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VOL.

73, JULY 8, 1942 607


Barredo vs. Garcia and Almario
title be issued in favor of Santiago Imperial, but subject to the mortgage lien of Luis Meneses which appears duly
noted in the certificate to be cancelled. Luis Meneses may, in a single complaint, sue the Adornados and Santiago
Imperial for the collection of his mortgage credit, the former as primary obligors and the latter as owner of the property
mortgaged, without prejudice to any right which Santiago Imperial may have against the assurance fund. We make
no pronouncement as to costs in this instance.
Yulo, C. J., Ozaeta, Paras, and Bocobo, J J., concur.
Judgment modified.

[No. 48006. July 8, 1942]
FAUSTO BARREDO, petitioner, vs. SEVERINO GARCIA and TIMOTEA ALMARIO, respondents.
1.DAMAGES; QUASI-DELICT OR "CULPA AQUILIANA"; PRIMARY AND DIRECT RESPONSIBILITY OF EMPLOYERS UNDER
ARTICLES 1902-1910 OF THE CIVIL CODE.A head-on collision between a taxi and a carretela resulted in the death
of a 16-year-old boy, one of the passengers of the carretela. A criminal action was filed against the taxi driver and
he was convicted and sentenced accordingly. The court in the criminal case granted the petition that the right to
bring a separate civil action be reserved. Thereafter the parents of the deceased brought suit for damages against
the proprietor of the taxi, the employer of the taxi driver, under article 1903 of the Civil Code. Defendant contended
that his liability was governed by the Revised Penal Code, according to which his responsibility was only secondary,
but no civil action had been brought against the taxi driver. Held: That this separate civil action lies, the employer
being primarily and directly responsible in damages under articles 1902 and 1903 of the Civil Code.
2.ID.; ID.; ID.A quasi-delict or "culpa aquiliana" is a separate legal institution under the Civil Code, with a
substantivity all its own, and individuality that is entirely apart and independent from a delict or crime. Upon this
principle, and on the wording and spirit of article 1903 of the Civil Code, the primary and direct responsibility of
employers may be safely anchored.
3.ID.; ID.; ID.The individuality of cuati-delito or culpa extra-contractual looms clear and unmistakable. This legal
institution is of ancient lineage, one of its early ancestors being the Lex Aquilia in the Roman Law. In fact, in
Spanish legal trminology, this responsibility is often referred to as culpa aquiliana. The Partidas also contributed
to the genealogy of the present fault or negligence under the Civil Code: for instance, Law 6, Title 16, of Partida 7,
says: "Tenudo es de fazer emienda, porque, cmo quier que el non fizo a sabiendas el dao al otro, pero acaesci por
su culpa."
4.ID.; ID.; ID.The distinctive nature of cuasi-delitos survives in the Civil Code. According to article 1089, one of the
five sources of obligations is this legal institution of cuasi-delito or culpa extra-contractual: "los actos * * * en
que intervenga cualquier genero de culpa o negligencia." Then article 1093 provides that this kind of obligation
shall be governed by Chapter II of Title XVI of Book IV, meaning articles 1902-1910. This portion of the Civil Code
is exclusively devoted to the legal institution of culpa aquiliana.
5.ID.; ID.; ID.; DISTINCTION BETWEEN CRIMES UNDER THE PENAL CODE AND THE "CULPA AQUILIANA" OR "CUASI-DELITO"
UNDER THE CIVIL CODE.A distinction exists between the civil liability arising from a crime and the responsibility
for cuasi-delitos or culpa extra-contractual. The same negligent act causing damages may produce civil liability
arising from a crime under article 100 of the Revised Penal Code, or create an action for cuasi-delito or culpa extra-
contractual under articles 1902-1910 of the Civil Code. Plaintiffs were free to choose which remedy to enforce. Some
of the differences between crimes under the Penal Code and the culpa aquiliana or cuasi-delito under the Civil
Code are enumerated in the decision.
6.ID.; ID.; ID.; OPINIONS OF JURISTS.The decision sets out extracts from opinions of jurists on the separate existence
of cuasi-delicts and the employer's primary and direct liability under article 1903 of the Civil Code.
7.ID.; ID.; ID.; SENTENCES OF THE SUPREME TRI-
608
608 PHILIPPINE REPORTS ANNOTATED
Barredo vs. Garcia and Almario
BUNAL OF SPAIN.The decision cites sentences of the Supreme Tribunal of Spain upholding the principles above set
forth: that a cuasi-delict or culpa extra-contractual is a separate and distinct legal institution, independent from
the civil responsibility arising from criminal liability, and that an employer is, under article 1903 of the Civil Code,
primarily and directly responsible for the negligent acts of his employee.
8.ID.; ID.; ID.; DECISIONS OF THIS COURT.Decisions of this Court are also cited holding that, in this jurisdiction, the
separate individuality of a cuasi-delito or culpa aquiliana under the Civil Code has been fully and clearly
recognized, even with regard to a negligent act for. which the wrongdoer could have been prosecuted and convicted
in a criminal case and for which, after such a conviction, he could have been sued for his civil liability arising from
his crime.
9.ID.; ID.; ID.; FOUNDATIONS OF DOCTRINES ABOVE SET FORTH; LITERAL MEANING OF THE LAW. The Revised Penal Code
punishes not only reckless but also simple negligence; if it should be held that articles 1902-1910, Civil Code, apply
only to negligence not punishable by law, culpa aquiliana would have very little application in actual life. The
literal meaning of the law will not be used to smother a principle of such ancient origin and such full-grown
development as culpa aquiliana.
10.ID.; ID.; ID.; ID.; DEGREE OF PROOF.There are numerous cases of criminal negligence which can not be shown
beyond reasonable doubt, but can be proved by a preponderance of evidence. In such cases, defendant can and
should be made responsible in a civil action under articles 1902 to 1910, Civil Code. Ubi jus ibi remedium.
11.ID.; ID.; ID.; ID.; EXPEDITIOUS REMEDY.The primary and direct responsibility of employer under article 1903, Civil
Code, is more likely to facilitate remedy for civil wrongs. Such primary and direct responsibility of employers is
calculated to protect society.
12.ID.; ID.; ID.; ID.; PRACTICE OF RELYING SOLELY ON CIVIL RESPONSIBILITY FOR A CRIME.The harm done by such
practice is pointed out, and the principle of responsibility for fault or negligence under articles 1902 et seq., of the
Civil Code is restored to its full vigor.
PETITION for review on certiorari.
The facts are stated in the opinion of the court.
Celedonio P. Gloria and Antonio Barredo for petitioner.
Jose G. Advincula for respondents.
BOCOBO, J.:
This case comes up from the Court of Appeals which held the petitioner herein, Fausto Barredo, liable in damages
for the death of Faustino Garcia caused by the negligence of Pedro Fontanilla, a taxi driver employed by said Fausto
Barredo.
At about half past one in the morning of May 3, 1936, on the road between Malabon and Navotas, Province of Rizal,
there was a headon collision between a taxi of the Malate Taxicab driven by Pedro Fontanilla and a carretela guided
by Pedro Dimapilis. The carretela was overturned, and one of its passengers, 16-year-old boy Faustino Garcia, suffered
injuries from which he died two days later. A criminal action was filed against Fontanilla in the Court of First Instance
of Rizal, and he was convicted and sentenced to an indeterminate sentence of one year and one day to two years
of prisin correccional. The court in the criminal case granted the petition that the right to bring a separate civil action
be reserved. The Court of Appeals affirmed the sentence of the lower court in the criminal case. Severino Garcia and
Timotea Almario, parents of the deceased, on March 7, 1939, brought an action in the Court of First Instance of Manila
against Fausto Barredo as the sole proprietor of the Malate Taxicab and employer of Pedro Fontanilla. On July 8,1939,
the Court of First Instance of Manila awarded damages in favor of the plaintiffs for P2,000 plus legal interest from
the date of the complaint. This decision was modified by the Court of Appeals by reducing the damages to P1.000 with
legal interest from the time the action was instituted. It is undisputed that Fontanilla's negligence was the cause of
the mishap, as he was driving on the wrong side of the road, and at high speed. As to Barredo's responsibility, the
Court of Appeals found:
"* * * It is admitted that defendant is Fontanilla's employer. There is no proof that he exercised the diligence of a good
father of a family to prevent the damage. (See p. 22, appellant's brief.) In fact it is shown he was careless in employing Fontanilla
who had been caught several times for violation of the Automobile Law and speeding (Exhibit A)violations which appeared in
the records of the Bureau of Public Works available to the public and to himself. Therefore, he must indemnify plaintiffs under
the provisions of article 1903 of the Civil Code."
The main theory of the defense is that the liability of Fausto Barredo is governed by the Revised Penal Code; hence,
his liability is only subsidary, and as there has been no civil action against Pedro Fontanilla, the person criminally
liable, Barredo cannot be
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Barredo vs. Garcia and Almario
held responsible in this case The petitioner's brief states on page 10:
* * * The Court of Appeals holds that the petitioner is being sued for his failure to exercise all the diligence of a good
father of a family in the selection and supervision of Pedro Fontanilla to prevent damages suffered by the respondents. In other
words, the Court of Appeals insists on applying in this case article 1903 of the Civil Code. Article 1903 of the Civil Code is found
in Chapter II, Title 16, Book IV of the Civil Code. This fact makes said article inapplicable to a civil liability arising from a crime
as in the case at bar simply because Chapter II of Title 16 of Book IV of the Civil Code, in the precise words of article 1903 of the
Civil Code itself, is applicable only to "those (obligations) arising from wrongful or negligent acts or omissions not punishable by
law.'"
The gist of the decision of the Court of Appeals is expressed thus:
"* * * We cannot agsee to the defendant's contention. The liability sought to be imposed upon him in this action is not a
civil obligation arising from a felony or a misdemeanor (the crime of Pedro Fontanilla), but an obligation imposed in article 1903
of the Civil Code by reason of his negligence in the selection or supervision of his servant or employee."
The pivotal question in this case is whether the plaintiffs may bring this separate civil action against Fausto
Barredo, thus making him primarily and directly .responsible under article 1903 of the Civil Code as an employer of
Pedro Fontanilla. The defendant maintains that Fontanilla's negligence being punishable by the Penal Code, his
(defendant's) liability as an employer is only subsidary, according to said Penal Code, but Fontanilla has not been
sued in a civil action and his property has not been exhausted. To decide the main issue, we must cut through the
tangle that has, in the minds of many, confused and jumbled together delitos and cuasi-delitos, or crimes under the
Penal Code and fault or negligence under articles 1902-1910 of the Civil Code. This should be done, because justice
may be lost in a labyrinth, unless principles and remedies are distinctly envisaged. Fortunately, we are aided in our
inquiry by the luminous presentacin of this perplexing subject by renown jurists and we' are likewise guided by the
decisions of this Court in previous cases as well as by the solemn clarity of the considerations in several sentences of
the Supreme Tribunal of Spain.
Authorities support the proposition that a quasi-delict or "culpa aquiliana" is a separate legal institution under the
Civil Code, with a substantivity all its own, and individuality that is entirely apart and independent from a delict or
crime. Upon this principle, and on the wording and spirit of article 1903 of the Civil Code, the primary and direct
responsibility of employers may be safely anchored.
The pertinent provisions of the Civil Code and Revised Penal Code are as follows :
CIVIL CODE
"ART. 1089. Obligations arise from law, from contracts and quasi-contracts, and from acts and omissions which are unlawful
or in which any kind of fault or negligence intervenes."
* * * * * *
"ART. 1092. Civil obligations arising from felonies or misdemeanors shall be governed by the provisions of the Penal Code.
"ART. 1093. Those which are derived from acts or omissions in which fault or negligence, not punishable by law, intervenes
shall be subject to the provisions of Chapter II, Title XVI of this book."
* * * * * *
"ART. 1902. Any person who by an act or omission causes damage to another by his fault or negligence shall be liable for the
damage so done.
"ART. 1903. The obligation imposed by the next preceding article is enforcible, not only for personal acts and omissions, but
also for those of persons for whom another is responsible.
"The father, and, in case of his death or incapacity, the mother, are liable for any damages caused by the minor children who
live with them.
"Guardians are liable for damages done by minors or incapacitated persons subject to their authority and living with them.
"Owners or directors of an establishment or business are equally liable for any damages caused by their employees while
engaged in the branch of the service in which employed, or on occasion of the performance of their duties.
"The State is subject to the same liability when it acts through a special agent, but not if the damage shall have been caused
by the official upon whom properly devolved the duty of doing the act performed, in which case the provisions of the next
preceding article shall be applicable.
"Finally, teachers or directors of arts and trades are liable for any damages caused by their pupils or apprentices while they
are under their custody.
"The liability imposed by this article shall cease in case the persons mentioned therein prove that they exercised all the
diligence of a good father of a family to prevent the damage."
"ART. 1904. Any person who pays for damage caused by his employees may recover from the latter what he may have paid."
REVISED PENAL CODE
"ART. 100. Civil liability of a person guilty of felony.Every person criminally liable for a felony is also civilly liable.
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610 PHILIPPINE REPORTS ANNOTATED
Barredo vs. Garcia and Almario
"ART. 101. Rules regarding civil liability in certain cases.The exemption from criminal liability established in subdivisions
1, 2, 3, 5, and 6 of article 12 and in subdivision 4 of article 11 of this Code does not include exemption from civil liability, which
shall be enforced subject to the following rules:
"First. In cases of subdivisions 1, 2 and 3 of article 12 the civil liability for acts committed by any imbecile or insane person,
and by a person under nine years of age, or by one over nine but under fifteen years of age, who has acted without discernment,
shall devolve upon those having such person under their legal authority or control, unless it appears that there was no fault or
negligence on their part.
"Should there be no person having such insane, imbecile or minor under his authority, legal guardanship, or control, or if
such person be insolvent, said insane, imbecile, or minor shall respond with their own property, excepting property exempt from
execution, in accordance with the civil law.
"Second. In cases falling within subdivision 4 of article 11, the persons for whose benefit the harm has been prevented shall
be civilly liable in proportion to the benefit which they may have received.
"The courts shall determine, in their sound discretion, the proportionate amount for which each one shall be liable.
"When the respective shares can not be equitably determined, even approximately, or when the liability also attaches to the
Government, or to the majority of the inhabitants of the town, and, in all events, whenever the damage has been caused with
the consent of the authorities or their agents, indemnification shall be made in the manner prescribed by special laws or
regulations.
"Third. In cases falling within subdivisions 5 and 6 of article 12, the persons using violence or causing the fear shall be
primarily liable and secondarily, or, if there be no such persons, those doing the act shall be liable, saving always to the latter
that part of their property exempt from execution.
"ART. 102. Subsidiary civil liability of innkeepers, tavern keepers and proprietors of establishment. In default of persons
criminally liable, innkeepers, tavern keepers, and any other persons or corporations shall be civilly liable for crimes committed
in their establishments, in all cases where a violation of municipal ordinances or some general or special police regulation shall
have been committed by them or their employees.
"Innkeepers are also subsidarily liable for the restitution of goods taken by robbery or theft within their houses from guests
lodging therein, or for the payment of the value thereof, provided that such guests shall have notified in advance the innkeeper
himself, or the person representing him, of the deposit of such goods within the inn; and shall furthermore have followed the
directions which such innkeeper or his representative may have given them with respect to the care of and vigilance over such
goods. No liability shall attach in case of robbery with violence against or intimidation of persons unless committed by the
innkeeper's employees.
"ART. 103. Subsidiary civil liability of other persons.The subsidary liability established in the next preceding article shall
also apply to employers, teachers, persons, and corporations engaged in any kind of industry for felonies committed by their
servants, pupils, workmen, apprentices, or employees in the discharge of their duties."
* * * * * *
"ART. 365. Imprudence and Negligence.Any person who, by reckless imprudence, shall commit any act which, had it been
intentional, would constitute a grave felony, shall suffer the penalty of arresto mayor in its maximum period to prisin
correccional in its minimum period; if it would have constituted a less grave felony, the penalty of arresto mayor in its minimum
and medium periods shall be imposed.
"Any person who, by simple imprudence or negligence, shall commit an act which would otherwise constitute a grave felony,
shall suffer the penalty of arresto mayor in its medium and maximum periods; if it would have constituted a less serious felony,
the penalty of arresto mayor in its minimum period shall be imposed."
It will thus be seen that while the terms of article 1902 of the Civil Code seem to be broad enough to cover the
driver's negligence in the instant case, nevertheless article 1093 limits cuasi-delitos to acts or omissions "not
punishable by law." But inasmuch as article 365 of the Revised Penal Code punishes not only reckless but even simple
imprudence or negligence, the fault or negligence under article 1902 of the Civil Code has apparently been crowded
out. It is this overlapping that makes the "confusion worse confounded." However, a closer study shows that such a
concurrence of scope in regard to negligent acts does not destroy the distinction between the civil liability arising from
a crime and the responsibility for cuasi-delitos or culpa extra-contractual. The same negligent act causing damages
may produce civil liability arising from a crime under article 100 of the Revised Penal Code, or create an action
for cuasi-delito or culpa extra-contractual under articles 1902-1910 of the Civil Code.
The individuality of cuasi-delito or culpa extra-contractual looms clear and unmistakable. This legal institution is
of ancient lineage, one of its early ancestors being the Lex Aquilia in the Roman Law. In fact, in Spanish legal
trminology, this responsibility is often referred to as culpa aquiliana. The Partidas also contributed to the genealogy
of the present fault or negligence under the Civil Code; for instance, Law 6, Title 15, of Partida 7, says: "Tenudo es de
fazer
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Barredo vs. Garcia and Almario
emienda, porque, cmo quier que el non fizo sabiendas el dano al otro, pero acaesci por su culpa."
The distinctive nature of cuasi-delitos survives in the Civil Code. According to article 1089, one of the five sources
of obligations is this legal institution of cuasi-delito or culpa extra-contractual: "los actos * * * en que
intervenga cualquier genero de culpa o negligencia." Then article 1093 provides that this kind of obligation shall be
governed by Chapter II of Title XVI of Book IV, meaning articles 1902-1910. This portion of the Civil Code is
exclusively devoted to the legal institution of culpa aquiliana.
Some of the differences between crimes under the Penal Code and the culpa aquiliana or cuasi-delito under the
Civil Code are:
1. That crimes affect the public interest, while cuasi-delitos are only of private concern.
2. That, consequently, the Penal Code punishes or corrects the criminal act, while the Civil Code, by means of
indemnification, merely repairs the damage.
3. That delicts are not as broad as quasi-delicts, because the former are punished only if there is a penal law clearly covering
them, while the latter, cuasi-delitos, include all acts in which "any kind of fault or negligence intervenes." However, it should be
noted that not all violations of the penal law produce civil responsibility, such as begging in contravention of ordinances, violation
of the game laws, infraction of the rules of traffic when nobody is hurt. (See Colin and Capitant, "Curso Elemental de Derecho
Civil," Vol. 3, p. 728.)
Let us now ascertain what some jurjsts say on the separate existence of quasi-delicts and the employer's primary
and direct liability under article 1903 of the Civil Code.
Dorado Montero in his essay on "Responsabilidad" in the "Enciclopedia Juridica Espaola" (Vol. XXVII, p. 414)
says:
"El concepto juridico de la responsabilidad civil abarca diversos aspectos y comprende a diferentes personas. Asl, existe una
responsabilidad civil propiamentc dicha, que en ningn caso lleva aparejada responsabilidad criminal alguna, y otra que es
consecuencia indeclinable de la penal que nace de todo delito o falta."
"The juridical concept of civil responsibility has various aspects and comprises different persons. Thus, there is a civil
responsibility, properly speaking, which in no case carries with it any criminal responsibility, and another which is a necesary
consequence of the penal liability as a result of every felony or misdemeanor."
Maura, an outstanding authority, was consulted on the following case: There had been a collision between two
trains belonging respectively to the Ferrocarril Cantabrico and the Ferrocarril del Norte. An employee of the latter
had been prosecuted in a criminal case, in which the company had been made a party as subsidarily responsible in
civil damages. The employee had been acquitted in the criminal case, and the employer, the Ferrocarril del Norte, had
also been exonerated. The question asked was whether the Ferrocarril Cantabrico could still bring a civil action for
damages against the Ferrocarril del Norte. Maura's opinion was in the affirmative, stating in part
(Maura, Dictmenes, Vol. 6, pp. 511-513):
"Quedando las cosas as, a proposito de la realdad pura y neta de los hechos, todavia menos parece sostenible que exista cosa
juzgada acerca de la obligacion civil de indemnizar los quebrantoa y menoscabos inferidos por el choque de los trenee. El ttulo
en que se funda la accin para demandar el resarcimiento, no puede confundirse con las responsabilidades civiles nacidas de
delito, siquiera exista en este, sea 61 cual sea, una culpa rodeada de notas agravatorias que motivan sanciones penales, ms o
menos severas. La lesion causada por delito o falta en los derechos civiles, requiere restituciones, reparaciones o indemnizaciones,
que cual la pena misma atanen al orden publico; por tal motivo vienen encomendadas, de ordinario, al Ministerio Fiscal; y claro
es que si por esta via se enmiendan los quebrantoa y menoscabos, el agraviado excusa procurar el ya conseguido desagravio; pero
esta eventual coincidencia de los efectos, no borra la diversidad originaria de las acciones civiles para pedir indemnizacion.
"Estas, para el caso actual (prescindiendo de culpas contractules, que no vendrian a cuento y que tienen otro regimen),
dimanan, segn el articulo 1902 del Cdigo Civil, de toda accin u omision, causante de daflos o perjuicios, en que intervenga
culpa o negligencia. Es trivial que acciones semejantes son ejercitadas ante los Tribunales de lo civil cotidanamente, sin que la
Justicia punitiva tenga que mezclarse en los asuntos. Los artculos 18 al 21 y 121 al 128 del Cdigo Penal, atentos al espiritu y
a los fines sociales y polticos del mismo, desenvuelven y ordenan la materia de responsabilidades civiles nacidas de delito, en
termmos separados del regimen por ley comun de la culpa que se denomina aquiliana, por alusion a precedentes legislatives
del Corpus Juris. Seria intempestivo un paralelo entre aquellas ordenaciones, y la de la obligation de indemnizar a ttulo de
culpa civil; pero viene al caso y es necesaria una de las diferenciaciones que en el tal parallo se notarian.
"Los artculos 20 y 21 del Cdigo Penal, despus de distribuir a su modo las responsabilidades civiles, entre los que sean por
diversos conceptos culpables del delito o falta, las hacen extensivas a las em-
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Barredo vs. Garcia and Almario
presas y los establecimientos al servicio de los cuales estn los delincuentes; pero ton carcter subsidiario, o sea, Begun el texto
literal, en defecto de los que sean responsables criminalmente. No coincide en ello el Cdigo Civil, cuyo artculo 1903, dice; La
obligacin que impone el artculo anterior es exigible, no slo por los actos y omisiones propios, lino por los de aquellas personas
de quienes se debe responder; personas en la enumeracin de las cuales figuran los dependientes y empleados de los esta-
blecimientos o empresas, sea por actos del servicio, sea con ocasin de sua funciones. Por esto acontece, y se observa en la
jurisprudencia, que las empresas, despulo de intervenir en las causas criminales con el carcter subsidiario de su responsabilidad
civil por razn del delito, son demandadas y condenadas directa y aisladamente, cuando se trata de la obligacion, ante los
tribunales civiles.
"Siendo cmo se ve, diverso el ttulo de esta obligacion, y formando verdadero postulado de nuestro regimen judicial la
separation entre justicia punitiva y tribunales de lo civil, de suerte que tienen unos y otros normaa de fondo en distintos cuerpos
legates, y diferentes modos de proceder, habiendose, por afiadidura, abstenido de asistir al juicio criminal la Compania del
Ferrocarril Cantabrico, que se reservo ejercitar sus acciones, parece innegable que la de indemnizacin por los danos y perjuicios
que le irrogd el choque, no estuvo sub judice ante el Tribunal del Jurado, ni fu sentenciada, sino que permanecio intacta, al
pronunciarse el fallo de 21 de marzo. Aun cuando el veredicto no hubiese sido de inculpabilidad, mostrose ms arriba, que tal
accin quedaba legitimamente reservada para despuea del proceso; pero al declararse que no existid delito, ni responsabilidad
dimanada de delito, materia nica sobre que tenian jurisdiction aquellos juzgadores, se redobla el motivo para la obligacion
civil ex lege, y se patentiza ms y ms que la action para pedir su cumplimiento permanece incolume, extrafia a la cosa juzgada."
"As things are, apropos of the reality pure and simple of the facts, it seems less tenable that there should be res judicata with
regard to the civil obligation for damages on account of the losses caused by the collision of the trains. The title upon which the
action for reparation is based cannot be confused with the civil responsibilities born of a crime, because there exists in the latter,
whatever each nature, a culpa surrounded with aggravating aspects which give rise to penal measures that are more or less
severe. The injury caused by a felony or misdemeanor upon civil rights requires restitutions, reparations, or indemnifications
which, like the penalty itself, affect public order; for this reason, they are ordinarily entrusted to the office of the prosecuting
attorney; and it is clear that if by this means the losses and damages are repaired, the injured party no longer desires to seek
another relief; but this coincidence of effects does not eliminate the peculiar nature of civil actions to ask for indemnity.
"Such civil actions in the present case (without referring to contractual, faults which are not pertinent and belong to another
scope) are derived, according to article 1902 of the Civil Code, from every act or omission causing losses and damages in
which culpa or negligence intervenes. It is unimportant that such actions are every day filed before the civil courts without the
criminal courts interfering therewith. Articles 18 to 21 and 121 to 128 of the Penal Code, bearing in mind the spirit and the social
and political purposes of that Code, develop and regulate the matter of civil responsibilities arising from a crime, separately from
the regime under common law, of culpa which is known as aquiliana, in accordance with legislative precedent of the Corpus
Juris. It would be unwarranted to make a detailed comparison between the former provisions and that regarding the obligation
to indemnify on account of civil culpa; but it is pertinent and necessary to point out to one of such differences.
"Articles 20 and 21 of the Penal Code, after distributing in their own way the civil responsibilities among those who, for
different reasons, are guilty of felony or misdemeanor, make such civil responsibilities applicable to enterprises and estab-
lishments for which the guilty parties render service, but with subsidary character, that is to say, according to the wording of
the Penal Code, in default of those who are criminally responsible. In this regard, the Civil Code does not coincide because article
1903 says: 'The obligation imposed by the next preceding article is demandable, not only for personal acts and omissions, but
also for those of persons for whom another is responsible.' Among the persons enumerated are the subordinates and employees
of establishments or enterprises, either for acts during their service or on the occasion of their functions. It is for this reason that
it happens, and it is so observed in judicial decisions, that the companies or enterprises, after taking part in the criminal cases
because of their subsidiary civil responsibility by reason of the crime, are sued and sentenced directly and separately with regard
to the obligation, before the civil courts.
"Seeing that the title of this obligation is different, and the separation between punitive justice and the civil, courts being a
true postulate of our judicial system, so that they have different fundamental norms in different codes, as well as different modes
of procedure, and inasmuch as the Compania del Ferrocarril Cantabrico has abstained from taking part in the criminal case and
has reserved the right to exercise its actions, it seems undeniable that the action for indemnification for the losses and damages
caused to it by the collision was not sub judice before the Tribunal del Jurado, nor was it the subject of a sentence, but it remained
intact when the decision of March 21 was rendered. Even if the verdict had not been that of acquittal, it has already been shown
that such action had been legitimately reserved till after the criminal prosecu-
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tion; but because of the declaration of the non-existence of the felony and the non-existence of the responsibility arising from the
crime, which was the sole subject matter upon which the Tribunal del Jurado had jurisdiction, there is greater reason for the
civil obligation ex lege, and it becomes clearer that the action for its enforcement remain intact and is not res judicata."
Laurent, a jurist who has written a monumental work on the French Civil Code, on which the Spanish Civil Code
is largely based and whose provisions on cuasi-delito or culpa extra-contractual are similar to those of the Spanish
Civil Code, says, referring to article 1384 of the French Civil Code which corresponds to article 1903, Spanish Civil
Code:
"The action can be brought directly against the person responsible (for another), without including the author of the act. The
action against the principal is accessory in the sense that it implies the existence of a prejudicial act committed by the employee,
but it is not subsidary in the sense that it can not be instituted till after the judgment against the author of the act or at least,
that it is subsidary to the principal action; the action for responsibility (of the employer) is in itself a principal action." (Laurent,
Principles of French Civil Law, Spanish translation, Vol. 20, pp. 734-735.)
Amandi, in his "Cuestionario del Codigo Civil Reformado" (Vol. 4, pp. 429, 430), declares that the responsibility of
the employer is principal and not subsidary. He writes:
"Cuestin 1. La responsabilidad declarada en el artculo 1903 por las acciones u omisiones de aquellas personas por las que
se debe responder, es subsidiaria? es principal? Para contestar a esta pregunta es necesario saber, en primer lugar, en que' se
funda el precepto legal. Es que realmente se impone una responsabilidad por una falta ajena? As parece a primera vista; pero
semejante afirmacin seria contraria a la justicia y a la mxima universal, segn la que las faltas son personales, y cada uno
responde de aquellas que le son imputables. La responsabilidad de que tratamos se impone con ocasin de un delito o culpa, pero
no por causa de ellos, sino por causa del cuasi delito, esto es, de la imprudencia o de la negligencia del padre, del tutor, del dueo
o director del establecimiento, del maestro, etc. Cuando cualquiera de las personas que enumera el artculo citado (menores de
edad, in-capacitados, dependientes, aprendices) causan un dao, la ley presume que el padre, el tutor, el maestro, etc., han
cometido una falta de negligencia para prevenir o evitar el dao. Esta falta es la que la ley castiga. No hay, pues, responsabilidad
por un hecho ajeno, sino en la apariencia; en realidad la responsabilidad se exige por un hecho propio. La idea de que esa
responsabilidad sea subsidaria es, por lo tanto, completamente inadmisible."
"Question No. 1. Is the responsibility declared in article 1903 for the acts or omissions of those persons for whom one is
responsible, subsidary or principal? In order to answer this question it is necessary to know, in the first place, on what the legal
provision is based. Is it true that there is a responsibility for the fault of another person? It seems so at first sight; but such
assertion would be contrary to justice and to the universal maxim that all faults are personal, and that everyone is liable for
those faults that can be imputed to him. The responsibility in question is imposed on the occasion of a crime or fault, but not
because of the same, but because of the cuasi-delito, that is to say, the imprudence or negligence of the father, guardan,
proprietor or manager of the establishment, of the teacher, etc. Whenever anyone of the persons enumerated in the article
referred to (minors, incapacitated persons, employees, apprentices) causes any damage, the law presumes that the father,
guardan, teacher, etc. have committed an act of negligence in not preventing or avoiding the damage. It is this fault that is
condemned by the law. It is, therefore, only apparent that there is a responsibility for the act of another; in reality the
responsibility exacted is for one's own act. The idea that such responsibility is subsidary is, therefore, completely inadmissible."
Oyuelos, in his "Digesto: Principios, Doctrina y Jurisprudencia, Referentes al Cdigo Civil Espaol," says in Vol.
VII, p. 743:
"Es decir, no se responde de hechos ajenos, porque se responde slo de su propia culpa, doctrina del artculo 1902; ms por
excepcin, se responde de la ajena respecto de aquellas personas con las que meda algn nexo o vinculo, que motiva o razona la
responsabilidad. Esta responsabilidad, es directa o es subsidiaria? En el orden penal, el Cdigo de esta clase distingue entre
menores e incapacitados y los dems, declarando directa la primera (artculo 19) y subsidiaria la segunda (articulos 20 y 21);
pero en el orden civil, en el caso del artculo 1903, ha de entenderse directa, pot/el tenor del artculo que impone la responsabilidad
precisamente 'por los actos de aquellas personas de quienes se deba responder.'"
"That is to say, one is not responsible for the acts of others, because one is liable only for his own faults, this being the doctrine
of article 1902; but, by exception, one is liable for the acts of those persons with whom there is a bond or tie which gives rise to
the responsibility. Is this responsibility direct or subsidiary? In the order of the penal law, the Penal Code distinguishes between
minors and incapacitated persons on the one hand, and other persons on the other, declaring that the responsibility for the
former is direct (article 19), and for the latter, subsidiary (articles 20 and 21); but in the scheme of the civil law, in the case of
article 1903, the responsibility should be understood as direct, according to the tenor of that article, for precisely it imposes
responsibility for the acts of
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614 PHILIPPINE REPORTS ANNOTATED
Barredo vs. Garcia and Almario
those persons for whom one should be responsible.'"
Coming now to the sentences of the Supreme Tribunal of Spain, that court has upheld the principles above set
forth: that a quasi-delict or culpa extra-contractual is a separate and distinct legal institution, independent from the
civil responsibility arising from criminal liability, and that an employer is, under article 1903 of the Civil Code, pri-
marily and directly responsible for the negligent acts of his employee.
One of the most important of those Spanish decisions is that of October 21, 1910. In that case, Ramon Lafuente
died as the result of having been run over by a street car owned by the "Compania Electrica Madrilena de Traccin."
The conductor was prosecuted in a criminal case but he was acquitted. Thereupon, the widow filed a civil action
against the street car company, praying for damages in the amount of 15,000 pesetas. The lower court awarded
damages; so the company appealed to the Supreme Tribunal, alleging violation of articles 1902 and 1903 of the Civil
Code because by final judgment the non-existence of fault or negligence had been declared. The Supreme Court of
Spain dismissed the appeal, saying:
"Considerando que el primer motivo del recurso se funda en el equivocado supuesto de que el Tribunal a quo, al condonar a
la Compaa Elctrica Hadrilea al pago del dao causado con la muerte de Ramn Lafuente Izquierdo, desconoce el valor y
efectos jurdicos de la sentencia absolutoria dictada en la causa criminal que se sigui por el mismo hecho, cuando es lo cierto
que de este han conocido las dos jurisdicciones bajo diferentes aspectos, y cmo la de lo criminal declar6 dentro de los limiten de
su competencia que el hecho de que se trata no era constitutivo de delito por no haber mediado descuido o negligencia graves, lo
que no excluye, siendo este el nico fundamento del fallo absolutorio, el concurso de la culpa o negligencia no calificadas, fuente
de obligaciones civiles Segn el artculo 1902 del Cdigo Civil, y que alcanzan, segn el 1903, entre otras personas, a los
Directores de establecimientos o empresas por los daos causados por sus dependientes en determinadas condiciones, es
manifiesto que la de lo civil, al conocer del mismo hecho bajo este ultimo aspecto y al condenar a la Compaa recurrente a la
indemnizacin del dao causado por uno de sus empleados, lejos de infringir los mencionados textos, en relacin con el artculo
116 de la Ley de Enjuiciamiento Criminal, se ha atenido estrictamente a ellos, sin invadir atribuciones ajenas a su jurisdiccin
propia, m contrariar en lo mas mnimo el fallo recado en la causa."
"Considering that the first ground of the appeal is based on the mistaken supposition that the trial court, in sentencing
the Compania Madrilena to the payment of the damage caused by the death of Ramon Lafuente Izquierdo, disregards the value
and juridical effects of the sentence of acquittal rendered in the criminal case instituted on account of the same act, when it is a
fact that the two jurisdictions had taken cognizance of the same act in its different aspects, and as the criminal jurisdiction
declared within the limits of its authority that the act in question did not constitute a felony because there was no grave
carelessness or negligence, and this being the only basis of acquittal, it does not exclude the co-existence of fault or negligence
which is not qualified, and is a source of civil obligations according to article 1902 of the Civil Code, affecting, in accordance with
article 1903, among other persons, the managers of establishments or enterprises by reason of the damages caused by employees
under certain conditions, it is manifest that the civil jurisdiction in taking cognizance of the same act in this latter aspect and in
ordering the company, appellant herein, to pay an indemnity .for the damage caused by one of its employees, far from violating
said legal provisions, in relation with article 116 of the Law of Criminal Procedure, strictly followed the same, without invading
attributes which are beyond its own jurisdiction, and without in any way contradicting the decision in that cause." (Italics
supplied.)
It will be noted, as to the case just cited:
First. That the conductor was not sued in a civil case, either separately or with the street car company. This is precisely
what happens in the present case: the driver, Fontanilla, has not been sued in a civil action, either alone or with his employer.
Second. That the conductor had been acquitted of grave criminal negligence, but the Supreme Tribunal of Spain said that
this did not exclude the co-existence of fault or negligence, which is not qualified, on the part of the conductor, under article 1902
of the Civil Code. In the present case, the taxi driver was found guilty of criminal negligence, so that if he had even sued for his
civil responsibility arising from the crime, he would have been held primarily liable for civil damages, and Barredo would have
been held subsidarily liable for the same. But the plaintiffs are directly suing Barredo, "on his primary responsibility because
of his own presumed negligencewhich he did not overcomeunder article 1903. Thus, there were two liabilities of Barredo:
first, the subsidary one because of the civil liability of the taxi driver arising from the latter's criminal negligence; and, second,
Barredo's primary liability as an employer under article 1903. The plaintiffs were free to choose which course to take, and they
preferred the
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VOL. 73, JULY 8, 1942 615
Barredo vs. Garcia and Almario
second remedy. In so doing, they were acting within their rights. It might be observed in passing, that the plaintiffs chose the
more expeditious and effective method of relief, because Fontanilla was either in prison, or had just been released, and besides,
he was probably without property which might be seized in enforcing any judgment against him for damages.
Third. That inasmuch as in the above sentence of October 21, 1910, the employer was held liable civilly, notwithstanding
the acquittal of the employee (the conductor) in a previous criminal case, with greater reason should Barredo, the employer in
the case at bar, be held liable for damages in a civil suit filed against him because his taxi driver had been convicted. The degree
of negligence of the conductor in the Spanish case cited was less than that of the taxi driver, Fontanilla, because the former was
acquitted in the previous criminal case while the latter was found guilty of criminal negligence and was sentenced to an
indeterminate sentence of one year and one day to two years of prisin correctional.
(See also Sentence of February 19, 1902, which is similar to the one above quoted.)
In the Sentence of the Supreme Court of Spain, dated February 14, 1919, an action was brought against a railroad
company for damages because the station agent, employed by the company, had unjustly and fraudulently, refused to
deliver certain articles consigned to the plaintiff. The Supreme Court of Spain held that this action was properly under
article 1902 of the Civil Code, the court saying:
"Considerando que la sentencia discutida reconoce, en virtud de los hechos que consigna con relacin a las pruebas del pleito:
l., que las expediciones facturadas por la compaa ferroviaria a la consignacin del actor de las vasijas vacas que en su demanda
relacionan tenan cmo fin el que este las devolviera a sus remitentes con vinos y alcoholes; 2., que llegadas a su destino tales
mercancas no se quisieron entregar a dicho consignatario por el jefe de la estacin sin motivo justificado y con intencin dolosa,
y 3.a, que la falta de entrega de estas expediciones al tiempo de reclamarlas el demandante le originaron danos y perjuicios en
cantidad de bastante importancia cmo expendedor al por mayor que era de vinos y alcoholes por las ganancias que dejo de
obtener al verse privado de servir los pedidos que se le haban hecho por los remitentes en loa envases:
"Considerando que sobre esta base hay necesidad de estimar los cuatro motivos que integran este recurso, porque la demanda
inicial del pleito a que se contrae no contiene accin que nazca del incumplimiento del contrato de transporte, toda vez que no se
funda en el retraso de la llegada de las mercancas ni de ningn otro vinculo contractual entre las partes contendientes,
careciendo, por tanto, de aplicacin el artculo 371 del Cdigo de Comercio, en que principalmente descansa el fallo recurrido,
sino que se limita a pedir la reparacin de los danos y perjuicios producidos en el patrimonio del actor por la injustincada y dolosa
negativa del porteador a la entrega de las mercancas a su nombre consignadas, segn lo reconoce la sentencia, y cuya
responsabilidad esta claramente sancionada en el artculo 1902 del Cdigo Civil, que obliga por el siguiente a la Compaa
demandada cmo ligada con el causante de aquellos por relaciones de carcter econmico y de jerarqua administrativa."
"Considering that the sentence, in question recognizes, in virtue of the facts which it declares, in relation to the evidence in
the case: (1) that the invoice issued by the railroad company in favor of the plaintiff contemplated that the empty receptacles
referred to in the complaint should be returned to the consignors with wines and liquors; (2) that when the said merchandise
reached their destination, their delivery to the consignee was refused by the station agent without justification and
with fraudulent intent, and (3) that the lack of delivery of these goods when they were demanded by the plaintiff caused him
losses and damages of considerable importance, as he was a wholesale vendor of wines and liquors and he failed to realize the
profits when he was unable to fill the orders sent to him by the consignors of the receptacles:
"Considering that upon this basis there is need of upholding the four assignments of error, as the original complaint did not
contain any cause of action arising from non-fulfilment of a contract of transportation, because the action was not based on the
delay of the goods nor on any contractual relation between the parties litigant and, therefore, article 371 of the Code of Commerce,
on which the decision appealed from is based, is not applicable; but it limits itself to asking for reparation for losses and damages
produced on the patrimony of the plaintiff tm account of the unjustified and fraudulent refusal of the carrier to deliver the goods
consigned to the plaintiff as stated by the sentence, and the carrier's responsibility is clearly laid down in article 1902 of the Civil
Code which binds, in virtue of the next article, the defendant company, because the latter is connected with the person who
caused the damage by relations of economic character and by administrative hierarchy." (Italics supplied.)
The above case is pertinent because it shows that the same act may come under both the Penal Code and the Civil
Code. In that case, the action of the agent.was unjustified and fraudulent and therefore could have been the subject
of a criminal action. And yet, it was held to be also a proper subject of a civil action under article 1902 of the Civil
Code. It is also to be
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616 PHILIPPINE REPORTS ANNOTATED
Barredo vs. Garcia and Almario
noted that it was the employer and not the employee who was being sued.
Let us now examine the cases previously decided by this Court.
In the leading case of Rakes vs. Atlantic Gulf and Pacific Co. (7 Phil., 359, 362-365 [year 1907]), the trial court
awarded damages to the plaintiff, a laborer of the defendant, because the latter had negligently failed to repair a
tramway, in consequence of which the rails slid off while iron was being transported, and caught the plaintiff whose
leg was broken. This Court held: "It is contended by the defendant, as its first defense to the action that the necessary
conclusion from these collated laws is that the remedy for injuries through negligence lies only in a criminal action in
which the official criminally responsible must be made primarily liable and his employer held only subsidarily to him.
According to this theory the plaintiff should have procured the arrest of the representative of the company accountable
for not repairing the track, and on his prosecution a suitable fine should have been imposed, payable primarily by him
and secondarily by his employer.
"This reasoning misconceived the plan of the Spanish codes upon this subject. Article 1093 of the Civil Code makes obligations
arising from faults or negligence not punished by the law, subject to the provisions of Chapter II of Title XVI. Section 1902 of
that chapter reads:
" 'A person who by an act or omission causes damage to another when there is fault or negligence shall be obliged to repair
the damage so done.
" 'SEC. 1903. The obligation imposed by the preceding article is demandable, not only for personal acts and omissions, but
also for those of the persons for whom they should be responsible.
"'The father, and on his death or incapacity, the mother, is. liable for the damages caused by the minors who live with them.
"'Owners or directors of an establishment or enterprise are equally liable for the damages caused by their employees in the
service of the branches in which the latter may be employed or in the performance of their duties.
* * * * * * * *
"'The liability referred to in this article shall cease when the persons mentioned therein prove that they employed all the
diligence of a good father of a family to avoid the damage.'"
"As an answer to the argument urged in this particular action it may be sufficient to point out that nowhere in our general
statutes is the employer penalized for failure to provide or maintain safe appliances for his workmen. His obligation therefore is
one 'not punished by the laws' and falls under civil rather than criminal jurisprudence. But the answer may be a broader one.
We should be reluctant, under any conditions, to adopt a forced construction of these scientific codes, such as is proposed by the
defendant, that would rob some of these articles of effect, would shut out litigants against their will from the civil courts, would
make the assertion of their rights dependent upon the selection for prosecution of the proper criminal offender, and render
recovery doubtful by reason of the strict rules of proof prevailing in criminal actions. Even if these articles had always stood
alone, such a construction would be unnecessary, but clear light is thrown upon their meaning by the provisions of the Law of
Criminal Procedure of Spain (Ley de Enjuiciamiento Criminal), which, though never in actual force in these Islands, was formerly
given a suppletory or explanatory effect. Under article 111 of this law, both classes of action, civil and criminal, might be
prosecuted jointly or separately, but while the penal action was pending the civil was suspended. According to article 112, the
penal action once started, the civil remedy should be sought therewith, unless it had been waived by the party injured or been
expressly reserved by him for civil proceedings for the future. If the civil action alone was prosecuted, arising out of a crime that
could be enforced only on private complaint, the penal action thereunder should be extinguished. These provisions are in harmony
with those of articles 23 and 133 of our Penal Code on the same subject.
"An examination of this topic might be carried much further, but the citation of these articles suffices to show that.the civil
liability was not intended to be merged in the criminal nor even to be suspended thereby, except as expressly provided in the
law. Where an individual is civilly liable for a negligent act or omission, it is not required that the injured party should seek out
a third person criminally liable whose prosecution must be a condition precedent to the enforcement of the civil right.
"Under article 20 of the Penal Code the responsibility of an employer may be regarded as subsidary in respect of criminal
actions against his employees only while they are in process of prosecution, or in so far as they determine the existence of the
criminal act from which liability arises, and his obligation under the civil law and its enforcement in the civil courts is not barred
thereby unless by the election of the injured person. Inasmuch as no criminal proceeding had been instituted, growing out of the
accident in question, the provisions of the Penal Code can not affect this action. This construction renders it unnecessary to
finally determine here whether this subsidary civil liability in penal actions has survived the laws that fully regulated it or has
been abrogated by the American civil and criminal procedure now in force in the Philippines.
"The difficulty in construing the articles of the code above cited in this case appears from the briefs before us to have arisen
from the interpretation of the words of article 1093, 'fault or negligence
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Barredo vs. Garcia and Almario
not punished by law, as applied to the comprehensive definition of offenses in articles 568 and 590 of the Penal Code. It has been
shown that the liability of an employer arising out of his relation to his employee who is the offender is not to be regarded as
derived from negligence punished by the law, within the meaning of articles 1902 and 1093. More than this, however, it cannot
be said to fall within the class of acts unpunished by the law, the consequences of which are regulated by articles 1902 and 1903
of the Civil Code. The acts to which these articles are applicable are understood to be those not growing out of pre-existing duties
of the parties to one another. But where relations already formed give rise to duties, whether springing from contract or quasi
contract, then breaches of those duties are subject to articles 1101, 1103, and 1104 of the same code. A typical application of this
distinction may be found in the consequences of a railway accident due to defective machinery supplied by the employer. His
liability to his employee would arise out of the contract of employment, that to the passengers out of the contract for passage,
while that to the injured bystander would originate in the negligent act itself."
In Manzanares vs. Moreta, 38 Phil., 821 (year 1918), the mother of the 8 or 9-year-old child Salvador Bona brought
a civil action against Moreta to recover damages resulting from the death of the child, who had been run.over by an
automobile driven and managed by the defendant. The trial court rendered judgment requiring the defendant to pay
the plaintiff the sum of P1,000 as indemnity. This Court in affirming the judgment, said in part:
"If it were true that the defendant, in coming from the southern part of Solana Street, had to stop his auto before crossing
Real Street, because he had met vehicles which were going along the latter street or were coming from the opposite direction
along Solana Street, it is to be believed that, when he again started to run his auto across said Real Street and to continue its
way along Solana Street northward, he should have adjusted the speed of the auto which he was operating until he had fully
crossed Real Street and had completely reached a clear way on Solana Street. But, as the child was run over by the auto precisely
at the entrance of Solana Street, this accident could not have occurred if the auto had been running at a slow speed, aside from
the fact that the defendant, at the moment of crossing Real Street and entering Solana Street, in a northward direction, could
have seen the child in the act of crossing the latter street from the sidewalk on the right to that on the left, and if the accident
had occurred in such a way that after the automobile had run over the body of the child, and the child's body had already been
stretched out on the ground, the automobile still moved along a distance of about 2 meters, this circumstance shows the fact that
the automobile entered Solana Street from Real Street, at a high speed without the defendant having blown the horn. If these
precautions had been taken by the defendant, the deplorable accident which caused the death of the child would not have
occurred."
It will be noticed that the defendant in the above case could have been prosecuted in a criminal case because his
negligence causing the death of the child was punishable by the Penal Code. Here is therefore a clear instance of the
same act of negligence being a proper subject-matter either of a criminal action with its consequent civil liability
arising from a crime or of an entirely separate and independent civil action for fault or negligence under article 1902
of the Civil Code. Thus, in this jurisdiction, the separate individuality of a cuasi-delito or culpa aquiliana under the
Civil Code has been fully and clearly recognized, even with regard to a negligent act for which the wrongdoer could
have been prosecuted and convicted in a criminal case and for which, after such a conviction, he could have been sued
for this civil liability arising from his crime.
Years later (in 1930) this Court had another occasion to apply the same doctrine. In Bernal and Enverso vs. House
and Tacloban Electric & Ice Plant, Ltd., 54 Phil., 327, the parents of the five-year-old child, Purificacion Bernal,
brought a civil action to recover damages for the child's death as a result of burns caused by the fault and negligence
of the defendants. On the evening of April 10, 1925, the Good Friday procession was held in Tacloban, Leyte. Fortunata
Enverso with her daughter Purificacion Bernal had come from another municipality to attend the same. After the
procession the mother and the daughter with two others were passing along Gran Capitan Street in front of the offices
of the Tacloban Electric & Ice Plant, Ltd., owned by defendant J. V. House, when an automobile appeared from the
opposite direction. The little girl, who was slightly ahead of the rest, was so frightened by the automobile that she
turned to run, but unfortunately she fell into the street gutter where hot water from the electric plant was flowing.
The child died that same night from the burns. The trial court dismissed the action because of the contributory
negligence of the plaintiffs. But this Court held, on appeal, that there was no contributory negligence, and allowed the
parents P1,000 in damages from J. V. House who at the time of the tragic occurrence was the holder of the franchise
for the electric plant. This Court said in part:
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618 PHILIPPINE REPORTS ANNOTATED
Barredo vs. Garcia and Almario
"Although the trial judge made the findings of fact hereinbefore outlined, he nevertheless was led to order the dismissal of
the action because of the contributory negligence of the plaintiffs. It is from this point that a majority of the court depart from
the stand taken by the trial judge. The mother and her child had a perfect right to be on the principal street of Tacloban, Leyte,
on the evening when the religious procession was held. There was nothing abnormal in allowing the child to run along a few
paces in advance of the mother. No one could foresee the coincidence of an automobile appearing and of a frightened child running
and falling into a ditch filled with hot water. The doctrine announced in the much debated case of Rakes vs. Atlantic Gulf and
Pacific Co. ([1907], 7 Phil., 359), still rule. Article 1902 of the Civil Code must again be enforced. The contributory negligence of
the child and her mother, if any, does not operate as a bar to recovery, but in its strictest sense could only result in reduction of
the damages."
It is most significant that in the case just cited, this Court specifically applied article 1902 of the Civil Code. It is
thus that although J. V. House could have been criminally prosecuted for reckless or simple negligence and not only
punished but also made civilly liable because of his criminal negligence, nevertheless this Court awarded damages in
an independent civil action for fault or negligence under article 1902 of the Civil Code.
In Bahia vs. Litonjua and Leynes (30 Phil., 624 [year 1915]), the action was for damages for the death of the
plaintiff's daughter alleged to have been caused by the negligence of the servant in driving an automobile over the
child. It appeared that the cause of the mishap was a defect in the steering gear. The defendant Leynes had rented
the automobile from the International Garage of Manila, to be used by him in carrying passengers during the fiesta
of Tuy, Batangas. Leynes was ordered by the lower court to pay P1,000 as damages to the plaintiff. On appeal this
Court reversed the judgment as to Leynes on the ground that he had shown that he exercised the care of a good father
of a family, thus overcoming the presumption of negligence under article 1903. This Court said:
"As to selection, the defendant has clearly shown that he exercised the care and diligence of a good father of a family. He
obtained the machine from a reputable garage and it was, so far as appeared, in good condition. The workmen were likewise
selected from a standard garage, were duly licensed by the Government in their particular calling, and apparently thoroughly
competent. The machine had been used but a few hours when the accident occurred and it is clear from the evidence that the
defendant had no notice, either actual or constructive, of the defective condition of the steering gear."
The legal aspect of the case was discussed by this Court thus:
"Article 1903 of the Civil Code not only establishes liability in eases of negligence, but also provides when the liability shall
cease. It says:
"'The liability referred to in this article shall cease when the persons mentioned therein prove that they employed all the
diligence of a good father of a family to avoid the damage."'
"From this article two things are apparent: (1) That when an injury is caused by the negligence of a servant or employee there
instantly arises a presumption of law that there was negligence on the part of the master or employer either in the selection of
the servant or employee, or in supervision over him after the selection, or both; and (2) that that presumption is juris tantum and
not juris et de jure, and consequently, may be rebutted. It follows necessarily that if the employer shows to the satisfaction of the
court that in selection and supervision he has exercised the care and diligence of a good father of a family, the presumption is
overcome and he is relieved from liability.
"This theory bases the responsibility of the master ultimately on his own negligence and not on that of his servant."
The doctrine of the case just cited was followed by this Court in Cerf vs. Medel (33 Phil., 37 [year 1915]). In the
latter case, the complaint alleged that the defendant's servant had so negligently driven an automobile, which was
operated by defendant as a public vehicle, that said automobile struck and damaged the plaintiff's motorcycle. This
Court, applying article 1903 and following the rule in Bahia vs. Litonjua and Leynes, said in part (p. 41) that:
"The master is liable for the negligent acts of his servant where he is the owner or director of a business or enterprise and the
negligent acts are committed while the servant is engaged in his master's employment as such owner."
Another case which followed the decision in Bahia vs. Litonjua and Leynes was Cuison vs. Norton & Harrison Co.,
55 Phil., 18 (year 1930). The latter case was an action for damages brought by Cuison for the death of his seven-year-
old son Moises. The little boy was on his way to school with his sister Marciana. Some large pieces of lumber fell from
a truck and pinned the boy underneath, instantly killing him. Two youths, Telesforo Binoya and Francisco Bautista,
who were working for Ora, an employee of defendant Norton & Harrison Co., pleaded guilty to the crime of homicide
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Barredo vs. Garcia and Almario
through reckless negligence and were sentenced accordingly. This Court, applying articles 1902 and 1903, held:
"The basis of civil law liability is not respondent superior but the relationship of pater familial. This theory bases the liability
of the master ultimately on his own negligence and not on that of his servant." (Bahia vs. Litonjua and Leynes [1915], 30 Phil.,
624; Cangco vs. Manila Railroad Co. [1918], 38 Phil., 768.)
In Walter A. Smith & Co. vs. Cadwallader Gibson Lumber Co., 55 Phil., 517 (year 1930) the plaintiff brought an
action for damages for the demolition of its wharf, which had been struck by the steamer Helen. C belonging to the
defendant. This Court held (p. 526):
"The evidence shows that Captain Lasa at the time the plaintiff's wharf collapsed was a duly licensed captain, authorized to
navigate and direct a vessel of any tonnage, and that the appellee contracted his services because of his reputation as a captain,
according to F. C. Cadwallader. This being so, we are of the opinion that the presumption of liability against the defendant has
been overcome by the exercise of the care and diligence of a good father of a family in selecting Captain Lasa, in accordance with
the doctrines laid down by this court in the eases cited above, and the defendant is therefore absolved from all liability."
It is, therefore, seen that the defendant's theory about his secondary liability is negatived by the six cases above
set forth. He is, on the authority of these cases, primarily and directly responsible in damages under article 1903, in
relation to article 1902, of the Civil Code.
Let us now take up the Philippine decisions relied upon by the defendant. We study first, City of Manila vs. Manila
Electric Co., 52 Phil., 586 (year 1928). A collision between a truck of the City of Manila and a street car of the Manila
Electric Co. took place on June 8, 1925. The truck was damaged in the amount of P1,788.27. Sixto Eustaquio, the
motorman, was prosecuted for the crime of damage to property and slight injuries through reckless imprudence. He
was found guilty and sentenced to pay a fine of P900, to indemnify the City of Manila for P1,788.27, with subsidary
imprisonment in case of insolvency. Unable to collect the indemnity from Eustaquio, the City of Manila filed an action
against the Manila Electric Company to obtain payment, claiming that the defendant was subsidarily liable.' The
main defense was that the defendant had exercised the diligence of a good father of a family to prevent the damage.
The lower court rendered judgment in favor of the plaintiff. This Court held, in part, that this case was governed by
the Penal Code, saying:
"With this preliminary point out of the way, there is no escaping the conclusion that the provisions of the Penal Code govern.
The Penal Code in easily understandable language authorizes the determination of subsidary liability. The Civil Code negatives
its application by providing that civil obligations arising from crimes or misdemeanors shall be governed by the provisions of the
Penal Code. The conviction of the motorman was a misdemeanor falling under article 604 of the Penal Code. The act of the
motorman was not a wrongful or negligent act or omission not punishable by law. Accordingly, the civil obligation connected up
with the Penal Code and not with article 1903 of the Civil Code. In other words, the Penal Code affirms its jurisdiction while the
Civil Code negatives its jurisdiction. This is a case of criminal negligence out of which civil liability arises and net a case of civil
negligence."
* * * * * * *
"Our deduction, therefore, is that the case relates to the Penal Code and not to the Civil Code. Indeed, as pointed out by the
trial judge, any different ruling would permit the master to escape scot-free by simply alleging and proving that the master had
exercised all diligence in the selection and training of its servants to prevent the damage. That would be a good defense to a
strictly civil action, but might or might not be to a civil action either as a part of or predicated on conviction for a crime or
misdemeanor. (By way of parenthesis, it may be said further that the statements here made are offered to meet the argument
advanced during our deliberations to the effect that article 1902 of the Civil Code should be disregarded and codal articles 1093
and 1903 applied.)"
It is not clear how the above case could support the defendant's proposition, because the Court of Appeals based its
decision in the present case on the defendant's primary responsibility under article 1903 of the Civil Code and not on
his subsidary liability arising from Fontanilla's criminal negligence. In other words, the case of City of
Manila vs. Manila Electric Co., supra, is predicated on an entirely different theory, which is the subsidary liability of
an employer arising from a criminal act of his employee, whereas the foundation of the decision of the Court of Appeals
in the present case is the employer's primary liability under article 1903 of the Civil Code. We have already seen that
this is a proper and independent remedy.
Arambulo vs. Manila Electric Co. (55 Phil., 75), is another case invoked by the defendant. A motorman in the employ
of the Manila Electric Company had been convicted of homicide by simple negligence and sentenced,
620
620 PHILIPPINE REPORTS ANNOTATED
Barredo vs. Garcia and Almario
among other things, to pay the heirs of the deceased the sum of P1,000. An action was then brought to enforce the
subsidary liability of the defendant as employer under the Penal Code. The defendant attempted to show that it had
exercised the diligence of a good father of a family in selecting the motorman, and therefore claimed exemption from
civil liability. But this Court held:
"In view of the foregoing considerations, we are of opinion and so hold, (1) that the exemption from civil liability established
in article 1903 of the Civil Code for all who have acted with the diligence of a good father of a family, is not applicable to the
subsidary civil liability provided in article 20 of the Penal Code."
The above case is also extraneous to the theory of the defendant in the instant case, because the action there had
for its purpose the enforcement of the defendant's subsidary liability under the Penal Code, while in the case at bar,
the plaintiff's cause of action is based on the defendant's primary and direct responsibility under article 1903 of the
Civil Code. In fact, the above case destroys the defendant's contention because that decision illustrates the principle
that the employer's primary responsibility under article 1903 of the Civil Code is different in character from his
subsidary liability under the Penal Code.
In trying to apply the two cases just referred to, counsel for the defendant has failed to recognize the distinction
between civil liability arising from a crime, which is governed by the Penal Code, and the responsibility for cuasi-
delito or culpa aquiliana under the Civil Code, and has likewise failed to give due importance to the latter type of civil
action.
The defendant-petitioner also cites Francisco vs. Onrubia (46 Phil., 327). That case need not be set forth. Suffice it
to say that the question involved was also civil liability arising from a crime. Hence, it is as inapplicable as the two
cases above discussed.
The foregoing authorities clearly demonstrate the separate individuality of cuasi-delitos or culpa aquiliana under
the Civil Code. Specifically they show that there is a distinction between civil liability arising from criminal negligence
(governed by the Penal Code) and responsibility for fault or negligence under articles 1902 to 1910 of the Civil Code,
and that the same negligent act may produce either a civil liability arising from a crime under the Penal Code, or a
separate responsibility for fault or negligence under articles 1902 to 1910 of the Civil Code. Still more concretely, the
authorities above cited render it inescapable to conclude that the employerin this case the defendant-petitioneris
primarily and directly liable under article 1903 of the Civil Code.
The legal provisions, authors, and cases already invoked should ordinarily be sufficient to dispose of this case. But
inasmuch as we are announcing doctrines that have been little understood in the past, it might not be inappropriate
to indicate their foundations.
Firstly, the Revised Penal Code in article 365 punishes not only reckless but also simple negligence. If we were to
hold that articles 1902 to 1910 of the Civil Code refer only to fault or negligence not punished by law, according to the
literal import of article 1093 of the Civil Code, the legal institution of culpa aquiliana would have very little scope and
application in actual life. Death or injury to persons and damage to property through any degree of negligenceeven
the slightestwould have to be indemnified only through the principle of civil liability arising from a crime. In such
a state of affairs, what sphere would remain for cuasi-delito or culpa aquiliana? We are loath to impute to the
lawmaker any intention to bring about a situation so absurd and anomalous. Nor are we, in the interpretation of the
laws, disposed to uphold the letter that killeth rather than the spirit that giveth life. We will not use the literal
meaning of the law to smother and render almost lifeless a principle of such ancient origin and such full-grown
development as culpa aquiliana or cuasi-delito, which is conserved and made enduring in articles 1902 to 1910 of the
Spanish Civil Code.
Secondly, to find the accused guilty in a criminal case, proof of guilt beyond reasonable doubt is required, while in
a civil case, preponderance of evidence is sufficient to make the defendant pay in damages. There are numerous cases
of criminal negligence which can not be shewn beyond reasonable doubt, but can be proved by a preponderance of
evidence. In such cases, the defendant can and should be made responsible in a civil action under articles 1902 to 1910
of the Civil Code. Otherwise, there would be many instances of unvindicated civil wrongs. Ubi jus ibi remedium.
Thirdly, to hold that there is only one way to make defendant's liability effective, and that is, to sue the driver and
exhaust his (the latter's) property first, would be tantamount to compelling the plaintiff to follow a devious and
cumbersome method of obtaining relief. True, there is 'such a remedy under our laws, but there is also a more
expeditious way, which is based on the
621
VOL. 73, JULY 8, 1942 621
Barredo vs. Garcia and Almario
primary and direct responsibility of the defendant under article 1903 of the Civil Code. Our view of the law is more
likely to facilitate remedy for civil wrongs, because the procedure indicated by the defendant is wasteful and productive
of delay, it being a matter of common knowledge that professional drivers of taxis and similar public conveyances
usually do not have sufficient means with which to pay damages. Why, then, should the plaintiff be required in all
cases to go through this roundabout, unnecessary, and probably useless procedure? In construing the laws, courts
have endeavored to shorten and facilitate the pathways of right and justice.
At this juncture, it should be said that the primary and direct responsibility of employers and their presumed
negligence are principles calculated" to protect society. Workmen and employees should be carefully chosen and
supervised in order to avoid injury to the public. It is the masters or employers who principally reap the profits
resulting from the services of these servants and employees. It is but right that they should guarantee the latter's
careful conduct for the personnel and patrimonial safety of''others. As Theilhard has said, "they should reproach
themselves, at least, some for their weakness, others for their poor selection and all for their negligence." And
according to Manresa, "It is much more equitable and just that such responsibility should fall upon the principal or
director who could have chosen a careful and prudent employee, and not upon the injured person who could not
exercise such selection and who used such employee because of his confidence in the principal or director." (Vol. 12, p.
622, 2nd Ed.) Many jurists also base this primary responsibility of the employer on the principle of representacin of
the principal by the agent. Thus, Oyuelos says in the work already cited (Vol. 7, p. 747) that before third persons the
employer and employee "vienen a ser cmo una sola personalidad, por refundicin de la del dependiente en la de quien
le emplea y utiliza." ("become as one personality by the merging of the person of the employee in that of him who
employs and utilizes him.") All these observations acquire a peculiar force and significance when it comes to motor
accidents, and there is need of stressing and accentuating the responsibility of owners of motor vehicles.
Fourthly, because of the broad sweep of the provisions of both the Penal Code and the Civil Code on this subject,
which has given rise to the overlapping or concurrence of spheres already discussed, and for lack of understanding of
the character and efficacy of the action for culpa aquiliana, there has grown up a common practice to seek damages
only by virtue of the civil responsibility arising from a crime, forgetting that there is another remedy, which is by
invoking articles 1902-1910 of the Civil Code. Although this habitual method is allowed by our laws, it has
nevertheless rendered practically useless and nugatory the more expeditious and effective remedy based on culpa
aquiliana or culpa extracontractual. In the present case, we are asked to help perpetuate this usual course. But we
believe it is high time we pointed out to the harm done by such practice and to restore the principle of responsibility
for fault or negligence under articles 1902 et seq. of the Civil Code to its full rigor. It is high time we caused the stream
of quasi-delict or culpa aquiliana to flow on its own natural channel, so tha.t its waters may no longer be diverted into
that 'of a crime under the Penal Code. This will, it is believed, make for the better safeguarding of private rights
because it re-establishes an ancient and additional remedy, and for the further reason that an independent civil action,
not depending on the issues, limitations and results of a criminal prosecution, and entirely directed by the party
wronged or his counsel, is more likely to secure adequate and efficacious redress.
In view of the foregoing, the judgment of, the Court of Appeals should be and is hereby affirmed, with costs against
the defendant-petitoner.
Yulo, C. J., Moran, Ozaeta, and Paras, J J., concur.
Judgment affirmed.
Copyright 2017 Central Book Supply, Inc. All rights reserved.

VOL. 91, JUNE 29, 1979 113


Mendoza vs. Arrieta
No. L-32599. June 29, 1979. *

EDGARDO E. MENDOZA, petitioner, vs. HON. ABUNDIO Z. ARRIETA, Presiding Judge of Branch VIII, Court of
First Instance of Manila, FELINO TIMBOL, and RODOLFO SALAZAR, respondents.
Res Judicata; Judgment; Requisites of the rule of prior judgment as a bar to a subsequent case.Well-settled is the rule that
for a prior judgment to constitute a bar to a subsequent case, the following requisites must concur: (1) it must be a final judgment;
(2) it must have been rendered by a Court having jurisdiction over the subject matter and over the parties; (3) it must be a
judgment on the merits; and (4) there must be, between the first and second actions, identity of parties, identity of subject matter
and identity of cause of action.
Same; Action; Quasi-delict; Damages; The owner of a car which was bumped by a jeep after the latter was bumped from
behind by a truck may still file a civil action for damages against the truck driver and its owner even after the truck driver was
adjudged guilty in the criminal case filed by the jeepney driver against said truck driver and the jeepney driver, in the case filed
by the car owner was acquitted in the criminal case for negligence filed by the car owner against the jeepney driver. Reason: There
is no identity of cause of action between the civil case in question and the criminal case against the truck driver for damage to the
jeep.It is conceded that the first three requisites of res judicata are present. However, we agree with petitioner that there is
no identity of case of action between Criminal Case No. SM-227 and Civil Case No. 80803. Obvious is the fact that in said criminal
case truck driver Montoya was not prosecuted for damage to petitioners car but for damage to the jeep. Neither was truck-owner
Timbol a party in said case. In fact as the trial Court had put it the owner of the Mercedes Benz cannot recover any damages
from the accused Freddie Montoya, he (Mendoza) being a complainant only against Rodolfo Salazar in Criminal Case No. SM-
228. And more importantly, in the criminal cases, the cause of action was the enforcement of the civil liability arising from
criminal negligence under Article 100 of the Revised Penal Code, whereas Civil Case No. 80803 is based on quasi-delict under
Article 2180, in relation to Article 2176 of the Civil Code.

__________________

*FIRST DIVISION
114
114 SUPREME COURT REPORTS
ANNOTATED
Mendoza vs. Arrieta
Same; Same; Failure to make a reservation in the criminal action for negligence of the right to file an independent civil action
does not bar the filing of the latter. Rule 111 of the Rules of Court cannot amend the substantive provision of Art. 31 of the Civil
Code on quasidelict.Interpreting the above provision, this Court, in Garcia vs. Florido, said: As we have stated at the outset,
the same negligent act causing damages may produce a civil liability arising from crime or create an action for quasi-delict or
culpa extra-contractual. The former is a violation of the criminal law, while the latter is a distinct and independent negligence,
having always had its own foundation and individuality. Some legal writers are of the view that in accordance with Article 31,
the Civil Action based upon quasi-delict may proceed independently of the criminal proceeding for criminal negligence and
regardless of the result of the latter. Hence, the proviso in Section 2 of Rule 111 with reference to x x x Articles 32, 33 and 34 of
the Civil Code is contrary to the letter and spirit of the said articles, for these articles were drafted x x x and are intended to
constitute as exceptions to the general rule stated in what is now Section 1 of Rule 111. The proviso, which is procedural, may
also be regarded as an unauthorized amendment of substantive law, Articles 32, 33 and 34 of the Civil Code, which do not provide
for the reservation required in the proviso. x x x.
Same; Same; Articles 2176 and 2177 of the Civil Code creates a civil liability distinct from the civil action arising from the
offense of negligence under the Revised Penal Code. No reservation need be made in the criminal case.In his concurring opinion
in the above case, Mr. Justice Antonio Barredo further observed that inasmuch articles for these articles were drafted x x x and
are intended to conas Articles 2176 and 2177 of the Civil Code create a civil liability distinct and different from the Civil Action
arising from the offense of negligence under the Revised Penal Code, no reservation, therefore, need be made in the criminal
case; that Section 2 of Rule 111 is inoperative, it being substantive in character and is not within the power of the Supreme
Court to promulgate; and even if it were not substantive but adjective, it cannot stand because of its inconsistency with Article
2177, an enactment of the legislature superseding the Rules of 1940.
Same; Same; Where the owner of a car hit by a jeep actively intervened in the prosecution of the criminal case against the
jeepney driver-owner, an independent civil action will no longer lie after the latters acquittal where it is clear from the judgment
that the fact from which the civil might arise did not exist.The circumstances at-
115
VOL. 91, JUNE 29, 1979 115
Mendoza vs. Arrieta
tendant to the criminal case yields the conclusion that petitioner had opted to base his cause of action against jeep-owner-
driver Salazar on culpa criminal and not on culpa aquiliana, as evidenced by his active participation and intervention in the
prosecution of the criminal suit against said Salazar. The latters civil liability continued to be involved in the criminal action
until its termination. Such being the case, there was no need for petitioner to have reserved his right to file a separate civil action
as his action for civil liability was deemed impliedly instituted in Criminal Case No. SM-228.
Same; Same; Same.Crystal clear is the trial courts pronouncement that under the facts of the case, jeep-owner-driver
Salazar cannot be held liable for the damages sustained by petitioners car. In other words, the fact from which the civil might
arise did not exist. Accordingly, inasmuch as petitioners cause of action as against jeep-owner-driver Salazar is ex-delictu,
founded on Article 100 of the Revised Penal Code, the civil action must be held to have been extinguished in consonance with
Section 3(c), Rule 111 of the Rules of Court.
Same; Same; Same.And even if petitioners cause of action as against jeep-owner-driver Salazar were not ex-delictu, the
end result would be the same, it being clear from the judgment in the criminal case that Salazars acquittal was not based upon
reasonable doubt, consequently, a civil action for damages can no longer be instituted. This is explicitly provided for in Article
29 of the Civil Code.

PETITION for review on certiorari of the orders of the Court of First Instance of Manila.

The facts are stated in the opinion of the Court.


David G. Nitafan for petitioner.
Arsenio R. Reyes for respondent Timbol.
Armando M. Pulgado for respondent Salazar.

MELENCIO-HERRERA, J.:

Petitioner, Edgardo Mendoza, seeks a review on Certiorari of the Orders of respondent Judge in Civil Case No.
80803 dismissing his Complaint for Damages based on quasi-delict against respondents Felino Timbol and Rodolfo
Salazar.
The facts which spawned the present controversy may be summarized as follows:
116
116 SUPREME COURT REPORTS
ANNOTATED
Mendoza vs. Arrieta
On October 22, 1969, at about 4:00 oclock in the afternoon, a three-way vehicular accident occurred along Mac-Arthur
Highway, Marilao, Bulacan, involving a Mercedes Benz owned and driven by petitioner; a private jeep owned and
driven by respondent Rodolfo Salazar; and a gravel and sand truck owned by respondent Felipino Timbol and driven
by Freddie Mon-toya. As a consequence of said mishap, two separate Informations for Reckless Imprudence Causing
Damage to Property were filed against Rodolfo Salazar and Freddie Montoya with the Court of First Instance of
Bulacan. The case against truck-driver Montoya, docketed as Criminal Case No. SM-227, was for causing damage to
the jeep owned by Salazar, in the amount of P1,604.00, by hitting it at the right rear portion thereby causing said jeep
to hit and bump an oncoming car, which happened to be petitioners Mercedes Benz. The case against jeep-owner-
driver Salazar, docketed as Criminal Case No. SM-228, was for causing damage to the Mercedes Benz of petitioner in
the amount of P8,890.00.
At the joint trial of the above cases, petitioner testified that jeep-owner-driver Salazar overtook the truck driven by
Montoya, swerved to the left going towards the poblacion of Marilao, and hit his car which was bound for Manila.
Petitioner further testified that before the impact, Salazar had jumped from the jeep and that he was not aware that
Salazars jeep was bumped from behind by the truck driven by Montoya. Petitioners version of the accident was
adopted by truck-driver Montoya. Jeep-owner-driver Salazar, on the other hand, tried to show that, after overtaking
the truck driven by Montoya, he flashed a signal indicating his intention to turn left towards the poblacion of Marilao
but was stopped at the intersection by a policeman who was directing traffic; that while he was at a stop position, his
jeep was bumped at the rear by the truck driven by Montoya causing him to be thrown out of the jeep, which then
swerved to the left and hit petitioners car, which was coming from the opposite direction.
On July 31, 1970, the Court of First Instance of Bulacan, Branch V, Sta. Maria, rendered judgment, stating in its
decretal portion:
IN VIEW OF THE FOREGOING, this Court finds the accused Freddie Montoya GUILTY beyond reasonable doubt of the crime
117
VOL. 91, JUNE 29, 1979 117
Mendoza vs. Arrieta
of damage to property thru reckless imprudence in Crim. Case No. SM-227, and hereby sentences him to pay a fine of P972.50
and to indemnify Rodolfo Salazar in the same amount of P972.50 as actual damages, with subsidiary imprisonment in case of
insolvency, both as to fine and indemnity, with costs.
Accused Rodolfo Salazar is hereby ACQUITTED from the offense charged in Crim. Case No. SM-228, with costs de oficio,
and his bond is ordered cancelled.
SO ORDERED. 1
Thus, the trial Court absolved jeep-owner-driver Salazar of any liability, civil and criminal, in view of its findings that
the collision between Salazars jeep and petitioners car was the result of the former having been bumped from behind
by the truck driven by Montoya. Neither was petitioner awarded damages as he was not a complainant against truck-
driver Montoya but only against jeeep-owner-driver Salazar.
On August 22, 1970, or after the termination of the criminal cases, petitioner filed Civil Case No. 80803 with the
Court of First Instance of Manila against respondents jeep-owner-driver Salazar and Felino Timbol, the latter being
the owner of the gravel and sand truck driven by Montoya, for indemnification for the damages sustained by his car
as a result of the collision involving their vehicles. Jeep-owner-driver Salazar and truck-owner Timbol were joined as
defendants, either in the alternative or in solidum, allegedly for the reason that petitioner was uncertain as to whether
he was entitled to relief against both on only one of them.
On September 9, 1970, truck-owner Timbol filed a Motion to Dismiss Civil Case No. 80803 on the grounds that the
Complaint is barred by a prior judgment in the criminal cases and that it fails to state a cause of action. An Opposition
thereto was filed by petitioner.
In an Order dated September 12, 1970, respondent Judge dismissed the Complaint against truck-owner Timbol for
reasons stated in the afore-mentioned Motion to Dismiss. On September 30, 1970, petitioner sought before this Court
the review of that dismissal, to which petition we gave due course.
On January 30, 1971, upon motion of jeep-owner-driver

__________________

1p. 26, Rollo


118
118 SUPREME COURT REPORTS
ANNOTATED
Mendoza vs. Arrieta
Salazar, respondent Judge also dismissed the case as against the former. Respondent Judge reasoned out that while
it is true that an independent civil action for liability under Article 2177 of the Civil Code could be prosecuted
independently of the criminal action for the offense from which it arose, the New Rules of Court, which took effect on
January 1, 1964, requires an express reservation of the civil action to be made in the criminal action; otherwise, the
same would be barred pursuant to Section 2, Rule 111 x x. Petitioners Motion for Reconsideration thereof was denied
2

in the order dated February 23, 1971, with respondent Judge suggesting that the issue be raised to a higher Court
for a more decisive interpretation of the rule.3

On March 25, 1971, petitioner then filed a Supplemental Petition before us, also to review the last two mentioned
Orders, to which we required jeep-owner-driver Salazar to file an Answer.
The Complaint against
truck-owner Timbol
We shall first discuss the validity of the Order, dated September 12, 1970, dismissing petitioners Complaint against
truck-owner Timbol.
In dismissing the Complaint against the truck-owner, respondent Judge sustained Timbols allegations that the
civil suit is barred by the prior joint judgment in Criminal Cases Nos. SM-227 and SM-228, wherein no reservation to
file a separate civil case was made by petitioner and where the latter actively participated in the trial and tried to
prove damages against jeep-driver-Salazar only; and that the Complaint does not state a cause of action against truck-
owner Timbol inasmuch as petitioner prosecuted jeep-owner-driver Salazar as the one solely responsible for the
damage suffered by his car.
Well-settled is the rule that for a prior judgment to constitute a bar to a subsequent case, the following requisites
must concur: (1) it must be a final judgment; (2) it must have been rendered by a Court having jurisdiction over the
subject

__________________

2pp. 147-449, ibid.


3pp. 138-139, ibid.
119
VOL. 91, JUNE 29, 1979 119
Mendoza vs. Arrieta
matter and over the parties; (3) it must be a judgment on the merits; and (4) there must be, between the first and
second actions, identity of parties, identity of subject matter and identity of cause of action.
It is conceded that the first three requisites of res judicata are present. However, we agree with petitioner that
there is no identity of cause of action between Criminal Case No. SM-227 and Civil Case No. 80803. Obvious is the
fact that in said criminal case truck-driver Montoya was not prosecuted for damage to petitioners car but for damage
to the jeep. Neither was truck-owner Timbol a party in said case. In fact as the trial Court had put it the owner of
the Mercedes Benz cannot recover any damages from the accused Freddie Montoya, he (Mendoza) being a complainant
only against Rodolfo Salazar in Criminal Case No. SM-228. And more importantly, in the criminal cases, the cause
4

of action was the enforcement of the civil liability arising from criminal negligence under Article 100 of the Revised
Penal Code, whereas Civil Case No. 80803 is based on quasi-delict under Article 2180, in relation to Article 2176 of
the Civil Code. As held in Barredo vs. Garcia, et al.: 5

The foregoing authorities clearly demonstrate the separate individuality of cuasi-delitos or culpa aquiliana under the Civil
Code. Specifically they show that there is a distinction between civil liability arising from criminal negligence (governed by the
Penal Code) and responsibility for fault or negligence under articles 1902 to 1910 of the Civil Code, and that the same negligent
act may produce either a civil liability arising from a crime under the Penal Code, or a separate responsibility for fault or
negligence under articles 1902 to 1910 of the Civil Code. Still more concretely, the authorities above cited render it inescapable
to conclude that the employer in this case the defendant-petitioner is primarily and directly liable under article 1903 of the Civil
Code.
That petitioners cause of action against Timbol in the civil case is based on quasi-delict is evident from the recitals in
the complaint, to wit: that while petitioner was driving his car along MacArthur Highway at Marilao, Bulacan, a jeep
owned and driven by Salazar suddenly swerved to his (petitioners) lane and collided with his car; That the sudden
swerving of

___________________

4Decision, p. 26, ibid.


573 Phil. 607, 620 (1942)
120
120 SUPREME COURT REPORTS
ANNOTATED
Mendoza vs. Arrieta
Salazars jeep was caused either by the negligence and lack of skill of Freddie Montoya, Timbols employee, who was
then driving a gravel and sand truck in the same direction as Salazars jeep; and that as a consequence of the collision,
petitioners car suffered extensive damage amounting to P12,248.20 and that he likewise incurred actual and moral
damages, litigation expenses and attorneys fees. Clearly, therefore, the two factors that a cause of action must consist
of, namely: (1) plaintiffs primary right, i.e., that he is the owner of a Mercedes Benz, and (2) defendants delict or
wrongful act or omission which violated plaintiffs primary right, i.e., the negligence or lack of skill either of jeep-
owner Salazar or of Timbols employee, Montoya, in driving the truck, causing Salazars jeep to swerve and collide
with petitioners car, were alleged in the Complaint. 6

Consequently, petitioners cause of action being based on quasi-delict, respondent Judge committed reversible error
when he dismissed the civil suit against the truck-owner, as said case may proceed independently of the criminal
proceedings and regardless of the result of the latter.
Art. 31. When the civil action is based on an obligation not arising from the act or omission complained of as a felony, such civil
action may proceed independently of the criminal proceedings and regardless of the result of the latter.
But it is truck-owner Timbols submission (as well as that of jeep-owner-driver Salazar) that petitioners failure to
make a reservation in the criminal action of his right to file an independent civil action bars the institution of such
separate civil action, invoking section 2, Rule 111, Rules of Court, which says:
Section 2.Independent civil action.In the cases provided for in Articles 31, 32, 33, 34 and 2177 of the Civil Code of the
Philippines, an independent civil action entirely separate and distinct from the criminal action may be brought by the injured
party during the pendency of the criminal case, provided the right is reserved as required in the preceding section. Such civil
action shall proceed independently of the criminal prosecution, and shall require only a preponderance of evidence.
___________________

6Racoma vs. Fortich, 39 SCRA 521 (1971)


121
VOL. 91, JUNE 29, 1979 121
Mendoza vs. Arrieta
Interpreting the above provision, this Court, in Garcia vs. Florido, said: 7

As we have stated at the outset, the same negligent act causing damages may produce a civil liability arising from crime or
create an action for quasi-delict or culpa extra-contractual. The former is a violation of the criminal law, while the latter is a
distinct and independent negligence, having always had its own foundation and individuality. Some legal writers are of the view
that in accordance with Article 31, the civil action based upon quasi-delict may proceed independently of the criminal proceeding
for criminal negligence and regardless of the result of the latter. Hence, the proviso in Section 2 of Rule 111 with reference to x
x x Articles 32, 33 and 34 of the Civil Code is contrary to the letter and spirit of the said articles, for these articles were drafted
x x x and are intended to constitute as exceptions to the general rule stated in what is now Section 1 of Rule 111. The proviso,
which is procedural, may also be regarded as an unauthorized amendment of substantive law, Articles 32, 33 and 34 of the Civil
Code, which do not provide for the reservation required in the proviso. x x x x.
In his concurring opinion in the above case, Mr. Justice Antonio Barredo further observed that inasmuch as Articles
2176 and 2177 of the Civil Code create a civil liability distinct and different from the civil action arising from the
offense of negligence under the Revised Penal Code, no reservation, therefore, need be made in the criminal case; that
Section 2 of Rule 111 is inoperative, it being substantive in character and is not within the power of the Supreme
Court to promulgate; and even if it were not substantive but adjective, it cannot stand because of its inconsistency
with Article 2177, an enactment of the legislature superseding the Rules of 1940.
We declare, therefore, that in so far as truck-owner Timbol is concerned, Civil Case No. 80803 is not barred by the
fact that petitioner failed to reserve, in the criminal action, his right to file an independent civil action based on quasi-
delict.

___________________

752 SCRA 420 (1973)


122
122 SUPREME COURT REPORTS
ANNOTATED
Mendoza vs. Arrieta
The suit against
jeep-owner-driver Salazar
The case as against jeep-owner-driver Salazar, who was acquitted in Criminal Case No. SM-228, presents a different
picture altogether.
At the outset it should be clarified that inasmuch as civil liability coexists with criminal responsibility in negligence
cases, the offended party has the option between an action for enforcement of civil liability based on culpa
criminal under Article 100 of the Revised Penal Code, and an action for recovery of damages based on culpa
aquiliana under Article 2177 of the Civil Code. The action for enforcement of civil liability based on culpa
criminal under section 1 of Rule 111 of the Rules of Court is deemed simultaneously instituted with the criminal
action, unless expressly waived or reserved for separate application by the offended party. 8

The circumstances attendant to the criminal case yields the conclusion that petitioner had opted to base his cause
of action against jeep-owner-driver Salazar on culpa criminal and not on culpa aquiliana, as evidenced by his active
participation and intervention in the prosecution of the criminal suit against said Salazar. The latters civil liability
continued to be involved in the criminal action until its termination. Such being the case, there was no need for
petitioner to have reserved his right to file a separate civil action as his action for civil liability was deemed impliedly
instituted in Criminal Case No. SM-228.
Neither would an independent civil action lie. Noteworthy is the basis of the acquittal of jeep-owner-driver Salazar
in the criminal case, expounded by the trial Court in this wise:
In view of what has been proven and established during the trial, accused Freddie Montoya would be held liable for having
bumped and hit the rear portion of the jeep driven by the accused Rodolfo Salazar.
Considering that the collision between the jeep driven by Rodolfo Salazar and the car owned and driven by Edgardo Mendoza
was the result of the hitting on the rear of the jeep by the truck

__________________

8 Padua vs. Robles, 66 SCRA 485 (1975)


123
VOL. 91, JUNE 29, 1979 123
Mendoza vs. Arrieta
driven by Freddie Montoya, this Court believes that accused Rodolfo Salazar cannot be held liable for the damages sustained by
Edgardo Mendozas car. 9

Crystal clear is the trial Courts pronouncement that under the facts of the case, jeep-owner-driver Salazar cannot be
held liable for the damages sustained by petitioners car. In other words, the fact from which the civil might arise did
not exist. Accordingly, inasmuch as petitioners cause of action as against jeep-owner-driver Salazar is ex-delictu,
founded on Article 100 of the Revised Penal Code, the civil action must be held to have been extinguished in consonance
with Section 3(c), Rule 111 of the Rules of Court which provides:
10

Sec. 3. Other civil actions arising from offenses.In all cases not included in the preceding section the following rules shall be
observed:
xxx
(c) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration
in a final judgment that the fact from which the civil might arise did not exist. x x x
And even if petitioners cause of action as against jeep-owner-driver Salazar were not ex-delictu, the end result would
be the same, it being clear from the judgment in the criminal case that Salazars acquittal was not based upon
reasonable doubt, consequently, a civil action for damages can no longer be instituted. This is explicitly provided for
in Article 29 of the Civil Code quoted hereunder:
Art. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond
reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action requires only a
preponderance of evidence. x x x
If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the absence of
any declaration to that effect, it may be inferred from the text of the decision whether or not the acquittal is due to that ground.

__________________

9pp. 25-26, Rollo


Elcano Hill, 77 SCRA 98 (1977)
10

124
124 SUPREME COURT REPORTS
ANNOTATED
Mendoza vs. Arrieta
In so far as the suit against jeep-owner-driver Salazar is concerned, therefore, we sustain respondent Judges Order
dated January 30, 1971 dismissing the complaint, albeit on different grounds.
WHEREFORE, 1) the Order dated September 12, 1970 dismissing Civil Case No. 80803 against private respondent
Felino Timbol is set aside, and respondent Judge, or his successor, hereby ordered to proceed with the hearing on the
merits; 2) bit the Orders dated January 30, 1971 and February 23, 1971 dismissing the Complaint in Civil Case No.
80803 against respondent Rodolfo Salazar are hereby upheld.
No costs.
SO ORDERED.
Teehankee, (Chairman), Makasiar, Fernandez, Guerrero and De Castro, JJ., concur.
Order dated September 12, 1970 set aside, and Orders dated January 30, 1971 and February 23, 1971 upheld.
Notes.A complaint which alleged that the complainant suffered injuries as a result of the collision between a
jeepney in which she was riding and the petitioners cargo truck recklessly driven by its employee, and for which the
latter had been prosecuted and convicted, is not a suit for civil liability arising from crime but one for damages
resulting from a quasidelict. (De Leon Brokerage Co. vs. Court of Appeals, 4 SCRA 517)
If the injured party chooses an action for quasi-delict, he may hold the employer liable for the negligent act of the
employee, subject, however, to the employers defense of exercise of the diligence of a good father of a family. (Joaquin
vs. Aniceto, 12 SCRA 308).
The overloading of a jeep with which the bus driven by the appellant collided did not constitute a contributory
negligence. (Catuiza vs. People, 13 SCRA 538).
A driver should be especially watchful in anticipation of others who may be using the highway, and his failure to
keep a proper look out for persons and objects in the line to be
125
VOL. 91, JUNE 29, 1979 125
People vs. Beralde
traversed constitutes negligence. (Vda. de Bonifacio vs. B.LT. Bus Co., 34 SCRA 618).
The institution of a criminal action cannot have the effect of interrupting the institution of a civil action based on
a quasidelict. (Capuno vs. Pepsi-Cola Bottling Co. of the Philippines, 13 SCRA 658).
The elements of res judicata are: (a) it must be a final judgment or order; (b) the court that rendered the judgment
or order must have jurisdiction of the subject matter and the parties; (c) it must be a judgment on the merits; and (d)
there must be, between the two cases, identity of parties, identity of subject matter, and identity of cause of action.
(Municipality of Hagonoy, Bulacan vs. Secretary of Agriculture and Natural Resources, 73 SCRA 507).
The reservation to file a separate civil action made in the criminal action does not preclude a subsequent action
based on a quasi-delict. (De Leon Brokerage Co., Inc. vs. Court of Appeals, 4 SCRA 517)
A complaint which alleged that the complainant suffered injuries as a result of the collision between a jeepney in
which she was riding and the petitioners cargo truck recklessly driven by its employee, and for which the latter had
been prosecuted and convicted, is not a suit for civil liability arising from crime but one for damages resulting from a
quasi-delict. (De Leon Brokerage Co., Inc. vs. Court of Appeals, 4 SCRA 517).
If the injured party chooses an action for quasi-delict, he may hold the employer liable for the negligent act of the
employee, subject, however, to the employers defense of exercise of the diligence of a good father of a family. (Joaquin
vs. Aniceto, 12 SCRA 308.)

o0o

Copyright 2017 Central Book Supply, Inc. All rights reserved.


VOL. 91, JUNE 29, 1979 113
Mendoza vs. Arrieta
No. L-32599. June 29, 1979. *

EDGARDO E. MENDOZA, petitioner, vs. HON. ABUNDIO Z. ARRIETA, Presiding Judge of Branch VIII, Court of
First Instance of Manila, FELINO TIMBOL, and RODOLFO SALAZAR, respondents.
Res Judicata; Judgment; Requisites of the rule of prior judgment as a bar to a subsequent case.Well-settled is the rule that
for a prior judgment to constitute a bar to a subsequent case, the following requisites must concur: (1) it must be a final judgment;
(2) it must have been rendered by a Court having jurisdiction over the subject matter and over the parties; (3) it must be a
judgment on the merits; and (4) there must be, between the first and second actions, identity of parties, identity of subject matter
and identity of cause of action.
Same; Action; Quasi-delict; Damages; The owner of a car which was bumped by a jeep after the latter was bumped from
behind by a truck may still file a civil action for damages against the truck driver and its owner even after the truck driver was
adjudged guilty in the criminal case filed by the jeepney driver against said truck driver and the jeepney driver, in the case filed
by the car owner was acquitted in the criminal case for negligence filed by the car owner against the jeepney driver. Reason: There
is no identity of cause of action between the civil case in question and the criminal case against the truck driver for damage to the
jeep.It is conceded that the first three requisites of res judicata are present. However, we agree with petitioner that there is
no identity of case of action between Criminal Case No. SM-227 and Civil Case No. 80803. Obvious is the fact that in said criminal
case truck driver Montoya was not prosecuted for damage to petitioners car but for damage to the jeep. Neither was truck-owner
Timbol a party in said case. In fact as the trial Court had put it the owner of the Mercedes Benz cannot recover any damages
from the accused Freddie Montoya, he (Mendoza) being a complainant only against Rodolfo Salazar in Criminal Case No. SM-
228. And more importantly, in the criminal cases, the cause of action was the enforcement of the civil liability arising from
criminal negligence under Article 100 of the Revised Penal Code, whereas Civil Case No. 80803 is based on quasi-delict under
Article 2180, in relation to Article 2176 of the Civil Code.

__________________

*FIRST DIVISION
114
114 SUPREME COURT REPORTS
ANNOTATED
Mendoza vs. Arrieta
Same; Same; Failure to make a reservation in the criminal action for negligence of the right to file an independent civil action
does not bar the filing of the latter. Rule 111 of the Rules of Court cannot amend the substantive provision of Art. 31 of the Civil
Code on quasidelict.Interpreting the above provision, this Court, in Garcia vs. Florido, said: As we have stated at the outset,
the same negligent act causing damages may produce a civil liability arising from crime or create an action for quasi-delict or
culpa extra-contractual. The former is a violation of the criminal law, while the latter is a distinct and independent negligence,
having always had its own foundation and individuality. Some legal writers are of the view that in accordance with Article 31,
the Civil Action based upon quasi-delict may proceed independently of the criminal proceeding for criminal negligence and
regardless of the result of the latter. Hence, the proviso in Section 2 of Rule 111 with reference to x x x Articles 32, 33 and 34 of
the Civil Code is contrary to the letter and spirit of the said articles, for these articles were drafted x x x and are intended to
constitute as exceptions to the general rule stated in what is now Section 1 of Rule 111. The proviso, which is procedural, may
also be regarded as an unauthorized amendment of substantive law, Articles 32, 33 and 34 of the Civil Code, which do not provide
for the reservation required in the proviso. x x x.
Same; Same; Articles 2176 and 2177 of the Civil Code creates a civil liability distinct from the civil action arising from the
offense of negligence under the Revised Penal Code. No reservation need be made in the criminal case.In his concurring opinion
in the above case, Mr. Justice Antonio Barredo further observed that inasmuch articles for these articles were drafted x x x and
are intended to conas Articles 2176 and 2177 of the Civil Code create a civil liability distinct and different from the Civil Action
arising from the offense of negligence under the Revised Penal Code, no reservation, therefore, need be made in the criminal
case; that Section 2 of Rule 111 is inoperative, it being substantive in character and is not within the power of the Supreme
Court to promulgate; and even if it were not substantive but adjective, it cannot stand because of its inconsistency with Article
2177, an enactment of the legislature superseding the Rules of 1940.
Same; Same; Where the owner of a car hit by a jeep actively intervened in the prosecution of the criminal case against the
jeepney driver-owner, an independent civil action will no longer lie after the latters acquittal where it is clear from the judgment
that the fact from which the civil might arise did not exist.The circumstances at-
115
VOL. 91, JUNE 29, 1979 115
Mendoza vs. Arrieta
tendant to the criminal case yields the conclusion that petitioner had opted to base his cause of action against jeep-owner-
driver Salazar on culpa criminal and not on culpa aquiliana, as evidenced by his active participation and intervention in the
prosecution of the criminal suit against said Salazar. The latters civil liability continued to be involved in the criminal action
until its termination. Such being the case, there was no need for petitioner to have reserved his right to file a separate civil action
as his action for civil liability was deemed impliedly instituted in Criminal Case No. SM-228.
Same; Same; Same.Crystal clear is the trial courts pronouncement that under the facts of the case, jeep-owner-driver
Salazar cannot be held liable for the damages sustained by petitioners car. In other words, the fact from which the civil might
arise did not exist. Accordingly, inasmuch as petitioners cause of action as against jeep-owner-driver Salazar is ex-delictu,
founded on Article 100 of the Revised Penal Code, the civil action must be held to have been extinguished in consonance with
Section 3(c), Rule 111 of the Rules of Court.
Same; Same; Same.And even if petitioners cause of action as against jeep-owner-driver Salazar were not ex-delictu, the
end result would be the same, it being clear from the judgment in the criminal case that Salazars acquittal was not based upon
reasonable doubt, consequently, a civil action for damages can no longer be instituted. This is explicitly provided for in Article
29 of the Civil Code.

PETITION for review on certiorari of the orders of the Court of First Instance of Manila.

The facts are stated in the opinion of the Court.


David G. Nitafan for petitioner.
Arsenio R. Reyes for respondent Timbol.
Armando M. Pulgado for respondent Salazar.

MELENCIO-HERRERA, J.:

Petitioner, Edgardo Mendoza, seeks a review on Certiorari of the Orders of respondent Judge in Civil Case No.
80803 dismissing his Complaint for Damages based on quasi-delict against respondents Felino Timbol and Rodolfo
Salazar.
The facts which spawned the present controversy may be summarized as follows:
116
116 SUPREME COURT REPORTS
ANNOTATED
Mendoza vs. Arrieta
On October 22, 1969, at about 4:00 oclock in the afternoon, a three-way vehicular accident occurred along Mac-Arthur
Highway, Marilao, Bulacan, involving a Mercedes Benz owned and driven by petitioner; a private jeep owned and
driven by respondent Rodolfo Salazar; and a gravel and sand truck owned by respondent Felipino Timbol and driven
by Freddie Mon-toya. As a consequence of said mishap, two separate Informations for Reckless Imprudence Causing
Damage to Property were filed against Rodolfo Salazar and Freddie Montoya with the Court of First Instance of
Bulacan. The case against truck-driver Montoya, docketed as Criminal Case No. SM-227, was for causing damage to
the jeep owned by Salazar, in the amount of P1,604.00, by hitting it at the right rear portion thereby causing said jeep
to hit and bump an oncoming car, which happened to be petitioners Mercedes Benz. The case against jeep-owner-
driver Salazar, docketed as Criminal Case No. SM-228, was for causing damage to the Mercedes Benz of petitioner in
the amount of P8,890.00.
At the joint trial of the above cases, petitioner testified that jeep-owner-driver Salazar overtook the truck driven by
Montoya, swerved to the left going towards the poblacion of Marilao, and hit his car which was bound for Manila.
Petitioner further testified that before the impact, Salazar had jumped from the jeep and that he was not aware that
Salazars jeep was bumped from behind by the truck driven by Montoya. Petitioners version of the accident was
adopted by truck-driver Montoya. Jeep-owner-driver Salazar, on the other hand, tried to show that, after overtaking
the truck driven by Montoya, he flashed a signal indicating his intention to turn left towards the poblacion of Marilao
but was stopped at the intersection by a policeman who was directing traffic; that while he was at a stop position, his
jeep was bumped at the rear by the truck driven by Montoya causing him to be thrown out of the jeep, which then
swerved to the left and hit petitioners car, which was coming from the opposite direction.
On July 31, 1970, the Court of First Instance of Bulacan, Branch V, Sta. Maria, rendered judgment, stating in its
decretal portion:
IN VIEW OF THE FOREGOING, this Court finds the accused Freddie Montoya GUILTY beyond reasonable doubt of the crime
117
VOL. 91, JUNE 29, 1979 117
Mendoza vs. Arrieta
of damage to property thru reckless imprudence in Crim. Case No. SM-227, and hereby sentences him to pay a fine of P972.50
and to indemnify Rodolfo Salazar in the same amount of P972.50 as actual damages, with subsidiary imprisonment in case of
insolvency, both as to fine and indemnity, with costs.
Accused Rodolfo Salazar is hereby ACQUITTED from the offense charged in Crim. Case No. SM-228, with costs de oficio,
and his bond is ordered cancelled.
SO ORDERED. 1

Thus, the trial Court absolved jeep-owner-driver Salazar of any liability, civil and criminal, in view of its findings that
the collision between Salazars jeep and petitioners car was the result of the former having been bumped from behind
by the truck driven by Montoya. Neither was petitioner awarded damages as he was not a complainant against truck-
driver Montoya but only against jeeep-owner-driver Salazar.
On August 22, 1970, or after the termination of the criminal cases, petitioner filed Civil Case No. 80803 with the
Court of First Instance of Manila against respondents jeep-owner-driver Salazar and Felino Timbol, the latter being
the owner of the gravel and sand truck driven by Montoya, for indemnification for the damages sustained by his car
as a result of the collision involving their vehicles. Jeep-owner-driver Salazar and truck-owner Timbol were joined as
defendants, either in the alternative or in solidum, allegedly for the reason that petitioner was uncertain as to whether
he was entitled to relief against both on only one of them.
On September 9, 1970, truck-owner Timbol filed a Motion to Dismiss Civil Case No. 80803 on the grounds that the
Complaint is barred by a prior judgment in the criminal cases and that it fails to state a cause of action. An Opposition
thereto was filed by petitioner.
In an Order dated September 12, 1970, respondent Judge dismissed the Complaint against truck-owner Timbol for
reasons stated in the afore-mentioned Motion to Dismiss. On September 30, 1970, petitioner sought before this Court
the review of that dismissal, to which petition we gave due course.
On January 30, 1971, upon motion of jeep-owner-driver
__________________

1p. 26, Rollo


118
118 SUPREME COURT REPORTS
ANNOTATED
Mendoza vs. Arrieta
Salazar, respondent Judge also dismissed the case as against the former. Respondent Judge reasoned out that while
it is true that an independent civil action for liability under Article 2177 of the Civil Code could be prosecuted
independently of the criminal action for the offense from which it arose, the New Rules of Court, which took effect on
January 1, 1964, requires an express reservation of the civil action to be made in the criminal action; otherwise, the
same would be barred pursuant to Section 2, Rule 111 x x. Petitioners Motion for Reconsideration thereof was denied
2

in the order dated February 23, 1971, with respondent Judge suggesting that the issue be raised to a higher Court
for a more decisive interpretation of the rule. 3

On March 25, 1971, petitioner then filed a Supplemental Petition before us, also to review the last two mentioned
Orders, to which we required jeep-owner-driver Salazar to file an Answer.
The Complaint against
truck-owner Timbol
We shall first discuss the validity of the Order, dated September 12, 1970, dismissing petitioners Complaint against
truck-owner Timbol.
In dismissing the Complaint against the truck-owner, respondent Judge sustained Timbols allegations that the
civil suit is barred by the prior joint judgment in Criminal Cases Nos. SM-227 and SM-228, wherein no reservation to
file a separate civil case was made by petitioner and where the latter actively participated in the trial and tried to
prove damages against jeep-driver-Salazar only; and that the Complaint does not state a cause of action against truck-
owner Timbol inasmuch as petitioner prosecuted jeep-owner-driver Salazar as the one solely responsible for the
damage suffered by his car.
Well-settled is the rule that for a prior judgment to constitute a bar to a subsequent case, the following requisites
must concur: (1) it must be a final judgment; (2) it must have been rendered by a Court having jurisdiction over the
subject

__________________

2pp. 147-449, ibid.


3pp. 138-139, ibid.
119
VOL. 91, JUNE 29, 1979 119
Mendoza vs. Arrieta
matter and over the parties; (3) it must be a judgment on the merits; and (4) there must be, between the first and
second actions, identity of parties, identity of subject matter and identity of cause of action.
It is conceded that the first three requisites of res judicata are present. However, we agree with petitioner that
there is no identity of cause of action between Criminal Case No. SM-227 and Civil Case No. 80803. Obvious is the
fact that in said criminal case truck-driver Montoya was not prosecuted for damage to petitioners car but for damage
to the jeep. Neither was truck-owner Timbol a party in said case. In fact as the trial Court had put it the owner of
the Mercedes Benz cannot recover any damages from the accused Freddie Montoya, he (Mendoza) being a complainant
only against Rodolfo Salazar in Criminal Case No. SM-228. And more importantly, in the criminal cases, the cause
4

of action was the enforcement of the civil liability arising from criminal negligence under Article 100 of the Revised
Penal Code, whereas Civil Case No. 80803 is based on quasi-delict under Article 2180, in relation to Article 2176 of
the Civil Code. As held in Barredo vs. Garcia, et al.: 5

The foregoing authorities clearly demonstrate the separate individuality of cuasi-delitos or culpa aquiliana under the Civil
Code. Specifically they show that there is a distinction between civil liability arising from criminal negligence (governed by the
Penal Code) and responsibility for fault or negligence under articles 1902 to 1910 of the Civil Code, and that the same negligent
act may produce either a civil liability arising from a crime under the Penal Code, or a separate responsibility for fault or
negligence under articles 1902 to 1910 of the Civil Code. Still more concretely, the authorities above cited render it inescapable
to conclude that the employer in this case the defendant-petitioner is primarily and directly liable under article 1903 of the Civil
Code.
That petitioners cause of action against Timbol in the civil case is based on quasi-delict is evident from the recitals in
the complaint, to wit: that while petitioner was driving his car along MacArthur Highway at Marilao, Bulacan, a jeep
owned and driven by Salazar suddenly swerved to his (petitioners) lane and collided with his car; That the sudden
swerving of

___________________

4Decision, p. 26, ibid.


573 Phil. 607, 620 (1942)
120
120 SUPREME COURT REPORTS
ANNOTATED
Mendoza vs. Arrieta
Salazars jeep was caused either by the negligence and lack of skill of Freddie Montoya, Timbols employee, who was
then driving a gravel and sand truck in the same direction as Salazars jeep; and that as a consequence of the collision,
petitioners car suffered extensive damage amounting to P12,248.20 and that he likewise incurred actual and moral
damages, litigation expenses and attorneys fees. Clearly, therefore, the two factors that a cause of action must consist
of, namely: (1) plaintiffs primary right, i.e., that he is the owner of a Mercedes Benz, and (2) defendants delict or
wrongful act or omission which violated plaintiffs primary right, i.e., the negligence or lack of skill either of jeep-
owner Salazar or of Timbols employee, Montoya, in driving the truck, causing Salazars jeep to swerve and collide
with petitioners car, were alleged in the Complaint. 6

Consequently, petitioners cause of action being based on quasi-delict, respondent Judge committed reversible error
when he dismissed the civil suit against the truck-owner, as said case may proceed independently of the criminal
proceedings and regardless of the result of the latter.
Art. 31. When the civil action is based on an obligation not arising from the act or omission complained of as a felony, such civil
action may proceed independently of the criminal proceedings and regardless of the result of the latter.
But it is truck-owner Timbols submission (as well as that of jeep-owner-driver Salazar) that petitioners failure to
make a reservation in the criminal action of his right to file an independent civil action bars the institution of such
separate civil action, invoking section 2, Rule 111, Rules of Court, which says:
Section 2.Independent civil action.In the cases provided for in Articles 31, 32, 33, 34 and 2177 of the Civil Code of the
Philippines, an independent civil action entirely separate and distinct from the criminal action may be brought by the injured
party during the pendency of the criminal case, provided the right is reserved as required in the preceding section. Such civil
action shall proceed independently of the criminal prosecution, and shall require only a preponderance of evidence.

___________________

6Racoma vs. Fortich, 39 SCRA 521 (1971)


121
VOL. 91, JUNE 29, 1979 121
Mendoza vs. Arrieta
Interpreting the above provision, this Court, in Garcia vs. Florido, said: 7

As we have stated at the outset, the same negligent act causing damages may produce a civil liability arising from crime or
create an action for quasi-delict or culpa extra-contractual. The former is a violation of the criminal law, while the latter is a
distinct and independent negligence, having always had its own foundation and individuality. Some legal writers are of the view
that in accordance with Article 31, the civil action based upon quasi-delict may proceed independently of the criminal proceeding
for criminal negligence and regardless of the result of the latter. Hence, the proviso in Section 2 of Rule 111 with reference to x
x x Articles 32, 33 and 34 of the Civil Code is contrary to the letter and spirit of the said articles, for these articles were drafted
x x x and are intended to constitute as exceptions to the general rule stated in what is now Section 1 of Rule 111. The proviso,
which is procedural, may also be regarded as an unauthorized amendment of substantive law, Articles 32, 33 and 34 of the Civil
Code, which do not provide for the reservation required in the proviso. x x x x.
In his concurring opinion in the above case, Mr. Justice Antonio Barredo further observed that inasmuch as Articles
2176 and 2177 of the Civil Code create a civil liability distinct and different from the civil action arising from the
offense of negligence under the Revised Penal Code, no reservation, therefore, need be made in the criminal case; that
Section 2 of Rule 111 is inoperative, it being substantive in character and is not within the power of the Supreme
Court to promulgate; and even if it were not substantive but adjective, it cannot stand because of its inconsistency
with Article 2177, an enactment of the legislature superseding the Rules of 1940.
We declare, therefore, that in so far as truck-owner Timbol is concerned, Civil Case No. 80803 is not barred by the
fact that petitioner failed to reserve, in the criminal action, his right to file an independent civil action based on quasi-
delict.

___________________

752 SCRA 420 (1973)


122
122 SUPREME COURT REPORTS
ANNOTATED
Mendoza vs. Arrieta
The suit against
jeep-owner-driver Salazar
The case as against jeep-owner-driver Salazar, who was acquitted in Criminal Case No. SM-228, presents a different
picture altogether.
At the outset it should be clarified that inasmuch as civil liability coexists with criminal responsibility in negligence
cases, the offended party has the option between an action for enforcement of civil liability based on culpa
criminal under Article 100 of the Revised Penal Code, and an action for recovery of damages based on culpa
aquiliana under Article 2177 of the Civil Code. The action for enforcement of civil liability based on culpa
criminal under section 1 of Rule 111 of the Rules of Court is deemed simultaneously instituted with the criminal
action, unless expressly waived or reserved for separate application by the offended party. 8

The circumstances attendant to the criminal case yields the conclusion that petitioner had opted to base his cause
of action against jeep-owner-driver Salazar on culpa criminal and not on culpa aquiliana, as evidenced by his active
participation and intervention in the prosecution of the criminal suit against said Salazar. The latters civil liability
continued to be involved in the criminal action until its termination. Such being the case, there was no need for
petitioner to have reserved his right to file a separate civil action as his action for civil liability was deemed impliedly
instituted in Criminal Case No. SM-228.
Neither would an independent civil action lie. Noteworthy is the basis of the acquittal of jeep-owner-driver Salazar
in the criminal case, expounded by the trial Court in this wise:
In view of what has been proven and established during the trial, accused Freddie Montoya would be held liable for having
bumped and hit the rear portion of the jeep driven by the accused Rodolfo Salazar.
Considering that the collision between the jeep driven by Rodolfo Salazar and the car owned and driven by Edgardo Mendoza
was the result of the hitting on the rear of the jeep by the truck
__________________

8 Padua vs. Robles, 66 SCRA 485 (1975)


123
VOL. 91, JUNE 29, 1979 123
Mendoza vs. Arrieta
driven by Freddie Montoya, this Court believes that accused Rodolfo Salazar cannot be held liable for the damages sustained by
Edgardo Mendozas car. 9

Crystal clear is the trial Courts pronouncement that under the facts of the case, jeep-owner-driver Salazar cannot be
held liable for the damages sustained by petitioners car. In other words, the fact from which the civil might arise did
not exist. Accordingly, inasmuch as petitioners cause of action as against jeep-owner-driver Salazar is ex-delictu,
founded on Article 100 of the Revised Penal Code, the civil action must be held to have been extinguished in consonance
with Section 3(c), Rule 111 of the Rules of Court which provides:
10

Sec. 3. Other civil actions arising from offenses.In all cases not included in the preceding section the following rules shall be
observed:
xxx
(c) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration
in a final judgment that the fact from which the civil might arise did not exist. x x x
And even if petitioners cause of action as against jeep-owner-driver Salazar were not ex-delictu, the end result would
be the same, it being clear from the judgment in the criminal case that Salazars acquittal was not based upon
reasonable doubt, consequently, a civil action for damages can no longer be instituted. This is explicitly provided for
in Article 29 of the Civil Code quoted hereunder:
Art. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond
reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action requires only a
preponderance of evidence. x x x
If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the absence of
any declaration to that effect, it may be inferred from the text of the decision whether or not the acquittal is due to that ground.

__________________

9pp. 25-26, Rollo


Elcano Hill, 77 SCRA 98 (1977)
10

124
124 SUPREME COURT REPORTS
ANNOTATED
Mendoza vs. Arrieta
In so far as the suit against jeep-owner-driver Salazar is concerned, therefore, we sustain respondent Judges Order
dated January 30, 1971 dismissing the complaint, albeit on different grounds.
WHEREFORE, 1) the Order dated September 12, 1970 dismissing Civil Case No. 80803 against private respondent
Felino Timbol is set aside, and respondent Judge, or his successor, hereby ordered to proceed with the hearing on the
merits; 2) bit the Orders dated January 30, 1971 and February 23, 1971 dismissing the Complaint in Civil Case No.
80803 against respondent Rodolfo Salazar are hereby upheld.
No costs.
SO ORDERED.
Teehankee, (Chairman), Makasiar, Fernandez, Guerrero and De Castro, JJ., concur.
Order dated September 12, 1970 set aside, and Orders dated January 30, 1971 and February 23, 1971 upheld.
Notes.A complaint which alleged that the complainant suffered injuries as a result of the collision between a
jeepney in which she was riding and the petitioners cargo truck recklessly driven by its employee, and for which the
latter had been prosecuted and convicted, is not a suit for civil liability arising from crime but one for damages
resulting from a quasidelict. (De Leon Brokerage Co. vs. Court of Appeals, 4 SCRA 517)
If the injured party chooses an action for quasi-delict, he may hold the employer liable for the negligent act of the
employee, subject, however, to the employers defense of exercise of the diligence of a good father of a family. (Joaquin
vs. Aniceto, 12 SCRA 308).
The overloading of a jeep with which the bus driven by the appellant collided did not constitute a contributory
negligence. (Catuiza vs. People, 13 SCRA 538).
A driver should be especially watchful in anticipation of others who may be using the highway, and his failure to
keep a proper look out for persons and objects in the line to be
125
VOL. 91, JUNE 29, 1979 125
People vs. Beralde
traversed constitutes negligence. (Vda. de Bonifacio vs. B.LT. Bus Co., 34 SCRA 618).
The institution of a criminal action cannot have the effect of interrupting the institution of a civil action based on
a quasidelict. (Capuno vs. Pepsi-Cola Bottling Co. of the Philippines, 13 SCRA 658).
The elements of res judicata are: (a) it must be a final judgment or order; (b) the court that rendered the judgment
or order must have jurisdiction of the subject matter and the parties; (c) it must be a judgment on the merits; and (d)
there must be, between the two cases, identity of parties, identity of subject matter, and identity of cause of action.
(Municipality of Hagonoy, Bulacan vs. Secretary of Agriculture and Natural Resources, 73 SCRA 507).
The reservation to file a separate civil action made in the criminal action does not preclude a subsequent action
based on a quasi-delict. (De Leon Brokerage Co., Inc. vs. Court of Appeals, 4 SCRA 517)
A complaint which alleged that the complainant suffered injuries as a result of the collision between a jeepney in
which she was riding and the petitioners cargo truck recklessly driven by its employee, and for which the latter had
been prosecuted and convicted, is not a suit for civil liability arising from crime but one for damages resulting from a
quasi-delict. (De Leon Brokerage Co., Inc. vs. Court of Appeals, 4 SCRA 517).
If the injured party chooses an action for quasi-delict, he may hold the employer liable for the negligent act of the
employee, subject, however, to the employers defense of exercise of the diligence of a good father of a family. (Joaquin
vs. Aniceto, 12 SCRA 308.)

o0o

Copyright 2017 Central Book Supply, Inc. All rights reserved.

VOL. 160, APRIL 15, 315


1988
Amadora vs. Court of
Appeals
No. L-47745. April 15, 1988. *

JOSE S. AMADORA, LORETA A. AMADORA, JOSE A. AMADORA JR., NORMA A. YLAYA, PANTALEON A.
AMADORA, JOSE A. AMADORA III, LUCY A. AMADORA, ROSALINDA A. AMADORA, PERFECTO A. AMADORA,
SERREC A. AMADORA, VICENTE A. AMADORA and MARIA TISCALINA A. AMADORA,
petitioners, vs. HONORABLE COURT OF APPEALS, COLEGIO DE SAN JOSE-RECOLETOS, VICTOR LLUCH,
SERGIO P. DAMASO, JR., CELESTINO DICON, ANIANO ABELLANA, PABLITO DAFFON, thru his parents and
natural guardians, MR. and MRS. NICANOR GUMBAN, and ROLANDO VALENCIA, thru his guardian, ATTY.
FRANCISCO ALONSO, respondents.
Civil Law; Torts; Article 2180 of the Civil Code should apply to all schools, academic as well as non-academic.After an
exhaustive examination of the problem, the Court has come to the conclusion that the provision in question should apply to all
schools, academic as well as non-academic. Where the school is academic rather than technical or vocational in nature,
responsibility for the tort committed by the student will attach to the teacher in charge of such student, following the first part
of the provision. This is the general rule. In the case of establishments of arts and trades, it is the head thereof, and only he, who
shall be held liable as an exception to the general rule. In other words, teachers in general shall be liable for the acts of their
students except where the school is technical in nature, in which case it is the head thereof who shall be anBwerable. Following
the canon of reddendo singula singulis, teachers should apply to the words pupHs and students and heads of establishments
of arts and trades to the word apprentices.
Same; Same; Same; No substantial distinction between the academic and the non-academic schools insofar as torts
committed by their students are concerned.There is really no substantial distinction between the academic and the non-
academic schools insofar as torts committed by their students are concerned. The same vigilance is expected from the teacher
over the students under his control and supervision, whatever the nature of the school where he is teaching, The suggestion in
the Sxconde and Mercado Cases is that the provision would make the teacher or even the head of the school of arts and
________________

*EN BANC.
316
316 SUPREME
COURT REPORTS
ANNOTATED
Amadora vs. Court of
Appeals
trades liable for an injury caused by any student in its custody but if that same tort were committed in an academic school,
no liability would attach to the teacher or the school head. All other circumstances being the same, the teacher or the head of the
academic school would be absolved whereas the teacher and the head of the nonacademic school would be held liable, and simply
because the latter is a school of arts and trades.
Same; Same; Same; Same; No plausible reason why different degrees of vigilance should be exercised by the school
authorities.The Court cannot see why different degrees of vigilance should be exercised by the school authorities on the basis
only of the nature of their respective schools. There does not seem to be any plausible reason for relaxLng that vigilance simply
because the school is academic in nature and for increasing such vigilance where the school is nonacademic. Notably, the injury
subject of liability is caused by the student and not by the school itself nor it is a result of the operations of the school or its
equipment. The injury contemplated may be caused by any student regardless of the school where he is registered. The teacher
certainly should not be able to excuse himself by simply showing that he is teaching in an academic school where, on the other
hand, the head would be held liable if the school were non-academic.
Same; Same; Same; Same; Same; Reason for the disparity.The reason for the disparity can be traced to the fact that
historically the head of the school of arts and trades exercised a closer tutelage over his pupils than the head of the academic
school. The old schools of arts and trades were engaged in the training of artisans apprenticed to their master who personally
and directly instructed them on the technique and secrets of their craft. The head of the school of arts and trades was such a
master and so was personally involved in the task of teaching his students, who usually even boarded with him and so came
under his constant control, supervision and influence. By contrast, the head of the academic school was not as involved with his
students and exercised only administrative duties over the teachers who were the persons directly dealing with the students.
The head of the academic school had then (as now) only a vicarious relationship with the students. Consequently, while he could
not be directly faulted for the acts of the students, the head of the school of arts and trades, because of his closer ties with them,
could be so blamed.
Same; Same; Same; Same; Same; Same; Distinction no longer obtains at presentIt is conceded that the distinction no
longer obtains at present in view of the expansion of the schools of arts and trades,
317
VOL. 160, 317
APRIL 15, 1988
Amadora us. Court
ofAppeals
the consequent increase in their enrollment, and the corresponding diminution of the direct and personal contact of their
heads with the students. Article 2180, however, remains unchanged. In its present state, the provision must be interpreted by
the Court according to its clear and original mandate until the legislature, taking into account the changes in the situation
subject to be regulated, sees fit to enact the necessary amendment.
Same; Same; Custody requirement; Article 2180 of the Civil Code does not mean that the student must be boarding with the
school authorities but the student should be within the control and under its influence at the time of the occurrence of the injury.
From a reading of the provision under examination, it is clear that while the custody requirement, to repeat Palisoc vs. Brillantes,
does not mean that the student must be boarding with the school authorities, it does signify that the student should be within
the control and under the influence of the school authorities at the time of the occurrence of the injury. This does not necessarily
mean that such custody be co-terminous with the semester, beginning with the start of classes and ending upon the close thereof,
and excluding the time before or after such period, such as the period of registration, and in the case of graduating students, the
period before the commencement exercises. In the view of the Court, the student is in the custody of the school authorities as
long as he is under the control and influence of the school and within its premises, whether the semester has not yet begun or
has already ended.
Same; Same; Same; Extent ofresponsibility;As long as the student is in the school premises in pursuance of a legitimate
purpose, the responsibility of the school authorities over the student continues.As long as it can be shown that the student is in
the school premises in pursuance of a legitimate student objective, in the exercise of a legitimate student right, and even in the
enjoyment of a legitimate student privilege, the responsibility of the school authorities over the student continues. Indeed, even
if the student should be doing nothing more than relaxing in the campus in the company of his classmates and friends and
enjoying the ambience and atmosphere of the school, he is still within the custody and subject to the discipline of the school
authorities under the provisions of Article 2180.
Same; Same; Same; Same; Teacher-in-charge must answer for his students torts.During all these occasions, it is obviously
the teacherin-charge who must answer for his students torts, in practically the same way that the parents are responsible for
the child when he is in
318
318 SUPREME
COURT REPORTS
ANNOTATED
Amadora vs. Court
ofAppeals
their custody. The teacher-in-charge is the one designated by the dean, principal, or other administrative superior to exercise
supervision over the pupils in the specific classes or sections to which they are assigned. It is not necessary that at the time of
the injury, the teacher be physically present and in a position to prevent it. Custody does not connote immediate and actual
physical control but refers more to the influence exerted on the child and the discipline instilled in him as a result of such
influence. Thus, for the injuries caused by the student, the teacher and not the parent shall be held responsible if the tort was
committed within the premises of the school at any time when its authority could be validly exercised over him.
Same; Same; Same; Same; Same; The school may be held to answer for the acts of its teachers or even of the head thereof
under the general principle of respondent superior but may exculpate itself from liability by proof that it had exercised the diligence
of a bonus paterfamilias.In any event, it should be noted that the liability imposed by this article is supposed to fall directly
on the teacher or the head of the school of arts and trades and not on the school itself. If at all, the school, whatever its nature,
may be held to answer for the acts of its teachers or even of the head thereof under the general principle of respondent superior,
but then it may exculpate itself from liability by proof that it had exercised the diligence of a bonus paterfamilias,
Same; Sarne; Same; Same; Same; Same; Such defense also available to the teacher or the head of the school of arts and
trade,Such defense is, of course, also available to the teacher or the head of the school of arts and trades directly held to answer
for the tort committed by the student. As long as the defendant can show that he had taken the necessary precautions to prevent
the injury complained of, he can exonerate himself from the liability imposed by Article 2180.
Same; Same; Same; Same; Same; Same; Same; Liability attaches to the teacher and the head of the technical school although
the wrongdoer was already of age.In this connection, it should be observed that the teacher will be held liable not only when
he is acting in loco parentis for the law does not require that the offending student be of minority age. Unlike the parent, who
will be liable only if his child is still a minor, the teacher is held answerable by the law for the act of the student under him
regardless of the students age. Thus, in the Palisoc Case, liability attached to the teacher and the head of the technical school
although the wrongdoer was already of age. In this sense, Article 2180 treats the parent more favorably than the teacher.
319
VOL. 160, APRIL 15, 319
1988
Amadora vs. Court of
Appeals
PETITION for certiorari to review the decision of the Court of Appeals.

The facts are stated in the opinion of the court.


Jose S. Amadora & Associates for petitioners.
Padilla Law Office for respondents.

CRUZ, J.:

Like any prospective graduate, Alfredo Amadora was looking forward to the commencement exercises where he would
ascend the stage and in the presence of his relatives and friends receive his high school diploma, These ceremonies
were scheduled on April 16, 1972. As it turned out, though, fate would intervene and deny him that awaited
experience. On April 13, 1972, while they were in the auditorium of their school, the Colegio de San Jose-Recoletes, a
classmate, Pablito Daffon, fired a gun that mortally hit Alfredo, ending all his expectations and his life as welL The
victim was only seventeen years old. 1

Daffon was convicted of homicide thru reckless imprudence. Additionally, the herein petitioners, as the victims
2

parents, Sled a civil action for damages under Article 2180 of the Civil Code against the Colegio de San Jose-Recoletos,
its rector, the high school principal, the dean of boys, and the physics teacher, together with Daffon and two other
students, through their respective parents, The complaint against the students was later dropped. After trial, the
Court of First Instance of Cebu held the remaining defendants liable to the plaintiffs in the sum of P294,984.00,
representing death compensation, loss of earning capacity, costs of litigation, funeral expenses, moral damages,
exemplary damages, and attorneys fees. On appeal to the respondent court, however, the decision was reversed and
3

all the defendants were completely absolved. 4

In its decision, which is now the subject of this petition for certiorari under Rule 45 of the Rules of Court, the
respondent
________________

1 Rollo, pp. 63, 157.


2 Ibid., p. 38.
3 Id., p. 23.

4 Id., p. 31. Climaco, J., ponente, with Pascual and Agcaoili, JJ.

320
320 SUPREME COURT
REPORTS
ANNOTATED
Amadora vs. Court of
Appeals
court found that Article 2180 was not applicable as the Colegio de San Jose-Recoletos was not a school of arts and
trades but an academic institution of learning. It also held that the students were not in the custody of the school at
the time of the incident as the semester had already ended, that there was no clear identification of the fatal gun, and
that in any event the defendants had exercised the necessary diligence in preventing the injury. 5

The basic undisputed facts are that Alfredo Amadora went to the San Jose-Recoletos on April 13, 1972, and while
in its auditorium was shot to death by Pablito Daffon, a classmate. On the implications and consequences of these
facts, the parties sharply disagree.
The petitioners contend that their son was in the school to finish his physics experiment as a prerequisite to his
graduation; hence, he was then under the custody of the private respondents. The private respondents submit that
Alfredo Amadora had gone to the school only for the purpose of submitting his physics report and that he was no
longer in their custody because the semester had already ended.
There is also the question of the identity of the gun used which the petitioners consider important because of an
earlier incident which they claim underscores the negligence of the school and at least one of the private respondents.
It is not denied by the respondents that on April 7, 1972, Sergio Damaso, Jr., the dean of boys, confiscated from Jose
Gumban an unlicensed pistol but later returned it to him without making a report to the principal or taking any
further action. As Gumban was one of the companions of Daffon when the latter fired the gun that killed Alfredo, the
6

petitioners contend that this was the same pistol that had been confiscated from Gumban and that their son would
not have been killed if it had not been returned by Damaso. The respondents say, however, that there is no proof that
the gun was the same firearm that killed Alfredo.
Resolution of all these disagreements will depend on the interpretation of Article 2180 which, as it happens, is
invoked
________________

5Id., pp. 3031.


6Id., pp. 23, 272.
321
VOL. 160, APRIL 15, 321
1988
Amadora vs. Court of
Appeals
by both parties in support of their conflicting positions. The pertinent part of this article reads as follows:
Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students
or apprentices so long as they remain in their custody.
Three cases have so far been decided by the Court in connection with the above-quoted provision, to wit: Exconde v.
Capuno, Mercado v. Court of Appeals, and Palisoc v. Brillantes. These will be briefly reviewed in this opinion for a
7 8 9

better resolution of the case at bar.


In the Exconde Case, Dante Capuno, a student of the Balintawak Elementary School and a Boy Seout, attended a
Rizal Day parade on instructions of the city school supervisor. After the parade, the boy boarded a jeep, took over its
wheel and drove it so recklessly that it turned turtle, resulting in the death of two of its passengers. Dante was found
guilty of double homicide with reckless imprudence. In the separate civil action filed against them, his father was held
solidarily liable with him in damages under Article 1903 (now Article 2180) of the Civil Code for the tort committed
by the 15-year old boy.
This decision, which was penned by Justice Bautista Angelo on June 29,1957, exculpated the school in an obiter
dictum (as it was not a party to the case) on the ground that it was not a school of arts and trades. Justice J.B.L.
Reyes, with whom Justices Sabino Padilla and Alex Reyes concurred, dissented, arguing that it was the school
authorities who should be held liable. Liability under this rule, he said, was imposed on (1) teachers in general; and
(2) heads of schools of arts and trades in particular. The modifying clause of establishments of arts and trades should
apply only to heads and not teachers.
Exconde was reiterated in the Mercado Case, and with an elaboration. A student cut a classmate with a razor blade
during recess time at the Lourdes Catholic School in Quezon City, and the parents of the victim sued the culprits
parents for damages. Through Justice Labrador, the Court declared in
________________

7 101 Phil. 843.


8 108 Phil. 414.
9 41 SCRA 548.

322
322 SUPREME COURT
REPORTS
ANNOTATED
Amadora vs. Court of
Appeals
another obiter (as the school itself had also not been sued) that the school was not liable because it was not an
establishment of arts and trades. Morever. the custody requirement had not been proved as this contemplates a
situation where the student lives and boards with the teacher, such that the control, direction and influences on the
pupil supersede those of the parents. Justice J.B.L. Reyes did not take part but the other members of the court
concurred in this decision promulgated on May 30,1960.
In Palisoc vs. Brillantes, decided on October 4, 1971, a 16year old student was killed by a classmate with fist blows
in the laboratory of the Manila Technical Institute. Although the wrongdoer-who was already of agewas not
boarding in the school, the head thereof and the teacher in charge were held solidarily liable with him. The Court
declared through Justice Teehankee:
The phrase used in the cited article'so long as (the students) remain in their custody'means the protective and supervisory
custody that the school and its heads and teachers exercise over the pupils and students for as long as they are at attendance in
the school, including recess time. There is nothing in the law that requires that for such liability to attach, the pupil or student
who commits the tortious act must live and board in the school, as erroneously held by the lower court, and the dicta in Mercado
(as well as in Exconde) on which it relied, must now be deemed to have been set aside by the present decision.
This decision was concurred in by five other members, including Justice J.B.L. Reyes, who stressed, in answer to the
10

dissenting opinion, that even students already of age were covered by the provision since they were equally in the
custody of the school and subject to its discipline. Dissenting with three others, Justice Makalintal was for retaining
11

the custody interpretation in Mercado and submitted that the rule should apply only to torts committed by students
not yet of age as the school would be acting only in loco parentis.
In a footnote, Justice Teehankee said he agreed with Justice
________________

Concepcion, C.J., Reyes, Barredo, Villamor, and Makasiar, JJ.


10

Castro, Fernando, and Zaldivar, JJ.


11

323
VOL. 160, APRIL 15, 323
1988
Amadora vs. Court of
Appeals
Reyes dissent in the Exconde Case but added that since the school involved at bar is a non-academic school, the
question as to the applicability of the cited codal provision to academic institutions will have to await another case
wherein it may properly be raised.
This is the case.
Unlike in Exconde and Mercado, the Colegio de San JoseRecoletos has been directly impleaded and is sought to be
held liable under Article 2180; and unlike in Palisoc, it is not a school of arts and trades but an academic institution
of learning. The parties herein have also directly raised the question of whether or not Article 2180 covers even
establishments which are technically not schools of arts and trades, and, if so, when the offending student is supposed
to be in its custody.
After an exhaustive examination of the problem, the Court has come to the conclusion that the provision in question
should apply to all schools, academic as well as non-academic. Where the school is academic rather than technical or
vocational in nature, responsibility for the tort committed by the student will attach to the teacher in charge of such
student, following the first part of the provision. This is the general rule. In the case of establishments of arts and
trades, it is the head thereof, and only he, who shall be held liable as an exception to the general rule. In other words,
teachers in general shall be liable for the acts of their students except where the school is technical in nature, in which
case it is the head thereof who shall be answerable. Following the canon of reddendo singula singulis, teachers
should apply to the words pupils and students and heads of establishments of arts and trades to the word
apprentices.
The Court thus conforms to the dissenting opinion expressed by Justice J.B.L. Reyes in Exconde where he said in
part:
I can see no sound reason for limiting Art. 1903 of the Old Civil Code to teachers of arts and trades and not to academic ones.
What substantial difference is there between them insofar as concerns the proper supervision and vigilance over their pupils? It
cannot be seriously contended that an academic teacher is exempt from the duty of watching that his pupils do not commit a tort
to the detriment of third persons, so long as they are in a position to exercise authority and supervision over the pupil. In my
opinion, in the phrase teachers or
324
324 SUPREME COURT
REPORTS
ANNOTATED
Amadora vs. Court of
Appeals
heads of establishments of arts and trades used in Art. 1903 of the old Civil Code, the words arts and trades does not qualify
teachers but only Tieads of establishments. The phrase is only an updated version of the equivalent terms preceptores x
artesanos used in the Italian and Prench Civil Codes.
If, as conceded by all commentators, the basis of the presumption of negligence of Art. 1903 in some culpa in vigilando that
the parents, teachers, etc. are supposed to have incurred in the exercise of their authority, it would seem clear that where the
parent places the child under the effective authority of the teacher, the latter, and not the parent, should be the one answerable
for the torts committed while under his custody, for the very reason that the parent is not supposed to interfere with the discipline
of the school nor with the authority and supervision of the teacher while the child is under instruction. And if there is no
authority, there can be no responsibility.
There is really no substantial distinction between the academic and the non-academic schools insofar as torts
committed by their students are concerned. The same vigilance is expected from the teacher over the students under
his control and supervision, whatever the nature of the school where he is teaching. The suggestion in the Exconde
and Mercado Cases is that the provision would make the teacher or even the head of the school of arts and trades
liable for an injury caused by any student in its custody but if that same tort were committed in an academic school,
no liability would attach to the teacher or the school head. All other circumstances being the same, the teacher or the
head of the academic school would be absolved whereas the teacher and the head of the non-academic school would be
held liable, and simply because the latter is a school of arts and trades.
The Court cannot see why different degrees of vigilance should be exercised by the school authorities on the basis
only of the nature of their respective schools. There does not seem to be any plausible reason for relaxing that vigilance
simply because the school is academic in nature and for increasing such vigilance where the school is non-academic.
Notably, the injury subject of liability is caused by the student and not by the school itself nor is it a result of the
operations of the,school or its equipment. The injury contemplated may be caused by any student regardless of the
school where he is registered. The
325
VOL. 160, APRIL 15, 325
1988
Amadora vs. Court of
Appeals
teacher certainly should not be able to excuse himself by simply showing that he is teaching in an academic school
where, on the other hand, the head would be held liable if the school were non-academic.
These questions, though, may be asked: If the teacher of the academic school is to be held answerable for the torts
committed by his students, why is it the head of the school only who is held liable where the injury is caused in a
school of arts and trades? And in the case of the academic or non-technical school, why not apply the rule also to the
head thereof instead of imposing the liability only on the teacher?
The reason for the disparity can be traced to the fact that historically the head of the school of arts and trades
exercised a closer tutelage over his pupils than the head of the academic school. The old schools of arts and trades
were engaged in the training of artisans apprenticed to their master who personally and directly instructed them on
the technique and secrets of their craft. The head of the school of arts and trades was such a master and so was
personally involved in the task of teaching his students, who usually even boarded with him and so came under his
constant control, supervision and influence. By contrast, the head of the academic school was not as involved with his
students and exercised only administrative duties over the teachers who were the persons directly dealing with the
students. The head of the academic school had then (as now) only a vicarious relationship with the students.
Consequently, while he could not be directly faulted for the acts of the students, the head of the school of arts and
trades, because of his closer ties with them, could be so blamed.
It is conceded that the distinction no longer obtains at present in view of the expansion of the schools of arts and
trades, the consequent increase in their enrollment, and the corre-sponding diminution of the direct and personal
contract of their heads with the students. Article 2180, however, remains unchanged. In its present state, the provision
must be interpreted by the Court according to its clear and original mandate until the legislature, taking into account
the changes in the situation subject to be regulated, sees fit to enact the necessary amendment.
The other matter to be resolved is the duration of the respon-
326
326 SUPREME COURT
REPORTS
ANNOTATED
Amadora vs. Court of
Appeals
sibility of the teacher or the head of the school of arts and trades over the students. Is such responsibility co-extensive
with the period when the student is actually undergoing studies during the school term, as contended by the
respondents and impliedly admitted by the petitioners themselves?
From a reading of the provision under examination, it is clear that while the custody requirement, to repeat Palisoc
v. Brillantes, does not mean that the student must be boarding with the school authorities, it does signify that the
student should be within the control and under the influence of the school authorities at the time of the occurrence of
the injury, This does not necessarily mean that such, custody be co-terminous with the semester, beginning with the
start of classes and ending upon the close thereof, and excluding the time before or after such period, such as the
period of registration, and in the case of graduating students, the period before the commencement exercises. In the
view of the Court, the student is in the custody of the school authorities as long as he is under the control and influence
of the school and within its premises, whether the semester has not yet begun or has already ended.
It is too tenuous to argue that the student comes under the discipline of the school only upon the start of classes
notwithstanding that before that day he has already registered and thus placed himself under its rules. Neither should
such discipline be deemed ended upon the last day of classes notwithstanding that there may still be certain requisites
to be satisfied for completion of the course, such as submission of reports, term papers, clearances and the like. During
such periods, the student is still subject to the disciplinary authority of the school and cannot consider himself released
altogether from observance of its rules.
As long as it can be shown that the student is in the school premises in pursuance of a legitimate student objective,
in the exercise of a legitimate student right, and even in the enjoyment of a legitimate student right, and even in the
enjoyment of a legitimate student privilege, the responsibility of the school authorities over the student continues.
Indeed, even if the student should be doing nothing more than relaxing in the campus in the company of his classmates
and friends and enjoying the ambience and atmosphere of the school, he is still
327
VOL. 160, APRIL 15, 327
1988
Amadora vs. Court of
Appeals
within the custody and subject to the discipline of the school authorities under the provisions of Article 2180.
During all these occasions, it is obviously the teacher-incharge who must answer for his students torts, in
practically the same way that the parents are responsible for the child when he is in their custody. The teacher-in-
charge is the one designated by the dean, principal, or other administrative superior to exercise supervision over the
pupils in the specific classes or sections to which they are assigned. It is not necessary that at the time of the injury,
the teacher be physically present and in a position to prevent it. Custody does not connote immediate and actual
physical control but refers more to the influence exerted on the child and the discipline instilled in him as a result of
such influence. Thus, for the injuries caused by the student, the teacher and not the parent shall be held responsible
if the tort was committed within the premises of the school at any time when its authority could be validly exercised
over him.
In any event, it should be noted that the liability imposed by this article is supposed to fall directly on the teacher
or the head of the school of arts and trades and not on the school itself. If at all, the school, whatever its nature, may
be held to answer for the acts of its teachers or even of the head thereof under the general principle of respondent
superior, but then it may exculpate itself from liability by proof that it had exercised the diligence of a bonus
paterfamilias.
Such defense is, of course, also available to the teacher or the head of the school of arts and trades directly held to
answer for the tort committed by the student. As long as the defendant can show that he had taken the necessary
precautions to prevent the injury complained of, he can exonerate himself from the liability imposed by Article 2180,
which also states that:
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damages.
In this connection, it should be observed that the teacher will be held liable not only when he is acting in loco
parentis for the law does not require that the offending student be of minority
328
328 SUPREME COURT
REPORTS
ANNOTATED
Amadora vs. Court of
Appeals
age. Unlike the parent, who will be liable only if his child is still a minor, the teacher is held answerable by the law
for the act of the student under him regardless of the students age. Thus, in the Palisoc Case, liability attached to the
teacher and the head of the technical school although the wrongdoer was already of age. In this sense, Article 2180
treats the parent more favorably than the teacher.
The Court is not unmindful of the apprehensions expressed by Justice Makalintal in his dissenting opinion in
Palisoc that the school may be unduly exposed to liabUity under this article in view of the increasing activism among
the students that is likely to cause violence and resulting injuries in the school premises. That is a valid fear, to be
sure. Nevertheless, it should be repeated that, under the present ruling, it is not the school that will be held directly
liable. Moreover, the defense of due diligence is available to it in case it is sought to be held answerable as principal
for the acts or omission of its head or the teacher in its employ.
The school can show that it exercised proper measures in selecting the head or its teachers and the appropriate
supervision over them in the custody and instruction of the pupils pursuant to its rules and regulations for the
maintenance of discipline among them. In almost all cases now, in fact, these measures are effected through the
assistance of an adequate security force to help the teacher physically enforce those rules upon the students. This
should bolster the claim of the school that it has taken adequate steps to prevent any inj ury that may be committed
by its students.
A fortiori, the teacher himself may invoke this defense as it would otherwise be unfair to hold him directly
answerable for the damage caused by his students as long as they are in the schooJ premises and presumably under
his influence, In this respect, the Court is disposed not to expect from the teacher the same measure of responsibility
imposed on the parent for their influence over the child is not equal in degree. Obviously, the parent can expect more
obedience from the child because the latters dependence on him is greater than on the teacher. It need not be stressed
that such dependence includes the childs support and sustenance whereas submission to the teachers influence,
besides being co-terminous with the period of cus-
329
VOL. 160, APRIL 15, 329
1988
Amadora vs. Court of
Appecds
tody, is usually enforced only because of the students desire to pass the course. The parent can instill more lasting
discipline on the child than the teacher and so should be held to a greater accountability than the teacher for the tort
committed by the child.
And if it is also considered that under the article in question, the teacher or the head of the school of arts and trades
is responsible for the damage caused by the student or apprentice even if he is already of ageand therefore less
tractable than the minorthen there should all the more be justification to require from the school authorities less
accountability as long as they can prove reasonable diligence in preventing the injury. After all, if the parent himself
is no longer liable for the students acts because he has reached majority age and so is no longer under the formers
control, there is then all the more reason for leniency in assessing the teachers responsibility for the acts of the
student.
Applying the foregoing considerations, the Court has arrived at the following conclusions:
1, At the time Alfredo Amadora was fatally shot, he was still in the custody of the authorities of Colegio de San
Jose-Recoletos notwithstanding that the fourth year classes had formally ended. It was immaterial if he was in the
school auditorium to finish his physics experiment or merely to submit his physics report for what is important is that
he was there for a legitimate purpose. As previously observed, even the mere savoring of the company of his friends
in the premises of the school is a legitimate purpose that would have also brought him in the custody of the school
authorities.
2. The rector, the high school principal and the dean of boys cannot be held liable because none of them was the
teacher-incharge as previously defined. Each of them was exercising only a general authority over the student body
and not the direct control and influence exerted by the teacher placed in charge of particular classes or sections and
thus immediately involved in its discipUne. The evidence of the parties does not disclose who the teacher-in-charge of
the offending student was. The mere fact that Alfredo Amadora had gone to school that day in connection with his
physics report did not necessarily make the physics teacher, respondent Celestino Dicon, the teacher-in-
330
330 SUPREME COURT
REPORTS
ANNOTATED
Amadora vs. Court of
Appeals
charge of Alfredos killer,
3. At any rate, assuming that he was the teacher-in-charge, there is no showing that Dicon was negligent in
enforcing discipline upon Daffon or that he had waived observance of the rules and regulations of the school or
condoned their nonobservance. His absence when the tragedy happened cannot be considered against him because he
was not supposed or required to report to school on that day. And while it is true that the offending student was still
in the custody of the teacher-in-charge even if the latter was physically absent when the tort was committed, it has
not been established that it was caused by his laxness in enforcing discipline upon the student. On the contrary, the
private respondents have proved that they had exercised due diligence, through the enforcement of the school
regulations, in maintaining that discipline.
4. In the absence of a teacher-in-charge, it is probably the dean of boys who should be held liable, especially in view
of the unrefuted evidence that he had earlier confiscated an unlicensed gun from one of the students and returned the
same later to him without taking disciplinary action or reporting the matter to higher authorities. While this was
clearly negligence on his part, for which he deserves sanctions from the school, it does not necessarily link him to the
shooting of Amador as it has not been shown that he confiscated and returned pistol was the gun that killed the
petitioners son.
5. Finally, as previously observed, the Colegio de San JoseRecoletos cannot be held directly liable under the article
because only the teacher or the head of the school of arts and trades is made responsible for the damage caused by the
student or apprentice. Neither can it be held to answer for the tort committed by any of the other private respondents
for none of them has been found to have been charged with the custody of the offending student or has been remiss in
the discharge of his duties in connection with such custody.
In sum, the Court finds under the facts as disclosed by the record and in the light of the principles herein announced
that none of the respondents is liable for the injury inflicted by Pablito Daffon on Alfredo Amadora that resulted in
the latters death at the auditorium of the Colegio de San Jose-Recoletos on April 13,1972. While we deeply sympathize
with the petition-
331
VOL. 160, APRIL 15, 331
1988
Amadora vs. Court of
Appeals
ers over the loss of their son under the tragic circumstances here related, we nevertheless are unable to extend them
the material relief they seek, as a balm to their grief, under the law they have invoked.
WHEREFORE, the petition is DENIED, without any pronouncement as to costs. It is so ordered.
Yap, Narvasa, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Corts and Grino-Aquino, JJ., concur.
Teehankee, C.J., did not participate in deliberations.
Fernan and Padilla, JJ., no part, formerly counsel for Colegio de San Jose-Recoletos.
Gutierrez, Jr., J., concur but please see additional statement.
Herrera, J., with separate concurring and dissenting opinion.

MELENCIO-HERRERA, J., concurring and dissenting:

I concur, except with respect to the restricted meaning given the term teacher in Article 2180 of the Civil Code as
teacherin-charge. This would limit liability to occasions where there are classes under the immediate charge of a
teacher, which does not seem to be the intendment of the law.
As I understand it, the philosophy of the law is that whoever stands in loco parentis will have the same duties and
obligations as parents whenever in such a standing. Those persons are mandatorily held liable for the tortious acts of
pupils and students so long as the latter remain in their custody, meaning their protective and supervisory custody.
Thus, Article 349 of the Civil Code enumerates the persons who stand in loco parentis and thereby exercise
substitute parental authority:
Art 349,. The following persons shall exercise substitute parental authority:
xxx
(2) Teachers and professors;
xxx
(4) Directors of trade establishments, with regard to apprentices;
332
332 SUPREME COURT
REPORTS
ANNOTATED
Amadora vs. Court of
Appeals
Article 352 of the Civil Code further provides:
Art. 352. The relationB between teacher and pupil, professor and student, are fixed by government regulations and those of
each school or institution. x x x
But even such rules and regulations as may be fixed can not contravene the concept of substitute parental authority.
The rationale of liability of school heads and teachers for the tortious acts of their pupils was explained in Palisoc vs.
Brillantes (41 SCRA 548), thus:
The protective custody of the school heads and teachers is mandatorily substituted for that of the parents, and hence, it becomes
their obligation 05 well as that of the school itself to provide proper supervision of the students activities during the whole time
that they are at attendance in the school, including recess time, as well as to take the necessary precautions to protect the
students in their custody from dangers and hazards that would reasonably be anticipated, including injuries that some students
themselves may inflict wilfully or through negligence on their fellow students. (Italics supplied)
Of course, as provided for in the same Article 2180, the responsibility treated of shall cease when the persons
mentioned prove that they observed all the diligence of a good father of a family to prevent damage.
And while a school is, admittedly, not directly liable since Article 2180 speaks only of teachers and schools heads,
yet, by virtue of the same provision, the school, as their employer, may be held liable for the failure of its teachers or
school heads to perform their mandatory legal duties as substitute parents (Sangco, Philippine Law on Torts &
Damages, 1978 ed., p. 201). Again, the school may exculpate itself from liability by proving that it had exercised the
diligence of a good father of the family.
Art. 2180. x x x
Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any business or industry.
xxx xxx
333
VOL. 160, APRIL 15, 333
1988
Amadora vs. Court of
Appeals
Parenthetically, from the enumeration in Article 348 of the Civil Code, supra, it is apparent that the Code Commission
had already segregated the classification of teachers and professors vis-a-vis their pupils, from directors of trade
establishments, with regard to their apprentices.

GUTIERREZ, JR., J., concurring opinion:

I concur in the Courts opinion so carefully analyzed and crafted by Justice Isagani A. Cruz. However, H. would like
to stress the need for a major amendment to, if not a complete scrapping of, Article 2180 of the Civil Code insofar as
it refers to teachers or heads of establishments of arts and trades in relation to pupils and students or apprentices.
The seventh paragraph of Art. 2180 is a relic of the past and contemplates a situation long gone and out of date. In
a Palisoc v. Brillantes (41 SCRA 548) situation, it is bound to result in mischief and injustice.
First, we no longer have masters and apprentices toiling in schools of arts and trades. Students in technologicaT
colleges and universities are no different from students in liberal arts or professional schools. Apprentices now work
in regular shops and factories and their relationship to the employer is covered by laws governing the employment
relationship and not by laws governing the teacherstudent relationship.
Second, except for kindergarten, elementary, and perhaps early high school students, teachers are often no longer
objects of veneration who are given the respect due to substitute parents. Many students in their late teens or early
adult years view some teachers as part of a bourgeois or reactionary group whose advice on behaviour, deportment,
and other non-academic matters is not only resented but actively rejected. It seems most unfair to hold teachers liable
on a presumption juris tantum of negligence for acts of students even under circumstances where strictly speaking
there could be no in loco parentis relationship, Why do teachers have to prove the contrary of negligence to be freed
from solidary liabiUty for the acts of bomb-throwing or pistol packing students who would just as soon hurt them as
they would other members of the so-called establishment.
334
334 SUPREME COURT
REPORTS
ANNOTATED
Nakpil & Sons vs. Court of
Appeals
The ordinary rules on quasi-delicts should apply to teachers and schools of whatever nature insofar as grown up
students are concerned. The provision of Art. 2180 of the Civil Code involved in this case has outlived its purpose. The
Court cannot make law. It can only apply the law with its imperfections. However, the Court can suggest that such a
law should be amended or repealed.
Petition denied.
Note.Trial is necessary for any final decision of the two cases on the merits or on the issues as to the power of a
school over its students, like the case of re-enrollment of an expelled student. (University of the Phttippines vs.
Fernandez, 137 SCRA l.)

o0o

Copyright 2017 Central Book Supply, Inc. All rights reserved.


G.R. No. 170498. January 9, 2013.*
METROPOLITAN BANK & TRUST COMPANY, petitioner, vs. ABSOLUTE MANAGEMENT CORPORATION,
respondent.
Actions; Procedural Rules and Technicalities; The Rules of Court has not been intended to be totally rigid. In fact, the Rules
of Court provides that the Supreme Court may require or allow the filing of such pleadings, briefs, memoranda or documents as
it may deem necessary within such periods and under such conditions as it may consider appropriate; and if the petition is given
due course, the Supreme Court may require the elevation of the complete record of the case or specified parts thereof within fifteen
(15) days from notice.The Court significantly pointed out in F.A.T. Kee, 641 SCRA 390 (2011), that the requirement in Section
4, Rule 45 of the Rules of Court is not meant to be an absolute rule whose violation would automatically lead to the petitions
dismissal. The Rules of Court has not been intended to be totally rigid. In fact, the Rules of Court provides that the Supreme
Court may require or allow the filing of such pleadings, briefs, memoranda or documents as it may deem necessary within such
periods and under such conditions as it may consider appropriate; and [i]f the petition is given due course, the Supreme Court
may require the elevation of the complete record of the case or specified parts thereof within fifteen (15) days from notice. These
provisions are in keeping with the overriding standard that procedural rules should be liberally construed to promote their
objective and to assist the parties in obtaining a just, speedy and inexpensive determination of every action or proceeding.
Civil Law; Quasi-Contracts; Implied Contracts; Words and Phrases; The term implied contracts, as used in our remedial
law, originated from the common law where obligations derived from quasi-contracts and from law are both considered as implied
contracts. Thus, the term quasi-contract is included in the concept implied contracts as used in the Rules of Court.In Maclan
v. Garcia, 97 Phil. 119 (1955), Gabriel Maclan filed a civil case to recover from
_______________
* SECOND DIVISION.
226
226 SUPREME
COURT REPORTS
ANNOTATED
Metropolitan Bank &
Trust Company vs. Absolute
Management Corporation
Ruben Garcia the necessary expenses he spent as possessor of a piece of land. Garcia acquired the land as an heir of its
previous owner. He set up the defense that this claim should have been filed in the special proceedings to settle the estate of his
predecessor. Maclan, on the other hand, contended that his claim arises from law and not from contract, express or implied.
Thus, it need not be filed in the settlement of the estate of Garcias predecessor, as mandated by Section 5, Rule 87 of the Rules
of Court (now Section 5, Rule 86). The Court held under these facts that a claim for necessary expenses spent as previous
possessor of the land is a kind of quasi-contract. Citing Leung Ben v. OBrien, 38 Phil. 182 (1918), it explained that the term
implied contracts, as used in our remedial law, originated from the common law where obligations derived from quasi-contracts
and from law are both considered as implied contracts. Thus, the term quasi-contract is included in the concept implied
contracts as used in the Rules of Court. Accordingly, liabilities of the deceased arising from quasi-contracts should be filed as
claims in the settlement of his estate, as provided in Section 5, Rule 86 of the Rules of Court.
Same; Same; Principle of Unjust Enrichment; A quasi-contract involves a juridical relation that the law creates on the basis
of certain voluntary, unilateral and lawful acts of a person, to avoid unjust enrichment.A quasi-contract involves a juridical
relation that the law creates on the basis of certain voluntary, unilateral and lawful acts of a person, to avoid unjust enrichment.
The Civil Code provides an enumeration of quasi-contracts, but the list is not exhaustive and merely provides examples.
According to the CA, Metrobanks fourth-party complaint falls under the quasi-contracts enunciated in Article 2154 of the Civil
Code. Article 2154 embodies the concept solutio indebiti which arises when something is delivered through mistake to a person
who has no right to demand it. It obligates the latter to return what has been received through mistake. Solutio indebiti, as
defined in Article 2154 of the Civil Code, has two indispensable requisites: first, that something has been unduly delivered
through mistake; and second, that something was received when there was no right to demand it.
Procedural Rules and Technicalities; Actions; The specific provisions of Section 5, Rule 86 of the Rules of Court should prevail
over the general provisions of Section 11, Rule 6 of the Rules of Court; the
227
VOL. 688, JANUARY
9, 2013
[No. 23769. September 16, 1925]
SONG Fo & COMPANY, plaintiff and appellee, vs. HAWAIIAN PHILIPPINE Co., defendant and appellant.

1. 1.CONTRACTS; SALES; INSTANT CASE.The written contract examined and found to provide for the delivery by the
Hawaiian-Philippine Co. to Song Fo & Company of 300,000 gallons of molasses.

1. 2.ID. ; ID. ; ID. ; PAYMENT. The terms of payment fixed by the parties are controlling. The time of payment stipulated
for in the contract should be treated as of the essence of the contract.

1. 3.ID.; ID.; ID.; ID.; RESCISSION. The general rule is that rescission will not be permitted for a slight or casual breach
of the contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in
making the agreement.

1. 4.ID.; ID.; ID.; ID.; ID. A delay in payment for a small quantity of molasses for some twenty days is not such a violation
of an essential condition of the contract as warrants rescission for non-performance.

1. 5.ID. ; ID. ; ID.; MEASURE OF DAMAGES FOR BREACH OF CONTRACT. The facts examined and Song Fo &
Company allowed P3,000 on account of the greater expense to which it was put in being compelled to secure molasses in
the open market.
1. 6.ID.; ID.; ID.; ID.The facts examined and Song Fo & Company allowed nothing for lost' profits on account of the breach
of the contract, because of failure of proof.

APPEAL from a judgment of the Court of First Instance of Iloilo. Santamaria, J.


The facts are stated in the opinion of the court.
Hilado & Hilado, Ross, Lawrence & Selph and Antonio T. Carrascoso, jr., for appellant.
Arroyo, Gurrea & Muller for appellee.

MALCOLM, J.:

In the Court of First Instance of Iloilo, Song Fo & Company, plaintiff, presented a complaint with two causes of
822
822 PHILIPPINE REPORTS
ANNOTATED
Song Fo & Co. vs. Hawaiian-
Philippine Co.
action for breach of contract against the Hawaiian-Philippine Co., defendant, in which judgment was asked for
P70,369.50, with legal interest, and costs. In an amended answer and cross-complaint, the defendant set up the special
defense that since the plaintiff had defaulted in the payment for the molasses delivered to it by the defendant under
the contract between the parties, the latter was compelled to cancel and rescind the said contract. The case was
submitted for decision on a stipulation of facts and the exhibits therein mentioned. The judgment of the trial court
condemned the defendant to pay to the plaintiff a total of P35,317.93, with legal interest from the date of the
presentation of the complaint, and with costs.
From the judgment of the Court of First Instance the defendant only has appealed. In this court it has made the
following assignment of errors: "I. The lower court erred in finding that the appellant had agreed to sell to the appellee
400,000, and not only 300,000, gallons of molasses. II. The lower court erred in finding that the appellant rescinded
without sufficient cause the contract for the sale of molasses executed by it and the appellee. III. The lower court erred
in rendering judgment in favor of the appellee and not in favor of the appellant in accordance with the prayer of its
answer and cross-complaint. IV. The lower court erred in denying appellant's motion for a new trial." The specified
errors raise three questions which we will consider in the order suggested by the appellant.
1. Did the defendant agree to sell to the plaintiff 400,000 gallons of molasses or 300,000 gallons of molasses? The
trial court found the former amount to be correct. The appellant contends that the smaller amount was the basis of
the agreement. .
The contract of the parties is in writing. It is found principally in the documents, Exhibits F and G. The first
mentioned exhibit is a letter addressed by the administrator
823
VOL. 47, SEPTEMBER 16, 823
1925
Song Fo & Co. vs. Hawaiian-
Philippine Co.
of the Hawaiian-Philippine Co. to Song Fo & Company on December 13, 1922. It reads:
"SILAY, OCC. NEGROS, P. I.
"December 13, 1922.

"Messrs. SONG Fo AND Co.

"Iloilo, Iloilo.

"DEAR SIRS: Confirming our conversation we had today with your Mr. Song Fo, who visited this Central, we wish to state as
follows:
"He agreed to the delivery of 300,000 gallons of molasses at the same price as last year under the same condition, and the
same to start after the completion of our grinding season. He requested if. possible to let you have molasses during January,
February and March or in other words, while we are grinding, and we agreed with him that we would to the best of our ability,
altho we are somewhat handicapped. But we believe we can let you have 25,000 gallons during each of the milling months, altho
it interf ere with the shipping of our own and planters sugars to Iloilo. Mr. Song Fo also asked if we could supply him with
another 100,000 gallons of molasses, and we stated we believe that this is possible and will do our best to let you have these
extra 100,000 gallons during the next year the same to be taken by you before November 1st, 1923, along with the 300,000,
making 400,000 gallons in all.
"Regarding the payment for our molasses, Mr. Song Fo gave us to understand that you would pay us at the end of each month
for molasses delivered to you.
"Hoping that this is satisfactory and awaiting your answer regarding this matter, we remain.
"Yours very truly,
"HAWAIIAN-PHILIPPINE COMPANY

"By: R. C. PlTCAlRN

"Administrator."
824
824 PHILIPPINE REPORTS
ANNOTATED
Song Fo & Co. vs. Hawaiian-
Philippine Co.
Exhibit G is the answer of the manager of Song Po & Company to the Hawaiian-Philippine Co. on December 16, 1922.
This letter reads:
"December 16th, 1922.

"Messrs. HAWAIIAN-PHILIPPINE Co.,

"Silay, Neg. Occ., P. L


"DEAR SlRS: We are in receipt of your favours dated the 9th and the 13th inst. and understood all their contents.
"In connection to yours of the 13th inst. we regret to hear that you mentioned Mr. Song Fo the one who visited your Central,
but it was not for he was Mr. Song Heng, the representative and the manager of Messrs. Song Fo & Co.
"With reference to the contents of your letter dated the 13th inst. we confirm all the arrangements you have stated and in
order to make the contract clear, we hereby quote below our old contract as amended, as per our new arrangements.

1. " (a)Price, at 2 cents per gallon delivered at the central.


2. "(b)All handling charges and expenses at the central and at the dock at Mambaguid for our account.
3. "(c)For services of one locomotive and flat cars necessary f or our six tanks at the rate of P48 for the round trip dock to
central and central to dock. This service to be restricted to one trip for the six tanks.

"Yours very truly,


"SONG FO & COMPANY
"By___________________________
"Manager."
We agree with appellant that the above quoted correspondence is susceptible of but one interpretation. The Hawaiian-
Philippine Co. agreed to deliver to Song Fo &
825
VOL. 47, SEPTEMBER 16, 825
1925
Song Fo & Co. vs. Hawaiian-
Philippine Co.
Company 300,000 gallons of molasses. The HawaiianPhilippine Co. also believed it possible to accommodate Song Fo
& Company by supplying the latter company with an extra 100,000 gallons. But the language used with reference to
the additional 100,000 gallons was not a definite promise. Still less did it constitute an obligation.
If Exhibit T relied upon by the trial court shows anything, it is simply that the defendant did not consider itself
obliged to deliver to the plaintiff molasses in any amount. On the other hand, Exhibit A, a letter written by the
manager of Song Fo & Company on October 17, 1922, expressly mentions an understanding between the parties of a
contract for 300,000 gallons of molasses.
We sustain appellant's point of view on the first question and rule that the contract between the parties provided
for the delivery by the Hawaiian-Philippine Co. to Song Fo & Company of 300,000 gallons of molasses.
2. Had the Hawaiian-Philippine Co. the right to rescind the contract of sale made with Song Fo & Company? The
trial judge answers No, the appellant Yes.
Turning to Exhibit F, we note this sentence: "Regarding the payment for our molasses, Mr. Song Fo (Mr. Song
Heng) gave us to understand that you would pay us at the end of each month for molasses delivered to you." In Exhibit
G, we find Song Fo & Company stating that they understand the contents of Exhibit F, and that they "confirm all the
arrangements you have stated, and in order to make the contract clear, we hereby quote below our old contract as
amended, as per our new arrangements. (a) Price, at 2 cents per gallon delivered at the central." In connection with
the portion of the contract having reference to the payment for the molasses, the parties have agreed on a table
showing the date of delivery of the molasses, the account and date thereof, the date of receipt
826
826 PHILIPPINE REPORTS
ANNOTATED
Song Fo & Co. vs. Hawaiian-
Philippine Co.
of account by plaintiff, and date of payment. The table mentioned is as follows:
Date of delivery Account and date Date of receipt Date
thereof of account by of
plaintiff pay-
ment
1922 1923 1923
Dec. 18 ................. P206. 16 Dec. Jan. 5 Feb.
26/22 20
Dec. 206.16 Jan. 3/23 ...........do......... Do.
29..................................
1923
Jan. 206.16 Jan. 9/23 Mar. 7 or 8 Mar.
5.................................. 31
Feb 206.16 Mar. 12/23 ..........do......... Do.
12.................................
Feb 206.16 .........do........ .........do........ Do.
27.................................
Date of delivery Account and date Date of receipt Date
thereof of account by of
plaintiff pay-
ment
Mar 206.16 .........do........ .........do........ Do.
5.................................
Mar. 206.16 Mar. 20/23 Apr. 2/23 Apr.
16................................. 19
Mar 206.16 Mar. 31/23 ..........do........ Do.
24.................................
Mar 206.16 ..........do....... ..........do....... Do.
29.................................
Some doubt has risen as to when Song Fo & Company was expected to make payments for the molasses delivered.
Exhibit F speaks of payments "at the end of each month." Exhibit G is silent on the point. Exhibit M, a letter of March
28, 1923, from Warner, Barnes & Co., Ltd., the agent of the Hawaiian-Philippine Co. to Song Fo & Company, mentions
"payment on presentation of bills for each delivery." Exhibit O, another letter from Warner, Barnes & Co., Ltd. to Song
Fo & Company dated April 2, 1923, is of a similar tenor. Exhibit P, a communication sent direct by the Hawaiian-
Philippine Go. to Song Fo & Company on April 2, 1923, by which the Hawaiian-Philippine Co. gave notice of the
termination of the contract, gave as the reason for the rescission, the breach by Song Fo & Company of this condition:
"You will recall that under the arrangements made for taking our molasses, you were to meet our accounts upon
presentation and at each delivery." Not far removed from this statement, is the allegation of plaintiff in its complaint
that "plaintiff agreed to pay defendant, at the end of each month upon presentation of accounts."
827
VOL. 47, SEPTEMBER 16, 827
1925
Song Fo & Co. vs. Hawaiian-
Philippine Co.
Resolving such ambiguity as exists and having in mind ordinary business practice, a reasonable deduction is that
Song Fo & Company was to pay the Hawaiian-Philippine Co. upon presentation of accounts at the end of each month.
Under this hypothesis, Song Fo & Company should have paid for the molasses delivered in December, 1922, and for
which accounts were received by it on January 5, 1923, not later than January 31 of that year. Instead, payment was
not made until February 20, 1923. All the rest of the molasses was paid for either on time or ahead of time.
The terms of payment fixed by the parties are controlling. The time of payment stipulated for in the contract should
be treated as of the essence of the contract. Theoretically, agreeable to certain conditions which could easily be
imagined, the Hawaiian-Philippine Co. would have had the right to rescind the contract because of the breach of Song
Fo & Company. But actually, there is here present no outstanding fact which would legally sanction the rescission of
the contract by the Hawaiian-Philippine Co.
The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only for
such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement.
A delay in payment for a small quantity of molasses for some twenty days is not such a violation of an essential
condition of the contract as warrants rescission for non-performance. Not only this, but the Hawaiian-Philippine Co.
waived this condition when it arose by accepting payment of the overdue accounts and continuing with the contract.
Thereafter, Song Fo & Company was not in default in payment so that the Hawaiian-Philippine Co. had in reality no
excuse for writing its letter of April 2, 1923, cancelling the contract. (Warner, Barnes & Co. vs. Inza [1922], 43 Phil.,
505.)
We rule that the appellant had no legal right to rescind the contract of sale because of the failure of Song Fo &
828
828 PHILIPPINE REPORTS
ANNOTATED
Song Fo & Co. vs. Hawaiian-
Philippine Co.
Company to pay for the molasses within the time agreed upon by the parties. We sustain the finding of the trial judge
in this respect.
3. On the basis first, of a contract for 300,000 gallons of molasses, and second, of a contract imprudently breached
by the Hawaiian-Philippine Co., what is the measure of damages? We again turn to the facts as agreed upon by the
parties.
The first cause of action of the plaintiff is based on the greater expense to which it was put in being compelled to
secure molasses from other sources. Three hundred thousand gallons of molasses was the total of the agreement, as
we have seen. As conceded by the plaintiff, 55,006 gallons of molasses were delivered by the defendant to the plaintiff
before the breach. This leaves 244,994 gallons of molasses undelivered which the plaintiff had to purchase in the open
market. As expressly conceded by the plaintiff at page 25 of its brief, 100,000 gallons of molasses were secured from
the Central North Negros Sugar Co., Inc., at two centavos a gallon. As this is the same price specified in the contract
between the plaintiff and the defendant, the plaintiff accordingly suffered no material loss in having to make this
purchase. So 244,994 gallons minus the 100,000 gallons just mentioned leaves as a result 144,994' gallons. As to this
amount, the plaintiff admits that it could have secured it and more from the Central Victorias Milling Company, at
three and one-half centavos per gallon. In other words, the plaintiff 'had to pay the Central Victorias Milling Company
one and one-half centavos a gallon more for the molasses than it would have had to pay the Hawaiian-Philippine Co.
Translated into pesos and centavos, this meant a loss to the plaintiff of approximately P2,174.91. As the conditions
existing at the central of the Hawaiian-Philippine Co. may have been diff erent than those f ound at the Central North
Negros Sugar Co., Inc., and the Central Victorias Milling Company, and as not alone through the delay but through
expenses of
829
VOL. 47, SEPTEMBER 16, 829
1925
Song Fo & Co. vs. Hawaiian-
Philippine Co.
transportation and incidental expenses, the plaintiff may have been put to greater cost in making the purchase of the
molasses in the open market, we would concede under the first cause of action in round figures P3,000.
The second cause of action relates to lost profits on account of the breach of the contract. The only evidence in the
record on this question is the stipulation of counsel to the effect that had Mr. Song Heng, the manager of Song Fo &
Company, been called as a witness, he would have testified that the plaintiff would have realized a profit of P14,948.43,
if the contract of December 13, 1922, had been fulfilled by the defendant. Indisputably, this statement falls far short
of presenting proof on which to make a finding as to damages.
In the first place, the testimony which Mr. Song Heng would have given undoubtedly would follow the same line of
thought as found in the decision of the trial court, which we have found to be unsustainable. In the second place, had
Mr. Song Heng taken the witness-stand and made the statement attributed to him, it would have been insufficient
proof of the allegations of the complaint, and the fact that it is a part of the stipulation by counsel does not change
this result. And lastly, the testimony of the witness Song Heng, if we may dignify it as such, is a mere conclusion, not
a proven fact. As to what items make up the more than P14,000 of alleged lost profits, whether loss of sales or loss of
customers, or what not, we have no means of knowing.
We rule that the plaintiff is entitled to recover damages from the defendant for breach of contract on the first cause
of action in the amount of P3,000 and on the second cause of action in no amount. Appellant's assignments of error
are accordingly found to be well taken in part and not well taken in part.
Agreeable to the foregoing, the judgment appealed from shall be modified and the plaintiff shall have and recover
from the defendant the sum of P3,000, with legal interest
830
830 PHILIPPINE REPORTS
ANNOTATED
Orencia vs. Araneta Diaz
from October 2, 1923, until payment. Without special finding as to costs in either instance, it is so ordered.
Avancea, C. J., Johnson, Street, Villamor, Ostrand, Johns, Romualdez, and Villa-Real, JJ., concur.
Judgment modified.
____________

Copyright 2017 Central Book Supply, Inc. All rights reserved.


56 SUPREME COURT REPORTS
ANNOTATED
Velarde vs. Court of Appeals
G.R. No. 108346. July 11, 2001. *

Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners, vs.COURT OF APPEALS, DAVID A.
RAYMUNDO and GEORGE RAYMUNDO, respondents.
Civil Law; Contracts; Sale; In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a
determinate thing, and the buyer to pay therefor a price certain in money or its equivalent.In a contract of sale, the seller
obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer to pay therefor a price certain in
money or its equivalent. Private respondents had already performed their obligation through the execution of the Deed of Sale,
which effectively transferred ownership of the property to petitioner through constructive delivery. Prior physical delivery or
possession is not legally required, and the execution of the Deed of Sale is deemed equivalent to delivery. Petitioners, on the
other hand, did not perform their correlative obligation of paying the contract price in the manner agreed upon. Worse,

_______________

*THIRD DIVISION.
57
VOL. 361, JULY 11, 57
2001
Velarde vs. Court of Appeals
they wanted private respondents to perform obligations beyond those stipulated in the contract before fulfilling their own
obligation to pay the full purchase price.
Same; Same; Same; Rescission; Rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a
breach of faith by the other party who violates the reciprocity between them.The right of rescission of a party to an obligation
under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between
them. The breach contemplated in the said provision is the obligors failure to comply with an existing obligation. When the
obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for
the court to determine the period of compliance, the court shall decree the rescission.
Same; Same; Same; Same; Rescission can be carried out only when the one who demands it can return whatever he may be
obliged to restore.Rescission creates the obligation to return the object of the contract. It can be carried out only when the one
who demands rescission can return whatever he may be obliged to restore. To rescind is to declare a contract void at its inception
and to put an end to it as though it never was. It is not merely to terminate it and release the parties from further obligations to
each other, but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been
made.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.


Marciano J. Cagatan and Mariano R. Logarta for petitioners.
M.B. Tomacruz Law Office for private respondents.

PANGANIBAN, J.:

A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by the contract,
entitles the injured party to rescind the obligation. Rescission abrogates the contract from its inception and requires
a mutual restitution of benefits received.
58
58 SUPREME COURT REPORTS
ANNOTATED
Velarde vs. Court of Appeals
The Case
Before us is a Petition for Review on Certiorari questioning the Decision of the Court of Appeals (CA) in CA-GR CV
1 2

No. 32991 dated October 9, 1992, as well as its Resolution dated December 29, 1992 denying petitioners motion for
3

reconsideration. 4

The dispositive portion of the assailed Decision reads:


WHEREFORE, the Order dated May 15, 1991 is hereby ANNULLED and SET ASIDE and the Decision dated November 14,
1990 dismissing the [C]omplaint is REINSTATED. The bonds posted by plaintiffs-appellees and defendants-appellants are
hereby RELEASED. 5

The Facts
The factual antecedents of the case, as found by the CA, are as follows:
x x x. David Raymundo [herein private respondent] is the absolute and registered owner of a parcel of land, together with the
house and other improvements thereon, located at 1918 Kamias St., Dasmarias Village, Makati and covered by TCT No. 142177.
Defendant George Raymundo [herein private respondent] is Davids father who negotiated with plaintiffs Avelina and Mariano
Velarde [herein petitioners] for the sale of said property, which was, however, under lease (Exh. 6, p. 232, Record of Civil Case
No. 15952).
On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. A; Exh. I, pp. 11-12, Record) was executed by
defendant David Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee, with the following terms and conditions:
x x x xxx xxx

___________________

Rollo, pp. 37-53.


1

Rollo, pp. 68-78. Penned by Justice Regina G. Ordonez-Benitez and concurred in by Justices Gloria C. Paras (Division chairman) and Eduardo
2

G. Montenegro (member).
3 Rollo, p. 81.

4 Rollo, pp. 21-33.

5 CA Decision, p. 11; rollo, p. 20.

59
VOL. 361, JULY 11, 2001 59
Velarde vs. Court of Appeals
That for and in consideration of the amount of EIGHT HUNDRED THOUSAND PESOS (P800,000.00), Philippine currency, receipt of which
in full is hereby acknowledged by the VENDOR from the VENDEE, to his entire and complete satisfaction, by these presents the VENDOR
hereby SELLS, CEDES, TRANSFERS, CONVEYS AND DELIVERS, freely and voluntarily, with full warranty of a legal and valid title as
provided by law, unto the VENDEE, her heirs, successors and assigns, the parcel of land mentioned and described above, together with the
house and other improvements thereon.
That the aforesaid parcel of land, together with the house and other improvements thereon, were mortgaged by the VENDOR to the
BANK OF THE PHILIPPINE ISLANDS, Makati, Metro Manila, to secure the payment of a loan of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine currency, as evidenced by a Real Estate Mortgage signed and executed by the VENDOR in
favor of the said Bank of the Philippine Islands, on____ and which Real Estate Mortgage was ratified before Notary Public for Makati,____,
as Doc. No. __, Page No. __, Book No. __, Series of 1986 of his Notarial Register.
That as part of the consideration of this sale, the VENDEE hereby assumes to pay the mortgage obligations on the property herein sold
in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in favor of Bank of the
Philippine Islands, in the name of the VENDOR, and further agrees to strictly and faithfully comply with all the terms and conditions
appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI, including interests and other charges for late
payment levied by the Bank, as if the same were originally signed and executed by the VENDEE.
It is further agreed and understood by the parties herein that the capital gains tax and documentary stamps on the sale shall be for the
account of the VENDOR; whereas, the registration fees and transfer tax thereon shall be for the account of the VENDEE. (Exh. A, pp. 11-
12, Record).
On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the consent of her husband, Mariano,
executed an Undertaking (Exh. C, pp. 13-14, Record), the pertinent portions of which read, as follows:
x x x xxx xxx
60
60 SUPREME COURT REPORTS
ANNOTATED
Velarde vs. Court of Appeals
Whereas, as per Deed of Sale with Assumption of Mortgage, I paid Mr. David A. Raymundo the sum of EIGHT HUNDRED THOUSAND
PESOS (P800,000.00), Philippine currency, and assume the mortgage obligations on the property with the Bank of the Philippine Islands in
the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in accordance with the terms
and conditions of the Deed of Real Estate Mortgage dated____, signed and executed by Mr. David A. Raymundo with the said Bank,
acknowledged before Notary Public for Makati,___, as Doc. No.___, Page No.___, Book No. __, Series of 1986 of his Notarial Register.
WHEREAS, while my application for the assumption of the mortgage obligations on the property is not yet approved by the mortgagee
Bank, I have agreed to pay the mortgage obligations on the property with the Bank in the name of Mr. David A. Raymundo, in accordance
with the terms and conditions of the said Deed of Real Estate Mortgage, including all interests and other charges for late payment.
WHEREAS, this undertaking is being executed in favor of Mr. David A. Raymundo, for purposes of attesting and confirming our private
understanding concerning the said mortgage obligations to be assumed.
NOW, THEREFORE, for and in consideration of the foregoing premises, and the assumption of the mortgage obligations of ONE MILLION
EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, with the Bank of the Philippine Islands, I, Mrs. Avelina D.
Velarde, with the consent of my husband, Mariano Z. Velarde, do hereby bind and obligate myself, my heirs, successors and assigns, to strictly
and faithfully comply with the following terms and conditions:

1. 1.That until such time as my assumption of the mortgage obligations on the property purchased is approved by the
mortgagee bank, the Bank of the Philippine Islands, I shall continue to pay the said loan in accordance with the terms
and conditions of the Deed of Real Estate Mortgage in the name of Mr. David A. Raymundo, the original Mortgagor.
2. 2.That, in the event I violate any of the terms and conditions of the said Deed of Real Estate Mortgage, I hereby agree
that my downpayment of P800,000.00, plus all payments made with the Bank of the Philippine Islands on the mortgage
loan, shall be forfeited in favor of Mr. David A. Raymundo, as and by way of liqui-

61
VOL. 361, JULY 11, 2001 61
Velarde vs. Court of Appeals

1. dated damages, without necessity of notice or any judicial declaration to that effect, and Mr. David A. Raymundo shall
resume total and complete ownership and possession of the property sold by way of Deed of Sale with Assumption of
Mortgage, and the same shall be deemed automatically cancelled and be of no further force or effect, in the same manner
as if (the) same had never been executed or entered into.
2. 3.That I am executing this Undertaking for purposes of binding myself, my heirs, successors and assigns, to strictly and
faithfully comply with the terms and conditions of the mortgage obligations with the Bank of the Philippine Islands, and
the covenants, stipulations and provisions of this Undertaking.

That, David A. Raymundo, the vendor of the property mentioned and identified above, [does] hereby confirm and agree to the undertakings
of the Vendee pertinent to the assumption of the mortgage obligations by the Vendee with the Bank of the Philippine Islands. (Exh. C, pp.
13-14, Record).
This undertaking was signed by Avelina and Mariano Velarde and David Raymundo.
It appears that the negotiated terms for the payment of the balance of P1.8 million was from the proceeds of a loan that
plaintiffs were to secure from a bank with defendants help. Defendants had a standing approved credit line with the Bank of
the Philippine Islands (BPI). The parties agreed to avail of this, subject to BPIs approval of an application for assumption of
mortgage by plaintiffs. Pending BPIs approval o[f] the application, plaintiffs were to continue paying the monthly interests of
the loan secured by a real estate mortgage.
Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the aforementioned mortgage
for three (3) months as follows: September 19, 1986 at P27,225.00; October 20, 1986 at P23,000.00; and November 19, 1986 at
P23,925.00 (Exh. E, H & J, pp. 15, 17 and 18, Record).
On December 15, 1986, plaintiffs were advised that the Application for Assumption of Mortgage with BPI was not approved
(Exh. J, p. 133, Record). This prompted plaintiffs not to make any further payment.
On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that their non-payment to the mortgage
bank constitute[d] non-performance of their obligation (Exh. 3, p. 220, Record).
In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows:
62
62 SUPREME COURT REPORTS
ANNOTATED
Velarde vs. Court of Appeals
This is to advise you, therefore, that our client is willing to pay the balance in cash not later than January 21, 1987 provided: (a) you deliver
actual possession of the property to her not later than January 15, 1987 for her immediate occupancy; (b) you cause the release of title and
mortgage from the Bank of P.I. and make the title available and free from any liens and encumbrances; and (c) you execute an absolute deed
of sale in her favor free from any liens or encumbrances not later than January 21, 1987. (Exhs. K, 4 p. 223, Record).
On January 8, 1987, defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended sale of the subject
property allegedly due to the latters failure to comply with the terms and conditions of the Deed of Sale with Assumption of
Mortgage and the Undertaking (Exh. 5 pp. 225-226, Record). 6

Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents for specific performance,
nullity of cancellation, writ of possession and damages. This was docketed as Civil Case No. 15952 at the Regional
Trial Court of Makati, Branch 149. The case was tried and heard by then Judge Consuelo YnaresSantiago (now an
associate justice of this Court), who dismissed the Complaint in a Decision dated November 14, 1990. Thereafter, 7

petitioners filed a Motion for Reconsideration. 8

Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge Salvador S.A. Abad
Santos was assigned to the sala she vacated. In an Order dated May 15, 1991, Judge Abad Santos granted petitioners
9

Motion for Reconsideration and directed the parties to proceed with the sale. He instructed petitioners to pay the
balance of P1.8 million to private respondents who, in turn, were ordered to execute a deed of absolute sale and to
surrender possession of the disputed property to petitioners.
Private respondents appealed to the CA.

_________________

6 Rollo, pp. 68-73.


7 Records, pp. 280-284.
8 Records, pp. 285-293.

9 Records, pp. 339-341.

63
VOL. 361, JULY 11, 2001 63
Velarde vs. Court of Appeals
Ruling of the Court of Appeals
The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares-Santiagos earlier Decision
dismissing petitioners Complaint. Upholding the validity of the rescission made by private respondents, the CA
explained its ruling in this wise:
In the Deed of Sale with Assumption of Mortgage, it was stipulated that as part of the consideration of this sale, the VENDEE
(Velarde) would assume to pay the mortgage obligation on the subject property in the amount of P1.8 million in favor of BPI in
the name of the Vendor (Raymundo). Since the price to be paid by the Vendee Velarde includes the downpayment of P800,000.00
and the balance of P1.8 million, and the balance of P1.8 million cannot be paid in cash, Vendee Velarde, as part of the
consideration of the sale, had to assume the mortgage obligation on the subject property. In other words, the assumption of the
mortgage obligation is part of the obligation of Velarde, as vendee, under the contract. Velarde further agreed to strictly and
faithfully comply with all the terms and conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR
in favor of BPI x x x as if the same were originally signed and executed by the Vendee. (p. 2, thereof, p. 12, Record). This was
reiterated by Velarde in the document entitled Undertaking wherein the latter agreed to continue paying said loan in accordance
with the terms and conditions of the Deed of Real Estate Mortgage in the name of Raymundo. Moreover, it was stipulated that
in the event of violation by Velarde of any terms and conditions of said deed of real estate mortgage, the downpayment of
P800,000.00 plus all payments made with BPI or the mortgage loan would be forfeited and the [D]eed of [S]ale with [Assumption
of [M]ortgage would thereby be cancelled automatically and of no force and effect (pars. 2 & 3, thereof, pp. 13-14, Record).
From these 2 documents, it is therefore clear that part of the consideration of the sale was the assumption by Velarde of the
mortgage obligation of Raymundo in the amount of P1.8 million. This would mean that Velarde had to make payments to BPI
under the [D]eed of [R]eal [E]state [M]ortgage in the name of Raymundo. The application with BPI for the approval of the
assumption of mortgage would mean that, in case of approval, payment of the mortgage obligation will now be in the name of
Velarde. And in the event said application is disapproved, Velarde had to pay in full. This is alleged and admitted in Paragraph
5 of the Complaint. Mariano Velarde likewise admitted this fact during the hearing on September 15, 1997 (p. 47, t.s.n.,
September 15, 1987; see also pp. 16-26, t.s.n., October 8, 1989). This being the case, the non-payment of the mortgage
64
64 SUPREME COURT REPORTS
ANNOTATED
Velarde vs. Court of Appeals
obligation would result in a violation of the contract. And, upon Velardes failure to pay the agreed price, the[n] Raymundo may
choose either of two (2) actions(1) demand fulfillment of the contract, or (2) demand its rescission (Article 1191, Civil, Code).
The disapproval by BPI of the application for assumption of mortgage cannot, be used as an excuse for Velardes non-payment
of the balance of the purchase, price. As borne out by the evidence, Velarde had to pay in full in case of BPIs disapproval of the
application for assumption of mortgage. What Velarde should have done was to pay the balance of P1.8 million. Instead, Velarde
sent Raymundo a letter dated January 7, 1987 (Exh. K, 4) which was strongly given weight by the lower court in reversing the
decision rendered by then Judge Ynares-Santiago. In said letter, Velarde registered their willingness to pay the balance in cash
but enumerated 3 new conditions which, to the mind of this Court, would constitute a new undertaking or new agreement which
is subject to the consent or approval of Raymundo. These 3 conditions were not among those previously agreed upon by Velarde
and Raymundo. These are mere offers or, at most, an attempt to novate. But then again, there can be no novation because there
was no agreement of all the parties to the new contract (Garcia, Jr. vs. Court of Appeals, 191 SCRA 493).
It was likewise agreed that in case of violation of the mortgage obligation, the Deed of Sale with Assumption of Mortgage
would be deemed automatically cancelled and of no further force and effect, as if the same had never been executed or entered
into. While it is true that even if the contract expressly provided for automatic rescission upon failure to pay the price, the vendee
may still pay, he may do so only for as long as no demand for rescission of the contract has been made upon him either judicially
or by a notarial act (Article 1592, Civil Code). In the case at bar, Raymundo sent Velarde a notarial notice dated January 8, 1987
of cancellation/rescission of the contract due to the latters failure to comply with their obligation. The rescission was justified in
view of Velardes failure to pay the price (balance) which is substantial and fundamental as to defeat the object of the parties in
making the agreement. As adverted to above, the agreement of the parties involved a reciprocal obligation wherein the obligation
of one is a resolutory condition of the obligation of the other, the non-fulfillment of which entitles the other party to rescind the
contract (Songcuan vs. IAC, 191 SCRA 28). Thus, the non-payment of the mortgage obligation by appellees Velarde would create
a right to demand payment or to rescind the contract, or to criminal prosecution (Edca Publishing & Distribution Corporation
vs. Santos, 184 SCRA 614). Upon appellees failure, therefore, to pay the balance, the contract was properly rescinded (Ruiz vs.
IAC, 184 SCRA 720). Consequently, appellees Velarde having
65
VOL. 361, JULY 11, 2001 65
Velarde vs. Court of Appeals
violated the contract, they have lost their right to its enforcement and hence, cannot avail of the action for specific performance
(Voysaw vs. Interphil Promotions, Inc., 148 SCRA 635). 10

Hence, this appeal. 11

The Issues
Petitioners, in their Memorandum, interpose the following assignment of errors:
12

I.

The Court of Appeals erred in holding that the non-payment of the mortgage obligation resulted in a breach of the contract.

II.

The Court of Appeals erred in holding that the rescission (resolution) of the contract by private respondents was justified.

III.

The Court of Appeals erred in holding that petitioners January 7, 1987 letter gave three new conditions constituting mere
offers or an attempt to novate necessitating a new agreement between the parties.
The Courts Ruling
The Petition is partially meritorious.

________________

10 Rollo, pp. 75-78.


11 To eradicate its backlog of old cases, the Court on February 27, 2001 resolved to redistribute long-pending cases to justices who had no backlog,
and who were thus tasked to prioritize them. Consequently, this case was raffled and assigned to the undersigned ponente for study and report.
12 Rollo, p. 227.

66
66 SUPREME COURT REPORTS
ANNOTATED
Velarde vs. Court of Appeals
First Issue:
Breach of Contract
Petitioners aver that their nonpayment of private respondents mortgage obligation did not constitute a breach of
contract, considering that their request to assume the obligation had been disapproved by the mortgagee bank.
Accordingly, payment of the monthly amortizations ceased to be their obligation and, instead, it devolved upon private
respondents again.
However, petitioners did not merely stop paying the mortgage obligations; they also failed to pay the balance of the
purchase price. As admitted by both parties, their agreement mandated that petitioners should pay the purchase price
balance of P1.8 million to private respondents in case the request to assume the mortgage would be disapproved. Thus,
on December 15, 1986, when petitioners received notice of the banks disapproval of their application to assume
respondents mortgage, they should have paid the balance of the P1.8 million loan.
Instead of doing so, petitioners sent a letter to private respondents offering to make such payment only upon the
fulfillment of certain conditions not. originally agreed upon in the contract of sale. Such conditional offer to pay cannot
take the place of actual payment as would discharge the obligation of a buyer under a contract of sale.
In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate thing, and the
buyer to pay therefor a price certain in money or its equivalent. 13

Private respondents had already performed their obligation through the execution of the Deed of Sale, which
effectively transferred ownership of the property to petitioner through constructive delivery. Prior physical delivery
or possession is not legally required, and the execution of the Deed of Sale is deemed equivalent to delivery. 14

_________________

Coronel v. CA, 263 SCRA 15, October 7, 1996.


13

Power Commercial and Industrial Corp. v. CA,274 SCRA 597 June 20, 1997.
14

67
VOL. 361, JULY 11, 2001 67
Velarde vs. Court of Appeals
Petitioners, on the other hand, did not perform their correlative obligation of paying the contract price in the manner
agreed upon. Worse, they wanted private respondents to perform obligations beyond those stipulated in the contract
before fulfilling their own obligation to pay the full purchase price.
Second Issue:
Validity of the Rescission
Petitioners likewise claim that the rescission of the contract by private respondents was not justified, inasmuch as the
former had signified their willingness to pay the balance of the purchase price only a little over a month from the time
they were notified of the disapproval of their application for assumption of mortgage. Petitioners also aver that the
breach of the contract was not substantial as would warrant a rescission. They cite several cases in which this Court 15

declared that rescission of a contract would not be permitted for a slight or casual breach. Finally, they argue that
they have substantially performed their obligation in good faith, considering that they have already made the initial
payment of P800,000 and three (3) monthly mortgage payments.
As pointed out earlier, the breach committed by petitioners was not so much their nonpayment of the mortgage
obligations, as their nonperformance of their reciprocal obligation to pay the purchase price under the contract of sale.
Private respondents right to rescind the contract finds basis in Article 1191 of the Civil Code, which explicitly provides
as follows:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what
is incumbent upon him.
The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either
case. He may also seek rescission even after he has chosen fulfillment, if the latter should become impossible.

________________

15 Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821, September 16, 1925; Tan v. Court of Appeals, 175 SCRA 656, July 28, 1989; and Zepeda

v. Court of Appeals, 216 SCRA 293, December 9, 1992.


68
68 SUPREME COURT REPORTS
ANNOTATED
Velarde vs. Court of Appeals
The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith
by the other party who violates the reciprocity between them. The breach contemplated in the said provision is the
16

obligors failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent upon
17

it, the obligee may seek rescission and, in the absence of any just cause for the court to determine the period of
compliance, the court shall decree the rescission. 18

In the present case, private respondents validly exercised their right to rescind the contract, because of the failure
of petitioners to comply with their obligation to pay the balance of the purchase price. Indubitably, the latter violated
the very essence of reciprocity in the contract of sale, a violation that consequently gave rise to private respondents
right to rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase price one month after it became
due; however, this was not equivalent to actual payment as would constitute a faithful compliance of their reciprocal
obligation. Moreover, the offer to pay was conditioned on the performance by private respondents of additional burdens
that had not been agreed upon in the original contract. Thus, it cannot be said that the breach committed by petitioners
was merely slight or casual as would preclude the exercise of the right to rescind.
Misplaced is petitioners reliance on the cases they cited, because the factual circumstances in those cases are not
19

analogous to those in the present one. In Song Fo there was, on the part of the buyer, only a delay of twenty (20) days
to pay for the goods delivered. Moreover, the buyers offer to pay was unconditional and was accepted by the seller.
In Zepeda, the breach involved a mere one-week delay in paying the balance of P1,000, which was actually

_________________

16 Uy v. Court of Appeals, 314 SCRA 69, September 9, 1999; Romeo v. Court of Appeals, 250 SCRA 223, November 23, 1995.
17 Cheng v. Genato, 300 SCRA 722, December 29, 1998.
18 Central Philippine University v. Court of Appeals, 246 SCRA 511 July 17, 1995.

19 See footnote 15.

69
VOL. 361, JULY 11, 2001 69
Velarde vs. Court of Appeals
paid. In Tan, the alleged breach was private respondents delay of only a few days, which was for the purpose of
clearing the title to the property; there was no reference whatsoever to the nonpayment of the contract price.
In the instant case, the breach committed did not merely consist of a slight delay in payment or an irregularity;
such breach would not normally defeat the intention of the parties to the contract. Here, petitioners not only failed to
pay the P1.8 million balance, but they also imposed upon private respondents new obligations as preconditions to the
performance of their own obligation. In effect, the qualified offer to pay was a repudiation of an existing obligation,
which was legally due and demandable under the contract of sale. Hence, private respondents were left with the legal
option of seeking rescission to protect their own interest.
Mutual Restitution
Required in Rescission
As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal obligation, not a
violation of the terms and conditions of the mortgage contract. Therefore, the automatic rescission and forfeiture of
payment clauses stipulated in the contract does not apply. Instead, Civil Code provisions shall govern and regulate
the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is
required to bring back the parties to their original situation prior to the inception of the contract. Accordingly, the
initial payment of P800,000 and the corresponding mortgage payments in the amounts of P27,225, P23,000 and
P23,925 (totaling P874,150.00) advanced by petitioners should be returned by private respondents, lest the latter
unjustly enrich themselves at the expense of the former.
Rescission creates the obligation to return the object of the contract. It can be earned out only when the one who
demands rescission can return whatever he may be obliged to restore. To rescind 20

_________________

Co v. Court of Appeals, 312 SCRA 528, August 17, 1999. Vitug, Compendium of Civil Law and Jurisprudence, 1993 revised ed., p. 556.
20

70
70 SUPREME COURT REPORTS
ANNOTATED
Velarde vs. Court of Appeals
is to declare a contract void at its inception and to put an end to it as though it never was. It is not merely to terminate
it and release the parties from further obligations to each other, but to abrogate it from the beginning and restore the
parties to their relative positions as if no contract has been made. 21

Third Issue
Attempt to Novate
In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third issue raised by
petitioners. Suffice it to say that the three conditions appearing on the January 7, 1987 letter of petitioners to private
respondents were not part of the original contract. By that time, it was already incumbent upon the former to pay the
balance of the sale price. They had no right to demand preconditions to the fulfillment of their obligation, which had
become due.
WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that private respondents
are ordered to return to petitioners the amount of P874,150, which the latter paid as a consequence of the rescinded
contract, with legal interest thereon from January 8, 1987, the date of rescission. No pronouncement as to costs.
SO ORDERED.
Melo (Chairman), Vitug and Sandoval-Gutierrez, JJ., concur.
Gonzaga-Reyes, J., On leave.
Judgment affirmed with modification.
Note.Mutual restitution is required in rescission but this presupposes that both parties may be restored in their
original situation. (Asuncion vs. Evangelista, 316 SCRA 848 [1999])

o0o

_________________
Ocampo v. Court of Appeals, 233 SCRA 551, June 30, 1994.
21

71
Copyright 2017 Central Book Supply, Inc. All rights reserved.

VOL. 135, MARCH 18, 1985 323


Angeles vs. Calasanz
No. L-42283. March 18, 1985. *

BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees, vs. URSULA TORRES CALASANZ, ET AL.,


defendantsappellants.
Contracts; Nothing in Art 1191 of the new Civil Code prohibits agreement on cancellation of contract by a party without
judicial intervention.Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the contract upon
the failure of the other to perform the obligation assumed thereunder, Moreover, there is nothing in the law that prohibits the
parties from entering into an agreement that violation of the terms of the contract would cause its cancellation even without
court intervention (Froilan v. Pan Oriental Shipping Co., et al., 12 SCRA 276).
Same; The right to cancel a contract even if agreed upon may, however, be questioned in court by the affected party to
determine whether or not cancellation was warranted."Of course, it must be understood that the act of a party in treating a
contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and
is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is
justified, it is free to resort to judicial action in its own behalf, and bring the matter to court, Then, should the court, after due
hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the
contrary case, the resolution will be af firmed, and the consequent indemnity awarded to the party prejudiced.
Same; Sales; Unilateral cancellation of contract to sell not warranted if breach is only slight or casual.The breach of the
contract adverted to by the defendants-appellants is so slight and casual when we consider that apart from the initial
downpayment of P392.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years.
In other words, in only a short time, the entire obligation would have been paid. Furthermore, although the principal obligation
was only P3,920.00 excluding the 7 percent interests, the plaintiffs-appellees had already paid an aggregate amount of P4,533.38.
To sanction the rescission made by the
_______________

*FIRST DIVISION.
324
324 SUPREME COURT
REPORTS ANNOTATED
Angeles vs. Calasanz
defendants-appellants will work injustice to the plaintiffs-appellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829).
It would unjustly enrich the defendants-appellants.
Same; Same; Waiver; Acceptance of delayed installment payments beyond grace period amounts to waiver of right of
rescission.The defendants-appellants argue that paragraph nine clearly allows the seller to waive the observance of paragraph
6 not merely once, but for as many times as he wishes. The defendantsappellants contention is without merit. We agree with
the plaintiffsappellees that when the defendants-appellants, instead of availing of their alleged right to rescind, have accepted
and received delayed payments of installments, though the plaintiffs-appellees have been in arrears beyond the grace period
mentioned in paragraph 6 of the contract, the defendants-appellants have waived and are now estopped from exercising their
alleged right of rescission.
Same; Same; Contracts to sell lots are contracts of adhesion when buyer is merely required to sign a prepared agreement.
We agree with the plaintiffs-appellees. The contract to sell entered into by the parties has some characteristics of a contract of
adhesion. The defendants-appellants drafted and prepared the contract. The plaintiffs-appellees, eager to acquire a lot upon
which they could build a home, affixed their signatures and assented to the terms and conditions of the contract, They had no
opportunity to question nor change any of the terms of the agreement. It was offered to them on a take it or leave it basis.
Same; Same; Where installment buyer has already paid more than the agreed price, the fact that during delayed payments
of some monthly installments the same was applied to interest agreed upon, would not justify cancellation of contract for failure
to pay a small balance of required installment.While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees
to pay the defendantsappellants the sum of P3,920.00 plus 7% interest per annum, it is likewise true that under paragraph 12
the seller is obligated to transfer the title to the buyer upon payment of the P3,920.00 price sale. The contract to sell, being a
contract of adhesion, must be construed against the party causing it We agree with the observation of the plaintiffs-appellees to
the effect that the terms of a contract must be interpreted against the party who drafted the same, especially where such
interpretation will help effect justice to buyers who, after having invested a big amount of money, are now sought to be
325
VOL. 135, MARCH 18, 325
1985
Angeles vs. Calasanz
deprived of the same thru the prayed application of a contract clever in its phraseology, condemnable in its lopsidedness
and injurious in its effect which, in essence, and in its entirety is most unfair to the buyers.
Same; Same; Same.Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees
have already paid an aggregate amount of P4,533.38, the courts should only order the payment of the few remaining installments
but not uphold the cancellation of the contract. Upon payment of the balance of P671.67 without any interest thereon, the
defendants-appellants must immediately execute the final deed of sale in favor of the plaintiffs-appellees and execute the
necessary transfer documents as provided in paragraph 12 of the contract. The attorneys fees are justified. WHEREFORE, the
instant petition is DENIED for lack of merit. The decision appealed from is AFFIRMED with the modification that the plaintiffs-
appellees should pay the balance of SIX HUNDRED SEVENTY ONE PESOS AND SIXTY-SEVEN CENTAVOS (P671.67)
without any interests. Costs against the defendantsappellants.

APPEAL from the decision of the Court of First Instance of Rizal, Br. X.

The facts are stated in the opinion of the Court.

GUTIERREZ, JR., J.:


This is an appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial District, Branch X,
declaring the contract to sell as not having been validly cancelled and ordering the defendants-appellants to execute
a final deed of sale in favor of the plaintiffs-appellees, to pay P500.00 attorneys fees and costs.
The facts being undisputed, the Court of Appeals certified the case to us since only pure questions of law have been
raised for appellate review.
On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-
appellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta,
Rizal for the amount of P 3,920.00 plus 7% interest per annum.
326
326 SUPREME COURT REPORTS
ANNOTATED
Angeles vs. Calasanz
The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised to pay
the balance in monthly installments of P41.20 until fully paid, the installments being due and payable on the 19th
day of each month, The plaintiffs-appellees paid the monthly installments until July 1966, when their aggregate
payment already amounted to P4,533.38. On numerous occasions, the defendants-appellants accepted and received
delayed installment payments from the plaintiffs-appellees.
On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter requesting the remittance
of past due accounts.
On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintif f s-appellees f ailed
to meet subsequent payments, The plaintiffs letter with their plea for reconsideration of the said cancellation was
denied by the defendants-appellants.
The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of Rizal, Seventh Judicial District,
Branch X to compel the defendants-appellants to execute in their favor the final deed of sale alleging inter alia that
after computing all subsequent payments for the land in question, they found out that they have already paid the total
amount of P4,533.38 including interests, realty taxes and incidental expenses for the registration and transfer of the
land.
The defendants-appellants alleged in their answer that the complaint states no cause of action and that the
plaintiffsappellees violated paragraph six (6) of the contract to sell when they failed and refused to pay and/or offer to
pay the monthly installments corresponding to the month of August, 1966 for more than five (5) months, thereby
constraining the defendants-appellants to cancel the said contract
The lower court rendered judgment in favor of the plaintif f sappellees. The dispositive portion of the decision reads:
WHEREFORE, based on the foregoing considerations, the Court hereby renders judgment in favor of the plaintiffs and against
the defendants declaring that the contract subject matter of the instant case was NOT VALIDLY cancelled by the defendants.
Con-
327
VOL. 135, MARCH 18, 1985 327
Angeles vs. Calasanz
sequently, the defendants are ordered to execute a final Deed of Sale in favor of the plaintiffs and to pay the sum of P500.00 by
way of attorneys fees. Costs against the defendants.
A motion for reconsideration filed by the defendantsappellants was denied.
As earlier stated, the then Court of Appeals certified the case to us considering that the appeal involves pure
questions of law.
The defendants-appellants assigned the following alleged errors of the lower court:

First Assignment of Error


THE LOWER COURT ERRED IN NOT HOLDING THE CON
TRACT TO SELL (ANNEX A" OF COMPLIANCE) AS HAVING
BEEN LEGALLY AND VALIDLY CANCELLED.

Second Assignment of Error


EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT
TO SELL HAS NOT BEEN LEGALLY AND VALIDLY
CANCELLED, THE LOWER COURT ERRED IN ORDERING
DEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN
FAVOR OF THE PLAINTIFF.

Third Assignment of Error


THE LOWER COURT ERRED IN ORDERING DEFENDANTS
TO PAY PLAINTIFFS THE SUM OF P500.00 AS ATTORNEYS
FEES.

The main issue to be resolved is whether or not the contract to sell has been automatically and validly cancelled by
the defendants-appellants.
The defendants-appellants submit that the contract was validly cancelled pursuant to paragraph six of the contract
which provides:
xxx xxx xxx
SIXTH.In case the party of the SECOND PART fails to satisfy any monthly installments, or any other payments herein
agreed upon, he is granted a month of grace within which to make the retarded payment, together with the one corresponding
to the said
328
328 SUPREME COURT REPORTS
ANNOTATED
Angeles vs. Calasanz
month of grace; it is understood, however, that should the month of grace herein granted to the party of the SECOND PART
expired; without the payments corresponding to both months having been satisfied, an interest of 10% per annum will be charged
on the amounts he should have paid; it is understood farther. that should a period of 90 days elapse, to begin from the expiration
of the month of grace herein mentioned, and the party of SECOND PART has not paid all the amounts he should have paid with
the corresponding interest up to that date, the party of the FIRST PART has the right to declare this contract cancelled and of no
effect, and as consequence thereof, the party of the FIRST PART may dispose of the parcel of land covered by this contract in favor
of other persons, as if this contract had never been entered into. in case of such cancellation of the contract, all the amounts paid
in accordance with this agreement together with all the improvements made on the premises, shall be considered as rents paid
for the use and occupation of the above mentioned premises, and as payment for the damages suffered by failure of the party of
the SECOND PART to fulfill his part of the agreement; and the party of the SECOND PART hereby renounces all his right to
demand or reclaim the return of the same and obliges himself to peacefully vacate the premises and deliver the same to the party
of the FIRST PART." (Italics supplied by appellant)
xxx xxx xxx
The defendants-appellants argue that the plaintiffsappellees failed to pay the August, 1966 installment despite
demands for more than four (4) months. The defendantsappellants point to Jocson v. Capitol Subdivision (G.R. No.
L6573, February 28, 1955) where this Court upheld the right of the subdivision owner to automatically cancel a
contract to sell on the strength of a provision or stipulation similar to paragraph 6 of the contract in this case. The
defendantsappellants also argue that even in the absence of the aforequoted provision, they had the right to cancel
the contract to sell under Article 1191 of the Civil Code of the Philippines.
The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply. They state that paragraph
6 of the contract to sell is contrary to law insofar as it provides that in case of specified breaches of its terms, the
sellers have the right to declare the contract cancelled and of no effect, because it granted the sellers an absolute and
automatic right of rescission.
329
VOL. 135, MARCH 18, 1985 329
Angeles vs. Calasanz
Article 1191 of the Civil Code on the rescission of reciprocal obligations provides:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in
either case, He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
xxx xxx xxx
Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the contract upon the failure of
the other to perform the obligation assumed thereunder. Moreover, there is nothing in the law that prohibits the
parties from entering into an agreement that violation of the terms of the contract would cause its cancellation even
without court Intervention (Froilan v. Pan Oriental Shipping, Co., et al., 12 SCRA 276)
Well settled is, however, the rule that a judicial action for the rescission of a contract is not necessary where the contract provides
that it may be revoked and cancelled for violation of any of its terms and conditions (Lopez v. Commissioner of Customs, 37
SCRA 327, 334, and cases cited therein)
Resort to judicial action for rescission is obviously not contemplated . . . The validity of the stipulation can not be seriously
disputed. It is in the nature of a facultative resolutory condition which in many cases has been upheld by this Court. (Ponce
Enrile v. Court of Appeals, 29 SCRA 504)."
The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when the
contract itself provides that it may be rescinded for violation of Its terms and conditions, was qualified by this Court
in University of the Philippines v. De los Angeles, (35 SCRA 102) where we explained that;
Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions
330
330 SUPREME COURT REPORTS
ANNOTATED
Angeles vs. Calasanz
by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and
review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own
behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was
not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated many consider it resolved or rescinded, and act accordingly,
without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not correct in law. x x x.
We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that
judicial action is necessary for the resolution of a reciprocal obligation; (Ocejo, Perez & Co. v. International Banking Corp., 37
Phil. 631; Republic v. Hospital de San Juan de Dios, et al., 84 Phil. 820) since in every case where the extrajudicial resolution is
contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or
not. It is in this sense that judicial action will be necessary, as without it, the extrajudicial resolution will remain contestable
and subject to judicial invalidation, unless attack thereon should become barred by acquiescence, estoppel or prescription.
The right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute. In Universal
Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated that
The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial
and fundamental breach as would defeat the very object of the parties in making the agreement. (Song Fo & Co. v. Hawaiian-
Philippine Co., 47 Phil. 821, 827) The question of whether a breach of a contract is substantial depends upon the attendant
circumstances. (Corpus v. Hon. Alikpala, et al., L-23707 & L-23720, Jan. 17, 1968)." x x x.
The defendants-appellants state that the plaintif f s-appellees violated Section two of the contract to sell which
provides:
331
VOL. 135, MARCH 18, 1985 331
Angeles vs. Calasanz
SECOND.That in consideration of the agreement of sale of the above described property, the party of the SECOND PART
obligates himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY
(P3,920.00), Philippine Currency, plus interest at the rate of 7% per annum, as follows:

1. "(a)The amount of THREE HUNDRED NINETY TWO only (P392.00) when this contract is signed; and
2. "(b)The sum of FORTY ONE AND 20/100 ONLY (P41.20) on or before the 19th day of each month, from this date until
the total payment of the price above stipulated, including interest.

because they failed to pay the August installment, despite demand, for more than four (4) months.
The breach of the contract adverted to by the defendantsappellants is so slight and casual when we consider that
apart from the initial downpayment of P392.00 the plaintiffsappellees had already paid the monthly installments for
a period of almost nine (9) years. In other words, in only a short time, the entire obligation would have been paid.
Furthermore, although the principal obligation was only P3,920.00 excluding the 7 percent interests, the plaintiffs-
appellees had already paid an aggregate amount of P4,533.38. To sanction the rescission made by the defendants-
appellants will work injustice to the plaintiffs-appellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It
would unjustly enrich the defendantsappellants.
Article 1234 of the Civil Code which provides that:
If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee. also militates against the unilateral act of the
defendantsappellants in cancelling the contract.
We agree with the observation of the lower court to the effect that:
Although the primary object of selling subdivided lots is business, yet, it cannot be denied that this subdivision is likewise
332
332 SUPREME COURT REPORTS
ANNOTATED
Angeles vs. Calasanz
purposely done to afford those landless, low income group people of realising their dream of a little parcel of land which they can
really call their own.
The defendants-appellants cannot rely on paragraph 9 of the contract which provides:
NINTH.That whatever consideration of the party of the FIRST PART may concede to the party of the SECOND PART, as not
exacting a strict compliance with the conditions of paragraph 6 of this contract, as well as any other condonation that the party
of the FIRST PART may give to the party of the SECOND PART with regards to the obligations of the latter, should not be
interpreted as a renunciation on the part of the party of the FIRST PART of any right granted it by this contract, in case of
default or non-compliance by the party of the SECOND PART."
The defendants-appellants argue that paragraph nine clearly allows the seller to waive the observance of paragraph
6 not merely once, but for as many times as he wishes.
The defendants-appellants contention is without merit. We agree with the plaintiffs-appellees that when the
defendantsappellants, instead of availing of their alleged right to rescind, have accepted and received delayed
payments of installments, though the plaintiff s-appellees have been in arrears beyond the grace period mentioned in
paragraph 6 of the contract, the defendants-appellants have waived and are now estopped from exercising their alleged
right of rescission. In De Guzman v. Guieb (48 SCRA 68), we held that:
xxx xxx xxx
But defendants do not deny that in spite of the long arrearages neither they nor their predecessor, Teodoro de Guzman, even
took steps to cancel the option or to eject the appellees from the home-lot in question. On the contrary, it is admitted that the
delayed payments were received without protest or qualification, x x x Under these circumstances, We cannot but agree with the
lower court that at the time appellees exercised their option, appellants had already forfeited their right to invoke the above-
quoted provision regarding the nullifying effect of the non-payment of six months rentals by appellees by their having accepted
without qualification on July 21,1964 the full payment by appellees of all their arrearages.
333
VOL. 135, MARCH 18, 1985 333
Angeles vs. Calasanz
The defendants-appellants contend in the second assignment of error that the ledger of payments show a balance of
P671.67 due from the plaintiffs-appellees, They submit that while it is true that the total monthly installments paid
by the plaintiffs-appellees may have exceeded P3,920.00, a substantial portion of the said payments were applied to
the interests since the contract specifically provides for a 7% in terest per annum on the remaining balance. The
defendantsappellants rely on paragraph 2 of the contract which provides:
SECOND.That in consideration of the agreement of sale of the above described property, the party of the SECOND PART
obligates himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY
(P3,920.00), Philippine Currency, plus interest at the rate of 7% per annum x x x. (Italics supplied)
The plaintiffs-appellees on the other hand are firm in their submission that since they have already paid the
defendantsappellants a total sum of P4,533.38, the defendants-appellants must now be compelled to execute the final
deed of sale pursuant to paragraph 12 of the contract which provides:
TWELFTH.That once the payment of the sum of P3,920.00, the total price of the sale is completed, the party to the FIRST
PART will execute in favor of the party of the SECOND PART, the necessary deed or deeds to transfer to the latter the title of
the parcel of land sold, free from all liens and encumbrances other than those expressly provided in this contract; it is understood,
however, that all the expenses which may be incurred in the said transfer of title shall be paid by the party of the SECOND
PART, as above stated.
Closely related to the second assignment of error is the submission of the plaintiffs-appellees that the contract herein
is a contract of adhesion.
We agree with the plaintiffs-appellees. The contract to sell entered into by the parties has some characteristics of
a contract of adhesion. The defendants-appellants drafted and prepared the contract. The plaintiffs-appellees, eager
to acquire a lot upon which they could build a home, affixed their signatures and assented to the terms and conditions
of the con-
334
334 SUPREME COURT REPORTS
ANNOTATED
Angeles vs. Calasanz
tract They had no opportunity to question nor change any of the terms of the agreement. It was offered to them on a
take it or leave it basis. In Sweet Lines, Inc. v. Teves (83 SCRA 381), we held that:
xxx xxx xxx
x x x (W)hile generally, stipulations in a contract come about after deliberate drafting by the parties thereto, . . . there are
certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts
are called contracts of adhesion, because the only participation of the party is the signing of his signature or his adhesion thereto.
Insurance contracts, bills of lading, contracts of sale of lots on the installment plan fall into this category. (Paras, Civil Code of
the Philippines, Seventh ed., Vol. 1, p. 80,)" (Italics supplied)
While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the defendants-appellants
the sum of P3,920.00 plus 7% interest per annum, it is likewise true that under paragraph 12 the seller is obligated
to transfer the title to the buyer upon payment of the P3,920.00 price sale.
The contract to sell, being a contract of adhesion, must be construed against the party causing it. We agree with
the observation of the plaintiffs-appellees to the effect that the terms of a contract must be interpreted against the
party who drafted the same, especially where such interpretation will help effect justice to buyers who, after having
invested a big amount of money, are now sought to be deprived of the same thru the prayed application of a contract
clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and in its
entirety is most unfair to the buyers.
Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have already
paid an aggregate amount of P4,533.38, the courts should only order the payment of the few remaining installments
but not uphold the cancellation of the contract. Upon payment of the balance of P671.67 without any interest
thereon, the defendantsappellants must immediately execute the final deed of sale in favor of the plaintiffs-appellees
and execute the necessary
335
VOL. 135, MARCH 18, 1985 335
Angeles vs. Calasanz
transfer documents as provided in paragraph 12 of the contract. The attorneys fees are justified.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed from is AFFIRMED with
the modification that the plaintiffs-appellees should pay the balance of SIX HUNDRED SEVENTY ONE PESOS AND
SIXTY-SEVEN CENTAVOS (P671.67) without any interests. Costs against the defendants-appellants.
SO ORDERED.
Melencio-Herrera, Plana, Relova, De la Fuente and Alampay, JJ., concur.
Teehankee (Chairman), J., took no part.
Petition denied Decision affirmed with modification.
Notes.Contracts are to be interpreted according to their literal meaning when contracts and conditions are clear
and leave no doubt as to the intention of the contracting parties. (Gonzales vs. Court of Appeals, 124 SCRA 630.)
Waiver to sell by real estate developers are contract of adhesion. (Palay, Inc. vs. Clave, 124 SCRA 638.)
Refund of installment to lot buyer is proper where property of defaulting lot buyer sold to a third person and absence
evidence that other lots are still available (Palay, Inc. vs. Clave, 124 SCRA 638.)

o0o

336
Copyright 2017 Central Book Supply, Inc. All rights reserved.
G.R. No. 190601. February 7, 2011.*
SPOUSES LUIGI M. GUANIO and ANNA HERNANDEZ-GUANIO, petitioners, vs. MAKATI SHANGRI-LA HOTEL
and RESORT, INC., also doing business under the name of SHANGRI-LA HOTEL MANILA, respondent.
Civil Law; Contracts; Breach of Contract; Words and Phrases; Breach of contract is defined as the failure without legal reason
to comply with the terms of a contract.Breach of contract is defined as the failure without legal reason to cmmomply with the
terms of a contract. It is also defined as the [f]ailure, without legal excuse, to perform any promise which forms the whole or part
of the contract. The appellate court, and even the trial court, observed that petitioners were remiss in their obligation to inform
respondent of the change in the expected number of guests. The observation is re-
_______________

* THIRD DIVISION.
592
592 SUPREME COURT
REPORTS ANNOTATED
Guanio vs. Makati Shangri-La
Hotel and Resort, Inc.
flected in the records of the case. Petitioners failure to discharge such obligation thus excused, as the above-quoted
paragraph 4.5 of the parties contract provide, respondent from liability for any damage or inconvenience occasioned thereby.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Reyes, Cabrera, Rojas, Golez & Associates for petitioners.
Romulo, Mabanta, Buenaventura, Sayoc & Delos Angeles Law Offices for respondent.
CARPIO-MORALES, J.:
For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and Anna Hernandez-Guanio (petitioners)
booked at the Shangri-la Hotel Makati (the hotel).
Prior to the event, Maukati Shangri-La Hotel & Resort, Inc. (respondent) scheduled an initial food tasting.
Petitioners claim that they requested the hotel to prepare for seven personsthe two of them, their respective parents,
and the wedding coordinator. At the scheduled food tasting, however, respondent prepared for only six.
Petitioners initially chose a set menu which included black cod, king prawns and angel hair pasta with wild
mushroom sauce for the main course which cost P1,000.00 per person. They were, however, given an option in which
salmon, instead of king prawns, would be in the menu at P950.00 per person. They in fact partook of the salmon.
Three days before the event, a final food tasting took place. Petitioners aver that the salmon served was half the
size of what they were served during the initial food tasting; and when queried about it, the hotel quoted a much
higher price (P1,200.00) for the size that was initially served to them. The parties eventually agreed on a final price
P1,150 per person.593
VOL. 641, FEBRUARY 7, 2011 593
Guanio vs. Makati Shangri-La Hotel
and Resort, Inc.
A day before the event or on July 27, 2001, the parties finalized and forged their contract.1
Petitioners claim that during the reception, respondents representatives, Catering Director Bea Marquez and Sales
Manager Tessa Alvarez, did not show up despite their assurance that they would; their guests complained of the delay
in the service of the dinner; certain items listed in the published menu were unavailable; the hotels waiters were rude
and unapologetic when confronted about the delay; and despite Alvarezs promise that there would be no charge for
the extension of the reception beyond 12:00 midnight, they were billed and paid P8,000 per hour for the three-hour
extension of the event up to 4:00 A.M. the next day.
Petitioners further claim that they brought wine and liquor in accordance with their open bar arrangement, but
these were not served to the guests who were forced to pay for their drinks.
Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and Resort, Inc. (respondent) and received
an apologetic reply from Krister Svensson, the hotels Executive Assistant Manager in charge of Food and Beverage.
They nevertheless filed a complaint for breach of contract and damages before the Regional Trial Court (RTC) of
Makati City.
In its Answer, respondent claimed that petitioners requested a combination of king prawns and salmon, hence, the
price was increased to P1,200.00 per person, but discounted at P1,150.00; that contrary to petitioners claim, Marquez
and Alvarez were present during the event, albeit they were not permanently stationed thereat as there were three
other hotel functions; that while there was a delay in the service of the
_______________

1 The Banquet and Meeting Services Contract dated July 26, 2001 was faxed to petitioners, while the Banquet Event Order was signed on July
25, 2001. As per RTC Decision, the final price for the menu was only finalized on July 27, 2001.
594
594 SUPREME COURT REPORTS
ANNOTATED
Guanio vs. Makati Shangri-La Hotel
and Resort, Inc.
meals, the same was occasioned by the sudden increase of guests to 470 from the guaranteed expected minimum
number of guests of 350 to a maximum of 380, as stated in the Banquet Event Order (BEO); 2and that Isaac Albacea,
Banquet Service Director, in fact relayed the delay in the service of the meals to petitioner Luigis father, Gil Guanio.
Respecting the belated service of meals to some guests, respondent attributed it to the insistence of petitioners
wedding coordinator that certain guests be served first.
On Svenssons letter, respondent, denying it as an admission of liability, claimed that it was meant to maintain
goodwill to its customers.
By Decision of August 17, 2006, Branch 148 of the Makati RTC rendered judgment in favor of petitioners, disposing
as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendant
ordering the defendants to pay the plaintiff the following:
1) The amount of P350,000.00 by way of actual damages;
2) The amount of P250,000.00 for and as moral damages;
3) The amount of P100,000.00 as exemplary damages;
4) The amount of P100,000.00 for and as attorneys fees.
With costs against the defendant.
SO ORDERED.3
In finding for petitioners, the trial court relied heavily on the letter of Svensson which is partly quoted below:
Upon receiving your comments on our service rendered during your reception here with us, we are in fact, very distressed. Right
from minor issues pappadums served in the soup instead of the creutons, lack of valet parkers, hard rolls being too hard till a
major oneslow
_______________

2 Rollo, pp. 159-161.


3 Id., at p. 407.
595
VOL. 641, FEBRUARY 7, 2011 595
Guanio vs. Makati Shangri-La Hotel
and Resort, Inc.
service, rude and arrogant waiters, we have disappointed you in all means.
Indeed, we feel as strongly as you do that the services you received were unacceptable and definitely not up to our standards.
We understand that it is our job to provide excellent service and in this instance, we have fallen short of your expectations. We
ask you please to accept our profound apologies for causing such discomfort and annoyance.4 (underscoring supplied)
The trial court observed that from the tenor of the letter . . . the defendant[-herein respondent] admits that the
services the plaintiff[-herein petitioners] received were unacceptable and definitely not up to their standards. 5 On
appeal, the Court of Appeals, by Decision of July 27, 2009, 6reversed the trial courts decision, it holding that the
proximate cause of petitioners injury was an unexpected increase in their guests:
x x x Hence, the alleged damage or injury brought about by the confusion, inconvenience and disarray during the wedding
reception may not be attributed to defendant-appellant Shangri-la.
We find that the said proximate cause, which is entirely attributable to plaintiffs-appellants, set the chain of events
which resulted in the alleged inconveniences, to the plaintiffs-appellants. Given the circumstances that obtained, only the
Sps. Guanio may bear whatever consequential damages that they may have allegedly suffered.7(underscoring supplied)
Petitioners motion for reconsideration having been denied by Resolution of November 18, 2009, the present petition
for review was filed.
_______________

4 Id., at p. 141.
5 Id., at p. 405.
6 Penned by Associate Justice Apolinario D. Bruselas, Jr., with the concurrence of Associate Justices Andres B. Reyes, Jr. and Pampio A.
Abarintos, id., at pp. 8-26.
7 Id., at pp. 20-21.
596
596 SUPREME COURT REPORTS
ANNOTATED
Guanio vs. Makati Shangri-La Hotel
and Resort, Inc.
The Court finds that since petitioners complaint arose from a contract, the doctrine of proximate cause finds no
application to it:
The doctrine of proximate cause is applicable only in actions for quasi-delicts, not in actions involving breach of contract.
x x x The doctrine is a device for imputing liability to a person where there is no relation between him and another party. In such
a case, the obligation is created by law itself. But, where there is a pre-existing contractual relation between the parties, it is the
parties themselves who create the obligation, and the function of the law is merely to regulate the relation thus
created.8(emphasis and underscoring supplied)
What applies in the present case is Article 1170 of the Civil Code which reads:
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.
RCPI v. Verchez, et al. 9 enlightens:
In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify, prima facie,
a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from
liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon
the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy
serves to preserve the interests of the promissee that may include his expectation interest, which is his interest in having
the benefit of his bargain by being put in as good a position as he would have been in had the
_______________

8 Calalas v. Court of Appeals, G.R. No. 122039, May 31, 2000, 332 SCRA 356, 357.
9 G.R. No. 164349, January 31, 2006, 481 SCRA 384, citing FGU Insurance Corporation v. G.P. Sarmiento Trucking Corporation, 435 Phil. 333, 341-342;
386 SCRA 312, 320 (2002).
597
VOL. 641, FEBRUARY 7, 2011 597
Guanio vs. Makati Shangri-La Hotel
and Resort, Inc.
contract been performed, or his reliance interest, which is his interest in being reimbursed for loss caused by reliance on
the contract by being put in as good a position as he would have been in had the contract not been made; or his restitution
interest, which is his interest in having restored to him any benefit that he has conferred on the other party. Indeed,
agreements can accomplish little, either for their makers or for society, unless they are made the basis for action. The effect of
every infraction is to create a new duty, that is, to make RECOMPENSE to the one who has been injured by the failure of another
to observe his contractual obligation unless he can show extenuating circumstances, like proof of his exercise of due
diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing liability. (emphasis and
underscoring in the original; capitalization supplied)
The pertinent provisions of the Banquet and Meeting Services Contract between the parties read:
4.3 The ENGAGER shall be billed in accordance with the prescribed rate for the minimum guaranteed number of persons
contracted for, regardless of under attendance or non-appearance of the expected number of guests, except where the ENGAGER
cancels the Function in accordance with its Letter of Confirmation with the HOTEL. Should the attendance exceed the minimum
guaranteed attendance, the ENGAGER shall also be billed at the actual rate per cover in excess of the minimum guaranteed
attendance.
xxxx
4.5. The ENGAGER must inform the HOTEL at least forty eight (48) hours before the scheduled date and time of the
Function of any change in the minimum guaranteed covers. In the absence of such notice, paragraph 4.3 shall apply in the event
of under attendance. In case the actual number of attendees exceed the minimum guaranteed number by ten percent
(10%), the HOTEL shall not in any way be held liable for any damage or inconvenience which may be caused
thereby. The ENGAGER shall also undertake to advise the guests of the situation and
598
598 SUPREME COURT REPORTS
ANNOTATED
Guanio vs. Makati Shangri-La Hotel
and Resort, Inc.
take positive steps to remedy the same.10(emphasis, italics and underscoring supplied)
Breach of contract is defined as the failure without legal reason to comply with the terms of a contract. It is also
defined as the [f]ailure, without legal excuse, to perform any promise which forms the whole or part of the contract. 11
The appellate court, and even the trial court, observed that petitioners were remiss in their obligation to inform
respondent of the change in the expected number of guests. The observation is reflected in the records of the case.
Petitioners failure to discharge such obligation thus excused, as the above-quoted paragraph 4.5 of the parties
contract provide, respondent from liability for any damage or inconvenience occasioned thereby.
As for petitioners claim that respondent departed from its verbal agreement with petitioners, the same fails, given
that the written contract which the parties entered into the day before the event, being the law between them.
Respecting the letter of Svensson on which the trial court heavily relied as admission of respondents liability but
which the appellate court brushed aside, the Court finds the appellate courts stance in order. It is not uncommon in
the hotel industry to receive comments, criticisms or feedback on the service it delivers. It is also customary for hotel
management to try to smooth ruffled feathers to preserve goodwill among its clientele.
Kalalo v. Luz holds:12
Statements which are not estoppels nor judicial admissions have no quality of conclusiveness, and an opponent whose admis-
_______________

10 Vide Banquet and Meeting Services Contract, Rollo, pp. 138-141, 140.
11 Cathay Pacific Airways Ltd. v. Spouses Vasquez, G.R. No. 150843. March 14, 2003, 399 SCRA 207.
12 L-27782, July 31, 1970, 34 SCRA 337, 348.
599
VOL. 641, FEBRUARY 7, 2011 599
Guanio vs. Makati Shangri-La Hotel
and Resort, Inc.
sions have been offered against him may offer any evidence which serves as an explanation for his former assertion of what he
now denies as a fact.
Respondents Catering Director, Bea Marquez, explained the hotels procedure on receiving and processing
complaints, viz.:
ATTY. CALMA:
Q You mentioned that the letter indicates an acknowledgement of the concern and that there was-the first letter there was an acknowledgment of
the concern and an apology, not necessarily indicating that such or admitting fault?
A Yes.
Q Is this the letter that you are referring to?
If I may, Your Honor, that was the letter dated August 4, 2001, previously marked as plaintiffs exhibits, Your Honor. What is the procedure of
the hotel with respect to customer concern?
A Upon receipt of the concern from the guest or client, we acknowledge receipt of such concern, and as part of procedure in service industry
particularly Makati Shangri-la we apologize for whatever inconvenience but at the same time saying, that of course, we would go through certain
investigation and get back to them for the feedback with whatever concern they may have.
Q Your Honor, I just like at this point mark the exhibits, Your Honor, the letter dated August 4, 2001 identified by the witness, Your Honor, to be
marked as Exhibit 14 and the signature of Mr. Krister Svensson be marked as Exhibit 14-A.13
xxxx
Q In your opinion, you just mentioned that there is a procedure that the hotel follows with respect to the complaint, in your opinion was this
procedure followed in this particular concern?
_______________

13 TSN, March 16, 2005, pp. 21-23.


600
600 SUPREME COURT
REPORTS
ANNOTATED
Guanio vs. Makati Shangri-La
Hotel and Resort, Inc.
A Yes, maam.
Q What makes you say that this procedure was followed?
A As I mentioned earlier, we proved that we did acknowledge the concern of the client in this case and we did emphatize from the client and
apologized, and at the same time got back to them in whatever investigation we have.
Q You said that you apologized, what did you apologize for?
A Well, first of all it is a standard that we apologize, right? Being in the service industry, it is a practice that we apologize if there is any
inconvenience, so the purpose for apologizing is mainly to show empathy and to ensure the client that we are hearing them out and that we will
do a better investigation and it is not in any way that we are admitting any fault.14 (underscoring supplied)
To the Court, the foregoing explanation of the hotels Banquet Director overcomes any presumption of admission of
breach which Svenssons letter might have conveyed.
The exculpatory clause notwithstanding, the Court notes that respondent could have managed the situation
better, it being held in high esteem in the hotel and service industry. Given respondents vast experience, it is safe to
presume that this is not its first encounter with booked events exceeding the guaranteed cover. It is not audacious to
expect that certain measures have been placed in case this predicament crops up. That regardless of these measures,
respondent still received complaints as in the present case, does not amuse.
Respondent admitted that three hotel functions coincided with petitioners reception. To the Court, the delay in
service might have been avoided or minimized if respondent exercised prescience in scheduling events. No less than
quality service should be delivered especially in events which possibility of repetition is close to nil. Petitioners are
not expected to get married twice in their lifetimes.
_______________
14 TSN, March 16, 2005, pp. 24-26.
601
VOL. 641, FEBRUARY 7, 2011 601
Guanio vs. Makati Shangri-La Hotel
and Resort, Inc.
In the present petition, under considerations of equity, the Court deems it just to award the amount of P50,000.00
by way of nominal damages to petitioners, for the discomfiture that they were subjected to during to the event. 15 The
Court recognizes that every person is entitled to respect of his dignity, personality, privacy and peace of
mind.16 Respondents lack of prudence is an affront to this right.
WHEREFORE, the Court of Appeals Decision dated July 27, 2009 is PARTIALLY REVERSED. Respondent is, in
light of the foregoing discussion, ORDERED to pay the amount of P50,000.00 to petitioners by way of nominal
damages.
SO ORDERED.
Brion, Bersamin, Villarama, Jr. and Sereno, JJ., concur.
Judgment partially reversed.
Note.An action for annulment of contract is one filed where consent is vitiated by lack of legal capacity of one of
the contracting parties, or by mistake, violence, intimidation, undue influence or fraud. By its very nature, annulment
contemplates a contract which is voidable, that is, valid until annulled. Such contract is binding on all the contracting
parties until annulled and set aside by a court of law. It may be ratified. An action for annulment of contract has a
four-year prescriptive period. (Leonardo vs. Court of Appeals, 438 SCRA 201 [2004])
o0o
_______________

15 Civil Code, Article 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.
16 Id., at Article 26.
Copyright 2017 Central Book Supply, Inc. All rights reserved.
72 SUPREME COURT REPORTS
ANNOTATED
Cetus Development, Inc. vs. Court of
Appeals
G.R. No. 77645. August 7,1989. *

CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and EDERLINA NAVALTA, respondents.
G.R. No. 77648. August 7, 1989. *

CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and ONG TENG, respondents.
G.R. No. 77649. August 7, 1989. *

CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and JOSE LIWANAG, respondents.
G.R. No. 77650. August 7, 1989. *

CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and LEANDRO CANLAS, respondents.
G.R. No. 77651. August 7, 1989. *

CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and VICTORIA SUDARIO, respondents.
G.R. No. 77652. August 7, 1989. *

CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and FLORA NAGBUYA, respondents.
Remedial Law; Special Civil Action; Ejectment; Demand required and contemplated in Section 2, Rule 70 is a jurisdictional
requirement for the purpose of bringing an unlawful detainer suit for failure to pay rent or comply with the conditions of lease.
We hold that the demand required and contemplated in Section 2, aforequoted, is a jurisdictional requirement for the purpose of
bringing an unlawful detainer suit for failure to pay rent or comply with the conditions of lease. It

_______________

*FIRST DIVISION.
73
VOL. 176, AUGUST 7, 73
1989
Cetus Development, Inc. vs. Court
of Appeals
partakes of an extrajudicial remedy that must be pursued before resorting to judicial action so much so that when there is
full compliance with the demand, there arises no necessity for court action.
Same; Same; Same; Existence of cause of action gives the lessor the right under Article 1659 of the New Civil Code to ask for
the rescission of the contract of lease and indemnification for damages or only the latter, allowing the contract to remain in force;
where rescission is clearly the option taken, the whole that has been followed in our jurisdiction is that both demands to pay rent
and to vacate are necessary to make a lessee a deforciant in order that an ejectment suit may be filed.As to whether this demand
is merely a demand to pay rent or comply with the conditions of the lease or also a demand to vacate, the answer can be gleaned
from said Section 2. This section presupposes the existence of a cause of action for unlawful detainer as it speaks of failure to
pay rent due or comply with the conditions of the lease. The existence of said cause of action gives the lessor the right under
Article 1659 of the New Civil Code to ask for the rescission of the contract of lease and indemnification for damages, or only the
latter, allowing the contract to remain in force. Accordingly, if the option chosen is for specific performance, then the demand
referred to is obviously to pay rent or to comply with the conditions of the lease violated. However, if rescission is the option
chosen, the demand must be for the lessee to pay rents or to comply with the conditions of the lease and to vacate. Accordingly,
the rule that has been followed in our jurisprudence where rescission is clearly the option taken, is that both demands to pay
rent and to vacate are necessary to make a lessee a deforciant in order that an ejectment suit may be filed.
Same; Same; Same; There are two requisites for bringing an ejectment suit.Thus, for the purpose of bringing an ejectment
suit, two requisites must concur, namely: (1) there must be failure to pay rent or comply with the conditions of the lease and (2)
there must be demand both to pay or to comply and vacate within the periods specified in Section 2, Rule 70, namely 15 days in
case of lands and 5 days in case of buildings. The first requisite refers to the existence of the cause of action for unlawful detainer
while the second refers to the jurisdictional requirement of demand in order that said cause of action may be pursued.
Same; Same; Same; Same; In the case at bar, no cause of action for ejectment has accrued.It is very clear that in the case
at bar, no cause of action for ejectment has accrued. There was no failure yet on the
74
74 SUPREME COURT
REPORTS ANNOTATED
Cetus Development, Inc. vs. Court
of Appeals
part of private respondents to pay rents for three consecutive months. As the terms of the individual verbal leases which
were on a month-to-month basis were not alleged and proved, the general rule on necessity of demand applies, to wit: there is
default in the fulfillment of an obligation when the creditor demands payment at the maturity of the obligation or at anytime
thereafter. This is explicit in Article 1169, New Civil Code which provides that (t)hose obliged to deliver or to do something incur
in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
Same; Same; Same; Same; Same; Petitioner has not shown that the case falls on any of the exceptions where demand is not
required.Petitioner has not shown that its case falls on any of the following exceptions where demand is not required: (a) when
the obligation or the law so declares; (b) when from the nature and circumstances of the obligation it can be inferred that time is
of the essence of the contract; and (c) when demand would be useless, as when the obligor has rendered it beyond his power to
perform.
Same; Same; Same; Same; Demand required in Article 1169 of the Civil Code may be in any form provided it can be proved;
This demand is different from the demand required under Section 2, Rule 70 which is merely a jurisdictional requirement.The
demand required in Article 1169 of the Civil Code may be in any form, provided that it can be proved. The proof of this demand
lies upon the creditor. Without such demand, oral or written, the effects of default do not arise. This demand is different from
the demand required under Section 2, Rule 70, which is merely a jurisdictional requirement before an existing cause of action
may be pursued.
Same; Same; Same; Same; Same; Record fails to show proof that petitioner demanded payment of the rentals when the
obligation matured; There being no accrued cause of action for ejectment, petitioners demand to vacate was premature.The facts
on record fail to show proof that petitioner demanded the payment of the rentals when the obligation matured. Coupled with the
fact that no collector was sent as previously done in the past, the private respondents cannot be held guilty of mora solvendi or
delay in the payment of rentals. Thus, when petitioner first demanded the payment of the 3-month arrearages and private
respondents lost no time in making tender and payment, which petitioner accepted, no cause of action for ejectment accrued.
Hence, its demand to vacate was premature as it was an exercise of a non-existing right to rescind.
75
VOL. 176, AUGUST 7, 75
1989
Cetus Development, Inc. vs. Court
of Appeals
Same; Same; Same; Same; Where the right of rescission exists, payment of the arrearages in rental after the demand to pay
and to vacate does not extinguish the cause of action for ejectment.In contradistinction, where the right of rescission exists,
payment of the arrearages in rental after the demand to pay and to vacate under Section 2, Rule 70 does not extinguish the cause
of action for ejectment as the lessor is not only entitled to recover the unpaid rents but also to eject the lessee.
Same; Same; Same; Argument that acceptance of tendered payment does not constitute a waiver of the cause of action for
ejectment especially when accepted with the written condition that it was without prejudice to the filing of an ejectment suit,
correct.Petitioner correctly argues that acceptance of tendered payment does not constitute a waiver of the cause of action for
ejectment especially when accepted with the written condition that it was without prejudice to the filing of an ejectment suit.
Indeed, it is illogical or ridiculous not to accept the tender of payment of rentals merely to preserve the right to file an action for
unlawful detainer. However, this line of argument presupposes that a cause of action for ejectment has already accrued, which
is not true in the instant case.
Same; Same; Same; Same; It could not be said that private respondents were in default in the payment of their rentals as the
delay in paying the same was not imputable to them but to petitioners omission or neglect to collect.Petitioner likewise claims
that its failure to send a collector to collect the rentals cannot be considered a valid defense for the reason that sending a collector
is not one of the obligations of the lessor under Article 1654. While it is true that a lessor is not obligated to send a collector, it
has been duly established that it has been customary for private respondents to pay the rentals through a collector. Besides
Article 1257, New Civil Code provides that where no agreement has been designated for the payment of the rentals, the place of
payment is at the domicile of the defendants. Hence, it could not be said that they were in default in the payment of their rentals
as the delay in paying the same was not imputable to them. Rather, it was attributable to petitioners omission or neglect to
collect.

PETITIONS for certiorari to review the decision of the Court of Appeals.

The facts are stated in the opinion of the Court.


76
76 SUPREME COURT REPORTS
ANNOTATED
Cetus Development, Inc. vs. Court of
Appeals

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision dated January 30, 1987 of the Court of Appeals in CA-GR
Nos. SP-07945-50 entitled, Cetus Development, Inc., Petitioner vs. Hon. Conrado T. Limcaoco, Presiding Judge,
Regional Trial Court of Manila, Branch XI, Ederlina Navalta, et. al., respondents.
The following facts appear in the records:
The private respondents, Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas, Victoria Sudario, and Flora
Nagbuya were the lessees of the premises located at No. 512 Quezon Boulevard, Quiapo, Manila, originally owned by
the Susana Realty. These individual verbal leases were on a month-to-month basis at the following rates: Ederlina
Navalta at the rate of P80.50; Ong Teng at the rate of P96.10; Jose Liwanag at the rate of P40.35; Leandro Canlas at
the rate of P80.55; Victoria Sudario at the rate of P50.45 and Flora Nagbuya at the rate of P80.55. The payments of
the rentals were paid by the lessees to a collector of the Susana Realty who went to the premises monthly.
Sometime in March, 1984, the Susana Realty sold the leased premises to the petitioner, Cetus Development, Inc.,
a corporation duly organized and existing under the laws of the Philippines. From April to June, 1984, the private
respondents continued to pay their monthly rentals to a collector sent by the petitioner. In the succeeding months of
July, August and September 1984, the respondents failed to pay their monthly individual rentals as no collector came.
On October 9, 1984, the petitioner sent a letter to each of the private respondents demanding that they vacate the
subject premises and to pay the back rentals for the months of July, August and September, 1984, within fifteen (15)
days from the receipt thereof. Immediately upon the receipt of the said demand letters on October 10, 1984, the private
respondents paid their respective arrearages in rent which were accepted by the petitioner subject to the unilateral
condition that the acceptance was without prejudice to the filing of an ejectment suit. Subsequent monthly rental
payments were likewise accepted by the petitioner under the same condition.
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Cetus Development, Inc. vs. Court of
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For failure of the private respondents to vacate the premises as demanded in the letter dated October 9, 1984, the
petitioner filed with the Metropolitan Trial Court of Manila complaints for ejectment against the former, as follows:
(1) 105972-CV, against Ederlina Navalta; (2) 105973-CV, against Jose Liwanag; (3) 105974-CV, against Flora
Nagbuya; (4) 105975-CV, against Leandro Canlas; (5) 105976-CV, against Victoria Sudario and (6) 105977-CV, against
Ong Teng.
In their respective answers, the six (6) private respondents interposed a common defense. They claimed that since
the occupancy of the premises they paid their monthly rental regularly through a collector of the lessor; that their
non-payment of the rentals for the months of July, August and September, 1984, was due to the failure of the petitioner
(as the new owner) to send its collector; that they were at a loss as to where they should pay their rentals; that
sometime later, one of the respondents called the office of the petitioner to inquire as to where they would make such
payments and he was told that a collector would be sent to receive the same; that no collector was ever sent by the
petitioner; and that instead they received a uniform demand letter dated October 9, 1984.
The private respondents, thru counsel, later filed a motion for consolidation of the six cases and as a result thereof,
the said cases were consolidated in the Metropolitan Trial Court of Manila, Branch XII, presided over by Judge
Eduardo S. Quintos, Jr. On June 4, 1985, the trial court rendered its decision dismissing the six cases, a pertinent
portion of which reads, as follows:
The records of this case show that at the time of the filing of this complaint, the rentals had all been paid. Hence, the plaintiff
cannot eject the defendants from the leased premises, because at the time these cases were instituted, there are no rentals in
arrears.
The acceptance of the back rental by the plaintiff before the filing of the complaint, as in these case, the alleged rental
arrearages were paid immediately after receipt of the demand letter, removes its cause of action in an unlawful detainer case,
even if the acceptance was without prejudice.
x x x.
Furthermore, the court has observed that the account involved
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Cetus Development, Inc. vs. Court of
Appeals
which constitutes the rentals of the tenants are relatively small to which the ejectment may not lie on grounds of equity and
for humanitarian reasons.
Defendants counterclaim for litigation expenses has no legal and factual basis for assessing the same against plaintiff.
WHEREFORE, judgment is hereby rendered dismissing these cases, without pronouncement as to costs.
Defendants counterclaim is likewise dismissed.
SO ORDERED. (pp. 32-33, Rollo, G.R. No. 77647)
Not satisfied with the decision of the Metropolitan Trial Court, the petitioner appealed to the Regional Trial Court of
Manila and the same was assigned to Branch IX thereof presided over by Judge Conrado T. Limcaoco (now Associate
Justice of the Court of Appeals). In its decision dated November 19, 1985, the Regional Trial Court dismissed the
appeal for lack of merit.
In due time, a petition for review of the decision of the Regional Trial Court was filed by the petitioner with the
Court of Appeals. Said petition was dismissed on January 30, 1987, for lack of merit.
Aggrieved by the decision of the Court of Appeals, petitioner now comes to Us in this petition, assigning the
following errors:

ASSIGNMENT OF ERRORS

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF


JURISDICTION, WHEN IT ERRED IN HOLDING THAT THE CAUSE OF ACTION FOR UNLAWFUL DETAINER IN THESE
CASES DID NOT EXIST WHEN THE COMPLAINTS WERE FILED BECAUSE PRIVATE RESPONDENTS TENDERED, AND
PETITIONER ACCEPTED, THE PAYMENT OF THE THREE (3) MONTHS RENTAL IN ARREARS WITHIN THE FIFTEEN
(15) DAY PERIOD FROM PRIVATE RESPONDENTS RECEIPT OF PETITIONERS DEMAND LETTERS TO VACATE THE
SUBJECT PREMISES AND TO PAY THE RENTALS IN ARREARS.
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Cetus Development, Inc. vs. Court of
Appeals

II

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF


JURISDICTION, WHEN IT ERRED IN AFFIRMING THE DISMISSAL OF THE COMPLAINTS IN THESE CASES
NOTWITHSTANDING THE EXISTENCE OF VALID GROUNDS FOR THE JUDICIAL EJECTMENT OF PRIVATE
RESPONDENT.
III

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF


JURISDICTION, WHEN IT ERRED IN HOLDING THAT THESE CASES ARE CLASSIC EXAMPLES TO CIRCUMVENT THE
RENT CONTROL LAW. (pp. 164-165, Rollo, G.R. No. 77647)
The Court of Appeals defined the basic issue in this case as follows: whether or not there exists a cause of action when
the complaints for unlawful detainer were filed considering the fact that upon demand by petitioner from private
respondents for payment of their back rentals, the latter immediately tendered payment which was accepted by
petitioner.
In holding that there was no cause of action, the respondent Court relied on Section 2, Rule 70 of the Rules of Court,
which provides:
Sec. 2. Landlord to proceed against tenant only after demand.No landlord or his legal representative or assign, shall bring
such action against a tenant for failure to pay rent due or to comply with the conditions of his lease, unless the tenant shall have
failed to pay such rent or comply with such conditions for a period of fifteen (15) days or five (5) days in case of building, after
demand therefor, made upon him personally, or by serving written notice of such demand upon the person found on the premises,
or by posting such notice on the premises if no persons be found thereon.
It interpreted the said provision as follows:
x x x the right to bring an action of ejectment or unlawful detainer must be counted from the time the defendants failed to pay
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80 SUPREME COURT REPORTS
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Cetus Development, Inc. vs. Court of
Appeals
rent after the demand therefor. It is not the failure per se to pay rent as agreed in the contract, but the failure to pay the rent
after a demand therefor is made, that entitles the lessor to bring an action for unlawful detainer. In other words, the demand
contemplated by the above-quoted provision is not a demand to vacate, but a demand made by the landlord upon his tenant for
the latter to pay the rent due. If the tenant fails to comply with the said demand within the period provided, his possession
becomes unlawful and the landlord may then bring the action for ejectment. (p. 28, Rollo, G.R. No. 77647)
We hold that the demand required and contemplated in Section 2, aforequoted, is a jurisdictional requirement for the
purpose of bringing an unlawful detainer suit for failure to pay rent or comply with the conditions of lease. It partakes
of an extrajudicial remedy that must be pursued before resorting to judicial action so much so that when there is full
compliance with the demand, there arises no necessity for court action.
As to whether this demand is merely a demand to pay rent or comply with the conditions of the lease or also a
demand to vacate, the answer can be gleaned from said Section 2. This section presupposes the existence of a cause of
action for unlawful detainer as it speaks of failure to pay rent due or comply with the conditions of the lease. The
existence of said cause of action gives the lessor the right under Article 1659 of the New Civil Code to ask for the
rescission of the contract of lease and indemnification for damages, or only the latter, allowing the contract to remain
in force. Accordingly, if the option chosen is for specific performance, then the demand referred to is obviously to pay
rent or to comply with the conditions of the lease violated. However, if rescission is the option chosen, the demand
must be for the lessee to pay rents or to comply with the conditions of the lease and to vacate. Accordingly, the rule
that has been followed in our jurisprudence where rescission is clearly the option taken, is that both demands to pay
rent and to vacate are necessary to make a lessee a deforciant in order that an ejectment suit may be filed (Casilan,
et al. vs. Tomassi, L-16574, February 28, 1964, 10 SCRA 261; Rickards vs. Gonzales, 109 Phil. 423; Dikit vs.
Icasiano, 89 Phil. 44).
Thus, for the purpose of bringing an ejectment suit, two requisites must concur, namely: (1) there must be failure
to pay
81
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Cetus Development, Inc. vs. Court of
Appeals
rent or comply with the conditions of the lease and (2) there must be demand both to pay or to comply and vacate
within the periods specified in Section 2, Rule 70, namely 15 days in case of lands and 5 days in case of buildings. The
first requisite refers to the existence of the cause of action for unlawful detainer while the second refers to the
jurisdictional requirement of demand in order that said cause of action may be pursued.
It is very clear that in the case at bar, no cause of action for ejectment has accrued. There was no failure yet on the
part of private respondents to pay rents for three consecutive months. As the terms of the individual verbal leases
which were on a month-to-month basis were not alleged and proved, the general rule on necessity of demand applies,
to wit: there is default in the fulfillment of an obligation when the creditor demands payment at the maturity of the
obligation or at anytime thereafter. This is explicit in Article 1169, New Civil Code which provides that (t)hose obliged
to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them
the fulfillment of their obligation. Petitioner has not shown that its case falls on any of the following exceptions where
demand is not required: (a) when the obligation or the law so declares; (b) when from the nature and circumstances of
the obligation it can be inferred that time is of the essence of the contract; and (c) when demand would be useless, as
when the obligor has rendered it beyond his power to perform.
The demand required in Article 1169 of the Civil Code may be in any form, provided that it can be proved. The
proof of this demand lies upon the creditor. Without such demand, oral or written, the effects of default do not arise.
This demand is different from the demand required under Section 2, Rule 70, which is merely a jurisdictional
requirement before an existing cause of action may be pursued.
The facts on record fail to show proof that petitioner demanded the payment of the rentals when the obligation
matured. Coupled with the fact that no collector was sent as previously done in the past, the private respondents
cannot be held guilty of mora solvendi or delay in the payment of rentals. Thus, when petitioner first demanded the
payment of the 3-
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82 SUPREME COURT REPORTS
ANNOTATED
Cetus Development, Inc. vs. Court of
Appeals
month arrearages and private respondents lost no time in making tender and payment, which petitioner accepted, no
cause of action for ejectment accrued. Hence, its demand to vacate was premature as it was an exercise of a non-
existing right to rescind.
In contradistinction, where the right of rescission exists, payment of the arrearages in rental after the demand to
pay and to vacate under Section 2, Rule 70 does not extinguish the cause of action for ejectment as the lessor is not
only entitled to recover the unpaid rents but also to eject the lessee.
Petitioner correctly argues that acceptance of tendered payment does not constitute a waiver of the cause of action
for ejectment especially when accepted with the written condition that it was without prejudice to the filing of an
ejectment suit. Indeed, it is illogical or ridiculous not to accept the tender of payment of rentals merely to preserve
the right to file an action for unlawful detainer. However, this line of argument presupposes that a cause of action for
ejectment has already accrued, which is not true in the instant case.
Petitioner likewise claims that its failure to send a collector to collect the rentals cannot be considered a valid
defense for the reason that sending a collector is not one of the obligations of the lessor under Article 1654. While it is
true that a lessor is not obligated to send a collector, it has been duly established that it has been customary for private
respondents to pay the rentals through a collector. Besides Article 1257, New Civil Code provides that where no
agreement has been designated for the payment of the rentals, the place of payment is at the domicile of the
defendants. Hence, it could not be said that they were in default in the payment of their rentals as the delay in paying
the same was not imputable to them. Rather, it was attributable to petitioners omission or neglect to collect.
Petitioner also argues that neither is its refusal to accept the rentals a defense for non-payment as Article 1256
provides that [i]f the creditor to whom the tender of payment has been made refuses without just cause to accept it,
the debtor shall be released from responsibility by the consignation of the thing due. It bears emphasis that in this
case there was no unjustified refusal on the part of petitioner or non-acceptance without
83
VOL. 176, AUGUST 7, 1989 83
Cetus Development, Inc. vs. Court of
Appeals
reason that would constitute mora accipiendi and warrant consignation. There was simply lack of demand for payment
of the rentals.
In sum, We hold that respondent Court of Appeals did not commit grave abuse of discretion amounting to lack of
jurisdiction in its conclusion affirming the trial courts decision dismissing petitioners complaint for lack of cause of
action. We do not agree, however, with the reasons relied upon.
ACCORDINGLY, the petition for review on certiorari is hereby DENIED for lack of merit and the decision dated
January 30, 1987 of respondent Court of Appeals is hereby AFFIRMED.
SO ORDERED.
Narvasa, Cruz, Gancayco and Grio-Aquino, JJ., concur.
Petition denied; decision affirmed.
Notes.Possession of land becomes illegal only from the time demand to vacate the land is made. (Philippine
National Bank vs. Animas, 117 SCRA 735).
Ejectment is the proper remedy for refusal to vacate premises. (Dakudao vs. Consolacion, 122 SCRA 877.)

o0o

84
84 SUPREME COURT REPORTS
ANNOTATED
Dario vs. Mison
G.R. No. 81954. August 8, 1989. CESAR Z. DARIO, petitioner, vs. HON. SALVADOR M. MISON, HON. VICENTE
*

JAYME and HON. CATALINO MACARAIG, JR., in their respective capacities as Commissioner of Customs, Secretary
of Finance, and Executive Secretary, respondents.
G.R. No. 81967. August 8, 1989. VICENTE A. FERIA, JR., petitioner, vs. HON. SALVADOR M. MISON, HON.
*

VICENTE JAYME, and HON. CATALINO MACARAIG, JR., in their respective capacities as Commissioner of
Customs, Secretary of Finance, and Executive Secretary, respondents.
G.R. No. 82023. August 8, 1989. ADOLFO CASARENO, PACIFICO LAGLEVA, JULIAN C. ESPIRITU, DENNIS A.
*

AZARRAGA, RENATO DE JESUS, NICASIO C. GAMBOA, CORAZON RALLOS NIEVES, FELICITACION R.


GELUZ, LEODEGARIO H. FLORESCA, SUBAER PACASUM, ZENAIDA LANARIA, JOSE B. ORTIZ, GLICERIO R.
DOLAR, CORNELIO NAPA, PABLO B. SANTOS, FERMIN RODRIGUEZ, DALISAY BAUTISTA, LEO-NARDO
JOSE, ALBERTO LONTOK, PORFIRIO TABINO, JOSE BARREDO, ROBERTO ARNALDO, ESTER TAN, PEDRO
BAKAL, ROSARIO DAVID, RODOLFO AFUANG, LORENZO CATRE, LEONCIA CATRE, ROBERTO ABADA,
petitioners, vs. COMMISSIONER SALVADOR M. MISON, COMMISSIONER, BUREAU OF CUSTOMS, respondent.
G.R. No. 83737. August 8, 1989. BENEDICTO L. AMASA and WILLIAM S. DIONISIO, petitioners, vs. PATRICIA A.
*

STO. TOMAS, in her capacity as

_______________

*EN BANC.
85
VOL. 176, AUGUST 8, 1989 85
Dario vs. Mison
Chairman of the Civil Service Commission and SALVADOR MISON, in his capacity as Commissioner of the Bureau
of Customs, respondents.
G.R. No. 85310. August 8, 1989.*SALVADOR M. MISON, in his capacity as Commissioner of Customs,
petitioner, vs. CIVIL SERVICE COMMISSION, ABACA, SISINIO T., ABAD, ROGELIO C., ABADIANO, JOSE P.,
ABCEDE, NEMECIO C., ABIOG, ELY F., ABLAZA, AURORA M., AGBAYANI, NELSON I., AGRES, ANICETO,
AGUILAR, FLOR, AGUILUCHO, MA. TERESA R., AGUSTIN, BONIFACIO T., ALANO, ALEX P., ALBA, MAXIMO
F. JR., ALBANO, ROBERT B., ALCANTARA, JOSE G., ALMARIO, RODOLFO F., ALVEZ, ROMUALDO R.,
AMISTAD, RUDY M., AMOS, FRANCIS F., ANDRES, RODRIGO V., ANGELES, RICARDO S., ANOLIN,
MILAGROS H., AQUINO, PASCASIO E., ARABE, MELINDA M., ARCANGEL, AGUSTIN S., JR., ARPON,
ULPIANO U., JR., ARREZA, ARTEMIO M., JR., ARROJO, ANTONIO P., ARVISU, ALEXANDER S., ASCAO,
ANTONIO T., ASLAHON, JULAHON P., ASUNCION, VICTOR R., ATANGAN, LORNA S., ATIENZA, ALEXANDER
R., BACAL, URSULINO C., BAAGA, MARLOWE, Z., BANTA, ALBERTO T., BARREDO, JOSE B., BARROS,
VICTOR C., BARTOLOME, FELIPE A., BAYSAC, REYNALDO S., BELENO, ANTONIO B., BERNARDO, ROMEO
D., BERNAS, MARCIANO S., BOHOL, AUXILIADOR G., BRAVO, VICTOR M., BULEG, BALILIS R., CALNEA,
MERCEDES M., CALVO, HONESTO G., CAMACHO, CARLOS V., CAMPOS, RODOLFO C., CAPULONG,
RODRIGO G., CARINGAL, GRACIA Z., CARLOS, LORENZO B., CARRANTO, FIDEL U., CARUNGCONG,
ALFREDO M., CASTRO, PATRICIA J., CATELO, ROGELIO B., CATURLA, MANUEL B., CENIZAL, JOSEFINA F.,
CINCO, LUISITO, CONDE, JOSE C., JR., CORCUERA, FIDEL S., CORNETA, VICENTE S., CORONADO,
RICARDO S., CRUZ, EDUARDO S., CRUZ EDILBERTO A., CRUZ, EFIGENIA B., CRUZADO, MARCIAL C.,
CUSTODIO, RODOLFO M., DABON, NORMA M., DALINDIN, EDNA MAE D., DANDAL, EDEN F., DATUHARON,
SATA A., DAZO, GODOF
86
86 SUPREME COURT REPORTS
ANNOTATED
Dario vs. Mison
A., DE GUZMAN, RENATO E., DE LA CRUZ, AMADO A., JR., DE LA CRUZ, FRANCISCO C., DE LA PEA,
LEONARDO, DEL CAMPO, ORLANDO, DEL RIO, MAMERTO P., JR., DEMESA, WILHELMINA T., DIMAKUTA,
SALIC L., DIZON, FELICITAS A., DOCTOR, HEIDY M., DOLAR, GLICERIO R., DOMINGO, NICANOR J.,
DOMINGO, PERFECTO V., JR., DUAY, JUANA G., DYSANGCO, RENATO F., EDILLOR, ALFREDO P., ELEVAZO,
LEONARDO A., ESCUYOS, MANUEL M., JR., ESMERIA, ANTONIO E., ESPALDON, MA. LOURDES H., ESPINA,
FRANCO A., ESTURCO, RODOLFO C., EVANGELINO, FERMIN I., FELIX, ERNESTO G., FERNANDEZ,
ANDREW M., FERRAREN, ANTONIO C., FERRERA, WENCESLAO A., FRANCISCO, PELAGIO S., JR., FUENTES,
RUDY L., GAGALANG, RENATO V., GALANG, EDGARDO R., GAMBOA, ANTONIO C., GAN, ALBERTO R.,
GARCIA, GILBERT M., GARCIA, EDNA V., GARCIA, JUAN L., GAVIOLA, LILIAN V., GEMPARO, SEGUNDINA
G., GOBENCIONG, FLORDELIZ B., GRATE, FREDERICK R., GREGORIO, LAURO P., GUARTICO, AMMON H.,
GUIANG, MYRNA N., GUINTO, DELFIN C., HERNANDEZ, LUCAS A., HONRALES, LORETO N., HUERTO,
LEOPOLDO H., HULAR, LANNYROSS E., IBAEZ, ESTER C., ILAGAN, HONORATO C., INFANTE, REYNALDO
C., ISAIS, RAY C., ISMAEL, HADJI AKRAM B., JANOLO, VIRGILIO M., JAVIER, AMADOR L., JAVIER, ROBERTO
S., JAVIER, WILLIAM R., JOVEN, MEMIA A., JULIAN, REYNALDO V., JUMAMOY, ABUNDIO A., JUMAQUIAO,
DOMINGO F., KAINDOY, PASCUAL B., JR., KOH, NANIE G., LABILLES, ERNESTO S., LABRADOR, WILFREDO
M., LAGA, BIENVENIDO M., LAGLEVA, PACIFICO Z., LAGMAN, EVANGELINE G., LAMPONG, WILFREDO G.,
LANDICHO, RESTITUTO A., LAPITAN, CAMILO M., LAURENTE, REYNALDO A., LICARTE, EVARISTO R.,
LIPIO, VICTOR O., LITTAUA, FRANKLIN Z., LOPEZ, MELENCIO L., LUMBA, OLIVIA R., MACAISA, BENITO T.,
MACAISA, ERLINDA C., MAGAT, ELPIDIO, MAGLAYA, FERNANDO P., MALABANAN, ALFREDO C.,
MALIBIRAN, ROSITA D., MALIJAN, LAZARO V., MALLI, JAVIER M., MANAHAN, RAMON S., MANUEL,
ELPIDIO R.,
87
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Dario vs. Mison
MARAVILLA, GIL B., MARCELO, GIL C., MARIAS, RODOLFO V., MAROKET, JESUS C., MARTIN, NEMENCIO
A., MARTINEZ, ROMEO M., MARTINEZ, ROSELINA M., MATIBAG, ANGELINA G., MATUGAS, ERNESTO T.,
MATUGAS, FRANCISCO T., MAYUGA, PORTIA E., MEDINA, NESTOR M., MEDINA, ROLANDO S., MENDAVIA,
AVELINO I., MENDOZA, POTENCIANO G., MIL, RAY M., MIRAVALLES, ANASTACIA L., MONFORTE,
EUGENIO, JR., G., MONTANO, ERNESTO F., MONTERO, JUAN M. III., MORALDE, ESMERALDO B., JR.,
MORALES, CONCHITA D.L., MORALES, NESTOR P., MORALES, SHIRLEY S., MUNAR, JUANITA L., MUOZ,
VICENTE R., MURILLO, MANUEL M., NACION, PEDRO R., NAGAL, HENRY N., NAPA, CORNELIO B.,
NAVARRO, HENRY L., NEJAL, FREDRICK E., NICOLAS, REYNALDO S., NIEVES, RUFINO A., OLAIVAR,
SEBASTIAN T., OLEGARIO, LEO Q., ORTEGA, ARLENE R., ORTEGA, JESUS R., OSORIO, ABNER S., PAPIO,
FLORENTINO T. II, PASCUA, ARNULFO A., PASTOR, ROSARIO, PELAYO, ROSARIO L., PEA, AIDA C., PEREZ,
ESPERIDION B., PEREZ, JESUS BAYANI M., PRE, ISIDRO A., PRUDENCIADO, EULOGIA S., PUNZALAN,
LAMBERTO N., PURA, ARNOLD T., QUINONES, EDGARDO I., QUINTOS, AMADEO C., JR., QUIRAY, NICOLAS
C., RAMIREZ, ROBERTO P., RAADA, RODRIGO C., RARAS, ANTONIO A., RAVAL, VIOLETA V., RAZAL, BETTY
R., REGALA, PONCE F., REYES, LIBERATO R., REYES, MANUEL E., REYES, NORMA Z., REYES, TELESFORO
F., RIVERA, ROSITA L., ROCES, ROBERTO V., ROQUE, TERESITA S., ROSANES, MARILOU M., ROSETE, ADAN
I., RUANTO, REY CRISTO C., JR., SABLADA, PASCASIO G., SALAZAR SILVERIA S., SALAZAR, VICTORIA
A.,SALIMBACOD, PERLITA C., SALMINGO, LOURDES M., SANTIAGO, EMELITA B., SATINA, PORFIRIO C.,
SEKITO, COSME B., JR., SIMON, ANGELO L., SORIANO, MAGDALENA R., SUMULONG, ISIDRO L., JR.,
SUNICO, ABELARDO T., TABIJE, EMMA B., TAN, RUDY GOROSPE, TAN, ESTER, S., TAN, JULITA S., TECSON,
BEATRIZ B. TOLENTINO, BENIGNO A., TURINGAN, ENRICO T., JR., UMPA, ALI A., VALIC, LUCIO E.,
VASQUEZ
88
88 SUPREME COURT REPORTS
ANNOTATED
Dario vs. Mison
NICANOR B., VELARDE, EDGARDO C., VERA, AVELINO A., VERAME, OSCAR E., VIADO, LILIAN T., VIERNES,
NAPOLEON K., VILLALON, DENNIS A., VILLAR, LUZ L., VILLALUZ, EMELITO V., ZATA, ANGEL A., JR.,
ACHARON, CRISTETO, ALBA, RENATO B., AMON, JULITA C., AUSTRIA, ERNESTO C., CALO, RAYMUNDO M.,
CENTENO, BENJAMIN R., DE CASTRO, LEOPAPA C., DONATO, ESTELITA P., DONATO, FELIPE S., FLORES,
PEDRITO S., GALAROSA, RENATO, MALAWI, MAUYAG, MONTENEGRO, FRANCISCO M., OMEGA,
PETRONILO T., SANTOS, GUILLERMO F., TEMPLO, CELSO, VALDERAMA, JAIME B., and VALDEZ, NORA M.,
respondents.
G.R. No. 85335. August 8, 1989.*FRANKLIN Z. LITTAUA, ADAN I. ROSETE, FRANCISCO T. MATUGAS, MA. J.
ANGELINA G. MATIBAG, LEODEGARDIO H. FLORESCA, LEONARDO A. DELA PEA, ABELARDO T. SUNICO,
MELENCIO L. LOPEZ, NEMENCIO A. MARTIN, RUDY M. AMISTAD, ERNESTO T. MATUGAS, SILVERIA S.
SALAZAR, LILLIAN V. GAVIOLA, MILAGROS ANOLIN, JOSE B. ORTIZ, ARTEMIO ARREZA, JR., GILVERTO M.
GARCIA, ANTONIO A. RARAS, FLORDELINA B. GOBENCIONG, ANICETO AGRES, EDGAR Y. QUINONES,
MANUEL B. CATURLA, ELY F. ABIOG, RODRIGO C. RANADA, LAURO GREGORIO, ALBERTO I. GAN,
EDGARDO GALANG, RAY C. ISAIS, NICANOR B. VASQUEZ, MANUEL ESCUYOS, JR., ANTONIO B. BELENO,
ELPIO R. MANUEL, AUXILIADOR C. BOHOL, LEONARDO ELEVAZO, VICENTE S. CORNETA,
petitioners, vs. COM. SALVADOR M. MISON/BUREAU OF CUSTOMS and the CIVIL SERVICE COMMISSION,
respondents.
G.R. No. 86241. August 8, 1989.*SALVADOR M. MISON, in his capacity as Commissioner of Customs,
petitioner, vs. CIVIL SERVICE COMMISSION, SENEN S. DIMAGUILA, ROMEO P. ARABE, BERNARDO S.
QUINTONG, GREGORIO P. REYES, and ROMULO C.
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VOL. 176, AUGUST 8, 1989 89
Dario vs. Mison
BADILLO, respondents.
Political Law; Constitutional Commissions; Civil Service Commission; Civil Procedure; Certiorari; Judgments of the
Commission may be brought to the Supreme Court through certiorari alone under Rule 65 of the Rules of Court.We reject,
finally, contentions that the Bureaus petition (in G.R. 85310) raises no jurisdictional questions, and is therefore bereft of any
basis as a petition for certiorari under Rule 65 of the Rules of Court. We find that the questions raised in Commissioner Misons
petition (in G.R. 85310) are, indeed, proper for certiorari, if by jurisdictional questions we mean questions having to do with
an indifferent disregard of the law, arbitrariness and caprice, or omission to weigh pertinent considerations, a decision arrived
at without rational deliberation, as distinguished from questions that require digging into the merits and unearthing errors of
judgment which is the office, on the other hand, of review under Rule 45 of the said Rules. What cannot be denied is the fact
that the act of the Civil Service Commission of reinstating hundreds of Customs employees Commissioner Mison had separated,
has implications not only on the entire reorganization process decreed no less than by the Provisional Constitution, but on the
Philippine bureaucracy in general; these implications are of such a magnitude that it cannot be said thatassuming that the
Civil Service Commission erredthe Commission committed a plain error of judgment that Aratuc says cannot be corrected
by the extraordinary remedy of certiorari or any special civil action. We reaffirm the teaching of Aratucas regards recourse to
this Court with respect to rulings of the Civil Service Commissionwhich is that judgments of the Commission may be brought
to the Supreme Court through certiorari alone, under Rule 65 of the Rules of Court. In Aratuc, we declared: It is once evident for
these constitutional and statutory modifications that there is a definite tendency to enhance and invigorate the role of the
Commission on Elections as the independent constitutional body charged with the safeguarding of free, peaceful and honest
elections. The framers of the new Constitution must be presumed to have definite knowledge of what it means to make the
decisions, orders and rulings of the Commission subject to review by the Supreme Court. And since instead of maintaining that
provision intact, it ordained that the Commissions actuations be instead brought to the Supreme Court on certiorari, We cannot
insist that there was no intent to change the nature of the remedy, considering that the limited scope of certiorari, compared to
a review, is well known in remedial law.
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Same; Same; Same; The Civil Service Commission is the sole arbiter of all controversies pertaining to the civil service.We
observe no fundamental difference between the Commission on Elections and the Civil Service Commission (or the Commission
on Audit for that matter) in terms of the consitutional intent to leave the constitutional bodies alone in the enforcement of laws
relative to elections, with respect to the former, and the civil service, with respect to the latter (or the audit of government
accounts, with respect to the Commission on Audit). As the poll body is the sole judge of all election cases, so is the Civil Service
Commission the single arbiter of all controversies pertaining to the civil service.
Same; Same; Same; Courts; Certiorari; The jurisdiction of the Supreme Court over cases emanating from the Civil Service
Commission is limited to complaints of lack or excess of jurisdiction or grave abuse of discretion tantamount to lack or excess of
jurisdiction, complaints that justify certiorari under Rule 65.It should also be noted that under the new Constitution, as under
the 1973 Charter, any decision, order, or ruling of each Commission may be brought to the Supreme Court on certiorari, which,
as Aratuc tells us, technically connotes something less than saying that the same shall be subject to review by the Supreme
Court, which in turn suggests an appeal by petition for review under Rule 45. Therefore, our jurisdiction over cases emanating
from the Civil Service Commission is limited to complaints of lack or excess of jurisdiction or grave abuse of discretion tantamount
to lack or excess of jurisdiction, complaints that justify certiorari under Rule 65.
Same; Same; Same; Same; Same; Same; RA 6656; Since RA 6656 provides that judgments of the Civil Service Commission
are final and unappealable, certiorari therefore lies under Rule 65 in the absence of appeal.While Republic Act No. 6656 states
that judgments of the Commission are final and executory and hence, unappealable, under Rule 65, certiorari precisely lies in
the absence of an appeal. Accordingly, we accept Commissioner Misons petition (G.R. 85310) which clearly charges the Civil
Service Commission with grave abuse of discretion, a proper subject of certiorari, although it may not have so stated in explicit
terms.
Same; Same; Same; Same; Same; Same; Same; Motions for Reconsideration; A motion for reconsideration should preface a
resort to a special civil action.As we stated, under the Constitution, an aggrieved party has thirty days within which to
challenge any decision,
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Dario vs. Mison
order or ruling of the Commission. To say that the period should be counted from the Solicitors receipt of the main
Resolution, dated June 30, 1988, is to say that he should not have asked for reconsideration. But to say that is to deny him the
right to contest (by a motion for reconsideration) any ruling, other than the main decision, when, precisely, the Constitution
gives him such a right. That is also to place him at a no-win situation because if he did not move for a reconsideration, he would
have been faulted for demanding certiorari too early, under the general rule that a motion for reconsideration should preface a
resort to a special civil action. Hence, we must reckon the thirty-day period from receipt of the order of denial.
Constitutional Law; Civil Service Commission; Public Officers; Removal; Abolition of Office; In case of separation from office
arising from abolition of office as a result of reorganization, the government is obliged to prove good faith; but in case of removals
undertaken on the strength of clear and explicit constitutional mandates, the government is not hard put to prove anything.At
this point, we must distinguish removals from separations arising from abolition of office (not by virtue of the Constitution) as a
result of reorganization carried out by reason of economy or to remove redundancy of functions. In the latter case, the Government
is obliged to prove good faith. In case of removals undertaken to comply with clear and explicit constitutional mandates, the
Government is not hard put to prove anything, plainly and simply because the Constitution allows it.
Same; Same; Same; Courts; Decisions; Obiter Dictum; The ruling in Jose vs. Arroyo that the reorganization of the Bureau
of Customs under Exec. Order No. 127 may continue even after ratification of the present Constitution. . . . is in the nature of an
obiter dictum, and therefore, it lacks the force of an adjudication and should be ordinarily regarded as such.There are a few
points about Arroyo that have to be explained. First, the opinion expressed therein that [b]y virtue of said provision the
reorganization of the Bureau of Customs under Executive Order No. 127 may continue even after the ratification of this
constitution and career civil service employees may be separated from the service without cause as a result of such
reorganization is in the nature of an obiter dictum. We dismissed Joses petition primarily because it was clearly premature,
speculative, and purely anticipatory, based merely on newspaper reports which do not show any direct or threatened injury, it
appearing that the reorganization of the Bureau of Customs had not been, then, set in motion. Jose therefore had no cause for
complaint, which was enough basis to dismiss the
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petition. The remark anent separation without cause was therefore not necessary for the disposition of the case. In Morales
v. Paredes, it was held that an obiter dictum lacks the force of an adjudication and should not ordinarily be regarded as such.
Same; Same; Same; Removal; Security of Tenure; The present Constitution does not provide for automatic vacancies;
removals not for cause must be resulting from reorganization; and must pass the test of good faith.As we have demonstrated,
reorganization under the aegis of the 1987 Constitution is not as stern as reorganization under the prior Charter. Whereas the
latter, sans the Presidents subsequently imposed constraints, envisioned a purgation, the same cannot be said of the
reorganization inferred under the new Constitution because, precisely, the new Constitution seeks to usher in a democratic
regime. But even if we concede ex gratia argumenti that Section 16 is an exception to due process and no-removal except for
cause provided by law principles enshrined in the very same 1987 Constitution, which may possibly justify removals not for
cause, there is no contradiction in terms here because, while the former Constitution left the axe to fall where it might, the
present organic act requires that removals not for cause must be as a result of reorganization. As we observed, the Constitution
does not provide for automatic vacancies. It must also pass the test of good faitha test not obviously required under the
revolutionary government formerly prevailing, but a test well-established in democratic societies and in this government under
a democratic Charter. When, therefore, Arroyo permitted a reorganization under Executive Order No. 127 after the ratification
of the 1987 Constitution, Arroyo permitted a reorganization provided that it is done in good faith. Otherwise, security of tenure
would be an insuperable impediment.
Same; Same; Same; Same; Same; Same; Reorganization in Good Faith; Reorganization is carried out in good faith if it is for
the purpose of economy or to make bureaucracy more efficient.Reorganizations in this jurisdiction have been regarded as valid
provided they are pursued in good faith. As a general rule, a reorganization is carried out in good faith if it is for the purpose
of economy or to make bureaucracy more efficient. In that event, no dismissal (in case of dismissal) or separation actually occurs
because the position itself ceases to exist. And in that case, security of tenure would not be a Chinese wall. Be that as it may, if
the abolition, which is nothing else but a separation or removal, is done for political reasons or purposely to defeat security of
tenure, or otherwise not in good faith, no valid abolition takes
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Dario vs. Mison
place and whatever abolition is done, is void ab initio. There is an invalid abolition as where there is merely a change of
nomenclature of positions, or where claims of economy are belied by the existence of ample funds. It is to be stressed that by
predisposing a reorganization to the yardstick of good faith, we are not, as a consequence, imposing a cause for restructuring.
Retrenchment in the course of a reorganization in good faith is still removal not for cause, if by cause we refer to grounds
or conditions that call for disciplinary action. Good faith, as a component of a reorganization under a constitutional regime, is
judged from the facts of each case.
Same; Same; Security of Tenure; Career Service Employees; Removal; The President could have validly removed government
employees without cause but only before the effectivity of the 1987 Constitution.The President could have validly removed
government employees, elected or appointed, without cause but only before the effectivity of the 1987 Constitution on February
2, 1987 (De Leon v. Esguerra, supra; Palma-Fernandez v. De la Paz, supra); in this connection, Section 59 (on non-reappointment
of incumbents) of Executive Order No. 127 cannot be a basis for termination. In such a case, dismissed employees shall be paid
separation and retirement benefits or upon their option be given reemployment opportunities (CONST. [1987], art. XVIII, sec.
16; Rep. Act No. 6656, sec. 9). From February 2, 1987, the State does not lose the right to reorganize the Government resulting
in the separation of career civil service employees [CONST. (1987), supra] provided, that such a reorganization is made in good
faith. (Rep. Act No. 6656, surpra.)
Same; Same; Same; Same; Same; RA 6656; The provisions of RA 6656 does not run counter to the transitory provisions of the
new Constitution on removal not for cause; RA 6656 is constitutional.This disposition also resolves G.R. No. 83737. As we have
indicated, G.R. No. 83737 is a challenge to the validity of Republic Act No. 6656. In brief, it is argued that the Act, insofar as it
strengthens security of tenure and as far as it provides for a retroactive effect, runs counter to the transitory provisions of the
new Constitution on removals not for cause. It can be seen that the Act, insofar as it provides for reinstatement of employees
separated without a valid cause and after due notice and hearing is not contrary to the transitory provisions of the new
Constitution. The Court reiterates that although the Charters transitory provisions mention separations not for cause,
separations thereunder must nevertheless be on account of a valid reorganization and which do not come about automatically.
Otherwise, security of
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Dario vs. Mison
tenure may be invoked. Moreover, it can be seen that the statute itself recognizes removals without cause. However, it also
acknowledges the possibility of the leadership using the artifice of reorganization to frustrate security of tenure. For this reason,
it has installed safeguards. There is nothing unconstitutional about the Act. We recognize the injury Commissioner Misons
replacements would sustain. We also commisserate with them. But our concern is the greater wrong inflicted on the dismissed
employees on account of their illegal separation from the civil service.

MELENCIO-HERRERA, J., Dissenting

Constitutional Law; Freedom Constitution; Civil Service; Reorganization; Sec. 16, Art. XVIII of the 1987 Constitution
recognizes that reorganization pursuant to Proc. No. 3 may be continued even after the ratification of 1987 Constitution during
the transition period.By its very context, SECTION 16 envisages the continuance of the reorganization pursuant to
Proclamation No. 3 even after ratification of the Constitution and during the transition period. The two [2] stages contemplated,
namely, (1) the stage before and (2) after ratification, refer to the same nature of separation NOT FOR CAUSE but as a result
of Proclamation No. 3. No valid reason has been advanced for a different treatment after ratification as the majority opines, i.e.,
that separation NOT FOR CAUSE is allowed before ratification but that, thereafter, separation can only be FOR CAUSE. A
fundamental principle of Constitutional construction is to assure the realization of the purpose of the framers of the organic law
and of the people who adopted it. x x x It should also be recalled that the deadline for the reorganization under Proclamation No.
3 was one year from February 25, 1986 (Article III, Section 2), or up to February 24, 1987. Executive Order No. 17 itself provided
that the review/assessment of personnel be completed not later than February 24, 1987. But, confronted with the reality of the
ratification of the Constitution before that deadline without reorganization having been completed, there was need for a provision
allowing for its continuance even after ratification and until completed. It was also to beat that deadline that EO 127 and similar
issuances, providing for the reorganization of departments of government, were all dated 30 January 1987 or prior to the
plebiscite held on 2 February 1987. The intent to continue and complete the reorganizations started is self-evident in SECTION
16.
Same; Same; Same; Same; Separation Not For Cause; When Sec. 16, Art. XVIII speaks of dismissal not for cause, it implies
that it is not
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Dario vs. Mison
bound by the fetters of due process.The canon for the removal or suspension of a civil service officer or employee is that
it must be FOR CAUSE. That means a guarantee of both procedural and substantive due process. Basically, procedural due
process would require that suspension or dismissal come only after notice and hearing. Substantive due process would require
that suspension or dismissal be for cause. (Bernas, The Constitution of the Republic of the Philippines: A Commentary, Vol. II,
First Edition, 1988, p. 334) The guarantee of removal FOR CAUSE is enshrined in Article IX-B, Section 2(3) of the 1987
Constitution, which states that No officer or employee of the civil service shall be removed or suspended except FOR CAUSE
provided by law. There can be no question then as to the meaning of the phrase FOR CAUSE. It simply means the observance
of both procedural and substantive due process in cases of removal of officers or employees of the civil service. When SECTION
16 speaks, therefore, of separation from the service NOT FOR CAUSE, it can only mean the diametrical opposite. The
constitutional intent to exempt the separation of civil service employees pursuant to Proclamation No. 3 from the operation of
Article IX-B, Section 2(3), becomes readily apparent. A distinction is explicitly made between removal FOR CAUSE, which as
aforestated, requires due process, and dismissal NOT FOR CAUSE, which implies that the latter is not bound by the fetters of
due process. It is obviously for that reason that Section 16 grants separation pay and retirement benefits to those separated NOT
FOR CAUSE but as a result of the reorganization precisely to soften the impact of the nonobservance of due process. What is
envisioned in Section 16 is not a remedy for arbitrary removal of civil servants enjoying security of tenure but some form of relief
for members of the career civil service who may have been or may be legally but involuntarily reorganized out of the service or
may have voluntarily resigned pursuant to the reorganization policy (ibid., p. 615).
Same; Same; Same; Same; RA 6656, Constitutionality of; Sec. 13, RA 6656, in so far as it provides for retroactivity clashes
frontally with Sec. 16, Art. XVIII of the 1987 Constitution, should be declared unconstitutional.The Constitution is the
paramount law to which all laws must conform. It is from the Constitution that all statutes must derive their bearings. The
legislative authority of the State must yield to the expression of the sovereign will. No statutory enactment can disregard the
Charter from which it draws its own existence (Phil. Long Distance Telephone Co. v. Collector of Internal Revenue, 90 Phil. 674
[1952]). But, that is exactly what RA 6656 does in providing for retroactivityit disregards and contravenes a Constitutional
impera-
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Dario vs. Mison
tive. To save it, it should be applied and construed prospectively and not retroactively notwithstanding its explicit provision.
Then, and only then, would it make good law.
Same; Same; Same; Same; The interest of an employee to security of tenure must yield to the interest of the entire populace
and to an efficient and honest government.To be sure, the reorganization could affect the tenure of members of the career
service as defined in Section 5, Article IV of Presidential Decree No. 807, and may even result in the separation from the office
of some meritorious employees. But even then, the greater good of the greatest number and the right of the citizenry to a good
government, and as they themselves have mandated through the vehicle of Proclamation No. 3, provide the justification for the
said injury to the individual. In terms of values, the interest of an employee to security of tenure must yield to the interest of the
entire populace and to an efficient and honest government.

CRUZ, J., Concurring

Constitutional Law; Reorganization; Freedom Constitution; Any reorganization that may be undertaken after the ratification
of the 1987 Constitution must be authorized by the legislature.The clear implication is that any government reorganization that
may be undertaken thereafter must be authorized by the legislature only and may not be allowed the special liberties and
protection enjoyed by the revolutionary reorganization. Otherwise, there would have been no necessity at all for the time
limitation expressly prescribed by the Freedom Constitution. I cannot accept the view that Section 16 is an authorization for the
open-ended reorganization of the government following the ratification of the Constitution.
Same; Same; Reorganization to be valid must be done in good faith.This notwithstanding, the power to reorganize is not
unlimited. It is essential that it be based on a valid purpose, such as the promotion of efficiency and economy in the government
through a pruning of offices or the streamlining of their functions. (Cervantes v. Auditor-General, 91 Phil. 359.) Normally, a
reorganization cannot be validly undertaken as a means of purging the undesirables for this would be a removal in disguise
undertaken en masse to circumvent the constitutional requirement of legal cause. (Eradication of graft and corruption was one
of the expressed purposes of the revolutionary organization, but this was authorized by the Freedom Constitution itself.) In short,
a reorganization, to be valid, must be done in good
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Dario vs. Mison
faith. (Urgelio v. Osmea, 9 SCRA 317; Cuneta v. Court of Appeals, 1 SCRA 663; Cario v. ACCFA, 18 SCRA 183.)

SARMIENTO, J.:

The Court writes finis to this controversy that has raged bitterly for the past several months. It does so out of a
legitimate presentiment of more suits reaching it as a consequence of the government reorganization and the
instability it has wrought on the performance and efficiency of the bureaucracy. The Court is apprehensive that unless
the final word is given and the ground rules are settled, the issue will fester, and likely foment a constitutional crisis
for the nation, itself beset with grave and serious problems.
The facts are not in dispute.
On March 25, 1986, President Corazon Aquino promulgated Proclamation No. 3, DECLARING A NATIONAL
POLICY TO IMPLEMENT THE REFORMS MANDATED BY THE PEOPLE, PROTECTING THEIR BASIC RIGHTS,
ADOPTING A PROVISIONAL CONSTITUTION, AND PROVIDING FOR AN ORDERLY TRANSITION TO A
GOVERNMENT UNDER A NEW CONSTITUTION. Among other things, Proclamation No. 3 provided:
SECTION 1. . . .
The President shall give priority to measures to achieve the mandate of the people to:
(a) Completely reorganize the government, eradicate unjust and oppressive structures, and all iniquitous vestiges of the
previous regime; 1

. . .
Pursuant thereto, it was also provided:
SECTION 1. In the reorganization of the government, priority shall be given to measures to promote economy, efficiency, and
the eradication of graft and corruption.
SECTION 2. All elective and appointive officials and employees

_______________

1 Proc. No. 3, (PROVISIONAL CONST.), art. II, sec. 1(a).


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98 SUPREME COURT REPORTS
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Dario vs. Mison
under the 1973 Constitution shall continue in office until otherwise provided by proclamation or executive order or upon the
appointment and qualification of their successors, if such is made within a period of one year from February 25, 1986.
SECTION 3. Any public officer or employee separated from the service as a result of the organization effected under this
Proclamation shall, if entitled under the laws then in force, receive the retirement and other benefits accruing thereunder.
SECTION 4. The records, equipment, buildings, facilities and other properties of all government offices shall be carefully
preserved. In case any office or body is abolished or reorganized pursuant to this Proclamation, its funds and properties shall be
transferred to the office or body to which its powers, functions and responsibilities substantially pertain.
2

Actually, the reorganization process started as early as February 25, 1986, when the President, in her first act in
office, called upon all appointive public officials to submit their courtesy resignation(s) beginning with the members
of the Supreme Court. Later on, she abolished the Batasang Pambansa and the positions of Prime Minister and
3 4

Cabinet under the 1973 Constitution.


5
Since then, the President has issued a number of executive orders and directives reorganizing various other
government offices, a number of which, with respect to elected local officials, has been challenged in this Court, and 6

two of which, with respect to appointed functionaries, have likewise been ques-

_______________

2 Supra, art. III, secs. 1-4.


3 Proc. No. 1 (1986).
4 CONST. (1986), supra, art. 1, sec. 3.

5 Supra.

6 The various OIC cases, among them, Solis v. Pimentel, G.R. No. 73970, April 10, 1986; Palma v. Fortich, G.R. No. 59679, January 29,

1987; Ignacio v. Banata, G.R. No. 74720, August 31, 1987; Association of Barangay Councils of Las Pias v. Juntilla, G.R. No. 78965, November 17,
1987; Ramos v. Lorenzana, G.R. No. 80282, November 26, 1987; Del Monte v. Ferrer, G.R. 78963, January 13, 1988; Yasay v. Flores, G.R. No. 81047,
January 7, 1988; ending with De Leon v. Esguerra, No. 78059, August 31, 1987, 153 SCRA 602.
99
VOL. 176, AUGUST 8, 1989 99
Dario vs. Mison
tioned herein. 7

On May 28, 1986, the President enacted Executive Order No. 17, PRESCRIBING RULES AND REGULATIONS
FOR THE IMPLEMENTATION OF SECTION 2, ARTICLE III OF THE FREEDOM CONSTITUTION. Executive
Order No. 17 recognized the unnecessary anxiety and demoralization among the deserving officials and employees
the ongoing government reorganization had generated, and prescribed as grounds for the separation/replacement of
personnel, the following:
SECTION 3. The following shall be the grounds for separation/ replacement of personnel:

1. 1)Existence of a case for summary dismissal pursuant to Section 40 of the Civil Service Law;
2. 2)Existence of a probable cause for violation of the Anti-Graft and Corrupt Practices Act as determined by the Ministry
Head concerned;
3. 3)Gross incompetence or inefficiency in the discharge of functions;
4. 4)Misuse of public office for partisan political purposes;
5. 5)Any other analogous ground showing that the incumbent is unfit to remain in the service or his separation/replacement
is in the interest of the service.
8

On January 30, 1987, the President promulgated Executive Order No. 127, REORGANIZING THE MINISTRY OF
FINANCE. Among other offices, Executive Order No. 127 provided for the reorganization of the Bureau of
9

Customs and prescribed a new staffing pattern therefor.


10

Three days later, on February 2, 1987, the Filipino people adopted the new Constitution.
11
______________

7 Jose v. Arroyo, G.R. No. 78435, August 11, 1987; Palma-Fernandez v. De la Paz, No. 78496, August 15, 1988, 160 SCRA 751.
8 Exec. Ord. No. 17, sec. 3.
9 88 O.G. 2009-2024 (Apr., 1987).

10 Exec. Ord. No. 127, supra, secs. 33-38.

11 De Leon v. Esguerra, supra. The writer of this opinion dissented, and maintained that the new Constitution was ratified on February 11, 1987.

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100 SUPREME COURT REPORTS
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Dario vs. Mison
On January 6, 1988, incumbent Commissioner of Customs Salvador Mison issued a Memorandum, in the nature of
Guidelines on the Implementation of Reorganization Executive Orders, prescribing the procedure in personnel
12

placement. It also provided:

1. 1.By February 28, 1988, all employees covered by Executive Order 127 and the grace period extended to the
Bureau of Customs by the President of the Philippines on reorganization shall be:

1. a)informed of their re-appointment, or


2. b)offered another position in the same department or agency, or
3. c)informed of their termination. 13

On the same date, Commissioner Mison constituted a Reorganization Appeals Board charged with adjudicating
appeals from removals under the above Memorandum. On January 26, 1988, Commissioner Mison addressed several
14

notices to various Customs officials, in the tenor as follows:

Sir:

Please be informed that the Bureau is now in the process of implementing the Reorganization Program under Executive Order
No. 127.
Pursuant to Section 59 of the same Executive Order, all officers and employees of the Department of Finance, or the Bureau
of Customs in particular, shall continue to perform their respective duties and responsibilities in a hold-over capacity, and that
those incumbents whose positions are not carried in the new reorganization pattern, or who are not re-appointed, shall be deemed
separated from the service.
In this connection, we regret to inform you that your services are hereby terminated as of February 28, 1988. Subject to the
normal clearances, you may receive the retirement benefits to which you may be entitled under existing laws, rules and
regulations.
_______________

12 Rollo, G.R. No. 85310, 317-31.


13 Id., 317.
14 Id., 8.

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VOL. 176, AUGUST 8, 1989 101
Dario vs. Mison
In the meantime, your name will be included in the consolidated list compiled by the Civil Service Commission so that you
may be given priority for future employment with the Government as the need arises.
Sincerely yours,
(Sgd) SALVADOR M. MISON
Commissioner15

As far as the records will yield, the following were recipients of these notices:
1. CESAR DARIO
2. VICENTE 30. LEONCIA
FERIA, JR. CATRE
3. ADOLFO 31. ROBERTO
CASARENO ABADA
4. PACIFICO 32. ABACA,
LAGLEVA SISINIO T.
5. JULIAN C. 33. ABAD,
ESPIRITU ROGELIO C.
6. DENNIS A. 34. ABADIANO,
AZARRAGA JOSE P.
7. RENATO DE 35. ABCEDE,
JESUS NEMECIO C.
8. NICASIO C. 36. ABIOG, ELY
GAMBOA F.
9. CORAZON 37. ABLAZA,
RALLOS NIEVES AURORA M.
10. 38. AGBAYANI,
FELICITACION NELSON I.
R. GELUZ
11. 39. AGRES,
LEODEGARIO H. ANICETO
FLORESCA
12. SUBAER 40. AGUILAR,
PACASUM FLOR
13. ZENAIDA 41.
LANARIA AGUILUCHO,
MA. TERESA R.
14. JOSE B. 42. AGUSTIN,
ORTIZ BONIFACIO T.
15. GLICERIO R. 43. ALANO,
DOLAR ALEX P.
16. CORNELIO 44. ALBA,
NAPA MAXIMO F. JR.
17. PABLO B. 45. ALBANO,
SANTOS ROBERT B.
18. FERMIN 46.
RODRIGUEZ ALCANTARA,
JOSE G.
19. DALISAY 47. ALMARIO,
BAUTISTA RODOLFO F.
20. LEONARDO 48. ALVEZ,
JOSE ROMUALDO R.
21. ALBERTO 49. AMISTAD,
LONTOK RUDY M.
22. PORFIRIO 50. AMOS,
TABINO FRANCIS F.
23. JOSE 51. ANDRES,
BARREDO RODRIGO V.
24. ROBERTO 52. ANGELES,
ARNALDO RICARDO S.
25. ESTER TAN 53. ANOLIN,
MILAGROS H.
26. PEDRO 54. AQUINO,
BAKAL PASCASIO E. L.
27. ROSARIO 55. ARABE,
DAVID MELINDA M.
28. RODOLFO 56. ARCANGEL,
AFUANG AGUSTIN S., JR.
29. LORENZO 57. ARPON,
CATRE ULPIANO U., JR.
58. ARREZA,
ARTEMIO M.,
JR.
59. ARROJO,
ANTONIO P.
_______________

Rollo, G.R. No. 81954, 24; rollo, G.R. No. 81967, 27; rollo, G.R. No. 82023, 37; see also rollo, id., G.R. No. 85310, 8.
15

102
102 SUPREME
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REPORTS
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Dario vs. Mison
60. ARVISU, 107. DE
ALEXANDER S. GUZMAN,
ANTONIO A.
61. ASCAO, 108. DE
ANTONIO T. GUZMAN,
RENATO E.
62. ASLAHON, 109. DE LA
JULAHON P. CRUZ, AMADO
A., JR.
63. ASUNCION, 110. DE LA
VICTOR R. CRUZ,
FRANCISCO C.
64. ATANGAN, 111. DE LA
LORNA S. PEA,
LEONARDO
65. ATIENZA, 112. DEL
ALEXANDER R. CAMPO,
ORLANDO
66. BACAL, 113. DEL RIO,
URSULINO C. MAMERTO P.,
JR.
67. BAAGA, 114. DEMESA,
MARLOWE Z. WILHELMINA
T.
68. BANTA, 115.
ALBERTO T. DIMAKUTA,
SALIC L.
69. BARROS, 116. DIZON,
VICTOR C. FELICITAS A.
70. 117. DOCTOR,
BARTOLOME, HEIDY M.
FELIPE A.
71. BAYSAC, 118. DOMINGO,
REYNALDO S. NICANOR J.
72. BELENO, 119. DOMINGO,
ANTONIO B. PERFECTO V.,
JR.
73. BERNARDO, 120. DUAY,
ROMEO D. JUANA G.
74. BERNAS, 121.
MARCIANO S. DYSANGCO,
RENATO F.
75. BOHOL, 122. EDILLOR,
AUXILIADOR G. ALFREDO P.
76. BRAVO, 123. ELEVAZO,
VICTOR M. LEONARDO A.
77. BULEG, 124. ESCUYOS,
BALILIS R. MANUEL M., JR.
78. CALNEA, 125. ESMERIA,
MERCEDES M. ANTONIO E.
79. CALVO, 126. ESPALDON,
HONESTO G. MA. LOURDES
H.
80. CAMACHO, 127. ESPINA,
CARLOS V. FRANCO A.
81. CAMPOS, 128. ESTURCO,
RODOLFO C. RODOLFO C.
82. CAPULONG, 129.
RODRIGO G. EVANGELINO,
FERMIN I.
83. CARINGAL, 130. FELIX,
GRACIA Z. ERNESTO G.
84. CARLOS, 131.
LORENZO B. FERNANDEZ,
ANDREW M.
85. CARRANTO, 132. FERRAREN,
FIDEL U. ANTONIO C.
86. 133. FERRERA,
CARUNGCONG, WENCESLAO A.
ALFREDO M.
87. CASTRO, 134.
PATRICIA J. FRANCISCO,
PELAGIO S., JR.
88. CATELO, 135. FUENTES,
ROGELIO B. RUDY L.
89. CATURLA, 136.
MANUEL B. GAGALANG,
RENATO V.
90. CENIZAL, 137. GALANG,
JOSEFINA F. EDGARDO R.
91. CINCO, 138. GAMBOA,
LUISITO ANTONIO C.
92. CONDE, 139. GAN,
JOSE C., JR. ALBERTO R.
93. CORCUERA, 140. GARCIA,
FIDEL S. GILBERT M.
94. CORNETA, 141. GARCIA,
VICENTE S. EDNA V.
95. CORONADO, 142. GARCIA,
RICARDO S. JUAN L.
96. CRUZ, 143. GAVIOLA,
EDUARDO S. LILIAN V.
97. CRUZ, 144. GEMPARO,
EDILBERTO A. SEGUNDINA G.
98. CRUZ, 145.
EFIGENIA B. GOBENCIONG,
FLORDELIZ B.
99. CRUZADO, 146. GRATE,
MARCIAL C. FREDERICK R.
100. CUSTUDIO, 147. GREGORIO,
RODOLFO M. LAURO P.
101. DABON, 148. GUARTICO,
NORMA M. AMMON H.
102. DALINDIN, 149. GUIANG,
EDNA MAE D. MYRNA N.
103. DANDAL, 150. GUINTO,
EDEN F. DELFIN C.
104. 151.
DATUHARON, HERNANDEZ,
SATA A. LUCAS A.
105. DAZO, 152.
GODOFREDO L. HONRALES,
LORETO N.
106. DE 153. HUERTO,
CASTRO, LEOPOLDO H.
LEOPAPA
103
VOL. 176, 103
AUGUST 8,
1989
Dario vs. Mison
154. HULAR, 201. MATUGAS,
LANNYROSS E. ERNESTO T.
155. IBAEZ, 202. MATUGAS,
ESTER C. FRANCISCO T.
156. ILAGAN, 203. MAYUGA,
HONORATO C. PORTIA E.
157. INFANTE, 204. MEDINA,
REYNALDO C. NESTOR M.
158. ISAIS, RAY 205. MEDINA,
C. ROLANDO S.
159. ISMAEL, 206. MENDAVIA,
HADJI AKRAM AVELINO I.
B.
160. JANOLO, 207. MENDOZA,
VIRGILIO M. POTENCIANO G.
161. JAVIER, 208. MIL, RAY M.
AMADOR L.
162. JAVIER, 209.
ROBERTO S. MIRAVALLES,
ANASTACIA L.
163. JAVIER, 210. MONFORTE,
WILLIAM R. EUGENIO, JR. G.
164. JOVEN, 211. MONTANO,
MEMIA A. ERNESTO F.
165. JULIAN, 212. MONTERO,
REYNALDO V. JUAN M. III
166. 213. MORALDE,
JUMAMOY, ESMERALDO B.,
ABUNDIO A. JR.
167. 214. MORALES,
JUMAQUIAO, CONCHITA D.L.
DOMINGO F.
168. KAINDOY, 215. MORALES,
PASCUAL B., NESTOR P.
JR.
169. KOH, 216. MORALES,
NANIE G. SHIRLEY S.
170. LABILLES, 217. MUNAR,
ERNESTO S. JUANITA L.
171. 218. MUOZ,
LABRADOR, VICENTE R.
WILFREDO M.
172. LAGA, 219. MURILLO,
BIENVENIDO MANUEL M.
M.
173. LAGMAN, 220. NACION,
EVANGELINE PEDRO R.
G.
174. LAMPONG, 221. NAGAL,
WILFREDO G. HENRY N.
175. 222. NAVARRO,
LANDICHO, HENRY L.
RESTITUTO A.
176. LAPITAN, 223. NEJAL,
CAMILO M. FREDRICK E.
177. 224. NICOLAS,
LAURENTE, REYNALDO S.
REYNALDO A.
178. LICARTE, 225. NIEVES,
EVARISTO R. RUFINO A.
179. LIPIO, 226. OLAIVAR,
VICTOR O. SEBASTIAN T.
180. LITTAUA, 227. OLEGARIO,
FRANKLIN Z. LEO Q.
181. LOPEZ, 228. ORTEGA,
MELENCIO L. ARLENE R.
182. LUMBA, 229. ORTEGA,
OLIVIA R. JESUS R.
183. MACAISA, 230. OSORIO,
BENITO T. ABNER S.
184. MACAISA, 231. PAPIO,
ERLINDA C. FLORENTINO T.
II
185. MAGAT, 232. PASCUA,
ELPIDIO ARNULFO A.
186. 233. PASTOR,
MAGLAYA, ROSARIO
FERNANDO P.
187. 234. PELAYO,
MALABANAN, ROSARIO L.
ALFREDO C.
188. 235. PEA, AIDA
MALIBIRAN, C.
ROSITA D.
189. MALIJAN, 236. PEREZ,
LAZARO V. ESPERIDION B.
190. MALLI, 237. PEREZ,
JAVIER M. JESUS BAYANI
M.
191. 238. PRE, ISIDRO
MANAHAN, A.
RAMON S.
192. MANUEL, 239.
ELPIDIO R. PRUDENCIADO,
EULOGIA S.
193. 240. PUNZALAN,
MARAVILLA, LAMBERTO N.
GIL B.
194. MARCELO, 241. PURA,
GIL C. ARNOLD T.
195. MARIAS, 242. QUINONES,
RODOLFO V. EDGARDO I.
196. MAROKET, 243. QUINTOS,
JESUS C. AMADEO C., JR.
197. MARTIN, 244. QUIRAY,
NEMENCIO A. NICOLAS C.
198. 245. RAMIREZ,
MARTINEZ, ROBERTO P.
ROMEO M.
199. 246. RAADA,
MARTINEZ, RODRIGO C.
ROSELINA M.
200. MATIBAG, 247. RARAS,
ANGELINA G. ANTONIO A.
104
104 SUPREME
COURT
REPORTS
ANNOTATED
Dario vs. Mison
248. RAVAL, 280.
VIOLETA V. TOLENTINO,
BENIGNO A.
249. RAZAL, 281. TURINGAN,
BETTY R. ENRICO T., JR.
250. REGALA, 282. UMPA, ALI
PONCE F. A.
251. REYES, 283. VALIC,
LIBERATO R. LUCIO E.
252. REYES, 284. VASQUEZ,
MANUEL E. NICANOR B.
253. REYES, 285. VELARDE,
NORMA Z. EDGARDO C.
254. REYES, 286. VERA,
TELESFORO F. AVELINO A.
255. RIVERA, 287. VERAME,
ROSITA L. OSCAR E.
256. ROCES, 288. VIADO,
ROBERTO V. LILIAN T.
257. ROQUE, 289. VIERNES,
TERESITA S. NAPOLEON K.
258. ROSANES, 290. VILLALON,
MARILOU M. DENNIS A.
259. ROSETE, 291. VILLAR,
ADAN I. LUZ L.
260. RUANTO, 292. VILLALUZ,
REY CRISTO C., EMELITO V.
JR.
261. SABLADA, 293. ZATA,
PASCASIO G. ANGEL A., JR.
262. SALAZAR, 294. ACHARON,
SILVERIA S. CRISTETO
263. SALAZAR, 295. ALBA,
VICTORIA A. RENATO B.
264. 296. AMON,
SALIMBACOD, JULITA C.
PERLITA C.
265. 297. AUSTRIA,
SALMINGO, ERNESTO C.
LOURDES M.
266. 298. CALO,
SANTIAGO, RAYMUNDO M.
EMELITA B.
267. SATINA, 299. CENTENO,
PORFIRIO C. BENJAMIN R.
268. SEKITO, 300. DONATO,
COSME B., JR. ESTELITA P.
269. SIMON, 301. DONATO,
RAMON P. FELIPE S.,
270. SINGSON, 302. FLORES,
MELECIO C. PEDRITO S.
271. SORIANO, 303. GALAROSA,
ANGELO L. RENATO
272. SORIANO, 304. MALAWI,
MAGDALENA MAUYAG
R.
273. 305.
SUMULONG, MONTENEGRO,
ISIDORO L., JR. FRANCISCO M.
274. SUNICO, 306. OMEGA,
ABELARDO T. PETRONILO T.
275. TABIJE, 307. SANTOS,
EMMA B. GUILLERMO F.
276. TAN, 308. TEMPLO,
RUDY CELSO
GOROSPE
277. TAN, 309.
ESTER S. VALDERAMA,
JAIME B.
278. TAN, 310. VALDEZ,
JULITA S. NORA M.
279. TECSON,
BEATRIZ B.
Cesar Dario is the petitioner in G.R. No. 81954; Vicente Feria, Jr., is the petitioner in G.R. No. 81967; Messrs. Adolfo
Caser-ano, Pacifico Lagleva, Julian C. Espiritu, Dennis A. Azarraga, Renato de Jesus, Nicasio C. Gamboa, Mesdames
Corazon Rallos Nieves and Felicitacion R. Geluz, Messrs. Leodegario H. Floresca, Subaer Pacasum, Ms. Zenaida
Lanaria, Mr. Jose B. Ortiz, Ms. Gliceria R. Dolar, Ms. Cornelia Napa, Pablo B. Santos, Fermin Rodriguez, Ms. Dalisay
Bautista, Messrs. Leo-nardo Jose, Alberto Lontok, Porfirio Tabino, Jose Barredo, Roberto Arnaldo, Ms. Ester Tan,
Messrs. Pedro Bakal, Rosario David, Rodolfo Afuang, Lorenzo Catre, Ms. Leoncia Catre, and
105
VOL. 176, AUGUST 8, 1989 105
Dario vs. Mison
Roberto Abada, are the petitioners in G.R. No. 82023; the last 279 individuals mentioned are the private respondents
16

in G.R. No. 85310.


As far as the records will likewise reveal, a total of 394 officials and employees of the Bureau of Customs were
17

given individual notices of separation. A number supposedly sought reinstatement with the Reorganization Appeals
Board while others went to the Civil Service Commission. The first thirty-one mentioned above came directly to this
Court.
On June 30, 1988, the Civil Service Commission promulgated its ruling ordering the reinstatement of the 279
employees, the 279 private respondents in G.R. No. 85310, the dispositive portion of which reads as follows:
WHEREFORE, it is hereby ordered that:

1. 1.Appellants be immediately reappointed to positions of comparable or equivalent rank in the Bureau of Customs without
loss of seniority rights;
2. 2.Appellants be paid their back salaries reckoned from the dates of their illegal termination based on the rates under the
approved new staffing pattern but not lower than their former salaries. This action of the Commission should not,
however, be interpreted as an exoneration of the appellants from any accusation of wrongdoing and, therefore, their
reappointments are without prejudice to:

1. 1.Proceeding with investigation of appellants with pending administrative cases, and where investigations have been
finished, to promptly render the appropriate decisions;

_______________

16 The last eighteen are the successful employees in the appeal with the Civil Service Commission (subject of G.R. No. 85310) whose reinstatement the

Commission ordered pending further proceedings herein. We consider them impleaded as parties-respondents in G.R. No. 85310. Also, the Customs employees
involved have been impleaded as parties in more than one petition either as petitioners or respondents.
17 Rollo, id., G.R. No. 85310, 8; according, however, to the petitioners in G.R. 86241, a total of 397 employees were terminated. Id., 260; former Sen.

Ambrosio Padilla, amicus curiae, placed the figure at 493 (G.R. No. 85310, id., 993).
106
106 SUPREME COURT REPORTS
ANNOTATED
Dario vs. Mison

1. 2.The filing of appropriate administrative complaints against appellants with derogatory reports or information if
evidence so warrants.

SO ORDERED. 18

On July 15, 1988, Commissioner Mison, represented by the Solicitor General, filed a motion for reconsideration. Acting
on the motion, the Civil Service Commission, on September 20, 1988, denied reconsideration. 19

On October 20, 1988, Commissioner Mison instituted certiorari proceedings with this Court, docketed, as above-
stated, as G.R. No. 85310 of this Court.
On November 16, 1988, the Civil Service Commission further disposed the appeal (from the resolution of the
Reorganization Appeals Board) of five more employees, holding as follows:
WHEREFORE, it is hereby ordered that:

1. 1.Appellants be immediately reappointed to positions of comparable or equivalent rank in the Bureau of Customs without
loss of seniority rights; and
2. 2.Appellants be paid their back salaries to be reckoned from the date of their illegal termination based on the rates under
the approved new staffing pattern but not lower than their former salaries. This action of the Commission should not,
however, be interpreted as an exoneration of the herein appellants from any accusation of any wrongdoing and therefore,
their reappointments are without prejudice to:

1. 1.Proceeding with investigation of appellants with pending administrative cases, if any, and where investigations have
been finished, to promptly, render the appropriate decisions; and
2. 2.The filing of appropriate administrative complaints against appellant with derogatory reports or information, if any,
and if evidence so warrants.

SO ORDERED. 20

On January 6, 1989, Commissioner Mison challenged the Civil Service Commissions Resolution in this Court; his
peti-

_______________

18 Rollo, id., G.R. No. 85310, 79; also rollo, G.R. No. 85335, 36.
19 Rollo, id., G.R. No. 85310, 424.
20 Rollo, G.R. No. 86241, 144.

107
VOL. 176, AUGUST 8, 1989 107
Dario vs. Mison
tion has been docketed herein as G.R. No. 86241. The employees ordered to be reinstated are Senen Dimaguila, Romeo
Arabe, Bernardo Quintong, Gregorio Reyes, and Romulo Badillo. 21

On June 10, 1988, Republic Act No. 6656, AN ACT TO PROTECT THE SECURITY OF TENURE OF CIVIL
SERVICE OFFICERS AND EMPLOYEES IN THE IMPLEMENTATION OF GOVERNMENT
REORGANIZATION, was signed into law. Under Section 7, thereof:
22

Sec. 9. All officers and employees who are found by the Civil Service Commission to have been separated in violation of the
provisions of this Act, shall be ordered reinstated or reappointed as the case may be without loss of seniority and shall be entitled
to full pay for the period of separation. Unless also separated for cause, all officers and employees, including casuals and
temporary employees, who have been separated pursuant to reorganization shall, if entitled thereto, be paid the appropriate
separation pay and retirement and other benefits under existing laws within ninety (90) days from the date of the effectivity of
their separation or from the date of the receipt of the resolution of their appeals as the case may be: Provided, That application
for clearance has been filed and no action thereon has been made by the corresponding department or agency. Those who are not
entitled to said benefits shall be paid a separation gratuity in the amount equivalent to one (1) month salary for every year of
service. Such separation pay and retirement benefits shall have priority of payment out of the savings of the department or
agency concerned. 23
On June 23, 1988, Benedicto Amasa and William Dionisio, customs examiners appointed by Commissioner Mison
pursuant to the ostensible reorganization subject of this controversy, petitioned the Court to contest the validity of
the statute. The petition is docketed as G.R. No. 83737.

_______________

21 Senen Dimaguila and Romulo Badillo earlier instituted in this Court G.R. Nos. 81968 and 81955 but were allowed, by our Resolution of July 5,

1988, to withdraw and join the appeal subject of the Civil Service Commissions Resolution of November 11, 1988. See rollo, G.R. No. 82023, 169.
22 84 O.G. Supp. 1-4 (June, 1988).

23 Supra, 3.

108
108 SUPREME COURT REPORTS
ANNOTATED
Dario vs. Mison
On October 21, 1988, thirty-five more Customs officials whom the Civil Service Commission had ordered reinstated
by its June 30, 1988 Resolution filed their own petition to compel the Commissioner of Customs to comply with the
said Resolution. The petition is docketed as G.R. No. 85335.
On November 29, 1988, we resolved to consolidate all seven petitions.
On the same date, we resolved to set the matter for hearing on January 12, 1989. At the said hearing, the parties,
represented by their counsels (a) retired Justice Ruperto Martin; (b) retired Justice Lino Patajo; (c) former Dean
Froilan Bacungan; (d) Atty. Lester Escobar; (e) Atty. Faustino Tugade; and (f) Atty. Alexander Padilla, presented their
arguments. Solicitor General Francisco Chavez argued on behalf of the Commissioner of Customs (except in G.R.
85335, in which he represented the Bureau of Customs and the Civil Service Commission). Former Senator Ambrosio
Padilla also appeared and argued as amicus curiae. Thereafter, we resolved to require the parties to submit their
respective memoranda which they did in due time.
There is no question that the administration may validly carry out a government reorganizationinsofar as these
cases are concerned, the reorganization of the Bureau of Customsby mandate not only of the Provisional
Constitution, supra, but also of the various Executive Orders decreed by the Chief Executive in her capacity as sole
lawmaking authority under the 1986-1987 revolutionary government. It should also be noted that under the present
Constitution, there is a recognition, albeit implied, that a government reorganization may be legitimately undertaken,
subject to certain conditions. 24

The Court understands that the parties are agreed on the validity of a reorganization per se, the only question
being, as shall be later seen: What is the nature and extent of this government reorganization?
The Court disregards the questions raised as to procedure, failure to exhaust administrative remedies, the standing
of
_______________

CONST. (1987), art. XVIII, sec. 16.


24

109
VOL. 176, AUGUST 8, 1989 109
Dario vs. Mison
certain parties to sue, and other technical objections, for two reasons, [b]ecause of the demands of public interest,
25

including the need for stability in the public service, and because of the serious implications of these cases on the
26

administration of the Philippine civil service and the rights of public servants.
The urgings in G.R. Nos. 85335 and 85310, that the Civil Service Commissions Resolution dated June 30, 1988
had attained a character of finality for failure of Commissioner Mison to apply for judicial review or ask for
reconsideration seasonably under Presidential Decree No. 807, or under Republic Act No. 6656, or under the
27 28

Constitution, are likewise rejected.


29

_______________

25 This was raised by the Civil Service Commission in G.R. No. 86241. Failure to exhaust administrative remedies was raised in G.R. No.

81954 and 81917 by the Solicitor General.


26 Sarmiento III v. Mison, No. L-79974, December 17, 1987, 153 SCRA 549, 551-552.

27 Pres. Decree No. 807, sec. 39. The provision reads: Appeals.(a) Appeals, where allowable, shall be made by the party adversely affected by

the decision within fifteen days from receipt of the decision unless a petition for reconsideration is seasonably filed, which petition shall be decided
within fifteen days. Notice of the appeal shall be filed with the disciplining office, which shall forward the records of the case, together with the notice
of appeal, to the appellate authority within fifteen days from filing of the notice of appeal, with its comment, if any. The notice of appeal shall
specifically state the date of the decision appealed from and the date of receipt thereof. It shall also specifically set forth clearly the grounds relied
upon for excepting from the decision; (b) A petition for reconsideration shall be based only on any of the following grounds: (1) new evidence has been
discovered which materially affects the decision rendered; (2) the decision is not supported by the evidence on record; or (3) errors of law or
irregularities have been committed prejudicial to the interest of the respondent: Provided, That only one petition for reconsideration shall be
entertained.
28 Rep. Act No. 6656, supra, sec. 8. The provision reads: Sec. 8. An officer or employee who is still not satisfied with the decision of the appointing

authority may further appeal within ten (10) days from receipt thereof to the Civil Service Commission which shall render a decision thereon within
thirty (30) days and whose decision shall be final and executory.
29 CONST., art. IX, sec. 7. The provision reads: Sec. 7. Each

110
110 SUPREME COURT REPORTS
ANNOTATED
Dario vs. Mison
The records show that the Bureau of Customs had until July 15, 1988 to ask for reconsideration or come to this Court
pursuant to Section 39 of Presidential Decree No. 807. The records likewise show that the Solicitor General filed a
motion for reconsideration on July 15, 1988. The Civil Service Commission issued its Resolution denying
30
reconsideration on September 20, 1988; a copy of this Resolution was received by the Bureau on September 23,
1988. Hence the Bureau had until October 23, 1988 to elevate the matter on certiorari to this Court. Since the
31 32

Bureaus petition was filed on October 20, 1988, it was filed on time.
We reject, finally, contentions that the Bureaus petition (in G.R. 85310) raises no jurisdictional questions, and is
therefore bereft of any basis as a petition for certiorari under Rule 65 of the Rules of Court. We find that the questions
33

raised in Commissioner Misons petition (in G.R. 85310) are, indeed, proper for certiorari, if by jurisdictional
questions we mean questions having to do with an indifferent disregard of the law, arbitrariness and caprice, or
omission to weigh pertinent considerations, a decision arrived at without rational deliberation, as distinguished from 34

questions that require digging into the merits and unearthing errors of judgment which is the office, on the other
35

hand, of review under Rule 45 of the said

_______________

Commission shall decide by a majority vote of all its Members any case or matter brought before it within sixty days from the date of its submission
for decision or resolution. A case or matter is deemed submitted for decision or resolution upon the filing of the last pleading, brief, or memorandum
required by the rules of the Commission or by the Commission itself. Unless otherwise provided by this Constitution or by law, any decision, order,
or ruling of each Commission may be brought to the Supreme Court on certiorari by the aggrieved party within thirty days from receipt of a copy
thereof.
30 Rollo, id., G.R. No. 85310, 82.

31 Id., 415.

32 CONST. (1987), supra.

33 See Aratuc v. Commission on Elections, Nos. L-49705-09, 49717-21, February 8, 1979, 88 SCRA 251.

34 Supra, 271.

35 Supra.

111
VOL. 176, AUGUST 8, 1989 111
Dario vs. Mison
Rules. What cannot be denied is the fact that the act of the Civil Service Commission of reinstating hundreds of
Customs employees Commissioner Mison had separated, has implications not only on the entire reorganization
process decreed no less than by the Provisional Constitution, but on the Philippine bureaucracy in general; these
implications are of such a magnitude that it cannot be said thatassuming that the Civil Service Commission erred
the Commission committed a plain error of judgment that Aratuc says cannot be corrected by the extraordinary
remedy of certiorari or any special civil action. We reaffirm the teaching of Aratucas regards recourse to this Court
with respect to rulings of the Civil Service Commissionwhich is that judgments of the Commission may be brought
to the Supreme Court through certiorari alone, under Rule 65 of the Rules of Court.
In Aratuc, we declared:
It is once evident from these constitutional and statutory modifications that there is a definite tendency to enhance and invigorate
the role of the Commission on Elections as the independent constitutional body charged with the safeguarding of free, peaceful
and honest elections. The framers of the new Constitution must be presumed to have definite knowledge of what it means to
make the decisions, orders and rulings of the Commission subject to review by the Supreme Court. And since instead of
maintaining that provision intact, it ordained that the Commissions actuations be instead brought to the Supreme Court on
certiorari, We cannot insist that there was no intent to change the nature of the remedy, considering that the limited scope of
certiorari, compared to a review, is well known in remedial law. 36

We observe no fundamental difference between the Commission on Elections and the Civil Service Commission (or
the Commission on Audit for that matter) in terms of the constitutional intent to leave the constitutional bodies alone
in the enforcement of laws relative to elections, with respect to the former, and the civil service, with respect to the
latter (or the audit of government accounts, with respect to the Commission

_______________

Aratuc, supra, 270.


36

112
112 SUPREME COURT REPORTS
ANNOTATED
Dario vs. Mison
on Audit). As the poll body is the sole judge of all election cases, so is the Civil Service Commission the single arbiter
37

of all controversies pertaining to the civil service.


It should also be noted that under the new Constitution, as under the 1973 Charter, any decision, order, or ruling
of each Commission may be brought to the Supreme Court on certiorari, which, as Aratuc tells us, technically
38

connotes something less than saying that the same shall be subject to review by the Supreme Court, which in turn
39

suggests an appeal by petition for review under Rule 45. Therefore, our jurisdiction over cases emanating from the
Civil Service Commission is limited to complaints of lack or excess of jurisdiction or grave abuse of discretion
tantamount to lack or excess of jurisdiction, complaints that justify certiorari under Rule 65.
While Republic Act No. 6656 states that judgments of the Commission are final and executory and hence, 40

unappealable, under Rule 65, certiorari precisely lies in the absence of an appeal. 41

Accordingly, we accept Commissioner Misons petition (G.R. No. 85310) which clearly charges the Civil Service
Commission with grave abuse of discretion, a proper subject of certiorari, although it may not have so stated in explicit
terms.
As to charges that the said petition has been filed out of time, we reiterate that it has been filed seasonably. It is to
be stressed that the Solicitor General had thirty days from September 23, 1988 (the date the Resolution, dated
September 20, 1988, of the Civil Service Commission, denying reconsideration, was received) to commence the instant
certiorari proceedings. As we stated, under the Constitution, an aggrieved party has thirty
_______________

37 CONST. (1987), supra, art. IX(c), sec. 2(2). To be more precise, the 1987 Constitution gives the Commission exclusive original jurisdiction over

all [election] contests.


38 Supra, art. IX, sec. 7.

39 Aratuc, supra, 271; emphasis supplied.

40 Rep. Act No. 6656, supra, sec. 8.

41 RULES OF COURT, Rule 65, sec. 1.

113
VOL. 176, AUGUST 8, 1989 113
Dario vs. Mison
days within which to challenge any decision, order, or ruling of the Commission. To say that the period should be
42

counted from the Solicitors receipt of the main Resolution, dated June 30, 1988, is to say that he should not have
asked for reconsideration. But to say that is to deny him the right to contest (by a motion for reconsideration) any
ruling, other than the main decision, when, precisely, the Constitution gives him such a right. That is also to place
him at a no-win situation because if he did not move for a reconsideration, he would have been faulted for demanding
certiorari too early, under the general rule that a motion for reconsideration should preface a resort to a special civil
action. Hence, we must reckon the thirty-day period from receipt of the order of denial.
43

We come to the merits of these cases.

G.R. Nos. 81954, 81967, 82023, and 85335:

The Case for the Employees


The petitioner in G.R. No. 81954, Cesar Dario, was one of the Deputy Commissioners of the Bureau of Customs until
his relief on orders of Commissioner Mison on January 26, 1988. In essence, he questions the legality of his dismissal,
which he alleges was upon the authority of Section 59 of Executive Order No. 127, supra, hereinbelow reproduced as
follows:
SEC. 59. New Structure and Pattern. Upon approval of this Executive Order, the officers and employees of the Ministry shall,
in a holdover capacity, continue to perform their respective duties and responsibilities and receive the corresponding salaries
and benefits unless in the meantime they are separated from government service pursuant to Executive Order No. 17 (1986) or
Article III of the Freedom Constitution.
The new position structure and staffing pattern of the Ministry shall be approved and prescribed by the Minister within one
hundred

_______________

42 CONST. (1987), art. IX, sec. 7, supra.


43 Phil. American Life Ins. Co. vs. Social Security Com., No. L-20383, May 24, 1967, 20 SCRA 162.
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114 SUPREME COURT REPORTS
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Dario vs. Mison
twenty (120) days from the approval of this Executive Order and the authorized positions created hereunder shall be filled
with regular appointments by him or by the President, as the case may be. Those incumbents whose positions are not included
therein or who are not reappointed shall be deemed separated from the service. Those separated from the service shall receive
the retirement benefits to which they may be entitled under existing laws, rules and regulations. Otherwise, they shall be paid
the equivalent of one month basic salary for every year of service, or the equivalent nearest fraction thereof favorable to them on
the basis of highest salary received but in no case shall such payment exceed the equivalent of 12 months salary.
No court or administrative body shall issue any writ of preliminary injunction or restraining order to enjoin the
separation/replacement of any officer or employee effected under this Executive Order. 44

a provision he claims the Commissioner could not have legally invoked. He avers that he could not have been legally
deemed to be an [incumbent] whose [position] [is] not included therein or who [is] not reappointed to justify his
45

separation from the service. He contends that neither the Executive Order (under the second paragraph of the section)
nor the staffing pattern proposed by the Secretary of Finance abolished the office of Deputy Commissioner of
46

Customs, but, rather, increased it to three. Nor can it be said, so he further maintains, that he had not been
47

reappointed (under the second paragraph of the section) because [r]eappointment therein presupposes that the
48

position to which it refers is a new one in lieu of that which has been abolished or although an existing one, has
absorbed that which has been abolished. He claims, finally, that under the Provisional Constitution, the power to
49

dismiss public officials without cause ended on February 25, 1987, and that thereafter, public officials enjoyed
50

security of tenure under the provi-

_______________

44 Exec. Ord. No. 127, supra, sec. 59.


45 Supra.
46 Rollo, id., G.R. No. 81954, 36.

47 Exec. Ord. No. 127, supra, sec. 34; rollo, id., G.R. No. 81954.

48 Exec. Ord. No. 127, supra, sec. 59.

49 Rollo, id., G.R. No. 81954, 12; emphasis in the original.

50 CONST. (1986), Supra, art. IX, sec. 2.

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Dario vs. Mison
sions of the 1987 Constitution. 51
Like Dario, Vicente Feria, the petitioner in G.R. No. 81967, was a Deputy Commissioner at the Bureau until his
separation directed by Commissioner Mison. And like Dario, he claims that under the 1987 Constitution, he has
acquired security of tenure and that he cannot be said to be covered by Section 59 of Executive Order No. 127, having
been appointed on April 22, 1986during the effectivity of the Provisional Constitution. He adds that under Executive
Order No. 39, ENLARGING THE POWERS AND FUNCTIONS OF THE COMMISSIONER OF CUSTOMS, the 52

Commissioner of Customs has the power [t]o appoint all Bureau personnel, except those appointed by the
President, and that his position, which is that of a Presidential appointee, is beyond the control of Commissioner
53

Mison for purposes of reorganization.


The petitioners in G.R. No. 82023, collectors and examiners in various ports of the Philippines, say, on the other
hand, that the purpose of reorganization is to end corruption at the Bureau of Customs and that since there is no
finding that they are guilty of corruption, they cannot be validly dismissed from the service.
The Case for Commissioner Mison
In his comments, the Commissioner relies on this Courts resolution in Jose v. Arroyo, in which the following
54

statement appears in the last paragraph thereof:


The contention of petitioner that Executive Order No. 127 is violative of the provision of the 1987 Constitution guaranteeing
career civil service employees security of tenure overlooks the provisions of Section 16, Article XVIII (Transitory Provisions)
which explicitly authorize the removal of career civil service employees not for cause but as a result of the reorganization
pursuant to Proclamation No. 3 dated March 25, 1986 and the reorganization following the ratification of

_______________

51 CONST. (1987), supra, art. IX(B), sec. 2(3).


52 August 8, 1986.
53 Supra, sec. 1(a).

54 G.R. No. 78435, August 11, 1987.

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this Constitution. By virtue of said provision, the reorganization of the Bureau of Customs under Executive Order No. 127
may continue even after the ratification of the Constitution, and career civil service employees may be separated from the service
without cause as a result of such reorganization. 55

For this reason, Mison posits, claims of violation of security of tenure are allegedly no defense. He further states that
the deadline prescribed by the Provisional Constitution (February 25, 1987) has been superseded by the 1987
Constitution, specifically, the transitory provisions thereof, which allows a reorganization thereafter (after February
56

25, 1987) as this very Court has so declared in Jose v. Arroyo. Mison submits that contrary to the employees argument,
Section 59 of Executive Order No. 127 is applicable (in particular, to Dario and Feria), in the sense that retention in
the Bureau, under the Executive Order, depends on either retention of the position in the new staffing pattern or
reappointment of the incumbent, and since the dismissed employees had not been reappointed, they had been
considered legally separated. Moreover, Mison proffers that under Section 59 incumbents are considered on holdover
status, which means that all those positions were considered vacant. The Solicitor General denies the applicability
57

of Palma-Fernandez v. De la Paz because that case supposedly involved a mere transfer and not a separation. He
58

rejects, finally, the force and effect of Executive Order Nos. 17 and 39 for the reason that Executive Order No. 17,
which was meant to implement the Provisional Constitution, had ceased to have force and effect upon the ratification
59

of the 1987 Constitution, and that, under Executive Order No. 39, the dismissals contemplated were for cause while
the separations now under question were not for cause and were a result of government reor-

_______________

55 Supra, 3.
56 CONST. (1987), supra, art. XVIII, sec. 16.
57 Rollo, id., G.R. No. 81954, 216; rollo, id., G.R. No. 81967, 64; rollo, id., G.R. No. 82023, 76.

58 Supra.

59 See Exec. Ord. No. 17, supra, sec. 1.

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Dario vs. Mison
ganization decreed by Executive Order No. 127. Anent Republic Act No. 6656, he expresses doubts on the
constitutionality of the grant of retroactivity therein (as regards the reinforcement of security of tenure) since the new
Constitution clearly allows reorganization after its effectivity.

G.R. Nos. 85310 and 86241

The Position of Commissioner Mison


Commissioners twin petitions are direct challenges to three rulings of the Civil Service Commission: (1) the
Resolution, dated June 30, 1988, reinstating the 265 customs employees above-stated; (2) the Resolution, dated
September 20, 1988, denying reconsideration; and (3) the Resolution, dated November 16, 1988, reinstating five
employees. The Commissioners arguments are as follows:

1. 1.The ongoing government reorganization is in the nature of a progressive reorganization impelled by the
60

need to overhaul the entire government bureaucracy following the people power revolution of 1986;
61

2. 2.There was faithful compliance by the Bureau of the various guidelines issued by the President, in particular,
as to deliberation, and selection of personnel for appointment under the new staffing pattern;
3. 3.The separated employees have been, under Section 59 of Executive Order No. 127, on mere holdover standing,
which means that all positions are declared vacant; 62

4. 4.Jose v. Arroyo has declared the validity of Executive Order No. 127 under the transitory provisions of the
1987 Constitution;
5. 5.Republic Act No. 6656 is of doubtful constitutionality.

_______________

60 Rollo, id., G.R. No. 85310, 18; rollo, id., G.R. No. 86241, 14.
61 Id.; id., 13.
62 Id., 37; id., 33.

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118 SUPREME COURT REPORTS
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The Ruling of the Civil Service Commission
The position of the Civil Service Commission is as follows:

1. 1.Reorganizations occur where there has been a reduction in personnel or redundancy of functions; there is no
showing that the reorganization in question has been carried out for either purposeon the contrary, the
dismissals now disputed were carried out by mere service of notices;
2. 2.The current Customs reorganization has not been made according to Malacaang guidelines; information on
file with the Commission shows that Commissioner Mison has been appointing unqualified personnel;
3. 3.Jose v. Arroyo, in validating Executive Order No. 127, did not countenance illegal removals;
4. 4.Republic Act No. 6656 protects security of tenure in the course of reorganizations.

The Courts Ruling

Reorganization, Fundamental Principles of.

I.
The core provision of law involved is Section 16 Article XVIII, of the 1987 Constitution. We quote:
Sec. 16. Career civil service employees separated from the service not for cause but as a result of the reorganization pursuant to
Proclamation No. 3 dated March 25, 1986 and the reorganization following the ratification of this Constitution shall be entitled
to appropriate separation pay and to retirement and other benefits accruing to them under the laws of general application in
force at the time of their separation. In lieu thereof, at the option of the employees, they may be considered for employment in
the Government or in any of its subdivisions, instrumentalities, or agencies, including government-owned or controlled
corporations and their subsidiaries. This provision also applies to career officers whose resignation, tendered in line with the
existing policy, had been accepted. 63

_______________

CONST. (1987), art. XVIII, sec. 16, supra.


63

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Dario vs. Mison
The Court considers the above provision critical for two reasons: (1) It is the only provisioninsofar as it mentions
removals not for causethat would arguably support the challenged dismissals by mere notice, and (2) It is the single
existing law on reorganization after the ratification of the 1987 Charter, except Republic Act No. 6656, which came
much later, on June 10, 1988. [Nota bene: Executive Orders No. 116 (covering the Ministry of Agriculture & Food),
117 (Ministry of Education, Culture & Sports), 119 (Health), 120 (Tourism), 123 (Social Welfare & Development), 124
(Public Works & Highways), 125 (Transportation & Communications), 126 (Labor & Employment), 127 (Finance), 128
(Science & Technology), 129 (Agrarian Reform), 131 (Natural Resources), 132 (Foreign Affairs), and 133 (Trade &
Industry) were all promulgated on January 30, 1987, prior to the adoption of the Constitution on February 2, 1987]. 64

It is also to be observed that unlike the grants of power to effect reorganizations under the past Constitutions, the
above provision comes as a mere recognition of the right of the Government to reorganize its offices, bureaus, and
instrumentalities. Under Section 4, Article XVI, of the 1935 Constitution:
Section 4. All officers and employees in the existing Government of the Philippine Islands shall continue in office until the
Congress shall provide otherwise, but all officers whose appointments are by this Constitution vested in the President shall
vacate their respective office(s) upon the appointment and qualification of their successors, if such appointment is made within
a period of one year from the date of the inauguration of the Commonwealth of the Philippines. 65

Under Section 9, Article XVII, of the 1973 Charter:


Section 9. All officials and employees in the existing Government of the Republic of the Philippines shall continue in office until
otherwise provided by law or decreed by the incumbent President of the Philippines, but all officials whose appointments are by
this

_______________

64 See fn. 11.


65 CONST. (1935), art. XVI, sec. 4.
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120 SUPREME COURT REPORTS
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Dario vs. Mison
Constitution vested in the Prime Minister shall vacate their respective offices upon the appointment and qualification of their
successors.66

The Freedom Constitution is, as earlier seen, couched in similar language:


SECTION 2. All elective and appointive officials and employees under the 1973 Constitution shall continue in office until
otherwise provided by proclamation or executive order or upon the appointment and qualification of their successors, if such is
made within a period of one year from February 25, 1986. 67

Other than references to reorganization following the ratification of this Constitution, there is no provision for
automatic vacancies under the 1987 Constitution.
Invariably, transition periods are characterized by provisions for automatic vacancies. They are dictated by the
need to hasten the passage from the old to the new Constitution free from the fetters of due process and security of
tenure.
At this point, we must distinguish removals from separations arising from abolition of office (not by virtue of the
Constitution) as a result of reorganization carried out by reason of economy or to remove redundancy of functions. In
the latter case, the Government is obliged to prove good faith. In case of removals undertaken to comply with clear
68

and explicit constitutional mandates, the Government is not hard put to prove anything, plainly and simply because
the Constitution allows it.
Evidently, the question is whether or not Section 16 of Article XVIII of the 1987 Constitution is a grant of a license
upon the Government to remove career public officials it could have validly done under an automatic-vacancy-
authority and to remove them without rhyme or reason.

_______________

66 CONST. (1973), art. XVII, sec. 9.


67 CONST. (1986); art. III, sec. 2, supra.
68 Ginson v. Municipality of Murcia, No. L-46585, February 8, 1988, 157 SCRA 1; De la Llana v. Alba, No. 57883, March 12, 1982, 112 SCRA

294; Cruz v. Primicias, Jr., No. L-28573, June 13, 1968, 23 SCRA 998.
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VOL. 176, AUGUST 8, 1989 121
Dario vs. Mison
As we have seen, since 1935, transition periods have been characterized by provisions for automatic vacancies. We
take the silence of the 1987 Constitution on this matter as a restraint upon the Government to dismiss public servants
at a moments notice.
What is, indeed, apparent is the fact that if the present Charter envisioned an automatic vacancy, it should have
said so in clearer terms, as its 1935, 1973, and 1986 counterparts had so stated.
The constitutional lapse means either one of two things: (1) The Constitution meant to continue the reorganization
under the prior Charter (of the Revolutionary Government), in the sense that the latter provides for automatic
vacancies, or (2) It meant to put a stop to those automatic vacancies. By itself, however, it is ambiguous, referring
as it does to two stages of reorganizationthe first, to its conferment or authorization under Proclamation No. 3
(Freedom Charter) and the second, to its implementation on its effectivity date (February 2, 1987). But as we asserted,
if the intent of Section 16 of Article XVIII of the 1987 Constitution were to extend the effects of reorganization under
the Freedom Constitution, it should have said so in clear terms. It is illogical why it should talk of two phases of
reorganization when it could have simply acknowledged the continuing effect of the first reorganization.
Second, plainly the concern of Section 16 is to ensure compensation for victims of constitutional revamps
whether under the Freedom or existing Constitutionand only secondarily and impliedly, to allow reorganization.
We turn to the records of the Constitutional Commission:

INQUIRY OF MR. PADILLA

On the query of Mr. Padilla whether there is a need for a specific reference to Proclamation No. 3 and not merely state result of
the reorganization following the ratification of this Constitution, Mr. Suarez, on behalf of the Committee, replied that it is
necessary, inasmuch as there are two stages of reorganization covered by the Section.
Mr. Padilla pointed out that since the proposals of the Commission on Government Reorganization have not been implemented
yet,
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122 SUPREME COURT REPORTS
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it would be better to use the phrase reorganization before or after the ratification of the Constitution to simplify the Section.
Mr. Suarez instead suggested the phrase as a result of the reorganization effected before or after the ratification of the
Constitution on the understanding that the provision would apply to employees terminated because of the reorganization
pursuant to Proclamation No. 3 and even those affected by the reorganization during the Marcos regime. Additionally, Mr. Suarez
pointed out that it is also for this reason that the Committee specified the two Constitutionsthe Freedom Constitution and the
1986 [1987] Constitution. 69

Simply, the provision benefits career civil service employees separated from the service. And the separation
contemplated must be due to or the result of (1) the reorganization pursuant to Proclamation No. 3 dated March 25,
1986, (2) the reorganization from February 2, 1987, and (3) the resignations of career officers tendered in line with
the existing policy and which resignations have been accepted. The phrase not for cause is clearly and primarily
exclusionary, to exclude those career civil service employees separated for cause. In other words, in order to be
entitled to the benefits granted under Section 16 of Article XVIII of the Constitution of 1987, two requisites, one
negative and the other positive, must concur, to wit:
1. 1.the separation must not be for cause, and
2. 2.the separation must be due to any of the three situations mentioned above.

By its terms, the authority to remove public officials under the Provisional Constitution ended on February 25, 1987,
advanced by jurisprudence to February 2, 1987. It can only mean, then, that whatever reorganization is taking place
70

is upon the authority of the present Charter, and necessarily, upon the mantle of its provisions and safeguards. Hence,
it can not be legitimately stated that we are merely continuing what

_______________

III RECORD OF THE CONSTITUTIONAL COMMISSION, 1615-1616 (1986).


69

De Leon v. Esguerra, supra; Palma-Fernandez v. De la Paz, supra.


70

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VOL. 176, AUGUST 8, 1989 123
Dario vs. Mison
the revolutionary Constitution of the Revolutionary Government had started. We are through with reorganization
under the Freedom Constitutionthe first stage. We are on the second stagethat inferred from the provisions of
Section 16 of Article XVIII of the permanent basic document.
This is confirmed not only by the deliberations of the Constitutional Commission, supra, but is apparent from the
Charters own words. It also warrants our holding in Esguerra and Palma-Fernandez, in which we categorically
declared that after February 2, 1987, incumbent officials and employees have acquired security of tenure, which is not
a deterrent against separation by reorganization under the quondam fundamental law.
Finally, there is the concern of the State to ensure that this reorganization is no purge like the execrated
reorganizations under martial rule. And, of course, we also have the democratic character of the Charter itself.
Commissioner Mison would have had a point, insofar as he contends that the reorganization is open-ended
(progressive), had it been a reorganization under the revolutionary authority, specifically of the Provisional
Constitution. For then, the power to remove government employees would have been truly wideranging and limitless,
not only because Proclamation No. 3 permitted it, but because of the nature of revolutionary authority itself, its
totalitarian tendencies, and the monopoly of power in the men and women who wield it.
What must be understood, however, is that notwithstanding her immense revolutionary powers, the President was,
nevertheless, magnanimous in her rule. This is apparent from Executive Order No. 17, which established safeguards
against the strong arm and ruthless propensity that accompanies reorganizationsnotwithstanding the fact that
removals arising therefrom were not for cause, and in spite of the fact that such removals would have been valid and
unquestionable. Despite that, the Chief Executive saw, as we said, the unnecessary anxiety and demoralization in
the government rank and file that reorganization was causing, and prescribed guidelines for personnel action.
Specifically, she said on May 28, 1986:
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124 SUPREME COURT REPORTS
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Dario vs. Mison
WHEREAS, in order to obviate unnecessary anxiety and demoralization among the deserving officials and employees,
particularly in the career civil service, it is necessary to prescribe the rules and regulations for implementing the said
constitutional provision to protect career civil servants whose qualifications and performance meet the standards of service
demanded by the New Government, and to ensure that only those found corrupt, inefficient and undeserving are separated from
the government service; 71

Noteworthy is the injunction embodied in the Executive Order that dismissals should be made on the basis of findings
of inefficiency, graft, and unfitness to render public service. **

The Presidents Memorandum of October 14, 1987 should furthermore be considered. We quote, in part:
Further to the Memorandum dated October 2, 1987 on the same subject, I have ordered that there will be no further lay-offs this
year of personnel as a result of the government reorganization. 72

Assuming, then, that this reorganization allows removals not for cause in a manner that would have been
permissible in a revolutionary setting as Commissioner Mison so purports, it would seem that the Commissioner
would have been powerless, in any event, to order dismissals at the Customs Bureau left and right. Hence, even if we
accepted his progressive reorganization theory, he would still have to come to terms with the Chief Executives
subsequent directives moderating the revolutionary authoritys plenary power to separate government officials and
employees.
Reorganization under the 1987 Constitution, Nature, Extent, and Limitations of; Jose v. Arroyo, clarified.
The controversy seems to be that we have, ourselves, supposedly extended the effects of government reorganization
under

_______________

71 Exec. Ord. No. 17, supra.


** Paradoxically, Executive Order No. 17 would have provided a cause for removal.
72 OP Memo (October 14, 1987).

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Dario vs. Mison
the Provisional Constitution to the regime of the 1987 Constitution. Jose v. Arroyo is said to be the authority for this
73

argument. Evidently, if Arroyo indeed so ruled, Arroyo would be inconsistent with the earlier pronouncement of
Esguerra and the later holding of Palma-Fernandez. The question, however, is: Did Arroyo, in fact, extend the effects
of reorganization under the revolutionary Charter to the era of the new Constitution?
There are a few points about Arroyo that have to be explained. First, the opinion expressed therein that [b]y virtue
of said provision the reorganization of the Bureau of Customs under Executive Order No. 127 may continue even after
the ratification of this constitution and career civil service employees may be separated from the service without cause
as a result of such reorganization is in the nature of an obiter dictum. We dismissed Joses petition primarily
74 75

because it was clearly premature, speculative, and purely anticipatory, based merely on newspaper reports which do
not show any direct or threatened injury, it appearing that the reorganization of the Bureau of Customs had not
76

been, then, set in motion. Jose therefore had no cause for complaint, which was enough basis to dismiss the petition.
The remark anent separation without cause was therefore not necessary for the disposition of the case. In Morales
v. Paredes, it was held that an obiter dictum lacks the force of an adjudication and should not ordinarily be regarded
77

as such. 78

Secondly, Arroyo is an unsigned resolution while Palma-Fernandez is a full-blown decision, although both are en
banc cases. While a resolution of the Court is no less forceful than a decision, the latter has a special weight.

_______________

73 Supra, see fn. 7.


74 Arroyo, supra, 3.
75 The petitioner was Leonardo Jose, a Collector III at the Bureau of Customs.

76 Supra, 2.

77 55 Phil. 565 (1930).

78 Supra.

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126 SUPREME COURT REPORTS
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Thirdly, Palma-Fernandez v. De la Paz comes as a later doctrine. (Jose v. Arroyo was promulgated on August 11, 1987
while Palma-Fernandez was decided on August 31, 1987.) It is well-established that a later judgment supersedes a
prior one in case of an inconsistency.
As we have suggested, the transitory provisions of the 1987 Constitution allude to two stages of the reorganization,
the first stage being the reorganization under Proclamation No. 3which had already been consummatedthe second
stage being that adverted to in the transitory provisions themselveswhich is underway. Hence, when we spoke, in
Arroyo, of reorganization after the effectivity of the new Constitution, we referred to the second stage of the
reorganization. Accordingly, we cannot be said to have carried over reorganization under the Freedom Constitution to
its 1987 counterpart.
Finally, Arroyo is not necessarily incompatible with Palma-Fernandez (or Esguerra).
As we have demonstrated, reorganization under the aegis of the 1987 Constitution is not as stern as reorganization
under the prior Charter. Whereas the latter, sans the Presidents subsequently imposed constraints, envisioned a
purgation, the same cannot be said of the reorganization inferred under the new Constitution because, precisely, the
new Constitution seeks to usher in a democratic regime. But even if we concede ex gratia argumenti that Section 16
is an exception to due process and noremoval-except for cause provided by law principles enshrined in the very same
1987 Constitution, which may possibly justify removals not for cause, there is no contradiction in terms here
79

because, while the former Constitution left the axe to fall where it might, the present organic act requires that
removals not for cause must be as a result of reorganization. As we observed, the Constitution does not provide for
automatic vacancies. It must also pass the test of good faitha test not obviously required under the revolutionary
government formerly prevailing, but a test well-established in democratic societies and in this government under a
democratic Charter.

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Art. III, sec. 1 and art. IX(B), sec. 2(3).


79

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Dario vs. Mison
When, therefore, Arroyo permitted a reorganization under Executive Order No. 127 after the ratification of the 1987
Constitution, Arroyo permitted a reorganization provided that it is done in good faith. Otherwise, security of tenure
would be an insuperable impediment. 80

Reorganizations in this jurisdiction have been regarded as valid provided they are pursued in good faith. As a 81

general rule, a reorganization is carried out in good faith if it is for the purpose of economy or to make bureaucracy
more efficient. In that event, no dismissal (in case of a dismissal) or separation actually occurs because the position
itself ceases to exist. And in that case, security of tenure would not be a Chinese wall. Be that as it may, if the
abolition, which is nothing else but a separation or removal, is done for political reasons or purposely to defeat
security of tenure, or otherwise not in good faith, no valid abolition takes place and whatever abolition is done, is
void ab initio. There is an invalid abolition as where there is merely a change of nomenclature of positions, or where
82

claims of economy are belied by the existence of ample funds. 83

It is to be stressed that by predisposing a reorganization to the yardstick of good faith, we are not, as a consequence,
imposing a cause for restructuring. Retrenchment in the course of a reorganization in good faith is still removal not
for cause, if by cause we refer to grounds or conditions that call for disciplinary action.
***

_______________
80 Supra. In Palma-Fernandez, we upheld claims of security of tenure in the absence of a bona fide reorganization. In that case, there was no valid

abolition of an office but merely, a change in name of position. We did not foreclose therein the validity of a removal not for cause, provided that
there is a valid reorganization.
81 Ginson v. Municipality of Murcia, supra; De la Llana v. Alba, supra; Cruz v. Primicias, Jr., supra.

82 Palma-Fernandez, supra. In that case, the office of Chief of Clinic was purportedly abolished and in its place an office of Assistant Director

for Professional Services was created. We held that the two positions are basically one and the same except for the change of nomenclature. (757.)
83 Ginson, supra; Cruz, supra.

*** Although as we also said, Executive Order No. 17 itself im-

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128 SUPREME COURT REPORTS
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Good faith, as a component of a reorganization under a constitutional regime, is judged from the facts of each case.
However, under Republic Act No. 6656, we are told:
SEC. 2. No officer or employee in the career service shall be removed except for a valid cause and after due notice and hearing.
A valid cause for removal exists when, pursuant to a bona fide reorganization, a position has been abolished or rendered
redundant or there is a need to merge, divide, or consolidate positions in order to meet the exigencies of the service, or other
lawful causes allowed by the Civil Service Law. The existence of any or some of the following circumstances may be considered
as evidence of bad faith in the removals made as a result of reorganization, giving rise to a claim for reinstatement or
reappointment by an aggrieved party: (a) Where there is a significant increase in the number of positions in the new staffing
pattern of the department or agency concerned; (b) Where an office is abolished and another performing substantially the same
functions is created; (c) Where incumbents are replaced by those less qualified in terms of status of appointment, performance
and merit; (d) Where there is a reclassification of offices in the department or agency concerned and the reclassified offices
perform substantially the same functions as the original offices; (e) Where the removal violates the order of separation provided
in Section 3 hereof. 84

It is in light hereof that we take up questions about Commissioner Misons good faith, or lack of it.
Reorganization of the Bureau of Customs, Lack of Good Faith in.
The Court finds that after February 2, 1987 no perceptible restructuring of the Customs hierarchyexcept for the
change of personnelhas occurred, which would have justified (all things being equal) the contested dismissals. The
contention that the staffing pattern at the Bureau (which would have furnished a justification for a personnel
movement) is the same staffing pattern prescribed by Section 34 of Executive Order

_______________

posed a cause for removals under the Freedom Constitution.


84 Rep. Act No. 6156, supra.

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Dario vs. Mison
No. 127 already prevailing when Commissioner Mison took over the Customs helm, has not been successfully
contradicted. There is no showing that legitimate structural changes have been madeor a reorganization actually
85

undertaken, for that matterat the Bureau since Commissioner Mison assumed office, which would have validly
prompted him to hire and fire employees. There can therefore be no actual reorganization to speak of, in the sense,
say, of reduction of personnel, consolidation of offices, or abolition thereof by reason of economy or redundancy of
functions, but a revamp of personnel pure and simple.
The records indeed show that Commissioner Mison separated about 394 Customs personnel but replaced them with
522 as of August 18, 1988. This betrays a clear intent to pack the Bureau of Customs. He did so, furthermore, in
86

defiance of the Presidents directive to halt further lay-offs as a consequence of reorganization. Finally, he was aware
87

that lay-offs should observe the procedure laid down by Executive Order No. 17. We are not, of course, striking down
Executive Order No. 127 for repugnancy to the Constitution. While the act is valid, still and all, the means with which
it was implemented is not. 88

Executive Order No. 127, Specific Case of.


With respect to Executive Order No. 127, Commissioner Mison submits that under Section 59 thereof, [t]hose
incumbents whose positions are not included therein or who are not reappointed shall be deemed separated from the
service. He submits that because the 394 removed personnel have not been reappointed, they are considered
terminated. To begin with, the Commissioners appointing power is subject to the provisions of Executive Order No.
39. Under Executive Order No. 39,

_______________

85 See G.R. Nos. 81964, 81967, id., 10-11.


86 G.R. No. 86421, id., 31.
87 OP Memo (Oct., 14, 1987), supra.

88 See Free Telephone Workers Union v. Minister of Labor and Employment, No. 58184, October 30, 1981, 108 SCRA 757.

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130 SUPREME COURT REPORTS
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the Commissioner of Customs may appoint all Bureau personnel, except those appointed by the President. 89

Accordingly, with respect to Deputy Commissioners Cesar Dario and Vicente Feria, Jr., Commissioner Mison could
not have validly terminated them, they being Presidential appointees.
Secondly, and as we have asserted, Section 59 has been rendered inoperative according to our holding in Palma-
Fernandez.
That Customs employees, under Section 59 of Executive Order No. 127 had been on a mere holdover status cannot
mean that the positions held by them had become vacant. In PalmaFernandez, we said in no uncertain terms:
The argument that, on the basis of this provision, petitioners term of office ended on 30 January 1987 and that she continued in
the performance of her duties merely in a hold-over capacity and could be transferred to another position without violating any
of her legal rights, is untenable. The occupancy of a position in a hold-over capacity was conceived to facilitate reorganization
and would have lapsed on 25 February 1987 (under the Provisional Constitution), but advanced to February 2, 1987 when the
1987 Constitution became effective (De Leon, et al., vs. Hon. Benjamin B. Esquerra, et. al., G.R. No. 78059, 31 August 1987).
After the said date the provisions of the latter on security of tenure govern. 90

It should be seen, finally, that we are not barring Commissioner Mison from carrying out a reorganization under the
transitory provisions of the 1987 Constitution. But such a reorganization should be subject to the criterion of good
faith.

_________________

89 Supra. With respect to Vicente Feria, Jr., the records reveal that his appointment was extended on April 22, 1986. (G.R. No. 81967, id., 7.) For

that reason, he cannot be said to be an incumbent for purposes of reorganization, to whom a reappointment may be issued. Because his appointment
came after the promulgation of the Freedom Constitution, he is, to all intents and purposes, an appointee as a result of reorganization.
90 Supra, 757.

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Dario vs. Mison
Resume.
In resume, we restate as follows:

1. 1.The President could have validly removed government employees, elected or appointed, without cause but
only before the effectivity of the 1987 Constitution on February 2, 1987 (De Leon v. Esguerra, supra; Palma-
Fernandez vs. De la Paz, supra); in this connection, Section 59 (on non-reappointment of incumbents) of
Executive Order No. 127 cannot be a basis for termination;
2. 2.In such a case, dismissed employees shall be paid separation and retirement benefits or upon their option be
given reemployment opportunities (CONST. [1987], art. XVIII, sec. 16; Rep. Act No. 6656, sec. 9);
3. 3.From February 2, 1987, the State does not lose the right to reorganize the Government resulting in the
separation of career civil service employees [CONST. (1987), supra] provided, that such a reorganization is
made in good faith. (Rep. Act No. 6656, supra.)

G.R. No. 83737


This disposition also resolves G.R. No. 83737. As we have indicated, G.R. No. 83737 is a challenge to the validity of
Republic Act No. 6656. In brief, it is argued that the Act, insofar as it strengthens security of tenure and as far as it
91

provides for a retroactive effect, runs counter to the transitory provisions of the new Constitution on removals not for
92

cause.
It can be seen that the Act, insofar as it provides for reinstatement of employees separated without a valid cause
and after due notice and hearing is not contrary to the transitory provisions of the new Constitution. The Court
93

reiterates that although the Charters transitory provisions mention separations not for cause, separations
thereunder must nevertheless

_______________

91 Supra, sec. 9.
92 Supra, sec. 13.
93 Supra, sec. 2.

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be on account of a valid reorganization and which do not come about automatically. Otherwise, security of tenure may
be invoked. Moreover, it can be seen that the statute itself recognizes removals without cause. However, it also
acknowledges the possibility of the leadership using the artifice of reorganization to frustrate security of tenure. For
this reason, it has installed safeguards. There is nothing unconstitutional about the Act.
We recognize the injury Commissioner Misons replacements would sustain. We also commisserate with them. But
our concern is the greater wrong inflicted on the dismissed employees on account of their illegal separation from the
civil service.
WHEREFORE, THE RESOLUTIONS OF THE CIVIL SERVICE COMMISSION, DATED JUNE 30, 1988,
SEPTEMBER 20, 1988, NOVEMBER 16, 1988, INVOLVED IN G.R. NOS. 85310, 85335, AND 86241, AND MAY 8,
1989, INVOLVED IN G.R. NO. 85310, ARE AFFIRMED.
THE PETITIONS IN G.R. NOS. 81954, 81967, 82023, AND 85335 ARE GRANTED. THE PETITIONS IN G.R.
NOS. 83737, 85310 AND 86241 ARE DISMISSED.
THE COMMISSIONER OF CUSTOMS IS ORDERED TO REINSTATE THE EMPLOYEES SEPARATED AS A
RESULT OF HIS NOTICES DATED JANUARY 26, 1988.
THE EMPLOYEES WHOM COMMISSIONER MISON MAY HAVE APPOINTED AS REPLACEMENTS ARE
ORDERED TO VACATE THEIR POSTS SUBJECT TO THE PAYMENT OF WHATEVER BENEFITS THAT MAY
BE PROVIDED BY LAW.
NO COSTS.
IT IS SO ORDERED.
Gutierrez, Jr., Paras, Gancayco, Bidin, Corts, Grio-Aquino and Medialdea, JJ., concur.
Fernan, (C.J.), Narvasa, Feliciano, Regalado, JJ., We join Justice Melencio-Herrera in her dissent.
Melencio-Herrera, J., Please see attached dissent.
Cruz, J., See separate concurrence.
Padilla, J., No part, related to counsel for respondent Abaca in G.R. No. 85310.
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Dario vs. Mison

MELENCIO-HERRERA, J., dissenting:

The historical underpinnings of Government efforts at reorganization hark back to the people power phenomenon of
22-24 February 1986, and Proclamation No. 1 of President Corazon C. Aquino, issued on 25 February 1986, stating in
no uncertain terms that the people expect a reorganization of government. In its wake followed Executive Order No.
5, issued on 12 March 1986, Creating a Presidential Commission on Government Reorganization, with the following
relevant provisions:
WHEREAS, there is need to effect the necessary and proper changes in the organizational and functional structures of the
national and local governments, its agencies and instrumentalities, including government-owned and controlled corporations
and their subsidiaries, in order to promote economy, efficiency and effectiveness in the delivery of public services
xxx xxx xxx
Section 2. The functional jurisdiction of the PCGR shall encompass, as necessary, the reorganization of the national and local
governments, its agencies and instrumentalities including government-owned or controlled corporations and their subsidiaries.
x x x x x x (Italics supplied)
Succeeding it was Proclamation No. 3, dated 25 March 1986, also known as the Freedom Constitution, declaring, in
part, in its Preamble as follows:
WHEREAS, the direct mandate of the people as manifested by their extraordinary action demands the complete reorganization
of the government, x x x (Italics supplied)
and pertinently providing:
ARTICLE II
Section I
x x x
The President shall give priority to measures to achieve the mandate of the people to:
(a) Completely reorganize the government and eradicate unjust and oppressive structures, and all iniquitous vestiges of the
previous
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regime; (Emphasis supplied)
xxx xxx
ARTICLE IIIGOVERNMENT REORGANIZATION
Section 2. All elective and appointive officials and employees under the 1973 Constitution shall continue in office until
otherwise provided by proclamation or executive order or upon the designation or appointment and qualification of their
successors, if such is made within a period of one year from February 25, 1986.
Section 3. Any public office or employee separated from the service as a result of the reorganization effected under this
Proclamation shall, if entitled under the laws then in force, receive the retirement and other benefits accruing thereunder.
(Emphasis ours)
On 28 May 1986, Executive Order No. 17 was issued Prescribing Rules and Regulations for the Implementation of
Section 2, Article III of the Freedom Constitution providing, inter alia, as follows:
Section 1. In the course of implementing Article III, Section 2 of the Freedom Constitution, the Head of each Ministry shall see
to it that the separation or replacement of officers and employees is made only for justifiable reasons, to prevent indiscriminate
dismissals of personnel in the career civil service whose qualifications and performance meet the standards of public service of
the New Government.
x x x x x x
The Ministry concerned shall adopt its own rules and procedures for the review and assessment of its own personnel,
including the identification of sensitive positions which require more rigid assessment of the incumbents, and shall complete
such review/assessment as expeditiously as possible but not later than February 24, 1987 to prevent undue demoralization in
the public service.
Section 2. The Ministry Head concerned, on the basis of such review and assessment shall determine who shall be separated
from the service. Thereafter, he shall issue to the official or employee concerned a notice of separation which shall indicate
therein the reason/s or ground/s for such separation and the fact that the separated official or employee has the right to file a
petition for reconsideration pursuant to this Order. Separation from the service shall be effective upon receipt of such notice,
either personally by the official or employee concerned or on his behalf by a person of sufficient discretion.
Section 3. The following shall be the grounds for separation/ replacement of personnel:
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Dario vs. Mison

1. 1.Existence of a case for summary dismissal pursuant to Section 40 of the Civil Service Law;
2. 2.Existence of a probable cause for violation of the Anti-Graft and Corrupt Practice Act as determined by the Ministry
Head concerned;
3. 3.Gross incompetence or inefficiency in the discharge of functions;
4. 4.Misuse of Public office for partisan political purposes;
5. 5.Any other analogous ground showing that the incumbent is unfit to remain in the service or his separation/replacement
is in the interest of the service.

Section 11. This Executive Order shall not apply to elective officials or those designated to replace them, presidential
appointees, casual and contractual employees, or officials and employees removed pursuant to disciplinary proceedings under
the Civil Service Law and rules, and to those laid off as a result of the reorganization undertaken pursuant to Executive Order
No. 5. (Italics supplied)
On 6 August 1986, Executive Order No. 39 was issued by the President Enlarging the Powers and Functions of the
Commissioner of Customs, as follows:
x x x x x x
SECTION 1. In addition to the powers and functions of the Commissioner of Customs, he is hereby authorized, subject to the
Civil Service Law and its implementing rules and regulations:

1. a)To appoint all Bureau personnel, except those appointed by the President;
2. b)To discipline, suspend, dismiss or otherwise penalize erring Bureau officers and employees;
3. c)To act on all matters pertaining to promotion, transfer, detail, reassignment, reinstatement, reemployment and other
personnel action, involving officers and employees of the Bureau of Customs.

xxx x x x
On 30 January 1987, Executive Order No. 127 was issued Reorganizing the Ministry of Finance. Similar Orders,
approximately thirteen (13) in all, were issued in respect of the
1

_____________

1Executive Orders Nos. 116 (Agriculture and Food); 117 (Educa-


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136 SUPREME COURT REPORTS
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other executive departments. The relevant provisions relative to the Bureau of Customs read:
RECALLING that the reorganization of the government is mandated expressly in Article II, Section 1(a) and Article III of the
Freedom Constitution;
HAVING IN MIND that pursuant to Executive Order No. 5 (1986), it is directed that the necessary and proper changes in
the organizational and functional structures of the government, its agencies and instrumentalities, be effected in order to
promote efficiency and effectiveness in the delivery of public services;
BELIEVING that it is necessary to reorganize the Ministry of Finance to make it more capable and responsive,
organizationally and functionally, in its primary mandate of judiciously generating and efficiently managing the financial
resources of the Government, its subdivisions and instrumentalities in order to attain the socio-economic objectives of the
national development programs.
x x x x x x
SEC. 2. Reorganization.The Ministry of Finance, hereinafter referred to as Ministry, is hereby reorganizaed, structurally
and functionally, in accordance with the provisions of this Executive Order.
SEC. 33. Bureau of Customs.
x x x Executive Order No. 39 dated 6 August 1986 which grants autonomy to the Commissioner of Customs in matters of
appointment and discipline of Customs personnel shall remain in effect.
SEC. 55. Abolition of Units Integral to Ministry.All units not included in the structural organization as herein provided
and all positions thereof are hereby deemed abolished. x x x Their personnel shall be entitled to the benefits provided in the
second paragraph of Section 59 hereof.
SEC. 59. New Structure and Pattern.Upon approval of this Executive Order, the officers and employees of the Ministry
shall, in a holdover capacity, continue to perform their respective duties and responsibilities and receive the corresponding
salaries and benefits

_______________

tion, Culture and Sports); 119 (Health); 120 (Tourism); 123 (Social Welfare and Development); 124 (Public Works and Highways); 125 (Transportation
and Communication); 126 (Labor and Employment); 128 (Science and Technology; 129 (Agrarian Reform); 131 (Natural Resources); 132 (Foreign Affairs);
and 133 (Trade and Industry).
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Dario vs. Mison
unless in the meantime they are separated from government service pursuant to Executive Order No. 17 (1986) or Article III of
the Freedom Constitution.
The new position structure and staffing pattern of the Ministry shall be approved and prescribed by the Minister within one
hundred twenty (120) days from the approval of this Executive Order and the authorized positions created hereunder shall be
filled with regular appointments by him or by the President, as the case may be. Those incumbents whose positions are not
included therein or who are not reappointed shall be deemed separated from the service. Those separated from the service shall
receive the retirement benefits to which they may be entitled under the existing laws, rules and regulations. Otherwise, they
shall be paid the equivalent of one month basic salary for every year of service or the equivalent nearest fraction thereof favorable
to them on the basis of highest salary received, but in no case shall such payment exceed the equivalent of 12 months salary.
No court or administrative body shall issue any writ or preliminary injunction or restraining order to enjoin the
separation/replacement of any officer or employee affected under this Executive Order.
Section 67All laws, ordinances, rules, regulations and other issuances or parts thereof, which are inconsistent with this
Executive Order, are hereby repealed or modified accordingly.
x x x x x x (Italics ours)
On 2 February 1987, the present Constitution took effect (De Leon, et al., vs. Esguerra, G.R. No. 78059, August 31,
1987, 153 SCRA 602). Reorganization in the Government service pursuant to Proclamation No. 3, supra, was provided
for in its Section 16, Article XVIII entitled Transitory Provisions, reading:
Section 16. Career civil service employees separated from the service not for cause but as a result of the reorganization pursuant
to Proclamation No. 3 dated March 25, 1986 and the reorganization following the ratification of this Constitution shall be entitled
to appropriate separation pay and to retirement and other benefits accruing to them under the laws of general application in
force at the time of their separation. In lieu thereof, at the option of the employees, they may be considered for employment in
the Government or in any of its subdivisions, instrumentalities, or agencies, including government owned or controlled
corporations and their subsidiaries. This provision also applies to career officers whose resignation, tendered in line with the
existing policy, has been accepted.
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On 24 May 1987 the then Commissioner of Customs, Alexander A. Padilla, transmitted to the Department of Finance
for approval the proposed position structure and staffing pattern of the Bureau of Customs. Said Department gave
its imprimatur. Thereafter, the staffing pattern was transmitted to and approved by the Department of Budget and
Management on 7 September 1987 for implementation. Under the old staffing pattern, there were 7,302 positions
while under the new staffing pattern, there are 6,530 positions (CSC Resolution in CSC Case No. 1, dated 20
September 1988, pp. 3-4).
On 22 September 1987, Salvador M. Mison assumed office as Commissioner of Customs.
On 2 October 1987 Malacaang Memorandum Re: Guidelines on the Implementation of Reorganization Executive
Orders was issued reading, insofar as revelant to these cases, as follows:
It is my concern that ongoing process of government reorganization be conducted in a manner that is expeditious, as well as
sensitive to the dislocating consequences arising from specific personnel decisions.
The entire process of reorganization, and in particular the process of separation from service, must be carried out in the most
humane manner possible.
For this purpose, the following guidelines shall be strictly followed:

1. 1.By October 21, 1987, all employees covered by the Executive Orders for each agency on reorganization shall be:

1. a.informed of their reappointment or


2. b.offered another position in the same department/ agency, or
3. c.informed of their termination.
1. 2.In the event of an offer for a lower position, there will be no reduction in the salary.

xxx xxx

1. 4.Each department/agency shall constitute a Reorganization Appeals Board at the central office, on or before October 21,
1987, to review or reconsider appeals or complaints relative to reorganization. All cases submitted to the Boards shall
be resolved subject to the following guidelines:

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Dario vs. Mison

1. a.publication or posting of the appeal procedure promulgated by the Department Secretary;


2. b.adherence to due process;
3. c.disposition within 30 days from submission of the case;
4. d.written notification of the action taken and the grounds thereof.

Action by the Appeals Review Board does not preclude appeal to the Civil Service Commission.

1. 5.Placement in the new staffing pattern of incumbent personnel shall be completed prior to the hiring of new personnel,
if any.

xxx x x x (Italics ours)


On 25 November 1987 Commissioner Mison wrote the President requesting a grace period until the end of February
1988 within which to completely undertake the reorganization of the Bureau of Customs pursuant to Executive Order
No. 127 dated 30 January 1987. Said request was granted in a letter-reply by Executive Secretary Catalino Macaraig,
Jr., dated 22 December 1987.
On 6 January 1988, within the extended period requested, Bureau of Customs Memorandum Re: Guidelines on
the Implementation of Reorganization Executive Orders was issued in the same tenor as the Malacaang
Memorandum of 2 October 1987, providing inter alia:
To effectively implement the reorganization at the Bureau of Customs, particularly in the selection and placement of personnel,
and insure that the best qualified and most competent personnel in the career service are retained, the following guidelines are
hereby prescribed for the guidance of all concerned

1. 1.By February 28, 1988 all employees covered by Executive Order No. 127 and the grace period extended to the Bureau
of Customs by the President of the Philippines on reorganization shall be:
1. a.informed of their reappointment, or
2. b.offered another position in the same department or agency, or
3. c.informed of their termination.

1. 2.In the event of termination, the employee shall:

1. a.be included in a consolidated list compiled by the Civil Service Commission. All departments who are recruiting shall
give preference to the employees in the list; and

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1. b.continue to receive salary and benefits until February 28, 1988, and
2. c.be guaranteed the release of separation benefits within 45 days from termination and in no case later than June 15,
1988.
x x x (Italics supplied)

It is to be noted that paragraph 1 above and its sub-sections reproduced verbatim the Malacaang Guidelines of 2
October 1987 in that the employees concerned were merely to be informed of their termination.
On 28 January 1988 Commissioner Mison addressed identical letters of termination to Bureau of Customs officers
and employees effective on 28 February 1988.
As of 18 August 1988, Commissioner Mison appointed five hundred twenty-two (522) officials and employees of the
Bureau of Customs (CSC Resolution in CSC Case No. 1, dated 20 September 1988, p. 6). In fact, in a letter dated 27
January 1988, Commissioner Mison recommended Jose M. Balde for appointment to President Aquino as one of three
(3) Deputy Commissioners under Executive Order No. 127.
In the interim, during the pendency of these Petitions, Republic Act No. 6656, entitled An Act to Protect the
Security of Tenure of Civil Service Officers and Employees in the Implementation of Government Reorganization was
passed by Congress on 9 June 1988. The President signed it into law on 10 June 1988 and the statute took effect on
29 June 1988.
On 20 June 1988 Motions were filed, in these cases pending before this Court, invoking the provisions of Republic
Act No. 6656. The relevant provisions thereof read:
SECTION 1. It is hereby declared the policy of the State to protect the security of tenure of civil service officers and employees
in the reorganization of the various agencies of the National government x x x.
SECTION 2. No officer or employee in the career service shall be removed except for a valid cause and after due notice and
hearing. A valid cause for removal exists when, pursuant to a bona fide reorganization, a position has been abolished or rendered
redundant or there is a need to merge, divide, or consolidate positions in order to meet the
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Dario vs. Mison
exigencies of the service, or other lawful causes allowed by the Civil Service Law. The existence of any or some of the following
circumstances may be considered as evidence of bad faith in the removals made as a result of reorganization, giving rise to a
claim for reinstatement or reappointment by an aggrieved party:

1. (a)Where there is a significant increase in the number of positions in the new staffing pattern of the department or agency
concerned;
2. (b)Where an office is abolished and another performing substantially the same functions is created;
3. (c)Where incumbents are replaced by those less qualified in terms of status of appointment, performance and merit;
4. (d)Where there is a reclassification of offices in the department or agency concerned and the reclassified offices perform
substantially the same functions as the original offices;
5. (e)Where the removal violates the order of separation provided in Section 3 hereof.

xxx xxx
SECTION 9. All officers and employees who are found by the Civil Service Commission to have been separated in violation
of the provisions of this Act, shall be ordered reinstated or reappointed as the case may be without loss of seniority and shall be
entitled to full pay for the period of separation. Unless also separated for cause, all officers and employees, including casuals and
temporary employees, who have been separated pursuant to reorganization shall, if entitled thereto, be paid the appropriate
separation pay and retirement and other benefits under existing laws within ninety (90) days from the date of the effectivity of
their separation or from the date of the receipt of the resolution of their appeals as the case may be: Provided, That application
for clearance has been filed and no action thereon has been made by the corresponding department or agency. Those who are not
entitled to said benefits shall be paid a separation gratuity in the amount equivalent to one (1) month salary for every year of
service. Such separation pay and retirement benefits shall have priority of payment out of the savings of the department or
agency concerned.
xxx xxx
SECTION 11. The executive branch of the government shall implement reorganization schemes within a specified period of
time authorized by law.
In the case of the 1987 reorganization of the executive branch, all departments and agencies which are authorized by
executive orders promulgated by the President to reorganize shall have ninety (90)
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Dario vs. Mison
days from the approval of this Act within which to implement their respective reorganization plans in accordance with the
provisions of this Act.
xxx xxx
SECTION 13. All laws, rules and regulations or parts thereof, inconsistent with the provisions of this Act are hereby repealed
or modified accordingly. The rights and benefits under this Act shall be retroactive as of June 30, 1987.
x x x (Italics ours)
Given the foregoing statutory backdrop, the issues can now be addressed.
Scope of Section 16, Art. XVIII, 1987 Constitution
Crucial to the present controversy is the construction to be given to the abovementioned Constitutional provision
(SECTION 16, for brevity), which speaks of:
Career civil service employees separated from the service not for cause
but as a result of the reorganization pursuant to Proclamation No. 3 dated March 25, 1986
and the reorganization following the ratification of this Constitution x x x (paragraphing supplied).
To our minds, SECTION 16 clearly recognizes (1) the reorganization authorized by Proclamation No. 3; (2) that such
separation is NOT FOR CAUSE but as a result of the reorganization pursuant to said Proclamation; and (3) that the
reorganization pursuant to Proclamation No. 3 may be continued even after the ratification of the 1987 Constitution
during the transition period.
Separation NOT FOR CAUSE
The canon for the removal or suspension of a civil service officer or employee is that it must be FOR CAUSE. That
means a guarantee of both procedural and substantive due process. Basically, procedural due process would require
that suspension
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VOL. 176, AUGUST 8. 1989 143
Dario vs. Mison
or dismissal come only after notice and hearing. Substantive due process would require that suspension or dismissal
be for cause. (Bernas, The Constitution of the Republic of the Philippines: A Commentary, Vol. II, First Edition,
1988, p. 334)
The guarantee of removal FOR CAUSE is enshrined in Article IX-B, Section 2(3) of the 1987 Constitution, which
states that
No officer or employee of the civil service shall be removed or suspended except FOR CAUSE provided by law.
There can be no question then as to the meaning of the phrase FOR CAUSE. It simply means the observance of
both procedural and substantive due process in cases of removal of officers or employees of the civil service. When
SECTION 16 speaks, therefore, of separation from the service NOT FOR CAUSE, it can only mean the diametrical
opposite. The constitutional intent to exempt the separation of civil service employees pursuant to Proclamation No.
3 from the operation of Article IX-B, Section 2(3), becomes readily apparent. A distinction is explicitly made between
removal FOR CAUSE, which as aforestated, requires due process, and dismissal NOT FOR CAUSE, which implies
that the latter is not bound by the fetters of due process.
It is obviously for that reason that Section 16 grants separation pay and retirement benefits to those separated
NOT FOR CAUSE but as a result of the reorganization precisely to soften the impact of the non-observance of due
process. What is envisioned in Section 16 is not a remedy for arbitrary removal of civil servants enjoying security of
tenure but some form of relief for members of the career civil service who may have been or may be legally but
involuntarily reorganized out of the service or may have voluntarily resigned pursuant to the reorganization policy
(ibid., p. 615).
Reorganization Pursuant to Proclamation No. 3 to Continue Transitorily Even After Ratification
By its very context, SECTION 16 envisages the continuance of the reorganization pursuant to Proclamation No. 3
even after ratification of the Constitution and during the transition period. The two [2] stages contemplated, namely,
(1) the stage
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144 SUPREME COURT REPORTS
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before and (2) after ratification, refer to the same nature of separation NOT FOR CAUSE but as a result of
Proclamation No. 3. No valid reason has been advanced for a different treatment after ratification as the majority
opines, i.e., that separation NOT FOR CAUSE is allowed before ratification but that, thereafter, separation can only
be FOR CAUSE.
A fundamental principle of Constitutional construction is to assure the realization of the purpose of the framers of
the organic law and of the people who adopted it.
That the reorganization commenced pursuant to Proclamation No. 3 was envisioned to continue even after the
ratification of the 1987 Constitution, at least transitorily, is evident from the intent of its authors discoverable from
their deliberations held on 3 October 1986 and evincing their awareness that such reorganization had not as yet been
fully implemented. Thus:
Mr. PADILLA. Mr. Presiding Officer, on lines 2 to 5 is the clause pursuant to the provisions of Article III of
Proclamation No. 3, issued on March 25, 1986, and the reorganization. Are those words necessary? Can we not just
say result of the reorganization following the ratification of this Constitution? In other words, must we make
specific reference to Proclamation No. 3?
Mr. SUAREZ. Yes. I think the committee feels that is necessary, because in truth there has been a reorganization by
virtue of Proclamation No. 3. In other words, there are two stages of reorganization covered by this section.
Mr. PADILLA. I understand there is a reorganization committee headed by a minister?
Mr. SUAREZ. Philippine Commission on Government Reorganization.
Mr. PADILLA. But whether that has already been implemented or not, I do not believe in it. There has been a plan,
but I do not think it has been implemented. If we want to include any previous reorganization after or before the
ratification, why do we not just say reorganization before or after the ratification to simplify the provision and
eliminate two-and-a-half sentences that may not be necessary? And as a result of the reorganization, if the
committee feels there has been reorganization before ratification and there be reorganization after, we just say
before or after the ratification of this Constitution.
Mr. SUAREZ. Something like this: as a result of the reorganization effected before or after the ratification of the
Constitution on the
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Dario vs. Mison
understanding, with the statement into the records, that this would be applicable to those reorganized out pursuant
to the Freedom Constitution also.
Mr. PADILLA. That is understood if there has been a reorganization before the ratification or a reorganization after
the ratification. (RECORDS of the Constitutional Commission, Vol. 5, p. 416) (Italics provided)
It should also be recalled that the deadline for the reorganization under Proclamation No. 3 was one year from
February 25, 1986 (Article III, Section 2), or up to February 24, 1987. Executive Order No. 17 itself provided that the
review/assess-ment of personnel be completed not later than February 24, 1987. But, confronted with the reality of
the ratification of the Constitution before that deadline without reorganization having been completed, there was need
for a provision allowing for its continuance even after ratification and until completed. It was also to beat that deadline
that EO 127 and similar issuances, providing for the reorganization of departments of government, were all dated 30
January 1987 or prior to the plebiscite held on 2 February 1987. The intent to continue and complete the
reorganizations started is self-evident in SECTION 16.
In Jose vs. Arroyo, et al. (G.R. No. 78435, August 11, 1987), which was a Petition for Certiorari and Prohibition to
enjoin the implementation of Executive Order No. 127, we recognized that the reorganization pursuant to
Proclamation No. 3 as mandated by SECTION 16, was to continue even after ratification when we stated:
The contention of petitioner that EO No. 127 is violative of the provision of the 1987 Constitution guaranteeing career civil
service employees security of tenure overlooks the provision of Section 16, Art. XVIII (Transitory Provisions) which explicitly
authorizes the removal of career civil service employees not for cause but as a result of the reorganization pursuant to
Proclamation No. 3 dated March 25, 1986 and the reorganization following the ratification of the Constitution. By virtue of said
provision, the reorganization of the Bureau of Customs under Executive Order No. 127 may continue even after the ratification
of this Constitution and career civil service em-
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ployees may be separated from the service without cause as a result of such reorganization. (Italics ours)
With due respect to the majority, we disagree with its conclusion that the foregoing pronouncement is mere obiter
dictum.
An obiter dictum or dictum has been defined as a remark or opinion uttered, by the way. It is a statement of the court concerning
a question which was not directly before it (In re Hess, 23 A. 2d. 298, 301, 20 N.J. Misc. 12). It is language unnecessary to a
decision, (a) ruling on an issue not raised, or (an) opinion of a judge which does not embody the resolution or determination of
the court, and is made without argument or full consideration of the point (Lawson v. US, 176 F2d 49, 51, 85 U.S. App. D.C. 167).
It is an expression of opinion by the court or judge on a collateral question not directly involved, (Crescent Ring Co. v. Travelers
Indemnity Co. 132 A. 106, 107, 102 N.J. Law 85) or not necessary for the decision (Du Bell v. Union Central Life Ins. Co., 29, So.
2d 709, 712; 211 La. 167).
In the case at bar, however, directly involved and squarely before the Court was the issue of whether EO 127 violates
Section 2(3) of Article IX-B of the 1987 Constitution against removal of civil service employees except for cause.
Petitioner batted for the affirmative of the proposition, while respondents contended that removal of civil service
employees without cause is allowed not only under the Provisional Constitution but also under the 1987 Constitution
if the same is made pursuant to a reorganization after the ratification of the Constitution.
It may be that the Court dismissed that Petition for being premature, speculative and purely anticipatory
inasmuch as petitioner therein had not received any communication terminating or threatening to terminate his
services. But that was only one consideration. The Court still proceeded to decide all the issues adversatively
contested by the parties, namely 1) that the expiration date of February 25, 1987 fixed by Section 2 of Proclamation
No. 3 on which said Executive order is based had already lapsed; 2) that the Executive Order has not been published
in the Official Gazette as required by Article 2 of the Civil Code and Section 11 of the Revised Administrative Code;
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Dario vs. Mison
and 3) that its enforcement violates Section 2(3) of Article IX-B of the 1987 Constitution against removal of civil service
employees except for cause.
The ruling of the Court, therefore, on the Constitutional issues presented, particularly, the lapse of the period
mandated by Proclamation No. 3, and the validity of EO 127, cannot be said to be mere obiter. They were ultimate
issues directly before the Court, expressly decided in the course of the consideration of the case, so that any resolution
thereon must be considered as authoritative precedent, and not a mere dictum (See Valli v. US, 94 F.2d 687 certiorari
granted 58 S. Ct. 760, 303 U.S. 82 L. Ed. 1092; See also Weedin v. Tayokichi Yamada 4 F. (2d) 455). Such resolution
would not lose its value as a precedent just because the disposition of the case was also made on some other ground.
x x x And this rule applies as to all pertinent questions although only incidentally involved, which are presented and decided in
the regular course of the consideration of the case, and lead up to the final conclusion (Northern Pac. Ry. Co. v. Baker, D.C.
Wash., 3 F. Suppl. 1; See also Wisconsin Power and Light Co. v. City of Beloit, 254 NW 119; Chase v. American Cartage Co. 186
N.W. 598; City of Detroit, et al. v. Public Utilities Comm. 286 N.W. 368). Accordingly, a point expressly decided does not lose its
value as a precedent because the disposition of the case is made on some other ground. (Wagner v. Corn Products Refining
Co. D.C. N.J. 28 F 2d 617) Where a case presents two or more points, any one of which is sufficient to determine the ultimate
issue, but the court actually decides all such points, the case is an authoritative precedent as to every point decided, and none of
such points can be regarded as having merely the status of a dictum (See U.S. v. Title Insurance and Trust Co., Cal., 44 S. Ct.
621, 265 U.S. 472, 68 L. Ed. 1110; Van Dyke v. Parker 83 F. (2d) 35) and one point should not be denied authority merely because
another point was more dwelt on and more fully argued and considered. (Richmond Screw Anchor Co. v. U.S. 48 S. Ct. 194, 275
U.S. 331, 72 L. Ed. 303)
It is true that in Palma-Fernandez vs. de la Paz (G.R. No. 78946, April 15, 1986, 160 SCRA 751), we had stated:
The argument that, on the basis of this provision (Section 26 of Executive Order No. 119, or the Reorganization Act of the
Ministry of
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148 SUPREME COURT REPORTS
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Dario vs. Mison
Health), petitioners term of office ended on 30 January 1987 and that she continued in the performance of her duties merely in
a hold-over capacity and could be transferred to another position without violating any of her legal rights, is untenable. The
occupancy of a position in a hold-over capacity was conceived to facilitate reorganization and would have lapsed on 25 February
1987 (under the Provisional Constitution), but advanced to 2 February 1987 when the 1987 Constitution became effective (De
Leon, et al., vs. Hon. Esguerra, et al., G.R. No. 78059, 31 August 1987, 153 SCRA 602). After the said date the provisions of the
latter on security of tenure govern.
The factual situation in the two cases, however, radically differ. In the cited case, Dra. Palma-Fernandez, the
petitioner, had already been extended a permanent appointment as Assistant Director for Professional Services of the
East Avenue Medical Center but was still being transferred by the Medical Center Chief to the Research Office against
her consent. Separation from the service as a result of reorganization was not involved. The question then arose as to
whether the latter official had the authority to transfer or whether the power to appoint and remove subordinate
officers and employees was lodged in the Secretary of Health. Related to that issue was the vital one of whether or not
her transfer, effected on 29 May 1987, was tantamount to a removal without cause. Significant, too, is the fact that
the transfer was basically made in the interest of the service pursuant to Section 24(c) of PD No. 807, or the Civil
Service Decree, and not because she was being reorganized out by virtue of EO 119 or the Reorganization Act of the
Ministry of Health, although the said Act was invoked after the fact. And so it was that SECTION 16 was never
mentioned, much less invoked in the Palma-Fernandez case.
Finally, on this point, it is inaccurate for the majority to state that there were no reorganization orders after
ratification. There were, namely, EO 181 (Reorganization Act of the Civil Service Commission), June 1, 1987; EO 193
(Reorganization Act of the Office of Energy Affairs), June 10, 1987; EO 230 (Reorganization Act of NEDA), July 22,
1987; EO 262 (Reorganization Act of the Department of Local Government), July 25, 1987; EO 297 (Reorganization
Act of the Office of the Press Secretary), July 25, 1987.
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Dario vs. Mison
The Element of Good Faith
The majority concedes that reorganization can be undertaken provided it be in good faith but concludes that
Commissioner Mison was not in good faith.
The aforesaid conclusion is contradicted by the records.
Executive Order No. 127, dated 30 January 1987, specifically authorized the reorganization of the Bureau of
Customs structurally and functionally and provided for the abolition of all units and positions thereof not included
in the structural organization (Section 55).
As stated heretofore, it was the former Commissioner of Customs, Alexander A. Padilla who, on 24 May 1987,
transmitted to the Department of Finance for approval the proposed position structure and staffing pattern of the
Bureau of Customs. This was approved by the Department of Finance. Thereafter, it was transmitted to and approved
by the Department of Budget and Management on 7 September 1987 for implementation. Under the old staffing
pattern, there were 7,302 positions while under the new staffing pattern, there are 6,530 positions.
On 2 October 1987 Malacaang Memorandum Re: Guidelines on the Implementation of Reorganization Executive
Orders provided:
By October 21, 1987, all employees covered by the Executive orders for each agency on reorganization shall be:

1. a.informed of their reappointment, or


2. b.offered another position in the same department or agency, or
3. c.informed of their termination. (Italics supplied)

On 25 November 1987 Commissioner Mison asked for and was granted by the President an extension up to February
1988 within which to completely undertake the reorganization of the Bureau of Customs.
On 6 January 1988, he issued Bureau of Customs Memorandum Re Guidelines on the Implementation of
Reorganization Executive Orders reiterating the above-quoted portion of the Malacaang Memorandum of 2 October
1987. Pursuant thereto, on 28 January 1988, Commissioner Mison addressed uniform
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150 SUPREME COURT REPORTS
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Dario vs. Mison
letters of termination to the employees listed on pages 15, 16 and 17 of the majority opinion, effective on 28 February
1988, within the extended period granted.
The records further show that upon Commissioner Misons official inquiry, Secretary of Justice Sedfrey A. Ordoez,
rendered the following Opinion:
x x x It is believed that customs employees who are reorganized out in the course of the implementation of E.O. No. 127
(reorganizing the Department of Finance) need not be informed of the nature and cause of their separation from the service. It
is enough that they be informed of their termination pursuant to section 1(c) of the Memorandum dated October 2, 1987 of
President Aquino, which reads:

1. 1.By October 21, 1987, all employees covered by the Executive orders for each agency on reorganization shall be:

xxx xxx

1. c)Informed of their terminations.

The constitutional mandate that no officer or employee of the civil service shall be removed or suspended except for cause
as provided by law (Sec. 2(4) (sic), Article IX-B of the 1987 Constitution) does not apply to employees who are separated from
office as a result of the reorganization of that Bureau as directed in Executive Order No. 127.
xxx xxx
Regarding your (third) query, the issue as to the constitutionality of Executive Order No. 127 is set at rest, after the Supreme
Court resolved to dismiss the petition for certiorari questioning its enforceability, for lack of merit (see Jose vs. Arroyo, et al.,
supra). (Opinion No. 41, s. 1988, March 3, 1988) (Italics supplied)
The former Chairman of the Civil Service Commission, Celerina G. Gotladera, likewise periodically consulted by
Commissioner Mison, also expressed the opinion that it is not a prerequisite prior to the separation of an employee
pursuant to reorganization that he be administratively charged. (Annex 16, p. 411, Rollo, G.R. No. 85310)
Moreover, the records show that the final selection and placement of personnel was done by a Placement
Committee, one of whose members is the Head of the Civil Service Commission Field Office, namely, Mrs. Purificacion
Cuerdo. The appointment of employees made by Commissioner Mison was based on
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Dario vs. Mison
the list approved by said Placement Committee.
But the majority further faults Mison for defying the Presidents directive to halt further lay-offs as a consequence
of reorganization, citing OP Memo of 14 October 1987, reading:
Further to the Memorandum dated October 2, 1987 on the same subject, I have ordered that there will be no further lay-offs
this year of personnel as a result of the government reorganization. (p. 45, Decision)
The foregoing, however, must be deemed superseded by later developments, namely, the grant to Commissioner Mison
by the President on 22 December 1987 of a grace period until the end of February 1988 within which to completely
undertake the reorganization of the Bureau of Customs, which was, in fact, accomplished by 28 February 1988.
To further show lack of good faith, the majority states that Commissioner Mison failed to observe the procedure
laid down by EO 17, supra, directing inter alia that a notice of separation be issued to an employee to be terminated
indicating therein the reason/s or ground/s for such separation. That requirement, however, does not appear in Section
59 of EO 127, which provides on the contrary that those incumbents whose positions are not included in the new
position structure and staffing pattern of the Ministry or who are not reappointed shall be deemed separated from the
service. The right granted by EO 17 to an employee to be informed of the ground for his separation must be deemed
to have been revoked by the repealing clause of EO 127 (Section 67) providing that all laws, ordinances or parts
thereof, which are inconsistent with this Executive Order, are hereby repealed and modified accordingly.
Moreover, Section 11 of EO 17 explicitly excepts from its coverage a reorganization pursuant to EO 5. Thus
The Executive Order shall not apply to elective officials or those designated to replace them, presidential appointees, casual and
contractual employees, or officials and employees removed pursuant to disciplinary proceedings under the Civil Service law and
rules, and to those laid off as a result of reorganization undertaken pursuant to Executive Order No. 5. (Italics ours)
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That EO 127 was issued pursuant to or in implementation of EO 5, is shown by its introductory portion reading:
Recalling that the reorganization of the government is mandated expressly by Article II, Section 1 (a) and Article III of the
Freedom Constitution;
Having in mind that pursuant to Executive Order No. 5 (1986), it is directed that the necessary and proper changes in the
organizational and functional structures of the government, its agencies and instrumentalities, be effected in order to promote
efficiency and effectiveness in the delivery of public service; (Italics supplied)
Constitutionality of Republic Act No. 6656
The majority also relies on Republic Act No. 6656 entitled an Act to Protect the Security of Tenure of Civil Service
Officers and Employees in the Implementation of Government Reorganization, particularly Section 2 thereof, to test
the good faith of Commissioner Mison.
We are of the view, however, that in providing for retroactivity in its Section 13, RA 6656 clashes frontally with
SECTION 16.
1) SECTION 16 clearly recognizes that career service employees separated from the service by reason of the
complete reorganization of the government pursuant to Proclamation No. 3 may be separated NOT FOR CAUSE.
And yet, RA 6656 requires the exact oppositeseparation FOR CAUSE. It would not be remiss to quote the provision
again:
SEC. 2. No officer or employee in the career service shall be removed except for a valid cause and after due notice and hearing.
A valid cause for removal exists when, pursuant to a bona fide reorganization, a position has been abolished or rendered
redundant or there is a need to merge, divide, or consolidate positions in order to meet the exigencies of the service, or other
lawful causes allowed by the Civil Service law. The existence of any or some of the following circumstances may be considered
as evidence of bad faith in the removals made as a result of reorganization, giving rise to a claim for reinstatement or
reappointment by an aggrieved party: (a) Where there is a significant increase in the number of positions in the new staffing
pattern of the department or agency concerned; (b) Where an office is
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Dario vs. Mison
abolished and another performing substantially the same functions is created; (c) Where incumbents are replaced by those
less qualified in terms of status of appointment, performance and merit; (d) Where there is a reclassification of offices in the
department or agency concerned and the reclassified offices perform substantially the same functions as the original offices; (e)
Where the removal violates the order of separation provided in Section 3 hereof. (Republic Act No. 6156)
The standards laid down are the traditional criteria for removal of employees from the career service, e.g. valid
cause, due notice and hearing, abolition of, or redundancy of offices. Proclamation No. 3, on the other hand, effectuates
the progressive type of reorganization dictated by the exigencies of the historical and political upheaval at the time.
The traditional type is limited in scope. It is concerned with the individual approach where the particular employee
involved is charged administratively and where the requisites of notice and hearing have to be observed. The
progressive kind of reorganization, on the other hand, is the collective way. It is wider in scope, and is the
reorganization contemplated under SECTION 16.
2) By providing for reinstatement in its Section 9, RA 6656 adds a benefit not included in SECTION 16. The benefits
granted by the latter provision to employees separated NOT FOR CAUSE but as a consequence of reorganization are
separation pay, retirement, and other benefits accruing to them under the laws of general application in force at the
time of their separation. The benefit of reinstatement is not included. RA 6656, however, allows reinstatement. That
it cannot do because under SECTION 16, it is not one of the laws in force at the time of their separation.
The Constitution is the paramount law to which all laws must conform. It is from the Constitution that all statutes
must derive their bearings. The legislative authority of the State must yield to the expression of the sovereign will.
No statutory enactment can disregard the Charter from which it draws its own existence (Phil. Long Distance
Telephone Co. v. Collector of Internal Revenue, 90 Phil. 674 [1952]). But, that is exactly what RA 6656 does in
providing for retroactivityit disregards and contravenes a Constitutional imperative. To save it, it
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Dario vs. Mison
should be applied and construed prospectively and not retroactively notwithstanding its explicit provision. Then, and
only then, would it make good law.
Effects of Reorganization
To be sure, the reorganization could effect the tenure of members of the career service as defined in Section 5, Article
IV of Presidential Decree No. 807, and may even result in the separation from the office of some meritorious employees.
But even then, the greater good of the greatest number and the right of the citizenry to a good government, and as
they themselves have mandated through the vehicle of Proclamation No. 3, provide the justification for the said injury
to the individual. In terms of values, the interest of an employee to security of tenure must yield to the interest of the
entire populace and to an efficient and honest government.
But a reorganized employee is not without rights. His right lies in his past services, the entitlement to which must
be provided for by law. EO 127 provides for the same in its Section 59, and so does SECTION 16 when the latter
specified that career civil service employees separated from the service not for cause:
shall be entitled to appropriate separation pay and to retirement and other benefits accruing to them under the laws of general
application in force at the time of their separation. In lieu thereof, at the option of the employees, they may be considered for
employment in the Government or in any of its subdivisions, instrumentalities, or agencies, including government-owned or
controlled corporations and their subsidiaries. This provision also applies to career officers whose resignation, tendered in line
with the existing policy, has been accepted.
This is a reward for the employees past service to the Government. But this is all. There is no vested property right
to be re-employed in a reorganized office.
The right to an office or to employment with government or any of its agencies is not a vested property right, and removal
therefrom will not support the question of due process (Yantsin v. Aberdeen, 54 Wash 2d
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Dario vs. Mison
787, 345 P 2d 178). A civil service employee does not have a constitutionally protected right to his position, which position is
in the nature of a public office, political in character and held by way of grant or privilege extended by government; generally he
has been held to have no property right or vested interest to which due process guaranties extend (See Taylor v. Beckham 178
U.S. 548, 44 L Ed. 1187; Angilly v. US (CA2 NY) 199 F 2d 642; People ex. rel. Baker v. Wilson, 39 lll App 2d 443, 189 NE 2d
1; Kelliheller v. NY State Civil Service Com., 21 Misc 2d 1034, 194 NYS 2d 89).
To ensure, however, that no meritorious employee has been separated from the service, there would be no harm, in
fact, it could do a lot of good, if the Commissioner of Customs reviews the evaluation and placements he has so far
made and sees to it that those terminated are included in a consolidated list to be given preference by departments
who are recruiting (Section 2[a], BOC Memorandum, January 6, 1988).
Conclusion
Premises considered, and subject to the observation hereinabove made, it is our considered view that the separation
from the service NOT FOR CAUSE but as a result of the reorganization pursuant to Proclamation No. 3 dated March
25, 1986 of the affected officers and employees of the Bureau of Customs should be UPHELD, and the Resolutions of
the Civil Service Commission, dated 30 June 1988, 20 September 1988, and 16 November 1988 should be SET ASIDE
for having been issued in grave abuse of discretion.
Republic Act No. 6656, in so far as it provides for retroactivity, should be declared UNCONSTITUTIONAL for being
repugnant to the letter and spirit of Section 16, Article XVIII of the 1987 Constitution.

CRUZ, J., concurring:

I concur with the majority view so ably presented by Mr. Justice Abraham F. Sarmiento. While additional comments
may seem superfluous in view of the exhaustiveness of his
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156 SUPREME COURT REPORTS
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Dario vs. Mison
ponencia, I nevertheless offer the following brief observations for whatever they may be worth.
Emphasizing Article XVII, Section 16 of the Constitution, the dissenting opinion considers the ongoing government
reorganization valid because it is merely a continuation of the reorganization begun during the transition period. The
reason for this conclusion is the phrase and the reorganization following the ratification of the Constitution, that is
to say, after February 2, 1987, appearing in the said provision. The consequence (and I hope I have not misread it) is
that the present reorganization may still be undertaken with the same absoluteness that was allowed the
revolutionary reorganization although the Freedom Constitution is no longer in force.
Reorganization of the government may be required by the legislature even independently of specific constitutional
authorization, as in the case, for example, of R.A. No. 51 and B.P. No. 129. Being revolutionary in nature, the
reorganization decreed by Article III of the Freedom Constitution was unlimited as to its method except only as it was
later restricted by President Aquino herself through various issuances, particularly E.O. No. 17. But this
reorganization, for all its permitted summariness, was not indefinite. Under Section 3 of the said Article III, it was
allowed only up to February 29, 1987 (which we advanced to February 2, 1987, when the new Constitution became
effective).
The clear implication is that any government reorganization that may be undertaken thereafter must be authorized
by the legislature only and may not be allowed the special liberties and protection enjoyed by the revolutionary
reorganization. Otherwise, there would have been no necessity at all for the time limitation expressly prescribed by
the Freedom Constitution.
I cannot accept the view that Section 16 is an authorization for the open-ended reorganization of the government
following the ratification of the Constitution. I read the provision as merely conferring benefitsdeservedly or not
on persons separated from the government as a result of the reorganization of the government, whether undertaken
during the transition period or as a result of a law passed thereafter. What the
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Dario vs. Mison
government. It is axiomatic that grants of power are not lightly inferred, especially if these impinge on individual
rights, and I do not see why we should depart from this rule.
To hold that the present reorganization is a continuation of the one begun during the transition period is to
recognize the not separated earlier remain in a hold-over capacity only and so may be replaced at any time even
without cause. That is a dangerous proposition that threatens the security and stability of every civil servant in the
executive department. What is worse is that this situation may continue indefinitely as the claimed progressive
reorganization has no limitation as to time.
Removal imports the forcible separation of the incumbent before the expiration of his term and can be done only
for cause as provided by law. Contrary to common belief, a reorganization does not result in removal but in a different
mode of terminating official relations known as abolition of the office (and the security of tenure attached thereto.)
The erstwhile holder of the abolished office cannot claim he has been removed without cause in violation of his
constitutional security of tenure. The reason is that the right itself has disappeared with the abolished office as an
accessory following the principal. (Ocampo v. Sec. of Justice, 51 O.G. 147; De la Llana v. Alba, 112 SCRA
294; Manalang v. Quitoriano, 94 Phil. 903.)
This notwithstanding, the power to reorganize is not unlimited. It is essential that it be based on a valid purpose,
such as the promotion of efficiency and economy in the government through a pruning of offices or the streamlining of
their functions. (Cervantes v. Auditor-General, 91 Phil. 359.) Normally, a reorganization cannot be validly undertaken
as a means of purging the undesirables for this would be a removal in disguise undertaken en masse to circumvent
the constitutional requirement of legal cause. (Eradication of graft and corruption was one of the expressed purposes
of the revolutionary organization, but this was authorized by the Freedom Constitution itself.) In short, a
reorganization, to be valid, must be done in good faith. (Urgelio v. Osmea, 9 SCRA 317; Cuneta v. Court of provision
grants is privileges to the retirees, not power to the theory of the public respondent that all officers and employees
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Dario vs. Mison
Appeals, 1 SCRA 663; Cario v. ACCFA, 18 SCRA 183.)
A mere recitationno matter how lengthyof the directives, guidelines, memoranda, etc. issued by the government
and the action purportedly taken thereunder does not by itself prove good faith. We know only too well that these
instructions, for all their noble and sterile purposes, are rarely followed in their actual implementation. The reality in
this case, as the majority opinion has pointed out and as clearly established in the hearing we held, is that the
supposed reorganization was undertaken with an eye not to achieving the avowed objectives but to accommodating
new appointees at the expense of the dislodged petitioners. That was also the finding of the Civil Service Commission,
to which we must accord a becoming respect as the constitutional office charged with the protection of the civil service
from the evils of the spoils system.
The present administration deserves full support in its desire to improve the civil service, but this objective must
be pursued in a manner consistent with the Constitution. This praiseworthy purpose cannot be accomplished by an
indiscriminate reorganization that will sweep in its wake the innocent along with the redundant and inept, for the
benefit of the current favorites.
Notes.Certiorari is generally resorted to only in cases where the remedy of appeal is unavailable, except where
public policy so dictate or the broader interest of justice so require. (Uy vs. Workmens Compensation Commission, 97
SCRA 255.)
For petition for certiorari to prosper, the grave abuse of discretion committed by the tribunal must be shown.
(Ignacio vs. Court of Appeals, 96 SCRA 648.)

o0o

159
Copyright 2017 Central Book Supply, Inc. All rights reserved.
VOL. 443, NOVEMBER 19, 231
2004
Vazquez vs. Ayala Corporation
G.R. No. 149734. November 19, 2004. *

DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners, vs.AYALA CORPORATION, respondent.
Civil Law; Contracts; Default; Requirements; In order that the debtor may be in default it is necessary that the following
requisites be present.In order that the debtor may be in default it is necessary that the following requisites be present: (1) that
the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires
the performance judicially or extrajudicially.
Same; Same; Sales; Option Contract; Right of First Refusal; Distinguished; The Court has clearly distinguished between an
option and a right of first refusal.An option is a preparatory contract in which one party grants to another, for a fixed period
and at a determined price, the privilege to buy or sell, or to decide whether or not to enter into a principal contract. It binds the
party who has given the option not to enter into the principal contract with any other person during the period designated, and
within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the
option. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It
must be supported by consideration. In a right of first refusal, on the other hand, while the object might be made determinate,
the exercise of the right would be dependent not only on the grantors eventual intention to enter into a binding juridical relation
with another but also on terms, including the price, that are yet to be firmed up.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.


Candelaria, Candelaria & Candelaria Law Firm for petitioners.
_______________

*SECOND DIVISION.
232
232 SUPREME COURT REPORTS
ANNOTATED
Vazquez vs. Ayala Corporation
Poblador, Bautista & Reyes for respondent.

TINGA, J.:

The rise in value of four lots in one of the countrys prime residential developments, Ayala Alabang Village in
Muntinlupa City, over a period of six (6) years only, represents big money. The huge price difference lies at the heart
of the present controversy. Petitioners insist that the lots should be sold to them at 1984 prices while respondent
maintains that the prevailing market price in 1990 should be the selling price.
Dr. Daniel Vazquez and Ma. Luisa Vazquez filed this Petition for Review on Certiorari dated October 11, 2001
1 2

assailing the Decision of the Court of Appeals dated September 6, 2001 which reversed the Decision of the Regional
3 4

Trial Court (RTC) and dismissed their complaint for specific performance and damages against Ayala Corporation.
Despite their disparate rulings, the RTC and the appellate court agree on the following antecedents: 5

On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter, Vasquez spouses) entered into a Memorandum
of Agreement (MOA) with Ayala Corporation (hereafter, AYALA) with AYALA buying from the Vazquez spouses, all of the latters
shares of stock in Conduit Development, Inc. (hereafter, Conduit). The main asset of Conduit was a 49.9 hectare property in
Ayala Alabang, Muntinlupa, which was then being developed by Conduit under a development plan where the land was divided
into Villages
_______________

1 Alternatively spelled Vasquez.


2 Rollo, pp. 10-187 with Annexes.
3 Id., at pp. 193-210; Penned by Associate Justice Perlita J. Tria-Tirona and concurred in by Associate Justices Eugenio S. Labitoria and Eloy R. Bello,

Jr.
4 Id., at pp. 74-79; Dated September 11, 1995.
5 Id.,at pp. 193-198; Culled from the Decision of the Court of Appeals.
233
VOL. 443, NOVEMBER 19, 233
2004
Vazquez vs. Ayala Corporation
1, 2 and 3 of the Don Vicente Village. The development was then being undertaken for Conduit by G.P. Construction and
Development Corp. (hereafter, GP Construction).
Under the MOA, Ayala was to develop the entire property, less what was defined as the Retained Area consisting of 18,736
square meters. This Retained Area was to be retained by the Vazquez spouses. The area to be developed by Ayala was called
the Remaining Area. In this Remaining Area were 4 lots adjacent to the Retained Area and Ayala agreed to offer these lots
for sale to the Vazquez spouses at the prevailing price at the time of purchase. The relevant provisions of the MOA on this point
are:
5.7. The BUYER hereby commits that it will develop the Remaining Property into a first class residential subdivision of the
same class as its New Alabang Subdivision, and that it intends to complete the first phase under its amended development
plan within three (3) years from the date of this Agreement. x x x
5.15. The BUYER agrees to give the SELLERS a first option to purchase four developed lots next to the Retained Area at
the prevailing market price at the time of the purchase.
The parties are agreed that the development plan referred to in paragraph 5.7 is not Conduits development
plan, but Ayalas amended development plan which was still to be formulated as of the time of the MOA. While in
the Conduit plan, the 4 lots to be offered for sale to the Vasquez Spouses were in the first phase thereof or Village
1, in the Ayala plan which was formulated a year later, it was in the third phase, or Phase II-c.
Under the MOA, the Vasquez spouses made several express warranties, as follows:
3.1. The SELLERS shall deliver to the BUYER:
xxx
3.1.2. The true and complete list, certified by the Secretary and Treasurer of the Company showing:
xxx
D. A list of all persons and/or entities with whom the Company has pending contracts, if any.
234
234 SUPREME COURT REPORTS
ANNOTATED
Vazquez vs. Ayala Corporation
xxx

1. 3.1.5.Audited financial statements of the Company as at Closing date.

1. 4.Conditions Precedent All obligations of the BUYER under this Agreement are subject to fulfillment prior to or at the
Closing, of the following conditions:

1. 4.1.The representations and warranties by the SELLERS contained in this Agreement shall be true and
correct at the time of Closing as though such representations and warranties were made at such time; andx
xx

1. 6.Representation and Warranties by the SELLERS The SELLERS jointly and severally represent and warrant to the
BUYER that at the time of the execution of this Agreement and at the Closing:x x x

1. 6.2.3.There are no actions, suits or proceedings pending, or to the knowledge of the SELLERS, threatened against or
affecting the SELLERS with respect to the Shares or the Property; and

1. 7.Additional Warranties by the SELLERS

1. 7.1.With respect to the Audited Financial Statements required to be submitted at Closing in accordance with Par. 3.1.5
above, the SELLER jointly and severally warrant to the BUYER that:

1. 7.1.1The said Audited Financial Statements shall show that on the day of Closing, the Company shall own the Remaining
Property, free from all liens and encumbrances and that the Company shall have no obligation to any party
except for billings payable to GP Construction & Development Corporation and advances made by Daniel
Vazquez for which BUYER shall be responsible in accordance with Par. 2 of this Agreement.
2. 7.1.2Except to the extent reflected or reserved in the Audited Financial Statements of the Company as of
Closing, and those disclosed to BUYER, the Company as

235
VOL. 443, NOVEMBER 19, 235
2004
Vazquez vs. Ayala Corporation

1. of the date thereof, has no liabilities of any nature whether accrued, absolute, contingent or
otherwise, including, without limitation, tax liabilities due or to become due and whether incurred in respect of or
measured in respect of the Companys income prior to Closing or arising out of transactions or state of facts existing
prior thereto.
2. 7.2SELLERS do not know or have no reasonable ground to know of any basis for any assertion against the
Company as at closing or any liability of any nature and in any amount not fully reflected or reserved
against such Audited Financial Statements referred to above, and those disclosed to BUYER.

xxx xxx xxx

1. 7.6.3Except as otherwise disclosed to the BUYER in writing on or before the Closing, the Company is not
engaged in or a party to, or to the best of the knowledge of the SELLERS, threatened with, any legal action
or other proceedings before any court or administrative body, nor do the SELLERS know or have reasonable
grounds to know of any basis for any such action or proceeding or of any governmental investigation relative to the
Company.

1. 7.6.4To the knowledge of the SELLERS, no default or breach exists in the due performance and observance by
the Company of any term, covenant or condition of any instrument or agreement to which the company is
a party or by which it is bound, and no condition exists which, with notice or lapse of time or both, will
constitute such default or breach.

After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the Don Vicente Project. Ayala then
received a letter from one Maximo Del Rosario of Lancer General Builder Corporation informing Ayala that he was claiming the
amount of P1,509,558.80 as the subcontractor of G.P. Construction . . .
G.P. Construction not being able to reach an amicable settlement with Lancer, on March 22, 1982, Lancer sued G.P.
Construction, Conduit and Ayala in the then Court of First Instance of Manila in Civil Case No. 82-8598. G.P. Construction in
turn filed a cross-claim against Ayala. G.P. Construction and Lancer both tried to enjoin Ayala from undertaking the development
of the property.
236
236 SUPREME COURT REPORTS
ANNOTATED
Vazquez vs. Ayala Corporation
The suit was terminated only on February 19, 1987, when it was dismissed with prejudice after Ayala paid both Lancer and GP
Construction the total of P4,686,113.39.
Taking the position that Ayala was obligated to sell the 4 lots adjacent to the Retained Area within 3 years from the date of
the MOA, the Vasquez spouses sent several reminder letters of the approaching so-called deadline. However, no demand after
April 23, 1984, was ever made by the Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of the letters signed by
their authorized agent, Engr. Eduardo Turla, categorically stated that they expected development of Phase 1 to be completed
by February 19, 1990, three years from the settlement of the legal problems with the previous contractor.
By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for sale. The four lots were then offered
to be sold to the Vasquez spouses at the prevailing price in 1990. This was rejected by the Vasquez spouses who wanted to pay
at 1984 prices, thereby leading to the suit below.
After trial, the court a quo rendered its decision, the dispositive portion of which states:
THEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering defendant to sell to plaintiffs the relevant
lots described in the Complaint in the Ayala Alabang Village at the price of P460.00 per square meter amounting to P1,349,540.00; ordering
defendant to reimburse to plaintiffs attorneys fees in the sum of P200,000.00 and to pay the cost of the suit.
In its decision, the court a quo concluded that the Vasquez spouses were not obligated to disclose the potential claims of GP
Construction, Lancer and Del Rosario; Ayalas accountants should have opened the records of Conduit to find out all claims; the
warranty against suit is with respect to the shares of the Property and the Lancer suit does not affect the shares of stock sold
to Ayala; Ayala was obligated to develop within 3 years; to say that Ayala was under no obligation to follow a time frame was to
put the Vasquezes at Ayalas mercy; Ayala did not develop because of a slump in the real estate market; the MOA was drafted
and prepared by the AYALA who should suffer its ambiguities; the option to purchase the 4 lots is valid because it was supported
by consideration as the op-
237
VOL. 443, NOVEMBER 19, 237
2004
Vazquez vs. Ayala Corporation
tion is incorporated in the MOA where the parties had prestations to each other. [Emphasis supplied]
Ayala Corporation filed an appeal, alleging that the trial court erred in holding that petitioners did not breach their
warranties under the MOA dated April 23, 1981; that it was obliged to develop the land where the four (4) lots subject
6

of the option to purchase are located within three (3) years from the date of the MOA; that it was in delay; and that
the option to purchase was valid because it was incorporated in the MOA and the consideration therefor was the
commitment by Ayala Corporation to petitioners embodied in the MOA.
As previously mentioned, the Court of Appeals reversed the RTC Decision. According to the appellate court, Ayala
Corporation was never informed beforehand of the existence of the Lancer claim. In fact, Ayala Corporation got a copy
of the Lancer subcontract only on May 29, 1981 from G.P. Constructions lawyers. The Court of Appeals thus held that
petitioners violated their warranties under the MOA when they failed to disclose Lancers claims. Hence, even
conceding that Ayala Corporation was obliged to develop and sell the four (4) lots in question within three (3) years
from the date of the MOA, the obligation was suspended during the pendency of the case filed by Lancer.
Interpreting the MOAs paragraph 5.7 above-quoted, the appellate court held that Ayala Corporation committed to
develop the first phase of its own amended development plan and not Conduits development plan. Nowhere does the
MOA provide that Ayala Corporation shall follow Conduits development plan nor is Ayala Corporation prohibited
from changing the sequence of the phases of the property it will develop.
Anent the question of delay, the Court of Appeals ruled that there was no delay as petitioners never made a demand
for Ayala Corporation to sell the subject lots to them. Accord-
_______________

6Id., at pp. 50-62.


238
238 SUPREME COURT REPORTS
ANNOTATED
Vazquez vs. Ayala Corporation
ing to the appellate court, what petitioners sent were mere reminder letters the last of which was dated prior to April
23, 1984 when the obligation was not yet demandable. At any rate, the Court of Appeals found that petitioners in fact
waived the three (3)-year period when they sent a letter through their agent, Engr. Eduardo Turla, stating that they
expect that the development of Phase I will be completed by 19 February 1990, three years from the settlement of
the legal problems with the previous contractor. 7

The appellate court likewise ruled that paragraph 5.15 above-quoted is not an option contract but a right of first
refusal there being no separate consideration therefor. Since petitioners refused Ayala Corporations offer to sell the
subject lots at the reduced 1990 price of P5,000.00 per square meter, they have effectively waived their right to buy
the same.
In the instant Petition, petitioners allege that the appellate court erred in ruling that they violated their warranties
under the MOA; that Ayala Corporation was not obliged to develop the Remaining Property within three (3) years
from the execution of the MOA; that Ayala was not in delay; and that paragraph 5.15 of the MOA is a mere right of
first refusal. Additionally, petitioners insist that the Court should review the factual findings of the Court of Appeals
as they are in conflict with those of the trial court.
Ayala Corporation filed a Comment on the Petition dated March 26, 2002, contending that the petition raises
8

questions of fact and seeks a review of evidence which is within the domain of the Court of Appeals. Ayala Corporation
maintains that the subcontract between GP Construction, with whom Conduit contracted for the development of the
property under a Construction Contract dated October 10, 1980, and Lancer was not disclosed by petitioners during
the negotiations. Nei-
_______________

7Id., at p. 206.
8Id., at pp. 240-289.
239
VOL. 443, NOVEMBER 19, 239
2004
Vazquez vs. Ayala Corporation
ther was the liability for Lancers claim included in the Audited Financial Statements submitted by petitioners after
the signing of the MOA. These justify the conclusion that petitioners breached their warranties under the afore-quoted
paragraphs of the MOA. Since the Lancer suit ended only in February 1989, the three (3)-year period within which
Ayala Corporation committed to develop the property should only be counted thence. Thus, when it offered the subject
lots to petitioners in 1990, Ayala Corporation was not yet in delay.
In response to petitioners contention that there was no action or proceeding against them at the time of the
execution of the MOA on April 23, 1981, Ayala Corporation avers that the facts and circumstances which gave rise to
the Lancer claim were already extant then. Petitioners warranted that their representations under the MOA shall be
true and correct at the time of Closing which shall take place within four (4) weeks from the signing of the
MOA. Since the MOA was signed on April 23, 1981, Closing was approximately the third week of May 1981. Hence,
9

Lancers claims, articulated in a letter which Ayala Corporation received on May 4, 1981, are among the liabilities
warranted against under paragraph 7.1.2 of the MOA.
Moreover, Ayala Corporation asserts that the warranties under the MOA are not just against suits but against all
kinds of liabilities not reflected in the Audited Financial Statements. It cannot be faulted for relying on the express
warranty that except for billings payable to GP Construction and advances made by petitioner Daniel Vazquez in the
amount of P38,766.04, Conduit has no other liabilities. Hence, petitioners cannot claim that Ayala Corporation should
have examined and investigated the Audited Financial Statements of Conduit and should now assume all its
obligations and liabilities including the Lancer suit and the cross-claim of GP Construction.
_______________

9Id., at p. 53.
240
240 SUPREME COURT REPORTS
ANNOTATED
Vazquez vs. Ayala Corporation
Furthermore, Ayala Corporation did not make a commitment to complete the development of the first phase of the
property within three (3) years from the execution of the MOA. The provision refers to a mere declaration of intent to
develop the first phase of its (Ayala Corporations) own development plan and not Conduits. True to its intention,
Ayala Corporation did complete the development of the first phase (Phase II-A) of its amended development plan
within three (3) years from the execution of the MOA. However, it is not obliged to develop the third phase (Phase II-
C) where the subject lots are located within the same time frame because there is no contractual stipulation in the
MOA therefor. It is free to decide on its own the period for the development of Phase II-C. If petitioners wanted to
impose the same three (3)-year timetable upon the third phase of the amended development plan, they should have
filed a suit to fix the time table in accordance with Article 1197 of the Civil Code. Having failed to do so, Ayala
10

Corporation cannot be declared to have been in delay.


Ayala Corporation further contends that no demand was made on it for the performance of its alleged obligation.
The letter dated October 4, 1983 sent when petitioners were already aware of the Lancer suit did not demand the
delivery of the subject lots by April 23, 1984. Instead, it requested Ayala Corporation to keep petitioners posted on the
status of the case. Likewise, the letter dated March 4, 1984 was merely an inquiry as to the date when the development
of Phase 1 will
_______________

10 Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the

courts may fix the duration thereof.


The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed
by the courts, the period cannot be changed by them.
241
VOL. 443, NOVEMBER 19, 241
2004
Vazquez vs. Ayala Corporation
be completed. More importantly, their letter dated June 27, 1988 through Engr. Eduardo Turla expressed petitioners
expectation that Phase 1 will be completed by February 19, 1990.
Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right of first refusal and not an option
contract.
Petitioners filed their Reply dated August 15, 2002 reiterating the arguments in their Petition and contending
11

further that they did not violate their warranties under the MOA because the case was filed by Lancer only on April
1, 1982, eleven (11) months and eight (8) days after the signing of the MOA on April 23, 1981. Ayala Corporation
admitted that it received Lancers claim before the Closing date. It therefore had all the time to rescind the MOA.
Not having done so, it can be concluded that Ayala Corporation itself did not consider the matter a violation of
petitioners warranty.
Moreover, petitioners submitted the Audited Financial Statements of Conduit and allowed an acquisition audit to
be conducted by Ayala Corporation. Thus, the latter bought Conduit with open eyes.
Petitioners also maintain that they had no knowledge of the impending case against Conduit at the time of the
execution of the MOA. Further, the MOA makes Ayala Corporation liable for the payment of all billings of GP
Construction. Since Lancers claim was actually a claim against GP Construction being its sub-contractor, it is Ayala
Corporation and not petitioners which is liable.
Likewise, petitioners aver that although Ayala Corporation may change the sequence of its development plan, it is
obliged under the MOA to develop the entire area where the subject lots are located in three (3) years.
_______________

Supra, note 2 at pp. 300-323.


11

242
242 SUPREME COURT REPORTS
ANNOTATED
Vazquez vs. Ayala Corporation
They also assert that demand was made on Ayala Corporation to comply with their obligation under the MOA. Apart
from their reminder letters dated January 24, February 18 and March 5, 1984, they also sent a letter dated March 4,
1984 which they claim is a categorical demand for Ayala Corporation to comply with the provisions of the MOA.
The parties were required to submit their respective memoranda in the Resolution dated November 18, 2002. In
12

compliance with this directive, petitioners submitted their Memorandum dated February 14, 2003 on even date,
13

while Ayala Corporation filed its Memorandum dated February 14, 2003 on February 17, 2003.
14

We shall first dispose of the procedural question raised by the instant petition.
It is well-settled that the jurisdiction of this Court in cases brought to it from the Court of Appeals by way of petition
for review under Rule 45 is limited to reviewing or revising errors of law imputed to it, its findings of fact being
conclusive on this Court as a matter of general principle. However, since in the instant case there is a conflict between
the factual findings of the trial court and the appellate court, particularly as regards the issues of breach of warranty,
obligation to develop and incurrence of delay, we have to consider the evidence on record and resolve such factual
issues as an exception to the general rule. In any event, the submitted issue relating to the categorization of the right
15

to purchase granted to petitioners under the MOA is legal in character.


The next issue that presents itself is whether petitioners breached their warranties under the MOA when they
failed to
_______________

12 Id., at pp. 324-325.


13 Id., at pp. 331-369.
14 Id., at pp. 370-433.
Rosario v. Court of Appeals, 369 Phil. 729; 310 SCRA 464 (1999), citations omitted.
15

243
VOL. 443, NOVEMBER 19, 243
2004
Vazquez vs. Ayala Corporation
disclose the Lancer claim. The trial court declared they did not; the appellate court found otherwise.
Ayala Corporation summarizes the clauses of the MOA which petitioners allegedly breached when they failed to
disclose the Lancer claim:

1. a)Clause 7.1.1.that Conduit shall not be obligated to anyone except to GP Construction for P38,766.04, and
for advances made by Daniel Vazquez;
2. b)Clause 7.1.2.that except as reflected in the audited financial statements Conduit had no other liabilities
whether accrued, absolute, contingent or otherwise;
3. c)Clause 7.2. that there is no basis for any assertion against Conduit of any liability of any value not reflected
or reserved in the financial statements, and those disclosed to Ayala;
4. d)Clause 7.6.3.that Conduit is not threatened with any legal action or other proceedings; and
5. e)Clause 7.6.4.that Conduit had not breached any term, condition, or covenant of any instrument or
agreement to which it is a party or by which it is bound. 16

The Court is convinced that petitioners did not violate the foregoing warranties.
The exchanges of communication between the parties indicate that petitioners substantially apprised Ayala
Corporation of the Lancer claim or the possibility thereof during the period of negotiations for the sale of Conduit.
In a letter dated March 5, 1984, petitioner Daniel Vazquez reminded Ayala Corporations Mr. Adolfo Duarte (Mr.
17

Duarte) that prior to the completion of the sale of Conduit, Ayala Corporation asked for and was given information
that GP Construction sub-contracted, presumably to Lancer, a greater percentage of the project than it was allowed.
Petitioners gave this information to Ayala Corporation because
_______________

Supra, note 2 at pp. 401-402.


16

RTC Records, pp. 60-61.


17

244
244 SUPREME COURT REPORTS
ANNOTATED
Vazquez vs. Ayala Corporation
the latter intimated a desire to break the contract of Conduit with GP. Ayala Corporation did not deny this. In fact,
Mr. Duartes letter dated March 6, 1984 indicates that Ayala Corporation had knowledge of the Lancer subcontract
18

prior to its acquisition of Conduit. Ayala Corporation even admitted that it tried to explore . . . legal basis to
discontinue the contract of Conduit with GP but found this not feasible when information surfaced about the tacit
consent of Conduit to the sub-contracts of GP with Lancer.
At the latest, Ayala Corporation came to know of the Lancer claim before the date of Closing of the MOA. Lancers
letter dated April 30, 1981 informing Ayala Corporation of its unsettled claim with GP Construction was received by
19

Ayala Corporation on May 4, 1981, well before the Closing which occurred four (4) weeks after the date of signing
20

of the MOA on April 23, 1981, or on May 23, 1981.


The full text of the pertinent clauses of the MOA quoted hereunder likewise indicate that certain matters pertaining
to the liabilities of Conduit were disclosed by petitioners to Ayala Corporation although the specifics thereof were no
longer included in the MOA:

1. 7.1.1The said Audited Financial Statements shall show that on the day of Closing, the Company shall own the
Remaining Property, free from all liens and encumbrances and that the Company shall have no obligation
to any party except for billings payable to GP Construction & Development Corporation and advances made
by Daniel Vazquez for which BUYER shall be responsible in accordance with Paragraph 2 of this Agreement.
2. 7.1.2Except to the extent reflected or reserved in the Audited Financial Statements of the Company
as of Closing, and those disclosed to BUYER, the Company as of the date hereof, has no liabilities of any
nature whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities

_______________

18 Id., at pp. 90-91.


19 Id., at p. 77.
20 Supra note 2 at p. 53.

245
VOL. 443, NOVEMBER 19, 245
2004
Vazquez vs. Ayala Corporation
due or to become due and whether incurred in respect of or measured in respect of the Companys income prior to Closing or
arising out of transactions or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion against the Company as at
Closing of any liability of any nature and in any amount not fully reflected or reserved against such Audited Financial Statements
referred to above, and those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the Company is not engaged
in or a party to, or to the best of the knowledge of the SELLERS, threatened with, any legal action or other proceedings before
any court or administrative body, nor do the SELLERS know or have reasonable grounds to know of any basis for any such action
or proceeding or of any governmental investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and observance by the Company
of any term, covenant or condition of any instrument or agreement to which the Company is a party or by which it is bound, and
no condition exists which, with notice or lapse of time or both, will constitute such default or breach. [Emphasis supplied]
21

Hence, petitioners warranty that Conduit is not engaged in, a party to, or threatened with any legal action or
proceeding is qualified by Ayala Corporations actual knowledge of the Lancer claim which was disclosed to Ayala
Corporation before the Closing.
At any rate, Ayala Corporation bound itself to pay all billings payable to GP Construction and the advances made
by petitioner Daniel Vazquez. Specifically, under paragraph 2 of the MOA referred to in paragraph 7.1.1, Ayala
Corporation undertook responsibility for the payment of all billings of the contractor GP Construction & Development
Corporation after the first billing and any payments made by the company
_______________

Id., at pp. 58-60.


21

246
246 SUPREME COURT REPORTS
ANNOTATED
Vazquez vs. Ayala Corporation
and/or SELLERS shall be reimbursed by BUYER on closing which advances to date is P1,159,012.87. 22

The billings knowingly assumed by Ayala Corporation necessarily include the Lancer claim for which GP
Construction is liable. Proof of this is Ayala Corporations letter to GP Construction dated before Closing on May 4,
23

1981, informing the latter of Ayala Corporations receipt of the Lancer claim embodied in the letter dated April 30,
1981, acknowledging that it is taking over the contractual responsibilities of Conduit, and requesting copies of all sub-
contracts affecting the Conduit property. The pertinent excerpts of the letter read:
_______________

22 Id., at pp. 52-53. The full text of paragraph 2 reads:


2. Purchase Price and Mode of Payment
The Purchase Price shall be FIFTY-SIX MILLION SIX HUNDRED TWENTY THREE THOUSAND THREE HUNDRED THIRTY EIGHT PESOS
AND EIGHTY CENTAVOS (P56,623,338.80) and shall be paid at the Closing by the BUYER by means of a managers check(s) payable to Ma. Luisa
M. Vazquez in her own behalf and as representative of the other SELLERS, less the earnest money of EIGHT MILLION PESOS (P8,000,000.00)
herein paid as mentioned below; provided, however, that on or before the Closing, SELLERS shall deliver to the BUYER duly executed letters of
instruction from the other SELLERS specifically authorizing Ma. Luisa M. Vazquez to receive on their own behalf their respective payments by
means of a managers check for the entire Purchase Price stated in this Paragraph payable to SELLERS. In addition to the foregoing, BUYER shall
be responsible for the payment of all billings of the contractor GP Construction & Development Corporation after the first billing and any payments
made by the company and/or SELLERS shall be reimbursed by BUYER on closing which advances to date is P1,159,012.87. Earnest money in the
sum of EIGHT MILLION PESOS (P8,000,000.00), Philippine Currency, shall be paid upon signing of this document.
23 Supra, note 17 at p. 78.

247
VOL. 443, NOVEMBER 19, 247
2004
Vazquez vs. Ayala Corporation
...
In this connection, we wish to inform you that this morning we received a letter from Mr. Maximo D. Del Rosario, President
of Lancer General Builders Corporation apprising us of the existence of subcontracts that they have with your corporation. They
have also furnished us with a copy of their letter to you dated 30 April 1981.
Since we are taking over the contractual responsibilities of Conduit Development, Inc., we believe that it is necessary, at this
point in time, that you furnish us with copies of all your subcontracts affecting the property of Conduit, not only with Lancer
General Builders Corporation, but all subcontracts with other parties as well. . . . 24

Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief dated July 9, 1992 a copy of the letter dated
25 26

May 28, 1981 of GP Constructions counsel addressed to Conduit furnishing the latter with copies of all sub-contract
agreements entered into by GP Construction. Since it was addressed to Conduit, it can be presumed that it was the
latter which gave Ayala Corporation a copy of the letter thereby disclosing to the latter the existence of the Lancer
sub-contract.
The ineluctable conclusion is that petitioners did not violate their warranties under the MOA. The Lancer
subcontract and claim were substantially disclosed to Ayala Corporation before the Closing date of the MOA. Ayala
Corporation cannot disavow knowledge of the claim.
Moreover, while in its correspondence with petitioners, Ayala Corporation did mention the filing of the Lancer suit
as an obstacle to its development of the property, it never actually brought up nor sought redress for petitioners
alleged
_______________

24 Ibid.
25 Supra, note 17 at pp. 69-76.
26 Id., at pp. 81-82.

248
248 SUPREME COURT REPORTS
ANNOTATED
Vazquez vs. Ayala Corporation
breach of warranty for failure to disclose the Lancer claim until it filed its Answer dated February 17, 1992.
27
We now come to the correct interpretation of paragraph 5.7 of the MOA. Does this paragraph express a commitment
or a mere intent on the part of Ayala Corporation to develop the property within three (3) years from date thereof?
Paragraph 5.7 provides:
5.7. The BUYER hereby commits that it will develop the Remaining Property into a first class residential subdivision of the
same class as its New Alabang Subdivision, and that it intends to complete the first phase under its amended development plan
within three (3) years from the date of this Agreement . . .
28

Notably, while the first phrase of the paragraph uses the word commits in reference to the development of the
Remaining Property into a first class residential subdivision, the second phrase uses the word intends in relation
to the development of the first phase of the property within three (3) years from the date of the MOA. The variance in
wording is significant. While commit connotes a pledge to do something, intend merely signifies a design or
29 30

proposition.
Atty. Leopoldo Francisco, former Vice President of Ayala Corporations legal division who assisted in drafting the
MOA, testified:
COURT
You only ask what do you mean
by that intent. Just answer on that
point.
ATTY. BLANCO
Dont talk about standard.
_______________

27 Id., at pp. 32-38.


28 Supra, note 2 at p. 55.
29 BLACKS LAW DICTIONARY, Sixth Edition, p. 273.

30 Id., at p. 809.

249
VOL. 443, 249
NOVEMBER
19, 2004
Vazquez vs. Ayala Corporation
WITNESS
A Well, the word intent
here, your Honor, was
used to emphasize the
tentative character of
the period of
development because
it will be noted that the
sentence refers to and I
quote to complete the
first phase under its
amended development
plan within three (3)
years from the date of
this agreement, at the
time of the execution
of this agreement, your
Honor. That amended
development plan was
not yet in existence
because the buyer had
manifested to the seller
that the buyer could
amend the subdivision
plan originally
belonging to the seller
to conf orm with its
own standard of
development and
second, your Honor.
(interrupted)31

It is thus unmistakable that this paragraph merely expresses an intention on Ayala Corporations part to complete
the first phase under its amended development plan within three (3) years from the execution of the MOA. Indeed,
this paragraph is so plainly worded that to misunderstand its import is deplorable.
More focal to the resolution of the instant case is paragraph 5.7s clear reference to the first phase of Ayala
Corporations amended development plan as the subject of the three (3)-year intended timeframe for development.
Even petitioner Daniel Vazquez admitted on cross-examination that the paragraph refers not to Conduits but to Ayala
Corporations development plan which was yet to be formulated when the MOA was executed:
Q: Now, turning to Section 5.7 of this
Memorandum of Agreement, it is
stated as follows: The Buyer
hereby commits that to develop the
remaining property into a first
class residential subdivision of the
same class as New Alabang
Subdivision, and that they intend to
complete the first phase under its
amended development plan within
three years from the date of this
agreement.
_______________

TSN, November 18, 1993, pp. 35-36.


31

250
250 SUPREME COURT REPORTS
ANNOTATED
Vazquez vs. Ayala Corporation
Now, my question to you, Dr.
Vasquez is that there is no dispute
that the amended development
plan here is the amended
development plan of Ayala?
A: Yes, sir.
Q: In other words, it is not Exhibit
D-5 which is the original plan
of Conduit?
A: No, it is not.
Q: This Exhibit D-5 was the plan
that was being followed by GP
Construction in 1981?
A: Yes, sir.
Q: And point of fact during your
direct examination as of the date
of the agreement, this amended
development plan was still to be
formulated by Ayala?
A: Yes, sir.32

As correctly held by the appellate court, this admission is crucial because while the subject lots to be sold to petitioners
were in the first phase of the Conduit development plan, they were in the third or last phase of the Ayala Corporation
development plan. Hence, even assuming that paragraph 5.7 expresses a commitment on the part of Ayala Corporation
to develop the first phase of its amended development plan within three (3) years from the execution of the MOA,
there was no parallel commitment made as to the timeframe for the development of the third phase where the subject
lots are located.
Lest it be forgotten, the point of this petition is the alleged failure of Ayala Corporation to offer the subject lots for
sale to petitioners within three (3) years from the execution of the MOA. It is not that Ayala Corporation committed
or intended to develop the first phase of its amended development plan within three (3) years. Whether it did or did
not is actually beside the point since the subject lots are not located in the first phase anyway.
_______________

TSN, August 3, 1993, pp. 17-19.


32

251
VOL. 443, NOVEMBER 19, 251
2004
Vazquez vs. Ayala Corporation
We now come to the issue of default or delay in the fulfillment of the obligation.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:

1. (1)When the obligation or the law expressly so declares; or


2. (2)When from the nature and the circumstances of the obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or
3. (3)When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation
be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the
performance judicially or extrajudicially. 33

Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been fixed shall be
demandable only when that day comes. However, no such day certain was fixed in the MOA. Petitioners, therefore,
cannot demand performance after the three (3) year period fixed by the MOA for the development of the first phase of
the property since this is not the same period contemplated for the development of the subject lots. Since the MOA
does not specify a period for the
_______________

4 A. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, 102 (1991).
33

252
252 SUPREME COURT REPORTS
ANNOTATED
Vazquez vs. Ayala Corporation
development of the subject lots, petitioners should have petitioned the court to fix the period in accordance with Article
1197 of the Civil Code. As no such action was filed by petitioners, their complaint for specific performance was
34

premature, the obligation not being demandable at that point. Accordingly, Ayala Corporation cannot likewise be said
to have delayed performance of the obligation.
Even assuming that the MOA imposes an obligation on Ayala Corporation to develop the subject lots within three
(3) years from date thereof, Ayala Corporation could still not be held to have been in delay since no demand was made
by petitioners for the performance of its obligation.
As found by the appellate court, petitioners letters which dealt with the three (3)-year timetable were all dated
prior to April 23, 1984, the date when the period was supposed to expire. In other words, the letters were sent before
the obligation could become legally demandable. Moreover, the letters were mere reminders and not categorical
demands to perform. More importantly, petitioners waived the three (3)-year period as evidenced by their agent, Engr.
Eduardo Turlas letter to the effect that petitioners agreed that the three (3)-year period should be counted from the
termination of the case filed by Lancer. The letter reads in part:

1. I.Completion of Phase I

As per the memorandum of Agreement also dated April 23, 1981, it was undertaken by your goodselves to complete the
development of Phase I within three (3) years. Dr. & Mrs. Vazquez were made to understand that you were unable to accomplish
this because of legal problems with the previous contractor. These legal problems were resolved as of February 19, 1987, and Dr.
& Mrs. Vazquez therefore expect that the development of Phase I will be completed by February 19, 1990, three years from the
settlement of the legal problems with the previous contractor. The reason for this is, as you know, that security-wise, Dr. & Mrs.
Vazquez have been advised not
_______________

34 Supra note 10.


253
VOL. 443, NOVEMBER 19, 253
2004
Vazquez vs. Ayala Corporation
to construct their residence till the surrounding area (which is Phase I) is developed and occupied. They have been anxious to
build their residence for quite some time now, and would like to receive assurance from your goodselves regarding this, in
compliance with the agreement.

1. II.Option on the adjoining lots

We have already written your goodselves regarding the intention of Dr. & Mrs. Vazquez to exercise their option to purchase
the two lots on each side (a total of 4 lots) adjacent to their Retained Area. They are concerned that although over a year has
elapsed since the settlement of the legal problems, you have not presented them with the size, configuration, etc. of these lots.
They would appreciate being provided with these at your earliest convenience. 35

Manifestly, this letter expresses not only petitioners acknowledgement that the delay in the development of Phase I
was due to the legal problems with GP Construction, but also their acquiescence to the completion of the development
of Phase I at the much later date of February 19, 1990. More importantly, by no stretch of semantic interpretation can
it be construed as a categorical demand on Ayala Corporation to offer the subject lots for sale to petitioners as the
letter merely articulates petitioners desire to exercise their option to purchase the subject lots and concern over the
fact that they have not been provided with the specifications of these lots.
The letters of petitioners children, Juan Miguel and Victoria Vazquez, dated January 23, 1984 and February 18,
36

1984 can also not be considered categorical demands on Ayala Corporation to develop the first phase of the property
37

within the three (3)-year period much less to offer the subject lots for sale to petitioners. The letter dated January 23,
1984 reads in part:
_______________

35 Supra, note 17 at p. 651.


36 Id., at p. 151.
37 Id., at p. 154.

254
254 SUPREME COURT REPORTS
ANNOTATED
Vazquez vs. Ayala Corporation
You will understand our interest in the completion of the roads to our property, since we cannot develop it till you have
constructed the same. Allow us to remind you of our Memorandum of Agreement, as per which you committed to develop the
roads to our property as per the original plans of the company, and that

1. 1.The back portion should have been developed before the front portionwhich has not been the case.
2. 2.The whole projectfront and back portions be completed by 1984. 38

The letter dated February 18, 1984 is similarly worded. It states:


In this regard, we would like to remind you of Articles 5.7 and 5.9 of our Memorandum of Agreement which states respectively:.
..
39

Even petitioner Daniel Vazquez letter dated March 5, 1984 does not make out a categorical demand for Ayala
40

Corporation to offer the subject lots for sale on or before April 23, 1984. The letter reads in part:
. . . and that we expect from your goodselves compliance with our Memorandum of Agreement, and a definite date as to when
the road to our property and the development of Phase I will be completed. 41

At best, petitioners letters can only be construed as mere reminders which cannot be considered demands for
performance because it must appear that the tolerance or benevolence of the creditor must have ended. 42

_______________

38 Supra, note 36.


39 Supra, note 37.
40 Supra, note 17 at pp. 157-158.

41 Id., at p. 158.

42 A. TOLENTINO, op. cit. supra, note 33 citing 2 Castan 528 and 3 Valverde 104.

255
VOL. 443, NOVEMBER 19, 255
2004
Vazquez vs. Ayala Corporation
The petition finally asks us to determine whether paragraph 5.15 of the MOA can properly be construed as an option
contract or a right of first refusal. Paragraph 5.15 states:
5.15 The BUYER agrees to give the SELLERS first option to purchase four developed lots next to the Retained Area at the
prevailing market price at the time of the purchase. 43

The Court has clearly distinguished between an option contract and a right of first refusal. An option is a preparatory
contract in which one party grants to another, for a fixed period and at a determined price, the privilege to buy or sell,
or to decide whether or not to enter into a principal contract. It binds the party who has given the option not to enter
into the principal contract with any other person during the period designated, and within that period, to enter into
such contract with the one to whom the option was granted, if the latter should decide to use the option. It is a separate
and distinct contract from that which the parties may enter into upon the consummation of the option. It must be
supported by consideration. 44

In a right of first refusal, on the other hand, while the object might be made determinate, the exercise of the right
would be dependent not only on the grantors eventual intention to enter into a binding juridical relation with another
but also on terms, including the price, that are yet to be firmed up. 45

Applied to the instant case, paragraph 5.15 is obviously a mere right of first refusal and not an option contract. Al-
_______________

43 Supra, note 2 at p. 57.


44 Litonjua v. L&R Corporation, 385 Phil. 538; 328 SCRA 796 (2000); Carceller v. Court of Appeals, 362 Phil. 332; 302 SCRA 718 (1999); Equatorial
Realty Development, Inc. v. Mayfair Theater, Inc., 332 Phil. 525; 264 SCRA 483 (1996).
45 Ang Yu Asuncion v. Court of Appeals, G.R. No. 109125, December 2, 1994, 238 SCRA 602.

256
256 SUPREME COURT REPORTS
ANNOTATED
Vazquez vs. Ayala Corporation
though the paragraph has a definite object, i.e., the sale of subject lots, the period within which they will be offered
for sale to petitioners and, necessarily, the price for which the subject lots will be sold are not specified. The phrase
at the prevailing market price at the time of the purchase connotes that there is no definite period within which
Ayala Corporation is bound to reserve the subject lots for petitioners to exercise their privilege to purchase. Neither
is there a fixed or determinable price at which the subject lots will be offered for sale. The price is considered certain
if it may be determined with reference to another thing certain or if the determination thereof is left to the judgment
of a specified person or persons. 46

Further, paragraph 5.15 was inserted into the MOA to give petitioners the first crack to buy the subject lots at the
price which Ayala Corporation would be willing to accept when it offers the subject lots for sale. It is not supported by
an independent consideration. As such it is not governed by Articles 1324 and 1479 of the Civil Code, viz.:
Art. 1324. When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or
promised.
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.
Consequently, the offer may be withdrawn anytime by communicating the withdrawal to the other party. 47

_______________

46 Art. 1469, Civil Code.


47 A. TOLENTINO, op. cit. supra, note 33 at p. 465.
257
VOL. 443, NOVEMBER 19, 257
2004
Vazquez vs. Ayala Corporation
In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price of P6,500.00/square meter,
the prevailing market price for the property when the offer was made on June 18, 1990. Insisting on paying for the
48

lots at the prevailing market price in 1984 of P460.00/square meter, petitioners rejected the offer. Ayala Corporation
reduced the price to P5,000.00/square meter but again, petitioners rejected the offer and instead made a counter-offer
in the amount of P2,000.00/square meter. Ayala Corporation re-
49

_______________

Supra, note 2 at p. 63.


48

Id., at pp. 209-210.


49

The testimony of petitioner Daniel Vazquez on direct examination reads:


Q Mr. Witness, at the last hearing
which was interrupted by the
brown-out, we were on Exhibit L,
which I am handing to you, upon
receipt of Exhibit L which is the
June 18, 1990 letter of Ayala to
you, what did you do, if any?
A We contacted Ayala to tell them we
wanted to exercise our option and
that we were not agreeable with the
price they are mentioning here, sir.
Q Did you offer any price?
A Yes, sir, we offered them a price.
Q According to the complaint, the
price in April 1984 could have been
only P460.00 pesos per square
meter. Where did you get that
price?
A One of our secretaries, Mr. Eusebio,
I believe, contacted the Ayala
Corporation and that was the price
the Ayala Corporation was selling it
at that time, sir.
Q Did the Ayala Corporation reduce
this price for purposes of arriving in
an agreeable or acceptable offer?
A Yes, sir, we did.
Q How much did the Ayala
Corporation dropped to?
A Ayala dropped, if I remember right,
to I think P4,000.00 pesos, sir.
258
258 SUPREME COURT REPORTS
ANNOTATED
Vazquez vs. Ayala Corporation
jected petitioners counter-offer. With this rejection, petitioners lost their right to purchase the subject lots.
It cannot, therefore, be said that Ayala Corporation breached petitioners right of first refusal and should be
compelled by an action for specific performance to sell the subject lots to petitioners at the prevailing market price in
1984.
WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.
SO ORDERED.
Puno (Chairman), Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.
Petition denied.
Note.Delay in the performance of an obligation is looked upon with disfavor because when a party to a contract
incurs delay, the other party who performs his part of the contract suffers damages thereby. (Arwood Industries, Inc.
vs. D.M. Consunji, Inc., 394 SCRA 11 [2002])

o0o

_______________
Q And how about you?
A We increased our price to
P2,000.00 pesos based on the
selling price of Ayala at that time
converted to dollars and
reconverted to pesos at this later
dates of 1991. (TSN dated April 20,
1993, pp. 3-5).
259
Copyright 2017 Central Book Supply, Inc. All rights reserved.
G.R. No. 193723. July 20, 2011.*
GENERAL MILLING CORPORATION, petitioner, vs. SPS. LIBRADO RAMOS and REMEDIOS RAMOS,
respondents.
Appeals; Pleadings, Practice and Procedure; Assignment of Errors; The Court of Appeals has a broad discretionary power in
waiving the lack of assignment of errors.In Diamonon v. Department of Labor and Employment, 327 SCRA 283 (2000), We
explained that an appellate court has a broad discretionary power in waiving the lack of assignment of errors in the following
instances: (a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter; (b) Matters not
assigned as errors on appeal but are
_______________
** Designated acting member per Special Order No. 1006 dated 10 June 2011.
*** Designated acting member per Special Order No. 1040 dated 6 July 2011.
* THIRD DIVISION.
257
VOL. 654, JULY 20, 257
2011
General Milling Corporation vs.
Ramos
evidently plain or clerical errors within contemplation of law; (c) Matters not assigned as errors on appeal but consideration
of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of a justice or to
avoid dispensing piecemeal justice; (d) Matters not specifically assigned as errors on appeal but raised in the trial court and are
matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored;
(e) Matters not assigned as errors on appeal but closely related to an error assigned; (f) Matters not assigned as errors on appeal
but upon which the determination of a question properly assigned, is dependent. Paragraph (c) above applies to the instant case,
for there would be a just and complete resolution of the appeal if there is a ruling on whether the Spouses Ramos were actually
in default of their obligation to GMC.
Actions; Default; Requisites.There are three requisites necessary for a finding of default. First, the obligation is
demandable and liquidated; second, the debtor delays performance; and third, the creditor judicially or extrajudicially requires
the debtors performance.
Same; Same; Foreclosure of Mortgage; Foreclosure is valid only when the debtor is in default in the payment of his
obligation.As the contract in the instant case carries no such provision on demand not being necessary for delay to exist, We
agree with the appellate court that GMC should have first made a demand on the spouses before proceeding to foreclose the real
estate mortgage. Development Bank of the Philippines v. Licuanan, 516 SCRA 644 (2007), finds application to the instant case:
The issue of whether demand was made before the foreclosure was effected is essential. If demand was made and duly received
by the respondents and the latter still did not pay, then they were already in default and foreclosure was proper. However, if
demand was not made, then the loans had not yet become due and demandable. This meant that respondents had not defaulted
in their payments and the foreclosure by petitioner was premature. Foreclosure is valid only when the debtor is in default
in the payment of his obligation.
Appeals; Questions of Law; Questions of Fact; For a question to be one of law, it must not involve an examination of the
probative value of the evidence presented by the litigants or any of themonce
258
258 SUPREME COURT
REPORTS ANNOTATED
General Milling Corporation vs.
Ramos
it is clear that the issue invites a review of the evidence presented, the question posed is one of fact.In turn, whether or not
demand was made is a question of fact. This petition filed under Rule 45 of the Rules of Court shall raise only questions of law.
For a question to be one of law, it must not involve an examination of the probative value of the evidence presented by the
litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances.
Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. It need not be reiterated
that this Court is not a trier of facts. We will defer to the factual findings of the tr ial court, because petitioner GMC has not
shown any circumstances making this case an exception to the rule.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Kho, Bustos, Malcontento, Argosino Law Offices for petitioner.
Exconde & Exconde Law Offices for respondents.
VELASCO, JR., J.:

The Case

This is a petition for review of the April 15, 2010 Decision of the Court of Appeals (CA) in CA-G.R. CR-H.C. No.
85400 entitled Spouses Librado Ramos & Remedios Ramos v. General Milling Corporation, et al., which affirmed the
May 31, 2005 Decision of the Regional Trial Court (RTC), Branch 12 in Lipa City, in Civil Case No. 00-0129 for
Annulment and/or Declaration of Nullity of Extrajudicial Foreclosure Sale with Damages.

The Facts

On August 24, 1989, General Milling Corporation (GMC) entered into a Growers Contract with spouses Librado
and
259
VOL. 654, JULY 20, 2011 259
General Milling Corporation vs.
Ramos
Remedios Ramos (Spouses Ramos). Under the contract, GMC was to supply broiler chickens for the spouses to raise
on their land in Barangay Banaybanay, Lipa City, Batangas.1 To guarantee full compliance, the Growers Contract
was accompanied by a Deed of Real Estate Mortgage over a piece of real property upon which their conjugal home was
built. The spouses further agreed to put up a surety bond at the rate of PhP 20,000 per 1,000 chicks delivered by GMC.
The Deed of Real Estate Mortgage extended to Spouses Ramos a maximum credit line of PhP 215,000 payable within
an indefinite period with an interest of twelve percent (12%) per annum.2
The Deed of Real Estate Mortgage contained the following provision:
WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full and faithful compliance of
[MORTGAGORS] obligation/s with the MORTGAGEE by a First Real Estate Mortgage in favor of the MORTGAGEE, over a 1
parcel of land and the improvements existing thereon, situated in the Barrio/s of Banaybanay, Municipality of Lipa City,
Province of Batangas, Philippines, his/her/their title/s thereto being evidenced by Transfer Certificate/s No./s T-9214 of the
Registry of Deeds for the Province of Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00),
Philippine Currency, which the maximum credit line payable within a x x x day term and to secure the payment of the same plus
interest of twelve percent (12%) per annum.
Spouses Ramos eventually were unable to settle their account with GMC. They alleged that they suffered business
losses because of the negligence of GMC and its violation of the Growers Contract.3
_______________

1 Rollo, p. 37.
2 Id., at p. 13.
3 Id., at p. 113.
260
260 SUPREME COURT REPORTS
ANNOTATED
General Milling Corporation vs.
Ramos
On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would institute foreclosure proceedings
on their mortgaged property.4
On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June 10, 1997, the property
subject of the foreclosure was subsequently sold by public auction to GMC after the required posting and
publication.5 It was foreclosed for PhP 935,882,075, an amount representing the losses on chicks and feeds exclusive
of interest at 12% per annum and attorneys fees.6 To complicate matters, on October 27, 1997, GMC informed the
spouses that its Agribusiness Division had closed its business and poultry operations.7
On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or Declaration of Nullity of the
Extrajudicial Foreclosure Sale with Damages. They contended that the extrajudicial foreclosure sale on June 10, 1997
was null and void, since there was no compliance with the requirements of posting and publication of notices under
Act No. 3135, as amended, or An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to
Real Estate Mortgages. They likewise claimed that there was no sheriffs affidavit to prove compliance with the
requirements on posting and publication of notices. It was further alleged that the Deed of Real Estate Mortgage had
no fixed term. A prayer for moral and exemplary damages and attorneys fees was also included in the
complaint.8 Librado Ramos alleged that, when the property was foreclosed, GMC did not notify him at all of the
foreclosure.9
_______________

4 Id., at p. 37.
5 Id.
6 Id., at p. 117.
7 Id., at p. 114.
8 Id., at pp. 37-38.
9 Id., at p. 117.
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VOL. 654, JULY 20, 2011 261
General Milling Corporation vs.
Ramos
During the trial, the parties agreed to limit the issues to the following: (1) the validity of the Deed of Real Estate
Mortgage; (2) the validity of the extrajudicial foreclosure; and (3) the party liable for damages.10
In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their liabilities under the Growers
Contract. It argued that it was compelled to foreclose the mortgage because of Spouses Ramos failure to pay their
obligation. GMC insisted that it had observed all the requirements of posting and publication of notices under Act No.
3135.11

The Ruling of the Trial Court

Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real Estate Mortgage was valid even if
its term was not fixed. Since the duration of the term was made to depend exclusively upon the will of the debtors-
spouses, the trial court cited jurisprudence and said that the obligation is not due and payable until an action is
commenced by the mortgagee against the mortgagor for the purpose of having the court fix the date on and after which
the instrument is payable and the date of maturity is fixed in pursuance thereto.12
The trial court held that the action of GMC in moving for the foreclosure of the spouses properties was premature,
because the latters obligation under their contract was not yet due.
The trial court awarded attorneys fees because of the premature action taken by GMC in filing extrajudicial
foreclosure proceedings before the obligation of the spouses became due.
The RTC ruled, thus:
_______________

10 Id., at p. 115.
11 Id., at p. 38.
12 Id., at p. 123. (Citation omitted.)
262
262 SUPREME COURT REPORTS
ANNOTATED
General Milling Corporation vs.
Ramos
WHEREFORE, premises considered, judgment is rendered as follows:
1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is hereby declared null and void;
2. The Deed of Real Estate Mortgage is hereby declared valid and legal for all intents and puposes;
3. Defendant-corporation General Milling Corporation is ordered to pay Spouses Librado and Remedios Ramos attorneys
fees in the total amount of P57,000.00 representing acceptance fee of P30,000.00 and P3,000.00 appearance fee for nine (9) trial
dates or a total appearance fee of P 27,000.00;
4. The claims for moral and exemplary damages are denied for lack of merit.
IT IS SO ORDERED.13

The Ruling of the Appellate Court

On appeal, GMC argued that the trial court erred in: (1) declaring the extrajudicial foreclosure proceedings null
and void; (2) ordering GMC to pay Spouses Ramos attorneys fees; and (3) not awarding damages in favor of GMC.
The CA sustained the decision of the trial court but anchored its ruling on a different ground. Contrary to the
findings of the trial court, the CA ruled that the requirements of posting and publication of notices under Act No. 3135
were complied with. The CA, however, still found that GMCs action against Spouses Ramos was premature, as they
were not in default when the action was filed on May 7, 1997.14
The CA ruled:
In this case, a careful scrutiny of the evidence on record shows that defendant-appellant GMC made no demand to spouses
Ramos for the full payment of their obligation. While it was alleged in the Answer as well as in the Affidavit constituting the
direct testimony
_______________

13 Id., at p. 127. Penned by Judge Vicente F. Landicho.


14 Id., at pp. 40-41.
263
VOL. 654, JULY 20, 2011 263
General Milling Corporation vs.
Ramos
of Joseph Dominise, the principal witness of defendant-appellant GMC, that demands were sent to spouses Ramos, the
documentary evidence proves otherwise. A perusal of the letters presented and offered as evidence by defendant-appellant GMC
did not demand but only request spouses Ramos to go to the office of GMC to discuss the settlement of their account.15
According to the CA, however, the RTC erroneously awarded attorneys fees to Spouses Ramos, since the
presumption of good faith on the part of GMC was not overturned.
The CA disposed of the case as follows:
WHEREFORE, and in view of the foregoing considerations, the Decision of the Regional Trial Court of Lipa City, Branch 12,
dated May 21, 2005 is hereby AFFIRMED with MODIFICATION by deleting the award of attorneys fees to plaintiffs-appellees
spouses Librado Ramos and Remedios Ramos.16
Hence, We have this appeal.

The Issues

A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND DISCUSSED IN THE LOWER COURT AND LIKEWISE NOT RAISED
BY THE PARTIES ON APPEAL, THEREFORE HAD DECIDED THE CASE NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS
OF THE SUPREME COURT.
B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE NO DEMAND TO RESPONDENT SPOUSES FOR THE FULL
PAYMENT OF THEIR OBLIGATION CONSIDERING THAT THE LETTER DATED MARCH 31, 1997 OF PETITIONER GMC TO
RESPONDENT SPOUSES IS TANTAMOUNT
_______________

15 Id., at p. 41.
16 Id., at pp. 36-44. Penned by Associate Justice Priscilla J. Baltazar-Padilla and concurred in by Associate Justices Fernanda Lampas Peralta and Manuel B. Barrios.
264
264 SUPREME COURT
REPORTS
ANNOTATED
General Milling Corporation vs.
Ramos
TO A FINAL DEMAND TO PAY, THEREFORE IT DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS.17

The Ruling of this Court

Can the CA consider matters not alleged?


GMC asserts that since the issue on the existence of the demand letter was not raised in the trial court, the CA, by
considering such issue, violated the basic requirements of fair play, justice, and due process.18
In their Comment,19 respondents-spouses aver that the CA has ample authority to rule on matters not assigned as
errors on appeal if these are indispensable or necessary to the just resolution of the pleaded issues.
In Diamonon v. Department of Labor and Employment,20 We explained that an appellate court has a broad
discretionary power in waiving the lack of assignment of errors in the following instances:
(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter;
(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law;
(c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice;
(d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some
bear-
_______________

17 Id., at p. 18.
18 Id., at p. 19.
19 Id., at pp. 194-199.
20 G.R. No. 108951, March 7, 2000, 327 SCRA 283, 288-289. See also Kulas Ideas & Creations v. Alcoseba, G.R. No. 180123, February 18, 2010, 613 SCRA
217, 231.
265
VOL. 654, JULY 20, 2011 265
General Milling Corporation vs.
Ramos
ing on the issue submitted which the parties failed to raise or which the lower court ignored;
(e) Matters not assigned as errors on appeal but closely related to an error assigned;
(f) Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is dependent.
Paragraph (c) above applies to the instant case, for there would be a just and complete resolution of the appeal if
there is a ruling on whether the Spouses Ramos were actually in default of their obligation to GMC.
Was there sufficient demand?
We now go to the second issue raised by GMC. GMC asserts error on the part of the CA in finding that no demand
was made on Spouses Ramos to pay their obligation. On the contrary, it claims that its March 31, 1997 letter is akin
to a demand.
We disagree.
There are three requisites necessary for a finding of default. First, the obligation is demandable and
liquidated; second, the debtor delays performance; and third, the creditor judicially or extrajudicially requires the
debtors performance.21
According to the CA, GMC did not make a demand on Spouses Ramos but merely requested them to go to GMCs
office to discuss the settlement of their account. In spite of the lack of demand made on the spouses, however, GMC
proceeded with the foreclosure proceedings. Neither was there any provision in the Deed of Real Estate Mortgage
allowing GMC to extrajudicially foreclose the mortgage without need of demand.
_______________

21 Selegna Management and Development Corporation v. United Coconut Planters Bank, G.R. No. 165662, May 3, 2006, 489 SCRA 125, 138.
266
266 SUPREME COURT REPORTS
ANNOTATED
General Milling Corporation vs.
Ramos
Indeed, Article 1169 of the Civil Code on delay requires the following:
Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands
from them the fulfilment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; x x x
As the contract in the instant case carries no such provision on demand not being necessary for delay to exist, We
agree with the appellate court that GMC should have first made a demand on the spouses before proceeding to
foreclose the real estate mortgage.
Development Bank of the Philippines v. Licuanan finds application to the instant case:
The issue of whether demand was made before the foreclosure was effected is essential. If demand was made and duly
received by the respondents and the latter still did not pay, then they were already in default and foreclosure was proper.
However, if demand was not made, then the loans had not yet become due and demandable. This meant that respondents had
not defaulted in their payments and the foreclosure by petitioner was premature. Foreclosure is valid only when the debtor
is in default in the payment of his obligation.22
In turn, whether or not demand was made is a question of fact.23 This petition filed under Rule 45 of the Rules of
Court shall raise only questions of law. For a question to be one of law, it must not involve an examination of the
probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely
on what the law pro-
_______________

22 G.R. No. 150097, February 26, 2007, 516 SCRA 644, 650. (Emphasis supplied.)
23 Id.
267
VOL. 654, JULY 20, 2011 267
General Milling Corporation vs.
Ramos
vides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the
question posed is one of fact.24 It need not be reiterated that this Court is not a trier of facts.25 We will defer to the
factual findings of the trial court, because petitioner GMC has not shown any circumstances making this case an
exception to the rule.
WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No. 85400 is AFFIRMED.
SO ORDERED.
Carpio,** Leonardo-De Castro,***Abad and Mendoza, JJ., concur.
Petition denied, judgment affirmed.
Note.A stipulation that should the vendor fail to comply with the terms and conditions of the purported contract
of sale, then the property shall by virtue thereof become the property of the vendee is contrary to the nature of a
true pacto de retro saleit is considered a pactum commissorium, enabling the mortgagee to acquire ownership of the
mortgaged properties without need of foreclosure proceedings. (Legaspi vs. Ong, 459 SCRA 122 [2005])
o0o
_______________
24 Tirazona v. Court of Appeals, G.R. No. 169712, March 14, 2008, 548 SCRA 560, 581.
25 Heirs of Completo & Abiad v. Sgt. Albayda, G.R. No. 172200, July 6, 2010, 624 SCRA 97, 110.
** Additional member per Special Order No. 1042 dated July 6, 2011.
*** Additional member per raffle dated July 13, 2011.
Copyright 2017 Central Book Supply, Inc. All rights reserved.
46 SUPREME COURT REPORTS
ANNOTATED
Central Bank of the Philippines vs.
Court of Appeals
No. L-45710. October 3, 1985. *

CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE
DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island Savings
Bank, petitioners, vs. THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.
Banks; Obligations; Loans; Where a bank approved a loan for P80,000.00 but was able to deliver only P1 7,000.00, it is in
default for P63,000.00 to the borrower.When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan
agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each
party is the consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs. Pelarca, 29 SCRA 1
[1969]); and when one party has performed or is ready and willing to perform his part of the contract, the other party who has
not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M.
Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the ?80,000.00 loan. When Sulpicio
M. Tolentino executed a real estate mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From
such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing
the entire loan started
_______________

*SECOND DIVISION.
47
VOL. 139, OCTOBER 47
3, 1985
Central Bank of the Philippines
vs. Court of Appeals
on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the Central Bank issued Resolution No.
967 on June 14, 1968, which prohibited Island Savings Bank from doing further business. Such prohibition made it legally
impossible for Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board
to take over insolvent banks for the protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June
15, 1948, the validity of which is not in question.
Same; Same; Same; The fact that the creditor is insolvent or was stopped by the Central Bank from granting further loans is
no defense to its fulfillment to extend the loan applied for and approved by it to the full amount.The Monetary Board Resolution
No. 1049 issued on August 13, 1965 cannot interrupt the default of Island Savings Bank in complying with its obligation of
releasing the P63,000.00 balance because said resolution merely prohibited the Bank from making new loans and investments,
and nowhere did it prohibit Island Savings Bank from releasing the balance of loan agreements previously contracted. Besides,
the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it constitute any
defense to a decree of specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact
of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but instead it is taken as a breach of the
contract by him (Vol. 17A, 1974 ed., CJS p. 650).
Same; Same; Same; Acceptance of refund of excess pre-deducted interest for a supposed loan of P80,000.00 does not constitute
a waiver of right to collect the P63,000.00 unreleased balance of the P80,000.00 loans.The fact that Sulpicio M. Tolentino
demanded and accepted the refund of the pre-deducted interest amounting to P4,800.00 for the supposed P80,000.00 loan
covering a 6-month period cannot be taken as a waiver of his right to collect the P63,000.00 balance. The act of Island Savings
Bank, in asking the advance interest for 6 months on the supposed P80,000.00 loan, was improper considering that only
P17,000.00 out of the P80,000.00 loan was released. A person cannot be legally charged interest for a non-existing debt. Thus,
the receipt by Sulpicio M. Tolentino of the pre-deducted interest was an exercise of his right to it, which right exist independently
of his right to demand the completion of the P80,000.00 loan. The exercise of one right does not affect, much less neutralize, the
exercise of the other.
48
48 SUPREME COURT
REPORTS ANNOTATED
Central Bank of the Philippines
vs. Court of Appeals
Same; Same; Same; The bank must not rely on representations by its borrowers of the value of their collaterals. The bank
shall bear the risk in case of over-valuation.The mere reliance by bank officials and employees on their customer's
representation regarding the loan collateral being offered as loan security is a patent non-performance of this responsibility. If
ever, bank officials and employees totally rely on the representation of their customers as to the valuation of the loan collateral,
the bank shall bear the risk in case the collateral turn out to be over-valued. The representation made by the customer is
immaterial to the bank's responsibility to conduct its own investigation. Furthermore, the lower court, on objections of Sulpicio
M. Tolentino, had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure to raise the
same in their pleadings (pp. 198-199, t.s.n., Sept. 15, 1971). The lower court's action is sanctioned by the Rules of Court, Section
2, Rule 9, which states that "defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed
waived." Petitioners, thus, cannot raise the same issue before the Supreme Court.
Same; Same; Same; Due to CB prohibition, release of the entire loan cannot be granted; only rescission of the loan agreement
to the extent of the unreleased loan balance can be granted by the courts.Rescission is the only alternative remedy left. WE rule,
however, that rescission is only for the P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as
such amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of
P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to have
complied with its reciprocal obligation to furnish a P17,000.00 loan.
Same; Same; Same; A bank borrower who did not pay the partial loan release as per the terms of the promissory note signed
by him is in default to that extent even if the entire loan cannot be released anymore.The promissory note gave rise to Sulpicio
M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations
under the promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there
is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had
not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission
of the entire loan because he cannot possibly be in
49
VOL. 139, OCTOBER 49
3, 1985
Central Bank of the Philippines
vs. Court of Appeals
default as there was no date for him to perform his reciprocal obligation to pay.
Same; Same; Same; Damages; Where the bank failed to release the entire approved loan, but the borrower also failed to pay
the partial loan release he got after it fell due, both are in default and their respective liability for damages shall be offset equitably,
exclusive of the interest due on the overdue loan portion.Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts,
WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio
M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of
Sulpicio M. Tolentino for interest on his P17,000.00 debt shall not be included in offsetting the liabilities of both parties. Since
Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the interest thereon.
Same; Same; Same; Mortgages; Where only P 17,000.00 of the approved P80,000.00 loan was released, the real estate
mortgage thereon can be foreclosed only to the extent of 21.25%.Since Island Savings Bank failed to furnish the P63,000.00
balance of the P80,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00
is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares,
The mortgage covering the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt 21.25 hectares is more than
sufficient to secure a P17,000.00 debt.
Same; Same; Same; Same; Rule of indivisibility of a mortgage under Art. 2089, NCC does not apply where bank released
only part of the approved mortgage loan.The rule of indivisibility, of a real estate mortgage provided for by Article 2089 of the
Civil Code is inapplicable to the facts of this case. x x x The rule of indivisibility of the mortgage as outlined by Article 2089
above-quoted presupposes several heirs of the debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility
of a mortgage cannot apply.

PETITION for certiorari to review the decision of the Court of Appeals.

The facts are stated in the opinion of the Court.


50
50 SUPREME COURT REPORTS
ANNOTATED
Central Bank of the Philippines vs.
Court of Appeals
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent,

MAKASIAR, C.J.:

This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in C.A.-
G.R. No. 52253-R dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court of First
Instance of Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for injunction, specific
performance or rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan. executed on the same day a real
estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and
which mortgage was annotated on the said title the next day. The approved loan application called for a lump sum
P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It was
required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other
property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M.
Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within
3 years from the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance
interest for the P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the partial
release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after
being informed by the Bank that there was no fund yet available for the release of the P63,000.00 balance (p. 47, rec.).
The Bank, thru its vicepresident and treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113,
rec.).
51
VOL. 139, OCTOBER 3, 1985 51
Central Bank of the Philippines vs.
Court of Appeals
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering
liquidity problems, issued Resolution No. 1049, which provides:
"In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the Board, by unanimous
vote, decided as follows:
"1) To prohibit the bank from making new loans and investments [except investments in government securities] excluding extensions or
renewals of already approved loans, provided that such extensions or renewals shall be subject to review by the Superintendent of Banks,
who may impose such limitations as may be necessary to insure correction of the bank's deficiency as soon as possible;
xx x x" (p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding that Island Savings Bank failed to put up the required capital
to restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the
Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank
(pp. 48-49, rec.).
On August 1, 1968, Island Savings Bank, in view of nonpayment of the P 17,000.00 covered by the promissory note,
filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of
Sulpicio M. Tolentino; and the sheriff scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction,
specific performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank
failed to deliver the P63,000.00 balance of the P80,000.00 loan. he is entitled to specific performance by ordering Island
Savings Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance cannot
be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
52
52 SUPREME COURT REPORTS
ANNOTATED
Central Bank of the Philippines vs.
Court of Appeals
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary restraining order
enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the petition
of Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and by the Acting
Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits, rendered its decision, finding unmeritorious the
petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of P17,000.00 plus legal interest
and legal charges due thereon, and lifting the restraining order so that the sheriff may proceed with the foreclosure
(pp. 135-136, rec.).
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First Instance
decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it ruled that Island
Savings Bank can neither foreclose the real estate mortgage nor collect the P1 7,000.00 loan (pp. 30-31, rec.).
Hence, this instant petition by the Central Bank.
The issues are:

1. 1.Can the action of Sulpicio M. Tolentino for specific performance prosper?


2. 2.Is Sulpicio M. Tolentino liable to pay the P1 7,000.00 debt covered by the promissory note?
3. 3.If Sulpicio M. Tolentino's liability to pay the P1 7,000.00 subsists, can his real estate mortgage be foreclosed
to satisfy said amount?

When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965,
they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the
consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46
53
VOL. 139, OCTOBER 3, 1985 53
Central Bank of the Philippines vs,
Court of Appeals
[1981]; Vda. de Quirino vs. Pelarca, 29 SCRA 1 [1969]); and when one party has performed or is ready and willing to
perform his part of the contract, the other party who has not performed or is not ready and willing to perform incurs
in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the
obligation of Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate
mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From such date, the obligation of
Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan
started on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the Central Bank issued
Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing further business. Such
prohibition made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00
loan. The power of the Monetary Board to take over insolvent banks for the protection of the public is recognized by
Section 29 of R.A. No. 265, which took effect on June 15, 1948, the validity of which is not in question.
The Monetary Board Resolution No. 1049 issued on August 13, 1965 cannot interrupt the default of Island Savings
Bank in complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited
the Bank from making new loans and investments, and nowhere did it prohibit Island Savings Bank from releasing
the balance of loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill an engagement
does not discharge the obligation of the contract, nor does it constitute any defense to a decree of specific performance
(Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]), And, the mere fact of insolvency of a debtor is never
an excuse for the nonfulfillment of an obligation but instead it is taken as a breach of the contract by him (Vol. 17A,
1974 ed., CJS p. 650).
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to
P4,800.00 for the supposed P80,000.00 loan .covering a 6-month period cannot be taken as a waiver of his right to
collect the
54
54 SUPREME COURT REPORTS
ANNOTATED
Central Bank of the Philippines vs.
Court of Appeals
P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for 6 months on the supposed
P80,000.00 loan, was improper considering that only P1 7,000.00 out of the P80,000.00 loan was released. A person
cannot be legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio M. Tolentino of the pre-
deducted interest was an exercise of his right to it, which right exist independently of his right to demand the
completion of the P80,000.00 loan. The exercise of one right does not affect, much less neutralize, the exercise of the
other.
The alleged discovery by Island Savings Bank of the overvaluation of the loan collateral cannot exempt it from
complying with its reciprocal obligation to furnish the entire P80,000.00 loan. This Court previously ruled that bank
officials and employees are expected to exercise caution and prudence in the discharge of their functions (Rural Bank
of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and employees that before
they approve the loan application of their customers, they must investigate the existence and valuation of the
properties being offered as a loan security. The recent rush of events where collaterals for bank loans turn out to be
non-existent or grossly over-valued underscore the importance of this responsibility. The mere reliance by bank
officials and employees on their customer's representation regarding the loan collateral being offered as loan security
is a patent non-performance of this responsibility. If ever, bank officials and employees totally rely on the
representation of their customers as to the valuation of the loan collateral, the bank shall bear the risk in case the
collateral turn out to be over-valued. The representation made by the customer is immaterial to the bank's
responsibility to conduct its own investigation. Furthermore, the lower court, on objections of Sulpicio M. Tolentino,
had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure to raise the same
in their pleadings (pp. 198-199, t.s.n., Sept. 15, 1971). The lower court's action is sanctioned by the Rules of Court,
Section 2, Rule 9, which states that "defenses and objections not pleaded either in a motion to dismiss or in the answer
are deemed waived." Petitioners, thus, cannot raise the same issue before the Supreme Court.
55
VOL. 139, OCTOBER 3, 1985 55
Central Bank of the Philippines vs.
Court of Appeals
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio
M. Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with
damages in either case. But since Island Savings Bank is now prohibited from doing further business by Monetary
Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio M. Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance
of the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt
that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino
accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal
obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation
to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the promissory note
made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to
rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not
signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for
rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform his
reciprocal obligation to pay.
Since both parties were in def ault in the perf ormance of their respective reciprocal obligations, that is, Island
Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply
with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of
Island Savings Bank for damages in not furnishing the entire loan is offset by
56
56 SUPREME COURT REPORTS
ANNOTATED
Central Bank of the Philippines vs.
Court of Appeals
the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue
P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his P17,000.00 debt shall not be included in
offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00,
it is just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy
his P17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract
(Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his obligation to pay is the
existence of a debt. Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in furnishing
the mortgage is the existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art. 2052, of the Civil
Code).
The fact that when Sulpicio M. Tolentino executed his real estate mortgage, no consideration was then in existence,
as there was no debt yet because Island Savings Bank had not made any release on the loan, does not make the real
estate mortgage void for lack of consideration. It is not necessary that any consideration should pass at the time of
the execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). It may either be a prior or
subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage can take effect only when
the debt secured by it is created as a binding contract to pay (Parks vs. Sherman, Vol. 176 N.W. p. 583, cited in the
8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage becomes
unenforceable to the extent of such failure (Dow, et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p.
138). Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage,
the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19,
F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, p. 180).
57
VOL. 139, OCTOBER 3, 1985 57
Central Bank of the Philippines vs.
Court of Appeals
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real estate mortgage
of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real
estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the
remainder of 21.25 hectares subsists as a security for the P1 7,000.00 debt. 21.25 hectares is more than sufficient to
secure a P1 7,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to
the facts of this case.
Article 2089 provides:
"A pledge or mortgage is indivisible even though the debt may be divided among the successors in interest of the debtor or
creditor.
'Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate extinguishment of the pledge
or mortgage as long as the debt is not completely satisfied.
"Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the mortgage, to the
prejudice of other heirs who have not been paid."
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the
debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply.
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY
MODIFIED, AND

1. 1.SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE


SUM OF P17,000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE
PERIOD FROM MAY 22, 1965 TO AUGUST 22. 1985, AND 12% INTEREST ON THE TOTAL AMOUNT
COUNTED FROM AUGUST 22, 1985 UNTIL PAID;
2. 2.IN CASE SULPICIO M. TOLENTINO FAILS

58
58 SUPREME COURT REPORTS
ANNOTATED
Central Bank of the Philippines vs.
Court of Appeals

1. TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE FORECLOSED TO
SATISFY HIS TOTAL INDEBTEDNESS; AND
2. 3.THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED
UNENFORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.

NO COSTS. SO ORDERED.
Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.
Aquino (Chairman) and Abad Santos, JJ., no part.
Decision modified.
Notes.A bank is a moneyed institute founded to facilitate the borrowing, lending, and safekeeping of money and
to deal in notes, bills of exchange and credits. (Republic vs. Security Credit and Acceptance Corporation, 19 SCRA 58.)
It is incumbent on the part of the mortgagee bank to prove its allegation that it was in good faith in extending a
mortgage loan to a person who later appeared to have deceived the court into issuing to her a new Torrens Title based
on her petition when she was not actually an heir of the registered owner who is still alive. (Tomas vs. Tomas, 97
SCRA 280.)
A bank is required to exercise due care and prudence by making proper inquiry where a person borrows money and
mortgages another person's property to secure the loan. (Rural Bank of Caloocan us. Court of Appeals, 104 SCRA 151.)
Where Torrens Title were issued as a result of regular land registration proceedings and were later given as security
to a bank loan, the subsequent declaration of said torrens titles as null and void, does not authorize the cancellation
of the mortgaged rights of the bank which acted in good faith. (Penuliar vs. Philippine National Bank, 120 SCRA 171.)

o0o

59
Copyright 2017 Central Book Supply, Inc. All rights reserved.
In the studio Judge Angeles was brought to a room wherein he saw seven Filipinos (including this appellant) headed
by one Santos residing in Polo. The latter asked Judge Angeles if he was a guerrilla, and when he replied in the
negative he was struck with a piece of lumber. Then he was subjected to several forms of torture. He was boxed and
kicked and given the water cure. But he stoutly denied connection with the underground resistance. This accused was
in the room and informed the investigators that he (Judge Angeles) was the chief of the guerrillas of Polo. In view of
this imputation the tortures continued. Fortunately for Judge Angeles, the Japanese began their retreat from Manila
on February 3, the garrison was vacated, and he managed to escape together with other prisoners.
It may be true, as contended by defense counsel that the tortures undergone by Judge Angeles were described by
him as the sole witness ; but his apprehension as a guerrilla was witnessed and related in open court by Dr. Santiago
and his son Gregorio, compliance with the two-witness rule being thereby effected.
Wherefore, after reviewing the whole record we find no hesitation in finding this appellant guilty of treason.
And as the penalty meted out to him accords with section 114 of the Revised Penal Code, the appealed decision
should be, and it is hereby, affirmed with costs. So ordered.
Pars, C. J., Pablo, Padilla, Tuason, Montemayor, Reyes, Jugo, Bautista Angelo, and Labrador, JJ., concur.
Judgment affirmed.
_______________
[No. L-4811. July 31, 1953]
CHARLES F. WOODHOUSE, plaintiff and appellant, vs. FORTUNATO F. HALILI, defendant and appellant.
1.EVIDENCE; PAROL EVIDENCE RULE; INTEGRATION OF JURAL ACTS. Plaintiff entered into a written agrement with the
defendant
527
VOL. 93, JULY 31, 1953 527
Woodhouse vs. Halili
to the effect that they shall organize a partnership for the bottling and distribution of soft drinks, plaintiff to act as
industrial partner or manager, and the defendant as a capitalist furnishing the capital necessary therefor. The
defendant claims that his consent to the agreement was secured by the representation of plaintiff that he was the
owner, or was about to become owner, of an exclusive bottling franchise, which representation was false. The fraud
and false representation is sought to be proven by means, among others, of the drafts of the agreement prior to the
final one, which drafts are presumed to have already been integrated into the final agreement. Are those prior
drafts excluded from the prohibition of the parol evidence rule? Held: The purpose of considering the drafts is not
to vary, alter, or modify the agreement, but to discover the intent of the parties thereto and the circumstances
surrounding the execution of the contract. The issue of fact, is, did plaintiff represent to defendant that he had an
exclusive franchise? Certainly, his acts or statements prior to the agreement are essential and relevant to the
determination of said issue, The act or statemont of the plaintiff was not sought to be introduced to change or alter
the terms of the agreement, but to prove how he induced the defendant to enter into itto prove the representatiom
or inducements, or fraud, with which or by which he secured the other party's consent thereto. These are expressly
excluded from the parol evidence rule. (Bough and Bough vs. Cantivems and Hanopol, 40 Phil., 209; port Ban,.
Lumber Co., vs. Export Import Lumber Co., 26 Phil., 602; 8 Moran 221, 1952 rev, ed.) Fraud and false
representation are an incident to the creation of a jural act, not to its integration, and are not governed by the rules
on integration. Where parties prohibited from proving said representations or inducements, on the ground that the
agreement had already been entered into, it would be im- possible to prove misrepresentation or fraud. The parol
evidence rule expressly allows the evidence to be introduced when the validity of an instrument is put in issue by
the pleadings (see. 22a of Rule 123).
2.ID.; INTERPRETATION OF DOCUMENTS.As plaintiff knew what defendant believed, about his (plaintiff's exclusive
franchise, as he induced him to that belief, plaintiff may not be allowed to deny that defendant was induced by that
belief (sec. 65 of Rule 123)
3.FRAUD; FALSE REPRESENTATION; DOLO CAUSANTE INCIDENT ; IT IS THE FORMER THAT VITIATES CONSENT .Fraud is
manifested in illimitable number of degrees or gradations
528
528 Philippine Reports Annotated
Woodhouse vs. Halili
from the innocent praises of a salesman about the excellence of his wares to those malicious machinations and
representations that the law punishes as a crime. In consequence, article 1270 of the Spanish Civil. Code
distinguishes two kinds of (civil) fraud, the causal fraud which may be a ground for the annulment of a contract,
and the incidental deceit which only renders the party who employs it liable for damages. In order that fraud may
vitiate consent, it must be the causal (dolo causante), not merely the incidental (dole in- cidente), inducement to the
making of the contract (art. 1270, Span. Civ. Code; Hill vs, Yeloso, 31 Phil., 160). In the case at bar, inasmuch as
the principal consideration, the main cause that induced. defendant to enter into the partnership agreement with
plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for
the partnership, the false representation made by the plaintiff was not the casual consideration, or the principal
inducement, that led the defendant to enter into the partnership agreement,.
4.ID.; ID.; ID.; DAMAGES FOR DOLO INCIDENT; PARTNERSHIP. While the representation that plaintiff had the exclusive
franchise did not vitiate defendant's consent to the contract, it was used by plaintiff to get from defendant a share
of 30 per cent of the net profits; in other words, by pretending that he had the exclusive franchise and. promising
to transfer it to defendant, he obtained the consent of the latter to give him (plaintiff) a big slice in the net profits.
This is the dolo incidents defined in article 1270. of the Spanish Civil Code, because it was used to get the other
party's consent to a big share in the profits, an incidental matter in the agreement. (8 1Manresa, 602.)
5.CONTRACTS AND OBLIGATIONS; CONSENT, NOT VITIATED BY DOLO INCIDENT; PARTNERSHIP; AGREEMENT TO FORM
PARTNERSHIP, CANNOT BE ENFORCED.Having arrived at the conclusion that the agreement to organize a
partnership may not be declared null and void, may. the agreement be carried out or executed? Held: Under the
Spanish Civil Code, the defendant has an obligation to do, not to give. The law recogniz.es the individual's freedom
or liberty to do an act he has promised to do, or not to do it as he pleases. This is a vevy personal act (acto
personalisimo) of which courts may not compel com-pliance, as it is considered as an act of violence to do so.
(29 Scaevola, 428, 431-432.)
529
VOL. 93, JULY 31, 1953 529
Woodhouse vs. Halili
6.FALSE REPRESENTATIOM ; DAMAGES, FOR DOLO INCIDENT.Plaintiff is entitled under the terms of the agreement to
30 per cent of the net profits of the business. Against this amount of damages, the damage the defendant suffered
by plaintiff's misrepresentation that he had the exclusive franchise, must be set off. (Art. 1101, Span. Civ. Code.)
When the defendant learned, in Los Angeles, California, that plaintiff did not have the exclusive franchise which
he pretended be had and which he had agreed to transfer to the partnership, his spontaneous reaction was to reduce
the plaintiff's share from 30 per cent to 15 per cent only, to which reduction plaintiff appears to have readily given
his assent. Held: By the misrepresentation of the plaintiff, he obtained a very high percentage (30%) of share in the
profits. Upon learning of the misrepresentation, defendant reduced plaintiff's share to 15 per cent, to which
defendant assented. The court can do no better than follow such appraisal of the damages as the parties themselves
had adopted.
APPEAL from a judgment of the Court of First Instance of Manila. Sanchez, J.
The facts are stated in the opinion of the Court.
Taada, Pelaez & Teehankee for defendant and appellant.
Gibbs, Gibbs, Chuidian & Quasha for plaintiff and appellant.
LABRADOR, J.:
On November 29, 1947, the plaintiff entered into a written agreement, Exhibit A, with the defendant, the most
important provisions of which are (I) that they shall organize a partnership for the bottling and distribution of Mission
soft drinks, plaintiff to act as industrial partner or manager, and the defendant as a capitalist, furnishing the capital
necessary therefor; (2) that the defendant was to decide matters of general policy regarding the business, while the
plaintiff was to attend to the operation and development of the bottling plant; (3) that the plaintiff was to secure the
Mission soft Drinks franchise for and in behalf of the proposed partnership; and (4) that the plaintiff was to receive
30 per cent of the net profits of the business. The above agreement
6084434
530
530 Philippine Reports Annotated
Woodhouse vs. Halili
was arrived at after various conferences and consultations by and between them, with the assistance of their re-
spective attorneys. Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los
Angeles, California, U. S. A., manufacturers of the bases and ingredients of the beverages bearing its name, that he
had interested a prominent financier (defendant herein) in the business, who was willing to invest half a million
dollars in the bottling and distribution of the said beverages, and requested, in order that he may close the deal with
him, that the right to bottle and distribute be granted him for a limited time under the condition that it will finally be
transferred to the corporation (Exhibit H). Pursuant to this request, plaintiff was given "a thirty days' option on
exclusive bottling and distribution rights for the Philippines" (Exhibit J). Formal negotiations between plaintiff and
defendant began at a meeting on November 27, 1947, at the Manila Hotel, with their lawyers attending. Before this
meeting plaintiff's lawyer had prepared a draft of the agreement, Exhibit II or 00, but this was not satisfactory because
a partnership, instead. of a corporation, was desired. Defendant's lawyer prepared after the meeting his own draft,
Exhibit HH. This last draft appears to be the main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the United States
without the agreement being first signed. On that day plaintiff and defendant went to the United States, and on
December 10, 1947, a franchise agreement (Exhibit V) was entered into between the Mission Dry Corporation and
Fortunato F. Halili and/r Charles F. Woodhouse, granting defendant the exclusive right, license, and author- ity to
produce, bottle, distribute, and sell Mission bever- ages in the Philippines. The plaintiff and the defendant thereafter
returned to the Philippines. Plaintiff reported for duty in January, 1948, but operations were not begun until the first
week of February, 1948. In January plain-
531
VOL. 93, JULY 31, 1953 531
Woodhouse vs. Halili

tiff was given as advance, on account of profits, the sum of P2,00.0, besides the use of a car ; in February, 1948, also
P2,000, and in March only P1,000. The car was withdrawn from plaintiff on March 9, 1948.
When the bottling plant was already in operation, plaintiff demanded of defendant that the partnership papers be
executed. At first defendant excused himself, saying there was no hurry. Then he promised to do so after the sales of
the products had been increased to P50,000. As nothing definite was forthcoming, after this condition was atttained,
and as defendant refused to give further allowances to plaintiff, the latter caused his attorneys to take up the matter
with defendant with a view to a possible settlement. As none could be arrived at, the present action was instituted.
In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of the profits, and a
share thereof of 30 per cent, as well as damages in the amount of P200,000. In his answer defendant alleges by way
of defense (1) that defendant's consent to the agreement, Exhibit A, was secured by the representation of plaintiff that
he was the owner, or was about to become owner of an exclusive bottling franchise, which represen- tation was false,
and that plaintiff did not secure the franchise, but was given to defendant himself ; (2) that defendant did not fail to
carry out his undertakings, but that it was plaintiff who failed ; (3) that plaintiff agreed to contribute the exclusive
franchise to the partnership, but plaintiff failed to do so. He also presented a counter- claim for P200,000 as damages.
On these issues the parties went to trial, and thereafter the Court of First Instance rendered judgment ordering
defendant to render an accounting of the profits of the bottling and distribution business, subject of the action, and to
pay plaintiff 15 per cent thereof. It held that the execution of the contract of partnership could not be enforced upon
the parties, but it also held that the defense of fraud was not proved. Against this judgment both parties have appealed.
532
532 Philippine Reports Annotated
Woodhouse vs. Halili

The most important question of fact to be determined is whether defendant had falsely represented that he had an
exclusive franchise to bottle Mission beverages, and whether this false representation or fraud, if it existed, annuls
the agreement to form the partnership. The trial court found that it is improbable that defendant was never shown
the letter, Exhibit J, granting plaintiff the option ; that defendant would not have gone to the United States without
knowing what authority plaintiff had; that the drafts of the contract prior to the final one can not be considered for
the purpose of determining the issue, as they are presumed to have been already integrated into the final agreement
; that fraud is never presumed and must be proved ; that the parties were represented by attorneys, and that if any
party thereto got the worse part of the bargain, this fact alone would not invalidate the agreement. On this appeal the
defendant, as appellant, insists that plaintiff did represent to the defendant that he had an exclusive franchise, when
as a matter of fact, at the time of its execution, he no longer had it as the same had expired, and that, therefore, the
consent of the defendant to the contract was vitiated by fraud and it is, consequently, null and void.
Our study of the record and a consideration of all the surrounding circumtances lead us to believe that defendant's
contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse presented himself as being
the exclusive grantee of a franchise, thus
"A. I don't recall any discussion about that matter. I took along with me the file of the office with regards to this matter. I
notice from the first draft of the document which I prepared which calls for the organization of a corporation, that the manager,
that is, Mr. Woodhouse, is represented as being the exclusive grantee of a franchise from the Mission Dry Corporation. * * *"
(t.s.n., p. 518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila Hotel conference
on November 27th, expressly states that plaintiff
533
VOL. 93, JULY 31, 1953 533
Woodhouse vs. Halili
had the exclusive franchise. Thus, the first paragraph states:
'Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry Corporation San Francisco, California, for
the bottling of Mission products and their sale to the public throughout the Philippines;
* * *
"3., That the manager, upon the organization of the said corporation, shall forthwith transfer to the said corporation his
exclusive right to bottle Mission products and to sell them throughout the Philippines."
* * *.
(Exhibit II; italics ours)
The trial court did not consider this draft on the principle, of integration of jural acts. We find that the principle
invoked is inapplicable, since the purpose of considering the prior draft is not to vary, alter, or modify the agreement,
but to discover the intent of the parties thereto and the circumstances surrounding the execution of the contract. The
issue of fact is : Did plaintiff represent to defendant that he had an exclusive franchise? Cer- tainly, his acts or
statementsprior to the agreement are essential and relevant to the determination of said issue. The act or statement
of the plaintif was not sought to be introduced to change or alter the terms of the agreement, but to prove how he
induced the defendant to enter into itto prove the representations or inducements, or fraud, with which or by 'which
he secured. the other party's consent thereto. These are expressly excluded from the parol evidence rule, (Bough and
Bough vs. Cantiveros and Hanopol, 40 Pia, 209; Port Banga, Lumber Co. vs., Export & Import Lumber Co., 26 Phil.,
602; III Moran 221, 1952 rev. ed.) Fraud and false representation are an incident to the creation of a jural act, not to
its integration, and are not governed by the rules on integration. Were parties prohibited from proving said
representations or inducements, on the ground that the agreement had already been entered into, it would be
impossible to prove
534
534 Philippine Reports Annotated
Woodhouse vs. Halili

misrepresentation or fraud. Furthermore, the parol evidence rule expressly allows the evidence to be introduced when
the validity of an instrument is put in issue by the pleadings (section 22, par. (a), Rule 123, Rules of Court), as in this
case.
That plaintiff did make the representation can also be easily gleaned from his own letters and his own testimony.
In his letter to Mission Dry Corporation, Exhibit H, he said

"* * *. He told me to come back to him when I was able to speak with authority so that we could come to terms as far as he
and I were concerned. That is the reason why tile cable was sent. Without this authority, I am in a poor bargaining position.
* * *.
I would propose that you grant me the exclusive bottling and distributing rights for a limited period of time, during which I
may consummate my plans.
* * *."
By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14, 1947. (See Exhibit J.)
If this option for an exclusive franchise was intended by plaintiff as an instrument with which to bargain with
defendant and close the deal with him, he must have used his said option for the above-indicated purpose, especially
as it appears that he was able to secure, through its use, what he wanted.
Plaintiff's own version of the preliminary conversation he had with defendant is to the effect that when plaintiff
called on the latter, the latter answered, "Well, come back to me when you have the authority to operate. I am definitely
interested in the bottling business." (t. s. n., pp. 60-61.) When after the elections of 1949 plaintiff went to see the
defendant (and at that tithe he had already the option), he must have exultantly told defendant that he had the
authority already. It is improbable arid incredible for him to have disclosed the fact that he had only an option to the
exclusive franchise, which was to last thirty days only, and still more improbable for him
535
VOL. 93, JULY 31, 1953 535
Woodhouse vs. Halili

to have disclosed that, at the time of the signing of the formal agreement, his option had already expired. Had he done
so, he would have destroyed all his bargaining power and authority, and in all probability lost the deal itself.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement "to
secure the Mission Dry franchise for and in behalf of the proposed partnership." The existence of this provision in the
final agreement does not militate against plaintiff having represented that he had the exclusive franchise; it rather
strengthens belief that he did actually make the representation. How could plaintiff assure defendant that he would
get the franchise for the latter if he had not actually obtained it for himself ? Defendant would not have gone into the
business unless the franchise was raised in his name, or at least in the name of the partnership. Plaintiff assured
defendant he could get the franchise. Thus, in the draft prepared by defendant's attorney, Ex- hibit HH, the above
provision is inserted, with the difference that instead of securing the franchise for the defendant, plaintiff was to
secure it for the partnership. To show that the , insertion of the above provision does not eliminate the probability of
plaintiff representing himself as the exclusive grantee of the franchise, the final agreement contains in its third
paragraph the following:
"* * * and the manager is ready and willing to allow the capitalists to use the exclusive franchise * * *,
and in paragraph 11 it also expressly states :
"1. In the event of the dissolution or termination of the partnership, * * the franchise from Mission Dry Corporation shall be
reassigned to the manager."
These statements confirm the conclusion that defendant believed, or was made to believe, that plaintiff was the
grantee of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was to be transferred. to
the name of the partnership, and that, upon its dis-
536
536 Philippine Reports Annotated
Woodhouse vs. Halili

solution or termination, the same shall be reassigned to the plaintiff.


Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the exclusive
franchise, was to reduce, as he himself testified, plaintiff's participation in the net profits to one half of that agreed
upon. He could not have had such a feeling had not plaintiff actually made him believe that he (plaintiff) was the
exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in the making of the contract made
fraud improbable. Not necessarily, because the alleged representation took place before the conferences were had ; in
other words, plaintiff had already represented to defendant, and the latter had already believed in, the existence of
plaintiff's exclusive franchise before the formal negotiations, and they were assisted by their lawyers only when said
formal negotiations actually took place. Furthermore, plaintiff's attorney testified that plaintiff had said that he had
the exclusive franchise; and defendant's lawyer testified that plaintiff explained to him, upon being asked for the
franchise, that he had left the papers evidencing it (t. s. n., p. 266)
We conclude from all the foregoing that plaintiff did actually represent to defendant that he was the holder of the
exclusive franchise. The defendant was made to believe, and he actually believed, that plaintiff had the exclusive
franchise. Defendant would not perhaps have gone to California and incurred expenses for the trip, unless he believed
that plaintiff did have that exclusive privilege, and that the latter would be able to get the same from the Mission Dry
Corporation itself. Plaintiff knew what defendant believed about his (plaintiff's) exclusive franchise, as he induced
him to that belief, and he may not be allowed to deny that defendant was induced by that belief. (IX Wigmore, sec.
2423; Sec. 85, Rule 123, Rules of Court).
537
VOL. 93, JULY 31, 1953 537
Woodhouse vs. Halili

We now come to the legal aspect of the false represention. Does it amount to a fraud that would vitiate the contract?
It must be noted that fraud is manifested in illimitable number of degrees or gradations, from the innocent praises of
a salesman about the excellence of his wares to those malicious machinations and representa tions that the law
punishes as a crime. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud,
the causal fraud, which may be a ground for the annulment of a contract, and the incidental deceit, which only renders
the party who employs it liable for damages. This Court has held that in order that fraud may vitiate consent, it must
be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract.
(Article 1270, Spanish Civil Code ; Hill vs. Veloso, 31 Phil. 160.) The record abounds with circumstances indicative of
the fact that the principal consideration, the main cause that induced defendant. to enter into the partnership
agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and distribute for the
defendant or for the partnership. The original draft prepared by defendant's counsel was to the effect that plaintiff
obligated himself to secure a franchise for the defendant. Correction appears in this same original draft, but the change
is made not as to the said obligation but as to the grantee. In the corrected draft the word capitalist" (grantee) is
changed to "partnership." The contract in its final form retains the substituted term "partnership". The defendant
was, therefore, led to the belief that plaintiff had the exclusive franchise, but that the same was to be secured for or
transferred to the partnership. The plaintiff no longer had the exclusive franchise, or the option thereto, at the time
the contract was perfected. But while he had already lost his option thereto (when the contract was entered into) the
principal obligation that he assumed or undertook was to secure said franchise for the partnership, as the bottler and
distributor for the
538
538 Philippine Reports Annotated
Woodhouse vs. Halili

Mission Dry Corporation. We declare, therefore, that if he was guilty of a false representation, this was not
the causal consideration, or the principal inducement, that led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was actually the consideration or price
plaintiff gave in exchange for the share of 30 per cent granted him in the net profits of the partnership business.
Defendant agreed to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive
franchise to the partnership. Thus, in the draft prepared by plaintiff's lawyer, Exhibit II, the following provision exists
:
"3. That the MANAGER, upon the organization of the said corporation, shall forthwith transfer to the said corporation his
exclusive right to bottle Mission products and to sell them throughout the Philippines. As a consideration for such transfer, the
CAPITALIST shall transfer to the Manager fully paid non-assessable shares of the said corporation * * * twenty-five per centum
of the capital stock of the said corporation." (Par. 3, Exhibit II; italics ours.)
Plaintiff had never been a bottler or a chemist ; he never had experience in the production or distribution of
beverages. As a matter of fact, when the bottling plant was being built, all that he suggested was about the toilet
facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the exclusive franchise did not vitiate
defendant's consent to the contract, it was used by plaintiff to get from defendant a share of 30 per cent of the net
profits ; in other words, by pretending that he had the exclusive franchise and promising to transfer it to defendant,
he obtained the consent of the latter to give him (plaintiff) a big slice in the net profits. This is the Bolo
incidente defined in article 1270 of the Spanish Civil Code, because it was used to get the other party's con-sent to a
big share in the profits, an incidental matter in the agreement.
539
VOL. 93, JULY 31, 1953 539
Woodhouse vs. Halili

"El dolo incidental no es el que puede producirse en el cumplimiento del contrato sino que significa aqu, el que concurriendo
en el consentimiento, o precedindolo, no influy para arrancar por Si solo el consentimiento ni en la totalidad de la obligacin,
sino en algn extremo o accidente de esta, dando lugar tan solo a una accin para reclamar indemnizacin de perjuicios." (8
Manresa 602.)
Having arrived at the conclusion that the agreement may not be declared null and void, the question that next
comes before us is, May the agreement be carried out or. executed? We find no merit in the claim of plaintiff that the
partnership was already a fait accompli from the time of the operation of the plant, as it is evident from the very
language of the agreement that the parties intended, that the execution of the agreement to form a partner- ship was
to be carried out at a later date. They expressly agreed that they shall form. a partnership. (Par. No. 1, Exhibit A.) As
a matter of fact, from the time that the franchise from the Mission Dry Corporation was obtained in California, plaintiff
himself had been demanding that defendant comply with the agreement. And plain- tiff's present action seeks the
enforcement of this agree- ment. Plaintiff's claim, therefore, is both inconsistent with their intention and incompatible
with his own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled against his will to carry out the
agreement nor excute the partnership papers. Under the Spanish Civil Code, the defendant has an obligation to do, not
to give. The law recognizes the individual's freedom or liberty to do an act he has promised to do, or not to do it, as he
pleases. It falls within what Spanish commen- tators call a very personal act (acto personalisimo), of which courts may
not compel compliance, as it is considered an act of violence to do so.

"Efectos de las obligaciones consistentes en hechos personalisimo. Tratamos de la ejecucin de las obligaciones de hacer en
el solo
540
540 Philippine Reports Annotated
Woodhouse vs. Halili
caso de su incumplimiento por parte del deudor, ya sean los hechos personalisimos, ya se hallen en la facultad de un tercero;
porque el complimiento espontaneo de las mismas esta, regido por los preceptos relativos al pago, y en nada les afectan las
disposi- ciones del art. 1098.
"Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor puede ser precisado a realizar el hecho y por
que medios.
"Se tiene por corriente entre los autores, y se traslada general. mente sin observacin el principio romano nemo potest precise
cogi ad factum. Nadie puede ser obligado violentamente a hacer una cosa. Los que perciben la posibilidad de la destruccin de
este principio, aaden que, aun cuando se pudiera obligar al deudor, no debera hacerse, porque esto constituira una violencia,
y no es la violencia modo propio de cumplir las obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo mismo
cuando deci que obligar por la violencia seria infringir la libertad e imponer una especie de esclavitud."
* * * * * *
"En efecto; las obligaciones contractuales no se acomodan bien con el empleo de la fuerza fsica, no ya precisamente porque se
constituya de este modo una especie de esclavitud, segn el dicho de Antonio Gomez, sino porque se supone que el acreedor tuvo
en cuenta el carcter personalsimo del hecho ofrecido, y calculo sobre la posibilidad de que por alguna razn no se realizase.
Repugna, adems, a la conciencia social el empleo de la fuerza pblica,
mediante coaccin sobre las personas, en las relaciones puramente particulares; porque la evolucin de las ideas ha ido
poniendo mas de relieve cada da el respeto a la personalidad humana, y no se admite bien la violencia sobre el individuo la cual
tiene carcter visiblemente penal, sino por motivos que interesen a la colectividad de ciudadanos. Es, pues, posible y licita esta
violencia cuando se trata de las obligaciones que hemos llamado ex lege, que afectan al orden social y a la entidad de Estado, y
aparecen impuestas sin consideracin a las conveniencias particulares, y sin que por este motivo puedan tampoco ser
modificadas; pero no debe serlo cuando la obligacin reviste un inters puramente particular, como sucede en las contractuales,
y cuando, por consecuencia, parecera salirse el Estado de su esfera propia, entrando a dirimir, con apoyo de la fuerza colectiva,
las diferencias producidas entre los ciudadanos. (19 Scaevola 428, 431-432.)"
The last question for us to decide is that of damages, damages that plaintiff is entitled to receive because of
541
VOL. 93, JULY 31, 1953 541
Woodhouse vs. Halili

defendant's refusal to form the partnership, and damages that defendant is also entitled to collect because of the
falsity of plaintiff's representation. (Article 1101, Spanish Civil Code.) Under article 1106 of the Spanish Civil Code
the measure of damages is the actual loss suffered and the profits reasonably expected to be received, embraced in the
terms dao emergente and lucro cesante, Plaintiff is entitled under the terms of the agreement to 30 per cent of the
net profits of the business. Against this amount of damages, we must set off the damage defend ant suffered by
plaintiff's misrepresentation that he had the exclusive franchise, by which misrepresentation he obtained a very high
percentage of share in the profits. We can do no better than follow the appraisal that the parties themselves had
adopted.
When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which he pretended he
had and which he had agreed to transfer to the part nership, his spontaneous reaction was to reduce plaintiff's share
from 30 per cent to 15 per cent only, to which reduction defendant appears have readily given his assient. It was under
this understanding, which amounts to a virtual modification of the Contract, that the bottling plant was established
and plaintiff worked as Manager for the first three months. If the contract may not be considered modified as to
plaintiff's share in the profits, by the decision of defendant to reduce the same to one-half and the assent thereto of
plaintiff, then we may consider the said amount as a fair estimate of the damages plaintiff is entitled to under the
principle enunciated in the case of Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176. Defendant's decision to
reduce plaintiff's share and plaintiff's consent thereto amount to an admission on the part of each of the reasonableness
of this amount as plaintiff's share. This same amount was fixed by the trial court. The agreement contains the
stipulation that upon the termination of the partnership, defendant was
Copyright 2017 Central Book Supply, Inc. All rights reserved.
320 SUPREME COURT REPORTS ANNOTATED
Geraldez vs. Court of Appeals
G.R. No. 108253. February 23, 1994. *

LYDIA L. GERALDEZ, petitioner, vs. HON. COURT OF APPEALS and KENSTAR TRAVEL CORPORATION,
respondents.
Remedial Law; Evidence; It is a basic rule of evidence that a party must prove his own affirmative allegations.In an obvious
but hopeless attempt to arrive at a possible justification, private respondent further contends that it explained the concept of a
European tour manager to its clients at the pre-departure briefing, which petitioner did not attend. Significantly, however,
private respondent failed to present even one member of the tour group to substantiate its claim. It is a basic rule of evidence
that a party must prove his own affirmative allega-
_________________

TSN, August 3, 1992, p. 7.


23

*SECOND DIVISION.
321
VOL. 230, FEBRUARY 23, 1994 321
Geraldez vs. Court of Appeals
tions Besides, if it was really its intention to provide a juridical European tour manager, it could not have kept on promising
its tourists during the tour that a European tour manager would come, supposedly to join and assist them.
Civil Law; Contracts; Contracts of Adhesion; When a party imposes upon another a ready-made form of contract, and the
other is reduced to the alternative of taking it or leaving it, giving no room for negotiation and depriving the latter of the
opportunity to bargain on equal footing, a contract of adhesion results.While, generally, the terms of a contract result from the
mutual formulation thereof by the parties thereto, it is of common knowledge that there are certain contracts almost all the
provisions of which have been drafted by only one party, usually a corporation. Such contracts are called contracts of adhesion,
because the only participation of the party is the affixing of his signature or his adhesion thereto. In situations like these, when
a party imposes upon another a ready-made form of contract, and the other is reduced to the alternative of taking it or leaving
it, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing, a contract of adhesion
results. While it is true that an adhesion contract is not necessarily void, it must nevertheless be construed strictly against the
one who drafted the same. This is especially true where the stipulations are printed in fine letters and are hardly legible, as is
the case of the tour contract involved in the present controversy.
Remedial Law; Evidence; Res inter alios acta rule; The rights of a party cannot be prejudiced by an act, declaration, or
omission of another.Private respondent submits likewise that the tour was satisfactory, considering that only petitioner, out
of eighteen participants in the Volare 3 Tour Program, actually complained. We cannot accept this, argument. Section 28, Rule
130 of the Rules of Court declares that the rights of a party cannot be prejudiced by an act, declaration, or omission of another,
a statutory adaptation of the first branch of the hornbook rule of res inter alios acta which we do not have to belabor here.
Civil Law; Contracts; Damages; Moral damages may be awarded in breaches of contract where the obligor acted fraudulently
or in bad faith.On the foregoing considerations, respondent court erred in deleting the award for moral and exemplary
damages. Moral damages may be awarded in breaches of contract where the obligor acted fraudulently or in bad faith. From the
facts earlier narrated, private respondent can be faulted with fraud in the inducement, which is
322
322 SUPREME COURT REPORTS ANNOTATED
Geraldez vs. Court of Appeals
employed by a party to a contract in securing the consent of the other.
Same; Same; Damages; When moral damages are awarded, especially for fraudulent conduct, exemplary damages may also
be decreed.When moral damages are awarded, especially for fraudulent conduct, exemplary damages may also be decreed.
Exemplary damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated
or compensatory damages. According to the Code Commission, exemplary damages are required by public policy, for wanton acts
must be suppressed. An award, therefore, of P50,000.00 is called for to deter travel agencies from resorting to advertisements
and enticements with the intention of realizing considerable profit at the expense of the public, without ensuring compliance
with their express commitments. While, under the present state of the law, extraordinary diligence is not required in travel or
tour contracts, such as that in the case at bar, the travel agency acting as tour operator must nevertheless be held to strict
accounting for contracted services, considering the public interest in tourism, whether in the local or in the international scene.
Consequently, we have to likewise reject the theory of private respondent that the promises it made in the tour brochure may be
regarded only as commendatory trade talk.

PETITION for review of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.


Natividad T. Perez for petitioner.
Bito, Lozada, Ortega & Castillo for private respondent.

REGALADO, J.:

Our tourism industry is not only big business; it is a revenue support of the nations economy. It has become a matter
of public interest as to call for its promotion and regulation on a cabinet level. We have special laws and policies for
visiting tourists, but such protective concern has not been equally extended to Filipino tourists going abroad. Thus,
with the limited judicial relief available within the ambit of present laws, our tourists often prefer to forget their
grievances against local tour operators who fail to deliver on their undertakings. This case illustrates the recourse of
one such tourist who refused to forget.
An action for damages by reason of contractual breach was
323
VOL. 230, FEBRUARY 23, 1994 323
Geraldez vs. Court of Appeals
filed by petitioner Lydia L. Geraldez against private respondent Kenstar Travel Corporation, docketed as Civil Case
No. Q-90-4649 of the Regional Trial Court of Quezon City, Branch 80. After the parties failed to arrive at an amicable
1

settlement, trial on the merits ensued.


Culling from the records thereof, we find that sometime in October, 1989, petitioner came to know about private
respondent from numerous advertisements in newspapers of general circulation regarding tours in Europe. She then
contacted private respondent by phone and the latter sent its representative, Alberto Vito Cruz, who gave her the
brochure for the tour and later discussed its highlights. The European tours offered were classified into four, and
petitioner chose the classification denominated as VOLARE 3 covering a 22-day tour of Europe for $2,990.00. She
paid the total equivalent amount of P190,000.00 charged by private respondent for her and her sister, Dolores.
Petitioner claimed that, during the tour, she was very uneasy and disappointed when it turned out that, contrary
to what was stated in the brochure, there was no European tour manager for their group of tourists, the hotels in
which she and the group were billeted were not first-class, the UGC Leather Factory which was specifically added as
a highlight of the tour was not visited, and the Filipino lady tour guide provided by private respondent was a first
timer, that is, she was performing her duties and responsibilities as such for the first time.
2

In said action before the Regional Trial Court of Quezon City, petitioner likewise moved for the issuance of a writ
of preliminary attachment against private respondent on the ground that it committed fraud in contracting an
obligation, as contemplated in Section 1(d), Rule 57 of the Rules of Court, to which no opposition by the latter appears
on the record. This was granted by the court a quo but the preliminary attachment was subsequently lifted upon the
3

filing by private respondent of a counterbond amounting to P990,000.00. 4

________________

1 Original Record, 1.
2 Ibid., 90.
3 Ibid., 124.

4 Ibid., 152.

324
324 SUPREME COURT REPORTS ANNOTATED
Geraldez vs. Court of Appeals
During the pendency of said civil case for damages, petitioner also filed other complaints before the Department of
Tourism in DOT Case No. 90-121 and the Securities and Exchange Commission in PED Case No. 90-3738, wherein, 5

according to petitioner, herein private respondent was meted out a fine of P10,000.00 by the Commission and
P5,000.00 by the Department, which facts are not disputed by private respondent in its comment on the present
6

petition
[No. 14335. January 28, 1920.]
MANUEL DE GUIA, plaintiff and appellant, vs. THE MANILA ELECTIC RAILROAD & LIGHT COMPANY,
defendant and appellant.

1. 1.CONTRACTS; NEGLIGENT PERFORMANCE; POWER OF COURT TO MODERATE LIABILITY.In determining


the extent of liability for losses or damages resulting from negligence in the fulfillment of

707
VOL. 40, JANUARY 28, 1920 707
De Guia, vs. Manila Electric Railroad & Light Co.

1. a contractual obligation the courts have a discretionary power to moderate liability according to the circumstances.

1. 2.CARRIERS; CARRIAGE OF PASSENGERS FOR HIRE; CONTRACTUAL OBLIGATION OF CARRIER.The


obligation assumed by a street-railway company, engaged in the transportation of passengers for hire, towards a person
who embarks for conveyance in one of its coaches, is of a contractual nature; and the company is bound to convey its
passengers safely and securely with reference to the degree of care required by law and custom applicable to the case.

1. 3.ID.; ID.; ID.; LIABILITY OF CARRIER FOR NEGLIGENCE OF EMPLOYEE.Upon failure to comply with this
obligation the carrier incurs the liability commonly incident to the breach of contractual obligations; and where the
delinquency is due to the negligence if its employee, the carrier cannot avail itself of the defense that it had exercised
due care in the selection and instruction of such employee and that he was in fact an experienced and reliable servant.

1. 4.ID.; ID.; ID.; EXTENT OF CARRIER'S LIABILITY FOR LOSSES AND DAMAGES; GOOD FAITH.A street-railway
company which has exercised due care in the selection and instruction of the motorman upon one of its cars should be
considered a debtor in good faith as regards liability towards a passenger who is injured by the negligence of the
motorman in directing the car; and the liability of the carrier to the injured party extends to such losses and damages
only as could be reasonably foreseen as a probable consequence of the physical injuries inflicted upon the passenger and
which are in fact a necessary result of those injuries.

1. 5.PHYSICAL INJURIES; DAMAGES; EXPENSES OF MEDICAL SERVICE.A person who is entitled to recover
expenses of cure as an item of damage in a civil action for physical injuries cannot recover doctor's bills for services
gratuitously rendered; and the claim must furthermore be limited to medical services reasonably suited to the case.
Charges of professional experts retained merely with a view to promote the success of the action for damages should not
be allowed.

APPEAL from a judgment of the Court of First Instance of Manila. Del Rosario, J.
The facts are stated in the opinion of the court.
Sumulong & Estrada, Crossfield & O'Brien and Francisco A. Delgado for plaintiff-appellant.
Lawrence & Ross for defendant-appellant.
708
708 PHILIPPINE REPORTS ANNOTATED
De Guia vs. Manila Electric Railroad & Light Co.

STREET, J.:

This is an appeal prosecuted both by the plaintiff and the defendant from a judgment of the Court of First Instance of
the City of Manila, whereby the plaintiff was awarded the sum of P6,100, with interest and costs, as damages incurred
by him in consequence of physical injuries sustained while riding on one of the defendant's car.
The accident which gave rise to the litigation occurred on September 4, 1915, near the end of the street-car line in
Caloocan, Rizal, a northern suburb of the city of Manila. It appears that, at about 8 o'clock p. m., of the date mentioned,
the plaintiff Manuel de Guia, a physician residing in Caloocan, boarded a car at the end of the line with the intention
of coming to the city. At about 30 meters from the starting point the car entered a switch, the plaintiff remaining on
the back platform holding the handle of the right-hand door. Upon coming out of the switch, the small wheels of the
rear truck left the track, ran for a short distance along the macadam filling, which was flush with the rails, and struck
a concrete post at the left of the track. The post was shattered; and as the car stopped the plaintiff was thrown against
the door with some violence, receiving bruises and possibly certain internal injuries, the extent of which is a subject
of dispute.
The trial court found that the motorman of the derailed car was negligent in having maintained too rapid a speed.
This inference appears to be based chiefly upon the results of the shock, involving the shattering of the post and the
bending of the kingpost of the car. It is insisted for the defendant company that the derailment was due to the presence
of a stone, somewhat larger than a goose egg, which had become accidentally lodged between the rails at the juncture
of the switch and which was unobserved by the motorman. In this view the derailment of the car is supposed to be due
to casus fortuitos and not chargeable to the negligence of the motorman.
709
VOL. 40, JANUARY 28, 1920 709
De Guia vs. Manila Electric Railroad & Light Co.
Even supposing that the derailment of the car was due to the accidental presence of such a stone as suggested, we do
not think that the existence of negligence is disproved. The motorman says that upon approaching the switch he
reduced the electrical energy to the point that the car barely entered the switch under its own momentum, and this
operation was repeated as he passed out. Upon getting again on the straight track he put the control successively at
points one, two, three and lastly at point four. At the moment when the control was placed at point four he perceived
that the rear wheels were derailed and applied the brake; but at the same instant the car struck the post, some 40
meters distant from the exit of the switch. One of the defendant's witnesses stated in court that the rate of a car
propelled by electricity with the control at point "four" should be about five or 6 miles per hour. There was some other
evidence to the effect that the car was behind schedule time and that it was being driven, after leaving the switch, at
a higher rate than would ordinarily be indicated by the control at point four. This inference is rendered more tenable
by the circumstance that the car was practically empty. On the whole, we are of the opinion that the finding of
negligence in the operation of the car must be sustained, as not being clearly contrary to the evidence; not so much
because of excessive speed as because of the distance which the car was allowed to run with the front wheels of the
rear truck derailed. It seems to us that an experienced and attentive motorman should have discovered that something
was wrong and would have stopped before he had driven the car over the entire distance from the point where the
wheels left the track to the place where the post was struck.
The conclusion being accepted that there was negligence on the part of the motorman in driving the car, it, results
that the company is liable for the damage resulting to the plaintiff as a consequence of that negligence. The plaintiff
had boarded the car as a passenger for the city of Manila and the company undertook to convey him for hire. The
710
710 PHILIPPINE REPORTS ANNOTATED
De Guia, vs. Manila Electric Railroad & Light Co.
relation between the parties was, therefore, of a contractual nature, and the duty of the carrier is to be determined
with reference to the principles of contract law, that is, the company was bound to convey and deliver the plaintiff
safely and securely with reference to the degree of care which, under the circumstances, is required by law and custom
applicable to the case (art. 1258, Civil Code). Upon failure to comply with that obligation the company incurred the
liability defined in articles 1103-1107 of the Civil Code. (Cangco vs. Manila Railroad Company, 38 Phil. Rep., 768;
Manila Railroad Company vs. Compaia Trasatlantica, and Atlantic, Gulf & Pacific Co., 38 Phil. Rep., 875.)
From the nature of the liability thus incurred, it is clear that-the defendant company can not avail itself of the last
paragraph of article 1903 of the Civil Code, since that provision has reference to liability incurred by negligence in the
absence of contractual relation, that is, to the culpa aquiliana of the civil law. It was therefore irrelevant for the
defendant company to prove, as it did, that the company had exercised due care in the selection and instruction of the
motorman who was in charge of its car and that he was in fact an experienced and reliable servant.
At this point, however, it should be observed that although in case like this the defendant must answer for the
consequences of the negligence of its employee, the court has the power to moderate liability according- to the
circumstances of the case (art. 1103, Civ. Code). Furthermore, we think it obvious that an employer who has in fact
displayed due diligence in choosing and instructing his servants is entitled to be considered a debtor in good faith,
within the meaning of article 1107 of the same Code. Construing these two provisions together, and applying them to
the facts of this case, it results that the defendant's liability is limited to such damages as might, at the time of the
accident, have been reasonably foreseen as a probable consequence of the physical injuries inflicted upon the plaintiff
and which were in fact a necessary result of those injuries. There is nothing novel in this proposition, since both the
civil and
711
VOL. 40, JANUARY 28, 1920 711
De Guia vs. Manila Electric Railroad & Light Co.
the common law are agreed upon the point that the damages ordinarily recoverable for the breach of a contractual
obligation, against a person who has acted in good faith, are such as can reasonably be foreseen at the time the
obligation is contracted. In Daywalt vs. Corporacin de PP. Agustinos Recoletos (39 Phil., 587), we said: "The extent
of the liability for the breach of a contract must be determined in the light of the situation in existence at the time the
contract is made; and the damages ordinarily recoverable are in all events limited to such as might be reasonably
foreseen in the light of the facts then known to the contracting parties."
This brings us to consider the amount which may be awarded to the plaintiff as damages. Upon this point the trial
judge found that, as a result of the physical and nervous derangement resulting from the accident, Dr. De Guia was
unable properly to attend to his prof essional labors for three months and suspended his practice for that period. It
was also proved by the testimony of the plaintiff that his customary income, as a physician, was about P300 per month.
The trial judge accordingly allowed P900, as damages for loss of professional earnings. This allowance is attacked
upon appeal by the defendant as excessive both as to the period and rate of allowance. Upon examining the evidence
we fell disinclined to disturb this part of the judgment, though it must be conceded that the estimate of the trial judge
on this point was liberal enough to the plaintiff.
Another item allowed by the trial judge consists of P3,900, which the plaintiff is supposed to have lost by reason of
his inability to accept a position as district health officer in Occidental Negros.. It appears in this connection that Mr.
Alunan, representative from Occidental Negros, had asked Dr. Montinola, who supposedly had. the authority to make
the appointment, to nominate the plaintiff to such position. The job was supposed to be good for two years, with a
salary of ?1,600 per annum, and possibility of outside practice worth P350. Accepting these sugestions as true, it is
evident that the damages thus incurred are too specu-
712
712 PHILIPPINE REPORTS ANNOTATED
De Guia vs. Manila Electric Railroad & Light Co.
lative to be the basis of recovery in a civil action. This element of damages must therefore be eliminated. It goes
without saying that damage of this character could not, at. the time of the accident, have been foreseen by the
delinquent party as a probable consequence of the injury inflicteda circumstance which makes applicable article
1107 of the Civil Code, as already expounded.
The last element of damages to be considered is the item of the plaintiff's doctor's bills, a subject which we
momentarily pass for discussion further on, since the controversy on this point can be more readily understood in
connection with the question raised by the plaintiff's appeal.
The plaintiff alleges in the complaint that the damages incurred by him as a result of the injuries in question ascend
to the amount of P40,000. Of this amount the sum of P10,000 is supposed to represent the cost of medical treatment
and other expenses incident to the plaintiff's cure, while the remainder (P30,000) represents the damage resulting
from the character of his injuries, which are supposedly such as to incapacitate him for the exercise of the medical
profession in the future. In support of these claims the plaintiff introduced evidence, consisting of his own testimony
and that of numerous medical experts, tending to show that as a result of the injuries in question he had developed
infarct of the liver and traumatic neurosis, accompanied by nervousness, vertigo, and other disturbing symptoms of a
serious and permanent character, it being claimed that these manifestations of disorder rendered him liable to a host
of other dangerous diseases, such as pleuresy, tuberculosis, pneumonia, and pulmonary gangrene, and that restoration
to health could only be accomplished, if at all, after long years of complete repose. The trial judge did not take these
pretensions very seriously, and, as already stated, limited the damages to the three items of professional earnings,
expenses of medical treatment, and the loss of the appointment as medical inspector in Occidental Negros. As the
appeal of the plaintiff opens the whole case upon the question of damages, it is desirable to present a somewhat
713
VOL. 40, JANUARY 28; 1920 713
De Guia vs. Manila Electric Railroad & Light Co.
fuller statement than that already given with respect to extent and character of the injuries in question.
The plaintiff testified that, at the time the car struck against the concrete post, he was standing on the rear
platform, grasping the handle of the right-hand door. The shock of the impact threw him f orward, and the left t part
of his chest struck against the door causing him to fall. In falling, the plaintiff says, his head struck one of the seats
and he became unconscious. He was presently taken to his home which was only a short distance away, where he was
seen at about 10 o'clock p. m., by a physician in the employment of the defendant company. This physician says that
the plaintiff was then walking about and apparently suffering somewhat from bruises on his chest. He said nothing
about his head being injured and refused to go to a hospital. Later, during the same night Dr. Carmelo Basa was called
in to see the plaintiff. This physician says that he found Doctor De Guia lying in bed and complaining of a severe pain
in the side. During the visit of Doctor Basa the plaintiff several times spit up blood, a manifestation no doubt due to
the effects of the bruises received in his side. The next day Doctor De Guia went into Manila to consult another
physician, Doctor Miciano, and during the course of a few weeks he called into consultation other doctors who were
introduced as witnesses in his behalf at the trial of this case. According to the testimony of these witnesses, as well as
that of the plaintiff himself, the symptoms of physical and nervous derangement in the plaintiff speedily developed in
portentous degree.
Other experts were introduced by the defendant whose testimony tended to show that the plaintiff's injuries,
considered in their physical effects, were trivial and that the attendant nervous derangement, with its complicated
train of ailments, was merely simulated.
Upon this question the opposing medical experts ventilated a considerable mass of professional learning with
reference to the nature and effects of the baffling disease
714
714 PHILIPPINE REPORTS ANNOTATED
De Guia vs. Manila Electric Railroad & Light Co.
known as traumatic neurosis, or traumatic hysteriaa topic which has been the occasion of much controversy in
actions of this character in the tribunals of Europe and America. The subject is one of considerable interest from a
medico-legal point of view, but we deem it unnecessary in this opinion to enter upon a discussion of its voluminous
literature. It is enough to say that in our opinion the plaintiff's case f or large damages in respect to his supposed
incapacitation for future professional practice is not made out. Of course in this jurisdiction damages can not be
assessed in favor of the plaintiff as compensation for the physical or mental pain which he may have endured
(Marcelo vs. Velasco, 11 Phil. Rep., 287); and the evidence relating to the injuries, both external and internal, received
by him must be examined chiefly in its bearing upon his material welfare, are, that is, in its results upon his earning
capacity and the expenses incurred in restoration to the usual condition of health.
The evidence before us shows that immediately after the accident in question Doctor De Guia, sensing in the
situation a possibility of profit, devoted himself with great assiduity to the promotion of this litigation; and with the
aid of his own professional knowledge, supplemented by suggestions obtained from his professional friends and
associates, he enveloped himself more or less unconsciously in an atmosphere of delusion which rendered him
incapable of appreciating at their true value the symptoms of disorder which he developed. The trial court was in our
opinion fully justified in rejecting the exaggerated estimate of damages thus created.
We now pass to the consideration of the amount allowed to the plaintiff by the trial judge as the expenses incurred
for medical service. In this connection Doctor Montes testified that he was first called to see the plaintiff upon
September 14, 1915, when he found him suffering from traumatic neurosis. Three months later he was called upon to
treat the same patient for an acute catarrhal condition, involving disturbance in the pulmonary region. The treat-
715
VOL. 40, JANUARY 28, 1920 715
De Guia vs. Manila Electric Railroad & Light Co.
ment for this malady was successful after two months, but at the end of six months the same trouble recurred and
required f urther treatment. In October of the year 1916, or more than a year after the accident in question occurred,
Doctor Montes was called in consultation with Doctor Guerrero to make an examination of the plaintiff. Doctor Montes
says that his charges altogether for services rendered to the plaintiff amount to P350, of which the sum of P200 had
been paid by the plaintiff upon bills rendered from time to time. This physician speaks in the most general terms with
respect to the times and extent of the services rendered; and it is by no means clear that those services which were
rendered many months, or year, after the accident had in fact any necessary or legitimate relation to the injuries
received by the plaintiff. In view of the vagueness and uncertainty of the testimony relating to Doctor Montes's services
we are of the opinion that the sum of P200, or the amount actually paid to him by the plaintiff, represents the extent
of the plaintiff's obligation with respect to treatment for said injuries.
With regard to the obligation supposedly incurred by the plaintiff to three other physicians, we are of the opinion
that they are not a proper subject of recovery in this action; and this for more than one reason. In the first place, it
does not appear that said physicians have in fact made charges for those services with the intention of imposing
obligations on the plaintiff to pay for them. On the contrary it would seem that said services were gratuitously
rendered out of courtesy to the plaintiff as a member of the medical profession. The suggestions made on the stand by
these physicians to the effect that their services were worth the amounts stated by them are not sufficient to prove
that the plaintiff had incurred the obligation to pay those amounts. In the second place, we are convinced that in
employing so many physicians the plaintiff must have had in view the successful promotion of the issue of this lawsuit
rather than the bona fide purpose of effecting the cure of his injuries. In order to constitute a proper element of
716
716 PHILIPPINE REPORTS ANNOTATED
De Guia vs. Manila Electric Railroad & Light Co.
recovery in an action of this character, the medical service for which reimbursement is claimed should not only be
such as to have created a legal obligation upon the plaintiff but such as was reasonably necessary in view of his actual
condition. It can not be permitted that a litigant should retain an unusual and unnecessary number of professional
experts with a view to the successful promotion of a lawsuit and expect to recover against his adversary the entire
expense thus incurred. His claim f or medical services must be limited to such expenditures as were reasonably suited
to the case.
The second error assigned in the brief of the defendant company presents a question of practice which, though not
vital to the solution of this case, is of sufficient general importance to merit notice. It appears that f our of the
physicians examined as witnesses for the plaintiff had made written statements at various dates certifying the results
of their respective examinations into the condition of the plaintiff. When these witnesses were examined in court they
identified their respective signatures to these certificates and the trial judge, over the defendant's objection, admitted
the documents as primary evidence in the case. This was undoubtedly erroneous. A document of this character is not
primary evidence in any sense, since it is f undamentally of a hearsay nature; and the only legitimate use to which
one of these certificates could be put, as evidence for the plaintiff, was to allow the physician who issued it to refer
thereto to refresh his memory upon details which he might have forgotten. In Zwangizer vs. Newman (83 N. Y. Supp.,
1071) which was also an action to recover damages for personal injury, it appeared that a physician, who had been
sent by one of the parties to examine the plaintiff, had made at the time a written memorandum of the results of the
examination; and it was proposed to introduce this document in evidence at the trial. It was excluded by the trial
judge, and it was held upon appeal that this was proper. Said the court: "There was no failure or exhaustion of the
717
VOL. 40, JANUARY 29, 1920 717
Rivera, vs. Roman Catholic Archbishop of Manila.
memory, and no impeachment of the memorandum on crossexamination; and the document was clearly incompetent
as evidence in chief."
It results from the foregoing that the judgment appealed from must be modified by reducing the amount of the
recovery to eleven hundred pesos (P1,100), with legal interest from November 8, 1916. As thus modified the judgment
is affirmed, without any special pronouncement as to costs of this instance. So ordered.
Arellano, C. J., Torres, Araullo, Malcolm, and Avancea, JJ., concur.
Judgment modified.

____________

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122 SUPREME COURT REPORTS ANNOTATED
Sarmiento vs. Cabrido
G.R. No. 141258. April 9, 2003. *

TOMASA SARMIENTO, petitioner, vs. SPS. LUIS & ROSE SUNCABRIDO and MARIA LOURDES SUN,
respondents.
Civil Law; Contracts; Negligence; Obligations arising from contracts have the force of law between the contracting parties.
Obligations arising from contracts have the force of law between the contracting parties. Corollarily, those who in the
performance of their obligations are guilty of fraud, negligence or delay and those who in any manner contravene the tenor
thereof, are liable for damages. The fault or negligence of the obligor consists in the omission of that diligence which is required
by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place.
Same; Same; Damages; Moral damages; As a general rule, moral damages are not recoverable in actions for damages
predicated on breach of contract.As a general rule, moral damages are not recoverable in actions for damages predicated on a
breach of contract for it is not one of the items enumerated under Article 2219 of the Civil Code. Moral damages may be awarded
in a breach of contract only when there is proof that defendant acted in bad faith, or was guilty of gross negligence amounting to
bad faith, or in wanton disregard of his contractual obligation.
______________

*THIRD DIVISION.
123
VOL. 401, APRIL 9, 2003 123
Sarmiento vs. Cabrido

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.


Liberato G. Casilan, Jr. for petitioner.
Alfonso Dela Serna for respondents.

CORONA, J.:

This appeal by certiorari stems from the Decision of respondent Court of Appeals promulgated on November 26, 1999
1

in CA-G.R. SP No. 47431 declaring the private respondents not liable for damages.
Petitioner, Tomasa Sarmiento, states that sometime in April 1994, a friend, Dra. Virginia Lao, requested her to
find somebody to reset a pair of diamond earrings into two gold rings. Accordingly, petitioner sent a certain Tita Payag
2

with the pair of earrings to Dingdings Jewelry Shop, owned and managed by respondent spouses Luis and Rose
Cabrido, which accepted the job order for P400.
3 4
Petitioner provided 12 grams of gold to be used in crafting the pair of ring settings. After 3 days, Tita Payag
5

delivered to the jewelry shop one of Dra. Laos diamond earrings which was earlier appraised as worth .33 carat and
almost perfect in cut and clarity. Respondent Ma. Lourdes (Marilou) Sun went on to dismount the diamond from its
6

original setting. Unsuccessful, she asked their goldsmith, Zenon Santos, to do it. Santos removed the diamond by
twisting the setting with a pair of pliers, breaking the gem in the process. 7

______________

1 Penned by Associate Justice Ma. Alicia Austria-Martinez and concurred in by Associate Justices B.A. Adefuin-de la Cruz and Presbitero J.

Velasco, Jr., Rollo, pp. 17-23.


2 TSN, December 14, 1994, pp. 7-8.

3 Exhibit I; TSN, February 7, 1995, p. 4.

4 Exhibit 1; TSN, November 8, 1994, pp. 3-4.

5 Exhibit C.

6 TSN, December 14, 1995, p. 9.

7 TSN, November 8, 1994, pp. 6-7.

124
124 SUPREME COURT REPORTS ANNOTATED
Sarmiento vs. Cabrido
Petitioner required the respondents to replace the diamond with the same size and quality. When they refused, the
petitioner was forced to buy a replacement in the amount of P30,000. 8

Respondent Rose Cabrido, manager of Dingdings Jewelry Shop, denied having entered into any transaction with
Tita Payag whom she met only after the latter came to the jewelry shop to seek compensation from Santos for the
broken piece of jewelry. However, it was possible that Payag may have availed of their services as she could not have
9

known every customer who came to their shop. Rose disclosed that she usually arrived at 11:00 a.m. When she was
not around, her mother and sister tended the shop. 10

Marilou admitted knowing Payag who came to Dingdings Jewelry Shop to avail of their services regarding a certain
piece of jewelry. After a short conversation, Payag went inside the shop to see Santos. When the precious stone was
broken by Santos, Payag demanded PI5,000 from him. As the latter had no money, she turned to Marilou for
reimbursement apparently thinking that Marilou was the owner of the shop. 11

For his part, Santos recalled that Payag requested him to dismount what appeared to him was a sapphire. While
clipping the setting with the use of a small pair of pliers, the stone accidentally broke. Santos denied being an employee
of Dingdings Jewelry Shop. 12

Attempts to settle the controversy before the barangay lupon proved futile. Consequently, petitioner filed a
13

complaint for damages on June 28, 1994 with the Municipal Trial Court in Cities (MTCC) of Tagbilaran City docketed
as Civil Case No. 2339 which rendered a decision in favor of the petitioner, the dispositive portion of which reads:
14

______________
8 Exhibit B; TSN, December 14, 1994, pp. 12-14.
9 TSN, February 7, 1995, pp. 4-5.
10 Id., p. 9.

11 TSN, August 18, 1995, pp. 3-4.

12 TSN, June 8, 1995, pp. 2-5.

13 Exhibit D.

14 Petition, Annex D, Rollo, pp. 29-36. Penned by Judge Emma Eronico-Supremo.

125
VOL. 401, APRIL 9, 2003 125
Sarmiento vs. Cabrido
WHEREFORE, Decision is hereby rendered in favor of plaintiff Tomasa Sarmiento and against defendants Spouses Luis and
Rose Sun-Cabrido, ordering defendants to pay jointly and severally the amount of Thirty Thousand Pesos (P30,000.00) as actual
or compensatory damages; Three Thousand Pesos (P3,000.00) as moral damages; Five Thousand Pesos (P5,000.00) as attorneys
fees; Two Thousand Pesos (P2,000.00) as litigation expenses, with legal interest of 6% per annum from the date of this decision
and 12% per annum from the date when this decision becomes final until the amounts shall have been fully paid and to pay the
costs.
This case as against defendant Maria Lourdes Sun as well as defendants counterclaim are dismissed for lack of merit.
SO ORDERED.
On appeal, the Regional Trial Court (RTC) of Tagbilaran City, Branch 3, reversed the decision of the MTCC, thus
absolving the respondents of any responsibility arising from breach of contract. Finding no reversible error, the Court
15

of Appeals (CA) affirmed the judgment of the RTC in its Decision promulgated on November 26, 1999. 16

Unable to accept the decision, the petitioner filed the instant petition for review with the following assigned errors:
I

THE COURT OF APPEALS ERRED IN MAINTAINING AND SO HOLDING THAT ZENON SANTOS IS NOT AN EMPLOYEE
OF DEFENDANT (herein respondent) ROSE SUN-CABRIDO, AND IS THEREFORE ANSWERABLE FOR HIS OWN ACTS
OR OMISSIONS

II

THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE REGIONAL TRIAL COURTS
PRONOUNCEMENTS THAT THERE EXISTS NO AGREEMENT BETWEEN THE PETITIONER AND RESPONDENTS
THAT THE LATTER WOULD ANSWER FOR ANY LIABILITY SHOULD THE DIAMOND BE DAMAGED IN THE PROCESS
OF DISMOUNTING THEM FROM THE EARRINGS.
______________

Petition, Annex B, Rollo, pp. 24-28. Penned by Judge Pacito A. Yape.


15

See footnote no. 1.


16

126
126 SUPREME COURT REPORTS ANNOTATED
Sarmiento vs. Cabrido
Essentially, petitioner claims that the dismounting of the diamond from its original setting was part of the obligation
assumed by the private respondents under the contract of service. Thus, they should be held liable for damages arising
from its breakage. On the other hand, the version of the private respondents, upheld by the RTC and the CA, is that
their agreement with the petitioner was for crafting two gold rings mounted with diamonds only and did not include
the dismounting of the said diamonds from their original setting. Consequently, the crux of the instant controversy is
17

the scope of the obligation assumed by the private respondents under the verbal contract of service with the petitioner.
The Court notes that, during the trial, private respondents vigorously denied any transaction between Dingdings
Jewelry Shop and the petitioner, through Tita Payag. Rose Cabrido, for instance, denied having ever met Payag before
the latter came to seek reimbursement for the value of the broken diamond. Likewise, while Marilou acknowledged
acquaintance with Payag, she nevertheless denied accepting any job order from her. Debunking their protestations,
however, the MTCC of Tagbilaran City rendered its decision on November 26, 1999 in favor of herein petitioner.
Apparently realizing the weakness and futility of their position, private respondents conceded, on appeal, the
existence of an agreement with the petitioner for crafting a pair of gold rings mounted with diamonds. This apparent
concession by the private respondents, however, was really nothing but an ingenious ma-neuver, designed to preclude,
just the same, any recovery for damages by the petitioner. Thus, while ostensibly admitting the existence of the said
agreement, private respondents, nonetheless denied assuming any obligation to dismount the diamonds from their
original settings. 18

The inconsistent position of the private respondents impugns their credibility. They cannot be permitted to adopt
a certain stance, only to vacillate later to suit their interest. We are therefore inclined to agree with the MTCC in
giving credence to the version of the petitioner. The MTCC had the unique opportunity to
______________

Comment, Rollo, p. 57.


17

Appellants Brief, Original Records, pp. 97-101.


18

127
VOL. 401, APRIL 9, 2003 127
Sarmiento vs. Cabrido
actually observe the behavior and demeanor of the witnesses as they testified during the trial. 19

At any rate, the contemporaneous and subsequent acts of the parties support the version of the petitioner. Thus,
20

when Tita Payag asked Marilou of Dingdings Jewelry Shop to reset a pair of diamond earrings, she brought with her
the said pieces of jewelry so that the diamonds which were still mounted could be measured and the new ring settings
crafted accordingly. On the said occasion, Marilou expressed no reservation regarding the dismounting of the
diamonds which, after all, was an integral part of petitioners job order. She should have instructed Payag to have
them dismounted first if Marilou had actually intended to spare the jewelry shop of the task but she did not. Instead,
petitioner was charged P400 for the job order which was readily accepted. Thus, a perfected contract to reset the pair
of diamond earrings arose between the petitioner, through Payag, and Dingdings Jewelry Shop, through Marilou.
Marilous subsequent actuations were even more revealing as regards the scope of obligation assumed by the
jewelry shop. After the new settings were completed in 3 days, she called up the petitioner to bring the diamond
earrings to be reset. Having initially examined one of them, Marilou went on to dismount the diamond from its
21

original setting. Unsuccessful, she then delegated the task to their goldsmith, Zenon Santos. Having acted the way
she did, Marilou cannot now deny the shops obligation to reset the pair of earrings.
Obligations arising from contracts have the force of law between the contracting parties. Corollarily, those who in
22

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. The fault or negligence of the obligor consists in the omission of that
23

diligence which is required by the nature of the


______________

19 People vs. Lacsa, 339 SCRA 178, 190 [2000]; People vs. Continente, 339 SCRA 1, 29 [2000]; People vs. Barro, Sr. 338 SCRA 312, 322 [2000].
20 Tanguilig vs. CA, 334 Phil. 68, 74; 266 SCRA 78 [1997].
21 TSN, December 14, 1994, p. 11.

22 Article 1159, Civil Code of the Philippines.

23 Article 1170, Civil Code of the Philippines.

128
128 SUPREME COURT REPORTS ANNOTATED
Sarmiento vs. Cabrido
obligation and corresponds with the circumstances of the persons, of the time and of the place. 24

In the case at bar, it is beyond doubt that Santos acted negligently in dismounting the diamond from its original
setting. It appears to be the practice of the trade to use a miniature wire saw in dismounting precious gems, such as
diamonds, from their original settings. However, Santos employed a pair of pliers in clipping the original setting, thus
25

resulting in breakage of the diamond. The jewelry shop failed to perform its obligation with the ordinary diligence
required by the circumstances. It should be pointed out that Marilou examined the diamond before dismounting it
from the original setting and found the same to be in order. Its subsequent breakage in the hands of Santos could only
have been caused by his negligence in using the wrong equipment. Res ipsa loquitur. Private respondents seek to
avoid liability by passing the buck to Santos who claimed to be an independent worker. They also claim, rather lamely,
that Marilou simply happened to drop by at Dingdings Jewelry Shop when Payag arrived to place her job order. 26

We do not think so.


The facts show that Santos had been working at Dingdings Jewelry Shop as goldsmith for about 6 months accepting
job orders through referrals from private respondents. On the other hand, Payag stated that she had transacted with
27

Dingdings Jewelry Shop on at least 10 previews occasions, always through Marilou. The preponderance of evidence
28
supports the view that Marilou and Zenon Santos were employed at Dingdings Jewelry Shop in order to perform
activities which were usually necessary or desirable in its business. 29

______________

24 Article 1173, Civil Code of the Philippines.


25 TSN, January 20, 1995, p. 3.
26 TSN, August 18, 1995, p. 3.

27 TSN, June 8, 1995, pp. 6-7.

28 TSN, November 8, 1994, p. 4.

29 Article 280 of the Labor Code pertinently provides:

Art. 280. Regular and Casual Employment.The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreement of the parties,
an employment shall be deemed to be regular where the employee has been engaged to perform ac-
129
VOL. 401, APRIL 9, 2003 129
Sarmiento vs. Cabrido
We therefore hold that an obligation to pay actual damages arose in favor of the petitioner against the respondents
spouses who admittedly owned and managed Dingdings Jewelry Shop. It was proven that petitioner replaced the
damaged jewelry in the amount of P30,000. 30

The facts of the case also justify the award of moral damages. As a general rule, moral damages are not recoverable
in actions for damages predicated on a breach of contract for it is not one of the items enumerated under Article 2219
of the Civil Code. Moral damages may be awarded in a breach of contract only when there is proof that defendant
31

acted in bad faith, or was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual
obligation. Santos was a goldsmith for more than 40 years. Given his long experience in the trade, he should have
32 33

known that using a pair of pliers instead of a miniature wire saw in dismounting a precious stone like a diamond
would have entailed an unnecessary risk of breakage. He went on with it anyway. Hence, respondent spouses are
liable for P10,000 as moral damages due to the gross negligence of their employee.
However, private respondents refusal to pay the value of the damaged jewelry emanated from an honest belief that
they were not responsible therefor, hence, negating any basis for the award of attorneys fees. 34

WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of Appeals dated November
26, 1999 is hereby reversed and set aside. Private respondents Luis Cabrido and Rose Sun-Cabrido are hereby ordered
to pay, jointly and severally, the amount of P30,000 as actual damages and P10,000 as moral damages in favor of the
petitioner.
No costs.
______________

tivities which are usually necessary or desirable in the usual business or trade of the employer x x x.
30 Exhibits B; F; G.
31 Calalas vs. Court of Appeals, 302 SCRA 356 [2000].
32 Magat, Jr. vs. Court of Appeals, 337 SCRA 298, 308 [2000]; Integrated Packaging Corporation vs. Court of Appeals, 333 SCRA 170 [2000].
33 TSN, June 8, 1995, p. 4.
34 Bernardo vs. Court of Appeals, 275 SCRA 413, 432 [1997].

130
130 SUPREME COURT REPORTS ANNOTATED
Republic vs. Manila Electric Company
SO ORDERED.
Puno (Chairman), Panganiban, Sandoval-Gutierrez and Carpio-Morales, JJ., concur.
Petition granted.
Note.Article 1370 of the Civil Code is applicable only to valid and enforceable contracts. (Nool vs. CA, 276 SCRA
149 [1997])

o0o

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528 SUPREME COURT REPORTS ANNOTATED
Crisostomo vs. Court of Appeals
G.R. No. 138334. August 25, 2003. *

ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF APPEALS and CARAVAN TRAVEL & TOURS
INTERNATIONAL, INC., respondents.
Civil Law; Common Carriers; Damages; Definition of common carrier.By definition, a contract of carriage or
transportation is one whereby a certain person or association of persons obligate themselves to transport persons, things, or
news from one place to another for a fixed price. Such person or association of persons are regarded as carriers and are classified
as private or special carriers and common or public carriers. A common carrier is defined under Article 1732 of the Civil Code as
persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by
lane, water or air, for compensation, offering their services to the public.
Same; Same; Same; Respondent is not an entity engaged in the business of transporting either passengers or goods and is
therefore neither a private nor a common carrier.It is obvious from the above definition that respondent is not an entity engaged
in the business of transporting either passengers or goods and is there fore, neither, a private nor a common carrier. Respondent
did not undertake to transport petitioner from one place to another since its covenant with its customers is simply to make travel
arrangements in their behalf. Respondents services as a travel agency include procuring tickets and facilitating travel permits
or visas as well as booking customers for tours.
Same; Same; Same; Respondent not being a common carrier but a travel agency is not bound under the law to observe
extraordinary diligence in the performance of its obligation.The nature of the contractual relation between petitioner and
respondent is determinative of the degree of care required in the performance of the latters obligation under the contract. For
reasons of public policy, a common carrier in a contract of carriage is bound by law to carry passengers as far as human care and
foresight can provide using the utmost diligence of very cautious persons and with due regard for all the circumstances. As earlier
stated, however, respondent is not a common carrier but a travel agency. It is thus not bound under the law to observe
extraordinary diligence in the performance of its obligation, as petitioner claims.
_______________

*FIRST DIVISION.
529
VOL. 409, AUGUST 25, 2003 529
Crisostomo vs. Court of Appeals
Same; Same
VOL. 545, FEBRUARY 15, 2008 441
Chavez vs. Gonzales
G.R. No. 168338. February 15, 2008. *

FRANCISCO CHAVEZ, petitioner, vs. RAUL M. GONZALES, in his capacity as the Secretary of the Department of
Justice; and NATIONAL TELECOMMUNICATIONS COMMISSION (NTC), respondents.
Judicial Review; Locus Standi; Where serious constitutional questions are involved, the transcendental importance to the
public of these cases demands that they be settled promptly and definitely, brushing aside if we must, technicalities of procedure.
Petitioner has not met the requisite legal standing, having failed to allege such a personal stake in the outcome of the
controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the Court so largely
depends for illumination of difficult constitutional questions. But as early as half a century ago, we have already held that where
serious constitutional questions are involved, the transcendental importance to the public of these cases demands that they be
settled promptly and definitely, brushing aside if we must, technicalities of procedure. Subsequently, this Court has repeatedly
and consistently refused to wield procedural barriers as impediments to its addressing and resolving serious legal questions that
greatly impact on public interest, in keeping with the Courts duty under the 1987 Constitution to determine whether or not
other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not
abused the discretion given to them.
Same; Freedom of Expression; In line with the liberal policy of the Supreme Court on locus standi when a case involves an
issue of overarching significance to our society, the Court brushes aside technicalities of procedure and takes cognizance of the
instant petition, seeing as it involves a challenge to the most exalted of all the civil rights, the freedom of expression.In line with
the liberal policy of this Court on locus standi when a case involves an issue of overarching significance to our society, we
therefore brush aside technicalities of procedure and take cognizance of this petition, seeing as it involves a challenge to the most
exalted of all the civil rights, the
_______________

*EN BANC.
442
442 SUPREME COURT REPORTS ANNOTATED
Chavez vs. Gonzales
freedom of expression.The petition raises other issues like the extent of the right to information of the public. It
is fundamental, however, that we need not address all issues but only the most decisive one which in the case at
bar is whether the acts of the respondents abridge freedom of speech and of the press.
Freedom of Expression; Hierarchy of Rights; Freedom of expression has gained recognition as a fundamental principle of
every democratic government, and given a preferred right that stands on a higher level than substantive economic freedom or other
liberties.Freedom of expression has gained recognition as a fundamental principle of every democratic government, and given
a preferred right that stands on a higher level than substantive economic freedom or other liberties. The cognate rights codified
by Article III, Section 4 of the Constitution, copied almost verbatim from the First Amendment of the U.S. Bill of Rights, were
considered the necessary consequence of republican institutions and the complement of free speech. This preferred status of free
speech has also been codified at the international level, its recognition now enshrined in international law as a customary norm
that binds all nations.
Same; Same; In the Philippines, the primacy and high esteem accorded freedom of expression is a fundamental postulate of
our constitutional system; It is only when the people have unbridled access to information and the press that they will be capable
of rendering enlightened judgmentswe cannot both be free and ignorant.In the Philippines, the primacy and high esteem
accorded freedom of expression is a fundamental postulate of our constitutional system. This right was elevated to constitutional
status in the 1935, the 1973 and the 1987 Constitutions, reflecting our own lesson of history, both political and legal, that freedom
of speech is an indispensable condition for nearly every other form of freedom. Moreover, our history shows that the struggle to
protect the freedom of speech, expression and the press was, at bottom, the struggle for the indispensable preconditions for the
exercise of other freedoms. For it is only when the people have unbridled access to information and the press that they will be
capable of rendering enlightened judgments. In the oft-quoted words of Thomas Jefferson, we cannot both be free and ignorant.
443
VOL. 545, FEBRUARY 15, 2008 443
Chavez vs. Gonzales
Same; Freedom of the Press; To be truly meaningful, freedom of speech and of