[G.R. No. 122823.
November 25, 1999] JII allegedly made known to petitioner, but the latter taking
SEA COMMERCIAL COMPANY, INC., petitioner,
vs. THE HONORABLE COURT OF APPEALS,
JAMANDRE INDUSTRIES, INC. and TIRSO
JAMANDRE, respondents.
DECISION
GONZAGA-REYES, J.:
In this petition for review by certiorari, SEA
Commercial Company, Inc. (SEACOM) assails the
decision of the Court of Appeals in CA-G.R. CV NO.
31263 affirming in toto the decision of the Regional Trial
Court of Manila, Branch 5, in Civil Case No. 122391, in
favor of Jamandre Industries, Inc. (JII) et al., the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of
the defendant and against the plaintiff, ordering the
plaintiff:
1) To pay defendant the sum of P66,156.15 (minus
18,843.85) with legal interest thereon, from the date of the
filing of the counterclaim until fully paid;
2) To pay defendant P2,000.00 as moral and exemplary
damages;
3) To pay attorneys fees in the sum of P10,000.00; and
4) To pay the costs of this suit.
SO ORDERED.
SEACOM is a corporation engaged in the business
of selling and distributing agricultural machinery, products
and equipment. On September 20, 1966, SEACOM and
JII entered into a dealership agreement whereby
SEACOM appointed JII as its exclusive dealer in the City
and Province of Iloilo[1] Tirso Jamandre executed a
suretyship agreement binding himself jointly and severally
with JII to pay for all obligations of JII to SEACOM[2]. The
agreement was subsequently amended to include Capiz
in the territorial coverage and to make the dealership
agreement on a non-exclusive basis[3]. In the course of
the business relationship arising from the dealership
agreement, JII allegedly incurred a balance
of P18,843.85 for unpaid deliveries, and SEACOM
brought action to recover said amount plus interest and
attorneys fees.
JII filed an Answer denying the obligation and
interposing a counterclaim for damages representing
unrealized profits when JII sold to the Farm System
Development Corporation (FSDC) twenty one (21) units
of Mitsubishi power tillers. In the counterclaim, JII alleged
that as a dealer in Capiz, JII contracted to sell in 1977
twenty-four (24) units of Mitsubishi power tillers to a group
of farmers to be financed by said corporation, which fact
advantage of said information and in bad faith, went
directly to FSDC and dealt with it and sold twenty one (21)
units of said tractors, thereby depriving JII of unrealized
profit of eighty-five thousand four hundred fifteen and
61/100 pesos (P85,415.61).
The trial court rendered its decision on January 24,
1990 ordering JII to pay SEACOM the amount of Eighteen
Thousand Eight Hundred Forty Three and 85/100
(P18,843.85) representing its outstanding obligation. The
trial court likewise granted JIIs counterclaim for unrealized
profits, and for moral and exemplary damages and
attorney fees as above quoted.
SEACOM appealed the decision on the
counterclaim.
The Court of Appeals held that while there exists no
agency relationship between SEACOM and JII, SEACOM
is liable for damages and unrealized profits to JII.
This Court, however, is convinced that with or without the
existence of an agency relationship between appellant
SEACOM and appellee JII and notwithstanding the error
committed by the lower court in finding that an agency
relationship existed between appellant and defendant
corporation the former is liable for the unrealized profits
which the latter could have gained had not appellant
unjustly stepped in and in bad faith unethically intervened.
It should be emphasized that the very purpose of the
dealership agreement is for SEACOM to have JII as its
dealer to sell its products in the provinces of Capiz and
Iloilo. In view of this agreement, the second assigned
error that the lower court erred in holding that appellant
learned of the FSDC transaction from defendant JII is
clearly immaterial and devoid of merit. The fact that the
dealership is on a non-exclusive basis does not entitle
appellant SEACOM to join the fray as against its
dealer. To do so, is to violate the norms of conduct
enjoined by Art. 19 of the Civil Code. By virtue of such
agreement, the competition in the market as regards the
sale of farm equipment shall be between JII, as the dealer
of SEACOM and other companies, not as against
SEACOM itself. However, SEACOM, not satisfied with
the presence of its dealer JII in the market, joined the
competition even as the against the latter and, therefore,
changed the scenario of the competition thereby
rendering inutile the dealership agreement which they
entered into the manifest prejudice of JII. Hence, the trial
court was correct when it applied Art. 19 of the Civil Code
in the case at bar in that appellant SEACOM acted in bad
faith when it competed with its own dealer as regards the
sale of farm machineries, thereby depriving appellee JII
of the opportunity to gain a clear profit of P85,000.00.
and affirmed the judgment appealed from in toto.
Hence this petition for review on certiorari, which
submits the following reasons for the allowance thereof:
THE RESPONDENT COURT OF APPEALS DECIDED
QUESTIONS OF SUBSTANCE IN A WAY NOT IN
ACCORDANCE WITH LAW AND JURISPRUDENCE,
CONSIDERING THAT:
A preference of the farmers to buy Mitsubishi tillers. JII
THE RESPONDENT COURT OF APPEALS GRAVELY
ERRED IN RULING THAT PETITIONER IS LIABLE TO
PAY DAMAGES AND UNREALIZED PROFITS TO THE
PRIVATE RESPONDENTS DESPITE THE FACT THAT
NO AGENCY RELATIONSHIP EXISTS BETWEEN
THEM.
B dealership agreement was not exclusive, it was breached
THE RESPONDENT COURT OF APPEALS GRAVELY
ERRED IN RULING THAT PETITIONER ACTED IN BAD
FAITH AGAINST THE PRIVATE RESPONDENT
CORPORATION DESPITE THE FACT THAT SAID
RULING IS CONTRARY TO THE EVIDENCE ON
RECORD.
C
THE RESPONDENT COURT OF APPEALS GRAVELY
ERRED IN RULING THAT THE NON-EXCLUSIVITY
CLAUSE IN THE DEALERSHIP AGREEMENT
EXECUTED BETWEEN THE PETITIONER AND
PRIVATE RESPONDENT CORPORATION
PRECLUDES THE PETITIONER FROM COMPETING
WITH THE PRIVATE RESPONDENT CORPORATION.
D buy directly from it. In fine, JII is not entitled to the award
THE RESPONDENT COURT OF APPEALS GRAVELY
ERRED IN RULING THAT PRIVATE RESPONDENT IS
ENTITLED TO UNREALIZED PROFITS, MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES.[4]
Petitioner SEACOM disputes the conclusion of the
Court of Appeals that despite the fact that no agency
relationship existed between the parties, the SEACOM is
still liable in damages and unrealized profits for the reason
that it acted in bad faith. Petitioner SEACOM invokes the
non-exclusivity clause in the dealership agreement and
claims that the transaction with FSDC was concluded
pursuant to a public bidding and not on the basis of
alleged information it received from private respondent
Tirso Jamandre. Moreover, petitioner SEACOM claims
that it did not underprice its products during the public
bidding wherein both SEACOM and JII
participated. Petitioner also disputes the award of moral
damages to JII which is a corporation, in the absence of
any evidence that the said corporation had a good
reputation which was debased.
Private respondents in their comment, contends that
the four assigned errors raise mixed questions of fact and
law and are therefore beyond the jurisdiction of the
Supreme Court which may take cognizance of only
questions of law. The assigned errors were also refuted
to secure affirmance of the appealed decision. JII
maintains that the bidding set by FSDC on March 24,
1997 was scheduled after the demonstration conducted
by JII, and after JII informed SEACOM about the
further rebuts the SEACOMs contention that the
transaction with FSDC was pursuant to a public bidding
with full disclosure to the public and private respondent JII
considering that JII had nothing to do with the list of 37
bidders and cannot be bound by the listing made by
SEACOMs employee; moreover, JII did not participate in
the bidding not having been informed about
it. Furthermore, the price at which SEACOM sold to FSDC
was lower than the price it gave to JII. Also, even if the
when petitioner in bad faith sold directly to FSDC with
whom JII had previously offered the subject farm
equipment. With respect to the awards of moral and
exemplary damages, JII seeks an affirmation of the ruling
of the Court of Appeals justifying the awards.
SEACOM filed Reply defending the jurisdiction of
this Court over the instant petition since the decision of
the Court of Appeals was based on a misapprehension of
facts. SEACOM insists that FSDCs purchase was made
pursuant to a public bidding, and even if SEACOM did not
participate thereon, JII would not necessarily have closed
the deal since thirty seven (37) bidders
participated. SEACOM contends that no evidence was
presented to prove that the bidding was a fraudulent
scheme of SEACOM and FSDC. SEACOM further
controverts JIIs contention that JII did not take part in the
bidding as Tirso Jamandre was one of the bidders and
that SEACOM underpriced its products to entice FSDC to
of unrealized profits and damages.
In its Rejoinder, private respondents insist that there
is an agency relationship, citing the evidence showing that
credit memos and not cash vouchers were issued to JII
by SEACOM for every delivery from November 26, 1976
to December 24, 1978. Private respondents maintain that
SEACOM torpedoed the emerging deal between JII and
FSDC after being informed about it by JII by dealing
directly with FSDC at a lower price and after betraying JII,
SEACOM would cover up the deceit by conniving with
FSDC to post up a sham public bidding.
SEACOMs sur-rejoinder contains basically a
reiteration of its contention in previous
pleadings. Additionally, it is contended that private
respondents are barred from questioning in their
Rejoinder, the finding of the Court of Appeals that there is
no agency relationship between the parties since this
matter was not raised as error in their comment.
The core issue is whether SEACOM acted in bad
faith when it competed with its own dealer as regards the
sale of farm machineries to FSDC.
Both the trial court and the Court of Appeals held
affirmatively; the trial court found that JII was an agent of
SEACOM and the act of SEACOM in dealing directly with
FSDC was unfair and unjust to its agent, and that there
was fraud in the transaction between FSDC and
SEACOM to the prejudice of JII. On the other hand, the
Court of Appeals ruled that there was no agency
relationship between the parties but SEACOM is
nevertheless liable in damages for having acted in bad
faith when it competed with its own dealer in the sale of
the farm machineries to FSDC. Both courts invoke as
basis for the award Article 19 of the Civil Code which
reads as follows:
"Art. 19. Every person must, in the exercise of his rights
and in the performance of his duties, act with justice, give
everyone his due and observe honesty and good faith.
The principle of abuse of rights stated in the above
article, departs from the classical theory that he who uses
a right injures no one. The modern tendency is to depart
from the classical and traditional theory, and to grant
indemnity for damages in cases where there is an abuse
of rights, even when the act is not illicit.[5]
Article 19 was intended to expand the concept of
torts by granting adequate legal remedy for the untold
number of moral wrongs which is impossible for human
foresight to provide specifically in statutory law.[6] If mere
fault or negligence in ones acts can make him liable for
damages for injury caused thereby, with more reason
should abuse or bad faith make him liable. The absence
of good faith is essential to abuse of right. Good faith is
an honest intention to abstain from taking any
unconscientious advantage of another, even through the
forms or technicalities of the law, together with an
absence of all information or belief of fact which would
render the transaction unconscientious. In business
relations, it means good faith as understood by men of
affairs.[7]
While Article 19 may have been intended as a mere
declaration of principle[8], the cardinal law on human
conduct expressed in said article has given rise to certain
rules, e.g. that where a person exercises his rights but
does so arbitrarily or unjustly or performs his duties in a
manner that is not in keeping with honesty and good faith,
he opens himself to liability.[9] The elements of an abuse
of rights under Article 19 are: (1) there is a legal right or
duty; (2) which is exercised in bad faith; (3) for the sole
intent of prejudicing or injuring another.[10]
The issue whether JII is entitled to recovery on its
counterclaim for unrealized profit in the twenty one (21)
units of Mitsubishi power tillers sold by SEACOM to FSDC
was resolved by the trial court in favor of JII on the basis
of documentary evidence[11] showing that (1) JII has
informed SEACOM as early as February 1977 of the
promotions undertaken by JII for the sale of 24 contracted
units to FSDC and in connection therewith, requested a
50% discount to make the price competitive, and to
increase the warranty period for eight months to one
year. In said letter Jamandre clarified that they were not
amenable to SEACOMs offering directly to FSDC and to
be only given the usual overriding commission as we have
considerable investments on this transaction. (2) In
response, the general sales manager of SEACOM
declined to give the requested 50% discount and offered
a less 30% less 10% up to end March xxx on cash before
delivery basis, granted the requested extension of the
warranty period and stated that we are glad to note that
you have quite a number of units pending with the FSDC.
The trial court ruled that with said information,
SEACOM dealt directly with FSDC and offered its units at
a lower price, leaving FSDC no choice but to accept the
said offer of (SEACOM).
In affirming the judgment of the of the trial court, the
Court of Appeals held that by virtue of the dealership
agreement the competition in the market as regards the
sale of farm equipment shall be between JII, as the dealer
of SEACOM, and other companies, not as against
SEACOM itself, the Court stated:
However, SEACOM not satisfied with the presence of its
dealer JII in the market, joined the competition even as
against the latter, and thereby changed the scenario of
the competition thereby rendering inutile the dealership
agreement which they entered into to the manifest
prejudice of JII. Hence the trial court trial court was correct
when it applied Art. 19 of the Civil Code in the case at bar
in that appellant SEACOM acted in bad faith when it
competed with its own dealer as regards the sale of farm
machineries, thereby depriving appellee JII of the
opportunity to gain a clear profit of P85,000.00.
We find no cogent reason to overturn the factual
finding of the two courts that SEACOM joined the bidding
for the sale of the farm equipment after it was informed
that JII was already promoting the sales of said equipment
to the FSDC. Moreover, the conclusion of the trial court
that the SEACOM offered FSDC a lower price than the
price offered by JII to FSDC is supported by the
evidence: the price offered by JII to FSDC is P27,167 per
unit[12] but the prices at which SEACOM sold to FSDC
were at P22,867.00 for Model CT 83-2, P21,093.50 for
model CT 83-E, and P18,979.25 for model CT 534. The
fact that SEACOM may have offered to JII, in lieu of a
requested 50% discount, a discount effectively translating
to 37% of the list price and actually sold to FSDC at 35%
less than the list price[13] does not detract from the fact
that by participating in the bidding of FSDC, it actually
competed with its own dealer who had earlier conducted
demonstrations and promoted its own products for the
sale of the very same equipment, Exh. N for the plaintiff
confirms that both SEACOM and Jamandre participated
in the bidding.[14] However, the SEACOM was awarded
the contract directly from Manila.[15] The testimony of
Tirso Jamandre that JII was the sole representative of
SEACOM in the local demonstrations to convince the
farmers and cooperative officers to accept the Mitsubishi
brand of equipment in preference to other brands, was
unrebutted by SEACOM.
Clearly, the bad faith of SEACOM was
established. By appointing as a dealer of its agricultural
equipment, SEACOM recognized the role and
undertaking of JII to promote and sell said
equipment.Under the dealership agreement, JII was to act
as a middleman to sell SEACOMs products, in its area of
operations, i.e. Iloilo and Capiz provinces, to the exclusion
of other places,[16] to send its men to Manila for training
on repair, servicing and installation of the items to be
handled by it, and to comply with other personnel and
vehicle requirements intended for the benefit of the
dealership.[17] After being informed of the demonstrations
JII had conducted to promote the sales of SEACOM
equipment, including the operations at JIIs expense
conducted for five months, and the approval of its facilities
(service and parts) by FSDC,[18] SEACOM participated in
the bidding for the said equipment at a lower price, placing
itself in direct competition with its own dealer. The
actuations of SEACOM are tainted by bad faith.
Even if the dealership agreement was amended to
make it on a non-exclusive basis,[19] SEACOM may not
exercise its right unjustly or in a manner that is not in
keeping with honesty or good faith; otherwise it opens
itself to liability under the abuse of right rule embodied in
Article 19 of the Civil Code above-quoted. This provision,
together with the succeeding article on human relation,
was intended to embody certain basic principles that are
to be observed for the rightful relationship between
human beings and for the stability of the social
order.[20] What is sought to be written into the law is the
pervading principle of equity and justice above strict
legalism.[21]
We accordingly resolve to affirm the award for
unrealized profits. The Court of Appeals noted that the
trial court failed to specify to which the two appellees the
award for moral and exemplary damages is
granted. However, in view of the fact that moral damages
are not as a general rule granted to a corporation, and
that Tirso Jamandre was the one who testified on his
feeling very aggrieved and on his mental anguish and
sleepless nights thinking of how SEACOM dealt with us
behind (our) backs,[22] the award should go to defendant
Jamandre, President of JII.
WHEREFORE, the judgment appealed from is
AFFIRMED with the modification that the award
of P2,000.00 in moral and exemplary damages shall be
paid to defendant Tirso Jamandre.
Costs against appellant.
SO ORDERED.
G.R. No. 81262 August 25, 1989
GLOBE MACKAY CABLE AND RADIO CORP., and
HERBERT C. HENDRY, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and
RESTITUTO M. TOBIAS, respondents.
CORTES, J.:
Private respondent Restituto M. Tobias was employed by
petitioner Globe Mackay Cable and Radio Corporation
(GLOBE MACKAY) in a dual capacity as a purchasing
agent and administrative assistant to the engineering
operations manager. In 1972, GLOBE MACKAY
discovered fictitious purchases and other fraudulent
transactions for which it lost several thousands of pesos.
According to private respondent it was he who actually
discovered the anomalies and reported them on
November 10, 1972 to his immediate superior Eduardo T.
Ferraren and to petitioner Herbert C. Hendry who was
then the Executive Vice-President and General Manager
of GLOBE MACKAY.
On November 11, 1972, one day after private respondent
Tobias made the report, petitioner Hendry confronted him
by stating that he was the number one suspect, and
ordered him to take a one week forced leave, not to
communicate with the office, to leave his table drawers
open, and to leave the office keys.
On November 20, 1972, when private respondent Tobias
returned to work after the forced leave, petitioner Hendry
went up to him and called him a "crook" and a "swindler."
Tobias was then ordered to take a lie detector test. He
was also instructed to submit specimen of his handwriting,
signature, and initials for examination by the police
investigators to determine his complicity in the anomalies.
On December 6,1972, the Manila police investigators
submitted a laboratory crime report (Exh. "A") clearing
private respondent of participation in the anomalies.
Not satisfied with the police report, petitioners hired a
private investigator, retired Col. Jose G. Fernandez, who
on December 10, 1972, submitted a report (Exh. "2")
finding Tobias guilty. This report however expressly
stated that further investigation was still to be conducted.
Nevertheless, on December 12, 1972, petitioner Hendry
issued a memorandum suspending Tobias from work
preparatory to the filing of criminal charges against him.
On December 19,1972, Lt. Dioscoro V. Tagle, Metro
Manila Police Chief Document Examiner, after
investigating other documents pertaining to the alleged
anomalous transactions, submitted a second laboratory
crime report (Exh. "B") reiterating his previous finding that
the handwritings, signatures, and initials appearing in the
checks and other documents involved in the fraudulent
transactions were not those of Tobias. The lie detector
tests conducted on Tobias also yielded negative results.
Notwithstanding the two police reports exculpating Tobias
from the anomalies and the fact that the report of the
private investigator, was, by its own terms, not yet
complete, petitioners filed with the City Fiscal of Manila a
complaint for estafa through falsification of commercial
documents, later amended to just estafa. Subsequently
five other criminal complaints were filed against Tobias,
four of which were for estafa through Falsification of
commercial document while the fifth was for of Article 290
of' the Revised Penal Code (Discovering Secrets Through
Seizure of Correspondence).lâwphî1.ñèt Two of these
complaints were refiled with the Judge Advocate
General's Office, which however, remanded them to the
fiscal's office. All of the six criminal complaints were
dismissed by the fiscal. Petitioners appealed four of the
fiscal's resolutions dismissing the criminal complaints with
the Secretary of Justice, who, however, affirmed their
dismissal.
In the meantime, on January 17, 1973, Tobias received a
notice (Exh. "F") from petitioners that his employment has
been terminated effective December 13, 1972.
Whereupon, Tobias filed a complaint for illegal dismissal.
The labor arbiter dismissed the complaint. On appeal, the
National Labor Relations Commission (NLRC) reversed
the labor arbiter's decision. However, the Secretary of
Labor, acting on petitioners' appeal from the NLRC ruling,
reinstated the labor arbiter's decision. Tobias appealed
the Secretary of Labor's order with the Office of the
President. During the pendency of the appeal with said
office, petitioners and private respondent Tobias entered
into a compromise agreement regarding the latter's
complaint for illegal dismissal.
Unemployed, Tobias sought employment with the
Republic Telephone Company (RETELCO). However,
petitioner Hendry, without being asked by RETELCO,
wrote a letter to the latter stating that Tobias was
dismissed by GLOBE MACKAY due to dishonesty.
Private respondent Tobias filed a civil case for damages
anchored on alleged unlawful, malicious, oppressive, and
abusive acts of petitioners. Petitioner Hendry, claiming
illness, did not testify during the hearings. The Regional
Trial Court (RTC) of Manila, Branch IX, through Judge
Manuel T. Reyes rendered judgment in favor of private
respondent by ordering petitioners to pay him eighty
thousand pesos (P80,000.00) as actual damages, two
hundred thousand pesos (P200,000.00) as moral
damages, twenty thousand pesos (P20,000.00) as
exemplary damages, thirty thousand pesos (P30,000.00)
as attorney's fees, and costs. Petitioners appealed the
RTC decision to the Court of Appeals. On the other hand,
Tobias appealed as to the amount of damages. However,
the Court of Appeals, an a decision dated August 31,
1987 affirmed the RTC decision in toto. Petitioners'
motion for reconsideration having been denied, the
instant petition for review on certiorari was filed.
The main issue in this case is whether or not petitioners
are liable for damages to private respondent.
Petitioners contend that they could not be made liable for
damages in the lawful exercise of their right to dismiss
private respondent.
On the other hand, private respondent contends that
because of petitioners' abusive manner in dismissing him
as well as for the inhuman treatment he got from them,
the Petitioners must indemnify him for the damage that he
had suffered.
One of the more notable innovations of the New Civil
Code is the codification of "some basic principles that are
to be observed for the rightful relationship between
human beings and for the stability of the social order."
[REPORT ON THE CODE COMMISSION ON THE
PROPOSED CIVIL CODE OF THE PHILIPPINES, p. 39].
The framers of the Code, seeking to remedy the defect of
the old Code which merely stated the effects of the law,
but failed to draw out its spirit, incorporated certain
fundamental precepts which were "designed to indicate
certain norms that spring from the fountain of good
conscience" and which were also meant to serve as
"guides for human conduct [that] should run as golden
threads through society, to the end that law may approach
its supreme ideal, which is the sway and dominance of
justice" (Id.) Foremost among these principles is that
pronounced in Article 19 which provides:
Art. 19. Every person must, in the
exercise of his rights and in the
performance of his duties, act with
justice, give everyone his due, and
observe honesty and good faith.
This article, known to contain what is commonly referred
to as the principle of abuse of rights, sets certain
standards which must be observed not only in the
exercise of one's rights but also in the performance of
one's duties. These standards are the following: to act
with justice; to give everyone his due; and to observe
honesty and good faith. The law, therefore, recognizes a
primordial limitation on all rights; that in their exercise, the
norms of human conduct set forth in Article 19 must be
observed. A right, though by itself legal because
recognized or granted by law as such, may nevertheless
become the source of some illegality. When a right is
exercised in a manner which does not conform with the
norms enshrined in Article 19 and results in damage to
another, a legal wrong is thereby committed for which the
wrongdoer must be held responsible. But while Article 19
lays down a rule of conduct for the government of human
relations and for the maintenance of social order, it does
not provide a remedy for its violation. Generally, an action
for damages under either Article 20 or Article 21 would be
proper.
Article 20, which pertains to damage arising from a
violation of law, provides that:
Art. 20. Every person who contrary to
law, wilfully or negligently causes
damage to another, shall indemnify the
latter for the same.
However, in the case at bar, petitioners claim that they did
not violate any provision of law since they were merely
exercising their legal right to dismiss private respondent.
This does not, however, leave private respondent with no
relief because Article 21 of the Civil Code provides that:
Art. 21. Any person who wilfully causes
loss or injury to another in a manner that
is contrary to morals, good customs or
public policy shall compensate the latter
for the damage.
This article, adopted to remedy the "countless gaps in the
statutes, which leave so many victims of moral wrongs
helpless, even though they have actually suffered
material and moral injury" [Id.] should "vouchsafe
adequate legal remedy for that untold number of moral
wrongs which it is impossible for human foresight to
provide for specifically in the statutes" [Id. it p. 40; See
also PNB v. CA, G.R. No. L-27155, May 18,1978, 83
SCRA 237, 247].
In determining whether or not the principle of abuse of
rights may be invoked, there is no rigid test which can be
applied. While the Court has not hesitated to apply Article
19 whether the legal and factual circumstances called for
its application [See for e.g., Velayo v. Shell Co. of the
Phil., Ltd., 100 Phil. 186 (1956); PNB v. CA, supra; Grand
Union Supermarket, Inc. v. Espino, Jr., G.R. No. L-48250,
December 28, 1979, 94 SCRA 953; PAL v. CA, G.R. No.
L-46558, July 31,1981,106 SCRA 391; United General
Industries, Inc, v. Paler G.R. No. L-30205, March
15,1982,112 SCRA 404; Rubio v. CA, G.R. No. 50911,
August 21, 1987, 153 SCRA 183] the question of whether
or not the principle of abuse of rights has been violated
resulting in damages under Article 20 or Article 21 or other
applicable provision of law, depends on the
circumstances of each case. And in the instant case, the
Court, after examining the record and considering certain
significant circumstances, finds that all petitioners have
indeed abused the right that they invoke, causing damage
to private respondent and for which the latter must now
be indemnified.
The trial court made a finding that notwithstanding the fact
that it was private respondent Tobias who reported the
possible existence of anomalous transactions, petitioner
Hendry "showed belligerence and told plaintiff (private
respondent herein) that he was the number one suspect
and to take a one week vacation leave, not to
communicate with the office, to leave his table drawers
open, and to leave his keys to said defendant (petitioner
Hendry)" [RTC Decision, p. 2; Rollo, p. 232]. This,
petitioners do not dispute. But regardless of whether or
not it was private respondent Tobias who reported the
anomalies to petitioners, the latter's reaction towards the
former upon uncovering the anomalies was less than civil.
An employer who harbors suspicions that an employee
has committed dishonesty might be justified in taking the
appropriate action such as ordering an investigation and
directing the employee to go on a leave. Firmness and the
resolve to uncover the truth would also be expected from
such employer. But the high-handed treatment accorded
Tobias by petitioners was certainly uncalled for. And this
reprehensible attitude of petitioners was to continue when
private respondent returned to work on November 20,
1972 after his one week forced leave. Upon reporting for
work, Tobias was confronted by Hendry who said.
"Tobby, you are the crook and swindler in this company."
Considering that the first report made by the police
investigators was submitted only on December 10, 1972
[See Exh. A] the statement made by petitioner Hendry
was baseless. The imputation of guilt without basis and
the pattern of harassment during the investigations of
Tobias transgress the standards of human conduct set
forth in Article 19 of the Civil Code. The Court has already
ruled that the right of the employer to dismiss an
employee should not be confused with the manner in
which the right is exercised and the effects flowing
therefrom. If the dismissal is done abusively, then the
employer is liable for damages to the employee [Quisaba
v. Sta. Ines-Melale Veneer and Plywood Inc., G.R. No. L-
38088, August 30, 1974, 58 SCRA 771; See
also Philippine Refining Co., Inc. v. Garcia, G.R. No. L-
21871, September 27,1966, 18 SCRA 107] Under the
circumstances of the instant case, the petitioners clearly
failed to exercise in a legitimate manner their right to
dismiss Tobias, giving the latter the right to recover
damages under Article 19 in relation to Article 21 of the
Civil Code.
But petitioners were not content with just dismissing
Tobias. Several other tortious acts were committed by
petitioners against Tobias after the latter's termination
from work. Towards the latter part of January, 1973, after
the filing of the first of six criminal complaints against
Tobias, the latter talked to Hendry to protest the actions
taken against him. In response, Hendry cut short Tobias'
protestations by telling him to just confess or else the
company would file a hundred more cases against him
until he landed in jail. Hendry added that, "You Filipinos
cannot be trusted." The threat unmasked petitioner's bad
faith in the various actions taken against Tobias. On the
other hand, the scornful remark about Filipinos as well as
Hendry's earlier statements about Tobias being a "crook"
and "swindler" are clear violations of 'Tobias' personal
dignity [See Article 26, Civil Code].
The next tortious act committed by petitioners was the
writing of a letter to RETELCO sometime in October 1974,
stating that Tobias had been dismissed by GLOBE
MACKAY due to dishonesty. Because of the letter, Tobias
failed to gain employment with RETELCO and as a result
of which, Tobias remained unemployed for a longer
period of time. For this further damage suffered by Tobias,
petitioners must likewise be held liable for damages
consistent with Article 2176 of the Civil Code. Petitioners,
however, contend that they have a "moral, if not legal,
duty to forewarn other employers of the kind of employee
the plaintiff (private respondent herein) was." [Petition, p.
14; Rollo, p. 15]. Petitioners further claim that "it is the
accepted moral and societal obligation of every man to
advise or warn his fellowmen of any threat or danger to
the latter's life, honor or property. And this includes
warning one's brethren of the possible dangers involved
in dealing with, or accepting into confidence, a man
whose honesty and integrity is suspect" [Id.]. These
arguments, rather than justify petitioners' act, reveal a
seeming obsession to prevent Tobias from getting a job,
even after almost two years from the time Tobias was
dismissed.
Finally, there is the matter of the filing by petitioners of six
criminal complaints against Tobias. Petitioners contend
that there is no case against them for malicious
prosecution and that they cannot be "penalized for
exercising their right and prerogative of seeking justice by
filing criminal complaints against an employee who was
their principal suspect in the commission of forgeries and
in the perpetration of anomalous transactions which
defrauded them of substantial sums of money" [Petition,
p. 10, Rollo, p. 11].
While sound principles of justice and public policy dictate
that persons shall have free resort to the courts for
redress of wrongs and vindication of their rights
[Buenaventura v. Sto. Domingo, 103 Phil. 239 (1958)], the
right to institute criminal prosecutions can not be
exercised maliciously and in bad faith [Ventura v.
Bernabe, G.R. No. L-26760, April 30, 1971, 38 SCRA
5871.] Hence, in Yutuk V. Manila Electric Co., G.R. No. L-
13016, May 31, 1961, 2 SCRA 337, the Court held that
the right to file criminal complaints should not be used as
a weapon to force an alleged debtor to pay an
indebtedness. To do so would be a clear perversion of the
function of the criminal processes and of the courts of
justice. And in Hawpia CA, G.R. No. L-20047, June 30,
1967. 20 SCRA 536 the Court upheld the judgment
against the petitioner for actual and moral damages and
attorney's fees after making a finding that petitioner, with
persistence, filed at least six criminal complaints against
respondent, all of which were dismissed.
To constitute malicious prosecution, there must be proof
that the prosecution was prompted by a design to vex and
humiliate a person and that it was initiated deliberately by
the defendant knowing that the charges were false and
groundless [Manila Gas Corporation v. CA, G.R. No. L-
44190, October 30,1980, 100 SCRA 602]. Concededly,
the filing of a suit by itself, does not render a person liable
for malicious prosecution [Inhelder Corporation v. CA,
G.R. No. 52358, May 301983122 SCRA 576]. The mere
dismissal by the fiscal of the criminal complaint is not a
ground for an award of damages for malicious
prosecution if there is no competent evidence to show that
the complainant had acted in bad faith [Sison v. David,
G.R. No. L-11268, January 28,1961, 1 SCRA 60].
In the instant case, however, the trial court made a finding
that petitioners acted in bad faith in filing the criminal
complaints against Tobias, observing that:
xxx
Defendants (petitioners herein) filed with
the Fiscal's Office of Manila a total of six
(6) criminal cases, five (5) of which were
for estafa thru falsification of commercial
document and one for violation of Art.
290 of the Revised Penal Code
"discovering secrets thru seizure of
correspondence," and all were dismissed
for insufficiency or lack of evidence." The
dismissal of four (4) of the cases was
appealed to the Ministry of Justice, but
said Ministry invariably sustained the
dismissal of the cases. As above
adverted to, two of these cases were
refiled with the Judge Advocate
General's Office of the Armed Forces of
the Philippines to railroad plaintiffs arrest
and detention in the military stockade,
but this was frustrated by a presidential
decree transferring criminal cases
involving civilians to the civil courts.
xxx
To be sure, when despite the two (2)
police reports embodying the findings of
Lt. Dioscoro Tagle, Chief Document
Examiner of the Manila Police
Department, clearing plaintiff of
participation or involvement in the
fraudulent transactions complained of,
despite the negative results of the lie
detector tests which defendants
compelled plaintiff to undergo, and
although the police investigation was
"still under follow-up and a computation of the damages incurred by Tobias
supplementary report will be submitted
after all the evidence has been
gathered," defendants hastily filed six (6)
criminal cases with the city Fiscal's Office
of Manila, five (5) for estafa thru
falsification of commercial document and
one (1) for violation of Art. 290 of the
Revised Penal Code, so much so that as
was to be expected, all six (6) cases were
dismissed, with one of the investigating
fiscals, Asst. Fiscal de Guia, commenting
in one case that, "Indeed, the haphazard
way this case was investigated is
evident. Evident likewise is the flurry and
haste in the filing of this case against
respondent Tobias," there can be no
mistaking that defendants would not but
be motivated by malicious and unlawful
intent to harass, oppress, and cause
damage to plaintiff.
xxx
[RTC Decision, pp. 5-6; Rollo, pp. 235-236].
In addition to the observations made by the trial court, the
Court finds it significant that the criminal complaints were
filed during the pendency of the illegal dismissal case filed
by Tobias against petitioners. This explains the haste in
which the complaints were filed, which the trial court
earlier noted. But petitioners, to prove their good faith,
point to the fact that only six complaints were filed against
Tobias when they could have allegedly filed one hundred
cases, considering the number of anomalous transactions
committed against GLOBE MACKAY. However,
petitioners' good faith is belied by the threat made by
Hendry after the filing of the first complaint that one
hundred more cases would be filed against Tobias. In
effect, the possible filing of one hundred more cases was
made to hang like the sword of Damocles over the head
of Tobias. In fine, considering the haste in which the
criminal complaints were filed, the fact that they were filed
during the pendency of the illegal dismissal case against
petitioners, the threat made by Hendry, the fact that the
cases were filed notwithstanding the two police reports
exculpating Tobias from involvement in the anomalies
committed against GLOBE MACKAY, coupled by the
eventual dismissal of all the cases, the Court is led into no
other conclusion than that petitioners were motivated by
malicious intent in filing the six criminal complaints against
Tobias.
Petitioners next contend that the award of damages was
excessive. In the complaint filed against petitioners,
Tobias prayed for the following: one hundred thousand
pesos (P100,000.00) as actual damages; fifty thousand
pesos (P50,000.00) as exemplary damages; eight
hundred thousand pesos (P800,000.00) as moral
damages; fifty thousand pesos (P50,000.00) as attorney's
fees; and costs. The trial court, after making a
[See RTC Decision, pp. 7-8; Rollo, pp. 154-1551,
awarded him the following: eighty thousand pesos
(P80,000.00) as actual damages; two hundred thousand
pesos (P200,000.00) as moral damages; twenty
thousand pesos (P20,000.00) as exemplary damages;
thirty thousand pesos (P30,000.00) as attorney's fees;
and, costs. It must be underscored that petitioners have
been guilty of committing several actionable tortious acts,
i.e., the abusive manner in which they dismissed Tobias
from work including the baseless imputation of guilt and
the harassment during the investigations; the defamatory
language heaped on Tobias as well as the scornful
remark on Filipinos; the poison letter sent to RETELCO
which resulted in Tobias' loss of possible employment;
and, the malicious filing of the criminal complaints.
Considering the extent of the damage wrought on Tobias,
the Court finds that, contrary to petitioners' contention, the
amount of damages awarded to Tobias was reasonable
under the circumstances.

Yet, petitioners still insist that the award of damages was

improper, invoking the principle of damnum
absque injuria. It is argued that "[t]he only probable actual
damage that plaintiff (private respondent herein) could
have suffered was a direct result of his having been
dismissed from his employment, which was a valid and
legal act of the defendants-appellants (petitioners
herein).lâwphî1.ñèt " [Petition, p. 17; Rollo, p. 18].

According to the principle of damnum absque injuria,

damage or loss which does not constitute a violation of a
legal right or amount to a legal wrong is not actionable
[Escano v. CA, G.R. No. L-47207, September 25, 1980,
100 SCRA 197; See also Gilchrist v. Cuddy 29 Phil, 542
(1915); The Board of Liquidators v. Kalaw, G.R. No. L-
18805, August 14, 1967, 20 SCRA 987]. This principle
finds no application in this case. It bears repeating that
even granting that petitioners might have had the right to
dismiss Tobias from work, the abusive manner in which
that right was exercised amounted to a legal wrong for
which petitioners must now be held liable. Moreover, the
damage incurred by Tobias was not only in connection
with the abusive manner in which he was dismissed but
was also the result of several other quasi-delictual acts
committed by petitioners.

Petitioners next question the award of moral damages.

However, the Court has already ruled in Wassmer v.
Velez, G.R. No. L-20089, December 26, 1964, 12 SCRA
648, 653, that [p]er express provision of Article 2219 (10)
of the New Civil Code, moral damages are recoverable in
the cases mentioned in Article 21 of said Code." Hence,
the Court of Appeals committed no error in awarding
moral damages to Tobias.

Lastly, the award of exemplary damages is impugned by

petitioners. Although Article 2231 of the Civil Code
provides that "[i]n quasi-delicts, exemplary damages may
be granted if the defendant acted with gross negligence,"
the Court, in Zulueta v. Pan American World Airways,
Inc., G.R. No. L- 28589, January 8, 1973, 49 SCRA 1,
ruled that if gross negligence warrants the award of
exemplary damages, with more reason is its imposition
justified when the act performed is deliberate, malicious
and tainted with bad faith. As in the Zulueta case, the
nature of the wrongful acts shown to have been
committed by petitioners against Tobias is sufficient basis
for the award of exemplary damages to the latter.

WHEREFORE, the petition is hereby DENIED and the

decision of the Court of Appeals in CA-G.R. CV No. 09055
is AFFIRMED.

SO ORDERED.
G.R. No. 161188; June 13, 2008; Heirs of PURISIMA
NALA, represented by their attorney-in-fact
EFEGENIA DIGNA DUYAN, petitioners, vs. ARTEMIO
CABANSAG, respondent. AUSTRIA-MARTINEZ, J.:
This is a petition for review under Rule 45 of the Rules of
Court assailing the Court of Appeals (CA) Decision1 dated
December 19, 2002 and Resolution2 dated October 28,
2003, dismissing petitioners' appeal and affirming with
modification the Regional Trial Court (RTC) Decision
dated August 10, 1994 rendered in Civil Case No. Q-91-
10541.
The facts of the case are as follows:
Artemio Cabansag (respondent) filed Civil Case No. Q-
91-10541 for damages in October 1991. According to
respondent, he bought a 50-square meter property from
spouses Eugenio Gomez, Jr. and Felisa Duyan Gomez
on July 23, 1990. Said property is part of a 400-square
meter lot registered in the name of the Gomez spouses.
In October 1991, he received a demand letter from Atty.
Alexander del Prado (Atty. Del Prado), in behalf of
Purisima Nala (Nala), asking for the payment of rentals
from 1987 to 1991 until he leaves the premises, as said
property is owned by Nala, failing which criminal and civil
actions will be filed against him. Another demand letter
was sent on May 14, 1991. Because of such demands,
respondent suffered damages and was constrained to file
the case against Nala and Atty. Del Prado.3
Atty. Del Prado claimed that he sent the demand letters in
good faith and that he was merely acting in behalf of his
client, Nala, who disputed respondent's claim of
ownership. Nala alleged that said property is part of an
800-square meter property owned by her late husband,
Eulogio Duyan, which was subsequently divided into two
parts. The 400-square meter property was conveyed to
spouses Gomez in a fictitious deed of sale, with the
agreement that it will be merely held by them in trust for
the Duyan's children. Said property is covered by Transfer
Certificate of Title (TCT) No. 281115 in the name of
spouses Gomez. Nala also claimed that respondent is
only renting the property which he occupies.4
After trial, the RTC of Quezon City, Branch 93, rendered
its Decision on August 10, 1994, in favor of respondent.
The dispositive portion of the Decision provides:
WHEREFORE, premises considered, by
preponderance of evidence, the Court finds in favor of
the plaintiff and hereby orders the defendants, jointly
and severally, to pay plaintiff the following:
1. P150,000.00 by way of moral damages;
2. P30,000.00 by way of exemplary damages;
3. P20,000.00 as and for reasonable
attorney's fees and other litigation expenses;
and
4. to pay the costs.
SO ORDERED.5
Nala and Atty. Del Prado appealed to the CA. The herein
assailed CA Decision dated December 19, 2002 affirmed
the RTC Decision with modification, thus:
WHEREFORE, premises considered, the instant
appeal is hereby DISMISSED. The assailed
decision of the Regional Trial Court, Branch 93,
Quezon City, in Civil Case No. Q-91-10541 is
heretofore AFFIRMED with MODIFICATION.
Defendants-appellants are ordered to pay, jointly
and severally, plaintiff-appellee the amount
of P30,000.00 by way of moral damages. It is
further ordered to pay him exemplary damages in
the amount of P10,000.00 and P10,000.00,
attorney's fees.
SO ORDERED.6
In affirming the RTC Decision, the CA took note of the
Decision dated September 5, 1994 rendered by the RTC
of Quezon City, Branch 80, dismissing Civil Case No. 91-
8821, an action for reconveyance of real property and
cancellation of TCT No. 281115 with damages, filed by
Nala against spouses Gomez.7
Hence, herein petition by the heirs of Nala
(petitioners)8 with the following assignment of errors:
a) Respondent Court of Appeals erred in not
considering the right of Purisima Nala to assert
her rights and interest over the property.
b) Respondent Court of Appeals erred in not
considering the Decision rendered by the Court
of Appeals in the case for reconveyance which
upheld the rights and interest of Purisima Nala
and her children over a certain parcel of land, a
portion of which is subject of the present case.
c) Respondent Court of Appeals erred in
awarding damages and attorney's fees without
any basis.9
Atty. Del Prado filed a motion for extension of time to file
his separate petition but it was denied by the Court per its
Resolution dated January 19, 2004 issued in G.R. No.
160829.
Petitioners argue that their predecessor-in-interest had
every right to protect and assert her interests over the
property. Nala had no knowledge that the property was
sold by spouses Gomez to respondent when the demand
letters were sent. What she was aware of was the fact that
spouses Gomez were managing the rentals on the
property by virtue of the implied trust created between
them and Eulogio Duyan. When spouses Gomez failed to
remit the rentals and claimed ownership of the property, it
was then that Nala decided to procure the services of
legal counsel to protect their rights over the property.
Petitioners also contend that it was error for the CA to take
note of the RTC Decision in Civil Case No. 91-8821
without further noting that the CA had already reversed
and set aside said RTC Decision and ordered
reconveyance of the property to Nala and her children in
a Decision dated March 8, 2000 rendered in CA-G.R. CV
No. 49163. Petitioners also argue that respondent did not
substantiate his claim for damages.
Preliminarily, the Court notes that both the RTC and the
CA failed to indicate the particular provision of law under
which it held petitioners liable for damages. Nevertheless,
based on the allegations in respondent's complaint, it may
be gathered that the basis for his claim for damages is
Article 19 of the Civil Code, which provides:
Art. 19. Every person must, in the exercise of his
rights and in the performance of his duties, act
with justice, give everyone his due, and observe
honesty and good faith.
The foregoing provision sets the standards which may be
observed not only in the exercise of one's rights but also
in the performance of one's duties. When a right is
exercised in a manner which does not conform with the
norms enshrined in Article 19 and results in damage to
another, a legal wrong is thereby committed for which the
wrongdoer must be held responsible. But a right, though
by itself legal because recognized or granted by law as
such, may nevertheless become the source of some
illegality. A person should be protected only when he acts
in the legitimate exercise of his right; that is, when he acts
with prudence and in good faith, but not when he acts with
negligence or abuse. There is an abuse of right when it is
exercised only for the purpose of prejudicing or injuring
another. The exercise of a right must be in accordance
with the purpose for which it was established, and must
not be excessive or unduly harsh; there must be no
intention to injure another.[10]
In order to be liable for damages under the abuse of rights
principle, the following requisites must concur: (a) the
existence of a legal right or duty; (b) which is exercised in
bad faith; and (c) for the sole intent of prejudicing or
injuring another.11
It should be stressed that malice or bad faith is at the core
of Article 19 of the Civil Code. Good faith is presumed,
and he who alleges bad faith has the duty to prove the
same.12 Bad faith, on the other hand, does not simply
connote bad judgment to simple negligence, dishonest
purpose or some moral obloquy and conscious doing of a
wrong, or a breach of known duty due to some motives or
interest or ill will that partakes of the nature of fraud.
Malice connotes ill will or spite and speaks not in
response to duty. It implies an intention to do ulterior and
unjustifiable harm.13
In the present case, there is nothing on record which will
prove that Nala and her counsel, Atty. Del Prado, acted in
bad faith or malice in sending the demand letters to
respondent. In the first place, there was ground for Nala's
actions since she believed that the property was owned
by her husband Eulogio Duyan and that respondent was
illegally occupying the same. She had no knowledge that
spouses Gomez violated the trust imposed on them by
Eulogio and surreptitiously sold a portion of the property
to respondent. It was only after respondent filed the
case for damages against Nala that she learned of
such sale. The bare fact that respondent claims
ownership over the property does not give rise to the
conclusion that the sending of the demand letters by Nala
was done in bad faith. Absent any evidence presented by
respondent, bad faith or malice could not be attributed to
petitioner since Nala was only trying to protect their
interests over the property.
Moreover, respondent failed to show that Nala and Atty.
Del Prado's acts were done with the sole intention of
prejudicing and injuring him. It may be true that
respondent suffered mental anguish, serious anxiety and
sleepless nights when he received the demand letters;
however, there is a material distinction between damages
and injury. Injury is the legal invasion of a legal right while
damage is the hurt, loss or harm which results from the
injury.14Thus, there can be damage without injury in those
instances in which the loss or harm was not the result of
a violation of a legal duty. In such cases, the
consequences must be borne by the injured person alone;
the law affords no remedy for damages resulting from an
act which does not amount to a legal injury or wrong.
These situations are often called damnum absque
injuria.15
Nala was acting well within her rights when she instructed
Atty. Del Prado to send the demand letters. She had to
take all the necessary legal steps to enforce her
legal/equitable rights over the property occupied by
respondent. One who makes use of his own legal right
does no injury.16 Thus, whatever damages are suffered by
respondent should be borne solely by him.
Nala's acts in protecting her rights over the property find
further solid ground in the fact that the property has
already been ordered reconveyed to her and her heirs. In
its Decision dated March 8, 2000 in CA-G.R. CV No.
49163, the CA reversed and set aside the RTC's Decision
and ordered the reconveyance of the property to
petitioners, and TCT No. 281115 was declared canceled.
Said CA Decision was affirmed by this Court in its
Decision dated March 18, 2005 in G.R. No. 144148, which
became final and executory on July 27, 2005.
WHEREFORE, the petition is GRANTED. The Decision
dated December 19, 2002 and Resolution dated October
28, 2003 rendered by the Court of Appeals in CA-G.R. CV
No. 48580 are NULLIFIED. Civil Case No. Q-91-10541
is DISMISSED for lack of merit.
Costs against respondent.
SO ORDERED.
[G.R. No. 154259. February 28, 2005]
NIKKO HOTEL MANILA GARDEN and RUBY
LIM, petitioners, vs. ROBERTO REYES, a.k.a.
AMAY BISAYA, respondent.
DECISION
CHICO-NAZARIO, J.:
In this petition for review on certiorari, petitioners
Nikko Hotel Manila Garden (Hotel Nikko)[1] and Ruby Lim
assail the Decision[2] of the Court of Appeals dated 26
November 2001 reversing the Decision[3] of the Regional
Trial Court (RTC) of Quezon City, Branch 104, as well as
the Resolution[4] of the Court of Appeals dated 09 July
2002 which denied petitioners motion for reconsideration.
The cause of action before the trial court was one for
damages brought under the human relations provisions of
the New Civil Code. Plaintiff thereat (respondent herein)
Roberto Reyes, more popularly known by the screen
name Amay Bisaya, alleged that at around 6:00 oclock in
the evening of 13 October 1994, while he was having
coffee at the lobby of Hotel Nikko,[5] he was spotted by his
friend of several years, Dr. Violeta Filart, who then
approached him.[6] Mrs. Filart invited him to join her in a
party at the hotels penthouse in celebration of the natal
day of the hotels manager, Mr. Masakazu Tsuruoka.[7] Mr.
Reyes asked if she could vouch for him for which she
replied: of course.[8] Mr. Reyes then went up with the party
of Dr. Filart carrying the basket of fruits which was the
latters present for the celebrant.[9] At the penthouse, they
first had their picture taken with the celebrant after which
Mr. Reyes sat with the party of Dr. Filart.[10]After a couple
of hours, when the buffet dinner was ready, Mr. Reyes
lined-up at the buffet table but, to his great shock, shame
and embarrassment, he was stopped by petitioner herein,
Ruby Lim, who claimed to speak for Hotel Nikko as
Executive Secretary thereof.[11] In a loud voice and within
the presence and hearing of the other guests who were
making a queue at the buffet table, Ruby Lim told him to
leave the party (huwag ka nang kumain, hindi ka imbitado,
bumaba ka na lang).[12] Mr. Reyes tried to explain that he
was invited by Dr. Filart.[13] Dr. Filart, who was within
hearing distance, however, completely ignored him thus
adding to his shame and humiliation.[14] Not long after,
while he was still recovering from the traumatic
experience, a Makati policeman approached and asked
him to step out of the hotel.[15] Like a common criminal, he
was escorted out of the party by the
policeman.[16] Claiming damages, Mr. Reyes asked for
One Million Pesos actual damages, One Million Pesos
moral and/or exemplary damages and Two Hundred
Thousand Pesos attorneys fees.[17]
Ruby Lim, for her part, admitted having asked Mr.
Reyes to leave the party but not under the ignominious
circumstance painted by the latter. Ms. Lim narrated that
she was the Hotels Executive Secretary for the past
twenty (20) years.[18] One of her functions included
organizing the birthday party of the hotels former General
Manager, Mr. Tsuruoka.[19] The year 1994 was no
different. For Mr. Tsuruokas party, Ms. Lim generated an
exclusive guest list and extended invitations
accordingly.[20] The guest list was limited to approximately
sixty (60) of Mr. Tsuruokas closest friends and some hotel
employees and that Mr. Reyes was not one of those
invited.[21] At the party, Ms. Lim first noticed Mr. Reyes at
the bar counter ordering a drink.[22]Mindful of Mr.
Tsuruokas wishes to keep the party intimate, Ms. Lim
approached Mr. Boy Miller, the captain waiter, to inquire
as to the presence of Mr. Reyes who was not
invited.[23] Mr. Miller replied that he saw Mr. Reyes with
the group of Dr. Filart.[24] As Dr. Filart was engaged in
conversation with another guest and as Ms. Lim did not
want to interrupt, she inquired instead from the sister of
Dr. Filart, Ms. Zenaida Fruto, who told her that Dr. Filart
did not invite Mr. Reyes.[25] Ms. Lim then requested Ms.
Fruto to tell Mr. Reyes to leave the party as he was not
invited.[26] Mr. Reyes, however, lingered prompting Ms.
Lim to inquire from Ms. Fruto who said that Mr. Reyes did
not want to leave.[27] When Ms. Lim turned around, she
saw Mr. Reyes conversing with a Captain Batung whom
she later approached.[28] Believing that Captain Batung
and Mr. Reyes knew each other, Ms. Lim requested from
him the same favor from Ms. Fruto, i.e., for Captain
Batung to tell Mr. Reyes to leave the party as he was not
invited.[29] Still, Mr. Reyes lingered. When Ms. Lim spotted
Mr. Reyes by the buffet table, she decided to speak to him
herself as there were no other guests in the immediate
vicinity.[30] However, as Mr. Reyes was already helping
himself to the food, she decided to wait. [31] When Mr.
Reyes went to a corner and started to eat, Ms. Lim
approached him and said: alam ninyo, hindo ho kayo
dapat nandito. Pero total nakakuha na ho kayo ng
pagkain, ubusin na lang ninyo at pagkatapos kung pwede
lang po umalis na kayo.[32] She then turned around
trusting that Mr. Reyes would show enough decency to
leave, but to her surprise, he began screaming and
making a big scene, and even threatened to dump food
on her.[33]
Dr. Violeta Filart, the third defendant in the complaint
before the lower court, also gave her version of the story
to the effect that she never invited Mr. Reyes to the
party.[34] According to her, it was Mr. Reyes who
volunteered to carry the basket of fruits intended for the
celebrant as he was likewise going to take the elevator,
not to the penthouse but to Altitude 49.[35] When they
reached the penthouse, she reminded Mr. Reyes to go
down as he was not properly dressed and was not
invited.[36] All the while, she thought that Mr. Reyes
already left the place, but she later saw him at the bar
talking to Col. Batung.[37] Then there was a commotion
and she saw Mr. Reyes shouting.[38] She ignored Mr.
Reyes.[39] She was embarrassed and did not want the
celebrant to think that she invited him.[40]
After trial on the merits, the court a quo dismissed
the complaint,[41] giving more credence to the testimony of
Ms. Lim that she was discreet in asking Mr. Reyes to
leave the party. The trial court likewise ratiocinated that
Mr. Reyes assumed the risk of being thrown out of the
party as he was uninvited:
Plaintiff had no business being at the party because he
was not a guest of Mr. Tsuruoka, the birthday celebrant.
He assumed the risk of being asked to leave for attending
a party to which he was not invited by the host. Damages
are pecuniary consequences which the law imposes for
the breach of some duty or the violation of some right.
Thus, no recovery can be had against defendants Nikko
Hotel and Ruby Lim because he himself was at fault
(Garciano v. Court of Appeals, 212 SCRA 436). He knew
that it was not the party of defendant Violeta Filart even if
she allowed him to join her and took responsibility for his
attendance at the party. His action against defendants
Nikko Hotel and Ruby Lim must therefore fail.[42]
On appeal, the Court of Appeals reversed the ruling
of the trial court as it found more commanding of belief the
testimony of Mr. Reyes that Ms. Lim ordered him to leave
in a loud voice within hearing distance of several guests:
In putting appellant in a very embarrassing situation,
telling him that he should not finish his food and to leave
the place within the hearing distance of other guests is an
act which is contrary to morals, good customs . . ., for
which appellees should compensate the appellant for the
damage suffered by the latter as a consequence therefore
(Art. 21, New Civil Code). The liability arises from the acts
which are in themselves legal or not prohibited, but
contrary to morals or good customs. Conversely, even in
the exercise of a formal right, [one] cannot with impunity
intentionally cause damage to another in a manner
contrary to morals or good customs.[43]
The Court of Appeals likewise ruled that the actuation of
Ms. Lim in approaching several people to inquire into the
presence of Mr. Reyes exposed the latter to ridicule and
was uncalled for as she should have approached Dr. Filart
first and both of them should have talked to Mr. Reyes in
private:
Said acts of appellee Lim are uncalled for. What should
have been done by appellee Lim was to approach
appellee Mrs. Filart and together they should have told
appellant Reyes in private that the latter should leave the
party as the celebrant only wanted close friends around.
It is necessary that Mrs. Filart be the one to approach
appellant because it was she who invited appellant in that
occasion. Were it not for Mrs. Filarts invitation, appellant
could not have suffered such humiliation. For that,
appellee Filart is equally liable.
...
The acts of [appellee] Lim are causes of action which are
predicated upon mere rudeness or lack of consideration
of one person, which calls not only protection of human
dignity but respect of such dignity. Under Article 20 of the
Civil Code, every person who violates this duty becomes
liable for damages, especially if said acts were attended
by malice or bad faith. Bad faith does not simply connote
bad judgment or simple negligence. It imports a dishonest
purpose or some moral obliquity and conscious doing of
a wrong, a breach of a known duty to some motive or
interest or ill-will that partakes of the nature of fraud
(Cojuangco, Jr. v. CA, et al., 309 SCRA 603).[44]
Consequently, the Court of Appeals imposed upon
Hotel Nikko, Ruby Lim and Dr. Violeta Filart the solidary
obligation to pay Mr. Reyes (1) exemplary damages in the
amount of Two Hundred Thousand Pesos (P200,000); (2)
moral damages in the amount of Two Hundred Thousand
Pesos (P200,000); and (3) attorneys fees in the amount
of Ten Thousand Pesos (P10,000).[45] On motion for
reconsideration, the Court of Appeals affirmed its earlier
decision as the argument raised in the motion had been
amply discussed and passed upon in the decision sought
to be reconsidered.[46]
Thus, the instant petition for review. Hotel Nikko and
Ruby Lim contend that the Court of Appeals seriously
erred in
I.
NOT APPLYING THE DOCTRINE OF VOLENTI NON
FIT INJURIA CONSIDERING THAT BY ITS OWN
FINDINGS, AMAY BISAYA WAS A GATE-CRASHER
II.
HOLDING HOTEL NIKKO AND RUBY LIM JOINTLY
AND SEVERALLY LIABLE WITH DR. FILART FOR
DAMAGES SINCE BY ITS OWN RULING, AMAY
BISAYA COULD NOT HAVE SUFFERED SUCH
HUMILIATION, WERE IT NOT FOR DR. FILARTS
INVITATION
III.
DEPARTING FROM THE FINDINGS OF FACT OF THE
TRIAL COURT AS REGARDS THE CIRCUMSTANCES
THAT ALLEGEDLY CAUSED THE HUMILIATION OF
AMAY BISAYA
IV.
IN CONCLUDING THAT AMAY BISAYA WAS TREATED
UNJUSTLY BECAUSE OF HIS POVERTY,
CONSIDERING THAT THIS WAS NEVER AN ISSUE
AND NO EVIDENCE WAS PRESENTED IN THIS
REGARD
V.
IN FAILING TO PASS UPON THE ISSUE ON THE
DEFECTS OF THE APPELLANTS BRIEF, THEREBY
DEPARTING FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS
Petitioners Lim and Hotel Nikko contend that
pursuant to the doctrine of volenti non fit injuria, they
cannot be made liable for damages as respondent Reyes
assumed the risk of being asked to leave (and being
embarrassed and humiliated in the process) as he was a
gate-crasher.
The doctrine of volenti non fit injuria (to which a
person assents is not esteemed in law as injury[47]) refers
to self-inflicted injury[48] or to the consent to injury[49] which
precludes the recovery of damages by one who has
knowingly and voluntarily exposed himself to danger,
even if he is not negligent in doing so.[50] As formulated by
petitioners, however, this doctrine does not find
application to the case at bar because even if respondent
Reyes assumed the risk of being asked to leave the party,
petitioners, under Articles 19 and 21 of the New Civil
Code, were still under obligation to treat him fairly in order
not to expose him to unnecessary ridicule and shame.
Thus, the threshold issue is whether or not Ruby Lim
acted abusively in asking Roberto Reyes, a.k.a. Amay
Bisaya, to leave the party where he was not invited by the
celebrant thereof thereby becoming liable under Articles
19 and 21 of the Civil Code. Parenthetically, and if Ruby
Lim were so liable, whether or not Hotel Nikko, as her
employer, is solidarily liable with her.
As the trial court and the appellate court reached
divergent and irreconcilable conclusions concerning the
same facts and evidence of the case, this Court is left
without choice but to use its latent power to review such
findings of facts. Indeed, the general rule is that we are
not a trier of facts as our jurisdiction is limited to reviewing
and revising errors of law.[51] One of the exceptions to this
general rule, however, obtains herein as the findings of
the Court of Appeals are contrary to those of the trial
court.[52] The lower court ruled that Ms. Lim did not abuse
her right to ask Mr. Reyes to leave the party as she talked
to him politely and discreetly. The appellate court, on the
other hand, held that Ms. Lim is liable for damages as she
needlessly embarrassed Mr. Reyes by telling him not to
finish his food and to leave the place within hearing
distance of the other guests. Both courts, however, were
in agreement that it was Dr. Filarts invitation that brought
Mr. Reyes to the party.
The consequential question then is: Which version is
credible?
From an in depth review of the evidence, we find
more credible the lower courts findings of fact.
First, let us put things in the proper perspective.
We are dealing with a formal party in a posh, five-
star hotel,[53] for-invitation-only, thrown for the hotels
former Manager, a Japanese national. Then came a
person who was clearly uninvited (by the
celebrant)[54] and who could not just disappear into the
crowd as his face is known by many, being an actor. While
he was already spotted by the organizer of the party, Ms.
Lim, the very person who generated the guest list, it did
not yet appear that the celebrant was aware of his
presence. Ms. Lim, mindful of the celebrants instruction to
keep the party intimate, would naturally want to get rid of
the gate-crasher in the most hush-hush manner in order
not to call attention to a glitch in an otherwise seamless
affair and, in the process, risk the displeasure of the
celebrant, her former boss. To unnecessarily call attention
to the presence of Mr. Reyes would certainly reflect badly
on Ms. Lims ability to follow the instructions of the
celebrant to invite only his close friends and some of the
hotels personnel. Mr. Reyes, upon whom the burden rests
to prove that indeed Ms. Lim loudly and rudely ordered
him to leave, could not offer any satisfactory explanation
why Ms. Lim would do that and risk ruining a formal and
intimate affair. On the contrary, Mr. Reyes, on cross-
examination, had unwittingly sealed his fate by admitting
that when Ms. Lim talked to him, she was very close.
Close enough for him to kiss:
Q: And, Mr. Reyes, you testified that Miss Lim
approached you while you were at the
buffet table? How close was she when she
approached you?
A: Very close because we nearly kissed each
other.
Q: And yet, she shouted for you to go down?
She was that close and she shouted?
A: Yes. She said, wag kang kumain, hindi ka
imbitado dito, bumaba ka na lang.
Q: So, you are testifying that she did this in a
loud voice?
...
A: Yes. If it is not loud, it will not be heard by
many.[55]
In the absence of any proof of motive on the part of Ms.
Lim to humiliate Mr. Reyes and expose him to ridicule and
shame, it is highly unlikely that she would shout at him
from a very close distance. Ms. Lim having been in the
hotel business for twenty years wherein being polite and
discreet are virtues to be emulated, the testimony of Mr.
Reyes that she acted to the contrary does not inspire
belief and is indeed incredible. Thus, the lower court was
correct in observing that
Considering the closeness of defendant Lim to plaintiff
when the request for the latter to leave the party was
made such that they nearly kissed each other, the request
was meant to be heard by him only and there could have
been no intention on her part to cause embarrassment to
him. It was plaintiffs reaction to the request that must have
made the other guests aware of what transpired between
them. . .
Had plaintiff simply left the party as requested, there was
no need for the police to take him out.[56]
Moreover, another problem with Mr. Reyess version
of the story is that it is unsupported. It is a basic rule in
civil cases that he who alleges proves. Mr. Reyes,
however, had not presented any witness to back his story
up. All his witnesses Danny Rodinas, Pepito Guerrero and
Alexander Silva - proved only that it was Dr. Filart who
invited him to the party.[57]
Ms. Lim, not having abused her right to ask Mr.
Reyes to leave the party to which he was not invited,
cannot be made liable to pay for damages under Articles
19 and 21 of the Civil Code. Necessarily, neither can her
employer, Hotel Nikko, be held liable as its liability springs
from that of its employee.[58]
Article 19, known to contain what is commonly
referred to as the principle of abuse of rights,[59] is not a
panacea for all human hurts and social grievances. Article
19 states:
Art. 19. Every person must, in the exercise of his rights
and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.
Elsewhere, we explained that when a right is exercised in
a manner which does not conform with the norms
enshrined in Article 19 and results in damage to another,
a legal wrong is thereby committed for which the
wrongdoer must be responsible.[60] The object of this
article, therefore, is to set certain standards which must
be observed not only in the exercise of ones rights but
also in the performance of ones duties.[61] These
standards are the following: act with justice, give
everyone his due and observe honesty and good
faith.[62] Its antithesis, necessarily, is any act evincing bad
faith or intent to injure. Its elements are the following: (1)
There is a legal right or duty; (2) which is exercised in bad
faith; (3) for the sole intent of prejudicing or injuring
another.[63] When Article 19 is violated, an action for
damages is proper under Articles 20 or 21 of the Civil
Code. Article 20 pertains to damages arising from a
violation of law[64] which does not obtain herein as Ms. Lim
was perfectly within her right to ask Mr. Reyes to leave.
Article 21, on the other hand, states:
Art. 21. Any 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 damage.
Article 21[65] refers to acts contra bonus mores and has
the following elements: (1) There is an act which is legal;
(2) but which is contrary to morals, good custom, public
order, or public policy; and (3) it is done with intent to
injure.[66]
A common theme runs through Articles 19 and
21,[67] and that is, the act complained of must be
intentional.[68]
As applied to herein case and as earlier discussed,
Mr. Reyes has not shown that Ms. Lim was driven by
animosity against him. These two people did not know
each other personally before the evening of 13 October
1994, thus, Mr. Reyes had nothing to offer for an
explanation for Ms. Lims alleged abusive conduct except
the statement that Ms. Lim, being single at 44 years old,
had a very strong bias and prejudice against (Mr. Reyes)
possibly influenced by her associates in her work at the
hotel with foreign businessmen.[69] The lameness of this
argument need not be belabored. Suffice it to say that a
complaint based on Articles 19 and 21 of the Civil Code
must necessarily fail if it has nothing to recommend it but
innuendos and conjectures.
Parenthetically, the manner by which Ms. Lim asked
Mr. Reyes to leave was likewise acceptable and humane
under the circumstances. In this regard, we cannot put our
imprimatur on the appellate courts declaration that Ms.
Lims act of personally approaching Mr. Reyes (without
first verifying from Mrs. Filart if indeed she invited Mr.
Reyes) gave rise to a cause of action predicated upon
mere rudeness or lack of consideration of one person,
which calls not only protection of human dignity but
respect of such dignity.[70] Without proof of any ill-motive
on her part, Ms. Lims act of by-passing Mrs. Filart cannot
amount to abusive conduct especially because she did
inquire from Mrs. Filarts companion who told her that Mrs.
Filart did not invite Mr. Reyes.[71] If at all, Ms. Lim is guilty
only of bad judgment which, if done with good intentions,
cannot amount to bad faith.
Not being liable for both actual and moral damages,
neither can petitioners Lim and Hotel Nikko be made
answerable for exemplary damages[72] especially for the
reason stated by the Court of Appeals. The Court of
Appeals held
Not a few of the rich people treat the poor with contempt
because of the latters lowly station in life. This has to be
limited somewhere. In a democracy, such a limit must be
established. Social equality is not sought by the legal
provisions under consideration, but due regard for
decency and propriety (Code Commission, pp. 33-34).
And by way of example or correction for public good and
to avert further commission of such acts, exemplary
damages should be imposed upon appellees.[73]
The fundamental fallacy in the above-quoted findings is
that it runs counter with the very facts of the case and the
evidence on hand. It is not disputed that at the time of the
incident in question, Mr. Reyes was an actor of long
standing; a co-host of a radio program over DZRH; a
Board Member of the Music Singer Composer (MUSICO)
chaired by popular singer Imelda Papin; a showbiz
Coordinator of Citizen Crime Watch; and 1992 official
candidate of the KBL Party for Governor of Bohol; and an
awardee of a number of humanitarian organizations of the
Philippines.[74] During his direct examination on rebuttal,
Mr. Reyes stressed that he had income[75] and nowhere
did he say otherwise. On the other hand, the records are
bereft of any information as to the social and economic
standing of petitioner Ruby Lim. Consequently, the
conclusion reached by the appellate court cannot
withstand scrutiny as it is without basis.
All told, and as far as Ms. Lim and Hotel Nikko are
concerned, any damage which Mr. Reyes might have
suffered through Ms. Lims exercise of a legitimate right
done within the bounds of propriety and good faith, must
be his to bear alone.
WHEREFORE, premises considered, the petition
filed by Ruby Lim and Nikko Hotel Manila Garden is
GRANTED. The Decision of the Court of Appeals dated
26 November 2001 and its Resolution dated 09 July 2002
are hereby REVERSED and SET ASIDE. The Decision of
the Regional Trial Court of Quezon City, Branch 104,
dated 26 April 1999 is hereby AFFIRMED. No costs.
SO ORDERED.
G.R. No. 201675 June 19, 2013
JUANITO ANG, for and in behalf of SUNRISE
MARKETING (BACOLOD), INC.,* Petitioner,
vs. SPOUSES ROBERTO and RACHEL
ANG, Respondents. CARPIO, J.:
The Case
This petition for review1 assails the Decision2 of the Court
of Appeals-Cebu (CA-Cebu) dated 20 September 2011 in
CA-G.R. SP No. 05546. The CA-Cebu reversed and set
aside the Order3 of the Regional Trial Court, Branch 53,
Bacolod City (RTC Bacolod) dated 27 September 2010 in
Commercial Court Case No. 09-070 entitled Sunrise
Marketing (Bacolod), Inc., represented by Juanita Ang -v:
Spouses Roberto and Rachel Ang.
The Facts
Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly
registered corporation owned by the Ang family.4 Its
current stockholders and their respective stockholdings
are as follows:5
Stockholder Number of Shares
Juanito Ang 8,750
Anecita Ang 1,250
Jeannevie Ang 2,500
Roberto Ang 8,750
Rachel Ang 3,750
Total 25,000
Juanito Ang (Juanito) and Roberto Ang (Roberto) are
siblings. Anecita Limoco-Ang (Anecita) is Juanito’s wife
and Jeannevie is their daughter. Roberto was elected
President of SMBI, while Juanito was elected as its Vice
President. Rachel Lu-Ang (Rachel) and Anecita are
SMBI’s Corporate Secretary and Treasurer, respectively.
On 31 July 1995, Nancy Ang (Nancy), the sister of Juanito
and Roberto, and her husband, Theodore Ang
(Theodore), agreed to extend a loan to settle the
obligations of SMBI and other corporations owned by the
Ang family, specifically Bayshore Aqua Culture
Corporation, Oceanside Marine Resources and JR Aqua
Venture.6 Nancy and Theodore issued a check in the
amount of $1,000,000.00 payable to "Juanito Ang and/or
Anecita Ang and/or Roberto Ang and/or Rachel Ang."
Nancy was a former stockholder of SMBI, but she no
longer appears in SMBI’s General Information Sheets as
early as 1996.7 Nancy and Theodore are now currently
residing in the United States. There was no written loan
agreement, in view of the close relationship between the
parties. Part of the loan was also used to purchase real
properties for SMBI, for Juanito, and for Roberto.8
On 22 December 2005, SMBI increased its authorized
capital stock to ₱10,000,000.00. The Certificate of
Increase of Capital Stock was signed by Juanito, Anecita,
Roberto, and Rachel as directors of SMBI.9 Juanito
claimed, however, that the increase of SMBI’s capital
stock was done in contravention of the Corporation
Code.10 According to Juanito, when he and Anecita left for
Canada:
x x x Sps. Roberto and Rachel Ang took over the active
management of [SMBI]. Through the employment of
sugar coated words, they were able to successfully
manipulate the stocks sharings between themselves at
50-50 under the condition that the procedures mandated
by the Corporation Code on increase of capital stock be
strictly observed (valid Board Meeting). No such meeting
of the Board to increase capital stock materialized. It was
more of an accommodation to buy peace x x x.11
Juanito claimed that payments to Nancy and Theodore
ceased sometime after 2006. On 24 November 2008,
Nancy and Theodore, through their counsel here in the
Philippines, sent a demand letter to "Spouses Juanito L.
Ang/Anecita L. Ang and Spouses Roberto L. Ang/Rachel
L. Ang" for payment of the principal amounting to
$1,000,000.00 plus interest at ten percent (10%) per
annum, for a total of $2,585,577.37 within ten days from
receipt of the letter. 12 Roberto and Rachel then sent a
letter to Nancy and Theodore’s counsel on 5 January
2009, saying that they are not complying with the demand
letter because they have not personally contracted a loan
from Nancy and Theodore.
On 8 January 2009, Juanito and Anecita executed a Deed
of Acknowledgment and Settlement Agreement
(Settlement Agreement) and an Extra-Judicial Real
Estate Mortgage (Mortgage). Under the foregoing
instruments, Juanito and Anecita admitted that they,
together with Roberto and Rachel, obtained a loan from
Nancy and Theodore for $1,000,000.00 on 31 July 1995
and such loan shall be secured by:
a) Juanito and Anecita’s fifty percent share over
a parcel of land registered in the name of SMBI;
b) a parcel of land registered in the name of
Juanito Ang;
c) Juanito’s fifty percent share in 7 parcels of land
registered in his and Roberto’s name;
d) a parcel of land registered in the name of
Roberto;
e) a parcel of land registered in the name of
Rachel; and
 f) Roberto and Rachel’s fifty percent share in 2
parcels of land registered in the name of their
son, Livingstone L. Ang (Livingstone), and in
another lot registered in the name of Livingstone
and Alvin Limoco Ang.13
A certain Kenneth C. Locsin (Locsin) signed on behalf of
Nancy and Theodore, under a Special Power of Attorney
which was not attached as part of the Settlement
Agreement or the Mortgage, nor included in the records
of this case.
Thereafter, Juanito filed a "Stockholder Derivative Suit
with prayer for an ex-parte Writ of
Attachment/Receivership" (Complaint) before the RTC
Bacolod on 29 January 2009. He alleged that "the
intentional and malicious refusal of defendant Sps.
Roberto and Rachel Ang to settle their 50% share x x x of
the total obligation x x x will definitely affect the financial
viability of plaintiff SMBI."14 Juanito also claimed that he
has been "illegally excluded from the management and
participation in the business of [SMBI through] force,
violence and intimidation" and that Rachel and Roberto
have seized and carted away SMBI’s records from its
office.15
The Complaint sought the following reliefs:
a) Issuance of an ex-parte Writ of Attachment
and/or Garnishment, with a Break Open Order
covering the assets of the spouses Roberto and
Rachel Ang, or any interest they may have
against third parties;
b) Placement of SMBI under Receivership
pending resolution of the case;
c) Enforcement of Juanito’s right to actively
participate in the management of SMBI;
d) Issuance of an Order compelling the Spouses
Roberto and Rachel Ang to:
i. Render an accounting of the utilization
of the loan amounting to $2,585,577.37
or ₱120,229,347.26;
ii. Pay fifty percent of the aforementioned
loan, amounting to ₱60,114,673.62;
iii. Explain why Nancy was removed as a
stockholder as far as SMBI’s reportorial
requirements with the SEC are
concerned;
iv. Restore Juanito’s right to actively
manage the affairs of the corporation;
and
v. Pay attorney’s fees amounting to
₱20,000.00.
On 29 January 2009, the RTC Bacolod issued an
Order16 granting the application for an ex-parte writ of
attachment and break open order. Atty. Jerry Basiao, who
filed an application for appointment as Receiver of SMBI,
was directed by the RTC Bacolod to furnish the required
Receivership Bond.17 On the same date, Roberto and
Rachel moved to quash the writ of attachment and set
aside the break open order and appointment of
receiver.18 They claimed that these were issued in
violation of their right to due process:
Records of this case would show that the complaint was
filed before the RTC Bacolod at 2:50 p.m. of January 29,
2009. x x x Counsel for the defendant-spouses went to
the RTC Bacolod at around 3:00 p.m. on January 29,
2009 to inquire on the status of the case and was informed
that the last pleading on record is his entry of appearance
with the conformity of the defendant Rachel Ang. Counsel
was however informed by the clerk of court that the
Honorable Judge has already issued an order directing
the issuance of the writ of preliminary attachment,
receivership and break open order but said order was not
officially released yet x x x. Due to the undersigned
counsel’s insistence, however, said clerk of court of this
Honorable Court furnished him a copy of said order x x x.
The clerk of court and the clerk in charge of civil cases
assured counsel that no writ of preliminary attachment
was prepared or issued x x x. Despite such assurance x
x x [and counsel’s advice that they shall move to quash
the order the following morning], that afternoon, the clerk
of court x x x clandestinely, hurriedly and surreptitiously,
for reasons known only to her, x x x prepared the writ of
attachment x x x.19
In her Verified Answer Ad Cautelam which was filed on 10
February 2009, Rachel prayed that the Complaint be
dismissed as it was not a bona fide derivative suit as
defined under the Interim Rules of Procedure for Intra-
Corporate Controversies20 (Interim Rules). According to
Rachel, the Complaint, although labelled as a derivative
suit, is actually a collection suit since the real party in
interest is not SMBI, but Nancy and Theodore:
The cause of action does not devolve on the corporation
as the alleged harm or wrong pertains to the right of the
Sps. Theodore and Nancy Ang, as creditors, to collect the
amount allegedly owed to them. x x x
xxxx
That the instant suit is for the benefit of a non-stockholder
and not the corporation is obvious when the primary relief
prayed for in the Complaint which is for the defendants "to
pay the amount of Php 60,114,673.62 plus interest which
is 50% of the loan obligations of plaintff [SMBI] to its
creditor Sps. Theodore and Nancy Ang." Otherwise
stated, the instant suit is nothing but a complaint for sum
of money shamelessly masked as a derivative suit.21
Rachel also argued that the Complaint failed to allege that
Juanito "exerted all reasonable efforts to exhaust all intra-
corporate remedies available under the articles of
incorporation, by-laws, laws or rules governing the
corporation to obtain the relief he desires," as required by
the Interim Rules.
During cross-examination, Juanito admitted that there
was no prior demand for accounting or liquidation nor any
written objection to SMBI’s increase of capital stock. He
also conceded that the loan was extended by persons
who are not stockholders of SMBI. Thus, Rachel filed a
Motion for Preliminary Hearing on Affirmative Defenses
on 27 November 2009, arguing that in view of Juanito’s
admissions, the Complaint should be dismissed pursuant
to Section 1 of the Interim Rules. Juanito filed his
Opposition thereto on 8 January 2010,22 arguing that
applying this Court’s ruling in Hi-Yield Realty, Inc. v. Court
of Appeals,23 the requirement for exhaustion of intra-
corporate remedies is no longer needed when the
corporation itself is "under the complete control of the
persons against whom the suit is filed." Juanito also
alleged that he and Anecita were deceived into signing
checks to pay off bogus loans purportedly extended by
Rachel’s relatives in favor of SMBI. Some of the checks
were payable to cash, and were allegedly deposited in
Rachel’s personal account.24 He also claimed that
Rachel’s Motion is disallowed under the Interim Rules.
On 9 February 2009, Juanito moved that Rachel and her
daughter, Em Ang (Em), as well as their counsel, Atty.
Filomeno Tan, Jr. (Atty. Tan) be held in contempt. Juanito
claimed that on the date the writ of attachment and break
open order were issued, Atty. Tan, accompanied by
Rachel and Em, "arrogantly demanded from the Clerk in
charge of Civil Cases that he be furnished a copy of the
[said orders] x x x otherwise he will tear the records of the
subject commercial case." Juanito also accused Atty. Tan
of surreptitiously photocopying the said orders prior to
service of the summons, Complaint, Writ of Attachment
and Attachment Bond. According to Juanito, the purpose
of obtaning a copy of the orders was to thwart its
implementation. Thus, when the authorities proceeded to
the SMBI premises to enforce the orders, they found that
the place was padlocked, and that all corporate
documents and records were missing. On 14 December
2010, the Sheriff and other RTC Bacolod employees then
filed a Verified Complaint against Atty. Tan before this
Court, which also contained the foregoing allegations. 25
Rachel then filed a Reply on 27 January 2010, claiming
that Juanito’s reliance on the Hi-Yield case is misplaced:
The facts x x x of this case are strikingly different from that
in Hi-Yield Realty. In that case, the Supreme Court noted
that the complaining stockholder was a minority
stockholder. However, in the case at bar, Juanito Ang is
one of the biggest stockholders of [SMBI]. x x x He is a
member of [SMBI’s] Board of Directors and is even the
vice-president thereof. Furthermore, in Hi-Yield Realty,
the Supreme Court noted that the complaining
stockholder was excluded from the affairs of the
corporation. However, the evidence thus far presented,
particularly Juanito Ang’s admission, show that he and his
wife, Anecita, participate in the disbursement of [SMBI’s]
funds x x x.26
Juanito filed his Rejoinder on 2 March 2010.
The Ruling of the RTC Bacolod
On 27 September 2010, the RTC Bacolod issued an
Order which stated that:
WHEREFORE, premises considered, the court hereby
rules that the present action is a DERIVATIVE SUIT and
the Motion to Dismiss based on Affirmative Defenses
raised by defendants is DENIED for lack of merit.27
The RTC Bacolod found that the issuance of the checks
to settle the purported obligations to Rachel’s relatives, as
well as the removal of Nancy as a stockholder in SMBI’s
records as filed with the SEC, shows that Rachel and
Roberto committed fraud. The Order likewise stated that
the requirement of exhaustion of intra-corporate remedies
is no longer necessary since Rachel and Roberto
exercised complete control over SMBI.
Aggrieved, Rachel filed a Petition for Certiorari with the
CA-Cebu.
The Ruling of the CA-Cebu
On 20 September 2011, the CA-Cebu promulgated its
Decision which reversed and set aside the Order of the
RTC Bacolod dated 27 September 2010. According to the
CA-Cebu, the Complaint filed by Juanito should be
dismissed because it is a harassment suit, and not a valid
derivative suit as defined under the Interim Rules. The
CA-Cebu also found that Juanito failed to exhaust intra-
corporate remedies and that the loan extended by Nancy
and Theodore was not SMBI’s corporate obligation. There
is nothing on record to show that non-payment of the loan
will result in any damage or prejudice to SMBI.
Juanito then filed a Motion for Reconsideration with
Prayer for Voluntary Inhibition on 28 October 2011. In his
Motion, Juanito pointed out that Rachel filed her Petition
for Certiorari without previously filing a Motion for
Reconsideration, warranting the dismissal of the said
Petition. The CA-Cebu denied the Motion.
Hence, this petition.
The Issues
The issues raised in the instant petition are:
<
 p align="justify">I. Whether based on the
allegations of the complaint, the nature of the
case is one of a derivative suit or not.
Corollary to the above, whether the Honorable
Court of Appeals erred x x x in ordering the
dismissal of the Complaint on the ground that the
case is not a derivative suit.
II. Whether the Honorable Court of Appeals x x x
seriously erred in considering evidence aliunde,
that is, other than the four corners of the
complaint, in determining the nature of the
complaint, in utter violation of the doctrine that the
jurisdiction is determined by law and allegations
of the complaint alone.
III. Granting arguendo, but without necessarily
admitting that the complaint is not one of a
derivative suit, but only an ordinary civil action,
whether the Honorable Court of Appeals x x x
gravely erred in dismissing the petition entirely,
when the Regional Trial Court a quo has
jurisdiction also over the case as an ordinary civil
action, and can just proceed to hear the same as
such.28
The Ruling of this Court
The petition has no merit.
We uphold the CA-Cebu’s finding that the Complaint is
not a derivative suit. A derivative suit is an action brought
by a stockholder on behalf of the corporation to enforce
corporate rights against the corporation’s directors,
officers or other insiders.29 Under Sections 2330 and
3631 of the Corporation Code, the directors or officers, as
provided under the by-laws,32 have the right to decide
whether or not a corporation should sue. Since these
directors or officers will never be willing to sue
themselves, or impugn their wrongful or fraudulent
decisions, stockholders are permitted by law to bring an
action in the name of the corporation to hold these
directors and officers accountable.33 In derivative suits,
the real party ininterest is the corporation, while the
stockholder is a mere nominal party.
This Court, in Yu v. Yukayguan,34 explained:
The Court has recognized that a stockholder’s right to
institute a derivative suit is not based on any express
provision of the Corporation Code, or even the Securities
Regulation Code, but is impliedly recognized when the
said laws make corporate directors or officers liable for
damages suffered by the corporation and its stockholders
for violation of their fiduciary duties. Hence, a stockholder
may sue for mismanagement, waste or dissipation of
corporate assets because of a special injury to him for
which he is otherwise without redress. In effect, the suit is
an action for specific performance of an obligation owed
by the corporation to the stockholders to assist its rights
of action when the corporation has been put in default by
the wrongful refusal of the directors or management to
make suitable measures for its protection. The basis of a
stockholder’s suit is always one in equity. However, it
cannot prosper without first complying with the legal
requisites for its institution. (Emphasis in the original)
Section 1, Rule 8 of the Interim Rules imposes the
following requirements for derivative suits:
(1) The person filing the suit must be a
stockholder or member at the time the acts or
transactions subject of the action occurred and
the time the action was filed;
(2) He must have exerted all reasonable efforts,
and alleges the same with particularity in the
complaint, to exhaust all remedies available
under the articles of incorporation, by-laws, laws
or rules governing the corporation or partnership
to obtain the relief he desires;
(3) No appraisal rights are available for the act or
acts complained of; and
(4) The suit is not a nuisance or harassment suit.
Applying the foregoing, we find that the Complaint is not
a derivative suit. The Complaint failed to show how the
acts of Rachel and Roberto resulted in any detriment to
SMBI. The CA-Cebu correctly concluded that the loan
was not a corporate obligation, but a personal debt of the
Ang brothers and their spouses. The check was issued to
"Juanito Ang and/or Anecita Ang and/or Roberto Ang
and/or Rachel Ang" and not SMBI. The proceeds of the
loan were used for payment of the obligations of the other
corporations owned by the Angs as well as the purchase
of real properties for the Ang brothers. SMBI was never a
party to the Settlement Agreement or the Mortgage. It was
never named as a co-debtor or guarantor of the loan. Both
instruments were executed by Juanito and Anecita in their
personal capacity, and not in their capacity as directors or
officers of SMBI. Thus, SMBI is under no legal obligation
to satisfy the obligation.
The fact that Juanito and Anecita attempted to constitute
a mortgage over "their" share in a corporate asset cannot
affect SMBI. The Civil Code provides that in order for a
mortgage to be valid, the mortgagor must be the "absolute
owner of the thing x x x mortgaged."35 Corporate assets
may be mortgaged by authorized directors or officers on
behalf of the corporation as owner, "as the transaction of
the lawful business of the corporation may reasonably
and necessarily require."36 However, the wording of the
Mortgage reveals that it was signed by Juanito and
Anecita in their personal capacity as the "owners" of a pro-
indiviso share in SMBI’s land and not on behalf of SMBI:
This Mortgage is made and executed by and between:
Spouses JUANITO and ANECITA ANG, of legal age,
Filipino citizens, residents of Sunrise Marketing Building
at Hilado Street, Capitol Shopping Center, Bacolod City,
hereinafter referred to as the MORTGAGORS;
Spouses THEODORE and NANCY ANG, x x x hereinafter
referred to as the MORTGAGEES represented in this
instance through their attorney-in-fact, Mr. Kenneth
Locsin;
xxxx
In order to ensure payment x x x the MORTGAGORS
hereby CONVEY unto the MORTGAGEES by way of
EXTRA-JUDICIAL REAL ESTATE MORTGAGE their
50% rights and interests over the following real properties
to wit:
a. Those registered in the name of SUNRISE
MARKETING (BACOLOD), INC. x x x
x x x x37 (Emphasis supplied)
Juanito and Anecita, as stockholders of SMBI, are not co-
owners of SMBI assets. They do not own pro-indiviso
shares, and therefore, cannot mortgage the same except
in their capacity as directors or officers of SMBI.
We also find that there is insufficient evidence to suggest
that Roberto and Rachel fraudulently and wrongfully
removed Nancy as a stockholder in SMBI’s reportorial
requirements. As early as 2005, when SMBI increased its
capital stock, Juanito and Anecita already knew that
Nancy was not listed as a stockholder of SMBI. However,
they attempted to rectify the error only in 2009, when the
Complaint was filed. That it took four years for them to
make any attempt to question Nancy’s exclusion as
stockholder negates their allegation of fraud.
Since damage to the corporation was not sufficiently
proven by Juanito, the Complaint cannot be considered a
bona fide derivative suit. A derivative suit is one that
seeks redress for injury to the corporation, and not the
stockholder. No such injury was proven in this case.
The Complaint also failed to allege that all available
corporate remedies under the articles of incorporation, by-
laws, laws or rules governing the corporation were
exhausted, as required under the Interim Rules. The CA-
Cebu, applying our ruling in the Yu case, pointed out:
x x x No written demand was ever made for the board of
directors to address private respondent Juanito Ang’s
concerns.1âwphi1
The fact that [SMBI] is a family corporation does not
exempt private respondent Juanito Ang from complying
with the Interim Rules. In the x x x Yu case, the Supreme
Court held that a family corporation is not exempt from
complying with the clear requirements and formalities of
the rules for filing a derivative suit. There is nothing in the
pertinent laws or rules which state that there is a
distinction between x x x family corporations x x x and
other types of corporations in the institution by a
stockholder of a derivative suit.38
Furthermore, there was no allegation that there was an
attempt to remove Rachel or Roberto as director or officer
of SMBI, as permitted under the Corporation Code and
the by-laws of the corporation. Thus, the Complaint failed
to satisfy the requirements for a derivative suit under the
Interim Rules.
The CA-Cebu correctly ruled that the Complaint should be
dismissed since it is a nuisance or harassment suit under
Section 1(b) of the Interim Rules. Section 1(b) thereof
provides:
b) Prohibition against nuisance and harassment suits. -
Nuisance and harassment suits are prohibited. In
determining whether a suit is a nuisance or harassment
suit, the court shall consider, among others, the following:
(1) The extent of the shareholding or interest of
the initiating stockholder or member;
(2) Subject matter of the suit;
(3) Legal and factual basis of the complaint;
(4) Availability of appraisal rights for the act or
acts complained of; and
(5) Prejudice or damage to the corporation,
partnership, or association in relation to the relief
sought.
In case of nuisance or harassment suits, the court may,
motu proprio or upon motion, forthwith dismiss the case.
Records show that Juanito, apart from being Vice
President, owns the highest number of shares, equal to
those owned by Roberto. Also, as explained earlier, there
appears to be no damage to SMBI if the loan extended by
Nancy and Theodore remains unpaid. The CA-Cebu
correctly concluded that "a plain reading of the allegations
in the Complaint would readily show that the case x x x
was mainly filed to collect a debt allegedly extended by
the spouses Theodore and Nancy Ang to [SMBI]. Thus,
the aggrieved party is not SMBI x x x but the spouses
Theodore and Nancy Ang, who are not even x x x
stockholders."39
WHEREFORE, we DENY the petition. We AFFIRM the 20
September 2011 Decision of the Court of Appeals-Cebu
in CA-G.R. SP No. 05546.
SO ORDERED.
G.R. No. 157632 December 6, 2006
JOSE S. ROQUE, JR., substituted by his wife NORMA
ROQUE, petitioner,
vs.
JAIME T. TORRES, substituted by his son JAMES
KENLEY M. TORRES, and the HONORABLE COURT
OF APPEALS, respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under
Rule 45 of the Rules of Civil Procedure, assailing the
Decision1 of the Court of Appeals in CA-G.R. CV No.
55895, dated 21 March 2003, which reversed and set
aside the Judgment2 of the Regional Trial Court (RTC) of
Quezon City, Branch 104, in Civil Case No. Q-93-14408,
dated 8 April 1997, ordering respondent to pay petitioner
damages in the total amount of P1,600,000.00 and
attorney’s fees.
The instant case sprang from an action for damages filed
by the original petitioner, the late Jose Roque, Jr., against
respondent, the recently deceased Jaime Torres, for
injuries sustained by petitioner on 27 August 1989,
allegedly inflicted by the security guards employed by
respondent.
In this petition, the deceased petitioner Jose Roque, Jr. is
substituted by his wife Norma Roque while respondent
Jaime T. Torres, per agreement of all his heirs, is herein
represented by his son James Kenley M. Torres.
Petitioner was the administrator of certain parcels of land
in Upper Boso-Boso, Antipolo, Rizal, particularly Lots No.
13259 and 13260 covered by Original Certificates of Titles
(OCTs) No. NP-419 and NP-422, both registered in the
name of his son Rafael Roque. Sometime before the
incident, respondent, claiming to be the owner of said
property, hired security guards from Anchor Security and
Detective Agency, namely Cesar Aquino, Alfredo Negro,
and Mariano Cabos, who allegedly barred petitioner from
entering the property and threatened him with physical
harm should he attempt to tend the said land. As a result,
petitioner filed a case for grave threats against said
security guards before the Municipal Trial Court (MTC) of
Rizal.
Prior to the incident, or on 9 September 1988, respondent
instituted an Action3 for cancellation of OCTs No. NP-419
and NP-422 in the name of petitioner’s son Rafael Roque
before the RTC of Antipolo which was dismissed by the
trial court in an Order4 dated 26 June 1989. According to
the court a quo, therein petitioner Torres’ action was
premature for failure to exhaust administrative remedies
in the Bureau of Lands, consistent with the established
doctrine that where a party seeks for the cancellation of a
Free Patent, he must pursue his action in the proper
agency and a review by the court will not be permitted
unless administrative remedies have been exhausted.
The trial court also declared that the said action was in
effect an action for reversion under Section 101 of the
Public Land Act, thus, the action should be in the name of
the government and not the private complainants.
Respondent appealed the dismissal before the Court of
Appeals, which later affirmed the decision of the lower
court in a Decision5 dated 11 June 1990. Respondent’s
appeal to this Court was also dismissed in a Resolution
dated 11 February 1991.
Petitioner maintained that at around four o’clock in the
afternoon of 27 August 1989, he, together with his
housemaid Leilyn Saplot Kandt, Magno Imperial, Jose
Imperial, and Eliseo Pesito, visited the said property and
was surprised to see seven security guards, including the
above-mentioned security guards, guarding the property
upon orders of respondent. Aquino, Negro, and Cabos
approached petitioner and asked: "Bakit wala ka noong
arraignment sa Antipolo noong August 16, 1989?"6 to
which he replied that his presence was not necessary
since he was not the accused. Thereafter, the said
security guards asked him to leave the property and
uttered: "Bakit mo kami kinakalaban? Utos ni Torres na
ito’y bantayan pagkat ito’y kanyang property
raw!." Petitioner showed his son’s titles to the property but
the security guards merely answered: "Fake ‘yan at hindi
kayo maaaring pumasok dito. Kayo ay dapat paalisin." A
security guard then cocked his shotgun and warned
petitioner to leave the place. Petitioner offered to settle
the dispute in the office of Anchor Security Agency,
through its manager, Mrs. Nassam, but the security
guards merely replied: "Wala kaming pakialam kay
Nassam. Lahat ginagawa dito, lahat ay utos ni Torres. At
‘yan ay sinusunod naming dahil si Torres ang bumubuhay
sa amin."
When petitioner refused to leave the premises, Cabos
threatened petitioner that should he stay inside, Cabos
would shoot him, so petitioner immediately left the place.
However, Cabos still fired at him but missed. Petitioner
ran fast to his makeshift hut where Cabos followed him.
Petitioner ran to the back of his makeshift hut and was
shot again by Cabos, hitting petitioner on the back. When
petitioner fell, he turned and saw Cabos and Negro
shooting at him. At the same time, Aquino was also firing
at the makeshift hut. After a while, the other security
guards, namely Sulla, Betasulo, and Romy Mendoza,
came, and together with Cabos and Negro, mauled and
kicked petitioner all over his body until he lost
consciousness.
As a result of the incident, petitioner was hospitalized and
placed under continuous treatment and medication. Due
to the multiple gunshot wounds, hematoma, and
contusions sustained by petitioner, his left eye became 90
to 95% blind and his body was paralyzed from the bustline
down. Consequently, petitioner filed a criminal case 7 for
frustrated murder before the RTC of Antipolo against the
security guards. Eventually, after suffering for more than
nine years, petitioner died.
On his part, respondent admits the existence of the titles
in the name of Rafael Roque but denies the latter’s
ownership over the property. He further admits the
dismissal of his case for cancellation of Roque’s titles
based on a technical ground. Respondent likewise admits
to the posting of the security guards on the property to
guard the same from any intruder but denies that they
were his personal security guards, and moreover claimed
that they were security guards of the Antipolo Landowners
and Farmers Association, Inc. (ALFAI), of which he was
president. Respondent further asserts that being the
President of ALFAI, his instruction to the security guards
was to prevent squatters or intruders from entering the
property and to make use of reasonable force to repel
aggression in the event of any untoward incident.
After trial, the lower court, on 8 April 1997, rendered
judgment in favor of petitioner. According to the court a
quo:
After a thorough examination of the evidence
presented by both parties, the Court is faced with
the issue of: "Whether or not defendant Torres
can be held liable for damages to herein plaintiff
as a result of the injuries inflicted by the security
guards deployed in the property in question on
August 28, 1989 [sic].
There is no question that the security guards
involved in the shooting incident on August 28,
1989 [sic] were employed of [sic] Anchor Security
and Detective Agency. There is also no question
that the same security guards were hired by
defendant Torres to man and guard the property
in question in Boso-Boso, Antipolo, Rizal. In this
simple scenario and in the event that said
security guards caused wrong to others while
in their tour of duty, the law provides that the
liability falls on the employer being the
principal. On the contrary, for illegal or
harmful acts committed by the security
guards as [sic] per order of the client or the
one who hired them, liability attaches to the
latter. In the instant case, the unlawful act
committed by the security guards against the
plaintiff is within the strict compliance of the
instruction of the defendant. This is because of
the fact that defendant Torres exercised direct
supervision of the said security guards. As a
matter of fact, he provided the guards with his
school bus to perform their duties effectively.
Hence, defendant Torres is liable for the unlawful
acts committed by the said security guards
against herein plaintiff. Such unlawful acts would
not have been accomplished had defendant
Torres being their "employer" at that time, not
instructed them so. What resulted to the shooting
of the plaintiff by the security guards cannot be
given justice except by indemnifying him. And
considering that plaintiff suffered paralization of
his body and blindness in his left eye,
notwithstanding the fact of incurring the amount
of P300,000.00 as hospitalization and medical
expenses plus the continuous medication up to
the present, the Court believes that the plaintiff
should be compensated. (Emphasis ours.)
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff as against defendant Torres
and the latter is ordered to pay the plaintiff the
following:
a) the amount of P300,000.00 as actual
damages;
b) the amount of P1,000,000.00 as moral
damages;
c) the amount of P300,000.00 as
exemplary damages; and
d) the amount of P50,000.00 as
attorney’s fee.8
Aggrieved by the above judgment, respondent lodged an
appeal before the Court of Appeals. According to
respondent, he did not know that the security guards
would commit the alleged aggressive acts until the
commission thereof, and that said security guards acted
upon their own judgment. Respondent claimed that
petitioner was an intruder and squatter on the property
who entered it without permission from members of the
ALFAI, the real owners of the said property. Thus,
respondent argued that petitioner forcibly entered the
property and that the security guards merely repelled the
unlawful aggression.
Subsequently, the appellate court reversed the RTC
judgment and rendered a Decision, the pertinent portions
of which read:
It is appellee’s contention that appellant as
employer of the said security guards is liable for
the injuries inflicted by the latter who acted under
his instructions to guard the subject premises.
Verily, the obligation imposed under Article 2176
of the Civil Code is demandable not only for one’s
own acts or omissions but also for those persons
for whom, one is responsible. The owners and
managers of an establishment or enterprise are
likewise responsible for damages caused by their
employees in exercise of their duties and/or
functions.
Relevantly, Article 2180 of the Civil Code
provides that:
Art. 2180. The obligation imposed by
article 2176 is not demandable not only
for one’s own acts or omissions, but also
for those persons for whom one is
responsible.
xxxx
The owners and managers of an
establishment or enterprise are likewise
responsible for damages caused by their
employees in the service of the branches
in which the latter are employed or on
occasion of their functions.
Under the facts obtaining, the above provision of
law does not apply. The court a quo succinctly
declared:
"There is no question that the security
guards involved in the shooting incident
on August 28, 1989 were employed (sic)
of Anchor Security Detective Agency.
There is also no question that the same
security guards were hired by defendant
Torres to man and guard the property in
question in Boso-Boso, Antipolo, Rizal.
xxxx
There is no question therefore that the said
security guards who inflicted the injuries
sustained by the appellee were not employees of
herein appellant. This being so, the ruling in the
case of Soliman, Jr. vs. Tuazon applies, viz:
It is settled that where the security
agency, as here recruits, hires and
assigns the work of its watchmen or
security guards, the agency is the
employer of such security guards or
watchmen. Liability for illegal or harmful
acts committed by the security guards
attaches to the employer agency, and not
to the clients or customers of such
agency.
At any rate, the appellant cannot be held liable
under Art. 33 of the Civil Code as no evidence
whatsoever, was adduced to show his
participation in the commission of the acts
complained of. Neither was appellee able to
prove that appellant can be held liable in the
alternative under Article 2176 in relation to Article
2180 of the Civil Code.
xxxx
WHEREFORE, the assailed decision is hereby
REVERSED and SET ASIDE and the complaint
as well as the counterclaim filed before the court
a quo is DISMISSED.9
With the reversal of the trial court judgment, petitioner
filed the instant appeal, raising the following issues:
I. Whether or not the Court of Appeals committed
grave and reversible error in ruling that petitioner
failed to prove by mere preponderance of
evidence that respondent Torres was involved in
any malevolent designs on petitioner;
II. Whether or not the Court of Appeals committed
grave and reversible error in ruling that Article
2180 in relation to Article 2176 of the Civil Code
is not applicable to the case at bar; and
III. Whether or not the Court of Appeals
committed grave and reversible error in applying
the case of Soliman, Jr. v. Tuazon to the case at
bar.
We agree with the Court of Appeals’ finding that
respondent cannot be held liable under Article 2180 of the
Civil Code for the damages suffered by petitioner because
respondent is not the employer of the security guards who
inflicted the injuries upon the person of the petitioner. As
reiterated in the recent case of Mercury Drug Corporation
v. Libunao:[10]
In Soliman, Jr. v. Tuazon, we held that where the
security agency recruits, hires and assigns the
works of its watchmen or security guards to a
client, the employer of such guards or watchmen
is such agency, and not the client, since the latter
has no hand in selecting the security guards.
Thus, the duty to observe the diligence of a good
father of a family cannot be demanded from the
said client:
x x x [I]t is settled in our jurisdiction that where the
security agency, as here, recruits, hires and
assigns the work of its watchmen or security
guards, the agency is the employer of such
guards or watchmen. Liability for illegal or harmful
acts committed by the security guards attaches to
the employer agency, and not to the clients or
customers of such agency. As a general rule, a
client or customer of a security agency has no
hand in selecting who among the pool of security
guards or watchmen employed by the agency
shall be assigned to it; the duty to observe the
diligence of a good father of a family in the
 selection of the guards cannot, in the ordinary
course of events, be demanded from the client
whose premises or property are protected by the
security guards.
x x x [T]he fact that a client company may give
instructions or directions to the security guards
assigned to it, does not, by itself, render the client
responsible as an employer of the security guards
concerned and liable for their wrongful acts or
omissions.11
This conclusion, however, does not necessarily preclude
this Court from holding respondent liable under the law for
damages resulting from the injuries inflicted on petitioner
by the unlawful acts of the security guards. As stressed
by petitioner in his Memorandum:
Assuming arguendo that the security guards are
not respondent’s employees, the same does not
constitute a valid defense at all. Article 2176 of
the Civil Code provides that a person who, by act
or omission, causes damage to another through
fault or negligence may be held liable in
damages. By making it appear that he owns
the disputed properties, putting security
guards thereat to inti[mi]date, harass or cause
the rightful owner and his representatives and
by providing the escape vehicle, more than
sufficient evidence was established on the
civil liability of private respondent under
Article 2176 of the Civil Code of the
Philippines.
It must be emphasized that private respondent
committed all these overt acts despite an earlier
Decision by the Regional Trial Court of Antipolo,
Branch 71, affirming Rafael Roque’s ownership of
the properties and dismissing the case he (private
respondent) filed for the cancellation of NP-419
and NP-422 in Rafael Roque’s name. Had he not
misrepresented to the security guards that he
owns the properties and had he not hired
these security guards/common thugs to
secure the premises which he does not own,
then the untoward incident would not have
happened. To allow private respondent to
escape liability, despite his misdeeds, will not
only result in grave injustice to Jose Roque, Jr.
who eventually died after having been paralyzed
for several years as a result of [the] incident but
will likewise result in the implied tolerance by this
Honorable Court of private respondent’s
disobedience or disrespect of a lawful
order/decision of the trial court (RTC Branch 71,
Antipolo) which he failed or refused to
honor.12 (Emphasis ours.)
Article 2176 of the Civil Code states that "whoever by act
or omission causes damage to another, there being fault
or negligence, is obliged to pay for the damage done." In
the case at bar, respondent cannot feign ignorance of the
fact that at the time of the shooting incident, the titles to
the disputed property were already registered in the name
of petitioner’s son, the cancellation for title case filed by
respondent having been dismissed. In fact, during trial,
the offer for stipulation of petitioner’s counsel that at the
time of the shooting incident, there is a valid and existing
title in the name of petitioner’s son which was never
cancelled by the court, was accepted by the respondent.
Therefore, by hiring the security guards to prevent entry,
possibly even by the registered owner, to the subject
property, titles to which he fully knew he did not possess,
respondent blatantly acted in bad faith. Respondent’s
unwarranted act of posting security guards within the
property, which he clearly knew is registered in the name
of another, unduly placed petitioner at harm and deprived
him of his right to fully exercise his privileges and duties
as administrator of said property. Respondent, by his
grossly faulty acts, paved the way to the infliction of
injuries by the security guards on petitioner.
Furthermore, respondent’s palpable display of bad faith in
claiming a superior right to the property over petitioner’s
son entitles petitioner to damages resulting therefrom. In
order that a plaintiff may maintain an action for the injuries
which he sustained, he must establish that such injuries
resulted from a breach of duty which the defendant owed
to the plaintiff – a concurrence of injury to the plaintiff and
legal responsibility by the person causing it.13 In other
words, in order that the law will give redress for an act
causing damage, the act must be not only hurtful, but
wrongful.14
In the case at bar, it is clear that respondent violated the
principle embodied in Article 19 of the Civil Code which
mandates that "every person must, in the exercise of his
rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty
and good faith." When a right is exercised in a manner
which discards these norms resulting in damage to
another, a legal wrong is committed for which the actor
can be held accountable.15 As we have stated in a
previous case, if mere fault or negligence in one’s acts
can make him liable for damages for injury caused
thereby, with more reason should abuse or bad faith make
him liable.16
With respect to the award of damages, we sustain the
ruling of the trial court. It is essential in the award of
damages that the claimant must have satisfactorily
proven during the trial the existence of the factual basis of
the damages and its causal connection to defendant’s
acts.17 During trial, petitioner, through his own testimony
and that of his wife, was able to establish that they have
incurred actual damages in the amount of P300,000.00
for the hospitalization of petitioner as a result of the
shooting and the mauling incident, thus, the award of
actual damages in said amount is proper.
As regards the award of moral damages, we have ruled
that there is no hard and fast rule in the determination of
what would be a fair amount of moral damages, since
each case must be governed by its own peculiar
circumstances.18 As reflected in the records of the instant
case, there is no gainsaying the fact that petitioner,
together with his family, had suffered physical suffering,
mental anguish, fright, serious anxiety and moral shock
resulting from respondent’s acts which caused petitioner
grave physical injuries eventually leading to his death.
The several years of torment and agonizing on the part of
the deceased petitioner and his family more than justifiy
the award of moral damages. It must be emphasized that
moral damages are not intended to enrich the
complainant at the expense of a defendant.19 They are
awarded only to enable the injured parties to obtain
means, diversions or amusements that will serve to
alleviate the moral sufferings the injured parties have
undergone by reason of defendant’s culpable action.20 In
other words, the award of moral damages is aimed at a
restoration within the limits of the possible, of the spiritual
status quo ante; and therefore it must be proportionate to
the suffering inflicted.21Therefore, in light of the sufferings
sustained by petitioner and his family, we are inclined to
sustain the award of P1,000,000.00 as moral damages.

As to exemplary damages, Article 2229 of the Civil Code

provides that such damages may be imposed by way of
example or correction for the public good, in addition to
the moral, temperate, liquidated or compensatory
damages. While exemplary damages cannot be
recovered as a matter of right, they need not be proved,
although plaintiff must show that he is entitled to moral,
temperate or compensatory damages before the court
may consider the question of whether or not exemplary
damages should be awarded.22 In the case at bar, having
determined that petitioner is entitled to the award of actual
and moral damages as a result of the wanton act of
respondent in stationing security guards in the property,
the title of which is under the name of petitioner’s son,
said act ultimately resulting in the paralysis and blindness
of petitioner, we find the award of exemplary damages to
be proper by way of correction for the public good of
respondent’s flagrant display of bad faith.

WHEREFORE, premises considered, the Petition for

Review is hereby GRANTED. The Decision of the Court
of Appeals in CA-G.R. CV No. 55895 is
hereby REVERSED and SET ASIDE. The Judgment of
the Regional Trial Court of Quezon City, Branch 104, in
Civil Case No. Q-93-14408 ordering respondent Torres to
pay petitioner Roque the amount of P300,000.00 as
actual damages; the amount of P1,000,000.00 as moral
damages; the amount of P300,000.00 as exemplary
damages; and the amount of P50,000.00 as attorney’s
fee is hereby REINSTATED.

SO ORDERED.
G.R. No. 132344 February 17, 2000
UNIVERSITY OF THE EAST, petitioner,
vs.
ROMEO A. JADER, respondent.
YNARES-SANTIAGO, J.:
May an educational institution be held liable for damages
for misleading a student into believing that the latter had
satisfied all the requirements for graduation when such is
not the case? This is the issue in the instant petition for
review premised on the following undisputed facts as
summarized by the trial court and adopted by the Court of
Appeals (CA),1 to wit:
Plaintiff was enrolled in the defendants' College
of Law from 1984 up to 1988. In the first semester
of his last year (School year 1987-1988), he failed
to take the regular final examination in Practice
Court I for which he was given an incomplete
grade (Exhibits "2", also Exhibit "H"). He enrolled
for the second semester as fourth year law
student (Exhibit "A") and on February 1, 1988 he
filed an application for the removal of the
incomplete grade given him by Professor Carlos
Ortega (Exhibits "H-2", also Exhibit "2") which
was approved by Dean Celedonio Tiongson after
payment of the required fee. He took the
examination on March 28, 1988. On May 30,
1988, Professor Carlos Ortega submitted his
grade. It was a grade of five (5). (Exhibits "H-4",
also Exhibits "2-L", "2-N").1âwphi1.nêt
In the meantime, the Dean and the Faculty
Members of the College of Law met to deliberate
on who among the fourth year students should be
allowed to graduate. The plaintiff's name
appeared in the Tentative List of Candidates for
graduation for the Degree of Bachelor of Laws
(LL.B) as of Second Semester (1987-1988) with
the following annotation:
JADER ROMEO A.
Def. Conflict of Laws — x-1-87-88, Practice Court
I Inc., 1-87-88 C-1 to submit transcript with S.O.
(Exhibits "3", "3-C-1", "3-C-2").
The 35th Investitures & Commencement
Ceremonies for the candidates of Bachelor of
Laws was scheduled on the 16th of April 1988 at
3:00 o'clock in the afternoon, and in the invitation
for that occasion the name of the plaintiff
appeared as one of the candidates. (Exhibits "B",
"B-6", "B-6-A"). At the foot of the list of the names
of the candidates there appeared however the
following annotation:
This is a tentative list Degrees will be
conferred upon these candidates who
satisfactorily complete requirements as
stated in the University Bulletin and as
approved of the Department of
Education, Culture and Sports (Exhibit
"B-7-A").
The plaintiff attended the investiture ceremonies
at F. dela Cruz Quadrangle, U.E., Recto Campus,
during the program of which he went up the stage
when his name was called, escorted by her (sic)
mother and his eldest brother who assisted in
placing the Hood, and his Tassel was turned from
left to right, and he was thereafter handed by
Dean Celedonio a rolled white sheet of paper
symbolical of the Law Diploma. His relatives took
pictures of the occasion (Exhibits "C" to "C-6", "D-
3" to "D-11").
He tendered a blow-out that evening which was
attended by neighbors, friends and relatives who
wished him good luck in the forthcoming bar
examination. There were pictures taken too
during the blow-out (Exhibits "D" to "D-1").
He thereafter prepared himself for the bar
examination. He took a leave of absence without
pay from his job from April 20, 1988 to September
30, 1988 (Exhibit "G") and enrolled at the pre-bar
review class in Far Eastern University. (Exhibits
"F" to "F-2"). Having learned of the deficiency he
dropped his review class and was not able to take
the bar examination.2
Consequently, respondent sued petitioner for damages
alleging that he suffered moral shock, mental anguish,
serious anxiety, besmirched reputation, wounded feelings
and sleepless nights when he was not able to take the
1988 bar examinations arising from the latter's
negligence. He prayed for an award of moral and
exemplary damages, unrealized income, attorney's fees,
and costs of suit.
In its answer with counterclaim, petitioner denied liability
arguing mainly that it never led respondent to believe that
he completed the requirements for a Bachelor of Laws
degree when his name was included in the tentative list of
graduating students. After trial, the lower court rendered
judgment as follows:
WHEREFORE, in view of the foregoing judgment
is hereby rendered in favor of the plaintiff and
against the defendant ordering the latter to pay
plaintiff the sum of THIRTY FIVE THOUSAND
FOUR HUNDRED SEVENTY PESOS
(P35,470.00) with legal rate of interest from the
filing of the complaint until fully paid, the amount
of FIVE THOUSAND PESOS (P5,000.00) as
attorney's fees and the cost of suit.
 Defendant's counterclaim is, for lack of merit,
hereby dismissed.
SO ORDERED.3
which on appeal by both parties was affirmed by the Court
of Appeals (CA) with modification. The dispositive portion
of the CA decision reads:
WHEREFORE, in the light of the foregoing, the
lower Court's Decision is hereby AFFIRMED with
the MODIFICATION that defendant-appellee, in
addition to the sum adjudged by the lower court
in favor of plaintiff-appellant, is also ORDERED to
pay plaintiff-appellant the amount of FIFTY
THOUSAND (P50,000.00) PESOS for moral
damages. Costs against defendant-appellee.
SO ORDERED.4
Upon the denial of its motion for reconsideration,
petitioner UE elevated the case to this Court on a petition
for review under Rule 45 of the Rules of Court, arguing
that it has no liability to respondent Romeo A. Jader,
considering that the proximate and immediate cause of
the alleged damages incurred by the latter arose out of
his own negligence in not verifying from the professor
concerned the result of his removal exam.
The petition lacks merit.
When a student is enrolled in any educational or learning
institution, a contract of education is entered into between
said institution and the student. The professors, teachers
or instructors hired by the school are considered merely
as agents and administrators tasked to perform the
school's commitment under the contract. Since the
contracting parties are the school and the student, the
latter is not duty-bound to deal with the former's agents,
such as the professors with respect to the status or result
of his grades, although nothing prevents either professors
or students from sharing with each other such information.
The Court takes judicial notice of the traditional practice
in educational institutions wherein the professor directly
furnishes his/her students their grades. It is the
contractual obligation of the school to timely inform and
furnish sufficient notice and information to each and every
student as to whether he or she had already complied with
all the requirements for the conferment of a degree or
whether they would be included among those who will
graduate. Although commencement exercises are but a
formal ceremony, it nonetheless is not an ordinary
occasion, since such ceremony is the educational
institution's way of announcing to the whole world that the
students included in the list of those who will be conferred
a degree during the baccalaureate ceremony have
satisfied all the requirements for such degree. Prior or
subsequent to the ceremony, the school has the
obligation to promptly inform the student of any problem
involving the latter's grades and performance and also
most importantly, of the procedures for remedying the
same.
Petitioner, in belatedly informing respondent of the result
of the removal examination, particularly at a time when he
had already commenced preparing for the bar exams,
cannot be said to have acted in good faith. Absence of
good faith must be sufficiently established for a successful
prosecution by the aggrieved party in a suit for abuse of
right under Article 19 of the Civil Code. Good faith
connotes an honest intention to abstain from taking undue
advantage of another, even though the forms and
technicalities of the law, together with the absence of all
information or belief of facts, would render the transaction
unconscientious.5 It is the school that has access to those
information and it is only the school that can compel its
professors to act and comply with its rules, regulations
and policies with respect to the computation and the
prompt submission of grades. Students do not exercise
control, much less influence, over the way an educational
institution should run its affairs, particularly in disciplining
its professors and teachers and ensuring their compliance
with the school's rules and orders. Being the party that
hired them, it is the school that exercises general
supervision and exclusive control over the professors with
respect to the submission of reports involving the
students' standing. Exclusive control means that no other
person or entity had any control over the instrumentality
which caused the damage or injury.6
The college dean is the senior officer responsible for the
operation of an academic program, enforcement of rules
and regulations, and the supervision of faculty and
student services.7 He must see to it that his own
professors and teachers, regardless of their status or
position outside of the university, must comply with the
rules set by the latter. The negligent act of a professor
who fails to observe the rules of the school, for instance
by not promptly submitting a student's grade, is not only
imputable to the professor but is an act of the school,
being his employer.
Considering further, that the institution of learning
involved herein is a university which is engaged in legal
education, it should have practiced what it inculcates in its
students, more specifically the principle of good dealings
enshrined in Articles 19 and 20 of the Civil Code which
states:
Art. 19. Every person must, in the exercise of his
rights and in the performance of his duties, act
with justice, give everyone his due, and observe
honesty and good faith.
Art. 20. Every person who, contrary to law, wilfully
or negligently causes damage to another, shall
indemnify the latter for the same.
Art. 19 was intended to expand the concept of torts by
granting adequate legal remedy for the untold number of
moral wrongs which is impossible for human foresight to
provide specifically in statutory law. 8 In civilized society,
men must be able to assume that others will do them no
intended injury — that others will commit no internal
aggressions upon them; that their fellowmen, when they
act affirmatively will do so with due care which the
ordinary understanding and moral sense of the
community exacts and that those with whom they deal in
the general course of society will act in good faith. The
ultimate thing in the theory of liability is justifiable reliance
under conditions of civilized society.9 Schools and
professors cannot just take students for granted and be
indifferent to them, for without the latter, the former are
useless.
Educational institutions are duty-bound to inform the
students of their academic status and not wait for the
latter to inquire from the former. The conscious
indifference of a person to the rights or welfare of the
person/persons who may be affected by his act or
omission can support a claim for damages.10 Want of care
to the conscious disregard of civil obligations coupled with
a conscious knowledge of the cause naturally calculated
to produce them would make the erring party
liable.11 Petitioner ought to have known that time was of
the essence in the performance of its obligation to inform
respondent of his grade. It cannot feign ignorance that
respondent will not prepare himself for the bar exams
since that is precisely the immediate concern after
graduation of an LL.B. graduate. It failed to act
seasonably. Petitioner cannot just give out its student's
grades at any time because a student has to comply with
certain deadlines set by the Supreme Court on the
submission of requirements for taking the bar. Petitioner's
liability arose from its failure to promptly inform
respondent of the result of an examination and in
misleading the latter into believing that he had satisfied all
requirements for the course. Worth quoting is the
following disquisition of the respondent court:
It is apparent from the testimony of Dean
Tiongson that defendant-appellee University had
been informed during the deliberation that the
professor in Practice Court I gave plaintiff-
appellant a failing grade. Yet, defendant-appellee
still did not inform plaintiff-appellant of his failure
to complete the requirements for the degree nor
did they remove his name from the tentative list
of candidates for graduation. Worse, defendant-
appellee university, despite the knowledge that
plaintiff-appellant failed in Practice Court
I, again included plaintiff-appellant's name in the
"tentative list of candidates for graduation which
was prepared after the deliberation and which
became the basis for the commencement rites
program. Dean Tiongson reasons out that
plaintiff-appellant's name was allowed to remain
in the tentative list of candidates for graduation in
the hope that the latter would still be able to
remedy the situation in the remaining few days
before graduation day. Dean Tiongson, however,
did not explain how plaintiff appellant Jader could
have done something to complete his deficiency
if defendant-appellee university did not exert any
effort to inform plaintiff-appellant of his failing
grade in Practice Court I.12
Petitioner cannot pass on its blame to the professors to
justify its own negligence that led to the delayed relay of
information to respondent. When one of two innocent
parties must suffer, he through whose agency the loss
occurred must bear it.13 The modern tendency is to grant
indemnity for damages in cases where there is abuse of
right, even when the act is not illicit.14 If mere fault or
negligence in one's acts can make him liable for damages
for injury caused thereby, with more reason should abuse
or bad faith make him liable. A person should be protected
only when he acts in the legitimate exercise of his right,
that is, when he acts with prudence and in good faith, but
not when he acts with negligence or abuse.15
However, while petitioner was guilty of negligence and
thus liable to respondent for the latter's actual damages,
we hold that respondent should not have been awarded
moral damages. We do not agree with the Court of
Appeals' findings that respondent suffered shock, trauma
and pain when he was informed that he could not
graduate and will not be allowed to take the bar
examinations. At the very least, it behooved on
respondent to verify for himself whether he has completed
all necessary requirements to be eligible for the bar
examinations. As a senior law student, respondent should
have been responsible enough to ensure that all his
affairs, specifically those pertaining to his academic
achievement, are in order. Given these considerations,
we fail to see how respondent could have suffered untold
embarrassment in attending the graduation rites, enrolling
in the bar review classes and not being able to take the
bar exams. If respondent was indeed humiliated by his
failure to take the bar, he brought this upon himself by not
verifying if he has satisfied all the requirements including
his school records, before preparing himself for the bar
examination. Certainly, taking the bar examinations does
not only entail a mental preparation on the subjects
thereof; there are also prerequisites of documentation and
submission of requirements which the prospective
examinee must meet.
WHEREFORE, the assailed decision of the Court of
Appeals is AFFIRMED with MODIFICATION. Petitioner is
ORDERED to PAY respondent the sum of Thirty-five
Thousand Four Hundred Seventy Pesos (P35,470.00),
with legal interest of 6% per annum computed from the
date of filing of the complaint until fully paid; the amount
of Five Thousand Pesos (P5,000.00) as attorney's fees;
and the costs of the suit. The award of moral damages is
DELEIED.1âwphi1.nêt
SO ORDERED.
 UNIVERSITY OF G.R. No. 165569 case was raffled to Branch 5 of the RTC of Dinalupihan,
SANTO Bataan, and docketed as Civil Case No. DH-788-02.
TOMAS, GLENDA
A. VARGAS, In his Complaint, respondent alleged that he graduated from
MA. SOCORRO S. UST on April 2, 2002 with a Bachelors Degree of Science in
GUANHING, Nursing. He was included in the list of candidates for graduation
in their capacities as and attended graduation ceremonies. On April 18, 2002,
Dean and respondent sought to secure a copy of his ToR with the UST
Assistant Dean, Present: Registrars Office, paid the required fees, but was only given a
respectively, of Certificate of Graduation by the Registrar. Despite repeated
the College of attempts by the respondent to secure a copy of his ToR, and
Nursing of the submission of his class cards as proof of his enrolment, UST
University of Santo CORONA, C. J., refused to release his records, making it impossible for him to
Tomas, and Chairperson, take the nursing board examinations, and depriving him of the
RODOLFO N. VELASCO, JR., opportunity to make a living. The respondent prayed that the
CLAVIO, in his RTC order UST to release his ToR and hold UST liable for
capacity as LEONARDO-DE CASTRO, actual, moral, and exemplary damages, attorneys fees, and the
Registrar of the costs of suit.
University of Santo DEL CASTILLO, and
Tomas, Instead of filing an Answer, petitioners filed a Motion to
Petitioners, PEREZ, JJ. Dismiss[4] where they claimed that they refused to release
respondents ToR because he was not a registered student,
- versus - since he had not been enrolled in the university for the last three
semesters. They claimed that the respondents graduation,
DANES B. Promulgated: attendance in classes, and taking/passing of examinations
SANCHEZ, were immaterial because he ceased to be a student when he
Respondent. ________________July 29, failed to enroll during the second semester of school year 2000-
2010 2001. They also sought the dismissal of the case on the ground
x---------------------------------------------- that the complaint failed to state a cause of action, as paragraph
---------------------x 10 of the complaint admitted that:

10. On several occasions,

DECISION
DEL CASTILLO, J.:
Where a valid cause of action exists, parties may not simply
bypass litigation by the simple expediency of a Motion to
Dismiss. Instead of abbreviating the proceedings, it has had the
opposite effect: unnecessary litigation for almost seven
years. Here, in particular, where any resolution of the case will
depend on the appreciation of evidence, a full-blown trial is
necessary to unearth all relevant facts and circumstances.
This petition for review on certiorari assails the Decision[1] dated
July 20, 2004 of the Court of Appeals (CA) in CA-G.R. SP No.
79404 which affirmed the denial of petitioners motion to dismiss
and directed the Regional Trial Court (RTC) of Dinalupihan,
Bataan, Branch 5, to proceed with trial. Also assailed is the
Resolution[2] dated September 22, 2004 denying the motion for
reconsideration.
Factual Antecedents
This case began with a Complaint[3] for Damages filed by
respondent Danes B. Sanchez (respondent) against the
University of Santo Tomas (UST) and its Board of Directors, the
Dean and the Assistant Dean of the UST College of Nursing,
and the University Registrar for their alleged unjustified refusal
to release the respondents Transcript of Records (ToR). The
[respondent] went to see the [petitioners] to
get his ToR, but all of these were futile for he
was not even entertained at the Office of the
Dean. Worst, he was treated like a criminal
forcing him to admit the fact that he did not
enroll for the last three (3) semesters of his
schooling. [Petitioner] Dean tried to persuade
the [respondent] to give the original copies of
the Class Cards which he has in his
possession. These are the only [bits of]
evidence on hand to prove that he was in fact
officially enrolled. [Respondent] did not give
the said class cards and instead gave photo
copies to the [Petitioner] Dean. The Office of
the Dean of Nursing of [petitioner] UST
became very strict in receiving documents
from the [respondent]. [They have] to be
scrutinized first before the same are
received.Receiving, as [respondent]
believes, is merely a ministerial function [of]
the [petitioners] and the documents
presented for receiving need not be
scrutinized especially so when x x x they are
not illegal. Copies of the class cards are
hereto attached as F hereof.[5]
After the parties filed their responsive pleadings,[6] petitioners
filed a Supplement to their Motion to Dismiss,[7] alleging that
respondent sought administrative recourse before the
Commission on Higher Education (CHED) through a letter-
complaint dated January 21, 2003. Thus, petitioners claimed
that the CHED had primary jurisdiction to resolve matters
pertaining to school controversies, and the filing of the instant
case was premature.
Ruling of the Regional Trial Court
After another exchange of pleadings,[8] the RTC
issued an Order[9] dated April 1, 2003 denying the Motion to
Dismiss on the ground that the issues involved required an
examination of the evidence, which should be threshed out
during trial. Petitioners Motion for Reconsideration[10] was
denied in an Order[11] dated August 1, 2003, so petitioners
sought recourse before the CA.
Ruling of the Court of Appeals
The CA affirmed the denial of petitioners Motion to Dismiss, and
directed the RTC to proceed with trial.
Issues
Petitioners seek recourse before us raising the following issues:
1) The CHED exercises quasi-judicial power over
controversies involving school matters and has primary
jurisdiction over respondents demand for the release of his
ToR. Thus, respondent failed to exhaust administrative
remedies;
2) Since respondent sought recourse with both the
CHED and the RTC, respondent violated the rule against
forum-shopping; and
3) The Complaint failed to state a cause of action, since
respondent admitted that he was not enrolled in UST in the
last three semesters prior to graduation.
Our Ruling
The petition is denied for lack of merit.
The
doctrine
of
exhausti
on of
administ
rative
remedie
s does
not
apply in
this
case.
The doctrine of exhaustion of administrative remedies requires
that where a
remedy before an administrative agency is provided, the
administrative agency concerned must be given the opportunity
to decide a matter within its jurisdiction before an action is
brought before the courts.[12] Failure to exhaust administrative
remedies is a ground for dismissal of the action.[13]
In this case, the doctrine does not apply because petitioners
failed to demonstrate that recourse to the CHED is mandatory
or even possible in an action such as that brought by the
respondent, which is essentially one for mandamus and
damages. The doctrine of exhaustion of administrative
remedies admits of numerous exceptions,[14] one of which is
where the issues are purely legal and well within the jurisdiction
of the trial court, as in the present case.[15] Petitioners liability if
any for damages will have to be decided by the courts, since
any judgment inevitably calls for the application and the
interpretation of the Civil Code.[16] As such, exhaustion of
administrative remedies may be dispensed with. As we held
in Regino v. Pangasinan Colleges of Science and
Technology:[17]
x x x exhaustion of administrative remedies is
applicable when there is competence on the
part of the administrative body to act upon the
matter complained of. Administrative
agencies are not courts; x x x neither [are
they] part of the judicial system, [or] deemed
judicial tribunals. Specifically, the CHED
does not have the power to award
damages. Hence, petitioner could not have
commenced her case before the
Commission. (Emphasis ours)
In addition, the rule on primary jurisdiction applies only where
the administrative agency exercises quasi-judicial or
adjudicatory functions.[18] Thus, an essential requisite for this
doctrine to apply is the actual existence of quasi-judicial
power.[19] However, petitioners have not shown that the CHED
possesses any such power to investigate facts or ascertain the
existence of facts, hold hearings, weigh evidence, and draw
conclusions.[20] Indeed, Section 8 of Republic Act No.
7722[21] otherwise known as the Higher Education Act of 1994,
certainly does not contain any express grant to the CHED of
judicial or quasi-judicial power.
Petitioners also claim that even without any express grant of
quasi-judicial power by the legislature, the CHED is authorized
to adjudicate the case filed by respondent on the strength of the
following provisions of the Manual of Regulations of Private
Schools:[22]
(1) Section 33, which authorizes the CHED to cancel
or revoke the graduation of any student whose records are
found to be fraudulent:
Section 33. Authority to Graduate Without
Department Approval. One of the benefits
which may be made available for accredited
schools of the appropriate level is the
authority to graduate students from
accredited courses or programs of study
without prior approval of the Department, the
conditions of which are as follows:
 a) The school head must furnish the
Regional Office of the region where the
school is situated a copy of its certificate of
accreditation.
b) Within two weeks after the
graduation exercise, the school shall submit
to the Regional Office concerned an
alphabetical list of graduates by course,
accompanied by a certification under oath
signed by the school registrar certifying that
the students listed (1) have complied with all
the requirements of the Department, (2) were
conferred their respective certificates or
degrees on a specific date, (3) have
complete scholastic records on file in the
school, and (4) have their Form 137 for high
school and Form IX for college, as the case
may be, in the custody of the school. This list
shall be sufficient basis for issuing special
orders, if still necessary.
The school will be held fully liable for the
veracity of the records without prejudice to
any legal action, including revocation of
government recognition, as may be called for
under the circumstances.
The Department reserves the right to cancel
or revoke the graduation of any student
whose records are found to be fraudulent.
(2) Section 72, which permits the school to withhold
students credentials under
certain specified circumstances, and authorizes the CHED to
issue a students credentials in case these are unlawfully
withheld by the school:
Section 72. Withholding of Credentials. The
release of the transfer credentials of any pupil
or student may be withheld for reasons of
suspension, expulsion, or non-payment of
financial obligations or property responsibility
of the pupil or student to the school. The
credentials shall be released as soon as his
obligation shall have been settled or the
penalty of suspension or expulsion lifted.
However, if, after due inquiry, a school is
found to have unjustifiably refused to issue
transfer credentials or student records, the
Department may issue the same without
prejudice to the imposition of appropriate
administrative sanctions against the school
concerned.
The most cursory perusal of these provisions shows that they
are inapplicable. Section 33 concerns the conditions and
authority of accredited schools to authorize the graduation of
students without the prior authority of the CHED. Corollarily, the
CHED may cancel or revoke the graduation if it is found to be
fraudulent. We are not aware that the CHED has taken any
action to revoke the respondents graduation, though it is free to
do so.
As regards Section 72, it refers to a schools right to withhold the
release of credentials due to suspension, expulsion, or non-
payment of financial obligations or property responsibility. None
of these circumstances is present, and there has been no
intimation that respondents ToR has been withheld on any of
these grounds.
In any event, even if we were to assume that these provisions
were applicable, the CHED remains without authority to
adjudicate an action for damages.
Respondent is not guilty of forum shopping
Forum shopping exists when, as a result of an adverse opinio
n in one
forum, a party seeks a favorable opinion (other than by appeal
or certiorari) in another, or when he institutes two or more
actions or proceedings grounded on the same cause, on the
gamble that one or the other court would make a favorable
disposition.[23] Here, there can be no forum shopping precisely
because the CHED is without quasi-judicial power, and cannot
make any disposition of the case whether favorable or
otherwise. As we held in Cabarrus, Jr. v. Bernas:[24]
The courts, tribunal and agencies
referred to under Circular No. 28-91,
revised Circular No. 28-91 and
Administrative Circular No. 04-94 are
those vested with judicial powers or
quasi-judicial powers and those who not
only hear and determine controversies
between adverse parties, but to make
binding orders or judgments. As
succinctly put by R.A. 157, the NBI is not
performing judicial or quasi-judicial
functions. The NBI cannot therefore be
among those forums contemplated by
the Circular that can entertain an action
or proceeding, or even grant any relief,
declaratory or otherwise.
The Complaint states a cause of action
Under Rule 16, Section 1(g) of the Rules of Court, a
motion to dismiss may be made on the ground that the pleading
asserting the claim states no cause of action.[25] To clarify the
essential test required to sustain dismissal on this ground, we
have explained that [t]he test of the sufficiency of the facts found
in a petition, to constitute a cause of action, is whether admitting
the facts alleged, the court could render a valid judgment upon
the same in accordance with the prayer of the petition.[26] Stated
otherwise, a complaint is said to assert a sufficient cause of
action if, admitting what appears solely on its face to be correct,
the plaintiff would be entitled to the relief prayed for.[27]
The Complaint makes the following essential
allegations: that petitioners unjustifiably refused to release
respondents ToR despite his having obtained a degree from the Court of Appeals in CA-G.R. SP No. 79404
UST; that petitioners claim that respondent was not officially are AFFIRMED. The Regional Trial Court of Dinalupihan,
enrolled is untrue; that as a result of petitioners unlawful actions, Bataan, Branch 5, is DIRECTED to continue the proceedings
respondent has not been able to take the nursing board exams in Civil Case No. DH-788-02 with all deliberate speed.
since 2002; that petitioners actions violated Articles 19-21 of the
Civil Code; and that petitioners should be ordered to release Costs against petitioners.
respondents ToR and held liable for P400,000.00 as moral
damages, P50,000.00 as exemplary damages, P50,000.00 as SO ORDERED.
attorneys fees and costs of suit, and P15,000.00 as actual
damages. Clearly, assuming that the facts alleged in the
Complaint are true, the RTC would be able to render a valid
judgment in accordance with the prayer in the Complaint.

Petitioners argue that paragraph 10 of the Complaint contains

an admission that respondent was not officially enrolled at
UST. Said paragraph reads:

10. On several occasions,

[respondent] went to see the [petitioners] to
get his ToR, but all of these were futile for he
was not even entertained at the Office of the
Dean. Worst, he was treated like a criminal
forcing him to admit the fact that he did not
enroll for the last three (3) semesters of his
schooling. [Petitioner] Dean tried to persuade
the [respondent] to give the original copies of
the Class Cards which he has in his
possession. These are the only [bits of]
evidence on hand to prove that he was in fact
officially enrolled. [Respondent] did not give
the said class cards and instead gave photo
copies to the [Petitioner] Dean. The Office of
the Dean of Nursing of [petitioner] UST
became very strict in receiving documents
from the [respondent]. [They have] to be
scrutinized first before the same are
received.Receiving, as [respondent]
believes, is merely a ministerial function [of]
the [petitioners] and the documents
presented for receiving need not be
scrutinized especially so when x x x they are
not illegal. Copies of the class cards are
hereto attached as F hereof.[28]

This statement certainly does not support petitioners

claim that respondent admitted that he was not enrolled. On the
contrary, any allegation concerning the use of force or
intimidation by petitioners, if substantiated, can only serve to
strengthen respondents complaint for damages.

We fully agree with the RTCs finding that a resolution

of the case requires the presentation of evidence during
trial. Based on the parties allegations, the issues in this case are
far from settled. Was respondent enrolled or not? Was his
degree obtained fraudulently? If so, why was he permitted by
the petitioners to graduate? Was there fault or negligence on
the part of any of the parties? Clearly, these are factual matters
which can be best ventilated in a full-blown proceeding before
the trial court.

WHEREFORE, the petition is DENIED. The Decision dated

July 20, 2004 and the Resolution dated September 22, 2004 of
TITUS B. VILLANUEVA, G.R. No. 180764
Petitioner,
Present:
Carpio, J., Chairperson,
- versus - Brion,
EMMA M. ROSQUETA,
Respondent. Promulgated:
January 19, 2010
x -------------------------------------------------------------------------
-------------- x
DECISION
ABAD, J.:
This case is about the right to recover damages for
alleged abuse of right committed by a superior public
officer in preventing a subordinate from doing her
assigned task and being officially recognized for it.
The Facts
Case
Respondent Emma M. Rosqueta (Rosqueta),
formerly Deputy Commissioner of the Revenue Collection
and Monitoring Group of the Bureau of Customs (the
Bureau), tendered her courtesy resignation from that post
on January 23, 2001, shortly after President Gloria
Macapagal-Arroyo assumed office. But five months later
on June 5, 2001, she withdrew her resignation, claiming
that she enjoyed security of tenure and that she had
resigned against her will on orders of her superior.[1]
Meantime, on July 13, 2001 President Arroyo
appointed Gil Valera (Valera) to respondent Rosquetas
position. Challenging such appointment, Rosqueta filed a
petition for prohibition, quo warranto, and injunction
against petitioner Titus B. Villanueva (Villanueva), then
Commissioner of Customs, the Secretary of Finance, and
Valera with the Regional Trial Court[2] (RTC) of Manila in
Civil Case 01-101539. On August 27, 2001 the RTC
issued a temporary restraining order (TRO), enjoining
Villanueva and the Finance Secretary[3] from
implementing Valeras appointment. On August 28, 2001
the trial court superseded the TRO with a writ of
preliminary injunction.[4]
Petitioner Villanueva, Valera, and the Secretary
of Finance challenged the injunction order before the
Court of Appeals (CA) in CA-G.R. SP 66070. On
September 14, 2001 the CA issued its own TRO,
enjoining the implementation of the RTCs injunction
order. But the TRO lapsed after 60 days and the CA
eventually dismissed the petition before it.
On November 22, 2001 while the preliminary
injunction in the quo warranto case was again in force,
D petitioner Villanueva issued Customs Memorandum
el Order 40-2001, authorizing Valera to exercise the powers
Castillo, and functions of the Deputy Commissioner.
A
bad, During the Bureaus celebration of its centennial
and anniversary in February 2002, its special Panorama
P magazine edition featured all the customs deputy
erez, JJ commissioners, except respondent Rosqueta. The
. souvenir program, authorized by the Bureaus Steering
Committee headed by petitioner Villanueva to be issued
on the occasion, had a space where Rosquetas picture
was supposed to be but it instead stated that her position
was under litigation. Meanwhile, the commemorative
billboard displayed at the Bureaus main gate
included Valeras picture but not Rosquetas.
On February 28, 2002 respondent Rosqueta filed
a complaint[5] for damages before the RTC of Quezon City
against petitioner Villanueva in Civil Case Q-02-46256,
alleging that the latter maliciously excluded her from the
centennial anniversary memorabilia. Further, she claimed
that he prevented her from performing her duties as
Deputy Commissioner, withheld her salaries, and refused
to act on her leave applications. Thus, she asked the RTC
to award her P1,000,000.00 in moral
damages, P500,000.00 in exemplary damages,
and the and P300,000.00 in attorneys fees and costs of suit.
But the RTC dismissed[6] respondent Rosquetas
complaint, stating that petitioner Villanueva committed no
wrong and incurred no omission that entitled her to
damages.The RTC found that Villanueva had validly and
legally replaced her as Deputy Commissioner seven
months before the Bureaus centennial anniversary.
But the CA reversed the RTCs decision,[7] holding
instead that petitioner Villanuevas refusal to comply with
the preliminary injunction order issued in the quo
warrantocase earned for Rosqueta the right to recover
moral damages from him.[8] Citing the abuse of right
principle, the RTC said that Villanueva acted maliciously
when he prevented Rosqueta from performing her duties,
deprived her of salaries and leaves, and denied her
official recognition as Deputy Commissioner by excluding
her from the centennial anniversary memorabilia. Thus,
the appellate court ordered Villanueva to
pay P500,000.00 in moral damages, P200,000.00 in
exemplary damages and P100,000.00 in attorneys fees
and litigation expenses. With the denial of his motion for
reconsideration, Villanueva filed this petition for review
on certiorari under Rule 45.
The Issue Presented
The key issue presented in this case is whether
or not the CA erred in holding petitioner Villanueva liable
in damages to respondent Rosqueta for ignoring the
preliminary injunction order that the RTC issued in
the quo warranto case (Civil Case 01-101539), thus
denying her of the right to do her job as Deputy
Commissioner of the Bureau and to be officially
recognized as such public officer.
The Courts Ruling
Under the abuse of right principle found in Article
19 of the Civil Code,[9] a person must, in the exercise of
his legal right or duty, act in good faith. He would be liable
if he instead acts in bad faith, with intent to prejudice
another. Complementing this principle are Articles
20[10] and 21[11] of the Civil Code which grant the latter
indemnity for the injury he suffers because of such abuse
of right or duty.[12]
Petitioner Villanueva claims that he merely acted
on advice of the Office of the Solicitor General (OSG)
when he allowed Valera to assume the office as Deputy
Commissioner since respondent Rosqueta held the
position merely in a temporary capacity and since she
lacked the Career Executive Service eligibility required for
the job.
status.[17] She had to endure being referred to as a
squatter in her workplace. She had to face inquiries from
family and friends about her exclusion from the Bureaus
centennial anniversary memorabilia. She did not have to
endure all these affronts and the angst and depression
they produced had Villanueva abided in good faith by the
courts order in her favor.Clearly, she is entitled to moral
damages.
The Court, however, finds the award
of P500,000.00 excessive. As it held in Philippine
Commercial International Bank v. Alejandro,[18] moral
damages are not a bonanza.They are given to ease the
defendants grief and suffering. Moral damages should
reasonably approximate the extent of hurt caused and the
gravity of the wrong done. Here, that would
be P200,000.00.
The Court affirms the grant of exemplary
damages by way of example or correction for the public
good but, in line with the same reasoning, reduces it
to P50,000.00.Finally, the Court affirms the award of
attorneys fees and litigation expenses but reduces it
to P50,000.00.

But petitioner Villanueva cannot seek shelter in WHEREFORE, the Court DENIES the petition
the alleged advice that the OSG gave him. Surely, a and AFFIRMS the decision of the Court of Appeals dated
government official of his rank must know that a April 30, 2007 in CA-G.R. CV 85931
preliminary injunction order issued by a court of law had with MODIFICATION in that petitioner Titus B. Villanueva
to be obeyed, especially since the question of Valeras is ORDERED to pay respondent Emma M. Rosqueta the
right to replace respondent Rosqueta had not yet been sum of P200,000.00 in moral damages, P50,000.00 in
properly resolved. exemplary damages, and P50,000.00 in attorneys fees
and litigation expenses.
That petitioner Villanueva ignored the injunction
shows bad faith and intent to spite Rosqueta who SO ORDERED.
remained in the eyes of the law the Deputy
Commissioner. His exclusion of her from the centennial
anniversary memorabilia was not an honest mistake by
any reckoning. Indeed, he withheld her salary and
prevented her from assuming the duties of the
position. As the Court said in Amonoy v. Spouses
Gutierrez,[13] a partys refusal to abide by a court order
enjoining him from doing an act, otherwise lawful,
constitutes an abuse and an unlawful exercise of right.

That respondent Rosqueta was later appointed

Deputy Commissioner for another division of the Bureau
is immaterial. While such appointment, when accepted,
rendered the quo warranto case moot and academic, it
did not have the effect of wiping out the injuries she
suffered on account of petitioner Villanuevas treatment of
her. The damage suit is an independent action.

The CA correctly awarded moral damages to

respondent Rosqueta. Such damages may be awarded
when the defendants transgression is the immediate
cause of the plaintiffs anguish[14] in the cases specified in
Article 2219[15] of the Civil Code.[16]

Here, respondent Rosquetas colleagues and

friends testified that she suffered severe anxiety on
account of the speculation over her employment
[G.R. No. 147076. June 17, 2004]
METROPOLITAN WATERWORKS AND SEWERAGE
SYSTEM, petitioner, vs. ACT THEATER,
INC., respondent.
DECISION
CALLEJO, SR., J.:
Before the Court is a petition for review
on certiorari filed by the Metropolitan Waterworks and
Sewerage System (MWSS), seeking to reverse and set
aside the Decision[1] dated January 31, 2001 of the Court
of Appeals in CA-G.R. CV No. 58581, which affirmed the
civil aspect of the Decision[2] dated May 5, 1997 of the
Regional Trial Court of Quezon City, Branch 77, directing
the petitioner MWSS to pay the respondent Act Theater,
Inc. damages and attorneys fees.
The present case stemmed from the consolidated
cases of Criminal Case No. Q-89-2412 entitled People of
the Philippines v. Rodolfo Tabian, et al., for violation of
Presidential Decree (P.D.) No. 401, as amended by Batas
Pambansa Blg. 876, and Civil Case No. Q-88-768
entitled Act Theater, Inc. v. Metropolitan Waterworks and
Sewerage System. The two cases were jointly tried in the
court a quo as they arose from the same factual
circumstances, to wit:
On September 22, 1988, four employees of the
respondent Act Theater, Inc., namely, Rodolfo Tabian,
Armando Aguilar, Arnel Concha and Modesto Ruales,
were apprehended by members of the Quezon City police
force for allegedly tampering a water meter in violation of
P.D. No. 401, as amended by B.P. Blg. 876. The
respondents employees were subsequently criminally
charged (Criminal Case No. Q-89-2412) before the
court a quo. On account of the incident, the respondents
water service connection was cut off. Consequently, the
respondent filed a complaint for injunction with damages
(Civil Case No. Q-88-768) against the petitioner MWSS.
In the civil case, the respondent alleged in its
complaint filed with the court a quo that the petitioner
acted arbitrarily, whimsically and capriciously, in cutting
off the respondents water service connection without prior
notice. Due to lack of water, the health and sanitation, not
only of the respondents patrons but in the surrounding
premises as well, were adversely affected.The
respondent prayed that the petitioner be directed to pay
damages.
After due trial, the court a quo rendered its decision,
the dispositive portion of which reads:
In Criminal Case No. Q-89-2412
WHEREFORE, for failure of the prosecution to prove the
guilt of the accused beyond reasonable doubt, the four (4)
above-named Accused are hereby ACQUITTED of the
crime charged.[3]
In Civil Case No. Q-88-768
...
1. Ordering defendant MWSS to pay plaintiff
actual or compensatory damages in the
amount of P25,000.00; and to return the
sum of P200,000.00 deposited by the
plaintiff for the restoration of its water
services after its disconnection on
September 23, 1988;
2. Defendants counterclaim for undercollection
of P530,759.96 is dismissed for lack of
merit;
3. Ordering defendant MWSS to pay costs of
suit;
4. Ordering defendant MWSS to pay plaintiff the
amount of P5,000.00 as attorneys fees;
5. Making the mandatory injunction earlier
issued to plaintiff Act Theater, Inc.
permanent.
SO ORDERED.[4]
Aggrieved, the petitioner appealed the civil aspect of
the aforesaid decision to the CA. The appellate court,
however, dismissed the appeal. According to the CA, the
court a quocorrectly found that the petitioners act of
cutting off the respondents water service connection
without prior notice was arbitrary, injurious and prejudicial
to the latter justifying the award of damages under Article
19 of the Civil Code.
Undaunted, the petitioner now comes to this Court
alleging as follows:
I
WHETHER OR NOT THE HONORABLE COURT OF
APPEAL[S] VALIDLY AFFIRMED THE DECISION OF
THE REGIONAL TRIAL COURT IN RESOLVING THE
PETITIONERS APPEAL;
II
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS VALIDLY UPHELD THE AWARD OF
ATTORNEYS FEES;
III
WHETHER OR NOT THE HONORABLE COURT OF
APPEAL[S] CORRECTLY APPLIED THE PROVISION
OF ARTICLE 19 OF THE NEW CIVIL CODE WITHOUT
CONSIDERING THE APPLICABLE PROVISION OF
ARTICLE 429 OF THE SAME CODE.[5]
Preliminarily, the petitioner harps on the fact that, in
quoting the decretal portion of the court a quos decision,
the CA erroneously typed P500,000 as the attorneys fees
awarded in favor of the respondent when the same should
only be P5,000. In any case, according to the petitioner,
whether the amount is P500,000 or P5,000, the award of
attorneys fees is improper considering that there was no
discussion or statement in the body of the assailed
decision justifying such award. The petitioner insists that
in cutting off the respondents water service connection,
the petitioner merely exercised its proprietary right under
Article 429 of the Civil Code.
The petition is devoid of merit.
Article 429 of the Civil Code, relied upon by the
petitioner in justifying its act of disconnecting the water
supply of the respondent without prior notice, reads:
Art. 429. The owner or lawful possessor of a thing has the
right to exclude any person from the enjoyment and
disposal thereof. For this purpose, he may use such force
as may be reasonable to repel or prevent an actual or
threatened unlawful physical invasion or usurpation of his
property.
A right is a power, privilege, or immunity guaranteed
under a constitution, statute or decisional law, or
recognized as a result of long usage,[6] constitutive of a
legally enforceable claim of one person against the
other.[7]
Concededly, the petitioner, as the owner of the utility
providing water supply to certain consumers including the
respondent, had the right to exclude any person from the
enjoyment and disposal thereof. However, the exercise of
rights is not without limitations. Having the right should not
be confused with the manner by which such right is to be
exercised.[8]
Article 19 of the Civil Code precisely sets the norms
for the exercise of ones rights:
Art. 19. Every person must, in the exercise of his rights
and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.
When a right is exercised in a manner which discards
these norms resulting in damage to another, a legal wrong
is committed for which actor can be held accountable.[9] In
this case, the petitioner failed to act with justice and give
the respondent what is due to it when the petitioner
unceremoniously cut off the respondents water service
connection. As correctly found by the appellate court:
While it is true that MWSS had sent a notice of
investigation to plaintiff-appellee prior to the
disconnection of the latters water services, this was done
only a few hours before the actual disconnection. Upon
receipt of the notice and in order to ascertain the matter,
Act sent its assistant manager Teodulo Gumalid, Jr. to the
MWSS office but he was treated badly on the flimsy
excuse that he had no authority to represent Act. Acts
water services were cut at midnight of the day following
the apprehension of the employees. Clearly, the plaintiff-
appellee was denied due process when it was deprived of
the water services. As a consequence thereof, Act had to
contract another source to provide water for a number of
days. Plaintiff-appellee was also compelled to deposit
with MWSS the sum of P200,000.00 for the restoration of
their water services.[10]
There is, thus, no reason to deviate from the uniform
findings and conclusion of the court a quo and the
appellate court that the petitioners act was arbitrary,
injurious and prejudicial to the respondent, justifying the
award of damages under Article 19 of the Civil Code.
Finally, the amount of P500,000 as attorneys fees in
that portion of the assailed decision which quoted
the fallo of the court a quos decision was obviously a
typographical error. As attorneys fees, the court a
quo awarded the amount of P5,000 only. It was this
amount, as well as actual and compensatory damages
of P25,000 and the reimbursement of P200,000
deposited by the respondent for the restoration of its
water supply, that the CA affirmed, as it expressly stated
in its dispositive portion that finding no cogent reason to
reverse the appealed Decision which is in conformity with
the law and evidence, the same is hereby AFFIRMED.[11]
The award of P5,000 as attorneys fees is reasonable
and warranted. Attorneys fees may be awarded when a
party is compelled to litigate or incur expenses to protect
his interest by reason of an unjustified act of the other
party.[12]
WHEREFORE, the petition is DENIED. The
Decision of the Court of Appeals dated January 31, 2001
in CA-G.R. CV No. 58581 is AFFIRMED in toto.
SO ORDERED.
 ERMELINDA C. MANALOTO, AURORA J. G.R. No. 171365
Horseshoe Village, Quezon City [subject
CIFRA, FLORDELIZA J. ARCILLA, property] which was leased to
LOURDES J. CATALAN, ETHELINDA J. [respondent] at a monthly rental
HOLT, BIENVENIDO R. JONGCO, ARTEMIO Present: of P17,000.00. The action was instituted
R. JONGCO, JR. and JOEL JONGCO, on the ground of [respondents] failure to
pay rentals from May 23, 1997 to
Petitioners, CORONA, C.J.,December 22, 1998 despite repeated
Chairperson, demands. [Respondent] denied the non-
payment of rentals and alleged that he
VELASCO, JR.,made an advance payment
of P825,000.00 when he paid for the
- versus - NACHURA,* repairs done on the leased property.
LEONARDO-DE CASTRO, and
PEREZ, JJ. After trial, the Metropolitan Trial
Court (MeTC) decided in favor of
ISMAEL VELOSO III,
[petitioners] by ordering [respondent] to
Respondent. (a) vacate the premises at No. 42 Big
Horseshoe Drive, Horseshoe Village,
Promulgated: Quezon City; (b) pay [petitioners] the
sum of P306,000.00 corresponding to
the rentals due from May 23, 1997 to
November 22, 1998, and the sum
October 6, 2010
of P17,000.00 a month thereafter until
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - [respondent] vacates the premises; and
- - - - - - - - - -x (c) pay [petitioners] the sum of P5,000.00
as attorneys fees.

On appeal to the Regional Trial

DECISION Court (RTC) [Branch 88, Quezon City],
the MeTC decision was
reversed. [Respondent] was ordered to
pay arrearages from May 23, 1997 up to
LEONARDO-DE CASTRO, J.: the date of the decision but he was also
given an option to choose between
staying in the leased property or vacating
the same, subject to the reimbursement
by [petitioners] of one-half of the value of
Before Us is a Petition for Review on Certiorari of the improvements which it found to be in
the Decision[1] dated January 31, 2006 of the Court the amount
Appeals in CA-G.R. CV No. 82610, which affirmed with of P120,000.00. [Respondent] was also
modification the Resolution[2] dated September 2, 2003 of given the right to remove said
Branch 227 of the Regional Trial Court (RTC-Branch 227) improvements pursuant to Article 1678 of
of Quezon City in Civil Case No. Q-02-48341. the Civil Code, should [petitioners] refuse
to pay P60,000.00.

We partly reproduce below the facts of the case

as culled by the Court of Appeals from the records: When both parties moved for the
reconsideration of the RTC decision, the
This case is an off-shoot of an RTC issued an Order dated February 23,
unlawful detainer case filed by [herein 2001 modifying its previous ruling by
petitioners] Ermelinda C. Manaloto, increasing the value of the improvements
Aurora J. Cifra, Flordeliza J. Arcilla, from P120,000.00 to P800,000.00.
Lourdes J. Catalan, Ethelinda J. Holt,
Bienvenido R. Jongco, Artemio R.
Jongco, Jr. and Joel Jongco against
[herein respondent]. In said complaint for After successive appeals to the
unlawful detainer, it was alleged that they Court of Appeals and the Supreme Court,
are the lessors of a residential house the decision of the RTC dated November
located at No. 42 Big Horseshoe Drive, 29, 2000 which reversed the decision of
the MeTC, became final and executory.[3]

Whilst respondents appeal of the Metropolitan
Trial Court (MeTC) judgment in the unlawful detainer case
was pending before the RTC-Branch 88, respondent filed
before the RTC-Branch 227 on November 26, 2002 a
Complaint for Breach of Contract and Damages[4] against
the petitioners, docketed as Civil Case No. Q-02-
48341. The said complaint alleged two causes of
action. The first cause of action was for damages
because the respondent supposedly suffered
embarrassment and humiliation when petitioners
distributed copies of the above-mentioned MeTC decision
in the unlawful detainer case to the homeowners of
Horseshoe Village while respondents appeal was still
pending before the Quezon City RTC-Branch
88. The second cause of action was for breach of contract
since petitioners, as lessors, failed to make continuing
repairs on the subject property to preserve and keep it
tenantable. Thus, respondent sought the following from
the court a quo:
PRAYER
WHEREFORE, premises considered, it
is respectfully prayed that after hearing
the court render a decision against the
[herein petitioners] and in favor of the
[herein respondent] by
1. Ordering [petitioners] to pay
[respondent] the following amounts:
a) P1,500,000.00 as
moral damages and
consequential damages;
b) P500,000.00 as
exemplary damages;
c) P425,000.00
representing the difference of the
expenses of the improvements
of P825,000.00
and P400,000.00 pursuant to
Art. 1678 of the Civil Code;
d) P594,000.00
representing interest for three (3)
years from 1998 to 2000 on
the P825,000.00 advanced by
the [respondent] at the rate of
24% per annum;
e) P250,000.00 as
compensation for the
[respondents] labor and efforts in
overseeing and attending the
needs of contractors the
repair/renovation of the leased
premises;
f) P250,000.00, plus
20% of all recoveries from
[petitioners] and P2,500.00 per
hearing as attorneys fees;
g) Cost of suit.
[Respondent] further prays for
such other reliefs and remedies which
are just and equitable under the
premises.[5]
The petitioners filed an Omnibus Motion[6] on
February 18, 2003 praying for, among other reliefs, the
dismissal of respondents complaint in Civil Case No. Q-
02-48341.Petitioners argued that respondent had no
cause of action against them because the MeTC decision
in the unlawful detainer case was a matter of public record
and its disclosure to the public violated no law or any legal
right of the respondent. Moreover, petitioners averred that
the respondents present Complaint for Breach of Contract
and Damages was barred by prior judgment since it was
a mere replication of respondents Answer with
Compulsory Counterclaim in the unlawful detainer case
before the MeTC. The said unlawful detainer case was
already judicially decided with finality.
On September 2, 2003, the RTC-Branch 227
issued a Resolution dismissing respondents complaint in
Civil Case No. Q-02-48341 for violating the rule against
splitting of cause of action, lack of jurisdiction, and failure
to disclose the pendency of a related case. The RTC-
Branch 227 adjudged that Civil Case No. Q-02-48341
involved the same facts, parties, and causes of action as
those in the unlawful detainer case, and the MeTC had
already properly taken cognizance of the latter case.
Respondent received a copy of the RTC-Branch 227
decision in Civil Case No. Q-02-48341 on September 26,
2003. He filed a Motion for Reconsideration[7] of said
judgment on October 10, 2003, which RTC-Branch 227
denied in an Order[8] dated December 30, 2003.
Respondent received a copy of the RTC-Branch
227 order denying his Motion for Reconsideration on
February 20, 2004, and he filed his Notice of Appeal[9] on
March 1, 2004. However, the RTC-Branch 227, in an
Order[10] dated March 23, 2004, dismissed respondents
appeal for being filed out of time.
Respondent received a copy of the RTC-Branch
27 order dismissing his appeal on April 30, 2004 and he
filed a Motion for Reconsideration[11] of the same on May
3, 2004. The RTC-Branch 227, in another Order[12] dated
May 31, 2004, granted respondents latest motion
because it was convinced that it is but appropriate and fair
to both parties that this matter of whether or not the
Appeal was filed on time, be resolved by the appellate
court rather than by this Court. The RTC-Branch 227 then
ordered that the records of the case be forwarded as soon
as possible to the Court of Appeals for further
proceedings.
The Court of Appeals, in a Resolution[13] dated
February 8, 2005, resolved to give due course to
respondents appeal. Said appeal was docketed as CA-
G.R. CV No. 82610.
On January 31, 2006, the Court of Appeals
rendered its Decision in CA-G.R. CV No. 82610. The
Court of Appeals fully agreed with the RTC-Branch 227 in
dismissing respondents second cause of action (i.e.,
breach of contract) in Civil Case No. Q-02-48341. The
appellate court, however, held that RTC-Branch 227
should have proceeded with the trial on the merits of the
first cause of action (i.e., damages) in Civil Case No. Q-
02-48341, because [a]lthough [herein respondent] may
have stated the same factual antecedents that transpired
in the unlawful detainer case, such allegations were
necessary to give an overview of the facts leading to the
institution of another case between the parties before the
RTC acting in its original jurisdiction.[14]
The Court of Appeals then went on to find that
petitioners were indeed liable to respondent for damages:
No doubt, distributing the copies
was primarily intended to embarrass
[herein respondent] in the community he
mingled in. We are not unmindful of the
fact that court decisions are public
documents and the general public is
allowed access thereto to make inquiries
thereon or to secure a copy
thereof. Nevertheless, under the
circumstances of this case, although
court decisions are public documents,
distribution of the same during the
pendency of an appeal was clearly
intended to cause [respondent] some
form of harassment and/or humiliation so
that [respondent] would be ostracized by
his neighbors. The appeal may have
delayed the attainment of finality of the
determination of the rights of the parties
and the execution in the unlawful
detainer case but it did not justify [herein
petitioners] pre-emption of the outcome
of the appeal. By distributing copies of
the MeTC decision, [petitioners]
appeared to have assumed that the
MeTC decision would simply be affirmed
and therefore they tried to cause the
early ouster of [respondent] thinking that
a humiliated [respondent] would scurry
out of the leased premises.Clearly, there
was evident bad faith intended to mock
[respondents] right to appeal which is a
statutory remedy to correct errors which
might have been committed by the lower
court.
Thus, moral damages may be
awarded since [petitioners] acted in bad
faith. Bad faith does not simply connote
bad judgment or negligence, it imports a
dishonest purpose or some moral
obliquity and conscious doing of a wrong,
a breach of known duty through some
motive or interest or ill will that partakes
of the nature of fraud. However, an
award of moral damages would require
certain conditions to be met, to wit: (1)
first, there must be an injury, whether
physical, mental or psychological, clearly
sustained by the claimant; (2) second,
there must be culpable act or omission
factually established; (3) third, the
wrongful act or omission of the defendant
is the proximate cause of the injury
sustained by the claimant; and (4) fourth,
the award of damages is predicated on
any of the cases stated in Article 2219 of
the Civil Code.
But it must again be stressed
that moral damages are emphatically not
intended to enrich a plaintiff at the
expense of the defendant. When
awarded, moral damages must not be
palpably and scandalously excessive as
to indicate that it was the result of
passion, prejudice or corruption on the
part of the trial court judge. For this
reason, this Court finds an award
of P30,000.00 moral damages sufficient
under the circumstances.
On the other hand, to warrant the
award of exemplary damages, the
wrongful act must be accompanied by
bad faith, and an award of damages
would be allowed only if the guilty party
acted in a wanton, fraudulent, reckless or
 malevolent manner. Accordingly,
exemplary damages in the amount
of P10,000.00 is appropriate.[15]
In the end, the Court of Appeals decreed:
WHEREFORE, the decision of
the Regional Trial Court is AFFIRMED
with the MODIFICATION that the case is
dismissed only as to the second cause of
action. As to the first cause of action,
[herein petitioners] are ordered to pay
[herein respondent] moral damages
of P30,000.00 and exemplary damages
of P10,000.00.[16]
Hence, the instant Petition for Review.
Petitioners assert that respondents appeal of the
RTC-Branch 227 Resolution dated September 2, 2003,
which dismissed the latters complaint in Civil Case No. Q-
02-48341, was filed out of time. Respondent received a
copy of the said resolution on September 26, 2003, and
he only had 15 days from such date to file his appeal, or
until October 11, 2003. Respondent, instead, filed a
Motion for Reconsideration of the resolution on October
10, 2003, which left him with only one more day to file his
appeal. The RTC-Branch 227 subsequently denied
respondents Motion for Reconsideration in an Order
dated December 30, 2003, which the respondent received
on February 20, 2004.Respondent only had until the
following day, February 21, 2004, to file the
appeal. However, respondent filed his Notice of Appeal
only on March 1, 2004. Hence, petitioners conclude that
the dismissal of respondents complaint in Civil Case No.
Q-02-48341 already attained finality.
Petitioners argue in the alternative that the award
of damages in respondents favor has no factual and legal
bases. They contend that the Court of Appeals erred in
awarding moral and exemplary damages to respondent
based on the bare and unproven allegations in the latters
complaint and without the benefit of any hearing or
trial. While the appellate court declared that RTC-Branch
227 should have proceeded with the trial on the merits
involving the action for damages, it surprisingly went
ahead and ruled on petitioners liability for said damages
even without trial. Even assuming for the sake of
argument that respondents allegations in his complaint
are true, he still has no cause of action for damages
against petitioners, for the disclosure of a court decision,
which is part of public record, did not cause any legal and
compensable injury to respondent.
Respondent, on the other hand, maintains that
his appeal of the September 2, 2003 Resolution of the
RTC-Branch 227 to the Court of Appeals was timely filed
and that the same was aptly given due course. In addition,
respondent asserts that the appellate court was correct in
holding petitioners liable for damages even without any
hearing or trial since petitioners, in filing their omnibus
motion praying for the dismissal of respondents complaint
on the ground of no cause of action, were deemed to have
hypothetically admitted as true the allegations in said
complaint.
The petition is partly meritorious.
We note, at the outset, that the propriety of the
dismissal by the RTC-Branch 227 of respondents second
cause of action against petitioners (e.g., for breach of
contract) was no longer disputed by the parties. Thus, the
present appeal pertains only to respondents first cause of
action (e.g., for damages), and in connection therewith,
we are called upon to resolve the following issues: (1)
whether respondent timely filed his appeal of the
Resolution dated September 2, 2003 of the RTC-Branch
227 before the Court of Appeals; and (2) whether
respondent is entitled to the award of moral and
exemplary damages.
We answer the first issue on the timeliness of
respondents appeal affirmatively.
Jurisprudence has settled the fresh period rule,
according to which, an ordinary appeal from the RTC to
the Court of Appeals, under Section 3 of Rule 41 of the
Rules of Court, shall be taken within fifteen (15)
days either from receipt of the original judgment of the
trial court or from receipt of the final order of the trial court
dismissing or denying the motion for new trial or motion
for reconsideration. In Sumiran v. Damaso,[17] we
presented a survey of the cases applying the fresh period
rule:
As early as 2005, the Court
categorically declared in Neypes v.
Court of Appeals that by virtue of the
power of the Supreme Court to amend,
repeal and create new procedural rules
in all courts, the Court is allowing a fresh
period of 15 days within which to file a
notice of appeal in the RTC, counted
from receipt of the order dismissing or
denying a motion for new trial or
motion for reconsideration. This would
standardize the appeal periods provided
in the Rules and do away with the
confusion as to when the 15-day appeal
period should be counted. Thus, the
Court stated:
To
recapitulate, a party-
litigant may either file
his notice of appeal
within 15 days from
receipt of the Regional
Trial Court's decision
or file it within 15 days
from receipt of the
 order (the "final disjunctive word "or"
order") denying his signifies disassociation
motion for new trial or and independence of
motion for one thing from another.
reconsideration. It should, as a rule, be
Obviously, the new 15- construed in the sense
day period may be which it ordinarily
availed of only if either implies. Hence, the use
motion is filed; of "or" in the above
otherwise, the provision supposes
decision becomes that the notice of
final and executory appeal may be filed
after the lapse of the within 15 days from
original appeal period the notice of judgment
provided in Rule 41, or within 15 days from
Section 3. notice of the "final
order," x x x.

The foregoing ruling of the Court

was reiterated in Makati Insurance Co., xxxx
Inc. v. Reyes, to wit:

The "fresh
Propitious to period rule" finally
petitioner is Neypes v. eradicates the confusion
Court of Appeals, as to when the 15-day
promulgated on 14 appeal period should be
September 2005 while counted from receipt of
the present Petition was notice of judgment or
already pending before from receipt of notice of
us. x x x. "final order" appealed
from.

xxxx
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.
The "fresh
period rule" is not
inconsistent with Rule
41, Section 3 of the
Revised 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
Taking our
bearings from Neypes,
in Sumaway v. Urban
Bank, Inc., we set aside
the denial of a notice of
appeal which was
purportedly filed five
days late. With the fresh
period rule, the 15-day
period within which to
file the notice of appeal
was counted from notice
of the denial of the
therein petitioner's
motion for
reconsideration.
We followed suit
in Elbia v. Ceniza,
wherein we applied the
principle granting a fresh
period of 15 days within
which to file the notice of
appeal, counted from
receipt of the order
dismissing a motion for
 new trial or motion for
reconsideration or any
final order or resolution. The retroactivity of the Neypes
rule in cases where the period for appeal
had lapsed prior to the date of
promulgation of Neypes on September
Thereafter, 14, 2005, was clearly explained by the
in First Aqua Sugar Court in Fil-Estate Properties, Inc. v.
Traders, Inc. v. Bank of Homena-Valencia, stating thus:
the Philippine Islands,
we held that a party-
litigant may now file his
notice of appeal either The
within fifteen days from determinative issue is
receipt of the original whether the "fresh
decision or within fifteen period" rule announced
days from the receipt of in Neypes could
the order denying the retroactively apply in
motion for cases where the period
reconsideration. for appeal had lapsed
prior to 14 September
2005 when Neypes was
promulgated. That
In De los Santos question may be
v. Vda. de Mangubat, we answered with the
applied the same guidance of the
principle of "fresh period general rule that
rule," expostulating that procedural laws may
procedural law refers to be given retroactive
the adjective law which effect to actions
prescribes rules and pending and
forms of procedure in undetermined at the
order that courts may be time of their passage,
able to administer there being no vested
justice. Procedural laws rights in the rules of
do not come within the procedure. Amendmen
legal conception of a ts to procedural rules are
retroactive law, or the procedural or remedial
general rule against the in character as they do
retroactive operation of not create new or
statutes. The "fresh remove vested rights,
period rule" is but only operate in
irrefragably procedural, furtherance of the
prescribing the manner remedy or confirmation
in which the appropriate of rights already
period for appeal is to be existing.[19] (Emphases
computed or determined supplied.)
and, therefore, can be
made applicable to
actions pending upon its In the case before us, respondent received a
effectivity, such as the copy of the Resolution dated September 2, 2003 of the
present case, without RTC-Branch 227 dismissing his complaint in Civil Case
danger of violating No. Q-02-48341 on September 26, 2003. Fourteen days
anyone else's thereafter, on October 10, 2003, respondent filed a
rights.[18] (Emphases Motion for Reconsideration of said resolution. The RTC-
supplied.) Branch 227 denied respondents Motion for
Reconsideration in an Order dated December 30, 2003,
which the respondent received on February 20,
2004. On March 1, 2004, just after nine daysfrom receipt
of the order denying his Motion for Reconsideration,
Also in Sumiran, we recognized the retroactive respondent already filed his Notice of Appeal. Clearly,
application of the fresh period rule to cases pending and under the fresh period rule, respondent was able to file his
undetermined upon its effectivity: appeal well-within the prescriptive period of 15 days, and
the Court of Appeals did not err in giving due course to homeowners, the [respondent] became
said appeal in CA-G.R. CV No. 82610. the subject of conversation or talk of the
town and by virtue of which [respondents]
We likewise agree with the Court of Appeals that good name within the community or
the RTC-Branch 227 should not have dismissed society where he belongs was greatly
respondents complaint for damages on the ground of damaged; his reputation was
failure to state a cause of action. besmirched; [respondent] suffered
sleepless night and serious
According to Rule 2, Section 2 of the Rules of anxiety.[Respondent], who is the
Court, a cause of action is the act or omission by which a grandson of the late Senator Jose Veloso
party violates a right of another. and Congressman Ismael Veloso, was
deprived of political career and to start
When the ground for dismissal is that the with was to run as candidate for
complaint states no cause of action, such fact can be Barangay Chairman within their area
determined only from the facts alleged in the complaint which was being offered to him by the
and from no other, and the court cannot consider other homeowners but this offer has started to
matters aliunde. The test, therefore, is whether, assuming fade and ultimately totally vanished after
the allegations of fact in the complaint to be true, a valid the distribution of said
judgment could be rendered in accordance with the Decision. Damages to his good names
prayer stated therein.[20] and reputations and other damages
which he suffered as a consequence
Respondent made the following allegations in thereof, may be reasonably
support of his claim for damages against petitioners: compensated for at least P1,500,000.00
as moral and consequential damages.
FIRST CAUSE OF ACTION
30. In order to deter [petitioners]
28. After the promulgation of the and others from doing as
Metropolitan Trial Court of its Decision abovementioned, [petitioners] should
dated August 3, 1999, ordering the likewise be assessed exemplary
[herein respondent] and all person damages in the amount
claiming rights under him to of P500,000.00.[21]

(a) Vacate the leased

premises; A cause of action (for damages) exists if the
(b) pay the [herein following elements are present: (1) a right in favor of the
petitioners] the sum plaintiff by whatever means and under whatever law it
of P306,000.00 as arises or is created; (2) an obligation on the part of the
unpaid rentals from May named defendant to respect or not to violate such right;
23, 1997 to November and (3) an act or omission on the part of such defendant
22, 1998; and violative of the right of the plaintiff or constituting a breach
(c) pay the sum of the obligation of defendant to the plaintiff for which the
of P5,000.00 as latter may maintain an action for recovery of
attorneys fees; damages.[22] We find that all three elements exist in the
case at bar. Respondent may not have specifically
But while said Decision was still pending identified each element, but it may be sufficiently
appeal with the Regional Trial Court, the determined from the allegations in his complaint.
[petitioners], through [petitioner]
Manaloto, already distributed copies of First, respondent filed the complaint to protect his
said Decision to some of the good character, name, and reputation. Every man has a
homeowners of Horseshoe Village, who right to build, keep, and be favored with a good
personally know the [respondent]. This name. This right is protected by law with the recognition
act is a direct assault or character of slander and libel as actionable wrongs, whether as
assassination on the part of the criminal offenses or tortuous conduct.[23]
[respondent] because as stated in the
said decision, [respondent] has been Second, petitioners are obliged to respect
staying in the premises but did not or respondents good name even though they are opposing
refused to pay his monthly rentals for a parties in the unlawful detainer case. As Article 19 of the
long period of time when in truth and in Civil Code requires, [e]very person must, in the exercise
fact was untrue. of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and
29. That from the time the said good faith. A violation of such principle constitutes an
decision was distributed to said members abuse of rights, a tortuous conduct. We expounded
in Sea Commercial Company, Inc. v. Court
Appeals[24] that:
The principle of abuse of rights
stated in the above article, departs from
the classical theory that he who uses a
right injures no one. The modern
tendency is to depart from the classical
and traditional theory, and to grant
indemnity for damages in cases where
there is an abuse of rights, even when
the act is not illicit.
Article 19 was intended to
expand the concept of torts by granting
adequate legal remedy for the untold
number of moral wrongs which is
impossible for human foresight to provide
specifically in statutory law. If mere fault
or negligence in ones acts can make him
liable for damages for injury caused
thereby, with more reason should abuse
or bad faith make him liable. The
absence of good faith is essential to
abuse of right. Good faith is an honest
intention to abstain from taking any
unconscientious advantage of another,
even through the forms or technicalities
of the law, together with an absence of all
information or belief of fact which would
render the transaction
unconscientious. In business relations, it
means good faith as understood by men
of affairs.
While Article 19 may have been
intended as a mere declaration of
principle, the cardinal law on human
conduct expressed in said article has
given rise to certain rules, e.g. that where
a person exercises his rights but does so
arbitrarily or unjustly or performs his
duties in a manner that is not in keeping
with honesty and good faith, he opens
himself to liability. The elements of an
abuse of rights under Article 19 are: (1)
there is a legal right or duty; (2) which is
exercised in bad faith; (3) for the sole
intent of prejudicing or injuring
another.[25]
Petitioners are also expected to respect
respondents dignity, personality, privacy and peace of
mind under Article 26 of the Civil Code, which provides:
ART. 26. Every person shall
respect the dignity, personality, privacy
and peace of mind of his neighbors and
other persons. The following and similar
acts, though they may not constitute a
of criminal offense, shall produce a cause of
action for damages, prevention and other
relief:
(1) Prying into the
privacy of anothers residence;
(2) Meddling with or
disturbing the private life or family
relations of another;
(3) Intriguing to cause
another to be alienated from his friends;
(4) Vexing or
humiliating another on account of his
religious beliefs, lowly station in life,
place of birth, physical defect, or other
personal condition.
Thus, Article 2219(10) of the Civil Code allows
the recovery of moral damages for acts and actions
referred to in Article 26, among other provisions, of the
Civil Code.
In Concepcion v. Court of Appeals,[26] we
explained that:
The philosophy behind Art. 26
underscores the necessity for its
inclusion in our civil law. The Code
Commission stressed in no uncertain
terms that the human personality must be
exalted. The sacredness of human
personality is a concomitant
consideration of every plan for human
amelioration. The touchstone of every
system of law, of the culture and
civilization of every country, is how far it
dignifies man. If the statutes insufficiently
protect a person from being unjustly
humiliated, in short, if human personality
is not exalted - then the laws are indeed
defective. Thus, under this article, the
rights of persons are amply protected,
and damages are provided for violations
of a persons dignity, personality, privacy
and peace of mind.
It is petitioners position that the
act imputed to him does not constitute
any of those enumerated in Arts. 26 and
2219. In this respect, the law is
clear. The violations mentioned in the
codal provisions are not exclusive but are
merely examples and do not preclude
other similar or analogous
acts. Damages therefore are allowable
for actions against a persons dignity,
such as profane, insulting, humiliating,
scandalous or abusive language. Under
 Art. 2217 of the Civil Code, moral
damages which include physical
suffering, mental anguish, fright, serious
anxiety, besmirched reputation,
wounded feelings, moral shock, social
humiliation, and similar injury, although
incapable of pecuniary computation, may
be recovered if they are the proximate
result of the defendants wrongful act or
omission.[27]
And third, respondent alleged that the distribution
by petitioners to Horseshoe Village homeowners of
copies of the MeTC decision in the unlawful detainer
case, which was adverse to respondent and still on
appeal before the RTC-Branch 88, had no apparent lawful
or just purpose except to humiliate respondent or assault
his character. As a result, respondent suffered damages
becoming the talk of the town and being deprived of his
political career.
Petitioners reason that respondent has no cause
of action against them since the MeTC decision in the
unlawful detainer case was part of public records.
It is already settled that the public has a right to
see and copy judicial records and
documents.[28] However, this is not a case of the public
seeking and being denied access to judicial records and
documents. The controversy is rooted in the
dissemination by petitioners of the MeTC judgment
against respondent to Horseshoe Village homeowners,
who were not involved at all in the unlawful detainer case,
thus, purportedly affecting negatively respondents good
name and reputation among said homeowners. The
unlawful detainer case was a private dispute between
petitioners and respondent, and the MeTC decision
against respondent was then still pending appeal before
the RTC-Branch 88, rendering suspect petitioners
intentions for distributing copies of said MeTC decision to
non-parties in the case. While petitioners were free to
copy and distribute such copies of the MeTC judgment to
the public, the question is whether they did so with the
intent of humiliating respondent and destroying the latters
good name and reputation in the community.
Nevertheless, we further declare that the Court of
Appeals erred in already awarding moral and exemplary
damages in respondents favor when the parties have not
yet had the chance to present any evidence before the
RTC-Branch 227. In civil cases, he who alleges a fact has
the burden of proving it by a preponderance of
evidence. It is incumbent upon the party claiming
affirmative relief from the court to convincingly prove its
claim. Bare allegations, unsubstantiated by evidence are
not equivalent to proof under our Rules. In short, mere
allegations are not evidence.[29]
At this point, the finding of the Court of Appeals
of bad faith and malice on the part of petitioners has no
factual basis. Good faith is presumed and he who alleges
bad faith has the duty to prove the same. Good faith refers
to the state of the mind which is manifested by the acts of
the individual concerned. It consists of the intention to
abstain from taking an unconscionable and unscrupulous
advantage of another. Bad faith, on the other hand, does
not simply connote bad judgment to simple negligence. It
imports a dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of known duty due
to some motive or interest or ill will that partakes of the
nature of fraud. Malice connotes ill will or spite and
speaks not in response to duty. It implies an intention to
do ulterior and unjustifiable harm.[30]
We cannot subscribe to respondents argument
that there is no more need for the presentation of
evidence by the parties since petitioners, in moving for the
dismissal of respondents complaint for damages,
hypothetically admitted respondents allegations. The
hypothetical admission of respondents allegations in the
complaint only goes so far as determining whether said
complaint should be dismissed on the ground of failure to
state a cause of action. A finding that the complaint
sufficiently states a cause of action does not necessarily
mean that the complaint is meritorious; it shall only result
in the reinstatement of the complaint and the hearing of
the case for presentation of evidence by the parties.
WHEREFORE, in view of all the foregoing, the
petition is PARTIALLY GRANTED. The Decision dated
January 31, 2006 of the Court of Appeals in CA-G.R. CV
No. 82610 is AFFIRMED WITH MODIFICATIONS. The
award of moral and exemplary damages made by the
Court of Appeals in favor of respondent Ismael Veloso III
is DELETED. The complaint of respondent Ismael Veloso
III in Civil Case No. Q-02-48341 is
hereby REINSTATED before Branch 227 of the Regional
Trial Court of Quezon City only in so far as the first cause
of action is concerned. The said court is DIRECTED to
hear and dispose of the case with dispatch.
SO ORDERED.
[G.R. No. 147614. January 29, 2004]
H.L. CARLOS CONSTRUCTION, INC., petitioner,
vs. MARINA PROPERTIES CORPORATION,
JESUS K. TYPOCO SR. and TAN
YU, respondents.
DECISION
PANGANIBAN, J.:
There is unjust enrichment when a building
contractor is denied payment for increased labor cost
validly incurred and additional work validly rendered with
the owners express or implied agreement.
The Case
The Petition for Review[1] before the Court, filed
under Rule 45, seeks the reversal of the Decision[2] dated
March 29, 2001, issued by the Court of Appeals [3] in CA-
GR CV No. 60975.The assailed Decision disposed as
follows:
WHEREFORE, the judgment appealed from is
hereby REVERSED and SET ASIDE, and a new one
entered DISMISSING the [petitioners] Complaint, AND
PARTIALLY GRANTING THE [RESPONDENT-
CORPORATIONS] COUNTERCLAIM, IN THAT THE
[PETITIONER] IS DIRECTED TO PAY UNTO THE
[RESPONDENT-CORPORATION] THE SUM
OF P4,604,579.00 in ACTUAL DAMAGES
PLUS P3,549,416.00 AS AND FOR LIQUIDATED
DAMAGES.[4]
The Facts
The facts of the case, summarized by the Court of
Appeals (CA), are as follows:
[Respondent] MARINA PROPERTIES CORPORATION
(MPC for brevity) is engaged in the business of real estate
development. On May 10, 1988, MPC entered into a
contract[5] with [Petitioner] H.[L.] CARLOS
CONSTRUCTION, INC. (HLC) to construct Phase III of a
condominium complex called MARINA BAYHOMES
CONDOMINIUM PROJECT, consisting of townhouses
and villas, totaling 31 housing units, for a total
consideration of P38,580,609.00, within a period of 365
days from receipt of Notice to Proceed. The original
completion date of the project was May 16, 1989, but it
was extended to October 31, 1989 with a grace period
until November 30, 1989.[6]
The contract was signed by Jovencio F. Cinco, president
of MPC, and Honorio L. Carlos, president of HLC.
On December 15, 1989, HLC instituted this case for sum
of money against not only MPC but also against the latters
alleged president, [Respondent] Jesus K. Typoco, Sr.
(Typoco) and [Respondent] Tan Yu (Tan), seeking the
payment of various sums with an aggregate amount
of P14 million pesos, broken down as follows:
a) P7,065,885.03 for costs of labor escalation, change
orders and material price escalation;
b) P2,000,000.00 as additional compensatory damages,
exclusive of the cost of suit.
c) P3,147,992.00 representing retention money allegedly
withheld by MPC on HLCs Progress Billings as of January
1990, and
d) P2,000,000.00 representing the value of construction
materials allegedly withheld/detained by MPC.
Traversing the allegations of the complaint, [respondents]
filed separate answers, whereby the two individual
[respondents] alleged that they are not parties to the
Construction Contract and Amendatory Contract and are
therefore not liable to HLC. [Respondent] MPC on the
other hand alleged that the [petitioner] has no cause of
action against it and that it (HLC) is not entitled to its
various claims. MPC interposed a counterclaim in the
aggregate sum of P68,296,227.14 for actual and
compensatory damages, liquidated damages,
unliquidated advances, and attorneys fees.[7]
On May 15, 1997, the trial court[8] ruled as follows:[9]
WHEREFORE, premises above considered, judgment is
hereby rendered for [Petitioner] H.L. CARLOS
CONSTRUCTION, INC. and as against [Respondents]
MARINA PROPERTIES CORPORATION, TAN YU, and
JESUS K. TYPOCO, SR., who are hereby ordered to pay,
jointly and severally, the [petitioner], as follows:
1. the amount of P7,065,885.03, representing unpaid
labor escalation costs, change orders and material price
escalations, plus 12% interest per annum from date of
filing of the complaint, until fully paid;
2. the amount of P3,147,992.39 representing the 10%
retention money withheld by the [respondents] [from]
[petitioners] progress billing as of January 1990, plus 12%
interest per annum from the date of filing of the complaint,
until fully paid;
3. the amount of P2,000,000.00 representing the value of
construction materials and the like detained by the
[respondents], plus 12% legal interest from the date of
filing of the complaint, until fully paid;
4. the sum equivalent to 15% of the principal sum as and
by way of attorneys fees; and to
5. [p]ay the costs of this suit.
The counterclaim for liquidated damages, are hereby
DISMISSED for lack of evidence. Liquidated damages
can only be awarded under paragraph 2 of the amended
construction contract that extended the completion period
and mainly on the finding of the 85% substantial
completion of the project, and that the delay and stoppage
of the project was caused by [respondents] default in
payment of [the] progress billings that would have allowed
[petitioner] to have the capability to continue and
complete the project.
Ruling of the Court of Appeals
On appeal, the CA held that respondents were not
liable for escalations in the cost of labor and construction
materials, because of the following reasons: (1) the
contract between the parties was for a lump sum
consideration, which did not allow for cost escalation; and
(2) petitioner failed to show any basis for the award
sought.
Respondents were also absolved from paying for
change orders and extra work, inasmuch as there was no
supplemental agreement covering them as required in the
main Construction Contract. Although Progress Billing
No. 24 apparently indicates that extra work was rendered
by petitioner, this claim is not supported by sufficient
evidence.
The CA further failed to find any basis for the release
of the 10 percent retention fee. The Construction Contract
had provided that such release would be made only under
certain conditions, none of which was complied with, as
petitioner failed to complete the work
required. Furthermore, MPC was not held liable for
detained or withheld construction materials, since
petitioner had eventually withdrawn them.
Nothing in the records indicated any personal liability
on the part of Typoco and Tan. Moreover, they had
nothing to assume, as MPC was not held liable to
petitioner.
Furthermore, the CA ruled that petitioner was liable
for actual and liquidated damages. The latter had
abandoned the project prior to its completion; hence,
MPC contracted out the work to another entity and
incurred actual damages in excess of the remaining
balance of the contract price. In addition, the Construction
Contract had stipulated payment of liquidated damages in
an amount equivalent to 1/1000 of the contract price for
each calendar day of delay.
Hence, this Petition.[10]
Issues
In its Memorandum, petitioner raises the following
issues:
a. Whether or not the respondents are liable to
pay the petitioner its claim for price
escalation of construction materials and
labor cost escalation.
b. Whether or not the respondents are liable to
the petitioner for cost of change orders and
extra works.
c. Whether or not the respondents are liable to
the petitioner for the ten percent retention
money.
d. Whether or not the respondents are liable to
pay the petitioner attorneys fees.
e. Whether or not the respondents are liable to
the petitioner for the cost of illegally detained
materials.
f. Whether or not the respondents Jesus
Typoco Sr., and Tan Yu are jointly and
solidarily liable to the petitioner for the latters
claims.
g. Whether or not the petitioner is liable to the
respondents for actual and liquidated
damages.[11]
In simpler terms, the issues to be resolved are as
follows:
(1) Whether petitioner is entitled to (a) a price
escalation for labor and material cost, (b) the cost of
change orders and extra work, (c) the release of the 10
percent retention money, (d) the cost of illegally detained
materials, and (e) attorneys fees
(2) Whether Typoco and Tan are solidarily liable with
MPC
(3) Whether petitioner is liable for actual and
liquidated damages
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Liability for Additional Costs
Petitioner argues that it is entitled to price escalation
for both labor and materials, because MPC was delayed
in paying for its obligations. The former admits that it
is normally not entitled to any price increase for labor and
materials, because a contractor is expected to build into
its price a contingency factor to protect it from cost
increases that may occur during the contract period. [12] It
justifies its claim, however, on the ground that a contractor
cannot be expected to anticipate price
increases beyond the original contract
period. Respondents, on the other hand, aver that it was
delayed in finishing the project; hence, it is not entitled to
any price increase.
It must be pointed out that the reason for the CAs
denial of petitioners claim was that the contract between
the parties was for a lump sum consideration, and
petitioner was guilty of delay in completing the project.
Labor and Material
Cost Escalation
We agree with petitioner that it is entitled to price
escalation, but only for the labor component of Progress
Billing No. 24. The Construction Contract contains the
following provision on the considerations therefor:
6.1 For and in consideration of the true and
faithful performance of the work by
the CONTRACTOR, the OWNER
shall pay the Lump Sum Contract
Price of PESOS: THIRTY EIGHT
MILLION FIVE HUNDRED EIGHTY
THOUSAND SIX HUNDRED NINE
(P38,580,609.00) broken down as
shown in the Bid Form. No cost
escalation shall be allowed except
on the labor component of the work
x x x.[13]
Since the Contract allows escalation only of the labor
component, the implication is that material cost
escalations are barred. There appears to be no provision,
either in the original or in the amended contract, that
would justify billing of increased cost of
materials. Furthermore, no evidence -- like official
economic data showing an increase in the price index of
construction materials -- was even adduced by petitioner
to prove that there had indeed been increases in material
costs.[14]
Petitioner attempts to pass off these cost escalations
as a form of damages suffered by it as a natural
consequence of the delay in the payment of billings and
claims for additional work.It argues that the baseless and
malicious refusal to pay for those claims renders
respondents liable for damages under Article 2201 of the
Civil Code.
We disagree. Without tackling the issue of delay, we
find that the contentious Progress Billing No. 24 contains
no claim for material cost escalation. The other unsettled
bills claimed by petitioner are those for change orders or
extra work, which have not been shown to be related to
the increase in cost of materials. Dealt with in separate
contracts between the parties were such claims, the costs
of which were to be determined and agreed upon only
when required by MPC. Materials used for those
additional jobs were to be purchased only when the work
was contracted, not prior thereto. As admitted by
petitioner, expenses for change orders/additional work
were not included in the agreed contract price[15] and,
hence, were not subject to increases.
MPC admits that the labor cost escalation clause
was adopted by the parties to safeguard the contractor
against losses in the event that, during the execution of
the Contract, the government would order a minimum
wage adjustment, which would then inflate the labor
cost.[16] Respondents deny liability for this added expense
because, according to the Contract, the allowance for
labor cost escalation is available only within the duration
of the original construction period.
We clarify. The claimed cost of labor escalation
pertains to the period September 1 to December 15,
1989, in the amount of P170,722.10; and December 16 to
January 27, 1990,P45,983.91. During those periods,
petitioner had not yet incurred any delay in the project,
originally stipulated to be finished by May 16, 1989. But
by mutual agreement, the period was extended up to
October 31, 1989, with a grace period until November 30,
1989.
Furthermore, a legislated wage increase became
effective after the expiration of the original
period.[17] Respondents are, therefore, liable for this
increase in labor cost, because they allowed petitioner to
continue working on the project until April 20, 1990 (even
beyond November 30, 1989).
MPC argues that to allow the claim for labor cost
escalation would be to reward petitioner for incurring
delay, thereby breaching a contractual obligation.
This contention is untenable. Before the expiration of
the extended period, petitioner was not yet in delay. It was
granted by MPC an extension to complete the project until
November 30, 1989. Moreover, despite the expiration of
the extended period, MPC allowed it to continue working
on the project until the former took over and awarded that
project to another contractor. Hence, labor costs were
actually incurred by petitioner until April 20, 1990. It was
thus entitled to reimbursement for labor cost escalation
until that date. MPC cannot now be allowed to question
the true valuation of the additional labor because, instead
of submitting to an independent evaluator, it violated the
Temporary Restraining Order (TRO) issued by the trial
court and hired another contractor to finish the project.
Noteworthy is the fact that MPC paid for the labor
cost escalation during the period August 1-15,
1989,[18] which was past the expiration of the original
period. Apparently, it thereafter stopped paying for labor
cost escalation in response to the suit filed against it by
petitioner.
The CA denied the labor cost escalation claim
because, despite having billed MPC therefor, petitioner
accepted payments that did not include such claim. The
appellate court construed the acceptance by petitioner as
a waiver of the latters right to be reimbursed for the
increased labor cost.
We believe that this position is untenable. The CA
mistook Exhibits C-7-B[19] and D-1[20] as bills coming from
petitioner, when in truth they were Accomplishment
Evaluation Sheets issued by MPC. The notation labor
escalation not included in the said Exhibits was an
admission on the part of MPC that it had not paid such
amount, upon the advice of Atty. Jose C. Laureta, its
resident counsel. According to him, petitioner should be
faulted for having incurred labor cost increases after the
expiration of the original period (after May 16, 1989). Not
having waived such increases, it should thus bear
them.[21]
To allow MPC to acquire the partially accomplished
project without paying for labor cost escalation validly
incurred would constitute unjust enrichment at the
expense of petitioner.[22]There is unjust enrichment under
Article 22 of the Civil Code when (1) a person is unjustly
benefited, and (2) such benefit is derived at the expense
of or with damages to another.[23] Since petitioner had
rendered services that were accepted by MPC, then the
former should be compensated for them. Labor cost
escalation, in this case, has already been earned by
petitioner.
Change Orders and Extra Work
Petitioner claims entitlement to compensation for
change orders and extra work that were covered by
construction memoranda. MPC counters, however, that
the former never presented any cost estimate for
additional work. The estimate would have formed the
basis for a consensual agreement and a computation of
actual accomplishment, for which MPC could have been
unilaterally billed. Worse, the extra work was allegedly
assessed by its engineer to be worth only P705.41.
We side with petitioner. The General Conditions to
the Construction Contract provides:
13. CLAIMS FOR EXTRA AND FORCE ACCOUNT
WORK:
If the Contractor claims that any construction by drawings
or otherwise involve extra cost under this Contract, he
shall give the Owner and/or the Architect, written notice
thereof within a reasonable time after receipt of such
instructions, and in any event before proceeding to
execute the work, except in emergency endangering life
or property. No such claim shall be valid unless so made.
Extra work for which no price is provided in
the proposal shall be covered by a
supplementary agreement to be signed by
both parties before such work is
commenced. [24]
The CA is correct in holding that there is no
supplemental agreement covering the claimed extra work
and change orders. Exhibits C-1, C-2, C-2-A, C-3 and C-
4 show billings for extra work sent by petitioner to
MPC. But the former did not submit in evidence the
alleged construction memoranda covering them. Neither
were they mentioned in the letter[25] of Roilo Golez dated
November 24, 1989.
Progress Billing No. 24, which pertained to the
project as covered by the Construction Contract, did not
mention any claim for extra work or change orders. These
additional jobs were covered by separate bills other than
the twenty-four Progress Billings sent by petitioner.
MPC, however, never denied having ordered
additional work. In Item No. 12 of its Amended
Answer,[26] it averred that petitioners claim for change
orders and extra work were premature. Limneo P.
Miranda, respondents work engineer, manifested that
additional work was indeed done, but that claims therefor
were not settled for the following reasons: (1)
reconciliation between the parties was never completed
due to the absence of petitioners representative in
scheduled meetings; (2) difference in opinion on the
proper valuation of the additional work, as MPC wanted
to use the net quantity method, while petitioner preferred
the gross method; and (3) some claims were rejected by
MPC, because they had not been properly approved in
accordance with the Contract.[27]
Evidence on record further reveals that MPC
approved some change order jobs despite the absence of
any supplementary agreement. In its Over-all Summary
of Reconciled Quantities as of September 6, 1989 (Annex
C),[28] it valued petitioners valid claim therefor
at P79,340.52. After noting that the claim had extremely
been bloated, Atty. Laureta, in-house counsel for
respondent corporation, affirmed as valid the amount
stated in the summary.[29]
Petitioner may have failed to show the construction
memoranda covering its claim, but it inarguably
performed extra work that was accepted by MPC. Hence,
we will consider Annex C as the proper valuation thereof.
Under the principle of quantum meruit, a contractor
is allowed to recover the reasonable value of the thing or
services rendered despite the lack of a written contract, in
order to avoid unjust enrichment.[30] Quantum
meruit means that in an action for work and labor,
payment shall be made in such amount as the plaintiff
reasonably deserves.[31] To deny payment for a building
almost completed and already occupied would be to
permit unjust enrichment at the expense of the
contractor.[32]
The CA held that since Billing No. 24 did not include
any claim for additional work, such work had presumably
been previously paid for. This reasoning is not correct. It
is beyond dispute that the change orders and extra work
were billed separately from the usual progress billings
petitioner sent to MPC.
Retention Money
The CA denied the claim for the 10 percent retention
money, because petitioner had failed to comply with the
conditions under paragraph 6.3 of the Construction
Contract. On the other hand, the latter avers that these
conditions were deemed fulfilled under Article 1186 of the
Civil Code because, when its contract was terminated,
MPC prevented the fulfillment of those conditions. It
would allegedly be unfair and unreasonable for petitioner
to guarantee a project finished by another contractor.
We disagree with petitioner. In the construction
industry, the 10 percent retention money is a portion of
the contract price automatically deducted from the
contractors billings, as security for the execution of
corrective work -- if any -- becomes necessary. This
amount is to be released one year after the completion of
the project, minus the cost of corrective work. [33] The
conditions for its release are stated in the Construction
Contract as follows:
6.3 In all cases, however, payment of the
progress billings shall be subject to
deduction of twenty percent (20%)
recoupment of the downpayment,
ten percent (10%) retention and
expanded withholding tax on
CONTRACTORS income. Upon
issuance of the Certificate of
Completion of the work by the
OWNER and upon submission of
Guaranty Bond, Ninety Percent
(90%) of the retained amount shall
be released to the CONTRACTOR
and the balance thereof shall be
released by the OWNER within
thirty (30) days after the expiration
of the guaranty period which is 365
days after issuance of the certificate
of completion. [34]
None of the foregoing conditions were satisfied;
hence, the CA was correct in forfeiting the retention
fee. The completion of the work was stipulated in the
Contract to be within 365 days from the issuance of a
Notice to Proceed or until May 16, 1989. Then the period
was extended up to November 30, 1989. Petitioner
worked on the project till April 20, 1990. It was given by
MPC ample time and two extensions to complete the
project. The simple truth is that in failing to finish the
project, the former failed to fulfill a prerequisite for the
release of the retention money.
Detained Materials
Petitioner claims cost reimbursement of illegally
detained materials, as it was allowed to withdraw them
from the site only after two years from the unilateral
termination of the Contract.By 1992, only 30 percent of
the materials detained were salvageable, while the rest
had depreciated.
This contention has no merit. According to the CAs
ruling, the only proof that MPC detained materials
belonging to petitioner was the denial of the request,
contained in the latters February 1990 letter,[35] for the
release of used form lumber. Aside from that letter,
however, no other attempt was shown to have been made
by petitioner to obtain its request. It should have tried
again to do so before claiming that respondents
unreasonably prevented it from removing its construction
materials from the premises. As to the other materials,
there was absolutely no attempt to remove them from the
construction site. Hence, we cannot say that these were
ever withheld from petitioner.
Detention is not proved by Atty. Lauretas
letter[36] dated July 4, 1992, allowing petitioner to remove
its materials from the site. The letter was merely a
directive for it to clear out its belongings therefrom, in view
of the hiring of a second contractor to finish the project.
Moreover, in a specifically designated yard inside the
construction site, petitioner maintained a warehouse that
was guarded by its own security complement and
completely inaccessible to MPC personnel.[37] It therefore
had control over those materials and should have made
provisions to keep them safe from the elements and from
pilferage.
Attorneys Fees
Petitioner argues that it is entitled to attorneys fees
based on Article 2208 of the Civil Code, because (1)
respondents act or omission has compelled it to litigate
with third persons or to incur expenses to protect its
interest; and (2) respondents acted in gross and evident
bad faith in refusing to satisfy its plainly valid, just and
demandable claim.
The grant of some of the claims of petitioner does not
change the fact that it did not finish the project. Attorneys
fees are not granted every time a party prevails in a suit,
because no premium should be placed on the right to
litigate.[38] Petitioner is not, after all, blameless in the
present controversy. Just because MPC withheld some
payments from petitioner does not mean that the former
was in gross or evident bad faith. MPC had claims that it
wanted to offset with those of the latter.
Second Issue:
Typoco and Tans Liabilities
Petitioner claims that Respondents Jesus Typoco
and Tan Yu are solidarily liable with MPC.
 We concur with the CA that these two respondents
are not liable. Section 31 of the Corporation Code (Batas
Pambansa Blg. 68) provides:
Section 31. Liability of directors, trustees or
officers. Directors or trustees who willfully and knowingly
vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad
faith x x x shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation,
its stockholders and other persons.
The personal liability of corporate officers validly
attaches only when (a) they assent to a patently unlawful
act of the corporation; or (b) they are guilty of bad faith or
gross negligence in directing its affairs; or (c) they incur
conflict of interest, resulting in damages to the
corporation, its stockholders or other persons.[39]
The records are bereft of any evidence that Typoco
acted in bad faith with gross or inexcusable negligence,
or that he acted outside the scope of his authority as
company president.The unilateral termination of the
Contract during the existence of the TRO was indeed
contemptible -- for which MPC should have merely been
cited for contempt of court at the most -- and a preliminary
injunction would have then stopped work by the second
contractor. Besides, there is no showing that the unilateral
termination of the Contract was null and void.
Respondent Tan is not an officer or a director of
MPC. His participation is limited to an alleged
conversation between him and Engineer Mario Cornista,
petitioners project manager.Supposedly, the former
verbally agreed therein to guarantee the payment of the
latters progress billings. We find no satisfactory evidence
to show respondents alleged solidary liability to petitioner.
Third Issue:
Liability for Actual and Liquidated Damages
Petitioner avers that it should be exonerated from the
counterclaims for actual and liquidated damages,
because its failure to complete the project was due to
respondents acts.
Central to the resolution of this issue is the question
of which party was in delay. Aside from the contentious
Progress Billing No. 24, there are no other unpaid
claims. The bills for extra work and change orders, aside
from those for the beams and columns, were premature
and still subject to reconciliation and adjustment. Hence,
we cannot hold MPC liable for them.
In comparison, petitioner did not fulfill its contractual
obligations. It could not totally pass the blame to MPC for
hiring a second contractor, because the latter was allowed
to terminate the services of the contractor.
10.1 The OWNER shall have the right to
terminate this Contract in the event
that the CONTRACTOR incurs a
fifteen percent (15%) or greater
slippage in the prosecution of the
overall work evaluated against the
Project schedule as indicated by the
critical path of the approved
PERT/CPM network for the Project
or as amended by Art. II herein.
Either party shall have the right to terminate this Contract
for reason of violation or non-compliance by the other
party of the terms and conditions herein agreed upon.[40]
As of November 30, 1989, petitioner accomplished
only approximately 80 percent of the project. In other
words, it was already in delay at the time. In addition,
Engineer Miranda testified that it would lose money even
if it finished the project;[41] thus, respondents already
suspected that it had no intention of finishing the project
at all.
Petitioner was in delay and in breach of
contract. Clearly, the obligor is liable for damages that are
the natural and probable consequences of its breach of
obligation.[42] Petitioner was already paid by MPC in the
amount of P31,435,187 out of the total contract price
of P38,580,609; thus, only P7,145,422 remained
outstanding. In order to finish the project, the latter had to
contract the services of a second construction firm
for P11,750,000. Hence, MPC suffered actual damages
in the amount of P4,604,579 for the completion of the
project.
Petitioner is also liable for liquidated damages as
provided in the Contract,[43] the pertinent portion of which
is quoted as follows:
4.1 Time is an essential feature of this Contract
and in the event that the
CONTRACTOR fails to complete
the contracted work within the
stipulated time inclusive of any
granted extension of time, the
CONTRACTOR shall pay the
OWNER, as liquidated damages,
the amount of one over one
thousand (1/1000) of the value of
the contract price for each and every
calendar day of delay (Sundays and
Holidays included), not to exceed
15% of [the] Contract amount, in the
completion of the work as specified
in Article II above. It is understood
that the liquidated damages herein
provided are fixed, agreed upon and
not by way of penalty, and as such,
the OWNER shall not be further
required to prove that he has
incurred actual damages to be
entitled thereto. In the case of such
delays, the OWNER is hereby
authorized to deduct the amount of
liquidated damages from any
 money due or which may become
due the CONTRACTOR in this or
any other contract or to collect such
amount from the CONTRACTORs
performance bond whichever is
convenient and expeditious to the
OWNER.
Liquidated damages are those that the parties agree
to be paid in case of a breach.[44] 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.[45] 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.
Thus, as held by the CA, petitioner is bound to pay
liquidated damages for 92 days, or from the expiration of
the grace period in the Amended Contract until February
1, 1990, when it effectively abandoned the project.
WHEREFORE, the Petition is
partly GRANTED and the assailed
Decision MODIFIED. Petitioner is AWARDED labor cost
escalation in the sum of P1,196,202 and cost of extra
work in the sum of P79,340.52. In all other respects, the
appealed Decision is AFFIRMED.
SO ORDERED.
VICENTE S. ALMARIO, Petitioner, - versus -PHILIPPINE
AIRLINES, INC.,Respondent.
G.R. No. 170928
September 11, 2007
CARPIO MORALES, J.:
On October 21, 1988, petitioner, Vicente
S. Almario (Almario), was hired by respondent, Philippine
Airlines, Inc. (PAL), as a Boeing 747 Systems Engineer.
On April 28, 1995, Almario, then about 39 years
of age[1] and a Boeing 737 (B-737) First Officer at PAL,
successfully bid for the higher position of Airbus 300 (A-
300) First Officer.[2] Since said higher position required
additional training, he underwent, at PALs expense, more
than five months of training consisting of ground schooling
in Manila and flight simulation in Melbourne, Australia.[3]
After completing the training course, Almario
served as A-300 First Officer of PAL, but after eight
months of service as such or on September 16, 1996, he
tendered his resignation, for personal reasons,
effective October 15, 1996.[4]
On September 27, 1996, PALs Vice President for
Flight Operations sent Almario a letter, the pertinent
portions of which read:
xxxx
2. Our records show that you have
been trained by the Company as
A300 First Officer starting on 04
September 1995 and have
completed said training on 08
February 1996. As you are
aware the Company invested
heavily on your professional
training in the estimated amount of
PHP786,713.00 on the basis that
you continue to serve the
Company for a definite period of
time which is approximately
three (3) years or thirty-six (36)
months.
3. In view of the foregoing, we
urge you to reconsider your
proposed resignation otherwise
you will be required to reimburse
the Company an amount
equivalent to the cost of your
professional training and the
damaged [sic] caused to the
Company.[5] (Emphasis and
underscoring supplied)
Despite receipt of the letter, Almario pushed through with
his resignation.
By letter of October 9, 1996, Almarios counsel
sought PALs explanation behind its September 27,
1996 letter considering that Almario did not sign anything
regarding any reimbursement.[6] PAL did not
reply, prompting Almarios counsel to send two letters
dated January 6, 1997 and February 10, 1997 following-
up PALs reply, as well as the release
of Almarios clearances which he needed to avail of his
benefits.[7]
On February 11, 1997, PAL filed a
Complaint[8] against Almario before the Makati Regional
Trial Court (RTC), for reimbursement of P851,107 worth
of training costs, attorneys fees equivalent to 20% of the
said amount, and costs of litigation. PAL invoked the
existence of an innominate contract of do ut facias (I give
that you may do) with Almario in that by spending for his
training, he would render service to it until the costs of
training were recovered in at least three (3)
years.[9] Almario having resigned before the 3-year
period, PAL prayed that he should be ordered to
reimburse the costs for his training.
In his Answer with Special and Affirmative
Defenses and Compulsory
Counterclaims,[10] Almario denied the existence of any
agreement with PAL that he would have to render service
to it for three years after his training failing which he would
reimburse the training costs. He pointed out that the
1991-1994 Collective Bargaining Agreement (CBA)
between PAL and the Airline Pilots Association of the
Philippines (ALPAP), of which he was a
member,[11] carried no such agreement.
Almario thus prayed for the award of actual
damages on account of PALs withholding of the
necessary clearances which he needed in order to obtain
his lawful benefits, and moral and exemplary damages for
malicious prosecution and unjust harassment.[12]
PAL, in its Reply to Defendants Answer and
Answer to Counterclaim,[13] argued as follows:
The right of PAL to be
reimbursed for training expenses is
based on Article XXIII, Section 1 of the
1991-1994 Collective Bargaining
Agreement (CBA, for brevity) and which
was taken from the decision of the
Secretary of Labor.
[The Secretary of Labor] ruled
that a pilot should remain in the position
where he is upon reaching the age of
fifty-seven (57), irrespective of whether
or not he has previously qualified in the
Companys turbo-jet operations. The
rationale behind this is that a pilot who
will be compulsorily retired at age sixty
(60) should no longer be burdened with
training for a new position.
 Thus, Article XXIII, Section 1
of the CBA provide[s]: a- the amount
of P312,425.00 as
Pilots fifty- actual damages with
seven (57) years of age legal interest from
shall be frozen in their the filing of the
position. Pilots who are counterclaim;
less than fifty-seven (57) b- the amount
years of age provided of P500,000.00 as
they have previously exemplary
qualified in any damages;
companys turbo-jet c- the amount
aircraft shall be of P150,000.00 as
permitted to occupy any attorneys fees;
position in the companys d- the costs of the
turbo-jet fleet. suit.

The reason why pilots who are SO ORDERED.[17]

57 years of age are no longer qualified to
bid for a higher position is because they
have only three (3) years left before On appeal by both parties,[18] the Court of
the mandatory retirement age [of Appeals, by Decision[19] dated March 31, 2005, reversed
60] and to send them to training at that the trial courts decision. It found Almario liable under the
age, PAL would no longer be able to CBAbetween PAL and ALPAP and, in any event, under
recover whatever training expenses it Article 22 of the Civil Code. Thus it disposed:
will have to incur.
WHEREFORE, the appealed
Simply put, the foregoing provision Decision is REVERSED and SET
clearly and unequivocally recognizes the ASIDE. In lieu thereof, a new judgment is
prohibitive training cost principle such that hereby ENTERED, as
it will take a period of at least three (3) follows: (a) Appellee Vicente Almario is
years before PAL could recover from the hereby ordered to pay appellant
training expenses it incurred.[14] (Emphasis Philippine Airlines, Inc. the sum of Five
and underscoring supplied) Hundred Fifty Nine Thousand, Seven
Hundred [T]hirty Nine & 9/100 Pesos
(P559, 739.90) with six percent (6%)
By Decision[15] of October 25, 2000, Branch 147 interest as above-computed; and (b)
of the Makati RTC, finding no provision in the CBA the award of exemplary damages and
between PAL and ALPAP stipulating that a pilot who attorneys fees in favor of appellee is
underwent a training course for the position of A-300 First hereby DELETED.[20] (Emphasis in the
Officer must serve PAL for at least three years failing original; underscoring supplied)
which he should reimburse the training expenses,
rendered judgment in favor of Almario.
His Motion for Reconsideration[21] having been
The trial court denied Almarios claim for moral denied,[22] Almario filed the instant Petition for Certiorari
damages, however.[16] It denied too Almarios claim for the [sic] (Under Rule 45),[23] raising the following issues:
monetary equivalent of his family trip pass benefits (worth
US$49,824), it holding that the same had been forfeited A. Whether the Court of Appeals
as he did not avail of them within one year from the date committed reversible error
of his separation. in interpreting the Collective
Bargaining Agreement between
Thus the trial court disposed: Philippine Airlines, Inc. (PAL) and
the Airline Pilots Association of the
WHEREFORE, in view of the Philippines (ALPAP) as an
foregoing, the Court hereby renders ordinary civil law contract applying
judgment in favor of defendant Vicente ordinary contract law principles
Almario and against the plaintiff: which is contrary to the ruling of
the Supreme Court
1- Dismissing the plaintiffs in Samahang Manggagawa saTop
complaint; Form Manufacturing-United
2- Ordering the plaintiff to pay Workers of the
the defendant: Philippines (SMTFM-UWP) v.
 NLRC and, therefore, erroneously
reading into the CBA a clause that
was not agreed to during the
negotiation and not expressly
stated in the CBA;
B. Whether the Court of Appeals
committed reversible error
in holding that Article 22 of the Civil
Code can be applied to recover
training costs which were never
agreed to nor included as
reimbursable expenses under the
CBA;
C. Whether the availing by
petitioner of a required training is a
legal ground justifying the
entitlement to a benefit and
therefore, negating claims of unjust
enrichment;
D. Whether the failure of private
respondent to honor and provide
the Family Trip Pass Benefit in the
equivalent amount of US$
49,824.00 which petitioner and his
family were not able to avail of
within the one (1) year from date of
separation due to the actions of
PAL amounts to unjust enrichment;
E. Whether or not respondent is
liable for
malicious prosecution[.][24] (Under
scoring supplied)
Almario insists on the absence of any written
contract or explicit provision in the CBA obliging him to
reimburse the costs incurred by PAL for his training. And
he argues:
[T]here can be no unjust
enrichment because petitioner was
entitled to the benefit of training when his
bid was accepted, and x x x PAL did not
suffer any injury because the failure to
include a reimbursement provision in the
CBA was freely entered into by the
negotiating parties;
xxxx
It is not disputed that the
petitioner merely entered a bid for a
higher position, and that when he was
accepted based on seniority and
qualification, the position was awarded to
him. It is also not disputed that petitioner
[had] not asked, requested, or demanded
for the training. It came when his bid was
accepted by PAL;
Because the training was
provided when the bid was accepted, the
acceptance of the bid was the basis and
legal ground for the training;
Therefore, since there is a legal
ground for the entitlement of the training,
contrary to the ruling of the Court of
Appeals, there can be no unjust
enrichment;[25] (Underscoring supplied)
The petition fails.
As reflected in the above-enumerated issues
raised by Almario, he cites the case
of Samahang Manggagawa sa Top Form Manufacturing-
United Workers of the Philippines (SMTFM-UWP) v.
NLRC[26] (Manggagawa) in support of his claim that the
appellate court erred in interpreting the CBA as an
ordinary civil law contract and in reading into it a clause
that was not agreed to during the negotiation and not
expressly stated in the CBA.
On the contrary, the ruling
in Manggagawa supports PALs position. Thus this Court
held:
The CBA is the law
between the contracting parties
the collective bargaining
representative and the
employer-company. Compliance
with a CBA is mandated by the
expressed policy to give
protection to labor. In the same
vein, CBA provisions should be
construed liberally rather than
narrowly and technically, and the
courts must place a practical
and realistic construction
upon it, giving due
consideration to the context in
which it is negotiated and
purpose which it is intended to
serve. This is founded on the
dictum that a CBA is not an
ordinary contract but one
impressed with public interest. It
goes without saying, however,
that only provisions embodied
in the CBA should be so
interpreted and complied
with. Where a proposal raised
by a contracting party does not
find print in the CBA, it is not a
part thereof and the proponent
has no claim whatsoever to its
 implementation.[27](Emphasis of fifty-five (55) shall be
and underscoring supplied) frozen in the position
they currently occupy at
that time and shall be
In N.S. Case No. 11-506-87, In re Labor Dispute ineligible for any further
at the Philippine Airlines, Inc., the Secretary of the movement to any other
Department of Labor and Employment (DOLE), passing positions.
on the failure of PAL and ALPAP to agree on the terms
and conditions for the renewal of their CBA which expired PALs contention is
on December 31, 1987 and construing Section 1 of Article basically premised on prohibitive
XXIII of the 1985-1987 CBA, held: training costs. The return on this
investment in the form of the pilot
xxxx promoted is allegedly five (5)
years. Considering the pilots age, the
Section 1, Article XXIII of the chances of full recovery [are] asserted to
1985-1987 CBA provides: be quite slim.

Pilots fifty-five ALPAP opposed the proposal

(55) years of age or over and argued that the training cost is offset
who have not previously by the pilots maturity, expertise and
qualified in any experience.
Company turbo-jet
aircraft shall not be By way of compromise, we rule
permitted to bid into the that a pilot should remain in the position
Companys turbo-jet where he is upon reaching age fifty-
operations. Pilots fifty- seven (57), irrespective of whether or not
five (55) years of age or he has previously qualified in the
over who have Companys turbo-jet
previously qualified in operations. The rationale behind this is
the companys turbo-jet that a pilot who will be compulsorily
operations may be by- retired at age sixty (60) should no longer
passed at Company be burdened with training for a new
option, however, any position. But if a pilot is only at age fifty-
such pilot shall be paid five (55), and promotional positions are
the by-pass pay available, he should still be considered
effective upon the date a and promoted if qualified, provided he
junior pilot starts to has previously qualified in any company
occupy the bidded turbo-jet aircraft. In the latter case,
position. the prohibitive training costs are more
than offset by the maturity, expertise,
x x x PAL x x x proposed to and experience of the pilot.
amend the provision in this wise:
Thus, the provision on age
The compulsory limit should now read:
retirement age for all
pilots is sixty (60) Pilots fifty-
years. Pilots who reach seven (57) years of age
the age of fifty-five (55) shall be frozen in their
years and over without positions. Pilots fifty-five
having previously (55) [sic] years of age
qualified in any provided they have
Company turbo-jet previously qualified in
aircraft shall not be any company turbo-jet
permitted to occupy any aircraft shall be
position in the permitted to occupy any
Companys turbo-jet position in the companys
fleet. Pilots fifty-four (54) turbo-jet
years of age and over fleet.[28] (Emphasis and
are ineligible for underscoring supplied)
promotion to any
position in Group
I. Pilots reaching the age
 The above-quoted provision of Section 1 of
Article XXIII of the 1985-1987 CBA, as construed by the
DOLE Secretary, was substantially incorporated in the
1991-1994 CBA between PAL and ALPAP[29] as follows:
Pilots fifty-seven (57) years of
age shall be frozen in their
position. Pilots who are less than fifty-
seven (57) years of age provided they
have previously qualified in any
companys turbo-jet aircraft shall be
permitted to occupy any position in the
companys turbo-jet fleet.[30]
The same section of Article XXIII of the 1991-1994 CBA
was reproduced in the 1994-2000 CBA.[31]
Arturo Gabanton, PALs Senior Vice President for
Flight Operations, testifying on PALs policy or practice on
underwriting the training costs of its pilots at the
time Almariowas trained, with the expectation of
benefiting therefrom in order to recover the cost of
training, explained:
Atty. Parinas:
Q: At the time the defendant was
accepted for training as A300
First Officer, would you know
what was the governing policy or
practice of Philippine Airlines
that was being employed
regarding the training cost[s] for
the pilots?
Witness:
A: The company has to spend for the
training of the pilots and after
that the company expecting
that services will be rendered
in order to recover the cost[s]
of training.
Atty. Parinas:
Q: You stated that the pilot must serve
the company after completing
the training, for how long after
completing the training?
Witness:
A: At least for three (3) years.
Atty. Parinas:
Q: What is your basis in saying that a
pilot must serve the company
after completing the training?
Witness:
A: That is embodied in the Collective
Bargaining Agreement between
Philippine Airlines and the Airline
Pilot Association of
the Philippines.[32]
xxxx
Atty. Parinas:
Q: Can you point to the provision in this
agreement relating to the three
(3) year period you stated a while
ago?
NOTE: Witness going over the document
shown to him by counsel.
Witness:
A: It is on page 99 of the Collective
Bargaining Agreement, Article
23, Miscellaneous.
Atty. Parinas: I would like to manifest that
this provision pointed out by the
witness is already marked
as Exhibit B-1 by the plaintiff.
xxxx
[Atty. Parinas]
Q: Mr. witness, Exhibit B-1 states in part
that Pilots, 57 years of age
shall be frozen in their
position. Pilots who are less
than 57 years of age provided
they have been previously
qualified in any companys
Turbo-Jet Aircraft shall be
permitted to occupy any position
in the companys Turbo-jet Fleet,
why do you say this is the basis
for the three (3) year period
within which a pilot must render
service to the company after
completing the training?
[Witness]
A: The reason why 57 years old is placed
here in the Collective Bargaining
Agreement [is that] it
is expected that you serve the
position for three (3) years
because the retirement age is
at 60, therefore, if you are past
57 years old, it will fall short of
the three (3) years recovery
period for the company. So it
was established that [anyone]
past 57 years old will not be
allowed to train for another
position.[33] (Emphasis and
underscoring supplied)

It bears noting that when Almario took the training
course, he was about 39 years old, 21 years away from
the retirement age of 60. Hence, with the maturity,
expertise, and experience he gained from the training
course, he was expected to serve PAL for at least three
years to offset the prohibitive costs thereof.
The pertinent provision of the CBA and its
rationale aside, contrary to Almarios claim, Article 22 of
the Civil Code which reads:
Art. 22. Every person who
through an act of performance by
another, or any other means, acquires or
comes into possession of something at
the expense of the latter without just or
legal ground, shall return the same to
him,
applies.
This provision on unjust enrichment recognizes the
principle that one may not enrich himself at the expense
of another. An authority on Civil Law[34] writes on the
subject, viz:
Enrichment of the defendant
consists in every patrimonial, physical, or
moral advantage, so long as it is
appreciable in money. It may consist of
some positive pecuniary value
incorporated into the patrimony of the
defendant, such as: (1) the enjoyment of
a thing belonging to the plaintiff; (2) the
benefits from service rendered by the
plaintiff to the defendant; (3) the
acquisition of a right, whether real or
personal; (4) the increase of value of
property of the defendant; (5) the
improvement of a right of the defendant,
such as the acquisition of a right of
preference; (6) the recognition of the
existence of a right in the defendant; and
(7) the improvement of the conditions of
life of the defendant.
xxxx
The enrichment of the defendant
must have a correlative prejudice,
disadvantage, or injury to the
plaintiff. This prejudice may consist, not
only of the loss of property or
the deprivation of its enjoyment, but also
of non-payment of compensation for
a prestation or service rendered to the
defendant without intent to donate on the
part of the plaintiff, or the failure to
acquire something which the latter would
have obtained. The injury to the plaintiff,
however, need not be the cause of the
enrichment of the defendant. It is enough
that there be some relation between
them, that the enrichment of the
defendant would not have been
produced had it not been for the fact from
which the injury to the plaintiff is
derived. (Underscoring supplied)[35]
Admittedly, PAL invested for the training
of Almario to enable him to acquire a higher level of skill,
proficiency, or technical competence so that he could
efficiently discharge the position of A-300 First
Officer. Given that, PAL expected to recover the training
costs by availing of Almarios services for at least three
years. The expectation of PAL was not fully realized,
however, due to Almarios resignation after only eight
months of service following the completion of his training
course. He cannot, therefore, refuse to reimburse the
costs of training without violating the principle of unjust
enrichment.
Following the computation by the appellate court
which was arrived at by offsetting the respective claims of
the parties, viz:
Training Cost P851,107.00
Less: Appellees corresponding
8 months
Service after training
[P850,107.00
divided by 36 months (3 years)
= P23,640.86 x 8
months] 189,126.88
Equals P661,980.12
Less: Accrued
Benefits 102,240.22
Net Reimbursable Amount
or P559,739.90[36]
Appellees Outstanding
Account **********,
Almario must pay PAL the sum of P559,739.90, to bear
the legal interest rate of 6% per annum from the filing
of PALs complaint on February 11, 1997 until the finality
of this decision.
In light of the foregoing discussions on the main
issue, the Court finds it unnecessary to dwell on the other
issues raised by Almario. Suffice it to state that the
appellate courts disposition thereof is, as its decision
reflects, well-taken.
WHEREFORE, the petition is DENIED and the
decision appealed from is AFFIRMED.
Costs against petitioner.
SO ORDERED.
BENGUET CORPORATION, G.R. No. 163101
Petitioner,
Present:
- versus - QUISUMBING, J., Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
DEPARTMENT OF ENVIRONMENT VELASCO, JR., JJ.
AND NATURAL RESOURCES
-MINES ADJUDICATION BOARD
and J.G. REALTY AND MINING Promulgated:
CORPORATION,
Respondents. February 13, 2008
x--------------------------------------------------------------------------
---------------x
DECISION
VELASCO, JR., J.:
The instant petition under Rule 65 of the Rules of Court
seeks the annulment of the December 2, 2002
Decision[1] and March 17, 2004 Resolution[2] of the
Department of Environment and Natural Resources-
Mining Adjudication Board (DENR-MAB) in MAB Case
No. 0124-01 (Mines Administrative Case No. R-M-2000-
01) entitled Benguet Corporation (Benguet) v. J.G. Realty
and Mining Corporation (J.G. Realty). The December 2,
2002 Decision upheld the March 19, 2001 Decision[3] of
the MAB Panel of Arbitrators (POA) which canceled the
Royalty Agreement with Option to Purchase (RAWOP)
dated June 1, 1987[4] between Benguet and J.G. Realty,
and excluded Benguet from the joint Mineral Production
Sharing Agreement (MPSA) application over four mining
claims. The March 17, 2004 Resolution denied Benguets
Motion for Reconsideration.
The Facts
On June 1, 1987, Benguet and J.G. Realty entered into a
RAWOP, wherein J.G. Realty was acknowledged as the
owner of four mining claims respectively named as
Bonito-I, Bonito-II, Bonito-III, and Bonito-IV, with a total
area of 288.8656 hectares, situated in Barangay
Luklukam, Sitio Bagong Bayan, Municipality of Jose
Panganiban, Camarines Norte. The parties also executed
a Supplemental Agreement[5] dated June 1, 1987. The
mining claims were covered by MPSA Application No.
APSA-V-0009 jointly filed by J.G. Realty as claimowner
and Benguet as operator.
In the RAWOP, Benguet obligated itself to perfect the
rights to the mining claims and/or otherwise acquire the
mining rights to the mineral claims. Within 24 months from
the execution of the RAWOP, Benguet should also cause
the examination of the mining claims for the purpose of
determining whether or not they are worth developing with
reasonable probability of profitable production. Benguet
undertook also to furnish J.G. Realty with a report on the
examination, within a reasonable time after the
completion of the examination. Moreover, also within the
examination period, Benguet shall conduct all necessary
exploration in accordance with a prepared exploration
program. If it chooses to do so and before the expiration
of the examination period, Benguet may undertake to
develop the mining claims upon written notice to J.G.
Realty. Benguet must then place the mining claims into
commercial productive stage within 24 months from the
written notice.[6] It is also provided in the RAWOP that if
the mining claims were placed in commercial production
by Benguet, J.G. Realty should be entitled to a royalty of
five percent (5%) of net realizable value, and to royalty for
any production done by Benguet whether during the
examination or development periods.
Thus, on August 9, 1989, the Executive Vice-President of
Benguet, Antonio N. Tachuling, issued a letter informing
J.G. Realty of its intention to develop the mining claims.
However, on February 9, 1999, J.G. Realty, through its
President, Johnny L. Tan, then sent a letter to the
President of Benguet informing the latter that it was
terminating the RAWOP on the following grounds:
a. The fact that your
company has failed to perform the
obligations set forth in the RAWOP, i.e.,
to undertake development works within 2
years from the execution of the
Agreement;
b. Violation of the Contract by
allowing high graders to operate on our
claim.
c. No stipulation was
provided with respect to the term limit of
the RAWOP.
d. Non-payment of the
royalties thereon as provided in the
RAWOP.[7]
In response, Benguets Manager for Legal
Services, Reynaldo P. Mendoza, wrote J.G. Realty a
letter dated March 8, 1999,[8] therein alleging that Benguet
complied with its obligations under the RAWOP by
investing PhP 42.4 million to rehabilitate the mines, and
that the commercial operation was hampered by the non-
issuance of a Mines Temporary Permit by the Mines and
Geosciences Bureau (MGB) which must be considered
as force majeure, entitling Benguet to an extension of
time to prosecute such permit. Benguet further claimed
that the high graders mentioned by J.G. Realty were
already operating prior to Benguets taking over of the
premises, and that J.G. Realty had the obligation of
ejecting such small scale miners. Benguet also alleged
that the nature of the mining business made it difficult to
specify a time limit for the RAWOP. Benguet then argued
that the royalties due to J.G. Realty were in fact in its office
and ready to be picked up at any time. It appeared that,
previously, the practice by J.G. Realty was to pick-up
checks from Benguet representing such royalties.
However, starting August 1994, J.G. Realty allegedly
refused to collect such checks from Benguet. Thus,
Benguet posited that there was no valid ground for the
termination of the RAWOP. It also reminded J.G. Realty
that it should submit the disagreement to arbitration rather
than unilaterally terminating the RAWOP.
On June 7, 2000, J.G. Realty filed a Petition for
Declaration of Nullity/Cancellation of the RAWOP[9] with
the Legaspi City POA, Region V, docketed as DENR
Case No. 2000-01 and entitled J.G. Realty v. Benguet.
On March 19, 2001, the POA issued a 7942 or the Philippine Mining Act of 1995 states, A
Decision,[10] dwelling upon the issues of (1) whether the
arbitrators had jurisdiction over the case; and (2) whether
Benguet violated the RAWOP justifying the unilateral
cancellation of the RAWOP by J.G. Realty. The
dispositive portion stated:
WHEREFORE, premises
considered, the June 01, 1987 [RAWOP]
and its Supplemental Agreement is
hereby declared cancelled and without
effect. BENGUET is hereby excluded
from the joint MPSA Application over the
mineral claims denominated as BONITO-
I, BONITO-II, BONITO-III and BONITO-
IV.
SO ORDERED.
Therefrom, Benguet filed a Notice of Appeal[11] with the
MAB on April 23, 2001, docketed as Mines Administrative
Case No. R-M-2000-01. Thereafter, the MAB issued the
assailed December 2, 2002 Decision. Benguet then filed
a Motion for Reconsideration of the assailed Decision
which was denied in the March 17, 2004 Resolution of the
MAB. Hence, Benguet filed the instant petition.
The Issues
1. There was serious and
palpable error when the Honorable Board
failed to rule that the contractual
obligation of the parties to arbitrate under
the Royalty Agreement is mandatory.
2. The Honorable Board
exceeded its jurisdiction when it
sustained the cancellation of the Royalty
Agreement for alleged breach of contract
despite the absence of evidence.
3. The Questioned Decision
of the Honorable Board in cancelling the
RAWOP prejudice[d] the substantial
rights of Benguet under the contract to
the unjust enrichment of JG Realty.[12]
Restated, the issues are: (1) Should the controversy have
first been submitted to arbitration before the POA took
cognizance of the case?; (2) Was the cancellation of the
RAWOP supported by evidence?; and (3) Did the
cancellation of the RAWOP amount to unjust enrichment
of J.G. Realty at the expense of Benguet?
The Courts Ruling
Before we dwell on the substantive issues, we
find that the instant petition can be denied outright as
Benguet resorted to an improper remedy.
The last paragraph of Section 79 of Republic Act No. (RA)
petition for review by certiorari and question of law may
be filed by the aggrieved party with the Supreme Court
within thirty (30) days from receipt of the order or decision
of the [MAB].
However, this Court has already invalidated such
provision in Carpio v. Sulu Resources Development
Corp.,[13] ruling that a decision of the MAB must first be
appealed to the Court of Appeals (CA) under Rule 43 of
the Rules of Court, before recourse to this Court may be
had. We held, thus:
To summarize, there are
sufficient legal footings authorizing a
review of the MAB Decision under Rule
43 of the Rules of Court. First, Section 30
of Article VI of the 1987 Constitution,
mandates that [n]o law shall be passed
increasing the appellate jurisdiction of the
Supreme Court as provided in this
Constitution without its advice and
consent. On the other hand, Section 79
of RA No. 7942 provides that decisions of
the MAB may be reviewed by this Court
on a petition for review by certiorari. This
provision is obviously an expansion of
the Courts appellate jurisdiction, an
expansion to which this Court has not
consented. Indiscriminate enactment of
legislation enlarging the appellate
jurisdiction of this Court would
unnecessarily burden it.
Second, when the Supreme
Court, in the exercise of its rule-making
power, transfers to the CA pending cases
involving a review of a quasi-judicial
bodys decisions, such transfer relates
only to procedure; hence, it does not
impair the substantive and vested rights
of the parties. The aggrieved partys right
to appeal is preserved; what is changed
is only the procedure by which the appeal
is to be made or decided. The parties still
have a remedy and a competent tribunal
to grant this remedy.
Third, the Revised Rules of Civil
Procedure included Rule 43 to provide a
uniform rule on appeals from quasi-
judicial agencies. Under the rule, appeals
from their judgments and final orders are
 now required to be brought to the CA on
a verified petition for review. A quasi-
judicial agency or body has been defined
as an organ of government, other than a
court or legislature, which affects the
rights of private parties through either
adjudication or rule-making. MAB falls
under this definition; hence, it is no
different from the other quasi-judicial
bodies enumerated under Rule 43.
Besides, the introductory words in
Section 1 of Circular No. 1-91among
these agencies areindicate that the
enumeration is not exclusive or
conclusive and acknowledge the
existence of other quasi-judicial agencies
which, though not expressly listed,
should be deemed included therein.
Fourth, the Court realizes that
under Batas Pambansa (BP) Blg. 129 as
amended by RA No. 7902, factual
controversies are usually involved in
decisions of quasi-judicial bodies; and
the CA, which is likewise tasked to
resolve questions of fact, has more elbow
room to resolve them. By including
questions of fact among the issues that
may be raised in an appeal from quasi-
judicial agencies to the CA, Section 3 of
Revised Administrative Circular No. 1-95
and Section 3 of Rule 43 explicitly
expanded the list of such issues.
According to Section 3 of Rule
43, [a]n appeal under this Rule may be
taken to the Court of Appeals within the
period and in the manner herein provided
whether the appeal involves questions of
fact, of law, or mixed questions of fact
and law. Hence, appeals from quasi-
judicial agencies even only on questions
of law may be brought to the CA.
Fifth, the judicial policy of
observing the hierarchy of courts dictates
that direct resort from administrative
agencies to this Court will not be
entertained, unless the redress desired
cannot be obtained from the appropriate
lower tribunals, or unless exceptional and
compelling circumstances justify
availment of a remedy falling within and
calling for the exercise of our primary
jurisdiction.[14]
The above principle was reiterated in Asaphil
Construction and Development Corporation v. Tuason, Jr.
(Asaphil).[15] However, the Carpio ruling was not applied
to Asaphil as the petition in the latter case was filed in
1999 or three years before the promulgation of Carpio in
2002. Here, the petition was filed on April 28, 2004 when
the Carpio decision was already applicable, thus Benguet
should have filed the appeal with the CA.
Petitioner having failed to properly appeal to the
CA under Rule 43, the decision of the MAB has become
final and executory. On this ground alone, the instant
petition must be denied.
Even if we entertain the petition although Benguet
skirted the appeal to the CA via Rule 43, still, the
December 2, 2002 Decision and March 17, 2004
Resolution of the DENR-MAB in MAB Case No. 0124-01
should be maintained.
First Issue: The case should have first been brought
to
voluntary arbitration before the POA
Secs. 11.01 and 11.02 of the RAWOP pertinently provide:
11.01 Arbitration
Any disputes, differences or
disagreements between BENGUET and
the OWNER with reference to anything
whatsoever pertaining to this Agreement
that cannot be amicably settled by them
shall not be cause of any action of any
kind whatsoever in any court or
administrative agency but shall, upon
notice of one party to the other, be
referred to a Board of Arbitrators
consisting of three (3) members, one to
be selected by BENGUET, another to be
selected by the OWNER and the third to
be selected by the aforementioned two
arbitrators so appointed.
xxxx
11.02 Court Action
No action shall be instituted in court as to
any matter in dispute as hereinabove
stated, except to enforce the decision of
the majority of the Arbitrators.[16]
Thus, Benguet argues that the POA should have first
referred the case to voluntary arbitration before taking
cognizance of the case, citing Sec. 2 of RA 876 on
persons and matters subject to arbitration.
On the other hand, in denying such argument, the POA
ruled that:
While the parties may establish such
stipulations clauses, terms and
conditions as they may deem convenient,
the same must not be contrary to law and
public policy. At a glance, there is nothing
wrong with the terms and conditions of
 the agreement. But to state that an
aggrieved party cannot initiate an action
without going to arbitration would be tying
ones hand even if there is a law which
allows him to do so.[17]
The MAB, meanwhile, denied Benguets contention on the
ground of estoppel, stating:
Besides, by its own act, Benguet is
already estopped in questioning the
jurisdiction of the Panel of Arbitrators to
hear and decide the case. As pointed out
in the appealed Decision, Benguet
initiated and filed an Adverse Claim
docketed as MAC-R-M-2000-02 over the
same mining claims without undergoing
contractual arbitration. In this particular
case (MAC-R-M-2000-02) now subject of
the appeal, Benguet is likewise in
estoppel from questioning the
competence of the Panel of Arbitrators to
hear and decide in the summary
proceedings J.G. Realtys petition, when
Benguet itself did not merely move for the
dismissal of the case but also filed an
Answer with counterclaim seeking
affirmative reliefs from the Panel of
Arbitrators.[18]
Moreover, the MAB ruled that the contractual provision on
arbitration merely provides for an additional forum or
venue and does not divest the POA of the jurisdiction to
hear the case.[19]
In its July 20, 2004 Comment,[20] J.G. Realty reiterated the
above rulings of the POA and MAB. It argued that RA
7942 or the Philippine Mining Act of 1995 is a special law
which should prevail over the stipulations of the parties
and over a general law, such as RA 876. It also argued
that the POA cannot be considered as a court under the
contemplation of RA 876 and that jurisprudence saying
that there must be prior resort to arbitration before filing a
case with the courts is inapplicable to the instant case as
the POA is itself already engaged in arbitration.
On this issue, we rule for Benguet.
Sec. 2 of RA 876 elucidates the scope of arbitration:
Section 2. Persons and matters
subject to arbitration.Two or more
persons or parties may submit to the
arbitration of one or more arbitrators
any controversy existing between
them at the time of the submission
and which may be the subject of an
action, or the parties to any contract
may in such contract agree to settle
by arbitration a controversy thereafter
arising between them. Such
submission or contract shall be valid,
enforceable and irrevocable, save
upon such grounds as exist at law for
the revocation of any contract.
Such submission or contract
may include question[s] arising out of
valuations, appraisals or other
controversies which may be collateral,
incidental, precedent or subsequent to
any issue between the parties.
(Emphasis supplied.)
In RA 9285 or the Alternative Dispute Resolution Act of
2004, the Congress reiterated the efficacy of arbitration
as an alternative mode of dispute resolution by stating in
Sec. 32 thereof that domestic arbitration shall still be
governed by RA 876. Clearly, a contractual stipulation
that requires prior resort to voluntary arbitration before the
parties can go directly to court is not illegal and is in fact
promoted by the State. Thus, petitioner correctly cites
several cases whereby arbitration clauses have been
upheld by this Court.[21]
Moreover, the contention that RA 7942 prevails over RA
876 presupposes a conflict between the two laws. Such
is not the case here. To reiterate, availment of voluntary
arbitration before resort is made to the courts or quasi-
judicial agencies of the government is a valid contractual
stipulation that must be adhered to by the parties. As
stated in Secs. 6 and 7 of RA 876:
Section 6. Hearing by court.A
party aggrieved by the failure, neglect
or refusal of another to perform under
an agreement in writing providing for
arbitration may petition the court for
an order directing that such
arbitration proceed in the manner
provided for in such agreement. Five
days notice in writing of the hearing of
such application shall be served either
personally or by registered mail upon the
party in default. The court shall hear the
parties, and upon being satisfied that
the making of the agreement or such
failure to comply therewith is not in
issue, shall make an order directing
the parties to proceed to arbitration in
accordance with the terms of the
agreement. If the making of the
agreement or default be in issue the
court shall proceed to summarily hear
such issue. If the finding be that no
agreement in writing providing for
arbitration was made, or that there is
no default in the proceeding
thereunder, the proceeding shall be
dismissed. If the finding be that a
written provision for arbitration was
made and there is a default in
 proceeding thereunder, an order shall
be made summarily directing the
parties to proceed with the arbitration
in accordance with the terms thereof.
xxxx
Section 7. Stay of civil action.If
any suit or proceeding be brought upon
an issue arising out of an agreement
providing for the arbitration thereof, the
court in which such suit or proceeding is
pending, upon being satisfied that the
issue involved in such suit or proceeding
is referable to arbitration, shall stay the
action or proceeding until an arbitration
has been had in accordance with the
terms of the agreement: Provided, That
the applicant, for the stay is not in default
in proceeding with such arbitration.
(Emphasis supplied.)
In other words, in the event a case that should properly
be the subject of voluntary arbitration is erroneously filed
with the courts or quasi-judicial agencies, on motion of the
defendant, the court or quasi-judicial agency shall
determine whether such contractual provision for
arbitration is sufficient and effective. If in affirmative, the
court or quasi-judicial agency shall then order the
enforcement of said provision. Besides, in BF Corporation
v. Court of Appeals, we already ruled:
In this connection, it bears
stressing that the lower court has not lost
its jurisdiction over the case. Section 7 of
Republic Act No. 876 provides that
proceedings therein have only been
stayed. After the special proceeding of
arbitration has been pursued and
completed, then the lower court may
confirm the award made by the
arbitrator.[22]
J.G. Realtys contention, that prior resort to arbitration is
unavailing in the instant case because the POAs mandate
is to arbitrate disputes involving mineral agreements, is
misplaced. A distinction must be made between voluntary
and compulsory arbitration. In Ludo and Luym
Corporation v. Saordino, the Court had the occasion to
distinguish between the two types of arbitrations:
Comparatively, in Reformist Union of
R.B. Liner, Inc. vs. NLRC, compulsory
arbitration has been defined both as the
process of settlement of labor disputes
by a government agency which has
the authority to investigate and to
make an award which is binding on all
the parties, and as a mode of arbitration
where the parties are compelled to
accept the resolution of their dispute
through arbitration by a third party. While
a voluntary arbitrator is not part of the
governmental unit or labor
departments personnel, said arbitrator
renders arbitration services provided for
under labor laws.[23] (Emphasis
supplied.)
There is a clear distinction between compulsory and
voluntary arbitration. The arbitration provided by the POA
is compulsory, while the nature of the arbitration provision
in the RAWOP is voluntary, not involving any government
agency. Thus, J.G. Realtys argument on this matter must
fail.
As to J.G. Realtys contention that the provisions of RA
876 cannot apply to the instant case which involves an
administrative agency, it must be pointed out that Section
11.01 of the RAWOP states that:
[Any controversy with regard to the
contract] shall not be cause of any action
of any kind whatsoever in any court
or administrative agency but shall,
upon notice of one party to the other, be
referred to a Board of Arbitrators
consisting of three (3) members, one to
be selected by BENGUET, another to be
selected by the OWNER and the third to
be selected by the aforementioned two
arbiters so appointed.[24] (Emphasis
supplied.)
There can be no quibbling that POA is a quasi-judicial
body which forms part of the DENR, an administrative
agency. Hence, the provision on mandatory resort to
arbitration, freely entered into by the parties, must be held
binding against them.[25]
In sum, on the issue of whether POA should have referred
the case to voluntary arbitration, we find that, indeed,
POA has no jurisdiction over the dispute which is
governed by RA 876, the arbitration law.
However, we find that Benguet is already estopped from
questioning the POAs jurisdiction. As it were, when J.G.
Realty filed DENR Case No. 2000-01, Benguet filed its
answer and participated in the proceedings before the
POA, Region V. Secondly, when the adverse March 19,
2001 POA Decision was rendered, it filed an appeal with
the MAB in Mines Administrative Case No. R-M-2000-01
and again participated in the MAB proceedings. When the
adverse December 2, 2002 MAB Decision was
promulgated, it filed a motion for reconsideration with the
MAB. When the adverse March 17, 2004 MAB Resolution
was issued, Benguet filed a petition with this Court
pursuant to Sec. 79 of RA 7942 impliedly recognizing
MABs jurisdiction. In this factual milieu, the Court rules
that the jurisdiction of POA and that of MAB can no longer
be questioned by Benguet at this late hour. What Benguet
should have done was to immediately challenge the
POAs jurisdiction by a special civil action for certiorari
when POA ruled that it has jurisdiction over the
dispute. To redo the proceedings fully participated in by
the parties after the lapse of seven years from date of
institution of the original action with the POA would be
anathema to the speedy and efficient administration of
justice.
Second Issue: The cancellation of the RAWOP
was supported by evidence
The cancellation of the RAWOP by the POA was
based on two grounds: (1) Benguets failure to pay J.G.
Realtys royalties for the mining claims; and (2) Benguets
failure to seriously pursue MPSA Application No. APSA-
V-0009 over the mining claims.
As to the royalties, Benguet claims that the
checks representing payments for the royalties of J.G.
Realty were available for pick-up in its office and it is the
latter which refused to claim them. Benguet then thus
concludes that it did not violate the RAWOP for
nonpayment of royalties. Further, Benguet reasons that
J.G. Realty has the burden of proving that the former did
not pay such royalties following the principle that the
complainants must prove their affirmative allegations.
With regard to the failure to pursue the MPSA
application, Benguet claims that the lengthy time of
approval of the application is due to the failure of the MGB
to approve it. In other words, Benguet argues that the
approval of the application is solely in the hands of the
MGB.
Benguets arguments are bereft of merit.
Sec. 14.05 of the RAWOP provides:
14.05 Bank Account
OWNER shall maintain a bank account at
___________ or any other bank from
time to time selected by OWNER with
notice in writing to BENGUET where
BENGUET shall deposit to the OWNERs
credit any and all advances and
payments which may become due the
OWNER under this Agreement as well as
the purchase price herein agreed upon in
the event that BENGUET shall exercise
the option to purchase provided for in the
Agreement. Any and all deposits so
made by BENGUET shall be a full and
complete acquittance and release
to [sic] BENGUET from any further
liability to the OWNER of the amounts
represented by such
deposits. (Emphasis supplied.)
Evidently, the RAWOP itself provides for the mode of
royalty payment by Benguet. The fact that there was the
previous practice whereby J.G. Realty picked-up the
checks from Benguet is unavailing. The mode of payment
is embodied in a contract between the parties. As such,
the contract must be considered as the law between the
parties and binding on both.[26] Thus, after J.G. Realty
informed Benguet of the bank account where deposits of
its royalties may be made, Benguet had the obligation to
deposit the checks. J.G. Realty had no obligation to
furnish Benguet with a Board Resolution considering that
the RAWOP itself provided for such payment scheme.
Notably, Benguets claim that J.G. Realty must
prove nonpayment of its royalties is both illogical and
unsupported by law and jurisprudence.
The allegation of nonpayment is not a positive
allegation as claimed by Benguet. Rather, such is a
negative allegation that does not require proof and in fact
transfers the burden of proof to Benguet. Thus, this Court
ruled in Jimenez v. National Labor Relations
Commission:
As a general rule, one who
pleads payment has the burden of
proving it. Even where the plaintiff must
allege non-payment, the general rule is
that the burden rests on the defendant to
prove payment, rather than on the
plaintiff to prove non-payment. The
debtor has the burden of showing with
legal certainty that the obligation has
been discharged by
payment.[27](Emphasis supplied.)
In the instant case, the obligation of Benguet to
pay royalties to J.G. Realty has been admitted and
supported by the provisions of the RAWOP. Thus, the
burden to prove such obligation rests on Benguet.
It should also be borne in mind that MPSA Application No.
APSA-V-0009 has been pending with the MGB for a
considerable length of time. Benguet, in the RAWOP,
obligated itself to perfect the rights to the mining claims
and/or otherwise acquire the mining rights to the mineral
claims but failed to present any evidence showing that it
exerted efforts to speed up and have the application
approved. In fact, Benguet never even alleged that it
continuously followed-up the application with the MGB
and that it was in constant communication with the
government agency for the expeditious resolution of the
application. Such allegations would show that, indeed,
Benguet was remiss in prosecuting the MPSA application
and clearly failed to comply with its obligation in the
RAWOP.
Third Issue: There is no unjust enrichment in the
instant case
Based on the foregoing discussion, the cancellation of the
RAWOP was based on valid grounds and is, therefore,
justified. The necessary implication of the cancellation is
the cessation of Benguets right to prosecute MPSA
Application No. APSA-V-0009 and to further develop such
mining claims.
In Car Cool Philippines, Inc. v. Ushio Realty and
Development Corporation, we defined unjust enrichment,
as follows:

We have held that [t]here is

unjust enrichment when a
person unjustly retains a benefit to the
loss of another, or when a person retains
money or property of another against the
fundamental principles of justice, equity
and good conscience. Article 22 of the
Civil Code provides that [e]very person
who through an act of performance by
another, or any other means, acquires or
comes into possession of something at
the expense of the latter without just or
legal ground, shall return the same to
him. The principle of unjust enrichment
under Article 22 requires two conditions:
(1) that a person is benefited without a
valid basis or justification, and (2) that
such benefit is derived at anothers
expense or damage.

There is no unjust enrichment

when the person who will benefit has
a valid claim to such
benefit.[28] (Emphasis supplied.)

Clearly, there is no unjust enrichment in the instant case

as the cancellation of the RAWOP, which left Benguet
without any legal right to participate in further developing
the mining claims, was brought about by its violation of
the RAWOP. Hence, Benguet has no one to blame but
itself for its predicament.

WHEREFORE, we DISMISS the petition,

and AFFIRM the December 2, 2002 Decision and March
17, 2004 Resolution of the DENR-MAB in MAB Case No.
0124-01 upholding the cancellation of the June 1,
1987 RAWOP. No costs.
SO ORDERED.
ADVANCED FOUNDATION CONSTRUCTION 1.6.2. Removal of Underground
SYSTEMS CORPORATION, Petitioner, - versus - NEW Obstruction: - The contractor
WORLD PROPERTIES AND VENTURES, INC., shall execute probing of
Respondent. underground obstruction on
each pile position. Should the
x------------------------x bored piling contractor
NEW WORLD PROPERTIES AND VENTURES, INC., encounter underground
Petitioner. vs ADVANCED FOUNDATION obstruction during drilling such
CONSTRUCTION SYSTEMS CORPORATION, as footings, tie beams, piles, and
Respondent. G.R. No. 143154 any other incidental
impenetrable obstruction, the
CHICO-NAZARIO, J.: contractor shall be paid on the
actual daywork expenses for
Before Us are two consolidated Petitions for Review equipment and manpower plus
on Certiorari under Rule 45 of the Rules of Civil 25% overhead (sic).
Procedure assailing the Decision[1] of the Court of
Appeals which affirmed with modification the
Decision[2] of the Construction Industry Arbitration
Commission (CIAC) awarding Advanced Foundation 1.6.3. Should the
Construction Systems Corporations (AFCSC) claim underground obstruction
against New World Properties and Ventures, Inc. (New cannot be recover the
World) in the total amount of P10,700,384.00 with contractor shall notify
interest, as well as the Resolution dated 3 May 2000 the owner in writing
denying both parties Motion for Partial Reconsideration. which in turn refer to the
structural engineer for
further instructions
provided however that
Sometime in November 1996, New the contractor will not
World conducted a bidding for the construction of 69 entail delay and stand by
bored piles which would form the foundation of the 36- in the faithful execution
storey World TradeExchange Building it planned to erect of the work. Idle time
on a parcel of land it owned in Binondo, Manila. shall be charge as per
actual operating
expenses of manpower
After inspecting the site and conducting soil and equipment subject
investigation, the bidding participants submitted their to the evaluation of the
respective bids. On 18 November 1996, New owners engineer
World notified AFCSC of the acceptance of its bid to representative (sic).
construct the 69 bored piles for the lump sum of Thirty-six
Million Pesos (P36,000,000.00).

New World did not respond to said proposal but

On 20 November 1996, New World issued to
instead directed AFCSC to proceed with the
AFCSC the Notice to Proceed Work wherein AFCSC was
construction. On 29 November 1996, both parties signed
instructed to commence work on 27 November 1996 and
the contract for the construction of the 69 bored
complete the same by 24 February 1997. Under said
piles. AFCSCs proposal, however, was not incorporated
notice, it was stated that in case of delay in the completion
in said contract.
of the project, AFCSC would pay New World liquidated
damages in the amount of P36,000.00 per calendar day
of delay.
During the subsistence of the contract, New
World directed AFCSC to make the following changes
and additional works: 1) the addition of one bored pile; 2)
After the issuance of the Notice to Proceed, but
the increase in the pile depths from
before the signing of the contract, AFCSC, on 21
55m. to 60m. with respect to 23 bored piles and from
November 1996, proposed an amendment to the contract
55m. to 70m. with respect to 47 bored piles; 3) the
conditions, to wit:
increase in the diameter of six bored piles from
1.5m. to 1.8m.; and 4) the change in the compressive
strength of concrete from 3,000 psi to 4,000 psi for all
1.6 Excluded in the contractor scope of piles. Due to said changes in the scope of work, AFCSC
work shall be as follows: informed New World in a letter dated 13 January
1997 that the original contract price
of P36,000,000.00 would increase to P48,400,000.00.
Thereafter, sometime in August 1997, AFCSC
billed New World the costs of the change orders in
addition to the original contract price. Included in said
billing is the cost of the removal of underground
obstructions in the project site as well as the installation
of sonic pipes to be used to conduct load tests on the
bored piling works. AFCSC claimed that these works
were not part of the original contract and should be
treated as extra work. In a letter dated 9 September
1997, New World informed AFCSC of
the formersrejection of the 21 November 1996 proposal
of AFCSC regarding the exclusion of the removal of
underground obstructions from the original scope of work
and AFCSCs claim for compensation for alleged extra
work. New World maintained that the alleged additional
works were all part of the contract signed by both parties.
After removing the underground obstructions and
incorporating the change in the scope of work, the
construction of the bored piles were completed only on 27
November 1997, or more than eight months after the
original date of 24 February 1997 contemplated in the
contract.
Subsequently, during the early part of 1998, New
World informed AFCSC of its intention to test the bored
piles constructed on the project site to check their
structural integrity. The tests to be conducted consisted of
sonic logging test, dynamic pile test, and pile integrity
test. Results of the testing showed that five piles were
found defective, namely, Pile Nos. 9, 21, 25, 49, and
62. The high-strain dynamic test (PDA) done to Pile No.
21, which was the only pile subjected to said test in order
to determine its load capacity, revealed that it had a load
capacity of only 800 metric tons, far less than the required
1,200 metric tons.
When it came time to settle the accounts, the
parties found that their respective records of accounts
were at variance with each other. Thus, on 29 May 1998,
AFCSC, represented by Engr. Joel S. Arceo, and New
World, represented by Engr. Gaudencio Lambino,
reconciled the amount due to AFCSC and arrived at the
sum of P6,326,318.72 as the unpaid balance of the
original contract price and P2,133,658.46 as the cost of
the change orders after deducting the liquidated damages
due to New World for the delay incurred by AFCSC.
New World, however, refused to pay its
outstanding obligations to AFCSC due to the defective
bored piles. On 2 June 1998, AFCSC made a final
demand upon New World to pay the consolidated billing
in the amount of P23,478,251.29 consisting of the
reconciled amount of P8,515,396.63, and the cost of
removing the underground obstructions, sonic pipe
installation, build up of pile test cap, soil investigation and
crane rental.
Upon New Worlds continuous refusal to pay its
obligation, AFCSC filed a Request for Adjudication before
the CIAC[3] on 2 July 1998. Among the issues submitted
for resolution by the parties were whether or not the
removal of underground obstructions, installation of sonic
pipes, build up of pile test cap, soil investigation, and
crane rental constitute additional works which will entitle
AFCSC to its claim of additional pay; and whether or not
AFCSC was in delay, thus making it liable for liquidated
damages.
In the Decision dated 8 December 1998, the
CIAC disposed of the controversy in this wise:
The bone of contention is
whether or not the removal of
underground obstruction is part of the
scope of the work of the contractor as
claimed by the respondents or is extra
work as claimed by the contractor.
xxxx
It is clear to us that this
controversy could have been avoided if
the owners designers had clearly stated
the contractors scope of work. The bid
documents failed to give bidders of the
lump-sum bids details of the
underground obstruction or at least made
provisions for the treatment of the parties
reciprocal obligations in the event such
obstruction is encountered. Upon the
other hand, the contractor, one which is
experienced in foundation work, had
been remiss in its obligation to obtain as
much information as possible on the
contingency that the unknown
obstruction would impede its work and
make it more costly, or at least provided
a qualification in its bid so as to make
clear its right to claim contract price and
time adjustment caused by such
obstruction. Assuming, therefore, that
these omissions of both parties may be
treated as acts in bad faith, we shall have
to apply the rule that in such case, their
rights and obligations shall be resolved
as if both had acted in good faith up to
the time of the bid.
xxxx
x x x We also reviewed the bid of the
claimant as well as the bids of the other
bidders made on a form supplied by New
World. The items mentioned in the bid
form indicated the general pay items of
work of the contractor, but it does not
mention anything about the removal of
obstruction. Mr. Chika G. Go, however,
argued that the item on removal of
obstruction fell under the item
miscellaneous. [t.s.n., October 19,1998,
pp. 56-57] We reject this argument as
facetious. The removal
underground obstruction is a major
item of work and cannot be
understood as being subsumed under
the general heading miscellaneous.
The removal of underground
obstruction, in our view, is covered by the
General Conditions of Contract which
provide as follows:
Should the Contractor
encounter subsurface or
latent physical
conditions differing
materially from those
indicated, or unknown
physical conditions at
the site of an unusual
nature differing
materially from those
ordinarily encountered
the Owners
Representative shall be
promptly notified of such
conditions before they
are disturbed. The
Owners Representative
shall thereupon
promptly investigate the
conditions at the site and
if he finds that they do so
materially differ and
cause an increase or
decrease in the cost, or
the time required for
performance of the
Contract, an equitable
adjustment will be made
and the Contract
modified in accordance
with existing laws on the
matter or as agreed
upon the provided for
[sic] under the Contract.
xxxx
We have no hesitation,
therefore, in holding that the removal
of underground obstructions by the
claimant falls under Clause 56.2 of the
General Conditions which should
therefore be treated as extra work.
On the additional sub-issues:
of
xxxx
In its Reply, claimant alleged in
its paragraph 9 that:
9. Claimant did not cover up
several bored piles before the
same were tested [par.4.14,
Answer]. This is yet another of
many reckless allegations that
discredit the whole
Answer.Claimant was not the
contractor for the mat foundation
(the flooring of the basement
which is constructed on top of
the bored piles) and accordingly,
had nothing to do with cover[ing]
up the bored piles.
9.1. On the contrary, after
completing the bored piles,
claimant left their tops,
sticking overground, together
with extra rebars and extra
lengths as allowance for dirty
concrete, which were later cut off
and discarded.
10. It was only after the bored
piles were covered up by the mat
foundation contractor that
respondents informed claimant
of the results of the pile testing
rendering it impossible for
claimant to challenge definitively
the results and, more
 importantly, to undertake
remedial work on the five [5]
piles alleged found defective.
We accept the foregoing
assertions in pars. 9 and 9.1 of the
claimant as being in accord with industry
practice, and as being consistent with the
facts.
The issue, therefore, boils down
to whether or not the cost of testing shall
be for the account of claimant or of New
World.
At the outset, it must be stressed
that Clause 38.4 of the General
Conditions cover tests of contractor-
supplied materials such as concrete,
cement, or rebars, not finished
products. In accordance with accepted
industry practice, this provision, which is
also a standard provision in construction
contracts, is not interpreted to include
tests on finished structural members. It
does not cover, for example, tests on the
reinforced concrete column of a building
to see if it can carry 35 floors above or
test a girder to check if it carry the
designed seismic load.
The claim of the claimant is for
the installation of sonic pipes
amounting to P320,000.00; for built-up
of pile test cap, to P104,002.33; for
crane rental, P75,000.00 and for soil
investigation, P60,000.00 should be
for the account of New
World. However, claimant agreed that it
will absorb the cost of the soil
investigation if the contract is awarded to
it. Further, since the installation of sonic
pipes was defective in 34 out of 69 piles,
we reduce to a corresponding extent the
claimants claim for sonic pipe installation.
xxx
We also find that claimant should
be liable for part of the cost of the sonic
pipes defectively installed by it. x x x
Issue No. 2 concerns liquidated
damages. As formulated, the issue
submitted for resolution is this: Whether
or not claimant was in delay and, as
such, whether it is liable to pay
respondent liquidated damages. If it is
found to be liable, how much liquidated
damaged should be awarded to the
respondent?
xxxx
Article 7.1 of the contract
provides that: 7.1 The OWNER may, at
any time, by a written order, make
changes in the schedule and work
required under this Agreement. If any
such changes causes an increase or
decrease in the work or the time required
for performing the work, an equitable
adjustment shall be made of the contract
price and completion date upon mutual
agreement of the parties reflecting such
adjustments by way of a written variation
order subject to the negotiation by both
parties. [Underscoring supplied]
Clause 49.2.4 of the General
Conditions provide that The Contractor
shall be entitled to claim an adjustment of
his Contract Time where: [i] the amount
of additional work under a Change Order,
or [ii] special circumstances had
occurred, so as to fairly entitle the
Contractor to an extension of Contract
Time.
In light of the facts, and in our
discussion above of the changes
made, it is clear that we have found
that indeed there were circumstances
fairly entitling the claimant to an
extension of its contract period.
xxxx
We examined the numerous
exhibits submitted by the claimant all
mentioning directly or indirectly
compensation to it for extra work
performed. x x x In none of these
exhibits did claimant request an
extension of the contract period. Engr.
Joel S. Arceos comprehensive 12-page
affidavit failed to mention any letter or
request for the adjustment of the
completion time due to extra works.

Claimant, in its memorandum,
dismisses the request for time extension
as a mere formality. [See claimants
Memorandum, p.12] We do not
agree. The contract provides that the
contractor shall pay liquidated
damages for delay unless the period
for completion of the work is extended
by the owner. The procedure for
requesting extension of time and for
the approval of the request by the
owner is laid out. We have not been
shown why these important
provisions of the contract between the
parties should be treated by us as a
mere formality. [See Clauses 49.3.1
and 49.3.2 of the General
Conditions] We accordingly hold that
claimant is not entitled to extension of
time for the extra works performed and is
accordingly liable to the respondent for
liquidated damages in accordance with
the contract.
xxxx
We note, however, that the
purpose of giving punctual notice of claim
for time extension is to enable the owner
immediately to investigate the actual
basis of the claim, decide whether or not
to grant the request, and in case the
request is granted, to fix the period of
extension of Contract Time. In this case,
the claimant submitted Exhs. R to R-138
to show on a daily basis the removal of
obstruction and each report is
acknowledged received by the owners
representative. Thus, New World was
not unaware of the difficulty attending
the removal of obstruction.There is no
showing of material prejudice caused
to New World by the failure of claimant
to give formal notice of its extension
of time to request time
extension. Incidentally, no evidence has
been presented to show that the claimant
lacked workers, materials and/or
equipment as a result of which there was
a slippage in the work. Liquidated
damages are imposed as a penalty for
delay. [See Article 1226, Civil Code] As
such, a contract provision for the
imposition of liquidated damages shall be
strictly construed. According to Article
1229, Civil Code, The judge shall
equitably reduce the penalty when the
principal obligation has been partly or
irregularly complied with by the
debtor. Even if there has been no
performance, the penalty may be
reduced by the courts if it is iniquitous or
unconscionable. [See also Article 2227,
Civil Code.]
In view of the circumstances of
the case, taking into account the fact that
there was no material prejudice caused
to New World by the failure of claimant to
request extension of the completion time,
applying Articles 1229 and 2227 of the
Civil Code, we have decided to reduce
the amount of liquidated damages
to P1,000,000.00.
The most difficult issue
submitted for resolution is a highly
technical one, namely: Did the result of
the test piles accurately determine the
capacity of the piles?
xxxx
The test results were evaluated
by Dr. Benjamin R. Buencuseso, Jr. who
submitted his own report on June 5,
1998 [Exh. K] Dr. Buensuceso testified
that he is a registered civil engineer from
1979; that he took his post-graduate
studies in Bangkok where he earned a
doctorate degree in geo-technical
engineering; that he was associate
professor in a university in Japan where
he taught foundations; that from 1993 he
taught on a full-time basis at the
University of the Philippines; that he is
also a consultant to various companies
with particular emphasis on pile testing;
and that he started dynamic pile testing
since 1993 and he has been doing this
type of consultancy since 1996 [t.s.n.,
October 19, 1998, p. 15] In his report
[Exh. K], Dr. Buensuceso made the
following conclusion: In closing, my
evaluation of the results of the various
pile tests conducted at the World Trade
Exchange Center Project shows that the
defects found for all the test piles are not
critical from a geotechnical engineering
standpoint. Inasmuch as these defects
do not result to a significant reduction in
the skin resistance provided by the soils
surrounding the predominantly frictional
piles. However, the effects of the
presence of a 2m layer of contaminated
concrete cover in Pile Nos. 9, 25, 46 and
62, the structural capacity and behavior
of the subject piles should be evaluated
by the Structural Engineer.
xxxx
We find that only one pile test was done
to assess both integrity and
capacity. The other tests simply
evaluated qualitatively pile
integrity. [Exh. K] A pile capacity in this
context is meant to carry vertical loads
and is dependent on any of three factors,
namely: integrity, skin friction and end-
bearing.
A total of 34 piles were tested. A total of
35 tests were conducted. Pile No. 25 was
tested twice, one by sonic logging and
the second, for pile integrity. The pile
integrity tests resulted in a finding that all
piles, except Pile No. 9, were of
acceptable integrity. Pile No. 9 was found
to have defects in the lower portion of the
pile shift. Pile No. 25 which was
subjected to sonic logging and pile
integrity tests, passed the integrity test
but the result of the sonic test was
inconclusive.
Engr. Rogelio Menguito gave his formula
for computing the capacity of each
pile. The formula he gave is the standard
formula meant to determine the capacity
of a reinforced concrete column with
loads and reaction at each end and is not
generally applicable to piles which are
laterally supported throughout its length
and with skin friction capabilities. The
capacity of a pile, with length of 70
meters, and at the project site, the soil
quality of which is described in three soil
investigation reports, is normally
determined by skin friction and point
bearing which Engr. Menguito merely
considered as factors of safety. As
admitted by him during the hearing, he
had no mathematical or technical basis
for his conclusion, and that the bored
poles could actually carry a load much
heavier than 800 tons.
xxxx
We found support for this view from two
recognized authorities. The first is Peck,
Hanson and Thorburns Foundation
Engineering, in which it was stated that a
point bearing pile is sometimes
erroneously regarded as a structural
member that transfers its load like a
column from the top of the pile to the
bottom where it is delivered to the
underlying rock or soil. [At p. 182, a
photocopy of this page is hereto attached
as Annex A] The second are
H.G. Poulos and E.H. Davis, who in their
book, Pile Foundation, Analysis and
Design, set the general equation for the
ultimate capacity of a pile. A photocopy
of the page where the equation appeared
is hereto attached as Annex B] It is clear
from this equation that the ultimate
capacity of a pile is dependent on skin
friction and end-bearing and not a pile
acting as a column. Other that a pile
driven in water or on very soft soil, a pile
is laterally supported on its entire
length. Hence, it does not act as a
reinforced concrete column subjects to
buckling. Because of the above
discussion, the Arbitral Panel is of the
opinion that the test results were
inconclusive and did not truly measure
the capacity of the
piles. Engr. Menguitos use of the result
and his admission that all the values for
pile capacities were simply based on
assumptions without any or technical
basis [t.s.n., pp. 113-116] seriously
undermines the value of his
recommendation to reduce the capacity
of the piles and tends to give the
impression that this was an
accommodation to a client.
xxxx
AWARD
We find that:
[a] As admitted by New World, claimant
is entitled to the balance of the contract
price amounting to P6,326,318.72 and
the cost of approved change orders
amounting to P2,133,658.46 or the total
amount of P8,459,977.17.
[b] Since the foregoing is a liquidated
amount as due from June 2, 1998, we
order New World to pay claimant the
foregoing amount of P8,459,977.17 plus
interest at 6% per annum from June 2,
1998. The amount which has accrued as
interest from that date to December 2,
1998 is P253,799.32.
[c] Claimant is entitled to payment for and
hereby order New World to pay claimant
the cost of additional works consisting of
the removal of underground obstructions
and the conduct of various tests ordered
by the latter amounting
to P8,366,336.55.
[d] Claimant is entitled to payment for the
installation of 34 sonic pipes in the
amount of P157,681.16.
The foregoing amount to a total
of P17,237,794.20.
On the counterclaims, we find for New
World and order claimant to pay it the
following amounts:
[a] P190,141.30 representing the value
of sonic pipes which were defectively
installed by claimant;
[b] P1,000,000 as liquidated damages
for delay; and
[c] P5,347,268.90 as the cost of the five
[5] bored piles which were found
defective, or the total amount
of P6,537,410.20.
All other claims and counterclaims are
dismissed.
After offsetting the amount due claimant
from respondent and the amount due
respondent from claimant, there is a
balance of P10,700,384. which New
World is hereby ordered to pay
claimant.This amount shall earn interest
at 6% per annum from the date of this
award.
The arbitration fees and expenses have
been paid initially on a pro rata basis. In
light of the findings above, no change in
the above sharing of expenses is
warranted.[4] [Emphases ours]
Aggrieved by the Decision of the CIAC, New
World filed a Petition for Review of the said decision
before the Court of Appeals. On 31 January 2000, the
appellate court rendered the assailed
Decision. According to the Court of Appeals:
But for one point, the appeal lacks merit.
One. The pronouncements of CIAC on
the question of whether the removal of
underground obstructions was covered
by the contract between the parties are
evidently conclusions of law. This is so
because the conclusions drawn by an
adjudicatory body from a set of facts is a
question of law. (Pilar Development
Corporation v. IAC, 146 SCRA
215; Cunanan v. de Lazatin, 74 Phil.
719) Consequently, the window for
review is fully open for this Court to
examine the correctness of said
conclusions.
Try as it might, this Court cannot share
the view of CIAC that
respondents November 21,
1996 proposals (Exhibit 7) to exclude the
removal of underground obstructions
from the scope of work in the contract
(Exhibit A) and to treat them as extra
work was impliedly admitted by
petitioner. CIACs conclusion
contravenes No. 9 of the Terms of
Reference (TOR) reproduced above
which expressly states that such
proposals were refused by respondent.
Neither can this Court go along with
CIAC in its determination that said
proposals modified respondents bid offer
so that when the contract was signed
without petitioner expressly rejecting the
proposals, the same were deemed
impliedly accepted. The reasoning is
quite strained. The proposals were made
on November 21, 1996 while the contract
was signed on November 29, 1996. The
contract was the documentation of the
agreement between the parties arising
from respondents bid and petitioners
award (Exhibit 5).When the parties
signed the contract which did not contain
the proposals, what was logically implied
was not the acceptance of the proposals
but their rejection. The proposals were
actually nothing more than counter offers
which were not accepted and, therefore,
did not ripen into a perfected
agreement. (Art. 1319, Civil Code).
But this Court fully agrees with CIAC that
the removal of the underground
obstructions was covered by Clause 56.2
of the General Conditions of the
Contract.
xxxx
It is clear to this Court that petitioner did
not agree with respondents proposals but
in order to address the latters concern
about underground obstructions, the
parties adopted Clause 56.2. Therefore,
the contractual rule governing
underground obstructions was the
above-quoted Clause 56.2.
But alas, respondent did not comply with
said stipulation. Respondent did not
formally notify the petitioner about the
underground obstruction that it
encountered, hence, the petitioner did
not conduct its investigation to verify the
existence and nature of the
obstructions. The mechanism for a
modification of the contract and an
equitable adjustment of the contract price
was not set in motion through the fault of
respondent.
The vital question then is: For its fault in
not complying with the steps provided for
in the above-quoted stipulation, should
respondent be left alone to shoulder the
heavy cost of he removal of the
obstruction?
xxxx
It is not disputed that the removal of the
underground obstructions was a major
work entailing additional expense and
extra working time. The experts and
CIAC agreed that such work was not
covered by the scope of work in the
contract. That determination is logical
and correct. Petitioners rejection of this
holding and its insistence
post factum that such major work was
embraced in the scope of work in the
contract puts to doubt its good faith and
fairness. This stance may be perceived
as taking advantage of the imprudence of
respondent in not faithfully observing the
requirements of Clause 56.2 above
quoted.
To deny respondent any relief for the
expenses it incurred and the extra time
that it spent in removing the underground
obstructions is to allow the petitioner to
unjustly enrich itself at the expense of the
respondent. That is anathema to the
great principle of
equity. When it becomes clear as in this
case that the application to the law
in sensu strictionewould result in patently
unjust juridical situation, a court of justice
which is also a court of equity is called
upon to exercise its equitas juridictio in
order to refine the rough edges of the
rules and avoid injustice. The Code
Commission which drafted the Civil Code
justifies a resort to equity stating
beautifully that every good law draws its
breath of life from morals, from those
principles written with the words of fire in
the conscience of man. Appropriately,
these guides for human conduct should
run as golden threads through society, to
the end that law may approach its
supreme ideal which is the sway and
dominance of justice. (Report of the
Code Commission, pp. 4041).
Inspired by such profound
pronouncements, this Court, invoking its
equity jurisdiction and in order to prevent
unjust enrichment and manifest injustice,
holds that respondent should be
accorded a relief. But then respondent
should not expect for a full recovery of its
claim for it should realize that it had been
contractually negligent not just once but
several times. The cost of the removal of
the underground obstructions was
P8,025,836.37. This Court allows
respondent a concessional award of
one-half (1/2) of said amount which is 3. Php5,347,268.90
P4,012,918.18. as cost of the five (5)
bored piles which
were found
xxxx defective, or a total
amount of
P6,537,410.20.

Petitioner
protests CIACs lowering of the amount of
liquidated damages due it from P7.2 II. FOR RESPONDENT:
million to P1 million on the justification
that petitioner did not suffer any material
prejudice. This Court, rejects petitioners The petitioner is hereby ordered
protest. The reasons not to pay the respondent the following:
just CIACs finding that petitioner did not
suffer material damage given by
the CIAC for reducing the claimed 1. Php8,459,977.17
liquidated damages are clear, logical and as the sum of the
correct. The law gives a wide degree of balance on the
discretion to trial courts and quasi-judicial contract price
bodies to determine the amount of amounting to
damages recoverable as long as there is Php6,326,318.72
ample evidence to support the same. In and cost of
the absence of a clear case of abuse of approved change
discretion, as in the present case, there orders amounting to
is no reason for this Court to Php2,133,658.46
unsettle CIACs determination of the plus six (6) percent
proper and conscionable liquidated interest per annum
damages due the petitioner. on said total amount
(Php8,459,977.17)
from June 2, 1998
WHEREFORE, premises considered, until fully paid;
this Court renders judgment
MODIFYING the appealed Decision in 2. Php4,353,418.37
this wise: as cost of additional
works consisting of
the removal of the
underground
I. FOR PETITIONER obstructions and the
cost of various tests;
and
The respondent Advanced Foundation
Construction Systems Corporation is 3. Php157,681.16 as
hereby ordered to pay the petitioner New payment for the
World Properties and Ventures, Inc. the installation of 34
following: sonic pipes.

1. Php190,141.30 After compensating the

representing the obligations of the parties to each other,
value of sonic pipes the balance shall earn six (6%) percent
which were interest per annum from the date of this
defectively installed decision.[5]
by respondent;
2. Php1,000,000.00 The Motion for Partial Reconsideration of both parties
as liquidated having been denied, both New World and AFCSC filed
damages for delay; their respective Petitions for Review before this Court.
and
 The resolution of the instant case lies in the
determination of two pivotal issues, namely: (1) Which
between New World and AFCSC should shoulder the
expenses incurred for the removal of the underground
obstructions and the conduct of the pile tests; and (2)
Whether or not AFCSC is liable for liquidated damages
for its failure to complete the construction work by 24
February 1997.
At this point, We find it necessary to reiterate that
our jurisprudence is replete with the rule that findings of
fact of quasi-judicial bodies which have acquired
expertise because their jurisdiction is confined to specific
matters, are accorded not only with respect but even
finality if they are supported by substantial
evidence.[6] This is because there are certain cases which
require the expertise, specialized skills, and knowledge of
the proper administrative bodies because technical
matters or intricate questions of facts are involved.[7]
In the case at bar, it would seem that the CIAC,
in interpreting the contract covering the construction work
in the light of the facts present in the case, was guided by
the prevailing practices in the construction industry. The
members of the three-man panel, all equipped with
considerable knowledge and training in the field of
engineering and significant experience in construction
industry arbitration, reconciled the conflicting claims of
both parties by applying industry accepted practice with
respect to the treatment of removal of underground
obstructions and the conduct of pile tests. According to
the panel, the removal of underground obstruction is a
major item of work and it cannot be understood as being
subsumed under the general heading miscellaneous and
should therefore be treated as extra work. With respect to
the pile tests, the CIAC stated that in accordance with
accepted industry practice, the provisions in the contract
only cover tests of contractor-supplied materials and not
tests on finished products to see whether it can carry a
certain load.
In light of the ratiocination of the CIAC that the
removal of underground obstruction is a major item of
work and cannot merely be contemplated as a
miscellaneous item in a construction bid and must
therefore be considered as extra work, We conclude that
there was nothing in the bid nor in the contract explicitly
discussing the obligations of both parties in the event that
the contractor will encounter underground obstructions in
the project site and may be constrained to remove the
same.
However, there is a provision in the contract that
can be made applicable in the case of underground
obstructions, which the CIAC and the Court of Appeals
have correctly pointed out, to wit:
56.2. Should the Contractor
encounter subsurface or latent physical
conditions differing materially from those
indicated, or unknown physical
conditions at the site of an unusual
nature differing materially from those
ordinarily encountered and generally
recognized as inherent in the work of
character provided for in the Contract,
the Owners Representative shall be
promptly notified of such conditions
before they are disturbed. The Owners
Representative shall thereupon promptly
investigate the conditions at the site and
if he finds that they do so materially differ
and cause an increase or decrease in the
cost, or the time required for performance
of the Contract, an equitable adjustment
will be made and the Contract modified in
accordance with existing laws on the
matter or as agreed upon the provided for
[sic] under the Contract.
The appellate court laid stress the fact that
AFCSC failed to comply with the stipulations of
the abovequoted provision. According to the Court of
Appeals, in failing to formally notify New World regarding
the underground obstructions that it has encountered,
AFCSC failed to set in motion the mechanism for a
modification of the contract and the equitable adjustment
of the contract price. Thus, for such negligence, the
appellate court reduced the original award of the CIAC to
only one-half of the cost of the removal of the
underground obstructions.
We do not agree. As explained by the appellate
court itself, the experts and CIAC have agreed that the
removal of the underground obstructions was not covered
by the scope of work in the contract. It is not disputed
though that the same was a major work entailing
additional expenses and extra working time. Neither was
it denied that such major work was indeed necessary for
the successful completion of the project. Indeed, to deny
AFCSC relief for the expenses it incurred in removing said
obstructions would result in allowing New World to
unjustly enrich itself at the expense of AFCSC. Equity
necessarily dictates that New World be held liable for the
expenses incurred for the extra work conducted for its
sole benefit. Further, it cannot be said that New
World was not made aware of the existence of the
underground obstruction nor of the additional expense
that would be necessary for its removal. As heretofore
stated, AFCSC, on 21 November 1996, sent a proposal
to New World regarding the additional expenses that
would be incurred in the instance that the contractor shall
encounter underground obstructions; however, New
World never responded to said proposal until 9
September 1997, when it informed AFCSC of the
rejection of said proposal or almost ten (10) months after
said proposal was first offered, and after all the necessary
extra work had been accomplished.
Article 22 of the Civil Code which embodies the
maxim, Nemo ex alterius incommode debet lecupletari (
no man ought to be made rich out of anothers injury)
states:
Art. 22. Every person who
through an act of performance by
another, or any other means, acquires or
comes into possession of something at
the expense of the latter without just or
legal ground, shall return the same to
him.[8]
The above-quoted article is part of the chapter of the Civil
Code on Human Relations, the provisions of which were
formulated as basic principles to be observed for the
rightful relationship between human beings and for the
stability of the social order, x x x designed to indicate
certain norms that spring from the fountain of good
conscience, x x x guides human conduct [that] should run
as golden threads through society to the end that law may
approach its supreme ideal which is the sway and
dominance of justice.[9] Hence, to allow New World to
acquire the finished project at a price far below its actual
construction cost would undoubtedly constitute unjust
enrichment for the bank to the prejudice of AFCSC. Such
unjust enrichment, as previously discussed, is not allowed
by law.[10]
AFCSC submitted proof before the CIAC of the
additional cost of manpower and equipment usage for the
removal of the underground obstructions and other
supporting documents, the veracity of which was never
questioned by New World. In fact, New World did not
question the necessity of removing the underground
obstructions nor the facts on the bases of which the claim
for extra work due to underground obstructions were
made. As found by the CIAC and affirmed by the Court of
Appeals, the cost of the removal of the underground
obstructions was P8,025,836.37. Beyond cavil, AFCSC is
entitled to full payment of the expenses incurred for the
removal of the underground obstructions.
As to the question of which between AFCSC and
New World should shoulder the expenses for the pile
tests, We uphold the ruling of the CIAC, affirmed by the
Court of Appeals, that the pile tests conducted should be
for the account of New World in accordance with the
accepted practice in the construction industry. We see no
reason to disregard the determination of the CIAC on this
matter. This being in accordance with the established
principle that determination of certain questions of fact
falling within the peculiar technical expertise of an
administrative agency, must be accorded great respect, if
not finality by this Court. A long line of cases establish the
basis rule that the courts will not interfere in matters which
are addressed to the sound discretion of government
agencies entrusted with the regulation of activities coming
under the special technical knowledge and training of
such agencies.[11] Therefore, AFCSC is entitled to the
payment of the total amount of P336,683.48 consisting
of P157,681.15 for sonic pipe installation; P104,002.33
for build up of pile test cap; and P75,000.00 for crane
rental.
Finally, with respect to the issue of whether or not
AFCSC is liable for liquidated damages for its failure to
complete the construction work by the contract date of 24
February 1997, We agree with the findings of the CIAC
that AFCSC never sent notice to New World regarding a
request for extension of time to finish the work despite the
existence of circumstances fairly entitling it to an
extension of the contract period. Thus, AFCSC, must
bear some consequences for the delay in the completion
of the project and for disregarding the owners right to
determine the length of extension to be given to the
contractor and to consequently adjust the period to finish
the extra work.
WHEREFORE, premises considered, the
Decision of the Court of Appeals dated 31 January 2000,
which modified the Decision dated 8 December 1998 of
the Construction Industry Arbitration Commission, is
hereby MODIFIED in that New World Properties and
Ventures, Inc is hereby ordered to pay Advanced
Foundation Construction Systems Corporation the
following amounts:
1. P8,025,836.37 as cost of
additional work consisting of the
removal of the underground
obstructions;
2. P336,683.48 as costs for
the various test conducted
consisting of P157,681.15 for sonic
pipe installation; P104,002.33 for
build up of pile test cap;
and P75,000.00 for crane rental.
The remainder of the same Decision of the Court
of Appeals are hereby AFFIRMED. No costs.
SO ORDERED.