G.R. No.

91201 December 5, 1991

EUSTAQUIO MAYO Y AGPAOA, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, respondent.

GUTIERREZ, JR., J.:

The petition seeks to review the decision of the Court of Appeals insofar as the appellate court affirmed the
decision of the Regional Trial Court of Angeles City, Branch 57, awarding the amount of Seven Hundred
Thousand Pesos (P700,000.00) as moral damages in favor of Linda Navarette, complainant in Criminal Case
No. 5633, entitled "People of the Philippines v. Eustaquio Mayo y Agpaoa."
Petitioner Eustaquio Mayo y Agpaoa was charged withthe crime of "Reckless Imprudence Resulting in
Damage to Property with Multiple Serious, Less Serious, and Slight Physical Injuries" in an information filed by
the Provincial Fiscal of Pampanga with the Regional Trial Court of Angeles City allegedly committed as follows:
That on or about the 7th day of August, 1982, at more or less 4:10 o'clock in the afternoon, along the
MacArthur Highway, at barangay Mamatitang, in the municipality of Mabalacat, province of Pampanga,
Philippines, and within the jurisdiction of this Honorable Court, the above-named accused EUSTAQUIO MAYO
Y AGPAOA, being the driver and person in charge of a Philippine Rabbit bus bearing Plate No. 888 FG PUB
Pilipinas, without observing traffic rules, regulations and ordinances, without exercising due precaution to avoid
accident to persons and damage to property, by giving the said bus a speed far greater than is allowed by law,
did then and there wilfully, unlawfully, and feloniously drive, operate and manage said vehicle in a careless,
reckless and imprudent manner, causing as a result of his carelessness, recklessness and imprudence to
bump and hit a Lancer car bearing Plate No. NSJ 720 L Pilipinas, thereby causing damage to the said Lancer
car in the total amount of SIXTY SEVEN THOUSAND NINE HUNDRED TWENTY FIVE PESOS AND FORTY
ONE CENTAVOS (P67,925.41) and belonging to June Navarette, to the damage and prejudice of the said
owner, in the total amount of P67,925.41, Philippine Currency, likewise causing injuries causing partial
disfigurement on the facial portion of the said Linda Navarette, a total loss of vision on her right, also causing
physical injuries upon Narciso Yandan, which needed and will need medical attendance for a period of from ten
(10) to fifteen (15) days, and incapacitated and will incapacitate said victim from performing his customary
labor for the same period of time, and also causing physical injuries upon Mae Custodio, which needed and will
need medical attendance for a period of from three (3) to four (4) weeks, and incapacitated and will
incapacitate said victim from performing his (sic) customary labor for the same period of time, likewise causing
physical injuries upon June Navarette, Noel Reynaldo Navarette, Legionaria Panopio, Mercy Panopio and
Raymond Asprer, which needed and did need medical attendance for a period of from seven (7) to eight (8)
days and incapacitated and will incapacitate said victims from performing their customary labor for the same
period of time.
All contrary to law. (Rollo, pp. 40-42; Original Records, pp. 46-47)
The facts as found by the trial court and quoted by the Court of Appeals are not disputed. These are:
The evidence for the prosecution shows that on August 7, 1982, between 4:00 to 4:30 o'clock in the afternoon,
June Navarette was driving a Mitsubishi Lancer, owned by Linda Navarette, her sister, along MacArthur
Highway in Bo. Mamatitang, travelling towards the general direction of Manila on board the Lancer car were
Linda Navarette, Legionaria Panopio, Mae Custodio, Noel Reynaldo Navarette, Raymond Asprer (aged 6
years), Antonette Asprer (aged 4 years), and Mercy Panopio. Noel Reynaldo Navarette and Raymond Asprer
were seated on the front seat at the right side of the driver. Linda and the rest of the passengers were all
seated at the back seat.
The Lancer car was then cruising steadily at the right lane of the road in Bo. Mamatitang, Mabalacat,
Pampanga at a rate of speed of about forty kilometers per hour (40 kph), southbound for Manila. No other
vehicle was preceding the Lancer car. There was, however, the Philippine Rabbit bus driven by accused
Eustaquio Mayo, Jr. trailing closely behind the Lancer car. Behind the Philippine Rabbit bus was a Tamaraw
jeep driven by Danilo Miranda Concepcion.
As the vehicles approached the vicinity of Mabalacat Institute, the Rabbit bus picked up speed and swerved to
the left lane to overtake the Lancer car which was running on the right lane of the highway. When the Rabbit
bus was abreast with the Lancer, an oncoming vehicle from the opposite direction appeared and flashed its
headlights to warn the Rabbit bus to give way. The Rabbit bus swerved to its right in an effort to return to the
right lane to avoid collision with the oncoming vehicle, and in the process it hit and bumped the left rear side
portion of the Lancer car wih its right front bumper. Because of the impact the driver of the Lancer car lost
control of the wheel and the car swerved across to the left and hit Narciso Yandan, a bystander, and thereafter
crashed against the concrete fence of Mr. Bernie Reyes. (p. 221, orig. rec.)
xxx xxx xxx
It was established that before the accident took place, the Tamaraw jeep was first ahead, followed by the
Lancer car, and behind the Lancer car was the Rabbit bus, travelling towards the direction of Manila. The
Lancer car as well as the Rabbit bus following one after the other overtook the Tamaraw jeep. The Rabbit bus,
still trailing behind the Lancer car, then tried to overtake the Lancer car. And when the Rabbit bus, was abreast
with the Lancer car, there was an oncoming vehicle approaching and signalling through the flash of its
headlights from the opposite direction. The Rabbit bus, to avoid a head-on collision with the vehicle, tried to get
back to its lane to the right, and in the process it bumped the left rear portion of the Lancer car (Exhibit `H-1-
A'), which was then cruising on the right lane of the road. Thus because of the impact, precipitated by the
reckless imprudence of the accused, a chain reaction occurred; the driver of the Lancer car lost control of the
wheel and the car swerved to the left and darted across the road, hitting thereat Narciso Yandan, a pedestrian,
and stopped only when it crashed against the concrete fence of Mr. Bernie Reyes.
The Lancer car was heavily damaged. It was almost a total wreck; the passengers, including the driver,
sustained physical injuries in varying degrees.
xxx xxx xxx
(p. 234, orig. rec.) (Rollo, pp. 42-44)
On the basis of these factual findings, the petitioner was convicted as charged. The civil aspect of the case
was heard in the criminal case. Hence, the complainants in the criminal case were awarded damages. The
dispositive portion of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered finding accused Eustaquio Mayo Jr. y
Agpaoa guilty beyond reasonable doubt of the felony of Reckless Imprudence Resulting in Damage to Property
with Multiple Serious, Less Serious, and Slight Physical Injuries as charged in the information, and the Court
sentences the said accused Eustaquio Mayo Jr. y Agpaoa to suffer the penalty of imprisonment of twenty (20)
days of Arresto Menor as minimum to four (4) months of Arresto Mayor as maximum, and to indemnify:
1. Linda Navarette the sum of —
(a) P192,236.07 as actual damages;
(b) P700,000.00 as moral damages;
(c) P67,925.41 for the repair of the Lancer car; and
(d) P80,000.00 as attorney's fees.
2. Noel Reynaldo Navarette the sum of P60,000.00 as moral damages.
3. Mae Custodio the sum of —
(a) P2,032.00 as actual damages; and
(b) P50,000.00 as moral damages.
4. June Navarette the sum of —
(a) P495.00 as actual damages; and
(b) P5,000.00 as moral damages.
And in case of insolvency, the Philippine Rabbit Bus Lines, Inc. is subsidiarily liable to pay or indemnify the
aforenamed injured passengers of the Lancer car.
SO ORDERED. (pp. 235-236, orig. rec.) (Rollo, pp. 39-40)
The petitioner filed an appeal with the Court of Appeals. The trial court's decision was affirmed with the
modification that the appellant suffer a straight penalty of three months which was recommended by the
Solicitor General on the ground that the Indeterminate Sentence Law is not applicable in the instant case, the
maximum penalty imposable not exceeding one year (Sec. 2, Art. No. 4103, as amended)
A motion for reconsideration was denied for lack of merit.
Hence, this petition.
In a resolution dated April 22, 1991, we gave due course to the petition.
As stated earlier, the instant petition is limited to the moral damages in the amount of P700,000.00. Initially, the
petitioner alleged the amount of P1,000,000.00 as moral damages awarded to Linda Navarette. The amount
was later clarified to be P700,000.00 awarded to complainant Linda Navarette as a result of the vehicular
accident.
The petitioner summarizes its objections to the award of moral damages in favor of Linda Navarette as follows:
1. The Court of Appeals gravely abused its discretion and seriously erred in awarding moral damages to the
private complainant without citing the factual basis for such an award and without giving the justification for
granting such an arbitrary and exorbitant amount of over One Million Pesos.
2. The Court of Appeals gravely abused its discretion and seriously erred in awarding an exorbitant amount of
One Million Pesos to complainant Linda Navarette by way of moral damages despite the fact that: a) the
complainant had placed a value of only P500,000.00 for her mental, psychological and moral sufferings, and b)
the complainant's claim for moral damages for the loss of her boyfriend in the amount of P1,000.000.00 can
have no legal or factual basis. (Rollo, p. 16-17)
xxx xxx xxx
As alleged by the petitioner, the Court of Appeals did not discuss specific factual circumstances which would
justify the award of moral damages in favor of Navarette. Instead, the appellate court in general terms stated
that:
The Court has gone over decision appealed from and finds it replete with facts, with the details, the anguish,
the fright, the anxieties, the shock and loss, that the victims had gone through and suffered. As to legal
provisions, the law is specific concerning the award of moral damages. ... (Rollo, p. 46)
The appellate court then cited the provisions of the Civil Code, specifically Articles 2217 and 2219 to justify the
legal basis for the award of moral damages. It then concluded that "The record shows ample proof introduced
in support of the award of damages in this case. The Court is satisfied that the amount of award is not
excessive and is in accord with the law and the facts of the case." (Rollo, p. 48)
We examine the decision of the trial court as regards the propriety of the award of moral damages in favor of
Linda Navarette
Extant from the trial court's decision are the following findings of the said court:
Linda R. Navarette is 32 years old, single, Assistant Vice-President and Resident Manager of Club Solviento,
Quezon City.
xxx xxx xxx
As a result of the bumping incident the car was severely damaged, its passengers sustained physical injuries
and Linda Navarette suffered the most among them:
xxx xxx xxx
As to her injuries, she claimed that she was first brought to the Central Luzon Hospital in San Fernando,
Pampanga for treatment. A medical certificate was issued to her by Dr. Ramon B. Po (Exhibit "M"). She was
also brought to the U.S.T. Hospital (Exhibits "N" and "N-1") and at the Makati Medical Center for further
treatment of her injuries (Exhibits "CC" and "EE"). That in her medical certificate (Exhibits "N" and "N-1") the
doctor concluded that `Permanent partial facial disfigurement and total loss of vision of the right eye will result';
that Linda Navarette showed to the Court the ugly scar on her forehead and the total loss of vision of her right
eye, now replaced by a false eye. She also presented for appreciation five (5) copies of her pictures depicting
the permanent partial facial disfigurement and damage of the right eye (Exhibits "O", "O-1", "O-2", "O-3" and
"O-4").
Linda Navarette declared that she had a boyfriend. She lost him after the accident. She broke down and
couldn't help but cry and between sobs she bewailed over her misfortune. According to her she had worked for
so many years — thirteen (13) long years — that it took her time to get her career, and couldn't bear losing her
eye simply because of a reckless driver.
xxx xxx xxx
On advice of Dr. Carlos L. Sevilla, Eye Specialist of the Makati Medical Center (Exhibit "G") Linda Navarette
went to San Francisco, U.S.A. for further treatment. ..."
xxx xxx xxx
She was examined and treated by Dr. William Danz an Eye Specialist, at the Dental Building, Posch Street, in
San Francisco, California. After her check-up and treatment, she was asked by Dr. Danz to return to the U.S.
after eight (8) months for another round of examination because the doctor noticed some changes in her
ruptured right eye. ...
xxx xxx xxx
She expressed her desire to go back to the United States for another round of check-up and examination for
which she expects to spend from P60,000.00 to P80,000.00 because she willalso undergo plastic surgery
(Exhibit "II").
Linda Navarette is an Economist by profession. She is a graduate of Bachelor of Science in Home Economics
at the University of the Philippines. She is at present the Assistant Vice-President as well as the Resident
Manager of Club Solviento, and as such she received a gross take-home pay of P10,000.00 a month (Exhibit
"B"). And prior to her mishap she was also the Food Consultant of Food City for which she received a monthly
salary of P7,000.00. She lost her consultancy job because of her prolonged absence and because of her
physical handicap she suffered as a result of the accident, that she had to resign (Exhibit "U").
For four (4) months immediately following the accident she was unable to report for work and she had to avail
of her vacations and sick leaves from the two (2) companies, which in the past, if the same were not availed of,
she converted them into cash. But because of the accident, and having been forced to use them, she was not
able to avail herself of the cash equivalent amounting to P32,000.00.
Were it not for the accident and the injuries she sustained, she could, according to her, continue performing her
job as Consultant for ten (10) to twenty (20) years more.
xxx xxx xxx
Linda Navarette claimed that the general anaesthesia applied to her has greatly impaired her memory. She
declared that she easily forgets what she is supposed to say and what she is supposed to do. According to her
it has negatively affected her job as Assistant Vice-President and Resident Manager of Club Solviento. She
claimed that she lost her other work and salary of P7,000.00 a month as consultant of Food City.
xxx xxx xxx
She placed a value of her mental, psychological and moral sufferings in the amount of P500,000.00 as moral
damages, and for the loss of her boyfriend she asked to double the amount giving as a reason that her
boyfriend would have been her lifetime partner and her guide of her eye forever had she not lost him.
xxx xxx xxx
Dr. Brion is a physician and lawyer by profession. From 1939 up to the present, he has been the medico-legal
consultant of the U.S.T. Hospital. ...
xxx xxx xxx
Dr. Brion is certain that permanent facial disfigurement and total loss of vision of the right eye would inevitably
result from the injuries sustained by Linda Navarette. He further declared that after the wounds in the face of
Linda Navarette had healed, they would surely leave a permanent scar in her face.
According to Dr. Brion, there is no way or medical process by which the loss of vision of Linda Navarette's right
eye could be saved because, necessarily, the right eyeball, which was injured, had to be removed. It had to be
removed for the reason that the contused-laceration of the right eyeball involving the cornea, ciliary body,
sclera with extension to vitreus, retina and choroid destroyed the right eyeball; that it cannot be saved and
there is a necessity of artificial eye placement on the socket. He said he has treated and observed
considerable number of cases similar to Linda Navarette's and in all those cases, total loss of vision had
resulted. (Rollo, pp. 71-75)
The foregoing findings form the only basis for the award of moral damages in favor of Linda Navarette. These
were adopted by the appellate court in affirming the trial court's decision as regards the award of moral
damages in favor of Linda Navarette.
The vital question now is whether or not the said findings of the trial court justify the award of moral damages
in the amount of P700,000.00 in favor of complainant Linda Navarette.
There is no question that moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury. Though incapable
of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant's
wrongful act or omission. (Article 2217, New Civil Code; People v. Baylon, 129 SCRA 62 [1984]; Prudenciado
v. Alliance Transport System, Inc., 148 SCRA 440 [1987]). Moreover, Article 2219 of the New Civil Code
provides that:
ART. 2219. Moral damages may be recovered in the following and analogous cases:
(1) A criminal offense resulting in physical injuries.
(2) Quasi-delicto causing physical injuries.
(3) Seduction, abduction, rape or other lascivious acts.
(4) Adultery or concubinage.
(5) Illegal search.
(6) Libel, slander or any other form of defamation.
(7) Malicious prosecution.
(8) Acts mentioned in article 309.
(9) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.
xxx xxx xxx
We agree that complainant Linda Navarette is entitled to moral damages. She suffered injuries as a result of
the criminal offense of the petitioner. Moreover, her injuries resulting in a permanent scar at her forehead and
the loss of her right eye undoubtedly gave her mental anguish, wounded feelings and shock. The psychological
effect on her as regards the scar on her forehead and her false eye must have devastated her considering that
women in general are fastidious on how they look.
More important, however, was the loss of vision of her right eye which was severely injured as a result of the
accident. Since the accident, Linda Navarette had to contend with the loss of her eyesight on her right eye
which necessarily hampers her not only physically but also professionally for the rest of her life. Before the
accident, Linda Navarette who is a home economist by profession was doing well in her career. A graduate of
the University of the Philippines with the degree of Home Economics, she is the Assistant-Vice President as
well as Resident Manager of Club Solviento receiving a gross income of P10,000.00 a month. Simultaneously
with her work at Club Solviento, she served as Food Consultant of Food City where she received a monthly
salary of P7,000.00. She, however, had to give up her consultancy job after the accident not only because of
her prolonged absences but because of the physical handicap she suffered.
Nevertheless, we find no justification to award moral damages in favor of Linda Navarette for the lossof her
boyfriend. No doubt, the loss of her boyfriend after the accident added to her mental and emotional sufferings
and psychologically affected and disturbed her. However, there is no clear evidence on record to show that her
boyfriend left her after the accident due to her physical injuries. He may have left her even if she did not suffer
the slightest injury. The reasons for the break-up of a courtship are too many and too complicated such that
they should not form the basis of damages arising from a vehicular accident. Moreover, granting that her
boyfriend left her due to her physical injuries, we still find no legal basis for the award of moral damages in
favor of complainant Navarette because of the loss of a boyfriend. Article 2719 of the New Civil Code quoted
earlier enumerates cases wherein moral damages may be granted. Loss of a boyfriend as a result of physical
injuries suffered after an accident is not one of them. Neither can it be categorized as an analogous case.
With the foregoing findings we now resolve the issue as regards the amount of moral damages to which Linda
Navarette is entitled.
The well-entrenched principle is that moral damages depend upon the discretion of the trial courts based on
the facts and circumstances of each case. (Prudenciado v. Alliance Transport System, supra; Pleno v. Court of
Appeals, 161 SCRA 208 [1988]). This discretion is, however, conditioned in that the "amount awarded should
not be palpably and scandalously excessive" so as to indicate that it was the result of prejudice or corruption
on the part of the trial court." (Gellada v. Warner Barnes & Co., Inc., 57 O.G. [4] 7347, 7358; Sadie v. Bachrach
Motors Co., Inc. 57 O.G. [4] 636; Prudenciado v. Alliance Transport System, Inc. supra; Pleno v. Court of
Appeals, supra; Siguenza v. Court of Appeals, 137 SCRA 570 [1985]). In determining the amount of moral
damages, the actual losses sustained by the aggrieved party and the gravity of the injuries must be
considered. (Pleno v. Court of Appeals, supra; Prudenciado v. Alliance Transport System, Inc. supra; Siguenza
v. Court of Appeals; supra) Finally, "moral damages are emphatically not intended to enrich a complainant at
the expense of the defendant. They are awarded only to enable the injured party to obtain means, diversion or
amusements that will serve to alleviate the moral suffering he has undergone, by reason of the defendant's
culpable action." (R & B Surety & Insurance Co., Inc. v. Intermediate Appellate Court, 129 SCRA 736 [1984];
citing Grand Union Super- market, Inc. v. Espino, Jr., 94 SCRA 953 [1979], citedin Prudenciado v. Alliance
Transport System, Inc. supra)
Applying these principles in the instant case, we rule that the award of P700,000.00 as moral damages in favor
of complainant Linda Navarette is unconscionable and excessive. We rejected Navarette's claim for the
amount of P1,000,000.00 as moral damages for the loss of her boyfriend. We note that she asked for the
amount of P500,000.00 as moral damages due to her personal injuries. Therefore, the award for moral
damages should not exceed the amount of P500,000.00 (Makabali v. Court of Appeals, 157 SCRA 253 [1988])
We rule that under the circumstances of the instant case, the amount of P200,000.00 as moral damages in
favor of complainant Linda Navarette is reasonable, just and fair.
One final consideration.
In a resolution dated September 25, 1991, we required Atty. Evelyn Balgos-Guballa of the Acosta and Rico
Law Offices, counsel for the private respondent, to show cause why disciplinary action should not be taken
against her for failure to file the required memorandum within the extended period which expired on July 22,
1991 within ten days from notice.
In her "COMPLIANCE", Atty. Evelyn Balgos-Guballa stated that she finished the draft of the memorandum as
early as the first week of July and submitted it to the partner-in-charge, Atty. Rex G. Rico; that it was only
recently, that she discovered that the memorandum was inadvertently inserted by one of their secretaries
(while fixing the table of Atty. Rex G. Rico) among the files of other cases of the law firm; that this unfortunate
incident precluded the partner-in-charge to review, correct or modify the draft of the memorandum; and that
after discovery of the incident they immediately finalized and filed the memorandum on October 8, 1991.
We find the explanation of Atty. Balgos-Guballa unsatisfactory. The law firm should have adopted a more
systematic procedure to handle pleadings required to be filed in court. In the instant case, the memorandum
was due on July 22, 1991 yet and it would seem that the law firm, if believed, discovered the secretary's
blunder two (2) months or more thereafter. Such inaction on the part of the law firm, specifically Atty. Rico and
Atty. Balgos-Guballa to check whether or not the required memorandum has been filed with the Court within
the reglementary period is equivalent to gross negligence on their part to comply with the directive of the Court.
WHEREFORE, the instant petition is partly GRANTED. The questioned decision of the Court of Appeals is
MODIFIED in that the amount of P700,000.00 as moral damages granted to complainant Linda Navarette is
reduced to P200,000.00.
Atty. Rex G. Rico and Atty. Evelyn Balgos-Guballa are hereby REPRIMANDED for non-compliance with
theResolution dated September 25, 1991 with the warning that further gross negligence of this nature
committed by them would be dealt with more severely.
SO ORDERED.
[G.R. No. 150487. July 10, 2003]
GERARDO F. SAMSON JR., petitioner, vs. BANK OF THE PHILIPPINE ISLANDS, respondent.
DECISION
PANGANIBAN, J.:
Gross negligence of a bank in the handling of its clients deposit amounts to bad faith that calls for an award of
moral damages. Credit is very important to businessmen, and its loss or impairment needs to be recognized
and compensated.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the March 30,
2001 Decision[2] and the October 22, 2001 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No.
54599. The dispositive portion of the assailed Decision reads as follows:
WHEREFORE, foregoing premises considered, the Decision appealed from is AFFIRMED WITH A
MODIFICATION that the award of moral damages is reduced to P50,000.00.[4]
The assailed Resolution denied the Motions for Reconsideration filed by the parties.
The Facts
The CA summarized the antecedents of the case as follows:
Gerardo F. Samson, Jr. filed an action for damages against the Bank of the Philippine Islands.
In his complaint, [petitioner] avers, inter alia that he is a client/depositor of [respondent] with Savings Account
No. 3085-0125-75 through the [respondents] Express Teller System[,] a 24-hour banking service; that on
August 20, 1990, [petitioner] deposited to his BPI account a Prudential Bank Check No. 209116 in the amount
of Three Thousand Five Hundred Pesos (P3,500.00); that as of said date, [petitioners] account balance was
Three Hundred Sixty-Seven and 38/100 Pesos (P367.38); that on August 24, 1990, [petitioner] instructed his
daughter to withdraw P2,000.00 from the said account; that the withdrawal was declined twice as the Express
Teller transaction record showed Sorry, Insufficient Funds; that because of such eventuality, [petitioner]
suffered embarrassment as he could not then and there produce the required cash with which to fulfill his
commitment and monetary obligation towards a creditor who had waited at his residence; that on September
12, 1990, [petitioner] deposited to his aforesaid account through the Express Teller, the amount of Five
Thousand Five Hundred Pesos (P5,500.00); that he discovered that his available total balance as of said date
was only Three Hundred Forty-Two and 38/100 Pesos (P342.38) without his earlier check deposit of Three
Thousand Five Hundred Pesos (P3,500.00) on August 20, 1990 but with a Twenty-Five Peso (P25.00)
penalty/service charge; that [petitioner] complained to [respondent] about the discrepancy; that [respondent]
confirmed the P3,500.00 check deposit but could not account the same; that investigation only ensued after
[petitioner] informed [respondent] that his P3,500.00 Prudential Bank check was encashed by [respondents]
security guard named Nonilon E. Rondina; that per such investigation, it was discovered that one of the deposit
envelopes was missing; that [respondent] did nothing to look for the missing check deposit or to inform
[petitioner] about it; that despite [respondents] knowledge of the irregularity and suspicious discrepancy in its
records as early as of August 20, 1990, it did not even bother to conduct its own inquiry into said irregularity;
that worse, despite being at fault, [respondents] Manager, Nerissa M. Cayanga, displayed arrogance,
indifference and discourtesy towards [petitioner].
In its Answer, [respondent] Bank denied all the material allegations in the [C]omplaint and alleged among
others, that the [C]omplaint fails to state a cause of action; that [petitioner] has violated the provisions of the
covering contract of deposit which provides that representatives are not allowed to contract business on the
account on behalf of the depositor; that [petitioners] claim has been paid, waived and extinguished; that
[petitioner] by his inaction in reporting the loss of his check deposit, is estopped from claiming damages from
defendant.
After trial on the merits, the trial court rendered [a Decision in favor of petitioner].[5]
Ruling of the Court of Appeals
The CA affirmed the ruling of the trial court, but modified the amount of damages. It held that since the banking
business was affected with public interest, Bank of the Philippine Islands (BPI) was required to exercise a high
degree of care with respect to the accounts of its clients. Thus, the bank was rendered liable by its negligence
resulting in damage to its depositor.
Since it was undisputed that BPI had lost the check of petitioner, the appellate court reviewed the evidence and
held that respondent bank was grossly negligent in its failure to observe the required degree of care. This
gross negligence on the part of BPI amounted to bad faith that entitled petitioner to moral damages. The moral
damages of P200,000 awarded by the trial court was, however, found to be excessive. It was therefore
reduced to P50,000, because petitioner claimed only P3,500, which had already been credited back to his
account.
Hence, this Petition.[6]
Issues:
In his Memorandum, petitioner submits the following issues for the Courts consideration:
I
Whether the reduction of the award of moral damages to Php50,000.00, a mere one-fourth of the moral
damages awarded by the trial court, was proper.
II
Assuming that Respondent BPI is not precluded from raising this defense in this appeal, whether petitioner
was negligent in demanding the return of his deposit, which was lost through the banks gross negligence and
inaction.[7]
In sum, the main issue in this case is whether the CA erred in reducing the award of moral damages
from P200,000 to only P50,000.
The Courts Ruling
The Petition is partly meritorious.
Sole Issue:
Amount of Moral Damages
Moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries
unjustly caused.[8] Although incapable of pecuniary estimation, the amount must somehow be proportional to
and in approximation of the suffering inflicted.[9]Moral damages are not punitive in nature[10] and were never
intended to enrich the claimant at the expense of the defendant.[11]
There is no hard-and-fast rule in determining what would be a fair and reasonable amount of moral damages,
since each case must be governed by its own peculiar facts. [12] Trial courts are given discretion in determining
the amount, with the limitation that it should not be palpably and scandalously excessive. [13] Indeed, it must be
commensurate to the loss or injury suffered.[14]
In the present case, petitioner bases his claim on the failure of respondent to credit the sum of P3,500 to his
account due to its gross negligence. As a result of such failure, he was unable to fulfill his obligation to a
valued creditor, resulting in the severance of his credit line. He further alleges that he suffered humiliation and
besmirched reputation.[15] According to him, his suffering was exacerbated by his subjection to indifference,
discourtesy and arrogance from respondents officers.
Moral damages are awarded to achieve a spiritual status quo, thus:
Moral damages are awarded to enable the injured party to obtain means, diversions or amusements that will
serve to alleviate the moral suffering he/she has undergone, by reason of the defendants culpable action. Its
award is aimed at restoration, as much as possible, of the spiritual status quo ante; thus, it must be
proportionate to the suffering inflicted. Since each case must be governed by its own peculiar circumstances,
there is no hard and fast rule in determining the proper amount. x x x.[16]
The social standing of the aggrieved party is essential to the determination of the proper amount of the
award. Otherwise, the goal of enabling him to obtain means, diversions, or amusements to restore him to
the status quo ante would not be achieved.
We believe that the award should be increased to P100,000, considering (1) that petitioner was a businessman
and was the highest lay person in the United Methodist Church; (2) that he was regarded by respondent and its
officers with arrogance and a condescending manner; and (3) that respondent successfully postponed
compensating him for more than a decade.This amount is more than the P50,000 granted by the CA, but not
as much as the P200,000 granted by the RTC.

That petitioner reported the missing check deposit to respondent only after three weeks did not constitute
contributory negligence. The injury resulted from the denial of his withdrawal due to insufficient funds, an injury
he suffered before learning that his check deposit had been lost. Respondent, not he, immediately knew that a
deposit envelop was missing, yet it did nothing to solve the problem. His alleged delay in reporting the matter
did not at all contribute to his injury.
Though the amount of P3,500 was already credited back to his account, this step was made only after his
persistent prompting. Prior to this development, he suffered damages that could no longer be reversed by the
belated restoration of the amount lost. It is for this suffering that moral damages are due.
In Prudential Bank v. CA,[17] Philippine National Bank v. CA[18] and Metropolitan Bank v. Wong,[19] the Court
consistently awarded moral damages of P100,000 in consideration of the reputation and the social standing of
the claimant, as well as the rulings in similar cases involving the negligence of banks with regard to the
accounts of their depositors.
WHEREFORE, the Petition is partly GRANTED and the assailed Decision MODIFIED. The award of moral
damages is increased to P100,000. No pronouncement as to costs.
SO ORDERED.
G.R. No. 139436 January 25, 2006
ENRICO B. VILLANUEVA and EVER PAWNSHOP, Petitioners,
vs.
SPS. ALEJO SALVADOR and VIRGINIA SALVADOR, Respondents.
DECISION
GARCIA, J.:
Assailed and sought to be set aside in this petition for review on certiorari under Rule 45 of the Rules of Court
is the July 16, 1999 decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 49965, which affirmed in toto an
earlier decision2 of the Regional Trial Court (RTC) at Pasig in Civil Case No. 62334.
The pertinent facts:
On December 20, 1991, herein respondents, the spouses Alejo Salvador and Virginia Salvador (Salvadors,
collectively), secured a loan of P7,650.00 from petitioner Ever Pawnshop owned and managed by co-petitioner
Enrico B. Villanueva (Villanueva). On January 23, 1992, the Salvadors took out a second loan of P5,400.00
pledging, just like in the first loan transaction, jewelry items. Pawnshop Ticket No. 29919, covering the first
loan, indicated April 10, 1992 as the last day to redeem the jewelries pawned, whereas the redemption period
for the items given as security for the second loan under Pawnshop Ticket No. 30792 fell on May 22, 1992.
The separate redemption periods came and went, but the Salvadors failed to redeem the pawned pieces of
jewelry. Nonetheless, on June 1, 1992, their son paid Ever Pawnshop P7,000.00, the amount to be applied
against the first loan of P7,650.00. On account of this development, Pawnshop Ticket No. 29919 was cancelled
and replaced by Pawnshop Ticket No. 34932. Vis-à-vis the second loan, Ever Pawnshop agreed to the
extension of the maturity date to June 30, 1992, provided the Salvadors pay 20% of their second loan
obligation on or before June 4, 1992, failing which the securing items shall be auctioned as scheduled. Unlike
in the first loan, however, a new pawn ticket was not issued for the second loan.
In the meantime, Ever Pawnshop issued a notice announcing the public auction sale on June 4, 1992 of all
January 1 to 31, 1992 unredeemed pledges. The notice appeared in the Classified Ads Section of the Manila
Bulletin on June 4, 1992, the very day of the auction itself.
On July 1, 1992, the Salvadors repaired to the pawnshop in a bid to renew the second loan by tendering the
aforesaid 20% of the amount due thereon, only to be informed that the pledged jewelry had already been
auctioned as scheduled on June 4, 1992. As found by the CA, however, pieces of the pawned jewelry items
were still in the shop, 3 indicating that Ever Pawnshop either bought some of the unredeemed pledges or did
not sell them.
A month after, Mrs. Salvador attempted to redeem the jewelry items pledged for the first loan, as renewed, but
all she got in response were unclear information as to their whereabouts.
On August 7, 1992, Mr. Salvador tendered payment of the amount due on both loans, with a demand for the
return of the jewelry thus pledged. Ever Pawnshop, however, refused to accept the tender.
Such was the state of things when, on August 11, 1992, at the RTC-Pasig City, the Salvadors filed a complaint
for damages against Villanueva and Ever Pawnshop arising from the sale without notice of the two (2) sets of
jewelry pledged as security for both loans. The complaint, docketed as Civil Case No. 62334, was eventually
raffled to Branch 164 of the court.
Barely two days after Villanueva et al., received summons, their counsel informed the Salvadors of his clients’
willingness to accept payment heretofore tendered for the redemption of the jewelry pledged to secure the first
loan. The Salvadors, however, turned down this belated offer.
Answering, Villanueva and Ever Pawnshop, as defendants a quo, averred, inter alia, that by letters dated
March 23, 1992 and May 5, 1992, Ever Pawnshop reminded the Salvadors of the maturity dates and
redemption period of their loans. Also alleged in the answer with counterclaim for damages was the publication
in the June 4, 1992 issue of the Manila Bulletin of the notice of public auction of all unredeemed pledges from
January 1 to 31, 1992.
Eventually, in a decision4 dated January 25, 1995, the trial court, on its finding that the set of jewelry covered
by the renewed first and second loans were sold without the necessary notice, rendered judgment for the
Salvadors, to wit:
WHEREFORE, the Court hereby renders judgment in favor of the plaintiffs [Salvadors] and against the
defendants [Villanueva and Ever Pawnshop]. Defendants are hereby ordered to pay to the plaintiffs:
1. The sum of P20,000.00 by way of moral damages;
2. The sum of P5,400.00 as the value of the jewelry sold under the second loan;
3. The sum of P5,000.00 as and for attorney’s fees; and
4. The costs of suit.
Defendants are also ordered to restore to the possession of the [Salvadors] the jewelry that they pawned under
the first loan, covered by pawn ticket nos. 29919 and 34932, upon payment by the plaintiffs of the redemption
price due last 10 August 1992.
The counterclaim of the defendants is dismissed.
SO ORDERED. (Words in bracket added.)
Therefrom, petitioners went on appeal to the CA whereat their recourse was docketed as CA-G.R. CV No.
49965.
As stated at the threshold hereof, the CA, in its decision of July 16, 1999, affirmed in toto that of the trial court,
the affirmance being predicated on the following main justifications:
As the trial court correctly pointed out, the May 5, 1992 "List of Notified Clients" (Exhs. 6, 6-A, 6-B ) . . .
including the names of the [respondents] and Ticket Nos. 29919 and 30792 is not proof that notices
were actually sent to [respondents]. While the list contains 132 names, only 98 [postage] stamps were
purchased, hence, it cannot be determined who among the 132 people were sent notices.
And as surmised by the trial court, the set of jewelry pledged to secure the first loan must have been
auctioned, as scheduled on May 7, 1992, but that by mistake the pledge was renewed (on June 1, 1992), that
is why it was only after the [petitioners] received the summons in late August 1992 when probably they
recovered the pledged jewelry that they expressed willingness to accept the [respondents’] tender of payment
for the redemption of said pledge jewelry securing the first (renewed) loan.
Admittedly, the [respondents] did not pay their loans on maturity. But [petitioners] breached their contractual
and legal obligation to inform the [respondents] of the public auction of the jewelry securing it.
Furthermore, [petitioners] failed to comply with the requirements . . . that the notice must be published during
the week preceding the sale in two daily newspapers of general circulation in the city or municipality. The paid
notice of public auction to be held on June 4, 1992 by Ever Pawnshop was published only on even date, and
only in one newspaper, the Manila Bulletin. And particularly with respect to the second loan, why was the
jewelry pledged to secure it included in the June 4, 1992 auction when plaintiffs had up to that date to pay 20%
of the amount due thereunder as a condition to its renewal?
xxx xxx xxx
Anent the questioned award of moral damages: Even assuming that [respondents’] failure to pay their
obligation on maturity amounts to contributory negligence, that does not abate the award of moral damages in
their favor given the [petitioners’] failure to comply with the contractual and statutory requirements before the
pledged jewelry was auctioned which failure amounts to misconduct contemplated in Article 2220 of the New
Civil Code – basis of the award thereof (Laguna Tayabas Bus Company v. Cornista 11 SCRA 181- 182 (Words
in bracket added)
Hence, this petition on the following issues:
1. Whether the items of jewelry under the first loan were actually sold by the petitioners;
2. Whether valid notice of the sale of the pledged jewelry was effected;
3. Whether the award of P20,000.00 as moral damages and P5,000.00 as attorneys fees are proper; and
4. Whether the trial and appellate courts erred in ordering both the petitioners to pay damages.
Under the first issue, petitioners fault the CA in holding that the jewelry pledged under the first loan was sold by
them.
Doubtless, the first issue raised by petitioners relates to the correctness of the factual finding of the CA –
confirmatory of that of the trial court – on the disposition of the set of jewelry covered by Pawnshop Ticket No.
34932. Such issue is beyond the province of the Court to review since it is not its function to analyze or weigh
all over again the evidence or premises supportive of such factual determination. 5 The Court has consistently
held that the findings of the CA must be accorded great weight and shall not be disturbed on appeal, save for
the most compelling and cogent reasons,6 like when manifest error has been committed.7
As nothing in the record indicates any of such exceptions, the factual conclusion of the CA that petitioners
indeed sold the jewelry items given to secure the first loan must be affirmed.
Indeed, petitioner pawnshop expressed willingness to accept tender of payment and to return the pawned
jewelry only after being served with summons. Apparently, Ever Pawnshop had found a way to recover said
jewelry by that time. If, as aptly observed by the CA, the jewelry had never been sold, as petitioners so allege,
but had been in their possession all along, they could have provided a plausible explanation for the initial
refusal to accept tender of payment and to return the jewelry. Petitioners’ belated overture to accept payment
after spurning the initial offer to pay can only be due to the fact that, when respondents offered to pay the first
time around, they (petitioners) no longer had possession of the jewelry items in question, having previously
disposed of them.
Moving on to the second issue, petitioners argue that the respondents were effectively put on notice of the sale
of the pledged jewelries, the maturity date and expiry date of redemption period of the two loans being
indicated on the face of each of the covering pawnshop tickets. Pressing the point, petitioners invite attention
to the caveat printed on the dorsal side of the tickets stating that the pledged items shall be auctioned off in the
event they are not redeemed before the expiry date of the redemption period.
We are not persuaded by petitioners’ faulty argument.
Section 13 of Presidential Decree (P.D.) 114, otherwise known as the Pawnshop Regulation Act, and even the
terms and conditions of the pledge itself, accord the pawner a 90-day grace period from the date of maturity of
the loan obligation within which to redeem the pawn. But even before the lapse of the 90-day period, the same
Decree requires the pawnbroker to notify the defaulting debtor of the proposed auction sale. Section 14 thereof
provides:
Section 14. Disposition of pawn on default of pawner.—In the event the pawner fails to redeem the pawn within
ninety days from the date of maturity of the obligation . . ., the pawnbroker may sell . . . any article taken or
received by him in pawn: Provided, however, that the pawner shall be duly notified of such sale on or before
the termination of the ninety-day period, the notice particularly stating the date, hour and place of the sale.
However, over and above the foregoing prescription is the mandatory requirement for the publication of such
notice once in at least two daily newspapers during the week preceding the date of the auction sale.8
The CA cannot really be faulted for making short shrift of petitioners’ posture respecting their alleged
compliance with the notice requirement in question. As it were, petitioner Ever Pawnshop, as determined by
the CA, only caused publication of the auction in one newspaper, i.e., the Manila Bulletin, and on the very day
of the scheduled auction sale itself, instead of a week preceding the sale as prescribed by Section 15 of P.D.
114. Verily, a notice of an auction sale made on the very scheduled auction day itself defeats the purpose of
the notice, which is to inform a pawner beforehand that a sale is to occur so that he may have that last chance
to redeem his pawned items.
This brings us to the issue of the award of moral damages which petitioners correctly tag as erroneous, and,
therefore, should be deleted.
While proof of pecuniary loss is unnecessary to justify an award of moral damages, the amount of indemnity
being left to the sound discretion of the court, it is, nevertheless, essential that the claimant satisfactorily
proves the existence of the factual basis of the damages9 and its causal connection to defendant’s wrongful act
or omission. This is so because moral damages, albeit incapable of pecuniary estimation, are designed to
compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. 10 There is
thus merit on petitioners’ assertion that proof of moral suffering must precede a moral damage award. 11
The conditions required in awarding moral damages are: (1) there must be an injury, whether physical, mental
or psychological, clearly sustained by the claimant; (2) there must be a culpable act or omission factually
established; (3) the wrongful act or omission of the defendant must be the proximate cause of the injury
sustained by the claimant; and (4) the award of damages is predicated on any of the cases stated in Article
2219 of the Civil Code.12
While there need not be a showing that the defendant acted in a wanton or malevolent manner, as this is a
requirement for an award of exemplary damages,13 there must still be proof of fraudulent action or bad faith for
a claim for moral damages to succeed. 14 Then, too, moral damages are generally not recoverable in culpa
contractual except when bad faith supervenes and is proven.15
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of known duty through some motive or interest or ill-will that
partakes of the nature of the fraud.16 And to the person claiming moral damages rests the onus of proving by
convincing evidence the existence of bad faith, for good faith is presumed.17
As aptly pointed out by petitioners, the trial court concluded that the respondents’ "cause of action arose
merely from the negligence of the herein [petitioners]."18 It may be that gross negligence may sometimes
amount to bad faith.19 But what is before us is a matter of simple negligence only, it being the trial court’s
categorical finding that the case came about owing to petitioners’ mistake in renewing the loan when the sale
of the article to secure the loan had already been effected. Wrote the trial court:
"What must have happened next was that the jewelry under the first loan was sold, as scheduled, on 7 May
1992. Due to an oversight, the defendants mistakenly renewed the first loan on 1 June 1992, issuing pawn
ticket number 34932 in the process."20 [Emphasis supplied]
The CA’s reliance on Article 2220 of the Civil Code in affirming the award of moral damages is misplaced. Said
article provides:
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find
that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract
where the defendant acted fraudulently or in bad faith.
Clear it is from the above that before moral damages may be assessed thereunder, the defendant’s act must
be vitiated by bad faith or that there is willful intent to injure. Simply put, moral damages cannot arise from
simple negligence.
The award of attorney’s fees should, likewise, be struck down, both the CA and trial court having failed to
explain respondents’ entitlement thereto. As a matter of sound practice, an award of attorney’s fee has always
been regarded as the exception rather than the rule. Counsel’s fees are, to be sure, not awarded every time a
party prevails in a suit because of the policy that no premium should be placed on the right to litigate.
Attorney’s fees, as part of damages, are assessed only in the instances specified in Article 2208 of the Civil
Code.21 And it is necessary for the trial court to make express findings of fact and law that would bring the case
within the exception. In short, the factual, legal or equitable justification for the award must be set forth in the
text of the decision.22 The matter of attorney’s fees cannot be touched only in the fallo of the decision, else the
award should be thrown out for being speculative and conjectural.23
Certainly not lost on the Court is the fact that petitioners, after being served with summons, made an attempt to
obviate litigation by offering to accept tender of payment and return the jewelry. This offer, however belated,
could have saved much expense on the part of both parties, as well as the precious time of the court itself. The
respondents chose to turn down this offer and pursue judicial recourse. With this in mind, it hardly seems fair to
award them attorneys fees at petitioners’ expense.
The final issue relating to the question of whether or not both respondents are liable for damages has, for all
intent and purposes, been rendered moot and academic by the disposition just made. We need not dwell on it
any further. Besides, this particular issue has only made its debut in the present recourse. And it is a well-
entrenched rule that issues not raised below cannot be resolved on review in higher courts. 24 A question that
was never raised in the court below cannot be allowed to be raised for the first time on appeal without
offending basic rules of fair play, justice and due process.25
WHEREFORE, with the MODIFICATION that the awards of moral damages and attorneys fees are deleted,
the decision under review is hereby AFFIRMED.
No pronouncement as to cost.
SO ORDERED.
MERCURY DRUG CORPORATION andG.R. No. 172122
ROLANDO J. DEL ROSARIO,
Petitioners, v Promulgated:
SPOUSES RICHARD HUANG and CARMEN
HUANG, and STEPHEN HUANG, June 22, 2007
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
PUNO, C.J.:
On appeal are the Decision[1] and Resolution[2] of the Court of Appeals in CA-G.R. CV No. 83981, dated
February 16, 2006 and March 30, 2006, respectively which affirmed with modification the Decision [3] of the
Regional Trial Court (RTC) of Makati City, dated September 29, 2004. The trial court found petitioners jointly
and severally liable to pay respondents damages for the injuries sustained by respondent Stephen Huang, son
of respondent spouses Richard and Carmen Huang.
First, the facts:
Petitioner Mercury Drug Corporation (Mercury Drug) is the registered owner of a six-wheeler 1990 Mitsubishi
Truck with plate number PRE 641 (truck). It has in its employ petitioner Rolando J. del Rosario as
driver. Respondent spouses Richard and Carmen Huang are the parents of respondent Stephen Huang and
own the red 1991 Toyota Corolla GLI Sedan with plate number PTT 775 (car).
These two vehicles figured in a road accident on December 20, 1996 at around 10:30 p.m. within the
municipality of Taguig, Metro Manila. Respondent Stephen Huang was driving the car, weighing 1,450 kg.,
while petitioner Del Rosario was driving the truck, weighing 14,058 kg. Both were traversing the C-5 Highway,
north bound, coming from the general direction of Alabang going to Pasig City. The car was on the left
innermost lane while the truck was on the next lane to its right, when the truck suddenly swerved to its left and
slammed into the front right side of the car. The collision hurled the car over the island where it hit a lamppost,
spun around and landed on the opposite lane. The truck also hit a lamppost, ran over the car and zigzagged
towards, and finally stopped in front of Buellah Land Church.
At the time of the accident, petitioner Del Rosario only had a Traffic Violation Receipt (TVR). His drivers license
had been confiscated because he had been previously apprehended for reckless driving.
The car, valued at P300,000.00, was a total wreck. Respondent Stephen Huang sustained massive injuries to
his spinal cord, head, face, and lung. Despite a series of operations, respondent Stephen Huang is paralyzed
for life from his chest down and requires continuous medical and rehabilitation treatment.
Respondents fault petitioner Del Rosario for committing gross negligence and reckless imprudence while
driving, and petitioner Mercury Drug for failing to exercise the diligence of a good father of a family in the
selection and supervision of its driver.
In contrast, petitioners allege that the immediate and proximate cause of the accident was respondent Stephen
Huangs recklessness. According to petitioner Del Rosario, he was driving on the left innermost lane when the
car bumped the trucks front right tire. The truck then swerved to the left, smashed into an electric post, crossed
the center island, and stopped on the other side of the highway. The car likewise crossed over the center
island and landed on the same portion of C-5. Further, petitioner Mercury Drug claims that it exercised due
diligence of a good father of a family in the selection and supervision of all its employees.
The trial court, in its Decision dated September 29, 2004, found petitioners Mercury Drug and Del Rosario
jointly and severally liable to pay respondents actual, compensatory, moral and exemplary damages, attorneys
fees, and litigation expenses. The dispositive portion reads:
WHEREFORE, judgment is rendered finding defendants Mercury Drug Corporation, Inc. and Rolando del
Rosario, jointly and severally liable to pay plaintiffs Spouses Richard Y. Huang and Carmen G. Huang, and
Stephen Huang the following amounts:
1. Two Million Nine Hundred Seventy Three Thousand Pesos (P2,973,000.00) actual damages;
2. As compensatory damages:
a. Twenty Three Million Four Hundred Sixty One Thousand, and Sixty-Two Pesos (P23,461,062.00) for life
care cost of Stephen;
b. Ten Million Pesos (P10,000,000.00) as and for lost or impaired earning capacity of Stephen;
3. Four Million Pesos (P4,000,000.00) as moral damages;
4. Two Million Pesos (P2,000,000.00) as exemplary damages; and
5. One Million Pesos (P1,000,000.00) as attorneys fees and litigation expense.[4]
On February 16, 2006, the Court of Appeals affirmed the decision of the trial court but reduced the award of
moral damages to P1,000,000.00. The appellate court also denied the motion for reconsideration filed by
petitioners.
Hence, this appeal.
Petitioners cite the following grounds for their appeal:
1. That the subject Decision which dismissed the appeal of petitioners herein but AFFIRMED WITH
MODIFICATION the decision of the Regional Trial Court, Branch 64, Makati City, in that the award of moral
damages was reduced to P1,000,000.00 and its Resolution dated March 30, 2006, which dismissed outright
the Motion for Reconsideration must be set aside because the Honorable Court of Appeals committed
reversible error:
A. IN DENYING OUTRIGHTLY THE MOTION FOR RECONSIDERATION ON ALLEGEDLY BEING FILED
OUT OF TIME FOR ONE DAY;
B. IN ACCORDING GREATER WEIGHT TO THE EVIDENCE ADDUCED BY THE RESPONDENTS
HEREIN AND COMPLETELY DISREGARDING THE DEFENSE INTERPOSED BY THE PETITIONERS
HEREIN;
C. IN DISREGARDING COMPLETELY ALL EVIDENCES PRESENTED BY THE PETITIONERS HEREIN
AND PROCEEDED TO RENDER ITS DECISION BASED ON PRESUMPTIONS AND PERSONAL OPINIONS
OF PEOPLE WHO ARE NOT WITNESSES TO THE ACCIDENT;
D. IN AWARDING DAMAGES IN FAVOR OF RESPONDENTS HEREIN;
E. IN FINDING THAT MERCURY DRUG CORPORATION FAILED TO EXERCISE THE DILIGENCE
REQUIRED IN SUPERVISING ITS EMPLOYEES DESPITE OVERWHELMING EVIDENCE PRESENTED BY
PETITIONER COMPANY;
F. IN FINDING THAT PETITIONER ROLANDO DEL ROSARIO WAS NEGLIGENT IN DRIVING THE
TRUCK AT THE TIME OF ACCIDENT AND TOTALLY DISREGARDING THE EVIDENCES PRESENTED
DURING THE TRIAL OF THE CASE.
G. IN PRESENTING ONLY IN THE DECISION TESTIMONIES FAVORABLE TO THE RESPONDENTS
HEREIN AND COMPLETELY DISREGARDING THE EVIDENCES PRESENTED BY THE PETITIONERS
HEREIN WHICH CONTRADICTED SUCH TESTIMONIES NOT ONLY THROUGH ORAL TESTIMONIES BUT
AS WELL AS DOCUMENTARY EVIDENCES.[5]
We affirm the findings of the trial court and the appellate court that petitioner Del Rosario was negligent. The
evidence does not support petitioners claim that at the time of the accident, the truck was at the left inner lane
and that it was respondent Stephen Huangs car, at its right, which bumped the right front side of the
truck. Firstly, petitioner Del Rosario could not precisely tell which part of the truck was hit by the car, [6] despite
the fact that the truck was snub-nosed and a lot higher than the car. Petitioner Del Rosario could not also
explain why the car landed on the opposite lane of C-5 which was on its left side. He said that the car did not
pass in front of him after it hit him or under him or over him or behind him. [7] If the truck were really at the left
lane and the car were at its right, and the car hit the truck at its front right side, the car would not have landed
on the opposite side, but would have been thrown to the right side of the C-5 Highway. Noteworthy on this
issue is the testimony of Dr. Marlon Rosendo H. Daza, an expert in the field of physics. He conducted a study
based on the following assumptions provided by respondents:
1. Two vehicles collided;
2. One vehicle is ten times heavier, more massive than the other;
3. Both vehicles were moving in the same direction and at the same speed of about 85 to 90 kilometers per
hour;
4. The heavier vehicle was driving at the innermost left lane, while the lighter vehicle was at its right.
Dr. Daza testified that given the foregoing assumptions, if the lighter vehicle hits the right front portion of the
heavier vehicle, the general direction of the light vehicle after the impact would be to the right side of the heavy
vehicle, not the other way around. The truck, he opined, is more difficult to move as it is heavier. It is the car,
the lighter vehicle, which would move to the right of, and away from the truck. Thus, there is very little chance
that the car will move towards the opposite side, i.e., to the left of the truck.
Dr. Daza also gave a further study on the basis of the same assumptions except that the car is on the left side
of the truck, in accordance with the testimony of respondent Stephen Huang. Dr. Daza concluded that the
general direction of the car after impact would be to the left of the truck. In this situation, the middle island
against which the car was pinned would slow down the car, and enable the truck to catch up and hit the car
again, before running over it.[8]
To support their thesis, petitioners tried to show the damages that the truck sustained at its front right side. The
attempt does not impress. The photographs presented were taken a month after the accident, and Rogelio
Pantua, the automechanic who repaired the truck and authenticated the photographs, admitted that there were
damages also on the left side of the truck.[9]
Worse still, petitioner Del Rosario further admitted that after the impact, he lost control of the truck and failed to
apply his brakes. Considering that the car was smaller and lighter than the six-wheeler truck, the impact
allegedly caused by the car when it hit the truck could not possibly be so great to cause petitioner to lose all
control that he failed to even step on the brakes. He testified, as follows:
ATTY. DIAZ:
May I proceed, Your Honor. You were able to apply the brakes, were you sir?
WITNESS:
No more, sir, because I went over the island.
ATTY. DIAZ:
Because as you said you lost control, correct sir?
WITNESS:
Yes, sir.
ATTY. DIAZ:
In other words, sir from the time your truck was hit according to you up to the time you rested on the shoulder,
you traveled fifty meters?
WITNESS:
Yes, sir, about that distance.
ATTY. DIAZ:
And this was despite the fact that you were only traveling at the speed of seventy five kilometers per hour,
jumped over the island, hit the lamppost, and traveled the three lanes of the opposite lane of C-5 highway, is
that what you want to impress upon this court?
WITNESS:
Yes, sir.[10]
We therefore find no cogent reason to disturb the findings of the RTC and the Court of Appeals. The evidence
proves petitioner Del Rosarios negligence as the direct and proximate cause of the injuries suffered by
respondent Stephen Huang. Petitioner Del Rosario failed to do what a reasonable and prudent man would
have done under the circumstances.
We now come to the liability of petitioner Mercury Drug as employer of Del Rosario. Articles 2176 and 2180 of
the Civil Code provide:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this Chapter.
Art. 2180. The obligation imposed by article 2176 is demandable not only for ones own acts or omissions, but
also for those of persons for whom one is responsible.
xxx
The owners and managers of an establishment or enterprise are likewise responsible for damages caused by
their employees in the service of the branches in which the latter are employed or on the occasion of their
functions.
xxx
The liability of the employer under Art. 2180 of the Civil Code is direct or immediate. It is not conditioned on a
prior recourse against the negligent employee, or a prior showing of insolvency of such employee. It is also
joint and solidary with the employee.[11]
To be relieved of liability, petitioner Mercury Drug should show that it exercised the diligence of a good father of
a family, both in the selection of the employee and in the supervision of the performance of his duties. Thus, in
the selection of its prospective employees, the employer is required to examine them as to their qualifications,
experience, and service records.[12] With respect to the supervision of its employees, the employer should
formulate standard operating procedures, monitor their implementation, and impose disciplinary measures for
their breach. To establish compliance with these requirements, employers must submit concrete proof,
including documentary evidence.[13]
In the instant case, petitioner Mercury Drug presented testimonial evidence on its hiring procedure. According
to Mrs. Merlie Caamic, the Recruitment and Training Manager of petitioner Mercury Drug, applicants are
required to take theoretical and actual driving tests, and psychological examination. In the case of petitioner
Del Rosario, however, Mrs. Caamic admitted that he took the driving tests and psychological examination
when he applied for the position of Delivery Man, but not when he applied for the position
of Truck Man. Mrs. Caamic also admitted that petitioner Del Rosario used a Galant which is a light vehicle,
instead of a truck during the driving tests. Further, no tests were conducted on the motor skills development,
perceptual speed, visual attention, depth visualization, eye and hand coordination and steadiness of petitioner
Del Rosario. No NBI and police clearances were also presented. Lastly, petitioner Del Rosario attended only
three driving seminars on June 30, 2001, February 5, 2000 and July 7, 1984. In effect, the only seminar he
attended before the accident which occurred in 1996 was held twelve years ago in 1984.
It also appears that petitioner Mercury Drug does not provide for a back-up driver for long trips. At the time of
the accident, petitioner Del Rosario has been out on the road for more than thirteen hours, without any
alternate. Mrs. Caamic testified that she does not know of any company policy requiring back-up drivers for
long trips.[14]
Petitioner Mercury Drug likewise failed to show that it exercised due diligence on the supervision and discipline
over its employees. In fact, on the day of the accident, petitioner Del Rosario was driving without a license. He
was holding a TVR for reckless driving. He testified that he reported the incident to his superior, but nothing
was done about it. He was not suspended or reprimanded.[15] No disciplinary action whatsoever was taken
against petitioner Del Rosario. We therefore affirm the finding that petitioner Mercury Drug has failed to
discharge its burden of proving that it exercised due diligence in the selection and supervision of its employee,
petitioner Del Rosario.
We now consider the damages which respondents should recover from the petitioners.
The trial court awarded the following amounts:
1. Two Million Nine Hundred Seventy-Three Thousand Pesos (P2,973,000.00) actual damages;
2. As compensatory damages:
a. Twenty-Three Million Four Hundred Sixty One Thousand, and Sixty-Two Pesos (P23,461,062.00) for life
care cost of Stephen;
b. Ten Million Pesos (P10,000,000.00) as and for lost or impaired earning capacity of Stephen;
3. Four Million Pesos (P4,000,000.00) as moral damages;
4. Two Million Pesos (P2,000,000.00) as exemplary damages; and
5. One Million Pesos (P1,000,000.00) as attorneys fees and litigation expense.
The Court of Appeals affirmed the decision of the trial court but reduced the award of moral damages
to P1,000,000.00.
With regard to actual damages, Art. 2199 of the Civil Code provides that [E]xcept as provided by law or by
stipulation one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has
duly proved x x x. In the instant case, we uphold the finding that the actual damages claimed by respondents
were supported by receipts. The amount of P2,973,000.00 represented cost of hospital expenses, medicines,
medical services and supplies, and nursing care services provided respondent Stephen from December 20,
1996, the day of the accident, until December 1998.
Petitioners are also liable for all damages which are the natural and probable consequences of the act or
omission complained of.[16] The doctors who attended to respondent Stephen are one in their prognosis that his
chances of walking again and performing basic body functions are nil. For the rest of his life, he will need
continuous rehabilitation and therapy to prevent further complications such as pneumonia, bladder and rectum
infection, renal failure, sepsis and severe bed sores, osteoporosis and fractures, and other spinal cord injury-
related conditions. He will be completely dependent on the care and support of his family. We thus affirm the
award of P23,461,062.00 for the life care cost of respondent Stephen Huang, based on his average monthly
expense and the actuarial computation of the remaining years that he is expected to live; and the conservative
amount of P10,000,000.00, as reduced by the trial court, for the loss or impairment of his earning capacity,
[17]
considering his age, probable life expectancy, the state of his health, and his mental and physical condition
before the accident. He was only seventeen years old, nearly six feet tall and weighed 175 pounds. He was in
fourth year high school, and a member of the school varsity basketball team. He was also class president and
editor-in-chief of the school annual. He had shown very good leadership qualities. He was looking forward to
his college life, having just passed the entrance examinations of the University of the Philippines, De La Salle
University, and the University of Asia and the Pacific. The University of Sto. Tomas even offered him a chance
to obtain an athletic scholarship, but the accident prevented him from attending the basketball try-outs. Without
doubt, he was an exceptional student. He excelled both in his academics and extracurricular undertakings. He
is intelligent and motivated, a go-getter, as testified by Francisco Lopez, respondent Stephen Huangs
godfather and a bank executive.[18] Had the accident not happened, he had a rosy future ahead of him. He
wanted to embark on a banking career, get married and raise children. Taking into account his outstanding
abilities, he would have enjoyed a successful professional career in banking. But, as Mr. Lopez stated, it is
highly unlikely for someone like respondent to ever secure a job in a bank. To his knowledge, no bank has ever
hired a person suffering with
[19]
the kind of disability as Stephen Huangs.
We likewise uphold the award of moral and exemplary damages and attorneys fees.
The award of moral damages is aimed at a restoration, within the limits of the possible, of the spiritual status
quo ante.[20] Moral damages are designed to compensate and alleviate in some way the physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury unjustly caused a person. Although incapable of pecuniary computation, they
must be proportionate to the suffering inflicted. [21] The amount of the award bears no relation whatsoever with
the wealth or means of the offender.
In the instant case, respondent Stephen Huang and respondent spouses Richard and Carmen Huang testified
to the intense suffering they continue to experience as a result of the accident. Stephen recounted the
nightmares and traumas he suffers almost every night when he relives the accident. He also gets depression
when he thinks of his bleak future. He feels frustration and embarrassment in needing to be helped with almost
everything and in his inability to do simple things he used to do. Similarly, respondent spouses and the rest of
the family undergo their own private suffering. They live with the day-to-day uncertainty of respondent Stephen
Huangs condition. They know that the chance of full recovery is nil. Moreover, respondent Stephen Huangs
paralysis has made him prone to many other illnesses. His family, especially respondent spouses, have to
make themselves available for Stephen twenty-four hours a day. They have patterned their daily life around
taking care of him, ministering to his daily needs, altering the lifestyle to which they had been accustomed.
Respondent Carmen Huangs brother testified on the insensitivity of petitioner Mercury Drug towards the plight
of respondent. Stephen, viz.:
Maybe words cannot describe the anger that we feel towards the defendants. All the time that we were going
through the crisis, there was none (sic) a single sign of nor offer of help, any consolation or anything
whatsoever. It is funny because, you know, I have many colleagues, business associates, people even as far
as United States, Japan, that I probably met only once, when they found out, they make a call, they sent card,
they write small notes, but from the defendant, absolute silence. They didnt care, and worst, you know, this is a
company that have (sic) all the resources to help us. They were (sic) on our part, it was doubly painful because
we have no choice but to go back to them and buy the medicines that we need for Stephen. So, I dont know
how someone will really have no sense of decency at all to at least find out what happened to my son, what is
his condition, or if there is anything that they can do to help us.[22]
On the matter of exemplary damages, Art. 2231 of the Civil Code provides that in cases of quasi-delicts,
exemplary damages may be granted if the defendant acted with gross negligence. The records show that at
the time of the accident, petitioner Del Rosario was driving without a license because he was previously
ticketed for reckless driving.The evidence also shows that he failed to step on his brakes immediately after the
impact. Had petitioner Del Rosario done so, the injuries which respondent Stephen sustained could have been
greatly reduced. Wanton acts such as that committed by petitioner Del Rosario need be suppressed; and
employers like petitioner Mercury Drug should be more circumspect in the observance of due diligence in the
selection and supervision of their employees. The award of exemplary damages in favor of the respondents is
therefore justified.
With the award of exemplary damages, we also affirm the grant of attorneys fees to respondents. [23] In addition,
attorneys fees may be granted when a party is compelled to litigate or incur expenses to protect his interest by
reason of an unjustified act of the other party.[24]
Cost against petitioners.
IN VIEW THEREOF, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated
February 16, 2006 and March 30, 2006, respectively, in CA-G.R. CV No. 83981, are AFFIRMED.
SO ORDERED.
[G.R. No. 99301. March 13, 1997]
VICTOR KIERULF, LUCILA H. KIERULF and PORFIRIO LEGASPI, petitioners, vs. THE COURT OF
APPEALS and PANTRANCO NORTH EXPRESS, INCORPORATED, respondents.
[G.R. No. 99343. March 13, 1997]
PANTRANCO NORTH EXPRESS, INCORPORATED, petitioner, vs. VICTOR KIERULF, LUCILA H.
KIERULF and PORFIRIO LEGASPI, respondents.
DECISION
PANGANIBAN, J.:
How much moral, exemplary and actual damages are victims of vehicular accidents entitled to?
In G.R. No. 99301, the victims of the vehicular mishap pray for an increase in the award of damages, over and
above those granted by the appellate court. In this case, the husband of the victim of the vehicular accident
claims compensation/damages for the loss of his right to marital consortium which, according to him, has been
diminished due to the disfigurement suffered by his wife. In G.R. No. 99343, the transport company, which
owned the bus that collided with the victims' pickup truck, asks for exoneration by invoking an alleged
fortuitous event as the cause of the mishap.
Petitioners in both cases assail the Decision, [1] dated March 13, 1991, in CA-GR CV No. 23361 of the Court of
Appeals, Sixth Division[2] ordering the following:[3]
"For reasons indicated and in the light of the law and jurisprudence applicable to the case at bar, the judgment
of the trial court is hereby modified as follows:
Under the first cause of action, the defendant is hereby ordered to pay Lucila H. Kierulf the following:
(1) For actual damages incurred for hospitalization, medical case (sic) and doctor's fees, the sum
of P241,861.81;
(2) For moral damages the sum of P200,000.00;
(3) For exemplary damages the amount of P100,000.00.
Under the second cause of action, to pay Victor Kierulf, by way of indemnification damage to the Isuzu Carry
All with plate No. UV PGS 798, the amount of P96,825.15.
Under the third cause of action, to pay Porfirio Legaspi the following:
(1) For moral damages in the amount of P25,000.00;
(2) To reimburse the plaintiff the amount of P6,328.19 for actual damages incurred in the treatment and
hospitalization of the driver Porfirio Legaspi.
The defendant is further ordered to pay the amount of P50,000.00 as fair and reasonable attorney's fees.
And to pay the costs of suit."
Respondent Court of Appeals modified the decision of the Regional Trial Court of Quezon City, Branch 92,
[4]
rendered on May 24, 1989 in Civil Case No. Q-50732 for damages. The dispositive portion of the said
decision is quoted below:[5]
"WHEREFORE, in view of the foregoing, judgment is hereby rendered against the defendant, ordering
Pantranco to pay:
Under the First Cause of Action
1. In favor of plaintiff Lucila H. Kierulf actual damages in the amount on ONE HUNDRED SEVENTY FOUR
THOUSAND ONE HUNDRED and 77/100 (P174,100.77) PESOS;
2. To pay said plaintiff moral damages in the amount of ONE HUNDRED THOUSAND and 00/100
(P100,000.00) PESOS;
3. To pay exemplary damages in the amount of TEN THOUSAND and 00/100 (P10,000.00) PESOS.
Under the Second Cause of Action
1. To pay plaintiff Victor Kierulf the amount of NINETY SIX THOUSAND EIGHT HUNDRED TWENTY FIVE and
15/100 (P96,825.15) PESOS by way of indemnification for the damages to the Isuzu Carry All with plate No.
UV PGS 796 registered in his name.
Under the Third Cause of Action
1. To pay the plaintiff spouses by way of reimbursement for actual damages incurred for the treatment of
injuries sustained by their driver Porfirio Legaspi in the amount of SIX THOUSAND THREE HUNDRED
TWENTY EIGHT and 19/100 (P6,328.19) PESOS; and
2. To pay plaintiff Porfirio Legaspi moral damages in the amount of TEN THOUSAND and 00/100 (P10,000.00)
PESOS.
Defendant is further ordered to pay the amount of P25,000.00 for and as attorney's fees, and to pay costs.
All other claims and counterclaims are dismissed."
The Facts
The following may be culled from the undisputed factual findings of the trial court and Respondent Court of
Appeals:
The initial investigation conducted by Pfc. D.O. Cornelio disclosed that at about 7:45 p.m. of 28 February 1987,
the Pantranco bus, bearing plate number AVE-845 (TB PIL 86), was traveling along Epifanio de los Santos
Avenue (EDSA) from Congressional Avenue towards Clover Leaf, Balintawak. Before it reached the corner of
Oliveros Drive, the driver lost control of the bus, causing it to swerve to the left, and then to fly over the center
island occupying the east-bound lane of EDSA. The front of the bus bumped the front portion of an Isuzu
pickup driven by Legaspi, which was moving along Congressional Avenue heading towards Roosevelt
Avenue. As a result, the points of contact of both vehicles were damaged and physical injuries were inflicted on
Legaspi and his passenger Lucila Kierulf, both of whom were treated at the Quezon City General Hospital. The
bus also hit and injured a pedestrian who was then crossing EDSA.
Despite the impact, said bus continued to move forward and its front portion rammed against a Caltex gasoline
station, damaging its building and gasoline dispensing equipment.
As a consequence of the incident, Lucila suffered injuries, as stated in the medical report [6] of the examining
physician, Dr. Pedro P. Solis of the Quezon City General Hospital. The injuries sustained by Lucila required
major surgeries like "tracheotomy, open reduction, mandibular fracture, intermaxillary repair of multiple
laceration" and prolonged treatment by specialists. Per medical report of Dr. Alex L. Castillo, Legaspi also
suffered injuries.[7]
The front portion of the pickup truck, owned by Spouses Kierulf, bearing plate number UV PGS 798, was
smashed to pieces. The cost of repair was estimated at P107,583.50.
Pantranco, in its petition,[8] adds that on said day, the abovementioned bus was driven by Jose Malanum. While
cruising along EDSA, a used engine differential accidentally and suddenly dropped from a junk truck in front of
the bus. Said differential hit the underchassis of the bus, throwing Malanum off his seat and making him lose
control of said bus. The bus swerved to the left, hit the center island, and bumped the pickup of the spouses.
The Issues
Spouses Kierulf and their driver Legaspi raise the following assignment of errors in this appeal:[9]
"A
The respondent court of appeals erred in awarding only P200,000.00 and P25,000.00 as and for moral
damages for the petitioners Kierulf and Legaspi respectively when it should at least have been P1,000,000.00
and P100,000.00 respectively.
B
The respondent court of appeals erred in awarding only P100,000.00 to the petitioners Kierulf and nothing to
petitioner Legaspi as and for exemplary damages when it should have at least been P500,000.00
and P50,000.00 respectively.
C
The respondent court of appeals erred in not awarding any amount for the lost income due to the petitioner
Lucila H. Kierulf.
D
The respondent court of appeals erred in not awarding the amount of P107,583.50 for the damages sustained
by the Isuzu carry-all pick-up truck.
E
The respondent court of appeals erred in not awarding any legal interest on the sums awarded."
On the other hand, Pantranco raises the following assignment of errors:[10]
4.1 The Honorable Court of Appeals erred in holding that the driver of Pantranco was negligent;
4.2 The Honorable Court of Appeals erred in holding that the proximate cause of the accident was the
negligence of Pantranco and not a fortuitous event; and
4.2 (sic) The Honorable Court of Appeals erred in awarding excessive damages."
In sum, Spouses Kierulf and Legaspi argue that the damages awarded were inadequate while Pantranco
counters that they were astronomical, bloated and not duly proved.[11]
The Court's Ruling
First Issue: Negligence and Proximate Cause Are Factual Issues
Even on appeal, Pantranco insists that its driver was not negligent and that the mishap was due to a fortuitous
event. February 28, 1987, the date of the incident, was a Saturday; hence, driving at the speed of 40-50
kilometers per hour (kph) was prudent. It contends that the proximate cause was the accidental dropping of a
used engine differential by a junk truck immediately ahead of the bus.[12]
As to what really caused the bus to careen to the opposite lane of EDSA and collide with the pickup truck
driven by Legaspi is a factual issue which this Court cannot pass upon. As a rule, the jurisdiction of this Court
is limited to the review of errors of law allegedly committed by the appellate court. This Court is not bound to
analyze and weigh all over again the evidence already considered in the proceedings below.[13]
Although the Court may review factual issues in some instances,[14] the case at bar does not fall under any one
of them. The fact that there is no conflict between the findings of the trial court and respondent Court bolsters
our position that a review of the facts found by respondent Court is not necessary. [15] There being no conflict
between the findings of the Court of Appeals and the trial court that gross negligence was the real cause of the
collision, we see no reason to digress from the standard rule.
We quote with concurrence the factual findings of the appellate and trial courts, showing that the accident was,
contrary to the belief of Pantranco, the result of the gross negligence of its driver. To wit:[16]
"The vehicular accident was certainly not due to a fortuitous event. We agree with the trial court's findings that
the proximate cause was the negligence of the defendant's driver, such as: (1) Driving at that part of EDSA at
7:45 P.M. from Congressional Avenue towards Clover Leaf overpass in the direction of Balintawak at 40-50 kph
is certainly not a manifestation of good driving habit of a careful and prudent man exercising the extraordinary
diligence required by law. Traffic in that place and at that time of the day is always heavy. (2) Losing control of
the wheel in such a place crowded with moving vehicles, jumping over the island which separates the East
bound from the West bound lane of EDSA indicate that the defendant's bus was traveling at a speed limit
beyond what a prudent and careful driver is expected of, if such driver were exercising due diligence required
by law. (3) Finally, crossing over the island and traversing the opposite lane and hitting an oncoming vehicle
with such force as to smash the front of such vehicle and finally being forced to stop by bumping against a
Caltex service station -- all show not only negligence, but recklessness of the defendant's driver. (4) If
defendant's driver was not driving fast, was not recklessly negligent and had exercised due care and prudence,
with due respect to human life and to others travelling in the same place, the driver could have stopped the bus
the moment it crossed the island, and avoided crossing over to the other lane and bumping against vehicles
travelling in opposite direction. The defendant's driver did not take any evasive action and utterly failed to
adopt any measure to avoid injuries and damage to others because he 'lost control of the bus', which was like
a juggernaut, let loose in a big crowd, smashing everything on its path."
Second Issue: Moral Damages
Complainants aver that the moral damages awarded by Respondent Court are "clearly and woefully not
enough." The established guideline in awarding moral damages takes into consideration several factors, some
of which are the social and financial standing of the injured parties and [17] their wounded moral feelings and
personal pride.[18] The Kierulf spouses add that the Respondent Court should have considered another
factor: the loss of their conjugal fellowship and the impairment or destruction of their sexual life.[19]
The spouses aver that the disfigurement of Lucila's physical appearance cannot but affect their marital right to
"consortium" which would have remained normal were it not for the accident. Thus the moral damages
awarded in favor of Lucila should be increased to P1,000,000.00, not only for Lucila but also for her husband
Victor who also suffered "psychologically."A California case, Rodriguez vs. Bethlehem Steel Corporation,[20] is
cited as authority for the claim of damages by reason of loss of marital consortium, i.e. loss of conjugal
fellowship and sexual relations.[21]
Pantranco rebuts that Victor's claim of moral damages on alleged loss of consortium is without legal
basis. Article 2219 of the Civil Code provides that only the person suffering the injury may claim moral
damages. Additionally, no evidence was adduced to show that the consortium had indeed been impaired and
the Court cannot presume that marital relations disappeared with the accident.[22]
The Courts notes that the Rodriguez case clearly reversed the original common law view first enunciated in the
case of Deshotel vs. Atchison,[23] that a wife could not recover for the loss of her husband's services by the act
of a third party. Rodriguez ruled that when a person is injured to the extent that he/she is no longer capable of
giving love, affection, comfort and sexual relations to his or her spouse, that spouse has suffered a direct and
real personal loss. The loss is immediate and consequential rather than remote and unforeseeable; it is
personal to the spouse and separate and distinct from that of the injured person.
Rodriguez involved a couple in their early 20s, who were married for only 16 months and full of dreams of
building a family of their own, when the husband was struck and almost paralyzed by a falling 600-pound
pipe. The wife testified how her life had deteriorated because her husband became a lifelong invalid, confined
to the home, bedridden and in constant need of assistance for his bodily functions; and how her social,
recreational and sexual life had been severely restricted. It also deprived her of the chance to bear their
children. As a constant witness to her husband's pain, mental anguish and frustration, she was always
nervous, tense, depressed and had trouble sleeping, eating and concentrating. Thus, the California court
awarded her damages for loss of consortium.
Whether Rodriguez may be cited as authority to support the award of moral damages to Victor and/or Lucila
Kierulf for "loss of consortium," however, cannot be properly considered in this case.
Victor's claim for deprivation of his right to consortium, although argued before Respondent Court, is not
supported by the evidence on record. His wife might have been badly disfigured, but he had not testified that,
in consequence thereof, his right to marital consortium was affected. Clearly, Victor (and for that matter, Lucila)
had failed to make out a case for loss of consortium, unlike the Rodriguez spouse. Again, we emphasize that
this claim is factual in origin and must find basis not only in the evidence presented but also in the findings of
the Respondent Court. For lack of factual basis, such claim cannot be ruled upon by this Court at this time.
Third Issue: No Consideration of Social and Financial Standing in this Case
The social and financial standing of Lucila cannot be considered in awarding moral damages. The factual
circumstances prior to the accident show that no "rude and rough" reception, no "menacing attitude," no
"supercilious manner," no "abusive language and highly scornful reference" was given her. The social and
financial standing of a claimant of moral damages may be considered in awarding moral damages only if he or
she was subjected to contemptuous conduct despite the offender's knowledge of his or her social and financial
standing.[24]
Be that as it may, it is still proper to award moral damages to Petitioner Lucila for her physical sufferings,
mental anguish, fright, serious anxiety and wounded feelings. She sustained multiple injuries on the scalp,
limbs and ribs. She lost all her teeth. She had to undergo several corrective operations and
treatments. Despite treatment and surgery, her chin was still numb and thick. She felt that she has not fully
recovered from her injuries. She even had to undergo a second operation on her gums for her dentures to
fit. She suffered sleepless nights and shock as a consequence of the vehicular accident. [25] In this light and
considering further the length of time spent in prosecuting the complaint and this appeal, we find the sum
of P400,000.00 as moral damages for Petitioner Lucila to be fair and just under the circumstances.
Fourth Issue: Exemplary Damages
Complainants also pray for an increase of exemplary damages to P500,000.00 and P50,000.00 for Spouses
Kierulf and Legaspi, respectively. This prayer is based on the pronouncement of this Court in Batangas
Transportation Company vs. Caguimbal[26] that "it is high time to impress effectively upon public utility operators
the nature and extent of their responsibility in respect of the safety of their passengers and their duty to
exercise greater care in the selection of drivers and conductors x x x."
Pantranco opposes this, for under Article 2231 of the Civil Code, "exemplary damages may be granted if the
defendant acted with gross negligence." And allegedly, gross negligence is sorely lacking in the instant case.
Exemplary damages are designed to permit the courts to mould behavior that has socially deleterious
consequences, and its imposition is required by public policy to suppress the wanton acts of an offender.
[27]
However, it cannot be recovered as a matter of right. It is based entirely on the discretion of the court.
[28]
Jurisprudence sets certain requirements before exemplary damages may be awarded, to wit:[29]
"(1) (T)hey may be imposed by way of example or correction only in addition, among others, to compensatory
damages, and cannot be recovered as a matter of right, their determination depending upon the amount of
compensatory damages that may be awarded to the claimant;
(2) the claimant must first establish his right to moral, temporate, liquidated or compensatory damages; and
(3) the wrongful act must be accompanied by bad faith, and the award would be allowed only if the guilty party
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner."
The claim of Lucila has been favorably considered in view of the finding of gross negligence by Respondent
Court on the part of Pantranco. This is made clear by Respondent Court in granting Lucila's claim of exemplary
damages:[30]
"(P)ublic utility operators like the defendant, have made a mockery of our laws, rules and regulations governing
operations of motor vehicles and have ignored either deliberately or through negligent disregard of their duties
to exercise extraordinary degree of diligence for the safety of the travelling public and their passengers. x x x ."
To give teeth to this warning, the exemplary damages awarded to Petitioner Lucila is increased
to P200,000.00. The fact of gross negligence duly proven, we believe that Legaspi, being also a victim of gross
negligence, should also receive exemplary damages. Under the facts proven, the Court awards him P25,000
as exemplary damages.
Fifth Issue: Loss of Earnings as a Component of Damages
Lost income in the amount of P16,500.00 is also claimed by Legaspi stating that his "whole future has been
jeopardized."[31] This, in turn, is not rebutted by Pantranco.
It should be noted that Respondent Court already considered this when it stated that the award of P25,000.00
included compensation for "mental anguish and emotional strain of not earning anything with a family to
support." Moral damages, though incapable of pecuniary estimation, are in the category of an award designed
to compensate the claimant for actual injury and are not meant to enrich complainant at the expense of
defendant.[32]
We find, however, the claim of Legaspi to be duly substantiated. Pantranco failed to rebut the claim of Porfirio
that he had been incapacitated for ten (10) months and that during said period he did not have any
income. Considering that, prior to the accident, he was employed as a driver and was earning P1,650.00 a
month, his claim for P16,500.00 as compensation for loss of earning capacity for said period is amply
supported by the records[33] and is demandable under Article 2205 of the Civil Code.[34]
Complainants contend that Lucila is also entitled to damages for "loss or impairment of earning capacity in
cases of temporary or permanent personal injury" under Article 2205 of the Civil Code. Notably, both the trial
court and public respondent denied this prayer because of her failure to produce her income tax returns for the
years 1985 and 1986, notwithstanding the production of her 1983 and 1984 income tax returns.
Pantranco opposes the above claim for loss of earning capacity on the ground that there is no proof "that for
the two years immediately preceding the accident Lucila was indeed deriving income from some source which
was cut off by the accident."[35]
We agree with the findings of Respondent Court that Lucila's claim of loss of earning capacity has not been
duly proven. The alleged loss must be established by factual evidence for it partakes of actual damages. A
party is entitled to adequate compensation for such pecuniary loss actually suffered and duly proved. Such
damages, to be recoverable, must not only be capable of proof, but must actually be shown with a reasonable
degree of certainty. We have emphasized that these damages cannot be presumed, and courts in making an
award must point out specific facts which can serve as basis for measuring whatever compensatory or actual
damages are borne.[36] Mere proof of Lucila's earnings consisting of her 1983 and 1984 income tax returns
would not suffice to prove earnings for the years 1985 and 1986. The incident happened on February 28,
1987. If indeed Lucila had been earning P50,000.00 every month prior to the accident, as she alleged, there
are evidentiary proofs for such earnings other than income tax returns such as, but not limited to, payroll
receipts, payments to the SSS, or withholding tax paid every month. Sad to say, these other proofs have not
been presented, and we cannot presume that they exist on the strength of the word of Lucila alone.
Sixth Issue: Reduction of Actual Damages on the Pickup Based on an Estimate
Complainants contend that the reduction of 10% from the written estimate of the cost of repairs by the trial
court is pure speculation.[37] Pantranco opposes this by pointing out that judicial notice is made by respondent
Court of the propensity of motor repair shops to exaggerate their estimates.[38]
An estimate, as it is categorized, is not an actual expense incurred or to be incurred in the repair. The reduction
made by respondent court is reasonable considering that in this instance such estimate was secured by the
complainants themselves.
Epilogue
This Court cannot remind the bench and the bar often enough that in order that moral damages may be
awarded, there must be pleading and proof of moral suffering, mental anguish, fright and the like. While no
proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of indemnity
being left to the discretion of the court,[39] it is nevertheless essential that the claimant should satisfactorily
show the existence of the factual basis of damages [40] and its causal connection to defendant's acts. This is so
because moral damages, though incapable of pecuniary estimation, are in the category of an award designed
to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.
[41]
In Francisco vs. GSIS,[42] the Court held that there must be clear testimony on the anguish and other forms
of mental suffering. Thus, if the plaintiff fails to take the witness stand and testify as to his/her social
humiliation, wounded feelings and anxiety, moral damages cannot be awarded. In Cocoland Development
Corporation vs. National Labor Relations Commission,[43] the Court held that "additional facts must be pleaded
and proven to warrant the grant of moral damages under the Civil Code, these being, x x x social humiliation,
wounded feelings, grave anxiety, etc., that resulted therefrom."
Moral damages are awarded to enable the injured party to obtain means, diversions or amusements that will
serve to alleviate the moral suffering he/she has undergone, by reason ofthe defendant's culpable action. [44] Its
award is aimed at restoration, as much as possible, of the spiritual status quo ante; thus, it must be
proportionate to the suffering inflicted.[45] Since each case must be governed by its own peculiar circumstances,
there is no hard and fast rule in determining the proper amount. The yardstick should be that the amount
awarded should not be so palpably and scandalously excessive as to indicate that it was the result of passion,
prejudice or corruption on the part of the trial judge. [46] Neither should it be so little or so paltry that it rubs salt to
the injury already inflicted on plaintiffs.
WHEREFORE, premises considered, the petition for review in G.R. No. 99301 is PARTIALLY GRANTED,
while that of Pantranco North Express, Inc., in G.R. No. 99343 is DISMISSED.The Decision appealed from
is AFFIRMED with MODIFICATION. The award of moral damages to Lucila and Legaspi is
hereby INCREASED to P400,000.00 and P50,000.00 respectively; exemplary damages to Lucila
is INCREASED to P200,000.00. Legaspi is awarded exemplary damages of P50,000.00. The amount
of P16,500.00 as actual or compensatory damages is also GRANTED to Legaspi. All other awards of
Respondent Court of Appeals are AFFIRMED. Pantranco shall also PAY legal interest of 6% per annum on all
sums awarded from the date of promulgation of the decision of the trial court, May 24, 1989, until actual
payment.
SO ORDERED.
G.R. No. L-12163 March 4, 1959
PAZ FORES, petitioner,
vs.
IRENEO MIRANDA, respondent.
Alberto O. Villaraza for petitioner.
Almazan and Ereneta for respondent.
REYES, J.B.L., J.:
Defendant-petitioner Paz Fores brings this petition for review of the decision of the Court of Appeals (C.A.
Case No. 1437-R) awarding to the plaintiff-respondent Ireneo Miranda the sums of P5,000 by way of actual
damages and counsel fees, and P10,000 as moral damages, with costs.
Respondent was one of the passengers on a jeepney driven by Eugenio Luga. While the vehicle was
descending the Sta. Mesa bridge at an excessive rate of speed, the driver lost control thereof, causing it to
swerve and to his the bridge wall. The accident occurred on the morning of March 22, 1953. Five of the
passengers were injured, including the respondent who suffered a fracture of the upper right humerus. He was
taken to the National Orthopedic Hospital for treatment, and later was subjected to a series of operations; the
first on May 23, 1953, when wire loops were wound around the broken bones and screwed into place; a
second, effected to insert a metal splint, and a third one to remove such splint. At the time of the trial, it
appears that respondent had not yet recovered the use of his right arm.
The driver was charged with serious physical injuries through reckless imprudence, and upon interposing a
plea of guilty was sentenced accordingly.
The contention that the evidence did not sufficiently establish the identity of the vehicle as the belonging to the
petitioner was rejected by the appellate court which found, among other things, that is carried plate No. TPU-
1163, SERIES OF 1952, Quezon City, registered in the name of Paz Fores, (appellant herein) and that the
vehicle even had the name of "Doña Paz" painted below its wind shield. No evidence to the contrary was
introduced by the petitioner, who relied on an attack upon the credibility of the two policemen who went to the
scene of the incident.
A point to be further remarked is petitioner's contention that on March 21, 1953, or one day before the accident
happened, she allegedly sold the passenger jeep that was involved therein to a certain Carmen Sackerman.
The initial problem raised by the petitioner in this appeal may be formulated thus — "Is the approval of the
Public Service Commission necessary for the sale of a public service vehicle even without conveying therewith
the authority to operate the same?" Assuming the dubious sale to be a fact, the court of Appeals answered the
query in the affirmative. The ruling should be upheld.
Section 20 of the Public Service Act (Commonwealth Act No. 146) provides:
Sec. 20. Subject to established limitations and exceptions and saving provisions to the contrary, it shall be
unlawful for any public service or for the owner, lessee or operator thereof, without the previous approval and
authority of the Commission previously had —
xxx xxx xxx
(g) To sell, alienate, mortgage, encumber or lease its property, franchises, certificates, privileges, or rights, or
any part thereof; or merge or consolidate its property, franchises, privileges or rights, or any part thereof, with
those of any other public service. The approval herein required shall be given, after notice to the public and
after hearing the persons interested at a public hearing, if it be shown that there are just and reasonable
grounds for making the mortgage or encumbrance, for liabilities of more than one year maturity, or the sale,
alienation, lease, merger, or consolidation to be approved and that the same are not detrimental to the public
interest, and in case of a sale, the date on which the same is to be consummated shall be fixed in the order of
approval: Provided, however, That nothing herein contained shall be construed to prevent the transaction from
being negotiated or completed before its approval or to prevent the sale, alienation, or lease by any public
service of any of its property in the ordinary course of its business.
Interpreting the effects of this particular provision of law, we have held in the recent cases of Montoya vs.
Ignacio, *50 Off. Gaz. No. 1, p. 108; Timbol vs. Osias, et al., G. R. No. L-7547, April 30, 1955, and Medina vs.
Cresencia, 99 Phil., 506; 52 Off. Gaz. No. 10, p. 4606, that a transfer contemplated by the law, if made without
the requisite approval of the Public Service Commission, is not effective and binding in so far as the
responsibility of the grantee under the franchise in relation to the public is concerned. Petitioner assails,
however, the applicability of these rulings to the instant case, contending that in those cases, the operator did
not convey, by lease or by sale, the vehicle independently of his rights under the franchise. This line of
reasoning does not find support in the law. The provisions of the statute are clear and prohibit the sale,
alienation, lease, or encumbrance of the property, franchise, certificate, privileges or rights, or any part thereof
of the owner or operator of the public service Commission. The law was designed primarily for the protection of
the public interest; and until the approval of the public Service Commission is obtained the vehicle is, in
contemplation of law, still under the service of the owner or operator standing in the records of the Commission
which the public has a right to rely upon.
The proviso contained in the aforequoted law, to the effect that nothing therein shall be construed "to prevent
the transaction from being negotiated or complete before its approval", means only that the sale without the
required approval is still valid and binding between the parties (Montoya vs. Ignacio, supra). The phrase "in the
ordinary course of its business" found in the other proviso" or to prevent the sale, alienation, or lease by any
public service of any of its property". As correctly observed by the lower court, could not have been intended to
include the sale of the vehicle itself, but at most may refer only to such property that may be conceivably
disposed or by the carrier in the ordinary course of its business, like junked equipment or spare parts.
The case of Indalecio de Torres vs. Vicente Ona (63 Phil., 594, 597) is enlightening; and there, it was held:
Under the law, the Public Service Commission has not only general supervision and regulation of, but also full
jurisdiction and control over all public utilities including the property, equipment and facilities used, and the
property rights and franchise enjoyed by every individual and company engaged i the performance of a public
service in the sense this phrase is used in the Public Service Act or Act No. 3108). By virtue of the provisions of
said Act, motor vehicles used in the performance of a service, as the transportation of freight from one point to
another, have to this date been considered — and they cannot but be so considered-public service property;
and, by reason of its own nature, a TH truck, which means that the operator thereof places it at the disposal of
anybody who is willing to pay a rental of its use, when he desires to transfer or carry his effects, merchandise
or any other cargo from one place to another, is necessarily a public service property. (Emphasis supplied)
Of course, this court has held in the case of Bachrach Motor co. vs. Zamboanga Transportation Co., 52 Phil.,
244, that there may be a nunc pro tunc authorization which has the effect of having the approval retroact to the
date of the transfer; but such outcome cannot prejudice rights intervening in the meantime. It appears that no
such approval was given by the Commission before the accident occurred.
The P10,000 actual damages awarded by the Court of First Instance of Manila were reduced by the Court of
Appeals to only P2,000, on the ground that a review of the records failed to disclose a sufficient basis for the
trial court's appraisal, since the only evidence presented on this point consisted of respondent's bare statement
that his expenses and loss of income amounted to P20,000. On the other hand, "it cannot be denied," the
lower court said, "that appellee (respondent) did incur expenses"' It is well to note further that respondent was
a painter by profession and a professor of Fine Arts, so that the amount of P2,000 awarded cannot be said to
be excessive (see Arts. 2224 and 2225, Civil Code of the Philippines). The attorney's fees in the sum of P3,000
also awarded to the respondent are assailed on the ground that the Court of First Instance did not provided for
the same, and since no appeal was interposed by said respondent, it was allegedly error for the Court of
Appeals to award them motu proprio. Petitioner fails to note that attorney's fees are included in the concept of
actual damages under the Civil Code and may be awarded whenever the court deems it is just and equitable
(Art. 2208, Civil Code of the Philippines). We see no reason to alter these awards.
Anent the moral damages ordered to be paid to the respondent, the same must be discarded. We have
repeatedly ruled (Cachero vs. Manila Yellow Taxicab Co. Inc., 101 Phil., 523; 54 Off. Gaz., [26], 6599;
Necesito, et al vs. Paras, 104 Phil., 75; 56 Off. Gaz., [23] 4023, that moral damages are not recoverable in
damage actions predicted on a breach of the contract of transportation, in view of Articles 2219 and 2220 of the
new Civil Code, which provide as follows:
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;
xxx xxx xxx
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find
that, under circumstances, such damages are justify due. The same rule applies to breaches of contract where
the defendant acted fraudulently or in bad faith.
By contrasting the provisions of these two article it immediately becomes apparent that:
(a) In case of breach of contract (including one of transportation) proof of bad faith or fraud (dolus), i.e., wanton
or deliberately injurious conduct, is essential to justify an award of moral damages; and
(b) That a breach of contract can not be considered included in the descriptive term "analogous cases" used in
Art. 2219; not only because Art. 2220 specifically provides for the damages that are caused by contractual
breach, but because the definition of quasi-delict in Art. 2176 of the Code expressly excludes the cases where
there is a "preexisting contractual relation between the parties."
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to
pay for the damage dome. Such fault or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this Chapter.
The exception to the basic rule of damages now under consideration is a mishap resulting in the death of a
passenger, in which case Article 1764 makes the common carrier expressly subject to the rule of Art. 2206, that
entitles the deceased passenger to "demand moral damages for mental anguish by reason of the death of the
deceased" (Necesito vs. Paras, 104 Phil., 84, Resolution on motion to reconsider, September 11, 1958). But
the exceptional rule of Art. 1764 makes it all the more evident that where the injured passenger does not die,
moral damages are not recoverable unless it is proved that the carrier was guilty of malice or bad faith. We
think it is clear that the mere carelessness of the carrier's driver does not per se constitute of justify an
inference of malice or bad faith on the part of the carrier; and in the case at bar there is no other evidence of
such malice to support the award of moral damages by the Court of Appeals. To award moral damages for
breach of contract, therefore, without proof of bad faith or malice on the part of the defendant, as required by
Art. 220, would be to violate the clear provisions of the law, and constitute unwarranted judicial legislation.
The Court of Appeals has invoked our rulings in Castro vs. Acro Taxicab Co., G.R. No. 49155, December 14,
1948 and Layda vs. Court of Appeals, 90 Phil., 724; but these doctrines were predicated upon our former law
of damages, before judicial discretion in fixing them became limited by the express provisions of the new Civil
Code (previously quoted). Hence, the aforesaid rulings are now inapplicable.
Upon the other hand, the advantageous position of a party suing a carrier for breach of the contract of
transportations explains, to some extent, the limitations imposed by the new Code on the amount of the
recovery. The action for breach of contract imposes on the defendant carrier a presumption of liability upon
mere proof of injury to the passenger; that latter is relieved from the duty to established the fault of the carrier,
or of his employees, and the burden is placed on the carrier to prove that it was due to an unforseen event or
to force majeure (Cangco vs. Manila Railroad Co., 38 Phil., 768, 777). Moreover, the carrier, unlike in suits for
quasi-delict, may not escape liability by proving that it has exercised due diligence in the selection and
supervision of its employees (Art. 1759, new civil code; Cangco vs. Manila Railroad Co., supra; Prado vs.
Manila Electric Co., 51 Phil., 900).
The difference in conditions, defenses and proof, as well as the codal concept of quasi-delict as
essentially extracontractual negligence, compel us to differentiate between action ex contractu, and
actions quasi ex delicto, and prevent us from viewing the action for breach of contract as simultaneously
embodying an action on tort. Neither can this action be taken as one to enforce on employee's liability under
Art. 103 of the Revised Penal Code, since the responsibility is not alleged to be subsidiary, nor is there on
record any averment or proof that the driver of appellant was insolvent. In fact, he is not even made a party to
the suit.
It is also suggested that a carrier's violation of its engagement to safety transport the passenger involves a
breach of the passenger's confidence, and therefore should be regarded as a breach of contract in bad faith,
justifying recovery of moral damages under Art. 2220. This theory is untenable, for under it the carrier would
always be deemed in bad faith, in every case its obligation to the passenger is infringed, and it would be never
accountable for simple negligence; while under the law (Art. 1756). the presumption is that common carriers
acted negligently (and not maliciously), and Art. 1762 speaks of negligence of the common carrier.
ART. 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at fault
or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in
article 1733 and 1755.
ART. 1762. The contributory negligence of the passenger does not bar recovery of damages for his death or
injuries, if the proximate cause thereof is the negligence of the common carrier, but the amount of damages
shall be equitably reduced.
The distinction between fraud, bad faith or malice in the sense of deliberate or wanton wrong doing and
negligence (as mere carelessness) is too fundamental in our law to be ignored (Arts. 1170-1172); their
consequences being clearly differentiated by the Code.
ART. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is
liable shall be those that are the natural and probable consequences of the breach of the obligation, and which
the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which
may be reasonably attributed to the non-performance of the obligation.
It is to be presumed, in the absence of statutory provision to the contrary, that this difference was in the mind of
the lawmakers when in Art. 2220 they limited recovery of moral damages to breaches of contract in bad faith. It
is true that negligence may be occasionally so gross as to amount to malice; but that fact must be shown in
evidence, and a carrier's bad faith is not to be lightly inferred from a mere finding that the contract was
breached through negligence of the carrier's employees.
In view of the foregoing considerations, the decision of the Court of Appeals is modified by eliminating the
award of P5,000.00 by way of moral damages. (Court of Appeals Resolution of May 5, 1957). In all other
respects, the judgment is affirmed. No costs in this instance. So ordered.
 SULPICIO LINES, INC., G.R. No. 157009
Petitioner,
-versus - Promulgated:
DOMINGO E. CURSO,
LUCIA E. CURSO, March 17, 2010
MELECIO E. CURSO, SEGUNDO E.
CURSO,
VIRGILIO E. CURSO, DIOSDADA E.
CURSO, and CECILIA E. CURSO,
Respondents.
x-----------------------------------------------------------------------------------------x
DECISION
BERSAMIN, J.:
Are the surviving brothers and sisters of a passenger of a vessel that sinks during a voyage entitled to recover
moral damages from the vessel owner as common carrier?
This is the question presented in the appeal taken by the common carrier from the reversal by the Court of
Appeals (CA) of the decision of the Regional Trial Court (RTC) dismissing the complaint for various damages
filed by the surviving brothers and sisters of the late Dr. Cenon E. Curso upon a finding that force majeure had
caused the sinking. The CA awarded moral and other damages to the surviving brothers and sisters.
Antecedents
On October 23, 1988, Dr. Curso boarded at the port of Manila the MV Doa Marilyn, an inter-island vessel
owned and operated by petitioner Sulpicio Lines, Inc., bound for Tacloban City. Unfortunately,
the MV Doa Marilyn sank in the afternoon of October 24, 1988 while at sea due to the inclement sea and
weather conditions brought about by Typhoon Unsang. The body of Dr. Curso was not recovered, along with
hundreds of other passengers of the ill-fated vessel. At the time of his death, Dr. Curso was 48 years old, and
employed as a resident physician at the Naval District Hospital in Naval, Biliran. He had a basic monthly salary
of P3,940.00, and would have retired from government service by December 20, 2004 at the age of 65.

On January 21, 1993, the respondents, allegedly the surviving brothers and sisters of Dr. Curso, sued the
petitioner in the RTC in Naval, Biliran to claim damages based on breach of contract of carriage by sea,
averring that the petitioner had acted negligently in transporting Dr. Curso and the other passengers. They
stated, among others, that their parents had predeceased Dr. Curso, who died single and without issue; and
that, as such, they were Dr. Cursos surviving heirs and successors in interest entitled to recover moral and
other damages.[1] They prayed for judgment, as follows: (a) compensatory damages of P1,924,809.00; (b)
moral damages of P100,000.00; (c) exemplary or corrective damages in the amount deemed proper and just;
(d) expenses of litigation of at least P50,000.00; (e) attorneys fees of P50,000.00; and (f) costs of suit.

The petitioner denied liability, insisting that the sinking of the vessel was due to force
majeure (i.e., Typhoon Unsang), which exempted a common carrier from liability. It averred that
the MV Doa Marilyn was seaworthy in all respects, and was in fact cleared by the Philippine Coast Guard for
the voyage; and that after the accident it conducted intensive search and rescue operations and extended
assistance and aid to the victims and their families.

Ruling of the RTC

On July 28, 1995, the RTC dismissed the complaint upon its finding that the sinking of the vessel was due
to force majeure. The RTC concluded that the officers of the MV DoaMarilyn had acted with the diligence
required of a common carrier; that the sinking of the vessel and the death of its passengers, including
Dr. Curso, could not have been avoided; that there was no basis to consider the MV Doa Marilyn not
seaworthy at the time of the voyage; that the findings of the Special Board of Marine Inquiry (SBMI) constituted
to investigate the disaster absolved the petitioner, its officers, and crew of any negligence and administrative
liability; and that the respondents failed to prove their claim for damages.

Ruling of the CA

The respondents appealed to the CA, contending that the RTC erred: (a) in considering itself barred from
entertaining the case by the findings of fact of the SBMI in SBMI-ADM Case No. 08-88; (b) in not holding that
the petitioner was negligent and did not exercise the required diligence and care in conducting Dr. Curso to his
destination; (c) in not finding that the MV Doa Marilyn was unseaworthy at the time of its sinking; and (d) in not
awarding damages to them.[2]

In its decision dated September 16, 2002,[3] the CA held and disposed:

Based on the events described by the appellees witness, the Court found inadequate proof to show
that Sulpicio Lines, Inc., or its officers and crew, had exercised the required degree of diligence to acquit
the appellee of liability.

In the first place, the court finds inadequate explanation why the officers of the M.V. Doa Marilyn had not
apprised themselves of the weather reports on the approach of typhoon Unsang which had the power of a
signal no. 3 cyclone, bearing upon the general direction of the path of the M.V. Doa Marilyn. If the officers and
crew of the Doa Marilyn had indeed been adequately monitoring the strength and direction of the typhoon, and
had acted promptly and competently to avoid the same, then such a mishap would not have occurred.

Furthermore, there was no account of the acts and decision of the crew of the ill-fated ship from 8:00
PM on October 23, 1988 when the Chief Mate left his post until 4:00 AM the next day when he resumed duty. It
does not appear what occurred during that time, or what weather reports were received and acted upon by the
ship captain. What happened during such time is important in determining what information about the typhoon
was gathered and how the ship officers reached their decision to just change course, and not take shelter while
a strong typhoon was approaching.

Furthermore, the Court doubts the fitness of the ship for the voyage, since at the first sign of bad weather, the
ships hydraulic system failed and had to be repaired mid-voyage, making the vessel a virtual derelict amidst a
raging storm at sea. It is part of the appellees extraordinary diligence as a common carrier to make sure that its
ships can withstand the forces that bear upon them during a voyage, whether they be the ordinary stress of the
sea during a calm voyage or the rage of a storm. The fact that the stud bolts in the ships hydraulic system gave
way while the ship was at sea discredits the theory that the appellee exercised due diligence in maintaining the
seaworthy condition of the M.V. Doa Marilyn. xxx.[4]
xxx
Aside from these, the defendant must compensate the plaintiffs for moral damages that they suffered as a
result of the negligence attending the loss of the M.V. Doa Marilyn. Plaintiffs, have established that they took
great pains to recover, in vain, the body of their brother, at their own cost, while suffering great grief due to the
loss of a loved one. Furthermore, Plaintiffs were unable to recover the body of their brother. Moral damages
worth P100,000.00 is proper.

WHEREFORE, premises considered, the appealed decision of the RTC of Naval, Biliran, Branch 16, rendered
in Civil Case No. B-0851, is hereby SET ASIDE. In lieu thereof, judgment is hereby rendered, finding the
defendant-appellee Sulpicio Lines, Inc, to have been negligent in transporting the
deceased Cenon E. Curso who was on board the ill-fated M.V. Doa Marilyn, resulting in his untimely death.
Defendant-appellee is hereby ordered to pay the plaintiffs heirs of Cenon E. Curso the following:
(1) Death indemnity in the amount of P50,000.00;

(2) Loss of Earning Capacity in the amount of P504,241.20;

(3) Moral Damages in the amount of P100,000.00.

(4) Costs of the suit.[5]

Hence, this appeal, in which the petitioner insists that the CA committed grievous errors in holding that the
respondents were entitled to moral damages as the brothers and sisters of the late Dr. Curso; that the CA
thereby disregarded Article 1764 and Article 2206 of the Civil Code, and the ruling in Receiver for North
Negros Sugar Co., Inc. v. Ybaez,[6]whereby the Supreme Court disallowed the award of moral damages in
favor of the brothers and sisters of a deceased passenger in an action upon breach of a contract of carriage.[7]
Issues

The petitioner raises the following issues:

ARE THE BROTHERS AND SISTERS OF A DECEASED PASSENGER IN A CASE OF BREACH OF

CONTRACT OF CARRIAGE ENTITLED TO AN AWARD OF MORAL DAMAGES AGAINST THE CARRIER?

ASSUMING (THAT) THEY ARE ENTITLED TO CLAIM MORAL DAMAGES, SHOULD THE AWARD BE
GRANTED OR GIVEN TO THE BROTHER OR SISTER NOTWITHSTANDING (THE) LACK OF EVIDENCE
AS REGARDS HIS OR HER PERSONAL SUFFERING?

Ruling

The petition is meritorious.

As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of
contract, unless there is fraud or bad faith.[8] As an exception, moral damages may be awarded in case of
breach of contract of carriage that results in the death of a passenger, [9] in accordance with Article 1764, in
relation to Article 2206 (3), of the Civil Code, which provide:
Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of
this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the
breach of contract by a common carrier.

Article 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three
thousand pesos, even though there may have been mitigating circumstances. In addition:

(1) 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;

(2) If the deceased was obliged to give support according to the provisions of article 291, the recipient who is
not an heir called to the decedent's inheritance by the law of testate or intestate succession, may demand
support from the person causing the death, for a period not exceeding five years, the exact duration to be fixed
by the court;

(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral
damages for mental anguish by reason of the death of the deceased.
The foregoing legal provisions set forth the persons entitled to moral damages. The omission from Article 2206
(3) of the brothers and sisters of the deceased passenger reveals the legislative intent to exclude them from
the recovery of moral damages for mental anguish by reason of the death of the
deceased. Inclusio unius est exclusio alterius.[10] The solemn power and duty of the courts to interpret and
apply the law do not include the power to correct the law by reading into it what is not written therein. [11] Thus,
the CA erred in awarding moral damages to the respondents.

The petitioner has correctly relied on the holding in Receiver for North Negros Sugar Company, Inc. v. Ybaez,
[12]
to the effect that in case of death caused by quasi-delict, the brother of the deceased was not entitled to the
award of moral damages based on Article 2206 of the Civil Code.
Essentially, the purpose of moral damages is indemnity or reparation, that is, to enable the injured party to
obtain the means, diversions, or amusements that will serve to alleviate the moral suffering he has undergone
by reason of the tragic event. According to Villanueva v. Salvador,[13] the conditions for awarding moral
damages are: (a) there must be an injury, whether physical, mental, or psychological, clearly substantiated by
the claimant; (b) there must be a culpable act or omission factually established; (c) the wrongful act or
omission of the defendant must be the proximate cause of the injury sustained by the claimant; and ( d) the
award of damages is predicated on any of the cases stated in Article 2219 of the Civil Code.

To be entitled to moral damages, the respondents must have a right based upon law. It is true that under Article
1003[14] of the Civil Code they succeeded to the entire estate of the late Dr. Curso in the absence of the latters
descendants, ascendants, illegitimate children, and surviving spouse. However, they were not included among
the persons entitled to recover moral damages, as enumerated in Article 2219 of the Civil Code, viz:

Article 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.

The parents of the female seduced, abducted, raped or abused referred to in No. 3 of this article, may also
recover moral damages.

The spouse, descendants, ascendants and brothers and sisters may bring the action mentioned in No. 9 of this
article, in the order named.
Article 2219 circumscribes the instances in which moral damages may be awarded. The provision does not
include succession in the collateral line as a source of the right to recover moral damages. The usage of the
phrase analogous cases in the provision means simply that the situation must be held similar to those
expressly enumerated in the law in question[15] following the ejusdem generis rule. Hence, Article 1003 of
the Civil Code is not concerned with recovery of moral damages.

In fine, moral damages may be recovered in an action upon breach of contract of carriage only when:
(a) where death of a passenger results, or (b) it is proved that the carrier was guilty of fraud and bad faith, even
if death does not result.[16] Article 2206 of the Civil Code entitles the descendants, ascendants, illegitimate
children, and surviving spouse of the deceased passenger to demand moral damages for mental anguish by
reason of the death of the deceased.[17]

WHEREFORE, the petition for review on certiorari is granted, and the award made to the respondents in
the decision dated September 16, 2002 of the Court of Appeals of moral damages amounting
to P100,000.00 is deleted and set aside.

SO ORDERED.
G.R. No. L-66274 September 30, 1984
BAGUMBAYAN CORPORATION, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, LELISA SEÑA and ARTURO SEÑA respondents.
De Santos, Balgos & Perez Law Office for petitioner.
Quiason, Ermitano, Makalintal & Barot Law Office for respondents.

AQUINO, J.:
This case is about the customer's claims for moral and exemplary damages due to the alleged negligence of a
waiter. The spouses Lelisa Seña and Arturo Seña and their four children went to the Tropical Palace Hotel,
Parañaque, Metro Manila in the evening of December 20, 1976 to see the Reycard Duet Show they occupied a
table and ordered drinks before the show the hall was crowded and as anyone who attended such show can
attest, excitement and confusion prevailed (8, 40-41 tsn, January 19, 1978).
Lelisa's version was that when a waiter named Baez was going to serve the tray containing the drinks was
overturned and fell on her. She was drenched. Later, she felt some chill. The drinks and the splinters from the
broken glasses allegedly destroyed her dress which, with her handbag and shoes, cost one thousand pesos
(32-33 tsn November 29, 1977).
She was shocked. She sensed that some persons were laughing at or pitying her. Lawyer Francisco
Gatchalian, who was at the same table, commented that it was one of those unavoidable things (24 tsn
November 29, 1977).
A waitress took Lelisa to the ladies' room. She had to remove her dress and underwear which were wet She
was not given any towel to cover herself. She remained standing as there was no chair (27-28 tsn). Two of her
daughters followed her to the ladies' room (31 tsn). She returned to the hag after about thirty minutes later
when the show had started (28, 5152 tsn). The lower court erred in concluding that she missed the show.
Lelisa testified that she was claiming moral damages of P100,000 for herself and her husband due
to embarrassment and the fact that the management did not even offer any apology on that night (34-37 tsn).
She was claiming exemplary damages in the same amount to teach the management a lesson. The husband,
Arturo Seta, testified that the incident infuriated him. There was no apology from the management.
Rudy Tanchanco, the food and beverage manager, was one of three persons in charge of the show. He
testified that the admission was on a "first come, first served" basis. An the waiters were extras performing
under twelve supervisors. In open court, Tanchanco apologized to the plaintiffs in behalf of the management for
the inconvenience caused to them, meaning that the management was sorry for what happened to Mrs. Seta
(38-39 February 27, 1978).
The Señas sued the corporation, as employer of the waiter, for actual damages of P200,000 plus attorney's
fees of P10,000 and such moral and exemplary damages as might be fixed by the court. The action involves a
quasi-delict. It was based on articles 2176 and 2180 of the Civil Code.
The corporation in its answer alleged that it came to know of the incident only when it was served with
summons. Had the incident been brought to its attention on that same night, it would have apologized
immediately to the plaintiffs, made appropriate amends and taken steps to discipline the waiter and his
supervisor.
In fact, in its answer it apologized to the plaintiffs. It labelled the incident as a fortuitous event. It alleged that it
observed diligentissimi patris-familias to prevent the damage. It reiterated that it was sorry for what had
happened. It manifested its desire to make the proper amends in any reasonable manner or form.
After hearing, the trial court awarded the Señas P1,540 as actual damages consisting of the value of Mrs.
Seña's outfit and P540, the cost of the six tickets used by the Seña family which was considered a loss
because of their alleged failure to enjoy the show. It also awarded the Señas P50,000 as moral damages,
P10,000 as exemplary damages and P5,000 as attorney's fees.
The corporation appealed. The Intermediate Appellate Court affirmed the judgment with the modification that
the moral and exemplary damages were reduced to P15,000 and P5,000, respectively. Hence, this appeal.
The trial court sensibly noted that court action could have been avoided had the matter been taken up directly
with the corporation before the action was filed. No extrajudicial demand preceded the action.
While the award for actual damages has some basis, the grant of moral and exemplary damages is devoid of
legal justification because it was not predicated upon any of the cases enumerated in the Civil Code
(Ventanina vs. Centeno, 110 Phil. 811, 816). The Civil Code provides:
ART. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of
pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant's
wrongful act or omission.
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.
The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may also
recover moral damages.
The spouse descendants, ascendants, and brothers and sisters may bring the action mentioned in No. 9 of this
article, in the order named.
ART. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find
that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract
where the defendant acted fraudulently or in bad faith.
The instant case is not specifically mentioned in article 2219 which refers to quasi-delicts causing physical
injuries. The Appellate Court erred in considering it as analogous to the cases mentioned therein without
indicating what specific case the instant case resembles or is analogous to. For example, an unfounded
complaint with a baseless imputation of forgery is analogous to defamation mentioned in article 2219 (7). It
justified an award of P2,000 as moral damages (Justiva vs. Gustilo, 117 Phil. 71).
Generally, there can be no recovery of moral damages if the case is not mentioned in articles 2219 and 2220
(Malonzo vs. Galang, 109 Phil. 16; Ventanilla vs. Centeno, 110 Phil. 811).
What we call moral damages are treated in American jurisprudence as compensatory damages awarded for
mental pain and suffering or mental anguish resulting from a wrong (25 C.J.S. 815).
"Mental suffering means distress or serious pain as distinguished from annoyance, regret or vexation. Mental
anguish is intense mental suffering" (Johnson vs. Western Union Telegraph Co., 81 S.C. 235, 238, 62 SE 244,
Note 35, 17 C.J. 829.)
"Generally, damages for mental anguish are limited to cases in which there has been a personal physical injury
or where the defendant wilfully, wantonly, recklessly, or intentionally caused the mental anguish (22 Am Jur 2nd
275). "Nor will damages generally be awarded for mental anguish which is not accompanied by a physical
injury, at least where maliciousness, wantonness, or intentional conduct is not involved" (22 Am Jur 2nd 276).
"Damages for mental anguish and suffering have been held recoverable where the act complained of was
done with such gross carelessness or recklessness as to show an utter indifference to the consequences" (25
C.J.S. 820).
"Under Ohio law, damages for emotional distress consisting of embarrassment and mental suffering and dire
threats, are not recoverable unless intentionally caused" (Parmelee vs. E.A. Ackerman 252 Fed. 2nd 721).
In Chicago, R.I. & P. Ry Co. vs. Caple, 179 S.W. 2nd 151, it was held that where the act is wanton or
willful there may be a recovery for humiliation and mental suffering without any physical injury. It was further
held that in negligence cases, where there is no willful or wanton wrong, there can be no recovery for mental
suffering unless there is also physical injury.
We hold that the "embarrassment" to which Mrs. Seña was exposed by the incident is not the mental anguish
contemplated in article 2217 for which moral damages can be recovered.
Parenthetically, the case of People vs. Plaza, CA 52 OG 6609, 6612, a case decided by Justice Sanchez, may
be cited. In that case, Genoveva de Soriano was a passenger in a riverboat which was bumped by another
boat manned by Berchman Plaza and caused the first boat to capsize and sink but did not drown Genoveva.
She did not know how to swim Her life was endangered. She suffered fright and mental anguish during those
moments when her fate was uncertain. Her claim for P500 as moral damages was not allowed.
In this case, it would not be just and proper to include moral damages in the corporation's vicarious liability as
employer. The award of P5,000 as exemplary or corrective damages cannot also be sustained because there
was no gross negligence in this case.
WHEREFORE, the decision of the Appellate Court is modified. The petitioner is ordered to pay Lelisa Seña the
sum of P5,000 to cover her actual damages, litigation expenses and attorney's fees. The award of moral and
exemplary damages is eliminated. No costs.
SO ORDERED.
[G.R. No. 147800. November 11, 2003]
UNITED COCONUT PLANTERS BANK, petitioner, vs. TEOFILO C. RAMOS, respondent.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the March 30, 2001 Decision[1] of the Court of Appeals in CA-
G.R. CV No. 56737 which affirmed the Decision[2] of the Regional Trial Court (RTC) of Makati City, Branch 148,
in Civil Case No. 94-1822.
The Antecedents
On December 22, 1983, the petitioner United Coconut Planters Bank (UCPB) granted a loan of P2,800,000 to
Zamboanga Development Corporation (ZDC) with Venicio Ramos and the Spouses Teofilo Ramos, Sr. and
Amelita Ramos as sureties. Teofilo Ramos, Sr. was the Executive Officer of the Iglesia ni Cristo. In March
1984, the petitioner granted an additional loan to ZDC, again with Venicio Ramos and the Spouses Teofilo
Ramos and Amelita Ramos as sureties.[3] However, the ZDC failed to pay its account to the petitioner despite
demands. The latter filed a complaint with the RTC of Makati against the ZDC, Venicio Ramos and the
Spouses Teofilo Ramos, Sr. for the collection of the corporations account. The case was docketed as Civil
Case No. 16453. On February 15, 1989, the RTC of Makati, Branch 134, rendered judgment in favor of the
petitioner and against the defendants. The decretal portion of the decision reads:
1. To pay plaintiff the sum of THREE MILLION ONE HUNDRED FIFTY THOUSAND PESOS (P3,150,000.00)
plus interest, penalties and other charges;
2. To pay plaintiff the sum of P20,000.00 for attorneys fees; and
3. To pay the cost of suit.[4]
The decision became final and executory. On motion of the petitioner, the court issued on December 18,
1990 a writ of execution for the enforcement of its decision ordering Deputy Sheriff Pioquinto P. Villapaa to levy
and attach all the real and personal properties belonging to the aforesaid defendants to satisfy the judgment.
[5]
In the writ of execution, the name of one of the defendants was correctly stated as Teofilo Ramos, Sr.
To help the Sheriff implement the writ, Atty. Cesar Bordalba, the head of the Litigation and Enforcement
Division (LED) of the petitioner, requested Eduardo C. Reniva, an appraiser of the petitioners Credit and
Appraisal Investigation Department (CAID) on July 17, 1992 to ascertain if the defendants had any leviable real
and personal property. The lawyer furnished Reniva with a copy of Tax Declaration B-023-07600-R covering a
property in Quezon City.[6] In the course of his investigation, Reniva found that the property was a residential
lot, identified as Lot 12, Block 5, Ocampo Avenue, Don Jose Subdivision, Quezon City, with an area of 400
square meters, covered by TCT No. 275167 (PR-13108) under the name of Teofilo C. Ramos, President and
Chairman of the Board of Directors of the Ramdustrial Corporation, married to Rebecca F. Ramos. [7] The
property was covered by Tax Declaration No. B-023-07600-R under the names of the said spouses. Reniva
went to the property to inspect it and to verify the identity of the owner thereof. He saw workers on the property
constructing a bungalow.[8] However, he failed to talk to the owner of the property. Per information gathered
from the neighborhood, Reniva confirmed that the Spouses Teofilo C. Ramos and Rebecca Ramos owned the
property.
On July 22, 1992, Reniva submitted a report on his appraisal of the property. He stated therein that the fair
market value of the property as of August 1, 1992 was P900,000 and that the owner thereof was Teofilo C.
Ramos, married to Rebecca Ramos. When appraised by the petitioner of the said report, the Sheriff prepared
a notice of levy in Civil Case No. 16453 stating, inter alia, that the defendants were Teofilo Ramos, Sr. and his
wife Amelita Ramos and caused the annotation thereof by the Register of Deeds on the said title.[9]
Meanwhile, in August of 1993, Ramdustrial Corporation applied for a loan with the UCPB, a sister company of
the petitioner, using the property covered by TCT No. 275167 (PR-13108) as collateral therefor. The
Ramdustrial Corporation intended to use the proceeds of the loan as additional capital as it needed to
participate in a bidding project of San Miguel Corporation. [10]In a meeting called for by the UCPB, the
respondent was informed that upon verification, a notice of levy was annotated in TCT No. 275167 in favor of
the petitioner as plaintiff in Civil Case No. 16453, entitled United Coconut Planters Bank v. Zamboanga Realty
Development Corporation, Venicio A. Ramos and Teofilo Ramos, Sr., because of which the bank had to hold in
abeyance any action on its loan application.
The respondent was shocked by the information. He was not a party in the said case; neither was he aware
that his property had been levied by the sheriff in the said case. His blood temperature rose so much that
immediately after the meeting, he proceeded to his doctor, Dr. Gatchalian, at the St. Lukes Medical Center,
who gave the respondent the usual treatment and medication for cardio-vascular and hypertension problems.
[11]

Upon advise from his lawyer, Atty. Carmelito Montano, the respondent executed an affidavit of
denial[12] declaring that he and Teofilo Ramos, Sr., one of the judgment debtors in Civil Case No. 16453, were
not one and the same person. On September 30, 1993, the respondent, through counsel, Atty. Carmelito A.
Montano, wrote Sheriff Villapaa, informing him that a notice of levy was annotated on the title of the residential
lot of the respondent, covered by TCT No. 275167 (PR-13108); and that such annotation was irregular and
unlawful considering that the respondent was not Teofilo Ramos, Sr. of Iglesia ni Cristo, the defendant in Civil
Case No. 16453. He demanded that Sheriff Villapaa cause the cancellation of the said annotation within five
days from notice thereof, otherwise the respondent would take the appropriate civil, criminal or administrative
action against him. Appended thereto was the respondents affidavit of denial. For his part, Sheriff Villapaa
furnished the petitioner with a copy of the said letter.
In a conversation over the phone with Atty. Carmelito Montano, Atty. Cesar Bordalba, the head of the
petitioners LED, suggested that the respondent file the appropriate pleading in Civil Case No. 16453 to prove
his claim that Atty. Montanos client, Teofilo C. Ramos, was not defendant Teofilo Ramos, Sr., the defendant in
Civil Case No. 16453.
On October 21, 1993, the respondent was informed by the UCPB that Ramdustrial Corporations credit line
application for P2,000,000 had been approved.[13] Subsequently, on October 22, 1993, the respondent, in his
capacity as President and Chairman of the Board of Directors of Ramdustrial Corporation, and Rebecca F.
Ramos executed a promissory note for the said amount payable to the UCPB in installments for a period of
180 days.[14] Simultaneously, the respondent and his wife Rebecca F. Ramos acted as sureties to the loan of
Ramdustrial Corporation.[15] However, the respondent was concerned because when the proceeds of the loan
were released, the bidding period for the San Miguel Corporation project had already elapsed. [16] As business
did not go well, Ramdustrial Corporation found it difficult to pay the loan. It thus applied for an additional loan
with the UCPB which was, however, denied. The corporation then applied for a loan with the Planters
Development Bank (PDB), the proceeds of which would be used to pay its account to the UCPB. The
respondent offered to use his property covered by TCT No. 275167 as collateral for its loan. PDB agreed to
pay off the outstanding loan obligation of Ramdustrial Corporation with UCPB, on the condition that the
mortgage with the latter would be released. UCPB agreed. Pending negotiations with UCPB, the respondent
discovered that the notice of levy annotated on TCT No. 275167 (PR-13108) at the instance of the petitioner
had not yet been cancelled.[17] When apprised thereof, PDB withheld the release of the loan pending the
cancellation of the notice of levy. The account of Ramdustrial Corporation with UCPB thus remained
outstanding. The monthly amortization on its loan from UCPB became due and remained unpaid. When the
respondent went to the petitioner for the cancellation of the notice of levy annotated on his title, the petitioners
counsel suggested to the respondent that he file a motion to cancel the levy on execution to enable the court to
resolve the issue. The petitioner assured the respondent that the motion would not be opposed. Rather than
wait for the petitioner to act, the respondent, through counsel, filed the said motion on April 8, 1994. As
promised, the petitioner did not oppose the motion. The court granted the motion and issued an order on April
12, 1994 ordering the Register of Deeds to cancel the levy. The Register of Deeds of Quezon City complied
and cancelled the notice of levy.[18]
Despite the cancellation of the notice of levy, the respondent filed, on May 26, 1994, a complaint for damages
against the petitioner and Sheriff Villapaa before the RTC of Makati City, raffled to Branch 148 and docketed as
Civil Case No. 94-1822. Therein, the respondent (as plaintiff) alleged that he was the owner of a parcel of land
covered by TCT No. 275167; that Teofilo Ramos, Sr., one of the judgment debtors of UCPB in Civil Case No.
16453, was only his namesake; that without any legal basis, the petitioner and Sheriff Villapaa caused the
annotation of a notice to levy on the TCT of his aforesaid property which caused the disapproval of his loan
from UCPB and, thus made him lose an opportunity to participate in the bidding of a considerable project; that
by reason of such wrongful annotation of notice of levy, he suffered sleepless nights, moral shock, mental
anguish and almost a heart attack due to high blood pressure. He thus prayed:
WHEREFORE, premises considered, it is most respectfully prayed of the Honorable Regional Trial Court that
after due hearing, judgment be rendered in his favor by ordering defendants jointly and severally, to pay as
follows:
1. P3,000,000.00 as moral damages;
2. 300,000.00 as exemplary damages;
3. 200,000.00 as actual damages;
4. 200,000.00 as attorneys fees;
5. Cost of suit.[19]
In its answer, the petitioner, while admitting that it made a mistake in causing the annotation of notice of levy on
the TCT of the respondent, denied that it was motivated by malice and bad faith. The petitioner alleged that
after ascertaining that it indeed made a mistake, it proposed that the respondent file a motion to cancel levy
with a promise that it would not oppose the said motion. However, the respondent dilly-dallied and failed to file
the said motion; forthwith, if any damages were sustained by the respondent, it was because it took him quite a
long time to file the motion. The petitioner should not thus be made to suffer for the consequences of the
respondents delay.
The petitioner further asserted that it had no knowledge that there were two persons bearing the same name
Teofilo Ramos; it was only when Sheriff Villapaa notified the petitioner that a certain Teofilo C. Ramos who
appeared to be the registered owner of TCT No. 275167 that it learned for the first time the notice of levy on
the respondents property; forthwith, the petitioner held in abeyance the sale of the levied property at public
auction; barred by the failure of the respondent to file a third-party claim in Civil Case No. 16453, the petitioner
could not cause the removal of the levy; in lieu thereof, it suggested to the respondent the filing of a motion to
cancel levy and that the petitioner will not oppose such motion; surprisingly, it was only on April 12, 1994 that
the respondent filed such motion; the petitioner was thus surprised that the respondent filed an action for
damages against it for his failure to secure a timely loan from the UCPB and PDB. The petitioner thus prayed:
WHEREFORE, in view of the foregoing premises, it is respectfully prayed of this Honorable Court that
judgment be rendered in favor of defendant UCPB, dismissing the complaint in toto and ordering the plaintiff to:
1. pay moral damages in the amount of PESOS: THREE MILLION P3,000,000.00 and exemplary damages in
the amount of PESOS: FIVE HUNDRED THOUSAND P500,000.00;
2. pay attorneys fees and litigation expenses in an amount of not less than PESOS: TWO HUNDRED
THOUSAND P200,000.00;
Other reliefs and remedies deemed just and equitable under the premises are also prayed for.[20]
In the meantime, in 1995, PDB released the proceeds of the loan of Ramdustrial Corporation which the latter
remitted to UCPB.
On March 4, 1997, the RTC rendered a decision in favor of the respondent. The complaint against Sheriff
Villapaa was dismissed on the ground that he was merely performing his duties. The decretal part of the
decision is herein quoted:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendant UCPB, and the latter is hereby ordered to pay the following:
(1) P800,000.00 as moral damages;
(2) P100,000.00 as exemplary damages;
(3) P100,000.00 as attorneys fees;
(4) Cost of suit.[21]
The trial court found that contrary to the contention of the petitioner, it acted with caution in looking for leviable
properties of the judgment debtors/defendants in Civil Case No. 16453, it proceeded with haste as it did not
take into consideration that the defendant Teofilo Ramos was married to Amelita Ramos and had a Sr. in his
name, while the respondent was married to Rebecca Ramos and had C for his middle initial. The investigation
conducted by CAID appraiser Eduardo C. Reniva did not conclusively ascertain if the respondent and Teofilo
Ramos, Sr. were one and the same person.
The trial court further stated that while it was Ramdustrial Corporation which applied for a loan with UCPB and
PDB, the respondent, as Chairman of Ramdustrial Corporation, with his wife Rebecca Ramos, signed in the
promissory note and acted as sureties on the said obligations. Moreover, the property which was levied was
the respondents only property where he and his family resided. Thus, the thought of losing it for reasons not of
his own doing gave rise to his entitlement to moral damages.
The trial court further ruled that the mere fact that the petitioner did not file an opposition to the respondents
motion to cancel levy did not negate its negligence and bad faith. However, the court considered the
cancellation of annotation of levy as a mitigating factor on the damages caused to the respondent. For failure
to show that he suffered actual damages, the court a quo dismissed the respondents claim therefor.
Dissatisfied, the petitioner interposed an appeal to the Court of Appeals (CA). On March 30, 2001, the CA
rendered a decision affirming, in toto, the decision of the trial court, the decretal portion of which is herein
quoted:
WHEREFORE, based on the foregoing premises, the assailed decision is hereby AFFIRMED.[22]
The CA ruled that the petitioner was negligent in causing the annotation of notice of levy on the title of the
petitioner for its failure to determine with certainty whether the defendant Teofilo Ramos, Sr. in Civil Case No.
16453 was the registered owner of the property covered by TCT No. 275167, and to inform the sheriff that the
registered owners of the property were the respondent and his wife Rebecca Ramos, and thereafter request
for the cancellation of the motion of levy on the property.
Disappointed, the petitioner filed this instant petition assigning the following errors:
I
IN AFFIRMING THE TRIAL COURTS ORDER, THE COURT OF APPEALS COMMITTED MANIFESTLY
MISTAKEN INFERENCES AND EGREGIOUS MISAPPREHENSION OF FACTS AND GRAVE ERRORS OF
LAW, CONSIDERING THAT:
A. ON THE EVIDENCE, THE BORROWER OF THE LOAN, WHICH RESPONDENT RAMOS CLAIMED HE
TRIED TO OBTAIN, WAS RAMDUSTRIAL CORPORATION. HENCE, ANY DAMAGE RESULTING FROM THE
ANNOTATION WAS SUFFERED BY THE CORPORATION AND NOT BY RESPONDENT RAMOS.
B. THE DELAY IN THE CANCELLATION OF THE ANNOTATION WAS OF RESPONDENT RAMOSS (SIC)
OWN DOING.
C. THE LOAN APPLICATIONS WITH UNITED COCONUT SAVINGS BANK AND PLANTERS
DEVELOPMENT BANK WERE GRANTED PRIOR TO THE CANCELLATION OF THE ANNOTATION ON THE
TITLE OF THE SUBJECT PROPERTY.
II
THE COURT OF APPEALS DECISION AFFIRMING THE TRIAL COURTS AWARD OF MORAL DAMAGES
TO RESPONDENT RAMOS IN THE AMOUNT OF P800,000 ON A FINDING OF NEGLIGENCE IS
CONTRARY TO LAW AND EVIDENCE.
A. UCPB WAS NOT NEGLIGENT WHEN IT CAUSED THE LEVY ON THE SUBJECT PROPERTY.
B. AS A MATTER OF LAW, MORAL DAMAGES CANNOT BE AWARDED ON A FINDING OF MERE
NEGLIGENCE.
C. IN ANY EVENT, THE AWARD OF MORAL DAMAGES TO RESPONDENT RAMOS WAS UNREASONABLE
AND OPPRESSIVE.
III
THE AWARD OF EXEMPLARY DAMAGES AND ATTORNEYS FEES IS CONTRARY TO LAW SINCE THE
AWARD OF MORAL DAMAGES WAS IMPROPER IN THE FIRST PLACE.[23]
UCPB prayed that:
WHEREFORE, petitioner UNITED COCONUT PLANTERS BANK respectfully prays that this Honorable Court
render judgment reversing and setting aside the Court of Appeals Decision dated 30 March 2001, and ordering
the dismissal of respondent Ramos Complaint dated 05 May 1994.[24]
In his comment, the respondent alleged that the CA did not err in affirming, in toto, the decision of the trial
court. He prayed that the petition be denied due course.
The issues posed for our resolution are the following: (a) whether or not the petitioner acted negligently in
causing the annotation of levy on the title of the respondent; (b) if so, whether or not the respondent was the
real party-in-interest as plaintiff to file an action for damages against the petitioner considering that the loan
applicant with UCPB and PDB was RAMDUSTRIAL CORPORATION; (c) if so, whether or not the respondent
is entitled to moral damages, exemplary damages and attorneys fees.
On the first issue, we rule that the petitioner acted negligently when it caused the annotation of the notice of
levy in TCT No. 275167.
It bears stressing that the petitioner is a banking corporation, a financial institution with power to issue its
promissory notes intended to circulate as money (known as bank notes); or to receive the money of others on
general deposit, to form a joint fund that shall be used by the institution for its own benefit, for one or more of
the purposes of making temporary loans and discounts, of dealing in notes, foreign and domestic bills of
exchange, coin bullion, credits, and the remission of money; or with both these powers, and with the privileges,
in addition to these basic powers, of receiving special deposits, and making collection for the holders of
negotiable paper, if the institution sees fit to engage in such business. [25] In funding these businesses, the bank
invests the money that it holds in trust of its depositors. For this reason, we have held that the business of a
bank is one affected with public interest, for which reason the bank should guard against loss due to
negligence or bad faith.[26] In approving the loan of an applicant, the bank concerns itself with proper
informations regarding its debtors. The petitioner, as a bank and a financial institution engaged in the grant of
loans, is expected to ascertain and verify the identities of the persons it transacts business with. [27] In this case,
the petitioner knew that the sureties to the loan granted to ZDC and the defendants in Civil Case No. 94-1822
were the Spouses Teofilo Ramos, Sr. and Amelita Ramos. The names of the Spouses Teofilo Ramos, Sr. and
Amelita Ramos were specified in the writ of execution issued by the trial court.
The petitioner, with Atty. Bordalba as the Chief of LED and handling lawyer of Civil Case No. 16453, in
coordination with the sheriff, caused the annotation of notice of levy in the respondents title despite its
knowledge that the property was owned by the respondent and his wife Rebecca Ramos, who were not privies
to the loan availment of ZDC nor parties-defendants in Civil Case No. 16453. Even when the respondent
informed the petitioner, through counsel, that the property levied by the sheriff was owned by the respondent,
the petitioner failed to have the annotation cancelled by the Register of Deeds.
In determining whether or not the petitioner acted negligently, the constant test is: Did the defendant in doing
the 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.[28] Considering the testimonial and documentary
evidence on record, we are convinced that the petitioner failed to act with the reasonable care and caution
which an ordinarily prudent person would have used in the same situation.
The petitioner has access to more facilities in confirming the identity of their judgment debtors. It should have
acted more cautiously, especially since some uncertainty had been reported by the appraiser whom the
petitioner had tasked to make verifications. It appears that the petitioner treated the uncertainty raised by
appraiser Eduardo C. Reniva as a flimsy matter. It placed more importance on the information regarding the
marketability and market value of the property, utterly disregarding the identity of the registered owner thereof.
It should not be amiss to note that the judgment debtors name was Teofilo Ramos, Sr. We note, as the
Supreme Court of Washington in 1909 had, that a legal name consists of one given name and one surname or
family name, and a mistake in a middle name is not regarded as of consequence. However, since the use of
initials, instead of a given name, before a surname, has become a practice, the necessity that these initials be
all given and correctly given in court proceedings has become of importance in every case, and in many,
absolutely essential to a correct designation of the person intended.[29] A middle name is very important or even
decisive in a case in which the issue is as between two persons who have the same first name and surname,
did the act complained of, or is injured or sued or the like.[30]
In this case, the name of the judgment debtor in Civil Case No. 16453 was Teofilo Ramos, Sr., as appearing in
the judgment of the court and in the writ of execution issued by the trial court. The name of the owner of the
property covered by TCT No. 275167 was Teofilo C. Ramos. It behooved the petitioner to ascertain whether
the defendant Teofilo Ramos, Sr. in Civil Case No. 16453 was the same person who appeared as the owner of
the property covered by the said title. If the petitioner had done so, it would have surely discovered that the
respondent was not the surety and the judgment debtor in Civil Case No. 16453. The petitioner failed to do so,
and merely assumed that the respondent and the judgment debtor Teofilo Ramos, Sr. were one and the same
person.
In sum, we find that the petitioner acted negligently in causing the annotation of notice of levy in the title of the
herein respondent, and that its negligence was the proximate cause of the damages sustained by the
respondent.
On the second issue, the petitioner insists that the respondent is not the real party-in-interest to file the action
for damages, as he was not the one who applied for a loan from UCPB and PDB but Ramdustrial Corporation,
of which he was merely the President and Chairman of the Board of Directors.
We do not agree. The respondent very clearly stated in his complaint that as a result of the unlawful levy by the
petitioner of his property, he suffered sleepless nights, moral shock, and almost a heart attack due to high
blood pressure.[31]
It must be underscored that the registered owner of the property which was unlawfully levied by the petitioner
is the respondent. As owner of the property, the respondent has the right to enjoy, encumber and dispose of
his property without other limitations than those established by law. The owner also has a right of action
against the holder and possessor of the thing in order to recover it. [32] Necessarily, upon the annotation of the
notice of levy on the TCT, his right to use, encumber and dispose of his property was diminished, if not
negated. He could no longer mortgage the same or use it as collateral for a loan.
Arising from his right of ownership over the said property is a cause of action against persons or parties who
have disturbed his rights as an owner.[33] As an owner, he is one who would be benefited or injured by the
judgment, or who is entitled to the avails of the suit [34] for an action for damages against one who disturbed his
right of ownership.
Hence, regardless of the fact that the respondent was not the loan applicant with the UCPB and PDB, as the
registered owner of the property whose ownership had been unlawfully disturbed and limited by the unlawful
annotation of notice of levy on his TCT, the respondent had the legal standing to file the said action for
damages. In both instances, the respondents property was used as collateral of the loans applied for by
Ramdustrial Corporation. Moreover, the respondent, together with his wife, was a surety of the aforesaid loans.
While it is true that the loss of business opportunities cannot be used as a reason for an action for damages
arising from loss of business opportunities caused by the negligent act of the petitioner, the respondent, as a
registered owner whose right of ownership had been disturbed and limited, clearly has the legal personality
and cause of action to file an action for damages. Not even the respondents failure to have the annotation
cancelled immediately after he came to know of the said wrongful levy negates his cause of action.
On the third issue, for the award of moral damages to be granted, the following must exist: (1) there must be
an injury clearly sustained by the claimant, whether physical, mental or psychological; (2) there must be a
culpable act or omission factually established; (3) the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4) the award for damages is predicated on any of
the cases stated in Article 2219 of the Civil Code.[35]
In the case at bar, although the respondent was not the loan applicant and the business opportunities lost were
those of Ramdustrial Corporation, all four requisites were established.First, the respondent sustained injuries in
that his physical health and cardio-vascular ailment were aggravated; his fear that his one and only property
would be foreclosed, hounded him endlessly; and his reputation as mortgagor had been tarnished. Second, the
annotation of notice of levy on the TCT of the private respondent was wrongful, arising as it did from the
petitioners negligent act of allowing the levy without verifying the identity of its judgment debtor. Third, such
wrongful levy was the proximate cause of the respondents misery. Fourth, the award for damages is predicated
on Article 2219 of the Civil Code, particularly, number 10 thereof.[36]
Although the respondent was able to establish the petitioners negligence, we cannot, however, allow the award
for exemplary damages, absent the private respondents failure to show that the petitioner acted with malice
and bad faith. It is a requisite in the grant of exemplary damages that the act of the offender must be
accompanied by bad faith or done in a wanton, fraudulent or malevolent manner.[37]
Attorneys fees may be awarded when a party is compelled to litigate or to incur expenses to protect his interest
by reason of an unjustified act of the other party. In this case, the respondent was compelled to engage the
services of counsel and to incur expenses of litigation in order to protect his interest to the subject property
against the petitioners unlawful levy.The award is reasonable in view of the time it has taken this case to be
resolved.[38]
In sum, we rule that the petitioner acted negligently in levying the property of the respondent despite doubts as
to the identity of the respondent vis--vis its judgment debtor. By reason of such negligent act, a wrongful levy
was made, causing physical, mental and psychological injuries on the person of the respondent. Such injuries
entitle the respondent to an award of moral damages in the amount of P800,000. No exemplary damages can
be awarded because the petitioners negligent act was not tainted with malice and bad faith. By reason of such
wrongful levy, the respondent had to hire the services of counsel to cause the cancellation of the annotation;
hence, the award of attorneys fees.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 56737 is AFFIRMED WITH
MODIFICATION. The award for exemplary damages is deleted. No costs.
SO ORDERED.
[G.R. No. 141994. January 17, 2005]
FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL
CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F.
AGO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000 Resolution of the Court of
Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992
Decision[3] of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals
held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable
for libel and ordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of
Medicine moral damages, attorneys fees and costs of suit.
The Antecedents
Expos is a radio documentary[4] program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre
(Alegre).[5] Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network,
Inc. (FBNI). Expos is heard over Legazpi City, the Albay municipalities and other Bicol areas.[6]
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from
students, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of
Medicine (AMEC) and its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita
Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint for damages [7] against FBNI, Rima and
Alegre on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM,
advise them to pass all subjects because if they fail in any subject they will repeat their year level,
taking up all subjects including those they have passed already. Several students had approached me
stating that they had consulted with the DECS which told them that there is no such regulation. If [there] is no
such regulation why is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized
by DECS. xxx
Third: Students are required to take and pay for the subject even if the subject does not have an
instructor - such greed for money on the part of AMECs administration. Take the subject Anatomy:
students would pay for the subject upon enrolment because it is offered by the school. However there would be
no instructor for such subject. Students would be informed that course would be moved to a later date because
the school is still searching for the appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for
the past few years since its inception because of funds support from foreign foundations. If you will take a look
at the AMEC premises youll find out that the names of the buildings there are foreign soundings. There is a
McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that
the support of foreign foundations for AMEC is substantial, isnt it? With the report which is the basis of the
expose in DZRC today, it would be very easy for detractors and enemies of the Ago family to stop the flow of
support of foreign foundations who assist the medical school on the basis of the latters purpose. But if the
purpose of the institution (AMEC) is to deceive students at cross purpose with its reason for being it is possible
for these foreign foundations to lift or suspend their donations temporarily.[8]
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-
Institute of Mass Communication in their effort to minimize expenses in terms of salary are absorbing
or continues to accept rejects. For example how many teachers in AMEC are former teachers of Aquinas
University but were removed because of immorality? Does it mean that the present administration of AMEC
have the total definite moral foundation from catholic administrator of Aquinas University. I will prove to you my
friends, that AMEC is a dumping ground, garbage, not merely of moral and physical misfits. Probably
they only qualify in terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name
implies. She is too old to work, being an old woman. Is the AMEC administration exploiting the very
[e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently making use of
Dean Justita Lola were if she is very old. As in atmospheric situation zero visibility the plane cannot land,
meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the chairman of the committee
on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made
use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What
does this mean? Immoral and physically misfits as teachers.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to
teach. You are too old. As an aviation, your case is zero visibility. Dont insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that.
The reason is practical cost saving in salaries, because an old person is not fastidious, so long as she has
money to buy the ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely that the students would be
influenced by evil. When they become members of society outside of campus will be liabilities rather
than assets. What do you expect from a doctor who while studying at AMEC is so much burdened with
unreasonable imposition? What do you expect from a student who aside from peculiar problems because not
all students are rich in their struggle to improve their social status are even more burdened with false
regulations. xxx[9] (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI,
Rima and Alegre transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago)
reputation. AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the
selection and supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer [10] alleging that the
broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by
a sense of public duty to report the goings-on in AMEC, [which is] an institution imbued with public interest.
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea,
collaborating counsel of Atty. Lozares, filed a Motion to Dismiss[11] on FBNIs behalf. The trial court denied the
motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the
selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster
should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and training program after
passing the interview. FBNI likewise claimed that it always reminds its broadcasters to observe truth, fairness
and objectivity in their broadcasts and to refrain from using libelous and indecent language. Moreover, FBNI
requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas (KBP) accreditation test and to
secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision [12] finding FBNI and Alegre liable for libel except
Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters
claim that their utterances were the result of straight reporting because it had no factual basis. The
broadcasters did not even verify their reports before airing them to show good faith. In holding FBNI liable for
libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of its
employees.
In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with
Alegres expos. The trial court found Rimas statement within the bounds of freedom of speech, expression, and
of the press. The dispositive portion of the decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages
caused by the controversial utterances, which are not found by this court to be really very serious and
damaging, and there being no showing that indeed the enrollment of plaintiff school
dropped, defendants Hermogenes Jun Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio
station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and Educational Center-
Bicol Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages,
plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit.
SO ORDERED. [13] (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the
decision to the Court of Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The
appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for
damages and attorneys fees because the broadcasts were directed against AMEC, and not against her. The
dispositive portion of the Court of Appeals decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster
Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.[14]
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January
2000 Resolution.
Hence, FBNI filed this petition.[15]
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that
FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima
and Alegres claim that they were actuated by their moral and social duty to inform the public of the students
gripes as insufficient to justify the utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the
broadcasts were made with reckless disregard as to whether they were true or false. The appellate court
pointed out that FBNI, Rima and Alegre failed to present in court any of the students who allegedly complained
against AMEC. Rima and Alegre merely gave a single name when asked to identify the students. According to
the Court of Appeals, these circumstances cast doubt on the veracity of the broadcasters claim that they were
impelled by their moral and social duty to inform the public about the students gripes.
The Court of Appeals found Rima also liable for libel since he remarked that (1) AMEC-BCCM is a dumping
ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to
minimize expenses on its employees salaries; and (3) AMEC burdened the students with unreasonable
imposition and false regulations.[16]
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its
employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation.
The Court of Appeals denied Agos claim for damages and attorneys fees because the libelous remarks were
directed against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily
liable to pay AMEC moral damages, attorneys fees and costs of suit.
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL
DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT.
The Courts Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against
AMEC.[17] While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint
reveals that AMECs cause of action is based on Articles 30 and 33 of the Civil Code. Article 30 [18] authorizes a
separate civil action to recover civil liability arising from a criminal offense. On the other hand, Article
33[19] particularly provides that the injured party may bring a separate civil action for damages in cases of
defamation, fraud, and physical injuries. AMEC also invokes Article 19 [20] of the Civil Code to justify its claim for
damages. AMEC cites Articles 2176[21] and 2180[22] of the Civil Code to hold FBNI solidarily liable with Rima and
Alegre.
I.
Whether the broadcasts are libelous
A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or
omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural
or juridical person, or to blacken the memory of one who is dead.[24]
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances
tending to cause it dishonor, discredit and contempt. Rima and Alegres remarks such as greed for money on
the part of AMECs administrators; AMEC is a dumping ground, garbage of xxx moral and physical misfits; and
AMEC students who graduate will be liabilities rather than assets of the society are libelous per se. Taken as a
whole, the broadcasts suggest that AMEC is a money-making institution where physically and morally unfit
teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly
impelled by their civic duty to air the students gripes. FBNI alleges that there is no evidence that ill will or spite
motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre exerted
efforts to obtain AMECs side and gave Ago the opportunity to defend AMEC and its administrators. FBNI
concludes that since there is no malice, there is no libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed malicious. [25] Rima and Alegre failed to show adequately their good
intention and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or
public affairs program, Rima and Alegre should have presented the public issues free from inaccurate and
misleading information.[26] Hearing the students alleged complaints a month before the expos, [27] they had
sufficient time to verify their sources and information. However, Rima and Alegre hardly made a thorough
investigation of the students alleged gripes. Neither did they inquire about nor confirm the purported
irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified that he merely
went to AMEC to verify his report from an alleged AMEC official who refused to disclose any information.
Alegre simply relied on the words of the students because they were many and not because there is proof that
what they are saying is true.[28] This plainly shows Rima and Alegres reckless disregard of whether their report
was true or not.
Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. Significantly, some courts in
the United States apply the privilege of neutral reportage in libel cases involving matters of public interest or
public figures. Under this privilege, a republisher who accurately and disinterestedly reports certain defamatory
statements made against public figures is shielded from liability, regardless of the republishers subjective
awareness of the truth or falsity of the accusation. [29] Rima and Alegre cannot invoke the privilege of neutral
reportage because unfounded comments abound in the broadcasts. Moreover, there is no existing controversy
involving AMEC when the broadcasts were made. The privilege of neutral reportage applies where the
defamed person is a public figure who is involved in an existing controversy, and a party to that controversy
makes the defamatory statement.[30]
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of
Appeals,[31] FBNI contends that the broadcasts fall within the coverage of qualifiedly privileged
communications for being commentaries on matters of public interest. Such being the case, AMEC should
prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of fair comment, thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for
libel or slander. The doctrine of fair comment means that while in general every discreditable imputation
publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved, and
every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against
a public person in his public capacity, it is not necessarily actionable. In order that such discreditable
imputation to a public official may be actionable, it must either be a false allegation of fact or a
comment based on a false supposition. If the comment is an expression of opinion, based on
established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might reasonably
be inferred from the facts.[32] (Emphasis supplied)
True, AMEC is a private learning institution whose business of educating students is genuinely imbued with
public interest. The welfare of the youth in general and AMECs students in particular is a matter which the
public has the right to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt with
matters of public interest. However, unlike in Borjal, the questioned broadcasts are not based on established
facts. The record supports the following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of students and parents against
plaintiff, yet, defendants have not presented in court, nor even gave name of a single student who made the
complaint to them, much less present written complaint or petition to that effect. To accept this defense of
defendants is too dangerous because it could easily give license to the media to malign people and
establishments based on flimsy excuses that there were reports to them although they could not satisfactorily
establish it. Such laxity would encourage careless and irresponsible broadcasting which is inimical to public
interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their
duties, did not verify and analyze the truth of the reports before they aired it, in order to prove that they are in
good faith.
Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses.
Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before
the controversial broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff,
which certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R.
Quisumbing (Exh. C-rebuttal). Defendants could have easily known this were they careful enough to verify. And
yet, defendants were very categorical and sounded too positive when they made the erroneous report that
plaintiff had no permit to offer Physical Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation
prove not to be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of
plaintiff school was given the name Mcdonald building, that was only in order to honor the first missionary in
Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a
single centavo appears to be received by plaintiff school from the aforementioned McDonald Foundation which
does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical
students fail in one subject, they are made to repeat all the other subject[s], even those they have already
passed, nor their claim that the school charges laboratory fees even if there are no laboratories in the school.
No evidence was presented to prove the bases for these claims, at least in order to give semblance of good
faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled
out Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan.
21, 1991, and was found to be 75 years old. xxx Even older people prove to be effective teachers like Supreme
Court Justices who are still very much in demand as law professors in their late years. Counsel for defendants
is past 75 but is found by this court to be still very sharp and effective. So is plaintiffs counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and
docile.
The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere
conclusion. Being from the place himself, this court is aware that majority of the medical graduates of plaintiffs
pass the board examination easily and become prosperous and responsible professionals.[33]
Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion
happens to be mistaken, as long as it might reasonably be inferred from the facts. [34] However, the comments
of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and remain
libelous per se.
The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. (Radio
Code). Item I(B) of the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate
and misleading information. x x x Furthermore, the station shall strive to present balanced discussion of
issues. x x x.
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues and
commentary programs so that they conform to the provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest,
general welfare and good order in the presentation of public affairs and public issues.[36](Emphasis supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical
conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct
imposed by the radio broadcast industry on its own members. The Radio Code is a public warranty by the
radio broadcast industry that radio broadcast practitioners are subject to a code by which their conduct are
measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of
their profession, just like other professionals. A professional code of conduct provides the standards for
determining whether a person has acted justly, honestly and with good faith in the exercise of his rights and
performance of his duties as required by Article 19 [37] of the Civil Code. A professional code of conduct also
provides the standards for determining whether a person who willfully causes loss or injury to another has
acted in a manner contrary to morals or good customs under Article 21[38] of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation.[39]
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock.[40] The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.[41] to justify the award of
moral damages. However, the Courts statement in Mambulao that a corporation may have a good reputation
which, if besmirched, may also be a ground for the award of moral damages is an obiter dictum.[42]
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 [43] of the Civil Code. This
provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of
defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a
juridical person such as a corporation can validly complain for libel or any other form of defamation and claim
for moral damages.[44]
Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a case, evidence of an
honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages.
[46]
Neither in such a case is the plaintiff required to introduce evidence of actual damages as a condition
precedent to the recovery of some damages.[47] In this case, the broadcasts are libelous per se. Thus, AMEC is
entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that even though
the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its
reputation. Therefore, we reduce the award of moral damages from P300,000 to P150,000.
III.
Whether the award of attorneys fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys
fees. FBNI adds that the instant case does not fall under the enumeration in Article 2208[48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys
fees. AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both the trial and
appellate courts failed to explicitly state in their respective decisions the rationale for the award of attorneys
fees.[49] In Inter-Asia Investment Industries, Inc. v. Court of Appeals,[50] we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule,
and counsels fees are not to be awarded every time a party wins a suit. The power of the court to award
attorneys fees under Article 2208 of the Civil Code demands factual, legal and equitable justification,
without which the award is a conclusion without a premise, its basis being improperly left to
speculation and conjecture. In all events, the court must explicitly state in the text of the decision, and not
only in the decretal portion thereof, the legal reason for the award of attorneys fees.[51](Emphasis supplied)
While it mentioned about the award of attorneys fees by stating that it lies within the discretion of the court and
depends upon the circumstances of each case, the Court of Appeals failed to point out any circumstance to
justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys
fees because it exercised due diligence in the selection and supervision of its employees, particularly Rima
and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a very regimented
process before they are allowed to go on air. Those who apply for broadcaster are subjected to interviews,
examinations and an apprenticeship program.
FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster.
FBNI points out that the minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way
prove that FBNI did not exercise the diligence of a good father of a family in selecting and supervising them.
Rimas accreditation lapsed due to his non-payment of the KBP annual fees while Alegres accreditation card
was delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that membership in the
KBP is merely voluntary and not required by any law or government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they
commit.[52] Joint tort feasors are all the persons who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for
their benefit.[53] Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of
the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising
from the libelous broadcasts. As stated by the Court of Appeals, recovery for defamatory statements published
by radio or television may be had from the owner of the station, a licensee, the operator of the station, or a
person who procures, or participates in, the making of the defamatory statements. [54] An employer and
employee are solidarily liable for a defamatory statement by the employee within the course and scope of his
or her employment, at least when the employer authorizes or ratifies the defamation.[55] In this case, Rima and
Alegre were clearly performing their official duties as hosts of FBNIs radio program Expos when they aired the
broadcasts. FBNI neither alleged nor proved that Rima and Alegre went beyond the scope of their work at that
time. There was likewise no showing that FBNI did not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed that it
exercised diligence in the selection of its broadcasters without introducing any evidence to prove that it
observed the same diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised
diligence in supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to observe truth,
fairness and objectivity and to refrain from using libelous and indecent language is not enough to prove due
diligence in the supervision of its broadcasters. Adequate training of the broadcasters on the industrys code of
conduct, sufficient information on libel laws, and continuous evaluation of the broadcasters performance are
but a few of the many ways of showing diligence in the supervision of broadcasters.
FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in
mind their qualifications. However, no clear and convincing evidence shows that Rima and Alegre underwent
FBNIs regimented process of application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in
their KBP accreditation,[56] which is one of FBNIs requirements before it hires a broadcaster. Significantly,
membership in the KBP, while voluntary, indicates the broadcasters strong commitment to observe the
broadcast industrys rules and regulations. Clearly, these circumstances show FBNIs lack of diligence in
selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages together with Rima
and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of
26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of
moral damages is reduced from P300,000 to P150,000 and the award of attorneys fees is deleted. Costs
against petitioner.
SO ORDERED.
 CITY GOVERNMENT OF TAGAYTAY, G.R. Nos. 140743 & 140745
Petitioner,
- versus -
HON. ELEUTERIO F. GUERRERO, Presiding Judge of the
Regional Trial Court of Tagaytay, Branch XVIII; TAGAYTAY-TAAL
TOURIST DEVELOPMENT CORPORATION; PROVINCE OF
BATANGAS; MUNICIPALITY OF LAUREL, BATANGAS; and
MUNICIPALITY OF TALISAY, BATANGAS,
Respondents.
x----------------------------x
AMEURFINA MELENCIO-HERRERA and EMILINA MELENCIO-
FERNANDO,
Petitioners,
- versus -

HON. ELEUTERIO F. GUERRERO, Presiding Judge of the

Regional Trial Court of Cavite City, Branch XVIII; TAGAYTAY-
TAAL TOURIST DEVELOPMENT CORPORATION; PROVINCE OF G.R. Nos. 141451-52
BATANGAS; MUNICIPALITY OF LAUREL, BATANGAS;
MUNICIPALITY OF TALISAY, BATANGAS; and CITY OF
TAGAYTAY,
Respondents.

Promulgated:

September 17, 2009

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

Before the Court are consolidated petitions for review on certiorari under Rule 45 of the Rules of Court,
assailing the Decision[1] dated June 19, 1998 and the Resolution[2]dated November 11, 1999 of the Court of
Appeals (CA) in CA-G.R. SP Nos. 39008 and 38298.

The Facts

Tagaytay-Taal Tourist Development Corporation (TTTDC) is the registered owner of two (2) parcels of land
covered by Transfer Certificate of Title (TCT) Nos. T-9816 [3] and T-9817[4] of the Registry of Deeds
of Tagaytay City. TTTDC incurred real estate tax liabilities on the said properties for the tax years 1976 to
1983.[5]

On November 28, 1983, for failure of TTTDC to settle its delinquent real estate tax obligations, the City
Government of Tagaytay (City of Tagaytay) offered the properties for sale at public auction. Being the only
bidder, a certificate of sale was executed in favor of the City of Tagaytay and was correspondingly inscribed on
the titles of the properties on November 20, 1984.[6]
On July 14, 1989, the City of Tagaytay filed an unnumbered petition for entry of new certificates of title in its
favor before the Regional Trial Court (RTC) of Cavite, Branch XVIII, Tagaytay City. The case was entitled, In re:
Petition for Entry of New Certificate of Title, City of Tagaytay, Petitioner. On December 5, 1989, the RTC
granted the petition.The dispositive portion of the Decision[7] reads:

WHEREFORE, finding the petition to be meritorious and sufficiently sustained with preponderant, legal and
factual basis, this Court hereby gives its imprimatur to it and grants the same, dismissing in the process, the
Opposition filed by Tagaytay-Taal Tourist Development Corporation. Accordingly, the Register of Deeds of
Tagaytay City is hereby ordered to allow the City to consolidate the titles covering the properties in question
(TCT Nos. T-9816 and T-9817), by issuing in its favor, and under its name, new Transfer Certificates of Titles
and canceling as basis thereof, the said TCT Nos. 9816 and 9817 in the name of Tagaytay-Taal Tourist
Development Corporation, all of which, being hereby declared null and void, henceforth.

SO ORDERED.[8]

In granting the petition for entry of new certificates of title in favor of the City of Tagaytay, the trial court
ratiocinated that whatever rights TTTDC had over the properties had been lost by laches for its failure to
question the validity of the auction sale. It also ruled that, as of April 30, 1989, the unpaid real estate tax
obligations of TTTDC to the City of Tagaytay amounted to P3,307,799.00. Accordingly, TTTDCs failure to
exercise its right of redemption by way of paying its delinquent real estate taxes and charges called for the
application of Section 75[9] of Presidential Decree (P.D.) No. 1529, otherwise known as the Property
Registration Decree.[10] TTTDC appealed to the CA. The case was docketed as CA-G.R. No. 24933,
entitled City of Tagaytay v. Tagaytay-Taal Tourist Development Corporation.

On June 29, 1990, Atty. Donato T. Faylona, acting as agent of Ameurfina Melencio-Herrera and Emilina
Melencio-Fernando (Melencios), purchased the subject properties pursuant to Section 81 [11] in relation to
Section 78[12] of P.D. No. 464.[13] The Melencios bought the subject properties for Three Million Five Hundred
Fifty Thousand Pesos (P3,550,000.00) representing the total amount of taxes and penalties due on the same.
[14]

Meanwhile, on July 21, 1991, during the pendency of CA-G.R. CV No. 24933, TTTDC filed a petition for
nullification of the public auction involving the disputed properties on the ground that the properties were not
within the jurisdiction of the City of Tagaytay and, thus, beyond its taxing authority. [15] The case, docketed as
Civil Case No. TG-1196 before the RTC of Cavite, Branch XVIII, Tagaytay City, was entitled Tagaytay-Taal
Tourist Development Corporation v. City of Tagaytay, Municipality of Laurel (formerly
Talisay), Province of Batangas, Register of Deeds of Batangas, and Register of Deeds of the City of Tagaytay.
[16]
On the other hand, the City of Tagaytay averred that based on its Charter, [17] the subject properties were
within its territorial jurisdiction.[18] The sole issue in Civil Case No. TG-1196 was whether the parcels of land
covered by TCT Nos. T-9816 and T-9817 were within the territorial jurisdiction of the City of Tagaytay.

Despite the fact that the Melencios had already purchased the subject properties, they were not impleaded in
Civil Case No. TG-1196. Thus, on June 23, 1994, they filed a Motion to Intervene.[19] On October 5, 1994, the
RTC issued an Order[20] denying the motion. The pertinent portions of the Order read:

This Court could clearly discern from the records that on July 13, 1994, this Court, after the parties to the case
at bar have concluded the presentation of their respective evidences (sic), issued an Order giving the parties
thirty (30) days within which to file their respective memoranda simultaneously and thereafter the instant case
is considered submitted for decision. It is equally observed by the Court that although the motion to intervene
was filed by the movants on July 1, 1994, the latter had set the same motion for the consideration of this Court
on July 15, 1994 at 8:30 oclock in the morning or two (2) days after the trial in this case was concluded. Thus,
while this Court is inclined to agree with movants postulation that they have a legal interest in the case at bar
being the purchasers of the parcels of land involved in the instant controversy, it however believes and so
holds that it is legally precluded from granting the motion to intervene on account of the provisions of Section 2,
Rule 12 of the Revised Rules of Court which is quoted hereinunder as follows:

SEC. 2. Intervention. A person may, before or during a trial, be permitted by the court, in its discretion, to
intervene in an action, if he has legal interest in the matter in litigation, or in the success of either of the parties,
or an interest against both, or when he is so situated as to be adversely affected by the distribution or other
disposition of property in the custody of the court or of an official thereof.

It is quite evident that the movants have filed their motion to intervene beyond the period mentioned in the
above-quoted rule as it was repeatedly held by jurisprudence that the authority of the court to permit a person
to intervene is delimited by the provisions of Section 2, Rule 12 of the Rules of Court before or during
trial. And, trial is here used in a restricted sense and refers to the period for the introduction of evidence by
both parties. (Pacusa v. Del Rosario, L-26353, July 29, 1968; 24 SCRA 125, 129-130; Bool v. Mendoza, 92
Phil. 892, 895; Trazo v. Manila PencilCo., 1 SCRA 403, 405).

Surprisingly, even with the denial of the motion, the Melencios did not further pursue their cause. This was
allegedly due to the assurances of the City of Tagaytay that it would file a motion for reconsideration and an
appeal if the motion for reconsideration was denied. However, the City of Tagaytay filed a defective motion for
reconsideration which was denied by the RTC and the City of Tagaytay did not file an appeal from the decision
of the trial court.[21]

On November 11, 1991, the CA, in CA-G.R. No. 24933, affirmed the decision of the trial court in the
unnumbered petition. The case was elevated to the Supreme Court via a petition for review on certiorari and
was docketed as G.R. No. 106812.[22] The case was entitled Tagaytay-Taal Tourist Development Corporation v.
Court of Appeals (Special Ninth Division) and The City of Tagaytay.

During the pendency of the proceedings in G.R. No. 106812, on October 21, 1994, the RTC rendered a
Decision[23] in Civil Case No. TG-1196 wherein the trial court directed the annulment of the public sale of the
contested properties. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered granting the instant petition and as a consequence, the public
auction sale of the properties of the petitioner, both covered by TCT Nos. T-9816 and T-9817 of the Registry of
Deeds of Tagaytay City, as well as the Certificate of Sale and the Final Bill of Sale of said properties in favor of
the respondent City of Tagaytay City (sic), and all proceedings held in connection therewith are hereby
annulled and set aside, and the respondent Register of Deeds of the City of Tagaytay is hereby directed to
cancel Entries Nos. 21951/T-9816 and 36984/T9816 annotated and appearing on TCT No. T-9816 and Entries
Nos. 21950/T-9817 and 30087/T-9817 annotated and appearing on TCT No. T-9817 regarding the sale of the
lots described therein in favor of the City of Tagaytay.

Moreover, the writ of preliminary injunction issued by this Court on September 24 is hereby made permanent.

SO ORDERED.[24]

The City of Tagaytay filed a motion for reconsideration of the RTC decision in Civil Case No. TG-1196. But for
failure to comply with the procedural requirements of a litigious motion, the trial court denied the same in an
Order[25] dated February 28, 1995. The fallo of the order reads:

WHEREFORE, in the light of the foregoing, this Court finds no cogent grounds (sic) for a grant of the Motion
for Reconsideration filed by respondent City of Tagaytay and considering that the same motion failed to comply
with the requirements imposed by Sections 4, 5 and 6 of Rule 15 of the Revised Rules of Court, this Court
hereby directs that the said motion be stricken from the records and the Acting Clerk of this Court is directed to
enter the Decision dated October 21, 1994 as required under Section 2, Rule 36 of the Revised Rules of Court.

SO ORDERED.[26]
On November 9, 1994, the RTC Decision dated October 21, 1994 in Civil Case No. TG-1196 became final and
executory. On March 24, 1995, the Decision was entered in the Book of Entries of Judgments.[27]

On August 31, 1995, the Melencios filed before the CA a petition for annulment of judgment of the RTC
Decision in Civil Case No. TG-1196. The case was docketed as CA-G.R. SP No. 38298, entitled Ameurfina
Melencio-Herrera and Emilina Melencio-Fernando v. Hon. Eleuterio F. Guerrero, Tagaytay-Taal Tourist
Development Corporation, the Province of Batangas, the Municipality of Laurel, the Municipality of Talisay and
the City of Tagaytay. In the Petition,[28] the Melencios questioned the final and executory decision of the trial
court on the ground that the City of Tagaytay allegedly committed extrinsic fraud and that was the ultimate
reason why they were deprived of property without due process of law. Furthermore, they averred that the
decision was rendered with absolute lack of jurisdiction over the subject matter and nature of the petition due
to the following: (1) violation of the prohibition to entertain cases without the payment of the required deposit
under Section 83 of P.D. No. 464; (2) violation of the doctrine of litis pendentia or the doctrine of non-
interference with a co-equal body; (3) forum-shopping by TTTDC; and (4) failure to follow the administrative
procedure in the settlement of boundary disputes between local government units as provided under the Local
Government Code.[29]

On November 15, 1995, City of Tagaytay also filed before the CA a petition for annulment of judgment of the
RTC Decision in Civil Case No. TG-1196. The case was docketed as CA-G.R. SP No. 39008, entitled City of
Tagaytay v. Hon. Eleuterio F. Guerrero, Tagaytay-Taal Tourist Development Corporation,
the Municipality of Laurel, Batangas, and the Municipality of Talisay, Batangas. The City of Tagaytay filed the
Petition[30]on the following grounds: (1) the RTC had no primary jurisdiction to resolve boundary disputes; (2)
the RTC committed judicial legislation in its interpretation of Commonwealth Act No. 338 and Republic Act
(R.A.) No. 1418; and (3) the RTC acted in excess of jurisdiction in entertaining the case of TTTDC without the
deposit of the amount of the tax sale as required by Section 83 of P.D. No. 464.[31]
CA-G.R. SP Nos. 38298 and 39008 were eventually consolidated.
In the interregnum, on June 10, 1997, the Supreme Court rendered a Decision [32] in G.R. No. 106812, the
dispositive portion of which reads:

WHEREFORE, the decision of respondent Court of Appeals promulgated on November 11, 1991 and its
resolution of August 24, 1992, and the decision of the Regional Trial Court of Cavite dated December 5, 1989
are hereby REVERSED and SET ASIDE. The "Petition for Entry of New Certificates of Title" of respondent City
of Tagaytay is DENIED.

SO ORDERED.[33]

In denying the petition, the Court ratiocinated, thus:

The Regional Trial Court of Cavite, sitting as a land registration or cadastral court, could not have ordered the
issuance of new certificates of title over the properties in the name of respondent City if the delinquency sale
was invalid because said properties are actually located in the municipality of Talisay, Batangas, not
in Tagaytay City. Stated differently, respondent City could not have validly collected real taxes over properties
that are outside its territorial jurisdiction. x x x.

xxxx

The Regional Trial Court of Cavite in Civil Case No. TG-1196 rendered a decision on October 21, 1994 ruling
that the properties in question are actually situated in Talisay, Batangas, hence, the assessment of real estate
taxes thereon by respondent City and the auction sale of the properties on November 28, 1983, as well as the
Certificate of Sale and Final Bill of Sale in favor of respondent City are null and void. We quote with favor
portions of said decision:

As earlier stated herein, the portion of Barrio of Birinayan, Municipality of Talisay, Province of Batangas, by
virtue of the provisions of Commonwealth Act No. 338 corresponds to Exhibit 1-B of the Plan of Mendez-Nuez
marked as Exhibit 1, and it is noted that Exhibit 1-B or that portion of the Municipality of Talisay, Province of
Batangas given to the respondent City under Commonwealth Act No. 338 is located below the Tagaytay Ridge
which was the boundary between the Provinces of Cavite and Batangas before the enactment of
Commonwealth Act No. 338. Thus, taking into account the above-quoted portion of the explanatory note of
Republic Act No. 1418, there can be no doubt that what had been ordered returned by the law to the
Municipality of Talisay, Province of Batangas does not extend only to the portion annexed to the respondent
City by virtue of Executive Order No. 336 but also the portion mentioned under Commonwealth Act No. 338.
Besides, the same explanatory note mentions specifically the return of the two (2) barrios of Talisay, Batangas,
and not merely portions thereof, hence the conclusion is inescapable that Republic Act No. 1418 intended the
return of the entire barrios of Caloocanand Birinayan to the same municipality.

It is beyond [any] doubt, therefore, that Lots 10-A and 10-B of TCT Nos. T-9816 and T-9817 of petitioner, which
are located in Barrio Birinayan, Municipality of Talisay, Province of Batangas, at the time Republic Act No. 1418
took effect, are no longer within the territorial jurisdiction of the respondent City of Tagaytay and since there is
no dispute that under the law, the City of Tagaytay may only subject to the payment of real estate tax
properties that are situated within its territorial boundaries (See Sections 27 & 30, Commonwealth Act No. 338;
Presidential Decree No. 464; and 1991 Local Government Code), the assessment of real estate taxes imposed
by the respondent City on the same properties in the years 1976 up to 1983 appears to be legally unwarranted.
In the same manner, the public auction sale, which was conducted by the same respondent on November 28,
1989, for deficiencies on the part of the petitioner to pay real estate taxes on the same years, as well as the
certificates of sale and the final bills issued and executed in connection with such auction sale, and all
proceedings taken by the respondent City in connection therewith are all considered by this Court as illegal,
and null and void.
In fine, this Court finds from the evidence adduced on record that petitioner has preponderantly established its
entitlement to the reliefs mentioned in its petition.
WHEREFORE, judgment is hereby rendered granting the instant petition and as a consequence, the public
auction sale of the properties of the petitioner, both covered by TCT Nos. T-9816 and T-9817 of the Registry of
Deeds of Tagaytay City, as well as the Certificates of Sale and the Final Bills of Sale of said properties in favor
of the respondent Tagaytay City, and all proceedings held in connection therewith are hereby annulled and set
aside, and the respondent Register of Deeds of the City of Tagaytay is hereby directed to cancel Entries Nos.
21951/T-9816, 21984/T-9816 annotated and appearing on TCT No. T-9816 and Entries Nos. 21950/T-98917
and 30087/T-9817 annotated and appearing on TCT No. T-9817 regarding the sale of the lots described
therein in favor of the City of Tagaytay.

The above-cited decision has not been appealed and is now final and executory.[34]

The Supreme Court decision in G.R. No. 108612 is already final and executory.

On June 19, 1998, the CA rendered a Decision[35] dismissing the consolidated petitions for annulment of
judgment of the RTC Decision in Civil Case No. TG-1196.

Both the City of Tagaytay and the Melencios filed their respective motions for reconsideration. However, both
motions were denied in the Resolution[36] of the CA dated November 11, 1999.

Hence, the instant consolidated petitions.

The Issues

In G.R. Nos. 140743 and 140745, petitioner City of Tagaytay assigns the following errors:

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO RULE ON THE QUESTION OF

JURISDICTION AND TO CONSIDER THE FACT THAT THE REGIONAL TRIAL COURT OF TAGAYTAY CITY
HAS NO JURISDICTION TO RENDER ITS OCTOBER 21, 1994 DECISION BECAUSE:

A] THE REGIONAL TRIAL COURT HAS NO ORIGINAL JURISDICTION OVER A BOUNDARY DISPUTE
BETWEEN TWO PROVINCES (CAVITE AND BATANGAS). THE LOCAL GOVERNMENT CODE CLEARLY
VESTS PRIMARY AND ORIGINAL JURISDICTION OVER BOUNDARY DISPUTES TO THE SANGGUNIAN
OF THE LOCAL GOVERNMENT UNITS CONCERNED;

B] THE REGIONAL TRIAL COURT DID NOT ACQUIRE JURISDICTION OVER THE CASE FOR FAILURE OF
PRIVATE RESPONDENT TO COMPLY WITH THE JURISDICTIONAL REQUIREMENT OF
DEPOSITING/PAYING TO THE COURT THE AMOUNT EQUIVALENT TO THE TAX SALE AS MANDATED BY
SECTION 83 OF PRESIDENTIAL DECREE NO. 464 OTHERWISE KNOWN AS THE REAL PROPERTY TAX
CODE AND SECTION 35 (C) OF COMMONWEALTH ACT NO. 338 (TAGAYTAY CITY CHARTER); AND

C] THE REGIONAL TRIAL COURT HAS NO JURISDICTION TO CHANGE/AMEND THE EXISTING

TERRITORIAL LIMITS OF POLITICAL SUBDIVISIONS.[37]

In G.R. Nos. 141451-52, the Melencios assign the following errors, viz.:

I.

THE COURT OF APPEALS ERRED IN RULING THAT FOR EXTRINSIC FRAUD TO JUSTIFY AND/OR
WARRANT THE NULLIFICATION OF THE DECISION OF THE REGIONAL TRIAL COURT, THE SAME MUST
BE COMMITTED BY THE PREVAILING PARTY.

II.

THE COURT OF APPEALS FAILED TO CONSIDER THAT PETITIONERS HAVE VESTED RIGHTS OVER
THE SUBJECT PARCELS OF LAND.

III.

THE COURT OF APPEALS ERRED IN FAILING TO ANNUL THE JUDGMENT ON THE GROUND THAT
PETITIONERS WERE NOT IMPLEADED IN THE CASE DESPITE BEING INDISPENSABLE PARTIES.

IV.

THE COURT OF APPEALS ERRED IN DISREGARDING THE FOLLOWING JURISDICTIONAL ISSUES:

(1) SECTION 83 OF PD 464;

(2) THE DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES.
(3) THE DOCTRINE OF NON-FORUM SHOPPING;
(4) DOCTRINE OF LITIS PENDENTIA; AND
(5) THE DOCTRINE OF NON-INTERFERENCE OF CO-EQUAL BODY

V.
THE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT RESPONDENT COURT HAD NO
JURISDICTION TO REPEAL BY IMPLICATION THE PROVISIONS OF COMMONWEALTH ACT NO. 338
WHICH REFERS TO THE SUBJECT PARCELS OF LAND.[38]

The errors assigned by petitioners may be distilled into two major issues: (1) whether the RTC had jurisdiction
to settle the alleged boundary dispute; and (2) whether the City of Tagaytay committed extrinsic fraud against
the Melencios.

The Ruling of the Court

I. On Lack of Jurisdiction

The consolidated petitions are an offshoot of the petitions for annulment of judgment of the RTC Decision in
Civil Case No. TG-1196 filed by the City of Tagaytay and the Melencios.

Annulment of Judgment under Rule 47 of the Rules of Court is a recourse equitable in character and allowed
only in exceptional cases where the ordinary remedies of new trial, appeal, petition for relief or other
appropriate remedies are no longer available through no fault of petitioner. [39] Section 2 of the said Rule
provides that the annulment may be based only on the grounds of extrinsic fraud and lack of jurisdiction,
although jurisprudence recognizes denial of due process as an additional ground.[40]

Petitioners aver that the instant case involves a boundary dispute and, thus, the RTC had no jurisdiction to
decide the matter. They maintain that the basic issue resolved by the RTC was the location of the properties,
whether in the City of Tagaytay or in the Province of Batangas. They cite Sections 118 and 119 of the Local
Government Code in support of their argument. The said sections read:

SECTION 118. Jurisdictional Responsibility for Settlement of Boundary Dispute. Boundary disputes between
and among local government units shall, as much as possible, be settled amicably. To this end:

(a) Boundary disputes involving two (2) or more barangays in the same city or municipality shall be referred
for settlement to the sangguniang panlungsod or sangguniang bayan concerned.

(b) Boundary disputes involving two (2) or more municipalities within the same province shall be referred for
settlement to the sangguniang panlalawigan concerned.

(c) Boundary disputes involving municipalities or component cities of different provinces shall be jointly
referred for settlement to the sanggunians of the province concerned.

(d) Boundary disputes involving a component city or municipality on the one hand and a highly urbanized city
on the other, or two (2) or more highly urbanized cities, shall be jointly referred for settlement to the respective
sanggunians of the parties.

(e) In the event the sanggunian fails to effect an amicable settlement within sixty (60) days from the date the
dispute was referred thereto, it shall issue a certification to that effect. Thereafter, the dispute shall be formally
tried by the sanggunian concerned which shall decide the issue within sixty (60) days from the date of the
certification referred to above.

SECTION 119. Appeal. Within the time and manner prescribed by the Rules of Court, any party may elevate
the decision of the sanggunian concerned to the proper Regional Trial Court having jurisdiction over the area in
dispute. The Regional Trial Court shall decide the appeal within one (1) year from the filing thereof. Pending
final resolution of the disputed area prior to the dispute shall be maintained and continued for all legal
purposes.

They further claimed that the RTC had no jurisdiction to repeal by implication Commonwealth Act No. 338,
[41]
particularly on the territorial limits of the City of Tagaytay.

The subject properties, covered by TCT Nos. 9816 and 9817, are more particularly described as follows:

TECHNICAL DESCRIPTION
TCT No. T-9816
CITY OF TAGAYTAY

A parcel of land (Lot 10-A of the subdivision plan (LRC) Psd-229279, being a portion of Lot 10, Psu-82838,
Amd. 4 LRC Record No. 49057), situated in the Barrio of Birinayan, Municipality of Talisay, Province of
Batangas, Island of Luzon. Bounded on the NW., and NE., points 7 to 1, and 1 to 2 by Lot 10-B; on the SE.,
points 3 to 4, by Lot 10-C both of the subdivision plan; and on the SW., points 4 to 7, by property of Agapito
Rodriguez x x x containing an area of SEVENTY FOUR THOUSAND THREE HUNDRED FORTY (74,340)
SQUARE METERS, more or less x x x.[42]

TECHNICAL DESCRIPTION
TCT No. T-9817
CITY OF TAGAYTAY

A parcel of land (Lot 10-B, of the subdivision plan (LRC) Psd-229279, being a portion of Lot 10, Psu-82838,
Amd. 4., LRC Record No. 49057), situated in the Barrio of Birinayan, Municipality of Talisay, Province of
Batangas, Island of Luzon. Bounded on the NE., points 14 to 1; and 1 to 4 by property of Angel T. Limjoco; on
the SE., points 4 to 5 by Lot 10-D; on the SW., and SE., points 5 to 7 by Lot 10-A, both of the subdivision plan;
on the SW., points 7 to 9 by property of Agapito Rodriguez; and on the NW., points 9 to 12 by Lot 11, points 12
to 13 by Lot 9, and points 13 to 14 by Lot 7, x x x containing an area of NINE HUNDRED THIRTY SEVEN
THOUSAND EIGHT HUNDRED FOURTEEN (937,814) SQUARE METERS, more or less. x x x. [43]

Based on the decision of the Court in G.R. No. 106812 and the findings of fact of the RTC, as affirmed by the
CA, the subject properties that are situated in Barrio Birinayan, Municipality of Talisay, are within the territorial
jurisdiction of the Province of Batangas. This factual finding binds this Court and is no longer subject to review.
Recourse under Rule 45 of the Rules of Court, as in this case, generally precludes the determination of factual
issues.

Under Commonwealth Act No. 338, Barrio Birinayan was annexed to the City of Tagaytay as of its
incorporation on June 31, 1938. However, upon the passage of R.A. No. 1418 [44] on June 7, 1956, Barrio
Birinayan was taken away from the City of Tagaytay and transferred to the Province of Batangas. The pertinent
portions of R.A. No. 1418 read:

SECTION 1. The former barrios of Caloocan and Birinayan of the Municipality of Talisay, Province of Batangas,
which were annexed to the City of Tagaytay, are hereby separated from the latter city and transferred to the
said Municipality of Talisay.

SECTION 2. The portion of Executive Order numbered three hundred and thirty-six, dated April first, nineteen
hundred and forty-one, relating to the transfer of the said barrios of Caloocan and Birinayan to the City
of Tagaytay, is hereby repealed.
On June 21, 1969, by virtue of R.A. No. 5689,[45] Barrio Birinayan became part of
the Municipality of Laurel, Province of Batangas. Section 1 of R.A. No. 5689 reads:

SECTION 1. Barrios Bayuyungan, Ticub, Balakilong, Bugaan, Borinayan, As-is, San Gabriel, and Buso-buso in
the Municipality of Talisay, Province of Batangas, are separated from said municipality and constituted into a
distinct and independent municipality to be known as the Municipality of Laurel, same province. The seat of
government of the new municipality shall be in the present site of Barrio Bayuyungan.

Central to the resolution of this dispute is the proper interpretation of Section 1 of R.A. No.
1418. Petitioner City of Tagaytay argues that only certain portions of Birinayan were transferred to
the Province of Batangas, and not the entire Barrio. However, upon perusal, it can be easily discerned that the
law is clear and categorical. The transfer of the entire Barrio Birinayan to
the Municipality of Talisay, Province of Batangas, is definite and unqualified. There is no indication that only
certain portions of the Barrio were transferred. Thus, no further interpretation is required in order to ascertain
its meaning and consequent implication.

A statute is not subject to interpretation or construction as a matter of course. It is only when the language of
the statute is ambiguous when taken in relation to a set of facts, or reasonable minds disagree as to its
meaning, that interpretation or construction becomes necessary. Where the terms of the statute are clear and
unambiguous, no interpretation is called for, and the law is applied as written, for application is the first duty of
the court, and interpretation is needed only where literal application is impossible or inadequate.[46]

Every statute is understood to contain, by implication, if not by its express terms, all such provisions as may be
necessary to effectuate its object and purpose, or to make effective the rights, powers, privileges, or jurisdiction
which it grants, and also all such collateral and subsidiary consequences as may be fairly and logically inferred
from its terms.[47]

There is no boundary dispute in the case at bar. The RTC did not amend the existing territorial limits of the City
of Tagaytay and the Province of Batangas. The entire Barrio Birinayan was transferred to
the Municipality of Talisay, Province of Batangas, by virtue of R.A. No. 1418. At present, Barrio Birinayan forms
part of the Municipality of Laurel, also in the Province of Batangas, pursuant to R.A. No. 5689. The RTC acted
well within its powers when it passed judgment on the nullification of the auction sale of the contested
properties, considering that the City of Tagaytay has no right to collect real estate taxes on properties that are
not within its territorial jurisdiction.

The City of Tagaytay acted in bad faith when it levied real estate taxes on the subject properties. R.A. No. 1418
became law as early as 1956. The City of Tagaytay is conclusively presumed to know the law that delineates
its jurisdiction, more especially when the law, as in this case, is clear and categorical. Men of common
intelligence need not guess at its meaning and differ on its application. The entire Barrio Birinayan, not only
portions thereof, was transferred to the Province of Batangas. If it was the true intention of the legislature to
transfer only certain portions of Barrio Birinayan to the Province of Batangas, it would have plainly stated so in
the law.

Petitioners also claim that the doctrine of exhaustion of administrative remedies was violated when the RTC
took cognizance of the case for the annulment of the auction sale. They aver that the jurisdiction of the RTC is
only appellate in view of Section 119 of R.A. No. 7160. However, as already explained, the instant case does
not involve a boundary dispute. As such, there is no room for the application of Section 119.

Petitioners likewise make reference to Section 83 of P.D. No. 464 to assail the jurisdiction of the RTC in
entertaining the petition for the annulment of the auction sale of the contested properties. They aver that
compliance with Section 83 of P.D. No. 464 is a jurisdictional requirement that must be complied with before a
court may take cognizance of a case assailing the validity of a tax sale of real estate. The said Section reads:

Section 83. Suits assailing validity of tax sale. No court shall entertain any suit assailing the validity of a tax
sale of real estate under this Chapter until the taxpayer shall have paid into court the amount for which the real
property was sold, together with interests of twenty per centum per annum upon that sum from the date of sale
to the time of instituting suit. The money so paid into court shall belong to the purchaser at the tax sale if the
deed is declared invalid, but shall be returned to the depositor if the action fails.

However, this provision may only be used in a voidable tax sale. When the sale is void because the property
subjected to real estate tax is not situated within the jurisdiction of the taxing authority, the provision cannot be
invoked. In this case, there is already a final and executory decision by the Supreme Court in G.R. No. 106812
that the properties are situated outside the territorial jurisdiction of the City of Tagaytay. Thus, there was no
basis for the collection of the real estate tax.

The other arguments of petitioners, i.e., violation of the doctrine of non-forum shopping, violation of the
doctrine of litis pendentia and the doctrine of non-interference of a co-equal body, must likewise be struck
down. These issues were already addressed by the Court, through the ponencia of Justice Kapunan, in G.R.
No. 106812, viz.:

The issues raised before the RTC sitting as a land registration or cadastral court, without question, involved
substantial or controversial matters and, consequently, beyond said court's jurisdiction. The issues may be
resolved only by a court of general jurisdiction.

In Re: Balanga v. Court of Appeals, we emphatically held:

x x x. While it is true that Section 78 of Act. 496 on which the petition is based provides that upon the failure of
the judgment-debtor to redeem the property sold at public auction the purchaser of the land may be granted a
new certificate of title, the exercise of such function is qualified by the provision that at any time prior to the
entry of a new certificate the registered owner may pursue all his lawful remedies to impeach or annul
proceedings under executions or to enforce liens of any description. The right, therefore, to petition for a new
certificate under said section is not absolute but subject to the determination of any objection that may be
interposed relative to the validity of the proceedings leading to the transfer of the land subject thereof which
should be threshed out in a separate appropriate action. This is the situation that obtains herein. Teopista
Balanga, the judgment-debtor, is trying to impeach or annul the execution and sale of the properties in question
by alleging that they are conjugal in nature and the house erected on the land has been constituted as a family
home which under the law is exempt from execution. These questions should first be determined by the court
in an ordinary action before entry of a new certificate may be decreed.

This pronouncement is also in line with the interpretation we have placed on Section 112 of the same Act to the
effect that although cadastral courts are empowered to order the cancellation of a certificate of title and the
issuance of a new one in favor of the purchaser of the land covered by it, such relief can only be granted if
there is unanimity among the parties, or no serious objection is interposed by a party in interest. As this Court
has aptly said: While this section, (112) among other things, authorizes a person in interest to ask the court for
any erasure, alteration, or amendment of a certificate of title x x x and apparently the petition comes under its
scope, such relief can only be granted if there is unanimity among the parties, or there is no adverse claim or
serious objection on the part of any party in interest; otherwise the case becomes controversial and should be
threshed out in an ordinary case or in the case where the incident properly belongs (Angeles v. Razon, G.R.
No. L-13679, October 26, 1959, and cases cited therein). x x x.
From the foregoing ruling, it is clear that petitions under Section 75 and Section 108 of P.D. 1529 (formerly
Sec. 78 and Sec. 112 of Act 496) can be taken cognizance of by the RTC sitting as a land registration or
cadastral court. Relief under said sections can only be granted if there is unanimity among the parties, or that
there is no adverse claim or serious objection on the part of any party in interest; otherwise, the case becomes
controversial and should be threshed out in an ordinary case or in the case where the incident properly
belongs.[48]

The foregoing ponencia is now the controlling precedent on the matters being raised anew by petitioners. We
can no longer digress from such ruling. The determination of the questions of fact and of law by this Court in
G.R. No. 106812 already attained finality, and may not now be disputed or relitigated by a reopening of the
same questions in a subsequent litigation between the same parties and their privies over the same subject
matter.

Furthermore, Section 4, sub-paragraph (3), Article VIII of the 1987 Constitution explicitly provides that no
doctrine or principle of law laid down by the Supreme Court en banc or its Divisions may be modified or
reversed except by the Court sitting en banc. Reasons of public policy, judicial orderliness, economy, judicial
time, and interests of litigants, as well as the peace and order of society, all require that stability be accorded
the solemn and final judgments of the courts or tribunals of competent jurisdiction. There can be no question
that such reasons apply with greater force to final judgments of the highest Court of the land.[49]

II. On Extrinsic Fraud

Fraud is of two categories. It may either be: (a) actual or constructive and (b) extrinsic or intrinsic.

Actual or positive fraud proceeds from an intentional deception practiced by means of the misrepresentation or
concealment of a material fact. Constructive fraud is construed as such because of its detrimental effect upon
public interest and public or private confidence, even though the act is not done with an actual design to
commit positive fraud or injury upon other persons.[50]

On the other hand, fraud may also be either extrinsic or intrinsic. There is intrinsic fraud where the fraudulent
acts pertain to an issue involved in the original action, or where the acts constituting the fraud were or could
have been litigated therein. Fraud is regarded as extrinsic where the act prevents a party from having a trial or
from presenting his entire case to the court, or where it operates upon matters pertaining not to the judgment
itself but to the manner in which it is procured, so that there is not a fair submission of the controversy.
Extrinsic fraud is also actual fraud, but collateral to the transaction sued upon.[51]

In this case, the Melencios allege extrinsic fraud on the part of petitioner City of Tagaytay for its failure to
implead them in Civil Case No. TG-1196. They allege that they are indispensable parties to the case,
considering that have vested rights to protect, being purchasers of the subject parcels of land. Sadly, this
contention does not persuade.

Extrinsic fraud refers to any fraudulent act of the prevailing party in the litigation which is committed outside of
the trial of the case, whereby the unsuccessful party has been prevented from exhibiting fully his case, by fraud
or deception practiced on him by his opponent. The fraud or deceit cannot be of the losing party's own doing,
nor must such party contribute to it. The extrinsic fraud must be employed against it by the adverse party, who,
because of some trick, artifice, or device, naturally prevails in the suit. [52] It affects not the judgment itself but
the manner in which the said judgment is obtained.[53]

Extrinsic fraud is also present where the unsuccessful party has been prevented by his opponent from
exhibiting fully his case by keeping the former away from court or giving him a false promise of a compromise;
or where the defendant never had knowledge of the suit, having been kept in ignorance by the acts of the
plaintiff; or where an attorney fraudulently or without authority assumed to represent a party and connived at
his defeat; or where the attorney regularly employed corruptly sold out his client's interest to the other side. The
overriding consideration is that the fraudulent scheme of the prevailing litigant prevented a party from having
his day in court.[54]

In the instant case, we find that the action or inaction of the City of Tagaytay does not amount to extrinsic fraud.
The City of Tagaytay is not the prevailing party in the assailed decision. Moreover, the Melencios were not
totally without fault in protecting their interest. They were aware of the pendency of Civil Case No. TG-1196, as
shown by their filing of a motion to intervene in the case. When their motion was denied by the trial court, they
no longer pursued their cause.

The alleged assurances and representations of certain officials of the City of Tagaytay that they would file the
necessary motion for reconsideration or appeal in case of an unfavorable decision in Civil Case No. TG-1196
was not an impediment to the Melencios protecting their rights over the disputed properties. There is no
allegation that the City of Tagaytay prevented them from, or induced them against, acting on their own. Its
failure to implead the Melencios did not prevent the latter from having their day in court, which is the essence
of extrinsic fraud.

The foregoing disquisition notwithstanding, we reiterate our finding that the City of Tagaytay acted in bad faith
when it levied real estate taxes on the subject properties, and should be held accountable for all the
consequences thereof, including the void sale of the properties to the Melencios.

The City of Tagaytay is accountable for erroneously assessing taxes on properties outside its territorial
jurisdiction. As of the passage of R.A. No. 1418 in 1956, the City of Tagaytay is presumed to know that Barrio
Birinayan, in which the subject properties are situated, is no longer within its territorial jurisdiction and beyond
its taxing powers.

Under the doctrine of respondeat superior, the principal is liable for the negligence of its agents acting within
the scope of their assigned tasks.[55] The City of Tagaytay is liable for all the necessary and natural
consequences of the negligent acts of its city officials. It is liable for the tortious acts committed by its agents
who sold the subject lots to the Melencios despite the clear mandate of R.A. No. 1418, separating Barrio
Birinayan from its jurisdiction and transferring the same to the Province of Batangas. The negligence of the
officers of the City of Tagaytay in the performance of their official functions gives rise to an
action ex contractu and quasi ex-delictu. However, the Melencios cannot recover twice for the same act or
omission of the City of Tagaytay.

Negligence is the failure to observe 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.
[56]
Thus, negligence is the want of care required under circumstances.[57]

In this case, it is basic that before the City of Tagaytay may levy a certain property for sale due to tax
delinquency, the subject property should be under its territorial jurisdiction. The city officials are expected to
know such basic principle of law. The failure of the city officials of Tagaytay to verify if the property is within its
jurisdiction before levying taxes on the same constitutes gross negligence.

Accordingly, the City of Tagaytay is liable to return the full amount paid by the Melencios during the auction
sale of the subject properties by way of actual damages. The amount paid at the auction sale shall earn
interest at the rate of six percent (6%) per annum from the time of the finality of the RTC decision in Civil Case
No. TG-1196, when the claim was judicially demanded. Thereafter, interest at the rate of twelve percent (12%),
in lieu of the 6%, shall be imposed on such amount upon finality of this decision until full payment thereof.[58]
The gross negligence of the City of Tagaytay in levying taxes and auctioning properties to answer for real
property tax deficiencies outside its territorial jurisdiction amounts to bad faith that calls for the award of moral
damages. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar
injuries unjustly caused. Although incapable of pecuniary estimation, the amount must somehow be
proportional to and in approximation of the suffering inflicted.[59]

Moral damages are awarded to enable the injured party to obtain means, diversions or amusements that will
serve to alleviate the moral suffering the person has undergone, by reason of defendant's culpable action. The
award is aimed at restoration, as much as possible, of the spiritual status quo ante. Thus, it must be
proportionate to the suffering inflicted. Since each case must be governed by its own peculiar circumstances,
there is no hard and fast rule in determining the proper amount.[60]

The social standing of the aggrieved party is essential to the determination of the proper amount of the award.
Otherwise, the goal of enabling him to obtain means, diversions, or amusements to restore him to the status
quo ante would not be achieved.[61]

The Melencios are likewise entitled to exemplary damages. Exemplary or corrective damages are imposed by
way of example or correction for the public good, in addition to the moral, temperate, liquidated, or
compensatory damages.[62] Article 2229 of the Civil Code grants the award of exemplary or corrective damages
in order to deter the commission of similar acts in the future and to allow the courts to mould behavior that can
have grave and deleterious consequences to society.[63] In the instant case, the gross negligence of the City
of Tagaytay in erroneously exacting taxes and selling properties outside its jurisdiction, despite the clear
mandate of statutory law, must be rectified.

WHEREFORE, in lieu of the foregoing, the Decision dated June 19, 1998 and the Resolution dated November
11, 1999 of the Court of Appeals in CA-G.R. SP Nos. 39008 and 38298 are hereby AFFIRMED WITH
MODIFICATIONS:

(1) The City of Tagaytay is hereby ORDERED to return to petitioners Ameurfina Melencio-Herrera and Emilina
Melencio-Fernando the total amount that they have paid in connection with the auction sale of the lands
covered by Transfer Certificate of Title Nos. 9816 and 9817, plus interest on the said amount at six percent
(6%) per annum from the date of the finality of the decision of the Regional Trial Court in Civil Case No. TG-
1196. A twelve percent (12%) interest per annum, in lieu of the six percent (6%), shall be imposed on such
amount upon finality of this decision until the full payment thereof;

(2) The City of Tagaytay is hereby ORDERED to pay petitioners Ameurfina Melencio-Herrera and Emilina
Melencio-Fernando moral damages in the amount of Five Hundred Thousand Pesos (P500,000.00);

(3) The City of Tagaytay is hereby ORDERED to pay petitioners Ameurfina Melencio-Herrera and Emilina
Melencio-Fernando exemplary damages in the amount of Two Hundred Thousand Pesos (P200,000.00); and

(4) To pay the costs of this suit.

SO ORDERED.
 PHILTRANCO SERVICE ENTERPRISES, G.R. No. 161909
INC.,
Petitioner,
-versus- Promulgated:
FELIX PARAS AND INLAND
TRAILWAYS, INC., AND HON. COURT April 25, 2012
OF APPEALS,
Respondents.
x-----------------------------------------------------------------------------------------x

DECISION

BERSAMIN, J.:

In an action for breach of contract of carriage commenced by a passenger against his common carrier, the
plaintiff can recover damages from a third-party defendant brought into the suit by the common carrier upon a
claim based on tort or quasi-delict. The liability of the third-party defendant is independent from the liability of
the common carrier to the passenger.

Philtranco Service Enterprises, Inc. (Philtranco) appeals the affirmance with modifications by the Court of
Appeals (CA) of the decision of the Regional Trial Court (RTC) awarding moral, actual and temperate
damages, as well as attorneys fees and costs of suit, to respondent Felix Paras (Paras), and temperate
damages to respondent Inland Trailways, Inc. (Inland), respectively the plaintiff and the defendant/third-party
plaintiff in this action for breach of contract of carriage, upon a finding that the negligence of the petitioner and
its driver had caused the serious physical injuries Paras sustained and the material damage Inlands bus
suffered in a vehicular accident.

Antecedents

The antecedent facts, as summarized by the CA, are as follows:

Plaintiff-appellant [respondent] Felix Paras (Paras for brevity), who hails from Cainta, Rizal is engaged in the
buy and sell of fish products. Sometime on 08 February 1987, on his way home to Manila from Bicol Region,
he boarded a bus with Body No. 101 and Plate No. EVE 508, owned and operated by Inland Trailways, Inc.
(Inland for brevity) and driven by its driver Calvin Coner (Coner for brevity).

At approximately 3:50 oclock in the morning of 09 February 1987, while the said bus was travelling
along Maharlika Highway, Tiaong, Quezon, it was bumped at the rear by another bus with Plate No. EVB 259,
owned and operated by Philtranco Service Enterprises, Inc. (Philtranco for brevity). As a result of the strong
and violent impact, the Inland bus was pushed forward and smashed into a cargo truck parked along the outer
right portion of the highway and the shoulder thereof. Consequently, the said accident bought considerable
damage to the vehicles involved and caused physical injuries to the passengers and crew of the two buses,
including the death of Coner who was the driver of the Inland Bus at the time of the incident.

Paras was not spared from the pernicious effects of the accident. After an emergency treatment at the San
Pablo Medical Center, San Pablo City, Laguna, Paras was taken to the NationalOrthopedic Hospital. At the
latter hospital, he was found and diagnosed by Dr. Antonio Tanchuling, Jr. to be affected with the following
injuries: a) contusion/hematoma; b) dislocation of hip upon fracture of the fibula on the right leg; c) fractured
small bone on the right leg; and d) close fracture on the tibial plateau of the left leg. (Exh. A, p. 157, record)
On 04 March 1987 and 15 April 1987, Paras underwent two (2) operations affecting the fractured portions of
his body. (Exhs. A-2 and A-3, pp. 159 and 160 respectively, record)

Unable to obtain sufficient financial assistance from Inland for the costs of his operations, hospitalization,
doctors fees and other miscellaneous expenses, on 31 July 1989, Paras filed a complaint for damages based
on breach of contract of carriage against Inland.

In its answer, defendant Inland denied responsibility, by alleging, among others, that its driver Coner had
observed an utmost and extraordinary care and diligence to ensure the safety of its passengers. In support of
its disclaimer of responsibility, Inland invoked the Police Investigation Report which established the fact that the
Philtranco bus driver of [sic] Apolinar Miralles was the one which violently bumped the rear portion of the Inland
bus, and therefore, the direct and proximate cause of Paras injuries.

On 02 March 1990, upon leave of court, Inland filed a third-party complaint against Philtranco and Apolinar
Miralles (Third Party defendants). In this third-party complaint, Inland, sought for exoneration of its liabilities to
Paras, asserting that the latters cause of action should be directed against Philtranco considering that the
accident was caused by Miralles lack of care, negligence and reckless imprudence. (pp. 50 to 56, records).

After trial, the RTC (Branch 71) in Antipolo, Rizal rendered its judgment on July 18, 1997,[1] viz:

WHEREFORE, third-party defendant Philtranco and Apolinar Miralles are hereby ordered to pay plaintiff jointly
and severally, the following amounts:

1.P54,000.00 as actual damages;

2.P50,000.00 as moral damages;

3.P20,000.00 as attorneys fees and costs.

SO ORDERED.

All the parties appealed to the CA on different grounds.

On his part, Paras ascribed the following errors to the RTC, to wit:

1. THE TRIAL COURT ERRED IN HOLDING THAT ONLY THIRD-PARTY DEFENDANT-APPELLANT

PHILTRANCO IS LIABLE FOR THE DAMAGES SUFFERED BY APPELLANT PARAS.

II. THE TRIAL COURT ERRED IN NOT HOLDING APPELLANT INLAND TRAILWAYS INC. TO BE JOINTLY
AND SEVERALLY LIABLE FOR THE DAMAGES SUFFERED BY PARAS.

III. THE TRIAL COURT ERRED IN NOT AWARDING UNEARNED INCOME AS ADDITIONAL ACTUAL
DAMAGES SUFFERED BY APPELLANT PARAS AS HIS PHYSICAL DISABILITY IS PERMANENT IN
NATURE.

IV. THE TRIAL COURT ERRED IN NOT AWARDING EXEMPLARY DAMAGES IN FAVOR OF APPELLANT
PARAS.

On the other hand, Inland assigned the following errors to the RTC, namely:
THE TRIAL COURT ERRED WHEN IT FAILED TO AWARD DAMAGES UNTO THE THIRD PARTY PLAINTIFF
NOTWITHSTANDING CLEAR FINDING THAT:

It is clear from the evidence that the plaintiff sustained injuries because of the reckless, negligence, and lack of
precaution of third party defendant Apolinar Miralles, an employee of Philtranco.

AND, COMPLETELY DISREGARDED THE UNCONTROVERTED ORAL AND DOCUMENTARY EVIDENCES

ESTABLISHING THE EXTENT AND DEGREE OF DAMAGES SUSTAINED BY THE THIRD PARTY
PLAINTIFF.

Lastly, Philtranco stated that the RTC erred thuswise:

I
THE COURT A QUO MISERABLY ERRED IN AWARDING ACTUAL DAMAGES GREATER THAN WHAT WAS
ALLEGED IN THE COMPLAINT ITSELF, AND EVEN MUCH MORE GREATER THAN WHAT WERE PROVED
DURING THE TRIAL, HENCE, PERPETUATING UNJUST ENRICHMENT.

II
THE COURT A QUO SERIOUSLY ERRED IN AWARDING MORAL DAMAGES TO A CAUSE OF ACTION OF
CULPA-CONTRACTUAL EVEN WITHOUT ANY EVIDENCE OF GROSS BAD FAITH; HENCE, CONTRARY
TO THE ESTABLISHED DOCTRINE IN THE CASES OF PHIL. RABBIT BUS LINES VS. ESGUERRA;
SOBERANO VS. BENGUET AUTO LINE AND FLORES VS. MIRANDA.

III
THE COURT A QUO MISERABLY ERRED IN HOLDING THAT MIRALLES WAS THE ONE AT FAULT
MERELY ON THE STRENGHT OF THE TESTIMONY OF THE POLICE INVESTIGATOR WHICH IS IN TURN
BASED ON THE STATEMENTS OF ALLEGED WITNESSES WHO WERE NEVER PRESENTED ON THE
WITNESS STAND.

IV
THE COURT A QUO COMMITTED A GRIEVOUS ERROR IN DISREGARDING THE TESTIMONY OF
APPELLANTS WITNESSES WHO TESTIFIED AS TO THE DEFENSE OF EXERCISE OF DUE DILIGENCE
IN THE SELECTION AND SUPERVISION OF EMPLOYEES PURSUANT TO ART. 2180, LAST PARAGRAPH,
NEW CIVIL CODE.

On September 25, 2002, the CA promulgated its decision,[2] disposing:

WHEREFORE, in consideration of the foregoing premises, the assailed decision dated 18 July 19(9)7 is
perforce affirmed with the following modifications:

1. Third party defendants-appellants Philtranco and Apolinar Miralles are ordered to pay plaintiff-appellant Felix
Paras jointly and severally the following amounts:

a) P1,397.95 as actual damages;

b) P50,000.00 as temperate damages;
c) P50,000.00 as moral damages; and
d) P20,000.00 as attorneys fees and costs of suit.

2. On the third party plaintiff-appellant Inlands claims, the third party defendant-appellants Philtranco and
Apolinar Miralles are hereby ordered to pay the former (Inland) jointly and severally the amount of P250,000.00
as and by way of temperate damages.
SO ORDERED.

The CA agreed with the RTCs finding that no trace of negligence at the time of the accident was attributable to
Inlands driver, rendering Inland not guilty of breach of contract of carriage; that faulty brakes had caused
Philtrancos bus to forcefully bump Inlands bus from behind, making it hit the rear portion of a parked cargo
truck; that the impact had resulted in considerable material damage to the three vehicles; and that Paras and
others had sustained various physical injuries.

Accordingly, the CA: (a) sustained the award of moral damages of P50,000.00 in favor of Paras pursuant to
Article 2219 of the Civil Code based on quasi-delict committed by Philtranco and its driver; (b) reduced the
actual damages to be paid by Philtranco to Paras from P54,000.00 to P1,397.95 because only the latter
amount had been duly supported by receipts; (c) granted temperate damages of P50,000.00 (in lieu of actual
damages in view of the absence of competent proof of actual damages for his hospitalization and therapy) to
be paid by Philtranco to Paras; and (d) awarded temperate damages of P250,000.00 under the same premise
to be paid by Philtranco to Inland for the material damage caused to Inlands bus.

Philtranco moved for reconsideration,[3] but the CA denied its motion for reconsideration on January 21, 2004.[4]

Issues

Hence, this appeal, in which the petitioner submits that the CA committed grave abuse of discretion amounting
to lack of jurisdiction in awarding moral damages to Paras despite the fact that the complaint had been
anchored on breach of contract of carriage; and that the CA committed a reversible error in substituting its own
judgment by motu proprio awarding temperate damages of P250,000.00 to Inland and P50,000.00 to Paras
despite the clear fact that temperate damages were not raised on appeal by Paras and Inland.

Ruling

The appeal lacks merit.

The Court does not disturb the unanimous findings by the CA and the RTC on the negligence of Philtranco and
its driver being the direct cause of the physical injuries of Paras and the material damage of Inland.

Nonetheless, we feel bound to pass upon the disparate results the CA and the RTC reached on the liabilities of
Philtranco and its driver.

1.
Paras can recover moral damages
in this suit based on quasi-delict
Philtranco contends that Paras could not recover moral damages because his suit was based on breach of
contract of carriage, pursuant to which moral damages could be recovered only if he had died, or if the
common carrier had been guilty of fraud or bad faith. It argues that Paras had suffered only physical injuries;
that he had not adduced evidence of fraud or bad faith on the part of the common carrier; and that,
consequently, Paras could not recover moral damages directly from it (Philtranco), considering that it was only
being subrogated for Inland.

The Court cannot uphold the petitioners contention.

As a general rule, indeed, moral damages are not recoverable in an action predicated on a breach of contract.
This is because such action is not included in Article 2219 of the Civil Code[5] as one of the actions in which
moral damages may be recovered. By way of exception, moral damages are recoverable in an action
predicated on a breach of contract: (a) where the mishap results in the death of a passenger, as provided in
Article 1764,[6] in relation to Article 2206, (3),[7] of the Civil Code; and (b) where the common carrier has been
guilty of fraud or bad faith,[8] as provided in Article 2220[9] of the Civil Code.
Although this action does not fall under either of the exceptions, the award of moral damages to Paras was
nonetheless proper and valid. There is no question that Inland filed its third-party complaint against Philtranco
and its driver in order to establish in this action that they, instead of Inland, should be directly liable to Paras for
the physical injuries he had sustained because of their negligence. To be precise, Philtranco and its driver were
brought into the action on the theory of liability that the proximate cause of the collision between Inlands bus
and Philtrancos bus had been the negligent, reckless and imprudent manner defendant Apolinar Miralles drove
and operated his driven unit, the Philtranco Bus with Plate No. 259, owned and operated by third-party
defendant Philtranco Service Enterprises, Inc.[10] The apparent objective of Inland was not to merely subrogate
the third-party defendants for itself, as Philtranco appears to suggest, [11] but, rather, to obtain a different relief
whereby the third-party defendants would be held directly, fully and solely liable to Paras and Inland for
whatever damages each had suffered from the negligence committed by Philtranco and its driver. In other
words, Philtranco and its driver were charged here as joint tortfeasors who would be jointly and severally be
liable to Paras and Inland.

Impleading Philtranco and its driver through the third-party complaint filed on March 2, 1990 was correct. The
device of the third-party action, also known as impleader, was in accord with Section 12, Rule 6 of
the Revised Rules of Court, the rule then applicable, viz:

Section 12. Third-party complaint. A third-party complaint is a claim that a defending party may, with leave of
court, file against a person not a party to the action, called the third-party defendant, for contribution, indemnity,
subrogation or any other relief, in respect of his opponents claim.[12]

Explaining the application of Section 12, Rule 6, supra, the Court said in Balbastro v. Court of Appeals,[13] to
wit:

Section 12 of Rule 6 of the Revised Rules of Court authorizes a defendant to bring into a lawsuit any person
not a party to the action . . . for contribution, indemnity, subrogation or any other relief in respect of his
opponent's claim. From its explicit language it does not compel the defendant to bring the third-parties into the
litigation, rather it simply permits the inclusion of anyone who meets the standard set forth in the rule. The
secondary or derivative liability of the third-party is central whether the basis is indemnity, subrogation,
contribution, express or implied warranty or some other theory. The impleader of new parties under this rule
is proper only when a right to relief exists under the applicable substantive law. This rule is merely a
procedural mechanism, and cannot be utilized unless there is some substantive basis under applicable
law.

Apart from the requirement that the third-party complainant should assert a derivative or secondary
claim for relief from the third-party defendant there are other limitations on said partys ability to
implead. The rule requires that the third-party defendant is not a party to the action for otherwise the
proper procedure for asserting a claim against one who is already a party to the suit is by means of
counterclaim or cross-claim under sections 6 and 7 of Rule 6. In addition to the aforecited requirement,
the claim against the third-party defendant must be based upon plaintiff's claim against the original
defendant (third-party claimant). The crucial characteristic of a claim under section 12 of Rule 6, is that
the original defendant is attempting to transfer to the third-party defendant the liability asserted
against him by the original plaintiff.

Accordingly, the requisites for a third-party action are, firstly, that the party to be impleaded must not yet be a
party to the action; secondly, that the claim against the third-party defendant must belong to the original
defendant; thirdly, the claim of the original defendant against the third-party defendant must be based upon the
plaintiffs claim against the original defendant; and, fourthly, the defendant is attempting to transfer to the third-
party defendant the liability asserted against him by the original plaintiff.[14]

As the foregoing indicates, the claim that the third-party complaint asserts against the third-party defendant
must be predicated on substantive law. Here, the substantive law on which the right of Inland to seek such
other relief through its third-party complaint rested were Article 2176 and Article 2180 of the Civil Code, which
read:

Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged
to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between
the parties, is called a quasi-delict and is governed by the provisions of this chapter. (1902a)

Article 2180. The obligation imposed by article 2176 is demandable not only for ones own acts or omissions,
but also for those of persons for whom one is responsible.
xxx
Employers shall be liable for the damages caused by their employees and household helpers acting within the
scope of their assigned tasks, even though the former are not engaged in any business or industry.
xxx
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they
observed all the diligence of a good father of a family to prevent damage. (1903a)

Paras cause of action against Inland (breach of contract of carriage) did not need to be the same as the cause
of action of Inland against Philtranco and its driver (tort or quasi-delict) in the impleader. It is settled that a
defendant in a contract action may join as third-party defendants those who may be liable to him in tort for the
plaintiffs claim against him, or even directly to the plaintiff. [15] Indeed, Prof. Wright, et al., commenting on the
provision of the Federal Rules of Procedure of the United States from which Section 12, supra, was derived,
observed so, to wit:[16]

The third-party claim need not be based on the same theory as the main claim. For example, there are cases
in which the third-party claim is based on an express indemnity contract and the original complaint is framed in
terms of negligence. Similarly, there need not be any legal relationship between the third-party defendant and
any of the other parties to the action. Impleader also is proper even though the third partys liability is
contingent, and technically does not come into existence until the original defendants liability has been
established. In addition, the words is or may be liable in Rule 14(a) make it clear that impleader is proper even
though the third-party defendants liability is not automatically established once the third-party plaintiffs liability
to the original plaintiff has been determined.

Nor was it a pre-requisite for attachment of the liability to Philtranco and its driver that Inland be first declared
and found liable to Paras for the breach of its contract of carriage with him. [17] As the Court has cogently
discoursed in Samala v. Judge Victor:[18]

Appellants argue that since plaintiffs filed a complaint for damages against the defendants on a breach of
contract of carriage, they cannot recover from the third-party defendants on a cause of action based on quasi-
delict. The third party defendants, they allege, are never parties liable with respect to plaintiff s claim although
they are with respect to the defendants for indemnification, subrogation, contribution or other reliefs.
Consequently, they are not directly liable to the plaintiffs. Their liability commences only when the defendants
are adjudged liable and not when they are absolved from liability as in the case at bar.

Quite apparent from these arguments is the misconception entertained by appellants with respect to the nature
and office of a third party complaint.
Section 16, Rule 6 of the Revised Rules of Court defines a third party complaint as a claim that a defending
party may, with leave of court, file against a person not a party to the action, called the third-party defendant,
for contribution, indemnification, subrogation, or any other relief, in respect of his opponents claim. In the case
of Viluan vs. Court of Appeals, et al., 16 SCRA 742 [1966], this Court had occasion to elucidate on the subjects
covered by this Rule, thus:

... As explained in the Atlantic Coast Line R. Co. vs. U.S. Fidelity & Guaranty Co., 52 F. Supp. 177 (1943:)

From the sources of Rule 14 and the decisions herein cited, it is clear that this rule, like the admiralty rule,
covers two distinct subjects, the addition of parties defendant to the main cause of action, and the bringing in of
a third party for a defendants remedy over. xxx

If the third party complaint alleges facts showing a third partys direct liability to plaintiff on the claim
set out in plaintiffs petition, then third party shall make his defenses as provided in Rule 12 and his
counterclaims against plaintiff as provided in Rule 13. In the case of alleged direct liability, no
amendment (to the complaint) is necessary or required. The subject-matter of the claim is contained in
plaintiff's complaint, the ground of third partys liability on that claim is alleged in third party complaint,
and third partys defense to set up in his answer to plaintiff's complaint. At that point and without
amendment, the plaintiff and third party are at issue as to their rights respecting the claim.

The provision in the rule that, The third-party defendant may assert any defense which the third-party plaintiff
may assert to the plaintiffs claim, applies to the other subject, namely, the alleged liability of third party
defendant. The next sentence in the rule, The third-party defendant is bound by the adjudication of the third
party plaintiffs liability to the plaintiff, as well as of his own to the plaintiff or to the third-party plaintiff applies to
both subjects. If third party is brought in as liable only to defendant and judgment is rendered adjudicating
plaintiff's right to recover against defendant and defendants rights to recover against third party, he is bound by
both adjudications.That part of the sentence refers to the second subject. If third party is brought in as liable to
plaintiff, then third party is bound by the adjudication as between him and plaintiff. That refers to the first
subject. If third party is brought in as liable to plaintiff and also over to defendant, then third party is bound by
both adjudications. xxx

Under this Rule, a person not a party to an action may be impleaded by the defendant either (a) on an
allegation of liability to the latter; (b) on the ground of direct liability to the plaintiff-; or, (c) both (a) and (b). The
situation in (a) is covered by the phrase for contribution, indemnity or subrogation; while (b) and (c) are
subsumed under the catch all or any other relief, in respect of his opponents claim.

The case at bar is one in which the third party defendants are brought into the action as directly liable
to the plaintiffs upon the allegation that the primary and immediate cause as shown by the police
investigation of said vehicular collision between (sic) the above-mentioned three vehicles was the
recklessness and negligence and lack of imprudence (sic) of the third-party defendant Virgilio (should
be Leonardo) Esguerra y Ledesma then driver of the passenger bus. The effects are that plaintiff and
third party are at issue as to their rights respecting the claim and the third party is bound by the
adjudication as between him and plaintiff. It is not indispensable in the premises that the defendant be
first adjudged liable to plaintiff before the third-party defendant may be held liable to the plaintiff, as
precisely, the theory of defendant is that it is the third party defendant, and not he, who is directly
liable to plaintiff. The situation contemplated by appellants would properly pertain to situation (a)
above wherein the third party defendant is being sued for contribution, indemnity or subrogation, or
simply stated, for a defendant's remedy over.[19]
It is worth adding that allowing the recovery of damages by Paras based on quasi-delict, despite his complaint
being upon contractual breach, served the judicial policy of avoiding multiplicity of suits and circuity of actions
by disposing of the entire subject matter in a single litigation.[20]

2.
Award of temperate damages was in order

Philtranco assails the award of temperate damages by the CA considering that, firstly, Paras and Inland had
not raised the matter in the trial court and in their respective appeals; secondly, the CA could not substitute the
temperate damages granted to Paras if Paras could not properly establish his actual damages despite
evidence of his actual expenses being easily available to him; and, thirdly, the CA gravely abused its discretion
in granting motu proprio the temperate damages of P250,000.00 to Inland although Inland had not claimed
temperate damages in its pleading or during trial and even on appeal.

The Court cannot side with Philtranco.

Actual damages, to be recoverable, must not only be capable of proof, but must actually be proved with a
reasonable degree of certainty. The reason is that the court cannot simply rely on speculation, conjecture or
guesswork in determining the fact and amount of damages, but there must be competent proof of the actual
amount of loss, credence can be given only to claims which are duly supported by receipts.[21]

The receipts formally submitted and offered by Paras were limited to the costs of medicines purchased on
various times in the period from February 1987 to July 1989 (Exhibits E to E-35, inclusive) totaling
only P1,397.95.[22] The receipts by no means included hospital and medical expenses, or the costs of at least
two surgeries as well as rehabilitative therapy. Consequently, the CA fixed actual damages only at that small
sum of P1,397.95. On its part, Inland offered no definite proof on the repairs done on its vehicle, or the extent
of the material damage except the testimony of its witness, Emerlinda Maravilla, to the effect that the bus had
been damaged beyond economic repair.[23]The CA rejected Inlands showing of unrealized income
worth P3,945,858.50 for 30 months (based on alleged average weekly income of P239,143.02 multiplied by
its guaranteed revenue amounting to 55% thereof, then spread over a period of 30 months, the equivalent to
the remaining 40% of the vehicles un-depreciated or net book value), finding such showing arbitrary, uncertain
and speculative.[24] As a result, the CA allowed no compensation to Inland for unrealized income.

Nonetheless, the CA was convinced that Paras should not suffer from the lack of definite proof of his actual
expenses for the surgeries and rehabilitative therapy; and that Inland should not be deprived of recourse to
recover its loss of the economic value of its damaged vehicle. As the records indicated, Paras was first rushed
for emergency treatment to the San Pablo Medical Center in San Pablo City, Laguna, and was later brought to
the National Orthopedic Hospital in Quezon City where he was diagnosed to have suffered a dislocated hip,
fracture of the fibula on the right leg, fracture of the small bone of the right leg, and closed fracture on the tibial
plateau of the left leg. He underwent surgeries on March 4, 1987 and April 15, 1987 to repair the fractures.
[25]
Thus, the CA awarded to him temperate damages of P50,000.00 in the absence of definite proof of his
actual expenses towards that end. As to Inland, Maravillas testimony of the bus having been damaged beyond
economic repair showed a definitely substantial pecuniary loss, for which the CA fixed temperate damages
of P250,000.00. We cannot disturb the CAs determination, for we are in no position today to judge its
reasonableness on account of the lapse of a long time from when the accident occurred.[26]

In awarding temperate damages in lieu of actual damages, the CA did not err, because Paras and Inland were
definitely shown to have sustained substantial pecuniary losses. It would really be a travesty of justice were the
CA now to be held bereft of the discretion to calculate moderate or temperate damages, and thereby leave
Paras and Inland without redress from the wrongful act of Philtranco and its driver. [27] We are satisfied that the
CA exerted effort and practiced great care to ensure that the causal link between the physical injuries of Paras
and the material loss of Inland, on the one hand, and the negligence of Philtranco and its driver, on the other
hand, existed in fact. It also rejected arbitrary or speculative proof of loss. Clearly, the costs of Paras surgeries
and consequential rehabilitation, as well as the fact that repairing Inlands vehicle would no longer be
economical justly warranted the CA to calculate temperate damages of P50,000.00 and P250,000.00
respectively for Paras and Inland.

There is no question that Article 2224 of the Civil Code expressly authorizes the courts to award temperate
damages despite the lack of certain proof of actual damages, to wit:

Article 2224. Temperate or moderate damages, which are more than nominal but less than compensatory
damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount
cannot, from the nature of the case, be proved with certainty.

The rationale for Article 2224 has been stated in Premiere Development Bank v. Court of Appeals[28] in the
following manner:

Even if not recoverable as compensatory damages, Panacor may still be awarded damages in the concept of
temperate or moderate damages. When the court finds that some pecuniary loss has been suffered but the
amount cannot, from the nature of the case, be proved with certainty, temperate damages may be recovered.
Temperate damages may be allowed in cases where from the nature of the case, definite proof of pecuniary
loss cannot be adduced, although the court is convinced that the aggrieved party suffered some pecuniary
loss.

The Code Commission, in explaining the concept of temperate damages under Article 2224, makes the
following comment:

In some States of the American Union, temperate damages are allowed. There are cases where from the
nature of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there
has been such loss. For instance, injury to ones commercial credit or to the goodwill of a business firm is often
hard to show with certainty in terms of money. Should damages be denied for that reason? The judge should
be empowered to calculate moderate damages in such cases, rather than that the plaintiff should suffer,
without redress from the defendants wrongful act.

3.
Paras loss of earning capacity
must be compensated

In the body of its decision, the CA concluded that considering that Paras had a minimum monthly income
of P8,000.00 as a trader he was entitled to recover compensation for unearned income during the 3-month
period of his hospital confinement and the 6-month period of his recovery and rehabilitation; and aggregated
his unearned income for those periods to P72,000.00.[29] Yet, the CA omitted the unearned income from the
dispositive portion.

The omission should be rectified, for there was credible proof of Paras loss of income during his disability.
According to Article 2205, (1), of the Civil Code, damages may be recovered for loss or impairment of earning
capacity in cases of temporary or permanent personal injury. Indeed, indemnification for damages
comprehends not only the loss suffered (actual damages or damnum emergens) but also the claimants lost
profits (compensatory damages or lucrum cessans).[30] Even so, the formula that has gained acceptance over
time has limited recovery to net earning capacity; hence, the entire amount of P72,000.00 is not allowable. The
premise is obviously that net earning capacity is the persons capacity to acquire money, less the necessary
expense for his own living.[31] To simplify the determination, therefore, the net earning capacity of Paras during
the 9-month period of his confinement, surgeries and consequential therapy is pegged at only half of his
unearned monthly gross income of P8,000.00 as a trader, or a total of P36,000.00 for the 9-month period, the
other half being treated as the necessary expense for his own living in that period.

It is relevant to clarify that awarding the temperate damages (for the substantial pecuniary losses
corresponding to Parass surgeries and rehabilitation and for the irreparability of Inlands damaged bus) and the
actual damages to compensate lost earnings and costs of medicines give rise to no incompatibility. These
damages cover distinct pecuniary losses suffered by Paras and Inland, [32] and do not infringe the statutory
prohibition against recovering damages twice for the same act or omission.[33]

4.
Increase in award of attorneys fees

Although it is a sound policy not to set a premium on the right to litigate, [34] we consider the grant to Paras and
Inland of reasonable attorneys fees warranted. Their entitlement to attorneys fees was by virtue of their having
been compelled to litigate or to incur expenses to protect their interests, [35] as well as by virtue of the Court now
further deeming attorneys fees to be just and equitable.[36]

In view of the lapse of a long time in the prosecution of the claim, [37] the Court considers it reasonable and
proper to grant attorneys fees to each of Paras and Inland equivalent to 10% of the total amounts hereby
awarded to them, in lieu of only P20,000.00 for that purpose granted to Paras.

5. Legal interest on the amounts awarded

Pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals, [38] legal interest at the rate of 6% per
annum accrues on the amounts adjudged reckoned from July 18, 1997, the date when the RTC rendered its
judgment; and legal interest at the rate of 12% per annum shall be imposed from the finality of the judgment
until its full satisfaction, the interim period being regarded as the equivalent of a forbearance of credit.

WHEREFORE, the Court AFFIRMS WITH MODIFICATION the decision of the Court of Appeals promulgated
on September 25, 2002, by ordering PHILTRANCO SERVICE ENTERPRISES, INC. and APOLINAR
MIRALLES to pay, jointly and severally, as follows:

1. To Felix Paras:

(a) P1,397.95, as reimbursement for the costs of medicines purchased between February 1987 and July 1989;

(b) P50,000.00 as temperate damages;

(c) P50,000.00 as moral damages;

(d) P36,000.00 for lost earnings;

(e) 10% of the total of items (a) to (d) hereof as attorneys fees; and

(f) Interest of 6% per annum from July 18, 1997 on the total of items (a) to (d) hereof until finality of this
decision, and 12% per annum thereafter until full payment.

2. To Inland Trailways, Inc.:

(a) P250,000.00 as temperate damages;

(b) 10% of item (a) hereof; and

(c) Interest of 6% per annum on item (a) hereof from July 18, 1997 until finality of this decision, and 12% per
annum thereafter until full payment.

3. The petitioner shall pay the costs of suit. SO ORDERED.

G.R. No. 206806 June 25, 2014
ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, Petitioners,
vs.
DAN T. LIM, doing business under the name and style of QUALITY PAPERS & PLASTIC PRODUCTS
ENTERPRISES, Respondent.
DECISION
LEONEN, J.:
Novation must be stated in clear and unequivocal terms to extinguish an obligation. It cannot be presumed and
may be implied only if the old and new contracts are incompatible on every point.
Before us is a petition for review on certiorari1 assailing the Court of Appeals’ decision2 in CA-G.R. CV No.
95709, which stemmed from a complaint3 filed in the Regional Trial Court of Valenzuela City, Branch 171, for
collection of sum of money.
The facts are as follows:
Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw materials, under the name
Quality Paper and Plastic Products, Enterprises, to factories engaged in the paper mill business. 4 From
February 2007 to March 2007, he delivered scrap papers worth 7,220,968.31 to Arco Pulp and Paper
Company, Inc. (Arco Pulp and Paper) through its Chief Executive Officer and President, Candida A.
Santos.5 The parties allegedly agreed that Arco Pulp and Paper would either pay Dan T. Lim the value of the
raw materials or deliver to him their finished products of equivalent value.6
Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a post-dated check
dated April 18, 20077 in the amount of 1,487,766.68 as partial payment, with the assurance that the check
would not bounce.8 When he deposited the check on April 18, 2007, it was dishonored for being drawn against
a closed account.9
On the same day, Arco Pulp and Paper and a certain Eric Sy executed a memorandum of agreement 10 where
Arco Pulp and Paper bound themselves to deliver their finished products to Megapack Container Corporation,
owned by Eric Sy, for his account. According to the memorandum, the raw materials would be supplied by Dan
T. Lim, through his company, Quality Paper and Plastic Products. The memorandum of agreement reads as
follows:
Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos and
Mr. Eric Sy that ARCO will deliver 600 tons Test Liner 150/175 GSM, full width 76 inches at the price of ₱18.50
per kg. to Megapack Container for Mr. Eric Sy’s account. Schedule of deliveries are as follows:
....
It has been agreed further that the Local OCC materials to be used for the production of the above Test Liners
will be supplied by Quality Paper & Plastic Products Ent., total of 600 Metric Tons at ₱6.50 per kg. (price
subject to change per advance notice). Quantity of Local OCC delivery will be based on the quantity of Test
Liner delivered to Megapack Container Corp. based on the above production schedule.11
On May 5, 2007, Dan T.Lim sent a letter12 to Arco Pulp and Paper demanding payment of the amount of
7,220,968.31, but no payment was made to him.13
Dan T. Lim filed a complaint14 for collection of sum of money with prayer for attachment with the Regional Trial
Court, Branch 171, Valenzuela City, on May 28, 2007. Arco Pulp and Paper filed its answer 15 but failed to have
its representatives attend the pre-trial hearing. Hence, the trial court allowed Dan T. Lim to present his
evidence ex parte.16
On September 19, 2008, the trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed the
complaint, holding that when Arco Pulp and Paper and Eric Sy entered into the memorandum of agreement,
novation took place, which extinguished Arco Pulp and Paper’s obligation to Dan T. Lim.17
Dan T. Lim appealed18 the judgment with the Court of Appeals. According to him, novation did not take place
since the memorandum of agreement between Arco Pulp and Paper and Eric Sy was an exclusive and private
agreement between them. He argued that if his name was mentioned in the contract, it was only for supplying
the parties their required scrap papers, where his conformity through a separate contract was indispensable.19
On January 11, 2013, the Court of Appeals 20 rendered a decision21 reversing and setting aside the judgment
dated September 19, 2008 and ordering Arco Pulp and Paper to jointly and severally pay Dan T. Lim the
amount of ₱7,220,968.31 with interest at 12% per annum from the time of demand; ₱50,000.00 moral
damages; ₱50,000.00 exemplary damages; and ₱50,000.00 attorney’s fees.22
The appellate court ruled that the facts and circumstances in this case clearly showed the existence of an
alternative obligation.23 It also ruled that Dan T. Lim was entitled to damages and attorney’s fees due to the bad
faith exhibited by Arco Pulp and Paper in not honoring its undertaking.24
Its motion for reconsideration25 having been denied,26 Arco Pulp and Paper and its President and Chief
Executive Officer, Candida A. Santos, bring this petition for review on certiorari.
On one hand, petitioners argue that the execution of the memorandum of agreement constituted a novation of
the original obligation since Eric Sy became the new debtor of respondent. They also argue that there is no
legal basis to hold petitioner Candida A. Santos personally liable for the transaction that petitioner corporation
entered into with respondent. The Court of Appeals, they allege, also erred in awarding moral and exemplary
damages and attorney’s fees to respondent who did not show proof that he was entitled to damages.27
Respondent, on the other hand, argues that the Court of Appeals was correct in ruling that there was no proper
novation in this case. He argues that the Court of Appeals was correct in ordering the payment of 7,220,968.31
with damages since the debt of petitioners remains unpaid.28 He also argues that the Court of Appeals was
correct in holding petitioners solidarily liable since petitioner Candida A. Santos was "the prime mover for such
outstanding corporate liability."29 In their reply, petitioners reiterate that novation took place since there was
nothing in the memorandum of agreement showing that the obligation was alternative. They also argue that
when respondent allowed them to deliver the finished products to Eric Sy, the original obligation was novated.30
A rejoinder was submitted by respondent, but it was noted without action in view of A.M. No. 99-2-04-SC dated
November 21, 2000.31
The issues to be resolved by this court are as follows:
1. Whether the obligation between the parties was extinguished by novation
2. Whether Candida A. Santos was solidarily liable with Arco Pulp and Paper Co., Inc.
3. Whether moral damages, exemplary damages, and attorney’s fees can be awarded
The petition is denied.
The obligation between the
parties was an alternative
obligation
The rule on alternative obligations is governed by Article 1199 of the Civil Code, which states:
Article 1199. A person alternatively bound by different prestations shall completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the other undertaking.
"In an alternative obligation, there is more than one object, and the fulfillment of one is sufficient, determined by
the choice of the debtor who generally has the right of election."32 The right of election is extinguished when the
party who may exercise that option categorically and unequivocally makes his or her choice known.33
The choice of the debtor must also be communicated to the creditor who must receive notice of it since: The
object of this notice is to give the creditor . . . opportunity to express his consent, or to impugn the election
made by the debtor, and only after said notice shall the election take legal effect when consented by the
creditor, or if impugned by the latter, when declared proper by a competent court.34
According to the factual findings of the trial court and the appellate court, the original contract between the
parties was for respondent to deliver scrap papers worth ₱7,220,968.31 to petitioner Arco Pulp and Paper. The
payment for this delivery became petitioner Arco Pulp and Paper’s obligation. By agreement, petitioner Arco
Pulp and Paper, as the debtor, had the option to either (1) pay the price or(2) deliver the finished products of
equivalent value to respondent.35
The appellate court, therefore, correctly identified the obligation between the parties as an alternative
obligation, whereby petitioner Arco Pulp and Paper, after receiving the raw materials from respondent, would
either pay him the price of the raw materials or, in the alternative, deliver to him the finished products of
equivalent value.
When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment for the scrap papers,
they exercised their option to pay the price. Respondent’s receipt of the check and his subsequent act of
depositing it constituted his notice of petitioner Arco Pulp and Paper’s option to pay.
This choice was also shown by the terms of the memorandum of agreement, which was executed on the same
day. The memorandum declared in clear terms that the delivery of petitioner Arco Pulp and Paper’s finished
products would be to a third person, thereby extinguishing the option to deliver the finished products of
equivalent value to respondent.
The memorandum of
agreement did not constitute
a novation of the original
contract
The trial court erroneously ruled that the execution of the memorandum of agreement constituted a novation of
the contract between the parties. When petitioner Arco Pulp and Paper opted instead to deliver the finished
products to a third person, it did not novate the original obligation between the parties.
The rules on novation are outlined in the Civil Code, thus:
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)
Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other. (1204)
Article 1293. Novation which consists in substituting a new debtor in the place of the original one, may be
made even without the knowledge or against the will of the latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. (1205a)
Novation extinguishes an obligation between two parties when there is a substitution of objects or debtors or
when there is subrogation of the creditor. It occurs only when the new contract declares so "in unequivocal
terms" or that "the old and the new obligations be on every point incompatible with each other."36
Novation was extensively discussed by this court in Garcia v. Llamas:37
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by
substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor.
Article 1293 of the Civil Code defines novation as follows:
"Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made
even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment
by the new debtor gives him rights mentioned in articles 1236 and 1237."
In general, there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. In
expromision, the initiative for the change does not come from — and may even be made without the
knowledge of — the debtor, since it consists of a third person’s assumption of the obligation. As such, it
logically requires the consent of the third person and the creditor. In delegacion, the debtor offers, and the
creditor accepts, a third person who consents to the substitution and assumes the obligation; thus, the consent
of these three persons are necessary. Both modes of substitution by the debtor require the consent of the
creditor.
Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the
creation of a new one that takes the place of the former. It is merely modificatory when the old obligation
subsists to the extent that it remains compatible with the amendatory agreement. Whether extinctive or
modificatory, novation is made either by changing the object or the principal conditions, referred to as objective
or real novation; or by substituting the person of the debtor or subrogating a third person to the rights of the
creditor, an act known as subjective or personal novation. For novation to take place, the following requisites
must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.
Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms
that the old obligation is extinguished. It is implied when the new obligation is incompatible with the old one on
every point. The test of incompatibility is whether the two obligations can stand together, each one with its own
independent existence.38 (Emphasis supplied)
Because novation requires that it be clear and unequivocal, it is never presumed, thus:
In the civil law setting, novatio is literally construed as to make new. So it is deeply rooted in the Roman Law
jurisprudence, the principle — novatio non praesumitur —that novation is never presumed.At bottom, for
novation tobe a jural reality, its animus must be ever present, debitum pro debito — basically extinguishing the
old obligation for the new one.39 (Emphasis supplied) There is nothing in the memorandum of agreement that
states that with its execution, the obligation of petitioner Arco Pulp and Paper to respondent would be
extinguished. It also does not state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as
respondent’s debtor. It merely shows that petitioner Arco Pulp and Paper opted to deliver the finished products
to a third person instead.
The consent of the creditor must also be secured for the novation to be valid:
Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties
underscore the absence of any express disclosure or circumstances with which to deduce a clear and
unequivocal intent by the parties to novate the old agreement.40 (Emphasis supplied)
In this case, respondent was not privy to the memorandum of agreement, thus, his conformity to the contract
need not be secured. This is clear from the first line of the memorandum, which states:
Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos and
Mr. Eric Sy. . . .41
If the memorandum of agreement was intended to novate the original agreement between the parties,
respondent must have first agreed to the substitution of Eric Sy as his new debtor. The memorandum of
agreement must also state in clear and unequivocal terms that it has replaced the original obligation of
petitioner Arco Pulp and Paper to respondent. Neither of these circumstances is present in this case.
Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also conflicts with their alleged
intent to pass on their obligation to Eric Sy. When respondent sent his letter of demand to petitioner Arco Pulp
and Paper, and not to Eric Sy, it showed that the former neither acknowledged nor consented to the latter as
his new debtor. These acts, when taken together, clearly show that novation did not take place. Since there
was no novation, petitioner Arco Pulp and Paper’s obligation to respondent remains valid and existing.
Petitioner Arco Pulp and Paper, therefore, must still pay respondent the full amount of ₱7,220,968.31.
Petitioners are liable for
damages
Under Article 2220 of the Civil Code, moral damages may be awarded in case of breach of contract where the
breach is due to fraud or bad faith:
Art. 2220. Willfull injury to property may be a legal ground for awarding moral damages if the court should find
that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract
where the defendant acted fraudulently or in bad faith. (Emphasis supplied)
Moral damages are not awarded as a matter of right but only after the party claiming it proved that the breach
was due to fraud or bad faith. As this court stated:
Moral damages are not recoverable simply because a contract has been breached. They are recoverable only
if the party from whom it is claimed acted fraudulently or in bad faith or in wanton disregard of his contractual
obligations. The breach must be wanton, reckless, malicious or in bad faith, and oppressive or abusive.42
Further, the following requisites must be proven for the recovery of moral damages:
An award of moral damages would require certain conditions to be met, to wit: (1)first, there must be an injury,
whether physical, mental or psychological, clearly sustained by the claimant; (2) second, there must be
culpable act or omission factually established; (3) third, the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4) fourth, the award of damages is predicated on
any of the cases stated in Article 2219 of the Civil Code.43
Here, the injury suffered by respondent is the loss of ₱7,220,968.31 from his business. This has remained
unpaid since 2007. This injury undoubtedly was caused by petitioner Arco Pulp and Paper’s act of refusing to
pay its obligations.
When the obligation became due and demandable, petitioner Arco Pulp and Paper not only issued an
unfunded check but also entered into a contract with a third person in an effort to evade its liability. This proves
the third requirement.
As to the fourth requisite, Article 2219 of the Civil Code provides that moral damages may be awarded in the
following instances:
Article 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.
Breaches of contract done in bad faith, however, are not specified within this enumeration. When a party
breaches a contract, he or she goes against Article 19 of the Civil Code, which states: Article 19. Every person
must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith.
Persons who have the right to enter into contractual relations must exercise that right with honesty and good
faith. Failure to do so results in an abuse of that right, which may become the basis of an action for damages.
Article 19, however, cannot be its sole basis:
Article 19 is the general rule which governs the conduct of human relations. By itself, it is not the basis of an
actionable tort. Article 19 describes the degree of care required so that an actionable tort may arise when it is
alleged together with Article 20 or Article 21.44
Article 20 and 21 of the Civil Code are as follows:
Article 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify
the latter for the same.
Article 21.Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.
To be actionable, Article 20 requires a violation of law, while Article 21 only concerns with lawful acts that are
contrary to morals, good customs, and public policy:
Article 20 concerns violations of existing law as basis for an injury. It allows recovery should the act have been
willful or negligent. Willful may refer to the intention to do the act and the desire to achieve the outcome which
is considered by the plaintiff in tort action as injurious. Negligence may refer to a situation where the act was
consciously done but without intending the result which the plaintiff considers as injurious.
Article 21, on the other hand, concerns injuries that may be caused by acts which are not necessarily
proscribed by law. This article requires that the act be willful, that is, that there was an intention to do the act
and a desire to achieve the outcome. In cases under Article 21, the legal issues revolve around whether such
outcome should be considered a legal injury on the part of the plaintiff or whether the commission of the act
was done in violation of the standards of care required in Article 19.45
When parties act in bad faith and do not faithfully comply with their obligations under contract, they run the risk
of violating Article 1159 of the Civil Code:
Article 1159. Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.
Article 2219, therefore, is not an exhaustive list of the instances where moral damages may be recovered since
it only specifies, among others, Article 21. When a party reneges on his or her obligations arising from
contracts in bad faith, the act is not only contrary to morals, good customs, and public policy; it is also a
violation of Article 1159. Breaches of contract become the basis of moral damages, not only under Article 2220,
but also under Articles 19 and 20 in relation to Article 1159.
Moral damages, however, are not recoverable on the mere breach of the contract. Article 2220 requires that
the breach be done fraudulently or in bad faith. In Adriano v. Lasala:46
To recover moral damages in an action for breach of contract, the breach must be palpably wanton, reckless
and malicious, in bad faith, oppressive, or abusive. Hence, the person claiming bad faith must prove its
existence by clear and convincing evidence for the law always presumes good faith.
Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of known duty through some motive or interest or ill will that
partakes of the nature of fraud. It is, therefore, a question of intention, which can be inferred from one’s
conduct and/or contemporaneous statements.47 (Emphasis supplied)
Since a finding of bad faith is generally premised on the intent of the doer, it requires an examination of the
circumstances in each case.
When petitioner Arco Pulp and Paper issued a check in partial payment of its obligation to respondent, it was
presumably with the knowledge that it was being drawn against a closed account. Worse, it attempted to shift
their obligations to a third person without the consent of respondent.
Petitioner Arco Pulp and Paper’s actions clearly show "a dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of known duty through some motive or interest or ill will that partakes of
the nature of fraud."48 Moral damages may, therefore, be awarded.
Exemplary damages may also be awarded. Under the Civil Code, exemplary damages are due in the following
circumstances:
Article 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted
in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
Article 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not
they should be adjudicated.
Article 2234. While the amount of the exemplary damages need not be proven, the plaintiff must show that he
is entitled to moral, temperate or compensatory damages before the court may consider the question of
whether or not exemplary damages should be awarded.
In Tankeh v. Development Bank of the Philippines,49 we stated that:
The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from the
commission of a similar offense. The case of People v. Ranteciting People v. Dalisay held that:
Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or corrective damages are intended to serve as a
deterrent to serious wrong doings, and as a vindication of undue sufferings and wanton invasion of the rights of
an injured or a punishment for those guilty of outrageous conduct. These terms are generally, but not always,
used interchangeably. In common law, there is preference in the use of exemplary damages when the award is
to account for injury to feelings and for the sense of indignity and humiliation suffered by a person as a result of
an injury that has been maliciously and wantonly inflicted, the theory being that there should be compensation
for the hurt caused by the highly reprehensible conduct of the defendant—associated with such circumstances
as willfulness, wantonness, malice, gross negligence or recklessness, oppression, insult or fraud or gross fraud
—that intensifies the injury. The terms punitive or vindictive damages are often used to refer to those species
of damages that may be awarded against a person to punish him for his outrageous conduct. In either case,
these damages are intended in good measure to deter the wrongdoer and others like him from similar conduct
in the future.50 (Emphasis supplied; citations omitted)
The requisites for the award of exemplary damages are as follows:
(1) they may be imposed by way of example in addition to compensatory damages, and only after the
claimant's right to them has been established;
(2) that they cannot be recovered as a matter of right, their determination depending upon the amount of
compensatory damages that may be awarded to the claimant; and
(3) the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent
manner.51
Business owners must always be forthright in their dealings. They cannot be allowed to renege on their
obligations, considering that these obligations were freely entered into by them. Exemplary damages may also
be awarded in this case to serve as a deterrent to those who use fraudulent means to evade their liabilities.
Since the award of exemplary damages is proper, attorney’s fees and cost of the suit may also be recovered.
Article 2208 of the Civil Code states:
Article 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[.]
Petitioner Candida A. Santos
is solidarily liable with
petitioner corporation
Petitioners argue that the finding of solidary liability was erroneous since no evidence was adduced to prove
that the transaction was also a personal undertaking of petitioner Santos. We disagree.
In Heirs of Fe Tan Uy v. International Exchange Bank,52 we stated that:
Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality
separate and distinct from those acting for and in its behalf and, in general, from the people comprising it.
Following this principle, obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities. A director, officer or employee of a corporation is generally not held
personally liable for obligations incurred by the corporation. Nevertheless, this legal fiction may be disregarded
if it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse legitimate issues.
....
Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the
following requisites must concur: (1) the complainant must allege in the complaint that the director or officer
assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad
faith; and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.
While it is true that the determination of the existence of any of the circumstances that would warrant the
piercing of the veil of corporate fiction is a question of fact which cannot be the subject of a petition for review
on certiorari under Rule 45, this Court can take cognizance of factual issues if the findings of the lower court
are not supported by the evidence on record or are based on a misapprehension of facts. 53 (Emphasis
supplied)
As a general rule, directors, officers, or employees of a corporation cannot be held personally liable for
obligations incurred by the corporation. However, this veil of corporate fiction may be pierced if complainant is
able to prove, as in this case, that (1) the officer is guilty of negligence or bad faith, and (2) such negligence or
bad faith was clearly and convincingly proven.
Here, petitioner Santos entered into a contract with respondent in her capacity as the President and Chief
Executive Officer of Arco Pulp and Paper. She also issued the check in partial payment of petitioner
corporation’s obligations to respondent on behalf of petitioner Arco Pulp and Paper. This is clear on the face of
the check bearing the account name, "Arco Pulp & Paper, Co., Inc." 54 Any obligation arising from these acts
would not, ordinarily, be petitioner Santos’ personal undertaking for which she would be solidarily liable with
petitioner Arco Pulp and Paper.
We find, however, that the corporate veil must be pierced. In Livesey v. Binswanger Philippines:55
Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the
separate corporate personality of a corporation is abused or used for wrongful purposes. Under the doctrine,
the corporate existence may be disregarded where the entity is formed or used for non-legitimate purposes,
such as to evade a just and due obligation, or to justify a wrong, to shield or perpetrate fraud or to carry out
similar or inequitable considerations, other unjustifiable aims or intentions, in which case, the fiction will be
disregarded and the individuals composing it and the two corporations will be treated as identical. 56 (Emphasis
supplied)
According to the Court of Appeals, petitioner Santos was solidarily liable with petitioner Arco Pulp and Paper,
stating that:
In the present case, We find bad faith on the part of the [petitioners] when they unjustifiably refused to honor
their undertaking in favor of the [respondent]. After the check in the amount of 1,487,766.68 issued by
[petitioner] Santos was dishonored for being drawn against a closed account, [petitioner] corporation denied
any privity with [respondent]. These acts prompted the [respondent] to avail of the remedies provided by law in
order to protect his rights.57
We agree with the Court of Appeals. Petitioner Santos cannot be allowed to hide behind the corporate
veil.1âwphi1 When petitioner Arco Pulp and Paper’s obligation to respondent became due and demandable,
she not only issued an unfunded check but also contracted with a third party in an effort to shift petitioner Arco
Pulp and Paper’s liability. She unjustifiably refused to honor petitioner corporation’s obligations to respondent.
These acts clearly amount to bad faith. In this instance, the corporate veil may be pierced, and petitioner
Santos may be held solidarily liable with petitioner Arco Pulp and Paper.
The rate of interest due on
the obligation must be
reduced in view of Nacar v.
Gallery Frames58
In view, however, of the promulgation by this court of the decision dated August 13, 2013 in Nacar v. Gallery
Frames,59 the rate of interest due on the obligation must be modified from 12% per annum to 6% per annum
from the time of demand.
Nacar effectively amended the guidelines stated in Eastern Shipping v. Court of Appeals, 60 and we have laid
down the following guidelines with regard to the rate of legal interest:
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Linesare
accordingly modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of
the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate
of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code),
but when such certainty cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not
be disturbed and shall continue to be implemented applying the rate of interest fixed therein. 61 (Emphasis
supplied; citations omitted.)
According to these guidelines, the interest due on the obligation of ₱7,220,968.31 should now be at 6% per
annum, computed from May 5, 2007, when respondent sent his letter of demand to petitioners. This interest
shall continue to be due from the finality of this decision until its full satisfaction.
WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV No. 95709 is AFFIRMED.
Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are hereby ordered solidarily to pay respondent
Dan T. Lim the amount of ₱7,220,968.31 with interest of 6% per annum at the time of demand until finality of
judgment and its full satisfaction, with moral damages in the amount of ₱50,000.00, exemplary damages in the
amount of ₱50,000.00, and attorney's fees in the amount of ₱50,000.00.
SO ORDERED.
G.R. No. 88013 March 19, 1990
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
Don P. Porcuincula for petitioner.
San Juan, Gonzalez, San Agustin & Sinense for private respondent.

CRUZ, J.:
We are concerned in this case with the question of damages, specifically moral and exemplary damages. The
negligence of the private respondent has already been established. All we have to ascertain is whether the
petitioner is entitled to the said damages and, if so, in what amounts.
The parties agree on the basic facts. The petitioner is a private corporation engaged in the exportation of food
products. It buys these products from various local suppliers and then sells them abroad, particularly in the
United States, Canada and the Middle East. Most of its exports are purchased by the petitioner on credit.
The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at
Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its account in the said
bank the amount of P100,000.00, thus increasing its balance as of that date to P190,380.74. 1 Subsequently,
the petitioner issued several checks against its deposit but was suprised to learn later that they had been
dishonored for insufficient funds.
The dishonored checks are the following:
1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing Company, Inc. for P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal Revenue in the amount of
P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreño in the amount of P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading Corporation in the amount of
P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading Corporation in the amount of
P12,953.00:
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the amount of P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club Corporation in the amount of
P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand to the
petitioner, threatening prosecution if the dishonored check issued to it was not made good. It also withheld
delivery of the order made by the petitioner. Similar letters were sent to the petitioner by the Malabon Long Life
Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981. Malabon also canceled the
petitioner's credit line and demanded that future payments be made by it in cash or certified check. Meantime,
action on the pending orders of the petitioner with the other suppliers whose checks were dishonored was also
deferred.
The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that the sum of
P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was rectified
on June 17, 1981, and the dishonored checks were paid after they were re-deposited. 4
In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for its "gross
and wanton negligence." This demand was not met. The petitioner then filed a complaint in the then Court of
First Instance of Rizal claiming from the private respondent moral damages in the sum of P1,000,000.00 and
exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and costs.
After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages were not
called for under the circumstances. However, observing that the plaintiff's right had been violated, he ordered
the defendant to pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and
costs. 5 This decision was affirmed in toto by the respondent court. 6
The respondent court found with the trial court that the private respondent was guilty of negligence but agreed
that the petitioner was nevertheless not entitled to moral damages. It said:
The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150 SCRA 280).
Indeed, there was the omission by the defendant-appellee bank to credit appellant's deposit of P100,000.00 on
May 25, 1981. But the bank rectified its records. It credited the said amount in favor of plaintiff-appellant in less
than a month. The dishonored checks were eventually paid. These circumstances negate any imputation or
insinuation of malicious, fraudulent, wanton and gross bad faith and negligence on the part of the defendant-
appellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds that it cannot share some of the conclusions
of the lower courts. It seems to us that the negligence of the private respondent had been brushed off rather
lightly as if it were a minor infraction requiring no more than a slap on the wrist. We feel it is not enough to say
that the private respondent rectified its records and credited the deposit in less than a month as if this were
sufficient repentance. The error should not have been committed in the first place. The respondent bank has
not even explained why it was committed at all. It is true that the dishonored checks were, as the Court of
Appeals put it, "eventually" paid. However, this took almost a month when, properly, the checks should have
been paid immediately upon presentment.
As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude in
repairing its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the
complaining depositor constituted the gross negligence, if not wanton bad faith, that the respondent court said
had not been established by the petitioner.
We also note that while stressing the rectification made by the respondent bank, the decision practically
ignored the prejudice suffered by the petitioner. This was simply glossed over if not, indeed, disbelieved. The
fact is that the petitioner's credit line was canceled and its orders were not acted upon pending receipt of actual
payment by the suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced in the
business community. All this was due to the fault of the respondent bank which was undeniably remiss in its
duty to the petitioner.
Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to
the plaintiff s business standing or commercial credit." There is no question that the petitioner did sustain
actual injury as a result of the dishonored checks and that the existence of the loss having been established
"absolute certainty as to its amount is not required." 7 Such injury should bolster all the more the demand of the
petitioner for moral damages and justifies the examination by this Court of the validity and reasonableness of
the said claim.
We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for
the injuries he may have suffered. 8 In the case at bar, the petitioner is seeking such damages for the prejudice
sustained by it as a result of the private respondent's fault. The respondent court said that the claimed losses
are purely speculative and are not supported by substantial evidence, but if failed to consider that the amount
of such losses need not be established with exactitude precisely because of their nature. Moral damages are
not susceptible of pecuniary estimation. Article 2216 of the Civil Code specifically provides that "no proof of
pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be
adjudicated." That is why the determination of the amount to be awarded (except liquidated damages) is left to
the sound discretion of the court, according to "the circumstances of each case."
From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of
P1,000,000.00 is nothing short of preposterous. Its business certainly is not that big, or its name that
prestigious, to sustain such an extravagant pretense. Moreover, a corporation is not as a rule entitled to moral
damages because, not being a natural person, it cannot experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is where
the corporation has a good reputation that is debased, resulting in its social humiliation. 9
We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that
caused the dishonor of the checks issued by it. The immediate consequence was that its prestige was
impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished. The private
respondent makes much of the one instance when the petitioner was sued in a collection case, but that did not
prove that it did not have a good reputation that could not be marred, more so since that case was ultimately
settled. 10 It does not appear that, as the private respondent would portray it, the petitioner is an unsavory and
disreputable entity that has no good name to protect.
Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was not the proper
relief to which the petitioner was entitled. Under Article 2221 of the Civil Code, "nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him." As
we have found that the petitioner has indeed incurred loss through the fault of the private respondent, the
proper remedy is the award to it of moral damages, which we impose, in our discretion, in the same amount of
P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good,
in addition to the moral, temperate, liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in
a wanton, fraudulent, reckless, oppressive, or malevolent manner.
The banking system is an indispensable institution in the modern world and plays a vital role in the economic
life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as
active instruments of business and commerce, banks have become an ubiquitous presence among the people,
who have come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the
humble wage-earner has not hesitated to entrust his life's savings to the bank of his choice, knowing that they
will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith,
usually maintains a modest checking account for security and convenience in the settling of his monthly bills
and the payment of ordinary expenses. As for business entities like the petitioner, the bank is a trusted and
active associate that can help in the running of their affairs, not only in the form of loans when needed but
more often in the conduct of their day-to-day transactions like the issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of millions. The bank must record every single transaction
accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to
reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the
bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of a
check without good reason, can cause the depositor not a little embarrassment if not also financial loss and
perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the nature of its functions, the bank
is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship. In the case at bar, it is obvious that the respondent bank was remiss in
that duty and violated that relationship. What is especially deplorable is that, having been informed of its error
in not crediting the deposit in question to the petitioner, the respondent bank did not immediately correct it but
did so only one week later or twenty-three days after the deposit was made. It bears repeating that the record
does not contain any satisfactory explanation of why the error was made in the first place and why it was not
corrected immediately after its discovery. Such ineptness comes under the concept of the wanton manner
contemplated in the Civil Code that calls for the imposition of exemplary damages.
After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes upon the
respondent bank exemplary damages in the amount of P50,000.00, "by way of example or correction for the
public good," in the words of the law. It is expected that this ruling will serve as a warning and deterrent against
the repetition of the ineptness and indefference that has been displayed here, lest the confidence of the public
in the banking system be further impaired.
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay the
petitioner, in lieu of nominal damages, moral damages in the amount of P20,000.00, and exemplary damages
in the amount of P50,000.00 plus the original award of attorney's fees in the amount of P5,000.00, and costs.
SO ORDERED.