SECOND DIVISION

[G.R. No. 124922. June 22, 1998]

JIMMY CO, doing business under the name & style DRAGON METAL
MANUFACTURING, Petitioner, vs. COURT OF APPEALS and
BROADWAY MOTOR SALES CORPORATION, Respondents.

DECISION
MARTINEZ, J.:

On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988 model[1] to
private respondent - which is engaged in the sale, distribution and repair of motor
vehicles - for the following job repair services and supply of parts:

- Bleed injection pump and all nozzles;

- Adjust valve tappet;

- Change oil and filter;

- Open up and service four wheel brakes, clean and adjust;

- Lubricate accelerator linkages;

- Replace aircon belt; and

- Replace battery[2]

Private respondent undertook to return the vehicle on July 21, 1990 fully serviced
and supplied in accordance with the job contract. After petitioner paid in full the repair
bill in the amount of P1,397.00,[3] private respondent issued to him a gate pass for the
release of the vehicle on said date. But came July 21, 1990, the latter could not release
the vehicle as its battery was weak and was not yet replaced. Left with no option,
petitioner himself bought a new battery nearby and delivered it to private respondent for
installation on the same day. However, the battery was not installed and the delivery of
the car was rescheduled to July 24, 1990 or three (3) days later. When petitioner sought
to reclaim his car in the afternoon of July 24, 1990, he was told that it was carnapped
earlier that morning while being road-tested by private respondents employee along
Pedro Gil and Perez Streets in Paco, Manila. Private respondent said that the incident
was reported to the police.
Having failed to recover his car and its accessories or the value thereof, petitioner
filed a suit for damages against private respondent anchoring his claim on the latters
alleged negligence. For its part, private respondent contended that it has no liability
because the car was lost as a result of a fortuitous event - the carnapping. During pre-
trial, the parties agreed that:

(T)he cost of the Nissan Pick-up four (4) door when the plaintiff purchased it from the
defendant is P332,500.00 excluding accessories which were installed in the vehicle by
the plaintiff consisting of four (4) brand new tires, magwheels, stereo speaker, amplifier
which amount all in all to P20,000.00. It is agreed that the vehicle was lost on July 24,
1990 `approximately two (2) years and five (5) months from the date of the purchase. It
was agreed that the plaintiff paid the defendant the cost of service and repairs as early
as July 21, 1990 in the amount of P1,397.00 which amount was received and duly
receipted by the defendant company. It was also agreed that the present value of a
brand new vehicle of the same type at this time is P425,000.00 without accessories.[4]

They likewise agreed that the sole issue for trial was who between the parties shall
bear the loss of the vehicle which necessitates the resolution of whether private
respondent was indeed negligent.[5] After trial, the court a quo found private respondent
guilty of delay in the performance of its obligation and held it liable to petitioner for the
value of the lost vehicle and its accessories plus interest and attorneys fees. [6] On
appeal, the Court of Appeals (CA) reversed the ruling of the lower court and ordered the
dismissal of petitioners damage suit.[7] The CA ruled that: (1) the trial court was limited
to resolving the issue of negligence as agreed during pre-trial; hence it cannot pass on
the issue of delay; and (2) the vehicle was lost due to a fortuitous event.
In a petition for review to this Court, the principal query raised is whether a repair
shop can be held liable for the loss of a customers vehicle while the same is in its
custody for repair or other job services?
The Court resolves the query in favor of the customer. First, on the technical aspect
involved. Contrary to the CAs pronouncement, the rule that the determination of issues
at a pre-trial conference bars the consideration of other issues on appeal, except those
that may involve privilege or impeaching matter,[8] is inapplicable to this case. The
question of delay, though not specifically mentioned as an issue at the pre-trial may be
tackled by the court considering that it is necessarily intertwined and intimately
connected with the principal issue agreed upon by the parties, i.e. who will bear the loss
and whether there was negligence. Petitioners imputation of negligence to private
respondent is premised on delay which is the very basis of the formers complaint. Thus,
it was unavoidable for the court to resolve the case, particularly the question of
negligence without considering whether private respondent was guilty of delay in the
performance of its obligation.
On the merits. It is a not a defense for a repair shop of motor vehicles to escape
liability simply because the damage or loss of a thing lawfully placed in its possession
was due to carnapping. Carnapping per se cannot be considered as a fortuitous event.
The fact that a thing was unlawfully and forcefully taken from anothers rightful
possession, as in cases of carnapping, does not automatically give rise to a fortuitous
event. To be considered as such, carnapping entails more than the mere forceful taking
of anothers property. It must be proved and established that the event was an act of
God or was done solely by third parties and that neither the claimant nor the person
alleged to be negligent has any participation.[9] In accordance with the Rules of
evidence, the burden of proving that the loss was due to a fortuitous event rests on him
who invokes it[10]- which in this case is the private respondent. However, other than the
police report of the alleged carnapping incident, no other evidence was presented by
private respondent to the effect that the incident was not due to its fault. A police report
of an alleged crime, to which only private respondent is privy, does not suffice to
established the carnapping. Neither does it prove that there was no fault on the part of
private respondent notwithstanding the parties agreement at the pre-trial that the car
was carnapped. Carnapping does not foreclose the possibility of fault or negligence on
the part of private respondent.
Even assuming arguendo that carnapping was duly established as a fortuitous
event, still private respondent cannot escape liability. Article 1165[11] of the New Civil
Code makes an obligor who is guilty of delay responsible even for a fortuitous event
until he has effected the delivery. In this case, private respondent was already in delay
as it was supposed to deliver petitioners car three (3) days before it was lost. Petitioners
agreement to the rescheduled delivery does not defeat his claim as private respondent
had already breached its obligation. Moreover, such accession cannot be construed as
waiver of petitioners right to hold private respondent liable because the car was
unusable and thus, petitioner had no option but to leave it.
Assuming further that there was no delay, still working against private respondent is
the legal presumption under Article 1265 that its possession of the thing at the time it
was lost was due to its fault.[12] This presumption is reasonable since he who has the
custody and care of the thing can easily explain the circumstances of the loss. The
vehicle owner has no duty to show that the repair shop was at fault. All that petitioner
needs to prove, as claimant, is the simple fact that private respondent was in
possession of the vehicle at the time it was lost. In this case, private respondents
possession at the time of the loss is undisputed. Consequently, the burden shifts to the
possessor who needs to present controverting evidence sufficient enough to overcome
that presumption. Moreover, the exempting circumstances - earthquake, flood, storm or
other natural calamity - when the presumption of fault is not applicable [13] do not concur
in this case. Accordingly, having failed to rebut the presumption and since the case
does not fall under the exceptions, private respondent is answerable for the loss.
It must likewise be emphasized that pursuant to Articles 1174 and 1262 of the New
Civil Code, liability attaches even if the loss was due to a fortuitous event if the nature of
the obligation requires the assumption of risk.[14] Carnapping is a normal business risk
for those engaged in the repair of motor vehicles. For just as the owner is exposed to
that risk so is the repair shop since the car was entrusted to it. That is why, repair shops
are required to first register with the Department of Trade and Industry (DTI) [15] and to
secure an insurance policy for the shop covering the property entrusted by its customer
for repair, service or maintenance as a pre-requisite for such
registration/accreditation. Violation of this statutory duty constitutes negligence per
[16]

se.[17] Having taken custody of the vehicle, private respondent is obliged not only to
repair the vehicle but must also provide the customer with some form of security for his
property over which he loses immediate control. An owner who cannot exercise the
seven (7) juses or attributes of ownership the right to possess, to use and enjoy, to
abuse or consume, to accessories, to dispose or alienate, to recover or vindicate and to
the fruits -[18] is a crippled owner. Failure of the repair shop to provide security to a motor
vehicle owner would leave the latter at the mercy of the former. Moreover, on the
assumption that private respondents repair business is duly registered, it presupposes
that its shop is covered by insurance from which it may recover the loss. If private
respondent can recover from its insurer, then it would be unjustly enriched if it will not
compensate petitioner to whom no fault can be attributed. Otherwise, if the shop is not
registered, then the presumption of negligence applies.
One last thing. With respect to the value of the lost vehicle and its accessories for
which the repair shop is liable, it should be based on the fair market value that the
property would command at the time it was entrusted to it or such other value as agreed
upon by the parties subsequent to the loss. Such recoverable value is fair and
reasonable considering that the value of the vehicle depreciates. This value may be
recovered without prejudice to such other damages that a claimant is entitled under
applicable laws.
WHEREFORE, premises considered, the decision of the Court Appeals is
REVERSED and SET ASIDE and the decision of the court a quo is REINSTATED.
SO ORDERED.
Regalado (Chairman), Melo, Puno and Mendoza, JJ. concur.

[1] Registered in the name of petitioner with Plate No. PJK-666.

[2] Rollo, p. 81.
[3] Covered by CBC Receipt No. 691148; Rollo, p. 10.
[4] Rollo, pp. 28-29.
[5] Rollo, p. 29.

[6] The dispositive portion of the trial courts decision reads:

Accordingly, this Court finds the defendant liable to the plaintiff for the value of the vehicle in question.
Defendant is ordered to pay plaintiff the value of the vehicle in the amount of Three Hundred Thirty Two
Thousand Five Hundred Pesos representing the acquisition cost of the vehicle plus the amount of Twenty
Thousand Pesos representing the cost of the four brand new tires, magwheels, pioneer stereo, speakers,
air-conditioner, which were installed by the plaintiff in his vehicle after the plaintiff bought the vehicle from
the defendant. While it is true that plaintiff purchased from the defendant the vehicle about two years and
five months before the same was lost, and therefore the vehicle had already depreciated from its original
value at the time it was lost, it is also true as agreed upon by the parties in the pre-trial, that the present
value of a brand new vehicle of the same type has at this time increased to Four Hundred Thousand
Pesos without accessories, so whatever is awarded by this Court to the plaintiff in this decision would not
even be sufficient to purchase a brand new vehicle at the present prices. This Court believes that the
amount awarded to the plaintiff above-stated represents a fair compromise, considering the depreciation
of the vehicle from the time it was purchased and to the time it was lost and which is off-seated by the
increase cost of a brand new vehicle at the present time. Defendant is likewise ordered to pay plaintiff
legal interest in the amount above-stated from the date of the finality of this decision until full payment of
the obligation. Further, defendant is ordered to pay plaintiff Ten Thousand Pesos by attorneys fees. (sic
was not included so as not to clutter the narration); Rollo, pp. 78, 94.
[7]
CA Decision promulgated August 31, 1995 penned by Justice Austria-Martinez with Justices Lantin and
Salas, concurring; Rollo, pp. 26-32.
[8]
Caltex v. CA, 212 SCRA 448; Bergado v. CA, 173 SCRA 497 citing Permanent Concrete Products,
Inc. v. Teodoro, 26 SCRA 332. In the Bergado case (p. 501), the court reiterated the rule that the specific
exceptions to the general rule to be observed in pre-trials emphasized in Gicano v. Gegato, 157 SCRA
140 is that trial courts have authority and discretion to dismiss an action on the ground of prescription
when the parties pleadings or other facts on record show it to be indeed time-barred; and it may do so on
the basis of a motion to dismiss, or an answer which sets up such ground as an affirmative defense; or
even if the ground is alleged after judgment on the merits, as in a motion for reconsideration; or even if
the defense has not been asserted at all, as where no statement thereof is found in the pleadings, or
where a defendant had been declared in default. What is essential only, to repeat, is that the facts
demonstrating the lapse of the prescriptive period, be otherwise sufficiently and satisfactorily apparent on
the record; either in the averments of the plaintiffs, or otherwise established by the evidence."
[9] Lasam
v. Smith, 45 Phil. 657; General Enterprises, Inc., v. Llianga Bay Logging Co., Inc., 120 Phil. 702;
Tugade v. CA, 85 SCRA 226.
[10] Section1, Rule 131, 1989 Revised Rules on Evidence provides: Burden of proof. - Burden of proof
is the duty of a party to present evidence on the facts in issue necessary to establish his claim or defense
by the amount of evidence required by law. (Italics supplied).
[11] Article 1165. x x x x x x x x x
If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have
the same interest, he shall be responsible for fortuitous event until he has effected the delivery. (Italics
supplied).
[12]
Article 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the
loss was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of
Article 1165. This presumption does not apply in case of earthquake, flood, storm, or other natural
calamity. (Italics supplied).
[13] New Civil Code, Article 1265.
[14]
Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared
bystipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.
Article 1262. x x x x x x x x x
When by law or stipulation, the obligor is liable even for fortuitous event, the loss of the thing does not
extinguish the obligation, and he shall be responsible for damages. The same rule applies when the
nature of the obligation requires the assumption of risk. (Italics supplied).
[15] P.D.
1572 (EMPOWERING THE SECRETARY OF TRADE TO REGULATE AND CONTROL THE
OPERATION OF SERVICE AND REPAIR ENTERPRISES FOR MOTOR VEHICLES, HEAVY
EQUIPMENT AND ENGINES AND ENGINEERING WORKS; ELECTRONICS, ELECTRICAL,
AIRCONDITIONING AND REFRIGERATION; OFFICE EQUIPMENT; MEDICAL AND DENTAL
EQUIPMENT; AND OTHER CONSUMER MECHANICAL AND INDUSTRIAL EQUIPMENT;
APPLIANCES OR DEVICES, INCLUDING THE TECHNICAL PERSONNEL EMPLOYED THEREIN).
Section 1. Accreditation. All enterprises and technical personnel employed therein engaged in the service
and repair of motor vehicles, heavy equipment, engines and engineering works; electronics, electrical, air-
conditioning and refrigeration; office equipment; medical and dental equipment; and other consumer
industrial electro-mechanical, chemical and gaseous equipment, machinery, appliances or devices should
Apply for accreditation with the Department of Trade within ninety (90) days from the promulgation of this
decree and should apply for renewal on or before the 31st day of January of every year thereafter. No
such service or repair enterprises and technical personnel shall be licensed or permitted to operate in the
Philippines for the first time without first being accredited by the Department of Trade.
[16] DTI Ministry Order No. 32, Rule III
Section 1. REQUIREMENTS FOR ACCREDITATION:
(1) Enterprise applying for original accreditation shall submit the following:
1.1 List of machineries/equipment/tools in useful condition;
1.2 List of certified engineers/accredited technicians mechanics with their personal data;
1.3 Copy of Insurance Policy of the shop covering the property entrusted by its customer for repair,
service or maintenance together with a copy of the official receipt covering the full payment of premium;
1.4 Copy of Bond referred to under Section 7, Rule III of this Rules and Regulations;
1.5 Written service warranty in the form prescribed by the Bureau;
1.6 Certificate issued by the Securities and Exchange Commission and Articles of Incorporation or
Partnership in case of corporation or partnership;
1.7 Such other additional documents which the director may require from time to time.
Section 8. INSURANCE POLICY
The insurance policy for the following risks like theft, pilferage, fire, flood and loss should cover
exclusively the machines, motor vehicles, heavy equipment, engines, electronics, electrical,
airconditioners, refrigerators, office machines, and data processing equipment, medical and dental
equipment, other consumer mechanical and industrial equipment stored for repair and/or in the premises
of the applicant. (Italics supplied).
[17] Cipriano v. CA, 263 SCRA 711 citing F.F. Cruz and Co., Inc. v. CA, 164 SCRA 731 and Teague v.

Fernandez, 51 SCRA 181.

[18]
Paras, Civil Code of the Philippines, Annotated, 1989 ed., vol. II, p. 70; De Leon, Comments and
Cases on Property, 1993 ed. p. 77; See also Article 428 of the New Civil Code which states that The
owner has the right to enjoy and dispose of a thing, without other limitations than those established by
law.
The owner has also a right of action against the holder and possessor of the thing in order to recover it.
 Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION

ROBERTO C. SICAM and AGENCIA G.R. NO. 159617

de R.C. SICAM, INC.,
Petitioners,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and
NACHURA, JJ.

LULU V. JORGE and CESAR

JORGE, Promulgated:
Respondents. August 8, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr.

(petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner corporation)

seeking to annul the Decision[1] of the Court of Appeals dated March 31, 2003, and

its Resolution[2] dated August 8, 2003, in CA G.R. CV No. 56633.

It appears that on different dates from September to October 1987 , Lulu V. Jorge

(respondent Lulu) pawned several pieces of jewelry with Agencia de R.

C. Sicam located at No. 17 Aguirre Ave., BF Homes Paraaque, Metro Manila, to

secure a loan in the total amount of P59,500.00.

On October 19, 1987, two armed men entered the pawnshop and took away

whatever cash and jewelry were found inside the pawnshop vault. The incident was

entered in the police blotter of the Southern Police District, Paraaque Police Station

as follows:

Investigation shows that at above TDPO, while victims were inside the office, two
(2) male unidentified persons entered into the said office with guns
drawn. Suspects(sic) (1) went straight inside and poked his gun toward
Romeo Sicam and thereby tied him with an electric wire while suspects (sic) (2)
poked his gun toward Divina Mata and Isabelita Rodriguez and ordered them to lay
(sic) face flat on the floor. Suspects asked forcibly the case and assorted pawned
jewelries items mentioned above.

Suspects after taking the money and jewelries fled on board a Marson Toyota
unidentified plate number.[3]

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing

her of the loss of her jewelry due to the robbery incident in the pawnshop. On

November 2, 1987, respondent Lulu then wrote a letter[4] to

petitioner Sicam expressing disbelief stating that when the robbery happened, all
jewelry pawned were deposited with Far East Bank near the pawnshop since it had

been the practice that before they could withdraw, advance notice must be given to

the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu

then requested petitioner Sicam to prepare the pawned jewelry for withdrawal

on November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed

a complaint against petitioner Sicam with the Regional Trial Court

of Makati seeking indemnification for the loss of pawned jewelry and payment of

actual, moral and exemplary damages as well as attorney's fees. The case was

docketed as Civil Case No. 88-2035.

Petitioner Sicam filed his Answer contending that he is not the real party-in-

interest as the pawnshop was incorporated on April 20, 1987 and known

as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care

and diligence in the safekeeping of the articles pledged with it and could not be

made liable for an event that is fortuitous.

Respondents subsequently filed an Amended Complaint to include petitioner

corporation.

Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned

considering that he is not the real party-in-interest. Respondents opposed the same.

The RTC denied the motion in an Order dated November 8, 1989.[5]

After trial on the merits, the RTC rendered its Decision[6] dated January 12, 1993,

dismissing respondents complaint as well as petitioners counterclaim. The RTC

held that petitioner Sicam could not be made personally liable for a claim arising

out of a corporate transaction; that in the Amended Complaint of respondents, they

asserted that plaintiff pawned assorted jewelries in defendants' pawnshop; and that

as a consequence of the separate juridical personality of a corporation, the

corporate debt or credit is not the debt or credit of a stockholder.

The RTC further ruled that petitioner corporation could not be held liable for the

loss of the pawned jewelry since it had not been rebutted by respondents that the

loss of the pledged pieces of jewelry in the possession of the corporation was

occasioned by armed robbery; that robbery is a fortuitous event which exempts the

victim from liability for the loss, citing the case of Austria v. Court of
Appeals;[7] and that the parties transaction was that

of a pledgor and pledgee and under Art. 1174 of the Civil Code, the pawnshop as

a pledgee is not responsible for those events which could not be foreseen.

Respondents appealed the RTC Decision to the CA. In a Decision dated March 31,

2003, the CA reversed the RTC, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the instant Appeal is GRANTED, and the
Decision dated January 12, 1993,of the Regional Trial Court of Makati, Branch
62, is hereby REVERSED and SET ASIDE, ordering the appellees to pay
appellants the actual value of the lost jewelry amounting to P272,000.00, and
attorney' fees of P27,200.00.[8]

In finding petitioner Sicam liable together with petitioner corporation, the CA

applied the doctrine of piercing the veil of corporate entity reasoning that

respondents were misled into thinking that they were dealing with the pawnshop

owned by petitioner Sicam as all the pawnshop tickets issued to them bear the

words Agencia de R.C. Sicam; and that there was no indication on the pawnshop

tickets that it was the petitioner corporation that owned the pawnshop which

explained why respondents had to amend their complaintimpleading petitioner

corporation.
The CA further held that the corresponding diligence required of a pawnshop is

that it should take steps to secure and protect the pledged items and should take

steps to insure itself against the loss of articles which are entrusted to its custody as

it derives earnings from the pawnshop trade which petitioners failed to do;

that Austria is not applicable to this case since the robbery incident happened in

1961 when the criminality had not as yet reached the levels attained in the present

day; that they are at least guilty of contributory negligence and should be held

liable for the loss of jewelries; and that robberies and hold-ups are foreseeable risks

in that those engaged in the pawnshop business are expected to foresee.

The CA concluded that both petitioners should be jointly and severally held liable

to respondents for the loss of the pawned jewelry.

Petitioners motion for reconsideration was denied in a Resolution

dated August 8, 2003.

Hence, the instant petition for review with the following assignment of errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF
TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT
REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME
 ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR
BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.

THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED

ITSELF TO REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN
ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE
SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF WITHOUT
ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE
SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN
SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD.[9]

Anent the first assigned error, petitioners point out that the CAs finding that

petitioner Sicam is personally liable for the loss of the pawned jewelries is a virtual

and uncritical reproduction of the arguments set out on pp. 5-6 of the Appellants

brief.[10]

Petitioners argue that the reproduced arguments of respondents in their Appellants

Brief suffer from infirmities, as follows:

(1) Respondents conclusively asserted in paragraph 2

of their Amended Complaint that Agencia de R.C. Sicam, Inc. is the present
owner of Agencia de R.C. Sicam Pawnshop, and therefore, the CA cannot rule
against said conclusive assertion of respondents;

(2) The issue resolved against petitioner Sicam was not among those raised and
litigated in the trial court; and

(3) By reason of the above infirmities, it was error for the CA to have pierced the
corporate veil since a corporation has a personality distinct and separate from its
individual stockholders or members.
Anent the second error, petitioners point out that the CA finding on their

negligence is likewise an unedited reproduction of respondents brief which had the

following defects:

(1) There were unrebutted evidence on record that petitioners had observed the
diligence required of them, i.e, they wanted to open a vault with a nearby bank for
purposes of safekeeping the pawned articles but was discouraged by the Central
Bank (CB) since CB rules provide that they can only store the pawned articles in
a vault inside the pawnshop premises and no other place;

(2) Petitioners were adjudged negligent as they did not take insurance against the
loss of the pledged jelweries, but it is judicial notice that due to high incidence of
crimes, insurance companies refused to cover pawnshops and banks because of
high probability of losses due to robberies;

(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the
victim of robbery was exonerated from liability for the sum of money belonging
to others and lost by him to robbers.

Respondents filed their Comment and petitioners filed their Reply thereto. The

parties subsequently submitted their respective Memoranda.

We find no merit in the petition.

To begin with, although it is true that indeed the CA findings were exact

reproductions of the arguments raised in respondents (appellants) brief filed with

the CA, we find the same to be not fatally infirmed. Upon examination of the

Decision, we find that it expressed clearly and distinctly the facts and the law on

which it is based as required by Section 8, Article VIII of the Constitution. The

discretion to decide a case one way or another is broad enough to justify the

adoption of the arguments put forth by one of the parties, as long as these are

legally tenable and supported by law and the facts on records.[11]

Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of

errors of law committed by the appellate court. Generally, the findings of fact of

the appellate court are deemed conclusive and we are not duty-bound to analyze

and calibrate all over again the evidence adduced by the parties in the court a

quo.[12] This rule, however, is not without exceptions, such as where the factual

findings of the Court of Appeals and the trial court are conflicting or

contradictory[13] as is obtaining in the instant case.

However, after a careful examination of the records, we find no justification to

absolve petitioner Sicam from liability.

The CA correctly pierced the veil of the corporate fiction and adjudged

petitioner Sicam liable together with petitioner corporation. The rule is that the veil

of corporate fiction may be pierced when made as a shield to perpetrate fraud

and/or confuse legitimate issues. [14] The theory of corporate entity was not meant

to promote unfair objectives or otherwise to shield them.[15]

Notably, the evidence on record shows that at the time respondent Lulu pawned

her jewelry, the pawnshop was owned by petitioner Sicam himself. As correctly

observed by the CA, in all the pawnshop receipts issued to respondent Lulu in

September 1987, all bear the words Agencia de R. C. Sicam, notwithstanding that

the pawnshop was allegedly incorporated in April 1987. The receipts issued after

such alleged incorporation were still in the name of Agencia de R. C. Sicam, thus

inevitably misleading, or at the very least, creating the wrong impression to

respondents and the public as well, that the pawnshop was owned solely by

petitioner Sicam and not by a corporation.

Even petitioners counsel, Atty. Marcial T. Balgos, in his letter[16] dated October

15, 1987 addressed to the Central Bank, expressly referred to petitioner Sicam as
the proprietor of the pawnshop notwithstanding the alleged incorporation in April

1987.

We also find no merit in petitioners' argument that since respondents had alleged in

their Amended Complaint that petitioner corporation is the present owner of the

pawnshop, the CA is bound to decide the case on that basis.

Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or

written, made by a party in the course of the proceedings in the same case, does not

require proof. The admission may be contradicted only by showing that it was

made through palpable mistake or that no such admission was made.

Thus, the general rule that a judicial admission is conclusive upon the party

making it and does not require proof, admits of two exceptions, to wit: (1) when it

is shown that such admission was made through palpable mistake, and (2) when it

is shown that no such admission was in fact made. The latter exception allows

one to contradict an admission by denying that he made such an admission.[17]

The Committee on the Revision of the Rules of Court explained the second

exception in this wise:

 x x x if a party invokes an admission by an adverse party, but cites the admission
out of context, then the one making the admission may show that he made no such
admission, or that his admission was taken out of context.

x x x that the party can also show that he made no such admission, i.e., not in
the sense in which the admission is made to appear.

That is the reason for the modifier such because if the rule simply states that the
admission may be contradicted by showing that no admission was made, the rule
would not really be providing for a contradiction of the admission but just a
denial.[18] (Emphasis supplied).

While it is true that respondents alleged in their Amended Complaint that

petitioner corporation is the present owner of the pawnshop, they did so only

because petitioner Sicamalleged in his Answer to the original complaint filed

against him that he was not the real party-in-interest as the pawnshop was

incorporated in April 1987. Moreover, a reading of the Amended Complaint in its

entirety shows that respondents referred to both petitioner Sicam and petitioner

corporation where they (respondents) pawned their assorted pieces of jewelry and

ascribed to both the failure to observe due diligence commensurate with the

business which resulted in the loss of their pawned jewelry.

Markedly, respondents, in their Opposition to petitioners Motion to Dismiss

Amended Complaint, insofar as petitioner Sicam is concerned, averred as follows:

Roberto C. Sicam was named the defendant in the original complaint because the
pawnshop tickets involved in this case did not show that the
R.C. Sicam Pawnshop was a corporation. In paragraph 1 of his Answer, he
admitted the allegations in paragraph 1 and 2 of the Complaint. He merely added
that defendant is not now the real party in interest in this case.
It was defendant Sicam's omission to correct the pawnshop tickets used in the
subject transactions in this case which was the cause of the instant action. He
cannot now ask for the dismissal of the complaint against him simply on the mere
allegation that his pawnshop business is now incorporated. It is a matter of
defense, the merit of which can only be reached after consideration of the
evidence to be presented in due course.[19]

Unmistakably, the alleged admission made in respondents'

Amended Complaint was taken out of context by petitioner Sicam to suit his own

purpose. Ineluctably, the fact that petitioner Sicam continued to issue pawnshop

receipts under his name and not under the corporation's name militates for the

piercing of the corporate veil.

We likewise find no merit in petitioners' contention that the CA erred in piercing

the veil of corporate fiction of petitioner corporation, as it was not

an issue raised and litigated before the RTC.

Petitioner Sicam had alleged in his Answer filed with the trial court that he was not

the real party-in-interest because since April 20, 1987, the pawnshop business
initiated by him was incorporated and known as Agencia de R.C. Sicam. In the pre-

trial brief filed by petitioner Sicam, he submitted that as far as he was concerned,

the basic issue was whether he is the real party in interest against whom the

complaint should be directed.[20] In fact, he subsequently moved for the dismissal

of the complaint as to him but was not favorably acted upon by the trial court.

Moreover, the issue was squarely passed upon, although erroneously, by the trial

court in its Decision in this manner:

x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is
concerned for the reason that he cannot be made personally liable for a claim
arising from a corporate transaction.

This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The
amended complaint itself asserts that plaintiff pawned assorted jewelries in
defendant's pawnshop. It has been held that as a consequence of the separate
juridical personality of a corporation, the corporate debt or credit is not the debt
or credit of the stockholder, nor is the stockholder's debt or credit that of a
corporation.[21]

Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether

petitioner Sicam is personally liable is inextricably connected with the

determination of the question whether the doctrine of piercing the corporate veil

should or should not apply to the case.

The next question is whether petitioners are liable for the loss of the pawned

articles in their possession.

Petitioners insist that they are not liable since robbery is a fortuitous event and they

are not negligent at all.

We are not persuaded.

Article 1174 of the Civil Code provides:

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could
not be foreseen or which, though foreseen, were inevitable.

Fortuitous events by definition are extraordinary events not foreseeable or

avoidable. It is therefore, not enough that the event should not have been foreseen

or anticipated, as is commonly believed but it must be one impossible to foresee or

to avoid. The mere difficulty to foresee the happening is not impossibility to

foresee the same. [22]

To constitute a fortuitous event, the following elements must concur: (a) the cause

of the unforeseen and unexpected occurrence or of the failure of the debtor to

comply with obligations must be independent of human will; (b) it must be

impossible to foresee the event that constitutes the caso fortuito or, if it can be

foreseen, it must be impossible to avoid; (c) the occurrence must be such as to

render it impossible for the debtor to fulfill obligations in a normal manner; and,

(d) the obligor must be free from any participation in the aggravation of the injury

or loss. [23]

The burden of proving that the loss was due to a fortuitous event rests on him who

invokes it.[24] And, in order for a fortuitous event to exempt one from liability, it is

necessary that one has committed no negligence or misconduct that may have

occasioned the loss. [25]

It has been held that an act of God cannot be invoked to protect a person who has

failed to take steps to forestall the possible adverse consequences of such a loss.

One's negligence may have concurred with an act of God in producing damage and

injury to another; nonetheless, showing that the immediate or proximate cause of

the damage or injury was a fortuitous event would not exempt one from liability.

When the effect is found to be partly the result of a person's participation --

whether by active intervention, neglect or failure to act -- the whole occurrence is

humanized and removed from the rules applicable to acts of God. [26]

Petitioner Sicam had testified that there was a security guard in their pawnshop at

the time of the robbery. He likewise testified that when he started the pawnshop

business in 1983, he thought of opening a vault with the nearby bank for the

purpose of safekeeping the valuables but was discouraged by the Central Bank

since pawned articles should only be stored in a vault inside the pawnshop. The

very measures which petitioners had allegedly adopted show that to them the

possibility of robbery was not only foreseeable, but actually foreseen and

anticipated. Petitioner Sicams testimony, in effect, contradicts petitioners defense

of fortuitous event.

Moreover, petitioners failed to show that they were free from any negligence by

which the loss of the pawned jewelry may have been occasioned.

Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose

the possibility of negligence on the part of herein petitioners. In Co v. Court of

Appeals,[27]the Court held:

 It is not a defense for a repair shop of motor vehicles to escape liability
simply because the damage or loss of a thing lawfully placed in its possession
was due to carnapping. Carnapping per se cannot be considered as a fortuitous
event. The fact that a thing was unlawfully and forcefully taken from
another's rightful possession, as in cases of carnapping, does not
automatically give rise to a fortuitous event. To be considered as
such, carnapping entails more than the mere forceful taking of another's
property. It must be proved and established that the event was an act of
God or was done solely by third parties and that neither the claimant nor
the person alleged to be negligent has any participation. In accordance with
the Rules of Evidence, the burden of proving that the loss was due to a
fortuitous event rests on him who invokes it which in this case is the private
respondent.However, other than the police report of the
alleged carnapping incident, no other evidence was presented by private
respondent to the effect that the incident was not due to its fault. A police report
of an alleged crime, to which only private respondent is privy, does not suffice to
establish the carnapping. Neither does it prove that there was no fault on the part
of private respondent notwithstanding the parties' agreement at the pre-trial that
the car was carnapped. Carnapping does not foreclose the possibility of fault or
negligence on the part of private respondent.[28]

Just like in Co, petitioners merely presented the police report of

the Paraaque Police Station on the robbery committed based on the

report of petitioners' employees which is not sufficient to establish robbery. Such

report also does not prove that petitioners were not at fault.

On the contrary, by the very evidence of petitioners, the CA did not err in finding

that petitioners are guilty of concurrent or contributory negligence as provided in

Article 1170 of the Civil Code, to wit:

Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof,
are liable for damages.[29]
Article 2123 of the Civil Code provides that with regard to pawnshops and other

establishments which are engaged in making loans secured by pledges, the special

laws and regulations concerning them shall be observed, and subsidiarily, the

provisions on pledge, mortgage and antichresis.

The provision on pledge, particularly Article 2099 of the Civil Code, provides that

the creditor shall take care of the thing pledged with the diligence of a good father

of a family. This means that petitioners must take care of the pawns the way a

prudent person would as to his own property.

In this connection, Article 1173 of the Civil Code further provides:

Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with
the circumstances of the persons, of time and of the place. When negligence
shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall
apply.

If the law or contract does not state the diligence which is to be observed
in the performance, that which is expected of a good father of a family shall be
required.

We expounded in Cruz v. Gangan[30] that negligence is the omission to do

something which a reasonable man, guided by those considerations which

ordinarily regulate the conduct of human affairs, would do; or the doing of

something which a prudent and reasonable man would not do.[31] It is want of care

required by the circumstances.

A review of the records clearly shows that petitioners failed to exercise reasonable

care and caution that an ordinarily prudent person would have used in the same

situation. Petitioners were guilty of negligence in the operation of their pawnshop

business. Petitioner Sicam testified, thus:

Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.

Q. Then how come that the robbers were able to enter the premises when according
to you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.

Q. I am asking you how were the robbers able to enter despite the fact that there
was a security guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the
afternoon and it happened on a Saturday and everything was quiet in the
area BF Homes Paraaque they pretended to pawn an article in the pawnshop, so
one of my employees allowed him to come in and it was only when it was
announced that it was a hold up.

Q. Did you come to know how the vault was opened?

A. When the pawnshop is official (sic) open your honor the pawnshop is partly
open. The combination is off.

Q. No one open (sic) the vault for the robbers?

A. No one your honor it was open at the time of the robbery.
 Q. It is clear now that at the time of the robbery the vault was open the reason why
the robbers were able to get all the items pawned to you inside the vault.
A. Yes sir.[32]

revealing that there were no security measures adopted by petitioners in the

operation of the pawnshop. Evidently, no sufficient precaution and vigilance were

adopted by petitioners to protect the pawnshop from unlawful intrusion. There was

no clear showing that there was any security guard at all. Or if there was one, that

he had sufficient training in securing a pawnshop. Further, there is no showing that

the alleged security guard exercised all that was necessary to prevent any untoward

incident or to ensure that no suspicious individuals were allowed to enter the

premises. In fact, it is even doubtful that there was a security guard, since it is quite

impossible that he would not have noticed that the robbers were armed with caliber

.45 pistols each, which were allegedly poked at the employees.[33] Significantly, the

alleged security guard was not presented at all to corroborate

petitioner Sicam's claim; not one of petitioners' employees who were present

during the robbery incident testified in court.

Furthermore, petitioner Sicam's admission that the vault was open at the time of

robbery is clearly a proof of petitioners' failure to observe the care, precaution and

vigilance that the circumstances justly demanded. Petitioner Sicam testified that

once the pawnshop was open, the combination was already off. Considering

petitioner Sicam's testimony that the robbery took place on a Saturday afternoon

and the area in BF Homes Paraaque at that time was quiet, there was more reason

for petitioners to have exercised reasonable foresight and diligence in protecting

the pawned jewelries. Instead of taking the precaution to protect them, they let

open the vault, providing no difficulty for the robbers to cart away the pawned

articles.

We, however, do not agree with the CA when it found petitioners negligent for not

taking steps to insure themselves against loss of the pawned jewelries.

Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for

Pawnshops, which took effect on July 13, 1973, and which was issued pursuant to

Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns

pledged must be insured, to wit:

Sec. 17. Insurance of Office Building and Pawns- The place of business of a
pawnshop and the pawns pledged to it must be insured against fire and against
 burglary as well as for the latter(sic), by an insurance company accredited by the
Insurance Commissioner.

However, this Section was subsequently amended by CB Circular No. 764 which

took effect on October 1, 1980, to wit:

Sec. 17 Insurance of Office Building and Pawns The office building/premises and
pawns of a pawnshop must be insured against fire. (emphasis supplied).

where the requirement that insurance against burglary was deleted. Obviously, the

Central Bank considered it not feasible to require insurance of pawned articles

against burglary.

The robbery in the pawnshop happened in 1987, and considering the above-quoted

amendment, there is no statutory duty imposed on petitioners to insure the pawned

jewelry in which case it was error for the CA to consider it as a factor in

concluding that petitioners were negligent.

Nevertheless, the preponderance of evidence shows that petitioners failed to

exercise the diligence required of them under the Civil Code.

The diligence with which the law requires the individual at all times to govern his

conduct varies with the nature of the situation in which he is placed and the

importance of the act which he is to perform.[34] Thus, the cases of Austria v. Court
of Appeals,[35] Hernandez v. Chairman, Commission on Audit [36] and Cruz

v. Gangan[37] cited by petitioners in their pleadings, where the victims of robbery

were exonerated from liability, find no application to the present case.

In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds

to be sold on commission basis, but which Abad failed to subsequently return

because of a robbery committed upon her in 1961. The incident became the subject

of a criminal case filed against several persons. Austria filed an action

against Abad and her husband (Abads) for recovery of the pendant or its value, but

the Abads set up the defense that the robbery extinguished their obligation. The

RTC ruled in favor of Austria, as the Abadsfailed to prove robbery; or, if

committed, that Maria Abad was guilty of negligence. The CA, however, reversed

the RTC decision holding that the fact of robbery was duly established and

declared the Abads not responsible for the loss of the jewelry on account of a

fortuitous event. We held that for the Abads to be relieved from the civil liability

of returning the pendant under Art. 1174 of the Civil Code, it would only be

sufficient that the unforeseen event, the robbery, took place without any concurrent

fault on the debtors part, and this can be done by preponderance of evidence; that
to be free from liability for reason of fortuitous event, the debtor must, in addition

to the casus itself, be free of any concurrent or contributory fault or negligence.[38]

We found in Austria that under the circumstances prevailing at the time the

Decision was promulgated in 1971, the City of Manila and its suburbs had a high

incidence of crimes against persons and property that rendered travel after nightfall

a matter to be sedulously avoided without suitable precaution and protection; that

the conduct of Maria Abad in returning alone to her house in the evening carrying

jewelry of considerable value would have been negligence per se and would not

exempt her from responsibility in the case of robbery. However we did not

hold Abad liable for negligence since, the robbery happened ten years previously;

i.e., 1961, when criminality had not reached the level of incidence obtaining in

1971.

In contrast, the robbery in this case took place in 1987 when robbery was already

prevalent and petitioners in fact had already foreseen it as they wanted to deposit

the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where

no negligence was committed, we found petitioners negligent in securing their

pawnshop as earlier discussed.

In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of

the Ternate Beach Project of the Philippine Tourism in Cavite. In the morning

of July 1, 1983, a Friday, he went to Manila to encash two checks covering the

wages of the employees and the operating expenses of the project. However for

some reason, the processing of the check was delayed and was completed at

about 3 p.m. Nevertheless, he decided to encash the check because the project

employees would be waiting for their pay the following day; otherwise, the

workers would have to wait until July 5, the earliest time, when the main office

would open. At that time, he had two choices: (1) return to Ternate, Cavite that

same afternoon and arrive early evening; or (2) take the money with him to his

house in Marilao, Bulacan, spend the night there, and leave for Ternate the

following day. He chose the second option, thinking it was the safer one. Thus, a

little past 3 p.m., he took a passenger jeep bound for Bulacan. While the jeep was

on Epifanio de los Santos Avenue, the jeep was held up and the money kept by

Hernandez was taken, and the robbers jumped out of the jeep and ran. Hernandez

chased the robbers and caught up with one robber who was subsequently charged

with robbery and pleaded guilty. The other robber who held the stolen money

escaped. The Commission on Audit found Hernandez negligent because he had not

brought the cash proceeds of the checks to his office in Ternate, Cavite for
safekeeping, which is the normal procedure in the handling of funds. We held that

Hernandez was not negligent in deciding to encash the check and bringing it home

to Marilao, Bulacan instead of Ternate, Cavite due to the lateness of the hour for

the following reasons: (1) he was moved by unselfish motive for his co-employees

to collect their wages and salaries the following day, a Saturday, a non-working,

because to encashthe check on July 5, the next working day after July 1, would

have caused discomfort to laborers who were dependent on their wages for

sustenance; and (2) that choosing Marilao as a safer destination, being nearer, and

in view of the comparative hazards in the trips to the two places, said decision

seemed logical at that time. We further held that the fact that two robbers attacked

him in broad daylight in the jeep while it was on a busy highway and in the

presence of other passengers could not be said to be a result of his imprudence and

negligence.

Unlike in Hernandez where the robbery happened in a public utility, the robbery in

this case took place in the pawnshop which is under the control of petitioners.

Petitioners had the means to screen the persons who were allowed entrance to the

premises and to protect itself from unlawful intrusion. Petitioners had failed to

exercise precautionary measures in ensuring that the robbers were prevented from
entering the pawnshop and for keeping the vault open for the day, which paved the

way for the robbers to easily cart away the pawned articles.

In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological

Education and Skills Development Authority (TESDA), boarded the Light Rail

Transit (LRT) fromSen. Puyat Avenue to Monumento when her handbag was

slashed and the contents were stolen by an unidentified person. Among those

stolen were her wallet and the government-issued cellular phone. She then reported

the incident to the police authorities; however, the thief was not located, and

the cellphone was not recovered. She also reported the loss to the Regional

Director of TESDA, and she requested that she be freed from accountability for

the cellphone. The Resident Auditor denied her request on the ground that she

lacked the diligence required in the custody of government property and was

ordered to pay the purchase value in the total amount of P4,238.00. The COA

found no sufficient justification to grant the request for relief from accountability.

We reversed the ruling and found that riding the LRT cannot per se be denounced

as a negligent act more so because Cruzs mode of transit was influenced by time

and money considerations; that she boarded the LRT to be able to arrive

in Caloocan in time for her 3 pm meeting; that any prudent and rational person
under similar circumstance can reasonably be expected to do the same; that

possession of a cellphone should not hinder one from boarding the LRT coach as

Cruz did considering that whether she rode a jeep or bus, the risk of theft would

have also been present; that because of her relatively low position and pay, she was

not expected to have her own vehicle or to ride a taxicab; she did not have a

government assigned vehicle; that placing the cellphone in a bag away from

covetous eyes and holding on to that bag as she did is ordinarily sufficient care of

a cellphone while traveling on board the LRT; that the records did not show any

specific act of negligence on her part and negligence can never be presumed.

Unlike in the Cruz case, the robbery in this case happened in petitioners'

pawnshop and they were negligent in not exercising the precautions justly

demanded of a pawnshop.

WHEREFORE, except for the insurance aspect, the Decision of the Court

of Appeals dated March 31, 2003 and its Resolution dated August 8, 2003,

are AFFIRMED.
Costs against petitioners.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MINITA V. CHICO-NAZARIO ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
 CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons attestation, it is hereby certified that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

[1]
CA rollo, pp. 63-73; Penned by Justice Bernardo P. Abesamis (ret.) and concurred in by Justices Sergio
L. Pestao and Noel G. Tijam.
[2]
Id. at p. 114.
[3]
Id. at 121; Exhibit 1.
[4]
Id. at 107-108; Exhibit I.
[5]
Id. at 63-65; Per Judge Salvador P. de Guzman, Jr.
[6]
Id. at 146-147; Penned by Judge Roberto C. Diokno of Branch 62 as the case was unloaded to him.
[7]
148-A Phil. 462 (1971).
[8]
CA rollo, p. 72.
[9]
Rollo, pp. 5-6.
[10]
Rollo, p. 7.
[11]
Nuez v. National Labor Relations Commission, G.R. No. 107574, December 28, 1994, 239 SCRA 518, 526.
[12]
Litonjua v. Fernandez, G.R. No. 148116, April 14, 2004, 427 SCRA 478, 489 citing Roble v. Arbasa, 414 Phil.
343 (2001).
[13]
Fuentes v. Court of Appeals, 335 Phil. 1163, 1168 (1997).
[14]
See Jacinto v. Court of Appeals, G.R. No. 80043, June 6, 1991, 198 SCRA 211, 216.
[15]
See Sibagat Timber Corporation v. Garcia, G.R. No. 98185, December 11, 1992, 216 SCRA 470, 474.
[16]
Id. at 124-125; Exhibit 4.
[17]
Atillo III v. Court of Appeals, 334 Phil. 546, 552 (1997).
[18]
Minutes of the meeting held on October 22, 1986, p. 9.
[19]
Records, p. 67.
[20]
Id. at 38.
[21]
Id. at 147.
[22]
Republic v. Luzon Stevedoring Corporation, 128 Phil. 313, 318 (1967).
[23]
Mindex Resources Development Corporation v. Morillo, 428 Phil. 934, 944 (2002).
[24]
Co v. Court of Appeals, 353 Phil. 305, 313 (1998).
[25]
Mindex Resources Development Corporation v. Morillo, supra citing Tolentino, CIVIL CODE OF THE
PHILIPPINES, Vol. IV, 1991 ed., p. 126, citing Sian v. Inchausti & Co., 22 Phil. 152 (1912); Juan
F. Nakpil & Sons v. Court of Appeals, 228 Phil. 564, 578 (1986). Cf. Metal Forming Corporation v. Office
of the President, 317 Phil. 853, 859 (1995).
[26]
Id. citing Nakpil and Sons v. Court of Appeals, supra note 25, at 578.
[27]
Supra note 24.
[28]
Id. at 312-313.
[29]
CIVIL CODE, Art. 1170.

[30]
443 Phil. 856, 863 (2003) citing McKee v. Intermediate Appellate Court, 211 SCRA 517 (1992).
[31]
Cruz v. Gangan, supra note 30, at 863.
[32]
TSN, January 21, 1992, pp.17-18.
[33]
Exhibit 1, Excerpt from the Police Blotter dated October 17, 1987 of the Paraaque Police Station, p. 121.
[34]
Cruz v. Gangan, supra note 30, at 863 citing SANGCO, TORTS AND DAMAGES, Vol. 1, 1993 rev. ed. p. 5.
[35]
Supra note 7.
[36]
G.R. No. 71871, November 6, 1989, 179 SCRA 39.
[37]
Supra note 30.
[38]
Austria v. Court of Appeals, supra note 7, at 466-467.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-47379 May 16, 1988
NATIONAL POWER CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS and
ENGINEERING CONSTRUCTION,
INC., respondents.
G.R. No. L-47481 May 16, 1988
ENGINEERING CONSTRUCTION, INC., petitioner,
vs.
COUTRT OF APPEALS and NATIONAL POWER
CORPORATION, respondents.
Raymundo A. Armovit for private respondent in L-
47379.
The Solicitor General for petitioner.

GUTIERREZ, JR., J.:

These consolidated petitions seek to set aside the decision of the respondent Court of Appeals which adjudged the National Power
Corporation liable for damages against Engineering Construction, Inc. The appellate court, however, reduced the amount of damages
awarded by the trial court. Hence, both parties filed their respective petitions: the National Power Corporation (NPC) in G.R. No. 47379,
questioning the decision of the Court of Appeals for holding it liable for damages and the Engineering Construction, Inc. (ECI) in G.R. No.
47481, questioning the same decision for reducing the consequential damages and attorney's fees and for eliminating the exemplary
damages.
The facts are succinctly summarized by the
respondent Court of Appeals, as follows:
On August 4, 1964, plaintiff Engineering
Construction, Inc., being a successful bidder,
executed a contract in Manila with the
National Waterworks and Sewerage Authority
(NAWASA), whereby the former undertook to
furnish all tools, labor, equipment, and
materials (not furnished by Owner), and to
construct the proposed 2nd lpo-Bicti Tunnel,
Intake and Outlet Structures, and
Appurtenant Structures, and Appurtenant
Features, at Norzagaray, Bulacan, and to
complete said works within eight hundred
(800) calendar days from the date the
Contractor receives the formal notice to
proceed (Exh. A).
The project involved two (2) major phases:
the first phase comprising, the tunnel work
covering a distance of seven (7) kilometers,
passing through the mountain, from the Ipo
river, a part of Norzagaray, Bulacan, where
the Ipo Dam of the defendant National Power
Corporation is located, to Bicti; the other
phase consisting of the outworks at both ends
of the tunnel.
 By September 1967, the plaintiff corporation
already had completed the first major phase
of the work, namely, the tunnel excavation
work. Some portions of the outworks at the
Bicti site were still under construction. As
soon as the plaintiff corporation had finished
the tunnel excavation work at the Bicti site, all
the equipment no longer needed there were
transferred to the Ipo site where some
projects were yet to be completed.
The record shows that on November 4,1967,
typhoon 'Welming' hit Central Luzon, passing
through defendant's Angat Hydro-electric
Project and Dam at lpo, Norzagaray,
Bulacan. Strong winds struck the project
area, and heavy rains intermittently fell. Due
to the heavy downpour, the water in the
reservoir of the Angat Dam was rising
perilously at the rate of sixty (60) centimeters
per hour. To prevent an overflow of water
from the dam, since the water level had
reached the danger height of 212 meters
above sea level, the defendant corporation
caused the opening of the spillway gates."
(pp. 45-46, L-47379, Rollo)
The appellate court sustained the findings of the trial
court that the evidence preponlderantly established
the fact that due to the negligent manner with which
the spillway gates of the Angat Dam were opened, an
extraordinary large volume of water rushed out of the
gates, and hit the installations and construction works
of ECI at the lpo site with terrific impact, as a result of
which the latter's stockpile of materials and supplies,
camp facilities and permanent structures and
accessories either washed away, lost or destroyed.
The appellate court further found that:
It cannot be pretended that there was no
negligence or that the appellant exercised
extraordinary care in the opening of the
spillway gates of the Angat Dam. Maintainers
of the dam knew very well that it was far more
safe to open them gradually. But the spillway
gates were opened only when typhoon
Welming was already at its height, in a vain
effort to race against time and prevent the
overflow of water from the dam as it 'was
rising dangerously at the rate of sixty
centimeters per hour. 'Action could have
been taken as early as November 3, 1967,
when the water in the reservoir was still low.
At that time, the gates of the dam could have
been opened in a regulated manner. Let it be
stressed that the appellant knew of the
coming of the typhoon four days before it
 actually hit the project area. (p. 53, L-47379,
Rollo)
As to the award of damages, the appellate court held:
We come now to the award of damages. The
appellee submitted a list of estimated losses
and damages to the tunnel project (Ipo side)
caused by the instant flooding of the Angat
River (Exh. J-1). The damages were itemized
in four categories, to wit: Camp Facilities
P55,700.00; Equipment, Parts and Plant —
P375,659.51; Materials P107,175.80; and
Permanent Structures and accessories —
P137,250.00, with an aggregate total amount
of P675,785.31. The list is supported by
several vouchers which were all submitted as
Exhibits K to M-38 a, N to O, P to U-2 and V
to X- 60-a (Vide: Folders Nos. 1 to 4). The
appellant did not submit proofs to traverse the
aforementioned documentary evidence. We
hold that the lower court did not commit any
error in awarding P 675,785.31 as actual or
compensatory damages.
However, We cannot sustain the award of
P333,200.00 as consequential damages. This
amount is broken down as follows:
P213,200.00 as and for the rentals of a crane
to temporarily replace the one "destroyed
beyond repair," and P120,000.00 as one
month bonus which the appellee failed to
realize in accordance with the contract which
the appellee had with NAWASA. Said rental
of the crane allegedly covered the period of
one year at the rate of P40.00 an hour for 16
hours a day. The evidence, however, shows
that the appellee bought a crane also a
crawler type, on November 10, 1967, six (6)
days after the incident in question (Exh N)
And according to the lower court, which
finding was never assailed, the appellee
resumed its normal construction work on the
Ipo- Bicti Project after a stoppage of only one
month. There is no evidence when the
appellee received the crane from the seller,
Asian Enterprise Limited. But there was an
agreement that the shipment of the goods
would be effected within 60 days from the
opening of the letter of credit (Exh. N). It
<äre||anº•1àw>

appearing that the contract of sale was

consummated, We must conclude or at least
assume that the crane was delivered to the
appellee within 60 days as stipulated. The
appellee then could have availed of the
services of another crane for a period of only
one month (after a work stoppage of one
month) at the rate of P 40.00 an hour for 16
 hours a day or a total of P 19,200.00 as
rental.
But the value of the new crane cannot be
included as part of actual damages because
the old was reactivated after it was repaired.
The cost of the repair was P 77,000.00 as
shown in item No. 1 under the Equipment,
Parts and Plants category (Exh. J-1), which
amount of repair was already included in the
actual or compensatory damages. (pp. 54-56,
L-47379, Rollo)
The appellate court likewise rejected the award of
unrealized bonus from NAWASA in the amount of
P120,000.00 (computed at P4,000.00 a day in case
construction is finished before the specified time, i.e.,
within 800 calendar days), considering that the
incident occurred after more than three (3) years or
one thousand one hundred seventy (1,170) days. The
court also eliminated the award of exemplary
damages as there was no gross negligence on the
part of NPC and reduced the amount of attorney's
fees from P50,000.00 to P30,000.00.
In these consolidated petitions, NPC assails the
appellate court's decision as being erroneous on the
ground that the destruction and loss of the ECI's
equipment and facilities were due to force majeure. It
argues that the rapid rise of the water level in the
reservoir of its Angat Dam due to heavy rains brought
about by the typhoon was an extraordinary
occurrence that could not have been foreseen, and
thus, the subsequent release of water through the
spillway gates and its resultant effect, if any, on ECI's
equipment and facilities may rightly be attributed to
force majeure.
On the other hand, ECI assails the reduction of the
consequential damages from P333,200.00 to
P19,000.00 on the grounds that the appellate court
had no basis in concluding that ECI acquired a new
Crawler-type crane and therefore, it only can claim
rentals for the temporary use of the leased crane for a
period of one month; and that the award of P4,000.00
a day or P120,000.00 a month bonus is justified since
the period limitation on ECI's contract with NAWASA
had dual effects, i.e., bonus for earlier completion and
liquidated damages for delayed performance; and in
either case at the rate of P4,000.00 daily. Thus, since
NPC's negligence compelled work stoppage for a
period of one month, the said award of P120,000.00
is justified. ECI further assailes the reduction of
attorney's fees and the total elimination of exemplary
damages.
Both petitions are without merit.
It is clear from the appellate court's decision that
based on its findings of fact and that of the trial
court's, petitioner NPC was undoubtedly negligent
because it opened the spillway gates of the Angat
Dam only at the height of typhoon "Welming" when it
knew very well that it was safer to have opened the
same gradually and earlier, as it was also undeniable
that NPC knew of the coming typhoon at least four
days before it actually struck. And even though the
typhoon was an act of God or what we may call force
majeure, NPC cannot escape liability because its
negligence was the proximate cause of the loss and
damage. As we have ruled in Juan F. Nakpil & Sons
v. Court of Appeals, (144 SCRA 596, 606-607):
Thus, if upon the happening of a fortuitous
event or an act of God, there concurs a
corresponding fraud, negligence, delay or
violation or contravention in any manner of
the tenor of the obligation as provided for in
Article 1170 of the Civil Code, which results in
loss or damage, the obligor cannot escape
liability.
The principle embodied in the act of God
doctrine strictly requires that the act must be
one occasioned exclusively by the violence of
nature and human agencies are to be
excluded from creating or entering into the
cause of the mischief. When the effect, the
cause of which is to be considered, is found
 to be in part the result of the participation of
man, whether it be from active intervention or
neglect, or failure to act, the whole
occurrence is thereby humanized, as it was,
and removed from the rules applicable to the
acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus, it has been held that when the
negligence of a person concurs with an act of
God in producing a loss, such person is not
exempt from liability by showing that the
immediate cause of the damage was the act
of God. To be exempt from liability for loss
because of an act of God, he must be free
from any previous negligence or misconduct
by which the loss or damage may have been
occasioned. (Fish & Elective Co. v. Phil.
Motors, 55 Phil. 129; Tucker v. Milan 49 O.G.
4379; Limpangco & Sons v. Yangco
Steamship Co., 34 Phil. 594, 604; Lasam v.
Smith, 45 Phil. 657).
Furthermore, the question of whether or not there was
negligence on the part of NPC is a question of fact
which properly falls within the jurisdiction of the Court
of Appeals and will not be disturbed by this Court
unless the same is clearly unfounded. Thus,
in Tolentino v. Court of appeals, (150 SCRA 26, 36)
we ruled:
 Moreover, the findings of fact of the Court of
Appeals are generally final and conclusive
upon the Supreme Court (Leonardo v. Court
of Appeals, 120 SCRA 890 [1983]. In fact it is
settled that the Supreme Court is not
supposed to weigh evidence but only to
determine its substantially (Nuñez v.
Sandiganbayan, 100 SCRA 433 [1982] and
will generally not disturb said findings of fact
when supported by substantial evidence
(Aytona v. Court of Appeals, 113 SCRA 575
[1985]; Collector of Customs of Manila v.
Intermediate Appellate Court, 137 SCRA 3
[1985]. On the other hand substantial
evidence is defined as such relevant
evidence as a reasonable mind might accept
as adequate to support a conclusion
(Philippine Metal Products, Inc. v. Court of
Industrial Relations, 90 SCRA 135 [1979];
Police Commission v. Lood, 127 SCRA 757
[1984]; Canete v. WCC, 136 SCRA 302
[1985])
Therefore, the respondent Court of Appeals did not
err in holding the NPC liable for damages.
Likewise, it did not err in reducing the consequential
damages from P333,200.00 to P19,000.00. As shown
by the records, while there was no categorical
statement or admission on the part of ECI that it
bought a new crane to replace the damaged one, a
sales contract was presented to the effect that the
new crane would be delivered to it by Asian
Enterprises within 60 days from the opening of the
letter of credit at the cost of P106,336.75. The offer
was made by Asian Enterprises a few days after the
flood. As compared to the amount of P106,336.75 for
a brand new crane and paying the alleged amount of
P4,000.00 a day as rental for the use of a temporary
crane, which use petitioner ECI alleged to have lasted
for a period of one year, thus, totalling P120,000.00,
plus the fact that there was already a sales contract
between it and Asian Enterprises, there is no reason
why ECI should opt to rent a temporary crane for a
period of one year. The appellate court also found
that the damaged crane was subsequently repaired
and reactivated and the cost of repair was
P77,000.00. Therefore, it included the said amount in
the award of of compensatory damages, but not the
value of the new crane. We do not find anything
erroneous in the decision of the appellate court that
the consequential damages should represent only the
service of the temporary crane for one month. A
contrary ruling would result in the unjust enrichment of
ECI.
The P120,000.00 bonus was also properly eliminated
as the same was granted by the trial court on the
premise that it represented ECI's lost opportunity "to
earn the one month bonus from NAWASA ... ." As
stated earlier, the loss or damage to ECI's equipment
and facilities occurred long after the stipulated
deadline to finish the construction. No bonus,
therefore, could have been possibly earned by ECI at
that point in time. The supposed liquidated damages
for failure to finish the project within the stipulated
period or the opposite of the claim for bonus is not
clearly presented in the records of these petitions. It is
not shown that NAWASA imposed them.
As to the question of exemplary damages, we sustain
the appellate court in eliminating the same since it
found that there was no bad faith on the part of NPC
and that neither can the latter's negligence be
considered gross. In Dee Hua Liong
Electrical Equipment Corp. v. Reyes, (145 SCRA 713,
719) we ruled:
Neither may private respondent recover
exemplary damages since he is not entitled to
moral or compensatory damages, and again
because the petitioner is not shown to have
acted in a wanton, fraudulent, reckless or
oppressive manner (Art. 2234, Civil Code;
Yutuk v. Manila Electric Co., 2 SCRA 377;
Francisco v. Government Service Insurance
System, 7 SCRA 577; Gutierrez v. Villegas, 8
 SCRA 527; Air France v. Carrascoso, 18
SCRA 155; Pan Pacific (Phil.) v. Phil.
Advertising Corp., 23 SCRA 977; Marchan v.
Mendoza, 24 SCRA 888).
We also affirm the reduction of attorney's fees from
P50,000.00 to P30,000.00. There are no compelling
reasons why we should set aside the appellate court's
finding that the latter amount suffices for the services
rendered by ECI's counsel.
WHEREFORE, the petitions in G.R. No. 47379 and
G.R. No. 47481 are both DISMISSED for LACK OF
MERIT. The decision appealed from is AFFIRMED.
SO ORDERED.
Fernan (Chairman), Feliciano, Bidin and Cortes, JJ.,
concur.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-44748 August 29, 1986

RADIO COMMUNICATIONS OF THE PHILS., INC. (RCPI). petitioner,

vs.
COURT OF APPEALS and LORETO DIONELA, respondents.

O. Pythogoras Oliver for respondents.

PARAS, J.:

Before Us, is a Petition for Review by certiorari of the decision of the

Court of Appeals, modifying the decision of the trial court in a civil case
for recovery of damages against petitioner corporation by reducing the
award to private respondent Loreto Dionela of moral damages from
P40,000 to Pl5,000, and attorney's fees from P3,000 to P2,000.

The basis of the complaint against the defendant corporation is a

telegram sent through its Manila Office to the offended party, Loreto
Dionela, reading as follows:

176 AS JR 1215PM 9 PAID MANDALUYONG JUL 22-66

LORETO DIONELA CABANGAN LEGASPI CITY

WIRE ARRIVAL OF CHECK FER

LORETO DIONELA-CABANGAN-WIRE ARRIVAL OF

CHECK-PER

115 PM

SA IYO WALANG PAKINABANG DUMATING KA DIYAN-

WALA-KANG PADALA DITO KAHIT BULBUL MO
 (p. 19, Annex "A")

Plaintiff-respondent Loreto Dionela alleges that the defamatory words on

the telegram sent to him not only wounded his feelings but also caused
him undue embarrassment and affected adversely his business as well
because other people have come to know of said defamatory words.
Defendant corporation as a defense, alleges that the additional words in
Tagalog was a private joke between the sending and receiving operators
and that they were not addressed to or intended for plaintiff and
therefore did not form part of the telegram and that the Tagalog words
are not defamatory. The telegram sent through its facilities was received
in its station at Legaspi City. Nobody other than the operator manned the
teletype machine which automatically receives telegrams being
transmitted. The said telegram was detached from the machine and
placed inside a sealed envelope and delivered to plaintiff, obviously as
is. The additional words in Tagalog were never noticed and were
included in the telegram when delivered.

The trial court in finding for the plaintiff ruled as follows:

There is no question that the additional words in Tagalog are

libelous. They clearly impute a vice or defect of the plaintiff.
Whether or not they were intended for the plaintiff, the effect
on the plaintiff is the same. Any person reading the additional
words in Tagalog will naturally think that they refer to the
addressee, the plaintiff. There is no indication from the face
of the telegram that the additional words in Tagalog were
sent as a private joke between the operators of the
defendant.

The defendant is sued directly not as an employer. The

business of the defendant is to transmit telegrams. It will
open the door to frauds and allow the defendant to act with
impunity if it can escape liability by the simple expedient of
showing that its employees acted beyond the scope of their
assigned tasks.
 The liability of the defendant is predicated not only on Article
33 of the Civil Code of the Philippines but on the following
articles of said Code:

ART. 19.- Every person must, in the exercise of his rights and
in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.

ART. 20.-Every person who, contrary to law, wilfully or

negligently causes damage to another, shall indemnify the
latter for the same.

There is sufficient publication of the libelous Tagalog words.

The office file of the defendant containing copies of telegrams
received are open and held together only by a metal fastener.
Moreover, they are open to view and inspection by third
parties.

It follows that the plaintiff is entitled to damages and

attorney's fees. The plaintiff is a businessman. The libelous
Tagalog words must have affected his business and social
standing in the community. The Court fixes the amount of
P40,000.00 as the reasonable amount of moral damages and
the amount of P3,000.00 as attorney's fee which the
defendant should pay the plaintiff. (pp. 15-16, Record on
Appeal)

The respondent appellate court in its assailed decision confirming the

aforegoing findings of the lower court stated:

The proximate cause, therefore, resulting in injury to

appellee, was the failure of the appellant to take the
necessary or precautionary steps to avoid the occurrence of
the humiliating incident now complained of. The company
had not imposed any safeguard against such eventualities
and this void in its operating procedure does not speak well
of its concern for their clientele's interests. Negligence here is
very patent. This negligence is imputable to appellant and not
to its employees.
 The claim that there was no publication of the libelous words
in Tagalog is also without merit. The fact that a carbon copy
of the telegram was filed among other telegrams and left to
hang for the public to see, open for inspection by a third party
is sufficient publication. It would have been otherwise
perhaps had the telegram been placed and kept in a secured
place where no one may have had a chance to read it without
appellee's permission.

The additional Tagalog words at the bottom of the telegram

are, as correctly found by the lower court, libelous per se, and
from which malice may be presumed in the absence of any
showing of good intention and justifiable motive on the part of
the appellant. The law implies damages in this instance
(Quemel vs. Court of Appeals, L-22794, January 16, 1968; 22
SCRA 44). The award of P40,000.00 as moral damages is
hereby reduced to P15,000.00 and for attorney's fees the
amount of P2,000.00 is awarded. (pp. 22-23, record)

After a motion for reconsideration was denied by the appellate court,

petitioner came to Us with the following:

ASSIGNMENT OF ERRORS

The Honorable Court of Appeals erred in holding that

Petitioner-employer should answer directly and primarily for
the civil liability arising from the criminal act of its employee.

II

The Honorable Court of Appeals erred in holding that there

was sufficient publication of the alleged libelous telegram in
question, as contemplated by law on libel.

III

The Honorable Court of Appeals erred in holding that the

liability of petitioner-company-employer is predicated on
 Articles 19 and 20 of the Civil Code, Articles on Human
Relations.

IV

The Honorable Court of Appeals erred in awarding Atty's.

fees. (p. 4, Record)

Petitioner's contentions do not merit our consideration. The action for

damages was filed in the lower court directly against respondent
corporation not as an employer subsidiarily liable under the provisions of
Article 1161 of the New Civil Code in relation to Art. 103 of the Revised
Penal Code. The cause of action of the private respondent is based on
Arts. 19 and 20 of the New Civil Code (supra). As well as on
respondent's breach of contract thru the negligence of its own
employees. 1

Petitioner is a domestic corporation engaged in the business of receiving

and transmitting messages. Everytime a person transmits a message
through the facilities of the petitioner, a contract is entered into. Upon
receipt of the rate or fee fixed, the petitioner undertakes to transmit the
message accurately. There is no question that in the case at bar,
libelous matters were included in the message transmitted, without the
consent or knowledge of the sender. There is a clear case of breach of
contract by the petitioner in adding extraneous and libelous matters in
the message sent to the private respondent. As a corporation, the
petitioner can act only through its employees. Hence the acts of its
employees in receiving and transmitting messages are the acts of the
petitioner. To hold that the petitioner is not liable directly for the acts of
its employees in the pursuit of petitioner's business is to deprive the
general public availing of the services of the petitioner of an effective and
adequate remedy. In most cases, negligence must be proved in order
that plaintiff may recover. However, since negligence may be hard to
substantiate in some cases, we may apply the doctrine of RES IPSA
LOQUITUR (the thing speaks for itself), by considering the presence of
facts or circumstances surrounding the injury.

WHEREFORE, premises considered, the judgment of the appellate court

is hereby AFFIRMED.
SO ORDERED.

Feria (Chairman), Fernan, Alampay, and Gutierrez, Jr., JJ., concur.

Footnotes

1 In contracts the negligence of the employee (servant) is the

negligence of the employer (master). This is the master and
servant rule.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. Nos. L-48195 and 48196 May 1, 1942

SOFRONIO T. BAYLA, ET AL., petitioners,

vs.
SILANG TRAFFIC CO., INC., respondent.
SILANG TRAFFIC CO., petitioner, vs. SOFRONIO BAYLA, ET
AL., respondents.

E. A. Beltran for petitioners.

Conrado V. Sanchez, Melchor C. Benitez, and Enrique M. Fernando for
respondent.

OZAETA, J.:

Petitioners in G.R. No. 48195 instituted this action in the Court of First
Instance of Cavite against the respondent Silang Traffic Co., Inc. (cross-
petitioner in G.R. No. 48196), to recover certain sums of money which
they had paid severally to the corporation on account of shares of stock
they individually agreed to take and pay for under certain specified terms
and conditions, of which the following referring to the petitioner Josefa
Naval, is typical:

AGREEMENT FOR INSTALLMENT SALE OF SHARES IN THE

"SILANG TRAFFIC COMPANY, INC.,"

Silang, Cavite, P. I.

THIS AGREEMENT, made and entered into between Mrs. Josefa

Naval, of legal age, married and resident of the Municipality of
Silang, Province of Cavite, Philippine Islands, party of the First
Part, hereinafter called the subscriber, and the "Silang Traffic
Company, Inc.," a corporation duly organized and existing by virtue
of and under the laws of the Philippine Islands, with its principal
office in the Municipality of Silang, Province of Cavite, Philippine
Islands, party of the Second Part, hereinafter called the seller,

WITNESSETH:

That the subscriber promises to pay personally or by his duly

authorized agent to the seller at the Municipality of Silang,
Province of Cavite, Philippine Islands, the sum of one thousand
five hundred pesos (P1,500), Philippine currency, as purchase
price of FIFTEEN (15) shares of capital stock, said purchase price
to be paid as follows, to wit: five (5%) per cent upon the execution
of the contract, the receipt whereof is hereby acknowledged and
confessed, and the remainder in installments of five per cent,
payable within the first month of each and every quarter thereafter,
commencing on the 1st day of July, 1935, with interest on deferred
payments at the rate of SIX (6%) per cent per annum until paid.

That the said subscriber further agrees that if he fails to pay any of
said installment when due, or to perform any of the aforesaid
conditions, or if said shares shall be attached or levied upon by
creditors of the said subscriber, then the said shares are to revert
to the seller and the payments already made are to be forfeited in
favor of said seller, and the latter may then take possession,
without resorting to court proceedings.

The said seller upon receiving full payment, at the time and
manner hereinbefore specified, agrees to execute and deliver to
said subscriber, or to his heirs and assigns, the certificate of title of
said shares, free and clear of all encumbrances.

In testimony whereof, the parties have hereunto set their hands in

the Municipality of Silang, Province of Cavite, Philippine Islands,
this 30th day of March, 1935.

(Sgd.) JOSEFA NAVAL

SILANG TRAFFIC COMPANY,
INC.
Subscriber
 By (Sgd.) LINO GOMEZ
President.

(Exhibit 1. Notarial acknowledgment omitted.)

The agreements signed by the other petitioners were of the same date
(March 30, 1935) and in identical terms as the foregoing except as to the
number of shares and the corresponding purchase price. The petitioners
agreed to purchase the following number of shares and, up to April 30,
1937, had paid the following sums on account thereof:

Sofronio T. 8 P360
Bayla....... shares
Venancio 8 375
Toledo........ shares
Josefa 15 675
Naval.............. shares
Paz 15 675
Toledo................ shares

Petitioners' action for the recovery of the sums above mentioned is

based on a resolution by the board of directors of the respondent
corporation on August 1, 1937, of the following tenor:

A mocion sel Sr. Marcos Caparas y secundado por el Sr. Alejandro

Bayla, que para el bien de la corporacion y la pronta terminacion
del asunto civil No. 3125 titulado "Vicente F. Villanueva et al. vs.
Lino Gomez et al.," en el Juzgado de Primera Instancia de Cavite,
donde se gasto y se gastara no poca cantidad de la Corporacion,
se resolvio y se aprobo por la Junta Directiva los siguientes:

(a) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3

de marzo, 1935, art. 11, sec. 162, sobre las cobranzas que se
haran por el Secretario Tesorero de la Corporacion a los
accionistas que habian tomado o suscrito nuevas acciones y que
se permitia a estos pagar 20% del valor de las acciones suscritas
 en un año, con interes de 6% y el pago o jornal que se hara por
trimestre.

(b) Se dejara sin efecto, en vista de que aun no esta pagado todo
el valor de las 123 acciones, tomadas de las acciones no
expedidas (unissued stock) de la Corporacion y que fueron
suscritas por los siguienes:

Lino 10
Gomez..................... Acciones
Venancio 8
Toledo............. Acciones
Melchor P. 17
Benitez........ Acciones
Isaias 14
Videña................. Acciones
Esteban 10
Velasco............ Acciones
Numeriano S. 15
Aldaba.... Acciones
Inocencio 8
Cruz................. Acciones
Josefa Naval 15
.................. Acciones
Sofronio 8
Bayla................. Acciones
Dionisio 3
Dungca............. Acciones

y devolver a las personas arriba descritas toda la cantidad que estas

habian pagado por las 123 acciones.
 (c) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3
marzo, 1935, art. V. sec. 165, sobre el cambio o trueque de las 31
acciones del Treasury Stock, contra las 32 acciones del Sr.
Numeriano Aldaba, en la corporacion Northern Luzon
Transportation Co. y que se devuelva al Sr. Numeriano Aldaba las
32 acciones mencionadas despues que el haya devuelto el
certificado de las 31 acciones de la Silang Traffic Co., Inc.

(d) Permitir al Tesorero de la Corporacion para que devuelva a las

personas arriba indicadas, las cantidades pagadas por las 123
acciones. (Exhibit A-1.)

The respondent corporation set up the following defenses: (1) That the
above-quoted resolution is not applicable to the petitioners Sofronio T.
Bayla, Josefa Naval, and Paz Toledo because on the date thereof "their
subscribed shares of stock had already automatically reverted to the
defendant, and the installments paid by them had already been
forfeited"; and (2) that said resolution of August 1, 1937, was revoked
and cancelled by a subsequent resolution of the board of directors of the
defendant corporation dated August 22, 1937.

The trial court absolved the defendant from the complaint and declared
canceled (forfeited) in favor of the defendant the shares of stock in
question. It held that the resolution of August 1, 1937, was null and void,
citing Velasco vs. Poizat (37 Phil., 802), wherein this Court held that "a
corporation has no legal capacity to release an original subscriber to its
capital stock from the obligation to pay for shares; and any agreement to
this effect is invalid" Plaintiffs below appealed to the Court of Appeals,
which modified of the trial court as follows:

That part of the judgment dismissing plaintiff's complaint is

affirmed, but that part thereof declaring their subscription canceled
is reversed. Defendant is directed to grant plaintiffs 30 days after
final judgment within which to pay the arrears on their subscription.
Without pronouncement as to costs.

Both parties appealed to this Court by petition and cross-petition

for certiorari. Petitioners insist that they have the right to recover the
amounts involved under the resolution of August 1, 1937, while the
respondent and cross-petitioner on its part contends that said amounts
have been automatically forfeited and the shares of stock have reverted
to the corporation under the agreement hereinabove quoted.

The parties litigant, the trial court, and the Court of Appeals have
interpreted or considered the said agreement as a contract of
subscription to the capital stock of the respondent corporation. It should
be noted, however, that said agreement is entitled "Agreement for
Installment Sale of Shares in the Silang Traffic Company, Inc.,"; that
while the purchaser is designated as "subscriber," the corporation is
described as "seller"; that the agreement was entered into on March 30,
1935, long after the incorporation and organization of the corporation,
which took place in 1927; and that the price of the stock was payable in
quarterly installments spread over a period of five years. It also appears
that in civil case No. 3125 of the Court of First Instance of Cavite
mentioned in the resolution of August 1, 1937, the right of the
corporation to sell the shares of stock to the person named in said
resolution (including herein petitioners) was impugned by the plaintiffs in
said case, who claimed a preferred right to buy said shares.

Whether a particular contract is a subscription or a sale of stock is a

matter of construction and depends upon its terms and the intention of
the parties (4 Fletcher, Cyclopedia of Corporation [permanent edition],
29, cited in Salmon, Dexter & Co. vs. Unson (47 Phil. 649, 652). In the
Unson case just cited, this Court held that a subscription to stock in an
existing corporation is, as between the subscriber and the corporation,
simply a contract of purchase and sale.

It seems clear from the terms of the contracts in question that they are
contracts of sale and not of subscription. The lower courts erred in
overlooking the distinction between subscription and purchase "A
subscription, properly speaking, is the mutual agreement of the
subscribers to take and pay for the stock of a corporation, while a
purchase is an independent agreement between the individual and the
corporation to buy shares of stock from it at stipulated price." (18 C. J.
S., 760.) In some particulars the rules governing subscriptions and sales
of shares are different. For instance, the provisions of our Corporation
Law regarding calls for unpaid subscription and assessment of stock
(sections 37-50) do not apply to a purchase of stock. Likewise the rule
that corporation has no legal capacity to release an original subscriber to
its capital stock from the obligation to pay for his shares, is inapplicable
to a contract of purchase of shares.

The next question to determine is whether under the contract between

the parties the failure of the purchaser to pay any of the quarterly
installments on the purchase price automatically gave rise to the
forfeiture of the amounts already paid and the reversion of the shares to
the corporation. The contract provides for interest of the rate of six per
centum per annum on deferred payments. It is also provides that if the
purchaser fails to pay any of said installments when due, the said shares
are to revert to the seller and the payments already made are to be
forfeited in favor of said seller. The respondent corporation contends that
when the petitioners failed to pay the installment which fell due on or
before July 31, 1937, forfeiture automatically took place, that is to say,
without the necessity of any demand from the corporation, and that
therefore the resolution of August 1, 1937, authorizing the refund of the
installments already paid was inapplicable to the petitioners, who had
already lost any and all rights under said contract. The contention is, we
think, untenable. The provision regarding interest on deferred payments
would not have been inserted if it had been the intention of the parties to
provide for automatic forfeiture and cancelation of the contract.
Moreover, the contract did not expressly provide that the failure of the
purchaser to pay any installment would give rise to forfeiture and
cancelation without the necessity of any demand from the seller; and
under article 1100 of the Civil Code persons obliged to deliver or do
something are not in default until the moment the creditor demands of
them judicially or extrajudicially the fulfillment of their obligation, unless
(1) the obligation or the law expressly provides that demand shall not be
necessary in order that default may arise, (2) by reason of the nature
and circumstances of the obligation it shall appear that the designation
of the time at which that thing was to be delivered or the service
rendered was the principal inducement to the creation of the obligation.

Is the resolution of August 1, 1937, valid? The contract in question being

one of purchase and not subscription as we have heretofore pointed out,
we see no legal impediment to its rescission by agreement of the parties.
According to the resolution of August 1, 1937, the recission was made
for the good of the corporation and in order to terminate the then
pending civil case involving the validity of the sale of the shares in
question among others. To that rescission the herein petitioners
apparently agreed, as shown by their demand for the refund of the
amounts they had paid as provided in said resolution. It appears from
the record that said civil case was subsequently dismissed, and that the
purchasers of shares of stock, other than the herein petitioners, who
were mentioned in said resolution were able to benefit by said resolution.
It would be an unjust discrimination to deny the same benefit to the
herein petitioners.

We may add that there is no intimation in this case that the corporation
was insolvent, or that the right of any creditor of the same was in any
way prejudiced by the rescission.

The attempted revocation of said rescission by the resolution of August

22, 1937, was invalid, it not having been agreed to by the petitioners.

Wherefore, the judgment of the court of appeals is hereby reversed and

another judgment will be entered against the defendant Silang Traffic
Co., Inc., ordering it to pay to the plaintiffs Sofronio T. Bayla, Venancio
Toledo, Josefa Naval, and Paz Toledo, the sums of P360, P375, P675,
and P675, respectively, with legal interest on each of said sums from
May 28, 1938, the date of the filing of the complaint, until the date of
payment, and with costs in the three instances. So ordered.

Yulo, C.J., Moran, Paras and Bocobo, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-3517 March 4, 1953
LAURA ADIARTE, assisted by her husband,
RAFAEL MADRAZO, petitioners,
vs.
THE COURT OF APPEALS (Special Division), J.M.
TUAZON & CO., INC., represented by GREGORIO
ARANETA, INC., and CENON
RIMANDO, respondents.
Eduardo D. Gutierrez for petitioners.
Jose Belmonte for respondents.
FERIA, J.:
According to the finding of facts of the Court of
Appeals, "On February 3, 1939, J.M. Tuazon & Co.,
Inc., through its agent Gregorio Araneta Inc., sold to
Cenon Rimando, married to Leon Mendoza, a parcel
of land described in the complaint and covered by
transfer certificate of title No. 35073, under the terms
and conditions contained in the contract to sell No.
367 (Exhibit A). In May 1940, defendant Rimando
sold to plaintiff Adiarte one-half of said lot, to be more
exact 264 square meters thereof, in consideration of
the sum of P1,590 under the terms and conditions
stipulated by the parties in the document Exhibit B,
which among other things says:
xxx xxx xxx
That the party of the Second Part shall pay the
sum of TWO HUNDRED PESOS (P200),
Philippine Currency, to the Party of the First Part
upon execution of this document, receipt of which
is hereby acknowledged by the latter;
That the balance of P1,390 shall be paid by the
Party of the Second Part in monthly installments
of P18.10 direct to Gregorio Araneta, Inc., on or
before the 5th of every month beginning the
month of June, 1940, which payment will cover
the installment for the month of May, 1940 until
the said balance shall have been fully paid;
xxx xxx xxx
That in case in any of the parties herein shall fail
to meet the necessary monthly installment with
Gregorio Araneta, Inc., for their respective
portions of the said lot, the other party may
continue the payments of the monthly
installments and the entire lot mentioned above
shall be owned by the party effecting the
payments and whatever amounts paid by the
 defaulting party with Gregorio Araneta, Inc., shall
be forfeited and shall be considered as rental for
the parcel of land herein mentioned; . . .
On May 6, 1940, plaintiff Adiarte and defendant
Rimando signed agreement C a whereby they ratified
all the terms and stipulations agreed upon in the deed
of assignment Exhibit B. From that time, plaintiff
Adiarte and defendant Rimando made separate
payments, to J.M. Tuazon and Co. Inc., for their
respective portions of the lot in dispute. Thus, plaintiff
Adiarte made payments amounting to P924.47 from
June 4, 1940, up to November 4, 1943, as shown by
Exhibits E to E-19; and defendant Rimando's
payments amounting to P1,377.73 up to April, 1944,
as shown by Exhibits 22 and 22-J and 23 to 23-Z.
In view of the findings of fact by the Court of Appeals
and the approval of J.M. Tuazon and Co. Inc. in
Exhibit C of the transfer by Rimando of his right and
interest in one-half of the lot in question to Adiarte,
Adiarte became the purchaser of Rimando's right or
interest in said half directly from Tuazon and Co. Inc.,
and bound to pay the installment price to the latter,
separately and independently from the purchase of
the remaining one-half of said lot and payment by
Rimando of its purchase price to J.M. Tuazon and Co.
Inc. That the transfer or assignment of Rimando to
Adiarte of his right and interest in said one-half of the
lot was absolute is corroborated or further shown: (1)
by the fact that, according to the above-quoted
findings of fact by the Court of Appeals, "From that
time, [the signing of said Exhibit C] plaintiff Adiarte
and defendant Rimando made separate payments to
J.M. Tuazon and Co., Inc., for their respective
portions of the lot in dispute. Thus Adiarte made
payments amounting to P924.47 from June 4, 1940
up to November 1943, and Rimando's payments
amounting to P1,377.73 up to April 1944"; (2) by
Exhibit 2 by which Cenon Rimando sold to Ricardo
Sanchez his house and one-half of the lot in question
on which the house was built, clearly and expressly
excludes from the sale the other half of the lot sold or
transferred by him to Adiarte with the approval of J.M.
Tuazon and Co., Inc.; and (3) by the fact that
according to the Court of Appeals' finding of fact, the
official receipt issued to Sanchez by Gregorio
Araneta, Inc., "for the full payment of the unpaid
purchase price of the land in question, was issued in
the name of Cenon Rimando and Laura Adiarte."
After the above exposition of the facts found by the
Court of Appeals in this case, we shall now show that
the dissenting opinion is not correct, and the judgment
of the Court of Appeals should be reversed.
The dissenting opinion asserts that the validity of the
Rimando-Adiarte contract Exhibit B is assailed by the
petitioners as being of the nature of pactum
commissorium, and holds that is not so quoting the
syllabus in the case of Alcantara vs. Alinea (8 Phil.,
111), as well as that in the case of Caridad Estate
Inc., vs. Pablo Santero (71 Phil., 114), in both of
which it was held that the pactum commissorium is
prohibited only in the contracts of mortgage and
antichresis under articles 1859 and 1884 of the Civil
Code. This is not correct. The petitioner-appellants do
not assail as invalid the pactum commissorium or
stipulation in the Rimando-Adiarte contract regarding
the resolution of the sale upon failure of Adiarte to pay
the balance of the purchase price to Araneta, Inc.,
either in their assignment of error quoted in the
dissenting opinion, or in their brief. What the
appellants contend is that articles 1100 and 1504 of
the Civil Code are applicable, and Sanchez paid
Adiarte's debt to Gregorio Araneta, Inc. and waived
his right to recover from Laura Adiarte what he has
paid Araneta for her.
Appellants' contention is correct: (1) Adiarte had not
failed to pay the monthly installment to Gregorio
Araneta Inc., because no demand had been made,
judicially or extra-judicially, by Rimando upon Adiarte
to make such payments, as required by article 1100
of the old Civil Code, since there is no stipulation in
the Rimando-Adiarte contract to the effect that failure
of any of the parties to pay the monthly installments to
Gregorio Araneta, Inc., at the time agreed upon would
give rise to the forfeiture stipulated and cancellation of
said contract without the necessity of any demand. (2)
Assuming that there is such stipulation in said
contract, article 1504 of the old Civil Code is
applicable because the contract is of absolute sale of
real property or right as abovestated, and therefore
Rimando has not reacquired the right or interest in the
half of the lot he sold to Adiarte, and Adiarte may still
pay what she owned to Araneta if it had not yet been
paid, because no demand for such resolution has
never been made judicially or by notarial act by
Rimando. And (3) Sanchez, and not Adiarte, paid
Adiarte's debt to Gregorio Araneta, Inc.
(1) The contract of sale Exhibit B between Rimando
and Adiarte does not provide that the failure of Adiarte
to pay any installment price to Araneta of the portion
sold her by Rimando would give rise to forfeiture or
cancellation of said contract Exhibit B without the
necessity of any demand. Said Exhibit B only
provides that "in case any of the parties fail to meet
the necessary monthly installment with Gregorio
Araneta for their respective portion of said land, the
other party may continue the payments of the monthly
installment, and the entire lot shall be owned by the
party effecting the payment."Article 1100 of the old
Civil Code provides that "persons obliged to deliver or
do something are not in default until the moment the
creditor demands of them judicially or extra-judicially
the fulfillment of their obligation, . . . unless the
obligation or the law expressly so provides." As there
is no express provision in the contract Exhibit B that
the failure of one of the parties to pay in time the
monthly installments to Gregorio Araneta, Inc., would
give rise to the forfeiture of all he has paid and
cancellation of the contract without the necessity to
demand from the other party, and the latter will
become the owner of the whole lot by paying said
installments, Adiarte was not in default in meeting the
necessary monthly installment with Gregorio Araneta,
Inc., because Rimando did not make any judicial or
extra-judicial demand upon to fulfill her obligation to
Gregorio Araneta, Inc., Hence, assuming that
Rimando paid to Gregorio Araneta Inc., all the
installments due from Adiarte, the forfeiture to
Rimando of Adiarte's portion of the lot in question and
of all payments made by her to Gregorio Araneta Inc.,
is ineffective and could not be declared by the Court
of Appeals.
In the case of Bayla vs. Silang (73 Phil., 557), this
court held the following applicable to this question:
3. OBLIGATIONS AND CONTRACTS;
NECESSITY OF DEMAND UPON DEFAULT AS
REQUISITE TO FORFEITURE. — the contract
here involve provides that if the purchaser fails to
 pay any of the installment when due the share of
stock which are the object of the sale are to revert
to the seller and the payments already made are
to be forfeited in favor of said seller. The seller,
through its board of directors, annulled a previous
resolution rescinding the sale and declared the
forfeiture of the payment already made and the
reversion of the shares of stock to the
corporation. Held: That such forfeiture was
ineffective. The contract did not expressly provide
that the failure of the purchaser to pay any
installment would give rise to forfeiture and
cancellation without the necessity of any demand
from the seller; and under article 1100 of the Civil
Code persons obligation to deliver or do
something are not in default until the moment the
creditor of them judicially or extra-judicially the
fulfillment of their obligation, unless (1) the
obligation or the law expressly provides that
demand shall not be necessary in order that
default may arise, or (2) by reason of the nature
and circumstances of the obligation it shall
appear that the designation of the time at which
the thing was to be delivered or the service
rendered was the principal inducement to the
creation of the obligation.
(2) Besides, even assuming that there is an express
stipulation in the Rimando-Adiarte contract Exhibit B
to the effect that, in default of payment by Adiarte to
Gregorio Araneta, Inc., of the necessary monthly
installment for her respective portion of the said lot,
the resolution of the Rimando-Adiarte contract Exhibit
B shall take place ipso jureand Rimando will become
the owner of Adiarte's portion of said lot if Rimando
continue paying the balance of monthly installment
with Gregorio Araneta, Inc., and whatever amounts
paid to the latter by Adiarte shall be forfeited and
considered paid by Rimando, Adiarte may still pay to
Rimando the balance of monthly installments he may
have paid to Gregorio Araneta, Inc. for Adiarte,
because no demand for the resolution of Rimando-
Adiarte contract has been made by Rimando upon
Adiarte by suit or by notarial act, in accordance with
article 1504 which reads as follows:
Art 1504. In the sale of real property, even though
it may have been stipulated that in default of the
payment of the price within the time agreed upon,
the resolution of the contract shall take place ipso
jure, purchaser may pay even after the expiration
of the period, at any time before demand has
been made upon him either by suit or by notarial
act. After such demand has been made the judge
cannot grant him further time.
In the case of Cenon Albea, petitioner, vs. Carlos
Inquimboy,* respondent, G.R. No. L-1601,
promulgated on May 29, 1950, the plaintiff Inquimboy
executed on October 13, 1941, a deed of absolute
sale of parcel of land for the sum of P14,000. On the
same date the defendant Albea executed a document
Exhibit B in favor of Inquimboy on which he
recognized that he was indebted to Inquimboy in the
sum of P3,000 and bound himself to pay said sum in
the following installments P2,500 on November 15,
1941, and P500 in May, 1942, on the condition that if
he should fail to pay the first installment on November
15, 1941, the deed of sale (Exhibit A) of the same
date would ipso jure be deliver to the plaintiff the
corresponding deed of cancellation and rescission.
The defendant Albea failed to pay the first installment
of P2,500 on November 15, 1941, inspite of demands
made upon him, and the plaintiff filed a complaint to
resolve the contract. The Court of Appeals applied the
case of Caridad Estate vs. Santero and resolved the
contract. Albea appealed to this Supreme Court
by certiorari, relying upon the ruling of this Court
in Villaruel vs. Tan King (43 Phil., 251). We held that
the case of Caridad Estate is not applicable, but that
of Villaruel vs. Tan Kingis applicable; and, therefore,
as the vendor Inquimboy had not made upon the
vendee Albea demand for the resolution of the
contract either by suit or by notarial act, this Supreme
Court modified the decision of the Court of Appeals
and granted the vendee Albea time to pay the
purchase price to the vendor before the resolution of
the contract of sale.
(3) Furthermore, under the Rimando-Adiarte contract
in order that Rimando may reacquire Adiarte's
equities, two requisites must present: (a) failure of
Adiarte to pay or meet the monthly installment for her
portion to Gregorio Araneta, Incorporated, and (b)
payment by Rimando of the balance of said
installment to Gregorio Araneta and not to other
person, according to the express term of said contract
Exhibit B. Rimando did not comply with the second
requirement or condition, and therefore he has not
reacquired Adiarte's equities to the portion of lot sold
to her by Rimando. The Court of Appeals holds that "it
is beyond dispute that the payment in full of the
purchase price of said land was made by the
intervenor Sanchez, and the latter did so because of
negotiation of sale had between him and the
defendant Rimando of the latter's house and portion
of the lot (Exhibit 2), that said sale was not carried out
and consequently defendant Rimando had to
reimburse as he in fact did, almost the whole amount
he has received from Sanchez on account of that
negotiated sale." And the attorney for respondent-
defendant Rimando admits in his brief filed with this
Supreme Court that "Los hechos establecidos por la
decision recurrida de que Sanchez he pagando a la
Compañia todas las deudas de Adiarte y Rimando
por todo el terreno en cuestion, y como Rimando fue
el unico que devolvio a Sanchez este recibio todo
[The Court of Appeals says almost all] lo abonado por
el [Sanchez], . . . Rimando es el que debe ser
declarado dueño de todo el terreno.
From the fact that, upon the rescission of the contract
of sale by Rimando of his house and portion of lot,
Rimando had to reimburse almost the whole he had
received from Sanchez, it does not follow that
Sanchez's payments to Araneta of Adiarte's
indebtedness to the latter was imputable to and
inured to the benefit of Rimando. There was no
privacy or fiduciary relation between Sanchez and
Rimando, and no duty was ever imposed upon
Sanchez by Rimando to pay Adiarte obligation, in any
event, to take Adiarte's land and turn it over to
Rimando. There is no legal or factual basis for a
conclusion that Sanchez's payment to Araneta was
imputable to and inured to the benefit of Rimando, as
erroneously held by the minority in the following
portion of its decision, because it is contrary to the
finding of fact of the Court of Appeals quoted in the
beginning of this opinion.
. . . When Rimando sold to Sanchez his right and
equities, the latter also assumed the obligations
of Rimando with regard to the whole lot because,
while Remando and Adiarte had divided the lot
 between themselves, nevertheless their
obligations to Araneta were indivisible in so far as
Araneta was concerned, and part of said
obligations was necessarily assumed by Adiarte
in her contract with Rimando. This division of right
and obligations between Rimando and Adiarte did
not in the least affect the indivisibility of their
obligations or rather the obligation of Rimando to
Araneta. When Sanchez bought the right of
Rimando, Sanchez necessarily assumed both the
right and the obligation of Rimando as to the
whole lot, including the portion assigned to
Adiarte . . . .
When Sanchez was unable to comply with the
other terms of his contract and obligation of
Sanchez reverted to Rimando . . . As Adiarte had
lost her right for non-payment to Araneta even at
the time of the Rimando-Sanchez contract and
said right had passed to Sanchez, when the latter
rescinded the Rimando-Sanchez contract, these
rights necessarily reverted to Rimando.
The Court of Appeals says that "the mere fact that
Laura Adiarte was mentioned therein1 as one of the
payors will not grant any lawful right over the lot in
question, when in fact she has not paid said
installments." In response to it, suffice it to say that
Sanchez paid them not in behalf of Rimando but for
Adiarte, according to the lower court's findings in its
decision, which became final and therefore cannot be
ignored by the Court of Appeals as it does in the
decision appealed from, because appellant Rimando
did not assign or attack it as erroneous in his brief
filed with the Court of Appeals. Said finding reads as
follows:
. . . While it is true that the intervenor Ricardo
Sanchez paid to Gregorio Araneta, Inc., the
balance of the installment payment corresponding
to the plaintiff Adiarte, the said intervenor,
however, in a letter marked Exhibit F waived his
right to collect the amount thus paid. The said
one-half portion is, therefore, now the property of
the plaintiff Adiarte. (Decision by Judge Peña,
Record on Appeal, p. 10)
It is to be observed that, according to the Court of
Appeals, "when Rimando cancelled his contract of
sale Exhibit 2 with Sanchez, Rimando returned to
intervenor Sanchez only P2,010 in postal money
orders, Exhibit 4 to 17, out of the entire sum of P3,250
he received from the latter for the reasons stated in
his letter which is made a part of the decision
appealed from and may therefore, be examined and
taken into consideration by this court in this appeal,
Rimando states the following in answer undoubtedly
to Sanchez's demands in connection with the letter
Exhibit F on which the above-quoted final ruling of the
lower court is based, written on August 18, 1944, by
Sanchez to Adiarte before the cancellation of the
contract of Rimando with Sanchez.
Anent the warning you gave me that I shall not
interfere nor continue administrating the property
which I agree to sell to Laura Adiarte on
installments, please be advised that unless the
account of said Laura Adiarte representing the
cost of the property in question is paid to me in
full and unless otherwise legally dispossessed
thereof, I will continue exercising my right over
said land, your "warning" notwithstanding.
The amount of P640 not returned by Rimando to
Sanchez is more than what Sanchez paid to Gregorio
Araneta, Inc., for Laura's debt according to the Court
of Appeals' finding; but Rimando wanted to discount
that amount from the money he received from
Sanchez on account of his alleged expenses in
connection with the cancelled sale of his house and
lot to Sanchez. The mere fact that Rimando contends
that he has not returned to Sanchez the sum of P640
because of said expenses, contrary to Sanchez's
contention to the contrary, evidently did not make
Rimando the payor of Adiarte's indebtedness to
Gregorio Araneta, Inc., for her portion of the lot in
question. Sanchez, by paying Adiarte's debt to
Gregorio Araneta, Inc., did not acquire the right to
become the owner of her portion of the lot, because
there was no privacy or contract between them by
which Sanchez could acquire such right. As Sanchez
did not acquire said right he could not transfer it to
Rimando even if he wanted to do so. Sanchez was
entitled to recover from Adiarte what he has paid
Gregorio Araneta for her, but he waived his right to do
so in his letter to Adiarte Exhibit F according to a final
finding or conclusion of the Court of First Instance. If
Rimando has any claim against Sanchez in
connection with the cancellation of their contract of
purchase and sale of Rimando's house and lot, he
may recover it from Sanchez but not from Adiarte.
In view of the foregoing, we are of the opinion that the
judgment of the Court of First Instance of Manila
appealed to the Court of Appeals is correct and that
the decision of the Court of Appeals is on appeal is
erroneous and it is therefore hereby reversed. So
ordered.
Pablo and Padilla, JJ., concur.

Separate Opinions
TUASON, J., concurring:
The decision of the Court of Appeals contains this
statement which is the pivotal point of the case:
Under this clear and positive stipulation, it
appearing that it was defendant Rimando who
continued the payment of the monthly
installments corresponding to the portion
belonging to plaintiff Adiarte, said Rimando is
entitled to be declared owner of the entire lot in
question.
As matter of fact it was Sanchez who paid the
installments on Adiarte's half of the lot, with his own
money. If the Court of Appeals means that those
payments should be regarded as made by Rimando,
the assumption will not bear close examination of the
juridical relation or lack of relation between the
parties.
The right to pay Adiarte's installments and the
concomitant right to possess her portion of the lot if
the owner of the other portion paid the amount due
from her were not real rights adhering to the property.
They were personal rights more of the nature of a
privilege created by a personal contract — the
contract between Rimando and Adiarte — separate
and distinct from the real right transmitted by
Rimando to Sanchez.
That privilege was extinguished as far as Rimando
was concerned when Adiarte's installment were paid
off; and being no longer extant when the contract of
sale between Rimando and Sanchez was rescinded
the said privilege was not reacquired as a result of the
rescission. The right to be subrogated to Adiarte's
equities was conditioned upon the payment of her
installments, and was susceptible of reacquisition by
Rimando only so long as the condition remained, not
that the privilege was part of the land Rimando had
conveyed, but because as the owner of the land he
had reacquired it was his prerogative to settle
Adiarte's debts to protect his own interest.
Sanchez could, of course, have claimed Adiarte's half
of the land by reason of his payment. Contrary to the
lower court's conclusion, this right was not transferred
to Rimando by the mere fact of rescission of the sale.
The holding of the Court of Appeals that Sanchez's
payment to Araneta was imputable to Rimando and
inured to Rimando's benefit has no factual or legal
basis. That payment was a personal matter entirely
between Sanchez and Adiarte. The money was
Sanchez and there was no priviti or fiduciary relation
of any kind between Sanchez's and there was no
privity or fiduciary relation of any kind between
Sanchez and Rimando. There was no duty imposed
upon Sanchez by Rimando to pay Adiarte's obligation
and, in that event, to take Adiarte's land and turn it
over to Rimando. To repeat: what Rimando did with
his money was his personal affair. The following
hypothetical situation and queries should suffice to
drive home the point that Rimando was completely
alien to the dealings between Sanchez and Adiarte:
There is no question that Sanchez could have
furnished Adiarte with money as a loan or a gift so
that she herself might satisfy her obligation to Araneta
& Co. Let us suppose that Sanchez had done that —
given or loaned Adiarte the money — could Rimando
assert title to Adiarte's portion of the land? No one
would say that he could, and if he could not, upon
what legal principle could he be considered the owner
of Adiarte's land now? What is the difference between
Sanchez's paying Araneta directly and his giving
Adiarte the wherewithal to personally make the
payment? The money in either case was Sanchez's.
The difference was wholly in the method of payment.
As a matter of fact, had Sanchez actually taken
Adiarte's half of the land for having satisfied the
installment on it, that half would have belonged to him
and not to Rimando. And if instead of possessing the
land Sanchez had chosen to get back the money
which he had advanced for Adiarte, the money would
have been his and not Rimando's.
It seems then plain that Rimando did not derive any
right or benefit from Sanchez's use of his own money
in the exercise of a right or privilege that was personal
and did not affect Rimando in any way. That privilege
was Sanchez's and Sanchez alone could enforce or
renounce it as his fancy and sense of justice dictated.
Sanchez alone could have claimed the land or his
money back from Adiarte. If Sanchez waived the right
— as he did probably because the money he had
disbursed was very cheap and with Rimando's portion
of the lot he got enough for all the case he had paid,
including the money he had paid or agreed to pay
Rimando -- the waiver was absolutely effective
against the whole world. If he did not, he and not
Rimando has cause of action against Adiarte.
Rimando did not step into the shoes of Sanchez
because Sanchez had already disposed of them while
they were at his free disposal. By the rescission of the
sale Sanchez did not forfeit his money.
To summarize, Rimando had sold to Sanchez his half
of the lot, expressly excluding Adiarte's half from the
sale. No longer did he sustain any relation to Adiarte,
or that relation was wholly dependent upon the
ownership of the land he had alienated. His sole
remaining interest was that he be paid the purchase
price. If Adiarte or Sanchez would neglect to pay the
amount still due on Adiarte's lot, that was Adiarte's
and Sanchez's own lookout. Rimando did not stand to
lose or profit anything. His juridical relation with
Adiarte having been severed, what Adiarte and
Sanchez did in the settlement of Adiarte's debt could
neither benefit nor prejudice him.
The rescission of the contract of sale between
Rimando and Sanchez did not restore Rimando's
original relation with Adiarte. It did not render the sale
void ab initio. Under Article 1295 of the Civil Code
then in force, the effects of the rescission were simply
that the seller had a choice of getting back what he
had conveyed and its fruits, if any, which Rimando
did, or recover damages, while he was obligated to
return the price he had received and its interest.
Beyond these, the resolution or rescission of the
contract did not confer on the parties any right. If after
the rescission Rimando paid Sanchez what the latter
had paid Araneta and Co., the reimbursement did not
operate to impair Adiarte's title to her portion of the
land. The title had already been vested and her
obligation expressly extinguished or condoned by the
party who had made the payment and who had the
right to do so for her benefit. Sanchez himself could
not have repudiated the condonation if his contract of
sale with Rimando had continued in force.
There is another important consideration that need be
kept in mind. There was no compelling necessity for
making the payment of Adiarte's back installment to
protect the other half against forfeiture. Araneta and
Co., were not pressing collection of those
installments. It is also a fact that Araneta & Co. had
recognized the division of the lot and arrangement
between Rimando and Adiarte, and agreed to receive
monthly payments from each of them separately in
the amounts they had stipulated. With this
understanding there was nothing to worry that the real
estate firm would cancel the sale of the entire parcel if
Adiarte violated the terms of her commitment. Without
such peril, Rimando or whoever he thinks was acting
in his stead should at least have given Adiarte
sufficient and timely warning that if she did not pay he
would and her portion would be forfeited with all the
capital she had invested in it. It is not in conformity
with law and good conscience the Rimando or
Adiarte, taking advantage of the other's forgetfulness
or temporary inability to pay should hasten to make
the payment and call the other half of the lot his own.
Reduced to this ultimate results that is Rimando's
argument and this appellate Court's ruling.
With all due respects to the opinion of the Court of
Appeals, it looks as if the law has been strained to the
breaking point in an endeavor to make out a case for
Rimando. If straining of the law were needed to reach
a decision, the efforts should be marshalled in the
opposite direction. For leaving aside all legal
consideration, justice is entirely on Adiarte's side;
there is none to back Rimando up. The latter has got
all the law entitled him to, and more. He should be
satisfied and thankful that Sanchez settled Adiarte's
account and thereby cleared the way for the issuance
to him (Rimando) of a clean title by Araneta and Co.,
title which he could not demand if Adiarte were in
default.
Again, while on the one hand Adiarte has paid
Rimando P200.00 and Araneta and Co. P924.47, and
possibly has made improvements on the land,
Rimando on the other hand did not part with any
amount which he could right fully call his own for
Adiarte's benefit. His (Rimando's) entire claim to the
ownership of Adiarte's lot and, with it, the right to
confiscate the hard-earned cash which Adiarte has
invested in the property, is based wholly on a dubious
technicality (to say the least) bereft of any moral or
material backing.
For the reasons stated, I am of the opinion that the
judgment of the Court of First Instance is correct and
the decision of the Court of Appeals should be
reversed.
Paras, C.J., concurs.

LABRADOR, J., concurring:

I concur in the opinions of Justices Feria and Tuason.
The payment by Sanchez of the installment due from
Adiarte was made on May 4, 1944, while the sale by
Rimando in favor of Sanchez took place on May 15,
1944. The contract of sale specifically excludes
Adiarte's portion of the lot. Therefore, it cannot be
said that Sanchez paid in the name and for the benefit
of Rimando. There was no such understanding. He
must have paid it in the expectation that he would be
able to consummate the purchase of Rimando's
portion. The fact that Rimando acknowledged having
received the amount paid for Adiarte, as part of the
advance price is no satisfactory proof that the
payment should inure to his benefit as Adiarte's lot
was excluded from the sale.
But assuming, for the sake of argument, that it was for
his account, it did not ipso jure operate to bring about
a resolution of the sale of the portion of 264 square
meters by Rimando to Adiarte, in view of the
peremptory provisions of articles 1100 and 1504 of
the Spanish Civil Code. In order that Adiarte may be
divested of her right under that contract of sale with
Rimando it was only fair and just that Rimando first
demand of her (Adiarte) compliance with her share of
their joint undertaking to Gregorio Araneta, Inc., or
that she be advised that if she fails to pay her share of
the joint obligations, he (Rimando) would avail of the
express terms of the contract, paying Adiarte's share
in the installments, and thereby becoming the
exclusive owner of the whole property. The injustice
caused by ruling that no previous notice or demand is
needed for Adiarte to lose her rights to the land in
favor of Rimando, becomes evident when we take
into account the fact that Adiarte had no knowledge of
the payment, and such payment was made
surreptitiously. There being no fact, provision, or
circumstances from which inference may be made
that Rimando and Adiarte had intended, by their
contract, to dispense with the notice or demand
required by law (article 1100 and 1504), waiver
thereof may not be decreed.

JUGO, J., dissenting:

This is an appeal by certiorari from the decision of the
Court of Appeals. Inasmuch as we have to accept the
findings of fact made by said Court and review
alleged errors of law only, we reproduce below as
done by the petitioners, the decision in full:
This is an appeal from a decision rendered by the
Court of First Instance of Manila directing J.M.
Tuazon & Co., Inc., represented by Gregorio
Araneta, Inc., to execute a deed of sale in the
name of the plaintiffs for one-half of the lot
described in the complaint, and another deed of
sale in favor of the defendant Cenon Rimando for
the other half of said lot.
The record discloses that on February 3, 1939,
J.M. Tuazon & Co., Inc., its agent Gregorio
Araneta, Inc., sold to Cenon Rimando, married to
Leona Mendoza, the parcel of land in question
described in the complaint and covered by
Transfer Certificate of Title No. 35073, under the
term and conditions contained in the Contract To
Sell No. 367 (Exhibit A). On May 4, 1940,
defendant Rimando sold to plaintiff Adiarte one-
half of said lot, to be more exact, 264 square
meters thereof, in consideration of the sum of
P1,590 under the terms and conditions stipulated
by the parties in the document Exhibit B, which
among other things says:
xxx xxx xxx
"That the party of the Second Part shall pay the
sum of TWO HUNDRED PESOS (P200),
Philippine Currency, to the Party of the First Part
upon execution of this document, receipt of which
is hereby acknowledged by the latter.
"That the balance of P1,390 shall be paid by the
Party of the Second Part in monthly installments
of P18.10 direct to Gregorio Araneta, Inc., on or
before the 5th of every month beginning the
month of June, 1940, which payment will cover
the installment for the month of May, 1940 until
the said balance shall have been fully paid,
xxx xxx xxx
"That in case any of the parties herein shall fail to
meet the necessary monthly installments with
Gregorio Araneta, Inc., for their respective
portions of the said lot, the other party may
continue the payment of the monthly installments
and the entire lot mentioned above shall be
owned by the party effecting the payments and
whatever amounts paid by the defaulting party
with Gregorio Araneta, Inc. shall be forfeited and
shall be considered as rental for the parcel of land
herein mentioned,
xxx xxx xxx
On May 6, 1940, plaintiff Adiarte and defendant
Rimando signed agreement Exhibit C whereby
they ratified all the terms and stipulation agreed
upon in the deed of assignment, Exhibit B. From
that time, plaintiff Adiarte and defendant Rimando
made separate payments to J.M. Tuazon and
Co., Inc., for their respective portions of the lot in
dispute. Thus, plaintiff Adiarte made payments
amounting to P924.47 from June 4, 1940, up to
November 4, 1943, as shown by Exhibits E to E-
19; and defendant Rimando, payments
amounting to P1,377.73 up to April, 1944, as
shown by Exhibits 22 to 22-J and 23 to 23-Z. Due
to the outbreak of the Pacific War, both Adiarte
and Rimando were not able to pay on time their
installments such that on May 4, 1944, there was
still an outstanding account of P2,195.72 for the
whole lot in question (Exhibit 1 — Rimando). In
order to pay off this account defendant Rimando
entered into a contract of sale of the lot in
question with intervenor Ricardo Sanchez and
executed therefor the following document (Exhibit
2):

"MANILA, May 15,

1944

"Received this date from Mr. Ricardo Sanchez,

the sum of THREE THOUSAND AND TWO
HUNDRED FIFTY PESOS (P3,250), as advance
payment of the value of may house and land at 5
Alcon, Manila, the lot being known as lot No. 3,
block No. 22, of the subdivision plan Psd-14959,
of the Sta. Mesa Heights Subdivision, with an
area of 595.6 square which I sold to him for
P40,0000. It is understood that the said 595.6 sq.
m., an area of 264 sq. m., is not included in this
sale. Said 264 sq. m., shall be taken from the
right side of the land facing the house, computed
at 12 m. x 22 m. It is understood that the said
advance money of P3,250, the sum of P2,195.72
was paid directly to Gregorio Araneta, Inc., by
said Mr. R. Sanchez, as per Official Receipt No.
H-5696.
"It is further understood that this sale of my
property to Mr. R. Sanchez is irrevocable.

(Sgd.) "CENON
RIMANDO"

Pursuant to this agreement, Sanchez paid the

sum of P2,195.72 to Gregorio Araneta, Inc., who
issued Exhibit 1 whereby it acknowledged full
payment of the purchase price of the whole lot in
question. Nevertheless, the contract of sale
between defendant and intervenor Sanchez was
not carried out because intervenor Sanchez failed
to pay in due time of the whole amount of
P40,000 agreed upon in Exhibit 2 and on August
28, 1944, defendant Rimando cancelled that sale
and returned to intervenor Sanchez only P2,610
in postal money orders, Exhibits 4 to 17, out of
the entire sum of P3,250 he received from the
latter, for the reasons he stated in his letter of
August 28, 1944 (Exhibit 18) to said Sanchez.
The latter received the letter and the money
orders enclosed therein and ever since made no
complaints, thus indicating that he was satisfied
with the amount sent to him and the deductions
made by satisfied sent to him and the deductions
made by Rimando from the total amount of
P3,250 for the reasons stated in said letter.
After the full payment of the price of the whole lot
in question was made, plaintiff Adiarte did
nothing, but on August 8, 1946, she instituted the
present action to compel the defendant company
Gregorio Araneta, Inc., to execute a deed of
definite sale of the parcel of Land in question both
in her name and of Cenon Rimando, as co-owner
of said lot with an undivided one-half portion
thereof. Upon being summoned, defendant
Rimando answered the complaint denying
plaintiffs claim of ownership over the lot in
question and asserting that he is the exclusive
owner thereof. Thereafter, intervenor Sanchez
filed his complaint in intervention alleging that the
lot in question was sold to him by the defendant
Rimando; that he made an advance payment of
P3,250 he paid directly to the Gregorio Araneta,
Inc., the sum of P2,195.72; that the balance of
P36,750 was consigned and deposited with the
court of First Instance of Manila after defendant
Cenon Rimando refused to accept it; and prayed
that by virtue of these facts he be declared owner
of the lot in question. Hence the main question we
have to determine is who under the facts of the
case could be considered the lawful owner of said
lot.
It is beyond dispute that the payment in full of the
purchase price of said land was made by the
intervenor Sanchez and that the latter did so
because of the negotiation of sale had between
him and the defendant Rimando of the latter's
house and portion of the lot (Exhibit 2) that said
sale was not carried out and consequently
defendant Rimando had to reimburse, as he in
fact did, almost the whole amount he had
received from Sanchez on account of that
negotiated sale. Likewise, it is beyond question
that since November, 1943, plaintiff failed to pay
the installment corresponding to her portion; that
under one of the condition stipulated in Exhibit B,
defendant Rimando had the right to continue the
payment of said monthly installment and thereby
to claim for the ownership of the entire lot, for in
said Exhibit B it was stipulated;
"That in case any of the parties herein shall fail to
meet the necessary monthly installment with
Gregorio Araneta, Inc., for their respective
portions of the said lot, the other party may
continue the payments of the monthly installment
and the entire lot mentioned above shall owned
by the party effecting the payments and whatever
amounts paid by the defaulting party with
Gregorio Araneta, Inc., shall be forfeited and shall
be considered as rental for the parcel of land
herein mentioned."
Under this clear and positive stipulation it
appearing that it was defendant Rimando who
continued the payment of the monthly
installments corresponding to the portion
belonging to plaintiff Adiarte, said Rimando is
entitled to be declared owner of the entire lot in
question.
It may be contended however that the payment
was made by Sanchez and not by Rimando and
that Exhibit 1, the official receipt issued by the
Gregorio Araneta, Inc., for the full payment of the
unpaid purchase price of the land in question,
was issued in the name of Cenon Rimando and
Laura Adiarte. But even admitting this to be true,
as it so appears in said Exhibit, the mere fact that
Laura Adiarte was mentioned therein as one of
the payor, will not grant her any lawful right over
the lot in question, when in fact she had not paid
said installments, which Sanchez paid to Gregorio
Araneta, Inc., in behalf of the defendant Rimando,
who finally reimbursed Sanchez of the amount he
 had paid in this account. Consequently,
defendant Rimando should be considered as the
one who actually paid said installments, and
under the aforecited agreement (Exhibit B) to the
effect that the party who shall continue the
payments of the monthly installments
corresponding to the other party would be entitled
to own the entire lot, Rimando has the right to
claim for himself the exclusive ownership of the
lot in question.
Wherefore, the decision appealed from is hereby
reversed in so far as it orders Gregorio Araneta,
Inc., to execute a deed of sale for the portion
claimed by the plaintiff and instead another
judgment is hereby entered dismissing the
complaint and ordering said Gregorio Araneta,
Inc., to execute a definite deed of sale in favor of
the defendant Cenon Rimando. Without any
pronouncement with regard to costs.
The petitioners make the following assignment of
error:
I
The Court of Appeals erred in considering that the
payment made by intervenor Sanchez to the
Gregorio Araneta & Co,. Inc., (Exhibit 1 —
Rimando) was, in effect, payment made by
 respondent Rimando of the unpaid installments
on the 1/2 share of petitioner Adiarte on the lot in
question;
II
The Court of sale (Exhibit B) and consequently
holding that respondent Rimando "is entitled to be
declared owner of the whole lot in question"; and
III
The Court of Appeal erred in not considering
and/or disregarding the equities of the case in
favor of petitioner Adiarte.
We shall consider these alleged error together.
The receipt (Exhibit 2,) quoted in the above decision,
signed by Rimando in favor of Sanchez, although
worded as referring to a sale of Rimando's portion to
Sanchez, yet legally what Rimando sold was his right
and equities to said portion, for the reason that
Rimando had not yet paid in full its price to Gregorio
Araneta & Co., and consequently, had not yet
become the owner of said portion under the terms of
his contract with said entity. It was also natural to
exclude the portion of 264 square meters, the right to
which had been assigned by Rimando to Laura
Adiarte who likewise had not yet become the owner
thereof under the terms of her contract with Rimando
and of the latter's contract with Araneta, the terms of
both contracts being inseparable, as that performance
of the Rimando-Adiarte contract was dependent upon
compliance with the Araneta-Rimando contract which
Adiarte assumed in so far as her share was
concerned. When Rimando sold to Sanchez his right
and equities, the latter also assumed the obligations
of Rimando with regard to the whole lot because while
Rimando and Adiarte had divided the lot between
themselves, nevertheless their obligation to Araneta
were indivisible in so far as Araneta was concerned,
and part of said obligations was necessarily assumed
by Adiarte in her contract with Rimando. This division
of rights and obligations between Rimando and
Adiarte did not in the least affect the indivisibility of
their obligations or rather the obligations of Rimando
to Araneta. When Sanchez bought the rights of
Rimando, Sanchez necessarily assumed both the
right and the obligation of Rimando as to the whole
lot, including portion assigned to Adiarte. It would
have been unjust for Sanchez to assume the
obligation of Rimando with regard to the whole lot
without also receiving the corresponding rights with
regard to the same. Right and obligations are
correlative. This is shown by the statement in said
receipt that "it is understood that the said advance
money of P3,250, the sum of P2,195.72 was paid
directly to Gregorio Araneta, Inc., by said Mr. R.
Sanchez, as per Official Receipt No. H-5696." The
payment of the sum of P2,195.72 by Sanchez to
Araneta was part of the consideration of the contract
between Rimando and Sanchez. The payment inured
to the benefit of both of them.
When Sanchez was unable to comply with the other
terms of his contract with Rimando, it was resolved or
rescinded, and all the rights and obligations of
Sanchez reverted to Rimando. It should be noted in
this connection that Rimando returned to Sanchez the
sum of P2,610 upon the rescission of their contract,
the balance of P640 being charged to expenses and
other damages. Sanchez acquiesced in this. As
Adiarte had lost her right for non-payment to Araneta
even at the time of the Rimando-Sanchez contract
and said rights had passed to Sanchez, when the
latter rescinded the Rimando-Sanchez contract, those
rights necessarily reverted to Rimando.
The Rimando-Adiarte contract is assailed by the
petitioners as being of the nature of a pactum
commissorium. This is not so. In the case of Alcantara
vs. Alinea, et al. (8 Phil., 111) it was held:
1. Contract Loan. — The fact of having entered
into a contract covering a loan at the same time
agreeing to sell a piece of property, the value of
which is fixed as the amount of money loaned, if,
within a fixed time, such amount loaned be not
paid, does not produce any change in the nature
and legal terms of either of the contracts, nor any
essential defect which would tend to nullify the
same, inasmuch as the property is not thereby
mortgaged, nor has been delivered by virtue of a
contract of antichresis, or of pledge, which is, as
is known, made with respect to and covers
movable or personal property only.
2. "Pactum Commissorium", Loan. — Neither
does the said loan coincide with the pactum
commissorium referred to in Law 41, title 5, and
Law 12, title 12, of the fifth Partida, and perhaps
included in the prohibition and declaration of
nullity expressed in articles 1859 and 1884 of the
Civil Code, inasmuch as said pactum presumes
the existence of the contracts of mortgage or
pledge or that of antichresis, none of which have
concurred in the loan of which mention is made
herein.
3. Obligations of Parties to Contract. — It is an
established doctrine of law and sustained by the
settled practice of the courts, that a man obligates
himself to do that to which he promises to be
bound, because that which is agreed to in a
contract is the law between each contracting
parties.
This doctrine was reiterated in the Caridad Estates,
Inc., vs. Pablo Santero (40 Off. Gaz., 61, No. 14,
October 4, 1941) in which this Court said:
1. Contract; "Pactum Commissorium"; Penal
Clause. — Taking up the argument that the
stipulations outlined in paragraphs 3 and 4 of the
contract have resulted in a pactum
commissorium, we are of the opinion that the
obligation is without legal basis. Historically and in
point of strict law, pactum commissorium, referred
to in Law 41, title 5, and Law 12, title 12 of the
Fifth Partida, and included in articles 1859 and
1884 of the Civil Code, presupposes the
existence of mortgage or pledge or that of
antichresis. (Alcantara vs. Alinea, 8 Phil., 111.)
Upon this account it becomes hardly conceivable
although the argument has been employed here
rather extravagantly, that the idea of pactum
commissorium should occur in the present
contract of sale, considering that, it is admitted,
the person to whom the property is forfeited is the
real and equitable owner of the same because
title would not pass until the payment of the last
installment. At most, the provision in point, as the
parties themselves have indicated in the contract,
is a penal clause which carries the express
waiver of the vendee to any and all sums he had
paid when the vendor, upon his inability to comply
 with his duty seeks to recover possession of the
property, a conclusive recognition of the right of
the vendor to said sums, and avoids unnecessary
litigation designed to enforce fulfillment of the
terms and conditions agreed upon. Said
provisions are not unjust or inequitable and does
not, as appellant contends, make the vendor
unduly rich at his cost and expense.
The same principle has been established relative to
personal property in article 1454-A of the old Civil
Code known as the Recto Law, which says in part "in
a contract the sale of personal property payable in
installment, failure to pay two or more installments,
shall confer upon the vendor the right to cancel the
sale ... without reimbursement to the purchaser of the
installments already paid, if there be an agreement to
this effect." The same principle is contained in article
1484 of the present Civil Code.
In view of the foregoing, the decision of the Court of
Appeals is affirmed, with costs. It is so ordered.
Bengzon, Montemayor and Bautista Angelo,
JJ., concur.

Footnotes
a
Agreement Exhibit C, interpreted erroneously by
the Court of Appeals as a mere ratification of the
terms and, stipulation agreed upon in Exhibit B, is
an instrument signed by Gregorio Araneta, Inc.
approving the transfer by Rimando of one half of
his rights and interest in the lot in question of 596
square meters to Laura Adiarte, who recognizes
and accepts the transfer in the contract No. 367
Exhibit A entered into between Rimando and
Araneta, Inc. on February 3, 1939, and binds
herself to pay the balance of the purchase price
of said half in accordance with the terms agreed
upon. This approval was required by ... of said
Exhibit A for the validity of transfer by Rimando to
Adiarte of said one half of the lot. The erroneous
interpretation of said Exhibit C is a conclusion of
law which may be corrected by this Court on
appeal.
*
86 Phil., 477.
1
The Court of Appeals refers to Exhibit I
previously mentioned which is the receipt issued
by Gregorio Araneta to Sanchez.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-6291 April 29, 1954
THE SAN PEDRO BUS LINE, PAULINO DE LA
CRUZ, and TEODOLO LACDAN, doing business
under the name of "THE SAN PEDRO BUS
LINE," petitioners,
vs.
NICOLAS NAVARRO, and the HON. ASSOCIATE
JUSTICES OF THE FIRST DIVISION, COURT OF
APPEALS,respondents.
Estanislao R. Bayot for petitioners.
Antonio Enrile Inton and Camilo V. Peña for
respondents.
PARAS, C.J.:
Nicolas Navarro filed a complaint in the court of First
Instance of Rizal against the San Pedro Bus Line,
Paulino de la Cruz and Teodulo Lacdan, doing
business in the name of the San Pedro Bus Line,
alleging that the plaintiff, on April 21, 1943, rode as a
passenger in Manila bound bus No. TPU-7654 owned
and operated by the defendants; that while on its way
the bus collided with another vehicle, causing serious
physical injuries to the plaintiff, with subsequent post-
traumatic psychosis which might incapacitate him for
life; that as a result thereof the plaintiff suffered
damages, for actual medical and hospital expenses
and loss of earning power, in the total sum of P4,500
which the plaintiff sought to recover from the
defendants. In their answer the defendants admitted
the occurrence of the accident and the injuries
received the plaintiff, but disclaimed responsibility for
the accident. After trial, the court dismissed the
complaint on the ground that there was "no proof
whatsoever of the relation of the defendants San
Pedro Bus Line and Paulino de la Cruz with the
damages claimed by the plaintiff." The plaintiff
appealed to the Court of Appeals which, on part of
which reads as follows: "WHEREFORE, it appearing
that the trial court erred as charged, and that the facts
and the lawfully warrant a recovery by the appellant,
the judgment appealed in the total sum of P9,500,
with interests thereon from the date this action was
commenced. Costs are charged against the
appellees." The defendants have elevated the case
by way of a petition for certiorari.
It is contended for the herein petitioners that they
cannot be held civilly liable to respondents Nicolas
Navarro, for the reason that the Court of First
Instance of Rizal had dismissed the criminal charge
against petitioner Paulino de la Cruz, driver of the bus
involved in the accident, citing the case of Martinez
vs. Barredo,* Off. Gaz., 4922. In answer to this
contention, it is enough to advert to the conclusion of
the Court of Appeals — which is correct — that the
action was not based on tort or quasi delict, but was
one for breach of a carrier's contract, there being a
clear distinction between culpa as a source and
creator of obligations (aquiliana) and culpa in the
performance of an already existing obligation
(contractual). As already held in the case of Castro
vs. Acro Taxicab Co.** 46 Off. Gaz., 2023, "para que
prosperase la accion del demandante pidiendo
indemnizacion de daños y perjuicios bastaba que
probase la existencia del contrato de pasaje esto es,
que causo lesiones y daños en el pasajero. De
acuerdo con la doctrina enunciada, para el exito de la
accion de daños no era necesario que se probase
la culpa, desuido a negligencia del chofer que guiaba
el taximetro No. 962." The case of Martinez vs.
Barredo is not controlling, since it referred to an action
based on criminal negligence.
The other contention of the petitioners is that it was
erroneous for the Court of Appeals to award in favor
of respondent Navarro damages in the amount of
P9,500, his claim in the complaint being only for
P4,500. It appears, however, that the complaint
prayed for "such further relief as may be deemed just
and equitable," and this of course warranted the
granting in the complaint. Indeed, under section 9,
Rule 35, of the Rules of Court, "the judgment shall
grant the relief to which the party in whose favor it is
rendered is entitled, even if the party has not
demanded such relief in his pleadings."
It is also urged by counsel for the petitioners that the
finding of the Court of Appeals that respondent
Navarro is insane, is not supported by any evidence,
and that on the other hand, in the motion for new trial
filed by the petitioners, accompanied by the affidavits
of Marcelo Legaspi and Ceferino Terello, respondent
Navarro is shown not to be insane, with the result that
there is no basis for awarding the additional amount
of P5,000. However, apart from the fact that the
finding of the Court of Appeals is factual and therefore
conclusive, the said sum was granted by the Court of
Appeals, not only for the resulting insanity of
respondent Navarro but for his pain and suffering in
general; and we are not prepared to hold that the
award is excessive as compensation for moral
damages.
Wherefore, the decision complained of is affirmed,
and it is so ordered with costs against petitioners.
Pablo, Bengzon, Reyes, Jugo, Bautista Angelo, and
Concepcion, JJ., concur.
Footnotes
*
81 Phil., 1.
**
82 Phil., 359.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21151 June 26, 1968
LOURDES MUNSAYAC, petitioner,
vs.
BENEDICTA DE LARA and THE COURT OF
APPEALS, respondents.
Celso P. Mariano for petitioner.
Ruben L. Roxas for respondents.
MAKALINTAL, J.:
As a result of injuries suffered by the plaintiff-appellee
while riding as a passenger on a jeepney owned and
operated by the defendant-appellant, this action for
recovery of damages was filed in the Court of First
Instance of Rizal (Pasig Branch). The trial Judge
found the driver recklessly negligent: he drove at an
excessive speed, unmindful of the fact that the road
was under repair and heedless of the passengers'
pleas that he go more slowly. Besides the award of
compensatory damages for actual expenses incurred
and loss of income, the defendant was ordered to pay
P1,000.00 as exemplary damages and P500.00 as
attorney's fees. On these last two items the defendant
appealed to the Court of Appeals, which rendered a
judgment of affirmance, quoting the trial Court's
justification for the award as follows:
The defendant's admission that the accident
happened and the plaintiff's extensive injuries as
a result thereof, despite which the defendant
failed, or even refused, to placate the sufferings
of plaintiff, necessitating the filing of this action,
entitled plaintiff to exemplary damages — to set
an example to others — and attorney's fees.
The case is new before us on review by certiorari.
The Civil Code provides that "exemplary or corrective
damages are imposed, by way of example or
correction for the public good" (Act 2229); and that in
contracts "the Court may award exemplary damages
if the defendant acted in wanton, fraudulent, reckless,
oppressive or malevolent manner" (Art. 2232).
Appellant points out that the act referred to in Article
2232 must be one which is coetaneous with and
characterizes the breach of the contract on which the
suit is based, and not one which is subsequent to
such breach and therefore has no causal relation
thereto, such as the herein defendant's failure to
placate the sufferings of the plaintiff.
Appellant relies on the case of Rotea vs. Halili, G.R.
No. L-12030, September 30, 1960, where this Court
held:
According to the rule adopted by many courts, a
principal or master can be held liable for
exemplary or punitive damages based upon the
wrongful act of his agent or servant only where he
participated in the doing of such wrongful act or
has previously authorized or subsequently ratified
it with full knowledge of the facts. Reasons given
for this rule are that since damages are penal in
character, the motive authorizing their infliction
will not be imputed by presumption to the
principal when the act is committed by an agent
or servant, and that since they are awarded not
by way of compensation, but as a warning to
others, they can only be awarded against one
who has participated in the offense, and the
principal therefore cannot be held liable for them
merely by reason of wanton, oppressive or
malicious intent on the part of the agent (15 Art.
Jur. 730).
We believe the point of the appellant is well-taken. It
is difficult to conceive how the defendant in a breach
of contract case could be held to have acted in a
wanton, fraudulent, reckless, oppressive or violent
manner within the meaning of Article 2232 for
something he did or did not do after the breach, which
had no causal connection therewith. The law does not
contemplate a vicarious liability on his part: the
breach is his as party to the contract, and so if he is to
be held liable at all for exemplary damages by reason
of the wrongful act of his agent, it must be shown that
he had previously authorized or knowingly ratified it
thereafter, in effect making him a co-participant. From
the decision under review, however, there is nothing
to show previous authority or subsequent ratification
by appellant insofar as the recklessness of the driver
was concerned. The mere statement that the
defendant failed, even refused, to placate the
suffering of the plaintiff, necessitating the filing of the
action, is too tenuous a basis to warrant the
conclusion that the defendant approved of the
wrongful act of his servant with full knowledge of the
facts.
It is not enough to say that an example should be
made, or corrective measures employed, for the
public good, especially in accident cases where public
carriers are involved. For the causative negligence in
such cases is personal to the employees actually in
charge of the vehicles, and it is they who should be
made to pay this kind of damages by way of example
or correction, unless by the demonstrated tolerance or
approval of the owners they themselves can be held
at fault and their fault is of the character described in
Article 2232 of the Civil Code. Otherwise there would
be practically no difference between their liability for
exemplary damages and their liability for
compensatory damages, which needs no proof of
their negligence since the suit is predicated on breach
of contract and due diligence on their part does not
constitute a defense.
IN VIEW OF THE FOREGOING, the judgment
appealed from is modified by eliminating the award for
exemplary damages, and affirmed with respect to the
attorney's fees. No pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar,
Sanchez, Castro, Angeles and Fernando, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-29640 June 10, 1971

GUILLERMO AUSTRIA, petitioner,

vs.
THE COURT OF APPEALS (Second Division), PACIFICO ABAD and
MARIA G. ABAD, respondents.

Antonio Enrile Inton for petitioner.

Jose A. Buendia for respondents.

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

Guillermo Austria petitions for the review of the decision rendered by the
Court of Appeal (in CA-G.R. No. 33572-R), on the sole issue of whether
in a contract of agency (consignment of goods for sale) it is necessary
that there be prior conviction for robbery before the loss of the article
shall exempt the consignee from liability for such loss.

In a receipt dated 30 January 1961, Maria G. Abad acknowledged

having received from Guillermo Austria one (1) pendant with diamonds
valued at P4,500.00, to be sold on commission basis or to be returned
on demand. On 1 February 1961, however, while walking home to her
residence in Mandaluyong, Rizal, Abad was said to have been accosted
by two men, one of whom hit her on the face, while the other snatched
her purse containing jewelry and cash, and ran away. Among the pieces
of jewelry allegedly taken by the robbers was the consigned pendant.
The incident became the subject of a criminal case filed in the Court of
First Instance of Rizal against certain persons (Criminal Case No.
10649, People vs. Rene Garcia, et al.).
As Abad failed to return the jewelry or pay for its value notwithstanding
demands, Austria brought in the Court of First Instance of Manila an
action against her and her husband for recovery of the pendant or of its
value, and damages. Answering the allegations of the complaint,
defendants spouses set up the defense that the alleged robbery had
extinguished their obligation.

After due hearing, the trial court rendered judgment for the plaintiff, and
ordered defendants spouses, jointly and severally, to pay to the former
the sum of P4,500.00, with legal interest thereon, plus the amount of
P450.00 as reasonable attorneys' fees, and the costs. It was held that
defendants failed to prove the fact of robbery, or, if indeed it was
committed, that defendant Maria Abad was guilty of negligence when
she went home without any companion, although it was already getting
dark and she was carrying a large amount of cash and valuables on the
day in question, and such negligence did not free her from liability for
damages for the loss of the jewelry.

Not satisfied with his decision, the defendants went to the Court of
Appeals, and there secured a reversal of the judgment. The appellate
court overruling the finding of the trial court on the lack of credibility of
the two defense witnesses who testified on the occurrence of the
robbery, and holding that the facts of robbery and defendant Maria
Abad's possesion of the pendant on that unfortunate day have been duly
published, declared respondents not responsible for the loss of the
jewelry on account of a fortuitous event, and relieved them from liability
for damages to the owner. Plaintiff thereupon instituted the present
proceeding.

It is now contended by herein petitioner that the Court of Appeals erred

in finding that there was robbery in the case, although nobody has been
found guilty of the supposed crime. It is petitioner's theory that for
robbery to fall under the category of a fortuitous event and relieve the
obligor from his obligation under a contract, pursuant to Article 1174 of
the new Civil Code, there ought to be prior finding on the guilt of the
persons responsible therefor. In short, that the occurrence of the robbery
should be proved by a final judgment of conviction in the criminal case.
To adopt a different view, petitioner argues, would be to encourage
persons accountable for goods or properties received in trust or
consignment to connive with others, who would be willing to be accused
in court for the robbery, in order to be absolved from civil liability for the
loss or disappearance of the entrusted articles.

We find no merit in the contention of petitioner.

It is recognized in this jurisdiction that to constitute a caso fortuito that

would exempt a person from responsibility, it is necessary that (1) the
event must be independent of the human will (or rather, of the debtor's or
obligor's); (2) the occurrence must render it impossible for the debtor to
fulfill the obligation in a normal manner; and that (3) the obligor must be
free of participation in or aggravation of the injury to the creditor.1 A
fortuitous event, therefore, can be produced by nature, e.g.,
earthquakes, storms, floods, etc., or by the act of man, such as war,
attack by bandits, robbery,2 etc., provided that the event has all the
characteristics enumerated above.

It is not here disputed that if respondent Maria Abad were indeed the
victim of robbery, and if it were really true that the pendant, which she
was obliged either to sell on commission or to return to petitioner, were
taken during the robbery, then the occurrence of that fortuitous event
would have extinguished her liability. The point at issue in this
proceeding is how the fact of robbery is to be established in order that a
person may avail of the exempting provision of Article 1174 of the new
Civil Code, which reads as follows:

ART. 1174. Except in cases expressly specified by law, or

when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no
person shall be responsible for those events which could not
be foreseen, or which, though foreseen, were inevitable.

It may be noted the reform that the emphasis of the provision is on the
events, not on the agents or factors responsible for them. To avail of the
exemption granted in the law, it is not necessary that the persons
responsible for the occurrence should be found or punished; it would
only be sufficient to established that the enforceable event, the robbery
in this case did take place without any concurrent fault on the debtor's
part, and this can be done by preponderant evidence. To require in the
present action for recovery the prior conviction of the culprits in the
criminal case, in order to establish the robbery as a fact, would be to
demand proof beyond reasonable doubt to prove a fact in a civil case.

It is undeniable that in order to completely exonerate the debtor for

reason of a fortutious event, such debtor must, in addition to the cams
itself, be free of any concurrent or contributory fault or negligence.3 This
is apparent from Article 1170 of the Civil Code of the Philippines,
providing that:

ART. 1170. Those who in the performance of their obligations

are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages.

It is clear that under the circumstances prevailing at present in the City of

Manila and its suburbs, with their high incidence of crimes against
persons and property that renders travel after nightfall a matter to be
sedulously avoided without suitable precaution and protection, the
conduct of respondent Maria G. Abad, in returning alone to her house in
the evening, carrying jewelry of considerable value would be negligent
per se and would not exempt her from responsibility in the case of a
robbery. We are not persuaded, however, that the same rule should
obtain ten years previously, in 1961, when the robbery in question did
take place, for at that time criminality had not by far reached the levels
attained in the present day.

There is likewise no merit in petitioner's argument that to allow the fact of

robbery to be recognized in the civil case before conviction is secured in
the criminal action, would prejudice the latter case, or would result in
inconsistency should the accused obtain an acquittal or should the
criminal case be dismissed. It must be realized that a court finding that a
robbery has happened would not necessarily mean that those accused
in the criminal action should be found guilty of the crime; nor would a
ruling that those actually accused did not commit the robbery be
inconsistent with a finding that a robbery did take place. The evidence to
establish these facts would not necessarily be the same.
WHEREFORE, finding no error in the decision of the Court of Appeals
under review, the petition in this case is hereby dismissed with costs
against the petitioner.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee,

Barredo, Villamor and Makasiar, JJ., concur.

Castro, J., took no part.

Footnotes

1 Reyes & Puno, Outline of Philippine Civil Law, Vol. IV,

pages 25-26, citing Lasam vs. Smith, 45 Phil. 657, 661.

2 Tolentino, Civil Code of the Philippines, Vol. IV, 1962 ed.,

page 117, citing 3 Salvat 83-84.

3 V. Lachica vs. Gayoso, 48 Off. Gaz. (No. 1) 205, and cases

cited; Lanaso Fruit SS Co. vs. Univ. Ins. Co., 82 L. Ed. 422.