Santos vs Integrated Pharmaceutical Incorporated

DEL CASTILLO, J.:

Failure to comply strictly with the requirements-of procedural due process for dismissing an
employee will not render such dismissal ineffectual if it is based on a just or an authorized
cause. The employer, however, must be held liable for nominal damages for non-compliance
with the requirements of procedural due process.[1]

This Petition for Review on Certiorari[2] assails the August 31, 2012 Decision[3] of the Court of
Appeals (CA) in CA-G.R. SP No. 122180 that modified the July 14, 2011 Resolution[4] of the
National Labor Relations Commission (NLRC). Said Resolution of the NLRC affirmed the April 1,
2011 Decision[5] of the Labor Arbiter that, in turn, granted petitioner Rowena A. Santos's
(petitioner) Complaint[6] for illegal dismissal filed against respondents Integrated
Pharmaceutical, Inc. (Integrated Pharma) and/or Katheryn Tantiansu (Tantiansu).

Factual Antecedents

Integrated Pharma is a pharmaceutical marketing and distributing company. On February 26,

2005, it engaged the services of petitioner as "Clinician," tasked with the duty of promoting and
selling Integrated Pharma's products. Petitioner's work includes visiting doctors in different
hospitals located in Makati, Taguig, Pateros and Pasay.

On April 6, 2010, petitioner received a memorandum[7] from Alicia E. Gamos (Gamos), her
immediate supervisor and District Manager of Integrated Pharma, relative to her failure to remit
her collections and to return the CareSens POP demonstration unit to the office, at a specified
time.

On April 19, 2010, Maribel E. Suarez (Suarez), National Sales Manager for Pharmaceutical
Division of Integrated Pharma, called the petitioner to a meeting. Suarez informed petitioner
that the management discovered that instead of reporting P2.00 as the actual amount of her
travelling expense in going to the Fort Bonifacio Hospital, petitioner charged Integrated Pharma
P10.00 as and for her transportation expense.

Then in the morning of April 21, 2010, respondents attempted to serve upon petitioner a
memorandum[8] denominated as Memo on Padding of Expense Report. It charged petitioner
with (ii) attempting to coerce her immediate supervisor to pad her transportation expenses and
(ii) insubordination for not following the instructions of her immediate supervisor to report the
true amount of her transportation expenses. In the same memorandum, respondents required
petitioner to submit a written explanation within 24 hours in "aid [of] investigation."

Petitioner, however, refused to accept said memorandum.

Subsequently, petitioner received through registered mail another memorandum[9] likewise

dated April 21, 2010 but already denominated as Termination of Employment. It enumerated
five infractions which, allegedly, constrained respondents to terminate petitioner's
employment, viz.:

After weighing all the factors on the various infractions you have committed, to wit:

1. Overstating transportation expenses

2. Attempting to coerce your manager to overstate transportation

3. Unpleasant attitude towards clients, co-workers and superiors

4. Failure to remit collection on time

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5. Insubordination (e.g., failure to arrive at appointed meeting time, failure to submit
reports at designated hour, and, ultimately, refusal to accept the memo asking for a written
explanation on the incidents in question after verbally admitting to committing the stated
offenses)

and despite considering your length of stay in the company, we have come to a forced
conclusion to terminate your employment, x x x[10]

Petitioner thus filed a complaint[11] for illegal dismissal, nonpayment of salary, separation pay,
and 13th month pay, with claims for moral and exemplary damages and attorney's fees.

Ruling of the Labor Arbiter

In a Decision dated April 1, 2011,[12] the Labor Arbiter ruled that respondents failed to comply
with the two-notice requirement as the offenses stated in the April 21, 2010 memorandum
terminating petitioner's employment do not pertain to the same infractions enumerated in the
April 6, 2010 memorandum. Hence, there is no proof that petitioner was properly informed of
the charges against her. With regard to the charge of insubordination (specifically her failure to
remit her collections and to return the CareSens POP demonstration unit on time), the Labor
Arbiter opined that petitioner had already been reprimanded for such offense.

The Labor Arbiter likewise ruled the respondents failed to establish that there was a just cause
to terminate petitioner's employment; that petitioner is habitually tardy; and, that petitioner
was not entitled to P10.00 travelling allowance or that she pocketed the P8.00 difference. The
Labor Arbiter thus held Integrated Pharma liable for illegal dismissal and to pay petitioner
separation pay, backwages, unpaid salary, 13th month pay, and attorney's fees. The dispositive
portion of the Labor Arbiter's April 1, 2011 Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered finding respondent [sic] liable
for illegal dismissal and nonpayment of salary and 13th month pay. Respondent Integrated
Pharmaceutical Inc., is ordered to pay complainant Rowena A. Santos the aggregate amount of
Two Hundred Twenty Five Thousand Six Hundred Ninety Eight Pesos and 23/100 (P225,698.23)
representing separation pay, backwages, salary for April 11-21, 2010 and 13th month pay for
three (3) years, plus ten percent (10%) thereof as and for attorney's fees in the amount of
P22,569.82.

All other claims are dismissed for lack of merit.[13]

Not satisfied, respondents appealed to the NLRC. They insisted that petitioner was validly
dismissed for cause and with due process of law.

Ruling of the National Labor Relations Commission

In its Resolution[14] dated July 14, 2011, the NLRC sustained the ruling of the Labor Arbiter that
the additional infractions mentioned in the April 21, 2010 memorandum cannot be used against
petitioner for lack of prior notice. The NLRC likewise affirmed the ruling of the Labor Arbiter
anent the charge of padding of transportation expenses.

Respondents filed a Motion for Reconsideration. In a Resolution[15] dated August 23, 2011,
however, the NLRC likewise denied said motion.

Still unfazed by the adverse rulings of the labor tribunals, respondents filed before the CA a
Petition for Certiorari[16] ascribing grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the NLRC in rendering its July 14, 2011 Resolution.

Ruling of the Court of Appeals

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On August 31, 2012, the CA rendered its Decision[17] modifying the NLRC's Resolution. It held
that petitioner was not illegally dismissed and, therefore, not entitled to separation pay,
backwages, attorney's fees, damages, and 13th month pay. It opined that there are just causes
to terminate petitioner's employment because she was always late in district meetings and in
the submission of periodical reports, had committed acts of insubordination and dishonesty, and
her sales performance was far from satisfactory. The CA nonetheless agreed with the NLRC that
respondents failed to comply with the two-notice requirement. The fallo of the assailed CA
Decision reads:

WHEREFORE, premises considered, the petition is PARTLY GRANTED. The assailed Decision
dated 14 July 2011 of [the] National Labor Relations Commission is MODIFIED in that private
respondent was not illegally dismissed and, therefore, the awards of separation pay,
backwages, attorney's fees, other damages and 13th month pay are deleted. For failure to
comply with the twin notice requirements of due process in effecting the just dismissal of
private respondent, petitioner is ordered to pay private respondent the amount of P30,000.00
as nominal damages.

SO ORDERED.[18]

Petitioner filed a Motion for Partial Reconsideration.[19] In a Resolution[20] promulgated on

November 5, 2012, however, the CA denied petitioner's motion.

Issues

Feeling aggrieved, petitioner filed the instant Petition imputing upon the CA the following
errors:

I.

THE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT THERE IS SUFFICIENT
PROOF TO SUPPORT THE VARIOUS INFRACTIONS COMMITTED BY PETITIONER SANTOS.

II.

THE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT THE DISMISSAL OF
PETITIONER SANTOS WAS WITH JUST CAUSE.[21]

Petitioner contends that the CA erred in deviating from the uniform rulings of the labor tribunals
whose findings of facts are binding on the CA. She insists that the CA grievously erred in
delving into the factual issues of the case instead of limiting itself with the issue of jurisdiction.

Petitioner denies being habitually tardy. She claims that respondents failed to provide specific
instances where her alleged habitual tardiness could be deduced. Petitioner likewise faults the
CA in finding her guilty of insubordination since she was already reprimanded for the acts she
committed relative thereto. She maintains that she had dutifully abided with all the lawful
orders of Integrated Pharma.

As to her alleged dismal performance, petitioner argues that respondent Integrated Pharma has
no written policy as to the expected performance of its employees. Hence, it had no basis in
concluding that her performance was unsatisfactory.

Lastly, petitioner admits reporting the amount of P10.00 as her fare in going to the Fort
Bonifacio Hospital. Nevertheless, she denies overcharging respondents and maintains that she
only reported the actual amount she incurred in going to the said hospital. According to

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petitioner, to maximize her time, she used to take tricycles and pay P10.00 for her fare, instead
of multicabs for only P2.00. After all, respondents neither forbade her from taking tricycles nor
denied her claim for P10.00 tricycle fare. In fact, they allowed her to spend P10.00 for travel
expenses for quite some time already.

Respondents, on the other hand, argue that petitioner essentially assails the CA's factual
findings, which cannot be done in a petition for review on certiorari. They point out that the
Supreme Court is not a trier of facts and only questions of law can be raised in a petition for
review on certiorari. Hence, the Decision of the CA finding sufficient proof that petitioner
committed various infractions deserves full faith and credence. Respondents contend that these
infractions should be taken collectively; not singly or separately. Viewed as a whole, the series
of infractions committed by the petitioner constitutes serious misconduct that justifies the
termination of her employment. Specifically, respondents claim that petitioner was guilty of
habitual absenteeism and tardiness, insubordination, and dishonesty. According to respondents,
petitioner was habitually absent as shown by the evaluation reports and affidavits[22] of
petitioner's immediate supervisors who stated that petitioner was always late in district
meetings and in the submission of required reports. She committed insubordination when she
refused to heed to the reasonable instructions of her supervisor to remit her collections and to
bring the CareSens POP demonstration unit at the particular time specified by her supervisor.
And, petitioner is guilty of dishonesty because she overstated her travel expenses.

Respondents further contend that they did not reprimand respondent in the April 6, 2010
memorandum. Said memorandum is actually the first written notice in effecting termination of
employment.

Our Ruling

We dismiss the Petition.

At the outset, we note that the Petition essentially assails the factual findings of the CA. As a
rule, this Court does not analyze and weigh again the evidence presented before the tribunals
below because it is not a trier of facts.[23] The only issues it can pass upon in a Petition for
Review on Certiorari are questions of law. In view, however, of the conflicting findings of the
labor tribunals and the CA, this Court finds it compelling to make its own independent findings
of facts.[24]

Petitioner was guilty of gross and

habitual neglect of duty for being
excessively tardy.

Records reveal that petitioner was indeed habitually tardy. She was always late in district
meetings and in the submission of her periodic reports. These are borne out by the
evaluation[25] conducted by petitioner's former supervisor, Arnelo R. Penaranda, on September
26, 2008 where it was observed that petitioner was "[a]lways late during District Meetings and
[in] passing x x x required reports."[26]Correspondingly, in a scale of 1-5 (5 being the highest),
petitioner was given a low mark of 1.5 as to punctuality. Despite such rock-bottom mark,
however, the result on petitioner's evaluation[27] conducted barely two years later by her new
supervisor did not show any sign of improvement. She still failed "to report on time both in the
office and during regular field work visits."[28]

The memorandum[29] dated April 6, 2010 also bears out petitioner's lack of deep sense of duty
and punctuality. In that memorandum, petitioner was chastised for arriving in the office late in
the afternoon on March 22, 2010 when she was given the specific instruction to be at the office
in the morning of said date. Petitioner was also late for about 4 ½ hours for her appointment
on April 5, 2010. Her payslips also reveal several deductions from her salary due to tardiness
and absences.

These pieces of documentary evidence already constitute substantial evidence (or that amount

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of relevant evidence that a reasonable mind might accept as adequate to justify a conclusion)
proving petitioner's habitual tardiness. Her tardiness is so excessive that it already affects the
general productivity and business of Integrated Pharma. It has amounted to gross and habitual
neglect of her duty, which is a just cause for terminating employment under Article 282 of the
Labor Code.

Petitioner was guilty of insubordination.

Petitioner also committed willful disobedience of reasonable and lawful orders of her employer.
As a just cause for dismissal of an employee under Article 282 of the Labor Code, willful
disobedience of the employer's lawful orders requires the concurrence of two elements: "(1) the
employee's assailed conduct must have been willful, that is, characterized by a wrongful and
perverse attitude; and (2) the order violated must have been reasonable, lawful, made known
to the employee, and must pertain to the duties which she had been engaged to discharge." [30]

Both requisites are present in the instant case. It is clear from the April 6, 2010 memorandum
that petitioner was tasked to remit her collections to the office in the morning of March 22,
2010, a Monday. In fact, it was upon her behest that instead of on March 19, 2010, the date
when she got her collections, petitioner would make the remittance on Monday morning. Come
Monday, however, petitioner arrived in her office late in the afternoon, thereby making it
impossible for the respondents to deposit her collections. While petitioner alleged that she
attended first to her area of coverage, the fact remains that she wantonly disobeyed the
reasonable and lawful orders of her employer to remit her collections in the morning of March
22, 2010, the specific time given by her employer. In one case, this Court held that "the
employer had the discretion to regulate all aspects of employment, and that the workers had
the corresponding obligation to obey company rules and regulations, x x x [Deliberately
disregarding or disobeying the rules could not be countenanced, and any justification that the
disobedient employee might put forth would be deemed inconsequential. The lack of resulting
damages was unimportant, because the 'heart of the charge is the crooked and anarchic
attitude of the employee towards his employer. Damage aggravates the charge but its absence
does not mitigate or negate the employee's liability.'"[31]

Another instance of petitioner's insubordination was when she did not bring the CareSens SOP
demonstration unit to the office at a particular given time. Petitioner does not dispute that
respondents instructed her to bring to the office said demonstration unit at 9:00 o'clock in the
morning as a fellow Clinician from Batangas would pick it up that same morning. However,
petitioner could not provide sensible justification why she failed to arrive at the appointed time.
Her failure to come on time without weighty reasons evinces her willful disregard of the clear
and simple instructions of her superiors.

Lastly, as early as January 2010 Gamos instructed petitioner to reflect in her expense report the
amount of P2.00, which is the actual amount she incurred as transportation expense in going to
the Fort Bonifacio Hospital. Petitioner, however, disobeyed her immediate supervisor and
continued to reflect the amount of PI 0.00 in her expense reports.

Petitioner is guilty of dishonesty.

Petitioner would also have this Court believe that she actually incurred PI0.00 travel expense in
going to the Fort Bonifacio Hospital because she used to take tricycles. She avers that it is
faster to take the tricycle because it takes quite a while before multicabs are filled with
passengers.

We cannot, however, give credence to petitioner's excuses in light of the result of the
investigation Gamos conducted on the matter and petitioner's own admission to Suarez that she
overcharged respondents. In her memorandum dated April 13, 2010, Gamos reported to Suarez
that the only means of public transportation to Fort Bonifcio Hospital at that time was by taking
a multicab. Thus:

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[Petitioner] admitted that ever since she started covering FBH under her former DSM's, she was
charging a tricycle fare of P10 on her way to the mentioned [hospital]. Further, she claimed
that [in] her previous Expense Reports she was declaring that the means of transportation she
regularly take is tricycle when in fact the only means of regular transportation to FBH is actually
a multicab.

But since I had no service car then, I went to the same route and discovered that there was no
tricycle ride since last year on the way to FBH[;] instead available for free to employees and
soldiers of Fort Bonifacio were multicabs with routes around the camp. The public or outsiders
were requested to pay the P2 amount only as donation for the unit's maintenance and driver's
salary and this was confirmed by the guards on the gate when I asked them about it that same
day.[32] (Emphasis ours)

In her affidavit,[33] Suarez stated that on April 19, 2010 she, together with Tantiansu, discussed
the matter of overcharging with petitioner. On said occasion, petitioner admitted that she
overcharged the transportation expense every time she would go to Fort Bonifacio Hospital.

We are not also convinced with the labor tribunals' ratiocination that petitioner should be
absolved for overcharging since there is no proof that she is not entitled to PI0.00 travel
expense or that she pocketed the difference of P8.00. There is a difference between allotted
transportation allowance and actual transportation expense. Thus, to state an amount of actual
transportation expense other than the amount actually incurred for transportation is dishonesty.
Elsewise put, just because petitioner was allotted P10.00 transportation expense does not mean
that she can keep the remainder should she not exhaust the entire amount thereof. Petitioner's
act of deliberately misdeclaring or overstating her actual travelling expense constitutes
dishonesty and serious misconduct, which are lawful grounds for her dismissal under
paragraphs (a) and (c) of Article 282 of the Labor Code.[34] It provides:

ART. 282. Termination by employer. An employer may terminate an employment for any of the
following just causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his
employer or representative in connection with his work.

xxxx

(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly
authorized representative.

The fact that petitioner had been declaring P10.00 as her actual travelling expense for quite
some time cannot be interpreted as condonation of the offense or waiver of Integrated Pharma
to enforce its rules. "A waiver is a voluntary and intentional relinquishment or abandonment of
a known legal right or privilege."[35] To be valid and effective, the waiver must be couched in
clear and unequivocal terms leaving no doubt as to the intention of a party to give up a right or
benefit which legally pertains to it.[36] Hence, the management prerogative to discipline
employees and impose punishment cannot, as a general rule, be impliedly waived.[37]

Past offense may be taken into

consideration in imposing the
appropriate penalty.

Petitioner further faults the CA in finding her guilty of insubordination since she was already
reprimanded for the acts she committed in relation thereto.

We agree with petitioner that she had already been reprimanded for the infractions stated in
the April 6, 2010 memorandum. It undoubtedly dealt with her failure to remit her collections
and to return the Caresens POP demonstration unit, at the appointed time. Thus:

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This memo is being issued to reprimand you for an offense you have repeated despite several
discussions in the hope that you will correct your bad habit and improve your performance.
However, it seems that our pleas have been unheard or disregarded because you continue to
commit the same infraction, to wit:[38]

The last paragraph of said Memorandum even contained a warning that a repetition of the
same offense in the future may result in the imposition of stiffer penalty of suspension or even
termination.

Your failure to comply with appointed tasks and schedules shows disobedience and a lack of
respect for authority and peers. This is clearly a form of insubordination. We have talked with
you time and again to help you realize this offense, but we have hardly seen any improvement.
We really hope that you will strive to correct this poor behavior. Otherwise, we will be
constrained to impose a suspension that may lead to eventual termination should the same
offense happen again.[39]

Hence, petitioner could no longer be punished for said offenses. Nevertheless, petitioner's
failure to remit her collections and to return the Caresens POP demonstration unit on time may
still be considered in imposing the appropriate penalty for future offenses. In Philippine Rabbit
Bus Lines, Inc. v. National Labor Relations Commission[40] we held that that:

Nor can it be plausibly argued that because the offenses were already given the appropriate
sanctions, they cannot be taken against him. They are relevant in assessing private
respondent's liability for the present violation for the purpose of determining the appropriate
penalty. To sustain private respondent's argument that the past violation should not be
considered is to disregard the warnings previously issued to him.[41]

As discussed above, petitioner is guilty of dishonesty and serious misconduct. Based on Article
282 of the Labor Code, such offense maymerit the termination of employment. However, while
the law provides for a just cause to dismiss an employee, the employer still has the discretion
whether it would exercise its right to terminate the employment or not. In other words, the
existence of any of the just or authorized causes enumerated in Articles 282 and 283 of the
Labor Code does not automatically result in the dismissal of the employee. The employer has to
make a decision whether it would dismiss the employee, impose a lighter penalty, or perhaps
even condone the offense committed by an erring employee. In making a decision, the
employer may take into consideration the employee's past offenses. In this case, petitioner had
been forewarned that her failure to correct her poor behavior would be visited with stiffer
penalty. However, she remained recalcitrant to her superiors' directives and warnings. Thus,
respondents "have come to a forced conclusion to terminate [her] employment."[42]

Petitioner was not accorded due process.

But the existence of a just cause to terminate an employment is one thing; the manner and
procedure by which such termination should be effected is another. If the dismissal is based on
a just cause under Article 282 of the Labor Code, as in this case, the employer must give the
employee two written notices and conduct a hearing. The first written notice is intended to
apprise the employee of the particular acts or omissions for which the employer seeks her
dismissal; while the second is intended to inform the employee of the employer's decision to
terminate him.[43] In King of Kings Transport, Inc. v. Mamac,[44] this Court elaborated on what
should be the contents of the first notice and the purpose thereof. Thus:

(1) The first written notice to be served on the employees should contain the specific causes or
grounds for termination against them, and a directive that the employees are given the
opportunity to submit their written explanation within a reasonable period. 'Reasonable
opportunity' under the Omnibus Rules means every kind of assistance that management must
accord to the employees to enable them to prepare adequately for their defense. This should be

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construed as a period of at least five (5) calendar days from receipt of the notice to give the
employees an opportunity to study the accusation against them, consult a union official or
lawyer, gather data and evidence, and decide on the defenses they will raise against the
complaint. Moreover, in order to enable the employees to intelligently prepare their explanation
and defenses, the notice should contain a detailed narration of the facts and circumstances that
will serve as basis for the charge against the employees. A general description of the charge will
not suffice. Lastly, the notice should specifically mention which company rules, if any, are
violated and/or which among the grounds under Art. 282 is being charged against the
employees.[45]

The employer bears the burden of proving compliance with the above two-notice
requirement.[46]

In the present case, respondents presented two first written notices (memoranda dated April 6,
2010 and April 21, 2010) charging petitioner with various offenses. Both notices, however, fell
short of the requirements of the law. The April 6, 2010 memorandum did not apprise petitioner
of an impending termination from employment. It did not require her to submit within a
specified period of time her written explanation controverting the charges against her. Said
memorandum did not also specify the company rules allegedly violated by the petitioner or the
cause of her possible dismissal as provided under Article 282 of the Labor Code. After
elaborating on the two acts of insubordination, said memorandum merely reprimanded
petitioner and warned her that a commission of the same or similar offense in the future would
be visited with stiffer penalty. It reads:

This memo is being issued to reprimand you for an offense you have repeated despite several
discussions in the hope that you will correct your bad habit and improve your performance.
However, it seems that our pleas have been unheard or disregarded because you continue to
commit the same infraction, to wit:

1. On March 19, 2010, late in the afternoon, you informed our VP for operations that you
were able to collect some accounts and asked if you could postpone your remittance to the
office to Monday the following week. You were asked to report early on Monday morning, so
that your remittances may be deposited on the same day. Without notice, you appeared close
to 5:00PM that day, thus the office was not able to deposit your remittances anymore. Your
explanation that you prioritized regular coverage in the morning is not acceptable. If you had an
important appointment that morning/day, you should have taken this up with our VP for
operations during your conversation on Friday or even during the weekend prior to Monday
morning to allow the office to think of a way to get the remittances from you and be able to
deposit them that morning. It was clear to you that you were tasked to bring them to the office
during opening hours on Monday, March 22, but you failed to do so.

2. Yesterday, you were asked to bring the CareSens POP demo unit to the office at
9:00AM, so that your fellow clinician from Batangas can pick it up for an urgent demo. Again,
you agreed, and it was clear to you what time you were expected at the office. However, you
arrived at 1:30PM, claiming that you sent text messages today and explaining that you had to
go to PAL to cover doctors. While it is important to keep to your itinerary, the specific
instruction for you to deviate your morning schedule to deliver the demo unit should have been
your priority. If your visit to PAL office was very important, you should have brought this up as
you were being instructed yesterday. Your failure to surrender the unit to the office resulted in
a missed appointment for your fellow clinician, not to mention incurred travel expenses and
wasted time and effort. This was not only irresponsible but selfish on your part.

You failure to comply with appointed tasks and schedules shows disobedience and a lack of
respect for authority and peers. This is clearly a form of insubordination. We have talked with
you time and again to help you realize this offense, but we have hardly seen any improvement.
We really hope that you will strive to correct this poor behavior. Otherwise, we will be
constrained to impose a suspension that may lead to eventual termination should the same
offense happen again.[47]

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With regard to the April 21, 2010 memorandum,[48] respondents claim that they attempted to
furnish petitioner with a copy thereof, but that petitioner refused to receive the same. However,
respondents' bare allegation that they attempted to furnish the petitioner with a copy of the
April 21, 2010 memorandum is not sufficient. Proof of actual service is required.[49] Also, the
April 21, 2010 memorandum did not afford petitioner ample opportunity to intelligently respond
to the accusations hurled against her as she was not given a reasonable period of at least five
days to prepare for her defense. Notably, respondents terminated her employment through
another memorandum bearing the same date. Moreover, the April 21, 2010 memorandum did
not also state the specific company rule petitioner violated or the just cause for terminating an
employment. Nothing was likewise mentioned about the effect on petitioner's employment
should the charges against her are found to be true.[50]

Lastly, it does not escape our attention that respondents never scheduled a hearing or
conference where petitioner could have responded to the charge and presented her
evidence.[51] Both the April 6, 2010 and the April 21, 2010 memoranda do not contain a notice
setting a particular date for hearing or conference.

In Agabon v. National Labor Relations Commission,[52] the Court held that if the dismissal was
for cause, the lack of statutory due process should not nullify the dismissal, or render it illegal
or ineffectual. However, respondents' violation of petitioner's right to statutory due process
warrants the payment of indemnity in the form of nominal damages. The amount of such
damages is addressed to the sound discretion of the Court, taking into account the relevant
circumstances. Hence, the CA did not err in awarding the amount of P30,000.00 to petitioner as
and by way of nominal damages.

WHEREFORE, premises considered, the instant Petition is hereby DENIED and the assailed
August 31, 2012 Decision of the Court of Appeals in CA-G.R. SP No. 122180 is AFFIRMED.

SO ORDERED.

SECOND DIVISION

G.R. No. 192011 June 30, 2014

LIBCAP MARKETING CORP., JOHANNA J. CELIZ, and MA. LUCIA G.

MONDRAGON, Petitioners,
vs.
LANNY JEAN B. BAQUIAL, Respondent.

DECISION

DEL CASTILLO, J.:

The law and jurisprudence allow the award of nominal damages in favor of an employee in a
case where a valid cause for dismissal exists but the employer fails to observe due process in
dismissing the employee. On the other hand, financial assistance is granted to a dismissed
employee as a measure of equity or social justice, and is in the nature or takes the place of
severance compensation.

Assailed in this Petition for Review on Certiorari1 are the April 22, 2009 Decision2 of the Court of
Appeals (CA) in CA-G.R. SP No. 01794, entitled "Libcap Marketing Corporation, and/or Johanna
J. Celiz, and Ma. Lucia G. Mondragon, Petitioners, versus National Labor Relations Commission

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and Lanny Jean B. Baquial, Respondents," and its March 24, 2010 Resolution3 denying
reconsideration thereof

Factual Antecedents

Petitioner Libcap Marketing Corporation (Libcap) is engaged in the freight forwarding business
with offices in Iloilo City. Petitioner Johanna J. Celiz (Celiz) is Libcap’s Human Resources
Division Head, and petitioner Ma. Lucia G. Mondragon is Libcap’s Vice-President for
Administration.

Respondent Lanny Jean B. Baquial was employed by Libcap on October 12, 1999 as accounting
clerk for Libcap’s Super Express branch in Cagayan de Oro City. Her functions included
depositing Libcap’s daily sales and collections in Libcap’s bank account with Global Bank (now
PSBank). She was paid a monthly salary of ₱4,600.00,and was required to work from 8:00 a.m.
to 6:30 p.m. six days each week without additional compensation and/or overtime pay. From
her salary each payday, an amount of ₱200.00 was deducted by way of cash bond.4

Sometime in March 2003, an audit of Libcap’s Super Express branch in Cagayan de Oro City
was conducted, and the resulting audit report5 showed that respondent made a double
reporting of a single deposit made on April 2,2001. In other words, a single April 2, 2001 bank
deposit of ₱1,437.00 was used to cover or account for two days’ sales of apparently identical
amounts, covering the undeposited collection for March 19, 2001 and current sales for March
31, 2001.

In a March 28, 2003 letter, Celiz required respondent to explain in writing within 24 hours why
the cash sales of₱1,437.00 each for March 31, 2001 and April 1, 2001 – as reported in the daily
collection reports – were covered by a single April 2, 2001 validated bank deposit slip for only
₱1,437.00.6

In an April 1, 2003 written reply,7 respondent claimed that on April 2, 2001, she deposited with
the bank two separate amounts of ₱1,437.00 each, but that it appears that both separate
deposits were covered by a single bank validation, which defect should not be blamed on her
but on the bank.8 Respondent then forwarded to Libcap’s head office two bank deposit slips to
show that she deposited two amounts of ₱1,437.00 each on April 2,2001 with Global Bank.9

Libcap discovered that only one ₱1,437.00 deposit was made on April 2, 2001. On verification
with PS Bank, its branch head confirmed in an August 7, 2003 letter that only a single deposit
of ₱1,437.00 was posted on April 2, 2001, and that there was no misposting or deposits to
other accounts of the same amount made on such date.10The two bank deposit slips forwarded
by respondent revealed that only one of them was validated by the bank.11Libcap’s bank
account passbook showed that only one deposit for ₱1,437.00 was made on April 2,
2001.12 Finally, Libcap’s Global Bank bank statement covering April 1–30, 2001 showed that
only one cash deposit of ₱1,437.00 was made on April 2, 2001.13

Meanwhile, the amount of ₱1,437.00 was deducted from respondent’s salary each payday on a
staggered basis – or on April 30, June 15, and June 30, 2003, respectively.14

On July 26, 2003, respondent received a Notice of Administrative Investigation15 requiring her
to attend a July 28, 2003 investigation at Libcap’s Iloilo office. Respondent was unable to attend
due to lack of financial resources.16

On July 28, 2003, respondent received a 2nd Notice of Administrative Investigation17 requiring
her to attend an August4, 2003 investigation in Iloilo City. Again, respondent failed to attend.

Respondent was placed on preventive suspension from July 29, 2003 to August 12, 2003.18

Respondent sent petitioners an August 6, 2003 written explanation.19

10 | P a g e
On August 16, 2003, respondent received a Notice of Termination20 dated August 9, 2003,
stating that she was terminated from employment effective August 12, 2003 for dishonesty,
embezzlement, inefficiency, and for commission of acts inconsistent with Libcap’s work
standards.

Respondent filed a labor complaint for illegal dismissal against petitioners, which was docketed
in the National Labor Relations Commission, Regional Arbitration Branch No. X, Cagayan de Oro
City as NLRC Case No. RAB-10-08-00586-2003.

Ruling of the Labor Arbiter

On January 20, 2006, Labor Arbiter Joselito B. de Leon issued his Decision21 in NLRC Case No.
RAB-10-08-00586-2003, which decreed as follows:

WHEREFORE, in view of the foregoing premises, this Office holds that the dismissal, under the
cited jurisprudence is ineffectual. Respondents LIBCAP Marketing Corp. and Johanna J. Celiz,
HRD Head and Ma. Lucia G. Mondragon, EVP for Administration are jointly and severally
ordered to pay the complainant, Lanny Jean Baquial, her backwages from August 12, 2003 to
November 30, 2005 in the sum of₱127,911.04 computed as follows:

1) From August 12-15, 2003:

₱4,600/mo./26.08/mo. = ₱176.38/day

₱176.38/day x 4 days = ₱705.52

2) From August 16, 2003 to November 30, 2005 – (27.5) mos.

₱4,600.00/mo. x 27.5 mos. = ₱127,205.52

Total………… ₱127,911.04

The other money claims are denied for lack of legal and factual basis.

SO ORDERED.22

In effect, the Labor Arbiter held that respondent was dismissed for just cause, but the dismissal
was ineffectual as she was deprived of procedural due process; it was error for Libcap to
schedule the July 28, 2003 investigation at its Iloilo office when it could very well have held it in
Cagayan de Oro City. In other words, conducting the hearing in Iloilo City was tantamount to
depriving respondent’s day in court, because she did not have the financial resources to go to
Iloilo City.

In awarding backwages, the Labor Arbiter relied on the ruling in Serrano v. National Labor
Relations Commission,23which held that an employee dismissed for just cause but without notice
need not be reinstated, but must be paid backwages from the time of termination until it is
determined that his termination was for a just cause.

Ruling of the National Labor Relations Commission (NLRC)

Both petitioners and respondent appealed to the NLRC, where the case was docketed as NLRC
CA No. M-008999-2006.

On January 29, 2007, the NLRC rendered a Resolution24 dismissing the parties’ respective
appeals, thus:

WHEREFORE, in the light of the foregoing, both appeals are hereby DISMISSED.1âwphi1 The
assailed decision of the Labor Arbiter is hereby AFFIRMED in toto.

11 | P a g e
SO ORDERED.25

In a second Resolution26 dated May 31, 2007, petitioners’ Motion for Reconsideration27 was
denied.

The NLRC affirmed the Labor Arbiter’s finding that respondent was deprived of due process
when she was required to attend hearings in Iloilo City when she had limited financial
resources, and given the fact that at the time, she had just given birth to her first-born child;
petitioners, for humanitarian considerations, could have scheduled the hearings in Cagayan de
Oro City instead. Furthermore, it held that the case cited and relied upon by petitioners –
Agabon v. National Labor Relations Commission,28 which provided for the payment of nominal
damages in lieu of backwages incase of dismissal where the employer fails to comply with the
requirements of due process – could not be applied as it was promulgated only on November
17, 2004, while respondent’s Amended Complaint in NLRC Case No. RAB-10-08-00586-2003
was filed on September 1, 2003 or while the Serrano doctrine was not yet in effect.

Ruling of the Court of Appeals

In a Petition for Certiorari filed with the CA and therein docketed as CAG.R. SP No. 01794,
petitioners sought to nullify the Resolutions of the NLRC, arguing that the latter committed
grave abuse of discretion and gross error in declaring that respondent’s right to due process
was violated and in applying the Serranocase, instead of the doctrine in Agabon.

On April 22, 2009, the CA issued the assailed Decision which contained the following decretal
portion:

WHEREFORE, the assailed Resolution of the National Labor Relations Commission dated
January29, 2007 is AFFIRMED, with the MODIFICATION that the award of backwages is
deleted. Petitioners are ordered to pay private respondent nominal damages in the amount of
₱100,000.00.

SO ORDERED.29

The CA upheld the labor tribunals’ findings that while there was just cause to dismiss
respondent for dishonesty and embezzlement, petitioners failed to comply with procedural due
process in effecting her dismissal. It held that in requiring respondent to attend the scheduled
hearing and investigation in Iloilo City, "petitioners were callous of private respondent’s
difficulties, considering that not only would she have had to go to Iloilo City for the purpose,
but that her having to do so would also have meant straining her financial resources. Thus, as a
result of failing to appear in the investigation, private respondent was unable to confront her
accusers face to face, and to rebut the evidence relied upon by petitioners in dismissing her."30

The CA held further that while the Agabon case, instead of the Serrano doctrine, should apply,
respondent was nevertheless entitled to nominal damages in the amount of ₱100,000.00
considering that she was required to work beyond her scheduled or assigned hours of work
without overtime pay, from date of hiring until she was terminated on August 12, 2003– or for
a period of four years.

Petitioners filed a Motion for Reconsideration,31 but the CA denied the same in its March 24,
2010 Resolution. Hence, the instant Petition.

Issues

Petitioners submit the following issues for the Court’s resolution:

12 | P a g e
THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE WAS NON-COMPLIANCE WITH
THE PROCEDURAL DUE PROCESS REQUIREMENT WHEN THE RECORDS SHOW THAT THE
RESPONDENT WAS GIVEN FULL OPPORTUNITY TO EXPLAIN THE CHARGES AGAINST HER.

II

THE COURT OF APPEALS ERRED WHEN IT AWARDED RESPONDENT THE AMOUNT

OF₱100,000.00 ABSENT ANY JUSTIFIABLE, COMPELLING CIRCUMSTANCE TO DEPART FROM
THE STANDARD ₱30,000.00 ESTABLISHED BY JURISPRUDENCE[.]32

Petitioners’ Arguments

In claiming that respondent’s dismissal was valid, petitioners contend that a face-to-face
confrontation between the employer and employee is not required in dismissal cases. They cite
the pronouncement in Perez v. Philippine Telegraph and Telephone Company,33 which states
that "the employer may provide an employee with ample opportunity to be heard and defend
himself with the assistance of a representative or counsel in ways other than a formal hearing.
The employee can be fully afforded a chance to respond to the charges against him, adduce his
evidence or rebut the evidence against him through a wide array of methods, verbal or
written,"34 and that –

In sum, the following are the guiding principles in connection with the hearing requirement in
dismissal cases:

(a) "ample opportunity to be heard" means any meaningful opportunity (verbal or written)
given to the employee to answer the charges against him and submit evidence in support of his
defense, whether in a hearing, conference or some other fair, just and reasonable way.

(b) a formal hearing or conference becomes mandatory only when requested by the employee
in writing or substantial evidentiary disputes exist or a company rule or practice requires it, or
when similar circumstances justify it.

(c) the "ample opportunity to be heard" standard in the Labor Code prevails over the "hearing
or conference" requirement in the implementing rules and regulations.35

Petitioners contend that so long as respondent was given the opportunity to be heard, which in
fact she was afforded, then the twin-notice requirement is satisfied.

With regard to the award of nominal damages in the amount of ₱100,000.00, petitioners argue
that the award is erroneous and respondent is not entitled to the same, given the nature and
gravity of her offense. They cite the ruling in Philippine Airlines, Inc. v. National Labor Relations
Commission,36 stating that if the reason for the valid dismissal is, for example, habitual
intoxication or an offense involving moral turpitude, like theft, fraud, falsification or illicit sexual
relations with a fellow worker, separation pay or financial assistance, or by whatever other
name it is called, may not be allowed. They add that the CA’s conclusions that respondent
worked long hours without overtime pay is not supported by evidence; thus, it could not grant
nominal damages greater than ₱30,000.00, which is the amount fixed by the Court in a host of
cases. Petitioners thus pray that the Court declare that due process was properly observed in
the dismissal of respondent, and that the award of nominal damages be deleted. In the
alternative, they pray that the amount of nominal damages be reduced from ₱100,000.00 to
₱30,000.00.

In addition, petitioners contend in their Reply37 that respondent may no longer question the
existence of just cause for her dismissal, as she did not raise the issue in an appropriate appeal
or petition before the NLRC or the CA.

Respondent’s Arguments

13 | P a g e
In her Comment,38 apart from arguing the claim that she was denied due process, respondent
insists that her dismissal was without just cause. In addition, she revives the Labor Arbiter’s
award of backwages, and makes a new claim for reinstatement with corresponding claims for
refund of her cash bond, maternity leave benefits, moral damages, overtime pay and attorney’s
fees. All these claims are of course premised on the argument, resurrected at this stage of the
proceedings, that respondent was illegally dismissed and thus forced to litigate to protect her
rights and interests.

Our Ruling

The Court denies the Petition.

At this juncture, it must be stated that respondent’s failure to file an appropriate appeal or
petition from the respective dispositions of the NLRC and the CA precludes her from questioning
these dispositions at this stage. "The rule is clear that no modification of judgment could be
granted to a party who did not appeal."39 Thus, respondent’s pleas for reinstatement and the
payment of backwages, cash bond, maternity leave benefits, moral damages, overtime pay, and
attorney’s fees may no longer be taken up.

The CA, the NLRC and the Labor Arbiter are correct in concluding that respondent was denied
due process, but their reasons for arriving at such conclusion are erroneous. What they seem to
have overlooked is that respondent’s case has been pre-judged even prior to the start of the
investigation on July 28, 2003. This is evident from the fact that the amount of ₱1,437.00 – or
the amount which petitioners claim was embezzled – was peremptorily deducted each payday
from respondent’s salary on a staggered basis, culminating on June 30, 2003, or nearly one
month prior to the scheduled investigation on July 28, 2003. In doing so, petitioners have made
it clear that they considered respondent as the individual responsible for the embezzlement;
thus, in petitioners’ eyes, respondent was adjudged guilty even before she could be tried – the
payroll deductions being her penalty and recompense.

By pre-judging respondent’s case, petitioners clearly violated her right to due process from the
very beginning, and from then on it could not be expected that she would obtain a fair
resolution of her case. In a democratic system, the infliction of punishment before trial is
fundamentally abhorred. What petitioners did was clearly illegal and improper.

While it is correct to conclude that there was valid cause for dismissal considering that
respondent did not contest the NLRC or CA findings to such effect through an appropriate
appeal or petition, the only issue that remains to be tackled is the correctness of the award of
nominal damages.

Petitioners claim that respondent is not entitled to financial assistance given that she is guilty of
theft or embezzlement. The law and jurisprudence, on the other hand, allow the award of
nominal damages in favor of an employee in a case where a valid cause for dismissal exists but
the employer fails to observe due process in dismissing the employee.40 Financial assistance is
granted as a measure of equity or social justice, and is in the nature or takes the place of
severance compensation.41

On the other hand, nominal damages "may be awarded to a plaintiff whose right has been
violated or invaded by the defendant, for the purpose of vindicating or recognizing that right,
and not for indemnifying the plaintiff for any loss suffered by him. Its award is thus not for the
purpose of indemnification for a loss but for the recognition and vindication of a right."42 The
amount of nominal damages to be awarded the employee is addressed to the sound discretion
of the court, taking into consideration the relevant circumstances.43 Nevertheless, while the
amount of damages is left to the discretion of the court, it has been held that –

Again, we stress that though the Court is given the latitude to determine the amount of nominal
damages to be awarded to an employee who was validly dismissed but whose due process
rights were violated, a distinction should be made between a valid dismissal due to just causes
under Article 282 of the Labor Code and those based on authorized causes, under Article 283.

14 | P a g e
The two causes for a valid dismissal were differentiated in the case of Jaka Food Processing
Corporation v. Pacot where the Court held that:

A dismissal for just cause under Article 282 implies that the employee concerned has
committed, or is guilty of, some violation against the employer, i.e. the employee has
committed some serious misconduct, is guilty of some fraud against the employer, or, as in
Agabon, he has neglected his duties. Thus, it can be said that the employee himself initiated
the dismissal process.

On another breath, a dismissal for an authorized cause under Article 283 does not necessarily
imply delinquency or culpability on the part of the employee. Instead, the dismissal process is
initiated by the employer’s exercise of his management prerogative, i.e. when the employer
opts to install labor saving devices, when he decides to cease business operations or when, as
in this case, he undertakes to implement a retrenchment program.

xxxx

Accordingly, it is wise to hold that: (1) if the dismissal is based on a just cause under Article 282
but the employer failed to comply with the notice requirement, the sanction to be imposed upon
him should be tempered because the dismissal process was, in effect, initiated by an act
imputable to the employee; and (2) if the dismissal is based on an authorized cause under
Article 283 but the employer failed to comply with the notice requirement, the sanction should
be stiffer because the dismissal process was initiated by the employer’s exercise of his
management prerogative.

Since in the case of JAKA, the employee was terminated for authorized causes as the employer
was suffering from serious business losses, the Court fixed the indemnity at a higher amount of
₱50,000.00. In the case at bar, the cause for termination was abandonment, thus it is due to
the employee’s fault. It is equitable under these circumstances to order the petitioner company
to pay nominal damages in the amount of ₱30,000.00, similar to the case of Agabon.

We affirm the award of salary differentials, 13th month pay and holiday pay, awarded by the
NLRC and the Court of Appeals. We note that although petitioner company had cause to
terminate Madriaga, this has no bearing on the issue of award of salary differentials, holiday
pay and 13th month pay because prior to his valid dismissal, he performed work as a regular
employee of petitioner company, and he is entitled to the benefits provided under the law.
Thus, in the case of Agabon, even while the Court found that the dismissal was for a just cause,
the employee was still awarded his monetary claims.

An employee should be compensated for the work he has rendered in accordance with the
minimum wage, and must be appropriately remunerated when he was suffered to work on a
regular holiday during the time he was employed by the petitioner company. As regards the
13th month pay, an employee who was terminated at any time before the time for payment of
the 13th month pay is entitled to this monetary benefit in proportion to the length of time he
worked during the year, reckoned from the time he started working during the calendar year up
to the time of his termination from the service.

As a general rule, one who pleads payment has the burden of proving it. Even where the
employee must allege nonpayment, the general rule is that the burden rests on the employer to
prove payment, rather than on the employee to prove nonpayment. The reason for the rule is
that the pertinent personnel files, payrolls, records, remittances and other similar documents —
which will show that overtime, differentials, service incentive leave and other claims of workers
have been paid — are not in the possession of the employee but in the custody and absolute
control of the employer. Since in the case at bar petitioner company has not shown any proof of
payment of the correct amount of salary, holiday pay and 13th month pay, we affirm the award
of Madriaga’s monetary claims.44(Emphases supplied)

Prescinding from the foregoing, we find it necessary to reduce the amount of nominal damages
the CA awarded from ₱100,000.00 to ₱30,000.00. We cannot subscribe to the CA’s ratiocination

15 | P a g e
that since respondent rendered overtime work for four years without receiving any overtime
pay, she is entitled to ₱100,000.00 nominal damages. Nominal damages are awarded for the
purpose of vindicating or recognizing a right and not for indemnifying a loss. Hence, the CA
should have limited the justification of the award of nominal damages to petitioners’ violation of
respondent’s right to due process in effecting her termination. It should not have considered
the claimed unpaid overtime pay.

After all, the Labor Arbiter had already denied the same. Thus, it cannot be invoked again as a
justification to increase the award of nominal damages.

WHEREFORE, the Petition is GRANTED IN PART. The assailed April 22, 2009 Decision and
March 24, 2010 Resolution of the Court of Appeals in CA-G.R. SP No. 01794 are AFFIRMED with
MODIFICATION that the award of nominal damages is reduced to ₱30,000.00.

SO ORDERED.

SECOND DIVISION

G.R. No. 202996 June 18, 2014

MARLO A. DEOFERIO, Petitioner,

vs.
INTEL TECHNOLOGY PHILIPPINES, INC. and/or MIKE WENTLING, Respondents.

DECISION

BRION, J.:

We resolve the petition for review on certiorari1 filed by petitioner Marlo A. Deoferio to
challenge the February 24, 2012 decision2 and the August 2, 2012 resolution3 of the Court of
Appeals (CA) in CA-G.R. SP No. 115708.

The Factual Antecedents

On February 1, 1996, respondent Intel Technology Philippines, Inc. (Intel)employed Deoferio as

a product quality and reliability engineer with a monthly salary of ₱9,000.00. In July2001, Intel
assigned him to the United States as a validation engineer for an agreed period of two years
and with a monthly salary of US$3,000.00. On January 27, 2002, Deoferio was repatriated to
the Philippines after being confined at Providence St. Vincent Medical Center for major
depression with psychosis.4 In the Philippines, he worked as a product engineer with a monthly
salary of ₱23,000.00.5

Deoferio underwent a series of medical and psychiatric treatment at Intel’s expense after his
confinement in the United States. In 2002, Dr. Elizabeth Rondain of Makati Medical Center
diagnosed him to be suffering from mood disorder, major depression, and auditory
hallucination.6 He was also referred to Dr. Norieta Balderrama, Intel’s forensic psychologist, and
to a certain Dr. Cynthia Leynes who both confirmed his mental condition.7 On August 8, 2005,
Dr. Paul Lee, a consultant psychiatrist of the Philippine General Hospital, concluded that
Deoferio was suffering from schizophrenia. After several consultations, Dr. Lee issued a
psychiatric report dated January 17,2006 concluding and stating that Deoferio’s psychotic
symptoms are not curable within a period of six months and "will negatively affect his work and
social relation with his co-worker[s]."8 Pursuant to these findings, Intel issued Deoferio a notice
of termination on March 10, 2006.9

Deoferio responded to his termination of employment by filing a complaint for illegal dismissal
with prayer for money claims against respondents Intel and Mike Wentling (respondents). He

16 | P a g e
denied that he ever had mental illness and insisted that he satisfactorily performed his duties as
a product engineer. He argued that Intel violated his statutory right to procedural due process
when it summarily issued a notice of termination. He further claimed that he was entitled to a
salary differential equivalent to the pre-terminated period of his assignment in the United States
minus the base pay that he had already received. Deoferio also prayed for backwages,
separation pay, moral and exemplary damages, as well as attorney’s fees.10

In defense, the respondents argued that Deoferio’s dismissal was based on Dr. Lee’s
certification that: (1) his schizophrenia was not curable within a period of six months even with
proper medical treatment; and (2) his continued employment would be prejudicial to his and to
the other employees’ health.11 The respondents also insisted that Deoferio’s presence at Intel’s
premises would pose an actual harm to his co-employees as shown by his previous acts. On
May 8, 2003, Deoferio emailed an Intel employee with this message: "All soul’s day back to
work Monday WW45.1." On January 18, 2005, he cut the mouse cables, stepped on the
keyboards, and disarranged the desks of his co-employees.12 The respondents also highlighted
that Deoferio incurred numerous absences from work due to his mental condition, specifically,
from January 31, 2002 until February 28, 2002,13 from August 2002 until September
2002,14 and from May 2003 until July 2003.15 Deoferio also took an administrative leave with
pay from January 2005 until December 2005.16

The respondents further asserted that the twin-notice requirement in dismissals does not apply
to terminations under Article 284 of the Labor Code.17 They emphasized that the Labor Code’s
implementing rules (IRR) only requires a competent public health authority’s certification to
effectively terminate the services of an employee.18They insisted that Deoferio’s separation and
retirement payments for ₱247,517.35 were offset by his company car loan which amounted to
₱448,132.43.19 He was likewise not entitled to moral and exemplary damages, as well as
attorney’s fees, because the respondents faithfully relied on Dr. Lee’s certification that he was
not fit to work as a product engineer.20

The Labor Arbitration Ruling

In a decision21 dated March 6, 2008,the Labor Arbiter (LA) ruled that Deoferio had been validly
dismissed. The LA gave weight to Dr. Lee’s certification that Deoferio had been suffering from
schizophrenia and was not fit for employment. The evidence on record shows that Deoferio’s
continued employment at Intel would pose a threat to the health of his co-employees. The LA
further held that the Labor Code and its IRR do not require the employer to comply with the
twin-notice requirement in dismissals due to disease. The LA also found unmeritorious
Deoferio’s money claims against Intel.22

On appeal by Deoferio, the National Labor Relations Commission (NLRC) wholly affirmed the
LA’s ruling.23 The NLRC also denied24 Deoferio’s motion for reconsideration,25 prompting him to
seek relief from the CA through a petition for certiorari under Rule 65 of the Rules of Court.

The CA’s Ruling

On February 24, 2012, the CA affirmed the NLRC decision. It agreed with the lower tribunals’
findings that Deoferio was suffering from schizophrenia and that his continued employment at
Intel would be prejudicial to his health and to those of his co-employees. It ruled that the only
procedural requirement under the IRR is the certification by a competent public health authority
on the non-curability of the disease within a period of six months even with proper medical
treatment. It also concurred with the lower tribunals that Intel was justified in not paying
Deoferio separation pay as required by Article 284 of the Labor Code because this obligation
had already been offset by the matured car loan that Deoferio owed Intel.26

Deoferio filed the present petition after the CA denied his motion for reconsideration.27

The Petition

17 | P a g e
In the present petition before the Court, Deoferio argues that the uniform finding that he was
suffering from schizophrenia is belied by his subsequent employment at Maxim Philippines
Operating Corp. and Philips Semiconductors Corp., which both offered him higher
compensations. He also asserts that the Labor Code does not exempt the employer from
complying with the twin-notice requirement in terminations due to disease.28

The Respondents’ Position

In their Comment,29 the respondents posit that the petition raises purely questions of fact which
a petition for review on certiorari does not allow. They submit that Deoferio’s arguments have
been fully passed upon and found unmeritorious by the lower tribunals and by the CA. They
additionally argue that Deoferio’s subsequent employment in other corporations is irrelevant in
determining the validity of his dismissal; the law merely requires the non-curability of the
disease within a period of six months even with proper medical treatment.

The respondents also maintain that Deoferio’s claim for salary differential is already barred by
prescription under Article 291 of the Labor Code.30 Even assuming that the claim for salary
differential has been timely filed, the respondents assert that the parties expressly agreed in the
International Assignment Relocation Agreement that "the assignment length is only an estimate
and not a guarantee of employment for any particular length of time."31Moreover, his
assignment in the United States was merely temporary and did not change his salary base, an
amount which he already received.

The Issues

This case presents to us the following issues:

(1) Whether Deoferio was suffering from schizophrenia and whether his continued employment
was prejudicial to his health, as well as to the health of his co-employees;

(2) Whether the twin-notice requirement in dismissals applies to terminations due to disease;
and

As part of the second issue, the following issues are raised:

(a) Whether Deoferio is entitled to nominal damages for violation of his right to statutory
procedural due process; and

(b) Whether the respondents are solidarily liable to Deoferio for nominal damages.

(3) Whether Deoferio is entitled to salary differential, backwages, separation pay, moral and
exemplary damages, as well as attorney’s fees.

The Court’s Ruling

We find the petition partly meritorious.

Intel had an authorized cause to dismiss Deoferio from employment

Concomitant to the employer’s right to freely select and engage an employee is the employer’s
right to discharge the employee for just and/or authorized causes. To validly effect terminations
of employment, the discharge must be for a valid cause in the manner required by law. The
purpose of these two-pronged qualifications is to protect the working class from the employer’s
arbitrary and unreasonable exercise of its right to dismiss. Thus, in termination cases, the law
places the burden of proof upon the employer to show by substantial evidence that the
termination was for a lawful cause and in the manner required by law.

18 | P a g e
In concrete terms, these qualifications embody the due process requirement in labor cases -
substantive and procedural due process. Substantive due process means that the termination
must be based on just and/or authorized causes of dismissal. On the other hand, procedural
due process requires the employer to effect the dismissal in a manner specified in the Labor
Code and its IRR.32

The present case involves termination due to disease – an authorized cause for dismissal under
Article 284 of the Labor Code. As substantive requirements, the Labor Code and its
IRR33 require the presence of the following elements:

(1) An employer has been found to be suffering from any disease.

(2) His continued employment is prohibited by law or prejudicial to his health, as well as to the
health of his co-employees.

(3) A competent public health authority certifies that the disease is of such nature or at such a
stage that it cannot be cured within a period of six months even with proper medical treatment.
With respect to the first and second elements, the Court liberally construed the phrase
"prejudicial to his health as well as to the health of his co-employees" to mean "prejudicial to
his health or to the health of his co-employees." We did not limit the scope of this phrase to
contagious diseases for the reason that this phrase is preceded by the phrase "any disease"
under Article 284 of the Labor Code, to wit:

Art. 284. Disease as ground for termination. – An employer may terminate the services of an
employee who has been found to be suffering from any disease and whose continued
employment is prohibited by law or is prejudicial to his health as well as to the health of his co-
employees: Provided, That he is paid separation pay equivalent to at least one (1) month salary
or to one-half (1/2) month salary for every year of service, whichever is greater, a fraction of at
least six (6) months being considered as one (1) whole year. [underscores, italics and
emphases ours]

Consistent with this construction, we applied this provision in resolving illegal dismissal cases
due to non-contagious diseases such as stroke, heart attack, osteoarthritis, and eye cataract,
among others. In Baby Bus, Inc. v. Minister of Labor,34 we upheld the labor arbitration’s finding
that Jacinto Mangalino’s continued employment – after he suffered several strokes – would be
prejudicial to his health. In Duterte v. Kingswood Trading Co., Inc.,35 we recognized the
applicability of Article 284 of the Labor Code to heart attacks. In that case, we held that the
employer- company’s failure to present a certification from a public health authority rendered
Roque Duterte’s termination due to a heart attack illegal. We also applied this provision in Sy v.
Court of Appeals36 to determine whether Jaime Sahot was illegally dismissed dueto various
ailments such as presleyopia, hypertensive retinopathy, osteoarthritis, and heart enlargement,
among others. In Manly Express, Inc. v. Payong, Jr.,37 we ruled that the employer-company’s
non-presentment of a certification from a public health authority with respect to Romualdo
Payong Jr.’s eye cataract was fatal to its defense.

The third element substantiates the contention that the employee has indeed been suffering
from a disease that: (1) is prejudicial to his health as well as to the health of his co-employees;
and (2) cannot be cured within a period of six months even with proper medical treatment.
Without the medical certificate, there can be no authorized cause for the employee’s dismissal.
The absence of this element thus renders the dismissal void and illegal.

Simply stated, this requirement is not merely a procedural requirement, but a substantive
one.1âwphi1 The certification from a competent public health authority is precisely the
substantial evidence required by law to prove the existence of the disease itself, its non-
curability within a period of six months even with proper medical treatment, and the prejudice
that it would cause to the health of the sick employee and to those of his co-employees.

In the current case, we agree with the CA that Dr. Lee’s psychiatric report substantially proves
that Deoferio was suffering from schizophrenia, that his disease was not curable within a period

19 | P a g e
of six months even with proper medical treatment, and that his continued employment would
be prejudicial to his mental health. This conclusion is further substantiated by the unusual and
bizarre acts that Deoferio committed while at Intel’s employ.

The twin-notice requirement applies

to terminations under Article 284 of
the Labor Code

The Labor Code and its IRR are silent on the procedural due process required in terminations
due to disease. Despite the seeming gap in the law, Section 2, Rule 1, Book VI of the IRR
expressly states that the employee should be afforded procedural due process in all cases of
dismissals.38

In Sy v. Court of Appeals39 and Manly Express, Inc. v. Payong, Jr.,40 promulgated in 2003 and
2005, respectively, the Court finally pronounced the rule that the employer must furnish the
employee two written notices in terminations due to disease, namely: (1) the notice to apprise
the employee of the ground for which his dismissal is sought; and (2) the notice informing the
employee of his dismissal, to be issued after the employee has been given reasonable
opportunity to answer and to be heard on his defense. These rulings reinforce the State policy
of protecting the workers from being terminated without cause and without affording them the
opportunity to explain their side of the controversy.

From these perspectives, the CA erred in not finding that the NLRC gravely abused its discretion
when it ruled that the twin-notice requirement does not apply to Article 284 of the Labor Code.
This conclusion is totally devoid of any legal basis; its ruling is wholly unsupported by law and
jurisprudence. In other words, the NLRC’s unprecedented, whimsical and arbitrary ruling, which
the CA erroneously affirmed, amounted to a jurisdictional error.

Deoferio is entitled to nominal

damages for violation of his right to
statutory procedural due process

Intel’s violation of Deoferio’s right to statutory procedural due process warrants the payment of
indemnity in the form of nominal damages. In Jaka Food Processing Corp. v. Pacot,41 we
distinguished between terminations based on Article 282 of the Labor Code42 and dismissals
under Article 283 of the Labor Code.43 We then pegged the nominal damages at ₱30,000.00 if
the dismissal is based on a just cause but the employer failed to comply with the twin-notice
requirement. On the other hand, we fixed the nominal damages at ₱50,000.00 if the dismissal is
due to an authorized cause under Article 283 of the Labor Code but the employer failed to
comply with the notice requirement. The reason is that dismissals for just cause imply that the
employee has committed a violation against the employer, while terminations under Article 283
of the Labor Code are initiated by the employer in the exercise of his management prerogative.

With respect to Article 284 of the Labor Code, terminations due to disease do not entail any
wrongdoing on the part of the employee. It also does not purely involve the employer’s willful
and voluntary exercise of management prerogative – a function associated with the employer's
inherent right to control and effectively manage its enterprise.44 Rather, terminations due to
disease are occasioned by matters generally beyond the worker and the employer's control.

In fixing the amount of nominal damages whose determination is addressed to our sound
discretion, the Court should take into account several factors surrounding the case, such as: (1)
the employer’s financial, medical, and/or moral assistance to the sick employee; (2) the
flexibility and leeway that the employer allowed the sick employee in performing his duties
while attending to his medical needs; (3) the employer’s grant of other termination benefits in
favor of the employee; and (4) whether there was a bona fide attempt on the part of the
employer to comply with the twin-notice requirement as opposed to giving no notice at all.

We award Deoferio the sum of ₱30,000.00 as nominal damages for violation of his statutory
right to procedural due process. In so ruling, we take into account Intel’s faithful compliance

20 | P a g e
with Article 284 of the Labor Code and Section 8, Rule 1, Book 6 of the IRR. We also note that
Deoferio’s separation pay equivalent to one-half month salary for every year of service45 was
validly offset by his matured car loan. Under Article 1278 of the Civil Code, in relation to Article
1706 of the Civil Code46 and Article 113(c) of the Labor Code,47 compensation shall take place
when two persons are creditors and debtors of each other in their own right. We likewise
consider the fact that Intel exhibited real concern to Deoferio when it financed his medical
expenses for more than four years. Furthermore, prior to his termination, Intel liberally allowed
Deoferio to take lengthy leave of absences to allow him to attend to his medical needs.

Wentling is not personally liable for

the satisfaction of nominal damages
in favor of Deoferio

Intel shall be solely liable to Deoferio for the satisfaction of nominal damages. Wentling, as a
corporate officer, cannot be held liable for acts done in his official capacity because a
corporation, by legal fiction, has a personality separate and distinct from its officers,
stockholders, and members. There is also no ground for piercing the veil of corporate fiction
because Wentling acted in good faith and merely relied on Dr. Lee’s psychiatric report in
carrying out the dismissal.48

Deoferio is not entitled to salary

differential, backwages, separation
pay, moral and exemplary damages,
as well as attorney's fees

Deoferio's claim for salary differential is already barred by prescription. Under Article 291 of the
Labor Code, all money claims arising from employer-employee relations shall be filed within
three years from the time the cause of action accrued. In the current case, more than four
years have elapsed from the pre-termination of his assignment to the United States until the
filing of his complaint against the respondents. We thus see no point in further discussing this
matter. His claim for backwages, separation pay, moral and exemplary damages, as well as
attorney's fees must also necessarily fail as a consequence of our finding that his dismissal was
for an authorized cause and that the respondents acted in good faith when they terminated his
services.

WHEREFORE, premises considered, we partially grant the petition; the assailed February 24,
2012 decision and the August 2, 2012 resolution of the Court of Appeals stand but respondent
Intel Technology Philippines, Inc. is ordered to pay petitioner Marlo A. Deoferio nominal
damages in the amount of ₱30,000.00. We totally deny the petition with respect to respondent
Mike Wending.

SO ORDERED.

G.R. No. 182201

UNIVERSAL INTERNATIONAL INVESTMENT (BVI) LIMITED, Petitioner

vs.
RAY BURTON DEVELOPMENT CORPORATION, Respondent

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

G.R. No. 185815

UNIVERSAL INTERNATIONAL INVESTMENT (BVI) LIMITED, Petitioner,

vs.
RAY BURTON DEVELOPMENT CORPORATION,Respondent.

DECISION

21 | P a g e
SERENO, J.:

At bench is a review of the damage claims for contractual breach sought by petitioner Universal
International Investment (BVI) Limited (Universal) against respondent Ray Burton Development
Corporation (RBDC). In G.R. No. 185815, Universal contests the Court of Appeals (CA) Decision
and Resolution rejecting its demand for damages against RBDC.1 Petitioner seeks damages for
non-delivery of the properties it had purchased from respondent and the titles thereto. In G.R.
No. 182201, Universal assails the CA Decision and Resolution, which affirmed the discharge of
one of respondent's attached properties meant to secure petitioner's claims for damages.2

FACTUAL ANTECEDENTS

RBDC owned and developed Elizabeth Place, a condominium located at H.V. De la Costa St.,
Salcedo Village, Makati City. On 18 October 1996, respondent and petitioner entered into
separate Contracts to Sell3 covering the purchase of 10 condominium units and 10 parking slots
in the building. In February 1999, petitioner paid respondent the full purchase price of these
properties amounting to ₱52,836, 781.50.4

Universal issued a letter dated 23 August 2000 to RBDC demanding the cancellation of the sales
transaction after the latter failed to deliver possession of the properties and reneged on its
obligation to transfer the Condominium Certificates of Title (CCTs) to petitioner's name.5 On 6
August 2001, respondent sent a letter to Universal informing the latter that the construction of
the subject properties had been completed.6 Several demand letters followed.7

RBDC ultimately failed to satisfy the demand of Universal to deliver the properties. Thereafter,
petitioner discovered that the mother title to the lot of Elizabeth Place had been mortgaged to
China Banking Corporation (China Bank) since 31 July 1991.8 Petitioner found that a Mortgage
Clearance from the Housing and Land Use Regulatory Board (HLURB) had been issued on 17
October 19969 and the securities foreclosed by China Bank on 18 May 2001.10

PROCEEDINGS BEFORE THE HLURB

On 29 May 2002, Universal filed with the Expanded National Capital Region Field Office
(ENCRFO) of the HLURB a Complaint for Specific Performance or Rescission of Contract and
Damages.11 To secure its claims, petitioner moved for the issuance of a writ of preliminary
attachment against the properties of RBDC. Universal imputed fraud to respondent for
concealing the mortgage with China Bank. On 3 June 2002, a Writ of Attachment was issued by
the ENCRFO.12

Universal sought the delivery of (1) the condominium units and (2) their CCTs. In the event that
delivery were to be proven impossible, it prayed for the rescission of the Contracts to Sell with a
refund of the purchase price plus the penalty interest stipulated under Section 6 thereof. The
contracts provide for a 1.5% monthly interest on the total purchase price, computed from the
date of cancellation of the sale until full refund of the payments.

RBDC countered13 that Universal could not rightly demand delivery, for the latter had yet to pay
transfer charges under the Contracts to Sell. In the alternative, respondent claimed that it had
already delivered the properties when it sent a letter to petitioner on 6 August 2001.

As regards the CCTs, RBDC argued that petitioner should demand these from China Bank. The
CA summarized that contention of respondent in this wise:14

Moreover, RBDC claims that it was impeded from releasing the titles of Elizabeth Place to the
deserving buyers because Chinabank had illegally foreclosed the mortgage over Elizabeth Place;
that in fact, RBDC had instituted a case for delivery of titles before the HLURB entitled "Ray
Burton Development Corp. versus China Banking Corp." docketed as HLURB REM 121401-
11726; and that in a Judgment Upon Compromise dated August 1, 2002, BLURB
directed Chinabank "to release the titles of all units in Elizabeth Place that are now
fully paid and those that will in the future be fully paid to their respective buyers

22 | P a g e
irrespective of who the seller is." RBDC asserted that Universal should instead direct its
claim for delivery of the titles of the properties to Chinabank. (Emphasis supplied)

On 25 March 2003, the ENCRFO issued a Decision15 in favor of Universal. The former found that
petitioner had completed the payment of the total contract price of ₱52,836,781.50 in February
1999. At that point, said the ENCRFO, the reciprocal obligation of respondent to deliver
possession of the properties and their CCTs became due and demandable.

On 12 May 2003, RBDC filed a Petition for Review16 before the Board of Commissioners (BOC)
of the HLURB. Respondent also moved for the partial discharge17 of one of its attached
properties: the lot in Lapu-Lapu City with Transfer Certificate of Title (TCT) No. T-29726.

RBDC reiterated its arguments below. Universal likewise echoed its earlier assertions, but
additionally claimed that respondent's Petition for Review lacked the appeal bond needed to
perfect an appeal.18

The BOC did not dismiss respondent's Petition for Review. Instead, on 10 October 2003, it
issued an Order19directing the remand of the case to the ENCRFO so that the latter could
include China Bank in the proceedings. Universal moved for reconsideration, but to no avail.20

The BOC did not rule upon the motion of RBDC for the discharge of its Lapu-Lapu City property.
Therefore, respondents filed a second Motion for Partial Discharge.21 In its Resolution dated 29
June 2004, the BOC allowed the discharge of the Lapu-Lapu City property owned by
respondent, since the latter was willing to put up a counterbond.22

PROCEEDINGS BEFORE THE OP

Universal successfully appealed its case before the Office of the President (OP).23 In its Decision
dated 29 October 2004,24 the OP reversed the ruling of the BOC and held that Universal had a
right to rescind the Contracts to Sell, as well as to refund the purchase price of the properties
with the liquidated damages specified in Section 6 of the contracts. Nonetheless, the OP
maintained the validity of the discharge of the Lapu-Lapu City property.25

PROCEEDINGS BEFORE THE CA

Universal assailed the discharge of the Lapu-Lapu City property via a Petition
for Certiorari under Rule 65 of the Rules of Court in CA-G.R. SP No. 89578.26 In its Decision
dated 25 June 2007 and Resolution dated 14 March 2008, the CA dismissed the action for lack
of merit. Anent the main controversy involving the non-delivery of the condominium units and
parking slots, RBDC filed a Petition for Review27 under Rule 43 of the Rules of Court in CA-G.R.
SP No. 89468. In both proceedings, the parties repeated their arguments a quo.

During the pendency of the case before the CA, Universal manifested28 that China
Bank had released the subject properties, and that petitioner had already obtained
their CCTs on 5 January 2005.

On account of this supervening event, RBDC moved that this case be considered moot and
academic.29

Universal responded that its acquisition of the condominium units from China Bank resulted only
in the partial satisfaction of the former's claims against RBDC. Petitioner claimed before the CA
that respondent must still pay for the damages specified in Section 6 of the Contracts to Sell on
account of the latter's delayed delivery of the properties. Universal also claimed compensation
for property losses amounting to ₱19,646,483.72, supposedly to cover the depreciation costs
and expenses it had incurred for the release of the properties from China Bank.

In its Decision dated 31 July 2007, which was maintained in its Resolution dated 11 December
2008, the CA wholly denied Universal 's entreaty for damages.

23 | P a g e
PROCEEDINGS BEFORE THIS COURT

The consolidated Petitions for Review on Certiorari filed by Universal under Rule 45 of the Rules
of Court, docketed as G.R. Nos. 182201 and 185815, collectively raise three points.30

First, Universal contends that the CA gravely erred when the latter sustained the OP's
discharge of the Lapu-Lapu City property, notwithstanding the irregularities in the proceedings
below.

Second, Universal argues that because RBDC failed to attach an appeal bond when the latter
elevated the ENCRFO Decision to the BOC, that ruling had become final and executory and can
no longer be reviewed by the BOC, the OP, the CA, or this Court.

Third, petitioner claims that the CA gravely erred in refusing to award damages and property
losses. Petitioner seeks damages on account of the contractual breaches of respondent
consisting of the latter's failure to deliver the properties and to transfer their CCTs to the name
of Universal. Petitioner also narrates that RBDC concealed the mortgage of the properties to
China Bank.

RBDC stands by the validity of the partial discharge of its Lapu-Lapu City property. In the main,
it denies committing any breach of contract against Universal. Absent any dereliction on its part,
respondent claims that petitioner should not be awarded damages.31

ISSUES

Given the developments in this case, this Court adjudges that the main issues to be resolved
are as follows:

I. Whether the CA incorrectly affirmed the discharge of the Lapu-Lapu City property of RBDC

II. Whether the CA gravely erred in denying the demand of petitioner for the liquidated
damages specified in Section 6 of the Contracts to Sell

III. Whether the CA committed a grievous en-or in not granting the claims of petitioner for
losses amounting to ₱l 9,646,483.72

IV. Whether petitioner is entitled to damages on account of the contractual breaches committed
by respondent

RULING OF THE COURT

At the outset, this Court outrightly rejects the argument of Universal regarding the failure of
RBDC to attach an appeal bond when the latter elevated the ENCRFO Decision to the BOC for
being moot and academic. To recall, the appealed ENCRFO Decision required RBDC to deliver
the purchased properties and pay damages to Universal; and if that delivery was no longer
possible, to refund the purchase price plus interests thereon.

The properties and the titles thereto were finally delivered to Universal on 5 January 2005.
Hence, its only existing claim in this case is for damages, which an appeal bond does not secure
under Section 3 (c), Rule XII of the 1996 HLURB Rules of Procedure.32 Since interests,
damages, and attorney's fees need not be covered by an appeal bond, that controversy has
come to an end with no practical and effective relief to be given to petitioner.33

The Discharge of the Lapu-Lapu

City Property

Universal highlights the irregularities that supposedly attended the discharge of the Lapu-Lapu
City property owned by RBDC. First, the BOC Order dated 10 October 2003, which did not rule

24 | P a g e
upon the issue of the discharge, was improvidently modified by its Resolution dated 29 June
2004. The Order was modified upon respondent's filing of a second Motion for Partial Discharge,
instead of a proper Motion for Reconsideration. Second, since the BOC had directed the remand
of the case to the ENCRFO, the former lost the jurisdiction to order the discharge. Third, the
discharge transpired without notice and hearing.

On the first infirmity, we hold that the CA did not exceed its jurisdiction when it sustained the
BOC Resolution dated 29 June 2004 granting the discharge, even if not through a motion for
reconsideration but via a second Motion for Partial Discharge. The second Motion for Partial
Discharge may very well take the place of a motion for reconsideration, considering that it also
sought the reconsideration of the BOC's failure to resolve the first Motion for Partial Discharge.
It is basic that the caption should not be the governing factor, but rather the allegations
contained in the motion or pleading, that should determine the nature of the action.34

As regards the second and the third irregularities, this Court finds no justification for the
exercise of its discretionary power of appellate review. The CA, which heard the issues under
the framework of a special civil action for certiorari, has thoroughly explained the purported
irregularities. We quote with approval the following excerpt from the assailed CA Decision:35

It is absurd to assume that the ENCRFO, a subordinate of the HLURB Board of Commissioners,
is the only agency that can discharge the writ of attachment it previously issued. As the Board
is the reviewing body of the entire HLURB, it definitely has the power to overturn, revise or
modify the ruling handed down by its subordinate. To rule otherwise would render the appeal
before the Board nugatory and irrelevant.

xxxx

As for the alleged lack of hearing, petitioner's filing of an Opposition to respondent's motion for
partial discharge before the HLURB Board sufficiently satisfies said requirement. x x x.

Universal's Claim for Liquidated

Damages under Section 6 of the
Contracts to Sell

Proceeding to the main controversy of these consolidated cases, Universal asserts that because
RBDC failed to transfer possession of the properties, and their CCTs, petitioner-buyer is entitled
to damages by way of the interest specified in Section 6 of the Contracts to Sell, viz:

SECTION 6. BREACH AND/OR VIOLATIONS OF THE CONTRACT.

This agreement shall be deemed cancelled, at the option of the BUYER, in the event that
SELLER, for the reasons of force majeure, decide not to continue with the Project or the
Project has been substantially delayed. In such a case, the BUYER shall be entitled to refund
all the payments made with interest at one-and-a-half (1 1/2) percent per month on
the amount paid computed from the date of cancellation until the payments have
been fully refunded. Substantial delay is defined as six (6) months from date of estimated
date of completion. The parties agree that the estimated date of completion shall be December
31, 1998. (Emphasis supplied)

RBDC counters that it cannot be considered in breach of the agreement, since Universal failed
to pay the transfer charges. The CA agreed with respondent's reasoning and thus rejected
petitioner's demand for liquidated damages. This Court concurs with the CA's rejection of
liquidated damages, but for a different reason.

If the terms of the contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control.36 In this case, the very words of
Section 6 of the Contracts to Sell refer only to situations of (1) force majeure or (2) substantial
delay in the condominium project, Elizabeth Place.

25 | P a g e
Universal is not alleging either of these two circumstances. Rather, it is claiming damages for
RBDC's failure to deliver possession of the condominium units, parking slots, and their CCTs.
Hence, Section 6 of the Contracts to Sell is clearly inapplicable to petitioner's cause of action.

The Demand of Universal to Recover

Losses amounting to ₱l9,646,483. 72

Universal reiterates its claims for actual damages based on the losses it suffered amounting to
₱19,646,483.72. This amount represents the depreciation between the
₱57,146,483.72 purchase price of the properties in 1996 and the ₱37,500,000 market
value of the properties appraised at the time that petitioner obtained the titles from China
Bank in 2005.37

Petitioner computes that the purchase price in 1996 totals ₱57,146,483.72, which is the
summation of the following amounts: ₱52,836, 781.50 total contract price; ₱770,6 l 3 .68
condominium dues, ₱368,881.63 real estate taxes, and the ₱3, 170,206.91 expenses paid to
China Bank for the release of the properties. In effect, petitioner seeks to recover the
depreciation costs and the additional sums it paid to obtain the release of the properties from
China Bank. For lack of legal basis, the CA entirely rejected petitioner's claims for losses.

Universal now seeks refuge under Article 2200 of the Civil Code to justify its claim for damages:

ARTICLE 2200. Indemnification for damages shall comprehend not only the value of the loss
suffered, but also that of the profits which the obligee failed to obtain.

To adjudicate petitioner's claims, this Court looks into the fundamental elements in recovering
damages. In MEA Builders inc. v. Court of Appeals,38 We defined damages as follows:

In legal contemplation, the term "damages" is the sum of money which the law awards or
imposes as a pecuniary compensation, a recompense or satisfaction for an injury done or a
wrong sustained as a consequence either of a breach of a contractual obligation or a tortuous
act.

Based on the above definition, in order to recover damages, the claimant must prove (1) an
injury or a wrong sustained (2) as a consequence of a breach of contract or tort and (3) caused
by the party chargeable with a wrong.39 As Universal claims actual damages, it is only entitled
to such pecuniary loss as it has duly proved.40

Losses Sustained by Universal

Petitioner cites Article 2200 of the Civil Code to support its claim for losses equivalent to a
₱19,646,483.72 reduction in the market value of the condominium units. This provision speaks
of indemnification for lost profits that would have been obtained by the claimant if not for the
injury caused by the erring party.41 In the present case, however, Universal does not even
allege that it is marketing the properties for profit, either by lease or by sale. Thus, Article 2200
cannot serve as the proper basis for recovering the value of the condominium units.

In the alternative, assuming that the condominium units were utilized for profit, this Court finds
no iota of evidence as to the amount of profits that Universal would have earned from the
properties. To justify a grant of compensatory damages, it is necessary that the actual amount
of loss to be proved with a reasonable degree of certainty, premised upon competent proof and
the best evidence obtainable by the injured party.42

We cannot consider as unearned profits the ₱19,646,483.72 difference between the total
contract price and the present market value of the properties. That conclusion presupposes that
Universal has (1) successfully marketed the properties (2) at a favorable retail price that would
allow it to recover its original investment. In National Power Corp. v. Philipp Brothers Oceanic,
Inc.,43 this Court explained that in order to recover actual damages, the alleged unearned

26 | P a g e
profits must not be conjectural or based on contingent transactions. Speculative damages are
too remote to be included in an accurate estimate of damages.44

Breach of Contract by RBDC

Both parties entered into a contract to sell, not a contract of sale. In the former agreement,
ownership is reserved by the vendor.45 Upon full payment of the purchase price, the resulting
duties of RBDC as vendor are found in Section 3 of the subject agreement, viz:

SECTION 3. TITLE AND OWNERSHIP OF UNIT.

a) Upon full payment of the BUYER of the above purchase price, including any and all payments
as provided herein, and upon full compliance by the BUYER of all his obligation as contained in
this contract, the SELLER shall deliver to the BUYER a Deed of Absolute Sale conveying its
rights, interests and title to the UNIT and the appurtenant undivided interest in the common
areas of the Project, and the corresponding Condominium Certificate of Title. The BUYER
shall give the SELLER reasonable time from date of completion of the Project to secure the title
to the UNIT. A copy of the Deed of Absolute Sale is attached as Annex A. x x x. (Emphasis
supplied)

RBDC only has two obligations specified by Section 3: (1) to deliver deeds of absolute sale; and
(2) to deliver the corresponding CCTs. Contrary to the demands of petitioner, respondent did
not have any contractual obligation to surrender possession of the properties. Neither did the
latter have to cause the transfer of the CCTs to petitioner's name.

In Chua v. Court of Appeals,46 we explained the nature and the incidents of a contract to sell as
follows:

In a contract to sell, the obligation of the seller to sell becomes demandable only upon the
happening of the suspensive condition. In this case, the suspensive condition is the full
payment of the purchase price by Chua. Such full payment gives rise to Chua's right to
demand the execution of the contract of sale.

It is only upon the existence of the contract of sale that the seller becomes obligated to
transfer the ownership of the thing sold to the buyer.

xxxx

In the sale of real property, the seller is not obligated to transfer in the name of the
buyer a new certificate of title, but rather to transfer ownership of the real property. There
is a difference between transfer of the certificate of title in the name of the buyer, and transfer
of ownership to the buyer. The buyer may become the owner of the real property even if the
certificate of title is still registered in the name of the seller. (Emphasis supplied)

Universal does not base its claim for damages on grounds supported by the Contracts to Sell.
Instead, it argues that respondent's failure to transfer the CCTs and convey possession of the
properties caused the depreciation of their market value. Hence, this Court rules that
petitioner's premise for its recovery of depreciation losses is misplaced.47

Proximate Cause of Universal's

Losses

The act or omission of respondent must have been the proximate cause, as distinguished from
the remote cause, of the loss sustained by the claimant.48 Proximate cause - determined by a
mixed consideration of logic, common sense, policy, and precedent49 is that cause which, in
natural and continuous sequence, unbroken by any efficient intervening cause, produces the
injury, and without which the result would not have occurred.50

27 | P a g e
Applying that definition to the case at bar, Universal must demonstrate that the breaches of
RBDC caused the depreciation of the condominium units; or conversely, that had respondent
performed its contractual obligations, the properties would not have diminished in value.

Universal does not specify how RBDC's non-delivery of the properties resulted in the
depreciation of their value. Neither does petitioner prove that had it possessed the properties, it
could have avoided their decline in the real estate market. At most, it has only been able to
show that with the passage of time, its ₱57,146,483.72 investment in 1996 was reduced to
₱37,500,000 in 2005. Therefore, considering the dearth of proof of causality in this case, this
Court cannot justly exact the supposed ₱19,646,483.72 depreciated value of the 10
condominium units and 10 parking slots from RBDC.

Recovery from RBDC of Sums Paid

by Universal to China Bank

As mentioned above, Universal seeks to recover from RBDC the additional sums paid by the
former to obtain the release of the properties from China Bank. Respondent counters that it
should not be made to pay the ₱770,613.68 condominium dues, ₱368,881.63 real estate taxes,
and ₱3,170,206.91 expenses, given that China Bank was the one obliged by the HLURB to
release the condominium units.

We agree with RBDC. Respondent correctly argues that it is not chargeable for the alleged
expense items. Clearly - and logically – the HLURB did not require any additional payment for
the fully paid buyers of the condominium units. Hence, Universal should not have paid any
additional amount to China Bank. In the final Judgment Upon Compromise dated 1 August
2002, the HLURB directed the bank to release the titles to all the units without qualification:51

The affidavits of undertaking of the mortgagee bank are requirements in the issuance of a
clearance to mortgage as provided for under Section 18 of Presidential Decree No. 957 for the
protection of the buyers.

It is clear from the affidavits that the mortgagee bank undertook to cancel/release the
mortgage to fully paid units notwithstanding the non-payment of the total mortgage loan
incurred by the mortgagor. The mortgagee bank has to abide by this undertaking.

Moreover, Section 25 of Presidential Decree No. 957 substantially provides that the titles to fully
paid condominium units should be secured and delivered to the buyers.

Therefore, the China Banking Corporation should release the titles to all fully paid condominium
units to the buyers whether they are its buyers or the buyers of Ray Burton Development
Corporation or Mercantile Investment Company, Inc.

Given that the sums expended by Universal should not have been incurred in the first place,
this Court finds no just reason for petitioner to demand the payment of the expenses,
association dues, and realty taxes from RBDC. Notably, as regards the payment of association
dues and realty taxes, the Contracts to Sell provide that these shall not be shouldered by
respondent seller.52

Universal's Entitlement to Damages

on Account of RBDC's Breaches

As discussed respondent had two obligations specified in Section 3 of the Contracts to Sell: (1)
to deliver the deeds of absolute sale; and (2) to give the corresponding CCTs. RBDC admittedly
failed to perform these obligations, but invoked the excuse that Universal had defaulted on the
payment of transfer charges under Section 5(a) of the Contracts to Sell. The provision reads as
follows:53

SECTION 5. TAXES ASSESSMENTS AND EXPENSES.

28 | P a g e
a) Documentary stamp taxes, registration fees, taxes and assessments on transfer of real
properties and other necessary and incidental expenses and all other forms of taxes as
imposed by the government related to the acquisition of the property as well as other
expenses that may be incurred in connection with the execution of the Absolute Deed of
Sale and the conveyance/transfer of Title to the BUYER, shall be for the sole account
and responsibility of the BUYER.

In the event the SELLER agrees to handle the registration of the Deed of Sale and effect title
transfer in the name of the BUYER, the amount of taxes, fees, and expenses covering the same
shall be paid by the BUYER to the SELLER within five (5) days from receipt of the Notice of
Completion and Delivery of the Unit issued by the SELLER. (Emphasis supplied)

The excuse given by RBDC deserves scant consideration. In order that the debtor may be held
to be in default, the following requisite conditions must be present: (1) the obligation is
demandable and already liquidated; (2) the debtor delays performance of the obligation; and
(3) the creditor requires the performance judicially or extrajudicially.54

Nowhere in the records does this Court find a demand from RBDC for Universal to pay any sum
under the above provision. None of the letters of respondent to petitioner resembles a notice
requiring the latter to tender any payment for government charges and expenses connected
with the execution of the Deed of Absolute Sale or the transfer of titles. Moreover, there is no
liquidated demand to speak of, as there is no itemized final computation.55 All in all, this Court
does not consider Universal to have defaulted on the payment of transfer charges.

Section 5(a) must be construed as a whole. Its first paragraph refers to the payment for (1)
government-imposed taxes, fees, and expenses related to the acquisition of the property; and
(2) expenses that may be incurred in connection with the execution of the Deeds of Absolute
Sale and the conveyance or transfer of titles to the buyer.

The second paragraph of Section 5 specifies that in the event the seller handles the registration
of the Deed of Absolute Sale and effects title transfer in the name of the buyer, then that is the
time that the buyer would have to give the seller the payment for those transactions.
Specifically, the buyer must tender payment within five days from receipt of the seller's notice
of completion and delivery of the unit.

We appreciate that the charges under Section 5(a) are sums to be expended for the titling of
the properties. However, the obligation to pay these charges - specifically to the seller - arises
only "in the event" that the latter elects to handle the titling of the properties. In this case,
RBDC has not averred that it has undertaken that responsibility. Consequently, Universal cannot
be obliged to pay the transfer charges to respondent. RBDC cannot demand performance by
Universal without offering to comply with its own prestation.56

RBDC is then left with no just reason not to perform its obligations to Universal. As early as
February 1999, respondent should have (1) executed deeds of absolute sale; and (2) given the
CCTs of the properties to petitioner. RBDC has not at all complied with its duties despite the
fact that Universal has already fully paid the purchase price of the properties.

Temperate Damages in lieu of Actual

Damages

As explained above, Universal failed to prove its claims for actual damages, both as regards the
liquidated damages under Section 6 of the Contracts to Sell and the alleged losses amounting to
₱19,646,483.72.

Nonetheless, petitioner may still be awarded damages in the concept of temperate or moderate
damages.1âwphi1Temperate damages may be recovered when the court finds that some
pecuniary loss has been suffered but the amount cannot, from the nature of the case, be
proven with certainty.57 In this case, there is no doubt that Universal sustained pecuniary loss,

29 | P a g e
albeit difficult to quantify, arising from RBDC's failure to execute deeds of absolute sale and to
deliver the CCTs of the properties.

Had RBDC fulfilled these obligations, its transaction with Universal under the Contracts to Sell
would have been complete.58 After an absolute deed of sale has been signed by the parties,
notarized and hence, turned into a public instrument, then the delivery of the real property is
deemed made by the seller to the buyer.59 Consequently, the buyer would have right away
enjoyed the possession of the realties. Likewise, the titles thereto would have permitted the use
of the properties as collateral for further investments. Universal lost all of these opportunities
after RBDC failed to perform the latter's duties as a seller.

Hence, this Court is empowered to calculate moderate damages, rather than let the aggrieved
party suffer without redress from RBDC 's wrongful act.60

The calculation of temperate damages is usually left to the sound discretion of the courts.61 We
observe the limit that in giving recompense, the amount must be reasonable, bearing in mind
that the same should be more than nominal, but less than compensatory.62 In jurisprudence,
this Court has pegged temperate damages to an amount equivalent to a certain percentage of
the actual damages claimed by the injured party.63

The plight of the petitioner in Pacific Basin Securities Co., Inc. v. Oriental Petroleum64 is parallel
to that of Universal. In that case, the petitioner was also not given transfer documents for the
properties it had purchased, and the respondent unjustifiably refused to record the transfer of
the ₱l 7,727,000 worth of shares purchased by the former. As a result, the petitioner therein
was prevented from reselling the subject shares in the stock market. For that dereliction, this
Court awarded the petitioner therein ₱l million for temperate damages equivalent to 5% of the
actual damages claimed.

Anent the failure to deliver the titles to a purchased property, Government Service Insurance
System v. Spouses Labung-Deang65 is instructive. Similar to petitioners herein, Spouses Labung-
Deang were deprived by the bank of copies of the title to the property that they had purchased.
Consequently, the spouses failed to mortgage it as security for a ₱50,000 loan that they could
have utilized to renovate their house. As recompense, this Court awarded them ₱20,000
temperate damages equivalent to 40% of the amount of their alleged injury.

Aside from those two analogous cases, this Court has reviewed other cases involving the award
of temperate damages for breaches of contract. We have considered the: (1) investment to be
lost by the injured party;66 (2) duration of suffering of the injured party;67 and (3) urgent action
undertaken by the party in breach to remedy the situation.68 Thus, we take into account the
following: (1) in 1999, Universal invested ₱52,836,781.50 for 10 condominium units and 10
parking slots of Elizabeth Place in Makati City; (2) Universal asked RBDC about the monthly
rental rates of each of the properties, which turned out be in the range of ₱20,000 to
₱48,000;69 (3) for six years, petitioner had no titles to or possession of the properties; and (4)
RBDC could have easily executed deeds of absolute sale as the templates of these contracts
had already been attached to the Contracts to Sell.70

Having laid down all the circumstances obtaining in this case, this Court is of the view that an
award for temperate damages equivalent to 15% of the ₱52,836,781.50 purchase value of the
properties, or ₱7,925,517.23, is just and reasonable.

Exemplary Damages and Attorney's Fees

Since petitioner is entitled to temperate damages, then the courts may also examine the
propriety of imposing exemplary damages on respondent.71 Exemplary damages are corrective
damages imposed by way of example or correction for the public good.72 The grant thereof is
intended to serve as a deterrent to or negative incentive for curbing socially deleterious
actions.73 Relevant to this case, this Court highlights that the State has an avowed policy to
protect innocent buyers in real estate transactions.74

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Article 2232 of the Civil Code of the Philippines provides that in contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner. In this case, we find that respondent indeed acted in that manner when,
despite demand for and full payment of the properties,75 it refused to execute deeds of absolute
sale and release the CCTs to petitioner without any sound basis.76 As already discussed,
Universal' s nonpayment of transfer charges does not even serve as a potent excuse for RBDC's
refusal to execute deeds of absolute sale and to deliver the titles of the purchased properties.

Moreover, there was no impediment to RBDC's issuance of deeds of absolute sale. As the
owner, it could have still sold the properties even if it mortgaged them to China Bank.77 As for
the CCTs, respondent need not cause their transfer to the name of petitioners. RBDC could
have simply turned them over to Universal in 1999, two years prior the foreclosure of the
securities by China Bank in 2001. To make matters worse, respondent did not categorically
deny that it had failed to disclose to petitioner that the lot of Elizabeth Place had been
mortgaged to China Bank prior the execution of the Contracts to Sell.78 This Court holds that
the totality of these circumstances justify the imposition of exemplary damages on RBDC.

In Cantemprate v. CRS Realty Development Corporation,79 which is fairly akin to the case at
bar, the developer did not deliver the titles to the buyers of the fully paid properties. For failing
to comply with its unequivocal duty, this Court affirmed the HLURB 's award of ₱30,000
exemplary damages and ₱20,000 attorney's fees to each of the buyers. Considering that ruling
vis-a-vis the dereliction of RBDC in the present case, which also involves the violation of a
straightforward obligation to execute the deeds of absolute sale and to deliver the CCTs for the
10 condominium units and 10 parking slots, an award of ₱300,000 as exemplary damages is
justified to set an example.

Given the award of exemplary damages, this Court likewise finds it just and equitable under the
circumstances to award ₱200,000 as attorney's fees.80 In addition, all damages awarded shall
earn interest at the rate of 6% per annum from the date of finality of this judgment until full
payment.

WHEREFORE, premises considered, in G.R. No. 182201, the Court of Appeals Decision dated
25 June 2007 and Resolution dated 14 March 2008 in CA-G.R. SP No. 89578
are AFFIRMED. In G.R. No. 185815, the Court of Appeals Decision dated 31 July 2007 and
Resolution dated 11 December 2008 in CA-G.R. SP No. 89468 are AFFIRMED with
the MODIFICATION that ₱7,925,517.23 as temperate damages, ₱300,000 as exemplary
damages, and ₱200,000 as attorney's fees are awarded to petitioner Universal International
Investment (BVI) Limited. All damages awarded shall earn interest at the rate of 6% per
annum from the date of finality of this judgment until full payment.

SO ORDERED.

FIRST DIVISION

January 13, 2016

G.R. No. 211062

PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee,

vs.
MANUEL MACAL y BOLASCO, Accused-Appellant.

DECISION

PEREZ, J.:

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Violence between husband and wife is nothing new. Marital violence that leads to spousal killing
is parricide. Perceived as a horrific kind of killing, penal laws impose a harsher penalty on
persons found guilty of parricide compared to those who commit the felony of homicide.

For review is the June 28, 2013 Decision1 of the Court of Appeals (CA) in CA-G.R. CEB-CR H.C.
No. 01209 which affirmed with modification the August 18, 2009 Decision2 of the Regional Trial
Court (RTC) of Tacloban City, Branch 6, convicting Manuel Macal y Bolasco (accused-appellant)
of the crime of parricide and sentencing him to suffer the penalty of reclusion perpetua.

The Facts

For allegedly killing his spouse, Auria Ytac Macal (Auria), the accused-appellant was charged
with the crime of parricide in a February 13, 2003 Information3 that reads:

"That on or about the 12th day of February, 2003, in the City of Tacloban, Philippines and
within the jurisdiction of this Honorable Court, the above-named accused, MANUEL MACAL y
BOLASO, did, then and there, wilfully, unlawfully and feloniously and with evident
premeditation, that is, having conceived and deliberated to kill his wife, AURIA MACAL y YTAC,
with whom he was united in lawful wedlock, armed with an improvised bladed weapon (belt
buckle) and a kitchen knife, stab said Auria Macal on the front portion of her body inflicting a
fatal wound which caused her death, which incident happened inside the bedroom of the house
they are residing.

CONTRARY TO LAW."

On July 7, 2003, upon arraignment, the accused-appellant, duly assisted by counsel, pleaded
not guilty to the charge of parricide.4 During the pre-trial conference, the parties agreed to
stipulate that Auria was the wife of the accused-appellant.5 Thereafter, trial on the merits
ensued.

Version of the Prosecution

To prove the accusation, the prosecution presented Angeles Ytac (Angeles) and Erwin Silvano
(Erwin) as witnesses.

Angeles, the mother of Auria, narrated that Auria and the accused-appellant got married in
March 2000 and that out of their union, they begot two (2) children. Angeles claimed that, at
the time of the incident, they were all living together in a house located in V & G Subdivision,
Tacloban City. The said house was entrusted to Angeles by her brother, Quirino Ragub, who
was then residing in Canada.

Angeles testified that at around 1:20 in the morning of February 12, 2003, she, her children
Catherine, Jessica, Auria and Arvin were walking home after playing bingo at a
local peryahan. Some friends tagged along with them so that they could all feast on the leftover
food prepared for the fiesta that was celebrated the previous day. Along the way, Angeles and
her group met Auria's husband, the accused appellant. The latter joined them in walking back
to their house.

When they arrived at the house, the group proceeded to the living room except for Auria and
the accused-appellant who went straight to their bedroom, about four (4) meters away from
the living room. Shortly thereafter, Angeles heard her daughter Auria shouting, "mother help
me I am going to be killed."6 Upon hearing Auria's plea for help, Angeles and the rest of her
companions raced towards the bedroom but they found the door of the room locked. Arvin
kicked open the door of the bedroom and there they all saw a bloodied Auria on one side of the
room. Next to Auria was the accused-appellant who was then trying to stab himself with the
use of an improvised bladed weapon (belt buckle). Auria was immediately taken to a hospital,
on board a vehicle owned by a neighbor, but was pronounced dead on arrival. Angeles declared
that the accused-appellant jumped over the fence and managed to escape before the policemen
could reach the crime scene.

32 | P a g e
Erwin corroborated Angeles' testimony that Auria was killed by the accused-appellant. Erwin
claimed that he was part of the group that went to Angeles' residence on that fateful morning.
From where he was seated in the living room, Erwin recounted that he heard Auria's screaming
for her mother's help. The cry for help prompted him to ran towards the bedroom. Once the
door was forcibly opened, Erwin became aware that the accused-appellant stabbed Auria on the
upper left portion of her chest with a stainless knife. Erwin testified that the accused-appellant
stabbed himself on the chest with a knife-like belt buckle and that soon after, the accused-
appellant hurriedly left the house.

The prosecution formally offered in evidence the Certificate of Death wherein it is indicated that
Auria died of hemorrhagic shock secondary to stab wound.7

Version of the Defense

To substantiate its version of the fact, the defense called to the witness stand the accused-
appellant, Benito Billota (Benito) and Nerissa Alcantara (Nerissa).1âwphi1

The accused-appellant did not refute the factual allegations of the prosecution that he stabbed
his wife, resulting in the latter's death, but seeks exoneration from criminal liability by
interposing the defense that the stabbing was accidental and not intentional.

The accused-appellant admitted that he was married to Auria in March 2000 and the wedding
was held in Manila. The couple had two children but one of them died. According to the
accused-appellant, he was employed as a security guard by Fighter Wing Security Agency which
was based in Manila. While the accused-appellant was working in Manila, his family lived with
Angeles in Tacloban City. The accused-appellant came home only once a year to his family in
Tacloban City.

On February 12, 2003, the accused-appellant arrived home in V & G Subdivision, Tacloban City
from Manila. Before the accused-appellant could reach the bedroom, he was warned by Arvin,
his brother-in-law, not to go inside the bedroom where his wife was with a man for he might be
killed. Ignoring Arvin's admonition, the accused-appellant kicked the door but it was opened
from the inside. After the bedroom door was opened, the accused-appellant saw his wife and a
man seated beside each other conversing. Furious by what he had seen, the accused-appellant
went out of the room, got a knife and delivered a stab blow towards the man but the latter was
shielded by Auria. In the process, the stab blow landed on Auria. After Auria was accidentally
stabbed, the man ran outside and fled. The accused-appellant testified that out of frustration
for not killing the man, he wounded himself on the chest. He then left the house and went to
Eastern Visayas Regional Medical Center (EVRMC) for medical treatment.

Benito attested that he came to know the accused-appellant while they were seated next to
each other on board a Christopher Bus bound for Tacloban City. The bus they were riding
reached Tacloban City past midnight of February 12, 2003. Considering the lateness of the hour
and there was no bus available that would take Benito to his final destination, the accused-
appellant convinced Benito to simply go home with him. Once they got home, the accused-
appellant went inside the house while Benito opted to stay by the main door. The accused-
appellant asked someone from the living room the whereabouts of his wife, Auria. Benito
testified that a female informed the accused-appellant that Auria was inside the bedroom but
advised him not to go in as Auria was not alone in the room. Undettered, the accused-appellant
proceeded to the bedroom and was able to get inside the room. Moments later, Benito heard a
thudding sound coming from the bedroom. Then, Benito saw a man running out of the house.
Sensing trouble, Benito immediately proceeded to the bus terminal.

To support the accused-appellant's claim that he brought himself to a hospital on February 12,
2003, Nerissa, the Administrative Officer/OIC Records Officer of EVRMC, was presented as
witness for the defense. Her testimony focused on the existence of the medical record
concerning the examination conducted on the accused-appellant by a physician at EVRMC. Per
hospital record, Nerissa confirmed that the accused-appellant sustained a three-centimeter

33 | P a g e
wound located at the left parastemal, level of the 5th ICS non-penetrating and another
lacerated wound in the left anterior chest.8

The RTC's Ruling

The RTC convicted the accused-appellant of the crime of parricide and the dispositive portion of
its judgment reads:

WHEREFORE, in view of the foregoing considerations, this Court finds accused MANUEL
MACAL y BOLASCOguilty beyond reasonable doubt of the crime of Parricide, and sentences
him to suffer the penalty of imprisonment of RECLUSION PERPETUA; to pay the heirs of the
victim, Aurea Ytac Macal, P.50,000.00 as civil indemnity, and P.50,000.00 for moral damages.
And, to pay the Costs.

SO ORDERED.9

The RTC gave full credence to the testimonies of the prosecution witnesses. In contrast, the
RTC found accused-appellant's declarations doubtful and contrary to human experience and
reason. The RTC was not persuaded by the accused-appellant's argument that the stabbing
incident was purely accidental after it took into account Auria's terrifying wail that she was
going to be killed. The RTC also refused to believe accused-appellant's claim that there was a
man with Auria inside the bedroom. Logic dictates that a man in that situation would normally
run away the first opportunity he had specifically when the accused-appellant stepped out of
the bedroom to obtain a knife. The RTC even went further by saying that the accused-appellant
injured himself so that he can later on invoke self-defense which he failed to do as there are
witnesses who can easily disprove his theory of self-defense.

The CA 's Ruling

On appeal, the CA affirmed with modification the RTC decision. The fallo of the CA decision
states:

IN LIGHT OF ALL THE FOREGOING, the Court hereby AFFIRMS with MODIFICATION the
assailed Decision dated August 18, 2009, of the Regional Trial Court, Branch 6, Tacloban City in
Criminal Case No. 2003-02-92. Accused-Appellant MANUEL MACAL y BOLASCO is found GUILTY
of parricide committed against his legal wife, Auria Ytac Macal, on February 12, 2003 and is
sentenced to suffer the penalty of reclusion perpetua. He is further ordered to pay the heirs of
Auria Ytac Macal the amounts of Php 50,000.00 as civil indemnity, Php 50,000.00 as moral
damages, Php 25,000.00 as temperate damages and Php 30,000.00 as exemplary damages. All
monetary awards for damages shall earn interest at the legal rate of six percent (6%) per
annum from date of finality of this Decision until fully paid.

SO ORDERED.10

The appellate court ruled that all the elements of parricide are present in this case. Moreover,
the CA reasoned out that while Angeles did not actually see the accused-appellant stab Auria,
the prosecution adduced sufficient circumstantial evidence to sustain his conviction. From the
viewpoint of the CA, the prosecution's case against the accused-appellant was strengthened by
the latter's own testimony and admission that he stabbed his wife. The CA further held that
neither can the act of the accused-appellant be covered under the exempting circumstance of
accident under Article 12(4)11 of the Revised Penal Code nor under absolutory cause found in
Article 2412 of the same Code.

Hence, this appeal.

The Issue

34 | P a g e
The principal issue before the Court is whether the court a quo erred in finding the accused-
appellant guilty beyond reasonable doubt of the crime of parricide.

In the resolution of March 10, 2014, the Court required the parties to submit their respective
supplemental briefs within thirty (30) days from notice. However, both parties manifested that
they will no longer file the required briefs as they had already exhaustively and extensively
discussed all the matters and issues of this case in the briefs earlier submitted with the CA.

The Court's Ruling

The Court affirms the conviction of the accused-appellant with modifications.

All the Essential Elements of Parricide Duly Established and Proven by the
Prosecution

Parricide is committed when: (1) a person is killed; (2) the deceased is killed by the accused;
(3) the deceased is the father, mother, or child, whether legitimate or illegitimate, or a
legitimate other ascendants or other descendants, or the legitimate spouse of the accused.13

Among the three requisites, the relationship between the offender and the victim is the most
crucial.14 This relationship is what actually distinguishes the crime of parricide from
homicide.15 In parricide involving spouses, the best proof of the relationship between the
offender and victim is their marriage certificate.16 Oral evidence may also be considered in
proving the relationship between the two as long as such proof is not contested.17

In this case, the spousal relationship between Auria and the accused-appellant is beyond
dispute. As previously stated, the defense already admitted that Auria was the legitimate wife of
the accused-appellant during the pre-trial conference. Such admission was even reiterated by
the accused-appellant in the course of trial of the case. Nevertheless, the prosecution produced
a copy of the couple's marriage certificate which the defense admitted to be a genuine and
faithful reproduction of the original.18 Hence, the key element that qualifies the killing to
parricide was satisfactorily demonstrated in this case.

Just like the marital relationship between Auria and the accused-appellant, the fact of Auria's
death is incontestable. Witnesses, from both the prosecution and defense, were in agreement
that Auria expired on February 12, 2003. As additional proof of her demise, the prosecution
presented Auria's Certificate of Death which was admitted by the RTC and the defense did not
object to its admissibility.

Anent the remaining element, there is no doubt that Auria was killed by the accused-appellant.
The stabbing incident was acknowledged by the accused-appellant himself during his direct
examination by defense counsel Emelinda Maquilan, to wit:

xxxx

Q: What is the name of your wife?

A: Aurea Ytac.

Q: You said you saw your wife in your room with a man. Now, what was the man doing when
you saw this man together with your wife?

A: They were conversing.

Q: They were conversing in what part of your room?

A: At one side of the room.

35 | P a g e
Q: So, what did you do upon seeing the man, if there was any?

A: Because of my anger, I stabbed the man.

Q: Were you able to hit the man?

A: No, because my wife shielded him.

Q: Since your wife shielded the man, what happened to your wife?

A: My wife got hit.

Q: Now, in what of the body of his wife was hit?

A: I cannot exactly tell where she was hit but he delivered a stabbing blow at the man.

Q: So, after your wife was hit by the stabbing blow to be directed to the man, what happened
next?

A: Out of desperation because I was not able to kill the man, I wounded myself.

Q: How about the man whom you wanted to stab, what happened to him?

A: He ran.

Q: Since you said your wife was hit by that stabbing blow, what happen to your wife then?

A: She died.

Q: How about you, what happened to you after you yourself?

A: I left the place.19

The outright admission of the accused-appellant in open court that he delivered the fatal
stabbing blow that ended Auria's life established his culpability.

Clearly, all the elements of the crime of parricide as defined in Article 246 of the Revised Penal
Code are present in this case.

Affirmative Defense of Accident as an Exempting Circumstance Must Fail

The defense invoked Article 12 paragraph 4 of the Revised Penal Code to release the accused-
appellant from criminal liability. Pursuant to said provision, the essential requisites of accident
as an exempting circumstance are: (1) a person is performing a lawful act; (2) with due care;
(3) he causes an injury to another by mere accident; and (4) without fault or intention of
causing it.20

A close scrutiny of the transcripts of stenographic notes would reveal that the accused-appellant
was not performing a lawful act at the time Auria was stabbed. This can be gathered from the
narration of the accused-appellant during cross-examination conducted by Prosecutor Percival
Dolina:

xxxx

Q: Now, of course, when you saw the man and your wife, according to you, they were just
conversing with each other, correct?

A: Yes, sir.

36 | P a g e
Q: How far where they to each other?

A: They were beside each other.

Q: They were sitting?

A: Yes, sir, both were sitting.

Q: Of course, when you saw them, you got angry?

A: I became angry.

Q: That is why you got a knife and stabbed the man?

A: Yes, sir.

Q: And when you stabbed the man, you had the intention to kill him?

A: Yes, my intention was to kill him.

Q: But it was your wife who was hit?

A: My wife was the one hit.21

The defense of accident presupposes lack of intention to kill.22 This certainly does not hold true
in the instant case based on the aforequoted testimony of the accused-appellant. Moreover, the
prosecution witnesses, who were then within hearing distance from the bedroom, testified that
they distinctly heard Auria screaming that she was going to be killed by the accused-appellant.

Given these testimonies, the accused-appellant's defense of accident is negated as he was

carrying out an unlawful act at the time of the incident.

It also bears stressing that in raising the defense of accident, the accused-appellant had the
inescapable burden of proving, by clear and convincing evidence, of accidental infliction of
injuries on the victim.23 In so doing, the accused-appellant had to rely on the strength of his
own evidence and not on the weakness of the prosecution's evidence.24 As aptly pointed out by
the CA, the defense failed to discharge the burden of proving the elements of the exempting
circumstance of accident that would otherwise free the accused-appellant from culpability. Aside
from the accused-appellant's self-serving statement, no other proof was adduced that will
substantiate his defense of accidental stabbing.

Further, contrary to what the accused-appellant wants the Court to believe, his actuations
closely after Auria was stabbed tell a different story.1avvphi1 If Auria was really accidentally
stabbed by him, the accused-appellant's natural reaction would have been to take the lead in
bringing his wife to a hospital. Instead, his priority was to come up with an improvised bladed
weapon that he could use to hurt himself. Additionally, the fact that the accused-appellant ran
away from the crime scene leaving Auria's relatives and neighbors to tend to his dying wife is
indicative of his guilt.

The CA took one step further when it examined the applicability of Article 247 of the Revised
Penal Code in this case. For this purpose, the CA assumed arguendo that there is another man
inside the bedroom with Auria.

Article 247 is an absolutory cause that recognizes the commission of a crime but for reasons of
public policy and sentiment there is no penalty imposed.25 The defense must prove the
concurrence of the following elements: (1) that a legally married person surprises his spouse in
the act of committing sexual intercourse with another person; (2) that he kills any of them or
both of them in the act or immediately thereafter; and (3) that he has not promoted or

37 | P a g e
facilitated the prostitution of his wife (or daughter) or that he or she has not consented to the
infidelity of the other spouse.26 Among the three elements, the most vital is that the accused-
appellant must prove to the court that he killed his wife and her paramour in the act of sexual
intercourse or immediately thereafter.27

Having admitted the stabbing, the burden of proof is shifted to the defense to show the
applicability of Article 247.28As disclosed by the accused-appellant, when he saw Auria with a
man, the two were just seated beside each other and were simply talking. Evidently, the
absolutory cause embodied in Article 247 is not applicable in the present case.

In sum, the Court agrees with the trial and appellate courts that the evidence of the
prosecution has established the guilt of the accused-appellant beyond reasonable doubt.

Penalty and Pecuniary Liability

Article 246 of the Revised Penal Code provides that the imposable penalty for parricide
is reclusion perpetua to death.1âwphi1 With the enactment of Republic Act No. 9346 (RA 9346),
the imposition of the penalty of death is prohibited. Likewise significant is the provision found in
Article 63 of the Revised Penal Code stating that in the absence of mitigating and aggravating
circumstances in the commission of the crime, the lesser penalty shall be imposed. Applying
these to the case at bar and considering that there are no mitigating and aggravating
circumstances present, the penalty of reclusion perpetua was correctly imposed by the RTC and
CA.

Civil indemnity is automatically awarded upon proof of the fact of death of the victim and the
commission by the accused-appellant of the crime of parricide.29 Current jurisprudence sets civil
indemnity in the amount of P75,000.00. As such, the Court finds it necessary to increase the
civil indemnity awarded by the trial and appellate courts from P50,000.00 to P75,000.00.

There is no question that Auria's heirs suffered mental anguish by reason of her violent death.
Consequently, the award of moral damages is in order. Similar to civil indemnity, prevailing
jurisprudence pegs moral damages in the amount of P75,000.00. On that account, the Court
must also adjust the moral damages from P50,000.00 to P75,000.00.

Given that this is a case of a husband killing his wife where relationship a qualifying
circumstance, the award of exemplary damages is justified. The exemplary damages of
P30,000.00 awarded by the CA is maintained as it is consistent with the latest rulings of the
Court.

Temperate damages may be recovered when some pecuniary loss has been suffered but
definite proof of its amount was not presented in court.30 In People v. De Leon,31 the Court
awarded P25,000.00 as temperate damages where the expenses for the funeral cannot be
determined with certainty because of the absence of receipts to prove them. In keeping with
the said ruling, the Court affirms the CA's award of P25,000.00 as temperate damages.

On a final note, the Court upholds the imposition of interest at the legal rate of 6% per
annum on all the monetary awards for damages reckoned from the date of finality of this
Decision until fully paid.32 This is in accordance with the Court's discretionary authority to levy
interest as part of the damages and in conformity with the latest Court policy on the matter.

WHEREFORE, the CA's decision dated June 28, 2013 in CA-G.R. CEB-CR H.C. No. 01209, finding
accused-appellant, Manuel Macal y Bolasco, guilty beyond reasonable doubt of the crime of
Parricide, is hereby AFFIRMED with MODIFICATIONS. Accused-appellant is sentenced to
suffer the penalty of reclusion perpetua and to pay the heirs of the victim, Auria Ytac Macal, the
amounts of P75,000.00 as civil indemnity, P75,000.00 as moral damages, P30,000.00 as
exemplary damages, and P25,000.00 as temperate damages. In addition, all the monetary
awards shall earn an interest at the legal rate of 6% per annum from the date of finality of this
Decision until fully paid.

38 | P a g e
SO ORDERED.

EN BANC

G.R. No. 179334 April 21, 2015

SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS and

DISTRICT ENGINEER CELESTINO R. CONTRERAS, Petitioners,
vs.
SPOUSES HERACLEO and RAMONA TECSON, Respondents.

RESOLUTION

PERALTA, J.:

For resolution is the Motion for Reconsideration1 filed by respondents-movants spouses

Heracleo and Ramona Tecson imploring the Court to take a second look at its July 1, 2013
Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals
Decision dated July 31, 2007 in CAG.R. CV No. 77997 is MODIFIED, in that the valuation of the
subject property owned by respondents shall be P0.70 instead of ₱1,500.00 per square meter,
with interest at six percent (6%) per annum from the date of taking in 1940 instead of March
17, 1995, until full payment.2

In view of the contrasting opinions of the members of the Third Division on the instant motion,
and the transcendental importance of the issue raised herein, the members of the Third Division
opted to refer the issue to the En Banc for resolution.

For a proper perspective, we briefly state the factual background of the case.

In 1940, the Department of Public Works and Highways (DPWH) took respondents-movants'
subject property without the benefit of expropriation proceedings for the construction of the
MacArthur Highway. In a letter dated December 15, 1994,respondents-movants demanded the
payment of the fair market value of the subject parcel of land. Celestino R. Contreras
(Contreras), then District Engineer of the First Bulacan Engineering District of the DPWH,
offered to pay for the subject land at the rate of Seventy Centavos (P0.70) per square meter,
per Resolution of the Provincial Appraisal Committee (PAC) of Bulacan. Unsatisfied with the
offer, respondents-movants demanded the return of their property, or the payment of
compensation at the current fair market value.3 Hence, the complaint for recovery of possession
with damages filed by respondents-movants. Respondents-movants were able to obtain
favorable decisions in the Regional Trial Court (RTC) and the Court of Appeals (CA), with the
subject property valued at One Thousand Five Hundred Pesos (₱1,500.00) per square meter,
with interest at six percent (6%) per annum.

Petitioners thus elevated the matter to this Court in a petition for review on certiorari. The only
issue resolved by the Court in the assailed decision is the amount of just compensation which
respondents-movants are entitled to receive from the government for the taking of their
property. Both the RTC and the CA valued the property at One Thousand Five Hundred Pesos
(₱1,500.00) per square meter, plus six percent (6%) interest from the time of the filing of the
complaint until full payment. We, however, did not agree with both courts and ruled instead
that just compensation should be based on the value of the property at the time of taking in
1940, which is Seventy Centavos (P0.70) per square meter.4 In addition, and by way of
compensation, we likewise awarded an interest of six percent (6%) per annum from 1940 until
full payment.5

39 | P a g e
Aggrieved, respondents-movants hereby move for the reconsideration of said decision on the
following grounds:

A. THE HONORABLE COURT MAY LOOK INTO THE "JUSTNESS" OF THE MISERABLE AMOUNT
OF COMPENSATION BEING AWARDED TO THE HEREIN RESPONDENTS; and

B. THE HONORABLE COURT MAY SETTLE FOR A HAPPY MIDDLE GROUND IN THE NAME OF
DOCTRINAL PRECISION AND SUBSTANTIAL JUSTICE.6

Citing the views of Justices Presbitero J. Velasco, Jr. and Marvic Mario Victor F. Leonen in their
Dissenting and Concurring Opinion and Separate Opinion, respectively, respondents-movants
insist that gross injustice will result if the amount that will be awarded today will be based
simply on the value of the property at the time of the actual taking. Hence, as proposed by
Justice Leonen, they suggest that a happy middle ground be achieved by meeting the need for
doctrinal precision and the thirst for substantial justice.7

We maintain our conclusions in the assailed July 1, 2013 Decision with modification on the
amount of interest awarded, as well as the additional grant of exemplary damages and
attorney's fees.

At the outset, it should be stressed that the matter of the validity of the State's exercise of the
power of eminent domain has long been settled. In fact, in our assailed decision, We have
affirmed the ruling of the CA that the pre-trial order issued on May 17, 2001 has limited the
issues as follows: (1) whether or not the respondents-movants are entitled to just
compensation; (2) whether or not the valuation would be based on the corresponding value at
the time of the taking or at the time of the filing of the action; and (3) whether or not the
respondents-movants are entitled to damages.8 Moreover, it was held that for failure of
respondents-movants to question the lack of expropriation proceedings for a long period of
time, they are deemed to have waived and are estopped from assailing the power of the
government to expropriate or the public use for which the power was exercised.9 What is,
therefore, left for determination in the instant Motion for Reconsideration, in accordance with
our Decision dated July 1, 2013, is the propriety of the amount awarded to respondents as just
compensation.

At this juncture, We hold that the reckoning date for property valuation in determining the
amount of just compensation had already been addressed and squarely answered in the
assailed decision. To be sure, the justness of the award had been taken into consideration in
arriving at our earlier conclusion.

We have in the past been confronted with the same issues under similar factual and procedural
circumstances. We find no reason to depart from the doctrines laid down in the earlier cases as
we adopted in the assailed decision. In this regard, we reiterate the doctrines laid down in the
cases of Forfom Development Corporation (Forfom) v. Philippine National Railways
(PNR),10 Eusebio v. Luis,11 Manila International Airport Authority v. Rodriguez,12 and Republic v.
Sarabia.13

In Forfom, PNR entered the property of Forfom in January 1973 for railroad tracks, facilities and
appurtenances for use of the Carmona Commuter Service without initiating expropriation
proceedings. In 1990, Forfom filed a complaint for recovery of possession of real property
and/or damages against PNR. In Eusebio, respondent's parcel of land was taken in 1980 by the
City of Pasig and used as a municipal road without the appropriate expropriation proceedings.
In1996, respondent filed a complaint for reconveyance and/or damages against the city
government and the mayor. In MIAA, in the early 1970s, petitioner implemented expansion
programs for its runway, necessitating the acquisition and occupation of some of the properties
surrounding its premises. As to respondent's property, no expropriation proceedings were
initiated. In 1997, respondent initiated a case for accion reivindicatoriawith damages against
petitioner. In Republic, sometime in 1956, the Air Transportation Office (ATO) took possession
and control of a portion of a lot situated in Aklan, registered in the name of respondent, without
initiating expropriation proceedings. Several structures were erected thereon, including the

40 | P a g e
control tower, the Kalibo crash fire rescue station, the Kalibo airport terminal, and the
Headquarters of the PNP Aviation Security Group. In 1995,several stores and restaurants were
constructed on the remaining portion of the lot. In 1997, respondent filed a complaint for
recovery of possession with damages against the storeowners wherein ATO intervened claiming
that the storeowners were its lessees.

These cases stemmed from similar background, that is, government took control and
possession of the subject properties for public use without initiating expropriation proceedings
and without payment of just compensation; while the landowners failed for a long period of
time to question such government act and later instituted actions for recovery of possession
with damages. In these cases, the Court has uniformly ruled that the fair market value of the
property at the time of taking is controlling for purposes of computing just compensation.

In Forfom, the payment of just compensation was reckoned from the time of taking in 1973;
in Eusebio, the Court fixed the just compensation by determining the value of the property at
the time of taking in 1980; in MIAA, the value of the lot at the time of taking in 1972 served as
basis for the award of compensation to the owner; and, in Republic,the Court was convinced
that the taking occurred in 1956 and was thus the basis in fixing just compensation.

As in the aforementioned cases, just compensation due respondents-movants in this case

should, therefore, be fixed not as of the time of payment but at the time of taking in 1940
which is Seventy Centavos (P0.70) per square meter, and not One Thousand Five Hundred
Pesos (₱1,500.00) per square meter, as valued by the RTC and CA.

While disparity in the above amounts is obvious and may appear inequitable to respondents-
movants as they would be receiving such outdated valuation after a very long period, it should
be noted that the purpose of just compensation is not to reward the owner for the property
taken but to compensate him for the loss thereof. As such, the true measure of the property, as
upheld by a plethora of cases, is the market value at the time of the taking, when the loss
resulted. This principle was plainly laid down in Apo Fruits Corporation and Hijo Plantation, Inc.
v. Land Bank of the Philippines,14 to wit:

x x x In Land Bank of the Philippines v. Orilla, a valuation case under our agrarian reform law,
this Court had occasion to state:

Constitutionally, "just compensation" is the sum equivalent to the market value of the property,
broadly described as the price fixed by the seller in open market in the usual and ordinary
course of legal action and competition, or the fair value of the property as between the one
who receives and the one who desires to sell, it being fixed at the time of the actual
taking by the government. Just compensation is defined as the full and fair
equivalent of the property taken from its owner by the expropriator. It has been
repeatedly stressed by this Court that the true measure is not the taker's gain but
the owner's loss. The word "just" is used to modify the meaning of the word "compensation"
to convey the idea that the equivalent to be given for the property to be taken shall be
real, substantial, full and ample. [Emphasis supplied.]15

Indeed, the State is not obliged to pay premium to the property owner for appropriating the
latter's property; it is only bound to make good the loss sustained by the landowner, with due
consideration of the circumstances availing at the time the property was taken. More, the
concept of just compensation does not imply fairness to the property owner alone.
Compensation must also be just to the public, which ultimately bears the cost of
expropriation.16

Notwithstanding the foregoing, we recognize that the owner's loss is not only his property but
also its income-generating potential.17 Thus, when property is taken, full compensation of its
value must immediately be paid to achieve a fair exchange for the property and the potential
income lost.18 Accordingly, in Apo, we held that the rationale for imposing the interest is to
compensate the petitioners for the income they would have made had they been properly
compensated for their properties at the time of the taking.19 Thus:

41 | P a g e
We recognized in Republic v. Court of Appeals the need for prompt payment and the necessity
of the payment of interest to compensate for any delay in the payment of compensation for
property already taken. We ruled in this case that:

The constitutional limitation of "just compensation" is considered to be the sum equivalent to

the market value of the property, broadly described to be the price fixed by the seller in open
market in the usual and ordinary course of legal action and competition or the fair value of the
property as between one who receives, and one who desires to sell, i[f] fixed at the time of the
actual taking by the government. Thus, if property is taken for public use before
compensation is deposited with the court having jurisdiction over the case, the final
compensation must include interest[s] on its just value to be computed from the
time the property is taken to the time when compensation is actually paid or
deposited with the court. In fine, between the taking of the property and the actual
payment, legal interest[s] accrue in order to place the owner in a position as good
as (but not better than) the position he was in before the taking occurred.[Emphasis
supplied]20

In other words, the just compensation due to the landowners amounts to an effective
forbearance on the part of the State-a proper subject of interest computed from the time the
property was taken until the full amount of just compensation is paid-in order to eradicate the
issue of the constant variability of the value of the currency over time.21 In the Court's own
words:

The Bulacan trial court, in its 1979 decision, was correct in imposing interests on the zonal
value of the property to be computed from the time petitioner instituted condemnation
proceedings and "took" the property in September 1969. This allowance of interest on the
amount found to be the value of the property as of the time of the taking computed,
being an effective forbearance, at 12% per annum should help eliminate the issue
of the constant fluctuation and inflation of the value of the currency over time x x
x.22

On this score, a review of the history of the pertinent laws, rules and regulations, as well as the
issuances of the Central Bank (CB)or Bangko Sentral ng Pilipinas (BSP)is imperative in arriving
at the proper amount of interest to be awarded herein.

On May 1, 1916, Act No. 265523 took effect prescribing an interest rate of six percent (6%) or
such rate as may be prescribed by the Central Bank Monetary Board (CB-MB)for loans or
forbearance of money, in the absence of express stipulation as to such rate of interest, to wit:

Section 1. The rate of interest for the loan or forbearance of any money goods, or credits and
the rate allowed in judgments, in the absence of express contract as to such rate of
interest, shall be six per centum per annum or such rate as may be prescribed by the
Monetary Board of the Central Bank of the Philippines for that purpose in
accordance with the authority hereby granted.

Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of
interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and
to change such rate or rates whenever warranted by prevailing economic and social conditions.

In the exercise of the authority herein granted, the Monetary Board may prescribe higher
maximum rates for loans of low priority, such as consumer loans or renewals thereof as well as
such loans made by pawnshops finance companies and other similar credit institutions although
the rates prescribed for these institutions need not necessarily be uniform. The Monetary Board
is also authorized to prescribe different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or loans of financial intermediaries.24

Under the aforesaid law, any amount of interest paid or stipulated to be paid in excess of that
fixed by law is considered usurious, therefore unlawful.25

42 | P a g e
On July 29, 1974, the CB-MB, pursuant to the authority granted to it under the aforequoted
provision, issued Resolution No. 1622.1âwphi1 On even date, Circular No. 416 was issued,
implementing MB Resolution No. 1622, increasing the rate of interest for loans and forbearance
of money to twelve percent (12%) per annum, thus:

By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended, otherwise
known as the "Usury Law," the Monetary Board, in its Resolution No. 1622 dated July 29, 1974,
has prescribed that the rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of express
contract as to such rate of interest, shall be twelve per cent (12%) per annum.26

The foregoing rate was sustained in CB Circular No. 90527 which took effect on December 22,
1982, particularly Section 2 thereof, which states:

Sec. 2. The rate of interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of express contract as to such rate of interest, shall
continue to be twelve per cent (12%) per annum.28

Recently, the BSP Monetary Board (BSP-MB),in its Resolution No. 796 dated May 16, 2013,
approved the amendment of Section 2 of Circular No. 905, Series of 1982, and accordingly,
issued Circular No. 799, Series of 2013, effective July 1, 2013, the pertinent portion of which
reads:

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following
revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby
amending Section 2 of Circular No. 905, Series of 1982:

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

Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions are hereby amended accordingly.

This Circular shall take effect on 01 July 2013.29

Accordingly, the prevailing interest rate for loans and forbearance of money is six percent (6%)
per annum, in the absence of an express contract as to such rate of interest.

In summary, the interest rates applicable to loans and forbearance of money, in the absence of
an express contract as to such rate of interest, for the period of 1940 to present are as follows:

Law, Rule and Regulations,Date of Effectivity Interest Rate

BSP Issuance

Act No. 2655 May 1, 1916 6%

CB Circular No. 416 July 29, 1974 12%

CB Circular No. 905 December 22, 1982 12%

CB Circular No. 799 July 1, 2013 6%

It is important to note, however, that interest shall be compounded at the time judicial demand
is made pursuant to Article 221230 of the Civil Code of the Philippines, and sustained in Eastern
Shipping Lines v. Court of Appeals,31then later on in Nacar v. Gallery Frames,32 save for the
reduction of interest rate to 6% for loans or forbearance of money, thus:

43 | P a g e
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be
6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.33

Applying the foregoing law and jurisprudence, respondents-movants are entitled to interest in
the amount of One Million Seven Hundred Eighteen Thousand Eight Hundred Forty-
Eight Pesos and Thirty-Two Centavos (₱1,718,848.32) as of September 30,
2014,34 computed as follows:

January 1, 194035 to July 28, 1974 P 10,553.4937

July 29, 1974 to March 16, 1995 26,126.3138

March 17, 199536to June 30, 2013 232,070.3339

July 1, 2013 to September 30, 2014 250,098.1940

P 518,848.32
Market Value of the Property at the time of
taking including interest

Market value of the property at the time of

taking including interest P 518,848.32

Add: Exemplary damages 1,000.000.00

Attorney's fees 200,000.00

₱1,718,848.16
Total Amount of Interest due to Respondents-
Movants as of September 30, 2014

Considering that respondents-movants only resorted to judicial demand for the payment of the
fair market value of the land on March 17, 1995, it is only then that the interest earned shall
itself earn interest.

Lastly, from finality of the Court's Resolution on reconsideration until full payment, the total
amount due to respondents-movants shall earn a straight six percent (6%) legal interest,
pursuant to Circular No. 799 and the case of Nacar. Such interest is imposed by reason of the
Court's decision and takes the nature of a judicial debt.

Clearly, the award of interest on the value of the land at the time of taking in 1940 until full
payment is adequate compensation to respondents-movants for the deprivation of their
property without the benefit of expropriation proceedings. Such interest, however meager or
enormous it may be, cannot be inequitable and unconscionable because it resulted directly from
the application of law and jurisprudence-standards that have taken into account fairness and
equity insetting the interest rates due for the use or forbearance of money.41 Thus, adding the
interest computed to the market value of the property at the time of taking signifies the real,
substantial, full and ample value of the property. Verily, the same constitutes due compliance
with the constitutional mandate on eminent domain and serves as a basic measure of fairness.
In addition to the foregoing interest, additional compensation shall be awarded to respondents-
movants by way of exemplary damages and attorney's fees in view of the government's taking
without the benefit of expropriation proceedings. As held in Eusebio v. Luis,42 an irregularity in
an expropriation proceeding cannot ensue without consequence. Thus, the Court held that the

44 | P a g e
government agency's illegal occupation of the owner's property for a very long period of time
surely resulted in pecuniary loss to the owner, to wit:

However, in taking respondents' property without the benefit of expropriation proceedings and
without payment of just compensation, the City of Pasig clearly acted in utter disregard of
respondents' proprietary rights. Such conduct cannot be countenanced by the Court. For said
illegal taking, the City of Pasig should definitely be held liable for damages to
respondents. Again, in Manila International Airport Authority v. Rodriguez, the Court held that
the government agency's illegal occupation of the owner's property for a very long period of
time surely resulted in pecuniary loss to the owner. The Court held as follows:

Such pecuniary loss entitles him to adequate compensation in the form of actual or
compensatory damages, which in this case should be the legal interest (6%) on the
value of the land at the time of taking, from said point up to full payment by the
MIAA. This is based on the principle that interest "runs as a matter of law and follows from the
right of the landowner to be placed in as good position as money can accomplish, as of the date
of the taking."

The award of interest renders unwarranted the grant of back rentals as extended by
the courts below. In Republic v. Lara, et al., the Court ruled that the indemnity for rentals is
inconsistent with a property owner's right to be paid legal interest on the value of the property,
for if the condemn or is to pay the compensation due to the owners from the time of the actual
taking of their property, the payment of such compensation is deemed to retro act to the actual
taking of the property; and, hence, there is no basis for claiming rentals from the time of actual
taking. More explicitly, the Court held in Republic v. Garcellano that:

The uniform rule of this Court, however, is that this compensation must be, not in
the form of rentals, but by way of 'interest from the date that the company [or
entity] exercising the right of eminent domain take possession of the condemned
lands, and the amounts granted by the court shall cease to earn interest only from
the moment they are paid to the owners or deposited in court x x x.

xxxx

For more than twenty (20) years, the MIAA occupied the subject lot without the benefit of
expropriation proceedings and without the MIAA exerting efforts to ascertain ownership of the
lot and negotiating with any of the owners of the property. To our mind, these are wanton
and irresponsible acts which should be suppressed and corrected. Hence, the award
of exemplary damages and attorneys fees is in order. However, while Rodriguez is
entitled to such exemplary damages and attorney's fees, the award granted by the courts below
should be equitably reduced. We hold that Rodriguez is entitled only to ₱200,000.00 as
exemplary damages, and attorney's fees equivalent to one percent (1%) of the amount due.43

Similarly, in Republic v. CA,44 We held that the failure of the government to initiate an
expropriation proceeding to the prejudice of the landowner may be corrected with the awarding
of exemplary damages, attorney's fees and costs of litigation. Thus:

The Court will not award attorney's fees in light of respondent's choice not to appeal the CA
Decision striking down the award. However, we find it proper to award temperate and
exemplary damages in light of NIA's misuse of its power of eminent domain. Any arm
of the State that exercises the delegated power of eminent domain must wield that power with
circumspection and utmost regard for procedural requirements. A government instrumentality
that fails to observe the constitutional guarantees of just compensation and due process abuses
the authority delegated to it, and is liable to the property owner for damages.

Temperate or moderate damages may be recovered if pecuniary loss has been suffered but the
amount cannot be proved with certainty from the nature of the case.1âwphi1 Here, the trial and
appellate courts found that the owners were unable to plant palay on 96,655 square meters of
the Property for an unspecified period during and after NIA's construction of the canals in 1972.

45 | P a g e
The passage of time, however, has made it impossible to determine these losses with any
certainty. NIA also deprived the owners of the Property of possession of a substantial portion of
their land since 1972. Considering the particular circumstances of this case, an award of
₱150,000 as temperate damages is reasonable.

NIA's irresponsible exercise of its eminent domain powers also deserves censure. For more than
three decades, NIA has been charging irrigation fees from respondent and other landowners for
the use of the canals built on the Property, without reimbursing respondent a single cent for the
loss and damage. NIA exhibits a disturbingly cavalier attitude towards respondent's property
rights, rights to due process of law and to equal protection of the laws. Worse, this is not the
first time NIA has disregarded the rights of private property owners by refusing to pay just
compensation promptly. To dissuade NIA from continuing this practice and to set an example
for other agencies exercising eminent domain powers, NIA is directed to pay respondent
exemplary damages of ₱250,000.45

Applying the aforequoted doctrines to the present case, considering that respondents-movants
were deprived of beneficial ownership over their property for more than seventy (70) years
without the benefit of a timely expropriation proceedings, and to serve as a deterrent to the
State from failing to institute such proceedings within the prescribed period under the law, a
grant of exemplary damages in the amount of One Million Pesos (₱1,000,000.00) is fair and
reasonable. Moreover, an award for attorney's fees in the amount of Two Hundred Thousand
Pesos (₱200,000.00) in favor of respondents-movants is in order.

In sum, respondents-movants shall be entitled to an aggregate amount of One Million Seven

Hundred Eighteen Thousand Eight Hundred Forty-Eight Pesos and Thirty-Two
Centavos (₱1,718,848.32) as just compensation as of September 30, 2014, computed as
follows:

Market value of the property at the timeP 518,848.32

of taking in 1940 including interest

Add: Exemplary Damages 1,000,000.00

Attorney's fees 200,000.00

Total Amount due to Respondents-

movants as of September 30, 2014 ₱1,718,848.32

This Court is not unaware that at present, stringent laws and rules are put in place to ensure
that owners of real property acquired for national government infrastructure projects are
promptly paid just compensation. Specifically, Section 4 of Republic Act No. 8974 (R.A.
8974),46 which took effect on November 26, 2000, provides sufficient guidelines for
implementing an expropriation proceeding, to wit:

Section 4. Guidelines for Expropriation Proceedings. - Whenever it is necessary to acquire real

property for the right-of-way or location for any national government infrastructure project
through expropriation, the appropriate implementing agency shall initiate the expropriation
proceedings before the proper court under the following guidelines:

(a) Upon the filing of the complaint, and after due notice to the defendant, the implementing
agency shall immediately pay the owner of the property the amount equivalent to the sum of
(1) one hundred percent (100%) of the value of the property based on the current relevant
zonal valuation of the Bureau of Internal Revenue (BIR); and (2) the value of the improvements
and/or structures as determined under Section 7 hereof;

(b) In provinces, cities, municipalities and other areas where there is no zonal valuation, the
BIR is hereby mandated within the period of sixty (60) days from the date of the expropriation
case, to come up with a zonal valuation for said area; and

46 | P a g e
(c) In case the completion of a government infrastructure project is of utmost urgency and
importance, and there is no existing valuation of the area concerned, the implementing agency
shall immediately pay the owner of the property its proffered value taking into consideration the
standards prescribed in Section 5 hereof.

Upon compliance with the guidelines abovementioned, the court shall immediately issue to the
implementing agency an order to take possession of the property and start the implementation
of the project.

Before the court can issue a Writ of Possession, the implementing agency shall present to the
court a certificate of availability of funds from the proper official concerned.

In the event that the owner of the property contests the implementing agency's proffered
value, the court shall determine the just compensation to be paid the owner within sixty (60)
days from the date of filing of the expropriation case. When the decision of the court becomes
final and executory, the implementing agency shall pay the owner the difference between the
amount already paid and the just compensation as determined by the court.

Failure to comply with the foregoing directives shall subject the government official or employee
concerned to administrative, civil and/or criminal sanctions, thus:

Section 11. Sanctions. - Violation of any provisions of this Act shall subject the government
official or employee concerned to appropriate administrative, civil and/or criminal sanctions,
including suspension and/or dismissal from the government service and forfeiture of benefits.
While the foregoing provisions, being substantive in nature or disturbs substantive rights,
cannot be retroactively applied to the present case, We trust that this established mechanism
will surely deter hasty acquisition of private properties in the future without the benefit of
immediate payment of the value of the property in accordance with Section 4 of R.A. 8974. This
effectively addresses J. Velasco's concerns that sustaining our earlier rulings on the matter
would be licensing the government to dispense with constitutional requirements in taking
private properties. Moreover, any gap on the procedural aspect of the expropriation
proceedings will be remedied by the aforequoted provisions.

In effect, R.A. 8974 enshrines a new approach towards eminent domain that reconciles the
inherent unease attending expropriation proceedings with a position of fundamental equity.47

Despite the foregoing developments, however, We emphasize that the government's failure, to
initiate the necessary expropriation proceedings prior to actual taking cannot simply invalidate
the State's exercise of its eminent domain power, given that the property subject of
expropriation is indubitably devoted for public use, and public policy imposes upon the public
utility the obligation to continue its services to the public. To hastily nullify said expropriation in
the guise of lack of due process would certainly diminish or weaken one of the State's inherent
powers, the ultimate objective of which is to serve the greater good. Thus, the non-filing of the
case for expropriation will not necessarily lead to the return of the property to the landowner.
What is left to the landowner is the right of compensation.48

All told, We hold that putting to rest the issue on the validity of the exercise of eminent domain
is neither tantamount to condoning the acts of the DPWH in disregarding the property rights of
respondents-movants nor giving premium to the government's failure to institute an
expropriation proceeding. This Court had steadfastly adhered to the doctrine that its first and
fundamental duty is the application of the law according to its express terms, interpretation
being called for only when such literal application is impossible.49 To entertain other formula for
computing just compensation, contrary to those established by law and jurisprudence, would
open varying interpretation of economic policies - a matter which this Court has no competence
to take cognizance of. Time and again, we have held that no process of interpretation or
construction need be resorted to where a provision of law peremptorily calls for
application.50 Equity and equitable principles only come into full play when a gap exists in the
law and jurisprudence.51 As we have shown above, established rulings of this Court are in place
for full application to the case at bar, hence, should be upheld.

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WHEREFORE, the motion for reconsideration is hereby DENIED for lack of merit.

SO ORDERED.

February 8, 2017
Liquidated Damages
G.R. No. 187543

WERR CORPORATION INTERNATIONAL, Petitioner

vs.
HIGHLANDS PRIME INC., Respondent

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

G.R. No. 187580

HIGHLANDS PRIME, INC., Petitioner,

vs.
WERR CORPORATION INTERNATIONAL, Respondent.

DECISION

JARDELEZA, J.:

These are consolidated petitions1 seeking to nullify the Court of Appeals' (CA) February 9, 2009
Decision2 and April 16, 2009 Resolution3 in CA-G.R. SP No. 105013. The CA modified the August
11, 2008 Decision4 of the Construction Industry Arbitration Commission (CIAC) in CIAC Case
No. 09-2008, viz.:

WHEREFORE, premises considered, the instant petition for review is PARTLY GRANTED. The
assailed Decision dated August 11, 2008 of the Construction Industry Arbitration Commission in
CIAC Case No. 09-2008 is hereby MODIFIED as follows:

1) Respondent Werr Corporation International shall pay petitioner Highlands Prime, Inc.
liquidated damages in the amount of ₱8,969,330.70;

2) Petitioner Highlands Prime, Inc. shall return to respondent Werr Corporation International
the balance of its retention money in the amount of ₱10,955,899.80 with the right to offset the
award for liquidated damages in the aforesaid amount of ₱8,969,330.70; and

3) The cost of arbitration shall be shared equally by the parties.

The rest of the decision stands.

SO ORDERED.5

Facts

Highlands Prime, Inc. (HPI) and Werr Corporation International (Werr) are domestic
corporations engaged in property development and construction, respectively. For the
construction of 54 residential units contained in three clusters of five-storey condominium
structures, known as "The Horizon-Westridge Project," in Tagaytay Midlands Complex, Talisay,
Batangas, the project owner, HPI, issued a Notice of Award/Notice to Proceed6 to its chosen
contractor, Werr, on July 22, 2005. Thereafter, the parties executed a General Building
Agreement7 (Agreement) on November 17, 2005.8

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Under the Agreement, Werr had the obligation to complete the project within 210 calendar days
from receipt of the Notice of Award/Notice to Proceed on July 22, 2005, or until February 19,
2006.9 For the completion of the project, HPI undertook to pay Werr a lump sum contract price
of ₱271,797,900.00 inclusive of applicable taxes, supply and transportation of materials, and
labor.10 It was agreed that this contract price shall be subject to the following payment scheme:
(1) HPI shall pay 20% of the contract price upon the execution of the agreement and the
presentation of the necessary bonds and insurance required under the contract, and shall pay
the balance on installments progress billing subject to recoupment of downpayment and
retention money;11 (2) HPI shall retain 10% of the contract price in the form of retention bond
provided by Werr;12 (3) HPI may deduct or set off any sum against monies due Werr, including
expenses for the rectification of defects in the construction project;13 and (4) HPI has the right
to liquidated damages in the event of delay in the construction of the project equivalent to 1/10
of 1% of the contract price for every day of delay.14

Upon HPI's payment of the stipulated 20% downpayment in the amount of ₱54,359,580.00,
Werr commenced with the construction of the project. The contract price was paid and the
retention money was deducted, both in the progress billings. The project, however, was not
completed on the initial completion date of February 19, 2006, which led HPI to grant several
extensions and a final extension until October 15, 2006. On May 8, 2006, W err sought the
assistance of HPI to pay its obligations with its suppliers under a "Direct Payment Scheme"
totaling ₱24,503,500.08, which the latter approved only up to the amount of ₱18,762,541.67.
The amount is to be charged against the accumulated retention money. As of the last billing on
October 25, 2006, HPI had already paid the amount of ₱232,940,265.85 corresponding to
93.18% accomplishment rate of the project and retained the amount of ₱25,738,258.01 as
retention bond.15

The project was not completed on the last extension given. Thus, HPI terminated its contract
with Werr on November 28, 2006, which the latter accepted on November 30, 2006.16 No
progress billing was adduced for the period October 28, 2006 until the termination of the
contract.17

On October 3, 2007, Werr demanded from HPI payment of the balance of the contract price as
reflected in its financial status report which showed a conditional net payable amount of
₱36,078,652.90.18 On January 24, 2007, HPI informed Werr that based on their records, the
amount due to the latter as of December 31, 2006 is ₱14,834,926.71.19 This amount was
confirmed by Werr.20 Not having received any payment, Werr filed a Complaint21 for arbitration
against HPI before the CIAC to recover the ₱14,834,926.71 representing the balance of its
retention money.

In its Answer,22 HPI countered that it does not owe Werr because the balance of the retention
money answered for the payments made to suppliers and for the additional costs and expenses
incurred after termination of the contract. From the retention money of ₱25,738,258.0l, it
deducted (1) ₱18,762,541.67 as payment to the suppliers under the Direct Payment Scheme,
and (2) ₱7,548,729.15 as additional costs and expenses further broken down as follows: (a)
₱3,336,526.91 representing the unrecouped portion of the 20% downpayment; (b) ₱542,500.00
representing the remainder of Werr's unpaid advances; (c) ₱629,702.24 for the waterproofing
works done by Dubbel Philippines; and (d) ₱3,040,000.00 for the rectification works performed
by A.A. Manahan Construction after the termination of the contract. Deducting the foregoing
from the accumulated retention money resulted in a deficiency of ₱573,012.81 in its favor.23 By
way of counterclaim, HPI prayed for the payment of liquidated damages in the amount of
₱11,959,107.60 for the 44-day delay in the completion of the project reckoned from October
15, 2006 up to the termination of the Agreement on November 28, 2006; for actual damages in
the sum of ₱573,012.81; and for attorney's fees of ₱500,000.00 and litigation expenses of
₱100,000.00.24

CIAC's Ruling

After due proceedings, the CIAC rendered its Decision25 on August 11, 2008 where it granted
Werr's claim for the balance of the retention money in the amount of ₱10,955,899.79 and

49 | P a g e
arbitration costs. It also granted HPI's claim for liquidated damages in the amount of
₱2,535,059.0l equivalent to 9.327 days of delay,26 but denied its counterclaim for damages,
attorney's fees, and litigation expenses.

From the claims of HPI, the CIAC only deducted the amounts of (1) ₱10,903,331.30
representing the direct payments made from September 26, 2006 until December 31,
2006,27 (2) ₱3,336,526.91 representing the unrecouped retention money, and (3) P542,500.00
representing the unpaid cash advances from the ₱25,738,258.0l retention money. It disallowed
the direct payments charged by HPI in 2007 and 2008 for having been supplied after the
termination of the project, for not corresponding to the list of suppliers submitted, and for HPI
failing to show that Werr requested it to continue payments even after termination of the
Agreement. It also disallowed the amount of ₱629,702.24 for the waterproofing works done by
Dubbel Philippines for being works done after the termination of the contract. The
₱3,040,000.00 for the rectification works performed after the termination of the contract was
also disallowed because while HPI presented its contract with A.A. Manahan Construction for
rectification and completion works, it failed to present proof of how much was specifically paid
for rectification works only, as well as the proof of its payment. Moreover, prior notice of such
defective works was not shown to have been given to Werr as required under the Agreement,
and even noted that HPI's project manager approved of the quality of the works up to almost
94%.28

The CIAC further ruled that Werr incurred only 9.327 days of delay. Citing Article 137629 of the
Civil Code and considering the failure of the Agreement to state otherwise, it applied the
industry practice in the construction industry that liquidated damages do not accrue after
achieving substantial compliance. It held that delay should be counted from October 27, 2006
until the projected date of substantial completion. Since the last admitted accomplishment is
93.18% on October 27, 2006, the period it will take Werr to perform the remaining 1.82% is
the period of delay. Based on the past billings, since it took Werr 5 .128 days30 to achieve 1%
accomplishment, it will therefore take it 9.327 days to achieve substantial completion. Thus, the
CIAC concluded that the period of delay until substantial completion of the project is 9.327
days. The liquidated damages under the Agreement being 1/10 of 1% of the ₱271,797,900.00
or ₱271,797.90 per day of delay, Werr is liable for liquidated damages in the amount of
₱2,535,048.95.31

Since the liquidated damages did not exhaust the balance of the retention money, the CIAC
likewise denied the claim for actual damages.32

Thereafter, HPI filed its petition for review33 under Rule 43 with the CA on August 28,
2008.1âwphi1

CA's Ruling

The CA rendered the assailed decision, affirming the CIAC's findings on the allowable charges
against the retention money, and on the attorney's fees and litigation expenses. It, however,
disagreed with the CIAC decision as to the amount of liquidated damages and arbitration costs.
According to the CA, delay should be computed from October 27, 2006 until termination of the
contract on November 28, 2006, or 33 days, since the contract prevails over the industry
practice. Thus, the total liquidated damages is ₱8,969,330.70. As to the arbitration costs, it
ruled that it is more equitable that it be borne equally by the parties since the claims of both
were considered and partially granted. 34

Hence, these consolidated petitions.

Arguments

Werr argues that the CA erred in modifying the CIAC decision on the amount of liquidated
damages and arbitration costs. It insists that the appellate court disregarded Articles 1234,
1235, and 1376 of the Civil Code and the industry practice (as evidenced by Clause 52.1 of the
Construction Industry Authority of the Philippines [CIAP] Document No. 101 or the "General

50 | P a g e
Conditions of Contract for Government Construction" and Article 20.11 of CIAP Document No.
102 or the "Uniform General Conditions of Contract for Private Construction") when it did not
apply the construction industry practice in computing liquidated damages only until substantial
completion of the project, and not until the termination of the contract.35 Werr further
emphasizes that the CIAC, being an administrative agency, has expertise on the subject matter,
and thus, its findings prevail over the appellate court's findings.36

On the other hand, HPI argues that Werr was unjustly enriched when the CA disallowed HPI' s
recovery of the amounts it paid to suppliers. HPI claims that: (1) payments made to suppliers
identified in the Direct Payment Scheme even after the termination of the contract should be
charged against the balance of the retention money, the same having been made pursuant to
Werr's express instructions; (2) the payments to Dubbel Philippines and the cost of the contract
with A.A. Manahan Construction are chargeable to the retention money, pursuant to the terms
of the Agreement; and (3) the expenses incurred in excess of the retention money should be
paid by Werr as actual damages. These payments, while made after the termination of the
contract, were for prior incurred obligations.37 HPI also argues that it is not liable for arbitration
costs, and reiterates its claims for actual damages, and payment of attorney's fees and litigation
expenses.38

Issues

I. Whether the payments made to suppliers and contractors after the termination of the
contract are chargeable against the retention money.

II. Whether the industry practice of computing liquidated damages only up to substantial
completion of the project applies in the computation of liquidated damages. Consequently,
whether delay should be computed until termination of the contract or until substantial
completion of the project.

III. Whether the cost of arbitration should be shouldered by both parties.

IV. Whether HPI is entitled to attorney's fees and litigation expenses.

Our Ruling

We deny the consolidated petitions.

I. Charges against the Retention Money

Anent the first issue, we emphasize that what is before us is a petition for review under Rule 45
where only questions of law may be raised.39 Factual issues, which involve a review of the
probative value of the evidence presented, such as the credibility of witnesses, or the existence
or relevance of surrounding circumstances and their relation to each other, may not be raised
unless it is shown that the case falls under recognized exceptions.40

In cases of arbitral awards rendered by the CIAC, adherence to this rule is all the more
compelling.41 Executive Order No. 1008,42 which vests upon the CIAC original and exclusive
jurisdiction over disputes arising from, or connected with, contracts entered into by parties
involved in construction in the Philippines, clearly provides that the arbitral award shall be
binding upon the parties and that it shall be final and inappealable except on questions of law
which shall be appealable to the Supreme Court.43 This rule on the finality of an arbitral award
is anchored on the premise that an impartial body, freely chosen by the parties and to which
they have confidence, has settled the dispute after due proceedings:

Voluntary arbitration involves the reference of a dispute to an impartial body, the members of
which are chosen by the parties themselves, which parties freely consent in advance to abide
by the arbitral award issued after proceedings where both parties had the opportunity to be
heard. The basic objective is to provide a speedy and inexpensive method of settling disputes

51 | P a g e
by allowing the parties to avoid the formalities, delay, expense and aggravation which
commonly accompany ordinary litigation, especially litigation which goes through the entire
hierarchy of courts. Executive Order No. 1008 created an arbitration facility to which the
construction industry in the Philippines can have recourse. The Executive Order was enacted to
encourage the early and expeditious settlement of disputes in the construction industry, a
public policy the implementation of which is necessary and important for the realization of
national development goals.

Aware of the objective of voluntary arbitration in the labor field, in the construction industry,
and in any other area for that matter, the Court will not assist one or the other or even both
parties in any effort to subvert or defeat that objective for their private purposes. The Court will
not review the factual findings of an arbitral tribunal upon the artful allegation that such body
had "misapprehended the facts" and will not pass upon issues which are, at bottom, issues of
fact, no matter how cleverly disguised they might be as "legal questions." The parties here had
recourse to arbitration and chose the arbitrators themselves; they must have had confidence in
such arbitrators. The Court will not, therefore, permit the parties to relitigate before it the
issues of facts previously presented and argued before the Arbitral Tribunal, save only where a
very clear showing is made that, in reaching its factual conclusions, the Arbitral Tribunal
committed an error so egregious and hurtful to one party as to constitute a grave abuse of
discretion resulting in lack or loss of jurisdiction. Prototypical examples would be factual
conclusions of the Tribunal which resulted in deprivation of one or the other party of a fair
opportunity to present its position before the Arbitral Tribunal, and an award obtained through
fraud or the corruption of arbitrators. Any other, more relaxed, rule would result in setting at
naught the basic objective of a voluntary arbitration and would reduce arbitration to a largely
inutile institution.44

In this case, the issues of whether HPI was able to prove that payments made to suppliers and
to third party contractors are prior incurred obligations that should be charged against the
retention money, and whether HPI incurred expenses above the retention money that warrants
actual damages, are issues of facts beyond the review of the Court under Rule 45.

Moreover, even if we consider such factual issues, we are bound by the findings of fact of the
CIAC especially when affirmed by the CA.45 Factual findings by a quasi-judicial body like the
CIAC, which has acquired expertise because its jurisdiction is confined to specific matters, are
accorded not only with respect but even finality if they are supported by substantial
evidence.46 We recognize that certain cases require the expertise, specialized skills, and
knowledge of the proper administrative bodies because technical matters or intricate questions
of facts are involved.47

We nevertheless note that factual findings of the construction arbitrators are not beyond
review, such as when the petitioner affirmatively proves the following: (1) the award was
procured by corruption, fraud, or other undue means; (2) there was evident partiality or
corruption of the arbitrators or any of them; (3) the arbitrators were guilty of misconduct in
refusing to hear evidence pertinent and material to the controversy; (4) one or more of the
arbitrators were disqualified to act as such under Section 1048 of Republic Act No. 87649 and
willfully refrained from disclosing such disqualifications or of any other misbehavior by which
the rights of any party have been materially prejudiced; (5) the arbitrators exceeded their
powers, or so imperfectly executed them, that a mutual, final, and definite award upon the
subject matter submitted to them was not made; (6) when there is a very clear showing of
grave abuse of discretion resulting in lack or loss of jurisdiction as when a party was deprived of
a fair opportunity to present its position before the arbitral tribunal or when an award is
obtained through fraud or the corruption of arbitrators; (7) when the findings of the CA are
contrary to those of the CIAC; or (8) when a party is deprived of administrative due
process.50 However, we do not find that HPI was able to show any of the exceptions that should
warrant a review and reversal of the findings made by the CIAC and the CA.

Thus, we affirm the CIAC and CA's findings that direct payments charged by HPI in 2007 and
2008 were for materials supplied after the termination of the project and did not correspond to
the list of suppliers submitted; that the waterproofing works done by Dubbel Philippines in the

52 | P a g e
amount of ₱629,702.24 were for works done after the termination of the contract that were for
the account of the new contractor; and that the rectification works performed after the
termination of the contract worth ₱3,040,000.00 were not proven to have been paid, that it was
for rectification works only, and that prior notice of such defective works as required under the
Agreement was not proven. Accordingly, we affirm that the balance of the retention money is
₱10,955,899.79.

II. Delay in computing Liquidated Damages

On the other hand, the question on how liquidated damages should be computed based on the
Agreement and prevailing jurisprudence is a question of law that we may review.

The pertinent provision on liquidated damages is found in clause 41.5 of the Agreement, viz.:

41.5. Considering the importance of the timely completion of the WORKS on

the OWNER'S commitments to its clients, the CONTRACTOR agrees to pay
the OWNER liquidated damages in the amount of 1/10th of 1% of the amount of the Contract
price for every day of delay (inclusive of Sundays and holidays).51

Werr, as contractor, urges us to apply the construction industry practice that liquidated
damages do not accrue after the date of substantial completion of the project, as evidenced in
CIAP Document No. 102, which provides that:

20.11 SUBSTANTIAL COMPLETION AND ITS EFFECT:

A. [a] There is substantial completion when the Contractor completes 95% of the Work,
provided that the remaining work and the performance of the work necessary to complete the
Work shall not prevent the normal use of the completed portion.

xxx

D. [a] No liquidated damages for delay beyond the Completion Time shall accrue after the date
of substantial completion of the Work.

We reject this claim of Werr and find that while this industry practice may supplement the
Agreement, Werr cannot benefit from it.

At the outset, we do not agree with the CA that industry practice be rejected because liquidated
damages is provided in the Agreement, autonomy of contracts prevails, and industry practice is
completely set aside. Contracting parties are free to stipulate as to the terms and conditions of
the contract for as long as they are not contrary to law, morals, good customs, public order or
public policy.52 Corollary to this rule is that laws are deemed written in every contract.53

Deemed incorporated into every contract are the general provisions on obligations and
interpretation of contracts found in the Civil Code. The Civil Code provides:

Art. 1234. 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.

Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily
established.

In previous cases, we applied these provisions in construction agreements to determine

whether the project owner is entitled to liquidated damages. We held that substantial
completion of the project equates to achievement of 95% project completion which excuses the
contractor from the payment of liquidated damages.

53 | P a g e
In Diesel Construction Co., Inc. v. UPSI Property Holdings, Inc.,54 we applied Article 1234 of the
Civil Code. In determining what is considered substantial compliance, we used the CIAP
Document No. 102 as evidence of the construction industry practice that substantial compliance
is equivalent to 95% accomplishment rate. In that case, the construction agreement requires
the contractor "to pay the owner liquidated damages in the amount equivalent to one-fifth (1/5)
of one (1) percent of the total Project cost for each calendar day of delay."55 We declared that
the contractor cannot be liable for liquidated damages because it already accomplished 97.56%
of the project.56 We reiterated this in Transcept Construction and Management Professionals,
Inc. v. Aguilar57 where we ruled that since the contractor accomplished 98.16% of the project,
the project owner is not entitled to the 10% liquidated damages.58

Considering the foregoing, it: was error for the CA to immediately dismiss the application of
industry practice on the sole ground that there is an existing agreement as to liquidated
damages. As expressly stated under Articles 1234 and 1376, and in jurisprudence, the
construction industry's prevailing practice may supplement any ambiguities or omissions in the
stipulations of the contract.

Notably, CIAP Document N0. 102, by itself, was intended to have suppletory effect on private
construction contracts.1âwphi1 This is evident in CIAP Board Resolution No. 1-98,59 which
states:

Sec. 9. Policy-Making Body, - The [CIAP], through the CIAP Executive Office and its various
Implementing Agencies, shall continuously monitor and study the operations of the construction
industry, both domestic and overseas operations, to identify its needs, problems and
opportunities, in order to provide for the pertinent policies and/or executive action and/or
legislative agenda necessary to implement plans, programs and measures required to support
the sustainable development of the construction industry, such as but not limited to the
following:

xxx

9.05 The promulgation and adoption of Standard Conditions of Contract for the public
construction and private construction sector which shall have suppletory effect in cases where
there is a conflict in the internal documents of a construction contract or in the absence of the
general conditions of a construction agreement[.]

As the standard conditions for contract for private construction adopted and promulgated by the
CIAP, CIAP Document No. 102 applies suppletorily to private construction contracts to remedy
the conflict in the internal documents of, or to fill in the omissions in, the construction
agreement.

In this case, clause 41.5 of the Agreement is undoubtedly a valid stipulation. However, while
clause 41.5 requires payment of liquidated damages if there is delay, it is silent as to the period
until when liquidated damages shall run. The Agreement does not state that liquidated damages
is due until termination of the project; neither does it completely reject that it is only due until
substantial completion of the project. This omission in the Agreement may be supplemented by
the provisions of the Civil Code, industry practice, and the CIAP Document No. 102. Hence, the
industry practice that substantial compliance excuses the contractor from payment of liquidated
damages applies to the Agreement.

Nonetheless, we find that Werr cannot benefit from the effects of substantial compliance.

Paragraph A.[a.], Article 20.11 of CIAP Document No. 102 requires that the
contractor completes 95% of the work for there to be substantial completion of the project.
Also, in those cases where we applied the industry practice to supplement the contracts and
excused payment from liquidated damages under Article 1234, the contractors there actually
achieved 95% completion of the project. Neither the CIAC nor the courts assumed as to when
substantial compliance will be achieved by the contractor, but the contractors offered
substantial evidence that they actually achieved at least 95% completion of the project. Thus,

54 | P a g e
the effects of substantial completion only operate to relieve the contractor from the burden of
paying liquidated damages when it has, in reality, achieved substantial completion of the
project.

While the case before us presents a different scenario, as the contractor here does not demand
total release from payment of liquidated damages, we find that in order to benefit from the
effects of the substantial completion of a project, the condition precedent must first be met-the
contractor must successfully prove by substantial evidence that it actually achieved 95%
completion rate of the project. As such, it is incumbent upon Werr to show that it had achieved
an accomplishment rate of 95% before or at the time of the termination of the contract.

Here, there is no dispute that Werr failed to prove that it completed 95% of the project before
or at the time of the termination of the contract. As found by CIAC, it failed to present evidence
as to what accomplishment it achieved from the time of the last billing until the termination of
the contract.60 What was admitted as accomplishment at the last billing is 93.18%. For this
reason, even if we adopt the rule that no liquidated damages shall run after the date of
substantial completion of the project, Werr cannot claim benefit for it failed to meet the
condition precedent, i.e., the contractor has successfully proven that it actually achieved 95%
completion rate.

More importantly, Werr failed to show that it is the construction industry's practice to project
the date of substantial completion of a project, and to compute the period of delay based on
the rate in past progress billings just as what the CIAC has done. Consequently, the CIAC erred
when it assumed that Werr continued to perform works, and if it did, that it performed them at
the rate of accomplishment of the previous works in the absence of evidence.

That the effects of substantial completion will only apply when actual substantial completion is
reached is apparent when we consider the reason behind the rules on substantial completion of
the project found in Section 20.1l[E] of the CIAP Document No. 102, viz.:

E. The purpose of this Article [ART. 20, WORK; 20.11: SUBSTANTIAL COMPLETION AND ITS
EFFECT] is to ensure that the Contractor is paid for Work completed and for the Owner to
retain such portion of the Contract Price which, together with the Performance Bond, is
sufficient to complete the Work without additional cost to the Owner.

The rules are intended to balance the allocation and burden of costs between the contractor
and the project owner so that the contractor still achieves a return for its completed work, and
the project owner will not incur further costs. To compute the period of delay when substantial
compliance is not yet achieved but merely on the assumption that it will eventually be achieved
would result in an iniquitous situation where the project owner will bear the risks and additional
costs for the period excused from liquidated damages.

From the foregoing, we affirm the CA' s conclusion that the period of delay in computing
liquidated damages should be reckoned from October 27, 2006 until the termination of the
contract or for 33 days, and not only until the projected substantial completion date. Consistent
with the CA's ruling that liquidated damages did not exceed the retention money, we therefore
affirm that HPI did not suffer actual damages in the amount of ₱573,012.81.

III. Arbitration Costs, Attorney's Fees, and Litigation Costs

Courts are allowed to adjudge which party may bear the cost of the suit depending on the
circumstances of the case.61 Considering the CA's findings that both parties were able to recover
their claims, and neither was guilty of bad faith, we do not find that the CA erred in dividing the
arbitration costs between the parties.

We also do not find the need to disturb the findings as to attorney's fees and expenses of
litigation, both the CIAC and the CA having found that there is no basis for the award of
attorney's fees and litigation expenses.62
WHEREFORE, the petitions are DENIED. The Court of Appeals' February 9, 2009 Decision and

55 | P a g e
April 16, 2009 Resolution are AFFIRMED. The net award in favor of Werr Corporation
International shall earn interest at the rate of 6% per annum from date of demand on October
3, 2007 until finality of this Decision. Thereafter, the total amount shall earn interest from
finality of this Decision until fully paid.

SO ORDERED.

SECOND DIVISION

G.R. No. 185765, September 28, 2016

PHILIPPINE ECONOMIC ZONE AUTHORITY, Petitioner, v. PILHINO SALES

CORPORATION, Respondent.

DECISION

LEONEN, J.:

Although the provisions of a contract are legally null and void, the stipulated method of
computing liquidated damages may be accepted as evidence of the intent of the parties. The
provisions, therefore, can be basis for finding a factual anchor for liquidated damages. The
liable party may nevertheless present better evidence to establish a more accurate basis for
awarding damages. In this case, the respondent failed to do so.

This resolves a Petition for Review on Certiorari1 praying that the assailed May 2, 2008
Decision2 and November 25, 2008 Resolution3 of the Court of Appeals in CA G.R. CV No. 86406
be reversed and set aside and that the Decision4 dated November 2, 2005 of Branch 108 of the
Regional Trial Court of Pasay City in Civil Case No. 00-0343 be reinstated.

The Regional Trial Court's November 2, 2005 Decision ruled in favor of petitioner Philippine
Economic Zone Authority, which, as plaintiff, brought an action for rescission of contract and
damages against the defendant, now respondent Pilhino Sales Corporation
(Pilhino).5chanrobleslaw

The assailed Court of Appeals Decision partly granted Pilhino's appeal by reducing the amount
of liquidated damages due from it to the Philippine Economic Zone Authority, and by deleting
the forfeiture of its performance bond.6 The assailed Court of Appeals Resolution denied the
Philippine Economic Zone Authority's Motion for Reconsideration.7chanrobleslaw

The facts are not disputed, and all that is in issue is the consequence of Pilhino's contractual
breach.

On October 4, 1997, the Philippine Economic Zone Authority published an invitation to bid in the
Business Daily for its acquisition of two (2) brand new fire truck units "with a capacity of 4,000-
5,000 liters [of] water and 500-1,000 liters [of chemical foam,] with complete
accessories."8chanrobleslaw

Three (3) companies participated in the bidding: Starbilt Enterprise, Inc., Shurway Industries,
Inc., and Pilhino.9 Pilhino secured the contract for the acquisition of the fire trucks.10 The
contract price was initially at P3,000,000.00 per truck, but this was reduced after negotiation to
P2,900,000.00 per truck.11chanrobleslaw

The contract awarded to Pilhino stipulated that Pilhino was to deliver to the Philippine Economic
Zone Authority two (2) FF3HP brand fire trucks within 45 days of receipt of a purchase order
from the Philippine Economic Zone Authority.12 A further stipulation stated that "[i]n case of
fail[u]re to deliver the . . . good on the date specified . . . , the Supplier agree[s] to pay penalty
at the rate of 1/10 of 1% of the total contract price for each days [sic] commencing on the first

56 | P a g e
day after the date stipulated above."13chanrobleslaw

The Philippine Economic Zone Authority furnished Pilhino with a purchase order dated
November 6, 1997.14 Pilhino failed to deliver the trucks as it had committed.15 This prompted
the Philippine Economic Zone Authority to make formal demands on Pilhino on July 27,
199816 and on February 23, 1999.17 As Pilhino still failed to comply, the Philippine Economic
Zone Authority filed before the Regional Trial Court of Pasay City a Complaint18 for rescission of
contract and damages. This was docketed as Civil Case No. 00-0343 and raffled to Branch
108.19chanrobleslaw

In its defense, Pilhino claimed that there was no starting date from which its obligation to
deliver could be reckoned, considering that the Complaint supposedly failed to allege
acceptance by Pilhino of the purchase order.20 Pilhino suggested that there was not even a
meeting of minds between it and the Philippine Economic Zone Authority.21chanrobleslaw

In its November 2, 2005 Decision,22 the Regional Trial Court ruled for the Philippine Economic
Zone Authority. The dispositive portion of the Decision reads:ChanRoblesVirtualawlibrary

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant
ordering the latter to:

1. Pay the plaintiff in liquidated damages a[t] the rate of 1/10 of 1% of the
total contract price of Php 5,800,000.00 for each day of delay commencing from
June 19, 1998.

2. Pay the plaintiff exemplary damages in the amount of Php 100,00[0].00.

3. That the contract be declared rescinded and the performance bond posted
by the defendant be forfeited in favor of the plaintiff.

4. For defendant to pay the cost of the suit.

SO ORDERED.23chanroblesvirtuallawlibrary

Pilhino then appealed before the Court of Appeals.

In its assailed May 2, 2008 Decision,24 the Court of Appeals partly granted Pilhino's appeal by
deleting the forfeiture of Pilhino's performance bond and pegging the liquidated damages due
from it to the Philippine Economic Zone Authority in the amount of P1,400,000.00.

The Court of Appeals debunked Pilhino's claim that there was no meeting of minds. It
emphasized that Pilhino "manifested its acquiescence . . . [to] the Purchase Order . . . when it
submitted to [the Philippine Economic Zone Authority] a Performance Bond dated 02 June 1999
and Indemnity Agreement dated 09 June 1998 duly signed by its Vice President."25cralawred It
added that in a subsequent letter dated March 29, 199926 "signed by [Pilhino's] Hino Division
Manager Edgar R. Santiago and noted by VP-Operations Roberto R. Garcia, [Pilhino] admitted
that it can no longer meet the requirements regarding the specification on the two (2) units of
fire truck[s]."27chanrobleslaw

In this March 29, 1999 letter, Pilhino not only acknowledged its inability to meet its obligations
but also proposed a modified arrangement with the Philippine Economic Zone
Authority:ChanRoblesVirtualawlibrary

[P]lease allow us to submit our new proposal for your consideration (please see attached
specifications). Our price for this new specification if P3,600,000.00/unit. However, we are
willing to shoulder the difference between the original price of P2,900,000.00/unit and
P3,600,000.00 in lieu of the penalty. May we also request your good office to stop the
accumulation of the penalty [.]28chanroblesvirtuallawlibrary

57 | P a g e
In calibrating the amount of liquidated damages, the Court of Appeals cited Articles 122929 and
222730of the Civil Code. It reasoned that through its March 29, 1999 letter, Pilhino made an
attempt at rectification or mitigation:ChanRoblesVirtualawlibrary

In the instant case, we consider the supervening reality that after appellant's failure to deliver
to appellee the two (2) brand new units of fire trucks in accordance with the specifications
previously agreed upon, appellant nevertheless tried to remedy the situation by offering to
appellee new specifications at P3,600,000.00 per unit; and expressed willingness to shoulder
the difference between the original price (based on the contract) of P2,900,000.00 per unit and
the price corresponding to the new specifications. Further, it is undisputed that appellee has not
paid any amount to appellant in connection with said undelivered two (2) brand new units of
fire trucks. We thus equitably reduce said liquidated damages to P1,400,000.00, which is the
difference between the contract price of P5,800,000.00 and P7,200,000.00 based on the new
specifications for two (2) new units of fire trucks.31chanroblesvirtuallawlibrary

The Philippine Economic Zone Authority moved for reconsideration of the modifications to the
Regional Trial Court's award. As this Motion was denied in the Court of Appeals' assailed
November 25, 2008 Resolution,32 the Philippine Economic Zone Authority filed the present
Petition.

Petitioner asks for the reinstatement of the Regional Trial Court's award asserting that it already
suffered damage when respondent Pilhino Sales Corporation failed to deliver the trucks on
time;33 that the contractually stipulated penalty of 1/10 of 1% of the contract price for every
day of delay was neither unreasonable34 nor contrary to law, morals, or public order;35 that the
stipulation on liquidated damages was freely entered into by it and respondent;36 and that the
Court of Appeals' computation had no basis in fact and law.37 Regarding respondent's supposed
attempt at mitigation, petitioner notes that by the time the offer was made, the Complaint for
rescission and damages had already been filed38 and was, therefore, inconsequential and hardly
a remedy.

Commenting on petitioner's Petition,39 respondent raises the question

of:ChanRoblesVirtualawlibrary

Whether or not a contract can be rescinded and declared void ab initio, and then thus
rescinded, can a stipulation for liquidated damages or penalty contained in that very same
contract be given separate life, force and effect, that is, separate and distinct from the
rescinded and voided contract itself?40chanroblesvirtuallawlibrary

Therefore, respondent suggests that with the rescission of its contract with petitioner must
have come the negation of the contractual stipulation on liquidated damages and the
obliteration of its liability for such liquidated damages.41chanrobleslaw

We resolve the twin issues of:

chanRoblesvirtualLawlibraryFirst, the propriety of an award based on contractually stipulated

liquidated damages notwithstanding the rescission of the same contract stipulating it;
and cralawlawlibrary

Second, on the assumption that such award is proper, the propriety of the Court of Appeals'
reduction of the liquidated damages due to petitioner.

Respondent's intimation that with the rescission of a contract necessarily and inexorably follows
the obliteration of liability for what the same contracts stipulates as liquidated damages42 is
entirely misplaced.

A contract of. sale, such as that entered into by petitioner and respondent, entails reciprocal

58 | P a g e
obligations. As explained in Spouses Velarde v. Court of Appeals,43 "[i]n 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."44chanrobleslaw

Rescission on account of breach of reciprocal obligations is provided for in Article 1191 of the
Civil Code:ChanRoblesVirtualawlibrary

Article 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 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.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (Emphasis supplied)

Respondent correctly notes that rescission under Article 1911 results in mutual restitution.
Jurisprudence has long settled that the restoration of the contracting parties to their original
state is the very essence of rescission. In Spouses Velarde:ChanRoblesVirtualawlibrary

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 . . . 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 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.45 (Citations omitted)

Laperal v. Solid Homes, Inc.46 has explained how the restitution spoken of in rescission under
Article 1385 of the Civil Code equally holds true for rescission under Article 1191 of the Civil
Code:ChanRoblesVirtualawlibrary

Despite the fact that Article 1124 of the old Civil Code from whence Article 1191 was taken,
used the term "resolution", the amendment thereto (presently, Article 1191) explicitly and
clearly used the term "rescission". Unless Article 1191 is subsequently amended to revert back
to the term "resolution", this Court has no alternative but to apply the law, as it is written.

Again, since Article 1385 of the Civil Code expressly and clearly states that "rescission creates
the obligation to return the things which were the object of the contract, together with their
fruits, and the price with its interest," the Court finds no justification to sustain petitioners'
position that said Article 1385 does not apply to rescission under Article 1191.

In Palay, Inc. vs. Clave, this Court applied Article 1385 in a case involving "resolution" under
Article 1191, thus:ChanRoblesVirtualawlibrary

Regarding the second issue on refund of the installment payments made by private respondent.
Article 1385 of the Civil Code provides:ChanRoblesVirtualawlibrary

"ART. 1385. Rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest; consequently, it can be

59 | P a g e
carried out only when he who demands rescission can return whatever he may be obliged to
restore.

"Neither shall rescission take place when the things which are the object of the contract are
legally in the possession of third persons who did not act in bad faith.

"In this case, indemnity for damages may be demanded from the person causing the loss."

As a consequence of the resolution by petitioners, rights to the lot should be restored to private
respondent or the same should be replaced by another acceptable lot. However, considering
that the property had already been sold to a third person and there is no evidence on record
that other lots are still available, private respondent is entitled to the refund of installments paid
plus interest at the legal rate of 12% computed from the date of the institution of the action. It
would be most inequitable if petitioners were to be allowed to retain private respondent's
payments and at the same time appropriate the proceeds of the second sale to another.

Applying the clear language of the law and the consistent jurisprudence on the matter,
therefore, the Court rules that rescission under Article 1191 in the present case, carries with it
the corresponding obligation of restitution.47 (Citations omitted)

Contrary to respondent's assertion, mutual restitution under Article 1191 is, however, no license
for the negation of contractually stipulated liquidated damages.

Article 1191 itself clearly states that the options of rescission and specific performance come
with "with the payment of damages in either case." The very same breach or delay in
performance that triggers rescission is what makes damages due.

When the contracting parties, by their own free acts of will, agreed on what these damages
ought to be, they established the law between themselves. Their contemplation of the
consequences proper in the event of a breach has been articulated. When courts are,
thereafter, confronted with the need to award damages in tandem with rescission, courts must
not lose sight of how the parties have explicitly stated, in their own language, these
consequences. To uphold both Article 1191 of the Civil Code and the parties' will, contractually
stipulated liquidated damages must, as a rule,48 be maintained.

What respondent purports to be the ensuing nullification of liquidated damages is not a novel
question in jurisprudence. This matter has been settled, and respondent's position has been
rebuked. In Laperal:ChanRoblesVirtualawlibrary

This notwithstanding, the Court does not agree with the Court of Appeals that, as a
consequence of the obligation of mutual restitution in this case, petitioners should return the
amount of P5,200,833.27 to respondent.

Article 1191 states that "the injured party may choose between fulfillment and rescission of the
obligation, with the payment of damages in either case." In other words, while petitioners are
indeed obliged to return the said amount to respondent under Article 1385, assuming said
figure is correct, respondent is at the same time liable to petitioners in the same amount as
liquidated damages by virtue of the forfeiture/penalty clause as freely stipulated upon by the
parties in the Addendum, paragraphs 1 and 2 of which respectively
read:ChanRoblesVirtualawlibrary

WHEREAS, included as part of said agreement are the following:

chanRoblesvirtualLawlibrary1. Further to the stipulations on paragraph 10, upon default of

performances, violations and/or non-compliance with the terms and conditions herein agreed
upon by the DEVELOPER wherein it appears that the DEVELOPER deliberately abandoned or
discontinued the work on the project, said party shall lose any entitlement, if any, to any refund
and/or advances it may have incurred in connection with or relative to previous development
works in the subdivision; likewise, all improvements of whatever nature and kind introduced by

60 | P a g e
the DEVELOPER on the property, existing as of the date of default or violation, shall
automatically belong to the OWNER without obligation on his part to pay for the costs thereof.

2. Similarly with the same condition of default or violation obtaining, as stated in paragraph 10
of said agreement, all advances made and remittances of proceeds from reservations and sales
given by the DEVELOPER to the OWNER as provided for in this agreement shall be deemed
absolutely forfeited in favor of the OWNER, resulting to waiver of DEVELOPER'S rights, if any,
with respect to said amount(s).

If this Court recognized the right of the parties to stipulate on an extrajudicial rescission under
Article 1191, there is no reason why this Court will not allow the parties to stipulate on the
matter of damages in case of such rescission under Book IV, Title VIII, Chapter 3, Section 2 of
the Civil Code governing liquidated damages.49 (Citations omitted)

We see no reason for departing from this. It is true that Laperal involved extrajudicial
rescission, while this case involves rescission through judicial action. The distinction between
judicial and extrajudicial rescission is in how extrajudicial rescission is possible only when the
contract has an express stipulation to that effect.50 This distinction does not diminish the rights
of a contracting party under Article 1191 of the Civil Code and is immaterial for purposes of the
availability of liquidated damages.

To sustain respondent's claim would be to sustain an absurdity and an injustice. Respondent's

position suggests that with rescission must necessarily come the obliteration of the punitive
consequence which, to begin with, was the product of its own (along with the other contracting
party's) volition. Its position turns delinquency into a profitable enterprise, enabling contractual
breach to itself be the means for evading its own fallout. It is a position we cannot tolerate.

II

In calibrating the amount of liquidated damages, the Court of Appeals relied on how respondent
supposedly attempted to rectify things "by offering to [petitioner] new specifications at
P3,600,000.00 per unit; and expressed willingness to shoulder the difference between the
original price (based on the contract) of P2,900,000.00 per unit and the price corresponding to
the new specifications."51chanrobleslaw

As underscored by petitioner, however, this offer was inconsequential and hardly a remedy to
the predicament it found itself in.

Petitioner already suffered damage by respondent's mere delay. Philippine Economic Zone
Authority Director General Lilia B. De Lima's internal memorandum to its Board of Directors
emphasized what was, at the time, the specific urgency of obtaining fire
trucks:ChanRoblesVirtualawlibrary

1. With the increase in the number of locator-enterprises at the regular zones, there is a need
for additional units of fire trucks to address any eventuality. The onset of the El Niño
phenomena further makes it imperative that PEZA be more prepared.

2. At present, there are only six (6) units of serviceable fire trucks distributed as follows:

chanRoblesvirtualLawlibrary

Bataan EZ 2
Baguio City EZ 1
Cavite EZ 1
Mactan EZ 252 (Emphasis supplied)

The Court of Appeals itself recognized that "time was of the essence when the contract . . . was
awarded to [respondent] and the non-compliance therewith exposed [petitioner's] operations

61 | P a g e
[at] risk."53chanrobleslaw

Respondent's attempt at rectification came too late and under such circumstances that
petitioner was no longer even in a position to accept respondent's offer. As petitioner notes, by
the time respondent made its offer, the Complaint for rescission and damages had already been
filed before the Regional-Trial Court of Pasay City.54 If at all, the offer was nothing more than a
belated reaction to undercut litigation.

By the time respondent made its attempt at rectification, petitioner was no longer capable of
accommodating contractual modifications. Jurisprudence has established the impropriety of
modifying awarded contracts that were previously subjected to public bidding, such as that
between petitioner and respondent:ChanRoblesVirtualawlibrary

An essential element of a publicly bidded contract is that all bidders must be on equal footing.
Not simply in terms of application of the procedural rules and regulations imposed by the
relevant government agency, but more importantly, on the contract bidded upon. Each bidder
must be able to bid on the same thing. The rationale is obvious. If the winning bidder is allowed
to later include or modify certain provisions in the contract awarded such that the contract is
altered in any material respect, then the essence of fair competition in the public bidding is
destroyed. A public bidding would indeed be a farce if after the contract is awarded, the
winning bidder may modify the contract and include provisions which are favorable to it that
were not previously made available to the other bidders. Thus:ChanRoblesVirtualawlibrary

It is inherent in public biddings that there shall be a fair competition among the bidders. The
specifications in such biddings provide the common ground or basis for the bidders. The
specifications should, accordingly, operate equally or indiscriminately upon all bidders.

The same rule was restated by Chief Justice Stuart of the Supreme Court of
Minnesota:ChanRoblesVirtualawlibrary

The law is well settled that where, as in this case, municipal authorities can only let a contract
for public work to the lowest responsible bidder, the proposals and specifications therefore must
be so framed as to permit free and full competition. Nor can they enter into a contract with the
best bidder containing substantial provisions beneficial to him, not included or contemplated in
the terms and specifications upon which the bids were invited.55 (Emphasis supplied)

By definition, liquidated damages are a penalty, meant to impress upon defaulting obligors
the graverconsequences of their own culpability. Liquidated damages must necessarily make
non-compliance more cumbersome than compliance. Otherwise, contracts might as well make
no threat of a penalty at all:ChanRoblesVirtualawlibrary

Liquidated damages are those that the parties agree to be paid in case of a breach. As worded,
the amount agreed upon answers for damages suffered by the owner due to delays in the
completion of the project. Under Philippine laws, these damages take the nature of penalties. A
penal clause is an accessory undertaking to assume greater liability in case of a breach. It is
attached to an obligation in order to ensure performance.56(Citations omitted)

Respondent cannot now balk at the natural result of its own breach. As for the Court of
Appeals, we find it to be in error in frustrating the express terms of the contract that
respondent actively endeavored to be awarded to it. The exigencies that impelled petitioner to
obtain fire trucks made it imperative for respondent to act with dispatch. Instead, it dragged its
feet, left petitioner with inadequate means for addressing the very emergencies that
engendered the need for fire trucks, and forced it into litigation to enforce its rights.

WHEREFORE, the Petition is GRANTED. The assailed May 2, 2008 Decision and November
25, 2008 Resolution of the Court of Appeals in CA G.R. CV No. 86406 are REVERSED and SET
ASIDE. The Decision dated November 2, 2005 of Branch 108 of the Regional Trial Court of
Pasay City in Civil Case No. 00-0343 is REINSTATED.

62 | P a g e
SO ORDERED.chanRoblesvirtualLawlibrary

FIRST DIVISION

G.R. No. 187930 February 23, 2015

NEW WORLD DEVELOPERS AND MANAGEMENT, INC., Petitioner,

vs.
AMA COMPUTER LEARNING CENTER, INC., Respondent.

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

G.R. No. 188250

AMA COMPUTER LEARNING CENTER, INC., Petitioner.

vs.
NEW WORLD DEVELOPERS AND MANAGEMENT, INC., Respondent,

DECISION

SERENO, CJ:

Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of
Court assailing the Court of Appeals (CA) Decision1 dated 22 January 2009 and
Resolution2 dated 18 May 2009 in CA-G.R. CV No. 89483.

The CA Decision ordered AMA Computer Learning Center, Inc. (AMA) to pay New World
Developers and Management, Inc. (New World) unpaid rentals for 2 months, as well
asliquidated damages equivalent to 4 months’ rent. The CA Resolution denied the separate
motions for reconsideration filed by the parties.

FACTS

New World is the owner of a commercial building located at No. 1104-1118 España corner
Paredes Streets, Sampaloc, Manila.3 In 1998, AMA agreed to lease the entire second floor of the
building for its computer learning center, and the parties entered into a Contract of
Lease4 covering the eight-year period from 15 June 1998 to 14 March 2006.

The monthly rental for the first year was set at ₱181,500, with an annual escalation rate
equivalent to 15% for the succeeding years.5 It was also provided that AMA may preterminate
the contract by sending notice in writing to New World at least six months before the intended
date.6 In case of pretermination, AMA shall be liable for liquidated damages in an amount
equivalent to six months of the prevailing rent.

In compliance with the contract, AMA paid New World the amount of ₱450,000 as advance
rental and another ₱450,000 as security deposit.7

For the first three years, AMA paid the monthly rent as stipulated in the contract, with the
required adjustment in accordance with the escalation rate for the second and the third years.8

In a letter dated 18 March 2002, AMA requested the deferment of the annual increase in the
monthly rent by citing financial constraints brought about by a decrease in its enrollment. New
World agreed to reduce the escalation rate by 50% for the next six months. The following year,
AMA again requested the adjustment of the monthly rent and New World obliged by granting a
45% reduction of the monthly rent and a 5% reduction of the escalation rate for the remaining

63 | P a g e
term of the lease. For this purpose, the parties entered into an Addendum to the Contract of
Lease.9

On the evening of 6 July 2004, AMA removed all its office equipment and furniture from the
leased premises. The following day, New World received a letter from AMA dated 6 July
200410 stating that the former had decided to preterminate the contract effective immediately
on the ground of business losses due to a drastic decline in enrollment. AMA also demanded the
refund of its advance rental and security deposit.

New World replied in a letter dated 12 July 2004,11 to which was attached a Statement of
Account12 indicating the following amounts to be paid by AMA: 1) unpaid two months’ rent in
the amount of ₱466,620; 2) 3% monthly interest for the unpaid rent in the amount of
₱67,426.59; 3) liquidated damages equivalent to six months of the prevailing rent in the
amount of ₱1,399,860; and 4) damage to the leased premises amounting to ₱15,580. The
deduction of the advance rental and security deposit paid by AMA still left an unpaid balance in
the amount of ₱1,049,486.59.

Despite the meetings between the parties, they failed to arrive at a settlement regarding the
payment of the foregoing amounts.13

On 27 October 2004, New World filed a complaint for a sum of money and damages against
AMA before the Regional Trial Court of Marikina City, Branch 156 (RTC).14

RULING OF THE RTC

In a Decision15 dated 31 January 2007, the RTC ordered AMA to pay New World ₱466,620 as
unpaid rentals plus 3% monthly penalty interest until payment; ₱1,399,860 as liquidated
damages equivalent to six months’ rent, with the advance rental and security deposit paid by
AMA to be deducted therefrom; ₱15,580 for the damage to the leased premises; ₱100,000 as
attorney’s fees; and costs of the suit.

According to the RTC, AMA never denied that it had arrearages equivalent to two months’ rent.
Other than its allegation that it did not participate in the preparation of the Statement of
Account, AMA did not proffer any evidence disputing the unpaid rent. For its part, New World
clearly explained the existence of the arrears.

While sympathizing with AMA in view of its business losses, the RTC ruled that AMA could not
shirk from its contractual obligations, which provided that it had to pay liquidated damages
equivalent to six months’ rent in case of a pretermination of the lease.

The RTC provided no bases for awarding ₱15,580 for the damage to the leased premises and
₱100,000 for attorney’s fees, while denying the prayer for exemplary and moral damages.

Upon the denial of its motion for reconsideration, AMA filed an appeal before the CA.16

RULING OF THE CA

In the assailed Decision dated 22 January 2009, the CA ordered AMA to pay New World
₱466,620 for unpaid rentals and ₱933,240 for liquidated damages equivalent to four months’
rent, with the advance rental and security deposit paid by AMA to be deducted therefrom.17

The appellate court ruled that the RTC erred in imposing a 3% monthly penalty interest on the
unpaid rent, because there was no stipulation either in the Contract of Lease or in the
Addendum to the Contract of Lease concerning the imposition of interest in the event of a delay
in the payment of the rent.18 Thus, the CA ruled that the rent in arrears should earn interest at
the rate of 6% per annum only, reckoned from the date of the extrajudicial demand on 12 July
2004 until the finality of the Decision. Thereafter, interest at the rate of12% per annum shall be
imposed until full payment.

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The CA also ruled that the RTC’s imposition of liquidated damages equivalent to six months’
rent was iniquitous.19While conceding that AMA was liable for liquidated damages for
preterminating the lease, the CA also recognized that stipulated penalties may be equitably
reduced by the courts based on its sound discretion. Considering that the unexpired portion of
the term of lease was already less than two years, and that AMA had suffered business losses
rendering it incapable of paying for its expenses, the CA deemed that liquidated damages
equivalent to four months’ rent was reasonable.20

The appellate court deleted the award for the damage to the leased premises, because no proof
other than the Statement of Account was presented by New World.21 Furthermore, noting that
the latter was already entitled to liquidated damages, and that the trial court did not give any
justification for attorney’s fees, the CA disallowed the award thereof.22

Both parties filed their respective motions for reconsideration, which were denied in the assailed
Resolution dated 10 May 2009.

Hence, the present petitions for review on certiorari. On 3 August 2009, the Court resolved to
consolidate the petitions, considering that they involve the same parties and assail the same CA
Decision and Resolution.23

PARTIES’ POSITIONS

According to New World, when parties freely stipulate on the manner by which one may
preterminate the lease, that stipulation has the force of law between them and should be
complied with in good faith.24 Since AMA preterminated the lease, it became liable to liquidated
damages equivalent to six months’ rent. Furthermore, its failure to give notice to New World six
months prior to the intended pretermination of the contract and its leaving the leased premises
in the middle of the night, with all its office equipment and furniture, smacked of gross bad
faith that renders it undeserving of sympathy from the courts.25 Thus, the CA erred in reducing
the liquidated damages from an amount equivalent to six months’ rent to only four months.

New World also challenges the CA Decision and Resolution for disallowing the imposition of the
3% monthly interest on the unpaid rentals. It is argued that AMA never disputed the imposition
of the 3% monthly interest; rather, it only requested that the interest rate be reduced.26

On the other hand, AMA assails the CA ruling for not recognizing the fact that compensation
took place between the unpaid rentals and the advance rental paid by AMA.27 Considering that
the obligation of AMA as to the arrears has been extinguished by operation of law, there would
be no occasion for the imposition of interest.28

AMA also prays for the further reduction of the liquidated damages to an amount equivalent to
one month’s rent up to one and a half months, arguing that four months’ worth of rent is still
iniquitous on account of the severe financial losses it suffered.29

ISSUES

1. Whether AMA is liable to pay six months’ worth of rent as liquidated damages.

2. Whether AMA remained liable for the rental arrears.

OUR RULING

I.

AMA is liable for six months’ worth of rent as liquidated damages.

Item No. 14 of the Contract of Lease states:

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That [AMA] may pre-terminate this Contract of Lease by notice in writing to [New World] at
least six (6) months before the intended date of pretermination, provided, however, that in
such case, [AMA] shall be liable to [New World] for an amount equivalent to six (6) months
current rental as liquidated damages;30

Quite notable is the fact that AMA never denied its liability for the payment of liquidated
damages in view of its pretermination of the lease contract with New World. What it claims,
however, is that it is entitled to the reduction of the amount due to the serious business losses
it suffered as a result of a drastic decrease in its enrollment.

This Court is, first and foremost, one of law. While we are also a court of equity, we do not
employ equitable principles when well-established doctrines and positive provisions of the law
clearly apply.31

The law does not relieve a party from the consequences of a contract it entered into with all the
required formalities.32 Courts have no power to ease the burden of obligations voluntarily
assumed by parties, just because things did not turn out as expected at the inception of the
contract.33 It must also be emphasized that AMA is an entity that has had significant business
experience, and is not a mere babe in the woods.

Articles 1159 and 1306 of the Civil Code state:

Art. 1159. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.

xxxx

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy.

The fundamental rule is that a contract is the law between the parties. Unless it has been
shown that its provisions are wholly or in part contrary to law, morals, good customs, public
order, or public policy, the contract will be strictly enforced by the courts.34

In rebuttal, AMA invokes Article 2227 of the Civil Code, to wit:

Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be

equitably reduced if they are iniquitous or unconscionable.

In Ligutan v. CA, we held that the resolution of the question of whether a penalty is reasonable,
or iniquitous or unconscionable would depend on factors including but not limited to the type,
extent and purpose of the penalty; the nature of the obligation; the mode of the breach and its
consequences; the supervening realities; and the standing and relationship of the parties.35 The
appreciation of these factors is essentially addressed to the sound discretion of the court.36

It is quite easy to understand the reason why a lessor would impose liquidated damages in the
event of the pretermination of a lease contract. Pretermination is effectively the breach of a
contract, that was originally intended to cover an agreed upon period of time. A definite period
assures the lessor a steady income for the duration. A pretermination would suddenly cut short
what would otherwise have been a longer profitable relationship. Along the way, the lessor is
bound to incur losses until it is able to find a new lessee, and it is this loss of income that is
sought to be compensated by the payment of liquidated damages.

There might have been other ways to work around its difficult financial situation and lessen the
impact of the pretermination to both parties. However, AMA opted to do the following:

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1. It preterminated the lease without notifying New World at least six months before the
intended date.

2. It removed all its office equipment and left the premises in the middle of the night.

3. Only after it had cleared the premises did it send New World a notice of pretermination
effective immediately.

4. It had the gall to demand a full refund of the advance rental and security deposit, albeit
without prejudice to their removal of the improvements introduced in the premises.

We cannot understand the inability of AMA to be forthright with New World, considering that
the former had been transparent about its business losses in its previous requests for the
reduction of the monthly rental. The drastic decrease in AMA’s enrollment had been unfolding
since 2002. Thus, it cannot be said that the business losses had taken it by surprise. It is also
highly unlikely that the decision to preterminate the lease contract was made at the last minute.
The cancellation of classes, the transfer of students, and administrative preparations for the
closure of the computer learning center and the removal of office equipment therefrom should
take at least weeks, if not months, of logistic planning. Had AMA come clean about the
impending pretermination, measures beneficial to both parties could have been arrived at, and
the instant cases would not have reached this Court. Instead, AMA forced New World to share
in the former’s losses, causing the latter to scramble for new lessees while the premises
remained untenanted and unproductive.

In the sphere of personal and contractual relations governed by laws, rules and regulations
created to promote justice and fairness, equity is deserved, not demanded. The application of
equity necessitates a balancing of the equities involved in a case,37 for "[h]e who seeks equity
must do equity, and he who comes into equity must come with clean hands."38 Persons in dire
straits are never justified in trampling on other persons’ rights. Litigants shall be denied relief if
their conduct has been inequitable, unfair and dishonest as to the controversy in issue.39 The
actions of AMA smack of bad faith.

We cannot abide by the prayer for the further reduction of the liquidated damages. We find
that, in view of the surrounding circumstances, the CA even erred in reducing the liquidated
damages to four month’s worth of rent. Under the terms of the contract, and in light of the
failure of AMA to show that it is deserving of this Court’s indulgence, the payment of liquidated
damages in an amount equivalent to six months’ rent is proper.

Also proper is an award of exemplary damages. Article 2234 of the Civil Code provides:

Art. 2234. While the amount of the exemplary damages need not be proved, the plaintiff must
show that he is entitled to moral, temperate or compensatory damages before the court may
consider the question of whether or not exemplary damages should be awarded. In case
liquidated damages have been agreed upon, although no proof of loss is necessary in order that
such liquidated damages may be recovered, nevertheless, before the court may consider the
question of granting exemplary in addition to the liquidated damages, the plaintiff must show
that he would be entitled to moral, temperate or compensatory damages were it not for the
stipulation for liquidated damages. (Emphasis supplied)

In this case, it is quite clear that New World sustained losses as a result of the unwarranted
acts of AMA. Further, were it not for the stipulation in the contract regarding the payment of
liquidated damages, we would be awarding compensatory damages to New World.

"Exemplary damages are designed by our civil law to permit the courts to reshape behaviour
that is socially deleterious in its consequence by creating negative incentives or deterrents
against such behaviour."40 As such, they may be awarded even when not pleaded or prayed
for.41 In order to prevent the commission of a similar act in the future, AMA shall pay New
World exemplary damages in the amount of ₱100,000.

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II.

AMA’s liability for the rental arrears has already been extinguished.

AMA assails the CA ruling mainly for the imposition of legal interest on the rent in arrears. AMA
argues that the advance rental has extinguished its obligation as to the arrears. Thus, it says,
there is no more basis for the imposition of interest at the rate of 6% per annum from the date
of extrajudicial demand on 12 July 2004 until the finality of the Decision, plus interest at the
rate of 12% per annum from finality until full payment.

At this juncture, it is necessary to look into the contract to determine the purpose of the
advance rental and security deposit.

Item Nos. 2, 3 and 4 of the Contract of Lease provide:

xxxx

2. That [AMA] shall pay to [New World] in advance within the first 5 days of each calendar
month a monthly rental in accordance with the following schedule for the entire term of this
Contract of Lease;

PERIOD MONTHLY RENTAL RATES

Year 1 June 15, 1998 – Mar 14, 1999 181,500.00

Year 2 Mar 15, 1999 – Mar 14, 2000 ₱208,725.00

Year 3 Mar 15, 2000 – Mar 14, 2001 ₱240,033.75

Year 4 Mar 15, 2001 – Mar 14, 2002 ₱276,038.81

Year 5 Mar 15, 2002 – Mar 14, 2003 ₱317,444.63

Year 6 Mar 15, 2003 – Mar 14, 2004 ₱365,061.33

Year 7 Mar 15, 2004 – Mar 14, 2005 ₱419,820.53

Year 8 Mar 15, 2005 – Mar 14, 2006 ₱482,793.61

(₱482,793.61 – 37,500 =
₱445,293.61)

The monthly rentals referred to above were computed at an escalation rate of Fifteen Percent
(15%) every year for the entire duration of this lease contract.

3. Upon signing of this Contract, [AMA] shall pay advance rental in the amount of FOUR
HUNDRED FIFTY THOUSAND PESOS (₱450,000.00); Said advance rental shall be applied as
part of the rental for the last year of the Contract with a remaining balance of Four Hundred
Forty Five Thousand Two Hundred Ninety Three and 61/100 Pesos (₱445,293.61) as monthly
rental for the tenth [sic] and last year of the lease term;

4. Upon signing of the Contract, [AMA] shall pay [New World] a Security Deposit in the amount
of FOUR HUNDRED FIFTY THOUSAND PESOS (₱450,000.00) which shall be applied for any
unpaid rental balance and damages on the leased premises, and the balance of which shall be
refunded by [New World] to [AMA] within sixty (60) days after the termination of the Contract,
it being understood that such balance is being held by [New World] in trust for [AMA].42

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Based on Item No. 4, the security deposit was paid precisely to answer for unpaid rentals that
may be incurred by AMA while the contract was in force. The security deposit was held in trust
by New World, and whatever may have been left of it after the termination of the lease shall be
refunded to AMA.

Based on Item No. 3 in relation to Item No. 2, the parties divided the advance rental of
₱450,000 by 12 months. They came up with ₱37,500, which they intended to deduct from the
monthly rental to be paid by AMA for the last year of the lease term. Thus, unlike the security
deposit, no part of the advance rental was ever meant to be refunded to AMA. Instead, the
parties intended to apply the advance rental, on a staggered basis, to a portion of the monthly
rental in the last year of the lease term.

Considering the pretermination of the lease contract in the present case, this intent of the
parties as regards the advance rental failed to take effect. The advance rental, however, retains
its purpose of answering for the outstanding amounts that AMA may owe New World.

We now delve into the actual application of the security deposit and the advance rental.

At the time of the pretermination of the contract of lease, the monthly rent stood at ₱233,310,
inclusive of taxes;43hence, the two-month rental arrears in the amount of ₱466,620.

Applying the security deposit of ₱450,000 to the arrears will leave a balance of ₱16,620 in New
World’s favor.1âwphi1Given that we have found AMA liable for liquidated damages equivalent to
six months’ rent in the amount of ₱1,399,860 (monthly rent of ₱233,310 multiplied by 6
months), its total liability to New World is ₱1,416,480.

We then apply the advance rental of ₱450,000 to this amount to arrive at a total
extinguishment of the liability for the unpaid rentals and a partial extinguishment of the liability
for liquidated damages. This shall leave AMA still liable to New World in the amount of
₱966,480 (₱1,416,480 total liability less ₱450,000 advance rental).

Not constituting a forbearance of money,44 this amount shall earn interest pursuant to Item
II(2)45 of our pronouncement in Eastern Shipping Lines v. CA.46 This item remained unchanged
by the modification made in Nacar v. Gallery Frames.47 Interest at the rate of 6% per annum is
hereby imposed on the amount of 966,480 from the time of extrajudicial demand on 12 July
2004 until the finality of this Decision.

Thereafter – this time pursuant to the modification in Nacar– the amount due shall earn interest
at the rate of 6% per annum until satisfaction, this interim period being deemed to be by then
equivalent to a forbearance of credit.48

Considering the foregoing, there was no occasion for the unpaid two months’ rental to earn
interest. Besides, we cannot sanction the imposition of 3% monthly penalty interest thereon.
We quote with approval the ruling of the CA on this issue:

If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon and in the absence of stipulation, the legal interest, which is six per cent
per annum.

In the instant case, the Contract of Lease and the Addendum to the Contract of Lease do not
specify any interest in the event of delay of payment of rentals. Accordingly, there being no
stipulation concerning interest, the trial court erred in imposing 3% interest per month on the
two-month unpaid rentals.

[New World] argues that the said3% interest per month on the unpaid rentals was agreed upon
by the parties as allegedly shown in Exhibits "A-4", "A-5", "A-6", "B-4", and "B-5".

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We are not persuaded.

[New World’s] letter dated 12 July 2004 to [AMA], Statement of Account dated 07 July 2004;
and another Statement of Account dated 27 October 2004 were all prepared by [New World],
with no participation or any indication of agreement on [AMA’s] part. The alleged proposal of
[AMA] as contained in the Schedule of Receivable/Payable is just a computer print-out and does
not contain any signature showing [AMA’s] conformity to the same.49

Having relied on the Contract of Lease for its demand for payment of liquidated damages, New
World should have also referred to the contract to determine the proper application of the
advance rental and security deposit. Had it done so in the first instance, it would have known
that there is no occasion for the imposition of interest, 3% or otherwise, on the unpaid rentals.
WHEREFORE, the Court of Appeals Decision dated 22 January 2009 and Resolution dated 10
May 2009 in CA-G.R. CV No. 89483 is AFFIRMED with MODIFICATION.

AMA Computer Learning Center, Inc. is ordered to pay New World Developers and
Management, Inc. the amount of ₱966,480, with interest at the rate of 6% per annum from 12
July 2004 until full payment.

In addition, AMA shall pay New World exemplary damages in the amount of ₱100,000, which
shall earn interest at the rate of 6% per annum from the finality of this Decision until full
payment.

SO ORDERED.

EN BANC

G.R. No. 194605, June 14, 2016

PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. MARIANO OANDASAN, JR., Accused-

Appellant.

DECISION

BERSAMIN, J.:

This case involves a shooting incident that resulted in the deaths of two victims and the
frustrated killing of a third victim. Although the trial court properly appreciated the attendance
of treachery and pronounced the accused guilty of murder for the fatal shooting of the first
victim, it erroneously pronounced the accused guilty of homicide and frustrated homicide as to
the second and third victims on the basis that treachery was not shown to be attendant. The
Court of Appeals (CA) concurred with the trial court's characterization of the felonies.

We disagree with both lower courts because treachery was competently shown to be attendant
in the shooting of each of the three victims. Thus, we pronounce the accused guilty of two
counts of murder and one count of frustrated murder.

Antecedents

Three informations were filed against the accused, two of which were for murder involving the
fatal shooting of Edgardo Tamanu and Danilo Montegrico, and the third was for frustrated
homicide involving the near-fatal shooting of Mario Paleg.

The informations, docketed as Criminal Case No. 11-9259, Criminal Case No. 11-9260, and

70 | P a g e
Criminal Case No. 11-9261 of the Regional Trial Court in Tuguegarao City (RTC), averred as
follows:

Criminal Case No. II-92591

That on or about July 29, 2003, in the municipality of Gattaran, province of Cagayan, and within
the jurisdiction of this Honorable Court, the above-named accused armed with a gun, with
intent to kill, with evident premeditation and with treachery, conspiring together and helping
one another, did then and there willfully, unlawfully and feloniously assault, attack and shot
(sic) one Edgardo Tamanu y Palattao, inflicting upon the latter a gunshot wound which caused
his death.

Criminal Case No. II-92602

That on or about July 29, 2003, in the municipality of Gattaran, province of Cagayan, and within
the jurisdiction of this Honorable Court, the above-named accused armed with a gun, with
intent to kill, with evident premeditation and with treachery, conspiring together and helping
one another, did then and there willfully, unlawfully and feloniously assault, attack and shot
(sic) one Danilo Montegrico, inflicting upon the latter a gunshot wound which caused his death.

Criminal, Case No. II-92613

That on or about July 29, 2003, in the municipality of Gattaran, province of Cagayan, and within
the jurisdiction of this Honorable Court, the above-named accused armed with a gun, with
intent to kill, with evident premeditation and with treacher[y], conspiring together and helping
one another, did then and there willfully, unlawfully and feloniously assault, attack and shot
(sic) one Engr. Mario Paleg y Ballad, inflicting upon the latter a gunshot wound.

That the accused had performed all the acts of execution which would have produce (sic) the
crime of Homicide as a consequence, but which, nevertheless, did not produce it by reason of
causes independent of his own will.

The CA summarized the facts in its assailed judgment, to wit:

Ferdinand Cutaran, 37 years old, driver at Navarro Construction, testified that on July 29, 2003
between 8:00 to 9:00 in the evening, he and his companions Jose Ifurung, Arthur Cutaran and
victim Danny Montegrico were having a drinking spree outside the bunkhouse of Navarro
Construction at Barangay Pena Weste, Gattaran, Cagayan. Suddenly, appellant who appeared
from back of a dump truck, aimed and fired his gun at Montegrico. Cutaran ran away after
seeing the appellant shoot Mentegrico. He did not witness the shooting of the other two victims
Edgar Tamanu and Mario Paleg. When he returned to the crime scene, he saw the bodies of
Montegrico, Tamanu and Paleg lying on the ground. Cutaran and his companions rushed the
victims to Lyceum of Aparri Hospital.

As a result of the shooting incident, Danilo Montegrico, 34, and Edgardo Tamanu, 33, died;
while Mario Paleg survived. The Medical Certificate dated August 13, 2003 issued by Lyceum of
Aparri Hospital disclosed that Paleg was confined from July 29-30, 2003 for treatment of a gun
shot wound on his right anterior hind spine.

Prudencio Bueno, 68 years old, a checker at Navarro Construction and a resident of Centro 14
Aparri, Cagayan, stated that after having dinner with Cutaran and the others on the date and
time in question, he went inside the bunkhouse to drink water. Suddenly, he heard successive
gun reports (sic). When he peeped through a window he saw the accused approaching from
the back of a dump truck holding something, and going to the table where they were eating. He
confessed that he did not actually see the appellant fire his gun at the victims.

71 | P a g e
Dr. Nida Rosales, Municipal Health Officer of Gattaran, Cagayan testified that she conduced a
post-mortem examination on the body of Montegrico; that Montegrico sustained a single
gunshot wound below the ribs; and that the injury caused his death.

The accused-appellant raised the defense of denial and alibi. Accused-appellant, 38 years old, a
native of Bulala Sur, Aparri, Cagayan, testified that from July up to October 2003, he was
staying at his sister's house in Imus, Cavite. He was hired by SERG Construction, Inc. as a
mason to work on a subdivision project in Rosario, Cavite. On that fateful day of July 29, 2003,
he reported for work from 7:00 a.m. up to 5:00 p.m. To bolster his claim, he presented an
Employment Certificate dated January 20, 2007 issued by Engr. Renato Bustamante of SERG
Construction and a time record sheet dated July 29, 2003. He went back to Aparri in October
2003 after the completion of his project in Cavite. He further stated that he worked at Navarro
Construction in February, 2003; that he had a previous misunderstanding with his former co-
workers witnesses Cutaran and Bueno when he caught the two stealing sacks of cement from
the company; that as a result, Cutaran and Bueno were transferred to another project and their
employer assigned him as checker in replacement of Bueno; that the two planned to kill him as
he prevented them from doing their fraudulent act; and that he resigned between the months
of March and May 2003 because the two kept on disturbing him.

Fred Escobar, 48 years old, a resident of Pallagao, Baggao, Cagayan, testified that on July 29,
2003, he was having a drink with Montegrieo and three other men whom he did not know; that
when he was about to go home at around 8:00 p.m., a stranger appeared and fired his gun at
Montegrieo; that the assailant whom he did not know fired his gun several times. He asserted
that appellant was not the assailant since the latter was shorter in
stature.4ChanRoblesVirtualawlibrary

Judgment of the RTC

On June 1, 2009, the RTC rendered its judgment,5 to wit:

WHEREFORE, the Court finds the accused Mariano Oandasan, Jr. guilty beyond reasonable
doubt as principal:

a) in Criminal Case No. 11-9260, for Murder for killing Danilo Montegrieo and sentences accused
with the penalty of reclusion perpetua and to pay the heirs of Danilo Montegrieo the sum of
One Flundred Fifty Thousand Pesos (P150,000.00);

b) in Criminal Case No. 11-9259, for Homicide for killing Edgardo Tamanu and sentences
accused with the indeterminate penalty of six (6) years and one (1) day of prision mayor as
minimum to seventeen (17) years and four (4) months of reclusion temporal as maximum and
to pay the heirs of Edgardo Tamanu the sum of Fifty Thousand Pesos (P50,000.00); and

c) in Criminal Case No. 11-9261, for Frustrated Homicide for wounding Mario Paleg, and
sentences the accused with the penalty of two (2) years and one (1) day of prision correccional
as minimum to eight (8) years and one (1) day of prision mayor as maximum.

SO ORDERED.6ChanRoblesVirtualawlibrary

Decision of the CA

On appeal, the CA affirmed the judgment of the RTC through its decision promulgated on June
29, 2010,7 to wit:

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WHEREFORE, premises considered, the appeal is DENIED. The Judgment dated June 1, 2009
of the RTC, Branch 6 of Aparri, Cagayan is AFFIRMED with MODIFICATION in that
appellant is ORDERED to pay the heirs of Edgardo Tamanu the amounts of P75,000.00 as civil
indemnity and P75,000.00 as moral damages, and Mario Paleg, the sum of P50,000.00 as moral
damages.

SO ORDERED.8

Hence, this ultimate appeal, with the accused still insisting on the reversal of his convictions.

Ruling of the Court

This appeal opens the entire record to determine whether or not the findings against the
accused should be upheld or struck down in his favor. Nonetheless, he bears the burden to
show that the trial and the appellate courts had overlooked, misapprehended or misinterpreted
facts or circumstances that, if properly considered and appreciated, would significantly shift the
outcome of the case in his favor. His failure to discharge this burden notwithstanding, the Court
still reviewed the record conformably with the tenet that every appeal in a criminal case opens
the record for review.9 Thus, after evaluating the record, the Court affirms the finding of his
being criminally responsible for the killing of Montegrico and Tamanu, and the frustrated killing
of Paleg, subject to the rectification of the characterization of the felonies as to Tamanu and
Paleg.

I
Denial and alibi do not overcome
positive identification of the accused

There is no doubt that Prosecution witness Ferdinand Cutaran positively identified the accused
as the person who had shot Montegrico. Considering that Cutaran's credibility as an eyewitness
was unassailable in the absence of any showing or hint of ill motive on his part to falsely
incriminate the accused, such identification of the accused as the assailant of Montegrico
prevailed over the accused's weak denial and alibi. As such, the CA properly rejected the denial
and alibi of the accused as unworthy, and we adopt the following stated reasons of the CA for
the rejection, to wit:

As for the defense of alibi, for it to prosper, it must be established by positive, clear and
satisfactory proof that it was physically impossible for the accused to have been at the scene of
the crime at the time of its commission, and not merely that the accused was somewhere else.
Physical impossibility refers to the distance between the place where the accused was when the
crime happened and the place where it was committed, as well as the facility of the access
betwee the two places. In the case at bar, appellant failed to prove the element of physical
impossibility for him to be at the scene of the crime at the time it took place. His alibi that he
was in Cavite and the employment certificate and time record sheet which he presented cannot
prevail over the positive and categorical testimonies of the prosecution witnesses. Alibi is the
weakest defense not only because it is inherently weak and unreliable, but also because it is
easy to fabricate. It is generally rejected when the accused is positively identified by a
witness.10

We reiterate that denial and alibi do not prevail over the positive identification of the accused
by the State's witnesses who are categorical and consistent and bereft of ill motive towards the
accused. Denial, unless substantiated by clear and convincing evidence, is undeserving of
weight in law for being negative and self-serving. Moreover, denial and alibi cannot be given
greater evidentiary value than the testimony of credible witnesses who testify on affirmative
matters.11

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II
Treachery also attended the shooting
of Tamanu and Paleg; hence, the accused
is guilty of two counts of murder and
one count of frustrated murder

The CA and the RTC appreciated the attendance of treachery only in the fatal shooting of
Montegrico (Criminal Case No. 11-9260). Although no witness positively identified the accused
as the person who had also shot Tamanu and Paleg, the record contained sufficient
circumstantial evidence to establish that the accused was also criminally responsible for the
fatal shooting of Tamanu and the near-fatal shooting of Paleg. Indeed, the CA declared the
accused as "the lone assailant" of the victims based on its following analytical appreciation, to
wit:

The evidence in this case shows that the attack was unexpected and swift. Montegrico and his
friends were just drinking outside the bunkhouse when the appellant suddenly appeared from
the back of a dump truck, walked towards their table and, without any warning, fired at
Montegrico. This shot was followed by more shots directed at Montegrico's friends, Tamanu and
Paleg. Indisputably, Montegrico was caught off guard by the sudden and deliberate attack
coming from the appellant, leaving him with no opportunity to raise any defense against the
attack. Also, appellant deliberately and consciously adopted his mode of attack by using a gun
and made sure that Montegrico, who was unarmed, would have no chance to defend himself.

We hold that the circumstantial evidence available was enough to convict accused-appellant.
Circumstantial evidence is competent to establish guilt as long as it is sufficient to establish
beyond a reasonable doubt that the accused, and not someone else, was responsible for the
killing. For circumstantial evidence to suffice to convict an accused, the following requisites
must concur: (1) there is more than one circumstance; (2) the facts from which the inferences
are derived are proven; and (3) the combination of all the circumstances is such as to produce
a conviction beyond reasonable doubt. In this case, these requisites for circumstantial evidence
to sustain a conviction are present. First, the witnesses unanimously said that they saw
appellant coming from the back of a dump truck and shoot Montegrico pointblank. Second,
appellant fired his gun several times. Third, immediately after the shooting incident, three
victims were found lying on the ground and rushed to the hospital. Fourth, the Certificates of
Death of Montegrico and Tamanu and the Medical Certificate of Paleg revealed that they all
sustained gun shot wounds. Thus, it can be said with certitude that appellant was the lone
assailant. The foregoing circumstances are proven facts, and the Court finds no reason to
discredit the testimonies of the prosecution's witnesses. Well-entrenched is the rule that the
trial court's assessment of the credibility of witnesses is accorded great respect and will not be
disturbed on appeal, inasmuch as the court a quo was in a position to observe the demeanor of
the witnesses while testifying. The Court does not find any arbitrariness or error on the part of
the RTC as would warrant a deviation from this rule.12

Although the CA and the RTC correctly concluded that the accused had been directly
responsible for the shooting of Tamanu and Paleg, we are perplexed why both lower courts
only characterized the killing of Tamanu and the near-killing of Paleg as homicide and frustrated
homicide while characterizing the killing of Montegrico as murder because of the attendance of
treachery. The distinctions were unwarranted. The fact that the shooting of the three victims
had occurred in quick succession fully called for a finding of the attendance of treachery in the
attacks against all the victims. Montegrico, Tamanu and Paleg were drinking together outside
their bunkhouse prior to the shooting when the accused suddenly appeared from the rear of the
dump truck, walked towards their table and shot Montegrico without any warning. That first
shot was quickly followed by more shots. In that situation, none of the three victims was aware
of the imminent deadly assault by the accused, for they were just enjoying their drinks outside
their bunkhouse. They were unarmed, and did not expect to be shot, when the accused came
and shot them.

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The attack was mounted with treachery because the two conditions in order for this
circumstance to be appreciated concurred, namely: (a) that the means, methods and forms of
execution employed gave the person attacked no opportunity to defend themselves or to
retaliate; and (b) that such means, methods and forms of execution were deliberately and
consciously adopted by the accused without danger to his person.13 The essence of treachery
lay in the attack that came without warning, and was swift, deliberate and unexpected,
affording the hapless, unarmed and unsuspecting victims no chance to resist, or retaliate, or
escape, thereby ensuring the accomplishment of the deadly design without risk to the
aggressor, and without the slightest provocation on the part of the victims.

What was decisive is that the execution of the attack made it impossible for the victims to
defend themselves or to retaliate. Jurisprudence has been illustrative of this proposition.
In People v. Flora,14 for instance, treachery was appreciated as an attendant circumstance in
the killing of two victims, and in the attempted killing of a third victim, warranting the conviction
of the accused for two murders and attempted murder, notwithstanding that although the
accused had first fired at his Intended victim, he had missed and had instead hit the two other
victims, with the Court observing that the three victims were all nonetheless "helpless to defend
themselves." In a nother illustrative ruling, People v. Pinto, Jr.,15 treachery was held to attend
the three killings and the wounding of a fourth victim because the attack was sudden and the
victims were defenseless; hence, the killings were murders, and the wounding frustrated
murder.

Treachery as an aggravating or attendant circumstance must be established beyond reasonable

doubt. This quantum is hardly achieved if there is no testimony showing how the accused
actually commenced the assault against the victim. But to absolutely require such testimony in
all cases would cause some murders committed without eyewitnesses to go unpunished by the
law. To avoid that most undesirable situation, the Rules of Court permits a resort not only to
direct evidence but also to circumstantial evidence. Indeed, the proof competent to achieve the
quantum is not confined to direct evidence from an eyewitness, who may be unavailable.
Circumstantial evidence can just as efficiently and competently achieve the quantum. The Rules
of Court nowhere expresses a preference for direct evidence of a fact to evidence of
circumstances from which the existence of a fact may be properly inferred. The Rules of
Court has not also required a greater degree of certainty when the evidence is circumstantial
than when it is direct, for, in either case, the trier of fact must still be convinced beyond a
reasonable doubt of the guilt of the accused.16 The quantity of circumstances sufficient to
convict an accused has not been fixed as to be reduced into some definite standard to be
followed in every instance. As the Court has observed in People v. Modesto:17

The standard postulated by this Court in the appreciation of circumstantial evidence is well set
out in the following passage from People vs. Ludday:18 "No general rule can be laid down as to
the quantity of circumstantial evidence which in any case will suffice. All the circumstances
proved must be consistent with each other, consistent with the hypothesis that the accused is
guilty, and at the same time inconsistent with the hypothesis that he is innocent, and with
every other rational hypothesis except that of guilt."

It is of no consequence, therefore, that Cutaran, who had meanwhile fled to safety upon
hearing the shot that had felled Montegrico, did not witness the actual shooting of Tamanu and
Paleg; or that Paleg, although surviving the assault against him and Tamanu, did not testify
during the trial. What is of consequence is that the records unquestionably and reliably showed
that Tamanu and Paleg were already prostrate on the ground when Cutaran returned to the
scene; and that the gunshots had been fired in quick succession, thereby proving with moral
certainty that the accused was the same person who also shot Tamanu and Paleg.

The averment in the second paragraph of the information filed Criminal Case No. 11-9261 (in
relation to the shooting of Paleg) that homicide was the consequence of the acts of execution
by the appellant19does not prevent finding the accused guilty of frustrated murder. The rule is
that the allegations of the information on the nature of the offense charged, not the

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nomenclature given it by the Office of the Public Prosecutor, are controlling in the determination
of the offense charged. Accordingly, considering that the information stated in its first
paragraph that the accused, "armed with a gun, with intent to kill, with evident premeditation
and with treacher[y], conspiring together and helping one another, did then and there willfully,
unlawfully and feloniously assault, attack and shot (sic) one Engr. Mario Paleg y Ballad, inflicting
upon the latter a gunshot wound," the accused can be properly found guilty of frustrated
murder, a crime sufficiently averred in the information.

II
Criminal Liabilities

As a consequence, the accused was criminally liable for two counts of murder for the fatal
shooting of Montegrico and Tamanu, and for frustrated murder for the near-fatal shooting of
Paleg. In the absence of any modifying circumstances, reclusion perpetua is the penalty for
each count of murder, while reclusion temporal in its medium period is the penalty for
frustrated murder. The indeterminate sentence for the frustrated murder is eight years
of prision mayor, as the minimum, to 14 years, eight months and one day of reclusion
temporal, as the maximum.

IV
Civil Liability

For death caused by a crime or quasi-delict, Article 2206 of the Civil Code enumerates the
damages that may be recovered from the accused or defendant, to wit:

Article 2206. The amount of damages for death caused by a crime or quasi-delict shall be at
least three thousand pesos, even though there may have been mitigating circumstances. In
addition:

(l)The defendant shall be liable for the loss of the earning capacity of the deceased, and the
indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed
and awarded by the court, unless the deceased on account of permanent physical disability not
caused by the defendant, had no earning capacity at the time of his death;

(2) If the deceased was obliged to give support according to the provisions of article 291, the
recipient who is not an heir called to the decedent's inheritance by the law of testate or
intestate succession, may demand support from the person causing the death, for a period not
exceeding five years, the exact duration to be fixed by the court;

(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may
demand moral damages for mental anguish by reason of the death of the deceased.

The first item of civil liability is the civil indemnity for death, or death indemnity.

Civil indemnity comes under the general provisions of the Civil Code on damages, and refers to
the award given to the heirs of the deceased as a form of monetary restitution or compensation
for the death of the victim at the hands of the accused. Its grant is mandatory and a matter of
course, and without need of proof other than the fact of death as the result of the crime or
quasi-delict,20 and the fact that the accused was responsible therefor. The mandatory character
of civil indemnity in case of death from crime or quasi-delict derives from the legal obligation of
the accused or the defendant to fully compensate the heirs of the deceased for his death as the
natural consequence of the criminal or quasi-delictual act or omission. This legal obligation is
set in Article 2202 of the Civil Code, viz.:

Article 2202. In crimes and quasi-delicts, the defendant shall be liable for all damages which are
the natural and probable consequences of the act or omission complained of. It is not necessary

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that such damages have been foreseen or could have reasonably been foreseen by the
defendant.

Article 2206 of the Civil Code, supra, has fixed the death indemnity to be "at least three
thousand pesos, even though there may have been mitigating circumstances." Yet, the granting
of civil indemnity was not introduced by the Civil Code, for the courts had granted death
indemnity to the heirs of the victims even long prior to August 30, 1950, the date of the
effectivity of the Civil Code. The award of civil indemnity dated back to the early years of the
Court.21 There was also legislation on the matter, starting with Commonwealth Act No. 284,
approved on June 3, 1938, which provided in its Section 1 the following:

Section 1. — The civil liability or the death of a person shall be fixed by the competent court at
a reasonable sum, upon consideration of the pecuniary situation of the party liable and other
circumstances, but it shall in no case be less than two thousand pesos.

In fixing the civil indemnity, the Legislature thereby set a minimum. The Civil Code, in Article
2206, took the same approach by specifying the amount to be at least P3,000.00, which was
directly manifesting the legislative intent of enabling the courts to increase the
amount whenever the circumstances would warrant.

Civil indemnity for death has been increased through the years from the minimum of P2,000.00
to as high as P100,000.00. The increases have been made to consider the economic conditions,
primarily the purchasing power of the peso as the Philippine currency. In 1948, in People v.
Amansec,22 the Court awarded to the heirs of the victim of homicide the amount of P6,000.00
as death indemnity, raising the P2,000.00 allowed by the trial court, the legal minimum at the-
time, and justified the increase by adverting to the "difference between the value of the present
currency and that at the time when the law fixing a minimum indemnity of P2,000.00 was
enacted."23 Later on, in 1968, the Court, in People v. Pantoja,24 saw a significant need to further
upgrade the civil indemnity for death to PI 2,000.00. To justify the upgrade, the Court included
a review of the more recent history of civil indemnity for death in this jurisdiction, to wit:

In 1947, when the Project of Civil Code was drafted, the Code Commission fixed the sum of
P3,000 as the minimum amount of compensatory damages for death caused by a crime or
quasi-delict. The Project of Civil Code was approved by both Houses of the Congress in 1949 as
the New Civil Code of the Philippines, which took effect in 1950. In 1948 in the case of People
vs. Amansec, 80 Phil. 424, the Supreme Court awarded P6,000 as compensatory damages for
death caused by a crime "considering the difference between the value of the present currency
and that at the time when the law fixing a minimum indemnity of P2,000 was enacted." The law
referred to was Commonwealth Act No. 284 which took effect in 1938. In 1948, the purchasing
power of the Philippine peso was one-third of its pre-war purchasing power. In 1950, when the
New Civil Code took effect, the minimum amount of compensatory damages for death caused
by a crime or quasi-delict was fixed in Article 2206 of the Code at P3,000. The article repealed
by implication Commonwealth Act No. 284. Hence, from the time the New Civil Code took
effect, the Courts could properly have awarded P9,000 as compensatory damages for death
caused by a crime or quasi-delict. It is common knowledge that from 1948 to the present
(1968), due to economic circumstances beyond governmental control, the purchasing power of
the Philippine peso has declined further such that the rale of exchange now in the free market
is U.S. $1.00 to almost £4.00 Philippine pesos. This means that the present purchasing power
of the Philippine peso is one-fourth of its pre-war purchasing power. We are, therefore, of the
considered opinion that the amount of award of compensatory damages for death caused by a
crime or quasi-delict should now be P12,000.25 (Italics supplied)

Increases were made from time to time until the death indemnity reached the threshold of
P50,000.00, where it remained for a long time.26 In that time, however, the Court occasionally
granted P75,000.00 as civil indemnity for death.27 The Court retained the death indemnity at
P75,000.00 in subsequent cases, as in People v. Dela Cruz (2007)28 and People v.

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Buban.29 In People v. Anod,30 decided on August 5, 2009, the Court clarified that the award of
P75,000.00 was appropriate only if the imposable penalty was death but reduced to reclusion
perpetua by virtue of the enactment of Republic Act No. 9346 (An Act Prohibiting the Imposition
of Death Penalty). Hence, where the proper imposable penalty was reclusion perpetua, death
indemnity in murder remained at P50,000.00. Yet, the Court, in an apparent self-contradiction
less than a month after Anod, promulgated People v. Arbalate,31 wherein it fixed P75,000.00 as
death indemnity despite the imposable penalty being reclusion perpetua, with the Court holding
that death indemnity should be P75,000.00 regardless of aggravating or mitigating
circumstances provided the penalty prescribed by law was death or reclusion perpetua,.

Death indemnity of P75,000.00 became the standard in murder where the penalty was reclusion
perpetua. This standard has been borne out by People v. Soriano,32People v.
Jadap,33 and People v. Sanchez (2010).34 But the consistency in applying the standard was
broken in 2010, when the Court, in People v. Gutierrez (2010),35 a murder case, reverted to
P50,000.00 as civil indemnity. People v. Gutierrez (2010) was followed by People v.
Apacible,36 also for murder, with the Court, citing People v. Anod,37 reducing the civil indemnity
from P75,000.00, the amount originally awarded by the lower court, to P50,000.00. Oddly
enough, on June 29, 2010, or two months before the promulgation of Apacible, the Court
promulgated People v. Orias38 and therein awarded P75,000.00 as civil indemnity and even
made a sweeping declaration that such amount was given automatically in cases of murder and
homicide. It is notable, however, that People v. Ocampo39 and People v. Amodia,40 the two
rulings cited as authority for the declaration, involved charges and convictions for murder, not
homicide.

The Court reverted to the flat amount of P50,000.00 as death indemnity in murder where the
proper imposable penalty was reclusion perpetua in People v. Dela Cruz (2010),41Talampas v.
People42 and People v. Gabrino.43 Subsequently, the Court went back to P75,000.00 in People v.
Mediado44 and People v. Anti camara45 both murder cases. In People v. Escleto46 the Court,
prescribing reclusion perpetua upon not finding any aggravating circumstance to be attendant,
imposed P75,000.00 as civil indemnity for the death of the victim. The Court did the same thing
in People v. Camat47 and People v. Laurio48 where the Court, prescribing only reclusion perpetua
due to lack of any aggravating circumstance, awarded P75,000.00 as civil indemnity for death.
In People v. Buyagan49 the Court, in awarding P75,000.00 as civil indemnity for the deaths of
each of the victims, said that the civil indemnity should be increased from P50,000.00 to
P75,000.00 inasmuch as the imposable penalty against the appellant would have been death
had it not been for the enactment of Republic Act No. 9346.

In 2013, the Court once again changed its mind and awarded only P50,000.00 as civil indemnity
in murder. Thus, in People v. Pondivida50 and People v. Alawig,51 the Court sentenced the
accused to reclusion perpetua and awarded only P50,000.00 as civil indemnity.

Incidentally, the civil indemnity for homicide remained pegged at P50,000.00 for almost two
decades [e.g., Lozano v. Court of Appeals52People v. Gutierrez (2002),53People v.
Dagani,54Seguritan v. People55People v. Valdez,56People v. Lagman57 and Sombol v.
People.]58 In attempted robbery with homicide (People v. Barra, the civil indemnity was
P50,000.00.59

It is again timely to raise the civil indemnity for death arising from crime or quasi-delict. We
start by reminding that human life, which is not a commodity, is priceless. The value of human
life is incalculable, for no loss of life from crime or quasi-delict can ever be justly measured. Yet,
the law absolutely requires every injury, especially loss of life, to be compensated in the form of
damages. For this purpose, damages may be defined as the pecuniary compensation,
recompense, or satisfaction for an injury sustained, or, as otherwise expressed, the pecuniary
consequences that the law imposes for the breach of some duty or the violation of some
right.60 As such, damages refer to the amount in money awarded by the court as a remedy for
the injured.61 Although money has been accepted as the most frequently used means of
punishing, deterring, compensating and regulating injury throughout the legal system,62it has
been explained that money in the context of damages is not awarded as a replacement for
other money, but as substitute for that which is generally more important than money; it is the

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best thing that a court can do.63 Regardless, the civil indemnity for death, being compensatory
in nature, must attune to contemporaneous economic realities; otherwise, the desire to justly
indemnify would be thwarted or rendered meaningless. This has been the legislative
justification for pegging the minimum, but not the maximum, of the indemnity.

The reasoning in Pantoja,64supra, has been premised on the pronouncement in People v.

Amansec65 to the effect that the increase to P6,000.00 in "compensatory damages for death
caused by a crime" from the legally imposed minimum indemnity of P2,000.00 under
Commonwealth Act No. 284 (which took effect in 1938) was in consideration of "the difference
between the value of the present currency and that at the time when the law fixing a minimum
indemnity of P2,000 was enacted." The Pantoja Court thus raised the amount of death
indemnity to P12,000.00 by taking judicial cognizance of the fact "that from 1948 to the present
(1968), due to economic circumstances beyond governmental control, the purchasing power of
the Philippine peso has declined further such that the rate of exchange now in the free market
is U.S. $1.00 to almost £4.00 Philippine pesos. This means that the present purchasing power
of the Philippine peso is one-fourth of its pre-war purchasing power." Subsequent increases
have been similarly justified.

On April 5, 2016, the Court promulgated its decision in People v. Jugueta (G.R. No. 202124),
whereby it adopted certain guidelines on fixing the civil liabilities in crimes resulting in the death
of the victims taking into proper consideration the stages of execution and gravity of the
offenses, as well as the number of victims in composite crimes. Other factors were weighed by
the Court. In the case of murder where the appropriate penalty is reclusion perpetna, the Court
has thereby fixed P75,000.00 for moral damages, P75,000.00 for exemplary damages, and
P75,000.00 for civil indemnity as the essential civil liabilities,- in addition to others as the
records of each case will substantiate. Hence, we impose herein the same amounts for such
items of damages in each count of murder.

It appears that the accused and the heirs of Montegrico stipulated that the civil indemnity of the
accused in case of conviction should not exceed P150,000.00.66 The stipulation cannot stand
because the civil indemnity arising from each murder should only be P75,000.00. In crimes in
which death of the victim results, civil indemnity is granted even in the absence of allegation
and proof. Similarly, moral damages are allowed even without allegation and proof, it being a
certainty that the victims' heirs were entitled thereto as a matter of law.

Also in accordance with People v. Jugueta, supra, temperate damages of P50,000.00 should
further be granted to the heirs of Montegrico and Tamanu considering that they were presumed
to have spent for the interment of each of the deceased. It would be unjust to deny them
recovery in the form of temperate damages just because they did not establish with certainty
the actual expenditure for the interment of their late-lamented family members.67

In this respect, we mention that Article 2230 of the Civil Code authorizes the grant of exemplary
damages if at least one aggravating circumstance attended the commission of the crime. For
this purpose, exemplary damages of P75,000.00 are granted to the heirs of Montegrico and
Tamanu, respectively, based on the attendant circumstance of treachery. Whether treachery
was a qualifying or attendant circumstance did not matter, for, as clarified in People v.
Catubig:68

The term "aggravating circumstances'" used by the Civil Code, the law not having specified
otherwise, is to be understood in its broad or generic sense. The commission of an offense has
a two-pronged effect, one on the public as it breaches the social order and the other upon the
private victim as it causes personal sufferings, each of which is addressed by, respectively, the
prescription of heavier punishment for the accused and by an award of additional damages to
the victim, (lie increase of the penalty or a shift to a graver felony underscores the exacerbation
of the offense by the attendance of aggravating circumstances, whether ordinary or qualifying,
in its commission.

Unlike the criminal liability which is basically a State concern, the award of damages, however,
is likewise, if not primarily, intended for the offended party who suffers thereby. It would make

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little sense for an award of exemplary damages to be due the private offended party when the
aggravating circumstance is ordinary but to be withheld when it is qualifying. Withal, the
ordinary or qualifying nature of an aggravating circumstance is a distinction that should only be
ol consequence to the criminal, rather than to the civil, liability of the offender. In fine, relative
to the civil aspect of the case, an aggravating circumstance, whether ordinary or qualifying,
should entitle the offended party to an award of exemplary damages within the unbridled
meaning of Article 2230 of the Civil Code.69

On his part, Paleg, being the victim of frustrated murder, is entitled to P50,000.00 as moral
damages, P50,000.00 as civil indemnity, and P50,000.00 as exemplary damages, P25,000.00 as
temperate damages (for his hospitalization and related expenses). This quantification accords
with the pronouncement in People v. Jugueta, supra.

In line with pertinent jurisprudence,70 interest of 6% per annum shall be charged on all the
items of civil liability imposed herein, computed from the date of the finality of this decision
until fully paid.chanrobleslaw

WHEREFORE, the Court FINDS and DECLARES accused MARIANO OANDASAN, JR.
GUILTY beyond reasonable doubt of TWO COUNTS OF MURDER in Criminal Case No. 11-
9259 and Criminal Case No. 11-9260 for the killing of Edgardo Tamanu and Danilo Montegrico,
respectively; and of FRUSTRATED MURDER in Criminal Case No. II-9261 for the frustrated
killing of Mario Paleg, and, ACCORDINGLY, SENTENCES him to suffer RECLUSION
PERPETUA in Criminal Case No. 11-9259 and in Criminal Case No. 11-9260, and
the INDETERMINATE SENTENCE OF EIGHT YEARS OF PRISION MAYOR, AS THE
MINIMUM, TO 14 YEARS, EIGHT MONTHS AND ONE DAY OF RECLUSION TEMPORAL,
AS THE MAXIMUM, in Criminal Case No. 11-9261; and to pay the following by way of civil
liability, to wit:

1) To the heirs of Danilo Montegrico, civil indemnity of P75,000.00; moral damages of

P75,000.00; exemplary damages of P75,000.00; and temperate damages of P50,000.00;

2) To the heirs of Edgardo Tamanu, civil indemnity of P75,000.00; moral damages of

P75,000.00; exemplary damages of P75,000.00; and temperate damages of P50,000.00; and

3) To Mario Paleg, civil indemnity of P50,000.00; moral damages of P50,000.00; exemplary

damages of P50,000.00; and temperate damages of P25,000.00.

All monetary awards for damages shall earn interest at the legal rate of 6% per annum from
the finality of this decision until fully paid.

The accused shall pay the costs of suit.

SO ORDERED.cralawlawlibrary

SECOND DIVISION

January 25, 2016

G.R. No. 201595

ALLAN M. MENDOZA, Petitioner,

vs.
OFFICERS OF MANILA WATER EMPLOYEES UNION (MWEU), namely, EDUARDO B.
BORELA, BUENAVENTURA QUEBRAL, ELIZABETH COMETA, ALEJANDRO TORRES,
AMORSOLO TIERRA, SOLEDAD YEBAN, LUIS RENDON, VIRGINIA APILADO,

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 TERESITA BOLO, ROGELIO BARBERO, JOSE CASAÑAS, ALFREDO MAGA, EMILIO
FERNANDEZ, ROSITA BUENA VENTURA, ALMENIO CANCINO, ADELA IMANA, MARIO
MANCENIDO, WILFREDO MANDILAG, ROLANDO MANLAP AZ, EFREN MONTEMAYOR,
NELSON PAGULAYAN, CARLOS VILLA, RIC BRIONES, and CHITO
BERNARDO, Respondents.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari1 assails the April 24, 2012 Decision2 of the Court of
Appeals (CA) which dismissed the Petition for Certiorari3 in CA-G.R. SP No. 115639.

Factual Antecedents

Petitioner was a member of the Manila Water Employees Union (MWEU), a Department of Labor
and Employment (DOLE)-registered labor organization consisting of rank-and-file employees
within Manila Water Company (MWC). The respondents herein named – Eduardo B. Borela
(Borela), Buenaventura Quebral (Quebral), Elizabeth Cometa (Cometa), Alejandro Torres
(Torres), Amorsolo Tierra (Tierra), Soledad Yeban (Yeban), Luis Rendon (Rendon), Virginia
Apilado (Apilado), Teresita Bolo (Bolo), Rogelio Barbero (Barbero), Jose Casañas (Casañas),
Alfredo Maga (Maga), Emilio Fernandez (Fernandez), Rosita Buenaventura (Buenaventura),
Almenio Cancino (Cancino), Adela Imana, Mario Mancenido (Mancenido), Wilfredo Mandilag
(Mandilag), Rolando Manlapaz (Manlapaz), Efren Montemayor (Montemayor), Nelson
Pagulayan, Carlos Villa, Ric Briones, and Chito Bernardo – were MWEU officers during the
period material to this Petition, with Borela as President and Chairman of the MWEU Executive
Board, Quebral as First Vice-President and Treasurer, and Cometa as Secretary.4

In an April 11, 2007 letter,5 MWEU through Cometa informed petitioner that the union was
unable to fully deduct the increased P200.00 union dues from his salary due to lack of the
required December 2006 check-off authorization from him. Petitioner was warned that his
failure to pay the union dues would result in sanctions upon him. Quebral informed Borela,
through a May 2, 2007 letter,6 that for such failure to pay the union dues, petitioner and several
others violated Section 1(g), Article IX of the MWEU’s Constitution and By-Laws.7 In turn, Borela
referred the charge to the MWEU grievance committee for investigation.

On May 21, 2007, a notice of hearing was sent to petitioner, who attended the scheduled
hearing. On June 6, 2007, the MWEU grievance committee recommended that petitioner be
suspended for 30 days.

In a June 20, 2007 letter,8 Borela informed petitioner and his corespondents of the MWEU
Executive Board’s "unanimous approval"9 of the grievance committee’s recommendation and
imposition upon them of a penalty of 30 days suspension, effective June 25, 2007.

In a June 26, 2007 letter10 to Borela, petitioner and his co-respondents took exception to the
1 imposition and indicated their intention to appeal the same to the General Membership
Assembly in accordance with Section 2(g), Article V of the union’s Constitution and By-
Laws,11 which grants them the right to appeal any arbitrary resolution, policy and rule
promulgated by the Executive Board to the General Membership Assembly. In a June 28, 2007
reply,12 Borela denied petitioner’s appeal, stating that the prescribed period for appeal had
expired.

Petitioner and his co-respondents sent another letter13 on July 4, 2007, reiterating their
arguments and demanding that the General Membership Assembly be convened in order that
their appeal could be taken up. The letter was not acted upon.

Petitioner was once more charged with non-payment of union dues, and was required to attend
an August 3, 2007 hearing.14 Thereafter, petitioner was again penalized with a 30-day
suspension through an August 21, 2007 letter15by Borela informing petitioner of the Executive

81 | P a g e
 Board’s "unanimous approval"16 of the grievance committee recommendation to suspend him
effective August 24, 2007, to which he submitted a written reply,17 invoking his right to appeal
2 through the convening of the General Membership Assembly. However, the respondents did not
act on petitioner’s plea.

Meanwhile, MWEU scheduled an election of officers on September 14, 2007. Petitioner filed his
certificate of candidacy for Vice-President, but he was disqualified for not being a member in
good standing on account of his suspension.

On October 2, 2007, petitioner was charged with non-payment of union dues for the third time.
He did not attend the scheduled hearing. This time, he was meted the penalty of expulsion
3 from the union, per "unanimous approval"18 of the members of the Executive Board. His pleas
for an appeal to the General Membership Assembly were once more unheeded.19

In 2008, during the freedom period and negotiations for a new collective bargaining agreement
(CBA) with MWC, petitioner joined another union, the Workers Association for Transparency,
Empowerment and Reform, All-Filipino Workers Confederation (WATER-AFWC). He was elected
union President. Other MWEU members were inclined to join WATER-AFWC, but MWEU director
Torres threatened that they would not get benefits from the new CBA.20

The MWEU leadership submitted a proposed CBA which contained provisions to the effect that
in the event of retrenchment, non-MWEU members shall be removed first, and that upon the
signing of the CBA, only MWEU members shall receive a signing bonus.21

Ruling of the Labor Arbiter

On October 13, 2008, petitioner filed a Complaint22 against respondents for unfair labor
practices, damages, and attorney’s fees before the National Labor Relations Commission
(NLRC), Quezon City, docketed as NLRC Case No. NCR-10-14255-08. In his Position Paper and
other written submissions,23 petitioner accused the respondents of illegal termination from
MWEU in connection with the events relative to his non-payment of union dues; unlawful
interference, coercion, and violation of the rights of MWC employees to self-organization – in
connection with the proposed CBA submitted by MWEU leadership, which petitioner claims
contained provisions that discriminated against non-MWEU members. Petitioner prayed in his
Supplemental Position Paper that respondents be held guilty of unfair labor practices and
ordered to indemnify him moral damages in the amount of P100,000.00, exemplary damages
amounting to P50,000.00, and 10% attorney’s fees.

In their joint Position Paper and other pleadings,24 respondents claimed that the Labor Arbiter
had no jurisdiction over the dispute, which is intra-union in nature; that the Bureau of Labor
Relations (BLR) was the proper venue, in accordance with Article 226 of the Labor Code25 and
Section 1, Rule XI of Department Order 40-03, series of 2003, of the DOLE;26 and that they
were not guilty of unfair labor practices, discrimination, coercion or restraint.

On May 29, 2009, Labor Arbiter Virginia T. Luyas-Azarraga issued her Decision27 which decreed
as follows:

Indeed the filing of the instant case is still premature. Section 5, Article X-Investigation
Procedures and Appeal Process of the Union Constitution and By-Laws provides that:

Section 5. Any dismissed and/or expelled member shall have the rights to appeal to the
Executive Board within seven (7) days from the date of notice of the said dismissal and/or
expulsion, which in [turn] shall be referred to the General Membership Assembly. In case of an
appeal, a simple majority of the decision of the Executive Board is imperative. The same shall
be approved/disapproved by a majority vote of the general membership assembly in a meeting
duly called for the purpose.

On the basis of the foregoing, the parties shall exhaust first all the administrative remedies
before resorting to compulsory arbitration. Thus, instant case is referred back to the Union for

82 | P a g e
the General Assembly to act or deliberate complainant’s appeal on the decision of the Executive
Board.

WHEREFORE PREMISES CONSIDERED, instant case is referred back to the Union level for the
General Assembly to act on complainant’s appeal.

SO ORDERED.28

Ruling of the National Labor Relations Commission

Petitioner appealed before the NLRC, where the case was docketed as NLRC LAC No. 07-
001913-09. On March 15, 2010, the NLRC issued its Decision,29 declaring as follows:

Complainant30 imputes serious error to the Labor Arbiter when she decided as follows:

a. Referring back the subject case to the Union level for the General Assembly to act on his
appeal.

b. Not ruling that respondents are guilty of ULP as charged.

c. Not granting to complainant moral and exemplary damages and attorney’s fees.

Complainant, in support of his charges, claims that respondents restrained or coerced him in
the exercise of his right as a union member in violation of paragraph "a", Article 249 of the
Labor Code,31particularly, in denying him the explanation as to whether there was observance
of the proper procedure in the increase of the membership dues from P100.00 to P200.00 per
month. Further, complainant avers that he was denied the right to appeal his suspension and
expulsion in accordance with the provisions of the Union’s Constitution and By-Laws. In
addition, complainant claims that respondents attempted to cause the management to
discriminate against the members of WATER-AFWC thru the proposed CBA.

Pertinent to the issue then on hand, the Labor Arbiter ordered that the case be referred back to
the Union level for the General Assembly to act on complainant’s appeal. Hence, these appeals.

After a careful look at all the documents submitted and a meticulous review of the facts, We
find that this Commission lacks the jurisdictional competence to act on this case.

Article 217 of the Labor Code,32 as amended, specifically enumerates the cases over which the
Labor Arbiters and the Commission have original and exclusive jurisdiction. A perusal of the
record reveals that the causes of action invoked by complainant do not fall under any of the
enumerations therein. Clearly, We have no jurisdiction over the same.

Moreover, pursuant to Section 1, Rule XI, as amended, DOLE Department Order No. 40-03 in
particular, Item A, paragraphs (h) and (j) and Item B, paragraph (a)(3), respectively, provide:

"A. Inter-Intra-Union disputes shall include:

"(h) violation of or disagreements over any provision of the Constitution and By-Laws of a Union
or workers’ association.

"(j) violation of the rights and conditions of membership in a Union or workers’ association.

"B. Other Labor Relations disputes, not otherwise covered by Article 217 of the Labor Code,
shall include –

"3. a labor union and an individual who is not a member of said union."

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Clearly, the above-mentioned disputes and conflict fall under the jurisdiction of the Bureau of
Labor Relations, as these are inter/intra-union disputes.

WHEREFORE, the decision of the Labor Arbiter a quo dated May 29, 2009 is hereby declared
NULL and VOID for being rendered without jurisdiction and the instant complaint is DISMISSED.

SO ORDERED.33

Petitioner moved for reconsideration,34 but in a June 16, 2010 Resolution,35 the motion was
denied and the NLRC sustained its Decision.

Ruling of the Court of Appeals

In a Petition for Certiorari36 filed with the CA and docketed as CA-G.R. SP No. 115639, petitioner
sought to reverse the NLRC Decision and be awarded his claim for damages and attorney’s fees
on account of respondents’ unfair labor practices, arguing among others that his charge of
unfair labor practices is cognizable by the Labor Arbiter; that the fact that the dispute is inter-
or intra-union in nature cannot erase the fact that respondents were guilty of unfair labor
practices in interfering and restraining him in the exercise of his right to self-organization as
member of both MWEU and WATER-AFWC, and in discriminating against him and other
members through the provisions of the proposed 2008 CBA which they drafted; that his failure
to pay the increased union dues was proper since the approval of said increase was arrived at
without observing the prescribed voting procedure laid down in the Labor Code; that he is
entitled to an award of damages and attorney’s fees as a result of respondents’ illegal acts in
discriminating against him; and that in ruling the way it did, the NLRC committed grave abuse
of discretion.

On April 24, 2012, the CA issued the assailed Decision containing the following pronouncement:

The petition lacks merit.

Petitioner’s causes of action against MWEU are inter/intra-union disputes cognizable by the BLR
whose functions and jurisdiction are largely confined to union matters, collective bargaining
registry, and labor education. Section 1, Rule XI of Department Order (D.O.) No. 40-03, Series
of 2003, of the Department of Labor and Employment enumerates instances of inter/intra-union
disputes, viz:

Section 1. Coverage. – Inter/intra-union disputes shall include:

xxxx

(b) conduct of election of union and workers’ association officers/nullification of election of

union and workers’ association officers;

(c) audit/accounts examination of union or workers’ association funds;

xxxx

(g) validity/invalidity of impeachment/ expulsion of union and workers’ association officers and
members;

xxxx

(j) violations of or disagreements over any provision in a union or workers’ association

constitution and by-laws;

xxxx

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(l) violations of the rights and conditions of union or workers’ association membership;

xxxx

(n) such other disputes or conflicts involving the rights to self-organization, union membership
and collective bargaining –

(1) between and among legitimate labor organizations;

(2) between and among members of a union or workers’ association.

In brief, "Inter-Union Dispute" refers to any conflict between and among legitimate labor unions
involving representation questions for purposes of collective bargaining or to any other conflict
or dispute between legitimate labor unions. "Intra-Union Dispute" refers to any conflict between
and among union members, including grievances arising from any violation of the rights and
conditions of membership, violation of or disagreement over any provision of the union’s
constitution and by-laws, or disputes arising from chartering or affiliation of union. On the other
hand, the circumstances of unfair labor practices (ULP) of a labor organization are stated in
Article 249 of the Labor Code, to wit:

Article 249. Unfair labor practices of labor organizations. It shall be unlawful for labor
organization, its officers, agents, or representatives to commit any of the following unfair labor
practices:

(a) To restrain or coerce employees in the exercise of their right to self-organization; Provided,
That the labor organization shall have the right to prescribe its own rules with respect to the
acquisition or retention of membership;

(b) To cause or attempt to cause an employer to discriminate against an employee, including

discrimination against an employee with respect to whom membership in such organization has
been denied or terminated on any ground other than the usual terms and conditions under
which membership or continuation of membership is made available to other members;

xxxx

Applying the aforementioned rules, We find that the issues arising from petitioner’s right to
information on the increased membership dues, right to appeal his suspension and expulsion
according to CBL provisions, and right to vote and be voted on are essentially intra-union
disputes; these involve violations of rights and conditions of union membership. But his claim
that a director of MWEU warned that non-MWEU members would not receive CBA benefits is an
inter-union dispute. It is more of an "interference" by a rival union to ensure the loyalty of its
members and to persuade non-members to join their union. This is not an actionable wrong
because interfering in the exercise of the right to organize is itself a function of self-
organizing.37 As long as it does not amount to restraint or coercion, a labor organization may
interfere in the employees’ right to self-organization.38 Consequently, a determination of validity
or illegality of the alleged acts necessarily touches on union matters, not ULPs, and are outside
the scope of the labor arbiter’s jurisdiction.

As regards petitioner’s other accusations, i.e., discrimination in terms of meting out the penalty
of expulsion against him alone, and attempt to cause the employer, MWC, to discriminate
against non-MWEU members in terms of retrenchment or reduction of personnel, and signing
bonus, while We may consider them as falling within the concept of ULP under Article 249(a)
and (b), still, petitioner’s complaint cannot prosper for lack of substantial evidence. Other than
his bare allegation, petitioner offered no proof that MWEU did not penalize some union
members who failed to pay the increased dues. On the proposed discriminatory CBA provisions,
petitioner merely attached the pages containing the questioned provisions without bothering to
reveal the MWEU representatives responsible for the said proposal. Article 249 mandates that "x
x x only the officers, members of the governing boards, representatives or agents or members
of labor associations or organizations who have actually participated in, authorized or ratified

85 | P a g e
unfair labor practices shall be held criminally liable." Plain accusations against all MWEU officers,
without specifying their actual participation, do not suffice. Thus, the ULP charges must
necessarily fail.

In administrative and quasi-judicial proceedings, only substantial evidence is necessary to

establish the case for or against a party. Substantial evidence is that amount of relevant
evidence which a reasonable mind might accept as adequate to justify a conclusion. Petitioner
failed to discharge the burden of proving, by substantial evidence, the allegations of ULP in his
complaint. The NLRC, therefore, properly dismissed the case.

FOR THESE REASONS, the petition is DISMISSED.

SO ORDERED.39

Thus, the instant Petition.

Issue

In an August 28, 2013 Resolution,40 this Court resolved to give due course to the Petition, which
claims that the CA erred:

A. IN DECLARING THAT THE PRESENCE OF INTER/INTRA-UNION CONFLICTS NEGATES THE

COMPLAINT FOR UNFAIR LABOR PRACTICES AGAINST A LABOR ORGANIZATION AND ITS
OFFICERS, AND IN AFFIRMING THAT THE NLRC PROPERLY DISMISSED THE CASE FOR
ALLEGED LACK OF JURISDICTION.

B. IN NOT RULING THAT RESPONDENTS ARE GUILTY OF UNFAIR LABOR PRACTICES UNDER
ARTICLE 249(a) AND (b) OF THE LABOR CODE.

C. IN DECLARING THAT THE THREATS MADE BY A UNION OFFICER AGAINST MEMBERS OF A

RIVAL UNION IS (sic) MERELY AN "INTERFERENCE" AND DO NOT AMOUNT TO "RESTRAINT"
OR "COERCION".

D. IN DECLARING THAT PETITIONER FAILED TO PRESENT SUBSTANTIAL EVIDENCE IN

PROVING RESPONDENTS’ SPECIFIC ACTS OF UNFAIR LABOR PRACTICES.

E. IN NOT RULING THAT RESPONDENTS ARE SOLIDARILY LIABLE TO PETITIONER FOR

MORAL AND EXEMPLARY DAMAGES, AND ATTORNEY’S FEES.41

Petitioner’s Arguments

Praying that the assailed CA dispositions be set aside and that respondents be declared guilty of
unfair labor practices under Article 249(a) and (b) and adjudged liable for damages and
attorney’s fees as prayed for in his complaint, petitioner maintains in his Petition and
Reply42 that respondents are guilty of unfair labor practices which he clearly enumerated and
laid out in his pleadings below; that these unfair labor practices committed by respondents fall
within the jurisdiction of the Labor Arbiter; that the Labor Arbiter, the NLRC, and the CA failed
to rule on his accusation of unfair labor practices and simply dismissed his complaint on the
ground that his causes of action are intra- or inter-union in nature; that admittedly, some of his
causes of action involved intra- or inter-union disputes, but other acts of respondents constitute
unfair labor practices; that he presented substantial evidence to prove that respondents are
guilty of unfair labor practices by failing to observe the proper procedure in the imposition of
the increased monthly union dues, and in unduly imposing the penalties of suspension and
expulsion against him; that under the union’s constitution and by-laws, he is given the right to
appeal his suspension and expulsion to the general membership assembly; that in denying him
his rights as a union member and expelling him, respondents are guilty of malice and evident
bad faith; that respondents are equally guilty for violating and curtailing his rights to vote and

86 | P a g e
be voted to a position within the union, and for discriminating against non-MWEU members;
and that the totality of respondents’ conduct shows that they are guilty of unfair labor practices.

Respondent’s Arguments

In their joint Comment,43 respondents maintain that petitioner raises issues of fact which are
beyond the purview of a petition for review on certiorari; that the findings of fact of the CA are
final and conclusive; that the Labor Arbiter, NLRC, and CA are one in declaring that there is no
unfair labor practices committed against petitioner; that petitioner’s other allegations fall within
the jurisdiction of the BLR, as they refer to intra- or inter-union disputes between the parties;
that the issues arising from petitioner’s right to information on the increased dues, right to
appeal his suspension and expulsion, and right to vote and be voted upon are essentially intra-
union in nature; that his allegations regarding supposed coercion and restraint relative to
benefits in the proposed CBA do not constitute an actionable wrong; that all of the acts
questioned by petitioner are covered by Section 1, Rule XI of Department Order 40-03, series of
2003 as intra-/inter-union disputes which do not fall within the jurisdiction of the Labor Arbiter;
that in not paying his union dues, petitioner is guilty of insubordination and deserved the
penalty of expulsion; that petitioner failed to petition to convene the general assembly through
the required signature of 30% of the union membership in good standing pursuant to Article VI,
Section 2(a) of MWEU’s Constitution and By-Laws or by a petition of the majority of the general
membership in good standing under Article VI, Section 3; and that for his failure to resort to
said remedies, petitioner can no longer question his suspension or expulsion and avail of his
right to appeal.

Our Ruling

The Court partly grants the Petition.

In labor cases, issues of fact are for the labor tribunals and the CA to resolve, as this Court is
not a trier of facts. However, when the conclusion arrived at by them is erroneous in certain
respects, and would result in injustice as to the parties, this Court must intervene to correct the
error. While the Labor Arbiter, NLRC, and CA are one in their conclusion in this case, they erred
in failing to resolve petitioner’s charge of unfair labor practices against respondents.

It is true that some of petitioner’s causes of action constitute intra-union cases cognizable by
the BLR under Article 226 of the Labor Code.

An intra-union dispute refers to any conflict between and among union members, including
grievances arising from any violation of the rights and conditions of membership, violation of or
disagreement over any provision of the union’s constitution and by-laws, or disputes arising
from chartering or disaffiliation of the union. Sections 1 and 2, Rule XI of Department Order No.
40-03, Series of 2003 of the DOLE enumerate the following circumstances as inter/intra-union
disputes x x x.44

However, petitioner’s charge of unfair labor practices falls within

the original and exclusive jurisdiction of the Labor Arbiters, pursuant to Article 217 of the Labor
Code. In addition, Article 247 of the same Code provides that "the civil aspects of all cases
involving unfair labor practices, which may include claims for actual, moral, exemplary and
other forms of damages, attorney’s fees and other affirmative relief, shall be under the
jurisdiction of the Labor Arbiters."

Unfair labor practices may be committed both by the employer under Article 248 and by labor
organizations under Article 249 of the Labor Code,45 which provides as follows:

ART. 249. Unfair labor practices of labor organizations. - It shall be unfair labor practice for a
labor organization, its officers, agents or representatives:

87 | P a g e
(a) To restrain or coerce employees in the exercise of their right to self-organization. However,
a labor organization shall have the right to prescribe its own rules with respect to the
acquisition or retention of membership;

(b) To cause or attempt to cause an employer to discriminate against an employee, including

discrimination against an employee with respect to whom membership in such organization has
been denied or to terminate an employee on any ground other than the usual terms and
conditions under which membership or continuation of membership is made available to other
members;

(c) To violate the duty, or refuse to bargain collectively with the employer, provided it is the
representative of the employees;

(d) To cause or attempt to cause an employer to pay or deliver or agree to pay or deliver any
money or other things of value, in the nature of an exaction, for services which are not
performed or not to be performed, including the demand for fee for union negotiations;

(e) To ask for or accept negotiation or attorney’s fees from employers as part of the settlement
of any issue in collective bargaining or any other dispute; or

(f) To violate a collective bargaining agreement.

The provisions of the preceding paragraph notwithstanding, only the officers, members of
governing boards, representatives or agents or members of labor associations or organizations
who have actually participated in, authorized or ratified unfair labor practices shall be held
criminally liable. (As amended by Batas Pambansa Bilang 130, August 21, 1981).

Petitioner contends that respondents committed acts constituting unfair labor practices – which
charge was particularly laid out in his pleadings, but that the Labor Arbiter, the NLRC, and the
CA ignored it and simply dismissed his complaint on the ground that his causes of action were
intra- or inter-union in nature. Specifically, petitioner claims that he was suspended and
expelled from MWEU illegally as a result of the denial of his right to appeal his case to the
general membership assembly in accordance with the union’s constitution and by-laws. On the
other hand, respondents counter that such charge is intra-union in nature, and that petitioner
lost his right to appeal when he failed to petition to convene the general assembly through the
required signature of 30% of the union membership in good standing pursuant to Article VI,
Section 2(a) of MWEU’s Constitution and By-Laws or by a petition of the majority of the general
membership in good standing under Article VI, Section 3.

Under Article VI, Section 2(a) of MWEU’s Constitution and By-Laws, the general membership
assembly has the power to "review revise modify affirm or repeal [sic] resolution and decision
of the Executive Board and/or committees upon petition of thirty percent (30%) of the Union in
good standing,"46 and under Section 2(d), to "revise, modify, affirm or reverse all expulsion
cases."47 Under Section 3 of the same Article, "[t]he decision of the Executive Board may be
appealed to the General Membership which by a simple majority vote reverse the decision of
said body. If the general Assembly is not in session the decision of the Executive Board may be
reversed by a petition of the majority of the general membership in good standing."48 And, in
Article X, Section 5, "[a]ny dismissed and/or expelled member shall have the right to appeal to
the Executive Board within seven days from notice of said dismissal and/or expulsion which, in
[turn] shall be referred to the General membership assembly. In case of an appeal, a simple
majority of the decision of the Executive Board is imperative. The same shall be
approved/disapproved by a majority vote of the general membership assembly in a meeting
duly called for the purpose."49

In regard to suspension of a union member, MWEU’s Constitution and By-Laws provides under
Article X, Section 4 thereof that "[a]ny suspended member shall have the right to appeal within
three (3) working days from the date of notice of said suspension. In case of an appeal a
simple majority of vote of the Executive Board shall be necessary to nullify the suspension."

88 | P a g e
Thus, when an MWEU member is suspended, he is given the right to appeal such suspension
within three working days from the date of notice of said suspension, which appeal the MWEU
Executive Board is obligated to act upon by a simple majority vote. When the penalty imposed
is expulsion, the expelled member is given seven days from notice of said dismissal and/or
expulsion to appeal to the Executive Board, which is required to act by a simple majority vote of
its members. The Board’s decision shall then be approved/ disapproved by a majority vote of
the general membership assembly in a meeting duly called for the purpose.1avvphi1

The documentary evidence is clear that when petitioner received Borela’s August 21, 2007 letter
informing him of the Executive Board’s unanimous approval of the grievance committee
recommendation to suspend him for the second time effective August 24, 2007, he immediately
and timely filed a written appeal. However, the Executive Board – then consisting of
respondents Borela, Tierra, Bolo, Casañas, Fernandez, Rendon, Montemayor, Torres, Quebral,
Pagulayan, Cancino, Maga, Cometa, Mancenido, and two others who are not respondents
herein – did not act thereon. Then again, when petitioner was charged for the third time and
meted the penalty of expulsion from MWEU by the unanimous vote of the Executive Board, his
timely appeal was again not acted upon by said board – this time consisting of respondents
Borela, Quebral, Tierra, Imana, Rendon, Yeban, Cancino, Torres, Montemayor, Mancenido,
Mandilag, Fernandez, Buenaventura, Apilado, Maga, Barbero, Cometa, Bolo, and Manlapaz.

Thus, contrary to respondents’ argument that petitioner lost his right to appeal when he failed
to petition to convene the general assembly through the required signature of 30% of the union
membership in good standing pursuant to Article VI, Section 2(a) of MWEU’s Constitution and
By-Laws or by a petition of the majority of the general membership in good standing under
Article VI, Section 3, this Court finds that petitioner was illegally suspended for the second time
and thereafter unlawfully expelled from MWEU due to respondents’ failure to act on his written
appeals. The required petition to convene the general assembly through the required signature
of 30% (under Article VI, Section 2[a]) or majority (under Article VI, Section 3) of the union
membership does not apply in petitioner’s case; the Executive Board must first act on his two
appeals before the matter could properly be referred to the general membership. Because
respondents did not act on his two appeals, petitioner was unceremoniously suspended,
disqualified and deprived of his right to run for the position of MWEU Vice-President in the
September 14, 2007 election of officers, expelled from MWEU, and forced to join another union,
WATER-AFWC. For these, respondents are guilty of unfair labor practices under Article 249 (a)
and (b) – that is, violation of petitioner’s right to self-organization, unlawful discrimination, and
illegal termination of his union membership – which case falls within the original and exclusive
jurisdiction of the Labor Arbiters, in accordance with Article 217 of the Labor Code.

The primary concept of unfair labor practices is stated in Article 247 of the Labor Code, which
states:

Article 247. Concept of unfair labor practice and procedure for prosecution thereof. –– Unfair
labor practices violate the constitutional right of workers and employees to self-organization,
are inimical to the legitimate interests of both labor and management, including their right to
bargain collectively and otherwise deal with each other in an atmosphere of freedom and
mutual respect, disrupt industrial peace and hinder the promotion of healthy and stable labor-
management relations.

"In essence, [unfair labor practice] relates to the commission of acts that transgress the
workers’ right to organize."50"[A]ll the prohibited acts constituting unfair labor practice in
essence relate to the workers’ right to self-organization."51 "[T]he term unfair labor practice
refers to that gamut of offenses defined in the Labor Code which, at their core, violates the
constitutional right of workers and employees to self-organization."52

Guaranteed to all employees or workers is the ‘right to self-organization and to form, join, or
assist labor organizations of their own choosing for purposes of collective bargaining.’ This is
made plain by no less than three provisions of the Labor Code of the Philippines. Article 243 of
the Code provides as follows:

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ART. 243. Coverage and employees’ right to self-organization. — All persons employed in
commercial, industrial and agricultural enterprises and in religious, charitable, medical, or
educational institutions whether operating for profit or not, shall have the right to self-
organization and to form, join, or assist labor organizations of their own choosing for purposes
or collective bargaining. Ambulant, intermittent and itinerant workers, self-employed people,
rural workers and those without any definite employers may form labor organizations for their
mutual aid and protection.

Article 248 (a) declares it to be an unfair labor practice for an employer, among others, to
‘interfere with, restrain or coerce employees in the exercise of their right to self-organization.’
Similarly, Article 249 (a) makes it an unfair labor practice for a labor organization to ‘restrain or
coerce employees in the exercise of their rights to self-organization . . .’

xxxx

The right of self-organization includes the right to organize or affiliate with a labor union or
determine which of two or more unions in an establishment to join, and to engage in concerted
activities with co-workers for purposes of collective bargaining through representatives of their
own choosing, or for their mutual aid and protection, i.e., the protection, promotion, or
enhancement of their rights and interests.53

As members of the governing board of MWEU, respondents are presumed to know, observe,
and apply the union’s constitution and by-laws. Thus, their repeated violations thereof and their
disregard of petitioner’s rights as a union member – their inaction on his two appeals which
resulted in his suspension, disqualification from running as MWEU officer, and subsequent
expulsion without being accorded the full benefits of due process – connote willfulness and bad
faith, a gross disregard of his rights thus causing untold suffering, oppression and, ultimately,
ostracism from MWEU. "Bad faith implies breach of faith and willful failure to respond to plain
and well understood obligation."54This warrants an award of moral damages in the amount of
P100,000.00. Moreover, the Civil Code provides:

Art. 32. Any public officer or employee, or any private individual, who directly or indirectly
obstructs, defeats, violates or in any manner impedes or impairs any of the following rights and
liberties of another person shall be liable to the latter for damages:

xxxx

(12) The right to become a member of associations or societies for purposes not contrary to
law;

In Vital-Gozon v. Court of Appeals,55 this Court declared, as follows:

Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. They may be
recovered if they are the proximate result of the defendant’s wrongful act or omission. The
instances when moral damages may be recovered are, inter alia, ‘acts and actions referred to in
Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35 of the Civil Code,’ which, in turn, are found in the
Chapter on Human Relations of the Preliminary Title of the Civil Code. x x x

Under the circumstances, an award of exemplary damages in the amount of P50,000.00, as

prayed for, is likewise proper. "Exemplary damages are designed to permit the courts to mould
behavior that has socially deleterious consequences, and their imposition is required by public
policy to suppress the wanton acts of the offender."56 This should prevent respondents from
repeating their mistakes, which proved costly for petitioner.1âwphi1

Under Article 2229 of the Civil Code, ‘[e]xemplary or corrective damages are imposed, by way
of example or correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.’ As this court has stated in the past: ‘Exemplary damages are designed

90 | P a g e
by our civil law to permit the courts to reshape behaviour that is socially deleterious in its
consequence by creating negative incentives or deterrents against such behaviour.’57

Finally, petitioner is also entitled to attorney’s fees equivalent to 10 per cent (10%) of the total
award. The unjustified acts of respondents clearly compelled him to institute an action primarily
to vindicate his rights and protect his interest. Indeed, when an employee is forced to litigate
and incur expenses to protect his rights and interest, he is entitled to an award of attorney’s
fees.58

WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed April 24, 2012 Decision of
the Court of Appeals in CA-G.R. SP No. 115639 is hereby MODIFIED, in that all of the
respondents - except for Carlos Villa, Ric Briones, and Chito Bernardo - are declared guilty of
unfair labor practices and ORDERED TO INDEMNIFY petitioner Allan M. Mendoza the
amounts of Pl00,000.00 as and by way of moral damages, PS0,000.00 as exemplary damages,
and attorney's fees equivalent to 10 per cent (10%) of the total award.

SO ORDERED.

SECOND DIVISION

G.R. No. 173134, September 02, 2015

BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. TARCILA FERNANDEZ, Respondent.;

DALMIRO SIAN, THIRD PARTY, Respondent.

DECISION

BRION, J.:

We resolve the Petition for Review on Certiorari filed by the petitioner Bank of the Philippine
Islands (BPI) under Rule 45 of the Rules of Court, assailing the Court of Appeals (CA) July 14,
2005 Decision1 and the June 14, 2006 Resolution2 in CA-G.R. CV No. 61764.

The Factual Antecedents

The present case arose from respondent Tarcila "Baby" Fernandez's (Tarcila) claim to her
proportionate share in the proceeds of four joint AND/OR accounts that the petitioner BPI
released to her estranged husband Manuel G. Fernandez (Manuel) without the presentation of
the requisite certificates of deposit. The facts leading to this dispute are outlined below.

In 1991, Tarcila together with her husband, Manuel and their children Monique Fernandez and
Marco Fernandez, opened the following AND/OR deposit accounts with the petitioner BPI,
Shaw Blvd. Branch:chanRoblesvirtualLawlibrary

1) Peso Time Certificate of Deposit No. 2425545 issued on June 27, 1991 in the name(s)
of Manuel G. Fernandez Sr. or Baby Fernandez or Monique Fernandez in the amount
of P1,684,661.40, with a term of 90 days and a corresponding interest at 17.5% per
annum;3

2) Peso Time Certificate of Deposit No. 2425556 issued on July 1, 1991 in the name(s)
of Manuel G. Fernandez Sr. or Marco Fernandez or Tarcila Fernandez, in the
amount of P1,534,335.10, with a term of 92 days and interest at 17.5% per annum;4

3) FCDU Time Certificate of Deposit No. 449059 issued on August 27, 1991 in the name(s)

91 | P a g e
 of Manuel or Tarcila Fernandez in the amount of US$36,219.53, with a term of 30 days
and interest at 5.3125% per annum;

4) Deposit under SA No. 3301-0145-61 issued on September 10, 1991 in the name(s)
of Manuel Fernandez or Baby Fernandez or Monique Fernandez in the amount of
P11,369,800.78 with interest at 5% per annum.5

The deposits were subject to the following conditions:

"x x x

2. Pre-termination of deposits prior to maturity shall be subject to discretion of [BPI] and if

pre-termination is allowed, it is subject to an interest penalty to be determined on the date of
pre-termination;ChanRoblesVirtualawlibrary

3. Endorsement and presentation of the Certificate of Deposit is necessary for the

renewal or termination of the deposit"

On September 24, 1991, Tarcila went to the BPI Shaw Blvd. Branch to pre-terminate these joint
AND/OR accounts. She brought with her the certificates of time deposit and the passbook, and
presented them to the bank. BPI, however, refused the requested pre-termination despite
Tarcila's presentation of the covering certificates. Instead, BPI, through its branch
manager, Mrs. Elma San Pedro Capistrano (Capistrano), insisted on contacting
Manuel, alleging in this regard that this is an integral part of its standard operating
procedure.6

Shortly after Tarcila left the branch, Manuel arrived and likewise requested the pre-termination
of the joint AND/OR accounts.7 Manuel claimed that he had lost the same certificates of deposit
that Tarcila had earlier brought with her.8 BPI, through Capistrano, this time acceded to the
pre-termination requests, blindly believed Manuel's claim,9 and requested him to accomplish
BPI's pro-forma affidavit of loss.10

Two days after, Manuel returned to BPI, Shaw Blvd. Branch to pre-terminate the joint AND/OR
accounts. He was accompanied by Atty. Hector Rodriguez, the respondent Dalmiro Sian (Sian),
and two (2) alleged National Bureau of Investigation (NBI) agents.

In place of the actual certificates of deposit, Manuel submitted BPI's pro-forma affidavit of loss
that he previously accomplished and an Indemnity Agreement that he and Sian executed on the
same day. The Indemnity Agreement discharged BPI from any liability in connection with the
pre-termination.11Notably, none of the co-depositors were contacted in carrying out
these transactions.

On the same day, the proceeds released to Manuel were funneled to Sian's newly opened
account with BPI. Immediately thereafter, Capistrano requested Sian to sign blank
withdrawal slips, which Manuel used to withdraw the funds from Sian's newly
opened account.12Sian's account, after its use, was closed on the same day.13

A few days after these transactions, Tarcila filed a petition for "Declaration of Nullity of
Marriage, etc." against Manuel, with the Regional Trial Court (RTC) of Pasig, docketed as JRDC
No. 2098.14 Based on the records, this civil case has been archived.15

Tarcila never received her proportionate share of the pre-terminated deposits,16 prompting her
to demand from BPI the amounts due her as a co-depositor in the joint AND/OR accounts.
When her demands remained unheeded, Tarcila initiated a complaint for damages with the
Regional Trial Court (RTQ of Makati City, Branch 59, docketed as Civil Case No. 95-671.

In her complaint, Tarcila alleged that BPI's payments to Manuel of the pre-terminated deposits

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were invalid with respect to her share.17She argued that BPI was in bad faith for allowing the
pre-termination of the time deposits based on Manuel's affidavit of loss when the bank had
actual knowledge that the certificates of deposit were in her possession.18

In its answer, BPI alleged that the accounts contained conjugal funds that Manuel exclusively
funded.19BPI further argued that Tarcila could not ask for her share of the pre-terminated
deposits because her share in the conjugal property is considered inchoate until its
dissolution.20 BPI further denied refusing Tarcila's request for pre-termination as it processed
her request but she left the branch before BPI could even contact Manuel.

BPI likewise filed a third-party complaint against Sian and Manuel on the basis of the Indemnity
Agreement they had previously executed. As summons against Manuel remained
unserved,21 only BPI's complaint against Sian proceeded to trial.

During the pre-trial, the parties admitted, among others, the conjugal nature of the
funds deposited with BPI.

After trial on the merits, the RTC of Makati, Branch 59, ruled in favor of Tarcila and awarded
her the following amounts: 1.) 1/2 of US$36,379.87; 2.) 1/3 of P11,3369,800.78; 3.) 1/3 of
Php1,684,661.40; and 1/3 of P1,534,335.10. The RTC likewise ordered BPI to pay Tarcila the
amount of P50,000.00 representing exemplary damages and P500,000.00 as attorney's fees.

In its decision,22 the RTC opined that the AND/OR nature of the accounts indicate an active
solidarity that thus entitled any of the account holders to demand from BPI payment of their
proceeds. Since Tarcila made the first demand upon BPI, payments should have been made to
her23 under Article 1214 of the Civil Code, which provides:

"Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or
extrajudicial, has been made by one of them, payment should be made to him."

The RTC did not find merit either in BPI's third-party complaint against Sian on the ground that
he was merely coerced into signing the Indemnity Agreement.24 BPI appealed the RTC ruling
with the CA.

CA Ruling

On July 14, 2005, the CA denied BPFs appeal through the decision25 that BPI now challenges
before this Court. The CA ruled that as a co-depositor and a solidary creditor of joint "AND/OR"
accounts, BPI did not enjoy the prerogative to determine the source of the deposited funds and
to refuse payment to Tarcila on this basis.

The CA also found that BPI had acted in bad faith in allowing Manuel to pre-terminate the
certificates of deposits and in facilitating the swift funneling of the funds to Sian's account,
which allowed Manuel to withdraw them.26 The CA noted that the transactions were
accomplished in one sitting for the purpose of misleading anyone who would try to trace
Manuel's deposit accounts.27

The CA likewise upheld the RTC's dismissal of BPFs third-party complaint against Sian. It
affirmed the factual finding that intimidation and undue influence vitiated Sian's consent in
signing the Indemnity Agreement.28

BPI moved for the reconsideration of the CA ruling, but the appellate court denied its motion in
its June 14, 2006 Resolution.29 BPI then filed the present petition for review on certiorari under
Rule 45 with this Court.

The Petition and Comment

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BPI insists in its present petition30 that the CA and the court a quo erred in applying the
provisions of Article 1214 of the Civil Code to the present case. It believes that the CA should
have relied on the conjugal partnership of gains provision in view of the existing marriage
between the spouses. Accordingly, BPI argues that Tarcila could not have suffered any damage
from its payment of the proceeds to Manuel inasmuch as the proceeds of the pre-terminated
accounts formed part of the conjugal partnership of gains.

BPI likewise claims that it did not breach its obligations under the certificates of deposit; it
processed Tarciia's pre-termination request but she left the branch before her request could be
completed. Moreover, assuming without conceding that BPI indeed declined Tarciia's request, it
posits that it possessed the discretion to do so since the request for pre-termination was done
prior to their maturity dates. Thus, BPI firmly believes that it could not be accused of wanton,
fraudulent, reckless, or malevolent conduct as it was merely exercising its rights.

Finally, BPI insists that Sian's consent was not vitiated when he signed the Indemnity
Agreement. According to BPI, the records are bereft of any proof that Sian was actually
threatened to sign the Indemnity Agreement. Thus, BPI maintains that it may validly invoke the
Agreement to release itself from any liability.

In her Comment,31 Tarcila points out that the petition raised questions of fact that are not
proper issues in a petition for review on certiorari.32 She also argues that BPI's acts were not
mere precautionary steps but were indicia of bias and bad faith. Finally, Tarcila adds that the
issue of who has management, control, and custody of conjugal property cannot be set up to
justify BPI's patent bad faith.

Sian failed to file his Comment on the petition. Nevertheless, he filed a Memorandum33 in
compliance with the Court's September 22, 2008 Resolution.34 He alleged that Manuel forced
and intimidated him to sign the Indemnity Agreement.

THE COURT'S RULING

We deny the petition for lack of merit.

BPI breached its obligation under the certificates of deposit.

A certificate of deposit is defined as a written acknowledgment by a bank or banker of the

receipt of a sum of money on deposit which the bank or banker promises to pay to the
depositor, to the order of the depositor, or to some other person or his order, whereby the
relation of debtor and creditor between the bank and the depositor is created.35 In
particular, the certificates of deposit contain provisions on the amount of interest, period of
maturity, and manner of termination. Specifically, they stressed that endorsement and
presentation of the certificate of deposit is indispensable to their termination. In other
words, the accounts may only be terminated upon endorsement and presentation of
the certificates of deposit. Without the requisite presentation of the certificates of deposit,
BPI may not terminate them.

BPI thus may only terminate the certificates of deposit after it has diligently completed two
steps. First, it must ensure the identity of the account holder. Second, BPI must demand the
surrender of the certificates of deposit.

This is the essence of the contract entered into by the parties which serves as an accountability
measure to other co-depositors. By requiring the presentation of the certificates prior to
termination, the other depositors may rely on the fact that their investments in the
interest-yielding accounts may not be indiscriminately withdrawn by any of their co-
depositors. This protective mechanism likewise benefits the bank, which shields it
from liability upon showing that it released the funds in good faith to an account
holder who possesses the certificates. Without the presentation of the certificates of

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deposit, BPI may not validly terminate the certificates of deposit.

With these considerations in mind, we find that BPI substantially breached its obligations to the
prejudice of Tarcila. BPI allowed the termination of the accounts without demanding the
surrender of the certificates of deposits, in the ordinary course of business. Worse, BPI even
had actual knowledge that the certificates of deposit were in Tarcila's possession
and yet it chose to release the proceeds to Manuel on the basis of a falsified
affidavit of loss, in gross violation of the terms of the deposit agreements.

As we have stressed in the case of FEBTC v. Querimit:36

"x x x A bank acts at its peril when it pays deposits evidenced by a certificate of
deposit, without its production and surrender after proper indorsement. As a rule,
one who pleads payment has the burden of proving it. Even where the plaintiff must allege
non-payment, the general rule is that the burden rests on the defendant to prove payment,
rather than on the plaintiff to prove payment. The debtor has the burden of showing with
legal certainty that the obligation has been discharged by payment, x x x Petitioner
should not have paid respondent's husband or any third party without requiring the
surrender of the certificates of deposit."37

BPI tried to muddle the issue by claiming that the funds subject of the deposits were conjugal
in character. This contention, however, is misleading. The principal issue involved in the present
case is BPFs breach of its obligations under the express terms of the certificates of deposit and
the consequent damage that Tarcila suffered as a co-depositor because of BPI's acts.

Notably, BPI effectively deprived Tarcila and the other co-depositors of their share in the
proceeds of the certificates of deposits. As the CA noted in the assailed Decision, the series of
transactions were accomplished in one sitting for the purpose of misleading anyone
who would try to trace the proceeds of [Manuel]'s deposit accounts.38 As the court a
quo likewise observed:

"Aside from the affidavit of loss, the bank required [Manuel] to execute an Indemnity
Agreement. Hence, on September 26, 1991, [Manuel] returned to the bank. This time, Dalmiro
Sian, his son-in-law, Atty. Hector Rodriguez, his lawyer, and two NBI agents were with him.
There, the bank required him and Sian to sign an Indemnity Agreement whereby they
undertook "to hold the bank free and harmless from all liabilities arising from said [pre-
termination]." The agreement was prepared by one of the officers of the bank. At the same
time, Sian was told to open a new account under his name. The opening of a new account
N. 3305-0539-44 in the name of Sian was facilitated. The proceeds of the four
deposit accounts were then transferred or deposited to this new account in the
name of Sian. x x x Sian also signed two blank withdrawal slips. With the use of these
withdrawal slips, [Manuel] Fernandez withdrew all the proceeds deposited under
the name of Sian. Shortly thereafter, account no. 3305-0539-44 was closed."39

It appears that BPI connived with Manuel to allow him to divest his co-depositors of their
share in proceeds. Worse, it cooperated with Manuel in trying to conceal this fraudulent conduct
by making it appear that the funds were withdrawn from another account.

The CA correctly ruled that BPI is guilty of bad faith.

We affirm the CA and the trial court's findings that BPI was guilty of bad faith in these
transactions. Bad faith imports a dishonest purpose and conscious wrongdoing.40 It means a
breach of a known duty through some motive or interest or ill will.41

A review of the records of the case show ample evidence supporting BPI's bad faith, as shown
by the clear bias it had against Tarcila. As the CA observed:

"The bias and bad faith on the part of [BPI]'s officers become readily apparent in the
face of the fact that [BPI]'s officers did not require the presentation of the

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certificates of deposit from [Manuel] but even assisted and facilitated the pre-
termination transaction by the latter on the basis of a mere pro-forma and defective
affidavit of loss, which the bank itself supplied, despite the fact that [BPI]'s officers
were fully aware that the certificates were not lost but in the possession of
[Tarcila]. Moreover, given the fact that said affidavit of loss was executed by [Manuel] just a
few minutes after [Tarcila] had presented the certificates of deposit to [BPI], it taxes one's
credulity to say that [BPI] believed in good faith that the certificates were indeed lost."42

Similarly, the trial court observed:

"It is quite alarming to note the eagerness and haste by which the defendant bank
accommodated [Manuel] 's request for the pre-termination of the questioned account deposits
and the subsequent release to him of the full proceeds thereof, to the exclusion of the [Tarcila].
The prejudice of the officers of [BPI] against the [Tarcila] is very apparent. Elma Capistrano,
branch manager, categorically testified that [Tarcila] is a client of the bank only in name; and
that she does not consider [Tarcila] as a primary depositor to the account because the source
of the money being deposited and being transacted was [Manuel]."43

BPI argues that it merely took precautionary steps when it insisted on contacting Manuel as a
form of standard operating procedure. This assertion, however, is belied by BPI's own witness.
During her testimony, Capistrano narrated:

"x x x

Q: Can you tell us why it was necessary for the branch to get in touch with Mr. Manuel
Fernandez?

A: Because he is the one that handles and is in control of all the money deposited
in the branch44

xxx

Q: I heard you mentioned the word "primary depositor" does that mean that Mrs. Tarcila
Fernandez is not a primary depositor?

A: Personally, I do not really consider her as the primary depositor to the

account because the source of the money being deposited and being transacted was Mr.
Manuel Fernandez.45

xxx

Q: Were you the one who recommended that Mr. Manuel Fernandez prepare this affidavit of
loss?

A: That is the usual things that we tell our clients if the original of the certificates of deposits
(sic) or passbook or checkbooks are missing.

Q: But is it not a fact that earlier a few minutes before Mr. Fernandez came, you
were aware that the certificates were not actually missing but were in the
possession of Mrs. [Tarcila] Fernandez, is it not?

A: Yes Sir.

Q: And yet when this affidavit of loss was later prepared and presented to you, did
you give due course to this affidavit of loss? Did you accept the truth of the
contents of this affidavit of loss?

A: Because it is Mr. [Manuel] Fernandez who is in possession of all the certificates,

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 and if he is missing it, I believed that it is really missing."46

The records thus abound with evidence that BPI clearly favored Manuel. BPI considered Manuel
as the primary depositor despite the clear import of the nature of their AND/OR account, which
permits either or any of the co-depositors to transact with BPI, upon the surrender of the
certificates of deposit. Worse, BPI facilitated the scheme in order to allow Manuel to obtain
the proceeds and conceal any evidence of wrongdoing.

BPI did not only fail to exercise that degree of diligence required by the nature of its
business, it also exercised its functions with bad faith and manifest partiality
against Tarcila. The bank even recognized an affidavit of loss whose allegations, the
bank knew, were false. This aspect of the transactions opens up other issues that
we do not here decide because they are outside the scope of the case before us.

One aspect is criminal in nature because Manuel swore to a falsity and the act was
with the knowing participation of bank officers. The other issue is administrative in
character as these bank officers betrayed the trust reposed in them by the bank. We
mention all these because these are disturbing acts to observe in a banking
institution as large as the BPI.

BPI is sternly reminded that the business of banks is impressed with public interest. The
fiduciary nature of their relationship with their depositors requires it to treat the accounts of its
clients with the highest degree of integrity, care and respect. In the present case, the
manner by which BPI treated Tarcila also transgresses the general banking law47 and Article 19
of the Civil Code, which directs every person, in the exercise of his rights, "to give everyone his
due, and observe honesty and good faith."

BPI could not invoke the Indemnity Agreement.

BPI assails the CA's declaration voiding the Indemnity Agreement that would allow it to hold
Sian liable for the withdrawn deposits.48 It argues that Sian's allegation of vitiation of consent
should not be recognized as it is based solely on the presence of Manuel's lawyer and two (2)
alleged NBI Agents.49 BPI thus claims that "mere presence" of law enforcement officers cannot
be reasonably equated as imminent threat.50

This particular issue involves a factual determination of vitiated consent, which is a question of
fact and one which is not generally appropriate in a petition for review on certiorari under Rule
45. We, however, are not precluded from again examining the evidence introduced and
considered with respect to this factual issue where the CA's finding of vitiated consent is both
speculative and mistaken.51

We agree with BPFs observation on this point that there is nothing in the records that even
remotely resembles vitiation of consent. In order that intimidation may vitiate consent, it is
essential that the intimidation was the moving cause for giving consent.52 Moreover, the
threatened act must be unjust or unlawful.53 In addition, the threat must be real or serious,
and must produce well-grounded fear from the fact that the person making the threat has the
necessary means or ability to inflict the threat.54

Nothing in the records supports this conclusion. In fact, we find it difficult to believe that the
presence of Manuel, his lawyer, and two (2) NBI agents could amount to intimidation in the
absence of any act or threatened injury on Sian. If he did sign the Indemnity Agreement
with reluctance, vitiation of consent is still negated, as we held in Vales v. Villa:55

"There must, then, be a distinction to be made between a case where a person gives his
consent reluctantly and even against his good sense: and judgment, and where he, in reality,
gives no consent at all, as where he executes a contract or performs an act against his will
under a pressure which he cannot resist. It is clear that one acts as voluntarily and
independently in the eye of the law when he acts reluctantly and with hesitation as when he

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acts spontaneously and joyously. Legally speaking he acts as voluntarily and freely when he
acts wholly against his better sense and judgment as when he acts in conformity with them.
Between the two acts there is no difference in law. But when his sense, judgment, and his will
rebel and he refuses absolutely to act as requested, but is nevertheless overcome by force or
intimidation to such an extent that he becomes a mere automation and acts mechanically only,
a new element enters, namely, a disappearance of the personality of the actor. He ceases to
exist as an independent entity with faculties and judgment, and in his place is substituted
another — the one exercising the force or making use of intimidation. While his hand signs, the
will which moves it is another's. While a contract is made, it has, in reality and in law, only one
party to it; and, there being only one party, the one using the force or the intimidation, it is
unenforceable for lack of a second party.

From these considerations it is clear that every case of alleged intimidation must be examined
to determine within which class it falls. If it is within the first class it is not duress in law, if it
falls in the second, it is."

This notwithstanding, we hold that BPI may still not invoke the provisions of the Indemnity
Agreement on the basis of in pari delicto - it was equally at fault. In pari delicto is a legal
doctrine resting on the theory that courts will not aid parties who base their cause of action on
their own immoral or illegal acts.56When two parties, acting together, commit an illegal
or wrongful act, the party held responsible for the act cannot recover from the other, because
both have been equally culpable and the damage resulted from their joint offense.57

In the present case, equity dictates that BPI should not be allowed to claim from Sian on the
basis of the Indemnity Agreement. The facts unmistakably show that both BPI and Sian
participated in the deceptive scheme to allow Manuel to withdraw the funds. As succinctly
admitted by Capistrano during her testimony:

xxx

Q: I see, in other words, the same certificates of deposit earlier presented by Mrs.
Tarcila were recognized by the bank as having been lost and thereafter
transactions were made in favor of Mr. Manuel Fernandez, that was what
happened?

A: Yes Sir, because of the representation of Mr. Manuel Fernandez that he lost it.

Q: You accepted, the bank immediately accepted in face value that representation?

A: Yes Sir.58

BPI knew very well the irregularity in Manuel's transaction for it had actual
knowledge that the certificates of deposit were in Tarcila's possession. Because of
this knowledge, it entertained the possibility of reprisal from the co-depositors. Thus, it took
shrewdly calculated steps and required Manuel and Sian to execute an Indemnity
Agreement, hoping that this instrument would absolve it from liability.

BPI and Sian are in pari delicto, thus, no affirmative relief should be given to one against the
other. BPI came to court with unclean hands; for which reason, it cannot obtain relief and
thereby gain from its indispensable participation in the irregular transaction. One who seeks
equity and justice must come to court with clean hands.59chanroblesvirtuallawlibrary

Award of exemplary damages proper

Exemplary or corrective damages are imposed by way of example or correction for the public
good, in addition to moral, temperate, liquidated, or compensatory damages.60 In quasi-delicts,
exemplary damages may be granted if the defendant acted with gross negligence.61

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In the present case, BPI's bias and bad faith unquestionably caused prejudice to Tarcila. The
law allows the grant of exemplary damages in cases such as this to serve as a warning to the
public and as a deterrent against the repetition of this kind of deleterious actions.62 From this
perspective, we find that the CA did not err in affirming the RTC's award of P50,000.00 by way
of exemplary damages.

Attorney's fees in order

In view of the award of exemplary damages, we find that that the CA did not err in confirming
the RTC's award of attorney's fees, in accordance with Article 2208 (1) of the Civil Code. We
find the award of attorney's fees, equivalent to P500,000.00, to be just and reasonable under
the circumstances.

WHEREFORE, premises considered, the petition is hereby DENIED.

Costs against the petitioner.

SO ORDERED.

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