1

Republic
SUPREME
Manila

of

the

Philippines
COURT

6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in
the amount of P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club
Corporation in the amount of P4,385.02: and

FIRST DIVISION
G.R. No. 88013 March 19, 1990
SIMEX
INTERNATIONAL
(MANILA),
INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
Don P. Porcuincula for petitioner.
San Juan, Gonzalez, San Agustin & Sinense for private respondent.

8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount
of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand to the
petitioner, threatening prosecution if the dishonored check issued to it was not made good. It also withheld
delivery of the order made by the petitioner. Similar letters were sent to the petitioner by the Malabon Long
Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981. Malabon also canceled
the petitioner's credit line and demanded that future payments be made by it in cash or certified check.
Meantime, action on the pending orders of the petitioner with the other suppliers whose checks were
dishonored was also deferred.
The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that the sum
of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was
rectified on June 17, 1981, and the dishonored checks were paid after they were re-deposited. 4

CRUZ, J.:
We are concerned in this case with the question of damages, specifically moral and exemplary damages.
The negligence of the private respondent has already been established. All we have to ascertain is whether
the petitioner is entitled to the said damages and, if so, in what amounts.

In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for its "gross
and wanton negligence." This demand was not met. The petitioner then filed a complaint in the then Court of
First Instance of Rizal claiming from the private respondent moral damages in the sum of P1,000,000.00
and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and costs.

The parties agree on the basic facts. The petitioner is a private corporation engaged in the exportation of
food products. It buys these products from various local suppliers and then sells them abroad, particularly in
the United States, Canada and the Middle East. Most of its exports are purchased by the petitioner on
credit.

After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages were
not called for under the circumstances. However, observing that the plaintiff's right had been violated, he
ordered the defendant to pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees
and costs. 5 This decision was affirmed in toto by the respondent court. 6

The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at
Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its account in the said
bank the amount of P100,000.00, thus increasing its balance as of that date to
P190,380.74. 1 Subsequently, the petitioner issued several checks against its deposit but was suprised to
learn later that they had been dishonored for insufficient funds.

The respondent court found with the trial court that the private respondent was guilty of negligence but
agreed that the petitioner was nevertheless not entitled to moral damages. It said:

The dishonored checks are the following:

1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing
Company, Inc. for P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal
Revenue in the amount of P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo in the
amount of P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading
Corporation in the amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading
Corporation in the amount of P12,953.00:

The essential ingredient of moral damages is proof of bad faith (De Aparicio vs.
Parogurga, 150 SCRA 280). Indeed, there was the omission by the defendantappellee bank to credit appellant's deposit of P100,000.00 on May 25, 1981. But the
bank rectified its records. It credited the said amount in favor of plaintiff-appellant in
less than a month. The dishonored checks were eventually paid. These
circumstances negate any imputation or insinuation of malicious, fraudulent, wanton
and gross bad faith and negligence on the part of the defendant-appellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds that it cannot share some of the
conclusions of the lower courts. It seems to us that the negligence of the private respondent had been
brushed off rather lightly as if it were a minor infraction requiring no more than a slap on the wrist. We feel it
is not enough to say that the private respondent rectified its records and credited the deposit in less than a
month as if this were sufficient repentance. The error should not have been committed in the first place. The
respondent bank has not even explained why it was committed at all. It is true that the dishonored checks
were, as the Court of Appeals put it, "eventually" paid. However, this took almost a month when, properly,
the checks should have been paid immediately upon presentment.
As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude
in repairing its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the
complaining depositor constituted the gross negligence, if not wanton bad faith, that the respondent court
said had not been established by the petitioner.

2
We also note that while stressing the rectification made by the respondent bank, the decision practically
ignored the prejudice suffered by the petitioner. This was simply glossed over if not, indeed, disbelieved.
The fact is that the petitioner's credit line was canceled and its orders were not acted upon pending receipt
of actual payment by the suppliers. Its business declined. Its reputation was tarnished. Its standing was
reduced in the business community. All this was due to the fault of the respondent bank which was
undeniably remiss in its duty to the petitioner.
Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury
to the plaintiff s business standing or commercial credit." There is no question that the petitioner did sustain
actual injury as a result of the dishonored checks and that the existence of the loss having been established
"absolute certainty as to its amount is not required." 7 Such injury should bolster all the more the demand of
the petitioner for moral damages and justifies the examination by this Court of the validity and
reasonableness of the said claim.
We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for
the injuries he may have suffered. 8 In the case at bar, the petitioner is seeking such damages for the
prejudice sustained by it as a result of the private respondent's fault. The respondent court said that the
claimed losses are purely speculative and are not supported by substantial evidence, but if failed to
consider that the amount of such losses need not be established with exactitude precisely because of their
nature. Moral damages are not susceptible of pecuniary estimation. Article 2216 of the Civil Code
specifically provides that "no proof of pecuniary loss is necessary in order that moral, nominal, temperate,
liquidated or exemplary damages may be adjudicated." That is why the determination of the amount to be
awarded (except liquidated damages) is left to the sound discretion of the court, according to "the
circumstances of each case."
From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of
P1,000,000.00 is nothing short of preposterous. Its business certainly is not that big, or its name that
prestigious, to sustain such an extravagant pretense. Moreover, a corporation is not as a rule entitled to
moral damages because, not being a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to
this rule is where the corporation has a good reputation that is debased, resulting in its social humiliation. 9
We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that
caused the dishonor of the checks issued by it. The immediate consequence was that its prestige was
impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished. The
private respondent makes much of the one instance when the petitioner was sued in a collection case, but
that did not prove that it did not have a good reputation that could not be marred, more so since that case
was ultimately settled. 10 It does not appear that, as the private respondent would portray it, the petitioner is
an unsavory and disreputable entity that has no good name to protect.

Art. 2232. In contracts and quasi-contracts, the court may award exemplary
damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner.
The banking system is an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of
money or as active instruments of business and commerce, banks have become an ubiquitous presence
among the people, who have come to regard them with respect and even gratitude and, most of all,
confidence. Thus, even the humble wage-earner has not hesitated to entrust his life's savings to the bank of
his choice, knowing that they will be safe in its custody and will even earn some interest for him. The
ordinary person, with equal faith, usually maintains a modest checking account for security and convenience
in the settling of his monthly bills and the payment of ordinary expenses. As for business entities like the
petitioner, the bank is a trusted and active associate that can help in the running of their affairs, not only in
the form of loans when needed but more often in the conduct of their day-to-day transactions like the
issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of millions. The bank must record every single transaction
accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to
reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the
bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of
a check without good reason, can cause the depositor not a little embarrassment if not also financial loss
and perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind
the fiduciary nature of their relationship. In the case at bar, it is obvious that the respondent bank was
remiss in that duty and violated that relationship. What is especially deplorable is that, having been informed
of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately
correct it but did so only one week later or twenty-three days after the deposit was made. It bears repeating
that the record does not contain any satisfactory explanation of why the error was made in the first place
and why it was not corrected immediately after its discovery. Such ineptness comes under the concept of
the wanton manner contemplated in the Civil Code that calls for the imposition of exemplary damages.
After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes upon
the respondent bank exemplary damages in the amount of P50,000.00, "by way of example or correction for
the public good," in the words of the law. It is expected that this ruling will serve as a warning and deterrent
against the repetition of the ineptness and indefference that has been displayed here, lest the confidence of
the public in the banking system be further impaired.

Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was not the
proper relief to which the petitioner was entitled. Under Article 2221 of the Civil Code, "nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him."
As we have found that the petitioner has indeed incurred loss through the fault of the private respondent,
the proper remedy is the award to it of moral damages, which we impose, in our discretion, in the same
amount of P20,000.00.

ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay
the petitioner, in lieu of nominal damages, moral damages in the amount of P20,000.00, and exemplary
damages in the amount of P50,000.00 plus the original award of attorney's fees in the amount of P5,000.00,
and costs.

Now for the exemplary damages.

Narvasa, Gancayco, Grino-Aquino and Medialdea, JJ., concur.

The pertinent provisions of the Civil Code are the following:

Republic
SUPREME
Manila

Art. 2229. Exemplary or corrective damages are imposed, by way of example or

correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.

SO ORDERED.

of

THIRD DIVISION
G.R. No. L-46877 January 22, 1988

the

Philippines
COURT

3
LOURDES
CYNTHIA
MAKABALI
and
GEORGINA
vs.
COURT OF APPEALS and BARON TRAVEL CORPORATION, respondents.

MAKABALI, petitioners,

On the third night, they tried to place a long-distance call to their home but could not get through. The
next morning, petitioners sent a cable to their parents.
According to petitioners, they had to scrimp on their limited budget for fear that their meager pocket money
would not be enough to pay for their hotel bills. All these caused them sleepless nights because of great
worry, mental anguish and public humiliation.

FERNAN, J.:
The sole issue in this petition for review is whether or not petitioners are entitled to more than the P5,000.00
moral and exemplary damages, P1,000.00 attorney's fees and costs awarded to them by the Court of
Appeals in the light of the circumstances of the case.
Petitioner Georgina Makabali had just graduated from the College of Medicine, University of the Philippines,
and as a graduation gift from her father, was given a trip to Hongkong. Since she had never been abroad,
her parents insisted that she be accompanied by her sister and co-petitioner Lourdes Cynthia Makabali, a
schoolteacher at the Colegio de San Agustin, Dasmarias Village.
An advertisement of private respondent Baron Travel Corporation in the March 30, 1969 issue of the
newspaper The Sunday Times' offering a package tour to Hongkong caught the attention of petitioner
Georgina Makabali. In response to her inquiry, private respondent sent her the literature pertaining to its
Hongkong package tour together with the time schedule, description of the tour, tour conditions and
brochure.
At private respondent's office, petitioners were assured that they would be going with a group of thirteen [13]
other travelers to be led by a tour guide, a certain Mr. Arsenio Rosal, and that a representative of private
respondent would see them off at the Manila International Airport to give them final instructions. Petitioners
were also that they would be lodged at the President Hotel in Hongkong. These promises and
representations convinced the petitioners to purchase the Hongkong package tour offered by private
respondent.
On the departure date, May 10, 1969, petitioners searched for the tour group they were supposed to meet
at the Manila International Airport. They likewise searched for private respondent's representative who
would give them final instructions on their trip to Hongkong. They met neither private respondent's tour
group nor its representative.
When they were paged through the public address system to board their plane for Hongkong, they had no
choice but to do so without receiving any instructions from private respondent's representative.
Inside the plane, petitioners did not meet anyone from the Baron Tour Group. They looked for and found a
certain Mr. Arsenio Rosal who, to their embarrassment, protested that he was not a tour guide but a
business executive working with International Harvester Macleod, Inc. and who was going to Hongkong as a
paying passenger. In fact, he knew no one from private respondent Baron Travel Corporation and had
nothing to do with it.
In Hongkong, nobody met petitioners at the airport. W. Rosal who was a member of the Abaya Tour Group,
requested their tour leader to accommodate petitioners provided they pay all their expenses in Hongkong.

It was only at 9:00 in the morning of May 13, 1969 or on the fourth day of the supposed five-day tour that
petitioners were notified that private respondent had finally made arrangements for the payment of their
bills. By that time, the supposed tour was practically over.
Upon their return, petitioners complained to private respondent who according to petitioners did not even
bother to apologize but simply ignored their complaint and gave them the run around.
An action for moral and exemplary damages, attorney's fees and costs was filed by the petitioners in the
then Court of First Instance of Manila, Branch XVI and docketed as Civil Case No. 76912. Petitioners in
their complaint prayed for an award of P100 as actual and compensatory damages, P30,000.00 as moral
damages, P6,000.00 as exemplary damages plus attorney's fees and costs the Court rendered judgment in
petitioner's favor but awarded them only P500.00 as moral and exemplary damages, P100.00 as attorney's
fees and costs, stating the following as its justification for the award:
Plaintiffs claim P35,000 for damages aside from attorney's fees. These are too much
and too high. Travel agents are only paid 10% commissions for the trips they sell.
Besides, Baron rectified on time its oversight and made it possible for the plaintiff to
enjoy the rest of their trip. 1
Unsatisfied, petitioners appeared to the Court of appeals. Private respondent likewise appealed. The Court
of Appeals made the following findings and ruling:
It is a fact that the plaintiff had to shift for themselves upon arriving in Hongkong and
that defendant arranged for the hotel bills of plaintiffs only after said plaintiffs had
cabled it for confirmation. There is no doubt that the plaintiffs suffered humiliation
and anxiety during the first days of their stay in Hongkong. The defendant was
remiss in the performance of its obligation to the plaintiffs. It acted in wanton
disregard of the rights of the plaintiffs.
The trial court correctly stated that the amount of damages claimed by the plaintiffs
are too high. However, the amounts awarded as damages and attorney's fees by the
trial court are inadequate. Under the established facts and equity of the case, the
plaintiffs are entitled to the sum of P5,000.00 as moral and exemplary damages and
the amount of P1,000.00 as attorney's fees.
WHEREFORE, the decision appealed from is hereby modified in that the defendant
is ordered to pay the plaintiff the sum of P5,000.00 as moral and exemplary
damages and the sum of P1,000.00 as attorney's fees and the costs.
SO ORDERED. 2

Thereafter, petitioners called up the President Hotel in Hongkong where private respondent promised to
book them but it had no accommodations for them. Petitioners lost no time in sending a cable to private
respondent informing it that they had no hotel accommodations.

Still unsatisfied, petitioners elevated this case to Us on a petition for review on a lone assignment of error, to
wit:

Left with no alternative, petitioners tagged along with the Abaya Tour Group. Petitioners claimed public
humiliation due to the fact that they had to pay for their lunch while the rest of the group had prepaid meals.
They could not go shopping with the Abaya group for fear that their limited funds would not be sufficient to
pay for their hotel bills. There were times when breakfast consisted of hot dogs bought along the sidewalk
while lunch and supper consisted of apples and oranges.

THE COURT OF APPEALS ERRED IN AWARDING PETITIONERS THE PITIFUL

SUMS OF P5,000.00 AS MORAL AND EXEMPLARY DAMAGES AND P1,000.00 AS
ATTORNEY'S FEES IN THE LIGHT OF THE SOCIAL STANDING OF PETITIONER
GEORGINA MAKABALI, WHO IS A DOCTOR OF MEDICINE, AND OF
PETITIONER LOURDES CYNTHIA MAKABALI, WHO IS A TEACHER; IN THE

4
LIGHT OF THE SLEEPLESS NIGHTS AND PUBLIC HUMILIATION THEY
SUFFERED FOR THREE DAYS AND THREE NIGHTS; IN THE LIGHT OF THE
CALLOUS FAILURE OF PRIVATE RESPONDENT TO HAVE ANYONE ATTEND TO
PETITIONER IN SPITE OF THE FACT THAT IT RAKES IN MORE THAN HALF A
MILLION PESOS A MONTH FROM AIR FREIGHT ALONE. 3
To begin with, 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. 4

We note however that petitioners limited their claim for moral and exemplary damages in their complaint
filed with the Court of First Instance to a total of P35,000.00 plus attorney's fees and costs. We feel that Our
award should not exceed the said amount.
WHEREFORE, the decision of the Court of Appeals subject of the petition for review is hereby modified,
increasing the award to petitioners of moral and exemplary damages to P35,000.00 and attorney's fees to
P5,000.00 with costs. This decision is immediately executory.
SO ORDERED.

Article 2217 of the Civil Code recognizes that moral damages which include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation
and similar injury, are incapable of pecuniary estimation.
As to exemplary damages, Article 2229 of the Civil Code provides that such damages may be imposed by
way of example or correction for the public good. While exemplary damages cannot be recovered as a
matter of right, 5they need not be proved, although plaintiff must show that he is entitled to moral, temperate
or compensatory damages before the court may consider the question of whether or not exemplary
damages should be awarded. 6
A review of related jurisprudence shows that We had awarded moral damages in more or less similar cases
ranging from P20,060.00 [Northwest Airlines, Inc. v. Cuenca] 7 P25,000.00 [Yutuk v. Manila Electric
Company, Air France v. Carrascoso], 8 P50,000.00 [KLM Royal Dutch Airlines v. Court of
Appeals], 9 P150,000.00 [Ortigas v. Lufthansa German Airlines], 10 and P200,000.00 [Lopez v. Pan American
World Airways], 11 to P500,000.00 [Zulueta v. Pan American World Airways], 12 As to exemplary damages,
We awarded in Yutuk and Air France P10,000.00, in Lopez P75,000.00, in Ortigas P100,000.00 and
in Zulueta P200,000.00.
It will thus be noted that We have awarded moral and exemplary damages depending upon the facts
attendant to each case. It will also be noted that We gave separate awards for moral and exemplary
damages. This is as it should be because the nature and purposes of said damages are different. While
moral damages have to do with injury personal to the awardee, such as physical suffering and the like,
exemplary damages are imposed by way of example or correction for the public good.
It is essential however, in the award of damages that the claimant must have satisfactorily proven during the
trial the existence of the factual basis of the damages and its causal connection to defendant's acts. This is
so because moral damages, though incapable of pecuniary estimation, 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, 13 and are allowable only when specifically prayed for in the complaint. 14
As reflected in the records of the case, the Court of appeals was in agreement with the findings of the trial
court that petitioners suffered anguish, embarrassment and mental sufferings due to failure of private
respondent to perform its obligation to the petitioners. According to the Court of Appeals, private respondent
acted in wanton disregard of the rights of petitioners. These pronouncements lay the basis and justification
for this Court to award petitioners moral and exemplary damages.
In the light of the circumstances obtaining in the case at bar, especially the social standing of petitioners and
the embarrassment and humiliation suffered by them, the anxiety they must have felt in their first journey to
a foreign land under uncertain circumstances and with meager funds which could run out any time, We are
inclined to award damages to the petitioner more than what was awarded by the Court of Appeals.
It must be emphasized that moral 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 amusements
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. 15 The amount of P5,000.00 is minimal compared to the sufferings and embarrassment of
petitioners who left Manila with high spirits and excitement hoping to enjoy their first trip to a foreign land
only to be met with uncertainties and humiliations.

Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.

Republic
SUPREME
Manila

of

the

Philippines
COURT

THIRD DIVISION
G.R. No. L-45770 March 30, 1988
PHILIPPINE
NATIONAL
BANK, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, NAPOLEON C. NAVARRO, PATRICIA CRUZ, VICENTE B.
MEDINA and LETICIA LOPEZ, respondents.

FERNAN, J.:
This is a petition for review on certiorari of the decision rendered by respondent Court of Appeals dated
December 27, 1976 in CA-G.R. No. 48720-R dismissing the complaint of petitioner Philippine National Bank
in Civil Case No. 4507 and on the counterclaim modifying the decision of the trial court by reducing the
award of moral and exemplary damages from P100,000.00 to P10,000,00 with legal interest from the date
of filing of the counterclaim and ordering petitioner bank to pay the amount of P5,000.00 as attorney's fees,
without pronouncement as to costs; as well as from the Resolution denying petitioner's motion for
reconsideration.
Private respondent Napoleon Navarro was an employee of petitioner Philippine National Bank stationed at
Cabanatuan City as Branch Accountant. On various dates from 1962 to 1965, Id private respondent
Napoleon Navarro prepared fifty-one [51] manager's checks and their corresponding debit tickets
purportedly representing refund of deposits of petitioner's clients although he knew that there were no
deposits necessitating such refund. He later caused to be falsified and Identified the signatures of the
alleged clients as payees and indorsers, encashed the checks, and appropriated unto himself the proceeds
in the aggregate amount of P28,683.77. After the discovery of this anomaly, respondent Navarro was
dismissed from the service of Philippine National Bank.
On February 25, 1965, petitioner bank filed before the then Court of First Instance of Nueva Ecija Civil Case
No. 4506 against Napoleon Navarro to recover the sum defalcated in the amount of P 13,906.81 with a
prayer for a writ of preliminary attachment against the properties of Napoleon Navarro. While the writ of
preliminary attachment was in the process of issuance, a Deed of Sale of Real Property and Dwelling
House dated February 22, 1965 executed by respondents Napoleon Navarro and Patricia Cruz in favor of
the other respondents spouses Vicente Medina and Leticia Lopez over the former's properties situated in
Cabanatuan City was registered in the Office of the Register of Deeds of Cabanatuan City at 11:50 o'clock
in the morning of February 25, 1965. Subsequently, a new transfer certificate of title beating No. T-9424 was
issued by the Register of Deeds of Cabanatuan City in the names of spouses Vicente Medina and Leticia
Lopez.

5
On February 26, 1966, petitioner Philippine National Bank filed Civil Case No. 4507 against respondents
Napoleon C. Navarro and his wife Patricia Cruz and the spouses Vicente Medina and Leticia Lopez for the
annulment of the aforesaid Deed of Sale and the cancellation of the Transfer Certificate of Title No. T-9424
issued as a consequence of said sale. Subsequently, an amended complaint was filed, the only difference
with the original complaint being the amount defalcated by defendant Napoleon Navarro which was finally
placed at P28,683.77 after further reconstruction and verification of the records of plaintiffs Cabanatuan
Branch.

that the total amount defalcated by defendant Napoleon C. Navarro was in the
amount of P 28,683.77 evidenced by fifty- one [511 manager's checks all
fraudulently encashed by the said defendant. In view of the foregoing, the lower
court erred when it held that defendant Napoleon Navarro was liable to the plaintiff
only in the amount of P13,906.81.
There is no complete evidence to show that the sale of the real property and
dwelling house dated February 22, 1965 executed by defendants Napoleon Navarro
and Patricia Cruz in favor of the defendants Vicente B. Medina, and Leticia Lopez
was undertaken in fraud of creditors. There is evidence that the plaintiff was aware of
the negotiations between defendant Napoleon C. Navarro and defendants Vicente B.
Medina and Leticia Lopez. It seems that the purpose of the sale was to enable
defendant Napoleon C. Navarro to pay the plaintiff the amount that said Navarro
defalcated

An answer with counterclaim was filed by the defendants Vicente Medina and Leticia Lopez alleging good
faith in the acquisition of the property in question and seeking payment of damages, claiming that the filing
of the complaint was without legal factual basis and that it besmirched their reputation causing them
damages of P50,000.00 and lawyer's fees in the amount of P1,000.00.
On motion of petitioner, the trial court ordered the consolidation of Civil Cases Nos. 4506 and 4507.

There is no showing that the plaintiff acted maliciously and in a wanton manner in
filing Civil Case No. 4507 against the spouses Vicente B. Medina and Leticia Lopez.
There is no doubt that the Id spouses suffered mental anguish for having been made
defendants in Civil Case No. 4507. However, under the established facts and
circumstances the amount of P100,000.00 awarded to said spouses as moral
damages is excessive. The moral and exemplary damages awarded to spouses
Vicente Medina and Leticia Lopez should be reduced to P10,000.00.

On June 22, 1970, private respondents and defendants Vicente Medina and Leticia Lopez filed a Motion to
Admit Answer with Amended Counterclaim in Civil Case No. 4507 whereby the amount claimed for
damages was increased to P100,000.00 and lawyer's fees increased to P5,000.00. This motion was allowed
by the lower court in an Order dated June 24, 1970. Prior thereto, petitioner filed an opposition to the motion
to admit answer with amended counterclaim contending that petitioner was not given an opportunity to be
heard and to oppose the admission of the aforementioned pleading, and that the supposed evidence
presented to show that said defendants suffered moral damages in the amount of P100,000.00 and the
increase of their lawyer's fees from P1,000.00 to P5,000.00 was insufficient in fact and in law, hence it
should be disregarded. 1

The defendants Vicente B. Medina and Leticia Lopez had to engage counsel to
resist the action instituted against them by the Philippine National Bank. Hence, the
trial court did not err in awarding to said spouses the amount of P 5,000.00 as
attorney's fees.

On August 26, 1970, the lower court rendered judgment the dispositive portion reading as follows:
WHEREFORE, judgment is rendered finding Napoleon Navarro, defendant in Civil
Case No. 4506 liable to the plaintiff in the amount of P13,906.81.

WHEREFORE, the decision appealed from is hereby modified in that in Civil Case
No. 4506, the defendant Napoleon C. Navarro is ordered to pay the plaintiff the
amount of P28,683.77 with legal interest from February 25, 1965, the date of the
filing of the complaint and in Civil Case No. 4507, the complaint is dismissed and the
plaintiff Philippine National Bank is ordered to pay defendants Vicente Medina and
Leticia Lopez the amount of P10,000.00 as moral and exemplary damages with legal
interest from the date of the filing of the counterclaim and the amount of P5,000.00
as attorney's fees, without pronouncement as to costs.

The complaint of the plaintiff in Civil Case No. 4507 against the defendants is
dismissed for lack of evidence, with costs against the plaintiff.
On the counterclaim by defendants Vicente Medina and Leticia Lopez, this Court
finds the plaintiff Philippine National Bank liable to said defendants for moral and
exemplary damages of P100,000.00 which the plaintiffs must pay to the said
defendants with interest at the legal rate from the filing of the counterclaim, and for
lawyer's fees of P5,000.00 and the costs of this suit. 2
From this decision of the lower court, petitioner Philippine National Bank appealed to respondent Court of
Appeals where the case was docketed as CA-G.R. No. 48719-20-R, assailing the lower court's finding [a] on
defendant Navarro's liability to the plaintiff in the amount of P13,906.81 and not P28,683.77 as borne out by
the evidence; [b] on the plaintiff- appellant's liability to the defendant-appellees Vicente Medina and Leticia
Lopez for moral and exemplary damages in the amount of P100,000.00 on the counterclaim; [c] in ordering
plaintiff-appellant to pay defendants- appellees Vicente Medina and Leticia Lopez the sum of P5,000.00 as
attorney's fees; [d] in admitting the motion to admit Answer with amended counterclaim dated June 19, 1970
together with the answer with amended counterclaim flied by defendants-appellees Vicente Medina and
Leticia Lopez for the reason that said motion does not conform with Section 3, Rule 1 0 in conjunction with
Sections 4, 5, and 6 of Rule 15 of the Revised Rules of Court; and [e] in not declaring the Deed of Sale of
Real Property and Dwelling House dated February 22, 1965 executed between defendants-appellees as
rescissible and in not cancelling TCT No. 9424 under the names of spouses Vicente Medina and Leticia
Lopez issued by virtue thereof.
On December 27, 1976, respondent appellate court promulgated its assailed decision based on these
findings:
The plaintiff has presented indubitable evidence consisting of manager's checks as
well as the corresponding debit tickets, Exhibits F, F-l to DDD-l inclusive showing

SO ORDERED. 3
Both petitioner and private respondents Vicente E. Medina and Leticia Lopez moved for a reconsideration of
said decision. While both motions were denied, only petitioner PNB came to this Court through the instant
petition for review and only in so far as the decision of the Appellate Court in Civil Case No. 4507 is
concerned. Petitioner contends that:
I
PNB's COMPLAINT IN CIVIL CASE NO. 4507 WAS NOT FILED MALICIOUSLY AND IN BAD FAITH,
HENCE NO BASIS FOR THE AWARD OF MORAL AND EXEMPLARY DAMAGES.
II
THE CONCLUSION OF THE RESPONDENT COURT THAT THE FILING OF CML CASE NO. 4507 WAS
NOT MADE MALICIOUSLY AND IN A WANTON MANNER IS INCONSISTENT WITH ITS AWARD OF
MORAL AND EXEMPLARY DAMAGES IN THE REDUCED AMOUNT OF P10,000.00.
III

6
THE AWARD OF P5,000.00 AS ATTORNEY'S FEES HAS NO BASIS IN FACT AND IN LAW.
IV
RESPONDENTS SPOUSES MEDINA AND LOPEZ' MOTION TO ADMIT ANSWER WITH AMENDED
COUNTERCLAIM CONTRAVENES SECTION 3, RULE 10 IN CONJUNCTION WITH SECTIONS 4,5, & 6,
RULE 15 OF THE REVISED RULES OF COURT.
V
THE DISMISSAL OF CIVIL CASE NO. 4507 IS WITHOUT BASIS IN LAW AND IN FACT.
Civil Case No. 4507 Was the action brought by petitioner against private respondents seeking the
annulment of the Deed of Sale of Real Property and Dwelling House executed by private respondent
spouses Napoleon C. Navarro and Patricia Cruz in favor of private respondents spouses Vicente E. Medina
and Leticia Lopez and covered by Transfer Certificate of Title No. T-9424. According to petitioner, the sale
was fraudulently entered into between aforesaid parties to defeat petitioner's recovery of the amount
defalcated by private respondent Napoleon C. Navarro during the time that the latter was employed by the
former as accountant in its Cabanatuan Branch, and which amount was the subject of Civil Case No. 4506.
The controversy revolves on the issue of consistency. Is respondent appellate court's finding on the nonexistence of malice and bad faith on petitioner's part when it filed Civil Case No. 4507 consistent with the
lower court's order awarding moral and exemplary damages originally in the amount of P100,000.00 but
reduced to P10,000.00 by respondent appellate court and attorney's fees in the amount of P5,000.00 both in
favor of private respondents spouses Medina and Lopez?
As mentioned earlier, respondent appellate court ruled that there is no showing that the plaintiff acted
maliciously and in a wanton manner in filing Civil Case No. 4507. It was however further ruled that there is
no doubt that said spouses suffered mental anguish for having been made defendants in Civil Case No.
4507. This Court is tasked to resolve this inconsistency.
Article 2217 of the Civil Code recognizes that 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.
As to exemplary damages, Article 2229 of the Civil Code provides that such damages may be imposed by
way of example or correction for the public good. While exemplary damages cannot be recovered as a
matter of right, 4they need not be proved, although plaintiff must show that he is entitled to moral, temperate
or compensatory damages before the Court may consider the question of whether or not exemplary
damages should be awarded. 5
While no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of
indemnity being left to the discretion of the court, 6 it is nevertheless essential that the claimant satisfactorily
proves the existence of the factual basis of the damages and its causal relation to defendant's acts. This is
so because moral damages though incapable of pecuniary estimation, 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. Moral damages, in other words, are not corrective or exemplary damages. 7
For moral damages to be awarded, the law requires a wrongful act or omission attributable to petitioner as
the proximate cause of the mental anguish suffered by private respondents spouses Vicente E. Medina and
Leticia Lopez. Respondent appellate court categorically ruled in the negative yet awarded moral and
exemplary damages in the reduced amount of P10,000.00 in favor of aforesaid respondent spouses. This
brings to light Our ruling in Boysaw v. Interphil Promotions, Inc. 8 which enunciates that:

In order that a person may be made liable to the payment of moral damages, the
law requires that his act be wrongful. The adverse result of an action does not per se
make the act wrongful and subject the actor to the payment of moral damages. The
law could not have meant to impose a penalty on the right to litigate such right is so
precious that moral damages may not be charged on those who may exercise it
erroneously, For these the law taxes costs. 9
Conformably with settled jurisprudence and in agreement with petitioner's contention, We find the
conclusion of respondent appellate court that the filing of Civil Case No. 4507 was not made maliciously and
in a wanton manner inconsistent with its award of moral and exemplary damages in the reduced amount of
P10,000.00.
In the absence of malice and bad faith, the mental anguish suffered by respondents spouses Medina and
Lopez for having been made defendants in Civil Case No. 4507 is not that kind of anxiety which would
warrant the award of moral damages. The worries and anxieties suffered by respondents spouses Medina
and Lopez were only such as are usually, caused to a party haled into court as a defendant in a
litigation. 10 Therefore, there is no sufficient justification for the award of moral damages, more so,
exemplary damages.
In the same manner that We find no basis for the award of moral damages to respondents spouses Medina
and Lopez, We find petitioner neither liable for attorney's fees.
It is not sound public policy to place a penalty on the right to litigate. To compel the defeated party to pay the
fees of counsel for his successful opponent would throw wide open the door of temptation to the opposing
party and his counsel to swell the fees to undue proportions. To sentence litigant to pay his adversary's
lawyer's fees would be imposing a penalty on his right to litigate. Even under the New Civil Code 11 a litigant
would not be entitled to recover the fees paid to his attorney as damages where no bad faith on the part of
his adversary was shown. 12 Needless to say, award of attorney's fees is the exception rather than the
general rule.
In the fourth assignment of error, petitioner assigns a procedural flaw to the Motion to Admit Answer with
Amended Counterclaim filed on June 22, 1970 by private respondents spouses Medina and Lopez, the
assailed portion pertaining to the Notice addressed to the Clerk of Court which reads:
THE CLERK OF COURT
May you please include the foregoing motion in the Court's calendar for hearing on
June 24, 1970 at 9:00 o'clock in the morning or as soon thereafter as counsel may
be heard, at which date and hour the undersigned will submit the same for the
consideration of the Honorable Court. 13
Petitioner asserts that the foregoing notice contravenes Section 3, Rule 10 in conjunction with Sections 4,5
and 6 of Rule 15 of the Revised Rules of Court.
The motion was filed on June 22,1970. The hearing was requested to be set on June 24, 1970. This is one
day short of the three [31 day notice rule provided under Section 4, Rule 15 of the Revised Rules of Court
which provides that notice of a motion shall be served by the applicant to all parties concerned, at least
three [3] days before the hearing thereof, together with a copy of the motion, and of any affidavits and other
papers accompanying it. The court, however, for good cause may hear a motion on shorter notice, specially
on matters which the court may dispose of on its own motion.
Records show that petitioner received a copy of the motion on June 26,1970 while the motion was set for
hearing and heard on June 24, 1970. To this motion, petitioner filed an opposition on July 7, 1970 and a
motion for reconsideration upon its denial.
In resolving this error, We consider the judicial policy on rules of procedure.

7
Amendments to pleadings are generally favored and should be liberally allowed in furtherance of justice in
order that every case may so far as possible be determined on its real facts and in order to speed the trial of
causes or prevent the circuity of action and unnecessary expense, unless there are circumstances such as
inexcusable delay or the taking of the adverse party by surprise or the like, which might justify a refusal of
permission to amend. 14 These circumstances do not obtain in the case at bar.
As aforementioned, petitioner filed an opposition to the assailed motion stating petitioner's legal grounds
therefor and subsequently a motion for reconsideration of the denial of aforesaid opposition. This eliminates
the element of surprise and denial of due process sought to be avoided in instances where amendments to
pleadings are snowed.
In E.L. Mercantile, Inc. et al. v. Intermediate Appellate Court

15

EN BANC
G.R. No. L-20081

February 27, 1968

MELQUIADES
RAAGAS
and
ADELA
LAUDIANO
RAAGAS, plaintiffs-appellees,
vs.
OCTAVIO TRAYA, MRS. OCTAVIO TRAYA and BIENVENIDO CANCILLER, defendants-appellants.
Miguel
V.
Tiausas
Victoriano M. Realino for defendants-appellants.

for

plaintiff-appellee.

We ruled:
CASTRO, J.:

Procedural due process is not based solely on a mechanistic and literal application
of a rule such that any deviation is inexorably fatal. Rules of procedure, and this
includes the three-day notice requirement, are liberally construed to promote their
object and to assist the parties in obtaining just, speedy and inexpensive
determination of every action and proceeding [Section 2, Rule 1, Rules of Court]. ...
Lapses in the literal observance of a rule of procedure may be overlooked when they
have not prejudiced the adverse party and have not deprived the court of its
authority. 16
Thus, in line with the liberal judicial policy on rules of procedure, We find no reversible error committed by
the trial court in admitting private respondents spouses Medina and Lopez' Motion to Admit Answer with
Amended Counterclaim.
Finally, petitioner questions the dismissal of Civil Case No. 4507 by the lower court as affirmed by the
respondent appellate court contending that the same was done without basis in law and in fact.
Respondent appellate court ruled there is no complete evidence to show that the sale of real property and
dwelling house was executed to defraud petitioner bank but there is evidence that the latter knew of the
impending sale between private respondents themselves. It was shown that the purpose of the sale was to
enable private respondent Napoleon C. Navarro to pay the petitioner the amount that private respondent
Navarro defalcated
These pronouncements in the assailed decision of respondent appellate court for the dismissal of Civil Case
No. 4507 hinges on a determination of pertinent facts the resultant findings of which when supported by
substantial evidence are beyond Our power of review. Absent the recognized exceptions, finding of facts of
the Court of Appeals are conclusive on the parties and the Supreme Court 17 on the tenet that this Court
decides appeals which only involve questions of law and that it is not the function of the Supreme Court to
analyze and to weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law
that might have been committed by the lower court. 18
WHEREFORE, except for the deletion of the award of moral and exemplary damages as well as attorney's
fees to private respondents spouses Vicente E. Medina and Leticia Lopez, the decision of the Court of
Appeals in CA- G.R. No. 48720 is hereby affirmed in all other respects.
No costs.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.
Republic
SUPREME
Manila

of

The complaint filed on April 1, 1960 with the Court of First Instance of Leyte (civil case 2749) by the
spouses Melquiades Raagas and Adela Laudiano Raagas against Octavio Traya, his wife, and Bienvenido
Canciller, alleges in essence that on or about April 9, 1958, while the latter was "recklessly" driving a truck
owned by his co-defendants, along the public highway in MacArthur, Leyte, the said vehicle ran over the
plaintiffs' three-year old son Regino causing his instantaneous death. The plaintiffs ask for actual damages
in the sum of P10,000, moral, nominal and corrective damages in a sum to be determined by the court,
P1,000 as attorney's fees, P1,000 for expenses of litigation, plus costs.
In their answer with counterclaim for moral and actual damages and attorney's fees, filed on April 22,
the defendants specifically deny that Canciller was "driving recklessly" at the time of the mishap, and assert
that the truck "was fully loaded and was running at a very low speed and on the right side of the road"; that it
was the child who "rushed from an unseen position and bumped the truck so that he was hit by the left rear
tire of the said truck and died", and consequently the defendants are not to blame for the accident which
was "entirely attributable to an unforeseen event" or due to the fault of the child and negligence of his
parents; that the defendant-spouses have exercised due diligence in the selection and supervision of their
driver Canciller, whom they hired in 1946 only after a thorough study of his background as a truck driver;
and that each time they allowed him to drive it was only after a check of his physical condition and the
mechanical fitness of the truck assigned to him.
On May 4 the plaintiffs' moved for a judgment on the pleadings, upon the claim that the defendants'
answer not only "failed to tender an issue" but as well "admitted material allegations" of the complaint. This
motion was set for hearing on June 18. On the previous day, however, the clerk of court received a telegram
from the defendants' counsel requesting for postponement of the hearing to July 2 on the ground that he
was sick of influenza. The lower court denied the request for lack of "proper notice to the adverse party",
and considered the case submitted for decision upon the filing of the plaintiffs' memorandum.
On June 24 it rendered a judgment on the pleadings, condemning the defendants, jointly and
severally, to pay "to the plaintiffs the sum of P10,000 for the death of their child Regino Laudiano Raagas,
P2,000 for moral damages, P1,000 actual damages, P1,000 for attorney's fees, and the costs."
The court reasoned that the denial in the answer of the charge of reckless driving "did not affect the
plaintiffs' positive allegation in their complaint that the truck . . . did not have a current year registration
plate . . . for the year 1958 when the accident occurred that "this failure . . . has the effect of admitting
hypothetically that they operated ... the said truck without proper license . . . when the accident occurred,"
and that "unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been
negligent if at the time of the mishap, he was violating any traffic regulation (article 2185, new Civil Code)."
The court went on to conclude that under the circumstances a judgment on the pleadings was "irremediably
proper and fitting."
The defendants appealed to the Court of Appeals, which certified the case to this Court because the
issues raised are purely of law.

the

Philippines
COURT

Section 10 of Rule 35 of the old Rules of Court 1 authorized a judgment on the pleadings "where an
answer fails to tender an issue, or otherwise admits the material allegations of the adverse party's pleading."

8
The vital issue, therefore, to which the other issues are subsidiary or intestinal, is whether the court a
quoacted correctly when it rendered judgment on the pleadings. It is our view that the court erred.
The plaintiffs' claim for actual, moral, nominal and corrective damages, was controverted by the
averment in the answer to the effect that the defendants "have no knowledge or information sufficient to
form a belief as to the truth of the allegations" as to such damages, "the truth of the matter being that the
death of Regino Raagas was occasioned by an unforeseen event and/or by the fault of the small boy
Regino Raagas or his parents." Such averment has the effect of tendering a valid issue. We so held
in Philippine National Bank vs. Lacson, L-9419, May 29, 1957 and in Benavides vs. Alabastro, L-19762,
Dec. 23, 1964. In Abubakar Tan vs. Tian Ho, L-18820, December 29, 1962 and Lim Giok vs. Bataan Cigar
and Cigarette Factory, L-15861, April 16, 1960, we held that even if the allegations regarding the amount of
damages in the complaint are not specifically denied in the answer, such damages are not deemed
admitted. In Tomassi vs. Villa-Abrille, L-7047, August 21, 1968, Suntay Tanjangco vs. Jovellanos, et al., L12332, June 30, 1960, and Delfin vs. Court of Agrarian Relations, et al., L-23348, March 14, 1967, 1967 A
PHILD 453, we declared in no uncertain terms that actual damages must be proved, and that a court cannot
rely on "speculation, conjecture or guesswork" as to the fact and amount of damages, but must depend on
actual proof that damage had been suffered and on evidence of the actual amount. Finally, in Malonzo vs.
Galang et. al., L-13851, July 27, 1960, we reaffirmed the rule that although an allegation is not necessary in
order that moral damages may be awarded, "it is, nevertheless, essential that the claimant satisfactorily
prove the existence of the factual basis of the damage and its causal relation to defendant's acts."
The preceding disquisition points up the inescapable need of a full-blown trial on the merits at which
the parties will be afforded every opportunity to present evidence in support of their respective contentions
and defenses.
ACCORDINGLY, the judgment on the pleadings of June 24, 1960 is set aside, and this case is hereby
remanded to the court of origin for trial on the merits. No pronouncement as to costs.
Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Angeles and Fernando JJ., concur.
Concepcion, C.J., is on leave.
Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-21879

September 29, 1967

SAN
MIGUEL
vs.
FRANCISCO MAGNO, defendant-appellee.

BREWERY,

Lichauco,
Picazo
and
Agcaoili
Jose V. Rosales and Jose R. Villanueva for defendant-appellee.

The appeal was originally lodged with the Court of Appeals which certified the case to this Court, the
issue involved being purely one of law. From the stipulation of facts submitted by the parties in the lower
court and the various annexes referred to therein, the facts of the case that gave rise to the controversy are
as follows:
On December 14, 1950, the Municipal Board of Butuan City passed Ordinance No. 11 amending Ordinance
No. 7 of said City, imposing a tax of two per cent (2%) on the gross sales or receipts of those engaged in the
sale, trading in, or disposal of all alcoholic or malt beverages, wines and mixed or fermented liquors,
including tuba, basi and tapuy. (Sec. 1 [e], Annex A.) On June 6, 1960, the same Municipal Board passed
Ordinance No. 110 amending Ordinance No. 11, fixing instead a tax on the sale of beer at the rate of P.25
per case of twenty-four bottles, and on the sales of soft drinks at the rate of P.10 per case of twenty-four
bottles of Coca-Cola, Pepsi-Cola, Tru-Orange, Seven-Up, Bireley, Soda Water, and any other kind of soft
drinks or carbonated drinks. (Sec. 2 [e] and Sec. 3, respectively, Annex B.)
The San Miguel Brewery, Inc., a corporation organized and existing under the laws of the Philippines with
principal offices at Manila, maintains a warehouse or branch office in the City of Butuan and is engaged in
the sale of beer and soft drinks in said City. Although it appears to have paid the required taxes under
Ordinance No. 11 promptly and religiously upon the effectivity of the ordinance, the company stopped
paying the taxes thereafter (Annex D), and thereby incurred in back taxes. Verbal demands were made by
the City Treasurer of Butuan on the representative of the San Miguel Brewery, Inc. at Butuan City with
warnings that a warrant of distraint and levy will be issued against its properties unless it settles its tax
liability under the ordinance aforesaid. On September 23, 1960, counsel for the company wrote a letter to
the City Treasurer of Butuan questioning the power of the city government of Butuan to levy upon its
properties pointing out, "that the power of distraint and levy as embodied in your Charter (Republic Act No.
523, as amended), can only be exercised by your goodselves in respect to delinquencies in the payment of
real estate taxes". To this, the City Treasurer of Butuan, in a letter dated September 29, 1960, promptly
answered and explained that he may issue warrants of distraint and levy upon properties of delinquent
taxpayers under Ordinance No. 26 of the City of Butuan. Thereafter, the San Miguel Brewery, Inc. received
a formal letter of demand for payment of its tax liability from the City Treasurer of Butuan, to which the
Branch Manager of the company at Cagayan de Oro City who has supervision of the company's warehouse
at Butuan City, answered on October 10, 1960, requesting more time "within which to act on said demand
and in order to refer the matter to its Manila Office". Several other written demands were thereafter made by
the City Treasurer of Butuan to officials of plaintiff's branch office in said city, but failed to yield any concrete
result. Accordingly, on January 6, 1961, the city treasurer, with the approval of the Mayor of Butuan City
issued a warrant of distraint and levy against the properties of the San Miguel Brewery, Inc. at its branch
office in that city to enforce the collection of the taxes assessed against it, i.e., under Ordinance Nos. 11 and
110, amounting to P9,129.42, including penalties corresponding to the period from May, 1957 to August 15,
1960, and under Ordinance No. 110, the amount of P15,618.96, including penalty, for the period
corresponding to June 6 up to October 30, 1960, or a total of P24,747.32. On January 9, 1961, at about 9
o'clock in the morning, a notice of seizure by virtue of the warrant of distraint and levy was served on the
company's Branch Manager at Butuan City who, upon previous arrangement with the representative of the
City Treasurer of Butuan, voluntarily surrendered the two (2) delivery trucks of the company seized under
the warrant to the said City Treasurer at about 5 o'clock in the afternoon of the same day.

INC., plaintiff-appellant,

for

plaintiff-appellant.

ANGELES, J.:
An appeal from a decision of the Court of First Instance of Manila, in civil case No. 46039, dismissing the
complaint filed by the San Miguel Brewery, Inc., and ordering it to pay to the defendant P2,000.00 in
damages, P1,000.00 as attorney's fees, and costs.

On January 12, 1961, the San Miguel Brewery, Inc. instituted the present action in the Court of First
Instance of Manila, praying for an order directing the defendant Francisco Magno to release the delivery
trucks seized and impounded by the City Government of Butuan allegedly "without authority and for reasons
unknown to the company", and to order the defendant to pay to the plaintiff damages in the amount of
P6,000.00 corresponding to the period from January 9, 1961 to January 10, 1961, and P3,000.00 for each
day thereafter that the trucks remain impounded and unused by the plaintiff, plus the costs of the suit.
Parenthetically, the action was brought against the defendant Francisco Magno in his individual capacity, as
disclosed in the allegations in the complaint, and as expressly admitted in the appellant's brief, thus "As a
matter of fact, plaintiff filed this action against Francisco Magno, not in his official capacity, but in his
individual capacity, . . . ." (p. 13).
In his answer, defendant Francisco Marco interposed, among others, the defense that in seizing the delivery
trucks of the San Miguel Brewery, Inc., he was acting, and was in the performance of his official duty, as
Treasurer of Butuan City, and, can not be hold liable to pay to the company any damages. He set up a
counterclaim of P40,000.00 and P10,000.00 as moral and exemplary damages, respectively, allegedly
sustained by him and the members of his family on account of the shock, fright, wounded feelings, mental
anguish, besmirched reputation, and social humiliation they suffered by reason of the filing of the case
against him by the plaintiff, plus attorney's fees in the amount of P2,000.00.

9
During the pendency of the action, the San Miguel Brewery, Inc. paid under protest the taxes assessed
against it by the City Treasurer of Butuan, and forthwith the impounded trucks were released.
The parties submitted no testimonial evidence. Instead, they submitted a stipulation of facts along with
documentary evidence on the basis of which the court a quo, on April 2, 1962, rendered the decision
appealed from. A motion for reconsideration of the decision having been denied, the plaintiff interposed the
instant appeal.
Under the first assignment of error, appellant assails the conclusion of the court that "the allegation in the
complaint (par. 5) that the seizure of plaintiff's trucks was made for reasons unknown to the plaintiff, is
false", because it is not sustained by the evidence; said appellant claiming that it was only at the time that
the stipulation of facts was being prepared that the defendant-appellee made mention for the first time of his
alleged authority to issue a warrant of distraint and levy against properties of tax delinquents under
Ordinance No. 26 of the City of Butuan. The contention is untenable. In paragraph 8 of the stipulation of
facts, it is admitted that on September 29, 1960, in a letter of the City Treasurer of Butuan to Attys. Ponce
Enrile, Siguion Reyna, Montecillo & Belo, counsel for the plaintiff, said counsel was informed that the city
government was exercising its power of levy and distraint against properties of taxpayers under Ordinance
No. 26 of the city. Appellant, therefore, may not now feign ignorance of such notice which appears in the
records.
To the charge that Ordinance No. 26 of the City of Butuan is ultra vires, suffice it to say that the same may
not be considered in this appeal. An examination of the complaint filed in this case, reveals that except for
the general averment therein that its delivery trucks were seized and impounded by order of the defendant
Francisco Magno "without authority of law and for reasons unknown to the plaintiff", which is without factual
basis as pointed out above, no mention was made in the stipulation of facts nor any evidence ever
introduced during the trial of the case in the lower court, to show that it was the intention of the appellant to
place in issue the validity of the ordinance aforesaid.
In cases where the constitutionality of statutes are directly put in issue, the general rule is, that the question
of constitutionality must be raised at the earliest opportunity, so that if not raised by the pleadings, ordinarily
it may not be raised at the trial, and if not raised in the trial court, it will not be considered on appeal (People
and Hongkong & Shanghai Banking Corporation vs. Vera and Cu Unjieng. 37 O.G., 164 citing 12 C. J. p.
786). (See also Cadwallader-Gibson Lumber Co. vs. Del Rosario, 26 Phil. 192; Robb and Hilscher vs.
People of the Philippines, 68 Phil., 320; Macondray & Co. vs. Benito and Ocampo, 62 Phil., 137; Sofronio L.
Quimson vs. P. L. de Guzman, L-18240, January 31, 1963.) The exceptions are, as stated in Hongkong etc.
vs. Cu Unjieng, supra, in criminal cases, where the question may be raised at any stage of the proceedings,
either in the trial court or on appeal; in civil cases, it has been held that it is the duty of the court to pass on
the constitutional question, though raised for the first time on appeal, if it appears that a determination of the
question is necessary to a decision of the case; and it has been held that a constitutional question will be
considered by an appellate court at any time, where it involves the jurisdiction of the court below. The same
rule should apply where the validity of a municipal ordinance is questioned. We do not find any of the
exceptions aforementioned applicable to this case to justify a conclusion that the validity of Ordinance No.
26 of the City of Butuan may be properly passed upon in this appeal.1awphl.nt
Moreover, Francisco Magno is sued in this case not in his capacity as City Treasurer of Butuan but in his
individual capacity. He is not the proper party against whom the alleged invalidity of the ordinance in
question should be pleaded, nor is this the proper proceeding wherein the alleged infirmity of the said
ordinance may be raised. A municipal ordinance is not subject to collateral attack. Public policy forbids
collateral impeachment of legislative acts (43 C. J., 555-556).
Under the second assignment of error, it is contended that the trial court fell into error in not ordering the
defendant-appellee to pay to the appellant in damages the amount of P2,160.00, notwithstanding the
admission of the defendant in the stipulation of facts that the San Miguel Brewery, Inc. incurred damages in
that amount, representing the hire of two (2) trucks at the rate of P80.00 per day which the plaintiff was
compelled to secure and use for the period from January 9, 1961 to February 8, 1961, during which time the
two delivery trucks of the plaintiff were impounded by the appellee. The argument is based on a wrong
premise. It erroneously assumes that the defendant is personally liable for damages to the appellant,
disregarding the established fact that the defendant had issued the warrant of distraint and levy against
plaintiff's properties in his capacity as City Treasurer of Butuan who, under the law, is empowered to issue
the warrant. Ordinance No. 26 of the City of Butuan provides, among others, as follows:

Sec. 1. Upon the failure of any person owing any delinquent tax or delinquent revenue to
pay the same, at the time required under existing ordinance, the City Treasurer, his deputy, or
any of his clerks duly authorized in writing by the City Treasurer may seize or distraint any
goods, chattels or effects, and other personal property, including stocks and other securities,
debts, credits, bank accounts and any interest in and rights to personal property, of such person
in sufficient quantity to satisfy the tax, or charge, together with any increment thereto incident to
delinquency, and the expenses of the distraint.
Since there is no dispute that the appellee issued the warrant of distraint and levy against the delivery trucks
of the appellant on January 9, 1961, in his capacity as City Treasurer of Butuan, and as there is no
disagreement that defendant-appellee issued said warrant by virtue of Ordinance No. 26 of the City of
Butuan above-quoted (Par. 15, Stipulation of Facts), and not having been shown that the defendant, either
as a private citizen or as City Treasurer of Butuan, had acted in bad faith, there can be no question that
appellee Francisco Magno, who was merely performing a duty enjoined by law to be performed when he
issued the warrant of distraint and levy, cannot be made to answer personally for damages to the appellant.
Finally, under the third assignment of error, appellant maintains that the trial court should not have awarded
damages in favor of the appellee under the counterclaim of the latter, for the reason that no evidence was
introduced by the appellee in support of the moral and exemplary damages he and his family allegedly
suffered. It argues further that attorney's fees should not have been assessed against it.
In respect of the appellee's counterclaim for moral and exemplary damages, the trial court said:
With respect to the counterclaim of defendant, it appears that defendant introduced no evidence
to support his claim for P40,000.00 moral damages, P10,000 exemplary damages and
P2,000.00 attorney's fees.
Nevertheless, the trial court sentenced the plaintiff to pay to the defendant, damages in the sum of
P2,000.00, and costs.
In order that moral damages may be awarded, there must be pleading and proof of moral suffering, mental
anguish, fright and the like (Darang vs. Belizar, L-19487, January 31, 1967). While no proof of pecuniary
loss is necessary in order that moral damages may be awarded, the amount of indemnity being left to the
discretion of the court (Article 2216), it is, nevertheless, essential that the claimant should satisfactorily
prove the existence of the factual basis of the damages (Article 2217) and its causal connection to
defendant's acts. This is so, because moral damages, though incapable of pecuniary estimation, are in the
category of an award, designed to compensate the claimant for actual injury suffered and not to impose a
penalty on the wrong-doer (Algarra vs. Sandejas, 27 Phil. 284; Malonzo vs. Galang, L-13851, July 27,
1960). Neither may we consider the award as exemplary damages, because the mere findings that certain
allegations in the complaint are not true, and the plaintiff committed a mistake in instituting the action
against the wrong party, do not justify the award of this kind of damages. It infringes upon the right of a
citizen to have access to the courts. The portals of the courts of justice should not be closed to litigants who
ask for the protection of their rights. Penalty in the concept of damages should not be imposed simply
because a complaint is found unmeritorious by the courts.
The amount of attorney's fees, on the other hand, is addressed to the sound discretion of the court. It may
be awarded along with expenses of litigation, other than judicial costs, in cases where the court deems it
just and equitable under the circumstances of the case. And when as in this case, the defendant public
officer was sued in his private capacity for acts done in the performance of official duty required by law, and
was forced to employ the services of private counsel to defend his rights, it is but proper that attorney's fees
be charged against the plaintiff. Nominal damages may also be adjudicated. We believe the award of
P2,000.00 attorney's fees and P100.00 nominal damages, is just and equitable in the premises.
WHEREFORE, the decision appealed from is modified, setting aside the award of P2,000.00 to the
defendant in concept of damages, but increasing the attorney's fees to P2,000.00, and ordering the plaintiff
to pay to the defendant P100.00 as nominal damages. Judgment is affirmed in all other respects. Costs
against plaintiff-appellant.

10
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Fernando, JJ., concur.

DECISION

Republic
SUPREME
Manila

VELASCO, JR., J.:

of

the

SECOND DIVISION

Philippines
COURT

The freedom of the press is one of the cherished hallmarks of our democracy; but even as we strive to
protect and respect the fourth estate, the freedom it enjoys must be balanced with responsibility. There is a
fine line between freedom of expression and libel, and it falls on the courts to determine whether or not that
line has been crossed.

ERWIN TULFO, G.R. No. 161032

The Facts
Petitioner,
Present:
- versus - QUISUMBING, J., Chairperson,

On the complaint of Atty. Carlos "Ding" So of the Bureau of Customs, four (4) separate informations were
filed on September 8, 1999 with the Regional Trial Court in (RTC) Pasay City. These were assigned to
Branch 112 and docketed as Criminal Case Nos. 99-1597 to 99-1600, and charged petitioners Erwin Tulfo,
as author/writer, Susan Cambri, as managing editor, Rey Salao, as national editor, Jocelyn Barlizo, as city
editor, and Philip Pichay, as president of the Carlo Publishing House, Inc., of the daily tabloid Remate, with
the crime of libel in connection with the publication of the articles in the column "Direct Hit" in the issues of
May 11, 1999; May 12, 1999; May 19, 1999; and June 25, 1999. 1 The four informations read as follows:

CARPIO MORALES,
Criminal Case No. 99-1598
VELASCO, JR.,

Respondents.

That on or about the 11th day of May, 1999 in Pasay City, Metro Manila, Philippines and within the
jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating together and
mutually helping one another, being then the columnist, publisher and managing editor, respectively of
"REMATE", a tabloid published daily and of general circulation in the Philippines, did then and there willfully,
unlawfully and feloniously and with malicious intent to discredit or dishonor complainant, ATTY. CARLOS
"DING" SO, and with the malicious intent of injuring and exposing said complainant to public hatred,
contempt and ridicule, write and publish in the regular issue of said publication on May 11, 1999, its daily
column "DIRECT HIT", quoted hereunder, to wit:

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

PINAKAMAYAMAN SA CUSTOMS

SUSAN CAMBRI, REY SALAO, G.R. No. 161176

Ito palang si Atty. Ding So ng Intelligence Division ng Bureau of Customs and [sic] pinakamayaman na yata
na government official sa buong bansa sa pangungurakot lamang diyan sa South Harbor.

PEOPLE OF THE PHILIPPINES NACHURA,* and

and ATTY. CARLOS T. SO, BRION, JJ.

JOCELYN BARLIZO, and

Hindi matibag ang gagong attorney dahil malakas daw ito sa Iglesia ni Kristo.
PHILIP PICHAY,
Hoy, So! . . nakakahiya ka sa mga INC, ikaw na yata ang pinakagago at magnanakaw na miyembro nito.
Petitioners,
Balita ko, malapit ka nang itiwalag ng nasabing simbahan dahil sa mga kalokohan mo.
- versus Abangan bukas ang mga raket ni So sa BOC.
COURT OF APPEALS, PEOPLE
OF THE PHILIPPINES, and Promulgated:
CARLOS SO,
Respondents. September 16, 2008
x-----------------------------------------------------------------------------------------x

WHEREIN said complainant was indicated as an extortionist, a corrupt public official, smuggler and having
illegally acquired wealth, all as already stated, with the object of destroying his reputation, discrediting and
ridiculing him before the bar of public opinion.2
Criminal Case No. 99-1599
That on or about the 12th day of May, 1999 in Pasay City, Metro Manila, Philippines and within the
jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating together and
mutually helping one another, being then the columnist, publisher and managing editor, respectively of
"REMATE", a tabloid published daily and of general circulation in the Philippines, did then and there willfully,
unlawfully and feloniously and with malicious intent to discredit or dishonor complainant, ATTY. CARLOS

11
"DING" SO, and with the malicious intent of injuring and exposing said complainant to public hatred,
contempt and ridicule, write and publish in the regular issue of said publication on May 12, 1999, in daily
column "DIRECT HIT", quoted hereunder, to wit:
SI ATTY. SO NG BOC
"LINTEK" din sa pangungurakot itong Ding So ng Bureau of Customs Intelligence Unit sa South Harbor.
Daan-daang libong piso ang kinikita ng masiba at matakaw na si So sa mga importer na ayaw ideklara ang
totoong laman ng mga container para makaiwas sa pagbayad ng malaking customs duties at taxes.

Criminal Case No. 99-1597

That on or about 25th day of June, 1999 in Pasay City, Metro Manila, Philippines and within the jurisdiction
of this Honorable Court, the above-named accused, conspiring and confederating together and mutually
helping one another, being then the columnist, publisher and managing editor, respectively of "REMATE", a
tabloid published daily and of general circulation in the Philippines, did then and there willfully, unlawfully
and feloniously and with malicious intent to discredit or dishonor complainant, ATTY. CARLOS "DING" T.
SO, and with the malicious intent of injuring and exposing said complainant to public hatred, contempt and
ridicule, write and publish in the regular issue of said publication on June 25, 1999, its daily column
"DIRECT HIT", quoted hereunder, to wit:
xxxx

Si So ang nagpapadrino sa mga pag-inspection ng mga container na ito. Siyempre-binibigyan din niya ng
salapi yung ibang mga ahensiya para pumikit na lang at itikom ang kanilang nga [sic] bibig diyan sa mga
buwayang taga BOC.

Nagfile ng P10 M na libel suit itong si Atty. Carlos So ng Bureau of Customs laban sa inyong lingkod at ilang
opisyales ng Remate sa Pasay City Court. Nagalit itong tarantadong si Atty. So dahil binanatan ko siya at
inexpose ang kagaguhan niya sa BOC.

Awang-awa ako sa ating gobyerno. Bankrupt na nga, ninanakawan pa ng mga kawatan tulad ni So.
Ewan ko ba rito kay Atty. So, bakit hindi na lang tumayo ng sarili niyang robbery-hold-up gang para kumita
ng mas mabilis.
Hoy So.. hindi bagay sa iyo ang pagiging attorney . . . Mas bagay sa iyo ang pagiging buwayang naka
korbata at holdaper. Magnanakaw ka So!!"
WHEREIN said complainant was indicated as an extortionist, a corrupt public official, smuggler and having
illegally acquired wealth, all as already stated, with the object of destroying his reputation, discrediting and
ridiculing him before the bar of public opinion. 3
Criminal Case No. 99-1600
That on or about 19th day of May, 1999 in Pasay City, Metro Manila, Philippines and within the jurisdiction of
this Honorable Court, the above-named accused, conspiring and confederating together and mutually
helping one another, being then the columnist, publisher and managing editor, respectively of "REMATE", a
tabloid published daily and of general circulation in the Philippines, did then and there willfully, unlawfully
and feloniously and with malicious intent to discredit or dishonor complainant, ATTY. CARLOS "DING" SO,
and with the malicious intent of injuring and exposing said complainant to public hatred, contempt and
ridicule, write and publish in the regular issue of said publication on May 19, 1999, in daily column "DIRECT
HIT", quoted hereunder, to wit:
xxxx
"Tulad ni Atty. Ding So ng Bureau of Customs Intelligence Division, saksakan din ng lakas itong si Daniel
Aquino ng Presidential Anti-Smuggling Unit na nakatalaga sa South Harbor.
Tulad ni So, magnanakaw na tunay itong si Aquino.
Panghihingi ng pera sa mga brokers, ang lakad nito.

Hoy, So . . . dagdagan mo pa ang pagnanakaw mo dahil hindi kita tatantanan. Buhay ka pa sinusunog na
ang iyong kaluluwa sa impyerno.
WHEREIN said complainant was indicated as an extortionist, a corrupt public official, smuggler and having
illegally acquired wealth, all as already stated, with the object of destroying his reputation, discrediting and
ridiculing him before the bar of public opinion.5
On November 3, 1999, Tulfo, Salao, and Cambri were arraigned, while Barlizo and Pichay were arraigned
on December 15, 1999. They all pleaded not guilty to the offenses charged.
At pre-trial, the following were admitted by petitioners: (1) that during the four dates of the publication of the
questioned articles, the complaining witness was not assigned at South Harbor; (2) that the accused and
complaining witness did not know each other during all the time material to the four dates of publication; (3)
that Remate is a newspaper/tabloid of general circulation in the Philippines; (4) the existence and
genuineness of the Remate newspaper; (5) the column therein and its authorship and the alleged libelous
statement as well as the editorial post containing the designated positions of the other accused; and (6) the
prosecutions qualified admission that it is the duty of media persons to expose corruption. 6
The prosecution presented four witnesses, namely: Oscar M. Ablan, Atty. James Fortes, Jr., Gladys
Fontanilla, and complainant Atty. So. The prosecution presented documentary evidence as well.
Ablan testified that he had read the four columns written by Tulfo, and that the articles were untrue because
he had known Atty. So since 1992 and had worked with him in the Customs Intelligence and Investigation
Service Division of the Bureau of Customs. He further testified that upon reading the articles written by
Tulfo, he concluded that they referred to Atty. So because the subject articles identified "Atty. Carlos" as
"Atty. Ding So" of the Customs Intelligence and Investigation Service Division, Bureau of Customs and
there was only one Atty. Carlos "Ding" So of the Bureau of Customs. 7
Fontanilla, Records Officer I of the Bureau of Customs, testified that she issued a certification in connection
with these cases upon the request of Atty. So. 8 This certification stated that as per records available in her
office, there was only one employee by the name of "Atty. Carlos T. So" who was also known as "Atty. Ding
So" in the Intelligence Division of the Customs Intelligence and Investigation Service or in the entire Bureau
of Customs.9

Pag hindi nagbigay ng pera ang mga brokers, maiipit ang pagre-release ng kanilang kargamento."
WHEREIN said complainant was indicated as an extortionist, a corrupt public official, smuggler and having
illegally acquired wealth, all as already stated, with the object of destroying his reputation, discrediting and
ridiculing him before the bar of public opinion. 4

Atty. Fortes testified that he knew Atty. So as a fellow member of the Iglesia Ni Kristo and as a lawyer, and
that having read the articles of Tulfo, he believed that these were untrue, as he knew Atty. Carlos "Ding"
So.10

12
Atty. So testified that he was the private complainant in these consolidated cases. He further testified that he
is also known as Atty. "Ding" So, that he had been connected with the Bureau of Customs since October
1981, and that he was assigned as Officer-in-Charge (OIC) of the Customs Intelligence and Investigation
Service Division at the Manila International Container Port since December 27, 1999. He executed two
complaint-affidavits, one dated June 4, 1999 and the other dated July 5, 1999, for Criminal Case Nos. 991598 to 99-1600. Prior to this, he also filed 14 cases of libel against Raffy Tulfo, brother of petitioner Erwin
Tulfo. He testified that petitioner Tulfos act of imputing upon him criminality, assailing his honesty and
integrity, caused him dishonor, discredit, and contempt among his co-members in the legal profession, coofficers of the Armed Forces of the Philippines, co-members and peers in the Iglesia ni Kristo, his co-officers
and employees and superior officers in the Bureau of Customs, and among ordinary persons who had read
said articles. He said it also caused him and his family sleepless nights, mental anguish, wounded feelings,
intrigues, and embarrassment. He further testified that he included in his complaint for libel the officers of
Remate such as the publisher, managing editor, city editor, and national editor because under Article 360 of
the Revised Penal Code (RPC), they are equally responsible and liable to the same extent as if they were
the author of the articles. He also testified that "Ding" is his nickname and that he is the only person in the
entire Bureau of Customs who goes by the name of Atty. Carlos T. So or Atty. Carlos "Ding" So. 11
In his defense, petitioner Tulfo testified that he did not write the subject articles with malice, that he neither
knew Atty. So nor met him before the publication of the articles. He testified that his criticism of a certain
Atty. So of the South Harbor was not directed against the complainant, but against a person by the name of
Atty. "Ding" So at the South Harbor. Tulfo claimed that it was the practice of certain people to use other
peoples names to advance their corrupt practices. He also claimed that his articles had neither discredited
nor dishonored the complainant because as per his source in the Bureau of Customs, Atty. So had been
promoted. He further testified that he did not do any research on Atty. So before the subject articles,
because as a columnist, he had to rely on his source, and that he had several sources in the Bureau of
Customs, particularly in the South Harbor.12
Petitioner Salao testified that he came to know Atty. Carlos "Ding" So when the latter filed a case against
them. He testified that he is an employee of Carlo Publishing House, Inc.; that he was designated as the
national editor of the newspaper Remate since December 1999; that the duties of the position are to edit,
evaluate, encode, and supervise layout of the news from the provinces; and that Tulfo was under the
supervision of Rey Briones, Vice President for Editorial and Head of the Editorial Division. Salao further
testified that he had no participation in the subject articles of Tulfo, nor had he anything to do with the latters
column.13
Petitioner Cambri, managing editor of Remate, testified that she classifies the news articles written by the
reporters, and that in the Editorial Division, the officers are herself; Briones, her supervisor; Lydia Bueno, as
news and city editor; and Salao as national editor. She testified that petitioner Barlizo is her subordinate,
whose duties and responsibilities are the typesetting, editing, and layout of the page assigned to her, the
Metro page. She further testified that she had no participation in the writing, editing, or publication of the
column of Tulfo because the column was not edited. She claimed that none among her co-accused from the
Remate newspaper edited the columns of Tulfo, that the publication and editing of the subject articles were
the responsibility of Tulfo, and that he was given blanket authority to write what he wanted to write. She also
testified that the page wherein Tulfos column appeared was supervised by Bueno as news editor.14
Petitioner Pichay testified that he had been the president of Carlo Publishing House, Inc. since December
1998. He testified that the company practice was to have the columnists report directly to the vice-president
of editorials, that the columnists were given autonomy on their columns, and that the vice-president for
editorials is the one who would decide what articles are to be published and what are not. He further
testified that Tulfo was already a regular contributor.15
The Ruling of the RTC
In a Decision dated November 17, 2000, the RTC found petitioners guilty of the crime of Libel. The
dispositive portion reads as follows:
WHEREFORE, the Court finds the accused ERWIN TULFO, SUSAN CAMBRI, REY SALAO, JOCELYN
BARLIZO and PHILIP PICHAY guilty beyond reasonable doubt of four (4) counts of the crime of LIBEL, as
defined in Article 353 of the Revised Penal Code, and penalized by prision correccional in its minimum and

medium periods, or a fine ranging from P200.00 Pesos to P6,000.00 Pesos or both, under Article 355
of the same Code.
Applying the Indeterminate Sentence Law, the Court hereby sentences EACH of the accused to suffer
imprisonment of SIX (6) MONTHS of arresto mayor, as minimum, to FOUR (4) YEARS and TWO (2)
MONTHS of prision correccional, as maximum, for EACH count with accessory penalties provided by law.
Considering that the accused Erwin Tulfo, Susan Cambri, Rey Salao, Jocelyn Barlizo and Philip Pichay
wrote and published the four (4) defamatory articles with reckless disregard, being, in the mind of the Court,
of whether it was false or not, the said articles libelous per se, they are hereby ordered to pay, jointly and
severally, the sum of EIGHT HUNDRED THOUSAND (P800,000.00) PESOS, as actual damages, the sum
of ONE MILLION PESOS (P1,000,000.00), as moral damages, and an additional amount of FIVE
HUNDRED THOUSAND PESOS (P500,000.00), by way of exemplary damages, all with subsidiary
imprisonment, in case of insolvency, and to pay the costs.
SO ORDERED.16
The Ruling of the Court of Appeals
Before the Court of Appeals (CA), Tulfo assigned the following errors:
1. THE LOWER COURT ERRED IN IGNORING THE UNREBUTTED TESTIMONY OF THE APPELLANT
THAT HE DID NOT CRITICIZE THE PRIVATE COMPLAINANT WORKING AT THE NAIA. HE CRITICIZED
ANOTHER PERSON WORKING AT THE SOUTH HARBOR. HENCE, THE ELEMENT OF IDENTITY IS
LACKING.
2. THE LOWER COURT ERRED IN IGNORING THE LACK OF THE ESSENTIAL ELEMENT OF
DISCREDIT OR DISHONOR, AS DEFINED BY JURISPRUDENCE.
3. THERE WAS NO MALICE AGAINST THE PRIVATE COMPLAINANT ATTY. CARLOS "DING" SO. 17
His co-accused assigned the following errors:
A
The trial court seriously erred in holding accused Susan Cambri, Rey Salao, Jocelyn Barlizo and Philip
Pichay liable for the defamations contained in the questioned articles despite the fact that the trial court did
not have any finding as to their participation in the writing, editing and/or publication of the questioned
articles.
B
The trial court seriously erred in concluding that libel was committed by all of the accused on the basis of its
finding that the elements of libel have been satisfactorily established by evidence on record.
C
The trial court seriously erred in considering complainant to be the one referred to by Erwin Tulfo in his
articles in question.18
In a Decision19 dated June 17, 2003, the Eighth Division of the CA dismissed the appeal and affirmed the
judgment of the trial court. A motion for reconsideration dated June 30, 2003 was filed by Tulfo, while the

13
rest of his co-accused filed a motion for reconsideration dated July 2, 2003. In a Resolution dated
December 11, 2003, both motions were denied for lack of merit. 20

and that the presumption of malice in Art. 354 of the RPC does not apply. He argues that it is the
burden of the prosecution to prove malice in fact.

Petitions for Review on Certiorari under Rule 45

This case must be distinguished from Borjal on several points, the first being that Borjal stemmed from a
civil action for damages based on libel, and was not a criminal case. Second, the ruling in Borjal was that
there was no sufficient identification of the complainant, which shall be differentiated from the present case
in discussing the second assignment of error of Tulfo. Third, the subject in Borjal was a private citizen,
whereas in the present case, the subject is a public official. Finally, it was held in Borjal that the articles
written by Art Borjal were "fair commentaries on matters of public interest." 25 It shall be discussed and has
yet to be determined whether or not the articles fall under the category of "fair commentaries."

Tulfo brought this petition docketed as G.R. No. 161032, seeking to reverse the Decision of the CA in CAG.R. CR No. 25318 which affirmed the decision of the RTC. Petitioners Cambri, Salao, Barlizo, and Pichay
brought a similar petition docketed as G.R. No. 161176, seeking the nullification of the same CA decision.
In a Resolution dated March 15, 2004, the two cases were consolidated since both cases arise from the
same set of facts, involve the same parties, assail the same decision of the CA, and seek identical reliefs. 21
Assignment of Errors
Petitioner Tulfo submitted the following assignment of errors:
I
Assuming that the Prosecution presented credible and relevant evidence, the Honorable CA erred in not
declaring the assailed articles as privileged; the CA erred in concluding that malice in law exists by the
courts having incorrectly reasoned out that malice was presumed in the instant case.
II
Even assuming arguendo that the articles complained of are not privileged, the lower court, nonetheless,
committed gross error as defined by the provisions of Section 6 of Rule 45 by its misappreciation of the
evidence presented on matters substantial and material to the guilt or innocence of the petitioner. 22
Petitioners Cambri, Salao, Barlizo, and Pichay submitted their own assignment of errors, as follows:
A - The Court of Appeals Seriously Erred In Its Application of Article 360 Of The Revised Penal Code By
Holding Cambri, Salao And Barlizo Liable For The Defamatory Articles In The May 11, 12, 19 And June 25,
1999 Issues Of Remate Simply Because They Were Managing Editor, National Editor And City Editor
Respectively Of Remate And By Holding Pichay Also Liable For Libel Merely Because He Was The
President Of Carlo Publishing House, Inc. Without Taking Into Account The Unrebutted Evidence That
Petitioners Had No Participation In The Editing Or Publication Of The Defamatory Articles In Question.
B - The Court Of Appeals Committed Grave Abuse Of Discretion In Manifestly Disregarding The Unrebutted
Evidence That Petitioners Had No Participation In The Editing Or Publication Of The Defamatory Articles In
Question.
C - The Court Of Appeals Seriously Misappreciated The Evidence In Holding That The Person Referred To
In The Published Articles Was Private Complainant Atty. Carlos So.23
Our Ruling
The petitions must be dismissed.
The assignment of errors of petitioner Tulfo shall be discussed first.
In his appeal, Tulfo claims that the CA erred in not applying the ruling in Borjal v. Court of Appeals. 24 In
essence, he argues that the subject articles fall under "qualifiedly privileged communication" under Borjal

In passing, it must be noted that the defense of Tulfos articles being qualifiedly privileged communication is
raised for the first time in the present petition, and this particular issue was never brought before either the
RTC or the CA. Thus, neither the RTC nor the CA had a chance to properly consider and evaluate this
defense. Tulfo now draws parallels between his case and that of Art Borjal, and argues that the prosecution
should have proved malice in fact, and it was error on the part of the trial and appellate courts to use the
presumption of malice in law in Art. 354 of the RPC. This lays an unusual burden on the part of the
prosecution, the RTC, and the CA to refute a defense that Tulfo had never raised before them. Whether or
not the subject articles are privileged communications must first be established by the defense, which it
failed to do at the level of the RTC and the CA. Even so, it shall be dealt with now, considering that an
appeal in a criminal proceeding throws the whole case open for review.
There is no question of the status of Atty. So as a public official, who served as the OIC of the Bureau of
Customs Intelligence and Investigation Service at the Ninoy Aquino International Airport (NAIA) at the time
of the printing of the allegedly libelous articles. Likewise, it cannot be refuted that the goings-on at the
Bureau of Customs, a government agency, are matters of public interest. It is now a matter of establishing
whether the articles of Tulfo are protected as qualified privileged communication or are defamatory and
written with malice, for which he would be liable.
Freedom of the Press v. Responsibility of the Press
The Court has long respected the freedom of the press, and upheld the same when it came to
commentaries made on public figures and matters of public interest. Even in cases wherein the freedom of
the press was given greater weight over the rights of individuals, the Court, however, has stressed that such
freedom is not absolute and unbounded. The exercise of this right or any right enshrined in the Bill of Rights,
indeed, comes with an equal burden of responsible exercise of that right. The recognition of a right is not
free license for the one claiming it to run roughshod over the rights of others.
The Journalists Code of Ethics adopted by the National Union of Journalists of the Philippines shows that
the press recognizes that it has standards to follow in the exercise of press freedom; that this freedom
carries duties and responsibilities. Art. I of said code states that journalists "recognize the duty to air the
other side and the duty to correct substantive errors promptly." Art. VIII states that journalists "shall presume
persons accused of crime of being innocent until proven otherwise."
In the present case, it cannot be said that Tulfo followed the Journalists Code of Ethics and exercised his
journalistic freedom responsibly.
In his series of articles, he targeted one Atty. "Ding" So of the Bureau of Customs as being involved in
criminal activities, and was using his public position for personal gain. He went even further than that, and
called Atty. So an embarrassment to his religion, saying "ikaw na yata ang pinakagago at magnanakaw sa
miyembro nito."26 He accused Atty. So of stealing from the government with his alleged corrupt
activities.27 And when Atty. So filed a libel suit against him, Tulfo wrote another article, challenging Atty. So,
saying, "Nagalit itong tarantadong si Atty. So dahil binabantayan ko siya at in-expose ang kagaguhan niya
sa [Bureau of Customs]."28
In his testimony, Tulfo admitted that he did not personally know Atty. So, and had neither met nor known him
prior to the publication of the subject articles. He also admitted that he did not conduct a more in-depth

14
research of his allegations before he published them, and relied only on his source at the Bureau of
Customs.
In his defense before the trial court, Tulfo claimed knowledge of people using the names of others for
personal gain, and even stated that he had been the victim of such a practice. He argued then that it may
have been someone else using the name of Atty. So for corrupt practices at the South Harbor, and this
person was the target of his articles. This argument weakens his case further, for even with the knowledge
that he may be in error, even knowing of the possibility that someone else may have used Atty. Sos name,
as Tulfo surmised, he made no effort to verify the information given by his source or even to ascertain the
identity of the person he was accusing.
The trial court found Tulfos accusations against Atty. So to be false, but Tulfo argues that the falsity of
contents of articles does not affect their privileged character. It may be that the falsity of the articles does not
prove malice. Neither did Borjal give journalists carte blanche with regard to their publications. It cannot be
said that a false article accusing a public figure would always be covered by the mantle of qualified
privileged communication. The portion of Borjal cited by Tulfo must be scrutinized further:
Even assuming that the contents of the articles are false, mere error, inaccuracy or even falsity alone does
not prove actual malice. Errors or misstatements are inevitable in any scheme of truly free expression and
debate. Consistent with good faith and reasonable care, the press should not be held to account, to a point
of suppression, for honest mistakes or imperfections in the choice of language. There must be some room
for misstatement of fact as well as for misjudgment. Only by giving them much leeway and tolerance can
they courageously and effectively function as critical agencies in our democracy. In Bulletin Publishing
Corp. v. Noel we held
A newspaper especially one national in reach and coverage, should be free to report on events and
developments in which the public has a legitimate interest with minimum fear of being hauled to court by
one group or another on criminal or civil charges for libel, so long as the newspaper respects and keeps
within the standards of morality and civility prevailing within the general community.
To avoid the self-censorship that would necessarily accompany strict liability for erroneous statements, rules
governing liability for injury to reputation are required to allow an adequate margin of error by protecting
some inaccuracies. It is for the same reason that the New York Times doctrinerequires that liability for
defamation of a public official or public figure may not be imposed in the absence of proof of "actual malice"
on the part of the person making the libelous statement. 29 (Emphasis supplied.)
Reading more deeply into the case, the exercise of press freedom must be done "consistent with good faith
and reasonable care." This was clearly abandoned by Tulfo when he wrote the subject articles. This is no
case of mere error or honest mistake, but a case of a journalist abdicating his responsibility to verify his
story and instead misinforming the public. Journalists may be allowed an adequate margin of error in the
exercise of their profession, but this margin does not expand to cover every defamatory or injurious
statement they may make in the furtherance of their profession, nor does this margin cover total
abandonment of responsibility.
Borjal may have expanded the protection of qualified privileged communication beyond the instances given
in Art. 354 of the RPC, but this expansion does not cover Tulfo. The addition to the instances of qualified
privileged communications is reproduced as follows:
To reiterate, fair commentaries on matters of public interest are privileged and constitute a valid defense in
an action for libel or slander. The doctrine of fair comment means that while in general every discreditable
imputation publicly made is deemed false, because every man is presumed innocent until his guilt is
judicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable
imputation is directed against a public person in his public capacity, it is not necessarily actionable. In order
that such discreditable imputation to a public official may be actionable, it must either be a false allegation of
fact or a comment based on a false supposition. If the comment is an expression of opinion, based on
established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might
reasonably be inferred from the facts.30 (Emphasis supplied.)

The expansion speaks of "fair commentaries on matters of public interest." While Borjal places fair
commentaries within the scope of qualified privileged communication, the mere fact that the subject of the
article is a public figure or a matter of public interest does not automatically exclude the author from liability.
Borjal allows that for a discreditable imputation to a public official to be actionable, it must be a false
allegation of fact or a comment based on a false supposition. As previously mentioned, the trial court found
that the allegations against Atty. So were false and that Tulfo did not exert effort to verify the information
before publishing his articles.
Tulfo offered no proof for his accusations. He claimed to have a source in the Bureau of Customs and relied
only on this source for his columns, but did no further research on his story. The records of the case are
bereft of any showing that Atty. So was indeed the villain Tulfo pictured him to be. Tulfos articles related no
specific details or acts committed to prove Atty. So was indeed a corrupt public official. These columns were
unsubstantiated attacks on Atty. So, and cannot be countenanced as being privileged simply because the
target was a public official. Although wider latitude is given to defamatory utterances against public officials
in connection with or relevant to their performance of official duties, or against public officials in relation to
matters of public interest involving them, such defamatory utterances do not automatically fall within the
ambit of constitutionally protected speech.31 Journalists still bear the burden of writing responsibly when
practicing their profession, even when writing about public figures or matters of public interest. As held in In
Re: Emil P. Jurado:
Surely it cannot be postulated that the law protects a journalist who deliberately prints lies or distorts the
truth; or that a newsman may ecape liability who publishes derogatory or defamatory allegations against a
person or entity, but recognizes no obligation bona fide to establish beforehand the factual basis of such
imputations and refuses to submit proof thereof when challenged to do so. It outrages all notions of fair play
and due process, and reduces to uselessness all the injunctions of the Journalists Code of Ethics to allow a
newsman, with all the potential of his profession to influence popular belief and shape public opinion, to
make shameful and offensive charges destructive of personal or institutional honor and repute, and when
called upon to justify the same, cavalierly beg off by claiming that to do so would compromise his sources
and demanding acceptance of his word for the reliability of those sources. 32
The prosecution showed that Tulfo could present no proof of his allegations against Atty. So, only citing his
one unnamed source. It is not demanded of him that he name his source. The confidentiality of sources and
their importance to journalists are accepted and respected. What cannot be accepted are journalists making
no efforts to verify the information given by a source, and using that unverified information to throw wild
accusations and besmirch the name of possibly an innocent person. Journalists have a responsibility to
report the truth, and in doing so must at least investigate their stories before publication, and be able to back
up their stories with proof. The rumors and gossips spread by unnamed sources are not truth. Journalists
are not storytellers or novelists who may just spin tales out of fevered imaginings, and pass them off as
reality. There must be some foundation to their reports; these reports must be warranted by facts.
Jurado also established that the journalist should exercise some degree of care even when writing about
public officials. The case stated:
Clearly, the public interest involved in freedom of speech and the individual interest of judges (and for that
matter, all other public officials) in the maintenance of private honor and reputation need to be
accommodated one to the other. And the point of adjustment or accommodation between these two
legitimate interests is precisely found in the norm which requires those who, invoking freedom of speech,
publish statements which are clearly defamatory to identifiable judges or other public officials to exercise
bona fide care in ascertaining the truth of the statements they publish. The norm does not require that a
journalist guarantee the truth of what he says or publishes. But the norm does prohibit the reckless
disregard of private reputation by publishing or circulating defamatory statements without any bona fide
effort to ascertain the truth thereof. That this norm represents the generally accepted point of balance or
adjustment between the two interests involved is clear from a consideration of both the pertinent civil law
norms and the Code of Ethics adopted by the journalism profession in the Philippines. 33
Tulfo has clearly failed in this regard. His articles cannot even be considered as qualified privileged
communication under the second paragraph of Art. 354 of the RPC which exempts from the presumption of
malice "a fair and true report, made in good faith, without any comments or remarks, of any judicial,
legislative, or other official proceedings which are not of confidential nature, or any statement, report, or
speech delivered in said proceedings, or of any other act performed by public officers in the exercise of their

15
functions." This particular provision has several elements which must be present in order for the report to be
exempt from the presumption of malice. The provision can be dissected as follows:

was Atty. Carlos So who worked at the NAIA. He claims that there has arisen a cloud of doubt as to the
identity of the real party referred to in the articles.

In order that the publication of a report of an official proceeding may be considered privileged, the following
conditions must exist:

This argument is patently without merit.

(a) That it is a fair and true report of a judicial, legislative, or other official proceedings which are not of
confidential nature, or of a statement, report or speech delivered in said proceedings, or of any other act
performed by a public officer in the exercise of his functions;
(b) That it is made in good faith; and
(c) That it is without any comments or remarks. 34
The articles clearly are not the fair and true reports contemplated by the provision. They provide no details
of the acts committed by the subject, Atty. So. They are plain and simple baseless accusations, backed up
by the word of one unnamed source. Good faith is lacking, as Tulfo failed to substantiate or even attempt to
verify his story before publication. Tulfo goes even further to attack the character of the subject, Atty. So,
even calling him a disgrace to his religion and the legal profession. As none of the elements of the second
paragraph of Art. 354 of the RPC is present in Tulfos articles, it cannot thus be argued that they are
qualified privileged communications under the RPC.
Breaking down the provision further, looking at the terms "fair" and "true," Tulfos articles do not meet the
standard. "Fair" is defined as "having the qualities of impartiality and honesty." 35 "True" is defined as
"conformable to fact; correct; exact; actual; genuine; honest." 36 Tulfo failed to satisfy these requirements, as
he did not do research before making his allegations, and it has been shown that these allegations were
baseless. The articles are not "fair and true reports," but merely wild accusations.

The prosecution was able to present the testimonies of two other witnesses who identified Atty. So from
Tulfos articles. There is the certification that there is only one Atty. So in the Bureau of Customs. And most
damning to Tulfos case is the last column he wrote on the matter, referring to the libel suit against him by
Atty. So of the Bureau of Customs. In this article, Tulfo launched further attacks against Atty. So, stating that
the libel case was due to the exposs Tulfo had written on the corrupt acts committed by Atty. So in the
Bureau of Customs. This last article is an admission on the part of Tulfo that Atty. So was in fact the target of
his attacks. He cannot now point to a putative "Atty. Ding So" at South Harbor, or someone else using the
name of Atty. So as the real subject of his attacks, when he did not investigate the existence or nonexistence of an Atty. So at South Harbor, nor investigate the alleged corrupt acts of Atty. So of the Bureau of
Customs. Tulfo cannot say that there is doubt as to the identity of the Atty. So referred to in his articles,
when all the evidence points to one Atty. So, the complainant in the present case.
Having discussed the issue of qualified privileged communication and the matter of the identity of the
person referred to in the subject articles, there remains the petition of the editors and president of Remate,
the paper on which the subject articles appeared.
In sum, petitioners Cambri, Salao, Barlizo, and Pichay all claim that they had no participation in the editing
or writing of the subject articles, and are thus not liable.
The argument must fail.
The language of Art. 360 of the RPC is plain. It lists the persons responsible for libel:

Even assuming arguendo that the subject articles are covered by the shield of qualified privileged
communication, this would still not protect Tulfo.

Art. 360. Persons responsible.Any person who shall publish, exhibit, or cause the publication or exhibition
of any defamation in writing or by similar means, shall be responsible for the same.

In claiming that his articles were covered by qualified privileged communication, Tulfo argues that the
presumption of malice in law under Art. 354 of the RPC is no longer present, placing upon the prosecution
the burden of proving malice in fact. He then argues that for him to be liable, there should have been
evidence that he was motivated by ill will or spite in writing the subject articles.

The author or editor of a book or pamphlet, or the editor or business manager of a daily newspaper,
magazine or serial publication, shall be responsible for the defamations contained therein to the same
extent as if he were the author thereof.

The test to be followed is that laid down in New York Times Co. v. Sullivan, 37 and reiterated in Flor v. People,
which should be to determine whether the defamatory statement was made with actual malice, that is, with
knowledge that it was false or with reckless disregard of whether it was false or not. 38
The trial court found that Tulfo had in fact written and published the subject articles with reckless disregard
of whether the same were false or not, as proven by the prosecution. There was the finding that Tulfo failed
to verify the information on which he based his writings, and that the defense presented no evidence to
show that the accusations against Atty. So were true. Tulfo cannot argue that because he did not know the
subject, Atty. So, personally, there was no malice attendant in his articles. The test laid down is the "reckless
disregard" test, and Tulfo has failed to meet that test.
The fact that Tulfo published another article lambasting respondent Atty. So can be considered as further
evidence of malice, as held in U.S. vs. Montalvo, 39 wherein publication after the commencement of an action
was taken as further evidence of a malicious design to injure the victim. Tulfo did not relent nor did he pause
to consider his actions, but went on to continue defaming respondent Atty. So. This is a clear indication of
his intent to malign Atty. So, no matter the cost, and is proof of malice.
Leaving the discussion of qualified privileged communication, Tulfo also argues that the lower court
misappreciated the evidence presented as to the identity of the complainant: that Tulfo wrote about Atty.
"Ding" So, an official of the Bureau of Customs who worked at the South Harbor, whereas the complainant

The claim that they had no participation does not shield them from liability. The provision in the RPC does
not provide absence of participation as a defense, but rather plainly and specifically states the responsibility
of those involved in publishing newspapers and other periodicals. It is not a matter of whether or not they
conspired in preparing and publishing the subject articles, because the law simply so states that they are
liable as they were the author.
Neither the publisher nor the editors can disclaim liability for libelous articles that appear on their paper by
simply saying they had no participation in the preparation of the same. They cannot say that Tulfo was all
alone in the publication of Remate, on which the subject articles appeared, when they themselves clearly
hold positions of authority in the newspaper, or in the case of Pichay, as the president in the publishing
company.
As Tulfo cannot simply say that he is not liable because he did not fulfill his responsibility as a journalist, the
other petitioners cannot simply say that they are not liable because they did not fulfill their responsibilities as
editors and publishers. An editor or manager of a newspaper, who has active charge and control of its
management, conduct, and policy, generally is held to be equally liable with the owner for the publication
therein of a libelous article. 40 On the theory that it is the duty of the editor or manager to know and control
the contents of the paper,41 it is held that said person cannot evade responsibility by abandoning the duties
to employees,42 so that it is immaterial whether or not the editor or manager knew the contents of the
publication.43 In Fermin v. People of the Philippines, 44 the Court held that the publisher could not escape
liability by claiming lack of participation in the preparation and publication of a libelous article. The Court

16
cited U.S. v. Ocampo, stating the rationale for holding the persons enumerated in Art. 360 of the RPC
criminally liable, and it is worth reiterating:

"An information for libel will lie against the publisher of a papers, although he did not know of its being
put into the paper and stopped the sale as soon as he discovered it."

According to the legal doctrines and jurisprudence of the United States, the printer of a publication
containing libelous matter is liable for the same by reason of his direct connection therewith and his
cognizance of the contents thereof. With regard to a publication in which a libel is printed, not only is the
publisher but also all other persons who in any way participate in or have any connection with its publication
are liable as publishers.

In the case of People vs. Clay (86 Ill., 147) the court held that

xxxx

Under Art. 360 of the RPC, as Tulfo, the author of the subject articles, has been found guilty of libel, so too
must Cambri, Salao, Barlizo, and Pichay.

In the case of State vs. Mason (26 L.R.A., 779; 26 Oreg., 273, 46 Am. St. Rep., 629), the question of the
responsibility of the manager or proprietor of a newspaper was discussed. The court said, among other
things (pp. 782, 783):
"The question then recurs as to whether the manager or proprietor of a newspaper can escape criminal
responsibility solely on the ground that the libelous article was published without his knowledge or consent.
When a libel is published in a newspaper, such fact alone is sufficient evidence prima facie to charge the
manager or proprietor with the guilt of its publication.
"The manager and proprietor of a newspaper, we think ought to be held prima facie criminally for whatever
appears in his paper; and it should be no defense that the publication was made without his knowledge or
consent, x x x.
"One who furnishes the means for carrying on the publication of a newspaper and entrusts its management
to servants or employees whom he selects and controls may be said to cause to be published what actually
appears, and should be held responsible therefore, whether he was individually concerned in the publication
or not, x x x. Criminal responsibility for the acts of an agent or servant in the course of his employment
necessarily implies some degree of guilt or delinquency on the part of the publisher; x x x.

"A person who makes a defamatory statement to the agent of a newspaper for publication, is liable both
civilly and criminally, and his liability is shared by the agent and all others who aid in publishing it." 45

Though we find petitioners guilty of the crime charged, the punishment must still be tempered with justice.
Petitioners are to be punished for libel for the first time. They did not apply for probation to avoid service of
sentence possibly in the belief that they have not committed any crime. In Buatis, Jr. v. People, 46 the Court,
in a criminal case for libel, removed the penalty of imprisonment and instead imposed a fine as penalty. In
Sazon v. Court of Appeals, 47 the accused was merely fined in lieu of the original penalty of imprisonment
and fine. Freedom of expression as well as freedom of the press may not be unrestrained, but neither must
it be reined in too harshly. In light of this, considering the necessity of a free press balanced with the
necessity of a responsible press, the penalty of a fine of PhP 6,000 for each count of libel, with subsidiary
imprisonment in case of insolvency, should suffice. 48Lastly, the responsibilities of the members of the press
notwithstanding, the difficulties and hazards they encounter in their line of work must also be taken into
consideration.
The award of damages by the lower court must be modified. Art. 2199 of the Civil Code provides, "Except as
provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss
suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory
damages." There was no showing of any pecuniary loss suffered by the complainant Atty. So. Without proof
of actual loss that can be measured, the award of actual damages cannot stand.
In Del Mundo v. Court of Appeals, it was held, as regards actual and moral damages:

"We think, therefore, the mere fact that the libelous article was published in the newspaper without the
knowledge or consent of its proprietor or manager is no defense to a criminal prosecution against such
proprietor or manager."
In the case of Commonwealth vs. Morgan (107 Mass., 197), this same question was considered and the
court held that in the criminal prosecution of a publisher of a newspaper in which a libel appears, he is prima
facie presumed to have published the libel, and that the exclusion of an offer by the defendant to prove that
he never saw the libel and was not aware of its publication until it was pointed out to him and that an
apology and retraction were afterwards published in the same paper, gave him no ground for exception. In
this same case, Mr. Justice Colt, speaking for the court, said:
"It is the duty of the proprietor of a public paper, which may be used for the publication of improper
communications, to use reasonable caution in the conduct of his business that no libels be published."
(Whartons Criminal Law, secs. 1627, 1649; 1 Bishops Criminal Law, secs. 219, 221; People vs. Wilson, 64
Ill., 195; Commonwealth vs. Damon, 136 Mass., 441.)
The above doctrine is also the doctrine established by the English courts. In the case of Rex vs. Walter (3
Esp., 21) Lord Kenyon said that he was "clearly of the opinion that the proprietor of a newspaper was
answerable criminally as well as civilly for the acts of his servants or agents for misconduct in the
management of the paper."
This was also the opinion of Lord Hale, Mr. Justice Powell, and Mr. Justice Foster.
Lofft, an English author, in his work on Libel and Slander, said:

A party is entitled to an adequate compensation for such pecuniary loss actually suffered by him as he has
duly proved. Such damages, to be recoverable, must not only be capable of proof, but must actually be
proved with a reasonable degree of certainty. We have emphasized that these damages cannot be
presumed, and courts, in making an award must point out specific facts which could afford a basis for
measuring whatever compensatory or actual damages are borne.
Moral damages, upon the other hand, may be awarded to compensate one for manifold injuries such as
physical suffering, mental anguish, serious anxiety, besmirched reputation, wounded feelings and social
humiliation. These damages must be understood to be in the concept of grants, not punitive or corrective in
nature, calculated to compensate the claimant for the injury suffered. Although incapable of exactness and
no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of
indemnity being left to the sound discretion of the court, it is imperative, nevertheless, that (1) injury must
have been suffered by the claimant, and (2) such injury must have sprung from any of the cases expressed
in Article 2219 and Article 2220 of the Civil Code. A causal relation, in fine, must exist between the act or
omission referred to in the Code which underlies, or gives rise to, the case or proceeding on the one hand,
and the resulting injury, on the other hand; i.e. the first must be the proximate cause and the latter the direct
consequence thereof.49
It was the articles of Tulfo that caused injury to Atty. So, and for that Atty. So deserves the award of moral
damages. Justification for the award of moral damages is found in Art. 2219(7) of the Civil Code, which
states that moral damages may be recovered in cases of libel, slander, or any other form of defamation. As
the cases involved are criminal cases of libel, they fall squarely within the ambit of Art. 2219(7).
Moral damages can be awarded even in the absence of actual or compensatory damages. The fact that no
actual or compensatory damage was proven before the trial court does not adversely affect the offended
partys right to recover moral damages.50

17
And while on the subject of moral damages, it may not be amiss to state at this juncture that Tulfos libelous
articles are abhorrent not only because of its vilifying and demeaning effect on Atty. So himself, but also
because of their impact on members of his family, especially on the children and possibly even the
childrens children.
The Court can perhaps take judicial notice that the sense of kinship runs deeply in a typical Filipino family,
such that the whole family usually suffers or rejoices at the misfortune or good fortune, as the case may be,
of any of its member. Accordingly, any attempt to dishonor or besmirch the name and reputation of the head
of the family, as here, invariably puts the other members in a state of disrepute, distress, or anxiety. This
reality adds an imperative dimension to the award of moral damages to the defamed party.
The award of exemplary damages, however, cannot be justified. Under Art. 2230 of the Civil Code, "In
criminal offenses, exemplary damages as a part of the civil liability may be imposed when the crime was
committed with one or more aggravating circumstances. Such damages are separate and distinct from fines
and shall be paid to the offended party." No aggravating circumstances accompanied the commission of the
libelous acts; thus, no exemplary damages can be awarded.
Conclusion
The press wields enormous power. Through its widespread reach and the information it imparts, it can mold
and shape thoughts and opinions of the people. It can turn the tide of public opinion for or against someone,
it can build up heroes or create villains.
It is in the interest of society to have a free press, to have liberal discussion and dissemination of ideas, and
to encourage people to engage in healthy debate. It is through this that society can progress and develop.
Those who would publish under the aegis of freedom of the press must also acknowledge the corollary duty
to publish responsibly. To show that they have exercised their freedom responsibly, they must go beyond
merely relying on unfounded rumors or shadowy anonymous sources. There must be further investigation
conducted, some shred of proof found to support allegations of misconduct or even criminal activity. It is in
fact too easy for journalists to destroy the reputation and honor of public officials, if they are not required to
make the slightest effort to verify their accusations. Journalists are supposed to be reporters of facts, not
fiction, and must be able to back up their stories with solid research. The power of the press and the
corresponding duty to exercise that power judiciously cannot be understated.
But even with the need for a free press, the necessity that it be free does not mean that it be totally
unfettered. It is still acknowledged that the freedom can be abused, and for the abuse of the freedom, there
must be a corresponding sanction. It falls on the press to wield such enormous power responsibly. It may be
a clich that the pen is mightier than the sword, but in this particular case, the lesson to be learned is that
such a mighty weapon should not be wielded recklessly or thoughtlessly, but always guided by conscience
and careful thought.
A robust and independently free press is doubtless one of the most effective checks on government power
and abuses. Hence, it behooves government functionaries to respect the value of openness and refrain
from concealing from media corruption and other anomalous practices occurring within their backyard. On
the other hand, public officials also deserve respect and protection against false innuendoes and unfounded
accusation of official wrongdoing from an abusive press. As it were, the law and jurisprudence on libel
heavily tilt in favor of press freedom. The common but most unkind perception is that government
institutions and their officers and employees are fair game to official and personal attacks and even ridicule.
And the practice on the ground is just as disconcerting. Reports and accusation of official misconduct often
times merit front page or primetime treatment, while defenses set up, retraction issued, or acquittal rendered
get no more, if ever, perfunctory coverage. The unfairness needs no belaboring. The balm of clear
conscience is sometimes not enough.
Perhaps lost in the traditional press freedom versus government impasse is the fact that a maliciously false
imputation of corruption and dishonesty against a public official, as here, leaves a stigmatizing mark not only
on the person but also the office to which he belongs. In the ultimate analysis, public service also unduly
suffers.

WHEREFORE, in view of the foregoing, the petitions in G.R. Nos. 161032 and 161176 are
DISMISSED. The CA Decision dated June 17, 2003 in CA-G.R. CR No. 25318 is hereby AFFIRMED with
the MODIFICATIONS that in lieu of imprisonment, the penalty to be imposed upon petitioners shall be a fine
of six thousand pesos (PhP 6,000) for each count of libel, with subsidiary imprisonment in case of
insolvency, while the award of actual damages and exemplary damages is DELETED. The Decision dated
November 17, 2000 of the RTC, Branch 112 in Pasay City in Criminal Case Nos. 99-1597 to 99-1600 is
modified to read as follows:
WHEREFORE, the Court finds the accused ERWIN TULFO, SUSAN CAMBRI, REY SALAO, JOCELYN
BARLIZO, and PHILIP PICHAY guilty beyond reasonable doubt of four (4) counts of the crime of LIBEL, as
defined in Article 353 of the Revised Penal Code, and sentences EACH of the accused to pay a fine of SIX
THOUSAND PESOS (PhP 6,000) per count of libel with subsidiary imprisonment, in case of insolvency.
Considering that the accused Erwin Tulfo, Susan Cambri, Rey Salao, Jocelyn Barlizo, and Philip Pichay
wrote and published the four (4) defamatory articles with reckless disregard whether it was false or not, the
said articles being libelous per se, they are hereby ordered to pay complainant Atty. Carlos T. So, jointly and
severally, the sum of ONE MILLION PESOS (PhP 1,000,000) as moral damages. The claim of actual and
exemplary damages is denied for lack of merit.
Costs against petitioners.
SO ORDERED.
Republic
SUPREME
Manila

of

the

Philippines
COURT

SECOND DIVISION
G.R. No. 61516 March 21, 1989
FLORENTINA
A.
GUILATCO, petitioner,
vs.
CITY OF DAGUPAN, and the HONORABLE COURT OF APPEALS, respondents.
Nolan R. Evangelista for petitioner.
The City Legal Officer for respondents.

SARMIENTO, J.:
In a civil action 1 for recovery of damages filed by the petitioner Florentina A. Guilatco, the following
judgment was rendered against the respondent City of Dagupan:
xxx
(1) Ordering defendant City of Dagupan to pay plaintiff actual damages in the
amount of P 15,924 (namely P8,054.00 as hospital, medical and other expenses
[Exhs. H to H-60], P 7,420.00 as lost income for one (1) year [Exh. F] and P 450.00
as bonus). P 150,000.00 as moral damages, P 50,000.00 as exemplary damages,
and P 3,000.00 as attorney's fees, and litigation expenses, plus costs and to
appropriate through its Sangguniang Panglunsod (City Council) said amounts for
said purpose;

18
(2) Dismissing plaintiffs complaint as against defendant City Engr. Alfredo G. Tangco;
and
(3) Dismissing the counterclaims of defendant City of Dagupan and defendant City
Engr. Alfredo G. Tangco, for lack of merit. 2
The facts found by the trial court are as follows: 3
It would appear from the evidences that on July 25, 1978, herein plaintiff, a Court
Interpreter of Branch III, CFI--Dagupan City, while she was about to board a
motorized tricycle at a sidewalk located at Perez Blvd. (a National Road, under the
control and supervision of the City of Dagupan) accidentally fell into a manhole
located on said sidewalk, thereby causing her right leg to be fractured. As a result
thereof, she had to be hospitalized, operated on, confined, at first at the Pangasinan
Provincial Hospital, from July 25 to August 3, 1978 (or for a period of 16 days). She
also incurred hospitalization, medication and other expenses to the tune of P
8,053.65 (Exh. H to H-60) or a total of P 10,000.00 in all, as other receipts were
either lost or misplaced; during the period of her confinement in said two hospitals,
plaintiff suffered severe or excruciating pain not only on her right leg which was
fractured but also on all parts of her body; the pain has persisted even after her
discharge from the Medical City General Hospital on October 9, 1978, to the present.
Despite her discharge from the Hospital plaintiff is presently still wearing crutches
and the Court has actually observed that she has difficulty in locomotion. From the
time of the mishap on July 25, 1978 up to the present, plaintiff has not yet reported
for duty as court interpreter, as she has difficulty of locomotion in going up the stairs
of her office, located near the city hall in Dagupan City. She earns at least P 720.00
a month consisting of her monthly salary and other means of income, but since July
25, 1978 up to the present she has been deprived of said income as she has already
consumed her accrued leaves in the government service. She has lost several
pounds as a result of the accident and she is no longer her former jovial self, she
has been unable to perform her religious, social, and other activities which she used
to do prior to the incident.
Dr. Norberto Felix and Dr. Dominado Manzano of the Provincial Hospital, as well as
Dr. Antonio Sison of the Medical City General Hospital in Mandaluyong Rizal (Exh. I;
see also Exhs. F, G, G-1 to G-19) have confirmed beyond shadow of any doubt the
extent of the fracture and injuries sustained by the plaintiff as a result of the mishap.
On the other hand, Patrolman Claveria, De Asis and Cerezo corroborated the
testimony of the plaintiff regarding the mishap and they have confirmed the
existence of the manhole (Exhs. A, B, C and sub-exhibits) on the sidewalk along
Perez Blvd., at the time of the incident on July 25, 1978 which was partially covered
by a concrete flower pot by leaving gaping hole about 2 ft. long by 1 1/2 feet wide or
42 cms. wide by 75 cms. long by 150 cms. deep (see Exhs. D and D-1).
Defendant Alfredo Tangco, City Engineer of Dagupan City and admittedly ex-officio
Highway Engineer, City Engineer of the Public Works and Building Official for
Dagupan City, admitted the existence of said manhole along the sidewalk in Perez
Blvd., admittedly a National Road in front of the Luzon Colleges. He also admitted
that said manhole (there are at least 11 in all in Perez Blvd.) is owned by the
National Government and the sidewalk on which they are found along Perez Blvd.
are also owned by the National Government. But as City Engineer of Dagupan City,
he supervises the maintenance of said manholes or drainage system and sees to it
that they are properly covered, and the job is specifically done by his subordinates,
Mr. Santiago de Vera (Maintenance Foreman) and Engr. Ernesto Solermo also a
maintenance Engineer. In his answer defendant Tangco expressly admitted in par. 71 thereof, that in his capacity as ex-officio Highway Engineer for Dagupan City he
exercises supervision and control over National roads, including the Perez Blvd.
where the incident happened.

On appeal by the respondent City of Dagupan, the appellate court 4 reversed the lower court findings
on the ground that no evidence was presented by the plaintiff- appellee to prove that the City of Dagupan
had "control or supervision" over Perez Boulevard. 5
The city contends that Perez Boulevard, where the fatal drainage hole is located, is a national road that is
not under the control or supervision of the City of Dagupan. Hence, no liability should attach to the city. It
submits that it is actually the Ministry of Public Highways that has control or supervision through the
Highway Engineer which, by mere coincidence, is held concurrently by the same person who is also the City
Engineer of Dagupan.
After examination of the findings and conclusions of the trial court and those of the appellate court, as well
as the arguments presented by the parties, we agree with those of the trial court and of the petitioner.
Hence, we grant the petition.
In this review on certiorari, we have simplified the errors assigned by the petitioner to a single issue:
whether or not control or supervision over a national road by the City of Dagupan exists, in effect binding the
city to answer for damages in accordance with article 2189 of the Civil Code.
The liability of public corporations for damages arising from injuries suffered by pedestrians from the
defective condition of roads is expressed in the Civil Code as follows:
Article 2189. Provinces, cities and municipalities shall be liable for damages for the
death of, or injuries suffered by, any person by reason of the defective condition of
roads, streets, bridges, public buildings, and other public works under their control or
supervision.
It is not even necessary for the defective road or street to belong to the province, city or municipality for
liability to attach. The article only requires that either control or supervision is exercised over the defective
road or street. 6
In the case at bar, this control or supervision is provided for in the charter of Dagupan and is exercised
through the City Engineer who has the following duties:
Sec. 22. The City Engineer--His powers, duties and compensation-There shall be a
city engineer, who shall be in charge of the department of Engineering and Public
Works. He shall receive a salary of not exceeding three thousand pesos per annum.
He shall have the following duties:
xxx
(j) He shall have the care and custody of the public system of waterworks and
sewers, and all sources of water supply, and shall control, maintain and regulate the
use of the same, in accordance with the ordinance relating thereto; shall inspect and
regulate the use of all private systems for supplying water to the city and its
inhabitants, and all private sewers, and their connection with the public sewer
system.
xxx
The same charter of Dagupan also provides that the laying out, construction and improvement of streets,
avenues and alleys and sidewalks, and regulation of the use thereof, may be legislated by the Municipal
Board . 7 Thus the charter clearly indicates that the city indeed has supervision and control over the
sidewalk where the open drainage hole is located.

19
The express provision in the charter holding the city not liable for damages or injuries sustained by persons
or property due to the failure of any city officer to enforce the provisions of the charter, can not be used to
exempt the city, as in the case at bar.8

Although the assessment of the amount is better left to the discretion of the trial court 21 under
preceding jurisprudence, the amount of moral damages should be reduced to P 20,000.00.
As for the award of exemplary damages, the trial court correctly pointed out the basis:

The charter only lays down general rules regulating the liability of the city. On the other hand article 2189
applies in particular to the liability arising from "defective streets, public buildings and other public works." 9

To serve as an example for the public good, it is high time that the Court, through
this case, should serve warning to the city or cities concerned to be more conscious
of their duty and responsibility to their constituents, especially when they are
engaged in construction work or when there are manholes on their sidewalks or
streets which are uncovered, to immediately cover the same, in order to minimize or
prevent accidents to the poor pedestrians.22

The City Engineer, Mr. Alfredo G. Tangco, admits that he exercises control or supervision over the said road.
But the city can not be excused from liability by the argument that the duty of the City Engineer to supervise
or control the said provincial road belongs more to his functions as an ex-officio Highway Engineer of the
Ministry of Public Highway than as a city officer. This is because while he is entitled to an honorarium from
the Ministry of Public Highways, his salary from the city government substantially exceeds the honorarium.
We do not agree.
Alfredo G. Tangco "(i)n his official capacity as City Engineer of Dagupan, as Ex- Officio Highway Engineer,
as Ex-Officio City Engineer of the Bureau of Public Works, and, last but not the least, as Building Official for
Dagupan City, receives the following monthly compensation: P 1,810.66 from Dagupan City; P 200.00 from
the Ministry of Public Highways; P 100.00 from the Bureau of Public Works and P 500.00 by virtue of P.D.
1096, respectively." 10 This function of supervision over streets, public buildings, and other public works
pertaining to the City Engineer is coursed through a Maintenance Foreman and a Maintenance
Engineer.11 Although these last two officials are employees of the National Government, they are detailed
with the City of Dagupan and hence receive instruction and supervision from the city through the City
Engineer.
There is, therefore, no doubt that the City Engineer exercises control or supervision over the public works in
question. Hence, the liability of the city to the petitioner under article 2198 of the Civil Code is clear.
Be all that as it may, the actual damages awarded to the petitioner in the amount of P 10,000.00 should be
reduced to the proven expenses of P 8,053.65 only. The trial court should not have rounded off the amount.
In determining actual damages, the court can not rely on "speculation, conjecture or guess work" as to the
amount. Without the actual proof of loss, the award of actual damages becomes erroneous. 12
On the other hand, moral damages may be awarded even without proof of pecuniary loss, inasmuch as the
determination of the amount is discretionary on the court.13 Though incapable of pecuniary estimation,
moral damages are in the nature of an award to compensate the claimant for actual injury suffered but
which for some reason can not be proven. However, in awarding moral damages, the following should be
taken into consideration:
(1) First, the proximate cause of the injury must be the claimee's acts.14

Too often in the zeal to put up "public impact" projects such as beautification drives, the end is more
important than the manner in which the work is carried out. Because of this obsession for showing off, such
trivial details as misplaced flower pots betray the careless execution of the projects, causing public
inconvenience and inviting accidents.
Pending appeal by the respondent City of Dagupan from the trial court to the appellate court, the petitioner
was able to secure an order for garnishment of the funds of the City deposited with the Philippine National
Bank, from the then presiding judge, Hon. Willelmo Fortun. This order for garnishment was revoked
subsequently by the succeeding presiding judge, Hon. Romeo D. Magat, and became the basis for the
petitioner's motion for reconsideration which was also denied. 23
We rule that the execution of the judgment of the trial court pending appeal was premature. We do not find
any good reason to justify the issuance of an order of execution even before the expiration of the time to
appeal .24
WHEREFORE, the petition is GRANTED. The assailed decision and resolution of the respondent Court of
Appeals are hereby REVERSED and SET ASIDE and the decision of the trial court, dated March 12, 1979
and amended on March 13, 1979, is hereby REINSTATED with the indicated modifications as regards the
amounts awarded:
(1) Ordering the defendant City of Dagupan to pay the plaintiff actual damages in the
amount of P 15,924 (namely P 8,054.00 as hospital, medical and other expenses; P
7,420.00 as lost income for one (1) year and P 450.00 as bonus); P 20,000.00 as
moral damages and P 10,000.00 as exemplary damages.
The attorney's fees of P 3,000.00 remain the same.
SO ORDERED.

(2) Second, there must be compensatory or actual damages as satisfactory proof of

the factual basis for damages.15

Melencio-Herrera, (Chaiperson), Paras, Padilla and Regalado, JJ., concur.

(3) Third, the award of moral damages must be predicated on any of the cases
enumerated in the Civil Code. 16

Republic
SUPREME
Manila

In the case at bar, the physical suffering and mental anguish suffered by the petitioner were proven.
Witnesses from the petitioner's place of work testified to the degeneration in her disposition-from being jovial
to depressed. She refrained from attending social and civic activities.17

the

Philippines
COURT

THIRD DIVISION
G.R. No. L-66419

Nevertheless the award of moral damages at P 150,000.00 is excessive. Her handicap was not permanent
and disabled her only during her treatment which lasted for one year. Though evidence of moral loss and
anguish existed to warrant the award of damages,18 the moderating hand of the law is called for. The Court
has time and again called attention to the reprehensible propensity of trial judges to award damages without
basis,19 resulting in exhorbitant amounts.20

of

July 31, 1987

FILINVEST
vs.
IVAN MENDEZ, respondent.

CREDIT

CORPORATION, petitioner,

20
GUTIERREZ, JR., J.:

On May 24, 1976, this Court issued Order of Seizure which states, among others:

This is a petition to review on certiorari the decision of the Intermediate Appellate Court, now Court of
Appeals, rendered in AC-G.R. CV No. 63673 affirming in toto the decision of the Court of First Instance of
Davao, Branch 6, 16th Judicial District.
The factual background of this case, as summarized in the trial court's decision and adopted by the
appellate court, is as follows:
On August 6, 1974, Ivan Mendez purchased a Ford Cortina from the Davao Motor Sales
Company and to secure balance of P49,428.40 plaintiff executed and delivered a promissory
note and chattel mortgage in favor of Davao Motor Sales Company.
On August 11, 1974, Davao Motor Sales Company assigned to Filinvest Credit Corp., its rights,
title and interest in the promissory note and chattel mortgage. According to the terms of the
promissory note, the monthly installments of Pl,373.00 would begin on September 13, 1974, and
on or before the 13th day of the month thereafter until August 13, 1977, with interest and such
other charges customarily imposed by defendant on transactions of the same nature.
It appears that Ivan Mendez failed to pay the February 13, March 13, and April 13, 1976
installments due on the promissory note, Thus, defendant financing company sent written
demands to Ivan Mendez to update his account.
On May 3, 1976, Ivan Mendez paid the financing company P2,000.00 through Philippine
Veteran's Bank Check No. 58166 which was credited to payments for the following months:

WHEREAS, it is further alleged in the complaint that in violation of their undertakings

the defendants defaulted in complying with the terms and conditions of the said
promissory note and chattel mortgage (Annexes "A" and "B"), by failing to pay part of
the installment which fell due on February 13, 1976, as well as the subsequent two
(2) consecutive installments which fell due on March 12 April 13, 1976; (Exh. "B
").
Early in the morning of June 8, 1976, Ivan Mendez used the car to fetch a certain Col. Coronel
at the airport who came to the city to speak at a gathering of reserve officers. Ivan Mendez, a
Captain in the reserve force, brought Col. Coronel to a hotel thence to an eatery downtown
where the conference was being held. After which, Mendez instructed his driver to take the car
home to the Central Park Subdivision, Davao City. Shortly before noon, personnel of the
financing company and a deputy sheriff arrived at the house of Mendez and seized the car
pursuant to the Order dated May 24, 1976. The car was driven back to the eatery where Ivan
Mendez was called and he pleaded with the FILINVEST people to release his car in the
meantime. Refused, Mendez then went to the office of the financing company and reiterated his
plea. He was told by Benjamin Bontia, collection and credit manager of the financing company
that he had to pay the whole amount due in order to get back the car. After further negotiations,
Bontia relented and permitted Mendez to pay his April, May and June installments plus
repossession expenses as a condition to the release of the car.
On June 11, 1976, Mendez paid P3,000.00, which was credited to the following months: April
P957.95; May Pl,373.00; and, June P643.67 plus interest of P25.38 (Exh. "6-B"). On June
18, 1976, Mendez paid Pl,894.00 as and for repossession expenses (Exh. "C "). After payments
of these amounts, the financing company finally released the car to Ivan Mendez.
On June 21, 1976. the financing company filed a motion in court seeking the dismissal of Civil
Case No. 9468 "on the ground that defendants have updated their obligation to the plaintiff", and
which was granted by virtue of the Order of this Court dated June 24, 1976. (pp. 105-106, Rollo)

Month

Amount

Feb. 1976

P200.49

(full payment)

Mar. 1976

1,373.00

(full payment )

Apr. 1976

415.05

(partial)

Sub-total

1,988.54

Interest

11.46

Total

P2,000.00

On July 14, 1976, respondent Mendez filed a complaint for Solution Indebiti and damages against the
petitioner before the Court of First Instance of Davao, Branch 6, 16th Judicial District. His amended
complaint dated July 28, 1976, alleged, among others, "that the seizure order was illegal, as the unpaid
installments for the months of February, March, April, 1976 subject of Civil Case No. 9468 had previously
been updated by the clearing of the PVB check, and that petitioner was therefore without any right to claim
from him the repossession expenses and, that due to the alleged unjustified repossession of the car and the
factual circumstances attendant thereto, he is entitled to moral damages." (p. 24, Rollo)
In its answer to the complaint, the petitioner countered: "that since the PVB check was only cleared
subsequent to May 10, 1976, respondent was in default of the February, March and April installments at the
time it filed its complaint for the repossession of the car on the aforesaid dated; and, that the subsequent
updating of respondent's account did not invalidate the seizure order, as the basis therefor was the failure of
respondent to pay the installments when they fell due, and not the failure to pay the February, March and
April installments in particular." (pp. 24-25, Rollo)
On December 10, 1977, the trial court rendered its judgment, the dispositive portion of which reads:

On May 6, 1976, the check was returned to the financing corporation on the ground of
insufficient funds by the Philippine Veterans Bank.
On May 10, 1976, defendant financing company filed an action for recovery of personal property
and/or sum of money docketed as Civil Case No. 9468 in the Court of First Instance against Ivan
Mendez, et al.
On May 13, 1976 (or May 26, 1976), the check was finally cleared and considered payment for
the February, March and April, 1976, installments.

WHEREFORE, in view of the foregoing, judgment is hereby rendered infavor of plaintiff Ivan Mendez, and
against the defendant Filinvest Credit Corporation:
1. Ordering the defendant Filinvest Credit Corporation, to return to plaintiff the sum of P1,894.80
representing the repossession expenses paid by Ivan Mendez to the financing company with
legal rate of interest from June 17, 1976, the date of payment up to the time the full amount is
returned;

21
2. Ordering the defendant to pay to plaintiff the sum of P80,000.00, as and for moral damages;
and
3. Ordering the defendant to pay to plaintiff the amount of P80,000.00 as and for attorney's fees.
The defendant Filinvest Credit Corporation shall pay the costs of suit. (pp, 101-102, Rollo)

According to the private respondent, the complaint in Civil Case No. 9468 not only alleged a cause of
action for specific performance but also alternatively asked for the issuance of a writ of replevin. The
petitioner, therefore, acted cumulatively in pursuing its various remedies which is against the intent and spirit
of the installment sales law.
We agree with the petitioner.

The petitioner appealed to the Intermediate Appellate Court which affirmed in toto the decision of the trial
court. Its motion for reconsideration having been denied, the petitioner filed the present petition.

The remittance of the PVB check on May 3, 1976 could not have cured the defaults in payment because the
check bounced when it was presented for payment. The respondent's account had no funds at the time to
back up the check he used as payment.

The petitioner now comes before this Court with the following assignments of errors:

Article 1249 of the Civil Code provides:

xxx

THE TRIAL COURT ERRED IN HOLDING THAT THE SEIZURE OF THE CAR WAS TOTALLY
UNJUSTIFIED AND IN ORDERING PETITIONER TO REIMBURSE RESPONDENT THE SUM OF ONE
THOUSAND EIGHT HUNDRED NINETY FOUR PESOS & 80/100 (P1,894.80) REPRESENTING THE
REPOSSESSION EXPENSES.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.

II
THE TRIAL COURT ERRED IN AWARDING RESPONDENT MORAL DAMAGES IN THE AMOUNT OF
EIGHTY THOUSAND PESOS (P80,000.00)
III
THE TRIAL COURT ERRED IN ORDERING PETITIONER TO PAY RESPONDENT THE SUM OF EIGHT
THOUSAND PESOS (P8,000.00) AS AND FOR ATTORNEY'S FEES.

xxx

xxx

xxx

xxx

xxx

The petitioner stresses that the seizure order was anchored on the respondent's failure to pay installments
on time and not on the mere unqualified failure to pay the February, March, and April installments. It states
that the making of timely payments was an absolute undertaking in the promissory note and the deed of
chattel mortgage. The grievance sought to be vindicated by the replevin suit was the non-compliance with
this undertaking.
The records sustain the petitioner's arguments that it had a valid cause of action when the complaint was
filed. It filed suit for the total balance of P25,597.56 in accordance with the stipulated acceleration clause in
case of default. The consideration for the seizure order prayed for by the petitioner included the nonpayment of the remaining total obligation.

IV
THE TRIAL COURT ERRED IN NOT DISMISSING CIVIL CASE NO, 9621 AND IN NOT AWARDING
PETITIONER ITS LEGITIMATE COUNTERCLAIM FOR DAMAGES. (p. 28, Rollo)
The arguments of the petitioner are centered on its having a clear cause of action and a right to the
corresponding remedy at the time the complaint was filed on May 10, 1976. The respondent had not paid
the February, March, and April 1976 installments or more than two installments due on the promissory note.
On the other hand, the respondent claims that the acceleration clause stipulated in the promissory note and
in the chattel mortgage cannot justify the action taken by the petitioner because it contravenes the letter and
the avowed public policy of the installment sales law, and, therefore, is illegal and unenforceable.
The respondent states that since the petitioner was exacting fulfillment of the obligation it should have
desisted from repossessing the car. It cannot exercise its remedies cumulatively. It cannot pretend that it
was recovering the car preparatory to cancellation of the sale or foreclosure of the chattel mortgage
because it had elected to exact fulfillment of the obligation when it filed Civil Case No. 9468.
The respondent stresses that the PVB check bounced on May 6, 1976, but the petitioner re-deposited it and
in due course of business it cleared on May 13, 1976. Thus, as of May 13, 1976, the remaining unpaid
installment was only part of the April, 1976 installment, in the amount of P957.95. Having redeposited the
check before May 13, 1976, the petitioner should have waited until the check bounced before filing the
complaint.

With respect to the trial court's ordering the petitioner to reimburse Pl,894.80 representing the expenses
incurred because of the seizure of the car and as a condition for its release, the petitioner maintains that it
had sufficient justification to proceed with Civil Case No. 9468 and to repossess the car. It disclaims any
obligation to withdraw the replevin suit upon the clearing of the PVB check, because the fact that it was
cleared did not wipe out the bases of the proceedings.
Insofar as the P1,894.80 are concerned, the petitioner is correct that the repossession expenses must be
for the account of the respondents whose duty was to immediately surrender the car upon valid demand
and thereby prevent the necessity of the petitioner's having to spend in order to repossess it.
The petitioner also questions the award of attorney's fees. It asserts that according to decisions of this
Court, an award of attorney's fees is improper on the sole basis of an adverse decision (Ramos v. Ramos,
61 SCRA 284), or if one considers the good faith of parties in prosecuting a cause of action though declared
to be unfounded (Salao v. Salao, 70 SCRA 65), or in the absence of clear proof that an action was intended
merely to prejudice the other party (Mercader v. Manila Polo Club, L-8373, September 28, 1956). The
records sustain the contention that there is no basis for entitlement to attorney's fees.
Concerning the award of moral damages in the amount of P80,000.00, the petitioner argues that moral
damages may be recovered if they are the proximate result of a wrongful act or omission. The petitioner
points out that it repossessed the car as a matter of right and upon faithful compliance with all the legal
requirements. As the exercise of a right within legal bounds is not wrongful, the basic requirement for an
award of moral damages is absent. It was the respondent and not the petitioner, who was guilty of a
wrongful act. The failure to abide by one's express financial obligations is deplorable. To hold otherwise is to
reward contractual breach and penalize one who avails of contractual and legal remedies to correct the

22
prejudice resulting from any such breach. The petitioner argues that the respondent alone must bear the
consequences of his wrongful omission.
On the other hand, the private respondent bases his claim to moral damages on the alleged failure of the
petitioner, to act with caution and to observe honesty and good faith with due regard to the respondent's
rights under the installment sales law as wen as on the act of the petitioner in deliberately repossessing the
car in violation of law.

FERNANDO
LOPEZ,
ET
vs.
PAN AMERICAN WORLD AIRWAYS, defendant-appellant.
Ross,
Selph
and
Carrascoso
Vicente J. Francisco for the plaintiffs-appellants.

AL., plaintiffs-appellants,

for

the

defendant-appellant.

BENGZON, J.P., J.:

The award for moral damages has no factual and legal basis.
The respondent claims that it was while he was attending a seminar for home defense in Davao City that
the car was repossessed by the petitioner. When he pleaded with the petitioner not to seize the car at that
very moment because he was using it for his visitor from Manila, the petitioner chose to brandish the seizure
order as its weapon to enforce collection of his whole account. The respondent claims that he was
humiliated and embarrassed most especially before his visitor and among those attending the seminar as
well as among his friends and business associates. The shock and humiliation he suffered resulted to his
hospitalization immediately, thereafter, for about a week.
The testimony, however, of the driver of the respondent shows that the car was seized at the residence of
the respondent while the said driver was cleaning the same. It is, therefore, not true that the respondent was
humiliated and embarrassed before his visitor and among those attending the seminar,
The rule is settled that moral damages cannot be awarded in the absence of a wrongful act or omission or
fraud or bad faith. (R & B Surety & Insurance Co., v. Intermediate Appellate Court, 129 SCRA 736; and
Siasat v. Intermediate Appellate Court, 139 SCRA 238). When the action is filed in good faith there should
be no penalty on the right to litigate. (Expiritu v. Court of Appeals, 137 SCRA 50). The petitioner may have
erred but error alone is not a ground for moral damages.1avvphi1
The petitioner filed an action for recovery of personal property and/or sum of money against the respondent
(Civil Case No. 9468) when the latter's PVB check intended for the February, March, and April installments
bounced due to insufficiency of funds. By virtue of an order of seizure issued by the court, the car was
repossessed. The check was later redeposited and credited for the months mentioned. When the
respondent negotiated with the petitioner for the release of the car, the latter demanded payment of the total
outstanding balance on the promissory note. Due to the persistent pleas of t he respondent, the petitioner
released the car to him upon payment of the installment remaining unpaid for the months of April, May, and
June, 1976, in addition to the costs incurred in repossessing the car amounting to P1,897.80. On June 21,
1976, Civil Case No. 9468 was dismissed upon motion of the petitioner. The willingness of the petitioner to
allow the respondent to pay only the unpaid installments for April, May, and June instead of the total
outstanding balance and to release the car as well as its voluntary motion to dismiss the case indicates lack
of fraud or bad faith on the part of the petitioner. The private respondent was not without fault. He was three
months behind in his payments and he issued a bouncing check. The dismissal of Civil Case No. 9468
rendered moot and academic the issues of whether or not the acceleration clause in the promissory note is
illegal and unenforceable as well as the other issue of whether or not the petitioner acted cumulatively in
pursuing its various remedies to effect collection.
WHEREFORE, the petition is hereby GRANTED. The decisions of the trial court and the Intermediate
Appellate Court are REVERSED and SET ASIDE. The complaint of the respondent is DISMISSED.
SO ORDERED.
Republic
SUPREME
Manila

of

the

Philippines
COURT

Plaintiffs and defendant appeal from a decision of the Court of First Instance of Rizal. Since the value in
controversy exceeds P200,000 the appeals were taken directly to this Court upon all questions involved
(Sec. 17, par. 3[5], Judiciary Act).
Stated briefly the facts not in dispute are as follows: Reservations for first class accommodations in Flight
No. 2 of Pan American World Airways hereinafter otherwise called PAN-AM from Tokyo to San
Francisco
on
May
24,
1960
were
made
with
PAN-AM on March 29, 1960, by "Your Travel Guide" agency, specifically, by Delfin Faustino, for then
Senator Fernando Lopez, his wife Maria J. Lopez, his son-in-law Alfredo Montelibano, Jr., and his daughter,
Mrs. Alfredo Montelibano, Jr., (Milagros Lopez Montelibano). PAN-AM's San Francisco head office
confirmed the reservations on March 31, 1960.
First
class
tickets
for
the
abovementioned
flight
were
subsequently
issued
by
PAN-AM on May 21 and 23, 1960, in favor of Senator Lopez and his party. The total fare of P9,444 for all of
them was fully paid before the tickets were issued.
As scheduled Senator Lopez and party left Manila by Northwest Airlines on May 24, 1960, arriving in Tokyo
at 5:30 P.M. of that day. As soon as they arrived Senator Lopez requested Minister Busuego of the
Philippine Embassy to contact PAN-AM's Tokyo office regarding their first class accommodations for that
evening's flight. For the given reason that the first class seats therein were all booked up, however, PANAM's Tokyo office informed Minister Busuego that PAN-AM could not accommodate Senator Lopez and
party in that trip as first class passengers. Senator Lopez thereupon gave their first class tickets to Minister
Busuego for him to show the same to PAN-AM's Tokyo office, but the latter firmly reiterated that there was
no accommodation for them in the first class, stating that they could not go in that flight unless they took the
tourist class therein.
Due to pressing engagements awaiting Senator Lopez and his wife, in the United States he had to attend
a business conference in San Francisco the next day and she had to undergo a medical check-up in Mayo
Clinic, Rochester, Minnesota, on May 28, 1960 and needed three days rest before that in San Francisco
Senator Lopez and party were constrained to take PAN-AM's flight from Tokyo to San Francisco as tourist
passengers. Senator Lopez however made it clear, as indicated in his letter to PAN-AM's Tokyo office on
that date (Exh. A), that they did so "under protest" and without prejudice to further action against the
airline.1wph1.t
Suit for damages was thereafter filed by Senator Lopez and party against PAN-AM on June 2, 1960 in the
Court of First Instance of Rizal. Alleging breach of contracts in bad faith by defendant, plaintiffs asked for
P500,000 actual and moral damages, P100,000 exemplary damages, P25,000 attorney's fees plus costs.
PAN-AM filed its answer on June 22, 1960, asserting that its failure to provide first class accommodations to
plaintiffs was due to honest error of its employees. It also interposed a counterclaim for attorney's fees of
P25,000.
Subsequently, further pleadings were filed, thus: plaintiffs' answer to the counterclaim, on July 25, 1960;
plaintiffs' reply attached to motion for its admittance, on December 2, 1961; defendant's supplemental
answer, on March 8, 1962; plaintiffs' reply to supplemental answer, on March 10, 1962; and defendant's
amended supplemental answer, on July 10, 1962.

EN BANC
G.R. No. L-22415

March 30, 1966

After trial which took twenty-two (22) days ranging from November 25, 1960 to January 5, 1963 the
Court of First Instance rendered its decision on November 13, 1963, the dispositive portion stating:

23
In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and
against the defendant, which is accordingly ordered to pay the plaintiffs the following: (a)
P100,000.00 as moral damages; (b) P20,000.00 as exemplary damages; (c) P25,000.00 as
attorney's fees, and the costs of this action.
So ordered.
Plaintiffs, however, on November 21, 1963, moved for reconsideration of said judgment, asking that moral
damages be increased to P400,000 and that six per cent (6%) interest per annum on the amount of the
award be granted. And defendant opposed the same. Acting thereon the trial court issued an order on
December 14, 1963, reconsidering the dispositive part of its decision to read as follows:
In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and
against the defendant, which is accordingly ordered to pay the plaintiffs the following: (a)
P150,000.00 as moral damages; (b) P25,000.00 as exemplary damages; with legal interest on
both from the date of the filing of the complaint until paid; and (c) P25,000.00 as attorney's fees;
and the costs of this action.
So ordered.
It is from said judgment, as thus reconsidered, that both parties have appealed.
Defendant, as stated, has from the start admitted that it breached its contracts with plaintiffs to provide them
with first class accommodations in its Tokyo-San Francisco flight of May 24, 1960. In its appeal, however, it
takes issue with the finding of the court a quo that it acted in bad faith in the branch of said contracts.
Plaintiffs, on the other hand, raise questions on the amount of damages awarded in their favor, seeking that
the same be increased to a total of P650,000.
Anent the issue of bad faith the records show the respective contentions of the parties as follows.
According to plaintiffs, defendant acted in bad faith because it deliberately refused to comply with its
contract to provide first class accommodations to plaintiffs, out of racial prejudice against Orientals. And in
support of its contention that what was done to plaintiffs is an oftrepeated practice of defendant, evidence
was adduced relating to two previous instances of alleged racial discrimination by defendant against
Filipinos in favor of "white" passengers. Said previous occasions are what allegedly happened to (1) Benito
Jalbuena and (2) Cenon S. Cervantes and his wife.
And from plaintiffs' evidence this is what allegedly happened; Jalbuena bought a first class ticket from PANAM on April 13, 1960; he confirmed it on April 15, 1960 as to the Tokyo-Hongkong flight of April 20, 1960;
PAN-AM similarly confirmed it on April 20, 1960. At the airport he and another Oriental Mr. Tung were
asked to step aside while other passengers - including "white" passengers boarded PAN-AM's plane.
Then PAN-AM officials told them that one of them had to stay behind. Since Mr. Tung was going all the way
to London, Jalbuena was chosen to be left behind. PAN-AM's officials could only explain by saying there
was "some mistake". Jalbuena thereafter wrote PAN-AM to protest the incident (Exh. B).
As to Cenon S. Cervantes it would appear that in Flight No. 6 of PAN-AM on September 29, 1958 from
Bangkok to Hongkong, he and his wife had to take tourist class, although they had first class tickets, which
they had previously confirmed, because their seats in first class were given to "passengers from London."
Against the foregoing, however, defendant's evidence would seek to establish its theory of honest mistake,
thus:
The first class reservations of Senator Lopez and party were made on March 29, 1960 together with those
of four members of the Rufino family, for a total of eight (8) seats, as shown in their joint reservation card
(Exh. 1). Subsequently on March 30, 1960, two other Rufinos secured reservations and were given a
separate reservation card (Exh. 2). A new reservation card consisting of two pages (Exhs. 3 and 4) was then

made for the original of eight passengers, namely, Senator Lopez and party and four members of the
Rufino family, the first page (Exh. 3) referring to 2 Lopezes, 2 Montelibanos and 1 Rufino and the second
page (Exh. 4) referring to 3 Rufinos. On April 18, 1960 "Your Travel Guide" agency cancelled the
reservations of the Rufinos. A telex message was thereupon sent on that date to PAN-AM's head office at
San Francisco by Mariano Herranz, PAN-AM's reservations employee at its office in Escolta, Manila. (Annex
A-Acker's to Exh. 6.) In said message, however, Herranz mistakenly cancelled all the seats that had been
reserved, that is, including those of Senator Lopez and party.
The next day April 1960 Herranz discovered his mistake, upon seeing the reservation card newly
prepared by his co-employee Pedro Asensi for Sen. Lopez and party to the exclusion of the Rufinos (Exh.
5). It was then that Herranz sent another telex wire to the San Francisco head office, stating his error and
asking for the reinstatement of the four (4) first class seats reserved for Senator Lopez and party (Annex AVelasco's to Exh. 6). San Francisco head office replied on April 22, 1960 that Senator Lopez and party are
waitlisted and that said office is unable to reinstate them (Annex B-Velasco's to Exh. 6).
Since the flight involved was still more than a month away and confident that reinstatement would be made,
Herranz forgot the matter and told no one about it except his co-employee, either Armando Davila or Pedro
Asensi or both of them (Tsn., 123-124, 127, Nov. 17, 1961).
Subsequently, on April 27, 1960, Armando Davila, PAN-AM's reservations employee working in the same
Escolta office as Herranz, phoned PAN-AM's ticket sellers at its other office in the Manila Hotel, and
confirmed the reservations of Senator Lopez and party.
PAN-AM's reservations supervisor Alberto Jose, discovered Herranz's mistake after "Your Travel Guide"
phone on May 18, 1960 to state that Senator Lopez and party were going to depart as scheduled.
Accordingly, Jose sent a telex wire on that date to PAN-AM's head office at San Francisco to report the error
and asked said office to continue holding the reservations of Senator Lopez and party (Annex B-Acker's to
Exh. 6). Said message was reiterated by Jose in his telex wire of May 19, 1960 (Annex C-Acker's to Exh. 6).
San Francisco head office replied on May 19, 1960 that it regrets being unable to confirm Senator Lopez
and party for the reason that the flight was solidly booked (Exh. 7). Jose sent a third telex wire on May 20,
1960 addressed to PAN-AM's offices at San Francisco, New York (Idlewild Airport), Tokyo and Hongkong,
asking all-out assistance towards restoring the cancelled spaces and for report of cancellations at their end
(Annex D-Acker's to Exh. 6). San Francisco head office reiterated on May 20, 1960 that it could not reinstate
the spaces and referred Jose to the Tokyo and Hongkong offices (Exh. 8). Also on May 20, the Tokyo office
of PAN-AM wired Jose stating it will do everything possible (Exh. 9).
Expecting that some cancellations of bookings would be made before the flight time, Jose decided to
withhold from Senator Lopez and party, or their agent, the information that their reservations had been
cancelled.
Armando Davila having previously confirmed Senator Lopez and party's first class reservations to PAN-AM's
ticket sellers at its Manila Hotel office, the latter sold and issued in their favor the corresponding first class
tickets on the 21st and 23rd of May, 1960.
From the foregoing evidence of defendant it is in effect admitted that defendant through its agents first
cancelled plaintiffs, reservations by mistake and thereafter deliberately and intentionally withheld from
plaintiffs or their travel agent the fact of said cancellation, letting them go on believing that their first class
reservations stood valid and confirmed. In so misleading plaintiffs into purchasing first class tickets in the
conviction that they had confirmed reservations for the same, when in fact they had none, defendant wilfully
and knowingly placed itself into the position of having to breach its a foresaid contracts with plaintiffs should
there be no last-minute cancellation by other passengers before flight time, as it turned out in this case.
Such actuation of defendant may indeed have been prompted by nothing more than the promotion of its
self-interest in holding on to Senator Lopez and party as passengers in its flight and foreclosing on their
chances to seek the services of other airlines that may have been able to afford them first class
accommodations. All the time, in legal contemplation such conduct already amounts to action in bad faith.
For bad faith means a breach of a known duty through some motive of interest or ill-will (Spiegel vs. Beacon
Participations, 8 NE 2d 895, 907). As stated in Kamm v. Flink, 113 N.J.L. 582, 175 A. 62, 99 A.L.R. 1, 7:
"Self-enrichment or fraternal interest, and not personal ill-will, may well have been the motive; but it is
malice nevertheless."

24
As of May 18, 1960 defendant's reservations supervisor, Alberto Jose knew that plaintiffs' reservations had
been cancelled. As of May 20 he knew that the San Francisco head office stated with finality that it could not
reinstate plaintiffs' cancelled reservations. And yet said reservations supervisor made the "decision" to
use his own, word to withhold the information from the plaintiffs. Said Alberto Jose in his testimony:
Q Why did you not notify them?
A Well, you see, sir, in my fifteen (15) years of service with the air lines business my experience
is that even if the flights are solidly booked months in advance, usually the flight departs with
plenty of empty seats both on the first class and tourist class. This is due to late cancellation of
passengers, or because passengers do not show up in the airport, and it was our hope others
come in from another flight and, therefore, are delayed and, therefore, missed their connections.
This experience of mine, coupled with that wire from Tokyo that they would do everything
possible prompted me to withhold the information, but unfortunately, instead of the first class
seat that I was hoping for and which I anticipated only the tourists class was open on which
Senator and Mrs. Lopez, Mr. and Mrs. Montelibano were accommodated. Well, I fully realize
now the gravity of my decision in not advising Senator and Mrs. Lopez, Mr. and Mrs.
Montelibano nor their agents about the erroneous cancellation and for which I would like them to
know that I am very sorry.
xxx

xxx

xxx

Q So it was not your duty to notify Sen. Lopez and parties that their reservations had been
cancelled since May 18, 1960?
A As I said before it was my duty. It was my duty but as I said again with respect to that duty I
have the power to make a decision or use my discretion and judgment whether I should go
ahead and tell the passenger about the cancellation. (Tsn., pp. 17-19, 28-29, March 15, 1962.)
At the time plaintiffs bought their tickets, defendant, therefore, in breach of its known duty, made plaintiffs
believe that their reservation had not been cancelled. An additional indication of this is the fact that upon the
face of the two tickets of record, namely, the ticket issued to Alfredo Montelibano, Jr. on May 21, 1960 (Exh.
22) and that issued to Mrs. Alfredo Montelibano, Jr., on May 23, 1960 (Exh. 23), the reservation status is
stated as "OK". Such willful-non-disclosure of the cancellation or pretense that the reservations for plaintiffs
stood and not simply the erroneous cancellation itself is the factor to which is attributable the breach of
the resulting contracts. And, as above-stated, in this respect defendant clearly acted in bad faith.
As if to further emphasize its bad faith on the matter, defendant subsequently promoted the employee who
cancelled plaintiffs' reservations and told them nothing about it. The record shows that said employee
Mariano Herranz was not subjected to investigation and suspension by defendant but instead was given
a reward in the form of an increase of salary in June of the following year (Tsn., 86-88, Nov. 20, 1961).
At any rate, granting all the mistakes advanced by the defendant, there would at least be negligence so
gross and reckless as to amount to malice or bad faith (Fores vs. Miranda, L-12163, March 4, 1959;
Necesito v. Paras, L-10605-06, June 30, 1958). Firstly, notwithstanding the entries in the reservation cards
(Exhs. 1 & 3) that the reservations cancelled are those of the Rufinos only, Herranz made the mistake, after
reading said entries, of sending a wire cancelling all the reservations, including those of Senator Lopez and
party (Tsn., pp. 108-109, Nov. 17, 1961). Secondly, after sending a wire to San Francisco head office on
April 19, 1960 stating his error and asking for reinstatement, Herranz simply forgot about the matter.
Notwithstanding the reply of San Francisco head Office on April 22, 1960 that it cannot reinstate Senator
Lopez and party (Annex B-Velasco's to Exh. 6), it was assumed and taken for granted that reinstatement
would be made. Thirdly, Armando Davila confirmed plaintiff's reservations in a phone call on April 27, 1960
to defendant's ticket sellers, when at the time it appeared in plaintiffs' reservation card (Exh. 5) that they
were only waitlisted passengers. Fourthly, defendant's ticket sellers issued plaintiffs' tickets on May 21 and
23, 1960, without first checking their reservations just before issuing said tickets. And, finally, no one among
defendant's agents notified Senator Lopez and party that their reservations had been cancelled, a
precaution that could have averted their entering with defendant into contracts that the latter had already
placed beyond its power to perform.

Accordingly, there being a clear admission in defendant's evidence of facts amounting to a bad faith on
its part in regard to the breach of its contracts with plaintiffs, it becomes unnecessary to further discuss the
evidence adduced by plaintiffs to establish defendant's bad faith. For what is admitted in the course of the
trial does not need to be proved (Sec. 2, Rule 129, Rules of Court).
Addressing ourselves now to the question of damages, it is well to state at the outset those rules and
principles. First, moral damages are recoverable in breach of contracts where the defendant acted
fraudulently or in bad faith (Art. 2220, New Civil Code). Second, in addition to moral damages, exemplary or
corrective damages may be imposed by way of example or correction for the public good, in breach of
contract where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner
(Articles 2229, 2232, New Civil Code). And, third, a written contract for an attorney's services shall control
the amount to be paid therefor unless found by the court to be unconscionable or unreasonable (Sec. 24,
Rule 138, Rules of Court).
First, then, as to moral damages. As a proximate result of defendant's breach in bad faith of its contracts
with plaintiffs, the latter suffered social humiliation, wounded feelings, serious anxiety and mental anguish.
For plaintiffs were travelling with first class tickets issued by defendant and yet they were given only the
tourist class. At stop-overs, they were expected to be among the first-class passengers by those awaiting to
welcome them, only to be found among the tourist passengers. It may not be humiliating to travel as tourist
passengers; it is humiliating to be compelled to travel as such, contrary to what is rightfully to be expected
from the contractual undertaking.
Senator Lopez was then Senate President Pro Tempore. International carriers like defendant know the
prestige of such an office. For the Senate is not only the Upper Chamber of the Philippine Congress, but the
nation's treaty-ratifying body. It may also be mentioned that in his aforesaid office Senator Lopez was in a
position to preside in impeachment cases should the Senate sit as Impeachment Tribunal. And he was
former Vice-President of the Philippines. Senator Lopez was going to the United States to attend a private
business conference of the Binalbagan-Isabela Sugar Company; but his aforesaid rank and position were
by no means left behind, and in fact he had a second engagement awaiting him in the United States: a
banquet tendered by Filipino friends in his honor as Senate President Pro Tempore (Tsn., pp. 14-15, Nov.
25, 1960). For the moral damages sustained by him, therefore, an award of P100,000.00 is appropriate.
Mrs. Maria J. Lopez, as wife of Senator Lopez, shared his prestige and therefore his humiliation. In addition
she suffered physical discomfort during the 13-hour trip,(5 hours from Tokyo to Honolulu and 8 hours from
Honolulu to San Francisco). Although Senator Lopez stated that "she was quite well" (Tsn., p. 22, Nov. 25,
1960) he obviously meant relatively well, since the rest of his statement is that two months before, she
was attackedby severe flu and lost 10 pounds of weight and that she was advised by Dr. Sison to go to the
United States as soon as possible for medical check-up and relaxation, (Ibid). In fact, Senator Lopez stated,
as shown a few pages after in the transcript of his testimony, that Mrs. Lopez was sick when she left the
Philippines:
A. Well, my wife really felt very bad during the entire trip from Tokyo to San Francisco. In the first
place, she was sick when we left the Philippines, and then with that discomfort which she
[experienced] or suffered during that evening, it was her worst experience. I myself, who was not
sick, could not sleep because of the discomfort. (Tsn., pp. 27-28, Nov. 25, 1960).
It is not hard to see that in her condition then a physical discomfort sustained for thirteen hours may well be
considered a physical suffering. And even without regard to the noise and trepidation inside the plane
which defendant contends, upon the strengh of expert testimony, to be practically the same in first class and
tourist class the fact that the seating spaces in the tourist class are quite narrower than in first class,
there beingsix seats to a row in the former as against four to a row in the latter, and that in tourist class there
is very little space for reclining in view of the closer distance between rows (Tsn., p. 24, Nov. 25, 1960), will
suffice to show that the aforesaid passenger indeed experienced physical suffering during the trip. Added to
this, of course, was the painfull thought that she was deprived by defendant after having paid for and
expected the same of the most suitable, place for her, the first class, where evidently the best of
everything would have been given her, the best seat, service, food and treatment. Such difference in
comfort between first class and tourist class is too obvious to be recounted, is in fact the reason for the
former's existence, and is recognized by the airline in charging a higher fare for it and by the passengers in
paying said higher rate Accordingly, considering the totality of her suffering and humiliation, an award to
Mrs. Maria J. Lopez of P50,000.00 for moral damages will be reasonable.

25
Mr. and Mrs. Alfredo Montelibano, Jr., were travelling as immediate members of the family of Senator Lopez.
They formed part of the Senator's party as shown also by the reservation cards of PAN-AM. As such they
likewise shared his prestige and humiliation. Although defendant contends that a few weeks before the flight
they had asked their reservations to be charged from first class to tourist class which did not materialize
due to alleged full booking in the tourist class the same does not mean they suffered no shared in having
to take tourist class during the flight. For by that time they had already been made to pay for first class seats
and therefore to expect first class accommodations. As stated, it is one thing to take the tourist class by free
choice; a far different thing to be compelled to take it notwithstanding having paid for first class seats.
Plaintiffs-appellants now ask P37,500.00 each for the two but we note that in their motion for
reconsideration filed in the court a quo, they were satisfied with P25,000.00 each for said persons. (Record
on Appeal, p. 102). For their social humiliation, therefore, the award to them of P25,000.00 each is
reasonable.
The rationale behind exemplary or corrective damages is, as the name implies, to provide an example or
correction for public good. Defendant having breached its contracts in bad faith, the court, as stated earlier,
may award exemplary damages in addition to moral damages (Articles 2229, 2232, New Civil Code).
In view of its nature, it should be imposed in such an amount as to sufficiently and effectively deter similar
breach of contracts in the future by defendant or other airlines. In this light, we find it just to award
P75,000.00 as exemplary or corrective damages.
Now, as to attorney's fees, the record shows a written contract of services executed on June 1, 1960 (Exh.
F) whereunder plaintiffs-appellants engaged the services of their counsel Atty. Vicente J. Francisco
and agreedto pay the sum of P25,000.00 as attorney's fees upon the termination of the case in the Court of
First Instance, and an additional sum of P25,000.00 in the event the case is appealed to the Supreme
Court. As said earlier, a written contract for attorney's services shall control the amount to be paid therefor
unless found by the court to be unconscionable or unreasonable. A consideration of the subject matter of
the present controversy, of the professional standing of the attorney for plaintiffs-appellants, and of the
extent of the service rendered by him, shows that said amount provided for in the written agreement is
reasonable. Said lawyer whose prominence in the legal profession is well known studied the case,
prepared and filed the complaint, conferred with witnesses, analyzed documentary evidence, personally
appeared at the trial of the case in twenty-two days, during a period of three years, prepared four sets of
cross-interrogatories for deposition taking, prepared several memoranda and the motion for reconsideration,
filed a joint record on appeal with defendant, filed a brief for plaintiffs as appellants consisting of 45 printed
pages and a brief for plaintiffs as appellees consisting of 265 printed pages. And we are further convinced of
its reasonableness because defendant's counsel likewise valued at P50,000.00 the proper compensation for
his services rendered to defendant in the trial court and on appeal.
In concluding, let it be stressed that the amount of damages awarded in this appeal has been determined by
adequately considering the official, political, social, and financial standing of the offended parties on one
hand, and the business and financial position of the offender on the other (Domingding v. Ng, 55 O.G. 10).
And further considering the present rate of exchange and the terms at which the amount of damages
awarded would approximately be in U.S. dollars, this Court is all the more of the view that said award is
proper and reasonable.
Wherefore, the judgment appealed from is hereby modified so as to award in favor of plaintiffs and against
defendant, the following: (1) P200,000.00 as moral damages, divided among plaintiffs, thus: P100,000.00
for Senate President Pro Tempore Fernando Lopez; P50,000.00 for his wife Maria J. Lopez; P25,000.00 for
his son-in-law Alfredo Montelibano, Jr.; and P25,000.00 for his daughter Mrs. Alfredo Montelibano, Jr.; (2)
P75,000.00 as exemplary or corrective damages; (3) interest at the legal rate of 6% per annum on the moral
and exemplary damages aforestated, from December 14, 1963, the date of the amended decision of the
court a quo, until said damages are fully paid; (4) P50,000.00 as attorney's fees; and (5) the costs.
Counterclaim dismissed.So ordered.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Regala, Makalintal, Zaldivar and
Sanchez,
JJ.,
concur.
Dizon, J., is on leave.

Republic
SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION

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.

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 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.

26
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.

Lao was only a witness, not the prosecutor in the estafa case. The prosecutor was his employer, Chan
Tong or the St. Joseph Lumber.

On November 11, 1984, the defendants filed a motion for reconsideration of the order of default.

There was probable cause for the charge of estafa against Espiritu, as found and certified by the
investigating fiscal himself.

On November 13, 1984, the motion was granted, and the order of default was set aside.
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.

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.

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:

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.

1. in not holding that he (petitioner Lao) has a valid defense to the action for
malicious prosecution in Civil Case No. 84-M;

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.

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

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.

3. in not partially annulling the decision of the trial court dated January 22, 1985
insofar as he is concerned.

SO ORDERED.

The petition is meritorious.

Narvasa, Cruz and Medialdea, JJ., concur.

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).

Gancayco, J., is on leave.

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).

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-17117

July 31, 1963

ADELA
SANTOS
GUTIERREZ, plaintiff-appellant,
vs.
JOSE D. VILLEGAS and RIZALINA SANTOS RIVERA, defendants-appellants.

27
Ponce
Enrile,
Siguion
Reyna,
Montecillo
and
Delgado, Flores, Macapagal and Dizon for defendants-appellants.

Belo

for

plaintiff-appellant.

fact, they are paraphernal properties of the deceased. Plaintiff also asked that certain withdrawals
made by Rizalina Santos Rivera from the bank overdraft account of the deceased should be brought to
collation.1wph1.t

REYES, J.B.L., J.:

Direct appeal by both the plaintiff and the defendants from a decision of the Court of First Instance of Rizal,
Pasig, Rizal, in its Civil Case No. 3726.
The facts, about which the parties are not in controversy, are as follows: That the plaintiff and the
defendants are the only legal heirs of the late Irene Santos of Malabon, Rizal, who died intestate on 11
November 1954. The defendant, Jose D. Villegas, is the surviving spouse, while the plaintiff, Adela Santos
Gutierrez, and the other defendant, Rizalina Santos Rivera, are the nieces of the said decedent. A few days
after the death of Irene Santos, a petition for the administration of her estate was filed with the Court of First
Instance of Rizal, Pasay City Branch, and docketed therein as Special Proceeding No. 2100. The probate
court granted the petition on 5 January 1955, and thereafter Jose D. Villegas qualified as the administrator
of the estate. On 12 January 1955, Adela Santos Gutierrez signed a four-page document (Exhibit "A"),
written in Tagalog, entitled "Kasulatan Ng Bilihan At Salinan", purporting to be a sale of her share and
participation in the estate in favor of Rizalina Santos Rivera, in consideration of P50,000.00, payable in
installments: the first in the sum of P10,000.00 upon signing, and the balance of P40,000.00 in one (1) year,
and with the plaintiff assuming to pay her share in the estate and inheritance taxes. This deed was notarized
by Severo Jovellanos on 13 January 1955. On this day also, the plaintiff signed a "Manifestation" (Exhibit
"B") purporting to inform the probate court that the plaintiff had sold all her rights, interests, and participation
in the estate to Rizalina Santos Rivera, and that she, the plaintiff, is no longer entitled to the service of any
pleading, motion, order, or decision filed or promulgated in the probate court.
On 27 July 1955, the plaintiff filed the present case to annul the aforesaid deed of sale on grounds of fraud
and mistake. The defendants answered denying the charges, and counterclaimed for P200,000.00 moral
and exemplary damages and P50,000.00 attorneys' fees, because of the allegedly malicious charges and
filing of the suit.
The plaintiff, alone and in her own behalf, testified that on 7 December 1954 she asked Jose D. Villegas for
a loan of P2,000.00 by way of advance payment on her share in the estate of her deceased aunt, but
Villegas, answered her that as his lawyer advised him that he had no authority to give such an advance he
would ask Rizalina Santos Rivera if she could lend him the money, which, in turn, he would give to the
plaintiff; that at about Christmas time, Villegas counter-offered to give the plaintiff a loan of P10,000,00, to
be evidenced in writing, instead of the P2,000.00 originally asked, to which proposition the plaintiff agreed
because she was planning a business venture; that in the afternoon of 12 January 1955, the defendants
invited the plaintiff to go with them to Manila without informing her of the purpose of the trip; to her surprise,
they went to the law office of Attorney Modesto Flores; that while they were waiting for the lawyer, who had
not yet arrived, they were told to sit in the reception room, and the plaintiff and Rizalina were given copies of
a document which the former was not able to read on account of her poor eyesight and her failure to bring
her eyeglasses with her; that when Attorney Flores arrived, the plaintiff asked both the said lawyer and
Villegas what the document was all about, but neither of them answered her; that when she was asked to
sign the document on the space indicated to her, she simply obeyed; that she had no residence certificate at
the time and she was asked to secure one; that she did secure one the following day, 13 January 1955, in
Malabon, Rizal, and brought it to the said law office; that while there she, was again asked to sign another
document, a manifestation, which she did sign, after which Attorney Flores translated to her in Tagalog this
second document, which turned out to be a manifestation for the court, and what she signed the day before
was a sale of her share in the inheritance; that she upbraided Villegas but she did not inform Flores of the
deception; that Villegas pacified her by telling her that they would talk it over in the house; that on their way
home, Villegas admitted that he and Rizalina wanted the document to be a sale instead of a loan; that on 14
January 1955, Villegas gave the plaintiff the sum of P4,800.00, with the explanation that the plaintiff's sonin-law's debt of P2,000.00 would be deducted from the amount of P10,000.00, while the balance would be
paid by check that same evening; that that same evening, the plaintiff called on Attorney Alfonso Ponce
Enrile, who advised her to deposit in court the amount that she waived, which she did.
The plaintiff claims, furthermore, that in signing the deed of sale, her consent was vitiated by gross mistake
because the defendants misled and deceived her as to the actual and real value of the estate of Irene
Santos because the inventory, which was filed in Special Proceeding 2100 of the probate court, failed to
include certain properties, or which, if at all listed, were either undervalued or stated to be conjugal when, in

The foregoing facts are disputed by the defendants. Their evidence varies from that of the plaintiff's in the
following particulars: That the plaintiff did not ask for a loan but offered to sell her share in the inheritance to
Villegas for the purpose of investing the proceeds in business, but Villegas, after consulting, and being
advised by his lawyer that he could not buy property under his administration suggested to the plaintiff to
ask Rizalina instead; that when the plaintiff mentioned her proposition to Rizalina, the latter was at first
reluctant to agree to the price of P50,000.00, but later on they agreed on said price, with the stipulation that
it be paid in two installments, the first, in the sum of P10,000.00, upon signing of the contract, and the
balance, within one year therefrom, provided the plaintiff paid her share in the estate and inheritance taxes;
that the latter read and signed the deed, Exhibit "A", with her eyeglasses on; that she was an avid reader of
Tagalog literature; that the plaintiff's daughter, Jovita, was with her during the signing of the deed of sale on
12 January 1955, and also during the notarization of the same and the signing again of the "Manifestation"
on 13 January 1955; that said pleading was first translated and explained to the plaintiff before she signed it;
that a year thereafter, or more particularly on 5 January 1956, Rizalina Santos Rivera, through her lawyer,
forwarded to the plaintiff a cashier's check drawn on the Prudential Bank and Trust Company payable to the
plaintiff in the sum of P40,000.00 in full payment of the purchase price, which was, however, refuse
acceptance by the plaintiff.
The trial court rejected the pretensions of both parties, dismissing the complaint as well on the counterclaim.
Whereupon, plaintiffs and defendants regularly appealed to this Court directly, the amounts involved being
in excess of P200,000.00.
The plaintiffs assignments of error recite:
1. The lower court erred in rejecting plaintiff-appellant's claim that on account of the fraud
practiced upon her by the defendants-appellants, she consented to the execution of Exhibits "A"
and "B" under the mistaken notion that those documents related to the loan agreement she and
the defendants-appellants had previously agreed upon.
2. The lower court erred in refusing to find the price of P50,000.00 as a grossly inadequate
consideration for the alleged sale and assignment of plaintiff-appellant's share in the estate of
the late Irene Santos.
3. The lower court erred in relying upon the appraisal made by the Bureau of Internal Revenue
Examiner Bernardo Tamese for the purpose of determining the true and fair market value of the
estate of Irene Santos and the share of the plaintiff-appellant in such estate.
4. The lower court erred in disregarding plaintiff-appellant's contention that under Article 1082 of
the Civil Code of the Philippines, Exhibit "A" should be deemed as a partition and as such it is
rescindible on account of lesion since the amount to be received by the plaintiff-appellant under
that instrument is less by more than one-fourth (1/4) of the true value of the share of which she
is entitled.
5. The lower court erred in dismissing plaintiff-appellant's complaint.
The plaintiff depicts herself as an unschooled simpleton that attained only the third grade, while picturing the
defendants as intelligent and clever persons; that she has poor eye-sight, low degree of intelligence, and
that there was no impelling need for her to sell the property. These circumstances, the plaintiff reasons out,
coupled with the inadequacy of consideration, are badges of fraud that contributed to her being an easy
victim of her opponents' deceit. Moreover, continues the plaintiff, in view of the relationship of trust and
confidence between the parties, the presumption of fraud arises.
The facts, as shown by the record, do not support the plaintiff's conclusions. The alleged indicia of fraud
upon which she rests her case are backed only by her own uncorroborated testimony, which is contradicted
by that of defendants and their witnesses. Plaintiff's lack of formal education was no handicap to her ability

28
to read and write the Tagalog dialect, in which Exhibit "A" was couched, and, as the lower court stated, "she
is a woman of average intelligence capable of understanding the consequences of a signature affixed to a
document". Her alleged poor eye-sight has not been shown with convincing evidence, but, on the contrary,
during the trial, she readily identified a letter from the Bureau of Internal Revenue, even without eyeglasses.
Plaintiff has herself testified that she needed money to engage in business in Mindoro. The defendants, on
the other hand, proved in convincing detail the circumstances surrounding the execution of the questioned
deed through their own testimony, that of the instrumental witnesses, and the notary public. The lawyer, who
dictated the draft of the deed, first in English, and then finalized it in Tagalog, fully acquitted himself on the
witness stand of the possible stigma of being a party to the alleged fraud.
The alleged existence of a relationship of trust and confidence which was supposedly taken advantage of by
the defendants is belied by the plaintiffs own assertion that her defendant uncle-in-law and her deceased
aunt had treated her as the underdog since childhood, and her sister, Rizalina, as the favorite; yet the
plaintiff allegedly came to live with the defendants only to provide company to her uncle-in-law during his
bereavement on the death o her aunt. With the unfavorable treatment that the plaintiff claims to have
received at the hands of the defendant Villegas since childhood, it cannot be expected that the plaintiff
would be unwary of whatever he would ask her to do, let along her signing a four-page document. Under the
present situation, the careful preparation of the document cannot be taken against the defendants as an
indication of fraud, in the absence of other evidence manifesting a scheme to commit it and which would link
the lawyer who caused its preparation.
All the foregoing circumstances pointed to by the plaintiff as badges of fraud do not stand unexplained,
while, on the other hand, there are certain questions which have not been satisfactorily explained by the
plaintiff. What motive had Villegas, a man 80 years of age, for committing the alleged fraud against the
plaintiff? Why did not the plaintiff present her daughter, Lolita, to at least corroborate her testimony? She
was present during the signing of Exhibits "A" and "C". How could the plaintiff have simply obeyed and
signed the deed, Exhibit "A", without having noted the word "LIMAMPUNG LIBONG PISO" written in bold
capital letters in the four-page deed of sale? How could she claim ignorance of the contents and import of
the deed which she signed on 12 January 1955 when she even secured a residence certificate and turned
to the same law office with it on the following day, 13 January 1955? Why did she accept the first installment
payment on 14 January 1955 when, according to her, she had already learned of the fraud when Atty. Flores
explained to her the "manifestation", Exhibit "B", on 13 January 1955? Why is it that during the trial she
readily identified Exhibit "Q" (a letter from the Bureau of Internal Revenue) without wearing eyeglasses but
could not identify Exhibit "A" without wearing them, when a comparison of the type of print between these
exhibits shows no appreciable difference at all? The lack of a satisfactory explanation to these questions
impels affirmance of the lower court's finding that no fraud or mistake vitiated the consent of the plaintiff in
affixing her signature to the deed.
One striking feature of plaintiff's story is that the success of defendants' alleged machinations wholly rested
on the most fortuitous circumstance of plaintiff's not bringing her eyeglasses when she signed the deed
conveying her interest to her sister. It is undeniable that had she been able to read the deed, according to
her version of what transpired, plaintiff would have flatly refused to sign; yet it is not shown that the
defendants took any steps to prevent her from bringing her eyeglasses. If fraud there was, it must be
admitted that there was no preparation to insure its success, and such carelessness renders the whole
charge of deceit absurd and incredible. .
The claim of grossly inadequate consideration for the sale is predicted by the plaintiff upon a double theme:
(a) that the inventory of the estate of Irene Santos did not include certain properties in Rizal (a one-sixth
undivided interest in an estate in Montalban, Rizal, of 1010.9999 has.), and (b) an alleged gross under
valuation of the estate properties. As to the first, the court below rejected the plaintiff-appellant's evidence
consisting in a simple copy of a purported decision of the pre-war Court of Appeals, in case CA-G.R. No.
654, "San Pedro, et al. vs. Director of Forestry" (Exhibit G-2). We are not prepared to declare the rejection
of this exhibit to be erroneous, since it bears no signatures or certification by the Clerk of the Court of
Appeals that purportedly rendered it, nor any signature attesting its authenticity. The destruction of the prewar records of that Court should undoubtedly impose caution before accepting at face value this sort of
copies, not supported by reliable evidence of genuineness and authenticity. As to the averred
undervaluation, we note that the trial court preferred to adopt the appraisal of the examiner of the Bureau of
Internal Revenue, Bernardo Tamese, made in assessing the inheritance taxes due on the estate of Irene
Santos, and approved by the superior officers of the Bureau, over that of witness Santiago presented by the
appellant. In this respect, the trial court made the following cogent observations in its decision:

It is a fact that Irene Santos owned real properties situated in the City of Manila, and in the
provinces of Laguna, Rizal, Bulacan, and Pampanga, some of which are paraphernal (Exhibits
"H" to "H-3") and the rest are conjugal. These real properties were appraised by the Bureau of
Internal Revenue for purposes of fixing the amount of estate and inheritance taxes to be paid,
and their fair market value was determined by the examiner, Bernardo Tamese, after an ocular
inspection of the properties and investigation of the deeds of title and tax declarations covering
the same. The findings of Mr. Tamese as noted down by him in his worksheet, Exhibit "7" and
which is reproduced in page 15 hereof, were submitted to his superior officers (Exhibit "B") and
the same were approved by the Superintendent and Senior Revenue Examiners and confirmed
by the Commissioner of Internal Revenue, the latter acting through Deputy Commissioner
Misael P. Vera (Exhs. "27" to "28-A"), and this Court sees no ground for disturbing the findings of
these public officials in the absence of proof of any irregularity in their actuations. It is to be
observed that in his report Mr. Tamese valued the property in Famy, Laguna, at P2,502.00
although in the inventory of defendant Villegas each parcel was valued only at P1.00. It is also to
be noted that in said Report the paraphernal properties of Irene Santos were included,
appraised and considered in determining the total value of the estate of the old woman. These
facts belie the claim of plaintiff that there was undervaluation of the properties of the deceased.
Moreover the official appraisal made by the Government deserves more credit than the
testimony of the witness Bernardo Santiago who pretended to be in a position to pay P3,000.00
for every hectare of fishpond of Irene Santos and yet was found to have no properties to his
name in the provinces of Bulacan and Pampanga, (Exhibits "22" and "22-A") and was worth only
P15,000.00 after his death (Exhibits "23" to "23-B"). The deeds of sale, Exhibit "L" to "L-4" which
were also submitted by the plaintiff to prove the market value of the properties in Bulacan and
Pampanga are worthless as evidence in that matter, in the absence of proof that the properties
covered by said documents are of the same kind and class and are similarly situated as those of
the deceased.
We find no reversible error in these conclusion of the court a quo, which had ample opportunity to estimate
the credibility of the contrasting witnesses and evidence.
Hence, the claim of gross inadequacy of the price must be rejected as unproved.
To sustain the claim of deliberate undervaluation would necessarily imply that the Internal Revenue
examiner Tamese and his superiors deliberately betrayed their official duty, and there is no evidence to
justify such conclusion.
Neither do we find merit in the charge that plaintiff's sister, Rizalina Santos Rivera, had siphoned off money
and properties from her aunt's overdraft account. The checks (Exhibits 3 to 3-F) and deposit slips (Exhibits 4
to 4-F) evidence that the amounts drawn were duly returned.
The trial court found the fair value of the conjugal estate to be P147,194.00, from which the expenses and
claims amounting to P138,931.00 should be deducted, having a net conjugal estate of P8,263.00, of which
one-half (P4,131.50) pertained to the deceased. Adding to that half the net paraphernal estate, valued at
P212.513.00, gives a partible estate of P216,664.50 to be divided (in the absence of ascendants and
descendants) half to the surviving spouse and half to the two nieces, as nearest collateral relatives (Civil
Code, Art. 1001). The one-fourth share of the plaintiff-appellant, as niece of the deceased, amounts to
P54,161.00, for which the P50,000,00 payable under Exhibit "A" is certainly not an inadequate price,
considering that appellant was to obtain it free from the troubles, delays, and vicissitudes attendant to the
judicial liquidation and settlement of the estate.
While fraud may be proved entirely by circumstantial evidence, it is not to be lightly inferred. Our review of
the evidence discloses that the evidence for appellant does not suffice to overcome the presumption of
good faith and regularity in human affairs.
The next question is whether the contract of sale and assignment, Exhibit "A", being valid and binding, is,
nonetheless, rescissible on the ground of lesion.
The theory of the plaintiff is that the contract should be deemed a partition, on the strength of Article 1082 of
the Civil Code, which provides:

29
ART. 1082. Every act which is intended to put an end to indivision among co-heirs and legatees
or devisees is deemed to be a partition, although it should purport to be a sale, an exchange, a
compromise, or any other transaction.";
and she contends that inasmuch as the net hereditary estate of the deceased is, according to the plaintiff,
over one million pesos, to which she is entitled to an aliquot one-fourth (1/4) as an heir, and, having
received only P50,000.00 under the contract, suffering, therefore, a lesion of more than one-fourth (1/4), she
is entitled to a rescission thereof, under Article 1098. This article reads:
ART. 1098. A partition, judicial or extrajudicial, may also be rescinded on account of lesion, when
any one of the co-heirs received things whose value is less, by at least one-fourth, than the
share to which he is entitled, considering the value of the things at the time they were
adjudicated.
The evidenced values of the properties in the estate of Irene Santos, and of plaintiff's share therein, render
unnecessary any extended discussion of her alternative claim that the contract, Exhibit "A", should be
regarded as a partition, rescindible on account of lesion of one fourth. Granting, arguendo, that the
assignment of her hereditary share in favor of her sister, Rizalina, should be deemed a partition under
Article 1082 of the Civil Code of the Philippines (notwithstanding the fact that it did not totally terminate the
indivision among the co-heirs of Irene Santos, since the undivided share of the widower Villegas remained
unchanged), still the lesion, if any, suffered by plaintiff from her sale of P50,000.00 of an individed heredity
interest worth P54,000.00 is certainly less than the one-fourth (1/4) required by Article 1098 of the Code.
Turning now to the defendant's appeal, we are not disposed to vary the lower court's refusal to award them
damages and attorney's fees. Such awards are primarily in the discretion of the trial court, and it has found
no facts upon which such award can be made. Not only were the allegations of fraud in plaintiff's complaint
privileged in character, but her failure to seek an amicable settlement before filing suit, as required of
relatives by Article 222 of the Civil Code, has not been pleaded either by answer or motion to dismiss. As to
moral damages, the record shows no proof of mental suffering on the part of defendants upon which the
award can be based. In addition, the absence of actual damages, moral, temperate, or compensatory,
blocks the grant of exemplary damages (Civil Code, Article 2234).
We find no reason for disturbing the decision appealed from, and, therefore, the same is hereby affirmed.
No costs in this instance.

Hilado and Hilado for defendants-appellants.

AQUINO, J.:p
The parties appealed from the decision of the Court of First Instance of Negros Occidental, dismissing
plaintiffs' complaint and holding that the intestate estate of Martin Ramos was settled in Civil Case No. 217,
which was terminated on March 4,1914, and that the judgment therein is res judicata and bars any litigation
regarding the same estate (Civil Case no. 4522).
The documentary evidence reveals the following facts:
The spouses Martin Ramos and Candida Tanate died on October 4, 1906 and October 26, 1888,
respectively. They were survived by their three legitimate children named Jose, Agustin and Granada.
Martin Ramos was also survived by his seven natural children named Atanacia, Timoteo, Modesto, Manuel,
Emiliano, Maria and Federico.
On December 10, 1906 a special proceeding was instituted in the Court of First Instance of Negros
Occidental for the settlement of the intestate estate of the said spouses. The case was docketed as Civil
Case No. 217 (itsexpediente is still existing). Rafael O. Ramos, a brother of Martin, was appointed
administrator. The estate was administered for more than six years (Exh. F, G, H, I and J).
A project of partition dated April 25, 1913 was submitted. It was signed by the three legitimate children,
Jose, Agustin and Granada; by the two natural children, Atanacia and Timoteo, and by Timoteo Zayco in
representation of the other five natural children who were minors. It was sworn to before the justice of the
peace (Exh. 3).
In the project of partition the conjugal hereditary estate was appraised at P74,984.93. It consisted of
eighteen parcels of land, some head of cattle and the advances to the legitimate children(Exh. 3).
Under that project of partition, the following adjudications were made to the heirs:

Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ.,
concur.
Labrador, J., took no part.

Legitimate children: Value

Republic
SUPREME
Manila

1.
To Jose
Ramos:
with
an
area
(b)
a
one-hectare
23-hectare
lot
in
(d) some head of cattle P25,291.66

(a)
of
town
Sitio

2.
To Granada
parcel
of
riceland
of
16
cavans
in
Barrio
Negros
Occidental
head of cattle 1,891.66

Ramos:
with
of
Binicuel,
and

of

the

Philippines
COURT

SECOND DIVISION

G.R. No. L-19872 December 3, 1974

EMILIANO
B.
RAMOS,
ET
vs.
GREGORIA T. RAMOS, ET AL., defendants-appellants.

AL.,

Humberto V. Quisumbing and Maximino M. San Diego for plaintiffs-appellants.

plaintiffs-appellants,

Hacienda
Calaza
328
hectares,
lot,
(c)
a
Bingig,
and

(a)
a
seedlings,
(b)

a
capacity
located
Kabankalan,
some

3.
To Agustin
Ramos:
(a)
the
remaining
fourteen
(14)
lots
out
of
the
eighteen
lots
described
in
the
inventory,
which
included
the
Hacienda
Ylaya
with
an
area
of
185
hectares
and
(b) some head of cattle 36,291.68

30
Natural children:
4.
To
each
of
the
seven
(7)
natural
children
named Atanacia,
Modesto,
Timoteo,
Federico,
Manuel,
Emiliano
and Maria,
were
adjudicated
personal
properties
valued
at
P1,785.35
consisting
of
(a)
cash
amounting
to
P1,760.35
and
(b)
P25,
representing
a
one-seventh
(1/7)
of
a
one-sixth
(1/6)
portion
in
certain
head
of
cattle
allegedly
representing
one-third
of
the
free
portion
of
the
estate
of
Martin
Ramos,
with
an
aggregate
value
of
12,497.51
Total adjudications P75,972.51
It was agreed in the project of partition that Jose Ramos would pay the cash adjudications to Atanacia,
Timoteo and Manuel, while Agustin Ramos would pay the cash adjudications to Modesto, Federico,
Emiliano and Maria. It was further agreed that Jose Ramos and Agustin Ramos would pay their sister,
Granada, the sums of P3,302.36 and P14,273.78, respectively (Exh. 3).
The record does not show whether assessed or market values were used in appraising the eighteen parcels
of land. By way of explanation, it may be stated that, inasmuch as the ganancial estate had an appraised
value of P74,984.93, one-half thereof or the sum of P37,492.46 represented the estate of Martin Ramos.
One-third thereof was the free portion or P12,497.48. The shares of the seven natural children were to be
taken from that one-third free portion. Dividing P12,497.48 by seven gives a result of P1,783.35 which
represented the one-seventh share of each natural child in the free portion of the estate of their putative
father, Martin Ramos. The partition was made in accordance with the old Civil Code which provides:
ART. 840. When the testator leaves legitimate children or descendants, and also
natural children, legally acknowledged, each of the latter shall be entitled to one-half
of the portion pertaining to each of the legitimate children not bettered, provided that
it can be included within the third for free disposal, from which it must betaken, after
deducting the burial and funeral expenses.
The legitimate children may satisfy the portion pertaining to the natural children in
cash, or in other property of the estate, at a fair valuation.
The sum of P1,785.35, as the legal share of each natural child, was the amount which was indicated in the
project of partition(Exh. 3) and which was to be satisfied in cash. The second paragraph of article 840 gives
the legitimate children the right to satisfy in cash the hereditary portions of the natural children. (Article 840
was applied in the project of partition when it stated that each natural child had "una septima partede un
sexto de semovientes" but the statement in the project of partition that each legitimate child was entitled to
"un tercio delos cinco quintos de los semovientes" is erroneous. It should be "un tercii de los
cinco sextos de los semovientes").
Judge Richard Campbell, in his "decision" dated April 28,1913, approved the project of partition as well as
the intervention of Timoteo Zayco as guardian of the five heirs, who were minors. The court declared that
the proceeding would be considered closed and the record should be archived as soon as proof was
submitted that each heir had received the portion adjudicated to him (Exh. 4).
In an order dated February 3, 1914 Judge V. Nepomuceno asked the administrator to submit a report,
complete with the supporting evidence, showing that the shared of the heirs had been delivered to them as
required in the decision of April 28,1913 (Exh. 5). In a manifestation dated February 24, 1914, which was
signed by Jose, Agustin, Granada, Atanacia and Timoteo all surnamed Ramos, and by Timoteo Zayco, the
guardian, and which was sworn to before the justice of the peace on March 2 (not 4), 1914 and filed in court
on March 5,1914, they acknowledged:

... hemos recibido del Administrador Judicial Rafael O. Ramostodas y cada una
de las participaciones a que respectivamente tenemos derecho en los bienes relictor
de los finados esposos Martin Ramos y Candida Tanate, completo acuerto y
conformidad con elproyecto de reparticion que nosotros mismo sometemos al
Juzgado en 25 de Abril de 1913 ... . (Exh. 6).
Note that Granada Ramos and the natural children were assumed to have received their shares from the
administrator although according to the object of partition, Jose Ramos and Agustin Ramos (not the
administrator) were supposed to pay the cash adjudications to each of them. No receipts were attached to
the manifestation, Exhibit 6. Apparently, the manifestation was not in strict conformity with the terms of judge
Nepomuceno's order and with the project of partition itself.
Lots Nos. 1370, 1371, 1372, 1375, 2158, 2159, 2161 and 2163(eight lots) of the Himamaylan cadastre
(page 8 of the Record on Appeal does not mention Lot 1370), which are involved in this case were
registered (as of 1958) in equal shares in the names of Gregoria Ramos and her daughter, Granada
Ramos, as shown below (Exh. 8):
Original
Lot
No
Registration
Present
title
1370 Aug. 29, 1923 TCT No. RT-2238 Dec.
1371 do TCT No. RT-2235
1372 do TCT No. RT-2237
1375 do TCT No. RT-2236
2158 Sept. 10, 1923 TCT No. RT-2230
2159 do TCT No. RT-2233
2161 do TCT No. RT-2232
2163 do TCT No. RT-2231 do

Date
1, 1933
do
do
do
do
do
do

Plaintiffs' version of the case. A summary of plaintiffs' oral evidence is found in pages 4 to 13 of their wellwritten brief. It is reproduced below (omitting the citations of the transcript):
Martin Ramos, who died in 1906 in the municipality of Himamaylan, Negros Occidental, left considerable
real estate, the most valuable of which were the Hacienda Calaza and Hacienda Ylaya, both located in
Himamaylay, Negros Occidental. Hacienda Calaza consists of sugar land, palay land and nipa groves with
an area of 400 hectares and with a sugar quota allotment of 10,000 piculs, more or less, and having as its
present actual value P500,000 more or less.
"All the children of martin Ramos, whether legitimate or acknowledged natural, lived together in Hacienda
Ylaya during his lifetime and were under his care. Even defendant Gregoria Ramos, widow of Jose Ramos,
admitted that she dealt with plaintiffs as family relations, especially seeing them during Sundays in church
as they lived with their father, and maintained close and harmonious relations with them even after the
death of their father. All said children continued to live in said house of their father for years even after his
death.
"Upon their father's death, his properties were left under the administration of Rafael Ramos, the younger
brother of their father and their uncle, Rafael Ramos continued to administer those properties of their father,
giving plaintiffs money as their shares of the produce of said properties but plaintiffs not receiving any
property or piece of land however, until 1913 when Rafael Ramos gathered all the heirs, including plaintiffs,
in the house of their father, saying he would return the administration of the properties. He turned over
Hacienda Ylaya to Agustin Ramos and Hacienda Calaza to Jose Ramos.
"All said children, defendants and plaintiffs alike, continued to live in the same house of their father in
Hacienda Ylaya, now under the support of Agustin Ramos. Plaintiff Modesto Ramos who 'could understand
Spanish a little', only left said house in 1911; plaintiff Manuel stayed there for one year and lived later with
Jose Ramos for four years. Plaintiff Maria Ramos, who herself testified that she has 'a very low educational
attainment', lived there until 1916 when she got married. Plaintiff Emiliano lived there with Agustin, helping
him supervise the work in Hacienda Ylaya, until he transferred to Hacienda Calaza where he helped Jose
Ramos supervise the work in said hacienda.

31
"Agustin Ramos supported plaintiffs, getting the money from the produce of Hacienda Ylaya, the only
source of income of Agustin coming from said hacienda. Plaintiffs asked money from Agustin pertaining to
their share in the produce of Hacienda Ylaya and received varied amounts, sometimes around P50 at a
time, getting more when needed, and receiving P90 or P100 more or less a year.
"Jose Ramos gave plaintiffs also money as their shares from the products of Hacienda Calaza. Even Maria
Ramos who upon her marriage in 1916 lived in La Cartota with her husband was given money whenever
she went to Himamaylan. Plaintiffs received varied amounts or sums of money from Jose as their shares in
the produce of Hacienda Ylaya more or less about P100 a year, mostly during the milling season every year
while he was alive up to his death in 1930. Emiliano Ramos, now deceased and substituted by his widow,
Rosario Tragico, moreover, received P300 from Jose Ramos in 1918 taken from the products of Hacienda
Calaza when he went to the United States to study.
"Upon Jose Ramos death his widow Gregoria Ramos, herself, his first cousin, their father and mother,
respectively being brother and sister, continued to give plaintiffs money pertaining to their shares in the
products of Hacienda Calaza. She however stopped doing so in 1951, telling them that the lessee
Estanislao Lacson was not able to pay the lease rental.
"There was never any accounting made to plaintiffs by Jose Ramos, plaintiffs reposing confidence in their
elder brother, Nor was any accounting made by his widow, defendant Gregoria Ramos, upon his death,
plaintiff Manuel Ramos moreover having confidence in her.
"Before the survey of these properties by the Cadastral Court, plaintiff Modesto Ramos was informed by the
Surveying Department that they were going to survey these properties. Plaintiffs then went to see their elder
brother Jose to inform him that there was a card issued to them regarding the survey and gave him 'a free
hand to do something as an administrator'. They therefore did not intervene in the said cadastral
proceedings because they were promised that they(defendants Jose and Agustin) would 'be the ones
responsible to have it registered in the names of the heirs'. Plaintiffs did not file and cadastral answer
because defendants Jose and Agustin told them 'not to worry about it as they have to answer for all the
heirs'. Plaintiffs were 'assured' by defendants brothers.

Proceedings in the lower court. The instant action was filed on September 5, 1957 against
defendants Agustin Ramos, Granada Ramos and the heirs of Jose Ramos for the purpose of securing a
reconveyance of the supposed participations of plaintiffs Atanacia, Emiliano, Manuel, Maria and Modesto,
all surnamed Ramos, in the aforementioned eight (8) lots which apparently form part of Hacienda Calaza.
(The plaintiffs did not specify that the said shares would amount to one-sixth of the said eight cadastral lots.
One-sixth represented the one-third free portion of Martin Ramos' one-half shares in the said lots. And the
said one-sixth portion was the share of his seven legally acknowledged natural children under article 840 of
the old Civil Code).
The action is really directed against the heirs of Jose Ramos, namely, his wife Gregoria and his daughter
Candida in whose names the said eight lots are now registered as shown in Exhibit 8 and in page 4 hereof.
It is predicated on the theory that plaintiffs' shares were held in trust by the defendants. No deed of trust was
alleged and proven.
The defendants denied the existence of a trust. They pleaded the defenses of (a) release of claim as shown
in the project of partition, the decision and the receipt of shares forming part of the expediente of Civil Case
No. 217 (Exh. 3, 4 and 6), (b) lack of cause of action, (c) res judicata and (d) prescription.
Timoteo Ramos, who was joined as a co-plaintiff, manifested that he had already received his own share of
the inheritance, that he did not authorized anyone to include him as a plaintiff and that he did not want to be
a party in this case. He moved that his name be stricken out of the complaint (44-45 Rec. or Appeal; Exh.
7).
Emiliano Ramos, who died in 1958, was substituted by his widow and their ten children (Exh. E, 61-64 Rec.
on Appeal).The complaint is silent as to the fate of Federico Ramos, the seventh natural child of Martin
Ramos.
As already noted, after trial, the lower court dismissed the complaint on the ground of res judicata. The
plaintiffs as well as the defendants appealed.

"Plaintiffs did not know that intestate proceedings were instituted for the distribution of the estate of their
father. Neither did plaintiffs Modesto, Manuel, Emiliano and Maria know (that) Timoteo Zayco, their uncle
and brother-in-law of defendant widow Gregoria was appointed their guardian. There was an express
admission by defendant Gregoria Ramos that Timoteo Zayco was her brother-in-law.

Plaintiffs' appeal. The plaintiffs contend that the trial court erred (1) in dismissing their complaint, (2) in
denying their right to share in their father's estate and (3) in holding that the action was barred by res
judicata or the prior judgment in the special proceeding for the settlement of Martin Ramos' intestate estate,
Civil Case No. 217 of the Court of First Instance of Negros Occidental, Abintesdado de los finados esposos
Martin Ramos y Candida Tanate(Exh. F to J and 1 to 6).

"Plaintiffs did not know of any proceedings of Civil Case No. 217. They never received any sum of money in
cash the alleged insignificant sum of P1,785.35 each from said alleged guardian as their supposed
share in the estate of their father under any alleged project of partition.

The plaintiffs vigorously press on this Court their theory that the plaintiffs, as acknowledged natural children,
were grievously prejudiced by the partition and that the doctrine of res judicata should not bar their action.

"Neither did Atanacia Ramos nor her husband, Nestor Olmedo, sign any project of partition or any receipt of
share in(the) inheritance of Martin Ramos in cash. Nestor Olmedo did not sign any receipt allegedly
containing the signatures of Atanacia assisted by himself as husband, Timoteo Ramos, and Timoteo Zayco
as guardian ad-litem of the minors Modesto, Manual, Federico, Emiliano and Maria. As a matter of fact,
plaintiffs Modesto and Manuel were in 1913 no longer minors at the time of the alleged project of partition of
the estate being approved, both being of age at that time. No guardian could in law act on their behalf.
"Plaintiffs only discovered later on that the property administered by their elder brother Jose had a Torrens
Title in the name of his widow, Gregoria, and daughter, Candida, when plaintiff Modesto's children insisted
and inquired from the Register of Deeds sometime in 1956 or 1957. Plaintiffs did not intervene in the
intestate proceedings for (the) settlement of the estate of their brother Jose as they did not know of it.
"Plaintiffs were thus constrained to bring the present suit before the Court of First Instance of Negros
Occidental on September 5, 1957 seeking for the reconveyance in their favor by defendants Gregoria and
daughter Candida and husband Jose Bayot of their corresponding participations in said parcels of land in
accordance with article 840 of the old Civil Code and attorney's fees in the sum of P10,000 plus costs and
expenses of this litigation". (4-13 Brief).

A preliminary issue, which should first be resolved, is the correctness of the trial court's "inexorable
conclusion" that the plaintiffs were the legally acknowledged natural children of Martin Ramos. Plaintiffs'
action is anchored on that premise.
The defendants failed to impugn that conclusion in their appellants' brief. Not having done so, it may be
regarded as conclusive against them. That is the proposition advanced by the plaintiffs in their reply-brief.
The defendants in their appellees' brief assail that conclusion. It is true that an appellee may make an
assignment of error in his brief but that rule refers to an appellee who is not an appellant (Saenz vs.
Mitchell, 60 Phil. 69, 80). However, since an appellee is allowed to point out the errors committed by the trial
court against him (Relativo vs. Castro, 76 Phil. 563; Lucero vs. De Guzman, 45 Phil. 852), defendants'
contention that the plaintiffs were not legally acknowledged natural children may just as well be passed
upon.
The defendants, in contesting the lower court's finding that the plaintiffs were legally acknowledged children,
assume that the legitimate children committed a mistake in conferring successional rights on the plaintiffs.

32
We hold that the trial court's conclusion is correct. It is true that the acknowledgment of the plaintiffs is not
evidenced by a record of birth, will or other public document (Art. 131, Old Civil Code). But the record of
Civil Case No. 217, which is relied upon by the defendants to support their defense of res judicata,
indubitably shows that the plaintiffs were treated as acknowledged natural children of Martin Ramos. The
reasonable inference is that they were in the continuous possession of the status of natural children of
Martin Ramos, as evidenced by his direct acts and the acts of his family (Art. 135, Old Civil Code).
Unacknowledged natural children have no rights whatsoever(Buenaventura vs. Urbano, 5 Phil. 1; Siguiong
vs. Siguiong, 8 Phil. 5, 11; Infante vs. Figueras, 4 Phil. 738; Crisolo vs. Macadaeg, 94 Phil. 862). The fact
that the plaintiffs, as natural children of Martin Ramos, received shares in his estate implies that they were
acknowledged. Obviously, defendants Agustin Ramos and Granada Ramos and the late Jose Ramos
accorded successional rights to the plaintiffs because martin Ramos and members of his family had treated
them as his children. Presumably, that fact was well-known in the community. Under the circumstances,
Agustin Ramos and Granada Ramos and the heirs of Jose Ramos are estopped from attacking plaintiffs'
status as acknowledged natural children (See Arts. 283[4] and 2266[3], New Civil Code).
Even the lower court, after treating the plaintiffs in 1913 in the intestate proceeding as acknowledged natural
children, had no choice but to reaffirm that same holding in its 1961 decision in this case.
The crucial issue is prescription. With it the question of res judicata and the existence of a trust are
inextricably interwoven. Inasmuch as trust is the main thrust of plaintiffs' action, it will be useful to make a
brief disgression of the nature of trusts (fideicomisos) and on the availability of prescription and laches to
bar the action for reconveyance of property allegedly held in trust.
"In its technical legal sense, a trust is defined as the right, enforceable solely in equity, to the beneficial
enjoyment of property, the legal title to which is vested in another, but the words 'trust' is frequently
employed to indicate duties, relations, and responsibilities which are not strictly technical trusts." (89 C.J.S.
712).
"A person who establishes a trust is called the trust or; one in whom confidence is reposed is known as the
trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary" (Art.
1440, Civil Code). There is a fiduciary relation between the trustee and the cestui que trust as regards
certain property, real, personal, money or choses inaction (Pacheco vs. Arro, 85 Phil. 505).
"Trusts are either express or implied. Express trusts are created by the intention of the trust or of the parties.
Implied trusts come into being by operation of law." (Art. 1144, Civil Code). "No express trusts concerning an
immovable or any interest therein may be proven by oral evidence. An implied trust may be proven by oral
evidence" (Ibid, Arts. 1443 and 1457).
"No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly
intended" (Ibid, Art. 1444; Tuason de Perez vs. Caluag, 96 Phil. 981; Julio vs. Dalandan, L-19012, October
30, 1967, 21 SCRA 543, 546). "Express trusts are those which are created by the direct and positive acts of
the parties, by some writing or deed, or will, or by words either expressly or impliedly evincing an intention to
create a trust" (89 C.J.S. 722).
"Implied trust are those which, without being expressed, are deducible from the nature of the transaction
as matters of intent, or which are super induced on the transaction by operation of law as matters of equity,
independently of the particular intention of the parties" (89 C.J.S. 724). They are ordinarily subdivided into
resulting and constructive trusts (89 C.J.S. 722).
"A resulting trust is broadly defined as a trust which is raised or created by the act or construction of law, but
in its more restricted sense it is a trust raised by implication of law and presumed always to have been
contemplated by the parties, the intention as to which is to be found in the nature of their transaction, but not
expressed in the deed or instrument of conveyance" (89 C.J.S. 725). Examples of resulting trusts are found
in article 1448 to 1455 of the Civil Code. See Padilla vs. Court of Appeals, L-31569, September 28, 1973, 53
SCRA 168,179).

On the other hand, a constructive trust is a trust "raised by construction of law, or arising by operation
of law". In a more restricted sense and as contra distinguished from a resulting trust, a constructive trust is
"a trust not created by any words, either expressly or impliedly evincing a direct intention to create a trust,
but by the construction of equity in order to satisfy the demands of justice. It does not arise by agreement or
intention but by operation of law." (89 C.J.S. 7260727). "If a person obtains legal title to property by fraud or
concealment, courts of equity will impress upon the title a so-called constructive trust in favor of the
defrauded party." A constructive trust is not a trust in the technical sense(Gayondato vs. Treasurer of the
P.I., 49 Phil. 244; See Art. 1456, Civil Code).
There is a rule that a trustee cannot acquire by prescription the ownership of property entrusted to him
(Palma vs. Cristobal, 77 Phil. 712), or that an action to compel a trustee to convey property registered in his
name in trust for the benefit of the cestui qui trust does not prescribed (Manalang vs. Canlas, 94 Phil. 776;
Cristobal vs. Gomez, 50 Phil. 810), or that the defense of prescription cannot be set up in an action to
recover property held by a person in trust for the benefit of another(Sevilla vs. De los Angeles, 97 Phil. 875),
or that property held in trust can be recovered by the beneficiary regardless of the lapse of time (Marabilles
vs. Quito, 100 Phil. 64; Bancairen vs. Diones, 98 Phil. 122, 126 Juan vs. Zuniga, 62 O.g. 1351; 4 SCRA
1221; Jacinto, L-17957, May 31, 1962. See Tamayo vs. Callejo, 147 Phil. 31, 37).
That rule applies squarely to express trusts. The basis of the rule is that the possession of a trustee is not
adverse. Not being adverse, he does not acquire by prescription the property held in trust. Thus, section 38
of Act 190 provides that the law of prescription does not apply "in the case of a continuing and subsisting
trust" (Diaz vs. Gorricho and Aguado, 103 Phil. 261,266; Laguna vs. Levantino, 71 Phil. 566; Sumira vs.
Vistan, 74 Phil. 138; Golfeo vs. Court of Appeals, 63 O.G. 4895, 12 SCRA 199; Caladiao vs. Santos, 63
O.G. 1956, 10 SCRA 691).
The rule of imprescriptibility of the action to recover property held in trust may possibly apply to resulting
trusts as long as the trustee has not repudiated the trust (Heirs of Candelaria vs. Romero, 109 Phil. 500,
502-3; Martinez vs. Grano, 42 Phil. 35; Buencamino vs. Matias, 63 O. G. 11033, 16 SCRA 849).
The rule of imprescriptibility was misapplied to constructive trusts (Geronimo and Isidoro vs. Nava and
Aquino, 105 Phil. 145, 153. Compare with Cuison vs. Fernandez and Bengzon, 105 Phil. 135, 139; De
Pasion vs. De Pasion, 112 Phil. 403, 407).
Acquisitive prescription may bar the action of the beneficiary against the trustee in an express trust for the
recovery of the property held in trust where (a) the trustee has performed unequivocal acts of repudiation
amounting to an ouster of the cestui qui trust; (b) such positive acts of repudiation have been made known
to the cestui qui trustand(c) the evidence thereon is clear and conclusive (Laguna vs. Levantino, supra;
Salinas vs. Tuason, 55 Phil. 729. Compare with the rule regarding co-owners found in the last paragraph of
article 494, Civil Code; Casanas vs. Rosello, 50 Phil. 97; Gerona vs. De Guzman, L-19060, May 29, 1964,
11 SCRA 153,157).
With respect to constructive trusts, the rule is different. The prescriptibility of an action for reconveyance
based on constructive trust is now settled (Alzona vs. Capunitan, L-10228, February 28, 1962, 4 SCRA 450;
Gerona vs. De Guzman, supra; Claridad vs. Henares, 97 Phil. 973; Gonzales vs. Jimenez, L-19073,
January 30, 1965, 13 SCRA 80; Bonaga vs. Soler, 112 Phil. 651; J. M. Tuason & Co., vs. Magdangal, L15539, January 30, 1962, 4 SCRA 84). Prescription may supervene in an implied trust (Bueno vs. Reyes, L22587, April 28, 1969, 27 SCRA 1179; Fabian vs. Fabian, L-20449, January 29, 1968; Jacinto vs. Jacinto, L17957, May 31, 1962, 5 SCRA 371).
And whether the trust is resulting or constructive, its enforcement may be barred by laches (90 C.J.S. 887889; 54 Am Jur. 449-450; Diaz vs. Gorricho and Aguado, supra. Compare with Mejia vs. Gampona, 100
Phil. 277).
The plaintiffs did not prove any express trust in this case. The expediente of the intestate proceeding, Civil
Case No. 217, particularly the project of partition, the decision and the manifestation as to the receipt of
shares (Exh. 3, 4 and 6)negatives the existence of an express trust. Those public documents prove that the
estate of Martin Ramos was settled in that proceeding and that adjudications were made to his seven
natural children. A trust must be proven by clear, satisfactory, and convincing evidence. It cannot rest on
vague and uncertain evidence or on loose, equivocal or indefinite declarations (De Leon vs. Peckson, 62 O.

33
G. 994). As already noted, an express trust cannot be proven by parol evidence(Pascual vs. Meneses, L18838, May 25, 1967, 20 SCRA 219, 228; Cuaycong vs. Cuaycong, L-21616, December 11, 1967, 21 SCRA
1192).
Neither have the plaintiffs specified the kind of implied trust contemplated in their action. We have stated
that whether it is a resulting or constructive trust, its enforcement may be barred by laches.
In the cadastral proceedings, which supervened after the closure of the intestate proceeding, the eight lots
involved herein were claimed by the spouses Jose Ramos and Gregoria T. Ramos to the exclusion of the
plaintiffs (Exh. 8 to 19). After the death of Jose Ramos, the said lots were adjudicated to his widow and
daughter (Exh. 8). In 1932 Gregoria T. Ramos and Candida Ramos leased the said lots to Felix Yulo (Exh.
20).Yulo in 1934 transferred his lease rights over Hacienda Calazato Juan S. Bonin and Nestor Olmedo, the
husband of plaintiff Atanacia Ramos (Exh. 22). Bonin and Olmedo in 1935 sold their lease rights over
Hacienda Calaza to Jesus S. Consing (Exh. 23).
Those transactions prove that the heirs of Jose Ramos had repudiated any trust which was supposedly
constituted over Hacienda Calaza in favor of the plaintiffs.
Under Act 190, whose statute of limitations applies to this case (Art. 116, Civil Code), the longest period of
extinctive prescription was only ten years Diaz vs. Gorricho and Aguado, supra.).
Atanacia, Modesto and Manuel, all surnamed Ramos, were already of age in 1914 (Exh. A to D). From that
year, they could have brought the action to annul the partition. Maria Ramos and Emiliano Ramos were both
born in 1896. They reached the age of twenty-one years in 1917. They could have brought the action from
that year.
The instant action was filed only in 1957. As to Atanacia, Modesto and Manuel, the action was filed fortythree years after it accrued and, as to Maria and Emiliano, the action was filed forty years after it accrued.
The delay was inexcusable. The instant action is unquestionably barred by prescription and res judicata.
This case is similar to Go Chi Gun vs. Co, 96 Phil. 622, where a partition judicially approved in 1916 was
sought to be annulled in 1948 on the ground of fraud. it was contended that there was fraud because the
real properties of the decedent were all adjudicated to the eldest son, while the two daughters, who were
minors, were given only cash and shares of stocks. This Court, in upholding the petition, said:
"In any case, the partition was given the stamp of judicial approval, and as a matter of principle and policy
we should sustain its regularity, in the absence of such cause or reason that the law itself fixes as a ground
for invalidity" (on page 634). "As the administration proceedings ended in the year 1916, the guardianship
proceedings in 1931, and the action was brought only in the year 1948, more than 32 years from the time of
the distribution and 27 years from the termination of guardianship proceedings", the action was barred by
laches (on page 637). See Lopez vs. Gonzaga, L-18788, January 31, 1964, 10 SCRA 167; Cuaycong vs.
Cuaycong, supra).
The leading case of Severino vs. Severino, 44 Phil. 343, repeatedly cited by the plaintiffs, does not involve
any issue of prescription or laches. In that case, the action for reconveyance was seasonably brought. The
alleged trustee was an overseer who secured title in his name for the land of his brother which was under
his administration. He could not have acquired it by prescription because his possession was not adverse.
On certain occasions, he had admitted that he was merely the administrator of the land and not its true
owner.
More in point is the Cuaycong case, supra, where the action for the reconveyance of property held in trust
accrued in 1936 and it was filed only in 1961 or after the lapse of twenty-five years. That action was barred.
On its face, the partition agreement was theoretically correct since the seven natural children were given
their full legitime, which under article 942 of the old Civil Code was their share as legal heirs. But is was
possible that the lands were undervalued or were not properly appraised at their fair market value and,
therefore, the natural children were short-changed in the computation of the value of their shares which the

legitimate children could pay in case as allowed in article 840 of the old Civil Code. It is of common
knowledge that anyone who received lands in the partition of a decedent's estate would ultimately have an
advantage over the one who received cash because lands increase in value as time goes by while money is
easily spent.
As pointed out in the statement if facts, it was anomalous that the manifestation, evidencing the alleged
receipt by the natural children of their shares, should recite that they received their shares from the
administrator, when in the project of partition itself, as approved by the probate court (Exh. 3 to 6),it was
stipulated that Jose Ramos and Agustin Ramos would be the ones to pay the cash settlement for their
shares. No receipts were submitted to the court to prove that Jose Ramos and Agustin Ramos paid to the
plaintiffs the cash adjudicated to them in the project of partition.
The plaintiffs pinpoint certain alleged irregularities in the intestate proceeding. The aver that Modesto
Ramos and Manuel Ramos were already of age in 1913 and could not therefore have been represented by
Timoteo Zayco as guardian ad litem and that, consequently, the two were denied due process. The plaintiffs
accused Zayco of not having competently protected the interests of the minors, Maria Ramos and Emiliano
Ramos. The allege that Atanacia Ramos signed the project of partition and the "receipt" of share (Exh. 3
and 6)without understanding those documents which were in Spanish. They assert that the lopsided and
defective partition was not implemented.
In short, the plaintiffs contend that the partition was not binding on them (Note that their brother, Timoteo,
considered himself bound by that partition). They ask that the case be remanded to the lower court for the
determination and adjudication of their rightful shares.
All those contentions would have a semblance of cogency and would deserve serious consideration if the
plaintiffs had not slept on their rights. They allowed more than forty years to elapse before they woke up and
complained that they were much aggrieved by the partition. Under the circumstances, their claims can
hardly evoke judicial compassion. Vigilantibus et non dormientibus jura subveniunt. "If eternal vigilance is
the price of safety, one cannot sleep on one's right for more than a tenth of a century and except it to be
preserved in its pristine purity" (Ozaeta, J. in Association Cooperativa de Credito Agricola de Miagao vs.
Monteclaro, 74 Phil. 281, 283).
The plaintiffs have only themselves to blame if the courts at this late hour can no longer afford them relief
against the inequities allegedly vitiating the partition of their father's estate.
In connection with the res judicata aspect of the case, it maybe clarified that in the settlement of a
decedent's estate it is not de rigueur for the heirs to sign a partition agreement. "It is the judicial decree of
distribution, once final, that vests title in the distributees" (Reyes vs. Barretto-Datu, L-17818, January
25,1967, 19 SCRA 85, 91) which in this case was Judge Campbell's decision (Exh. 4).
A judgment in an intestate proceeding may be considered asa judgment in rem (Varela vs. Villanueva, 95
Phil. 248, 267. See Sec. 49[a], Rule 39, Rules of Court). There is a ruling that "if that decree of distribution
was erroneous or not in conformity with law or the testament, the same should have been corrected by
opportune appeal; but once it had become final; its binding effect is like that of any other judgment in rem,
unless properly set aside for lack of jurisdiction or fraud". A partition approved by the court in 1939 could no
longer be contested in 1956 on the ground of fraud. The action had already prescribed. "The fact that one of
the distributees was a minor at the time the court issued the decree of distribution does not imply that the
court had no jurisdiction to enter the decree of distribution." (Reyes vs. Barretto-Datu, supra, citing Ramos
vs. Ortuzar, 89 Phil. 742). "A final order of distribution of the estate of a deceased person vests the title to
the land of the estate in the distributes" (Syllabus, Santos vs. Roman Catholic Bishop of Nueva Caceres, 45
Phil. 895, 900).
Parenthetically, it may be noted that the filing of the instant case long after the death of Jose Ramos and
other persons involved in the intestate proceeding renders it difficult to determine with certitude whether the
plaintiffs had really been defrauded. What Justice Street said in Sinco vs. Longa, 51 Phil. 507, 518-9 is
relevant to this case.

34
In passing upon controversies of this character experience teaches the danger of
accepting lightly charged of fraud made many years after the transaction in question
was accomplished, when death may have sealed the lips of the principal actors and
changes effected by time may have given a totally different color to the cause of
controversy. In the case before us the guardia, Emilio Tevez, is dead. The same is
true of Trinidad Diago, mother of the defendant Agueda Longa; while Agapito Longa
is now living in Spain. It will be borne in mind also that, insofar as oral proof is
concerned, the charge of fraud rests principally on the testimony of a single witness
who, if fraud was committed, was a participant therein and who naturally would now
be anxious, so far as practicable, to put the blame on others. In this connection it is
well to bear in mind the following impressive language of Mr. Justice Story:
... But length of time necessarily obscures all human evidence; and as it thus
removed from the parties all the immediate means to verify the nature of the original
transactions, it operates by way of presumption, in favor of innocence, and against
imputation of fraud. It would be unreasonable, after a great length of time, to require
exact proof of all the minute circumstances of any transaction, or to expect a
satisfactory explanation of every difficulty, real or apparent with which it may be
incumbered. The most that can fairly be expected, in such cases, if the parties are
living, from the frailty of memory, and human infirmity, is, that the material facts can
be given with certainty to a common intent; and, if the parties are dead, and the
cases rest in confidence, and in parol agreements, the most that we can hope is to
arrive at probable conjectures, and to substitute general presumption of law, for
exact knowledge. Fraud, or breach of trust, ought not lightly to be imputed to the
living, for, the legal presumption is the other way; as to the dead, are not here to
answer for themselves, it would be the height of injustice and cruelty, to disturb their
ashes, and violate the sanctity of the grave, unless the evidence of fraud be clear,
beyond a reasonable doubt (Prevost vs. Gratz, 6 Wheat. [U.S.],481, 498).
Defendants' appeal. Defendants Granada Ramos, Gregoria T. Ramos, Candida Ramos, Jose Bayor and
Agustin Ramos appealed from the lower court's decision insofar as it ignored their counterclaim for P50,000
as moral damages and P10,000 as attorney's fees. In their brief the claim for attorney's fees was increased
to P20,000. They prayed for exemplary damages.
The defendants argue that plaintiffs' action was baseless and was filed in gross and evident bad faith. It is
alleged that the action caused defendants mental anguish, wounded feelings, moral shock and serious
anxiety and compelled them to hire the service of counsel and incur litigation expenses.
Articles 2219 and 2220 (also 1764 and 2206) of the Civil Code indicate the cases where morel damages
may be recovered. The instant litigation does not fall within any of the enumerated cases. Nor can it be
regarded as analogous to any of the cases mentioned in those articles. Hence, defendants' claim for moral
damages cannot be sustained (Ventanilla vs. Centeno, 110 Phil. 811, 814). The worries and anxiety of a
defendant in a litigation that was not maliciously instituted are not the moral damages contemplated in the
law (Solis & Yarisantos vs. Salvador, L-17022, August 14, 1965, 14 SCRA 887).

We hold that, notwithstanding the dismissal of the action, no attorney's fees should be granted to the
defendants. Under the facts of the case, it cannot be asseverated with dogmatic finality that plaintiffs' action
was manifestly unfounded or was maliciously filed to harass and embarrass the defendants. All indications
point to the fact that the plaintiffs honestly thought that they had a good cause of action. They acted in
evident good faith. (See Herrera vs. Luy Kim Guan, 110 Phil. 1020, 1028; Rizal Surety & Insurance Co., Inc.
vs. Court of Appeals, L-23729, May 16, 1967, 20 SCRA 61).
Inasmuch as some of the plaintiffs were minors when the partition of their father's landed estate was made,
and considering that they were not allotted even a few square meters out of the hundreds of hectares of
lands, which belonged to him, they had reason to feel aggrieved and to seek redress for their grievances.
Those circumstances as well as the marked contrast between their indigence and the affluence of the heirs
of their half-brother, Jose Ramos, might have impelled them to ask the courts to reexamine the partition of
their father's estate.
It is not sound public policy to set a premium on the right to litigate. An adverse decision does not ipso facto
justify the award of attorney's fees to the winning party (Herrera vs. Luy Kim, supra; Heirs of Justiva vs.
Gustilo, 61 O. G. 6959. Cf. Lazatin vs. Twano and Castro, 112 Phil. 733, 741).
Since no compensatory and moral damages have been awarded in this case, defendants' claim for
exemplary damages, which was ventilated for the first time in their appellants' brief, may be as an
afterthought, cannot be granted(Art. 2229, Civil Code).
WHEREFORE, the trial court's judgment is affirmed with the clarification that defendants' counterclaim is
dismissed. No costs.
SO ORDERED.
Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-17248

January 29, 1962

BEATRIZ
GALANG, petitioner,
vs.
HON. COURT OF APPEALS, MAXIMO QUINIT and RODRIGO QUINIT, respondents.
R.
Meris-Morales
De Santos, Herrera and Delfino for respondents.

for

petitioner.

"The adverse result of an action does not per se make the act wrongful and subject the actor to the payment
of moral damages. The law could not have meant to impose a penalty on the right to litigate, such right is so
precious that moral damages may not be charged on those who may exercise it erroneously." (Barretto vs.
Arevalo, 99 Phil. 771, 779).

CONCEPCION, J.:

On the other hand, the award of reasonable attorney's fees is governed by article 2208 of the Civil Code
which lays down the general rule that, in the absence of stipulation, attorney's fees and litigation expenses
cannot be recovered. Article 2208 specifies eleven instances where attorney's fees may be recovered. The
defendants did not point out the specific provision of article 2208 on which their counterclaim may be
predicated.

This is an action against Rodrigo Quinit and his father Maximo Quinit to recover damages claimed to have
been sustained by plaintiff Beatriz Galang for an alleged breach of promise on the part of Rodrigo Quinit to
marry her. In due course, the Court of First Instance of Baguio, in which the case was originally instituted,
rendered a decision sentencing the defendants jointly and severally to pay the sums of P275.00, by way of
actual damages, P5,000.00, as moral damages, and P500.00, as attorney's fees, apart from the costs. On
appeal, taken by the defendants, the Court of Appeals absolved Maximino Quinit, and accordingly, reversed
said decision insofar as he is concerned, and modified it as regards Rodrigo Quinit, by eliminating the
awards for moral damages and attorney's fees. The case is before us on appeal by certiorari taken by
plaintiff Beatriz Galang.

What may possibly apply to defendants' counterclaim are paragraphs four and eleven which respectively
provide that attorney's fees may be recovered "in case of a clearly unfounded civil action or proceeding
against the plaintiff"(defendant is a plaintiff in his counterclaim) or "in any other cases where the court
deems it just and equitable" that attorney's fees should be awarded.

35
As found by the Court of Appeals, it appears that plaintiff "and Rodrigo Quinit were engaged, but Rodrigo's
parents were strongly opposed to their marriage"; that "from April 27, 1955", plaintiff "and Rodrigo lived as
husband and wife in the house of Adolfo Dagawan located at Colorado Falls, Tuba, Mountain Province, until
May 9 when Rodrigo left and never returned"; that "both were from the same town of Sison, Pangasinan
and their love relations started in the year 1953, the two having exchanged a long series of love letters since
then until they separated", and that "at the time when went to Colorado Falls, both were of age." .
The evidence on other pertinent facts is, however, conflicting. In the language of the decision appealed from
plaintiff also referred to therein as appellee tried to prove .
"... that Rodrigo courted her in 1953 and they, thereafter, became engaged, albeit Rodrigo's
mother was opposed to their marriage; that on April 15, 1955 Rodrigo and his father went to her
house and her marriage with Rodrigo were arranged, with the concurrence of her mother,
appellant Maximino Quinit having agreed to give dowry and to defray the expenses of the
marriage, with the exception of the wedding dress of appellee; that they agreed to have the
marriage celebrated in Baguio, for which reason on April 27, 1955, appellee, Rodrigo and the
latter's father left for Baguio; that upon arriving at Colorado Falls, however, Maximino made
them alight from the bus and took them to the house of Adolfo Dagawan with whom Maximino
agreed that appellee and Rodrigo would stay in said house, Maximino to pay P5.00 daily for
their lodging and asked Dagawan to make all arrangements for their wedding in Baguio and to
act as their sponsor; that after making these arrangements Maximino left, while appellee and
Rodrigo remained in Dagawan's house where they lived as husband and wife until May 9, that
on May 7, appellee and Rodrigo, accompanied by Dagawan, went to Baguio to secure a
marriage license but failed because Rodrigo did not have a residence certificate, although both
prospective contracting parties signed the corresponding application; that on May 9, on the
pretext that he going to their hometown to get his residence certificate, Rodrigo left Colorado
Falls and never returned; that when appellee returned to their hometown (Sison, Pangasinan),
she found out that Rodrigo's parents had sprinted him away because, in their opinion, appellee's
reputation was unsavory." .
Upon the other hand, the defendants sought to establish that Rodrigo and plaintiff .
"... were engaged; that Rodrigo's parents were opposed to their marriage; that while Rodrigo
was agreeable to marrying appellee, he wanted the marriage to take place after his graduation,
while appellee was impatient and wanted the marriage to be held at an earlier date; that on April
26, 1955, in view of Rodrigo's continued relations with appellee, his parents told him to leave the
parental home, for which reason on that date he left their house with his belongings and some
gantas of rice; that before leaving their hometown he passed by the house of appellee and told
her what had happened and further told her that he was intending to go to Manila to look for a
job; that appellee convinced him to go, instead to Colorado Falls where they could discuss their
plans and so there he went - followed later by appellee - both staying at the house of Dagawan;
that because Rodrigo persistently refused to marry appellee, the latter's relatives, accompanied
by policemen and constabulary soldiers, arrived at the place and tried to intimidate him; that in
view of his continued refusal they brought him down to Sison where he was allowed to go home;
that thereupon his parents placed him under the custody of Mayor Madriaga of the neighboring
town of Rosario where he stayed from May 1, to June, 1955; that sometime during the month of
June, Adolfo Dagawan sought Rodrigo on the pretext that he was going to tell him something
important and was able to lure him to a secluded place where he was made to sign an
application for a marriage license; that because of his non-appearance before a notary public,
the latter refused to acknowledge the application.
"With respect to Maximino Quinit the evidence for appellants tends to show that he had never
agreed to have his son marry appellee nor to give a dowry to the latter; that he did not go with
appellee and Rodrigo to Colorado Falls and that he did not concoct, much less carry out any
plan to have his son satisfy his lust and then get rid of appellee." .
The court of first instance sustained plaintiff's pretense, but the Court of Appeals considered her evidence
unworthy of credence, and, hence, absolved Maximino Quinit. Plaintiff maintains that the Court of Appeals
had erred in the appreciation of the evidence, but the findings of said Court on the credibility of said
evidence are beyond our power of review on appeal by certiorari and, consequently, conclusive upon us.

It is next urged that said Court had also erred in not awarding moral damages to plaintiff, who insists
that moral damages for breach of promise to marry are collectible under our laws, but this question has
already been settled adversely to plaintiff's pretense in Hermosisima vs. Court of Appeals, L-14628
(September 30, 1960).1wph1.t
The appealed decision of the Court of Appeals is hereby affirmed, therefore, without special pronouncement
as to cost. It is so ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Paredes and De Leon, J.J.,
concur.
Dizon, J., took no part.
Republic
SUPREME
Manila

of

the

Philippines
COURT

ET

AL., petitioners,

EN BANC
G.R. Nos. L-13328-29

September 29, 1961

GONZALO
MERCADO,
vs.
RAMON LIRA and JUANA C. DE LIRA, respondents.
-----------------------------G.R. No. L-13358

September 29, 1961

NITA
vs.
GONZALO MERCADO, ET AL., respondents.
Juan
Nabong
for
Mariano H. de Joya And Maximo A. Savellano, Jr. for respondents.

LIRA, petitioner,

petitioners.

PAREDES, J.:
Gonzalo Mercado and others were the owners and operators of the Laguna Transportation Company. In the
afternoon of April 21, 1951, while its passenger bus No. 39 was making the trip from Batangas to Manila on
the concrete highway at barrio Tulo, Calamba, Laguna, the left front tire of the bus blew out and sent it
swerving gradually toward the left side of the road, over the shoulder and into a ravine some 270 meters
away. From the wreckage, the bodies of the passengers, several dead, others injured, were recovered, and
among the fatalities was Ramon Lira, Jr. (24), son of Mr. and Mrs. Ramon Lira, Sr. and injured Nita Lira. Two
cases for recovery of damages were commenced against the owners and operators in the Court of First
Instance of Batangas: No. 104 (now G.R. Nos. L-13326-29, in this Court) by the parents of deceased
Ramon Lira, Jr. and No. 107 (now G.R. No. L-13358, in this Court) by Nita Lira. After a joint-trial,
defendants, Mercado and others were sentenced to pay the following sums: In Civil Case No. 104:
For the death of Ramon Lira, Jr. including funeral and church expenses
P10,000.00
For loss of earning capacity of Ramon Lira, Jr. for ten (10) years at P1,800.00 per 18,000.00

36
annum
Moral damages for mental anguish
For expenses of litigation and attorney's fees
T O TAL

4,000.00
4,000.00
P36,000.00

and ended with a prayer that "the decision of the Court of Appeals be modified so that the respondents
should pay only the sum of P500.00 as moral damages and P1,500.00 for attorney's fees.

In Civil Case No. 107:

For hospitalization and medical treatment of Nita Lira
For the impairment of earning capacity
Moral damages for her physical and mental suffering
For expenses of litigation and attorney's fees
T O TAL

even if granting that the respondents are entitled to moral damages, yet the same should
not be fixed in such an amount as to kill the entire business of the respondents who are public
service operators, by the enormous amounts they have to pay on account of the negligence of
one driver. In this case, we respectfully submit that the amount of P500.00 is a reasonable moral
damage considering that the other damages already awarded are excessive. In the same way
that the attorney's fees should also be reduced to only P1,500.00.

970.20
1,000.00
2,000.00
1,000.00

The pertinent provisions of the new Civil Code state:

Art. 1764. Damages in cases comprised in this Section shall be awarded in accordance with
Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a
passenger caused by the breach of contract by a common carrier.

P4,970.20
Defendants appealed in both cases and plaintiff Nita Lira appealed in No. 107 (being cases CA-G.R. No.
15422 and CA-G.R. No. 15423-R). The Court of Appeals render judgment as follows:
As far as the other items are concerned, we find them to be reasonable and fully supported by the evidence.
Wherefore, the judgment appealed from is hereby modified by reducing the amount awarded for
the death of Ramon Lira, Jr. including funeral and church services from P10,000.00 to
P5,062.50; reducing the amount awarded for loss of earning capacity from P18,000.00 to
P2,000.00 and increasing the amount awarded to plaintiff-appellant Nita Lira for moral damages
from P2,000.00 to P5,000.00. In Civil Case No. 104 (CA-G.R. No. 15422-R), therefore,
defendant should pay a total of P25,032.56; and in civil case No. 107 (CA-G.R. No. 15422-R),
they should pay a total of P7,970.20. In all other respects the said judgment is affirmed, without
pronouncement as to costs this instance.
On December 19, 1957, and in pursuance of a motion for reconsideration, the Court of Appeals issued the
following resolution:
In view of the foregoing considerations, the judgment heretofore rendered is hereby modified by
eliminating therefrom the award of P5,000.00 by way of moral damages to plaintiff Nita Lira in
case CA-G.R. No. 15422-R, maintaining said judgment in all other respects.
In other words, in the case CA-G.R. No. 15422-R, involving the death of Ramon Lira, Jr., the Court of
Appeals granted moral damages, and in the case of CA-G.R. No. 15422-R, involving physical injuries
caused upon Nita Lira, moral damages of P5,000.00 awarded her, were eliminated.
Hence, a petition for certiorari to review the decision of the Court of Appeals was filed by Gonzalo Mercado,
et al., petitioners, against Ramon Lira, et al., (G.R. No. L-13328-29), and another similar petition was filed
by Nita Lira, petitioner vs. Gonzalo Mercado, et al., respondents (G.R. No. L-13358).
Counsel for the Mercados, defined their position as follows:
Article 2206 of the Civil Code fixes the amount of damages for death at only P3,000.00. The
heirs of the deceased may also claim for moral damages, although awarding it is not obligatory
like the damages for loss of earning capacity. Paragraph 3 of Art. 2206 states that the heirs may
demand for moral damages for mental anguish by reason of the death of the deceased. The
amount of moral damages, therefore, should be made only nominal if the heirs have already
been compensated very substantially for the death of the deceased, which in this case has been
set by the Court of Appeals at P5,052.50 and loss of earning at P12,000.00 and the attorney's
fees at P4,000.00 which already amount to P21,052.50. We respectfully submit, therefore, that,

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: . . .
(3) The spouses, legitimate and illegitimate descendants and ascendants of the deceased may
demand moral damages for mental anguish by reason of the death of the deceased.
It is thus seen that Article 2206 of the new Civil Code, expressly provides that the amount of damages for
death shall be "at least three thousand pesos, even though there may have been mitigating circumstances."
In other words, the amount of damages to be awarded for the death of a passenger may be more than
P3,000.00. It is argued that the award for moral damages for mental anguish caused by the death of a
passenger is not obligatory, and that the amount should only be nominal if the heirs have already been
compensated substantially for the death of the deceased. Article 2206 states further that "In addition" to the
amount of at least P3,000.00 to be awarded for the death of a passenger, the spouse, legitimate and
illegitimate descendants and ascendants of the deceased may demand moral damages as a consequence
of the death of their deceased kin, which simply means that once the above-mentioned heirs of the
deceased claim compensation for moral damages and are able to prove that they are entitled to such
award, it becomes the duty of the court to award moral damages to the claimant in an amount
commensurate with the mental anguish suffered by them. In the Civil Code, nominal damages are treated
separately from moral damages. Any amount that should be awarded as nominal damages, should not be
confused or interlinked with moral damages which, by itself, is a distinct class of damages. Of course, the
amount of moral damages to be awarded, should be such as may be reasonable and just under the
circumstances in a given case. Petitioners' claim that as the other damages awarded to said respondents
are already excessive, the award for moral damages should be reduced to P500.00. But the Court of
Appeals found the other damages not to be excessive, and as far as this factual finding is concerned, we
are not authorized to rule otherwise. Moreover, petitioners never assailed in their motion for reconsideration
of the decision of the Court of Appeals, dated July 11, 1957, as well as in their instant petition for certiorari,
the reasonableness of the amount of the other damagesawarded to herein respondents. In fact, the petition
limits the issues only to the reasonableness of the P4,000.00 awarded by the Court of Appeals as moral
damages and the other amount of P4,000.00 as attorney's fees. Considering the mental anguish and sorrow
that must accompany and overwhelm the parents upon the tragic death of a son, and considering the nature
and extent of the services rendered by counsel for respondents and other circumstances of the case, we
believe the awards given by the Court of Appeals to respondents in the sum of P4,000.00 as moral
damages for the death of Ramon Lira, Jr. and the amount of P4,000.00 for attorney's fees and other
expenses of litigation, fair and reasonable (par. 11, Art. 2208, N.C.C.).1awphl.nt
With respect to G.R. No. L-13358, it is alleged that the respondent Court of Appeals erred in its resolution
dated December 19, 1957, in not awarding moral damages to petitioner Nita Lira for physical injuries and
mental suffering sustained by her, resulting from breach of the special contract of carriage caused by the
negligence of the respondents, contending that her case is analogous to cases of "quasi delicts causing
physical injuries" for which the new Civil Code authorizes indemnification for moral damages in favor of the
injured party (par. 2, Art. 2219 N.C.C.).

37
Petitioner contends that in the case of Cachero v. Manila Yellow Taxicab Co., G.R. No. L-5721, May 23,
1957; (54 Off. Gaz. No. 26, p. 6599), this Court had not expressly declared or impliedly stated that the
award of moral damages to a passenger who has sustained physical injuries is not an "analogous case".
And Cachero in said case, did not invoke the analogous applicability of said provision of law, (par. 2, Art.
2219) to his case. Much space was allotted by petitioner in her brief, in support of her theme, stating that the
issue raised by her was of first impression. Since the submission of her brief on February 21, 1958,
however, several cases have reached this Court raising the same question, among them is the case of Paz
Fores v. Irene Miranda, G.R. No. L-12163, March 4, 1959 the facts of which are identical to those of the
present one. This Court, speaking thru Mr. Justice J.B.L. Reyes, said

2220 would be to violate the clear provisions of the law, and constitute unwarranted judicial
legislation.

. . . .. Anent the moral damages ordered to be paid to the respondent, the same must be discarded. We
have repeatedly ruled (Cachero v. Manila Yellow Taxicab Co. Inc., G.R. No. L-8721, May 23, 1957;
Necesito, et al. v. Paras, G.R. Nos. L-10605-10606, June 30, 1958), that moral damages are not
recoverable in damage actions predicated on a breach of the contract of transportation, in view of Articles
2219 and 2220 of the new Civil Code, which provide as follows:

Upon the other hand, the advantageous position of a party suing a carrier for breach of the
contract of transportation explains, to some extent, the limitations imposed by the new Code on
the amount of the recovery. The action for the breach of contract imposes on the defendant
carrier a presumption of liability upon mere proof of injury to the passenger; the latter is relieved
from the duty to establish the fault of the carrier or of his employees; and the burden is placed
on the carrier to prove that it was due to an unforeseen event or to force majeure (Cangco v.
Manila Railroad Co., 38 Phil. 768, 777). Moreover, the carrier, unlike in suits for quasi-delict, may
not escape liability by proving that it has exercised due diligence in the selection and supervision
of its employees (Art. 1759, new Civ. Code; Cangco v. Manila Railroad Co., supra; Prado v.
Manila Elec. Co., 51 Phil. 900).

"Art. 2219. Moral damages may be recovered in the following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
xxx

xxx

xxx

"Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith."
By contrasting the provisions of these two articles it immediately becomes apparent that:
(a) In cases of breach of contract (including one transportation) proof of bad faith or
fraud (dolus), i.e., wanton or deliberately injurious conduct, is essential to justify an
award of moral damages; and
(b) That a breach of contract can not be considered included in the descriptive term
'analogous cases used in Art. 2219; not only because Art. 2220 specifically provides
for the damages that are caused by contractual breach, but because the definition
of quasi-delict in Art. 2176 of the Code expresslyexcludes the cases where there is a
'preexisting contractual relation between the parties.'
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
preexisting contractual relation between the parties, is called a quasi-delict and is governed by
the provisions of this Chapter.'
The exception to the basic rule of damages now under consideration is a mishap resulting in the
death of a passenger, in which case Art. 1764 makes the common carrier expressly subject to
the rule of Art. 2206, that entitles the spouse, descendants and ascendants of the deceased
passenger to 'demand moral damages for mental anguish by reason of the death of the
deceased' (Necesito v. Paras, G.R. No. L-10605, Resolution on motion to reconsider, Sept. 11,
1958). But the exceptional rule of Art. 1764 makes it all the more evident that where the injured
passenger does not die, moral damages are not recoverable unless it is proved that the carrier
was guilty of malice or bad faith. We think it is clear that the mere carelessness of the carrier's
driver does not per se constitute or justify an inference of malice or bad faith on the part of the
carrier; and in the case at bar there is no other evidence of such malice to support the award of
moral damages by the Court of Appeals. To award moral damages for breach of contract,
therefore, without proof of bad faith or malice on the part of the defendant, as required by Art.

The Court of Appeals has invoked our rulings in Castro v. Acro Taxicab Co., G.R. No. L-49155,
Dec. 14, 1948 and Layda v. Court of Appeals, G.R. No. L-4487, Jan. 29, 1952, but these
doctrines were predicated upon our former law of damages, before judicial discretion in fixing
them became limited by the express provisions of the new Civil Code (previously quoted).
Hence, the aforesaid rulings are now inapplicable.

The difference in conditions, defenses and proof, as well as the codal concept of quasi-delict as
essentiallyextra-contractual negligence,
compel
us
to
differentiate
between
actions excontractu, and actions quasi ex delicto, and, prevent us from viewing the action for
breach of contract as simultaneously embodying an action on tort. Neither can this action be
taken as one to enforce on employer's liability under Art. 103 of the Rev. Penal Code, since the
responsibility is not alleged to be subsidiary, nor is there on record any averment or proof that
the driver of appellant was insolvent. In fact, he is not even made a party to the suit.
It is also suggested that a carrier's violation of its engagement to safely transport the passenger
involves a breach of the passenger's confidence, and therefore should be regarded as a breach
of contract in bad faith, justifying recovery of moral damages under Art. 2220. This theory is
untenable, for under it the carrier would always be deemed in bad faith, in every case its
obligation to the passenger is infringed, and it would never be accountable for simple
negligence; while under the law (Art. 1756), the presumption is that common carriers
acted negligently (and not maliciously), and Art. 1762 speaks of negligence of the common
carrier.
xxx

xxx

xxx

"Art. 1756. In case of death of or injuries to passengers common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as prescribed in articles 1733 and 1755."
"Art. 1762. The contributory negligence of the passenger does not bar recovery of damages for
his death or injuries, if the proximate cause thereof is the negligence of the common carrier, but
the amount of damages shall be equitably reduced."
The distinction between fraud, bad faith or malice (in the sense of deliberate or wanton
wrongdoing) and negligence (as mere carelessness) is too fundamental in our law to be ignored
(Arts. 1170-1172); their consequences being clearly differentiated by the Code.
"Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in
good faith is liable shall be those that are the natural and probable consequences of the breach
of the obligation, and which the parties have foreseen or could have reasonably foreseen at the
time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation."

38
It is to be presumed, in the absence of statutory provision to the contrary, that this difference
was in the mind of the lawmakers when in Art. 2220 they limited recovery of moral damages to
breaches of contract in bad faith. It is true that negligence may be occasionally so gross as to
amount to malice; but that fact must be shown in evidence, and a carrier's bad faith is not to be
lightly inferred from a mere finding that the contract was breached through negligence of the
carrier's employees.

Private respondent Emmanuel Filoteo, an employee of Permex, was terminated by petitioners allegedly
for flagrantly and deliberately violating company rules and regulations. More specifically, he was dismissed
allegedly for falsifying his daily time record.

(See also Tamayo v. Aquino, L-12634 & L-12720, May 29, 1959; (56 O.G. #36, p. 5617); Cariaga
v. L.T. Bus,L-11037, Dec. 29, 1960; Versoza v. Baytan L-14092, Apr. 29, 1960; Rex Taxicab Inc.
v. Bautista, L-15392, Sept. 30, 1960).

Permex initially hired Emmanuel Filoteo on October 1, 1990, as a mechanic. Eventually, Filoteo was
promoted to water treatment operator, a position he held until his termination on August 29, 1994. As water
treatment operator, Filoteo did not have a fixed working schedule. His hours of work were dependent upon
the company's shifting production schedules.

We gleaned, therefore, from the above mentioned decisions, (1) that the case of a passenger of a carrier
who suffered physical injuries "because of the carrier's negligence (culpa contractual), cannot be considered
in the descriptive expression 'analogous cases', used in Art. 2219"; and (2) that in cases of breach of
contract (including one of transportation) proof of bad faith or fraud (dolus) i.e., wanton or deliberate
injurious conduct is essential to justify an award of moral damages. There being no evidence of fraud,
malice or bad faith, contemplated by law, on the part of the respondents, because the cause of the accident
was merely the bursting of a tire while the bus was overspeeding, the cause of petitioner Nita Lira should
fail, as far as moral damages is concerned. Moral damages was, therefore, correctly eliminated by the Court
of Appeals.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision of the Court of Appeals in G.R. Nos. L13328-29 and L-13358 (Court of Appeals resolution dated December 19, 1957), hereby is affirmed, without
costs in this instance.
Bengzon,
C.J.,
Padilla,
Labrador,
Concepcion
Bautista Angelo and De Leon, JJ., took no part.
Republic
SUPREME
Manila

of

and

the

Reyes,

J.B.L.,

JJ.,

concur.

Philippines
COURT

On July 31, 1994, Filoteo was scheduled for the night shift from 7:00 p.m. to 7:00 a.m. the following day.
That night he reported for work together with his co-workers, Felix Pelayo and Manuel Manzan. They logged
in at the main gate and guardhouse of the petitioner's factory. Filoteo entered his time-in at 8:45 p.m. and
since he was scheduled to work until 7:00 a.m. the next day, he wrote 7:00 a.m. in his scheduled time-out.
This practice of indicating the time out at the moment they time in, was customarily done by most workers
for convenience and practicality since at the end of their work shift, they were often tired and in a hurry to
catch the available service vehicle for their trip home, so they often forgot to log out. There were times also
when the Log Book was brought to the Office of the Personnel Manager and they could not enter their time
out. The company had tolerated the practice.1wphi1.nt
On the evening of July 31, 1994, at around 9:20 p.m., Filoteo, together with Pelayo, went to see the
Assistant Production Manager to inquire if "butchering" of fish would be done that evening so they could
start operating the boiler. They were advised to wait from 9:30 p.m. to 10:00 p.m. for confirmation.
At or about 10:00 p.m., Filoteo and Pelayo went back to the Assistant Production Manager's office. There
they were informed that there would be no "butchering" of tuna that night. Filoteo then sought permission to
go home, which was granted. Filoteo then hurriedly got his things and dashed off to the exit gate to catch
the service jeep provided by Permex.
The next day, August 1, 1994, Filoteo reported for work as usual. He then remembered that he had to make
a re-entry in his daily time record for the previous day. He proceeded to the Office of the Personnel Manager
to retime his DTR entry. Later, he received a memorandum from the Assistant Personnel Officer asking him
to explain, in writing, the entry he made in his DTR. Filoteo complied and submitted his written explanation
that same evening.

SECOND DIVISION
G.R. No. 125031

The pertinent facts, as found by both the NLRC and the Labor Arbiter, are as follows:

January 24, 2000

PERMEX INC. and/or JANE (JEAN) PUNZALAN, PERSONNEL MANAGER and EDGAR LIM,
MANAGER,petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and EMMANUEL FILOTEO, respondents.
QUISUMBING, J.:
This special civil action for certiorari impugns the Resolution of the National Labor Relations Commission,
Fifth Division, dated March 14, 1996, which reversed the decision of the Labor Arbiter in NLRC Case No.
RAB-09-00259-94, as well as its Resolution, dated April 17, 1996, denying the motion for reconsideration.
Petitioner, Permex Producer and Exporter Corporation (hereinafter Permex), is a company engaged in the
business of canning tuna and sardines, both for export and domestic consumption. Its office and factory are
both located in Zamboanga City.
Co-petitioners Edgar Lim and Jean Punzalan are its Manager and Personnel Manager, respectively.
1

On August 8, 1994, Filoteo was suspended indefinitely. His explanation was found unsatisfactory. He was
dismissed from employment on August 23, 1994.
The dismissal arose from Filoteo's alleged violation of Article 2 of the company rules and regulations. The
offense charged was entering in his DTR that he had worked from 8:45 p.m. of July 31, 1994 to 7:00 a.m. of
August 1, 1994, when in fact he had worked only up to 10:00 p.m.
On September 5, 1994, Filoteo filed a complaint for illegal dismissal with claims for separation pay,
damages, and attorney's fees with the Labor Arbiter. His complaint was docketed as NLRC Case No. RAB
09-09-00259-94.
On June 9, 1995, the Labor Arbiter dismissed the complaint for lack of merit. The decretal portion of the
decision reads:
WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered dismissing
the complaint for lack of merit. However, for violation of compliance of (sic) procedural due
process, the respondent is hereby ordered thru its Authorized Officer to pay complainant
P1,000.00 by way of indemnity pay. Furthermore, complainant's claims for damages and
attorney's fees be dismissed for lack of merit.

39
SO ORDERED.2
Filoteo appealed to the NLRC. Finding merit therein, the Commission's Fifth Division promulgated its
resolution, reversing and setting aside the Labor Arbiter's decision, by disposing as follows:
WHEREFORE, the decision appealed from, is Vacated and Set Aside and a new one entered
declaring the complainant to have been illegally dismissed by respondent company. Accordingly,
respondent Permex, Inc., through its corporate officers, is hereby ordered and directed to pay
complainant, Emmanuel Filoteo, separation pay at the rate of one (1) month salary for every
year of service or in the equivalent of four (4) months separation pay and backwages effective
August 23, 1994 up to the promulgation of this decision, inclusive of fringe benefits, if any.
Further, respondent company is ordered to pay complainant moral and exemplary damages in
the sum of P10,000.00 and P5,000.00, respectively, as well as attorney's fees equivalent to ten
(10%) percent of the total monetary award after computation thereof at the execution stage.
SO ORDERED.3
On April 3, 1996, petitioners filed a motion for reconsideration. It was denied for lack of merit by the NLRC in
a resolution dated April 17, 1996.
Hence, the present petition, assigning the following errors:
I
PUBLIC RESPONDENT'S RESOLUTIONS ARE CONTRARY TO THE EVIDENCE ON
RECORD AND ADMITTED FACTS.
II
PUBLIC RESPONDENT ERRED WHEN IT RULED THAT PRIVATE RESPONDENT WAS
ILLEGALLY DISMISSED.
III
PUBLIC RESPONDENT ERRED WHEN IT AWARDED PRIVATE RESPONDENT SEPARATION
PAY, BACKWAGES, DAMAGES AND ATTORNEY'S FEES SANS FACTUAL AND LEGAL
BASIS.
We will now consider these assigned errors to resolve the principal issue of whether or not private
respondent was illegally terminated from his employment.
Note that, firstly, petitioners seek a reversal of the public respondent's findings of the facts. But as the Court
has repeatedly ruled the findings of facts of the NLRC, particularly where the NLRC and the Labor Arbiter
are in agreement, are deemed binding and conclusive upon the Court. 4 For the Court is not a trier of
facts.5 Second, resort to judicial review of the decisions of the NLRC in a special civil action
for certiorari under Rule 65 of the Rules of Court, is limited only to the question generally of grave abuse of
discretion amounting to lack or excess of jurisdiction. 6 Thirdly, in this case, the NLRC's factual findings are
supported by the evidence on record. We are therefore constrained not to disturb said findings of fact.
Whether private respondent was illegally dismissed or not is governed by Article 282 of the Labor Code. 7 To
constitute a valid dismissal from employment, two requisites must concur: (a) the dismissal must be for any
of the causes provided for in Article 282 of the Labor Code; and (b) the employee must be afforded an
opportunity to be heard and defend himself. 8 This means that an employer can terminate the services of an
employee for just and valid causes, which must be supported by clear and convincing evidence. 9 It also

means that, procedurally, the employee must be given notice, with adequate opportunity to be
heard,10 before he is notified of his actual dismissal for cause.
In the present case, the NLRC found that the two-fold requirements for a valid dismissal were not satisfied
by the petitioners.
First, petitioner's charge of serious misconduct of falsification or deliberate misrepresentation was not
supported by the evidence on the record contrary to Art. 277 of the Labor Code which provides that:
Art. 277. Miscellaneous provisions.
xxx

xxx

xxx

(b) Subject to the constitutional right of workers to security of tenure and their right to be
protected against dismissal except for a just and authorized cause. . . The burden of proving that
the termination was for a valid or authorized cause shall rest on the employer. . .
Second, the private respondent was not afforded an opportunity to be heard. As found by the NLRC:
. . . Aside from the fact that there was no valid and justifiable cause for his outright dismissal
from the service, complainant's dismissal as correctly held by the Labor Arbiter was tainted with
arbitrariness for failure of respondent company (petitioner herein) to observe procedural due
process in effecting his dismissal. Admittedly, complainant was suspended indefinitely on August
8, 1994 and subsequently dismissed on August 23, 1994 without any formal investigation to
enable complainant to defend himself. 11
Such dismissal, in our view, was too harsh a penalty for an unintentional infraction, not to mention that it
was his first offense committed without malice, and committed also by others who were not equally
penalized.12
It is clear that the alleged false entry in private respondent's DTR was actually the result of having logged
his scheduled time-out in advance on July 31, 1994. But it appears that when he timed in, he had no idea
that his work schedule (night shift) would be cancelled. When it was confirmed at 10:00 p.m. that there was
no "butchering" of tuna to be done, those who reported for work were allowed to go home, including private
respondent. In fact, Filoteo even obtained permission to leave from the Assistant Production Manager.
Considering the factory practice which management tolerated, we are persuaded that Filoteo, in his rush to
catch the service vehicle, merely forgot to correct his initial time-out entry. Nothing is shown to prove he
deliberately falsified his daily time record to deceive the company. The NLRC found that even
management's own evidence reflected that a certain Felix Pelayo, a co-worker of private respondent, was
also allowed to go home that night and like private respondent logged in advance 7:00 a.m. as his time-out.
This supports Filoteo's claim that it was common practice among night-shift workers to log in their usual
time-out in advance in the daily time record.
Moreover, as early as Tide Water Associated Oil Co. v. Victory Employees and Laborers' Association, 85
Phil. 166 (1949), we ruled that, where a violation of company policy or breach of company rules and
regulations was found to have been tolerated by management, then the same could not serve as a basis for
termination.
All told we see no reason to find that the NLRC gravely abused its discretion when it ruled that private
respondent was illegally dismissed. Hence we concur in that ruling. Nonetheless, we find that the award of
moral and exemplary damages by the public respondent is not in order and must be deleted. Moral
damages are recoverable only where the dismissal of the employee was tainted by bad faith or fraud, or
where it constituted an act oppressive to labor, and done in a manner contrary to morals, good customs, or
public policy.13 Exemplary damages may be awarded only if the dismissal was done in a wanton,
oppressive, or malevolent manner.14 None of these circumstances exist in the present case.

40
WHEREFORE, the petition is DENIED. The assailed resolutions of the National Labor Relations
Commission dated March 14, 1996 and April 17, 1996 in NLRC CA No. M-002808-95 are AFFIRMED with
MODIFICATION. Petitioner Permex, through its corporate officers, is ORDERED to pay jointly and solidarily
the private respondent separation pay at the rate of one (1) month salary for every year of service as well as
backwages effective August 23, 1994, inclusive of fringe benefits if any, with legal interest until fully paid,
and attorney's fees equivalent to ten (10%) percent of the total monetary award computed at the execution
stage hereof. The award of moral and exemplary damages, however, is DELETED. Costs against
petitioners.1wphi1.nt
SO ORDERED.

Deeds, she was shocked to find out that the lot had been divided into two, pursuant to a deed of sale
apparently executed by Aurea in favor of Jovencio. Aurea averred that she never sold any portion of her
property to Jovencio and never executed a deed of sale. Aurea was thus forced to seek the advice of Judge
Enrique Almario, another relative, who suggested filing a complaint for estafa.
On February 21, 1994, Assistant Provincial Prosecutor Rodrigo B. Zayenis dismissed the criminal complaint
for estafa for lack of evidence. On account of this dismissal, Jovencio and Rodencio filed a complaint for
damages on the ground of malicious prosecution with the Regional Trial Court of Sta. Cruz, Laguna, Branch
91,2 which was docketed as Civil Case No. SC-3230. They alleged that the filing of the estafa complaint
against them was done with malice and it caused irreparable injury to their reputation, as Aurea knew fully
well that she had already sold half of the property to Jovencio.

Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.

On October 5, 2000, the trial court rendered a decision in favor of Jovencio and Rodencio. The dispositive
portion stated:

Republic
SUPREME
Manila

of

the

Philippines
COURT

WHEREFORE, premises considered, finding that plaintiffs have established their case by
preponderance of evidence, judgment is hereby rendered in their favor and against the
defendants ordering the latter to pay the former as follows:
A) P150,000.00 by way of moral damages;

THIRD DIVISION
B) P30,000.00 as exemplary damages;
G.R. No. 156339

October 6, 2004

MS. VIOLETA YASOA, personally and as heir of deceased sister defendant PELAGIA YASOA and
as attorneyinfact of her brothers ALEJANDRO and EUSTAQUIO, both YASOA and sisters:
TERESITA YASOA BALLESTERO and ERLINDA YASOA TUGADI, and mother AUREA VDA. DE
YASOA, petitioners,
vs.
RODENCIO and JOVENCIO, both surnamed DE RAMOS, respondents.

C) P10,000.00 as attorneys fees incurred in defending themselves from the criminal

complaint for estafa;
D) P10,000.00 as attorneys fees and cost of litigation, and to pay the costs.
There being no sufficient evidence established to prove the claim for actual damages the same
is hereby dismissed.

DECISION
SO ORDERED.3
CORONA, J.:
Before this Court is a petition for review on certiorari seeking the reversal of the decision 1 of the Court of
Appeals dated June 14, 2002 and its resolution dated December 12, 2002 in CA-G.R. SP No. 69300.
The records disclose that in November 1971, Aurea Yasoa and her son, Saturnino, went to the house of
Jovencio de Ramos to ask for financial assistance in paying their loans to Philippine National Bank (PNB),
otherwise their residential house and lot, covered by TCT No. T-32810, would be foreclosed. Inasmuch as
Aurea was his aunt, Jovencio acceded to the request. They agreed that, upon payment by Jovencio of the
loan to PNB, half of Yasoas subject property would be sold to him.
On December 29, 1971, Jovencio paid Aureas bank loan. As agreed upon, Aurea executed a deed of
absolute sale in favor of Jovencio over half of the lot consisting of 123 square meters. Thereafter, the lot
was surveyed and separate titles were issued by the Register of Deeds of Sta. Cruz, Laguna in the names
of Aurea (TCT No. 73252) and Jovencio (TCT No. 73251).
Twenty-two years later, in August 1993, Aurea filed an estafa complaint against brothers Jovencio and
Rodencio de Ramos on the ground that she was deceived by them when she asked for their assistance in
1971 concerning her mortgaged property. In her complaint, Aurea alleged that Rodencio asked her to sign a
blank paper on the pretext that it would be used in the redemption of the mortgaged property. Aurea signed
the blank paper without further inquiry because she trusted her nephew, Rodencio. Thereafter, they heard
nothing from Rodencio and this prompted Nimpha Yasoa Bondoc to confront Rodencio but she was told
that the title was still with the Register of Deeds. However, when Nimpha inquired from the Register of

Petitioner Violeta Yasoa, personally and on behalf of her brothers and sisters and mother Aurea, filed a
petition forcertiorari under Rule 65 with the Court of Appeals which dismissed the same on June 14, 2002
on the ground that petitioners availed of the wrong remedy. Their subsequent motion for reconsideration
was likewise denied on December 12, 2000.
Hence, the instant petition.
We agree with the appellate court that the remedy availed of by petitioners was inappropriate as Rule 65 of
the Rules of Court cannot be a substitute for a lost appeal, 4 and that, in any event, petitioners are liable for
malicious prosecution.
The principal question to be resolved is whether the filing of the criminal complaint for estafa by petitioners
against respondents constituted malicious prosecution.
In this jurisdiction, the term "malicious prosecution" has been defined as "an action for damages brought by
one against whom a criminal prosecution, civil suit, or other legal proceeding has been instituted maliciously
and without probable cause, after the termination of such prosecution, suit, or other proceeding in favor of
the defendant therein." To constitute "malicious prosecution," there must be proof that the prosecution was
prompted by a sinister design to vex or humiliate a person, and that it was initiated deliberately by the
defendant knowing that his charges were false and groundless. 5 Concededly, the mere act of submitting a
case to the authorities for prosecution does not make one liable for malicious prosecution. 6

41
In this case, however, there is reason to believe that a malicious intent was behind the filing of the complaint
for estafa against respondents. The records show that the sale of the property was evidenced by a deed of
sale duly notarized and registered with the local Register of Deeds. After the execution of the deed of sale,
the property was surveyed and divided into two portions. Separate titles were then issued in the names of
Aurea Yasoa (TCT No. 73252) and Jovencio de Ramos (TCT No. 73251). Since 1973, Jovencio had been
paying the realty taxes of the portion registered in his name. In 1974, Aurea even requested Jovencio to use
his portion as bond for the temporary release of her son who was charged with malicious mischief. Also,
when Aurea borrowed money from the Rural Bank of Lumban in 1973 and the PNB in 1979, only her portion
covered by TCT No. 73252 was mortgaged.
All these pieces of evidence indicate that Aurea had long acknowledged Jovencios ownership of half of the
property. Furthermore, it was only in 1993 when petitioners decided to file the estafa complaint against
respondents. If petitioners had honestly believed that they still owned the entire property, it would not have
taken them 22 years to question Jovencios ownership of half of the property. The only conclusion that can
be drawn from the circumstances is that Aurea knew all along that she was no longer the owner of
Jovencios portion after having sold it to him way back in 1971. Likewise, other than petitioners bare
allegations, no other evidence was presented by them to substantiate their claim.
Malicious prosecution, both in criminal and civil cases, requires the elements of (1) malice and (2) absence
of probable cause.7 These two elements are present in the present controversy. Petitioners were completely
aware that Jovencio was the rightful owner of the lot covered by TCT No. 73251, clearly signifying that they
were impelled by malice and avarice in bringing the unfounded action. That there was no probable cause at
all for the filing of the estafa case against respondents led to the dismissal of the charges filed by petitioners
with the Provincial Prosecutors Office in Siniloan, Laguna.
Petitioners reliance on Drilon vs. Court of Appeals 8 is misplaced. It must be noted that in Drilon, the
investigating panel found that there was probable cause to hold private respondent Homobono Adaza for
trial for the crime of rebellion with murder and frustrated murder. Thus, petitioner (now Senate President)
Franklin Drilon could not be held liable for malicious prosecution as there existed probable cause for the
criminal case. Here, the complaint for estafa was dismissed outright as the prosecutor did not find any
probable cause against respondents. A suit for malicious prosecution will prosper where legal prosecution is
carried out without probable cause.
In sum, we find no reversible error on the part of the appellate court in dismissing the petition and in effect
affirming the trial courts decision holding petitioners liable for damages for the malicious prosecution of
respondents.
WHEREFORE, the decision declaring petitioners liable for malicious prosecution is hereby AFFIRMED in
toto.
SO ORDERED.
Panganiban, Sandoval-Gutierrez, and Carpio Morales*, JJ., concur.
Republic
SUPREME
Manila

of

the

Philippines
COURT

THIRD DIVISION
G.R. No. 156168

December 14, 2004

EQUITABLE
vs.
JOSE T. CALDERON, respondent.

BANKING

DECISION

GARCIA, J.:
Thru this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Equitable Banking
Corporation (EBC), seeks the reversal and setting aside of the decision dated November 25, 20021 of the
Court of Appeals in CA-G.R. CV No. 60016, which partially affirmed an earlier decision of the Regional Trial
Court at Makati City, Branch 61, insofar as it grants moral damages and costs of suit to herein
respondent, Jose T. Calderon.
The decision under review recites the factual background of the case, as follows:
Plaintiff-appellee [now respondent] Jose T. Calderon (Calderon for brevity), is a businessman
engaged in several business activities here and abroad, either in his capacity as President or
Chairman of the Board thereon. In addition thereto, he is a stockholder of PLDT and a member
of the Manila Polo Club, among others. He is a seasoned traveler, who travels at least seven
times a year in the U.S., Europe and Asia. On the other hand, the defendant-appellant [now
petitioner] Equitable Banking Corporation (EBC for brevity), is one of the leading commercial
banking institutions in the Philippines, engaged in commercial banking, such as acceptance of
deposits, extension of loans and credit card facilities, among others.
xxx

xxx

xxx

Sometime in September 1984, Calderon applied and was issued an Equitable International Visa
card (Visa card for brevity). The said Visa card can be used for both peso and dollar
transactions within and outside the Philippines. The credit limit for the peso transaction is
TWENTY THOUSAND (P20,000.00) PESOS; while in the dollar transactions, Calderon is
required to maintain a dollar account with a minimum deposit of $3,000.00, the balance of dollar
account shall serve as the credit limit.
In April 1986, Calderon together with some reputable business friends and associates, went to
Hongkong for business and pleasure trips. Specifically on 30 April 1986, Calderon accompanied
by his friend, Ed De Leon went to Gucci Department Store located at the basement of the
Peninsula Hotel (Hongkong). There and then, Calderon purchased several Gucci items (t-shirts,
jackets, a pair of shoes, etc.). The cost of his total purchase amounted to HK$4,030.00 or
equivalent to US$523.00. Instead of paying the said items in cash, he used his Visa card (No.
4921 6400 0001 9373) to effect payment thereof on credit. He then presented and gave his
credit card to the saleslady who promptly referred it to the store cashier for verification. Shortly
thereafter, the saleslady, in the presence of his friend, Ed De Leon and other shoppers of
different nationalities, informed him that his Visa card was blacklisted. Calderon sought the
reconfirmation of the status of his Visa card from the saleslady, but the latter simply did not
honor it and even threatened to cut it into pieces with the use of a pair of scissors.
Deeply embarrassed and humiliated, and in order to avoid further indignities, Calderon paid
cash for the Gucci goods and items that he bought.

CORPORATION, petitioner,
Upon his return to the Philippines, and claiming that he suffered much torment and embarrassment on
account of EBCs wrongful act of blacklisting/suspending his VISA credit card while at the Gucci store in

42
Hongkong, Calderon filed with the Regional Trial Court at Makati City a complaint for damages 2 against
EBC.

FINDING THAT PETITIONERS ACTIONS HAVE NOT BEEN ATTENDED WITH ANY MALICE OR
BAD FAITH."7

In its Answer,3 EBC denied any liability to Calderon, alleging that the latters credit card privileges for dollar
transactions were earlier placed under suspension on account of Calderons prior use of the same card in
excess of his credit limit, adding that Calderon failed to settle said prior credit purchase on due date, thereby
causing his obligation to become past due. Corollarily, EBC asserts that Calderon also failed to maintain the
required minimum deposit of $3,000.00.

The petition is impressed with merit.

To expedite the direct examination of witnesses, the trial court required the parties to submit affidavits, in
question-and-answer form, of their respective witnesses, to be sworn to in court, with cross examination to
be made in open court.
Eventually, in a decision dated October 10, 1997, 4 the trial court, concluding that "defendant bank was
negligent if not in bad faith, in suspending, or blacklisting plaintiffs credit card without notice or basis",
rendered judgment in favor of Calderon, thus:
WHEREFORE PREMISES ABOVE CONSIDERED, judgment is hereby rendered in favor of
plaintiff as against defendant EQUITABLE BANKING CORPORATION, which is hereby
ORDERED to pay plaintiff as follows:
1. the sum of US$150.00 as actual damages;
2. the sum of P200,000.00 as and by way of moral damages;
3. the amount of P100,000.00 as exemplary damages;
4. the sum of P100,000.00 as attorneys fees plus P500.00 per court hearing and
5. costs of suit.
SO ORDERED.
Therefrom, EBC went to the Court of Appeals (CA), whereat its recourse was docketed as CA G.R. CV No.
60016.
5

After due proceedings, the CA, in a decision dated November 25, 2002, affirmed that of the trial court but
only insofar as the awards of moral damages, the amount of which was even reduced, and the costs of suits
are concerned. More specifically, the CA decision dispositively reads: 6
WHEREFORE, in consideration of the foregoing disquisitions, the decision of the court a
quo dated 10 October 1997 is AFFIRMED insofar as the awards of moral damages and costs of
suit are concerned. However, anent the award of moral damages, the same is reduced to One
Hundred Thousand (P100,000.00) Pesos.
The rest of the awards are deleted.
SO ORDERED.
Evidently unwilling to accept a judgment short of complete exemption from any liability to Calderon, EBC is
now with us via the instant petition on its lone submission that "THE COURT OF APPEALS ERRED IN
HOLDING THAT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES NOTWITHSTANDING ITS

In law, moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation and similar injury. 8 However, to be entitled to
the award thereof, it is not enough that one merely suffered sleepless nights, mental anguish or serious
anxiety as a result of the actuations of the other party. 9 In Philippine Telegraph & Telephone Corporation vs.
Court of Appeals,10 we have had the occasion to reiterate the conditions to be met in order that moral
damages may be recovered, viz:
An award of moral damages would require, firstly, evidence of besmirched reputation, or
physical, mental or psychological suffering sustained by the claimant; secondly, a culpable act
or omission factually established; thirdly, proof that the wrongful act or omission of the defendant
is the proximate cause of the damages sustained by the claimant; and fourthly, that the case is
predicated on any of the instances expressed or envisioned by Articles 2219 and 2220 of the
Civil Code.
Particularly, in culpa contractual or breach of contract, as here, moral damages are recoverable only if the
defendant has acted fraudulently or in bad faith, 11 or is found guilty of gross negligence amounting to bad
faith, or in wanton disregard of his contractual obligations. 12 Verily, the breach must be wanton, reckless,
malicious or in bad faith, oppressive or abusive.13
Here, the CA ruled, and rightly so, that no malice or bad faith attended petitioners dishonor of respondents
credit card. For, as found no less by the same court, petitioner was justified in doing so under the provisions
of its Credit Card Agreement14 with respondent, paragraph 3 of which states:
xxx the CARDHOLDER agrees not to exceed his/her approved credit limit, otherwise, all
charges incurred including charges incurred through the use of the extension CARD/S, if any in
excess of credit limit shall become due and demandable and the credit privileges shall be
automatically suspended without notice to the CARDHOLDER in accordance with Section 11
hereof.
We are thus at a loss to understand why, despite its very own finding of absence of bad faith or malice on
the part of the petitioner, the CA nonetheless adjudged it liable for moral damages to respondent.
Quite evidently, in holding petitioner liable for moral damages, the CA justified the award on its assessment
that EBC was negligent in not informing Calderon that his credit card was already suspended even before
he left for Hongkong, ratiocinating that petitioners right to automatically suspend a cardholders privileges
without notice should not have been indiscriminately used in the case of respondent because the latter has
already paid his past obligations and has an existing dollar deposit in an amount more than the required
minimum for credit card at the time he made his purchases in Hongkong. But, as explained by the petitioner
in the memorandum it filed with this Court,15 which explanations were never controverted by respondent:
"xxx prior to the incident in question (i.e., April 30, 1986 when the purchases at the Gucci store
in Hongkong were made), respondent made credit purchases in Japan and Hongkong from
August to September 1985 amounting to US$14,226.12, while only having a deposit of
US$3,639.00 in his dollar account as evidenced by the pertinent monthly statement of
respondents credit card transactions and his bank passbook, thus exceeding his credit limit;
these purchases were accommodated by the petitioner on the condition that the amount needed
to cover the same will be deposited in a few days as represented by respondents secretary and
his companys general manager a certain Mrs. Zamora and Mr. F.R. Oliquiano; respondent
however failed to make good on his commitment; later, respondent likewise failed to make the
required deposit on the due date of the purchases as stated in the pertinent monthly statement
of account; as a consequence thereof, his card privileges for dollar transactions were
suspended; it was only four months later on 31 January 1986, that respondent deposited the
sum of P14,501.89 in his dollar account to cover his purchases; the said amount however was

43
not sufficient to maintain the required minimum dollar deposit of $3,000.00 as the respondents
dollar deposit stood at only US$2,704.94 after satisfaction of his outstanding accounts; a day
before he left for Hongkong, respondent made another deposit of US$14,000.00 in his dollar
account but did not bother to request the petitioner for the reinstatement of his credit card
privileges for dollar transactions, thus the same remained under suspension." 16

We do not take issue with the appellate court in its observation that the Credit Card Agreement herein
involved is a contract of adhesion, with the stipulations therein contained unilaterally prepared and imposed
by the petitioner to prospective credit card holders on a take-it-or-leave-it basis. As said by us in Polotan, Sr.
vs. Court of Appeals:20
A contract of adhesion is one in which one of the contracting parties imposes a ready-made form
of contract which the other party may accept or reject, but cannot modify. One party prepares
the stipulation in the contract, while the other party merely affixes his signature or his adhesion
thereto giving no room for negotiation and depriving the latter of the opportunity to bargain on
equal footing.

The foregoing are based on the sworn affidavit of petitioners Collection Manager, a certain Lourdes Canlas,
who was never cross examined by the respondent nor did the latter present any evidence to refute its
veracity.
Given the above, and with the express provision on automatic suspension without notice under paragraph
3, supra, of the parties Credit Card Agreement, there is simply no basis for holding petitioner negligent for
not notifying respondent of the suspended status of his credit card privileges.
It may be so that respondent, a day before he left for Hongkong, made a deposit of US$14,000.00 to his
dollar account with petitioner. The sad reality, however, is that he never verified the status of his card before
departing for Hongkong, much less requested petitioner to reinstate the same. 17
And, certainly, respondent could not have justifiably assumed that petitioner must have reinstated his card
by reason alone of his having deposited US$14,000.00 a day before he left for Hongkong. As issuer of the
card, petitioner has the option to decide whether to reinstate or altogether terminate a credit card previously
suspended on considerations which the petitioner deemed proper, not the least of which are the
cardholders payment record, capacity to pay and compliance with any additional requirements imposed by
it. That option, after all, is expressly embodied in the same Credit Card Agreement, paragraph 12 of which
unmistakably states:
The issuer shall likewise have the option of reinstating the card holders privileges which have
been terminated for any reason whatsoever upon submission of a new accomplished application
form if required by the issuer and upon payment of an additional processing fee equivalent to
annual fee.18
Even on the aspect of negligence, therefore, petitioner could not have been properly adjudged liable for
moral damages.
Unquestionably, respondent suffered damages as a result of the dishonor of his card. There is, however, a
material distinction between damages and injury. To quote from our decision in BPI Express Card
Corporation vs. Court of Appeals:19
Injury is the illegal invasion of a legal right; damage is the loss, hurt or harm which results from
the injury; and damages are the recompense or compensation awarded for the damage
suffered. Thus, there can be damage without injury in those instances in which the loss or
harm was not the result of a violation of a legal duty. In such cases the consequences must
be borne by the injured person alone, the law affords no remedy for damages resulting from an
act which does not amount to a legal injury or wrong. These situations are often called damnum
absque injuria.
In other words, in order that a plaintiff may maintain an action for the injuries of which he
complains, he must establish that such injuries resulted from a breach of duty which the
defendant owed to the plaintiff- a concurrence of injury to the plaintiff and legal responsibility by
the person causing it. The underlying basis for the award of tort damages is the premise that an
individual was injured in contemplation of law. Thus, there must first be a breach of some
duty and the imposition of liability for that breach before damages may be awarded; and the
breach of such duty should be the proximate cause of the injury. (Emphasis supplied).
In the situation in which respondent finds himself, his is a case of damnum absque injuria.

On the same breath, however, we have equally ruled that such a contract is "as binding as ordinary
contracts, the reason being that the party who adheres to the contract is free to reject it entirely." 21
Moreover, the provision on automatic suspension without notice embodied in the same Credit Card
Agreement is couched in clear and unambiguous term, not to say that the agreement itself was entered into
by respondent who, by his own account, is a reputable businessman engaged in business activities here
and abroad.
On a final note, we emphasize that "moral damages are in the category of an award designed to
compensate the claim for actual injury suffered and not to impose a penalty on the wrongdoer." 22
WHEREFORE, the instant petition is hereby GRANTED and the decision under review REVERSED and
SET ASIDE.
SO ORDERED.
Panganiban,
(Chairman),
Corona, J., on leave.
Republic
SUPREME
Manila

Sandoval-Gutierrez,

of

and

the

Carpio-Morales,

JJ., concur.

Philippines
COURT

THIRD DIVISION
G.R. No. 151783

July 8, 2003

VICTORINO SAVELLANO, VIRGINIA B. SAVELLANO and DEOGRACIAS B. SAVELLANO, petitioners,

vs.
NORTHWEST AIRLINES, respondent.
PANGANIBAN, J.:
When, as a result of engine malfunction, a commercial airline is unable to ferry its passengers on the
original contracted route, it nonetheless has the duty of fulfilling its responsibility of carrying them to their
contracted destination on the most convenient route possible. Failing in this, it cannot just unilaterally shuttle
them, without their consent, to other routes or stopping places outside of the contracted sectors. However,
moral damages cannot be awarded without proof of the carrier's bad faith, ill will, malice or wanton conduct.
Neither will actual damages be granted in the absence of convincing and timely proof of loss. But nominal
damages may be allowed under the circumstances in the case herein.
The Case

44
Before the Court is a Petition for Review under Rule 45 of the Rules of Court, seeking to set aside the June
29, 2001 Decision1 of the Court of Appeals 2 (CA) in CA-GR CV No. 47165. The dispositive part of the
Decision reads:
"WHEREFORE, the judgment of July 29, 1994 is hereby REVERSED and SET ASIDE and
another rendered DISMISSING [petitioners'] Complaint. No pronouncement as to costs." 3
On the other hand, the dispositive portion of the Regional Trial Court (RTC) Decision 4 that was
reversed by the CA disposed thus:
"WHEREFORE, premises considered, decision is hereby rendered in favor of the plaintiffs and
against the defendant, sentencing the latter to pay to the former, the following amounts:
1. P500,000.00 as actual damages;
2. P3,000,000.00 as moral damages;
3. P500,000.00 as exemplary damages; and
4. P500,000.00 as attorney's fees;
"All such sums shall bear legal interest, i.e., 6% per annum pursuant to Article 2209 of the Civil
Code (Reformina vs. Tomol, 139 SCRA 260) from the date of the filing of the complaint until fully
paid. Costs against the x x x Northwest Airlines, Inc.
"[Respondent's] counterclaim is ordered dismissed, for lack of merit." 5
The Facts
The facts of the case are summarized by the CA as follows:
"[Petitioner] Victorino Savellano (Savellano) was a Cabugao, Ilocos Sur mayor for many terms,
former Chairman of the Commission on Elections and Regional Trial Court (RTC) judge. His
wife, [Petitioner] Virginia is a businesswoman and operates several rural banks in Ilocos Sur.
The couple's x x x son [Petitioner] Deogracias was, at the time [of] the incident subject of the
case, the Vice-Governor of Ilocos Sur.
"On October 27, 1991, at around 1:45 p.m., [petitioners] departed from San Francisco, USA on
board Northwest Airlines (NW) Flight 27, Business Class, bound for Manila, Philippines using
the NW round-trip tickets which were issued at [respondent's] Manila ticketing office.
"[Petitioners] were expected to arrive at the Ninoy Aquino International Airport (NAIA), Manila on
October 29, 1991 (Manila time) or after twelve (12) hours of travel.
"After being airborne for approximately two and one-half (2) hours or at about 4:15 p.m. of the
same day, October 27, 1991 (Seattle, USA time), NW Flight 27's pilot made an emergency
landing in Seattle after announcing that a fire had started in one of the plane's engines.
"[Petitioners] and the other passengers proceeded to Gate 8 of the Seattle Airport where they
were instructed to go home to Manila the next day, 'using the same boarding passes with the
same seating arrangements'.

"[Respondent's] shuttle bus thereafter brought all passengers to the Seattle Red Lion Hotel
where they were billeted by, and at the expense of [respondent].
"[Petitioners] who were travelling as a family were assigned one room at the hotel. At around
12:00 midnight, they were awakened by a phone call from [respondent's] personnel who advised
them to be at the Seattle Airport by 7:00 a.m. (Seattle time) the following day, October 28, 1991,
for departure. To reach the airport on time, the NW shuttle bus fetched them early, making them
skip the 6:30 a.m. hotel breakfast.
"Prior to leaving the hotel, however, [petitioners] met at the lobby Col. Roberto Delfin, a Filipino
co-passenger who was also travelling Business Class, who informed them that he and some
passengers were leaving the next day, October 29, 1991, on board the same plane with the
same itinerary.
"On account of the 'engine failure' of the plane, [petitioner] Virginia developed nervousness. On
getting wind of information that they were 'bumped off', she took 'valium' to calm her nerves and
'cough syrup' for the fever and colds she had developed during the trip.
"When [petitioners] reached the Seattle Airport, [respondent's] ground stewardess belatedly
advised them that instead of flying to Manila they would have to board NW Flight 94, a DC-10
plane, bound for a 3-hour flight to Los Angeles for a connecting flight to Manila. When
[Petitioner] Savellano insisted theirs was a direct flight to Manila, the female ground stewardess
just told them to hurry up as they were the last passengers to board.
"In Los Angeles, [petitioners] and the other passengers became confused for while 'there was a
sort of a board' which announced a Seoul-Bangkok flight, none was posted for a Manila flight. It
was only after they complained to the NW personnel that the latter 'finally changed the board to
include Manila.'
"Before boarding NW Flight 23 for Manila via Seoul, [petitioners] encountered another problem.
Their three small handcarried items which were not padlocked as they were merely closed by
zippers were 'not allowed' to be placed inside the passengers' baggage compartments of the
plane by an arrogant NW ground stewardess.
"On [petitioners'] arrival at the NAIA, Manila where they saw Col. Delfin and his wife as well as
the other passengers of the distressed flight who unlike them [petitioners] who left Seattle on
October 28, 1991, left Seattle on October 29, 1991, they were teased for taking the longer and
tiresome route to the Philippines.
"When [petitioners] claimed their luggage at the baggage carousel, they discovered that the
would-have-been handcarried items which were not allowed to be placed inside the passengers'
baggage compartment had been ransacked and the contents thereof stolen. Virginia was later to
claim having lost her diamond earrings costing P300,000.00, two (2) Perry Gan shoes worth
US$250.00, four (4) watches costing US$40.00 each, two (2) pieces of Tag Heuer watch and
three (3) boxes of Elizabeth Arden [perfumes]. Deogracias, on the other hand, claimed to have
lost two (2) pairs of Cole Haan shoes which he bought for his wife, and the clothes, camera,
personal computer, and jeans he bought for his children.
"By letter of November 22, 1991, [petitioners] through counsel demanded from [respondent] the
amount of P3,000,000.00 as damages for what they claimed to be the humiliation and
inconvenience they suffered in the hands of its personnel. [Respondent] did not accede to the
demand, however, impelling [petitioners] to file a case for damages at the RTC of Cabugao,
Ilocos Sur subject of the present appeal.
"[Petitioners] concede that they were not downgraded in any of the flights on their way home to
Manila. Their only complaint is that they suffered inconvenience, embarrassment, and
humiliation for taking a longer route.

45
"During the trial, the [RTC], on motion of [petitioners], issued on October 29, 1993 a
subpoena duces tecumdirecting [respondent] to submit the passengers' manifest of the
distressed flight from San Francisco to Tokyo on October 27, 1991, the passengers' manifest of
the same distressed plane from Seattle to Tokyo which took off on October 29, 1991, and the
passenger manifest of the substitute plane from Seattle to Los Angeles and Los Angeles to
Seoul enroute to Manila which took off on October 28, 1991.
"The subpoena duces tecum was served on December 1, 1993 but was not complied with,
however, by [respondent], it proffering that its Minneapolis head office retains documents only
for one year after which they are destroyed.
" x x x Branch 24 of the RTC of Cabugao, Ilocos Sur rendered judgment in favor of [petitioners] x
x x.
"In granting moral and actual damages to [petitioners], the [RTC] credited [petitioners'] claim that
they were excluded from the Seattle-Tokyo-Manila flight to accommodate several Japanese
passengers bound for Japan. And as basis of its award of actual damages arising from the
allegedly lost articles contained in the would-have-been handcarried [luggage], the [RTC],
passing on the lack of receipts covering the same, took judicial notice of the Filipinos' practice of
often bringing home pasalubong for friends and relatives." 6
Ruling of the Court of Appeals
The CA ruled that petitioners had failed to show respondent's bad faith, negligence or malice in transporting
them via the Seattle-Los Angeles-Seoul-Manila route. Hence, it held that there was no basis for the RTC's
award of moral and exemplary damages. Neither did it find any reason to grant attorney's fees.
It further ruled:
"[Petitioners'] testimonial claim of losses is unsupported by any other evidence at all. It is odd
and even contrary to human experience for [petitioner] Virginia not to have taken out a
P300,000.00 pair of diamond earrings from an unlocked small luggage after such luggage was
not allowed to be placed inside the passenger's baggage compartment, given the ease with
which it could have been done as the small luggage was merely closed by zipper. Just as it is
odd why no receipts for alleged purchases for valuable pasalubongsincluding Tag Huer watches,
camera and personal computer were presented x x x " 7

The Petition is partly meritorious.

First
Breach of Contract

Issue:

Petitioners' contract of carriage with Northwest was for the San Francisco-Tokyo (Narita)-Manila flights
scheduled for October 27, 1991. This itinerary was not followed when the aircraft used for the first segment
of the journey developed engine trouble. Petitioners stress that they are questioning, not the cancellation of
the original itinerary, but its substitution, which they allegedly had not contracted for or agreed to. They insist
that, like the other passengers of the distressed flight, they had the right to be placed on Flight 27, which
had a connecting flight from Japan to Manila. They add that in being treated differently and shabbily, they
were being discriminated against.
A contract is the law between the parties. 10 Thus, in determining whether petitioners' rights were violated, we
must look into its provisions, which are printed on the airline ticket. Condition 9 in the agreement states that
a " x x x [c]arrier may without notice substitute alternate carriers or aircraft, and may alter or omit stopping
places shown on the ticket in case of necessity. x x x ." 11
The basis of the Complaint was the way respondent allegedly treated petitioners like puppets that could be
shuttled to Manila via Los Angeles and Seoul without their consent. 12 Undeniably, it did not take the time to
explain how it would be meeting its contractual obligation to transport them to their final destination. Its
employees merely hustled the confused petitioners into boarding one plane after another without giving the
latter a choice from other courses of action that were available. It unilaterally decided on the most expedient
way for them to reach their final destination.
Passengers' Consent
After an examination of the conditions printed on the airline ticket, we find nothing there authorizing
Northwest to decide unilaterally, after the distressed flight landed in Seattle, what other stopping
places petitioners should take and when they should fly. True, Condition 9 on the ticket allowed respondent
to substitute alternate carriers or aircraft without notice. However, nothing there permits shuttling
passengers without so much as a by your-leave to stopping places that they have not been previously
notified of, much less agreed to or been prepared for. Substituting aircrafts or carriers without notice is
entirely different from changing stopping places or connecting citieswithout notice.

Thus, even the trial court's award of actual damages was reversed by the appellate court.

The ambiguities in the contract, being one of adhesion, should be construed against the party that caused
its preparation in this case, respondent. 13 Since the conditions enumerated on the ticket do not
specifically allow it to change stopping places or to fly the passengers to alternate connecting cities without
consulting them, then it must be construed to mean that such unilateral change was not permitted.

Hence this Petition.8

Proof of Necessity of Alteration

Issues

Furthermore, the change in petitioners' flight itinerary does not fall under the situation covered by the phrase
"may alter or omit stopping places shown on the ticket in case of necessity." 14 A case of necessity must first
be proven. The burden of proving it necessarily fell on respondent. This responsibility it failed to discharge.

In their appeal, petitioners ask this Court to rule on these issues:

" x x x [W]hether or not petitioners' discriminatory bump-off from NW Flight No. 0027 on 28
October 1991 (not the diversion of the distressed plane to Seattle the day before, i.e. NW Flight
27 on 27 October 1991) constitutes breach by respondent airline of its air-carriage contract?
"And if so, whether or not petitioners are entitled to actual, moral and exemplary damages
including attorney's fees as a consequence?" 9
The Court's Ruling

Petitioners do not question the stop in Seattle, so we will not delve into this matter. The airplane engine
trouble that developed during the flight bound for Tokyo from San Francisco definitely merited the
"necessity" of landing the plane at some place for repair in this case, Seattle but not that of shuttling
petitioners to other connecting points thereafter without their consent.
Northwest failed to show a "case of necessity" for changing the stopping place from Tokyo to Los Angeles
and Seoul. It is a fact that some of the passengers on the distressed flight continued on to the Tokyo (Narita)
connecting place. No explanation whatsoever was given to petitioners as to why they were not similarly
allowed to do so. It may be that the Northwest connecting flight from Seattle to Tokyo to Manila could no
longer accommodate them. Yet it may also be that there were other carriers that could have accommodated

46
them for these sectors of their journey, and whose route they might have preferred to the more circuitous
one unilaterally chosen for them by respondent.
In the absence of evidence as to the actual situation, the Court is hard pressed to determine if there was a
"case of necessity" sanctioning the alteration of the Tokyo stopping place in the case of petitioners. Thus,
we hold that in the absence of a demonstrated necessity thereof and their rerouting to Los Angeles and
Seoul as stopping places without their consent, respondent committed a breach of the contract of carriage.
Second
Damages

Issue:

Being guilty of a breach of their contract, respondent may be held liable for damages suffered by petitioners
in accordance with Articles 1170 and 2201 of the Civil Code, which state:
"Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay and those who in any manner contravene the tenor thereof are liable for damages."
(Emphasis supplied)
"Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in
good faith is liable shall be those that are the natural and probable consequences of the breach
of the obligation, and which the parties have foreseen or could have reasonably foreseen at the
time the obligation was constituted."
"In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation."
As a general rule, the factual findings of the CA when supported by substantial evidence on record are final
and conclusive and may not be reviewed on appeal. 15 An exception to this rule is when the lower court and
the CA arrive at different factual findings. 16 In this case, the trial court found the presence of bad faith and
hence awarded moral and exemplary damages; while the CA found none and hence deleted the award of
damages. Thus, the Court is now behooved to review the basis for sustaining the award or deletion of
damages.

the reservation. But expecting other cancellations before the flight scheduled a month later, the
reservations supervisor decided to withhold the information from them, with the result that upon arrival in
Tokyo, the Lopezes discovered they had no first-class accommodations. Thus, they were compelled to take
the tourist class, just so the senator could be on time for his pressing engagements in the United States.
In the light of these facts, the Court held there was a breach of the contract of carriage. The failure of the
defendant to inform the plaintiffs on time that their reservations for the first class had long been cancelled
was considered as the element of bad faith entitling them to moral damages for the contractual breach.
According to the Court, such omission had placed them in a predicament that enabled the company to keep
them as their passengers in the tourist class. Thus, the defendant was able to retain the business and to
promote its self-interest at the expense of embarrassment, discomfort and humiliation on their part.
In Zulueta, the passenger was coming home to Manila from Honolulu via a Pan-American flight. The plane
had a stopover at Wake Island, where Rafael Zulueta went down to relieve himself. At flight time, he could
not be located immediately. Upon being found, an altercation ensued between him and the Pan-Am
employees. One of them remonstrated: "What in the hell do you think you are? Get on that plane." An
exchange of angry words followed, and the pilot went to the extent of referring to the Zuluetas as "those
monkeys." Subsequently, for his "belligerent" attitude, Rafael Zulueta was intentionally off-loaded and left at
Wake Island with the prospect of being stranded there for a week, with malice aforethought. The Court
awarded to the Zuluetas P500,000.00 as moral damages, P200,000.00 as exemplary damages and
P75,000.00 as attorney's fees, apart from the actual damages of P5,502.85.
In Ortigas, Francisco Ortigas Jr. had a confirmed and validated first-class ticket for Lufthansa's Flight No.
646. His reserved first class seat was, however, given to a Belgian. As a result, he was forced to take
economy class on the same flight. Lufthansa succeeded in keeping him as a passenger by assuring him
that he would be given first-class accommodation at the next stop. The proper arrangements therefor had
supposedly been made already, when in truth such was not the case. In justifying the award of moral and
exemplary damages, the Court explained.
" x x x [W]hen it comes to contracts of common carriage, inattention and lack of care on the part
of the carrier resulting in the failure of the passenger to be accommodated in the class
contracted for amounts to bad faith or fraud which entitles the passenger to the award of moral
damages in accordance with Article 2220 of the Civil Code. But in the instant case, the breach
appears to be of graver nature, since the preference given to the Belgian passenger over
plaintiff was done willfully and in wanton disregard of plaintiff's rights and his dignity as a human
being and as a Filipino, who may not be discriminated against with impunity."

Petitioners impute oppression, discrimination, recklessness and malevolence to respondent. We are not
convinced. There is no persuasive evidence that they were maliciously singled out to fly the Seattle-Los
Angeles-Seoul-Manila route. It appears that the passengers of the distressed flight were randomly divided
into two groups. One group was made to take the Tokyo-Manila flight; and the other, the Los Angeles-SeoulManila flight. The selection of who was to take which flight was handled via the computer reservation
system, which took into account only the passengers' final destination. 17

To summarize, in Loipez despite sufficient time one month to inform the passengers of what had
happened to their booking, the airline agent intentionally withheld that information from them. In Zulueta, the
passenger was deliberately off-loaded after being gravely insulted during an altercation. And in Ortigas, the
passenger was intentionally downgraded in favor of a European.

The records show that respondent was impelled by sincere motives to get petitioners to their final
destination by whatever was the most expeditious course in its judgment, if not in theirs. Though they
claim that they were not accommodated on Flight 27 from Seattle to Tokyo because respondent had taken
on Japanese passengers, petitioners failed to present convincing evidence to back this allegation. In the
absence of convincing evidence, we cannot find respondent guilty of bad faith.

These cases are different from and inapplicable to the present case. Here, there is no showing that the
breach of contract was done with the same entrepreneurial motive or self-interest as in Lopez or with ill will
as in Zulueta andOrtigas. Petitioners have failed to show convincingly that they were rerouted by
respondent to Los Angeles and Seoul because of malice, profit motive or self-interest. Good faith is
presumed, while bad faith is a matter of fact that needs to be proved 21 by the party alleging it.

Lopez, Zulueta and Ortigas Rulings Not Applicable

In the absence of bad faith, ill will, malice or wanton conduct, respondent cannot be held liable for moral
damages. Article 2219 of the Civil Code 22 enumerates the instances in which moral damages may be
awarded. In a breach of contract, such damages are not awarded if the defendant is not shown to have
acted fraudulently or with malice or bad faith. 23 Insufficient to warrant the award of moral damages is the fact
that complainants suffered economic hardship, or that they worried and experienced mental anxiety. 24

Petitioners cite the cases of Lopez v. Pan American World Airways,18 Zulueta v. Pan American World
Airways, Inc.19 and Ortigas Jr. v. Lufthansa German Airlines 20 to support their claim for moral and exemplary
damages.
In Lopez, Honorable Fernando Lopez, then an incumbent senator and former Vice President of the
Philippines together with his wife, his daughter and his son-in-law made first-class reservations with
the Pan American World Airways on its Tokyo-San Francisco flight. The reservation having been confirmed,
first-class tickets were subsequently issued in their favor. Mistakenly, however, defendant's agent cancelled

Neither are exemplary damages proper in the present case. The Civil Code provides that "[i]n contracts and
quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner."25 Respondent has not been proven to have acted in that
manner. At most, it can only be found guilty of having acted without first considering and weighing all other

47
possible courses of actions it could have taken, and without consulting petitioners and securing their
consent to the new stopping places.

2. In case of damage, the person entitled to delivery must complain to the carrier forthwith
after the discovery of the damage, and, at the latest, within three days from the date of receipt in
the case of luggage and seven days from date of receipt in the case of goods. In the case of
delay the complaint must be made at the latest within fourteen days from the date on which the
luggage or goods have been placed at his disposal.

The unexpected and sudden requirement of having to arrange the connecting flights of every single person
in the distressed plane in just a few hours, in addition to the Northwest employees' normal workload, was
difficult to satisfy perfectly. We cannot find respondent liable for exemplary damages for its imperfection of
neglecting to consult with the passengers beforehand.

3. Every complaint must be made in writing upon the document of carriage or by separate notice
in writing dispatched within the times aforesaid.

Nevertheless, herein petitioners will not be totally deprived of compensation. Nominal damages
may be awarded as provided by the Civil Code, from which we quote:
"Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose
of indemnifying the plaintiff for any loss suffered by him."
"Art. 2222. The court may award nominal damages in every obligation arising from any source
enumerated in article 1157, or in every case where any property right has been invaded."
Nominal damages are recoverable if no actual, substantial or specific damages were shown to have
resulted from the breach.26 The amount of such damages is addressed to the sound discretion of the court,
taking into account the relevant circumstances.27

4. Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the
case of fraud on his part."
After allegedly finding that their luggage had been ransacked, petitioners never lodged a complaint with any
Northwest airport personnel. Neither did they mention the alleged loss of their valuables in their November
22, 1991 demand letter.31 Hence, in accordance with the parties' contract of carriage, no claim can be heard
or admitted against respondent with respect to alleged damage to or loss of petitioners' baggage.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED, and the assailed Decision MODIFIED.
Respondent is ORDERED to pay one hundred fifty thousand pesos (P150,000) to each of the three
petitioners as nominal damages. No. pronouncement as to costs.
SO ORDERED.

In the present case, we must consider that petitioners suffered the inconvenience of having to wake up early
after a bad night and having to miss breakfast; as well as the fact that they were business class passengers.
They paid more for better service; thus, rushing them and making them miss their small comforts was not a
trivial thing. We also consider their social and official status. Victorino Savellano was a former mayor,
regional trial court judge and chairman of the Commission on Elections. Virginia B. Savellano was the
president of five rural banks, and Deogracias Savellano was then the incumbent vice governor of Ilocos Sur.
Hence, it will be proper to grant one hundred fifty thousand pesos (P150,000) as nominal damages 28 to
each of them, in order to vindicate and recognize their right 29 to be notified and consulted before their
contracted stopping place was changed.

Puno,
Sandoval-Gutierrez
Carpio-Morales, J ., took no part.
Republic
SUPREME
Manila

of

and

Corona,

the

JJ

., concur.

Philippines
COURT

THIRD DIVISION
A claim for the alleged lost items from the baggage of petitioners cannot prosper, because they failed to give
timely notice of the loss to respondent. The Conditions printed on the airline ticket plainly read:
"2. Carriage hereunder is subject to the rules and limitations relating to liability established by
the Warsaw Convention unless such carriage is not `International carriage' as defined by that
Convention.
xxx

xxx

xxx

"7. Checked baggage will be delivered to bearer of the baggage check. In case of damage to
baggage moving in international transportation complaint must be made in writing to carrier
forthwith after discovery of damage, and at the latest, within 7 days from receipt; in case of
delay, complaint must be made within 21 days from date the baggage was delivered. x x x ." 30
The pertinent provisions of the Rules Relating to International Carriage by Air (Warsaw Convention) state:
"Article 26
1. Receipt by the person entitled to delivery of luggage or goods without complaint is prima
facie evidence that the same have been delivered in good condition and in accordance with the
document of carriage.

G.R. No. 152122

July 30, 2003

CHINA
vs.
DANIEL CHIOK, respondent.

AIRLINES, petitioner,

PANGANIBAN, J.:
A common carrier has a peculiar relationship with and an exacting responsibility to its passengers. For
reasons of public interest and policy, the ticket-issuing airline acts as principal in a contract of carriage and
is thus liable for the acts and the omissions of any errant carrier to which it may have endorsed any sector
of the entire, continuous trip.
The Case
Before the Court is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court, seeking to
reverse the August 7, 2001 Decision 2 and the February 7, 2002 Resolution 3 of the Court of Appeals (CA) in
CA-GR CV No. 45832. The challenged Decision disposed as follows:
"WHEREFORE, premises considered, the assailed Decision dated July 5, 1991 of Branch 31,
Regional Trial Court, National Capital Judicial Region, Manila, in Civil Case No. 82-13690, is
hereby MODIFIED by deleting that portion regarding defendants-appellants liabilities for the

48
payment of the actual damages amounting to HK$14,128.80 and US$2,000.00 while all other
respects are AFFIRMED. Costs against defendants-appellants." 4
The assailed Resolution denied Petitioners Motion for Partial Reconsideration.
The Facts
The facts are narrated by the CA5 as follows:
"On September 18, 1981, Daniel Chiok (hereafter referred to as Chiok) purchased from China
Airlines, Ltd. (CAL for brevity) airline passenger ticket number 297:4402:004:278:5 for air
transportation covering Manila-Taipei-Hongkong-Manila. Said ticket was exclusively endorseable
to Philippine Airlines, Ltd. (PAL for brevity).
"Subsequently, on November 21, 1981, Chiok took his trip from Manila to Taipei using [the] CAL
ticket. Before he left for said trip, the trips covered by the ticket were pre-scheduled and
confirmed by the former. When he arrived in Taipei, he went to the CAL office and confirmed his
Hongkong to Manila trip on board PAL Flight No. PR 311. The CAL office attached a yellow
sticker appropriately indicating that his flight status was OK.
"When Chiok reached Hongkong, he went to the PAL office and sought to reconfirm his flight
back to Manila. The PAL office confirmed his return trip on board Flight No. PR 311 and attached
its own sticker. On November 24, 1981, Chiok proceeded to Hongkong International Airport for
his return trip to Manila. However, upon reaching the PAL counter, Chiok saw a poster stating
that PAL Flight No. PR 311 was cancelled because of a typhoon in Manila. He was then
informed that all the confirmed ticket holders of PAL Flight No. PR 311 were automatically
booked for its next flight, which was to leave the next day. He then informed PAL personnel that,
being the founding director of the Philippine Polysterene Paper Corporation, he ha[d] to reach
Manila on November 25, 1981 because of a business option which he ha[d] to execute on said
date.
"On November 25, 1981, Chiok went to the airport. Cathay Pacific stewardess Lok Chan
(hereafter referred to as Lok) ha[d] taken and received Chioks plane ticket and his luggage. Lok
called the attention of Carmen Chan (hereafter referred to as Carmen), PALs terminal
supervisor, and informed the latter that Chioks name was not in the computer list of passengers.
Subsequently, Carmen informed Chiok that his name did not appear in PALs computer list of
passengers and therefore could not be permitted to board PAL Flight No. PR 307.
"Meanwhile, Chiok requested Carmen to put into writing the alleged reason why he was not
allowed to take his flight. The latter then wrote the following, to wit: PAL STAFF CARMEN
CHAN CHKD WITH R/C KENNY AT 1005H NO SUCH NAME IN COMPUTER FOR 311/24 NOV
AND 307/25 NOV. The latter sought to recover his luggage but found only 2 which were placed
at the end of the passengers line. Realizing that his new Samsonite luggage was missing, which
contained cosmetics worth HK$14,128.80, he complained to Carmen.
"Thereafter, Chiok proceeded to PALs Hongkong office and confronted PALs reservation officer,
Carie Chao (hereafter referred to as Chao), who previously confirmed his flight back to Manila.
Chao told Chiok that his name was on the list and pointed to the latter his computer number
listed on the PAL confirmation sticker attached to his plane ticket, which number was R/MN62.
"Chiok then decided to use another CAL ticket with No. 297:4402:004:370:5 and asked Chao if
this ticket could be used to book him for the said flight. The latter, once again, booked and
confirmed the formers trip, this time on board PAL Flight No. PR 311 scheduled to depart that
evening. Later, Chiok went to the PAL check-in counter and it was Carmen who attended to him.
As this juncture, Chiok had already placed his travel documents, including his clutch bag, on top
of the PAL check-in counter.

"Thereafter, Carmen directed PAL personnel to transfer counters. In the ensuing

commotion, Chiok lost his clutch bag containing the following, to wit: (a) $2,000.00; (b)
HK$2,000.00; (c) Taipei $8,000.00; (d) P2,000.00; (e) a three-piece set of gold (18 carats) cross
pens valued at P3,500; (f) a Cartier watch worth about P7,500.00; (g) a tie clip with a garnet
birthstone and diamond worth P1,800.00; and (h) a [pair of] Christian Dior reading glasses.
Subsequently, he was placed on stand-by and at around 7:30 p.m., PAL personnel informed him
that he could now check-in.
"Consequently, Chiok as plaintiff, filed a Complaint on November 9, 1982 for damages, against
PAL and CAL, as defendants, docketed as Civil Case No. 82-13690, with Branch 31, Regional
Trial Court, National Capital Judicial Region, Manila.
"He alleged therein that despite several confirmations of his flight, defendant PAL refused to
accommodate him in Flight No. 307, for which reason he lost the business option
aforementioned. He also alleged that PALs personnel, specifically Carmen, ridiculed and
humiliated him in the presence of so many people. Further, he alleged that defendants are
solidarily liable for the damages he suffered, since one is the agent of the other." 6
The Regional Trial Court (RTC) of Manila held CAL and PAL jointly and severally liable to respondent. It did
not, however, rule on their respective cross-claims. It disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendants to
jointly and severally pay:
1. Actual damages in the amount of HK$14,128.80 or its equivalent in Philippine Currency at the
time of the loss of the luggage consisting of cosmetic products;
2. US$2,000.00 or its equivalent at the time of the loss of the clutch bag containing the money;
3. P200,000.00 by way of moral damages;
4. P50,000.00 by way of exemplary damages or corrective damages;
5. Attorney[]s fees equivalent to 10% of the amounts due and demandable and awarded in favor
of the plaintiff; and
6. The costs of this proceedings." 7
The two carriers appealed the RTC Decision to the CA.
Ruling of the Court of Appeals
Affirming the RTC, the Court of Appeals debunked petitioners claim that it had merely acted as an issuing
agent for the ticket covering the Hong Kong-Manila leg of respondents journey. In support of its Decision,
the CA quoted a purported ruling of this Court in KLM Royal Dutch Airlines v. Court of Appeals8 as follows:
"Article 30 of the Warsaw providing that in case of transportation to be performed by various
successive carriers, the passenger can take action only against the carrier who performed the
transportation during which the accident or the delay occurred presupposes the occurrence of
either an accident or delay in the course of the air trip, and does not apply if the damage is
caused by the willful misconduct on the part of the carriers employee or agent acting within the
scope of his employment.

49
"It would be unfair and inequitable to charge a passenger with automatic knowledge or notice of
a condition which purportedly would excuse the carrier from liability, where the notice is written
at the back of the ticket in letters so small that one has to use a magnifying glass to read the
words. To preclude any doubt that the contract was fairly and freely agreed upon when the
passenger accepted the passage ticket, the carrier who issued the ticket must inform the
passenger of the conditions prescribed in the ticket or, in the very least, ascertain that the
passenger read them before he accepted the passage ticket. Absent any showing that the
carriers officials or employees discharged this responsibility to the passenger, the latter cannot
be bound by the conditions by which the carrier assumed the role of a mere ticket-issuing agent
for other airlines and limited its liability only to untoward occurrences in its own lines.

"2. The Court of Appeals committed an error of law when it did not apply applicable
precedents on the case before it.
"3. The Court of Appeals committed a non sequitur when it did not rule on the cross-claim of the
petitioner."12
The Courts Ruling
The Petition is not meritorious.

"Where the passage tickets provide that the carriage to be performed thereunder by several
successive carriers is to be regarded as a single operation, the carrier which issued the tickets
for the entire trip in effect guaranteed to the passenger that the latter shall have sure space in
the various carriers which would ferry him through the various segments of the trip, and the
ticket-issuing carrier assumes full responsibility for the entire trip and shall be held accountable
for the breach of that guaranty whether the breach occurred in its own lines or in those of the
other carriers."9
On PALs appeal, the appellate court held that the carrier had reneged on its obligation to transport
respondent when, in spite of the confirmations he had secured for Flight PR 311, his name did not appear in
the computerized list of passengers. Ruling that the airlines negligence was the proximate cause of his
excoriating experience, the appellate court sustained the award of moral and exemplary damages.
The CA, however, deleted the RTCs award of actual damages amounting to HK$14,128.80 and
US$2,000.00, because the lost piece of luggage and clutch bag had not actually been "checked in" or
delivered to PAL for transportation to Manila.
On August 28, 2001, petitioner filed a Motion for Partial Reconsideration, contending that the appellate court
had erroneously relied on a mere syllabus of KLM v. CA, not on the actual ruling therein. Moreover, it
argued that respondent was fully aware that the booking for the PAL sector had been made only upon his
request; and that only PAL, not CAL, was liable for the actual carriage of that segment. Petitioner likewise
prayed for a ruling on its cross-claim against PAL, inasmuch as the latters employees had acted negligently,
as found by the trial court.
Denying the Motion, the appellate court ruled that petitioner had failed to raise any new matter or issue that
would warrant a modification or a reversal of the Decision. As to the alleged misquotation, the CA held that
while the portion it had cited appeared to be different from the wording of the actual ruling, the variance was
"more apparent than real since the difference [was] only in form and not in substance." 10
CAL and PAL filed separate Petitions to assail the CA Decision. In its October 3, 2001 Resolution, this Court
denied PALs appeal, docketed as GR No. 149544, for failure to serve the CA a copy of the Petition as
required by Section 3, Rule 45, in relation to Section 5(d) of Rule 56 and paragraph 2 of Revised Circular
No. 1-88 of this Court. PALs Motion for Reconsideration was denied with finality on January 21, 2002.
Only the appeal of CAL11 remains in this Court.
Issues
In its Memorandum, petitioner raises the following issues for the Courts consideration:
"1. The Court of Appeals committed judicial misconduct in finding liability against the petitioner
on the basis of a misquotation from KLM Royal Dutch Airlines vs. Court of Appeals, et al., 65
SCRA 237 and in magnifying its misconduct by denying the petitioners Motion for
Reconsideration on a mere syllabus, unofficial at that.

First Issue:
Alleged Judicial Misconduct
Petitioner charges the CA with judicial misconduct for quoting from and basing its ruling against the two
airlines on an unofficial syllabus of this Courts ruling in KLM v. CA. Moreover, such misconduct was
allegedly aggravated when the CA, in an attempt to justify its action, held that the difference between the
actual ruling and the syllabus was "more apparent than real." 13
We agree with petitioner that the CA committed a lapse when it relied merely on the unofficial syllabus of our
ruling in KLM v. CA. Indeed, lawyers and litigants are mandated to quote decisions of this Court
accurately.14 By the same token, judges should do no less by strictly abiding by this rule when they quote
cases that support their judgments and decisions. Canon 3 of the Code of Judicial Conduct enjoins them to
perform official duties diligently by being faithful to the law and maintaining their professional competence.
However, since this case is not administrative in nature, we cannot rule on the CA justices administrative
liability, if any, for this lapse. First, due process requires that in administrative proceedings, the respondents
must first be given an opportunity to be heard before sanctions can be imposed. Second, the present action
is an appeal from the CAs Decision, not an administrative case against the magistrates concerned. These
two suits are independent of and separate from each other and cannot be mixed in the same proceedings.
By merely including the lapse as an assigned error here without any adequate and proper administrative
case therefor, petitioner cannot expect the imposition of an administrative sanction.
In the case at bar, we can only determine whether the error in quotation would be sufficient to reverse or
modify the CA Decision.
Applicability of KLM v. CA
In KLM v. CA, the petitioner therein issued tickets to the Mendoza spouses for their world tour. The tour
included a Barcelona-Lourdes route, which was serviced by the Irish airline Aer Lingus. At the KLM office in
Frankfurt, Germany, they obtained a confirmation from Aer Lingus of their seat reservations on its Flight 861.
On the day of their departure, however, the airline rudely off-loaded them.
When sued for breach of contract, KLM sought to be excused for the wrongful conduct of Aer Lingus by
arguing that its liability for damages was limited only to occurrences on its own sectors. To support its
argument, it cited Article 30 of the Warsaw Convention, stating that when transportation was to be
performed by various successive carriers, the passenger could take action only against the carrier that had
performed the transportation when the accident or delay occurred.
In holding KLM liable for damages, we ruled as follows:
"1. The applicability insisted upon by the KLM of article 30 of the Warsaw Convention cannot be
sustained. That article presupposes the occurrence of either an accident or a delay, neither of

50
which took place at the Barcelona airport; what is here manifest, instead, is that the Aer Lingus,
through its manager there, refused to transport the respondents to their planned and contracted
destination.
"2. The argument that the KLM should not be held accountable for the tortious conduct of Aer
Lingus because of the provision printed on the respondents' tickets expressly limiting the KLM's
liability for damages only to occurrences on its own lines is unacceptable. 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 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
respondents read them before they accepted their passage tickets. A thorough search of the
record, 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.
"3. Moreover, as maintained by the respondents and the Court of Appeals, the passage tickets
of the respondents provide that the carriage to be performed thereunder by several successive
carriers is to be regarded as a single operation, which is diametrically incompatible with the
theory of the KLM that the respondents entered into a series of independent contracts with the
carriers which took them on the various segments of their trip. This position of KLM we reject.
The respondents dealt exclusively with the KLM which issued them tickets for their entire trip
and which in effect guaranteed to them that they would have sure space in Aer Lingus flight 861.
The respondents, under that assurance of the internationally prestigious KLM, naturally had the
right to expect that their tickets would be honored by Aer Lingus to which, in the legal sense, the
KLM had indorsed and in effect guaranteed the performance of its principal engagement to carry
out the respondents' scheduled itinerary previously and mutually agreed upon between the
parties.
"4. The breach of that guarantee was aggravated by the discourteous and highly arbitrary
conduct of an official of the Aer Lingus which the KLM had engaged to transport the respondents
on the Barcelona-Lourdes segment of their itinerary. It is but just and in full accord with the
policy expressly embodied in our civil law which enjoins courts to be more vigilant for the
protection of a contracting party who occupies an inferior position with respect to the other
contracting party, that the KLM should be held responsible for the abuse, injury and
embarrassment suffered by the respondents at the hands of a supercilious boor of the Aer
Lingus."15
In the instant case, the CA ruled that under the contract of transportation, petitioner -- as the ticket-issuing
carrier (like KLM) -- was liable regardless of the fact that PAL was to perform or had performed the actual
carriage. It elucidated on this point as follows:
"By the very nature of their contract, defendant-appellant CAL is clearly liable under the contract
of carriage with [respondent] and remains to be so, regardless of those instances when actual
carriage was to be performed by another carrier. The issuance of a confirmed CAL ticket in favor
of [respondent] covering his entire trip abroad concretely attests to this. This also serves as
proof that defendant-appellant CAL, in effect guaranteed that the carrier, such as defendantappellant PAL would honor his ticket, assure him of a space therein and transport him on a
particular segment of his trip." 16
Notwithstanding the errant quotation, we have found after careful deliberation that the assailed Decision is
supported in substance by KLM v. CA. The misquotation by the CA cannot serve as basis for the reversal of
its ruling.

Nonetheless, to avert similar incidents in the future, this Court hereby exhorts members of the bar and
the bench to refer to and quote from the official repository of our decisions, the Philippine Reports,
whenever practicable.17 In the absence of this primary source, which is still being updated, they may resort
to unofficial sources like the SCRA.18We remind them that the Courts ponencia, when used to support a
judgment or ruling, should be quoted accurately.19
Second Issue:
Liability of the Ticket-Issuing Airline
We now come to the main issue of whether CAL is liable for damages. Petitioner posits that the CA Decision
must be annulled, not only because it was rooted on an erroneous quotation, but also because it
disregarded jurisprudence, notably China Airlines v. Intermediate Appellate Court 20 and China Airlines v.
Court of Appeals.21
Jurisprudence Supports CA Decision
It is significant to note that the contract of air transportation was between petitioner and respondent, with the
former endorsing to PAL the Hong Kong-to-Manila segment of the journey. Such contract of carriage has
always been treated in this jurisdiction as a single operation. This jurisprudential rule is supported by the
Warsaw Convention,22to which the Philippines is a party, and by the existing practices of the International Air
Transport Association (IATA).
Article 1, Section 3 of the Warsaw Convention states:
"Transportation to be performed by several successive air carriers shall be deemed, for the
purposes of this Convention, to be one undivided transportation, if it has been regarded by the
parties as a single operation, whether it has been agreed upon under the form of a single
contract or of a series of contracts, and it shall not lose its international character merely
because one contract or a series of contracts is to be performed entirely within a territory subject
to the sovereignty, suzerainty, mandate, or authority of the same High Contracting Party." 23
Article 15 of IATA-Recommended Practice similarly provides:
"Carriage to be performed by several successive carriers under one ticket, or under a ticket and
any conjunction ticket issued therewith, is regarded as a single operation."
In American Airlines v. Court of Appeals,24 we have noted that under a general pool partnership agreement,
the ticket-issuing airline is the principal in a contract of carriage, while the endorsee-airline is the agent.
"x x x Members of the IATA are under a general pool partnership agreement wherein they act as
agent of each other in the issuance of tickets to contracted passengers to boost ticket sales
worldwide and at the same time provide passengers easy access to airlines which are otherwise
inaccessible in some parts of the world. Booking and reservation among airline members are
allowed even by telephone and it has become an accepted practice among them. A member
airline which enters into a contract of carriage consisting of a series of trips to be performed by
different carriers is authorized to receive the fare for the whole trip and through the required
process of interline settlement of accounts by way of the IATA clearing house an airline is duly
compensated for the segment of the trip serviced. Thus, when the petitioner accepted the
unused portion of the conjunction tickets, entered it in the IATA clearing house and undertook to
transport the private respondent over the route covered by the unused portion of the conjunction
tickets, i.e., Geneva to New York, the petitioner tacitly recognized its commitment under the IATA
pool arrangement to act as agent of the principal contracting airline, Singapore Airlines, as to the
segment of the trip the petitioner agreed to undertake. As such, the petitioner thereby assumed
the obligation to take the place of the carrier originally designated in the original conjunction
ticket. The petitioners argument that it is not a designated carrier in the original conjunction
tickets and that it issued its own ticket is not decisive of its liability. The new ticket was simply a

51
replacement for the unused portion of the conjunction ticket, both tickets being for the same
amount of US$ 2,760 and having the same points of departure and destination. By constituting
itself as an agent of the principal carrier the petitioners undertaking should be taken as part of a
single operation under the contract of carriage executed by the private respondent and
Singapore Airlines in Manila."25

The records amply establish that he secured repeated confirmations of his PR 311 flight on November
24, 1981. Hence, he had every reason to expect that he would be put on the replacement flight as a
confirmed passenger. Instead, he was harangued and prevented from boarding the original and the
replacement flights. Thus, PAL breached its duty to transport him. After he had been directed to pay the
terminal fee, his pieces of luggage were removed from the weighing-in counter despite his protestations. 32

Likewise, as the principal in the contract of carriage, the petitioner in British Airways v. Court of
Appeals26 was held liable, even when the breach of contract had occurred, not on its own flight, but on that
of another airline. The Decision followed our ruling in Lufthansa German Airlines v. Court of Appeals,27 in
which we had held that the obligation of the ticket-issuing airline remained and did not cease, regardless of
the fact that another airline had undertaken to carry the passengers to one of their destinations.

It is relevant to point out that the employees of PAL were utterly insensitive to his need to be in Manila on
November 25, 1981, and to the likelihood that his business affairs in the city would be jeopardized because
of a mistake on their part. It was that mistake that had caused the omission of his name from the passenger
list despite his confirmed flight ticket. By merely looking at his ticket and validation sticker, it is evident that
the glitch was the airlines fault. However, no serious attempt was made by PAL to secure the all-important
transportation of respondent to Manila on the following day. To make matters worse, PAL allowed a group of
non-revenue passengers, who had no confirmed tickets or reservations, to board Flight PR 307. 33

In the instant case, following the jurisprudence cited above, PAL acted as the carrying agent of CAL. In the
same way that we ruled against British Airways and Lufthansa in the aforementioned cases, we also rule
that CAL cannot evade liability to respondent, even though it may have been only a ticket issuer for the
Hong Kong-Manila sector.

Time and time again, this Court has stressed that the business of common carriers is imbued with public
interest and duty; therefore, the law governing them imposes an exacting standard. 34 In Singson v. Court of
Appeals,35 we said:

Moral and Exemplary Damages

Both the trial and the appellate courts found that respondent had satisfactorily proven the existence of the
factual basis for the damages adjudged against petitioner and PAL. As a rule, the findings of fact of the CA
affirming those of the RTC will not be disturbed by this Court. 28 Indeed, the Supreme Court is not a trier of
facts. As a rule also, only questions of law -- as in the present recourse -- may be raised in petitions for
review under Rule 45.
Moral damages cannot be awarded in breaches of carriage contracts, except in the two instances
contemplated in Articles 1764 and 2220 of the Civil Code, which we quote:
"Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with
Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a
passenger caused by the breach of contract by a common carrier.
xxx

xxx

xxx

"Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith." (Italics
supplied)
There is no occasion for us to invoke Article 1764 here. We must therefore determine if CAL or its agent
(PAL) is guilty of bad faith that would entitle respondent to moral damages.
In Lopez v. Pan American World Airways,29 we defined bad faith as a breach of a known duty through some
motive of interest or ill will.
In the case at bar, the known duty of PAL was to transport herein respondent from Hong Kong to Manila.
That duty arose when its agent confirmed his reservation for Flight PR 311, 30 and it became demandable
when he presented himself for the trip on November 24, 1981.
It is true that due to a typhoon, PAL was unable to transport respondent on Flight PR 311 on November 24,
1981. This fact, however, did not terminate the carriers responsibility to its passengers. PAL voluntarily
obligated itself to automatically transfer all confirmed passengers of PR 311 to the next available flight, PR
307, on the following day.31 That responsibility was subsisting when respondent, holding a confirmed ticket
for the former flight, presented himself for the latter.

"x x x [T]he carrier's utter lack of care and sensitivity to the needs of its passengers, clearly
constitutive of gross negligence, recklessness and wanton disregard of the rights of the latter,
[are] acts evidently indistinguishable or no different from fraud, malice and bad faith. As the rule
now stands, where in breaching the contract of carriage the defendant airline is shown to have
acted fraudulently, with malice or in bad faith, the award of moral and exemplary damages, in
addition to actual damages, is proper."36 (Italics supplied)
In Saludo v. Court of Appeals,37 the Court reminded airline companies that due to the nature of their
business, they must not merely give cursory instructions to their personnel to be more accommodating
towards customers, passengers and the general public; they must require them to be so.
The acts of PALs employees, particularly Chan, clearly fell short of the extraordinary standard of care that
the law requires of common carriers. 38 As narrated in Chans oral deposition, 39 the manner in which the
airline discharged its responsibility to respondent and its other passengers manifested a lack of the requisite
diligence and due regard for their welfare. The pertinent portions of the Oral Deposition are reproduced as
follows:
"Q
Now you said that flight PR 311 on 24th November was cancelled due to [a] typhoon
and naturally the passengers on said flight had to be accommodated on the first flight the
following day or the first flight subsequently. [W]ill you tell the Honorable Deposition Officer the
procedure followed by Philippine Airlines in the handling of passengers of cancelled flight[s] like
that of PR 311 which was cancelled due to [a] typhoon?
A
The procedure will be: all the confirmed passengers from [PR] 311 24th November [are]
automatically transfer[red] to [PR] 307, 25th November[,] as a protection for all disconfirmed
passengers.
Q
Aside from this procedure[,] what do you do with the passengers on the cancelled flight
who are expected to check-in on the flights if this flight is cancelled or not operating due to
typhoon or other reasons[?] In other words, are they not notified of the cancellation?
A
I think all these passengers were not notified because of a typhoon and Philippine
Airlines Reservation were [sic] not able to call every passenger by phone.
Atty. Fruto:
Q

Did you say were not notified?

52
A

I believe they were not, but believe me, I was on day-off.

Atty. Calica:

Correct.

Q
So that since following the O.K. status of Mr. Chioks reservation [on] flight 311, [he] was
also automatically transferred to flight 307 the following day?

Q
Per procedure, what should have been done by Reservations Office when a flight is
cancelled for one reason or another?
A
If there is enough time, of course, Reservations Office x x x call[s] up all the passengers
and tell[s] them the reason. But if there [is] no time[,] then the Reservations Office will not be
able to do that."40
xxx

xxx

xxx

"Q
I see. Miss Chan, I [will] show you a ticket which has been marked as Exh. A and A-1.
Will you please go over this ticket and tell the court whether this is the ticket that was used
precisely by Mr. Chiok when he checked-in at [F]light 307, 25 November 81?

Should be.

Q
Should be. O.K. Now do you remember how many passengers x x x were transferred
from flight 311, 24 November to flight 307, 25 November 81?
A
I can only give you a very brief idea because that was supposed to be air bus so it should
be able to accommodate 246 people; but how many [exactly], I dont know." 42
xxx

xxx

xxx

[Are you] now asking me whether he used this ticket with this sticker?

"Q
So, between six and eight oclock in the evening of 25 November 81, Mr. Chiok already
told you that he just [came] from the Swire Building where Philippine Airlines had [its] offices and
that he told you that his space for 311 25 November 81 was confirmed?

No, no, no. That was the ticket he used.

Yes.

Yes, [are you] asking me whether I saw this ticket?

That is what he told you. He insisted on that flight?

Atty. Fruto: Yes.

Yes.

Q
And did you not try to call up Swire Building-- Philippine Airlines and verify indeed if Mr.
Chiok was there?

I believe I saw it.

Q
You saw it, O.K. Now of course you will agree with me Miss Chan that this yellow stub
here which has been marked as Exh. A-1-A, show[s] that the status on flight 311, 24th
November, is O.K., correct?
A

Yes.

A
Swire House building is not directly under Philippine Airlines. it is just an agency for
selling Philippine Airlines ticket. And besides around six o clock theyre close[d] in Central.
Q
So this Swire Building is an agency authorized by Philippine Airlines to issue tickets for
and on behalf of Philippine Airlines and also...

Q
You agree with me. And you will also agree with me that in this ticket of flight 311, on this,
another sticker Exh. A-1-B for 24 November is O.K.?

Yes.

May I x x x look at them. Yes, it says O.K. x x x, but [there is] no validation.

And also to confirm spaces for and on behalf of Philippine Airlines.

O.K. Miss Chan what do you understand by these entries here R bar M N 6 V? 41

Yes."43

This is what we call a computer reference.

Q
I see. This is a computer reference showing that the name of Mr. Chiok has been entered
in Philippine Airlines computer, and this is his computer number.
A

Yes.

Q
Now you stated in your answer to the procedure taken, that all confirmed passengers on
flight 311, 24 November[,] were automatically transferred to 307 as a protection for the
passengers, correct?

Under the foregoing circumstances, we cannot apply our 1989 ruling in China Airlines v. Intermediate
Appellate Court,44 which petitioner urges us to adopt. In that case, the breach of contract and the negligence
of the carrier in effecting the immediate flight connection for therein private respondent was incurred in good
faith.45 Having found no gross negligence or recklessness, we thereby deleted the award of moral and
exemplary damages against it.46
This Courts 1992 ruling in China Airlines v. Court of Appeals 47 is likewise inapplicable. In that case, we
found no bad faith or malice in the airlines breach of its contractual obligation. 48 We held that, as shown by
the flow of telexes from one of the airlines offices to the others, petitioner therein had exercised diligent
efforts in assisting the private respondent change his flight schedule. In the instant case, petitioner failed to
exhibit the same care and sensitivity to respondents needs.

53
In Singson v. Court of Appeals,49 we said:
"x x x Although the rule is that moral damages predicated upon a breach of contract of carriage
may only be recoverable in instances where the mishap results in the death of a passenger, or
where the carrier is guilty of fraud or bad faith, there are situations where the negligence of the
carrier is so gross and reckless as to virtually amount to bad faith, in which case, the passenger
likewise becomes entitled to recover moral damages."
In the present case, we stress that respondent had repeatedly secured confirmations of his PR 311 flight on
November 24, 1981 -- initially from CAL and subsequently from the PAL office in Hong Kong. The status of
this flight was marked "OK" on a validating sticker placed on his ticket. That sticker also contained the entry
"RMN6V." Ms Chan explicitly acknowledged that such entry was a computer reference that meant that
respondents name had been entered in PALs computer.
Since the status of respondent on Flight PR 311 was "OK," as a matter of right testified to by PALs witness,
he should have been automatically transferred to and allowed to board Flight 307 the following day. Clearly
resulting from negligence on the part of PAL was its claim that his name was not included in its list of
passengers for the November 24, 1981 PR 311 flight and, consequently, in the list of the replacement flight
PR 307. Since he had secured confirmation of his flight -- not only once, but twice -- by personally going to
the carriers offices where he was consistently assured of a seat thereon -- PALs negligence was so gross
and reckless that it amounted to bad faith.
In view of the foregoing, we rule that moral and exemplary 50 damages were properly awarded by the lower
courts.51

PALs interest may be affected by any ruling of this Court on CALs cross-claim. Hence, it is imperative
and in accordance with due process and fair play that PAL should have been impleaded as a party in the
present proceedings, before this Court can make a final ruling on this matter.
Although PAL was petitioners co-party in the case before the RTC and the CA, petitioner failed to include
the airline in the present recourse. Hence, the Court has no jurisdiction over it. Consequently, to make any
ruling on the cross-claim in the present Petition would not be legally feasible because PAL, not being a party
in the present case, cannot be bound thereby.53
WHEREFORE, the Petition is DENIED. Costs against petitioner.
SO ORDERED.
Puno,
Corona,
Sandoval-Gutierrez, J., on official leave.
Republic
SUPREME
Manila

and

of

Carpio-Morales,

the

JJ., concur.

Philippines
COURT

EN BANC
G.R. No. L-22973

January 30, 1968

Third Issue:
MAMBULAO
LUMBER
COMPANY, plaintiff-appellant,
vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines
Norte,defendants-appellees.

Propriety of the Cross-Claim

We now look into the propriety of the ruling on CALs cross-claim against PAL. Petitioner submits that the
CA should have ruled on the cross-claim, considering that the RTC had found that it was PALs employees
who had acted negligently.
Section 8 of Rule 6 of the Rules of Court reads:
"Sec. 8. Cross-claim. - A cross claim is any claim by one party against a co-party arising out of
the transaction or occurrence that is the subject matter either of the original action or of a
counterclaim therein. Such cross-claim may include a claim that the party against whom it is
asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action
against the cross-claimant."
For purposes of a ruling on the cross-claim, PAL is an indispensable party. In BA Finance Corporation v.
CA,52 the Court stated:

Ernesto
P.
Vilar
and
Arthur
Tomas Besa and Jose B. Galang for defendants-appellees.

Tordesillas

for

plaintiff-appellant.

ANGELES, J.:
An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil Case No.
52089, entitled "Mambulao Lumber Company, plaintiff, versus Philippine National Bank and Anacleto
Heraldo, defendants", dismissing the complaint against both defendants and sentencing the plaintiff to pay
to defendant Philippine National Bank (PNB for short) the sum of P3,582.52 with interest thereon at the rate
of 6% per annum from December 22, 1961 until fully paid, and the costs of suit.
In seeking the reversal of the decision, the plaintiff advances several propositions in its brief which may be
restated as follows:

"x x x. An indispensable party is one whose interest will be affected by the courts action in the
litigation, and without whom no final determination of the case can be had. The partys interest in
the subject matter of the suit and in the relief sought are so inextricably intertwined with the other
parties that his legal presence as a party to the proceeding is an absolute necessity. In his
absence there cannot be a resolution of the dispute of the parties before the court which is
effective, complete, or equitable.

1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and
not P58,213.51 as concluded by the court a quo; hence, the proceeds of the foreclosure sale of
its real property alone in the amount of P56,908.00 on that date, added to the sum of P738.59 it
remitted to the PNB thereafter was more than sufficient to liquidate its obligation, thereby
rendering the subsequent foreclosure sale of its chattels unlawful;

xxx

2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the additional
sum of P298.54 as expenses of the foreclosure sale;

xxx

xxx

"Without the presence of indispensable parties to a suit or proceeding, judgment of a court

cannot attain real finality."

3. That the subsequent foreclosure sale of its chattels is null and void, not only because it had
already settled its indebtedness to the PNB at the time the sale was effected, but also for the

54
reason that the said sale was not conducted in accordance with the provisions of the Chattel
Mortgage Law and the venue agreed upon by the parties in the mortgage contract;
4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and
5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of
plaintiff's vigorous opposition thereto, and in taking possession thereof after the sale thru force,
intimidation, coercion, and by detaining its "man-in-charge" of said properties, the PNB is liable
to plaintiff for damages and attorney's fees.
The antecedent facts of the case, as found by the trial court, are as follows:
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga Branch of
defendant PNB and the former offered real estate, machinery, logging and transportation
equipments as collaterals. The application, however, was approved for a loan of P100,000 only.
To secure the payment of the loan, the plaintiff mortgaged to defendant PNB a parcel of land,
together with the buildings and improvements existing thereon, situated in the poblacion of Jose
Panganiban (formerly Mambulao), province of Camarines Norte, and covered by Transfer
Certificate of Title No. 381 of the land records of said province, as well as various sawmill
equipment, rolling unit and other fixed assets of the plaintiff, all situated in its compound in the
aforementioned municipality.
On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for which the
plaintiff signed a promissory note wherein it promised to pay to the PNB the said sum in five
equal yearly installments at the rate of P6,528.40 beginning July 31, 1957, and every year
thereafter, the last of which would be on July 31, 1961.
On October 19, 1956, the PNB made another release of P15,500 as part of the approved loan
granted to the plaintiff and so on the said date, the latter executed another promissory note
wherein it agreed to pay to the former the said sum in five equal yearly installments at the rate of
P3,679.64 beginning July 31, 1957, and ending on July 31, 1961.
The plaintiff failed to pay the amortization on the amounts released to and received by it.
Repeated demands were made upon the plaintiff to pay its obligation but it failed or otherwise
refused to do so. Upon inspection and verification made by employees of the PNB, it was found
that the plaintiff had already stopped operation about the end of 1957 or early part of 1958.
On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte
requesting him to take possession of the parcel of land, together with the improvements existing
thereon, covered by Transfer Certificate of Title No. 381 of the land records of Camarines Norte,
and to sell it at public auction in accordance with the provisions of Act No. 3135, as amended,
for the satisfaction of the unpaid obligation of the plaintiff, which as of September 22, 1961,
amounted to P57,646.59, excluding attorney's fees. In compliance with the request, on October
16, 1961, the Provincial Sheriff of Camarines Norte issued the corresponding notice of extrajudicial sale and sent a copy thereof to the plaintiff. According to the notice, the mortgaged
property would be sold at public auction at 10:00 a.m. on November 21, 1961, at the ground
floor of the Court House in Daet, Camarines Norte.
On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte
requesting him to take possession of the chattels mortgaged to it by the plaintiff and sell them at
public auction also on November 21, 1961, for the satisfaction of the sum of P57,646.59, plus
6% annual interest therefore from September 23, 1961, attorney's fees equivalent to 10% of the
amount due and the costs and expenses of the sale. On the same day, the PNB sent notice to
the plaintiff that the former was foreclosing extrajudicially the chattels mortgaged by the latter
and that the auction sale thereof would be held on November 21, 1961, between 9:00 and 12:00
a.m., in Mambulao, Camarines Norte, where the mortgaged chattels were situated.

On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the
chattels mortgaged by the plaintiff and made an inventory thereof in the presence of a PC
Sergeant and a policeman of the municipality of Jose Panganiban. On November 9, 1961, the
said Deputy Sheriff issued the corresponding notice of public auction sale of the mortgaged
chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiff's compound situated in
the municipality of Jose Panganiban, Province of Camarines Norte.
On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail matter,
one to the Naga Branch of the PNB and another to the Provincial Sheriff of Camarines Norte,
protesting against the foreclosure of the real estate and chattel mortgages on the grounds that
they could not be effected unless a Court's order was issued against it (plaintiff) for said purpose
and that the foreclosure proceedings, according to the terms of the mortgage contracts, should
be made in Manila. In said letter to the Naga Branch of the PNB, it was intimated that if the
public auction sale would be suspended and the plaintiff would be given an extension of ninety
(90) days, its obligation would be settled satisfactorily because an important negotiation was
then going on for the sale of its "whole interest" for an amount more than sufficient to liquidate
said obligation.
The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a request
for extension of the foreclosure sale of the mortgaged chattels and so it advised the Sheriff of
Camarines Norte to defer it to December 21, 1961, at the same time and place. A copy of said
advice was sent to the plaintiff for its information and guidance.
The foreclosure sale of the parcel of land, together with the buildings and improvements
thereon, covered by Transfer Certificate of Title No. 381, was, however, held on November 21,
1961, and the said property was sold to the PNB for the sum of P56,908.00, subject to the right
of the plaintiff to redeem the same within a period of one year. On the same date, Deputy
Provincial Sheriff Heraldo executed a certificate of sale in favor of the PNB and a copy thereof
was sent to the plaintiff.
In a letter dated December 14, 1961 (but apparently posted several days later), the plaintiff sent
a bank draft for P738.59 to the Naga Branch of the PNB, allegedly in full settlement of the
balance of the obligation of the plaintiff after the application thereto of the sum of P56,908.00
representing the proceeds of the foreclosure sale of parcel of land described in Transfer
Certificate of Title No. 381. In the said letter, the plaintiff reiterated its request that the
foreclosure sale of the mortgaged chattels be discontinued on the grounds that the mortgaged
indebtedness had been fully paid and that it could not be legally effected at a place other than
the City of Manila.
In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines
Norte that it had fully paid its obligation to the PNB, and enclosed therewith a copy of its letter to
the latter dated December 14, 1961.
On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff
acknowledging the remittance of P738.59 with the advice, however, that as of that date the
balance of the account of the plaintiff was P9,161.76, to which should be added the expenses of
guarding the mortgaged chattels at the rate of P4.00 a day beginning December 19, 1961. It was
further explained in said letter that the sum of P57,646.59, which was stated in the request for
the foreclosure of the real estate mortgage, did not include the 10% attorney's fees and
expenses of the sale. Accordingly, the plaintiff was advised that the foreclosure sale scheduled
on the 21st of said month would be stopped if a remittance of P9,161.76, plus interest thereon
and guarding fees, would be made.
On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00 a.m.
and they were awarded to the PNB for the sum of P4,200 and the corresponding bill of sale was
issued in its favor by Deputy Provincial Sheriff Heraldo.
In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB advised the
plaintiff giving it priority to repurchase the chattels acquired by the former at public auction. This

55
offer was reiterated in a letter dated January 3, 1962, of the Attorney of the Naga Branch of the
PNB to the plaintiff, with the suggestion that it exercise its right of redemption and that it apply
for the condonation of the attorney's fees. The plaintiff did not follow the advice but on the
contrary it made known of its intention to file appropriate action or actions for the protection of its
interests.
On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in Jose
Panganiban, Camarines Norte, and they informed Luis Salgado, Chief Security Guard of the
premises, that the properties therein had been auctioned and bought by the PNB, which in turn
sold them to Mariano Bundok. Upon being advised that the purchaser would take delivery of the
things he bought, Salgado was at first reluctant to allow any piece of property to be taken out of
the compound of the plaintiff. The employees of the PNB explained that should Salgado refuse,
he would be exposing himself to a litigation wherein he could be held liable to pay big sum of
money by way of damages. Apprehensive of the risk that he would take, Salgado immediately
sent a wire to the President of the plaintiff in Manila, asking advice as to what he should do. In
the meantime, Mariano Bundok was able to take out from the plaintiff's compound two
truckloads of equipment.
In the afternoon of the same day, Salgado received a telegram from plaintiff's President directing
him not to deliver the "chattels" without court order, with the information that the company was
then filing an action for damages against the PNB. On the following day, May 25, 1962, two
trucks and men of Mariano Bundok arrived but Salgado did not permit them to take out any
equipment from inside the compound of the plaintiff. Thru the intervention, however, of the local
police and PC soldiers, the trucks of Mariano Bundok were able finally to haul the properties
originally mortgaged by the plaintiff to the PNB, which were bought by it at the foreclosure sale
and subsequently sold to Mariano Bundok.
Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in the first
paragraph of this opinion, sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum
of P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 (day following the
date of the questioned foreclosure of plaintiff's chattels) until fully paid, and the costs. Mambulao Lumber
Company interposed the instant appeal.
We shall discuss the various points raised in appellant's brief in seriatim.
The first question Mambulao Lumber Company poses is that which relates to the amount of its
indebtedness to the PNB arising out of the principal loans and the accrued interest thereon. It is contended
that its obligation under the terms of the two promissory notes it had executed in favor of the PNB amounts
only to P56,485.87 as of November 21, 1961, when the sale of real property was effected, and not
P58,213.51 as found by the trial court.
There is merit to this claim. Examining the terms of the promissory note executed by the appellant in favor
of the PNB, we find that the agreed interest on the loan of P43,000.00 P27,500.00 released on August 2,
1956 as per promissory note of even date (Exhibit C-3), and P15,500.00 released on October 19, 1956, as
per promissory note of the same date (Exhibit C-4) was six per cent (6%) per annum from the respective
date of said notes "until paid". In the statement of account of the appellant as of September 22, 1961,
submitted by the PNB, it appears that in arriving at the total indebtedness of P57,646.59 as of that date, the
PNB had compounded the principal of the loan and the accrued 6% interest thereon each time the yearly
amortizations became due, and on the basis of these compounded amounts charged additional delinquency
interest on them up to September 22, 1961; and to this erroneously computed total of P57,646.59, the trial
court added 6% interest per annum from September 23, 1961 to November 21 of the same year. In effect,
the PNB has claimed, and the trial court has adjudicated to it, interest on accrued interests from the time the
various amortizations of the loan became due until the real estate mortgage executed to secure the loan
was extra-judicially foreclosed on November 21, 1961. This is an error. Section 5 of Act No. 2655 expressly
provides that in computing the interest on any obligation, promissory note or other instrument or contract,
compound interest shall not be reckoned, except by agreement, or in default thereof, whenever the debt is
judicially claimed. This is also the clear mandate of Article 2212 of the new Civil Code which provides that
interest due shall earn legal interest only from the time it is judicially demanded, and of Article 1959 of the
same code which ordains that interest due and unpaid shall not earn interest. Of course, the parties may, by
stipulation, capitalize the interest due and unpaid, which as added principal shall earn new interest; but such

stipulation is nowhere to be found in the terms of the promissory notes involved in this case. Clearly
therefore, the trial court fell into error when it awarded interest on accrued interests, without any agreement
to that effect and before they had been judicially demanded.
Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in favor of the
PNB. With respect to the amount of P298.54 allowed as expenses of the extra-judicial sale of the real
property, appellant maintains that the same has no basis, factual or legal, and should not have been
awarded. It likewise decries the award of attorney's fees which, according to the appellant, should not be
deducted from the proceeds of the sale of the real property, not only because there is no express agreement
in the real estate mortgage contract to pay attorney's fees in case the same is extra-judicially foreclosed, but
also for the reason that the PNB neither spent nor incurred any obligation to pay attorney's fees in
connection with the said extra-judicial foreclosure under consideration.
There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this respect, the
trial court said:
The parcel of land, together with the buildings and improvements existing thereon covered by
Transfer Certificate of Title No. 381, was sold for P56,908. There was, however, no evidence
how much was the expenses of the foreclosure sale although from the pertinent provisions of
the Rules of Court, the Sheriff's fees would be P1 for advertising the sale (par. k, Sec. 7, Rule
130 of the Old Rules) and P297.54 as his commission for the sale (par. n, Sec. 7, Rule 130 of
the Old Rules) or a total of P298.54.
There is really no evidence of record to support the conclusion that the PNB is entitled to the amount
awarded as expenses of the extra-judicial foreclosure sale. The court below committed error in applying the
provisions of the Rules of Court for purposes of arriving at the amount awarded. It is to be borne in mind
that the fees enumerated under paragraphs k and n, Section 7, of Rule 130 (now Rule 141) are
demandable, only by a sheriff serving processes of the court in connection with judicial foreclosure of
mortgages under Rule 68 of the new Rules, and not in cases of extra-judicial foreclosure of mortgages
under Act 3135. The law applicable is Section 4 of Act 3135 which provides that the officer conducting the
sale is entitled to collect a fee of P5.00 for each day of actual work performed in addition to his expenses in
connection with the foreclosure sale. Admittedly, the PNB failed to prove during the trial of the case, that it
actually spent any amount in connection with the said foreclosure sale. Neither may expenses for
publication of the notice be legally allowed in the absence of evidence on record to support it. 1 It is true, as
pointed out by the appellee bank, that courts should take judicial notice of the fees provided for by law which
need not be proved; but in the absence of evidence to show at least the number of working days the sheriff
concerned actually spent in connection with the extra-judicial foreclosure sale, the most that he may be
entitled to, would be the amount of P10.00 as a reasonable allowance for two day's work one for the
preparation of the necessary notices of sale, and the other for conducting the auction sale and issuance of
the corresponding certificate of sale in favor of the buyer. Obviously, therefore, the award of P298.54 as
expenses of the sale should be set aside.
But the claim of the appellant that the real estate mortgage does not provide for attorney's fees in case the
same is extra-judicially foreclosed, cannot be favorably considered, as would readily be revealed by an
examination of the pertinent provision of the mortgage contract. The parties to the mortgage appear to have
stipulated under paragraph (c) thereof, inter alia:
. . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the Mortgagee
his attorney-in-fact to sell the property mortgaged under Act 3135, as amended, to sign all
documents and to perform all acts requisite and necessary to accomplish said purpose and to
appoint its substitute as such attorney-in-fact with the same powers as above specified. In case
of judicial foreclosure, the Mortgagor hereby consents to the appointment of the Mortgagee or
any of its employees as receiver, without any bond, to take charge of the mortgaged property at
once, and to hold possession of the same and the rents, benefits and profits derived from the
mortgaged property before the sale, less the costs and expenses of the receivership; the
Mortgagor hereby agrees further that in all cases, attorney's fees hereby fixed at Ten Per cent
(10%) of the total indebtedness then unpaid which in no case shall be less than P100.00
exclusive of all fees allowed by law, and the expenses of collection shall be the obligation of the
Mortgagor and shall with priority, be paid to the Mortgagee out of any sums realized as rents and

56
profits derived from the mortgaged property or from the proceeds realized from the sale of the
said property and this mortgage shall likewise stand as security therefor. . . .
We find the above stipulation to pay attorney's fees clear enough to cover both cases of foreclosure sale
mentioned thereunder, i.e., judicially or extra-judicially. While the phrase "in all cases" appears to be part of
the second sentence, a reading of the whole context of the stipulation would readily show that it logically
refers to extra-judicial foreclosure found in the first sentence and to judicial foreclosure mentioned in the
next sentence. And the ambiguity in the stipulation suggested and pointed out by the appellant by reason of
the faulty sentence construction should not be made to defeat the otherwise clear intention of the parties in
the agreement.
It is suggested by the appellant, however, that even if the above stipulation to pay attorney's fees were
applicable to the extra-judicial foreclosure sale of its real properties, still, the award of P5,821.35 for
attorney's fees has no legal justification, considering the circumstance that the PNB did not actually spend
anything by way of attorney's fees in connection with the sale. In support of this proposition, appellant cites
authorities to the effect: (1) that when the mortgagee has neither paid nor incurred any obligation to pay an
attorney in connection with the foreclosure sale, the claim for such fees should be denied; 2 and (2) that
attorney's fees will not be allowed when the attorney conducting the foreclosure proceedings is an officer of
the corporation (mortgagee) who receives a salary for all the legal services performed by him for the
corporation. 3 These authorities are indeed enlightening; but they should not be applied in this case. The
very same authority first cited suggests that said principle is not absolute, for there is authority to the
contrary. As to the fact that the foreclosure proceeding's were handled by an attorney of the legal staff of the
PNB, we are reluctant to exonerate herein appellant from the payment of the stipulated attorney's fees on
this ground alone, considering the express agreement between the parties in the mortgage contract under
which appellant became liable to pay the same. At any rate, we find merit in the contention of the appellant
that the award of P5,821.35 in favor of the PNB as attorney's fees is unconscionable and unreasonable,
considering that all that the branch attorney of the said bank did in connection with the foreclosure sale of
the real property was to file a petition with the provincial sheriff of Camarines Norte requesting the latter to
sell the same in accordance with the provisions of Act 3135.
The principle that courts should reduce stipulated attorney's fees whenever it is found under the
circumstances of the case that the same is unreasonable, is now deeply rooted in this jurisdiction to
entertain any serious objection to it. Thus, this Court has explained:

Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees
stipulated appear excessive, unconscionable, or unreasonable, because a lawyer is primarily a court officer
charged with the duty of assisting the court in administering impartial justice between the parties, and
hence, the fees should be subject to judicial control. Nor should it be ignored that sound public policy
demands that courts disregard stipulations for counsel fees, whenever they appear to be a source of
speculative profit at the expense of the debtor or mortgagor. 5 And it is not material that the present action is
between the debtor and the creditor, and not between attorney and client. As court have power to fix the fee
as between attorney and client, it must necessarily have the right to say whether a stipulation like this,
inserted in a mortgage contract, is valid. 6
In determining the compensation of an attorney, the following circumstances should be considered: the
amount and character of the services rendered; the responsibility imposed; the amount of money or the
value of the property affected by the controversy, or involved in the employment; the skill and experience
called for in the performance of the service; the professional standing of the attorney; the results secured;
and whether or not the fee is contingent or absolute, it being a recognized rule that an attorney may properly
charge a much larger fee when it is to be contingent than when it is not. 7 From the stipulation in the
mortgage contract earlier quoted, it appears that the agreed fee is 10% of the total indebtedness,
irrespective of the manner the foreclosure of the mortgage is to be effected. The agreement is perhaps fair
enough in case the foreclosure proceedings is prosecuted judicially but, surely, it is unreasonable when, as
in this case, the mortgage was foreclosed extra-judicially, and all that the attorney did was to file a petition
for foreclosure with the sheriff concerned. It is to be assumed though, that the said branch attorney of the
PNB made a study of the case before deciding to file the petition for foreclosure; but even with this in mind,
we believe the amount of P5,821.35 is far too excessive a fee for such services. Considering the above
circumstances mentioned, it is our considered opinion that the amount of P1,000.00 would be more than
sufficient to compensate the work aforementioned.
The next issue raised deals with the claim that the proceeds of the sale of the real properties alone together
with the amount it remitted to the PNB later was more than sufficient to liquidate its total obligation to herein
appellee bank. Again, we find merit in this claim. From the foregoing discussion of the first two errors
assigned, and for purposes of determining the total obligation of herein appellant to the PNB as of
November 21, 1961 when the real estate mortgage was foreclosed, we have the following illustration in
support of this conclusion:1wph1.t

A. But the principle that it may be lawfully stipulated that the legal expenses involved in the
collection of a debt shall be defrayed by the debtor does not imply that such stipulations must be
enforced in accordance with the terms, no matter how injurious or oppressive they may be. The
lawful purpose to be accomplished by such a stipulation is to permit the creditor to receive the
amount due him under his contract without a deduction of the expenses caused by the
delinquency of the debtor. It should not be permitted for him to convert such a stipulation into a
source of speculative profit at the expense of the debtor.
Contracts for attorney's services in this jurisdiction stands upon an entirely different footing from
contracts for the payment of compensation for any other services. By express provision of
section 29 of the Code of Civil Procedure, an attorney is not entitled in the absence of express
contract to recover more than a reasonable compensation for his services; and even when an
express contract is made the court can ignore it and limit the recovery to reasonable
compensation if the amount of the stipulated fee is found by the court to be unreasonable. This
is a very different rule from that announced in section 1091 of the Civil Code with reference to
the obligation of contracts in general, where it is said that such obligation has the force of law
between the contracting parties. Had the plaintiff herein made an express contract to pay his
attorney an uncontingent fee of P2,115.25 for the services to be rendered in reducing the note
here in suit to judgment, it would not have been enforced against him had he seen fit to oppose
it, as such a fee is obviously far greater than is necessary to remunerate the attorney for the
work involved and is therefore unreasonable. In order to enable the court to ignore an express
contract for an attorney's fees, it is not necessary to show, as in other contracts, that it is
contrary to morality or public policy (Art. 1255, Civil Code). It is enough that it is unreasonable or
unconscionable. 4

I.

Principal Loan
(a) Promissory note dated August 2, 1956

P27,500.00

(1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961

8,751.78

(b) Promissory note dated October 19, 1956

P15,500.00

(1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961

4,734.08

II.

Sheriff's fees [for two (2) day's work]

10.00

III.

Attorney's fee

1,000.00

Total obligation as of Nov. 21, 1961

P57,495.86

B. I.

Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961

P56,908.00

II.

Additional amount remitted to the PNB on Dec. 18, 1961

738.59

57
Total amount of Payment made to PNB as of Dec. 18, 1961

P57,646.59

Deduct: Total obligation to the PNB

P57,495.86

Excess Payment to the PNB

P
150.73
========

From the foregoing illustration or computation, it is clear that there was no further necessity to foreclose the
mortgage of herein appellant's chattels on December 21, 1961; and on this ground alone, we may declare
the sale of appellant's chattels on the said date, illegal and void. But we take into consideration the fact that
the PNB must have been led to believe that the stipulated 10% of the unpaid loan for attorney's fees in the
real estate mortgage was legally maintainable, and in accordance with such belief, herein appellee bank
insisted that the proceeds of the sale of appellant's real property was deficient to liquidate the latter's total
indebtedness. Be that as it may, however, we still find the subsequent sale of herein appellant's chattels
illegal and objectionable on other grounds.
That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure of its real
estate mortgage on November 21, 1961, can not be doubted, as shown not only by its letter to the PNB on
November 19, 1961, but also in its letter to the provincial sheriff of Camarines Norte on the same date.
These letters were followed by another letter to the appellee bank on December 14, 1961, wherein herein
appellant, in no uncertain terms, reiterated its objection to the scheduled sale of its chattels on December
21, 1961 at Jose Panganiban, Camarines Norte for the reasons therein stated that: (1) it had settled in full
its total obligation to the PNB by the sale of the real estate and its subsequent remittance of the amount of
P738.59; and (2) that the contemplated sale at Jose Panganiban would violate their agreement embodied
under paragraph (i) in the Chattel Mortgage which provides as follows:
(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the parties
hereto agree that the corresponding complaint for foreclosure or the petition for sale should be
filed with the courts or the sheriff of the City of Manila, as the case may be; and that the
Mortgagor shall pay attorney's fees hereby fixed at ten per cent (10%) of the total indebtedness
then unpaid but in no case shall it be less than P100.00, exclusive of all costs and fees allowed
by law and of other expenses incurred in connection with the said foreclosure. [Emphasis
supplied]
Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utter disregard of the
objection of herein appellant to the sale of its chattels at Jose Panganiban, Camarines Norte and not in the
City of Manila as agreed upon, the PNB proceeded with the foreclosure sale of said chattels. The trial court,
however, justified said action of the PNB in the decision appealed from in the following rationale:
While it is true that it was stipulated in the chattel mortgage contract that a petition for the extrajudicial foreclosure thereof should be filed with the Sheriff of the City of Manila, nevertheless, the
effect thereof was merely to provide another place where the mortgage chattel could be sold in
addition to those specified in the Chattel Mortgage Law. Indeed, a stipulation in a contract
cannot abrogate much less impliedly repeal a specific provision of the statute. Considering that
Section 14 of Act No. 1508 vests in the mortgagee the choice where the foreclosure sale should
be held, hence, in the case under consideration, the PNB had three places from which to select,
namely: (1) the place of residence of the mortgagor; (2) the place of the mortgaged chattels
were situated; and (3) the place stipulated in the contract. The PNB selected the second and,
accordingly, the foreclosure sale held in Jose Panganiban, Camarines Norte, was legal and
valid.
To the foregoing conclusion, We disagree. While the law grants power and authority to the mortgagee to sell
the mortgaged property at a public place in the municipality where the mortgagor resides or where the
property is situated, 8 this Court has held that the sale of a mortgaged chattel may be made in a place other

than that where it is found, provided that the owner thereof consents thereto; or that there is an
agreement to this effect between the mortgagor and the mortgagee. 9 But when, as in this case, the parties
agreed to have the sale of the mortgaged chattels in the City of Manila, which, any way, is the residence of
the mortgagor, it cannot be rightly said that mortgagee still retained the power and authority to select from
among the places provided for in the law and the place designated in their agreement over the objection of
the mortgagor. In providing that the mortgaged chattel may be sold at the place of residence of the
mortgagor or the place where it is situated, at the option of the mortgagee, the law clearly contemplated
benefits not only to the mortgagor but to the mortgagee as well. Their right arising thereunder, however, are
personal to them; they do not affect either public policy or the rights of third persons. They may validly be
waived. So, when herein mortgagor and mortgagee agreed in the mortgage contract that in cases of both
judicial and extra-judicial foreclosure under Act 1508, as amended, the corresponding complaint for
foreclosure or the petition for sale should be filed with the courts or the Sheriff of Manila, as the case may
be, they waived their corresponding rights under the law. The correlative obligation arising from that
agreement have the force of law between them and should be complied with in good faith. 10
By said agreement the parties waived the legal venue, and such waiver is valid and legally
effective, because it, was merely a personal privilege they waived, which is not contrary, to
public policy or to the prejudice of third persons. It is a general principle that a person may
renounce any right which the law gives unless such renunciation is expressly prohibited or the
right conferred is of such nature that its renunciation would be against public policy. 11
On the other hand, if a place of sale is specified in the mortgage and statutory requirements in
regard thereto are complied with, a sale is properly conducted in that place. Indeed, in the
absence of a statute to the contrary, a sale conducted at a place other than that stipulated for in
the mortgage is invalid, unless the mortgagor consents to such sale. 12
Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should make a
return of his doings which shall particularly describe the articles sold and the amount received from each
article. From this, it is clear that the law requires that sale be made article by article, otherwise, it would be
impossible for him to state the amount received for each item. This requirement was totally disregarded by
the Deputy Sheriff of Camarines Norte when he sold the chattels in question in bulk, notwithstanding the fact
that the said chattels consisted of no less than twenty different items as shown in the bill of sale. 13 This
makes the sale of the chattels manifestly objectionable. And in the absence of any evidence to show that
the mortgagor had agreed or consented to such sale in gross, the same should be set aside.
It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in accordance
with its terms, or where the proceedings as to the sale of foreclosure do not comply with the statute. 14 This
rule applies squarely to the facts of this case where, as earlier shown, herein appellee bank insisted, and
the appellee deputy sheriff of Camarines Norte proceeded with the sale of the mortgaged chattels at Jose
Panganiban, Camarines Norte, in utter disregard of the valid objection of the mortgagor thereto for the
reason that it is not the place of sale agreed upon in the mortgage contract; and the said deputy sheriff sold
all the chattels (among which were a skagit with caterpillar engine, three GMC 6 x 6 trucks, a Herring Hall
Safe, and Sawmill equipment consisting of a 150 HP Murphy Engine, plainer, large circular saws etc.) as a
single lot in violation of the requirement of the law to sell the same article by article. The PNB has resold the
chattels to another buyer with whom it appears to have actively cooperated in subsequently taking
possession of and removing the chattels from appellant compound by force, as shown by the circumstance
that they had to take along PC soldiers and municipal policemen of Jose Panganiban who placed the chief
security officer of the premises in jail to deprive herein appellant of its possession thereof. To exonerate
itself of any liability for the breach of peace thus committed, the PNB would want us to believe that it was
the subsequent buyer alone, who is not a party to this case, that was responsible for the forcible taking of
the property; but assuming this to be so, still the PNB cannot escape liability for the conversion of the
mortgaged chattels by parting with its interest in the property. Neither would its claim that it afterwards gave
a chance to herein appellant to repurchase or redeem the chattels, improve its position, for the mortgagor is
not under obligation to take affirmative steps to repossess the chattels that were converted by the
mortgagee. 15 As a consequence of the said wrongful acts of the PNB and the Deputy Sheriff of Camarines
Norte, therefore, We have to declare that herein appellant is entitled to collect from them, jointly and
severally, the full value of the chattels in question at the time they were illegally sold by them. To this effect
was the holding of this Court in a similar situation. 16

58
The effect of this irregularity was, in our opinion to make the plaintiff liable to the defendant for
the full value of the truck at the time the plaintiff thus carried it off to be sold; and of course, the
burden is on the defendant to prove the damage to which he was thus subjected. . . .
This brings us to the problem of determining the value of the mortgaged chattels at the time of their sale in
1961. The trial court did not make any finding on the value of the chattels in the decision appealed from and
denied altogether the right of the appellant to recover the same. We find enough evidence of record,
however, which may be used as a guide to ascertain their value. The record shows that at the time herein
appellant applied for its loan with the PNB in 1956, for which the chattels in question were mortgaged as
part of the security therefore, herein appellant submitted a list of the chattels together with its application for
the loan with a stated value of P107,115.85. An official of the PNB made an inspection of the chattels in the
same year giving it an appraised value of P42,850.00 and a market value of P85,700.00. 17 The same
chattels with some additional equipment acquired by herein appellant with part of the proceeds of the loan
were reappraised in a re-inspection conducted by the same official in 1958, in the report of which he gave
all the chattels an appraised value of P26,850.00 and a market value of P48,200.00. 18 Another re-inspection
report in 1959 gave the appraised value as P19,400.00 and the market value at P25,600.00. 19 The said
official of the PNB who made the foregoing reports of inspection and re-inspections testified in court that in
giving the values appearing in the reports, he used a conservative method of appraisal which, of course, is
to be expected of an official of the appellee bank. And it appears that the values were considerably reduced
in all the re-inspection reports for the reason that when he went to herein appellant's premises at the time,
he found the chattels no longer in use with some of the heavier equipments dismantled with parts thereof
kept in the bodega; and finding it difficult to ascertain the value of the dismantled chattels in such condition,
he did not give them anymore any value in his reports. Noteworthy is the fact, however, that in the last reinspection report he made of the chattels in 1961, just a few months before the foreclosure sale, the same
inspector of the PNB reported that the heavy equipment of herein appellant were "lying idle and rusty" but
were "with a shed free from rains" 20 showing that although they were no longer in use at the time, they were
kept in a proper place and not exposed to the elements. The President of the appellant company, on the
other hand, testified that its caterpillar (tractor) alone is worth P35,000.00 in the market, and that the value
of its two trucks acquired by it with part of the proceeds of the loan and included as additional items in the
mortgaged chattels were worth no less than P14,000.00. He likewise appraised the worth of its Murphy
engine at P16,000.00 which, according to him, when taken together with the heavy equipments he
mentioned, the sawmill itself and all other equipment forming part of the chattels under consideration, and
bearing in mind the current cost of equipments these days which he alleged to have increased by about five
(5) times, could safely be estimated at P120,000.00. This testimony, except for the appraised and market
values appearing in the inspection and re-inspection reports of the PNB official earlier mentioned, stand
uncontroverted in the record; but We are not inclined to accept such testimony at its par value, knowing that
the equipments of herein appellant had been idle and unused since it stopped operating its sawmill in 1958
up to the time of the sale of the chattels in 1961. We have no doubt that the value of chattels was
depreciated after all those years of inoperation, although from the evidence aforementioned, We may also
safely conclude that the amount of P4,200.00 for which the chattels were sold in the foreclosure sale in
question was grossly unfair to the mortgagor. Considering, however, the facts that the appraised value of
P42,850.00 and the market value of P85,700.00 originally given by the PNB official were admittedly
conservative; that two 6 x 6 trucks subsequently bought by the appellant company had thereafter been
added to the chattels; and that the real value thereof, although depreciated after several years of
inoperation, was in a way maintained because the depreciation is off-set by the marked increase in the cost
of heavy equipment in the market, it is our opinion that the market value of the chattels at the time of the
sale should be fixed at the original appraised value of P42,850.00.
Herein appellant's claim for moral damages, however, seems to have no legal or factual basis. Obviously,
an artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish,
fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral
damages. 21 A corporation may have a good reputation which, if besmirched, may also be a ground for the
award of moral damages. The same cannot be considered under the facts of this case, however, not only
because it is admitted that herein appellant had already ceased in its business operation at the time of the
foreclosure sale of the chattels, but also for the reason that whatever adverse effects of the foreclosure sale
of the chattels could have upon its reputation or business standing would undoubtedly be the same whether
the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place agreed upon
by the parties in the mortgage contract.
But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding
with the sale in utter disregard of the agreement to have the chattels sold in Manila as provided for in the
mortgage contract, to which their attentions were timely called by herein appellant, and in disposing of the
chattels in gross for the miserable amount of P4,200.00, herein appellant should be awarded exemplary

damages in the sum of P10,000.00. The circumstances of the case also warrant the award of
P3,000.00 as attorney's fees for herein appellant.
WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from should be, as
hereby, it is set aside. The Philippine National Bank and the Deputy Sheriff of the province of Camarines
Norte are ordered to pay, jointly and severally, to Mambulao Lumber Company the total amount of
P56,000.73, broken as follows: P150.73 overpaid by the latter to the PNB, P42,850.00 the value of the
chattels at the time of the sale with interest at the rate of 6% per annum from December 21, 1961, until fully
paid, P10,000.00 in exemplary damages, and P3,000.00 as attorney's fees. Costs against both appellees.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Fernando, JJ., concur.
Bengzon, J.P. J., took no part.
Republic
SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION

G.R. No. 128690 January 21, 1999

ABS-CBN
BROADCASTING
CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC.,
and VICENTE DEL ROSARIO, respondents.

DAVIDE, JR., CJ.:

In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks
to reverse and set aside the decision 1 of 31 October 1996 and the resolution 2 of 10 March 1997 of the
Court of Appeals in CA-G.R. CV No. 44125. The former affirmed with modification the decision 3 of 28 April
1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-92-12309. The latter
denied the motion to reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:
In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A")
whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films.
Sometime in December 1991, in accordance with paragraph 2.4 [sic] of said
agreement stating that .
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva
films for TV telecast under such terms as may be agreed upon by the parties hereto,
provided, however, that such right shall be exercised by ABS-CBN from the actual
offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president
Charo Santos-Concio, a list of three(3) film packages (36 title) from which ABS-CBN
may exercise its right of first refusal under the afore-said agreement (Exhs. "1" par,
2, "2," "2-A'' and "2-B"-Viva). ABS-CBN, however through Mrs. Concio, "can tick off
only ten (10) titles" (from the list) "we can purchase" (Exh. "3" - Viva) and therefore

59
did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs.
Concio are not the subject of the case at bar except the film ''Maging Sino Ka Man."

Thanking you and with my warmest regards.

(Signed)

For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" Viva) is hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express
my difficulty in recommending the purchase of the three film packages you are
offering ABS-CBN.
From among the three packages I can only tick off 10 titles we can purchase. Please
see attached. I hope you will understand my position. Most of the action pictures in
the list do not have big action stars in the cast. They are not for primetime. In line
with this I wish to mention that I have not scheduled for telecast several action
pictures in out very first contract because of the cheap production value of these
movies as well as the lack of big action stars. As a film producer, I am sure you
understand what I am trying to say as Viva produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only
schedule them in our non-primetime slots. We have to cover the amount that was
paid for these movies because as you very well know that non-primetime advertising
rates are very low. These are the unaired titles in the first contract.
1. Kontra Persa [sic].
2. Raider Platoon.
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. Lady Commando

Charo Santos-Co
On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio,
with a list consisting of 52 original movie titles (i.e. not yet aired on television)
including the 14 titles subject of the present case, as well as 104 re-runs (previously
aired on television) from which ABS-CBN may choose another 52 titles, as a total of
156 titles, proposing to sell to ABS-CBN airing rights over this package of 52
originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash
and P30,000,000.00 worth of television spots (Exh. "4" to "4-C" Viva; "9" -Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio
Lopez III, met at the Tamarind Grill Restaurant in Quezon City to discuss the
package proposal of Viva. What transpired in that lunch meeting is the subject of
conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed
that ABS-CRN was granted exclusive film rights to fourteen (14) films for a total
consideration of P36 million; that he allegedly put this agreement as to the price and
number of films in a "napkin'' and signed it and gave it to Mr. Del Rosario (Exh. D;
TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del Rosario denied having
made any agreement with Lopez regarding the 14 Viva films; denied the existence of
a napkin in which Lopez wrote something; and insisted that what he and Lopez
discussed at the lunch meeting was Viva's film package offer of 104 films (52
originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [ sic]to
make a counter proposal which came in the form of a proposal contract Annex "C" of
the complaint (Exh. "1"- Viva; Exh. "C" - ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vicepresident for Finance discussed the terms and conditions of Viva's offer to sell the
104 films, after the rejection of the same package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary, a
handwritten note from Ms. Concio, (Exh. "5" - Viva), which reads: "Here's the draft of
the contract. I hope you find everything in order," to which was attached a draft
exhibition agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-proposal
covering 53 films, 52 of which came from the list sent by defendant Del Rosario and
one film was added by Ms. Concio, for a consideration of P35 million. Exhibit "C"
provides that ABS-CBN is granted films right to 53 films and contains a right of first
refusal to "1992 Viva Films." The said counter proposal was however rejected by
Viva's Board of Directors [in the] evening of the same day, April 7, 1992, as Viva
would not sell anything less than the package of 104 films for P60 million pesos
(Exh. "9" - Viva), and such rejection was relayed to Ms. Concio.

7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected
because of the ruling of MTRCB to have them aired at 9:00 p.m. due to their very
adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider
including all the other Viva movies produced last year. I have quite an attractive offer
to make.

On April 29, 1992, after the rejection of ABS-CBN and following several negotiations
and meetings defendant Del Rosario and Viva's President Teresita Cruz, in
consideration of P60 million, signed a letter of agreement dated April 24, 1992.
granting RBS the exclusive right to air 104 Viva-produced and/or acquired films (Exh.
"7-A" - RBS; Exh. "4" - RBS) including the fourteen (14) films subject of the present
case. 4
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a
writ of preliminary injunction and/or temporary restraining order against private respondents Republic
Broadcasting Corporation 5 (hereafter RBS ), Viva Production (hereafter VIVA), and Vicente Del Rosario.
The complaint was docketed as Civil Case No. Q-92-12309.

60
On 27 May 1992, RTC issued a temporary restraining order 6 enjoining private respondents from proceeding
with the airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting
with the film Maging Sino Ka Man, which was scheduled to be shown on private respondents RBS' channel
7 at seven o'clock in the evening of said date.

a) P107,727.00, the amount of

premium paid by RBS to the surety
which issued defendant RBS's bond
to lift the injunction;

On
17
June
1992,
after
appropriate
proceedings,
the
RTC
issued
an
order 7 directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million
8
bond. ABS-CBN moved for the reduction of the bond, while private respondents moved for reconsideration
of the order and offered to put up a counterbound. 9

b) P191,843.00 for the amount of print

advertisement for "Maging Sino Ka
Man" in various newspapers;

In the meantime, private respondents filed separate answers with counterclaim.

claim against VIVA..

10

RBS also set up a cross-

On 3 August 1992, the RTC issued an order 11 dissolving the writ of preliminary injunction upon the posting
by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of
such dissolution. However, it reduced petitioner's injunction bond to P15 million as a condition precedent for
the reinstatement of the writ of preliminary injunction should private respondents be unable to post a
counterbond.
At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court, agreed to explore the
possibility of an amicable settlement. In the meantime, RBS prayed for and was granted reasonable time
within which to put up a P30 million counterbond in the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 a counterbond,
which the RTC approved in its Order of 15 October 1992. 13

c) Attorney's fees in the amount of P1

million;
d) P5 million as and by way of moral
damages;
e) P5 million as and by way of
exemplary damages;
(3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay
P212,000.00 by way of reasonable attorney's fees.
(4) The cross-claim of defendant RBS against defendant
VIVA is dismissed.
(5) Plaintiff to pay the costs.

On 19 October 1992, ABS-CBN filed a motion for reconsideration

Orders, which RBS opposed. 15
On 29 October 1992, the RTC conducted a pre-trial.

14

of the 3 August and 15 October 1992

16

Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a
petition 17challenging the RTC's Orders of 3 August and 15 October 1992 and praying for the issuance of a
writ of preliminary injunction to enjoin the RTC from enforcing said orders. The case was docketed as CAG.R. SP No. 29300.

According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged
agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors,
and said agreement was disapproved during the meeting of the Board on 7 April 1992. Hence, there was no
basis for ABS-CBN's demand that VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right
of first refusal under the 1990 Film Exhibition Agreement had previously been exercised per Ms. Concio's
letter to Del Rosario ticking off ten titles acceptable to them, which would have made the 1992 agreement
an entirely new contract.

to enjoin the airing,

On 21 June 1993, this Court denied 21 ABS-CBN's petition for review in G.R. No. 108363, as no reversible
error was committed by the Court of Appeals in its challenged decision and the case had "become moot and
academic in view of the dismissal of the main action by the court a quo in its decision" of 28 April 1993.

On 18 December 1992, the Court of Appeals promulgated a decision 19 dismissing the petition in CA -G.R.
No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed with this
Court on 19 January 1993, which was docketed as G.R. No. 108363.

Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a
perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject
films. Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and
additional attorney's fees.

On 3 November 1992, the Court of Appeals issued a temporary restraining order

broadcasting, and televising of any or all of the films involved in the controversy.

18

In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209. Thereafter, on
28 April 1993, it rendered a decision 20 in favor of RBS and VIVA and against ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgments
is rendered in favor of defendants and against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the
following:

In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between
ABS-CBN and VIVA had not been perfected, absent the approval by the VIVA Board of Directors of
whatever Del Rosario, it's agent, might have agreed with Lopez III. The appellate court did not even believe
ABS-CBN's evidence that Lopez III actually wrote down such an agreement on a "napkin," as the same was
never produced in court. It likewise rejected ABS-CBN's insistence on its right of first refusal and
ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition
Agreement was entered into between Appellant ABS-CBN and appellant VIVA under
Exhibit "A" in 1990, and that parag. 1.4 thereof provides:

61
1.4 ABS-CBN shall have the right of first refusal to the next
twenty-four (24) VIVA films for TV telecast under such terms
as may be agreed upon by the parties hereto, provided,
however, that such right shall be exercised by ABS-CBN
within a period of fifteen (15) days from the actual offer in
writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still
be subject to such terms as may be agreed upon by the parties thereto, and that the
said right shall be exercised by ABS-CBN within fifteen (15) days from the actual
offer in writing.
Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the
price of the film right to the twenty-four (24) films, nor did it specify the terms thereof.
The same are still left to be agreed upon by the parties.
In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated
that it can only tick off ten (10) films, and the draft contract Exhibit "C" accepted only
fourteen (14) films, while parag. 1.4 of Exhibit "A'' speaks of the next twenty-four (24)
films.
The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records,
pp. 86-88; Decision, p. 11, Records, p. 1150), when the first list of VIVA films was
sent by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-CBN, Ms. Charo
Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where
ABS-CBN exercised its right of refusal by rejecting the offer of VIVA.. As aptly
observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992,
ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15) day
period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABSCBN after the letter of Mrs. Concio, still the fifteen (15) day period within which ABSCBN shall exercise its right of first refusal has already expired.22
Accordingly, respondent court sustained the award of actual damages consisting in the cost of print
advertisements and the premium payments for the counterbond, there being adequate proof of the
pecuniary loss which RBS had suffered as a result of the filing of the complaint by ABS-CBN. As to the
award of moral damages, the Court of Appeals found reasonable basis therefor, holding that RBS's
reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing
of the film "Maging Sino Ka Man." Respondent court also held that exemplary damages were correctly
imposed by way of example or correction for the public good in view of the filing of the complaint despite
petitioner's knowledge that the contract with VIVA had not been perfected, It also upheld the award of
attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS was
"unnecessarily forced to litigate." The appellate court, however, reduced the awards of moral damages to P2
million, exemplary damages to P2 million, and attorney's fees to P500, 000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was
"RBS and not VIVA which was actually prejudiced when the complaint was filed by ABS-CBN."
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that
the Court of Appeals gravely erred in
I
. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN
PETITIONER AND PRIVATE RESPONDENT VIVA NOTWITHSTANDING
PREPONDERANCE OF EVIDENCE ADDUCED BY PETITIONER TO THE
CONTRARY.
II

. . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF

PRIVATE RESPONDENT RBS.
III
. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
IV
. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990
Film Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence
to Lopez's testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and
conditions of the second list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the
same on a paper napkin. It also asserts that the contract has already been effective, as the elements
thereof, namely, consent, object, and consideration were established. It then concludes that the Court of
Appeals' pronouncements were not supported by law and jurisprudence, as per our decision of 1 December
1995 in Limketkai Sons Milling, Inc. v. Court of Appeals,23 which cited Toyota Shaw, Inc. v. Court of
Appeals, 24 Ang Yu Asuncion v. Court of Appeals, 25 and Villonco Realty Company v. Bormaheco. Inc. 26
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the
premium on the counterbond of its own volition in order to negate the injunction issued by the trial court after
the parties had ventilated their respective positions during the hearings for the purpose. The filing of the
counterbond was an option available to RBS, but it can hardly be argued that ABS-CBN compelled RBS to
incur such expense. Besides, RBS had another available option, i.e., move for the dissolution or the
injunction; or if it was determined to put up a counterbond, it could have presented a cash bond.
Furthermore under Article 2203 of the Civil Code, the party suffering loss or injury is also required to
exercise the diligence of a good father of a family to minimize the damages resulting from the act or
omission. As regards the cost of print advertisements, RBS had not convincingly established that this was a
loss attributable to the non showing "Maging Sino Ka Man"; on the contrary, it was brought out during trial
that with or without the case or the injunction, RBS would have spent such an amount to generate interest in
the film.
ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages.
The controversy involving ABS-CBN and RBS did not in any way originate from business transaction
between them. The claims for such damages did not arise from any contractual dealings or from specific
acts committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or reckless;
they arose by virtue only of the filing of the complaint, An award of moral and exemplary damages is not
warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in filing an
action. 27 In any case, free resort to courts for redress of wrongs is a matter of public policy. The law
recognizes the right of every one to sue for that which he honestly believes to be his right without fear of
standing trial for damages where by lack of sufficient evidence, legal technicalities, or a different
interpretation of the laws on the matter, the case would lose ground. 28 One who makes use of his own legal
right does no injury. 29 If damage results front the filing of the complaint, it is damnum absque
injuria. 30 Besides, moral damages are generally not awarded in favor of a juridical person, unless it enjoys a
good reputation that was debased by the offending party resulting in social humiliation. 31
As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or
equitable justification. In sustaining the trial court's award, the Court of Appeals acted in clear disregard of
the doctrines laid down in Buan v. Camaganacan 32 that the text of the decision should state the reason why
attorney's fees are being awarded; otherwise, the award should be disallowed. Besides, no bad faith has
been imputed on, much less proved as having been committed by, ABS-CBN. It has been held that "where
no sufficient showing of bad faith would be reflected in a party' s persistence in a case other than an
erroneous conviction of the righteousness of his cause, attorney's fees shall not be recovered as cost." 33

62
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent
any meeting of minds between them regarding the object and consideration of the alleged contract. It
affirms that the ABS-CBN's claim of a right of first refusal was correctly rejected by the trial court. RBS insist
the premium it had paid for the counterbond constituted a pecuniary loss upon which it may recover. It was
obliged to put up the counterbound due to the injunction procured by ABS-CBN. Since the trial court found
that ABS-CBN had no cause of action or valid claim against RBS and, therefore not entitled to the writ of
injunction, RBS could recover from ABS-CBN the premium paid on the counterbond. Contrary to the claim
of ABS-CBN, the cash bond would prove to be more expensive, as the loss would be equivalent to the cost
of money RBS would forego in case the P30 million came from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film
"Maging Sino Ka Man" because the print advertisements were put out to announce the showing on a
particular day and hour on Channel 7, i.e., in its entirety at one time, not a series to be shown on a periodic
basis. Hence, the print advertisement were good and relevant for the particular date showing, and since the
film could not be shown on that particular date and hour because of the injunction, the expenses for the
advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured
injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of
the Civil Code, ABS-CBN must be held liable for such damages. Citing Tolentino, 34 damages may be
awarded in cases of abuse of rights even if the act done is not illicit and there is abuse of rights were plaintiff
institutes and action purely for the purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages, private respondents
RBScited People v. Manero, 35 where it was stated that such entity may recover moral and exemplary
damages if it has a good reputation that is debased resulting in social humiliation. it then ratiocinates; thus:
There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts
in this case. When RBS was not able to fulfill its commitment to the viewing public to
show the film "Maging Sino Ka Man" on the scheduled dates and times (and on two
occasions that RBS advertised), it suffered serious embarrassment and social
humiliation. When the showing was canceled, late viewers called up RBS' offices
and subjected RBS to verbal abuse ("Announce kayo nang announce, hindi ninyo
naman ilalabas," "nanloloko yata kayo") (Exh. 3-RBS, par. 3). This alone was not
something RBS brought upon itself. it was exactly what ABS-CBN had planned to
happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two
reasons justify the amount of the award.
The first is that the humiliation suffered by RBS is national extent. RBS operations as
a broadcasting company is [sic] nationwide. Its clientele, like that of ABS-CBN,
consists of those who own and watch television. It is not an exaggeration to state,
and it is a matter of judicial notice that almost every other person in the country
watches television. The humiliation suffered by RBS is multiplied by the number of
televiewers who had anticipated the showing of the film "Maging Sino Ka Man" on
May 28 and November 3, 1992 but did not see it owing to the cancellation. Added to
this are the advertisers who had placed commercial spots for the telecast and to
whom RBS had a commitment in consideration of the placement to show the film in
the dates and times specified.
The second is that it is a competitor that caused RBS to suffer the humiliation. The
humiliation and injury are far greater in degree when caused by an entity whose
ultimate business objective is to lure customers (viewers in this case) away from the
competition. 36
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court
of Appeals do not support ABS-CBN's claim that there was a perfected contract. Such factual findings can

no longer be disturbed in this petition for review under Rule 45, as only questions of law can be raised,
not questions of fact. On the issue of damages and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between VIVA and
ABS-CBN, and (2) whether RBS is entitled to damages and attorney's fees. It may be noted that the award
of attorney's fees of P212,000 in favor of VIVA is not assigned as another error.
I.
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons
whereby one binds himself to give something or to render some service to another 37 for a consideration.
there is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) object
certain which is the subject of the contract; and (3) cause of the obligation, which is established. 38 A contract
undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and
bargaining, ending at the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to
agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms
agreed upon in the contract. 39
Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is
concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of
payment a contract is produced. The offer must be certain. To convert the offer into a contract, the
acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal,
unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that
involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently,
when something is desired which is not exactly what is proposed in the offer, such acceptance is not
sufficient to generate consent because any modification or variation from the terms of the offer annuls the
offer. 40
When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to
discuss the package of films, said package of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a
new Film Exhibition Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-proposal in the form of
a draft contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal
could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at
Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer, for it was met by a counter-offer
which substantially varied the terms of the offer.
ABS-CBN's
reliance
in Limketkai
Sons
Milling,
Inc.
v. Court
of
Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced. In these cases, it was held that
an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding
acceptance as long as "it is clear that the meaning of the acceptance is positively and unequivocally to
accept the offer, whether such request is granted or not." This ruling was, however, reversed in the
resolution of 29 March 1996, 43 which ruled that the acceptance of all offer must be unqualified and
absolute, i.e., it "must be identical in all respects with that of the offer so as to produce consent or meeting
of the minds."
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not
material but merely clarificatory of what had previously been agreed upon. It cited the statement in Stuart
v. Franklin Life Insurance Co. 44 that "a vendor's change in a phrase of the offer to purchase, which change
does not essentially change the terms of the offer, does not amount to a rejection of the offer and the tender
of a counter-offer." 45 However, when any of the elements of the contract is modified upon acceptance, such
alteration amounts to a counter-offer.

63
In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they underwent a
period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract,
VIVA through its Board of Directors, rejected such counter-offer, Even if it be conceded arguendo that Del
Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was no proof
whatsoever that Del Rosario had the specific authority to do so.
Under Corporation Code, unless otherwise provided by said Code, corporate powers, such as the power;
to enter into contracts; are exercised by the Board of Directors. However, the Board may delegate such
powers to either an executive committee or officials or contracted managers. The delegation, except for the
executive committee, must be for specific purposes, 47 Delegation to officers makes the latter agents of the
corporation; accordingly, the general rules of agency as to the bindings effects of their acts would
apply. 48 For such officers to be deemed fully clothed by the corporation to exercise a power of the Board,
the latter must specially authorize them to do so. That Del Rosario did not have the authority to accept ABSCBN's counter-offer was best evidenced by his submission of the draft contract to VIVA's Board of Directors
for the latter's approval. In any event, there was between Del Rosario and Lopez III no meeting of minds.
The following findings of the trial court are instructive:

and the seven other Viva movies and the sharing

between the cash portion and the concerned spot portion in
the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim.

46

A number of considerations militate against ABS-CBN's claim that a contract was

perfected at that lunch meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred
to the price and the number of films, which he wrote on a napkin. However, Exhibit
"C" contains numerous provisions which, were not discussed at the Tamarind Grill, if
Lopez testimony was to be believed nor could they have been physically written on a
napkin. There was even doubt as to whether it was a paper napkin or a cloth napkin.
In short what were written in Exhibit "C'' were not discussed, and therefore could not
have been agreed upon, by the parties. How then could this court compel the parties
to sign Exhibit "C" when the provisions thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of
the contract was 14 films. The complaint in fact prays for delivery of 14 films. But
Exhibit "C" mentions 53 films as its subject matter. Which is which If Exhibits "C"
reflected the true intent of the parties, then ABS-CBN's claim for 14 films in its
complaint is false or if what it alleged in the complaint is true, then Exhibit "C" did not
reflect what was agreed upon by the parties. This underscores the fact that there
was no meeting of the minds as to the subject matter of the contracts, so as to
preclude perfection thereof. For settled is the rule that there can be no contract
where there is no object which is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D")
states:
We were able to reach an agreement. VIVA gave us the
exclusive license to show these fourteen (14) films, and we
agreed to pay Viva the amount of P16,050,000.00 as well as
grant Viva commercial slots worth P19,950,000.00. We had
already earmarked this P16, 050,000.00.
which gives a total consideration of
P16,050,000.00. equals P36,000,000.00).

P36

million

(P19,950,000.00

plus

On cross-examination Mr. Lopez testified:

Q. What was written in this napkin?
A. The total price, the breakdown the known Viva movies, the
7 blockbuster movies and the other 7 Viva movies because
the price was broken down accordingly. The none [sic] Viva

FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit
"C" to Mr. Del Rosario with a handwritten note, describing said Exhibit "C" as a
"draft." (Exh. "5" - Viva; tsn pp. 23-24 June 08, 1992). The said draft has a well
defined meaning.
Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing
prepared for discussion, the terms and conditions thereof could not have been
previously agreed upon by ABS-CBN and Viva Exhibit "C'' could not therefore legally
bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms and
conditions embodied in Exhibit "C" were prepared by ABS-CBN's lawyers and there
was no discussion on said terms and conditions. . . .
As the parties had not yet discussed the proposed terms and conditions in Exhibit
"C," and there was no evidence whatsoever that Viva agreed to the terms and
conditions thereof, said document cannot be a binding contract. The fact that Viva
refused to sign Exhibit "C" reveals only two [sic] well that it did not agree on its terms
and conditions, and this court has no authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at
the Tamarind Grill was only provisional, in the sense that it was subject to approval
by the Board of Directors of Viva. He testified:
Q. Now, Mr. Witness, and after that Tamarind meeting ... the
second meeting wherein you claimed that you have the
meeting of the minds between you and Mr. Vic del Rosario,
what happened?
A. Vic Del Rosario was supposed to call us up and tell us
specifically the result of the discussion with the Board of
Directors.
Q. And you are referring to the so-called agreement which
you wrote in [sic] a piece of paper?
A. Yes, sir.
Q. So, he was going to forward that to the board of Directors
for approval?
A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992)
Q. Did Mr. Del Rosario tell you that he will submit it to his
Board for approval?
A. Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del
Rosario had no authority to bind Viva to a contract with ABS-CBN until and unless its
Board of Directors approved it. The complaint, in fact, alleges that Mr. Del Rosario "is

64
the Executive Producer of defendant Viva" which "is a corporation." (par. 2,
complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what he
did is ratified by its Board of Directors. (Vicente vs. Geraldez, 52 SCRA 210; Arnold
vs. Willetsand Paterson, 44 Phil. 634). As a mere agent, recognized as such by
plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his
inclusion as party defendant has no legal basis. (Salonga vs. Warner Barner [sic] ,
COLTA , 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions
that what was supposed to have been agreed upon at the Tamarind Grill between
Mr. Lopez and Del Rosario was not a binding agreement. It is as it should be
because corporate power to enter into a contract is lodged in the Board of Directors.
(Sec. 23, Corporation Code). Without such board approval by the Viva board,
whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid
contract binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA
763). The evidence adduced shows that the Board of Directors of Viva rejected
Exhibit "C" and insisted that the film package for 140 films be maintained (Exh. "7-1"
- Viva ). 49
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under
the 1990 Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a
continuation of said previous contract is untenable. As observed by the trial court, ABS-CBN right of first
refusal had already been exercised when Ms. Concio wrote to VIVA ticking off ten films, Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was
sent, was for an entirely different package. Ms. Concio herself admitted on crossexamination to having used or exercised the right of first refusal. She stated that the
list was not acceptable and was indeed not accepted by ABS-CBN, (TSN, June 8,
1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of the first refusal
may have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992,
pp. 71-75). Del Rosario himself knew and understand [sic] that ABS-CBN has lost its
rights of the first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992,
pp. 10-11) 50
II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2,
Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as
provided by law or by stipulation, one is entitled to compensation for actual damages only for such
pecuniary loss suffered by him as he has duly proved. 51 The indemnification shall comprehend not only the
value of the loss suffered, but also that of the profits that the obligee failed to obtain. 52 In contracts and
quasi-contracts the damages which may be awarded are dependent on whether the obligor acted with good
faith or otherwise, It case of good faith, the damages recoverable are those which are the natural and
probable consequences of the breach of the obligation and which the parties have foreseen or could have
reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith,
malice, or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to
the non-performance of the obligation. 53 In crimes and quasi-delicts, the defendant shall be liable for all
damages which are the natural and probable consequences of the act or omission complained of, whether
or not such damages has been foreseen or could have reasonably been foreseen by the defendant. 54
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary
or permanent personal injury, or for injury to the plaintiff's business standing or commercial credit. 55
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It
arose from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of
action. Thus paragraph 12 of RBS's Answer with Counterclaim and Cross-claim under the heading
COUNTERCLAIM specifically alleges:

12. ABS-CBN filed the complaint knowing fully well that it has no cause of
action RBS. As a result thereof, RBS suffered actual damages in the amount of
P6,621,195.32. 56
Needless to state the award of actual damages cannot be comprehended under the above law on actual
damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read
as follows:
Art. 19. Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith.
Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to
another, shall indemnify the latter for tile same.
Art. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.
It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which
the defendant may suffer by reason of the writ are recoverable from the injunctive bond. 57 In this case, ABSCBN had not yet filed the required bond; as a matter of fact, it asked for reduction of the bond and even
went to the Court of Appeals to challenge the order on the matter, Clearly then, it was not necessary for
RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the
counterbond.
Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient
legal basis. The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the
basis of its determination that there existed sufficient ground for the issuance thereof. Notably, the RTC did
not dissolve the injunction on the ground of lack of legal and factual basis, but because of the plea of RBS
that it be allowed to put up a counterbond.
As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be
recovered as actual or compensatory damages under any of the circumstances provided for in Article 2208
of the Civil Code. 58
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. 59 They are not to be awarded every time a party wins a
suit. The power of the court to award attorney's fees under Article 2208 demands factual, legal, and
equitable justification. 60 Even when claimant is compelled to litigate with third persons or to incur expenses
to protect his rights, still attorney's fees may not be awarded where no sufficient showing of bad faith could
be reflected in a party's persistence in a case other than erroneous conviction of the righteousness of his
cause. 61
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217
thereof defines what are included in moral damages, while Article 2219 enumerates the cases where they
may be recovered, Article 2220 provides that moral damages may be recovered in breaches of contract
where the defendant acted fraudulently or in bad faith. RBS's claim for moral damages could possibly fall
only under item (10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
Moral damages are in the category of an award designed to compensate the claimant for actual injury
suffered. and not to impose a penalty on the wrongdoer. 62 The award is not meant to enrich the complainant
at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements
that will serve to obviate then moral suffering he has undergone. It is aimed at the restoration, within the
limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering
inflicted. 63 Trial courts must then guard against the award of exorbitant damages; they should exercise

65
balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or
corruption on the part of the trial court. 64
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person
and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot,
therefore, experience physical suffering and mental anguish, which call be experienced only by one having
a nervous system.65 The statement in People v. Manero 66 and Mambulao Lumber Co. v. PNB 67 that a
corporation may recover moral damages if it "has a good reputation that is debased, resulting in social
humiliation" is an obiter dictum. On this score alone the award for damages must be set aside, since RBS is
a corporation.

NATIONAL
POWER
vs.
PHILIPP BROTHERS OCEANIC, INC., respondent.

CORPORATION, petitioner,

SANDOVAL-GUTIERREZ, J.:
Where a person merely uses a right pertaining to him, without bad faith or intent to injure, the fact that
damages are thereby suffered by another will not make him liable. 1
This principle finds useful application to the present case.

The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These
are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated
or compensatory damages. 68 They are recoverable in criminal cases as part of the civil liability when the
crime was committed with one or more aggravating circumstances; 69 in quasi-contracts, if the defendant
acted with gross negligence;70 and in contracts and quasi-contracts, if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner. 71
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict,
or quasi-delict, Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20,
and 21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty,
(2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20
speaks of the general sanction for all other provisions of law which do not especially provide for their own
sanction; while Article 21 deals with acts contra bonus mores, and has the following elements; (1) there is
an act which is legal, (2) but which is contrary to morals, good custom, public order, or public policy, and (3)
and it is done with intent to injure. 72
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a
conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. 73 Such
must be substantiated by evidence. 74
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of
the merits of its cause after it had undergone serious negotiations culminating in its formal submission of a
draft contract. Settled is the rule that the adverse result of an action does not per se make the action
wrongful and subject the actor to damages, for the law could not have meant to impose a penalty on the
right to litigate. If damages result from a person's exercise of a right, it is damnum absque injuria. 75
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CAG.R. CV No, 44125 is hereby REVERSED except as to unappealed award of attorney's fees in favor of
VIVA Productions, Inc.1wphi1.nt
No pronouncement as to costs.
SO ORDERED.
Republic
SUPREME
Manila

of

THIRD DIVISION
G.R. No. 126204

November 20, 2001

the

Philippines
COURT

Before us is a petition for review of the Decision 2 dated August 27, 1996 of the Court of Appeals affirming in
toto the Decision3 dated January 16, 1992 of the Regional Trial Court, Branch 57, Makati City.
The facts are:
On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to bid for the supply and
delivery of 120,000 metric tons of imported coal for its Batangas Coal-Fired Thermal Power Plant in Calaca,
Batangas. The Philipp Brothers Oceanic, Inc. (PHIBRO) prequalified and was allowed to participate as one
of the bidders. After the public bidding was conducted, PHIBRO's bid was accepted. NAPOCOR's
acceptance was conveyed in a letter dated July 8, 1987, which was received by PHIBRO on July 15,
1987.The "Bidding Terms and Specifications"4provide for the manner of shipment of coals, thus:
"SECTION V
SHIPMENT
The winning TENDERER who then becomes the SELLER shall arrange and provide gearless
bulk carrier for the shipment of coal to arrive at discharging port on or before thirty (30) calendar
days after receipt of the Letter of Credit by the SELLER or its nominee as per Section XIV hereof
to meet the vessel arrival schedules at Calaca, Batangas, Philippines as follows:
60,000 +/ - 10 % July 20, 1987
60,000 +/ - 10% September 4, 1987"5
On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon plague Australia, the
shipment's point of origin, which could seriously hamper PHIBRO's ability to supply the needed coal. 6 From
July 23 to July 31, 1987, PHIBRO again apprised NAPOCOR of the situation in Australia, particularly
informing the latter that the ship owners therein are not willing to load cargo unless a "strike-free" clause is
incorporated in the charter party or the contract of carriage. 7 In order to hasten the transfer of coal, PHIBRO
proposed to NAPOCOR that they equally share the burden of a "strike-free" clause. NAPOCOR refused.
On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable letter of credit. Instead of
delivering the coal on or before the thirtieth day after receipt of the Letter of Credit, as agreed upon by the
parties in the July contract, PHIBRO effected its first shipment only on November 17, 1987.
Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal to its Calaca
thermal plant. PHIBRO participated anew in this subsequent bidding. On November 24, 1987, NAPOCOR
disapproved PHIBRO's application for pre-qualification to bid for not meeting the minimum
requirements.8 Upon further inquiry, PHIBRO found that the real reason for the disapproval was its
purported failure to satisfy NAPOCOR's demand for damages due to the delay in the delivery of the first
coal shipment.

66
This prompted PHIBRO to file an action for damages with application for injunction against NAPOCOR with
the Regional Trial Court, Branch 57, Makati City.9 In its complaint, PHIBRO alleged that NAPOCOR's act of
disqualifying it in the October 1987 bidding and in all subsequent biddings was tainted with malice and bad
faith. PHIBRO prayed for actual, moral and exemplary damages and attorney's fees.

Section XVII of the Bidding Terms and Specifications, (supra), so Phibro is not liable for any
delay caused thereby.
Phibro was informed of the acceptance of its bid on July 8, 1987. Delivery of coal was to be
effected thirty (30) days from Napocor's opening of a confirmed and workable letter of credit.
Napocor was only able to do so on August 6, 1987.

In its answer, NAPOCOR averred that the strikes in Australia could not be invoked as reason for the delay in
the delivery of coal because PHIBRO itself admitted that as of July 28, 1987 those strikes had already
ceased. And, even assuming that the strikes were still ongoing, PHIBRO should have shouldered the
burden of a "strike-free" clause because their contract was "C and F Calaca, Batangas, Philippines,"
meaning, the cost and freight from the point of origin until the point of destination would be for the account
of PHIBRO. Furthermore, NAPOCOR claimed that due to PHIBRO's failure to deliver the coal on time, it
was compelled to purchase coal from ASEA at a higher price. NAPOCOR claimed for actual damages in the
amount of P12,436,185.73, representing the increase in the price of coal, and a claim of P500,000.00 as
litigation expenses.10

By that time, Australia's coal industry was in the middle of a seething controversy and unrest,
occasioned by strikes, overtime bans, mine stoppages. The origin, the scope and the effects of
this industrial unrest are lucidly described in the uncontroverted testimony of James Archibald,
an employee of Phibro and member of the Export Committee of the Australian Coal Association
during the time these events transpired.
xxx

xxx

xxx

Thereafter, trial on the merits ensued.

The records also attest that Phibro periodically informed Napocor of these developments as
early as July 1, 1987, even before the bid was approved. Yet, Napocor did not forthwith open the
letter of credit in order to avoid delay which might be caused by the strikes and their aftereffects.

On January 16, 1992, the trial court rendered a decision in favor of PHIBRO, the dispositive portion of which
reads:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff Philipp Brothers Oceanic Inc.
(PHIBRO) and against the defendant National Power Corporation (NAPOCOR) ordering the said
defendant NAPOCOR:

"Strikes" are undoubtedly included in the force majeure clause of the Bidding Terms and
Specifications (supra). The renowned civilist, Prof. Arturo Tolentino, defines force majeure as "an
event which takes place by accident and could not have been foreseen." (Civil Code of the
Philippines, Volume IV, Obligations and Contracts, 126, [1991]) He further states:

1. To reinstate Philipp Brothers Oceanic, Inc. (PHIBRO) in the defendant National Power
Corporation's list of accredited bidders and allow PHIBRO to participate in any and all future
tenders of National Power Corporation for the supply and delivery of imported steam coal;

"Fortuitous events may be produced by two general causes: (1) by Nature, such as
earthquakes, storms, floods, epidemics, fires, etc., and (2) by the act of man, such
as an armed invasion, attack by bandits, governmental prohibitions, robbery, etc."

2. To pay Philipp Brothers Oceanic, Inc. (PHIBRO);

Tolentino adds that the term generally applies, broadly speaking, to natural accidents. In order
that acts of man such as a strike, may constitute fortuitous event, it is necessary that they have
the force of an imposition which the debtor could not have resisted. He cites a parallel example
in the case of Philippine National Bank v. Court of Appeals, 94 SCRA 357 (1979), wherein the
Supreme Court said that the outbreak of war which prevents performance exempts a party from
liability.

a. The peso equivalent at the time of payment of $864,000 as actual damages,

b. The peso equivalent at the time of payment of $100,000 as moral damages;
c. The peso equivalent at the time of payment of $50,000 as exemplary damages;

Hence, by law and by stipulation of the parties, the strikes which took place in Australia from the
first week of July to the third week of September, 1987, exempted Phibro from the effects of
delay of the delivery of the shipment of coal." 12

d. The peso equivalent at the time of payment of $73,231.91 as reimbursement for

expenses, cost of litigation and attorney's fees;
3. To pay the costs of suit;
4. The counterclaims of defendant NAPOCOR are dismissed for lack of merit.
SO ORDERED."11
Unsatisfied, NAPOCOR, through the Solicitor General, elevated the case to the Court of Appeals. On
August 27, 1996, the Court of Appeals rendered a Decision affirming in toto the Decision of the Regional
Trial Court. It ratiocinated that:
"There is ample evidence to show that although PHIBRO's delivery of the shipment of coal was
delayed, the delay was in fact caused by a) Napocor's own delay in opening a workable letter of
credit; and b) the strikes which plaqued the Australian coal industry from the first week of July to
the third week of September 1987. Strikes are included in the definition of force majeure in

Twice thwarted, NAPOCOR comes to us via a petition for review ascribing to the Court of Appeals the
following errors:
I
"Respondent Court of Appeals gravely and seriously erred in concluding and so holding that PHIBRO's
delay in the delivery of imported coal was due to NAPOCOR's alleged delay in opening a letter of credit and
to force majeure, and not to PHIBRO's own deliberate acts and faults." 13
II
"Respondent Court of Appeals gravely and seriously erred in concluding and so holding that NAPOCOR
acted maliciously and unjustifiably in disqualifying PHIBRO from participating in the December 8, 1987 and
future biddings for the supply of imported coal despite the existence of valid grounds therefor such as
serious impairment of its track record." 14

67
III
"Respondent Court of Appeals gravely and seriously erred in concluding and so holding that PHIBRO was
entitled to injunctive relief, to actual or compensatory, moral and exemplary damages, attorney's fees and
litigation expenses despite the clear absence of legal and factual bases for such award." 15

First, it must be stressed that NAPOCOR was not bound under any contract to approve PHIBRO's prequalification requirements. In fact, NAPOCOR had expressly reserved its right to reject bids. The Instruction
to Bidders found in the "Post-Qualification Documents/Specifications for the Supply and Delivery of Coal for
the Batangas Coal-Fired Thermal Power Plant I at Calaca, Batangas Philippines," 25 is explicit, thus:
"IB-17 RESERVATION OF NAPOCOR TO REJECT BIDS

IV
"Respondent Court of Appeals gravely and seriously erred in absolving PHIBRO from any liability for
damages to NAPOCOR for its unjustified and deliberate refusal and/or failure to deliver the contracted
imported coal within the stipulated period." 16
V
"Respondent Court of Appeals gravely and seriously erred in dismissing NAPOCOR's counterclaims for
damages and litigation expenses." 17
It is axiomatic that only questions of law, not questions of fact, may be raised before this Court in a petition
for review under Rule 45 of the Rules of Court. 18 The findings of facts of the Court of Appeals are conclusive
and binding on this Court 19 and they carry even more weight when the said court affirms the factual findings
of the trial court.20 Stated differently, the findings of the Court of .Appeals, by itself, which are supported by
substantial evidence, are almost beyond the power of review by this Court. 21
With the foregoing settled jurisprudence, we find it pointless to delve lengthily on the factual issues raised by
petitioner. The existence of strikes in Australia having been duly established in the lower courts, we are left
only with the burden of determining whether or not NAPOCOR acted wrongfully or with bad faith in
disqualifying PHIBRO from participating in the subsequent public bidding.
Let us consider the case in its proper perspective.
The Court of Appeals is justified in sustaining the Regional Trial Court's decision exonerating PHIBRO from
any liability for damages to NAPOCOR as it was clearly established from the evidence, testimonial and
documentary, that what prevented PHIBRO from complying with its obligation under the July 1987 contract
was the industrial disputes which besieged Australia during that time. Extant in our Civil Code is the rule that
no person shall be responsible for those events which could not be foreseen, or which, though foreseen,
were inevitable.22 This means that when an obligor is unable to fulfill his obligation because of a fortuitous
event or force majeure, he cannot be held liable for damages for non-performance. 23
In addition to the above legal precept, it is worthy to note that PHIBRO and NAPOCOR explicitly agreed in
Section XVII of the "Bidding Terms and Specifications" 24 that "neither seller (PHIBRO) nor buyer
(NAPOCOR) shall be liable for any delay in or failure of the performance of its obligations, other than the
payment of money due, if any such delay or failure is due to Force Majeure." Specifically, they defined
force majeure as "any disabling cause beyond the control of and without fault or negligence of the party,
which causes may include but are not restricted to Acts of God or of the public enemy; acts of the
Government in either its sovereign or contractual capacity; governmental restrictions; strikes, fires, floods,
wars, typhoons, storms, epidemics and quarantine restrictions."
The law is clear and so is the contract between NAPOCOR and PHIBRO. Therefore, we have no reason to
rule otherwise.
However, proceeding from the premise that PHIBRO was prevented by force majeure from complying with
its obligation, does it necessarily follow that NAPOCOR acted unjustly, capriciously, and unfairly in
disapproving PHIBRO's application for pre-qualification to bid?

NAPOCOR reserves the right to reject any or all bids, to waive any minor informality in the bids
received. The right is also reserved to reject the bids of any bidder who has previously failed to
properly perform or complete on time any and all contracts for delivery of coal or any supply
undertaken by a bidder."26(Emphasis supplied)
This Court has held that where the right to reject is so reserved, the lowest bid or any bid for that matter
may be rejected on a mere technicality.27 And where the government as advertiser, availing itself of that
right, makes its choice in rejecting any or all bids, the losing bidder has no cause to complain nor right to
dispute that choice unless an unfairness or injustice is shown. Accordingly, a bidder has no ground of action
to compel the Government to award the contract in his favor, nor to compel it to accept his bid. Even the
lowest bid or any bid may be rejected. 28In Celeste v. Court of Appeals,29 we had the occasion to rule:
"Moreover, paragraph 15 of the Instructions to Bidders states that 'the Government hereby
reserves the right to reject any or all bids submitted.' In the case of A.C. Esguerra and Sons v.
Aytona, 4 SCRA 1245, 1249 (1962), we held:
'x x x [I]n the invitation to bid, there is a condition imposed upon the bidders to the
effect that the bidders shall be subject to the right of the government to reject any
and all bids subject to its discretion. Here the government has made its choice, and
unless an unfairness or injustice is shown, the losing bidders have no cause to
complain, nor right to dispute that choice.'
Since there is no evidence to prove bad faith and arbitrariness on the part of the petitioners in
evaluating the bids, we rule that the private respondents are not entitled to damages
representing lost profits." (Emphasis supplied)
Verily, a reservation of the government of its right to reject any bid, generally vests in the authorities a wide
discretion as to who is the best and most advantageous bidder. The exercise of such discretion involves
inquiry, investigation, comparison, deliberation and decision, which are quasi-judicial functions, and when
honestly exercised, may not be reviewed by the court. 30 In Bureau Veritas v. Office of the President,31 we
decreed:
"The discretion to accept or reject a bid and award contracts is vested in the Government
agencies entrusted with that function. The discretion given to the authorities on this matter is of
such wide latitude that the Courts will not interfere therewith, unless it is apparent that it is used
as a shield to a fraudulent award. (Jalandoni v. NARRA, 108 Phil. 486 [1960]) x x x. The
exercise of this discretion is a policy decision that necessitates prior inquiry, investigation,
comparison, evaluation, and deliberation. This task can best be discharged by the Government
agencies concerned, not by the Courts. The role of the Courts is to ascertain whether a branch
or instrumentality of the Government has transgresses its constitutional boundaries. But the
Courts will not interfere with executive or legislative discretion exercised within those
boundaries. Otherwise, it strays into the realm of policy decision-making. x x x." (Emphasis
supplied)
Owing to the discretionary character of the right involved in this case, the propriety of NAPOCOR's act
should therefore be judged on the basis of the general principles regulating human relations, the forefront
provision of which is Article 19 of the Civil Code which provides that "every person must, in the exercise of
his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty
and good faith." 32Accordingly, a person will be protected only when he acts in the legitimate exercise of his
right, that is, when he acts with prudence and in good faith; but not when he acts with negligence or abuse. 33

68
Did NAPOCOR abuse its right or act unjustly in disqualifying PHIBRO from the public bidding?
We rule in the negative.
In practice, courts, in the sound exercise of their discretion, will have to determine under all the facts and
circumstances when the exercise of a right is unjust, or when there has been an abuse of right. 34
We went over the record of the case with painstaking solicitude and we are convinced that NAPOCOR's act
of disapproving PHIBRO's application for pre-qualification to bid was without any intent to injure or a
purposive motive to perpetrate damage. Apparently, NAPOCOR acted on the strong conviction that
PHIBRO had a "seriously-impaired" track record. NAPOCOR cannot be faulted from believing so. At this
juncture, it is worth mentioning that at the time NAPOCOR issued its subsequent Invitation to Bid, i.e.,
October 1987, PHIBRO had not yet delivered the first shipment of coal under the July 1987 contract, which
was due on or before September 5, 1987. Naturally, NAPOCOR is justified in entertaining doubts on
PHIBRO's qualification or capability to assume an obligation under a new contract.
Moreover, PHIBRO's actuation in 1987 raised doubts as to the real situation of the coal industry in Australia.
It appears from the records that when NAPOCOR was constrained to consider an offer from another coal
supplier (ASEA) at a price of US$33.44 per metric ton, PHIBRO unexpectedly offered the immediate
delivery of 60,000 metric tons of Ulan steam coal at US$31.00 per metric ton for arrival at Calaca, Batangas
on September 20-21, 1987." 35 Of course, NAPOCOR had reason to ponder how come PHIBRO could
assure the immediate delivery of 60,000 metric tons of coal from the same source to arrive at Calaca not
later than September 20/21, 1987 but it could not deliver the coal it had undertaken under its contract?
Significantly, one characteristic of a fortuitous event, in a legal sense, and consequently in relations to
contracts, is that "the concurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner."36 Faced with the above circumstance, NAPOCOR is justified in assuming
that, may be, there was really no fortuitous event or force majeure which could render it impossible for
PHIBRO to effect the delivery of coal. Correspondingly, it is also justified in treating PHIBRO's failure to
deliver a serious impairment of its track record. That the trial court, thereafter, found PHIBRO's unexpected
offer actually a result of its desire to minimize losses on the part of NAPOCOR is inconsequential. In
determining the existence of good faith, the yardstick is the frame of mind of the actor at the time he
committed the act, disregarding actualities or facts outside his knowledge. We cannot fault NAPOCOR if it
mistook PHIBRO's unexpected offer a mere attempt on the latter's part to undercut ASEA or an indication of
PHIBRO's inconsistency. The circumstances warrant such contemplation.
That NAPOCOR believed all along that PHIBRO's failure to deliver on time was unfounded is manifest from
its letters37 reminding PHIBRO that it was bound to deliver the coal within 30 days from its (PHIBRO's)
receipt of the Letter of Credit, otherwise it would be constrained to take legal action. The same honest belief
can be deduced from NAPOCOR's Board Resolution, thus:
"On the legal aspect, Management stressed that failure of PBO to deliver under the contract
makes them liable for damages, considering that the reasons invoked were not valid. The
measure of the damages will be limited to actual and compensatory damages . However, it was
reported that Philipp Brothers advised they would like to have continuous business relation with
NPC so they are willing to sit down or even proposed that the case be submitted to the
Department of Justice as to avoid a court action or arbitration.
xxx

xxx

xxx

On the technical-economic aspect, Management claims that if PBO delivers in November 1987
and January 1988, there are some advantages. If PBO reacts to any legal action and fails to
deliver, the options are: one, to use 100% Semirara and second, to go into urgent coal order.
The first option will result in a 75 MW derating and oil will be needed as supplement. We will
stand to lose around P30 M. On the other hand, if NPC goes into an urgent coal order, there will
be an additional expense of $786,000 or P16.11 M, considering the price of the latest purchase
with ASEA. On both points, reliability is decreased."38

The very purpose of requiring a bidder to furnish the awarding authority its pre-qualification documents
is to ensure that only those "responsible" and "qualified" bidders could bid and be awarded with government
contracts. It bears stressing that the award of a contract is measured not solely by the smallest amount of
bid for its performance, but also by the "responsibility" of the bidder. Consequently, the integrity, honesty,
and trustworthiness of the bidder is to be considered. An awarding official is justified in considering a bidder
not qualified or not responsible if he has previously defrauded the public in such contracts or if, on the
evidence before him, the official bona fide believes the bidder has committed such fraud, despite the fact
that there is yet no judicial determination to that effect.39Otherwise stated, if the awarding body bona fide
believes that a bidder has seriously impaired its track record because of a particular conduct, it is justified in
disqualifying the bidder. This policy is necessary to protect the interest of the awarding body against
irresponsible bidders.
Thus, one who acted pursuant to the sincere belief that another willfully committed an act prejudicial to the
interest of the government cannot be considered to have acted in bad faith. Bad faith has always been a
question of intention. It is that corrupt motive that operates in the mind. As understood in law, it
contemplates a state of mind affirmatively operating with furtive design or with some motive of self-interest
or ill-will or for ulterior purpose. 40While confined in the realm of thought, its presence may be ascertained
through the party's actuation or through circumstantial evidence. 41 The circumstances under which
NAPOCOR disapproved PHIBRO's pre-qualification to bid do not show an intention to cause damage to the
latter. The measure it adopted was one of self-protection. Consequently, we cannot penalize NAPOCOR for
the course of action it took. NAPOCOR cannot be made liable for actual, moral and exemplary damages.
Corollarily, in awarding to PHIBRO actual damages in the amount of $864,000, the Regional Trial Court
computed what could have been the profits of PHIBRO had NAPOCOR allowed it to participate in the
subsequent public bidding. It ruled that "PHIBRO would have won the tenders for the supply of about
960,000 metric tons out of at least 1,200,000 metric tons" from the public bidding of December 1987 to
1990. We quote the trial court's ruling, thus:
". . . PHIBRO was unjustly excluded from participating in at least five (5) tenders beginning
December 1987 to 1990, for the supply and delivery of imported coal with a total volume of
about 1,200,000 metric tons valued at no less than US$32 Million. (Exhs. "AA," "AA-1-1," to "AA2"). The price of imported coal for delivery in 1988 was quoted in June 1988 by bidders at
US$41.35 to US$43.95 per metric ton (Exh. "JJ"); in September 1988 at US$41.50 to US$49.50
per metric ton (Exh. "J-1"); in November 1988 at US$39.00 to US$48.50 per metric ton (Exh. "J2") and for the 1989 deliveries, at US$44.35 to US$47.35 per metric ton (Exh. "J-3") and
US$38.00 to US$48.25 per metric ton in September 1990 (Exh. "JJ-6" and "JJ-7"). PHIBRO
would have won the tenders for the supply and delivery of about 960,000 metric tons of coal out
of at least 1,200,000 metric tons awarded during said period based on its proven track record of
80%. The Court, therefore finds that as a result of its disqualification, PHIBRO suffered
damages equivalent to its standard 3% margin in 960,000 metric tons of coal at the most
conservative price of US$30,000 per metric ton, or the total of US$864,000 which PHIBRO
would have earned had it been allowed to participate in biddings in which it was disqualified and
in subsequent tenders for supply and delivery of imported coal."
We find this to be erroneous.
Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but
must actually be proven with reasonable degree of certainty, premised upon competent proof or best
evidence obtainable of the actual amount thereof. 42 A court cannot merely rely on speculations, conjectures,
or guesswork as to the fact and amount of damages. Thus, while indemnification for damages shall
comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to
obtain,43 it is imperative that the basis of the alleged unearned profits is not too speculative and conjectural
as to show the actual damages which may be suffered on a future period.
In Pantranco North Express, Inc. v. Court of Appeals,44 this Court denied the plaintiff's claim for actual
damages which was premised on a contract he was about to negotiate on the ground that there was still the
requisite public bidding to be complied with, thus:
"As to the alleged contract he was about to negotiate with Minister Hipolito, there is no showing
that the same has been awarded to him. If Tandoc was about to negotiate a contract with

69
Minister Hipolito, there was no assurance that the former would get it or that the latter would
award the contract to him since there was the requisite public bidding. The claimed loss of profit
arising out of that alleged contract which was still to be negotiated is a mere expectancy.
Tandoc's claim that he could have earned P2 million in profits is highly speculative and no
concrete evidence was presented to prove the same. The only unearned income to which
Tandoc is entitled to from the evidence presented is that for the one-month period, during which
his business was interrupted, which is P6,125.00, considering that his annual net income was
P73,500.00."
In Lufthansa German Airlines v. Court of Appeals,45 this Court likewise disallowed the trial court's award of
actual damages for unrealized profits in the amount of US$75,000.00 for being highly speculative. It was
held that "the realization of profits by respondent . . . was not a certainty, but depended on a number of
factors, foremost of which was his ability to invite investors and to win the bid." This Court went further
saying that actual or compensatory damages cannot be presumed, but must be duly proved, and proved
with reasonable degree of certainty.
And in National Power Corporation v. Court of Appeals,46 the Court, in denying the bidder's claim for
unrealized commissions, ruled that even if NAPOCOR does not deny its (bidder's) claims for unrealized
commissions, and that these claims have been transmuted into judicial admissions, these admissions
cannot prevail over the rules and regulations governing the bidding for NAPOCOR contracts, which
necessarily and inherently include the reservation by the NAPOCOR of its right to reject any or all bids.
The award of moral damages is likewise improper. To reiterate, NAPOCOR did not act in bad faith.
Moreover, moral damages are not, as a general rule, granted to a corporation. 47 While it is true that
besmirched reputation is included in moral damages, it cannot cause mental anguish to a corporation,
unlike in the case of a natural person, for a corporation has no reputation in the sense that an individual has,
and besides, it is inherently impossible for a corporation to suffer mental anguish. 48 In LBC Express, Inc. v.
Court of Appeals,49 we ruled:
"Moral damages are granted in recompense for physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury. A corporation, being an artificial person and having existence only in legal
contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical
suffering and mental anguish. Mental suffering can be experienced only by one having a
nervous system and it flows from real ills, sorrows, and griefs of life all of which cannot be
suffered by respondent bank as an artificial person."

At this point, we believe that, in the interest of fairness, NAPOCOR should give PHIBRO another
opportunity to participate in future public bidding. As earlier mentioned, the delay on its part was due to a
fortuitous event.
But before we dispose of this case, we take this occasion to remind PHIBRO of the indispensability of coal
to a coal-fired thermal plant. With households and businesses being entirely dependent on the electricity
supplied by NAPOCOR, the delivery of coal cannot be venturesome. Indeed, public interest demands that
one who offers to deliver coal at an appointed time must give a reasonable assurance that it can carry
through. With the deleterious possible consequences that may result from failure to deliver the needed coal,
we believe there is greater strain of commitment in this kind of obligation.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 126204 dated August 27, 1996 is
hereby MODIFIED. The award, in favor of PHIBRO, of actual, moral and exemplary damages,
reimbursement for expenses, cost of litigation and attorney's fees, and costs of suit, is DELETED.
SO ORDERED.
Vitug, Panganiban and Carpio, JJ., concur.

Dissenting Opinions
MELO, J., dissenting:
While I agree with the majority opinion insofar as it finds that the delay in delivery of coal by respondent
Philipp Brothers Oceanic, Inc. (hereafter PHIBRO) to petitioner National Power Corporation (hereafter
NAPOCOR) was not due to the former's fault, I have to dissent from the majority insofar as it denies the
award of actual, moral, and exemplary damages to PHIBRO for the latter's act of excluding PHIBRO from
participating in biddings conducted by NAPOCOR.
The facts are undisputed.

Neither can we award exemplary damages under Article 2234 of the Civil Code. Before the court may
consider the question of whether or not exemplary damages should be awarded, the plaintiff must show that
he is entitled to moral, temperate, or compensatory damages.
NAPOCOR, in this petition, likewise contests the judgment of the lower courts awarding PHIBRO the
amount of $73,231.91 as reimbursement for expenses, cost of litigation and attorney's fees.
We agree with NAPOCOR.
This Court has laid down the rule that in the absence of stipulation, a winning party may be awarded
attorney's fees only in case plaintiff's action or defendant's stand is so untenable as to amount to gross and
evident bad faith.50This cannot be said of the case at bar. NAPOCOR is justified in resisting PHIBRO's claim
for damages. As a matter of fact, we partially grant the prayer of NAPOCOR as we find that it did not act in
bad faith in disapproving PHIBRO's pre-qualification to bid.
Trial courts must be reminded that attorney's fees may not be awarded to a party simply because the
judgment is favorable to him, for it may amount to imposing a premium on the right to redress grievances in
court. We adopt the same policy with respect to the expenses of litigation. A winning party may be entitled to
expenses of litigation only where he, by reason of plaintiff's clearly unjustifiable claims or defendant's
unreasonable refusal to his demands, was compelled to incur said expenditures. Evidently, the facts of this
case do not warrant the granting of such litigation expenses to PHIBRO.

On July 8, 1987, private respondent PHIBRO, one of the largest trading firms in energy worldwide, was
awarded by NAPOCOR the contract to supply 120,000 MT of steam coal for the Batangas Coal Fired
Thermal Power Plant, the same to be delivered in two (2) equal shipments on July 20 and September 14,
1987.
However, while the contract provided for the arrival schedule of the two coal shipments, it also provided that
PHIBRO had to effect delivery not later than 30 days from receipt of the letter of credit to be opened by
NAPOCOR. Petitioner NAPOCOR was able to open its letter of credit only on August 6, 1987. Moreover, the
contract had a clause which excused any delay occasioned by force majeure. This clause included strikes
as one of the events to be considered as constituting force majeure.
From July to September 1987, a series of strikes in the collieries in New South Wales (NSW), Australia, and
the coal loading facility at Newcastle Port took place, which adversely affected PHIBRO's ability to deliver
the first shipment on time.
Pursuant to the contract, PHIBRO notified NAPOCOR of these force majeure conditions and that as a result
of the strikes, vessels were not readily available and shipowners were unwilling to load cargo unless a
strike-free risk was incorporated in the charter party.

70
PHIBRO proposed an equal sharing in the strike-free risk, but NAPOCOR refused. Instead, it demanded
delivery of the first shipment not later than 30 days from the opening of its letter of credit.
In the meantime, NAPOCOR negotiated to buy from a company called ASEA 60,000MT imported steam
coal at US$33.00/MT. This higher priced coal was purchased by NAPOCOR despite PHIBRO's offer for the
same tonnage and delivery date at only US$31.00/MT, a price differential of US$2.00/MT. The PHIBRO offer
was with the understanding that the existing 120,000MT contract would be delivered in accordance with a
shipping schedule to be mutually agreed between PHIBRO and NAPOCOR, taking into account the strikes
and NAPOCOR's needs. NAPOCOR ignored the offer and bought the higher priced material from ASEA.
In October 1987, NAPOCOR conducted a tender for the supply of 180,000 MT imported coal. PHIBRO, as
in prior tenders, complied with all prequalification requirements of the tender. However, NAPOCOR
disqualified PHIBRO allegedly for "not meeting the minimum prequalification requirements." PHIBRO was
also refused the tender documents. In addition, NAPOCOR, in total disregard of the force majeure clause
incorporated in the July 8, 1987 contract, demanded that unless its claims for damages due to the delayed
delivery of the coal in said contract were first settled, PHIBRO would not be allowed to participate in any and
all subsequent tenders to be conducted by NAPOCOR for the supply of imported coal. On November 25,
1987, PHIBRO protested the wrongful and unjust action taken by NAPOCOR inasmuch as PHIBRO had all
the qualifications and none of the disqualifications. PHIBRO demanded that it be provided with tender and
post qualification documents but NAPOCOR withheld the release of tender documents to PHIBRO. After,
inquiry, PHIBRO was told that the real reason for the disqualification was not its "failure to meet the
minimum prequalification requirements," but was principally the claim of NAPOCOR for alleged damages
due to the delayed delivery of the first shipment of the July 8, 1987 contract. PHIBRO, on the other hand,
maintained that its delayed deliveries were due to force majeure and NAPOCOR's delayed opening of its
letter of credit. Despite this, however, NAPOCOR continued to bar PHIBRO from participating in tenders.
Consequently, PHIBRO initiated suit before the Makati Regional Trial Court on December 4, 1987 against
NAPOCOR, docketed therein as Civil Case No. 18473, complaining against the latter's alleged capricious,
malevolent, iniquitous, discriminatory, oppressive and unjustified disqualification of PHIBRO, and asking for
damages and that NAPOCOR be enjoined from blacklisting PHIBRO in the subsequent NAPOCOR tenders.
After trial on the merits, the Makati Regional Trial Court, Branch 57, rendered its Decision on January 16,
1992 in favor of PHIBRO and against NAPOCOR, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Philipp Brothers Oceanic,
Inc. (PHIBRO) and against the defendant National Power Corporation (NAPOCOR) ordering the
said defendant NAPOCOR:
1. To reinstate Philipp Brothers Oceanic, Inc. (PHIBRO) in the defendant National Power
Corporation's list of accredited bidders and allow PHIBRO to participate in any and all future
tenders of National Power Corporation for the supply and delivery of imported steam coal;
2. To pay Philipp Brothers Oceanic, Inc. (PHIBRO):
a) The peso equivalent at the time of payment of $864,000 actual damages;
b) The peso equivalent at the time of payment of $100,000 as moral damages;
c) The peso equivalent at the time of payment of $50,000 as exemplary damages;
d) The peso equivalent at the time of payment of $73,231.91 as reimbursement for
expenses, cost of litigation and attorney's fees;

4. The counterclaim of defendant NAPOCOR are dismissed for lack of merit.

On January 27, 1992, the Office of the Solicitor General appealed the lower court's decision to the Court of
Appeals. The appeal, docketed therein as CA-G.R. CV No. 37906, was decided on August 27, 1996 with the
appellate court handing down an affirmance of the decision.
Petitioner NAPOCOR now comes to this Court by way of a petition for review by certiorari under Rule 45 of
the Rules of Court seeking to review, reverse, and set aside the aforementioned decision.
Petitioner alleges that the Court of Appeals committed serious errors of law, overlooked certain substantial
facts which if properly considered would affect the results of the case, drew incorrect conclusions from facts
established by evidence or based on misapprehension of facts, its factual findings being incomplete and do
not reflect the actual events that, transpired and the important points were left out and decided the case in a
way not in accord with law or the applicable decisions of this Court, which collectively amount to grave
abuse of discretion, to the damage and prejudice of petitioner's right to due process. Specifically, petitioner
maintains that the Court of Appeals gravely and seriously erred:
(1) in concluding and so holding that PHIBRO's delay in the delivery of imported coal was due to
NAPOCOR's alleged delay in opening letter of credit to force majeure, and not to PHIBRO's own
deliberate acts and faults;
(2) in concluding and so holding that NAPOCOR acted maliciously and unjustifiably in
disqualifying PHIBRO from participating in the December 8, 1987 and future biddings for the
supply of imported coal despite the existence of valid grounds therefore such as serious
impairment of its track record;
(3) in concluding and so holding that PHIBRO was entitled to injunctive relief, to actual or
compensatory, moral and exemplary damages, attorney's fees and litigation expenses despite
the clear absence of legal and factual bases for such award;
(4) in absolving PHIBRO from any liability for damages to NAPOCOR for its unjustified and
deliberate refusal and/or failure to deliver the contracted imported coal within the stipulated
period; and
(5) in dismissing NAPOCOR's counterclaims for damages and litigation expenses.
As correctly pointed out in the majority opinion, the rules are explicit that a petition under Rule 45 of the
Rules of Court can raise only questions of law (Section 1, Rule 45, 1997 Rules of Civil Procedure).
PHIBRO's delay in the delivery of imported coal was found by both the trial court and the Court of Appeals
to have been due to the industrial unrest, occasioned by strikes and work stoppages, that occurred in
Australia from the first week of July to the third week of September, 1987. As aptly observed by the Court of
Appeals:
There is ample evidence to show that although PHIBRO's delivery of the shipment of coal was
delayed, the delay was in fact caused by a) NAPOCOR's own delay in opening a workable letter
of credit; and b) the strikes which plagued the Australian coal industry from the first week of July
to the week of September, 1987. Strikes are included in the definition of force majeure in Section
XVII of the Bidding Terms and Specifications, (supra), so PHIBRO is not liable for any delay
caused thereby.
PHIBRO was informed of the acceptance of its bid on July 8, 1987. Delivery of coal was to be
effected thirty (30) days from NAPOCOR's opening of a confirmed and workable letter of credit.
NAPOCOR was only able to do so on August 6, 1987.

3. To pay the costs of suit;

By that time, Australia's coal industry was in the middle of a seething controversy and unrest, occasioned by
strikes, overtime bans, and mine stoppages.

71
The general rule is that findings of fact of the Court of Appeals are binding and conclusive upon this Court
(DBP vs. CA, 302 SCRA 362 [1999]). These factual findings carry even more weight when said court affirms
the factual findings of the trial court (Lagrosa vs. CA, 312 SCRA 298 [1999]). Thus, it is beyond question
that PHIBRO's delay in the delivery of coal is not attributable to its fault or negligence, these being the
factual findings of both the trial court and the appellate court.
However, despite this finding, the majority would find NAPOCOR free from liability to PHIBRO for its act of
excluding the PHIBRO from NAPOCOR's subsequent biddings on the ground that the exclusion is merely
the legitimate exercise of a right vested in NAPOCOR. In fine, The majority opinion would characterize
PHIBRO's exclusion asdamnum absque injuria. I beg to disagree.
The majority opinion anchors its thesis on the Instruction to Bidders found in the "Post-Qualification
Documents/Specifications for the Supply and Delivery of Coal for the Batangas Coal-Fired Thermal Power
Plant I at Calaca, Batangas, Philippines" providing that:
NAPOCOR reserves the right to reject any and all bids, to waive any minor informality in the
bids received. The right is also reserved to reject the bids of any bidder who has previously
failed to properly perform or complete on time any and all contracts for delivery of coal or any
supply undertaken by a bidder.

(Original Records, p. 250.)

My esteemed colleagues declare that since NAPOCOR has reserved the right to reject the bid of any
bidder, the exclusion of PHIBRO was, in effect, only the use by NAPOCOR of a right pertaining to it, without
bad faith or intent to injure and that the fact that PHIBRO may have suffered injuries thereby would not
make NAPOCOR liable. The majority opinion goes on to state that where the government rejects any or all
bids, the losing bidder has no cause to complain and that accordingly, "a bidder has no ground of action to
compel the Government to award the contract in his favor, nor to compel it to accept his bid."
I would wish to point out the following circumstances which I believe were ignored by the majority.
Firstly, the instant case does not involve the rejection of PHIBRO's bid by NAPOCOR. The fact is that
PHIBRO was not even allowed to bid by NAPOCOR. While it may be true that any bid may be rejected on a
mere technicality if the right to reject is reserved, there is a whale of a difference between rejecting a bid
and excluding a prospective bidder from participating in tenders, more so in this case where the prospective
bidder has complied with all the prequalification requirements. Indubitably, the reservation of the right to
reject any and all bids does not include the right to exclude a prospective bidder, perforce a qualified one at
that.
Secondly, the reservation of the right to reject bids contained in the Instruction to Bidders is of doubtful
applicability in this case since PHIBRO was not even allowed to submit a bid by NAPOCOR. The right to
reject a bid implies that there was a bid submitted. In this case, PHIBRO was barred from submitting bids for
subsequent tenders of NAPOCOR.
Thirdly, this is not a simple case of rejecting a bid but one of barring participation in any and all subsequent
bids for the supply of coal. This barring of PHIBRO caused the latter to incur damages, all because of what
both the trial court and the Court of Appeals viewed to be an unfounded imputation of delay to PHIBRO in
the July 8, 1987 contract for delivery of coal.
As adverted to earlier, this delay was covered by the force majeure clause of the contract which validly
excused the non-compliance with the specified delivery date. The situation was further exacerbated to
private respondent's disadvantage when NAPOCOR, instead of accepting PHIBRO's offer to shoulder half

the burden of a strike free clause, used the non-delivery on time of the coal as an excuse to exclude
private respondent from future bidding processes at NAPOCOR. Thus, the Court of Appeals correctly found
that:
Under the factual milieu, the. court a quo correctly made an award of damages to PHIBRO for
Napocor's malicious and unjustified act of disqualifying it from any and all subsequent bids for
the supply of coal. It was sufficiently established that Phibro was entitled to an amount of
US$864,000.00 representing unrealized profits or lucro cessante. Article 2200 of the Civil Code
provides:
"Article 2200. Indemnification for damages shall comprehend not only the value for
the loss suffered, but also that of the profits when the obligee failed to obtain."
Undoubtedly, PHIBRO could have earned the questioned amount if NAPOCOR did not unjustly
discriminate against it during the October, 1987 bidding and all other bidding subsequent
thereto. . . .
Moreover, private respondent's business reputation and credibility in the market greatly suffered because of
this malicious act of petitioner. As attested to by Vicente del Castillo:
Q.
In addition to loss of earnings and opportunity loss which you quantified earlier to be in
the range of 770,000.00, what other damage, if any, did Philip Brothers incur?
A.
Well, when we were blacklisted by the National Power Corporation, it became known to
the international market, and with such an unfair reputation, we had difficulty in obtaining
business, new clients since our old clients know what kind of company we are and they
continued to do business with us, and our business with Ulan Coal Mines for market other than
the Philippines became difficult and we could no longer do business that we used to before this
problem came about.

(TSN, January 31, 1989, pp. 50-51.)

Furthermore, James Archibald, an employee of PHIBRO and a member of the Export Committee of the
Australia Coal Association, stated in his deposition, thus:
NBP Can you please state what affect the banning of NPC of PHIBRO tendering a supply of
coal has had on PHIBRO?
JMA Well, it ended the special relationship between Phibro and Ulan for a start out now I am in
the cost trading business and I can tell you that when you loss a significant portion of your
throughout like that the industry is extremely incestuous and everybody known very quickly that
you have not been so successful as your past years which makes it that much more difficult to
gain support from supplier in bidding for other spot contracts.
NBP Can you explain what you mean by incestuous?
JMA It is a very tight industry. Most people have worked in it in a number of companies such as
myself, with deals with some markets such as Japan, we have actually joint negotiations and we
actually go in to customers, on a collective needs. It is inevitable that we get to know each other
very well. Also at the port of Newcastle, ten per cent of the coal shipped is actually traded
amongst the various shippers because often one shipper maybe short say ten thousand tonnes

72
for a particular cargo and they would buy in or swap coal with other shippers. A very common
port practice. So you know everybody quite well. And also I am a representative of the Coal
Association so I may have had a lot more exposure to the people in the industry.

We shall recognize that the petitioner did suffer injury because of the private respondent's
negligence that caused the dishonor of the checks issued by it. The immediate consequence
was that its prestige was impaired because of the bouncing checks and confidence in it as a
reliable debtor was diminished. The private respondent makes much of the one instance when
the petitioner was sued in a collection case, but that did not prove that it did not have a good
reputation that could not be marred, more so since that case was ultimately settled. It does not
appear that, as the private respondent would portray it, the petitioner is an unsavory and
disreputable entity that has no good name to protect.

(Exh. (CC-30, 30-31.)

Considering all this, we feel that the award of nominal damages in the sum of Php20,000.00 was
not the proper relief to which the petitioner was entitled. Under Article 2221 of the Civil Code,
"nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him." As we have found that the petitioner has
indeed incurred loss through the fault of the private respondent, the proper remedy is the award
to it of moral damages, which we impose, in our discretion, in the same amount of
Php20,000.00.

Despite the favorable findings of the lower court and the Court of Appeals attributing no fault to PHIBRO, the
harm done to PHIBRO's good standing in the market by the blacklisting of NAPOCOR, at least as far as
Philippine setting is concerned, has already beer done. Thus, I believe that the court a quo, as sustained by
the Court of Appeals, correctly made the following findings:
PHIBRO is therefore entitled to damages for the discriminatory, oppressive and unjustified
disqualification imposed upon it by NAPOCOR. PHIBRO was unjustly excluded from
participating in at least five (5) tenders beginning December 1987 to 1990, for the supply and
delivery of imported coal with a total volume of about 1,200,00 metric tons valued at no less than
US$32 Million (Exhs. "AA", "AA-1", to "AA-2"). The price of imported coal for delivery in 1988
was quoted in June 1988 by bidders at US$41.35 to US$43.95 per metric ton (Exh. "JJ"); in
September 1988 at US$41.50 to US$49.50 per metric ton (Exh. J-1); in November 1988 at
US$39.00 to US$48.50 per metric ton (Exh. "J-2"); and for the 1989 deliveries, at US$44.35 to
US$47.35 per metric ton (Exh. "J-3") and US$38.00 to US$48.25 per metric ton in September
1990 (Exhs. "JJ-6" and "JJ-7"). PHIBRO would have won the tenders for the supply and delivery
of about 960,000 metric tons of coal out of at least 1,200,000 metric tons awarded during said
period based on its proven track record of 80%. The Court, therefore, finds that as a result of its
disqualification, PHIBRO suffered damages equivalent to its standard 3% margin in 960,000
metric tons of coal at the most conservative price of US$30.00 per metric ton, or the total of
US$864,000 which PHIBRO would have earned had it been allowed to participate in biddings in
which it was disqualified and in subsequent tenders for supply and delivery of imported coal.
There is likewise uncontested or unrefuted evidence that as a result of PHIBRO's disqualification
by NAPOCOR, PHIBRO suffered damages in its international reputation and lost credibility in
Government and business circle, and hence an award is authorized by Art. 2205 of our Civil
Code.
For the damage done to the business reputation of PHIBRO, I respectfully submit that the Court of Appeals
was likewise correct in sustaining the award of US$100,000.00 as moral damages to private respondent
a corporate body under Article 2217 of the Civil Code.
The Court, in a number of cases (i.e. Asset Privatization Trust vs. CA, 300 SCRA 579 [1998]; Maersk
Tabacalera Shipping Agency (Filipina), Inc. vs. CA, 197 SCRA 646 [1991]), has sustained the award of
moral damages to a corporation despite the general rule that moral damages cannot be awarded to an
artificial person which has no feelings, emotions or senses, and which cannot experience physical suffering
and mental anguish (LBC Express Inc. vs. CA, 236 SCRA 602 [1994]; see also Solid Homes, Inc. vs. CA,
275 SCRA 267 [1997]) because a corporation may have a good reputation which, if besmirched, may also
be a ground for the award of moral damages (Mambulao Lumber Co. vs. PNB, 22 SCRA 359 [1968]). Thus,
in the case of Simex International (Manila), Inc. vs. CA (183 SCRA 360 [1990]), the Court held:
From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of
Php1,000,000.00 is nothing short of preposterous. Its business certainly is not that big, or its
name that prestigious, to sustain such an extravagant pretense. Moreover, a corporation is not
as a rule entitled to moral damages because, not being a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish and
moral shock. The only exception to this rule is where the corporation has a good reputation that
is debased, resulting in its social humiliation.

It must be noted that trial courts are generally given discretion to determine the amount of moral damages,
the same being incapable of pecuniary estimation. The Court of Appeals can only modify or change the
amount awarded when they are palpably or scandalously excessive so as to indicate that it was the result of
passion, prejudice or corruption on the part of the trial court. In the case at bar, the conclusive finding of the
Court of Appeals of petitioner's malice and bad faith justify the award of both moral and exemplary
damages. As held in De Guzman vs. NLRC, (211 SCRA 723 [1992]):
When moral damages are awarded, exemplary damages may also be decreed. Exemplary
damages are imposed by way of example or correction for the public good, in addition to moral,
temperate, liquidated or compensatory damages. According to the Code Commission,
"exemplary damages are required by public policy, for wanton acts must be suppressed. They
are an antidote so that the poison of wickedness may not run through the body politic." These
damages are legally assessible against him.
In addition, NAPOCOR's baseless and unwarranted discrimination against PHIBRO constrained the latter to
seek the aid of the courts in order to obtain redress. This calls for an award of attorney's fees, which the
lower court correctly made.
Consequently, I vote to dismiss the petition and to affirm the decision of the Court of Appeals.
Republic
SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION
G.R. No. 141994

January 17, 2005

FILIPINAS
BROADCASTING
NETWORK,
INC., petitioner,
vs.
AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMECBCCM) and ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:
The Case

73
This petition for review1 assails the 4 January 1999 Decision 2 and 26 January 2000 Resolution of the Court
of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December
1992 Decision3 of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of
Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo
Rima liable for libel and ordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian
College of Medicine moral damages, attorneys fees and costs of suit.
The Antecedents
"Expos" is a radio documentary4 program hosted by Carmelo Mel Rima ("Rima") and Hermogenes Jun
Alegre ("Alegre").5 Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting
Network, Inc. ("FBNI"). "Expos" is heard over Legazpi City, the Albay municipalities and other Bicol areas. 6

administration of AMEC have the total definite moral foundation from catholic administrator of Aquinas
University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not merely of moral
and physical misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs of AMEC
is Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the AMEC
administration exploiting the very [e]nterprising or compromising and undemanding Lola? Could it be that
AMEC is just patiently making use of Dean Justita Lola were if she is very old. As in atmospheric situation
zero visibility the plane cannot land, meaning she is very old, low pay follows. By the way, Dean Justita
Lola is also the chairman of the committee on scholarship in AMEC. She had retired from Bicol University a
long time ago but AMEC has patiently made use of her.
xxx
MEL RIMA:

In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from
students, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of
Medicine ("AMEC") and its administrators. Claiming that the broadcasts were defamatory, AMEC and
Angelita Ago ("Ago"), as Dean of AMECs College of Medicine, filed a complaint for damages 7 against FBNI,
Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts:

xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people.
What does this mean? Immoral and physically misfits as teachers.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to
teach. You are too old. As an aviation, your case is zero visibility. Dont insist.

JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM,
advise them to pass all subjects because if they fail in any subject they will repeat their year level,
taking up all subjects including those they have passed already. Several students had approached me
stating that they had consulted with the DECS which told them that there is no such regulation. If [there] is
no such regulation why is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not
recognized by DECS. xxx
Third: Students are required to take and pay for the subject even if the subject does not have an
instructor - such greed for money on the part of AMECs administration . Take the subject Anatomy:
students would pay for the subject upon enrolment because it is offered by the school. However there would
be no instructor for such subject. Students would be informed that course would be moved to a later date
because the school is still searching for the appropriate instructor.

xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that.
The reason is practical cost saving in salaries, because an old person is not fastidious, so long as she has
money to buy the ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in as
Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely that the students would be
influenced by evil. When they become members of society outside of campus will be liabilities rather
than assets. What do you expect from a doctor who while studying at AMEC is so much burdened with
unreasonable imposition? What do you expect from a student who aside from peculiar problems because
not all students are rich in their struggle to improve their social status are even more burdened with false
regulations. xxx9 (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs,
FBNI, Rima and Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and
Ago) reputation." AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence
in the selection and supervision of its employees, particularly Rima and Alegre.

xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving
for the past few years since its inception because of funds support from foreign foundations. If you will take
a look at the AMEC premises youll find out that the names of the buildings there are foreign soundings.
There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable
evidence that the support of foreign foundations for AMEC is substantial, isnt it? With the report which is the
basis of the expose in DZRC today, it would be very easy for detractors and enemies of the Ago family to
stop the flow of support of foreign foundations who assist the medical school on the basis of the latters
purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose with its reason
for being it is possible for these foreign foundations to lift or suspend their donations temporarily. 8
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMECInstitute of Mass Communication in their effort to minimize expenses in terms of salary are
absorbing or continues to accept "rejects". For example how many teachers in AMEC are former
teachers of Aquinas University but were removed because of immorality? Does it mean that the present

On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer 10 alleging that the
broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled
by a sense of public duty to report the "goings-on in AMEC, [which is] an institution imbued with public
interest."
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea,
collaborating counsel of Atty. Lozares, filed a Motion to Dismiss 11 on FBNIs behalf. The trial court denied the
motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in
the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the
broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and
training program after passing the interview. FBNI likewise claimed that it always reminds its broadcasters to
"observe truth, fairness and objectivity in their broadcasts and to refrain from using libelous and indecent
language." Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa
Pilipinas ("KBP") accreditation test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision 12 finding FBNI and Alegre liable for libel except
Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters
claim that their utterances were the result of straight reporting because it had no factual basis. The

74
broadcasters did not even verify their reports before airing them to show good faith. In holding FBNI liable
for libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of its
employees.
In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed
with Alegres expos. The trial court found Rimas statement within the "bounds of freedom of speech,
expression, and of the press." The dispositive portion of the decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages
caused by the controversial utterances, which are not found by this court to be really very serious
and damaging, and there being no showing that indeed the enrollment of plaintiff school
dropped, defendants Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio
station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and Educational CenterBicol Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages,
plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit.

The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of
its employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP
accreditation. The Court of Appeals denied Agos claim for damages and attorneys fees because the
libelous remarks were directed against AMEC, and not against her. The Court of Appeals adjudged FBNI,
Rima and Alegre solidarily liable to pay AMEC moral damages, attorneys fees and costs of suit.1awphi1.nt
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

SO ORDERED. 13 (Emphasis supplied)

Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the
decision to the Court of Appeals. The Court of Appeals affirmed the trial courts judgment with modification.
The appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos
claim for damages and attorneys fees because the broadcasts were directed against AMEC, and not
against her. The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that
broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.

14

FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26
January 2000 Resolution.

IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF
MORAL DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT.
The Courts Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against
AMEC.17 While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint
reveals that AMECs cause of action is based on Articles 30 and 33 of the Civil Code. Article 30 18 authorizes
a separate civil action to recover civil liability arising from a criminal offense. On the other hand, Article
3319 particularly provides that the injured party may bring a separate civil action for damages in cases of
defamation, fraud, and physical injuries. AMEC also invokes Article 19 20 of the Civil Code to justify its claim
for damages. AMEC cites Articles 2176 21 and 218022 of the Civil Code to hold FBNI solidarily liable with
Rima and Alegre.

Hence, FBNI filed this petition. 15

I.
The Ruling of the Court of Appeals
Whether the broadcasts are libelous
The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and
that FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found
Rima and Alegres claim that they were actuated by their moral and social duty to inform the public of the
students gripes as insufficient to justify the utterance of the defamatory remarks.

A libel23 is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or
omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a
natural or juridical person, or to blacken the memory of one who is dead. 24

Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that
the broadcasts were made "with reckless disregard as to whether they were true or false." The appellate
court pointed out that FBNI, Rima and Alegre failed to present in court any of the students who allegedly
complained against AMEC. Rima and Alegre merely gave a single name when asked to identify the
students. According to the Court of Appeals, these circumstances cast doubt on the veracity of the
broadcasters claim that they were "impelled by their moral and social duty to inform the public about the
students gripes."

There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances
tending to cause it dishonor, discredit and contempt. Rima and Alegres remarks such as "greed for money
on the part of AMECs administrators"; "AMEC is a dumping ground, garbage of xxx moral and physical
misfits"; and AMEC students who graduate "will be liabilities rather than assets" of the society are
libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a money-making institution where
physically and morally unfit teachers abound.

The Court of Appeals found Rima also liable for libel since he remarked that "(1) AMEC-BCCM is a dumping
ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to
minimize expenses on its employees salaries; and (3) AMEC burdened the students with unreasonable
imposition and false regulations."16

However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were
plainly impelled by their civic duty to air the students gripes. FBNI alleges that there is no evidence that ill
will or spite motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and
Alegre exerted efforts to obtain AMECs side and gave Ago the opportunity to defend AMEC and its
administrators. FBNI concludes that since there is no malice, there is no libel.
FBNIs contentions are untenable.

75
Every defamatory imputation is presumed malicious. 25 Rima and Alegre failed to show adequately their good
intention and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or
public affairs program, Rima and Alegre should have presented the public issues "free from inaccurate and
misleading information." 26 Hearing the students alleged complaints a month before the expos, 27 they had
sufficient time to verify their sources and information. However, Rima and Alegre hardly made a thorough
investigation of the students alleged gripes. Neither did they inquire about nor confirm the purported
irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified that he merely
went to AMEC to verify his report from an alleged AMEC official who refused to disclose any information.
Alegre simply relied on the words of the students "because they were many and not because there is proof
that what they are saying is true." 28 This plainly shows Rima and Alegres reckless disregard of whether their
report was true or not.
Contrary to FBNIs claim, the broadcasts were not "the result of straight reporting." Significantly, some
courts in the United States apply the privilege of "neutral reportage" in libel cases involving matters of public
interest or public figures. Under this privilege, a republisher who accurately and disinterestedly reports
certain defamatory statements made against public figures is shielded from liability, regardless of the
republishers subjective awareness of the truth or falsity of the accusation. 29 Rima and Alegre cannot invoke
the privilege of neutral reportage because unfounded comments abound in the broadcasts. Moreover, there
is no existing controversy involving AMEC when the broadcasts were made. The privilege of neutral
reportage applies where the defamed person is a public figure who is involved in an existing controversy,
and a party to that controversy makes the defamatory statement. 30
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of
Appeals,31 FBNI contends that the broadcasts "fall within the coverage of qualifiedly privileged
communications" for being commentaries on matters of public interest. Such being the case, AMEC should
prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the "doctrine of fair comment,"
thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action
for libel or slander. The doctrine of fair comment means that while in general every discreditable imputation
publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved,
and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed
against a public person in his public capacity, it is not necessarily actionable. In order that such
discreditable imputation to a public official may be actionable, it must either be a false allegation of
fact or a comment based on a false supposition. If the comment is an expression of opinion, based
on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might
reasonably be inferred from the facts.32 (Emphasis supplied)
True, AMEC is a private learning institution whose business of educating students is "genuinely imbued with
public interest." The welfare of the youth in general and AMECs students in particular is a matter which the
public has the right to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt
with matters of public interest. However, unlike in Borjal, the questioned broadcasts are not based
on established facts. The record supports the following findings of the trial court:

Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy
courses. Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2
years before the controversial broadcast, accreditation to offer Physical Therapy course had already been
given the plaintiff, which certificate is signed by no less than the Secretary of Education and Culture herself,
Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily known this were they careful
enough to verify. And yet, defendants were very categorical and sounded too positive when they made the
erroneous report that plaintiff had no permit to offer Physical Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation
prove not to be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of
plaintiff school was given the name Mcdonald building, that was only in order to honor the first missionary in
Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not
a single centavo appears to be received by plaintiff school from the aforementioned McDonald Foundation
which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical
students fail in one subject, they are made to repeat all the other subject[s], even those they have already
passed, nor their claim that the school charges laboratory fees even if there are no laboratories in the
school. No evidence was presented to prove the bases for these claims, at least in order to give semblance
of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s]
singled out Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court
last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people prove to be effective teachers
like Supreme Court Justices who are still very much in demand as law professors in their late years.
Counsel for defendants is past 75 but is found by this court to be still very sharp and
effective.l^vvphi1.net So is plaintiffs counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert
and docile.
The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere
conclusion. Being from the place himself, this court is aware that majority of the medical graduates of
plaintiffs pass the board examination easily and become prosperous and responsible professionals. 33
Had the comments been an expression of opinion based on established facts, it is immaterial that the
opinion happens to be mistaken, as long as it might reasonably be inferred from the facts. 34 However, the
comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged
and remain libelous per se.
The broadcasts also violate the Radio Code 35 of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. ("Radio
Code"). Item I(B) of the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES

xxx Although defendants claim that they were motivated by consistent reports of students and parents
against plaintiff, yet, defendants have not presented in court, nor even gave name of a single student who
made the complaint to them, much less present written complaint or petition to that effect. To accept this
defense of defendants is too dangerous because it could easily give license to the media to malign people
and establishments based on flimsy excuses that there were reports to them although they could not
satisfactorily establish it. Such laxity would encourage careless and irresponsible broadcasting which is
inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their
duties, did not verify and analyze the truth of the reports before they aired it, in order to prove that they are
in good faith.

1. x x x
4. Public affairs program shall present public issues free from personal bias, prejudice
and inaccurate and misleading information. x x x Furthermore, the station shall strive to
present balanced discussion of issues. x x x.
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues
and commentary programs so that they conform to the provisions and standards of this code.

76
8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect
public interest, general welfare and good order in the presentation of public affairs and public
issues.36 (Emphasis supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of
ethical conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code
of conduct imposed by the radio broadcast industry on its own members. The Radio Code is a public
warranty by the radio broadcast industry that radio broadcast practitioners are subject to a code by which
their conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of
conduct of their profession, just like other professionals. A professional code of conduct provides the
standards for determining whether a person has acted justly, honestly and with good faith in the exercise of
his rights and performance of his duties as required by Article 19 37 of the Civil Code. A professional code of
conduct also provides the standards for determining whether a person who willfully causes loss or injury to
another has acted in a manner contrary to morals or good customs under Article 21 38 of the Civil Code.

The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for
attorneys fees. AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both the
trial and appellate courts failed to explicitly state in their respective decisions the rationale for the award of
attorneys fees.49 In Inter-Asia Investment Industries, Inc. v. Court of Appeals ,50 we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the
rule, and counsels fees are not to be awarded every time a party wins a suit. The power of the court to
award attorneys fees under Article 2208 of the Civil Code demands factual, legal and equitable
justification, without which the award is a conclusion without a premise, its basis being improperly
left to speculation and conjecture. In all events, the court must explicitly state in the text of the decision,
and not only in the decretal portion thereof, the legal reason for the award of attorneys fees. 51 (Emphasis
supplied)
While it mentioned about the award of attorneys fees by stating that it "lies within the discretion of the court
and depends upon the circumstances of each case," the Court of Appeals failed to point out any
circumstance to justify the award.

II.

IV.

Whether AMEC is entitled to moral damages

Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorneys fees and costs of suit

FBNI contends that AMEC is not entitled to moral damages because it is a corporation. 39

FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys
fees because it exercised due diligence in the selection and supervision of its employees, particularly Rima
and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a "very regimented
process" before they are allowed to go on air. "Those who apply for broadcaster are subjected to interviews,
examinations and an apprenticeship program."

A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock.40 The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to justify the award of
moral damages. However, the Courts statement in Mambulao that "a corporation may have a good
reputation which, if besmirched, may also be a ground for the award of moral damages" is an obiter
dictum.42
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 43 of the Civil Code. This
provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of
defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a
juridical person such as a corporation can validly complain for libel or any other form of defamation and
claim for moral damages.44

FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster.
FBNI points out that the "minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way
prove that FBNI did not exercise the diligence of a good father of a family in selecting and supervising
them." Rimas accreditation lapsed due to his non-payment of the KBP annual fees while Alegres
accreditation card was delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that
membership in the KBP is merely voluntary and not required by any law or government regulation.
FBNIs arguments do not persuade us.

Moreover, where the broadcast is libelous per se, the law implies damages. 45 In such a case, evidence of an
honest mistake or the want of character or reputation of the party libeled goes only in mitigation of
damages.46 Neither in such a case is the plaintiff required to introduce evidence of actual damages as a
condition precedent to the recovery of some damages. 47 In this case, the broadcasts are libelous per se.
Thus, AMEC is entitled to moral damages.

The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which
they commit.52 Joint tort feasors are all the persons who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done
for their benefit.53Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and
2180 of the Civil Code.1a\^/phi1.net

However, we find the award of P300,000 moral damages unreasonable. The record shows that even though
the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its
reputation. Therefore, we reduce the award of moral damages from P300,000 to P150,000.

As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages
arising from the libelous broadcasts. As stated by the Court of Appeals, "recovery for defamatory statements
published by radio or television may be had from the owner of the station, a licensee, the operator of the
station, or a person who procures, or participates in, the making of the defamatory statements." 54 An
employer and employee are solidarily liable for a defamatory statement by the employee within the course
and scope of his or her employment, at least when the employer authorizes or ratifies the defamation. 55 In
this case, Rima and Alegre were clearly performing their official duties as hosts of FBNIs radio program
Expos when they aired the broadcasts. FBNI neither alleged nor proved that Rima and Alegre went beyond
the scope of their work at that time. There was likewise no showing that FBNI did not authorize and ratify the
defamatory broadcasts.

III.
Whether the award of attorneys fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of
attorneys fees. FBNI adds that the instant case does not fall under the enumeration in Article 2208 48 of the
Civil Code.

Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection andsupervision of its employees, particularly Rima and Alegre. FBNI merely showed that it
exercised diligence in theselection of its broadcasters without introducing any evidence to prove that it
observed the same diligence in thesupervision of Rima and Alegre. FBNI did not show how it exercised
diligence in supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to "observe

77
truth, fairness and objectivity and to refrain from using libelous and indecent language" is not enough to
prove due diligence in the supervision of its broadcasters. Adequate training of the broadcasters on the
industrys code of conduct, sufficient information on libel laws, and continuous evaluation of the
broadcasters performance are but a few of the many ways of showing diligence in the supervision of
broadcasters.
FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre as broadcasters,
bearing in mind their qualifications." However, no clear and convincing evidence shows that Rima and
Alegre underwent FBNIs "regimented process" of application. Furthermore, FBNI admits that Rima and
Alegre had deficiencies in their KBP accreditation, 56 which is one of FBNIs requirements before it hires a
broadcaster. Significantly, membership in the KBP, while voluntary, indicates the broadcasters strong
commitment to observe the broadcast industrys rules and regulations. Clearly, these circumstances show
FBNIs lack of diligence in selecting andsupervising Rima and Alegre. Hence, FBNI is solidarily liable to pay
damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution
of 26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the
award of moral damages is reduced from P300,000 to P150,000 and the award of attorneys fees is deleted.
Costs against petitioner.
SO ORDERED.

We begin with the facts.

Twin Peaks Development Corporation (Twin Peaks) was organized on 5 March 1984 as a corporation with a
principal purpose of engaging in the real estate business. There were five incorporating stockholders,
including respondent Victor Tuvera (Victor) 1 who owned 48% of the shares of the fledgling corporation.
Victor was the son of respondent Juan Tuvera, who was then Presidential Executive Assistant of President
Marcos.
Acting on a letter dated 31 May 1984 of Twin Peaks Vice-President and Treasurer Evelyn Fontanilla in
behalf of the corporation, President Marcos granted the award of a Timber License Agreement (TLA), more
specifically TLA No. 356, in favor of Twin Peaks to operate on 26,000 hectares of forest land with an annual
allowable cut of 60,000 cubic meters of timber and to export 10,000 cubic meters of mahogany of the narra
species.2 As a result, Twin Peaks was able to engage in logging operations.
On 25 February 1986, President Marcos was ousted, and Corazon C. Aquino assumed the presidency.
Among her first acts as President was to establish the Philippine Commission on Good Government
(PCGG), tasked with tracking down the ill-gotten wealth procured by Marcos, his family, and associates
during his 20-year rule. Among the powers granted to the PCGG was the power to issue writs of
sequestration.3 On 13 June 1988, the PCGG issued a Writ of Sequestration on all assets, properties,
records, documents, and shares of stock of Twin Peaks on the ground that all the assets of the corporation
are ill-gotten wealth for having been acquired directly or indirectly through fraudulent and illegal
means.4 This was followed

Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.
Republic
SUPREME
Manila

of

the

Philippines
COURT

On 9 December 1988, the PCGG, in behalf of the Republic, filed the Complaint now subject of this
Petition.6Impleaded as defendants in the Complaint 7 were Juan and Victor Tuvera, as well as the then-exiled
President Marcos. Through the Complaint, the Republic sought to recover funds allegedly acquired by said
parties in flagrant breach of trust and fiduciary obligations with grave abuse of right and power in violation of
the Constitution and the laws of the Republic of the Philippines. 8

SECOND DIVISION
G.R. No. 148246

two days later by Mission Order No. MER-88 (Mission Order), also issued by the PCGG, implementing the
aforementioned Writ of Sequestration.5

February 16, 2007

REPUBLIC
OF
vs.
JUAN
C.
TUVERA,
VICTOR
CORPORATION, Respondents.

THE
P.

TUVERA

PHILIPPINES, Petitioner,
and

TWIN

PEAKS

DEVELOPMENT

DECISION
TINGA, J.:
The long-term campaign for the recovery of ill-gotten wealth of former President Ferdinand E. Marcos, his
wife Imelda, and their associates, has been met with many impediments, some of which are featured in this
case, that have led to doubts whether there is still promise in that enterprise. Yet even as the prosecution of
those cases have drudged on and on, the era of their final reckoning is just beginning before this Court. The
heavy hammer of the law is just starting to fall.
The instant action originated from a civil complaint for restitution and damages filed by the Republic of the
Philippines against Marcos and his longtime aide Juan Tuvera, as well as Tuvera's son Victor and a
corporation the younger Tuvera had controlled. Trial on the case against the Tuveras proceeded separately
before the Sandiganbayan. After the Republic had presented its evidence, the Tuveras successfully moved
for the dismissal of the case on demurrer to evidence. The demurrer was sustained, and it falls upon this
Court to ascertain the absence or existence of sufficient proof to support the relief sought by the Republic
against
the
Tuveras.
I.

In particular, the Complaint alleged that Juan Tuvera, as Presidential Executive Assistant of President
Marcos, took advantage of his relationship to influence upon and connection with the President by engaging
in a scheme to unjustly enrich himself at the expense of the Republic and of the Filipino people. This was
allegedly accomplished on his part by securing TLA No. 356 on behalf of Twin Peaks despite existing laws
expressly prohibiting the exportation of mahogany of the narra species 9 and Twin Peaks lack of qualification
to be a grantee thereof for lack of sufficient logging equipment to engage in the logging business. 10 The
Complaint further alleged that Twin Peaks exploited the countrys natural resources by engaging in largescale logging and the export of its produce through its Chinese operators whereby respondents obtained a
revenue of approximately P45 million.
The Complaint prayed that (1) TLA No. 356 be reverted to the State or cancelled; (2) respondents be jointly
and severally ordered to pay P48 million11 as actual damages; and (3) respondents pay moral, temperate
and exemplary damages, litigation expenses, and treble judicial costs. 12 It cited as grounds for relief, gross
abuse of official position and authority, breach of public trust and fiduciary obligations, brazen abuse of right
and power, unjust enrichment, and violation of the Constitution. 13
In their Answer,14 respondents Victor Tuvera and Twin Peaks claimed that Twin Peaks was awarded TLA No.
356 only after its articles of incorporation had been amended enabling it to engage in logging
operations,15 that the Republics reference to Chinese operations and revenue of approximately P45 million
were merely
imagined,16 and that the PCGG has no statutory authority to institute the action. 17 By way of counterclaim,
respondents asked that the Republic be ordered to pay Victor Tuvera moral damages and to pay both Victor
Tuvera and Twin Peaks exemplary damages, and to reimburse their attorneys fees. 18

78
Anent the allegation that Twin Peaks sold about P3 million worth of lumber despite the Writ of Sequestration
issued by the PCGG, respondents stressed that the Director of Forest Development acted within the scope
of his authority and the courts have no supervising power over the actions of the Director of Forest
Development and the Secretary of the Department of Environment and Natural Resources (DENR) in the
performance of their official duties.19
As an affirmative and special defense, respondents Victor Tuvera and Twin Peaks alleged that after Twin
Peaks was granted TLA No. 356 in 24 August 1984, Felipe Ysmael, Jr. and Co., Inc. had filed a motion for
the cancellation of the same with the DENR
Secretary. When respondents submitted their Answer, the denial by the DENR of the Ysmael motion was
under review before the Court.20
Juan Tuvera, who was abroad when the case was filed on 9 December 1988, later submitted his own
Answer on 6 December 1989.21 He also denied the allegations of the Republic and alleged that as
Presidential Executive Assistant of then President Marcos, he acted within the confines of his duties and
had perpetrated no unlawful acts. He merely transmitted communications of approval in the course of his
duties and had nothing to do with the decisions of then President Marcos. 22 He denied having anything to do
with Twin Peaks.
Juan Tuvera filed a compulsory counterclaim on the ground that the instant action had besmirched his
reputation and caused serious anxiety and mental anguish thus entitling him to moral and exemplary
damages and litigation expenses. 23
On 3 May 1989, respondents filed an Omnibus Motion to Nullify Writ of Sequestration and/or the Mission
Order.24The Sandiganbayan issued a Temporary Restraining Order against the PCGG requiring it to cease,
refrain and desist from further implementing the Writ of Sequestration and the Mission
Order.25 Subsequently, on motion of respondents, the Sandiganbayan granted a Writ of Preliminary
Injunction covering the Mission Order. The Sandiganbayan deferred its resolution on the Motion to Lift the
Writ of Sequestration.26
From 1988 to 1993, the proceedings before the Sandiganbayan were delayed owing to the difficulty of
acquiring jurisdiction over the person of President Marcos, who was by then already in exile. Thus, upon
motion by respondents, the Sandiganbayan granted them a separate pre-trial/trial from President Marcos. 27
Respondents submitted their documentary evidence in the Pre-Trial Conference while the Republic
reserved to present the same during trial. After the pre-trial conference, the Sandiganbayan issued a PreTrial Order28 dated 3 November 1993, which presented the issues for litigation as follows:
Whether or not defendant Juan C. Tuvera who was a Presidential Executive Assistant at the time material to
this case, by himself and in concert with his co-defendants Ferdinand E. Marcos and Victor Tuvera, took
advantage of his relation and connection with the late Marcos, secure (sic) a timber concession for Twin
Peaks Development Corporation and, engage (sic) in a scheme to unjustly enrich himself at the expense of
the Republic and the Filipino People.29
The Pre-Trial Order also indicated that the Republic admitted the exhibits by respondents, subject to the
presentation of certified true copies thereof. Respondents exhibits were as follows: 30

Exhibit Nos.

Description

Amended Articles of Incorporation dated 31 July 1984

TLA No. 356

Order, Minister Ernesto M. Maceda, 22 July 1986

79
3-A

Order, Minister Ernesto M. Maceda, 10 October 1986

3-B

Order, Minister Ernesto M. Maceda, 26 November 1986, O.P. Case No. 3521

3-C

Resolution, Office of the President, 6 July 1987, O.P. Case No. 3521

3-D

Order, Office of the President, 14 August 1987, I.S. No. 66

3-E

Complaint, PCGG, dated 20 July 1988

3-E-1,
3-E-3

3-E-2,

licensing as a consequence of which bidding procedures were stopped. 41 Upon cross-examination,

Arcangel said that at the time TLA No. 356 was issued, the Revised Forestry Code of the Philippines 42 was
already in effect but there were still provisions in FAO No. 11 that remained applicable such as the terms
and conditions of granting a license. He also stated that the issuance of the license to Twin Peaks
emanated from the President of the Philippines.43
The Republics third and last witness was Teresita M. Zuiga, employee of the Bureau of Internal Revenue.
She identified the 1986 Income Tax Returns of Victor P. Tuvera, Evelyn Fontanilla and Feliciano O. Salvana,
stockholders of Twin Peaks.44

On 24Isidro
JuneSantiago
1994, the Republic rested its case after its formal offer of evidence, as follows:
I.S. No. 66 Affidavit, PCGG, Almario F. Mendoza, Ltv. Ramon F. Mendoza and Affidavit,

45

3-F

Counter-Affidavit, Juan C. Tuvera, 17 August 1989

Exhibits

Documents

Purpose

3-F-1

PCGG, Motion to Withdraw, Jose Restituto F. Mendoza, 10 May 1989

Timber License Agreement No. 356 of Twin Peaks Realty

Development Corp. dated 20 August 1984

To prove that the Timber Licens

Incorporation of Twin Peaks Realty

3-F-2

Decision, Supreme Court, 18 October 1990

3-G

Resolution, Supreme Court, 5 June 1991

Memorandum dated 18 July 1984 of Juan C. Tuvera,

Presidential Executive Secretary

To prove the participation of Juan

Development Corp.

Complaint, DENR, Almario F, Mendoza, 9 March 1990

Forestry Administrative Order No. 11 (Revised)

To prove that Twin Peaks Realty D

the procedure outlined in the forestr

4-A

Answer/Comment, DENR, Almario F. Mendoza, dated 20 April 1990

Income Tax Return of Victor Tuvera

To prove that Victor Tuvera was not

4-B

Decision, DENR, dated 28 August 1990

Income Tax Return of Evelyn Fontanilla

To prove that Evelyn Fontanilla was

Complaint, Ombudsman, etc., Case No. 0-90-0708, 9 March 1990

Income Tax Return of Feliciano Salvana

To prove that Feliciano Salvana wa

6, 6-A

Answer/Counter-Affidavit, etc.

6-B

Decision, Ombudsman Case No. 0-90-0708, dated 8 August 1990

Articles of Incorporation of Twin Peaks Realty Development

Corp. (original)

To prove that Twin Peaks Realty D

not in the logging industry.

Timber Manifestation Report of [Twin Peaks

Development Corp.] consigned to Scala Sawmill 46

Realty

To show that Twin Peaks Realty De

Timber Manifestation Report of Twin Peaks consigned to La

Pea Sawmill47

To show that Twin Peaks Realty De

The Republic presented three (3) witnesses during the trial. The first witness was Joveniana M. Galicia,
Chief of the National Forest Management Division of the Forest Management Bureau. She identified TLA
No. 356 of Twin Peaks dated 20 August 1984 and a Memorandum dated 18 July 1984. She testified that
TLA No. 356 covers 26,000 hectares of forest land located in the Municipality of Isabela, Province of
Quirino.31 The Memorandum dated 18 July 1984 addressed to Director Edmundo Cortez recited then
President Marcos grant of the timber concession to Twin Peaks. Identified and marked in the same
memorandum were the name and signature of Juan Tuvera. 32 Upon cross-examination, Galicia stated that
she was not yet the chief of the Division when the documents she identified were submitted to the Bureau.
She further stated it was her first time to see the aforementioned documents when she was asked to bring
the same before the trial court.33
The next witness was Fortunato S. Arcangel, Regional Technical Director III of the DENR. He testified that
he is a Technical Director under the Forest Management Services of the DENR. 34 He identified Forestry
Administration Order (FAO) No. 11 dated 1 September 1970. He said he was aware of TLA No. 356 of Twin
Peaks35 because at the time it was issued, he was the chief of the Forestry Second Division and his duties
included the evaluation and processing of applications for licenses and permits for the disposition and
distribution of timber and other forest products.36 Consequently,
he was aware of the process by which TLA No. 356 was issued to Twin Peaks. 37 According to him, they
processed the application insofar as they evaluated the location of the area concerned and its present
vegetative state, examined the records, and determined the annual allowable land. After the examination,
the license agreement was prepared and submitted for approval. 38 He continued that under FAO No. 11, a
public bidding is required before any license agreement or permit for the utilization of timber within the
forestry land is issued39 but no public bidding was conducted for TLA No. 356. 40 He explained that no such
bidding was conducted because of a Presidential Instruction not to accept any application for timber

Respondents subsequently submitted certified true copies of the exhibits they had presented during the pretrial conference.48
With leave of court, respondents filed a Demurrer to Evidence. Respondents argued that the Republic failed
to present sufficient legal affirmative evidence to prove its claim. In particular, respondents demurrer
contends that the memorandum (Exh. B) and TLA No. 356 are not "legal evidence" because "legal
evidence" is not meant to raise a mere suspicion or doubt. Respondents also claim that income tax returns
are not sufficient to show ones holding in a corporation. Respondents also cited the factual antecedents
culminating with the Courts decision in Felipe Ysmael, Jr. & Corp., Inc. v. Sec. of Environment and Natural
Resources.49
The Republic filed a Manifestation, contending that the demurrer is not based on the insufficiency of its
evidence but on the strength of the evidence of respondents as shown by their own exhibits. The Republic
claimed that the Revised Forestry Code of the Philippines does not dispense with the requirement of public
bidding. The Republic added that Sec. 5 of said law clearly provides that all applications for a timber license
agreement must be filed before the Bureau of Forest Development and that respondents still have to prove
compliance with the requirements for service contracts. 50

80
Respondents opposed the Manifestation, maintaining that since the Republic admitted the exhibits of
respondents during the pre-trial, it is bound by its own admission. Further, these same exhibits contain
uncontroverted facts and laws that only magnify the conclusion that the Republic has no right to relief. 51

insufficiency of evidence and is presented only after the plaintiff has rested his case. 56 [Emphasis
supplied]
III.

In its Resolution dated 23 May 2001, 52 the Sandiganbayan sustained the demurrer to evidence and referred
to the decision of this Court in Ysmael in holding that res judicata applies. The Anti-Graft Court also did not
give credence to the Republics allegations concerning respondents abuse of power and/or public trust and
consequent liability for damages in view of its failure to establish any violation of Arts. 19, 20 and 21 of the
Civil Code.

We shall first discuss the question of whether or not a demurrer to evidence may be granted based on the
evidence presented by the opposing parties.

In essence, the Sandiganbayan held that the validity of TLA No. 356 was already fully adjudicated in a
Resolution/Order issued by the Office of the President on 14 August 1987, which had become final and
executory with the failure of the aggrieved party to seek a review thereof. The Sandiganbayan continued
that the above pronouncement is supported by this Court in Ysmael. Consequently, the Sandiganbayan
concluded, the Republic is barred from questioning the validity of TLA No. 356 in consonance with the
principle of res judicata.
The Republic now questions the correctness of the Sandiganbayans decision to grant the demurrer to
evidence because it was not based solely on the insufficiency of its evidence but also on the evidence of
respondent mentioned during the pre-trial conference. The Republic also challenges the applicability of res
judicata.
II.
Preliminarily, we observe that respondents had filed before the Sandiganbayan a pleading captioned Motion
to Dismiss or Demurrer to Evidence, thus evincing that they were seeking the alternative reliefs of either a
motion to dismiss or a demurrer to evidence. However, the Sandiganbayan, in resolving this motion,
referred to it as Motion to Dismiss on Demurrer to Evidence, a pleading of markedly different character from
a Motion to Dismiss or Demurrer to Evidence. Still, a close reading of the Sandiganbayan Resolution
reveals clearly that the Sandiganbayan was treating the motion as a demurrer, following Rule 33, Section 1
of the Rules of Court, rather than a motion to dismiss under Rule 16, Section 1.
This notwithstanding, the Sandiganbayan justified the grant of demurrer with res judicata as rationale. Res
judicata is an inappropriate ground for sustaining a demurrer to evidence, even as it stands as a proper
ground for a motion to dismiss. A demurrer may be granted if, after the presentation of plaintiffs evidence, it
appears upon the facts and the law that the plaintiff has shown no right to relief. In contrast, the grounds for
res judicata present themselves even before the presentation of evidence, and it should be at that stage that
the defense of res judicata should be invoked as a ground for dismissal. Properly speaking, the movants for
demurral who wish to rely on a controlling value of a settled case as a ground for demurrer should invoke
the ground of stare decisis in lieu of res judicata.
In Domondon v. Lopez,53 we distinguished a motion to dismiss for failure of the complainant to state a cause
of action from a motion to dismiss based on lack of cause of action. The first is governed by Rule 16,
Section 1(g),54while the second by Rule 3355 of the Rules of Court, to wit:
x x x The first [situation where the complaint does not alleged cause of action] is raised in a motion to
dismiss under Rule 16 before a responsive pleading is filed and can be determined only from the allegations
in the initiatory pleading and not from evidentiary or other matter aliunde. The second [situation where the
evidence does not sustain the cause of
action alleged] is raised in a demurrer to evidence under Rule 33 after the plaintiff has rested his case and
can be resolved only on the basis of the evidence he has presented in support of his claim. The first does
not concern itself with the truth and falsity of the allegations while the second arises precisely because the
judge has determined the truth and falsity of the allegations and has found the evidence wanting.
Hence, a motion to dismiss based on lack of cause of action is filed by the defendant after the plaintiff has
presented his evidence on the ground that the latter has shown no right to the relief sought. While a motion
to dismiss under Rule 16 is based on preliminary objections which can be ventilated before the beginning of
the trial, a motion to dismiss under Rule 33 is in the nature of a demurrer to evidence on the ground of

An examination of the Sandiganbayans Resolution shows that dismissal of the case on demurrer to
evidence was principally anchored on the Republics failure to show its right to relief because of the
existence of a prior judgment which consequently barred the relitigation of the same issue. In other words,
the Sandiganbayan did
not dismiss the case on the insufficiency of the Republics evidence nor on the strength of respondents
evidence. Rather, it based its dismissal on the existence of the Ysmael case which, according to it, would
render the case barred by res judicata.
Prescinding from this procedural miscue, was the Sandiganbayan correct in applying res judicata to the
case at bar? To determine whether or not res judicata indeed applies in the instant case, a review of Ysmael
is proper.
In brief, Felipe Ysmael, Jr. & Co., Inc. was a grantee of a timber license agreement, TLA No. 87. Sometime
in August 1983, the Bureau of Forest Development cancelled TLA No. 87 despite the companys letter for
the reconsideration of the revocation. Barely one year thereafter, one-half (or 26,000 hectares) of the area
formerly covered by TLA No. 87 was re-awarded to Twin Peaks under TLA No. 356.
In 1986, Felipe Ysmael, Jr. & Co., Inc. sent separate letters to the Office of the President and the Ministry of
Natural Resources primarily seeking the reinstatement of TLA No. 87 and the revocation of TLA No. 356.
Both offices denied the relief prayed for. Consequently, Felipe Ysmael, Jr. & Co., Inc. filed a petition for
review before this Court.
The Court, through the late Justice Irene Cortes, held that Ysmaels letters to the Office of the President and
to the Ministry of Natural Resources in 1986 sought the reconsideration of a memorandum order by the
Bureau of Forest Development canceling their timber license agreement in 1983 and the revocation of TLA
No. 356 subsequently issued by the Bureau in 1984. Ysmael did not attack the administrative actions until
after 1986. Since the decision of the Bureau has become final, it has the force and effect of a final judgment
within the purview of the doctrine of res judicata. These decisions and orders, therefore, are conclusive
upon the rights of the affected parties as though the same had been rendered by a court of general
jurisdiction. The Court also denied the petition of Ysmael because it failed to file the special civil action for
certiorari under Rule 65 within a reasonable time, as well as in due regard for public policy considerations
and the principle of non-interference by the courts in matters which are addressed to the sound discretion of
government agencies entrusted with the regulation of activities coming under the special technical
knowledge and training of such agencies.
In Sarabia and Leido v. Secretary of Agriculture and Natural Resources, et al., 57 the Court discussed the
underlying principle for res judicata, to wit:
The fundamental principle upon which the doctrine of res judicata rests is that parties ought not to be
permitted to litigate the same issue more than once; that, when a right or fact has been judicially tried and
determined by a court of competent jurisdiction, or an opportunity for such trial has been given, the
judgment of the court, so long as it remains unreversed, should be conclusive upon the parties and those in
privity with them in law or estate.
For res judicata to serve as an absolute bar to a subsequent action, the following requisites must concur: (1)
the former judgment or order must be final; (2) the judgment or order must be on the merits; (3) it must have
been rendered by a court having jurisdiction over the subject matter and parties; and (4) there must be
between the first and second actions, identity of parties, of subject matter, and of causes of action. 58 When
there is only identity of issues with no identity of causes of action, there exists res judicata in the concept of
conclusiveness of judgment.59

81
In Ysmael, the case was between Felipe Ysmael Jr. & Co., Inc. and the Deputy Executive Secretary, the
Secretary of Environment and Natural Resources, the Director of the Bureau of Forest Development and
Twin Peaks Development and Realty Corporation. The present case, on the other hand, was initiated by the
Republic of
the Philippines represented by the Office of the Solicitor General. No amount of imagination could let us
believe that there was an identity of parties between this case and the one formerly filed by Felipe Ysmael
Jr. & Co., Inc.
The Sandiganbayan held that despite the difference of parties, res judicata nevertheless applies on the
basis of the supposed sufficiency of the "substantial identity" between the Republic of the Philippines and
Felipe Ysmael, Jr. Co., Inc. We disagree. The Court in a number of cases considered the substantial identity
of parties in the application of res judicata in instances where there is privity between the two parties, as
between their successors in interest by title 60 or where an additional party was simply included in the
subsequent case61 or where one of the parties to a previous case was not impleaded in the succeeding
case.62
The Court finds no basis to declare the Republic as having substantial interest as that of Felipe Ysmael, Jr.
& Co., Inc. In the first place, the Republics cause of action lies in the alleged abuse of
power on respondents part in violation of R.A. No. 3019 63 and breach of public trust, which in turn warrants
its claim for restitution and damages. Ysmael, on the other hand, sought the revocation of TLA No. 356 and
the reinstatement of its own timber license agreement. Indeed, there is no identity of parties and no identity
of
causes
of
action
between
the
two
cases.
IV.
What now is the course of action to take since we cannot affirm the Sandiganbayans grant of the demurrer
to evidence? Rule 33, Sec. 1 reads:
Sec. 1. Effect of judgment on demurrer to evidence. After the plaintiff has completed the presentation of
his evidence, the defendant may move for dismissal on the ground that upon the facts and the law the
plaintiff has shown no right to relief. If his motion is denied, he shall have the right to present evidence. If the
motion is granted but on appeal the order of dismissal is reversed he shall have be deemed to have waived
the right to present evidence.
The general rule is that upon the dismissal of the demurrer in the appellate court, the defendant loses the
right to present his evidence and the appellate court shall then proceed to render judgment on the
merits on the basis of plaintiffs evidence. As the Court explained in Generoso Villanueva Transit Co., Inc. v.
Javellana:64

The rationale behind the rule and doctrine is simple and logical. The defendant is permitted, without
waiving his right to offer evidence in the event that his motion is not granted, to move for a dismissal (i.e.,
demur to the plaintiffs evidence) on the ground that upon the facts as thus established and the applicable
law, the plaintiff has shown no right to relief. If the trial court denies the dismissal motion, i.e., finds that
plaintiffs evidence is sufficient for an award of judgment in the absence of contrary evidence, the case still
remains before the trial court which should then proceed to hear and receive the defendants evidence so
that all the facts and evidence of the contending parties may be properly placed before it for adjudication as
well as before the appellate courts, in case of appeal. Nothing is lost. The doctrine is but in line with the
established procedural precepts in the conduct of trials that the trial court liberally receive all proffered
evidence at the trial to enable it to render its decision with all possibly relevant proofs in the record, thus
assuring that the appellate courts upon appeal have all the material before them necessary to make a
correct judgment, and avoiding the need of remanding the case for retrial or reception of improperly
excluded evidence, with the possibility thereafter of still another appeal, with all the concomitant delays. The
rule, however, imposes the condition by the same token that if his demurrer is granted by the trial court, and
the order of dismissal is reversed on appeal, the movant loses his right to present evidence in his behalf and
he shall have been deemed to have elected to stand on the insufficiency of plaintiffs case and evidence. In
such event, the appellate court which reverses the order of dismissal shall proceed to render judgment on
the merits on the basis of plaintiffs evidence.65
It thus becomes the Court's duty to rule on the merits of the complaint, duly taking into account the evidence
presented by the Republic, and without need to consider whatever evidence the Tuveras have, they having
waived
their
right
to
present
evidence
in
their
behalf.
V.
Executive Order No. 14-A66 establishes that the degree of proof required in cases such as this instant case
is preponderance of evidence. Section 3 thereof reads:
SEC. 3. The civil suits to recover unlawfully acquired property under Republic Act No. 1379 or for restitution,
reparation of damages, or indemnification for consequential and other damages or any other civil actions
under the Civil Code or other existing laws filed with the Sandiganbayan against Ferdinand E. Marcos,
Imelda R. Marcos, members of their immediate family, close relatives, subordinates, close and/or business
associates, dummies, agents and nominees, may proceed independently of any criminal proceedings and
may be proved by a preponderance of evidence. [Emphasis supplied.]
Thus, the Court recently held in Yuchengco v. Sandiganbayan,67 that in establishing the quantum of
evidence required for civil cases involving the Marcos wealth held by their immediate family, close relatives,
subordinates, close and/or business associates, dummies,
agents and nominees filed before the Sandiganbayan, that "the Sandiganbayan, x x x was not to look for
proof beyond reasonable doubt, but to determine, based on the evidence presented, in light of common
human experience, which of the theories proffered by the parties is more worthy of credence."
In order that restitution may be proper in this case, it must be first established that the grant of the TLA to
Twin Peaks was illegal. With the illegality of the grant established as fact, finding Victor Tuvera, the major
stockholder of Twin Peaks, liable in this case should be the ineluctable course. In order that Juan Tuvera
may be held answerable as well, his own participation in the illegal grant should also be substantiated.
Regarding the first line of inquiry, the Complaint adverted to several provisions of law which ostensibly were
violated by the grant of the TLA in favor of Twin Peaks. These include R.A. No. 3019, otherwise known as
the Anti-Graft and Corrupt Practices Act, and Articles 19, 20 and 21 of the Civil Code.
Still, the most organic laws that determine the validity or invalidity of the TLA are those that governed the
issuance of timber license agreements in 1984. In that regard, the Republic argues that the absence of a
bidding process is patent proof of the irregularity of the issuance of the TLA in favor of Twin Peaks.
A timber license agreement authorizes a person to utilize forest resources within any forest land with the
right of possession and exclusion of others. 68 The Forestry Reform Code prohibits any person from utilizing,
exploiting, occupying, possessing or conducting any activity within any forest land unless he had been

82
authorized to do so under a license agreement, lease, license or permit. 69 The Code also mandates that no
timber license agreement shall be issued unless the applicant satisfactorily proves that he has the financial
resources and technical capability not only to minimize utilization, but also to practice forest protection,
conservation and development measures to insure the perpetuation of said forest in productive
condition.70 However, the Code is silent as to the procedure in the acquisition of such timber license
agreement. Such procedure is more particularly defined under FAO No. 11, dated 1 September 1970, which
provides for the "revised forestry license regulations."
FAO No. 11 establishes that it is the Director of Forestry who has the power "to grant timber licenses and
permits."71 It also provides as a general policy that timber license agreements shall be
granted through no other mode than public bidding. 72 However, Section 24 of FAO No. 11 does admit that a
timber license agreement may be granted through "negotiation," as well as through "public bidding."
26. When license may be issued.A license under this Regulations may be issued or granted only after an
application and an award either through bidding or by negotiation has been made and the Director of
Forestry is satisfied that the issuance of such license shall not be inconsistent with existing laws and
regulations or prejudicial to public interest, and that the necessary license fee, bond deposit and other
requirements of the Bureau of Forestry have been paid and complied with. 73 [Emphasis supplied.]
However, even a person who is granted a TLA through "negotiation" is still required to submit the same
requirements and supporting papers as required for public bidding. The pertinent provisions of FAO No. 11
state:
18. Requirements and supporting papers to be submitted.The following requirements with accompanying
supporting papers or documents shall be submitted in addition to the requirements of Section 12:
a. With bid application:
The applicant shall support his bid application with the required application fee duly paid and proofs of the
following:
(1) Capitalization.Cash deposits and established credit line by applicant in domestic bank certified to by
the bank President or any of its authorized officials, duly attested by depositor as his own to be used
exclusively in logging and wood processing operations if awarded the area. The bank certificate shall be
accompanied by a written consent by the applicant-depositor for the Director of Forestry or his authorized
representative to verify such cash deposit with bank authorities.
Capitalization and financial statements. A minimum capitalization of P20.00 per cubit meter in cash and
an established credit line of P150.00 per cubic meter based on the allowable annual cut are required.
Financial statements certified by the independent and reputable certified public accountants must
accompany the application as proof of the necessary capitalization.
Additional capitalization, Real Estate. In the event that the capitalization of the applicant is less than the
minimum or less than that set by the Director of Forestry for the area, the applicant bidder may be asked to
submit an affidavit signifying his readiness, should the area be awarded to him, to convert within a specified
time any specified unencumbered and titled real estate into cash for use in operating and developing the
area. Presentation of real estate should show location by municipality and province, hectarage, title number,
latest land tax declaration, assessed value of land and improvements (stating kind of improvements), and
encumbrances if any.
(2) Logging machinery and equipment.Evidence of ownership or capacity to acquire the requisite
machinery or equipment shall accompany the bid application. The capacity or ability to acquire machineries
and equipments shall be determined by the committee on award. Leased equipment or machineries may be
considered in the determination by the Committee if expressly authorized in writing by the Director of
Forestry.

(3) Technical know-how.To assure efficient operation of the area or concession, the applicant shall
submit proof of technical competence and know-how and/or his ability to provide hired services of
competent personnel.
(4) Operation or development plan. An appropriate plan of operation and development of the forest area
applied for shall be submitted, including phasing plans and the fund requirements therefor, consistent with
selective logging methods and the sustained yield policy of the Bureau of Forestry. This plan must be in
general agreement with the working unit plan for the area as contained in Chapter III, Section 6(a)
hereinabove.
(5) Processing plant.The bidder or applicant shall show evidence of ownership of, or negotiation to
acquire, a wood processing plant. The kind and type of plant, such as plywood, veneer, bandmill, etc. shall
be specified. The plant should be capable of processing at least 60% of the allowable annual cut.
(6) Forestry Department.The applicant shall submit assurance under oath that he shall put a forestry
department composed of trained or experienced foresters to carry out forest management activities such as
selective logging, planting of denuded or logged-over areas within the concessions as specified by the
Director of Forestry and establish a forest nursery for the purpose.
(7) Statement on sustained yield operations, reforestation, and protection under management plans. The
bidder or applicant shall submit a sworn statement of his agreement and willingness to operate the area
under sustained yield to reforest cleared areas and protect the concession or licensed area and under the
approved management plan, and to abide with all existing forestry laws, rules and regulations and those
that may hereafter be promulgated; and of his agreement that any violation of these conditions shall be
sufficient cause for the cancellation of the licenses.
(8) Organization plan.Other important statement connected with sound management and operation of the
area, such as the submission among others, of the organizational plan and employment of concession
guards, shall be submitted. In this connection, the applicant shall submit a sworn statement to the effect no
alien shall be employed without prior approval of proper authorities.
(9) Unauthorized use of heave equipment.The applicant shall give his assurance that he shall not
introduce into his area additional heave equipment and machinery without approval of the Director of
Forestry.
(10) Such other inducements or considerations to the award as will serve public interest may also be
required from time to time.
xxxx
d) With applications for areas to be negotiated.All the foregoing requirements and supporting papers
required for bidding under Section 18(a) hereinabove and of Section 20(b) hereinbelow shall also apply to
all areas that may be granted through negotiation. In no case shall an area exceeding 100,000 hectares be
granted thru negotiation.74
The rationale underlying the very elaborate procedure that entails prior to the grant of a timber license
agreement is to avert the haphazard exploitation of the State's forest resources as it provides that only the
most qualified applicants will be allowed to engage in timber activities within the strict limitations of the grant
and that cleared forest areas will have to be renewed through reforestation. Since timber is not a readily
renewable natural resource, it is essential and appropriate that the State serve and act as a jealous and
zealous guardian of our forest lands, with the layers of bureaucracy that encumber the grant of timber
license agreements effectively serving as a defensive wall against the thoughtless ravage of our forest
resources.
There is no doubt that no public bidding occurred in this case. Certainly, respondents did not raise the
defense in their respective answers. The absence of such bidding was testified on by prosecution witness

83
Arcangel. Yet even if we consider that Twin Peaks could have acquired the TLA through "negotiation," the
prescribed requirements for "negotiation" under the law were still not complied with.
It is evident that Twin Peaks was of the frame of mind that it could simply walk up to President Marcos and
ask for a timber license agreement without having to comply with the elaborate application procedure under
the law. This is indicated by the letter dated 31 May 1984 75 signed by Twin Peaks Vice President and
Treasurer Evelyn Fontanilla, addressed directly to then President Marcos, wherein Twin Peaks expressed
that "we would like to request a permit to export 20,000 cubic meters of logs and to cut and process 10,000
cubic meters of the narra species in the same area." 76 A marginal note therein signed by Marcos indicates
an approval thereof. Neither the Forestry Reform Code nor FAO No. 11 provide for the submission of
an application directly to the Office of the President as a proper mode for the issuance of a TLA. Without
discounting the breadth and scope of the Presidents powers as Chief Executive, the authority of the
President with respect to timber licenses is, by the express terms of the Revised Forestry Code, limited to
the amendment, modification, replacement or rescission of any contract, concession, permit, license or any
other form of privilege granted by said Code.77
There are several factors that taint this backdoor application for a timber license agreement by Twin Peaks.
The forest area covered by the TLA was already the subject of a pre-existing TLA in favor of Ysmael. The
Articles of Incorporation of Twin Peaks does not even stipulate that logging was either a principal or
secondary purpose of the corporation. Respondents do allege that the Articles was amended prior to the
grant in order to accommodate logging as a corporate purpose, yet since respondents have waived their
right to present evidence by reason of their resort to demurrer, we cannot consider such allegation as
proven.
Sec. 18(a)(1) of FAO No. 11 requires that an applicant must have a minimum capitalization of P20.00 per
cubic meter in cash and an established credit line of P150.00 per cubic meter based on the allowable
annual cut. TLA No. 356 allowed Twin Peaks to operate on 26,000 hectares of forest land with an annual
allowable cut of 60,000 cubic meters of timber. With such annual allowable cut, Twin
Peaks, therefore, must have at least P1,200,000.00 in cash as its minimum capitalization, following FAO No.
11. An examination of Twin Peaks Articles of Incorporation shows that its paid-up capital was
only P312,500.00.78 Clearly, Twin Peaks paid-up capital is way below the minimum capitalization
requirement.
Moreover, Sec. 18(5) provides that the bidder or applicant shall show evidence of ownership of, or
negotiation to acquire, a wood processing plant. However, although TLA No. 356 was issued to Twin Peaks
in 1984, it continued to engage the services of at least two sawmills 79 as late as 1988. Four (4) years from
the issuance of the license, Twin Peaks remained incapable of processing logs.
What could have made Twin Peaks feel emboldened to directly request President Marcos for the grant of
Timber License Agreement despite the obvious problems relating to its capacity to engage in timber
activities? The reasonable assumption is that the official and personal proximity of Juan Tuvera to President
Marcos was a key factor, considering that he was the father of Twin Peaks' most substantial stockholder.
The causes of action against respondents allegedly arose from Juan Tuveras abuse of his relationship,
influence and connection as Presidential Executive Assistant of then President Marcos. Through Juan
Tuveras position, the Republic claims that Twin Peaks was able to secure a Timber License Agreement
despite its lack of qualification and the absence of a public bidding. On account of the unlawful issuance of a
timber license agreement, the natural resources of the country were unlawfully exploited at the expense of
the Filipino people. Victor Tuvera, as son of Juan Tuvera and a major stockholder of Twin Peaks, was
included as respondent for having substantially benefited from this breach of trust. The circumstance of
kinship alone may not be enough to disqualify Victor Tuvera from seeking a timber license agreement. Yet
the basic ethical principle of delicadeza should have dissuaded Juan Tuvera from any official or unofficial
participation or intervention in behalf of the "request" of Twin Peaks for a timber license.
Did Juan Tuvera do the honorable thing and keep his distance from Twin Peaks' "request"? Apparently not.
Instead, he penned a Memorandum dated 18 July 1984 in his capacity as Presidential Executive Assistant,

directed at the Director of Forestry, the official who, under the law, possessed the legal authority to
decide whether to grant the timber license agreements after deliberating on the application and its
supporting documents. The Memorandum reads in full:
Office
Malacanang

of

the

President

of

the

Philippines

18 July 1984
74-84
MEMORANDUM to
Director
Bureau of Forest Development

Edmundo

Cortes

I wish to inform you that the President has granted the award to the Twin Peaks Realty Development
Corporation, of the concession to manage, operate and develop in accordance with existing policies and
regulations half of the timber area in the Province of Quirino covered by TLA No. 87, formerly belonging to
the Felipe Ysmael, Jr. & Company and comprising 54,920 hectares, and to export half of the requested
20,000 cubic meters of logs to be gathered from the area.
Herewith is a copy of the letter concering (sic) this matter of Ms. Evelyn F. Fontanilla, Vice-President and
Treasurer of the Twin Peaks Realty Development Corporation, on which the President indicated such
approval in his own hand, which I am furnishing you for your information and appropriate action.
(signed)
JUAN
Presidential Executive Assistant80

C.

TUVERA

The Memorandum establishes at the very least that Tuvera knew about the Twin Peaks "request," and of
President Marcos's favorable action on such "request." The Memorandum also indicates that Tuvera was
willing to convey those facts to the Director of Forestry, the ostensible authority in deciding whether the Twin
Peaks "request" should have been granted. If Juan Tuvera were truly interested in preventing any
misconception that his own position had nothing to do with the favorable action on the "request" lodged by
the company controlled by his son, he would not have prepared or signed the Memorandum at all. Certainly,
there were other officials in Malacaang who could have performed that role had the intent of the
Memorandum been merely to inform the Director of Forestry of such Presidential action.
Delicadeza is not merely a stentorian term evincing a bygone ethic. It is a legal principle as embodied by
certain provisions of the Anti-Graft and Corrupt Practices Act. Section 3 of R.A. No. 3019 states in part:
Sec. 3. Corrupt practices of public officers.In addition to acts or omissions of public officers already
penalized by existing law, the following shall constitute corrupt practices of any public officer and are hereby
declared to be unlawful:
(a) Persuading, inducing or influencing another public officer to perform an act constituting a violation of
rules and regulations duly promulgated by competent authority or an offense in connection with the official
duties of the latter, or allowing himself to be persuaded, induced or influenced to commit such violation or
offense.
xxxx
(h) Directly or indirectly having financial or pecuniary interest in any business, contract or transaction in
connection with which he intervenes or takes part in his official capacity, or in which he is prohibited by the
Constitution or by any law from having any interest.

84
The Memorandum signed by Juan Tuvera can be taken as proof that he "persuaded, induced or influenced"
the Director of Forestry to accommodate a timber license agreement in favor of Twin Peaks, despite the
failure to undergo public bidding, or to comply with the requisites for the grant of such agreement by
negotiation, and in favor of a corporation that did not appear legally capacitated to be granted such
agreement. The fact that the principal stockholder of Twin Peaks was his own son establishes his indirect
pecuniary interest in the transaction he appears to have intervened in. It may have been possible on the
part of Juan Tuvera to prove that he did not persuade, induce or influence the Director of Forestry or any
other official in behalf of the timber license agreement of Twin Peaks, but then again, he waived his right to
present evidence to acquit himself of such suspicion. Certainly, the circumstances presented by the
evidence of the prosecution are sufficient to shift the burden of evidence to Tuvera in establishing that he
did not violate the provisions of the Anti-Graft and Corrupt Practices Act in relation to the Twin Peaks
"request." Unfortunately, having waived his right to present evidence, Juan Tuvera failed to disprove that he
failed to act in consonance with his obligations under the Anti-Graft and Corrupt Practices Act.

Nevertheless, AMEC's claim for moral damages falls under item 7 of Article 2219 of the Civil Code.
This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other
form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person.
Therefore, a juridical person such as a corporation can validly complain for libel or any other form of
defamation and claim for moral damages. 83

In sum, the backdoor recourse for a hugely priced favor from the government by itself, and more in tandem
with other brazen relevant damning circumstances, indicates the impudent abuse of power and the
detestable misuse of influence that homologously made the acquisition of ill-gotten wealth a reality. Upon
the facts borne out by the evidence for the Republic and guideposts supplied by the governing laws, the
Republic
has
a
clear
right
to
the
reliefs
it
seeks.
VI.

However, there is sufficient basis for an award of temperate damages, also sought by the Republic
notwithstanding the fact that a claim for both actual and temperate damages is internally inconsistent.
Temperate or moderate damages avail 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." 84 The textual language might
betray an intent that temperate damages do not avail when the case, by its nature, is susceptible to proof of
pecuniary loss; and certainly the Republic could have proved pecuniary loss herein. 85 Still, jurisprudence
applying Article 2224 is clear that temperate damages may be awarded even in instances where pecuniary
loss could theoretically have been proved with certainty.1awphi1.net

If only the Court's outrage were quantifiable in sums of money, respondents are due for significant pecuniary
hurt. Instead, the Court is forced to explain in the next few paragraphs why respondents could not be forced
to recompensate the Filipino people in appropriate financial terms. The fault lies with those engaged by the
government to litigate this case in behalf of the State.
It bears to the most primitive of reasons that an action for recovery of sum of money must prove the amount
sought to be recovered. In the case at bar, the Republic rested its case without presenting any evidence,
documentary or testimonial, to establish the amount that should be restituted to the State by reason of the
illegal acts committed by the respondents. There is the bare allegation in the complaint that the State is
entitled to P48 million by way of actual damages, but no single proof presented as to why the State is
entitled to such amount.
Actual damages must be proven, not presumed. 81 The Republic failed to prove damages. It is not enough
for the Republic to have established, as it did, the legal travesty that led to the wrongful obtention by Twin
Peaks of the TLA. It should have established the degree of injury sustained by the State by reason of such
wrongful act.
We fail to comprehend why the Republic failed to present any proof of actual damages. Was it the inability
to obtain the necessary financial documents that would establish the income earned by Twin Peaks during
the period it utilized the TLA, despite the presence of the discovery processes? Was it mere indolence or
sheer incompetence? Whatever the reason, the lapse is inexcusable, and the injury ultimately conduces to
the pain of the Filipino people. If the litigation of this case is indicative of the mindset in the prosecution of illgotten wealth cases, it is guaranteed to ensure that those who stole from the people will be laughing on their
way to the bank.
The claim for moral damages deserves short shrift. The claimant in this case is the Republic of the
Philippines, a juridical person. We explained in Filipinas Broadcasting v. Ago Medical & Educational CenterBicol Christian College of Medicine (AMEC-BCCM):82
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock. The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al. to justify the award of moral
damages. However, the Court's statement in Mambulao that "a corporation may have a good reputation
which, if besmirched, may also be a ground for the award of moral damages" is an obiter dictum.

As explained, a juridical person is not entitled to moral damages under Article 2217 of the Civil Code. It may
avail of moral damages under the analogous cases listed in Article 2219, such as for libel, slander or any
other form of defamation. Suffice it to say that the action at bar does not involve any of the analogous cases
under Article 2219, and indeed upon an intelligent reading of Article 2219, it is difficult to see how the
Republic could sustain any of the injuries contemplated therein. Any lawyer for the Republic who poses a
claim for moral damages in behalf of the State stands in risk of serious ridicule.

In a host of criminal cases, the Court has awarded temperate damages to the heirs of the victim in cases
where the amount of actual damages was not proven due to the inadequacy of the evidence presented by
the prosecution. These cases include People v. Oliano,86 People v. Suplito,87 People v. De la Tongga,
[88] People v. Briones,89 andPeople v. Plazo.90 In Viron Transportation Co., Inc. v. Delos Santos,91 a civil
action for damages involving a vehicular collision, temperate damages were awarded for the resulting
damage sustained by a cargo truck, after the plaintiff had failed to submit competent proof of actual
damages.
We cannot discount the heavy influence of common law, and its reliance on judicial precedents, in our law
on tort and damages. Notwithstanding the language of Article 2224, a line of jurisprudence has emerged
authorizing the award of temperate damages even in cases where the amount of pecuniary loss could have
been proven with certainty, if no such adequate proof was presented. The allowance of temperate damages
when actual damages were not adequately proven is ultimately a rule drawn from equity, the principle
affording relief to those definitely injured who are unable to prove how definite the injury. There is no
impediment to apply this doctrine to the case at bar, which involves one of the most daunting and noble
undertakings of our young democracythe recovery of ill-gotten wealth salted away during the Marcos
years. If the doctrine can be justified to answer for the unlawful damage to a cargo truck, it is a
compounded wrath if it cannot answer for the unlawful exploitation of our forests, to the injury of the Filipino
people. The amount of P1,000,000.00 as temperate damages is proper.
The allowance of temperate damages also paves the way for the award of exemplary damages. Under
Article 2234 of the Civil Code, a showing that the plaintiff is entitled to temperate damages allows for the
award of exemplary damages. Even as exemplary damages cannot be recovered as a matter of right, the
courts are empowered to decide whether or not they should be adjudicated. Ill-gotten wealth cases are
hornbook demonstrations where damages by way of example or correction for the public good should be
awarded. Fewer causes of action deserve the stigma left by exemplary damages, which "serve as a
deterrent against or as a negative incentive to curb socially deleterious actions." 92 The obtention of the
timber license agreement by Twin Peaks through fraudulent and illegal means was highlighted by Juan
Tuveras abuse of his position as Presidential Executive Assistant. The consequent exploitation of 26
hectares of forest land benefiting all respondents is a grave case of unjust enrichment at the expense of the
Filipino people and of the environment which should never be countenanced. Considering the expanse of
forest land exploited by respondents, the volume of timber that was necessarily cut by virtue of their abuse
and the estimated wealth acquired by respondents through grave abuse of trust and public office, it is only
reasonable that petitioner be granted the amount of P1,000,000.00 as exemplary damages.
The imposition of exemplary damages is a means by which the State, through its judicial arm, can send the
clear and unequivocal signal best expressed in the pithy but immutable phrase, "never again." It is severely

85
unfortunate that the Republic did not exert its best efforts in the full recovery of the actual damages caused
by the illegal grant of the Twin Peaks TLA. To the best of our ability, through the appropriate vehicle of
exemplary damages, the Court will try to fill in that deficiency. For if there is a lesson that should be
learned from the national trauma of the rule of Marcos, it is that kleptocracy cannot pay. As those dark years
fade into the backburner of the collective memory, and a new generation emerges without proximate
knowledge of how bad it was then, it is useful that the Court serves a reminder here and now.
WHEREFORE, the petition is GRANTED. The Resolution of the Sandiganbayan dated 23 May 2001 is
REVERSED. Respondents Juan C. Tuvera, Victor P. Tuvera and Twin Peaks Development Corporation are
hereby ordered to jointly and severally pay to the Republic of the Philippines One Million ( P1,000,000.00)
Pesos, as and for temperate damages, and One Million (P1,000,000.00) Pesos, as and for exemplary
damages, plus costs of suit.
SO ORDERED.
Republic
SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION
G.R. No. 177839

January 18, 2012

FIRST LEPANTO-TAISHO INSURANCE CORPORATION (now known as FLT PRIME INSURANCE

CORPORATION), Petitioner,
vs.
CHEVRON PHILIPPINES, INC. (formerly known as CALTEX [PHILIPPINES], INC.), Respondent.
DECISION
VILLARAMA, JR., J.:
Before this Court is a Rule 45 Petition assailing the Decision 1 dated November 20, 2006 and
Resolution2 dated May 8, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86623, which reversed the
Decision3 dated August 5, 2005 of the Regional Trial Court (RTC) of Makati City, Branch 59 in Civil Case No
02-857.
Respondent Chevron Philippines, Inc., formerly Caltex Philippines, Inc., sued petitioner First Lepanto-Taisho
Insurance Corporation (now known as FLT Prime Insurance Corporation) for the payment of unpaid oil and
petroleum purchases made by its distributor Fumitechniks Corporation (Fumitechniks).
Fumitechniks, represented by Ma. Lourdes Apostol, had applied for and was issued Surety Bond FLTICG
(16) No. 01012 by petitioner for the amount of P15,700,000.00. As stated in the attached rider, the bond was
in compliance with the requirement for the grant of a credit line with the respondent "to guarantee
payment/remittance of the cost of fuel products withdrawn within the stipulated time in accordance with the
terms and conditions of the agreement." The surety bond was executed on October 15, 2001 and will expire
on October 15, 2002.4

Fumitechniks defaulted on its obligation. The check dated December 14, 2001 it issued to respondent
in the amount of P11,461,773.10, when presented for payment, was dishonored for reason of "Account
Closed." In a letter dated February 6, 2002, respondent notified petitioner of Fumitechniks unpaid
purchases in the total amount ofP15,084,030.30. In its letter-reply dated February 13, 2002, petitioner
through its counsel, requested that it be furnished copies of the documents such as delivery
receipts.5 Respondent complied by sending copies of invoices showing deliveries of fuel and petroleum
products between November 11, 2001 and December 1, 2001.
Simultaneously, a letter6 was sent to Fumitechniks demanding that the latter submit to petitioner the
following: (1) its comment on respondents February 6, 2002 letter; (2) copy of the agreement secured by
the Bond, together with copies of documents such as delivery receipts; and (3) information on the
particulars, including "the terms and conditions, of any arrangement that [Fumitechniks] might have made or
any ongoing negotiation with Caltex in connection with the settlement of the obligations subject of the Caltex
letter."
In its letter dated March 1, 2002, Fumitechniks through its counsel wrote petitioners counsel informing that
it cannot submit the requested agreement since no such agreement was executed between Fumitechniks
and respondent. Fumitechniks also enclosed a copy of another surety bond issued by CICI General
Insurance Corporation in favor of respondent to secure the obligation of Fumitechniks and/or Prime Asia
Sales and Services, Inc. in the amount ofP15,000,000.00.7 Consequently, petitioner advised respondent of
the non-existence of the principal agreement as confirmed by Fumitechniks. Petitioner explained that being
an accessory contract, the bond cannot exist without a principal agreement as it is essential that the copy of
the basic contract be submitted to the proposed surety for the appreciation of the extent of the obligation to
be covered by the bond applied for.8
On April 9, 2002, respondent formally demanded from petitioner the payment of its claim under the surety
bond. However, petitioner reiterated its position that without the basic contract subject of the bond, it cannot
act on respondents claim; petitioner also contested the amount of Fumitechniks supposed obligation. 9
Alleging that petitioner unjustifiably refused to heed its demand for payment, respondent prayed for
judgment ordering petitioner to pay the sum of P15,080,030.30, plus interest, costs and attorneys fees
equivalent to ten percent of the total obligation. 10
Petitioner, in its Answer with Counterclaim, 11 asserted that the Surety Bond was issued for the purpose of
securing the performance of the obligations embodied in the Principal Agreement stated therein, which
contract should have been attached and made part thereof.
After trial, the RTC rendered judgment dismissing the complaint as well as petitioners counterclaim. Said
court found that the terms and conditions of the oral credit line agreement between respondent and
Fumitechniks have not been relayed to petitioner and neither were the same conveyed even during trial.
Since the surety bond is a mere accessory contract, the RTC concluded that the bond cannot stand in the
absence of the written agreement secured thereby. In holding that petitioner cannot be held liable under the
bond it issued to Fumitechniks, the RTC noted the practice of petitioner, as testified on by its witnesses, to
attach a copy of the written agreement (principal contract) whenever it issues a surety bond, or to be
submitted later if not yet in the possession of the assured, and in case of failure to submit the said written
agreement, the surety contract will not be binding despite payment of the premium.
Respondent filed a motion for reconsideration while petitioner filed a motion for partial reconsideration as to
the dismissal of its counterclaim. With the denial of their motions, both parties filed their respective notice of
appeal.
The CA ruled in favor of respondent, the dispositive portion of its decision reads:
WHEREFORE, the appealed Decision is REVERSED and SET ASIDE. A new judgment is hereby entered
ORDERING defendant-appellant First Lepanto-Taisho Insurance Corporation to pay plaintiff-appellant
Caltex (Philippines) Inc. now Chevron Philippines, Inc. the sum of P15,084,030.00.
SO ORDERED.12

86
According to the appellate court, petitioner cannot insist on the submission of a written agreement to be
attached to the surety bond considering that respondent was not aware of such requirement and unwritten
company policy. It also declared that petitioner is estopped from assailing the oral credit line agreement,
having consented to the same upon presentation by Fumitechniks of the surety bond it issued. Considering
that such oral contract between Fumitechniks and respondent has been partially executed, the CA ruled that
the provisions of the Statute of Frauds do not apply.

The conditions of this obligation are as follows:

WHEREAS,
the
above-bounden
principal,
on 15th day
of October,
2001 entered
[an] agreement with CALTEX PHILIPPINES, INC. of ________________ to fully and faithfully

into

a copy of which is attached hereto and made a part hereof:

With the denial of its motion for reconsideration, petitioner appealed to this Court raising the following
issues:
I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN ITS INTERPRETATION OF
THE PROVISIONS OF THE SURETY BOND WHEN IT HELD THAT THE SURETY BOND SECURED AN
ORAL CREDIT LINE AGREEMENT NOTWITHSTANDING THE STIPULATIONS THEREIN CLEARLY
SHOWING BEYOND DOUBT THAT WHAT WAS BEING SECURED WAS A WRITTEN AGREEMENT,
PARTICULARLY, THE WRITTEN AGREEMENT A COPY OF WHICH WAS EVEN REQUIRED TO BE
ATTACHED TO THE SURETY BOND AND MADE A PART THEREOF.
II. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT STRIKING OUT THE
QUESTIONED RESPONDENTS EVIDENCE FOR BEING CONTRARY TO THE PAROL EVIDENCE RULE,
IMMATERIAL AND IRRELEVANT AND CONTRARY TO THE STATUTE OF FRAUDS.
III. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT STRIKING OUT THE
RESPONDENTS MOTION FOR RECONSIDERATION OF THE RTC DECISION FOR BEING A MERE
SCRAP OF PAPER AND PRO FORMA AND, CONSEQUENTLY, IN NOT DECLARING THE RTC
DECISION AS FINAL AND EXECUTORY IN SO FAR AS IT DISMISSED THE COMPLAINT.
IV. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE RTC
DECISION AND IN NOT GRANTING PETITIONERS COUNTERCLAIM. 13
The main issue to be resolved is one of first impression: whether a surety is liable to the creditor in the
absence of a written contract with the principal.
Section 175 of the Insurance Code defines a suretyship as a contract or agreement whereby a party, called
the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or
undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds
or undertakings issued under Act 536, 14 as amended. Suretyship arises upon the solidary binding of a
person deemed the surety with the principal debtor, for the purpose of fulfilling an obligation. 15 Such
undertaking makes a surety agreement an ancillary contract as it presupposes the existence of a principal
contract. Although the contract of a surety is in essence secondary only to a valid principal obligation, the
surety becomes liable for the debt or duty of another although it possesses no direct or personal interest
over the obligations nor does it receive any benefit therefrom. And notwithstanding the fact that the surety
contract is secondary to the principal obligation, the surety assumes liability as a regular party to the
undertaking.16
The extent of a suretys liability is determined by the language of the suretyship contract or bond itself. It
cannot be extended by implication, beyond the terms of the contract. 17 Thus, to determine whether petitioner
is liable to respondent under the surety bond, it becomes necessary to examine the terms of the contract
itself.
Surety Bond FLTICG (16) No. 01012 is a standard form used by petitioner, which states:
That we, FUMITECHNIKS CORP. OF THE PHILS. of #154 Anahaw St., Project 7, Quezon City as principal
and First Lepanto-Taisho Insurance Corporation a corporation duly organized and existing under and by
virtue of the laws of the Philippines as Surety, are held firmly bound unto CALTEX PHILIPPINES, INC. of
______ in the sum ofFIFTEEN MILLION SEVEN HUNDRED THOUSAND ONLY PESOS (P15,700,000.00),
Philippine Currency, for the payment of which sum, well and truly to be made, we bind ourselves, our heirs,
executors, administrators, successors, and assigns, jointly and severally, firmly by these presents:

WHEREAS, said Obligee__ 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 agreement__.
NOW THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings, covenants,
terms, conditions, and agreements stipulated in said agreement__ then this obligation shall be null and void;
otherwise it shall remain in full force and effect.
The liability of First Lepanto-Taisho Insurance Corporation under this bond will expire on October 15,
2002__.
x x x x18 (Emphasis supplied.)
The rider attached to the bond sets forth the following:
WHEREAS, the Principal has applied for a Credit Line in the amount of PESOS: Fifteen Million Seven
Hundred thousand only (P15,700,000.00), Philippine Currency with the Obligee for the purchase of Fuel
Products;
WHEREAS, the obligee requires the Principal to post a bond to guarantee payment/remittance of the cost of
fuel products withdrawn within the stipulated time in accordance with terms and conditions of the
agreement;
IN NO CASE, however, shall the liability of the Surety hereunder exceed the sum of PESOS: Fifteen million
seven hundred thousand only ( P15,700,000.00), Philippine Currency.
NOW THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings, covenants,
terms and conditions and agreements stipulated in said undertakings, then this obligation shall be null and
void; otherwise, it shall remain in full force and effect.
The liability of FIRST LEPANTO-TAISHO INSURANCE CORPORATION, under this Bond will expire
on 10.15.01_. Furthermore, it is hereby understood that FIRST LEPANTO-TAISHO INSURANCE
CORPORATION will not be liable for any claim not presented to it in writing within fifteen (15) days from the
expiration of this bond, and that the Obligee hereby waives its right to claim or file any court action against
the Surety after the termination of fifteen (15) days from the time its cause of action accrues. 19
Petitioner posits that non-compliance with the submission of the written agreement, which by the express
terms of the surety bond, should be attached and made part thereof, rendered the bond ineffective. Since all
stipulations and provisions of the surety contract should be taken and interpreted together, in this case, the
unmistakable intention of the parties was to secure only those terms and conditions of the written
agreement. Thus, by deleting the required submission and attachment of the written agreement to the
surety bond and replacing it with the oral credit agreement, the obligations of the surety have been
extended beyond the limits of the surety contract.
On the other hand, respondent contends that the surety bond had been delivered by petitioner to
Fumitechniks which paid the premiums and delivered the bond to respondent, who in turn, opened the credit
line which Fumitechniks availed of to purchase its merchandise from respondent on credit. Respondent
points out that a careful reading of the surety contract shows that there is no such requirement of
submission of the written credit agreement for the bonds effectivity. Moreover, respondents witnesses had

87
already explained that distributorship accounts are not covered by written distribution agreements.
Supplying the details of these agreements is allowed as an exception to the parol evidence rule even if it is
proof of an oral agreement. Respondent argues that by introducing documents that petitioner sought to
exclude, it never intended to change or modify the contents of the surety bond but merely to establish the
actual terms of the distribution agreement between Fumitechniks and respondent, a separate agreement
that was executed shortly after the issuance of the surety bond. Because petitioner still issued the bond and
allowed it to be delivered to respondent despite the fact that a copy of the written distribution agreement
was never attached thereto, respondent avers that clearly, such attaching of the copy of the principal
agreement, was for evidentiary purposes only. The real intention of the bond was to secure the payment of
all the purchases of Fumitechniks from respondent up to the maximum amount allowed under the bond.

Q : How did you relay that, how did you relay the terms and conditions to the defendant?
A : I dont know, it was during the time for collection because I collected them and explain the
terms and conditions.
Q : You testified awhile ago that you did not talk to the defendant First Lepanto-Taisho Insurance
Corporation?
A : I was confused with the question. Im talking about Malou Apostol.

A reading of Surety Bond FLTICG (16) No. 01012 shows that it secures the payment of purchases on credit
by Fumitechniks in accordance with the terms and conditions of the "agreement" it entered into with
respondent. The word "agreement" has reference to the distributorship agreement, the principal contract
and by implication included the credit agreement mentioned in the rider. However, it turned out that
respondent has executed written agreements only with its direct customers but not distributors like
Fumitechniks and it also never relayed the terms and conditions of its distributorship agreement to the
petitioner after the delivery of the bond. This was clearly admitted by respondents Marketing Coordinator,
Alden Casas Fajardo, who testified as follows:
Atty. Selim:
Q : Mr. Fajardo[,] you mentioned during your cross-examination that the surety bond as part of
the requirements of [Fumitechniks] before the Distributorship Agreement was approved?
A : Yes Sir.

Q : So, in your answer, you have not relayed those terms and conditions to the defendant First
Lepanto, you have not?
A : Yes Sir.
Q : And as of this present, you have not yet relayed the terms and conditions?
A : Yes Sir.
x x x x 20
Respondent, however, maintains that the delivery of the bond and acceptance of premium payment by
petitioner binds the latter as surety, notwithstanding the non-submission of the oral distributorship and credit
agreement which understandably cannot be attached to the bond.

xxxx
The contention has no merit.
Q : Is it the practice or procedure at Caltex to reduce distributorship account into writing?
xxxx
A : No, its not a practice to make an agreement.
xxxx
Atty. Quiroz:
Q : What was the reason why you are not reducing your agreement with your client into writing?
A : Well, of course as I said, there is no fix pricing in terms of distributorship agreement, its
usually with regards to direct service to the customers which have direct fixed price.
xxxx
Q : These supposed terms and conditions that you agreed with [Fumitechniks], did you relay to
the defendant
A : Yes Sir.
xxxx

The law is clear that a surety contract should be read and interpreted together with the contract entered into
between the creditor and the principal. Section 176 of the Insurance Code states:
Sec. 176. The liability of the surety or sureties shall be joint and several with the obligor and shall be limited
to the amount of the bond. It is determined strictly by the terms of the contract of suretyship in relation to the
principal contract between the obligor and the obligee. (Emphasis supplied.)
A surety contract is merely a collateral one, its basis is the principal contract or undertaking which it
secures.21Necessarily, the stipulations in such principal agreement must at least be communicated or made
known to the surety particularly in this case where the bond expressly guarantees the payment of
respondents fuel products withdrawn by Fumitechniks in accordance with the terms and conditions of their
agreement. The bond specifically makes reference to a written agreement. It is basic that if the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.22 Moreover, being an onerous undertaking, a surety agreement is strictly construed
against the creditor, and every doubt is resolved in favor of the solidary debtor. 23 Having accepted the bond,
respondent as creditor must be held bound by the recital in the surety bond that the terms and conditions of
its distributorship contract be reduced in writing or at the very least communicated in writing to the surety.
Such non-compliance by the creditor (respondent) impacts not on the validity or legality of the surety
contract but on the creditors right to demand performance.
It bears stressing that the contract of suretyship imports entire good faith and confidence between the
parties in regard to the whole transaction, although it has been said that the creditor does not stand as a
fiduciary in his relation to the surety. The creditor is generally held bound to a faithful observance of the
rights of the surety and to the performance of every duty necessary for the protection of those
rights.24 Moreover, in this jurisdiction, obligations arising from contracts have the force of law between the
parties and should be complied with in good faith. 25 Respondent is charged with notice of the specified form
of the agreement or at least the disclosure of basic terms and conditions of its distributorship and credit
agreements with its client Fumitechniks after its acceptance of the bond delivered by the latter. However, it

88
never made any effort to relay those terms and conditions of its contract with Fumitechniks upon the
commencement of its transactions with said client, which obligations are covered by the surety bond issued
by petitioner. Contrary to respondents assertion, there is no indication in the records that petitioner had
actual knowledge of its alleged business practice of not having written contracts with distributors; and even
assuming petitioner was aware of such practice, the bond issued to Fumitechniks and accepted by
respondent specifically referred to a "written agreement."
As to the contention of petitioner that respondents motion for reconsideration filed before the trial court
should have been deemed not filed for being pro forma, the Court finds it to be without merit. The mere fact
that a motion for reconsideration reiterates issues already passed upon by the court does not, by itself,
make it a pro forma motion. Among the ends to which a motion for reconsideration is addressed is precisely
to convince the court that its ruling is erroneous and improper, contrary to the law or evidence; the movant
has to dwell of necessity on issues already passed upon. 261avvphi1
Finally, we hold that the trial court correctly dismissed petitioners counterclaim for moral damages and
attorneys fees. The filing alone of a civil action should not be a ground for an award of moral damages in
the same way that a clearly unfounded civil action is not among the grounds for moral damages. 27 Besides,
a juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock.28 Although in some recent cases we have held that the Court may allow the grant of moral
damages to corporations, it is not automatically granted; there must still be proof of the existence of the
factual basis of the damage and its causal relation to the defendants acts. This is so because moral
damages, though incapable of pecuniary estimation, 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 There
is no evidence presented to establish the factual basis of petitioners claim for moral damages.

Petitioner is likewise not entitled to attorneys fees. The settled rule is that no premium should be
placed on the right to litigate and that not every winning party is entitled to an automatic grant of attorneys
fees.30 In pursuing its claim on the surety bond, respondent was acting on the belief that it can collect on the
obligation of Fumitechniks notwithstanding the non-submission of the written principal contract.
WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The Decision dated November
20, 2006 and Resolution dated May 8, 2007 of the Court of Appeals in CA-G.R. CV No. 86623, are
REVERSED and SET ASIDE. The Decision dated August 5, 2005 of the Regional Trial Court of Makati City,
Branch 59 in Civil Case No. 02-857 dismissing respondents complaint as well as petitioners counterclaim,
is hereby REINSTATED and UPHELD.
No pronouncement as to costs.
SO ORDERED.