Republic of the Philippines paid as down payment and the remaining half to be paid within one year.
In the
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 173622               March 11, 2013
ROBERN DEVELOPMENT CORPORATION and RODOLFO M.
BERNARDO, JR., Petitioners,  receipts.10 For the first three receipts, the bank labelled the payments as "Partial
vs.
PEOPLE'S LANDLESS ASSOCIATION represented by FLORIDA RAMOS
and NARDO LABORA, Respondent.
DECISION
DEL CASTILLO, J.:
"This Court cannot presume the existence of a sale of land, absent any direct proof
of it."1
Challenged in this Petition for Review on Certiorari are the August 16, 2005
Decision2 and May 30, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R.
CV No. 66071, which ordered petitioner Robern Development Corporation (Robern)
to reconvey the 2,000-square meter lot it bought from Al-Amanah Islamic
Development Bank of the Philippines (Al-Amanah) to respondent People's Landless
Association (PELA).
Factual Antecedents
Al-Amanah owned a 2000-square meter lot located in Magtu-od, Davao City and
covered by Transfer Certificate of Title (TCT) No. 138914. 4 On December 12, 1992,
Al-Amanah Davao Branch, thru its officer-in-charge Febe O. Dalig (OIC Dalig),
asked5 some of the members of PELA6 to desist from building their houses on the lot
and to vacate the same, unless they are interested to buy it. The informal settlers thus
expressed their interest to buy the lot at ₱100.00 per square meter, which Al-
Amanah turned down for being far below its asking price. 7 Consequently, Al-
Amanah reiterated its demand to the informal settlers to vacate the lot. 8
In a letter9 dated March 18, 1993, the informal settlers together with other members
comprising PELA offered to purchase the lot for ₱300,000.00, half of which shall be
lower portion of the said letter, Al-Amanah made the following annotation:
Note:
Subject offer has been acknowledged/received but processing to take effect upon
putting up of the partial amt. of ₱150,000.00 on or before April 15, 1993.
By May 3, 1993, PELA had deposited ₱150,000.00 as evidenced by four bank
deposit on sale of TCT No. 138914", while it noted the 4th receipt as "Partial/Full
payment on deposit on sale of A/asset TCT No. 138914."
In the meantime, the PELA members remained in the property and introduced
further improvements.
On November 29, 1993, Al-Amanah, thru Davao Branch Manager Abraham D.
Ututalum-Al Haj, wrote then PELA President Bonifacio Cuizon, Sr. informing him
of the Head Office’s disapproval of PELA’s offer to buy the said 2,000-square meter
lot, viz:
Dear Mr. Cuizon, Sr.,
Please be inform[ed] that your offer to purchase the lot covered by TCT No. T-
138914, containing an area of 2,000 square meters, located at Bakingan, Barangay
Magtuod, Davao City for ₱300,000.00 has been turned down by the top
management, due to the reason that your offered price is way below the selling price
of the Bank which is ₱500.00 per square meter, or negotiate but on Cash basis only.
You had been told regarding this matter, but you failed to counter offer since you
have [conferred] with the Bank’s local management. Despite x x x the time given to
you to counter offer or to vacate the lot presently and illegally occupied by you and
the members of the association, still you refrain to hear our previous notices. You
even deliberately construct more residential structures without our permission. As
such, you are finally instructed to vacate the lot and remove all the house structures
erected on the said lot within 15 days upon receipt of this letter. Failure on your part
including that of the members, the Bank will be constrained to take legal action
against you.
Furthermore, you can withdraw the amount deposited in the name of your
association anytime during banking hours.11
Subsequently, Al-Amanah sent similarly worded letters, 12 all dated December 14,
1993, to 19 PELA members demanding that they vacate the lot.
In a letter13 dated December 20, 1993, PELA, through Atty. Pedro S. Castillo,
replied that it had already reached an agreement with Al-Amanah regarding the sale
of the subject lot based on their offered price:
Dear Mr. Ututalum-Al-Haj,
The People’s Landless Association, Inc., through Mr. Bonifacio Cuizon, Sr. has
requested us to assist them in communicating with you anent your letter of 29
November 1993. According to Mr. Cuizon the present occupants of the lot covered
by T.C.T. No. T-138914 with an area of 2,000 square meters, had a definite
agreement with the Islamic Bank through its previous Manager or
Officer-in-Charge to buy this foreclosed property at ₱300,000.00. As a matter of
fact their deposit of ₱150,000.00 was on that basis. For this reason, the occupants,
who are members of the association, have already made lot allocations among
themselves and have improved their respective houses.
It would be most unfair if the Bank would now renege on its commitment and eject
these occupants. In line with the national policy of granting landless members of our
society the opportunity of owning land and providing shelter to their families, it
would be equitable and socially justifiable to grant these occupants their occupied
areas pursuant to the earlier agreement with the Bank.
For the foregoing reasons we hope that the Islamic Bank, for legal, moral and social
grounds would reconsider.
Meanwhile, acting on Robern’s undated written offer, 14 Al-Amanah issued a
Recommendation Sheet15 dated December 27, 1993 addressed to its Board
Operations Committee, indicating therein that Robern is interested to buy the lot for
₱400,000.00; that it has already deposited 20% of the offered purchase price; that it
is buying the lot on "as is" basis; and, that it is willing to shoulder the relocation of
all informal settlers therein. On December 29, 1993, the Head Office informed the
Davao Branch Manager that the Board Operations Committee had accepted
Robern’s offer.16
Eight days later, Robern was informed of the acceptance. Al-Amanah stressed that it
is Robern’s responsibility to eject the occupants in the subject lot, if any, as well as
the payment of the remaining amount within 15 days; otherwise, the ₱80,000.00
deposit shall be forfeited.17
In a letter18 dated January 13, 1994, Robern expressed to Al-Amanah its uncertainty
on the status of the subject lot, viz.:
This is in connection with TCT No. 138914 which your bank offered to sell to us
and which we committed to buy.
A group calling itself PEOPLE’S LANDLESS ASSOCIATION, INC. made
representation with our office bringing with them copies of official receipts totalling
₱150,000.00 issued by your bank which stated---"PARTIAL PAYMENT/DEPOSIT
on sale of TCT #138914".
While condition no. 6 in the sale of property to us states that the buyer shall be
responsible for ejecting the squatters of the property, the occupants of the said lot
could hardly be categorized as squatters considering the supposed transaction
previously entered by your bank with them. We were greatly appalled that we
should learn about this not from the bank but from outside sources.1âwphi1
My company is ready to finalize our transaction provided, however, that the problem
with this group is cleared. In this connection, we are requesting for a definite
statement from your bank on whether the official receipts being brandished by this
group are genuine or not, and if they were, were they ever invalidated by virtue of
the return of their deposit and whether there was a cancellation of your agreement
with them.
In the meantime, please consider the 15-day period for us to pay the amount of
₱320,000.00 imposed by your bank suspended until such time that the legal problem
with the lot occupants is settled.
To convince Robern that it has no existing contract with PELA, Al-Amanah
furnished it with copies of the Head Office’s rejection letter of PELA’s bid, the
demand letters to vacate, and the proof of consignment of PELA’s ₱150,000.00
deposit to the Regional Trial Court (RTC) of Davao City that PELA refused to
withdraw.19 Thereafter, on February 2, 1994, it informed Robern that should the
latter fail to pay the balance by February 9, 1994, its ₱80,000.00 deposit will be
forfeited and the lot shall be up for sale to other prospective buyers. 20 Meanwhile,
Al-Amanah requested for assistance for the removal of the houses not only from the
Office of the City Engineer of Davao City 21 but also from Mayor Rodrigo Duterte.
Gaining a favorable legal opinion from the City Legal Officer, the matter was
indorsed to the Chief of Demolition Consensus of the Department of Public Services
for action.22
On March 4, 1994, Robern paid the balance of the purchase price. 23 The Deed of
Sale24 over the realty was executed on April 6, 1994 and TCT No. T-212983 25 was
issued in Robern’s name the following day.
A week later, PELA consigned ₱150,000.00 in the RTC of Davao City. 26 Then on
April 14, 1994, it wrote27 Al-Amanah asking the latter to withdraw the amount
consigned. Part of the letter states:
xxxx
On March 21, 1994 (almost one month before the April 15, 1994 deadline) we came
to your bank to remit the balance and full payment [for] the abovementioned lot.
[Inasmuch] as you refuse[d] to accept the payment, we have decided to deposit the
amount consigned to your bank.
In our dialogue at your office in 1993, we have agreed that documents will be
processed as soon as we pay the ₱150,000.00 initial deposit. [Inasmuch] as we have
not only paid the deposit but have also made full payment of the account, kindly
facilitate processing of the documents to finalize transaction.
We have not been remiss in doing our part of the transaction; please do your share.
Thank you.
Very truly yours,
For the occupants/claimants
T.C.T. No. T-13891428
Three months later, as its members were already facing eviction and possible
demolition of their houses, and in order to protect their rights as vendees, PELA
filed a suit for Annulment and Cancellation of Void Deed of Sale 29against Al-
Amanah, its Director Engr. Farouk Carpizo (Engr. Carpizo), OIC Dalig, Robern, and
Robern’s President and General Manager, petitioner Rodolfo Bernardo (Bernardo)
before the RTC of Davao City. It insisted that as early as March 1993 it has a
perfected contract of sale with Al-Amanah. However, in an apparent act of bad faith
and in cahoots with Robern, Al-Amanah proceeded with the sale of the lot despite
the prior sale to PELA.
Incidentally, the trial court granted PELA’s prayer for a temporary restraining
order.30 Subsequently, it issued on August 12, 1994 an Order 31 finding merit in the
issuance of the writ of preliminary injunction, inter alia. The RTC’s grant of
injunctive relief was affirmed by the CA in CA-G.R. SP No. 35238 32 when the
factual and legal bases for its issuance were questioned before the appellate court.
The respondents in the annulment case filed their respective Answers. 33 Al-Amanah
and Engr. Carpizo claimed that the bank has every right to sell its lot to any
interested buyer with the best offer and thus they chose Robern. They clarified that
the ₱150,000.00 PELA handed to them is not part of the payment but merely a
deposit in connection with its offer. They asserted that PELA was properly apprised
that its offer to buy was subject to the approval of Al-Amanah’s Head Office. They
stressed that Al-Amanah never entered into a sale with PELA for there was no
perfected agreement as to the price since the Head Office rejected
PELA’s offer.
For their part, Robern and Bernardo asserted the corporation’s standing as a
purchaser in good faith and for value in the sale of the property, having relied on the
clean title of Al-Amanah. They also alleged that the purported sale to PELA is
violative of the Statute of Frauds34 as there is no written agreement covering the
same.
Ruling of the Regional Trial Court
In its August 10, 1999 Decision, 35 the RTC dismissed PELA’s Complaint. It opined
that the March 18, 1993 letter PELA has been relying upon as proof of a perfected
contract of sale was a mere offer which was already rejected.
Furthermore, the annotation appearing in the bottom part of the said letter could not
be construed as an acceptance because the same is a mere acknowledgment of
receipt of the letter (not the offer) which will still be subject to processing. The RTC
likewise ruled that being a corporation, only Al-Amanah’s board of directors can
bind the bank with third persons involving the sale of its property. Thus, the
purported offer made by Al-Amanah’s OIC, who was never conferred authority by
the board of directors to sell the lot, cannot bind the bank. In contrast, when the
Head Office accepted Robern’s offered price, it was duly approved by the board of
directors, giving birth to a perfected contract of sale between Al-Amanah and
Robern.
Refusing to accept the Decision, PELA elevated its case to the CA. 36
Ruling of the Court of Appeals
Reversing the RTC in its assailed Decision 37 of August 16, 2005, the CA ruled that
there was already a perfected contract of sale between PELA and Al-Amanah. It
held that the annotationon the lower portion of the March 18, 1993 letter could be
construed to mean that for Al-Amanah to accept PELA’s offer, the sum of
₱150,000.00 must be first put up. The CA also observed that the subsequent receipt
by Al-Amanah of the amounts totalling ₱150,000.00, and the annotation of "deposit
on sale of TCT No. 138914," on the receipts it issued explicitly indicated an
acceptance of the association’s offer to buy. Consequently, the CA invalidated the
sale between Robern and Al-Amanah.
The CA also concluded that Al-Amanah is guilty of bad faith in dealing with PELA
because it took Al-Amanah almost seven months to reject PELA’s offer while
holding on to the ₱150,000.00 deposit. The CA thus adjudged PELA entitled to
moral and exemplary damages as well as attorney’s fees.
The dispositive portion of the CA Decision reads:
WHEREFORE, premises considered, the assailed Decision is SET ASIDE.
Judgment is hereby rendered:
1. DECLARING the contract of sale between PELA and defendant Bank
valid and subsisting.
2. ORDERING the defendant Bank to receive the balance of ₱150,000.00
of the purchase price from PELA as consigned in court.
3. DECLARING the deed of sale executed by defendant Bank in favor or
Robern Development Corporation as invalid and, therefore, void.
4. ORDERING defendant Bank to return to Robern the full amount of
₱400,000.00 which Robern paid as the purchase price of the subject
property within ten (10) days from finality of this decision. It shall earn a
legal interest of twelve percent (12%) per annum from the tenth (10th) day
aforementioned if there is delay in payment.
5. ORDERING Robern Development Corporation to reconvey the land
covered by T.C.T. No. 212983 in favor of People’s Landless Association
within a similar period of ten (10) days from finality of this decision.
6. ORDERING defendant Bank to pay plaintiffs-appellants the following:
a. The sum of ₱100,000.00 as moral damages;
b. The sum of ₱30,000.00 as exemplary damages;
c. The sum of ₱30,000.00 as attorney’s fees;
d. A legal interest of SIX PERCENT (6%) per annum on the
sums awarded in (a), (b), and (c) from the date of this Decision
up to the time of full payment thereof.
SO ORDERED.38
Robern and Bernardo filed a Motion for Reconsideration 39 which Al-Amanah
adopted. The CA, however, was firm in its disposition and thus denied 40 the same.
Aggrieved, Robern and Al-Amanah separately filed Petitions for Review on
Certiorari before us. However, Al-Amanah’s Petition docketed as G.R. No. 173437,
was denied on September 27, 2006 on procedural grounds. 41 Al-Amanah’s Motion
for Reconsideration of the said Resolution of dismissal was
denied with finality on December 4, 2006.42
Hence, only the Petition of Robern and Bernardo subsists.
Petitioners’ Arguments
Petitioners stress that there was no sale between PELA and Al-Amanah, for neither a
deed nor any written agreement was executed. They aver that Dalig was a mere OIC
of Al-Amanah’s Davao Branch, who was never vested with authority by the board
of directors of Al-Amanah to sell the lot. With regard to the notation on the March
18, 1993 letter and the four bank receipts, Robern contends that these are only in
connection with PELA’s offer.
Petitioners likewise contend that Robern is a purchaser in good faith. The PELA
members are mere informal settlers. The title to the lot was clean on its face, and at
the time Al-Amanah accepted Robern’s offer, the latter was unaware of the alleged
transaction with PELA. And when PELA later represented to Robern that it entered
into a transaction with Al-Amanah regarding the subject lot, Robern even wrote Al-
Amanah to inquire about PELA’s claim over the property. And when informed by
Al-Amanah that it rejected the offer of PELA and of its action of requesting
assistance from the local government to remove the occupants from the subject
property, only then did Robern push through with the sale.
Respondent’s Arguments
PELA, on the other hand, claims that petitioners are not the proper parties who can
assail the contract of sale between it and the bank. It likewise argues that the Petition
should be dismissed because the petitioners failed to attach the material portions of
the records that would support its allegations, as required by Section 4, Rule 45 of
the Rules of Court.43
Aside from echoing the finding of the CA that Al-Amanah has a perfected contract
of sale with PELA, the latter further invokes the reasoning of the RTC and the CA
(CA-G.R. SP No. 35238) in finding merit in the issuance of the writ of preliminary
injunction, that is, that there was ‘an apparent perfection of contract (of sale)
between the Bank and PELA.’ 44 Furthermore, PELA claims that Al-Amanah
accepted its offered price and the ₱150,000.00, thus barring the application of the
Statute of Frauds as the contract was already partially executed. As to the non-
existence of a written contract evidencing the same, PELA ascribes fault on the bank
claiming that nothing happened despite its repeated follow-ups for the OIC of Al-
Amanah to execute the deed after payment of the ₱150,000.00 in May 1993.
Issue
At issue before us is whether there was a perfected contract of sale between PELA
and Al-Amanah, the resolution of which will decide whether the sale of the lot to
Robern should be sustained or not.
Our Ruling
We shall first briefly address some matters raised by PELA.
PELA’s contention that Robern cannot assail the alleged sale between PELA and
Al-Amanah is untenable. Robern is one of the parties who claim title to the disputed
lot. As such, it is a real party in interest since it stands to be benefited or injured by
the judgment.45
Petitioners’ failure to attach the material portions of the record that would support
the allegations in the Petition is not fatal. We ruled in F.A.T. Kee Computer
Systems, Inc. v. Online Networks International, Inc.,46 thus:
x x x However, such a requirement failure to attach material portions of the record
was not meant to be an ironclad rule such that the failure to follow the same would
merit the outright dismissal of the petition. In accordance with Section 7 of Rule 45,
‘the Supreme Court may require or allow the filing of such pleadings, briefs,
memoranda or documents as it may deem necessary within such periods and under
such conditions as it may consider appropriate.’ More importantly, Section 8 of Rule
45 declares that ‘[i]f the petition is given due course, the Supreme Court may require
the elevation of the complete record of the case or specified parts thereof within
fifteen (15) days from notice.’ x x x47
Anent the statement of the courts below that there was ‘an apparent perfection of
contract (of sale) between Al-Amanah and PELA’, we hold that the same is strictly
confined to the resolution of whether a writ of preliminary injunction should issue
since the PELA members were then about to be evicted. PELA should not rely on
such statement as the same is not decisive of the rights of the parties and the merits
of this case.
We shall now delve into the crucial issue of whether there was a perfected contract
of sale between PELA and Al-Amanah.
Essential Elements of a Contract of Sale
A contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. 48 Thus, for a contract of
sale to be valid, all of the following essential elements must concur: "a) consent or
meeting of the minds; b) determinate subject matter; and c) price certain in money or
its equivalent."49
In the case at bench, there is no controversy anent the determinate subject matter,
i.e., the 2,000-square meter lot. This leaves us to resolve whether there was a
concurrence of the remaining elements.
As for the price, fixing it can never be left to the decision of only one of the
contracting parties.50 "But a price fixed by one of the contracting parties, if accepted
by the other, gives rise to a perfected sale."51
As regards consent, "when there is merely an offer by one party without acceptance
of the other, there is no contract." 52 The decision to accept a bidder’s proposal must
be communicated to the bidder. 53 However, a binding contract may exist between
the parties whose minds have met, although they did not affix their signatures to any
written document,54 as acceptance may be expressed or implied. 55 It "can be inferred
from the contemporaneous and subsequent acts of the contracting parties." 56 Thus,
we held:
x x x The rule is that except where a formal acceptance is so required, although the
acceptance must be affirmatively and clearly made and must be evidenced by some
acts or conduct communicated to the offeror, it may be made either in a formal or an
informal manner, and may be shown by acts, conduct, or words of the accepting
party that clearly manifest a present intention or determination to accept the offer to
buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party
recognizing the existence of the contract of sale. 57
There is no perfected contract of sale between PELA and Al-Amanah for want of
consent and agreement on the price.
After scrutinizing the testimonial and documentary evidence in the records of the
case, we find no proof of a perfected contract of sale between Al-Amanah and
PELA. The parties did not agree on the price and no consent was given, whether
express or implied.
When PELA Secretary Florida Ramos (Ramos) testified, she referred to the March
18, 1993 letter which PELA sent to Al-Amanah as the document supposedly
embodying the perfected contract of sale. 58 However, we find that the March 18,
1993 letter referred to was merely an offer to buy, viz:
March 18, 1993
The Manager
Islamic Bank
Davao Branch
Davao City
Sir/Madam:
This has reference to the offer made by Messrs. Alejandro Padilla, Leonardo Labora,
Boy Bartiana, Francisco Paig, and Mr. Asterio Aki for the purchase of the acquired
asset of the bank with an area of 2,000 square meters and covered by T.C.T. No. T-
138914, portions of which are occupied by their houses. These occupants have
formed and registered a group of x x x landless families who have occupied
shoulders of National Highways, to be able to raise an amount that would meet the
approval of the Bank as the consideration for the purchase of the property. The
group which is known as PELA or People’s Landless Association, is offering the
bank the amount of THREE HUNDRED THOUSAND PESOS (₱300,000.00) for
the whole 2,000 sq. meters. Of this amount the buyers will pay a down payment of
ONE HUNDRED FIFTY THOUSAND PESOS (₱150,000.00) and the balance
payable in one (1) year.
According to the plan of PELA, about 24 landless families can be accommodated in
the property. We hope the Bank can help these families own even a small plot for
their shelter. This would be in line with the government’s program of housing which
the present administration promised to put in high gear this year. 59 (Emphasis
supplied)
Neither can the note written by the bank that "subject offer has been
acknowledged/received but processing to take effect upon putting up of the partial
amount of ₱150,000.00 on or before April 15, 1993" be construed as acceptance of
PELA’s offer to buy. Taken at face value, the annotation simply means that the bank
merely acknowledged receipt of PELA’s letter-offer. Furthermore, by ‘processing,’
Al-Amanah only meant that it will ‘act on the offer’, i.e., it still has to evaluate
whether PELA’s offer is acceptable. Until and unless Al-Amanah accepts, there is as
yet no perfected contract of sale. Notably here, the bank never signified its
‘approval’ or ‘acceptance’ of the offer.
We cannot agree with the CA’s ratiocination that receipt of the amount, coupled
with the phrase written on the four receipts as "deposit on sale of TCT No. 138914,"
signified a tacit acceptance by Al-Amanah of PELA’s offer. For sure, the money
PELA gave was not in the concept of an earnest money. Besides, as testified to by
then OIC Dalig, it is the usual practice of Al-Amanah to require submission of a bid
deposit which is acknowledged by way of bank receipts before it entertains offers.
Thus:
Atty. Bolcan:
Now, as far as you can remember, these receipts state that these are partial deposits,
what do you mean by that?
WITNESS:
A: x x x, we normally request an offeror to submit or make deposit, actually the
bank does not entertain any offer without any deposit and just like that, during my
time x x x in buying the property for those interested the bank does not entertain any
offer unless they make a deposit.
xxxx
Q: Why do you issue receipts as officer-in-charge stating only partial deposits?
A: Because there was no sale, there was no consu[m]mated sale, so any amount
which you will give as a deposit will be accepted by the bank for the offer and that if
their offer will be disapproved we will return the deposit because their offer was
very low and this might be disapproved by the head office in Manila. 60
xxxx
Atty. Taasan:
Do you confirm that based on the interest of the plaintiff to acquire the property they
made a deposit with said bank, as evidenced by the receipts that were shown to you
by your counsel, correct?
A: Yes, sir.
Q: And according to you, the bank does not entertain any offer to buy the property
without deposits?
A: Yes, sir.
Q: In this case since the plaintiffs made a deposit x x x they were properly
entertained, correct?
A: Yes because it is under negotiation, now while their offer price is below the
selling price of the bank.61
The absence of a perfected contract of sale was further buttressed by the testimony
of PELA Secretary Ramos on cross examination, viz:
Atty. Rabor:
Since it was x x x hard earned money you did not require the Amanah Bank when
you gave that ₱150,000.00 to reduce your agreement into writing regarding the sale
of this property?
A: I insisted but she will not issue that.62
xxxx
Atty. Bolcan:
Now, on April 15, 1993 when the deposit was made, you were present?
A: Yes, sir.
Q: Now, after making the deposit of One Hundred Fifty Thousand (₱150,000.00)
Pesos on April 15, 1993 did you not request for the bank to execute a document to
prove that actually you are buying the property?
A: I even said to the OIC or the manager that ma’am, now that you have received
our money, where is our paper that we were the ones to buy that property, sir.
Q: To whom are you referring to?
A: Febe Dalig, the OIC, sir.
Q: And this OIC Febe Dalig informed you that the Offer on your part to buy the
property is subject for approval by the head office in Manila, is that correct?
A: Yes she told me that it would be subject to approval in Manila x x x.
Q: And later on you were informed by the bank that your offer was not accepted by
the head office in Manila, is that correct?
A: She did not inform us but we kept on following it up with their office and she
told us that it did not arrive yet, sir.63(Emphasis supplied)
PELA Secretary Ramos’ testimony thus corroborated OIC Dalig’s consistent stand
that it is the Head Office which will decide whether Al-Amanah would accept
PELA’s offer:
Atty. Bolcan:
And now, if there are interested persons making offer x x x what would you do?
A: Well, we have to screen the offer before we forward the offer to Manila for
approval because…
Court:
What would you do before you forward that to Manila?
A: We will be screening the offer x x x.
Atty. Bolcan:
And you said that it is referred to Manila?
A: Yes, sir.
Q: Who will eventually approve the offer made by the interested persons to buy the
property?
A: We have a committee in Manila to approve the sale of the property.
Q: Do you have any idea who will approve the offer of the property?
A: I have no idea but the president, rather it consists of the president I think and then
signed also by the vice-president and some officers in the office, sir.
xxxx
Q: Now, in case of offers of the property of the bank, x x x the officer-in-charge of
the bank, Al-Amanah Bank branch, usually refers this matter to the head office in
Manila?
A: Yes, sir.
Q: And it is the head office that will decide whether the offer will be approved or
not?
A: Yes as head of the branch, we have to forward the offer whether it was
acceptable or not.64
It is thus undisputed, and PELA even acknowledges, that OIC Dalig made it clear
that the acceptance of the offer, notwithstanding the deposit, is subject to the
approval of the Head Office. Recognizing the corporate nature of the bank and that
the power to sell its real properties is lodged in the higher authorities, 65 she never
falsely represented to the bidders that she has authority to sell the bank’s property.
And regardless of PELA’s insistence that she execute a written agreement of the
sale, she refused and told PELA to wait for the decision of the Head Office, making
it clear that she has no authority to execute any deed of sale.
Contracts undergo three stages: "a) negotiation which begins from the time the
prospective contracting parties indicate interest in the contract and ends at the
moment of their agreement[; b) perfection or birth, x x x which takes place when the
parties agree upon all the essential elements of the contract x x x; and c)
consummation, which occurs when the parties fulfill or perform the terms agreed
upon, culminating in the extinguishment thereof."66
In the case at bench, the transaction between Al-Amanah and PELA remained in the
negotiation stage. The offer never materialized into a perfected sale, for no oral or
documentary evidence categorically proves that Al-Amanah expressed amenability
to the offered ₱300,000.00 purchase price. Before the lapse of the 1-year period
PELA had set to pay the remaining ‘balance,’ Al-Amanah expressly rejected its
offered purchase price, although it took the latter around seven months to inform the
former and this entitled PELA to award of damages. 67 Al-Amanah’s act of selling
the lot to another buyer is the final nail in the coffin of the negotiation with PELA.
Clearly, there is no double sale, thus, we find no reason to disturb the consummated
sale between Al-Amanah and Robern.
At this juncture, it is well to stress that Al-Amanah’s Petition before this Court
docketed as G.R. No. 173437 was already denied with finality on December 4, 2006.
Hence, we see no reason to disturb paragraph 6 of the CA’s Decision ordering Al-
Amanah to pay damages to PELA.
WHEREFORE, we PARTIALLY GRANT the Petition. Except for paragraph 6 of
the Court of Appeals Decision which had already been long settled, 68 the rest of the
judgment in the assailed August 16, 2005 Decision and May 30, 2006 Resolution of
the Court of Appeals in CA-G.R. No. CV No. 66071 are hereby ANNULLED and
SET ASIDE. The August 10, 1999 Decision of the Regional Trial Court of Davao
City, Branch 12, dismissing the Complaint for Annulment and Cancellation of Void
Deed of Sale filed by respondent People's Landless Association is REINSTATED
and AFFIRMED. The amount of Pesos: Three Hundred Thousand (₱300,000.00)
consigned with the Regional Trial Court of Davao City may now be withdrawn by
People's Landless Association.
SO ORDERED.
   PERALTA,
  ABAD, and
SPOUSES ALFREDO M. CASTILLO AND ELIZABETH C. MENDOZA, JJ.
CASTILLO, and SPOUSES ROMEO B. CAPATI and  
AQUILINA M. LOBO, Promulgated:
Respondents.  
  May 30, 2011
 
x------------------------------------------------------------------------------------x
 
 
DECISION
 
NACHURA, J.:
 
 
 
 
This is a petition for review on certiorari[1] under Rule 45 of the Rules of Court,
seeking to partially reconsider and modify the Decision [2] dated August 27, 2009 and
the Resolution[3] dated August 4, 2010 of the Court of Appeals (CA) in CA-G.R. CV
No. 86445.
 
Respondent spouses Alfredo M. Castillo and Elizabeth Capati-Castillo were the
registered owners of a lot located in Tondo, Manila, covered by Transfer Certificate
of Title (TCT) No. 233242. Respondent spouses Romeo B. Capati and Aquilina M.
Lobo were the registered owners of another lot, covered by TCT No. 227858, also
located in Tondo, Manila.
 
On May 7, 1997, respondents obtained a loan, with real estate mortgage over the
said properties, from petitioner Philippine Savings Bank, as evidenced by a
Promissory Note with a face value of P2,500,000.00. The Promissory Note, in part,
Republic of the Philippines
reads:
Supreme Court
 
Manila
FOR VALUE RECEIVED, I/We, solidarily, jointly
 
and severally, promise to pay to the order of PHILIPPINE
SECOND DIVISION
SAVINGS BANK, at its head office or at the above stated
 
Branch the sum of TWO MILLION FIVE HUNDRED
PHILIPPINE SAVINGS BANK, G.R. No. 193178
THOUSAND PESOS ONLY (P2,500,000.00), Philippine
Petitioner,  
currency, with interest at the rate of seventeen per centum (17%)
  Present:
per annum, from date until paid, as follows:
   
 
  CARPIO, J.,
P43,449.41 (principal and interest) monthly for fifty
- versus - Chairperson,
nine (59) months starting June 07, 1997 and every 7 th day of the
  NACHURA,
month thereafter with balloon payment on May 07, 2002.
  
Also, the rate of interest herein provided shall be
subject to review and/or adjustment every ninety (90) days.
 
All amortizations which are not paid on due date shall
bear a penalty equivalent to three percent (3%) of the amount
due for every month or fraction of a months delay.
 
The rate of interest and/or bank charges herein
stipulated, during the terms of this promissory note, its
extensions, renewals or other modifications, may be increased,
decreased or otherwise changed from time to time within the
rate of interest and charges allowed under present or future
law(s) and/or government regulation(s) as the PHILIPPINE
SAVINGS BANK may prescribe for its debtors.
 
Upon default of payment of any installment and/or
interest when due, all other installments and interest remaining
unpaid shall immediately become due and payable. Also, said
interest not paid when due shall be added to, and become part of
the principal and shall likewise bear interest at the same rate
herein provided.[4]
 
From the release of the loan in May 1997 until December 1999, petitioner had
increased and decreased the rate of interest, the highest of which was 29% and the
lowest was 15.5% per annum, per the Promissory Note.
 
Respondents were notified in writing of these changes in the interest rate. They
neither gave their confirmation thereto nor did they formally question the
changes. However, respondent Alfredo Castillo sent several letters to petitioner
requesting for the reduction of the interest rates. [5] Petitioner denied these requests.
 
Respondents regularly paid their amortizations until December 1999, when they
defaulted due to financial constraints. Per petitioners table of application of
payment, respondents outstanding balance was P2,231,798.11.[6] Petitioner claimed
that as of February 11, 2000, respondents had a total outstanding obligation
of P2,525,910.29.[7] Petitioner sent them demand letters. Respondents failed to pay.
 
Thus, petitioner initiated an extrajudicial foreclosure sale of the mortgaged
properties. The auction sale was conducted on June 16, 2000, with the properties
sold for P2,778,611.27 and awarded to petitioner as the only bidder. Being the
mortgagee, petitioner no longer paid the said amount but rather credited it to the
loan amortizations and arrears, past due interest, penalty charges, attorneys fees, all
legal fees and expenses incidental to the foreclosure and sale, and partial payment of
the mortgaged debt. On even date, a certificate of sale was issued and submitted to
the Clerk of Court and to the Ex-Officio Sheriff of Manila.
 
On July 3, 2000, the certificate of sale, sans the approval of the Executive Judge of
the Regional Trial Court (RTC), was registered with the Registry of Deeds of
Manila.
 
Respondents failed to redeem the property within the one-year redemption
period. However, on July 18, 2001, Alfredo Castillo sent a letter to petitioner
requesting for an extension of 60 days before consolidation of its title so that they
could redeem the properties, offering P3,000,000.00 as redemption price. Petitioner
conceded to Alfredo Castillos request, but respondents still failed to redeem the
properties.
 
On October 1, 2001, respondents filed a case for Reformation of Instruments,
Declaration of Nullity of Notarial Foreclosure Proceedings and Certificate of Sale,
Cancellation of Annotations on TCT Nos. 233242 and 227858, and Damages, with a
plea for the issuance of a temporary restraining order (TRO) and/or writ of
preliminary prohibitory injunction, with the RTC, Branch 14, Manila.
 
On October 5, 2001, the RTC issued a TRO. Eventually, on October 25, 2001, it
issued a writ of preliminary injunction.
After trial, the RTC rendered its decision dated July 30, 2005, the dispositive portion
of which reads:
 
WHEREFORE, judgment is hereby rendered in favor
of the plaintiffs, and against the defendants in the following
manner:
 
1.           Declaring the questioned increases of interest as
unreasonable, excessive and arbitrary and ordering the
defendant Philippine Savings Bank to refund to the
plaintiffs, the amount of interest collected in excess of
seventeen percent (17%) per annum;
2.           Declaring the Extrajudicial Foreclosure conducted by
the defendants on June 16, 2000 and the subsequent
proceedings taken thereafter to be void ab initio. In this
connection, defendant Register of Deeds is hereby
ordered to cause the cancellation of the corresponding
annotations at the back of Transfer Certificates of Title
No. 227858 and 233242 in the name of Spouses Alfredo
 and Elizabeth Castillo and Spouses Romeo Capati and
Aquilina M. Lobo;
  2.      Declaring the Extrajudicial
3.           Defendant Philippine Savings Bank is adjudged to pay Foreclosure conducted by the
plaintiffs the amount of Php50,000.00 as moral damages; defendants on June 16, 2000
Php50,000.00 as exemplary damages; and attorneys fees and the subsequent
in the amount of Php30,000.00 and Php3,000.00 per proceedings taken thereafter
appearance. to be valid[;]
   
4.           Defendants counterclaims are hereby DISMISSED for 3.      Defendant Philippine
lack of merit. Savings Bank is adjudged to
  pay plaintiffs the amount of
With costs against the defendant Philippine Savings Php 25,000.00 as moral
Bank, Inc. damages; Php 50,000.00 as
  exemplary damages; and
SO ORDERED.[8] attorneys fees in the amount
  of Php 30,000.00 and Php
  3,000.00 per appearance;
Petitioner filed a motion for reconsideration. The RTC partially granted the motion  
in its November 30, 2005 Order, modifying the interest rate from 17% to 24% per 4.      Defendants counterclaims
annum.[9] are hereby DISMISSED for
  lack of merit.
Petitioner appealed to the CA. The CA modified the decision of the RTC, thus  
  With costs against the defendant
WHEREFORE, in view of the foregoing, the Philippine Savings Bank, Inc.
Decision of the Regional Trial Court is hereby AFFIRMED  
WITH MODIFICATIONS. The fallo shall now read: SO ORDERED.[10]
   
WHEREFORE, judgment is  
hereby rendered in favor of the plaintiffs and Hence, this petition anchored on the contention that the CA erred in: (1) declaring
against the defendants in the following that the modifications in the interest rates are unreasonable; and (2) sustaining the
manner: award of damages and attorneys fees.
   
1.      Declaring the questioned The petition should be partially granted.
increases of interest as  
unreasonable, excessive and The unilateral determination and imposition of the increased rates is violative of the
arbitrary and ordering the principle of mutuality of contracts under Article 1308 of the Civil Code, which
defendant Philippine Savings provides that [t]he contract must bind both contracting parties; its validity or
Bank to refund to the compliance cannot be left to the will of one of them. [11] A perusal of the Promissory
plaintiffs, the amount of Note will readily show that the increase or decrease of interest rates hinges solely on
interest collected in excess of the discretion of petitioner. It does not require the conformity of the maker before a
seventeen percent (17%) per new interest rate could be enforced.Any contract which appears to be heavily
annum; weighed in favor of one of the parties so as to lead to an unconscionable result, thus
partaking of the nature of a contract of adhesion, is void. Any stipulation regarding
the validity or compliance of the contract left solely to the will of one of the parties
is likewise invalid.
Petitioner contends that respondents acquiesced to the imposition of the
modified interest rates; thus, there was no violation of the principle of mutuality of
contracts. To buttress its position, petitioner points out that the exhibits presented by
respondents during trial contained a uniform provision, which states:
 
The interest rate adjustment is in accordance with the
Conformity Letter you have signed amending your accounts
interest rate review period from ninety (90) to thirty days. [12]
 
 
It further claims that respondents requested several times for the reduction of the
interest rates, thus, manifesting their recognition of the legality of the said rates.  It
also asserts that the contractual provision on the interest rates cannot be said to be
lopsided in its favor, considering that it had, on several occasions, lowered the
interest rates.
 
We disagree. The above-quoted provision of respondents exhibits readily
shows that the conformity letter signed by them does not pertain to the modification
of the interest rates, but rather only to the amendment of the interest rate review
period from 90 days to 30 days. Verily, the conformity of respondents with respect
to the shortening of the interest rate review period from 90 days to 30 days is
separate and distinct from and cannot substitute for the required conformity of
respondents with respect to the modification of the interest rate itself.
Moreover, respondents assent to the modifications in the interest rates
cannot be implied from their lack of response to the memos sent by petitioner,
informing them of the amendments. The said memos were in the nature of a
proposal to change the contract with respect to one of its significant
components, i.e., the interest rates. As we have held, no one receiving a proposal to
change a contract is obliged to answer the proposal. [13] Therefore, respondents could
neither be faulted, nor could they be deemed to have assented to the modified
interest rates, for not replying to the said memos from petitioner.
 
We likewise disagree with petitioners assertion that respondents
recognized the legality of the imposed interest rates through the letters requesting for
the reduction of the rates. The request for reduction of the interest does not translate
to consent thereto. To be sure, a cursory reading of the said letters would clearly
show that Alfredo Castillo was, in fact, questioning the propriety of the interest rates
imposed on their loan, viz.:
 
The undersigned is a mortgagor of Philippine Savings
Bank with an outstanding balance of TWO MILLION FOUR
HUNDRED THIRTY EIGHT THOUSAND SIX HUNDRED
SIX and 63/100 (P2,438,606.63) at an interest rate of 26% per
annum (as per April 6, 1997 inquiry to Leo of the Accounting
Dept.) and with a monthly amortization of FIFTY EIGHT
THOUSAND THREE HUNDRED FIFTY EIGHT AND 38/100
(P58,358.38).
 
I understand that the present interest rate is lower than
the last months 27%. However, it does not give our company
any break from coping with our receivables. Our clients,
Mercure Philippine Village Hotel, Puerto Azul Beach Hotel,
Grand Air Caterer, to name a few, did not settle their obligation
to us inspite of what was agreed upon during our meeting held
last February 1998. Their pledge of paying us at least ONE
MILLION PESOS PER AFFILIATION, which we allocate to
pay our balance to your bank, was not a reliable deal to foresee
because, as of this very day, not even half of the amount assured
to us was settled. This situation puts the company in critical
condition since we will again shoulder all the interests imposed
on our loans, while, we ourselves, did not impose any surcharge
with our receivables.
 
In connection with this, may I request for a reduction
of interest rate, in my favor, i.e., from 26% to 21% per annum. If
such appeal is granted to us, we are assuring you of our prompt
payment and keen observance to your rules and regulations. [14]
 
 
 
The undersigned is a mortgagor of Philippine Savings
Bank with an outstanding balance of TWO MILLION FOUR
HUNDRED THIRTY THREE THOUSAND EIGHTY FOUR
and 73/100 (P2,433,084.73) at an interest rate of 22.5% per
annum (as per April 24, 1998 memo faxed to us) and with a
monthly amortization of FIFTY TWO THOUSAND FIVE
HUNDRED FIFTY EIGHT AND 01/100 (P52,55[8].01).
 
Such reduction of interest rate is an effect of our
currencys development. But based on our inquiries and research
to different financial institutions, the rate your bank is imposing
to us is still higher compared to the eighteen and a half percent
(18.5%) others are asking. With this situation, we are again
requesting for a decrease on the interest rate, that is, from 22.5%
 to 18.5%.This figure stated is not fictitious since other banks
advertising are published to leading newspapers. The difference
between your rate is visibly greater and has an immense effect
on our financial obligations.[15]
 
 
 
The undersigned is a mortgagor at Philippine Savings
Bank with an outstanding balance of TWO MILLION FOUR
HUNDRED THOUSAND EIGHT HUNDRED ELEVEN and
03/100 (Php 2,40[0],811.03) at an interest rate of 21% per
annum.
 
Letters of reconsideration were constantly sent to you
to grant us lower interest rate. However, no assistance with
regard to that request has been extended to us. In view of this, I
am requesting for a transfer of our loan from PSBank Head
Office to PSBank Mabini Branch. This transfer is purposely
intended for an appeal [for] a lower interest rate. [16]
 
 
 
Being a mortgagor of PSBank, I have [been]
repeatedly asking for a reduction of your interest rate. However,
my request has been denied since the term I started. Many banks
offer a much lower interest rate and fair business transactions
(e.g. Development Bank of Singapore [which] offers 13% p.a.
interest rate).
 
In this connection, once more, I am requesting for a
reduction of the interest rate applied to my loan to maintain our
business relationship.[17]
 
Basic is the rule that there can be no contract in its true sense without the mutual
assent of the parties. If this consent is absent on the part of one who contracts, the
act has no more efficacy than if it had been done under duress or by a person of
unsound mind. Similarly, contract changes must be made with the consent of the
contracting parties. The minds of all the parties must meet as to the proposed
modification, especially when it affects an important aspect of the agreement. In the
case of loan contracts, the interest rate is undeniably always a vital component, for it
can make or break a capital venture. Thus, any change must be mutually agreed
upon, otherwise, it produces no binding effect.[18]
Escalation clauses are generally valid and do not contravene public policy. They are
common in credit agreements as means of maintaining fiscal stability and retaining
the value of money on long-term contracts. To prevent any one-sidedness that these
clauses may cause, we have held in Banco Filipino Savings and Mortgage Bank v.
Judge Navarro[19]that there should be a corresponding de-escalation clause that
would authorize a reduction in the interest rates corresponding to downward changes
made by law or by the Monetary Board. As can be gleaned from the parties loan
agreement, a de-escalation clause is provided, by virtue of which, petitioner had
lowered its interest rates.
 
Nevertheless, the validity of the escalation clause did not give petitioner the
unbridled right to unilaterally adjust interest rates. The adjustment should have still
been subjected to the mutual agreement of the contracting parties. In light of the
absence of consent on the part of respondents to the modifications in the interest
rates, the adjusted rates cannot bind them notwithstanding the inclusion of a de-
escalation clause in the loan agreement.
 
The order of refund was based on the fact that the increases in the interest
rate were null and void for being violative of the principle of mutuality of
contracts. The amount to be refunded refers to that paid by respondents when they
had no obligation to do so. Simply put, petitioner should refund the amount of
interest that it has illegally imposed upon respondents. Any deficiency in the
payment of the obligation can be collected by petitioner in a foreclosure proceeding,
which it already did.
 
On the matter of damages, we agree with petitioner. Moral damages are not
recoverable simply because a contract has been breached. They are recoverable only
if the party from whom it is claimed acted fraudulently or in bad faith or in wanton
disregard of his contractual obligations. The breach must be wanton, reckless,
malicious or in bad faith, and oppressive or abusive. Likewise, a breach of contract
may give rise to exemplary damages only if the guilty party acted in a fraudulent or
malevolent manner.[20]
In this case, we are not sufficiently convinced that fraud, bad faith, or wanton
disregard of contractual obligations can be imputed to petitioner simply because it
unilaterally imposed the changes in interest rates, which can be attributed merely to
bad business judgment or attendant negligence. Bad faith pertains to a dishonest
purpose, to some moral obliquity, or to the conscious doing of a wrong, a breach of
a known duty attributable to a motive, interest or ill will that partakes of the nature
of fraud. Respondents failed to sufficiently establish this requirement. Thus, the
award of moral and exemplary damages is unwarranted. In the same vein,
respondents cannot recover attorneys fees and litigation expenses. Accordingly,
these awards should be deleted.[21]
However, as regards the above mentioned award for refund to respondents of their
interest payments in excess of 17% per annum, the same should include legal
interest. In Eastern Shipping Lines, Inc. v. Court of Appeals,[22] we have held that
when an obligation is breached, and it consists in the payment of a sum of money,
the interest on the amount of damages shall be at the rate of 12% per annum,
reckoned from the time of the filing of the complaint. [23]
 
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Decision
dated August 27, 2009 and the Resolution dated August 4, 2010 of the Court of
Appeals in CA-G.R. CV No. 86445 are AFFIRMED WITH
MODIFICATIONS, such that the award for moral damages, exemplary damages,
attorneys fees, and litigation expenses is DELETED, and the order of refund in
favor of respondents of interest payments made in excess of 17% per annum shall
bear interest of 12% per annum from the time of the filing of the complaint until its
full satisfaction.
 
SO ORDERED. Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 179382               January 14, 2013

SPOUSES BENJAMIN C. MAMARIL AND SONIA P.

MAMARIL, Petitioners, 
vs.
THE BOY SCOUT OF THE PHILIPPINES, AIB SECURITY AGENCY, INC.,
CESARIO PEÑA,* AND VICENTE GADDI, Respondents.

DECISION

PERLAS-BERNABE, J.:

This is a Petition for Review on Certiorari assailing the May 31, 2007 Decision 1 and
August 16, 2007 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No.
75978. The dispositive portion of the said Decision reads:

WHEREFORE, the Decision dated November 28, 2001 and the Order dated June
11, 2002 rendered by the Regional Trial Court of Manila, Branch 39 is hereby
MODIFIED to the effect that only defendants AIB Security Agency, Inc., Cesario
Peña and Vicente Gaddi are held jointly and severally liable to pay plaintiffs-
appellees Spouses Benjamin C. Mamaril and Sonia P. Mamaril the amount of Two
Hundred Thousand Pesos (₱200,000.00) representing the cost of the lost vehicle,
and to pay the cost of suit. The other monetary awards are DELETED for lack of
merit and/or basis.
Defendant-Appellant Boy Scout of the Philippines is absolved from any liability.
SO ORDERED.3
The Antecedent Facts
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril) are jeepney
operators since 1971. They would park their six (6) passenger jeepneys every night
at the Boy Scout of the Philippines' (BSP) compound located at 181 Concepcion
Street, Malate, Manila for a fee of ₱300.00 per month for each unit. On May 26,
1995 at 8 o'clock in the evening, all these vehicles were parked inside the BSP
compound. The following morning, however, one of the vehicles with Plate No.
DCG 392 was missing and was never recovered. 4 According to the security guards
Cesario Peña (Peña) and Vicente Gaddi (Gaddi) of AIB Security Agency, Inc. (AIB)
with whom BSP had contracted5 for its security and protection, a male person who
looked familiar to them took the subject vehicle out of the compound.
On November 20, 1996, Sps. Mamaril filed a complaint 6 for damages before the
Regional Trial Court (RTC) of Manila, Branch 39, against BSP, AIB, Peña and
Gaddi. In support thereof, Sps. Mamaril averred that the loss of the subject vehicle
was due to the gross negligence of the above-named security guards on-duty who
allowed the subject vehicle to be driven out by a stranger despite their agreement
that only authorized drivers duly endorsed by the owners could do so. Peña and
Gaddi even admitted their negligence during the ensuing investigation.
Notwithstanding, BSP and AIB did not heed Sps. Mamaril's demands for a
conference to settle the matter. They therefore prayed that Peña and Gaddi, together
with AIB and BSP, be held liable for: (a) the value of the subject vehicle and its
accessories in the aggregate amount of ₱300,000.00; (b) ₱275.00 representing daily
loss of income/boundary reckoned from the day the vehicle was lost; (c) exemplary
damages; (d) moral damages; (e) attorney's fees; and (f) cost of suit.
In its Answer,7 BSP denied any liability contending that not only did Sps. Mamaril
directly deal with AIB with respect to the manner by which the parked vehicles
would be handled, but the parking ticket8 itself expressly stated that the
"Management shall not be responsible for loss of vehicle or any of its accessories or
article left therein." It also claimed that Sps. Mamaril erroneously relied on the
Guard Service Contract. Apart from not being parties thereto, its provisions cover
only the protection of BSP's properties, its officers, and employees.
In addition to the foregoing defenses, AIB alleged that it has observed due diligence
in the selection, training and supervision of its security guards while Peña and Gaddi
claimed that the person who drove out the lost vehicle from the BSP compound
represented himself as the owners' authorized driver and had with him a key to the
subject vehicle. Thus, they contended that Sps. Mamaril have no cause of action
against them.
The RTC Ruling
After due proceedings, the RTC rendered a Decision 9 dated November 28, 2001 in
favor of Sps. Mamaril. The dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered ordering the defendants Boy Scout of
the Philippines and AIB Security Agency, with security guards Cesario Pena and
Vicente Gaddi: -
1. To pay the plaintiffs jointly and severally the cost of the vehicle which
is ₱250,000.00 plus accessories of ₱50,000.00;
2. To pay jointly and severally to the plaintiffs the daily loss of the
income/boundary of the said jeepney to be reckoned fromits loss up to the
final adjudication of the case, which is ₱275.00 a day;
3. To pay jointly and severally to the plaintiffs moral damages in the
amount of ₱50,000.00;
4. To pay jointly and severally to the plaintiffs exemplary damages in the
amount of ₱50,000.00;
5. To pay jointly and severally the attorney's fees of ₱50,000.00 and
appearances in court the amount of ₱1,500.00 per appearance; and
6. To pay cost.
SO ORDERED.10
The RTC found that the act of Peña and Gaddi in allowing the entry of an
unidentified person and letting him drive out the subject vehicle in violation of their
internal agreement with Sps. Mamaril constituted gross negligence, rendering AIB
and its security guards liable for the former's loss. BSP was also adjudged liable
because the Guard Service Contract it entered into with AIB offered protection to all
properties inside the BSP premises, which necessarily included Sps. Mamaril's
vehicles. Moreover, the said contract stipulated AIB's obligation to indemnify BSP
for all losses or damages that may be caused by any act or negligence of its security
guards. Accordingly, the BSP, AIB, and security guards Peña and Gaddi were held
jointly and severally liable for the loss suffered by Sps. Mamaril.
On June 11, 2002, the RTC modified its decision reducing the cost of the stolen
vehicle from ₱250,000.00 to ₱200,000.00.11
Only BSP appealed the foregoing disquisition before the CA.
The CA Ruling
In its assailed Decision,12 the CA affirmed the finding of negligence on the part of
security guards Peña and Gaddi. However, it absolved BSP from any liability,
holding that the Guard Service Contract is purely between BSP and AIB and that
there was nothing therein that would indicate any obligation and/or liability on the
part of BSP in favor of third persons, such as Sps. Mamaril. Nor was there evidence
sufficient to establish that BSP was negligent.
It further ruled that the agreement between Sps. Mamaril and BSP was substantially
a contract of lease whereby the former paid parking fees to the latter for the lease of
parking slots. As such, the lessor, BSP, was not an insurer nor bound to take care
and/or protect the lessees' vehicles.
On the matter of damages, the CA deleted the award of ₱50,000.00 representing the
value of the accessories inside the lost vehicle and the ₱275.00 a day for loss of
income in the absence of proof to support them. It also deleted the award of moral
and exemplary damages and attorney's fees for lack of factual and legal bases.
Sps. Mamaril's motion for reconsideration thereof was denied in the August 16,
2007 Resolution.13
Issues Before the Court
Hence, the instant petition based on the following assignment of errors, to wit:
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN
ABSOLVING RESPONDENT BOY SCOUT OF THE PHILIPPINES
FROM ANY LIABILITY.
II.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
MISTAKE WHEN IT RULED THAT THE GUARD SERVICE
CONTRACT IS PURELY BETWEEN BOY SCOUT OF THE
PHILIPPINES AND AIB SECURITY AGENCY, INC., AND IN
HOLDING THAT THERE IS ABSOLUTELY NOTHING IN THE SAID
CONTRACT THAT WOULD INDICATE ANY OBLIGATION
AND/OR LIABILITY ON THE PART OF THE PARTIES THEREIN IN
FAVOR OF THIRD PERSONS, SUCH AS PETITIONERS HEREIN.
III.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
ERROR IN THE INTERPRETATION OF LAW WHEN IT
CONSIDERED THE AGREEMENT BETWEEN BOY SCOUT OF THE
PHILIPPINES AND PETITIONERS A CONTRACT OF LEASE,
WHEREBY THE BOY SCOUT IS NOT DUTY BOUND TO PROTECT
OR TAKE CARE OF PETITIONERS' VEHICLES.
IV.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED
WHEN IT RULED THAT PETITIONERS ARE NOT ENTITLED TO
DAMAGES AND ATTORNEY'S FEES.14
In fine, Sps. Mamaril maintain that: (1) BSP should be held liable for the loss of
their vehicle based on the Guard Service Contract and the parking ticket it issued;
and (2) the CA erred in deleting the RTC awards of damages and attorney's fees.
The Court's Ruling
The petition lacks merit.
Article 20 of the Civil Code provides that every person, who, contrary to law,
willfully or negligently causes damage to another, shall indemnify the latter for the
same. Similarly, Article 2176 of the Civil Code states:
Art. 2176. Whoever by act or omission causes damage to another, there being fault
or negligence, is obliged to pay for the damage done. Such fault or negligence, if
there is no preexisting contractual relation between the parties, is called a quasi-
delict and is governed by the provisions of this Chapter.
In this case, it is undisputed that the proximate cause of the loss of Sps. Mamaril's
vehicle was the negligent act of security guards Peña and Gaddi in allowing an
unidentified person to drive out the subject vehicle. Proximate cause has been
defined as that cause, which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury or loss, and without which the result
would not have occurred.15
Moreover, Peña and Gaddi failed to refute Sps. Mamaril's contention 16 that they
readily admitted being at fault during the investigation that ensued.
On the other hand, the records are bereft of any finding of negligence on the part of
BSP. Hence, no reversible error was committed by the CA in absolving it from any
liability for the loss of the subject vehicle based on fault or negligence.
Neither will the vicarious liability of an employer under Article 2180 17 of the Civil
Code apply in this case. It is uncontested that Peña and Gaddi were assigned as
security guards by AIB to BSP pursuant to the Guard Service Contract. Clearly,
therefore, no employer-employee relationship existed between BSP and the security
guards assigned in its premises. Consequently, the latter's negligence cannot be
imputed against BSP but should be attributed to AIB, the true employer of Peña and
Gaddi.18
In the case of Soliman, Jr. v. Tuazon,19 the Court enunciated thus:
It is settled that where the security agency, as here, recruits, hires and assigns the
work of its watchmen or security guards, the agency is the employer of such guards
and watchmen. Liability for illegal or harmful acts committed by the security guards
attaches to the employer agency, and not to the clients or customers of such agency.
As a general rule, a client or customer of a security agency has no hand in selecting
who among the pool of security guards or watchmen employed by the agency shall
be assigned to it; the duty to observe the diligence of a good father of a family in the
selection of the guards cannot, in the ordinary course of events, be demanded from
the client whose premises or property are protected by the security guards. The fact
that a client company may give instructions or directions to the security guards
assigned to it, does not, by itself, render the client responsible as an employer of the
security guards concerned and liable for their wrongful acts or omissions. Those
instructions or directions are ordinarily no more than requests commonly envisaged
in the contract for services entered into with the security agency. 20
Nor can it be said that a principal-agent relationship existed between BSP and the
security guards Peña and Gaddi as to make the former liable for the latter's
complained act. Article 1868 of the Civil Code states that "by the contract of
agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter."
The basis for agency therefore is representation, 21 which element is absent in the
instant case. Records show that BSP merely hired the services of AIB, which, in
turn, assigned security guards, solely for the protection of its properties and
premises. Nowhere can it be inferred in the Guard Service Contract that AIB was
appointed as an agent of BSP. Instead, what the parties intended was a pure
principal-client relationship whereby for a consideration, AIB rendered its security
services to BSP.
Notwithstanding, however, Sps. Mamaril insist that BSP should be held liable for
their loss on the basis of the Guard Service Contract that the latter entered into with
AIB and their parking agreement with BSP.
Such contention cannot be sustained.
Article 1311 of the Civil Code states:
Art. 1311. Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is not
liable beyond the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person.
Thus, in order that a third person benefited by the second paragraph of Article 1311,
referred to as a stipulation pour autrui, may demand its fulfillment, the following
requisites must concur: (1) There is a stipulation in favor of a third person; (2) The
stipulation is a part, not the whole, of the contract; (3) The contracting parties clearly
and deliberately conferred a favor to the third person - the favor is not merely
incidental; (4) The favor is unconditional and uncompensated; (5) The third person
communicated his or her acceptance of the favor before its revocation; and (6) The
contracting parties do not represent, or are not authorized, by the third
party.22 However, none of the foregoing elements obtains in this case.
It is undisputed that Sps. Mamaril are not parties to the Guard Service
Contract.1âwphi1 Neither did the subject agreement contain any stipulation pour
autrui. And even if there was, Sps. Mamaril did not convey any acceptance thereof.
Thus, under the principle of relativity of contracts, they cannot validly claim any
rights or favor under the said agreement.23 As correctly found by the CA:
First, the Guard Service Contract between defendant-appellant BSP and defendant
AIB Security Agency is purely between the parties therein. It may be observed that
although the whereas clause of the said agreement provides that defendant-appellant
desires security and protection for its compound and all properties therein, as well as
for its officers and employees, while inside the premises, the same should be
correlated with paragraph 3(a) thereof which provides that the security agency shall
indemnify defendant-appellant for all losses and damages suffered by it attributable
to any act or negligence of the former's guards.
Otherwise stated, defendant-appellant sought the services of defendant AIB Security
Agency for the purpose of the security and protection of its properties, as well as
that of its officers and employees, so much so that in case of loss of [sic] damage
suffered by it as a result of any act or negligence of the guards, the security agency
would then be held responsible therefor. There is absolutely nothing in the said
contract that would indicate any obligation and/or liability on the part of the parties
therein in favor of third persons such as herein plaintiffs-appellees. 24
Moreover, the Court concurs with the finding of the CA that the contract between
the parties herein was one of lease 25 as defined under Article 164326 of the Civil
Code. It has been held that the act of parking a vehicle in a garage, upon payment of
a fixed amount, is a lease. 27 Even in a majority of American cases, it has been ruled
that where a customer simply pays a fee, parks his car in any available space in the
lot, locks the car and takes the key with him, the possession and control of the car,
necessary elements in bailment, do not pass to the parking lot operator, hence, the
contractual relationship between the parties is one of lease. 28
In the instant case, the owners parked their six (6) passenger jeepneys inside the
BSP compound for a monthly fee of ₱300.00 for each unit and took the keys home
with them. Hence, a lessor-lessee relationship indubitably existed between them and
BSP. On this score, Article 1654 of the Civil Code provides that "the lessor (BSP) is
obliged: (1) to deliver the thing which is the object of the contract in such a
condition as to render it fit for the use intended; (2) to make on the same during the
lease all the necessary repairs in order to keep it suitable for the use to which it has
been devoted, unless there is a stipulation to the contrary; and (3) to maintain the
lessee in the peaceful and adequate enjoyment of the lease for the entire duration of
the contract." In relation thereto, Article 1664 of the same Code states that "the
lessor is not obliged to answer for a mere act of trespass which a third person may
cause on the use of the thing leased; but the lessee shall have a direct action against
the intruder." Here, BSP was not remiss in its obligation to provide Sps. Mamaril a
suitable parking space for their jeepneys as it even hired security guards to secure
the premises; hence, it should not be held liable for the loss suffered by Sps.
Mamaril.
It bears to reiterate that the subject loss was caused by the negligence of the security
guards in allowing a stranger to drive out plaintiffs-appellants' vehicle despite the
latter's instructions that only their authorized drivers may do so. Moreover, the
agreement with respect to the ingress and egress of Sps. Mamaril's vehicles were
coordinated only with AIB and its security guards, 29 without the knowledge and
consent of BSP. Accordingly, the mishandling of the parked vehicles that resulted in
herein complained loss should be recovered only from the tort feasors (Peña and
Gaddi) and their employer, AIB; and not against the lessor, BSP. 30
Anent Sps. Mamaril's claim that the exculpatory clause: "Management shall not be
responsible for loss of vehicle or any of its accessories or article left
therein"31 contained in the BSP issued parking ticket was void for being a contract of
adhesion and against public policy, suffice it to state that contracts of adhesion are
not void per se. It is binding as any other ordinary contract and a party who enters
into it is free to reject the stipulations in its entirety. If the terms thereof are accepted
without objection, as in this case, where plaintiffs-appellants have been leasing
BSP's parking space for more or less 20 years, 32 then the contract serves as the law
between them.33 Besides, the parking fee of ₱300.00 per month or ₱10.00 a day for
each unit is too minimal an amount to even create an inference that BSP undertook
to be an insurer of the safety of plaintiffs-appellants' vehicles.
On the matter of damages, the Court noted that while Sonia P. Mamaril testified that
the subject vehicle had accessories worth around !J50,000.00, she failed to present
any receipt to substantiate her claim. 34 Neither did she submit any record or journal
that would have established the purported ₱275.0035 daily earnings of their jeepney.
It is axiomatic that actual damages must be proved with reasonable degree of
certainty and a party is entitled only to such compensation for the pecuniary loss that
was duly proven. Thus, absent any competent proof of the amount of damages
sustained, the CA properly deleted the said awards. 36
Similarly, the awards of moral and exemplary damages and attorney's fees were
properly disallowed by the CA for lack of factual and legal bases. While the RTC
granted these awards in the dispositive portion of its November 28, 2001 decision, it
failed to provide sufficient justification therefor. 37

WHEREFORE premises considered, the instant petition is DENIED. The May 31,
2007 Decision and August 16, 2007 Resolution of the Court of Appeals in CA-G.R.
CV No. 75978 are AFFIRMFED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC
 G.R. No. L-23276      November 29, 1968
MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW
TAXICAB CO., INC., plaintiffs-appellees,  because: 1) the Coquias have no contractual relation with the Company; and 2) the
vs.
FIELDMEN'S INSURANCE CO., INC., defendant-appellant.
Antonio de Venecia for plaintiffs-appellees.
Rufino Javier for defendant-appellant.
CONCEPCION, C.J.:
This is an appeal from a decision of the Court of First Instance of Manila, certified
to us by the Court of Appeals, only questions of law being involved therein. Indeed,
the pertinent facts have been stipulated and/or, admitted by the parties at the hearing
of the case in the trial court, to dispense with the presentation of evidence therein.
It appears that on December 1, 1961, appellant Fieldmen's Insurance Company, Inc.
— hereinafter referred to as the Company — issued, in favor of the Manila Yellow
Taxicab Co., Inc. — hereinafter referred to as the Insured — a common carrier
accident insurance policy, covering the period from December 1, 1961 to December
1, 1962. It was stipulated in said policy that:
The Company will, subject to the Limits of Liability and under the Terms
of this Policy, indemnify the Insured in the event of accident caused by or
arising out of the use of Motor Vehicle against all sums which the Insured
will become legally liable to pay in respect of: Death or bodily injury to
any fare-paying passenger including the Driver, Conductor and/or
Inspector who is riding in the Motor Vehicle insured at the time of
accident or injury. 1
While the policy was in force, or on February 10, 1962, a taxicab of the Insured,
driven by Carlito Coquia, met a vehicular accident at Mangaldan, Pangasinan, in
consequence of which Carlito died. The Insured filed therefor a claim for P5,000.00
to which the Company replied with an offer to pay P2,000.00, by way of
compromise. The Insured rejected the same and made a counter-offer for P4,000.00,
but the Company did not accept it. Hence, on September 18, 1962, the Insured and
Carlito's parents, namely, Melecio Coquia and Maria Espanueva — hereinafter
referred to as the Coquias — filed a complaint against the Company to collect the
proceeds of the aforementioned policy. In its answer, the Company admitted the
existence thereof, but pleaded lack of cause of action on the part of the plaintiffs.
After appropriate proceedings, the trial court rendered a decision sentencing the
Company to pay to the plaintiffs the sum of P4,000.00 and the costs. Hence, this
appeal by the Company, which contends that plaintiffs have no cause of action
Insured has not complied with the provisions of the policy concerning arbitration.
As regards the first defense, it should be noted that, although, in general, only parties
to a contract may bring an action based thereon, this rule is subject to exceptions,
one of which is found in the second paragraph of Article 1311 of the Civil Code of
the Philippines, reading:
If a contract should contain some stipulation in favor of a third person, he
may demand its fulfillment provided he communicated his acceptance to
the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person. 2
This is but the restatement of a well-known principle concerning contracts pour
autrui, the enforcement of which may be demanded by a third party for whose
benefit it was made, although not a party to the contract, before the stipulation in his
favor has been revoked by the contracting parties. Does the policy in question
belong to such class of contracts pour autrui?
In this connection, said policy provides, inter alia:
Section I — Liability to Passengers. 1. The Company will, subject to the
Limits of Liability and under the Terms of this Policy, indemnify the
Insured in the event of accident caused by or arising out of the use of
Motor Vehicle against all sums which the Insured will become legally
liable to pay in respect of: Death or bodily injury to any fare-paying
passenger including the Driver ... who is riding in the Motor Vehicle
insured at the time of accident or injury.
Section II — Liability to the Public
xxx      xxx      xxx
3. In terms of and subject to the limitations of and for the purposes of this
Section, the Company will indemnify any authorized Driver who is
driving the Motor Vehicle....
Conditions
 xxx      xxx      xxx
7. In the event of death of any person entitled to indemnity under this
Policy, the Company will, in respect of the liability incurred by such
person, indemnify his personal representatives in terms of and subject to
the limitations of this Policy, provided, that such representatives shall, as
though they were the Insured, observe, fulfill and be subject to the Terms
of this Policy insofar as they can apply.
8. The Company may, at its option, make indemnity payable directly to
the claimants or heirs of claimants, with or without securing the consent of
or prior notification to the Insured, it being the true intention of this Policy
to protect, to the extent herein specified and subject always to the Terms
Of this Policy, the liabilities of the Insured towards the passengers of the
Motor Vehicle and the Public.
Pursuant to these stipulations, the Company "will indemnify any authorized
Driver who is driving the Motor Vehicle" of the Insured and, in the event of death
of said driver, the Company shall, likewise, "indemnify his personal
representatives." In fact, the Company "may, at its option, make indemnity
payable directly to the claimants or heirs of claimants ... it being the true intention
of this Policy to protect ... the liabilities of the Insured towards the passengers of the
Motor Vehicle and the Public" — in other words, third parties.
Thus, the policy under consideration is typical of contracts pour autrui, this
character being made more manifest by the fact that the deceased driver paid fifty
percent (50%) of the corresponding premiums, which were deducted from his
weekly commissions. Under these conditions, it is clear that the Coquias — who,
admittedly, are the sole heirs of the deceased — have a direct cause of action against
the Company,3 and, since they could have maintained this action by themselves,
without the assistance of the Insured, it goes without saying that they could and did
properly join the latter in filing the complaint herein. 4
The second defense set up by the Company is based upon Section 17 of the policy
reading:
If any difference or dispute shall arise with respect to the amount of the
Company's liability under this Policy, the same shall be referred to the
decision of a single arbitrator to be agreed upon by both parties or failing
such agreement of a single arbitrator, to the decision of two arbitrators,
one to be appointed in writing by each of the parties within one calendar
month after having been required in writing so to do by either of the
parties and in case of disagreement between the arbitrators, to the decision
of an umpire who shall have been appointed in writing by the arbitrators
before entering on the reference and the costs of and incident to the
reference shall be dealt with in the Award. And it is hereby expressly
stipulated and declared that it shall be a condition precedent to any right of
action or suit upon this Policy that the award by such arbitrator, arbitrators
or umpire of the amount of the Company's liability hereunder if disputed
shall be first obtained.
The record shows, however, that none of the parties to the contract invoked this
section, or made any reference to arbitration, during the negotiations preceding the
institution of the present case. In fact, counsel for both parties stipulated, in the trial
court, that none of them had, at any time during said negotiations, even suggested
the settlement of the issue between them by arbitration, as provided in said section.
Their aforementioned acts or omissions had the effect of a waiver of their respective
right to demand an arbitration. Thus, in Kahnweiler vs. Phenix Ins. Co. of
Brooklyn,5 it was held:
Another well-settled rule for interpretation of all contracts is that the court
will lean to that interpretation of a contract which will make it reasonable
and just. Bish. Cont. Sec. 400. Applying these rules to the tenth clause of
this policy, its proper interpretation seems quite clear. When there is a
difference between the company and the insured as to the amount of the
loss the policy declares: "The same shall then be submitted to competent
and impartial arbitrators, one to be selected by each party ...". It will be
observed that the obligation to procure or demand an arbitration is not, by
this clause, in terms imposed on either party. It is not said that either the
company or the insured shall take the initiative in setting the arbitration on
foot. The company has no more right to say the insured must do it than the
insured has to say the company must do it. The contract in this respect is
neither unilateral nor self-executing. To procure a reference to arbitrators,
the joint and concurrent action of both parties to the contract is
indispensable. The right it gives and the obligation it creates to refer the
differences between the parties to arbitrators are mutual. One party to the
contract cannot bring about an arbitration. Each party is entitled to demand
a reference, but neither can compel it, and neither has the right to insist
that the other shall first demand it, and shall forfeit any right by not doing
so. If the company demands it, and the insured refuses to arbitrate, his
right of action is suspended until he consents to an arbitration; and if the
insured demands an arbitration, and the company refuses to accede to the
demand, the insured may maintain a suit on the policy, notwithstanding
the language of the twelfth section of the policy, and, where neither party
demands an arbitration, both parties thereby waive it.6
To the same effect was the decision of the Supreme Court of Minnesota in
Independent School Dist. No. 35, St. Louis County vs. A. Hedenberg & Co.,
Inc.7 from which we quote:

This rule is not new in our state. In Meyer v. Berlandi, 53 Minn. 59, 54
N.W. 937, decided in 1893, this court held that the parties to a
construction contract, having proceeded throughout the entire course of
their dealings with each other in entire disregard of the provision of the
contract regarding the mode of determining by arbitration the value of the
extras, thereby waived such provision.

xxx      xxx      xxx

The test for determining whether there has been a waiver in a particular
case is stated by the author of an exhaustive annotation in 117 A.L.R. p.
304, as follows: "Any conduct of the parties inconsistent with the notion
that they treated the arbitration provision as in effect, or any conduct
which might be reasonably construed as showing that they did not intend
to avail themselves of such provision, may amount to a waiver thereof and
estop the party charged with such conduct from claiming its benefits".

xxx      xxx      xxx

The decisive facts here are that both parties from the inception of their
dispute proceeded in entire disregard of the provisions of the contract
relating to arbitration and that neither at any stage of such dispute, either
before or after commencement of the action, demanded arbitration, either
by oral or written demand, pleading, or otherwise. Their conduct was as
effective a rejection of the right to arbitrate as if, in the best Coolidge
tradition, they had said, "We do not choose to arbitrate". As arbitration
under the express provisions of article 40 was "at the choice of either
party," and was chosen by neither, a waiver by both of the right to
arbitration followed as a matter of law.

WHEREFORE, the decision appealed from should be as it is hereby affirmed in

toto, with costs against the herein defendant-appellant, Fieldmen's Insurance Co.,
Inc. It is so ordered.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-9356             February 18, 1915
C. S. GILCHRIST, plaintiff-appellee,  willfully violated his contract, he being the owner of the picture, with
vs.
E. A. CUDDY, ET AL., defendants.  period. Mr. Espejo at the trial on the permanent injunction on the 26th of
JOSE FERNANDEZ ESPEJO and MARIANO ZALDARRIAGA, appellants.
C. Lozano for appellants.  agent of the same concern in Iloilo. There is in evidence in this case on the
Bruce, Lawrence, Ross and Block for appellee.
TRENT, J.:
An appeal by the defendants, Jose Fernandez Espejo and Mariano Zaldarriaga, from
a judgment of the Court of First Instance of Iloilo, dismissing their cross-complaint
upon the merits for damages against the plaintiff for the alleged wrongful issuance
of a mandatory and a preliminary injunction.
Upon the application of the appellee an ex parte mandatory injunction was issued on
the 22d of May, 1913, directing the defendant, E. A. Cuddy, to send to the appellee a
certain cinematograph film called "Zigomar" in compliance with an alleged contract
which had been entered into between these two parties, and at the time an ex
partepreliminary injunction was issued restraining the appellants from receiving and
exhibiting in their theater the Zigomar until further orders of the court. On the 26th
of that month the appellants appeared and moved the court to dissolve the
preliminary injunction. When the case was called for trial on August 6, the appellee
moved for the dismissal of the complaint "for the reason that there is no further
necessity for the maintenance of the injunction." The motion was granted without
objection as to Cuddy and denied as to the appellants in order to give them an
opportunity to prove that the injunction were wrongfully issued and the amount of
damages suffered by reason thereof.
The pertinent part of the trial court's findings of fact in this case is as follows:
It appears in this case that Cuddy was the owner of the film Zigomar and
that on the 24th of April he rented it to C. S. Gilchrist for a week for P125,
and it was to be delivered on the 26th of May, the week beginning that
day. A few days prior to this Cuddy sent the money back to Gilchrist,
which he had forwarded to him in Manila, saying that he had made other
arrangements with his film. The other arrangements was the rental to these
defendants Espejo and his partner for P350 for the week and the injunction
was asked by Gilchrist against these parties from showing it for the week
beginning the 26th of May.
It appears from the testimony in this case, conclusively, that Cuddy
Gilchrist because the defendants had offered him more for the same
May admitted that he knew that Cuddy was the owner of the film. He was
trying to get it through his agents Pathe Brothers in Manila. He is the
trial today as well as on the 26th of May, letters showing that the Pathe
Brothers in Manila advised this man on two different occasions not to
contend for this film Zigomar because the rental price was prohibitive
and assured him also that he could not get the film for about six weeks.
The last of these letters was written on the 26th of April, which showed
conclusively that he knew they had to get this film from Cuddy and from
this letter that the agent in Manila could not get it, but he made Cuddy an
offer himself and Cuddy accepted it because he was paying about three
times as much as he had contracted with Gilchrist for. Therefore, in the
opinion of this court, the defendants failed signally to show the injunction
against the defendant was wrongfully procured.
The appellants duly excepted to the order of the court denying their motion for new
trial on the ground that the evidence was insufficient to justify the decision rendered.
There is lacking from the record before us the deposition of the defendant Cuddy,
which apparently throws light upon a contract entered into between him and the
plaintiff Gilchrist. The contents of this deposition are discussed at length in the brief
of the appellants and an endeavor is made to show that no such contract was entered
into. The trial court, which had this deposition before it, found that there was a
contract between Cuddy and Gilchrist. Not having the deposition in question before
us, it is impossible to say how strongly it militates against this findings of fact. By a
series of decisions we have construed section 143 and 497 (2) of the Code of Civil
Procedure to require the production of all the evidence in this court. This is the duty
of the appellant and, upon his failure to perform it, we decline to proceed with a
review of the evidence. In such cases we rely entirely upon the pleadings and the
findings of fact of the trial court and examine only such assigned errors as raise
questions of law. (Ferrer vs. Neri Abejuela, 9 Phil. Rep., 324; Valle vs. Galera, 10
Phil. Rep., 619; Salvacion vs. Salvacion, 13 Phil. Rep., 366; Breta vs. Smith, Bell &
Co., 15 Phil. Rep., 446; Arroyo vs. Yulo, 18 Phil. Rep., 236; Olsen &
Co. vs. Matson, Lord & Belser Co., 19 Phil. Rep., 102; Blum vs. Barretto, 19 Phil.
Rep., 161; Cuyugan vs. Aguas, 19 Phil. Rep., 379; Mapa vs. Chaves, 20 Phil. Rep.,
147; Mans vs. Garry, 20 Phil. Rep., 134.) It is true that some of the more recent of
these cases make exceptions to the general rule. Thus, in Olsen & Co.  vs.Matson,
Lord & Belser Co., (19 Phil. Rep., 102), that portion of the evidence before us
tended to show that grave injustice might result from a strict reliance upon the
findings of fact contained in the judgment appealed from. We, therefore, gave the
appellant an opportunity to explain the omission. But we required that such
explanation must show a satisfactory reason for the omission, and that the missing
portion of the evidence must be submitted within sixty days or cause shown for
failing to do so. The other cases making exceptions to the rule are based upon
peculiar circumstances which will seldom arise in practice and need not here be set
forth, for the reason that they are wholly inapplicable to the present case. The
appellants would be entitled to indulgence only under the doctrine of the Olsen case.
But from that portion of the record before us, we are not inclined to believe that the
missing deposition would be sufficient to justify us in reversing the findings of fact
of the trial court that the contract in question had been made. There is in the record
not only the positive and detailed testimony of Gilchrist to this effect, but there is
also a letter of apology from Cuddy to Gilchrist in which the former enters into a
lengthy explanation of his reasons for leasing the film to another party. The latter
could only have been called forth by a broken contract with Gilchrist to lease the
film to him. We, therefore, fail to find any reason for overlooking the omission of
the defendants to bring up the missing portion of the evidence and, adhering to the
general rule above referred to, proceed to examine the questions of law raised by the
appellants.
From the above-quoted findings of fact it is clear that Cuddy, a resident of Manila,
was the owner of the "Zigomar;" that Gilchrist was the owner of a cinematograph
theater in Iloilo; that in accordance with the terms of the contract entered into
between Cuddy and Gilchrist the former leased to the latter the "Zigomar" for
exhibition in his (Gilchrist's) theater for the week beginning May 26, 1913; and that
Cuddy willfully violate his contract in order that he might accept the appellant's
offer of P350 for the film for the same period. Did the appellants know that they
were inducing Cuddy to violate his contract with a third party when they induced
him to accept the P350? Espejo admitted that he knew that Cuddy was the owner of
the film. He received a letter from his agents in Manila dated April 26,  assuring him
that he could not get the film for about six weeks. The arrangement between Cuddy
and the appellants for the exhibition of the film by the latter on the 26th of May
were perfected after April 26, so that the six weeks would include and extend
beyond May 26. The appellants must necessarily have known at the time they made
their offer to Cuddy that the latter had booked or contracted the film for six weeks
from April 26. Therefore, the inevitable conclusion is that the appellants knowingly
induced Cuddy to violate his contract with another person. But there is no specific
finding that the appellants knew the identity of the other party. So we must assume
that they did not know that Gilchrist was the person who had contracted for the film.
The appellants take the position that if the preliminary injunction had not been
issued against them they could have exhibited the film in their theater for a number
of days beginning May 26, and could have also subleased it to other theater owners
in the nearby towns and, by so doing, could have cleared, during the life of their
contract with Cuddy, the amount claimed as damages. Taking this view of the case,
it will be unnecessary for us to inquire whether the mandatory injunction against
Cuddy was properly issued or not. No question is raised with reference to the
issuance of that injunction.
The right on the part of Gilchrist to enter into a contract with Cuddy for the lease of
the film must be fully recognized and admitted by all. That Cuddy was liable in an
action for damages for the breach of that contract, there can be no doubt. Were the
appellants likewise liable for interfering with the contract between Gilchrist and
Cuddy, they not knowing at the time the identity of one of the contracting parties?
The appellants claim that they had a right to do what they did. The ground upon
which the appellants base this contention is, that there was no valid and binding
contract between Cuddy and Gilchrist and that, therefore, they had a right to
compete with Gilchrist for the lease of the film, the right to compete being a
justification for their acts. If there had been no contract between Cuddy and Gilchrist
this defense would be tenable, but the mere right to compete could not justify the
appellants in intentionally inducing Cuddy to take away the appellee's contractual
rights.
Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said: "Everyone has a
right to enjoy the fruits and advantages of his own enterprise, industry, skill and
credit. He has no right to be free from malicious and wanton interference,
disturbance or annoyance. If disturbance or loss come as a result of competition, or
the exercise of like rights by others, it is damnum absque injuria, unless some
superior right by contract or otherwise is interfered with."
In Read vs. Friendly Society of Operative Stonemasons ([1902] 2 K. B., 88),
Darling, J., said: "I think the plaintiff has a cause of action against the defendants,
unless the court is satisfied that, when they interfered with the contractual rights of
plaintiff, the defendants had a sufficient justification for their interference; . . . for it
is not a justification that `they acted bona fide in the best interests of the society of
masons,' i. e., in their own interests. Nor is it enough that `they were not actuated by
improper motives.' I think their sufficient justification for interference with
plaintiff's right must be an equal or superior right in themselves, and that no one can
legally excuse himself to a man, of whose contract he has procured the breach, on
the ground that he acted on a wrong understanding of his own rights, or without
malice, or bona fide, or in the best interests of himself, or even that he acted as an
altruist, seeking only good of another and careless of his own advantage." (Quoted
with approval in Beekman vs. Marsters, 195 Mass., 205.)
It is said that the ground on which the liability of a third party for interfering with a
contract between others rests, is that the interference was malicious. The contrary
view, however, is taken by the Supreme Court of the United States in the case of
Angle vs. Railway Co. (151 U. S., 1). The only motive for interference by the third
party in that case was the desire to make a profit to the injury of one of the parties of
the contract. There was no malice in the case beyond the desire to make an unlawful
gain to the detriment of one of the contracting parties.
In the case at bar the only motive for the interference with the Gilchrist — Cuddy
contract on the part of the appellants was a desire to make a profit by exhibiting the
film in their theater. There was no malice beyond this desire; but this fact does not
relieve them of the legal liability for interfering with that contract and causing its
breach. It is, therefore, clear, under the above authorities, that they were liable to
Gilchrist for the damages caused by their acts, unless they are relieved from such
liability by reason of the fact that they did not know at the time the identity of the
original lessee (Gilchrist) of the film.
The liability of the appellants arises from unlawful acts and not from contractual
obligations, as they were under no such obligations to induce Cuddy to violate his
contract with Gilchrist. So that if the action of Gilchrist had been one for damages, it
would be governed by chapter 2, title 16, book 4 of the Civil Code. Article 1902 of
that code provides that a person who, by act or omission, causes damages to another
when there is fault or negligence, shall be obliged to repair the damage do done.
There is nothing in this article which requires as a condition precedent to the liability
of a tort-feasor that he must know the identity of a person to whom he causes
damages. In fact, the chapter wherein this article is found clearly shows that no such
knowledge is required in order that the injured party may recover for the damage
suffered.
But the fact that the appellants' interference with the Gilchrist contract was
actionable did not of itself entitle Gilchrist to sue out an injunction against them.
The allowance of this remedy must be justified under section 164 of the Code of
Civil Procedure, which specifies the circumstance under which an injunction may
issue. Upon the general doctrine of injunction we said in Devesa vs. Arbes (13 Phil.
Rep., 273):
An injunction is a "special remedy" adopted in that code (Act No. 190)
from American practice, and originally borrowed from English legal
procedure, which was there issued by the authority and under the seal of a
court of equity, and limited, as in order cases where equitable relief is
sought, to cases where there is no "plain, adequate, and complete remedy
at law," which "will not be granted while the rights between the parties are
undetermined, except in extraordinary cases where material and
irreparable injury will be done," which cannot be compensated in
damages, and where there will be no adequate remedy, and which will not,
as a rule, be granted, to take property out of the possession of one party
and put it into that of another whose title has not been established by law.
We subsequently affirmed the doctrine of the Devesa case in Palafox vs. Madamba
(19 Phil., Rep., 444), and we take this occasion of again affirming it, believing, as
we do, that the indiscriminate use of injunctions should be discouraged.
Does the fact that the appellants did not know at the time the identity of the original
lessee of the film militate against Gilchrist's right to a preliminary injunction,
although the appellant's incurred civil liability for damages for such interference? In
the examination of the adjudicated cases, where in injunctions have been issued to
restrain wrongful interference with contracts by strangers to such contracts, we have
been unable to find any case where this precise question was involved, as in all of
those cases which we have examined, the identity of both of the contracting parties
was known to the tort-feasors. We might say, however, that this fact does not seem
to have a controlling feature in those cases. There is nothing in section 164 of the
Code of Civil Procedure which indicates, even remotely, that before an injunction
may issue restraining the wrongful interference with contrast by strangers, the
strangers must know the identity of both parties. It would seem that this is not
essential, as injunctions frequently issue against municipal corporations, public
service corporations, public officers, and others to restrain the commission of acts
which would tend to injuriously affect the rights of person whose identity the
respondents could not possibly have known beforehand. This court has held that in a
proper case injunction will issue at the instance of a private citizen to restrain ultra
vires acts of public officials. (Severino vs. Governor-General, 16 Phil. Rep., 366.)
So we proceed to the determination of the main question of whether or not the
preliminary injunction ought to have been issued in this case.
As a rule, injunctions are denied to those who have an adequate remedy at law.
Where the choice is between the ordinary and the extraordinary processes of law,
and the former are sufficient, the rule will not permit the use of the latter. ( In
re Debs, 158 U. S., 564.) If the injury is irreparable, the ordinary process is
inadequate. In Wahle vs.Reinbach (76 Ill., 322), the supreme court of Illinois
approved a definition of the term "irreparable injury" in the following language: "By
`irreparable injury' is not meant such injury as is beyond the possibility of repair, or
beyond possible compensation in damages, nor necessarily great injury or great
damage, but that species of injury, whether great or small, that ought not to be
submitted to on the one hand or inflicted on the other; and, because it is so large on
the one hand, or so small on the other, is of such constant and frequent recurrence
that no fair or reasonable redress can be had therefor in a court of law." (Quoted
with approval in Nashville R. R. Co. vs. McConnell, 82 Fed., 65.)
The case at bar is somewhat novel, as the only contract which was broken was that
between Cuddy and Gilchrist, and the profits of the appellee depended upon the
patronage of the public, for which it is conceded the appellants were at liberty to
complete by all fair does not deter the application of remarked in the case of the
"ticket scalpers" (82 Fed., 65), the novelty of the facts does not deter the application
of equitable principles. This court takes judicial notice of the general character of a
cinematograph or motion-picture theater. It is a quite modern form of the play
house, wherein, by means of an apparatus known as a cinematograph or
cinematograph, a series of views representing closely successive phases of a moving
object, are exhibited in rapid sequence, giving a picture which, owing to the
persistence of vision, appears to the observer to be in continuous motion. (The
Encyclopedia Britanica, vol. 6, p. 374.) The subjects which have lent themselves to
the art of the photographer in this manner have increased enormously in recent
years, as well as have the places where such exhibition are given. The attendance,
and, consequently, the receipts, at one of these cinematograph or motion-picture
theaters depends in no small degree upon the excellence of the photographs, and it is
quite common for the proprietor of the theater to secure an especially attractive
exhibit as his "feature film" and advertise it as such in order to attract the public.
This feature film is depended upon to secure a larger attendance that if its place on
the program were filled by other films of mediocre quality. It is evident that the
failure to exhibit the feature film will reduce the receipts of the theater.
Hence, Gilchrist was facing the immediate prospect of diminished profits by reason
of the fact that the appellants had induced Cuddy to rent to them the film Gilchrist
had counted upon as his feature film. It is quite apparent that to estimate with any
decree of accuracy the damages which Gilchrist would likely suffer from such an
event would be quite difficult if not impossible. If he allowed the appellants to
exhibit the film in Iloilo, it would be useless for him to exhibit it again, as the desire
of the public to witness the production would have been already satisfied. In this
extremity, the appellee applied for and was granted, as we have indicated, a
mandatory injunction against Cuddy requiring him to deliver the Zigomar to
Gilchrist, and a preliminary injunction against the appellants restraining them from
exhibiting that film in their theater during the weeks he (Gilchrist) had a right to
exhibit it. These injunction saved the plaintiff harmless from damages due to the
unwarranted interference of the defendants, as well as the difficult task which would
have been set for the court of estimating them in case the appellants had been
allowed to carry out their illegal plans. As to whether or not the mandatory
injunction should have been issued, we are not, as we have said, called upon to
determine. So far as the preliminary injunction issued against the appellants is
concerned, which prohibited them from exhibiting the Zigomar during the week
which Gilchrist desired to exhibit it, we are of the opinion that the circumstances
justified the issuance of that injunction in the discretion of the court.
We are not lacking in authority to support our conclusion that the court was justified
in issuing the preliminary injunction against the appellants. Upon the precise
question as to whether injunction will issue to restrain wrongful interference with
contracts by strangers to such contracts, it may be said that courts in the United
States have usually granted such relief where the profits of the injured person are
derived from his contractual relations with a large and indefinite number of
individuals, thus reducing him to the necessity of proving in an action against the
tort-feasor that the latter was responsible in each case for the broken contract, or else
obliging him to institute individual suits against each contracting party and so
exposing him to a multiplicity of suits. Sperry & Hutchinson Co. vs.Mechanics'
Clothing Co. (128 Fed., 800); Sperry & Hutchinson Co. vs. Louis Weber & Co. (161
Fed., 219); Sperry & Hutchinson Co. vs. Pommer (199 Fed., 309); were all cases
wherein the respondents were inducing retail merchants to break their contracts with
the company for the sale of the latters' trading stamps. Injunction issued in each case
restraining the respondents from interfering with such contracts.
In the case of the Nashville R. R. Co. vs. McConnell (82 Fed., 65), the court, among
other things, said: "One who wrongfully interferes in a contract between others, and,
for the purpose of gain to himself induces one of the parties to break it, is liable to
the party injured thereby; and his continued interference may be ground for an
injunction where the injuries resulting will be irreparable."
In Hamby & Toomer vs. Georgia Iron & Coal Co. (127 Ga., 792), it appears that the
respondents were interfering in a contract for prison labor, and the result would be,
if they were successful, the shutting down of the petitioner's plant for an indefinite
time. The court held that although there was no contention that the respondents were
insolvent, the trial court did not abuse its discretion in granting a preliminary
injunction against the respondents.
In Beekman vs. Marsters (195 Mass., 205), the plaintiff had obtained from the
Jamestown Hotel Corporation, conducting a hotel within the grounds of the
Jamestown Exposition, a contract whereby he was made their exclusive agent for the
New England States to solicit patronage for the hotel. The defendant induced the
hotel corporation to break their contract with the plaintiff in order to allow him to
act also as their agent in the New England States. The court held that an action for
damages would not have afforded the plaintiff adequate relief, and that an injunction
was proper compelling the defendant to desist from further interference with the
plaintiff's exclusive contract with the hotel company.
In Citizens' Light, Heat & Power Co. vs. Montgomery Light & Water Power Co.
(171 Fed., 553), the court, while admitting that there are some authorities to the
contrary, held that the current authority in the United States and England is that:

The violation of a legal right committed knowingly is a cause of action,

and that it is a violation of a legal right to interfere with contractual
relations recognized by law, if there be no sufficient justification for the
interference. (Quinn vs. Leatham, supra, 510; Angle vs. Chicago, etc., Ry.
Co., 151 U. S., 1; 14 Sup. Ct., 240; 38 L. Ed., 55; Martens vs. Reilly, 109
Wis., 464, 84 N. W., 840; Rice vs. Manley, 66 N. Y., 82; 23 Am. Rep., 30;
Bitterman vs. L. & N. R. R. Co., 207 U. S., 205; 28 Sup. Ct., 91; 52 L.
Ed., 171; Beekman vs. Marsters, 195 Mass., 205; 80 N. E., 817; 11 L. R.
A. [N. S.] 201; 122 Am. St. Rep., 232; South Wales Miners'
Fed. vs.Glamorgan Coal Co., Appeal Cases, 1905, p. 239.)

See also Nims on Unfair Business Competition, pp. 351- 371.

In 3 Elliot on Contracts, section 2511, it is said: "Injunction is the proper remedy to

prevent a wrongful interference with contract by strangers to such contracts where
the legal remedy is insufficient and the resulting injury is irreparable. And where
there is a malicious interference with lawful and valid contracts a permanent
injunction will ordinarily issue without proof of express malice. So, an injunction
may be issued where the complainant to break their contracts with him by agreeing
to indemnify who breaks his contracts of employment may be adjoined from
including other employees to break their contracts and enter into new contracts with
a new employer of the servant who first broke his contract. But the remedy by
injunction cannot be used to restrain a legitimate competition, though such
competition would involve the violation of a contract. Nor will equity ordinarily
enjoin employees who have quit the service of their employer from attempting by
proper argument to persuade others from taking their places so long as they do not
resort to force or intimidations on obstruct the public thoroughfares."

Beekman vs. Marster, supra, is practically on all fours with the case at bar in that

there was only one contract in question and the profits of the injured person
depended upon the patronage of the public. Hamby & Toomer vs.Georgia Iron &
Coal Co., supra, is also similar to the case at bar in that there was only one contract,
the interference of which was stopped by injunction.

For the foregoing reasons the judgment is affirmed, with costs, against the
appellants.

Arellano, C.J., Torres, Carson and Araullo, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 86683 January 21, 1993
PHILIP S. YU, petitioner, 
vs.
THE HONORABLE COURT OF APPEALS, THE HONORABLE
PRESIDING JUDGE, RTC OF MANILA, BRANCH XXXIV (34) and UNISIA
MERCHANDISING CO., INC., respondents.
Oscar M. Manahan for petitioner.
Ruben L. Pasamonte collaborating counsel for petitioner.
Alfredo G. De Guzman for private respondent.
MELO, J.:
Petitioner, the exclusive distributor of the House of Mayfair wallcovering products
in the Philippines, cried foul when his former dealer of the same goods, herein
private respondent, purchased the merchandise from the House of Mayfair in
England through FNF Trading in West Germany and sold said merchandise in the
Philippines. Both the court of origin and the appellate court rejected petitioner's
thesis that private respondent was engaged in a sinister form of unfair competition
within the context of Article 28 of the New Civil Code (pp. 23 and 64, Rollo).
Hence, the petition at bar.
There is no dispute that petitioner has had an exclusive sales agency agreement with
the House of Mayfair since 1987 to promote and procure orders for Mayfair
wallcovering products from customers in the Philippines (Annex "B", Petition; p.
30, Rollo). Even as petitioner was such exclusive distributor, private respondent,
which was then petitioner's dealer, imported the some goods via the FNF Trading
which eventually sold the merchandise in the domestic market (TSN, September 20,
1988, p. 9; p. 117, Rollo). In the suit for injunction which petitioner filed before the
Regional Trial Court of the National Capital Judicial Region stationed at Manila,
petitioner pressed the idea that he was practically by-passed and that private
respondent acted in concert with the FNF Trading in misleading Mayfair into
believing that the goods ordered by the trading firm were intended for shipment to
Nigeria although they were actually shipped to and sold in the Philippines
(Paragraph 5, Complaint: p. 34, Rollo). Private respondent professed ignorance of
the exclusive contract in favor of petitioner. Even then, private respondent
responded by asserting that petitioner's understanding with Mayfair is binding only
between the parties thereto (Paragraph 5, Answer; p. 50, Rollo).
In the course of hearing the arguments for and against the issuance of the requested
writ of preliminary injunction, petitioner impressed before the lower court that he is
seeking to enjoin the sale and distribution by private respondent of the same goods
in the market (TSN, September 20, 1988, p. 35; p. 142, Rollo) but the Honorable
Cesar V. Alejandria, Presiding Judge of Branch 34 was unperturbed, thusly:
Resolving plaintiff's motion embodied in the complaint for the
issuance of a writ of preliminary injunction after hearing, but
without prejudging the merits of the case, and finding from the
evidences adduced by the plaintiff, that the terms and conditions
of the agency agreement, Exhibit "A-inj." between the plaintiff
and The House of Mayfair of England for the exclusive
distributorship by the plaintiff of the latter's goods, apertain to
them; that there is no privity of contract between the plaintiff
and the defendant; that the controversy in this case arose from a
 breach of contract by the FNF Trading of Germany, for having
shipped goods it had purchased from The House of Mayfair to
the Philippines: that as shown in Exh. "J-inj.", the House of
Mayfair was demanding payment of 4,500.00 from the FNF
Trading for restitution of plaintiff's alleged loss on account of
the shipment of the goods in question here in the Philippines and
now in the possession of the defendant; it appears to the Court
that to restrain the defendant from selling the goods it has
ordered from the FNF Trading of Germany, would be without
legal justification.
WHEREFORE, the motion for the issuance of a writ of
preliminary injunction to restrain the defendant from selling the
goods it has ordered from the FNF Trading of Germany is
hereby DENIED. (p. 64, Rollo.)
The indifference of the trial court towards petitioner's supplication occasioned the
filing of a petition for review on certiorari with the Court of Appeals but Justice
Ordoñez-Benitez, with whom Justices Bellosillo and Kalalo concurred, reacted in
the same nonchalant fashion. According to the appellate court, petitioner was not
able to demonstrate the unequivocal right which he sought to protect and that private
respondent is a complete stranger vis-a-vis the covenant between petitioner and
Mayfair. Apart from these considerations, the reviewing authority noted that
petitioner could be fully compensated for the prejudice he suffered judging from the
tenor of Mayfair's correspondence to FNF Trading wherein Mayfair took the cudgels
for petitioner in seeking compensation for the latter's loss as a consequence of
private respondent's scheme (p. 79, Rollo; pp. 23-29, Rollo).
In the petition at hand, petitioner anchors his plea for redress on his perception that
private respondent has distributed and continues to sell Mayfair covering products in
contravention of petitioner's exclusive right conferred by the covenant with the
House of Mayfair.
On March 13, 1989, a temporary restraining order was issued to last until further
notice from this Court directed against private respondent (p. 188, Rollo).
Notwithstanding such proscription, private respondent persisted in the distribution
and sole (p. 208; 228-229, Rollo), triggering petitioner's motion to cite private
respondent's manager in contempt of court (p. 223, Rollo). Considering that private
respondent's manager, Frank Sia, admitted the acts complained of, a fine of P500.00
was imposed on him but he failed to pay the same within the five-day period
provided in Our Resolution of June 21, 1989
(p. 236, Rollo).
Did respondent appellate court correctly agree with the lower court in disallowing
the writ solicited by herein petitioner?
That the exclusive sales contract which links petitioner and the House of Mayfair is
solely the concern of the privies thereto and cannot thus extend its chain as to bind
private respondent herein is, We believe, beside the point. Verily, injunction is the
appropriate remedy to prevent a wrongful interference with contracts by strangers to
such contracts where the legal remedy is insufficient and the resulting injury is
irreparable (Gilchrist vs. Cuddy, 29 Phil. 542 [1915]; 4-A Padilla, Civil Code
Annotated, 1988 Ed., p. 90). The liability of private respondent, if any, does not
emanate from the four corners of the contract for undoubtedly, Unisia
Merchandising Co., Inc. is not a party thereto but its accountability is "an
independent act generative of civil liability" (Daywalt vs. Corporacion de PP.
Agustinos Recoletos, 39 Phil. 587 [1919]; 4 Paras, Civil Code of the Philippines
Annotated, 1981 10th Ed., p. 439; 4 Tolentino, Commentaries and Jurisprudence on
the Civil Code, 1986 Ed.,
p. 439). These observations, however, do not in the least convey the message that
We have placed the cart ahead of the horse, so to speak, by pronouncing private
respondent's liability at this stage in view of the pendency of the main suit for
injunction below. We are simply rectifying certain misperceptions entertained by the
appellate court as regards the feasibility of requesting a preliminary injunction to
enjoin a stranger to an agreement.
To Our mind, the right to perform an exclusive distributorship agreement and to reap
the profits resulting from such performance are proprietary rights which a party may
protect (30 Am. Jur. Section 19, pp. 71-72: Jurado, Comments and Jurisprudence
on Obligations and Contracts, 1983 8th Rev. Ed., p. 336) which may otherwise not
be diminished, nay, rendered illusory by the expedient act of utilizing or interposing
a person or firm to obtain goods from the supplier to defeat the very purpose for
which the exclusive distributorship was conceptualized, at the expense of the sole
authorized distributor (43 C.J.S. 597).
Another circumstance which respondent court overlooked was petitioner's
suggestion, which was not disputed by herein private respondent in its comment,
that the House of Mayfair in England was duped into believing that the goods
ordered through the FNF Trading were to be shipped to Nigeria only, but the goods
were actually sent to and sold in the Philippines. A ploy of this character is akin to
the scenario of a third person who induces a party to renege on or violate his
undertaking under a contract, thereby entitling the other contracting party to relief
therefrom (Article 1314, New Civil Code). The breach caused by private respondent
was even aggravated by the consequent diversion of trade from the business of
petitioner to that of private respondent caused by the latter's species of unfair
competition as demonstrated no less by the sales effected inspite of this Court's
restraining order. This brings Us to the irreparable mischief which respondent court
misappreciated when it refused to grant the relief simply because of the observation
that petitioner can be fully compensated for the damage. A contrario, the injury is
irreparable where it is continuous and repeated since from its constant and frequent
recurrence, no fair and reasonable redress can be had therefor by petitioner insofar
as his goodwill and business reputation as sole distributor are concerned. Withal, to
expect petitioner to file a complaint for every sale effected by private respondent
will certainly court multiplicity of suits (3 Francisco, Revised Rules of Court, 1985
Edition, p. 261).
WHEREFORE, the petition is hereby GRANTED. The decision of the Court of
Appeals dated January 13, 1989 in CA-G.R. SP No. 16019 and the Order dated
October 16, 1988 issued by the magistrate at the court of origin are hereby
REVERSED and SET ASIDE. Let this case be remanded to the court of origin for
issuance of a writ of preliminary injunction upon petitioner's posting of a bond in the
sum of Fifty Thousand (P50,000.00) Pesos to be approved by said court, to remain
effective during the trial on the merits until final determination of the case. The
manager of private respondent. Frank Sia, is hereby ordered to pay to the Clerk of
Court within five (5) days from notice hereof the fine of P500.00, as previously
imposed on him, with a warning that failure to do so will be dealt with more
severely.
Upon issuance of the writ of preliminary injunction, the restraining order issued on
March 13, 1989 by this Court shall be deemed automatically lifted.
SO ORDERED.
SECOND DIVISION
C.F. SHARP & CO. INC. and JOHN J. ROCHA, G.R. No. 179469
Petitioners,  
   
  Present:
   
  CARPIO, J.,
-versus- Chairperson,
  VILLARAMA, JR.,*
  PEREZ,
  SERENO, and
  REYES, JJ.
PIONEER INSURANCE & SURETY  
CORPORATION, WILFREDO C. AGUSTIN and  
HERNANDO G. MINIMO,  
Respondents. Promulgated:
 
February 15, 2012
x ----------------------------------------------------------------------------------------x
 
DECISION
 
PEREZ, J.:
Whether a local private employment agency may be held liable for breach of
contract for failure to deploy a seafarer, is the bone of contention in this case.
Assailed in this petition for review are the Decision [1] dated 30 October 2003 and the
29 August 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 53336
finding petitioners C.F. Sharp Co. Inc. (C.F. Sharp) and John J. Rocha (Rocha)
liable for damages.
Responding to a newspaper advertisement of a job opening for sandblasters and
painters in Libya, respondents Wilfredo C. Agustin and Hernando G. Minimo
applied with C.F. Sharp sometime in August 1990. After passing the interview, they
were required to submit their passports, seamans book, National Bureau of
Investigation clearance, employment certificates, certificates of seminars attended,
and results of medical examination. Upon submission of the requirements, a
Contract of Employment was executed between respondents and C.F.
Sharp. Thereafter, respondents were required to attend various seminars, open a
bank account with the corresponding allotment slips, and attend a pre-departure
orientation. They were then advised to prepare for immediate deployment and to
report to C.F. Sharp to ascertain the schedule of their deployment.
After a month, respondents were yet to be deployed prompting them to request for
the release of the documents they had submitted to C.F. Sharp. C.F. Sharp allegedly
refused to surrender the documents which led to the filing of a complaint by
respondents before the Philippine Overseas Employment Administration (POEA) on
21 January 1991.
 
On 30 October 1991, POEA issued an Order finding C.F. Sharp guilty of violation
of Article 34(k) of the Labor Code, which makes it unlawful for any entity to
withhold or deny travel documents from applicant workers before departure for
monetary or financial considerations other than those authorized under this Code
and its implementing rules and regulations. Consequently, C.F. Sharps license was
suspended until the return of the disputed documents to respondents. POEA likewise
declared that it has no jurisdiction to adjudicate the monetary claims of respondents.
On 10 March 1995, respondents filed a Complaint for breach of contract and
damages against C.F. Sharp and its surety, Pioneer Insurance and Surety
Corporation (Pioneer Insurance), before the Regional Trial Court (RTC) of Pasay
City. Respondents claimed that C.F. Sharp falsely assured them of deployment and
that its refusal to release the disputed documents on the ground that they were
already bound by reason of the Contract of Employment, denied respondents of
employment opportunities abroad and a guaranteed income. Respondents also
prayed for damages. Pioneer Insurance filed a cross claim against C.F. Sharp and
John J. Rocha, the executive vice-president of C.F. Sharp, based on an Indemnity
Agreement which substantially provides that the duo shall jointly and severally
indemnify Pioneer Insurance for damages, losses, and costs which the latter may
incur as surety. The RTC rendered judgment on 27 June 1996 favoring respondents,
to wit:
 
WHEREFORE, plaintiffs causes of action having
been proved with a preponderance of evidence, judgment is
hereby ordered as follows:
 
a.       Declaring the non-deployment of plaintiffs and
the refusal to release documents as breach of
contract;
b.      By way of compensatory damages, awarding
$450 per month and $439 overtime per month,
which should have been received by plaintiffs
from other employers, making a joint and
solidary obligation on the part of the two
defendants C.F. Sharp and Pioneer for the
period covered by the employment contracts;
c.       Ordering each defendant to pay each
plaintiff P50,000.00 as moral damages and
another P50,000.00 each as exemplary damages;
d.      Ordering defendants to share in the payment to
plaintiffs of P50,000.00 attorneys fees;
e.       Defendants to pay litigation expenses and costs
of suit.[2]
 
The trial court ruled that there was a violation of the contract when C.F.
Sharp failed to deploy and release the papers and documents of respondents, hence,
they are entitled to damages. The trial court likewise upheld the cause of action of
respondents against Pioneer Insurance, the former being the actual beneficiaries of
the surety bond.
 
On appeal, C.F. Sharp and Rocha raise a jurisdictional issue that the RTC
has no jurisdiction over the instant case pursuant to Section 4(a) of Executive Order
No. 797 which vests upon the POEA the jurisdiction over all cases, including money
claims, arising out of or by virtue of any contract involving workers for overseas
employment. C.F. Sharp and Rocha refuted the findings of the trial court and
maintained that the perfection and effectivity of the Contract of Employment depend
upon the actual deployment of respondents.
 
The Court of Appeals upheld the jurisdiction of the trial court by ruling
that petitioners are now estopped from raising such question because they have
actively participated in the proceedings before the trial court. The Court of Appeals
further held that since there is no perfected employment contract between the
parties, it is the RTC and not the POEA, whose jurisdiction pertains only to claims
arising from contracts involving Filipino seamen, which has jurisdiction over the
instant case.
 
Despite the finding that no contract was perfected between the parties, the
Court of Appeals adjudged C.F. Sharp and Rocha liable for damages, to wit:
 
WHEREFORE, the Appeal of C.F. Sharp Co Inc. and
John J. Rocha is PARTIALLY GRANTED only insofar as We
declare that there is no breach of contract because no contract of
employment was perfected. However, We find appellants C.F.
Sharp Co. Inc. and John J. Rocha liable to plaintiff-appellees for
damages pursuant to Article 21 of the Civil Code and award
each plaintiff-appellees temperate damages amounting
to P100,000.00, and moral damages in the increased amount
of P100,000.00. The award of exemplary damages and attorneys
fees amounting to P50,000.00, respectively, is hereby affirmed.
[3]
 
The Court of Appeals limited the liability of Pioneer Insurance to the
amount of P150,000.00 pursuant to the Contract of Suretyship between C.F. Sharp
and Pioneer Insurance.
 
Rocha filed the instant petition on the submission that there is no basis to
hold him liable for damages under Article 21 of the Civil Code because C.F. Sharp
has signified its intention to return the documents and had in fact informed
respondents that they may, at any time of the business day, withdraw their
documents. Further, respondents failed to establish the basis for which they are
entitled to moral damages. Rocha refuted the award of exemplary damages because
the act of requiring respondents to sign a quitclaim prior to the release of their
documents could not be considered bad faith. Rocha also questions the award of
temperate damages on the ground that the act of withholding respondents documents
could not be considered chronic and continuing.[4]
 
Right off, insofar as Pioneer Insurance is concerned, the petition should be
dismissed against it because the ruling of the Court of Appeals limited its liability
to P150,000.00 was not assailed by Rocha, hence the same has now attained finality.
Before us, respondents maintain that they are entitled to damages under
Article 21 of the Civil Code for C.F. Sharps unjustified refusal to release the
documents to them and for requiring them to sign a quitclaim which would
effectively bar them from seeking redress against petitioners. Respondents justify
the award of other damages as they suffered pecuniary losses attributable to
petitioners malice and bad faith.
 
In his Reply, Rocha introduced a new argument, i.e., that he should not be held
jointly liable with C.F. Sharp considering that the company has a separate
personality. Rocha argues that there is no showing in the Complaint that he had
participated in the malicious act complained. He adds that his liability only stems
from the Indemnity Agreement with Pioneer Insurance and does not extend to
respondents.
 
Records disclose that Rocha was first impleaded in the case by Pioneer
Insurance. Pioneer Insurance, as surety, was sued by respondents together with C.F.
Sharp. Pioneer Insurance in turn filed a third party complaint against Rocha on the
basis of an Indemnity Agreement whereby he bound himself to indemnify and hold
harmless Pioneer Insurance from and against any and all damages which the latter
may incur in consequence of having become a surety. [5] The third party complaint
partakes the nature of a cross-claim.
 
C.F. Sharp, as defendant-appellant and Rocha, as third-party defendant-
appellant, filed only one brief before the Court of Appeals essentially questioning
the declaration of the trial court that non-deployment is tantamount to breach of
contract and the award of damages. The Court of Appeals found them both liable for
damages. Both C.F. Sharp and Rocha sought recourse before this Court via a Motion
for Extension of Time (To File a Petition for Review) on 19 September 2007. [6] In
the Petition for Review, however, C.F. Sharp was noticeably dropped as
petitioner. Rocha maintains essentially the same argument that he and C.F. Sharp
were wrongfully adjudged liable for damages.
 
It was only in its Reply dated 25 March 2008 that Rocha, through a new
representation, suddenly forwarded the argument that he should not be held liable as
an officer of C.F. Sharp. It is too late in the day for Rocha to change his theory. It is
doctrinal that defenses not pleaded in the answer may not be raised for the first time
on appeal. A party cannot, on appeal, change fundamentally the nature of the issue
in the case. When a party deliberately adopts a certain theory and the case is decided
upon that theory in the court below, he will not be permitted to change the same on
appeal, because to permit him to do so would be unfair to the adverse party. [7] More
so in this case, where Rocha introduced a new theory at the Reply
stage. Disingenuousness may even be indicated by the sudden exclusion of the name
of C.F. Sharp from the main petition even as Rocha posited arguments not just for
himself and also in behalf of C.F. Sharp.
 
The core issue pertains to damages.
 
The bases of the lower courts award of damages differ. In upholding the
perfection of contract between respondents and C.F. Sharp, the trial court stated that
the unjustified failure to deploy and subsequently release the documents of
respondents entitled them to compensatory damages, among others. Differently, the
appellate court found that no contract was perfected between the parties that will
give rise to a breach of contract. Thus, the appellate court deleted the award of
actual damages. However, it adjudged other damages against C.F. Sharp for its
unlawful withholding of documents from respondents.
 
We sustain the trial courts ruling.
 
On the issue of whether respondents are entitled to relief for failure to deploy them,
the RTC ruled in this wise:
 
The contract of employment entered into by the plaintiffs and
the defendant C.F. Sharp is an actionable document, the same
contract having the essential requisites for its validity. It is
worthy to note that there are three stages of a contract: (1)
preparation, conception, or generation which is the period of
negotiation and bargaining ending at the moment of agreement
of the parties. (2)Perfection or birth of the contract, which is the
moment when the parties come to agree on the terms of the
contract. (3) Consummation or death, which is the fulfillment or
performance of the terms agreed upon in the contract.
Hence, it is imperative to know the stage reached by the
contract entered into by the plaintiffs and C.F. sharp. Based on
the testimonies of the witnesses presented in this Court, there
was already a perfected contract between plaintiffs and
defendant C.F. Sharp. Under Article 1315 of the New Civil
Code of the Philippines, it states that:
 
xxxx
  
Thus, when plaintiffs signed the contract of employment
with C.F. Sharp (as agent of the principal WB Slough)
consequently, the latter is under obligation to deploy the
plaintiffs, which is the natural effect and consequence of the
contract agreed by them.[8]
 
We agree.
 
As correctly ruled at the trial, contracts undergo three distinct stages, to
wit: negotiation; perfection or birth; and consummation. Negotiation begins from the
time the prospective contracting parties manifest their interest in the contract and
ends at the moment of agreement of the parties. Perfection or birth of the contract
takes place when the parties agree upon the essential elements of the contract.
Consummation occurs when the parties fulfill or perform the terms agreed upon in
the contract, culminating in the extinguishment thereof. [9]
 
Under Article 1315 of the Civil Code, a contract is perfected by mere
consent and from that moment the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the consequences which, according
to their nature, may be in keeping with good faith, usage and law. [10]
 
An employment contract, like any other contract, is perfected at the
moment (1) the parties come to agree upon its terms; and (2) concur in the essential
elements thereof: (a) consent of the contracting parties, (b) object certain which is
the subject matter of the contract and (c) cause of the obligation. [11]
 
We have scoured through the Contract of Employment and we hold that it
is a perfected contract of employment. We reproduce below the terms of
the Contract of Employment for easy reference:
 
WITNESSETH
 
That the Seafarer shall be employed on board under
the following terms and conditions:
 
1.1  Duration of Contract: 3 month/s
1.2  Position: SANDBLASTER/PAINTER
1.3  Basic Monthly Salary: $450.00 per month
1.4  Living Allowances: $0.00 per month
1.5  Hours of Work: 48 per week
1.6  Overtime Rate: $439.00 per month
1.7  Vacation Leave with Pay: 30.00 day/s per month on
board
 
The terms and conditions of the Revised Employment
Contract for seafarers governing the employment of all Filipino
seafarers approved by the POEA/DOLE on July 14, 1989 under
Memorandum Circular No. 41 series of 1989 and amending
circulars relative thereto shall be strictly and faithfully observed.
 
Any alterations or changes, in any part of this Contract
shall be evaluated, verified, processed and approved by the
Philippine Overseas Employment Administration (POEA). Upon
approval, the same shall be deemed an integral part of the
Standard Employment Contract (SEC) for seafarers.
 
All claims, complaints or controversies relative to the
implementation and interpretation of this overseas employment
contract shall be exclusively resolved through the established
Grievance Machinery in the Revised Employment Contract for
seafarers, the adjudication procedures of the Philippine Overseas
Employment Administration and the Philippine Courts of
Justice, in that order.
Violations of the terms and conditions of this Contract
with its approved addendum shall warrant the imposition of
appropriate disciplinary or administrative sanctions against the
erring party.
 
The Employee hereby certifies that he had received,
read or has had explained to him and fully understood this
contract as well as the POEA revised Employment Contract of
1989 and the Collective Bargaining Agreement (CBA) and/or
company terms and conditions of employment covering this
vessel and that he is fully aware of and has head or has had
explained to him the terms and conditions including those in the
POEA Employment Contract, the CBA and this contract which
constitute his entire agreement with the employer.
 
The Employee also confirms that no verbal or other
written promises other than the terms and conditions of this
Contract as well as the POEA Revised Employment Contract,
the CBA and/or company terms and conditions had been given
to the Employee. Therefore, the Employee cannot claim any
additional benefits or wages of any kind except those which
have been provided in this Contract Agreement.[12]
 
By the contract, C.F. Sharp, on behalf of its principal, International
Shipping Management, Inc., hired respondents as Sandblaster/Painter for a 3-month
contract, with a basic monthly salary of US$450.00. Thus, the object of the contract
is the service to be rendered by respondents on board the vessel while the cause of
the contract is the monthly compensation they expect to receive. These terms were
embodied in the Contract of Employment which was executed by the parties. The
agreement upon the terms of the contract was manifested by the consent freely given
by both parties through their signatures in the contract. Neither parties disavow the
consent they both voluntarily gave. Thus, there is a perfected contract of
employment.
 
The Court of Appeals agreed with the submission of C.F. Sharp that the
perfection and effectivity of the Contract of Employment depend upon the actual
deployment of respondents. It based its conclusion that there was no perfected
contract based on the following rationale:
The commencement of the employer-employee
relationship between plaintiffs-appellees and the foreign
employer, as correctly represented by C.F. Sharp requires that
conditions under Sec. D be met. The Contract of Employment
was duly Verified and approved by the POEA. Regrettably, We
have painfully scrutinized the Records and find no evidence that
plaintiffs-appellees were cleared for travel and departure to their
port of embarkation overseas by government
authorities. Consequently, non-fulfillment of this condition
negates the commencement and existence of employer-
employee relationship between the plaintiffs-appellees and C.F.
Sharp. Accordingly, no contract between them was perfected
that will give rise to plaintiffs-appellees right of action. There
can be no breach of contract when in the first place, there is no
effective contract to speak of. For the same reason, and finding
that the award of actual damages has no basis, the same is
hereby deleted.[13]
 
The Court of Appeals erred.
 
The commencement of an employer-employee relationship must be treated
separately from the perfection of an employment contract. Santiago v. CF Sharp
Crew Management, Inc.,[14] which was promulgated on 10 July 2007, is an
instructive precedent on this point. In said case, petitioner was hired by respondent
on board MSV Seaspread for US$515.00 per month for nine (9) months, plus
overtime pay. Respondent failed to deploy petitioner from the port of Manila to
Canada. We made a distinction between the perfection of the employment contract
and the commencement of the employer-employee relationship, thus:
 
The perfection of the contract, which in this case
coincided with the date of execution thereof, occurred when
petitioner and respondent agreed on the object and the cause, as
well as the rest of the terms and conditions therein. The
commencement of the employer-employee relationship, as
earlier discussed, would have taken place had petitioner been
actually deployed from the point of hire. Thus, even before the
start of any employer-employee relationship, contemporaneous
with the perfection of the employment contract was the birth of
certain rights and obligations, the breach of which may give rise
to a cause of action against the erring party. [15]
Despite the fact that the employer-employee relationship has not
commenced due to the failure to deploy respondents in this case, respondents are
entitled to rights arising from the perfected Contract of Employment, such as the
right to demand performance by C.F. Sharp of its obligation under the contract.
The right to demand performance was a categorical pronouncement
in Santiago which ruled that failure to deploy constitutes breach of contract, thereby
entitling the seafarer to damages:
 
Respondents act of preventing petitioner from
departing the port of Manila and boarding MSV
Seaspread constitutes a breach of contract, giving rise to
petitioners cause of action. Respondent unilaterally and
unreasonably reneged on its obligation to deploy petitioner and
must therefore answer for the actual damages he suffered.
We take exception to the Court of Appeals conclusion
that damages are not recoverable by a worker who was not
deployed by his agency. The fact that the POEA Rules are silent
as to the payment of damages to the affected seafarer does not
mean that the seafarer is precluded from claiming the same. The
sanctions provided for non-deployment do not end with the
suspension or cancellation of license or fine and the return of all
documents at no cost to the worker. They do not forfend a
seafarer from instituting an action for damages against the
employer or agency which has failed to deploy him. [16]
 
The appellate court could not be faulted for its failure to adhere
to Santiago considering that the Court of Appeals Decision was promulgated way
back in 2003 while Santiago was decided in 2007. We now reiterate Santiago and,
accordingly, decide the case at hand.
 
We respect the lower courts findings that C.F. Sharp unjustifiably refused
to return the documents submitted by respondent. The finding was that C.F. Sharp
would only release the documents if respondent would sign a quitclaim. On this
point, the trial court was affirmed by the Court of Appeals. As a consequence, the
award by the trial court of moral damages must likewise be affirmed.
 
 Moral damages may be recovered under Article 2219 of the Civil Code in
relation to Article 21. The pertinent provisions read:
 
Art. 2219. Moral damages may be recovered in the
following and analogous cases:
 
xxxx
 
(10) Acts and actions referred to in Articles 21, 26, 27, 28,
29, 30, 32, 34, and 35.
 
xxxx
 
Art. 21. Any person who wilfully causes loss or injury to
another in a manner that is contrary to morals, good customs
or public policy shall compensate the latter for the damage.
 
 
We agree with the appellate court that C.F. Sharp committed an actionable
wrong when it unreasonably withheld documents, thus preventing respondents from
seeking lucrative employment elsewhere. That C.F. Sharp arbitrarily imposed a
condition that the documents would only be released upon signing of a quitclaim is
tantamount to bad faith because it effectively deprived respondents of resort to legal
remedies.
Furthermore, we affirm the award of exemplary damages and attorneys
fees. Exemplary damages may be awarded when a wrongful act is accompanied by
bad faith or when the defendant acted in a wanton, fraudulent, reckless, oppressive,
or malevolent manner which would justify an award of exemplary damages under
Article 2232 of the Civil Code. Since the award of exemplary damages is proper in
this case, attorneys fees and cost of the suit may also be recovered as provided under
Article 2208 of the Civil Code.[17]
 
WHEREFORE, the petition is DENIED. The Decision dated 27 June
1996 of the Regional Trial Court of Pasay City is REINSTATED. Accordingly, the
Decision dated 30 October 2003 of the Court of Appeals is MODIFIED.
 
SO ORDERED.