1
JUAN F. VILLARROEL, appellant-appellant, vs. DOCTRINE: (Natural Obligation)
BERNARDINO ESTRADA, appealed-appealed.
D. Felipe Agoncillo in representation of the appellant-appelant.
D. Crispin Oben in representation of the appealed-appellant.
71 Phil. 140, G.R. No. L-47362 December 19, 1940
AVANCEÑA, Pres .:
On May 9, 1912, Alejandro F. Callao, the mother of the defendant Juan F. Villarroel, obtained
from the Mariano Estrada and Severina spouses a loan of P1,000 payable after seven years
(Exhibit A). Alejandra passed away, leaving the defendant as the sole heir. The spouses
Mariano Estrada and Severina also died, leaving the plaintiff Bernardino Estrada as the sole
heir. On August 9, 1930, the defendant signed a document (Exhibit B) declaring the applicant
P1,000 in duty, with an interest of 12 percent per year. This action is about the collection of
this amount.
The Court of First Instance of Laguna, in which this action was filed, ordered the defendant to
pay the plaintiff the amount claimed of P1,000 with his legal interests of 12 percent a year
from August 9, 1930 to its full payment. Appeal of this sentence.
It will be noted that the parties in the present case are, respectively, the sole heirs of the
original creditors and the debtor. This action is exercised by virtue of the obligation that the
defendant, as the only son of the original debtor, contracted in favor of the plaintiff, the only
heir of the original creditors. It is admitted that the amount of P1,000 to which this obligation
is contracted is the same debt of the defendant's mother to the parents of the plaintiff.
Although the action to recover the original debt has already prescribed when the claim was
filed in this case, the question that arises in this appeal is mainly the question of whether,
notwithstanding such a prescription, the action filed is appropriate. However, the present
action is not based on the original obligation contracted by the defendant's mother, which has
already been prescribed, but on the one contracted by the defendant on August 9, 1930
(Exhibit B) upon assuming compliance with that obligation, already prescribed. The defendant
being the sole heir of the original debtor, with the right to succeed him in his inheritance, that
debt legally brought by his mother, although it lost its effectiveness by prescription, is now,
however, for him a moral obligation.
The rule that a new promise to pay a prescreened debt must be made by the same obligated
person or by another legally authorized by it, is not applicable to the present case in which it
is not required compliance with the obligation of the obligor originally, but which you des
voluntarily wanted to assume this obligation.
The sentence appealed is confirmed, with the costs to the appellant. This is how it is ordered.
Imperial, Diaz, Laurel, and Horrilleno, MM., Are satisfied.
Not being based on positive law but on equity and natural law, do not grant a right
of action to enforce their performance, but after voluntary fulfillment by the obligor, they
authorize theretention of what has been delivered or rendered by reason thereof.
FACTS:
1. On May 9, 1912, Alexander F. Callao, mother of Juan F. Villaroel, obtained from the
spouses Mariano Estrada and Severina debt of P1,000, payable after seven years
2. Alejandra, passed away, leaving Villaroel as sole heir. The spouses Mariano Estrada and
Severina also passed away, leaving Bernardino Estrada as sole heir.
3. On August 9, 1930, Villaroel gave a document to Estrada, in which he declared in owing
the amount of P1,000, with an interest of 12 percent per year. This action turns on the
collection of this amount.
4. The Court of First Instance of Lagoon, in as interposed this action, and decided for Villaroel
to pay the amount demanded of P1,000 with its legal interests of 12percent from August
9, 1930 to its complete payment. Villaroel appealed.
ISSUES:
WON Villaroel should pay the amount despite the prescription of the original debt
RULING + RATIO:
The present action is not based on the original obligation contracted by the mother Villaroel,
which has prescribed, but on that which he contracted on August9, 1930 when assuming the
fulfillment of that obligation. Being the sole heir of the indebted one, with right her
inheritance, that debt which was contracted by his mother legally, although no longer effective
by prescription, now is, nevertheless, a moral obligation. That consideration is sufficient to
create and to make his obligation voluntarily contracted, effective August of 1930.
The rule in which a new promise to pay a prescribed debt must be done only by the same
person or another who is legally authorized by her, is not applicable to the present case,
because Villaroel voluntarily wanted to assume this obligation.
Disposition:
The appealed sentence is confirmed, with costs to the apellant.

EN BANC
[G.R. No. 46274. November 2, 1939.]
A. O. FISHER, plaintiff-appellee, vs. JOHN C. ROBB, defendant-
appellant.
Marcial P. Lichauco and Manuel M. Mejia for appellant.
Wolfson, Barrion & Baradi and Ignacio Ycaza for appellee.
SYLLABUS
1. ONEROUS CONTRACTS; CONSIDERATION; ARTICLE 1261 OF THE CIVIL CODE. — The
promise made by an organizer of a dog racing course to a stockholder to return to
him certain amounts paid by the latter in satisfaction of his subscription, upon the
belief of said organizer that he was morally responsible because of the failure of the
enterprise, is not the consideration required by article 1261 of the Civil Code as an
essential element for the legal existence of an onerous contract which would bind
the promisor to comply with his promise.
DECISION
VILLA-REAL, J p:
The defendant John C. ROBB appeals to this Court from the judgment of the
Court of First Instance of Manila, the dispositive part of which reads:
"Judgment is hereby rendered in favor of the plaintiff and
against the defendant, who is ordered to pay to the former the sum of
P2,000, with interest at the legal rate from March 11, 1938, until paid,
plus costs."
The facts established at the trial without discussion are the following:
In September, 1935, the board of directors of the Philip pine Greyhound Club,
Inc., told the herein defendant-appellant John C. ROBB, to make a business trip to
Shanghai to study the operation of a dog racing course. In Shanghai, the defendant-
appellant stayed at the American Club where he became acquainted with the plaintiff-
appellee, A. O. Fisher, through their mutual friends. In the course of a conversation, the
defendant-appellant came to know that the plaintiff-appellee was the manager of a dog
racing course. Upon knowing the purpose of the defendant-appellant's trip, the plaintiff-
appellee showed great interest and invited him to his establishment and for several days
gave him information about the business. It seems that the plaintiff became interested in
the Philippine Greyhound Club, Inc., and asked the defendant if he could have a part
therein as a stockholder. As the defendant-appellant answered in the affirmative, the
plaintiff-appellee thereupon filled a subscription blank and, through his bank in Shanghai,
sent to the Philippine Greyhound Club, Inc., in Manila a telegraphic transfer for P3,000 in
payment of the first installment of his subscription. Later on the defendant-appellant
returned to Manila from Shanghai.
Some months thereafter, when the board of directors of the Philippine
Greyhound Club, Inc., issued a call for the payment of the second installment of the
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subscriptions, the defendant-appellant sent a radiogram to the plaintiff-appellee in
Shanghai, requesting him to send the amount of the second installment of his
subscription. The plaintiff-appellee did so and sent P2,000 directly to the Philippine
Greyhound Club, Inc., in payment of the said installment. Due to the manipulations of
those who controlled the Philippine Greyhound Club, Inc., during the absence of the
defendant in Manila, the enterprise failed. Upon his return to Manila, the defendant-
appellant undertook the organization of a company called The Philippine Racing Club,
which now manages the race track of the Santa Ana Park. The defendant immediately
endeavored to save the investment of those who had subscribed to the Philippine
Greyhound Club, Inc., by having the Philippine Racing Club acquire the remaining assets
of the Philippine Greyhound Club, Inc. The defendant-appellant wrote a letter to the
plaintiff-appellee in Shanghai explaining in detail the critical condition of the Philippine
Greyhound Club, Inc., and outlining his plans to save the properties and assets of the
plaintiff-appellee that he felt morally responsible to the stockholders who had paid their
second installment (Exh. C). In answer to said letter, the plaintiff-appellee wrote the
defendant-appellant requiring him to return the entire amount said by him to the
Philippine Greyhound Club, Inc., (Exhibit E). Upon receiving this letter, the defendant-
appellant answered the plaintiff-appellee on March 16, 1936, to the effect that it was not
his duty under the law to reimburse the plaintiff-appellee for any loss which he might
have suffered in connection with the Philippine Greyhound Club, Inc., in the same way
that he could not expect anyone to reimburse him for his own losses which were much
more than those of the plaintiff-appellee (Exh. B).
The principal question to be decided in this appeal is whether or not the trial
court erred in holding that there was sufficient consideration to justify the promise made
by the defendant-appellant in his letters Exhibits B and C.
In the fifth paragraph of the letter Exhibit B, dated March 16, 1936, addressed
by the defendant-appellant to the plaintiff-appellee, the former said: "I feel a moral
responsibility for these second payments, which were made in order to carry out my plan
(not the first payments, as you have it in your letter), and Mr. Hilscher and I will see to it
that stockholders who made second payments receive these amounts back as soon as
possible, out of our own personal funds." And in the seventh paragraph of the same letter
Exhibit B, same defendant-appellant states the following: "As it is, I have had to take my
loss along with every one else here, and so far as I can see that is what all of us must do.
The corporation is finally flat, so it is out of the question to receive back any of your
investment from that source; the only salvage will be the second payment that you made,
and that will come from Hilscher and me personally, as I say, not because of any
obligation, but simply be cause we have taken it on ourselves to do that. (And I wish I
could find someone who would undertake to repay a part of my own losses in the
enterprise!)" And in the seventh paragraph of the letter Exhibit C, dated February 21,
1936, addressed by the same defendant-appellant to the same plaintiff-appellee, the
former said the following: "However, Mr. Hilscher and I feel a personal responsibility to
those few stockholders who made their second payments, including yourself, and it is our
intention to personally repay the amounts of the second payments made by those few.
. . . " And, finally, paragraph 8 of the same letter Exhibit C
states: "We are to receive a certain share of the new Philippine Racing

Club for our services as promoters of that organization, and as soon as
this is received by us, we will be in a position to compensate you and the
few others who made the second payment, for the amount of those
second payments. That, as I have said, will come from us personally, in
an effort to make things easier for those who were sportsmen enough
to try to save the Grey hound organization by making second payments."
Article 1254 of the Civil Code provides as follows:
"A contract exists from the moment one or more persons
consent to be bound with respect to another or others to deliver
something or to render some services."
And article 1261 of the same Civil Code provides the following:
"ART. 1261. There is no contract unless the following
requisites exist:
"1. The consent of the contracting parties;
"2. A definite object which is the subject-matter of the
contract;
"3. A consideration for the obligation established."
In the present case, while the defendant-appellant told the plaintiff-appellee
that he felt morally responsible for the second payments which had been made to carry
out his plan, and that Mr. Hilscher and he would do everything possible so that the
stockholders who had made second payments may receive the amount paid by them
from their personal funds without delay, not because they were bound to do so, but
because they voluntarily assumed the responsibility to make such payment as soon as
they receive from the Philippine Racing Club certain shares for their services as
promoters of said organization, nevertheless, it does not appear that the plaintiff-
appellee had consented to said form of reimbursement of the P2,000 which he had
directly paid to the Philippine Greyhound Club, Inc., in satisfaction of the second
installment.
The first essential requisite, therefore, required by the cited article 1261 of the
Civil Code for the existence of a contract, does not exist.
As to the third essential requisite, namely, "A consideration for the obligation
established," article 1274 of the same Code provides:
"In onerous contracts the consideration as to each of the
parties is the delivery or performance or the promise of delivery or
performance of a thing or service by the other party; in remuneratory
contracts the consideration is the service or benefit for which the
remuneration is given, and in contracts of pure beneficence the
consideration is the liberality of the benefactors."
And article 1275 of the same Code provides:
"ART. 1275. Contracts without consideration or with an illicit
consideration produce no effect whatsoever. A consideration is illicit
when it is contrary to law or morality."
3
Manresa, in volume 8, 4th edition, pages 618-619 of his Commentaries on the
Civil Code, interpreting article 1274 to 1277 of the Civil Code, has this to say:
"Considering the concept of the consideration as the
explanation and motive of the contract, it is related to the latter's object
and even more to its motives with which it is often confused. It is
differentiated from them, however, in that the former is the essential
reason for the contract, while the latter are the particular reasons of a
contracting party which do not affect the other party and which do not
preclude the existence of a different consideration. To clarify by an
example: A thing purchased constitutes the consideration for the
purchaser and not the motives which have influenced his mind, like its
usefulness, its perfection, its relation to another, the use thereof which
he may have in mind, etc., a very important distinction, which precludes
the annulment of the contract by the sole influence of the motives,
unless the efficacy of the former had been subordinated to compliance
with the latter as conditions.
"The jurisprudence shows some cases wherein this important
distinction is established. The consideration of contracts, states the
decision of February 24, 1904, is distinct from the motive which may
prompt the parties in executing them. The inaccuracies committed in
expressing its accidental or secondary details do not imply lack of
consideration or false consideration, wherefore, they do not affect the
essence and validity of the contract. In a loan the consideration in its
essence is, for the borrower the acquisition of the amount, and for the
lender the power to demand its return, whether the money be for the
former or for another person and whether it be invested as stated or
otherwise.
"The same distinction between the consideration and the
motive is found in the decisions of November 23, 1920 and March 5,
1924."
The contract sought to be judicially enforced by the plain tiff-appellee against
the defendant-appellant is onerous in character, because it supposes the deprivation of
the latter of an amount of money which impairs his property, which is a burden, and for
it to be legally valid it is necessary that it should have a consideration consisting in the
lending or promise of a thing or service by such party. The defendant-appellant is required
to give a thing, namely, the payment of the sum of P2,000, but the plaintiff-appellee has
not given or promised anything or service to the former which may compel him to make
such payment. The promise which said defendant-appellant has made to the plain tiff-
appellee to return to him P2,000 which he had paid to the Philippine Greyhound Club,
Inc., as second installment of the payment of the amount of the shares for which he had
subscribed, was prompted by a feeling of pity which said defendant-appellant had for the
plaintiff-appellee as a result of the loss which the latter had suffered because of the failure
of the enterprise. The obligation which the said defendant-appellant had contracted with

the plaintiff-appellee is, therefore, purely moral and, as such, is not demand able in law
but only in conscience, over which human judges have no jurisdiction.
As to whether a moral obligation is a sufficient consideration, read in volume
12 of the American Jurisprudence, pages 589-590, paragraphs 96, 67, the following:
"SEC. 96. Moral obligation. — Although there is authority in
support of the broad proposition that a moral obligation is sufficient
consideration, such proposition is usually denied . . .
"The case presenting the question whether a moral obligation
will sustain an express executory promise may be divided into five
classes: (1) Cases in which the moral obligation arose wholly from ethical
considerations, unconnected with any legal obligations, perfect or
imperfect, and without the receipt of actual pecuniary or material
benefit by the promisor prior to the subsequent promise; (2) cases in
which the moral obligation arose from a legal liability already performed
or still enforceable; (3) cases in which the moral obligation arose out of,
or was connected with, a previous request or promise creating originally
an enforceable legal liability, which, however, at the time of the
subsequent express promise had become discharged or barred by
operation of a positive rule of law, so that at that time there was no
enforceable legal liability; (4) cases in which the moral obligation arose
from, or was connected with, a previous request or promise which,
however, never created any enforceable legal liability, because of a rule
of law which rendered the original agreement void, or at least
unenforceable; and (5) cases in which the moral obligation arose out of,
or was connected with, the receipt of actual material or pecuniary
benefit by the promisor, without, however, any previous request or
promise on his part, ex press or implied, and therefore, of course,
without any original legal liability, perfect or imperfect.
"Sec. 97. Moral obligation unconnected with legal liability or
legal benefit. — Although, as subsequently shown there was formerly
some doubt as to the point. it is now well established that a mere moral
obligation or conscientious duty arising wholly from ethical motives or a
mere conscientious duty unconnected with any legal obligation, perfect
or imperfect, or with the receipt of benefit by the promisor of a material
or pecuniary nature will not furnish a consideration for an executory
promise. . . . "
In view of the foregoing considerations, we are of the opinion and so hold, that
the promise made by an organizer of a dog racing course to a stockholder to return to him
certain amounts paid by the latter in satisfaction of his subscription upon the belief of
said organizer that he was morally responsible because of the failure of the enterprise, is
not the consideration required by article 1261 of the Civil Code as an essential element
for the legal existence of an onerous contract which would bind the promisor to comply
with his promise.
Wherefore, the appealed judgment is reversed and the defendant is absolved
from the complaint, with the costs to the plaintiff.
4
Avanceña, C.J., Imperial, Diaz, Laurel, Concepcion and Moran, JJ., concur.
||| (Fisher v. Robb, G.R. No. 46274, [November 2, 1939], 69 PHIL 101-108)
EN BANC
[G.R. No. L-10394. December 13, 1958.]
CLAUDINA VDA. DE VILLARUEL, ET AL., plaintiffs-appellees, vs. MANILA MOTOR CO.,
INC. and ARTURO COLMENARES, defendants-appellants.
Hilado & Hilado for appellees.
Ozaeta, Gibbs & Ozaeta for appellant company.
Jose L. Gamboa and Napoleon Garcia for appellant Arturo Colmenares.
SYLLABUS
1. INTERNATIONAL LAW; SEQUESTRATION OF PRIVATE PROPERTY BY BELLIGERENT OCCUPANT
RECOGNIZED; LESSOR OF SEIZED PROPERTY LIABLE FOR DISTURBANCE. — Under the generally
accepted principles of international law, which are made part of the law of the Philippines, a
belligerent occupant (like the Japanese) may legitimately billet or quarter its troops in privately
owned land and buildings for the duration of its military operations, or as military necessity
should demand. Thus, when the Japanese forces evicted appellant lessee company from the
leased buildings and occupied the same as quarters for its troops, the Japanese authorities
acted pursuant to a right recognized by international and domestic law. Its act of dispossession,
therefore, did not constitute a mere act of trespass (perturbacion de mero hecho) but a
trespass under color of title (perturbacion de derecho) chargeable to the lessors of the seized
premises, since the belligerent occupant acted pursuant to a right that the law recognizes.
2. ID.; ID.; ID.; LIABILITY OF LESSEE FOR RENTS DURING OCCUPATION OF PROPERTY. — Such
dispossession, though not due to the fault of the lessors or lessee nevertheless deprived the
lessee of the enjoyment of the thing leased. Wherefore, the lessee's corresponding obligation
to pay rentals ceased during such deprivation.
3. ID.; ID.; ID.; IMPORTER REFUSAL TO ACCEPT RENTS PLACES LESSORS IN DEFAULT; LIABILITY
FOR SUPERVENING RISK. — Since the lessee was exempt from paying the rents for the period
of its ouster, the insistence of the lessors to collect the rentals corresponding to said period
was unwarranted and their refusal to accept the currant rents tendered by the lessee was
unjustified. Such refusal places the lessors in default (mora) and they must shoulder the
subsequent accidental loss of the premises leased.
4. ID.; ID.; ID.; ID.; ID.; MORA OF LESSORS NOT CURED BY FAILURE OF LESSEE TO CONSIGN
RENTS IN COURT. — The mora of the lessors was not cured by the failure of the lessee to make
the consignation of the rejected payments, but the lessee remained obligated to pay the
amounts tendered and not consigned by it in court.
5. PLEADING AND PRACTICE; CHANGE IN THE RELIEF PRAYED DURING THE PENDENCY OF THE
ACTION. — A change in the relief prayed, brought about by circumstances occurring during the
pendency of the action, is not improper. This is justified under Section 2, Rule 17 of the Rules
of Court (on amendments) "to the end that the real matter in dispute and all matters in the

action in dispute between the parties may, as far as possible be completely determined in a
single proceeding."
6. ID.; DISMISSAL WITHOUT PREJUDICE. — The dismissal of plaintiffs' two causes of action in
the case at bar was premised on the existence of the "Debt Moratorium" which suspended the
enforcement of the obligation up to a certain time. The reference thereto by the court
amounted to a dismissal "without prejudice", since in effect it ruled that the plaintiffs could
not, at the time they sought it, enforce their right of action against the defendants, but they
must wait until the moratorium was lifted. In this way, the court qualified its dismissal.
DECISION
REYES, J.B.L., J p:
Manila Motor Co., Inc., and Arturo Colmenares interpose this appeal against the
decision of the Court of First Instance of Negros Occidental, in its Civil Case No. 648,
ordering the defendant Manila Motor Co., Inc. to pay to the plaintiffs Villaruel the sum of
(a) P11,900 with legal interest from May 18, 1953, on which date, the court below
declared invalid the continued operation of the Debt Moratorium, under the first cause
of action; (b) P38,395 with legal interest from the date of filing of the original complaint
on April 26, 1947, on the second cause of action; and against both the Manila Motor Co.,
Inc. and its co-defendant, Arturo Colmenares, the sum of P30,000 to be paid, jointly and
severally, with respect to the third cause of action.
On May 31, 1940, the plaintiffs Villaruel and the defendant Manila Motor Co.,
Inc. entered into a contract (Exhibit "A") whereby, the former agreed to convey by way of
lease to the latter the following described premises;
(a) Five hundred (500) square meters of floor space of a building of strong
materials for automobile showroom, offices, and store room for
automobile spare parts;
(b) Another building of strong materials for automobile repair shop; and
(c) A 5-bedroom house of strong materials for residence of the Bacolod Branch
Manager of the defendant company.
The term of the lease was five (5) years, to commence from the time that the
building were delivered and placed at the disposal of the lessee company, ready for
immediate occupancy. The contract was renewable for an additional period of five (5)
years. The Manila Motor Company, in consideration of the above covenants, agreed to
pay to the lessors, or their duly authorized representative, a monthly rental of Three
Hundred (P300) pesos payable in advance before the fifth day of each month, and for the
residential house of its branch manager, a monthly rental not to exceed Fifty (P50) pesos
"payable separately by the Manager".
The leased premises were placed in the possession of the lessee on the 31st day
of October, 1940, from which date, the period of the lease started to run under their
agreement.
This situation, the Manila Motor Co., Inc. and its branch manager enjoying the
premises, and the lessors receiving the corresponding rentals as stipulated, continued
until the invasion of 1941; and shortly after the Japanese military occupation of the
5
Provincial Capital of Bacolod the enemy forces held and used the properties leased as part
of their quarters from June 1, 1942 to March 29, 1945, ousting the lessee therefrom. No
payment of rentals were made at any time during the said period.
Immediately upon the liberation of the said city in 1945, the American Forces
occupied the same buildings that were vacated by the Japanese, including those leased
by the plaintiffs, until October 31, 1945. Monthly rentals were paid by the said occupants
to the owners during the time that they were in possession, as the same rate that the
defendant company used to pay.
Thereafter, when the United States Army finally gave up the occupancy the
premises, the Manila Motor Co., Inc., through their branch manager, Rafael B. Grey,
decided to exercise their option to renew the contract for the additional period of five (5)
years, and the parties agreed that the seven months occupancy by the U. S. Army would
not be counted as part of the new 5-year term. Simultaneously with such renewal, the
company sublet the same buildings, except that used for the residence of the branch
manager, to the other defendant, Arturo Colmenares.
However, before resuming the collection of rentals, Dr. Alfredo Villaruel, who
was entrusted with the same, consulted Atty. Luis Hilado on whether they (the lessors)
had the right to collect, from the defendant company, rentals corresponding to the time
during which the Japanese military forces had control over the leased premises. Upon
being advised that they had such a right, Dr. Villaruel demanded payment thereof, but
the defendant company refused to pay. As a result, Dr. Villaruel gave notice seeking the
rescission of the contract of lease and the payment of rentals from June 1, 1942 to March
31, 1945 totalling P11,900. This was also rejected by the defendant company in its letter
to Villaruel, dated July 27, 1946.
Sometime on that same month of July, Rafael B. Grey offered to pay to Dr.
Villaruel the sum of P350, for which, tenderer requested a receipt that would state that it
was in full payment for the said month. The latter expressed willingness to accept the
tendered amount provided, however, that his acceptance should be understood to be
without prejudice to their demand for the rescission of the contract, and for increased
rentals until their buildings were returned to them. Later, Dr. Villaruel indicated his
willingness to limit the condition of his acceptance to be that "neither the lessee nor the
lessors admit the contention of the other by the mere fact of payment". As no accord
could still be reached between the parties as to the context of the receipt, no payment
was thereafter tendered until the end of November, 1946. On December 4, 1946 (the day
after the defendant company notified Dr. Villaruel by telegram, that it cancelled the
power of attorney given to Grey, and that it now authorized Arturo Colmenares, instead,
to pay the rent of P350 each month), the Manila Motor Co., Inc. remitted to Dr. Villaruel
by letter, the sum of P350.90. For this payment, the latter issued a receipt stating that it
was "without prejudice" to their demand for rents in arrears and for the rescission of the
contract of lease.
After it had become evident that the parties could not settle their case amicably,
the lessors commenced this action on April 26, 1947 with the Court of First Instance of
Negros Occidental against the appellants herein. During the pendency of the case, a fire
originating from the projection room of the City Theatre, into which Arturo Colmenares,
(the sublessee) had converted the former repair shop of the Manila Motor Co. Inc.,

completely razed the building, engulfing also the main building where Colmenares had
opened a soda fountain and refreshment parlor, and made partitions for store spaces
which he rented to other persons.
Because of the aforesaid occurrence, plaintiffs demanded reimbursement from
the defendants, but having been refused, they filed a supplemental complaint to include
as their third cause of action, the recovery of the value of the burned buildings.
Defendants filed their amended answer and also moved for the dismissal of the
plaintiffs' first and second causes of action invoking the Debt Moratorium that was then
in force. The dismissal was granted by the trial court on February 5, 1951, but hearing was
set as regards the third cause of action.
On August 11, 1952, the defendant company filed a motion for summary
judgment dismissing the plaintiffs, third cause of action, to which plaintiffs registered
objection coupled with a petition for reconsideration of the order of the court dismissing
the first and second causes of action. Pending the resolution of this incident, plaintiffs, on
October 2, 1953, called the court's attention to the decision in the case of
Rutter vs. Esteban (93 Phil., 68; 49 Off. Gaz. [5] 1807) invalidating the continued effectivity
of the Moratorium Law (R. A. 342). On November 25, 1953, the trial court denied the
defendant company's motion for summary judgment and set aside its previous order
dismissing the first and second causes of action. The case was accordingly heard and
thereafter, judgment was rendered in plaintiffs' favor in the terms set in the opening
paragraph of this decision. Thereafter, the defendants regularly appealed to this Court.
The defendants-appellants raise a number of procedural points. The first of
these relates to their contention that the supplemental complaint which included a third
cause of action, should not have been admitted, as it brought about a change in the
original theory of the case and that it raised new issues not theretofore considered. This
argument cannot be sustained under the circumstances. This action was inceptionally
instituted for the rescission of the contract of lease and for the recovery of unpaid rentals
before and after liberation. When the leased buildings were destroyed, the plaintiffs-
lessors demanded from the defendants-lessees, instead, the value of the burned
premises, basing their right to do so on defendants' alleged default in the payment of
post-liberation rentals (which was also their basis in formerly seeking for rescission). This
cannot be considered as already altering the theory of the case which is merely a change
in the relief prayed for, brought about by circumstances occurring during the pendency
of the action, and is not improper. (Southern Pacific Co. vs. Conway, 115 F. 2d 746;
Suburban Improvement Company vs. Scott Lumber Co., 87 A.L.R. 555, 59 F. 2d 711). The
filing of the supplemental complaint can well be justified also under section 2, Rule 17 of
the Rules of Court (on amendments) "to the end that the real matter in dispute and all
matters in the action in dispute between the parties may, as far as possible be completely
determined in a single proceedings". It is to be noted furthermore, that the admission or
rejection of this kind of pleadings is within the sound discretion of the court that will not
be disturbed on appeal in the absence of abuse thereof (see Sec. 5, Rule 17, Rules of
Court), especially so, as in this case, where no substantial procedural prejudice is caused
to the adverse party.
6
It is urged that the dismissal of the first and second causes of action on February
5, 1951 had the effect of a dismissal "with prejudice" as the court did not make any
qualification in its dismissal order. Appellants, apparently, lost sight of the fact that the
dismissal was premised on the existence of the "Debt Moratorium" which suspended the
enforcement of the obligation up to a certain time. The reference thereto by the lower
court amounted to a dismissal "without prejudice", since in effect it ruled that the
plaintiffs could not, at the time they sought it, enforce their right of action against the
defendants, but plaintiffs must wait until the moratorium was lifted. In this way, the court
qualified its dismissal.
Taking up the case on its merits, it is readily seen that the key to the entire
dispute is the question whether the defendant-appellant Manila Motor Co., Inc. should
be held liable for the rentals of the premises leased corresponding to the lapse of time
that they were occupied as quarters or barracks by the invading Japanese army, and
whether said appellant was placed in default by its refusal to comply with the demand to
pay such rents. For if the Motor Company was not so liable, then it never was in default
nor was it chargeable for the accidental lose of the buildings, nor for any damages except
the rental at the contract rate from its reoccupation of the premises leased until the same
were accidentally destroyed by fire on March 2, 1948.
The appellees contended, and the court below has held, that the ouster of the
lessee company by the Japanese occupation forces from 1942 until liberation, while
operating to deprive the lessee of the enjoyment of the thing leased, was, nevertheless,
a mere act of trespass ("perturbacion de mero hecho") that, under the Spanish Civil Code
of 1889 (in force here until 1950), did not exempt the lessee from the duty to pay rent.
We find that contention and ruling erroneous and untenable.
The pertinent articles of the Civil Code of Spain of 1889 provide:
"ART. 1554. It shall be the duty of the lessor;
1. To deliver to the lessee the thing which is the subject matter of the contract;
2. To make thereon, during the lease, all repairs necessary in order to keep it in
serviceable condition for the purpose for which it was intended;
3. To maintain the lessee in the peaceful enjoyment of the lease during the entire
term of the contract."
"ART. 1560. The lessor shall not be liable for any act of mere disturbance of
a third person of the use of the leased property; but the lessee shall have a
direct action against the trespasser.
If the third person, be it the Government or a private
individual, has acted in reliance upon a right, such action shall not be
deemed a mere act of disturbance." (Italics supplied)
Under the first paragraph of article 1560 the lessor does not answer for a mere
act of trespass (perturbacion de mero hecho) as distinguished from trespass under color
of title (perturbacion de derecho). As to what would constitute a mere act of trespass, this
Court in the case of Goldstein vs. Roces (34 Phil. 562), made this pronouncement:
"Si el hecho perturbador no va acompañado ni precedido de
nada que revele una intencion propiamente juridica en el que lo realiza,

de tal suerte que el arrendatario solo pueda apreciar el hecho material
desnudo de toda forma o motivacion de derecho, entendemos que se
trata de una perturbacion de mero hecho."
Upon the basis of the distinction thus established between the perturbacion de
hecho and the perturbacion de derecho, it is demonstrable that the ouster of the
appellant by the Japanese occupying forces belongs to the second class of
disturbances, de derecho. For under the generally accepted principles of international law
(and it must be remembered that those principles are made by our Constitution a part of
the law of our nation 1 ) a belligerent occupant (like the Japanese in 1942-1945) may
legitimately billet or quarter its troops in privately owned land and buildings for the
duration of its military operations, or as military necessity should demand. The well
known writer Oppenheim, discoursing on the laws of war on land, says upon this topic;
"Immovable private enemy property may under no circumstances or
conditions be appropriated by an invading belligerent. Should he
confiscate and sell private land or buildings, the buyer would acquire no
right whatever to the property. Article 46 of the Hague Regulations
expressly enacts that 'private property may not be confiscated.' But
confiscation differs from the temporary use of private land and building
for all kinds of purposes demanded by the necessities of war. What has
been said above with regard to utilization of public buildings applies
equally to private buildings. If necessary, they may be converted into
hospitals, barracks, and stables without compensation for the
proprietors, and they may also be converted into fortifications. A humane
belligerent will not drive the wretched inhabitants into the street if he
can help it. But under the pressure of necessity he may be obliged to do
this, and he is certainly not prohibited from doing it. (Italics supplied)
(Oppenheim & Lauterpach, International Law, Vol. II, p. 312, 1944 Ed.)
The view thus expressed is concurred in by other writers. Hyde (International
Law, Vol. 3, p. 1893, 2nd Rev. Ed.) quotes the U. S. War Department 1940 Rules of Land
Warfare (Rule No. 324) to the effect that —
"The measure of permissible devastation is found in the strict
necessities of war. As an end in itself, as a separate measure of war,
devastation is not sanctioned by the law of war. There must be some
reasonably close connection between the destruction of property and
the overcoming of the enemy's army. Thus the rule requiring respect for
private property is not violated through damage resulting from
operations, movements, or combats of the army; that is, real estate may
be utilized for marches, camp sites, construction of trenches,
etc. Building may be used for shelter for troops, the sick and wounded,
for animals, for reconnaisance, cover defense, etc. Fences, woods,
crops, buildings, etc., may be demolished, cut down, and removed to
clear a field of fire, to construct bridges, to furnish fuel if imperatively
needed for the army." (Emphasis supplied)
Reference may also be made to Rule 336:
7
"What may be requisitioned. — Practically everything may be
requisitioned under this article (art. LII of the regulations above quoted)
that is necessary for the maintenance of the army and not of direct
military use, such as fuel, food, forage, clothing, tobacco, printing
presses, type, leather, cloth, etc. Billeting of troops for quarters and
subsistence is also authorized." (Emphasis supplied)
And Forest and Tucker state:
"The belligerent occupant may destroy or appropriate public
property which may have a hostile purpose, as forts, arms, armories, etc.
The occupying force may enjoy the income from the public
sources. Strictly private property should be inviolable, exce pt so for as
the necessity of war requires contrary action." (Forest and Tucker,
International Law, 9th Ed., p. 277) (Emphasis supplied)
The distinction between confiscation and temporary sequestration of private
property by a belligerent occupant was also passed upon by this Court in Haw Pia vs. China
Banking Corporation, 80 Phil. 604, wherein the right of Japan to sequester or take
temporary control over enemy private property in the interest of its military effort was
expressly recognized.
We are thus forced to conclude that in evicting the lessee, Manila Motor Co.,
Inc. from the leased buildings and occupying the same as quarters for troops, the
Japanese authorities acted pursuant to a right recognized by international and domestic
law. Its act of dispossession, therefore, did not constitute perturbacion de hecho but
a perturbacion de derecho for which the lessors Villaruel (and not the appellants lessees)
were liable (Art. 1560, su pra) and for the consequences of which said lessors must
respond, since the result of the disturbance was the deprivation of the lessee of the
peaceful use and enjoyment of the property leased. Wherefore, the latter's
corresponding obligation to pay rentals ceased during such deprivation.
The Supreme Court of Spain, in its Sentencia of 6 December 1944, squarely
declared the resolutory effect of the military sequestration of properties under lease
upon the lessee's obligation to pay rent (Jurisprudencia Civil, Segunda Serie, Tomo 8, pp.
583, 608):
"Considerando que para resolver acerca de la procedencia del
presente recurso es preciso partir de las bases de hecho sentadas en la
sentencia recurrida, y no impugnadas al amparo del número 7.° del
articulo 1.692 de la Ley de Enjuiciamiento civil, es decir, de que
hallandose vigente el contrato de arrendamiento celebrado entre actor
y demandada, en fecha que no se precisa, entre los dias del 18 al 31 de
julio de 1936, los locales objeto de dicho contrato de arrendamiento, y
en los que no funcionaba de tiempo anterior la industria para cuyo
ejercicio se arrendaron, fueron requisados por el Ejercito Nacional, con
motivo de la guerra civil, para que se instalara en los mismos la Junta de
Donativos al Ejercito del Sur, aun cundo en dicha incautacion, que se
hizo a la propiedad de la finca, no se observaron las formalidades

legales, a causa de las circunstancias extraordinarias por que a la sazon
atravesaba Sevilla, hecho que no consta se hiciera saber por los
arrendatarios demandados al actor, pero que fue notorio en aquella
capital, donde residia el actor, que de el debio tener concoimiento. Se
estima igualmente por la Sala que el hecho de que la industria no
funcionara en el local no tuvo iufluencia alguna sobre su incautacion por
el Ejercito."
"Considerando que sobre tales bases de hecho es de
desestimar el primer motivo del recurso: violacion de los articulos 1.254,
1.278 y 1.091 del Codigo civil, que sancionan, en terminos generales, la
eficacia de los contratos, puesto que en el presente caso de los que se
trata en definitiva es de determinar si por virtud de fuerza mayor, la
requisa a que se hace referencia, ajena, por lo tanto, a culpa, asi del
arrendatario como del arrendador, se vio aqúel privado del posible
disfrute de la finca arrendada, y de si por virtud de esta circunstancia
este o no exento de la obligacion de abonar la renta pactada durante el
tiempo que subsistio la incautacion; y es indudable la afirmativa en
cuanto al primer extremo, puesto que la sentencia recurrida establece
que el hecho de que no funcionase la industria y estuvieran los locales
cerrados no actuo como causa de la requisa de estos por el Ejercito."
"Considerando que la sentencia recurrida, en cuanto no da
lugar al pago de las rentas correspondientes al tiempo que duro la
incautacion, lejos de infringir, por aplicacion indebida, el art. 1.568 del
Codigo civil, se ajusta a la orientacion marcada en el mismo, puesto que
este precepto legal dispone que el arrendatario tiene accion contra el
tercero perturbador de mero hecho en la posesion de la finca arrendada,
pero no contra la Administracion o contra los que obran en virtud de un
derecho que les corresponde; y aqui la perturbacion que experimento
el arrendador en su posesion, como consecuencia de la requisa, no
puede calificarse como de mero hecho, conforme al citado articulo,
puesto que la finca fue requisada por la autoridad militar para fines de
guerra, de donde se sigue que el arrendatario tenia que soportar la
privacion de su tenencia material a traves del arrendador, con quien ha
de entenderse la requisa de la cosa arrendada."
In addition, the text of Art. 1560, in its first paragraph (jam quot.) assumes that
in case of mere disturbance ( perturbacion de mero hecho) "the lessee shall have a direct
action against the trespasser." This assumption evidently does not contemplate the case
of dispossession of the lessee by a military occupant, as pointed out by Mr. Chief Justice
Paras in his dissenting opinion in Reyes vs. Caltex (Phil.) Inc., 84 Phil. 669; for the reason
that the lessee could not have a direct action against the military occupant. It would be
most unrealistic to expect that the occupation courts, placed under the authority of the
occupying belligerent, should entertain at the time a suit for forcible entry against the
Japanese army. The plaintiffs, their lawyers, and in all probability, the Judge and court
personnel, would face "severest penalties" for such defiance of the invader.
8
The present case is distinguishable from Lo Ching vs. Archbishop of Manila (81
Phil., 601) in that the act of the Japanese military involved in the latter case clearly went
beyond the limits set by the Hague Conventions, in seizing the property and delivering it
to another private party; and from Reyes vs. Caltex (Phil.) Inc., 84 Phil. 654, in that the
rights of the military occupant under international law were not raised or put in issue in
said case; and moreover, the lessee there, by failing to rescind the lease upon seizure of
the premises by the Japanese military, despite the stipulated power to do so, resumed
business and decided to hold unto the long term lease for the balance of its 20-year
period, starting from December 23, 1940. In the case before us, the occupation of the
leased property by the Japanese army covered the major portion of the five-year
contractual period, without any option to rescind by the lessee.
The lessor's position is not improved by regarding the military seizure of the
property under lease as a case of force majeure or fortuitous event. Ordinarily, a party
may not be held responsible therefor, despite the fact that it prevented compliance of its
obligations. But lease being a contract that calls for prestations that are both reciprocal
and repetitive (tractum successivum), the obligations of either party are not discharged
at any given moment, but must be fulfilled all throughout the term of the contract. As a
result, any substantial failure by one party to fulfill its commitments at any time during
the contract period gives rise to a failure of consideration (causa) for the obligations of
the other party and excuses the latter from the correlative performance, because the
causa in lease must exist not only at the perfection but throughout the term of the
contract. No lessee would agree to pay rent for premises he could not enjoy. As expressed
by Marcel Planiol (quoted in 4 Castan, Derecho Civil, 7th Edition, p. 264) —
"Como la obligacion del arrendador es sucesiva y se renueva
todos los dias, la subsistencia del arrendamiento se hace imposible
cuando, por cualquier razon, el arrendador no puede ya procurar al
arrendatario el disfrute de la cosa."
This effect of the failure of reciprocity appears whether the failure is due to fault
or to fortuitous event; the only difference being that in case of fault, the other party is
entitled to rescind the contract in toto, and collect damages, while in casual non-
performance it becomes entitled only to a suspension pro tanto of its own commitments.
This rule is recognized in par. 2 of Art. 1558, authorizing the lessee to demand reduction
of the rent in case of repairs depriving him of the possession of part of the property; and
in Art. 1575, enabling the lessee of rural property to demand reduction of the rent if more
than one-half of the fruits are lost by extraordinary fortuitous event. Of course, where it
becomes immediately apparent that the loss of possession or enjoyment will be
permanent, as in the case of accidental destruction of a leased building, the lease contract
terminates.
Applying these principles, the Sentencia of December 1944, already adverted
to, ruled as follows:
"Considerando que privado el arrendador, por tal hecho, del
disfrute de esta, es menifiesta la imposibilidad en que se vio de cumplir
la tercera de las obligaciones que el impone el articulo 1.554 del Codigo
Civil, obligacion (la de mantener al arrendatario en el disfrute de la cosa
arrendada) que ha de entenderse reciproca de la de pago de renta

pactada, que impone al arrendatario el número primero del art. 1.555
de dicho Cuerpo legal, y por ello no puede ser exigida."
"Considerando que, aunque no sean estrictamente aplicables
al caso los articulos 1.124, 1.556 y 1.568, que se citan como infringidos
por el recurrente, suponiendo que a ellos ha entendido referirse la
Audiencia (lo que impediria, en todo caso, la estimacion del recurso por
este motivo, ya que dichos articulos no se citan en la sentencia de
instancia), es evidente que ellos proclaman la reciprocidad de las
obligaciones entre arrendatario y arrendador, y en este sentido,
tratandose de un incumplimiento inculpable de contrato, pueden servir,
como tambien el 1.558, en cuanto preven la reduccion de rentas o
posible restriccion del contrato cuando el arrendatario se ve privado,
por obras realizadas en la finca arrendada, del disfrute de este, de
fundamento, con los demas preceptos invocados, a una extencion de
renta mientras subsiste la imposibilidad de utilizar la cosa arrendada,
sobre todo cuando los articulos 157 y 158 del Reglamento de Requisas
de 13 de enero de 1921 estatuyen claramente que les requisas de
edificio se hacen a la propiedad, y es el propietario el que puede pedir
indemnizacion, uno de cuyos elementos es el precio del alquiler que le
sea satisfecho por el inmueble incautado."
We are aware that the rule in the common law is otherwise, due to its regarding
a lease as a conveyance to the lessee of a temporary estate or title to the leased property
so that loss of possession due to war or other fortuitous event leaves the tenant liable for
the rent in the absence of stipulation. The fundamental difference between the common
law and the civil law concepts has been outlined by the United States in
Viterbo vs. Friedlander, 30 L. Ed. (U.S.) pp. 776, 778, in this wise:
"But as to the nature and effect of a lease for years, at a certain
rent which the lessee agrees to pay, and containing no express covenant
on the part of the lessor, the two systems differ materially. The common
law regards such a lease as the grant of an estate for years, which the
lessee takes a title in, end is bound to pay the stipulated rent for,
notwithstanding any injury by flood, fire or external violence, at least
unless the injury is such a destruction of the lend as to amount to an
eviction; end by that law the lessor is under no implied covenant to
repair, or even that the premises shall be fit for the purpose for which
they are leased. Fowler vs. Bott, 6 Mass. 63; 3 Kent, Com. 465, 466;
Broom, Legal Maxims, 3d ed. 213, 214; Doupe vs. Genin, 45 N. Y. 119;
Kingbury vs. Westfall, 61 N. Y. 356. Naumberg vs. Young, 15 Vroom, 331;
Bowe vs. Hunking, 135 Mass. 380; Manchester Warehouse Co. vs. Carr,
L.R. 5 C.P.D. 507.
The civil law, on the other hand, regards a lease for years as a
mere transfer of the use and enjoyment of the property; and holds the
landlord bound, without any express covenant, to keep it in repair and
otherwise fit for use and enjoyment for the purpose for which it is
9
leased, even when the need of repair or the unfitness is caused by an
inevitable accident, and if he does not do so, the tenant may have the
lease annulled, or the rent abated. Dig. 19, 2, 9, 2; 19, 2, 15, 1, 2; 19, 2,
25, 2; 19, 2, 39; 2 Gomez, Variae Resolutiones c. 3, secs. 1-3, 18, 19:
Gregorio Lopes in 5 Partidas, tit. 8, 11. 8, 22; Domat, Droit Civil, pt. 1, lib.
1, tit. 4, sec. 1, no. 1; sec. 3 nos. 1, 3, 6, Pothier, Contract de Louage, nos.
3, 6, 11, 22, 53, 103, 106, 139-155.
It is accordingly laid down in the Pandects, on the authority of
Julian, 'If anyone has let an estate, that, even if anything happens by vis
major, he must make it good, he must stand by his contract,' si quis
fundum locaverit, ut, etiamsi quid vi majore accidisset, hoc ei
praestaretur, pacto standum esse; Dig. 19, 2, 9, 2; and on the authority
of Ulpian, that 'A lease does not change the ownership,' non solet locatio
dominium mutare; Dig. 19, 2, 39; and that the lessee has a right of
action, if he cannot enjoy the thing which he has hired, si re quam
conduxit frui non liceat, whether because his possession, either of the
whole or of part of the field, is not made good, or a house, or stable or
sheepfold, is not repaired;and the landlord ought to warrant the tenant,
dominum colono praestare debere, against every irresistible force,
omnim vim cui resisti non potest, such as floods, flocks of birds, or any
like cause, or invasion of enemies; and if the whole crop should be
destroyed by a heavy rainfall, or the olives should be spoiled by blight,
or by extraordinary heat of the sun, solis fervore non assueto, it would
be the loss of the landlord, damnum domini futurum; and so if the field
falls in by an earthquake, for there must be made good to the tenant a
field that he can enjoy, o portere enim agrum praestari conductori, ut
frui possit; but if any loss arises from defects in the thing itself, si qua
tamen vitia ex i psa re oriantur, as if wine turns sour, or standing corn is
spoiled by worms or weeds, or if nothing extraordinary happens, si vero
nihil extra consuetudinem acciderit, it is the loss of the tenant, damnum
coloni asse. Dig. 19, 2; 15, 1, 2." (Emphasis supplied)
In short, the law applies to leases the rule enunciated by the Canonists and the
Bartolist School of Post glossatorse, that "contractus qui tractum successivum habent et
de pendentiam de futuro, sub conditione rebus sic stantibus intelliguntur," they are
understood entered subject to the condition that things will remain as they are, without
material change.
It is also worthy of note that the lessors, through Dr. Javier Villaruel, agreed
after liberation to a renewal of the contract of lease for another five years (from June 1,
1946 to May 31 of 1951) without making any reservation regarding the alleged liability of
the lessee company for the rentals corresponding to the period of occupancy of the
premises by the Japanese army, and without insisting that the non-payment of such rental
was a breach of the contract of lease. This passivity of the lessors strongly supports the
claim of the lessees that the rentals in question were verbally waived. The proffered
explanation is that the lessors could not refuse to renew the lease, because the privilege
of renewal had been granted to the lessees in the original contract. Such excuse is

untenable: if the lessors deemed that the contract had been breached by the lessee's non-
payment of the occupation rents how could they admit the lessee's right to renew a
contract that the lessee itself had violated?
But this is not all. The lessors accepted payment of current rentals from October
1945 to June 1946. It was only in July 1946 that they insisted upon collecting also the
1942-1945 rents, and refused to accept further payments tendered by the lessee unless
their right to collect the occupation rental was recognized or reserved. After refusing the
rents from July to November 1946, unless the lessee recognized their right to occupation
rentals, the appellees (lessors) demanded rescission of the contract and a rental of P1,740
monthly in lieu of the stipulated P350 per month. (Exhibit "C").
This attitude of the lessors was doubly wrongful: first, because as already
shown, the dispossession by the Japanese army exempted the lessee from his obligation
to pay rent for the period of its ouster; and second, because even if the lessee had been
liable for that rent, its collection in 1946 was barred by the moratorium order, Executive
Order No. 32, that remained in force until replaced by Rep. Act 342 in 1948. To apply the
current rentals to the occupation obligations would amount to enforcing them contrary
to the moratorium decreed by the government.
Clearly, then, the lessor' insistence upon collecting the occupation rentals for
1942-1945 was unwarranted in law. Hence, their refusal to accept the current rentals
without qualification placed them in default (mora creditoris oracci piendi) with the result
that thereafter, they had to bear all supervening risks of accidental injury or destruction
of the leased premises. While not expressly declared by the Code of 1889, this result is
clearly inferable from the nature and effects of mora, and from Articles 1185, 1452 [par.
3] and 1589).
"ART. 1185. When the obligation to deliver a certain and
determinate thing arises from the commission of a crime or
misdemeanor the obligor shall not be exempted from the payment of its
value, whatever the cause of its loss may have been, unless, having
offered the thing to the person entitled 'to receive it, the latter should
have refused without reason to accept it."
"Art. 1452. . . .
If fungible things should be sold for a price fixed with relation
to weight, number, or measure, they shall not be at the purchaser's risk
until they have been weighed, counted, or measured, unless the
purchaser should be in default."
"ART. 1589. If the person who contracted to do the work
bound himself to furnish the materials, he shall bear the loss in case of
the destruction of the work before it is delivered, unless its acceptance
has been delayed by the default of the other party."
While there is a presumption that the loss of the thing leased is due to the fault
of the lessee (Civil Code of 1889, Art. 1563), it is noteworthy that the lessors have not
invoked that presumption either here or in the court below. On the contrary, the parties
and the trial court have all proceeded and discussed the issues taking for granted that the
10
destruction of the leased buildings was purely fortuitous. We see no reason for departing
from that assumption and further prolonging this litigation.
That the lessee and sublessee did not consign or deposit in court the rentals
tendered to and improperly rejected by the lessors, did not render the debtor liable for
default (mora solvendi) nor answerable for fortuitous events because, as explained by the
Supreme Court of Spain in its Sentencia of 5 June 1944 —
"Al exigir el art. 1176 del Codigo Civil la consignacion para
liberar al deudor no quiere decir que necesariamente haya de
practicarse, y no baste el ofrecimiento de pago que de aquella no fuere
seguido, a efectos de exclusion ds las consecuencias de la mora
solvendi." (8 Manresa, Comentarios, 5th Ed., Vol. I, p. 136).
In other words, the only effect of the failure to consign the rentals in court was that the
obligation to pay them subsisted (P.N.B. vs. Relativo, 92 Phil., 203) and the lessee
remained liable for the amount of the unpaid contract rent, corresponding to the period
from July to November, 1946; it being undisputed that, from December 1946 up to March
2, 1948, when the commercial buildings were burned, the defendants-appellants have
paid the contract rentals at the rate of P350 per month. But the failure to consign did not
eradicate the default (mora) of the lessors nor the risk of loss that lay upon them. (3
Castan, Der. Civ., 8th Ed., p. 145; 4 Puig Peña, Der. Civ., part. 1, p. 234; Diaz Pairo, Teoria
Gen. de las Obligaciones [3rd Ed.], Vol. 1, pp. 192-193).
In view of the foregoing, we hold:
(a) That the dispossession of the lessee from the premises by the Japanese army
of occupation was not an act of mere trespass ( perturbacion de mero hecho) but one de
derecho chargeable to the lessors;
(b) That such dispossession, though not due to fault of lessors or lessee,
nevertheless resulted in the exemption of the lessee from its obligation to pay rent during
the period that it was deprived of the possession and enjoyment of the premises leased;
(c) That the insistence of the lessors to collect such rentals was unwarranted;
(d) That the lessors were not justified in refusing to accept the tender of current
rentals unless the lessee should recognize their right to the rents corresponding to the
period that the lessee was not in possession;
(e) That by their improper refusal to accept the current rents tendered by the
lessee, the lessors incurred in default (mora) and they must shoulder the subsequent
accidental loss of the premises leased;
(f) That the mora of the lessors was not cured by the failure of the lessee to
make the consignation of the rejected payments, but the lessee remained obligated to
pay the amounts tendered and not consigned by it in court.
Consequently, it was reversible error to sentence the appellants to pay P2,165
a month as reasonable value of the occupation of the premises from July 1946, and the
value of the destroyed buildings amounting to P30,000.
Wherefore, the decision appealed from is modified in the sense that the
appellant Manila Motor Company should pay to the appellees Villaruel only the rents for

the leased premises corresponding to the period from July up to November 1946, at the
rate of P350 a month, or a total of P1,750. Costs against appellees in both instances. So
ordered.
Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador,
Concepcion and Endencia, JJ., concur.
||| (Vda. de Villaruel v. Manila Motor Co., Inc., G.R. No. L-10394, [December 13, 1958], 104
PHIL 926-946)
SECOND DIVISION
[G.R. No. L-45710. October 3, 1985.]
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO
T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS
BANK, in his capacity as statutory receiver of Island Savings
Bank,petitioners, vs. THE HONORABLE COURT OF APPEALS and
SULPICIO M. TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
DECISION
MAKASIAR, C.J p:
This is a petition for review on certiorari to set aside as null and void the decision of the Court
of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated
February 15, 1972 of the Court of First Instance of Agusan, which dismissed the petition of
respondent Sulpicio M. Tolentino for injunction, specific performance or rescission, and
damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal
department, approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a
security for the loan, executed on the same day a real estate mortgage over his 100-hectare
land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which mortgage
was annotated on the said title the next day. The approved loan application called for a lump
sum P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12%
annual interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds solely as
an additional capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the
Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for
P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of the
contract at semi-annual installments of P3,459.00 (p. 64, rec.), An advance interest for the
P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the
partial release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M.
Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet
available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-
president and treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113,
rec.).
11
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank
was suffering liquidity problems, issued Resolution No. 1049, which provides:
"In view of the chronic reserve deficiencies of the Island Savings Bank
against its deposit liabilities, the Board, by unanimous vote, decided as
follows:
"1) To prohibit the bank from making new loans and
investments [except investments in government securities]
excluding extensions or renewals of already approved loans,
provided that such extensions or renewals shall be subject to
review by the Superintendent of Banks, who may impose such
limitations as may be necessary to insure correction of the
bank's deficiency as soon as possible;
. . ." (p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding that Island Savings Bank failed to put up
the required capital to restore its solvency, issued Resolution No. 967 which prohibited Island
Savings Bank from doing business in the Philippines and instructed the Acting Superintendent
of Banks to take charge of the assets of Island Savings Bank (pp. 48-49, rec.).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by
the promissory note, filed an application for the extra-judicial foreclosure of the real estate
mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled
the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of
Agusan for injunction, specific performance or rescission and damages with preliminary
injunction, alleging that since Island Savings Bank failed to deliver the P63,000.00 balance of
the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to
deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance
cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a
temporary restraining order enjoining the Island Savings Bank from continuing with the
foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the
dismissal of the petition of Sulpicio M. Tolentino and the setting aside of the restraining order,
filed by the Central Bank and by the Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits, rendered its decision, finding
unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank
the amount of P17,000.00 plus legal interest and legal charges due thereon, and lifting the
restraining order so that the sheriff may proceed with the foreclosure (pp. 135-136, rec.).
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the
Court of First Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for
specific performance, but it ruled that Island Savings Bank can neither foreclose the real estate
mortgage nor collect the P17,000.00 loan (pp. 30-31, rec.). prcd
Hence, this instant petition by the Central Bank.
The issues are:

1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage
be foreclosed to satisfy said amount?.
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan
agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations,
the obligation or promise of each party is the consideration for that of the other (Penaco vs.
Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs. Pelarca, 29 SCRA 1 [1969]); and when one party
has performed or is ready and willing to perform his part of the contract, the other party who
has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil
Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of
Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real
estate mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From
such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus,
the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted for a period
of 3 years or when the Monetary Board of the Central Bank issued Resolution No. 967 on June
14, 1968, which prohibited Island Savings Bank from doing further business. Such prohibition
made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the
P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the
protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June
15, 1948, the validity of which is not in question.
The Monetary Board Resolution No. 1049 issued on August 13, 1965 cannot interrupt the
default of Island Savings Bank in complying with its obligation of releasing the P63,000.00
balance because said resolution merely prohibited the Bank from making new loans and
investments, and nowhere did it prohibit Island Savings Bank from releasing the balance of
loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill an
engagement does not discharge the obligation of the contract, nor does it constitute any
defense to a decree of specific performance (Gutierrez Repide vs. Afzelins and Afzelins, 39 Phil.
190 [1918]). And, the mere fact of insolvency of a debtor is never an excuse for the non-
fulfillment of an obligation but instead it is taken as a breach of the contract by him (Vol. 17A,
1974 ed., CJS p. 650). LexLib
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted
interest amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period
cannot be taken as a waiver of his right to collect the P63,000.00 balance. The act of Island
Savings Bank, in asking the advance interest for 6 months on the supposed P80,000.00 loan,
was improper considering that only P17,000.00 out of the P80,000.00 loan was released. A
person cannot be legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio
M. Tolentino of the pre-deducted interest was an exercise of his right to it, which right exist
independently of his right to demand the completion of the P80,000.00 loan. The exercise of
one right does not affect, much less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot
exempt it from complying with its reciprocal obligation to furnish the entire P80,000.00 loan.
This Court previously ruled that bank officials and employees are expected to exercise caution
and prudence in the discharge of their functions (Rural Bank of Caloocan, Inc. vs. C.A., 104
SCRA 151 [1981]). It is the obligation of the bank's officials and employees that before they
12
approve the loan application of their customers, they must investigate the existence and
valuation of the properties being offered as a loan security. The recent rush of events where
collaterals for bank loans turn out to be non-existent or grossly over-valued underscore the
importance of this responsibility. The mere reliance by bank officials and employees on their
customer's representation regarding the loan collateral being offered as loan security is a
patent non-performance of this responsibility. If ever, bank officials and employees totally rely
on the representation of their customers as to the valuation of the loan collateral, the bank
shall bear the risk in case the collateral turn out to be over-valued. The representation made
by the customer is immaterial to the bank's responsibility to conduct its own investigation.
Furthermore, the lower court, on objections of Sulpicio M. Tolentino, had enjoined petitioners
from presenting proof on the alleged over-valuation because of their failure to raise the same
in their pleadings (pp. 198-199, t.s.n., Sept. 15, 1971). The lower court's action is sanctioned
by the Rules of Court, Section 2, Rule 9, which states that "defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot
raise the same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan
agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between
specific performance or rescission with damages in either case. But since Island Savings Bank
is now prohibited from doing further business by Monetary Board Resolution No. 967, WE
cannot grant specific performance in favor of Sulpicio M. Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the
P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as such
amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far
as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a
promissory note to cover it, the bank was deemed to have complied with its reciprocal
obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M.
Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay
the overdue amortizations under the promissory note made him a party in default, hence not
entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory
note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not
signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would
be entitled to ask for rescission of the entire loan because he cannot possibly be in default as
there was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal obligations,
that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and
Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3
years as stipulated, they are both liable for damages. Cdpr
Article 1192 of the Civil Code provides that in case both parties have committed a breach of
their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the
courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire
loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and
surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino
for interest on his P17,000.00 debt shall not be included in offsetting the liabilities of both

parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just
that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely
foreclosed to satisfy his P17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the
principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the
consideration of his obligation to pay is the existence of a debt. Thus, in the accessory contract
of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the
existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art. 2052, of the
Civil Code).
The fact that when Sulpicio M. Tolentino executed his real estate mortgage, no consideration
was then in existence, as there was no debt yet because Island Savings Bank had not made any
release on the loan, does not make the real estate mortgage void for lack of consideration. It
is not necessary that any consideration should pass at the time of the execution of the contract
of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). It may either be a prior or
subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage
can take effect only when the debt secured by it is created as a binding contract to pay (Parks
vs. Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6).
And, when there is partial failure of consideration, the mortgage becomes unenforceable to
the extent of such failure (Dow, et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed.
CJS, p. 138). Where the indebtedness actually owing to the holder of the mortgage is less than
the sum named in the mortgage, the mortgage cannot be enforced for more than the actual
sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 6th ed., Wiltsie
on Mortgage, Vol. 1, p. 180). LLpr
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the
real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent.
P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is
unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25
hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient
to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code
is inapplicable to the facts of this case.
Article 2089 provides:
"A pledge or mortgage is indivisible even though the debt may be
divided among the successors in interest of the debtor or creditor.
"Therefore, the debtor's heirs who has paid a part of the debt can not
ask for the proportionate extinguishment of the pledge or mortgage as
long as the debt is not completely satisfied.
"Neither can the creditor's heir who have received his share of the debt
return the pledge or cancel the mortgage, to the prejudice of other heirs
who have not been paid."
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes
several heirs of the debtor or creditor which does not obtain in this case. Hence, the rule of
indivisibility of a mortgage cannot apply.
13
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY
MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS
THE SUM OF P17,000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM
COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE
TOTAL AMOUNT COUNTED' FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING
21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED
UNENFORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.
Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.
Aquino (Chairman) and Abad Santos, JJ., took no part.
||| (Central Bank of the Phils. v. Court of Appeals, G.R. No. L-45710, [October 3, 1985], 223
PHIL 266-279)
EN BANC
[G.R. No. L-4811. July 31, 1953.]
CHARLES F. WOODHOUSE, plaintiff-appellant, vs. FORTUNATO F.
HALILI, defendant-appellant.
Tañada, Pelaez & Teehankee for defendant and appellant.
Gibbs, Gibbs, Chuidian & Quasha for plaintiff and appellant.
SYLLABUS
1. EVIDENCE; PAROL EVIDENCE RULE; INTEGRATION OF JURAL ACTS. — Plaintiff entered into a
written agreement with the defendant to the effect that they shall organize a partnership for
the bottling and distribution of soft drinks, plaintiff to act as industrial partner or manager, and
the defendant a capitalist furnishing the capital necessary therefor. The defendant claims that
his consent to the agreement was secured by the representation of plaintiff that he was the
owner, or was about to become owner, of an exclusive bottling franchise, which
representation was false. The fraud and false representation is sought to be proven by means,
among others, of the drafts of the agreement prior to the final one, which drafts are presumed
to have already been integrated into the final agreement. Are those prior drafts excluded from
the prohibition of the parol evidence rule? Held: The purpose of considering the drafts is not
to vary, alter, or modify the agreement, but to discover the intent of the parties thereto and
the circumstances surrounding the execution of the contract. The issue of fact is, did plaintiff
represent to defendant that he had an exclusive franchise? Certainly, his acts or statements
prior to the agreement are essential and relevant to the determination of said issue. The act
or statement of the plaintiff was not sought to be introduced to change or alter the terms of
the agreement, but to prove how he induced the defendant to enter into it - to prove the

representations or inducements, or fraud, with which or by which he secured the other party's
consent thereto. These are expressly excluded from the parol evidence rule. (Bough and Bough
vs. Cantiveros and Hanopol, 40 Phil., 209; Port Banga Lumber Co., vs. Export & Import Lumber
Co., 26 Phil., 602; 3 Moran 221, 1952 rev. ed.) Fraud and false representation are an incident
to the creation of a jural act, not to its integration, and are not governed by the rules on
integration. Where parties prohibited from proving said representations or inducements, on
the ground that the agreement had already been entered into, it would be impossible to prove
misrepresentation or fraud. The parol evidence rule expressly allows the evidence to be
introduced when the validity of an instrument is put in issue by the pleadings (sec. 22-a of Rule
123).
2. ID.; INTERPRETATION OF DOCUMENTS. — AS plaintiff knew what defendant believed about
his (plaintiff's exclusive franchise, as he induced him to that belief, plaintiff may not be allowed
to deny that defendant was induced by that belief (sec. 63 of Rule 123).
3. FRAUD; FALSE REPRESENTATION; DOLO CAUSANTE AND DOLO INCIDENTE; IT IS THE
FORMER THAT VITIATES CONSENT. — Fraud is manifested in illimitable number of degrees or
gradations — from the innocent praises of a salesman about the excellence of his wares to
those malicious machinations and representations that the law punishes as a crime. In
consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the
causal fraud which may be a ground for the annulment of a contract, and the incidental deceit
which only renders the party who employs it liable for damages. In order that fraud may vitiate
consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente),
inducement to the making of the contract (art. 1270, Span. Civ. Code; Hill vs. Veloso, 31 Phil.,
160). In the case at bar, inasmuch as the principal consideration, the main cause that induced
defendant to enter into the partnership agreement with plaintiff, was the ability of plaintiff to
get the exclusive franchise to bottle and distribute for the defendant or for the partnership,
the false representation made by the plaintiff was not the casual consideration, or the principal
inducement, that led the defendant to enter into the partnership agreement.
4. ID.; ID.; ID.; DAMAGES FOR DOLO INCIDENTE; PARTNERSHIP. — While the representation
that plaintiff had the exclusive franchise did not vitiate defendant' consent to the contract, it
was used by plaintiff to get from defendant a share of 30 per cent of the net profits; in other
words, by pretending that he had the exclusive franchise and promising to transfer it to
defendant, he obtained the consent of the latter to give him (plaintiff) a big slice in the net
profits. This is the dolo incidente defined in article 1270 of the Spanish Civil Code, because it
was used to get the other party's consent to a big share in the profits, an incidental matter in
the agreement. (8 Manresa, 602.)
5. CONTRACTS AND OBLIGATIONS; CONSENT, NOT VITIATED BY DOLO INCIDENTE;
PARTNERSHIP; AGREEMENT TO FORM PARTNERSHIP, CANNOT BE ENFORCED. — Having
arrived at the conclusion that the agreement to organize a partnership may not be declared
null and void, may the agreement be carried out or executed? Held: Under the Spanish Civil
Code, the defendant has an obligation to do, not to give. The law recognizes the individual's
freedom or liberty to do an act he has promised to do, or not to do it, as he pleases. This is a
very personal act (acto personalisimo) of which courts may not compel compliance, as it is
considered as an act of violence to do so. (29 as it is considered as an act of violence to do so.
(19 Scaevolla, 428, 431-432.)
14
6. FALSE REPRESENTATION; DAMAGES FOR DOLO INCIDENTE. — Plaintiff is entitled under the
terms of the agreement to 30 per cent of the net profits of the business. Against this amount
of damages, the damage the defendant suffered by plaintiff's misrepresentation that he had
the exclusive franchise, must be set off. (Art. 1101, Span. Civ. Code.) When the defendant
learned, in Los Angeles, California, that plaintiff did not have the exclusive franchise which he
pretended he had and which he had agreed to transfer to the partnership, his spontaneous
reaction was to reduce the plaintiff's share from 30 per cent to 15 per cent only, to which
reduction plaintiff appears to have readily given his assent. Held: By the misrepresentation of
the plaintiff, he obtained a very high percentage (30%) of share in the profits. Upon learning
of the misrepresentation, defendant reduced plaintiff's share to 15 per cent, to which
defendant assented. The court can do no better than follow such appraisal of the damages as
the parties themselves had adopted.
DECISION
LABRADOR, J p:
On November 29, 1947, the plaintiff entered into a written agreement, Exhibit
A, with the defendant, the most important provisions of which are (1) that they shall
organize a partnership for the bottling and distribution of Mission soft drinks, plaintiff to
act as industrial partner or manager, and the defendant as a capitalist, furnishing the
capital necessary therefor; (2) that the defendant was to decide matters of general policy
regarding the business, while the plaintiff was to attend to the operation and
development of the bottling plant; (3) that the plaintiff was to secure the Mission Soft
Drinks franchise for and in behalf of the proposed partnership; and (4) that the plaintiff
was to receive 30 per cent of the net profits of the business. The above agreement was
arrived at after various conferences and consultations by and between them, with the
assistance of their respective attorneys. Prior to entering into this agreement, plaintiff
had informed the Mission Dry Corporation of Los Angeles, California, U. S. A.,
manufacturers of the bases and ingredients of the beverages bearing its name, that he
had interested a prominent financier (defendant herein) in the business, who was willing
to invest half a million dollars in the bottling and distribution of the said beverages, and
requested, in order that he may close the deal with him, that the right to bottle and
distribute be granted him for a limited time under the condition that it will finally be
transferred to the corporation (Exhibit H). Pursuant to this request, plaintiff was given "a
thirty days' option on exclusive bottling and distribution rights for the Philippines" (Exhibit
H). Formal negotiations between plaintiff and defendant began at a meeting on
November 27, 1947, at the Manila Hotel, with their lawyers attending. Before this
meeting plaintiff's lawyer had prepared a draft of the agreement, Exhibit II or OO, but this
was not satisfactory because a partnership, instead of a corporation, was desired.
Defendant's lawyer prepared after the meeting his own draft, Exhibit HH. This last draft
appears to be the main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did
not like to go to the United States without the agreement being first signed. On that day
plaintiff and defendant went to the United States, and on December 10, 1947, a franchise
agreement (Exhibit V) was entered into between the Mission Dry Corporation and
Fortunato F. Halili and/or Charles F. Woodhouse, granting defendant the exclusive right,

license, and authority to produce, bottle, distribute, and sell Mission beverages in the
Philippines. The plaintiff and the defendant thereafter returned to the Philippines.
Plaintiff reported for duty in January, 1948, but operations were not begun until the first
week of February, 1948. In January plaintiff was given as advance, on account of profits,
the sum of P2,000, besides the use of a car; in February, 1948, also P2,000, and in March
only P1,000. The car was withdrawn from plaintiff on March 9, 1948.
When the bottling plant was already in operation, plaintiff demanded of
defendant that the partnership papers be executed. At first defendant excused himself,
saying there was no hurry. Then he promised to do so after the sales of the products had
been increased to P50,000. As nothing definite was forthcoming, after this condition was
attained, and as defendant refused to give further allowances to plaintiff, the latter
caused his attorneys to take up the matter with defendant with a view to a possible
settlement. As none could be arrived at, the present action was instituted.
In his complaint plaintiff asks for the execution of the contract of partnership,
an accounting of the profits, and a share thereof of 30 per cent, as well as damages in the
amount of P200,000. In his answer defendant alleges by way of defense (1) that
defendant's consent to the agreement, Exhibit A, was secured by the representation of
plaintiff that he was the owner, or was about to become owner of an exclusive bottling
franchise, which representation was false, and that plaintiff did not secure the franchise,
but was given to defendant himself; (2) that defendant did not fail to carry out his
undertakings, bus that it was plaintiff who failed; (3) that plaintiff agreed to contribute
the exclusive franchise to the partnership, but plaintiff failed to do so. He also presented
a counterclaim for P200,000 as damages. On these issues the parties went to trial, and
thereafter the Court of First Instance rendered judgment ordering defendant to render
an accounting of the profits of the bottling and distribution business, subject of the action,
and to pay plaintiff 15 per cent thereof. It held that the execution of the contract of
partnership could not be enforced upon the parties, but it also held that the defense of
fraud was not proved. Against this judgment both parties have appealed.
The most important question of fact to be determined is whether defendant
had falsely represented that he had an exclusive franchise to bottle Mission beverages,
and whether this false representation or fraud, if it existed, annuls the agreement to form
the partnership. The trial court found that it is improbable that defendant was never
shown the letter, Exhibit J, granting plaintiff the option; that defendant would not have
gone to the United States without knowing what authority plaintiff had; that the drafts of
the contract prior to the final one can not be considered for the purpose of determining
the issue, as they are presumed to have been already integrated into the final agreement;
that fraud is never presumed and must be proved; that the parties were represented by
attorneys, and that if any party thereto got the worse part of the bargain, this fact alone
would not invalidate the agreement. On this appeal the defendant, as appellant, insists
that plaintiff did represent to the defendant that he had an exclusive franchise, when as
a matter of fact, at the time of its execution, he no longer had it as the same had expired,
and that, therefore, the consent of the defendant to the contract was vitiated by fraud
and it is, consequently, null and void.
15
Our study of the record and a consideration of all the surrounding
circumstances lead us to believe that defendant's contention is not without merit.
Plaintiff's attorney, Mr. Laurea, testified that Woodhouse presented himself as being the
exclusive grantee of a franchise, thus:
"A. I don't recall any discussion about that matter. I took along
with me the file of the office with regards to this matter. I notice from
the first draft of the document which I prepared which calls for the
organization of a corporation, that the manager, that is, Mr.
Woodhouse, is represented as being the exclusive grantee of a franchise
from the Mission Dry Corporation. . . . "(t.s.n., p. 518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was made
before the Manila Hotel conference on November 27th, expressly states that plaintiff had
the exclusive franchise. Thus, the first paragraph states:
'Whereas, the manager is the exclusive grantee of a franchise
from the Mission Dry Corporation San Francisco, California, for the
bottling of Mission products and their sale to the public throughout the
Philippines;
xxx xxx xxx
"3. That the manager, upon the organization of the said
corporation, shall forthwith transfer to the said corporation his exclusive
right to bottle Mission products and to sell them throughout the
Philippines."
xxx xxx xxx
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration of jural
acts. We find that the principle invoked is inapplicable, since the purpose of considering
the prior draft is not to vary, alter, or modify the agreement, but to discover the intent of
the parties thereto and the circumstances surrounding the execution of the contract. The
issue of fact is: Did plaintiff represent to defendant that he had an exclusive franchise?
Certainly, his acts or statements prior to the agreement are essential and relevant to the
determination of said issue. The act or statement of the plaintiff was not sought to be
introduced to change or alter the terms of the agreement, but to prove how he induced
the defendant to enter into it — to prove the representations or inducements, or fraud,
with which or by which he secured the other party's consent thereto. These are expressly
excluded from the parol evidence rule. (Bough and Bough vs. Cantiveros and Hanopol, 40
Phil., 209; Port Banga Lumber Co. vs. Export & Import Lumber Co., 26 Phil., 602; III Moran
221, 1952 rev. ed.) Fraud and false representation are an incident to the creation of a jural
act, not to its integration, and are not governed by the rules on integration. Were parties
prohibited from proving said representations or inducements, on the ground that the
agreement had already been entered into, it would be impossible to prove
misrepresentation or fraud. Furthermore, the parol evidence rule expressly allows the
evidence to be introduced when the validity of an instrument is put in issue by the
pleadings (section 22, par. (a), Rule 123, Rules of Court), as in this case.

That plaintiff did make the representation can also be easily gleaned from his
own letters and his own testimony. In his letter to Mission Dry Corporation, Exhibit H, he
said:
". . . He told me to come back to him when I was able to speak
with authority so that we could come to terms as far as he and I were
concerned. That is the reason why the cable was sent. Without this
authority, I am in a poor bargaining position. . . .
"I would propose that you grant me the exclusive bottling and
distributing rights for a limited period of time, during which I may
consummate my plans. . . .. "
By virtue of this letter the option on exclusive bottling was given to the plaintiff on
October 14, 1947. (See Exhibit J.) If this option for an exclusive franchise was intended by
plaintiff as an instrument with which to bargain with defendant and close the deal with
him, he must have used his said option for the above-indicated purpose, especially as it
appears that he was able to secure, through its use, what he wanted.
Plaintiff's own version of the preliminary conversation he had with defendant is
to the effect that when plaintiff called on the latter, the latter answered, "Well, come
back to me when you have the authority to operate. I am definitely interested in the
bottling business." (t.s.n., pp. 60-61). When after the elections of 1949 plaintiff went to
see the defendant (and at the time he had already the option), he must have exultantly
told defendant that he had the authority already. It is improbable and incredible for him
to have disclosed the fact that he had only an option to the exclusive franchise, which was
to last thirty days only, and still more improbable for him to have disclosed that, at the
time of the signing of the formal agreement, his option had already expired. Had he done
so, he would have destroyed all his bargaining power and authority, and in all probability
lost the deal itself.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff
only undertook in the agreement "to secure the Mission Dry franchise for and in behalf
of the proposed partnership." The existence of this provision in the final agreement does
not militate against plaintiff having represented that he had the exclusive franchise; it
rather strengthens belief that he did actually make the representation. How could plaintiff
assure defendant that he would get the franchise for the latter if he had not actually
obtained it for himself? Defendant would not have gone into the business unless the
franchise was raised in his name, or at least in the name of the partnership. Plaintiff
assured defendant he could get the franchise. Thus, in the draft prepared by defendant's
attorney, Exhibit HH, the above provision is inserted, with the difference that instead of
securing the franchise for the defendant, plaintiff was to secure it for the partnership. To
show that the insertion of the above provision does not eliminate the probability of
plaintiff representing himself as the exclusive grantee of the franchise, the final
agreement contains in its third paragraph the following:
". . . and the manager is ready and willing to allow
the capitalists to use the exclusive franchise . . . .
and in paragraph 11 it also expressly states:
16
"1. In the event of dissolution or termination of the
partnership, . . . the franchise from Mission Dry Corporation shall be
reassigned to the manager."
These statements confirm the conclusion that defendant believed, or was made to
believe, the plaintiff was the grantee of an exclusive franchise. Thus it is that it was also
agreed upon that the franchise was to be transferred to the name of the partnership, and
that, upon its dissolution or termination, the same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that
plaintiff did not have the exclusive franchise, was to reduce, as he himself testified,
plaintiff's participation in the net profits to one half of that agreed upon. He could not
have had such a feeling had not plaintiff actually made him believe that he (plaintiff) was
the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in
the making of the contract made fraud improbable. Not necessarily, because the alleged
representation took place before the conferences were had; in other words, plaintiff had
already represented to defendant, and the latter had already believed in, the existence of
plaintiff's exclusive franchise before the formal negotiations, and they were assisted by
their lawyers only when said formal negotiations actually took place. Furthermore,
plaintiff's attorney testified that plaintiff had said that he had the exclusive franchise; and
defendant's lawyer testified that plaintiff explained to him, upon being asked for the
franchise, that he had left the papers evidencing it. (t. s. n., p. 266.)
We conclude from all the foregoing that plaintiff did actually represent to
defendant that he was the holder of the exclusive franchise. The defendant was made to
believe, and he actually believed, that plaintiff had the exclusive franchise. Defendant
would not perhaps have gone to California and incurred expenses for the trip, unless he
believed that plaintiff did have that exclusive privilege, and that the latter would be able
to get the same from the Mission Dry Corporation itself. Plaintiff knew what defendant
believed about his (plaintiff's) exclusive franchise, as he induced him to that belief, and
he may not be allowed to deny that defendant was induced by that belief. (IX Wigmore,
sec. 2423; Sec. 65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false representation. Does it amount to
a fraud that would vitiate the contract? It must be noted that fraud is manifested in
illimitable number of degrees or gradations, from the innocent praises of a salesman
about the excellence of his wares to those malicious machinations and representations
that the law punishes as a crime. In consequence, article 1270 of the Spanish Civil
Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be a ground for
the annulment of a contract, and the incidental deceit, which only renders the party who
employs it liable for damages. This Court has held that in order that fraud may vitiate
consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente),
inducement to the making of the contract. (Article 1270, Spanish Civil Code;
Hill vs. Veloso, 31 Phil. 160.) The record abounds with circumstances indicative of the fact
that the principal consideration, the main cause that induced defendant to enter into the
partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive
franchise to bottle and distribute for the defendant or for the partnership. The original

draft prepared by defendant's counsel was to the effect that plaintiff obligated himself to
secure a franchise for the defendant. Correction appears in this same original draft, but
the change is made not as to the said obligation but as to the grantee. In the corrected
draft the word "capitalist" (grantee) is changed to "partnership." The contract in its final
form retains the substituted term "partnership." The defendant was, therefore, led to the
belief that plaintiff had the exclusive franchise, but that the same was to be secured for
or transferred to the partnership. The plaintiff no longer had the exclusive franchise, or
the option thereto, at the time the contract was perfected. But while he had already lost
his option thereto (when the contract was entered into), the principal obligation that he
assumed or undertook was to secure said franchise for the partnership, as the bottler and
distributor for the Mission Dry Corporation. We declare, therefore, that if he was guilty
of a false representation, this was not the causal consideration, or the principal
inducement, that led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was
actually the consideration or price plaintiff gave in exchange for the share of 30 per cent
granted him in the net profits of the partnership business. Defendant agreed to give
plaintiff 30 per cent share in the net profits because he was transferring his exclusive
franchise to the partnership. Thus, in the draft prepared by plaintiff's lawyer, Exhibit II,
the following provision exists:
"3. That the MANAGER, upon the organization of the said
corporation, shall forthwith transfer to the said corporation his
exclusive right to bottle Mission products and to sell them throughout
the Philippines. As a consideration for such transfer, the CAPITALIST shall
transfer to the Manager full paid non-assessable shares of the said
corporation . . . twenty-five per centum of the capital stock of the said
corporation." (Par. 3, Exhibit II; emphasis ours.)
Plaintiff had never been a bottler or a chemist; he never had experience in the production
or distribution of beverages. As a matter of fact, when the bottling plant was being built,
all that he suggested was about the toilet facilities for the laborers.
We conclude from the above that while the representation that plaintiff had
the exclusive franchise did not vitiate defendant's consent to the contract, it was used by
plaintiff to get from defendant a share of 30 per cent of the net profits; in other words,
by pretending that he had the exclusive franchise and promising to transfer it to
defendant, he obtained the consent of the latter to give him (plaintiff) a big slice in the
net profits. This is the dolo incidentedefined in article 1270 of the Spanish Civil Code,
because it was used to get the other party's consent to a big share in the profits, an
incidental matter in the agreement.
"El dolo incidental no es el que puede producirse en el
cumplimiento del contrato sino que significa aqui, el que concurriendo
en el consentimiento, o precediendolo, no influyo para arrancar por si
solo el consentimiento ni en la totalidad de la obligacion, sino en algun
extremo o accidente de esta, dando lugar tan solo a una accion para
reclamar indemnizacion de perjuicios." (8 Manresa 602.)
Having arrived at the conclusion that the agreement may not be declared null
and void, the question that next comes before us is, May the agreement be carried out or
17
executed? We find no merit in the claim of plaintiff that the partnership was already a fiat
accompli from the time of the operation of the plant, as it is evident from the very
language of the agreement that the parties intended that the execution of the agreement
to form a partnership was to be carried out at a later date. They expressly agreed that they
shall form a partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the time that the
franchise from the Mission Dry Corporation was obtained in California, plaintiff himself
had been demanding that defendant comply with the agreement. And plaintiff's present
action seeks the enforcement of this agreement. Plaintiff's claim, therefore, is both
inconsistent with their intention and incompatible with his own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled
against his will to carry out the agreement nor execute the partnership papers. Under
the Spanish Civil Code, the defendant has an obligation to do,not to give. The law
recognizes the individual's freedom or liberty to do an act he has promised to do, or not
to do it, as he pleases. It falls within what Spanish commentators call a very personal
act (acto personalisimo), of which courts may not compel compliance, as it is considered
an act of violence to do so.
"Efectos de las obligaciones consistentes en hechos
personalisimo. Tratamos de la ejecucion de las obligaciones de hacer en
el solo caso de su incumplimiento por parte del deudor, y sean los
hechos personalisimos, ya se hallen en la facultad de un tercero; porque
el complimiento espontaneo de las mismas esta regido por los preceptos
relativos al pago, y en nada les afectan las disposiciones del art. 1.098.
"Esto supuesto, la primera dificultad del asunto consiste en
resolver si el deudor puede ser precisado a realizar el hecho y por que
medios.
"Se tiene por corriente entre los autores, y se traslada
generalmente sin observacion el pricipio romano nemo potest precise
cogi ad factum. Los que perciben la posibilidad de la destruccion de este
principio, añaden que, aun cuando se pudiera obligar al deudor, no
deberia hacerse, porque esto constituiria una violencia, y no es la
violencia modo propio de cumplir las obligaciones (Bigot, Rolland, etc.).
El maestro Antonio Gomez opinaba lo mismo cuando decia que obligar
por la violencia seria infringir la libertad e imponer una especie de
esclavitud."
xxx xxx xxx
"En efecto; las obligaciones contractuales no se acomodan
bien con el empleo de la fuerza fisica, no ya precisamente porque se
constituya de este modo una especie de esclavitud, segun el dicho de
Antonio Gomez, sino porque se supone que el acreedor tuvo en cuenta
el caracter personalisimo del hecho ofrecido, y calculo sobre la
posibilidad de que por alguna razon no se realizase. Repugna, ademas,
a la conciencia social el empleo de la fuerza publica, mediante coaccion
sobre las pesonas, en las relaciones puramente particulares; porque la
evolucion de las ideas ha ido poniendo mas de relieve cada dia el respeto
a la personalidad humana, y no se admite bien la violencia sobre el

indivicuo la cual tiene caracter visiblemente penal, sino por motivos que
interesen a la colectividad de ciudadanos. Es, pues, posible y licita esta
violencia cuando se trata de las obligaciones que hemos llamado ex
lege, que afectan al orden social y a la entidad de Estado, y aparecen
impuestas sin consideracion a las conveniencias particulares, y sin que
por este motivo puedan tampoco ser modificadas; pero no debe serlo
cuando la obligacion reviste un interes puramente particular, como
sucede en las contractuales, y cuando, por consecuencia, pareceria
salirse el Estado de su esfera propia, entrado a dirimir, con apoyo de la
fuerza colectiva, las diferencias producidas entre los ciudadanos. (19
Scaevola 428, 431- 432.)"
The last question for us to decide is that of damages, damages that plaintiff is
entitled to receive because of defendant's refusal to form the partnership, and damages
that defendant is also entitled to collect because of the falsity of plaintiff's representation.
(Article 1101, Spanish Civil Code.) Under article 1106 of the Spanish Civil Code the
measure of damages is the actual loss suffered and the profits reasonably expected to be
received, embraced in the terms daño emergente and lucro cesante. Plaintiff is entitled
under the terms of the agreement to 30 per cent of the net profits of the business. Against
this amount of damages, we must set off the damage defendant suffered by plaintiff's
misrepresentation that he had the exclusive franchise, by which misrepresentation he
obtained a very high percentage of share in the profits. We can do no better than follow
the appraisal that the parties themselves had adopted.
When defendant learned in Los Angeles that plaintiff did not have the
exclusive franchise which he pretended he had and which he had agreed to transfer to
the partnership, his spontaneous reaction was to reduce plaintiff's share from 30 per
cent to 15 per cent only, to which reduction defendant appears to have readily given his
assent. It was under this understanding, which amounts to a virtual modification of the
contract, that the bottling plant was established and plaintiff worked as Manager for the
first three months. If the contract may not be considered modified as to plaintiff's share
in the profits, by the decision of defendant to reduce the same to one-half and the
assent thereto of plaintiff, then we may consider the said amount as a fair estimate of
the damages plaintiff is entitled to under the principle enunciated in the case of
Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce
plaintiff's share and plaintiff's consent thereto amount to an admission on the part of
each of the reasonableness of this amount as plaintiff's share. This same amount was
fixed by the trial court. The agreement contains the stipulation that upon the
termination of the partnership, defendant was to convey the franchise back to plaintiff
(Par. 11, Exhibit A). The judgment of the trial court does not fix the period within which
these damages shall be paid to plaintiff. In view of paragraph 11 of Exhibit A, we declare
that plaintiff's share of 15 per cent of the net profits shall continue to be paid while
defendant uses the franchise from the Mission Dry Corporation.
With the modification above indicated, the judgment appealed from is hereby
affirmed. Without costs.
18
Paras, C.J., Pablo, Bengzon, Tuason, Montemayor, Reyes, Jugo and Bautista
Angelo, JJ., concur.
||| (Woodhouse v. Halili, G.R. No. L-4811, [July 31, 1953], 93 PHIL 526-542)
HERNANDEZ V COURT OF APPEALS
EN BANC
[G.R. No. 34840. September 23, 1931.]
NARCISO GUTIERREZ, plaintiff-appellee, vs. BONIFACIO GUTIERREZ, MARIA V. DE
GUTIERREZ, MANUEL GUTIERREZ, ABELARDO VELASCO, and SATURNINO
CORTEZ,defendants-appellants.
L. D. Lockwood, for appellants Velasco and Cortez.
San Agustin & Roxas, for other appellants.
Ramon Diokno, for appellee.
SYLLABUS
1. DAMAGES; MASTER AND SERVANT; MOTOR VEHICLES; LIABILITY OF HEAD OF
HOUSE FOR ACTS OF DRIVER WHO IS HIS MINOR CHILD. — The head of a house, the
owner of an automobile, who maintains it for the general use of his family, is liable for
its negligent operation by one of his children, whom he designates or permits to run
it, where the car is occupied and being used at the time of the injury for the pleasure
of other members of the owner's family than the child driving it.
2. ID.; ID.; ID.; ID.; CASE AT BAR. — One G, a passenger in a truck, recovers damages in
the amount of P5,000 from the owner of a private automobile not in the car, the
machine being operated by a son 18 years of age, with other members of the family
accommodated therein, and from the chauffeur and owner of the truck which collided
with the private automobile on a bridge, causing physical injuries to G as a result of
the automobile accident.
DECISION
MALCOLM, J p:
This is an action brought by the plaintiff in the Court of First Instance of
Manila against the five defendants, to recover damages in the amount of P10,000, for
physical injuries suffered as a result of an automobile accident. On judgment being
rendered as prayed for by the plaintiff, both sets of defendants appealed.
On February 2, 1930, a passenger truck and an automobile of private
ownership collided while attempting to pass each other on the Talon bridge on the
Manila South Road in the municipality of Las Pinas, Province of Rizal. The truck was
driven by the chauffeur Abelardo Velasco, and was owned by Saturnino Cortez. The
automobile was being operated by Bonifacio Gutierrez, a lad 18 years of age, and was
owned by Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez. At the time
of the collision, the father was not in the car, but the mother, together with several
other members of the Gutierrez family, seven in all, were accommodated therein. A
passenger in the autobus, by the name of Narciso Gutierrez, was en route from San
Pablo, Laguna, to Manila. The collision between the bus and the automobile resulted

in Narciso Gutierrez suffering a fractured right leg which required medical attendance
for a considerable period of time, and which even at the date of the trial appears not
to have healed properly.
It is conceded that the collision was caused by negligence pure and simple.
The difference between the parties is that, while the plaintiff blames both sets of
defendants, the owner of the passenger truck blames the automobile, and the owner
of the automobile, in turn, blames the truck. We have given close attention to these
highly debatable points, and having done so, a majority of the court are of the opinion
that the findings of the trial judge on all controversial questions of fact find sufficient
support in the record, and so should be maintained. With this general statement set
down, we turn to consider the respective legal obligations of the defendants.
In amplification of so much of the above pronouncement as concerns the
Gutierrez family, it may be explained that the youth Bonifacio was an incompetent
chauffeur, that he was driving at an excessive rate of speed, and that, on approaching
the bridge and the truck, he lost his head and so contributed by his negligence to the
accident. The guaranty given by the father at the time the son was granted a license
to operate motor vehicles made the father responsible for the acts of his son. Based
on these facts, pursuant to the provisions of article 1903 of the Civil Code, the father
alone and not the minor or the mother, would be liable for the damages caused by the
minor.
We are here dealing with the civil law liability of parties for obligations which
arise from fault or negligence. At the same time, we believe that, as has been done in
other cases, we can take cognizance of the common law rule on the same subject. In
the United States, it is uniformly held that the head of a house, the owner of an
automobile, who maintains it for the general use of his family is liable for its negligent
operation by one of his children, whom he designates or permits to run it, where the
car is occupied and being used at the time of the injury for the pleasure of other
members of the owner's family than the child driving it. The theory of the law is that
the running of the machine by a child to carry other members of the family is within
the scope of the owner's business, so that he is liable for the negligence of the child
because of the relationship of master and servant. (Huddy On Automobiles, 6th ed.,
sec. 660; Missell vs. Hayes [1914], 91 Alt., 322.)
The liability of Saturnino Cortez, the owner of the truck, and of his chauffeur
Abelardo Velasco rests on a different basis, namely, that of contract which, we think,
has been sufficiently demonstrated by the allegations of the complaint, not
controverted, and the evidence. The reason for this conclusion reaches to the findings
of the trial court concerning the position of the truck on the bridge, the speed in
operating the machine, and the lack of care employed by the chauffeur. While these
facts are not as clearly evidenced as are those which convict the other defendant, we
nevertheless hesitate to disregard the points emphasized by the trial judge. In its
broader aspects, the case is one of two drivers approaching a narrow bridge from
opposite directions, with neither being willing to slow up and give the right of way to
the other, with the inevitable result of a collision and an accident.
The defendants Velasco and Cortez further contend that there existed
contributory negligence on the part of the plaintiff, consisting principally of his keeping
his foot outside the truck, which occasioned his injury. In this connection, it is sufficient
19
to state that, aside from the fact that the defense of contributory negligence was not
pleaded, the evidence bearing out this theory of the case is contradictory in the
extreme and leads us far afield into speculative matters.
The last subject for consideration relates to the amount of the award. The
appellee suggests that the amount could justly be raised to P16,517, but naturally is
not serious in asking for this sum, since no appeal was taken by him from the
judgment. The other parties unit in challenging the award of P10,000, as excessive. All
facts considered, including actual expenditures and damages for the injury to the leg
of the plaintiff, which may cause him permanent lameness, in connection with other
adjudications of this court, lead us to conclude that a total sum for the plaintiff of
P5,000 would be fair and reasonable. The difficulty in approximating the damages by
monetary compensation is well elucidated by the divergence of opinion among the
members of the court, three of whom have inclined to the view that P3,000 would be
amply sufficient, while a fourth member has argued that P7,500 would be none too
much.
In consonance with the foregoing rulings, the judgment appealed from will
be modified, and the plaintiff will have judgment in his favor against the defendants
Manuel Gutierrez, Abelardo Velasco, and Saturnino Cortez, jointly and severally, for
the sum of P5,000, and the costs of both instances.
Avancena, C.J., Johnson, Street, Villamor, Ostrand, Romualdez and Imperial,
JJ., concur.
Villa-Real, J., I vote for an indemnity of P7,500.
(Gutierrez v. Gutierrez, G.R. No. 34840, [September 23, 1931], 56 PHIL 177-181)
FIRST DIVISION
[G.R. No. 48930. February 23, 1944.]
ANTONIO VAZQUEZ, petitioner, vs. FRANCISCO DE BORJA, respondent.
[G.R. No. 48931. February 23, 1944.]
FRANCISCO DE BORJA, petitioner, vs. ANTONIO VAZQUEZ, respondent.
SYLLABUS
1. CORPORATIONS; OFFICERS' PERSONAL LIABILITY ON CONTRACTS. — It is well known
that a corporation is an artificial being invested by law with a personality of its own,
separate and distinct from that of its stockholders and from that of its officers who
manage and run its affairs. The mere fact that its personality is owing to a legal fiction and
that it necessarily has to act thru its agents, does not make the latter personally liable on
a contract duly entered into, or for an act lawfully performed, by them for and in its
behalf. The legal fiction by which the personality of a corporation is created is a practical
reality and necessity. Without it no corporate entities may exist and no corporate business
may be transacted. Such legal fiction may be disregarded only when an attempt is made
to use it as a cloak to hide an unlawful or fraudulent purpose. No such thing has been

alleged or proven in this case. It has not been alleged nor even intimated
that Vazquez personally benefited by the contract of sale in question and that he is merely
invoking the legal fiction to avoid personal liability. Neither is it contended that he entered
into said contract for the corporation in bad faith and with intent to defraud the plaintiff.
We find no legal and factual basis upon which to hold him liable on the contract either
principally or subsidiarily.
2. ID.; ID.; NEGLIGENCE. — The trial court found him guilty of negligence in the
performance of the contract and held him personally liable on that account. On the other
hand, the Court of Appeals found that he "no solamente obro con negligencia, sino
interviniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del
Codigo Civil, el debe ser responsable subsidiariamente del pago de la cantidad objeto de
la demanda." We think both the trial court and the Court of Appeals erred in law in so
holding. They have manifestly failed to distinguish a contractual from an extracontractual
obligation, or an obligation arising from contract from an obligation arising from culpa
aquiliana. The fault and negligence referred to in articles 1101-1104 of the Civil Code are
those incidental to the fulfillment or nonfulfillment of a contractual obligation; while the
fault or negligence referred to in article 1902 is the culpa aquiliana of the civil law,
homologous but not identical to tort of the common law, which gives rise to an obligation
independently of any contract. (Cf. Manila R. R. Co. vs. Cia. Trasatlantica, 38 Phil., 875,
887-890; Cangco vs. Manila R. R. Co., 38 Phil., 768.) The fact that the corporation, acting
thru Vazquez as its manager, was guilty of negligence in the fulfillment of the contract,
did not make Vazquez principally or even subsidiarily liable for such negligence. Since it
was the corporation's contract, its nonfulfillment, whether due to negligence or fault or
to any other cause, made the corporation and not its agent liable.
3. ID.; ID.; ID. — On the other hand, independently of the contract Vazquez by his fault or
negligence caused damage to the plaintiff, he would be liable to the latter under article
1902 of the Civil Code. But then the plaintiff's cause of action should be based on culpa
aquiliana and not on the contract alleged in his complaint herein; and Vazquez' liability
would be principal and not merely subsidiary, as the Court of Appeals has erroneously
held.
4. ID.; ID.; ID.; NO CAUSE OF ACTION BASED ON "CULPA AQUILIANA" ALLEGED IN
COMPLAINT OR LITIGATED IN TRIAL COURT; NO JURISDICTION OVER THE ISSUE. — No
such cause of action was alleged in the complaint or tried by express or implied consent
of the parties by virtue of section 4 of Rule 17. Hence the trial court had no jurisdiction
over the issue and could not adjudicate upon it. (Reyes vs. Diaz, G. R. No. 48754.)
Consequently it was error for the Court of Appeals to remand the case to the trial court
to try and decide such issue.
DECISION
OZAETA, J p:
This action was commenced in the Court of First Instance of Manila by Francisco
de Borja against Antonio Vazquez and Fernando Busuego to recover from them jointly
and severally the total sum of P4,702.70 upon three alleged causes of action, to wit: First,
that in or about the month of January, 1932, the defendants jointly and severally
obligated themselves to sell to the plaintiff 4,000 cavans of palay at P2.10 per cavan, to
be delivered during the month of February, 1932, the said defendants having
20
subsequently received from the plaintiff in virtue of said agreement the sum of P8,400;
that the defendants delivered to the plaintiff during the months of February, March, and
April, 1932, only 2,488 cavans of palay of the value of P5,224.80 and refused to deliver
the balance of 1,512 cavans of the value of P3,175.20 notwithstanding repeated
demands. Second, that because of defendants' refusal to deliver to the plaintiff the said
1,512 cavans of palay within the period above mentioned, the plaintiff suffered damages
in the sum of P1,000. And, third, that on account of the agreement above mentioned the
plaintiff delivered to the defendants 4,000 empty sacks, of which they returned to the
plaintiff only 2,490 and refused to deliver to the plaintiff the balance of 1,510 sacks or to
pay their value amounting to P377.50; and that on account of such refusal the plaintiff
suffered damages in the sum of P150.
The defendant Antonio Vazquez answered the complaint, denying having
entered into the contract mentioned in the first cause of action in his own individual and
personal capacity, either solely or together with his codefendant Fernando Busuego, and
alleging that the agreement for the purchase of 4,000 cavans of palay and the payment
of the price of P8,400 were made by the plaintiff with and to the Natividad-
Vazquez Sabani Development Co., Inc., a corporation organized and existing under the
laws of the Philippines, of which the defendant Antonio Vazquez was the acting manager
at the time the transaction took place. By way of counterclaim, the said defendant alleged
that he suffered damages in the sum of P1,000 on account of the filing of this action
against him by the plaintiff with full knowledge that the said defendant had nothing to do
whatever with any and all of the transactions mentioned in the complaint in his own
individual and personal capacity.
The trial court rendered judgment ordering the defendant Antonio Vazquez to
pay to the plaintiff the sum of P3,175.20 plus the sum of P377.50, with legal interest on
both sums, and absolving the defendant Fernando Busuego (treasurer of the corporation)
from the complaint and the plaintiff from the defendant Antonio Vazquez' counterclaim.
Upon appeal to the Court of Appeals, the latter modified that judgment by reducing it to
the total sum of P3,314.78, with legal interest thereon and the costs. But by a subsequent
resolution upon the defendant's motion for reconsideration, the Court of Appeals set
aside its judgment and ordered that the case be remanded to the court of origin for
further proceedings. The defendant Vazquez, not being agreeable to that result, filed the
present petition for certiorari (G.R. No. 48930) to review and reverse the judgment of the
Court of Appeals; and the plaintiff Francisco de Borja, excepting to the resolution of the
Court of Appeals whereby its original judgment was set aside and the case was ordered
remanded to the court of origin for further proceedings, filed a cross-petition for certiorari
(G.R. No. 48931) to maintain the original judgment of the Court of Appeals.
The original decision of the Court of Appeals and its subsequent resolutions on
reconsideration read as follows:
"Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-
apelante vendio al demandante 4,000 cavanes de palay al precio de P2.10 el cavan, de los
cuales, dicho demandante solamente recibio 2,583 cavanes; y que asimismo recibio para
su envase 4,000 sacos vacios. Esta probado que de dichos 4,000 sacos vacios solamente
se entregaron, 2,583 quedando en poder del demandado el resto, y cuyo valor es el de
P0.24 cada uno. Presentada la demanda contra los demandados Antonio Vazquez y

Fernando Busuego para el pago de la cantidad de P4,702.70, con sus intereses legales
desde el 1.0 de marzo de 1932 hasta su completeo pago y las costas, el Juzgado de Primera
Instancia de Manila fallo el asunto condenando a Antonio Vazquez a pagar al demandante
la cantidad de P3,175.20, mas la cantidad de P377.50, con sus intereses legales,
absolviendo al demandado Fernando Busuego de la demanda y al demandante de la
reconvencion de los demandados, sin especial pronunciamiento en cuanto a las costas.
De dicha decision apelo el demandado Antonio Vazquez, apuntando como principal error
el de que el habia sido condenado personalmente, y no la corporacion por el
representada.
"Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a
favor de Francisco de Borja de los 4,000 cavanes de palay fue en su capacidad de
Presidente interino y Manager de la corporacion Natividad-Vazquez Sabani Development
Co., Inc. Asi resulta del Exh. 1, que es la copia al carbon del recibo otorgado por el
demandado Vazquez, y cuyo original lo habia perdido el demandante, segun el. Asi
tambien consta en los libros de la corporacion arriba mencionada, puesto que en los
mismos se ha asentado tanto la entrada de los P8,400, precio del palay, como su envio al
gobierno en pago de los alquileres de la Hacienda Sabani. Asi mismo lo admitio Francisco
de Borja al abogado Sr. Jacinto Tomacruz, posterior presidente de la corporacion sucesora
en el arrendamiento de la Sabani Estate, cuando el solicito sus buenos oficios para el
cobro del precio del palay no entregado. Asi igualmente lo declaro el que hizo entrega de
parte del palay a Borja, Felipe Veneracion, cuyo testimonio no ha sido refutado. Y asi se
deduce de la misma demanda, cuando se incluyo en ella a Fernando Busuego, tesorero
de la Natividad-Vazquez Sabani Development Co., Inc.
"Siendo esto asi, la principal responsable debe ser la Natividad- Vazquez Sabani
Development Co., Inc., que quedo insolvente y dejo de existir. El Juez sentenciador
declaro, sin embargo, al demandado Vazquez responsable del pago de la cantidad
reclamada por su negligencia al vender los referidos 4,000 cavanes de palay sin averiguar
antes si o no dicha cantidad existia en las bodegas de la corporacion.
"Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a
Francisco de Borja, el mismo demandado vendio a Kwong Ah Phoy 1,500 cavanes al precio
de P2.00 el cavan, y decimos 'despues' porque esta ultima venta aparece asentada
despues de la primera. Segun esto, el apelante no solamente obro con negligencia, sino
interviniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del
Codigo Civil, el debe ser responsable subsidiariamente del pago de la cantidad objeto de
la demanda.
"En meritos de todo lo expuesto, se confirma la decision apelada con la
modificacion de que el apelante debe pagar al apelado la suma de P2,975.70 como valor
de los 1,417 cavanes de palay que dejo de entregar al demandante, mas la suma de
P339.08 como importe de los 1,417 sacos vacios, que dejo de devolver, a razon de P0.24
el saco, total P3,314.78, con sus intereses legales desde la interposicion de la demanda y
las costas de ambas instancias."
"Vista la mocion de reconsideracion de nuestra decision de fecha 13 de Octubre
de 1942, y alegandose en la misma que cuando el apelante vendio los 1,500 cavanes de
palay a Ah Phoy, la corporacion todavia tenia bastante existencia de dicho grano, y no
21
estando dicho extremo suficientemente discutido y probado, y pudiendo variar el
resultado del asunto, dejamos sin efecto nuestra citada decision, y ordenamos la
devolucion de la causa al Juzgado de origen para que reciba pruebas al efecto y dicte
despues la decision correspondiente."
"Upon consideration of the motion of the attorney for the plaintiff-appellee in
case CA-G.R. No. 8676, Francisco de Borja vs. Antonio Vazquez et al., praying, for the
reasons therein given, that the resolution of December 22, 1942, be reconsidered:
Considering that said resolution remanding the case to the lower court is for the benefit
of the plaintiff-appellee to afford him opportunity to refute the contention of the
defendant-appellant Antonio Vazquez, motion denied."
The action is on a contract, and the only issue pleaded and tried is whether the
plaintiff entered into the contract with the defendant Antonio Vazquez in his personal
capacity or as manager of the Natividad-Vazquez Sabani Development Co., Inc. The Court
of Appeals found that according to the preponderance of the evidence "the sale made by
Antonio Vazquez in favor of Francisco de Borja of 4,000 cavans of palay was in his capacity
as acting president and manager of the corporation Natividad-Vazquez Sabani
Development Co., Inc." That finding of fact is final and, it resolving the only issue involved,
should be determinative of the result.
The Court of Appeals doubly erred in ordering that the cause be remanded to
the court of origin for further trial to determine whether the corporation had sufficient
stock of palay at the time appellant sold 1,500 cavans of palay to Kwong Ah Phoy. First, if
that point was material to the issue, it should have been proven during the trial; and the
statement of the court that it had not been sufficiently discussed and proven was no
justification for ordering a new trial, which, by the way, neither party had solicited but
against which, on the contrary, both parties now vehemently protest. Second, the point
is, in any event, beside the issue, and this we shall now discuss in connection with the
original judgment of the Court of Appeals which the plaintiff cross-petitioner seeks to
maintain.
The action being on a contract, and it appearing from the preponderance of the
evidence that the party liable on the contract is the Natividad-Vazquez Sabani
Development Co., Inc., which is not a party herein, the complaint should have been
dismissed. Counsel for the plaintiff, in his brief as respondent, argues that altho by the
preponderance of the evidence the trial court and the Court of Appeals found
that Vazquez celebrated the contract in his capacity as acting president of the corporation
and altho it was the latter, thru Vazquez, with which the plaintiff had contracted and
which, thru Vazquez, had received the sum of P8,400 from Borja, and altho that was true
from the point of view of a legal fiction, "ello no impide que tambien sea verdad lo alegado
en la demanda de que la persona de Vazquez fue la que contrato con Borja y que la misma
persona de Vazquez fue quien recibio la suma de P8,400." But such argument is invalid
and insufficient to show that the president of the corporation is personally liable on the
contract duly and lawfully entered into by him in its behalf.
It is well known that a corporation is an artificial being invested by law with a
personality of its own, separate and distinct from that of its stockholders and from that
of its officers who manage and run its affairs. The mere fact that its personality is owing
to a legal fiction and that it necessarily has to act thru its agents, does not make the latter

personally liable on a contract duly entered into, or for an act lawfully performed, by them
for and in its behalf. The legal fiction by which the personality of a corporation is created
is a practical reality and necessity. Without it no corporate entities may exist and no
corporate business may be transacted. Such legal fiction may be disregarded only when
an attempt is made to use it as a cloak to hide an unlawful or fraudulent purpose. No such
thing has been alleged or proven in this case. It has not been alleged nor even intimated
that Vazquez personally benefited by the contract of sale in question and that he is merely
invoking the legal fiction to avoid personal liability. Neither is it contended that he entered
into said contract for the corporation in bad faith and with intent to defraud the plaintiff.
We find no legal and factual basis upon which to hold him liable on the contract either
principally or subsidiarily.
The trial court found him guilty of negligence in the performance of the contract
and held him personally liable on that account. On the other hand, the Court of Appeals
found that he "no solamente obro con negligencia, sino interviniendo culpa de su parte,
por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser
responsable subsidiariamente del pago de la cantidad objeto de la demanda." We think
both the trial court and the Court of Appeals erred in law in so holding. They have
manifestly failed to distinguish a contractual from an extracontractual obligation, or an
obligation arising from contract from an obligation arising from culpa aquiliana. The fault
and negligence referred to in articles 1101-1104 of the Civil Code are those incidental to
the fulfillment or nonfulfillment of a contractual obligation; while the fault or negligence
referred to in article 1902 is the culpa aquiliana of the civil law, homologous but not
identical to tort of the common law, which gives rise to an obligation independently of
any contract. (Cf. Manila R. R. Co. vs. Cia. Trasatlantica, 38 Phil., 875, 887-890; Cangco vs.
Manila R. R. Co., 38 Phil., 768.) The fact that the corporation, acting thru Vazquez as its
manager, was guilty of negligence in the fulfillment of the contract, did not
make Vazquez principally or even subsidiarily liable for such negligence. Since it was the
corporation's contract, its nonfulfillment, whether due to negligence or fault or to any
other cause, made the corporation and not its agent liable.
On the other hand, if independently of the contract Vazquez by his fault or
negligence caused damage to the plaintiff, he would be liable to the latter under article
1902 of the Civil Code. But then the plaintiff's cause of action should be based on culpa
aquiliana and not on the contract alleged in his complaint herein; and Vazquez' liability
would be principal and not merely subsidiary, as the Court of Appeals has erroneously
held. No such cause of action was alleged in the complaint or tried by express or implied
consent of the parties by virtue of section 4 of Rule 17. Hence the trial court had no
jurisdiction over the issue and could not adjudicate upon it. (Reyes vs. Diaz, G. R. No.
48754.) Consequently it was error for the Court of Appeals to remand the case to the trial
court to try and decide such issue.
It only remains for us to consider petitioner's second assignment of error
referring to the lower courts' refusal to entertain his counterclaim for damages against
the respondent Borja arising from the bringing of this action. The lower courts having
sustained plaintiff's action, they naturally could not have entertained defendant's
counterclaim for damages on account of the bringing of the action. The finding of the
Court of Appeals that according to the preponderance of the evidence the
22
defendant Vazquez celebrated the contract not in his personal capacity but as acting
president and manager of the corporation, does not warrant his contention that the suit
against him is malicious and tortious; and since we have to decide defendant's
counterclaim upon the facts found by the Court of Appeals, we find no sufficient basis
upon which to sustain said counterclaim. Indeed, we feel that as a matter of moral justice
we ought to state here that the indignant attitude adopted by the defendant towards the
plaintiff for having brought this action against him is in our estimation not wholly right.
Altho from the legal point of view he was not personally liable for the fulfillment of the
contract entered into by him on behalf of the corporation of which he was the acting
president and manager, we think it was his moral duty towards the party with whom he
contracted in said capacity to see to it that the corporation represented by him fulfilled
the contract by delivering the palay it had sold, the price of which it had already received.
Recreant to such duty as a moral person, he has no legitimate cause for indignation. We
feel that under the circumstances he not only has no cause of action against the plaintiff
for damages but is not even entitled to costs.
The judgment of the Court of Appeals is reversed, and the complaint is hereby
dismissed, without any finding as to costs.
Yulo, C.J., Moran, Horrilleno, and Bocobo, JJ., concur.
Separate Opinions
PARAS, J., dissenting:
Upon the facts of this case as expressly or impliedly admitted in the majority
opinion, the plaintiff is entitled to a judgment against the defendant. The latter, as acting
president and manager of Natividad-Vazquez Sabani Development Co., Inc., and with full
knowledge of the then insolvent status of his company, agreed to sell to the plaintiff 4,000
cavans of palay. Notwithstanding the receipt from the plaintiff of the full purchase price,
the defendant delivered only 2,488 cavans and failed and refused to deliver the remaining
1,512 cavans and a quantity of empty sacks, or their value. Such failure resulted, according
to the Court of First Instance of Manila and the Court of Appeals, from his fault or
negligence.
It is true that the cause of action made out by the complaint is technically based
on a contract between the plaintiff and Natividad- Vazquez Sabani Development Co., Inc.,
which is not a party to this case. Nevertheless, inasmuch as it was proven at the trial that
the defendant was guilty of fault in that he prevented the performance of the plaintiff's
contract and also of negligence bordering on fraud which caused damage to the plaintiff,
the error of procedure should not be a hindrance to the rendition of a decision in
accordance with the evidence actually introduced by the parties, especially when in such
a situation we may order the necessary amendment of the pleadings, or even consider
them correspondingly amended.
As already stated, the corporation of which the defendant was acting president
and manager was, at the time he made the sale to the plaintiff, known to him to be
insolvent. As a matter of fact, said corporation was soon thereafter dissolved. There is
admitted damage on the part of the plaintiff, proven to have been inflicted by reason of
the fault or negligence of the defendant. In the interest of simple justice and to avoid

multiplicity of suits I am therefore impelled to consider the present action as one based
on fault or negligence and to sentence the defendant accordingly. Otherwise, he would
be allowed to profit by his own wrong under the protective cover of the corporate
existence of the company he represented. It cannot be pretended that any advantage
under the sale inured to the benefit of Natividad-Vazquez Sabani Development Co., Inc.,
and not of the defendant personally, since the latter undoubtedly owned a considerable
part of its capital
(Vazquez v. De Borja, G.R. No. 48930, 48931, [February 23, 1944], 74 PHIL 560-570)
STREET, J p:
FIRST DIVISION
[G.R. No. 14335. January 28, 1920.]
MANUEL DE GUIA, plaintiff-appellant, vs. THE MANILA ELECTIC
RAILROAD & LIGHT COMPANY, defendant-appellant.
Sumulong & Estrada, Crossfield & O'Brien and Francisco A. Delgado for
plaintiff-appellant.
Lawrence & Ross for defendant-appellant.
SYLLABUS
1. CONTRACTS; NEGLIGENT PERFORMANCE; POWER OF COURT TO MODERATE LIABILITY.
— In determining the extent of liability for losses or damages resulting from negligence in
the fulfillment of a contractual obligation the courts have a discretionary power to
moderate liability according to the circumstances.
2. CARRIERS; CARRIAGE OF PASSENGERS FOR HIRE; CONTRACTUAL OBLIGATION OF
CARRIER. — The obligation assumed by a street-railway company, engaged in the
transportation of passengers for hire, towards a person who embarks for conveyance in
one of its coaches, is of a contractual nature; and the company is bound to convey its
passengers safely and securely with reference to the degree of care required by law and
custom applicable to the case.
3. ID., ID.; ID.; LIABILITY OF CARRIER FOR NEGLIGENCE OF EMPLOYEE. — Upon failure to
comply with this obligation the carrier incurs the liability commonly incident to the breach
of contractual obligations; and where the delinquency is due to the negligence if its
employee, the carrier cannot avail itself of the defense that it had exercised due care in
the selection and instruction of such employee and that he was in fact an experienced
and reliable servant.
4. ID.; ID.; ID.; EXTENT OF CARRIER S LIABILITY FOR LOSSES AND DAMAGES; GOOD FAITH.
— A street-railway company which has exercised due care in the selection and instruction
of the motorman upon one of its cars should be considered a debtor in good faith as
regards liability towards a passenger who is injured by the negligence of the motorman in
directing the car; and the liability of the carrier to the injured party extends to such losses
and damages only as could be reasonably foreseen as a probable consequence of the
physical injuries inflicted upon the passenger and which are in fact a necessary result of
those injuries.
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5. PHYSICAL INJURIES; DAMAGES; EXPENSES OF MEDICAL SERVICE. — A person who is
entitled to recover expenses of cure as an item of damage in a civil action for physical
injuries cannot recover doctor's bills for services gratuitously rendered; and the claim
must furthermore be limited to medical services reasonably suited to the case. Charges
of professional experts retained merely with a view to promote the success of the action
for damages should not be allowed.
DECISION
This is an appeal prosecuted both by the plaintiff and the defendant from a
judgment of the Court of First Instance of the City of Manila, whereby the plaintiff was
awarded the sum of P6,100, with interest and costs, as damages incurred by him in
consequence of physical injuries sustained while riding on one of the defendant's car.
The accident which gave rise to the litigation occurred on September 4, 1915,
near the end of the street-car line in Caloocan, Rizal, a northern suburb of the city of
Manila. It appears that, at about 8 o'clock p. m., of the date mentioned, the plaintiff
Manuel de Guia, a physician residing in Caloocan, boarded a car at the end of the line with
the intention of coming to the city. At about 30 meters from the starting point the car
entered a switch, the plaintiff remaining on the back platform holding the handle of the
right-hand door. Upon coming out of the switch, the small wheels of the rear truck left
the track, ran for a short distance along the macadam filling, which was flush with the
rails, and struck a concrete post at the left of the track. The post was shattered; and as
the car stopped the plaintiff was thrown against the door with some violence, receiving
bruises and possibly certain internal injuries, the extent of which is a subject of dispute.
The trial court found that the motorman of the derailed car was negligent in
having maintained too rapid a speed. This inference appears to be based chiefly upon the
results of the shock, involving the shattering of the post and the bending of the kingpost
of the car. It is insisted for the defendant company that the derailment was due to the
presence of a stone, somewhat larger than a goose egg, which had become accidentally
lodged between the rails at the juncture of the switch and which was unobserved by the
motorman. In this view the derailment of the car is supposed to be due to casus
fortuitos and not chargeable to the negligence of the motorman.
Even supposing that the derailment of the car was due to the accidental
presence of such a stone as suggested, we do not think that the existence of negligence
is disproved. The motorman says that upon approaching the switch he reduced the
electrical energy to the point that the car barely entered the switch under its own
momentum, and this operation was repeated as he passed out. Upon getting again on the
straight track he put the control successively at points one, two, three and lastly at point
four. At the moment when the control was placed at point four he perceived that the rear
wheels were derailed and applied the brake; but at the same instant the car struck the
post, some 40 meters distant from the exit of the switch. One of the defendant's
witnesses stated in court that the rate of a car propelled by electricity with the control at
point "four" should be about five or 6 miles per hour. There was some other evidence to
the effect that the car was behind schedule time and that it was being driven, after leaving

the switch, at a higher I ate than would ordinarily be indicated by the control at point four.
This inference is rendered more tenable by the circumstance that the car was practically
empty. On the whole, we are of the opinion that the finding of negligence in the operation
of the car must be sustained, as not being clearly contrary to the evidence; not so much
because of excessive speed as because of the distance which the car was allowed to run
with the front wheels of the rear truck derailed. It seems to us that an experienced and
attentive motorman should have discovered that something was wrong and would have
stopped before he had driven the car over the entire distance from the point where the
wheels left the track to the place where the post was struck.
The conclusion being accepted that there was negligence on the part of the
motorman in driving the car, it results that the company is liable for the damage resulting
to the plaintiff as a consequence of that negligence. The plaintiff had boarded the car as
a passenger for the city of Manila and the company undertook to convey him for hire. The
relation between the parties was, therefore, of a contractual nature, and the duty of the
carrier is to be determined with reference to the principles of contract law, that is, the
company was bound to convey and deliver the plaintiff safely and securely with reference
to the degree of care which, under the circumstances, is required by law and custom
applicable to the case (art. 1258, Civil Code). Upon failure to comply with that obligation
the company incurred the liability defined in articles 1103-1107 of the Civil Code.
(Cangco vs. Manila Railroad Company, 38 Phil. Rep., 768; Manila Railroad
Company vs. Compañia Trasatlantica, and Atlantic, Gulf & Pacific Co., 38 Phil. Rep., 875.)
From the nature of the liability thus incurred, it is clear that the defendant
company can not avail itself of the last paragraph of article 1903 of the Civil Code, since
that provision has reference to liability incurred by negligence in the absence of
contractual relation, that is, to the culpa aquiliana of the civil law. It was therefore
irrelevant for the defendant company to prove, as it did, that the company had exercised
due care in the selection and instruction of the motorman who was in charge of its car
and that he was in fact an experienced and reliable servant.
At this point, however, it should be observed that although in case like this the
defendant must answer for the consequences of the negligence of its employee, the court
has the power to moderate liability according to the circumstances of the case (art. 1103,
Civ. Code) . Furthermore, we think it obvious that an employer who has in fact displayed
due diligence in choosing and instructing his servants is entitled to be considered a debtor
in good faith, within the meaning of article 1107 of the same Code. Construing these two
provisions together, and applying them to the facts of this case, it results that the
defendant's liability is limited to such damages as might, at the time of the accident, have
been reasonably foreseen as a probable consequence of the physical injuries inflicted
upon the plaintiff and which were in fact a necessary result of those injuries. There is
nothing novel in this proposition, since both the civil and the common law are agreed
upon the point that the damages ordinarily recoverable for the breach of a contractual
obligation, against a person who has acted in good faith, are such as can reasonably be
foreseen at the time the obligation is contracted. In Daywalt vs. Corporacion de PP.
Agustinos Recoletos (39 Phil., 687), we said: "The extent of the liability for the breach of
a contract must be determined in the light of the situation in existence at the time the
contract is made; and the damages ordinarily recoverable are in all events limited to such
24
as might be reasonably foreseen in the light of the facts then known to the contracting
parties."
This brings us to consider the amount which may be awarded to the plaintiff as
damages. Upon this point the trial judge found that, as a result of the physical and nervous
derangement resulting from the accident, Dr. De Guia was unable properly to attend to
his professional labors for three months and suspended his practice for that period. It was
also proved by the testimony of the plaintiff that his customary income, as a physician,
was about P300 per month. The trial judge accordingly allowed P900, as damages for loss
of professional earnings. This allowance is attacked upon appeal by the defendant as
excessive both as to the period and rate of allowance. Upon examining the evidence we
fell disinclined to disturb this part of the judgment, though it must be conceded that the
estimate of the trial judge on this point was liberal enough to the plaintiff.
Another item allowed by the trial judge consists of P3,900, which the plaintiff is
supposed to have lost by reason of his inability to accept a position as district health
officer in Occidental Negros. It appears in this connection that Mr. Alunan, representative
from Occidental Negros, had asked Dr. Montinola, who supposedly had the authority to
make the appointment, to nominate the plaintiff to such position. The job was supposed
to be good for two years, with a salary of P1,600 per annum, and possibility of outside
practice worth P350. Accepting these suggestions as true, it is evident that the damages
thus incurred are too speculative to be the basis of recovery in a civil action. This element
of damages must therefore be eliminated. It goes without saying that damage of this
character could not, at. the time of the accident, have been foreseen by the delinquent
party as a probable consequence of the injury inflicted — a circumstance which makes
applicable article 1107 of the Civil Code, as already expounded.
The last element of damages to be considered is the item of the plaintiff's
doctor's bills, a subject which we momentarily pass for discussion further on, since the
controversy on this point can be more readily understood in connection with the question
raised by the plaintiff's appeal.
The plaintiff alleges in the complaint that the damages incurred by him as a
result of the injuries in question ascend to the amount of P40,000. Of this amount the
sum of P10,000 is supposed to represent the cost of medical treatment and other
expenses incident to the plaintiff's cure, while the remainder (P30,000) represents the
damage resulting from the character of his injuries, which are supposedly such as to
incapacitate him for the exercise of the medical profession in the future. In support of
these claims the plaintiff introduced evidence, consisting of his own testimony and that
of numerous medical experts, tending to show that as a result of the injuries in question
he had developed infarct of the liver and traumatic neurosis, accompanied by
nervousness, vertigo, and other disturbing symptoms of a serious and permanent
character, it being claimed that these manifestations of disorder rendered him liable to a
host of other dangerous diseases, such as pleuresy, tuberculosis, pneumonia, and
pulmonary gangrene, and that restoration to health could only be accomplished, if at all,
after long years of complete repose. The trial judge did not take these pretensions very
seriously, and, as already stated, limited the damages to the three items of professional
earnings, expenses of medical treatment, and the loss of the appointment as medical

inspector in Occidental Negros. As the appeal of the plaintiff opens the whole case upon
the question of damages, it is desirable to present a somewhat fuller statement than that
already given with respect to extent and character of the injuries in question.
The plaintiff testified that, at the time the car struck against the concrete post,
he was standing on the rear platform, grasping the handle of the right-hand door. The
shock of the impact threw him forward, and the left part of his chest struck against the
door causing him to fall. In falling, the plaintiff says, his head struck one of the seats and
he became unconscious. He was presently taken to his home which was only a short
distance away, where he was seen at about 10 o'clock p. m., by a physician in the
employment of the defendant company. This physician says that the plaintiff was then
walking about and apparently suffering somewhat from bruises on his chest. He said
nothing about his head being injured and refused to go to a hospital. Later, during the
same night Dr. Carmelo Basa was called in to see the plaintiff. This physician says that he
found Doctor De Guia lying in bed and complaining of a severe pain in the side. During the
visit of Doctor Basa the plaintiff several times spit up blood, a manifestation no doubt due
to the effects of the bruises received in his side. The next day Doctor De Guia went into
Manila to consult another physician, Doctor Miciano, and during the course of a few
weeks he called into consultation other doctors who were introduced as witnesses in his
behalf at the trial of this case. According to the testimony of these witnesses, as well as
that of the plaintiff himself, the symptoms of physical and nervous derangement in the
plaintiff speedily developed in portentous degree.
Other experts were introduced by the defendant whose testimony tended to
show that the plaintiff's injuries, considered in their physical effects, were trivial and that
the attendant nervous derangement, with its complicated train of ailments, was merely
simulated.
Upon this question the opposing medical experts ventilated a considerable
mass of professional learning with reference to the nature and effects of the baffling
disease known as traumatic neurosis, or traumatic hysteria — a topic which has been the
occasion of much controversy in actions of this character in the tribunals of Europe and
America. The subject is one of considerable interest from a medico-legal point of view,
but we deem it unnecessary in this opinion to enter upon a discussion of its voluminous
literature. It is enough to say that in our opinion the plaintiff's case for large damages in
respect to his supposed incapacitation for future professional practice is not made out.
Of course in this jurisdiction damages can not be assessed in favor of the plaintiff as
compensation for the physical or mental pain which he may have endured
(Marcelo vs. Velasco, 11 Phil. Rep., 287); and the evidence relating to the injuries, both
external and internal, received by him must be examined chiefly in its bearing upon his
material welfare, that is, in its results upon his earning capacity and the expenses incurred
in restoration to the usual condition of health.
The evidence before us shows that immediately after the accident in question
Doctor De Guia, sensing in the situation a possibility of profit, devoted himself with great
assiduity to the promotion of this litigation; and with the aid of his own professional
knowledge, supplemented by suggestions obtained from his professional friends and
associates, he enveloped himself more or less unconsciously in an atmosphere of delusion
which rendered him incapable of appreciating at their true value the symptoms of
25
disorder which he developed. The trial court was in our opinion fully justified in rejecting
the exaggerated estimate of damages thus created.
We now pass to the consideration of the amount allowed to the plaintiff by the
trial judge as the expenses incurred for medical service. In this connection Doctor Montes
testified that he was first called to see the plaintiff upon September 14, 1915, when he
found him suffering from traumatic neurosis. Three months later he was called upon to
treat the same patient for an acute catarrhal condition, involving disturbance in the
pulmonary region. The treatment for this malady was successful after two months, but at
the end of six months the same trouble recurred and required further treatment. In
October of the year 1916, or more than a year after the accident in question occurred,
Doctor Montes was called in consultation with Doctor Guerrero to make an examination
of the plaintiff. Doctor Montes says that his charges altogether for services rendered to
the plaintiff amount to P350, of which the sum of P200 had been paid by the plaintiff upon
bills rendered from time to time. This physician speaks in the most general terms with
respect to the times and extent of the services rendered; and it is by no means clear that
those services which were rendered many months, or year, after the accident had in fact
any necessary or legitimate relation to the injuries received by the plaintiff. In view of the
vagueness and uncertainty of the testimony relating to Doctor Montes's services we are
of the opinion that the sum of P200, or the amount actually paid to him by the plaintiff,
represents the extent of the plaintiff's obligation with respect to treatment for said
injuries.
With regard to the obligation supposedly incurred by the plaintiff to three other
physicians, we are of the opinion that they are not a proper subject of recovery in this
action; and this for more than one reason. In the first place, it does not appear that said
physicians have in fact made charges for those services with the intention of imposing
obligations on the plaintiff to pay for them. On the contrary it would seem that said
services were gratuitously rendered out of courtesy to the plaintiff as a member of the
medical profession. The suggestions made on the stand by these physicians to the effect
that their services were worth the amounts stated by them are not sufficient to prove
that the plaintiff had incurred the obligation to pay those amounts. In the second place,
we are convinced that in employing so many physicians the plaintiff must have bad in
view the successful promotion of the issue of this lawsuit rather than the bona
fide purpose of effecting the cure of his injuries. In order to constitute a proper element
of recovery in an action of this character, the medical service for which reimbursement is
claimed should not only be such as to have created a legal obligation upon the plaintiff
but such as was reasonably necessary in view of his actual condition. It can not be
permitted that a litigant should retain an unusual and unnecessary number of
professional experts with a view to the successful promotion of a lawsuit and expect to
recover against his adversary the entire expense thus incurred. His claim for medical
services must be limited to such expenditures as were reasonably suited to the case.
The second error assigned in the brief of the defendant company presents a
question of practice which, though not vital to the solution of this case, is of sufficient
general importance to merit notice. It appears that four of the physicians examined as
witnesses for the plaintiff had made written statements at various dates certifying the
results of their respective examinations into the condition of the plaintiff. When these

witnesses were examined in court they identified their respective signatures to these
certificates and the trial judge, over the defendant's objection, admitted the documents
as primary evidence in the case. This was undoubtedly erroneous. A document of this
character is not primary evidence in any sense, since it is fundamentally of a hearsay
nature; and the only legitimate use to which one of these certificates could be put, as
evidence for the plaintiff, was to allow the physician who issued it to refer thereto to
refresh his memory upon details which he might have forgotten. In
Zwangizer vs. Newman (83 N. Y. Supp., 1071) which was also an action to recover
damages for personal injury, it appeared that a physician, who had been sent by one of
the parties to examine the plaintiff had made at the time a written memorandum of the
results of the examination; and it was proposed to introduce this document in evidence
at the trial. It was excluded by the trial judge, and it was held upon appeal that this was
proper. Said the court: "There was no failure or exhaustion of the memory, and no
impeachment of the memorandum on cross- examination; and the document was clearly
incompetent as evidence in chief."
It results from the foregoing that the judgment appealed from must be modified
by reducing the amount of the recovery to eleven hundred pesos (P1,100), with legal
interest from November 8, 1916. As thus modified the judgment is affirmed, without any
special pronouncement as to costs of this instance. So ordered.
Arellano, C. J., Torres, Araullo, Malcolm and Avanceña, JJ., concur.
||| (De Guia v. Manila Electric Railroad and Light Co., G.R. No. 14335, [January 28, 1920],
40 PHIL 706-717)
FIRST DIVISION
[G.R. No. 7567. November 12, 1912.]
CARSON, J p:
THE UNITED STATES, plaintiff-appellee, vs. SEGUNDO
BARIAS, defendant-appellant.
Bruce, Lawrence, Ross & Block for appellant.
Solicitor-General Harvey for appellee.
SYLLABUS
1. NEGLIGENCE DEFINED. — Negligence is "the failure to observe, for the protection of the
interests of another person, that degree of care, precaution and vigilance which the
circumstances justly demand, whereby such other person suffers injury."
2. ID.; ID. — Silvela's observation that "if a moment's attention and reflexion would have
shown a person that the act which he was about to perform was liable to have the harmful
consequences which it had, such person acted with temerity and may be guilty
of imprudencia temeraria," cited with approval.
26
3. ID.; ID. — "The diligence with which the law requires the individual at all times to govern
his conduct varies with the nature of the situation in which he is placed and with the
importance of the act which he is to perform." (U. S. vs. Reyes, 1 Phil. Rep., 375, 377.)
4. ID.; STREET RAILWAYS; DUTIES AND RESPONSIBILITIES OF MOTORMEN. — Held, that a
motorman operating a street car on a public street in a densely populated section of the
city of Manila is bound to know and to recognize that any negligence on his part in
observing the track over which he is running his car may result in fatal accidents. He has
no right, when he starts from a standstill, to assume that the track before his car is clear.
It is his duty to satisfy himself of that fact by keeping a sharp lookout and doing everything
in his power to avoid the danger which is necessarily incident to the operation of heavy
street cars on thoroughfares in populous sections of the city.
5. ID.; ID.; ID. — In the absence of some regulation of his employers, a motorman who has
brought his car to a standstill is not bound to keep his eyes directly to the front while the
car is stopped, but before setting it again in motion, it is his duty to satisfy himself that
the track is clear, and for that purpose to look and to see the track just in front of his car.
6. ID.; ID.; ID. — The reasons of public policy which impose upon street car companies and
their employees the duty of exercising the utmost degree of diligence in securing the
safety of passengers, apply with equal force to the duty of avoiding infliction of injuries
upon pedestrians and others upon the public streets and thoroughfares over which such
companies are authorized to run their cars.
7. ID.; ID.; ID. — It is the manifest duty of a motorman operating an electric street car on
a public thoroughfare in as thickly settled district, to satisfy himself that the track is clear
immediately in front of his car before setting it in motion from a standstill and for that
purpose to incline his body slightly forward, if that be necessary, in order to bring the
track immediately in front of his car within his line of vision.
DECISION
This is an appeal from a sentence imposed by the Honorable A. S. Crossfield,
judge of the Court of First Instance of Manila, for homicide resulting from reckless
negligence. The information charges:
"That on or about November 2, 1911, in the city of Manila,
Philippine Islands, the said Segundo Barias was a motorman on street
car No. 9, run 7, of the Pasay-Cervantes lines of the Manila Electric
Railroad and Light Company, a corporation duly organized and doing
business in the city of Manila, Philippine Islands; as such motorman he
was controlling and operating said street car along Rizal Avenue,
formerly Calle Cervantes, of this city, and as such motorman of said
street car he was under obligation to run the same with due care and
diligence to avoid any accident that might occur to vehicles and
pedestrians who were traveling on said Rizal Avenue; said accused, at
said time and place, did willfully, with reckless imprudenced and
inexcusable negligence and in violation of the regulations promulgated

to that effect, control and operate said street car, without heeding the
pedestrians crossing Rizal Avenue from one side to the other, thus
knocking down and causing by his carelessness and imprudent
negligence that said street car No. 9, operated and controlled by said
accused, as hereinbefore stated, should knock down and pass over the
body and head of one Fermina Jose, a girl 2 years old, who at said time
and place was crossing the said Rizal Avenue, the body of said girl being
dragged along the street-car track on said Rizal Avenue for a long
distance, thus crushing and destroying her head and causing her sudden
death as a result of the injury received; that if the acts executed by the
accused had been done with malice, he would be guilty of the serious
crime of homicide."
The defendant was a motorman for the Manila Electric Railroad and Light
Company. At about 6 o'clock on the morning of November 2, 1911, he was driving his car
along Rizal Avenue and stopped it near the intersection of that street with Calle Requesen
to take on some passengers. When the car stopped, the defendant looked backward,
presumably to note whether all the passengers were aboard, and then started his car. At
that moment Ferminia Jose, a child about 3 years old, walked or ran in front of the car.
She was knocked down and dragged some little distance underneath the car, and was left
dead upon the track. The motorman proceeded with his car to the end of the track, some
distance from the place of the accident, and apparently knew nothing of it until his return,
when he was informed of what had happened.
There is no substantial dispute as to the facts. It is true that one witness testified
that the defendant started the car without turning his head, and while he was still looking
backwards and that this testimony was directly contradicted by that of another witness.
But we do not deem it necessary to make an express finding as to the precise direction in
which the defendant's head was turned at the moment when he started his car. It is
sufficient for the purpose of our decision to hold, as we do, that the evidence clearly
discloses that he started his car from a standstill without looking over the track
immediately in front of the car to satisfy himself that it was clear. He did not see the child
until after he had run his car over it, and after he had returned to the place where it was
found dead, and we think we are justified in saying that wherever he was looking at the
moment when he started his car, he was not looking at the track immediately in front of
the car, and that he had not satisfied himself that this portion of the track was clear
immediately before putting the car in motion.
The trial court found the defendant guilty of imprudencia temeraria (reckless
negligence) as charged in the information, and sentenced him to one year and one month
of imprisonment in Bilibid Prison, and to pay the costs of the action.
The sole question raised by this appeal is whether the evidence shows such
carelessness or want of ordinary care on the part of the defendant as to amount to
reckless negligence (imprudencia temeraria).
Judge Cooley in his work on Torts (3d ed., 1324) defines negligence to be: "The
failure to observe, for the protection of the interests of another person, that degree of
care, precaution and vigilance which the circumstances justly demand, whereby such
other person suffers injury."
27
In the case of U. S. vs. Nava, (1 Phi. Rep., 580), we held that: "Reckless
negligence consists of the failure to take such precautions or advance measures in the
performance of an act as the most common prudence would suggest whereby injury is
caused to persons or to property."
Silvela says in his "Derecho Penal," in speaking of reckless imprudence
(imprudencia temeraria):
"The word 'negligencia' used in the code, and the term 'imprudencia'
with which this punishable act is defined, express this idea in such a clear
manner that it is not necessary to enlarge upon it. He who has done
everything on his part to prevent his actions from causing damage to
another, although he has not succeeded in doing so, notwithstanding his
efforts, is the victim of an accident, and cannot be considered
responsible for the same." (Vol. 2, p. 127 [153].)
"Temerario is, in our opinion, one who omits, with regard to his actions,
which are liable to cause injury to another, that care and diligence, that
attention, which can be required of the least careful, attentive, or
diligent. If a moment's attention and reflection would have shown a
person that the act which he was about to perform was liable to have
the harmful consequence which it had, such person acted with temerity
and may be guilty of 'imprudencia temeraria." It may be that in practice
this idea has been given a greater scope and acts of imprudence which
did not show carelessness as carried to such a high degree, might have
been punished as 'imprudencia temeraria;' but in our opinion, the
proper meaning of the word does not authorize another interpretation."
(Id., p 133 [161].)
Groizard, commenting upon "imprudencia temeraria," on page 389, volume 8,
of his work on the Penal Code, says:
"Prudence is that cardinal virtue which teaches us to discern
and distinguish the good from the bad, in order to adopt or to flee from
it. It also means good judgment, temperance, and moderation in one's
action. 'Temerario' without reflection and without examining the same.
Consequently, he who from lack of good judgment, temperance, or
moderation in his action, exposes himself without reflection and
examination to the danger of committing a crime, must be held
responsible under the provision of law aforementioned."
Negligence is want of the care required by the circumstances. It is a relative or
comparative, not an absolute, term and its application depends upon the situation of the
parties and the degree of care and vigilance which the circumstances reasonably require.
Where the danger is great, a high degree of care is necessary, and the failure to observe
it is a want of ordinary care under the circumstances. (Ahern vs. Oregon Telephone Co.,
24 Oreg., 276, 294; 35 Pac., 549.)
Ordinary care, if the danger is great, may rise to the grade of a very exact and
unchangeable attention. (Parry Mfg. Co. vs. Eaton, 41 Ind. App., 81, 1908; 83 N. E., 510.)

In the case of U. S. vs. Reyes (1 Phil. Rep., 375-377), we held that: "The diligence
with which the law requires the individual at all times to govern his conduct varies with
the nature of the situation in which he is placed and with the importance of the act which
he is to perform."
The question to be determined then, is whether, under all the circumstances,
and having in mind the situation of the defendant when he put his car in motion and ran
it over the child, he was guilty of a failure to take such precautions or advance measures
as common prudence would suggest.
The evidence shows that the thoroughfare on which the incident occurred was
a public street in a densely populated section of the city. The hour was six in the morning,
or about the time when the residents of such streets begin to move about. Under such
conditions a motorman of an electric street car was clearly charged with a high degree of
diligence in the performance of his duties. He was bound to know and to recognize that
any negligence on his part in observing the track over which he was running his car might
result in fatal accidents. He had no right to assume that the track before his car was clear.
It was his duty to satisfy himself of that fact by keeping a sharp lookout, and to do
everything in his power to avoid the danger which is necessarily incident to the operation
of heavy street cars on public thoroughfares in populous sections of the city.
Did he exercise the degree of diligence required of him? We think this question
must be answered in the negative. We do not go so far as to say that having brought his
car to a standstill it was his bounden duty to keep his eyes directed to the front. Indeed,
in the absence of some regulation of his employers, we can well understand that, at times,
it might be highly proper and prudent for him to gland back before again setting his car in
motion, to satisfy himself that he understood correctly a signal to go forward or that all
the passengers had safely alighted or gotten on board. But we do insist that before setting
his car again in motion, it was his duty to satisfy himself that the track was clear, and, for
that purpose, to look and to see the track just in front of his car. This the defendant did
not do, and the result of his negligence was the death of the child.
In the case of Smith vs. St. Paul City Ry. Co., (32 Min., p. 1), the supreme court
of Minnesota, in discussing the diligence required of street railway companies in the
conduct of their business observed that: "The defendant was a carrier of passengers for
hire, owning and controlling the tracks and cars operated thereon. It is therefore subject
to the rules applicable to passenger carriers. (Thompson's Carriers, 442; Barrett vs. Third
Ave. R. Co., 1 Sweeny, 568; 8 Abb. Pr. (N. S.), 205.) As respects hazards and dangers
incident to the business or employment, the law enjoins upon such carrier the highest
degree of care consistent with its undertaking, and it is responsible for the slightest
negligence. (Wilson vs. Northern Pacific R. Co., 26 minn., 278; Warren vs. Fitchburg R. Co.,
8 Allen, 233; 43 Am. Dec. 354, 356, notes and cases.) . . . The severe rule which enjoins
upon the carrier such extraordinary care and diligence, is intended, for reasons of public
policy, to secure the safe carriage of passengers, in so far as human skill and foresight can
affect such result." The case just cited was a civil case, and the doctrine therein announced
d especial reference to the care which should be exercised in securing the safety of
passengers. But we hold that the reasons of public policy which imposed upon street car
companies and their employees the duty of exercising the utmost degree of diligence in
securing the safety of passengers, apply with equal force to the duty of avoiding the
28
infliction of injuries upon pedestrians and others on the public streets and thoroughfares
over which these companies are authorized to run their cars. And while, in a criminal case,
the courts will require proof of the guilt of the company or its employees beyond a
reasonable doubt, nevertheless the care or diligence required of the company and its
employees is the same in both cases, and the only question to be determined is whether
the proof shows beyond a reasonable doubt that the failure to exercise such care or
diligence was the cause of the accident, and that the defendant was guilty thereof.
Counsel for the defendant insist that the accident might have happened despite
the exercise of the utmost care by the defendant, and they have introduced photographs
into the record for the purpose of proving that while the motorman was standing in his
proper place on the front platform of the car, a child might have walked up immediately
in front of the car, a child might have walked up immediately in front of the car without
coming within the line of his vision. Examining the photographs, we think that this
contention may have some foundation in fact; but only to this extent, that standing erect,
at the position he would ordinarily assume while the car is in motion, the eye of the
average motorman might just miss seeing the top of the head of a child, about three years
old, standing or walking close up to the front of the car. But it is also very evident that by
inclining the head and shoulders forward very slightly, and glancing in front of the car, a
person in the position of a motorman could not fail to see a child on the track immediately
in front of his car; and we hold that it is the manifest duty of a motorman, who is about
to start his car on a public thoroughfare in a thickly-settled district, to satisfy himself that
the track is clear immediately in front of his car, a person in the position of a motorman
could not fail to see a child on the track immediately in front of his car; and we hold that
it is the manifest duty of a motorman, who is about to start his car on a public
thoroughfare in a thickly-settled district, to satisfy himself that the track is clear
immediately in front of his car, and to incline his body slightly forward, if that be
necessary, in order to bring the whole track within his line of vision. Of course, this may
not be, and usually is not necessary when the car is in motion, but we think that it is
required by the dictates of the most ordinary prudence in starting from a standstill.
We are not unmindful of our remarks in the case of U. S. vs. Bacho (10 Phil. Rep.,
577), to which our attention is directed by counsel for appellant. In that case we said that:
". . . In the general experience of mankind, accidents
apparently unavoidable and often inexplicable are unfortunately too
frequent to permit us to conclude that some one must be criminally
liable for negligence in every case where an accident occurs. it is the
duty of the prosecution in each case to prove by competent evidence
not only the existence of criminal negligence, but that the accused was
guilty thereof."
Nor do we overlook the ruling in the case of U. S. vs. Barnes (12 Phil. Rep., 93),
to which our attention is also invited, wherein we held that the defendant was not guilty
of reckless negligence, where it appeared that he killed another by the discharge of his
gun under such circumstances that he might have been held guilty of criminally reckless
negligence had he had knowledge at that moment that another person was in such
position as to be in danger if the gun should be discharged. In this latter case the
defendant had no reason to anticipate that the person who was injured was in the line of

fire, or that there was any probability that he or anyone else would place himself in the
line of fire. In the case at bar, however, it was, as we have seen, the manifest duty of the
motorman to take reasonable precautions in starting his car to see that in doing so he was
not endangering the life of any pedestrian, old or young; and to this end it was further his
duty to guard against the reasonable possibility that some one might be on the evidence
showing, is it does, that the child was killed at the moment when the car was set in
motion, we are justified in holding that, had the motorman seen the child, he could have
avoided the accident; the accident was not, therefore, "unavoidable or inexplicable," and
it appearing that the motorman, by the exercise of ordinary diligence, might have seen
the child before he set the car in motion, his failure to satisfy himself that the track was
clear before doing so was reckless negligence, of which he was properly convicted in the
court below.
We think, however, that the penalty should be reduced to that of six months
and one day of prision correccional. Modified by substituting for so much thereof as
imposes the penalty of one year and one month of imprisonment, the penalty of six
months and one day of prision correccional, the judgment of the lower court convicting
and sentencing the appellant is affirmed, with the costs of both instances against him. So
ordered.
Arellano, C.J., Torres and Mapa, JJ., concur.
Johnson, J., concurs in the result.
Trent, J., dissents.
||| (U.S. v. Barias, G.R. No. 7567, [November 12, 1912], 23 PHIL 434-443)
THIRD DIVISION
[G.R. No. 141258. April 9, 2003.]
TOMASA SARMIENTO, petitioner, vs. SPS. LUIS & ROSE SUN-CABRIDO
and MARIA LOURDES SUN, respondents.
Liberato G. Casilan, Jr. for petitioner.
Victor dela Serna for respondents.
SYNOPSIS
The controversy herein arose when a piece of diamond was broken by Zenon Santos, an
employee at the jewelry shop, in the process of dismounting it from an original setting. The
diamond was claimed to be .33 carat and almost perfect in cut and clarity. As a result of the
incident, the petitioner herein was forced to replace the broken diamond to its owner in the
amount of P30,000.00. The petitioner filed a complaint for damages with the Metropolitan
Trial Court in Cities (MTCC) and claimed that the dismounting of the diamond from its original
setting was part of the obligation assumed by the respondents under the contract of service,
the respondent spouses being the owner of the jewelry shop and the other respondent their
employee. Thus, they should be held liable for the damages arising from its breakage. The
MTCC decided in favor of the petitioner herein. But on appeal, the Regional Trial Court (RTC)
reversed the decision; thus absolving the respondents of any responsibility arising from breach
29
of contract. The Court of Appeals affirmed the judgment of the RTC, hence, this petition for
review.
According to the Supreme Court, preponderance of evidence supported the view that Marilou
and Zenon Santos were employed at the jewelry shop in order to perform activities, which
were usually necessary or desirable in its business. The Court, therefore, held that an obligation
to pay actual damages arose in favor of the petitioner against the respondent spouses who
admittedly owned and managed the jewelry shop. It was proven that petitioner replaced the
damaged jewelry in the amount of P30,000.00. The facts of the case also justified the award of
moral damages. The petition was granted and the assailed decision of the Court of Appeals
was reversed and set aside by the Supreme Court ordering the respondent spouses to pay
petitioner actual damages of P30,000.00 and moral damages of P10,000.00.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS; SHALL HAVE THE FORCE OF LAW BETWEEN PARTIES WHEN THE
SAME AROSE FROM CONTRACTS; EFFECT OF FAULT OR NEGLIGENCE IN THE PERFORMANCE
THEREOF. — Obligations arising from contracts have the force of law between the contracting
parties. Corollarily, those who in the performance of their obligations are guilty of fraud,
negligence or delay and those who in any manner contravene the tenor thereof, are liable for
damages. The fault or negligence of the obligor consists in the omission of that diligence which
is required by the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place.
2. ID.; DAMAGES; MORAL DAMAGES; GENERALLY NOT RECOVERABLE IN ACTIONS FOR BREACH
OF CONTRACT; EXCEPTION. — As a general rule, moral damages are not recoverable in actions
for damages predicated on a breach of contract for it is not one of the items enumerated under
Article 2219 of the Civil Code. Moral damages may be awarded in a breach of contract only
when there is proof that defendant acted in bad faith, or was guilty of gross negligence
amounting to bad faith, or in wanton disregard of his contractual obligation. TSacCH
DECISION
CORONA, J p:
This appeal by certiorari stems from the Decision 1 of respondent Court of Appeals
promulgated on November 26, 1999 in CA-G.R. SP No. 47431 declaring the private respondents
not liable for damages.
Petitioner, Tomasa Sarmiento, states that sometime in April 1994, a friend, Dra. Virginia Lao,
requested her to find somebody to reset a pair of diamond earrings into two gold
rings. 2 Accordingly, petitioner sent a certain Tita Payag with the pair of earrings to Dingding's
Jewelry Shop, owned and managed by respondent spouses Luis and Rose Cabrido, 3 which
accepted the job order for P400. 4
Petitioner provided 12 grams of gold to be used in crafting the pair of ring settings. 5 After 3
days, Tita Payag delivered to the jewelry shop one of Dra. Lao's diamond earrings which was
earlier appraised as worth .33 carat and almost perfect in cut and clarity. 6 Respondent Ma.
Lourdes (Marilou) Sun went on to dismount the diamond from its original setting.

Unsuccessful, she asked their goldsmith, Zenon Santos, to do it. Santos removed the diamond
by twisting the setting with a pair of pliers, breaking the gem in the process. 7
Petitioner required the respondents to replace the diamond with the same size and quality.
When they refused, the petitioner was forced to buy a replacement in the amount of
P30,000. 8
Respondent Rose Cabrido, manager of Dingding's Jewelry Shop, denied having entered into
any transaction with Tita Payag whom she met only after the latter came to the jewelry shop
to seek compensation from Santos for the broken piece of jewelry. 9 However, it was possible
that Payag may have availed of their services as she could not have known every customer
who came to their shop. Rose disclosed that she usually arrived at 11:00 a.m. When she was
not around, her mother and sister tended the shop. 10
Marilou admitted knowing Payag who came to Dingding's Jewelry Shop to avail of their services
regarding a certain piece of jewelry. After a short conversation, Payag went inside the shop to
see Santos. When the precious stone was broken by Santos, Payag demanded P15,000 from
him. As the latter had no money, she turned to Marilou for reimbursement apparently thinking
that Marilou was the owner of the shop. 11
For his part, Santos recalled that Payag requested him to dismount what appeared to him was
a sapphire. While clipping the setting with the use of a small pair of pliers, the stone
accidentally broke. Santos denied being an employee of Dingding's Jewelry Shop. 12
Attempts to settle the controversy before the barangay lupon proved futile. 13 Consequently,
petitioner filed a complaint for damages on June 28, 1994 with the Municipal Trial Court in
Cities (MTCC) of Tagbilaran City docketed as Civil Case No. 2339 which rendered a
decision 14 in favor of the petitioner, the dispositive portion of which reads:
WHEREFORE, Decision is hereby rendered in favor of plaintiff Tomasa
Sarmiento and against defendants Spouses Luis and Rose Sun-Cabrido,
ordering defendants to pay jointly and severally the amount of Thirty
Thousand Pesos (P30,000.00) as actual or compensatory damages;
Three Thousand Pesos (P3,000.00) as moral damages; Five Thousand
Pesos (P5,000.00) as attorney's fees; Two Thousand Pesos (P2,000.00)
as litigation expenses, with legal interest of 6% per annum from the date
of this decision and 12% per annum from the date when this decision
becomes final until the amounts shall have been fully paid and to pay
the costs.
This case as against defendant Maria Lourdes Sun as well as defendants'
counterclaim are dismissed for lack of merit.
SO ORDERED.
On appeal, the Regional Trial Court (RTC) of Tagbilaran City, Branch 3, reversed the decision of
the MTCC, thus absolving the respondents of any responsibility arising from breach of
contract. 15 Finding no reversible error, the Court of Appeals (CA) affirmed the judgment of
the RTC in its Decision promulgated on November 26, 1999. 16
Unable to accept the decision, the petitioner filed the instant petition for review with the
following assigned errors:
I the said occasion, Marilou expressed no reservation regarding the dismounting of the
30
THE COURT OF APPEALS ERRED IN MAINTAINING AND SO HOLDING
THAT ZENON SANTOS IS NOT AN EMPLOYEE OF DEFENDANT (herein
respondent) ROSE SUN-CABRIDO, AND IS THEREFORE ANSWERABLE FOR
HIS OWN ACTS OR OMISSIONS
II
THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE
REGIONAL TRIAL COURT'S PRONOUNCEMENTS THAT THERE EXISTS NO
AGREEMENT BETWEEN THE PETITIONER AND RESPONDENTS THAT THE
LATTER WOULD ANSWER FOR ANY LIABILITY SHOULD THE DIAMOND BE
DAMAGED IN THE PROCESS OF DISMOUNTING THEM FROM THE
EARRINGS.
Essentially, petitioner claims that the dismounting of the diamond from its original setting was
part of the obligation assumed by the private respondents under the contract of service. Thus,
they should be held liable for damages arising from its breakage. On the other hand, the
version of the private respondents, upheld by the RTC and the CA, is that their agreement with
the petitioner was for crafting two gold rings mounted with diamonds only and did not include
the dismounting of the said diamonds from their original setting. 17 Consequently, the crux of
the instant controversy is the scope of the obligation assumed by the private respondents
under the verbal contract of service with the petitioner.
The Court notes that, during the trial, private respondents vigorously denied any transaction
between Dingding's' Jewelry Shop and the petitioner, through Tita Payag. Rose Cabrido, for
instance, denied having ever met Payag before the latter came to seek reimbursement for the
value of the broken diamond. Likewise, while Marilou acknowledged acquaintance with Payag,
she nevertheless denied accepting any job order from her. Debunking their protestations,
however, the MTCC of Tagbilaran City rendered its decision on November 26, 1999 in favor of
herein petitioner.
Apparently realizing the weakness and futility of their position, private respondents conceded,
on appeal, the existence of an agreement with the petitioner for crafting a pair of gold rings
mounted with diamonds. This apparent concession by the private respondents, however, was
really nothing but an ingenious maneuver, designed to preclude, just the same, any recovery
for damages by the petitioner. Thus, while ostensibly admitting the existence of the said
agreement, private respondents, nonetheless denied assuming any obligation to dismount the
diamonds from their original settings. 18
The inconsistent position of the private respondents impugns their credibility. They cannot be
permitted to adopt a certain stance, only to vacillate later to suit their interest. We are
therefore inclined to agree with the MTCC in giving credence to the version of the petitioner.
The MTCC had the unique opportunity to actually observe the behavior and demeanor of the
witnesses as they testified during the trial. 19
At any rate, the contemporaneous and subsequent acts of the parties 20 support the version
of the petitioner. Thus, when Tita Payag asked Marilou of Dingding's Jewelry Shop to reset a
pair of diamond earrings, she brought with her the said pieces of jewelry so that the diamonds
which were still mounted could be measured and the new ring settings crafted accordingly. On

diamonds which, after all, was an integral part of petitioner's job order. She should have
instructed Payag to have them dismounted first if Marilou had actually intended to spare the
jewelry shop of the task but she did not. Instead, petitioner was charged P400 for the job order
which was readily accepted. Thus, a perfected contract to reset the pair of diamond earrings
arose between the petitioner, through Payag, and Dingding's Jewelry Shop, through Marilou.
Marilou's subsequent actuations were even more revealing as regards the scope of obligation
assumed by the jewelry shop. After the new settings were completed in 3 days, she called up
the petitioner to bring the diamond earrings to be reset. 21 Having initially examined one of
them, Marilou went on to dismount the diamond from its original setting. Unsuccessful, she
then delegated the task to their goldsmith, Zenon Santos. Having acted the way she did,
Marilou cannot now deny the shop's obligation to reset the pair of earrings.
Obligations arising from contracts have the force of law between the contracting
parties. 22 Corollarily, those who in the performance of their obligations are guilty of fraud,
negligence or delay and those who in any manner contravene the tenor thereof, are liable for
damages. 23 The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of
the persons, of the time and of the place. 24
In the case at bar, it is beyond doubt that Santos acted negligently in dismounting the diamond
from its original setting. It appears to be the practice of the trade to use a miniature wire saw
in dismounting precious gems, such as diamonds, from their original settings. 25 However,
Santos employed a pair of pliers in clipping the original setting, thus resulting in breakage of
the diamond. The jewelry shop failed to perform its obligation with the ordinary diligence
required by the circumstances. It should be pointed out that Marilou examined the diamond
before dismounting it from the original setting and found the same to be in order. Its
subsequent breakage in the hands of Santos could only have been caused by his negligence in
using the wrong equipment. Res ipsa loquitur.
Private respondents seek to avoid liability by passing the buck to Santos who claimed to be an
independent worker. They also claim, rather lamely, that Marilou simply happened to drop by
at Dingding's Jewelry Shop when Payag arrived to place her job order. 26
We do not think so.
The facts show that Santos had been working at Dingding's Jewelry Shop as goldsmith for about
6 months accepting job orders through referrals from private respondents. 27 On the other
hand, Payag stated that she had transacted with Dingding's Jewelry Shop on at least 10
previous occasions, always through Marilou. 28 The preponderance of evidence supports the
view that Marilou and Zenon Santos were employed at Dingding's Jewelry Shop in order to
perform activities which were usually necessary or desirable in its business. 29
We therefore hold that an obligation to pay actual damages arose in favor of the petitioner
against the respondents spouses who admittedly owned and managed Dingding's Jewelry
Shop. It was proven that petitioner replaced the damaged jewelry in the amount of P30,000. 30
The facts of the case also justify the award of moral damages. As a general rule, moral damages
are not recoverable in actions for damages predicated on a breach of contract for it is not one
of the items enumerated under Article 2219 of the Civil Code. 31 Moral damages may be
awarded in a breach of contract only when there is proof that defendant acted in bad faith, or
was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual
31
obligation. 32 Santos was a goldsmith for more than 40 years. 33 Given his long experience in
the trade, he should have known that using a pair of pliers instead of a miniature wire saw in
dismounting a precious stone like a diamond would have entailed an unnecessary risk of
breakage. He went on with it anyway. Hence, respondent spouses are liable for P10,000 as
moral damages due to the gross negligence of their employee.
However, private respondent's refusal to pay the value of the damaged jewelry emanated from
an honest belief that they were not responsible therefor, hence, negating any basis for the
award of attorney's fees. 34
WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of Appeals
dated November 26, 1999 is hereby reversed and set aside. Private respondents Luis Cabrido
and Rose Sun-Cabrido are hereby ordered to pay, jointly and severally, the amount of P30,000
as actual damages and P10,000 as moral damages in favor of the petitioner. TIcEDC
No costs.
SO ORDERED.
Puno, Panganiban, Sandoval-Gutierrez, and Carpio Morales, JJ., concur.
||| (Sarmiento v. Spouses Sun-Cabrido, G.R. No. 141258, [April 9, 2003], 449 PHIL 108-117)
FIRST DIVISION
[G.R. No. 138334. August 25, 2003.]
ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF APPEALS and
CARAVAN TRAVEL & TOURS INTERNATIONAL, INC., respondents.
Bonifacio Law Office for petitioner.
Cabochan Reyes & Capones Law Offices for private respondent.
SYNOPSIS
Petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and Tours
International, Inc. to facilitate her tour known as "Jewels of Europe." On June 12, 1991, Meriam
Menor, respondent's ticketing manager as well as petitioner's niece, delivered petitioner's
travel documents and plane tickets and informed her to be at the airport on June 15, 1991,
two hours before departure. On the stated date when the petitioner went to the airport, the
flight that she was supposed to take had departed the previous day. She complained to Menor,
but the latter prevailed upon her to take another tour known as "British Pageant." Upon
petitioner's return from Europe, she demanded from respondent the reimbursement of
P61,421.70 representing the difference between the sum she paid for "Jewels of Europe" and
the amount she owed respondent for the "British Pageant" tour, but despite several demands,
respondent company refused to reimburse the amount, contending that the same was non-
refundable. Thus, she filed a complaint against respondent for breach of contract of carriage
and damages. In its answer, respondent denied the responsibility and insisted that petitioner
was duly informed of the correct departure as legibly printed on the plane ticket two days
ahead of the scheduled trip. After trial, the lower court awarded damages to the petitioner on

the basis that the respondent was negligent, but it deducted 10% from the amount for the
contributory negligence of petitioner. On appeal, the Court of Appeals found petitioner to be
more negligent, hence, it directed her to pay the balance of the price for the "British Pageant."
Hence, this petition.
The Court did not agree with the finding of the lower court that Menor's negligence concurred
with the negligence of petitioner and resultantly caused damage to the latter. Menor's
negligence was not sufficiently proved, considering that the only evidence presented was
petitioner's uncorroborated narration of the events. It is well-settled that the party alleging a
fact has the burden of proving it and a mere allegation cannot take the place of evidence. If
the plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a
satisfactory manner facts upon which he bases his claim, the defendant is under no obligation
to prove his exception or defense. Contrary to petitioner's claim, the evidence on record
showed that respondent exercised due diligence in performing its obligation under the
contract and followed standard procedure in rendering its services to petitioner. Accordingly,
petitioner was ordered to pay respondent the amount of P12,901.00 representing the balance
of the price of the British Pageant Package tour.
SYLLABUS
1. CIVIL LAW; LEASE; COMMON CARRIERS; CONTRACT OF CARRIAGE; ELUCIDATED. — By
definition, a contract of carriage or transportation is one whereby a certain person or
association of persons obligate themselves to transport persons, things, or news from one
place to another for a fixed price. Such person or association of persons are regarded as
carriers and are classified as private or special carriers and common or public carriers. A
common carrier is defined under Article 1732 of the Civil Code as persons, corporations, firms
or associations engaged in the business of carrying or transporting passengers or goods or
both, by land, water or air, for compensation, offering their services to the public.
2. ID.; ID.; ID.; TRAVEL AGENCY IS NOT A COMMON CARRIER. — It is obvious from the above
definition that respondent is not an entity engaged in the business of transporting either
passengers or goods and is therefore, neither a private nor a common carrier. Respondent did
not undertake to transport petitioner from one place to another since its covenant with its
customers is simply to make travel arrangements in their behalf. Respondent's services as a
travel agency include procuring tickets and facilitating travel permits or visas as well as booking
customers for tours. While petitioner concededly bought her plane ticket through the efforts
of respondent company, this does not mean that the latter ipso facto is a common carrier. At
most, respondent acted merely as an agent of the airline, with whom petitioner ultimately
contracted for her carriage to Europe.
3. ID.; OBLIGATIONS AND CONTRACTS; CONTRACT BETWEEN THE TRAVEL AGENCY AND ITS
CLIENT IS ONE FOR SERVICES AND NOT ONE OF CARRIAGE. — Respondent's obligation to
petitioner in this regard was simply to see to it that petitioner was properly booked with the
airline for the appointed date and time. Her transport to the place of destination, meanwhile,
pertained directly to the airline. The object of petitioner's contractual relation with respondent
is the latter's service of arranging and facilitating petitioner's booking, ticketing and
accommodation in the package tour. In contrast, the object of a contract of carriage is
32
the transportation of passengers or goods. It is in this sense that the contract between the
parties in this case was an ordinary one for services and not one of carriage. Petitioner's
submission is premised on a wrong assumption.
4. ID.; ID.; TRAVEL AGENCY IS NOT BOUND TO OBSERVE EXTRAORDINARY DILIGENCE IN THE
PERFORMANCE OF ITS OBLIGATION. — The nature of the contractual relation between
petitioner and respondent is determinative of the degree of care required in the performance
of the latter's obligation under the contract. For reasons of public policy, a common carrier in
a contract of carriage is bound by law to carry passengers as far as human care and foresight
can provide using the utmost diligence of very cautious persons and with due regard for all the
circumstances. As earlier stated, however, respondent is not a common carrier but a travel
agency. It is thus not bound under the law to observe extraordinary diligence in the
performance of its obligation, as petitioner claims.
5. ID.; ID.; STANDARD OF CARE REQUIRED FOR THE TRAVEL AGENCY IS THAT OF A GOOD
FATHER OF A FAMILY. — Since the contract between the parties is an ordinary one for services,
the standard of care required of respondent is that of a good father of a family under Article
1173 of the Civil Code. This connotes reasonable care consistent with that which an ordinarily
prudent person would have observed when confronted with a similar situation. The test to
determine whether negligence attended the performance of an obligation is: did the
defendant in doing the alleged negligent act use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If not, then he is guilty of
negligence.
6. REMEDIAL LAW; EVIDENCE; PRESUMPTIONS; EVIDENCE WILLFULLY SUPPRESSED WOULD BE
ADVERSE IF PRODUCED; EXCEPTIONS. — Respondent's failure to present Menor as witness to
rebut petitioner's testimony could not give rise to an inference unfavorable to the former.
Menor was already working in France at the time of the filing of the complaint, thereby making
it physically impossible for respondent to present her as a witness. Then too, even if it were
possible for respondent to secure Menor's testimony, the presumption under Rule 131,
Section 3(e) would still not apply. The opportunity and possibility for obtaining Menor's
testimony belonged to both parties, considering that Menor was not just respondent's
employee, but also petitioner's niece. It was thus error for the lower court to invoke the
presumption that respondent willfully suppressed evidence under Rule 131, Section 3(e). Said
presumption would logically be inoperative if the evidence is not intentionally omitted but is
simply unavailable, or when the same could have been obtained by both parties.
7. ID.; ID.; WEIGHT AND SUFFICIENCY; MERE ALLEGATION CANNOT TAKE THE PLACE OF
EVIDENCE. — In sum, we do not agree with the finding of the lower court that Menor's
negligence concurred with the negligence of petitioner and resultantly caused damage to the
latter. Menor's negligence was not sufficiently proved, considering that the only evidence
presented on this score was petitioner's uncorroborated narration of the events. It is well-
settled that the party alleging a fact has the burden of proving it and a mere allegation cannot
take the place of evidence. If the plaintiff, upon whom rests the burden of proving his cause of
action, fails to show in a satisfactory manner facts upon which he bases his claim, the
defendant is under no obligation to prove his exception or defense.
8. CIVIL LAW; OBLIGATIONS AND CONTRACTS; TRAVEL AGENCY EXERCISED DUE DILIGENCE IN
PERFORMING ITS OBLIGATIONS UNDER THE CONTRACT; CASE AT BAR. — Contrary to
petitioner's claim the evidence on record shows that respondent exercised due diligence in

performing its obligations under the contract and followed standard procedure in rendering
its services to petitioner. As correctly observed by the lower court, the plane ticket issued to
petitioner clearly reflected the departure date and time, contrary to petitioner's contention.
The travel documents, consisting of the tour itinerary, vouchers and instructions, were likewise
delivered to petitioner two days prior to the trip. Respondent also properly booked petitioner
for the tour, prepared the necessary documents and procured the plane tickets. It arranged
petitioner's hotel accommodation as well as food, land transfers and sightseeing excursions,
in accordance with its avowed undertaking. Therefore, it is clear that respondent performed
its prestation under the contract as well as everything else that was essential to book petitioner
for the tour. Had petitioner exercised due diligence in the conduct of her affairs, there would
have been no reason for her to miss the flight. Needless to say, after the travel papers were
delivered to petitioner, it became incumbent upon her to take ordinary care of her concerns.
This undoubtedly would require that she at least read the documents in order to assure herself
of the important details regarding the trip.
9. ID.; ID.; NEGLIGENCE OF THE OBLIGOR IN THE PERFORMANCE OF THE OBLIGATION RENDERS
HIM LIABLE FOR DAMAGES FOR THE RESULTING LOSS SUFFERED BY THE OBLIGEE. — The
negligence of the obligor in the performance of the obligation renders him liable for damages
for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his
failure to exercise due care and prudence in the performance of the obligation as the nature
of the obligation so demands. There is no fixed standard of diligence applicable to each and
every contractual obligation and each case must be determined upon its particular facts. The
degree of diligence required depends on the circumstances of the specific obligation and
whether one has been negligent is a question of fact that is to be determined after taking into
account the particulars of each case.
10. REMEDIAL LAW; EVIDENCE; CREDIBILITY OF WITNESSES; FACTUAL FINDINGS OF THE TRIAL
COURT ARE GENERALLY CONCLUSIVE UPON THE SUPREME COURT; EXCEPTIONS. — The lower
court declared that respondent's employee was negligent. This factual finding, however, is not
supported by the evidence on record. While factual findings below are generally conclusive
upon this court, the rule is subject to certain exceptions, as when the trial court overlooked,
misunderstood, or misapplied some facts or circumstances of weight and substance which will
affect the result of the case.
DECISION
YNARES-SANTIAGO, J p:
In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan
Travel and Tours International, Inc. to arrange and facilitate her booking, ticketing and
accommodation in a tour dubbed "Jewels of Europe." The package tour included the countries
of England, Holland, Germany, Austria, Liechtenstein, Switzerland and France at a total cost of
P74,322.70. Petitioner was given a 5% discount on the amount, which included airfare, and the
booking fee was also waived because petitioner's niece, Meriam Menor, was respondent
company's ticketing manager.
Pursuant to said contract, Menor went to her aunt's residence on June 12, 1991 — a
Wednesday — to deliver petitioner's travel documents and plane tickets. Petitioner, in turn,
33
gave Menor the full payment for the package tour. Menor then told her to be at the Ninoy
Aquino International Airport (NAIA) on Saturday, two hours before her flight on board British
Airways.
Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991,
to take the flight for the first leg of her journey from Manila to Hongkong. To petitioner's
dismay, she discovered that the flight she was supposed to take had already departed the
previous day. She learned that her plane ticket was for the flight scheduled on June 14, 1991.
She thus called up Menor to complain.
Subsequently, Menor prevailed upon petitioner to take another tour — the "British Pageant"
— which included England, Scotland and Wales in its itinerary. For this tour package, petitioner
was asked anew to pay US$785.00 or P20,881.00 (at the then prevailing exchange rate of
P26.60). She gave respondent US$300 or P7,980.00 as partial payment and commenced the
trip in July 1991.
Upon petitioner's return from Europe, she demanded from respondent the reimbursement of
P61,421.70, representing the difference between the sum she paid for "Jewels of Europe" and
the amount she owed respondent for the "British Pageant" tour. Despite several demands,
respondent company refused to reimburse the amount, contending that the same was non-
refundable. 1 Petitioner was thus constrained to file a complaint against respondent for breach
of contract of carriage and damages, which was docketed as Civil Case No. 92-133 and raffled
to Branch 59 of the Regional Trial Court of Makati City.
In her complaint, 2 petitioner alleged that her failure to join "Jewels of Europe" was due to
respondent's fault since it did not clearly indicate the departure date on the plane ticket.
Respondent was also negligent in informing her of the wrong flight schedule through its
employee Menor. She insisted that the "British Pageant" was merely a substitute for the
"Jewels of Europe" tour, such that the cost of the former should be properly set-off against the
sum paid for the latter.
For its part, respondent company, through its Operations Manager, Concepcion Chipeco,
denied responsibility for petitioner's failure to join the first tour. Chipeco insisted that
petitioner was informed of the correct departure date, which was clearly and legibly printed
on the plane ticket. The travel documents were given to petitioner two days ahead of the
scheduled trip. Petitioner had only herself to blame for missing the flight, as she did not bother
to read or confirm her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for "Jewels of Europe,"
considering that the same had already been remitted to its principal in Singapore, Lotus Travel
Ltd., which had already billed the same even if petitioner did not join the tour. Lotus' European
tour organizer, Insight International Tours Ltd., determines the cost of a package tour based
on a minimum number of projected participants. For this reason, it is accepted industry
practice to disallow refund for individuals who failed to take a booked tour. 3
Lastly, respondent maintained that the "British Pageant" was not a substitute for the package
tour that petitioner missed. This tour was independently procured by petitioner after realizing
that she made a mistake in missing her flight for "Jewels of Europe." Petitioner was allowed to
make a partial payment of only US$300.00 for the second tour because her niece was then an
employee of the travel agency. Consequently, respondent prayed that petitioner be ordered
to pay the balance of P12,901.00 for the "British Pageant" package tour.

After due proceedings, the trial court rendered a decision, 4 the dispositive part of which
reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to return and/or refund to the plaintiff the
amount of Fifty Three Thousand Nine Hundred Eighty Nine Pesos and Forty
Three Centavos (P53,989.43) with legal interest thereon at the rate of
twelve percent (12%) per annum starting January 16, 1992, the date when
the complaint was filed;
2. Ordering the defendant to pay the plaintiff the amount of Five Thousand
(P5,000.00) Pesos as and for reasonable attorney's fees;
3. Dismissing the defendant's counterclaim, for lack of merit; and
4. With costs against the defendant.
SO ORDERED. 5
The trial court held that respondent was negligent in erroneously advising petitioner of her
departure date through its employee, Menor, who was not presented as witness to rebut
petitioner's testimony. However, petitioner should have verified the exact date and time of
departure by looking at her ticket and should have simply not relied on Menor's verbal
representation. The trial court thus declared that petitioner was guilty of contributory
negligence and accordingly, deducted 10% from the amount being claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both parties to be at fault.
However, the appellate court held that petitioner is more negligent than respondent because
as a lawyer and well-traveled person, she should have known better than to simply rely on
what was told to her. This being so, she is not entitled to any form of damages. Petitioner also
forfeited her right to the "Jewels of Europe" tour and must therefore pay respondent the
balance of the price for the "British Pageant" tour. The dispositive portion of the judgment
appealed from reads as follows:
WHEREFORE, premises considered, the decision of the Regional Trial
Court dated October 26, 1995 is hereby REVERSED and SET ASIDE. A new
judgment is hereby ENTERED requiring the plaintiff-appellee to pay to
the defendant-appellant the amount of P12,901.00, representing the
balance of the price of the British Pageant Package Tour, the same to
earn legal interest at the rate of SIX PERCENT (6%) per annum, to be
computed from the time the counterclaim was filed until the finality of
this decision. After this decision becomes final and executory, the rate
of TWELVE PERCENT (12%) interest per annum shall be additionally
imposed on the total obligation until payment thereof is satisfied. The
award of attorney's fees is DELETED. Costs against the plaintiff-appellee.
SO ORDERED. 6
Upon denial of her motion for reconsideration, 7 petitioner filed the instant petition under
Rule 45 on the following grounds:
I
It is respectfully submitted that the Honorable Court of Appeals
committed a reversible error in reversing and setting aside the decision
34
of the trial court by ruling that the petitioner is not entitled to a refund
of the cost of unavailed "Jewels of Europe" tour she being equally, if not
more, negligent than the private respondent, for in the contract of
carriage the common carrier is obliged to observe utmost care and
extra-ordinary diligence which is higher in degree than the ordinary
diligence required of the passenger. Thus, even if the petitioner and
private respondent were both negligent, the petitioner cannot be
considered to be equally, or worse, more guilty than the private
respondent. At best, petitioner's negligence is only contributory while
the private respondent [is guilty] of gross negligence making the
principle of pari delicto inapplicable in the case;
II
The Honorable Court of Appeals also erred in not ruling that the "Jewels
of Europe" tour was not indivisible and the amount paid therefor
refundable;
III
The Honorable Court erred in not granting to the petitioner the
consequential damages due her as a result of breach of contract of
carriage. 8
Petitioner contends that respondent did not observe the standard of care required of a
common carrier when it informed her wrongly of the flight schedule. She could not be deemed
more negligent than respondent since the latter is required by law to exercise extraordinary
diligence in the fulfillment of its obligation. If she were negligent at all, the same is merely
contributory and not the proximate cause of the damage she suffered. Her loss could only be
attributed to respondent as it was the direct consequence of its employee's gross negligence.
Petitioner's contention has no merit.
By definition, a contract of carriage or transportation is one whereby a certain person or
association of persons obligate themselves to transport persons, things, or news from one
place to another for a fixed price. 9 Such person or association of persons are regarded as
carriers and are classified as private or special carriers and common or public carriers. 10 A
common carrier is defined under Article 1732 of the Civil Code as persons, corporations, firms
or associations engaged in the business of carrying or transporting passengers or goods or
both, by land, water or air, for compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an entity engaged in the business
of transporting either passengers or goods and is therefore, neither a private nor a common
carrier. Respondent did not undertake to transport petitioner from one place to another since
its covenant with its customers is simply to make travel arrangements in their behalf.
Respondent's services as a travel agency include procuring tickets and facilitating travel
permits or visas as well as booking customers for tours.
While petitioner concededly bought her plane ticket through the efforts of respondent
company, this does not mean that the latter ipso facto is a common carrier. At most,
respondent acted merely as an agent of the airline, with whom petitioner ultimately
contracted for her carriage to Europe. Respondent's obligation to petitioner in this regard was

simply to see to it that petitioner was properly booked with the airline for the appointed date
and time. Her transport to the place of destination, meanwhile, pertained directly to the
airline.
The object of petitioner's contractual relation with respondent is the latter's service
of arranging and facilitating petitioner's booking, ticketing and accommodation in the package
tour. In contrast, the object of a contract of carriage is the transportation of passengers or
goods. It is in this sense that the contract between the parties in this case was an ordinary one
for services and not one of carriage. Petitioner's submission is premised on a wrong
assumption.
The nature of the contractual relation between petitioner and respondent is determinative of
the degree of care required in the performance of the latter's obligation under the
contract. For reasons of public policy, a common carrier in a contract of carriage is bound by
law to carry passengers as far as human care and foresight can provide using the utmost
diligence of very cautious persons and with due regard for all the circumstances. 11 As earlier
stated, however, respondent is not a common carrier but a travel agency. It is thus not bound
under the law to observe extraordinary diligence in the performance of its obligation, as
petitioner claims.
Since the contract between the parties is an ordinary one for services, the standard of care
required of respondent is that of a good father of a family under Article 1173 of the Civil
Code. 12 This connotes reasonable care consistent with that which an ordinarily prudent
person would have observed when confronted with a similar situation. The test to determine
whether negligence attended the performance of an obligation is: did the defendant in doing
the alleged negligent act use that reasonable care and caution which an ordinarily prudent
person would have used in the same situation? If not, then he is guilty of negligence. 13
In the case at bar, the lower court found Menor negligent when she allegedly informed
petitioner of the wrong day of departure. Petitioner's testimony was accepted as indubitable
evidence of Menor's alleged negligent act since respondent did not call Menor to the witness
stand to refute the allegation. The lower court applied the presumption under Rule 131,
Section 3 (e) 14 of the Rules of Court that evidence willfully suppressed would be adverse if
produced and thus considered petitioner's uncontradicted testimony to be sufficient proof of
her claim.
On the other hand, respondent has consistently denied that Menor was negligent and
maintains that petitioner's assertion is belied by the evidence on record. The date and time of
departure was legibly written on the plane ticket and the travel papers were delivered two
days in advance precisely so that petitioner could prepare for the trip. It performed all its
obligations to enable petitioner to join the tour and exercised due diligence in its dealings with
the latter.
We agree with respondent.
Respondent's failure to present Menor as witness to rebut petitioner's testimony could not
give rise to an inference unfavorable to the former. Menor was already working in France at
the time of the filing of the complaint, 15 thereby making it physically impossible for
respondent to present her as a witness. Then too, even if it were possible for respondent to
secure Menor's testimony, the presumption under Rule 131, Section 3(e) would still not apply.
The opportunity and possibility for obtaining Menor's testimony belonged to both parties,
35
considering that Menor was not just respondent's employee, but also petitioner's niece. It was
thus error for the lower court to invoke the presumption that respondent willfully suppressed
evidence under Rule 131, Section 3(e). Said presumption would logically be inoperative if the
evidence is not intentionally omitted but is simply unavailable, or when the same could have
been obtained by both parties. 16
In sum, we do not agree with the finding of the lower court that Menor's negligence concurred
with the negligence of petitioner and resultantly caused damage to the latter. Menor's
negligence was not sufficiently proved, considering that the only evidence presented on this
score was petitioner's uncorroborated narration of the events. It is well-settled that the party
alleging a fact has the burden of proving it and a mere allegation cannot take the place of
evidence.17 If the plaintiff, upon whom rests the burden of proving his cause of action, fails to
show in a satisfactory manner facts upon which he bases his claim, the defendant is under no
obligation to prove his exception or defense. 18
Contrary to petitioner's claim, the evidence on record shows that respondent exercised due
diligence in performing its obligations under the contract and followed standard procedure in
rendering its services to petitioner. As correctly observed by the lower court, the plane
ticket 19 issued to petitioner clearly reflected the departure date and time, contrary to
petitioner's contention. The travel documents, consisting of the tour itinerary, vouchers and
instructions, were likewise delivered to petitioner two days prior to the trip. Respondent also
properly booked petitioner for the tour, prepared the necessary documents and procured the
plane tickets. It arranged petitioner's hotel accommodation as well as food, land transfers and
sightseeing excursions, in accordance with its avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the contract as well as
everything else that was essential to book petitioner for the tour. Had petitioner exercised due
diligence in the conduct of her affairs, there would have been no reason for her to miss the
flight. Needless to say, after the travel papers were delivered to petitioner, it became
incumbent upon her to take ordinary care of her concerns. This undoubtedly would require
that she at least read the documents in order to assure herself of the important details
regarding the trip.
The negligence of the obligor in the performance of the obligation renders him liable for
damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor
consists in his failure to exercise due care and prudence in the performance of the obligation
as the nature of the obligation so demands. 20 There is no fixed standard of diligence
applicable to each and every contractual obligation and each case must be determined upon
its particular facts. The degree of diligence required depends on the circumstances of the
specific obligation and whether one has been negligent is a question of fact that is to be
determined after taking into account the particulars of each case. 21
The lower court declared that respondent's employee was negligent. This factual finding,
however, is not supported by the evidence on record. While factual findings below are
generally conclusive upon this court, the rule is subject to certain exceptions, as when the trial
court overlooked, misunderstood, or misapplied some facts or circumstances of weight and
substance which will affect the result of the case. 22
In the case at bar, the evidence on record shows that respondent company performed its duty
diligently and did not commit any contractual breach. Hence, petitioner cannot recover and
must bear her own damage.
 36

WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of
Appeals in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay
respondent the amount of P12,901.00 representing the balance of the price of the British
Pageant Package Tour, with legal interest thereon at the rate of 6% per annum, to be computed
from the time the counterclaim was filed until the finality of this Decision. After this Decision
becomes final and executory, the rate of 12% per annum shall be imposed until the obligation
is fully settled, this interim period being deemed to be by then an equivalent to a forbearance
of credit. 23
SO ORDERED.
Davide, Jr., C .J ., Vitug, Carpio, and Azcuna, JJ ., concur.
||| (Crisostomo v. Court of Appeals, G.R. No. 138334, [August 25, 2003], 456 PHIL 845-
860)