SAN ILDEFONSO LINES, INC., and EDUARDO JAVIER, petitioner, vs.

COURT OF APPEALS and PIONEER

INSURANCE and SURETY CORPORATION, respondents.

DECISION

MARTINEZ, J:

At around 3:30 in the afternoon of June 24, 1991, a Toyota Lite Ace Van being driven by its owner Annie
U. Jao and a passenger bus of herein petitioner San Ildefonso Lines, Inc. (hereafter, SILI) figured in a
vehicular mishap at the intersection of Julia Vargas Avenue and Rodriguez Lanuza Avenue in Pasig,
Metro Manila, totally wrecking the Toyota van and injuring Ms. Jao and her two (2) passengers in the
process.

A criminal case was thereafter filed with the Regional Trial Court of Pasig on September 18, 1991
charging the driver of the bus, herein petitioner Eduardo Javier, with reckless imprudence resulting in
damage to property with multiple physical injuries.

About four (4) months later, or on January 13, 1992, herein private respondent Pioneer Insurance and
Surety Corporation (PISC), as insurer of the van and subrogee, filed a case for damages against petitioner
SILI with. the Regional Trial Court of Manila, seeking to recover the sums it paid the assured under a
motor vehicle insurance policy as well as other damages, totaling P564,500.00 (P454,000.00 as
actual/compensatory damages, P50,000.00 as exemplary damages; P50,000.00 as attorney's fees;
P10,000.00 as litigation expenses; and P500.00 as appearance fees.) 1

With the issues having been joined upon the filing of the petitioners' answer to the complaint for
damages and after submission by the parties of their respective pre-trial briefs, petitioners filed on
September 18, 1992 a Manifestation and Motion to Suspend Civil Proceedings grounded on the
pendency of the criminal case against petitioner Javier in the Pasig RTC and the failure of respondent
PISC to make a reservation to file a separate damage suit in said criminal action. This was denied by the
Manila Regional Trial Court in its Order dated July 21, 1993, 2 ruling thus:

"Answering the first question thus posed, the court holds that plaintiff may legally institute the present
civil action even in the absence of a reservation in the criminal action. This is so because it falls among
the very exceptions to the rule cited by the movant.

"It is true that the general rule is that once a criminal action has been instituted, then civil action based
thereon is deemed instituted together with the criminal action, such that if the offended party did not
reserve the filing of the civil action when the criminal action was filed, then such filing of the civil action
is therefore barred; on the other hand, if there was such reservation still the civil action cannot be
instituted until final judgment has been tendered in the criminal action;

"But this rule (Section 2, Rule 111, Revised Rules of Court) is subject to exemptions, the same being
those provided for in Section 3 of the same rule which states:
'Section 3. When civil action may proceed independently. - In the cases provided for in Articles 32, 33,
34 and 2176 of the Civil Code of the Philippines, the independent civil action which was been reserved
may be brought by the offended party, shall proceed independently of the criminal action, and shall
require only a preponderance of evidence.'

"Besides, the requirement in Section 2 of Rule 111 of the former Rules on Criminal Procedure that there
be a reservation in the criminal case of the right to institute an independent civil action has been
declared as not in accordance with law. It is regarded as an unauthorized amendment to our substantive
law, i.e., the Civil Code which does not require such reservation. In fact, the reservation of the right to
file an independent civil action has been deleted from Section 2, Rule 111 of the 1985 Rules on Criminal
Procedure, in consonance with the decisions of this Court declaring such requirement of a reservation as
ineffective. (Bonite vs. Zosa, 162 SCRA 180)

"Further, the Court rules that a subrogee-plaintiff may institute and prosecute the civil action, it being
allowed by Article 2207 of the Civil Code."

After their motion for reconsideration of said July 21, 1993 Order was denied, petitioners elevated the
matter to this Court via petition for certiorari which was, however, referred to public respondent Court
of Appeals for disposition. On February 24, 1995, a decision adverse to petitioners once again was
rendered by respondent court, upholding the assailed Manila Regional Trial Court Order in this wise:

"A separate civil action lies against the offender in a criminal act whether or not he is criminally
prosecuted and found guilty or acquitted, provided that the offended party is not allowed (if the
tortfeasor is actually charged also criminally), to recover damages on both scores, and would be entitled
in such eventuality only to the bigger award of the two, assuming the awards made in the two cases
vary.

"To subordinate the civil action contemplated in the said articles to the result of the criminal
prosecution - whether it be conviction or acquittal-would render meaningless the independent
character of the civil action and the clear injunction in Art. 31, that this action may proceed
independently of the criminal proceedings and regardless of the result of the latter.

"In Yakult Phil. vs. CA, the Supreme Court said:

'Even if there was no reservation in the criminal case and that the civil action was not filed before the
filing of the criminal action but before the prosecution presented evidence in the criminal action, and
the judge handling the criminal case was informed thereof, then the actual filing of the civil action is
even far better than a compliance with the requirement of an express reservation that should be made
by the offended party before the prosecution presented its evidence.'

"The purpose of this rule requiring reservation is to prevent the offended party from recovering
damages twice, for the same act or omission.
"Substantial compliance with the reservation requirement may, therefore, be made by making a
manifestation in the criminal case that the private respondent has instituted a separate and
independent civil action for damages.

"Oft-repeated is the dictum that courts should not place undue importance on technicalities when by so
doing, substantial justice is sacrificed. While the rules of procedure require adherence, it must be
remembered that said rules of procedure are intended to promote, not defeat, substantial justice, and
therefore, they should not be applied in a. very rigid and technical sense."

Hence, this petition for review after a motion for reconsideration of said respondent court judgment
was denied.

The two (2) crucial issues to be resolved, as posited by petitioners, are:

1) If a criminal case was filed, can an independent civil action based on quasi-delict under Article 2176 of
the Civil Code be filed if no reservation was made in the said criminal case?

2) Can a subrogee of an offended party maintain an independent civil action during the pendency of a
criminal action when no reservation of the right to file an independent civil action was made in the
criminal action and despite the fact that the private complainant is actively participating through a
private prosecutor in the aforementioned criminal case?

We rule for petitioners.

On the chief issue of "reservation", at the fore is Section 3, Rule 111 of the Rules of Court which reads:

"Sec. 3. When civil action may proceed independently. - In the cases provided for in Articles 32, 33, 34
and 2176 of the Civil Code of the Philippines, the independent civil action which has been reserved may
be brought by the offended party, shall proceed independently of the criminal action and shall require
only a preponderance of evidence.

There is no dispute that these so-called "independent civil actions" based on the aforementioned Civil
Code articles are the exceptions to the primacy of the criminal action over the civil action as set forth in
Section 2 of Rule 111. 3 However, it is easily deducible from the present wording of Section 3 as brought
about by the 1988 amendments to the Rules on Criminal Procedure - particularly the phrase . . . "which
has been reserved" - that the "independent" character of these civil actions does not do away with the
preservation requirement. In other words, prior reservation is a condition sine qua non before any of
these independent civil actions can be instituted and thereafter have a continuous determination apart
from or simultaneous with the criminal action. That this should now be the controlling procedural rule is
confirmed by no less than retired Justice Jose Y. Feria, remedial law expert and a member of the
committee which drafted the 1988 amendments, whose learned explanation on the matter was aptly
pointed out by petitioners, to wit:
"The 1988 amendment expands the scope of the civil action which is deemed impliedly instituted with
the criminal action unless waived, reserved or previously instituted . . .

Under the present Rule as amended such a civil action includes not only recovery of indemnity under
the Revised Penal Code and damages under Articles 32, 33, 34 of the Civil Code of the Philippines, but
also damages under Article 2176 of the said code. . . .

Objections were raised to the inclusion in this Rule of quasi-delicts under Article 2176 of the Civil Code
of the Philippines. However, in view of Article 2177 of the said code which provides that the offended
party may not recover twice for the same act or omission of the accused, and in line with the policy of
avoiding multiplicity of suits, these objections were overruled. In any event, the offended party is not
precluded from filing a civil action to recover damages arising from quasi-delict before the institution of
the criminal action, or from reserving his right to file such a separate civil action, just as he is not
precluded from filing a civil action for damages under Articles 32, 33 and 34 before the institution of the
criminal action, or from reserving his right to file such a separate civil action. It is only in those cases
where the offended party has not previously filed a civil action or has not reserved his right to file a
separate civil action that his civil action is deemed impliedly instituted with the criminal action.

It should be noted that while it was ruled in Abella vs. Marave (57 SCRA 106) that a reservation of the
right to file an independent civil action is not necessary, such a reservation is necessary under the
amended rule. Without such reservation, the civil action is deemed impliedly instituted with the criminal
action, unless previously waived or instituted. (Emphasis ours. Justice Jose Y. Feria [Ret.], 1988
Amendments to the 1985 Rules on Criminal Procedure, a pamphlet, published by Central Lawbook
Publishing Co., Inc., Philippine Legal Studies, Series No. 3, 5-6.). 4

Sharing the same view on the indispensability of a prior reservation is Mr. Justice Florenz D. Regalado,
whose analysis of the historical changes in Rule 111 since the 1964 Rules of Court is equally illuminating.
Thus,

"1. Under Rule 111 of the 1964 Rules of Court, the civil liability arising from the offense charged was
impliedly instituted with the criminal action, unless such civil action was expressly waived or reserved.
The offended party was authorized to bring an independent civil action in the cases provided for in
Articles 31, 32, 33, 34 and 2177 of the Civil Code provided such right was reserved.

In the 1985 Rules on Criminal Procedure, the same Rule 111 thereof reiterated said provision on the civil
liability arising from the offense charged. The independent civil actions, however, wore limited to the
cases provided for in Articles 32, 33 and 34 of the Civil Code, obviously because the actions
contemplated in Articles 31 and 2177 of said Code are not liabilities ex delicto. Furthermore, no
reservation was required in order the civil actions in said Articles 32, 33 and 34 may be pursued
separately.
2. The present amendments introduced by the Supreme Court have the following notable features on
this particular procedural aspect, viz:

a. The civil action which is impliedly instituted with the criminal action, barring a waiver, reservation or
prior institution thereof, need not arise from the offense charged, as the phrase 'arising from the
offense charged' which creates that nexus has been specifically eliminated.

b. The independent civil actions contemplated in the present Rule 111 include the quasi-delicts provided
for in Art. 2176 of the Civil Code, in addition to the cases provided in Arts. 32, 33 and 34 thereof. It is
necessary, however, that the civil liability under all the said articles arise 'from the same act or omission
of the accused.' Furthermore, a reservation of the right to institute these separate civil actions is again
required, otherwise, said civil actions are impliedly instituted with the criminal action, unless the former
are waived or filed ahead of the criminal action." (Emphasis supplied.) 5

In fact, a deeper reading of the "Yakult Phils. vs. CA" case 6 relied upon by respondent court reveals an
acknowledgment of the reservation requirement. After recognizing that the civil case instituted by
private respondent therein Roy Camaso (represented by his father David Camaso) against petitioner
Yakult Phils. (the owner of the motorcycle that sideswiped Roy Camaso, only five years old at the time of
the accident) and Larry Salvado (the driver of the motorcycle) during the pendency of the criminal case
against Salvado for reckless imprudence resulting to slight physical injuries, as one based on tort, this
Court said:

"The civil liability sought arising from the act or omission of the accused in this case is a quasi-delict as
defined under Article 2176 of the Civil Code as follows:

xxx xxx xxx

"The aforecited rule [referring to the amended Section 1, Rule 111] requiring such previous reservation
also covers quasi-delict as defined under Article 2176 of the Civil Code arising from the same act or
omission of the accused" (Emphasis supplied).

But what prompted the Court to validate the institution and non-suspension of the civil case involved in
"Yakult" was the peculiar facts attendant therein. Thus,

"Although the separate civil action filed in this case was without previous reservation in the criminal
case nevertheless since it was instituted before the prosecution presented evidence in the criminal
action, and the judge handling the criminal case was informed thereof, then the actual filing of the civil
action is even far better than a compliance with the requirement of an express reservation that should
be made by the offended party before the prosecution presents its evidence"
The distinct factual scenario in "Yakult" simply does not obtain in this case. No satisfactory proof exists
to show that private respondent PISC's damage suit was instituted before the prosecution presented its
evidence in the criminal case pending in the Pasig Regional Trial Court. Neither is there any indication
that the judge presiding over the criminal action has been made aware of the civil case. It is in this light
that reliance on the "Yakult" case is indeed misplaced.

Now that the necessity of a prior reservation is the standing rule that shall govern the institution of the
independent civil actions referred to in Rule 111 of the Rules of Court, past pronouncements that view
the reservation requirement as an "unauthorized amendment" to substantive law - i.e., the Civil Code,
should no longer be controlling. There must be a renewed adherence to the time-honored dictum that
procedural rules are designed, not to defeat, but to safeguard the ends of substantial justice. And for
this noble reason, no less than the Constitution itself has mandated this Court to promulgate rules
concerning the enforcement of rights with the end in view of providing a simplified and inexpensive
procedure for the speedy disposition of cases which should not diminish, increase or modify substantive
rights. 7 Far from altering substantive rights, the primary purpose of the reservation is, to borrow the
words of the Court in "Caños v. Peralta": 8

" . . . to avoid multiplicity of suits, to guard against oppression and abuse, to prevent delays, to clear
congested dockets, to simplify the work of the trial court; in short, the attainment of justice with the
least expense and vexation to the parties-litigants."

Clearly then, private respondent PISC, as subrogee under Article 2207 of the Civil Code, 9 is not exempt
from the reservation requirement with respect to its damages suit based on quasi-delict arising from the
same act or omission of petitioner Javier complained of in the criminal case. As private respondent PISC
merely stepped into the shoes of Ms. Jao (as owner of the insured Toyota van), then it is bound to
observe the procedural requirements which Ms. Jao ought to follow had she herself instituted the civil
case.

WHEREFORE, promises considered, the assailed decision of the Court of Appeals dated February 24,
1995 and the Resolution dated April 3, 1995 denying the motion for reconsideration thereof are hereby
REVERSED and SET ASIDE. The "MANIFESTATION AND MOTION TO SUSPEND CIVIL PROCEEDINGS" filed
by petitioners is GRANTED.

SO ORDERED.
RAFAEL REYES TRUCKING CORPORATION, PETITIONER, VS. PEOPLE OF THE PHILIPPINES AND ROSARIO
P. DY (FOR HERSELF AND ON BEHALF OF THE MINORS MARIA LUISA, FRANCIS EDWARD, FRANCIS
MARK AND FRANCIS RAFAEL, ALL SURNAMED DY), RESPONDENTS.

DECISION

PARDO, J.:

The case is an appeal via certiorari from the amended decision[1] of the Court of Appeals[2] affirming the
decision and supplemental decision of the trial court,[3] as follows:

"IN VIEW OF THE FOREGOING, judgment is hereby rendered dismissing the appeals interposed by both
accused and Reyes Trucking Corporation and affirming the Decision and Supplemental Decision dated
June 6, 1992 and October 26, 1992 respectively.

"SO ORDERED."[4]

The facts are as follows:

On October 10, 1989, Provincial Prosecutor Patricio T. Durian of Isabela filed with the Regional Trial
Court, Isabela, Branch 19, Cauayan an amended information charging Romeo Dunca y de Tumol with
reckless imprudence resulting in double homicide and damage to property, reading as follows:

"That on or about the 20th day of June, 1989, in the Municipality of Cauayan, Province of Isabela,
Philippines, and within the jurisdiction of this Honorable Court, the said accused being the driver and
person-in-charge of a Trailer Truck Tractor bearing Plate No. N2A-867 registered in the name of Rafael
Reyes Trucking Corporation, with a load of 2,000 cases of empty bottles of beer grande, willfully,
unlawfully and feloniously drove and operated the same while along the National Highway of Barangay
Tagaran, in said Municipality, in a negligent, careless and imprudent manner, without due regard to
traffic laws, rules and ordinances and without taking the necessary precautions to prevent injuries to
persons and damage to property, causing by such negligence, carelessness and imprudence the said
trailer truck to hit and bump a Nissan Pick-up bearing Plate No. BBG-957 driven by Feliciano Balcita and
Francisco Dy, Jr., @ Pacquing, due to irreversible shock, internal and external hemorrhage and multiple
injuries, open wounds, abrasions, and further causing damages to the heirs of Feliciano Balcita in the
amount of P100,000.00 and to the death of Francisco Dy, Jr.; @ Pacquing and damages to his Nissan
Pick-Up bearing Plate No. BBG-957 in the total amount of P2,000,000.00.

"CONTRARY TO LAW.

"Cauayan, Isabela, October 10, 1989.

"(Sgd.) FAUSTO C. CABANTAC
"Third Assistant Provincial Prosecutor"

Upon arraignment on October 23, 1989, the accused entered a plea of not guilty. On the same occasion,
the offended parties (Rosario P. Dy and minor children and Angelina M. Balcita and minor son Paolo)
made a reservation to file a separate civil action against the accused arising from the offense
charged.[5] On November 29, 1989, the offended parties actually filed with the Regional Trial Court,
Isabela, Branch 19, Cauayan a complaint against petitioner Rafael Reyes Trucking Corporation, as
employer of driver Romeo Dunca y de Tumol, based onquasi delict. The petitioner settled the claim of
the heirs of Feliciano Balcita (the driver of the other vehicle involved in the accident). The private
respondents opted to pursue the criminal action but did not withdraw the civil casequasi ex delicto they
filed against petitioner. On December 15, 1989, private respondents withdrew the reservation to file a
separate civil action against the accused and manifested that they would prosecute the civil aspect ex
delicto in the criminal action.[6] However, they did not withdraw the separate civil action based on quasi
delictagainst petitioner as employer arising from the same act or omission of the accused driver.[7]

Upon agreement of the parties, the trial court consolidated both criminal and civil cases and conducted
a joint trial of the same.

The facts, as found by the trial court, which appear to be undisputed, are as follows:

"The defendant Rafael Reyes Trucking Corporation is a domestic corporation engaged in the business of
transporting beer products for the San Miguel Corporation (SMC for short) from the latter’s San
Fernando, Pampanga plant to its various sales outlets in Luzon. Among its fleets of vehicles for hire is the
white truck trailer described above driven by Romeo Dunca y Tumol, a duly licensed driver. Aside from
the Corporation’s memorandum to all its drivers and helpers to physically inspect their vehicles before
each trip (Exh. 15, pars. 4 & 5), the SMC’s Traffic Investigator-Inspector certified the roadworthiness of
this White Truck trailer prior to June 20, 1989 (Exh. 17). In addition to a professional driver’s license, it
also conducts a rigid examination of all driver applicants before they are hired.

"In the early morning of June 20, 1989, the White Truck driven by Dunca left Tuguegarao, Cagayan
bound to San Fernando, Pampanga loaded with 2,000 cases of empty beer "Grande" bottles. Seated at
the front right seat beside him was Ferdinand Domingo, his truck helper ("pahinante" in Pilipino). At
around 4:00 o’clock that same morning while the truck was descending at a slight downgrade along the
national road at Tagaran, Cauayan, Isabela, it approached a damaged portion of the road covering the
full width of the truck’s right lane going south and about six meters in length. These made the surface of
the road uneven because the potholes were about five to six inches deep. The left lane parallel to this
damaged portion is smooth. As narrated by Ferdinand Domingo, before approaching the potholes, he
and Dunca saw the Nissan with its headlights on coming from the opposite direction. They used to
evade this damaged road by taking the left lance but at that particular moment, because of the
incoming vehicle, they had to run over it. This caused the truck to bounce wildly. Dunca lost control of
the wheels and the truck swerved to the left invading the lane of the Nissan. As a result, Dunca’s vehicle
rammed the incoming Nissan dragging it to the left shoulder of the road and climbed a ridge above said
shoulder where it finally stopped. (see Exh. A-5, p. 8, record). The Nissan was severely damaged (Exhs.
A-7, A-8, A-9 and A-14, pp. 9-11, record), and its two passengers, namely: Feliciano Balcita and Francisco
Dy, Jr. died instantly (Exh. A-19) from external and internal hemorrhage and multiple fractures (pp. 15
and 16, record).

"For the funeral expenses of Francisco Dy, Jr. her widow spent P651,360.00 (Exh. I-3). At the time of his
death he was 45 years old. He was the President and Chairman of the Board of the Dynamic Wood
Products and Development Corporation (DWPC), a wood processing establishment, from which he was
receiving an income of P10,000.00 a month (Exh. D). In the Articles of Incorporation of the DWPC, the
spouses Francisco Dy, Jr. and Rosario Perez Dy appear to be stockholders of 10,000 shares each with par
value of P100.00 per share out of its outstanding and subscribed capital stock of 60,000 shares valued at
P6,000,000.00 (Exhs. K-1 & 10-B). Under its 1988 Income Tax Returns (Exh. J) the DWPC had a taxable
net income of P78,499.30 (Exh. J). Francisco Dy, Jr. was a La Salle University graduate in Business
Administration, past president of the Pasay Jaycees, National Treasurer and President of the Philippine
Jaycees in 1971 and 1976, respectively, and World Vice-President of Jaycees International in 1979. He
was also the recipient of numerous awards as a civic leader (Exh. C). His children were all studying in
prestigious schools and spent about P180,000.00 for their education in 1988 alone (Exh. H-4).

"As stated earlier, the plaintiffs’ procurement of a writ of attachment of the properties of the
Corporation was declared illegal by the Court of Appeals. It was shown that on December 26, 1989,
Deputy Sheriff Edgardo Zabat of the RTC at San Fernando, Pampanga, attached six units of Truck
Tractors and trailers of the Corporation at its garage at San Fernando, Pampanga. These vehicles were
kept under PC guard by the plaintiffs in said garage thus preventing the Corporation to operate them.
However, on December 28, 1989, the Court of Appeals dissolved the writ (p. 30, record) and on
December 29, 1989, said Sheriff reported to this Court that the attached vehicles were taken by the
defendant’s representative, Melita Manapil (Exh. O, p. 31, record). The defendant’s general Manager
declared that it lost P21,000.00 per day for the non-operation of the six units during their attachment (p.
31, t.s.n., Natividad C. Babaran, proceedings on December 10, 1990)."[8]

On June 6, 1992, the trial court rendered a joint decision, the dispositive portion of which reads as
follows:

"WHEREFORE, in view of the foregoing considerations judgment is hereby rendered:

"1. Finding the accused Romeo Dunca y de Tumol guilty beyond reasonable doubt of the crime of
Double Homicide through Reckless Imprudence with violation of the Motor Vehicle Law (Rep. Act No.
4136), and appreciating in his favor the mitigating circumstance of voluntary surrender without any
aggravating circumstance to offset the same, the Court hereby sentences him to suffer two (2)
indeterminate penalties of four months and one day of arresto mayor as minimum to three years, six
months and twenty days as maximum; to indemnify the Heirs of Francisco Dy. Jr. in the amount of
P3,000,000.00 as compensatory damages, P1,000,000.00 as moral damages, and P1,030,000.00 as
funeral expenses;

"2. Ordering the plaintiff in Civil Case No. Br. 19-424 to pay the defendant therein actual damages in the
amount of P84,000.00; and

"3. Ordering the dismissal of the complaint in Civil Case No. Br. 19-424.

"No pronouncement as to costs.

"SO ORDERED.

"Cauayan, Isabela, June 6, 1992.

"(Sgd.) ARTEMIO R. ALIVIA

"Regional Trial Judge"[9]

On September 3, 1992, petitioner and the accused filed a notice of appeal from the joint decision.[10]

On the other hand, private respondents moved for amendment of the dispositive portion of the joint
decision so as to hold petitioner subsidiarily liable for the damages awarded to the private respondents
in the event of insolvency of the accused.[11]

On October 26, 1992, the trial court rendered a supplemental decision amending the dispositive portion
by inserting an additional paragraph reading as follows:

"2:A – Ordering the defendant Reyes Trucking Corporation subsidiarily liable for all the damages
awarded to the heirs of Francisco Dy, Jr., in the event of insolvency of the accused but deducting
therefrom the damages of P84,000.00 awarded to said defendant in the next preceding paragraph; and
x x x"[12]

On November 12, 1992, petitioner filed with the trial court a supplemental notice of appeal from the
supplemental decision.[13]

During the pendency of the appeal, the accused jumped bail and fled to a foreign country. By resolution
dated December 29, 1994, the Court of Appeals dismissed the appeal of the accused in the criminal
case.[14]

On January 6, 1997, the Court of Appeals rendered an amended decision affirming that of the trial court,
as set out in the opening paragraph of this decision.[15]

On January 31, 1997, petitioner filed a motion for reconsideration of the amended decision.[16]

On April 21, 1997, the Court of Appeals denied petitioner’s motion for reconsideration for lack of
merit.[17]

Hence, this petition for review.[18]

On July 21, 1997, the Court required respondents to comment on the petition within ten (10) days from
notice.[19]

On January 27, 1998, the Solicitor General filed his comment.[20] On April 13, 1998, the Court granted
leave to petitioner to file a reply and noted the reply it filed on March 11, 1998.[21]

We now resolve to give due course to the petition and decide the case.

Petitioner raises three (3) grounds for allowance of the petition, which, however, boil down to two (2)
basic issues, namely:

1. May petitioner as owner of the truck involved in the accident be held subsidiarily liable for the
damages awarded to the offended parties in the criminal action against the truck driver despite the
filing of a separate civil action by the offended parties against the employer of the truck driver?

2. May the Court award damages to the offended parties in the criminal case despite the filing of a civil
action against the employer of the truck driver; and in amounts exceeding that alleged in the
information for reckless imprudence resulting in homicide and damage to property?[22]

We grant the petition, resolving under the circumstances pro hac vice to remand the cases to the trial
court for determination of the civil liability of petitioner as employer of the accused driver in the civil
action quasi ex delictore-opened for the purpose.

In negligence cases, the aggrieved party has the choice between

(1) an action to enforce civil liability arising from crime under Article 100 of the Revised Penal Code; and

(2) a separate action for quasi delict under Article 2176 of the Civil Code of the Philippines. Once the
choice is made, the injured party can not avail himself of any other remedy because he may not recover
damages twice for the same negligent act or omission of the accused.[23]This is the rule against double
recovery.

In other words, "the same act or omission can create two kinds of liability on the part of the offender,
that is, civil liability ex delicto, and civil liability quasi delicto" either of which "may be enforced against
the culprit, subject to the caveat under Article 2177 of the Civil Code that the offended party can not
recover damages under both types of liability."[24]

In the instant case, the offended parties elected to file a separate civil action for damages against
petitioner as employer of the accused, based on quasi delict, under Article 2176 of the Civil Code of the
Philippines. Private respondents sued petitioner Rafael Reyes Trucking Corporation, as the employer of
the accused, to be vicariously liable for the fault or negligence of the latter. Under the law, this vicarious
liability of the employer is founded on at least two specific provisions of law.

The first is expressed in Article 2176 in relation to Article 2180 of the Civil Code, which would allow an
action predicated on quasi-delict to be instituted by the injured party against the employer for an act or
omission of the employee and would necessitate only a preponderance of evidence to prevail. Here, the
liability of the employer for the negligent conduct of the subordinate is direct and primary, subject to
the defense of due diligence in the selection and supervision of the employee. The enforcement of the
judgment against the employer in an action based on Article 2176 does not require the employee to be
insolvent since the nature of the liability of the employer with that of the employee, the two being
statutorily considered joint tortfeasors, is solidary.[25] The second, predicated on Article 103 of the
Revised Penal Code, provides that an employer may be held subsidiarily civilly liable for a felony
committed by his employee in the discharge of his duty. This liability attaches when the employee is
convicted of a crime done in the performance of his work and is found to be insolvent that renders him
unable to properly respond to the civil liability adjudged.[26]

As regards the first issue, the answer is in the negative. Rafael Reyes Trucking Corporation, as employer
of the accused who has been adjudged guilty in the criminal case for reckless imprudence, can not be
held subsidiarily liable because of the filing of the separate civil action based on quasi delict against it. In
view of the reservation to file, and the subsequent filing of the civil action for recovery of civil liability,
the same was not instituted with the criminal action. Such separate civil action was for recovery of
damages under Article 2176 of the Civil Code, arising from the same act or omission of the accused.[27]

Pursuant to the provision of Rule 111, Section 1, paragraph 3 of the 1985 Rules of Criminal Procedure,
when private respondents, as complainants in the criminal action, reserved the right to file the separate
civil action, they waived other available civil actions predicated on the same act or omission of the
accused-driver. Such civil action includes the recovery of indemnity under the Revised Penal Code, and
damages under Articles 32, 33, and 34 of the Civil Code of the Philippines arising from the same act or
omission of the accused.[28]

The intention of private respondents to proceed primarily and directly against petitioner as employer of
accused truck driver became clearer when they did not ask for the dismissal of the civil action against
the latter based onquasi delict.
Consequently, the Court of Appeals and the trial court erred in holding the accused civilly liable, and
petitioner-employer of the accused subsidiarily liable for damages arising from crime (ex delicto) in the
criminal action as the offended parties in fact filed a separate civil action against the employer based on
quasi delict resulting in the waiver of the civil action ex delicto.

It might be argued that private respondents as complainants in the criminal case withdrew the
reservation to file a civil action against the driver (accused) and manifested that they would pursue the
civil liability of the driver in the criminal action. However, the withdrawal is ineffective to reverse the
effect of the reservation earlier made because private respondents did not withdraw the civil action
against petitioner based on quasi delict. In such a case, the provision of Rule 111, Section 1, paragraph 3
of the 1985 Rules on Criminal Procedure is clear that the reservation to file or the filing of a separate
civil action results in a waiver of other available civil actions arising from the same act or omission of the
accused. Rule 111, Section 1, paragraph 2 enumerated what are the civil actions deemed waived upon
such reservation or filing, and one of which is the civil indemnity under the Revised Penal Code. Rule
111, Section 1, paragraph 3 of the 1985 Rules on Criminal Procedure specifically provides:

"A waiver of any of the civil actions extinguishes the others. The institution of, or the reservation of the
right to file, any of said civil actions separately waives the others."

The rationale behind this rule is the avoidance of multiple suits between the same litigants arising out of
the same act or omission of the offender. The restrictive phraseology of the section under consideration
is meant to cover all kinds of civil actions, regardless of their source in law, provided that the action has
for its basis the same act or omission of the offender.[29]

However, petitioner as defendant in the separate civil action for damages filed against it, based on quasi
delict, may be held liable thereon. Thus, the trial court grievously erred in dismissing plaintiff’s civil
complaint. And the Court of Appeals erred in affirming the trial court’s decision. Unfortunately private
respondents did not appeal from such dismissal and could not be granted affirmative relief.[30]

The Court, however, in exceptional cases has relaxed the rules "in order to promote their objectives and
assist the parties in obtaining just, speedy, and inexpensive determination of every action or
proceeding"[31] or exempted "a particular case from the operation of the rules."[32]

Invoking this principle, we rule that the trial court erred in awarding civil damages in the criminal case
and in dismissing the civil action. Apparently satisfied with such award, private respondent did not
appeal from the dismissal of the civil case. However, petitioner did appeal. Hence, this case should be
remanded to the trial court so that it may render decision in the civil case awarding damages as may be
warranted by the evidence.[33]

With regard to the second issue, the award of damages in the criminal case was improper because the
civil action for the recovery of civil liability was waived in the criminal action by the filing of a separate
civil action against the employer. As enunciated in Ramos vs. Gonong,[34] "civil indemnity is not part of
the penalty for the crime committed." The only issue brought before the trial court in the criminal action
is whether accused Romeo Dunca y de Tumol is guilty of reckless imprudence resulting in homicide and
damage to property. The action for recovery of civil liability is not included therein, but is covered by the
separate civil action filed against the petitioner as employer of the accused truck-driver.

In this case, accused-driver jumped bail pending his appeal from his conviction. Thus, the judgment
convicting the accused became final and executory, but only insofar as the penalty in the criminal action
is concerned. The damages awarded in the criminal action was invalid because of its effective waiver.
The pronouncement was void because the action for recovery of the civil liability arising from the crime
has been waived in said criminal action.

With respect to the issue that the award of damages in the criminal action exceeded the amount of
damages alleged in the amended information, the issue is de minimis. At any rate, the trial court erred in
awarding damages in the criminal case because by virtue of the reservation of the right to bring a
separate civil action or the filing thereof, "there would be no possibility that the employer would be held
liable because in such a case there would be no pronouncement as to the civil liability of the accused.[35]

As a final note, we reiterate that "the policy against double recovery requires that only one action be
maintained for the same act or omission whether the action is brought against the employee or against
his employer.[36] The injured party must choose which of the available causes of action for damages he
will bring.[37]

Parenthetically, the trial court found the accused "guilty beyond reasonable doubt of the crime
of Double Homicide Through Reckless Imprudence with violation of the Motor Vehicle Law (Rep. Act
No. 4136)." There is no such nomenclature of an offense under the Revised Penal Code. Thus, the trial
court was misled to sentence the accused "to suffer two (2) indeterminate penalties of four (4) months
and one (1) day of arresto mayor, as minimum, to three (3) years, six (6) months and twenty (20) days
of prision correccional, as maximum." This is erroneous because in reckless imprudence cases, the actual
penalty for criminal negligence bears no relation to the individual willful crime or crimes committed, but
is set in relation to a whole class, or series of crimes.[38]

Unfortunately, we can no longer correct this judgment even if erroneous, as it is, because it has become
final and executory.

Under Article 365 of the Revised Penal Code, criminal negligence "is treated as a mere quasi offense,
and dealt with separately from willful offenses. It is not a question of classification or terminology. In
intentional crimes, the act itself is punished; in negligence or imprudence, what is principally penalized is
the mental attitude or condition behind the act, the dangerous recklessness, lack of care or foresight,
the imprudencia punible. Much of the confusion has arisen from the common use of such descriptive
phrase as ‘homicide through reckless imprudence’, and the like; when the strict technical sense is, more
accurately, ‘reckless imprudence resulting in homicide’; or ‘simple imprudence causing damages to
property’."[39]
There is need, therefore, to rectify the designation of the offense without disturbing the imposed
penalty for the guidance of bench and bar in strict adherence to precedent.

WHEREFORE, the Court GRANTS the petition and SETS ASIDE the amended decision and resolution of
the Court of Appeals in CA-G. R. CR No. 14448, promulgated on January 6, 1997, and the joint decision of
the Regional Trial Court, Isabela, Branch 19, Cauayan, in Criminal Case No. Br. 19-311 and Civil Case No.
Br. 19-424, dated June 6, 1992.

IN LIEU THEREOF, the Court renders judgment as follows:

(1) In Criminal Case No. Br. 19-311, the Court declares the accused Romeo Dunca y de Tumol guilty
beyond reasonable doubt of reckless imprudence resulting in homicide and damage to property, defined
and penalized under Article 365, paragraph 2 of the Revised Penal Code, with violation of the
automobile law (R. A. No. 4136, as amended), and sentences him to suffer two (2) indeterminate
penalties of four (4) months and one (1) day ofarresto mayor, as minimum, to three (3) years, six (6)
months and twenty (20) days of prision correccional, as maximum,[40] without indemnity, and to pay the
costs, and

(2) In Civil Case No. Br. 19-424, the Court orders the case re-opened to determine the liability of the
defendant Rafael Reyes Trucking Corporation to plaintiffs and that of plaintiffs on defendant’s
counterclaim.

No costs in this instance.

SO ORDERED.
LIGHT RAIL TRANSIT AUTHORITY & RODOLFO ROMAN, petitioners, vs. MARJORIE NAVIDAD, Heirs of
the Late NICANOR NAVIDAD & PRUDENT SECURITY AGENCY, respondents.

G.R. No. 145804 | 2003-02-06

Tagged under keywords

DECISION

VITUG, J.:

The case before the Court is an appeal from the decision and resolution of the Court of Appeals,
promulgated on 27 April 2000 and 10 October 2000, respectively, in CA-G.R. CV No. 60720, entitled
"Marjorie Navidad and Heirs of the Late Nicanor Navidad vs. Rodolfo Roman, et. al.," which has modified
the decision of 11 August 1998 of the Regional Trial Court, Branch 266, Pasig City, exonerating Prudent
Security Agency (Prudent) from liability and finding Light Rail Transit Authority (LRTA) and Rodolfo
Roman liable for damages on account of the death of Nicanor Navidad.

On 14 October 1993, about half an hour past seven o'clock in the evening, Nicanor Navidad, then drunk,
entered the EDSA LRT station after purchasing a "token" (representing payment of the fare). While
Navidad was standing on the platform near the LRT tracks, Junelito Escartin, the security guard assigned
to the area approached Navidad. A misunderstanding or an altercation between the two apparently
ensued that led to a fist fight. No evidence, however, was adduced to indicate how the fight started or
who, between the two, delivered the first blow or how Navidad later fell on the LRT tracks. At the exact
moment that Navidad fell, an LRT train, operated by petitioner Rodolfo Roman, was coming in. Navidad
was struck by the moving train, and he was killed instantaneously.

On 08 December 1994, the widow of Nicanor, herein respondent Marjorie Navidad, along with her
children, filed a complaint for damages against Junelito Escartin, Rodolfo Roman, the LRTA, the Metro
Transit Organization, Inc. (Metro Transit), and Prudent for the death of her husband. LRTA and Roman
filed a counterclaim against Navidad and a cross-claim against Escartin and Prudent. Prudent, in its
answer, denied liability and averred that it had exercised due diligence in the selection and supervision
of its security guards.

The LRTA and Roman presented their evidence while Prudent and Escartin, instead of presenting
evidence, filed a demurrer contending that Navidad had failed to prove that Escartin was negligent in his
assigned task. On 11 August 1998, the trial court rendered its decision; it adjudged:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants Prudent
Security and Junelito Escartin ordering the latter to pay jointly and severally the plaintiffs the following:

a) 1) Actual damages of P44,830.00;

2) Compensatory damages of P443,520.00;
3) Indemnity for the death of Nicanor Navidad in the sum of P50,000.00;
b) Moral damages of P50,000.00;
c) Attorney's fees of P20,000;
d) Costs of suit.

The complaint against defendants LRTA and Rodolfo Roman are dismissed for lack of merit.

The compulsory counterclaim of LRTA and Roman are likewise dismissed."[1]

Prudent appealed to the Court of Appeals. On 27 August 2000, the appellate court promulgated its now
assailed decision exonerating Prudent from any liability for the death of Nicanor Navidad and, instead,
holding the LRTA and Roman jointly and severally liable thusly:

"WHEREFORE, the assailed judgment is hereby MODIFIED, by exonerating the appellants from any
liability for the death of Nicanor Navidad, Jr. Instead, appellees Rodolfo Roman and the Light Rail Transit
Authority (LRTA) are held liable for his death and are hereby directed to pay jointly and severally to the
plaintiffs-appellees, the following amounts:

a) P44,830.00 as actual damages;

b) P50,000.00 as nominal damages;
c) P50,000.00 as moral damages;
d) P50,000.00 as indemnity for the death of the deceased; and
e) P20,000.00 as and for attorney's fees."[2]

The appellate court ratiocinated that while the deceased might not have then as yet boarded the train, a
contract of carriage theretofore had already existed when the victim entered the place where
passengers were supposed to be after paying the fare and getting the corresponding token therefor. In
exempting Prudent from liability, the court stressed that there was nothing to link the security agency to
the death of Navidad. It said that Navidad failed to show that Escartin inflicted fist blows upon the victim
and the evidence merely established the fact of death of Navidad by reason of his having been hit by the
train owned and managed by the LRTA and operated at the time by Roman. The appellate court faulted
petitioners for their failure to present expert evidence to establish the fact that the application of
emergency brakes could not have stopped the train.

The appellate court denied petitioners' motion for reconsideration in its resolution of 10 October 2000.

In their present recourse, petitioners recite alleged errors on the part of the appellate court; viz:

"I.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED BY DISREGARDING THE FINDINGS OF FACTS BY
THE TRIAL COURT

II.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT PETITIONERS ARE LIABLE FOR
THE DEATH OF NICANOR NAVIDAD, JR.
III.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RODOLFO ROMAN IS AN
EMPLOYEE OF LRTA."[3]

Petitioners would contend that the appellate court ignored the evidence and the factual findings of the
trial court by holding them liable on the basis of a sweeping conclusion that the presumption of
negligence on the part of a common carrier was not overcome. Petitioners would insist that Escartin's
assault upon Navidad, which caused the latter to fall on the tracks, was an act of a stranger that could
not have been foreseen or prevented. The LRTA would add that the appellate court's conclusion on the
existence of an employer-employee relationship between Roman and LRTA lacked basis because Roman
himself had testified being an employee of Metro Transit and not of the LRTA.

Respondents, supporting the decision of the appellate court, contended that a contract of carriage was
deemed created from the moment Navidad paid the fare at the LRT station and entered the premises of
the latter, entitling Navidad to all the rights and protection under a contractual relation, and that the
appellate court had correctly held LRTA and Roman liable for the death of Navidad in failing to exercise
extraordinary diligence imposed upon a common carrier.

Law and jurisprudence dictate that a common carrier, both from the nature of its business and for
reasons of public policy, is burdened with the duty of exercising utmost diligence in ensuring the safety
of passengers.[4] The Civil Code, governing the liability of a common carrier for death of or injury to its
passengers, provides:

"Article 1755. A common carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances.

"Article 1756. In case of death of or injuries to passengers, common carriers are presumed to have been
at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as
prescribed in articles 1733 and 1755."

Article 1759. Common carriers are liable for the death of or injuries to passengers through the
negligence or willful acts of the former's employees, although such employees may have acted beyond
the scope of their authority or in violation of the orders of the common carriers.

"This liability of the common carriers does not cease upon proof that they exercised all the diligence of a
good father of a family in the selection and supervision of their employees."

"Article 1763. A common carrier is responsible for injuries suffered by a passenger on account of the
willful acts or negligence of other passengers or of strangers, if the common carrier's employees through
the exercise of the diligence of a good father of a family could have prevented or stopped the act or
omission."
The law requires common carriers to carry passengers safely using the utmost diligence of very cautious
persons with due regard for all circumstances.[5] Such duty of a common carrier to provide safety to its
passengers so obligates it not only during the course of the trip but for so long as the passengers are
within its premises and where they ought to be in pursuance to the contract of carriage.[6] The
statutory provisions render a common carrier liable for death of or injury to passengers (a) through the
negligence or wilful acts of its employees or b) on account of wilful acts or negligence of other
passengers or of strangers if the common carrier's employees through the exercise of due diligence
could have prevented or stopped the act or omission.[7] In case of such death or injury, a carrier is
presumed to have been at fault or been negligent, and[8] by simple proof of injury, the passenger is
relieved of the duty to still establish the fault or negligence of the carrier or of its employees and the
burden shifts upon the carrier to prove that the injury is due to an unforeseen event or to force
majeure.[9] In the absence of satisfactory explanation by the carrier on how the accident occurred,
which petitioners, according to the appellate court, have failed to show, the presumption would be that
it has been at fault,[10] an exception from the general rule that negligence must be proved.[11]

The foundation of LRTA's liability is the contract of carriage and its obligation to indemnify the victim
arises from the breach of that contract by reason of its failure to exercise the high diligence required of
the common carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier
may choose to hire its own employees or avail itself of the services of an outsider or an independent
firm to undertake the task. In either case, the common carrier is not relieved of its responsibilities under
the contract of carriage.

Should Prudent be made likewise liable? If at all, that liability could only be for tort under the provisions
of Article 2176[12] and related provisions, in conjunction with Article 2180,[13] of the Civil Code. The
premise, however, for the employer's liability is negligence or fault on the part of the employee. Once
such fault is established, the employer can then be made liable on the basis of the presumption juris
tantum that the employer failed to exercise diligentissimi patris families in the selection and supervision
of its employees. The liability is primary and can only be negated by showing due diligence in the
selection and supervision of the employee, a factual matter that has not been shown. Absent such a
showing, one might ask further, how then must the liability of the common carrier, on the one hand,
and an independent contractor, on the other hand, be described? It would be solidary. A contractual
obligation can be breached by tort and when the same act or omission causes the injury, one resulting in
culpa contractual and the other in culpa aquiliana, Article 2194[14] of the Civil Code can well apply.[15]
In fine, a liability for tort may arise even under a contract, where tort is that which breaches the
contract.[16] Stated differently, when an act which constitutes a breach of contract would have itself
constituted the source of a quasi-delictual liability had no contract existed between the parties, the
contract can be said to have been breached by tort, thereby allowing the rules on tort to apply.[17]

Regrettably for LRT, as well as perhaps the surviving spouse and heirs of the late Nicanor Navidad, this
Court is concluded by the factual finding of the Court of Appeals that "there is nothing to link (Prudent)
to the death of Nicanor (Navidad), for the reason that the negligence of its employee, Escartin, has not
been duly proven x x x." This finding of the appellate court is not without substantial justification in our
own review of the records of the case.
There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty of any culpable act or
omission, he must also be absolved from liability. Needless to say, the contractual tie between the LRT
and Navidad is not itself a juridical relation between the latter and Roman; thus, Roman can be made
liable only for his own fault or negligence.
The award of nominal damages in addition to actual damages is untenable. Nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant,
may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him.[18] It is an established rule that nominal damages cannot co-exist with compensatory
damages.[19]

WHEREFORE, the assailed decision of the appellate court is AFFIRMED with MODIFICATION but only in
that (a) the award of nominal damages is DELETED and (b) petitioner Rodolfo Roman is absolved from
liability. No costs.

SO ORDERED.
EDSEL LIGA, Petitioner, versus ALLEGRO RESOURCES CORP., Respondent.

DECISION

Tinga, J.:

Before the Court is the petition for review[1] under Rule 45 of the Rules of Court assailing the Court of
Appeals' Decision[2] dated 25 January 2006 and Resolution[3] dated 22 November 2006 in CA-G.R. SP
No. 86331.

The undisputed factual antecedents of the case are as follows:

On 10 October 1975, Ortigas & Company, Limited Partnership (Ortigas) entered into a lease agreement
with La Paz Investment & Realty Corporation (La Paz) wherein the former leased to the latter its parcel
of land located in San Juan, Metro Manila (now San Juan City) consisting of 5,514 square meters for a
period of twenty-five (25) years from 1 January 1976 to 31 December 2000. Under the lease agreement,
La Paz undertook to construct a two or three-storey concrete framed commercial building for the
establishment of first class stores which would be subdivided into various stalls for subleasing to
interested parties.[4]

In compliance with its undertaking, La Paz constructed the Greenhills Shopping Arcade (GSA) and
divided it into several stalls and subleased them to other people. One of the sub-lessees was Edsel Liga
(Liga), who obtained the leasehold right to Unit No. 26, Level A of the GSA.

As the lease of La Paz had expired on 31 December 2000, the stallholders, through the Greenhills
Shoppesville Unit Lessees' Association, Inc. (GSULAI), made several attempts to have their leasehold
rights extended. Even prior to the expiration of their leaseholds, the sub-lessees made several overtures
to Ortigas but these were all denied. These developments notwithstanding, Liga was allowed by Ortigas
to remain in possession of her leased property.

On 30 August 2001, Ortigas formally informed the GSULAI of the impending lease of the GSA to
respondent Allegro Resources Corporation (Allegro).[5] On 3 September 2001, Ortigas and Allegro
executed the corresponding Contract of Lease.[6] On the same day, the same parties executed the
Addendum to Agreement, Section 1 of which provides that "(t)he LESSEE (Allegro) shall take immediate
possession and control of the leased premises upon the signing of the Contract of Lease." and "also
assist in the collection of back rentals due to the LESSOR (Ortigas) in Shoppesville Arcade from 1 January
2001 up to the 31 August 2001, when it shall commence to pay rentals for its own account."[7]

As the new lessee, Allegro offered to sublease Unit No. 26, Level A to Liga. Subsequently they entered
into a lease agreement dubbed Rental Information[8] in which Liga agreed to pay rental of P40,000.00
monthly starting 1 September 2001. She also agreed to pay the back rentals covering the months of
January through August 2001 due Ortigas. Upon signing the agreement, Liga also gave P40,000.00 as
one month advance rental and another P40,000.00 as one month security deposit as provided in the
agreement.[9]
Liga's compliance with the agreement ended as soon as it was executed. Despite repeated demands
from Allegro, Liga had failed to pay her rentals for the subleased property, as well as the back rentals
from January to August 2001 due Ortigas. Hence, Allegro filed a complaint for ejectment on 15 March
2002 with the Metropolitan Trial Court (MeTC) of San Juan, Metro Manila, Branch 57.[10]

The MeTC rendered a decision[11] in favor of Allegro, ordering Liga to vacate the subleased stall and to
pay back rentals for her continuous possession of the property. The MeTC held that Allegro has rightful
possession over the disputed stall since Liga's continued occupancy from 1 January 2001 to 31 August
2001 was by mere tolerance of Ortigas and that ceased upon the execution of a contract of lease
between Ortigas and Allegro. The MeTC found that Liga had agreed to sublease the property for
P40,000.00 per month. In compliance with the lease agreement with Allegro, Liga even paid the sum of
P80,000.00 corresponding to one-month advance rental and one-month security deposit as evidenced
by a provisional receipt issued by the former. It thus ordered Liga to pay Allegro P210,000.00
representing back rentals from 1 October 2001 to February 2002 and P20,000.00 per month as
reasonable compensation for the use of the premises from the filing of the ejectment suit until it is
vacated.

On appeal, the Regional Trial Court (RTC) affirmed the decision of the MeTC but made modifications
with respect to its monetary awards.[12] It extended the period of lease over the property for two years
at a rental rate of P20,000.00 per month, and ordered Liga to pay P80,000.00 as back rentals for the
period of September 2001 to February 2002 and P20,000.00 per month as rental from March 2002 until
the property is vacated.

Allegro filed a petition for review[13] under Rule 42 of the Rules of Court before the Court of Appeals
assailing the modified decision of the RTC. The appellate court, in a Decision dated 25 January 2006,
granted Allegro's petition and set aside the RTC's decision.[14] It held that after the expiration of La
Paz's lease with Ortigas on 31 December 2000, Liga occupied the property merely by tolerance of
Ortigas and that it was incorrect for the RTC to extend the lease contract for two years since it would
infringe on the parties right to contract and Liga herself had never raised as an issue the extension of the
lease contract before the MeTC. It found that Liga signed the Rental Information with Allegro and
agreed to a monthly rental of P40,000.00 starting 1 September 2001. The appellate court ordered Liga
to pay Ortigas back rentals of P20,000.00 per month for the period of 1 January 2001 to 31 August 2001
and P40,000.00 per month as rentals to Allegro starting 1 September 2001 until the property is vacated.
In a Resolution dated 22 November 2006, the Court of Appeals denied Liga's motion for
reconsideration.[15]

Hence, the present petition for review before this Court.

The petition raised the following issues: whether the Court of Appeals had erred in ordering Liga to pay:
(a) to Ortigas back rentals covering the period 1 January 2001 to 31 August 2001 totaling of
P160,000.00; (b) to Allegro back rentals in the amount of P40,000.00 a month starting from 1 September
2001 until such time as she vacates the leased property; and (c) to Allegro the amount of P20,000.00 as
attorney's fees and the costs of suit.[16]
Liga argues that the Court of Appeals erred in ordering her to pay Ortigas back rentals although the
latter is not a party in the instant case. The ruling of the appellate court ran counter to the Court's
doctrine that judgment cannot bind persons who are not parties to the action.[17] She avers that
Allegro was already estopped from claiming monthly rentals in the amount of P40,000.00 starting from
1

September 2001 since it filed the Motion to Release Cash Bond in Favor of Plaintiff[18] with the MeTC.
By filing the motion, Allegro signified its concurrence in the monthly rental of P20,000.00.[19] Since Liga
is willing and able to pay the appropriate rentals as evidenced by the deposits she made before the RTC,
she should not be made liable for attorney's fees in the amount of P20,000.00 and for the costs of
suit.[20]

The Court will discuss the issues in seriatim.

We sustain Liga on the first issue. The Court of Appeals erred in awarding back rentals for the month of
1 January 2001 to 31 August 2001 in favor of Ortigas.

Firstly, Ortigas is not a party to this case, whether as plaintiff or otherwise. It is basic that no relief can
be extended in a judgment to a stranger or one who is not a party to a case.[21]

Secondly, Allegro cannot justify the award as a legal representative by virtue of a provision in its lease
agreement with Ortigas. Although Section 1 of Rule 70 of the Rules of Court[22] specifically allows "the
legal representatives or assigns of any such lessor, vendor, vendee, or other person" to bring action for
restitution of possession with damages and costs against persons who unlawfully withheld or deprived
the lawful possessor of possession over any land or building, Allegro did not aver in its complaint that it
was acting as Ortigas's legal representative and seeking the back rentals due Ortigas.

Thirdly, there is no allegation or prayer in the complaint that Allegro was seeking the collection of the
back rentals due Ortigas. Nor was there evidence to that effect. It is elementary that a judgment must
conform to, and be supported by, both the pleadings and the evidence, and be in accordance with the
theory of the action on which the pleadings are framed and the case was tried.[23] The judgment must
be secundum allegata et probata.

In Falcon v. Manzano,[24] the Court set aside the judgment of the trial court in conceding to her a
remedy which was not prayed for in the complaint as the trial court rendered judgment allowing
plaintiff to recover from the defendant the unpaid portion of the purchase price of a parcel of land when
the plaintiff only asked for the nullification of the contract of sale of the realty and the return of the
property to her. We held that courts, in rendering decisions, ought to limit themselves to the issues
presented by the parties in their pleadings.

In the analogous case of Lerma v. De la Cruz,[25] the plaintiff therein brought an action to recover
accrued rents and damages for the injury to the land but the trial court extended the relief sought by
giving judgment for possession of the land. The Court held that "(t)he plaintiff did not ask for possession,
nor is there any prayer to that effect in the complaint, and the judgment must, therefore be reversed
insofar as it undertakes to provide for the restitution of the land in question to the plaintiff."

As to the second issue, the Court cannot countenance the obstinate refusal of Liga to pay P40,000.00 a
month to Allegro since she had already acquiesced to pay such rental rate when she signed the Rental
Information. It is fundamental that a contract is the law between the parties.[26] Obligations arising
from contracts have the force of law between the contracting parties and should be complied with in
good faith.[27] Unless the stipulations in a contract are contrary to law, morals, good customs, public
order or public policy, the same are binding as between the parties.[28] It is a general principle of law
that no one may be permitted to change his mind or disavow and go back upon his own acts, or to
proceed contrary thereto, to the prejudice of the other party.[29] Likewise, it is settled that if the terms
of the contract clearly express the intention of the contracting parties, the literal meaning of the
stipulations would be controlling.[30]

The filing by Allegro of the Motion to Release Cash Bond in Favor of the Plaintiff did not operate to estop
it from claiming a monthly rental rate of P40,000.00. Estoppel cannot be sustained by mere argument or
doubtful inference.[31] Allegro did not abandon its stance nor did it represent to Liga that it was doing
so. Liga cannot feign ignorance of such fact since Allegro's petition for review before the Court of
Appeals puts as an issue the reduction by the RTC of the monthly rentals from P40,000.00 to
P20,000.00.[32] Allegro never made any deed or representation that could have misled Liga.

Moreover, the Court has previously sanctioned a similar partial execution of the trial court's decision
awarding damages in an ejectment suit at the instance of the plaintiff. Not only is such an act
procedurally sound, it also serves the ends of justice. As the Court succinctly held in Sps. Catungal v.
Jao:[33]

Finally, respondent questions why petitioners would want to reinstate the RTC decision when in fact
they had already applied for a writ of execution of the 8 March 1997 Decision. Respondent is of the view
that since petitioners had already moved for the execution of the decision awarding a smaller amount of
damages or fair rental value, the same is inconsistent with a petition asking for a greater fair rental value
and, therefore, a possible case of unjust enrichment in favor of the petitioners. We are not persuaded.

In order to avoid further injustice to a lawful possessor, an immediate execution of a judgment is

mandated and the court's duty to order such execution is practically ministerial. In City of Manila, et al.
v. CA, et al., We held that "Section 8 (now Section 19), Rule 70, on execution pending appeal, also
applies even if the plaintiff-lessor appeals where, as in that case, judgment was rendered in favor of the
lessor but it was not satisfied with the increased rentals granted by the trial court, hence the appeal
xxx."

As above discussed, the petitioners have long been deprived of the exercise of their proprietary rights
over the leased premises and the rightful amount of rentals at the rate of P40,000.00 a month.
Consequently, petitioners are entitled to accrued monthly rentals of P27,000.00, which is the difference
between P40,000.00 awarded by the Regional Trial Court and P13,000.00 awarded by the MeTC and
affirmed by the Court of Appeals. Said amount of P27,000.00 should rightly be the subject of another
writ of execution being distinct from the subject of the first writ of execution filed by
petitioners.(Emphasis supplied.)

On the last issue regarding damages, Liga also ends up at the shorter end. Law and jurisprudence
support the award of attorney's fees and costs of suit in favor of Allegro. The award of damages and
attorney's fees is left to the sound discretion of the court, and if such discretion is well exercised, as in
this case, it will not be disturbed on appeal.[34] Attorney's fees and costs of litigation are awarded in
instances where "the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's
plainly valid, just and demandable claim."[35] Having delivered possession over the leased property to
Liga, Allegro had already performed its obligation under the lease agreement. Liga should have exercised
fairness and good judgment in dealing with Allegro by religiously paying the agreed monthly rental of
P40,000.00.

However, the Court deems it proper to award interest in favor of Allegro. In Eastern Shipping Lines, Inc.
v. Court of Appeals,[36] we gave the following guidelines in the award of interest:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.[37]

The back rentals in this case being equivalent to a loan or forbearance of money, the interest due
thereon is twelve percent (12%) per annum from the time of extrajudicial demand on 15 December
2001.[38]

WHEREFORE, the petition for review is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No.
86331 is AFFIRMED with the MODIFICATIONS that the award of back rentals for the period of 1 January
2001 to 31 August 2001 to Ortigas & Company, Limited Partnership is DELETED and that petitioner Edsel
Liga is ORDERED to pay respondent Allegro Resources Corporation legal interest of twelve percent (12%)
per annum on the back rentals from the date of extrajudicial demand on 15 December 2001 until fully
paid.

SO ORDERED.
MAKATI STOCK EXCHANGE, INC., MA. VIVIAN YUCHENGCO, ADOLFO M. DUARTE, MYRON C. PAPA,
NORBERTO C. NAZARENO, GEORGE UY-TIOCO, ANTONIO A. LOPA, RAMON B. ARNAIZ, LUIS J.L.
VIRATA, and ANTONIO GARCIA, JR. Petitioners, versus MIGUEL V. CAMPOS, substituted by JULIA
ORTIGAS VDA. DE CAMPOS,[1] Respondent.

G.R. No. 138814 | 2009-04-16

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 seeking the reversal of the Decision[2] dated 11
February 1997 and Resolution dated 18 May 1999 of the Court of Appeals in CA-G.R. SP No. 38455.

The facts of the case are as follows:

SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent Miguel V. Campos, who
filed with the Securities, Investigation and Clearing Department (SICD) of the Securities and Exchange
Commission (SEC), a Petition against herein petitioners Makati Stock Exchange, Inc. (MKSE) and MKSE
directors, Ma. Vivian Yuchengco, Adolfo M. Duarte, Myron C. Papa, Norberto C. Nazareno, George Uy-
Tioco, Antonio A, Lopa, Ramon B. Arnaiz, Luis J.L. Virata, and Antonio Garcia, Jr. Respondent, in said
Petition, sought: (1) the nullification of the Resolution dated 3 June 1993 of the MKSE Board of
Directors, which allegedly deprived him of his right to participate equally in the allocation of Initial Public
Offerings (IPO) of corporations registered with MKSE; (2) the delivery of the IPO shares he was allegedly
deprived of, for which he would pay IPO prices; and (3) the payment of P2 million as moral damages, P1
million as exemplary damages, and P500,000.00 as attorney's fees and litigation expenses.

On 14 February 1994, the SICD issued an Order granting respondent's prayer for the issuance of a
Temporary Restraining Order to enjoin petitioners from implementing or enforcing the 3 June 1993
Resolution of the MKSE Board of Directors.

The SICD subsequently issued another Order on 10 March 1994 granting respondent's application for a
Writ of Preliminary Injunction, to continuously enjoin, during the pendency of SEC Case No. 02-94-4678,
the implementation or enforcement of the MKSE Board Resolution in question. Petitioners assailed this
SICD Order dated 10 March 1994 in a Petition for Certiorari filed with the SEC en banc, docketed as SEC-
EB No. 393.

On 11 March 1994, petitioners filed a Motion to Dismiss respondent's Petition in SEC Case No. 02-94-
4678, based on the following grounds: (1) the Petition became moot due to the cancellation of the
license of MKSE; (2) the SICD had no jurisdiction over the Petition; and (3) the Petition failed to state a
cause of action.

The SICD denied petitioner's Motion to Dismiss in an Order dated 4 May 1994. Petitioners again
challenged the 4 May 1994 Order of SICD before the SEC en banc through another Petition for Certiorari,
docketed as SEC-EB No. 403.

In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en banc nullified the 10 March 1994 Order of
SICD in SEC Case No. 02-94-4678 granting a Writ of Preliminary Injunction in favor of respondent.
Likewise, in an Order dated 14 August 1995 in SEC-EB No. 403, the SEC en banc annulled the 4 May 1994
Order of SICD in SEC Case No. 02-94-4678 denying petitioners' Motion to Dismiss, and accordingly
ordered the dismissal of respondent's Petition before the SICD.

Respondent filed a Petition for Certiorari with the Court of Appeals assailing the Orders of the SEC en
banc dated 31 May 1995 and 14 August 1995 in SEC-EB No. 393 and SEC-EB No. 403, respectively.
Respondent's Petition before the appellate court was docketed as CA-G.R. SP No. 38455.

On 11 February 1997, the Court of Appeals promulgated its Decision in CA-G.R. SP No. 38455, granting
respondent's Petition for Certiorari, thus:

WHEREFORE, the petition in so far as it prays for annulment of the Orders dated May 31, 1995 and
August 14, 1995 in SEC-EB Case Nos. 393 and 403 is GRANTED. The said orders are hereby rendered null
and void and set aside.

Petitioners filed a Motion for Reconsideration of the foregoing Decision but it was denied by the Court
of Appeals in a Resolution dated 18 May 1999.

Hence, the present Petition for Review raising the following arguments:

I. THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION WHEN IT DISMISSED THE PETITION FILED BY RESPONDENT BECAUSE ON ITS FACE, IT
FAILED TO STATE A CAUSE OF ACTION.

II. THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF RESPONDENT WAS A MERE ACCOMMODATION
GIVEN TO HIM BY THE BOARD OF [DIRECTORS] OF THE MAKATI STOCK EXCHANGE, INC.

III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN BANC COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT MADE AN EXTENDED INQUIRY
AND PROCEEDED TO MAKE A DETERMINATION AS TO THE TRUTH OF RESPONDENT'S ALLEGATIONS IN
HIS PETITION AND USED AS BASIS THE EVIDENCE ADDUCED DURING THE HEARING ON THE APPLICATION
FOR THE WRIT OF PRELIMINARY INJUNCTION TO DETERMINE THE EXISTENCE OR VALIDITY OF A STATED
CAUSE OF ACTION.

IV. IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE BOUGHT BY THE BROKERS FOR
THEMSELVES BUT ARE TO BE DISTRIBUTED TO THE INVESTING PUBLIC. HENCE, RESPONDENT'S CLAIM
FOR DAMAGES IS ILLUSORY AND HIS PETITION A NUISANCE SUIT.[3]

On 18 September 2001, counsel for respondent manifested to this Court that his client died on 7 May
2001. In a Resolution dated 24 October 2001, the Court directed the substitution of respondent by his
surviving spouse, Julia Ortigas vda. de Campos.

Petitioners want this Court to affirm the dismissal by the SEC en banc of respondent's Petition in SEC
Case No. 02-94-4678 for failure to state a cause of action. On the other hand, respondent insists on the
sufficiency of his Petition and seeks the continuation of the proceedings before the SICD.

A cause of action is the act or omission by which a party violates a right of another.[4] A complaint
states a cause of action where it contains three essential elements of a cause of action, namely: (1) the
legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of
the defendant in violation of said legal right. If these elements are absent, the complaint becomes
vulnerable to dismissal on the ground of failure to state a cause of action.

If a defendant moves to dismiss the complaint on the ground of lack of cause of action, he is regarded as
having hypothetically admitted all the averments thereof. The test of sufficiency of the facts found in a
complaint as constituting a cause of action is whether or not admitting the facts alleged, the court can
render a valid judgment upon the same in accordance with the prayer thereof. The hypothetical
admission extends to the relevant and material facts well pleaded in the complaint and inferences fairly
deducible therefrom. Hence, if the allegations in the complaint furnish sufficient basis by which the
complaint can be maintained, the same should not be dismissed regardless of the defense that may be
assessed by the defendant.[5]

Given the foregoing, the issue of whether respondent's Petition in SEC Case No. 02-94-4678 sufficiently
states a cause of action may be alternatively stated as whether, hypothetically admitting to be true the
allegations in respondent's Petition in SEC Case No. 02-94-4678, the SICD may render a valid judgment in
accordance with the prayer of said Petition.

A reading of the exact text of respondent's Petition in SEC Case No. 02-94-4678 is, therefore,
unavoidable. Pertinent portions of the said Petition reads:

7. In recognition of petitioner's invaluable services, the general membership of respondent corporation

[MKSE] passed a resolution sometime in 1989 amending its Articles of Incorporation, to include the
following provision therein:

"ELEVENTH - WHEREAS, Mr. Miguel Campos is the only surviving incorporator of the Makati Stock
Exchange, Inc. who has maintained his membership;

"WHEREAS, he has unselfishly served the Exchange in various capacities, as governor from 1977 to the
present and as President from 1972 to 1976 and again as President from 1988 to the present;

"WHEREAS, such dedicated service and leadership which has contributed to the advancement and well
being not only of the Exchange and its members but also to the Securities industry, needs to be
recognized and appreciated;

"WHEREAS, as such, the Board of Governors in its meeting held on February 09, 1989 has
correspondingly adopted a resolution recognizing his valuable service to the Exchange, reward the
same, and preserve for posterity such recognition by proposing a resolution to the membership body
which would make him as Chairman Emeritus for life and install in the Exchange premises a
commemorative bronze plaque in his honor;

"NOW, THEREFORE, for and in consideration of the above premises, the position of the "Chairman
Emeritus" to be occupied by Mr. Miguel Campos during his lifetime and irregardless of his continued
membership in the Exchange with the Privilege to attend all membership meetings as well as the
meetings of the Board of Governors of the Exchange, is hereby created."

8. Hence, to this day, petitioner is not only an active member of the respondent corporation, but its
Chairman Emeritus as well.

9. Correspondingly, at all times material to this petition, as an active member and Chairman Emeritus of
respondent corporation, petitioner has always enjoyed the right given to all the other members to
participate equally in the Initial Public Offerings (IPOs for brevity) of corporations.

10. IPOs are shares of corporations offered for sale to the public, prior to the listing in the trading floor
of the country's two stock exchanges. Normally, Twenty Five Percent (25%) of these shares are divided
equally between the two stock exchanges which in turn divide these equally among their members, who
pay therefor at the offering price.

11. However, on June 3, 1993, during a meeting of the Board of Directors of respondent-corporation,
individual respondents passed a resolution to stop giving petitioner the IPOs he is entitled to, based on
the ground that these shares were allegedly benefiting Gerardo O. Lanuza, Jr., who these individual
respondents wanted to get even with, for having filed cases before the Securities and Exchange (SEC) for
their disqualification as member of the Board of Directors of respondent corporation.

12. Hence, from June 3, 1993 up to the present time, petitioner has been deprived of his right to
subscribe to the IPOs of corporations listing in the stock market at their offering prices.

13. The collective act of the individual respondents in depriving petitioner of his right to a share in the
IPOs for the aforementioned reason, is unjust, dishonest and done in bad faith, causing petitioner
substantial financial damage.[6]

There is no question that the Petition in SEC Case No. 02-94-4678 asserts a right in favor of respondent,
particularly, respondent's alleged right to subscribe to the IPOs of corporations listed in the stock market
at their offering prices; and stipulates the correlative obligation of petitioners to respect respondent's
right, specifically, by continuing to allow respondent to subscribe to the IPOs of corporations listed in
the stock market at their offering prices.

However, the terms right and obligation in respondent's Petition are not magic words that would
automatically lead to the conclusion that such Petition sufficiently states a cause of action. Right and
obligation are legal terms with specific legal meaning. A right is a claim or title to an interest in anything
whatsoever that is enforceable by law.[7] An obligation is defined in the Civil Code as a juridical
necessity to give, to do or not to do.[8] For every right enjoyed by any person, there is a corresponding
obligation on the part of another person to respect such right. Thus, Justice J.B.L. Reyes offers[9] the
definition given by Arias Ramos as a more complete definition:

An obligation is a juridical relation whereby a person (called the creditor) may demand from another
(called the debtor) the observance of a determinative conduct (the giving, doing or not doing), and in
case of breach, may demand satisfaction from the assets of the latter.

The Civil Code enumerates the sources of obligations:

Art. 1157. Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts.

Therefore, an obligation imposed on a person, and the corresponding right granted to another, must be
rooted in at least one of these five sources. The mere assertion of a right and claim of an obligation in an
initiatory pleading, whether a Complaint or Petition, without identifying the basis or source thereof, is
merely a conclusion of fact and law. A pleading should state the ultimate facts essential to the rights of
action or defense asserted, as distinguished from mere conclusions of fact or conclusions of law.[10]
Thus, a Complaint or Petition filed by a person claiming a right to the Office of the President of this
Republic, but without stating the source of his purported right, cannot be said to have sufficiently stated
a cause of action. Also, a person claiming to be the owner of a parcel of land cannot merely state that he
has a right to the ownership thereof, but must likewise assert in the Complaint either a mode of
acquisition of ownership or at least a certificate of title in his name.

In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege respondent's right to
subscribe to the IPOs of corporations listed in the stock market at their offering prices, and petitioners'
obligation to continue respecting and observing such right, the Petition utterly failed to lay down the
source or basis of respondent's right and/or petitioners' obligation.

Respondent merely quoted in his Petition the MKSE Board Resolution, passed sometime in 1989,
granting him the position of Chairman Emeritus of MKSE for life. However, there is nothing in the said
Petition from which the Court can deduce that respondent, by virtue of his position as Chairman
Emeritus of MKSE, was granted by law, contract, or any other legal source, the right to subscribe to the
IPOs of corporations listed in the stock market at their offering prices.
A meticulous review of the Petition reveals that the allocation of IPO shares was merely alleged to have
been done in accord with a practice normally observed by the members of the stock exchange, to wit:

IPOs are shares of corporations offered for sale to the public, prior to their listing in the trading floor of
the country's two stock exchanges. Normally, Twenty-Five Percent (25%) of these shares are divided
equally between the two stock exchanges which in turn divide these equally among their members, who
pay therefor at the offering price.[11] (Emphasis supplied)

A practice or custom is, as a general rule, not a source of a legally demandable or enforceable right.[12]
Indeed, in labor cases, benefits which were voluntarily given by the employer, and which have ripened
into company practice, are considered as rights that cannot be diminished by the employer.[13]
Nevertheless, even in such cases, the source of the employees' right is not custom, but ultimately, the
law, since Article 100 of the Labor Code explicitly prohibits elimination or diminution of benefits.

There is no such law in this case that converts the practice of allocating IPO shares to MKSE members,
for subscription at their offering prices, into an enforceable or demandable right. Thus, even if it is
hypothetically admitted that normally, twenty five percent (25%) of the IPOs are divided equally
between the two stock exchanges -- which, in turn, divide their respective allocation equally among
their members, including the Chairman Emeritus, who pay for IPO shares at the offering price -- the
Court cannot grant respondent's prayer for damages which allegedly resulted from the MKSE Board
Resolution dated 3 June 1993 deviating from said practice by no longer allocating any shares to
respondent.

Accordingly, the instant Petition should be granted. The Petition in SEC Case No. 02-94-4678 should be
dismissed for failure to state a cause of action. It does not matter that the SEC en banc, in its Order
dated 14 August 1995 in SEC-EB No. 403, overstepped its bounds by not limiting itself to the issue of
whether respondent's Petition before the SICD sufficiently stated a cause of action. The SEC en banc
may have been mistaken in considering extraneous evidence in granting petitioners' Motion to Dismiss,
but its discussion thereof are merely superfluous and obiter dictum. In the main, the SEC en banc did
correctly dismiss the Petition in SEC Case No. 02-94-4678 for its failure to state the basis for
respondent's alleged right, to wit:

Private respondent Campos has failed to establish the basis or authority for his alleged right to
participate equally in the IPO allocations of the Exchange. He cited paragraph 11 of the amended articles
of incorporation of the Exchange in support of his position but a careful reading of the said provision
shows nothing therein that would bear out his claim. The provision merely created the position of
chairman emeritus of the Exchange but it mentioned nothing about conferring upon the occupant
thereof the right to receive IPO allocations.[14]

With the dismissal of respondent's Petition in SEC Case No. 02-94-4678, there is no more need for this
Court to resolve the propriety of the issuance by SCID of a writ of preliminary injunction in said case.

WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 11 February 1997 and
its Resolution dated 18 May 1999 in CA-G.R. SP No. 38455 are REVERSED and SET ASIDE. The Orders
dated 31 May 1995 and 14 August 1995 of the Securities and Exchange Commission en banc in SEC-EB
Case No. 393 and No. 403, respectively, are hereby reinstated. No pronouncement as to costs.

SO ORDERED.
METRO MANILA TRANSIT CORPORATION (MMTC), PEDRO A. MUSA, CONRADO TOLENTINO,
FELICIANA CELEBRADO and THE GOVERNMENT SERVICE INSURANCE SYSTEM, petitioners, vs. COURT
OF APPEALS, SPS. RODOLFO V. ROSALES and LILY ROSALES, respondents.

G.R. No. 116617 | 1998-11-16

DECISION

MENDOZA, J.:

These are appeals brought, on the one hand, by the Metro Manila Transit Corporation (MMTC) and
Pedro Musa and, on the other, by the spouses Rodolfo V. Rosales and Lily R. Rosales from the decision,1
[Per Justice Emeterio C. Cui and concurred in by Justices Fermin A. Martin, Jr. and Eugenio S. Labitoria.]
dated August 5, 1994, of the Court of Appeals, which affirmed with modification the judgment of the
Regional Trial Court of Quezon City holding MMTC and Musa liable to the spouses Rosales for actual,
moral, and exemplary damages, attorney's fees, and the costs of suit for the death of the latter's
daughter. MMTC and Musa in G.R. No. 116617 appeal insofar as they are held liable for damages, while
the spouses Rosales in G.R. No. 126395 appeal insofar as the amounts awarded are concerned.

The facts are as follows:

MMTC is the operator of a fleet of passenger buses within the Metro Manila area. Musa was its driver
assigned to MMTC Bus No. 27. The spouses Rosales were parents of Liza Rosalie, a third-year high school
student at the University of the Philippines Integrated School.

At around a quarter past one in the afternoon of August 9, 1986, MMTC Bus No. 27, which was driven by
Musa, hit Liza Rosalie who was then crossing Katipunan Avenue in Quezon City. An eye witness said the
girl was already near the center of the street when the bus, then bound for the south, hit her.2 [TSN, p.
3, March 31, 1987.] She fell to the ground upon impact, rolled between the two front wheels of the bus,
and was run over by the left rear tires thereof.3 [Id., pp. 12-13] Her body was dragged several meters
away from the point of impact. Liza Rosalie was taken to the Philippine Heart Center,4 [Id., pp. 15-18.]
but efforts to revive her proved futile.

Pedro Musa was found guilty of reckless imprudence resulting in homicide and sentenced to
imprisonment for a term of 2 years and 4 months, as minimum, to 6 years, as maximum, by the Regional
Trial Court of Quezon City.5 [Exh. S-5, Records, pp. 37-42.] The trial court found:

All told, this Court, therefore, holds that the accused, who was then the driver of MMTC Bus No. 027, is
criminally responsible for the death of the girl victim in violation of Article 365(2) of the Revised Penal
Code. For, in the light of the evidence that the girl victim was already at the center of the Katipunan
Road when she was bumped, and, therefore, already past the right lane when the MMTC Bus No. 027
was supposed to have passed; and, since the said bus was then running at a speed of about 25
kilometers per hour which is inappropriate since Katipunan road is a busy street, there is, consequently,
sufficient proof to show that the accused was careless, reckless and imprudent in the operation of his
MMTC Bus No. 027, which is made more evident by the circumstance that the accused did not blow his
horn at the time of the accident, and he did not even know that he had bumped the girl victim and had
ran over her, demonstrating thereby that he did not exercise diligence and take the necessary
precaution to avoid injury to persons in the operation of his vehicle, as, in fact, he ran over the girl
victim who died as a result thereof.6 [Id., p. 42.]

The spouses Rosales filed an independent civil action for damages against MMTC, Musa, MMTC Acting
General Manager Conrado Tolentino, and the Government Service Insurance System (GSIS). They
subsequently amended their complaint to include Feliciana Celebrado, a dispatcher of the MMTC, as a
defendant therein. The counsel of MMTC and Musa attempted to introduce testimony that Musa was
not negligent in driving Bus No. 27 but was told by the trial judge:

COURT:
That is it. You can now limit your question to the other defendant here but to re-try again the actual
facts of the accident, this Court would not be in the position. It would be improper for this Court to
make any findings with respect to the negligence of herein driver. You ask questions only regarding the
civil aspect as to the other defendant but not as to the accused.7 [TSN, pp. 20-21, May 27, 1988.]

The counsel submitted to the ruling of the court.8 [Id., p. 21.]

In a decision rendered on March 6, 1990, the Regional Trial Court of Quezon City found MMTC and Musa
guilty of negligence and ordered them to pay damages and attorney's fees, as follows:

WHEREFORE, foregoing premises considered, judgment is hereby rendered ordering defendant Metro
Manila Transit Corporation primarily and defendant Pedro Musa subsidiarily liable to plaintiffs-spouses
Rodolfo V. Rosales and Lily R. Rosales as follows:

1. Actual damages in the amount of P150,000.00;

2. Moral damages in the amount of P500,000.00;

3. Exemplary damages in the amount of P100,000.00;

4. Attorney's fees in the amount of P50,000.00; and

5. Costs of suit.9 [Rollo, p. 58.]

Both parties appealed to the Court of Appeals. On August 5, 1994, the Court of Appeals affirmed the
decision of the trial court with the following modification:

WHEREFORE, except for the modification deleting the award of P150,000.00 as actual damages and
awarding in lieu thereof the amount of P30,000.00 as death indemnity, the decision appealed from is, in
all other aspects, hereby AFFIRMED.10 [Id., p. 53.]
The spouses Rosales filed a motion for reconsideration, which the appellate court, in a resolution, dated
September 12, 1996, partly granted by increasing the indemnity for the death of Liza Rosalie from
P30,000.00 to P50,000.00. Hence, these appeals.

In G.R. No. 116617, MMTC and Musa assail the decision of the Court of Appeals on the following
grounds:

PUBLIC RESPONDENT COURT OF APPEALS ERRED IN AFFIRMING THE COURT A QUO'S DECISION
PARTICULARLY IN NOT HOLDING THAT PETITIONER-APPELLANT MMTC EXERCISED THE DILIGENCE OF A
GOOD FATHER OF A FAMILY IN THE SELECTION AND SUPERVISION OF ITS DRIVERS. THIS BEING THE
CASE, APPELLANT MMTC IS ENTITLED TO BE ABSOLVED FROM ANY LIABILITY OR AT LEAST TO A
REDUCTION OF THE RECOVERABLE DAMAGES.

THE PUBLIC RESPONDENT COURT OF APPEALS, JUST LIKE THE COURT A QUO, OVERLOOKED THE FACT
THAT PETITIONER MMTC, A GOVERNMENT-OWNED CORPORATION, COMMITTED NO FRAUD, MALICE,
BAD FAITH, NOR WANTON, FRAUDULENT, OPPRESSIVE AND MALEVOLENT ACTUATIONS AGAINST
HEREIN RESPONDENTS-APPELLEES.

THE PUBLIC RESPONDENT COURT OF APPEALS ERRED IN AFFIRMING THE COURT A QUO'S DECISION TO
HOLD PETITIONER-APPELLANT MMTC PRIMARILY LIABLE TO PRIVATE RESPONDENTS-APPELLEES IN THE
AMOUNT OF P500,000 AS MORAL DAMAGES, P100,000 AS EXEMPLARY DAMAGES AND P30,000 BY WAY
OF DEATH INDEMNITY.

THE PUBLIC RESPONDENT COURT OF APPEALS ERRED IN AFFIRMING THE COURT A QUO'S DECISION IN
RENDERING JUDGMENT FOR ATTORNEY'S FEES IN THE AMOUNT OF P50,000.00 IN FAVOR OF PRIVATE
RESPONDENTS-APPELLEES.

On the other hand, in G.R. No. 126395, the spouses Rosales contend:

The Court of Appeals erred in:

First, considering that death indemnity which this Honorable Court set at P50,000.00 is akin to actual
damages;

Second, not increasing the amount of damages awarded;

Third, refusing to hold all the defendants, now private respondents, solidarily liable.

MMTC and Musa do not specifically question the findings of the Court of Appeals and the Regional Trial
Court of Quezon City that Liza Rosalie was hit by MMTC Bus No. 27. Nonetheless, their petition contains
discussions which cast doubts on this point.11 [Id., pp. 18-20.] Not only can they not do this as the rule is
that an appellant may not be heard on a question not specifically assigned as error, but the rule giving
great weight, and even finality, to the factual conclusions of the Court of Appeals which affirm those of
the trial court bars a reversal of the finding of liability against petitioners MMTC and Musa. Only where
it is shown that such findings are whimsical, capricious, and arbitrary can they be overturned. To the
contrary, the findings of both the Court of Appeals and the Regional Trial Court are solidly anchored on
the evidence submitted by the parties. We, therefore, regard them as conclusive in resolving the
petitions at bar.12 [Cf., Heirs of the Late Teodoro Guaring, Jr. v. Court of Appeals, 269 SCRA 283 (1997)]
Indeed, as already stated, petitioners' counsel submitted to the ruling of the court that the finding of the
trial court in the criminal case was conclusive on them with regard to the questions of whether Liza
Rosalie was hit by MMTC Bus No. 27 and whether its driver was negligent. Rather, the issue in this case
turns on Art. 2180 of the Civil Code, which provides that "employers shall be liable for the damages
caused by their employees and household helpers acting within the scope of their assigned tasks, even
though the former are not engaged in any business or industry." The responsibility of employers for the
negligence of their employees in the performance of their duties is primary, that is, the injured party
may recover from the employers directly, regardless of the solvency of their employees.13 [Philtranco
Service Enterprises, Inc. v. Court of Appeals, 273 SCRA 562 (1997)] The rationale for the rule on vicarious
liability has been adumbrated thus:

What has emerged as the modern justification for vicarious liability is a rule of policy, a deliberate
allocation of a risk. The losses caused by the torts of employees, which as a practical matter are sure to
occur in the conduct of the employer's enterprise, are placed upon that enterprise itself, as a required
cost of doing business. They are placed upon the employer because, having engaged in an enterprise,
which will on the basis of all past experience involve harm to others through the tort of employees, and
sought to profit by it, it is just that he, rather than the innocent injured plaintiff, should bear them; and
because he is better able to absorb them, and to distribute them, through prices, rates or liability
insurance, to the public, and so to shift them to society, to the community at large. Added to this is the
makeweight argument that an employer who is held strictly liable is under the greatest incentive to be
careful in the selection, instruction and supervision of his servants, and to take every precaution to see
that the enterprise is conducted safely.14 [WILLIAM L. PROSSER AND ROBERT E. KEETON, THE LAW OF
TORTS 500-501 (5th ed., 1989)]

In Campo v. Camarote,15 [100 Phil. 459, 463-64 (1956)] we explained the basis of the presumption of
negligence in this wise:

The reason for the law is obvious. It is indeed difficult for any person injured by the carelessness of a
driver to prove the negligence or lack of due diligence of the owner of the vehicle in the choice of the
driver. Were we to require the injured party to prove the owner's lack of diligence, the right will in many
cases prove illusory, as seldom does a person in the community, especially in the cities, have the
opportunity to observe the conduct of all possible car owners therein. So the law imposes the burden of
proof of innocence on the vehicle owner. If the driver is negligent and causes damage, the law presumes
that the owner was negligent and imposes upon him the burden of proving the contrary.

Employers may be relieved of responsibility for the negligent acts of their employees within the scope of
their assigned tasks only if they can show that "they observed all the diligence of a good father of a
family to prevent damage."16 [Bahia v. Litonjua, 30 Phil. 624 (1915)] For this purpose, they have the
burden of proving that they have indeed exercised such diligence, both in the selection of the employee
who committed the quasi-delict and in the supervision of the performance of his duties.
In the selection of prospective employees, employers are required to examine them as to their
qualifications, experience, and service records.17 [Supra note 15, at 463.] On the other hand, with
respect to the supervision of employees, employers should formulate standard operating procedures,
monitor their implementation, and impose disciplinary measures for breaches thereof.18 [Metro Manila
Transit Corporation v. Court of Appeals, 223 SCRA 521, 540-41 (1993)] To establish these factors in a trial
involving the issue of vicarious liability, employers must submit concrete proof, including documentary
evidence.19 [Central Taxicab Corporation v. Ex-Meralco Employees Transportation Corporation, 54 O.G.
7415, 7417-7418 (1958)]

In this case, MMTC sought to prove that it exercised the diligence of a good father of a family with
respect to the selection of employees by presenting mainly testimonial evidence on its hiring procedure.
According to MMTC, applicants are required to submit professional driving licenses, certifications of
work experience, and clearances from the National Bureau of Investigation; to undergo tests of their
driving skills, concentration, reflexes, and vision; and, to complete training programs on traffic rules,
vehicle maintenance, and standard operating procedures during emergency cases.20 [TSN, pp. 1-31,
Feb. 10, 1989.]

MMTC's evidence consists entirely of testimonial evidence (1) that transport supervisors are assigned to
oversee field operations in designated areas; (2) that the maintenance department daily inspects the
engines of the vehicles; and, (3) that for infractions of company rules there are corresponding
penalties.21 [Id., pp. 34-36.] Although testimonies were offered that in the case of Pedro Musa all these
precautions were followed,22 [Id., pp. 36-37.] the records of his interview, of the results of his
examinations, and of his service were not presented.

MMTC submitted brochures and programs of seminars for prospective employees on vehicle
maintenance, traffic regulations, and driving skills and claimed that applicants are given tests to
determine driving skills, concentration, reflexes, and vision,23 [Exhs. 2-5, Records, pp. 268-272.] but
there is no record that Musa attended such training programs and passed the said examinations before
he was employed. No proof was presented that Musa did not have any record of traffic violations. Nor
were records of daily inspections, allegedly conducted by supervisors, ever presented.

Normally, employers keep files concerning the qualifications, work experience, training, evaluation, and
discipline of their employees. The failure of MMTC to present such documentary proof puts in doubt the
credibility of its witnesses. What was said in Central Taxicab Corporation v. Ex-Meralco Employees
Transportation Corporation24 [Supra note 19.] applies to this case:

This witness spoke of an affidavit of experience which a driver-applicant must accomplish before he is
employed by the company, a written time schedule for each bus, and a record of the inspections and
thorough checks pertaining to each bus before it leaves the car barn; yet no attempt was ever made to
present in evidence any of these documents, despite the fact that they were obviously in the possession
and control of the defendant company.
....
Albert also testified that he kept records of the preliminary and final tests given by him as well as a
record of the qualifications and experience of each of the drivers of the company. It is rather strange,
therefore, that he failed to produce in court the all important record of Roberto, the driver involved in
this case.

The failure of the defendant company to produce in court any record or other documentary proof
tending to establish that it had exercised all the diligence of a good father of a family in the selection
and supervision of its drivers and buses, notwithstanding the calls therefor by both the trial court and
the opposing counsel, argues strongly against its pretensions.

It is noteworthy that, in another case involving MMTC, testimonial evidence of identical content, which
MMTC presented to show that it exercised the diligence of a good father of a family in the selection and
supervision of employees and thus avoid vicarious liability for the negligent acts of its employees, was
held to be insufficient to overcome the presumption of negligence against it. In Metro Manila Transit
Corp. v. Court of Appeals, 25 [223 SCRA 521, 534-535 (1993)] this Court said:

Coming now to the case at bar, while there is no rule which requires that testimonial evidence, to hold
sway, must be corroborated by documentary evidence, or even object evidence for that matter,
inasmuch as the witnesses' testimonies dwelt on mere generalities, we cannot consider the same as
sufficiently persuasive proof that there was observance of due diligence in the selection and supervision
of employees. Petitioner's attempt to prove its diligentissimi patris familias in the selection and
supervision of employees through oral evidence must fail as it was unable to buttress the same with any
other evidence, object or documentary, which might obviate the apparent biased nature of the
testimony.

Having found both MMTC and its driver Pedro Musa liable for negligence for the death of Liza Rosalie on
August 9, 1986, we now consider the question of damages which her parents, the spouses Rosales, are
entitled to recover, which is the subject of the appeal in G.R. No. 126395.

Indemnity for Death. Art. 2206 provides for the payment of indemnity for death caused by a crime or
quasi-delict. Initially fixed in said article of the Civil Code at P3,000.00, the amount of the indemnity has
through the years been gradually increased based on the value of the peso. At present, it is fixed at
P50,000.00.26 [E.g., Philtranco Service Enterprises, Inc. v. Court of Appeals, 273 SCRA 562, 573 (1997)]
To conform to this new ruling, the Court of Appeals correctly increased the indemnity it had originally
ordered the spouses Rosales to be paid from P30,000.00 to P50,000.00 in its resolution, dated
September 12, 1996.

Actual Damages. Art. 2199 provides that "except as provided by law or by stipulation, one is entitled to
an adequate compensation only for such pecuniary loss suffered by him as he has duly proved." The
spouses Rosales are claiming actual damages in the amount of P239,245.40. However, during the trial,
they submitted receipts showing that expenses for the funeral, wake, and interment of Liza Rosalie
amounted only to P60,226.65 itemized as follows:27 [Exhs. W to W-42, Records, pp. 168-210.]

Medical Attendance P 739.65

Funeral Services 5,100.00

Wreaths 2,500.00

Embalment 1,000.00

Obituaries 7,125.00

Interment fees 2,350.00

Expenses during wake 14,935.00

Mourning clothes 5,000.00

Photography 3,500.00

Video Coverage 10,000.00

Printing of invitation cards 7,977.00

TOTAL 60,226.65

Hence, apart from the indemnity for death, the spouses Rosales are entitled to recover the above
amount as actual damages.

Moral Damages. Under Art. 2206, the "spouse, legitimate and illegitimate descendants and ascendants
of the deceased may demand moral damages for mental anguish by reason of the death of the
deceased." The reason for the grant of moral damages has been explained thus:

. . . the award of moral damages is aimed at a restoration, within the limits of the possible, of the
spiritual status quo ante; and therefore, it must be proportionate to the suffering inflicted. The intensity
of the pain experienced by the relatives of the victim is proportionate to the intensity of affection for
him and bears no relation whatsoever with the wealth or means of the offender.28 [CESAR SANGCO,
TORTS AND DAMAGES 986 (Rev. ed., 1994)]

In the instant case, the spouses Rosales presented evidence of the intense moral suffering they had
gone through as a result of the loss of Liza Rosalie who was their youngest child. Rodolfo Rosales
recounted the place of Liza Rosalie in the family and their relationship with her in the following words:

Q: Mr. Rosales, how was Liza to you as a daughter?

A: Well, Liza as a daughter was the greatest joy of the family; she was our pride, and everybody loved
her - all her brothers and sisters - because she was sweet and unspoiled. . . . She was soft-spoken to all
of us; and she still slept with us at night although she had her own room. Sometimes in the middle of the
night she would open our door and ask if she could sleep with us. So we let her sleep with us, as she was
the youngest.29 [TSN, p. 19, May 28, 1987.]

The death of Liza Rosalie left a void in their lives. Rodolfo Rosales testified on the devastating effect of
the death of Liza Rosalie:

Q: And after she died, what changes, if any, did you feel in your family?
A: Well, there is something hollow in our family, something is missing. She used to greet me when I
came home and smell if I was drunk and would tell me to dress up and take a shower before her
mommy could see me. She would call me up at the office and say: "Daddy, come home, please help me
with my homework." Now, all these things, I am missing, you know. . . . I do not feel like going home
early. Sometimes my wife would complain and ask: "Where did you go?" But I cannot explain to her how
I feel.30 [Id., pp. 19-20, May 28, 1987.]

Lily Rosales described life without Liza Rosalie thus:

Q: Now, your life without Liza, how would you describe it, Dr. Rosales?
A: You know it is very hard to describe. The family was broken apart. We could not go together because
we remember Liza. Every time we go to the cemetery we try as much as possible not to go together. So,
we go to the cemetery one at a time, sometimes, my husband and I, or my son and another one, but we
never go together because we remember Liza. But before her death we would always be together, the
whole family on weekends and on our days off. My husband works very hard, I also work very hard and
my children go to school. They study very hard. Now we cannot go together on outings because of the
absence of Liza.31 [TSN, pp. 17-18, June 11, 1987.]

The spouses Rosales claim moral damages in the amount of P5,000,000.00. In People v. Teehankee,
Jr.,32 [249 SCRA 54, 116 (1995)] this Court awarded P1 million as moral damages to the heirs of a
seventeen-year-old girl who was murdered. This amount seems reasonable to us as moral damages for
the loss of a minor child, whether he or she was a victim of a crime or a quasi-delict. Hence, we hold that
the MMTC and Musa are solidarily liable to the spouses Rosales in the amount of P1,000,000.00 as
moral damages for the death of Liza Rosalie.

Exemplary Damages. Art. 2231 provides that exemplary damages may be recovered in cases involving
quasi-delicts if "the defendant acted with gross negligence." This circumstance obtains in the instant
case. The records indicate that at the time of the mishap, there was a pending criminal case against
Musa for reckless imprudence resulting in slight physical injuries with another branch of the Regional
Trial Court, Quezon City.33 [Exh. FF, Records, p. 265.] The evidence also shows that he failed to stop his
vehicle at once even after eye witnesses shouted at him. The spouses Rosales claim exemplary damages
in the amount of P5,000,000.00. Under the circumstances, we deem it reasonable to award the spouses
Rosales exemplary damages in the amount of five hundred thousand pesos (P500,000.00).

Attorney's Fees. Pursuant to Art. 2208, attorney's fees may be recovered when, as in the instant case,
exemplary damages are awarded. In the recent case of Sulpicio Lines, Inc. v. Court of Appeals,34 [246
SCRA 376 (1995)] which involved the death of a minor child in the sinking of a vessel, we held an award
of P50,000.00 as attorney's fees to be reasonable. Hence, we affirm the award of attorney's fees made
by the Court of Appeals to the spouses Rosales in that amount.

Compensation for Loss of Earning Capacity. Art. 2206 of the Civil Code provides that in addition to the
indemnity for death caused by a crime or quasi delict, the "defendant shall be liable for the loss of the
earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter; . . . ."
Compensation of this nature is awarded not for loss of earnings but for loss of capacity to earn
money.35 [People v. Teehankee, 249 SCRA 54, 118 (1995)] Evidence must be presented that the victim,
if not yet employed at the time of death, was reasonably certain to complete training for a specific
profession.36 [E.g., Cariaga v. Laguna Tayabas Bus Company, 110 Phil. 346 (1960)] In People v.
Teehankee,37 [249 SCRA 54, 118-119 (1995)] no award of compensation for loss of earning capacity was
granted to the heirs of a college freshman because there was no sufficient evidence on record to show
that the victim would eventually become a professional pilot.38 [Supra note 35, at 119.] But
compensation should be allowed for loss of earning capacity resulting from the death of a minor who
has not yet commenced employment or training for a specific profession if sufficient evidence is
presented to establish the amount thereof. In the United States it has been observed:

This raises the broader question of the proper measure of damages in death cases involving children,
housewives, the old, and others who do not have market income so that there is no pecuniary loss to
survivors or to the estate of the decedent. The traditional approach was to award no or merely nominal
damages in such cases. . . . Increasingly, however, courts allow expert testimony to be used to project
those lost earnings.39 [RICHARD A. POSNER, TORT LAW: CASES AND ECONOMIC ANALYSIS 123-25
(1982)]

Thus, in Haumersen v. Ford Motor Co.,40 [257 N.W. 2d 7, 17 (1977)] the court allowed the heirs of a
seven-year-old boy who was killed in a car accident to recover compensation for loss of earning
capacity:

Considerable evidence was presented by plaintiffs in an effort to give the jury a foundation on which to
make an award. Briefly stated, this evidence showed Charles Haumersen was a seven-year-old of above
average characteristics. He was described as "very intelligent" and "all-American." He received high
marks in school. He was active in church affairs and participated in recreational and athletic events,
often with children older than himself. In addition, he had an unusual talent for creating numerous
cartoons and other drawings, some of which plaintiffs introduced at trial.

The record does not disclose passion and prejudice. The key question is whether the verdict of $100,000
has support in the evidence.

Upon analysis of the record, we conclude that we should not disturb the award.

The argument for allowing compensation for loss of earning capacity of a minor is even stronger if he or
she was a student, whether already training for a specific profession or still engaged in general studies.
In Krohmer v. Dahl,41 [402 P. 2d 979, 982 (1965)] the court, in affirming the award by the jury of
$85,000.00 to the heirs of an eighteen-year-old college freshman who died of carbon monoxide
poisoning, stated as follows:

There are numerous cases that have held admissible evidence of prospective earnings of a student or
trainee. . . . The appellants contend that such evidence is not admissible unless the course under study
relates to a given occupation or profession and it is shown that the student is reasonably certain to
follow that occupation or profession. It is true that the majority of these decisions deal with students
who are studying for a specific occupation or profession. However, not one of these cases indicate that
evidence of one's education as a guide to future earnings is not admissible where the student is engaged
in general studies or whose education does not relate to a specific occupation.

In sharp contrast with the situation obtaining in People v. Teehankee, where the prosecution merely
presented evidence to show the fact of the victim's graduation from high school and the fact of his
enrollment in a flying school, the spouses Rosales did not content themselves with simply establishing
Liza Rosalie's enrollment at UP Integrated School. They presented evidence to show that Liza Rosalie
was a good student, promising artist, and obedient child. She consistently performed well in her studies
since grade school.42 [TSN, pp. 8-9, Aug. 27, 1987.] A survey taken in 1984 when Liza Rosalie was twelve
years old showed that she had good study habits and attitudes.43 [Exh. DD, Records, p. 263.] Cleofe Chi,
guidance counselor of the University of the Philippines Integrated School, described Liza Rosalie as
personable, well-liked, and with a balanced personality.44 [TSN, pp. 9-11, Aug. 27, 1987.] Professor
Alfredo Rebillon, a faculty member of the University of the Philippines College of Fine Arts, who
organized workshops which Liza Rosalie attended in 1982 and 1983, testified that Liza Rosalie had the
potential of eventually becoming an artist.45 [TSN, pp. 1-7, June 22, 1987.] Professor Rebillon's
testimony is more than sufficiently established by the 51 samples of Liza Rosalie's watercolor, charcoal,
and pencil drawings submitted as exhibits by the spouses Rosales.46 [Exhs. U-1 to U-51, Records, pp. 46-
96.] Neither MMTC nor Pedro Musa controverted this evidence.

Considering her good academic record, extra-curricular activities, and varied interests, it is reasonable to
assume that Liza Rosalie would have enjoyed a successful professional career had it not been for her
untimely death. Hence, it is proper that compensation for loss of earning capacity should be awarded to
her heirs in accordance with the formula established in decided cases47 [E.g., Negros Navigation Co.,
Inc. v. Court of Appeals, 281 SCRA 534 (1997)] for computing net earning capacity, to wit:

Net Earning Capacity

=
Life Expectancy
x
Gross Annual Income
_
Necessary Living Expenses

Life expectancy is equivalent to two thirds (2/3) multiplied by the difference of eighty (80) and the age
of the deceased.48 [Villa Rey Transit, Inc. v. Court of Appeals, 31 SCRA 511 (1970)] Since Liza Rosalie was
16 at the time of her death, her life expectancy was 44 more years.49 [2/3 x (80-14) = 44.] Her projected
gross annual income, computed based on the minimum wage for workers in the non-agricultural sector
in effect at the time of her death,50 [As adopted in People v. Teehankee, note 1, supra.] then fixed at
P37.00,51 [Wage Order No. 6, effective November 1, 1984.] is P14,630.46.52 [ 37.00

x365
P13,505.00
á• 12
P 1,125.42 equivalent monthly rate
x 13
P14,630.46 gross annual income

To account for the thirteenth month pay, the equivalent monthly rate is multiplied by thirteen.]
Allowing for necessary living expenses of fifty percent (50%) of her projected gross annual income,53
[See note 47, supra.] her total net earning capacity amounts to P321,870.12.54 [P14,630.46

x .50
P 7,315.23 net annual income
x 44
P 321,870.12 net earning capacity]

Finally, the spouses Rosales argue that the Court of Appeals erred in absolving Conrado Tolentino,
Feliciana Celebrado, and the GSIS of liability. The spouses Rosales alleged that Tolentino, as Acting
General Manager of the MMTC, and Celebrado, as a dispatcher thereof, were charged with the
supervision of Musa and should, therefore, be held vicariously liable under Art. 2180 of the Civil Code.
With respect to the GSIS, they contend that it was the insurer in a contract for third party liability it had
with the MMTC.

Although the fourth paragraph of Art. 2180 mentions "managers" among those made responsible for
the negligent acts of others, it is settled that this term is used in the said provision in the sense of
"employers."55 [Philippine Rabbit Bus Lines, Inc. v. Phil-American Forwarders, Inc., 63 SCRA 231 (1975)]
Thus, Tolentino and Celebrado cannot be held liable for the tort of Pedro Musa.

In Vda. de Maglana v. Consolacion,56 [212 SCRA 218, 272-274 (1992)] it was ruled that an insurer in an
indemnity contract for third party liability is directly liable to the injured party up to the extent specified
in the agreement, but it cannot be held solidarily liable beyond that amount. The GSIS admitted in its
answer that it was the insurer of the MMTC for third party liability with respect to MMTC Bus No. 27 to
the extent of P50,000.00.57 [Records, p. 32.] Hence, the spouses Rosales have the option either to claim
the said amount from the GSIS and the balance of the award from MMTC and Musa or to enforce the
entire judgment against the latter, subject to reimbursement from the former to the extent of the
insurance coverage.58 [Supra note 56.]

One last word. The Regional Trial Court of Quezon City erred in holding MMTC primarily and Musa
secondarily liable for damages arising from the death of Liza Rosalie. It was error for the appellate court
to affirm this aspect of the trial court's decision.
As already stated, MMTC is primarily liable for damages for the negligence of its employee in view of
Art. 2180. Pursuant to Art. 2181, it can recover from its employee what it may pay. This does not make
the employee's liability subsidiary. It only means that if the judgment for damages is satisfied by the
common carrier, the latter has a right to recover what it has paid from its employee who committed the
fault or negligence which gave rise to the action based on quasi-delict.59 [See Philtranco Service
Enterprises, Inc. v. Court of Appeals, 273 SCRA 562 (1997)] Hence, the spouses Rosales have the option
of enforcing the judgment against either MMTC or Musa.

From another point of view, Art. 2194 provides that "the responsibility of two or more persons who are
liable for a quasi-delict is solidary." We ruled in Gelisan v. Alday60 [154 SCRA 388, 394 (1987)] that "the
registered owner/operator of a public service vehicle is jointly and severally liable with the driver for
damages incurred by passengers or third persons as a consequence of injuries sustained in the operation
of said vehicle." In Baliwag Transit, Inc. v. Court of Appeals61 [262 SCRA 230, 234 (1996) (emphasis
added)] it was held that "to escape solidary liability for a quasi-delict committed by an employee, the
employer must adduce sufficient proof that it exercised such degree of care." Finally, we held in the
recent case of Philtranco Service Enterprises, Inc. v. Court of Appeals62 [Supra note 59 at 572.] that "the
liability of the registered owner of a public service vehicle . . . for damages arising from the tortious acts
of the driver is primary, direct, and joint and several or solidary with the driver."

WHEREFORE, the decision of the Court of Appeals is SET ASIDE and another one is RENDERED holding
the Metro Manila Transit Corporation and Pedro Musa jointly and severally liable for the death of Liza
Rosalie R. Rosales and ORDERING them as such to pay to the spouses Rodolfo V. Rosales and Lily R.
Rosales the following amounts:

1) death indemnity in the amount of fifty thousand pesos (P50,000.00);

2) actual damages in the amount of sixty thousand two hundred twenty six pesos and sixty five centavos
(P60,226.65);

3) moral damages in the amount of one million pesos (P1,000,000.00);

4) exemplary damages in the amount of five hundred thousand pesos (P500,000.00);

5) attorney's fees in the amount of fifty thousand pesos (P50,000.00);

6) compensation for loss of earning capacity in the amount of three hundred twenty-one thousand eight
hundred seventy pesos and twelve centavos (P321,870.12); and

7) the costs of suit.

SO ORDERED.
THE METROPOLITAN BANK
AND TRUST COMPANY,
Petitioner,
vs.
ANA GRACE ROSALES
AND YO YUK TO,
Respondents.

SECOND DIVISION

DECISION

DEL CASTILLO, J.:

Bank deposits, which are in the nature of a simple loan or mutuum,1 must be paid upon demand by the
depositor.2

This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the April 2, 2008
Decision4 and the May 30, 2008 Resolution5 of the Court of Appeals (CA) in CA-G.R. CV No. 89086.

Factual Antecedents

Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly organized and
existing under the laws of the Philippines.6 Respondent Ana Grace Rosales (Rosales) is the owner of
China Golden Bridge Travel Services,7 a travel agency.8 Respondent Yo Yuk To is the mother of
respondent Rosales.9

In 2000, respondents opened a Joint Peso Account10 with petitioner’s Pritil-Tondo Branch.11 As of August
4, 2004, respondents’ Joint Peso Account showed a balance of P2,515,693.52.12

In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National applying
for a retiree’s visa from the Philippine Leisure and Retirement Authority (PLRA), to petitioner’s branch in
Escolta to open a savings account, as required by the PLRA.13 Since Liu Chiu Fang could speak only in
Mandarin, respondent Rosales acted as an interpreter for her.14
On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a Joint Dollar
Account15 with an initial deposit of US$14,000.00.16

On July 31, 2003, petitioner issued a “Hold Out” order against respondents’ accounts.17

On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan Aguirre, filed
before the Office of the Prosecutor of Manila a criminal case for Estafa through False Pretences,
Misrepresentation, Deceit, and Use of Falsified Documents, docketed as I.S. No. 03I-25014,18 against
respondent Rosales.19 Petitioner accused respondent Rosales and an unidentified woman as the ones
responsible for the unauthorized and fraudulent withdrawal of US$75,000.00 from Liu Chiu Fang’s dollar
account with petitioner’s Escolta Branch.20 Petitioner alleged that on February 5, 2003, its branch in
Escolta received from the PLRA a Withdrawal Clearance for the dollar account of Liu Chiu Fang;21 that in
the afternoon of the same day, respondent Rosales went to petitioner’s Escolta Branch to inform its
Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her dollar deposits
in cash;22 that Gutierrez told respondent Rosales to come back the following day because the bank did
not have enough dollars;23 that on February 6, 2003, respondent Rosales accompanied an unidentified
impostor of Liu Chiu Fang to the bank;24 that the impostor was able to withdraw Liu Chiu Fang’s dollar
deposit in the amount of US$75,000.00;25 that on March 3, 2003, respondents opened a dollar account
with petitioner; and that the bank later discovered that the serial numbers of the dollar notes deposited
by respondents in the amount of US$11,800.00 were the same as those withdrawn by the impostor.26

Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal from
the dollar account of Liu Chiu Fang.27 Respondent Rosales claimed that she did not go to the bank on
February 5, 2003.28 Neither did she inform Gutierrez that Liu Chiu Fang was going to close her
account.29 Respondent Rosales further claimed that after Liu Chiu Fang opened an account with
petitioner, she lost track of her.30 Respondent Rosales’ version of the events that transpired thereafter
is as follows:

On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu Fang was at the bank
to close her account.31 At noon of the same day, respondent Rosales went to the bank to make a
transaction.32 While she was transacting with the teller, she caught a glimpse of a woman seated at the
desk of the Branch Operating Officer, Melinda Perez (Perez).33 After completing her transaction,
respondent Rosales approached Perez who informed her that Liu Chiu Fang had closed her account and
had already left.34 Perez then gave a copy of the Withdrawal Clearance issued by the PLRA to
respondent Rosales.35 On June 16, 2003, respondent Rosales received a call from Liu Chiu Fang inquiring
about the extension of her PLRA Visa and her dollar account.[6 It was only then that Liu Chiu Fang found
out that her account had been closed without her knowledge.37 Respondent Rosales then went to the
bank to inform Gutierrez and Perez of the unauthorized withdrawal.38 On June 23, 2003, respondent
Rosales and Liu Chiu Fang went to the PLRA Office, where they were informed that the Withdrawal
Clearance was issued on the basis of a Special Power of Attorney (SPA) executed by Liu Chiu Fang in
favour of a certain Richard So.39 Liu Chiu Fang, however, denied executing the SPA.40 The following day,
respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez met at the PLRA Office to discuss the
unauthorized withdrawal.41 During the conference, the bank officers assured Liu Chiu Fang that the
money would be returned to her.42

On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing the
criminal case for lack of probable cause.43 Unfazed, petitioner moved for reconsideration.

On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a
Complaint44 for Breach of Obligation and Contract with Damages, docketed as Civil Case No. 04110895
and raffled to Branch 21, against petitioner. Respondents alleged that they attempted several times to
withdraw their deposits but were unable to because petitioner had placed their accounts under “Hold
Out” status.45 No explanation, however, was given by petitioner as to why it issued the “Hold Out”
order.46 Thus, they prayed that the “Hold Out” order be lifted and that they be allowed to withdraw
their deposits.47 They likewise prayed for actual, moral, and exemplary damages, as well as attorney’s
fees.48

Petitioner alleged that respondents have no cause of action because it has a valid reason for issuing the
“Hold Out” order.49 It averred that due to the fraudulent scheme of respondent Rosales, it was
compelled to reimburse Liu Chiu Fang the amount of US$75,000.0050 and to file a criminal complaint for
Estafa against respondent Rosales.51

While the case for breach of contract was being tried, the City Prosecutor of Manila issued a Resolution
dated February 18, 2005, reversing the dismissal of the criminal complaint.52 An Information, docketed
as Criminal Case No. 05-236103,53 was then filed charging respondent Rosales with Estafa before Branch
14 of the RTC of Manila.54

Ruling of the Regional Trial Court

On January 15, 2007, the RTC rendered a Decision55 finding petitioner liable for damages for breach of
contract.56 The RTC ruled that it is the duty of petitioner to release the deposit to respondents as the act
of withdrawal of a bank deposit is an act of demand by the creditor.57 The RTC also said that the
recourse of petitioner is against its negligent employees and not against respondents.58 The dispositive
portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering [petitioner] METROPOLITAN

BANK & TRUST COMPANY to allow [respondents] ANA GRACE ROSALES and YO YUK TO to withdraw
their Savings and Time Deposits with the agreed interest, actual damages of P50,000.00, moral damages
of P50,000.00, exemplary damages of P30,000.00 and 10% of the amount due [respondents] as and for
attorney’s fees plus the cost of suit.

The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.

SO ORDERED.59

Ruling of the Court of Appeals

Aggrieved, petitioner appealed to the CA.

On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of actual damages because
“the basis for [respondents’] claim for such damages is the professional fee that they paid to their legal
counsel for [respondent] Rosales’ defense against the criminal complaint of [petitioner] for estafa
before the Office of the City Prosecutor of Manila and not this case.”60 Thus, the CA disposed of the case
in this wise:

WHEREFORE, premises considered, the Decision dated January 15, 2007 of the RTC, Branch 21, Manila
in Civil Case No. 04-110895 is AFFIRMED with MODIFICATION that the award of actual damages to
[respondents] Rosales and Yo Yuk To is hereby DELETED.

SO ORDERED.61

Petitioner sought reconsideration but the same was denied by the CA in its May 30, 2008 Resolution.62

Issues

Hence, this recourse by petitioner raising the following issues:

A. THE [CA] ERRED IN RULING THAT THE “HOLD-OUT” PROVISION IN THE APPLICATION AND
AGREEMENT FOR DEPOSIT ACCOUNT DOES NOT APPLY IN THIS CASE.
B. THE [CA] ERRED WHEN IT RULED THAT PETITIONER’S EMPLOYEES WERE NEGLIGENT IN RELEASING
LIU CHIU FANG’S FUNDS.

C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES, EXEMPLARY DAMAGES, AND
ATTORNEY’S FEES.63

Petitioner’s Arguments

Petitioner contends that the CA erred in not applying the “Hold Out” clause stipulated in the Application
and Agreement for Deposit Account.64 It posits that the said clause applies to any and all kinds of
obligation as it does not distinguish between obligations arising ex contractu or ex delictu.65 Petitioner
also contends that the fraud committed by respondent Rosales was clearly established by
evidence;66 thus, it was justified in issuing the “Hold-Out” order.67

Petitioner likewise denies that its employees were negligent in releasing the dollars.68 It claims that it
was the deception employed by respondent Rosales that caused petitioner’s employees to release Liu
Chiu Fang’s funds to the impostor.69

Lastly, petitioner puts in issue the award of moral and exemplary damages and attorney’s fees. It insists
that respondents failed to prove that it acted in bad faith or in a wanton, fraudulent, oppressive or
malevolent manner.70

Respondents’ Arguments

Respondents, on the other hand, argue that there is no legal basis for petitioner to withhold their
deposits because they have no monetary obligation to petitioner.71 They insist that petitioner miserably
failed to prove its accusations against respondent Rosales.72 In fact, no documentary evidence was
presented to show that respondent Rosales participated in the unauthorized withdrawal.73 They also
question the fact that the list of the serial numbers of the dollar notes fraudulently withdrawn on
February 6, 2003, was not signed or acknowledged by the alleged impostor.74 Respondents likewise
maintain that what was established during the trial was the negligence of petitioner’s employees as they
allowed the withdrawal of the funds without properly verifying the identity of the
depositor.75 Furthermore, respondents contend that their deposits are in the nature of a loan; thus,
petitioner had the obligation to return the deposits to them upon demand.76 Failing to do so makes
petitioner liable to pay respondents moral and exemplary damages, as well as attorney’s fees.77

Our Ruling
The Petition is bereft of merit.

At the outset, the relevant issues in this case are (1) whether petitioner breached its contract with
respondents, and (2) if so, whether it is liable for damages. The issue of whether petitioner’s employees
were negligent in allowing the withdrawal of Liu Chiu Fang’s dollar deposits has no bearing in the
resolution of this case. Thus, we find no need to discuss the same.

The “Hold Out” clause does not apply

to the instant case.

Petitioner claims that it did not breach its contract with respondents because it has a valid reason for
issuing the “Hold Out” order. Petitioner anchors its right to withhold respondents’ deposits on the
Application and Agreement for Deposit Account, which reads:

Authority to Withhold, Sell and/or Set Off:

The Bank is hereby authorized to withhold as security for any and all obligations with the Bank, all
monies, properties or securities of the Depositor now in or which may hereafter come into the
possession or under the control of the Bank, whether left with the Bank for safekeeping or
otherwise, or coming into the hands of the Bank in any way, for so much thereof as will be sufficient to
pay any or all obligations incurred by Depositor under the Account or by reason of any other
transactions between the same parties now existing or hereafter contracted, to sell in any public or
private sale any of such properties or securities of Depositor, and to apply the proceeds to the payment
of any Depositor’s obligations heretofore mentioned.

xxxx

JOINT ACCOUNT

xxxx

The Bank may, at any time in its discretion and with or without notice to all of the Depositors, assert a
lien on any balance of the Account and apply all or any part thereof against any indebtedness, matured
or unmatured, that may then be owing to the Bank by any or all of the Depositors. It is understood that
if said indebtedness is only owing from any of the Depositors, then this provision constitutes the
consent by all of the depositors to have the Account answer for the said indebtedness to the extent of
the equal share of the debtor in the amount credited to the Account.78

Petitioner’s reliance on the “Hold Out” clause in the Application and Agreement for Deposit Account is
misplaced.

The “Hold Out” clause applies only if there is a valid and existing obligation arising from any of the
sources of obligation enumerated in Article 115779 of the Civil Code, to wit: law, contracts, quasi-
contracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents have an
obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And although a criminal
case was filed by petitioner against respondent Rosales, this is not enough reason for petitioner to issue
a “Hold Out” order as the case is still pending and no final judgment of conviction has been rendered
against respondent Rosales. In fact, it is significant to note that at the time petitioner issued the “Hold
Out” order, the criminal complaint had not yet been filed. Thus, considering that respondent Rosales is
not liable under any of the five sources of obligation, there was no legal basis for petitioner to issue the
“Hold Out” order. Accordingly, we agree with the findings of the RTC and the CA that the “Hold Out”
clause does not apply in the instant case.

In view of the foregoing, we find that petitioner is guilty of breach of contract when it unjustifiably
refused to release respondents’ deposit despite demand. Having breached its contract with
respondents, petitioner is liable for damages.

Respondents are entitled to moral and

exemplary damages and attorney’s fees.

In cases of breach of contract, moral damages may be recovered only if the defendant acted
fraudulently or in bad faith,80 or is “guilty of gross negligence amounting to bad faith, or in wanton
disregard of his contractual obligations.”81

In this case, a review of the circumstances surrounding the issuance of the “Hold Out” order reveals that
petitioner issued the “Hold Out” order in bad faith. First of all, the order was issued without any legal
basis. Second, petitioner did not inform respondents of the reason for the “Hold Out.”82 Third, the order
was issued prior to the filing of the criminal complaint. Records show that the “Hold Out” order was
issued on July 31, 2003,83 while the criminal complaint was filed only on September 3, 2003.84 All these
taken together lead us to conclude that petitioner acted in bad faith when it breached its contract with
respondents. As we see it then, respondents are entitled to moral damages.
As to the award of exemplary damages, Article 222985 of the Civil Code provides that exemplary
damages may be imposed “by way of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages.” They are awarded only if the guilty party
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.86

In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner when it refused to release the deposits of respondents without any legal basis. We
need not belabour the fact that the banking industry is impressed with public interest.87 As such, “the
highest degree of diligence is expected, and high standards of integrity and performance are even
required of it.”88 It must therefore “treat the accounts of its depositors with meticulous care and always
to have in mind the fiduciary nature of its relationship with them.”89 For failing to do this, an award of
exemplary damages is justified to set an example.

The award of attorney’s fees is likewise proper pursuant to paragraph 1, Article 220890 of the Civil Code.

In closing, it must be stressed that while we recognize that petitioner has the right to protect itself from
fraud or suspicions of fraud, the exercise of this right should be done within the bounds of the law and
in accordance with due process, and not in bad faith or in a wanton disregard of its contractual
obligation to respondents.

WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision and the May 30, 2008
Resolution of the Court of Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED.

SO ORDERED.
KHRISTINE REA M. REGINO, Assisted and Represented by ARMANDO REGINO, Petitioner, versus
PANGASINAN COLLEGES OF SCIENCE AND TECHNOLOGY,
RACHELLE A. GAMUROT and ELISSA BALADAD, Respondents.

DECISION

PANGANIBAN, J.:

Upon enrolment, students and their school enter upon a reciprocal contract. The students agree to
abide by the standards of academic performance and codes of conduct, issued usually in the form of
manuals that are distributed to the enrollees at the start of the school term. Further, the school informs
them of the itemized fees they are expected to pay. Consequently, it cannot, after the enrolment of a
student, vary the terms of the contract. It cannot require fees other than those it specified upon
enrolment.

The Case

Before the Court is a Petition for Review under Rule 45,[1] seeking to nullify the July 12, 2002[2] and the
November 22, 2002[3] Orders of the Regional Trial Court (RTC) of Urdaneta City, Pangasinan (Branch 48)
in Civil Case No. U-7541. The decretal portion of the first assailed Order reads:

"WHEREFORE, the Court GRANTS the instant motion to dismiss for lack of cause of action."[4]
The second challenged Order denied petitioner's Motion for Reconsideration.

The Facts
Petitioner Khristine Rea M. Regino was a first year computer science student at Respondent Pangasinan
Colleges of Science and Technology (PCST). Reared in a poor family, Regino went to college mainly
through the financial support of her relatives. During the second semester of school year 2001-2002, she
enrolled in logic and statistics subjects under Respondents Rachelle A. Gamurot and Elissa Baladad,
respectively, as teachers.

In February 2002, PCST held a fund raising campaign dubbed the "Rave Party and Dance Revolution," the
proceeds of which were to go to the construction of the school's tennis and volleyball courts. Each
student was required to pay for two tickets at the price of P100 each. The project was allegedly
implemented by recompensing students who purchased tickets with additional points in their test
scores; those who refused to pay were denied the opportunity to take the final examinations.

Financially strapped and prohibited by her religion from attending dance parties and celebrations,
Regino refused to pay for the tickets. On March 14 and March 15, 2002, the scheduled dates of the final
examinations in logic and statistics, her teachers -- Respondents Rachelle A. Gamurot and Elissa Baladad
-- allegedly disallowed her from taking the tests. According to petitioner, Gamurot made her sit out her
logic class while her classmates were taking their examinations. The next day, Baladad, after announcing
to the entire class that she was not permitting petitioner and another student to take their statistics
examinations for failing to pay for their tickets, allegedly ejected them from the classroom. Petitioner's
pleas ostensibly went unheeded by Gamurot and Baladad, who unrelentingly defended their positions
as compliance with PCST's policy.

On April 25, 2002, petitioner filed, as a pauper litigant, a Complaint[5] for damages against PCST,
Gamurot and Baladad. In her Complaint, she prayed for P500,000 as nominal damages; P500,000 as
moral damages; at least P1,000,000 as exemplary damages; P250,000 as actual damages; plus the costs
of litigation and attorney's fees.

On May 30, 2002, respondents filed a Motion to Dismiss[6] on the ground of petitioner's failure to
exhaust administrative remedies. According to respondents, the question raised involved the
determination of the wisdom of an administrative policy of the PCST; hence, the case should have been
initiated before the proper administrative body, the Commission of Higher Education (CHED).

In her Comment to respondents' Motion, petitioner argued that prior exhaustion of administrative
remedies was unnecessary, because her action was not administrative in nature, but one purely for
damages arising from respondents' breach of the laws on human relations. As such, jurisdiction lay with
the courts.

On July 12, 2002, the RTC dismissed the Complaint for lack of cause of action.

Ruling of the Regional Trial Court

In granting respondents' Motion to Dismiss, the trial court noted that the instant controversy involved a
higher institution of learning, two of its faculty members and one of its students. It added that Section
54 of the Education Act of 1982 vested in the Commission on Higher Education (CHED) the supervision
and regulation of tertiary schools. Thus, it ruled that the CHED, not the courts, had jurisdiction over the
controversy.[7]

In its dispositive portion, the assailed Order dismissed the Complaint for "lack of cause of action"
without, however, explaining this ground.

Aggrieved, petitioner filed the present Petition on pure questions of law.[8]

Issues
In her Memorandum, petitioner raises the following issues for our consideration:

"Whether or not the principle of exhaustion of administrative remedies applies in a civil action
exclusively for damages based on violation of the human relation provisions of the Civil Code, filed by a
student against her former school.

"Whether or not there is a need for prior declaration of invalidity of a certain school administrative
policy by the Commission on Higher Education (CHED) before a former student can successfully maintain
an action exclusively for damages in regular courts.
"Whether or not the Commission on Higher Education (CHED) has exclusive original jurisdiction over
actions for damages based upon violation of the Civil Code provisions on human relations filed by a
student against the school."[9]

All of the foregoing point to one issue -- whether the doctrine of exhaustion of administrative remedies
is applicable. The Court, however, sees a second issue which, though not expressly raised by petitioner,
was impliedly contained in her Petition: whether the Complaint stated sufficient cause(s) of action.

The Court's Ruling

The Petition is meritorious.

First Issue:

Exhaustion of Administrative Remedies

Respondents anchored their Motion to Dismiss on petitioner's alleged failure to exhaust administrative
remedies before resorting to the RTC. According to them, the determination of the controversy hinge on
the validity, the wisdom and the propriety of PCST's academic policy. Thus, the Complaint should have
been lodged in the CHED, the administrative body tasked under Republic Act No. 7722 to implement the
state policy to "protect, foster and promote the right of all citizens to affordable quality education at all
levels and to take appropriate steps to ensure that education is accessible to all."[10]

Petitioner counters that the doctrine finds no relevance to the present case since she is praying for
damages, a remedy beyond the domain of the CHED and well within the jurisdiction of the courts.[11]

Petitioner is correct. First, the doctrine of exhaustion of administrative remedies has no bearing on the
present case. In Factoran Jr. v. CA,[12] the Court had occasion to elucidate on the rationale behind this
doctrine:

"The doctrine of exhaustion of administrative remedies is basic. Courts, for reasons of law, comity, and
convenience, should not entertain suits unless the available administrative remedies have first been
resorted to and the proper authorities have been given the appropriate opportunity to act and correct
their alleged errors, if any, committed in the administrative forum. x x x.[13]"

Petitioner is not asking for the reversal of the policies of PCST. Neither is she demanding it to allow her
to take her final examinations; she was already enrolled in another educational institution. A reversal of
the acts complained of would not adequately redress her grievances; under the circumstances, the
consequences of respondents' acts could no longer be undone or rectified.
Second, exhaustion of administrative remedies is applicable when there is competence on the part of
the administrative body to act upon the matter complained of.[14] Administrative agencies are not
courts; they are neither part of the judicial system, nor are they deemed judicial tribunals.[15]
Specifically, the CHED does not have the power to award damages.[16] Hence, petitioner could not have
commenced her case before the Commission.

Third, the exhaustion doctrine admits of exceptions, one of which arises when the issue is purely legal
and well within the jurisdiction of the trial court.[17] Petitioner's action for damages inevitably calls for
the application and the interpretation of the Civil Code, a function that falls within the jurisdiction of the
courts.[18]

Second Issue:

Cause of Action

Sufficient Causes of Action Stated

in the Allegations in the Complaint

As a rule, every complaint must sufficiently allege a cause of action; failure to do so warrants its
dismissal.[19] A complaint is said to assert a sufficient cause of action if, admitting what appears solely
on its face to be correct, the plaintiff would be entitled to the relief prayed for. Assuming the facts that
are alleged to be true, the court should be able to render a valid judgment in accordance with the prayer
in the complaint.[20]

A motion to dismiss based on lack of cause of action hypothetically admits the truth of the alleged facts.
In their Motion to Dismiss, respondents did not dispute any of petitioner's allegations, and they
admitted that "x x x the crux of plaintiff's cause of action is the determination of whether or not the
assessment of P100 per ticket is excessive or oppressive."[21] They thereby premised their prayer for
dismissal on the Complaint's alleged failure to state a cause of action. Thus, a reexamination of the
Complaint is in order.

The Complaint contains the following factual allegations:

"10. In the second week of February 2002, defendant Rachelle A. Gamurot, in connivance with PCST,
forced plaintiff and her classmates to buy or take two tickets each, x x x;

"11. Plaintiff and many of her classmates objected to the forced distribution and selling of tickets to
them but the said defendant warned them that if they refused [to] take or pay the price of the two
tickets they would not be allowed at all to take the final examinations;
"12. As if to add insult to injury, defendant Rachelle A. Gamurot bribed students with additional fifty
points or so in their test score in her subject just to unjustly influence and compel them into taking the
tickets;

"13. Despite the students' refusal, they were forced to take the tickets because [of] defendant Rachelle
A. Gamurot's coercion and act of intimidation, but still many of them including the plaintiff did not
attend the dance party imposed upon them by defendants PCST and Rachelle A. Gamurot;

"14. Plaintiff was not able to pay the price of her own two tickets because aside form the fact that she
could not afford to pay them it is also against her religious practice as a member of a certain religious
congregation to be attending dance parties and celebrations;

"15. On March 14, 2002, before defendant Rachelle A. Gamurot gave her class its final examination in
the
subject 'Logic' she warned that students who had not paid the tickets would not be allowed to
participate in the examination, for which threat and intimidation many students were eventually forced
to make payments:

"16. Because plaintiff could not afford to pay, defendant Rachelle A. Gamurot inhumanly made plaintiff
sit out the class but the defendant did not allow her to take her final examination in 'Logic;'

"17. On March 15, 2002 just before the giving of the final examination in the subject 'Statistics,'
defendant Elissa Baladad, in connivance with defendants Rachelle A. Gamurot and PCST, announced in
the classroom that she was not allowing plaintiff and another student to take the examination for their
failure and refusal to pay the price of the tickets, and thenceforth she ejected plaintiff and the other
student from the classroom;

"18. Plaintiff pleaded for a chance to take the examination but all defendants could say was that the
prohibition to give the examinations to non-paying students was an administrative decision;

"19. Plaintiff has already paid her tuition fees and other obligations in the school;

"20. That the above-cited incident was not a first since PCST also did another forced distribution of
tickets to its students in the first semester of school year 2001-2002; x x x " [22]

The foregoing allegations show two causes of action; first, breach of contract; and second, liability for
tort.

Reciprocity of the

School-Student Contract
In Alcuaz v. PSBA,[23] the Court characterized the relationship between the school and the student as a
contract, in which "a student, once admitted by the school is considered enrolled for one semester."[24]
Two years later, in Non v. Dames II,[25] the Court modified the "termination of contract theory" in
Alcuaz by holding that the contractual relationship between the school and the student is not only
semestral in duration, but for the entire period the latter are expected to complete it."[26] Except for
the variance in the period during which the contractual relationship is considered to subsist, both Alcuaz
and Non were unanimous in characterizing the school-student relationship as contractual in nature.

The school-student relationship is also reciprocal. Thus, it has consequences appurtenant to and
inherent in all contracts of such kind -- it gives rise to bilateral or reciprocal rights and obligations. The
school undertakes to provide students with education sufficient to enable them to pursue higher
education or a profession. On the other hand, the students agree to abide by the academic
requirements of the school and to observe its rules and regulations.[27]

The terms of the school-student contract are defined at the moment of its inception -- upon enrolment
of the student. Standards of academic performance and the code of behavior and discipline are usually
set forth in manuals distributed to new students at the start of every school year. Further, schools
inform prospective enrollees the amount of fees and the terms of payment.

In practice, students are normally required to make a down payment upon enrollment, with the balance
to be paid before every preliminary, midterm and final examination. Their failure to pay their financial
obligation is regarded as a valid ground for the school to deny them the opportunity to take these
examinations.

The foregoing practice does not merely ensure compliance with financial obligations; it also underlines
the importance of major examinations. Failure to take a major examination is usually fatal to the
students' promotion to the next grade or to graduation. Examination results form a significant basis for
their final grades. These tests are usually a primary and an indispensable requisite to their elevation to
the next educational level and, ultimately, to their completion of a course.

Education is not a measurable commodity. It is not possible to determine who is "better educated" than
another. Nevertheless, a student's grades are an accepted approximation of what would otherwise be
an intangible product of countless hours of study. The importance of grades cannot be discounted in a
setting where education is generally the gate pass to employment opportunities and better life; such
grades are often the means by which a prospective employer measures whether a job applicant has
acquired the necessary tools or skills for a particular profession or trade.

Thus, students expect that upon their payment of tuition fees, satisfaction of the set academic
standards, completion of academic requirements and observance of school rules and regulations, the
school would reward them by recognizing their "completion" of the course enrolled in.
The obligation on the part of the school has been established in Magtibay v. Garcia,[28] Licup v.
University of San Carlos[29] and Ateneo de Manila University v. Garcia,[30] in which the Court held that,
barring any violation of the rules on the part of the students, an institution of higher learning has a
contractual obligation to afford its students a fair opportunity to complete the course they seek to
pursue.

We recognize the need of a school to fund its facilities and to meet astronomical operating costs; this is
a reality in running it. Crystal v. Cebu International School[31] upheld the imposition by respondent
school of a "land purchase deposit" in the amount of P50,000 per student to be used for the "purchase
of a piece of land and for the construction of new buildings and other facilities x x x which the school
would transfer [to] and occupy after the expiration of its lease contract over its present site."

The amount was refundable after the student graduated or left the school. After noting that the
imposition of the fee was made only after prior consultation and approval by the parents of the
students, the Court held that the school committed no actionable wrong in refusing to admit the
children of the petitioners therein for their failure to pay the "land purchase deposit" and the 2.5
percent monthly surcharge thereon.

In the present case, PCST imposed the assailed revenue-raising measure belatedly, in the middle of the
semester. It exacted the dance party fee as a condition for the students' taking the final examinations,
and ultimately for its recognition of their ability to finish a course. The fee, however, was not part of the
school-student contract entered into at the start of the school year. Hence, it could not be unilaterally
imposed to the prejudice of the enrollees.

Such contract is by no means an ordinary one. In Non, we stressed that the school-student contract "is
imbued with public interest, considering the high priority given by the Constitution to education and the
grant to the State of supervisory and regulatory powers over all educational institutions."[32] Sections 5
(1) and (3) of Article XIV of the 1987 Constitution provide:

"The State shall protect and promote the right of all citizens to quality education at all levels and shall
take appropriate steps to make such declaration accessible to all.

"Every student has a right to select a profession or course of study, subject to fair, reasonable and
equitable admission and academic requirements."

The same state policy resonates in Section 9(2) of BP 232, otherwise known as the Education Act of
1982:

"Section 9. Rights of Students in School. - In addition to other rights, and subject to the limitations
prescribed by law and regulations, students and pupils in all schools shall enjoy the following rights:
xxxxxxxxx

(2) The right to freely choose their field of study subject to existing curricula and to continue their course
therein up to graduation, except in cases of academic deficiency, or violation of disciplinary
regulations."

Liability for Tort

In her Complaint, petitioner also charged that private respondents "inhumanly punish students x x x by
reason only of their poverty, religious practice or lowly station in life, which inculcated upon [petitioner]
the feelings of guilt, disgrace and unworthiness;"[33] as a result of such punishment, she was allegedly
unable to finish any of her subjects for the second semester of that school year and had to lag behind in
her studies by a full year. The acts of respondents supposedly caused her extreme humiliation, mental
agony and "demoralization of unimaginable proportions" in violation of Articles 19, 21 and 26 of the Civil
Code. These provisions of the law state thus:

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

"Article 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage."

"Article 26. Every person shall respect the dignity, personality, privacy and peace of mind of his
neighbors and other persons. The following and similar acts, though they may not constitute a criminal
offense, shall produce a cause of action for damages, prevention and other relief:

(1) Prying into the privacy of another's residence;

(2) Meddling with or disturbing the private life or family relations of another;

(3) Intriguing to cause another to be alienated from his friends;

(4) Vexing or humiliating another on account of his beliefs, lowly station in life, place of birth, physical
defect, or other personal condition."

Generally, liability for tort arises only between parties not otherwise bound by a contract. An academic
institution, however, may be held liable for tort even if it has an existing contract with its students, since
the act that violated the contract may also be a tort. We ruled thus in PSBA vs. CA,[34] from which we
quote:

"x x x A perusal of Article 2176 [of the Civil Code] shows that obligations arising from quasi-delicts or
tort, also known as extra-contractual obligations, arise only between parties not otherwise bound by
contract, whether express or implied. However, this impression has not prevented this Court from
determining the existence of a tort even when there obtains a contract. In Air France v. Carrascoso (124
Phil. 722), the private respondent was awarded damages for his unwarranted expulsion from a first-class
seat aboard the petitioner airline. It is noted, however, that the Court referred to the petitioner-airline's
liability as one arising from tort, not one arising form a contract of carriage. In effect, Air France is
authority for the view that liability from tort may exist even if there is a contract, for the act that breaks
the contract may be also a tort. x x x This view was not all that revolutionary, for even as early as 1918,
this Court was already of a similar mind. In Cangco v. Manila Railroad (38 Phil. 780), Mr. Justice Fisher
elucidated thus: 'x x x. When such a contractual relation exists the obligor may break the contract under
such conditions that the same act which constitutes a breach of the contract would have constituted the
source of an extra-contractual obligation had no contract existed between the parties.'

"Immediately what comes to mind is the chapter of the Civil Code on Human Relations, particularly
Article 21 x x x."[35]

Academic Freedom

In their Memorandum, respondents harp on their right to "academic freedom." We are not impressed.
According to present jurisprudence, academic freedom encompasses the independence of an academic
institution to determine for itself (1) who may teach, (2) what may be taught, (3) how it shall teach, and
(4) who may be admitted to study.[36] In Garcia v. the Faculty Admission Committee, Loyola School of
Theology,[37] the Court upheld the respondent therein when it denied a female student's admission to
theological studies in a seminary for prospective priests. The Court defined the freedom of an academic
institution thus: "to decide for itself aims and objectives and how best to attain them x x x free from
outside coercion or interference save possibly when overriding public welfare calls for some
restraint."[38]
In Tangonan v. Paño,[39] the Court upheld, in the name of academic freedom, the right of the school to
refuse readmission of a nursing student who had been enrolled on probation, and who had failed her
nursing subjects. These instances notwithstanding, the Court has emphasized that once a school has, in
the name of academic freedom, set its standards, these should be meticulously observed and should not
be used to discriminate against certain students.[40] After accepting them upon enrollment, the school
cannot renege on its contractual obligation on grounds other than those made known to, and accepted
by, students at the start of the school year.

In sum, the Court holds that the Complaint alleges sufficient causes of action against respondents, and
that it should not have been summarily dismissed. Needless to say, the Court is not holding respondents
liable for the acts complained of. That will have to be ruled upon in due course by the court a quo.

WHEREFORE, the Petition is hereby GRANTED, and the assailed Orders REVERSED. The trial court is
DIRECTED to reinstate the Complaint and, with all deliberate speed, to continue the proceedings in Civil
Case No. U-7541. No costs.

SO ORDERED.