[G.R. No. 152134.

June 4, 2004]

ENDREO MAGBANUA, VALLACAR TRANSIT, INC., and its

Present Corporate Official RICARDO
YANSON, petitioners, vs. JOSE TABUSARES, JR., EVA T.
LAFIGUERA, NONA C. TABUSARES, JUN C.
TABUSARES, FE C. TABUSARES and JAX C.
TABUSARES, respondents.

DECISION
PUNO, J.:

The case at bar arose from the complaint for damages filed by
spouses Jose Tabusares, Sr. and Rebecca Tabusares against
petitioners, Endreo A. Magbanua, Vallacar Transit, Inc., and/or its
corporate officials for the tragic death of their son, Jury Tabusares, in
a vehicular mishap involving a Ceres Liner Bus owned and operated
by petitioners. The case was docketed as Civil Case No. 4654 before
the Regional Trial Court of Negros Occidental, Branch
48, Bacolod City.
The facts, as found by the trial court, are as follows:

At about 4:30 oclock in the afternoon of October 25, 1986, a Ceres Liner
Bus No. 154 with Plate No. GVG 469, driven by Endreo Magbanua and
owned and operated by Vallacar Transit, Inc., and an Amante Type Jeepney
bearing Plate No. FBN 996, driven by Felipe Palacios and owned by
Salvador Algara, Sr. figured in a vehicular accident along the national road
at Hda. Mabuhay, Gil Montilla, Sipalay, Negros Occidental. The Ceres
Liner Bus bumped the rear portion of the Amante Type Jeepney while both
vehicles were running downhill on the same direction towards the town
of Sipalay from the North. Due to the impact, several passengers of the
Amante Type Jeepney were thrown out and ran over by the Ceres Liner Bus
and died as a result of the injuries they sustained. (O)ne of those killed was
Jury Tabusares, 27 years of age, single, an employee of the Maricalum
Copper Mines as Oiler 2B and was then receiving P1,256.00 monthly salary
plus P510.00 cost of living allowance (COLA) or a total monthly income
of P1,766.00. Jury Tabusares was the son of the plantiffs Jose Tabusares, Sr.
and Rebecca Tabusares. Immediately before the bumping accident, the
Ceres Liner Buss driver, Endreo Magbanua, was trying to overtake the
Amante Type Jeepney ahead of him and he said that he did not apply his
brakes because he cannot overtake if he will slow down. The Amante Type
Jeepney was overloaded with 35 passengers and some of them clinging on
its sides and some were riding on the roof. While the Ceres Liner (B)us was
about one and a half (1) meters from the Amante Type Jeepney, the bus
driver saw that the jeepney went zigzagging on the middle of the road and
since he could not control the bus anymore it bumped the rear portion of the
jeep.

After a careful perusal of the circumstances of the case, the (c)ourt finds that
the Amante Type Jeepney, as testified to by its own driver, Felipe Palacios,
was not a passenger jeepney but a private vehicle which is used by its owner
Salvador Algara, Sr., who is an ambulant peddler in his peddling
business. But, although not for passengers, it was carrying 35 passengers at
the time of the bumping accident on October 25, 1986 as testified to by
Traffic Investigator Pfc. Praxedes Campillanos of the Sipalay Police
Command, Sipalay, Negros Occidental. This jeep had a seating capacity of
only 16 passengers but it was made to accommodate passengers on its roof
and some were clinging on its side. This act is not only gross negligence but
it was violative of the traffic rules and regulations. On the other hand, the
(c)ourt also finds that the driver of the Ceres Liner Bus was driving his
vehicle negligently and recklessly because Endreo Magbanua testified and
admitted that while driving the bus downhill and following the Amante type
Jeepney ahead of him, he did not apply his brakes because he was trying to
overtake when he bumped the jeep on its rear portion. This act was
negligent and reckless because Endreo Magbanua could have avoided the
bumping of the jeepney had he applied his brakes considering that he has the
last clear chance to prevent a collision by slowing down and reducing
speed.[1]

The trial court found that the negligent acts of the drivers of both
the jeepney and the Ceres Liner Bus combined in directly causing the
death of Jury Tabusares. It therefore held both drivers solidarily liable
for damages. The court ruled:

WHEREFORE, in view of the foregoing considerations, judgment is hereby

rendered ordering and condemning the defendants Endreo A. Magbanua,
Vallacar Transit, Inc., thru and represented by its corporate official Ricardo
Yanson, Felipe T. Palacios and Salvador Algara, Sr. to pay jointly and
severally to the plantiffs, as follows:
1. The sum of P50,000.00 as indemnity for the death of Jury Tabusares;

2. The amount of P699,336.00 as indemnity for the loss of the earning

capacity of the late Jury Tabusares;

3. The amount of P27,600.00 as reimbursement for actual expenses in

connection with the death and burial of the said deceased;

4. The amount of P10,000.00 as moral damages; and

5. The sum of P10,000.00 as reasonable attorneys fees.

The cross-claim of defendant Salvador Algara, Sr. against the defendants

Endreo A. Magbanua and Vallacar Transit, Inc., represented by its corporate
official Ricardo Yanson, is hereby allowed and defendants Endreo A.
Magbanua and Vallacar Transit, Inc., represented by it (sic) corporate
official Ricardo Yanson are hereby ordered to indemnify Salvador Algara,
Sr. in such amount as he may be required to pay as damages to the herein
plaintiffs.

The counterclaims of the defendants against the plaintiffs are hereby

dismissed for lack or merit.

SO ORDERED. [2]

Petitioners appealed to the Court of Appeals. They prayed that the

decision of the trial court be reversed insofar as their liabilities are
concerned. [3]

During the pendency of the appeal, Jose Tabusares, Sr. and his
wife, Rebecca, passed away. On May 18, 1999, the Court of Appeals
approved the substitution of the late spouses by their heirs,
namely: Jose Tabusares, Jr., Eva T. Lafiguera, Nona C. Tabusares,
Jun C. Tabusares, Fe C. Tabusares and Jax C. Tabusares. [4]

On March 13, 2001, the Court of Appeals rendered its decision. It

affirmed the factual findings of the trial court, but modified the award
of damages, reducing the amount of lost earning to P374,392.00. It
made the following computation:

In the case at bar, the victim Jury Tabusares was twenty- seven (27) years
old at the time of death. With 65 years as the given life expectancy in
the Philippines, the victim was expected to live for another thirty-eight (38)
years. In respect of income, the victim was receiving the amount
of P1,766.00 as total monthly income or a gross yearly income
of P21,192.00. Multiplied by 38, the number of years the victim is expected
to continue living, the amount arrived at is P748,784.00 using the formula
2/3 x [80-27] x 21,192.00. From the said figure must be deducted the
reasonable amount of P374,392.00 or 50% thereof representing the living
and other necessary expenses of the deceased had he continued to
live. Hence, the lost earnings of the deceased should be P374,392.00.
[5]

Petitioners filed a partial motion for reconsideration of the decision

of the Court of Appeals, praying for a reduction of the amount of
damages for loss of earning capacity. The Court of Appeals denied
the motion. Hence, this petition.
[6]

Petitioners, while accepting the factual findings of the trial court

and the appellate court, now assail the latters computation of the
award of damages for loss of earning capacity. They contend that
there are varying computations used in the decisions of this
Court. In People vs. Lopez, the Court applied the following formula:
[7]

2/3 x (80-27) x P21,192.00 50%

However, the following formula was employed in People vs.

Muyco, et al.: [8]

2/3 x (80 27) x P21,192.00 80%

The difference lies in the computation of the net income of the

victim. In the Lopez case, net income was derived by deducting 50%
of the gross annual income, while in the Muyco case, the amount
deducted was 80% of the gross annual income. The Court of Appeals
followed the computation in People vs. Lopez as it was the prevailing
case law at the time of the decision appealed from was promulgated
and unmistakably more favorable to the heirs of the deceased
xxx. Petitioners argue that the instant case was decided by the Court
[9]

of Appeals one year and six months after the promulgation of People
vs. Muyco, therefore, the Court should apply the computation in the
latter case.[10]

On the other hand, the respondents, in their comment, cite other

cases decided after the Muyco case where the Court applied the
formula in the Lopez case. They submit that the computation
in People vs. Lopez should be applied in this case. [11]

The petition is devoid of merit.

 Article 2205 of the New Civil Code allows the recovery of
damages for loss or impairment of earning capacity in cases of
temporary or permanent personal injury. Such damages covers the
loss sustained by the dependents or heirs of the deceased, consisting
of the support they would have received from him had he not died
because of the negligent act of another. The loss is not equivalent to
the entire earnings of the deceased, but only that portion that he
would have used to support his dependents or heirs. Hence, we
deduct from his gross earnings the necessary expenses supposed to
be used by the deceased for his own needs. The Court explained
in Villa Rey Transit, Inc. vs. Court of Appeals that: [12]

(the award of damages for loss of earning capacity is) concerned with the
determination of the losses or damages sustained by the private respondents,
as dependents and intestate heirs of the deceased, and that said damages
consist, not of the full amount of his earnings, but of the support they
received or would have received from him had he not died in consequence
of the negligence of petitioners agent. In fixing the amount of that support,
we must reckon with the necessary expenses of his own living, which should
be deducted from his earnings. Thus, it has been consistently held that
earning capacity, as an element of damages to ones estate for his death by
wrongful act is necessarily his net earning capacity or his capacity to acquire
money, less the necessary expense for his own living. Stated otherwise, the
amount recoverable is not loss of the entire earning, but rather the loss of
that portion of the earnings which the beneficiary would have received. In
other words, only net earnings, not gross earning are to be considered that is,
the total of the earnings less expenses necessary in the creation of such
earnings or income and less living and other incidental expenses.

Aside from the loss sustained by the heirs of the deceased,

another factor considered in determining the award of loss of earning
capacity is the life expectancy of the deceased which takes into
account his work, lifestyle, age and state of health prior to the
accident. [13]

Thus, the formula for the computation of unearned income is:

Net life gross living
Earning = expectancy x annual less expenses
Capacity income
Life expectancy is determined in accordance with the formula:
2/3 x [80 age of deceased]

The bone of contention in this case is the amount of living

expenses that should be deducted from the deceaseds gross annual
income - whether 50% or 80%.
A survey of more recent jurisprudence shows that the Court
consistently pegged the amount at 50% of the gross annual
income. We held in Smith Bell Dodwell Shipping Agency Corp.
[14]

vs. Borja that when there is no showing that the living expenses
[15]

constituted a smaller percentage of the gross income, we fix the living

expenses at half of the gross income, thus:

In other words, only net earnings, not gross earnings, are to be considered;
that is, the total of the earnings less expenses necessary in the creation of
such earnings or income, less living and other incidental expenses. When
there is no showing that the living expenses constituted a smaller
percentage of the gross income, we fix the living expenses at half of the
gross income. To hold that one would have used only a small part of the
income, with the larger part going to the support of ones children,
would be conjectural and unreasonable. (emphasis supplied)

There is no evidence in the case at bar whether the living

expenses of the victim, Jury Tabusares, constituted a bigger or
smaller percentage of his gross income. In such case, it is fair to
assume that it is 50% of his gross annual income. Hence, we find that
the Court of Appeals did not err in its computation of the award of loss
of unearned income to petitioner.
IN VIEW WHEREOF, the petition is DENIED. The assailed
decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
THE HEIRS OF GEORGE Y. G.R. No. 156302
POE,
Petitioners, Present:

YNARES-SANTIAGO, J.,
Chairperson,
CARPIO MORALES,*
- versus - CHICO-NAZARIO,
NACHURA, and
PERALTA, JJ.
MALAYAN INSURANCE Promulgated:
COMPANY, INC.,
Respondent. April 7, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
-x

DECISION

CHICO-NAZARIO, J.:

The instant Petition for Review under Rule 45[1]of the Rules of Court
assails the Decision[2] dated 26 June 2002 of the Court of Appeals in
CA-G.R. SP No. 67297, which granted the Petition for Certiorari of
respondent Malayan Insurance Company, Inc. (MICI) and recalled and
set aside the Order[3] dated 6 September 2001 of the Regional Trial Court
(RTC), Branch 73, of Antipolo City, in Civil Case No. 93-2705. The RTC,
in its recalled Order, denied the Notice of Appeal of MICI and granted
the Motion for the Issuance of a Writ of Execution filed by petitioners
Heirs of George Y. Poe. The present Petition also challenges the
Resolution[4] dated 29 November 2002 of the appellate court denying
petitioners Motion for Reconsideration.
Records show that on 26 January 1996 at about 4:45 a.m., George Y. Poe
(George) while waiting for a ride to work in front of Capital Garments
Corporation, Ortigas Avenue Extension, Barangay Dolores, Taytay, Rizal,
was run over by a ten-wheeler Isuzu hauler truck with Plate No.
PMH-858 owned by Rhoda Santos (Rhoda), and then being driven by
Willie Labrador (Willie).[5] The said truck was insured with respondent
MICI under Policy No. CV-293-007446-8.

To seek redress for Georges untimely death, his heirs and herein
petitioners, namely, his widow Emercelinda, and their children Flerida
and Fernando, filed with the RTC a Complaint for damages against
Rhoda and respondent MICI, docketed as Civil Case No.
93-2705.[6] Petitioners identified Rhoda and respondent MICI, as follows:
 Defendant RHODA SANTOS is likewise of legal age, Filipino and a
resident of Real Street, Pamplona, Las Pias, Metro Manila where she
may be served with summons and other court processes.

[Herein respondent] MALAYAN INSURANCE COMPANY, INC.

(hereinafter [MICI] for brevity) is a corporation duly organized and
existing under Philippine law with address at Yuchengco Bldg., 484 Q.
Paredes Street, Binondo, Manila where it may be served with summons
and other processes of this Honorable Court;

Defendant Rhoda Santos, who is engaged in the business, among

others, of selling gravel and sand is the registered owner of one Isuzu
Truck, with Plate No. PMH-858 and is the employer of Willie
Labrador the authorized driver of the aforesaid truck.

[Respondent MICI] on the other hand is the insurer of Rhoda Santos

under a valid and existing insurance policy duly issued by said [MICI],
Policy No. CV-293-007446-8 over the subject vehicle owned by
Rhoda Santos, Truck-Hauler Isuzu 10 wheeler with plate no. PMH-858,
serial no. SRZ451-1928340 and motor no. 10PA1-403803. Under said
insurance policy, [MICI] binds itself, among others, to be liable for
damages as well as any bodily injury to third persons which may be
caused by the operation of the insured vehicle.[7]

And prayed that:

[J]udgment issue in favor of [herein petitioners] ordering [Rhoda and

herein respondent MICI] jointly and solidarily to pay the [petitioners]
the following:

1. Actual damages in the total amount of THIRTY SIX THOUSAND

(P36,000.00) PESOS for funeral and burial expenses;

2. Actual damages in the amount of EIGHT HUNDRED FIVE

THOUSAND NINE HUNDRED EIGHTY FOUR (P805,984.00)
PESOS as loss of earnings and financial support given by the deceased
by reason of his income and employment;

3. Moral damages in the amount of FIFTY THOUSAND (P50,000.00)

PESOS;

4. Exemplary damages in the amount of FIFTY THOUSAND

(P50,000.00) PESOS;
 5. Attorneys fees in the amount of FIFTY THOUSAND (P50,000.00)
PESOS and litigation expense in the amount of ONE THOUSAND
FIVE HUNDRED (P1,500.00) PESOS for each court appearance;

6. The costs of suit.

Other reliefs just and equitable in the premises are likewise prayed
for.[8]

Rhoda and respondent MICI made the following admissions in their Joint
Answer[9]:

That [Rhoda and herein respondent MICI] admit the allegations in

paragraphs 2, 3 and 4 of the complaint;

That [Rhoda and respondent MICI] admit the allegations in paragraph

5 of the complaint that the cargo truck is insured with [respondent]
Malayan Insurance Company, Inc. [(MICI)] however, the liability of
the insured company attached only if there is a judicial
pronouncement that the insured and her driver are liable and moreover,
the liability of the insurance company is subject to the limitations set
forth in the insurance policy.[10]

Rhoda and respondent MICI denied liability for Georges death averring,
among other defenses, that: a) the accident was caused by the negligent
act of the victim George, who surreptitiously and unexpectedly crossed
the road, catching the driver Willie by surprise, and despite the latters
effort to swerve the truck to the right, the said vehicle still came into
contact with the victim; b) the liability of respondent MICI, if any, would
attach only upon a judicial pronouncement that the insured Rhoda and her
driver Willie are liable; c) the liability of MICI should be based on the
extent of the insurance coverage as embodied in Rhodas policy; and d)
Rhoda had always exercised the diligence of a good father of a family in
the selection and supervision of her driver Willie.

After the termination of the pre-trial proceedings, trial on the merits

ensued.

Petitioners introduced and offered evidence in support of their claims for

damages against MICI, and then rested their case. Thereafter, the
hearings for the reception of the evidence of Rhoda and respondent MICI
were scheduled, but they failed to adduce their evidence despite several
postponements granted by the trial court. Thus, during the hearing on 9
June 1995, the RTC, upon motion of petitioners counsel, issued an
Order[11] declaring that Rhoda and respondent MICI had waived their
right to present evidence, and ordering the parties to already submit their
respective Memorandum within 15 days, after which, the case would be
deemed submitted for decision.

Rhoda and respondent MICI filed a Motion for Reconsideration[12] of the

Order dated 9 June 1995, but it was denied by the RTC in another Order
dated 11 August 1995.[13]

Consequently, Rhoda and respondent MICI filed a Petition

for Certiorari, Mandamus,[14] Prohibition and Injunction with Prayer for a
Temporary Restraining Order and Writ of Preliminary Injunction,
assailing the Orders dated 9 June 1995 and 11 August 1995 of the RTC
foreclosing their right to adduce evidence in support of their defense. The
Petition was docketed as CA-G.R. SP No. 38948.

The Court of Appeals, through its Third Division, promulgated a

Decision[15] on 29 April 1996, denying due course to the Petition in
CA-G.R. SP No. 38948. Rhoda and respondent MICI elevated the matter
to the Supreme Court via a Petition for Certiorari,[16] docketed as G.R.
No. 126244. This Court likewise dismissed the Petition in G.R. No.
126244 in a Resolution dated 30 September 1996.[17] Entry of Judgment
was made in G.R. No. 126244 on 8 November 1996.[18]

On 28 February 2000, the RTC rendered a Decision in Civil Case No.

93-2705, the dispositive portion of which reads:

Wherefore, [Rhoda and herein respondent MICI] are hereby ordered to

pay jointly and solidarily to the [herein petitioners] the following:

1. Moral damages amounting to P100,000.00;

2. Actual damages for loss of earning capacity amounting

to P805,984.00;

3. P36,000.00 for funeral expenses;

4. P50,000.00 as exemplary damages;

5. P50,000.00 for attorneys fees plus P1,500 per court appearance; and

6. Cost of suit.[19]
Rhoda and respondent MICI received their copy of the foregoing RTC
Decision on 14 March 2000.[20] On 22 March 2000, respondent MICI and
Rhoda filed a Motion for Reconsideration[21] of said Decision, averring
therein that the RTC erred in ruling that the obligation of Rhoda and
respondent MICI to petitioners was solidary or joint and several; in
computing Georges loss of earning capacity not in accord with
established jurisprudence; and in awarding moral damages although it
was not buttressed by evidence.

Resolving the Motion of respondent MICI and Rhoda, the RTC issued an
Order[22] on 24 January 2001 modifying and amending its Decision
dated 28 February 2000, and dismissing the case against respondent
MICI.

The RTC held that:

After a careful evaluation of the issues at hand, the contention of the

[herein respondent MICI] as far as the solidary liability of the
insurance company with the other defendant [Rhoda] is meritorious.
However, the assailed Decision can be modified or amended to correct
the same honest inadvertence without necessarily reversing it and set
aside to conform with the evidence on hand.

The RTC also re-computed Georges loss of earning capacity, as follows:

The computation of actual damages for loss of earning capacity was

determined by applying the formula adopted in the American
Expectancy Table of Mortality or the actuarial of Combined
Experience Table of Mortality applied in x x x Villa Rey Transit, Inc.
v. Court of Appeals (31 SCRA 521). Moral damages is awarded in
accordance with Article 2206 of the New Civil Code of
the Philippines.While death indemnity in the amount of P50,000.00 is
automatically awarded in cases where the victim had died (People v.
Sison, September 14, 1990 [189 SCRA 643]).[23]

In the end, the RTC decreed:

WHEREFORE, in view of the foregoing consideration, the Decision

of this Court dated 28 February 2000 is hereby amended or
modified. Said Decision should read as follows:
 Wherefore, defendant Rhoda Santos is hereby ordered
to pay to the [herein petitioners] the following:

1. Moral damages amounting to P100,000.00;

2. Actual damages for loss of earning capacity

amounting to P102,106.00;

3. P36,000.00 for funeral expenses;

4. P50,000.00 as death indemnity;

5. P50,000.00 for attorneys fees plus P1,500.00 per

court appearance;

6. Costs of the suit.

The case against Malayan Insurance Company, Inc. is

hereby dismissed.[24]

It was petitioners turn to file a Motion for Reconsideration[25] of the 24

January 2001 Order, to which respondent MICI filed a Vigorous
Opposition to the Plaintiffs Motion for Reconsideration.[26]

On 15 June 2001, the RTC issued an Order reinstating its Decision

dated 28 February 2000, relevant portions of which state:

Finding the arguments raised by the [herein petitioners] in their Motion

for Reconsideration of the Order of this Court dated January 24, 2001
to be more meritorious to [herein respondents] Malayan Insurance Co.,
Inc. (sic) arguments in its vigorous opposition thereto, said motion is
hereby granted.

Accordingly, the Order under consideration is hereby reconsidered and

set aside. The decision of this Court dated February 28, 2000 is hereby
reinstated.

Notify parties herein.[27]

Respondent MICI received a copy of the 15 June 2001 Order of the RTC
on 27 June 2001.
 Aggrieved by the latest turn of events, respondent MICI filed on 9
July 2001 a Notice of Appeal[28] of the 28 February 2000 Decision of the
RTC, reinstated by the 15 June 2001 Resolution of the same court. Rhoda
did not join respondent MICI in its Notice of Appeal.[29]

Petitioners filed their Opposition[30] to the Notice of Appeal of respondent

MICI, with a Motion for the Issuance of Writ of Execution.

After considering the recent pleadings of the parties, the RTC, in its
Order dated 6 September 2001, denied the Notice of Appeal of
respondent MICI and granted petitioners Motion for the Issuance of Writ
of Execution. The RTC reasoned in its Order:

The records disclosed that on February 28, 2000 this Court rendered a
Decision in favor of the [herein petitioners] and against [Rhoda and
herein respondent MICI]. The Decision was said to have been received
by MICI on March 14, 2000. Eight days after or on March 22, 2000,
MICI mailed its Motion for Reconsideration to this Court and granted
the same in the Order dated January 24, 2001. From this Order,
[petitioners] filed a Motion for Reconsideration on February 21,
2001 to which MICI filed a vigorous opposition. On June 15, 2001 this
Court granted [petitioners] motion reinstating the Decision
dated February 28, 2000. According to MICI, the June 15, 2001 order
was received by it on June 27, 2001. MICI filed a Notice of Appeal
on July 9, 2001 or twelve (12) days from receipt of said Order.

[Petitioners] contend that the Notice of Appeal was filed out of time
while [respondent] MICI opposes, arguing otherwise. The latter
interposed that the Order dated June 15, 2001 is in reality a new
Decision thereby giving it a fresh fifteen (15) days within which to file
notice of appeal.

[Respondent] MICIs contention is not meritorious. The fifteen (15) day

period within which to file a notice of appeal should be reckoned from
the date it received the Decision on March 14, 2000. So that when
MICI mailed its Motion for Reconsideration on March 22, 2000, eight
(8) days had already lapsed, MICI has remaining seven (7) days to file
a notice of appeal. However, when it received the last Order of this
Court it took [respondent] MICI twelve (12) days to file the
same. Needless to say, MICIs Notice of Appeal was filed out of
time. The Court cannot countenance the argument of MICI that a
resolution to a motion for a final order or judgment will have the effect
of giving a fresh reglementary period. This would be contrary to what
was provided in the rules of procedure.[31]
Accordingly, the RTC adjudged:

WHEREFORE, premises considered, [herein respondent] MICIs

Notice of Appeal is hereby Denied for having filed out of time making
the Decision of this Court dated February 28, 2000 as final and
executory. Accordingly, the Motion for Issuance of Writ of Execution
filed by [herein petitioners] is hereby Granted.

Notify parties herein.[32]

Respondent MICI filed a Petition for Certiorari[33] under Rule 65 of the

Rules of Court before the Court of Appeals, which was docketed as
CA-G.R. SP No. 67297. The Petition assailed, for having been rendered
by the RTC with grave abuse of discretion amounting to lack or excess of
jurisdiction, the following: (1) the Order dated 6 September 2001,
denying the Notice of Appeal of respondent MICI and granting
petitioners Motion for the Issuance of Writ of Execution; (2) the Decision
dated 28 February 2000, holding Rhoda and respondent MICI jointly and
severally liable for Georges death; and (3) the Order dated 15 June 2001,
reinstating the Decision dated 28 February 2000.

The Court of Appeals granted the Petition for Certiorari of respondent

MICI in a Decision dated 26 June 2000, ratiocinating thus:

Prescinding therefrom, we hold that the fifteen (15) day period to

appeal must be reckoned from the time the [herein respondent]
Malayan received the order dated 15 June 2001 reversing in toto
the order of 24 January 2000 and reinstating in full the Decision
dated 28 February 2000. Thus, [respondent] Malayan had until 12
July 2001 within which to file its notice of appeal. Therefore, when
[respondent] Malayan filed its notice of appeal on 09 July 2001, it
was well within the reglementary period and should have been
given due course by the public respondent court.

It was therefore, an excess of jurisdiction on the part of the public

respondent court when it reckoned the [respondent] Malayans period to
appeal on the date it received on 14 March 2000 the formers decision
dated 28 February 2000. As earlier expostulated, the said decision was
completely vacated insofar as the [respondent] Malayan is concerned
when the public respondent court in its order dated 24 January 2001
dismissed the case against the former. Thus, to reckon the fifteen (15)
days to appeal from the day the [respondent] Malayan received the said
decision on 14 March 2000, is the height of absurdity because there
 was nothing for the [respondent] Malayan to appeal inasmuch as the
public respondent court vacated the said decision in favor of the
former.

The aforesaid conclusion finds support in Sta. Romana vs. Lacson (104
SCRA 93), where the court, relying on the case of Magdalena Estate,
Inc. vs. Caluag, 11 SCRA 334, held that where the court of origin
made a thoroughly (sic) restudy of the original judgment and rendered
the amended and clarified judgment only after considering all the
factual and legal issues, the amended and clarified decision was an
entirely new decision which superseded (sic). For all intents and
purposes, the court concluded the trial court rendered a new judgment
from which the time to appeal must be reckoned.

In the instant case, what is involved is not merely a substantial

amendment or modification of the original decision, but the total
reversal thereof in the order dated 24 January 2000. Given the rationale
in the aforecited cases, it is only logical that the period of appeal be
counted from 27 June 2001, the date that [respondent] Malayan
received the order dated 15 June 2001 reversing in toto the order of 24
January 2000 and reinstating the Decision dated 28 February
2000.[34] (Emphasis supplied.)

The fallo of the Decision of the Court of Appeals reads:

WHEREFORE, in consideration of the foregoing premises, the petition

for certiorari is partially GRANTED. Accordingly, the public
respondent courts order dated 06 September 2001 is hereby
RECALLED and SET ASIDE.

Public respondent court is hereby directed to approve the petitioner

Malayans notice of appeal and to refrain from executing the writ of
execution granted on 06 September 2001.[35]

The Court of Appeals denied petitioners Motion for

Reconsideration in a Resolution dated 29 November 2002.

Understandably distraught, petitioners come before this Court in this

Petition for Review, which raise the following issues:

I.

Whether or not the respondent Court of Appeals committed grave

abuse of discretion when it ruled that private respondent could file a
 Petition for Certiorari even though its Motion for Reconsideration was
still pending resolution with the lower court.

II.

Whether or not the respondent Court of Appeals committed grave

abuse of discretion when it ruled that the private respondent had filed
its Notice of Appeal with the trial court within the reglementary
period.[36]

The Court first turns its attention to the primary issue for its
resolution: whether the Notice of Appeal filed by respondent MICI before
the RTC was filed out of time.

The period for filing a Notice of Appeal is set by Rule 41, Section
3 of the 1997 Rules of Court:
SEC. 3. Period of ordinary appeal. The appeal shall be taken
within fifteen (15) days from notice of the judgment or final order
appealed from. Where a record on appeal is required, the appellants
shall file a notice of appeal and a record on appeal within thirty (30)
days from notice of the judgment or final order. x x x.

The period of appeal shall be interrupted by a timely motion for

new trial or reconsideration. No motion for extension of time to file a
motion for new trial or reconsideration shall be allowed.

It is clear under the Rules that an appeal should be taken within 15

days from the notice of judgment or final order appealed from. [37] A final
judgment or order is one that finally disposes of a case, leaving nothing
more for the court to do with respect to it. It is an adjudication on the
merits which, considering the evidence presented at the trial, declares
categorically what the rights and obligations of the parties are; or it may
be an order or judgment that dismisses an action.[38]

Propitious to petitioners is Neypes v. Court of Appeals,[39] which

the Court promulgated on 14 September 2005, and wherein it laid down
the fresh period rule:

To standardize the appeal periods provided in the Rules and to

afford litigants fair opportunity to appeal their cases, the Court deems
it practical to allow a fresh period of 15 days within which to file the
notice of appeal in the Regional Trial Court, counted from receipt of
 the order dismissing a motion for a new trial or motion for
reconsideration.

Henceforth, this fresh period rule shall also apply to Rule 40

governing appeals from the Municipal Trial Courts to the Regional
Trial Courts; Rule 42 on petitions for review from the Regional
Trial Courts to the Court of Appeals; Rule 43 on appeals from
quasi-judicial agencies to the Court of Appeals and Rule 45 governing
appeals by certiorari to the Supreme Court. The new rule aims to
regiment or make the appeal period uniform, to be counted from
receipt of the order denying the motion for new trial, motion for
reconsideration (whether full or partial) or any final order or resolution.
(Emphases ours.)

The fresh period of 15 days becomes significant when a party opts

to file a motion for new trial or motion for reconsideration. In this manner,
the trial court which rendered the assailed decision is given another
opportunity to review the case and, in the process, minimize and/or
rectify any error of judgment.[40] With the advent of the fresh period rule,
parties who availed themselves of the remedy of motion for
reconsideration are now allowed to file a notice of appeal within fifteen
days from the denial of that motion.[41]

The Court has accentuated that the fresh period rule is not
inconsistent with Rule 41, Section 3 of the Rules of Court which states
that the appeal shall be taken within fifteen (15) days from notice of
judgment or final order appealed from. The use of the disjunctive word or
signifies disassociation and independence of one thing from another. It
should, as a rule, be construed in the sense which it ordinarily
implies.[42] Hence, the use of or in the above provision supposes that the
notice of appeal may be filed within 15 days from the notice of judgment
or within 15 days from notice of the final order in the case.

Applying the fresh period rule, the Court agrees with the Court of
Appeals and holds that respondent MICI seasonably filed its Notice of
Appeal with the RTC on 9 July 2001, just 12 days from 27 June 2001,
when it received the denial of its Motion for Reconsideration of the 15
June 2001 Resolution reinstating the 28 February 2000 Decision of the
RTC.

The fresh period rule may be applied to the case of respondent

MICI, although the events which transpired concerning its Notice of
Appeal took place in June and July 2001, inasmuch as rules of procedure
may be given retroactive effect on actions pending and undetermined at
the time of their passage. The Court notes that Neypes was promulgated
on 14 September 2005, while the instant Petition was still pending before
this Court.

Reference may be made to Republic v. Court of

Appeals,[43] involving the retroactive application of A.M. No. 00-2-03-SC
which provided that the 60-day period within which to file a petition
for certiorari shall be reckoned from receipt of the order denying the
motion for reconsideration. In said case, the Court declared that rules of
procedure may be given retroactive effect to actions pending and
undetermined at the time of their passage and this will not violate any
right of a person who may feel that he is adversely affected, inasmuch as
there is no vested rights in rules of procedure.

Hence, the fresh period rule laid down in Neypes was applied by
the Court in resolving the subsequent cases of Sumaway v. Urban Bank,
Inc.,[44] Elbia v. Ceniza,[45]First Aqua Sugar Traders, Inc. v. Bank of the
Philippine Islands,[46] even though the antecedent facts giving rise to said
cases transpired before the promulgation of Neypes.

In De los Santos v. Vda de Mangubat,[47] particularly, the Court

applied the fresh period rule, elucidating that procedural law refers to the
adjective law which prescribes rules and forms of procedure in order that
courts may be able to administer justice. Procedural laws do not come
within the legal conception of a retroactive law, or the general rule
against the retroactive operation of statutes. The fresh period rule is
irrefragably procedural, prescribing the manner in which the appropriate
period for appeal is to be computed or determined and, therefore, can be
made applicable to actions pending upon its effectivity without danger of
violating anyone elses rights.

Since the Court affirms the ruling of the Court of Appeals that respondent
MICI filed its Notice of Appeal with the RTC within the reglementary
period, the appropriate action, under ordinary circumstances, would be
for the Court to remand the case to the RTC so that the RTC could
approve the Notice of Appeal of respondent MICI and respondent MICI
could already file its appeal with the Court of Appeals.

However, considering that the case at bar has been pending for almost
sixteen years,[48] and the records of the same are already before this Court,
remand is no longer necessary.
Jurisprudence dictates that remand of a case to a lower court does not
follow if, in the interest of justice, the Supreme Court itself can resolve
the dispute based on the records before it. As a rule, remand is avoided in
the following instances: (a) where the ends of justice would not be
subserved by a remand; or (b) where public interest demands an early
disposition of the case; or (c) where the trial court has already received
all the evidence presented by both parties, and the Supreme Court is in a
position, based upon said evidence, to decide the case on its
merits.[49] In Lao v. People,[50] the Supreme Court, in consideration of the
years that it had taken for the controversy therein to reach it, concluded
that remand of the case to a lower court was no longer the more
expeditious and practical route to follow, and it then decided the said case
based on the evidentiary record before it.

The consistent stand of the Court has always been that a case should be
decided in its totality, resolving all interlocking issues in order to render
justice to all concerned and to end the litigation once and for all. Verily,
courts should always strive to settle the entire controversy in a single
proceeding, leaving no root or branch to bear the seed of future
litigation.[51] Where the public interest so demands, the court will broaden
its inquiry into a case and decide the same on the merits rather than
merely resolve the procedural question raised.[52] Such rule obtains in this
case.

The Court is convinced that the non-remanding of the case at bar is

absolutely justified. Petitioners have already suffered from the tragic loss
of a loved one, and must not be made to endure more pain and
uncertainty brought about by the continued pendency of their claims
against those liable. The case has been dragging on for almost 16 years
now without the petitioners having been fully compensated for their
loss. The Court cannot countenance such a glaring indifference to
petitioners cry for justice. To be sure, they deserve nothing less than full
compensation to give effect to their substantive rights.[53]

The complete records of the present case have been elevated to this
Court, and the pleadings and evidence therein could fully support its
factual adjudication. Indeed, after painstakingly going over the records,
the Court finds that the material and decisive facts are beyond dispute:
George was killed when he was hit by the truck driven by Willie, an
employee of Rhoda; and the truck is insured with respondent MICI. The
only issue left for the Court to resolve is the extent of the liability of
Rhoda and respondent MICI for Georges death and the appropriate
amount of the damages to be awarded to petitioners.
 The Court now turns to the issue of who is liable for damages for
the death of George.

Respondent MICI does not deny that it is the insurer of the

truck. Nevertheless, it asserts that its liability is limited, and it should not
be held solidarily liable with Rhoda for all the damages awarded to
petitioners.

A solidary or joint and several obligation is one in which each

debtor is liable for the entire obligation, and each creditor is entitled to
demand the whole obligation. In a joint obligation, each obligor answers
only for a part of the whole liability and to each obligee belongs only a
part of the correlative rights. Well-entrenched is the rule that solidary
obligation cannot lightly be inferred. There is solidary liability only when
the obligation expressly so states, when the law so provides or when the
nature of the obligation so requires.[54]

It is settled that where the insurance contract provides for indemnity

against liability to third persons, the liability of the insurer is direct and
such third persons can directly sue the insurer. The direct liability of the
insurer under indemnity contracts against third party liability does not
mean, however, that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault, since they are being held
liable under different obligations. The liability of the insured carrier or
vehicle owner is based on tort, in accordance with the provisions of the
Civil Code;[55] while that of the insurer arises from contract, particularly,
the insurance policy. The third-party liability of the insurer is only up to
the extent of the insurance policy and that required by law; and it cannot
be held solidarily liable for anything beyond that amount.[56] Any award
beyond the insurance coverage would already be the sole liability of the
insured and/or the other parties at fault.[57]

In Vda. de Maglana v. Consolacion,[58] it was ruled that an insurer in an

indemnity contract for third-party liability is directly liable to the injured
party up to the extent specified in the agreement, but it cannot be held
solidarily liable beyond that amount. According to respondent MICI, its
liability as insurer of Rhodas truck is limited. Following Vda. de
Maglana, petitioners would have had the option either (1) to claim the
amount awarded to them from respondent MICI, up to the extent of the
insurance coverage, and the balance from Rhoda; or (2) to enforce the
entire judgment against Rhoda, subject to reimbursement from
respondent MICI to the extent of the insurance coverage. The Court,
though, is precluded from applying its ruling in Vda. de Maglana by the
difference in one vital detail between the said case and the one at bar. The
insurer was able to sufficiently establish its limited liability in Vda. de
Maglana, while the same cannot be said for respondent MICI herein.

The Court highlights that in this case, the insurance policy between
Rhoda and respondent MICI, covering the truck involved in the accident
which killed George, was never presented. There is no means, therefore,
for this Court to ascertain the supposed limited liability of respondent
MICI under said policy. Without the presentation of the insurance policy,
the Court cannot determine the existence of any limitation on the liability
of respondent MICI under said policy, and the extent or amount of such
limitation.

It should be remembered that respondent MICI readily admits that it is

the insurer of the truck that hit and killed George, except that it insists
that its liability under the insurance policy is limited. As the party
asserting its limited liability, respondent MICI then has the burden of
evidence to establish its claim. In civil cases, the party that alleges a fact
has the burden of proving it. Burden of proof is the duty of a party to
present evidence on the facts in issue necessary to prove its claim or
defense by the amount of evidence required by law.[59] Regrettably,
respondent MICI failed to discharge this burden.[60] The Court cannot rely
on mere allegations of limited liability sans proof.

The failure of respondent MICI to present the insurance policy

which, understandably, is not in petitioners possession, but in the custody
and absolute control of respondent MICI as the insurer and/or Rhoda as
the insured gives rise to the presumption that its presentation is
prejudicial to the cause of respondent MICI.[61] When the evidence tends
to prove a material fact which imposes a liability on a party, and he has it
in his power to produce evidence which, from its very nature, must
overthrow the case made against him if it is not founded on fact, and he
refuses to produce such evidence, the presumption arises that the
evidence, if produced, would operate to his prejudice and support the
case of his adversary.[62]

Respondent MICI had all the opportunity to prove before the RTC
that its liability under the insurance policy it issued to Rhoda, was limited;
yet, respondent MICI failed to do so. The failure of respondent MICI to
rebut that which would have naturally invited an immediate, pervasive,
and stiff opposition from it created an adverse inference that either the
controverting evidence to be presented by respondent MICI would only
prejudice its case, or that the uncontroverted evidence of petitioners
indeed speaks of the truth. And such adverse inference, recognized and
adhered to by courts in judging the weight of evidence in all kinds of
proceedings, surely is not without basis its rationale and effect rest on
sound, logical and practical considerations, viz:

The presumption that a man will do that which tends to his obvious
advantage, if he possesses the means, supplies a most important test for
judging of the comparative weight of evidence x x x If, on the
supposition that a charge or claim is unfounded, the party against
whom it is made has evidence within his reach by which he may repel
that which is offered to his prejudice, his omission to do so supplies a
strong presumption that the charge or claim is well founded; it would
be contrary to every principle of reason, and to all experience of
human conduct, to form any other conclusion. (Starkie on Evidence, p.
846, Moore on Facts, Vol. I, p. 544)

xxxx

The ordinary rule is that one who has knowledge peculiarly within his
own control, and refuses to divulge it, cannot complain if the court puts
the most unfavorable construction upon his silence, and infers that a
disclosure would have shown the fact to be as claimed by the opposing
party." (Societe, etc., v. Allen, 90 Fed. Rep. 815, 817, 33 C.C.A. 282,
per Taft, C.J., Moore on Facts, Vol. I, p. 561).[63]

The inference still holds even if it be assumed, for argument's sake, that
the solidary liability of respondent MICI with Rhoda is improbable, for it
has likewise been said that:

Weak evidence becomes strong by the neglect of the party against

whom it is put in, in not showing by means within the easy control of
that party that the conclusion drawn from such evidence is untrue.
(Pittsburgh, etc., R. Co. v. Callaghan, 50 III. App. 676, 681, Moore on
Facts, Vol. I, p. 572).[64]

Given the admission of respondent MICI that it is the insurer of the

truck involved in the accident that killed George, and in the utter absence
of proof to establish both the existence and the extent/amount of the
alleged limited liability of respondent MICI as insurer, the Court could
only conclude that respondent MICI had agreed to fully indemnify
third-party liabilities. Consequently, there is no more difference in the
amounts of damages which petitioners can recover from Rhoda or
respondent MICI; petitioners can recover the said amounts in full from
either of them, thus, making their liabilities solidary or joint and several.
The Court now comes to the issue of the amounts of the damages
awarded.

In its Decision dated 22 February 2000, the RTC awarded petitioners

moral and actual damages, as well as funeral expenses and attorneys
fees. Subsequently, in its Order dated 24 January 2001, the RTC reduced
the amount of actual damages from P805,984.00 to P102,106.00, but
additionally awarded death indemnity in the amount of P50,000.00. Its
award of moral damages and funeral expenses as well as attorneys fees
remained constant in its 28 February 2000 decision and was carried over
to its 24 January 2001 Order.

The Court shall now proceed to scrutinize said award of damages.

As regards the award of actual damages, Article 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.

The RTC awarded P36,000.00 for burial expenses. The award

of P36,000.00 for burial expenses is duly supported by receipts
evidencing that petitioners did incur this expense. The petitioners held a
wake for two days at their residence and another two days at
the Loyola Memorial Park.[65] The amount covered the expenses by
petitioners for the wake, funeral and burial of George.[66]

As to compensation for loss of earning capacity, the RTC initially

awarded P805,984.00 in its 28 February 2000 Decision, which it later
reduced to P102,106.00 on 24 January 2001.

Article 2206 of the Civil Code provides that in addition to the indemnity
for death caused by a crime or quasi-delict, the defendant shall be liable
for the loss of the earning capacity of the deceased, and the indemnity
shall be paid to the heirs of the latter, x x x. Compensation of this nature
is awarded not for loss of earnings but for loss of capacity to earn
money. Hence, it is proper that compensation for loss of earning capacity
should be awarded to the petitioners in accordance with the formula
established in decided cases for computing net earning capacity, to wit:

The formula for the computation of unearned income is:

 Net Earning Capacity = life expectancy x (gross annual income
-reasonable and necessary living expenses).

Life expectancy is determined in accordance with the formula:

2 / 3 x [80 - age of deceased at the time of death][67]

Jurisprudence provides that the first factor, i.e., life expectancy, shall be
computed by applying the formula (2/3 x [80 - age at death]) adopted in
the American Expectancy Table of Mortality or the Actuarial of
Combined Experience Table of Mortality.

The second factor is computed by multiplying the life expectancy by the

net earnings of the deceased, i.e., the total earnings less expenses
necessary in the creation of such earnings or income and less living and
other incidental expenses. The loss is not equivalent to the entire earnings
of the deceased, but only such portion that he would have used to support
his dependents or heirs. Hence, the Court deducts from his gross earnings
the necessary expenses supposed to be used by the deceased for his own
needs. The Court explained in Villa Rey Transit v. Court of Appeals[68]:

[The award of damages for loss of earning capacity is]

concerned with the determination of the losses or
damages sustained by the private respondents, as
dependents and intestate heirs of the deceased, and that
said damages consist, not of the full amount of his
earnings, but of the support they received or would
have received from him had he not died in consequence
of the negligence of petitioner's agent. In fixing the
amount of that support, we must reckon with the
necessary expenses of his own living, which should be
deducted from his earnings. Thus, it has been
consistently held that earning capacity, as an element of
damages to one's estate for his death by wrongful act is
necessarily his net earning capacity or his capacity to
acquire money, less necessary expense for his own
living. Stated otherwise, the amount recoverable is not
the loss of the entire earning, but rather the loss of that
portion of the earnings which the beneficiary would
have received. In other words, only net earnings, and
not gross earnings are to be considered that is, the total
of the earnings less expenses necessary in the creation
of such earnings or income and less living and other
incidental expenses.
Applying the aforestated jurisprudential guidelines in the computation of
the amount of award for damages set out in Villa Rey, the Court computes
the award for the loss of Georges earning capacity as follows:

Life expectancy = 2/3 x [80 - age of deceased at the time of death]

2/3 x [80 56]
2/3 x [24]

FORMULA NET EARNING CAPACITY (NEC)

If:

Age at time of death of George Poe = 58[69]

Monthly Income at time of death = P6,946[70]
Gross Annual Income (GAI) = [(6,946) (12)] = P83,352
Reasonable/Necessary Living Expenses (R/NLE) = 50%[71] of GAI
= P41,676

NEC = [2/3 (80-58)] [83,352-41,676]

= [2/3 (22)] [41,676]
= [14.67] [41,676]
= P611,386.92

Therefore, Georges lost net earning capacity is equivalent to P611,386.92

The RTC awarded moral damages[72] in the amount of P100,000.00. With

respect to moral damages, the same are awarded under the following
circumstances:

The award of moral damages is aimed at a restoration, within the limits

of the possible, of the spiritual status quo ante. 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. The amount of the award bears no relation whatsoever with
the wealth or means of the offender.

In the instant case, petitioners testimonies reveal the intense

suffering which they continue to experience as a result of Georges
death.[73] It is not difficult to comprehend that the sudden and unexpected
loss of a husband and father would cause mental anguish and serious
anxiety in the wife and children he left behind. Moral damages in the
amount of P100,000.00 are proper for Georges death.[74]

The RTC also awarded P50,000.00 as death indemnity which the Court
shall not disturb. The award of P50,000.00 as death indemnity is in
accordance with current rulings of the Court.[75]

Finally, the RTC awarded attorneys fees to petitioners. Petitioners are

entitled to attorneys fees. Under Article 2008 of the Civil Code, 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.[76] In Metro Manila Transit Corporation v. Court of Appeals,[77] the
Court held that an award of P50,000.00 as attorneys fees was
reasonable. Hence, petitioners are entitled to attorneys fees in that
amount.[78]

WHEREFORE, premises considered, the instant Petition

is PARTIALLY GRANTED. While the Court AFFIRMS the Decision,
dated 26 June 2002, and Resolution, dated 29 November 2002, of the
Court of Appeals in CA-G.R. SP No. 67297, granting the Petition
for Certiorari of respondent Malayan Insurance Company, Inc., the Court,
nonetheless, RESOLVES, in consideration of the speedy administration
of justice, and the peculiar circumstances of the case, to give DUE
COURSE to the present Petition and decide the same on its merits.

Rhoda Santos and respondent Malayan Insurance Company, Inc. are

hereby ordered to pay jointly and severally the petitioners Heirs of
George Y. Poe the following:

(1) Funeral expenses P36,000.00;

(2) Actual damages for loss of earning capacity P611,386.92;
(3) Moral damages amounting to P100,000.00;
(4) Death indemnity P50,000.00; and
(5) Attorneys fees P50,000.00 plus P1,500.00 per court
appearance.

No costs.

SO ORDERED.
 [G.R. No. 134239. May 26, 2005]

REYNALDO VILLAFUERTE and PERLITA T.

VILLAFUERTE, petitioners, vs. HON. COURT OF
APPEALS, EDILBERTO DE MESA and GONZALO
DALEON, respondents.

DECISION
CHICO-NAZARIO, J.:

This is a petition for review on certiorari of the Decision of the[1]

Court of Appeals in CA-G.R. CV No. 41871 which affirmed, with

modification, the decision of the Regional Trial Court, Branch 55,
[2]

Lucena City, in Civil Case No. 90-11 entitled, Reynaldo C. Villafuerte

and Perlita Tan Villafuerte v. Edilberto De Mesa and Gonzalo Daleon.
The facts, as established by the Court of Appeals, follow:

Appelees the spouses Reynaldo C. Villafuerte and Perlita Tan-Villafuerte

operated a gasoline station known as Peewees Petron Powerhouse Service
Station and General Merchandise on the premises of three (3) adjoining lots
at the corner of Gomez Street and Quezon Avenue in Lucena City. One of
these lots, Lot No. 2948-A with an area of 575 square meters, is owned by
several persons, one of whom is appellant Edilberto de Mesa, while the
other lot, Lot 2948-B with an area of 290 square meters, is owned by
appellant Gonzalo Daleon and his brother Federico A. Daleon. The
remaining lot belongs to Mrs. Anicia Yap-Tan, mother of appellee Perlita
Tan-Villafuerte.

Appellants Edilberto de Mesa and Gonzalo Daleon acquired their respective

lots subject to the lease by Petrophil Corporation which had built thereon the
gasoline station being managed by the Villafuerte couple. When the lease of
Petrophil Corporation expired on December 31, 1988, the Villafuertes
obtained a new lease on Lot No. 2948-A from appellant Edilberto de Mesa
for a period expiring on December 31, 1989, thus:.

1 This lease will be for a period of one (1) year only, from January 1, 1989
and will terminate on the 31st of December 1989 at a monthly rental of
FOUR THOUSAND PESOS (P4,000.00). (Exhibit 1-A-1 De Mesa).
As regards Lot 2948-B of the Daleon brothers, the Villafuertes were not as
lucky. For, instead of obtaining a lease renewal, what they received were
demand letters from the brothers counsel ordering them to vacate the
premises. Instead of complying therewith, the Villafuertes simply ignored
the demand and continued operating the gas station (Exhibits 3-B, 3-C and
3-F, Daleon).

On May 9, 1989, in the Office of the Barangay Captain of Barangay Tres,

Lucena City, a complaint for ejectment was filed by Gonzalo Daleon against
the Villafuertes (Exhibit 6, Daleon). Evidently, no settlement was reached
thereat, as shown by a certification to file action issued by the lupon.

With their problem with the Daleon brothers far from over, the Villafuertes
were apt for another one; their lease contract with Edilberto de Mesa was
not renewed when it expired on December 31, 1989. Nonetheless, and
duplicating what they had done in the case of the property of the Daleon
brothers, the spouses continued to operate their gasoline station and other
businesses on the lot of de Mesa despite the latters demand to vacate.

What transpired next lays at the core of the instant controversy.

It appears that in the early morning of February 1, 1990, appellants

Edilberto de Mesa and Gonzalo Daleon, with the aid of several persons and
without the knowledge of the Villafuertes, caused the closure of the latters
gasoline station by constructing fences around it.

The following day February 2, 1990 the Villafuertes countered with a

complaint for damages with preliminary mandatory injunction against both
Edilberto de Mesa and Gonzalo Daleon. Docketed in the court below as
Civil Case No. 90-11, the complaint seeks vindication for the alleged
malicious and unlawful fencing of the plaintiffs business premises (Records,
pp. 1-6).

Invoking their status as owners of the withheld premises, the defendants

admitted in their respective answers having caused the fencing of the
plaintiffs gasoline station thereat but reasoned out that they did so on
account of the plaintiffs refusal to vacate the same despite demands.

After hearing the parties in connection with the plaintiffs application for a
writ of preliminary mandatory injunction, the lower court, in its order of
May 23, 1990, ruled that with the expiration of the lease on the defendants
property, the plaintiffs have no more right to stay thereon and, therefore,
cannot pretend to have a clear and unmistakable right to an injunctive writ
and accordingly denied their application therefore (Rec., p. 186). In a
subsequent order of July 30, 1990, the same court denied the Villafuertes
motion for reconsideration (Rec., p. 237).

Later, with leave of court, the Villafuertes amended their complaint to allege,
among others, that the complained acts of the defendants cost them the
following items of actual damages:

a) Daily Sales (4000-5000 lts.) at .35lt.

mark-up, P1,750 x 270 days P472,500.00

b) Storage Fee of POL (Petroleum, Oil &

Lubricants) Recom 4 at 5% for 100,000 lts.
= 5000 lts. X 3 quarters x P6.00/lt. 90,000.00

c) Tires, Batteries, Accessories (TBA) Gen.

Merchandise Sales, P50,000/mo. 20% mark-
Up = P10,000 x 9 months 90,000.00

d) Hauling of Petroleum products for Peewees

Petron Powerhouse, 2 trips weekly, P1,500
X 8 trips/mo. X 9 months 108,000.00

e) Hauling of Petroleum products for military

7 trips/qtr., P1,500/trip x 21 (3 qtrs.) 31,500.00

f) Balloon Business (Sunshine Balloons)

P50,000.00 capital, P6,000/mo. Income
TOTAL LOSS 200,000.00

g) Uncollected Debts 619,030.61

h) Uncollected Checks 37,449.05

i) Merchandise Inventory as of July 25, 1990,

P141,036.50 value, 50% damaged 70,518.25

j) Damaged Office Equipments 30,000.00

k) Stampitas (Religious Articles) and other

Hermana Fausta Memorial Foundation, Inc.
printed matters entrusted in my care,
 totally damaged by rain and termites 5,000.00

l) Products lost in 4 underground tanks 249,805.00

m) Interest payments to RCBC (Rizal Commercial

Banking Corporation) for additional loan
availed of to pay off products acquired on
credit from Petron Corp. but were held
inside gas station 172,490.53

TOTAL -- P2,176,293.44

(Rec., pp. 290, 300)

The amended complaint thus prayed for the following reliefs:

WHEREFORE, it is respectfully prayed of this Hon. Court that judgment be

rendered in favor of the plaintiffs:

A - Immediately ordering the issuance of a writ of preliminary mandatory

injunction against the defendants commanding them and any person acting
in their behalf to forthwith remove the fence they have constructed around
the premises in question, and after trial making the said injunction
permanent.

B - Ordering the defendants to pay jointly and severally the plaintiffs the
following:

1) Moral damages equivalent to not less than P200,000.00;

2) Exemplary damages in the amount of P50,000.00;

3) Attorneys fee in the amount of P60,000.00 plus twenty-five percent (25%)

of the amount of damages to which plaintiffs are entitled; and

4) Litigation expenses in this instance in the amount of P10,000.00

C - Requiring the defendants to pay jointly and severally actual damages

representing unrealized income and profits as well as losses referred to in
paragraphs 10 and 12 hereof in such amount as may be shown in evidence
during the hearing.

D - Granting the plaintiffs such other just and equitable remedies to which
they may be entitled under the law and equity. (Orig. Rec., pp. 292-293).
As later events disclosed, the defendants resumed possession of the premises
in question on January 25, 1991 (Rec., p. 333). Four (4) days later, they
obtained a judgment by compromise from the Municipal Trial Court in
Cities, Lucena City in connection with the suit for ejectment they earlier
filed thereat against Petrophil Corporation. In that judgment, Petrophil
bound itself to remove the materials and equipment related to the operation
of the gasoline station on the subject premises. (Rec., pp. 355-356).

After the parties herein had presented their respective evidence, the lower
court came out with the decision now under review. Dated November 13,
1990, the decision dispositively reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and

ordering the defendants Edliberto de Mesa and Gonzalo Daleon to pay,
jointly and severally, plaintiffs the following:

1. Actual damages in the total amount of TWO MILLION

ONE HUNDRED SEVENTY SIX THOUSAND AND TWO
HUNDRED NINETY THREE PESOS AND FORTY FOUR
CENTAVOS (P2,176,293.44);

2. Moral damages in the amount of P200,000.00;

3. Exemplary damages in the amount of P50,000.00;

4. P50,000.00, as and for attorneys fees; and

5. Costs of suit.

SO ORDERED (Rec., pp. 408-414). [3]

The trial court ruled that with the continued occupation by

petitioners of the two lots belonging to private respondents, despite
the expiration of the lease contracts over the same, petitioners had
become undesirable lessees. However, it was improper for private
[4]

respondents to resort to fencing their properties in order to remove

petitioners from the premises in the light of the clear provision of the
Civil Code on the matter, to wit:

Art. 536. In no case may possession be acquired through force or

intimidation as long as there is a possessor who objects thereto. He who
believes that he has an action or a right to deprive another of the holding of
a thing, must invoke the aid of the competent court, if the holder should
refuse to deliver the thing.

Having disregarded the plain requirement of the law, private

respondents were held accountable to petitioners for the various
damages prayed for by petitioners in their amended complaint.
In due time, private respondents filed their respective appeals
before the Court of Appeals which affirmed, with modification, the
decision of the trial court. The dispositive portion of the appellate
courts decision reads:

WHEREFORE, the decision appealed from is MODIFIED by holding the

appellants jointly and severally liable to the appellees for P50,000.00 as
exemplary damages and for P27,000.00 as actual damages, itemized as
follows:

1. detention of the records: P7,000.00;

2. detention of the merchandise: P10,000.00;
3. value of the damaged merchandise and religious items:
P5,000; and
4. detention of offices equipment: P5,000.00,

and by holding the appellees jointly and severally liable for rental to
appellants Edilberto de Mesa and Gonzalo Daleon in the amount of
P5,500.00 and P39,000.00, respectively.

The deficiency in the payment of the docket fees, to be computed by the

clerk of court of the lower court, shall constitute a lien on this judgment. [5]

In adjudging private respondents liable for damages, the Court of

Appeals substantially ruled that:
1. Private respondents could not invoke the doctrine of self-help
contained in Article 429 of the Civil Code reasoning that the doctrine
[6]

finds no application when occupation was effected through lawful

means such as in this case where petitioners possession of the lots
owned by private respondents was effected through lease
agreements;
2. Petitioners continued unauthorized occupation of private
respondents properties may have been illegal, however, it was
incumbent upon private respondents to abide by the express
provision of Article 536 of the Civil Code requiring recourse to the
proper court prior to ousting petitioners from their (private
respondents) lots;
3. On the matter of insufficient docket fees paid by petitioners
during the institution of this action, the Court of Appeals declared that
whatever deficiency there may be in the docket fees can be levied
from the amount that may be awarded the appellees (petitioners
herein) and that private respondents were already estopped from
[7]

assailing the jurisdiction of the trial court;

4. Private respondents could not invoke the principle of damnum
absque injuria as this doctrine only applies when the loss or damage
does not constitute a violation of a legal right or amounts to a legal
wrong and not to this case where private respondents clearly
[8]

violated the law by unilaterally displacing petitioners from the subject

premises;
5. On the issue of actual damages, the appellate court
substantially reduced the amount of actual damages awarded by the
court a quo upon the ground that petitioners failed to substantiate
their claims thereto except for the detention of petitioners records of
their receivables, various merchandise, damaged goods, religious
items, and office equipment;
6. As for the propriety of awarding moral damages to petitioners,
the Court of Appeals held that petitioners are not entitled to this form
of damage as this case does not fall within Article 2219 of the Civil
Code;
7. Although Article 2219 of the Civil Code encompasses incidents
which may fall within the purview of Article 21 of the Civil Code, the
latter, being a rule based on equity, necessitates the claimant to come
to court with clean hands which cannot be said of petitioners who
continued to occupy the lands belonging to private respondents
without the authority of a subsisting lease agreement;
8. Private respondents are nevertheless liable for exemplary
damages for having taken the law into their own hands by fencing the
premises of the Petron gasoline station operated by petitioners
instead of seeking redress from the proper court as mandated by
Article 536 of the Civil Code; and
9. Petitioners are liable to pay private respondents for the unpaid
rentals from the time the lease agreements over the subject
properties expired until 01 February 1990 when private respondents
constructed the fence.
Dissatisfied with the ruling of the Court of Appeals, petitioners are
now before us raising, in the main, the issue of whether the appellate
court erred in substantially reducing the amount of damages earlier
awarded to them by the trial court.
Petitioners insist that the appellate court resorted to assumptions,
inferences, surmises and conjectures in disallowing certain items of
actual damages like lost petroleum products valued at P249,805.00,
loss of value of merchandise detained for a quite a long time (sic) in
the fenced premises and uncollected debts as against the positive
testimony of petitioner Perlita Villafuerte which remained unrebutted
and uncontested even on appeal. They also allege that the list of
[9]

unrealized income, collectibles and damages prepared by petitioner

Perlita was based and ably supported by documents.
Petitioners also maintain that the Court of Appeals erred in finding
that they came to court with unclean hands, thus, depriving them of
entitlement to moral damages. According to petitioners, their
continued occupation of private respondents properties was based on
their belief that their lease contract with private respondent De Mesa
was modified and extended whereas private respondent Daleon had
verbally agreed to allow them to continue with their possession of his
lot for as long as the Petron Corporations equipment remain in the
premises.
Finally, petitioners argue that the trial court was correct in
awarding in their favor attorneys fees in the amount of P50,000.00 as
they were compelled to engage the services of counsel in order to
seek vindication from the arbitrary action of private respondents.
After a considered review of the records of this case, we resolve to
affirm, with modification, the decision of the Court of Appeals.
Both the trial court and the Court of Appeals concluded that the
lease contracts between petitioners and private respondents over the
latters respective lots had already expired. There was also a
congruence of findings that it was wrong for private respondents to
fence their properties thereby putting to a halt the operation of
petitioners gasoline station. To this, we agree.
Article 536 of the Civil Code previously quoted explicitly provides
for the proper recourse of one who claims to be entitled to the
possession of a thing. When private respondents personally took it
upon themselves to evict petitioners from their properties, which act
was in clear contravention of the law, they became liable for all the
necessary and natural consequences of [their] illegal act. [10]

As expected, petitioners instituted this action praying that private

respondents be held liable for actual damages, moral damages,
exemplary damages, attorneys fees, and costs of litigation. We shall
resolve their right to these damages in seriatim.
Actual or compensatory damages are those awarded in order to
compensate a party for an injury or loss he suffered. They arise out of
a sense of natural justice and are aimed at repairing the wrong
done. Except as provided by law or by stipulation, a party is entitled
[11]

to an adequate compensation only for such pecuniary loss as he has

duly proven. It is hornbook doctrine that to be able to recover actual
[12]

damages, the claimant bears the onus of presenting before the court
actual proof of the damages alleged to have been suffered, thus:

A party is entitled to an adequate compensation for such pecuniary loss

actually suffered by him as he has duly proved. Such damages, to be
recoverable, must not only be capable of proof, but must actually be proved
with a reasonable degree of certainty. We have emphasized that these
damages cannot be presumed and courts, in making an award must point out
specific facts which could afford a basis for measuring whatever
compensatory or actual damages are borne. [13]

We have exhaustively perused the records of this case and thus

conclude that petitioners have miserably failed to proffer evidence
capable of sustaining their plea for actual damages. We note that
when petitioner Perlita was directly examined with respect to her
unrealized income for the following matters, namely: daily sales of
[14]

various petroleum products; storage fee of RECOM IVs petroleum,

[15]

oil, and lubricants; sales of tires, batteries, accessories, and general

[16]

merchandise; hauling of petroleum products for Peewees Petron

[17]

Powerhouse by the gasoline tankers owned by petitioners; hauling [18]

of petroleum products for the military; and petitioner Perlitas balloon

[19]

business which she conducted within the premises of the fenced

gasoline station, she repeatedly testified that she arrived at these
[20]

claimed amounts based on the average of her sales for the month of
January 1990, the number of trips undertaken by their tankers, and
average volume of the gasoline deposit for RECOM IV. Her testimony
on these matters went as follows:
Atty. CAMALIGAN:
May I ask that this List of Unrealized Income, Collectibles and Damages
from Febrauary 1, 1990 to October 30, 1990 be marked as Exhibit AA.
...
Q: Will you explain to the court why this list you made is up to October 30,
1990?
A: I prepared this list until October 10, 1990 in preparation for our first
hearing sometime in November, sir.
Q: I am calling your attention to No. 1 which is I quote, Daily Sales (4,000 to
5,000 liters) at P0.035 per liter mark up P1,750.00 by 270 days
amounting to P472,500.00 will you explain to the court how you incurred
this damage?
(A): After the closure of our gasoline station that was February 1, 1990 and
then until September, 1990 is nine (9) months and that is 270 days. I
went thru my sales for January and the average sales (is) 4,000 to 5,000
liters and so for our daily sales of 4,000 to 5,000 liters sale at P0.35
centavos mark-up, I got P1,750.00 daily so that is times 270 days until
September 1990, the total is P472,500.00, sir.
COURT: That is gross?
A: Yes, your Honor.
COURT: What about the net income to be realized?
A: Your Honor, we will deduct from here the salaries and wages of the
gasoline boys and electric bill, maybe P0.25 centavos per liter.
COURT: Proceed.
Q: Is the mark-up of P0.35 centavos per liter thru (sic), irrespective of amount
of gasoline or value of gasoline per liter?
A: We have different kinds of petroleum products, extra, regular and diesel
and the average mark-up is thirty-five (35) centavos.
...
Q: Calling your attention to No. 2 in the list which refers to storage fee of
petroleum, oil and lubricant from RECOM IV amounting to a total of
ninety thousand pesos (P90,000.00) will you kindly explain how you
arrived at this amount?
A: The military, PC/INP RECOM IV which is stationed at Camp Nakar has
entered into an agreement with us to deposit their petroleum, oil and
lubricant for every quarter, sir.
Q: Under what condition was that deposit made for?
A: That they will be able to withdraw the said products for a certain storage
fee, sir, and the storage fee is 5% which would cover disposing the
products and also certain percent of evaporation.
COURT: Five percent of what?
A: Five percent of the number of liters deposited with us so that if they
deposited one hundred thousand (100,000) liters we are paid in terms of
gasoline also, five thousand (5,000) liters.
Q: What was the average volume of deposit made by the RECOM IV?
A: It is on a quarterly basis, that is one hundred thousand (100,000) liters
quarterly, sir.
Q: On item 3 referring to tires, batteries, accessories, general merchandise is
listed an amount of ninety thousand (P90,000.00) pesos as your losses,
will you please explain how you incurred such losses?
A: Aside from petroleum products we also sell accessories for the motoring
public and they are in kinds like tires, batteries and some additives, how
do you realize income out of this? (sic)
A: We have 20% mark-up on the merchandise and last January 1990 I
average fifty thousand (P50,000.00) pesos gross income on the general
merchandise so for 20% mark-up that is more or less ten thousand
(P10,000.00) pesos and for nine (9) months that is ninety thousand
(P90,000.00) pesos, sir.
Q: In item No. 4 appearing in your list you listed a total amount of one
hundred eight thousand (P108,000.00) pesos, for hauling of petroleum
products for Peewees Petron Powerhouse, will you explain to the court
this hauling?
A: My husband and I run a fleet of gasoline tankers and they are hauling
petroleum products for our gasoline stations and for the military
accounts. We average two (2) deliveries every week so this is already a
net of one thousand five hundred (P1,500.00) pesos per delivery. It is
two thousand eight hundred (P2,800.00) pesos per delivery and
deducting the salaries of the drivers, the fuel consumption and the
depreciation of the tankers, we incur a net of one thousand five hundred
(P1,500.00) pesos per trip. Every month we incur at least eight (8) trips
and that is one thousand five hundred (P1,500.00) pesos times eight (8)
trips times nine (9) months and I got one hundred eight thousand
(P108,000.00) pesos total.
Q: Do you own them?
A: Yes, sir.
Q: In item No. 6 you listed Balloon Business under Sunshine Balloon, you
have given a total amount of two hundred thousand (P200,000.00)
pesos as your losses here, will you please explain to the Court how you
incurred these losses?
...
A: Inside the gasoline station we also operate a balloon business and we
have invested fifty thousand capital on this balloon business. This
business has been thriving for several years and we usually incur six (6)
thousand monthly income from said business, sir. Now that the gasoline
station was closed with all the equipments of the balloon business inside
 also, we have totally lost the market for the balloon business and I feel
that two hundred thousand (P200,000.00) pesos would have to be paid
for the total loss of the business.[21]

Noticeably, petitioner Perlitas testimony was replete with claims

that her unrealized income, as far as these items were concerned,
were based on the average. Except, however, for the record of daily
petroleum sales for the month of January 1990, petitioners failed to
[22]

present any evidence that would sufficiently establish their mean

income from these business undertakings. In the absence of any
corroborative proof, this Court is not bound to award in petitioners
favor the actual damages for items a, b, c, d, e, and f of her alleged
unrealized income. Nor can we give premium on the summary of daily
petroleum sales for January 1990 prepared by petitioner Perlita as the
same is not supported by any competent evidence; at best, said
exhibit is self-serving.
Anent the actual damages claimed for the deterioration of the
items which remained inside petitioners office, petitioner Perlita
testified that when they were able to retrieve the merchandise from
the gasoline station, they noticed that most of them were already
defective and so they valued the damages thereto at seventy (70%)
[23]

of their total value. As for the items entrusted to her by the Hermana
Fausta Memorial Foundation of which she was the executive vice
president at that time, petitioner Perlita alleged that the amount of five
thousand pesos represents the production cost of these materials
which the foundation purportedly paid to Imprenta Lucentina. As
regards the amount of P30,000.00 sought as actual damages for the
damaged office equipment, petitioner Perlita stated before the trial
court that she arrived at this figure after computing the acquisition
costs of these equipment which she approximated to [24]

be P35,000.00.
Evidently, in establishing the amount of actual damages for the
merchandise inventory, office equipment, and materials owned by the
Hermana Fausta Memorial Foundation, petitioners relied solely on
their own assessment of the prices of these items as well as the
damage thereto purportedly occasioned by the fencing of the gasoline
station. This is clearly demonstrated by the inconsistent stance of
petitioner Pertlita with regard to the percentage of damaged
merchandise stored in the gasoline station, thus:
ATTY. CAMALIGAN:
 Q: I noticed that the total appearing on page 3 of your merchandize inventory
is one hundred forty one thousand thirty six pesos and fifty centavos
(P141,036.50) only while in your list, it is ninety eight thousand seven
hundred twenty five pesos and fifty five centavos (P98,725.55), will you
please explain the same?
WITNESS:
A: This list with the total amount of one hundred forty one thousand thirty six
pesos and fifty centavos (P141,036.50) represent the total value of all
the merchandize but then the reason why we have the ninety eight
thousand seven hundred twenty five pesos and fifty five centavos
(P98,725.55) figure is, this represents seventy percent (70%) of the total
amount because when we retrieved the merchandize, we noticed that
most of them are already defective, so we valued the damages only
seventy percent (70%) of the total value because some of them could
still be sold, sir.
ATTY. CAMALIGAN:
Q: I noticed there is a correction in Item No. 9 from ninety percent (90%) to
seventy percent (70%). When did you make that correction?
A: Only last December 30, 1990 after we have retrieved all the merchandize.
I prepared this list on October 31, 1990 not realizing the extent of the
real damages to the merchandize but when we retrieved them last
December 29 and upon inspection, most of the motor oil have already
leaked because of the plastics that were exposed to sun and rain, so we
changed the estimate to seventy percent (70%), sir.[25]

Such arbitrary estimations run afoul with our consistent

pronouncement that actual or compensatory damages cannot be
presumed but must be proved with reasonable degree of certainty. A [26]

court cannot simply rely on speculation, conjecture or guesswork as

to the fact and amount of damages, but is required to depend upon
competent proof that the claimant had suffered and on evidence of
the actual amount thereof. Failing in this regard, we resolve to delete
[27]

the award of actual damages rendered by the Court of Appeals with

respect to these items.
Similarly, we rule that petitioners are not entitled to the total
amount of the 17 checks issued in their favor by their customers and
to the amount of uncollected debts owed to them by their patrons.
Petitioners maintain that their customers were used to coming to their
gasoline station in order to settle their obligations but were prevented
from doing after the 01 February 1990 incident. They therefore would
like to hold private respondents accountable for these receivables.
This, we can not grant.
 The records indicate that petitioners filed before the trial court a
motion to allow them to enter the gasoline station subject of this
dispute in order to make an inventory of their property that were
locked inside and to remove those they needed for their personal
use. Among the items removed from the gasoline station were the
[28]

receipts evidencing petitioners receivables from their customers as [29]

well as the 17 uncollected checks. Obviously, after the

[30]

court-approved ocular inspection conducted on 24 July 1990 and 25

July 1990, petitioners were already in possession of the evidences of
credit of their customers. There was nothing, not even the closure of
their gasoline station, which stood in the way of petitioners exerting
earnest efforts in going after their debtors.
Petitioners likewise seek to be compensated for the value of the
petroleum products allegedly lost from the four underground tanks
between the period 01 February 1990 until 25 July 1990 when an
ocular inspection was conducted within the disputed property.
According to petitioners, after they compared the volume of the tanks
contents as of the evening of 31 January 1990 with the dipstick
reading on 25 July 1990, they discovered that they had lost thousands
of liters of petroleum products. On this point, we quote with approval
the conclusion of the Court of Appeals, to wit:

The appellees failed to adduce convincing evidence that appellants are the
[31]

ones responsible for the loss of the petroleum products in the four (4)
underground tanks (item 1, paragraph 10 of Amended Complaint). Although
the premises which were fenced by the appellants adjoin the lot of Perlitas
[32]

mother and are even secured by appellees guard, the appellees did not
present anyone to testify on the fact of loss of said gasoline products.
Instead, they chose to rely on Perlitas bare assertion that she
lost P249,805.00 in terms of petroleum products that allegedly disappeared.
The sheer volume of the missing fuel makes it difficult for the pilferer to
commit the deed without attracting attention. An unsubstantiated claim of
loss, more so of such a dimension, cannot merit an award therefor.
[33]

Finally, with respect to the interest payments to the Rizal

Commercial Banking Corporation (RCBC), petitioners maintain that
because of the fencing of their gasoline station on 01 February 1990,
they were forced to obtain a loan from RCBC in order to pay off their
obligations to different suppliers. This contention was effectively
refuted by petitioner Perlita herself when, during her re-direct
examination, she admitted that the loan granted by the RCBC was
intended for all the businesses that she and her husband, petitioner
Reynaldo, were maintaining. It would, therefore, be iniquitous to
[34]

charge private respondents for the interest payments for this loan the
proceeds of which were utilized to finance petitioners various
businesses and not solely the settlement of petitioners obligations to
the suppliers of Peewees Petron Powerhouse. In the absence of
actual proof as to how much of the RCBC loan was really used to pay
the creditors of the closed gasoline station, this Court can not affirm
petitioners right to be compensated for the amount of interest
payments they have made to the RCBC.
We find, however, that an award of temperate damages to
petitioners is in order. In lieu of actual damages, temperate damages,
which are more than nominal but less than compensatory damages,
may be awarded where the court finds that some pecuniary loss had
been suffered by the claimant but its amount cannot be proved with
certainty. Undoubtedly, pecuniary loss had been inflicted upon
petitioners in this case, however, due to the insufficiency of evidence
before us, we cannot place its amount with certainty. In this regard,
we find the amount of P50,000.00 to be sufficient.
Petitioners also assail the removal by the Court of Appeals of the
moral damages previously ordered by the trial court. They argue that
contrary to the findings of the appellate court, they came to court with
clean hands as they believed that the lease contract with private
respondent De Mesa was modified and extended. At the same time,
they contend that they had a verbal understanding with private
respondent Daleon wherein the latter permitted them to remain in his
lot for as long as Petron Corporation was not removing its equipment.
Further, petitioners contend that under Article 2219 of the Civil Code,
this Court had awarded moral damages in instances where the
claimants were victims of capricious, wanton, oppressive, malicious,
and arbitrary acts such as petitioners in this case. On this issue, we
agree in the findings of the Court of Appeals that:

The Court must have to disallow the lower courts award of moral damages.
The concept of moral damages, as announced in Article 2217 of the Civil
Code, is designed to compensate the complainant for his physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation and similar injury occasioned by
the defendants wrongful act or omission. Article 2219 of the same Code
specifies the cases where moral damages may be awarded, to wit:
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.

Noticeably, none of the foregoing instances has any relevant bearing to the
case at bench. While Article 2219 comprehends the situation in Article 21 of
the Code, whereunder [A]ny person who willfully 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 damages, the appellees cannot
benefit from it. The right to recover moral damages under Article 21 is
based on equity, and those who come to court to demand equity must come
with clean hands (Garciano v. Court of Appeals, 212 SCRA 436 citing
Padilla, CIVIL CODE ANNOTATED, Vol. 1, 1975 Ed., p. 87). The
appellees knew that their lease had expired. Yet, despite such awareness,
they persisted in their unauthorized occupancy of appellants property. Being
partly responsible for their present predicament which is very much within
their power to avoid, appellees cannot receive compensation for whatever
mental anguish or suffering they went thru. [35]

Similarly, we uphold the award of P50,000.00 as exemplary

damages in order to deter similarly minded individuals from pursuing
the course of action taken by private respondents. The law on this
matter is clear: (h)e who believes himself entitled to deprive another
of the possession of a thing, so long as the possessor refuses delivery,
must request the assistance of the proper authority. Petitioners [36]
arbitrary conduct of fencing their properties under the claim that they
own the same brazenly violates the law and circumvents the proper
procedure which should be obtained before the court.
This Court likewise adopts the conclusion reached by the Court of
Appeals that petitioners do not deserve the award of attorneys fees
for it was precisely their unfounded insistence to stay on private
respondents properties that precipitated this suit.
WHEREFORE, the Decision of the Court of Appeals dated 31
March 1998, which modified the Decision dated 13 November 1992 of
the Regional Trial Court, Branch 55, Lucena City, and its Resolution
of 17 June 1993 denying reconsideration are hereby MODIFIED as
follows:
1. The award of Twenty-Seven Thousand Pesos (P27,000.00) as
actual damages in favor of petitioners Reynaldo and Perlita Villafuerte
is deleted; and
2. Private respondents Edilberto De Mesa and Gonzalo Daleon
are held jointly and severally liable to pay petitioners the amount of
Fifty Thousand Pesos (P50,000.00) as temperate damages.
The remainder of the same Decision and Resolution of the Court
of Appeals are hereby AFFIRMED. No costs.
SO ORDERED.
G.R. No. 186976, December 07, 2016

PRYCE PROPERTIES CORPORATION, Petitioner, v. SPOUSES SOTERO OCTOBRE, JR. AND

HENRISSA A. OCTOBRE, AND CHINA BANKING CORPORATION, Respondents.

DECISION

JARDELEZA, J.:

The primary question is whether a breach of contract automatically triggers the award of actual or
compensatory damages.

On July 22, 1997, respondent Spouses Sotero Octobre, Jr. and Henrissa A. Octobre (Spouses Octobre)
signed a Reservation Agreement with petitioner Pryce Properties Corporation (Pryce) for the purchase of
two lots with a total of 742 square meters located in Puerto Heights Village, Puerto Heights, Cagayan de
Oro City.1 The parties subsequently executed a Contract to Sell over the lot for the price of
P2,897,510.00 on January 7, 1998.2

On February 4, 2004, Pryce issued a certification that Spouses Octobre had fully paid the purchase price
and amortization interests, as well as the transfer fees and other charges in relation to the property,
amounting to a total of P4,292,297.92.3 But Pryce had yet to deliver the certificates of title, which
prompted Spouses Octobre to formally demand its delivery. Despite repeated demands, Pryce failed to
comply.4 Thus, on May 18, 2004, Spouses Octobre filed a complaint before the Housing and Land Use
Regulatory Board (HLURB), Regional Office No. 10 for specific performance, revocation of certificate of
registration, refund of payments, damages and attorney's fees.5

It appears that the reason why Pryce was unable to deliver the titles to Spouses Octobre is because it had
previously transferred custody of the titles, along with others pertaining to the same development
project, to China Banking Corporation (China Bank) as part of the Deed of Assignment6 executed on June
27, 1996.7 Under this deed, Pryce agreed to assign and transfer its accounts receivables, in the form of
contracts to sell, in the Puerto Heights development project to China Bank as security for the P200 Million
credit facility extended by the latter. Pryce obligated itself to deliver to China Bank the "contracts to sell
and the corresponding owner's duplicate copies of the transfer certificates of title, tax declaration, real
estate tax receipts and all other documents and papers"8 relating to the assigned receivables until such
receivables are paid or repurchased by Pryce. The titles to the lots purchased by Spouses Octobre were
among those held in custody by China Bank.9 When Pryce defaulted in its loan obligations to China Bank
sometime in May 2002, China Bank refused to return the titles to Pryce.10 For this reason, China Bank
was also impleaded in the HLURB complaint.

The HLURB Arbiter rendered a Decision11 dated March 31, 2005 finding that Spouses Octobre had no
cause of action against China Bank and rescinding the contract between Pryce and Spouses Octobre. It
ordered Pryce to refund the payments made by the spouses with legal interest and to pay the latter
compensatory damages amounting to P30,000.00, attorney's fees and costs of suit.12

On appeal, the HLURB Board of Commissioners modified the Decision by ordering Pryce to pay the
redemption value to China Bank so that the latter may release the titles covering the lots purchased by
Spouses Octobre. In default thereof, Pryce shall refund the payments with legal interest. The HLURB
Board upheld the grant of compensatory damages, attorney's fees and costs to Spouses Octobre.13 Pryce
moved for reconsideration and to stay the proceedings on account of Pryce's ongoing corporate
rehabilitation.14 The HLURB Board, however, denied Pryce's motion considering that the stay order of the
rehabilitation court had already been reversed by the Court of Appeals. 15

Thereafter, Pryce appealed the case to the Office of the President, which affirmed16 in full the HLURB
Board's Decision. Undeterred, Pryce elevated the case to the Court of Appeals which denied the petition
for review and affirmed the Office of the President's Decision. The Court of Appeals found that Pryce
acted in bad faith because it "did not disclose [that the titles were in the custody of China Bank] to
respondents Spouses Octobre until the latter demanded delivery of the titles." 17 The Court of Appeals
held that Pryce's contractual breach justified the award of compensatory damages as well as the
payment of attorney's fees and costs of suit.18

Pryce is now before this Court primarily arguing that the Court of Appeals erred in upholding the award
of compensatory damages because Spouses Octobre failed to present competent proof of the actual
amount of loss.19 It also questions the award of attorney's fees and litigation costs because there was
allegedly no finding of bad faith.20 Additionally, as side issues, Pryce questions the Court of Appeals'
finding that the stay order had been reversed and its decision to uphold the finding by the HLURB Board
and Office of the President that the subject properties were mortgaged to China Bank.21

In response, Spouses Octobre maintain that the award of compensatory damages, attorney's fees and
costs were proper because they were forced to litigate to enforce their contractual right as a result of
Pryce's breach.22 With respect to the stay order, Spouses Octobre cite this Court's February 4, 2008
Decision in G.R. No. 17230223 which affirmed the appellate court's reversal of the stay order. Finally,
Spouses Octobre note that the characterization of the Deed of Assignment as a mortgage came from
Pryce's own appeal memorandum filed with the HLURB Board, and that, in any event, whether it is an
assignment or mortgage, the decisive fact is that the titles were delivered by Pryce to China Bank. 24

In its comment, China Bank insists that Pryce only has itself to blame for failing to comply with its
obligation to remit the payments received from the various contracts to sell, including its obligation to
Spouses Octobre. Under the Deed of Assignment, China Bank is entitled to hold custody of the titles
surrendered by Pryce until the assigned receivables are paid or repurchased by Pryce, which to date the
latter has failed to do.25

II

Article 2199 of the Civil Code defines actual or compensatory damages:26

 Art. 2199. Except as provided by law or by stipulation, one
is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved. Such
compensation is referred to as actual or compensatory damages.
(Emphasis supplied.)

To be entitled to compensatory damages, the amount of loss must therefore be capable of proof and
must be actually proven with a reasonable degree of certainty, premised upon competent proof or the
best evidence obtainable. The burden of proof of the damage suffered is imposed on the party claiming
the same, who should adduce the best evidence available in support thereof.27 Its award must be based
on the evidence presented, not on the personal knowledge of the court; and certainly not on flimsy,
remote, speculative and non-substantial proof.28

It is clear that the amount paid by Spouses Octobre to Pryce as purchase price for the lots has been
adequately proved. There is no dispute that Spouses Octobre are entitled to such amount with legal
interest. The issue being raised by Pryce is only with respect to the P30,000.00 awarded as
compensatory damages.29

The records of this case are bereft of any evidentiary basis for the award of P30,000.00 as compensatory
damages. When the HLURB Arbiter initially awarded the amount, it merely mentioned that "[Spouses
Octobre] are entitled to compensatory damages, which is just and equitable in the circumstances, even
against an obligor in good faith since said damages are the natural and probable consequences of the
contractual breach committed."30 On the other hand, the Court of Appeals justified the award of
compensatory damages by stating that "it is undisputed that petitioner Pryce committed breach of
contract in failing to deliver the titles to respondents [Spouses] Octobre which necessitated the award of
compensatory damages."31 In their comment, Spouses Octobre emphasized that they were "forced to
litigate and seek the intervention of the courts because of Pryce's failure to comply with its contractual
and legal obligation"32 without so much as mentioning any proof that would tend to prove any pecuniary
loss they suffered.

In the absence of adequate proof, compensatory damages should not have been awarded. Nonetheless,
we find that nominal damages, in lieu of compensatory damages, are proper in this case. Under Article
2221, nominal damages may be awarded in order that the plaintiff’s right, 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. Nominal damages are "recoverable where a legal right is technically
violated and must be vindicated against an invasion that has produced no actual present loss of any kind
or where there has been a breach of contract and no substantial injury or actual damages whatsoever
have been or can be shown."33 So long as there is a violation of the right of the plaintiff—whether based
on law, contract, or other sources of obligations34—an award of nominal damages is proper.35 Proof of
bad faith is not required.36 The HLURB Arbiter and the Court of Appeals appear to have confused nominal
damages with compensatory damages, since their justifications more closely fit the former.

It is undisputed that Pryce failed to deliver the titles to the lots subject of the Contract to Sell even as
Spouses Octobre had already fully settled the purchase price. Its inability to deliver the titles despite
repeated demands undoubtedly constitutes a violation of Spouses Octobre's right under their contract.
That Pryce had transferred custody of the titles to China Bank pursuant to a Deed of Assignment is
irrelevant, considering that Spouses Octobre were not privy to such agreement.

In fine, contractual breach is sufficient to justify an award for nominal damages but not compensatory
damages.

III

Pryce questions the award of attorney's fees and costs of suit because no exemplary damages were
awarded. This contention, however, is clearly unmeritorious because under Article 2208,37 the award of
exemplary damages is just one of 11 instances where attorney's fees and expenses of litigation are
recoverable.

Article 2208(2) allows the award of attorney's fees when the defendant's act or omission has compelled
the plaintiff to litigate with third persons or to incur expenses to protect his interest. The Court has
interpreted that this provision requires a showing of bad faith and not mere erroneous conviction of the
righteousness of a defendant's cause.38 In this case, the Court of Appeals found that Pryce acted in bad
faith when it did not disclose to Spouses Octobre the fact that the certificates of title to the properties
purchased were in the custody of China Bank until Spouses Octobre had fully paid the price and had
demanded delivery of the titles. We agree with this finding and therefore sustain the award of attorney's
fees and costs of suit in favor of Spouses Octobre.

IV

The other side issues raised by Pryce shall be disposed of swiftly since they have no substantial bearing
on the merits of this case. As admitted by Pryce itself, "it is not the entire Decision that is being
assailed"39 but only the portion regarding the award of compensatory damages, attorney's fees and costs
of suit.

When the stay order being invoked by Pryce was reversed and set aside at the first instance by the Court
of Appeals in CA-G.R. SP No. 88479, that stay order was automatically deemed vacated.40 By reversing
the stay order of the rehabilitation court, the Court of Appeals effectively enjoined the execution of such
order as allowed by the 2000 Interim Rules of Procedure on Corporate Rehabilitation41 (which was then
in effect when Pryce filed its petition for rehabilitation in 2004). We affirmed the Court of Appeals'
decision to set aside the stay order in the Decision dated February 4, 200842 and Resolution dated June
16, 2008.43 Although we later reconsidered the Decision on February 18, 2014,44 the same does not
affect the validity of the proceedings already conducted before the HLURB, Office of the President, and
Court of Appeals during the intermediate period that the stay order was vacated. Neither does it affect
our resolution of this petition for review because under the Financial Rehabilitation and Insolvency Act of
201045 (FRIA), the stay order shall not apply to cases already pending appeal in the Supreme
Court.46 Section 146 of the FRIA expressly allows the application of its provisions to pending
rehabilitation cases, except to the extent that their application would not be feasible or would work
injustice.47

The characterization of the Deed of Assignment between Pryce and China Bank as either an assignment
of receivables or a mortgage of real property is irrelevant to Pryce's obligation to Spouses Octobre. The
principal reason why Pryce raises this argument is to elude the applicability of Section 18 of Presidential
Decree No. 957.48 But Spouses Octobre's claim is precisely premised on its contract with Pryce, not this
specific provision of law. Hence, even if the provision is inapplicable, Pryce's contractual liability to deliver
the titles to Spouses Octobre remains.

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in
CA-G.R. SP N9. 103615 are MODIFIED in that nominal damages in the amount of P30,000.00 are
awarded in lieu of compensatory damages.

SO ORDERED.

G.R. No. 182201, November 14, 2016

UNIVERSAL INTERNATIONAL INVESTMENT (BVI) LIMITED, Petitioner, v. RAY BURTON

DEVELOPMENT CORPORATION, Respondent.

G.R. No. 185815, November 14, 2016

UNIVERSAL INTERNATIONAL INVESTMENT (BVI) LIMITED, Petitioner, v. RAY BURTON

DEVELOPMENT CORPORATION, Respondent.

DECISION

SERENO, C.J.:

At bench is a review of the damage claims for contractual breach sought by petitioner Universal
International Investment (BVI) Limited (Universal) against respondent Ray Burton Development
Corporation (RBDC). In G.R. No. 185815, Universal contests the Court of Appeals (CA) Decision and
Resolution rejecting its demand for damages against RBDC.1 Petitioner seeks damages for non-delivery
of the properties it had purchased from respondent and the titles thereto. In G.R. No. 182201, Universal
assails the CA Decision and Resolution, which affirmed the discharge of one of respondent's attached
properties meant to secure petitioner's claims for damages.2

FACTUAL ANTECEDENTS

RBDC owned and developed Elizabeth Place, a condominium located at H.V. De la Costa St., Salcedo
Village, Makati City. On 18 October 1996, respondent and petitioner entered into separate Contracts to
Sell3 covering the purchase of 10 condominium units and 10 parking slots in the building. In February
1999, petitioner paid respondent the full purchase price of these properties amounting to
P52,836,781.50.4

Universal issued a letter dated 23 August 2000 to RBDC demanding the cancellation of the sales
transaction after the latter failed to deliver possession of the properties and reneged on its obligation to
transfer the Condominium Certificates of Title (CCTs) to petitioner's name.5 On 6 August 2001,
respondent sent a letter to Universal informing the latter that the construction of the subject properties
had been completed.6 Several demand letters followed.7

RBDC ultimately failed to satisfy the demand of Universal to deliver the properties. Thereafter, petitioner
discovered that the mother title to the lot of Elizabeth Place had been mortgaged to China Banking
Corporation (China Bank) since 31 July 1991.8 Petitioner found that a Mortgage Clearance from the
Housing and Land Use Regulatory Board (HLURB) had been issued on 17 October 1996 9 and the
securities foreclosed by China Bank on 18 May 2001.10

PROCEEDINGS BEFORE THE HLURB

On 29 May 2002, Universal filed with the Expanded National Capital Region Field Office (ENCRFO) of the
HLURB a Complaint for Specific Performance or Rescission of Contract and Damages.11 To secure its
claims, petitioner moved for the issuance of a writ of preliminary attachment against the properties of
RBDC. Universal imputed fraud to respondent for concealing the mortgage with China Bank. On 3 June
2002, a Writ of Attachment was issued by the ENCRFO.12

Universal sought the delivery of (1) the condominium units and (2) their CCTs. In the event that delivery
were to be proven impossible, it prayed for the rescission of the Contracts to Sell with a refund of the
purchase price plus the penalty interest stipulated under Section 6 thereof. The contracts provide for a
1.5% monthly interest on the total purchase price, computed from the date of cancellation of the sale
until full refund of the payments.

RBDC countered13 that Universal could not rightly demand delivery, for the latter had yet to pay transfer
charges under the Contracts to Sell. In the alternative, respondent claimed that it had already delivered
the properties when it sent a letter to petitioner on 6 August 2001.

As regards the CCTs, RBDC argued that petitioner should demand these from China Bank. The CA
summarized that contention of respondent in this wise:14

Moreover, RBDC claims that it was impeded from releasing the

titles of Elizabeth Place to the deserving buyers because
Chinabank had illegally foreclosed the mortgage over
Elizabeth Place; that in fact, RBDC had instituted a case for
delivery of titles before the HLURB entitled "Ray Burton
Development Corp. versus China Banking Corp." docketed as
HLURB REM 121401-11726; and that in a Judgment Upon
Compromise dated August 1, 2002, HLURB directed Chinabank
"to release the titles of all units in Elizabeth Place that
are now fully paid and those that will in the future be fully
 paid to their respective buyers irrespective of who the
seller is." RBDC asserted that Universal should instead
direct its claim for delivery of the titles of the properties
to Chinabank. (Emphasis supplied)

On 25 March 2003, the ENCRFO issued a Decision15 in favor of Universal. The former found that petitioner
had completed the payment of the total contract price of P52,836,781.50 in February 1999. At that point,
said the ENCRFO, the reciprocal obligation of respondent to deliver possession of the properties and their
CCTs became due and demandable.

On 12 May 2003, RBDC filed a Petition for Review16 before the Board of Commissioners (BOC) of the
HLURB. Respondent also moved for the partial discharge17 of one of its attached properties: the lot in
Lapu-Lapu City with Transfer Certificate of Title (TCT) No. T-29726.

RBDC reiterated its arguments below. Universal likewise echoed its earlier assertions, but additionally
claimed that respondent's Petition for Review lacked the appeal bond needed to perfect an appeal. 18

The BOC did not dismiss respondent's Petition for Review. Instead, on 10 October 2003, it issued an
Order19 directing the remand of the case to the ENCRFO so that the latter could include China Bank in the
proceedings. Universal moved for reconsideration, but to no avail.20

The BOC did not rule upon the motion of RBDC for the discharge of its Lapu-Lapu City property. Therefore,
respondents filed a second Motion for Partial Discharge.21 In its Resolution dated 29 June 2004, the BOC
allowed the discharge of the Lapu-Lapu City property owned by respondent, since the latter was willing
to put up a counterbond.22

PROCEEDINGS BEFORE THE OP

Universal successfully appealed its case before the Office of the President (OP).23 In its Decision dated 29
October 2004,24 the OP reversed the ruling of the BOC and held that Universal had a right to rescind the
Contracts to Sell, as well as to refund the purchase price of the properties with the liquidated damages
specified in Section 6 of the contracts. Nonetheless, the OP maintained the validity of the discharge of the
Lapu-Lapu City property.25

PROCEEDINGS BEFORE THE CA

Universal assailed the discharge of the Lapu-Lapu City property via a Petition for Certiorari under Rule 65
of the Rules of Court in CA-G.R. SP No. 89578. 26 In its Decision dated 25 June 2007 and Resolution dated
14 March 2008, the CA dismissed the action for lack of merit. Anent the main controversy involving the
non-delivery of the condominium units and parking slots, RBDC filed a Petition for Review 27 under Rule
43 of the Rules of Court in CA-G.R. SP No. 89468. In both proceedings, the parties repeated their
arguments a quo.

During the pendency of the case before the CA, Universal manifested28that China Bank had
released the subject properties, and that petitioner had already obtained their CCTs on 5
January 2005.

On account of this supervening event, RBDC moved that this case be considered moot and academic.29

Universal responded that its acquisition of the condominium units from China Bank resulted only in the
partial satisfaction of the former's claims against RBDC. Petitioner claimed before the CA that respondent
must still pay for the damages specified in Section 6 of the Contracts to Sell on account of the latter's
delayed delivery of the properties. Universal also claimed compensation for property losses amounting to
P19,646,483.72, supposedly to cover the depreciation costs and expenses it had incurred for the release
of the properties from China Bank.

In its Decision dated 31 July 2007, which was maintained in its Resolution dated II December 2008, the
CA wholly denied Universal's entreaty for damages.
 PROCEEDINGS BEFORE THIS COURT

The consolidated Petitions for Review on Certiorari filed by Universal under Rule 45 of the Rules of Court,
docketed as G.R. Nos. 182201 and 185815, collectively raise three points.30

First, Universal contends that the CA gravely erred when the latter sustained the OP's discharge of the
Lapu-Lapu City property, notwithstanding the irregularities in the proceedings below.

Second, Universal argues that because RBDC failed to attach an appeal bond when the latter elevated
the ENCRFO Decision to the BOC, that ruling had become final and executory and can no longer be
reviewed by the BOC, the OP, the CA, or this Court.

Third, petitioner claims that the CA gravely erred in refusing to award damages and property losses.
Petitioner seeks damages on account of the contractual breaches of respondent consisting of the latter's
failure to deliver the properties and to transfer their CCTs to the name of Universal. Petitioner also
narrates that RBDC concealed the mortgage of the properties to China Bank.

RBDC stands by the validity of the partial discharge of its Lapu-Lapu City property. In the main, it denies
committing any breach of contract against Universal. Absent any dereliction on its part, respondent
claims that petitioner should not be awarded damages.31

ISSUES

Given the developments in this case, this Court adjudges that the main issues to be resolved are as
follows:

1. Whether the CA incorrectly affirmed the discharge of the Lapu-Lapu City property of RBDC

2. Whether the CA gravely erred in denying the demand of petitioner for the liquidated damages
specified in Section 6 of the Contracts to Sell

3. Whether the CA committed a grievous error in not granting the claims of petitioner for losses
amounting to P19,646,483.72

4. Whether petitioner is entitled to damages on account of the contractual breaches committed by

respondent

RULING OF THE COURT

At the outset, this Court outrightly rejects the argument of Universal regarding the failure of RBDC to
attach an appeal bond when the latter elevated the ENCRFO Decision to the BOC for being moot and
academic. To recall, the appealed ENCRFO Decision required RBDC to deliver the purchased properties
and pay damages to Universal; and if that delivery was no longer possible, to refund the purchase price
plus interests thereon.

The properties and the titles thereto were finally delivered to Universal on 5 January 2005. Hence, its
only existing claim in this case is for damages, which an appeal bond does not secure under Section 3 (c),
Rule XII of the 1996 HLURB Rules of Procedure.32 Since interests, damages, and attorney's fees need not
be covered by an appeal bond, that controversy has come to an end with no practical and effective relief
to be given to petitioner.33

The Discharge of the Lapu-Lapu

City Property

Universal highlights the irregularities that supposedly attended the discharge of the Lapu-Lapu City
property owned by RBDC. First, the BOC Order dated 10 October 2003, which did not rule upon the issue
of the discharge, was improvidently modified by its Resolution dated 29 June 2004. The Order was
modified upon respondent's filing of a second Motion for Partial Discharge, instead of a proper Motion for
Reconsideration. Second, since the BOC had directed the remand of the case to the ENCRFO, the former
lost the jurisdiction to order the discharge. Third, the discharge transpired without notice and hearing.
On the first infirmity, we hold that the CA did not exceed its jurisdiction when it sustained the BOC
Resolution dated 29 June 2004 granting the discharge, even if not through a motion for reconsideration
but via a second Motion for Partial Discharge. The second Motion for Partial Discharge may very well take
the place of a motion for reconsideration, considering that it also sought the reconsideration of the BOC's
failure to resolve the first Motion for Partial Discharge. It is basic that the caption should not be the
governing factor, but rather the allegations contained in the motion or pleading, that should determine
the nature of the action.34

As regards the second and the third irregularities, this Court finds no justification for the exercise of its
discretionary power of appellate review. The CA, which heard the issues under the framework of a special
civil action for certiorari, has thoroughly explained the purported irregularities. We quote with approval
the following excerpt from the assailed CA Decision:35

It is absurd to assume that the ENCRFO, a subordinate of the

HLURB Board of Commissioners, is the only agency that can
discharge the writ of attachment it previously issued. As the
Board is the reviewing body of the entire HLURB, it definitely
has the power to overturn, revise or modify the ruling handed
down by its subordinate. To rule otherwise would render the
appeal before the Board nugatory and irrelevant.

xxxx

As for the alleged lack of hearing, petitioner's filing of

an Opposition to respondent's motion for partial discharge
before the HLURB Board sufficiently satisfies said
requirement. x x x.

Universal's Claim for Liquidated

Damages under Section 6 of the
Contracts to Sell

Proceeding to the main controversy of these consolidated cases, Universal asserts that because RBDC
failed to transfer possession of the properties, and their CCTs, petitioner-buyer is entitled to damages by
way of the interest specified in Section 6 of the Contracts to Sell, viz:

SECTION 6. BREACH AND/OR VIOLATIONS OF THE CONTRACT.

This agreement shall be deemed cancelled, at the option of

the BUYER, in the event that SELLER, for the reasons of force
majeure, decide not to continue with the Project or the
Project has been substantially delayed. In such a case, the
BUYER shall be entitled to refund all the payments made
with interest at one-and-a-half (1 ½) percent per month on
the amount paid computed from the date of cancellation until
the payments have been fully refunded. Substantial delay is
defined as six (6) months from date of estimated date of
completion. The parties agree that the estimated date of
completion shall be December 31, 1998. (Emphasis supplied)
RBDC counters that it cannot be considered in breach of the agreement, since Universal failed to pay the
transfer charges. The CA agreed with respondent's reasoning and thus rejected petitioner's demand for
liquidated damages. This Court concurs with the CA's rejection of liquidated damages, but for a different
reason.

If the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control.36 In this case, the very words of Section 6 of the Contracts
to Sell refer only to situations of (1) force majeure or (2) substantial delay in the condominium project,
Elizabeth Place.

Universal is not alleging either of these two circumstances. Rather, it is claiming damages for RBDC's
failure to deliver possession of the condominium units, parking slots, and their CCTs. Hence, Section 6 of
the Contracts to Sell is clearly inapplicable to petitioner's cause of action.

The Demand of Universal to Recover

Losses amounting toP19,646,483.72

Universal reiterates its claims for actual damages based on the losses it suffered amounting to
P19,646,483.72. This amount represents the depreciation between the P57,146,483.72 purchase
price of the properties in 1996 and the P37,500,000 market value of the properties appraised at the
time that petitioner obtained the titles from China Bank in 2005.37

Petitioner computes that the purchase price in 1996 totals P57,146,483.72, which is the summation of
the following amounts: P52,836,781.50 total contract price; P770,613.68 condominium dues,
P368,881.63 real estate taxes, and the P3,170,206.91 expenses paid to China Bank for the release of the
properties. In effect, petitioner seeks to recover the depreciation costs and the additional sums it paid to
obtain the release of the properties from China Bank. For lack of legal basis, the CA entirely rejected
petitioner's claims for losses.

Universal now seeks refuge under Article 2200 of the Civil Code to justify its claim for damages:

ARTICLE 2200. Indemnification for damages shall comprehend

not only the value of the loss suffered, but also that of the
profits which the obligee failed to obtain.

To adjudicate petitioner's claims, this Court looks into the fundamental elements in recovering damages.
In MEA Builders Inc. v. Court of Appeals,38 We defined damages as follows:

In legal contemplation, the term "damages" is the sum of money

which the law awards or imposes as a pecuniary compensation,
a recompense or satisfaction for an injury done or a wrong
sustained as a consequence either of a breach of a contractual
obligation or a tortuous act.

Based on the above definition, in order to recover damages, the claimant must prove (1) an injury or a
wrong sustained (2) as a consequence of a breach of contract or tort and (3) caused by the party
chargeable with a wrong.39 As Universal claims actual damages, it is only entitled to such pecuniary loss
as it has duly proved.40

Losses Sustained by Universal

Petitioner cites Article 2200 of the Civil Code to support its claim for losses equivalent to a
P19,646,483.72 reduction in the market value of the condominium units. This provision speaks of
indemnification for lost profits that would have been obtained by the claimant if not for the injury caused
by the erring party.41 In the present case, however, Universal does not even allege that it is marketing
the properties for profit, either by lease or by sale. Thus, Article 2200 cannot serve as the proper basis
for recovering the value of the condominium units.
In the alternative, assuming that the condominium units were utilized for profit, this Court finds no iota
of evidence as to the amount of profits that Universal would have earned from the properties. To justify
a grant of compensatory damages, it is necessary that the actual amount of loss to be proved with a
reasonable degree of certainty, premised upon competent proof and the best evidence obtainable by the
injured party.42

We cannot consider as unearned profits the P19,646,483.72 difference between the total contract price
and the present market value of the properties. That conclusion presupposes that Universal has (1)
successfully marketed the properties (2) at a favorable retail price that would allow it to recover its
original investment. In National Power Corp. v. Philipp Brothers Oceanic, Inc.,43 this Court explained that
in order to recover actual damages, the alleged unearned profits must not be conjectural or based on
contingent transactions. Speculative damages are too remote to be included in an accurate estimate of
damages.44

Breach of Contract by RBDC

Both parties entered into a contract to sell, not a contract of sale. In the former agreement, ownership is
reserved by the vendor.45 Upon full payment of the purchase price, the resulting duties of RBDC as
vendor are found in Section 3 of the subject agreement, viz:

SECTION 3. TITLE AND OWNERSHIP OF UNIT.

a) Upon full payment of the BUYER of the above purchase price,

including any and all payments as provided herein, and upon
full compliance by the BUYER of all his obligation as
contained in this contract, the SELLER shall deliver to the
BUYER a Deed of Absolute Sale conveying its rights,
interests and title to the UNIT and the appurtenant undivided
interest in the common areas of the Project, and
the corresponding Condominium Certificate of Title. The
BUYER shall give the SELLER reasonable time from date of
completion of the Project to secure the title to the UNIT.
A copy of the Deed of Absolute Sale is attached as Annex A.
x x x. (Emphasis supplied)

RBDC only has two obligations specified by Section 3: (1) to deliver deeds of absolute sale; and (2) to
deliver the corresponding CCTs. Contrary to the demands of petitioner, respondent did not have any
contractual obligation to surrender possession of the properties. Neither did the latter have to cause the
transfer of the CCTs to petitioner's name.

In Chua v. Court of Appeals,46 we explained the nature and the incidents of a contract to sell as follows:

In a contract to sell, the obligation of the seller to sell

becomes demandable only upon the happening of the suspensive
condition. In this case, the suspensive condition is the full
payment of the purchase price by Chua. Such full payment gives
rise to Chua's right to demand the execution of the contract
of sale.
 It is only upon the existence of the contract of sale that
the seller becomes obligated to transfer the ownership of the
thing sold to the buyer.

xxxx

In the sale of real property, the seller is not obligated

to transfer in the name of the buyer a new certificate of
title, but rather to transfer ownership of the real property.
There is a difference between transfer of the certificate of
title in the name of the buyer, and transfer of ownership to
the buyer. The buyer may become the owner of the real property
even if the certificate of title is still registered in the
name of the seller. (Emphasis supplied)

Universal does not base its claim for damages on grounds supported by the Contracts to Sell. Instead, it
argues that respondent's failure to transfer the CCTs and convey possession of the properties caused the
depreciation of their market value. Hence, this Court rules that petitioner's premise for its recovery of
depreciation losses is misplaced.47

Proximate Cause of Universal's

Losses

The act or omission of respondent must have been the proximate cause, as distinguished from the
remote cause, of the loss sustained by the claimant.48 Proximate cause - determined by a mixed
consideration of logic, common sense, policy, and precedent49 - is that cause which, in natural and
continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without
which the result would not have occurred.50

Applying that definition to the case at bar, Universal must demonstrate that the breaches of RBDC caused
the depreciation of the condominium units; or conversely, that had respondent performed its contractual
obligations, the properties would not have diminished in value.

Universal does not specify how RBDC's non-delivery of the properties resulted in the depreciation of their
value. Neither does petitioner prove that had it possessed the properties, it could have avoided their
decline in the real estate market. At most, it has only been able to show that with the passage of time,
its P57,146,483.72 investment in 1996 was reduced to P37,500,000 in 2005. Therefore, considering the
dearth of proof of causality in this case, this Court cannot justly exact the supposed P19,646,483.72
depreciated value of the 1 0 condominium units and 10 parking slots from RBDC.

Recovery from RBDC of Sums Paid

by Universal to China Bank

As mentioned above, Universal seeks to recover from RBDC the additional sums paid by the former to
obtain the release of the properties from China Bank. Respondent counters that it should not be made to
pay the P770,613.68 condominium dues, P368,881.63 real estate taxes, and P3,170,206.91 expenses,
given that China Bank was the one obliged by the HLURB to release the condominium units.

We agree with RBDC. Respondent correctly argues that it is not chargeable for the alleged expense items.
Clearly - and logically - the HLURB did not require any additional payment for the fully paid buyers of the
condominium units. Hence, Universal should not have paid any additional amount to China Bank. In the
final Judgment Upon Compromise dated 1 August 2002, the HLURB directed the bank to release the titles
to all the units without qualification:51
 The affidavits of undertaking of the mortgagee bank are
requirements in the issuance of a clearance to mortgage as
provided for under Section 18 of Presidential Decree No. 957
for the protection of the buyers.

It is clear from the affidavits that the mortgagee bank

undertook to cancel/release the mortgage to fully paid units
notwithstanding the nonpayment of the total mortgage loan
incurred by the mortgagor. The mortgagee bank has to abide
by this undertaking.

Moreover, Section 25 of Presidential Decree No. 957

substantially provides that the titles to fully paid
condominium units should be secured and delivered to the
buyers.

Therefore, the China Banking Corporation should release the

titles to all fully paid condominium units to the buyers
whether they are its buyers or the buyers of Ray Burton
Development Corporation or Mercantile Investment Company,
Inc.

Given that the sums expended by Universal should not have been incurred in the first place, this Court
finds no just reason for petitioner to demand the payment of the expenses, association dues, and realty
taxes from RBDC. Notably, as regards the payment of association dues and realty taxes, the Contracts to
Sell provide that these shall not be shouldered by respondent seller.52

Universal's Entitlement to Damages

on Account of RBDC's Breaches

As discussed. respondent had two obligations specified in Section 3 of the Contracts to Sell: ( 1) to deliver
the deeds of absolute sale; and (2) to give the corresponding CCTs. RBDC admittedly failed to perform
these obligations, but invoked the excuse that Universal had defaulted on the payment of transfer
charges under Section 5(a) of the Contracts to Sell. The provision reads as follows:53

SECTION 5. TAXES ASSESSMENTS AND EXPENSES.

a) Documentary stamp taxes, registration fees, taxes and

assessments on transfer of real properties and other
necessary and incidental expenses and all other forms of
taxes as imposed by the government related to the acquisition
of the property as well as other expenses that may be
incurred in connection with the execution of the Absolute
Deed of Sale and the conveyance/transfer of Title to the
BUYER, shall be for the sole account and responsibility of
the BUYER.
 In the event the SELLER agrees to handle the registration
of the Deed of Sale and effect title transfer in the name of
the BUYER, the amount of taxes, fees, and expenses covering
the same shall be paid by the BUYER to the SELLER within five
(5) days from receipt of the Notice of Completion and Delivery
of the Unit issued by the SELLER. (Emphasis supplied)

The excuse given by RBDC deserves scant consideration. In order that the debtor may be held to be in
default, the following requisite conditions must be present: (1) the obligation is demandable and already
liquidated; (2) the debtor delays performance of the obligation; and (3) the creditor requires the
performance judicially or extrajudicially.54

Nowhere in the records does this Court find a demand from RBDC for Universal to pay any sum under the
above provision. None of the letters of respondent to petitioner resembles a notice requiring the latter to
tender any payment for government charges and expenses connected with the execution of the Deed of
Absolute Sale or the transfer of titles. Moreover, there is no liquidated demand to speak of, as there is no
itemized final computation.55 All in all, this Court does not consider Universal to have defaulted on the
payment of transfer charges.

Section 5(a) must be construed as a whole. Its first paragraph refers to the payment for (1)
government-imposed taxes, fees, and expenses related to the acquisition of the property; and (2)
expenses that may be incurred in connection with the execution of the Deeds of Absolute Sale and the
conveyance or transfer of titles to the buyer.

The second paragraph of Section 5 specifies that in the event the seller handles the registration of the
Deed of Absolute Sale and effects title transfer in the name of the buyer, then that is the time that the
buyer would have to give the seller the payment for those transactions. Specifically, the buyer must
tender payment within five days from receipt of the seller's notice of completion and delivery of the unit.

We appreciate that the charges under Section 5(a) are sums to be expended for the titling of the
properties. However, the obligation to pay these charges specifically to the seller - arises only "in the
event" that the latter elects to handle the titling of the properties. In this case, RBDC has not averred that
it has undertaken that responsibility. Consequently, Universal cannot be obliged to pay the transfer
charges to respondent. RBDC cannot demand performance by Universal without offering to comply with
its own prestation.56

RBDC is then left with no just reason not to perform its obligations to Universal. As early as February
1999, respondent should have (1) executed deeds of absolute sale; and (2) given the CCTs of the
properties to petitioner. RBDC has not at all complied with its duties despite the fact that Universal has
already fully paid the purchase price of the properties.

Temperate Damages in lieu of Actual

Damages

As explained above, Universal failed to prove its claims for actual damages, both as regards the
liquidated damages under Section 6 of the Contracts to Sell and the alleged losses amounting to
P19,646,483.72.

Nonetheless, petitioner may still be awarded damages in the concept of temperate or moderate damages.
Temperate damages may be recovered when the court finds that some pecuniary loss has been suffered
but the amount cannot, from the nature of the case, be proven with certainty.57 In this case, there is no
doubt that Universal sustained pecuniary loss, albeit difficult to quantify, arising from RBDC's failure to
execute deeds of absolute sale and to deliver the CCTs of the properties.

Had RBDC fulfilled these obligations, its transaction with Universal under the Contracts to Sell would have
been complete.58 After an absolute deed of sale has been signed by the parties, notarized and hence,
turned into a public instrument, then the delivery of the real property is deemed made by the seller to the
buyer.59 Consequently, the buyer would have right away enjoyed the possession of the realties. Likewise,
the titles thereto would have permitted the use of the properties as collateral for further investments.
Universal lost all of these opportunities after RBDC failed to perform the latter's duties as a seller.

Hence, this Court is empowered to calculate moderate damages, rather than let the aggrieved party
suffer without redress from RBDC's wrongful act.60

The calculation of temperate damages is usually left to the sound discretion of the courts.61 We observe
the limit that in giving recompense, the amount must be reasonable, bearing in mind that the same
should be more than nominal, but less than compensatory.62 In jurisprudence, this Court has pegged
temperate damages to an amount equivalent to a certain percentage of the actual damages claimed by
the injured party.63

The plight of the petitioner in Pacific Basin Securities Co., Inc. v. Oriental Petroleum64 is parallel to that
of Universal. In that case, the petitioner was also not given transfer documents for the properties it had
purchased, and the respondent unjustifiably refused to record the transfer of the P17,727,000 worth of
shares purchased by the former. As a result, the petitioner therein was prevented from reselling the
subject shares in the stock market. For that dereliction, this Court awarded the petitioner therein P1
million for temperate damages equivalent to 5% of the actual damages claimed.

Anent the failure to deliver the titles to a purchased property, Government Service Insurance System v.
Spouses Labung-Deang65 is instructive. Similar to petitioners herein, Spouses Labung-Deang were
deprived by the bank of copies of the title to the property that they had purchased. Consequently, the
spouses failed to mortgage it as security for a P50,000 loan that they could have utilized to renovate their
house. As recompense, this Court awarded them P20,000 temperate damages equivalent to 40% of the
amount of their alleged injury.

Aside from those two analogous cases, this Court has reviewed other cases involving the award of
temperate damages for breaches of contract. We have considered the: (1) investment to be lost by the
injured party;66 (2) duration of suffering of the injured party;67 and (3) urgent action undertaken by the
party in breach to remedy the situation.68 Thus, we take into account the following: (1) in 1999,
Universal invested P52,836,781.50 for 10 condominium units and 10 parking slots of Elizabeth Place in
Makati City; (2) Universal asked RBDC about the monthly rental rates of each of the properties, which
turned out be in the range of P20,000 to P48,000;69 (3) for six years, petitioner had no titles to or
possession of the properties; and (4) RBDC could have easily executed deeds of absolute sale as the
templates of these contracts had already been attached to the Contracts to Sell.70

Having laid down all the circumstances obtaining in this case, this Court is of the view that an award for
temperate damages equivalent to 15% of the P52,836,781.50 purchase value of the properties, or
P7,925,517.23, is just and reasonable.

Exemplary Damages and Attorney's

Fees

Since petitioner is entitled to temperate damages, then the courts may also examine the propriety of
imposing exemplary damages on respondent.71 Exemplary damages are corrective damages imposed by
way of example or correction for the public good.72 The grant thereof is intended to serve as a deterrent
to or negative incentive for curbing socially deleterious actions. 73 Relevant to this case, this Court
highlights that the State has an avowed policy to protect innocent buyers in real estate transactions. 74

Article 2232 of the Civil Code of the Philippines provides that in contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner. In this case, we find that respondent indeed acted in that manner when, despite demand for and
full payment of the properties,75 it refused to execute deeds of absolute sale and release the CCTs to
petitioner without any sound basis.76 As already discussed, Universal's nonpayment of transfer charges
does not even serve as a potent excuse for RBDC's refusal to execute deeds of absolute sale and to
deliver the titles of the purchased properties.

Moreover, there was no impediment to RBDC's issuance of deeds of absolute sale. As the owner, it could
have still sold the properties even if it mortgaged them to China Bank.77 As for the CCTs, respondent
need not cause their transfer to the name of petitioners. RBDC could have simply turned them over to
Universal in 1999, two years prior the foreclosure of the securities by China Bank in 2001. To make
matters worse, respondent did not categorically deny that it had failed to disclose to petitioner that the
lot of Elizabeth Place had been mortgaged to China Bank prior the execution of the Contracts to
Sell.78 This Court holds that the totality of these circumstances justify the imposition of exemplary
damages on RBDC.

In Cantemprate v. CRS Realty Development Corporation,79 which is fairly akin to the case at bar, the
developer did not deliver the titles to the buyers of the fully paid properties. For failing to comply with its
unequivocal duty, this Court affirmed the HLURB's award of P30,000 exemplary damages and P20,000
attorney's fees to each of the buyers. Considering that ruling vis-a-vis the dereliction of RBDC in the
present case, which also involves the violation of a straightforward obligation to execute the deeds of
absolute sale and to deliver the CCTs for the 1 0 condominium units and 10 parking slots, an award of
P300,000 as exemplary damages is justified to set an example.

Given the award of exemplary damages, this Court likewise finds it just and equitable under the
circumstances to award P200,000 as attorney's fees.80 In addition, all damages awarded shall earn
interest at the rate of 6% per annum from the date of finality of this judgment until full payment.

WHEREFORE, premises considered, in G.R. No. 182201, the Court of Appeals Decision dated 25 June
2007 and Resolution dated 14 March 2008 in CA-G.R. SP No. 89578 are AFFIRMED. In G.R. No. 185815,
the Court of Appeals Decision dated 31 July 2007 and Resolution dated 11 December 2008 in CA-G.R. SP
No. 89468 are AFFIRMED with the MODIFICATION that P7,925,517.23 as temperate damages,
P300,000 as exemplary damages, and P200,000 as attorney's fees are awarded to petitioner Universal
International Investment (BVI) Limited. All damages awarded shall earn interest at the rate of 6% per
annum from the date of finality of this judgment until full payment.

SO ORDERED.

G.R. No. 185765, September 28, 2016

PHILIPPINE ECONOMIC ZONE AUTHORITY, Petitioner, v. PILHINO SALES

CORPORATION, Respondent.

DECISION

LEONEN, J.:

Although the provisions of a contract are legally null and void, the stipulated method of computing
liquidated damages may be accepted as evidence of the intent of the parties. The provisions, therefore,
can be basis for finding a factual anchor for liquidated damages. The liable party may nevertheless
present better evidence to establish a more accurate basis for awarding damages. In this case, the
respondent failed to do so.

This resolves a Petition for Review on Certiorari1 praying that the assailed May 2, 2008 Decision2 and
November 25, 2008 Resolution3 of the Court of Appeals in CA G.R. CV No. 86406 be reversed and set
aside and that the Decision4 dated November 2, 2005 of Branch 108 of the Regional Trial Court of Pasay
City in Civil Case No. 00-0343 be reinstated.

The Regional Trial Court's November 2, 2005 Decision ruled in favor of petitioner Philippine Economic
Zone Authority, which, as plaintiff, brought an action for rescission of contract and damages against the
defendant, now respondent Pilhino Sales Corporation (Pilhino).5 chanroble slaw

The assailed Court of Appeals Decision partly granted Pilhino's appeal by reducing the amount of
liquidated damages due from it to the Philippine Economic Zone Authority, and by deleting the forfeiture
of its performance bond.6 The assailed Court of Appeals Resolution denied the Philippine Economic Zone
Authority's Motion for Reconsideration.7 chanrobleslaw

The facts are not disputed, and all that is in issue is the consequence of Pilhino's contractual breach.

On October 4, 1997, the Philippine Economic Zone Authority published an invitation to bid in the Business
Daily for its acquisition of two (2) brand new fire truck units "with a capacity of 4,000-5,000 liters [of]
water and 500-1,000 liters [of chemical foam,] with complete accessories."8 chanrobleslaw

Three (3) companies participated in the bidding: Starbilt Enterprise, Inc., Shurway Industries, Inc., and
Pilhino.9 Pilhino secured the contract for the acquisition of the fire trucks.10 The contract price was
initially at P3,000,000.00 per truck, but this was reduced after negotiation to P2,900,000.00 per
truck.11
chanroble slaw

The contract awarded to Pilhino stipulated that Pilhino was to deliver to the Philippine Economic Zone
Authority two (2) FF3HP brand fire trucks within 45 days of receipt of a purchase order from the Philippine
Economic Zone Authority.12 A further stipulation stated that "[i]n case of fail[u]re to deliver the . . . good
on the date specified . . . , the Supplier agree[s] to pay penalty at the rate of 1/10 of 1% of the total
contract price for each days [sic] commencing on the first day after the date stipulated above." 13 chanroble slaw

The Philippine Economic Zone Authority furnished Pilhino with a purchase order dated November 6,
1997.14 Pilhino failed to deliver the trucks as it had committed.15 This prompted the Philippine Economic
Zone Authority to make formal demands on Pilhino on July 27, 1998 16 and on February 23, 1999.17 As
Pilhino still failed to comply, the Philippine Economic Zone Authority filed before the Regional Trial Court
of Pasay City a Complaint18 for rescission of contract and damages. This was docketed as Civil Case No.
00-0343 and raffled to Branch 108.19 chanrobleslaw

In its defense, Pilhino claimed that there was no starting date from which its obligation to deliver could
be reckoned, considering that the Complaint supposedly failed to allege acceptance by Pilhino of the
purchase order.20 Pilhino suggested that there was not even a meeting of minds between it and the
Philippine Economic Zone Authority.21 chanroble slaw

In its November 2, 2005 Decision,22 the Regional Trial Court ruled for the Philippine Economic Zone
Authority. The dispositive portion of the Decision reads: ChanRoblesVi rtua lawlib rary

WHEREFORE, judgment is hereby rendered in favor of the

plaintiff and against the defendant ordering the latter to:

1. Pay the plaintiff in liquidated damages a[t] the rate

of 1/10 of 1% of the total contract price of Php
5,800,000.00 for each day of delay commencing from June
19, 1998.

2. Pay the plaintiff exemplary damages in the amount of

Php 100,00[0].00.

3. That the contract be declared rescinded and the

performance bond posted by the defendant be forfeited
in favor of the plaintiff.

4. For defendant to pay the cost of the suit.

SO ORDERED.23 chanrobl esvirt uallaw librar y

Pilhino then appealed before the Court of Appeals.

In its assailed May 2, 2008 Decision,24 the Court of Appeals partly granted Pilhino's appeal by deleting the
forfeiture of Pilhino's performance bond and pegging the liquidated damages due from it to the Philippine
Economic Zone Authority in the amount of P1,400,000.00.

The Court of Appeals debunked Pilhino's claim that there was no meeting of minds. It emphasized that
Pilhino "manifested its acquiescence . . . [to] the Purchase Order . . . when it submitted to [the Philippine
Economic Zone Authority] a Performance Bond dated 02 June 1999 and Indemnity Agreement dated 09
June 1998 duly signed by its Vice President."25 It added that in a subsequent letter dated March 29,
cralawred

199926 "signed by [Pilhino's] Hino Division Manager Edgar R. Santiago and noted by VP-Operations
Roberto R. Garcia, [Pilhino] admitted that it can no longer meet the requirements regarding the
specification on the two (2) units of fire truck[s]."27 chanrobleslaw
In this March 29, 1999 letter, Pilhino not only acknowledged its inability to meet its obligations but also
proposed a modified arrangement with the Philippine Economic Zone Authority: ChanRoblesVirtualawl ibra ry

[P]lease allow us to submit our new proposal for your

consideration (please see attached specifications). Our
price for this new specification if P3,600,000.00/unit.
However, we are willing to shoulder the difference between
the original price of P2,900,000.00/unit and P3,600,000.00
in lieu of the penalty. May we also request your good office
to stop the accumulation of the penalty [.]28 chanrobl esvirt uallaw librar y

In calibrating the amount of liquidated damages, the Court of Appeals cited Articles 122929 and 222730 of
the Civil Code. It reasoned that through its March 29, 1999 letter, Pilhino made an attempt at rectification
or mitigation:ChanRobles Vi rtua lawlib rary

In the instant case, we consider the supervening reality that

after appellant's failure to deliver to appellee the two (2)
brand new units of fire trucks in accordance with the
specifications previously agreed upon, appellant
nevertheless tried to remedy the situation by offering to
appellee new specifications at P3,600,000.00 per unit; and
expressed willingness to shoulder the difference between the
original price (based on the contract) of P2,900,000.00 per
unit and the price corresponding to the new specifications.
Further, it is undisputed that appellee has not paid any
amount to appellant in connection with said undelivered two
(2) brand new units of fire trucks. We thus equitably reduce
said liquidated damages to P1,400,000.00, which is the
difference between the contract price of P5,800,000.00 and
P7,200,000.00 based on the new specifications for two (2) new
units of fire trucks.31 chanrobl esvirt uallaw librar y

The Philippine Economic Zone Authority moved for reconsideration of the modifications to the Regional
Trial Court's award. As this Motion was denied in the Court of Appeals' assailed November 25, 2008
Resolution,32 the Philippine Economic Zone Authority filed the present Petition.

Petitioner asks for the reinstatement of the Regional Trial Court's award asserting that it already suffered
damage when respondent Pilhino Sales Corporation failed to deliver the trucks on time;33that the
contractually stipulated penalty of 1/10 of 1% of the contract price for every day of delay was neither
unreasonable34 nor contrary to law, morals, or public order;35 that the stipulation on liquidated damages
was freely entered into by it and respondent;36 and that the Court of Appeals' computation had no basis
in fact and law.37 Regarding respondent's supposed attempt at mitigation, petitioner notes that by the
time the offer was made, the Complaint for rescission and damages had already been filed 38 and was,
therefore, inconsequential and hardly a remedy.

Commenting on petitioner's Petition,39 respondent raises the question of: ChanRoblesVi rtua lawlib rary

Whether or not a contract can be rescinded and declared void

ab initio, and then thus rescinded, can a stipulation for
liquidated damages or penalty contained in that very same
 contract be given separate life, force and effect, that is,
separate and distinct from the rescinded and voided contract
itself?40
chanrobl esvirt uallaw librar y

Therefore, respondent suggests that with the rescission of its contract with petitioner must have come
the negation of the contractual stipulation on liquidated damages and the obliteration of its liability for
such liquidated damages.41 chanrobles law

We resolve the twin issues of:

First, the propriety of an award based on contractually stipulated liquidated damages notwithstanding
chanRoble svirtual Lawlib ra ry

the rescission of the same contract stipulating it; and cralawlawlibra ry

Second, on the assumption that such award is proper, the propriety of the Court of Appeals' reduction of
the liquidated damages due to petitioner.

Respondent's intimation that with the rescission of a contract necessarily and inexorably follows the
obliteration of liability for what the same contracts stipulates as liquidated damages42 is entirely
misplaced.

A contract of. sale, such as that entered into by petitioner and respondent, entails reciprocal obligations.
As explained in Spouses Velarde v. Court of Appeals,43 "[i]n a contract of sale, the seller obligates itself
to transfer the ownership of and deliver a determinate thing, and the buyer to pay therefor a price certain
in money or its equivalent."44 chanrobl eslaw

Rescission on account of breach of reciprocal obligations is provided for in Article 1191 of the Civil
Code: ChanRoblesVirt ualawli bra ry

Article 1191. The power to rescind obligations is implied in

reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.

The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages
in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become
impossible.

The court shall decree the rescission claimed, unless there

be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of

third persons who have acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage Law. (Emphasis
supplied)
Respondent correctly notes that rescission under Article 1911 results in mutual restitution. Jurisprudence
has long settled that the restoration of the contracting parties to their original state is the very essence
of rescission. In Spouses Velarde: ChanRoblesVi rtualawl ib rary
 Considering that the rescission of the contract is based on
Article 1191 of the Civil Code, mutual restitution is
required to bring back the parties to their original
situation prior to the inception of the contract. Accordingly,
the initial payment of P800,000 and the corresponding
mortgage payments . . . should be returned by private
respondents, lest the latter unjustly enrich themselves at
the expense of the former.

Rescission creates the obligation to return the object of the

contract. It can be carried out only when the one who demands
rescission can return whatever he may be obliged to restore.
To rescind is to declare a contract void at its inception and
to put an end to it as though it never was. It is not merely
to terminate it and release the parties from further
obligations to each other, but to abrogate it from the
beginning and restore the parties to their relative positions
as if no contract has been made.45 (Citations omitted)
Laperal v. Solid Homes, Inc.46 has explained how the restitution spoken of in rescission under Article
1385 of the Civil Code equally holds true for rescission under Article 1191 of the Civil Code: ChanRobles Vi rtualaw lib rary

Despite the fact that Article 1124 of the old Civil Code from
whence Article 1191 was taken, used the term "resolution",
the amendment thereto (presently, Article 1191) explicitly
and clearly used the term "rescission". Unless Article 1191
is subsequently amended to revert back to the term
"resolution", this Court has no alternative but to apply the
law, as it is written.

Again, since Article 1385 of the Civil Code expressly and

clearly states that "rescission creates the obligation to
return the things which were the object of the contract,
together with their fruits, and the price with its interest,"
the Court finds no justification to sustain petitioners'
position that said Article 1385 does not apply to rescission
under Article 1191.

In Palay, Inc. vs. Clave, this Court applied Article 1385

in a case involving "resolution" under Article 1191, thus: ChanRoblesVir tualaw librar y
 Regarding the second issue on refund of the
installment payments made by private respondent.
Article 1385 of the Civil Code provides: ChanR oblesVir tualaw librar y

"ART. 1385. Rescission creates the

obligation to return the things
which were the object of the
contract, together with their
fruits, and the price with its
interest; consequently, it can be
carried out only when he who demands
rescission can return whatever he
may be obliged to restore.

"Neither shall rescission take

place when the things which are the
object of the contract are legally
in the possession of third persons
who did not act in bad faith.

"In this case, indemnity for

damages may be demanded from the
person causing the loss."

As a consequence of the resolution by

petitioners, rights to the lot should be
restored to private respondent or the same
should be replaced by another acceptable lot.
However, considering that the property had
already been sold to a third person and there is
no evidence on record that other lots are still
available, private respondent is entitled to the
refund of installments paid plus interest at the
legal rate of 12% computed from the date of the
institution of the action. It would be most
inequitable if petitioners were to be allowed to
retain private respondent's payments and at the
same time appropriate the proceeds of the second
sale to another.

Applying the clear language of the law and the consistent

jurisprudence on the matter, therefore, the Court rules that
rescission under Article 1191 in the present case, carries
 with it the corresponding obligation of
restitution.47 (Citations omitted)
Contrary to respondent's assertion, mutual restitution under Article 1191 is, however, no license for the
negation of contractually stipulated liquidated damages.

Article 1191 itself clearly states that the options of rescission and specific performance come with "with
the payment of damages in either case." The very same breach or delay in performance that triggers
rescission is what makes damages due.

When the contracting parties, by their own free acts of will, agreed on what these damages ought to be,
they established the law between themselves. Their contemplation of the consequences proper in the
event of a breach has been articulated. When courts are, thereafter, confronted with the need to award
damages in tandem with rescission, courts must not lose sight of how the parties have explicitly stated,
in their own language, these consequences. To uphold both Article 1191 of the Civil Code and the parties'
will, contractually stipulated liquidated damages must, as a rule,48 be maintained.

What respondent purports to be the ensuing nullification of liquidated damages is not a novel question in
jurisprudence. This matter has been settled, and respondent's position has been rebuked. In Laperal: ChanRobles Vi rtua lawlib rary

This notwithstanding, the Court does not agree with the Court
of Appeals that, as a consequence of the obligation of mutual
restitution in this case, petitioners should return the
amount of P5,200,833.27 to respondent.

Article 1191 states that "the injured party may choose

between fulfillment and rescission of the obligation, with
the payment of damages in either case." In other words, while
petitioners are indeed obliged to return the said amount to
respondent under Article 1385, assuming said figure is
correct, respondent is at the same time liable to petitioners
in the same amount as liquidated damages by virtue of the
forfeiture/penalty clause as freely stipulated upon by the
parties in the Addendum, paragraphs 1 and 2 of which
respectively read: ChanRobl esVirt ualawl ibrary

WHEREAS, included as part of said agreement are

the following:

1. Further to the stipulations on paragraph

chanRobl esvirt ualLaw librar y

10, upon default of performances, violations

and/or non-compliance with the terms and
conditions herein agreed upon by the DEVELOPER
wherein it appears that the DEVELOPER
deliberately abandoned or discontinued the work
on the project, said party shall lose any
entitlement, if any, to any refund and/or
advances it may have incurred in connection with
or relative to previous development works in the
 subdivision; likewise, all improvements of
whatever nature and kind introduced by the
DEVELOPER on the property, existing as of the
date of default or violation, shall
automatically belong to the OWNER without
obligation on his part to pay for the costs
thereof.

2. Similarly with the same condition of default

or violation obtaining, as stated in paragraph
10 of said agreement, all advances made and
remittances of proceeds from reservations and
sales given by the DEVELOPER to the OWNER as
provided for in this agreement shall be deemed
absolutely forfeited in favor of the OWNER,
resulting to waiver of DEVELOPER'S rights, if
any, with respect to said amount(s).

If this Court recognized the right of the parties to stipulate

on an extrajudicial rescission under Article 1191, there is
no reason why this Court will not allow the parties to
stipulate on the matter of damages in case of such rescission
under Book IV, Title VIII, Chapter 3, Section 2 of the Civil
Code governing liquidated damages.49 (Citations omitted)
We see no reason for departing from this. It is true that Laperal involved extrajudicial rescission, while
this case involves rescission through judicial action. The distinction between judicial and extrajudicial
rescission is in how extrajudicial rescission is possible only when the contract has an express stipulation
to that effect.50 This distinction does not diminish the rights of a contracting party under Article 1191 of
the Civil Code and is immaterial for purposes of the availability of liquidated damages.

To sustain respondent's claim would be to sustain an absurdity and an injustice. Respondent's position
suggests that with rescission must necessarily come the obliteration of the punitive consequence which,
to begin with, was the product of its own (along with the other contracting party's) volition. Its position
turns delinquency into a profitable enterprise, enabling contractual breach to itself be the means for
evading its own fallout. It is a position we cannot tolerate.

II

In calibrating the amount of liquidated damages, the Court of Appeals relied on how respondent
supposedly attempted to rectify things "by offering to [petitioner] new specifications at P3,600,000.00
per unit; and expressed willingness to shoulder the difference between the original price (based on the
contract) of P2,900,000.00 per unit and the price corresponding to the new specifications."51 chanrobleslaw

As underscored by petitioner, however, this offer was inconsequential and hardly a remedy to the
predicament it found itself in.

Petitioner already suffered damage by respondent's mere delay. Philippine Economic Zone Authority
Director General Lilia B. De Lima's internal memorandum to its Board of Directors emphasized what was,
at the time, the specific urgency of obtaining fire trucks:ChanRoblesVirtualawl ibra ry
 1. With the increase in the number of locator-enterprises at
the regular zones, there is a need for additional units of
fire trucks to address any eventuality. The onset of the El
Niño phenomena further makes it imperative that PEZA be more
prepared.

2. At present, there are only six (6) units of serviceable

fire trucks distributed as follows:
chanRobl esvirt ualLaw librar y

Bataan EZ 2
Baguio City EZ 1
Cavite EZ 1
52
Mactan EZ 2 (Emphasis supplied)
The Court of Appeals itself recognized that "time was of the essence when the contract . . . was awarded
to [respondent] and the non-compliance therewith exposed [petitioner's] operations [at] risk."53 chanroble slaw

Respondent's attempt at rectification came too late and under such circumstances that petitioner was no
longer even in a position to accept respondent's offer. As petitioner notes, by the time respondent made
its offer, the Complaint for rescission and damages had already been filed before the Regional-Trial Court
of Pasay City.54 If at all, the offer was nothing more than a belated reaction to undercut litigation.

By the time respondent made its attempt at rectification, petitioner was no longer capable of
accommodating contractual modifications. Jurisprudence has established the impropriety of modifying
awarded contracts that were previously subjected to public bidding, such as that between petitioner and
respondent: ChanRobles Vi rtual awlib rary

An essential element of a publicly bidded contract is that

all bidders must be on equal footing. Not simply in terms of
application of the procedural rules and regulations imposed
by the relevant government agency, but more importantly, on
the contract bidded upon. Each bidder must be able to bid on
the same thing. The rationale is obvious. If the winning
bidder is allowed to later include or modify certain
provisions in the contract awarded such that the contract is
altered in any material respect, then the essence of fair
competition in the public bidding is destroyed. A public
bidding would indeed be a farce if after the contract is
awarded, the winning bidder may modify the contract and
include provisions which are favorable to it that were not
previously made available to the other bidders. Thus: ChanRobl esVirt ualawl ibrary

It is inherent in public biddings that there

shall be a fair competition among the bidders.
The specifications in such biddings provide the
common ground or basis for the bidders. The
 specifications should, accordingly, operate
equally or indiscriminately upon all bidders.

The same rule was restated by Chief Justice Stuart of the

Supreme Court of Minnesota: ChanRobl esVirt ualawl ibrary

The law is well settled that where, as in this

case, municipal authorities can only let a
contract for public work to the lowest
responsible bidder, the proposals and
specifications therefore must be so framed as to
permit free and full competition. Nor can they
enter into a contract with the best bidder
containing substantial provisions beneficial to
him, not included or contemplated in the terms
and specifications upon which the bids were
55
invited. (Emphasis supplied)
By definition, liquidated damages are a penalty, meant to impress upon defaulting obligors
the graverconsequences of their own culpability. Liquidated damages must necessarily make
non-compliance more cumbersome than compliance. Otherwise, contracts might as well make no threat
of a penalty at all: ChanRoblesVi rt ualawlib ra ry

Liquidated damages are those that the parties agree to be paid

in case of a breach. As worded, the amount agreed upon answers
for damages suffered by the owner due to delays in the
completion of the project. Under Philippine laws, these
damages take the nature of penalties. A penal clause is an
accessory undertaking to assume greater liability in case of
a breach. It is attached to an obligation in order to ensure
performance.56 (Citations omitted)
Respondent cannot now balk at the natural result of its own breach. As for the Court of Appeals, we find
it to be in error in frustrating the express terms of the contract that respondent actively endeavored to
be awarded to it. The exigencies that impelled petitioner to obtain fire trucks made it imperative for
respondent to act with dispatch. Instead, it dragged its feet, left petitioner with inadequate means for
addressing the very emergencies that engendered the need for fire trucks, and forced it into litigation to
enforce its rights.

WHEREFORE, the Petition is GRANTED. The assailed May 2, 2008 Decision and November 25, 2008
Resolution of the Court of Appeals in CA G.R. CV No. 86406 are REVERSED and SET ASIDE. The
Decision dated November 2, 2005 of Branch 108 of the Regional Trial Court of Pasay City in Civil Case No.
00-0343 is REINSTATED.

SO ORDERED. chanRoblesvirt ualLaw lib rary

THIRD DIVISION

G.R. No. 174387, December 09, 2015

BF CORPORATION, Petitioner, v. WERDENBERG INTERNATIONAL CORPORATION, Respondent.

 DECISION

JARDELEZA, J.:

THE CASE

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court seeking the reversal
of the Resolution1 of the Former Seventh Division of the Court of Appeals (CA) dated August 23, 2006,
which held respondent entitled to liquidated damages equivalent to 70 days of delay, 10% retention fee,
and payment for expenses for repainting job arising from a construction dispute.

FACTS

Petitioner2 find respondent3 entered into a Construction Agreement, under which petitioner would
construct for respondent a three-story building housing a meat processing plant and a showroom office
in Yakal Street, Makati City. The parties agreed on a contract price of Php 43,800,000.00 and a
completion and delivery date of April 7, 1995.4 Due to several delays, however, petitioner turned over
the building only on August 15, 1995.5 Respondent did not accept the building, asserting it had many
deficiencies. Respondent paid petitioner only Php 38,088,445.00.6 Thus, petitioner filed a complaint for
sum of money against respondent before the Pasig Regional Trial Court (RTC) for the balance of Php
4,771,221.59.7 In addition, petitioner prayed for the payment of Php 141,944.93 representing expenses
incurred due to work on respondent's changes or additional orders, and for a judgment that the
liquidated damages claimed by respondent in the amount of Php 3,066,000.00 was without basis. 8

Petitioner enumerated in its complaint the following reasons why the project was delayed:

1. At the start of the excavation phase, petitioner had to remove two to three layers of concrete
slabs over the construction site, instead of only 1 layer.9 The soil was also found to be extra soft
and had to be filled with boulders. Respondent granted petitioner an extension of only 7 days,
but the remedial work required in the removal of the extra layers of concrete slabs, and in
stabilizing the condition of the soil, took 30 - 40 days to finish.10

2. Respondent and another corporation, Sinclair Paints, engaged in a boundary dispute.

Respondent ordered petitioner to suspend the excavation works until the dispute was resolved.
The suspension took 6 days, yet petitioner was not credited with an extension.11

3. The building permit was not secured on time. The application for the building permit was not
initially processed by the Building Official of Makati City because respondent failed to timely
secure the required Environmental Clearance Certificate (ECC).12

4. Respondent informed petitioner that the building plan will be revised, such that the locations of
the columns, beams and walls to be put up were to be determined only through the verbal
instructions of respondent's construction manager.13

5. On February 20, 1995, the City Building Office served petitioner with an order to stop all
construction works until a building permit is secured. Despite this "stop work order," respondent
ordered petitioner to continue with the construction discreetly.14

6. It was only on March 23, 1995 or after the lapse of 31 days from the "stop work order" when the
building permit was secured.15

Thus, while the demolition, excavation, and initial construction works started on November 26, 1994,
regular construction works began only 113 days after, or on March 24, 1995.16

Petitioner further alleged that even after the original completion date of April 7, 1995, construction works
continued.17

Respondent even ordered substantial changes and additional works after April 7, 1995, which took 130
days to complete, or until August 14, 1995.18 In total, petitioner claimed it was entitled to an extension
of 243 days, yet asked for only 130 days.19 Respondent, however, granted petitioner with a mere 60-day
extension and held it in default for the remaining 70 days. Consequently, petitioner was charged with
liquidated damages computed at Php 43,800.00 for every day of delay, or a total of Php 3,066,000.00.20

In its defense, respondent attributed the delays to the fault of petitioner. Respondent denied suppressing
information about the existence of the extra layer of concrete slabs and the extra soft condition of the
soil.21 It alleged that petitioner was given this information during the pre-bidding conference, and that
petitioner inspected the site and was present during soil testing.22 Respondent averred that petitioner
was responsible for securing the required permits.23 As to the changes and additional works, respondent
asserted it gave petitioner a 60-day extension, even if these works were merely linear, meaning they
may be performed without interrupting the normal pace of the construction work.24 In sum, respondent
blamed petitioner's poor workmanship, persistent inaction in satisfying respondent's complaints, and
lack of, or defective equipment, for the delays.25 Respondent claimed that due to petitioner's poor
workmanship, the turnover in August 1995 was merely partial because there were several works that
needed to be adjusted and corrected, to which petitioner agreed.26 This poor workmanship on the part of
petitioner pushed the actual turnover to October 15, 1995.27 Nevertheless, respondent maintained that
out of benevolence, it computed delay only from June 6, 1995 to August 15, 1995 (70 days) instead of
up to October 15, 1995.28 Even then, after the turnover, respondent had to hire another contractor to do
corrective and repainting works because of the same poor workmanship of petitioner. Respondent
allegedly incurred additional expenses worth Php 1,202,888.50 for the repainting work of the other
contractor.29

After trial, the RTC ruled in favor of petitioner.30 It duly noted the causes of delay petitioner outlined and
concluded that the 60-day credit respondent allowed for delay was not commensurate to the total
allowable or justifiable delay. Instead, the RTC ruled that petitioner was entitled to a 130-day extension
it requested. Thus, the liquidated damages respondent deducted from the agreed contract price was
baseless and unjustified. The dispositive portion of the RTC's Decision reads:

WHEREFORE, in view of the foregoing, the Court hereby renders

judgment in favor of plaintiff BF CORPORATION and against
defendant WERDENBERG INTERNATIONAL CORPORATION and
hereby orders defendant to pay plaintiff the following
amounts, to wit:

1. Four Million Seven Hundred Seventy One Thousand Two

Hundred Twenty One Pesos and 59/100 (P4,771,221.59)
corresponding to the unpaid balance of the contract
price, inclusive of the retention fee and net of
electric/water billings. Rectification works and
other charges at twelve (12%) percent interest per
annum from the filing of this suit until fully paid;

2. One Hundred Forty One Thousand Nine Hundred Forty Four

and 93/100 (P141,944.93), corresponding to the unpaid
balance of the change orders/extra works done, net of
advances, taxes and other charges at twelve (12%)
percent interest per annum from the filing of this suit
until fully paid;

3. Two Hundred Thousand Pesos (P200,000.00) for and as

attorney's fees; and,

4. [C]ost of suit.
 31
SO ORDERED. ChanRoblesVirtualawlibrary

On appeal, the CA modified the Decision of the RTC and held respondent entitled to its claim of liquidated
damages of Php 3,066,000.00 corresponding to petitioner's 70-day delay. The dispositive portion of the
CA Decision32 reads:

WHEREFORE, the decision appealed from is

hereby MODIFIED and We deem it reasonable to render a
decision imposing, as We do hereby impose, upon the
defendant-appellant Werdenberg to pay BF Corporation the
amount of P1,847,167.52 to complete the payment of its
professional fee under their Construction Agreement based on
the following computation: chanRobl esvirt ualLaw librar y

P4,771,222.59 - unpaid balance under the Agreement

+ 141,944.93 - unpaid balance for change orders

P4,913,167.52 - total amount due to BFC

Less:_P3,066,000.00 - liquidated damages by BFC

P1,847,167.52 - amount due to BFC

the total sum being payable upon the finality of this decision.
Upon failure to pay on such finality, twelve (12%) per cent
interest per annum shall be imposed upon afore-mentioned
amount from finality until fully paid.

SO ORDERED.33 ChanRobl esVirt ualawl ibrary

On Motion for Reconsideration, the CA modified its Decision.34 On re-evaluation of the evidence, the CA
ruled that respondent was entitled to the expenses worth Php 1,050,000.00 it incurred for the repainting
job done by another contractor. The CA also granted respondent's claim for a retention fee of 10%. The
CA's new computation35 reads:

P4,771,222.59 - unpaid balance under the Agreement

+ 141,944.93 - unpaid balance for change orders

P4,913,167.52 - total amount due to BFC

Less:_P3,066,000.00 - liquidated damages by BFC

 P1,847,167.52

expenses for painting job due to

Less: 1,050,000.00 -
Werdenberg

P797,167.52 - amount due to BFC

Less: 79,716.75 - 10% retention fee by Werdenberg

P717,450.75 - amount due to BFC

Hence, this petition, which argues in the main that the CA misappreciated relevant facts and prays that
the decision of the RTC be reinstated.

OUR RULING

Petitioner raises questions of fact, which generally, we cannot entertain in a Rule 45 petition. We are not
obliged to review all over again the evidence which the parties adduced in the courts below. Of course,
the general rule admits of exceptions, such as where the factual findings of the CA and the trial court are
conflicting or contradictory.36 This exception is present here.

The RTC ruled in favor of petitioner, finding that the delay in the construction was not its fault. The RTC
found the extension of the delivery date of 60 days granted by respondent incommensurate to the total
number of days of justifiable delay. The CA, on the other hand, did not find all the grounds raised by
petitioner as causes for justifiable delay to be meritorious. The CA held petitioner at fault when it did not
adopt measures to arrest soil deterioration.37 The CA also held that petitioner should have notified
respondent that it (petitioner) would stop work until the required building permit was secured.38 Neither
did petitioner inform respondent that the revision of the building plan will cause delay. Thus, such
revision merely required a reorientation of the project.39 This was also true with the change orders and
additional works. The CA gave more credence to the testimony of respondent's witness, Engr. Antonio
Aliño, an engineer of 37 years' experience. Engr. Aliño testified that the change orders and additional
works merely required linear activities that did not affect the construction time.40 The CA then deferred
to the approximation of respondent that petitioner is, under the facts, entitled to only 60 days of
extension of the contracted completion date of April 7, 1995. This meant that the new completion date
can be moved to June 6, 1995.41 Since, however, the turnover was made only on August 15, 1995,
petitioner incurred delay for 70 days. For this, the CA found petitioner liable for liquidated damages for
70 days of delay.42

On reconsideration, the CA also noted that the defects on the painting job, which petitioner
acknowledged and tried to rectify, were not solved at all. In a letter dated May 31, 1996, respondent
informed petitioner that it (respondent) would hire another contractor to do the repainting job. Thus, the
CA found respondent entitled to liquidated damages, retention fee, and reimbursement for the expenses
in the repainting job.43

The petition is partly meritorious.

To recall, petitioner originally claimed it was entitled to a 113 day extension of the contracted delivery
date because of various delays that moved the regular construction date from November 26, 1004 to
March 24, 1995. These various delays were broken down as follows:

 Removal of layers of unforeseen concrete slabs, which took 30-40 days;

 Rectification of the extra soft condition of the soil, which took 14 days;

 Revision of the building plan, which affected the petitioner's conduct of work for a month, or 30
days;
  One month "stop work order" from the City Hall of Makati due to lack of construction permit, or
30 days.

Petitioner argues that respondent concealed the existence of the concrete slabs and the condition of the
soil, which necessitated additional work, expense, and use of sophisticated equipment.44 The building
plan also had to be revised in an attempt to avoid the necessity of submitting an ECC as a measure to
facilitate the approval of the application for a building permit. At the same time, however, the revised
building plan was needed as supporting document to the application for a building permit, such that
without it, the application was put on hold.45 The revision also called for a 180-degree reorientation of the
building floor plan, which stalled the progress of construction for a month because petitioner had to rely
on and await mere verbal instructions from respondent's representatives.46When the revised building
plan was finally submitted to petitioner in January 1995,47 the building permit application was further
delayed because the city hall officials questioned the provisions on the parking area.48 Thus, due to the
lack of building permit, the city hall issued and served a "stop work order" in the construction premises
on February 20, 1995. This caused work to stop for a month, or until March 23, 1995, when the building
permit was finally secured.

Petitioner also claimed it was entitled to a 130-day extension corresponding to various additional works
and change orders from April 7, 1995 to August 14, 1995. The total number of days for extension,
therefore, was 243 days. Petitioner settled for 130 days instead.

In reply to petitioner's request for extension, respondent initially granted 34 days, which were broken
down as follows:

 7 days for the removal of concrete slabs

 7 days for the delay in the construction permit

 14 days for the construction of shear walls

 6 days for holidays

According to respondent, it granted only 7 days for the removal of concrete slabs because the delay was
caused by the frequent breakdown of petitioner's equipment. Respondent also granted only 7 days for
the delay in the construction permit because it did not prevent petitioner from continuing with the
construction. As for the construction of shear walls, a part of the additional works which petitioner
claimed took 30-40 days to finish, respondent granted only 14 days because the work was gradual. The
rest of the additional works and change orders were categorized by respondent as either linear activities
that can be executed simultaneously with the main work or repeat jobs due to petitioner's poor
workmanship and thus, did not merit any extension. On re-evaluation, respondent granted an additional
26 day extension, for a total extension of 60 days.

We stress at the outset that in its decision, the CA found petitioner entitled to extensions of 35 days for
the removal of concrete slabs, and 7 days for the work stoppage brought by a boundary dispute with
Sinclair Paints. The CA then upheld respondent's total grant of a 60 day extension. The computation,
however does not add up. Petitioner would be entitled to a 42 day extension for the concrete slabs and
the boundary dispute alone, leaving an additional extension of 18 days for other causes of delay. While
the CA found petitioner not entitled to any extension for the supposed delay in the building permit, it
ignored the extensions of 14 days for the construction of the shear walls, and 6 days for the holidays
which respondent already granted in favor of petitioner. These would have totalled to an additional
extension of 20 days. In effect, the CA's computation would not jibe with that of the respondent's.

At any rate, in determining whether respondent is entitled to liquidated damages and how much it is
entitled to, we reach a different conclusion than those of the lower courts.

Petitioner is entitled to an extension of 21 days for the delay during the excavation stage

The daily reports49 of respondent's project manager, Engr. Arnulfo Delima, show that petitioner
performed earth and demolition works involving excavation, boulders and gravel filling, and soil
poisoning from December 9, 1994 to February 14, 1995. But in the construction schedule50 petitioner
submitted to respondent, the duration of the earth and demolition works should have only been from and
until mid-December 1994.51 Petitioner accuses respondent of suppressing information about the
existence of the concrete slabs and the extra soft condition of the soil, which were material in petitioner's
determination of the time and cost required by the works. Thus, petitioner asks for a total extension of
approximately 1 and 1/2 months equivalent to the actual period it took petitioner to perform these
earthworks.

We disagree that petitioner is entitled to a full extension of its request (30-40 days for the removal of the
concrete slabs and 14 days for arresting the soil condition). We hold that for these excavation works, it
is fair to grant petitioner with a total extension of only 21 days or three weeks.

The existence of the layers of concrete slabs and the extra soft condition of the soil was not easily
determinable upon site inspection. In fact, these were not included in the Construction Agreement or in
the Minutes of the Pre-Bid Conferences.52 Petitioner would have considered in its bid plan and proposal
the attendant time and costs the measures required to address these conditions had it known about them
from the beginning.53 In Advanced Foundation Construction Systems Corporation v. New World
Properties and Ventures, Inc.,54 we deferred to the expert opinion of the Construction Industry
Arbitration Commission that in practice, removal of underground obstructions is a "major item of work"
that needs to be included in the contractor's scope of work. It cannot be understood as being merely
subsumed under the general heading "miscellaneous."55

Mere, the CA agreed with petitioner that the concrete slabs were unforeseen and their removal caused
delay in the construction phase. The CA also acknowledged that the extra soft condition of the soil cannot
be easily seen with the naked eye. The CA thus held "it is understandable that BFC could not be expected,
upon ocular inspection, to immediately determine the soil condition."56

We rule, however, that the removal of the concrete slabs and the filling of boulders may have taken two
or three more times in effort to accomplish than usual.57 The removal also took time because of the
frequent breakdown of the heavy equipment petitioner used in the process, and petitioner's failure to
provide enough manpower. The daily reports58 support this and Engr. Delima also convincingly testified:

Q: Can you describe to us the progress of the work by BF?

When I supervised the work, our schedules have not been met,
A:
we have some delays in the excavations, madam.

Q: In the excavation stage, what delays were incurred if any?

Their equipments [sic] were always not functioning. Although, we

A: asked them for another equipment, they added one (1)
equipment, but still that equipment was not functioning, madam.

How about the work schedules, the shifting of men during the
Q:
construction?
 We also requested the B.F. to add some men for us to be able to
A: work for 24-hour [sic], but still, it took time for them to add men,
madam.59

Petitioner was obliged to provide "all materials, labor, tools, and equipments [sic], and other incidentals
required for the complete and satisfactory completion of the project"60 for the project. Under Section 5 of
the Construction Agreement, "[a]ll materials and labor of every grade and equipment necessary for the
prosecution and termination of the work shall be of the best grade of their respective kind and the quality
of workmanship shall be in accordance with the requirements of the contract and its
Annexes."61 Petitioner was, therefore, obliged to provide the appropriate equipment in good running
condition. Failing on this, petitioner is not entitled to the full extension of 30 - 40 days it requested.

We also disagree that petitioner is entitled to a full extension of 14 days it requested for the delay caused
by the extra soft condition of the soil.

Firstly, we defer to the testimony of Arch. Orencio Sare, Jr., the designer of the building, that the soil
investigation report62 dated September 1994 was not crucial for the contractor's work. Arch. Sare
testified that the report was only instrumental for the designer's work and not for the contractor's
because it was intended to determine the soil bearing capacity.63 Hence, we agree that there was no
malicious intention to suppress the soil investigation report from petitioner, even if it was only furnished
to petitioner alter the contract was awarded in November 1994.64 This is not to say, however, that the
contractor should not be apprised of the actual condition of the soil before bidding. The soil report could
have assisted petitioner in estimating the extent of its excavation works. As Mr. Gerardo
Apoderado65 testified, the extra soft condition of the soil spelled problems because the area cannot be
excavated to the required elevation.66 In its letter dated December 9, 1994,67 petitioner proposed to
respondent that since the actual soil condition is very soft, thicker boulders and a thicker gravel base
should be used. Petitioner then informed respondent that these changes, on top of the demolition of
unforeseen concrete slabs and arresting the soil condition, would result in additional working time and
cost. Respondent did not object to or refute this letter.68

Respondent claims, however, that petitioner was responsible for the delay caused by the soil condition
because it failed to immediately provide remedies when water from a broken drainage nearby seeped
in.69 Thus, in a letter dated January 16, 1995, respondent reminded petitioner of the required bottom
elevation and noted that petitioner's latest excavation was undercut. Respondent also brought to
petitioner's attention the muddy condition of the excavated area.70

We agree with the CA that petitioner should have taken measures to address the problem with the broken
drainage. We note that as of January 16, 1995, petitioner had failed to properly stabilize the soil and
obtain the required elevation of the area.71 This is a lapse which merits a reduction on petitioner's
estimate for extension. We merely reduce the extension on the finding that at most, the broken drainage
only aggravated the soil condition, but doesn't change the fact that it had been extra soft from the start.
It was not even shown when the drainage broke and leaked and whether its effects were visible or known
to petitioner from the beginning. Furthermore, in the same manner that petitioner should answer for the
faulty equipment used in the removal of the concrete slabs, petitioner should also answer for the delay
in the deliveries of the boulders used for filling in the excavated area.72

All told, both parties were responsible for the delay caused by the excavation and earthworks. Thus, even
if petitioner may be held liable for negligence in the performance of its obligation, Article 1172 of the Civil
Code73 provides that such liability may be regulated by the courts according to the circumstances of the
case. Here, the existence of concrete slabs and the extra soft soil remained a condition beyond the
control of petitioner. Since these caused an unforeseen delay in the excavation stage, petitioner should
be credited accordingly. We find that a reduced extension of 21 days for the earth and demolition works
is commensurate and fair.

Petitioner is entitled to an extension of 38 days for the delay in securing the building permit and for the
stop work order issued by the Makati City Hall.

The Construction Agreement provides that the agreed period of completion shall be automatically and
correspondingly extended if the works are suspended to comply with any rule or order of public or
government authorities74. We agree with the CA's explanation that before this provision can be
considered in favor of petitioner, the latter should not be at fault.75 We rule that petitioner was not at
fault.

Under the Construction Agreement, terms and conditions reflected in the minutes of the pre-bid
conferences shall be effective and binding upon the parties as terms and conditions of the Construction
Agreement, except when modified or altered by the latter.76 The minutes of the second pre-bid
conference on November 9, 1994 provided that respondent, through its designer, A.L. Aliño Engineers
and Architects, will initiate securing the building permit, and which activity will be continued by the
winning bidder.77 In other words, although the obligation to obtain the permit will ultimately devolve to
petitioner, respondent had to act first by securing the ECC from the DENR, a prerequisite to the building
permit application. Arch. Sare confirmed this understanding between the parties:

Mr. Sare, in the minutes of the pre-bidding conference held on

November 9, 1994, at the Gold Ranch Restaurant in Makati
wherein you claimed you were present, it was agreed among
Q: others by and between the plaintiff and defendant that A.L. Aliño
Engineers will initiate the securing of building permit and will be
continued by the winning bidder and at that time you were still
connected with A.L. Aliño Engineers, am I correct?

A: Yes, sir.

When you said initiate in securing the building permit it means

Q: [A.L.] Aliño Engineers shall file the corresponding application, is
that correct?

A: Yes, sir.

xxx

Is it not a fact considering that the nature of the business to be

conducted in the proposed construction project a DENR, ECC
Q:
clearance is required to accompany the application for issuance of
building permit?
COURT: In other words, the building official will not authorize the
issuance of building permit without the DENR, ECC clearance?

Atty. Morga: Yes, your honor.

Witness: We know that, sir.

COURT: (To the witness) So you were made aware of that

requirement that the building official cannot process any application
for issuance of building permit without the presentation of the DENR,
ECC clearance previously secured by the applicant before the building
permit, is that correct?

Witness: Yes, your honor.

xxx

Pursuant to the highlights of the meeting which by the way was

previously marked as Exhs. "L," "L-1" and Exh. "10" for the
Q:
defendant, did the defendant apply for the necessary ECC
clearance with the DENR?

A: Yes, sir.
 The defendant did that precisely because of what appeared in the
Q:
highlights of the meeting on November 9, 1994, am I correct?

A: Yes, sir.

When was that the defendant filed for the issuance of ECC
Q: clearance from the DENR? Was it during the progress of the
construction?

A: Yes, sir.78

Respondent is bound by the foregoing terms in the Construction Agreement and as refelcted in the
minutes. Contracts constitute the law between the parties, and they are bound by its stipulations. For as
long as they are not contrary to law, morals, good customs, public order, or public policy, the contracting
parties may establish such stipulations, clauses, terms and conditions as they may deem convenient.79

In a letter dated December 13, 1994, petitioner informed respondent that it has applied for the building
permit, but that respondent, in turn, has to secure the ECC, which is "vital in the application for [the]
building permit."80 Petitioner reminded respondent that as the owner, it (respondent) was in a better
position to know the process flow of the meat processing plant.81 Thus, it was only logical that
respondent should be the one to file and secure the ECC. The CA has also acknowledged this much,
saying that it was appropriate and understandable that the duty to secure the ECC should devolve upon
respondent because the nature of the business is highly technical.82 However, the CA held that petitioner
should have notified respondent that it (petitioner) would stop construction work until the required
building permit was in order.83

We disagree with the CA that petitioner was not vigilant enough. The December 13, 1994 letter was,
effectively, a reminder from which respondent should have taken its cue. Petitioner stated in the letter
that it has already done its part in the filing of the building permit as required in the contract. But due to
the unavailability of an ECC and other permits, petitioner informed respondent it is losing precious time.
Without a building permit, petitioner cautioned respondent that its works will be limited to those covered
by its existing excavation permit, which were excavation and fencing.84 Despite this reminder,
respondent secured an ECC only on February 22, 1995.85 Respondent should, therefore, bear the effect
of the delay caused by the stop work order from the city hall. This is but fair because it failed in its
obligation to initiate the building permit application.

Respondent should further bear the effect of the delay because its revision of the building plan
contributed to delaying the building permit application.

The building plan, for reasons unclear, had to be revised during the excavation stage.86 Respondent
insists petitioner suggested the idea so the building would be converted from a meat processing plant to
a regular office, thus dispensing with the requirement for an ECC.87 The ECC, however, continued to be
required and was eventually secured and submitted for the building permit application. Petitioner claims
the revision delayed its work for a month because petitioner had to rely mainly on the verbal instructions
of respondent's representatives. Respondent, on the other hand, maintains there was no complete work
stoppage. The lack of building plan did not materially hamper the construction because the revision only
called for a reorientation of the floor plan. Thus, respondent only gave petitioner an extension of 7 days.

We agree with the CA that the revisions merely involved a reorientation of the project, such that
petitioner only had to implement a mirror image of the original plan.88 Engr. Aliño persuasively testified
that there was not much effect in the construction schedule because it was still during the excavation for
the foundation. As such, work can be done through the guidance of the project engineer. Respondent
also gave petitioner a preliminary sketch to guide it on how to continue.89

Arch. Sare corroborated Engr. Aliño's testimony. According to Arch. Sare, the revised building plan is only
a mirror image of the original one.90 Mr. Apoderado, on the other hand, failed to specify how drastically
different the revised plan is from the original. During his cross-examination, Mr. Apoderado admitted that
"not much" had been changed with the plan.91 We, therefore, uphold the original grant of an extension of
7 days.

However, the revision of the. building plan also affected the building permit application because the
building plan was one of its supporting documents.92 The lack of a building permit affected the work of
petitioner in such a way that even though there was no complete work stoppage, the work was done
surreptitiously and intermittently. Petitioner was wary of getting caught for working without a permit and
be penalized accordingly. We find these concerns of petitioner genuine. As early as December 3, 1994,
petitioner reminded respondent, about the revised plan.93 In its subsequent letter dated December 13,
1994, petitioner stressed that "at present, [its] work permit covers only the excavation and fencing of the
work area as authorized by the Municipality of Makati."94 Petitioner further informed respondent that
without the plan and the building permit, its work would be limited to excavation and gravel fill.
Respondent gave petitioner the revised building plan only on January 3, 1995.95 When it was submitted
with the building permit application, the city hall officials questioned petitioner anew on the provisions for
the parking area. It was finally re-submitted on February 27, 1995,96 when the stop work order was
already in force. Thus, it may be true that even without a building permit, petitioner kept working, albeit
discreetly, under respondent's instructions. But it cannot be denied as well that the lack of building
permit prevented petitioner from carrying out its work freely and efficiently. The admission of Engr.
Delima is telling:

Do you know for a fact also that the plaintiff in this case as early
as December 13, 1994 wrote the defendant a letter, through you,
Q: informing the defendant that because of the lack of building
permit the [timetable] or construction time will be considerably
affected?

A: Yes, sir.

Q: In fact, the construction time was really affected, right?

A: Yes, sir.97

As such, it is only fair that respondent bear the consequences of the 31 - day stop work order of the city
hall because it failed in its duty of securing the building permit. Thus, for the delay in securing the
building permit, we find that petitioner is entitled to a total extension of 38 days.

Petitioner is entitled to an extension of 40 days for the change orders and extra works.
The CA gave more credence to the testimony of Engr. Alifio that the change orders and extra works
petitioner requested extensions for were mere linear activities that did not affect the construction time.
The CA also held that contrary to Section 16 of the Construction Agreement,98 these change orders and
extra works were done without the written mutual agreement of the parties.99

However, out of the 34-day extension respondent initially granted petitioner, 14 days were allocated for
the construction of shear walls, which was one of the change orders and additional works respondent
allegedly requested from petitioner.100 When petitioner requested for re-evaluation, respondent granted
an additional extension of 26 days, which appear to cover for the alleged change orders and extra
works.101 In its Answer with Counterclaim102 dated October 10, 1997, respondent countered that
"[petitioner] should be grateful for the grant of a [60-day] extension credit because most of [these]
change orders/[revisions] consist of linear activities, i.e., they can be performed simultaneously or
without interrupting the normal pace of the construction work. In fact, [petitioner] was generously given
time extension where credit is not due."103

Furthermore, during cross-examination, Engr. Aliño admitted that "[the] extra work, change orders
would cover canvassing, procurement, installation and fabrication of materials which would necessitate
substantial additional time and money on the part of [petitioner]."104

We hold respondent for the above admissions. Notwithstanding the nonconformity with the literal terms
of Section 16 of the Construction Agreement, respondent liberally granted extensions for the change
orders and extra works. As correctly pointed out by petitioner, "[t]he construction agreement does not
nullify the change orders/extra works that were already completed without any written agreement. In
feet, Werdenberg had partially paid [therefor] leaving an unpaid balance of only P141,944.93."105 In its
Answer with Counterclaim, respondent indeed stated that petitioner is entitled to Php 141,944.93 for the
change orders and additional works.106

Thus, we hold that petitioner is entitled to a total extension of 40 days for the change orders and extra
works.

Finally, we agree with the CA when it held that petitioner is entitled to an extension of 7 days for the work
stoppage ordered by respondent to resolve the boundary dispute with another company, Sinclair
Paints.107 The CA cited the testimony of respondent's witness, Ms. Josephine del Val, confirming that the
work stoppage took 7 days.108 Petitioner should also be entitled to another extension of 6 days, which
respondent granted, to cover the holiday breaks.109

All told, the extensions in favor of petitioner can be summed up as follows:

21 days for the excavation works

38 days for the building permit application

40 days for the change orders and extra works

7 days for the boundary dispute

6 days for the holidays

112 days in total

Respondent is entitled to liquidated damages equivalent to 18 days of delay

The liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code,110 where the
parties to a contract are allowed to stipulate on liquidated damages to be paid in case of breach. It is
attached to an obligation in order to ensure performance and has a double function: (1) to provide for
liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater
responsibility in the event of breach. The amount agreed upon answers for damages suffered by the
owner due to delays in the completion of the project.111
The Construction Agreement provides that upon failure to complete the work agreed upon within the
stipulated time, the contractor agrees to pay the owner Php 43,800.00 for every day of delay. 112 As a
pre-condition to such award, however, there must be proof of the fact of delay in the performance of the
obligation.113

We have already ruled that the parties were mutually at fault. Petitioner is entitled to an extension of only
112 days counted from April 7, 1995 or until July 28, 1995. Thus, from July 28, 1995 to August 15, 1995,
or a period of 18 days, petitioner had already been in default. Consequently, respondent is entitled to Php
788,400.00 as liquidated damages.

Respondent is entitled to the expenses for the repainting job.

Petitioner wrote respondent a letter of turnover dated August 16, 1995.114 On August 18, 1995,
respondent replied, detailing its comments on the turnover list.115 A recurring comment was the need to
either re-paint or to complete the painting job. Respondent rejected the turnover until such time that
petitioner would have "favorably remedied [respondent's] complaints on the defects xxx and generally
on workmanship of the building."116 Petitioner acknowledged these defects in a letter dated October 11,
1995 and informed respondent that it will proceed with repainting.117 Clearly, the defects in the painting
job were covered by the guarantee of petitioner.

The bid proposal118 of petitioner stipulates the following:

All works shall be under our guarantee for a period of one

(1) year. Any defects that may arise due to poor workmanship
and inferior quality of material supplied from the date of
acceptance and guarantee period shall be repaired and
replaced by us without any cost to the Owner.119 ChanRobl esVirt ualawl ibrary

Section 15 of the Construction Agreement provides in part:

15. GUARANTEE - It is expressly agreed and understood that

the CONTRACTOR guarantees the work against all defects of
materials and workmanship for a period of (1) one year from
the date of issuances [sic] of the letter of acceptance. Any
defects discovered during said period shall be made good by
the CONTRACTOR at its own expense upon notification in
writing by the OWNER, x x x120 ChanRobl esVirt ualawl ibrary

However, the repainting job still proved deficient. In a letter dated May 31, 1996,121 respondent informed
petitioner that it has taken the initiative to get an outside contractor for the subsisting deficiencies.
Respondent subsequently contracted Silver Line Builders for the repainting job in the contract price of
Php 1,050,000.00.122 Petitioner should answer for these expenses, pursuant to Article 1167 of the Civil
Code:

Art. 1167. If a person obliged to do something fails to do

it, the same shall be executed at his cost.

This same rule shall be observed if he does it in

contravention of the tenor of the obligation. Furthermore,
it may be decreed that what has been poorly done be undone.
Section 6 of the Construction Agreement also provides, in part, that if the work is found defective in any
material respect due to the fault of the contractor, the defects should be removed and replaced and all
expenses of satisfactory reconstruction of the replaced materials shall be for its sole account.123

Respondent is entitled to a 10% retention fee.

In H.L. Carlos Construction, Inc. v. Marina Properties Corporation,124 we held that in the construction
industry, the 10 % retention money is a portion of the contract price automatically deducted from the
contractor's billings, as security for the execution of corrective work—if any—becomes
necessary.125Section 14 of the Construction Agreement provides the conditions for the release of the
10% retention fee to wit:

14. FINAL PAYMENT - Final payment of (10%) Ten percent of the

contract price retained shall be made within thirty (30) days
from the date of issuance by the OWNER of the letter of
acceptance provided that the CONTRACTOR shall submit to the
OWNER a sworn statement showing that all the taxes due from
it as a result of the eontract and all obligation for
materials used and labor employed, have been paid for and
that no more outstanding claims for any obligations incurred
by the CONTRACTOR as a result of the contract exist; provided,
further, that nothing herein contained shall be construed to
waive the rights of the OWNER, which it hereby [reserves],
to reject the whole or any portion of the aforesaid works
should the same be found to have been constructed in violation
of the plans and specifications or any of the conditions or
documents of this contract.126 (Emphasis supplied)
Petitioner has complied with the conditions, which are pre-requisites for the release of the retention fee.
Hence, the CA was correct in granting the same to respondent.

WHEREFORE, the petition is PARTLY GRANTED and the assailed Resolution MODIFIED. Petitioner is
entitled to an award of Php 2,767,290.768 computed as follows:

P4,771,222.59 - unpaid balance under the Agreement

+ 141,944.93 - unpaid balance for change orders

P4,913,167.52 - total amount due to BFC

Less:
- liquidated damages by BFC
788,400.00

Php
4,124,767.52

Less:
- expenses for repainting job due to Werdenberg
1,050,000.00

Php - amount due to BFC

 3,074,767.52

Less:
- 10% retention fee by Werdenberg
307,476.752

Php
- amount due to BFC
2,767,290.768

The amount due BFC shall be with interest of 6% interest per annum from the filing of the complaint until
full payment.127

SO ORDERED.

FIRST DIVISION

G.R. No. 221770, November 16, 2016

NANITO Z. EVANGELISTA* (SUBSTITUTED BY HIS HEIRS, REPRESENTED BY THE SURVIVING

SPOUSE, LEOVIGILDA C. EVANGELISTA), Petitioners, v. SPOUSES NEREO V. ANDOLONG III
AND ERLINDA T. ANDOLONG** AND RINO AMUSEMENT INNOVATORS, INC., Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated May 22, 2015 and the
Resolution3 dated December 14, 2015 of the Court of Appeals (CA) in CA-G.R. CV No. 101120, which
affirmed the Decision4 dated October 25, 2012 and the Resolution5 dated January 10, 2013 of the
Regional Trial Court of Quezon City, Branch 99 (RTC) in Civil Case No. Q-95-25680, dismissing the
complaint of Nanito Z. Evangelista (Nanito) for failure to establish his money claims against respondents
Spouses Nereo V. Andolong III and Erlinda T. Andolong (Spouses Andolong) and Rino Amusement
Innovators, Inc. (RAII; collectively, respondents).

The Facts

The instant petition stemmed from a complaint for sum of money, accounting and specific performance
with prayer for issuance of writ of preliminary attachment and damages6 filed on November 22, 1995 by
Nanito against respondents before the RTC, docketed as Civil Case No. Q-95-25680. Nanito alleged that
Spouses Andolong are the majority shareholders of RAII, a domestic corporation engaged in the business
of operating amusement centers.7 On various dates, Nanito and respondents entered into various
memoranda of agreement (MOA),8 as well as deeds of assignment/sale with right to repurchase over
machines, equipment, and amenities, which were used in the operations of amusement centers in
different malls, such as SM Centerpoint in Manila,9 Sta. Lucia East Grand Mall in Cainta, Rizal,10 and
Gaisano Country Mall in Cebu11 (subject contracts).12 In the subject MOA, the parties agreed, inter alia,
that they would equally share, i.e., 50%-50%, from the net profits of said amusement centers and that
respondents would remit Nanito's share on the 15thand 30th of the month. 13 Claiming that respondents
failed to comply with their obligation to remit his share of the net profits, Nanito filed the instant
complaint.14 In support thereof, Nanito presented various computations of the revenues earned by the
amusement centers.15 In an Order16 dated June 27, 1996, the RTC limited Nanito's money claim to
P2,241,632.00, according to the stipulation of the parties in open court.17

After the presentation of Nanito's evidence, respondents filed a Demurrer to the Evidence,18 which was,
however, denied by the RTC.19 Eventually, respondents failed to present their evidence despite the
opportunity to do so; thus, they were deemed to have waived their right thereto. Thereafter, the RTC
directed the parties to file their respective memoranda20 to which they complied.21

During the pendency of the case, Nanito died and, consequently, was substituted by his heirs,
represented by his surviving spouse, Leovigilda C. Evangelista22 (petitioners).
 The RTC Ruling

In a Decision23 dated October 25, 2012, the RTC dismissed petitioners' complaint for insufficiency of
evidence. Essentially, the RTC found that Nanito failed to establish his claim against respondents in the
stipulated amount of P2,241,632.00, as all the evidence he presented did not prove his entitlement
thereto. Similarly, the RTC dismissed respondents' counterclaims24 for lack of proof.25

Petitioners filed a motion for reconsideration,26 but the same was denied in a Resolution27 dated January
10, 2013. Aggrieved, petitioners appealed to the CA.28

The CA Ruling

In a Decision29 dated May 22, 2015, the CA affirmed the RTC Ruling in toto. It held that while Nanito's
documentary exhibits were admissible in evidence as they were presumed to have been made in the
ordinary course of business, such documents only disclosed the gross monthly revenue earned by the
amusement centers in their operation and did not show the actual profit earned by said centers.30 In this
regard, the CA pointed out that the respective amounts of gross revenue were still subject to expenses
incurred in relation to the centers' daily operations, as well as the re-infusion of any possible earnings as
capital in order to sustain the maintenance of the machines and equipment therein.31Thus, in view of the
inconclusiveness of the evidence presented in proving the existence of the net profits, the CA concluded
that petitioners failed to prove their cause of action by a preponderance of evidence, warranting the
dismissal of the complaint.32

Petitioners moved for reconsideration,33 which was, however, denied in a Resolution34 dated December
14, 2015; hence, this petition.

The Issue Before the Court

The essential issue for the Court's resolution is whether or not the CA correctly held that petitioners failed
to prove their cause of action by a preponderance of evidence.

The Court's Ruling

The petition is partly meritorious.

In civil cases, it is a basic rule that the party making allegations has the burden of proving them by a
preponderance of evidence. Also, parties must rely on the strength of their own evidence, not upon the
weakness of the defense offered by their opponent. This principle equally holds true, even if the
defendant was not given the opportunity to present evidence because of a default order. The extent of
the relief that may be granted can only be as much as has been alleged and proved with preponderant
evidence required under Section 1, Rule 13335 of the Rules of Court.36

"Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and
is usually considered to be synonymous with the term 'greater weight of the evidence' or 'greater weight
of the credible evidence.' Preponderance of evidence is a phrase which, in the last analysis, means
probability of the truth. It is evidence which is more convincing to the court as worthier of belief than that
which is offered in opposition thereto."37

In the instant case, it is undisputed that under the subject contracts, Nanito had invested a grand total
of P5,728,800.00.38 Under the subject MOA, he is entitled to receive 50% of the net profits of the
amusement centers and that such profits must be remitted to him on the 15th and the 30th of each
month.39 However and as correctly pointed out by the CA, the documents presented by Nanito only
showed the gross monthly revenue of the amusement centers without taking into consideration their
daily operational expenses, as well as there-infusion of any possible earnings as capital in order to
sustain the maintenance of the machines and equipment. As such, these documents are inconclusive in
proving the existence of any net profits that respondents failed to remit to Nanito.

Be that as it may, the Court recognizes the fact that under the terms of the subject contracts,
respondents have exclusive control over the operations of the amusement centers, with Nanito acting as
a mere investor in the said ventures. Naturally, Nanito had no access to documents that would show the
existence of net profits, considering that all documents pertaining to the operations of the covered
amusement centers, including financial statements, are all in the possession of respondents. Given this
circumstance, Nanito was constrained to rely on the various computations of the revenues earned by the
amusement centers as certified by the mall-owners where they were situated.40 Such computations are
enough to establish the existence of gross revenue from which the net profits may be derived at by
simply subtracting all the operational expenses, as well any other possible deductions thereto such as
any re-infusion of possible earnings as capital.

For respondents' part, they could have easily rebutted petitioners' claim for Nanito's share of net profits
by producing pertinent documents which would show that the aforesaid gross profits were just enough,
or even inadequate, to cover the operational expenses and capital re-infusions to sustain the amusement
centers. Unfortunately, respondents opted not to shed light on the issues at hand as they, unwittingly or
otherwise, waived their right to present evidence in this case. In this light, the Court is thus left with no
option but to rule that the respondents' failure to present the documents in their possession — whether
such failure was intentional or not — raises the presumption that evidence willfully suppressed would be
adverse if produced.41

Under the foregoing circumstances, the Court is convinced that Nanito should have received remittances
representing net profits from respondents, albeit he failed to prove the exact amount he should receive
from the latter. In Seven Brothers Shipping Corporation v. DMC-Construction Resources Inc.,42 the Court
allowed the recovery of temperate damages in instances where it has been established that some
pecuniary loss has been suffered, but its amount cannot be proven with certainty, viz.:

In contrast, under Article 2224 [of the Civil Code],

temperate or moderate 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 provided with
certainty. This principle was thoroughly explained
in Araneta v. Bank of America [1488 Phil. 124 (1971)],
which cited the Code Commission, to wit:

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 one's
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
defendant's wrongful act.

Thus, in Tan v. OMC Carriers, Inc. [654 Phil. 443 (2011)],

temperate damages were rightly awarded because plaintiff
suffered a loss, although definitive proof of its amount
cannot be presented as the photographs produced as evidence
were deemed insufficient. Established in that case, however,
was the fact that respondent's truck was responsible for the
damage to petitioner's property and that petitioner suffered
some form of pecuniary loss. In Canada v. All Commodities
Marketing Corporation [590 Phil. 342 (2008)], temperate
damages were also awarded wherein respondent's goods did not
reach the Pepsi Cola Plant at Muntinlupa City as a result of
the negligence of petitioner in conducting its trucking and
hauling services, even if the amount of the pecuniary loss
had not been proven. In Philtranco Service Enterprises, Inc.
v. Paras[686 Phil. 736 (2012)], the respondent was likewise
awarded temperate damages in an action for breach of contract
of carriage, even if his medical expenses had not been
established with certainty. In People v. Briones [398 Phil.
31 (2000)], in which the accused was found guilty of murder,
temperate damages were given even if the funeral expenses for
the victim had not been sufficiently proven.

Given these findings, we are of the belief that temperate

and not nominal damages should have been awarded,
considering that it has been established that respondent
herein suffered a loss, even if the amount thereof cannot
be proven with certainty.

xxxx

Consequently, in computing the amount of temperate or

moderate damages, it is usually left to the discretion of
the courts, but the amount must be reasonable, bearing in
mind that temperate damages should be more than nominal but
less than compensatory.

Here, we are convinced that respondent sustained damages to

its conveyor facility due to petitioner's negligence.
Nonetheless, for failure of respondent to establish by
 competent evidence the exact amount of damages it suffered,
we are constrained to award temperate damages. Considering
that the lower courts have factually established that the
conveyor facility had a remaining life of only five of its
estimated total life of ten years during the time of the
collision, then the replacement cost of P7,046,351.84 should
rightly be reduced to 50% or P3,523,175.92. This is a fair
and reasonable valuation, having taking into account the
remaining useful life of the facility.43 (Emphases and
underscoring supplied)

As already adverted to, respondents' failure to remit the net profits to Nanito pursuant to the subject
MOA caused some pecuniary loss on the part of the latter, albeit he failed to prove the exact amount of
such loss. In view of such circumstance, the Court deems it reasonable to award temperate damages to
petitioners in the amount of P1,100,000.00, which is roughly half44 of P2,241,632.00, or the amount of
gross revenue claimed to have been earned by the amusement centers. Notably, the award of
P1,100,000.00 shall earn legal interest at the rate of six percent (6%) per annum from the finality of this
Decision until fully paid.

Finally, anent petitioners' other claims, i.e., regarding the monetary value of the arcade machines that
respondents allegedly pulled-out, suffice it to say that petitioners failed to prove their entitlement thereto
since — as correctly pointed out by the CA — the identity of the machines they claim to have been
pulled-out were not established by any competent proof.45

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated May 22, 2015 and the Resolution
dated December 14, 2015 of the Court of Appeals in CA-G.R. CV No. 101120 are
hereby AFFIRMEDwith MODIFICATION, ordering respondents Spouses Nereo V. Andolong III and
Erlinda T. Andolong and Rino Amusement Innovators, Inc. to jointly and solidarily pay petitioners heirs of
Nanito Z. Evangelista, represented by his surviving spouse, Leovigilda C. Evangelista, temperate
damages in the amount of P1,100,000.00 with legal interest at the rate of six percent (6%) per annum
from finality of this Decision until fully paid.

SO ORDERED.

Sereno, C.J., (Chairperson), Leonardo-De Castro, and Bersamin, JJ., concur.

Caguioa,*** J., on leave.