
case are as follows:
The spouses Gaspar Prila and Maria Beldad, owned a 16.8716 hectare parcel of land at Cagmanaba, Ocampo,
Camarines Sur, surveyed in the name of Gaspar Prila under Plan Psu-61453 (Exhibit "2"). Upon the death of Maria
Beldad in 1925, the eastern half thereof was given to Vivencia Prila, their only daughter, and when Gaspar Prila
died in 1943, the 1/2 portion pertaining to him was divided into three: one third to Vivencia Prila, one third to
Asuncion Pacamara and the other one-third to Custodia Parcia, as reflected in the Extra-judicial Settlement of
Estate executed on November 22, 1945. Under the terms of said settlement, 4/6 of the entire land or 11.2477
hectares was adjudicated to Vivencia Prila, 1/6 or 2.8119 hectares to Asuncion Pacamara and another 1/6 or
2.8119 hectares to Custodio Parcia. This stipulation was reiterated by both Vivencia Prila and Asuncion Pacamara
in an agreement dated March 29, 1947 duly registered with the Register of Deeds on June 22, 1947 and was
furthermore confirmed judicially by the Court of First Instance of Camarines Sur, in Civil Cases Nos. 3370 and
4468.
In 1955, Vivencia Prila sold her 4/6 portion with an area of 11.2477 hectares to the petitioner Ernesto Dichoso who
had been, ever since, in actual physical possession thereof, exercising various acts of ownership thereon.
On the other hand, in a Deed of Sale dated June 17, 1948, Asuncion Pacamara sold to the wife of private
respondent Teodolfo Ramos her 1/6 share, but the deed mentions the area of the lot sold as 4.1250 hectares;
obviously in excess of Pacamara's 1/6 share in the property of 2.8119 hectares. Hence, aforesaid 4.1250 hectares
which Ramos claims to have possessed, is now the land in question.
As described in Ramos' Deed of Sale dated June 17, 1948, the land bought by his wife is as follows:

With regard to the award of litigation expenses in the sum of P5,000.00, the same is hereby disallowed, there
being no price for litigation.
WHEREFORE, the petition is partially GRANTED. The award of moral damages is REDUCED to P10,000.00 and
the grant of litigation expenses is ELIMINATED. The rest of the judgment is AFFIRMED. Without costs.
SO ORDERED.
"Cogon land situated in the barrio of Cagmanaba, Municipality of Pili, Province of Camarines Sur, with an area of
approximately 4 hectares, 12 ares, and 50 centares, and is bounded on the North by a dam, limited by the same
dam, measuring 120 meters; on the East, Cagmanaba River, limited by the same river, measuring 200 meters; on
the South, heirs of Gaspar Prila and Mariano Rodriguez, limited by an irrigation ditch, measuring 200 meters; on
the West, heirs of Gaspar Prila and limited by a big stone, measuring 350 meters." (Exhibit "A", Original Records)
The said Deed of Absolute Sale was notarized and registered with the Register of Deeds of Camarines Sur on
August 2, 1948. Realty taxes for the years 1956-1960 were paid on July 22, 1960 and for the years 1961-1962 on
November 18, 1964 (CA Decision, Rollo, p. 15).
Herein respondent Teodolfo Ramos took possession of the contested riceland upon its purchase. It yielded an
average harvest of 20 sacks of palay per planting which was twice a year. One-third of the harvest went to Ramos
and the remaining two-thirds was the tenant's share (Rollo, pp. 15-16).
On the other hand, petitioner Ernesto Dichoso claims that the disputed land is inside his property of 11.2477
hectares which he acquired from Vivencia Prila for P2,000.00 and evidenced by a Deed of Absolute Sale dated
February 9, 1955, which was more particularly described as follows:
"BEING the eastern portion of Plan PSU-61453 BOUNDED on the North by Joaquin Interino before, now Mariano
Rodriguez; on the East by Cagdaga Creek, on the other side of which is Mariano Rodriguez, before heirs of
Mariano Fuentebella; on the South by heirs of Mariano Fuentebella before, now Mariano Rodriguez; on the West
by the rest of Plan PSU-61453, namely Asuncion Pacamara before, now Rodolfo Ramos. CONTAINING an area
exactly ELEVEN
(11) hectares, TWENTY-FOUR (24) ares, and SEVENTY-SEVEN (77) centares. DECLARED under Tax
Declaration No. 1648 in the name of Alejandro Casin and assessed at P3,450.00. All boundaries are marked and
delimited by B.L. and P.L.S. concrete cylindrical monuments. The foregoing property is not registered under Act
No. 496 nor under the Spanish Mortgage Law; wherefore, the parties herein have agreed to register this instrument
under the provisions of Act No. 3344, as amended." (Exhibit "1", Original Records).:-cralaw
Sometime in 1962, Teodolfo Ramos, in the company of a constabulary soldier and two policemen from Ocampo,
allegedly seized the produce of the land consisting of 50 cavans of palay from the tenant of herein petitioner.
In retaliation, petitioner Dichoso also brought along with him in 1963, a constabulary soldier and appropriated 6
cavans of the produce (CA Decision, Rollo, p. 17).
On December 12, 1967, respondent Ramos filed a complaint for quieting of title over the 4.1250 hectare riceland
before the then Court of First Instance of Camarines Sur which was docketed as Civil Case No. P-20. A
commissioner was appointed by the Court on March 17, 1970 to determine the area and boundaries of the
respective claims of the parties in accordance with their monuments of title. He submitted his report on March 31,
1970 which was approved by the Court in its Order dated April 13, 1970.
As aforestated, the trial court rendered its decision on November 3, 1975 in favor of Ramos and against Dichoso
(Rollo, pp. 14-15).
On appeal, the Court of Appeals, on July 8, 1980, affirmed the decision of the trial court (CA Decision, Rollo, p.
14). Hence, this petition.

Petitioner assigned two (2) errors, namely:

I
THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT PRIVATE RESPONDENT TEODOLFO
RAMOS IS THE OWNER OF THE 4.1250 HECTARE LAND IN QUESTION.
II
THE HONORABLE COURT OF APPEALS ERRED IN REQUIRING THE PETITIONER TO DELIVER FORTY (40)
CAVANS ANNUALLY TO PRIVATE RESPONDENT DESPITE ITS FINDING THAT ONLY ONE-THIRD (1/3) OF
THE PRODUCE "WENT TO" THE PLAINTIFF (RAMOS), TWO-THIRDS (2/3) BEING FOR HIS TENANT.
The petition is impressed with merit.
It is undisputed that the land in question is part of the bigger mass of land measuring 16.8716 hectares originally
owned by the spouses Gaspar Prila and Maria Beldad, and that this mass of land was adjudicated among the
heirs in the proportion aforementioned. And that Dichoso derived his title from Vivencia Prila while Ramos
acquired his title from Asuncion Pacamara.
Dichoso contends that his claim is limited to 11.2477 hectares portion sold to him by Vivencia Prila which is exactly
four-sixth (4/6) of the 16.8716 hectares originally owned by their common predecessor-in interest. Ramos acquired
his title from Asuncion Pacamara, who inherited one-sixth (1/6) of the 16.8716 hectares mass of land. Inasmuch
as the share of Asuncion Pacamara is limited to one-sixth (1/6) of the 16.8716 hectares, or 2.8119 hectares, she
cannot legally transmit to Ramos an area in excess thereof.
Ramos, on the other hand, argues that while it is true that Asuncion Pacamara's share is one-sixth (1/6) pursuant
to the Extra-Judicial Settlement Agreement, but on a subsequent agreement (Exhibit "13"), Vivencia Prila ceded to
Asuncion Pacamara one hectare more located on the northern portion of the land covered by Original Certificate
of Title No. 1176. In effect, Asuncion Pacamara owns at least six (6) hectares of land. Furthermore, the Deed of
Conveyance was registered on August 2, 1948 and the property has been declared for tax purposes in the name
of Ramos' wife. Above all these, the question raised by Dichoso is purely a question of fact.:- nad
The records show, however, that the one hectare ceded by Vivencia Prila to Asuncion Pacamara on the northern
portion of the land supposed to be covered by Original Certificate of Title No. 1176, is not the same land covered
by said Original Certificate of Title (Original Exhibits, Exhibit "3", p. 1) Therefore, while it may be true that Asuncion
Pacamara may have been adjudicated a total of six (6) hectares of land, but what is covered by Original Certificate
of Title No. 1176 pursuant to the Extra-Judicial Settlement Agreement and the agreement subsequent thereto
insofar as Vivencia Prila's share is concerned, remains to be one-sixth (1/6) or 2.8119 hectares (Original Exhibits,
Exhibit "3", p. 4).
The striking similarities in the boundaries between the parcel of land in dispute and the property of Ramos' wife,
particularly the boundaries on the North, which is the dam, and on the East, which is the Cagmanaba River, and
the fact that the deed of sale in favor of Ramos' wife was executed and registered ahead of that of Dichoso's deed
of sale, led the trial court to conclude that the property in dispute tallies with the land bought by Ramos' wife. It
must be pointed out, however, that the deed of sale in favor of Ramos' wife explicitly described the property as
being bounded "on the South (by) heirs of Gaspar Prila and Mariano Rodriguez, limited by an irrigation ditch,
measuring 200 meters; on theWest (by) heirs of Gaspar Prila, limited by a big stone, measuring 350 meters."

The commissioner's report (Exhibit "11") identified the land claimed by Ramos and indicated in the sketch as the
portion surrounded by a red line inside Lot-3, the portion pertaining to Dichoso. As indicated in the said sketch the
land of Dichoso is labelled as Lots-1 and 3 and the portion labelled as Lot-2 is the land of Ramos. A further
scrutiny of Exhibit "11" shows that the area being claimed by Ramos, which was enclosed by a red line, went
beyond the irrigation ditch. This is contrary to the technical description in the deed of sale in favor of Ramos' wife
as to the boundary on the southern portion of the property (Original Exhibits, Exhibit "11").
While the jurisdiction of this Court in cases brought from the Court of Appeals is limited to the review of errors of
law, said appellate court's finding of facts being conclusive, there are exceptions, among which are: (1) when the
conclusion is a finding grounded entirely on speculation, surmises or conjectures; (2) when the inference made is
manifestly absurd, mistaken, or impossible; (3) . . .; (4) when the judgment is premised on a misapprehension of
facts; (5) . . ., (Rizal Cement, Co., Inc. vs. Villareal, 135 SCRA 15, February 28, 1985).
This Court has held that in cases of conflict between areas and boundaries, it is the latter which should prevail.
What really defines a piece of ground is not the area, calculated with more or less certainty, mentioned in its
description, but the boundaries therein laid down, as enclosing the land and indicating its limits (Erico v. Chigas,
98 SCRA 575, July 16, 1980). In a contract of sale of land in a mass, it is well established that the specific
boundaries stated in the contract must control over any statement with respect to the area contained within its
boundaries. It is not of vital consequence that a deed or contract of sale of land should disclose the area with
mathematical accuracy. It is sufficient if its extent is objectively indicated with sufficient precision to enable one to
identify it. An error as to the superficial area is immaterial. (Loyola v. Bartolome, 39 Phil. 544, January 24, 1919
reiterated in Erico v. Chigas, supra).
With reference to the second error, petitioner alleged that since respondent's share of the harvest is only one-third
(1/3), the remaining two-thirds (2/3) representing his tenant's share, only the one-third (1/3) of the annual harvest
must be awarded to Ramos.
Ramos, on the other hand, argues that his tenant will be deprived of his share if only one-third (1/3) of the harvest
will be awarded to him.
Actual or compensatory damages cannot be presumed, but must be duly proved, and proved with reasonable
degree of certainty. A court cannot rely on speculation, conjecture or guesswork as to the fact and amount of
damages, but must depend upon competent proof that they have suffered and on evidence of the actual amount
thereof (Dee Hua Liong Electrical Corporation v. Reyes, 145 SCRA 713, November 25, 1986).: nad
It is undisputed that the land in question yields an average of twenty (20) sacks of palay per planting and that it is
planted to palay twice a year. Ramos' share of the harvest is only one-third (1/3). In view of his dispossession from
1964 and the fact that his tenant has vacated the land that same year (TSN, Hearing of February 10, 1971, pp. 23), he cannot allege that his tenant is entitled to his two-thirds (2/3) share.
PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE and the area of the land awarded to
herein respondent Ramos is hereby LIMITED to 2.8119 hectares in accordance with the boundaries indicated in
the deed of sale in favor of his wife, and the award of actual damages is hereby REDUCED in proportion to the
area that may be awarded to Ramos and to his one-third (1/3) participation in the harvests, from 1964 up to the
time the land appurtenant thereto is returned to the respondent.
SO ORDERED.

G.R. No. L-39215 September 1, 1989

The Chief and Asst. Chief Legal Counsel for plaintiff
PHILIPPINE NATIONAL BANK,
plaintiff-appellee, vs.
UTILITY ASSURANCE & SURETY CO., INC., defendantappellant.

appellee. Ceferino M. Carpio, Jr. for defendant-appellant.

RESOLUTION

It is a special provision of this undertaking to guarantee the full payment of a loan not to exceed TWENTY FIVE
THOUSAND PESOS (P 25,000.00) that may be granted by the Philippine National Bank to Lanuza Lumber.
Whereas, said contract requires said Principal to give a good and sufficient bond in the above-stated sum to
secure the full and faithful performance on his part of said contract;

FELICIANO, J.:
The Kangyo Bank Ltd., Tokyo, Japan, issued Letter of Credit No. 14-10272 in the amount of US$ 28,150.00 in
favor of the Pedro Bartolome Enterprises of Manila to cover an export shipment of logs to Japan. The beneficiary
of the Letter of Credit assigned its rights to Lanuza Lumber. On 29 March 1960, Procopio Caderao, doing
business under the trade name "Lanuza Lumber," obtained a loan of P 25,000.00 from plaintiff-appellee
Philippine National Bank (PNB) as evidenced by a promissory note on the security, among other things, of the
proceeds of the Letter of Credit. The PNB in addition required Lanuza Lumber to submit a surety bond. DefendantAppellant Utility Assurance & Surety Co., Inc. ("Utassco"), accordingly, executed Surety Bond No. B-123 in favor
of PNB. It is useful to quote the terms of the Surety Bond in their entirety:
S
U
R
E
T
Y
B
O
N
D
Know All Men By These Presents:
That we, LANUZA LUMBER of Surigao, Surigao (532 Rosario St., Manila) as Principal, and the UTILITY
ASSURANCE & SURETY CO., INC., a corporation duly organized and existing under and by virtue of the laws of
the Philippines, with Head Office in the City of Manila, as Surety, are held and firmly bound unto PHILIPPINE
NATIONAL BANK in the penal sum of TWENTY FIVE THOUSAND ONLY-PESOS (P 25,000.00) Philippine
Currency, for the payment of which, well and truly to be made, we bind ourselves, our heirs, executors,
administrators and successors and assigns, jointly and severally, firmly by these presents:
The conditions of this obligation are as
follows:
Whereas, the Kangyo Bank, Ltd., Tokyo, Japan has granted a letter of credit No. 14-10272 in the amount
of $ 28,150.00 in favor of Pedro Bartolome Enterprises of 302 Salvacion Apt. 2504 Pennsylvania, Manila,
to cover shipment of 500,000 board feet of logs to Shin Asshigawa Co., Ltd., Tokyo, Japan;

Now Therefore, if the Principal shall well and truly perform and fulfill all the undertakings, covenants, terms,
conditions and agreements stipulated in said contract, then this obligation shall be null and void otherwise to
remain in full force and effect.
The liability of the UTILITY ASSURANCE & SURETY CO., INC., on this bond will expire on March 17, 1961 and
said bond will be cancelled TEN DAYS after its expiration, unless Surety is notified of any existing obligations
thereunder.
In Witness Whereof, we have set our hands and signed our names at Manila on March 17, 1960.
Utility Assurance &
Surety Co., Inc.
S/ Dalmacio
Urtula, Jr.
DALMACIO
URTULA, JR.
AUTHORIZE
D
SIGNATURE
LANUZA
LUMBER
S/
Procopi
o 0.
Cadera

Whereas, on January 21, 1960 the beneficiary, Pedro Bartolome Enterprises assigned the aforementioned
letter of credit to Lanuza Lumber of Surigao per attached Deed of Assignment;
Whereas, the correspondent Bank, Philippine National Bank requires the Lanuza Lumber to post a surety bond in
the sum of Twenty Five Thousand (P 25,000.00) Pesos, Philippine Currency, to guarantee full and faithful
compliance by the beneficiary of the terms and conditions of the said letter of credit.

o
General

Manage
r

SIGNED IN THE
PRESENCE OF:
(Sgd) ILLEGIBLE
(Sgd) ILLEGIBLE. (Emphasis supplied)
The surety bond was accompanied by an Endorsement No. B-60-3 which provided as follows:
In lieu of the last paragraph of this bond, it is hereby declared and agreed that the following
condition be incorporated in said bond and made an integral part thereof :
That, if the above bounden principal and surety shall, in all respects, duly and fully observe
and perform all and singular terms and conditions of the aforementioned Letter of Credit, then
this obligation shall be and become null and of no further force nor effect; in the contrary
case, the same shall continue in full effect and be enforceable, as a joint and several
obligation of the parties hereto in the manner provided by law so long as the account remains
unpaid and outstanding in the books of the Bank either thru non-collection, extension,
renewals or plans of payment with or without consent of the surety.
It is a special condition of this bond that the liability of the surety thereon shall, at all times,
be enforceable simultaneously with that of the principal without the necessity of having the
assets of the principal resorted to, or exhausted by, the creditor; Provided, however, that the
liability of the surety shall he limited to the sum of TWENTY-FIVE THOUSAND PESOS (P
25,000), Philippine Currency. Nothing herein contained shall be held to vary, alter, waive or
change any of the terms, limits or conditions of the bond, except as herein-above set forth.
(Emphasis supplied)
The promissory note executed by Lanuza Lumber became due and payable. Neither Lanuza Lumber nor Utassco
paid the loan despite repeated demands by PNB for payment. Accordingly, PNB filed in the then Court of First
Instance of Manila an action to recover the amount of the promissory note with interest as provided thereon plus
attorney's fees. 1
In its Answer to PNB's complaint, Utassco stated that it had "no knowledge or information sufficient to form a belief
as to the truth of the allegations contained in [paragraphs 2, 3, 4 and 5] of the amended complaint and perforce
[denied] the same." 2 At the same time, however, in setting out its affirmative defense, Utassco admitted that it
had executed the surety bond and simultaneously pointed to the provisions of Endorsement No. B- 60-3. In
particular, Utassco contended that its obligation under the Surety Bond was to secure the performance of all the
terms and conditions of the US$ 28,150.00 Letter of Credit issued by Kangyo Bank Ltd. and had not guaranteed
the performance of Lanuza Lumber's obligation under its P 25,000.00 loan from PNB.
On 14 January 1971, upon motion of PNB, the trial court rendered judgment on the pleadings. The dispositive part
of the judgment reads as follows:

WHEREFORE, in the light of the foregoing considerations, judgment is hereby rendered

ordering the defendant to pay the plaintiff the sum of P 25,000.00 plus 6 % interest per
annum counted from May 19, 1962, the date of the filing of the original complaint until fully
paid, plus attorney's fees equivalent to 10 % of the principal obligation and the costs of the
suit.
Its Motion for Reconsideration of the trial court's judgment on the pleadings having been denied, Utassco
appealed that judgment to the Court of Appeals.
The Court of Appeals, by a Resolution dated 31 July 1974, certified the appeal to us as involving only questions
of law.Both before the Court of Appeals and this Court, Utassco claims that the trial court fell into error:
(1) in granting the plaintiff-appellee's (PNB's) motion for judgment on the pleadings;
(2) assuming the trial court could render judgment on the pleadings, in doing so prematurely; and
(3) in awarding interest and attorney's fees in favor of plaintiff-appellee PNB.
We turn to the first alleged error. As noted earlier, Utassco had alleged in its answer that it had no knowledge or
information sufficient to form a belief as to the truth of the allegations made by PNB in its complaint. Utassco, in
other words, purported to deny those allegations and hence now contends that it had generated an issue of fact
which the trial court should have first passed upon. Utassco, however, cannot be deemed to have denied the
allegations of the amended complaint, considering that the truth of those allegations relating to the execution of
the surety bond and the contents thereof was peculiarly within the knowledge of Utassco being the issuer of the
bond and Endorsement No.
B-60-3 itself. In Equitable Banking Corporation v. Liwanag, 3 the Supreme Court rejected out of hand the same
argument which Utassco now seeks to make:
This pretense is manifestly devoid of merit Although the Rules of Court permit a litigant to file
an answer alleging lack of knowledge to form a belief as to the truth of certain allegations in
the complaint, this form of denial 'must be availed of with sincerity and in good faith, -certainly
neither for the purpose of delay.' Indeed, it has been held that said mode of denial is
unavailing 'where the fact as to which want of knowledge is asserted is to the knowledge of
the court so plainly and necessarily within the defendant's knowledge that his averment of
ignorance must be palpably untrue.' Thus, under conditions almost Identical to those
obtaining in the case at bar, this Court, speaking through Mr. Justice Villamor, upheld a
judgment on the pleadings in Capitol Motors vs. Nemesio L. Yabut (G.R. No. L-28140, March
19, 1970) from which we quote:
We agree with the defendant-appellant that one of the modes of specific denial contemplated
in Section 10, Rule 8, is a denial by stating that the defendant is without knowledge or
information sufficient to form a belief as to the truth of a material averment in the complaint.
The question, however, is whether paragraph 2 of defendant-appellant's answer constitutes
a specific denial under the said rule. We do not think so. In Warner Barnes & Co. Ltd. vs.
Reyes, et al. G.R. No. L- 9531, May 14,1958 (103 Phil. 662), this Court said that the rule
authorizing an answer to the effect that the defendant has no knowledge or information
sufficient to form a belief as to the truth of an averment and giving such answer the effect of
a denial, does not apply where the fact as to which want of knowledge is asserted, is so
plainly and necessarily within the defendant's knowledge that his averment of ignorance
must be palpably untrue.

In said case the suit was one for foreclosure of mortgage, and a copy of the deed of mortgage
was attached to the complaint: thus, according to this Court, it would have been easy for the
defendants to specifically allege in their answer whether or not they had executed the alleged
mortgage. The same thing can be said in the present case, where a copy of the promissory
note sued upon was attached to the complaint. The doctrine in Warner Barnes & Co. Ltd. was
reiterated in J.P. Juan & Sons, Inc. v. Lianga Industries, Inc., G.R. No. L-25137, July 28, 1969
(28 SCRA 807) . . . . (Emphasis supplied)
At the same time that Utassco pretended to have denied the allegations of PNB's amended complaint, it admitted
in the affirmative defense section of its answer that it had indeed executed the Surety Bond and Endorsement No.
B-60- 3 in favor of PNB; Utassco must be deemed thereby to have admitted the due execution of the Bond and the
Endorsement. Its affirmative defense in fact consisted of pleading the very provisions of the Surety Bond upon
which PNB based its cause of action. Thus, the issues raised by the amended complaint and the answer were not
genuine issues of fact on which evidence would have had to be submitted. Those pleadings raised, rather,
questions concerning the proper interpretation of the provisions of the Surety Bond and Endorsement No. B-60-3,
i.e., the determination of whether the surety bond and the endorsement had, as contended by the PNB, guaranteed
the payment by Lanuza Lumber of its P 25,000.00 loan from PNB; or whether, as maintained by Utassco, the
surety bond and its endorsement served merely to secure the performance of the terms and conditions of the
Letter of Credit No. 14-10272. We hold, therefore, that under these circumstances, the trial court correctly
rendered judgment on the pleadings.
We turn to the second error imputed by Utassco to the trial court: that the judgment on the pleadings, while it
may have been within the jurisdiction of the trial court, was prematurely issued. This argument appears to us
even more tenuous than the first assigned error. Utassco claims that the trial court should have withheld
judgment on the pleadings until after the third party action brought by Utassco against the owner of Lanuza
Lumber on the indemnity agreement executed between them, had gone forward to judgment. The third party
complaint could, of course, have been prosecuted quite separately from the principal action between PNB and
Utassco. Indeed, there was no reason at all why the trial court should have deferred rendering judgment on the
pleadings in the principal action, considering that the PNB was not interested at all in the outcome of the third
party complaint. Under Section 12, Rule 6 of the Revised Rules of Court, the purpose of a third party complaint is
to enable a defending party to obtain contribution, indemnity, subrogation or other relief from a person not a party
to the action, Thus, notwithstanding the judgment on the pleadings, Utassco could still proceed with the
prosecution of its third party complaint.
Before passing on to the third error assigned by Utassco, it is important to note that Utassco did not really dispute
the correctness of the conclusion reached by the trial court in respect of the substantive issue raised before it:
whether the bond issued by Utassco secured the obligations of Lanuza Lumber to repay the P 25,000.00 loan
obtained from PNB, or whether the bond had secured the Letter of Credit. The trial court held that the surety bond
was intended to secure the repayment of Lanuza Lumber's loan from PNB. We believe and so hold that the trial
court was correct in so holding. In the first place, the surety bond explicitly stated that the P 25,000.00 loan was
being secured by the bond:
It is a special provision of this undertaking to guarantee the full payment of a loan not to
exceed TWENTY FIVE THOUSAND PESOS (P 25,000.00) that may be granted by the
Philippine National Bank to Lanuza Lumber.
In the second place, while the bond and the endorsement had referred to the Letter of Credit, Lanuza Lumber had
no obligations under the Letter of Credit. As noted earlier, Lanuza Lumber was beneficiary-assignee of the Letter
of Credit. Thus, Utassco's view would reduce the terms and conditions of the Surety Bond to nonsense. Such

view would also mean that Utassco, in its own reading of the bond, was never at risk since there were no
obligations to secure and that Utassco was in fact collecting premiums for issuing the bond under which it had no
liabilities. The principle of effectiveness is basic in contract interpretation: where two (2) interpretations of the
same contract language are possible, one interpretation having the effect of rendering the contract meaningless
(and one of the parties merely dishonest for receiving consideration thereunder without parting with any), while
the other interpretation would give effect to the contract as a whole, the latter interpretation must be adopted . 4
In the instant case, the reference to the Letter of Credit in the surety bond and the endorsement was either
merely inadvertent surplusage or, alternatively, merely indication of ineptness on the part of the draftsman of
the bond and the endorsement. It is not disputed by Utassco that the endorsement was intended to replace the
final paragraph of the original bond, which paragraph limited the life of the bond to one year from issuance. The
endorsement had the important effect of giving the bond continuing life so long as "the account" remained
unpaid and outstanding on the books of PNB. The term "account" here could only refer to the account of the
principal debtor, Lanuza Lumber, with PNB. The endorsement also made it clear that the liability of Lanuza
Lumber and Utassco was joint and several in nature, and that Utassco had waived any benefit of excussion that
it might otherwise have had. Finally, on a very practical level, it is difficult to understand how Utassco could
have reasonably supposed that its bond in the amount of RP P 25,000.00 was intended only (or even
principally) to secure performance of the obligations of the issuer-Kangyo Bank-under the Letter of Credit which
had a face value of US$ 28,150.00, many times the face value of the bond.
We come to the final error assigned by Utassco: that the trial court should not have granted interest and attorney's
fees in favor of PNB, considering the clause in the endorsement limiting the liability of Utassco to P 25,000.00.
The issue here presented is not a new one. It was extensively discussed and Utassco's submission decisively
rejected by this Court in Plaridel Surety and Insurance Co., Inc. 5 v. P.L. Galang Machinery Co., Inc. There, the
Court held:
Petitioner objects to the payment of interest and attorney's fees because: (1) they were not
mentioned in the bond; and (2) the surety would become liable for more than the amount
stated in the contract of suretyship.
In support of its objection petitioner dwells on the proposition that a surety's liability can not be
extended beyond the terms of his undertaking, citing articles 1956 and 2208 of the New Civil
Code which provide as follows:
ART. 1956. No interest shall be due unless it has been expressly stipulated in writing.
ART. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other
than judicial costs, cannot be recovered, except: . . . .
The objection has to be overruled, because as far back as the year 1922 this Court held in
Tagawa vs. Aldanese, 43 Phil. 852, that creditors suing on a suretyship bond may recover
from the surety as part of their damages, interest at the legal rate even if the surety would
thereby become liable to pay more than the total amount stipulated in the bond. 'The theory is
that interest is allowed only by way of damages for delay upon the part of the sureties in
making payment after they should have done. In some states, the interest has been charged
from the date of the judgment of the appellate court. In this jurisdiction, we rather prefer to
follow the general practice which is to order that interest begin to run from the date when the
complaint was filed in court, . . . . '

Such theory aligned with Sec. 510 of the Code of Civil Procedure which was subsequently
recognized in the Rules of Court (Rule 53, Section 6) and with Article 11- 08 of the Civil Code
(now Art. 2209 of the New Civil Code).

However, the New Civil Code permits recovery of attorney's fees in eleven cases
enumerated in Article 2208, among them 'where the court deem it just and equitable that
attorney's fees and expenses of litigation should be recovered' or 'when the defendant acted
in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and
demandable claim.' This gives the courts discretion in apportioning attorney's fees.

In other words the surety is made to pay interest, not by reason of the contract, but by reason
of its failure to pay when demanded and for having compelled the plaintiff to resort to the
courts to obtain payment. It should be observed that interest does not run from the time the
obligation became due, but from the filing of the complaint.
As to attorney's fees. Before the enactment of the New Civil Code, successful litigants could
not recover attorney's fees as part of the damages they suffered by reason of the litigation.
Even if the party paid thousands of pesos to his lawyers, he could not charge the amount to
his opponent.

Now, considering, in this case, that the principal debtor had openly and expressly admitted
his liability under the bond, and the surety knew it (p.123 R.A.) we can not say there was
abuse of lower court's discretion in the way of awarding fees, specially when the indemnity
agreement . . . afforded the surety adequate protection. (100 Phil. 681-682. (Emphasis
supplied)
WHEREFORE, the Court Resolved to DISMISS the appeal by defendant-appellant Utility Assurance & Surety Co.,
Inc. for lack of merit, and to AFFIRM the judgment of the trial court dated 14 January 1971. No pronouncement as to
costs. This Resolution is immediately executory. SO ORDERED.

G.R. No. 82808 July 11, 1991

DENNIS L.
LAO, petitioner,
vs.
HON. COURT OF APPEALS, JUDGE FLORENTINO FLOR, Regional Trial Court, Branch 89 of Morong, Rizal,
BENJAMIN L. ESPIRITU, MANUEL QUERUBIN and CHAN TONG, respondents.
F. Sumulong & Associates Law Offices for petitioner.
Manuel LL. Querubin for and in his own
behalf. Enrique M. Basa for private
respondent.

On April 12, 1984, Espiritu filed a complaint for malicious prosecution against the petitioner and St. Joseph
Lumber, praying that the defendants be ordered to pay him P500,000 as moral damages, P10,000 as actual
damages, and P100,000 as attorney's fees.
In his answer to the complaint, the petitioner alleged that he acted only as agent or employee of St. Joseph Lumber
when he executed the affidavit which his employer submitted to the investigating fiscal who conducted the
preliminary investigation of his employer's estafa charge against Espiritu.
The pre-trial of the case was set on October 30, 1984. Since the defendants and their counsel failed to appear in
court, they were declared in default.
On November 11, 1984, the defendants filed a motion for reconsideration of the order of
default. On November 13, 1984, the motion was granted, and the order of default was set
aside.

GRIO-AQUINO, J.:p
For being a witness in an unsuccessful estafa case which his employer filed against a debtor who had defaulted
in paying his just obligation, the petitioner was sued, together with his employer, for damages for malicious
prosecution. The issue in this case is whether the damages awarded to the defaulting debtor may be satisfied by
execution against the employee's property since his employer's business has already folded up.
Petitioner Dennis Lao was an employee of the New St. Joseph Lumber & Hardware Supply, hereinafter called St.
Joseph Lumber, owned by the private respondent, Chan Tong. In January 1981, St. Joseph Lumber filed a
collection suit against a customer, the private respondent, Benjamin Espiritu, for unpaid purchases of construction
materials from St. Joseph Lumber.
In November 1981, upon the advice of its lawyer, St. Joseph Lumber filed a criminal complaint for estafa against
Espiritu, based on the same transaction. Since the petitioner was the employee who transacted business with
Espiritu, he was directed by his employer, the firm's owner, Chan Tong, to sign the affidavit or complaint prepared
by the firm's, lawyer, Attorney Manuel Querubin.
Finding probable cause after conducting a preliminary investigation of the charge, the investigating fiscal
filed an information for estafa in the Court of First Instance of Quezon City against Espiritu. The case was
however later dismissed because the court believed that Espiritu's liability was only civil, not criminal.

On January 16, 1985, the defendants, including herein petition petitioner Lao, and their counsel, again failed to
attend the pretrial despite due notice to the latter who, however, failed to notify Lao. They were once more
declared in default. The private respondent was allowed to present his evidence ex parte.
On January 22, 1985, a decision was rendered by the trial court in favor of Espiritu ordering the defendants Lao
and St. Joseph Lumber to pay jointly and severally to Espiritu the sums of P100,000 as moral damages, P5,000
as attorney's fees, and costs.
Petitioner's motion for reconsideration of the decision was denied by the trial court.
On February 25, 1985, Lao filed a motion for new trial on the ground of accident and insufficiency of evidence, but
it was denied by the trial court.
He appealed to the Court of Appeals (CA-G.R. CV No. 06796, "Benjamin L. Espiritu, plaintiff-appellee vs. Dennis
Lao and New St. Joseph Lumber and Hardware Supply, defendants-appellant"). The appellate court dismissed his
appeal on May 21, 1987. He filed this special civil action of certiorari and prohibition to partially annul the appellate
court's decision and to enjoin the execution of said decision against him. The petitioner avers that the Court of
Appeals erred:

1. in not holding that he (petitioner Lao) has a valid defense to the action for malicious
prosecution in Civil Case No. 84-M;
2. in not holding that he was deprived of a day in court due to the gross ignorance, negligence
and dereliction of duty of the lawyer whom his employer hired as his and the company's
counsel, but who failed to protect his interest and even acted in a manner inimical to him;
and
3. in not partially annulling the decision of the trial court dated January 22, 1985 insofar as
he is concerned.
The petition is meritorious.
Lao had a valid defense to the action for malicious prosecution (Civil Case No. 84-M) because it was his
employer, St. Joseph Lumber, not himself, that was the complainant in the estafa case against Espiritu. It was
Chan Tong, the owner of the St. Joseph Lumber, who, upon advice of his counsel, filed the criminal complaint
against Espiritu. Lao was only a witness in the case. He had no personal interest in the prosecution of Espiritu for
he was not the party defrauded by Espiritu. He executed the affidavit which was used as basis of the criminal
charge against Espiritu because he was the salesman who sold the construction materials to Espiritu. He was
only an agent of St. Joseph Lumber, hence, not personally liable to the party with whom he contracted (Art. 1897,
Civil Code; Philippine Products Co. vs. Primateria Societe Anonyme, 122 Phil. 698).
To maintain an action for damages based on malicious prosecution, three elements must be present: First, the fact
of the prosecution and the further fact that the defendant was himself the prosecutor, and that the action was
finally terminated with an acquittal; second, that in bringing the action, the prosecutor acted without probable
cause; and third, the prosecutor was actuated or impelled by legal malice (Ferrer vs. Vergara, 52 O.G. 291).
Lao was only a witness, not the prosecutor in the estafa case. The prosecutor was his employer, Chan Tong or
the St. Joseph Lumber.
There was probable cause for the charge of estafa against Espiritu, as found and certified by the investigating
fiscal himself.
CONSOLIDATED PLYWOOD INDUSTRIES INC. AND HENRY LEE, Petitioners, v. THE HONORABLE
COURT OF APPEALS, WILLIE KHO AND ALFRED C.H. KHO, Respondents.
Villaraza & Cruz Law Offices for Petitioner.
Leonido C. Delante and Peter Nugas for Private Respondents.
SYLLABUS
1. CIVIL LAW; DAMAGES; TEMPERATE OR MODERATE DAMAGES; MAY BE RECOVERED WHEN SOME
PECUNIARY LOSS HAS BEEN SUFFERED; NOT WARRANTED IN CASE AT BAR. Article 2224 of the
Civil
Code provides: "Temperate or moderate damages, which are more than nominal but less than compensatory
damages, may be recovered when the Court finds that some pecuniary loss has been suffered but is amount can
not, from the nature of the case, be proved with certainty." The grant thereof is proper under the provision of
Article 2205 of the Civil Code, which provides that damages may be recovered. In this case however, there was
no showing nor proof that petitioner was entitled to an award of this kind of damages in addition to the actual

Lao was not motivated by malice in making the affidavit upon which the fiscal based the filing of the information
against Espiritu. He executed it as an employee, a salesman of the St. Joseph Lumber from whom Espiritu made
his purchases of construction materials and who, therefore, had personal knowledge of the transaction. Although
the prosecution of Espiritu for estafa did not prosper, the unsuccessful prosecution may not be labelled as
malicious. "Sound principles of justice and public policy dictate that persons shall have free resort to the courts
for redress of wrongs and vindication of their rights without later having to stand trial for instituting prosecutions in
good faith" (Buenaventura vs. Sto. Domingo, 103 Phil. 239).
There is merit in petitioner's contention that he was deprived of his day in court in the damage suit filed by
Espiritu, due to the gross ignorance, negligence, and dereliction of duty of Attorney Manuel Querubin whom his
employer had hired to act as counsel for him and the St. Joseph Lumber. However, Attorney Querubin neglected to
defend Lao. He concentrated on the defense of the company and completely forgot his duty to defend Lao as
well. He never informed Lao about the pre-trial conferences. In fact, he (Attorney Querubin) neglected to attend
other pre-trial conferences set by the court.
When adverse judgment was entered by the court against Lao and the lumber company, Attorney Querubin did
not file a motion for reconsideration of the decision. He allowed it to become final, because anyway Espiritu would
not be able to satisfy his judgment against Chan Tong who had informed his lawyer that the St. Joseph Lumber
was insolvent, had gone out of business, and did not have any leviable assets. As a result, Espiritu levied on the
petitioner's car to satisfy the judgment in his favor since the company itself had no more assets that he could
seize.
In view of the foregoing circumstances, the judgment against Lao was a nullity and should be set aside. Its
execution against the petitioner cannot be allowed to proceed.
WHEREFORE, judgment is hereby rendered partially setting aside the decision of the Court of Appeals dated May
21, 1987, insofar as it declared the petitioner, Dennis Lao, solidarily liable with St. Joseph Lumber to pay the
damages awarded to the private respondent Benjamin Espiritu. Said petitioner is hereby absolved from any
liability to the private respondent arising from the unsuccessful prosecution of Criminal Case No. Q-20086 for
estafa against said private respondent. Costs against the private respondent.
SO ORDERED.
damages it suffered as a direct consequence of private respondents act. The nature of the contract between the
parties is such that damages which the innocent party may have incurred can be substantiated by evidence.
2. ID.; ID.; MORAL DAMAGES; MAY BE RECOVERED IF A PARTY NEGLECTED TO PERFORM ITS OBLIGATION
IN BAD FAITH; CASE AT BAR. It should be stated here that the hauling agreement between the petitioners
and the private respondent had no fixed date of termination. It was a verbal agreement where the private
respondents bound themselves until the loan with Equitable Bank in the personal account of petitioners had been
fully paid. There was substantial compliance by the private respondents of their obligations in the contract for
about a year. The record showed that the remaining balance owing to the bank was only P30,000.00 which was
not due until one (1) year and five (5) months after the breach by the private respondents or on September 4,
1980. However, the trial court found that private respondents acted with bad faith when it surreptitiously pulled out
their hauler trucks from petitioners jobsite before the termination of the contract. The trial court held: "The act of
defendants in suddenly and surreptitiously withdrawing its hauler trucks from the jobsite and abandoning its
obligation of hauling the logs is indubitably a wanton violation of its obligation, under the contract, a neglect to
perform its obligation in bad faith more particularly, in its stipulation to liquidate the cash advance obtained from
Equitable Bank, for the law would not permit said defendants to enrich themselves at the expense of the
plaintiffs."
DECISION

This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. No. 02784 entitled,
"Consolidated Plywood Industries, Inc. and Henry Wee v. Willie Kho and Alfred C.H. Kho," which modified the
decision of the Court of First Instance (now Regional Trial Court) of Baganga, Davao Oriental, by deleting the
award for moral damages, attorneys fees and actual damages in the sum of P350,000.00 for the unfulfilled import
of logs, which were granted by the trial court.
Consolidated Plywood Industries, Inc. (Corporation) and Henry Wee filed an action for breach of contract
and damages against Willie Kho and Alfred C.H. Kho with the Court of First Instance (now Regional Trial
Court) of Baganga, Davao Oriental. The facts as summarized by the trial court are as follows:
"x
x
x
"Sometime in February, 1978, the plaintiff Corporation of which the plaintiff Henry Wee is the President, being in
the business of logging and manufacturing timber products at its logging concession at Baganga and Caraga,
Davao Oriental, on one hand, and the defendants, father and son, who are operating a fleet of hauling trucks,
entered into a verbal hauling agreement with the following terms and conditions to wit: that defendants shall haul
the logs of the plaintiffs from the concession area to the logpond at Baculin, Baganga, Davao Oriental, at a hauling
fee of P1.25/cu.m./km. of all species of timber, payable on weekly liquidation basis of all timber hauled and scaled
at the Baganga office of the plaintiffs.
"It was likewise agreed between the parties as a pre-condition before defendants sending of the truck haulers to
the jobsite that the plaintiffs provide financial assistance to the defendants in the amount of P180,000.00, cash, to
defray cost of needed repairs and re-conditioning of the trucks and other expenses necessary for the hauling
operations.
It was understood that this financial assistance was in the nature of cash advance obtained by the defendants
from the Equitable Bank in the aggregate amount of P180,000.00 on the guaranty of plaintiff Henry Wee,
payable by the defendants, and that the hauling services shall continue unless and until this loan from the
Equitable Bank remain unpaid.
"After the defendants obtained the aggregate amount of P180,000.00 from the Equitable Bank on the
guaranty of plaintiff Henry Wee by way of cash advance as financial assistance, the defendants proceeded to
the jobsite at Baculin, Baganga, Davao Oriental, to commence the hauling service for the plaintiffs..

plaintiffs unfulfilled commitment of 1,500 cu. m. of logs because of the failure of hauling by the defendants on the
due date to the logpond. The plaintiffs, as a result, failed to realize a profit of P150,000.00.
"During the interim period between the sudden abandonment by the defendants in April, 1979 to May, 1979 when
the plaintiffs have no immediate replacement haulers, the plaintiffs could have produced 5,000 cu. m. of logs, to
fill other commitments, or a loss of P350,000.00, was suffered by plaintiffs.
"The defendants violation of its undertaking also resulted in exposing the plaintiff Henry Wee to liability to the
Equitable Bank for the loans he guaranteed in favor of the defendants in the total amount of P180,000.00 which
have become due, and demands for payment resulted in unduly annoying and vexing said plaintiff which entities
him to moral damages in the amount of P200,000.00." (pp. 302-305, Rollo)
The evidence of the plaintiffs showed that they sent two (2) letters to the defendants demanding the return to the
area of the six (6) hauler trucks to be used in hauling the logs (pp. 103-104, Rollo) but the defendants did not heed
the demand.
The defendants waived their right to present evidence. Hence, on January 3, 1983, a decision was rendered on
the basis of plaintiffs evidence, the dispositive portion of which reads:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants ordering the
defendants, jointly and severally to:chanrob1es virtual 1aw library
(1)

pay the plaintiffs the sum of P10,726.53, unpaid overdraft cash vales;

(2) pay the plaintiffs the sum of P56,000.00 reimbursement of charges of Aquarius Trading paid by the plaintiffs;
(3) pay the plaintiffs the sum of P150,000.00 unrealized profit in the Aquarius Trading transaction unfulfilled;
(4) pay the plaintiffs the sum of P350,000.00 unfulfilled import of logs after the sudden withdrawal of
defendants trucks;
(5) pay the plaintiffs P200,000.00 moral damages caused by the anxiety and annoyance as a consequence of
the demands of the Equitable Bank on the defendants unpaid cash advance of P180,000.00;
(6) pay the plaintiffs attorneys fees of P20,000.00;
(7) to pay the plaintiffs litigation expenses of P40,000.00; and

"However, after hauling logs for about a year, or so, specifically on April 12, 1979, the defendants, without giving
notice and information to the plaintiffs, suddenly and surreptitiously at nighttime, withdrew all its truck haulers from
the jobsite and returned to its base in Tagum, Davao del Norte, all in violation of the terms of the hauling
agreement, particularly, the repayment of the cash advance to P180,000.00 obtained from the Equitable Bank,
and that the hauling should continue until the said amount is fully paid.
"Evidence on record show that all hauling services had been paid by the plaintiffs. In fact, it appears that from
cash vales in the course of the hauling operation; the defendants have incurred an overdraft of P10,726.53 still
unliquidated.
"Due to the sudden and surreptitious abandonment by the defendants of its hauling obligation in bad faith
several logs have been left unhauled from the area which spawned serious and varied consequences to the
great damage and prejudice of the plaintiffs.
"The Aquarius Trading, a Taiwan log importer of the plaintiffs, have charged the plaintiffs of P56,000.00
reimbursements representing cancellation fee of a chartered vessel, LC extension fee and other charges due to

(8) pay the costs.

"SO ORDERED." (pp. 306-307, Rollo)
From the decision of the trial court, the defendants appealed to the Court of Appeals questioning the amount of
damages awarded to the plaintiffs on the ground that the awards were not supported by sufficient evidence. The
other grounds assigned by the defendants as errors were improper venue and lack of cause of action, in the
latter case, because there was allegedly no contract to be enforced.
On August 30, 1991, as already mentioned, the Court of Appeals rendered a decision modifying the trial courts
decision. While the awards for the unpaid overdraft cash vales of P10,726.53; the sum of P56,000.00 as
reimbursement of charges by Aquarius Trading paid by the plaintiff and the sum of P150,000.00 for unrealized
profit in the Aquarius Trading transaction were affirmed, all the other awards of damages for unfulfilled import of
logs, attorneys fees and litigation expenses were deleted. The dispositive portion of the decision reads:

"WHEREFORE, and in the light of all the foregoing, the appealed judgment is affirmed except the award of
damages for unfulfilled import of logs, moral damages and attorneys fees which are hereby denied and ordered
deleted." (p. 354, Rollo)
In this petition before Us, the petitioners Corporation and Henry Wee question the deletion of the
awards for unfulfilled import of logs, moral damages and attorneys fees.
We agree with the appellate court when it deleted the award of P350,000.00 granted by the trial court for actual
damages allegedly incurred by petitioners for the unfulfilled import of logs. It correctly held that there was no
evidence to support such claim. This claim apparently refers to an alleged commitment to a certain Ching Kee
Trading of Taiwan scheduled in June 1979 as distinguished from the claim for actual damages incurred in
connection with its Aquarius Trading transaction. Henry Wee testified on the actual damages they incurred, as
follows:jgc:chanrobles.com.ph
"Q Let us go to the business of the corporation for which you said that it has a contract for shipment of logs,
where are these contracts of shipments go (sic)?chanrobles law library : red
"A The company has a commitment of exporting logs and wood products in foreign countries like Hongkong and
other foreign buyer on monthly basis and on that month on (sic) April to May, there was a contracted shipment of
1,500 anticipating to be hauled by the services of the Willie Kho trucking, so that the company has to reach their
shipment on May 15, which was fully contracted with the buyer.
"Q I show to you this letter of Aquarius Trading Company, duly confirmed and accepted by Consolidated
Plywood Industries by Mr. Henry Wee, president, please tell the Court what relation has this to the commitment
of the shipment of logs?
"A This is the commitment of shipment of logs for 1,400 on May 15, for Aquarius
Trading. "Q Other than this commitment, do you have other commitment to other
buyer?
"A Yes, we have commitment to Ching Kee Trading in Taiwan scheduled on June (TSN, 12 Jan. 1982, pp. 45-48:
pp. 158-160, Rollo).
The commitment to Aquarius Trading was sufficiently substantiated by documents (Exhs. "H" and "I"). Petitioners
were able to present the papers evidencing their transaction with said entity including the amount demanded
from them as reimbursement for damages it incurred due to by petitioners failure to ship the ordered logs on
time. In contrast, the alleged commitment of petitioner to Ching Kee Trading in Taiwan was not supported by
evidence other than the self-serving statement of Wee. Nor did they present any other evidence which would
show that they had other unfulfilled shipments for which they incurred damages because of the pull-out of
private respondents hauler trucks. But even granting for the sake of argument that there was in fact a
commitment to Chingkee Trading, the shipment was scheduled some two (2) months after the private

respondents pulled out their trucks from petitioners jobsite on April 12, 1979. That would have left the petitioners
with sufficient time to find other trucks which could be used for the job..
The petitioners insist that if the appellate court did not consider the P350,000.00 damages for unfulfilled
shipments, it should have awarded this amount as a form of temperate or moderate damages.
Article 2224 of the Civil Code provides: "Temperate or moderate damages, which are more than nominal but
less than compensatory damages, may be recovered when the Court finds that some pecuniary loss has been
suffered but its amount can not, from the nature of the case, be proved with certainty." The grant thereof is
proper under the provision of Article 2205 of the Civil Code, which provides that damages may be recovered. In
this case however, there was no showing nor proof that petitioner was entitled to an award of this kind of
damages in addition to the actual damages it suffered as a direct consequence of private respondents act. The
nature of the contract between the parties is such that damages which the innocent party may have incurred
can be substantiated by evidence.
The Court, however, believes that petitioner is entitled to an award for moral damages. However, the award
granted by the trial court in the amount of P200,000.00 is excessive. It should be stated here that the hauling
agreement between the petitioners and the private respondent had no fixed date of termination. It was a verbal
agreement where the private respondents bound themselves until the loan with Equitable Bank in the personal
account of petitioners had been fully paid. There was substantial compliance by the private respondents of their
obligations in the contract for about a year. The record showed that the remaining balance owing to the bank was
only P30,000.00 which was not due until one (1) year and five (5) months after the breach by the private
respondents or on September 4, 1980 (p. 109, Rollo). However, the trial court found that private respondents
acted with bad faith when it surreptitiously pulled out their hauler trucks from petitioners jobsite before the
termination of the contract. The trial court held:jgc:chanrobles.com.ph
"The act of defendants in suddenly and surreptitiously withdrawing its hauler trucks from the jobsite and
abandoning its obligation of hauling the logs is indubitably a wanton violation of its obligation, under the contract, a
neglect to perform its obligation in bad faith more particularly. In its stipulation to liquidate the cash advance
obtained from Equitable Bank, for the law would not permit said defendants to enrich themselves at the expense of
the plaintiffs." (p. 305, Rollo).chanrobles.com.ph : virtual law library
Thus, an award of P50,000.00 for moral damages is sufficient.
The award for attorneys fees by the trial court in the amount of P20,000.00 is likewise proper. Petitioner was
forced to litigate in court for the recovery of actual damages incurred by him because the private respondent
ignored petitioners letters demanding that they return to the area and perform their obligations.
ACCORDINGLY, the decision of the Court of Appeals is MODIFIED. The award of P50,000.00 as moral
damages and P20,000.00 as attorneys fees are hereby granted in addition to the damages awarded by the
appellate court.
SO ORDERED.

G.R. No. 85161 September 9, 1991

Esteban C. Manuel

COUNTRY BANKERS INSURANCE CORPORATION and ENRIQUE SY, petitioners,

vs.
COURT OF APPEALS and OSCAR VENTANILLA ENTERPRISES CORPORATION, respondents.

for petitioners.
Augusta Gatmaytan
for OVEC.

by reason of Sy's request for reconsideration of OVECs demand for repossession of the three (3) theaters, the
former was allowed to continue operating the leased premises upon his conformity to certain conditions imposed
by the latter in a supplemental agreement dated August 13, 1979.

MEDIALDEA, J.:p
Petitioners seek a review on certiorari of the decision of the Court of Appeals in CA-G.R. CV No. 09504 "Enrique
Sy and Country Bankers Insurance Corporation v. Oscar Ventanilla Enterprises Corporation" affirming in toto the
decision of the Regional Trial Court, Cabanatuan City, Branch XXV, to wit:
WHEREFORE, the complaint of the plaintiff Enrique F. Sy is dismissed, and on the
counterclaim of the defendant O. Ventanilla Enterprises Corporation, judgment is hereby
rendered:
1. Declaring as lawful, the cancellation and termination of the Lease Agreement (Exh. A) and
the defendant's re-entry and repossession of the Avenue, Broadway and Capitol theaters
under lease on February 11, 1980;
2. Declaring as lawful, the forfeiture clause under paragraph 12 of the Id Lease Agreement,
and confirming the forfeiture of the plaintiffs remaining cash deposit of P290,000.00 in
favor of the defendant thereunder, as of February 11, 1980;
3. Ordering the plaintiff to pay the defendant the sum of P289,534.78, representing arrears
in rentals, unremitted amounts for amusement tax delinquency and accrued interest
thereon, with further interest on said amounts at the rate of 12% per annum (per lease
agreement) from December 1, 1980 until the same is fully paid;
4. Ordering the plaintiff to pay the defendant the amount of P100,000.00, representing the
P10,000.00 portion of the monthly lease rental which were not deducted from the cash
deposit of the plaintiff from February to November, 1980, after the forfeiture of the said cash
deposit on February 11, 1980, with interest thereon at the rate of 12% per annum on each of
the said monthly amounts of P10,000.00 from the time the same became due until it is paid;
5. Ordering the plaintiff to pay the defendant through the injunction bond, the sum of
P100,000.00, representing the P10,000.00 monthly increase in rentals which the defendant
failed to realize from February to November 1980 result from the injunction, with legal interest
thereon from the finality of this decision until fully paid;
6. Ordering the plaintiff to pay to the defendant the sum equivalent to ten per centum (10%) of
the above-mentioned amounts of P289,534.78, P100,000.00 and P100,000.00, as and for
attorney's fees; and
7. Ordering the plaintiff to pay the costs. (pp. 9495, Rollo) The antecedent facts of the case are
as follows:
Respondent Oscar Ventanilla Enterprises Corporation (OVEC), as lessor, and the petitioner Enrique F. Sy, as
lessee, entered into a lease agreement over the Avenue, Broadway and Capitol Theaters and the land on which
they are situated in Cabanatuan City, including their air-conditioning systems, projectors and accessories needed
for showing
the films or motion pictures. The term of the lease was for six (6) years commencing from June 13, 1977 and
ending June 12,1983. After more than two (2) years of operation of the Avenue, Broadway and Capitol Theaters,
the lessor OVEC made demands for the repossession of the said leased properties in view of the Sy's arrears in
monthly rentals and non-payment of amusement taxes. On August 8,1979, OVEC and Sy had a conference and

In pursuance of their latter agreement, Sy's arrears in rental in the amount of P125,455.76 (as of July 31, 1979)
was reduced to P71,028.91 as of December 31, 1979. However, the accrued amusement tax liability of the three
(3) theaters to the City Government of Cabanatuan City had accumulated to P84,000.00 despite the fact that Sy
had been deducting the amount of P4,000.00 from his monthly rental with the obligation to remit the said
deductions to the city government. Hence, letters of demand dated January 7, 1980 and February 3, 1980 were
sent to Sy demanding payment of the arrears in rentals and amusement tax delinquency. The latter demand was
with warning that OVEC will re-enter and repossess the Avenue, Broadway and Capital Theaters on February 11,
1980 in pursuance of the pertinent provisions of their lease contract of June 11, 1977 and their supplemental
letter-agreement of August 13, 1979. But notwithstanding the said demands and warnings SY failed to pay the
above-mentioned amounts in full Consequently, OVEC padlocked the gates of the three theaters under lease and
took possession thereof in the morning of February 11, 1980 by posting its men around the premises of the Id
movie houses and preventing the lessee's employees from entering the same.
Sy, through his counsel, filed the present action for reformation of the lease agreement, damages and injunction
late in the afternoon of the same day. And by virtue of a restraining order dated February 12, 1980 followed by an
order directing the issuance of a writ of preliminary injunction issued in said case, Sy regained possession and
operation of the Avenue, Broadway and Capital theaters.
As first cause of action, Sy alleged that the amount of deposit P600,000.00 as agreed upon, P300,000.00 of
which was to be paid on June 13, 1977 and the balance on December 13, 1977 was too big; and that OVEC
had assured him that said forfeiture will not come to pass. By way of second cause of action, Sy sought to recover
from OVEC the sums of P100,000.00 which Sy allegedly spent in making "major repairs" on Broadway Theater
and the application of which to Sy's due rentals; (2) P48,000.00 covering the cost of electrical current allegedly
used by OVEC in its alleged "illegal connection" to Capitol Theater and (3) P31,000.00 also for the cost of
electrical current allegedly used by OVEC for its alleged "illegal connection" to Broadway Theater and for
damages suffered by Sy as a result of such connection. Under the third cause of action, it is alleged in the
complaint that on February 11, 1980, OVEC had the three theaters padlocked with the use of force, and that as a
result, Sy suffered damages at the rate of P5,000.00 a day, in view of his failure to go thru the contracts he had
entered into with movie and booking companies for the showing of movies at ABC. As fourth cause of action, Sy
prayed for the issuance of a restraining order/preliminary injunction to enjoin OVEC and all persons employed by it
from entering and taking possession of the three theaters, conditioned upon Sy's filing of a P500,000.00 bond
supplied by Country Bankers Insurance Corporation (CBISCO).
OVEC on the other hand, alleged in its answer by way of counterclaims, that by reason of Sy's violation of the
terms of the subject lease agreement, OVEC became authorized to enter and possess the three theaters in
question and to terminate said agreement and the balance of the deposits given by Sy to OVEC had thus become
forfeited; that OVEC would be losing P50,000.00 for every month that the possession and operation of said three
theaters remain with Sy and that OVEC incurred P500,000.00 for attorney's service.
The trial court arrived at the conclusions that Sy is not entitled to the reformation of the lease agreement; that the
repossession of the leased premises by OVEC after the cancellation and termination of the lease was in
accordance with the stipulation of the parties in the said agreement and the law applicable thereto and that the
consequent forfeiture of Sy's cash deposit in favor of OVEC was clearly agreed upon by them in the lease
agreement. The trial court further concluded that Sy was not entitled to the writ of preliminary injunction issued in

his favor after the commencement of the action and that the injunction bond filed by Sy is liable for whatever
damages OVEC may have suffered by reason of the injunction.
On the counterclaim of OVEC the trial court found that the said lessor was deprived of the possession and
enjoyment of the leased premises and also suffered damages as a result of the filing of the case by Sy and his
violation of the terms and conditions of the lease agreement. Hence, it held that OVEC is entitled to recover the
said damages in addition to the arrears in rentals and amusement tax delinquency of Sy and the accrued interest
thereon. From the evidence presented, it found that as of the end of November, 1980, when OVEC finally
regained the possession of the three (3) theaters under lease, Sy's unpaid rentals and amusement tax liability
amounted to P289,534.78. In addition, it held that Sy was under obligation to pay P10,000.00 every month from
February to November, 1980 or the total amount of P100,000.00 with interest on each amount of P10,000.00 from
the time the same became due. This P10,000.00 portion of the monthly lease rental was supposed to come from
the remaining cash deposit of Sy but with the consequent forfeiture of the remaining cash deposit of
P290,000.00, there was no more cash deposit from which said amount could be deducted. Further, it adjudged Sy
to pay attorney's fees equivalent to 10% of the amounts above-mentioned.
Finally, the trial court held Sy through the injunction bond liable to pay the sum of P10,000.00 every month from
February to November, 1980. The amount represents the supposed increase in rental from P50,000.00 to
P60,000.00 in view of the offer of one RTG Productions, Inc. to lease the three theaters involved for P60,000.00
a month.
From this decision of the trial court, Sy and (CBISCO) appealed the decision in toto while OVEC appealed
insofar as the decision failed to hold the injunction bond liable for an damages awarded by the trial court.
The respondent Court of Appeals found no ambiguity in the provisions of the lease agreement. It held that the
provisions are fair and reasonable and therefore, should be respected and enforced as the law between the
parties. It held that the cancellation or termination of the agreement prior to its expiration period is justified as it
was brought about by Sy's own default in his compliance with the terms of the agreement and not "motivated by
fraud or greed." It also affirmed the award to OVEC of the amount of P100,000.00 chargeable against the
injunction bond posted by CBISCO which was soundly and amply justified by the trial court.
The respondent Court likewise found no merit in OVECS appeal and held that the trial court did not err in not
charging and holding the injunction bond posted by Sy liable for all the awards as the undertaking of CBISCO
under the bond referred only to damages which OVEC may suffer as a result of the injunction.
From this decision, CBISCO and Sy filed this instant petition on the following
grounds: A
PRIVATE RESPONDENT SHOULD NOT BE ALLOWED TO UNJUSTLY ENRICH
OR BE BENEFITTED AT THE EXPENSE OF THE PETITIONERS.
B
RESPONDENT COURT OF APPEALS CO D SERIOUS ERROR OF LAW AND GRAVE
ABUSE OF DISCRETION IN NOT SETTING OFF THE P100,000.00 SUPPOSED DAMAGE
RESULTING FROM THE INJUNCTION AGAINST THE P290,000.00 REMAINING CASH
DEPOSIT OF PETITIONER ENRIQUE SY.
C

RESPONDENT COURT OF APPEALS FURTHER COMMITTED SERIOUS ERROR OF LAW

AND GRAVE ABUSE OF DISCRETION IN NOT DISMISSING PRIVATE RESPONDENTS
COUNTER- CLAIM FOR FAILURE TO PAY THE NECESSARY DOCKET FEE. (p. 10, Rollo)
We find no merit in petitioners' argument that the forfeiture clause stipulated in the lease agreement would
unjustly enrich the respondent OVEC at the expense of Sy and CBISCO contrary to law, morals, good
customs, public order or public policy. A provision which calls for the forfeiture of the remaining deposit still in the
possession of the lessor, without prejudice to any other obligation still owing, in the event of the termination or
cancellation of the agreement by reason of the lessee's violation of any of the terms and conditions of the
agreement is a penal clause that may be validly entered into. A penal clause is an accessory obligation which the
parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the
debtor a special presentation (generally consisting in the payment of a sum of money) in case the obligation is
not fulfilled or is irregularly or inadequately fulfilled. (Eduardo P. Caguioa, Comments and Cases on Civil Law, Vol.
IV, First Edition, pp. 199-200) As a general rule, in obligations with a penal clause, the penalty shall substitute
the indemnity for damages and the payment of interests in case of non-compliance. This is specifically provided
for in Article 1226, par. 1, New Civil Code. In such case, proof of actual damages suffered by the creditor is not
necessary in order that the penalty maybe demanded (Article 1228, New Civil Code). However, there are
exceptions to the rule that the penalty shall substitute the indemnity for damages and the payment of interests in
case of non-compliance with the principal obligation. They are first, when there is a stipulation to the contrary;
second, when the obligor is sued for refusal to pay the agreed penalty; and third, when the obligor is guilty of
fraud (Article 1226, par. 1, New Civil Code). It is evident that in all said cases, the purpose of the penalty is to
punish the obligor. Therefore, the obligee can recover from the obligor not only the penalty but also the damages
resulting from the non-fulfillment or defective performance of the principal obligation.
In the case at bar, inasmuch as the forfeiture clause provides that the deposit shall be deemed forfeited, without
prejudice to any other obligation still owing by the lessee to the lessor, the penalty cannot substitute for the
P100,000.00 supposed damage resulting from the issuance of the injunction against the P290,000.00 remaining
cash deposit. This supposed damage suffered by OVEC was the alleged P10,000.00 a month increase in rental
from P50,000.00 to P60,000,00), which OVEC failed to realize for ten months from February to November, 1980
in the total sum of P100,000.00. This opportunity cost which was duly proven before the trial court, was correctly
made chargeable by the said court against the injunction bond posted by CBISCO. The undertaking assumed by
CBISCO under subject injunction refers to "all such damages as such party may sustain by reason of the
injunction if the Court should finally decide that the Plaintiff was/were not entitled thereto." (Rollo, p. 101) Thus,
the respondent Court correctly sustained the trial court in holding that the bond shall and may answer only for
damages which OVEC may suffer as a result of the injunction. The arrears in rental, the unmeritted amounts of
the amusement tax delinquency, the amount of P100,000.00 (P10,000.00 portions of each monthly rental which
were not deducted from plaintiffs cash deposit from February to November, 1980 after the forfeiture of said cash
deposit on February 11, 1980) and attorney's fees which were all charged against Sy were correctly considered
by the respondent Court as damages which OVEC sustained not as a result of the injunction.
There is likewise no merit to the claim of petitioners that respondent Court committed serious error of law and
grave abuse of discretion in not dismissing private respondent's counterclaim for failure to pay the necessary
docket fee, which is an issue raised for the first time in this petition. Petitioners rely on the rule in Manchester
Development Corporation v. Court of Appeals, G.R. No. 75919, May 7, 1987, 149 SCRA 562 to the effect that all
the proceedings held in connection with a case where the correct docket fees are not paid should be peremptorily
be considered null and void because, for all legal purposes, the trial court never acquired jurisdiction over the
case. It should be remembered however, that in Davao Light and Power Co., Inc. v. Dinopol, G.R. 75195, August
19, 1988, 164 SCRA 748, this Court took note of the fact that the assailed order of the trial court was issued prior
to the resolution in the Manchester case and held that its strict application to the case at bar would therefore be

unduly harsh. Thus, We allowed the amendment of the complaint by specifying the amount of damages within a
non-extendible period of five
(5) days from notice and the re-assessment of the filing fees. Then, in Sun Insurance Office, Ltd. v. Asuncion, G.R.
79937-38, February 3, 1989, 170 SCRA 274, We held that where the filing of the initiatory pleading is not
accompanied by payment of the docket fee, the court may allow payment of the fee within a reasonable time but in
no case beyond the applicable prescriptive or reglemen tary period.
Nevertheless, OVEC's counterclaims are compulsory so no docket fees are required as the following
circumstances are present: (a) they arise out of or are necessarily connected with the transaction or occurrence
that is subject matter of the opposing party's claim; (b) they do not require for their adjudication the presence of
third parties of whom the court cannot acquire jurisdiction; and (c) the court has jurisdiction to entertain the claim
(see Javier v.
Intermediate Appellate Court, G.R. 75379, March 31, 1989, 171 SCRA 605). Whether the respective claims
asserted by the parties arise out of the same contract or transaction within the limitation on counterclaims
G.R. No. L-31931 August 31, 1988
FORTUNATO DE LEON & JUANA F. GONZALES-DE LEON, petitionersappellants, vs.
HONORABLE COURT OF APPEALS (Sixth Division composed of Justices Concepcion, Serrano & San
Diego) DR. CORNELIO S. TANTOCO and JUAN BRIONES represented by Administratrix MAGDALENA
BERNARDO, respondents-appellees.
Fortunato de Leon, Celso B. Jamora and Guillermo B. Ilagan for petitionersappellants. Jose B. Puerto for respondent-appellee Juan Briones.
Diogracias T. Reyes & Associates and Jose M. Luison for respondent-appellee Cornelio S. Tantoco.

PARAS, J.:
This is an appeal by certiorari from the decision * of the Court of Appeals (Sixth Division) in C.A., G.R. No.
40201-R promulgated on February 21, 1970 affirming the judgment ** of the Court of First Instance of Bulacan,
with modification of the amount of moral and exemplary damages from P100,000.00 to P60,000.00 and the
amount of attorney's fees from P10,000.00 to P5,000.00 the dispositive portion of which appellate court's
decision reads as follows:
WHEREFORE, the decision appealed from is hereby modified as above indicated respecting
the award of moral and exemplary damages as well as attorney's fees. The rest are hereby
affirmed with costs against plaintiffs-appellants. (pp. 6-7, Decision of the Court of Appeals;
pp. 61-62, Rollo)
The facts of the case as drawn by respondent court from the evidence on record are quoted as follows:
The third-party defendants spouses Juan Briones and Magdalena Bernardo were the former
registered owners of the fishpond situated at San Roque, Paombong, Bulcacan, which was
covered by Transfer Certificate of Title No. 28296 (Exhibit 2). This fishpond was the subject of
a deed of mortgage executed by the spouses Briones on January 22, 1954, in favor of
Hermogenes Tantoco involving the consideration of P20,000.00 (Exh. 2), which amount was
later assigned by the mortgagee to his father herein defendant and thirdparty plaintiff Dr.
Cornelio S. Tantoco (Exh. 10). Apart from this first mortgage, the spouses Briones likewise

imposed by the statutes depends on a consideration of all the facts brought forth by the parties and on a
determination of whether there is some legal or equitable relationship between the ground of recovery alleged in
the counterclaim and the matters alleged as the cause of action by the plaintiff (80 C.J.S. 48). As the
counterclaims of OVEC arise from or are necessarily connected with the facts alleged in the complaint for
reformation of instrument of Sy, it is clear that said counterclaims are compulsory.
ACCORDINGLY, finding no merit in the grounds relied upon by petitioners in their petition, the same is hereby
DENIED and the decision dated June 15, 1988 and the resolution dated September 21, 1988, both of the
respondent Court of Appeals are AFFIRMED.
SO ORDERED.

executed a deed of second mortgage for P68,824.00 with 10% interest per annum in favor of
Cornelio S. Tantoco dated May 26, 1959 (Exh. 1). Both mortgages were duly registered in the
Office of the Register of Deeds of Bulacan and duly annotated at the back of Transfer
Certificate of Title No. 28296 (Exh. 2) of the Briones. While these two mortgages were still
subsisting the Briones spouses sold the fishpond, which is the subject matter of said two
mortgages, to plaintiff spouses Fortunato de Leon and Juana F. Gonzales de Leon in the
amount of P120,000.00 (Exh. 5). Of the amount of P120,000.00, the Briones spouses actually
received only the amount of P31,000.00 on June 2, 1959, as the amount of P89,000.00 was
withheld by the plaintiff de Leon who assumed to answer the mortgage indebtedness of the
Briones to the Tantocos (Exhs. 3, 3-a, 3-a-1 to 3-b). After the sale plaintiffs de Leon satisfied
the mortgage loan of P20,000.00 including 10% interest per annum to Hermogenes Tantoco
who then accordingly executed a deed of discharge of mortgage (Exhs. Z & Z-1), but the
mortgage in favor of Cornelio S. Tantoco in the amount of P68,824 was not satisfied. On
February 5, 1962 plaintiffs made payment of P29,382.50 to the defendant Cornelio Tantocos."
(Decision of the Court of Appeals, pp. 23).
In his letter to private respondent Cornelio Tantoco dated February 5, 1962, petitioner Fortunato de Leon made it
clear that he was tendering the sum of P29,382.50, represented by PNB Cashier's Check No. 119874 in full
discharge of the legitimate obligation of his clients, the spouses Juan Briones and Magdalena Bernardo. He
requested acknowledgment of the receipt of his letter and the execution of the necessary document (Exhibits, p.
103). Through counsel private respondent, trying to set the records straight for petitioners, made the clarification
that the principal obligation of the Briones as of May 25, 1959 was P68,824.00 and on January 26, 1962 when a
letter of demand was sent to them their total obligation including the agreed interest amounted to P88,888.98.
Hence the above mentioned PNB check will be held in abeyance pending remittance of the total obligation after
which the necessary document will be executed (Exhibits, p. 105).
On April 5, 1962 Juan Briones executed an affidavit denying ever having hired petitioner Fortunato de Leon as
counsel nor having authorized petitioner to pay any obligation of his to private respondent for as a matter of fact
all obligations he had with private respondent had been assumed by petitioner in a document executed by
petitioner himself in his own handwriting (Exhibits, p. 108).
On May 8, 1962 the spouses Fortunato de Leon and Juana F. de Leon, petitioners herein, filed a complaint with
the Court of First Instance of Bulacan against defendant Cornelio S. Tantoco, respondent herein, Civil Case No.
2554, for discharge of mortgage (Record on Appeal, p. 4). On May 31, 1962 defendant filed his answer with
counterclaim and third party complaint against the Briones spouses with petition for leave to file third party
complaint (Record on Appeal, p. 7). He alleged by way of special and affirmative defenses, among others, that the
true and real amount of obligation of the Briones spouses is the sum of P68,824.00, Philippine currency, with 10%

interest secured by a second mortgage in favor of defendant, executed and signed by the Briones spouses on
May 26,1959, which deed of second mortgage was duly registered in the Office of the Register of Deeds of
Malolos, Bulacan on May 27, 1959 and properly annotated at the back of Transfer Certificate of Title No. 28296
issued in the names of Juan Briones and Magdalena Bernardo; that the amount of P29,382.50 sent by plaintiff as
alleged counsel of the spouses Juan Briones and Magdalena Bernardo was accepted by the said defendant as
part payment or partial extinguishment of the mortgage loan of P68,824.00 with 10% interest thereon per annum
from May 22, 1959, and plaintiffs have been informed of the tenor of said acceptance and application thereof as
partial payment of the mortgage obligation in question; and, that defendant did not accede to the demand of the
plaintiff to have the mortgage lien on the property in question cancelled or discharged because the full amount of
the mortgage debt of P68,824.00 plus the 10% interest thereon from May 22, 1959 has not yet been fully paid
either by the plaintiffs or by the spouses Juan Briones and Magdalena Bernardo. Defendant prayed under the
counterclaim that plaintiffs be ordered to pay defendant the following amounts:
(1) P62,245.04 plus lO% interest thereon per annum from May 22, 1962 until the full amount
thereon has been paid in the event that the assumption of obligation (Annex "2") is found
by the Court to be true, valid and binding between the parties thereto;
(2) P100,000.00 for moral damages with 6% interest thereon from the date of the filing of
the counterclaim until full payment thereof;
(3) P10,000.00 for exemplary damages with 6% interest thereon from the date of the filing of
the counterclaim until full payment thereof; and
(4) P5,000.00 for attorney's fee with 6% interest thereon from the date of the filing of
the counterclaim until full payment thereof."
On June 8, 1962 plaintiffs filed an answer to defendants' counterclaim, by way of counterclaim to the
counterclaim and praying for judgment (Record on Appeal, p. 24) as follows:
A.

Dismissing defendants' counterclaim with costs against them;

B. Sentencing defendants to pay unto the plaintiffs the sum of P200,00o.oo by way of
moral damages with legal interest thereon from date hereof;
C. Sentencing defendants to pay not less than P20,000.00 to Plaintiffs by way of
exemplary damages with legal interest from date hereof;
D. Sentencing defendants to pay unto plaintiffs the sum of P30,000.00 by way of actual
damages;
E. Declaring the lien on Transfer Certificate of Title No. T-25079 of plaintiffs duly discharged;
F. Ordering defendant Cornelio S. Tantoco to execute the covering Release and
Discharge of Mortgage;
G. Ordering defendant Cornelio S. Tantoco to return his mortgagee's copy of Transfer Certificate
of Title No. T-25079 to the Register of Deeds of Bulacan;
H. Sentencing defendant Cornelio S. Tantoco to pay unto the plaintiffs the sum of P5,000.00
by way of attorney's fees;
I. Plaintiffs further pray for such additional relief just and proper in the premises.

On June 22, 1962, long before defendant's third party complaint was admitted, the Briones spouses filed an
answer to the third-party complaint (Record on Appeal, p. 32) which was stricken out by order of the trial court
dated September 3, 1962 (Record on Appeal, p. 35) on petition of plaintiffs dated July 18, 1962 (Record on Appeal,

p. 33). Third-party defendants filed their second answer to third-party complaint on October 6, 1962, virtually
confessing judgment in behalf of third-party plaintiff (Record on Appeal, p. 35). They alleged by way of special and
affirmative defense that plaintiff Fortunato de Leon at the time of the sale knew of the obligations of herein thirdparty defendants to third-party plaintiff and as a matter of fact said plaintiff assumed said obligations.
On July 29,1963 Magdalena Bernardo Vda. de Briones was substituted third-party defendant as administratrix of
the estate of Juan Briones who died in the course of the proceedings, upon petition of defendant Tantoco (Record
on Appeal, p. 64).
On September 16, 1963 plaintiffs filed a petition for leave to intervene in defendant's third-party complaint, with
their answer in intervention, which was granted by the Court on October 14, 1963 (Record on Appeal, p. 64).
On May 16, 1967 the trial court rendered its decision on the case (Record on Appeal, p. 74) the dispositive portion
of which reads as follows:
WHEREFORE, judgment is hereby rendered ordering: the dismissal of the complaint;
payment by its plaintiffs to the defendant Third-party plaintiff by way of counterclaim the sum
of P64,921.00 wth interest thereon at 10% per annum from February 5, 1962 until fully paid;
payment by plaintiff to defendant the sum of P100,000.00 as moral and exemplary damages,
and the further sum of P10,000.00 as attorney's fees; payment of costs of plaintiff.
On appeal respondent Court affirmed the judgment of the trial court with modification respecting the award of
moral and exemplary damages as well as attorney's fees. Petitioner spouses filed on March 7, 1970 their motion
for reconsideration of the decision of respondent court which motion was denied on April 20, 1970. On April 23,
1979 petitioners filed their motion for leave to file a second motion for reconsideration.
On July 5, 1970, barely two days before the expiration date of the period of appeal with their motion still unacted
upon, petitioners filed with this Court their motion for extension of time to file petition for certiorari by way of
appeal (Rollo, p. 1) which motion was granted in the Resolution of May 8, 1970 (Rollo, p. 2). The motion to file a
second motion for reconsideration was denied by respondent Court on May 15, 1970 (Rollo, p. 53).
The instant petition for certiorari by way of appeal with preliminary injunction was filed with this Court on May 20,
1970 (Rollo, P. 7).
In the resolution of June 8, 1970 the petition was given due course solely on the issue of the propriety of the
award made by the respondent Cornelio S. Tantoco in "the amount of P60,000 in the concept of moral and
exemplary damages" (Rollo, p. 75).
On June 20, 1970 petitioners moved for reconsideration of the Resolution of the Court dated June 8, 1979 (Rollo,
p. 82), to include other issues.
On the same date private respondent Corn elio Tantoco moved for the issuance of partial entry of final judgment
with respect to the portion of the decision appealed from which is not the subject of the instant appeal by certiorari
(Rollo, p. 102).
On June 25, 1970 the Court resolved to require respondents to comment on the aforementioned motion for
reconsideration (Rollo, p. 101). Said comment was filed on July 8, 1970 (Rollo, p. 109).
On July 8, 1970 petitioner spouses filed a consolidated opposition to private respondent Tantoco motion for
partial entry of final judgment and reply to his manifestation-motion (Rollo, p. 121) and on July 9, 1970 filed a
reply to respondent Tantoco's motion to dismiss appeal (Rollo, p. 128).

On July 20, 1970 the Court resolved among others to deny: (1) respondent Tantoco's motion to dismiss appeal; (2)
petitioners motion for reconsideration of the Court's resolution of June 8, 1970; and (3) respondent Tantoco's
motion for partial entry of judgment insofar as the portion of the decision appealed from which is not the subject of
the instant appeal by certiorari is concerned, without prejudice to respondent's presenting the same motion to
respondent Court of Appeals for consideration and action at the proper time (Rollo, p. 133).
Respondent Cornelio S. Tantoco filed with this Court on July 21, 1970 reply to consolidated opposition and
rejoinder to reply to respondent Tantoco's motion to dismiss appeal (Rollo, p. 134).

II.
The respondent Court erred in awarding P5,000.00 attorney's fees in favor of respondent
Cornelio
S. Tantoco and in sentencing petitioners de Leons to pay same; instead of awarding
the latter (Petitioners) reasonable attorney's fees as prayed for in their complaint.
III.

Brief for petitioners was filed on August 5, 1970 (Rollo, p. 159); brief for respondents was filed on October 28,
1970 (Rollo, p. 187).
On November 14,1970 petitioners filed an "Urgent Petition ex-parte For Issuance of Restraining Order and To
Declare Respondent Cornelio S. Tantoco Guilty of Contempt of Court" stating that respondent Tantoco filed with
the Court of Appeals on August 14, 1970 the same motion for partial entry of judgment which was filed with this
Court and denied in the resolution of July 20, 1970 but which was granted by the Court of Appeals in its resolution
of October 31, 1970 over petitioners-appellants' objection (Rollo, p. 192). On November 18, 1970 respondents
were required to comment thereon (Rollo, p. 197) and the required comment was filed by private respondent on
November 26, 1970 (Rollo, p. 200).
On December 2, 1970 a partial remanding of the records of this case to the Court of Appeals was made in
compliance with Section 11 of Rule 51 of the Rules of Court (Rollo, P. 220).
The Reply brief of the petitioners was filed on December 3, 1970 (Rollo, p. 210). On the same date petitionersappellants' "Urgent Petition for Issuance of Restraining Order and To Declare Respondent Cornelio's Tantoco
Guilty of Contempt of Court" was denied. (Rollo, p. 212).
On February 12, 1971 petitioners spouses again filed a petition for issuance of a restraining order (Rollo, p. 227)
and private respondent was required to comment thereon (Rollo, p. 233). Said comment was filed on February 23,
1971 (Rollo, p. 236).
On February 24, 1971 petitioner spouses filed an urgent manifestation informing the Court of the urgency of the
issuance of a restraining order or writ of preliminary injunction because the Court of First Instance of Bulacan had
presumably granted respondent Cornelio S. Tantoco's motion for partial execution of judgment in an order dated
February 11, 1971 which petitioners had not yet received, notwithstanding petitioners' urgent motion to postpone
hearing of same scheduled for February 15, 1971 because of the pendency of petitioner's motion before this Court
for issuance of a restraining order or writ of preliminary injunctions filed on February 11, 1971 (Rollo, p. 241). In the
resolution of February 26, 1971 private respondent Cornelio S. Tantoco was required to comment thereon (Rollo,
p.
248) and said comment was filed by respondent on March 6, 1971 (Rollo, p. 251). In the resolution of March 10,
1971 petitioners' petition for issuance of a restraining order was denied (Rollo, p. 265).
Petitioners assign the following errors (Brief for
Petitioners, p. 1): I.
The respondent Court erred in awarding in favor of respondent Cornelio S. Tantoco moral
and exemplary damages in the amount of P60,000.00 in the absence of supporting
evidence and reasons notwithstanding that no actual and compensatory damages have
been allegedly proved and awarded in respondent's favor.

The respondent Court erred in sentencing herein petitioners de Leons to pay respondent
Tantoco P60,000.00 moral and exemplary damages and P5,000.00 attorney's fees when
there exist no contractual or juridical relations whatsoever between them.
IV.
That the decision of respondent Court of Appeals of February 21, 1970 and its adverse
Resolutions of April 20, 1970 and of May 15, 1970 are all nullities.
In accordance with the Resolution of the Court dated June 8, 1970 (Rollo, p. 75) the sole issue that has to be
resolved by the Court is the question of whether or not the award of P60,000.00 in the concept of moral and
exemplary damages is proper.
Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation and similar injury. Though incapable of pecuniary computation,
moral damages may be recovered if they are the proximate result of the defendant's wrongful act or omission
(People v. Baylon, 129 SCRA 625 [1984]; Bagumbayan Corporation v. Intermediate Appellate Court, 132 SCRA
441 [1984]; Guita v. Court of Appeals, 139 SCRA 576 [1985]); (Prudenciado v. Alliance Transport System, Inc., 148
SCRA 440 [1987]). On the other hand, jurisprudence sets certain conditions when exemplary damages may be
awarded, to wit:
(1) They may be imposed by way of example or correction only in addition, among others, to compensatory
damages and cannot be recovered as a matter of right, their determination depending upon the amount of
compensatory damages that may be awarded to the claimant; (2) the claimant must first establish his right to
moral, temperate, liquidated or compensatory damages; and (3) the wrongful act must be accompanied by bad
faith, and the award would be allowed only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or
malevolant manner (Octot v. Ybaez, III SCRA 79 [1982]); Sweet Lines, Inc., v. Court of Appeals, 121 SCRA 769
[19831); Dee Hua Liong Electrical Equipment Corporation v. Reyes, 145 SCRA 713 [1985]); Tan Kapoc v. Masa,
134 SCRA 231 [1985]). It may be awarded for breach of contract or quasicontract as when a telegraph company
personnel transmitted the wrong telegram (Radio Communication of the Philippines, Inc. v. Court of Appeals, 103
SCRA 359 [1981].
Respondent Court found malice in petitioners'refusal to satisfy respondent Tantocos lawful claim and in their
subsequent filing of the present case against respondent, and took into consideration the worries and mental
anxiety of respondent as a result thereof. In the words of respondent court:
The evidence shows that plaintiff-appellants'refusal to satisfy appellee's lawful claims clearly
amounted to malice on their part when they filed the present case resulting as it were in
worries and mental anxiety of the defendant Tantoco who was dragged to court to litigate this
case for almost 10 years up to now. He was even branded as a money lender, and accused

forgery and of entering into collusion with the end in view of extracting extra amount ... from
the herein plaintiff. All these tried to picture defendant Cornelio Tantoco with alleged
dishonesty who respecting the legitimate obligation of the Briones to defendant Cornelio
Tantoco, thereby blemishing his honor, integrity and reputation as a prominent doctor and a
businessman. With all these extant circumstances which served as a guidepost for us in
determining the reasonable amount of damages sustained by the defendant-appellee, this
Court hereby fixes the amount of P60,000.00 representing moral and exemplary damages
and the further sum of P5,000.00 as attorney's fees, which plaintiffs-appellants should pay the
defendant-appellee. (Rollo, p. 61)
As a lawyer in the practice of law since his admission to the Bar in 1929, who has held several important
positions in the government (TSN, April 22, 1965, p. 127) petitioner Fortunato de Leon could not have missed the
import of the annotation at the back of TCT No. 28296 regarding the second mortgage for the sum of sixty eight
thousand eight hundred twenty-four pesos (P68,824.00) of the property he was buying, in favor of respondent
Cornelio Tantoco, entry No. 54835 in the registry of deeds of Bulacan (Exhibits, p. 93). The same annotation was
transferred to TCT No. T-25079 in the name of petitioner after the sale of the property was effected and entered
in the registry of deeds of Bulacan on June 3, 1959 (Exhibits, p. 102). Furthermore, petitioners cannot deny
having assumed the mortgage debts of the Briones spouses amounting to P89,000.00 in favor of the Tantocos.
The "Patunay" (Exhibits 3-a) executed by the Briones spouses on June 3, 1959 gives the information that their
property, and fishpond, was sold by them to the spouses Fortunato de Leon and Juana F. Gonzales for the
amount of one hundred twenty thousand pesos (Pl20,000.00), payment made to them, as follows:

Pinanagutan na aming
pagkakautang kay
G. Hermogenes Tantoco hanggang
Mayo 1959

P
89,000.00

Cash na tinanggap
namin PBC Check No.
57040

11,000.00

Pagare No. 1 Junio 1,

1959

10,000.00

Pagare No. 2 Junio 1,

1959

10,000.00

Kabuuan

registry of deeds of Bulacan petitioner paid the P20,000.00 loan of the Briones spouses to Hermogenes Tantoco
including 10% interest on the loan, covered by a first mortgage on the property. Accordingly, Hermogenes Tantoco
executed a deed of discharge from the mortgage. Out of the P68,000.00 mortgage loan of the Briones spouses
from respondent Cornelio Tantoco, petitioner, however made only a payment of P29,382.50 but would want
respondent to execute the necessary discharge document. The documents speak for themselves. They are mute
but plain and visible evidence of the deliberate intent of petitioner to defraud respondent of the amount withheld
from the Briones spouses to cover the amount of the mortgage loan in favor of respondent.
The filing of the case against respondent being unfounded and maliciously prosecuted satisfactorily proves the
existence of the factual basis for moral damages and the causal relation to petitioners' acts (Hawpia v. Court of
Appeals, 20 SCRA 535 [1967]; Ventura v. Bernabe, 38 SCRA 587 [1971]; Enervida v. de la Torre, 55 SCRA 340
[1974]; Tan Kapoe v. Masa, 134 SCRA 231 [1985]). Private respondent has a good name to protect. He is a
surgeon by profession, had been Chief of the Bulacan Provincial Hospital since 1946 until he put up a hospital of
his own, the Rosary General Hospital.He is a member of the Knights of Columbus, a Cursillista, a member of the
Lions, a fellow of the Philippine College of Surgeons in good standing from 1946 up to the present, a member of
the Philippine Medical Association and of the Bulacan Medical Association. He has been humiliated, embarrassed,
maligned and has been charged in bad faith as a money lender in petitioner's complaint accusing him of
defrauding the Briones spouses (TSN, pp. 227-250).
The entitlement to moral damages having been established the award of exemplary damages is proper (Bert
Osmea & Associates v. Court of Appeals, 120 SCRA 395 [1983]; Tan Kapoe v. Masa, 134 SCRA 231 [1985]).
While the award of moral and exemplary damages in an aggregate amount may not be the usual way of
awarding said damages there is no question of respondent's entitlement to moral and exemplary damage (Tan
Kapoe v.
Masa, supra). The amount should be reduced, however, for being excessive compared to the actual losses
sustained by the aggrieved party (Prudenciado v. Alliance Transport System, Inc., 148 SCRA 440 [1987]). Moral
damages though incapable of pecuniary estimations, are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty of the wrongdoer (San Andres v. Court of Appeals,
116 SCRA 85 [1982] cited in Prudenciado v. Alliance Transport System, Inc. supra).
Time and again the Court has ruled that "moral damages are emphatically not intended to enrich a complainant at
the expense of a defendant. They are awarded only to enable the injured party to obtain means, diversion or
amusements that will serve to alleviate the moral suffering he has undergone, by reason of the defendants'
culpable action" (Grand Union Supermarket, Inc. v. Espino, Jr., 94 SCRA 966 [1979]); R & B Surety & Insurance
Co., Inc. v.
Intermediate Appellate Court, 129 SCRA 736 [1984]; Prudenciado v. Alliance Transport System, Inc.,supra).

P
120,000.00

At the bottom of the "Patunay" in the handwriting of petitioner Fortunato de Leon is a statement signed by him
(Exh. 3b) signifying that he was assuming the spouses'debt of P89,000.00 to respondent Tantoco, in the
following words:
Ang pagkautang na P89,000.00 sa mga Tantoco ay aking inaasumihan. (Exhibits, p. 97).
Petitioner retained P89,000.00 out of the P120,000.00, representing the mortgage loan of the Briones spouses to
the Tantocos, including interest. Immediately after the sale of the fishpond was effected and registered with the

In the case of Miranda Ribaya v. Bautista (95 SCRA 672 [1980]), this Court considered 25% of the principal
amount as reasonable. In the case at bar, the Court of Appeals found on February 21, 1970 that the outstanding
balance of the disputed loan was P64,921.69. Twenty five percent thereof is P16,230.00 but considering the
depreciation of the Philippine peso today, it is believed that the award of moral and exemplary damages in the
amount of P25,000.00 is reasonable.
PREMISES CONSIDERED, the assailed decision of the Court of Appeals is AFFIRMED but the aggregate award
of moral and exemplary damages is reduced to P25,000.00.
SO ORDERED.

People vs. Quilaton, G.R. No. 69666, 205 SCRA 279 , January 23, 1992
G.R. No. L-69666 January 23, 1992
THE PEOPLE OF THE PHILIPPINES,
plaintiff-appellee, vs.
GUMERCINDO QUILATON y EBAROLA, defendant-appellant.
The Solicitor General for plaintiffappellee. Public Attorney's Office
for accused-appellant
FELICIANO, J.:
Appellant Gumercindo Quilaton was found guilty of murder and sentenced to suffer the penalty of reclusion
perpetua, and required to pay the heirs of the offended party various amounts of money.
Appellant was tried and convicted under the following information:
That on or about the 16th day of August, 1983, in the municipality of San Simon, province of Pampanga,
Philippines, and within the jurisdiction of this Honorable Court, the above-named accused GUMERCINDO
QUILATON
y EBAROLA alias "ROBERTO SANDOVAL" armed with a knife (balisong), with deliberate intent to kill, by
means of treachery and with evident premeditation, did then and there wilfully, unlawfully and feloniously attack,
assault and wound ROLANDO S. MANAHAN, thereby inflicting upon him serious and fatal injuries, which
directly caused the death of the said Rolando S. Manahan.
All contrary to law. 1
Appellant pleaded not guilty on arraignment and the case proceeded to trial. In time, the trial court rendered
adecision with the following dispositive portion:
WHEREFORE, premises considered, the Court hereby finds the accused GUMERCINDO QUILATON
yERABOLA, also known as Roberto Sandoval guilty beyond reasonable doubt of the crime of Murder as charged
in the Information and hereby sentences him to suffer the penalty of Reclusion Perpetua.
The Court further sentences him to indemnify the heirs of Rolando S. Manahan the sum of One Hundred
Thousand (P100,000.00) Pesos, Philippine Currency, for the death of Rolando S. Manahan, the sum of Twenty
Six Thousand Four Hundred Forty Five (P26,445.00) Pesos, Philippine Currency, for actual damages incurred
for burial and other expenses of the deceased, the sum of Two Hundred Fifty Thousand (P250,000.00) Pesos,
Philippine Currency, for moral damages. The Court further orders the accused to pay the costs.
SO ORDERED. 2
Appellant has assigned the following errors in his brief:
1. The court a quo gravely erred in not finding that the victim was armed with a bladed weapon and was
the aggressor.
2. The court a quo gravely erred in finding that the killing of the victim was qualified by treachery.
3. The court a quo gravely erred in not finding that the accused-appellant acted in self-defense. 3
The evidence for the prosecution discloses that the appellant was a laborer in the Bureau of Forest
Development assigned at the PROFEM Nursery in San Agustin, San Simon, Pampanga until 3 June 1983 when
his services were terminated. While still a laborer and occasionally after his termination, appellant would spend
the night in one of the rooms of the PROFEM office. The PROFEM office, it seemed, was converted by appellant
into sleeping quarters during the night.

On 16 August 1983, between the hours of 6:00 and 9:00 o'clock in the evening, Rolando Manahan, then officerin- charge of the PROFEM, called for appellant to see Manahan at the latter's office. Appellant, who was around
the PROFEM office at that time, refused to see Manahan at his office. Rolando Manahan came out of his office
and proceeded to admonish appellant to discontinue his practice of sleeping inside the office, sometimes with
women brought from the town. Appellant was reported to have replied: "yes, sir, and from now on I will not bring
girls inside the office." A heated exchange of words then ensued between Rolando Manahan and appellant.
Appellant who remained outside the office later requested Lamberto Abugan, an employee of the PROFEM, to
give him his (appellant's) bag of clothes which had been left inside the room. Lamberto Abugan initially refused,
but on instructions of Rolando Manahan, complied. With his bag of clothes, appellant left the office.
Rolando Manahan, however, decided to follow appellant, apparently to make certain that appellant would in fact
leave the premises of the Nursery. Lamberto Abugan, who had noticed Rolando Manahan leave the office, also
went out to look after them. Lamberto Abugan caught up with the two (2) at the provincial road where he saw
Rolando Manahan kick appellant's shoes which were lying on the road; the heated altercation between the two (2)
continued. Moments later, appellant pulled a fan knife (balisong) from his right hip and told Rolando Manahan:
"this time I am going to kill you, I shall not forgive you." Rolando Manahan started to run away; appellant chased
him.
Lamberto Abugan also ran from the scene to seek help. He proceeded to the police headquarters in San Simon,
Pampanga and from there returned to the provincial road aboard a tricycle in the company of Pfc. Nicolas
Yambao. They saw Rolando Manahan lying on the road, already dead. Appellant, upon the other hand, was
found in Sampaloc, Apalit, Pampanga where he was arrested and searched. A fan knife and a bloodstained shirt
were recovered from the possession of appellant. 4
A post mortem examination of the cadaver of Rolando Manahan was conducted by Dra. Maria Theresa
Santos, Municipal Health Officer of San Simon, Pampanga. Dra. Santos' report indicated that Rolando
Manahan sustained seven (7) wounds, two (2) of which, located in the chest, were fatal. 5
Appellant submitted a different version of the facts. He alleged that on the night of 16 August 1983 when he left
the PROFEM office, he became alarmed upon noting that Rolando Manahan was following him. Appellant
quickened his steps but because the road was slippery, he fell on the ground with the bag he was carrying, and
his shoes spilled onto the road. Rolando Manahan kicked his shoes away and continued walking. As Rolando
Manahan came nearer, appellant ran away only to be stopped in a fenced area. Rolando Manahan there
attacked him with a bladed weapon but appellant was able to wrest possession of the bladed weapon. Appellant
then instinctively stabbed Rolando Manahan until the latter died. Appellant claims that after the incident, he
walked towards Apalit, Pampanga to surrender as he did not know where the municipal building of San Simon,
Pampanga was. He was on his way to surrender when the police authorities arrested him. 6
The principal contention of appellant is that he had acted in self-defense when he stabbed Rolando Manahan to
death. He imputes unlawful aggression to Rolando Manahan who, he claims, deeply resented him as a
cumulative result of antecedent events namely: (1) Rolando Manahan had been reprimanded for his inaction on
the report that had reached the Central Office that appellant was bringing girls during the night inside the
PROFEM office; and (2) Rolando Manahan, as officer-in-charge of the PROFEM, was humiliated by appellant's
lack of respect in refusing to see the former at his office. Thus, according to appellant, Rolando Manahan
pursued him even as he had left the PROFEM office during the night of 16 August 1983.
By invoking self-defense as a justifying circumstance, appellant in effect admitted that he had indeed killed
Rolando Manahan. In order that he may be relieved of criminal liability, he is obliged to establish the presence of
the following requisites: (1) unlawful aggression; (2) reasonable necessity of the means employed to prevent or
repel it; and (3) lack of sufficient provocation on the part of the person defending himself. 7 In so doing, appellant

must rely on the strength of his own evidence and not on the weakness of that of the prosecution for even if the
prosecution's evidence were weak, it cannot be disbelieved after appellant has admitted the killing. 8
The evidence of appellant on his claim of self-defense consisted solely of his own testimony. The trial court
rejected that testimony, firstly, because it was not supported by convincing corroborative evidence and, secondly,
because the trial court had perceived appellant to be a liar.
During trial of the case, the prosecution had marked and offered in evidence the letter of the INP Station
Commander in Dalaguete, Cebu informing the INP Station Commander in San Simon, Pampanga that appellant
had two (2) pending cases in Dalaguete, Cebu. One of those cases was for murder and the other for double
murder. Certified true copies of the alias warrants for the arrest of appellant in both cases were also marked in
evidence by the prosecution. 9 Appellant had denied the pendency of the cases. On cross-examination, he
testified as follows:
Q Mr. Quilaton, in your town in Dalaguete, Cebu your Mayor is Paz
Wong? A I do not know her, sir.
Q And who is the mayor whom you know in
your town? A Legaspi, sir.

This Court, however, agrees with the Solicitor General that appellant should be convicted of homicide only. The
information here filed specified treachery and evident premeditation as qualifying circumstances. The trial court
disregarded evident premeditation, holding that the prosecution had not adequately established the presence of
that circumstance. But it considered appellant's act of stabbing the unarmed Rolando Manahan as treachery and
took this into account in convicting appellant of murder.
Treachery cannot be appreciated in the absence of evidence of the mode of attack; 12 it cannot be presumed but
must be proven positively. 13 This is so because treachery exists only "when the offender commits any of the
crimes against the person, employing means, methods, or forms in the execution thereof which tend directly and
specially to insure its execution, without risk to himself arising from any defense which the offended party might
make." 14
The sole eyewitness to the incident which started inside the PROFEM Nursery and ended on the provincial road
was Lamberto Abugan. Lamberto Abugan had testified about a "falling out" or quarrel between Rolando Manahan
and appellant after the former confronted appellant and told him to desist from sleeping inside the PROFEM office
and from bringing women sleeping companions therein. This culminated in a heated argument that led appellant to
leave the office in haste and anger. The verbal dispute continued up to the provincial road where Rolando
Manahan had followed appellant. Lamberto Abugan, however, did not witness the actual stabbing by appellant of
Rolando Manahan as he ran away just then to seek help.

Q Who was your Station Commander when you left

Dalaguete, Cebu? A I do not know his name, sir.
Q Mr. Quilaton, is it not a fact that you have a pending case of double murder in the Municipal Trial Court of
Dalaguete, Cebu docketed as Crim. Case No. 3032 before the Honorable Judge Buenconsejo?
A I do not know that, sir.
Q You do not also know that there is also another pending murder case docketed as Crim. Case No. 2710 before
the Hon. Dominador Tumulak?
A I do not know that, sir.
Q Will you deny that you have also another pending case before the RTC, Branch 26 of Ardaos,
Cebu? A None, sir.
Q You mean you have no pending
case in Cebu? A None, sir.
Q Is it not a fact Mr. Quilaton that you were a convict-escapee in the Provincial Jail of
Cebu? A No, sir.
Q Since you left Cebu, have you
returned to Cebu? A Not yet, sir. 10
The trial court instead gave credence to the testimony of Lamberto Abugan who had seen appellant initiate a
deadly assault on the victim Roland Manahan by drawing a fan knife from his right hip and by announcing his
intention to kill Manahan. The ordinary rule is that findings of fact of the trial court on the credibility of witnesses are
entitled to great respect considering that the trial court was in a position to evaluate the deportment of witnesses
while
testifying. 11 The Court does not see any compelling reason to depart from the general rule.

The testimony of Lamberto Abugan offers no sufficient basis for reasonably inferring that treachery attended the
commission of the crime. On the contrary, considering that the attack was preceded by a heated argument, it
cannot be fairly regarded as sudden and unexpected. The tense and hostile atmosphere should have sufficiently
put Rolando Manahan on guard against physical violence; Rolando Manahan should have been aware that he
was in effect inviting trouble in following appellant into the provincial road and kicking the latter's shoes that had
fallen to the ground.
The trial court had ordered appellant to pay the heirs of Rolando Manahan P26,445.00 as actual damages,
representing interment and related expenses incurred by the heirs of Rolando Manahan. The brother of Rolando
Manahan testified on this matter and submitted various receipts in support of their claim for actual damages;
appellant did not controvert this claim nor the amount thereof.
The amount of P100,000.00 awarded to the heirs of Rolando Manahan as indemnity for death must,
however, be reduced to P50,000.00 conformably with prevailing jurisprudence on the matter. 15 The propriety
of the award of P250,000.00 by the trial court in concept of moral damages needs some analysis.
The monetary liabilities of a person accused and convicted of a crime are specified in Article 2206 of the Civil
Code:
Art. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand
pesos, even though there may have been mitigating circumstances. In addition:
(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid
to the heirs of the latter; such indemnity shall in every case be assessed and awarded by the court, unless the
deceased on account of permanent physical disability not caused by the defendant, had no earning capacity at
the time of his death;
(2) If the deceased was obliged to give support according to the provisions of article 291, the recipient who is not an
heir called to the decedent's inheritance by the law of testate or intestate succession, may demand support from
the person causing the death, for a period not exceeding five years, the exact duration to be fixed by the court;
(3) The spouses, legitimate and illegitimate descendants and ascendants may demand moral damages for
mental anguish by reason of the death of the deceased. (Emphasis supplied)

Aside, therefore, from the ordinary indemnity for death which is currently set by case law at P50,000.00,
appellant is obliged: (1) to compensate the heirs of Rolando Manahan for the latter's loss of earning capacity;
(2) to give support in the form of expenses for education to the sisters of Rolando Manahan who had been
dependent on him therefor; and (3) to pay the heirs of Rolando Manahan moral damages for the mental anguish
suffered by them. 16In the instant case, the trial court lumped these monetary obligations into what it called
"moral damages."
The more important variables taken into account in determining the compensable amount of lost earnings are: (1)
the number of years for which the victim would otherwise have lived; and (2) the rate of loss sustained by the
heirs of the deceased. 17 In Villa Rey-Transit, Inc. v. Court of-Appeals (supra), the Court computed the first factor,
i.e., life expectancy, by applying the formula (2/3 x [80 - age at death) adopted in the American Expectancy Table
of Mortality
or the actuarial Combined Experience Table of Mortality. That formula was followed by the Court in cases
subsequent to Villa Rey Transit, e.g. Philippine Airlines v. Court of Appeals; 18 People v. Daniel (supra);
andDangwa Transportation Co., Inc. v. Court of Appeals. 19 The Court notes that the formula used in Villa Rey
Transitwas based on a table derived from actuarial experience prior to 1970 when the decision in Villa Rey Transit
was promulgated.
Actuarial experience subsequent to 1970 has, however, changed and indicates a longer life expectancy in the
Philippines due to conditions including, among other things, advances in medical science, improved nutrition and
food supply, diet consciousness and health maintenance. The 1970 mortality table was updated in 1980 to reflect
the changes of conditions. 20
Considering that Rolando Manahan was 26 years of age at the time of death, he was expected to live for another
46 years. This is derived by using the generally accepted formula in computing for life expectancy, based on the
1980 CSO table:
S (Lx + 1, Lx + 2, . . ., Lx + n), where n = 100 - x
x = age

But a man does not normally continue working to earn money up to the final month or year of his life; hence 46
years could be reasonably reduced to 39 years. 21 Besides, Rolando Manahan was a government employee who
is expected to retire at the age of 65. If there are 261 working days in a year 22 and Rolando Manahan was
receiving P23.00 a day, 23 Rolando Manahan's gross earnings would be approximately P234,000.00. A
reasonable amount must be deducted therefrom that would represent Rolando Manahan's necessary expenses
had he been living, in this case P120,000.00. The net or compensable earnings lost by reason of Rolando
Manahan's death is, accordingly, P114,000.00.
Finally, the Court in the exercise of its discretion, considers it appropriate and reasonable to award the amount
of P20,000.00 to the heirs of Rolando Manahan by way of moral damages. Ruben Manahan, brother of
Rolando Manahan, testified that their mother suffered a mild stroke upon learning of Rolando Manahan's
slaying; this eventually resulted in the mother's semi-paralysis. 24
WHEREFORE, the Decision of the Regional Trial Court, Branch 54, Macabebe, Pampanga is hereby SET ASIDE;
the Court instead finds appellant Gumercindo Quilaton guilty of HOMICIDE. Applying the Indeterminate Sentence
Law, appellant is hereby SENTENCED to suffer imprisonment for an indeterminate period ranging from ten (10)
yearsas minimum to seventeen (17) years and four (4) months as maximum. Appellant is ORDERED to pay the
heirs of Rolando Manahan the following amounts:
1.

P50,000.00 as indemnity for death;

2. P26,445.00 as actual damages;

3. P114,000.00 by way of lost earnings;
4. P10,000.00 by way of educational assistance to Rolando Manahan's two (2) sisters; and
5. P20,000.00 as moral
damages. Costs

upon death Lx L = number of

against appellant.
SO ORDERED.

people in
G.R. No. 189871

sample surviving after x number of years

August 13, 2013

DARIO NACAR, PETITIONER,

vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the Decision 1 dated September 23, 2008 of the Court of
Appeals (CA) in CA-G.R. SP No. 98591, and the Resolution2 dated October 9, 2009 denying petitioners
motion for reconsideration.
The factual antecedents are undisputed.
Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the National
Labor Relations Commission (NLRC) against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr.,
docketed as NLRC NCR Case No. 01-00519-97.

On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and found that he was
dismissed from employment without a valid or just cause. Thus, petitioner was awarded backwages and separation
pay in lieu of reinstatement in the amount of P158,919.92. The dispositive portion of the decision, reads:
With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that
complainant was dismissed from employment for a just or valid cause. All the more, it is clear from the records
that complainant was never afforded due process before he was terminated. As such, we are perforce
constrained to grant complainants prayer for the payments of separation pay in lieu of reinstatement to his
former position, considering the strained relationship between the parties, and his apparent reluctance to be
reinstated, computed only up to promulgation of this decision as follows:

SEPARATION PAY
Date Hired

August 1990

Rate

P198/day

Date of Decision

Aug. 18, 1998

Length of Service

8 yrs. & 1 month

Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no reversible
error on the part of the CA, this Court denied the petition in the Resolution dated April 17, 2002.8
An Entry of Judgment was later issued certifying that the resolution became final and executory on May 27,
2002.9 The case was, thereafter, referred back to the Labor Arbiter. A pre-execution conference was
consequently scheduled, but respondents failed to appear.10

P198.00 x 26 days x 8 months = P41,184.00

On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be
computed from the date of his dismissal on January 24, 1997 up to the finality of the Resolution of the Supreme
Court on May 27, 2002.11 Upon recomputation, the Computation and Examination Unit of the NLRC arrived at
an updated amount in the sum of P471,320.31.12

BACKWAGES
Date Dismissed

January 24, 1997

Rate per day

P196.00

Date of Decisions

Aug. 18, 1998

On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff to collect from
respondents the total amount of P471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing,
among other things, that since the Labor Arbiter awarded separation pay of P62,986.56 and limited backwages
ofP95,933.36, no more recomputation is required to be made of the said awards. They claimed that after the
decision becomes final and executory, the same cannot be altered or amended anymore.14 On January 13, 2003,

a) 1/24/97 to 2/5/98 = 12.36 mos.

P196.00/day x 12.36 mos.

= P62,986.56

the Labor Arbiter issued an Order15 denying the motion. Thus, an Alias Writ of Execution16 was issued on
January 14, 2003.

b) 2/6/98 to 8/18/98 = 6.4 months

Prevailing Rate per day

= P62,986.00

P198.00 x 26 days x 6.4 mos.

= P32,947.20
TOTAL

Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution17 granting the
appeal in favor of the respondents and ordered the recomputation of the judgment award.

= P95.933.76

xxxx
WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive
dismissal and are therefore, ordered:
To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six pesos and
56/100 (P62,986.56) Pesos representing his separation pay;
To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-three and
36/100 (P95,933.36) representing his backwages; and

On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final and
executory. Consequently, another pre-execution conference was held, but respondents failed to appear on
time. Meanwhile, petitioner moved that an Alias Writ of Execution be issued to enforce the earlier recomputed
judgment award in the sum of P471,320.31.18
The records of the case were again forwarded to the Computation and Examination Unit for recomputation, where
the judgment award of petitioner was reassessed to be in the total amount of only P147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original amount as
determined by the Labor Arbiter in his Decision dated October 15, 1998, pending the final computation of his
backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award that was
due to petitioner in the amount of P147,560.19, which petitioner eventually received.

All other claims are hereby dismissed for lack

of merit. SO ORDERED.4
Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution5 dated February 29,
2000. Accordingly, the NLRC sustained the decision of the Labor Arbiter. Respondents filed a motion for
reconsideration, but it was denied.6
Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the CA
issued a Resolution dismissing the petition. Respondents filed a Motion for Reconsideration, but it was likewise
denied in a Resolution dated May 8, 2001.7

Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to include
the appropriate interests.19
On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the amount
ofP11,459.73. The Labor Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced
considering that it was the one that became final and executory. However, the Labor Arbiter reasoned that since
the decision states that the separation pay and backwages are computed only up to the promulgation of the said
decision, it is the amount
of P158,919.92 that should be executed. Thus, since petitioner already receivedP147,560.19, he is only entitled
to the balance of P11,459.73.

Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its Resolution22 dated
September 27, 2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in the
Resolution23dated January 31, 2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision24 denying the petition. The CA opined that since petitioner
no longer appealed the October 15, 1998 Decision of the Labor Arbiter, which already became final and
executory, a belated correction thereof is no longer allowed. The CA stated that there is nothing left to be done
except to enforce the said judgment. Consequently, it can no longer be modified in any respect, except to correct
clerical errors or mistakes.
Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution25 dated October 9,
2009. Hence, the petition assigning the lone error:
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED GRAVE
ABUSE OF DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED
RESOLUTIONS OF THE NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF LABOR
ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE OCTOBER 15, 1998 DECISION OF LABOR
ARBITER LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF THE SAME
DECISION.26
Petitioner argues that notwithstanding the fact that there was a computation of backwages in the Labor Arbiters
decision, the same is not final until reinstatement is made or until finality of the decision, in case of an award of
separation pay. Petitioner maintains that considering that the October 15, 1998 decision of the Labor Arbiter did
not become final and executory until the April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was
entered in the Book of Entries on May 27, 2002, the reckoning point for the computation of the backwages and
separation pay should be on May 27, 2002 and not when the decision of the Labor Arbiter was rendered on
October 15, 1998.
Further, petitioner posits that he is also entitled to the payment of interest from the finality of the decision
until full payment by the respondents.
On their part, respondents assert that since only separation pay and limited backwages were awarded to
petitioner by the October 15, 1998 decision of the Labor Arbiter, no more recomputation is required to be made of
said awards.
Respondents insist that since the decision clearly stated that the separation pay and backwages are "computed
only up to [the] promulgation of this decision," and considering that petitioner no longer appealed the decision,
petitioner is only entitled to the award as computed by the Labor Arbiter in the total amount ofP158,919.92.
Respondents added that it was only during the execution proceedings that the petitioner questioned the award,
long after the decision had become final and executory. Respondents contend that to allow the further
recomputation of the backwages to be
awarded to petitioner at this point of the proceedings would substantially vary the decision of the Labor Arbiter as
it violates the rule on immutability of judgments.
The petition is meritorious.

The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth
Division),27 wherein the issue submitted to the Court for resolution was the propriety of the computation of the
awards made, and whether this violated the principle of immutability of judgment. Like in the present case, it was
a distinct feature of the judgment of the Labor Arbiter in the above-cited case that the decision already provided
for the computation of the payable separation pay and backwages due and did not further order the computation
of the monetary awards up to the time of the finality of the judgment. Also in Session Delights, the dismissed
employee failed to appeal the decision of the labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course of execution of the labor arbiter's
original computation of the awards made, pegged as of the time the decision was rendered and confirmed with
modification by a final CA decision, is legally proper. The question is posed, given that the petitioner did not
immediately pay the awards stated in the original labor arbiter's decision; it delayed payment because it
continued with the litigation until final judgment at the CA level.
A source of misunderstanding in implementing the final decision in this case proceeds from the way the original
labor arbiter framed his decision. The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been confirmed with finality. This
is the finding of the illegality of the dismissal and the awards of separation pay in lieu of reinstatement,
backwages, attorney's fees, and legal interests.
The second part is the computation of the awards made. On its face, the computation the labor arbiter made
shows that it was time-bound as can be seen from the figures used in the computation. This part, being merely a
computation of what the first part of the decision established and declared, can, by its nature, be re-computed.
This is the part, too, that the petitioner now posits should no longer be re-computed because the computation is
already in the labor arbiter's decision that the CA had affirmed. The public and private respondents, on the other
hand, posit that a re-computation is necessary because the relief in an illegal dismissal decision goes all the way
up to reinstatement if reinstatement is to be made, or up to the finality of the decision, if separation pay is to be
given in lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place, also
made a computation of the award, is understandable in light of Section 3, Rule VIII of the then NLRC Rules of
Procedure which requires that a computation be made. This Section in part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable, shall
embody in any such decision or order the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the finality of the labor arbiter's decision. As we
noted above, this implication is apparent from the terms of the computation itself, and no question would have
arisen had the parties terminated the case and implemented the decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of illegality as
well as on all the consequent awards made. Hence, the petitioner appealed the case to the NLRC which, in turn,
affirmed the labor arbiter's decision. By law, the NLRC decision is final, reviewable only by the CA on jurisdictional
grounds.
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a timely filed
Rule 65 petition for certiorari. The CA decision, finding that NLRC exceeded its authority in affirming the payment
of 13th month pay and indemnity, lapsed to finality and was subsequently returned to the labor arbiter of origin for
execution.

It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original labor
arbiter's decision, the implementing labor arbiter ordered the award re-computed; he apparently read the figures
up to the finality of the CA decision that fully terminated the case on the merits. Unfortunately, the labor arbiter's
approved computation went beyond the finality of the CA decision (July 29, 2003) and included as well the
payment for awards the final CA decision had deleted - specifically, the proportionate 13th month pay and the
indemnity awards. Hence, the CA issued the decision now questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered the
labor arbiter's original decision in accordance with its basic component parts as we discussed above. To reiterate,
the first part contains the finding of illegality and its monetary consequences; the second part is the computation of
the awards or monetary consequences of the illegal dismissal, computed as of the time of the labor arbiter's
original decision.28
Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed by the
petitioner, no essential change is made by a recomputation as this step is a necessary consequence that flows
from the nature of the illegality of dismissal declared by the Labor Arbiter in that decision.29 A recomputation (or

originally ordered to be paid to be the computation due had the case been terminated and implemented at the
labor arbiter's level. Thus, the labor arbiter re-computed the award to include the separation pay and the
backwages due
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 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated
May 16, 2013, approved the amendment of Section 234 of Circular No. 905, Series of 1982 and, accordingly,
issued Circular No. 799,35 Series of 2013, effective July 1, 2013, the pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing
the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905,
Series of 1982:

an original computation, if no previous computation has been made) is a part of the law specifically, Article 279
of the Labor Code and the established jurisprudence on this provision that is read into the decision. By the
nature of an illegal dismissal case, the reliefs continue to add up until full satisfaction, as expressed under Article
279 of the Labor Code. The recomputation of the consequences of illegal dismissal upon execution of the decision
does not constitute an alteration or amendment of the final decision being implemented. The illegal dismissal ruling
stands; only the computation of monetary consequences of this dismissal is affected, and this is not a violation of
the principle of immutability of final judgments.30

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed
in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per
annum.

That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is
the risk that it ran when it continued to seek recourses against the Labor Arbiter's decision. Article 279 provides for
the consequences of illegal dismissal in no uncertain terms, qualified only by jurisprudence in its interpretation of
when separation pay in lieu of reinstatement is allowed. When that happens, the finality of the illegal dismissal
decision becomes the reckoning point instead of the reinstatement that the law decrees. In allowing separation
pay, the final decision effectively declares that the employment relationship ended so that separation pay and
backwages are to be computed up to that point.31

This Circular shall take effect on 1 July 2013.

Appeals,32 the Court laid down the guidelines regarding the manner of computing legal interest, to wit:

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

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
2.absence
When an
a loan
or be
forbearance
of money,
breached,from
an interest
thefrom
of obligation,
stipulation,not
theconstituting
rate of interest
shall
12% per annum
to beiscomputed
default,on
i.e.,
amount
of
damages
awarded
may
be
imposed
at
the
discretion
of
the
court
at
the
rate
of
6%
per
annum.
No
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
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

Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and Sections
4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are
hereby amended accordingly.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per annum - as reflected in the case of Eastern Shipping
Lines40 and Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and
4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB
Circular No. 799
- but will now be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new
rate could only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per annum
legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum
shall be the prevailing rate of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral
Monetary Board,41 this Court affirmed the authority of the BSP-MB to set interest rates and to issue and enforce

Circulars when it ruled that "the BSP-MB may prescribe the maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money, goods or credits, including those for loans of low priority such
as consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions.
It even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings,
including deposits and deposit substitutes, or loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said
judgments shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein.1awp++i1

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines42 are
accordingly modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts
is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of recoverable damages.1wphi1
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:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code),
but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged.
When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be
disturbed and shall continue to be implemented applying the rate of interest fixed therein.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CA-G.R.
SP No. 98591, and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are
Ordered to Pay petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May
27, 2002, when the Resolution of this Court in G.R. No. 151332 became final and executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per year
of service; and
(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27,
2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until their full satisfaction.
The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits awarded
and due to petitioner in accordance with this Decision.
SO ORDERED.

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC.,
petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee
P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to
all the rights of action of said consignee against defendants (per "Form of Subrogation",
"Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:

Alojada & Garcia and Jimenea, Dala & Zaragoza for

Defendants filed their respective answers, traversing the material allegations of the complaint
contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in
good order from the vessel unto the custody of Metro Port Service so that any damage/losses
incurred after the shipment was incurred after the shipment was turned over to the latter, is no
longer its liability (p. 17, Record); Metroport averred that although subject shipment was
discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied
Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for
the shipment was already in damage and bad order condition when received by it, but nonetheless,
it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee
in the same condition shipment was received by it.

petitoner. Zapa Law Office for private respondent.

VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of
goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the
customs broker;
(b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the
complaint is filed or from the date the decision appealed from is rendered; and (c) whether the applicable
rate of interest, referred to above, is twelve percent (12%) or six percent (6%).

From the evidence the court found the

following: The issues are:

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that
have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and brokerforwarder for damages sustained by a shipment while in defendants' custody, filed by the
insurer-subrogee who paid the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for
delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under
Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No.
81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the
custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in
bad order, which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from
defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad
Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the
shipment to the consignee's warehouse. The latter excepted to one drum which contained
spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No.
10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the consignee
suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims
were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K,
L).

1.

Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained while in the custody
of defendants (in whose respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the losses/damages (see
plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting
plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two drums were shipped in good order and condition, as
clearly shown by the Bill of Lading and Commercial Invoice which do not
indicate any damages drum that was shipped (Exhs. B and C). But when on
December 12, 1981 the shipment was delivered to defendant Metro Port
Service, Inc., it excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that the losses/damages
were sustained while in the respective and/or successive custody and
possession of defendants carrier (Eastern), arrastre operator (Metro Port) and
broker (Allied Brokerage). This becomes evident when the Marine Cargo
Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In
the latter notes, it is stated that when the shipment was "landed on vessel" to
dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was
observed that "one (1) fiber drum (was) in damaged condition, covered by the
vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states
that when defendant Allied Brokerage withdrew the shipment from defendant
arrastre operator's custody on January 7, 1982, one drum was found opened
without seal, cello bag partly torn but contents intact. Net unrecovered
spillages was

15 kgs. The report went on to state that when the drums reached the
consignee, one drum was found with adulterated/faked contents. It is obvious,
therefore, that these losses/damages occurred before the shipment reached
the consignee while under the successive custodies of defendants. Under Art.
1737 of the New Civil Code, the common carrier's duty to observe
extraordinary diligence in the vigilance of goods remains in full force and
effect even if the goods are temporarily unloaded and stored in transit in the
warehouse of the carrier at the place of destination, until the consignee has
been advised and has had reasonable opportunity to remove or dispose of the
goods (Art. 1738, NCC).
Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order
Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was
found "open".
and thus
held:

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on
the part of the appellate court when
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE
ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE
RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT
SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE
RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE
DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER
ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel.
Indeed, we do have a fairly good number of previous decisions this Court can merely tack to.

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per
annum from October 1, 1982, the date of filing of this complaints, until
fully paid (the liability of defendant Eastern Shipping, Inc. shall not
exceed US$500 per case or the CIF value of the loss, whichever is
lesser, while the liability of defendant Metro Port Service, Inc. shall be to
the extent of the actual invoice value of each package, crate box or
container in no case to exceed P5,000.00 each, pursuant to Section
6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and
crossclaim of defendant/cross-claimant
Allied Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's
recourse to US. The appeal
is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion drawn
therefrom is correct. As there is sufficient evidence that the shipment sustained damage while
in the successive possession of appellants, and therefore they are liable to the appellee, as
subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the
articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for
transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled
to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar
Steamship Lines, 52 Phil.
863). When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the
carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it
liable (Art.
1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of
Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed
but these cases, enumerated in Article 1734 1 of the Civil Code, are exclusive, not one of which can be applied to
this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the
goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port
Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in
solidum,thus:
The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The
relationship between the consignee and the common carrier is similar to that of the consignee
and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]).
Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody
and to deliver them in good condition to the consignee, such responsibility also devolves
upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the
obligation to deliver the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are
themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a
given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which,
being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in
this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is

sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the
herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole
petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing
remark. Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and
pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its
complaint that the total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This
demand, however, was neither established in its totality nor definitely ascertained. In the stipulation of facts later
entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered
judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee
Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint was filed on 28
December 1962 until full payment thereof. The appellants then assailed,inter alia, the award of legal interest. In
sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a stipulation, is the
legal rate. Such interest normally is allowable from the date of demand, judicial or
extrajudicial. The trial court opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be
recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty." And as was held by this Court in Rivera vs. Perez, 4
L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not known until
definitely ascertained, assessed and determined by the courts after proof (Montilla c.
Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)
The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to
Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party
defendants and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly
and severally the following persons:

(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is
the value of the boat F B Pacita III together with its accessories, fishing gear and equipment
minus P80,000.00 which is the value of the insurance recovered and the amount of
P10,000.00 a month as the estimated monthly loss suffered by them as a result of the fire of
May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as
of June 4, 1972 with legal interest from the filing of the complaint until paid and to pay
attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs.
(Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained
the trial court in adjudging legal interest from the filing of the complaint until fully paid. When the
appellate court's decision became final, the case was remanded to the lower court for execution, and
this was when the trial court issued its assailed resolution which applied the 6% interest per annum
prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners
contended that Central Bank Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary
Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest
for the loan, or forbearance of any money, goods, or credits and the rate allowed in
judgments, in the absence of express contract as to such rate of interest, shall be twelve
(12%) percent per annum. This Circular shall take effect immediately. (Emphasis found in the
text)
should have, instead, been applied. This Court 6 ruled:
The judgments spoken of and referred to are judgments in litigations involving loans or
forbearance of any money, goods or credits. Any other kind of monetary judgment which has
nothing to do with, nor involving loans or forbearance of any money, goods or credits does not
fall within the coverage of the said law for it is not within the ambit of the authority granted to
the Central Bank.
x
x
x

x
x
x

x
x
x

x
x
x

x
x
x

x
x
x

Coming to the case at bar, the decision herein sought to be executed is one rendered in an
Action for Damages for injury to persons and loss of property and does not involve any loan,
much less forbearances of any money, goods or credits. As correctly argued by the private
respondents, the law applicable to the said case is Article 2209 of the New Civil Code which
reads

Art. 2209. If the obligation consists in the 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 interest agreed upon,
and in the absence of stipulation, the legal interest which is six percent
per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986. The
case was for damages occasioned by an injury to person and loss of property. The trial court awarded private
respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest
thereon from the filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court 8

modified the interest award from 12% to 6% interest per annum but sustained the time computation thereof, i.e.,
from the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages arising
from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the
date of the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the
lower
court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on
03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special
and environmental circumstances of this case, we deem it reasonable to render a decision
imposing, as We do hereby impose, upon the defendant and the third-party defendants (with
the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00)
Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss of
the building (including interest charges and lost rentals) and an additional ONE HUNDRED
THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable
upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent
interest per annum shall be imposed upon aforementioned amounts from finality until paid.
Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta).
(Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of twelve
(12%) per cent per annum imposed on the total amount of the monetary award was in contravention of
law." The Court 10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases
and, in its resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to Central Bank
Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any
money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or
forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143
SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the
instant case, there is neither a loan or a forbearance, but then no interest is actually imposed
provided the sums referred to in the judgment are paid upon the finality of the judgment. It is
delay in the payment of such final judgment, that will cause the imposition of the interest.

It will be noted that in the cases already adverted to, the rate of interest is imposed on the
total sum, from the filing of the complaint until paid; in other words, as part of the judgment
for damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 11 was a petition
for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court
reducing the amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and
P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount of damages awarded by
the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest
thereon at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this
Court, while recognizing the right of the private respondent to recover damages, held the award, however, for
moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The Court 12 thus set
aside the decision of the appellate court and rendered a new one, "ordering the petitioner to pay private
respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which arose from a breach
of employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral
and exemplary damages without, however, providing any legal interest thereon. When the decision was appealed
to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental
dated October 31, 1972 is affirmed in all respects, with the modification that defendantsappellants, except defendant-appellant Merton Munn, are ordered to pay, jointly and
severally, the amounts stated in the dispositive portion of the decision, including the sum of
P1,400.00 in concept of compensatory damages, with interest at the legal rate from the
date of the filing of the complaint until fully paid(Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to the trial
court, and an entry of judgment was made. The writ of execution issued by the trial court directed that
only compensatory damages should earn interest at 6% per annum from the date of the filing of the
complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari
assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal
rate"from the time of the filing of the complaint. . . Said circular [Central Bank Circular No.
416] does not apply to actions based on a breach of employment contract like the case at
bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed from the time
the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs. Angas, 14decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a
hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private respondents
certain sums of money as just compensation for their lands so expropriated "with legal interest thereon . . . until
fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court 15 declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or

credits but expropriation of certain parcels of land for a public purpose, the payment of which
is without stipulation regarding interest, and the interest adjudged by the trial court is in the
nature of indemnity for damages. The legal interest required to be paid on the amount of just
compensation for the properties expropriated is manifestly in the form of indemnity for
damages for the delay in the payment thereof. Therefore, since the kind of interest involved
in the joint judgment of the lower court sought to be enforced in this case is interest by way of
damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into
two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court.
The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v.
Cruz(1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance
Company v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express
International v.Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12%
(under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a
The ostensible discord is not difficult to explain. The factual circumstances may have called for different
applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case,
on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest
the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is
breached, the contravenor can be held liable for damages. 19 The provisions under Title XVIII on "Damages"
of the Civil Code govern in determining the measure of recoverable damages. 20
II.With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate
of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing. 21 Furthermore, the
interest due shall itself earn legal interest from the time it is judicially demanded. 22 In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code.

consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or
forbearance 16 of money, goods or credits, as well as to judgments involving such loan or forbearance of money,
goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the
payment of indemnities in the concept of damage arising from the breach or a delay in the performance of
obligations in general. Observe, too, that in these cases, a common time frame in the computation of the 6%
interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully
paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per
annum, 17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of
indemnity for damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding
that the running of the legal interest should be from the time of the filing of the complaint until fully paid, the
"second group" varied on the commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a
quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof,' then, interest 'should be from the date of the decision.'"
American Express International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering
it to be "computed from the finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest
per annum should be imposed from the finality of the decision until the judgment amount is paid.
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 24 at the rate of 6% per annum. 25 No interest,
however, shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. 26 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 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION
that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall
be imposed on such amount upon finality of this decision until the payment thereof.
SO ORDERED.

G.R. No. 104235 November 18, 1993

SPOUSES CESAR & SUTHIRA ZALAMEA and LIANA ZALAMEA, petitioners,
vs.
HONORABLE COURT OF APPEALS and TRANSWORLD AIRLINES, INC., respondents.
Sycip, Salazar, Hernandez, Gatmaitan for petitioners.
Quisumbing, Torres & Evangelista for privaterespondent.

NOCON, J.:
Disgruntled over TransWorld Airlines, Inc.'s refusal to accommodate them in TWA Flight 007 departing from New
York to Los Angeles on June 6, 1984 despite possession of confirmed tickets, petitioners filed an action for
damages before the Regional Trial Court of Makati, Metro Manila, Branch 145. Advocating petitioner's position,
the trial court categorically ruled that respondent TransWorld Airlines (TWA) breached its contract of carriage with
petitioners and that said breach was "characterized by bad faith." On appeal, however, the appellate court found
that while there was a breach of contract on respondent TWA's part, there was neither fraud nor bad faith

because under the Code of Federal Regulations by the Civil Aeronautics Board of the United States of America it
is allowed to overbook flights.
The factual backdrop of the case is as follows:
Petitioners-spouses Cesar C. Zalamea and Suthira Zalamea, and their daughter, Liana Zalamea, purchased three
(3) airline tickets from the Manila agent of respondent TransWorld Airlines, Inc. for a flight to New York to Los
Angeles on June 6, 1984. The tickets of petitioners-spouses were purchased at a discount of 75% while that of
their daughter was a full fare ticket. All three tickets represented confirmed reservations.
While in New York, on June 4, 1984, petitioners received notice of the reconfirmation of their reservations for said
flight. On the appointed date, however, petitioners checked in at 10:00 a.m., an hour earlier than the scheduled
flight at 11:00 a.m. but were placed on the wait-list because the number of passengers who had checked in
before them had already taken all the seats available on the flight. Liana Zalamea appeared as the No. 13 on the
wait-list while the two other Zalameas were listed as "No. 34, showing a party of two." Out of the 42 names on the
wait list, the first 22 names were eventually allowed to board the flight to Los Angeles, including petitioner Cesar
Zalamea. The two others, on the other hand, at No. 34, being ranked lower than 22, were not able to fly. As it
were, those holding full- fare tickets were given first priority among the wait-listed passengers. Mr. Zalamea, who
was holding the full-fare ticket of his daughter, was allowed to board the plane; while his wife and daughter, who
presented the discounted tickets were denied boarding. According to Mr. Zalamea, it was only later when he
discovered the he was holding his daughter's full-fare ticket.
Even in the next TWA flight to Los Angeles Mrs. Zalamea and her daughter, could not be accommodated because
it was also fully booked. Thus, they were constrained to book in another flight and purchased two tickets from
American Airlines at a cost of Nine Hundred Eighteen ($918.00) Dollars.
Upon their arrival in the Philippines, petitioners filed an action for damages based on breach of contract of air
carriage before the Regional Trial Court of Makati, Metro Manila, Branch 145. As aforesaid, the lower court ruled in
favor of petitioners in its decision 1 dated January 9, 1989 the dispositive portion of which states as follows:
WHEREFORE, judgment is hereby rendered ordering the defendant to pay plaintiffs the
following amounts:
(1) US $918.00, or its peso equivalent at the time of payment representing the price of the
tickets bought by Suthira and Liana Zalamea from American Airlines, to enable them to fly to
Los Angeles from New York City;
(2) US $159.49, or its peso equivalent at the time of payment, representing the price of
Suthira Zalamea's ticket for TWA Flight 007;
(3) Eight Thousand Nine Hundred Thirty-Four Pesos and Fifty Centavos (P8,934.50,
Philippine Currency, representing the price of Liana Zalamea's ticket for TWA Flight 007,
(4) Two Hundred Fifty Thousand Pesos (P250,000.00), Philippine Currency, as moral damages
for all the plaintiffs'
(5) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as and for attorney's
fees; and
(6) The costs of suit.
SO ORDERED. 2

On appeal, the respondent Court of Appeals held that moral damages are recoverable in a damage suit
predicated upon a breach of contract of carriage only where there is fraud or bad faith. Since it is a matter of
record that overbooking of flights is a common and accepted practice of airlines in the United States and is
specifically allowed under the Code of Federal Regulations by the Civil Aeronautics Board, no fraud nor bad faith
could be imputed on respondent TransWorld Airlines.
Moreover, while respondent TWA was remiss in not informing petitioners that the flight was overbooked and that
even a person with a confirmed reservation may be denied accommodation on an overbooked flight, nevertheless
it ruled that such omission or negligence cannot under the circumstances be considered to be so gross as to
amount to bad faith.
Finally, it also held that there was no bad faith in placing petitioners in the wait-list along with forty-eight (48) other
passengers where full-fare first class tickets were given priority over discounted tickets.
The dispositive portion of the decision of respondent Court of Appeals 3 dated October 25, 1991 states as follows:
WHEREFORE, in view of all the foregoing, the decision under review is hereby MODIFIED in
that the award of moral and exemplary damages to the plaintiffs is eliminated, and the
defendant- appellant is hereby ordered to pay the plaintiff the following amounts:
(1) US$159.49, or its peso equivalent at the time of the payment, representing the price of
Suthira Zalamea's ticket for TWA Flight 007;
(2) US$159.49, or its peso equivalent at the time of the payment, representing the price of
Cesar Zalamea's ticket for TWA Flight 007;
(3) P50,000.00 as and for attorney's fees.
(4) The costs of suit.
SO ORDERED. 4
Not satisfied with the decision, petitioners raised the case on petition for review on certiorari and alleged the
following errors committed by the respondent Court of Appeals, to wit:
I
.
. . . IN HOLDING THAT THERE WAS NO FRAUD OR BAD FAITH ON THE PART OF
RESPONDENT TWA BECAUSE IT HAS A RIGHT TO OVERBOOK FLIGHTS.
II.
. . . IN ELIMINATING THE AWARD OF EXEMPLARY DAMAGES.
III.
. . . IN NOT ORDERING THE REFUND OF LIANA ZALAMEA'S TWA TICKET AND
PAYMENT FOR THE AMERICAN AIRLINES
TICKETS. 5

That there was fraud or bad faith on the part of respondent airline when it did not allow petitioners to board their
flight for Los Angeles in spite of confirmed tickets cannot be disputed. The U.S. law or regulation allegedly
authorizing overbooking has never been proved. Foreign laws do not prove themselves nor can the courts take
judicial notice of them. Like any other fact, they must be alleged and proved. 6 Written law may be evidenced by
an official publication thereof or by a copy attested by the officer having the legal custody of the record, or by his
deputy, and accompanied with a certificate that such officer has custody. The certificate may be made by a
secretary of an embassy or legation, consul general, consul, vice-consul, or consular agent or by any officer in the
foreign service of the Philippines stationed in the foreign country in which the record is kept, and authenticated by
the seal of his office. 7
Respondent TWA relied solely on the statement of Ms. Gwendolyn Lather, its customer service agent, in her
deposition dated January 27, 1986 that the Code of Federal Regulations of the Civil Aeronautics Board allows
overbooking. Aside from said statement, no official publication of said code was presented as evidence. Thus,
respondent court's finding that overbooking is specifically allowed by the US Code of Federal Regulations has no
basis in fact.
Even if the claimed U.S. Code of Federal Regulations does exist, the same is not applicable to the case at bar in
accordance with the principle of lex loci contractus which require that the law of the place where the airline ticket
was issued should be applied by the court where the passengers are residents and nationals of the forum and the
ticket is issued in such State by the defendant airline. 8 Since the tickets were sold and issued in the Philippines,
the applicable law in this case would be Philippine law.
Existing jurisprudence explicitly states that overbooking amounts to bad faith, entitling the passengers concerned
to an award of moral damages. In Alitalia Airways v. Court of Appeals, 9 where passengers with confirmed
bookings were refused carriage on the last minute, this Court held that when an airline issues a ticket to a
passenger confirmed on a particular flight, on a certain date, a contract of carriage arises, and the passenger has
every right to expect that he would fly on that flight and on that date. If he does not, then the carrier opens itself to
a suit for breach of contract of carriage. Where an airline had deliberately overbooked, it took the risk of having to
deprive some passengers of their seats in case all of them would show up for the check in. For the indignity and
inconvenience of being refused a confirmed seat on the last minute, said passenger is entitled to an award of
moral damages.
Similarly, in Korean Airlines Co., Ltd. v. Court of Appeals, 10 where private respondent was not allowed to board
the plane because her seat had already been given to another passenger even before the allowable period for
passengers to check in had lapsed despite the fact that she had a confirmed ticket and she had arrived on time,
this Court held that petitioner airline acted in bad faith in violating private respondent's rights under their contract
of carriage and is therefore liable for the injuries she has sustained as a result.
In fact, existing jurisprudence abounds with rulings where the breach of contract of carriage amounts to bad
faith.
In Pan American World Airways, Inc. v. Intermediate Appellate Court, 11 where a would-be passenger had the
necessary ticket, baggage claim and clearance from immigration all clearly and unmistakably showing that she
was, in fact, included in the passenger manifest of said flight, and yet was denied accommodation in said flight,
this Court did not hesitate to affirm the lower court's finding awarding her damages.
A contract to transport passengers is quite different in kind and degree from any other contractual relation. So
ruled this Court in Zulueta v. Pan American World Airways, Inc. 12 This is so, for a contract of carriage generates

a relation attended with public duty a duty to provide public service and convenience to its passengers which
must be paramount to self-interest or enrichment. Thus, it was also held that the switch of planes from Lockheed
1011 to a smaller Boeing 707 because there were only 138 confirmed economy class passengers who could
very well be accommodated in the smaller planes, thereby sacrificing the comfort of its first class passengers for
the sake of
economy, amounts to bad faith. Such inattention and lack of care for the interest of its passengers who are entitled
to its utmost consideration entitles the passenger to an award of moral damages. 13
Even on the assumption that overbooking is allowed, respondent TWA is still guilty of bad faith in not informing its
passengers beforehand that it could breach the contract of carriage even if they have confirmed tickets if there
was overbooking. Respondent TWA should have incorporated stipulations on overbooking on the tickets issued or
to properly inform its passengers about these policies so that the latter would be prepared for such eventuality or
would have the choice to ride with another airline.
Respondent TWA contends that Exhibit I, the detached flight coupon upon which were written the name of the
passenger and the points of origin and destination, contained such a notice. An examination of Exhibit I does not
bear this out. At any rate, said exhibit was not offered for the purpose of showing the existence of a notice of
overbooking but to show that Exhibit I was used for flight 007 in first class of June 11, 1984 from New York to Los
Angeles.
Moreover, respondent TWA was also guilty of not informing its passengers of its alleged policy of giving less
priority to discounted tickets. While the petitioners had checked in at the same time, and held confirmed tickets,
yet, only one of them was allowed to board the plane ten minutes before departure time because the full-fare
ticket he was holding was given priority over discounted tickets. The other two petitioners were left behind.
It is respondent TWA's position that the practice of overbooking and the airline system of boarding priorities are
reasonable policies, which when implemented do not amount to bad faith. But the issue raised in this case is not
the reasonableness of said policies but whether or not said policies were incorporated or deemed written on
petitioners' contracts of carriage. Respondent TWA failed to show that there are provisions to that effect. Neither
did it present any argument of substance to show that petitioners were duly apprised of the overbooked condition
of the flight or that there is a hierarchy of boarding priorities in booking passengers. It is evident that petitioners
had the right to rely upon the assurance of respondent TWA, thru its agent in Manila, then in New York, that their
tickets represented confirmed seats without any qualification. The failure of respondent TWA to so inform them
when it could easily have done so thereby enabling respondent to hold on to them as passengers up to the last
minute amounts to bad faith. Evidently, respondent TWA placed its self-interest over the rights of petitioners under
their contracts of carriage. Such conscious disregard of petitioners' rights makes respondent TWA liable for moral
damages. To deter breach of contracts by respondent TWA in similar fashion in the future, we adjudge respondent
TWA liable for exemplary damages, as well.
Petitioners also assail the respondent court's decision not to require the refund of Liana Zalamea's ticket because
the ticket was used by her father. On this score, we uphold the respondent court. Petitioners had not shown with
certainty that the act of respondent TWA in allowing Mr. Zalamea to use the ticket of her daughter was due to
inadvertence or deliberate act. Petitioners had also failed to establish that they did not accede to said agreement.
The logical conclusion, therefore, is that both petitioners and respondent TWA agreed, albeit impliedly, to the
course of action taken.
The respondent court erred, however, in not ordering the refund of the American Airlines tickets purchased and
used by petitioners Suthira and Liana. The evidence shows that petitioners Suthira and Liana were constrained
to take the American Airlines flight to Los Angeles not because they "opted not to use their TWA tickets on
another TWA flight" but because respondent TWA could not accommodate them either on the next TWA flight

which was also fully booked. 14 The purchase of the American Airlines tickets by petitioners Suthira and Liana
was the consequence of respondent TWA's unjustifiable breach of its contracts of carriage with petitioners. In
accordance with Article 2201, New Civil Code, respondent TWA should, therefore, be responsible for all damages
which may be reasonably attributed to the non-performance of its obligation. In the previously cited case of
Alitalia Airways v. Court of Appeals, 15 this Court explicitly held that a passenger is entitled to be reimbursed for
the cost of the tickets he had to buy for a flight to another airline. Thus, instead of simply being refunded for the
cost of the unused TWA tickets, petitioners should be awarded the actual cost of their flight from New York to Los
Angeles. On this score, we differ from the trial court's ruling which ordered not only the reimbursement of the
American Airlines tickets but also the
refund of the unused TWA tickets. To require both prestations would have enabled petitioners to fly from New York
to Los Angeles without any fare being paid.
The award to petitioners of attorney's fees is also justified under Article 2208(2) of the Civil Code which allows
recovery when the defendant's act or omission has compelled plaintiff to litigate or to incur expenses to protect his
interest. However, the award for moral damages and exemplary damages by the trial court is excessive in the
light of the fact that only Suthira and Liana Zalamea were actually "bumped off." An award of P50,000.00 moral
G.R. No. 82146 January 22, 1990
EULOGIO
OCCENA,
petitioner, vs.
HON. PEDRO M. ICAMINA, Presiding Judge, Branch X of the Regional Trial Court Sixth Judicial Region,
San Jose, Antique; THE PEOPLE OF THE PHILIPPINES, represented by the Honorable Provincial Fiscal of
Antique; and CRISTINA VEGAFRIA, respondents.
Comelec Legal Assistance Office for petitioner.
Comelec Legal Assistance Officer for private respondent.

FERNAN, C.J.:
On May 31, 1979, herein petitioner Eulogio Occena instituted before the Second Municipal Circuit Trial Court of
Sibalom, San Remigio Belison, Province of Antique, Criminal Case No. 1717, a criminal complaint for Grave
Oral Defamation against herein private respondent Cristina Vegafria for allegedly openly, publicly and maliciously
uttering the following insulting words and statements: "Gago ikaw nga Barangay Captain, montisco, traidor,
malugus, Hudas," which, freely translated, mean: "You are a foolish Barangay Captain, ignoramus, traitor, tyrant,
Judas" and other words and statements of similar import which caused great and irreparable damage and injury to
his person and honor.
Private respondent as accused therein entered a plea of not guilty. Trial thereafter ensued, at which petitioner,
without reserving his right to file a separate civil action for damages actively intervened thru a private prosecutor.
After trial, private respondent was convicted of the offense of Slight Oral Defamation and was sentenced to pay a
fine of Fifty Pesos (P50.00) with subsidiary imprisonment in case of insolvency and to pay the costs. No damages
were awarded to petitioner in view of the trial court's opinion that "the facts and circumstances of the case as
adduced by the evidence do not warrant the awarding of moral damages." 1

damages and another P50,000.00 exemplary damages would suffice under the circumstances obtaining in the
instant case.
WHEREFORE, the petition is hereby GRANTED and the decision of the respondent Court of Appeals is hereby
MODIFIED to the extent of adjudging respondent TransWorld Airlines to pay damages to petitioners in the following
amounts, to wit:
(1) US$918.00 or its peso equivalent at the time of payment representing the price of the tickets bought by Suthira
and Liana Zalamea from American Airlines, to enable them to fly to Los Angeles from New York City;
(2) P50,000.00 as moral damages;
(3) P50,000.00 as exemplary damages;
(4) P50,000.00 as attorney's fees; and
(5) Costs of suit.
SO ORDERED.
Disagreeing, petitioner sought relief from the Regional Trial Court, which in a decision dated March 16, 1987
disposed of petitioner's appeal as follows:
IN VIEW OF ALL THE FOREGOING, the civil aspect of the lower court's decision of April 20,
1981 subject of this appeal, for lack of merit, is hereby DENIED.
After the decision shall have become final, remand the records of this case to the court of
origin, Second Municipal Circuit Trial Court of Sibalom, San Remigio-Belison, Antique, for the
execution of its decision on the criminal aspect.
SO ORDERED. 2
Petitioner is now before us by way of a petition for review on certiorari seeking to annul the RTC decision for being
contrary to Article 100 of the Revised Penal Code providing that every person criminally liable for a felony is also
civilly liable, and Article 2219 of the New Civil Code providing that moral damages may be recovered in libel,
slander or any other form of defamation. He submits that public respondent RTC erred in relying on the cases
ofRoa vs. de la Cruz, 107 Phil. 10 and Tan vs. Standard Vacuum Oil Co., et al., 91 Phil. 672 cited therein. He
differentiates said cases from the case at bar by saying that in the case of Roa, the decision of the trial court had
become final before Maria C. Roa instituted a civil action for damages; whereas in the instant case, the decision of
the trial court has not yet become final by reason of the timely appeal interposed by him and no civil action for
damages has been instituted by petitioner against private respondent for the same cause. Tan, on the other hand,
contemplates of two actions, one criminal and one civil, and the prosecution of the criminal case had resulted in
the acquittal of the accused, which is not the situation here where the civil aspect was impliedly instituted with the
criminal action in accordance with Section 1, Rule 111, of the Rules of Court.
Private respondent for her part argues that the decision of the trial court carries with it the final adjudication of her
civil liability. Since petitioner chose to actively intervene in the criminal action without reserving his right to file a
separate civil action for damages, he assumed the risk that in the event he failed to recover damages he cannot
appeal from the decision of the lower court.
We find merit in the petition.

The issues confronting us in the instant petition is whether or not the decision of the Second Municipal Trial Court
of Sibalom, San-Remigio-Belison, Province of Antique constitutes the final adjudication on the merits of private
respondent's civil liability; and whether or not petitioner is entitled to an award of damages arising from the
remarks uttered by private respondent and found by the trial court to be defamatory.
The decision of the Municipal Circuit Trial Court as affirmed by the Regional Trial Court in Criminal Case No.
1709 cannot be considered as a final adjudication on the civil liability of private respondent simply because said
decision has not yet become final due to the timely appeal filed by petitioner with respect to the civil liability of
the accused in said case. It was only the unappealed criminal aspect of the case which has become final.
In the case of People vs. Coloma, 105 Phil. 1287, we categorically stated that from a judgment convicting the
accused, two (2) appeals may, accordingly, be taken. The accused may seek a review of said judgment, as
regards both civil and criminal actions; while the complainant may appeal with respect only to the civil action,
either because the lower court has refused to award damages or because the award made is unsatisfactory to
him. The right of either to appeal or not to appeal in the event of conviction of the accused is not dependent upon
the other. Thus, private respondent's theory that in actively intervening in the criminal action, petitioner waived his
right to appeal from the decision that may be rendered therein, is incorrect and inaccurate. Petitioner may, as he
did, appeal from the decision on the civil aspect which is deemed instituted with the criminal action and such
appeal, timely taken, prevents the decision on the civil liability from attaining finality.
We tackle the second issue by determining the basis of civil liability arising from crime. Civil obligations arising
from criminal offenses are governed by Article 100 of the Revised Penal Code which provides that "(E)very
person criminally liable for a felony is also civilly liable," in relation to Article 2177 of the Civil Code on quasidelict, the provisions for independent civil actions in the Chapter on Human Relations and the provisions
regulating damages, also found in the Civil Code.
Underlying the legal principle that a person who is criminally liable is also civilly liable is the view that from the
standpoint of its effects, a crime has dual character: (1) as an offense against the state because of the disturbance
of the social order; and (2) as an offense against the private person injured by the crime unless it involves the
crime of treason, rebellion, espionage, contempt and others wherein no civil liability arises on the part of the
offender either because there are no damages to be compensated or there is no private person injured by the
crime. 3 In the ultimate analysis, what gives rise to the civil liability is really the obligation of everyone to repair or
to make whole the damage caused to another by reason of his act or omission, whether done intentional or
negligently and whether or not punishable by law. 4

In the case at bar, private respondent was found guilty of slight oral defamation and sentenced to a fine of
P50.00 with subsidiary imprisonment in case of insolvency, but no civil liability arising from the felonious act of
the accused was adjudged. This is erroneous. As a general rule, a person who is found to be criminally liable
offends two (2) entities: the state or society in which he lives and the individual member of the society or
private person who was injured or damaged by the punishable act or omission. The offense of which private
respondent was found guilty is not one of those felonies where no civil liability results because either there is
no offended party or no damage was caused to a private person. There is here an offended party, whose main
contention precisely is that he suffered damages in view of the defamatory words and statements uttered by
private respondent, in the amount of Ten Thousand Pesos (P10,000.00) as moral damages and the further sum
of Ten Thousand Pesos (P10,000) as exemplary damages.
Article 2219, par. (7) of the Civil Code allows the recovery of moral damages in case of libel, slander or any other
form of defamation This provision of law establishes the right of an offended party in a case for oral defamation to
recover from the guilty party damages for injury to his feelings and reputation. The offended party is likewise
allowed to recover punitive or exemplary damages.
It must be remembered that every defamatory imputation is presumed to be malicious, even if it be true, if no
good intention and justifiable motive for making it is shown. And malice may be inferred from the style and tone
of publication 5 subject to certain exceptions which are not present in the case at bar.
Calling petitioner who was a barangay captain an ignoramus, traitor, tyrant and Judas is clearly an imputation of
defects in petitioner's character sufficient to cause him embarrassment and social humiliation. Petitioner testified
to the feelings of shame and anguish he suffered as a result of the incident complained of. 6 It is patently error for
the trial court to overlook this vital piece of evidence and to conclude that the "facts and circumstances of the
case as adduced by the evidence do not warrant the awarding of moral damages." Having misapprehended the
facts, the trial court's findings with respect thereto is not conclusive upon us.
From the evidence presented, we rule that for the injury to his feelings and reputation, being a barangay
captain, petitioner is entitled to moral damages in the sum of P5,000.00 and a further sum of P5,000.00 as
exemplary damages.
WHEREFORE, the petition is hereby GRANTED. The decision of the Regional Trial Court is hereby MODIFIED
and private respondent is ordered to pay petitioner the amount of P5,000.00 as moral damages and another
P5,000.00 as exemplary damages. Costs against private respondent.
SO ORDERED.

G.R. No. 106664 March 8, 1995

The facts are uncontroverted.

PHILIPPINE AIR
LINES, petitioner, vs.
FLORANTE A. MIANO, respondent.

On August 31, 1988, private respondent took petitioner's flight PR 722, Mabuhay Class, bound for Frankfurt,
Germany. He had an immediate onward connecting flight via Lufthansa flight LH 1452 to Vienna, Austria. At the
Ninoy Aquino International Airport, he checked-in one brown suitcase weighing twenty (20) kilograms 2 but did not
declare a higher valuation. He claimed that his suitcase contained money, documents, one Nikkon camera with
zoom lens, suits, sweaters, shirts, pants, shoes, and other accessories. 3

PUNO, J.:
The petitioner questions the Decision of the Regional Trial Court of Makati, Branch 148, dated July 29,
1992, 1awarding private respondent moral and exemplary damages and attorney's fees for want of legal
justification. We grant the petition.

Upon private respondent's arrival at Vienna via Lufthansa flight LH 1452, his checked-in baggage was missing.
He reported the matter to the Lufthansa authorities. After three (3) hours of waiting in vain, he proceeded to
Piestany, Czechoslovakia. Eleven (11) days after or on September 11, 1988, his suitcase was delivered to him in
his hotel in Piestany, Czechoslovakia. He claimed that because of the delay in the delivery of his suitcase, he was

forced to borrow money to buy some clothes, to pay $200.00 for the transportation of his baggage from Vienna to
Piestany, and lost his Nikkon camera. 4
In November 1988, private respondent wrote to petitioner a letter demanding: (1) P10,000.00 cost of allegedly lost
Nikkon camera; (2) $200.00 for alleged cost of transporting luggage from Vienna to Piestany; and (3) P100,000.00
as damages. In its reply, petitioner informed private respondent that his letter was forwarded to its legal
department for investigation.
Private respondent felt his demand letter was left unheeded. He instituted an action for Damages docketed as
Civil Case No. 89-3496 before the Regional Trial Court of Makati.
Petitioner contested the complaint. It disclaimed any liability on the ground that there was neither a report of
mishandled baggage on flight PR 722 nor a tracer telex received from its Vienna Station. It, however, contended
that if at all liable its obligation is limited by the Warsaw Convention rate.
Petitioner filed a Third-Party Complaint against Lufthansa German Airlines imputing the mishandling of
private respondent's baggage, but was dismissed for its failure to prosecute.
In its decision, the trial court observed that petitioner's actuation was not attended by bad faith. Nevertheless, it
awarded private respondent damages and attorney's fees, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff (private respondent) and
against the defendant (petitioner), thereby ordering the latter to pay the following:
(a) U.S. $200.00 as cost of transporting the suitcase from
Vienna to Czechoslovakia;
(b) P40,000.00 as moral damages;
(c) P20,000.00 as exemplary damages; and
(d) P15,000.00 as attorney's fees.
SO ORDERED. 5
Hence, this petition for review.
In breach of contract of carriage by air, moral damages are awarded only if the defendant acted fraudulently or in
bad faith. 6 Bad faith means a breach of a known duty through same motive of interest or ill will. 7
The trial court erred in awarding moral damages to private respondent. The established facts evince that
petitioner's late delivery of the baggage for eleven (11) days was not motivated by ill will or bad faith. In fact, it
immediately coordinated with its Central Baggage Services to trace private respondent's suitcase and succeeded
in finding it. At the hearing, petitioner's Manager for Administration of Airport Services Department Miguel Ebio
testified that their records disclosed that Manila, the originating station, did not receive any tracer telex. 8 A tracer
telex, an airline lingo, is an action of any station that the airlines operate from whom a passenger may complain or
have not received his baggage upon his arrival. 9 It was reasonable to presume that the handling of the baggage
was normal and regular. Upon inquiry from their Frankfurt Station, it was however discovered that the interline tag
of private respondent's baggage was accidentally taken off. According to Mr. Ebio, it was customary for destination
stations to hold a tagless baggage until properly identified. The tracer telex, which contained information on the

baggage, is matched with the tagless luggage for identification. Without the tracer telex, the color and the type of
baggage are used as basis for the matching. Thus, the delay.
Worthy to stress, the trial court made an unequivocal conclusion that petitioner did not act in bad faith or with
malice, viz.:
x
x
x
x
x
x
x
x
x
Absent a finding as to the bad intention of defendant (petitioner) PAL, this court finds it
appropriate to apply the Warsaw Convention with respect to the liability of Air Carriers. 10
x
x
x
x
x
x
x
x
x
The mere fact that defendant (petitioner) exerted effort to assist plaintiff (private respondent)
in his predicament as shown in defendant's (petitioner's) letter to plaintiff (private
respondent) (Exh. "E") and likewise the letter from Mr. Miguel Ebio, Manager-Airport Services
Administration of defendant (petitioner) PAL to its Senior Counsel-Litigation, Atty. Marceliano
Calica (Exh. "3") which reveals the fact that an investigation was conducted as to
mishandled baggage, coupled with the fact that said information were then relayed to plaintiff
(private respondent) as evidenced by a letter of defendant (petitioner) to plaintiff (private
respondent) (Exh. "4") does not warrant a showing of malice on the part of defendant
( petitioner). 11
x
x
x
x
x

x
x
x
x
Under the circumstances obtaining, considering that defendant's (petitioner's) actuation was
not attendant with bad faith, the award of moral damages in the amount of P40,000.00 is but
just and fair. 12
Bad faith must be substantiated by evidence. In LBC vs. Court
of Appeals, 13 we ruled:
Bad faith under the law cannot be presumed; it must be established by clear and convincing
evidence. Again, the unbroken jurisprudence is that in breach of contract cases where the
defendant is not shown to have acted fraudulently or in bad faith, liability for damages is
limited to the natural and probable consequences of the breach of the obligation which the
G.R. No. L-45349 August 15, 1988
NEWTON JISON and SALVACION I. JOSUE
petitioners, vs.
COURT OF APPEALS and ROBERT 0. PHILLIPS & SONS, INC., respondents.
Ledesma, Saludo & Associates for petitioners.
Domicador L. Reyes and Magtanggol C. Gunigundo for respondents.

CORTES, J.:
The instant petition for review of the decision of the Court of Appeals poses the issue of the validity of the
rescission of a contract to sell a subdivision lot due to the failure of the lot buyer to pay monthly installments on
their due dates and the forfeiture of the amounts already paid.
The case is not one of first impression, and neither is it exceptional. On the contrary, it unambiguous. the
common plight of countless subdivision lot buyers.

parties had foreseen or could reasonably have foreseen. The damages, however, will not
include liability far moral damages. (Citations omitted)
We can neither sustain the award of exemplary damages. The prerequisite for the award of exemplary damages
in cases of contract or quasi-contract 14 is that the defendant acted in wanton, fraudulent, reckless, oppressive,
or malevolent manner. 15 The undisputed facts do not so warrant the characterization of the action of petitioner.
The award of attorney's fees must also be disallowed for lack of legal leg to stand on. The fact that private
respondent was compelled to litigate and incur expenses to protect and enforce his claim did not justify the award
of attorney's fees. The general rule is that attorney's fees cannot be recovered as part of damages because of the
policy that no premium should be placed on the right to litigate. 16 Petitioner is willing to pay the just claim of
$200.00 as a result of the delay in the transportation of the luggage in accord with the Warsaw Convention.
Needless to say, the award of attorney's fees must be deleted where the award of moral and exemplary damages
are eliminated.
IN VIEW WHEREOF, the assailed Decision of July 29, 1992 is MODIFIED deleting the award of moral and
exemplary damages and attorney's fees. No costs.
SO ORDERED.
On January 1, 1966, February 1, 1966 and March 1, 1966, petitioners failed to pay the monthly installments due
on said dates although petitioners subsequently paid the amounts due and these were accepted by private
respondent.
Again on October 1, 1966, November 1, 1966, December 1, 1966 and January 1, 1967, petitioners failed to pay.
On January 11, 1967, private respondent sent a letter (Exh. "3") to petitioners calling their attention to the fact
that their account was four months overdue. This letter was followed up by another letter dated February 27,
1967 (Exh. "3") where private respondent reminded petitioner of the automatic rescission clause of the contract.
Petitioners eventually paid on March 1, 1967.
Petitioners again failed to pay the monthly installments due on February 1, 1967, March 1, 1967 and April 1,
1967. Thus, in a letter dated April 6, 1967 (Exh. "D"), private respondent returned petitioners' check and informed
them that the contract was cancelled when on April 1, 1987 petitioners failed to pay the monthly installment due,
thereby making their account delinquent for three months.
On April 19, 1967, petitioners tendered payment for all the installments already due but the tender was refused.
Thus, petitioners countered by filing a complaint for specific performance with the Court of First Instance of Rizal
on May 4, 1967 and consigning the monthly installments due with the court.

Petitioners, the spouses Newton and Salvacion Jison, entered into a Contract to Sell with private respondent,
Robert
O. Phillips & Sons, Inc., whereby the latter agreed to sell to the former a lot at the Victoria Valley
Subdivision in Antipolo, Rizal for the agreed price of P55,000.00, with interest at 8,1965 per annum,
payable on an installment basis.

Following the hearing of the case, wherein the parties entered into a stipulation of facts, the trial court on January
9, 1969 rendered judgment in favor of private respondent, dismissing the complaint and declaring the contract
cancelled and all payments already made by petitioner franchise. ordering petitioners to pay P1,000.00 as and for
attorney's fees; and declaring the consignation and tender of payment made by petitioners as not amounting to
payment of the corresponding monthly installments.

Pursuant to the contract, petitioners paid private respondents a down payment of P11,000.00 on October 20,
1961 and from October 27, 1961; to May 8, 1965 a monthly installment of P533.85.

Not satisfied with the decision of the trial court, petitioners appealed to the Court of Appeals. Agreeing with the
findings and conclusions of the trial court, the Court of Appeals on November 4, 1976 affirmed the former's
decision.

Thereafter, due to the failure of petitioners to build a house as provided in the contract, the stipulated penalty of
P5.00 per square meter was imposed to the effect that the monthly amortization was increased to P707.24.

Thus, the instant petition for review.

In assailing the decision of the Court of Appeals, petitioners attributed the following
errors: I
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS HAVE
SUBSTANTIALLY, COMPLIED WITH THE TERMS OF THEIR AGREEMENT WITH PRIVATE RESPONDENTS.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE CONTRACT TO SELL MAY BE
AUTOMATICALLY RESCINDED AND PRIVATE RESPONDENT MAY UNILATERALLY RESCINDED SAID
CONTRACT AND REJECT THE CONSIGNATION OF PAYMENTS MADE BY PETITIONERS, WHICH ACTIONS
OF PRIVATE RESPONDENT ARE HIGHLY INIQUITOUS AND UNCONSCIONABLE.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE RESPONDENT'S ACT
OF FORFEITING ALL PREVIOUS PAYMENTS MADE BY PETITIONERS IS CONTRARY TO LAW, HIGHLY
INIQUITOUS AND UNCONSCIONABLE. [Petitioners' Brief, pp. 13-27.]
As stated at the outset, the principal issue in this case is the legality of the rescission of the contract and the
forfeiture of the payments already made by petitioners.
To support the rescission and forfeiture private respondent falls back on paragraph 3 of the contract which
reads:
This contract shall be considered automatically rescinded and cancelled and of no further
force and effect, upon the failure of the Vendee to pay when due Three (3) or more
consecutive monthly installments mentioned in Paragraph 2 of this Contract, or to comply
with any of the terms and conditions hereof, in which case the Vendor shall have the right to
resell the said parcel of land to any Vendee and any amount derived from the sale on account
hereof shall be forfeited in favor of the Vendor as liquidated damages for the breach of the
Contract by the Vendee, the latter hereby renouncing and reconveying absolutely and forever
in favor of the Vendor all rights and claims to and for all the amount paid by the Vendee on
account of the Contract, as well as to and for all compensation of any kind, hereby also
agreeing in this connection, to forthwith vacate the said property or properties peacefully
without further advise of any kind.
Since the contract was executed and cancelled prior to the effectivity of Republic Act No. 65856, (the Realty
Installment Buyers', Protection Act) and Presidential Decree No. 957 (the Subdivision and Condominium Buyers'
Protective Decree), it becomes necessary to resort to jurisprudence and the general provisions of law to resolve
the controversy.
The decision in the recent case of Palay, Inc. v. Clave [G.R. No. L-56076, September 21, 1983, 124 SCRA
7,1969, factions the resolution of the controversy. In deciding whether the rescission of the contract to sell a
subdivision lot after the lot buyer has failed to pay several installments was valid, the Court said:
Well settled is the rule, as held in previous k.- [Torralba v. De los Angeles, 96 SCRA 69,
Luzon Brokerage Co., Inc. v. Maritime Building Co., 43 SCRA 93 and 86 SCRA 305; Lopez
v.

Commissioner of Customs, 37 SCRA 327; U.P. v. De los Angeles, 35 SCRA 102; Ponce Enrile
v. CA, 29 SCRA 504; Froilan v. Pan Oriental Shipping Co., 12 SCRA 276; Taylor v. Uy Tieng
Piao; 43 Phil. 896, that judicial action for the rescission of a contract is not necessary where
the contract provides that it may be cancelled for violation of any of its terms and conditions.
However, even in the cited cases, there was at least a written notice sent to the degeneration,
informing him of the
rescission. As stressed in University of the Philippines v. Walfrido de los Angeles [35
SCRA 102] the act of a party in treating a contract as cancelled should be made known to
the other....
xxx xxx xxx
In other words, resolution of reciprocal contracts may be made extrajudicially unless
successfully impugned in Court. If the debtor impugns the declaration it shall be subject to
judicial determination.
In this case, private respondent has denied that rescission is justified and has resorted to
judicial action. It is now for the Court to determine whether resolution of the contract by
petitioner was warranted.
We hold that resolution by petitioners of the contract was ineffective and inoperative against
private respondent for lack of notice of resolution, as held in the U.P. v. Angeles case, supra.
xxx xxx xxx
The indispensability of notice of cancellation to the buyer was to be later underscored in
Republic Act No. 65856, entitled "An Act to Provide Protection to Buyers of Real Estate on
Installment Payments." which took effect on September 14-15). when it specifically
provided:
Sec. 3 (b) ... the actual cataract, of the contract shall take place thirty days from receipt by
the buyer of the notice of cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to the buyer.
There is no denying that in the instant case the resolution or rescission of the Contract to Sell was valid. Neither
can it be said that the cancellation of the contract was ineffective for failure of private respondents to give
petitioners notice thereof as petitioners were informed cancelled private respondent that the contract was
cancelled in the letter dated April 6, 1967 (Exh. "D"). As R.A. No. 65856, was not yet effective, the notice of
cancellation need not be by notarial act, private respondent's letter being sufficient compliance with the legal
requirement.
The facts of 'fee instant case should be distinguished from those in the Palay Inc. case, as such distinction will
explain why the Court in said case invalidated the resolution of the contract. In said case, the subdivision
developer, without informing the buyer of the cancellation of the contract, resold the lot to another person. The lot
buyer in said case was only informed of the resolution of the contract some six years later after the developer,
rejected his request for authority to assign his rights under the contract. Such a situation does not obtain illness:
the instant case. In fact, petitioners were informed of the cancellation of their contract in April 1967, when private
respondent wrote them the letter dated April 6, 1967 (Exh. "D"), and within a month they were able to file a
complaint against Private respondent.

While the resolution of the contract and the forfeiture of the amounts already paid are valid and binding upon
petitioners, the Court is convinced that the forfeiture of the amount of P5.00 although it includes the accumulated
fines for petitioners' failure to construct a house as required by the contract, is clearly iniquitous considering that
the contract price is only P6,173.15 The forfeiture of fifty percent (50%) of the amount already paid, or P3,283.75
appears to be a fair settlement. In arriving at this amount the Court gives weight to the fact that although
petitioners have been delinquent in paying their amortizations several times to the prejudice of private respondent,
with the cancellation of the contract the possession of the lot review.... to private respondent who is free to resell it
to another party. Also, had
R.A. No. 65856, been applicable to the instant case, the same percentage of the amount already paid would have
been forfeited [Torralba 3(b).]
The Court's decision to reduce the amount forfeited finds support in the Civil Code. As stated in paragraph 3 of
the contract, in case the contract is cancelled, the amounts already paid shall be forfeited in favor of the vendor
as liquidated damages. The Code provides that liquidated damages, whether intended as an indemnity or a
penalty, shall be equitably reduced if they are iniquitous or unconscionable [Art. 2227.]
Further, in obligations with a penal clause, the judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor [Art. 1229; Hodges v. Javellana, G.R. No. L17247, April 28, 1962, 4 SCRA 1228]. In this connection, the Court said:
It follows that, in any case wherein there has been a partial or irregular compliance with the
provisions in a contract for special indemnification in the event of failure to comply with its
G.R. No. 76093 March 21, 1989
AIR
FRANCE,
petitioner,
vs.
THE COURT OF APPEALS AND NARCISO O. MORALES, respondents.

terms, courts will rigidly apply the doctrine of strict construction and against the enforcement
in its entirety of the industry.' where it is clear from the terms of the contract that the amount or
character of the indemnity is fixed without regard to the probable damages which might be
anticipated as a result of a breach of the terms of the contract; or, in other words, where the
indemnity provided for is essentially a mere penalty having for its principal object the
enforcement of compliance with the corporations; (Laureano v. Kilayco, 32 Phil. 194 (1943).
This principle was reiterated in Makati Development Corp. v. Empire Insurance Co. [G.R. No. L-21780, June 30,
1967, 20 SCRA 557] where the Court affirmed the judgment of the Court of First Instance reducing the
subdivision lot buyer's liability from the stipulated P12,000.00 to Plaintiffs after finding that he had partially
performed his obligation to complete at least fifty percent (50%) of his house within two (2) years from March 31,
1961, fifty percent (50%) of the house having been completed by the end of April 1961.
WHEREFORE, the Decision of the Court of Appeals is hereby MODIFIED as to the amount forfeited which is
reduced to fifty percent (50%) of the amount already paid or P23,656.32 and AFFIRMED as to all other respects.
Private respondent is ordered to refund to petitioners the excess of P23,656.32 within thirty (30) days from the
date of finality of this judgment.
SO ORDERED.
The itinerary covered by the ticket included several cities, with certain segments thereof restricted by markings of
"non endorsable' and 'valid on AF (meaning Air France) only', as herein specified:
CARRIER EXPRESS
ITINERARY SPECIFIED RESTRICTIONS

Siguion Reyna, Montecillo & Ongsiako for

New York/Paris Air France NONENDORSABLE VALID ON AF

petitioner. Morales & Joyas Law Office for

ONLY Paris/Stockholm Air France NONENDORSABLE VALID

private respondent.

ON AF ONLY Stockholm/Copenhagen None

Copenhagen/L

PADILLA, J.:

ondon None

This is a petition for review on certiorari of the decision ** of the Court of Appeals, dated 1986, in CA-G.R. CV No.
69875, entitled"Narciso Morales vs. Air France," dismissing herein petitioner's appeal from the adverse ruling of the
trial court (Branch 33, CFI of Rizal, Kalookan City) ***and the latter's denial of its motion for reconsideration. The
respondent Court of Appeals likewise denied petitioner's motion for reconsideration of its decision in a resolution
dated 25 September 1986.

London/Amster

In reviewing the records, we find:

mburg None

Sometime in October 1977, private respondent Narciso Morales thru his representative, Ms. Janet Tolentino,
purchased an airline ticket from Aspac Management Corporation, petitioner's General Sales Agent in Makati, for P
9,426.00 plus P 1,413.90 travel tax, of which P 413.90 were later refunded to Ms. Tolentino.

dam None
Amsterdam/Ha

Humburg/Frank
furt None

Frankfurt/Paris Air France NONENDORSABLE VALID ON AF

ONLY Paris/Geneva Air France NONENDORSABLE VALID
ON AF ONLY Geneva/Madrid None
Madrid/Nice Air France NONENDORSABLE VALID ON AF ONLY
Nice/Rome Air France NONENDORSABLE VALID ON

Upon arrival in Manila, respondent sent a letter-complaint to Air France dated 20 December 1977 thru Aspac
Management Corporation. Respondent Morales was advised to surrender the unused flight coupons for a refund
of its value, but he kept the same and, instead, filed a complaint for breach of contract of carriage and damages.
CFI Judge Marcelino Sayo found Air France in evident bad faith for violation of the contract of carriage,
aggravated by the threatening attitude of its employees in Hamburg. Considering the social and economic
standing of respondent, who is chairman of the board of directors of a multi-million corporation and a member of
several civic and business organizations, an award of moral and exemplary damages, in addition to the actual
damages incurred, was deemed proper under the circumstances. The dispositive part of the CFI decision states:

AF ONLY Rome/Athens None

Athens/Tel Aviv None
Tel Avive/Bangkok Air France NONENDORSABLE VALID ON
AF ONLY Bangkok/Manila Air France NONENDORSABLE
VALID ON AF ONLY 1
While in New York, U.S.A. on 3 November 1977, private respondent Morales obtained three (3) medical
certificates (Exhibits G, G-1, G-2) attesting to ear an infection which necessitated medical treatment. From New
York, he flew to Paris, Stockholm and then Copenhagen where he made representations with petitioner's office
to shorten his trip by deleting some of the cities in the itinerary. Respondent Morales was informed that, as a
matter of procedure, confirmation of petitioner's office in Manila (as ticketing office) must be secured before
shortening of the route (already paid for). Air France in Amsterdam telexed AF Manila requesting for rerouting of
the passenger to Amsterdam, Hamburg, Geneva, Rome, Hongkong, Manila. 2
As there was no immediate response to the telex, respondent proceeded to Hamburg where he was informed of
AF Manila's negative reply. After reiterating his need to flying home on a shorter route due to his ear infection,
and presentation of supporting medical certificates, again, the airline office made the necessary request to
Manila on 23 November 1977 for a Hamburg, Paris, Geneva, Rome, Paris, Hongkong and Manila route. Still,
the request was denied. Despite respondent as protest and offer to pay any fare difference, petitioner did not
relent in its position.
Respondent, therefore, had to buy an entirely new set of tickets, paying 1,914 German marks for the
homeward route, namely:

WHEREFORE, this Court hereby renders judgment for the plaintiff and orders the defendant
to pay to the plaintiff the sum of 1,914 German Marks, in its equivalent in Philippine Peso, as
actual damages, the sum of P 1,000,000.00 as moral damages, and the further sum of P
800,000.00 as exemplary damages, with legal interest thereon from date of the filing of the
complaint until fully paid, plus the sum equal to 20% thereof as attorney's fees, with costs
against the plaintiff. 4
On appeal to the Court of Appeals, the award of damages was modified as follows:
ACCORDINGLY, the judgment appealed from is hereby modified so that it will read as
follows: Judgment is hereby rendered in favor of the plaintiff against the defendant ordering
ther defendant to pay to said plaintiff the following.
(1) 1,914 German Marks in its equivalent in Philippine peso at prevailing rate of exchange as
actual damages, with legal interest thereon from the date of the filing of the complaint until
fully paid;
(2) P 500,000.00, as moral damages;
(3) P 150,000.00, as exemplary damages; and
(4) 5% of the amount of actual, moral and exemplary damages which are recoverable, as
attorney's fees. 5
Questioning the factual findings of the respondent court, petitioner comes to this court for review citing three (3)
errors:
1. The conclusion that there is a breach of contract is premised on a misapprehension of facts.

Itinerary Carrier Date Reservation

2. Failure to apply the doctrine of avoidable consequence in the present case.

Hamburg/Frankfurt LH 26 Nov. OK

3. Award of exorbitant damages and attorney's fees.

(Lufthansa) Frankfurt/Geneva SR 26
Nov. OK (Swissair) Geneva/Rome AZ
29 Nov. OK (Alitalia) Rome/Hongkong
BA 02 Dec. OK (British Airways)
Hongkong/Manila PR Open Open (Philippine Airlines) 3

After considering respondent's comment, the Court resolved to give due courses to the petition, and required the
parties to file their respective memoranda. Complying with the resolution of 26 October 1987, private respondent
filed his reply memorandum on 17 December 1987. This is the last pleading on record.
While this Court is not a trier of facts, yet, when the findings of respondent court are without citation of specific
evidence on which they are based, there is sufficient reason for the Court to review the appellate court's
decision.6
The respondent court's ruling that there was breach of contract of carriage is premised on petitioner's refusal to
re- route respondent and, in effect, requiring him to purchase a new set of tickets. Petitioner refutes this

conclusion, claiming that the original ticket was discounted and non-endorsable on certain segments. Eventually
respondent flew on his chosen route with different airlines.

airline which issued those tickets with the knowledge that the respondents would be flown on
the various legs of their journey by different air carriers, the KLM was chargeable with the duty
and responsibility of specifically informing the respondents of conditions prescribed in their
tickets or in the very least, to ascertain that the respondent read them before they accepted
their passage tickets. A thorough search of the records, however, inexplicably fails to show
that any effort was exerted by the KLM officials or employees to discharge in a proper manner
this responsibility to the respondents. Consequently, We hold that the respondents cannot be
bound by the provision in question by which KLM unilaterally assumed the role of a mere
ticket-issuing agent for other airlines and limited its liability only to untoward occurrences on
its own lines. (Emphasis supplied)

Under the factual milieu, was there really a breach of contract of carriage on the part of the petitioner, as to justify
the award to private respondent of actual, moral and exemplary damages? We find none.
International Air Transportation Association (IATA) Resolution No. 275 e, 2., special note reads: "Where a fare is
restricted and such restrictions are not clearly evident from the required entries on the ticket, such restrictions
may be written, stamped or reprinted in plain language in the Endorsement/Restrictions" box of the applicable
flight coupon(s); or attached thereto by use of an appropriate notice." 7 Voluntary changes to tickets, 8 while
allowable, are also covered by (IATA) Resolution No. 1013, Art. II, which provides: "1. changes to the ticket
requested by the passenger will be subject to carriers regulations.
Private respondent wanted a rerouting to Hamburg, Geneva, Rome, Hongkong and Manilas 9 which shortened
the original itinerary on the ticket issued by AF Manila through ASPAC, its general sales agent. Considering the
original restrictions on the ticket, it was not unreasonable for Air France to deny the request.
Besides, a recurring ear infection was pleaded as reason necessitating urgent return to Manila.
Assumingarguendo a worsening pain or discomfort, private respondent appears to have still proceeded to four (4)
other cities covering a period of at least six (6) days and leaving open his date of departure from Hongkong to
Manila.10And, even if he claimed to have undergone medical examination upon arrival in Manila, no medical
certificate was presented. He failed to even remember his date of arrival in Manila.
With a claim for a large amount of damages, the Court finds it unsual for respondent, a lawyer, to easily forget
vital information to substantiate his plea. It is also essential before an award of damages that the claimant must
satisfactorily prove during the trial the existence of the factual basis of the damages and its causal connection to
defendant's acts.11
In KLM Royal Dutch Airlines v. CA, 12 the Court observed.... As noted by the Court of Appeals that condition was printed in letters so small that one
would have to use a magnifying glass to read the words. Under the circumstances, it would
be unfair and inequitable to charge the respondents with automatic knowledge or notice of the
said condition so as to preclude any doubt that it was fairly and freely agreed upon by the
respondents when they accepted the passage tickets issued to them by the KLM. As the

Unlike in the KLM case where the breach of contract was aggravated by the discourteous and arbitrary conduct of
an official of the Aer Lingus which the KLM had engaged to transport the respondents, here. Air France employees
in Hamburg informed private respondent that his tickets were partly stamped "non-endorsable" and "valid on Air
France only."13 Mere refusal to accede to the passenger's wishes does not necessarily translate into damages in
the absence of bad faith.14 To our mind, respondent has failed to show wanton, malevolent or reckless
misconduct imputable to petitioner in its refusal to re-route.
Air France Manila acted upon the advise of ASPAC in denying private respondent's request. There was no evident
bad faith when it followed the advise not to authorize rerouting.15 At worst, the situation can be considered a
case of inadvertence on the part of ASPAC in not explaining the non-endorsable character of the ticket. Of
importance, however, is the fact that private respondent is a lawyer, and the restriction box 16 clearly indicated
the non- endorsable character of the ticket.
Omissions by ordinary passengers may be condoned but more is expected of members of the bar who cannot
feign ignorance of such limitations and restrictions. An award of moral and exemplary damages cannot be
sustained under the circumstances, but petitioner has to refund the unused coupons in the Air France ticket to the
private respondent.
WHEREFORE, the judgement appealed from is REVERSED and SET ASIDE. Petitioner is ordered, however, to
refund to private respondent the value of the unused coupons in the passenger's ticket issued to him by the
petitioner. No costs.
SO ORDERED.