1. G.R. No.

109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG Defendants filed their answer denying the material allegations of the complaint and
interposing a special defense of lack of cause of action.
vs.

THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION

VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04
December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force
and effect the orders of execution of the trial court, dated 30 August 1991 and 27
September 1991, in Civil Case No. 87-41058.
After the issues were joined, defendants filed a motion for summary judgment
which was granted by the lower court. The trial court found that defendants' offer
to sell was never accepted by the plaintiffs for the reason that the parties did not
agree upon the terms and conditions of the proposed sale, hence, there was no
contract of sale at all. Nonetheless, the lower court ruled that should the
defendants subsequently offer their property for sale at a price of P11-million or
below, plaintiffs will have the right of first refusal. Thus the dispositive portion of
the decision states:

WHEREFORE, judgment is hereby rendered in favor of the defendants and against

the plaintiffs summarily dismissing the complaint subject to the aforementioned
The antecedents are recited in good detail by the appellate court thusly:
condition that if the defendants subsequently decide to offer their property for sale
for a purchase price of Eleven Million Pesos or lower, then the plaintiffs has the
option to purchase the property or of first refusal, otherwise, defendants need not
On July 29, 1987 a Second Amended Complaint for Specific Performance was filed offer the property to the plaintiffs if the purchase price is higher than Eleven Million
by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Pesos.
Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case
No. 87-41058, alleging, among others, that plaintiffs are tenants or lessees of
residential and commercial spaces owned by defendants described as Nos. 630-638
SO ORDERED.
Ongpin Street, Binondo, Manila; that they have occupied said spaces since 1935 and
have been religiously paying the rental and complying with all the conditions of the
lease contract; that on several occasions before October 9, 1986, defendants
informed plaintiffs that they are offering to sell the premises and are giving them Aggrieved by the decision, plaintiffs appealed to this Court in
priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned
a price of P6-million while plaintiffs made a counter offer of P5-million; that by Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and
plaintiffs thereafter asked the defendants to put their offer in writing to which Fernando A. Santiago), this Court affirmed with modification the lower court's
request defendants acceded; that in reply to defendant's letter, plaintiffs wrote judgment, holding:
them on October 24, 1986 asking that they specify the terms and conditions of the
offer to sell; that when plaintiffs did not receive any reply, they sent another letter
dated January 28, 1987 with the same request; that since defendants failed to
In resume, there was no meeting of the minds between the parties concerning the
specify the terms and conditions of the offer to sell and because of information
sale of the property. Absent such requirement, the claim for specific performance
received that defendants were about to sell the property, plaintiffs were compelled
will not lie. Appellants' demand for actual, moral and exemplary damages will
to file the complaint to compel defendants to sell the property to them.
likewise fail as there exists no justifiable ground for its award. Summary judgment
for defendants was properly granted. Courts may render summary judgment when
there is no genuine issue as to any material fact and the moving party is entitled to
a judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All
requisites obtaining, the decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is
hereby AFFIRMED, but subject to the following modification: The court a quo in the
aforestated decision gave the plaintiffs-appellants the right of first refusal only if the
property is sold for a purchase price of Eleven Million pesos or lower; however,
considering the mercurial and uncertain forces in our market economy today. We
find no reason not to grant the same right of first refusal to herein appellants in the
event that the subject property is sold for a price in excess of Eleven Million pesos.
No pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by petition for review
on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for
insufficiency in form and substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by
this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition)
transferring the property in question to herein petitioner Buen Realty and
Development Corporation, subject to the following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION PESOS
(P15,000,000.00), receipt of which in full is hereby acknowledged, the VENDORS
hereby sells, transfers and conveys for and in favor of the VENDEE, his heirs,
executors, administrators or assigns, the above-described property with all the
improvements found therein including all the rights and interest in the said
property free from all liens and encumbrances of whatever nature, except the
pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the
transfer of title in his favor and other expenses incidental to the sale of above-
described property including capital gains tax and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng
spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name
of petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote a letter
to the lessees demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner
brought the property subject to the notice of lis pendens regarding Civil Case No.
87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in
Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No.
21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted
as follows:
Presented before the Court is a Motion for Execution filed by plaintiff represented
by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng and Rose Cu Unjieng
represented by Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by the rubber stamp
and signatures upon the copy of the Motion for Execution.
The gist of the motion is that the Decision of the Court dated September 21, 1990 as
modified by the Court of Appeals in its decision in CA G.R. CV-21123, and elevated
to the Supreme Court upon the petition for review and that the same was denied by
the highest tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence, there was an
Entry of Judgment by the Supreme Court as of June 6, 1991, stating that the
aforesaid modified decision had already become final and executory.
It is the observation of the Court that this property in dispute was the subject of the
Notice of Lis Pendens and that the modified decision of this Court promulgated by
the Court of Appeals which had become final to the effect that should the
defendants decide to offer the property for sale for a price of P11 Million or lower,
and considering the mercurial and uncertain forces in our market economy today,
the same right of first refusal to herein plaintiffs/appellants in the event that the
subject property is sold for a price in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale
of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go for the consideration of P15 Million pesos in recognition of plaintiffs'
right of first refusal and that a new Transfer Certificate of Title be issued in favor of
the buyer.
All previous transactions involving the same property notwithstanding the issuance
of another title to Buen Realty Corporation, is hereby set aside as having been
executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the dispositive
portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the above-entitled case
directing the Deputy Sheriff Ramon Enriquez of this Court to implement said Writ of
Execution ordering the defendants among others to comply with the aforesaid
Order of this Court within a period of one (1) week from receipt of this Order and
for defendants to execute the necessary Deed of Sale of the property in litigation in
favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15,000,000.00 and ordering the Register of Deeds of the City of
Manila, to cancel and set aside the title already issued in favor of Buen Realty
Corporation which was previously executed between the latter and defendants and
to register the new title in favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh
Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution (Annex
C, Petition) was issued.1
On 04 December 1991, the appellate court, on appeal to it by private respondent,
set aside and declared without force and effect the above questioned orders of the
court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be
held bound by the writ of execution by virtue of the notice of lis pendens, carried
over on TCT No. 195816 issued in the name of Buen Realty, at the time of the
latter's purchase of the property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of such
arrangements as the right of first refusal, a purchase option and a contract to sell.
For ready reference, we might point out some fundamental precepts that may find
some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil
Code). The obligation is constituted upon the concurrence of the essential elements
thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause
established by the various sources of obligations (law, contracts, quasi-contracts,
delicts and quasi-delicts); (b) the object which is the prestation or conduct; required
to be observed (to give, to do or not to do); and (c) the subject-persons who,
viewed from the demandability of the obligation, are the active (obligee) and the
passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a
meeting of minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service (Art. 1305, Civil Code). A
contract undergoes various stages that include its negotiation or preparation, its
perfection and, finally, its consummation. Negotiation covers the period from the
time the prospective contracting parties indicate interest in the contract to the time
the contract is concluded (perfected). The perfection of the contract takes place
upon the concurrence of the essential elements thereof. A contract which is
consensual as to perfection is so established upon a mere meeting of minds, i.e.,
the concurrence of offer and acceptance, on the object and on the cause thereof. A
contract which requires, in addition to the above, the delivery of the object of the
agreement, as in a pledge or commodatum, is commonly referred to as a real
contract. In a solemn contract, compliance with certain formalities prescribed by
law, such as in a donation of real property, is essential in order to make the act
valid, the prescribed form being thereby an essential element thereof. The stage of
consummation begins when the parties perform their respective undertakings
under the contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation. In sales, particularly, to which the topic for
discussion about the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer, over which the
latter agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where
invariably the ownership of the thing sold is retained until the fulfillment of a
positive suspensive condition (normally, the full payment of the purchase price), the
breach of the condition will prevent the obligation to convey title from acquiring an
obligatory force.2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that,
although denominated a "Deed of Conditional Sale," a sale is still absolute where
the contract is devoid of any proviso that title is reserved or the right to unilaterally
rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be
transferred to the buyer upon actual or constructive delivery (e.g., by the execution
of a public document) of the property sold. Where the condition is imposed upon
the perfection of the contract itself, the failure of the condition would prevent such
perfection.3 If the condition is imposed on the obligation of a party which is not
fulfilled, the other party may either waive the condition or refuse to proceed with
the sale (Art. 1545, Civil Code).4
An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is fixed, can be obligatory on the parties, and compliance
therewith may accordingly be exacted.5
An accepted unilateral promise which specifies the thing to be sold and the price to
be paid, when coupled with a valuable consideration distinct and separate from the
price, is what may properly be termed a perfected contract of option. This contract
is legally binding, and in sales, it conforms with the second paragraph of Article
1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price. (1451a)6
Observe, however, that the option is not the contract of sale itself.7 The optionee
has the right, but not the obligation, to buy. Once the option is exercised timely, i.e.,
the offer is accepted before a breach of the option, a bilateral promise to sell and to
buy ensues and both parties are then reciprocally bound to comply with their
respective undertakings.8
 contract could be deemed perfected; a similar instance would be an "earnest
money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect
promise (policitacion) is merely an offer. Public advertisements or solicitations and
the like are ordinarily construed as mere invitations to make offers or only as
In the law on sales, the so-called "right of first refusal" is an innovative juridical
proposals. These relations, until a contract is perfected, are not considered binding
relation. Needless to point out, it cannot be deemed a perfected contract of sale
commitments. Thus, at any time prior to the perfection of the contract, either
under Article 1458 of the Civil Code. Neither can the right of first refusal,
negotiating party may stop the negotiation. The offer, at this stage, may be
understood in its normal concept, per se be brought within the purview of an
withdrawn; the withdrawal is effective immediately after its manifestation, such as
option under the second paragraph of Article 1479, aforequoted, or possibly of an
by its mailing and not necessarily when the offeree learns of the withdrawal
offer under Article 13199 of the same Code. An option or an offer would require,
(Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which
among other things,10 a clear certainty on both the object and the cause or
to accept the offer, the following rules generally govern:
consideration of the envisioned contract. In a right of first refusal, while the object
might be made determinate, the exercise of the right, however, would be
dependent not only on the grantor's eventual intention to enter into a binding
(1) If the period is not itself founded upon or supported by a consideration, the
juridical relation with another but also on terms, including the price, that obviously
offeror is still free and has the right to withdraw the offer before its acceptance, or,
are yet to be later firmed up. Prior thereto, it can at best be so described as merely
if an acceptance has been made, before the offeror's coming to know of such fact,
belonging to a class of preparatory juridical relations governed not by contracts
by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also
(since the essential elements to establish the vinculum juris would still be indefinite
Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a
and inconclusive) but by, among other laws of general application, the pertinent
unilateral promise to sell under Art. 1479, modifying the previous decision in South
scattered provisions of the Civil Code on human conduct.
Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural
Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA
368). The right to withdraw, however, must not be exercised whimsically or
Even on the premise that such right of first refusal has been decreed under a final
arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the
judgment, like here, its breach cannot justify correspondingly an issuance of a writ
Civil Code which ordains that "every person must, in the exercise of his rights and in
of execution under a judgment that merely recognizes its existence, nor would it
the performance of his duties, act with justice, give everyone his due, and observe
sanction an action for specific performance without thereby negating the
honesty and good faith."
indispensable element of consensuality in the perfection of contracts.11 It is not to
say, however, that the right of first refusal would be inconsequential for, such as
already intimated above, an unjustified disregard thereof, given, for instance, the
(2) If the period has a separate consideration, a contract of "option" is deemed
circumstances expressed in Article 1912 of the Civil Code, can warrant a recovery
perfected, and it would be a breach of that contract to withdraw the offer during
for damages.
the agreed period. The option, however, is an independent contract by itself, and it
is to be distinguished from the projected main agreement (subject matter of the
option) which is obviously yet to be concluded. If, in fact, the optioner-offeror
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely
withdraws the offer before its acceptance (exercise of the option) by the optionee-
accorded a "right of first refusal" in favor of petitioners. The consequence of such a
offeree, the latter may not sue for specific performance on the proposed contract
declaration entails no more than what has heretofore been said. In fine, if, as it is
("object" of the option) since it has failed to reach its own stage of perfection. The
here so conveyed to us, petitioners are aggrieved by the failure of private
optioner-offeror, however, renders himself liable for damages for breach of the
respondents to honor the right of first refusal, the remedy is not a writ of execution
option. In these cases, care should be taken of the real nature of the consideration
on the judgment, since there is none to execute, but an action for damages in a
given, for if, in fact, it has been intended to be part of the consideration for the
proper forum for the purpose.
main contract with a right of withdrawal on the part of the optionee, the main
Furthermore, whether private respondent Buen Realty Development Corporation,
the alleged purchaser of the property, has acted in good faith or bad faith and
whether or not it should, in any case, be considered bound to respect the
registration of the lis pendens in Civil Case No. 87-41058 are matters that must be
independently addressed in appropriate proceedings. Buen Realty, not having been
impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of
execution issued by respondent Judge, let alone ousted from the ownership and
possession of the property, without first being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in
holding that the writ of execution varies the terms of the judgment in Civil Case No.
87-41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard,
has observed:
Finally, the questioned writ of execution is in variance with the decision of the trial
court as modified by this Court. As already stated, there was nothing in said
decision 13 that decreed the execution of a deed of sale between the Cu Unjiengs
and respondent lessees, or the fixing of the price of the sale, or the cancellation of
title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng
Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor
vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could
not have decreed at the time the execution of any deed of sale between the Cu
Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the
questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a
quo. Costs against petitioners.
SO ORDERED.
2. G.R. No. 4089. January 12, 1909
ARTURO PELAYO, v. MARCELO LAURON, ET AL
On the 23d of November, 1906, Arturo Pelayo, a physician-residing in Cebu, filed a
complaint against Marcelo Lauron and Juana Abella setting forth that on or about
the 13th of October of said year, at night, the plaintiff was called to the house of the
defendants, situated in San Nicolas, and that upon arrival he was requested by
them to render medical assistance to their daughter-in-law who was about to give
birth to a child; that therefore, and after consultation with the attending physician,
Dr. Escano, it was found necessary, on account of the difficult birth, to remove the
fetus by means of forceps which operation was performed by the plaintiff, who also
had to remove the after birth, in which service he was occupied until the following
morning, and that afterwards, on the same day, he visited the patient several times;
that the just and equitable value of the services rendered by him was P500, which
the defendants refuse to pay without alleging any good reason there for; that for
said reason he prayed that judgment be entered in his favor as against the
defendants, or any of them, for the sum of P500 and costs, together with any other
relief that might be deemed proper.
In answer to the complaint counsel for the defendants denied all of the allegations
therein contained and alleged as a special defense, that their daughter-in-law had
died in consequence of the said childbirth, and that when she was alive she lived
with her husband independently and in a separate house without any relation
whatever with them, and that, if on the day when she gave birth she was in the
house of the defendants, her stay there was accidental and due to fortuitous
circumstances; therefore, he prayed that the defendants be absolved of the
complaint with costs against the plaintiff.
The plaintiff demurred to the above answer, and the court below sustained the
demurrer, directing the defendants, on the 23d of January, 1907, to amend their
answer. In compliance with this order the defendants presented, on the same date,
their amended answer, denying each and every one of the allegations contained in
the complaint, and requesting that the same be dismissed with costs.
As a result of the evidence adduced by both parties, judgment was entered by the
court below on the 5th of April, 1907, whereby the defendants were absolved from
the former complaint, on account of the lack of sufficient evidence to establish a
right of action against the defendants, with costs against the plaintiff, who excepted
to the said judgment and in addition moved for a new trial on the ground that the
judgment was contrary to law; the motion was overruled and the plaintiff excepted
and in due course presented the corresponding bill of exceptions. The motion of the
defendants requesting that the declaration contained in the judgment that the
defendants had demanded he professional services of the plaintiff he eliminated
therefrom, for the reason that, according to the evidence, no such request had
been made, was also denied, and to the decision the defendants excepted.
Assuming that it is a real fact acknowledged by the defendants, that the plaintiff, by
virtue of having been sent for by the former, attended as physician and rendered
professional services to a daughter-in-law of the said defendants during a difficult
and laborious childbirth, in order to decide the claim of the said physician regarding
the recovery of his fees, it becomes necessary to decide who is bound to pay the
bill, whether the father and mother-in-law of the patient, or the husband of the
latter.
According to article 1089 of the Civil Code, obligations are created by law, by
contracts, by quasi-contracts, and by illicit acts and omissions or by those in which
any kind of fault or negligence occurs.
Obligations arising from law are not presumed. Those expressly determined in the
code or in special laws, etc., are the only demandable ones. Obligations arising from
contracts have legal force between the contracting parties and must be fulfilled in
accordance with their stipulations. (Arts. 1090 and 1091.)
The rendering of medical assistance in case of illness is comprised among the
mutual obligations to which spouses are bound by way of mutual support. (Arts.
142 and 143.) .
If every obligation consists in giving, doing, or not doing something (art. 1088), and
spouses are mutually bound to support each other, there can be no question but
that, when either of them by reason of illness should be in need of medical
assistance, the other is under the unavoidable obligation to furnish the necessary
services of a physician in order that health may be restored, and he or she may be
freed from the sickness by which life is jeopardized; the party bound to furnish such
support is therefore liable for all expenses, including the fees of the medical expert
for his professional services. This liability originates from the above-cited mutual
obligation which the law has expressly established between the married couple.
In the face of the above legal precepts it is unquestionable that the person bound to
pay the fees due to the plaintiff for the professional services that he rendered to the
daughter-in-law of the defendants during her childbirth is the husband of the
patient and not her father and mother- in-law, the defendants herein. The fact that
it was not the husband who called the plaintiff and requested his assistance for his
wife is no bar to the fulfillment of the said obligation, as the defendants, in view of
the imminent danger to which the life of the patient was at that moment exposed,
considered that medical assistance was urgently needed, and the obligation of the
husband to furnish his wife with the indispensable services of a physician at such
critical moments is specially established by the law, as has been seen, and
compliance therewith is unavoidable; therefore, the plaintiff, who believes that he
is entitled to recover his fees, must direct his action against the husband who is
under obligation to furnish medical assistance to his lawful wife in such an
emergency.
From the foregoing it, may readily be understood that it was improper to have
brought an action against the defendants simply because they were the parties who
called the plaintiff and requested him to assist the patient during her difficult
confinement, and also, possibly, because they were her father and mother-in-law
and the sickness occurred in their house. The defendants were not, nor are they
now, under any obligation by virtue of any legal provision, to pay the fees claimed,
nor in consequence of any contract entered into between them and the plaintiff
from which such obligation might have arisen.
In applying the provisions of the Civil Code in an action for support, the supreme
court of Spain, while recognizing the validity and efficiency of a contract to furnish
support wherein a person bound himself to support another who was not his
relative, established the rule that the law does impose the obligation to pay for the
support of a stranger, but as the liability arose out of a contract, the stipulations of
the agreement must be upheld. (Decision of May 11 1897.)
Within the meaning of the law, the father and mother law are strangers with
respect to the obligation that devolves upon the husband to provide support,
among which is the furnishing of medical assistance to his wife at the time of her
confinement; and, on the other hand, it does not appear that a contract existed
between the defendants and the plaintiff physician, for which reason it is obvious
that the former can not be compelled to pay fees which they are under no liability
to pay because it does not appear that they consented to bind themselves.
The foregoing suffices to demonstrate that the first and second errors assigned to
the judgment below are unfounded, because, if the plaintiff has no right of action
against the defendants, it is needless to declare whether or not the use of forceps is
a surgical operation.
Therefore, in view of the considerations hereinbefore set forth, it is our opinion that
the judgment appealed from should be affirmed with the costs against the
Appellant. So ordered.
3. G.R. No. 48389. July 27, 1942
CLEOFE VELEZ, v. MAXIMO BALZARZA and FLAVIA MABILIN
On November 16, 1937, plaintiff in an amended complaint prayed for the return of
certain parcels of land which she alleged had been sold by defendants to plaintiff’s
deceased husband, Ramon Neri San Jose, with right of repurchase. She further
alleged that defendants had remained in possession of said land under a contract of
lease, but that for over two years defendants had not paid the agreed rentals. In
paragraph 4 of the complaint, she stated that "in the distribution of the estate of
the deceased Ramon Neri San Jose who died on November 7, 1932, duly approved
by this Honorable Court, the said lands were adjudicated as share of the herein
plaintiff." In their amended answer, defendants alleged that the real agreement was
a loan secured by a mortgage of those lands; and that whereas the amount
borrowed was only P2,400, defendants had however already paid P4,420.88.
Defendants therefore prayed for the return of the excess, or P2,029.88.
At the trial, the parties agreed to the following stipulation of facts: that plaintiff has
a right to bring this suit; that the real question involved is the collection of a debt;
that defendants admit having executed Exhibits A to E; that plaintiff admits
defendants have made the payments according to the receipts marked as Exhibits 1
to 22; and that the lands described in the above-mentioned documents have been
given as a security for the payment of the obligation of defendants.
The trial court found that the total amount loaned on various dates by the deceased
Neri to the defendants, was P3,067; that defendants paid P4,429.88, of which
P3,997.25 was received by Neri and P432.63 by plaintiff; that these payments were
not made by way of interests or rents, but as payments for the principal; that
defendants overpaid the amount of P1,362.88. The court below exonerated
defendants from the complaint and ordered plaintiff to return to defendants the
sum of P432.63 which she, plaintiff, had received from defendants although said
amount was not due, applying article 1895 of the Civil Code. As for the amount
received by deceased Neri, the court held that the same not having been presented
before the committee on appraisal and claims during the administration of the
estate of said Neri, defendants are not entitled to its return. Plaintiff appealed from
the judgment.
It is necessary to inquire into the contractual relations between Neri and
defendants. Exhibit A, dated December 24, 1927, purports to be a sale of four
parcels of land for the price of P600, with a right of repurchase within three years.
Exhibit D, dated March 16, 1928, likewise purports to be a sale of three parcels of
land for P400, with a right of repurchase within three years. Each of these two
contracts has the following stipulation: "El comprador Ramon Neri San Jose toma
posesión de las fincas vendidas, y él sera quien cosechara todos los productos que
dan o puedan dar las fincas aqui vendidas durante el plazo de retracto y puede
hacer y ejercitar todos los actos de dominio con tal que no esté en pugna con el
derecho de recompra de los vendedores." (In Exhibit D the last words of this clause
are "del vendedor" because only defendant Balzarza signed the contract.) Exhibits
B, C, and E are contracts of loan, dated respectively, December 24, 1927; February
2, 1928; and February 6, 1930, for various amounts, from Neri to defendants. Each
of these three documents recites that defendants received a certain amount from
Neri; that on November 23, 1927, defendants sold three parcels of land to Neri; and
that defendants have promised to Neri that upon return of the amount mentioned
in said document of November 23, 1927, defendants will return the sum borrowed
by means of the present contract.
Evidently all these five loans appearing in Exhibits A to E were secured by the
mortgage of the seven parcels of land mentioned in Exhibits A and D. These
transactions being loans, according to the stipulation of facts, the question is
whether the payments were intended to be applied to the principal, as contended
by defendants, or were considered as either rents or interests, upon the theory
advanced by plaintiff.
The payments could not have been intended as rents because in accordance with a
clause in the contract, Neri took possession of the lands and collected the fruits
thereof. The creditor having enjoyed the beneficial use of the lands delivered as
security for the loan, it appears to have been the intention of the parties that the
creditor should be compensated thereby. Furthermore, in none of the contracts
offered in evidence is there any promise made by defendants to pay rents. It would
have been strange for such a clause to appear in Exhibits A and D wherein it was
stipulated that the creditor took possession of the lands and would reap the fruits
of the same. It is true that in the receipts signed by Neri and by plaintiff these
payments are called rents. But these receipts have been prepared by Neri and by
plaintiff, and defendants in their ignorance did not look into the wording, being
merely satisfied that they were proofs of payment.
If these payments were not rents, plaintiff-appellant maintains they must have been
interests. Neither is this contention tenable because no interest is due unless it is
expressly stipulated. (Article 1755, Civil Code.) Moreover, as under the contract the
lender took possession of the lands and reaped the fruits thereof, it must have been
thought by the parties that it was unfair to make the borrower pay interest in
addition. It is also significant that the borrower paid a total of P1,143.50 up to
August 5, 1929 (a period of 1 year, 8 months and 13 days from the initial loan) when
the debt up to that date was only P2,100. If such amount of P1,143.50 was collected
as interest, then out and out usury was committed by the lender, which cannot be
presumed.
Counsel for appellant argues that as the deceased Ramon Neri San Jose "was
publicly known as a money lender" the parties must have had in mind the payment
of interests. However, the alleged occupation of said Neri does not appear in the
stipulation of facts or anywhere else in the evidence. But even if that fact appeared
in the record, it would not constitute sufficient compliance with the requisite of
article 1755 of the Civil Code that interest must be expressly stipulated.
In Guzman v. Balarag (11 Phil., 503, 508-509 [year 1908]), the plaintiff therein
loaned P1,500 to defendant who mortgaged his house and lot. Plaintiff took
possession of the premises and collected rents from third persons. It was claimed
by the plaintiff that these rents received by him should be applied to the payment
of interest. But this Court held otherwise, saying:jgc:chanrobles.com.ph
"If the debtor Pascual Balarag is only under the obligation to pay the creditor,
Guzman, the 1,500 pesos received as a loan, without interest, upon permitting the
latter to collect the rent of property owned by the debtor and keep the amounts so
collected, it must be assumed that it was in order to provide for the refund of the
debt arising from the loan. It is not possible to apply the money except in
settlement of the debt, unless the allegations of the debtor be disproven; the
record does not contain any proof of the contrary allegation to the effect that it was
stipulated that the rent collected should be applied to the payment of interest, and
the allegation of the defendant debtor is all the more convincing and irrefutable,
inasmuch as it has not in any way been demonstrated that interest on the loan was
stipulated."cralaw virtua1aw library
 unfolded in many articles scattered in the Spanish Civil Code. (See for example,
articles 360, 361, 464, 647, 648, 797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895,
Therefore, the trial court was right in finding that these payments were applied to
Civil Code.) This time-honored aphorism has also been adopted by jurists in their
the principal.
study of the conflict of rights. It has been accepted by the courts, which have not
hesitated to apply it when the exigencies of right and equity demanded its
assertion. It is a part of that affluent reservoir of justice upon which judicial
At this juncture, article 1756 of the Civil Code comes into view. It provides that, discretion draws whenever the statutory laws are inadequate because they do not
"The borrower who has paid interests without their being stipulated, cannot speak or do so with a confused voice.
recover them nor apply them to the principal." It seems plausible to argue that
although the parties originally intended no interest when the loans were made,
nevertheless if defendants wished to pay and did pay interest, according to said
As for the amount to be returned by plaintiff, the trial court held that plaintiff
article 1756 they can neither recover the amounts nor apply them to the principal.
should return only the excess sum she actually received (P432.63) but not the
However, the trial court found as a fact that "los pagos hechos no fueron ni en
overpayment made to the deceased Neri. If the defendants had appealed from the
concepto de intereses ni de alquileres, sino como pagos del capital." ("the payments
latter phase of the judgment, perhaps the application of section 749 of the Code of
made were not either by way of interests nor of rents but as payments for the
Civil Procedure (now Rule 89, section 5 of the new Rules of Court) might have been
principal.") The court further found that "the question would have been different if
studied. Under that provision, contingent claims which become absolute after the
the defendants had admitted, or if it had been proved that the payments made by
settlement of the estate of a deceased person may be enforced proportionately
the defendants were by way of interest."cralaw virtua1aw library
against the distributees of the estate, and in the instant case this claim against Neri
did not become absolute till the discovery of the mistake, after the distribution of
his estate. But defendants not having appealed, this aspect of the case will not be
The liability of plaintiff to return the excess payments is in keeping with article 1895 passed upon.
of the Civil Code which provides that, "when something is received which there is
no right to collect, and which by mistake has been unduly delivered, the obligation
to restore it arises." The two requisites are present: (1) there is no right to collect
Wherefore, the judgment appealed from is affirmed, with costs against the
these excess sums; and (2) the amounts have been paid through mistake by
appellant. So ordered.
defendants. Such mistake is shown by the fact that the parties in their contracts
never intended that either rents or interest should be paid, and by the further fact
that when these payments were made, they were intended by defendants to be
applied to the principal, but they overpaid the amounts loaned to them.

Article 1895 of the Civil Code above quoted, is therefore applicable. This legal
provision, which determines the quasi-contract of solutio indebiti, is one of the
concrete manifestations of the ancient principle that no one shall enrich himself
unjustly at the expense of another. In the Roman Law Digest the maxim was
formulated thus: "Jure naturae acquum est, neminem cum alterius detrimento et
injuria fieri locupletiorem." And the Partidas declared: "Ninguno non deue
enriquecerse tortizeramente con daño de otro." Such axiom has grown through the
centuries in legislation, in the science of law and in court decisions. The lawmaker
has found it one of the helpful guides in framing statutes and codes. Thus, it is
4. G.R. No. 119466. November 25, 1999
SALVADOR ADORABLE and LIGAYA ADORABLE, Petitioners, v. COURT OF APPEALS
This is a petition for review under Rule 45 of the decision1 of the Court of Appeals,
dated January 6, 1995, sustaining the dismissal by Branch 24 of the Regional Trial
Court, Echague, Isabela, of the complaint filed by petitioners, spouses Salvador and
Ligaya Adorable, for lack of cause of action.
The facts are as follows:
Private respondent Saturnino Bareng was the registered owner of two parcels of
land, one identified as Lot No. 661-D-5-A, with an area of 20,000 sq. m., covered by
TCT No. T-162837, and the other known as Lot No. 661-E, with an area of 4.0628
hectares, covered by TCT No. T-60814, both of which are in San Fabian, Echague,
Isabela. Petitioners were lessees of a 200 sq.m. portion of Lot No. 661-D-5-A.
On April 29, 1985, Saturnino Bareng and his son, private respondent Francisco
Bareng, obtained a loan from petitioners amounting to twenty six thousand pesos
(P26,000), in consideration of which they promised to transfer the possession and
enjoyment of the fruits of Lot No. 661-E.
On August 3, 1986, Saturnino sold to his son Francisco 18,500 sq.m. of Lot No. 661-
D-5-A. The conveyance was annotated on the back of TCT No. T-162873. In turn,
Francisco sold on August 27, 1986 to private respondent Jose Ramos 3,000 sq.m. of
the lot. The portion of land being rented to petitioners was included in the portion
sold to Jose Ramos. The deeds of sale evidencing the conveyances were not
registered in the office of the register of deeds.
As the Barengs failed to pay their loan, petitioners complained to Police Captain
Rodolfo Saet of the Integrated National Police (INP) of Echague through whose
mediation a Compromise Agreement was executed between Francisco Bareng and
the Adorables whereby the former acknowledged his indebtedness of P56,385.00
which he promised to pay on or before July 15, 1987. When the maturity date
arrived, however, Francisco Bareng failed to pay. A demand letter was sent to
Francisco Bareng, but he refused to pay.
Petitioners, learning of the sale made by Francisco Bareng to Jose Ramos, then filed
a complaint with the Regional Trial Court, Branch 24, Echague, Isabela for the
annulment or rescission of the sale on the ground that the sale was fraudulently
prepared and executed.
During trial, petitioners presented as witness Jose Ramos. After his testimony, the
next hearing was set on August 4 and 5, 1990. On said hearing dates, however,
petitioners were absent. The trial court therefore ordered the presentation of
evidence for petitioners terminated and allowed private respondents to present
their evidence ex parte. On February 15, 1991, the trial court rendered judgment
dismissing the complaint for lack of cause of action, declaring the contract of sale
between Francisco Bareng and Jose Ramos valid and ordering Francisco Bareng to
pay the amount he owed petitioners.
On appeal, the Court of Appeals affirmed the decision of the Regional Trial Court,
with modification as to the amount of Francisco Barengs debt to petitioners.
Hence, this petition for review, raising the following issues: (1) whether the Court of
Appeals erred in dismissing the complaint for lack of cause of action; (2) whether
petitioners enjoyed legal preference to purchase the lots they lease; and (3)
whether the Court of Appeals erred in sustaining the lower courts order terminating
petitioners presentation of evidence and allowing private respondents to present
their evidence ex parte.
In sustaining the decision of the trial court dismissing the complaint for lack of
cause of action, the Court of Appeals premised its decision on Rule 3, 2 of the
former Rules of Court which provided:
Parties in interest. — Every action must be prosecuted and defended in the name of
the real party in interest. All persons having an interest in the subject of the action
and in obtaining the relief demanded shall be joined as plaintiffs. All persons who
claim an interest in the controversy or who are necessary to a complete
Nor can we sustain petitioners claim that the sale was made in fraud of creditors.
determination or settlement of the questions involved therein shall be joined as
Art. 1177 of the Civil Code provides:
defendants.

The creditors, after having pursued the property in possession of the debtor to
A real party in interest is one who would be benefited or injured by the judgment,
satisfy their claims, may exercise all the rights and bring all the actions of the latter
or who is entitled to the avails of the suit. Interest, within the meaning of this rule,
for the same purpose, save those which are inherent in his person; they may also
should be material, directly in issue and to be affected by the decree, as
impugn the actions which the debtor may have done to defraud them. (Emphasis
distinguished from a mere incidental interest or in the question involved.2
added)
Otherwise put, an action shall be prosecuted in the name of the party who, by the
substantive law, has the right sought to be enforced.3

Thus, the following successive measures must be taken by a creditor before he may
bring an action for rescission of an allegedly fraudulent sale: (1) exhaust the
Petitioners anchor their interest on their right as creditors of Francisco Bareng, as
properties of the debtor through levying by attachment and execution upon all the
well as on their claim of preference over the sale of the contested lot.4 They
property of the debtor, except such as are exempt by law from execution; (2)
contend that the sale between Francisco Bareng and Jose Ramos prejudiced their
exercise all the rights and actions of the debtor, save those personal to him (accion
interests over the property as creditors of Francisco Bareng. Moreover, they claim
subrogatoria); and (3) seek rescission of the contracts executed by the debtor in
that, under Commonwealth Act No. 539, they have a preferential right, as tenants
fraud of their rights (accion pauliana). Without availing of the first and second
or lessees, to purchase the land in question.
remedies, i.e., exhausting the properties of the debtor or subrogating themselves in
Francisco Barengs transmissible rights and actions, petitioners simply undertook the
third measure and filed an action for annulment of the sale. This cannot be done.
The petition has no merit.

Indeed, an action for rescission is a subsidiary remedy; it cannot be instituted

First. We hold that, as creditors, petitioners do not have such material interest as to
except when the party suffering damage has no other legal means to obtain
allow them to sue for rescission of the contract of sale. At the outset, petitioners
reparation for the same.6 Thus, Art. 1380 of the Civil Code provides:
right against private respondents is only a personal right to receive payment for the
loan; it is not a real right over the lot subject of the deed of sale.

The following contracts are rescissible:

A personal right is the power of one person to demand of another, as a definite

passive subject, the fulfillment of a prestation to give, to do, or not to do. On the
....
other hand, a real right is the power belonging to a person over a specific thing,
without a passive subject individually determined, against whom such right may be
personally exercised.5 In this case, while petitioners have an interest in securing
payment of the loan they extended, their right to seek payment does not in any (3) Those undertaken in fraud of creditors when the latter cannot in any other
manner attach to a particular portion of the patrimony of their debtor, Francisco manner collect the claims due them;
Bareng.
Petitioners have not shown that they have no other means of enforcing their credit.
As the Court of Appeals pointed out in its decision:
In this case, plaintiffs-appellants had not even commenced an action against
defendants-appellees Bareng for the collection of the alleged indebtedness.
Plaintiffs-appellants had not even tried to exhaust the property of defendants-
appellees Bareng. Plaintiffs-appellants, in seeking for the rescission of the contracts
of sale entered into between defendants-appellees, failed to show and prove that
defendants-appellees Bareng had no other property, either at the time of the sale
or at the time this action was filed, out of which they could have collected this (sic)
debts.
Second. Nor do petitioners enjoy any preference to buy the questioned property. In
Aldecoa v. Hongkong and Shanghai Banking Corporation,7 it was held that in order
that one who is not obligated in a contract either principally or subsidiarily may
maintain an action for nullifying the same, his complaint must show the injury that
would positively result to him from the contract in which he has not intervened,
with regard at least to one of the contracting parties.
Petitioners attempt to establish such legal injury through a claim of preference
created under C.A. No. 539, the pertinent provision of which provides:
SEC. 1. The President of the Philippines is authorized to acquire private lands or any
interest therein, through purchase or expropriation, and to subdivide the same into
home lots or small farms for resale at reasonable prices and under such conditions
as he may fix to their bona fide tenants or occupants or to private individuals who
will work the lands themselves and who are qualified to acquire and own lands in
the Philippines.
This statute was passed to implement Art. XIII, 4 of the 1935 Constitution which
provided that The Congress may authorize, upon payment of just compensation,
the expropriation of lands to be subdivided into small lots and conveyed at cost to
individuals. It is obvious that neither under this provision of the former Constitution
nor that of C.A. No. 539 can petitioners claim any right since the grant of preference
therein applies only to bona fide tenants, after the expropriation or purchase by the
government of the land they are occupying.8 Petitioners are not tenants of the land
in question in this case. Nor has the land been acquired by the government for their
benefit.
Third. Finally, we hold that no error was committed by the Court of Appeals in
affirming the order of the trial court terminating the presentation of petitioners
evidence and allowing private respondents to proceed with theirs because of
petitioners failure to present further evidence at the scheduled dates of trial.
Petitioners contend that since their counsel holds office in Makati, the latters failure
to appear at the trial in Isabela at the scheduled date of hearing should have been
treated by the court with a sense of fairness.9
This is more a plea for compassion rather than explanation based on reason. We
cannot find grave abuse of discretion simply because a court decides to proceed
with the trial of a case rather than postpone the hearing to another day, because of
the absence of a party. That the absence of a party during trial constitutes waiver of
his right to present evidence and cross-examine the opponents witnesses is firmly
supported by jurisprudence.10 To constitute grave abuse of discretion amounting to
lack or excess of jurisdiction, the refusal of the court to postpone the hearing must
be characterized by arbitrariness or capriciousness. Here, as correctly noted by the
Court of Appeals, petitioners counsel was duly notified through registered mail of
the scheduled trials.11 His only excuse for his failure to appear at the scheduled
hearings is that he comes from Makati. This excuse might hold water if counsel was
simply late in arriving in the courtroom. But this was not the case. He did not
appear at all.
WHEREFORE, the petition for review is DENIED, and the decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.
5. G.R. No. L-13438 November 20, 1918
FRANCISCO GUTIERREZ REPIDE, vs. IVAR O. AFZELIUS and his wife, PATROCINIO R.
AFZELIUS
The subject of Specific Performance, with reference to its common law and civil law
status, it to be considered on this appeal. The particular action is for the specific
performance of a contract for the sale and purchase of real
estate.chanroblesvirtualawlibrary chanrobles virtual law library
The plaintiff is the owner of a certain parcel of realty consisting of 2,695.24 square
meters, situated in the city of Manila, and fully described in the complaint. About
the month of December, 1916, the defendants made a proposition to the plaintiff
for the purchase of this property. After negotiating for some time, it was agreed
that the defendants would pay plaintiff the sum of P10,000 for the land, P2,000 of
which was to be handed over upon the signing of the deed, and the balance of
P8,000, paid in monthly installments of P150. The property was to be mortgaged to
the plaintiff to secure the payment of this balance of P8,000. The plaintiff
proceeded to have survey made of the land and to prepare the deed and mortgage.
Expenses to the amount of P83.93 were incurred for these purposes. The deed was
ready about December 28, 1916, when the defendants were notified to appear and
sign the same. They failed to do this, and instead, the defendant, Patrocinio R.
Afzelius, wrote a letter to plaintiff, as follows:
MANILA, January 3, 1917. chanrobles virtual law library
MR. FRANCISCO GUTIERREZ,
Manila. chanrobles virtual law library
MY DEAR SIR: It is with regret that I inform you that it is now absolutely impossible
for us to effect the purchase of the property at Juan Luna Street, as it was our desire
to do. The reason for this is that the business has failed, in which we had invested
all the money we had and from which he hope to obtain sure gains and to get the
P2,000 which we were to give you in advance for the purchase of said property, and
consequently, we have lost our savings and our hope of being able to purchase the
property for the time being.chanroblesvirtualawlibrary chanrobles virtual law
library
Before closing, I request you to pardon us for the troubles we have caused you, for,
in truth, we acted in good faith, but, as you will readily realize, without having the
P2,000 in our hands, it will be impossible for us to effect the
purchase.chanroblesvirtualawlibrary chanrobles virtual law library
Reiterating my request that you pardon us for all the trouble, I amchanrobles virtual
law library
Very truly yours.
(Sgd.) PATROCINIO R. AFZELIUS.
In addition to the letter above quoted, Afzelius testified on the trial that although he
and his wife had available the sum of P2,000 to pay the first installment on the
purchase price of the land, yet it belonged in part to his wife's sister, and that, as
she subsequently needed the money for something else, they had to return it to
her, and in order to give excuses to the plaintiff, his wife wrote this letter to the
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library
Plaintiff was, and still is, willing to execute the deed in accordance with the terms
agreed upon with the defendants. Accordingly, plaintiff, in his action in the Court of
First Instance of the city of Manila, asked judgment against the defendants
condemning them to sign the deed and mortgage to the land in question, and to
pay the purchase price stipulated, with costs. The defendants filed a general denial,
alleging that the plaintiff has not sustained damages of any kind or character, and
praying that the case be dismissed at the cost of the plaintiff. The trial court, after
finding the facts as herein stated, made application thereto of the law of Specific
Performance. After stating the general principles of this branch of the law, the court
deduced therefrom that the remedy by specific performance is one the granting or
denying of which rests in the exercise of sound judicial discretion. The court said:
Whether or not the defendants are able to perform the contract is a matter of
defense, and there is no special defense on that subject in the answer; but it
appears from the evidence that the defendants have not the funds available for the
cash payment on the contract, and apparently the performance of the contract in
the terms agreed between the plaintiff and defendants would be impracticable; the
court would not be able to enforce a decree for specific performance, and such a
decree might operate as a great hardship upon the defendants; therefore, the court
is of the opinion that it would be useless, unjust and inequitable to render judgment
herein for specific performance.
The judgment then was in favor of the defendants, dismissing the plaintiff's
complaint, without prejudice to any other remedy which the plaintiff might have,
and without any finding as to the costs.chanroblesvirtualawlibrary chanrobles
virtual law library
The plaintiff and appellant bases his argument on articles 1254, 1258, 1278, 1450,
and 1279 of the Civil Code. The provisions of the five articles first cited and others
that could be mentioned merely tend to corroborate what is self-evident, namely,
the existence of a valid contract between the parties. Indisputably, there has been
an offer and an acceptance, and all that remained to effectuate the contract was
the execution of the deed and the mortgage.chanroblesvirtualawlibrary chanrobles
virtual law library
The article of the Civil code chiefly relied upon by appellant, No. 1279, would seem
to settle favorably the first branch of the prayer of the complaint, asking that the
defendants be required to sign the deed and mortgage to the land in question. This
article of the Civil Code appears to have been prepared to meet exactly such a
situation, to the end that the contracting parties can reciprocally compel the
observance of the necessary formalities.chanroblesvirtualawlibrary chanrobles
virtual law library
Other portions of the Civil Code not called to our attention by the appellant, notably
articles 1096, 1098, 1124 and 1451, recognize what is denominated in the common
law as Specific Performance. Article 1451 provides that, "A promise to sell or buy,
when there is an agreement as to the thing and the price, entitles the contracting
parties reciprocally to demand the fulfillment of the contract." But the article in
recognition of a negative result also provides, "whenever the promise to purchase
and sell cannot be fulfilled, the provisions relative to obligations and contracts,
contained in this book, shall be applicable in the respective cases to the vendor and
the vendee." Turning to these provisions relating to obligations and contracts, we
find article 1096 making a distinction between a specific thing to be delivered and
an indeterminate or generic thing; article 1098 providing that a person is obligated
to do a certain thing according to the tenor of the obligation; and finally, article
1124 in absolute approval of contractual mutually decreeing that "the person
prejudiced may choose between exacting the fulfillment of the obligation or its
resolution with indemnity for damages and payment of interest in either
cases."chanrobles virtual law library
As to whether the vendor can compel the vendee to perform, which is the point
before the court, the jurisprudence of the supreme court of Spain and the
commentaries of Manresa do not in the least attempt to distinguish between one or
the other party, the vendor or the vendee, but constantly and without exception
use the word "reciprocamente." the following decisions of the supreme court of
Spain interpretative of these articles can be noted: April 17, 1897; October 10,
1904; February 4, 1905.chanroblesvirtualawlibrary chanrobles virtual law library
The vendee is entitled to specific performance essentially as a matter of course.
Philippine cases have so held. (Irureta Goyena vs. Tambunting [1902], 1 Phil., 490;
Thunga Chui vs. Que Bentec [1903], 2 Phil., 561; Couto Soriano vs. Cortes [1907, 8
Phil., 459; Dievas vs. Co Chongco [1910], 16 Phil., 447.) If the doctrine of mutuality
of remedy is to apply, the vendor should likewise be entitled to similar relief.
Philippine jurisprudence, however, has never as yet been afforded an opportunity
to so hold. The nearest approach to the idea has been, with reference to
merchandise, in a decision to the effect that if the purchaser refuses without lawful
reason to accept delivery when tendered by the seller in conformity with the
contract of sale, the seller may elect to enforce compliance or to rescind. (Matute
vs. Cheong Boo [1918], 37 Phil., 372.)chanrobles virtual law library
Thus far, in this opinion we have discussed the question of whether the vendor as
well as the vendee is entitled to the specific performance of the contract for the
sale of land, from the standpoint of the civil law. Now, of course, specific
performance of contracts is, under this name, an equitable remedy. As such, since
there exist no courts of equity and no equity jurisprudence in this jurisdiction, the
authority arising from the common law is not of binding force in the Philippines.
Nevertheless, as the civil law and the common law seem to arrive at the same goal
on this subject, we should at least notice as persuasive authority the jurisprudence
of the United States and Great Britain.chanroblesvirtualawlibrary chanrobles virtual
law library
The American and English cases that relate to specific performance by the vendor
are with a few exceptions all one way. In the language of Chief Justice Marshall,
"The right of a vendor to come into a court of equity to enforce a specific
performance is unquestionable." (Cathcart vs. Robinson [1831], 5 Pet., 264.) The
rule in nearly all jurisdictions is that specific performance may be had at the suit of
the vendor of land, the vendee being decreed to accept the deed and pay the
purchase price. (Freeman vs. Paulson [1909], 107 Minn., 64; Migatz vs. Stieglitz
[1905], 166 Ind., 362; Robinson vs. Appleton [1888], 124 Ill., 276; Hodges vs. Kowing
[1889], 58 Conn., 12; Curtis Land & Loan Co. vs. Interior Land Co. [1908], 137 Wis.,
341; The Maryland Clay Co. vs. Simpers [1903], 96 Md., 1; Old Colony R. Corp. vs.
Evans [1856], 6 Gray, 25; Raymond vs. San Gabriel rec. Co. [1893], 53 Fed., 883; 36
Cyc., 565.) The reasoning supporting the authorities is that the performance of
contracts must and should be mutual. The contract is ordinarily bilateral. So should
the respective rights of the parties be. Nor does an action to recover damages for
breach of contract ordinarily afford a complete and adequate remedy. The
equitable doctrine is not applied where it will be productive of great
hardship.chanroblesvirtualawlibrary chanrobles virtual law library
Here we have presented a good and valid contract, bilateral in character, and free
from all taint of fraud. The stability of commercial transactions requires that the
rights of the seller be protected just as effectively as the rights of the buyer. If this
plaintiff had refused to comply with the contract, specific performance of the
obligation could have been asked by the defendants. Just as surely should the
plaintiff who has lived up to his bargain and who has been put to expense to do so,
be permitted to coerce the defendant into going through with the
contract.chanroblesvirtualawlibrary chanrobles virtual law library
The excuse of the defendants is that they do not now have the money to pay the
first installment. In other words, they plead impossibility of performance. The rule
of equity jurisprudence in such a case is that mere pecuniary inability to fulfill an
engagement does not discharge the obligation of the contract, not does it
constitute any defense to a decree for specific performance. (Hopper vs. Hopper
[1863], 16 N. J. Eq., 147.) Now, the courts will not make an order obviously
nugatory. But the courts should lend their assistance to the plaintiff to compel the
defendants to fulfill their obligation. Besides requiring the defendants to sign the
contract and the mortgage, the judgment of the court can be aided by execution on
the property of the defendants. If, then, it is found that it is impossible for the
defendants to live up to their agreement, naturally the plaintiff will rest content if
for no other reason than for the protection of his financial
interests.chanroblesvirtualawlibrary chanrobles virtual law library
Judgment shall be reversed, and an order shall issue, condemning the defendants to
sign the deed and mortgage to the land in question and to pay the first installment
of the purchase price as stipulated.chanroblesvirtualawlibrary chanrobles virtual
law library
The appellant shall recover costs of both instances. The Code of Civil Procedure in
its Chapter XXI entitled "Costs in the Several Courts" states in section 487 that
"Costs shall ordinarily be allowed to the prevailing party as a matter of course . . . . "
Philippine law is, in this respect, identical with the general rule, which is that "On
reversal, . . . the costs will generally go to the prevailing party, that is, to the
appellant." (7 R. C. L., 801, citing cases.) No special reasons exist in this case for
modifying the general rule. So ordered.chanroblesvirtualawlibrary chanrobles
virtual law library
Johnson, Street, Avanceña and Fisher, JJ., concur.
Separate Opinions
TORRES, J., concurring:
The undersigned concurs in the result, but nevertheless believes that all the costs of
this action and half of those of the first ought to be paid by the
defendants.chanroblesvirtualawlibrary chanrobles virtual law library
The reasons upon which the reversal of the judgment is based are those prescribed
by section 487 of Act No. 190 whereby the costs are allowed to the prevailing party
who, for good cause, appealed and obtained the reversal of the judgment, so in
accordance with law the plaintiff should not pay the costs of both instances, but a
part or half only of the costs of the first instance.
6. G.R. No. L-4811 July 31, 1953
CHARLES F. WOODHOUSE,
vs.
FORTUNATO F. HALILI
On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A,
with the defendant, the most important provisions of which are (1) that they shall
organize a partnership for the bottling and distribution of Mision soft drinks,
plaintiff to act as industrial partner or manager, and the defendant as a capitalist,
furnishing the capital necessary therefor; (2) that the defendant was to decide
matters of general policy regarding the business, while the plaintiff was to attend to
the operation and development of the bottling plant; (3) that the plaintiff was to
secure the Mission Soft Drinks franchise for and in behalf of the proposed
partnership; and (4) that the plaintiff was to receive 30 per cent of the net profits of
the business. The above agreement was arrived at after various conferences and
consultations by and between them, with the assistance of their respective
attorneys. Prior to entering into this agreement, plaintiff had informed the Mission
Dry Corporation of Los Angeles, California, U.S.A., manufacturers of the bases and
ingridients of the beverages bearing its name, that he had interested a prominent
financier (defendant herein) in the business, who was willing to invest half a million
dollars in the bottling and distribution of the said beverages, and requested, in
order that he may close the deal with him, that the right to bottle and distribute be
granted him for a limited time under the condition that it will finally be transferred
to the corporation (Exhibit H). Pursuant for this request, plaintiff was given "a thirty-
days" option on exclusive bottling and distribution rights for the Philippines"
(Exhibit J). Formal negotiations between plaintiff and defendant began at a meeting
on November 27, 1947, at the Manila Hotel, with their lawyers attending. Before
this meeting plaintiff's lawyer had prepared the draft of the agreement, Exhibit II or
OO, but this was not satisfactory because a partnership, instead of a corporation,
was desired. Defendant's lawyer prepared after the meeting his own draft, Exhibit
HH. This last draft appears to be the main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not
like to go to the United States without the agreement being not first signed. On that
day plaintiff and defendant went to the United States, and on December 10, 1947, a
franchise agreement (Exhibit V) was entered into the Mission Dry Corporation and
Fortunato F. Halili and/or Charles F. Woodhouse, granted defendant the exclusive
right, license, and authority to produce, bottle, distribute, and sell Mision beverages
in the Philippines. The plaintiff and the defendant thereafter returned to the
Philippines. Plaintiff reported for duty in January, 1948, but operations were not
begun until the first week of February, 1948. In January plaintiff was given as
advance, on account of profits, the sum of P2,000, besides the use of a car; in
February, 1948, also P2,000, and in March only P1,000. The car was withdrawn from
plaintiff on March 9, 1948.
When the bottling plant was already on operation, plaintiff demanded of defendant
that the partnership papers be executed. At first defendant executed himself,
saying there was no hurry. Then he promised to do so after the sales of the product
had been increased to P50,000. As nothing definite was forthcoming, after this
condition was attained, and as defendant refused to give further allowances to
plaintiff, the latter caused his attorneys to take up the matter with the defendant
with a view to a possible settlement. as none could be arrived at, the present action
was instituted.
In his complaint plaintiff asks for the execution of the contract of partnership, an
accounting of the profits, and a share thereof of 30 per cent, as well as damages in
the amount of P200,000. In his answer defendant alleges by way of defense (1) that
defendant's consent to the agreement, Exhibit A, was secured by the representation
of plaintiff that he was the owner, or was about to become owner of an exclusive
bottling franchise, which representation was false, and plaintiff did not secure the
franchise, but was given to defendant himself; (2) that defendant did not fail to
carry out his undertakings, but that it was plaintiff who failed; (3) that plaintiff
agreed to contribute the exclusive franchise to the partnership, but plaintiff failed
to do so. He also presented a counter-claim for P200,000 as damages. On these
issues the parties went to trial, and thereafter the Court of First Instance rendered
judgment ordering defendant to render an accounting of the profits of the bottling
and distribution business, subject of the action, and to pay plaintiff 15 percent
thereof. it held that the execution of the contract of partnership could not be
enforced upon the parties, but it also held that the defense of fraud was not
proved. Against this judgment both parties have appealed.
The most important question of fact to be determined is whether defendant had
falsely represented that he had an exclusive franchise to bottle Mission beverages,
and whether this false representation or fraud, if it existed, annuls the agreement
to form the partnership. The trial court found that it is improbable that defendant
was never shown the letter, Exhibit J, granting plaintiff had; that the drafts of the
contract prior to the final one can not be considered for the purpose of determining
the issue, as they are presumed to have been already integrated into the final
agreement; that fraud is never presumed and must be proved; that the parties were
represented by attorneys, and that if any party thereto got the worse part of the
bargain, this fact alone would not invalidate the agreement. On this appeal the
defendant, as appellant, insists that plaintiff did represent to the defendant that he
had an exclusive franchise, when as a matter of fact, at the time of its execution, he
no longer had it as the same had expired, and that, therefore, the consent of the
defendant to the contract was vitiated by fraud and it is, consequently, null and
void.
Our study of the record and a consideration of all the surrounding circumstances
lead us to believe that defendant's contention is not without merit. Plaintiff's
attorney, Mr. Laurea, testified that Woodhouse presented himself as being the
exclusive grantee of a franchise, thus:
A. I don't recall any discussion about that matter. I took along with me the file of the
office with regards to this matter. I notice from the first draft of the document
which I prepared which calls for the organization of a corporation, that the
manager, that is, Mr. Woodhouse, is represented as being the exclusive grantee of a
franchise from the Mission Dry Corporation. . . . (t.s.n., p.518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was made before
the Manila Hotel conference on November 27th, expressly states that plaintiff had
the exclusive franchise. Thus, the first paragraph states:
Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry
Corporation San Francisco, California, for the bottling of Mission products and their
sale to the public throughout the Philippines; . . . .
3. The manager, upon the organization of the said corporation, shall forthwith
transfer to the said corporation his exclusive right to bottle Mission products and to
sell them throughout the Philippines. . . . .
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration of jural acts.
We find that the principle invoked is inapplicable, since the purpose of considering
the prior draft is not to vary, alter, or modify the agreement, but to discover the
intent of the parties thereto and the circumstances surrounding the execution of
the contract. The issue of fact is: Did plaintiff represent to defendant that he had an
exclusive franchise? Certainly, his acts or statements prior to the agreement are
essential and relevant to the determination of said issue. The act or statement of
the plaintiff was not sought to be introduced to change or alter the terms of the
agreement, but to prove how he induced the defendant to enter into it — to prove
the representations or inducements, or fraud, with which or by which he secured
the other party's consent thereto. These are expressly excluded from the parol
evidence rule. (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil., 209; port
Banga Lumber Co. vs. Export & Import Lumber Co., 26 Phil., 602; III Moran 221,1952
rev. ed.) Fraud and false representation are an incident to the creation of a jural act,
not to its integration, and are not governed by the rules on integration. Were
parties prohibited from proving said representations or inducements, on the ground
that the agreement had already been entered into, it would be impossible to prove
misrepresentation or fraud. Furthermore, the parol evidence rule expressly allows
the evidence to be introduced when the validity of an instrument is put in issue by
the pleadings (section 22, par. (a), Rule 123, Rules of Court),as in this case.
That plaintiff did make the representation can also be easily gleaned from his own
letters and his own testimony. In his letter to Mission Dry Corporation, Exhibit H, he
said:.
. . . He told me to come back to him when I was able to speak with authority so that
we could come to terms as far as he and I were concerned. That is the reason why
the cable was sent. Without this authority, I am in a poor bargaining position. . .
I would propose that you grant me the exclusive bottling and distributing rights for
a limited period of time, during which I may consummate my plants. . . .
By virtue of this letter the option on exclusive bottling was given to the plaintiff on
October 14, 1947. (See Exhibit J.) If this option for an exclusive franchise was
intended by plaintiff as an instrument with which to bargain with defendant and
close the deal with him, he must have used his said option for the above-indicated
purpose, especially as it appears that he was able to secure, through its use, what
he wanted.
Plaintiff's own version of the preliminary conversation he had with defendant is to
the effect that when plaintiff called on the latter, the latter answered, "Well, come
back to me when you have the authority to operate. I am definitely interested in
the bottling business." (t. s. n., pp. 60-61.) When after the elections of 1949 plaintiff
went to see the defendant (and at that time he had already the option), he must
have exultantly told defendant that he had the authority already. It is improbable
and incredible for him to have disclosed the fact that he had only an option to the
exclusive franchise, which was to last thirty days only, and still more improbable for
him to have disclosed that, at the time of the signing of the formal agreement, his
option had already expired. Had he done so, he would have destroyed all his
bargaining power and authority, and in all probability lost the deal itself.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only
undertook in the agreement "to secure the Mission Dry franchise for and in behalf
of the proposed partnership." The existence of this provision in the final agreement
does not militate against plaintiff having represented that he had the exclusive
franchise; it rather strengthens belief that he did actually make the representation.
How could plaintiff assure defendant that he would get the franchise for the latter if
he had not actually obtained it for himself? Defendant would not have gone into
the business unless the franchise was raised in his name, or at least in the name of
the partnership. Plaintiff assured defendant he could get the franchise. Thus, in the
draft prepared by defendant's attorney, Exhibit HH, the above provision is inserted,
with the difference that instead of securing the franchise for the defendant, plaintiff
was to secure it for the partnership. To show that the insertion of the above
provision does not eliminate the probability of plaintiff representing himself as the
exclusive grantee of the franchise, the final agreement contains in its third
paragraph the following:

. . . and the manager is ready and willing to allow the capitalists to use the exclusive
franchise . . .
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the partnership, . . . the franchise
from Mission Dry Corporation shall be reassigned to the manager.
These statements confirm the conclusion that defendant believed, or was made to
believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was
also agreed upon that the franchise was to be transferred to the name of the
partnership, and that, upon its dissolution or termination, the same shall be
reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that
plaintiff did not have the exclusive franchise, was to reduce, as he himself testified,
plaintiff's participation in the net profits to one half of that agreed upon. He could
not have had such a feeling had not plaintiff actually made him believe that he
(plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in the
making of the contract made fraud improbable. Not necessarily, because the
alleged representation took place before the conferences were had, in other words,
plaintiff had already represented to defendant, and the latter had already believed
in, the existence of plaintiff's exclusive franchise before the formal negotiations, and
they were assisted by their lawyers only when said formal negotiations actually took
place. Furthermore, plaintiff's attorney testified that plaintiff had said that he had
the exclusive franchise; and defendant's lawyer testified that plaintiff explained to
him, upon being asked for the franchise, that he had left the papers evidencing it.
(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did actually represent to defendant
that he was the holder of the exclusive franchise. The defendant was made to
believe, and he actually believed, that plaintiff had the exclusive franchise.
Defendant would not perhaps have gone to California and incurred expenses for the
trip, unless he believed that plaintiff did have that exclusive privilege, and that the
latter would be able to get the same from the Mission Dry Corporation itself.
Plaintiff knew what defendant believed about his (plaintiff's) exclusive franchise, as
he induced him to that belief, and he may not be allowed to deny that defendant
was induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of
Court.)
We now come to the legal aspect of the false representation. Does it amount to a
fraud that would vitiate the contract? It must be noted that fraud is manifested in
illimitable number of degrees or gradations, from the innocent praises of a
salesman about the excellence of his wares to those malicious machinations and
representations that the law punishes as a crime. In consequence, article 1270 of
the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud,
which may be a ground for the annulment of a contract, and the incidental deceit,
which only renders the party who employs it liable for damages. This Court had held
that in order that fraud may vitiate consent, it must be the causal (dolo causante),
not merely the incidental (dolo causante), inducement to the making of the
contract. (Article 1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.) The record
abounds with circumstances indicative that the fact that the principal consideration,
the main cause that induced defendant to enter into the partnership agreement
with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and
distribute for the defendant or for the partnership. The original draft prepared by
defendant's counsel was to the effect that plaintiff obligated himself to secure a
franchise for the defendant. Correction appears in this same original draft, but the
change is made not as to the said obligation but as to the grantee. In the corrected
draft the word "capitalist"(grantee) is changed to "partnership." The contract in its
final form retains the substituted term "partnership." The defendant was, therefore,
led to the belief that plaintiff had the exclusive franchise, but that the same was to
be secured for or transferred to the partnership. The plaintiff no longer had the
exclusive franchise, or the option thereto, at the time the contract was perfected.
But while he had already lost his option thereto (when the contract was entered
into), the principal obligation that he assumed or undertook was to secure said
franchise for the partnership, as the bottler and distributor for the Mission Dry
Corporation. We declare, therefore, that if he was guilty of a false representation,
this was not the causal consideration, or the principal inducement, that led plaintiff
to enter into the partnership agreement.
Having arrived at the conclusion that the agreement may not be declared null and
void, the question that next comes before us is, May the agreement be carried out
or executed? We find no merit in the claim of plaintiff that the partnership was
But, on the other hand, this supposed ownership of an exclusive franchise was
already a fait accompli from the time of the operation of the plant, as it is evident
actually the consideration or price plaintiff gave in exchange for the share of 30
from the very language of the agreement that the parties intended that the
percent granted him in the net profits of the partnership business. Defendant
execution of the agreement to form a partnership was to be carried out at a later
agreed to give plaintiff 30 per cent share in the net profits because he was
date. They expressly agreed that they shall form a partnership. (Par. No. 1, Exhibit
transferring his exclusive franchise to the partnership. Thus, in the draft prepared
A.) As a matter of fact, from the time that the franchise from the Mission Dry
by plaintiff's lawyer, Exhibit II, the following provision exists:
Corporation was obtained in California, plaintiff himself had been demanding that
defendant comply with the agreement. And plaintiff's present action seeks the
enforcement of this agreement. Plaintiff's claim, therefore, is both inconsistent with
3. That the MANAGER, upon the organization of the said corporation, shall their intention and incompatible with his own conduct and suit.
forthwith transfer to the said corporation his exclusive right to bottle Mission
products and to sell them throughout the Philippines. As a consideration for such
transfer, the CAPITALIST shall transfer to the Manager fully paid non assessable
As the trial court correctly concluded, the defendant may not be compelled against
shares of the said corporation . . . twenty-five per centum of the capital stock of the
his will to carry out the agreement nor execute the partnership papers. Under the
said corporation. (Par. 3, Exhibit II; emphasis ours.)
Spanish Civil Code, the defendant has an obligation to do, not to give. The law
recognizes the individual's freedom or liberty to do an act he has promised to do, or
not to do it, as he pleases. It falls within what Spanish commentators call a very
Plaintiff had never been a bottler or a chemist; he never had experience in the personal act (acto personalismo), of which courts may not compel compliance, as it
production or distribution of beverages. As a matter of fact, when the bottling plant is considered an act of violence to do so.
being built, all that he suggested was about the toilet facilities for the laborers.

Efectos de las obligaciones consistentes en hechos personalismo.—Tratamos de la

We conclude from the above that while the representation that plaintiff had the
exclusive franchise did not vitiate defendant's consent to the contract, it was used
by plaintiff to get from defendant a share of 30 per cent of the net profits; in other
words, by pretending that he had the exclusive franchise and promising to transfer
it to defendant, he obtained the consent of the latter to give him (plaintiff) a big
slice in the net profits. This is the dolo incidente defined in article 1270 of the
Spanish Civil Code, because it was used to get the other party's consent to a big
share in the profits, an incidental matter in the agreement.
ejecucion de las obligaciones de hacer en el solocaso de su incumplimiento por
parte del deudor, ya sean los hechos personalisimos, ya se hallen en la facultad de
un tercero; porque el complimiento espontaneo de las mismas esta regido por los
preceptos relativos al pago, y en nada les afectan las disposiciones del art. 1.098.
Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor
puede ser precisado a realizar el hecho y porque medios.

El dolo incidental no es el que puede producirse en el cumplimiento del contrato

Se tiene por corriente entre los autores, y se traslada generalmente sin observacion
sino que significa aqui, el que concurriendoen el consentimiento, o precediendolo,
el principio romano nemo potest precise cogi ad factum. Nadie puede ser obligado
no influyo para arrancar porsi solo el consentimiento ni en la totalidad de la
violentamente a haceruna cosa. Los que perciben la posibilidad de la destruccion
obligacion, sinoen algun extremo o accidente de esta, dando lugar tan solo a una
deeste principio, añaden que, aun cuando se pudiera obligar al deudor, no deberia
accion para reclamar indemnizacion de perjuicios. (8 Manresa 602.)
hacerse, porque esto constituiria una violencia, y noes la violenciamodo propio de
cumplir las obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo
mismo cuandodecia que obligar por la violencia seria infrigir la libertad eimponer
una especie de esclavitud.
xxx xxx xxx
En efecto; las obligaciones contractuales no se acomodan biencon el empleo de la
fuerza fisica, no ya precisamente porque seconstituya de este modo una especie de
esclavitud, segun el dichode Antonio Gomez, sino porque se supone que el acreedor
tuvo encuenta el caracter personalisimo del hecho ofrecido, y calculo sobre
laposibilidad de que por alguna razon no se realizase. Repugna,ademas, a la
conciencia social el empleo de la fuerza publica, mediante coaccion sobre las
personas, en las relaciones puramente particulares; porque la evolucion de las ideas
ha ido poniendo masde relieve cada dia el respeto a la personalidad humana, y nose
admite bien la violencia sobre el individuo la cual tiene caracter visiblemente penal,
sino por motivos que interesen a la colectividad de ciudadanos. Es, pues, posible y
licita esta violencia cuando setrata de las obligaciones que hemos llamado ex lege,
que afectanal orden social y a la entidad de Estado, y aparecen impuestas
sinconsideracion a las conveniencias particulares, y sin que por estemotivo puedan
tampoco ser modificadas; pero no debe serlo cuandola obligacion reviste un interes
puramente particular, como sucedeen las contractuales, y cuando, por
consecuencia, paraceria salirseel Estado de su esfera propia, entrado a dirimir, con
apoyo dela fuerza colectiva, las diferencias producidas entre los ciudadanos. (19
Scaevola 428, 431-432.)
When defendant learned in Los Angeles that plaintiff did not have the exclusive
franchise which he pretended he had and which he had agreed to transfer to the
partnership, his spontaneous reaction was to reduce plaintiff's share form 30 per
cent to 15 per cent only, to which reduction defendant appears to have readily
given his assent. It was under this understanding, which amounts to a virtual
modification of the contract, that the bottling plant was established and plaintiff
worked as Manager for the first three months. If the contract may not be
considered modified as to plaintiff's share in the profits, by the decision of
defendant to reduce the same to one-half and the assent thereto of plaintiff, then
we may consider the said amount as a fair estimate of the damages plaintiff is
entitled to under the principle enunciated in the case of Varadero de Manila vs.
Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce plaintiff's share and
plaintiff's consent thereto amount to an admission on the part of each of the
reasonableness of this amount as plaintiff's share. This same amount was fixed by
the trial court. The agreement contains the stipulation that upon the termination of
the partnership, defendant was to convey the franchise back to plaintiff (Par. 11,
Exhibit A). The judgment of the trial court does not fix the period within which these
damages shall be paid to plaintiff. In view of paragraph 11 of Exhibit A, we declare
that plaintiff's share of 15 per cent of the net profits shall continue to be paid while
defendant uses the franchise from the Mission Dry Corporation.
With the modification above indicated, the judgment appealed from is hereby
affirmed. Without costs.

The last question for us to decide is that of damages,damages that plaintiff is

entitled to receive because of defendant's refusal to form the partnership, and
damages that defendant is also entitled to collect because of the falsity of plaintiff's
representation. (Article 1101, Spanish Civil Code.) Under article 1106 of the Spanish
Civil Code the measure of damages is the actual loss suffered and the profits
reasonably expected to be received, embraced in the terms daño emergente and
lucro cesante. Plaintiff is entitled under the terms of the agreement to 30 per cent
7. G.R. No. 170633 October 17, 2007
of the net profits of the business. Against this amount of damages, we must set off
the damage defendant suffered by plaintiff's misrepresentation that he had MCC INDUSTRIAL SALES CORPORATION
obtained a very high percentage of share in the profits. We can do no better than
follow the appraisal that the parties themselves had adopted. vs.
SSANGYONG CORPORATION

Because MCC could open only a partial letter of credit, the order for 220MT of steel
was split into two,16 one for 110MT covered by Pro Forma Invoice No. ST2-
Before the Court is a petition for review on certiorari of the Decision1 of the Court
POSTS0401-117 and another for 110MT covered by ST2-POSTS0401-2,18 both
of Appeals in CA-G.R. CV No. 82983 and its Resolution2 denying the motion for
dated April 17, 2000.
reconsideration thereof.

On June 20, 2000, Ssangyong, through its Manila Office, informed Sanyo Seiki and
Petitioner MCC Industrial Sales (MCC), a domestic corporation with office at
Chan, by way of a fax transmittal, that it was ready to ship 193.597MT of stainless
Binondo, Manila, is engaged in the business of importing and wholesaling stainless
steel from Korea to the Philippines. It requested that the opening of the L/C be
steel products.3 One of its suppliers is the Ssangyong Corporation (Ssangyong),4 an
facilitated.19 Chan affixed his signature on the fax transmittal and returned the
international trading company5 with head office in Seoul, South Korea and regional
same, by fax, to Ssangyong.20
headquarters in Makati City, Philippines.6 The two corporations conducted business
through telephone calls and facsimile or telecopy transmissions.7 Ssangyong would
send the pro forma invoices containing the details of the steel product order to
Two days later, on June 22, 2000, Ssangyong Manila Office informed Sanyo Seiki,
MCC; if the latter conforms thereto, its representative affixes his signature on the
thru Chan, that it was able to secure a US$30/MT price adjustment on the
faxed copy and sends it back to Ssangyong, again by fax.8
contracted price of US$1,860.00/MT for the 200MT stainless steel, and that the
goods were to be shipped in two tranches, the first 100MT on that day and the
second 100MT not later than June 27, 2000. Ssangyong reiterated its request for
On April 13, 2000, Ssangyong Manila Office sent, by fax, a letter9 addressed to
the facilitation of the L/C's opening.21
Gregory Chan, MCC Manager [also the President10 of Sanyo Seiki Stainless Steel
Corporation], to confirm MCC's and Sanyo Seiki's order of 220 metric tons (MT) of
hot rolled stainless steel under a preferential rate of US$1,860.00 per MT. Chan, on
Ssangyong later, through its Manila Office, sent a letter, on June 26, 2000, to the
behalf of the corporations, assented and affixed his signature on the conforme
Treasury Group of Sanyo Seiki that it was looking forward to receiving the L/C
portion of the letter.11
details and a cable copy thereof that day.22 Ssangyong sent a separate letter of the
same date to Sanyo Seiki requesting for the opening of the L/C covering payment of
the first 100MT not later than June 28, 2000.23 Similar letters were transmitted by
On April 17, 2000, Ssangyong forwarded to MCC Pro Forma Invoice No. ST2-
Ssangyong Manila Office on June 27, 2000.24 On June 28, 2000, Ssangyong sent
POSTSO40112 containing the terms and conditions of the transaction. MCC sent
another facsimile letter to MCC stating that its principal in Korea was already in a
back by fax to Ssangyong the invoice bearing the conformity signature13 of Chan.
difficult situation25 because of the failure of Sanyo Seiki and MCC to open the L/C's.
As stated in the pro forma invoice, payment for the ordered steel products would
be made through an irrevocable letter of credit (L/C) at sight in favor of
Ssangyong.14 Following their usual practice, delivery of the goods was to be made
The following day, June 29, 2000, Ssangyong received, by fax, a letter signed by
after the L/C had been opened.
Chan, requesting an extension of time to open the L/C because MCC's credit line
with the bank had been fully availed of in connection with another transaction, and
MCC was waiting for an additional credit line.26 On the same date, Ssangyong
In the meantime, because of its confirmed transaction with MCC, Ssangyong placed
replied, requesting that it be informed of the date when the L/C would be opened,
the order with its steel manufacturer, Pohang Iron and Steel Corporation (POSCO),
preferably at the earliest possible time, since its Steel Team 2 in Korea was having
in South Korea15 and paid the same in full.
problems and Ssangyong was incurring warehousing costs.27 To maintain their
good business relationship and to support MCC in its financial predicament,
Ssangyong offered to negotiate with its steel manufacturer, POSCO, another
US$20/MT discount on the price of the stainless steel ordered. This was intimated
in Ssangyong's June 30, 2000 letter to MCC.28 On July 6, 2000, another follow-up
letter29 for the opening of the L/C was sent by Ssangyong to MCC.
However, despite Ssangyong's letters, MCC failed to open a letter of credit.30
Consequently, on August 15, 2000, Ssangyong, through counsel, wrote Sanyo Seiki
that if the L/C's were not opened, Ssangyong would be compelled to cancel the
contract and hold MCC liable for damages for breach thereof amounting to
US$96,132.18, inclusive of warehouse expenses, related interests and charges.31
Later, Pro Forma Invoice Nos. ST2-POSTS080-132 and ST2-POSTS080-233 dated
August 16, 2000 were issued by Ssangyong and sent via fax to MCC. The invoices
slightly varied the terms of the earlier pro forma invoices (ST2-POSTSO401, ST2-
POSTS0401-1 and ST2-POSTS0401-2), in that the quantity was now officially 100MT
per invoice and the price was reduced to US$1,700.00 per MT. As can be gleaned
from the photocopies of the said August 16, 2000 invoices submitted to the court,
they both bear the conformity signature of MCC Manager Chan.
On August 17, 2000, MCC finally opened an L/C with PCIBank for US$170,000.00
covering payment for 100MT of stainless steel coil under Pro Forma Invoice No.
ST2-POSTS080-2.34 The goods covered by the said invoice were then shipped to
and received by MCC.35
MCC then faxed to Ssangyong a letter dated August 22, 2000 signed by Chan,
requesting for a price adjustment of the order stated in Pro Forma Invoice No. ST2-
POSTS080-1, considering that the prevailing price of steel at that time was
US$1,500.00/MT, and that MCC lost a lot of money due to a recent strike.36
Ssangyong rejected the request, and, on August 23, 2000, sent a demand letter37 to
Chan for the opening of the second and last L/C of US$170,000.00 with a warning
that, if the said L/C was not opened by MCC on August 26, 2000, Ssangyong would
be constrained to cancel the contract and hold MCC liable for US$64,066.99
(representing cost difference, warehousing expenses, interests and charges as of
August 15, 2000) and other damages for breach. Chan failed to reply.
Exasperated, Ssangyong through counsel wrote a letter to MCC, on September 11,
2000, canceling the sales contract under ST2-POSTS0401-1 /ST2-POSTS0401-2, and
demanding payment of US$97,317.37 representing losses, warehousing expenses,
interests and charges.38
Ssangyong then filed, on November 16, 2001, a civil action for damages due to
breach of contract against defendants MCC, Sanyo Seiki and Gregory Chan before
the Regional Trial Court of Makati City. In its complaint,39 Ssangyong alleged that
defendants breached their contract when they refused to open the L/C in the
amount of US$170,000.00 for the remaining 100MT of steel under Pro Forma
Invoice Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2.
After Ssangyong rested its case, defendants filed a Demurrer to Evidence40 alleging
that Ssangyong failed to present the original copies of the pro forma invoices on
which the civil action was based. In an Order dated April 24, 2003, the court denied
the demurrer, ruling that the documentary evidence presented had already been
admitted in the December 16, 2002 Order41 and their admissibility finds support in
Republic Act (R.A.) No. 8792, otherwise known as the Electronic Commerce Act of
2000. Considering that both testimonial and documentary evidence tended to
substantiate the material allegations in the complaint, Ssangyong's evidence
sufficed for purposes of a prima facie case.42
After trial on the merits, the RTC rendered its Decision43 on March 24, 2004, in
favor of Ssangyong. The trial court ruled that when plaintiff agreed to sell and
defendants agreed to buy the 220MT of steel products for the price of US$1,860 per
MT, the contract was perfected. The subject transaction was evidenced by Pro
Forma Invoice Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2, which were later
amended only in terms of reduction of volume as well as the price per MT, following
Pro Forma Invoice Nos. ST2-POSTS080-1 and ST2-POSTS080-2. The RTC, however,
excluded Sanyo Seiki from liability for lack of competent evidence. The fallo of the
decision reads:
WHEREFORE, premises considered, Judgment is hereby rendered ordering
defendants MCC Industrial Sales Corporation and Gregory Chan, to pay plaintiff,
jointly and severally the following:
1) Actual damages of US$93,493.87 representing the outstanding principal claim
plus interest at the rate of 6% per annum from March 30, 2001.
2) Attorney's fees in the sum of P50,000.00 plus P2,000.00 per counsel's appearance
in court, the same being deemed just and equitable considering that by reason of
defendants' breach of their obligation under the subject contract, plaintiff was
constrained to litigate to enforce its rights and recover for the damages it sustained,
and therefore had to engage the services of a lawyer.
3) Costs of suit.
No award of exemplary damages for lack of sufficient basis.
SO ORDERED.44
On April 22, 2004, MCC and Chan, through their counsel of record, Atty. Eladio B.
Samson, filed their Notice of Appeal.45 On June 8, 2004, the law office of Castillo
Zamora & Poblador entered its appearance as their collaborating counsel.
In their Appeal Brief filed on March 9, 2005,46 MCC and Chan raised before the CA
the following errors of the RTC:
I. THE HONORABLE COURT A QUO PLAINLY ERRED IN FINDING THAT APPELLANTS
VIOLATED THEIR CONTRACT WITH APPELLEE
A. THE HONORABLE COURT A QUO PLAINLY ERRED IN FINDING THAT APPELLANTS
AGREED TO PURCHASE 200 METRIC TONS OF STEEL PRODUCTS FROM APPELLEE,
INSTEAD OF ONLY 100 METRIC TONS.
1. THE HONORABLE COURT A QUO PLAINLY ERRED IN ADMITTING IN EVIDENCE THE
PRO FORMA INVOICES WITH REFERENCE NOS. ST2- POSTS0401-1 AND ST2-
POSTS0401-2.
II. THE HONORABLE COURT A QUO PLAINLY ERRED IN AWARDING ACTUAL
DAMAGES TO APPELLEE.
III. THE HONORABLE COURT A QUO PLAINLY ERRED IN AWARDING ATTORNEY'S
FEES TO APPELLEE.
IV. THE HONORABLE COURT A QUO PLAINLY ERRED IN FINDING APPELLANT
GREGORY CHAN JOINTLY AND SEVERALLY LIABLE WITH APPELLANT MCC.47
On August 31, 2005, the CA rendered its Decision48 affirming the ruling of the trial
court, but absolving Chan of any liability. The appellate court ruled, among others,
that Pro Forma Invoice Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2 (Exhibits "E",
"E-1" and "F") were admissible in evidence, although they were mere facsimile
printouts of MCC's steel orders.49 The dispositive portion of the appellate court's
decision reads:
WHEREFORE, premises considered, the Court holds:
(1) The award of actual damages, with interest, attorney's fees and costs ordered by
the lower court is hereby AFFIRMED.
(2) Appellant Gregory Chan is hereby ABSOLVED from any liability.
SO ORDERED.50
A copy of the said Decision was received by MCC's and Chan's principal counsel,
Atty. Eladio B. Samson, on September 14, 2005.51 Their collaborating counsel,
Castillo Zamora & Poblador,52 likewise, received a copy of the CA decision on
September 19, 2005.53
On October 4, 2005, Castillo Zamora & Poblador, on behalf of MCC, filed a motion
for reconsideration of the said decision.54 Ssangyong opposed the motion
contending that the decision of the CA had become final and executory on account
of the failure of MCC to file the said motion within the reglementary period. The
appellate court resolved, on November 22, 2005, to deny the motion on its
merits,55 without, however, ruling on the procedural issue raised.
Aggrieved, MCC filed a petition for review on certiorari56 before this Court,
imputing the following errors to the Court of Appeals:
THE COURT OF APPEALS DECIDED A LEGAL QUESTION NOT IN ACCORDANCE WITH
JURISPRUDENCE AND SANCTIONED A DEPARTURE FROM THE USUAL AND
ACCEPTED COURSE OF JUDICIAL PROCEEDINGS BY REVERSING THE COURT A QUO'S
DISMISSAL OF THE COMPLAINT IN CIVIL CASE NO. 02-124 CONSIDERING THAT:
I. THE COURT OF APPEALS ERRED IN SUSTAINING THE ADMISSIBILITY IN EVIDENCE
OF THE PRO-FORMA INVOICES WITH REFERENCE NOS. ST2-POSTSO401-1 AND ST2-
POSTSO401-2, DESPITE THE FACT THAT THE SAME WERE MERE PHOTOCOPIES OF
FACSIMILE PRINTOUTS.
II. THE COURT OF APPEALS FAILED TO APPRECIATE THE OBVIOUS FACT THAT, EVEN
ASSUMING PETITIONER BREACHED THE SUPPOSED CONTRACT, THE FACT IS THAT
PETITIONER FAILED TO PROVE THAT IT SUFFERED ANY DAMAGES AND THE
AMOUNT THEREOF.
III. THE AWARD OF ACTUAL DAMAGES IN THE AMOUNT OF US$93,493.87 IS SIMPLY
UNCONSCIONABLE AND SHOULD HAVE BEEN AT LEAST REDUCED, IF NOT DELETED
BY THE COURT OF APPEALS.57
In its Comment, Ssangyong sought the dismissal of the petition, raising the following
arguments: that the CA decision dated 15 August 2005 is already final and
executory, because MCC's motion for reconsideration was filed beyond the
reglementary period of 15 days from receipt of a copy thereof, and that, in any
case, it was a pro forma motion; that MCC breached the contract for the purchase
of the steel products when it failed to open the required letter of credit; that the
printout copies and/or photocopies of facsimile or telecopy transmissions were
properly admitted by the trial court because they are considered original
documents under R.A. No. 8792; and that MCC is liable for actual damages and
attorney's fees because of its breach, thus, compelling Ssangyong to litigate.
The principal issues that this Court is called upon to resolve are the following:
I – Whether the CA decision dated 15 August 2005 is already final and executory;
II – Whether the print-out and/or photocopies of facsimile transmissions are
electronic evidence and admissible as such;
III – Whether there was a perfected contract of sale between MCC and Ssangyong,
and, if in the affirmative, whether MCC breached the said contract; and
IV – Whether the award of actual damages and attorney's fees in favor of
Ssangyong is proper and justified.
-I-
It cannot be gainsaid that in Albano v. Court of Appeals,58 we held that receipt of a
copy of the decision by one of several counsels on record is notice to all, and the
[W]e cannot look with favor on a course of action which would place the
period to appeal commences on such date even if the other counsel has not yet
administration of justice in a straight jacket for then the result would be a poor kind
received a copy of the decision. In this case, when Atty. Samson received a copy of
of justice if there would be justice at all. Verily, judicial orders, such as the one
the CA decision on September 14, 2005, MCC had only fifteen (15) days within
subject of this petition, are issued to be obeyed, nonetheless a non-compliance is to
which to file a motion for reconsideration conformably with Section 1, Rule 52 of
be dealt with as the circumstances attending the case may warrant. What should
the Rules of Court, or to file a petition for review on certiorari in accordance with
guide judicial action is the principle that a party-litigant is to be given the fullest
Section 2, Rule 45. The period should not be reckoned from September 29, 2005
opportunity to establish the merits of his complaint or defense rather than for him
(when Castillo Zamora & Poblador received their copy of the decision) because
to lose life, liberty, honor or property on technicalities.
notice to Atty. Samson is deemed notice to collaborating counsel.

The rules of procedure are used only to secure and not override or frustrate justice.
We note, however, from the records of the CA, that it was Castillo Zamora &
A six-day delay in the perfection of the appeal, as in this case, does not warrant the
Poblador, not Atty. Samson, which filed both MCC's and Chan's Brief and Reply
outright dismissal of the appeal. In Development Bank of the Philippines vs. Court of
Brief. Apparently, the arrangement between the two counsels was for the
Appeals, we gave due course to the petitioner's appeal despite the late filing of its
collaborating, not the principal, counsel to file the appeal brief and subsequent
brief in the appellate court because such appeal involved public interest. We stated
pleadings in the CA. This explains why it was Castillo Zamora & Poblador which filed
in the said case that the Court may exempt a particular case from a strict
the motion for the reconsideration of the CA decision, and they did so on October 5,
application of the rules of procedure where the appellant failed to perfect its appeal
2005, well within the 15-day period from September 29, 2005, when they received
within the reglementary period, resulting in the appellate court's failure to obtain
their copy of the CA decision. This could also be the reason why the CA did not find
jurisdiction over the case. In Republic vs. Imperial, Jr., we also held that there is
it necessary to resolve the question of the timeliness of petitioner's motion for
more leeway to exempt a case from the strictness of procedural rules when the
reconsideration, even as the CA denied the same.
appellate court has already obtained jurisdiction over the appealed case. We
emphasize that:

Independent of this consideration though, this Court assiduously reviewed the

records and found that strong concerns of substantial justice warrant the relaxation
[T]he rules of procedure are mere tools intended to facilitate the attainment of
of this rule.
justice, rather than frustrate it. A strict and rigid application of the rules must
always be eschewed when it would subvert the rule's primary objective of
enhancing fair trials and expediting justice. Technicalities should never be used to
In Philippine Ports Authority v. Sargasso Construction and Development
defeat the substantive rights of the other party. Every party-litigant must be
Corporation,59 we ruled that:
afforded the amplest opportunity for the proper and just determination of his
cause, free from the constraints of technicalities.60

In Orata v. Intermediate Appellate Court, we held that where strong considerations

of substantive justice are manifest in the petition, this Court may relax the strict
Moreover, it should be remembered that the Rules were promulgated to set
application of the rules of procedure in the exercise of its legal jurisdiction. In
guidelines in the orderly administration of justice, not to shackle the hand that
addition to the basic merits of the main case, such a petition usually embodies
dispenses it. Otherwise, the courts would be consigned to being mere slaves to
justifying circumstance which warrants our heeding to the petitioner's cry for justice
technical rules, deprived of their judicial discretion. Technicalities must take a
in spite of the earlier negligence of counsel. As we held in Obut v. Court of Appeals:
backseat to substantive rights. After all, it is circumspect leniency in this respect
that will give the parties the fullest opportunity to ventilate the merits of their
respective causes, rather than have them lose life, liberty, honor or property on
Petitioner contends that the photocopies of the pro forma invoices presented by
sheer technicalities.61
respondent Ssangyong to prove the perfection of their supposed contract of sale
are inadmissible in evidence and do not fall within the ambit of R.A. No. 8792,
because the law merely admits as the best evidence the original fax transmittal. On
The other technical issue posed by respondent is the alleged pro forma nature of
the other hand, respondent posits that, from a reading of the law and the Rules on
MCC's motion for reconsideration, ostensibly because it merely restated the
Electronic Evidence, the original facsimile transmittal of the pro forma invoice is
arguments previously raised and passed upon by the CA.
admissible in evidence since it is an electronic document and, therefore, the best
evidence under the law and the Rules. Respondent further claims that the
photocopies of these fax transmittals (specifically ST2-POSTS0401-1 and ST2-
In this connection, suffice it to say that the mere restatement of arguments in a POSTS0401-2) are admissible under the Rules on Evidence because the respondent
motion for reconsideration does not per se result in a pro forma motion. In Security sufficiently explained the non-production of the original fax transmittals.
Bank and Trust Company, Inc. v. Cuenca,62 we held that a motion for
reconsideration may not be necessarily pro forma even if it reiterates the
arguments earlier passed upon and rejected by the appellate court. A movant may
In resolving this issue, the appellate court ruled as follows:
raise the same arguments precisely to convince the court that its ruling was
erroneous. Furthermore, the pro forma rule will not apply if the arguments were
not sufficiently passed upon and answered in the decision sought to be
Admissibility of Pro Forma
reconsidered.
Invoices; Breach of Contract

by Appellants
- II -

Turning first to the appellants' argument against the admissibility of the Pro Forma
The second issue poses a novel question that the Court welcomes. It provides the
Invoices with Reference Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2 (Exhibits "E",
occasion for this Court to pronounce a definitive interpretation of the equally
"E-1" and "F", pp. 215-218, Records), appellants argue that the said documents are
innovative provisions of the Electronic Commerce Act of 2000 (R.A. No. 8792) vis-à-
inadmissible (sic) being violative of the best evidence rule.
vis the Rules on Electronic Evidence.

The argument is untenable.

Although the parties did not raise the question whether the original facsimile
transmissions are "electronic data messages" or "electronic documents" within the
context of the Electronic Commerce Act (the petitioner merely assails as
inadmissible evidence the photocopies of the said facsimile transmissions), we The copies of the said pro-forma invoices submitted by the appellee are admissible
deem it appropriate to determine first whether the said fax transmissions are in evidence, although they are mere electronic facsimile printouts of appellant's
indeed within the coverage of R.A. No. 8792 before ruling on whether the orders. Such facsimile printouts are considered Electronic Documents under the
photocopies thereof are covered by the law. In any case, this Court has ample New Rules on Electronic Evidence, which came into effect on August 1, 2001. (Rule
authority to go beyond the pleadings when, in the interest of justice or for the 2, Section 1 [h], A.M. No. 01-7-01-SC).
promotion of public policy, there is a need to make its own findings in order to
support its conclusions.63
"(h) 'Electronic document' refers to information or the representation of
information, data, figures, symbols or other modes of written expression, described
xxx
or however represented, by which a right is established or an obligation
extinguished, or by which a fact may be proved and affirmed, which is received,
recorded, transmitted, stored, processed, retrieved or produced electronically. It
includes digitally signed documents and any printout or output, readable by sight or c. "Electronic Data Message" refers to information generated, sent, received or
other means, which accurately reflects the electronic data message or electronic stored by electronic, optical or similar means.
document. For purposes of these Rules, the term 'electronic document' may be
used interchangeably with 'electronic data message'.
xxx

An electronic document shall be regarded as the equivalent of an original document

under the Best Evidence Rule, as long as it is a printout or output readable by sight
or other means, showing to reflect the data accurately. (Rule 4, Section 1, A.M. No.
01-7-01-SC)
The ruling of the Appellate Court is incorrect. R.A. No. 8792,64 otherwise known as
the Electronic Commerce Act of 2000, considers an electronic data message or an
electronic document as the functional equivalent of a written document for
evidentiary purposes.65 The Rules on Electronic Evidence66 regards an electronic
document as admissible in evidence if it complies with the rules on admissibility
prescribed by the Rules of Court and related laws, and is authenticated in the
manner prescribed by the said Rules.67 An electronic document is also the
equivalent of an original document under the Best Evidence Rule, if it is a printout
or output readable by sight or other means, shown to reflect the data accurately.68
f. "Electronic Document" refers to information or the representation of information,
data, figures, symbols or other modes of written expression, described or however
represented, by which a right is established or an obligation extinguished, or by
which a fact may be proved and affirmed, which is received, recorded, transmitted,
stored, processed, retrieved or produced electronically.
The Implementing Rules and Regulations (IRR) of R.A. No. 8792,69 which was signed
on July 13, 2000 by the then Secretaries of the Department of Trade and Industry,
the Department of Budget and Management, and then Governor of the Bangko
Sentral ng Pilipinas, defines the terms as:
Sec. 6. Definition of Terms. For the purposes of this Act and these Rules, the
following terms are defined, as follows:

Thus, to be admissible in evidence as an electronic data message or to be

considered as the functional equivalent of an original document under the Best
Evidence Rule, the writing must foremost be an "electronic data message" or an
"electronic document."
The Electronic Commerce Act of 2000 defines electronic data message and
electronic document as follows:
xxx
(e) "Electronic Data Message" refers to information generated, sent, received or
stored by electronic, optical or similar means, but not limited to, electronic data
interchange (EDI), electronic mail, telegram, telex or telecopy. Throughout these
Rules, the term "electronic data message" shall be equivalent to and be used
interchangeably with "electronic document."

Sec. 5. Definition of Terms. For the purposes of this Act, the following terms are
defined, as follows:
xxxx
(h) "Electronic Document" refers to information or the representation of
information, data, figures, symbols or other modes of written expression, described
or however represented, by which a right is established or an obligation
extinguished, or by which a fact may be proved and affirmed, which is received,
recorded, transmitted, stored, processed, retrieved or produced electronically.
Throughout these Rules, the term "electronic document" shall be equivalent to and
be used interchangeably with "electronic data message."
The phrase "but not limited to, electronic data interchange (EDI), electronic mail,
telegram, telex or telecopy" in the IRR's definition of "electronic data message" is
copied from the Model Law on Electronic Commerce adopted by the United Nations
Commission on International Trade Law (UNCITRAL),70 from which majority of the
provisions of R.A. No. 8792 were taken.71 While Congress deleted this phrase in the
Electronic Commerce Act of 2000, the drafters of the IRR reinstated it. The deletion
by Congress of the said phrase is significant and pivotal, as discussed hereunder.
The clause on the interchangeability of the terms "electronic data message" and
"electronic document" was the result of the Senate of the Philippines' adoption, in
Senate Bill 1902, of the phrase "electronic data message" and the House of
Representative's employment, in House Bill 9971, of the term "electronic
document."72 In order to expedite the reconciliation of the two versions, the
technical working group of the Bicameral Conference Committee adopted both
terms and intended them to be the equivalent of each one.73 Be that as it may,
there is a slight difference between the two terms. While "data message" has
reference to information electronically sent, stored or transmitted, it does not
necessarily mean that it will give rise to a right or extinguish an obligation,74 unlike
an electronic document. Evident from the law, however, is the legislative intent to
give the two terms the same construction.
The Rules on Electronic Evidence promulgated by this Court defines the said terms
in the following manner:
SECTION 1. Definition of Terms. – For purposes of these Rules, the following terms
are defined, as follows:
xxxx
(g) "Electronic data message" refers to information generated, sent, received or
stored by electronic, optical or similar means.
(h) "Electronic document" refers to information or the representation of
information, data, figures, symbols or other modes of written expression, described
or however represented, by which a right is established or an obligation
extinguished, or by which a fact may be proved and affirmed, which is received,
recorded, transmitted, stored, processed, retrieved or produced electronically. It
includes digitally signed documents and print-out or output, readable by sight or
other means, which accurately reflects the electronic data message or electronic
document. For purposes of these Rules, the term "electronic document" may be
used interchangeably with "electronic data message."
Given these definitions, we go back to the original question: Is an original printout
of a facsimile transmission an electronic data message or electronic document?
The definitions under the Electronic Commerce Act of 2000, its IRR and the Rules on
Electronic Evidence, at first glance, convey the impression that facsimile
transmissions are electronic data messages or electronic documents because they
are sent by electronic means. The expanded definition of an "electronic data
message" under the IRR, consistent with the UNCITRAL Model Law, further supports
this theory considering that the enumeration "xxx [is] not limited to, electronic data
interchange (EDI), electronic mail, telegram, telex or telecopy." And to telecopy is to
send a document from one place to another via a fax machine.75
As further guide for the Court in its task of statutory construction, Section 37 of the
Electronic Commerce Act of 2000 provides that
Unless otherwise expressly provided for, the interpretation of this Act shall give due
regard to its international origin and the need to promote uniformity in its
application and the observance of good faith in international trade relations. The
generally accepted principles of international law and convention on electronic
commerce shall likewise be considered.
message," though maintaining its description under the UNCITRAL Model Law,
except for the aforesaid deleted phrase, conveyed a different meaning, as revealed
in the following proceedings:
xxxx

Obviously, the "international origin" mentioned in this section can only refer to the
UNCITRAL Model Law, and the UNCITRAL's definition of "data message": Senator Santiago. Yes, Mr. President. I will furnish a copy together with the
explanation of this proposed amendment.

"Data message" means information generated, sent, received or stored by

electronic, optical or similar means including, but not limited to, electronic data
interchange (EDI), electronic mail, telegram, telex or telecopy.76
is substantially the same as the IRR's characterization of an "electronic data
message."
And then finally, before I leave the Floor, may I please be allowed to go back to
Section 5; the Definition of Terms. In light of the acceptance by the good Senator of
my proposed amendments, it will then become necessary to add certain terms in
our list of terms to be defined. I would like to add a definition on what is "data,"
what is "electronic record" and what is an "electronic record system."

If the gentleman will give me permission, I will proceed with the proposed
However, Congress deleted the phrase, "but not limited to, electronic data amendment on Definition of Terms, Section 5.
interchange (EDI), electronic mail, telegram, telex or telecopy," and replaced the
term "data message" (as found in the UNCITRAL Model Law ) with "electronic data
message." This legislative divergence from what is assumed as the term's Senator Magsaysay. Please go ahead, Senator Santiago.
"international origin" has bred uncertainty and now impels the Court to make an
inquiry into the true intent of the framers of the law. Indeed, in the construction or
interpretation of a legislative measure, the primary rule is to search for and
Senator Santiago. We are in Part 1, short title on the Declaration of Policy, Section
determine the intent and spirit of the law.77 A construction should be rejected that
5, Definition of Terms.
gives to the language used in a statute a meaning that does not accomplish the
purpose for which the statute was enacted, and that tends to defeat the ends which
are sought to be attained by the enactment.78
At the appropriate places in the listing of these terms that have to be defined since
these are arranged alphabetically, Mr. President, I would like to insert the term
DATA and its definition. So, the amendment will read: "DATA" MEANS
Interestingly, when Senator Ramon B. Magsaysay, Jr., the principal author of Senate
REPRESENTATION, IN ANY FORM, OF INFORMATION OR CONCEPTS.
Bill 1902 (the predecessor of R.A. No. 8792), sponsored the bill on second reading,
he proposed to adopt the term "data message" as formulated and defined in the
UNCITRAL Model Law.79 During the period of amendments, however, the term
evolved into "electronic data message," and the phrase "but not limited to, The explanation is this: This definition of "data" or "data" as it is now fashionably
electronic data interchange (EDI), electronic mail, telegram, telex or telecopy" in the pronounced in America - - the definition of "data" ensures that our bill applies to
UNCITRAL Model Law was deleted. Furthermore, the term "electronic data
any form of information in an electronic record, whether these are figures, facts or
ideas.
So again, the proposed amendment is this: "DATA" MEANS REPRESENTATIONS, IN
ANY FORM, OF INFORMATION OR CONCEPTS.
Senator Magsaysay. May I know how will this affect the definition of "Data
Message" which encompasses electronic records, electronic writings and electronic
documents?
Senator Santiago. These are completely congruent with each other. These are
compatible. When we define "data," we are simply reinforcing the definition of
what is a data message.
Senator Magsaysay. It is accepted, Mr. President.
Senator Santiago. Thank you. The next term is "ELECTRONIC RECORD." The
proposed amendment is as follows:
"ELECTRONIC RECORD" MEANS DATA THAT IS RECORDED OR STORED ON ANY
MEDIUM IN OR BY A COMPUTER SYSTEM OR OTHER SIMILAR DEVICE, THAT CAN BE
READ OR PERCEIVED BY A PERSON OR A COMPUTER SYSTEM OR OTHER SIMILAR
DEVICE. IT INCLUDES A DISPLAY, PRINTOUT OR OTHER OUTPUT OF THAT DATA.
The explanation for this term and its definition is as follows: The term "ELECTRONIC
RECORD" fixes the scope of our bill. The record is the data. The record may be on
any medium. It is electronic because it is recorded or stored in or by a computer
system or a similar device.
The amendment is intended to apply, for example, to data on magnetic strips on
cards or in Smart cards. As drafted, it would not apply to telexes or faxes, except
computer-generated faxes, unlike the United Nations model law on electronic
commerce. It would also not apply to regular digital telephone conversations since
the information is not recorded. It would apply to voice mail since the information
has been recorded in or by a device similar to a computer. Likewise, video records
are not covered. Though when the video is transferred to a website, it would be
covered because of the involvement of the computer. Music recorded by a
computer system on a compact disc would be covered.
In short, not all data recorded or stored in digital form is covered. A computer or a
similar device has to be involved in its creation or storage. The term "similar device"
does not extend to all devices that create or store data in digital form. Although
things that are not recorded or preserved by or in a computer system are omitted
from this bill, these may well be admissible under other rules of law. This provision
focuses on replacing the search for originality proving the reliability of systems
instead of that of individual records and using standards to show systems reliability.
Paper records that are produced directly by a computer system such as printouts
are themselves electronic records being just the means of intelligible display of the
contents of the record. Photocopies of the printout would be paper record subject
to the usual rules about copies, but the original printout would be subject to the
rules of admissibility of this bill.
However, printouts that are used only as paper records and whose computer origin
is never again called on are treated as paper records. In that case, the reliability of
the computer system that produces the record is irrelevant to its reliability.
Senator Magsaysay. Mr. President, if my memory does not fail me, earlier, the lady
Senator accepted that we use the term "Data Message" rather than "ELECTRONIC
RECORD" in being consistent with the UNCITRAL term of "Data Message." So with
the new amendment of defining "ELECTRONIC RECORD," will this affect her
accepting of the use of "Data Message" instead of "ELECTRONIC RECORD"?
Senator Santiago. No, it will not. Thank you for reminding me. The term I would like
to insert is ELECTRONIC DATA MESSAGE in lieu of "ELECTRONIC RECORD."

Senator Magsaysay. Then we are, in effect, amending the term of the definition of
"Data Message" on page 2A, line 31, to which we have no objection.
Senator Santiago. Thank you, Mr. President.
xxxx
Senator Santiago. Mr. President, I have proposed all the amendments that I desire
to, including the amendment on the effect of error or change. I will provide the
language of the amendment together with the explanation supporting that
amendment to the distinguished sponsor and then he can feel free to take it up in
any session without any further intervention.
Senator Magsaysay. Before we end, Mr. President, I understand from the
proponent of these amendments that these are based on the Canadian E-commerce
Law of 1998. Is that not right?
Senator Santiago. That is correct.80
Thus, when the Senate consequently voted to adopt the term "electronic data
message," it was consonant with the explanation of Senator Miriam Defensor-
Santiago that it would not apply "to telexes or faxes, except computer-generated
faxes, unlike the United Nations model law on electronic commerce." In explaining
the term "electronic record" patterned after the E-Commerce Law of Canada,
Senator Defensor-Santiago had in mind the term "electronic data message." This
term then, while maintaining part of the UNCITRAL Model Law's terminology of
"data message," has assumed a different context, this time, consonant with the
term "electronic record" in the law of Canada. It accounts for the addition of the
word "electronic" and the deletion of the phrase "but not limited to, electronic data
interchange (EDI), electronic mail, telegram, telex or telecopy." Noteworthy is that
the Uniform Law Conference of Canada, explains the term "electronic record," as
drafted in the Uniform Electronic Evidence Act, in a manner strikingly similar to Sen.
Santiago's explanation during the Senate deliberations:
"Electronic record" fixes the scope of the Act. The record is the data. The record
may be any medium. It is "electronic" because it is recorded or stored in or by a
computer system or similar device. The Act is intended to apply, for example, to
data on magnetic strips on cards, or in smart cards. As drafted, it would not apply to
telexes or faxes (except computer-generated faxes), unlike the United Nations
Model Law on Electronic Commerce. It would also not apply to regular digital
telephone conversations, since the information is not recorded. It would apply to
voice mail, since the information has been recorded in or by a device similar to a
computer. Likewise video records are not covered, though when the video is
transferred to a Web site it would be, because of the involvement of the computer.
Music recorded by a computer system on a compact disk would be covered.
In short, not all data recorded or stored in "digital" form is covered. A computer or
similar device has to be involved in its creation or storage. The term "similar device"
does not extend to all devices that create or store data in digital form. Although
things that are not recorded or preserved by or in a computer system are omitted
from this Act, they may well be admissible under other rules of law. This Act focuses
on replacing the search for originality, proving the reliability of systems instead of
that of individual records, and using standards to show systems reliability.
Paper records that are produced directly by a computer system, such as printouts,
are themselves electronic records, being just the means of intelligible display of the
contents of the record. Photocopies of the printout would be paper records subject
to the usual rules about copies, but the "original" printout would be subject to the
rules of admissibility of this Act.
However, printouts that are used only as paper records, and whose computer origin
is never again called on, are treated as paper records. See subsection 4(2). In this
case the reliability of the computer system that produced the record is relevant to
its reliability.81
There is no question then that when Congress formulated the term "electronic data
message," it intended the same meaning as the term "electronic record" in the
Canada law. This construction of the term "electronic data message," which
excludes telexes or faxes, except computer-generated faxes, is in harmony with the
Electronic Commerce Law's focus on "paperless" communications and the
"functional equivalent approach"82 that it espouses. In fact, the deliberations of the
Legislature are replete with discussions on paperless and digital transactions.
Facsimile transmissions are not, in this sense, "paperless," but verily are paper-
based.
A facsimile machine, which was first patented in 1843 by Alexander Bain,83 is a
device that can send or receive pictures and text over a telephone line. It works by
digitizing an image—dividing it into a grid of dots. Each dot is either on or off,
depending on whether it is black or white. Electronically, each dot is represented by
a bit that has a value of either 0 (off) or 1 (on). In this way, the fax machine
translates a picture into a series of zeros and ones (called a bit map) that can be
transmitted like normal computer data. On the receiving side, a fax machine reads
the incoming data, translates the zeros and ones back into dots, and reprints the
picture.84 A fax machine is essentially an image scanner, a modem and a computer
printer combined into a highly specialized package. The scanner converts the
content of a physical document into a digital image, the modem sends the image
data over a phone line, and the printer at the other end makes a duplicate of the
original document.85 Thus, in Garvida v. Sales, Jr.,86 where we explained the
unacceptability of filing pleadings through fax machines, we ruled that:
A facsimile or fax transmission is a process involving the transmission and
reproduction of printed and graphic matter by scanning an original copy, one
elemental area at a time, and representing the shade or tone of each area by a
specified amount of electric current. The current is transmitted as a signal over
regular telephone lines or via microwave relay and is used by the receiver to
reproduce an image of the elemental area in the proper position and the correct
shade. The receiver is equipped with a stylus or other device that produces a
printed record on paper referred to as a facsimile.
x x x A facsimile is not a genuine and authentic pleading. It is, at best, an exact copy
preserving all the marks of an original. Without the original, there is no way of
determining on its face whether the facsimile pleading is genuine and authentic and
was originally signed by the party and his counsel. It may, in fact, be a sham
pleading.87
Accordingly, in an ordinary facsimile transmission, there exists an original paper-
based information or data that is scanned, sent through a phone line, and re-
printed at the receiving end. Be it noted that in enacting the Electronic Commerce
Act of 2000, Congress intended virtual or paperless writings to be the functional
equivalent and to have the same legal function as paper-based documents.88
Further, in a virtual or paperless environment, technically, there is no original copy
to speak of, as all direct printouts of the virtual reality are the same, in all respects,
and are considered as originals.89 Ineluctably, the law's definition of "electronic
data message," which, as aforesaid, is interchangeable with "electronic document,"
could not have included facsimile transmissions, which have an original paper-based
copy as sent and a paper-based facsimile copy as received. These two copies are
distinct from each other, and have different legal effects. While Congress
anticipated future developments in communications and computer technology90
when it drafted the law, it excluded the early forms of technology, like telegraph,
telex and telecopy (except computer-generated faxes, which is a newer
development as compared to the ordinary fax machine to fax machine
transmission), when it defined the term "electronic data message."
Clearly then, the IRR went beyond the parameters of the law when it adopted
verbatim the UNCITRAL Model Law's definition of "data message," without
considering the intention of Congress when the latter deleted the phrase "but not
limited to, electronic data interchange (EDI), electronic mail, telegram, telex or
telecopy." The inclusion of this phrase in the IRR offends a basic tenet in the
exercise of the rule-making power of administrative agencies. After all, the power of
administrative officials to promulgate rules in the implementation of a statute is
necessarily limited to what is found in the legislative enactment itself. The
implementing rules and regulations of a law cannot extend the law or expand its
coverage, as the power to amend or repeal a statute is vested in the Legislature.91
Thus, if a discrepancy occurs between the basic law and an implementing rule or
regulation, it is the former that prevails, because the law cannot be broadened by a
mere administrative issuance—an administrative agency certainly cannot amend an
act of Congress.92 Had the Legislature really wanted ordinary fax transmissions to
be covered by the mantle of the Electronic Commerce Act of 2000, it could have
easily lifted without a bit of tatter the entire wordings of the UNCITRAL Model Law.
Nevertheless, despite the pro forma invoices not being electronic evidence, this
Court finds that respondent has proven by preponderance of evidence the
existence of a perfected contract of sale.
Incidentally, the National Statistical Coordination Board Task Force on the
Measurement of E-Commerce,93 on November 22, 2006, recommended a working
definition of "electronic commerce," as "[a]ny commercial transaction conducted
In an action for damages due to a breach of a contract, it is essential that the
through electronic, optical and similar medium, mode, instrumentality and
claimant proves (1) the existence of a perfected contract, (2) the breach thereof by
technology. The transaction includes the sale or purchase of goods and services,
the other contracting party and (3) the damages which he/she sustained due to
between individuals, households, businesses and governments conducted over
such breach. Actori incumbit onus probandi. The burden of proof rests on the party
computer-mediated networks through the Internet, mobile phones, electronic data
who advances a proposition affirmatively.95 In other words, a plaintiff in a civil
interchange (EDI) and other channels through open and closed networks." The Task
action must establish his case by a preponderance of evidence, that is, evidence
Force's proposed definition is similar to the Organization of Economic Cooperation
that has greater weight, or is more convincing than that which is offered in
and Development's (OECD's) broad definition as it covers transactions made over
opposition to it.96
any network, and, in addition, it adopted the following provisions of the OECD
definition: (1) for transactions, it covers sale or purchase of goods and services; (2)
for channel/network, it considers any computer-mediated network and NOT limited
to Internet alone; (3) it excludes transactions received/placed using fax, telephone In general, contracts are perfected by mere consent,97 which is manifested by the
or non-interactive mail; (4) it considers payments done online or offline; and (5) it meeting of the offer and the acceptance upon the thing and the cause which are to
considers delivery made online (like downloading of purchased books, music or constitute the contract. The offer must be certain and the acceptance absolute.98
software programs) or offline (deliveries of goods).94 They are, moreover, obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present.99 Sale, being a
consensual contract, follows the general rule that it is perfected at the moment
there is a meeting of the minds upon the thing which is the object of the contract
We, therefore, conclude that the terms "electronic data message" and "electronic
and upon the price. From that moment, the parties may reciprocally demand
document," as defined under the Electronic Commerce Act of 2000, do not include
performance, subject to the provisions of the law governing the form of
a facsimile transmission. Accordingly, a facsimile transmission cannot be considered
contracts.100
as electronic evidence. It is not the functional equivalent of an original under the
Best Evidence Rule and is not admissible as electronic evidence.

The essential elements of a contract of sale are (1) consent or meeting of the minds,
that is, to transfer ownership in exchange for the price, (2) object certain which is
Since a facsimile transmission is not an "electronic data message" or an "electronic
the subject matter of the contract, and (3) cause of the obligation which is
document," and cannot be considered as electronic evidence by the Court, with
established.101
greater reason is a photocopy of such a fax transmission not electronic evidence. In
the present case, therefore, Pro Forma Invoice Nos. ST2-POSTS0401-1 and ST2-
POSTS0401-2 (Exhibits "E" and "F"), which are mere photocopies of the original fax
transmittals, are not electronic evidence, contrary to the position of both the trial In this case, to establish the existence of a perfected contract of sale between the
and the appellate courts. parties, respondent Ssangyong formally offered in evidence the testimonies of its
witnesses and the following exhibits:

- III -
Exhibit Conforme signature of Mr. Gregory Chan, contained in facsimile/thermal paper
faxed by defendants to plaintiff showing the printed transmission details on the
upper portion of said paper as coming from defendant MCC on 26 Apr 00 08:41AM
Description

To show that defendants sent their confirmation of the (i) delivery to it of the total
Purpose of 220MT specified stainless steel products, (ii) defendants' payment thereof by way
of an irrevocable letter of credit in favor of plaintiff, among other conditions.

E
F

Pro forma Invoice dated 17 April 2000 with Contract No. ST2-POSTS0401-1,
photocopy Pro forma Invoice dated 17 April 2000 with Contract No. ST2-POSTSO401-2,
photocopy

To show that defendants contracted with plaintiff for the delivery of 110 MT of
stainless steel from Korea payable by way of an irrevocable letter of credit in favor To show that defendants contracted with plaintiff for delivery of another 110 MT of
of plaintiff, among other conditions. stainless steel from Korea payable by way of an irrevocable letter of credit in favor
of plaintiff, among other conditions.

E-1
G

Pro forma Invoice dated 17 April 2000 with Contract No. ST2-POSTS0401, contained
in facsimile/thermal paper faxed by defendants to plaintiff showing the printed Letter to defendant SANYO SEIKE dated 20 June 2000, contained in
transmission details on the upper portion of said paper as coming from defendant facsimile/thermal paper
MCC on 26 Apr 00 08:41AM

To prove that defendants were informed of the date of L/C opening and
To show that defendants sent their confirmation of the (i) delivery to it of the defendant's conforme/approval thereof.
specified stainless steel products, (ii) defendants' payment thereof by way of an
irrevocable letter of credit in favor of plaintiff, among other conditions.
G-1

E-2
Signature of defendant Gregory Chan, contained in facsimile/thermal paper.
H Facsimile message to defendants dated 28 June 2000, photocopy

Letter to defendants dated 22 June 2000, original M

To prove that defendants were informed of the successful price adjustments Letter from defendants dated 29 June 2000, contained in facsimile/thermal paper
secured by plaintiff in favor of former and were advised of the schedules of its L/C faxed by defendants to plaintiff showing the printed transmission details on the
opening. upper portion of said paper as coming from defendant MCC on 29 June 00 11:12
AM

I
To prove that defendants admit of their liabilities to plaintiff, that they requested
for "more extension" of time for the opening of the Letter of Credit, and begging for
Letter to defendants dated 26 June 2000, original favorable understanding and consideration.

To prove that plaintiff repeatedly requested defendants for the agreed opening of M-1
the Letters of Credit, defendants' failure and refusal to comply with their obligations
and the problems of plaintiff is incurring by reason of defendants' failure and refusal
to open the L/Cs. Signature of defendant Gregory Chan, contained in facsimile/thermal paper faxed
by defendants to plaintiff showing the printed transmission details on the upper
portion of said paper as coming from defendant MCC on June 00 11:12 AM
J

Letter to defendants dated 26 June 2000, original

N
K

Letter to defendants dated 29 June 2000, original

Letter to defendants dated 27 June 2000, original

O
Letter to defendants dated 30 June 2000, photocopy S

To prove that plaintiff reiterated its request for defendants to L/C opening after the Demand letter to defendants dated 11 Sept 2000, original
latter's request for extension of time was granted, defendants' failure and refusal to
comply therewith extension of time notwithstanding.
To show defendants' refusal and failure to open the final L/C on time, the
cancellation of the contract as a consequence thereof, and final demand upon
P defendants to remit its obligations.

Letter to defendants dated 06 July 2000, original W

Letter from plaintiff SSANGYONG to defendant SANYO SEIKI dated 13 April 2000,
with fax back from defendants SANYO SEIKI/MCC to plaintiff SSANGYONG,
contained in facsimile/thermal paper with back-up photocopy
Q

To prove that there was a perfected sale and purchase agreement between the
Demand letter to defendants dated 15 Aug 2000, original parties for 220 metric tons of steel products at the price of US$1,860/ton.

To prove that plaintiff was constrained to engaged services of a lawyer for collection W-1
efforts.

Conforme signature of defendant Gregory Chan, contained in facsimile/thermal

R paper with back-up photocopy

Demand letter to defendants dated 23 Aug 2000, original To prove that defendants, acting through Gregory Chan, agreed to the sale and
purchase of 220 metric tons of steel products at the price of US$1,860/ton.

To prove that defendants opened the first L/C in favor of plaintiff, requested for
further postponement of the final L/C and for minimal amounts, were urged to W-2
open the final L/C on time, and were informed that failure to comply will cancel the
contract.
Name of sender MCC Industrial Sales Corporation Conforme signature of defendant Gregory Chan, photocopy

To prove that defendants sent their conformity to the sale and purchase agreement To prove that defendant MCC, acting through Gregory Chan, agreed to the sale and
by facsimile transmission. purchase of the balance of 100 metric tons at the discounted price of US$1,700/ton,
apart from the other order and shipment of 100 metric tons which was delivered by
plaintiff SSANGYONG and paid for by defendant MCC.
X

DD
Pro forma Invoice dated 16 August 2000, photocopy

Letter from defendant MCC to plaintiff SSANGYONG dated 22 August 2000,

To prove that defendant MCC agreed to adjust and split the confirmed purchase
order into 2 shipments at 100 metric tons each at the discounted price of
US$1,700/ton.
X-1
contained in facsimile/thermal paper with back-up photocopy
To prove that there was a perfected sale and purchase agreement between plaintiff
SSANGYONG and defendant MCC for the balance of 100 metric tons, apart from the
other order and shipment of 100 metric tons which was delivered by plaintiff
SSANGYONG and paid for by defendant MCC.

Notation "1/2", photocopy

DD-1

To prove that the present Pro forma Invoice was the first of 2 pro forma invoices.
Ref. No. ST2-POSTS080-1, contained in facsimile/thermal paper with back-up
photocopy
X-2

To prove that there was a perfected sale and purchase agreement between plaintiff
SSANGYONG and defendant MCC for the balance of 100 metric tons, apart from the
Ref. No. ST2-POSTS080-1, photocopy
other order and shipment of 100 metric tons which was delivered by plaintiff
SSANGYONG and paid for by defendant MCC.

To prove that the present Pro forma Invoice was the first of 2 pro forma invoices.

DD-2

X-3
Signature of defendant Gregory Chan, contained in facsimile/thermal paper with
back-up photocopy
To prove that defendant MCC, acting through Gregory Chan, agreed to the sale and
purchase of the balance of 100 metric tons, apart from the other order and
shipment of 100 metric tons which was delivered by plaintiff Ssangyong and paid for
by defendant MCC.102
Significantly, among these documentary evidence presented by respondent, MCC,
in its petition before this Court, assails the admissibility only of Pro Forma Invoice
Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2 (Exhibits "E" and "F"). After sifting
through the records, the Court found that these invoices are mere photocopies of
their original fax transmittals. Ssangyong avers that these documents were
prepared after MCC asked for the splitting of the original order into two, so that the
latter can apply for an L/C with greater facility. It, however, failed to explain why the
originals of these documents were not presented.
To determine whether these documents are admissible in evidence, we apply the
ordinary Rules on Evidence, for as discussed above we cannot apply the Electronic
Commerce Act of 2000 and the Rules on Electronic Evidence.
Because these documents are mere photocopies, they are simply secondary
evidence, admissible only upon compliance with Rule 130, Section 5, which states,
"[w]hen the original document has been lost or destroyed, or cannot be produced
in court, the offeror, upon proof of its execution or existence and the cause of its
unavailability without bad faith on his part, may prove its contents by a copy, or by
a recital of its contents in some authentic document, or by the testimony of
witnesses in the order stated." Furthermore, the offeror of secondary evidence
must prove the predicates thereof, namely: (a) the loss or destruction of the original
without bad faith on the part of the proponent/offeror which can be shown by
circumstantial evidence of routine practices of destruction of documents; (b) the
proponent must prove by a fair preponderance of evidence as to raise a reasonable
inference of the loss or destruction of the original copy; and (c) it must be shown
that a diligent and bona fide but unsuccessful search has been made for the
document in the proper place or places. It has been held that where the missing
document is the foundation of the action, more strictness in proof is required than
where the document is only collaterally involved.103
Given these norms, we find that respondent failed to prove the existence of the
original fax transmissions of Exhibits E and F, and likewise did not sufficiently prove
the loss or destruction of the originals. Thus, Exhibits E and F cannot be admitted in
evidence and accorded probative weight.
It is observed, however, that respondent Ssangyong did not rely merely on Exhibits
E and F to prove the perfected contract. It also introduced in evidence a variety of
other documents, as enumerated above, together with the testimonies of its
witnesses. Notable among them are Pro Forma Invoice Nos. ST2-POSTS080-1 and
ST2-POSTS080-2 which were issued by Ssangyong and sent via fax to MCC. As
already mentioned, these invoices slightly varied the terms of the earlier invoices
such that the quantity was now officially 100MT per invoice and the price reduced
to US$1,700.00 per MT. The copies of the said August 16, 2000 invoices submitted
to the court bear the conformity signature of MCC Manager Chan.
Pro Forma Invoice No. ST2-POSTS080-1 (Exhibit "X"), however, is a mere photocopy
of its original. But then again, petitioner MCC does not assail the admissibility of this
document in the instant petition. Verily, evidence not objected to is deemed
admitted and may be validly considered by the court in arriving at its judgment.104
Issues not raised on appeal are deemed abandoned.
As to Pro Forma Invoice No. ST2-POSTS080-2 (Exhibits "1-A" and "2-C"), which was
certified by PCIBank as a true copy of its original,105 it was, in fact, petitioner MCC
which introduced this document in evidence. Petitioner MCC paid for the order
stated in this invoice. Its admissibility, therefore, is not open to question.
These invoices (ST2-POSTS0401, ST2-POSTS080-1 and ST2-POSTS080-2), along with
the other unchallenged documentary evidence of respondent Ssangyong,
preponderate in favor of the claim that a contract of sale was perfected by the
parties.
This Court also finds merit in the following observations of the trial court:
Defendants presented Letter of Credit (Exhibits "1", "1-A" to "1-R") referring to Pro
Forma Invoice for Contract No. ST2POSTS080-2, in the amount of US$170,000.00,
and which bears the signature of Gregory Chan, General Manager of MCC. Plaintiff,
on the other hand, presented Pro Forma Invoice referring to Contract No. ST2-
POSTS080-1, in the amount of US$170,000.00, which likewise bears the signature of
Gregory Chan, MCC. Plaintiff accounted for the notation "1/2" on the right upper
portion of the Invoice, that is, that it was the first of two (2) pro forma invoices
covering the subject contract between plaintiff and the defendants. Defendants, on
the other hand, failed to account for the notation "2/2" in its Pro Forma Invoice
(Exhibit "1-A"). Observably further, both Pro Forma Invoices bear the same date and
details, which logically mean that they both apply to one and the same
transaction.106
Indeed, why would petitioner open an L/C for the second half of the transaction if
there was no first half to speak of?
The logical chain of events, as gleaned from the evidence of both parties, started
with the petitioner and the respondent agreeing on the sale and purchase of 220MT
of stainless steel at US$1,860.00 per MT. This initial contract was perfected. Later,
as petitioner asked for several extensions to pay, adjustments in the delivery dates,
and discounts in the price as originally agreed, the parties slightly varied the terms
of their contract, without necessarily novating it, to the effect that the original order
was reduced to 200MT, split into two deliveries, and the price discounted to
US$1,700 per MT. Petitioner, however, paid only half of its obligation and failed to
open an L/C for the other 100MT. Notably, the conduct of both parties sufficiently
established the existence of a contract of sale, even if the writings of the parties,
because of their contested admissibility, were not as explicit in establishing a
contract.107 Appropriate conduct by the parties may be sufficient to establish an
agreement, and while there may be instances where the exchange of
correspondence does not disclose the exact point at which the deal was closed, the
actions of the parties may indicate that a binding obligation has been
undertaken.108
With our finding that there is a valid contract, it is crystal-clear that when petitioner
did not open the L/C for the first half of the transaction (100MT), despite numerous
demands from respondent Ssangyong, petitioner breached its contractual
obligation. It is a well-entrenched rule that the failure of a buyer to furnish an
agreed letter of credit is a breach of the contract between buyer and seller. Indeed,
where the buyer fails to open a letter of credit as stipulated, the seller or exporter is
entitled to claim damages for such breach. Damages for failure to open a
commercial credit may, in appropriate cases, include the loss of profit which the
seller would reasonably have made had the transaction been carried out.109
- IV -
This Court, however, finds that the award of actual damages is not in accord with
the evidence on record. It is axiomatic that actual or compensatory damages cannot
be presumed, but must be proven with a reasonable degree of certainty.110 In
Villafuerte v. Court of Appeals,111 we explained that:
Actual or compensatory damages are those awarded in order to compensate a
party for an injury or loss he suffered. They arise out of a sense of natural justice
and are aimed at repairing the wrong done. Except as provided by law or by
stipulation, a party is entitled to an adequate compensation only for such pecuniary
loss as he has duly proven. It is hornbook doctrine that to be able to recover actual
damages, the claimant bears the onus of presenting before the court actual proof of
the damages alleged to have been suffered, thus:
A party is entitled to an adequate compensation for such pecuniary loss actually
suffered by him as he has duly proved. Such damages, to be recoverable, must not
only be capable of proof, but must actually be proved with a reasonable degree of
certainty. We have emphasized that these damages cannot be presumed and
courts, in making an award must point out specific facts which could afford a basis
for measuring whatever compensatory or actual damages are borne.112
In the instant case, the trial court awarded to respondent Ssangyong US$93,493.87
as actual damages. On appeal, the same was affirmed by the appellate court.
Noticeably, however, the trial and the appellate courts, in making the said award,
relied on the following documents submitted in evidence by the respondent: (1) 8.193MT
Exhibit "U," the Statement of Account dated March 30, 2001; (2) Exhibit "U-1," the
details of the said Statement of Account); (3) Exhibit "V," the contract of the alleged
resale of the goods to a Korean corporation; and (4) Exhibit "V-1," the 3.0MM X 1,219MM X C
authentication of the resale contract from the Korean Embassy and certification
from the Philippine Consular Office.
7.736MT

The statement of account and the details of the losses sustained by respondent due
to the said breach are, at best, self-serving. It was respondent Ssangyong itself
3.0MM X 1,219MM X C
which prepared the said documents. The items therein are not even substantiated
by official receipts. In the absence of corroborative evidence, the said statement of
account is not sufficient basis to award actual damages. The court cannot simply
rely on speculation, conjecture or guesswork as to the fact and amount of damages, 7.885MT
but must depend on competent proof that the claimant had suffered, and on
evidence of, the actual amount thereof.113
3.0MM X 1,219MM X C

Furthermore, the sales contract and its authentication certificates, Exhibits "V" and
"V-1," allegedly evidencing the resale at a loss of the stainless steel subject of the 8.629MT
parties' breached contract, fail to convince this Court of the veracity of its contents.
The steel items indicated in the sales contract114 with a Korean corporation are
different in all respects from the items ordered by petitioner MCC, even in size and 4.0MM X 1,219MM X C
quantity. We observed the following discrepancies:

7.307MT
List of commodities as stated in Exhibit "V":

4.0MM X 1,219MM X C
COMMODITY: Stainless Steel HR Sheet in Coil, Slit Edge

SPEC: SUS304 NO. 1

7.247MT

SIZE/Q'TY:
4.5MM X 1,219MM X C

2.8MM X 1,219MM X C
8.450MT
 List of commodities as stated in Exhibit "X" (the invoice that was not paid):

4.5MM X 1,219MM X C

DESCRIPTION: Hot Rolled Stainless Steel Coil SUS 304

8.870MT

SIZE AND QUANTITY:

5.0MM X 1,219MM X C

2.6 MM X 4' X C

8.391MT

10.0MT

6.0MM X 1,219MM X C

3.0 MM X 4' X C

6.589MT

25.0MT

6.0MM X 1,219MM X C

4.0 MM X 4' X C

7.878MT

15.0MT

6.0MM X 1,219MM X C

4.5 MM X 4' X C

8.397MT

15.0MT

TOTAL:

5.0 MM X 4' X C

95.562MT115

10.0MT
6.0 MM X 4' X C WHEREFORE, PREMISES CONSIDERED, the appeal is PARTIALLY GRANTED. The
Decision of the Court of Appeals in CA-G.R. CV No. 82983 is MODIFIED in that the
award of actual damages is DELETED. However, petitioner is ORDERED to pay
25.0MT respondent NOMINAL DAMAGES in the amount of P200,000.00, and the
ATTORNEY'S FEES as awarded by the trial court.

TOTAL:
SO ORDERED.

100MT116

From the foregoing, we find merit in the contention of MCC that Ssangyong did not
adequately prove that the items resold at a loss were the same items ordered by
the petitioner. Therefore, as the claim for actual damages was not proven, the
Court cannot sanction the award.

Nonetheless, the Court finds that petitioner knowingly breached its contractual
obligation and obstinately refused to pay despite repeated demands from
respondent. Petitioner even asked for several extensions of time for it to make
good its obligation. But in spite of respondent's continuous accommodation,
petitioner completely reneged on its contractual duty. For such inattention and
insensitivity, MCC must be held liable for nominal damages. "Nominal damages are
'recoverable where a legal right is technically violated and must be vindicated
against an invasion that has produced no actual present loss of any kind or where
there has been a breach of contract and no substantial injury or actual damages
whatsoever have been or can be shown.'"117 Accordingly, the Court awards
nominal damages of P200,000.00 to respondent Ssangyong.

As to the award of attorney's fees, it is well settled that no premium should be

placed on the right to litigate and not every winning party is entitled to an 8. G.R. No. 160867 September 20, 2006
automatic grant of attorney's fees. The party must show that he falls under one of
BONIFACIO NAKPIL
the instances enumerated in Article 2208 of the Civil Code.118 In the instant case,
however, the Court finds the award of attorney's fees proper, considering that vs.
petitioner MCC's unjustified refusal to pay has compelled respondent Ssangyong to
MANILA TOWERS DEVELOPMENT CORPORATION
litigate and to incur expenses to protect its rights.
x--------------------------------------x
G.R. No. 160886 September 20, 2006
MANILA TOWERS DEVELOPMENT CORPORATION
vs.
BONIFACIO NAKPIL
This is a consolidation of two Petitions for Review, assailing the Decision1 of the
Court of Appeals (CA) in CA-G.R. CV No. 72289 dated August 25, 2003 and the
Resolution dated November 19, 2003 denying the motion for reconsideration
thereof.
The Antecedents
A 14-storey high rise building was constructed at 777 Ongpin St., Sta. Cruz, Manila.
Sometime in 1964, its owner, Cheong Kiao Ang, leased the building to about 200
Filipino Chinese tenants who used the same for either residential or commercial
purposes. One of these tenants was Atty. Bonifacio Nakpil who leased Room 204 in
the mezzanine floor. He used the unit as his law office.2 The tenants of the building
later formed the House International Building Tenants Association, Inc. (HIBTAI).
The property was mortgaged with the Government Service Insurance System (GSIS)
as security for a loan Ang had earlier obtained. Upon failure to pay the loan, the
GSIS had the real estate mortgage foreclosed and the property sold at public
auction, with GSIS as the winning bidder. The latter, in turn, sold the property to the
Centertown Marketing Corporation (CMC) which assigned all its rights to its sister-
corporation, the Manila Tower Development Corporation (MTDC) for
P21,000,000.00. The HIBTAI protested, claiming that its members had the priority to
buy the property.3 The tenants refused to pay their rentals and instead remitted
them to HIBTAI.
On June 29, 1981, the City Engineer wrote the MTDC, through Luis Javellana,
requesting that the defects of the building be corrected. The City Engineer warned
the MTDC that the defects were serious and would endanger the lives of the
tenants if not immediately corrected. The City Engineer reiterated his request in a
letter dated July 10, 1981 to MTDC urging that the building be immediately
repaired. However, before the MTDC could make the necessary repairs, the HIBTAI,
on October 2, 1982, filed a complaint against the GSIS for injunction and damages in
the Court of First Instance (CFI) of Manila.
On January 31, 1983, the court rendered judgment dismissing the complaint.
However, on February 23, 1983, HIBTAI filed another complaint for annulment of
contract and damages in the CFI of Manila, docketed as Civil Case No. 83-15875,
against the CMC, MTDC and GSIS. It averred that under Presidential Decree (P.D.)
No. 1517, the tenants had the priority right to purchase the property. The court
rendered judgment dismissing the complaint, prompting HIBTAI to appeal the
decision to the appellate court. The ruling of the trial court was later affirmed on
February 4, 1986. HIBTAI assailed the ruling in this Court via petition for review. On
June 30, 1987, this Court rendered judgment affirming the decision of the CA.4
According to the Court, the tenants of the building, not the HIBTAI, were the real
parties-in-interest as parties-plaintiffs.
About eight (8) years later, on October 12, 1995, Atty. Samuel S. Samuela, the
building administrator, wrote Architect Juan A. Maravillas, Jr., then Officer-in-
Charge (OIC), Office of the Building Official, City of Manila, requesting for an
immediate ocular inspection of the building to determine its safety. The letter
mentioned that, as far back as 1981, the City Engineer and Building Official had
ordered the building condemned after inspection. Atty. Samuela stated that when
the MTDC was about to initiate the repairs on the building, the tenants filed several
suits against it; this prevented MTDC from complying with the said order. During
the pendency of these cases, the tenants likewise took control of the building and
even illegally put up structures in the building without MTDC's consent. He pleaded
to the Building Official to give priority to his request to prevent undue injuries and
protect the lives of the tenants.5
The City Building Official granted the request and scheduled an ocular inspection of
the building at 2:00 p.m. on October 24, 1995.6
With prior notices to the tenants and in the presence of a representative of HIBTAI,
Amado Ramoneda, the representatives of the Office of the Building Official
conducted an ocular inspection of the building.7 On November 3, 1995, they
submitted a Building Inspection Report with the following findings:
I. STRUCTURAL ASPECT (Sec. 3.1 Rule VII-IRR)
1. Cracks on the exterior interior walls are prominent which manifest earthquake
movement and decrease in seismic resistance. Damages to beams and columns are
feasible.
II. ELECTRICAL ASPECT (Sec. 3.3 Rule VII-IRR)
2. Wiring system are already old, obsolete and not properly maintained;
3. Some junction boxes are not properly covered thus exposing the wiring
connections;
4. Usage of dangling extension cords and octopus wiring connections were likewise
observed.
III. SANITARY/PLUMBING ASPECT (Sec. 3.5 Rule VII-IRR)
5. Defective sanitary/plumbing installations;
6. Poor drainage system that caused the stagnation of waste water within the back
part (Ground Floor) of the building;
7. All sanitary/plumbing fixtures on vacated 9th, 10th & 11th floors, due to lack of
proper maintenance has los[t] their trap seals, this allowed the escape of toxicating
sewer gas from the system.
IV. ARCHITECTURAL ASPECT (Sec. 3.6 Rule VII-IRR).
8. Steel frames and roofings at deck are rusted/corroded and inadequately
maintained;
9. Broken window glass panes and rusted steel casement;
10. Inadequate light and ventilation resulting from illegal constructions at the
required open space areas;
11. Illegal use of 14th floor as sauna bath parlor which is non-conforming to City
Ordinance.
OTHERS
12. Non-compliance with the provisions of BP 344, the Law to Enhance Mobility of
Disabled Persons;
13. Illegal construction at the estero easement area and at the required open
spaces in violations of Section 3.8 Rule VII-IRR.8 (Underscoring supplied)
The City Building Official recommended that the windows glass/frames be repaired
and the illegally appended structures removed. It was also recommended that the
use of the sauna bath be discontinued and the old electrical wiring system and
fixtures be replaced. He also stated that the structural integrity of the building was
questionable, and that structural testing was needed.9
Consequently, on November 10, 1995, the City Building Official wrote a letter to the
building administrator, ordering him to cause the tenants to vacate the building and
2) the directive of national as well as local leaders to intensify the campaign against
undertake the necessary repairs and rehabilitation of the building. The following
buildings which are dangerous to life and limb as exemplified in the tragic Ozone
warning was also issued:
case in Quezon City; and

Failure to comply herewith shall constrain this Office to impose further

3) the possibility of City officials incurring criminal as well as administrative liabilities
administrative sanctions in accordance with the provisions of the National Building
for failure to take positive steps to protect the lives of the people against ruinous or
Code PD. 1096, as well as the other existing laws and ordinances. This is without
dangerous buildings.
prejudice to further legal action that may be taken under the provisions of Articles
482 and 694 to 707 of the Civil Code of the Philippines.10

The persistence of the owners of the building in not undertaking the required
urgent repairs allegedly because of suits filed against them, gives this Office no
However, the MTDC did not respond to the letter. On January 24, 1996, the City
better alternative but to recommend that the City Engineer be authorized and
Building Official issued a Closure Order to the MTDC and ordered the building
directed to make the necessary repairs and all expenses thereto be shouldered by
administrator to cause the tenants to vacate the building within fifteen (15) days
the owners of the building and also to order the occupants of the building to
from notice and to commence its repair. He also directed MTDC to file an
immediately vacate the premises to give way to the repair and to ensure the
application for the necessary permits before the start of the actual repairs, together
protection of their lives and property.
with a certification on structural stability from the building's structural designer and
to attach thereto the results of the structural testing as well as the
recommendation/evaluation reports, scope of project activities, repair/renovation
plans and retrofitting plans. The order would only be lifted after the defects or Approval of this request is urgently needed.12
deficiencies of the subject building or structure shall have been corrected or
substantially complied with in accordance with Section 21, Rule VIII-IRR, P.D. No.
1096, without prejudice to further action that may be taken under the provisions of The City Mayor approved the recommendation and directed the repairs of the
Articles 482, and 694 to 707 of the Civil Code, as well as other existing laws and building by the City Building Official with the expenses therefor to be charged
ordinances.11 against the account of MTDC.13

The City Building Official conducted a reinspection of the building and, on March 26, On June 28, 1996, notices were sent to the tenants, giving them fifteen (15) days
1996, made the following recommendation: within which to vacate the building to give way to its general repair.14 However, at
the time, Atty. Nakpil was in the United States for medical treatment, and his
secretary was left behind to take care of the law office.
It is recommended that because of:

Felix Ong, one of the tenants in the building and the President of the HIBTAI, filed a
1) the adamant refusal of the owners of the building to correct the serious defects petition for prohibition with a plea for a writ of preliminary injunction and/or a
noted by this Office as early as 1981 up to the present, notwithstanding notices to temporary restraining order (TRO) with damages against the MTDC, City Engineer
this effect; and Police Major Franklin Gacutan, docketed as Civil Case No. 96-79267. Ong
prayed that a TRO be issued to enjoin respondents from conducting repair and
rehabilitation work within the building, which the court granted.
Clemente Sy, who claimed to be the Barangay Captain of Barangay No. 297, Zone 29
where the building was located and the incumbent President of the House
International Building Tenants Association, filed a similar petition against the same
respondents, including MTDC.15
At about 4:00 p.m. on July 19, 1996, a group of men led by Engr. Melvin Balagot, the
Chief Slum Clearance and Demolition Services of the Office of the City Building
Official, entered the building and, in compliance with the order of the City Mayor as
recommended by the City Building Official, commenced the repairs and tore down
some of the structures. However, the repair works were temporarily suspended on
July 22, 1996 as a result of the TRO issued by the court in favor of Ong in Civil Case
No. 96-79267.
On July 23, 1996, Engr. Balagot submitted the following Report:
1. That all the occupants thereat already vacated the premises to give way for the
repair work of the subject structure except for the unit occupied by the security
guards at the ground floor;
2. That most of the interior walls were already dismantled by this Office to give way
for immediate replacement.
3. It is likewise reported that the said building is not safe for occupancy for the
meantime.
For your information and further instruction.
(SGD)
MELVIN Q. BALAGOT
Engineer V
Chief, Slum Clearance and Demolition Services.16
Upon his arrival in the Philippines, Atty. Nakpil filed, on November 5, 1996, a
complaint in the Regional Trial Court (RTC) of Manila against the MTDC, seeking for
actual, moral, and exemplary damages, attorney's fees, litigation expenses, costs of
suit and other reliefs. The case was docketed as Civil Case No. 65980. He alleged
that the MTDC, through its agents and representatives and the policemen who
accompanied the demolition team, forced the guard to open the gate to the
building, and, thereafter, 200 people armed with hammer and crowbars started
destroying the mezzanine floor of the building on July 19, 1996. His room was
destroyed, the walls and partitions were completely hammered down, and the
electricity was cut off. His personal belongings were either scattered, thrown away,
or stolen. He pointed out that he had been renting the premises and complying with
the conditions of the lease since 1965. The MTDC violated his right as lessee to the
possession of the premises, unlawfully depriving him of said possession without any
lawful authority or court order.17
Atty. Nakpil prayed that MTDC be ordered to pay the following:
a) P100,000 for actual damages, representing the value of the personal belongings
and important papers which were lost and/or stolen by the representatives of the
defendant during the actual demo[li]tion and tearing or hammering down of the
walls and partitions of the room of the plaintiff;
b) The sum of P500,000.00 as moral damages;
c) The sum of P100,000.00 as exemplary damages;
d) The sum equivalent to 20% of the amount due to the plaintiff as attorney's fees;
and

e) The sum of P50,000 as litigation expenses, plus costs of suit.
Plaintiff prays for such other relief and remedies he is entitled to in the premises.18
Meantime, the trial court dismissed the complaint of Ong in Civil Case No. 96-
79267. In view of this development, the Office of the Mayor sent a letter dated
March 6, 1998 to the President and officers of the MTDC, and the owners of the
building, directing them to undertake immediate repairs within three (3) days from
receipt thereof, otherwise, it will undertake the repair and all expenses shall be
charged against them.19 The Office of the Mayor made it clear that the order
became necessary to protect the people from any injury as a consequence of the
dilapidated and serious deterioration of the building. The MTDC forthwith applied
for a demolition permit with the Office of the Building Official which was granted on
March 30, 1998.20 The MTDC later had the building demolished.
In due course, the complaint and summons were served on MTDC on April 14, 1998
in Civil Case No. 65980.21 In its answer to the complaint, MTDC alleged that it was
the City of Manila which caused the repair of the building, following the tragic
Ozone fire incident in Quezon City. Consequently, it was not liable for Atty. Nakpil's
claims.
Atty. Nakpil testified that he had been a lessee of Room 204 and used the room as a
law office; on July 19, 1996, he was in the United States for treatment when his
daughter informed him, through phone, that his place was being demolished. He
rushed back home and arrived in Manila on July 30, 1996, and discovered that he
had no more office to speak of. The demolition team (the sheriff, policemen and
laborers), armed with crowbars, looted the room and destroyed the pipes and
cabinets and scattered his things.22 He lost some of his books, a tanguile table,
three paintings, two manual typewriters, all valued at P100,000.00. He averred that
he had been in the law practice for 30 years, all spent in Room 204; because of the
demolition of his office, he could not resume his law practice.
For his part, Joseph Villanueva declared that, since 1973, he had leased a portion of
the mezzanine floor, Room 200, which he used as his clinic. At around 3:00 p.m. on
July 19, 1996, a group of employees of the City Engineer's Office, accompanied by
policemen and sheriffs, gained entry into the building, cut the electric current, and
destroyed the pipes with the use of heavy equipments and crowbars. They
demolished the mezzanine and upper floors and other parts of the building. Around
20 members of the demolition crew entered the office of Atty. Nakpil. Some
members of the demolition crew looted the room and took everything they could
carry. He stated that what he and the tenants received were notices to repair and
not notice of demolition.
Atty. Nakpil presented Engr. Guillermo de Leon who testified that he was requested
to conduct an ocular inspection of the building. As per his report dated August 9,
1990, he assessed the building to be safe, sound and stable. The building was not
destroyed by the earthquake on July 6, 1990. He found hairline cracks, caused
probably by temperature. He never used any instrument to determine the
structural stability because there was no danger. He stated that upon inspection, he
found no hairline cracks and that the building could be saved by plastering; in fact, it
could withstand any earthquake.
Carmelita Tan, a member of the HIBTAI, testified that she owned a grocery store in
the ground floor and in the mezzanine. At about 4:00 p.m. on July 19, 1996, 100
persons, carrying hammers and crowbars and long irons, gained entry into the
building. She rushed to the mezzanine and saw that ten of them were in the law
office of Atty. Nakpil and that the door and partitions were damaged. The lights
were off at the time.
MTDC adduced testimonial and documentary evidence that the Office of the City
Engineer, through Engr. Melvin Balagot, Jr., commenced the repairs of the building
on July 19, 1996, with the assistance of the employees of the City Engineer's Office,
laborers and policemen who were tasked to check the flow of traffic. They removed
the cracked interior walls of the building with crowbars, hammers and other
instruments, and some portions of the ceiling which needed to be replaced.23
However, they did not remove the walls and partitions in the mezzanine floor.24
They started the work on the 9th and 10th floors of the building,25 but had to stop
due to the temporary restraining order from the RTC of Manila on the complaint of
Felix Ong. During the ocular inspection of the building on August 8, 1996 conducted
by the Clerk of Court in connection with Civil Case No. 96-79267, the Office of Atty.
Nakpil was unoccupied.26

On May 20, 2001, the court rendered judgment in favor of MTDC and ordered the
dismissal of the complaint. The trial court declared that Atty. Nakpil failed to prove
that the building was demolished on July 30, 1996 and failed to link MTDC to the
incident on July 19, 1996 and the loss of the personal properties of Atty. Nakpil. As
admitted by one of his witnesses (Villanueva), the employees of the City Engineer's
office were the ones who demolished the building, while Carmelita Tan declared
that she did not know who those people were.27
Atty. Nakpil appealed to the CA. On August 25, 2003, the CA rendered judgment
granting the appeal and reversing the decision of the RTC. The fallo of the decision
reads:
WHEREFORE premises considered, the appealed decision of the Regional Trial
Court, Branch 152 in Civil Case No. is hereby REVERSED and SET ASIDE. A new one is
hereby rendered ordering defendant-appellee, Manila Towers to pay herein
plaintiff-appellant Bonifacio Nakpil the amount of P50,000.00 as nominal damages.
SO ORDERED.28
The CA held that MTDC was remiss in its duty as lessor under Article 1654, that is, to
make the necessary repairs on the building. This led to the demolition of the leased
premises, thereby disturbing the peaceful and adequate enjoyment of the lessee.
Thus, the failure of MTDC to fulfill such obligation entitled Atty. Nakpil to damages.
The appellate court cited Goldstein v. Roces.29 However, the CA also ruled that no
actual damages could be awarded to Atty. Nakpil since he failed to present
competent evidence to prove the actual damages sustained. Neither can moral
damages be awarded to him since he likewise failed to prove bad faith or any
fraudulent act on the part of MTDC. Thus, no exemplary damages could likewise be
awarded, and, consequently, he was not entitled to attorney's fees. According to
the CA, the most that could be adjudged in his favor was nominal damages for
violation of his right.30
The parties filed their respective motions for reconsideration of the decision, which
the CA denied in its Resolution dated November 19, 2003.31
The parties filed their respective petitions for review on certiorari in this Court,
seeking to reverse the decision and resolution of the appellate court.
In G.R. No. 160867, Nakpil, petitioner therein, contends that, while actual damages
must be proven as a general rule and the amount of damages must possess at least
a degree of certainty, it is not necessary to prove exactly how much the loss was; it
is enough that loss is proven. He insists that he has presented proof that he suffered
losses when his office was demolished and the value he gave was a fair and
reasonable assessment thereof. He maintains that as of June 1995, there were
already 245 volumes of the Supreme Court Reports Annotated (SCRA). In 1998, the
value of each volume of the SCRA was P520.00; hence, the value of 245 volumes
would be P127,400.00, a matter which the court can take judicial notice of.
Assuming that the evidence he presented is not sufficient to entitle him to an award
of actual damages, the P50,000.00 nominal damages awarded to him is too
minimal. He maintains that he is entitled to moral damages because the MTDC had
the building demolished to have him evicted from his office; he suffered mental
anguish and was embarrassed by his eviction; he had his law office for more than 30
years and considered it his second home.
On the other hand, in G.R. No. 160886, MTDC, petitioner therein, avers that it
cannot be made liable for actual, moral and exemplary damages because it had not
been remiss in its duty to make the necessary repairs; it was prohibited from taking
possession of the property by the tenants who had filed several suits against it.32 It
alleged that it acquired the building from the GSIS in 1981, and it was the HIBTAI
that had been managing the affairs of the said building and collected the rentals
from the tenants. It pointed out that in CA-G.R. No. 04393, the CA ruled that the
HIBTAI had no right to collect the rentals. Moreover, HIBTAI did not use the rentals
to make the necessary repairs but used it instead to pay its accounts and
obligations. By their own actions, the tenants of the subject building prevented
MTDC from performing its duty to maintain them in their peaceful possession and
enjoyment of the property. Moreover, Nakpil failed to prove that it had anything to
do with the demolition/repairs and the loss of his personal property.
Nakpil counters that while MTDC may have failed to make the necessary repairs
because it was prevented by the tenants' association from doing so, there is no
showing that it failed to maintain him in the peaceful and adequate possession of
the leased premises for the same reason. He contends that MTDC allowed the city
to demolish the building even when the order was only for its repair. He posits that
the MTDC is liable for damages because the MTDC, not a third person, deprived him
of his possession of the leased premises.33
The threshold issues are: (1) whether or not the MTDC is liable for actual, moral and
exemplary damages to Nakpil; and (2) whether the award of P50,000.00 for nominal
damages has factual and legal basis.
The Ruling of the Court
The petition of the MTDC in G.R. No. 160886 is meritorious. The petition of Nakpil in
G.R. No. 160867 is denied for lack of merit.
Article 1654 of the Civil Code enumerates the obligations of the lessor:
(1) To deliver the thing which is the object of the contract in such a condition as to
render it fit for the use intended;
(2) To make on the same during the lease all the necessary repairs in order to keep
it suitable for the use for which it has been devoted, unless there is a stipulation to
the contrary;
(3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for
the entire duration of the contract.
Failure of the lessor to fulfill any of these obligations will render the lessor liable for
damages.34 In contracts, the obligor (lessor) who acted in good faith is liable for
damages that are the material and probable consequence of the breach of the
obligation and which the parties have foreseen or could have reasonably foreseen
at the time the obligation was contracted. In case of fraud, bad faith, malice or
wanton attitude, he shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation.35
We do not agree with the ruling of the CA that the MTDC committed a breach of its
lease contract with Nakpil when it failed to comply with its obligation as lessor, and
that the MTDC is liable for nominal damages. Breach of contract is the failure
without legal reason to comply with the terms of a contract. It is also defined as the
failure, without legal excuse, to perform any promise which forms the whole or part
of the contract.36 There is no factual and legal basis for any award for damages to
respondent.
The duty to maintain the lessee in the peaceful and adequate enjoyment of the
lease for the duration of the contract is merely a warranty that the lessee shall not
be disturbed in his legal, and not physical, possession.37 In the early case of
Goldstein v. Roces,38 the Court, citing the commentaries of Manresa, pointed out
that the obligation to maintain the lessee in the peaceful and adequate enjoyment
of the leased property seeks to protect the lessee not only from acts of third
persons but also from the acts of the lessor, thus:
The lessor must see that the enjoyment is not interrupted or disturbed, either by
others' acts [save in the case provided for in the article 1560 (now Article 1664)], or
by his own. By his own acts, because, being the person principally obligated by the
contract, he would openly violate it if, in going back on his agreement, he should
attempt to render ineffective in practice the right in the thing he had granted to the
lessee; and by others' acts, because he must guarantee the right he created, for he
is obliged to give warranty in the manner we have set forth in our commentary on
article 1553, and, in this sense, it is incumbent upon him to protect the lessee in the
latter's peaceful enjoyment.39
When the act of trespass is done by third persons, it must be distinguished whether
it is trespass in fact or in law because the lessor is not liable for a trespass in fact or
a mere act of trespass by a third person.40 In the Goldstein case, trespass in fact
was distinguished from legal trespass, thus: "if the act of trespass is not
accompanied or preceded by anything which reveals a juridic intention on the part
of the trespasser, in such wise that the lessee can only distinguish the material fact,
stripped of all legal form or reasons, we understand it to be trespass in fact only (de
mero hecho)."41 Further, the obligation under Article 1654(3) arises only when
acts, termed as legal trespass (perturbacion de derecho), disturb, dispute, object to,
or place difficulties in the way of the lessee's peaceful enjoyment of the premises
that in some manner cast doubt upon the right of the lessor by virtue of which the
lessor himself executed the lease.42
What is evident in the present case is that the disturbance on the leased premises
on July 19, 1996 was actually done by the employees under the City Engineer of
Manila and the City Building Official on orders of the City Mayor without the
participation of the MTDC. It bears stressing that the City Building Official is
authorized and mandated under Section 214 of the National Building Code to order
the repair, maintenance or demolition of the building found or declared to be
dangerous or ruinous, depending upon the degree of danger to life, health, safety
and/or well-being of the general public and its occupants as provided in Section 215
thereof. This is without prejudice to the provisions of Articles 482, 694 and 707 of
the New Civil Code. Sections 214 and 215 of the National Building Code read:
SECTION 214. Dangerous and Ruinous Buildings or Structures
Dangerous buildings are those which are herein declared as such or are structurally
unsafe or not provided with safe egress, or which constitute a fire hazard, or are
otherwise dangerous to human life, or which in relation to existing use, constitute a
hazard to safety or health or public welfare because of inadequate maintenance,
dilapidation, obsolescence, or abandonment; or which otherwise contribute to the
pollution of the site or the community to an intolerable degree.
SECTION 215. Abatement of Dangerous Buildings
When any building or structure is found or declared to be dangerous or ruinous, the
Building Official shall order its repair, vacation or demolition depending upon the
degree of danger to life, health, or safety. This is without prejudice to further action
that may be taken under the provisions of Articles 482 and 694 to 707 of the Civil
Code of the Philippines.
When the personnel of the City Building Official/City Engineer in coordination with
the Philippine National Police undertook the repair/rehabilitation of the building,
they did so in the lawful performance of their duties, independently of and separate
from the obligation of the MTDC to effect the required immediate
repair/rehabilitation of the building.
Admittedly, the MTDC requested the City Building Official for the inspection of the
building to determine its safety, conformably with its obligation under Article 1654
of the New Civil Code to maintain peaceful and adequate enjoyment of the tenants
of the leased premises, and to insure the personal safety of the tenants and their
properties. At the time, the Ozone Bar and Grill in Quezon City had just been burned
down, and many lives were lost.
There is no question that the possession by respondent of the leased premises had
been disturbed by the attempt of the personnel of the City Building Official to repair
and rehabilitate the building due to MTDC's failure to undertake the same. Any act
or omission by the lessor which causes a substantial interference with the actual
possession of the lessee will constitute a breach of the obligation of quiet
enjoyment. In some jurisdictions, the lessor's failure to make repairs or alterations
to the leased premises as required by public authorities, particularly those that are
substantial and structural in nature, constitutes constructive eviction, which makes
the lessor liable for damages.43 Such conclusion is grounded on the fact that the
lessors, in those cases, were obliged to make structural and substantial repairs on
the leased property. The same doctrine could very well be applied in our jurisdiction
considering that, under our laws, the lessor is likewise obliged to make the
necessary repairs on the leased premises which would undoubtedly include those
that are structural and substantial in nature. In fact, there may be a constructive
eviction if the landlord does a wrongful act or is guilty of any default or neglect
whereby the leased premises are rendered unsafe, unfit, or unsuitable for
occupancy, in whole, or in substantial part, for the purposes for which they were
leased.44
It bears stressing, however, that two factors must exist before there can be a
constructive eviction: (1) an act or omission by the landlord, or someone acting
under his authority, which permanently interferes with the tenant's beneficial
enjoyment or use of the leased premises; and (2) an abandonment of possession by
the lessee within a reasonable time.45
Nakpil failed to establish any of the foregoing factors. The City Building Official was
tasked merely to repair/rehabilitate the building and not to demolish the same and
cause the placement eviction of the tenants. Neither did respondent abandon the
leased premises. Admittedly, the MTDC failed to make the necessary repairs in the actual repairs/rehabilitation of the building, nor in the selection, supervision and
building despite requests of the City Building Official as early as June 29, 1981 and control of the laborers to initially repair/rehabilitate the building.
July 10, 1981. However, the MTDC cannot be faulted for such failure. No less than
Moreover, Atty. Nakpil failed to present preponderance of evidence to prove that
the HIBTAI or its members prevented MTDC from instituting the necessary repairs.
any of the laborers under the Office of the City Building Official/City Engineer
Even Villanueva, Nakpil's witness, admitted that HIBTAI objected to the orders of
carried away his books, table, painting, and typewriter. Villanueva merely testified
the City Building Official for the repair of the building.46
that the laborers carried away "things they could carry." The evidence of Nakpil
shows that the mezzanine floor was dark, as the lights had been turned off to
prevent a conflagration. If at all the laborers had taken any of the materials from
Moreover, a complaint for injunction and damages was filed by the HIBTAI on
any of the rooms in the building, these were building materials which they were
October 2, 1982 against the MTDC. Even after the dismissal of the complaint, on
authorized to carry away under Section 10, Rule II of the Implementing Rules of the
January 31, 1983, the HIBTAI filed a complaint against the GSIS, CMC and MTDC
National Building Code which reads:
with the RTC of Manila for the nullification of the deed of conditional sale between
the GSIS and the CMC and the deed of assignment executed by the defendant CMC
and the MTDC over the property. Plaintiff alleged therein that its members,
10. The building/structure as repaired or in case of demolition, the building
presumably including Nakpil, the tenants in the building had the priority right under
materials gathered after the demolition thereof shall be held by the OBO until full
P.D. No. 1517 to purchase the property; that the CMC was not qualified to purchase
reimbursement of the cost of repair, renovation, demolition and removal is made
the property from the GSIS under its Articles of Information and, hence, the deed of
by the owner which, in no case, shall extend beyond thirty (30) days from the date
conditional sale was ultra vires; consequently, the deed of assignment executed by
of completion of the repair, renovation, demolition and removal. After such period,
the CMC and its sister corporation was null and void. The tenants in the building,
said building materials of the building thus repaired, renovated or removed shall be
including Nakpil, refused to pay rentals and remitted the same to the HIBTAI which
sold at public auction to satisfy the claim of the OBO. Any amount in excess of the
used the money partly to finance its suits against the MTDC, thus depriving the
claim of the government realized from the sale of the building and/or building
latter from generating funds for the repair of the building. In fine, the tenants,
materials shall be delivered to the owner.
through the HIBTAI, already controlled the premises. The RTC dismissed the
complaint of HIBTAI. The Intermediate Appellate Court affirmed the dismissal on
February 4, 1986. The HIBTAI filed a petition for review in this Court and, on June
30, 1987, the petition was denied for lack of merit.47 The Court ruled that the Assuming that Atty. Nakpil lost any of his personal properties, at the very least, he
HIBTAI had no personality to assail the contracts and to invoke P.D. No. 1517 for its should have inquired from the office of the City Engineer/City Building Official and
members, including Nakpil. Shortly, thereafter, in 1988, a complaint was filed requested that they be returned to him.
against the GSIS by one of the tenants entitled Dy v. Government Service Insurance
WHEREFORE, premises considered, the petition in G.R. No 160867 is DENIED. The
System.48 In 1994, a similar complaint was filed against the GSIS by another tenant
petition in G.R. No. 160886 is GRANTED. The Decision of the Court of Appeals is
entitled Cruz v. GSIS.49
REVERSED AND SET ASIDE. The decision of the Regional Trial Court is AFFIRMED. No
costs.

Even Nakpil admitted that the MTDC was prevented by the HIBTAI and its members
from undertaking any repairs in the building. The only recourse of the MTDC was for
SO ORDERED.
the repair/rehabilitation of the building through the Office of the City Engineer/City
Building Official. Thus, in 1995, it requested for an immediate ocular inspection of
the building to determine the condition and safety of the building under Sections
214 and 215 of the National Building Code. The MTDC had no involvement in the 10.G.R. No. 159617 August 8, 2007

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC.

vs. were deposited with Far East Bank near the pawnshop since it had been the
practice that before they could withdraw, advance notice must be given to the
LULU V. JORGE and CESAR JORGE
pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then
requested petitioner Sicam to prepare the pawned jewelry for withdrawal on
November 6, 1987 but petitioner Sicam failed to return the jewelry.
Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr.
(petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner corporation) seeking
to annul the Decision1 of the Court of Appeals dated March 31, 2003, and its
On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a
Resolution2 dated August 8, 2003, in CA G.R. CV No. 56633.
complaint against petitioner Sicam with the Regional Trial Court of Makati seeking
indemnification for the loss of pawned jewelry and payment of actual, moral and
exemplary damages as well as attorney's fees. The case was docketed as Civil Case
It appears that on different dates from September to October 1987, Lulu V. Jorge No. 88-2035.
(respondent Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam
located at No. 17 Aguirre Ave., BF Homes Parañaque, Metro Manila, to secure a
loan in the total amount of P59,500.00.
Petitioner Sicam filed his Answer contending that he is not the real party-in-interest
as the pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C.
Sicam, Inc; that petitioner corporation had exercised due care and diligence in the
On October 19, 1987, two armed men entered the pawnshop and took away safekeeping of the articles pledged with it and could not be made liable for an event
whatever cash and jewelry were found inside the pawnshop vault. The incident was that is fortuitous.
entered in the police blotter of the Southern Police District, Parañaque Police
Station as follows:
Respondents subsequently filed an Amended Complaint to include petitioner
corporation.
Investigation shows that at above TDPO, while victims were inside the office, two
(2) male unidentified persons entered into the said office with guns drawn.
Suspects(sic) (1) went straight inside and poked his gun toward Romeo Sicam and
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned
thereby tied him with an electric wire while suspects (sic) (2) poked his gun toward
considering that he is not the real party-in-interest. Respondents opposed the
Divina Mata and Isabelita Rodriguez and ordered them to lay (sic) face flat on the
same. The RTC denied the motion in an Order dated November 8, 1989.5
floor. Suspects asked forcibly the case and assorted pawned jewelries items
mentioned above.

After trial on the merits, the RTC rendered its Decision6 dated January 12, 1993,
dismissing respondents’ complaint as well as petitioners’ counterclaim. The RTC
Suspects after taking the money and jewelries fled on board a Marson Toyota
held that petitioner Sicam could not be made personally liable for a claim arising
unidentified plate number.3
out of a corporate transaction; that in the Amended Complaint of respondents, they
asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop"; and
that as a consequence of the separate juridical personality of a corporation, the
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing corporate debt or credit is not the debt or credit of a stockholder.
her of the loss of her jewelry due to the robbery incident in the pawnshop. On
November 2, 1987, respondent Lulu then wrote a letter4 to petitioner Sicam
expressing disbelief stating that when the robbery happened, all jewelry pawned
The RTC further ruled that petitioner corporation could not be held liable for the
loss of the pawned jewelry since it had not been rebutted by respondents that the
The CA concluded that both petitioners should be jointly and severally held liable to
loss of the pledged pieces of jewelry in the possession of the corporation was
respondents for the loss of the pawned jewelry.
occasioned by armed robbery; that robbery is a fortuitous event which exempts the
victim from liability for the loss, citing the case of Austria v. Court of Appeals;7 and
that the parties’ transaction was that of a pledgor and pledgee and under Art. 1174
of the Civil Code, the pawnshop as a pledgee is not responsible for those events Petitioners’ motion for reconsideration was denied in a Resolution dated August 8,
which could not be foreseen. 2003.

Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, Hence, the instant petition for review with the following assignment of errors:
2003, the CA reversed the RTC, the dispositive portion of which reads as follows:

WHEREFORE, premises considered, the instant Appeal is GRANTED, and the
Decision dated January 12, 1993,of the Regional Trial Court of Makati, Branch 62, is
hereby REVERSED and SET ASIDE, ordering the appellees to pay appellants the
actual value of the lost jewelry amounting to P272,000.00, and attorney' fees of
P27,200.00.8
In finding petitioner Sicam liable together with petitioner corporation, the CA
applied the doctrine of piercing the veil of corporate entity reasoning that
respondents were misled into thinking that they were dealing with the pawnshop
owned by petitioner Sicam as all the pawnshop tickets issued to them bear the
words "Agencia de R.C. Sicam"; and that there was no indication on the pawnshop
tickets that it was the petitioner corporation that owned the pawnshop which
explained why respondents had to amend their complaint impleading petitioner
corporation.
The CA further held that the corresponding diligence required of a pawnshop is that
it should take steps to secure and protect the pledged items and should take steps
to insure itself against the loss of articles which are entrusted to its custody as it
derives earnings from the pawnshop trade which petitioners failed to do; that
Austria is not applicable to this case since the robbery incident happened in 1961
when the criminality had not as yet reached the levels attained in the present day;
that they are at least guilty of contributory negligence and should be held liable for
the loss of jewelries; and that robberies and hold-ups are foreseeable risks in that
those engaged in the pawnshop business are expected to foresee.
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL,
WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT
IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN
THEIR BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL
BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT
WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS IN THEIR
BRIEF WITHOUT ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE
SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN
VIEW OF UNREBUTTED EVIDENCE ON RECORD.9
Anent the first assigned error, petitioners point out that the CA’s finding that
petitioner Sicam is personally liable for the loss of the pawned jewelries is "a virtual
and uncritical reproduction of the arguments set out on pp. 5-6 of the Appellants’
brief."10
Petitioners argue that the reproduced arguments of respondents in their
Appellants’ Brief suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint
that Agencia de R.C. Sicam, Inc. is the present owner of Agencia de R.C. Sicam
Pawnshop, and therefore, the CA cannot rule against said conclusive assertion of
respondents;
(2) The issue resolved against petitioner Sicam was not among those raised and
litigated in the trial court; and
(3) By reason of the above infirmities, it was error for the CA to have pierced the
corporate veil since a corporation has a personality distinct and separate from its
individual stockholders or members.
Anent the second error, petitioners point out that the CA finding on their negligence
is likewise an unedited reproduction of respondents’ brief which had the following
defects:
(1) There were unrebutted evidence on record that petitioners had observed the
diligence required of them, i.e, they wanted to open a vault with a nearby bank for
purposes of safekeeping the pawned articles but was discouraged by the Central
Bank (CB) since CB rules provide that they can only store the pawned articles in a
vault inside the pawnshop premises and no other place;
(2) Petitioners were adjudged negligent as they did not take insurance against the
loss of the pledged jelweries, but it is judicial notice that due to high incidence of
crimes, insurance companies refused to cover pawnshops and banks because of
high probability of losses due to robberies;
(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the victim
of robbery was exonerated from liability for the sum of money belonging to others
and lost by him to robbers.
Respondents filed their Comment and petitioners filed their Reply thereto. The
parties subsequently submitted their respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA findings were exact
reproductions of the arguments raised in respondents’ (appellants’) brief filed with
the CA, we find the same to be not fatally infirmed. Upon examination of the
Decision, we find that it expressed clearly and distinctly the facts and the law on
which it is based as required by Section 8, Article VIII of the Constitution. The
discretion to decide a case one way or another is broad enough to justify the
adoption of the arguments put forth by one of the parties, as long as these are
legally tenable and supported by law and the facts on records.11
Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors
of law committed by the appellate court. Generally, the findings of fact of the
appellate court are deemed conclusive and we are not duty-bound to analyze and
calibrate all over again the evidence adduced by the parties in the court a quo.12
This rule, however, is not without exceptions, such as where the factual findings of
the Court of Appeals and the trial court are conflicting or contradictory13 as is
obtaining in the instant case.
However, after a careful examination of the records, we find no justification to
absolve petitioner Sicam from liability.
The CA correctly pierced the veil of the corporate fiction and adjudged petitioner
Sicam liable together with petitioner corporation. The rule is that the veil of
corporate fiction may be pierced when made as a shield to perpetrate fraud and/or
confuse legitimate issues. 14 The theory of corporate entity was not meant to
promote unfair objectives or otherwise to shield them.15
Notably, the evidence on record shows that at the time respondent Lulu pawned
her jewelry, the pawnshop was owned by petitioner Sicam himself. As correctly
observed by the CA, in all the pawnshop receipts issued to respondent Lulu in
September 1987, all bear the words "Agencia de R. C. Sicam," notwithstanding that
the pawnshop was allegedly incorporated in April 1987. The receipts issued after
such alleged incorporation were still in the name of "Agencia de R. C. Sicam," thus
inevitably misleading, or at the very least, creating the wrong impression to
respondents and the public as well, that the pawnshop was owned solely by
petitioner Sicam and not by a corporation.
That is the reason for the modifier "such" because if the rule simply states that the
admission may be contradicted by showing that "no admission was made," the rule
would not really be providing for a contradiction of the admission but just a
Even petitioners’ counsel, Atty. Marcial T. Balgos, in his letter16 dated October 15,
denial.18 (Emphasis supplied).
1987 addressed to the Central Bank, expressly referred to petitioner Sicam as the
proprietor of the pawnshop notwithstanding the alleged incorporation in April
1987.
While it is true that respondents alleged in their Amended Complaint that petitioner
corporation is the present owner of the pawnshop, they did so only because
petitioner Sicam alleged in his Answer to the original complaint filed against him
We also find no merit in petitioners' argument that since respondents had alleged in
that he was not the real party-in-interest as the pawnshop was incorporated in April
their Amended Complaint that petitioner corporation is the present owner of the
1987. Moreover, a reading of the Amended Complaint in its entirety shows that
pawnshop, the CA is bound to decide the case on that basis.
respondents referred to both petitioner Sicam and petitioner corporation where
they (respondents) pawned their assorted pieces of jewelry and ascribed to both
the failure to observe due diligence commensurate with the business which
Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or resulted in the loss of their pawned jewelry.
written, made by a party in the course of the proceedings in the same case, does
not require proof. The admission may be contradicted only by showing that it was
made through palpable mistake or that no such admission was made.
Markedly, respondents, in their Opposition to petitioners’ Motion to Dismiss
Amended Complaint, insofar as petitioner Sicam is concerned, averred as follows:

Thus, the general rule that a judicial admission is conclusive upon the party making
it and does not require proof, admits of two exceptions, to wit: (1) when it is shown
Roberto C. Sicam was named the defendant in the original complaint because the
that such admission was made through palpable mistake, and (2) when it is shown
pawnshop tickets involved in this case did not show that the R.C. Sicam Pawnshop
that no such admission was in fact made. The latter exception allows one to
was a corporation. In paragraph 1 of his Answer, he admitted the allegations in
contradict an admission by denying that he made such an admission.17
paragraph 1 and 2 of the Complaint. He merely added "that defendant is not now
the real party in interest in this case."

The Committee on the Revision of the Rules of Court explained the second
exception in this wise:
x x x if a party invokes an "admission" by an adverse party, but cites the admission
"out of context," then the one making the "admission" may show that he made no
"such" admission, or that his admission was taken out of context.
It was defendant Sicam's omission to correct the pawnshop tickets used in the
subject transactions in this case which was the cause of the instant action. He
cannot now ask for the dismissal of the complaint against him simply on the mere
allegation that his pawnshop business is now incorporated. It is a matter of defense,
the merit of which can only be reached after consideration of the evidence to be
presented in due course.19

x x x that the party can also show that he made no "such admission", i.e., not in the Unmistakably, the alleged admission made in respondents' Amended Complaint
sense in which the admission is made to appear. was taken "out of context" by petitioner Sicam to suit his own purpose. Ineluctably,
the fact that petitioner Sicam continued to issue pawnshop receipts under his name The next question is whether petitioners are liable for the loss of the pawned
and not under the corporation's name militates for the piercing of the corporate articles in their possession.
veil.

Petitioners insist that they are not liable since robbery is a fortuitous event and they
We likewise find no merit in petitioners' contention that the CA erred in piercing the are not negligent at all.
veil of corporate fiction of petitioner corporation, as it was not an issue raised and
litigated before the RTC.
We are not persuaded.

Petitioner Sicam had alleged in his Answer filed with the trial court that he was not
the real party-in-interest because since April 20, 1987, the pawnshop business Article 1174 of the Civil Code provides:
initiated by him was incorporated and known as Agencia de R.C. Sicam. In the pre-
trial brief filed by petitioner Sicam, he submitted that as far as he was concerned,
the basic issue was whether he is the real party in interest against whom the
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
complaint should be directed.20 In fact, he subsequently moved for the dismissal of
declared by stipulation, or when the nature of the obligation requires the
the complaint as to him but was not favorably acted upon by the trial court.
assumption of risk, no person shall be responsible for those events which could not
Moreover, the issue was squarely passed upon, although erroneously, by the trial
be foreseen or which, though foreseen, were inevitable.
court in its Decision in this manner:

Fortuitous events by definition are extraordinary events not foreseeable or

x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is
avoidable. It is therefore, not enough that the event should not have been foreseen
concerned for the reason that he cannot be made personally liable for a claim
or anticipated, as is commonly believed but it must be one impossible to foresee or
arising from a corporate transaction.
to avoid. The mere difficulty to foresee the happening is not impossibility to foresee
the same. 22

This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The
amended complaint itself asserts that "plaintiff pawned assorted jewelries in
To constitute a fortuitous event, the following elements must concur: (a) the cause
defendant's pawnshop." It has been held that " as a consequence of the separate
of the unforeseen and unexpected occurrence or of the failure of the debtor to
juridical personality of a corporation, the corporate debt or credit is not the debt or
comply with obligations must be independent of human will; (b) it must be
credit of the stockholder, nor is the stockholder's debt or credit that of a
impossible to foresee the event that constitutes the caso fortuito or, if it can be
corporation.21
foreseen, it must be impossible to avoid; (c) the occurrence must be such as to
render it impossible for the debtor to fulfill obligations in a normal manner; and, (d)
the obligor must be free from any participation in the aggravation of the injury or
Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether loss. 23
petitioner Sicam is personally liable is inextricably connected with the
determination of the question whether the doctrine of piercing the corporate veil
should or should not apply to the case.
The burden of proving that the loss was due to a fortuitous event rests on him who
invokes it.24 And, in order for a fortuitous event to exempt one from liability, it is
necessary that one has committed no negligence or misconduct that may have
occasioned the loss. 25
It has been held that an act of God cannot be invoked to protect a person who has
failed to take steps to forestall the possible adverse consequences of such a loss.
One's negligence may have concurred with an act of God in producing damage and
injury to another; nonetheless, showing that the immediate or proximate cause of
the damage or injury was a fortuitous event would not exempt one from liability.
When the effect is found to be partly the result of a person's participation --
whether by active intervention, neglect or failure to act -- the whole occurrence is
humanized and removed from the rules applicable to acts of God. 26
Petitioner Sicam had testified that there was a security guard in their pawnshop at
the time of the robbery. He likewise testified that when he started the pawnshop
business in 1983, he thought of opening a vault with the nearby bank for the
purpose of safekeeping the valuables but was discouraged by the Central Bank since
pawned articles should only be stored in a vault inside the pawnshop. The very
measures which petitioners had allegedly adopted show that to them the possibility
of robbery was not only foreseeable, but actually foreseen and anticipated.
Petitioner Sicam’s testimony, in effect, contradicts petitioners’ defense of fortuitous
event.
Moreover, petitioners failed to show that they were free from any negligence by
which the loss of the pawned jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose
the possibility of negligence on the part of herein petitioners. In Co v. Court of
Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to escape liability simply
because the damage or loss of a thing lawfully placed in its possession was due to
carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact
that a thing was unlawfully and forcefully taken from another's rightful possession,
as in cases of carnapping, does not automatically give rise to a fortuitous event. To
be considered as such, carnapping entails more than the mere forceful taking of
another's property. It must be proved and established that the event was an act of
God or was done solely by third parties and that neither the claimant nor the
person alleged to be negligent has any participation. In accordance with the Rules of
Evidence, the burden of proving that the loss was due to a fortuitous event rests on
him who invokes it — which in this case is the private respondent. However, other
than the police report of the alleged carnapping incident, no other evidence was
presented by private respondent to the effect that the incident was not due to its
fault. A police report of an alleged crime, to which only private respondent is privy,
does not suffice to establish the carnapping. Neither does it prove that there was no
fault on the part of private respondent notwithstanding the parties' agreement at
the pre-trial that the car was carnapped. Carnapping does not foreclose the
possibility of fault or negligence on the part of private respondent.28
Just like in Co, petitioners merely presented the police report of the Parañaque
Police Station on the robbery committed based on the report of petitioners'
employees which is not sufficient to establish robbery. Such report also does not
prove that petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA did not err in finding
that petitioners are guilty of concurrent or contributory negligence as provided in
Article 1170 of the Civil Code, to wit:
Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof,
are liable for damages.29
Article 2123 of the Civil Code provides that with regard to pawnshops and other
establishments which are engaged in making loans secured by pledges, the special
laws and regulations concerning them shall be observed, and subsidiarily, the
provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code, provides that the
creditor shall take care of the thing pledged with the diligence of a good father of a
family. This means that petitioners must take care of the pawns the way a prudent
person would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of time and of the place. When negligence shows bad
faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply.
If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.
We expounded in Cruz v. Gangan30 that negligence is the omission to do something
which a reasonable man, guided by those considerations which ordinarily regulate
the conduct of human affairs, would do; or the doing of something which a prudent
and reasonable man would not do.31 It is want of care required by the
circumstances.
A review of the records clearly shows that petitioners failed to exercise reasonable
care and caution that an ordinarily prudent person would have used in the same
situation. Petitioners were guilty of negligence in the operation of their pawnshop
business. Petitioner Sicam testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter the premises when
according to you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.
Q. I am asking you how were the robbers able to enter despite the fact that there
was a security guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the
afternoon and it happened on a Saturday and everything was quiet in the area BF
Homes Parañaque they pretended to pawn an article in the pawnshop, so one of
my employees allowed him to come in and it was only when it was announced that
it was a hold up.
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor the pawnshop is partly
open. The combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the robbery.
Q. It is clear now that at the time of the robbery the vault was open the reason why
the robbers were able to get all the items pawned to you inside the vault.
A. Yes sir.32
revealing that there were no security measures adopted by petitioners in the
operation of the pawnshop. Evidently, no sufficient precaution and vigilance were
adopted by petitioners to protect the pawnshop from unlawful intrusion. There was
no clear showing that there was any security guard at all. Or if there was one, that However, this Section was subsequently amended by CB Circular No. 764 which
he had sufficient training in securing a pawnshop. Further, there is no showing that took effect on October 1, 1980, to wit:
the alleged security guard exercised all that was necessary to prevent any untoward
incident or to ensure that no suspicious individuals were allowed to enter the
premises. In fact, it is even doubtful that there was a security guard, since it is quite Sec. 17 Insurance of Office Building and Pawns – The office building/premises and
impossible that he would not have noticed that the robbers were armed with pawns of a pawnshop must be insured against fire. (emphasis supplied).
caliber .45 pistols each, which were allegedly poked at the employees.33
Significantly, the alleged security guard was not presented at all to corroborate
petitioner Sicam's claim; not one of petitioners' employees who were present
where the requirement that insurance against burglary was deleted. Obviously, the
during the robbery incident testified in court.
Central Bank considered it not feasible to require insurance of pawned articles
against burglary.

Furthermore, petitioner Sicam's admission that the vault was open at the time of
robbery is clearly a proof of petitioners' failure to observe the care, precaution and
The robbery in the pawnshop happened in 1987, and considering the above-quoted
vigilance that the circumstances justly demanded. Petitioner Sicam testified that
amendment, there is no statutory duty imposed on petitioners to insure the
once the pawnshop was open, the combination was already off. Considering
pawned jewelry in which case it was error for the CA to consider it as a factor in
petitioner Sicam's testimony that the robbery took place on a Saturday afternoon
concluding that petitioners were negligent.
and the area in BF Homes Parañaque at that time was quiet, there was more reason
for petitioners to have exercised reasonable foresight and diligence in protecting
the pawned jewelries. Instead of taking the precaution to protect them, they let
open the vault, providing no difficulty for the robbers to cart away the pawned Nevertheless, the preponderance of evidence shows that petitioners failed to
articles. exercise the diligence required of them under the Civil Code.

We, however, do not agree with the CA when it found petitioners negligent for not
taking steps to insure themselves against loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for
Pawnshops, which took effect on July 13, 1973, and which was issued pursuant to
Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns
pledged must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of business of a
pawnshop and the pawns pledged to it must be insured against fire and against
burglary as well as for the latter(sic), by an insurance company accredited by the
Insurance Commissioner.
The diligence with which the law requires the individual at all times to govern his
conduct varies with the nature of the situation in which he is placed and the
importance of the act which he is to perform.34 Thus, the cases of Austria v. Court
of Appeals,35 Hernandez v. Chairman, Commission on Audit36 and Cruz v.
Gangan37 cited by petitioners in their pleadings, where the victims of robbery were
exonerated from liability, find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to
be sold on commission basis, but which Abad failed to subsequently return because
of a robbery committed upon her in 1961. The incident became the subject of a
criminal case filed against several persons. Austria filed an action against Abad and
her husband (Abads) for recovery of the pendant or its value, but the Abads set up
the defense that the robbery extinguished their obligation. The RTC ruled in favor of
Austria, as the Abads failed to prove robbery; or, if committed, that Maria Abad was
guilty of negligence. The CA, however, reversed the RTC decision holding that the
fact of robbery was duly established and declared the Abads not responsible for the
loss of the jewelry on account of a fortuitous event. We held that for the Abads to
be relieved from the civil liability of returning the pendant under Art. 1174 of the
Civil Code, it would only be sufficient that the unforeseen event, the robbery, took
place without any concurrent fault on the debtor’s part, and this can be done by
preponderance of evidence; that to be free from liability for reason of fortuitous
event, the debtor must, in addition to the casus itself, be free of any concurrent or
contributory fault or negligence.38
We found in Austria that under the circumstances prevailing at the time the
Decision was promulgated in 1971, the City of Manila and its suburbs had a high
incidence of crimes against persons and property that rendered travel after nightfall
a matter to be sedulously avoided without suitable precaution and protection; that
the conduct of Maria Abad in returning alone to her house in the evening carrying
jewelry of considerable value would have been negligence per se and would not
exempt her from responsibility in the case of robbery. However we did not hold
Abad liable for negligence since, the robbery happened ten years previously; i.e.,
1961, when criminality had not reached the level of incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when robbery was already
prevalent and petitioners in fact had already foreseen it as they wanted to deposit
the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where no
negligence was committed, we found petitioners negligent in securing their
pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the
Ternate Beach Project of the Philippine Tourism in Cavite. In the morning of July 1,
1983, a Friday, he went to Manila to encash two checks covering the wages of the
employees and the operating expenses of the project. However for some reason,
the processing of the check was delayed and was completed at about 3 p.m.
Nevertheless, he decided to encash the check because the project employees would
be waiting for their pay the following day; otherwise, the workers would have to
wait until July 5, the earliest time, when the main office would open. At that time,
he had two choices: (1) return to Ternate, Cavite that same afternoon and arrive
early evening; or (2) take the money with him to his house in Marilao, Bulacan,
spend the night there, and leave for Ternate the following day. He chose the second
option, thinking it was the safer one. Thus, a little past 3 p.m., he took a passenger
jeep bound for Bulacan. While the jeep was on Epifanio de los Santos Avenue, the
jeep was held up and the money kept by Hernandez was taken, and the robbers
jumped out of the jeep and ran. Hernandez chased the robbers and caught up with
one robber who was subsequently charged with robbery and pleaded guilty. The
other robber who held the stolen money escaped. The Commission on Audit found
Hernandez negligent because he had not brought the cash proceeds of the checks
to his office in Ternate, Cavite for safekeeping, which is the normal procedure in the
handling of funds. We held that Hernandez was not negligent in deciding to encash
the check and bringing it home to Marilao, Bulacan instead of Ternate, Cavite due
to the lateness of the hour for the following reasons: (1) he was moved by unselfish
motive for his co-employees to collect their wages and salaries the following day, a
Saturday, a non-working, because to encash the check on July 5, the next working
day after July 1, would have caused discomfort to laborers who were dependent on
their wages for sustenance; and (2) that choosing Marilao as a safer destination,
being nearer, and in view of the comparative hazards in the trips to the two places,
said decision seemed logical at that time. We further held that the fact that two
robbers attacked him in broad daylight in the jeep while it was on a busy highway
and in the presence of other passengers could not be said to be a result of his
imprudence and negligence.
Unlike in Hernandez where the robbery happened in a public utility, the robbery in
this case took place in the pawnshop which is under the control of petitioners.
Petitioners had the means to screen the persons who were allowed entrance to the
premises and to protect itself from unlawful intrusion. Petitioners had failed to
exercise precautionary measures in ensuring that the robbers were prevented from
entering the pawnshop and for keeping the vault open for the day, which paved the
way for the robbers to easily cart away the pawned articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education
and Skills Development Authority (TESDA), boarded the Light Rail Transit (LRT) from
Sen. Puyat Avenue to Monumento when her handbag was slashed and the contents
were stolen by an unidentified person. Among those stolen were her wallet and the
government-issued cellular phone. She then reported the incident to the police
authorities; however, the thief was not located, and the cellphone was not
recovered. She also reported the loss to the Regional Director of TESDA, and she
requested that she be freed from accountability for the cellphone. The Resident
Auditor denied her request on the ground that she lacked the diligence required in
the custody of government property and was ordered to pay the purchase value in
the total amount of P4,238.00. The COA found no sufficient justification to grant the
request for relief from accountability. We reversed the ruling and found that riding
the LRT cannot per se be denounced as a negligent act more so because Cruz’s
mode of transit was influenced by time and money considerations; that she
boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting; that
any prudent and rational person under similar circumstance can reasonably be
expected to do the same; that possession of a cellphone should not hinder one
from boarding the LRT coach as Cruz did considering that whether she rode a jeep
or bus, the risk of theft would have also been present; that because of her relatively
low position and pay, she was not expected to have her own vehicle or to ride a
taxicab; she did not have a government assigned vehicle; that placing the cellphone
in a bag away from covetous eyes and holding on to that bag as she did is ordinarily
sufficient care of a cellphone while traveling on board the LRT; that the records did
not show any specific act of negligence on her part and negligence can never be
presumed.

Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop
and they were negligent in not exercising the precautions justly demanded of a
pawnshop.

WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals
dated March 31, 2003 and its Resolution dated August 8, 2003, are AFFIRMED.
11. G.R. NO. 149004 : April 14, 2004

RESTITUTA M. IMPERIAL, v. ALEX A. JAUCIAN

Costs against petitioners.

Iniquitous and unconscionable stipulations on interest rates, penalties and

SO ORDERED. attorneys fees are contrary to morals. Consequently, courts are granted authority to
reduce them equitably. If reasonably exercised, such authority shall not be
disturbed by appellate courts.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the
July 19, 2000Decision2 and the June 14, 2001Resolution3 of the Court of Appeals
(CA) in CA-GR CV No. 43635. The decretal portion of the Decision is as
follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
WHEREFORE, premises considered, the appealed Decision of the Regional Trial
Court, 5thJudicial Region, Branch 21, NagaCity, dated August 31, 1993, in Civil Case
No. 89-1911 for Sum of Money, is hereby AFFIRMED in toto.4 ςrνll
The assailed Resolution denied petitioners Motion for Reconsideration.
The dispositive portion of the August 31, 1993 Decision, promulgated by the
Regional Trial Court (RTC) of Naga City (Branch 21) and affirmed by the CA, reads as
follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Wherefore, Judgment is hereby rendered declaring Section I, Central Bank Circular
No. 905, series of 1982 to be of no force and legal effect, it having been
promulgated by the Monetary Board of the Central Bank of the Philippines with
grave abuse of discretion amounting to excess of jurisdiction; declaring that the rate
of interest, penalty, and charges for attorneys fees agreed upon between the
parties are unconscionable, iniquitous, and in violation of Act No. 2655, otherwise
known as the Usury Law, as amended; and ordering Defendant to pay Plaintiff the
amount of FOUR HUNDRED SEVENTY-EIGHT THOUSAND, ONE HUNDRED NINETY-
FOUR and 54/100 (P478,194. 54) PESOS, Philippine currency, with regular and
compensatory interests thereon at the rate of twenty-eight (28%) per centum per
annum, computed from August 31, 1993 until full payment of the said amount, and
in addition, an amount equivalent to ten (10%) per centum of the total amount due
and payable, for attorneys fees, without pronouncement as to costs.5
The Facts
The CA summarized the facts of the case in this wise:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
The present controversy arose from a case for collection of money, filed by Alex A.
Jaucian against Restituta Imperial, on October 26, 1989. The complaint alleges, inter
alia, that defendant obtained from plaintiff six (6) separate loans for which the
former executed in favor of the latter six (6) separate promissory notes and issued
several checks as guarantee for payment. When the said loans became overdue and
unpaid, especially when the defendants checks were dishonored, plaintiff made
repeated oral and written demands for payment.
Specifically, the six (6) separate loans obtained by defendant from plaintiff on
various dates are as follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
(a) November 13, 1987 P50,000. 00
(b) December 28, 1987 40,000. 00
(c) January 6, 1988 30,000. 00
(d) January 11, 1988 50,000. 00
(e) January 12, 1988 50,000. 00
(f) January 13, 1988 100,000. 00
Total P320,000. 00
The loans were covered by six (6) separate promissory notes executed by
defendant. The face value of each promissory notes is bigger [than] the amount
released to defendant because said face value already include[d] the interest from
date of note to date of maturity. Said promissory notes, which indicate the interest
of 16% per month, date of issue, due date, the corresponding guarantee checks
issued by defendant, penalties and attorneys fees, are the following:ςηαñrοblεš
νιr†υαl lαω lιbrαrÿ
The arrangement between plaintiff and defendant regarding these guarantee
checks was that each time a check matures the defendant would exchange it with
cash.
1. Exhibit D for loan of P40,000. 00 on December 28, 1987, with face value of
P65,000. 00;chanroblesvirtuallawlibrary

Although, admittedly, defendant made several payments, the same were not
enough and she always defaulted whenever her loans mature[d]. As of August 16,
2. Exhibit E for loan of P50,000. 00 on January 11, 1988, with face value of P82,000.
1991, the total unpaid amount, including accrued interest, penalties and attorneys
00;chanroblesvirtuallawlibrary
fees, [was] P2,807,784. 20.

3. Exhibit F for loan of P50,000. 00 on January 12, 1988, with face value of P82,000.
00;chanroblesvirtuallawlibrary
4. Exhibit G for loan of P100,000. 00 on January 13, 1988, with face value of
P164,000. 00;chanroblesvirtuallawlibrary
On the other hand, defendant claims that she was extended loans by the plaintiff on
several occasions, i. e., from November 13, 1987 to January 13, 1988, in the total
sum of P320,000. 00 at the rate of sixteen percent (16%) per month. The notes
mature[d] every four (4) months with unearned interest compounding every four
(4) months if the loan [was] not fully paid. The loan releases [were] as
follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

5. Exhibit H This particular promissory note covers the second renewal of the (a) November 13, 1987 P50,000. 00
original loan of P50,000. 00 on November 13, 1987, which was renewed for the first
time on March 16, 1988 after certain payments, and which was renewed finally for
the second time on January 4, 1988 also after certain payments, with a face value of
(b) December 28, 1987 40,000. 00
P56,240. 00;chanroblesvirtuallawlibrary

(c) January 6, 1988 30,000. 00

6. Exhibit I This particular promissory note covers the second renewal of the original
loan of P30,000. 00 on January 6, 1988, which was renewed for the first time on
June 4, 1988 after certain payments, and which was finally renewed for the second
(d) January 11, 1988 50,000. 00
time on August 6, 1988, also after certain payments, with [a] face value of P12,760.
00;chanroblesvirtuallawlibrary

(e) January 12, 1988 50,000. 00

The particulars about the postdated checks, i. e., number, amount, date, etc., are
indicated in each of the promissory notes. Thus, for Exhibit D, four (4) PB checks
were issued; for Exhibit E four (4) checks; for Exhibit F four (4) checks; for Exhibit G (f) January 13, 1988 100,000. 00
four (4) checks; for Exhibit H one (1) check; for Exhibit I one (1)
check;chanroblesvirtuallawlibrary
Total P320,000. 00 Less: > 320,000. 00

The loan on November 13, 1987and January 6, 1988ha[d] been fully paid including Excess Payment P121,780. 00
the usurious interests of 16% per month, this is the reason why these were not
included in the complaint.
Defendant contends that from all perspectives the above excess payment of
P121,780. 00 is more than the interest that could be legally charged, and in fact as
Defendant alleges that all the above amounts were released respectively by checks of January 25, 1989, the total releases have been fully paid.
drawn by the plaintiff, and the latter must produce these checks as these were
returned to him being the drawer if only to serve the truth. The above amount are
the real amount released to the defendant but the plaintiff by masterful On 31 August 1993, the trial court rendered the assailed decision.6
machinations made it appear that the total amount released was P462,600. 00.
Because in his computation he made it appear that the true amounts released was
not the original amount, since it include[d] the unconscionable interest for four
Ruling of the Court of Appeals
months.

On appeal, the CA held that without judicial inquiry, it was improper for the RTC to
Further, defendant claims that as of January 25, 1989, the total payments made by
rule on the constitutionality of Section 1, Central Bank Circular No. 905, Series of
defendants [were] as follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
1982. Nonetheless, the appellate court affirmed the judgment of the trial court,
holding that the latters clear and detailed computation of petitioners outstanding
obligation to respondent was convincing and satisfactory.
A. Paid releases on November 13, 1987of P50,000. 00 and January 6, 1988of
P30,000. 00 these two items were not included in the complaint affirming the fact
that these were paid P80,000. 00
Hence, this Petition.7

b. Exhibit 26 Receipt 231,000. 00

The Issues

c. Exhibit 8-25 Receipt 65,300. 00

Petitioner raises the following arguments for our consideration:ςηαñrοblεš νιr†υαl
lαω lιbrαrÿ

d. Exhibit 27 Receipt 65,000. 00

1. That the petitioner has fully paid her obligations even before filing of this case.

Total P441,780. 00
2. That the charging of interest of twenty-eight (28%) per centum per annum
without any writing is illegal.
3. That charging of excessive attorneys fees is hemorrhagic.
4. Charging of excessive penalties per month is in the guise of hidden interest.
5. The non-inclusion of the husband of the petitioner at the time the case was filed
should have dismissed this case.8
The Courts Ruling
The Petition has no merit.
First Issue:
Computation of Outstanding Obligation
Arguing that she had already fully paid the loan before the filing of the case,
petitioner alleges that the two lower courts misappreciated the facts when they
ruled that she still had an outstanding balance of P208,430.
This issue involves a question of fact. Such question exists when a doubt or
difference arises as to the truth or the falsehoodof alleged facts; and when there is
need for a calibration of the evidence, considering mainly the credibility of
witnesses and the existence and the relevancy of specific surrounding
circumstances, their relation to each other and to the whole, and the probabilities
of the situation.9 ςrνll
It is a well-entrenched rule that pure questions of fact may not be the subject of an
appeal by certiorari under Rule 45 of the Rules of Court, as this remedy is generally
confined to questions of law.10 The jurisdiction of this Court over cases brought to
it is limited to the review and rectification of errors of law allegedly committed by
the lower court. As a rule, the latters factual findings, when adopted and affirmed
by the CA, are final and conclusive and may not be reviewed on appeal.11 ςrνll
Generally, this Court is not required to analyze and weigh all over again the
evidence already considered in the proceedings below.12 In the present case, we
find no compelling reason to overturn the factual findings of the RTC -- that the
total amount of the loans extended to petitioner was P320,000, and that she paid a
total of only P116,540 on twenty-nine dates. These findings are supported by a
preponderance of evidence. Moreover, the amount of the outstanding obligation
has been meticulously computed by the trial court and affirmed by the CA.
Petitioner has not given us sufficient reason why her cause falls under any of the
exceptions to this rule on the finality of factual findings.
Second Issue:
Rate of Interest
The trial court, as affirmed by the CA, reduced the interest rate from 16 percent to
1. 167 percent per month or 14 percent per annum; and the stipulated penalty
charge, from 5 percent to 1. 167 percent per month or 14 percent per annum.
Petitioner alleges that absent any written stipulation between the parties, the lower
courts should have imposed the rate of 12 percent per annum only.
The records show that there was a written agreement between the parties for the
payment of interest on the subject loans at the rate of 16 percent per month. As
decreed by the lower courts, this rate must be equitably reduced for being
iniquitous, unconscionable and exorbitant. While the Usury Law ceiling on interest
rates was lifted by C. B. Circular No. 905, nothing in the said circular grants lenders
carte blancheauthority to raise interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets.13 ςrνll
In Medel v. CA,14 the Court found the stipulated interest rate of 5. 5 percent per
month, or 66 percent per annum, unconscionable. In the present case, the rate is
even more iniquitous and unconscionable, as it amounts to 192 percent per annum.
When the agreed rate is iniquitous or unconscionable, it is considered contrary to
morals, if not against the law. [Such] stipulation is void.15 ςrνll
Since the stipulation on the interest rate is void, it is as if there were no express
contract thereon.16 Hence, courts may reduce the interest rate as reason and
equity demand. We find no justification to reverse or modify the rate imposed by
the two lower courts.
Third and Fourth Issue:
Penalties and Attorneys Fees
Article 1229 of the Civil Code states thus:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.
In exercising this power to determine what is iniquitous and unconscionable, courts
must consider the circumstances of each case.17 What may be iniquitous and
unconscionable in one may be totally just and equitable in another. In the present
case, iniquitous and unconscionable was the parties stipulated penalty charge of 5
percent per month or 60 percent per annum, in addition to regular interests and
attorneys fees. Also, there was partial performance by petitioner when she remitted
P116,540 as partial payment of her principal obligation of P320,000. Under the
circumstances, the trial court was justified in reducing the stipulated penalty charge
to the more equitable rate of 14 percent per annum.
The Promissory Note carried a stipulation for attorneys fees of 25 percent of the
principal amount and accrued interests. Strictly speaking, this covenant on
attorneys fees is different from that mentioned in and regulated by the Rules of
Court.18 Rather, the attorneys fees here are in the nature of liquidated damages
and the stipulation therefor is aptly called a penal clause.19 So long as the
stipulation does not contravene the law, morals, public order or public policy, it is
binding upon the obligor. It is the litigant, not the counsel, who is the judgment
creditor entitled to enforce the judgment by execution.
Nevertheless, it appears that petitioners failure to comply fully with her obligation
was not motivated by ill will or malice. The twenty-nine partial payments she made
were a manifestation of her good faith. Again, Article 1229 of the Civil Code
specifically empowers the judge to reduce the civil penalty equitably, when the
principal obligation has been partly or irregularly complied with. Upon this premise,
we hold that the RTCs reduction of attorneys fees -- from 25 percent to 10 percent
of the total amount due and payable -- is reasonable.
Fifth Issue:
Non-Inclusion of Petitioners Husband
Petitioner contends that the case against her should have been dismissed, because
her husband was not included in the proceedings before the RTC.
We are not persuaded. The husbands non-joinder does not warrant dismissal, as it
is merely a formal requirement that may be cured by amendment.20 Since
petitioner alleges that her husband has already passed away, such an amendment
has thus become moot.
WHEREFORE, the Petition is DENIED. Costs against petitioner.

SO ORDERED.
9. NATIONAL POWER CORPORATION, ET AL.
vs.
THE COURT OF APPEALS, GAUDENCIO C. RAYO, ET AL.
G.R. Nos. 103442-45 May 21, 1993
Civil Law; Act of God Doctrine; Requisites to exempt the obligor from
liability on the claim of force majeure.—In any event, We reiterate
here Our pronouncement in the latter case that Juan F. Nakpil & Sons
vs. Court of Appeals is still good law as far as the concurrent liability
of an obligor in the case of force majeure is concerned. In the Nakpil
case, We held: “To exempt the obligor from liability under Article
1174 of the Civil Code, for a breach of an obligation due to an ‘act of
God,’ the following must concur: (a) the cause of the breach of the
obligation must be independent of the will of the debtor; (b) the event
must be either unforeseeable or unavoidable; (c) the event must be
such as to render it impossible for the debtor to fulfill his obligation in
a normal manner; and (d) the debtor must be free from any
participation in, or aggravation of the injury to the creditor.
Same; Same; Intervention of a human factor removed the occurrence
from the rules applicable to acts of God.—Accordingly, petitioners
cannot be heard to invoke the act of God or force majeure to escape
liability for the loss or damage sustained by the private respondents
since they, the petitioners, were guilty of negligence. The event then
was not occasioned exclusively by an act of God or force majeure; a
human factor—negligence or imprudence—had intervened. The effect
then of the force majeure in question may be deemed to have, even if
only partly, resulted from the participation of man. Thus, the whole
occurrence was thereby humanized, as it were, and removed from the
rules applicable to acts of God.
DAVIDE, JR., J.:
This is a petition for review on certiorari under Rule 45 of the Revised
Rules of Court urging this Court to set aside the 19 August 1991
consolidated Decision of the Court of Appeals in CA.-G.R. CV Nos.
27290-93  which reversed the Decision of Branch 5 of the then Court of
1
First Instance (now Regional Trial Court) of Bulacan, and held petitioners
National Power Corporation (NPC) and Benjamin Chavez jointly and
severally liable to the private respondents for actual and moral damages,
litigation expenses and attorney's fees.
This present controversy traces its beginnings to four (4) separate
complaints  for damages filed against the NPC and Benjamin Chavez
2
before the trial court. The plaintiffs therein, now private respondents,
sought to recover actual and other damages for the loss of lives and the
destruction to property caused by the inundation of the town of
Norzagaray, Bulacan on 26-27 October 1978. The flooding was
purportedly caused by the negligent release by the defendants of water
through the spillways of the Angat Dam (Hydroelectric Plant). In said
complaints, the plaintiffs alleged, inter alia, that: 1) defendant NPC
operated and maintained a multi-purpose hydroelectric plant in the Angat
River at Hilltop, Norzagaray, Bulacan; 2) defendant Benjamin Chavez
was the plant supervisor at the time of the incident in question; 3) despite
the defendants' knowledge, as early as 24 October 1978, of the
impending entry of typhoon "Kading," they failed to exercise due diligence
in monitoring the water level at the dam; 4) when the said water level
went beyond the maximum allowable limit at the height of the typhoon,
the defendants suddenly, negligently and recklessly opened three (3) of
the dam's spillways, thereby releasing a large amount of water which
inundated the banks of the Angat River; and 5) as a consequence,
members of the household of the plaintiffs, together with their animals,
drowned, and their properties were washed away in the evening of 26
October and the early hours of 27 October 1978. 3
In their Answers, the defendants, now petitioners, alleged that: 1) the
NPC exercised due care, diligence and prudence in the operation and
maintenance of the hydroelectric plant; 2) the NPC exercised the
diligence of a good father in the selection of its employees; 3) written
notices were sent to the different municipalities of Bulacan warning the
residents therein about the impending release of a large volume of water
with the onset of typhoon "Kading" and advise them to take the
necessary precautions; 4) the water released during the typhoon was
needed to prevent the collapse of the dam and avoid greater damage to
people and property; 5) in spite of the precautions undertaken and the
diligence exercised, they could still not contain or control the flood that
resulted and; 6) the damages incurred by the private respondents were
caused by a fortuitous event or force majeure and are in the nature and
character of damnum absque injuria. By way of special affirmative
defense, the defendants averred that the NPC cannot be sued because it
performs a purely governmental function. 4
Upon motion of the defendants, a preliminary hearing on the special 4) Pedro C. Bartolome, One Hundred
defense was conducted. As a result thereof, the trial court dismissed the Forty Seven Thousand Pesos
complaints as against the NPC on the ground that the provision of its (P147,000.00);.
charter allowing it to sue and be sued does not contemplate actions
based on tort. The parties do not, however, dispute the fact that this 5) Bernardino Cruz, One Hundred Forty
Court overruled the trial court and ordered the reinstatement of the Three Thousand Five Hundred Fifty Two
complaints as against the NPC. 5
Pesos and Fifty Centavos (P143,552.50);

Being closely interrelated, the cases were consolidated and trial 6) Jose Palad, Fifty Seven Thousand Five
thereafter ensued. Hundred Pesos (P57,500.00);

The lower court rendered its decision on 30 April 1990 dismissing the 7) Mariano S. Cruz, Forty Thousand
complaints "for lack of sufficient and credible evidence."  Consequently,
6
Pesos (P40,000.00);
the private respondents seasonably appealed therefrom to the
respondent Court which then docketed the cases as CA-G.R. CV Nos. 8) Lucio Fajardo, Twenty nine Thousand
27290-93. Eighty Pesos (P29,080.00); and

In its joint decision promulgated on 19 August 1991, the Court of Appeals
reversed the appealed decision and awarded damages in favor of the
private respondents. The dispositive portion of the decision reads:
CONFORMABLY TO THE FOREGOING, the joint
decision appealed from is hereby REVERSED and SET
ASIDE, and a new one is hereby rendered:
B. Litigation expenses of Ten Thousand Pesos
(P10,000.00);
2. In Civil case No. SM-951, ordering defendants-
appellees to pay jointly and severally, plaintiff-appellant,
with legal interest from the date when this decision shall
have become final and executory, the following :

1. In Civil Case No. SM-950, ordering defendants- A. Actual damages of Five Hundred
appellees to pay, jointly and severally, plaintiffs- Twenty Thousand Pesos (P520,000.00);.
appellants, with legal interest from the date when this
decision shall become final and executory, the following:
B. Moral damages of five hundred
Thousand Pesos (P500,000.00); and.
A. Actual damages, to wit:
C. Litigation expenses of Ten Thousand
1) Gaudencio C. Rayo, Two Hundred Pesos (P10,000.00);.
Thirty One Thousand Two Hundred Sixty
Pesos (P231,260.00);
3. In Civil Case No. SM-953, ordering defendants-
appellees to pay, jointly and severally, with legal interest
2) Bienvenido P. Pascual, Two Hundred from the date when this decision shall have become final
Four Thousand Five Hundred Pesos and executory;
(P204.500.00);
A. Plaintiff-appellant Angel C. Torres:
3) Tomas Manuel, One Hundred Fifty Five
Thousand Pesos (P155,000.00);
1) Actual damages of One Hundred Ninety Nine
Thousand One Hundred Twenty Pesos (P199,120.00);
2) Moral Damages of One Hundred Fifty Thousand Pesos
(P150,000.00);
B. Plaintiff-appellant Norberto Torres:
1) Actual damages of Fifty Thousand Pesos (P50,000.00);
2) Moral damages of Fifty Thousand Pesos (P50,000.00);
C. Plaintiff-appellant Rodelio Joaquin:
1) Actual damages of One Hundred
Thousand Pesos (P100,000.00);
2) Moral damages of One Hundred
Thousand Pesos (P100,000.00); and
D. Plaintifsf-appellants litigation expenses of Ten
Thousand Pesos (P10,000.00);
4. In Civil case No. SM-1247, ordering defendants-
appellees to pay, jointly and severally, with legal interest
from the date when this decision shall have become final
and executory :
A. Plaintiffs-appellants Presentacion Lorenzo and
Clodualdo Lorenzo:
1) Actual damages of Two Hundred Fifty
Six Thousand Six Hundred Pesos
(P256,600.00);
2) Moral damages of Fifty Thousand
Pesos (P50,000.00);
B. Plaintiff-appellant Consolacion Guzman :
1) Actual damages of One Hundred forty
Thousand Pesos (P140,000.00);
2) Moral damages of Fifty Thousand
Pesos (P50,000.00);
C. Plaintiff-appellant Virginia Guzman :
1) Actual damages of Two Hundred Five
Hundred Twenty Pesos (205,520.00); and
D. Plaintiffs-appellants litigation expenses of Ten
Thousand Pesos (10,000.00).
In addition, in all the four (4) instant cases, ordering
defendants-appellees to pay, jointly and severally,
plaintiffs-appellants attorney fees in an amount equivalent
to 15% of the total amount awarded.
No pronouncement as to costs. 7
The foregoing judgment is based on the public respondent's conclusion
that the petitioners were guilty of:
. . . a patent gross and evident lack of foresight,
imprudence and negligence . . . in the management and
operation of Angat Dam. The unholiness of the hour, the
extent of the opening of the spillways, And the magnitude
of the water released, are all but products of defendants-
appellees' headlessness, slovenliness, and carelessness.
The resulting flash flood and inundation of even areas
(sic) one (1) kilometer away from the Angat River bank
would have been avoided had defendants-appellees
prepared the Angat Dam by maintaining in the first place,
a water elevation which would allow room for the
expected torrential rains. 8
This conclusion, in turn, is anchored on its findings of fact, to wit:
As early as October 21, 1978, defendants-appellees knew
of the impending onslaught of and imminent danger
posed by typhoon "Kading". For as alleged by
defendants-appellees themselves, the coming of said
super typhoon was bannered by Bulletin Today, a
newspaper of national circulation, on October 25, 1978,
as "Super Howler to hit R.P." The next day, October 26,
1978, said typhoon once again merited a headline in said
newspaper as "Kading's Big Blow expected this
afternoon" (Appellee's Brief, p. 6). Apart from the
newspapers, defendants-appellees learned of typhoon
"Kading' through radio announcements (Civil Case No.
SM-950, TSN, Benjamin Chavez, December 4, 1984, pp.
7-9).
Defendants-appellees doubly knew that the Angat Dam
can safely hold a normal maximum headwater elevation
of 217 meters (Appellee's brief, p. 12; Civil Case No. SM-
951, Exhibit "I-6"; Civil Case No. SM-953, Exhibit "J-6";
Civil Case No. SM-1247, Exhibit "G-6").
Yet, despite such knowledge, defendants-appellees
maintained a reservoir water elevation even beyond its
maximum and safe level, thereby giving no sufficient
allowance for the reservoir to contain the rain water that
will inevitably be brought by the coming typhoon.
On October 24, 1978, before typhoon "Kading" entered
the Philippine area of responsibility, water elevation
ranged from 217.61 to 217.53, with very little opening of
the spillways, ranging from 1/2 to 1 meter. On October 25,
1978, when typhoon "Kading" entered the Philippine area
of responsibility, and public storm signal number one was
hoisted over Bulacan at 10:45 a.m., later raised to number
two at 4:45 p.m., and then to number three at 10:45 p.m.,
water elevation ranged from 217.47 to 217.57, with very
little opening of the spillways, ranging from 1/2 to 1 meter.
On October 26, 1978, when public storm signal number
three remained hoisted over Bulacan, the water elevation
still remained at its maximum level of 217.00 to 218.00
with very little opening of the spillways ranging from 1/2 to
2 meters, until at or about midnight, the spillways were
suddenly opened at 5 meters, then increasing swiftly to 8,
10, 12, 12.5, 13, 13.5, 14, 14.5 in the early morning hours
of October 27, 1978, releasing water at the rate of 4,500
cubic meters per second, more or less. On October 27,
1978, water elevation remained at a range of 218.30 to
217.05 (Civil Case No. SM-950, Exhibits "D" and series,
"L", "M", "N", and "O" and Exhibits "3" and "4"; Civil Case
No. SM-951, Exhibits "H" and "H-1"; Civil Case No. SM-
953, Exhibits "I" and "I-1"; Civil Case No. SM 1247,
Exhibits "F" and "F-1").
xxx xxx xxx
From the mass of evidence extant in the record, We are
convinced, and so hold that the flash flood on October 27,
1978, was caused not by rain waters (sic), but by stored
waters (sic) suddenly and simultaneously released from
the Angat Dam by defendants-appellees, particularly from
midnight of October 26, 1978 up to the morning hours of
October 27,
1978. 9
The appellate court rejected the petitioners' defense that they had sent
"early warning written notices" to the towns of Norzagaray, Angat,
Bustos, Plaridel, Baliwag and Calumpit dated 24 October 1978 which
read:
TO ALL CONCERN (sic):
Please be informed that at present our reservoir (dam) is
full and that we have been releasing water intermittently
for the past several days.
With the coming of typhoon "Rita" (Kading) we expect to
release greater (sic) volume of water, if it pass (sic) over
our place.
In view of this kindly advise people residing along Angat
River to keep alert and stay in safe places.
BENJAM
Power P
because:
Said notice was delivered to the "towns of Bulacan" on October 26, 1978
by defendants-appellees driver, Leonardo Nepomuceno (Civil Case No.
SM-950, TSN, Benjamin Chavez, December 4, 1984, pp. 7-11 and TSN,
Leonardo Nepomuceno, March 7, 1985, pp. 10-12).
Said notice is ineffectual, insufficient and inadequate for purposes of the
opening of the spillway gates at midnight of October 26, 1978 and on
October 27, 1978. It did not prepare or warn the persons so served, for
the volume of water to be released, which turned out to be of such
magnitude, that residents near or along the Angat River, even those one
(1) kilometer away, should have been advised to evacuate. Said notice,
addressed "TO ALL CONCERN (sic)," was delivered to a policeman (Civil
Case No. SM-950, pp. 10-12 and Exhibit "2-A") for the municipality of
Norzagaray. Said notice was not thus addressed and delivered to the
proper and responsible officials who could have disseminated the
warning to the residents directly affected. As for the municipality of Sta.
Maria, where plaintiffs-appellants in Civil Case No. SM-1246 reside, said
notice does not appear to have been served. 11
Relying on Juan F. Nakpil & Sons vs. Court of Appeals,  public 12
respondent rejected the petitioners' plea that the incident in question was
caused by force majeure and that they are, therefore, not liable to the
private respondents for any kind of damage — such damage being in the
nature of damnum absque injuria.
The motion for reconsideration filed by the petitioners, as well as the
motion to modify judgment filed by the public respondents,  were denied
13
by the public respondent in its Resolution of 27 December 1991. 14
Petitioners thus filed the instant petition on 21 February 1992.
After the Comment to the petition was filed by the private respondents
and the Reply thereto was filed by the petitioners, We gave due course to
the petition on 17 June 1992 and directed the parties to submit their
respective Memoranda,  which they subsequently complied with.
15
The petitioners raised the following errors allegedly committed by the
respondent Court :
I. THE COURT OF APPEALS ERRED IN APPLYING THE
RULING OF NAKPIL & SONS V. COURT OF APPEALS AND
HOLDING THAT PETITIONERS WERE GUILTY OF
NEGLIGENCE.
II. THE COURT OF APPEALS ERRED IN HOLDING THAT THE
WRITTEN NOTICES OF WARNING ISSUED BY
PETITIONERS WERE INSUFFICIENT.
III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE
DAMAGE SUFFERED BY PRIVATE RESPONDENTS WAS
NOT DAMNUM ABSQUE INJURIA.
IV. THE COURT OF APPEALS ERRED IN NOT AWARDING
THE COUNTERCLAIM OF PETITIONERS FOR
ATTORNEY'S FEES AND EXPENSES OF LITIGATION. 16
These same errors were raised by herein petitioners in G.R. No. 96410,
entitled National Power Corporation, et al., vs. Court of Appeals, et
al.,  which this Court decided on 3 July 1992. The said case involved the
17
very same incident subject of the instant petition. In no uncertain terms,
We declared therein that the proximate cause of the loss and damage
sustained by the plaintiffs therein — who were similarly situated as the
private respondents herein — was the negligence of the petitioners, and
that the 24 October 1978 "early warning notice" supposedly sent to the
affected municipalities, the same notice involved in the case at bar, was
insufficient. We thus cannot now rule otherwise not only because such a
decision binds this Court with respect to the cause of the inundation of
the town of Norzagaray, Bulacan on 26-27 October 1978 which resulted
in the loss of lives and the destruction to property in both cases, but also
because of the fact that on the basis of its meticulous analysis and
evaluation of the evidence adduced by the parties in the cases subject of
CA-G.R. CV Nos. 27290-93, public respondent found as conclusively
established that indeed, the petitioners were guilty of "patent gross and
evident lack of foresight, imprudence and negligence in the management
and operation of Angat Dam," and that "the extent of the opening of the
spillways, and the magnitude of the water released, are all but products
of defendants-appellees' headlessness, slovenliness, and
carelessness."  Its findings and conclusions are biding upon Us, there
18
being no showing of the existence of any of the exceptions to the general
rule that findings of fact of the Court of Appeals are conclusive upon this
Court.  Elsewise stated, the challenged decision can stand on its own
19
merits independently of Our decision in G.R. No. 96410. In any event, We
reiterate here in Our pronouncement in the latter case that Juan F. Nakpil
& Sons vs. Court of Appeals  is still good law as far as the concurrent
20
liability of an obligor in the case of force majeure is concerned. In
the Nakpil case, We held:
To exempt the obligor from liability under Article 1174 of
the Civil Code, for a breach of an obligation due to an "act
of God," the following must concur: (a) the cause of the
breach of the obligation must be independent of the will of
the debtor; (b) the event must be either unforseeable or
 unavoidable; (c) the event must be such as to render it
impossible for the debtor to fulfill his obligation in a moral
manner; and (d) the debtor must be free from any
participation in, or aggravation of the injury to the creditor.
(Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v.
Consolacion, 71 SCRA 423; Austria v. Court of Appeals,
39 SCRA 527; Republic of the Phil. v. Luzon Stevedoring
Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657).
Thus, if upon the happening of a fortuitous event or an act
of God, there concurs a corresponding fraud, negligence,
delay or violation or contravention in any manner of the
tenor of the obligation as provided for in Article 1170 of
the Civil Code, which results in loss or damage, the
obligor cannot escape liability.
majeure; a human factor — negligence or imprudence — had intervened.
The effect then of the force majeure in question may be deemed to have,
even if only partly, resulted from the participation of man. Thus, the whole
occurrence was thereby humanized, as it were, and removed from the
laws applicable to acts of God.
WHEREFORE, for want of merit, the instant petition is hereby
DISMISSED and the Consolidated Decision of the Court of Appeals in
CA-G.R. CV Nos. 27290-93 is AFFIRMED, with costs against the
petitioners.
SO ORDERED.

The principle embodied in the act of God doctrine strictly

requires that the act must be one occasioned exclusively
by the violence of nature and all human agencies are to
be excluded from creating or entering into the cause of
the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the
participation of man, whether it be from active intervention
or neglect, or failure to act, the whole occurrence is
thereby humanized, as it were, and removed from the
rules applicable to the acts of God. (1 Corpus Juris, pp.
1174-1175).

Thus it has been held that when the negligence of a

person concurs with an act of God in producing a loss,
such person is not exempt from liability by showing that
the immediate cause of the damage was the act of God.
To be exempt from liability for loss because of an act of
God, he must be free from any previous negligence or
misconduct by which that loss or damage may have been
occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil.
129; Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons v.
Yangco Steamship Co., 34 Phil. 594, 604; Lasam v.
Smith, 45 Phil. 657). 21

Accordingly, petitioners cannot be heard to invoke the act of God or force

majeure to escape liability for the loss or damage sustained by private
respondents since they, the petitioners, were guilty of negligence. The
event then was not occasioned exclusively by an act of God or force