[G.R. No.
 207004. June 6, 2018.] With the enactment of RA 7202 on February 29,
ASTRID A. VAN DE BRUG, MARTIN G. AGUILAR and
GLENN G. AGUILAR, petitioners, vs. PHILIPPINE
NATIONAL BANK, respondent.
DECISION
CAGUIOA, J  p:
Before the Court is a petition 1 for review (Petition) under Rule 45
of the Rules of Court assailing the Decision 2 of the Court of
Appeals 3 (CA) dated March 23, 2012 in CA-G.R. CV No. 00708, which
granted the appeal of the respondent Philippine National Bank (PNB) and
reversed the Decision 4 dated December 10, 2004 of the Regional Trial
Court, 6th Judicial Region, Branch 58, San Carlos City, Negros Occidental
(RTC) in Civil Case No. RTC-725 in favor of the petitioners. Likewise, the
Resolution 5 of the CA 6 dated April 1, 2013, denying the petitioners'
motion for reconsideration, is being assailed. HTcADC
Facts and Antecedent Proceedings
The CA Decision states the following facts as culled from the
records:
The late spouses Romulus 7 and Evelyn 8 Aguilar
[the late spouses Aguilar] used to be borrowing clients of x
x x Philippine National Bank [PNB], Victoria Branch x x x.
The late [spouses Aguilar's] sugar crop loans, which were
obtained sometime between the late 1970's and the early
1980's, were secured by real estate mortgage over four
registered parcels of land, namely: residential Lot No. 3,
Block 13, situated in Sagay, Negros Occidental [with an
area of 342 square meters], 9 and agricultural Lots No[s].
3587 [with an area of 225,594 square meters], 10 3588
[with an area of 19,283 square meters] 11 and 3749 [with
an area of 181,935 square meters], 12 all situated at
Escalante, Negros Occidental. However, for failure of the
late spouses Aguilar to pay their obligations with [PNB],
the mortgage was foreclosed in 1985 and subsequently,
ownership of the subject four pieces of property was
consolidated under the name of [PNB].
1992, the late Romulus Aguilar wrote [PNB] on July 5,
1995, and he stated: "Since our indebtedness with the
PNB had been foreclosed, we are asking your good Office
for a reconsideration of our account based on the Sugar
Restitution Law." After the death of Romulus Aguilar, his
spouse, the late Evelyn Aguilar, received a letter from
[PNB] dated September 17, 1997, during which occasion
[PNB] informed the late Evelyn Aguilar that while the
subject loan account was covered by the provisions of RA
7202 and have been audited by the Commission on Audit
(COA), the late Evelyn Aguilar was still required to comply
with the following matters: (1) to arrange and implement
restructuring of accounts within sixty (60) days from
receipt of the notice, (2) to signify her conformity to the
computation of the account, and (3) to submit the ten (10)
year crop production for the period 1974/1975 to
1984/1985.
Plaintiffs-appellees Aguilar [the Aguilars] claimed
that they complied with the stated requirements, and that
subsequently, [PNB] furnished them [with] Statements of
Account, the earliest of which was the COA audited
statement as of December 15, 1996 and the latest was as
of November 30, 1999, which reflected a P2,236,337.91
total amount due.
[Based on Statement of Account as of November
30, 1999, 13 the accounts of the Aguilars with the PNB
were computed as follows:
1. RA 7202 Accounts — P1,043,656.36 (total
principal of P270,351.62 plus 12% interest
per annum amounting to P773,304.74,
without penalty)
2. Non-RA 7202 Accounts — P1,192,681.55 (total
principal of P212,054.25 plus interest at
regular rate amounting to P829,304.12, with
penalty of P151,323.18.) 14
Further, [the Aguilars] adduced that inasmuch as
the subject agricultural [lots] were already conveyed
voluntarily by [PNB] to the Department of Agrarian Reform
(DAR), they were advised by [PNB] to follow-up the
payment for these pieces of realty with the Land Bank of
the Philippines (LBP) in order for [PNB] to apply the
proceeds of the sale to the account of the late spouses
Aguilar. According to [the Aguilars], they were likewise
assured by [PNB] that if the proceeds from LBP would
exceed the obligations of the late spouses Aguilar, the
excess amount would be returned to [the Aguilars],
including the subject residential property. On December
21, 1998, LBP issued the Memorandum of Valuation of
agricultural Lot No. 3749 for P1,254,328.17, and on
November 23, 1999, for agricultural Lot No. 3587 in the
amount of P1,957,684.31.
Following the November 23, 1999 Memorandum
of Valuation, [the Aguilars] requested [PNB] to commence
restructuring of the loan account, and on three
occasions, i.e., February 8, 2000, March 15, 2000 and
April 24, 2000, one of the children of the late spouses
Aguilar, x x x Glenn Aguilar, in behalf of his siblings x x x
Astrid Van de Brug and Martin Aguilar, wrote [PNB] and
asked that they be accorded the benefits of RA 7202.
Through his letters, x x x Glenn Aguilar also made
mention of an allegedly similar case, docketed as Civil
Case No. 7212 entitled Sps. Fred and Mildred Pfleider vs.
PNB, et al., then pending before RTC, Branch 45, Bacolod
City, wherein [PNB] purportedly entered into a
compromise agreement with Sps. Pfleider,
notwithstanding consolidation of the foreclosed property
under the bank's name.
On September 22, 2000, [PNB] replied in writing
and stated, among other matters, that: "Since PNB has
already acquired the properties at the foreclosure sale, it
can now exercise its rights as owner of these properties,
including the right to convey the same to the DAR and to
receive the proceeds thereof from Land Bank of the
Philippines, without any right to the excess proceeds, if
any, inuring/accruing to your favor."
Hence, the case for implementation of RA 7202,
with prayer for payment of P200,000.00 moral damages,
P200,000.00 exemplary damages, P100,000.00 attorney's
fees plus P1,500.00 fee per appearance and P25,000.00
litigation expenses, was filed by [the Aguilars] on January
3, 2001. aScITE
For its part, [PNB] emphasized that [the Aguilars]
failed to comply with the requirements enumerated based
on its September 17, 1997 letter. Hence, [PNB] argued
that [the Aguilars] have no cause of action against [PNB]
because whatever rights [the Aguilars] have under RA
7202 were already forfeited when they failed to comply
with the requirements.
The non-compliance by [the Aguilars] of the
requirements was confirmed by the Chief of [PNB's] Loans
Department, x x x Edgardo Miraflor. While x x x Miraflor
admitted that x x x Glenn Aguilar tried to negotiate with
[PNB] for the restructuring of the account of the late
spouses Aguilar under RA 7202, [the Aguilars] did not
formally signify their conformity to [PNB's] recomputation
of the account as of December 15, 1996, which was
audited and certified by the COA. Neither did [the
Aguilars] dispute the COA audited recomputation which
disclosed that after recomputation based on the provisions
of RA 7202, there was no excess payment on the account
of the late spouses Aguilar. x x x Miraflor continued to add
that while it was true that it was x x x Glenn Aguilar who
followed up the status of LBP's payment of the subject
agricultural lands which were already conveyed to the
DAR, and that he advised x x x Glenn Aguilar to likewise
negotiate with [PNB's] Bacolod Business Center, x x x
Miraflor was subsequently notified by the Bacolod
Business Center that pursuant to Department of Justice
(DOJ) Opinion No. 91, Series of 1995, the foreclosed
pieces of property of [the Aguilars], which were already
consolidated under the name of [PNB], could no longer be
returned to them.
[PNB] further contended that [the Aguilars] cannot
invoke the compromise agreement it entered into with
Sps. Fred and Mildred Pfleider in Civil Case No.
7212 because [the Aguilars] were not parties to the case.
By way of counterclaim, [PNB] prayed for
P100,000.00 moral damages, P100,000.00 exemplary
damages, attorney's fees and litigation expenses.
During the rebuttal stage, x x x Glenn Aguilar
claimed that [the Aguilars] did not sign the restructuring
agreement primarily because of the exclusion of the value
of the agricultural lands, which were already conveyed to
the DAR, in the recomputation of the account of the late
spouses Aguilar.
After hearing, the [RTC] rendered the assailed
Decision, the decretal portion whereof reads:
"WHEREFORE, in view of the
foregoing, judgment is hereby rendered
dismissing the Defendant's counterclaim
and ordering judgment in favor of the
Plaintiffs and against the Defendant as
follows:
 1. To accord the Plaintiffs the benefits of
R.A. 7202 and in particular to credit
to the Plaintiffs' account the
proceeds from the VOS 15 of the
agricultural properties heretofore
described as Lots 3585, 3749 and
3588, located at Escalante City,
Negros Occidental, with the excess
thereof being delivered to the
Plaintiffs or the shortfall to be paid
by the Plaintiffs in thirteen (13)
years with interest provided for by
R.A. 7202, and upon full payment of
the account to return to the
[P]laintiffs the title to and ownership
of the abovementioned residential
lot, Lot No. 3, Block 13, of the
subdivision plan Psd-33419, Sagay
Cadastre, now covered by TCT No.
T-203;
2. Ordering the [D]efendants (sic) to pay
[the] [P]laintiffs P100,000.00 moral
damages, P50,000.00 exemplary
damages, P50,000.00 attorney's
fees and litigation expenses of
P10,000.00 and to pay the costs.
SO ORDERED." 16
The RTC justified the reconveyance or restitution of the residential
lot in Sagay City to the Aguilars by crediting in their favor the proceeds of
the Voluntary Offer to Sell (VOS) to the Department of Agrarian Reform
(DAR) of the two agricultural lots, which "reached to more than Three
Million Pesos[;] and in applying the proceeds thereof to the payment of
their accounts, said outstanding account [would] be fully paid and in
addition to that [PNB] would still be obligated to return the balance thereof
which is more than P900,000.00 to the [Aguilars]." 17
As to the Opinion of the Secretary of Justice, to the mind of the
RTC, it refers only to foreclosed properties which, thru public auction, the
ownership thereof has passed to third persons. 18 According to the RTC, it
does not apply to the instant case because the subject foreclosed
properties' ownership has not passed to third persons but only to another
government agency that is also mandated to implement Republic Act No.
(RA) 7202 19 or the Sugar Restitution Law. 20 HEITAD
The RTC justified the judgment in favor of the Aguilars as in
keeping with public policy behind RA 7202, which "was passed as a sort of
social legislation and an urgent measure to uplift the plight of sugar
producers who were put to a great disadvantage, thus they suffered
damages, among which are non-payment of the sugar crop loans that led
to foreclosure of their collaterals thereof mainly 'due to actions taken by
government agencies and in order to revive the economy in the sugar-
producing areas of the country,'" 21 thus:
In plain and simple language what [PNB] has
done in denying to the [Aguilars] the benefits of the Sugar
Restitution Law is against the spirit that created the said
Law, i.e., to help the sugar producers, the [Aguilars] herein
included, who suffered due to the acts of government
agencies. 22
The RTC found PNB guilty of malice and bad faith in not pursuing
its duty in helping the Aguilars avail of the benefits of RA 7202 and,
pursuant to Articles 19 and 21 of the Civil Code, justified the award of
moral and exemplary damages as well as attorney's fees and litigation
expenses in favor of the Aguilars. 23
Aggrieved by the RTC Decision, PNB appealed to the CA. The CA
granted the appeal and reversed the RTC Decision. 24 In applying RA
7202, the CA found that the account of the late spouses Aguilar qualified
under the law because indisputably, their sugar crop loans were obtained
within the period covered by the law. 25 However, based on PNB's
recomputation applying 12% per annum interest, which was audited and
certified by the Commission on Audit (COA), the Aguilars were not entitled
to restitution absent any excess payment after recomputation. 26 The CA
did not credit the proceeds of the VOS to the DAR in favor of the Aguilars,
but it in effect considered the account of the late spouses Aguilar as
having been fully paid "through foreclosure of collateral" pursuant to
Section 6 of the Rules and Regulations Implementing RA 7202 (IRR). 27
The dispositive portion of the CA Decision states:
WHEREFORE, premises considered,
the APPEAL is hereby GRANTED. Accordingly, the
Decision appealed from is hereby REVERSED, and the
Complaint for implementation of Republic Act (RA) No.
7202, otherwise known as the Sugar Restitution Law,
docketed as Civil Case No. RTC-725, is
hereby DISMISSED.
SO ORDERED. 28
The Aguilars filed a Motion for Reconsideration, 29 which was
denied by the CA in its Resolution 30 dated April 1, 2013.
The Aguilars filed their Petition with the Court. PNB filed its
Comment 31 dated October 9, 2013, to which the Aguilars filed a
Reply 32 dated October 22, 2013. PNB filed its Memorandum 33 dated
August 8, 2014 and the Aguilars filed their Memorandum 34 dated
September 29, 2014.
 Issue
Based on the Petition, the sole issue is whether the CA erred in
not including the sums and amounts which accrued to PNB from DAR's
payment on account of the properties of the Aguilars. 35
The Court's Ruling
At the core of the instant case is RA 7202, which was approved on
February 29, 1992, and its declared policy is "to restitute the losses
suffered by the sugar producers due to actions taken by government
agencies in order to revive the economy in the sugar-producing areas of
the country." 36
As to the institutions covered, Section 3 of RA 7202 provides:
SEC. 3. The Philippine National Bank, the
Republic Planters Bank, the Development Bank of the
Philippines and other government-owned and controlled
financial institutions which have granted loans to the sugar
producers shall extend to accounts of said sugar
producers incurred from Crop Year 1974-1975 up to and
including Crop Year 1984-1985 the following:
(a) Condonation of interest charged by the banks
in excess of twelve percent (12%) per annum and all
penalties and surcharges;
(b) The recomputed loans shall be amortized for a
period of thirteen (13) years inclusive of a three-year
grace period on principal effective upon the approval of
this Act. The principal portion of the loan will carry an
interest rate of twelve percent (12%) per annum and on
the outstanding balance effective when the original
promissory notes were signed and funds released to the
producer. ATICcS
Section 4 of RA 7202 provides which accounts of sugar producers
are covered, thus:
SEC. 4. Accounts of sugar producers pertaining to
Crop Year 1974-1975 up to and including Crop Year
1984-1985 which have been fully or partially paid, or may
have been the subject of restructuring and other similar
arrangements with government banks shall be covered by
the provisions abovestated. The benefit of this Act shall
not be extended to any sugar producer with a pending
sequestration or ill-gotten wealth case before any
administrative or judicial body. Any recovery shall be
placed in escrow until the case has been finally resolved.
On the other hand, the IRR promulgated by the Bangko Sentral ng
Pilipinas 37 (BSP) provides:
Sec. 4. For sugar producers who obtained loans
from the lending banks during the period covered, the
benefits provided herein shall be extended to those whose
loans at the time of the effectivity of the Act:
a. Are still outstanding; or
b. Had been partially or fully paid, whether in cash,
from proceeds of sale of assigned sugar
quedans, through dacion en pago, or by
way of execution against assets of the
sugar producer other than the loan
collaterals; or
c. Had been subjected to foreclosure of loan
collaterals whether or not the foreclosure is
a subject of litigation; or
d. Had been transferred or assigned to other
government-owned and -controlled
agencies or institutions; or
e. Had been the subject of restructuring or other
similar arrangements, whether with the
lending bank or with their assignees or
transferees. 38
Based on the foregoing, the entitlement of the Aguilars to the
benefits of RA 7202 has been correctly recognized by the CA, viz.:
In essence, the issue that [the CA] needs to
resolve is whether or not [the Aguilars] were entitled to the
benefits of RA 7202. Nevertheless, [the CA] finds it vital to
primarily establish whether the account of [the Aguilars']
predecessors-in-interest, the late spouses Aguilar, was
qualified under RA 7202.
xxx xxx xxx
Based on the foregoing provisions, it appeared
that the account of the late spouses Aguilar qualified
under RA 7202 since indisputably, the sugar crop loans of
the late spouses Aguilar, which were considered fully paid
upon foreclosure of the mortgaged pieces of property,
were obtained within the period covered by the law.
xxx xxx xxx
 Succinctly, the sugar producer concerned was
entitled to the benefit of recomputation of his loan account, TOTAL P270,351.62 P12,658.22 P689,944.52 -0-
and if warranted, to restitution of any excess payment on
interests, penalties and surcharges, pursuant to Section Seemingly, absent any excess payment after the
3 of RA 7202. 39 recomputation of the account of the late spouses Aguilar
based on 12% per annum interest rate, pursuant
Indeed, the late spouses Aguilar had accounts 40 that were to Section 9 of the Rules and Regulations Implementing
covered by RA 7202. The subject crop loans of the late spouses Aguilar RA 7202 vis-à-vis Section 3 of RA 7202, [the Aguilars]
were "obtained sometime between the late 1970's and the early were not entitled to restitution under RA 7202. 42
1980's." 41
Based on the foregoing, the CA denied the Aguilars' entitlement to
Now that certain accounts of the late spouses Aguilar have been restitution. The CA justified its computation based on Sections 6, 7 and 9
established to be covered by RA 7202, the next question would be: what (b) of the IRR, to wit:
benefits does the law confer upon the Aguilars?
"SECTION 6. E.O. 31, 43 as amended by E.O.
As provided in Section 3 of RA 7202, quoted above, and Section 6 114 44 provides as follows:
of the IRR, quoted below, the Aguilars are entitled to: (1) condonation of
interest charged in excess of 12% per annum and all penalties and xxx xxx xxx
surcharges; (2) recomputation of their sugar crop loans, and if there is 'SECTION 2. In cases, however,
interest in excess of 12% per annum, interests, penalties and surcharges, where sugar producers have no
application of the excess payment as an offset and/or as payment for the outstanding loan balance with said
late spouses Aguilar's outstanding loan obligations; and (3) restructuring or financial institutions as of the date of
amortization of the recomputed loans for a period of 13 years inclusive of a effectivity of RA No. 7202 (i.e., sugar
three-year grace period on the principal, effective upon the approval of RA producers who have fully paid their
7202. loans either through actual payment
The CA found that PNB recomputed the RA 7202 accounts of the or foreclosure of collateral, or who have
late spouses Aguilar, which were audited and certified by the COA, and partially paid their loans and after the
the recomputation resulted in the absence of any excess payment, viz.: recomputation of the interest charges,
they end up with excess payment to said
Indeed, [PNB] recomputed the account of the late financial institutions), said producers
spouses Aguilar based on 12% per annum interest rate, shall be entitled to the benefits of
and the recomputation was audited and certified by the recomputation in accordance
COA. Yet, the result of the recomputation, as reflected on with Sections 3 and 4 of RA No. 7202,
the COA audited Statement of Account, and on the but the said financial institutions, instead
attached computation sheets, as of December 15, 1996, of refunding the interest in excess of
revealed: TIADCc twelve (12%) per cent per annum,
interests, penalties and surcharges,
(a) (b) (c) apply the excess payment as an offset
Releases/ and/or as payment for the producers'
Principal Actual Interest Recomputed Excess
Accounts outstanding loan obligations.
Payment Interest at 12% Payment
Applications of restructuring banks
p.a. (a-b=c)
under Section 6 of RA No. 7202 shall be
filed with the Central Monetary Authority
1975/76 P146,979.37 P11,893.55 P382,459.36 -0- of the Philippines within one (1) year from
application of excess payment.'
1976/77 95,372.25 764.67 238,103.64 -0-
xxx xxx xxx
1976/77 28,000.00 .00 69,381.52 -0- "SECTION 7. Lending banks shall recompute the
outstanding loans at twelve percent (12%) simple
 interest per annum based on the original promissory notes
and shall condone interest in excess of twelve per cent
(12%) and all penalties and surcharges that were not
paid. Excess interest and all penalties and surcharges
which had been paid shall be applied against the
outstanding loan obligations of the sugar producers
in accordance with Section 6 of these Implementing
Rules. x x x
xxx xxx xxx
"SECTION 9. The following sugar producers shall
be entitled to restitution:
[a. Those have no loan accounts with the lending
banks but have suffered trading losses; and]
b. Those who borrowed from the lending banks as
enumerated in Section 4 of these
Implementing Rules and have net excess
payments after recomputation of their
loans as defined in Section 2.k 45 and
application of excess interest, penalties
and surcharges against their other
outstanding loan obligations in
accordance with Section 6 of these
Implementing Rules. x x x" 46 (Additional
emphasis and underscoring supplied)
The above computation of the CA appears to be in accord with the
above-quoted provisions of the IRR.
As defined under Section 2.p of the IRR, "EXCESS PAYMENT
shall mean the overage of the excess interest as defined in Section 2.n
and penalties and surcharges as defined in Section 2.o after applying them
against the outstanding loan balance appearing in the books of the lending
banks." 47 Section 2.n provides: "EXCESS INTEREST shall mean interest
charged and/or collected by the lending bank over and above the twelve
percent (12%) interest per annum on the amount of the principal of loan as
defined in Section 2.k as such amount is determined from the original
promissory note" while Section 2.o provides: "PENALTIES AND
SURCHARGES shall mean all penalties and surcharges charged and/or
collected by the lending bank." 48 AIDSTE
Pursuant to the IRR definition of terms, there appears to be no
excess interest with respect to the RA 7202 accounts of the late spouses
Aguilar because the actual interest payment or interest collected amounted
to only P12,658.22, as of December 15, 1996, while the recomputed
interest at 12% per annum totaled P689,944.52. Thus, with the actual
interest collected not being more than the recomputed interest of the
principal of the loans of the late spouses Aguilar covered by RA 7202
(amounting to P270,351.62), 49 there could be no excess payment and
there would be no amount that could be restituted to the Aguilars. This is
clear from Section 9 of the IRR wherein [only] sugar producers who have
net excess payments after recomputation of their loans and application of
excess interests, penalties and surcharges against their outstanding loan
obligations shall be entitled to restitution.
On the matter of restitution, the IRR further provides:
Sec. 13. Sugar producers with foreclosed
collaterals which are covered by the CARL shall also be
entitled to restitution from the Sugar Restitution Fund
and/or recomputation, condonation and restructuring. 50
As defined by the IRR, "SUGAR RESTITUTION FUND shall refer
to the ill-gotten wealth recovered by the Government through the
PCGG 51 or any other agency or from any other source within the
Philippines or abroad, and whatever assets or funds that may be
recovered, or already recovered, which have been determined by PCGG
or any other competent agency of the Government to have been stolen or
illegally acquired from the sugar industry whether such recovery be the
result of a judicial proceeding or by a compromise agreement." 52
To be clear, sugar producers, who were entitled to restitution,
were given a period of 180 calendar days from the effectivity of the IRR to
file their claims for restitution of sugar losses with the BSP. 53
Based on their Petition, the computation of the CA is disputed by
the Aguilars because it did not "include the sums and amounts which
accrued to [PNB] from DAR's payment on account of [their] properties." 54
The Aguilars take the position that the total amount of
P3,212,012.48, which PNB received from the Land Bank of the Philippines
(LBP) based on the Memorandum of Valuation of Lot 3587 located at
Magsaysay, Escalante City fixing the lot's value at P1,957,684.31 55 and
the Memorandum of Valuation of Lot 3749 located at Pinapugasan,
Escalante City fixing the lot's value at P1,254,328.17 56 pursuant to PNB's
VOS to DAR of the said lots, should be deducted from their total
outstanding loan obligations (for RA 7202 and non-RA 7202 accounts) in
the amount of P2,236,337.91 as of the date of foreclosure of the collaterals
as per Statement of Account marked Exhibit "G." 57 If their position is
upheld, there would be an overage of P975,674.57, which should be
returned to them by the terms of the IRR. 58 The Aguilars further claim
that since two out of the four mortgaged lots are already enough to cover
their outstanding loan balance and there is even an excess, then the other
lots, in particular the residential land which is obviously not covered by the
Comprehensive Agrarian Reform Program (CARP), should be restored to
their possession and ownership. 59
To this Court, this position of the Aguilars cannot be justified under
RA 7202 and its IRR. To recall, Section 6 of the IRR, in part, provides that:
 x x x where sugar producers have no
outstanding loan balance with said financial
institutions as of the date of effectivity of RA No.
7202 (i.e., sugar producers who have fully paid their
loans x x x through x x x foreclosure of collateral x x
x), said producers shall be entitled to the benefits of
recomputation in accordance with Sections 3 and 4 of
RA No. 7202, but the said financial institutions, instead of
refunding the interest in excess of twelve (12%) per
cent per annum, interests, penalties and surcharges,
apply the excess payment as an offset and/or as
payment for the producers' outstanding loan
obligations. x x x 60 (Emphasis supplied; underscoring
omitted)
And, based on PNB's recomputation which the CA upheld, there is no
excess payment made by the late spouses Aguilar that has to be restituted
to the Aguilars.
The Aguilars further implore the Court, as they did unsuccessfully
with the CA, to compel PNB to extend to them the accommodation that
PNB made with spouses Frederick 61 and Mildred Pfleider (the spouses
Pfleider) wherein in the Restructuring and Compromise
Agreement 62 (Compromise Agreement) that PNB entered into with the
spouses Pfleider in Civil Case No. 7212 before Branch 45 of the RTC of
Bacolod City, 63 PNB credited in favor of the spouses Pfleider the value of
their agricultural lots that PNB had also foreclosed and transferred via
VOS to DAR. 64 The Aguilars argue that "[they] are similarly
circumstanced as the Pfleiders[,] [and] [t]here was no reason for PNB to
treat [them] differently." 65
PNB counters that RA 7202 "does not provide for the
reconveyance of the foreclosed property/ies to the qualified sugar
producers" and "[w]hat the qualified sugar producers with foreclosed
property/ies were entitled to under R.A. No. 7202 was for
the recomputation of their loan account and if there were any excess
payment/s, to claim with the x x x BSP x x x for restitution." 66 PNB also
posits that the foreclosure of the subject agricultural lots was done before
the effectivity of RA 7202 and when they were subjected to the CARP,
PNB, being then the landowner/claimant, had the right to claim and receive
the CARP proceeds thereof. 67 AaCTcI
PNB cites DOJ Opinion No. 91, Series of 1995 68 (DOJ Opinion)
where former DOJ Secretary Teofisto T. Guingona, Jr. opined that:
x x x While the effect of Section 3 is to forestall
foreclosure of mortgaged properties, the provision does
not in terms undo foreclosure sales already consummated
as of the effectivity of R.A. No. 7202. And rightly so,
because property rights have already vested after a
consummated foreclosure sale which the law (R.A. No.
7202) cannot disturb without violating the constitutional
guaranties of due process and non-impairment of
contracts clause. 69
PNB likewise cites that for purposes of recomputation under RA 7202,
CARP proceeds of foreclosed properties are not categorized as among the
"LOAN PAYMENTS" to be credited to the loan accounts of borrowers; and
it is the "value realized or credited to payment of the sugar producer's loan
account from properties acquired thru x x x foreclosure of collaterals" that
is part of "LOAN PAYMENTS" pursuant to Section 2.1 of the IRR. 70
In addition, PNB contends that the Aguilars are not similarly
situated with the spouses Pfleider based on the following:
x x x In deference to [s]pouses Pfleider, they first
gave their conformity to the recomputation made by PNB
(as audited by COA) on their loan accounts without
crediting therein as loan payments the value of the CARP
proceeds of the agricultural lots, converse to the demands
of [the Aguilars].
x x x After recomputation of the crop loans and
the condonation of interest in excess of x x x 12% x x x
per annum, as well as penalties and surcharges,
[s]pouses Pfleider confirmed and acknowledged as
accurate, in all respect, the recomputed loan balance on
their loans x x x[.]
x x x Thereafter, [s]pouses Pfleider signed the
Restructuring and Compromise Agreement with PNB
based on the amount of the recomputation made by the
latter. Thus, [s]pouses Pfleider were allowed to restructure
their account for a period of x x x 13 x x x years. In this
regard, PNB agreed that the value of the Escalante lots
(agricultural properties) transferred by PNB to DAR, would
be deducted from the aggregate amount due on the loans
upon settlement by DAR and/or LBP of the reasonable
and just compensation due PNB for the transfer to the
Republic of the Philippines of the titles over said lots.
x x x Here, petitioner Glenn Aguilar admitted
that he did not signify his conformity to the re-
computation as audited and certified to by COA and
refused to sign the restructuring agreement because
he was insisting that the CARP proceeds be first
considered as loan payments and should be deducted
from the loan accounts.
xxx xxx xxx
 x x x It must also be noted that if the CARP
proceeds are to be credited to [the late] [s]pouses
Aguilar's loan account in the recomputation, then, the
restructuring agreement is no longer needed as the CARP
proceeds are more than enough to cover the net loan
balance. If this is allowed, there is nothing left to amortize.
This is not the case of [s]pouses Pfleider from which [the
Aguilars] sought same consideration. Definitely, [the
Aguilars'] demand is far different from the circumstances
obtaining insofar as the [s]pouses Pfleider are concerned,
and in that case, there is no sound reason to consider the
case of the latter in the instant petition. 71
Citing Articles 19 and 21 of the Civil Code, the RTC found that
PNB was "guilty of malice and bad faith in not pursuing its duty in helping
[the Aguilars] avail of the benefits of said Sugar Restitution Law" 72 and
awarded P100,000.00 moral damages. The RTC further noted that:
[The Aguilars] also correctly cited the identical
case of the Spouses Fred and Mildred Pfleider which the
defendant gave due course. While it is true that [the
Aguilars] are not parties to the case nor signatories to their
Compromise Agreement and [PNB] cannot be compelled
to give the same treatment to [the Aguilars], considering
that like the Spouses Pfleider, [the Aguilars] are also their
valued clients, at least [the Aguilars] deserve to be treated
with fairness and equality. 73
The CA did not rule categorically on the issue of whether the
Aguilars should be entitled to the same treatment by PNB as the spouses
Pfleider because, according to the CA, "it was unnecessary to dwell on
other issues aired in the course of the Appeal" considering that the
Aguilars were not entitled to restitution absent any excess payment after
the recomputation of the RA 7202 accounts of the late spouses
Aguilar. 74 EcTCAD
Such issue is, however, before the Court, thus: Does PNB have an
obligation to accord the Aguilars the same treatment as it accorded the
spouses Pfleider regarding the crediting of the VOS or CARP proceeds of
their respective agricultural lots against their respective sugar crop loans
covered by RA 7202?
The sources of obligations under Article 1157 of the Civil Code
are: (1) law; (2) contracts; (3) quasi-contracts; (4) acts or omissions
punished by law; and (5) quasi-delicts. Immediately, sources (2), (3) and
(4) are inapplicable in this case. The Aguilars are not privies to the
Compromise Agreement between PNB and the spouses Pfleider.
Regarding law, as PNB's source of obligation, the CA correctly ruled that
the Aguilars are not entitled to restitution under RA 7202. Thus, RA 7202
cannot be invoked as the statutory basis to compel PNB to treat the
Aguilars similarly with the spouses Pfleider.
Aside from Chapter 2, Quasi-Delicts, of Title XVII. — Extra-
Contractual Obligations, Book IV of the Civil Code, it is recognized that
quasi-delict may arise under Chapter 2, Human Relations of the
Preliminary Title of the Civil Code.
In the landmark case of Velayo v. Shell Company of the Philippine
Islands, Ltd., 75 the Court ruled, in effect, that the undue preference made
by an insolvent debtor corporation in transferring its C-54 plane in favor of
a creditor corporation, which was its sister company, depriving its other
creditors of the opportunity to recover said plane, was in violation of Article
19 in relation to Article 21 of the Civil Code, and observed that:
x x x Chapter 2 of the PRELIMINARY TITLE of
the Civil Code, dealing on Human Relations, provides the
following:
"Art. 19. Any person must, in the
exercise of his rights and in
the [performance] of his duties, act with
justice, give everyone his due, and
observe honesty and good faith."
It may be said that this article only contains a
mere [declaration] of principles and while such statement
may be x x x essentially correct, yet We find that such
declaration is implemented by Article 21 and [sequence] of
the same Chapter which prescribe the following:
"Art. 21. Any [person] who wilfully
causes loss or injury to another in a
manner that is contrary to morals, good
customs or public policy shall
compensate the latter for the damage."
The Code Commission commenting on this
article, says the following:
"Thus at one stroke, the
legislator, if the foregoing rule is approved
(as it was approved), would vouchsafe
adequate legal remedy for that untold
numbers of moral wrongs which is
impossible for human foresight to provide
for specifically in the statutes.
"But, it may be asked, would this
proposed article obliterate the boundary
line between morality and law? The
answer is that, in the last analysis, every
good law draws its breath of life from
morals, from those principles which are
written with words of fire in the
conscience of man. If this [premise] is
admitted, then the proposed rule is a
prudent earnest of justice in the face of
the impossibility of enumerating, one by
one, all wrongs which cause damages.
When it is reflected that while codes of
law and statutes have changed from age
to age, the conscience of man has
remained fixed to its ancient moorings,
one can not but feel that it is safe and
salutary to transmute, as far as may be,
moral norms into legal rules, thus
imparting to every legal system that
enduring quality which ought to be one of
its superlative attributes.
"Furthermore, there is no belief of
more baneful consequence upon the
social order than that a person may with
impunity cause damage to his fellow-men
so long as he does not break any law of
the State, though he may be defying the
most sacred postulates of morality. What
is more, the victim loses faith in the ability
of the government to afford protection or
relief. HSAcaE
"A provision similar to the one
under consideration is embodied in article
826 of the German Civil Code.
"The same observations may be
made concerning injurious acts that are
contrary to public policy but are not
forbidden by statute. There are countless
acts of such character, but have not been
foreseen by the lawmakers. Among these
are many business practices that are
unfair or oppressive, and certain acts of
landholders and employers affecting their
tenants and employees which contravene
the public policy of social justice.
x x x (Report of the Code
Commission on the Proposed Civil Code
of the Philippines, pp. 40-41). 76
Also, in Heirs of Purisima Nala v. Cabansag, 77 the Court
observed:
Preliminarily, the Court notes that both the RTC
and the CA failed to indicate the particular provision of law
under which it (sic) held petitioners liable for damages.
Nevertheless, based on the allegations in respondent's
complaint, it may be gathered that the basis for his claim
for damages is Article 19 of the Civil Code, which
provides:
Art. 19. Every person must, in the
exercise of his rights and in the
performance of his duties, act with justice,
give everyone his due, and observe
honesty and good faith.
The foregoing provision sets the standards which
may be observed not only in the exercise of one's rights
but also in the performance of one's duties. When a right
is exercised in a manner which does not conform with the
norms enshrined in Article 19 and results in damage to
another, a legal wrong is thereby committed for which the
wrongdoer must be held responsible. But a right, though
by itself legal because recognized or granted by law as
such, may nevertheless become the source of some
illegality. A person should be protected only when he acts
in the legitimate exercise of his right; that is, when he acts
with prudence and in good faith, but not when he acts with
negligence or abuse. There is an abuse of right when it is
exercised only for the purpose of prejudicing or injuring
another. The exercise of a right must be in accordance
with the purpose for which it was established, and must
not be excessive or unduly harsh; there must be no
intention to injure another. 78
In order to be liable for damages under the abuse
of rights principle, the following requisites must concur: (a)
the existence of a legal right or duty; (b) which is
exercised in bad faith; and (c) for the sole intent of
prejudicing or injuring another. 79
It should be stressed that malice or bad faith is at
the core of Article 19 of the Civil Code. Good faith is
presumed, and he who alleges bad faith has the duty to
prove the same. 80 Bad faith, on the other hand, does not
simply connote bad judgment to simple negligence,
dishonest purpose or some moral obloquy and conscious
doing of a wrong, or a breach of known duty due to some
motives or interest or ill will that partakes of the nature of
 fraud. Malice connotes ill will or spite and speaks not in was to prejudice or injure them. The Aguilars, however, failed in this
response to duty. It implies an intention to do ulterior and regard.
unjustifiable harm. 81
Also, the Court notes from the duly notarized Compromise
To make PNB liable under the principle of abuse of rights, the Agreement between the spouses Pfleider and PNB dated December 30,
Aguilars have the burden to prove the requisites enumerated above. They 1999 90 that the accounts of the former to the latter were crop loans
claim that they are similarly circumstanced as the spouses Pfleider and ("sugar and sugar-related loans") and, thus, covered by RA
there was no reason for PNB to treat them differently. 82 7202, 91 unlike the accounts of the Aguilars which included non-RA 7202
accounts, as mentioned in the narration of facts. Since the Aguilars were
PNB has explained that there are differences in the circumstances
delinquent in their accounts, including their non-RA 7202 accounts, and
of its two sugar crop loan debtors which, to PNB, justify the different
the mortgaged properties of the Aguilars similarly secured the non-RA
accommodations that it accorded to them. PNB insists that the spouses
7202 accounts, PNB had no option but to foreclose the mortgage.
Pfleider first gave their conformity to the recomputation made by PNB (as
audited by COA) on their loan accounts without crediting therein as loan To recapitulate:
payments the value of the CARP proceeds of the agricultural lots. 83 After
x x x A person should be protected only when he
recomputation of the crop loans and condonation of interest in excess of
acts in the legitimate exercise of his right; that is, when he
12% per annum, penalties and surcharges, the spouses Pfleider confirmed
acts with prudence and in good faith, but not when he acts
and acknowledged as accurate the recomputed balance on their loans
with negligence or abuse. There is an abuse of right when
and, thereafter they signed the Compromise Agreement with PNB. 84 The
it is exercised only for the purpose of prejudicing or
spouses Pfleider were then allowed to restructure their account for 13
injuring another. The exercise of a right must be in
years. 85 On PNB's part, it agreed that the value of the Escalante
accordance with the purpose for which it was established,
agricultural lots transferred by PNB to DAR would be deducted from the
and must not be excessive or unduly harsh; there must be
aggregate amount due on the loans upon settlement by DAR and/or LBP
no intention to injure another. 92
of the just compensation due PNB for the transfer of said lots to the
Republic of the Philippines. 86 The settlement agreement between PNB In order to be liable for damages under the abuse
and the spouses Pfleider was to the effect that PNB would credit as of rights principle, the following requisites must concur: (a)
payment the CARP proceeds of the foreclosed agricultural properties in the existence of a legal right or duty; (b) which is
the Compromise Agreement provided that the case filed against PNB was exercised in bad faith; and (c) for the sole intent of
withdrawn. 87 HESIcT prejudicing or injuring another. 93
According to PNB, the Aguilars, on the other hand, did not signify In this case, the Aguilars failed to substantiate the above
their conformity to the recomputation as audited and certified by the COA requisites to justify the award of damages in their favor against PNB, who
and refused to sign the restructuring agreement because they insisted that merely exercised its legal right as a creditor pursuant to RA 7202.
the CARP proceeds be first considered as loan payments and should be
WHEREFORE, the petition for review is hereby DENIED. The
deducted from their loan accounts. 88 PNB has taken the position that if
Court of Appeals Decision dated March 23, 2012 and, consequently,
the CARP proceeds were to be credited to the loan accounts of the
Resolution dated April 1, 2013 in CA-G.R. CV No. 00708 are
Aguilars in the recomputation, then, the restructuring agreement would no
hereby AFFIRMED.
longer be needed because the CARP proceeds were more than enough to
cover the net balance of their accounts and, if that was allowed, there SO ORDERED.
would be nothing to amortize.
PNB further contends that the Aguilars cannot invoke its
Compromise Agreement with the spouses Pfleider because: (1) the former
are not parties thereto; (2) the principle of relativity of contract would be
violated; and (3) PNB's freedom to enter into contracts would also be
violated if PNB would be compelled to accommodate the Aguilars. 89
Given the foregoing explanation by PNB, it was incumbent upon
the Aguilars, to make PNB liable for damages based on the principle of
abuse of rights, to prove that PNB acted in bad faith and that its sole intent

[G.R. No. 190286. January 11, 2018.]
RAMON E. REYES and CLARA R.
PASTOR, petitioners, vs. BANCOM DEVELOPMENT
CORP., respondent.
DECISION
SERENO, C.J  p:
Before this Court is a Petition for Review on Certiorari 1 filed by
Ramon E. Reyes and Clara R. Pastor seeking to reverse the
Decision 2 and the Resolution 3 of the Court of Appeals (CA) in CA-G.R.
CV No. 45959. The CA affirmed the ruling of the Regional Trial Court
(RTC) holding petitioners jointly and severally liable to respondent Bancom
Development Corporation (Bancom) as guarantors of certain loans
obtained by Marbella Realty, Inc. (Marbella). HTcADC
FACTS
The dispute in this case originated from a Continuing
Guaranty 4 executed in favor of respondent Bancom by Angel E. Reyes,
Sr., Florencio Reyes, Jr., Rosario R. Du, Olivia Arevalo, and the two
petitioners herein, Ramon E. Reyes and Clara R. Pastor (the Reyes
Group). In the instrument, the Reyes Group agreed to guarantee the full
and due payment of obligations incurred by Marbella under an
Underwriting Agreement with Bancom. These obligations included certain
Promissory Notes 5 issued by Marbella in favor of Bancom on 24 May
1979 for the aggregate amount of P2,828,140.32.
It appears from the records that Marbella was unable to pay back
the notes at the time of their maturity. Consequently, it issued a set of
replacement Promissory Notes 6 on 22 August 1979, this time for the
increased amount of P2,901,466.48. It again defaulted on the payment of
this second set of notes, leading to the execution of a third set 7 for the
total amount of P3,002,333.84, and finally a fourth set 8 for the same
amount.
Because of Marbella's continued failure to pay back the loan
despite repeated demands, Bancom filed a Complaint for Sum of Money
with a prayer for damages before the RTC of Makati on 7 July 1981. 9 The
case, which sought payment of the total sum of P4,300,247.35, was
instituted against (a) Marbella as principal debtor; and (b) the individuals
comprising the Reyes Group as guarantors of the loan.
In their defense, Marbella and the Reyes Group argued that they
had been forced to execute the Promissory Notes and the Continuing
Guaranty against their will. 10 They also alleged that the foregoing
instruments should be interpreted in relation to earlier contracts pertaining
to the development of a condominium project known as Marbella II. 11
The Marbella II contracts were entered into by Bancom; the Reyes
Group, as owners of the parcel of land to be utilized for the condominium
project along Roxas Boulevard; and Fereit Realty Development
Corporation (Fereit), a sister company of Bancom, as the construction
developer and project manager. 12 This venture, however, soon
encountered financial difficulties. As a result, the Reyes Group was
allegedly forced to enter into a Memorandum of Agreement to take on part
of the loans obtained by Fereit from Bancom for the development of the
project. Marbella, for its part, was supposedly compelled to assume
Fereit's obligation to cause the release of P2.8 million in receivables then
assigned to State Financing; 13 and subsequently to obtain additional
financing from Bancom in the same amount for that purpose. 14
The above developments were cited by Marbella and the Reyes
group in support of the allegation that Bancom took advantage of their
resultant financial distress. Bancom allegedly demanded the execution of
Promissory Notes and the Continuing Guaranty from the Reyes
Group, 15 despite the fact that additional financing became necessary only
because of the failure of Fereit (Bancom's sister company) to comply with
its obligation. 16
To bolster its claim that the promissory notes were issued in
connection with Fereit's obligations, Marbella, together with the Reyes
Group, also resented a document entitled Amendment of Memorandum of
Agreement. 17 In this instrument, Fereit undertook to reimburse Marbella
for the P2.8 million the latter had paid, and for all penalties, fees, and
charges incurred to obtain additional financing.
 THE RTC RULING
In a Decision dated 8 April 1991, the RTC held Marbella and the
Reyes Group solidarily liable to Bancom. The trial court ordered them to
pay the amounts indicated on the Promissory Notes dated 28 February
1980 in the total amount of P4,300,247.35 plus interest computed from 19
May 1981, the date of demand; and to pay penalties and attorney's fees as
well. 18
PROCEEDINGS BEFORE THE CA
Marbella and the Reyes Group appealed the RTC ruling to the
CA. 19 They asserted that the trial court erred in disregarding the terms of
the earlier agreements they had entered into with Bancom and
Fereit. 20 The former also reiterated that the amounts covered by the
Promissory Notes represented additional financing secured from Bancom
to fulfill Fereit's obligations. Hence, they said they cannot be held liable for
the payment of those amounts. 21
In the course of the proceedings before the CA, Abella
Concepcion Regala & Cruz moved to withdraw its appearance in the case
as counsel for Bancom. 22 The law firm asserted that it had "totally lost
contact" with its client despite serious efforts on the part of the former to
get in touch with its officers. 23 The law firm also alleged that it had
"received reports that the client has undergone a merger with another
entity," thereby making its authority to represent the corporation subject to
doubt. 24 aScITE
In a Resolution dated 1 June 2004, 25 the CA granted the motion
after noting that the copy of a resolution sent to Bancom had been
returned to the appellate court unclaimed. The CA held that this failure of
service supported the claim of Abella Concepcion Regala & Cruz that the
latter had lost all contact with its client.
THE CA RULING
In a Decision dated 25 June 2009, 26 the CA denied the appeal
citing the undisputed fact that Marbella and the Reyes Group had failed to
comply with their obligations under the Promissory Notes and the
guaranty. The appellate court rejected the assertion that noncompliance
was justified by the earlier agreements entered into by the parties. The CA
explained:
In this case, it is worth to note that it is an
undisputed fact that defendants-appellants failed to make
good their alleged obligations under the Promissory Notes
and Continuing Guaranty which they issued in favor of
BAN[C]OM. [The instruments'] genuineness and due
execution are likewise undisputed.
Defendants-appellants' only defense rests on the
allegation that their non-payment of such obligations is
justified taking into consideration the terms of the
Memorandum of Agreement entered into by and among
the plaintiff-appellee and defendants-appellants herein
particularly paragraph 13 thereof. Said the appellants in
support hereof, since Bancom [which was in full control of
the financial affairs of Fereit] failed to cause the release of
the aforesaid receivables (P2,800,000) to State Financing
by Fereit, Bancom should necessarily suffer the
consequences thereof — not the defendants-appellants.
Apparently, the thrust of defendants-appellants'
defense points to Fereit's non-compliance with paragraph
13 of the "Memorandum of Agreement." However, records
show that defendants-appellants did nothing to formally
[assert] their rights against Fereit. Truly, this Court agrees
with the trial court's pronouncement that defendants-
appellants' failure to avail of the remedies provided by law,
such as the filing of a third-party complaint against Fereit,
necessarily indicates that they themselves did not
seriously consider Fereit's non-compliance as affecting
their own liability to BANCOM. This can be done for after
all, Fereit is still a different entity with distinct and separate
corporate existence from that of BANCOM even granting
that BANCOM is in full control of the financial affairs of
Fereit.
xxx xxx xxx
Besides, the terms of the promissory notes and
"Continuing Guaranty" x x x are clear and unequivocal,
leaving no room [for] interpretation. For not being contrary
to law, morals, good customs, public order and public
policy, defendants' obligation has the force of law and
should be complied with in good faith. 27
Of the individuals comprising the Reyes Group, only petitioners
filed a Motion for Reconsideration of the CA Decision. 28 They reiterated
their argument that the Promissory Notes were not meant to be binding,
given that the funds released to Marbella by Bancom were not loans, but
merely additional financing. Petitioners also contended that the action
must be considered abated pursuant to Section 122 of the Corporation
Code. They pointed out that the Certificate of Registration issued to
Bancom had been revoked by the Securities and Exchange Commission
(SEC) on 31 May 2004, and that no trustee or receiver had been
appointed to continue the suit; in fact, even Bancom's former counsel was
compelled to withdraw its appearance from the case, as it could no longer
contact the corporation.
On 23 July 2009, petitioners filed a Supplement to their Motion for
Reconsideration. 29 In support of their argument on the abatement of the
suit, they attached a Certificate of Corporate Filing/Information issued by
the SEC. The latter confirmed that Bancom's Certificate of
Registration 30 had been revoked on 26 May 2003 for noncompliance with
the SEC's reportorial requirements.
In a Resolution 31 dated 9 November 2009, the CA denied the
Motion for Reconsideration, since the points raised therein had already
been passed upon in its earlier ruling.
PROCEEDINGS BEFORE THIS COURT
On 27 November 2009, petitioners filed the instant Petition for
Review. They assert that the CA committed a grievous error in refusing to
declare the suit abated despite the obvious fact that Bancom no longer
exists. They likewise contend that the appellate court had incorrectly relied
upon the Promissory Notes and the Continuing Guaranty. It allegedly failed
to take into account the parties' earlier related agreements that showed
that petitioners could not be held liable for the debt. HEITAD
In a Resolution 32 dated 17 February 2010, we ordered Bancom
to comment on the Petition for Review. The copy of the Resolution served
at Bancom's address on record was, however, returned unserved with the
postal notation "RTS — non-existent address." 33 For this reason, we
deemed the filing of a comment waived. 34
ISSUES
The following issues are presented to the Court for resolution:
1. Whether the present suit should be deemed abated by the
revocation by the SEC of the Certificate of Registration issued to Bancom.
2. Whether the CA correctly ruled that petitioners are liable to
Bancom for (a) the payment of the loan amounts indicated on the
Promissory Notes issued by Marbella; and (b) attorney's fees.
OUR RULING
We DENY the Petition.
The revocation of Bancom's Certificate of
Registration does not justify the abatement
of these proceedings.
Section 122 35 of the Corporation Code provides that a
corporation whose charter is annulled, or whose corporate existence is
otherwise terminated, may continue as a body corporate for a limited
period of three years, but only for certain specific purposes enumerated by
law. These include the prosecution and defense of suits by or against the
corporation, and other objectives relating to the settlement and closure of
corporate affairs.
Based on the provision, a defunct corporation loses the right to
sue and be sued in its name upon the expiration of the three-year period
provided by law. 36 Jurisprudence, however, has carved out an exception
to this rule. In several cases, this Court has ruled that an appointed
receiver, 37 an assignee, 38 or a trustee 39 may institute suits or continue
pending actions on behalf of the corporation, even after the winding-up
period. The rule was first enunciated in the 1939 case Sumera v.
Valencia, 40 in which we declared:
[I]f the corporation carries out the liquidation of its assets
through its own officers and continues and defends the
actions brought by or against it, its existence shall
terminate at the end of three years from the time of
dissolution; but if a receiver or assignee is appointed, as
has been done in the present case, with or without a
transfer of its properties within three years, the legal
interest passes to the assignee, the beneficial interest
remaining in the members, stockholders, creditors and
other interested persons; and said assignee may bring an
action, prosecute that which has already been
commenced for the benefit of the corporation, or defend
the latter against any other action already instituted or
which may be instituted even outside of the period of three
years fixed for the officers of the corporation.
For the foregoing considerations, we are of the opinion
and so hold that when a corporation is dissolved and the
liquidation of its assets is placed in the hands of a receiver
or assignee, the period of three years prescribed by
Section 77 of Act No. 1459 known as the Corporation Law
is not applicable, and the assignee may institute all
actions leading to the liquidation of the assets of the
corporation even after the expiration of three years.
In subsequent cases, the Court further clarified that a receiver or
an assignee need not even be appointed for the purpose of bringing suits
or continuing those that are pending. 41 In Gelano v. Court of
Appeals, 42 we declared that in the absence of a receiver or an assignee,
suits may be instituted or continued by a trustee specifically designated for
a particular matter, such as a lawyer representing the corporation in a
certain case. We also ruled in Clemente v. Court of Appeals 43 that the
board of directors of the corporation may be considered trustees by legal
implication for the purpose of winding up its affairs.
Here, it appears that the SEC revoked the Certificate of
Registration issued to Bancom on 26 May 2003. 44 Despite this
revocation, however, Bancom does not seem to have conveyed its assets
to trustees or to its stockholders and creditors. The corporation has also
failed to appoint a new counsel after the law firm formerly representing it
was allowed to withdraw its appearance on 1 June 2004. Citing these
circumstances, petitioners assert that these proceedings should be
considered abated. ATICcS
We disagree.
It is evident from the foregoing discussion of law and jurisprudence
that the mere revocation of the charter of a corporation does not result in
the abatement of proceedings. Since its directors are considered trustees
by legal implication, 45 the fact that Bancom did not convey its assets to a
receiver or assignee was of no consequence. It must also be emphasized
that the dissolution of a creditor-corporation does not extinguish any right
or remedy in its favor. Section 145 of the Corporation Code is explicit on
this point:
Sec. 145. Amendment or repeal. — No right or
remedy in favor of or against any corporation, its
stockholders, members, directors, trustees, or
officers, nor any liability incurred by any such corporation,
stockholders, members, directors, trustees, or
officers, shall be removed or impaired either by the
subsequent dissolution of said corporation or by any
subsequent amendment or repeal of this Code or of any
part thereof. (Emphasis supplied)
As a necessary consequence of the above rule, the corresponding
liability of the debtors of a dissolved corporation must also be deemed
subsisting. To rule otherwise would be to sanction the unjust enrichment of
the debtor at the expense of the corporation. 46
As guarantors of the loans of Marbella,
petitioners are liable to Bancom.
On the merits of the claim, we affirm the finding of the CA on the
liability of petitioners. Having executed a Continuing Guaranty in favor of
Bancom, petitioners are solidarily liable with Marbella for the payment of
the amounts indicated on the Promissory Notes.
As the appellate court observed, 47 petitioners did not challenge
the genuineness and due execution of the promissory notes. Neither did
they deny their nonpayment of Marbella's loans or the fact that these
obligations were covered by the guaranty. Their sole defense was that the
promissory notes in question were not binding, because the funds
released to Marbella by Bancom were not loans but merely additional
financing. This financial accommodation was supposedly meant to allow
Marbella to rectify the failure of Fereit to cause the release of receivables
assigned to another entity. In support of their allegations, petitioners cite
certain provisions of the Memorandum of Agreement dated 16 August
1977 48 and its Amendment. 49
We reject these contentions.
The obligations of Marbella and the Reyes Group under the
Promissory Notes and the Continuing Guaranty, respectively, are plain and
unqualified. Under the notes, Marbella promised to pay Bancom the
amounts stated on the maturity dates indicated. 50 The Reyes Group, on
the other hand, agreed to become liable if any of Marbella's guaranteed
obligations were not duly paid on the due date. 51 There is absolutely no
support for the assertion that these agreements were not meant to be
binding.
We also note that even if the other agreements referred to by
petitioners are taken into account, the result would be the same. They
would still be deemed liable, since the two contracts they cited only
establish the following premises: (a) Fereit took on the responsibility of
causing the release of certain receivables from State Financing; (b)
Marbella assumed the performance of the obligation of Fereit after the
latter failed to fulfill its duty; (c) Bancom would grant Marbella additional
financing for that purpose, with the obligation to be paid within three years;
and (d) Fereit would reimburse Marbella for the expenses the latter would
incur as a result of this assumption of the obligation. Specifically on the
duty of Marbella to pay back the additional financing, the Amendment
states:
1. Bancom hereby agrees to grant the additional financing
requested by Marbella II in the principal amount of
TWO MILLION EIGHT HUNDRED TWENTY EIGHT
THOUSAND ONE HUNDRED FORTY & 32/100
(P2,828,140.32), Philippine Currency, payable by
Marbella II within three (3) years, under such terms
and conditions as may be mutually agreed upon by
Bancom and Marbella II. The additional financing
herein requested by Marbella II shall be payable by
Marbella II irrespective of whether Marbella II
realizes a net profit after tax on its Marbella II
Condominium Project.
2. In lieu of the obligations of Fereit under Paragraphs 9 and
13 of the Memorandum of Agreement, Fereit hereby
 agrees to reimburse Marbella II the principal sum of issued by the Court of Appeals in CA-G.R. CV No. 45959 are AFFIRMED
P2,828,140.32 plus interest, fees and other charges with MODIFICATION.
which Marbella II shall pay to Bancom in the
Petitioners Ramon E. Reyes and Clara R. Pastor are jointly and
settlement and/or liquidation of the additional
severally liable with Marbella Manila Realty, Inc., Angel E. Reyes, Sr.,
financing. However, penalties, fees and other
Florencio Reyes, Jr., Rosario R. Du and Olivia Arevalo for the following
charges resulting from the default of Marbella II with
amounts:
respect to the additional financing shall be borne by
Marbella II. TIADCc (a) P4,300,247.35, representing the principal sum and all interest
and penalty charges as of 19 May 1981;
It is evident from the foregoing provisions that Bancom extended
additional financing to Marbella on the condition that the loan would be (b) legal interest on the principal sum of P3,002,333.84 at the rate
paid upon maturity. It is equally clear that the latter obligated itself to pay of 12% per annum from 19 May 1981, the date of
the stated amount to Bancom without any condition. The unconditional demand, until 30 June 2013, and at the rate of 6% per
tenor of the obligation of Marbella to pay Bancom for the loan amount, plus annum from 1 July 2013, until this Decision becomes final
interest and penalties, is likewise reflected in the Promissory Notes issued and executory;
in favor of the latter. 52 Marbella, in turn, was granted the right to collect
(c) penalties equivalent to 20% of the obligation;
reimbursement from Fereit, an entirely distinct entity. While it was averred
that Bancom had complete control of Fereit's assets and activities, we note (d) legal interest on the penalty amount at the rate of 12% per
that no sufficient evidence was presented in support of this assertion. annum from 19 May 1981, the date of demand, until 30
June 2013, and at the rate of 6% per annum from 1 July
As to petitioners, the Continuing Guaranty evidently binds them to
2013, until this Decision becomes final and executory;
pay Bancom the amounts indicated on the original set of Promissory
Notes, as well as any and all instruments issued upon the renewal, (e) attorney's fees in the amount of P500,000; and
extension, amendment or novation thereof. 53 The Court notes that the
final set of Promissory Notes issued by Marbella in this case reflect the (f) legal interest of 6% per annum on all the foregoing monetary
total amount of P3,002,333.84. 54 The CA and the RTC thus ordered the awards from date of finality of this Decision until full
payment of P4,300,247.35, which represents the principal amount and all payment thereof.
interest and penalty charges as of 19 May 1981, or the date of demand. SO ORDERED.
We affirm this ruling with the modification that petitioners are liable
to pay Bancom the following amounts: (a) P4,300,247.35; (b) interest
accruing on the principal sum of P3,002,333.84 (and not the entire amount
of P4,300,247.35), from 19 May 1981, the date of demand, at the rates
identified below; 55 and (c) penalties accrued in relation thereto, with legal
interest from maturity date until fully paid.
Needless to state, the clear terms of these agreements cannot be
negated and deemed non-binding simply on the basis of the self-serving
testimony of Angel Reyes, one of the guarantors of the loan. The CA
therefore correctly rejected the attempt of petitioners to renege on their
obligations. We also find the award of P500,000 for attorney's fees in
order, pursuant to the stipulation in the Promissory Notes allowing the
recovery thereof. Nevertheless, in the interest of equity and considering
that petitioners are already liable for penalties, we deem it proper to modify
the stipulated rate of interest to conform to the legal interest rates under
prevailing jurisprudence.
WHEREFORE, the Petition for Review is hereby DENIED, and the
Decision dated 25 June 2009 and the Resolution dated 9 November 2009

[G.R. No. 164749. March 15, 2017.]
ROMULO ABROGAR and ERLINDA
ABROGAR, petitioners, vs. COSMOS BOTTLING
COMPANY and INTERGAMES, INC., respondents.
DECISION
BERSAMIN, J  p:
This case involves a claim for damages arising from the
negligence causing the death of a participant in an organized marathon
bumped by a passenger jeepney on the route of the race. The issues
revolve on whether the organizer and the sponsor of the marathon were
guilty of negligence, and, if so, was their negligence the proximate cause
of the death of the participant; on whether the negligence of the driver of
the passenger jeepney was an efficient intervening cause; on whether the
doctrine of assumption of risk was applicable to the fatality; and on
whether the heirs of the fatality can recover damages for loss of earning
capacity of the latter who, being then a minor, had no gainful employment.
The Case
By this appeal, the parents of the late Rommel Abrogar (Rommel),
a marathon runner, seek the review and reversal of the decision
promulgated on March 10, 2004, 1 whereby the Court of Appeals (CA)
reversed and set aside the judgment rendered in their favor on May 10,
1991 by the Regional Trial Court (RTC), Branch 83, in Quezon
City 2 finding and declaring respondents Cosmos Bottling Company
(Cosmos), a domestic soft-drinks company whose products included Pop
Cola, and Intergames, Inc. (Intergames), also a domestic corporation
organizing and supervising the "1st Pop Cola Junior Marathon" held on
June 15, 1980 in Quezon City, solidarily liable for damages arising from
the untimely death of Rommel, then a minor 18 years of age, 3 after being
bumped by a recklessly driven passenger jeepney along the route of the
marathon.
Antecedents
The CA narrated the antecedents in the assailed judgment, 4 viz.:
[T]o promote the sales of "Pop Cola", defendant
Cosmos, jointly with Intergames, organized an endurance
running contest billed as the "1st Pop Cola Junior
Marathon" scheduled to be held on June 15, 1980. The
organizers plotted a 10-kilometer course starting from the
premises of the Interim Batasang Pambansa (IBP for
brevity), through public roads and streets, to end at the
Quezon Memorial Circle. Plaintiffs' son Rommel applied
with the defendants to be allowed to participate in the
contest and after complying with defendants'
requirements, his application was accepted and he was
given an official number. Consequently, on June 15, 1980
at the designated time of the marathon, Rommel joined
the other participants and ran the course plotted by the
defendants. As it turned out, the plaintiffs' (sic) further
alleged, the defendants failed to provide adequate safety
and precautionary measures and to exercise the diligence
required of them by the nature of their undertaking, in that
they failed to insulate and protect the participants of the
marathon from the vehicular and other dangers along the
marathon route. Rommel was bumped by a jeepney that
was then running along the route of the marathon on Don
Mariano Marcos Avenue (DMMA for brevity), and in spite
of medical treatment given to him at the Ospital ng
Bagong Lipunan, he died later that same day due to
severe head injuries. CAIHTE
On October 28, 1980, the petitioners sued the respondents in the
then Court of First Instance of Rizal (Quezon City) to recover various
damages for the untimely death of Rommel (i.e., actual and compensatory
damages, loss of earning capacity, moral damages, exemplary damages,
attorney's fees and expenses of litigation). 5
Cosmos denied liability, insisting that it had not been the organizer
of the marathon, but only its sponsor; that its participation had been limited
to providing financial assistance to Intergames; 6 that the financial
assistance it had extended to Intergames, the sole organizer of the
marathon, had been in answer to the Government's call to the private
sector to help promote sports development and physical fitness; 7 that the
petitioners had no cause of action against it because there was no privity
of contract between the participants in the marathon and Cosmos; and that
it had nothing to do with the organization, operation and running of the
event. 8
As counterclaim, Cosmos sought attorney's fees and expenses of
litigation from the petitioners for their being unwarrantedly included as a
defendant in the case. It averred a cross-claim against Intergames, stating
that the latter had guaranteed to hold Cosmos "completely free and
harmless from any claim or action for liability for any injuries or bodily harm
which may be sustained by any of the entries in the '1st Pop Cola Junior
Marathon' or for any damage to the property or properties of third parties,
which may likewise arise in the course of the race." 9 Thus, Cosmos
sought to hold Intergames solely liable should the claim of the petitioners
prosper. 10
On its part, Intergames asserted that Rommel's death had been
an accident exclusively caused by the negligence of the jeepney driver;
that it was not responsible for the accident; that as the marathon organizer,
it did not assume the responsibilities of an insurer of the safety of the
participants; that it nevertheless caused the participants to be covered with
accident insurance, but the petitioners refused to accept the proceeds
thereof; 11 that there could be no cause of action against it because the
acceptance and approval of Rommel's application to join the marathon had
been conditioned on his waiver of all rights and causes of action arising
from his participation in the marathon; 12 that it exercised due diligence in
the conduct of the race that the circumstances called for and was
appropriate, it having availed of all its know-how and expertise, including
the adoption and implementation of all known and possible safety and
precautionary measures in order to protect the participants from injuries
arising from vehicular and other forms of accidents; 13 and, accordingly,
the complaint should be dismissed.
In their reply and answer to counterclaim, the petitioners averred
that contrary to its claims, Intergames did not provide adequate measures
for the safety and protection of the race participants, considering that
motor vehicles were traversing the race route and the participants were
made to run along the flow of traffic, instead of against it; that Intergames
did not provide adequate traffic marshals to secure the safety and
protection of the participants; 14 that Intergames could not limit its liability
on the basis of the accident insurance policies it had secured to cover the
race participants; that the waiver signed by Rommel could not be a basis
for denying liability because the same was null and void for being contrary
to law, morals, customs and public policy; 15 that their complaint
sufficiently stated a cause of action because in no way could they be held
liable for attorney's fees, litigation expenses or any other relief due to their
having abided by the law and having acted honestly, fairly, in good faith by
according to Intergames its due, as demanded by the facts and
circumstances. 16
At the pre-trial held on April 12, 1981, the parties agreed that the
principal issue was whether or not Cosmos and Intergames were liable for
the death of Rommel because of negligence in conducting the
marathon. 17
Judgment of the RTC
In its decision dated May 10, 1991, 18 the RTC ruled as follows:
WHEREFORE, judgment is hereby rendered in
favor of plaintiffs-spouses Romulo Abrogar and Erlinda
Abrogar and against defendants Cosmos Bottling
Company, Inc. and Intergames, Inc., ordering both
defendants, jointly and severally, to pay and deliver to the
plaintiffs the amounts of Twenty Eight Thousand Sixty
One Pesos and Sixty Three Centavos (P28,061.63) as
actual damages; One Hundred Thousand Pesos
(P100,000.00) as moral damages; Fifty Thousand Pesos
(P50,000.00) as exemplary damages and Ten Percent
(10%) of the total amount of One Hundred Seventy Eight
Thousand Sixty One Pesos and Sixty Three Centavos
(P178,061.63) or Seventeen Thousand Eight Hundred Six
Pesos and Sixteen Centavos (P17,806.16) as attorney's
fees.
On the cross-claim of defendant Cosmos Bottling
Company, Inc., defendant Intergames, Inc., is hereby
ordered to reimburse to the former any and all amounts
which may be recovered by the plaintiffs from it by virtue
of this Decision. DETACa
SO ORDERED.
The RTC observed that the safeguards allegedly instituted by
Intergames in conducting the marathon had fallen short of the yardstick to
satisfy the requirements of due diligence as called for by and appropriate
under the circumstances; that the accident had happened because of
inadequate preparation and Intergames' failure to exercise due
diligence; 19 that the respondents could not be excused from liability by
hiding behind the waiver executed by Rommel and the permission given to
him by his parents because the waiver could only be effective for risks
inherent in the marathon, such as stumbling, heat stroke, heart attack
during the race, severe exhaustion and similar occurrences; 20 that the
liability of the respondents towards the participants and third persons was
solidary, because Cosmos, the sponsor of the event, had been the
principal mover of the event, and, as such, had derived benefits from the
marathon that in turn had carried responsibilities towards the participants
CA ruled as follows:
and the public; that the respondents' agreement to free Cosmos from any
liability had been an agreement binding only between them, and did not
bind third persons; and that Cosmos had a cause of action against
Intergames for whatever could be recovered by the petitioners from
Cosmos. 21
Decision of the CA
All the parties appealed to the CA.
The petitioners contended that the RTC erred in not awarding
damages for loss of earning capacity on the part of Rommel for the reason
that such damages were not recoverable due to Rommel not yet having
finished his schooling; and that it would be premature to award such
damages upon the assumption that he would finish college and be
gainfully employed. 22
On their part, Cosmos and Intergames separately raised
essentially similar errors on the part of the RTC, to wit: (1) in holding them
liable for the death of Rommel; (2) in finding them negligent in conducting
the marathon; (3) in holding that Rommel and his parents did not assume
the risks of the marathon; (4) in not holding that the sole and proximate
cause of the death of Rommel was the negligence of the jeepney driver;
and (5) in making them liable, jointly and solidarily, for damages, attorney's
fees and expenses of litigation. 23
The CA reduced the issues to four, namely:
1. Whether or not appellant Intergames was
negligent in its conduct of the "1st Pop Cola Junior
Marathon" held on June 15, 1980 and if so, whether its
negligence was the proximate cause of the death of
Rommel Abrogar.
2. Whether or not appellant Cosmos can be held
jointly and solidarily liable with appellant Intergames for
the death of Rommel Abrogar, assuming that appellant
Intergames is found to have been negligent in the conduct
of the Pop Cola marathon and such negligence was the
proximate cause of the death of Rommel Abrogar.
3. Whether or not the appellants Abrogar are
entitled to be compensated for the "loss of earning
capacity" of their son Rommel.
4. Whether or not the appellants Abrogar are
entitled to the actual, moral, and exemplary damages
granted to them by the Trial Court. 24
In its assailed judgment promulgated on March 10, 2004, 25 the
As to the first issue, this Court finds that appellant
Intergames was not negligent in organizing the said
marathon.
Negligence is the omission to do something which
a reasonable man, guided upon those considerations
which ordinarily regulate the conduct to human affairs,
would do, or doing something which a prudent and
reasonable man would not do.
The whole theory of negligence presuppose some
uniform standard of behavior which must be an external
and objective one, rather than the individual judgment
good or bad, of the particular actor; it must be, as far as
possible, the same for all persons; and at the same time
make proper allowance for the risk apparent to the actor
for his capacity to meet it, and for the circumstances under
which he must act.
The question as to what would constitute the
conduct of a prudent man in a given situation must of
course be always determined in the light of human
experience and of the acts involved in the particular case.
In the case at bar, the trial court erred in finding
that the appellant Intergames failed to satisfy the
requirements of due diligence in the conduct of the race.
The trial court in its decision said that the accident
in question could have been avoided if the route of the
marathon was blocked off from the regular traffic, instead
of allowing the runners to run together with the flow of
traffic. Thus, the said court considered the appellant
Intergames at fault for proceeding with the marathon
despite the fact that the Northern Police District, MPF,
Quezon City did not allow the road to be blocked off from
traffic.
This Court finds that the standard of conduct used
by the trial court is not the ordinary conduct of a prudent
man in such a given situation. According to the said court,
the only way to conduct a safe road race is to block off the
traffic for the duration of the event and direct the cars and
public utilities to take alternative routes in the meantime
that the marathon event is being held. Such standard is
too high and is even inapplicable in the case at bar
because, there is no alternative route from IBP to Don
Mariano Marcos to Quezon City Hall. aDSIHc
The Civil Code provides that if the law or contract
does not state the diligence which is to be observed in the
performance of an obligation that which is expected of a
good father of the family shall only be required.
Accordingly, appellant Intergames is only bound to
exercise the degree of care that would be exercised by an
ordinarily careful and prudent man in the same position
and circumstances and not that of the cautious man of
more than average prudence. Hence, appellant
Intergames is only expected to observe ordinary diligence
and not extraordinary diligence.
In this case, the marathon was allowed by the
Northern Police District, MPF, Quezon City on the
condition that the road should not be blocked off from
traffic. Appellant Intergames had no choice. It had to
comply with it or else the said marathon would not be
allowed at all.
The trial court erred in contending that appellant
Intergames should have looked for alternative places in
Metro Manila given the condition set by the Northern
Police District, MPF, Quezon City; precisely because as
Mr. Jose Castro has testified the said route was found to
be the best route after a careful study and consideration of
all the factors involved. Having conducted several
marathon events in said route, appellant Intergames as
well as the volunteer groups and the other agencies
involved were in fact familiar with the said route. And
assuming that there was an alternative place suitable for
the said race, the question is would they be allowed to
block off the said road from traffic?
Also, the trial court erred in stating that there was
no adequate number of marshals, police officers and
personnel to man the race so as to prevent injury to the
participants.
The general rule is that the party who relies on
negligence for his cause of action has the burden of
proving the existence of the same, otherwise his action
fails.
Here, the appellants-spouses failed to prove that
there was inadequate number of marshals, police officers,
and personnel because they failed to prove what number
is considered adequate.
This court considers that seven (7) traffic
operatives, five (5) motorcycle policemen, fifteen (15)
patrolmen deployed along the route, fifteen (15)
boyscouts, twelve (12) CATs, twenty (20) barangay
tanods, three (3) ambulances and three (3) medical teams
were sufficient to stage a safe marathon.
Moreover, the failure of Mr. Jose R. Castro, Jr. to
produce records of the lists of those constituting the
volunteer help during the marathon is not fatal to the case
considering that one of the volunteers, Victor Landingin of
the Citizens Traffic Action (CTA) testified in court that CTA
fielded five units on June 15, 1980, assigned as follows:
(1) at the sphere head; (2) at the finish line; (3) tail ender;
(4) & (5) roving.
The trial court again erred in concluding that the
admission of P/Lt. Jesus Lipana, head of the traffic
policemen assigned at the marathon, that he showed up
only at the finish line means that he did not bother to
check on his men and did not give them appropriate
instructions. P/Lt. Lipana in his testimony explained that
he did not need to be in the start of the race because he
had predesignated another capable police officer to start
the race.
In addition, this Court finds that the precautionary
measures and preparations adopted by appellant
Intergames were sufficient considering the circumstances
surrounding the case.
Appellant Intergames, using its previous
experiences in conducting safe and successful road races,
took all the necessary precautions and made all the
preparations for the race. The initial preparations included:
determination of the route to be taken; and an ocular
inspection of the same to see if it was well-paved, whether
it had less corners for easy communication and
coordination, and whether it was wide enough to
accommodate runners and transportation. Appellant
Intergames choose the Don Mariano Marcos Avenue
primarily because it was well-paved; had wide lanes to
accommodate runners and vehicular traffic; had less
corners thus facilitating easy communication and
coordination among the organizers and cooperating
agencies; and was familiar to the race organizers and
operating agencies. The race covered a ten-kilometer
course from the IBP lane to the Quezon City Hall
Compound passing through the Don Mariano Marcos
Avenue, which constituted the main stretch of the route.
Appellant Intergames scheduled the marathon on a
Sunday morning, when traffic along the route was at its
lightest. Permission was sought from the then Quezon
City Mayor Adelina Rodriguez for the use of the Quezon
City Hall Grandstand and the street fronting it as the finish
line. Police assistance was also obtained to control and
supervise the traffic. The Quezon City Traffic Detachment
took charge of traffic control by assigning policemen to the
traffic route. The particular unit assigned during the race
underwent extensive training and had been involved in
past marathons, including marathons in highly crowded
areas. The Philippine Boy Scouts tasked to assist the
police and monitor the progress of the race; and Citizens
Traffic Action Group tasked with the monitoring of the
race, which assigned five units consisting of ten
operatives, to provide communication and assistance
were likewise obtained. Finally, medical equipment and
personnel were also requested from Camp Aguinaldo, the
Philippine Red Cross and the Hospital ng Bagong
Lipunan.
Neither does this Court find the appellant
Intergames' conduct of the marathon the proximate cause
of the death of Rommel Abrogar. Proximate cause has
been defined as that which, in natural and continuous
sequence, unbroken by any efficient intervening cause,
produces injury, and without which the result would not
have occurred.
It appears that Rommel Abrogar, while running on
Don Mariano Marcos Avenue and after passing the
Philippine Atomic Energy Commission Building, was
bumped by a jeepney which apparently was racing against
a minibus and the two vehicles were trying to crowd each
other. In fact, a criminal case was filed against the jeepney
driver by reason of his having killed Rommel
Abrogar. ETHIDa
This proves that the death of Rommel Abrogar
was caused by the negligence of the jeepney driver.
Rommel Abrogar cannot be faulted because he was
performing a legal act; the marathon was conducted with
the permission and approval of all the city officials
involved. He had the right to be there. Neither can the
appellant Intergames be faulted, as the organizer of the
said marathon, because it was not negligent in conducting
the marathon.
Given the facts of this case, We believe that no
amount of precaution can prevent such an accident. Even
if there were fences or barriers to separate the lanes for
the runners and for the vehicles, it would not prevent such
an accident in the event that a negligent driver loses
control of his vehicle. And even if the road was blocked off
from traffic, it would still not prevent such an accident, if a
jeepney driver on the other side of the road races with
another vehicle loses control of his wheel and as a result
hits a person on the other side of the road. Another way of
saying this is: A defendant's tort cannot be considered a
legal cause of plaintiff's damage if that damage would
have occurred just the same even though the defendant's
tort had not been committed.
This Court also finds the doctrine of assumption of
risk applicable in the case at bar. As explained by a well-
known authority on torts:
"The general principle underlying
the defense of assumption of risk is that a
plaintiff who voluntarily assumes a risk of
harm arising from the negligent or
reckless conduct of the defendant cannot
recover for such harm. The defense may
arise where a plaintiff, by contract or
otherwise, expressly agrees to accept a
risk or harm arising from the defendant's
conduct, or where a plaintiff who fully
understands a risk or harm caused by the
defendant's conduct, or by a condition
created by the defendant, voluntarily
chooses to enter or remain, or to permit
his property to enter or remain, within the
area of such risk, under circumstances
manifesting his willingness to accept the
risk.
xxx xxx xxx
"Assumption of the risk in its
primary sense arises by assuming
through contract, which may be implied,
the risk of a known danger. Its essence is
venturousness. It implies intentional
exposure to a known danger; It embraces
a mental state of willingness; It pertains to
the preliminary conduct of getting into a
dangerous employment or relationship, it
means voluntary incurring the risk of an
accident, which may or may not occur,
and which the person assuming the risk
 may be careful to avoid; and it defeats rights and causes of action arising from the participation in
recovery because it is a previous the marathon which the participant or his heirs may have
abandonment of the right to complain if an against appellant Intergames were required as conditions
accident occurs. in joining the marathon.
"Of course, if the defense is In the decision of the trial court, it stated that the
predicated upon an express agreement risk mentioned in the waiver signed by Rommel Abrogar
the agreement must be valid, and in the only involved risks such as stumbling, suffering
light of this qualification the rule has been heatstroke, heart attack and other similar risks. It did not
stated that a plaintiff who, by contract or consider vehicular accident as one of the risks included in
otherwise, expressly agreed to accept a the said waiver.
risk of harm arising from the defendant's
This Court does not agree. With respect to
negligent or reckless conduct, cannot
voluntary participation in a sport, the doctrine of
recover for such harm unless the
assumption of risk applies to any facet of the activity
agreement is invalid as contrary to public
inherent in it and to any open and obvious condition of the
policy.
place where it is carried on. We believe that the waiver
xxx xxx xxx included vehicular accidents for the simple reason that it
was a road race run on public roads used by vehicles.
"The defense of assumption of
Thus, it cannot be denied that vehicular accidents are
risk presupposes: (1) that the plaintiff had
involved. It was not a track race which is held on an oval
actual knowledge of the danger; (2) that
and insulated from vehicular traffic. In a road race, there is
he understood and appreciated the risk
always the risk of runners being hit by motor vehicles
from the danger; and (3) that he
while they train or compete. That risk is inherent in the
voluntarily exposed himself to such risk. x
sport and known to runners. It is a risk they assume every
xx
time they voluntarily engage in their sport. cSEDTC
"The term 'risk' as used in this
Furthermore, where a person voluntarily
connection applies to known dangers, and
participates in a lawful game or contest, he assumes the
not to things from which danger may
ordinary risks of such game or contest so as to preclude
possibly flow. The risk referred to is the
recovery from the promoter or operator of the game or
particular risk, or one of the risks, which
contest for injury or death resulting therefrom. Proprietors
the plaintiff accepted within the context of
of amusements or of places where sports and games are
the situation in which he placed himself
played are not insurers of safety of the public nor of their
and the question is whether the specific
patrons.
conduct or condition which caused the
injury was such a risk." In Mc Leod Store v. Vinson 213
Ky 667, 281 SW 799 (1926), it was held
In this case, appellant Romulo Abrogar himself
that a boy, seventeen years of age, of
admitted that his son, Rommel Abrogar, surveyed the
ordinary intelligence and physique, who
route of the marathon and even attended a briefing before
entered a race conducted by a
the race. Consequently, he was aware that the marathon
department store, the purpose of which
would pass through a national road and that the said road
was to secure guinea fowl which could be
would not be blocked off from traffic. And considering that
turned in for cash prizes, had assumed
he was already eighteen years of age, had voluntarily
the ordinary risks incident thereto and
participated in the marathon, with his parents' consent,
was barred from recovering against the
and was well aware of the traffic hazards along the route,
department store for injuries suffered
he thereby assumed all the risks of the race. This is
when, within catching distance, he
precisely why permission from the participant's parents,
stopped to catch a guinea, and was
submission of a medical certificate and a waiver of all
tripped or stumbled and fell to the
pavement, six or eight others falling upon appellant Cosmos and appellant
him. The court further said: "In this (the Intergames specifically states that:
race) he was a voluntary participant. xxx
1. COSMOS BOTTLING
The anticipated danger was as obvious to
CORPORATION shall pay
him as it was to appellant (the department
INTERGAMES the amount of
store). While not an adult, he was
FIFTY FIVE THOUSAND PESOS
practically 17 years of age, of ordinary
(P55,000.00) representing full
intelligence, and perfectly able to
sponsorship fee and in
determine the risks ordinarily incident to
consideration thereof,
such games. An ordinary boy of that age
INTERGAMES shall organize and
is practically as well advised as to the
stage a marathon race to be
hazards of baseball, basketball, football,
called '1st POP COLA JUNIOR
foot races and other games of skill and
MARATHON.'
endurance as is an adult x x x."
xxx xxx xxx
In the case at bar, the "1st Pop
Cola Junior Marathon" held on June 15, 3. INTERGAMES shall
1980 was a race the winner of which was draw up all the rules of the
to represent the country in the annual marathon race, eligibility
Spirit of Pheidippides Marathon Classic in requirements of participants as
Greece, if he equals or breaks the 29- well as provide all the staff
minute mark for the 10-km. race. Thus, required in the organization and
Rommel Abrogar having voluntarily actual staging of the race. It is
participated in the race, with his parents' understood that all said staff shall
consent, assumed all the risks of the race. be considered under the direct
employ of INTERGAMES which
Anent the second issue, this
shall have full control over them.
Court finds that appellant Cosmos must
also be absolved from any liability in the xxx xxx xxx
instant case.
5. INTERGAMES shall
This Court finds that the trial court secure all the necessary permits,
erred in holding appellant Cosmos liable clearances, traffic and police
for being the principal mover and resultant assistance in all the areas
beneficiary of the event. covered by the entire route of the
'1ST POP COLA JUNIOR
In its decision it said that in view
MARATHON.'
of the fact that appellant Cosmos will be
deriving certain benefits from the 12. INTERGAMES shall
marathon event, it has the responsibility hold COSMOS BOTTLING
to ensure the safety of all the participants CORPORATION, completely free
and the public. It further said that the and harmless from any claim or
stipulations in the contract entered into by action for liability for any injuries
the two appellants, Cosmos and or bodily harm which may be
Intergames, relieving the former from any sustained by any of the entries in
liability does not bind third persons. the '1st POP COLA JUNIOR
MARATHON,' or for any damages
This Court does not agree with
to the property or properties of
the reasoning of the trial court. The
third parties, which may likewise
sponsorship contract entered between
arise in the course of the race.
 From the foregoing, it is crystal clear that the role
of the appellant Cosmos was limited to providing financial
assistance in the form of sponsorship. Appellant Cosmos'
sponsorship was merely in pursuance to the company's
commitment for sports development of the youth as well
as for advertising purposes. The use of the name Cosmos
was done for advertising purposes only; it did not mean
that it was an organizer of the said marathon. As pointed
out by Intergames' President, Jose Castro Jr., appellant
Cosmos did not even have the right to suggest the
location and the number of runners. SDAaTC
To hold a defendant liable for torts, it must be
clearly shown that he is the proximate cause of the harm
done to the plaintiff. The nexus or connection of the cause
and effect, between a negligent act and the damage done,
must be established by competent evidence.
In this case, appellant Cosmos was not negligent
in entering into a contract with the appellant Intergames
considering that the record of the latter was clean and that
it has conducted at least thirty (30) road races.
Also there is no direct or immediate causal
connection between the financial sponsorship and the
death of Rommel Abrogar. The singular act of providing
financial assistance without participating in any manner in
the conduct of the marathon cannot be palmed off as such
proximate cause. In fact, the appellant spouses never
relied on any representation that Cosmos organized the
race. It was not even a factor considered by the
appellants-spouses in allowing their son to join said
marathon.
In view of the fact that both defendants are not
liable for the death of Rommel Abrogar, appellants-
spouses are not entitled to actual, moral, exemplary
damages as well as for the "loss of earning capacity" of
their son. The third and fourth issues are thus moot and
academic.
UPON THE VIEW WE TAKE OF THIS CASE,
THUS, the judgment appealed from must be, as it hereby
is, REVERSED and SET ASIDE, and another
entered DISMISSING the complaint a quo. The appellants
shall bear their respective costs.
SO ORDERED. 26
Issues
In this appeal, the petitioners submit that the CA gravely erred:
A.
x x x in reversing the RTC Decision, (and) in holding that
respondent Intergames was not negligent considering
that:
1. Respondent Intergames failed to exercise the diligence
of a good father of the family in the conduct of the
marathon in that it did not block off from traffic the
marathon route; and
2. Respondent Intergames' preparations for the race,
including the number of marshal during the marathon,
were glaringly inadequate to prevent the happening of the
injury to its participants.
B.
x x x in reversing the RTC Decision, (and) in holding that
the doctrine of assumption of risk finds application to the
case at bar even though getting hit or run over by a
vehicle is not an inherent risk in a marathon race. Even
assuming arguendo that deceased Abrogar made such
waiver as claimed, still there can be no valid waiver of
one's right to life and limb for being against public policy.
C.
x x x in reversing the RTC Decision, (and) in absolving
respondent Cosmos from liability to petitioners on the sole
ground that respondent Cosmos' contract with respondent
Intergames contained a stipulation exempting the former
from liability.
D.
x x x in reversing the RTC Decision and consequently
holding respondents free from liability, (and) in not
awarding petitioners with actual, moral and exemplary
damages for the death of their child, Rommel Abrogar. 27
Ruling of the Court
The appeal is partly meritorious.
I
Review of factual issues is allowed because of
the conflict between the findings of fact
by the RTC and the CA on the issue of negligence
The petitioners contend that Intergames was negligent; that
Cosmos as the sponsor and Intergames as the organizer of the marathon
both had the obligation to provide a reasonably safe place for the conduct
of the race by blocking the route of the race from vehicular traffic and by
providing adequate manpower and personnel to ensure the safety of the
participants; and that Intergames had foreseen the harm posed by the
situation but had not exercised the diligence of a good father of a family to
avoid the risk; 28 hence, for such omission, Intergames was negligent. 29
Refuting, Cosmos and Intergames submit that the latter as the
organizer was not negligent because it had undertaken all the
precautionary measures to ensure the safety of the race; and that there
was no duty on the part of the latter as the organizer to keep a racecourse
"free and clear from reasonably avoidable elements that would [occasion]
or have the probable tendency, to occasion injury." 30 acEHCD
The issue of whether one or both defendants were negligent is a
mixed issue of fact and law. Does this not restrict the Court against
reviewing the records in this appeal on certiorari in order to settle the
issue?
The Court can proceed to review the factual findings of the CA as
an exception to the general rule that it should not review issues of fact on
appeal on certiorari. We have recognized exceptions to the rule that the
findings of fact of the CA are conclusive and binding in the following
instances: (1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of facts are conflicting; (6) when in making its
findings the CA went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee; (7) when
the findings are contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioner's main
and reply briefs are not disputed by the respondent; (10) when the findings
of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the CA manifestly
overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion. 31 Considering
that the CA arrived at factual findings contrary to those of the trial court,
our review of the records in this appeal should have to be made.
Negligence is the failure to observe for the protection of the
interests of another person that degree of care, precaution, and vigilance
which the circumstances justly demand, whereby such other person
suffers injury. 32 Under Article 1173 of the Civil Code, it consists of the
"omission of that diligence which is required by the nature of the obligation
and corresponds with the circumstances of the person, of the time and of
the place." 33 The Civil Code makes liability for negligence clear under
Article 2176, 34 and Article 20. 35
To determine the existence of negligence, the following time-
honored test has been set in Picart v. Smith: 36
The test by which to determine the existence of
negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged
negligent act use that reasonable care and caution
which an ordinarily prudent person would have used
in the same situation? If not, then he is guilty of
negligence. The law here in effect adopts the standard
supposed to be supplied by the imaginary conduct of the
discreet paterfamilias of the Roman law. The existence of
negligence in a given case is not determined by reference
to the personal judgment of the actor in the situation
before him. The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that.
The question as to what would constitute the
conduct of a prudent man in a given situation must of
course be always determined in the light of human
experience and in view of the facts involved in the
particular case. Abstract speculation cannot here be of
much value but this much can be profitably said:
Reasonable men govern their conduct by the
circumstances which are before them or known to them.
They are not, and are not supposed to be, omniscient of
the future. Hence they can be expected to take care only
when there is something before them to suggest or warn
of danger. Could a prudent man, in the case under
consideration, foresee harm as a result of the course
actually pursued? If so, it was the duty of the actor to
take precautions to guard against that harm.
Reasonable foresight of harm, followed by the
ignoring of the suggestion born of this prevision, is
always necessary before negligence can be held to
exist. Stated in these terms, the proper criterion for
determining the existence of negligence in a given
case is this: Conduct is said to be negligent when a
prudent man in the position of the tortfeasor would
have foreseen that an effect harmful to another was
sufficiently probable to warrant his foregoing the
conduct or guarding against its
consequences. 37 (bold underscoring supplied for
emphasis)
A careful review of the evidence presented, particularly the
testimonies of the relevant witnesses, in accordance with the foregoing
guidelines reasonably leads to the conclusion that the safety and
precautionary measures undertaken by Intergames were short of the
diligence demanded by the circumstances of persons, time and place
under consideration. Hence, Intergames as the organizer was guilty of
negligence.
The race organized by Intergames was a junior marathon
participated in by young persons aged 14 to 18 years. It was plotted to
cover a distance of 10 kilometers, starting from the IBP Lane, 38 then
going towards the Batasang Pambansa, and on to the circular route
towards the Don Mariano Marcos Highway, 39 and then all the way back
to the Quezon City Hall compound where the finish line had been
set. 40 In staging the event, Intergames had no employees of its own to
man the race, 41 and relied only on the "cooperating agencies" and
volunteers who had worked with it in previous races. 42 The cooperating
agencies included the Quezon City police, barangay tanods, volunteers
from the Boy Scouts of the Philippines, the Philippine National Red Cross,
the Citizens Traffic Action Group, and the medical teams of doctors and
nurses coming from the Office of the Surgeon General and the Ospital ng
Bagong Lipunan. 43 According to Jose R. Castro, Jr., the President of
Intergames, the preparations for the event included conducting an ocular
inspection of the route of the race, 44 sending out letters to the various
cooperating agencies, 45 securing permits from proper
authorities, 46 putting up directional signs, 47 and setting up the water
stations. 48
We consider the "safeguards" employed and adopted by
Intergames not adequate to meet the requirement of due
diligence. SDHTEC
For one, the police authorities specifically prohibited Intergames
from blocking Don Mariano Marcos Highway in order not to impair road
accessibility to the residential villages located beyond the IBP
Lane. 49 However, contrary to the findings of the CA, 50 Intergames had a
choice on where to stage the marathon, considering its admission of the
sole responsibility for the conduct of the event, including the choice of
location.
Moreover, the CA had no basis for holding that "the said route was
found to be the best route after a careful study and consideration of all the
factors involved." 51 Castro, Jr. himself attested that the route had been
the best one only within the vicinity of the Batasan Pambansa, to wit:
COURT
q Was there any specific reason from . . . Was there any
specific reason why you used this route from
Batasan to City Hall? Was there any special
reason?
a We have, your Honor, conducted for example the Milo
Marathon in that area in the Batasan Pambansa
and we found it to be relatively safer than any
other areas within the vicinity. As a matter of fact,
we had more runners in the Milo Marathon at that
time and nothing happened, your Honor. 52
The chosen route (IBP Lane, on to Don Mariano Marcos Highway,
and then to Quezon City Hall) was not the only route appropriate for the
marathon. In fact, Intergames came under no obligation to use such route
especially considering that the participants, who were young and
inexperienced runners, would be running alongside moving vehicles.
Intergames further conceded that the marathon could have been
staged on a blocked-off route like Roxas Boulevard in Manila where
runners could run against the flow of vehicular traffic. 53 Castro, Jr. stated
in that regard:
COURT TO WITNESS
q What law are you talking about when you say I cannot
violate the law?
a The police authority, your Honor, would not grant us
permit because that is one of the conditions that if
we are to conduct a race we should run the race in
accordance with the flow of traffic.
q Did you not inform the police this is in accordance with the
standard safety measures for a marathon race?
a I believed we argued along that line but but (sic) again, if
we insist the police again would not grant us any
permit like . . . except in the case of Roxas
Boulevard when it is normally closed from 8 a.m.
when you can run against the flow of traffic.
q You were aware for a runner to run on the same route of
the traffic would be risky because he would not
know what is coming behind him?
a I believed we talked of the risk, your Honor when the risk
has been minimized to a certain level. Yes, there is
greater risk when you run with the traffic than when
you run against the traffic to a certain level, it is
correct but most of the races in Manila or else-
where are being run in accordance with the flow of
the traffic.
xxx xxx xxx
ATTY. VINLUAN
q Following the observation of the Court, considering the
local condition, you will agree with me the risks here
 are greater than in the United States where drivers
on the whole follow traffic rules?
a That is correct.
q And because of that fact, it is with all the more reason that
you should take all necessary precautions to insure
the safety of the runners?
a That is correct. 54
xxx xxx xxx
COURT:
xxx xxx xxx
Q In your case in all the marathons that you had managed,
how many cases have you encountered where the
routes are blocked off for vehicular traffic?
A These are the International Marathon, Philippines Third
World Marathon and the Milo Marathon. We are
blocking them to a certain length of time.
Q What was the purpose of blocking the routes? Is it for the
safety of the runners or just a matter of
convenience?
A In blocking off the route, Your Honor, it is light easier for
the runners to run without impediments to be
rendered by the people or by vehicles and at the
same time it would be also advantageous if the road
will be blocked off for vehicle traffic permitted to us
by the traffic authorities.
Q So, in this case, you actually requested for the traffic
authorities to block off the route?
A As far as I remember we asked Sgt. Pascual to block off
the route but considering that it is the main artery to
Fairview Village, it would not be possible to block off
the route since it will cause a lot of inconvenience
for the other people in those areas and jeepney
drivers.
Q In other words, if you have your way you would have
opted to block off the route. AScHCD
A Yes, Your Honor.
Q But the fact is that the people did not agree.
A Yes, Your Honor, and it is stated in the permit given to
us. 55
Based on the foregoing testimony of Castro, Jr., Intergames had
full awareness of the higher risks involved in staging the race alongside
running vehicles, and had the option to hold the race in a route where such
risks could be minimized, if not eliminated. But it did not heed the danger
already foreseen, if not expected, and went ahead with staging the race
along the plotted route on Don Mariano Marcos Highway on the basis of its
supposedly familiarity with the route. Such familiarity of the organizer with
the route and the fact that previous races had been conducted therein
without any untoward incident 56 were not in themselves sufficient
safeguards. The standards for avoidance of injury through negligence
further required Intergames to establish that it did take adequate measures
to avert the foreseen danger, but it failed to do so.
Another failing on the part of Intergames was the patent
inadequacy of the personnel to man the route. As borne by the records,
Intergames had no personnel of its own for that purpose, and relied
exclusively on the assistance of volunteers, that is, "seven (7) traffic
operatives, five (5) motorcycle policemen, fifteen (15) patrolmen deployed
along the route, fifteen (15) boy scouts, twelve (12) CATs, twenty (20)
barangay tanods, three (3) ambulances and three (3) medical teams" 57 to
ensure the safety of the young runners who would be running alongside
moving vehicular traffic, to make the event safe and well coordinated.
Although the party relying on negligence as his cause of action
had the burden of proving the existence of the same, Intergames'
coordination and supervision of the personnel sourced from the
cooperating agencies did not satisfy the diligence required by the relevant
circumstances. In this regard, it can be pointed out that the number of
deployed personnel, albeit sufficient to stage the marathon, did not per
se ensure the safe conduct of the race without proof that such deployed
volunteers had been properly coordinated and instructed on their tasks.
That the proper coordination and instruction were crucial elements
for the safe conduct of the race was well known to Intergames. Castro, Jr.
stated as much, to wit:
ATTY. LOMBOS:
xxx xxx xxx
Q You also said that if you block off one side of the road, it
is possible that it would be more convenient to hold
the race in that matter. Will you tell the Honorable
Court if it is possible also to hold a race safely if the
road is not blocked off?
A Yes, sir.
Q How is it done?
A You can still run a race safely even if it is partially
blocked off as long as you have the necessary
 cooperation with the police authorities, and the
police assigned along the route of the race and
the police assigned would be there, this will
contribute the safety of the participants, and
also the vehicular division, as long as there are
substantial publicities in the newspapers, normally
they will take the precautions in the use of the
particular route of the race.
Q Let me clarify this. Did you say that it is possible to hold a
marathon safely if you have this traffic assistance or
coordination even if the route is blocked or not
blocked?
A It is preferable to have the route blocked but in some
cases, it would be impossible for the portions of the
road to be blocked totally. The route of the race
could still be safe for runners if a proper
coordination or the agencies are notified
especially police detailees to man the particular
stage. 58
Sadly, Intergames' own evidence did not establish the conduct of
proper coordination and instruction. Castro, Jr. described the action plan
adopted by Intergames in the preparation for the race, as follows:
COURT
a Did you have any rehearsal let us say the race was
conducted on June 15, now before June 15 you call
a meeting of all these runners so you can have
more or less a map-up and you would indicate or
who will be stationed in their places etc. Did you
have such a rehearsal?
WITNESS
a It is not being done, your honor, but you have to specify
them. You meet with the group and you tell them
that you wanted them to be placed in their particular
areas which we pointed out to them for example in
the case of the Barangay Tanod, I specifically
assigned them in the areas and we sat down and
we met.
COURT
q Did you have any action, plan or brochure which would
indicate the assignment of each of the participating
group?
WITNESS
a Normally, sir, many of the races don't have that except
when they called them to meeting either as a whole
group or the entire cooperating agency or meet
them per group.
COURT
q Did you have a check list of the activities that would have
to be entered before the actual marathon some kind
of system where you will indicate this particular
activity has to be checked etc. You did not have
that? AcICHD
WITNESS
q Are you asking, your honor, as a race director of I will
check this because if I do that, I won't have a race
because that is not being done by any race director
anywhere in the world?
COURT
I am interested in your planning activities.
q In other words, what planning activities did you perform
before the actual marathon?
a The planning activities we had, your honor, was to
coordinate with the different agencies involved
informing them where they would be more or less
placed.
COURT
q Let us go to . . . Who was supposed to be coordinating
with you as to the citizens action group who was
your . . . you were referring to a person who was
supposed to be manning these people and who was
the person whom you coordinate with the Traffic
Action Group?
WITNESS
a I can only remember his name . . . his family name is
Esguerra.
q How about with the Tanods?
a With the Tanods his name is Pedring Serrano.
q And with the Boys Scouts? (sic)
a And with the Boys Scouts of the Phils. (sic) it is Mr. Greg
Panelo.
COURT
q When did you last meet rather how many times did you a Yes, your honor.
meet with Esguerra before the marathon on June
q So you did not have let us say a . . . you don't have
15?
records of your meetings with these people?
WITNESS
WITNESS
a The Citizens Traffic Action Group, your honor, had been
a With the Citizens Traffic Action, your honor?
with me in previous races.
COURT
COURT
a Yes.
q I am asking you a specific question. I am not interested in
the Citizen Traffic Action Group. The marathon was WITNESS
on June 15, did you meet with him on June 14, June
a I don't have, your honor.
13 or June 12?
COURT
a We met once, your honor, I cannot remember the date.
q Because you are familiar, I was just thinking this is an
q You don't recall how many days before?
activity which requires planning etc., what I was
a I cannot recall at the moment. thinking when you said this was never done in any
part of the world but all activities it has to be
q How about with Mr. Serrano, how many times did you
planned. There must be some planning, now are
meet with him before the race?
you saying that in this particular case you had no
a If my mind does not fail me, your honor, I met him twice written plan or check list of activities what activities
because he lives just within our area and we always have to be implemented on a certain point and time,
see each other. who are the persons whom you must meet in a
certain point and time. TAIaHE
q How about with Panelo, how many times did you meet
him? WITNESS
a With Mr. Panelo, I did not meet with them, your honor. a Normally, we did not have that, your honor, except the
check list of all the things that should be ready at a
q Was there an occasion where before the race you met
particular time prior to the race and the people to be
with these three people together since you did not
involved and we have a check list to see to it that
meet with Panelo anytime? Was there anytime
everything would be in order before the start of the
where you met with Serrano and Esguerra
race.
together?
COURT
WITNESS
Proceed.
a No, your honor.
ATTY. VINLUAN
COURT
q Following the question of the Court Mr. Castro, did you
q When you met once with Esguerra, where did you meet?
meet with Lt. Depano of the Police Department who
What place?
were supposed to supervise the police officers
a I cannot recall at the moment, your honor, since it was assigned to help during the race?
already been almost six years ago.
a I did not meet with him, sir.
q How about Serrano, where did you meet him?
q You did not meet with him?
a We met in my place.
a I did not meet with him.
q From your house? He went in your house?
 q In fact, ever before or during the race you had no occasion
to talk to Lt. Depano. Is that correct?
a That is correct, sir.
ATTY. VINLUAN
Based on the question of the Court and your answer to the
question of the Court, are you trying to say that this
planning before any race of all these groups who
have committed to help in the race, this is not done
in any part of the world?
WITNESS
a In the latter years when your race became bigger and
bigger, this is being done now slowly.
ATTY. VINLUAN
q But for this particular race you will admit that you failed to
do it when you have to coordinate and even have a
dry run of the race you failed to do all of that in this
particular race, yes or no?
a Because there was . . .
COURT
It was already answered by him when I asked him. The
Court has . . . Everybody has a copy how of this
time planner. Any activity or even meeting a
girlfriend or most people plan.
ATTY. F.M. LOMBOS
If your honor please, before we proceed . . .
WITNESS
In the latter years, your honor, when your race became
bigger and bigger, this is being done now slowly.
q For this particular race you will admit that you failed to do
it?
a Because there was no need, sir. 59
Probably sensing that he might have thereby contradicted himself,
Castro, Jr. clarified on re-direct examination:
ATTY. LOMBOS
Q Now, you also responded to a question during the same
hearing and this appears on page 26 of the
transcript that you did not hold any rehearsal or dry
run for this particular marathon. Could you tell the
Court why you did not hold any such rehearsal or
dry run?
A Because I believe there was no need for us to do that
since we have been doing this for many years and
we have been the same people, same organization
with us for so many years conducting several races
including some races in that area consisting of
longer distances and consisting of more runners, a
lot more runners in that areay (sic) so these people,
they know exactly what to do and there was no
need for us to have a rehearsal. I believe this
rehearsal would only be applicable if I am new and
these people are new then, we have to rehearse.
ATTY. LOMBOS
q You also stated Mr. Castro that you did not have any
action plan or brochure which you would indicate,
an assignment of each of the participating group as
to what to do during the race. Will you please
explain what you meant when you said you have no
action plan or brochure?
WITNESS
a What I mean of action plan, I did not have any written
action plan but I was fully aware of what to do. I
mean, those people did not just go there out of
nowhere. Obviously, there was an action on my part
because I have to communicate with them
previously and to tell them exactly what the race is
all about; where to start; where it would end, and
that is the reason why we have the ambulances, we
have the Boy Scouts, we have the CTA, we have
the police, so it was very obvious that there was a
plan of action but not written because I know pretty
well exactly what to do. I was dealing with people
who have been doing this for a long period of
time. 60
While the level of trust Intergames had on its volunteers was
admirable, the coordination among the cooperating agencies was
predicated on circumstances unilaterally assumed by Intergames. It was
obvious that Intergames' inaction had been impelled by its belief that it did
not need any action plan because it had been dealing with people who had
been manning similar races for a long period of time. cDHAES
The evidence presented undoubtedly established that Intergames'
notion of coordination only involved informing the cooperating agencies of
the date of the race, the starting and ending points of the route, and the
places along the route to man. Intergames did not conduct any general
assembly with all of them, being content with holding a few sporadic
meetings with the leaders of the coordinating agencies. It held no briefings
of any kind on the actual duties to be performed by each group of
volunteers prior to the race. It did not instruct the volunteers on how to
minimize, if not avert, the risks of danger in manning the race, despite
such being precisely why their assistance had been obtained in the first
place.
Intergames had no right to assume that the volunteers had already
been aware of what exactly they would be doing during the race. It had the
responsibility and duty to give to them the proper instructions despite their
experience from the past races it had organized considering that the
particular race related to runners of a different level of experience, and
involved different weather and environmental conditions, and traffic
situations. It should have remembered that the personnel manning the
race were not its own employees paid to perform their tasks, but
volunteers whose nature of work was remotely associated with the safe
conduct of road races. Verily, that the volunteers showed up and assumed
their proper places or that they were sufficient in number was not really
enough. It is worthy to stress that proper coordination in the context of the
event did not consist in the mere presence of the volunteers, but included
making sure that they had been properly instructed on their duties and
tasks in order to ensure the safety of the young runners.
It is relevant to note that the participants of the 1st Pop Cola Junior
Marathon were mostly minors aged 14 to 18 years joining a race of that
kind for the first time. The combined factors of their youth, eagerness and
inexperience ought to have put a reasonably prudent organizer on higher
guard as to their safety and security needs during the race, especially
considering Intergames' awareness of the risks already foreseen and of
other risks already known to it as of similar events in the past organizer.
There was no question at all that a higher degree of diligence was required
given that practically all of the participants were children or minors like
Rommel; and that the law imposes a duty of care towards children and
minors even if ordinarily there was no such duty under the same
circumstances had the persons involved been adults of sufficient
discretion. 61 In that respect, Intergames did not observe the degree of
care necessary as the organizer, rendering it liable for negligence. As the
Court has emphasized in Corliss v. The Manila Railroad
Company, 62 where the danger is great, a high degree of care is
necessary, and the failure to observe it is a want of ordinary care under the
circumstances. 63
The circumstances of the persons, time and place required far
more than what Intergames undertook in staging the race. Due diligence
would have made a reasonably prudent organizer of the race participated
in by young, inexperienced or beginner runners to conduct the race in a
route suitably blocked off from vehicular traffic for the safety and security
not only of the participants but the motoring public as well. Since the
marathon would be run alongside moving vehicular traffic, at the very
least, Intergames ought to have seen to the constant and closer
coordination among the personnel manning the route to prevent the
foreseen risks from befalling the participants. But this it sadly failed to do.
II
The negligence of Intergames as the organizer
was the proximate cause of the death of Rommel
As earlier mentioned, the CA found that Rommel, while running
the marathon on Don Mariano Marcos Avenue and after passing the
Philippine Atomic Energy Commission Building, was bumped by a
passenger jeepney that was racing with a minibus and two other vehicles
as if trying to crowd each other out. As such, the death of Rommel was
caused by the negligence of the jeepney driver.
Intergames staunchly insists that it was not liable, maintaining that
even assuming arguendo that it was negligent, the negligence of the
jeepney driver was the proximate cause of the death of Rommel; hence, it
should not be held liable.
Did the negligence of Intergames give rise to its liability for the
death of Rommel notwithstanding the negligence of the jeepney driver?
In order for liability from negligence to arise, there must be not
only proof of damage and negligence, but also proof that the damage was
the consequence of the negligence. The Court has said in Vda. de
Gregorio v. Go Chong Bing: 64
x x x Negligence as a source of obligation both
under the civil law and in American cases was carefully
considered and it was held:
We agree with counsel for
appellant that under the Civil Code, as
under the generally accepted doctrine in
the United States, the plaintiff in an action
such as that under consideration, in order
to establish his right to a recovery, must
establish by competent evidence:
(1) Damages to the plaintiff.
(2) Negligence by act or omission
of which defendant personally or some
person for whose acts it must respond,
was guilty.
(3) The connection of cause
and effect between the negligence and
 the damage. (Taylor vs. Manila Electric
Railroad and Light Co., supra, p. 15.)
In accordance with the decision of
the Supreme Court of Spain, in order that
a person may be held guilty for damage
through negligence, it is necessary that
there be an act or omission on the part of
the person who is to be charged with the
liability and that damage is produced by
the said act or omission. 65 (Emphasis
supplied) ASEcHI
We hold that the negligence of Intergames was the proximate
cause despite the intervening negligence of the jeepney driver.
Proximate cause is "that which, in natural and continuous
sequence, unbroken by any new cause, produces an event, and without
which the event would not have occurred." 66 In Vda. de Bataclan, et al. v.
Medina, 67 the Court, borrowing from American Jurisprudence, has more
extensively defined proximate cause thusly:
"* * * 'that cause, which, in natural and continuous
sequence, unbroken by any efficient intervening cause,
produces the injury and without which the result would not
have occurred.' And more comprehensively, 'the
proximate legal cause is that acting first and producing the
injury, either immediately or by setting other events in
motion, all constituting a natural and continuous chain of
events, each having a close causal connection with its
immediate predecessor, the final event in the chain
immediately effecting the injury as a natural and probable
result of the cause which first acted, under such
circumstances that the person responsible for the first
event should, as an ordinarily prudent and intelligent
person, have reasonable ground to expect at the moment
of his act or default that an injury to some person might
probably result therefrom." 68
To be considered the proximate cause of the injury, the negligence
need not be the event closest in time to the injury; a cause is still
proximate, although farther in time in relation to the injury, if the happening
of it set other foreseeable events into motion resulting ultimately in the
damage. 69 According to an authority on civil law: 70 "A prior and remote
cause cannot be made the basis of an action, if such remote cause did
nothing more than furnish the condition or give rise to the occasion by
which the injury was made possible, if there intervened between such prior
or remote cause and the injury a distinct, successive, unrelated and
efficient cause, even though such injury would not have happened but for
such condition or occasion. If no damage exists in the condition except
because of the independent cause, such condition was not the proximate
cause. And if an independent negligent act or defective condition sets into
operation the circumstances which result in injury because of the prior
defective condition, such act or condition is the proximate cause."
Bouvier adds:
In many cases important questions arise as to
which, in the chain of acts tending to the production of a
given state of things, is to be considered the responsible
cause. It is not merely distance of place or of causation
that renders a cause remote. The cause nearest in the
order of causation, without any efficient concurring cause
to produce the result, may be considered the direct
cause. In the course of decisions of cases in which it
is necessary to determine which of several causes is
so far responsible for the happening of the act or
injury complained of, what is known as the doctrine of
proximate cause is constantly resorted to in order to
ascertain whether the act, omission, or negligence of
the person whom it is sought to hold liable was in law
and in fact responsible for the result which is the
foundation of the action. 71
xxx xxx xxx
The question of proximate cause is said to be
determined, not by the existence or non-existence of
intervening events, but by their character and the
natural connection between the original act or
omission and the injurious consequences. When the
intervening cause is set in operation by the original
negligence, such negligence is still the proximate
cause; x x x If the party guilty of the first act of
negligence might have anticipated the intervening
cause, the connection is not broken; x x x. Any
number of causes and effects may intervene, and if
they are such as might with reasonable diligence have
been foreseen, the last result is to be considered as
the proximate result. But whenever a new cause
intervenes, which is not a consequence of the first
wrongful cause, which is not under control of the
wrongdoer, which could not have been foreseen by
the exercise of reasonable diligence, and except for
which the final injurious consequence could not have
happened, then such injurious consequence must be
deemed too remote; x x x. 72 (bold underscoring
supplied for emphasis)
 An examination of the records in accordance with the foregoing
concepts supports the conclusions that the negligence of Intergames was
the proximate cause of the death of Rommel; and that the negligence of
the jeepney driver was not an efficient intervening cause.
First of all, Intergames' negligence in not conducting the race in a
road blocked off from vehicular traffic, and in not properly coordinating the
volunteer personnel manning the marathon route effectively set the stage
for the injury complained of. The submission that Intergames had
previously conducted numerous safe races did not persuasively
demonstrate that it had exercised due diligence because, as the trial court
pointedly observed, "[t]hey were only lucky that no accident occurred
during the previous marathon races but still the danger was there." 73
Secondly, injury to the participants arising from an unfortunate
vehicular accident on the route was an event known to and foreseeable by
Intergames, which could then have been avoided if only Intergames had
acted with due diligence by undertaking the race on a blocked-off road,
and if only Intergames had enforced and adopted more efficient
supervision of the race through its volunteers.
And, thirdly, the negligence of the jeepney driver, albeit an
intervening cause, was not efficient enough to break the chain of
connection between the negligence of Intergames and the injurious
consequence suffered by Rommel. An intervening cause, to be considered
efficient, must be "one not produced by a wrongful act or omission, but
independent of it, and adequate to bring the injurious results. Any cause
intervening between the first wrongful cause and the final injury which
might reasonably have been foreseen or anticipated by the original
wrongdoer is not such an efficient intervening cause as will relieve the
original wrong of its character as the proximate cause of the final
injury." 74 ITAaHc
In fine, it was the duty of Intergames to guard Rommel against the
foreseen risk, but it failed to do so.
III
The doctrine of assumption of risk
had no application to Rommel
Unlike the RTC, the CA ruled that the doctrine of assumption of
risk applied herein; hence, it declared Intergames and Cosmos not liable.
The CA rendered the following rationalization to buttress its ruling, to wit:
In this case, appellant Romulo Abrogar himself
admitted that his son, Rommel Abrogar, surveyed the
route of the marathon and even attended a briefing before
the race. Consequently, he was aware that the marathon
would pass through a national road and that the said road
would not be blocked off from traffic. And considering that
he was already eighteen years of age, had voluntarily
participated in the marathon, with his parents' consent,
and was well aware of the traffic hazards along the route,
he thereby assumed all the risks of the race. This is
precisely why permission from the participant's parents,
submission of a medical certificate and a waiver of all
rights and causes of action arising from the participation in
the marathon which the participant or his heirs may have
against appellant Intergames were required as conditions
in joining the marathon.
In the decision of the trial court, it stated that the
risk mentioned in the waiver signed by Rommel Abrogar
only involved risks such as stumbling, suffering
heatstroke, heart attack and other similar risks. It did not
consider vehicular accident as one of the risks included in
the said waiver.
This Court does not agree. With respect to
voluntary participation in a sport, the doctrine of
assumption of risk applies to any facet of the activity
inherent in it and to any open and obvious condition of the
place where it is carried on. We believe that the waiver
included vehicular accidents for the simple reason that it
was a road race run on public roads used by vehicles.
Thus, it cannot be denied that vehicular accidents are
involved. It was not a track race which is held on an oval
and insulated from vehicular traffic. In a road race, there is
always the risk of runners being hit by motor vehicles
while they train or compete. That risk is inherent in the
sport and known to runners. It is a risk they assume every
time they voluntarily engage in their sport.
Furthermore, where a person voluntarily
participates in a lawful game or contest, he assumes the
ordinary risks of such game or contest so as to preclude
recovery from the promoter or operator of the game or
contest for injury or death resulting therefrom. Proprietors
of amusements or of places where sports and games are
played are not insurers of safety of the public nor of their
patrons.
In Mc Leod Store v. Vinson 213 Ky 667, 281 SW
799 (1926), it was held that a boy, seventeen years of
age, of ordinary intelligence and physique, who entered a
race conducted by a department store, the purpose of
which was to secure guinea fowl which could be turned in
for cash prizes, had assumed the ordinary risks incident
thereto and was barred from recovering against the
department store for injuries suffered when, within
catching distance, he stopped to catch a guinea, and was
 tripped or stumbled and fell to the pavement, six or eight
others falling upon him. The court further said: "In this (the
race) he was a voluntary participant. x x x The anticipated
danger was as obvious to him as it was to appellant (the
department store). While not an adult, he was practically
17 years of age, of ordinary intelligence, and perfectly able
to determine the risks ordinarily incident to such games.
An ordinary boy of that age is practically as well advised
as to the hazards of baseball, basketball, football, foot
races and other games of skill and endurance as is an
adult x x x."
In the case at bar, the "1st Pop Cola Junior
Marathon" held on June 15, 1980 was a race the winner of
which was to represent the country in the annual Spirit of
Pheidippides Marathon Classic in Greece, if he equals or
breaks the 29-minute mark for the 19-km. race. Thus,
Rommel Abrogar having voluntarily participated in the
race, with his parents' consent, assumed all the risks of
the race. 75
The doctrine of assumption of risk means that one who voluntarily
exposes himself to an obvious, known and appreciated danger assumes
the risk of injury that may result therefrom. 76 It rests on the fact that the
person injured has consented to relieve the defendant of an obligation of
conduct toward him and to take his chance of injury from a known risk, and
whether the former has exercised proper caution or not is immaterial. 77 In
other words, it is based on voluntary consent, express or implied, to accept
danger of a known and appreciated risk; it may sometimes include
acceptance of risk arising from the defendant's negligence, but one does
not ordinarily assume risk of any negligence which he does not know and
appreciate. 78 As a defense in negligence cases, therefore, the doctrine
requires the concurrence of three elements, namely: (1) the plaintiff must
know that the risk is present; (2) he must further understand its nature; and
(3) his choice to incur it must be free and voluntary. 79 According to
Prosser: 80 "Knowledge of the risk is the watchword of assumption of risk."
Contrary to the notion of the CA, the concurrence of the three
elements was not shown to exist. Rommel could not have assumed the
risk of death when he participated in the race because death was neither a
known nor normal risk incident to running a race. Although he had
surveyed the route prior to the race and should be presumed to know that
he would be running the race alongside moving vehicular traffic, such
knowledge of the general danger was not enough, for some authorities
have required that the knowledge must be of the specific risk that caused
the harm to him. 81 In theory, the standard to be applied is a subjective
one, and should be geared to the particular plaintiff and his situation,
rather than that of the reasonable person of ordinary prudence who
appears in contributory negligence. 82 He could not have appreciated the
risk of being fatally struck by any moving vehicle while running the race.
Instead, he had every reason to believe that the organizer had taken
adequate measures to guard all participants against any danger from the
fact that he was participating in an organized marathon. Stated differently,
nobody in his right mind, including minors like him, would have joined the
marathon if he had known of or appreciated the risk of harm or even death
from vehicular accident while running in the organized running event.
Without question, a marathon route safe and free from foreseeable risks
was the reasonable expectation of every runner participating in an
organized running event. CHTAIc
Neither was the waiver by Rommel, then a minor, an effective form
of express or implied consent in the context of the doctrine of assumption
of risk. There is ample authority, cited in Prosser, 83 to the effect that a
person does not comprehend the risk involved in a known situation
because of his youth, 84 or lack of information or experience, 85 and thus
will not be taken to consent to assume the risk.
Clearly, the doctrine of assumption of risk does not apply to bar
recovery by the petitioners.
IV
Cosmos is not liable for the negligence
of Intergames as the organizer
Nonetheless, the CA did not err in absolving Cosmos from liability.
The sponsorship of the marathon by Cosmos was limited to
financing the race. Cosmos did nothing beyond that, and did not involve
itself at all in the preparations for the actual conduct of the race. This verity
was expressly confirmed by Intergames, through Castro, Jr., who declared
as follows:
COURT
q Do you discuss all your preparation with Cosmos Bottling
Company?
a As far as the Cosmos Bottling Company (sic) was a
sponsor as to the actual conduct of the race, it
is my responsibility. The conduct of the race is
my responsibility. The sponsor has nothing to
do as well as its code of the race because they
are not the ones running. I was the one running.
The responsibility of Cosmos was just to
provide the sponsor's money.
COURT
q They have no right to who (sic) suggest the location,
the number of runners, you decide these
yourself without consulting them?
 a Yes, your honor. 86
We uphold the finding by the CA that the role of Cosmos was to
pursue its corporate commitment to sports development of the youth as
well as to serve the need for advertising its business. In the absence of
evidence showing that Cosmos had a hand in the organization of the race,
and took part in the determination of the route for the race and the
adoption of the action plan, including the safety and security measures for
the benefit of the runners, we cannot but conclude that the requirement for
the direct or immediate causal connection between the financial
sponsorship of Cosmos and the death of Rommel simply did not exist.
Indeed, Cosmos' mere sponsorship of the race was, legally speaking, too
remote to be the efficient and proximate cause of the injurious
consequences.
V
Damages
Article 2202 of the Civil Code lists the damages that the plaintiffs
in a suit upon crimes and quasi-delicts can recover from the
defendant, viz.:
Art. 2202. In crimes and quasi-delicts, the
defendant shall be liable for all damages which are the
natural and probable consequences of the act or omission
complained of. It is not necessary that such damages
have been foreseen or could have reasonably been
foreseen by the defendant.
Accordingly, Intergames was liable for all damages that were the
natural and probable consequences of its negligence. In its judgment, the
RTC explained the award of damages in favor of the petitioners, as
follows:
As borne by the evidence on record, the plaintiffs
incurred medical, hospitalization and burial expenses for
their son in this aggregate amount of P28,061.65 (Exhibits
"D", "D-1" and "D-2"). In instituting this case, they have
paid their lawyer P5,000 as initial deposit, their
arrangement being that they would pay attorney's fees to
the extent of 10% of whatever amount would be awarded
to them in this case.
For the loss of a son, it is unquestionable that
plaintiffs suffered untold grief which should entitle them to
recover moral damages, and this Court believes that if
only to assuage somehow their untold grief but not
necessarily to compensate them to the fullest, the nominal
amount of P100,00.00 n should be paid by the
defendants.
For failure to adopt elementary and basic
precautionary measure to insure the safety of the
participants so that sponsors and organizers of sports
events should exercise utmost diligence in preventing
injury to the participants and the public as well, exemplary
damages should also be paid by the defendants and this
Court considers the amount of P50,000.00 as
reasonable. 87 EATCcI
Although we will not disturb the foregoing findings and
determinations, we need to add to the justification for the grant of
exemplary damages. Article 2231 of the Civil Code stipulates that
exemplary damages are to be awarded in cases of quasi-delict if the
defendant acted with gross negligence. The foregoing characterization by
the RTC indicated that Intergames' negligence was gross. We agree with
the characterization. Gross negligence, according to Mendoza v. Spouses
Gomez, 88 is the absence of care or diligence as to amount to a reckless
disregard of the safety of persons or property; it evinces a thoughtless
disregard of consequences without exerting any effort to avoid them.
Indeed, the failure of Intergames to adopt the basic precautionary
measures for the safety of the minor participants like Rommel was in
reckless disregard of their safety. Conduct is reckless when it is an
extreme departure from ordinary care, in a situation in which a high degree
of danger is apparent; it must be more than any mere mistake resulting
from inexperience, excitement, or confusion, and more than mere
thoughtlessness or inadvertence, or simple inattention. 89
The RTC did not recognize the right of the petitioners to recover
the loss of earning capacity of Rommel. It should have, for doing so would
have conformed to jurisprudence whereby the Court has unhesitatingly
allowed such recovery in respect of children, students and other non-
working or still unemployed victims. The legal basis for doing so is Article
2206 (1) of the Civil Code, which stipulates that the defendant "shall be
liable for the loss of the earning capacity of the deceased, and the
indemnity shall be paid to the heirs of the latter; such indemnity shall in
every case be assessed and awarded by the court, unless the deceased
on account of permanent physical disability not caused by the defendant,
had no earning capacity at the time of his death."
Indeed, damages for loss of earning capacity may be awarded to
the heirs of a deceased non-working victim simply because earning
capacity, not necessarily actual earning, may be lost.
In Metro Manila Transit Corporation v. Court of
Appeals, 90 damages for loss of earning capacity were granted to the
heirs of a third-year high school student of the University of the Philippines
Integrated School who had been killed when she was hit and run over by
the petitioner's passenger bus as she crossed Katipunan Avenue in
Quezon City. The Court justified the grant in this wise:
 Compensation of this nature is awarded not
for loss of earnings but for loss of capacity to earn
money. Evidence must be presented that the victim, if
not yet employed at the time of death, was reasonably
certain to complete training for a specific
profession. In People v. Teehankee, no award of
compensation for loss of earning capacity was granted to
the heirs of a college freshman because there was no
sufficient evidence on record to show that the victim would
eventually become a professional pilot. But
compensation should be allowed for loss of earning
capacity resulting from the death of a minor who has
not yet commenced employment or training for a
specific profession if sufficient evidence is presented
to establish the amount thereof. 91 (bold underscoring
supplied for emphasis)
In People v. Sanchez, 92 damages for loss of earning capacity
was also allowed to the heirs of the victims of rape with homicide despite
the lack of sufficient evidence to establish what they would have earned
had they not been killed. The Court rationalized its judgment with the
following observations:
Both Sarmenta and Gomez were senior
agriculture students at UPLB, the country's leading
educational institution in agriculture. As reasonably
assumed by the trial court, both victims would have
graduated in due course. Undeniably, their untimely
death deprived them of their future time and earning
capacity. For these deprivation, their heirs are entitled
to compensation. xxxx. However, considering that
Sarmenta and Gomez would have graduated in due
time from a reputable university, it would not be
unreasonable to assume that in 1993 they would have
earned more than the minimum wage. All factors
considered, the Court believes that it is fair and
reasonable to fix the monthly income that the two
would have earned in 1993 at P8,000.00 n93 (bold
underscoring supplied for emphasis)
In Pereña v. Zarate, 94 the Court fixed damages for loss of
earning capacity to be paid to the heirs of the 15-year-old high school
student of Don Bosco Technical Institute killed when a moving train hit the
school van ferrying him to school while it was traversing the railroad tracks.
The RTC and the CA had awarded damages for loss of earning capacity
computed on the basis of the minimum wage in effect at the time of his
death. Upholding said findings, the Court opined:
x x x, the fact that Aaron was then without a
history of earnings should not be taken against his parents
and in favor of the defendants whose negligence not only
cost Aaron his life and his right to work and earn money,
but also deprived his parents of their right to his presence
and his services as well. x x x. Accordingly, we
emphatically hold in favor of the indemnification for
Aaron's loss of earning capacity despite him having
been unemployed, because compensation of this
nature is awarded not for loss of time or earnings but
for loss of the deceased's power or ability to earn
money.
The petitioners sufficiently showed that Rommel was, at the time
of his untimely but much lamented death, able-bodied, in good physical
and mental state, and a student in good standing. 95 It should be
reasonable to assume that Rommel would have finished his schooling and
would turn out to be a useful and productive person had he not died.
Under the foregoing jurisprudence, the petitioners should be compensated
for losing Rommel's power or ability to earn. The basis for the computation
of earning capacity is not what he would have become or what he would
have wanted to be if not for his untimely death, but the minimum wage in
effect at the time of his death. The formula for this purpose is: DHITCc
Net Earning Capacity = Life Expectancy x [Gross Annual Income
less Necessary Living Expenses] 96
Life expectancy is equivalent to 2/3 multiplied by the difference of
80 and the age of the deceased. Since Rommel was 18 years of age at the
time of his death, his life expectancy was 41 years. His projected gross
annual income, computed based on the minimum wage for workers in the
non-agricultural sector in effect at the time of his death, 97 then fixed at
P14.00/day, is P5,535.83. Allowing for necessary living expenses of 50%
of his projected gross annual income, his total net earning capacity is
P113,484.52.
Article 2211 of the Civil Code expressly provides that interest, as a
part of damages, may be awarded in crimes and quasi-delicts at the
discretion of the court. The rate of interest provided under Article 2209 of
the Civil Code is 6% per annum in the absence of stipulation to the
contrary. The legal interest rate of 6% per annum is to be imposed upon
the total amounts herein awarded from the time of the judgment of the
RTC on May 10, 1991 until finality of judgment. 98 Moreover, pursuant to
Article 2212 99 of the Civil Code, the legal interest rate of 6% per annum is
to be further imposed on the interest earned up to the time this judgment of
the Court becomes final and executory until its full satisfaction. 100
Article 2208 of the Civil Code expressly allows the recovery of
attorney's fees and expenses of litigation when exemplary damages have
been awarded. Thus, we uphold the RTC's allocation of attorney's fees in
favor of the petitioners equivalent to 10% of the total amount to be
recovered, inclusive of the damages for loss of earning capacity and
interests, which we consider to be reasonable under the circumstances.
WHEREFORE, the Court PARTLY AFFIRMS the decision
promulgated on March 10, 2004 to the extent that it absolved COSMOS
BOTTLING COMPANY, INC. from liability; REVERSES and SETS
ASIDE the decision as to INTERGAMES, INC., and REINSTATES as to it
the judgment rendered on May 10, 1991 by the Regional Trial Court,
Branch 83, in Quezon City subject
the MODIFICATIONS that INTERGAMES, INC. is ORDERED TO PAY to
the petitioners, in addition to the awards thereby allowed: (a) the sum of
P113,484.52 as damages for the loss of Rommel Abrogar's earning
capacity; (b) interest of 6% per annum on the actual damages, moral
damages, exemplary damages and loss of earning capacity reckoned from
May 10, 1991 until full payment; (c) compounded interest of 6% per
annum from the finality of this decision until full payment; and (d) costs of
suit.SO ORDERED.
[G.R. No. 216467. February 15, 2017.]
PILIPINAS SHELL PETROLEUM
CORPORATION, petitioner, vs. CARLOS * DUQUE & accused failed to pay said payee the face amount of said
TERESA DUQUE, respondents.
DECISION
PERALTA, J  p:
Before the Court is a petition for review on certiorari seeking the
reversal and setting aside of the Decision 1 and Resolution 2 of the Court
of Appeals (CA), dated August 18, 2014 and January 14, 2015,
respectively, in CA-G.R. SP No. 124925. The assailed Decision reversed
and set aside the March 23, 2012 Order of the Regional Trial Court (RTC)
of Makati City, which revived its March 16, 2011 Decision in Criminal Case
No. 10-1757, while the questioned CA Resolution denied petitioner's
Motion for Reconsideration.
The pertinent factual and procedural antecedents of the case are
as follows:
The instant petition arose from an Information for violation of Batas
Pambansa Blg. 22 (BP 22) filed with the Metropolitan Trial Court (MeTC)
of Makati City against herein respondents. The Information reads as
follows:
That on or about the 16th day of November 2001,
to
in the City of Makati, Metro Manila, Philippines, a place
within the jurisdiction of this Honorable Court, the above-
named accused being then the authorized signatories of
FITNESS CONSULTANTS, INC. did then and there
wilfully, unlawfully and feloniously make out, draw and
issue to PILIPINAS SHELL PETROLEUM CORP., to
apply on account or for value the check described below:
Check No. : 6000012386
Drawn Against : International Exchange Bank
In the amount of : P105,518.55
Postdated/Dated : November 16, 2001
Payable to : Pilipinas Shell Corporation
said accused well knowing that at the time of issue
thereof, said accused did not have sufficient funds in or
credit with the drawee bank for the payment in full of the
face amount of such check upon its presentment which
check when presented for payment within reasonable time
from date thereof, was subsequently dishonored by the
drawee bank for the reason "ACCOUNT CLOSED" and
despite receipt of notice of such dishonor, the said
check or to make arrangement for full payment thereof
within five (5) banking days after receiving notice.
CONTRARY TO LAW. 3
It appears from the records at hand that herein petitioner Pilipinas
Shell Petroleum Corporation (PSPC) is a lessee of a building known as
Shell House at 156 Valero Street, Salcedo Village, Makati City. On August
23, 2000, PSPC subleased a 500-meter portion of the 2nd Floor of the
Shell Building to the The Fitness Center (TFC). 4 Thereafter, TFC
encountered problems in its business operations. Thus, with the conformity
of PSPC, TFC assigned to Fitness Consultants, Inc. (FCI) all its rights and
obligations under the contract of sublease executed by PSPC in its
favor. 5 Respondent Carlos Duque is the proprietor, while respondent
Teresa Duque is the corporate secretary of FCI. Subsequently, FCI failed
to pay its rentals to PSPC. FCI subsequently issued a check, with
respondents as signatories, which would supposedly cover FCI's
obligations to PSPC. However, the check was dishonored, thus, leading to
the filing of a criminal complaint against respondents for their alleged
violation of BP 22. CAIHTE
The parties then went to trial, which subsequently resulted in a
verdict finding herein respondents guilty as charged. The dispositive
portion of the Decision of the MeTC of Makati City, Branch 66, dated May
17, 2010, reads thus:
WHEREFORE, in view of the foregoing, the
prosecution having proven the guilt of the accused beyond
reasonable doubt, the Court renders judgment finding
accused Carlo Duque and Teresa Duque GUILTY of the
offense of Violation of B.P. 22 and hereby sentences them
to pay a FINE of P105,516.55 with subsidiary
imprisonment in case of insolvency. Both accused are
further ordered to civilly indemnify the private complainant
Pilipinas Shell Petroleum Corporation (PSPC) the amount
of P105,516.55 with interest of 12% per annum from the
time the complaint was filed on October 4, 2002 until the
amount is fully paid, attorney's fees of P50,000.00 and to
pay the costs.
SO ORDERED. 6
Respondents appealed the above MeTC Decision with the RTC of
Makati.
On March 16, 2011, the RTC of Makati City, Branch 143, rendered
judgment acquitting respondents and disposing the case as follows:
WHEREFORE, premised considered, the [MeTC]
Decision dated May 17, 2010 is modified as follows:
The Court hereby renders judgment ACQUITTING
the accused CARLO DUQUE and TERESA DUQUE of
violation of B.P. Blg. 22. However, the Court maintains the
court a quo's finding in ordering the accused to pay the
complainant Pilipinas Shell Petroleum Corporation (PSC)
the amount of One Hundred Five Thousand Five Hundred
Sixteen Pesos and Fifty Five Centavos (Php105,516.55)
as civil indemnity with interest of 12% per annum from the
time the complaint was filed on 04 October 2002 until the
amount is fully paid, attorney's fees of Fifty Thousand
Pesos (Php50,000.00) and to pay the costs.
SO ORDERED. 7
Respondents filed a Motion for Partial Reconsideration 8 of the
RTC Decision contending that they could not be held civilly liable because
their acquittal was due to the failure of the prosecution to establish the
elements of the offense charged. In addition, they assert that they, being
corporate officers, may not be held personally and civilly liable for the
debts of the corporation they represent, considering that they had been
acquitted of criminal liability.
In an Order 9 dated September 2, 2011, the RTC found merit in
respondents' Motion for Partial Reconsideration. The RTC ruled, in
essence, that respondents may not be held civilly liable for the value of the
subject check because they have not been convicted of the offense with
which they had been charged. In addition, the RTC found that the check
was drawn against the current account of FCI and the obligations sought
to be paid were corporate debts and, as such, FCI, not respondents,
should be held civilly liable. The RTC likewise held that the veil of
corporate fiction was not used as cloak for fraud as there was no evidence
that respondents agreed to be personally liable for the corporation's
obligations.
PSPC filed a Motion for Reconsideration 10 citing the rule that the
extinction of the penal action does not carry with it the extinction of the civil
action and alleging that the RTC erred in ruling that respondents may not
be held liable for the obligations of FCI on the ground that there was no
basis to pierce the corporate veil.
On March 23, 2012, the RTC issued an Order 11 granting PSPC's
motion for reconsideration, thus, reviving the RTC Decision of March 16,
2011. The RTC ruled that respondents' acquittal, the same having been
based on the prosecution's failure to prove all the elements of the offense
charged, did not include the extinguishment of their civil liability. Citing
Section 1 of BP 22, the RTC held that the person who actually signed the
corporate check shall be held liable, without any condition, qualification or
limitation. The RTC also found that the records show that FCI, through
respondents, was civilly liable to PSPC.
Aggrieved by the March 23, 2012 Order of the RTC, respondents
filed a petition for review with the CA contending that the RTC erred in
holding them liable for the civil liability of FCI even if they were acquitted of
the crime of violating BP 22. 12
In its assailed Decision, the CA ruled in favor of respondents and
disposed of the case as follows:
WHEREFORE, the petition is GRANTED and the
assailed 23 March 2012 RTC decision
is REVERSED and SET ASIDE. The Order dated 2
September 2011 is REINSTATED.
IT IS SO ORDERED. 13
The CA basically held that, upon acquittal, the civil liability of a
corporate officer in a BP 22 case is extinguished with the criminal liability,
without prejudice to an independent civil action which may be pursued
against the corporation.
 Petitioner filed a motion for reconsideration, but the CA denied it in
its Resolution dated January 14, 2015.
Hence, the present petition for review on certiorari based on the
following arguments:
A.
THE COURT OF APPEALS GRAVELY ERRED IN
ABSOLVING RESPONDENTS FROM CIVIL LIABILITY
ARISING FROM THEIR VIOLATION OF BATAS
PAMBANSA BLG. 22 DUE TO THEIR ACQUITTAL
FROM THE SAID CRIME, SINCE THE ORDER THAT
DECREED THEIR ACQUITTAL DID NOT MAKE AN
EXPRESS MENTION THAT THE FACTS FROM WHICH
THEIR CIVIL LIABILITY MAY ARISE DID NOT
EXIST. DETACa
B.
THE COURT OF APPEALS GRAVELY ERRED IN
RELYING ON GOSIACO V. CHING IN RULING THAT
RESPONDENTS ARE ABSOLVED FROM CIVIL
LIABILITY
C.
THE COURT OF APPEALS GRAVELY ERRED IN
RULING THAT THE CIVIL OBLIGATION COVERED BY
THE DISHONORED CHECKS WERE CORPORATE
DEBTS FOR WHICH ONLY FCI SHOULD BE HELD
LIABLE. 14
The petition lacks merit.
The only issue in the present case is whether or not respondents,
as corporate officers, may still be held civilly liable despite their acquittal
from the criminal charge of violation of BP 22.
The Court rules in the negative, as this matter has already been
settled by jurisprudence. In the case of Gosiaco v. Ching, 15 this Court
enunciated the rule that a corporate officer who issues a bouncing
corporate check can only be held civilly liable when he is convicted. In the
said case, the Court ruled that:
When a corporate officer issues a worthless check
in the corporate name he may be held personally liable for
violating a penal statute. The statute imposes criminal
penalties on anyone who with intent to defraud another of
money or property, draws or issues a check on any bank
with knowledge that he has no sufficient funds in such
bank to meet the check on presentment. Moreover, the
personal liability of the corporate officer is predicated on
the principle that he cannot shield himself from liability
from his own acts on the ground that it was a corporate
act and not his personal act. 16
The Court, citing the case of Bautista v. Auto Plus Traders,
Incorporated, et al., 17 nonetheless categorically held that the civil liability
of a corporate officer in a BP 22 case is extinguished with the criminal
liability." 18
The above rule is reiterated in the recent case of Navarra v.
People, et al., 19 where the petitioner, the Chief Finance Officer of a
corporation, who was the signatory of the dishonored corporate checks,
was convicted of the offense of violation of BP 22 and was ordered to pay
the private complainant civil indemnity in an amount equivalent to the
value of the checks which bounced. The Court held thus:
The general rule is that a corporate officer who
issues a bouncing corporate check can be held civilly
liable when he is convicted. The criminal liability of the
person who issued the bouncing checks in behalf of a
corporation stands independent of the civil liability of the
corporation itself, such civil liability arising from the Civil
Code. But BP 22 itself fused this criminal liability with the
corresponding civil liability of the corporation itself by
allowing the complainant to recover such civil liability, not
from the corporation, but from the person who signed the
check in its behalf. 20
As held above, it is clear that the civil liability of the corporate
officer for the issuance of a bouncing corporate check attaches only if he is
convicted. Conversely, therefore, it will follow that once acquitted of the
offense of violating BP 22, a corporate officer is discharged from any civil
liability arising from the issuance of the worthless check in the name of the
corporation he represents. This is without regard as to whether his
acquittal was based on reasonable doubt or that there was a
pronouncement by the trial court that the act or omission from which the
civil liability might arise did not exist.
Moreover, in the present case, nothing in the records at hand
would show that respondents made themselves personally nor solidarily
liable for the corporate obligations either as accommodation parties or
sureties. On the contrary, there is no dispute that respondents signed the
subject check in their capacity as corporate officers and that the check was
drawn in the name of FCI as payment for the obligation of the corporation
and not for the personal indebtedness of respondents. Neither is there
allegation nor proof that the veil of corporate fiction is being used by
respondents for fraudulent purposes. The rule is that juridical entities have
personalities separate and distinct from its officers and the persons
composing it. 21 Generally, the stockholders and officers are not
personally liable for the obligations of the corporation except only when the
veil of corporate fiction is being used as a cloak or cover for fraud or
illegality, or to work injustice, 22 which is not the case here. Hence,
respondents cannot be held liable for the value of the checks issued in
payment for FCI's obligation. aDSIHc
The cases of Mitra v. People, et al., 23 and Llamado v. Court of
Appeals, et al., 24 which were cited by petitioner, may not be made as
bases to rule against respondents because the accused in the said cases
were found guilty of violating BP 22. Thus, the general rule that a
corporate officer who issues a bouncing corporate check can be held civilly
liable when convicted, applies to them. In the present case, however,
respondents were acquitted of the offense charged. As such, consistent
with the rule established in Bautista and Gosiaco, respondents' civil liability
was extinguished with their criminal liability. In the same manner, the Court
agrees with the CA that the case of Alferez v. People, et al., 25 is neither
applicable to the present case on the ground that, while Alferez was
acquitted from the charge of violation of BP 22, the checks which bounced
were issued by Alferez in his personal capacity and in payment of his
personal obligations.
WHEREFORE, the instant petition is DENIED. The Decision and
Resolution of the Court of Appeals, dated August 18, 2014 and January
14, 2015, respectively, in CA-G.R. SP No. 124925 are AFFIRMED.
SO ORDERED.
[G.R. No. 209906. November 22, 2017.]
COCA-COLA BOTTLERS PHILS.,
INC., petitioner, vs. ERNANI GUINGONA
MEÑEZ, respondent.
DECISION
CAGUIOA, J  p:
This is a Petition for Review on Certiorari 1 (Petition) under Rule
45 of the Rules of Court assailing the Decision 2 of the Court of
Appeals 3 (CA) dated April 22, 2013 in CA-G.R. CV No. 02361 and the
Resolution 4 dated October 11, 2013 denying the motion for
reconsideration filed by petitioner, Coca-Cola Bottlers Phils., Inc. (CCBPI).
The CA Decision granted the appeal and reversed the Decision 5 dated
October 29, 2007 of the Regional Trial Court, 7th Judicial Region, Branch
39, Dumaguete City (RTC) in Civil Case No. 11316. CAIHTE
Facts and Antecedent Proceedings
The Decision of the CA dated April 22, 2013 states the facts as
follows:
Research [s]cientist Ernani Guingona Meñez
[Meñez] was a frequent customer of Rosante Bar and
Restaurant [Rosante] of Dumaguete City. On March 28,
1995, at about 3:00 o'clock in the afternoon, Me[ñ]ez went
to Rosante and ordered two (2) bottles of beer. Thereafter,
he ordered pizza and a bottle of "Sprite." His additional
order arrived consisting of one whole pizza and a bottled
softdrink Sprite with a drinking straw, one end and about
three-fourths of which was submerged in the contents of
the bottle, with the other and the remaining third of the
straw outside the bottle, as is the usual practice in eateries
when one orders a bottled softdrink.
Meñez then took a bite of pizza and drank from
the straw the contents of the Sprite [b]ottle. He noticed
that the taste of the softdrink was not one of Sprite but of a
different substance repulsive to taste. The substance
smelled of kerosene. He then felt a burning sensation in
his throat and stomach and could not control the urge to
vomit. He left his table for the toilet to vomit but was
unable to reach the toilet room. Instead, he vomited on the
lavatory found immediately outside the said toilet.
Upon returning to the table, he picked up the
bottle of Sprite and brought it to the place where the
waitresses were and angrily told them that he was served
kerosene. [Meñez] even handed the bottle to the
waitresses who passed it among themselves to smell it.
All of the waitresses confirmed that the bottle smelled of
kerosene and not of Sprite.
Meñez then went out of the restaurant taking with
him the bottle. He found a person manning the traffic
immediately outside the restaurant, whom he later came
to know as Gerardo Ovas, Jr. of the Traffic Assistant Unit.
He reported the incident and requested the latter to
accompany him to the Silliman [University] Medical Center
(SUMC). Heading to SUMC for medical attention, Ovas
brought the bottle of Sprite with him.
While at the Emergency Room, [Meñez] again
vomited before the hospital staff could examine him.
[Meñez] had to be confined in the hospital for three (3)
days.
Later, [Meñez] came to know that a representative
from [Rosante] came to the hospital and informed the
hospital staff that Rosante [would] take care of the hospital
and medical bills.
The incident was reported to the police and
recorded in the Police Blotter. The bottle of Sprite was
examined by Prof. Chester Dumancas, a licensed chemist
of Silliman University. The analysis identified the contents
of the liquid inside the bottle as pure kerosene.
As a result of the incident, [Meñez] filed a
complaint against [CCBPI and Rosante] and prayed for
the following damages:
(a) Three Million Pesos (P3,000,000.00) as actual
damages;
(b) Four Million Pesos (P4,000,000.00) as moral
damages;
(c) Five Hundred Thousand Pesos (P500,000.00) as
exemplary damages;
(d) One Hundred Thousand Pesos (P100,000[.00])
as attorney's fees;
(e) Cost of Suit.
In answer to the complaint filed, [CCBPI and
Rosante] set out their own version of facts. Rosante x x x
alleged that [Meñez] was heard to have only felt nausea
but did not vomit when he went to the comfort room.
Rosante further denied that the waitresses confirmed the
content of the bottle to be kerosene. In fact, [Meñez]
refused to have the waitresses smell it.
As an affirmative defense, [Rosante] argued that
[Meñez] has no cause of action against it as it merely
received said bottle of Sprite allegedly containing
kerosene from [CCBPI], as a matter of routinary
procedure. It argued that Rosante is not expected to open
and taste each and every [content] in order to make sure it
is safe for every customer.
It further alleged that Robert Sy was made as
representative of [Rosante] when in fact he is not the
registered owner of the establishment but merely involved
in the management.
CCBPI for its part filed a motion to dismiss the
complaint. The motion was founded on the grounds
that: DETACa
1) [Meñez] failed to allege all the
requisites of liability under Article 2187 of
the Civil Code, not even for the law on
torts and quasi-delict to apply against
[CCBPI].
2) [Meñez] failed to exhaust
administrative remedies and/or comply
with the Doctrine of the Prior Resort.
CCBPI interposed that a perusal of the complaint
revealed that there is no allegation therein which states
that CCBPI uses noxious or harmful substance in the
manufacture of its products. What the complaint
repeatedly stated is that the bottle with the name SPRITE
on it contained a substance which was later identified as
pure kerosene.
As to the second ground, [CCBPI] cited Republic
Act No. 3720, as amended x x x "An Act to Ensure the
Safety and Purity of Foods and Cosmetics, and the Purity,
Safety, Efficacy and Quality of Drugs and Devices Being
Made Available to the Public, Vesting the Bureau of Food
and Drugs with Authority to Administer and Enforce the
Laws pertaining thereto, and for other Purposes[.]" CCBPI
argued that pursuant to the law, [Meñez] failed to avail of
and exhaust an administrative remedy provided for prior to
a filing of a suit in court. It quoted,
(d) When it appears to the Director x x x
that any article of food x x x is adulterated
or misbranded, he shall cause notice
thereof to be given to the person or
persons concerned and such person or
persons shall be given an opportunity to
be heard before the Board of Food and
Drug Inspection and to submit evidence
impeaching the correctness of the finding
or charge in question.
 From this provision, CCBPI concluded that an "In this case, the results of the
administrative remedy was existing and that [Meñez] failed laboratory examination conducted on the
to avail thereof. "Sprite" bottle show that the same
contained PURE KEROSENE, and not
CCBPI further argued that the doctrine of strict
"Sprite" containing traces of kerosene or
liability tort on product liability is but a creation of
"Sprite" adulterated with kerosene. [x] x x
American Jurisprudence, as clearly shown by the cases
A test result showing that the said "Sprite"
cited in support thereof, and never before adopted as a
bottle contained traces of kerosene would
doctrine of the Supreme Court. Hence, it submits that at
have been more in consonance with
most it only has a persuasive effect and should not be
[Meñez]'s claim of negligence[.]"
used as a precedent in fixing the liability of CCBPI.
The RTC further noted that since kerosene had a
Pre-[t]rial and [t]rial ensued. [Meñez] introduced
characteristic smell, and considering that the "Sprite"
several exhibits to substantiate the damages he prayed
bottle allegedly contained pure kerosene, it was quite
for. Among others were Explanation of Benefits and
surprising why the employees of [Rosante] did not notice
Statements of Account from healthcare providers to show
its distinct smell. aDSIHc
that he had to undergo a series of examinations in the
United States as consequence of the incident. [Meñez] Finally, the RTC held that the complaint was
also included in his exhibits his profile as a scientist in devoid of merit as it should have first ventilated [Meñez's]
attempt to prove that damages were also incurred with the grievance with the Bureau of Food and Drugs pursuant to
delay of his work; still as a consequence of the kerosene R.A. 3720 as amended by Executive Order No. 175.
poisoning.
Thus, the [RTC] disposed,
With the termination of the trial, and the directive
"WHEREFORE, the complaint is
to parties to file their respective memoranda, the case was
hereby DISMISSED for insufficiency of
finally submitted for decision. 6
evidence, with costs against the plaintiff.
The RTC Ruling
Likewise, the counterclaims of
defendants are hereby DISMISSED.
The CA Decision further states:
SO ORDERED."
The Regional Trial Court (RTC) dismissed the
complaint for insufficiency of evidence. The [RTC] found Aggrieved, [Meñez went to the CA] on appeal. 7
the evidence for [Meñez] to be ridden with gaps. It
The CA Ruling
declared that there was failure of [Meñez] to categorically
establish the chain of custody of the "Sprite" bottle which
In its Decision 8 dated April 22, 2013, the CA granted the appeal
was the very core of the evidence in his complaint for
and reversed the Decision of the RTC. The CA ruled that the RTC erred in
damages. The Court noted that from the time of the
dismissing the case for failing to comply with an administrative remedy
incident, thirty-six (36) hours have lapsed before the
because it is not a condition precedent in pursuing a case for damages
"Sprite" bottle was submitted for laboratory examination.
under Article 2187 of the Civil Code which is the basis of Meñez's
During such time, the "Sprite" bottle changed hands
complaint for damages. 9 The CA also ruled that Meñez was not entitled to
several times. The RTC then ruled that the scanty
actual damages given the observation of his attending physician, Dr.
evidence presented by [Meñez] concerning the chain of
Juanito Magbanua, Jr. (Dr. Magbanua, Jr.), that "his hospital stay was
custody of the said "Sprite" bottle and [his] unexplained
uneventful" and "to [his] mind, he had taken in x x x only a small amount
failure x x x to present several vital witnesses to prove
[of kerosene] because the degree of adverse effect on his body [was] very
such fact indeed casts a serious doubt on the veracity of
minimal knowing that if he had taken in a large amount he would have
his allegations.
been in x x x very serious trouble and we would have seen this when we
The [RTC] observed, examine him." 10 The CA, however, awarded moral and exemplary
damages in favor of Meñez. 11
 The dispositive portion of the CA Decision states:
WHEREFORE, the appeal is hereby GRANTED.
The decision in Civil Case No. 11316 is REVERSED.
Defendant-Appellee Coca-Cola Bottlers Philippines, Inc. is
ORDERED to pay the following with six [per cent] (6%)
interest per annum reckoned from May 5, 1995:
1. Moral damages in the amount of two hundred
thousand pesos (P200,000.00);
2. Exemplary [d]amages in the amount of two
hundred thousand pesos (P200,000.00);
3. Fifty thousand pesos (P50,000.00) as attorney's
fees and cost of suit.
The total aggregate monetary award shall in turn
earn 12% per annum from the time of finality of this
Decision until fully paid.
SO ORDERED. 12
CCBPI filed a motion for reconsideration, which was denied in the
CA Resolution 13 dated October 11, 2013.
Hence, this Petition. Meñez filed a Comment 14 dated April 9,
2014. CCBPI filed a Reply 15 dated May 30, 2014.
Issues
Whether the CA erred in awarding moral damages to
Meñez.
Whether the CA erred in awarding exemplary damages to
Meñez.
Whether the CA erred in awarding attorney's fees to
Meñez.
Whether the CA erred in holding that Meñez did not
violate the doctrine of exhaustion of administrative
remedies and prior resort to the Bureau of Food and
Drugs (BFD) is not necessary.
The Court's Ruling
The Petition is meritorious.
The CA correctly ruled that prior resort to BFD is not necessary for
a suit for damages under Article 2187 of the Civil Code to prosper. Article
2187 unambiguously provides:
ART. 2187. Manufacturers and processors of
foodstuffs, drinks, toilet articles and similar goods shall be
liable for death or injuries caused by any noxious or
harmful substances used, although no contractual relation
exists between them and the consumers.
Quasi-delict being the source of obligation upon which Meñez
bases his cause of action for damages against CCBPI, the doctrine of
exhaustion of administrative remedies is not applicable. Such is not a
condition precedent required in a complaint for damages with respect to
obligations arising from quasi-delicts under Chapter 2, Title XVII on Extra-
Contractual Obligations, Article 2176, et seq. of the Civil Code which
includes Article 2187. ETHIDa
However, the CA erred in ruling that Meñez is entitled to moral
damages, exemplary damages and attorney's fees.
The cases when moral damages may be awarded are specific.
Unless the case falls under the enumeration as provided in Article 2219,
which is exclusive, and Article 2220 of the Civil Code, moral damages may
not be awarded. Article 2219 provides:
ART. 2219. Moral damages may be recovered in
the following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious
acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26,
27, 28, 29, 30, 32, 34, and 35.
xxx xxx xxx (Emphasis supplied)
Article 2220 provides the following additional legal grounds for
awarding moral damages: (1) willful injury to property if the court should
find that, under the circumstances, such damages are justly due; and (2)
breaches of contract where the defendant acted fraudulently or in bad
faith.
In justifying the award of moral damages to Meñez, the CA
invoked the U.S. cases Escola v. Coca-Cola Bottling Co. 16 and Wallace
v. Coca-Cola Bottling Plants, Inc. 17 The CA, however, failed to show the
direct connection of these cases with the instances when moral damages
may be awarded under the Civil Code.
Apparently, the only ground which could sustain an award of moral
damages in favor of Meñez and against CCBPI is Article 2219 (2) —
quasi-delict under Article 2187 causing physical injuries.
Unfortunately, Meñez has not presented competent, credible and
preponderant evidence to prove that he suffered physical injuries when he
allegedly ingested kerosene from the "Sprite" bottle in question. Nowhere
in the CA Decision is the physical injury of Meñez discussed. The RTC
Decision states the diagnosis of the medical condition of Meñez in the
medical abstract prepared by Dr. Abel Hilario Gomez, who was not
presented as a witness, 18 and signed by Dr. Magbanua, Jr. (Exhibit "R"):
"the degree of poisoning on the plaintiff [Meñez] was mild, since the
amount ingested was minimal and did not have severe physical effects on
his body." 19 In his testimony, Dr. Magbanua, Jr. stated: "To my mind,
[Meñez] had taken in kerosene of exactly undetermined amount,
apparently or probably, only a small amount because the degree of
adverse effect on his body is very minimal knowing that if he had taken in
a large amount he would have been in x x x very serious trouble and we
would have seen this when we examined him." 20 The statements of the
doctors who tended to the medical needs of Meñez were equivocal.
"Physical effects on the body" and "adverse effect on his body" are not
very clear and definite as to whether or not Meñez suffered physical
injuries and if these statements indicate that he did, what their nature was
or how extensive they were.
Consequently, in the absence of sufficient evidence on physical
injuries that Meñez sustained, he is not entitled to moral damages.
As to exemplary or corrective damages, these may be granted in
quasi-delicts if the defendant acted with gross negligence pursuant to
Article 2231 21 of the Civil Code.
The CA justified its award of exemplary damages in the following
manner:
On the liability of manufacturers, the principle of
strict liability applies. It means that proof of negligence is
not necessary. It appl[i]es even if the defendant
manufacturer or processor has exercised all the possible
care in the preparation and sale of his product x x x. Extra-
ordinary diligence is required of them because the life of
the consuming public is involved in the consumption of the
foodstuffs or processed products. 22
Evidently, the CA's reasoning is not in accord with the gross
negligence requirement for an award of exemplary damages in a quasi-
delict case.
Moreover, Meñez has failed to establish that CCBPI acted with
gross negligence. Other than the opened "Sprite" bottle containing pure
kerosene allegedly served to him at the Rosante Bar and Restaurant
(Rosante), Meñez has not presented any evidence that would show
CCBPI's purported gross negligence. The Court agrees with the RTC's
finding that there was failure on the part of Meñez to categorically establish
the chain of custody of the "Sprite" bottle which was the very core of the
evidence in his complaint for damages and that, considering that the
"Sprite" bottle allegedly contained pure kerosene, it was quite surprising
why the employees of Rosante did not notice its distinct, characteristic
smell. Thus, Meñez is not entitled to exemplary damages absent the
required evidence. The only evidence presented by Meñez is the opened
"Sprite" bottle containing pure kerosene. Nothing more. cSEDTC
Regarding attorney's fees, Article 2208 of the Civil Code provides:
ART. 2208. In the absence of stipulation,
attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has
compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution
against the plaintiff;
(4) In case of a clearly unfounded civil action or
proceeding against the plaintiff;
(5) Where the defendant acted in gross and
evident bad faith in refusing to satisfy the plaintiff's plainly
valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of
household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's
compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability
arising from a crime;
 (10) When at least double judicial costs are
awarded;
(11) In any other case where the court deems it
just and equitable that attorney's fees and expenses of
litigation should be recovered.
In all cases, the attorney's fees and expenses of
litigation must be reasonable.
The CA Decision did not even provide the basis for the award of
P50,000.00 as attorney's fees and cost of suit. The award is found only in
the dispositive portion and, unlike the award of moral and exemplary
damages, there was no explanation provided in the body of the Decision. It
can only be surmised that the CA awarded attorney's fees only because it
awarded exemplary damages.
In any event, based on Article 2208 of the Civil Code, Meñez is not
entitled to attorney's fees and expenses of litigation because, as with his
claim for exemplary damages, he has not established any other ground
that would justify this award.
WHEREFORE, the Petition is hereby GRANTED. The Court of
Appeals Decision dated April 22, 2013 and Resolution dated October 11,
2013 in CA-G.R. CV No. 02361 are REVERSED and SET ASIDE. The
dismissal of the complaint for insufficiency of evidence by the Regional
Trial Court, 7th Judicial Region, Branch 39, Dumaguete City in its Decision
dated October 29, 2007 in Civil Case No. 11316 is AFFIRMED.
SO ORDERED.
[G.R. No. 204639. February 15, 2017.]
SAN FRANCISCO INN, hereto represented by its
authorized representative, LEODINO M.
CARANDANG, petitioner, vs. SAN PABLO CITY WATER
DISTRICT, represented by its General Manager ROGER
F. BORJA and the SPCWD INVESTIGATING
BOARD, respondents.
DECISION
CAGUIOA, J  p:
Before the Court is a petition for review on certiorari under Rule 45
of the Rules of Court assailing the Decision dated September 14,
2011 1 of the Court of Appeals 2 (CA) in CA-G.R. CV No. 95617,
modifying the Decision dated May 25, 2010 3 of the Regional Trial Court of
San Pablo City, Branch 32 (RTC), declaring valid the imposition of
production charges/fees by respondent San Pablo City Water District
(SPCWD) on commercial and industrial users/operators of deep wells in
San Pablo City and upholding the right of SPCWD to demand payment of
production charges/fees in accordance with existing rates from petitioner
San Francisco Inn (SFI) and for the latter to pay interest thereon from their
imposition starting in 1998. The review of the Resolution dated November
13, 2012 4 of the CA, denying SFI's motion for reconsideration of the CA
Decision, is also sought in the petition. ISHCcT
While there were several issues raised by SFI before the RTC and
the CA, the singular issue it raised in the petition is whether the CA erred
in upholding SPCWD's right to impose production assessment in the
absence of any findings or proof that SFI's use of ground water was
injuring or reducing SPCWD's financial condition and impairing its ground
water source, pursuant to Section 39 of Presidential Decree No. 198 (PD
198) and Section 11 of the "Rules Governing Ground Water Pumping and
Spring Development Within the Territorial Jurisdiction of San Pablo City
Water District" (the Rules). 5
SFI argues that both the law and the Rules provide the following
specific conditions before any water district may adopt and levy ground
water production assessment:
(1) Prior due notice to entities within the district extracting ground
water for commercial and industrial uses, and hearing on
the water district's plan to adopt and levy a ground water
production assessment or impose special charges at fixed
rate; and CAacTH
(2) A finding by the Board of Directors of the water district that
production of ground water by such entities is: (i)
adversely affecting the water district's financial
condition and (ii) impairing its ground water sources. 6
 The Facts and Antecedent Proceedings
The RTC, in its Decision dated May 25, 2010, made the following
findings which are relevant to the issue posed above:
The facts are not in dispute while the proceedings
are of record.
The petitioner [SFI] is a hotel business
establishment situated at Brgy. San Francisco Calihan,
San Pablo City. In 1996, petitioner caused the
construction of two (2) deep-well pumps for the use of its
business. The pumps, which have a production capacity of
four (4) liters per second each, bear the following
specification[s]: size of casing [—]2.0"; size of column pipe
—1.5"; pump setting — 60 feet; and motor HP rating —
1.5 HP.
The respondent [SPCWD] is a local water utility
organized under Resolution No. 309, approved by the
Municipal Board of the City of San Pablo, on December
17, 1973, absorbing the former San Pablo Waterworks
System and its facilities. Its operation is under the National
Water Resources Board, formerly Council (NWRB), which
is the national agency vested with authority to control and
regulate the utilization, exploitation, development,
conservation and operation of water resources pursuant
to Presidential Decree No. 1067, otherwise known as the
"Water Code of the Philippines" (Water Code)
and Presidential Decree No. 198, the "Local Water Utilities
Administration Law". The respondent [SPCWD] is
managed by a Board of Directors.
In 1977, the respondent [SPCWD] promulgated
the Rules Governing Groundwater Pumping and Spring
Development Within the Territorial Jurisdiction of the San
Pablo City Water District. These rules were approved by
the NWRB in its 88th meeting held on January 23, 1978.
The provisions of the Rules relevant to this case are
[Sections 10, 7 11 8 and 12]. 9
xxx xxx xxx
Pursuant to Section 80 of PD 1067, the NWRB in
its Memorandum dated February 4, 1997, deputized the
respondent to perform the following functions:
"xxx xxx xxx
"1. To accept, process,
investigate and make recommendation on
water permit applications on sources
located within the territorial jurisdiction of
the Water District. IAETDc
2. To monitor drilling wells and
other water resources development
activities in your area for conformance
with the provision of the Water Code and
the rules and regulations of the Water
District as approved by the Board.
3. To coordinate with the Offices
of the DPWH-DE and NIA-PIO and other
concerned agencies for the orderly and
timely completion of necessary field
activities related.
"xxx xxx xxx."
x x x In a letter dated 26 January 1998, the
respondent's General Manager Roger F. Borja, invited
petitioner and other deep-well users in San Pablo City, to
a meeting to discuss the imposition of production
assessment fees. The meeting proceeded as scheduled
on February 19, 1998, with several deep-well owners
present, among which is the petitioner. The topic
discussed during the meeting involved the legality of the
imposition of production fees and the rate of production
fees to be imposed. No concrete agreement was reached
except that the deep-well users just agreed to submit
within fifteen (15) days a position paper either individually
or collectively. x x x On March 26, 1998, deep-well users,
including petitioner submitted their position paper
opposing the imposition of the production assessment fee
on the ground that the same "is inequitable and
constitutes an unjust discrimination against such users."
On September 11, 1998, petitioner [SFI] filed an
application for water permit with the NWRB. In a letter
dated November 14, 1998, the DPWH District Engineer
requested petitioner to submit clearances from the
barangay chairman, the city mayor and the respondent
water district. It appears that petitioner failed to comply
except the submission of a barangay clearance certificate,
and a certification dated 17 November 1998, issued by the
respondent's Engr. Virgilio L. Amante, respondent's
Engineering and Production Division Manager, stating
among others that "the extraction of water has no adverse
effect on the existing water supply and system of the San
Pablo City Water District," but "without prejudice to the
water district implementation of production assessment
charges in the future."
On June 1, 1999, the respondent sent the
petitioner a copy of a draft Memorandum of Agreement,
regarding the proposed imposition of production
assessment fee at P0.50 per cubic meter of water drawn
from the well. The petitioner [SFI], however, did not sign
the MOA. The respondent [SPCWD] in a letter dated
November 9, 1999, again wrote the petitioner asking the
latter to approve and/or sign the MOA.
On 30 July 2001, the Board of Directors of the
respondent's (sic) passed a Board Resolution No. 050,
Series of 2001, creating an investigating panel to
investigate, hear and decide violations of the Water Code.
The panel was composed of the Legal Counsel as
Chairman, and then Senior Industrial Relations
Management Officer and the Commercial Division
Manager, as members, of the respondent. In an Order
dated August 30, 2001, the Investigating Board directed
the petitioner to appear and submit evidence "WHY NO
CEASE AND DESIST ORDER AND CLOSURE OF
OPERATION of the water well" should be issued against
the petitioner. Petitioner through counsel submitted a
Manifestation and Motion on September 12, 2001, asking
that the Order of August 30, 2001, be set aside and that it
be furnished copy of the specific complaint against it. In an
Order dated September 25, 2001, the Investigating Board
resolved x x x: DcHSEa
"xxx xxx xxx
In the interest of justice and for
the reasons advanced in his motion,
[petitioner SFI] is hereby ordered to
appear before the Investigating Board on
Tuesday, October 2, 2001 at 9:30 a.m. for
continuation of the investigation and to
submit [its] evidence why NO CEASE
AND DESIST ORDER AND CLOSURE
OF OPERATION of the water well against
you and your corporation shall be issued
pursuant to Board Resolution No. 045,
Series of 1995 and Section 15 of the
approved San Pablo City Water District
Rules in Resolution No. 883, dated
January 23, 1978 by the NWRB."
xxx xxx xxx
On November 19, 2001, prior to the issuance of
the [Order dated November 20, 2001, submitting the
matter for resolution due to the failure of petitioner [SFI] or
counsel to appear on October 2, 2001, despite receipt of
notice], the [p]etitioner instituted the instant petition
seeking to enjoin the respondent water district and its
General Manager, from further investigating and hearing
IB No. 006, entitled "San Pablo City Water District vs. San
Francisco Inn," as its continuance will work injustice
and/or irreparable damage or injury to the petitioner and
will mean closure of its hotel business operation. On
November 28, 2001, the respondents through counsel
filed a Motion to Dismiss anchored on the arguments that
the Court has no jurisdiction over the subject matter, and
for lack of cause of action against the respondents. The
petitioner filed its opposition to the motion to dismiss,
contending that the Court has jurisdiction over the subject
matter of the case and that it has a valid cause of action
against the petitioner (sic). The Court, in an Order dated
February 1, 2002, denied the motion to dismiss, directing
the respondents to file their answer x x x. On February 27,
2002, the respondents submitted their answer,
maintaining its (sic) position that the NWRB, not the
Court[,] has jurisdiction to hear the subject matter of the
case, and that injunction is not the proper remedy there
being an administrative remedy available to the petitioner.
xxx xxx xxx
In the interim, the Investigating Board came out
with its Report and Resolution in IB-Case No. 006, dated
April 9, 2002, recommending to the respondent's Board of
Directors, the following:
"1. To issue a CEASE AND
DESIST ORDER AND CLOSURE OF
OPERATION of their
deepwell (sic) constructed by the
[petitioner] without the required water
permit; SCaITA
"2. To demand the required
payment of the appropriations of water
without permit from October 1999 up to
the present, the equivalent value of the
consumption to be paid to the district;
"3. That a CEASE AND DESIST
ORDER AND CLOSURE OF
OPERATION of the water supply be
 issued by the Board of Directors of the
appropriate agency after the lapse of 15
days from the issuance of approval order
by the Board. The order that may be
issued by the Board based on the
recommendation be enforced by the
designated enforcing officer with the
assistance of the Philippine National
Police as provided in PD 1067.
"xxx xxx xxx."
From the above Report and Resolution, the
petitioner filed a Motion for Reconsideration on May 14,
2002, on the following grounds: a) the authority of the
respondent has already been questioned in the action for
injunction; b) that the respondent has not shown proof that
the extraction/drawing of water by the petitioner had
caused injury upon the respondent's financial condition;
and c) the petitioner had already filed a water permit
application which is pending before the NWRB. In a 1st
Indorsement dated May 15, 2002, the Investigating Board
referred the above-mentioned Motion for Reconsideration
to the respondent's Board of
Directors for appropriate action. At this juncture, it may
well be pointed out that the Board of Directors of the
respondent has not yet taken action on the above Report
and Resolution of the Investigating Board.
In addition to the above action taken by the
petitioner, it also filed before this Court a Motion for
Issuance of a Writ of Preliminary Mandatory Injunction, to
enjoin the respondent and its Board of Directors "not to
proceed in IB case No. 006 and/or from doing any further
acts that could possibly disturb the status quo and will
render the instant case moot and academic pending the
final adjudication of the instant case in the higher interest
of equity, fair play and substantial justice." The
respondents through counsel filed an Opposition to the
motion on May 18, 2002, contending that the matters
discussed in the subject motion, "are questions to be
determined on the merits of the case," such that to rule on
it "would be to rule on the main case of the petition which
is injunction xxx." In a Supplemental Manifestation filed on
May 28, 2002, the petitioner argued that it had already
filed a water permit application which remained unacted
upon and that the operation of a deep-well did not affect
the water supply system of the respondent. aTHCSE
At the hearing on June 28, 2002, petitioner and
counsel appeared but respondents and counsel did not.
On motion by the petitioner, the Court gave it a period of
ten (10) days to file its formal offer of exhibits, and for
respondents to file their comment therein. On July 17,
2002, the petitioner formally offered Exhibits "A" to "I". On
July 19, 2002, the respondents opposed the admission of
the petitioner's exhibits on the ground that no formal
hearing was conducted as to warrant the offer of the said
exhibits. In an Order dated November 19, 2002, the Court
admitted Exhibits "A" to "I" of the petitioner, in support of
its prayer for the issuance of prohibitory mandatory
injunction.
After a series of [O]rders setting the case for pre-
trial, the initial pre-trial was held on November 13, 2002.
The case was transferred from one Presiding Judge to
another through various reasons such as inhibition,
transfer to another station and illness of one. Eventually,
full-blown pre-trial was held on February 4, 2008.
At the trial, the following testified for the petitioner:
Leodino M. Carandang (on May 12, 2008); Virgilio
Amante, whose testimony did not proceed in view of his
unfortunate death (on June 23, 2008) but that the
respondents admitted the due execution and
existing (sic) of a Certification dated November 19, 1998,
issued by Engr. Virgilio Amante, which was marked
Exhibit "G"; Josefina Agoncillo (on July 28, 2008); and
Renato Amurao as an adverse witness (on August 4,
2008)[.] On October 3, 2008, the petitioner formally
offered its evidence consisting of Exhibits "A" to "N". On
October 15, 2008, the respondents submitted their
comment on the petitioner's exhibits, objecting primarily to
the purpose[s] for which they are being offered. In an
Order dated October 27, 2008, this Court admitted
petitioner's Exhibits "A" to "N".
For the respondents, the following testified: Engr.
Roger F. Borja (on November 17, 2008, and January 26,
2009); Florante Alvero (on March 2, 2009); Renato
Amurao (on July 27, 2009); Antonio Estemadura, one of
the deep-well owners who is paying the production
assessment fees (on November 9, 2009); and Teresita B.
Rivera (on January 11, 2010). On January 28, 2010, the
respondent[s] formally offered their exhibits consisting of
Exhibits "1" to "34", with their respective sub-markings. On
February 11, 2010, the petitioner through counsel filed its
comments on the respondents' offer of evidence. In an
 Order dated February 15, 2010, this Court admitted all the
respondents' Exhibits "1" to "34"; and directed the parties
to submit their respective memoranda. Both the
respondents and petitioner submitted their respective
memoranda on March 29, 2010. 10
On the power of the respondent local water utility [SPCWD] to
impose production assessment fees on deep well owners, the RTC, citing
Section 39 of PD 198 and Section 11 of the Rules, ruled that: cAaDHT
Clearly, then, there can be no dispute that the
respondent water utility has the power to impose
production assessment fees. The authority, however, shall
be subject to notice and hearing, and conditioned upon a
finding that the appropriation of underground water by a
person or utility, as in the case of the petitioner "is injuring
or reducing the district's financial condition."
This Court painstakingly reviewed the records of
this case and the proceedings before the Investigating
Board created by the respondent water utility. Nothing in
the records will show that the respondent [SPCWD] has
come up with a written finding that petitioner [SFI]'s
appropriation of underground water is injuring or reducing
the respondent's financial condition. What is extant from
the records are the following:
a. that there was an invitation to all deep-well users
in San Pablo City to a meeting regarding the
legality of the imposition of production
assessment fees;
b. the meeting was held on February 19, 1998,
where deep-well users attended, including
the petitioners (sic);
c. no concrete agreement was reached during the
meeting except for the deep-well users to
submit their position paper;
d. that on March 26, 1998, the deep-well users
submitted their position paper opposing the
imposition of the production assessment
fees;
e. that while other deep-well users eventually paid
production assessment fees and signed the
MOA on the same, petitioner did not agree
and refused to sign the MOA;
f. that the respondent created an Investigating
Board to investigate petitioner for failure to
secure water permit;
g. that the Investigating Board directed petitioner to
show cause why no cease and desist order
be issued for operating a deep well without
a permit; aCIHcD
h. that petitioner submitted a Manifestation and
Motion asking for any specific complaint
against it in regard of its operation;
i. that the Investigating [Board] set the incident for
hearing on October 2, 2001, but the
petitioner did not appear, prompting the
Investigating Board to consider the matter
submitted for resolution;
j. that on April 9, 2002, the Investigating Board
came out with its Report and Resolution
recommending to the respondent['s] Board
of Directors to issue a cease and desist
order against the petitioner for operating a
deep well without a permit, and to demand
payment of the equivalent value of the
consumption or underground water "from
October 1999 up to the present"; and
k. that the above Report and Resolution has not yet
been acted upon by the respondent's Board
of Directors up to this time.
In fine, the respondent [SPCWD]'s Board of
Director[s] has no final resolution or decision yet on the
matter of the recommendation of the Investigating Board.
The obvious reason for this, as borne by the records is the
fact that petitioner [SFI] sought intervention of this Court
through the instant proceedings.
In short, the respondent [SPCWD]'s Board of
Directors has no official action yet in the form of a board
resolution fixing the rate of production assessment fees,
neither does it have any conclusive finding that the
appropriation by the petitioner [SFI] of their (sic) two (2)
deep-well pumps is "injuring or reducing the district's
financial condition." Even the Report and Resolution of the
Investigating Board made no mention about the injurious
effect of the petitioner [SFI]'s operation upon the financial
condition of the respondent [SPCWD]. There is also no
showing that the respondent [SPCWD] had required the
 petitioner [SFI] to conduct reports on its operation of the
two (2) deep-well pumps as so provided in Section 39
of PD 198 and Section 11 of the Rules Governing
Groundwater Pumping and Spring Development quoted
earlier. While the respondent [SPCWD] has drafted a
MOA on the imposition of production assessment fees
upon deep well owners/users and provided copies thereof
to the latter including the petitioner [SFI], the same is not
supported by any resolution promulgated and approved by
the respondent [SPCWD]'s Board of Directors. In the
absence of such board resolution, the respondent
[SPCWD] cannot as yet legally impose any production
assessment fees upon deep-well owners/users. Let it be
clarified, however, that deep-well owners/users who have
signed the MOA are presumed to have voluntarily
acceded to the payment of production assessment fees,
and must continue to pay the same. 11
The RTC dismissed the petition of petitioner SFI in its Decision
dated May 25, 2010, the dispositive portion of which reads as follows:
WHEREFORE, the instant petition is DISMISSED.
Without pronouncement as to damages. cHaCAS
SO ORDERED. 12
Respondent SPWCD appealed the RTC Decision before the CA.
The CA, in its Decision dated September 14, 2011, 13 declared "valid the
imposition of production charges/fees by respondent x x x SPCWD on
commercial and industrial users/operators of deep wells in San Pablo City,
and upholds the right of [respondent] SPCWD to demand payment of
production charges/fees in accordance with existing rates from [SFI] and
for the latter to pay interest thereon from its imposition starting in 1998." 14
The CA made the following findings:
At the outset, this Court finds that [respondent]
SPCWD complied with the due process requirement for
the effectivity and enforcement of the law and the rules
sought to be implemented. It called a meeting for that
purpose where even [SFI] itself stated that officials of
SPCWD explained the concept and the legal basis of the
production assessment fee and the purpose for which the
district is imposing the said charges. [SFI] also narrated in
its Appellee's Brief that the attendees at the public hearing
expressed their concern with respect to the charges that
will be imposed. It has been held that the importance of
the first notice, that is, the notice of coverage and the
letter of invitation to a conference, and its actual conduct
cannot be understated. They are steps designed to
comply with the requirements of administrative due
process preliminary to the imposition of the production
assessment rate which is an exercise of police power for
the regulation of private property in accordance with the
Constitution.
With respect to the rate of the assessment, the
trial court was of the firm view that without the express
board resolution from the Board of Directors, the SPCWD
is precluded from imposing and collecting the same. The
trial court undermined SPCWD's compliance with the due
process of prior consultation with the deep well users who
were required to submit their position paper. Accordingly,
from the intended production assessment fee of P6.50
was reduced to P0.80 per cubic meter for commercial
users and P1.60 per cubic meters (sic) for industrial users.
But upon further consultation, the Board of Directors of the
SPCWD finally pegged the production assessment rate
from P0.80 to P0.50 per cubic meter for commercial
operator/users, and from P1.60 to P1.00 per cubic
meters (sic) for industrial users. 15
From these findings, the CA ruled that there was no need to await
the Board Resolution expressly fixing the rate since the assessment as
well as the agreed reduced rate to be imposed was based on a prior
consultation on the rates with deep well users, which is a "form of
contemporaneous or practical construction by the administrative officers
charged with the implementation of the Water Code" and the signing of the
MOA where the parties agreed to pay the reduced rate is a "form of
implied administrative interpretation of the law or the so called
interpretation by usage or practice." 16 The CA further ruled that SFI, by
seeking the injunction on the assessment to be charged by SPCWD,
questioned the exercise of police power by the State; and in this case, it
was exercised by an administrative board by virtue of a valid
delegation. 17 DACcIH
On the matter of SFI's argument that for SPCWD to be able to
charge production fee it should prove the impairment of ground water
supply, the CA ruled that:
To Our mind, it is not necessary to prove the
impairment of ground water supply because the Water
Code on which the rules is (sic) premised simply states
that there may be assessment charges if the financial
condition of the district is affected. It does not require
establishment of the impairment of ground water supply.
Thus, the imposition of an additional requirement
exceeded the requirement in the main law. However, even
assuming that proof must be made that there is injury to
the ground water supply, this Court takes judicial notice
that in 1997-1998 the entire world was affected by the El
 Niño Phenomenon. Its effect on the Philippines was
explained by the Department of Science and Technology x
x x. 18
SFI filed a motion for reconsideration, which the CA denied in its
Resolution dated November 13, 2012. 19 Hence, this petition for review
filed by SFI.
SPCWD filed its Comment dated May 31, 2013. 20 SFI filed its
Reply on March 10, 2014. 21
The Issue before the Court
As formulated by SFI, the sole issue to be resolved in the petition
is:
Whether the CA erred in upholding the right of SPCWD to impose
production assessment in the clear absence of any findings/proof
to support compliance that SFI's use of ground water is injuring or
reducing SPCWD's financial condition and impairing its ground
water source, pursuant to Section 39 of PD 198 and Section 11 of
the Rules. 22
The Court's Ruling
The petition has merit.
The jurisdiction of the courts over a dispute involving the right or
authority of a local water utility or water district entity, like SPCWD, to
impose production assessment against commercial or industrial deep well
users, like SFI, pursuant to Section 39 of PD 198 is settled. The issue in
such a dispute is a judicial question properly addressed to the
courts. 23 Thus, the RTC correctly exercised its jurisdiction over the
dispute between SFI and SPCWD.
Section 39 of PD 198, except for a minor typographical error, is
unambiguous, viz.: HSCATc
Section 39. Production Assessment. — In the
event the board of a district finds, after notice and hearing,
that production of ground water by other entities within the
district for commercial or industrial uses in (sic) injuring or
reducing the district's financial condition, the board may
adopt and levy a ground water production assessment to
compensate for such loss. In connection therewith, the
district may require necessary reports by the operator of
any commercial or industrial well. Failure to pay said
assessment shall constitute an invasion of the waters of
the district and shall entitle this district to an injunction and
damages pursuant to Section 32 of this Title.
Section 11 of the Rules is likewise without ambiguity, viz.:
Section 11 — Production Assessment — In the
event the Board of Directors of the District, finds, after
notice and hearing, that production of ground water by
other entities within the District for commercial or industrial
uses is adversely affecting the District['s] financial
condition and is impairing its ground water source, the
Board may adopt and levy a ground water production
assessment or impose special charges at fixed rates to
compensate for such loss. In connection therewith the
District may require commercial or industrial appropriators
to install metering devices acceptable to the District to
measure the actual abstraction or appropriation of water
and which devices shall be regularly inspected by the
District. 24
There being no ambiguity, the plain meaning of Section 39, PD
198 n and Section 11 of the Rules is to be applied. A cardinal rule in
statutory construction is that when the law is clear and free from any doubt
or ambiguity, there is no room for interpretation. There is only room for
application. 25
Under the law and the Rules, the requirements that must be
complied with before a water district entity may impose production
assessment on the production of ground water by commercial or industrial
operators/users are:
1. A prior notice and hearing; and
2. A resolution by the Board of Directors of the water district entity:
(i) finding that the production of ground water by such
operators/users within the district is injuring or reducing
the water district entity's financial condition and is
impairing its ground water source; and (ii) adopting and
levying a ground water production assessment at fixed
rates to compensate for such loss.
The Court, not being a trier of facts, must rely on the findings of
the RTC set forth above.
The RTC correctly applied the clear text of the law and the Rules.
The RTC also correctly ruled that the preconditions for the levying of
production assessment by SPCWD on SFI had not been complied with.
While there had been prior notice and hearing, SPCWD's Board of
Directors had not adopted the required resolution with a definitive finding
that the appropriation by SFI of its two deep well pumps was injuring or
reducing the SPCWD's financial condition and fixing the rate of production
assessment fees to be levied against SFI that would be adequate to
compensate the financial loss it stood to suffer. IDTSEH
It is well to note that, as astutely observed by the RTC, even the
Report and Resolution of the Investigating Board created by SPCWD
made no mention about the injurious effects, if any, of SFI's deep well
operation upon the financial condition of SPCWD. While SPCWD had
drafted a MOA on the imposition of production assessment fees upon
deep well owners/users and provided copies thereof to them, including
SFI, the MOA was not supported by any resolution duly promulgated and
approved by SPCWD's Board of Directors or by any finding that there were
injurious effects of SFI's deep well operation upon the financial condition of
SPCWD. For its part, SFI did not execute the MOA.
A MOA or contract between the water district entity and the deep
well operator/user is not required under the law and the Rules. However,
when a MOA is voluntarily agreed upon and executed, the obligation to
pay production assessment fees on the part of the deep well operator/user
and the right of the water district entity to collect the fees arise from
contract. 26 The parties are, therefore, legally bound to comply with their
respective prestations.
Unlike a MOA, which creates contractual obligations, faithful
compliance with the requirements of Section 39 of PD 198 and Section 11
of the Rules creates binding obligations arising from law. 27 Thus, in the
absence of the requisite board resolution, SPCWD cannot legally impose
any production assessment fees upon SFI.
The CA erred when it ruled that "there is no need to await the
Board Resolution expressly fixing the rate" 28 because a board resolution,
as described above, is a mandatory prerequisite under the law and the
Rules. The CA's invocation of "contemporaneous or practical
construction" 29 and "interpretation by usage or practice" 30 is
unwarranted, Section 39 of PD 198 and Section 11 of the Rules being
crystal clear and wholly unambiguous.
Furthermore, the CA's reliance on the El Niño phenomenon in
1997-1998, which it took judicial notice of, to justify the imposition of
production assessment fees by SPCWD on SFI does not meet the clear
parameters stated in the law and the Rules. What is sought to be
compensated by the production assessment fees is the financial loss that
the water district entity stands to suffer due to the production of the ground
water by the deep well operator/user. The law requires proof of a direct
correlation between the financial loss of the water district entity and the
ground water production of the deep well operator/user. In this case, with
or without the El Niño phenomenon, such direct correlation has not been
preponderantly established as found by the RTC.
WHEREFORE, the Decision dated September 14, 2011 and the
Resolution dated November 13, 2012 of the Court of Appeals in CA-G.R.
CV No. 95617 are REVERSED and SET ASIDE. The Decision dated May
25, 2010 of the Regional Trial Court of San Pablo City, Branch 32 in Civil
Case No. SP-5869, dismissing the petition, is AFFIRMED.
SO ORDERED.
[G.R. No. 189081. August 10, 2016.]
GLORIA S. DY, petitioner, vs. PEOPLE OF THE
PHILIPPINES, MANDY COMMODITIES CO., INC.,
represented by its President, WILLIAM
MANDY, respondents.
DECISION
JARDELEZA,  J p:
Our law states that every person criminally liable for a felony is
also civilly liable. This civil liability ex delicto may be recovered through a
civil action which, under our Rules of Court, is deemed instituted with the
criminal action. While they are actions mandatorily fused, 1 they are, in
truth, separate actions whose existences are not dependent on each other.
Thus, civil liability ex delicto survives an acquittal in a criminal case for
failure to prove guilt beyond reasonable doubt. However, the Rules of
Court limits this mandatory fusion to a civil action for the recovery of civil
liability ex delicto. It, by no means, includes a civil liability arising from a
different source of obligation, as in the case of a contract. Where the civil
liability is ex contractu, the court hearing the criminal case has no authority
to award damages.
The Case
This is a Petition for Review on Certiorari under Rule 45 of
the Rules of Court. Petitioner Gloria S. Dy (petitioner) seeks the reversal of
the decision of the Court of Appeals (CA) dated February 25, 2009
(Assailed Decision) 2 ordering her to pay Mandy Commodities Company,
Inc. (MCCI) in the amount of P21,706,281.00. 3
The Facts
Petitioner was the former General Manager of MCCI. In the course
of her employment, petitioner assisted MCCI in its business involving
several properties. One such business pertained to the construction of
warehouses over a property (Numancia Property) that MCCI leased from
the Philippine National Bank (PNB). Sometime in May 1996, in pursuit of
MCCI's business, petitioner proposed to William Mandy (Mandy),
President of MCCI, the purchase of a property owned by Pantranco. As
the transaction involved a large amount of money, Mandy agreed to obtain
a loan from the International China Bank of Commerce (ICBC). Petitioner
represented that she could facilitate the approval of the loan. True enough,
ICBC granted a loan to MCCI in the amount of P20,000,000.00, evidenced
by a promissory note. As security, MCCI also executed a chattel mortgage
over the warehouses in the Numancia Property. Mandy entrusted
petitioner with the obligation to manage the payment of the loan. 4
In February 1999, MCCI received a notice of foreclosure over the
mortgaged property due to its default in paying the loan obligation. 5 In
order to prevent the foreclosure, Mandy instructed petitioner to facilitate
the payment of the loan. MCCI, through Mandy, issued 13 Allied Bank
checks and 12 AsiaTrust Bank checks in varying amounts and in different
dates covering the period from May 18, 1999 to April 4, 2000. 6 The total
amount of the checks, which were all payable to cash, was
P21,706,281.00. Mandy delivered the checks to petitioner. Mandy claims
that he delivered the checks with the instruction that petitioner use the
checks to pay the loan. 7 Petitioner, on the other hand, testified that she
encashed the checks and returned the money to Mandy. 8 ICBC
eventually foreclosed the mortgaged property as MCCI continued to
default in its obligation to pay. Mandy claims that it was only at this point in
time that he discovered that not a check was paid to ICBC. 9
Thus, on October 7, 2002, MCCI, represented by Mandy, filed a
Complaint-Affidavit for Estafa 10 before the Office of the City Prosecutor of
Manila. On March 3, 2004, an Information 11 was filed against petitioner
before the Regional Trial Court (RTC) Manila.
After a full-blown trial, the RTC Manila rendered a
decision 12 dated November 11, 2005 (RTC Decision) acquitting
petitioner. The RTC Manila found that while petitioner admitted that she
received the checks, the prosecution failed to establish that she was under
any obligation to deliver them to ICBC in payment of MCCI's loan. The trial
court made this finding on the strength of Mandy's admission that he gave
the checks to petitioner with the agreement that she would encash them.
Petitioner would then pay ICBC using her own checks. The trial court
further made a finding that Mandy and petitioner entered into a contract of
loan. 13 Thus, it held that the prosecution failed to establish an important
element of the crime of estafa — misappropriation or conversion.
However, while the RTC Manila acquitted petitioner, it ordered her to pay
the amount of the checks. The dispositive portion of the RTC Decision
states —
WHEREFORE, the prosecution having failed to
establish the guilt of the accused beyond reasonable
doubt, judgment is hereby rendered ACQUITTING the
accused of the offense charged. With costs de officio.
The accused is however civilly liable to the
complainant for the amount of P21,706,281.00.
SO ORDERED. 14
Petitioner filed an appeal 15 of the civil aspect of the RTC
Decision with the CA. In the Assailed Decision, 16 the CA found the
appeal without merit. It held that the acquittal of petitioner does not
necessarily absolve her of civil liability. The CA said that it is settled that
when an accused is acquitted on the basis of reasonable doubt, courts
may still find him or her civilly liable if the evidence so warrant. The CA
explained that the evidence on record adequately prove that petitioner
received the checks as a loan from MCCI. Thus, preventing the latter from
recovering the amount of the checks would constitute unjust enrichment.
Hence, the Assailed Decision ruled —
WHEREFORE, in view of the foregoing, the
appeal is DENIED. The Decision dated November 11,
2005 of the Regional Trial Court, Manila, Branch 33 in
Criminal Case No. 04-224294 which found Gloria Dy civilly
liable to William Mandy is AFFIRMED.
SO ORDERED. 17
The CA also denied petitioner's motion for reconsideration in a
resolution 18 dated August 3, 2009.
Hence, this Petition for Review on Certiorari (Petition). Petitioner
argues that since she was acquitted for failure of the prosecution to prove
all the elements of the crime charged, there was therefore no crime
committed. 19 As there was no crime, any civil liability ex delicto cannot be
awarded.
The Issues
The central issue is the propriety of making a finding of civil liability
in a criminal case for estafa when the accused is acquitted for failure of the
prosecution to prove all the elements of the crime charged.
The Ruling of the Court
We grant the petition.
Civil Liability Arising from Crime
Our laws recognize a bright line distinction between criminal and
civil liabilities. A crime is a liability against the state. It is prosecuted by and
for the state. Acts considered criminal are penalized by law as a means to
protect the society from dangerous transgressions. As criminal liability
involves a penalty affecting a person's liberty, acts are only treated
criminal when the law clearly says so. On the other hand, civil liabilities
take a less public and more private nature. Civil liabilities are claimed
through civil actions as a means to enforce or protect a right or prevent or
redress a wrong. 20 They do not carry with them the imposition of
imprisonment as a penalty. Instead, civil liabilities are compensated in the
form of damages.
 Nevertheless, our jurisdiction recognizes that a crime has a private
civil component. Thus, while an act considered criminal is a breach of law
against the State, our legal system allows for the recovery of civil damages
where there is a private person injured by a criminal act. It is in recognition
of this dual nature of a criminal act that our Revised Penal Code provides
that every person criminally liable is also civilly liable. 21 This is the
concept of civil liability ex delicto.
This is echoed by the New Civil Code when it recognizes acts or
omissions punished by law as a separate source of obligation. 22 This is
reinforced by Article 30 of the same code which refers to the filing of a
separate civil action to demand civil liability arising from a criminal
offense. 23
The Revised Penal Code fleshes out this civil liability in Article
104 24 which states that it includes restitution, reparation of damage
caused and indemnification for consequential damages.
Rules of procedure for criminal
and civil actions involving the
same act or omission
The law and the rules of procedure provide for a precise
mechanism in instituting a civil action pertaining to an act or omission
which is also subject of a criminal case. Our Rules of Court prescribes a
kind of fusion such that, subject to certain defined qualifications, when a
criminal action is instituted, the civil action for the recovery of the civil
liability arising from the offense is deemed instituted as well. 25
However, there is an important difference between civil and
criminal proceedings that require a fine distinction as to how these twin
actions shall proceed. These two proceedings involve two different
standards of proof. A criminal action requires proof of guilt beyond
reasonable doubt while a civil action requires a lesser quantum of proof,
that of preponderance of evidence. This distinction also agrees with the
essential principle in our legal system that while a criminal liability carries
with it a corresponding civil liability, they are nevertheless separate and
distinct. In other words, these two liabilities may co-exist but their
existence is not dependent on each other. 26
The Civil Code states that when an accused in a criminal
prosecution is acquitted on the ground that his guilt has not been proven
beyond reasonable doubt, a civil action for damages for the same act or
omission may be filed. In the latter case, only preponderance of evidence
is required. 27 This is supported by the Rules of Court which provides that
the extinction of the criminal action does not result in the extinction of the
corresponding civil action. 28 The latter may only be extinguished when
there is a "finding in a final judgment in the criminal action that the act or
omission from which the civil liability may arise did not
exist." 29 Consistent with this, the Rules of Court requires that in
judgments of acquittal, the court must state whether "the evidence of the
prosecution absolutely failed to prove the guilt of the accused or merely
failed to prove his guilt beyond reasonable doubt. In either case, the
judgment shall determine if the act or omission from which the civil liability
might arise did not exist." 30
Thus, whether an exoneration from the criminal action should
affect the corresponding civil action depends on the varying kinds of
acquittal. In Manantan v. Court of Appeals, 31 we explained —
Our law recognizes two kinds of acquittal, with
different effects on the civil liability of the accused. First is
an acquittal on the ground that the accused is not the
author of the act or omission complained of. This instance
closes the door to civil liability, for a person who has been
found to be not the perpetrator of any act or omission
cannot and can never be held liable for such act or
omission. There being no delict, civil liability ex delicto is
out of the question, and the civil action, if any, which may
be instituted must be based on grounds other than
the delict complained of. This is the situation contemplated
in Rule 111 of the Rules of Court. The second instance is
an acquittal based on reasonable doubt on the guilt of the
accused. In this case, even if the guilt of the accused has
not been satisfactorily established, he is not exempt from
civil liability which may be proved by preponderance of
evidence only. This is the situation contemplated in Article
29 of the Civil Code, where the civil action for damages is
"for the same act or omission." Although the two actions
have different purposes, the matters discussed in the civil
case are similar to those discussed in the criminal case.
However, the judgment in the criminal proceeding cannot
be read in evidence in the civil action to establish any fact
there determined, even though both actions involve the
same act or omission. The reason for this rule is that the
parties are not the same and secondarily, different rules of
evidence are applicable. Hence, notwithstanding herein
petitioner's acquittal, the Court of Appeals in determining
whether Article 29 applied, was not precluded from looking
into the question of petitioner's negligence or reckless
imprudence. 32
In Dayap v. Sendiong, 33 we further said —
The acquittal of the accused does not
automatically preclude a judgment against him on the civil
aspect of the case. The extinction of the penal action does
not carry with it the extinction of the civil liability where: (a)
the acquittal is based on reasonable doubt as only
preponderance of evidence is required; (b) the court
declares that the liability of the accused is only civil; and
 (c) the civil liability of the accused does not arise from or is
not based upon the crime of which the accused is
acquitted. However, the civil action based on delict may
be deemed extinguished if there is a finding on the final
judgment in the criminal action that the act or omission
from which the civil liability may arise did not exist or
where the accused did not commit the acts or omission
imputed to him. 34
Hence, a civil action filed for the purpose of enforcing civil
liability ex delicto, even if mandatorily instituted with the corresponding
criminal action, survives an acquittal when it is based on the presence of
reasonable doubt. In these instances, while the evidence presented does
not establish the fact of the crime with moral certainty, the civil action still
prevails for as long as the greater weight of evidence tilts in favor of a
finding of liability. This means that while the mind of the court cannot rest
easy in penalizing the accused for the commission of a crime, it
nevertheless finds that he or she committed or omitted to perform acts
which serve as a separate source of obligation. There is no sufficient proof
that the act or omission is criminal beyond reasonable doubt, but there is a
preponderance of evidence to show that the act or omission caused injury
which demands compensation.
Civil Liability Ex Delicto in Estafa Cases
Our laws penalize criminal fraud which causes damage capable of
pecuniary estimation through estafa under Article 315 of the Revised
Penal Code. In general, the elements of estafa are:
(1) That the accused defrauded another (a) by abuse of
confidence, or (b) by means of deceit; and
(2) That damage or prejudice capable of pecuniary
estimation is caused to the offended party or third
person.
The essence of the crime is the unlawful abuse of confidence or
deceit in order to cause damage. As this Court previously held, "the
element of fraud or bad faith is indispensable." 35 Our law abhors the act
of defrauding another person by abusing his trust or deceiving him, such
that, it criminalizes this kind of fraud.
Article 315 of the Revised Penal Code identifies the circumstances
which constitute estafa. Article 315, paragraph 1 (b) states that estafa is
committed by abuse of confidence —
Art. 315.  Swindling (estafa). — . . . (b) By
misappropriating or converting, to the prejudice of another,
money, goods, or any other personal property received by
the offender in trust or on commission, or for
administration, or under any other obligation involving the
duty to make delivery of or to return the same, even
though such obligation be totally or partially guaranteed by
a bond; or by denying having received such money,
goods, or other property.
In this kind of estafa, the fraud which the law considers as criminal
is the act of misappropriation or conversion. When the element of
misappropriation or conversion is missing, there can be no estafa. In such
case, applying the foregoing discussions on civil liability ex delicto, there
can be no civil liability as there is no act or omission from which any civil
liability may be sourced. However, when an accused is acquitted because
a reasonable doubt exists as to the existence of misappropriation or
conversion, then civil liability may still be awarded. This means that, while
there is evidence to prove fraud, such evidence does not suffice to
convince the court to the point of moral certainty that the act of fraud
amounts to estafa. As the act was nevertheless proven, albeit without
sufficient proof justifying the imposition of any criminal penalty, civil liability
exists.
In this case, the RTC Manila acquitted petitioner because the
prosecution failed to establish by sufficient evidence the element of
misappropriation or conversion. There was no adequate evidence to prove
that Mandy gave the checks to petitioner with the instruction that she will
use them to pay the ICBC loan. Citing Mandy's own testimony in open
court, the RTC Manila held that when Mandy delivered the checks to
petitioner, their agreement was that it was a "sort of loan." 36 In the
dispositive portion of the RTC Decision, the RTC Manila ruled that the
prosecution "failed to establish the guilt of the accused beyond reasonable
doubt." 37 It then proceeded to order petitioner to pay the amount of the
loan.
The ruling of the RTC Manila was affirmed by the CA. It said that
"[t]he acquittal of Gloria Dy is anchored on the ground that her guilt was
not proved beyond reasonable doubt — not because she is not the author
of the act or omission complained of. . . . The trial court found no trickery
nor deceit in obtaining money from the private complainant; instead, it
concluded that the money obtained was undoubtedly a loan." 38
Our jurisprudence on this matter diverges.
Earlier cases ordered the dismissal of the civil action for recovery
of civil liability ex delicto whenever there is a finding that there was
no estafa but rather an obligation to pay under a contract. In People v.
Pantig, 39 this Court affirmed the ruling of the lower court acquitting
Pantig, but revoked the portion sentencing him to pay the offended party
the amount of money alleged to have been obtained through false and
fraudulent representations, thus —
The trial court found as a fact that the sum of
P1,200, ordered to be paid in the judgment of acquittal,
was received by the defendant-appellant as loan. This
finding is inconsistent with the existence of the criminal act
 charged in the information. The liability of the defendant
for the return of the amount so received arises from a
civil contract, not from a criminal act, and may not be
enforced in the criminal case.
The portion of the judgment appealed from, which
orders the defendant-appellant to pay the sum of P1,200
to the offended party, is hereby revoked, without prejudice
to the filing of a civil action for the recovery of the said
amount. 40
This was also the import of the ruling in People v. Singson. 41 In
that case, this Court found that "the evidence [was] not sufficient to
establish the existence of fraud or deceit on the part of the accused. . . .
And when there is no proven deceit or fraud, there is no crime
of estafa." 42 While we also said that the established facts may prove
Singson's civil liability (obligation to pay under a contract of sale), we
nevertheless made no finding of civil liability because "our mind cannot
rest easy on the certainty of guilt" 43 considering the above finding. The
dispositive portion stated that Singson is acquitted "without prejudice to
any civil liability which may be established in a civil case against her." 44
However, our jurisprudence on the matter appears to have
changed in later years.
In Eusebio-Calderon v. People, 45 this Court affirmed the finding
of the CA that Calderon "did not employ trickery or deceit in obtaining
money from the private complainants, instead, it concluded that the money
obtained was undoubtedly loans for which [Calderon] paid
interest." 46 Thus, this Court upheld Calderon's acquittal of estafa, but
found her civilly liable for the principal amount borrowed from the private
complainants. 47
The ruling was similar in People v. Cuyugan. 48 In that case, we
acquitted Cuyugan of estafa for failure of the prosecution to prove fraud.
We held that the transaction between Cuyugan and private complainants
was a loan to be used by Cuyugan in her business. Thus, this Court ruled
that Cuyugan has the obligation, which is civil in character, to pay the
amount borrowed. 49
We hold that the better rule in ascertaining civil liability
in estafa cases is that pronounced in Pantig and Singson. The rulings in
these cases are more in accord with the relevant provisions of the Civil
Code, and the Rules of Court. They are also logically consistent with this
Court's pronouncement in Manantan.
Under Pantig and Singson, whenever the elements of estafa are
not established, and that the delivery of any personal property was made
pursuant to a contract, any civil liability arising from the estafa cannot be
awarded in the criminal case. This is because the civil liability arising from
the contract is not civil liability ex delicto, which arises from the same act
or omission constituting the crime. Civil liability ex delicto is the liability
sought to be recovered in a civil action deemed instituted with the criminal
case.
The situation envisioned in the foregoing cases, as in this case, is
civil liability ex contractu where the civil liability arises from an entirely
different source of obligation. Therefore, it is not the type of civil action
deemed instituted in the criminal case, and consequently must be filed
separately. This is necessarily so because whenever the court makes a
finding that the elements of estafa do not exist, it effectively says that there
is no crime. There is no act or omission that constitutes criminal fraud. Civil
liability ex delicto cannot be awarded as it cannot be sourced from
something that does not exist.
When the court finds that the source of obligation is in fact, a
contract, as in a contract of loan, it takes a position completely inconsistent
with the presence of estafa. In estafa, a person parts with his money
because of abuse of confidence or deceit. In a contract, a person willingly
binds himself or herself to give something or to render some
service. 50 In estafa, the accused's failure to account for the property
received amounts to criminal fraud. In a contract, a party's failure to
comply with his obligation is only a contractual breach. Thus, any finding
that the source of obligation is a contract negates estafa. The finding, in
turn, means that there is no civil liability ex delicto. Thus, the rulings in the
foregoing cases are consistent with the concept of fused civil and criminal
actions, and the different sources of obligations under our laws.
We apply this doctrine to the facts of this case. Petitioner was
acquitted by the RTC Manila because of the absence of the element of
misappropriation or conversion. The RTC Manila, as affirmed by the CA,
found that Mandy delivered the checks to petitioner pursuant to a loan
agreement. Clearly, there is no crime of estafa. There is no proof of the
presence of any act or omission constituting criminal fraud. Thus, civil
liability ex delicto cannot be awarded because there is no act or omission
punished by law which can serve as the source of obligation. Any civil
liability arising from the loan takes the nature of a civil liability ex
contractu. It does not pertain to the civil action deemed instituted with the
criminal case.
In Manantan, this Court explained the effects of this result on the
civil liability deemed instituted with the criminal case. At the risk of
repetition, Manantan held that when there is no delict, "civil liability ex
delicto is out of the question, and the civil action, if any, which may be
instituted must be based on grounds other than the delict complained
of." 51 In Dy's case, the civil liability arises out of contract — a different
source of obligation apart from an act or omission punished by law — and
must be claimed in a separate civil action.
Violation of Due Process
 We further note that the evidence on record never fully established embody the fundamental right to notice under the Due Process Clause of
the terms of this loan contract. As the trial before the RTC Manila was the Constitution.
focused on proving estafa, the loan contract was, as a consequence, only
In a situation where a court (in a fused action for the enforcement
tangentially considered. This provides another compelling reason why the
of criminal and civil liability) may validly order an accused-respondent to
civil liability arising from the loan should be instituted in a separate civil
pay an obligation arising from a contract, a person's right to be notified of
case. A civil action for collection of sum of money filed before the proper
the complaint, and the right to have the complaint dismissed if there is no
court will provide for a better venue where the terms of the loan and other
cause of action, are completely defeated. In this event, the accused-
relevant details may be received. While this may postpone a warranted
respondent is completely unaware of the nature of the liability claimed
recovery of the civil liability, this Court deems it more important to uphold
against him or her at the onset of the case. The accused-respondent will
the principles underlying the inherent differences in the various sources of
not have read any complaint stating the cause of action of an obligation
obligations under our law, and the rule that fused actions only refer to
arising from a contract. All throughout the trial, the accused-respondent is
criminal and civil actions involving the same act or omission. These legal
made to believe that should there be any civil liability awarded against him
tenets play a central role in this legal system. A confusion of these
or her, this liability is rooted from the act or omission constituting the crime.
principles will ultimately jeopardize the interests of the parties involved.
The accused-respondent is also deprived of the remedy of having the
Actions focused on proving estafa is not the proper vehicle to thresh out
complaint dismissed through a motion to dismiss before trial. In a fused
civil liability arising from a contract. 52 The Due Process Clause of
action, the accused-respondent could not have availed of this remedy
the Constitution dictates that a civil liability arising from a contract must be
because he or she was not even given an opportunity to ascertain what
litigated in a separate civil action.
cause of action to look for in the initiatory pleading. In such a case, the
Section 1 of the Bill of Rights states that no person shall be accused-respondent is blindsided. He or she could not even have
deprived of property without due process of law. This provision protects a prepared the appropriate defenses and evidence to protect his or her
person's right to both substantive and procedural due process. Substantive interest. This is not the concept of fair play embodied in the Due Process
due process looks into the validity of a law and protects against Clause. It is a clear violation of a person's right to due process.
arbitrariness. 53 Procedural due process, on the other hand, guarantees
The Rules of Court also allows a party to a civil action certain
procedural fairness. 54 It requires an ascertainment of "what process is
remedies that enable him or her to effectively present his or her case. A
due, when it is due, and the degree of what is due." 55 This aspect of due
party may file a cross-claim, a counterclaim or a third-party
process is at the heart of this case.
complaint. 61 The Rules of Court prohibits these remedies in a fused civil
In general terms, procedural due process means the right to notice and criminal case. 62 The Rules of Court requires that any cross-claim,
and hearing. 56 More specifically, our Rules of Court provides for a set of counterclaim or third-party complaint must be instituted in a separate civil
procedures through which a person may be notified of the claims against action. 63 In a legal regime where a court may order an accused in a fused
him or her as well as methods through which he or she may be given the action to pay civil liability arising from a contract, the accused-respondent
adequate opportunity to be heard. is completely deprived of the remedy to file a cross-claim, a counterclaim
or a third-party complaint. This — coupled with an accused-respondent's
The Rules of Court requires that any person invoking the power of
inability to adequately prepare his or her defense because of lack of
the judiciary to protect or enforce a right or prevent or redress a
adequate notice of the claims against him or her — prevents the accused-
wrong 57 must file an initiatory pleading which embodies a cause of
respondent from having any right to a meaningful hearing. The right to be
action, 58 which is defined as the act or omission by which a party violates
heard under the Due Process Clause requires not just any kind of an
a right of another. 59 The contents of an initiatory pleading alleging a
opportunity to be heard. It mandates that a party to a case must have the
cause of action will vary depending on the source of the obligation
chance to be heard in a real and meaningful sense. It does not require a
involved. In the case of an obligation arising from a contract, as in this
perfunctory hearing, but a court proceeding where the party may
case, the cause of action in an initiatory pleading will involve the duties of
adequately avail of the procedural remedies granted to him or her. A court
the parties to the contract, and what particular obligation was breached.
decision resulting from this falls short of the mandate of the Due Process
On the other hand, when the obligation arises from an act or omission
Clause.
constituting a crime, the cause of action must necessarily be different. In
such a case, the initiatory pleading will assert as a cause of action the act Indeed, the language of the Constitution is clear. No person shall
or omission of respondent, and the specific criminal statute he or she be deprived of property without due process of law. Due Process, in its
violated. Where the initiatory pleading fails to state a cause of action, the procedural sense, requires, in essence, the right to notice and hearing.
respondent may file a motion to dismiss even before trial. 60 These rules These rights are further fleshed out in the Rules of Court. The Rules of
Court enforces procedural due process because, to repeat the words of judgment that litigants have a clear understanding of the proper recourse
this Court in Secretary of Justice v. Lantion, it provides for "what process is in similar cases. We therefore rule that insofar as MCCI is concerned, the
due, when it is due, and the degree of what is due." 64 A court ordering an filing of an action, if any (that may be sourced from the contract of loan),
accused in a fused action to pay his or her contractual liability deprives him becomes a legal possibility only upon the finality of this decision which
or her of his or her property without the right to notice and hearing as definitively ruled upon the principles on fused actions.
expressed in the procedures and remedies under the Rules of Court.
We add, however, that upon finality of this decision, prospective
Thus, any court ruling directing an accused in a fused action to pay civil
litigants should become more circumspect in ascertaining their course of
liability arising from a contract is one that completely disregards the Due
action in similar cases. Whenever a litigant erroneously pursues
Process Clause. This ruling must be reversed and the Constitution upheld.
an estafa case, and the accused is subsequently acquitted because the
Conclusion obligation arose out of a contract, the prescriptive period will still be
counted from the time the cause of action arose. In this eventuality, it is
The lower courts erred when they ordered petitioner to pay her
probable that the action has already prescribed by the time the criminal
civil obligation arising from a contract of loan in the same criminal case
case shall have been completed. This possibility demands that prospective
where she was acquitted on the ground that there was no crime. Any
litigants do not haphazardly pursue the filing of an estafa case in order to
contractual obligation she may have must be litigated in a separate civil
force an obligor to pay his or her obligation with the threat of criminal
action involving the contract of loan. We clarify that in cases where the
conviction. It compels litigants to be honest and fair in their judgment as to
accused is acquitted on the ground that there is no crime, the civil action
the proper action to be filed. This ruling should deter litigants from turning
deemed instituted with the criminal case cannot prosper precisely because
to criminal courts as their collection agents, and should provide a
there is no delict from which any civil obligation may be sourced. The
disincentive to the practice of filing of criminal cases based on unfounded
peculiarity of this case is the finding that petitioner, in fact, has an
grounds in order to provide a litigant a bargaining chip in enforcing
obligation arising from a contract. This civil action arising from the contract
contracts.
is not necessarily extinguished. It can be instituted in the proper court
through the proper civil action. WHEREFORE, in view of the foregoing, the Petition is GRANTED.
The Decision of the CA dated February 25, 2009 is REVERSED. This is
We note that while there is no written contract of loan in this case,
however, without prejudice to any civil action which may be filed to claim
there is an oral contract of loan which must be brought within six
civil liability arising from the contract.
years. 65 Under the facts of the case, it appears that any breach in the
obligation to pay the loan may have happened between 1996 and 1999, or SO ORDERED.
more than six years since this case has been instituted. This
|||  (Dy v. People, G.R. No. 189081, [August 10, 2016], 792 PHIL 672-697)
notwithstanding, we find that the civil action arising from the contract of
loan has not yet prescribed. Article 1150 of the Civil Code states —
Art. 1150. The time for prescription for all kinds of
actions, when there is no special provision which ordains
otherwise, shall be counted from the day they may be
brought.
We held in numerous cases that it is the legal possibility of
bringing the action that determines the starting point for the computation of
the period of prescription. 67 We highlight the unique circumstances
surrounding this case. As discussed in this decision, there has been
diverse jurisprudence as to the propriety of ordering an accused to pay an
obligation arising from a contract in the criminal case where the accused
was acquitted on the ground that there is no crime. Litigants, such as
MCCI, cannot be blamed for relying on prior rulings where the recovery on
a contract of loan in a criminal case for estafa was allowed. We have
found the opportunity to clarify this matter through this decision. As it is
only now that we delineate the rules governing the fusion of criminal and
civil actions pertaining to estafa, it is only upon the promulgation of this