KINDS OF OBLI - AS TO PLURALITY OF PRESTATION
G.R. No. 206806
June 25, 2014
ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, Petitioners,
vs.
DAN T. LIM, doing business under the name and style of QUALITY PAPERS & PLASTIC PRODUCTS
ENTERPRISES, Respondent.
DECISION
LEONEN, J.:
Novation must be stated in clear and unequivocal terms to extinguish an obligation. It cannot be presumed and may be
implied only if the old and new contracts are incompatible on every point.
Before us is a petition for review on certiorari1 assailing the Court of Appeals’ decision2 in CA-G.R. CV No. 95709, which
stemmed from a complaint3 filed in the Regional Trial Court of Valenzuela City, Branch 171, for collection of sum of money.
The facts are as follows:
Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw materials, under the name Quality
Paper and Plastic Products, Enterprises, to factories engaged in the paper mill business. 4 From February 2007 to March
2007, he delivered scrap papers worth 7,220,968.31 to Arco Pulp and Paper Company, Inc. (Arco Pulp and Paper) through
its Chief Executive Officer and President, Candida A. Santos.5 The parties allegedly agreed that Arco Pulp and Paper would
either pay Dan T. Lim the value of the raw materials or deliver to him their finished products of equivalent value.6
Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a post-dated check dated April 18,
20077 in the amount of 1,487,766.68 as partial payment, with the assurance that the check would not bounce. 8 When he
deposited the check on April 18, 2007, it was dishonored for being drawn against a closed account. 9
On the same day, Arco Pulp and Paper and a certain Eric Sy executed a memorandum of agreement 10 where Arco Pulp and
Paper bound themselves to deliver their finished products to Megapack Container Corporation, owned by Eric Sy, for his
account. According to the memorandum, the raw materials would be supplied by Dan T. Lim, through his company, Quality
Paper and Plastic Products. The memorandum of agreement reads as follows:
Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos and Mr. Eric Sy that
ARCO will deliver 600 tons Test Liner 150/175 GSM, full width 76 inches at the price of ₱18.50 per kg. to Megapack
Container for Mr. Eric Sy’s account. Schedule of deliveries are as follows:
....
It has been agreed further that the Local OCC materials to be used for the production of the above Test Liners will be
supplied by Quality Paper & Plastic Products Ent., total of 600 Metric Tons at ₱6.50 per kg. (price subject to change per
advance notice). Quantity of Local OCC delivery will be based on the quantity of Test Liner delivered to Megapack
Container Corp. based on the above production schedule.11
On May 5, 2007, Dan T.Lim sent a letter12 to Arco Pulp and Paper demanding payment of the amount of 7,220,968.31, but
no payment was made to him.13
Dan T. Lim filed a complaint14 for collection of sum of money with prayer for attachment with the Regional Trial Court,
Branch 171, Valenzuela City, on May 28, 2007. Arco Pulp and Paper filed its answer15 but failed to have its representatives
attend the pre-trial hearing. Hence, the trial court allowed Dan T. Lim to present his evidence ex parte.16
On September 19, 2008, the trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed the complaint,
holding that when Arco Pulp and Paper and Eric Sy entered into the memorandum of agreement, novation took place,
which extinguished Arco Pulp and Paper’s obligation to Dan T. Lim.17
Dan T. Lim appealed18 the judgment with the Court of Appeals. According to him, novation did not take place since the
memorandum of agreement between Arco Pulp and Paper and Eric Sy was an exclusive and private agreement between
them. He argued that if his name was mentioned in the contract, it was only for supplying the parties their required scrap
papers, where his conformity through a separate contract was indispensable.19
On January 11, 2013, the Court of Appeals20 rendered a decision21 reversing and setting aside the judgment dated
September 19, 2008 and ordering Arco Pulp and Paper to jointly and severally pay Dan T. Lim the amount of ₱7,220,968.31
with interest at 12% per annum from the time of demand; ₱50,000.00 moral damages; ₱50,000.00 exemplary damages;
and ₱50,000.00 attorney’s fees.22
The appellate court ruled that the facts and circumstances in this case clearly showed the existence of an alternative
obligation.23 It also ruled that Dan T. Lim was entitled to damages and attorney’s fees due to the bad faith exhibited by
Arco Pulp and Paper in not honoring its undertaking.24
Its motion for reconsideration25 having been denied,26 Arco Pulp and Paper and its President and Chief Executive Officer,
Candida A. Santos, bring this petition for review on certiorari.
On one hand, petitioners argue that the execution of the memorandum of agreement constituted a novation of the
original obligation since Eric Sy became the new debtor of respondent. They also argue that there is no legal basis to hold
petitioner Candida A. Santos personally liable for the transaction that petitioner corporation entered into with respondent.
The Court of Appeals, they allege, also erred in awarding moral and exemplary damages and attorney’s fees to respondent
who did not show proof that he was entitled to damages.27
Respondent, on the other hand, argues that the Court of Appeals was correct in ruling that there was no proper novation in
this case. He argues that the Court of Appeals was correct in ordering the payment of 7,220,968.31 with damages since the
debt of petitioners remains unpaid.28 He also argues that the Court of Appeals was correct in holding petitioners solidarily
liable since petitioner Candida A. Santos was "the prime mover for such outstanding corporate liability." 29 In their reply,
petitioners reiterate that novation took place since there was nothing in the memorandum of agreement showing that the
obligation was alternative. They also argue that when respondent allowed them to deliver the finished products to Eric Sy,
the original obligation was novated.30
A rejoinder was submitted by respondent, but it was noted without action in view of A.M. No. 99-2-04-SC dated November
21, 2000.31
The issues to be resolved by this court are as follows:
1. Whether the obligation between the parties was extinguished by novation
2. Whether Candida A. Santos was solidarily liable with Arco Pulp and Paper Co., Inc.
3. Whether moral damages, exemplary damages, and attorney’s fees can be awarded
The petition is denied.
The obligation between the
parties was an alternative
obligation
The rule on alternative obligations is governed by Article 1199 of the Civil Code, which states:
Article 1199. A person alternatively bound by different prestations shall completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the other undertaking.
"In an alternative obligation, there is more than one object, and the fulfillment of one is sufficient, determined by the
choice of the debtor who generally has the right of election." 32 The right of election is extinguished when the party who
may exercise that option categorically and unequivocally makes his or her choice known.33
The choice of the debtor must also be communicated to the creditor who must receive notice of it since: The object of this
notice is to give the creditor . . . opportunity to express his consent, or to impugn the election made by the debtor, and
only after said notice shall the election take legal effect when consented by the creditor, or if impugned by the latter, when
declared proper by a competent court.34
According to the factual findings of the trial court and the appellate court, the original contract between the parties was
for respondent to deliver scrap papers worth ₱7,220,968.31 to petitioner Arco Pulp and Paper. The payment for this
delivery became petitioner Arco Pulp and Paper’s obligation. By agreement, petitioner Arco Pulp and Paper, as the debtor,
had the option to either (1) pay the price or(2) deliver the finished products of equivalent value to respondent. 35
The appellate court, therefore, correctly identified the obligation between the parties as an alternative obligation, whereby
petitioner Arco Pulp and Paper, after receiving the raw materials from respondent, would either pay him the price of the
raw materials or, in the alternative, deliver to him the finished products of equivalent value.
When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment for the scrap papers, they
exercised their option to pay the price. Respondent’s receipt of the check and his subsequent act of depositing it
constituted his notice of petitioner Arco Pulp and Paper’s option to pay.
This choice was also shown by the terms of the memorandum of agreement, which was executed on the same day. The
memorandum declared in clear terms that the delivery of petitioner Arco Pulp and Paper’s finished products would be to a
third person, thereby extinguishing the option to deliver the finished products of equivalent value to respondent.
The memorandum of
agreement did not constitute
a novation of the original
contract
The trial court erroneously ruled that the execution of the memorandum of agreement constituted a novation of the
contract between the parties. When petitioner Arco Pulp and Paper opted instead to deliver the finished products to a
third person, it did not novate the original obligation between the parties.
The rules on novation are outlined in the Civil Code, thus:
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)
Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it
be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each
other. (1204)
Article 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new
debtor gives him the rights mentioned in Articles 1236 and 1237. (1205a)
Novation extinguishes an obligation between two parties when there is a substitution of objects or debtors or when there
is subrogation of the creditor. It occurs only when the new contract declares so "in unequivocal terms" or that "the old and
the new obligations be on every point incompatible with each other."36
Novation was extensively discussed by this court in Garcia v. Llamas:37
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new
debtor in place of the old one, or by subrogating a third person to the rights of the creditor. Article 1293 of the Civil Code
defines novation as follows:
"Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new
debtor gives him rights mentioned in articles 1236 and 1237."
In general, there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. In
expromision, the initiative for the change does not come from — and may even be made without the knowledge of — the
debtor, since it consists of a third person’s assumption of the obligation. As such, it logically requires the consent of the
third person and the creditor. In delegacion, the debtor offers, and the creditor accepts, a third person who consents to
the substitution and assumes the obligation; thus, the consent of these three persons are necessary. Both modes of
substitution by the debtor require the consent of the creditor.
Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a
new one that takes the place of the former. It is merely modificatory when the old obligation subsists to the extent that it
remains compatible with the amendatory agreement. Whether extinctive or modificatory, novation is made either by
changing the object or the principal conditions, referred to as objective or real novation; or by substituting the person of
the debtor or subrogating a third person to the rights of the creditor, an act known as subjective or personal novation. For
novation to take place, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.
Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that the old
obligation is extinguished. It is implied when the new obligation is incompatible with the old one on every point. The test of
incompatibility is whether the two obligations can stand together, each one with its own independent
existence.38 (Emphasis supplied)
Because novation requires that it be clear and unequivocal, it is never presumed, thus:
In the civil law setting, novatio is literally construed as to make new. So it is deeply rooted in the Roman Law jurisprudence,
the principle — novatio non praesumitur —that novation is never presumed.At bottom, for novation tobe a jural reality, its
animus must be ever present, debitum pro debito — basically extinguishing the old obligation for the new one.39 (Emphasis
supplied) There is nothing in the memorandum of agreement that states that with its execution, the obligation of
petitioner Arco Pulp and Paper to respondent would be extinguished. It also does not state that Eric Sy somehow
substituted petitioner Arco Pulp and Paper as respondent’s debtor. It merely shows that petitioner Arco Pulp and Paper
opted to deliver the finished products to a third person instead.
The consent of the creditor must also be secured for the novation to be valid:
Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties underscore the
absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by the parties to
novate the old agreement.40 (Emphasis supplied)
In this case, respondent was not privy to the memorandum of agreement, thus, his conformity to the contract need not be
secured. This is clear from the first line of the memorandum, which states:
Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos and Mr. Eric
Sy. . . .41
If the memorandum of agreement was intended to novate the original agreement between the parties, respondent must
have first agreed to the substitution of Eric Sy as his new debtor. The memorandum of agreement must also state in clear
and unequivocal terms that it has replaced the original obligation of petitioner Arco Pulp and Paper to respondent. Neither
of these circumstances is present in this case.
Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also conflicts with their alleged intent to
pass on their obligation to Eric Sy. When respondent sent his letter of demand to petitioner Arco Pulp and Paper, and not
to Eric Sy, it showed that the former neither acknowledged nor consented to the latter as his new debtor. These acts, when
taken together, clearly show that novation did not take place. Since there was no novation, petitioner Arco Pulp and
Paper’s obligation to respondent remains valid and existing. Petitioner Arco Pulp and Paper, therefore, must still pay
respondent the full amount of ₱7,220,968.31.
Petitioners are liable for
damages
Under Article 2220 of the Civil Code, moral damages may be awarded in case of breach of contract where the breach is due
to fraud or bad faith:
Art. 2220. Willfull injury to property may be a legal ground for awarding moral damages if the court should find that, under
the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith. (Emphasis supplied)
Moral damages are not awarded as a matter of right but only after the party claiming it proved that the breach was due to
fraud or bad faith. As this court stated:
Moral damages are not recoverable simply because a contract has been breached. They are recoverable only if the party
from whom it is claimed acted fraudulently or in bad faith or in wanton disregard of his contractual obligations. The breach
must be wanton, reckless, malicious or in bad faith, and oppressive or abusive. 42
Further, the following requisites must be proven for the recovery of moral damages:
An award of moral damages would require certain conditions to be met, to wit: (1)first, there must be an injury, whether
physical, mental or psychological, clearly sustained by the claimant; (2) second, there must be culpable act or omission
factually established; (3) third, the wrongful act or omission of the defendant is the proximate cause of the injury sustained
by the claimant; and (4) fourth, the award of damages is predicated on any of the cases stated in Article 2219 of the Civil
Code.43
Here, the injury suffered by respondent is the loss of ₱7,220,968.31 from his business. This has remained unpaid since
2007. This injury undoubtedly was caused by petitioner Arco Pulp and Paper’s act of refusing to pay its obligations.
When the obligation became due and demandable, petitioner Arco Pulp and Paper not only issued an unfunded check but
also entered into a contract with a third person in an effort to evade its liability. This proves the third requirement.
As to the fourth requisite, Article 2219 of the Civil Code provides that moral damages may be awarded in the following
instances:
Article 2219. Moral damages may be recovered in the following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
Breaches of contract done in bad faith, however, are not specified within this enumeration. When a party breaches a
contract, he or she goes against Article 19 of the Civil Code, which states: Article 19. Every person must, in the exercise of
his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.
Persons who have the right to enter into contractual relations must exercise that right with honesty and good faith. Failure
to do so results in an abuse of that right, which may become the basis of an action for damages. Article 19, however,
cannot be its sole basis:
Article 19 is the general rule which governs the conduct of human relations. By itself, it is not the basis of an actionable tort.
Article 19 describes the degree of care required so that an actionable tort may arise when it is alleged together with Article
20 or Article 21.44
Article 20 and 21 of the Civil Code are as follows:
Article 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter
for the same.
Article 21.Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for the damage.
To be actionable, Article 20 requires a violation of law, while Article 21 only concerns with lawful acts that are contrary to
morals, good customs, and public policy:
Article 20 concerns violations of existing law as basis for an injury. It allows recovery should the act have been willful or
negligent. Willful may refer to the intention to do the act and the desire to achieve the outcome which is considered by the
plaintiff in tort action as injurious. Negligence may refer to a situation where the act was consciously done but without
intending the result which the plaintiff considers as injurious.
Article 21, on the other hand, concerns injuries that may be caused by acts which are not necessarily proscribed by law.
This article requires that the act be willful, that is, that there was an intention to do the act and a desire to achieve the
outcome. In cases under Article 21, the legal issues revolve around whether such outcome should be considered a legal
injury on the part of the plaintiff or whether the commission of the act was done in violation of the standards of care
required in Article 19.45
When parties act in bad faith and do not faithfully comply with their obligations under contract, they run the risk of
violating Article 1159 of the Civil Code:
Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith.
Article 2219, therefore, is not an exhaustive list of the instances where moral damages may be recovered since it only
specifies, among others, Article 21. When a party reneges on his or her obligations arising from contracts in bad faith, the
act is not only contrary to morals, good customs, and public policy; it is also a violation of Article 1159. Breaches of contract
become the basis of moral damages, not only under Article 2220, but also under Articles 19 and 20 in relation to Article
1159.
Moral damages, however, are not recoverable on the mere breach of the contract. Article 2220 requires that the breach be
done fraudulently or in bad faith. In Adriano v. Lasala:46
To recover moral damages in an action for breach of contract, the breach must be palpably wanton, reckless and malicious,
in bad faith, oppressive, or abusive. Hence, the person claiming bad faith must prove its existence by clear and convincing
evidence for the law always presumes good faith.
Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of known duty through some motive or interest or ill will that partakes of the nature
of fraud. It is, therefore, a question of intention, which can be inferred from one’s conduct and/or contemporaneous
statements.47 (Emphasis supplied)
Since a finding of bad faith is generally premised on the intent of the doer, it requires an examination of the circumstances
in each case.
When petitioner Arco Pulp and Paper issued a check in partial payment of its obligation to respondent, it was presumably
with the knowledge that it was being drawn against a closed account. Worse, it attempted to shift their obligations to a
third person without the consent of respondent.
Petitioner Arco Pulp and Paper’s actions clearly show "a dishonest purpose or some moral obliquity and conscious doing of
a wrong, a breach of known duty through some motive or interest or ill will that partakes of the nature of fraud." 48 Moral
damages may, therefore, be awarded.
Exemplary damages may also be awarded. Under the Civil Code, exemplary damages are due in the following
circumstances:
Article 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
Article 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they
should be adjudicated.
Article 2234. While the amount of the exemplary damages need not be proven, the plaintiff must show that he is entitled
to moral, temperate or compensatory damages before the court may consider the question of whether or not exemplary
damages should be awarded.
In Tankeh v. Development Bank of the Philippines,49 we stated that:
The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from the commission of a
similar offense. The case of People v. Ranteciting People v. Dalisay held that:
Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or corrective damages are intended to serve as a deterrent to
serious wrong doings, and as a vindication of undue sufferings and wanton invasion of the rights of an injured or a
punishment for those guilty of outrageous conduct. These terms are generally, but not always, used interchangeably. In
common law, there is preference in the use of exemplary damages when the award is to account for injury to feelings and
for the sense of indignity and humiliation suffered by a person as a result of an injury that has been maliciously and
wantonly inflicted, the theory being that there should be compensation for the hurt caused by the highly reprehensible
conduct of the defendant—associated with such circumstances as willfulness, wantonness, malice, gross negligence or
recklessness, oppression, insult or fraud or gross fraud—that intensifies the injury. The terms punitive or vindictive
damages are often used to refer to those species of damages that may be awarded against a person to punish him for his
outrageous conduct. In either case, these damages are intended in good measure to deter the wrongdoer and others like
him from similar conduct in the future.50 (Emphasis supplied; citations omitted)
The requisites for the award of exemplary damages are as follows:
(1) they may be imposed by way of example in addition to compensatory damages, and only after the claimant's right to
them has been established;
(2) that they cannot be recovered as a matter of right, their determination depending upon the amount of compensatory
damages that may be awarded to the claimant; and
(3) the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent manner. 51
Business owners must always be forthright in their dealings. They cannot be allowed to renege on their obligations,
considering that these obligations were freely entered into by them. Exemplary damages may also be awarded in this case
to serve as a deterrent to those who use fraudulent means to evade their liabilities.
Since the award of exemplary damages is proper, attorney’s fees and cost of the suit may also be recovered.
Article 2208 of the Civil Code states:
Article 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be
recovered, except:
(1) When exemplary damages are awarded[.]
Petitioner Candida A. Santos
is solidarily liable with
petitioner corporation
Petitioners argue that the finding of solidary liability was erroneous since no evidence was adduced to prove that the
transaction was also a personal undertaking of petitioner Santos. We disagree.
In Heirs of Fe Tan Uy v. International Exchange Bank,52 we stated that:
Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate
and distinct from those acting for and in its behalf and, in general, from the people comprising it. Following this principle,
obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. A
director, officer or employee of a corporation is generally not held personally liable for obligations incurred by the
corporation. Nevertheless, this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal act,
or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.
....
Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the following
requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently
unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the complainant
must clearly and convincingly prove such unlawful acts, negligence or bad faith.
While it is true that the determination of the existence of any of the circumstances that would warrant the piercing of the
veil of corporate fiction is a question of fact which cannot be the subject of a petition for review on certiorari under Rule 45,
this Court can take cognizance of factual issues if the findings of the lower court are not supported by the evidence on
record or are based on a misapprehension of facts.53 (Emphasis supplied)
As a general rule, directors, officers, or employees of a corporation cannot be held personally liable for obligations incurred
by the corporation. However, this veil of corporate fiction may be pierced if complainant is able to prove, as in this case,
that (1) the officer is guilty of negligence or bad faith, and (2) such negligence or bad faith was clearly and convincingly
proven.
Here, petitioner Santos entered into a contract with respondent in her capacity as the President and Chief Executive Officer
of Arco Pulp and Paper. She also issued the check in partial payment of petitioner corporation’s obligations to respondent
on behalf of petitioner Arco Pulp and Paper. This is clear on the face of the check bearing the account name, "Arco Pulp &
Paper, Co., Inc."54 Any obligation arising from these acts would not, ordinarily, be petitioner Santos’ personal undertaking
for which she would be solidarily liable with petitioner Arco Pulp and Paper.
We find, however, that the corporate veil must be pierced. In Livesey v. Binswanger Philippines: 55
Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the separate corporate
personality of a corporation is abused or used for wrongful purposes. Under the doctrine, the corporate existence may be
disregarded where the entity is formed or used for non-legitimate purposes, such as to evade a just and due obligation, or
to justify a wrong, to shield or perpetrate fraud or to carry out similar or inequitable considerations, other unjustifiable
aims or intentions, in which case, the fiction will be disregarded and the individuals composing it and the two corporations
will be treated as identical.56 (Emphasis supplied)
According to the Court of Appeals, petitioner Santos was solidarily liable with petitioner Arco Pulp and Paper, stating that:
In the present case, We find bad faith on the part of the [petitioners] when they unjustifiably refused to honor their
undertaking in favor of the [respondent]. After the check in the amount of 1,487,766.68 issued by [petitioner] Santos was
dishonored for being drawn against a closed account, [petitioner] corporation denied any privity with [respondent]. These
acts prompted the [respondent] to avail of the remedies provided by law in order to protect his rights. 57
We agree with the Court of Appeals. Petitioner Santos cannot be allowed to hide behind the corporate veil.1âwphi1 When
petitioner Arco Pulp and Paper’s obligation to respondent became due and demandable, she not only issued an unfunded
check but also contracted with a third party in an effort to shift petitioner Arco Pulp and Paper’s liability. She unjustifiably
refused to honor petitioner corporation’s obligations to respondent. These acts clearly amount to bad faith. In this instance,
the corporate veil may be pierced, and petitioner Santos may be held solidarily liable with petitioner Arco Pulp and Paper.
The rate of interest due on
the obligation must be
reduced in view of Nacar v.
Gallery Frames58
In view, however, of the promulgation by this court of the decision dated August 13, 2013 in Nacar v. Gallery Frames, 59 the
rate of interest due on the obligation must be modified from 12% per annum to 6% per annum from the time of demand.
Nacar effectively amended the guidelines stated in Eastern Shipping v. Court of Appeals, 60 and we have laid down the
following guidelines with regard to the rate of legal interest:
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Linesare accordingly
modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall
be adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed
and shall continue to be implemented applying the rate of interest fixed therein.61 (Emphasis supplied; citations omitted.)
According to these guidelines, the interest due on the obligation of ₱7,220,968.31 should now be at 6% per annum,
computed from May 5, 2007, when respondent sent his letter of demand to petitioners. This interest shall continue to be
due from the finality of this decision until its full satisfaction.
WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV No. 95709 is AFFIRMED.
Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are hereby ordered solidarily to pay respondent Dan T. Lim
the amount of ₱7,220,968.31 with interest of 6% per annum at the time of demand until finality of judgment and its full
satisfaction, with moral damages in the amount of ₱50,000.00, exemplary damages in the amount of ₱50,000.00, and
attorney's fees in the amount of ₱50,000.00.
SO ORDERED.
KINDS OF OBLI - AS TO RIGHTS & OBLI OF MULTIPLE PARTIES
G.R. No. L-55138 September 28, 1984
ERNESTO V. RONQUILLO, petitioner,
vs.
HONORABLE COURT OF APPEALS AND ANTONIO P. SO, respondents.
Gloria A. Fortun for petitioner.
Roselino Reyes Isler for respondents.
CUEVAS, J.:
This is a petition to review the Resolution dated June 30, 1980 of the then Court of Appeals (now the Intermediate
Appellate Court) in CA-G.R. No. SP-10573, entitled "Ernesto V. Ronquillo versus the Hon. Florellana Castro-Bartolome,
etc." and the Order of said court dated August 20, 1980, denying petitioner's motion for reconsideration of the above
resolution.
Petitioner Ernesto V. Ronquillo was one of four (4) defendants in Civil Case No. 33958 of the then Court of First Instance of
Rizal (now the Regional Trial Court), Branch XV filed by private respondent Antonio P. So, on July 23, 1979, for the
collection of the sum of P17,498.98 plus attorney's fees and costs. The other defendants were Offshore Catertrade Inc.,
Johnny Tan and Pilar Tan. The amount of P117,498.98 sought to be collected represents the value of the checks issued by
said defendants in payment for foodstuffs delivered to and received by them. The said checks were dishonored by the
drawee bank.
On December 13, 1979, the lower court rendered its Decision 1 based on the compromise agreement submitted by the
parties, the pertinent portion of which reads as follows:
1. Plaintiff agrees to reduce its total claim of P117,498-95 to only P11,000 .00 and defendants agree to acknowledge the
validity of such claim and further bind themselves to initially pay out of the total indebtedness of P10,000.00 the amount of
P55,000.00 on or before December 24, 1979, the balance of P55,000.00, defendants individually and jointly agree to pay
within a period of six months from January 1980, or before June 30, 1980; (Emphasis supplied)
xxx xxx xxx
4. That both parties agree that failure on the part of either party to comply with the foregoing terms and conditions, the
innocent party will be entitled to an execution of the decision based on this compromise agreement and the defaulting
party agrees and hold themselves to reimburse the innocent party for attorney's fees, execution fees and other fees
related with the execution.
xxx xxx xxx
On December 26, 1979, herein private respondent (then plaintiff filed a Motion for Execution on the ground that
defendants failed to make the initial payment of P55,000.00 on or before December 24, 1979 as provided in the Decision.
Said motion for execution was opposed by herein petitioner (as one of the defendants) contending that his inability to
make the payment was due to private respondent's own act of making himself scarce and inaccessible on December 24,
1979. Petitioner then prayed that private respondent be ordered to accept his payment in the amount of P13,750.00. 2
During the hearing of the Motion for Execution and the Opposition thereto on January 16, 1980, petitioner, as one of the
four defendants, tendered the amount of P13,750.00, as his prorata share in the P55,000.00 initial payment. Another
defendant, Pilar P. Tan, offered to pay the same amount. Because private respondent refused to accept their payments,
demanding from them the full initial installment of P 55,000.00, petitioner and Pilar Tan instead deposited the said amount
with the Clerk of Court. The amount deposited was subsequently withdrawn by private respondent. 3
On the same day, January 16, 1980, the lower court ordered the issuance of a writ of execution for the balance of the initial
amount payable, against the other two defendants, Offshore Catertrade Inc. and Johnny Tan 4 who did not pay their
shares.
On January 22, 1980, private respondent moved for the reconsideration and/or modification of the aforesaid Order of
execution and prayed instead for the "execution of the decision in its entirety against all defendants, jointly and
severally." 5 Petitioner opposed the said motion arguing that under the decision of the lower court being executed which
has already become final, the liability of the four (4) defendants was not expressly declared to be solidary, consequently
each defendant is obliged to pay only his own pro-rata or 1/4 of the amount due and payable.
On March 17, 1980, the lower court issued an Order reading as follows:
ORDER
Regardless of whatever the compromise agreement has intended the payment whether jointly or individually, or jointly
and severally, the fact is that only P27,500.00 has been paid. There appears to be a non-payment in accordance with the
compromise agreement of the amount of P27,500.00 on or before December 24, 1979. The parties are reminded that the
payment is condition sine qua non to the lifting of the preliminary attachment and the execution of an affidavit of
desistance.
WHEREFORE, let writ of execution issue as prayed for
On March 17, 1980, petitioner moved for the reconsideration of the above order, and the same was set for hearing on
March 25,1980.
Meanwhile, or more specifically on March 19, 1980, a writ of execution was issued for the satisfaction of the sum of
P82,500.00 as against the properties of the defendants (including petitioner), "singly or jointly hable." 6
On March 20, 1980, Special Sheriff Eulogio C. Juanson of Rizal, issued a notice of sheriff's sale, for the sale of certain
furnitures and appliances found in petitioner's residence to satisfy the sum of P82,500.00. The public sale was scheduled
for April 2, 1980 at 10:00 a.m. 7
Petitioner's motion for reconsideration of the Order of Execution dated March 17, 1980 which was set for hearing on
March 25, 1980, was upon motion of private respondent reset to April 2, 1980 at 8:30 a.m. Realizing the actual threat to
property rights poised by the re-setting of the hearing of s motion for reconsideration for April 2, 1980 at 8:30 a.m. such
that if his motion for reconsideration would be denied he would have no more time to obtain a writ from the appellate
court to stop the scheduled public sale of his personal properties at 10:00 a.m. of the same day, April 2, 1980, petitioner
filed on March 26, 1980 a petition for certiorari and prohibition with the then Court of Appeals (CA-G.R. No. SP-10573),
praying at the same time for the issuance of a restraining order to stop the public sale. He raised the question of the
validity of the order of execution, the writ of execution and the notice of public sale of his properties to satisfy fully the
entire unpaid obligation payable by all of the four (4) defendants, when the lower court's decision based on the
compromise agreement did not specifically state the liability of the four (4) defendants to be solidary.
On April 2, 1980, the lower court denied petitioner's motion for reconsideration but the scheduled public sale in that same
day did not proceed in view of the pendency of a certiorari proceeding before the then Court of Appeals.
On June 30, 1980, the said court issued a Resolution, the pertinent portion of which reads as follows:
This Court, however, finds the present petition to have been filed prematurely. The rule is that before a petition for
certiorari can be brought against an order of a lower court, all remedies available in that court must first be exhausted. In
the case at bar, herein petitioner filed a petition without waiting for a resolution of the Court on the motion for
reconsideration, which could have been favorable to the petitioner. The fact that the hearing of the motion for
reconsideration had been reset on the same day the public sale was to take place is of no moment since the motion for
reconsideration of the Order of March 17, 1980 having been seasonably filed, the scheduled public sale should be
suspended. Moreover, when the defendants, including herein petitioner, defaulted in their obligation based on the
compromise agreement, private respondent had become entitled to move for an execution of the decision based on the
said agreement.
WHEREFORE, the instant petition for certiorari and prohibition with preliminary injunction is hereby denied due course.
The restraining order issued in our resolution dated April 9, 1980 is hereby lifted without pronouncement as to costs.
SO ORDERED.
Petitioner moved to reconsider the aforesaid Resolution alleging that on April 2, 1980, the lower court had already denied
the motion referred to and consequently, the legal issues being raised in the petition were already "ripe" for
determination. 8 The said motion was however denied by the Court of Appeals in its Resolution dated August 20, 1980.
Hence, this petition for review, petitioner contending that the Court of Appeals erred in
(a) declaring as premature, and in denying due course to the petition to restrain implementation of a writ of execution
issued at variance with the final decision of the lower court filed barely four (4) days before the scheduled public sale of
the attached movable properties;
(b) denying reconsideration of the Resolution of June 30, 1980, which declared as premature the filing of the petition,
although there is proof on record that as of April 2, 1980, the motion referred to was already denied by the lower court
and there was no more motion pending therein;
(c) failing to resolve the legal issues raised in the petition and in not declaring the liabilities of the defendants, under the
final decision of the lower court, to be only joint;
(d) not holding the lower court's order of execution dated March 17, 1980, the writ of execution and the notice of sheriff's
sale, executing the lower court's decision against "all defendants, singly and jointly", to be at variance with the lower
court's final decision which did not provide for solidary obligation; and
(e) not declaring as invalid and unlawful the threatened execution, as against the properties of petitioner who had paid his
pro-rata share of the adjudged obligation, of the total unpaid amount payable by his joint co-defendants.
The foregoing assigned errors maybe synthesized into the more important issues of —
1. Was the filing of a petition for certiorari before the then Court of Appeals against the Order of Execution issued by the
lower court, dated March 17, 1980, proper, despite the pendency of a motion for reconsideration of the same questioned
Order?
2. What is the nature of the liability of the defendants (including petitioner), was it merely joint, or was it several or
solidary?
Anent the first issue raised, suffice it to state that while as a general rule, a motion for reconsideration should precede
recourse to certiorari in order to give the trial court an opportunity to correct the error that it may have committed, the
said rule is not absolutes 9 and may be dispensed with in instances where the filing of a motion for reconsideration would
serve no useful purpose, such as when the motion for reconsideration would raise the same point stated in the
motion 10 or where the error is patent for the order is void 11 or where the relief is extremely urgent, as in cases where
execution had already been ordered 12 where the issue raised is one purely of law. 13
In the case at bar, the records show that not only was a writ of execution issued but petitioner's properties were already
scheduled to be sold at public auction on April 2, 1980 at 10:00 a.m. The records likewise show that petitioner's motion for
reconsideration of the questioned Order of Execution was filed on March 17, 1980 and was set for hearing on March 25,
1980 at 8:30 a.m., but upon motion of private respondent, the hearing was reset to April 2, 1980 at 8:30 a.m., the very
same clay when petitioner's properties were to be sold at public auction. Needless to state that under the circumstances,
petitioner was faced with imminent danger of his properties being immediately sold the moment his motion for
reconsideration is denied. Plainly, urgency prompted recourse to the Court of Appeals and the adequate and speedy
remedy for petitioner under the situation was to file a petition for certiorari with prayer for restraining order to stop the
sale. For him to wait until after the hearing of the motion for reconsideration on April 2, 1980 before taking recourse to the
appellate court may already be too late since without a restraining order, the public sale can proceed at 10:00 that
morning. In fact, the said motion was already denied by the lower court in its order dated April 2, 1980 and were it not for
the pendency of the petition with the Court of Appeals and the restraining order issued thereafter, the public sale
scheduled that very same morning could have proceeded.
The other issue raised refers to the nature of the liability of petitioner, as one of the defendants in Civil Case No. 33958,
that is whether or not he is liable jointly or solidarily.
In this regard, Article 1207 and 1208 of the Civil Code provides —
Art. 1207. The concurrence of two or more debtors in one and the same obligation does not imply that each one of the
former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation.
Then is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation
requires solidarity.
Art. 1208. If from the law,or the nature or the wording of the obligation to which the preceding article refers the contrary
does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors and
debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the
multiplicity of quits.
The decision of the lower court based on the parties' compromise agreement, provides:
1. Plaintiff agrees to reduce its total claim of P117,498.95 to only P110,000.00 and defendants agree to acknowledge the
validity of such claim and further bind themselves to initially pay out of the total indebtedness of P110,000.00, the amount
of P5,000.00 on or before December 24, 1979, the balance of P55,000.00, defendants individually and jointly agree to pay
within a period of six months from January 1980 or before June 30, 1980. (Emphasis supply)
Clearly then, by the express term of the compromise agreement and the decision based upon it, the defendants obligated
themselves to pay their obligation "individually and jointly".
The term "individually" has the same meaning as "collectively", "separately", "distinctively", respectively or "severally". An
agreement to be "individually liable" undoubtedly creates a several obligation, 14 and a "several obligation is one by which
one individual binds himself to perform the whole obligation. 15
In the case of Parot vs. Gemora 16 We therein ruled that "the phrase juntos or separadamente or in the promissory note is
an express statement making each of the persons who signed it individually liable for the payment of the fun amount of
the obligation contained therein." Likewise in Un Pak Leung vs. Negorra 17 We held that "in the absence of a finding of
facts that the defendants made themselves individually hable for the debt incurred they are each liable only for one-half of
said amount
The obligation in the case at bar being described as "individually and jointly", the same is therefore enforceable against one
of the numerous obligors.
KINDS OF OBLI - AS TO RIGHTS & OBLI OF MULTIPLE PARTIES
G.R. No. L-36413 September 26, 1988
MALAYAN INSURANCE CO., INC., petitioner,
vs.
THE HON. COURT OF APPEALS (THIRD DIVISION) MARTIN C. VALLEJOS, SIO CHOY, SAN LEON RICE MILL, INC. and
PANGASINAN TRANSPORTATION CO., INC., respondents.
Freqillana Jr. for petitioner.
B.F. Estrella & Associates for respondent Martin Vallejos.
Vicente Erfe Law Office for respondent Pangasinan Transportation Co., Inc.
Nemesio Callanta for respondent Sio Choy and San Leon Rice Mill, Inc.
PADILLA, J.:
Review on certiorari of the judgment * of the respondent appellate court in CA-G.R. No. 47319-R, dated 22 February 1973,
which affirmed, with some modifications, the decision, ** dated 27 April 1970, rendered in Civil Case No. U-2021 of the
Court of First Instance of Pangasinan.
The antecedent facts of the case are as follows:
On 29 March 1967, herein petitioner, Malayan Insurance Co., Inc., issued in favor of private respondent Sio Choy Private
Car Comprehensive Policy No. MRO/PV-15753, effective from 18 April 1967 to 18 April 1968, covering a Willys jeep with
Motor No. ET-03023 Serial No. 351672, and Plate No. J-21536, Quezon City, 1967. The insurance coverage was for "own
damage" not to exceed P600.00 and "third-party liability" in the amount of P20,000.00.
During the effectivity of said insurance policy, and more particularly on 19 December 1967, at about 3:30 o'clock in the
afternoon, the insured jeep, while being driven by one Juan P. Campollo an employee of the respondent San Leon Rice Mill,
Inc., collided with a passenger bus belonging to the respondent Pangasinan Transportation Co., Inc. (PANTRANCO, for short)
at the national highway in Barrio San Pedro, Rosales, Pangasinan, causing damage to the insured vehicle and injuries to the
driver, Juan P. Campollo, and the respondent Martin C. Vallejos, who was riding in the ill-fated jeep.
As a result, Martin C. Vallejos filed an action for damages against Sio Choy, Malayan Insurance Co., Inc. and the
PANTRANCO before the Court of First Instance of Pangasinan, which was docketed as Civil Case No. U-2021. He prayed
therein that the defendants be ordered to pay him, jointly and severally, the amount of P15,000.00, as reimbursement for
medical and hospital expenses; P6,000.00, for lost income; P51,000.00 as actual, moral and compensatory damages; and
P5,000.00, for attorney's fees.
Answering, PANTRANCO claimed that the jeep of Sio Choy was then operated at an excessive speed and bumped the
PANTRANCO bus which had moved to, and stopped at, the shoulder of the highway in order to avoid the jeep; and that it
had observed the diligence of a good father of a family to prevent damage, especially in the selection and supervision of its
employees and in the maintenance of its motor vehicles. It prayed that it be absolved from any and all liability.
Defendant Sio Choy and the petitioner insurance company, in their answer, also denied liability to the plaintiff, claiming
that the fault in the accident was solely imputable to the PANTRANCO.
Sio Choy, however, later filed a separate answer with a cross-claim against the herein petitioner wherein he alleged that he
had actually paid the plaintiff, Martin C. Vallejos, the amount of P5,000.00 for hospitalization and other expenses, and, in
his cross-claim against the herein petitioner, he alleged that the petitioner had issued in his favor a private car
comprehensive policy wherein the insurance company obligated itself to indemnify Sio Choy, as insured, for the damage to
his motor vehicle, as well as for any liability to third persons arising out of any accident during the effectivity of such
insurance contract, which policy was in full force and effect when the vehicular accident complained of occurred. He
prayed that he be reimbursed by the insurance company for the amount that he may be ordered to pay.
Also later, the herein petitioner sought, and was granted, leave to file a third-party complaint against the San Leon Rice
Mill, Inc. for the reason that the person driving the jeep of Sio Choy, at the time of the accident, was an employee of the
San Leon Rice Mill, Inc. performing his duties within the scope of his assigned task, and not an employee of Sio Choy; and
that, as the San Leon Rice Mill, Inc. is the employer of the deceased driver, Juan P. Campollo, it should be liable for the acts
of its employee, pursuant to Art. 2180 of the Civil Code. The herein petitioner prayed that judgment be rendered against
the San Leon Rice Mill, Inc., making it liable for the amounts claimed by the plaintiff and/or ordering said San Leon Rice Mill,
Inc. to reimburse and indemnify the petitioner for any sum that it may be ordered to pay the plaintiff.
After trial, judgment was rendered as follows:
WHEREFORE, in view of the foregoing findings of this Court judgment is hereby rendered in favor of the plaintiff and
against Sio Choy and Malayan Insurance Co., Inc., and third-party defendant San Leon Rice Mill, Inc., as follows:
(a) P4,103 as actual damages;
(b) P18,000.00 representing the unearned income of plaintiff Martin C. Vallejos for the period of three (3) years;
(c) P5,000.00 as moral damages;
(d) P2,000.00 as attomey's fees or the total of P29,103.00, plus costs.
The above-named parties against whom this judgment is rendered are hereby held jointly and severally liable. With respect,
however, to Malayan Insurance Co., Inc., its liability will be up to only P20,000.00.
As no satisfactory proof of cost of damage to its bus was presented by defendant Pantranco, no award should be made in
its favor. Its counter-claim for attorney's fees is also dismissed for not being proved. 1
On appeal, the respondent Court of Appeals affirmed the judgment of the trial court that Sio Choy, the San Leon Rice Mill,
Inc. and the Malayan Insurance Co., Inc. are jointly and severally liable for the damages awarded to the plaintiff Martin C.
Vallejos. It ruled, however, that the San Leon Rice Mill, Inc. has no obligation to indemnify or reimburse the petitioner
insurance company for whatever amount it has been ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a
privy to the contract of insurance between Sio Choy and the insurance company. 2
Hence, the present recourse by petitioner insurance company.
The petitioner prays for the reversal of the appellate court's judgment, or, in the alternative, to order the San Leon Rice
Mill, Inc. to reimburse petitioner any amount, in excess of one-half (1/2) of the entire amount of damages, petitioner may
be ordered to pay jointly and severally with Sio Choy.
The Court, acting upon the petition, gave due course to the same, but "only insofar as it concerns the alleged liability of
respondent San Leon Rice Mill, Inc. to petitioner, it being understood that no other aspect of the decision of the Court of
Appeals shall be reviewed, hence, execution may already issue in favor of respondent Martin C. Vallejos against the
respondents, without prejudice to the determination of whether or not petitioner shall be entitled to reimbursement by
respondent San Leon Rice Mill, Inc. for the whole or part of whatever the former may pay on the P20,000.00 it has been
adjudged to pay respondent Vallejos." 3
However, in order to determine the alleged liability of respondent San Leon Rice Mill, Inc. to petitioner, it is important to
determine first the nature or basis of the liability of petitioner to respondent Vallejos, as compared to that of respondents
Sio Choy and San Leon Rice Mill, Inc.
Therefore, the two (2) principal issues to be resolved are (1) whether the trial court, as upheld by the Court of Appeals, was
correct in holding petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. "solidarily liable" to respondent Vallejos;
and (2) whether petitioner is entitled to be reimbursed by respondent San Leon Rice Mill, Inc. for whatever amount
petitioner has been adjudged to pay respondent Vallejos on its insurance policy.
As to the first issue, it is noted that the trial court found, as affirmed by the appellate court, that petitioner and
respondents Sio Choy and San Leon Rice Mill, Inc. are jointly and severally liable to respondent Vallejos.
We do not agree with the aforesaid ruling. We hold instead that it is only respondents Sio Choy and San Leon Rice Mill, Inc,
(to the exclusion of the petitioner) that are solidarily liable to respondent Vallejos for the damages awarded to Vallejos.
It must be observed that respondent Sio Choy is made liable to said plaintiff as owner of the ill-fated Willys jeep, pursuant
to Article 2184 of the Civil Code which provides:
Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, who was in the vehicle,
could have, by the use of due diligence, prevented the misfortune it is disputably presumed that a driver was negligent, if
he had been found guilty of reckless driving or violating traffic regulations at least twice within the next preceding two
months.
If the owner was not in the motor vehicle, the provisions of article 2180 are applicable.
On the other hand, it is noted that the basis of liability of respondent San Leon Rice Mill, Inc. to plaintiff Vallejos, the
former being the employer of the driver of the Willys jeep at the time of the motor vehicle mishap, is Article 2180 of the
Civil Code which reads:
Art. 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but also for
those of persons for whom one is responsible.
xxx xxx xxx
Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged ill any business or industry.
xxx xxx xxx
The responsibility treated in this article shall cease when the persons herein mentioned proved that they observed all the
diligence of a good father of a family to prevent damage.
It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the principal tortfeasors who are primarily liable
to respondent Vallejos. The law states that the responsibility of two or more persons who are liable for a quasi-delict is
solidarily.4
On the other hand, the basis of petitioner's liability is its insurance contract with respondent Sio Choy. If petitioner is
adjudged to pay respondent Vallejos in the amount of not more than P20,000.00, this is on account of its being the insurer
of respondent Sio Choy under the third party liability clause included in the private car comprehensive policy existing
between petitioner and respondent Sio Choy at the time of the complained vehicular accident.
In Guingon vs. Del Monte, 5 a passenger of a jeepney had just alighted therefrom, when he was bumped by another
passenger jeepney. He died as a result thereof. In the damage suit filed by the heirs of said passenger against the driver
and owner of the jeepney at fault as well as against the insurance company which insured the latter jeepney against third
party liability, the trial court, affirmed by this Court, adjudged the owner and the driver of the jeepney at fault jointly and
severally liable to the heirs of the victim in the total amount of P9,572.95 as damages and attorney's fees; while the
insurance company was sentenced to pay the heirs the amount of P5,500.00 which was to be applied as partial satisfaction
of the judgment rendered against said owner and driver of the jeepney. Thus, in said Guingon case, it was only the owner
and the driver of the jeepney at fault, not including the insurance company, who were held solidarily liable to the heirs of
the victim.
While it is true that where the insurance contract provides for indemnity against liability to third persons, such third
persons can directly sue the insurer, 6 however, the direct liability of the insurer under indemnity contracts against third
party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at
fault. The liability of the insurer is based on contract; that of the insured is based on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot, as incorrectly held by the
trial court, be made "solidarily" liable with the two principal tortfeasors namely respondents Sio Choy and San Leon Rice
Mill, Inc. For if petitioner-insurer were solidarily liable with said two (2) respondents by reason of the indemnity contract
against third party liability-under which an insurer can be directly sued by a third party — this will result in a violation of
the principles underlying solidary obligation and insurance contracts.
In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors. 7 On the other
hand, insurance is defined as "a contract whereby one undertakes for a consideration to indemnify another against loss,
damage, or liability arising from an unknown or contingent event." 8
In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon Rice Mills Inc. solidarily
liable to respondent Vallejos for a total amount of P29,103.00, with the qualification that petitioner's liability is only up to
P20,000.00. In the context of a solidary obligation, petitioner may be compelled by respondent Vallejos to pay
the entire obligation of P29,013.00, notwithstanding the qualification made by the trial court. But, how can petitioner be
obliged to pay the entire obligation when the amount stated in its insurance policy with respondent Sio Choy for indemnity
against third party liability is only P20,000.00? Moreover, the qualification made in the decision of the trial court to the
effect that petitioner is sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is made solidary, is
an evident breach of the concept of a solidary obligation. Thus, We hold that the trial court, as upheld by the Court of
Appeals, erred in holding petitioner, solidarily liable with respondents Sio Choy and San Leon Rice Mill, Inc. to respondent
Vallejos.
As to the second issue, the Court of Appeals, in affirming the decision of the trial court, ruled that petitioner is not entitled
to be reimbursed by respondent San Leon Rice Mill, Inc. on the ground that said respondent is not privy to the contract of
insurance existing between petitioner and respondent Sio Choy. We disagree.
The appellate court overlooked the principle of subrogation in insurance contracts. Thus —
... Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs. Moses, 287 U.S. 530, 77 L. ed. 477). Upon
payment of the loss, the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have
against the third person whose negligence or wrongful act caused the loss (44 Am. Jur. 2nd 745, citing Standard Marine Ins.
Co. vs. Scottish Metropolitan Assurance Co., 283 U.S. 284, 75 L. ed. 1037).
The right of subrogation is of the highest equity. The loss in the first instance is that of the insured but after reimbursement
or compensation, it becomes the loss of the insurer (44 Am. Jur. 2d, 746, note 16, citing Newcomb vs. Cincinnati Ins. Co., 22
Ohio St. 382).
Although many policies including policies in the standard form, now provide for subrogation, and thus determine the rights
of the insurer in this respect, the equitable right of subrogation as the legal effect of payment inures to the insurer without
any formal assignment or any express stipulation to that effect in the policy" (44 Am. Jur. 2nd 746). Stated otherwise, when
the insurance company pays for the loss, such payment operates as an equitable assignment to the insurer of the property
and all remedies which the insured may have for the recovery thereof. That right is not dependent upon , nor does it grow
out of any privity of contract (emphasis supplied) or upon written assignment of claim, and payment to the insured makes
the insurer assignee in equity (Shambley v. Jobe-Blackley Plumbing and Heating Co., 264 N.C. 456, 142 SE 2d 18). 9
It follows, therefore, that petitioner, upon paying respondent Vallejos the amount of riot exceeding P20,000.00, shall
become the subrogee of the insured, the respondent Sio Choy; as such, it is subrogated to whatever rights the latter has
against respondent San Leon Rice Mill, Inc. Article 1217 of the Civil Code gives to a solidary debtor who has paid the entire
obligation the right to be reimbursed by his co-debtors for the share which corresponds to each.
Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer
to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for
the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be
demanded.
xxx xxx xxx
In accordance with Article 1217, petitioner, upon payment to respondent Vallejos and thereby becoming the subrogee of
solidary debtor Sio Choy, is entitled to reimbursement from respondent San Leon Rice Mill, Inc.
To recapitulate then: We hold that only respondents Sio Choy and San Leon Rice Mill, Inc. are solidarily liable to the
respondent Martin C. Vallejos for the amount of P29,103.00. Vallejos may enforce the entire obligation on only one of said
solidary debtors. If Sio Choy as solidary debtor is made to pay for the entire obligation (P29,103.00) and petitioner, as
insurer of Sio Choy, is compelled to pay P20,000.00 of said entire obligation, petitioner would be entitled, as subrogee of
Sio Choy as against San Leon Rice Mills, Inc., to be reimbursed by the latter in the amount of P14,551.50 (which is 1/2 of
P29,103.00 )
WHEREFORE, the petition is GRANTED. The decision of the trial court, as affirmed by the Court of Appeals, is hereby
AFFIRMED, with the modification above-mentioned. Without pronouncement as to costs.
SO ORDERED.
KINDS OF OBLI - AS TO RIGHTS & OBLI OF MULTIPLE PARTIES
G.R. No. L-28046 May 16, 1983
PHILIPPINE NATIONAL BANK, plaintiff-appellant,
vs.
INDEPENDENT PLANTERS ASSOCIATION, INC., ANTONIO DIMAYUGA, DELFIN FAJARDO, CEFERINO VALENCIA, MOISES
CARANDANG, LUCIANO CASTILLO, AURELIO VALENCIA, LAURO LEVISTE, GAVINO GONZALES, LOPE GEVANA and
BONIFACIO LAUREANA, defendants-appellees.
Basa, Ilao, del Rosario Diaz for plaintiff-appellant.
Laurel Law Office for Dimayuga.
Tomas Yumol for Fajardo, defendant-appellee.
PLANA, J.:
Appeal by the Philippine National Bank (PNB) from the Order of the defunct Court of First Instance of Manila (Branch XX) in
its Civil Case No. 46741 dismissing PNB's complaint against several solidary debtors for the collection of a sum of money on
the ground that one of the defendants (Ceferino Valencia) died during the pendency of the case (i.e., after the plaintiff had
presented its evidence) and therefore the complaint, being a money claim based on contract, should be prosecuted in the
testate or intestate proceeding for the settlement of the estate of the deceased defendant pursuant to Section 6 of Rule 86
of the Rules of Court which reads:
SEC. 6. Solidary obligation of decedent.— the obligation of the decedent is solidary with another debtor, the claim shall be
filed against the decedent as if he were the only debtor, without prejudice to the right of the estate to recover contribution
from the other debtor. In a joint obligation of the decedent, the claim shall be confined to the portion belonging to him.
The appellant assails the order of dismissal, invoking its right of recourse against one, some or all of its solidary debtors
under Article 1216 of the Civil Code —
ART. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The
demand made against one of them shall not be an obstacle to those which may subsequently be directed against the
others, so long as the debt has not been fully collected.
The sole issue thus raised is whether in an action for collection of a sum of money based on contract against all the solidary
debtors, the death of one defendant deprives the court of jurisdiction to proceed with the case against the surviving
defendants.
It is now settled that the quoted Article 1216 grants the creditor the substantive right to seek satisfaction of his credit from
one, some or all of his solidary debtors, as he deems fit or convenient for the protection of his interests; and if, after
instituting a collection suit based on contract against some or all of them and, during its pendency, one of the defendants
dies, the court retains jurisdiction to continue the proceedings and decide the case in respect of the surviving defendants.
Thus in Manila Surety & Fidelity Co., Inc. vs. Villarama et al., 107 Phil. 891 at 897, this Court ruled:
Construing Section 698 of the Code of Civil Procedure from whence the aforequoted provision (Sec. 6, Rule 86) was taken,
this Court held that where two persons are bound in solidum for the same debt and one of them dies, the whole
indebtedness can be proved against the estate of the latter, the decedent's liability being absolute and primary; and if the
claim is not presented within the time provided by the rules, the same will be barred as against the estate. It is evident
from the foregoing that Section 6 of Rule 87 (now Rule 86) provides the procedure should the creditor desire to go against
the deceased debtor, but there is certainly nothing in the said provision making compliance with such procedure a
condition precedent before an ordinary action against the surviving solidary debtors, should the creditor choose to
demand payment from the latter, could be entertained to the extent that failure to observe the same would deprive the
court jurisdiction to take cognizance of the action against the surviving debtors. Upon the other hand, the Civil Code
expressly allows the creditor to proceed against any one of the solidary debtors or some or all of them simultaneously.
There is, therefore, nothing improper in the creditor's filing of an action against the surviving solidary debtors alone,
instead of instituting a proceeding for the settlement of the estate of the deceased debtor wherein his claim could be filed.
Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323-324, this Court, speaking thru Mr. Justice Makasiar, reiterated the
doctrine.
A cursory perusal of Section 6, Rule 86 of the Revised Rules of Court reveals that nothing therein prevents a creditor from
proceeding against the surviving solidary debtors. Said provision merely sets up the procedure in enforcing collection in
case a creditor chooses to pursue his claim against the estate of the deceased solidary, debtor.
It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in this matter. Said provision gives the
creditor the right to 'proceed against anyone of the solidary debtors or some or all of them simultaneously.' The choice is
undoubtedly left to the solidary, creditor to determine against whom he will enforce collection. In case of the death of one
of the solidary debtors, he (the creditor) may, if he so chooses, proceed against the surviving solidary debtors without
necessity of filing a claim in the estate of the deceased debtors. It is not mandatory for him to have the case dismissed
against the surviving debtors and file its claim in the estate of the deceased solidary debtor . . .
As correctly argued by petitioner, if Section 6, Rule 86 of the Revised Rules of Court were applied literally, Article 1216 of
the New Civil Code would, in effect, be repealed since under the Rules of Court, petitioner has no choice but to proceed
against the estate of Manuel Barredo only. Obviously, this provision diminishes the Bank's right under the New Civil, Code
to proceed against any one, some or all of the solidary debtors. Such a construction is not sanctioned by the principle,
which is too well settled to require citation, that a substantive law cannot be amended by a procedural rule. Otherwise
stared, Section 6, Rule 86 of the Revised Rules of Court cannot be made to prevail over Article 1216 of the New Civil Code,
the former being merely procedural, while the latter, substantive.
WHEREFORE the appealed order of dismissal of the court a quo in its Civil Case No. 46741 is hereby set aside in respect of
the surviving defendants; and the case is remanded to the corresponding Regional Trial Court for proceedings. proceedings.
No costs.
SO ORDERED.
KINDS OF OBLI - AS TO RIGHTS & OBLI OF MULTIPLE PARTIES
G.R. No. 190696
August 3, 2010
ROLITO CALANG and PHILTRANCO SERVICE ENTERPRISES, INC., Petitioners,
vs.
PEOPLE OF THE PHILIPPINES, Respondent.
RESOLUTION
BRION, J.:
We resolve the motion for reconsideration filed by the petitioners, Philtranco Service Enterprises, Inc. (Philtranco) and
Rolito Calang, to challenge our Resolution of February 17, 2010. Our assailed Resolution denied the petition for review on
certiorari for failure to show any reversible error sufficient to warrant the exercise of this Court’s discretionary appellate
jurisdiction.
Antecedent Facts
At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving Philtranco Bus No. 7001, owned by Philtranco along Daang
Maharlika Highway in Barangay Lambao, Sta. Margarita, Samar when its rear left side hit the front left portion of a Sarao
jeep coming from the opposite direction. As a result of the collision, Cresencio Pinohermoso, the jeep’s driver, lost control
of the vehicle, and bumped and killed Jose Mabansag, a bystander who was standing along the highway’s shoulder. The
jeep turned turtle three (3) times before finally stopping at about 25 meters from the point of impact. Two of the jeep’s
passengers, Armando Nablo and an unidentified woman, were instantly killed, while the other passengers sustained
serious physical injuries.
The prosecution charged Calang with multiple homicide, multiple serious physical injuries and damage to property thru
reckless imprudence before the Regional Trial Court (RTC), Branch 31, Calbayog City. The RTC, in its decision dated May 21,
2001, found Calang guilty beyond reasonable doubt of reckless imprudence resulting to multiple homicide, multiple
physical injuries and damage to property, and sentenced him to suffer an indeterminate penalty of thirty days of arresto
menor, as minimum, to four years and two months of prision correccional, as maximum. The RTC ordered Calang and
Philtranco, jointly and severally, to pay ₱50,000.00 as death indemnity to the heirs of Armando; ₱50,000.00 as death
indemnity to the heirs of Mabansag; and ₱90,083.93 as actual damages to the private complainants.
The petitioners appealed the RTC decision to the Court of Appeals (CA), docketed as CA-G.R. CR No. 25522. The CA, in its
decision dated November 20, 2009, affirmed the RTC decision in toto. The CA ruled that petitioner Calang failed to exercise
due care and precaution in driving the Philtranco bus. According to the CA, various eyewitnesses testified that the bus was
traveling fast and encroached into the opposite lane when it evaded a pushcart that was on the side of the road. In
addition, he failed to slacken his speed, despite admitting that he had already seen the jeep coming from the opposite
direction when it was still half a kilometer away. The CA further ruled that Calang demonstrated a reckless attitude when
he drove the bus, despite knowing that it was suffering from loose compression, hence, not roadworthy.
The CA added that the RTC correctly held Philtranco jointly and severally liable with petitioner Calang, for failing to prove
that it had exercised the diligence of a good father of the family to prevent the accident.
The petitioners filed with this Court a petition for review on certiorari. In our Resolution dated February 17, 2010, we
denied the petition for failure to sufficiently show any reversible error in the assailed decision to warrant the exercise of
this Court’s discretionary appellate jurisdiction.
The Motion for Reconsideration
In the present motion for reconsideration, the petitioners claim that there was no basis to hold Philtranco jointly and
severally liable with Calang because the former was not a party in the criminal case (for multiple homicide with multiple
serious physical injuries and damage to property thru reckless imprudence) before the RTC.
The petitioners likewise maintain that the courts below overlooked several relevant facts, supported by documentary
exhibits, which, if considered, would have shown that Calang was not negligent, such as the affidavit and testimony of
witness Celestina Cabriga; the testimony of witness Rodrigo Bocaycay; the traffic accident sketch and report; and the
jeepney’s registration receipt. The petitioners also insist that the jeep’s driver had the last clear chance to avoid the
collision.
We partly grant the motion.
Liability of Calang
We see no reason to overturn the lower courts’ finding on Calang’s culpability. The finding of negligence on his part by the
trial court, affirmed by the CA, is a question of fact that we cannot pass upon without going into factual matters touching
on the finding of negligence. In petitions for review on certiorari under Rule 45 of the Revised Rules of Court, this Court is
limited to reviewing only errors of law, not of fact, unless the factual findings complained of are devoid of support by the
evidence on record, or the assailed judgment is based on a misapprehension of facts.
Liability of Philtranco
We, however, hold that the RTC and the CA both erred in holding Philtranco jointly and severally liable with Calang. We
emphasize that Calang was charged criminally before the RTC. Undisputedly, Philtranco was not a direct party in this case.
Since the cause of action against Calang was based on delict, both the RTC and the CA erred in holding Philtranco jointly
and severally liable with Calang, based on quasi-delict under Articles 21761 and 21802 of the Civil Code. Articles 2176 and
2180 of the Civil Code pertain to the vicarious liability of an employer for quasi-delicts that an employee has committed.
Such provision of law does not apply to civil liability arising from delict.
If at all, Philtranco’s liability may only be subsidiary. Article 102 of the Revised Penal Code states the subsidiary civil
liabilities of innkeepers, tavernkeepers and proprietors of establishments, as follows:
In default of the persons criminally liable, innkeepers, tavernkeepers, and any other persons or corporations shall be civilly
liable for crimes committed in their establishments, in all cases where a violation of municipal ordinances or some general
or special police regulations shall have been committed by them or their employees.1avvphil
Innkeepers are also subsidiary liable for the restitution of goods taken by robbery or theft within their houses from guests
lodging therein, or for the payment of the value thereof, provided that such guests shall have notified in advance the
innkeeper himself, or the person representing him, of the deposit of such goods within the inn; and shall furthermore have
followed the directions which such innkeeper or his representative may have given them with respect to the care of and
vigilance over such goods. No liability shall attach in case of robbery with violence against or intimidation of persons unless
committed by the innkeeper’s employees.
The foregoing subsidiary liability applies to employers, according to Article 103 of the Revised Penal Code, which reads:
The subsidiary liability established in the next preceding article shall also apply to employers, teachers, persons, and
corporations engaged in any kind of industry for felonies committed by their servants, pupils, workmen, apprentices, or
employees in the discharge of their duties.
The provisions of the Revised Penal Code on subsidiary liability – Articles 102 and 103 – are deemed written into the
judgments in cases to which they are applicable. Thus, in the dispositive portion of its decision, the trial court need not
expressly pronounce the subsidiary liability of the employer.3 Nonetheless, before the employers’ subsidiary liability is
enforced, adequate evidence must exist establishing that (1) they are indeed the employers of the convicted employees; (2)
they are engaged in some kind of industry; (3) the crime was committed by the employees in the discharge of their duties;
and (4) the execution against the latter has not been satisfied due to insolvency. The determination of these conditions
may be done in the same criminal action in which the employee’s liability, criminal and civil, has been pronounced, in a
hearing set for that precise purpose, with due notice to the employer, as part of the proceedings for the execution of the
judgment.4
WHEREFORE, we PARTLY GRANT the present motion. The Court of Appeals decision that affirmed in toto the RTC decision,
finding Rolito Calang guilty beyond reasonable doubt of reckless imprudence resulting in multiple homicide, multiple
serious physical injuries and damage to property, is AFFIRMED, with the MODIFICATION that Philtranco’s liability should
only be subsidiary. No costs.
SO ORDERED.
KINDS OF OBLI - AS TO RIGHTS & OBLI OF MULTIPLE PARTIES
G.R. No. 204866
January 21, 2015
RUKS KONSULT AND CONSTRUCTION, Petitioner,
vs.
ADWORLD SIGN AND ADVERTISING CORPORATION* and TRANSWORLD MEDIA ADS, INC., Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated November 16, 2011 and the Resolution3 dated
December 10, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 94693 which affirmed the Decision4 dated August 25,
2009 of the Regional Trial Court of Makati City, Branch 142 (RTC) in Civil Case No. 03-1452 holding, inter alia, petitioner
Ruks Konsult and Construction (Ruks) and respondent Transworld Media Ads, Inc. (Transworld) jointly and severally liable
to respondent Adworld Sign and Advertising Corporation (Adworld) for damages.
The Facts
The instant case arose from a complaint for damages filed by Adworld against Transworld and Comark International
Corporation (Comark) before the RTC.5 In the complaint, Adworld alleged that it is the owner of a 75 ft. x 60 ft. billboard
structure located at EDSA Tulay, Guadalupe, Barangka Mandaluyong, which was misaligned and its foundation impaired
when, on August 11, 2003, the adjacent billboard structure owned by Transworld and used by Comark collapsed and
crashed against it. Resultantly, on August 19, 2003, Adworld sent Transworld and Comark a letter demanding payment for
the repairs of its billboard as well asloss of rental income. On August 29, 2003, Transworld sent its reply, admitting the
damage caused by its billboard structure on Adworld’s billboard, but nevertheless, refused and failed to pay the amounts
demanded by Adworld. As Adworld’s final demand letter also went unheeded, it was constrained to file the instant
complaint, praying for damages in the aggregate amount of ₱474,204.00, comprised of ₱281,204.00 for materials,
₱72,000.00 for labor, and ₱121,000.00 for indemnity for loss of income.6
In its Answer with Counterclaim, Transworld averred that the collapse of its billboard structure was due to extraordinarily
strong winds that occurred instantly and unexpectedly, and maintained that the damage caused to Adworld’s billboard
structure was hardly noticeable. Transworld likewise filed a Third-Party Complaint against Ruks, the company which built
the collapsed billboard structure in the former’s favor.1âwphi1 It was alleged therein that the structure constructed by
Ruks had a weak and poor foundation not suited for billboards, thus, prone to collapse, and as such, Ruks should ultimately
be held liable for the damages caused to Adworld’s billboard structure.7
For its part, Comark denied liability for the damages caused to Adworld’s billboard structure, maintaining that it does not
have any interest on Transworld’s collapsed billboard structure as it only contracted the use of the same. In this relation,
Comark prayed for exemplary damages from Transworld for unreasonably includingit as a party-defendant in the
complaint.8
Lastly, Ruks admitted that it entered into a contract with Transworld for the construction of the latter’s billboard structure,
but denied liability for the damages caused by its collapse. It contended that when Transworld hired its services, there was
already an existing foundation for the billboard and that it merely finished the structure according to the terms and
conditions of its contract with the latter.9
The RTC Ruling
In a Decision10 dated August 25, 2009, the RTC ultimately ruled in Adworld’s favor, and accordingly, declared, inter alia,
Transworld and Ruks jointly and severally liable to Adworld in the amount of ₱474,204.00 as actual damages, with legal
interest from the date of the filing of the complaint until full payment thereof, plus attorney’s fees in the amount of
₱50,000.00.11 The RTC found both Transworld and Ruks negligent in the construction of the collapsed billboard as they
knew that the foundation supporting the same was weak and would pose danger to the safety of the motorists and the
other adjacent properties, such as Adworld’s billboard, and yet, they did not do anything to remedy the situation.12 In
particular, the RTC explained that Transworld was made aware by Ruks that the initial construction of the lower structure
of its billboard did not have the proper foundation and would require additional columns and pedestals to support the
structure. Notwithstanding, however, Ruks proceeded with the construction of the billboard’s upper structure and merely
assumed that Transworld would reinforce its lower structure.13 The RTC then concluded that these negligent acts were the
direct and proximate cause of the damages suffered by Adworld’s billboard.14
Aggrieved, both Transworld and Ruks appealed to the CA. In a Resolution dated February 3, 2011, the CA dismissed
Transworld’s appeal for its failure to file an appellant’s brief on time.15 Transworld elevated its case before the Court,
docketed as G.R. No. 197601.16 However, in a Resolution17 dated November 23, 2011, the Court declared the case closed
and terminated for failure of Transworld to file the intended petition for review on certiorariwithin the extended
reglementary period. Subsequently, the Court issued an Entry of Judgment 18 dated February 22, 2012 in G.R. No. 197601
declaring the Court’s November 23, 2011 Resolution final and executory.
The CA Ruling
In a Decision19 dated November 16, 2011, the CA denied Ruks’s appeal and affirmed the ruling of the RTC. It adhered to the
RTC’s finding of negligence on the part of Transworld and Ruks which brought about the damage to Adworld’s billboard. It
found that Transworld failed to ensure that Ruks will comply with the approved plans and specifications of the structure,
and that Ruks continued to install and finish the billboard structure despite the knowledge that there were no adequate
columns to support the same.20
Dissatisfied, Ruks moved for reconsideration,21 which was, however, denied in a Resolution22 dated December 10,
2012,hence, this petition.
On the other hand, Transworld filed another appeal before the Court, docketed as G.R. No. 205120. 23 However, the Court
denied outright Transworld’s petition in a Resolution24 dated April 15, 2013, holding that the same was already bound by
the dismissal of its petition filed in G.R. No. 197601.
The Issue Before the Court
The primordial issue for the Court’s resolution is whether or not the CA correctly affirmed the ruling of the RTC declaring
Ruks jointly and severally liable with Transworld for damages sustained by Adworld.
The Court’s Ruling
The petition is without merit.
At the outset, it must be stressed that factual findings of the RTC, when affirmed by the CA, are entitled to great weight by
the Court and are deemed final and conclusive when supported by the evidence on record. 25 Absent any exceptions to this
rule – such as when it is established that the trial court ignored, overlooked, misconstrued, or misinterpreted cogent facts
and circumstances that, if considered, would change the outcome of the case26 – such findings must stand.
After a judicious perusal of the records, the Court sees no cogent reason to deviate from the findings of the RTC and the CA
and their uniform conclusion that both Transworld and Ruks committed acts resulting in the collapse of the former’s
billboard, which in turn, caused damage to the adjacent billboard of Adworld.
Jurisprudence defines negligence as the omission to do something which a reasonable man, guided by those considerations
which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and
reasonable man would not do.27 It is the failure to observe for the protection of the interest of another person that degree
of care, precaution, and vigilance which the circumstances justly demand, whereby such other person suffers injury. 28
In this case, the CA correctly affirmed the RTC’s finding that Transworld’s initial construction of its billboard’s lower
structure without the proper foundation, and that of Ruks’s finishing its upper structure and just merely assuming that
Transworld would reinforce the weak foundation are the two (2) successive acts which were the direct and proximate
cause of the damages sustained by Adworld. Worse, both Transworld and Ruks were fully aware that the foundation for
the former’s billboard was weak; yet, neither of them took any positive step to reinforce the same. They merely relied on
each other’s word that repairs would be done to such foundation, but none was done at all. Clearly, the foregoing
circumstances show that both Transworld and Ruks are guilty of negligence in the construction of the former’s billboard,
and perforce, should be held liable for its collapse and the resulting damage to Adworld’s billboard structure. As joint
tortfeasors, therefore, they are solidarily liable to Adworld. Verily, "[j]oint tortfeasors are those who command, instigate,
promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or approve of it after it is
done, if done for their benefit. They are also referred to as those who act together in committing wrong or whose acts, if
independent of each other, unite in causing a single injury. Under Article 219429 of the Civil Code, joint tortfeasors are
solidarily liable for the resulting damage. In other words, joint tortfeasors are each liable as principals, to the same extent
and in the same manner as if they had performed the wrongful act themselves." 30 The Court’s pronouncement in People v.
Velasco31 is instructive on this matter, to wit:32
Where several causes producing an injury are concurrent and each is an efficient cause without which the injury would not
have happened, the injury may be attributed to all or any of the causes and recovery may be had against any or all of the
responsible persons although under the circumstances of the case, it may appear that one of them was more culpable, and
that the duty owed by them to the injured person was not same. No actor's negligence ceases to be a proximate cause
merely because it does not exceed the negligence of other actors. Each wrongdoer is responsible for the entire result and
is liable as though his acts were the sole cause of the injury.
There is no contribution between joint [tortfeasors] whose liability is solidary since both of them are liable for the total
damage.1âwphi1 Where the concurrent or successive negligent acts or omissions of two or more persons, although acting
independently, are in combination the direct and proximate cause of a single injury to a third person, it is impossible to
determine in what proportion each contributed to the injury and either of them is responsible for the whole injury. x x x.
(Emphases and underscoring supplied)
In conclusion, the CA correctly affirmed the ruling of the RTC declaring Ruks jointly and severally liable with Transworld for
damages sustained by Adworld.
WHEREFORE, the petition is DENIED. The Decision dated November 16, 2011 and the Resolution dated December 10, 2012
of the Court of Appeals in CA-G.R. CV No. 94693 are hereby AFFIRMED.
SO ORDERED.
KINDS OF OBLI - AS TO RIGHTS & OBLI OF MULTIPLE PARTIES
G.R. No. 194121
TORRES-MADRID BROKERAGE, INC., Petitioner
vs.
FEB MITSUI MARINE INSURANCE CO., INC. and BENJAMIN P. MANALAST AS, doing business under the name of BMT
TRUCKING SERVICES, Respondents
DECISION
BRION, J.:
We resolve the petition for review on certiorari challenging the Court of Appeals' (CA) October 14, 2010 decision in CA-G.R.
CV No. 91829.1
The CA affirmed the Regional Trial Court's (RTC) decision in Civil Case No. 01-1596, and found petitioner Torres-Madrid
Brokerage, Inc. (TMBI) and respondent Benjamin P. Manalastas jointly and solidarily liable to respondent FEB Mitsui
Marine Insurance Co., Inc. (Mitsui) for damages from the loss of transported cargo.
Antecedents
On October 7, 2000, a shipment of various electronic goods from Thailand and Malaysia arrived at the Port of Manila for
Sony Philippines, Inc. (Sony). Previous to the arrival, Sony had engaged the services of TMBI to facilitate, process, withdraw,
and deliver the shipment from the port to its warehouse in Biñan, Laguna.2
TMBI – who did not own any delivery trucks – subcontracted the services of Benjamin Manalastas’ company, BMT Trucking
Services (BMT), to transport the shipment from the port to the Biñan warehouse.3 Incidentally, TMBI notified Sony who
had no objections to the arrangement.4
Four BMT trucks picked up the shipment from the port at about 11:00 a.m. of October 7, 2000. However, BMT could not
immediately undertake the delivery because of the truck ban and because the following day was a Sunday. Thus, BMT
scheduled the delivery on October 9, 2000.
In the early morning of October 9, 2000, the four trucks left BMT’s garage for Laguna. 5 However, only three trucks arrived
at Sony’s Biñan warehouse.
At around 12:00 noon, the truck driven by Rufo Reynaldo Lapesura (NSF-391) was found abandoned along the Diversion
Road in Filinvest, Alabang, Muntinlupa City.6 Both the driver and the shipment were missing.
Later that evening, BMT’s Operations Manager Melchor Manalastas informed Victor Torres, TMBI’s General Manager, of
the development.7 They went to Muntinlupa together to inspect the truck and to report the matter to the police. 8
Victor Torres also filed a complaint with the National Bureau of Investigation (NBI) against Lapesura for "hijacking."9 The
complaint resulted in a recommendation by the NBI to the Manila City Prosecutor’s Office to prosecute Lapesura for
qualified theft.10
TMBI notified Sony of the loss through a letter dated October 10, 2000. 11 It also sent BMT a letter dated March 29, 2001,
demanding payment for the lost shipment. BMT refused to pay, insisting that the goods were "hijacked."
In the meantime, Sony filed an insurance claim with the Mitsui, the insurer of the goods. After evaluating the merits of the
claim, Mitsui paid Sony PHP7,293,386.23 corresponding to the value of the lost goods.12
After being subrogated to Sony’s rights, Mitsui sent TMBI a demand letter dated August 30, 2001 for payment of the lost
goods. TMBI refused to pay Mitsui’s claim. As a result, Mitsui filed a complaint against TMBI on November 6, 2001,
TMBI, in turn, impleaded Benjamin Manalastas, the proprietor of BMT, as a third-party defendant. TMBI alleged that BMT’s
driver, Lapesura, was responsible for the theft/hijacking of the lost cargo and claimed BMT’s negligence as the proximate
cause of the loss. TMBI prayed that in the event it is held liable to Mitsui for the loss, it should be reimbursed by BMT.
At the trial, it was revealed that BMT and TMBI have been doing business with each other since the early 80’s. It also came
out that there had been a previous hijacking incident involving Sony’s cargo in 1997, but neither Sony nor its insurer filed a
complaint against BMT or TMBI.13
On August 5, 2008, the RTC found TMBI and Benjamin Manalastas jointly and solidarily liable to pay Mitsui PHP
7,293,386.23 as actual damages, attorney’s fees equivalent to 25% of the amount claimed, and the costs of the suit. 14 The
RTC held that TMBI and Manalastas were common carriers and had acted negligently.
Both TMBI and BMT appealed the RTC’s verdict.
TMBI denied that it was a common carrier required to exercise extraordinary diligence. It maintains that it exercised the
diligence of a good father of a family and should be absolved of liability because the truck was "hijacked" and this was a
fortuitous event.
BMT claimed that it had exercised extraordinary diligence over the lost shipment, and argued as well that the loss resulted
from a fortuitous event.
On October 14, 2010, the CA affirmed the RTC’s decision but reduced the award of attorney’s fees to PHP 200,000.
The CA held: (1) that "hijacking" is not necessarily a fortuitous event because the term refers to the general stealing of
cargo during transit;15 (2) that TMBI is a common carrier engaged in the business of transporting goods for the general
public for a fee;16 (3) even if the "hijacking" were a fortuitous event, TMBI’s failure to observe extraordinary diligence in
overseeing the cargo and adopting security measures rendered it liable for the loss;17 and (4) even if TMBI had not been
negligent in the handling, transport and the delivery of the shipment, TMBI still breached its contractual obligation to Sony
when it failed to deliver the shipment.18
TMBI disagreed with the CA’s ruling and filed the present petition on December 3, 2010.
The Arguments
TMBI’s Petition
TMBI insists that the hijacking of the truck was a fortuitous event. It contests the CA’s finding that neither force nor
intimidation was used in the taking of the cargo. Considering Lapesura was never found, the Court should not discount the
possibility that he was a victim rather than a perpetrator.19
TMBI denies being a common carrier because it does not own a single truck to transport its shipment and it does not offer
transport services to the public for compensation.20 It emphasizes that Sony knew TMBI did not have its own vehicles and
would subcontract the delivery to a third-party.
Further, TMBI now insists that the service it offered was limited to the processing of paperwork attendant to the entry of
Sony’s goods. It denies that delivery of the shipment was a part of its obligation.21
TMBI solely blames BMT as it had full control and custody of the cargo when it was lost. 22 BMT, as a common carrier, is
presumed negligent and should be responsible for the loss.
BMT’s Comment
BMT insists that it observed the required standard of care.23 Like the petitioner, BMT maintains that the hijacking was a
fortuitous event – a force majeure – that exonerates it from liability.24 It points out that Lapesura has never been seen
again and his fate remains a mystery. BMT likewise argues that the loss of the cargo necessarily showed that the taking was
with the use of force or intimidation.25
If there was any attendant negligence, BMT points the finger on TMBI who failed to send a representative to accompany
the shipment.26 BMT further blamed TMBI for the latter’s failure to adopt security measures to protect Sony’s cargo. 27
Mitsui’s Comment
Mitsui counters that neither TMBI nor BMT alleged or proved during the trial that the taking of the cargo was accompanied
with grave or irresistible threat, violence, or force.28 Hence, the incident cannot be considered "force majeure" and TMBI
remains liable for breach of contract.
Mitsui emphasizes that TMBI’s theory – that force or intimidation must have been used because Lapesura was never found
– was only raised for the first time before this Court. 29 It also discredits the theory as a mere conjecture for lack of
supporting evidence.
Mitsui adopts the CA’s reasons to conclude that TMBI is a common carrier. It also points out Victor Torres’ admission
during the trial that TMBI’s brokerage service includes the eventual delivery of the cargo to the consignee. 30
Mitsui invokes as well the legal presumption of negligence against TMBI, pointing out that TMBI simply entrusted the cargo
to BMT without adopting any security measures despite: (1) a previous hijacking incident when TMBI lost Sony’s cargo; and
(2) TMBI’s knowledge that the cargo was worth more than 10 million pesos.31
Mitsui affirms that TMBI breached the contract of carriage through its negligent handling of the cargo, resulting in its loss.
The Court’s Ruling
A brokerage may be considered a
common carrier if it also undertakes to
deliver the goods for its customers
Common carriers are persons, corporations, firms or associations engaged in the business of transporting passengers or
goods or both, by land, water, or air, for compensation, offering their services to the public. 32 By the nature of their
business and for reasons of public policy, they are bound to observe extraordinary diligence in the vigilance over the goods
and in the safety of their passengers.33
In A.F. Sanchez Brokerage Inc. v. Court of Appeals,34we held that a customs broker – whose principal business is the
preparation of the correct customs declaration and the proper shipping documents – is still considered a common carrier if
it also undertakes to deliver the goods for its customers. The law does not distinguish between one whose principal
business activity is the carrying of goods and one who undertakes this task only as an ancillary activity. 35 This ruling has
been reiterated in Schmitz Transport & Brokerage Corp. v. Transport Venture, Inc., 36 Loadmasters Customs Services, Inc. v.
Glodel Brokerage Corporation,37and Westwind Shipping Corporation v. UCPB General Insurance Co., Inc.38
Despite TMBI’s present denials, we find that the delivery of the goods is an integral, albeit ancillary, part of its brokerage
services. TMBI admitted that it was contracted to facilitate, process, and clear the shipments from the customs authorities,
withdraw them from the pier, then transport and deliver them to Sony’s warehouse in Laguna.39
Further, TMBI’s General Manager Victor Torres described the nature of its services as follows:
ATTY. VIRTUDAZO: Could you please tell the court what is the nature of the business of [TMBI]?
Witness MR. Victor Torres of Torres Madrid: We are engaged in customs brokerage business. We
acquire the release documents from the Bureau of Customs and eventually deliver the cargoes to the
consignee’s warehouse and we are engaged in that kind of business, sir.40
That TMBI does not own trucks and has to subcontract the delivery of its clients’ goods, is immaterial. As long as an entity
holds itself to the public for the transport of goods as a business, it is considered a common carrier regardless of whether it
owns the vehicle used or has to actually hire one.41
Lastly, TMBI’s customs brokerage services – including the transport/delivery of the cargo – are available to anyone willing
to pay its fees. Given these circumstances, we find it undeniable that TMBI is a common carrier.
Consequently, TMBI should be held responsible for the loss, destruction, or deterioration of the goods it transports unless
it results from:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act of omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.42
For all other cases - such as theft or robbery – a common carrier is presumed to have been at fault or to have acted
negligently, unless it can prove that it observed extraordinary diligence.43
Simply put, the theft or the robbery of the goods is not considered a fortuitous event or a force majeure. Nevertheless, a
common carrier may absolve itself of liability for a resulting loss: (1) if it proves that it exercised extraordinary diligence in
transporting and safekeeping the goods;44 or (2) if it stipulated with the shipper/owner of the goods to limit its liability for
the loss, destruction, or deterioration of the goods to a degree less than extraordinary diligence. 45
However, a stipulation diminishing or dispensing with the common carrier’s liability for acts committed by thieves or
robbers who do not act with grave or irresistible threat, violence, or force is void under Article 1745 of the Civil Code for
being contrary to public policy.46 Jurisprudence, too, has expanded Article 1734’s five exemptions. De Guzman v. Court of
Appeals47 interpreted Article 1745 to mean that a robbery attended by "grave or irresistible threat, violence or force" is a
fortuitous event that absolves the common carrier from liability.
In the present case, the shipper, Sony, engaged the services of TMBI, a common carrier, to facilitate the release of its
shipment and deliver the goods to its warehouse. In turn, TMBI subcontracted a portion of its obligation – the delivery of
the cargo – to another common carrier, BMT.
Despite the subcontract, TMBI remained responsible for the cargo. Under Article 1736, a common carrier’s extraordinary
responsibility over the shipper’s goods lasts from the time these goods are unconditionally placed in the possession of, and
received by, the carrier for transportation, until they are delivered, actually or constructively, by the carrier to the
consignee.48
That the cargo disappeared during transit while under the custody of BMT – TMBI’s subcontractor – did not diminish nor
terminate TMBI’s responsibility over the cargo. Article 1735 of the Civil Code presumes that it was at fault.
Instead of showing that it had acted with extraordinary diligence, TMBI simply argued that it was not a common carrier
bound to observe extraordinary diligence. Its failure to successfully establish this premise carries with it the presumption of
fault or negligence, thus rendering it liable to Sony/Mitsui for breach of contract.
Specifically, TMBI’s current theory – that the hijacking was attended by force or intimidation – is untenable.
First, TMBI alleged in its Third Party Complaint against BMT that Lapesura was responsible for hijacking the
shipment.49 Further, Victor Torres filed a criminal complaint against Lapesura with the NBI. 50 These actions constitute
direct and binding admissions that Lapesura stole the cargo. Justice and fair play dictate that TMBI should not be allowed
to change its legal theory on appeal.
Second, neither TMBI nor BMT succeeded in substantiating this theory through evidence. Thus, the theory remained an
unsupported allegation no better than speculations and conjectures. The CA therefore correctly disregarded the defense
of force majeure.
TMBI and BMT are not solidarily liable
to Mitsui
We disagree with the lower courts’ ruling that TMBI and BMT are solidarily liable to Mitsui for the loss as joint tortfeasors.
The ruling was based on Article 2194 of the Civil Code:
Art. 2194. The responsibility of two or more persons who are liable for quasi-delict is solidary.
Notably, TMBI’s liability to Mitsui does not stem from a quasi-delict (culpa aquiliana) but from its breach of contract (culpa
contractual). The tie that binds TMBI with Mitsui is contractual, albeit one that passed on to Mitsui as a result of TMBI’s
contract of carriage with Sony to which Mitsui had been subrogated as an insurer who had paid Sony’s insurance claim. The
legal reality that results from this contractual tie precludes the application of quasi-delict based Article 2194.
A third party may recover from a
common carrier for quasi-delict but must
prove actual negligence
We likewise disagree with the finding that BMT is directly liable to Sony/Mitsui for the loss of the cargo. While it is
undisputed that the cargo was lost under the actual custody of BMT (whose employee is the primary suspect in the
hijacking or robbery of the shipment), no direct contractual relationship existed between Sony/Mitsui and BMT. If at all,
Sony/Mitsui’s cause of action against BMT could only arise from quasi-delict, as a third party suffering damage from the
action of another due to the latter’s fault or negligence, pursuant to Article 2176 of the Civil Code. 51
We have repeatedly distinguished between an action for breach of contract (culpa contractual) and an action for
quasi-delict (culpa aquiliana).
In culpa contractual, the plaintiff only needs to establish the existence of the contract and the obligor’s failure to perform
his obligation. It is not necessary for the plaintiff to prove or even allege that the obligor’s non-compliance was due to fault
or negligence because Article 1735 already presumes that the common carrier is negligent. The common carrier can only
free itself from liability by proving that it observed extraordinary diligence. It cannot discharge this liability by shifting the
blame on its agents or servants.52
On the other hand, the plaintiff in culpa aquiliana must clearly establish the defendant’s fault or negligence because this is
the very basis of the action.53 Moreover, if the injury to the plaintiff resulted from the act or omission of the defendant’s
employee or servant, the defendant may absolve himself by proving that he observed the diligence of a good father of a
family to prevent the damage.54
In the present case, Mitsui’s action is solely premised on TMBI’s breach of contract. Mitsui did not even sue BMT, much less
prove any negligence on its part. If BMT has entered the picture at all, it is because TMBI sued it for reimbursement for the
liability that TMBI might incur from its contract of carriage with Sony/Mitsui. Accordingly, there is no basis to directly hold
BMT liable to Mitsui for quasi-delict.
BMT is liable to TMBI for breach of their
contract of carriage
We do not hereby say that TMBI must absorb the loss. By subcontracting the cargo delivery to BMT, TMBI entered into its
own contract of carriage with a fellow common carrier.
The cargo was lost after its transfer to BMT' s custody based on its contract of carriage with TMBI. Following Article 1735,
BMT is presumed to be at fault. Since BMT failed to prove that it observed extraordinary diligence in the performance of its
obligation to TMBI, it is liable to TMBI for breach of their contract of carriage.
In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching the contract of carriage. In tum, TMBI is entitled
to reimbursement from BMT due to the latter's own breach of its contract of carriage with TMBI. The proverbial buck stops
with BMT who may either: (a) absorb the loss, or (b) proceed after its missing driver, the suspected culprit, pursuant to
Article 2181.55
WHEREFORE, the Court hereby ORDERS petitioner TorresMadrid Brokerage, Inc. to pay the respondent FEB Mitsui Marine
Insurance Co", Inc. the following:
a. Actual damages in the amount of PHP 7,293,386.23 plus legal interest from the time the complaint was filed until it is
fully paid;
b. Attorney's foes in the amount of PHP 200,000.00; and
c. Costs of suit.
Respondent Benjamin P. Manalastas is in turn ORDERED to REIMBURSE Torres-Madrid Brokerage, Inc. of the
above-mentioned amounts.
SO ORDERED.
KINDS OF OBLI - AS TO RIGHTS & OBLI OF MULTIPLE PARTIES
G.R. No. 209969, September 27, 2017
JOSE SANICO AND VICENTE CASTRO, Petitioners, v. WERHERLINA P. COLIPANO, Respondent.
DECISION
CAGUIOA, J.:
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court filed by petitioners Jose Sanico
(Sanico) and Vicente Castro (Castro), assailing the Decision2 dated September 30, 2013 of the Court of Appeals (CA) in
CA-G.R. CEB-CV No. 01889. The CA affirmed with modification the Decision 3 dated October 27, 2006 of the Regional Trial
Court, Branch 25, Danao City (RTC) which found Sanico and Castro liable for breach of' contract of carriage and awarded
actual and compensatory damages for loss of income in favor of respondent Werherlina P. Colipano (Colipano). The CA
reduced the compensatory damages that the RTC awarded.
Antecedents
Colipano filed a complaint on January 7, 1997 for breach of contract of carriage and damages against Sanico and Castro.4 In
her complaint, Colipano claimed that at 4:00 P.M. more or less of December 25, 1993, Christmas Day, she and her
daughter were; paying passengers in the jeepney operated by Sanico, which was driven by Castro. 5 Colipano claimed she
was made to sit on an empty beer case at the edge of the rear entrance/exit of the jeepney with her sleeping child on her
lap.6 And, at an uphill incline in the road to Natimao-an, Carmen, Cebu, the jeepney slid backwards because it did not have
the power to reach the top.7 Colipano pushed both her feet against the step board to prevent herself and her child from
being thrown out of the exit, but because the step board was wet, her left foot slipped and got crushed between the step
board and a coconut tree which the jeepney bumped, causing the jeepney to stop its backward movement. 8 Colipano's leg
was badly injured and was eventually amputated.9 Colipano prayed for actual damages, loss of income, moral damages,
exemplary damages, and attorney's fees.10
In their answer, Sanico and Castro admitted that Colipano's leg was crushed and amputated but claimed that it! was
Colipano's fault that her leg was crushed.11 They admitted that the jeepney slid backwards because the jeepney lost
power.12 The conductor then instructed everyone not to panic but Colipano tried to disembark and her foot got caught in
between the step board and the coconut tree.13 Sanico claimed that he paid for all the hospital and medical expenses of
Colipano,14 and that Colipano eventually freely and voluntarily executed an Affidavit of Desistance and Release of Claim. 15
After trial, the RTC found that Sanico and Castro breached the contract of carriage between them and Colipano but only
awarded actual and compensatory damages in favor of Colipano. The dispositive portion of the RTC Decision states:
WHEREFORE, premises considered, this Court finds the defendants LIABLE for breach of contract of
carriage and are solidarily liable to pay plaintiff:
1.
Actual damages in the amount of P2,098.80; and
2.
Compensatory damages for loss of income in the amount of P360,000.00.
No costs.
SO ORDERED.16
Only Sanico and Castro appealed to the CA, which affirmed with modification the RTC Decision. The dispositive portion of
the CA Decision states:
IN LIGHT OF ALL THE FOREGOING, the instant appeal is PARTIALLY GRANTED. The Decision dated
October 27, 2006 of the Regional Trial Court, Branch 25, Danao City, in Civil Case No. DNA-418, is
AFFIRMED with MODIFICATION in that the award for compensatory damages for loss of income in
paragraph 2 of the dispositive portion of the RTC's decision, is reduced to P200,000.00.
SO ORDERED.17
Without moving for the reconsideration of the CA Decision, Sanico and Castro filed this petition before the Court assailing
the CA Decision.
Issues
1.
Whether the CA erred in finding that Sanico and Castro breached the contract of carriage
with Colipano;
2.
Whether the Affidavit of Desistance and Release of Claim is binding on Colipano; and
3.
Whether the CA erred in the amount of damages awarded.
The Court's Ruling
The Court partly grants the petition.
Only Sanico breached the contract of carriage.
Here, it is beyond dispute that Colipano was injured while she was a passenger in the jeepney owned and operated by
Sanico that was being driven by Castro. Both the CA and RTC found Sanico and Castro jointly and severally liable. This,
however, is erroneous because only Sanico was the party to the contract of carriage with Colipano.
Since the cause of action is based on a breach of a contract of carriage, the liability of Sanico is direct as the contract is
between him and Colipano. Castro, being merely the driver of Sanico's jeepney, cannot be made liable as he is not a
party to the contract of carriage.
In Soberano v. Manila Railroad Co.,18 the Court ruled that a complaint for breach of a contract of carriage is dismissible
as against the employee who was driving the bus because the parties to the contract of carriage are only the passenger,
the bus owner, and the operator, viz.:
The complaint against Caccam was therefore properly dismissed. He was not a party to the contract;
he was a mere employee of the BAL. The parties to that contract are Juana Soberano, the passenger,
and the MRR and its subsidiary, the BAL, the bus owner and operator, respectively; and consequent
to the inability of the defendant companies to carry Juana Soberano and her baggage arid personal
effects securely and safely to her destination as imposed by law (art. 1733, in relation to arts. 1736
and 1755, N.C.C.), their liability to her becomes direct and immediate.19
Since Castro was not a party to the contract of carriage, Colipano had no cause of action against him and the pomplaint
against him should be dismissed. Although he was driving the jeepney, he was a mere employee of Sanico, who was the
operator and owner of the jeepney. The obligation to carry Colipano safely to her destination was with Sanico. In fact,
the elements of a contract of carriage existeid between Colipano and Sanico: consent, as shown when Castro, as
employee of Sanico, accepted Colipano as a passenger when he allowed Colipano to board the jeepney, and as to
Colipano, when she boarded the jeepney; cause or consideration, when Colipano, for her part, paid her fare; and, object,
the transportation of Colipano from the place of departure to the place of destination. 20
Having established that the contract of carriage was only between Sanico and Colipano and that therefore Colipano had
no cause of action against Castro, the Court next determines whether Sanico breached his obligations to Colipano under
the contract.
Sanico is liable as operator and owner of a common carrier.
Specific to a contract of carriage, ithe Civil Code requires common carriers to observe extraordinary diligence in safely
transporting their passengers. Article 1733 of the Civil Code states:
ART. 1733. Common carriers, fijpm the nature of their business and for reasons of public policy, are
bbund to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in Articles 1734, 1735
and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is
further set forth in Articles 1755 and 1756.
This extraordinary diligence, following Article 1755 of the Civil Code, means that common carriers have the obligation to
carry passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious
persons, with due regard for all the circumstances.
In case of death of or injury to their passengers, Article 1756 of the Civil Code provides that common carriers are
presumed to have been at fault or negligent, and this presumption can be overcome only by proof of the extraordinary
diligence exercised to ensure the safety of the passengers.21
Being an operator and owner of a common carrier, Sanico was required to observe extraordinary diligence in safely
transporting Colipano. When Colipano's leg was injured while she was a passenger in Sanico's jeepney, the presumption
of fault or negligence on Sanico's part arose and he had the burden to prove that he exercised the extraordinary
diligence required of him. He failed to do this.
In Calalas v. Court of Appeals,22 the Court found that allowing the respondent in that case to be seated in an extension
seat, which was a wooden stool at the rear of the jeepney, "placed [the respondent] in a peril greater than that to which
the other passengers were exposed."23 The Court further ruled that the petitioner in Calalas was not only "unable to
overcome the presumption of negligence imposed on him for the injury sustained by [the respondent], but also, the
evidence shows he was actually negligent in transporting passengers." 24
Calalas squarely applies here. Sanico failed to rebut the presumption of fault or negligence under the Civil Code. More
than this, the evidence indubitably established Sanico's negligence when Castro made Colipano sit on an empty beer
case at the edge of the rear entrance/exit of the jeepney with her sleeping child on her lap, which put her and her child in
greater peril than the other passengers. As the CA correctly held:
For the driver, Vicente Castro, to allow a seat extension made of an empty case of beer clearly
indicates lack of prudence. Permitting Werherlina to occupy an improvised seat in the rear portion of
the jeepney, with a child on her lap to boot, exposed her and her child in a peril greater than that to
which the other passengers were exposed. The use of an improvised seat extension is undeniable, in
view of the testimony of plaintiffs witness, which is consistent with Werherlina's testimonial
assertion. Werherlina and her witness's testimony were accorded belief by the RTC. Factual findings
of the trial court are entitled to great weight on appeal and should not be disturbed except for strong
and valid reasons, because the trial court ip in a better position to examine the demeanor of the
witnesses while testifying.25
The CA also correctly held that the!defense of engine failure, instead of exonerating Sanico, only aggravated his already
precarious position.26 The engine failure "hinted lack of regular check and maintenance to ensure that the engine is at its
best, considering that the jeepney regularly passes through a mountainous area." 27 This failure to ensure that the
jeepney can safely transport passengers through its route which required navigation through a mountainous area is
proof of fault on Sanico's part. In the face of such evidence, there is no question as to Sanico's fault or negligence.
Further, common carriers may also be liable for damages when they contravene the tenor of their obligations. Article
1170 of the Civil Code states:
ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof, are liable for damages.
In Magat v. Medialdea,28 the Court ruled: "The phrase 'in any manner contravene the tenor' of the obligation includes
any illicit act or omission which impairs the strict and faithful fulfillment of the obligation and every kind of defective
performance."29 There is no question here that making Colipano sit on the empty beer case was a clear showing of how
Sanico contravened the tenor of his obligation to safely transport Colipano from the place of departure to the place of
destination as far as human care and foresight can provide, using the utmost diligence of very cautious persons, and
with due regard for all the circumstances.
Sanico's attempt to evade liability by arguing that he exercised extraordinary diligence when he hired; Castro, who was
allegedly an experienced and time-tested driver, whom he had even accompanied on a test-drive and in whom he was
personally convinced of the driving skills,30 are not enough to exonerate him from liability - because the liability of
common carriers does not cease upon p!roof that they exercised all the diligence of a good father of a family irii the
selection. and supervision of their employees. This is the express mandate of Article 1759 of the Civil Code:
ART. 1759. Common carriers are liable for the death of or injuries to passengers through the
negligence or willful acts of the former's employees, although such employees may have acted
beyond the scope of their authority or in violation of the orders of the common carriers.
This liability of the common carriers does not cease upon proof that they exercised all the diligence of
a good father of a family in the selection and supervision of their employees.
The only defenses available to common carriers are (1) proof that they observed extraordinary diligence as prescribed in
Article 1756,31 and (2) following Article 1174 of the Civil Code, proof that the injury or death was brought about by an
event which "could not be foreseen, or which, though foreseen, were inevitable," or a fortuitous event.
The Court finds that neither of these defenses obtain. Thus, Sanico is liable for damages to Colipano because of the injury
that Colipano suffered as a passenger of Sanico's jeepney.
The Affidavit of Desistance and Release of Claim is void.
Sanico cannot be exonerated from liability under the Affidavit of Desistance and Release of Claim32and his payment of
the hospital and medical bills of Colipano amounting to P44,900.00. 33
The RTC ruled that "the Affidavit of Desistance and Release of Claim is not binding on plaintiff [Colipano] in the absence
of proof that the contents thereof were sufficiently translated and explained to her." 34 The CA affirmed the findings of
the RTC and ruled that the document was not binding on Colipano, as follows:
Finally, We sustain the RTC's finding that the affidavit of desistance and release of claim, offered by
defendants-appellants, are not binding on Werherlina, quoting with approval its reflection on the
matter, saying:
xxx this Court finds that the Affidavit of Desistance and Release of Claim is not
binding on plaintiff in the absence of proof that the contents thereof were
sufficiently explained to her. It is clear from the plaintiffs circumstances that she is
not able to understand English, more so stipulations stated in the said Affidavit
and Release. It is understandable that in her pressing need, the plaintiff may have
been easily convinced to sign the document with the promise that she will be
compensated for her injuries.35
The Court finds no reason to depart from these findings of the CA and the RTC.
For there to be a valid waiver, the following requisites are essential:
(1) that the person making the waiver possesses the right, (2) that he has the capacity and power to
dispose of the right, (3) that the waiver must be clear and unequivocal although it may be made
expressly or impliedly, and (4) that the waiver is not contrary to law, public policy, public order,
morals, good customs or prejudicial to a third person with a right recognized by law. 36
While the first two requirements can be said to exist in this case, the third and fourth requirements are, however, lacking.
For the waiver to be clear and unequivocal, the person waiving the right should understand what she is waiving and the
effect of such waiver. Both the CA and RTC made the factual deitermination that Colipano was not able to understand
English and that there was no proof that the documents and their contents and effects were explained to her. These
findings of the RTC, affirmed by the CA, are entitled to great weight and respect. 37 As this Court held in Philippine
National Railways Corp. v. Vizcara38:
It is a well-established rule that factual fill dings by the CA are conclusive on the parties and are not
reviewable byj this Court. They are entitled to great weight and respect, even finality, especially
when, as in this case, the CA affirmed the factual findings arrived at by the trial court. 39
Although there are exceptions to this rule,40 the exceptions are absent here.
Colipano could not have clearly and unequivocally waived her right to claim damages when she had no understanding of
the right she was waiving and the extent of that right. Worse, she was made to sign a document written in a language
she did not understand.
The fourth requirement for a valid waiver is also lacking as the waiver, based on the attendant facts, can only be
construed as contrary to public policy. The doctrine in Gatchalian v. Delim,41 which the CA correctly cited,42 is applicable
here:
Finally, because what is involved here is the liability of a common carrier for injuries sustained by
passengers in respect of whose safety a common carrier must exercise extraordinary diligence, we
must construe any such purported waiver most strictly against the common carrier. For a waiver to
be valid and effective, it must not be contrary to law, morals, public policy or good customs. To
uphold a supposed waiver of any right to claim damages by an injured passenger, under
circumstances like those exhibited in this case, would be to dilute and weaken the standard of
extraordinary diligence exacted by the law from common carriers and hence to render that standard
unenforceable. We believe such a purported waiver is offensive to public policy.43
"[P]ublic policy refers to the aims of the state to promote the social and general well-being of the inhabitants."44 The
Civil Code requires extraordinary diligence from common carriers because the nature of their business requires the public
to put their safety and lives in the hands of these common carriers. The State imposes this extraordinary diligence to
promote the well-being of the public who avail themselves of the services of common carriers. Thus, in instances of injury
or death, a waiver of the right to claim damages is strictly construed against the common carrier so as not to dilute or
weaken the public policy behind the required standard of extraordinary diligence.
It was for this reason that in Gatchalian, the waiver was considered offensive to public policy because it was shown that
the passenger was still in the hospital and was dizzy when she signed the document. It was also shown that when she
saw the other passengers signing the document, she signed it without reading it. .
Similar to Gatchalian, Colipano testified that she did not understand the document she signed. 45 She also did not
understand the nature and extent of her waiver as the content of the document was not explained to her. 46 The waiver is
therefore void because it is contrary to public policy.47
The Court reiterates that waivers executed under similar circumstances are indeed contrary to public policy and are
void.48 To uphold waivers taken from injured passengers who have no knowledge of their entitlement under the law and
the extent of liability of common carriers would indeed dilute the extraordinary diligence required from common carriers,
and contravene a public policy reflected in the Civil Code.
Amount of compensatory damages granted is incorrect.
On the amount of damages, the RiTC awarded P2,098.80 as actual damages and P360,000.00 as compensatoiy damages
for loss of income, as follows:
[T]his Court can only award actual damages in the amount that is duly supported by receipts, that is,
P2,098.80 mid not P7,277.80 as prayed for by plaintiff as there is no basis for the amount prayed for.
However, considering that plaintiff has suffered the loss of one leg which has caused her to be limited
in her movement thus resulting in loss of livelihood, she is entitled to compensatory damages for lost
income at the rate of P12,000.00/year for thirty years in the amount of P360,000.00.49
The CA, on the other hand, modified the award of the RTC by reducing the compensatory damages from P360,000.00 to
P200,000.00, thus:
By virtue of their negligence, defendants-appellants are liable to pay Werheiiina compensatory
damages for loss of earning capacity. In arriving at the proper amount, the Supremip Court has
consistently used the following formula:
Net Earning Capacity
=
Life Expectancy x [Gross Annual Income - Living Expenses (50% of gross annual
income)]
where life expectancy
=
2/3 (80 - the age of the deceased).
Based on the stated formula, the damages due to Werherlina for loss of earning capacity is:
Net Earning Capacity
=
[2/3 x (80-30)] x (P12,000.00 x (50%)
=
(2/3 x 50) x P6,000.00
=
33.33 x P6,000.00
=
P200,000.00
The award of the sum of P200,000.00 as compensatory damages for loss of earning capacity is in
order, notwithstanding the objections of defendants-appellants with respect to lack of evidence on
Werherlina's age and annual income.50
Sanico argues that Colipano failed to present documentary evidence to support her age and her income, so that her
testimony is self-serving and that there was no basis for the award of compensatory damages in her favor. 51 Sanico is
gravely mistaken.
The Court has held in Heirs of Pedro Clemeña y Zurbano v. Heirs of Irene B. Bien 52 that testimonial evidence cannot be
objected to on the ground of being self-serving, thus:
"Self-serving evidence" is not to be taken literally to mean any evidence that serves its proponent's
interest. The term, if used with any legal sense, refers only to acts or declarations made by a party in
his own interest at some place and time out of court, and it does not include testimony that he gives
as a witness in court. Evidence of this sort is excluded on the same ground as any hearsay evidence,
that is, lack of opportunity for cross-examination by the adverse party and on the consideration that
its admission would open the door to fraud and fabrication. In contrast, a party's testimony in court is
sworn and subject to cross-examination by the other party, and therefore, not susceptible to an
objection on the ground that it is self-serving.53
Colipano was subjected to cross-examination and both the RTC and CA believed her testimony on her age and annual
income. In fact, as these are questions of facts, these findings of the RTC and CA are likewise binding on the Court. 54
Further, although as a general rule, documentary evidence is required to prove loss of earning capacity, Colipano's
testimony on her annual earnings of P12,000.00 is an allowed exception. There are two exceptions to the general rule
and Colipano's testimonial evidence falls under the second exception, viz.:
By way of exception, damages for loss of earning capacity may be awarded despite the absence of
documentary evidence when (1) the deceased is self-employed earning less than the minimum wage
under current labor laws, and judicial notice may be taken of the fact that in the deceased's line of
work no documentary evidence is available; or (2) the deceased is employed as a daily wage worker
earning less than the minimum wage under current labor laws. 55
The CA applied the correct formula for computing the loss of Colipano's earning capacity:
Net earning capacity = Life expectancy x [Gross Annual Income - Living Expenses (50% of gross annual
income)], where life expectancy = 2/3 (80-the age of the deceased).56
However, the CA erred when it used Colipano's age at the time she testified as basis for computing the loss of earning
capacity.57 The loss of earning capacity commenced when Colipano's leg was crushed on December 25, 1993. Given that
Colipano was 30 years old when she testified on October 14, 1997, she was roughly 27 years old on December 25, 1993
when the injury was sustained. Following the foregoing formula, the net earning capacity of Colipano is P212,000.00. 58
Sanico is liable to pay interest.
Interest is a form of actual or compensatory damages as it belongs to Chapter 2 59 of Title XVIII on Damages of the Civil
Code. Under Article 2210 of the Civil Code, "[i]nterest may, in the discretion of the court, be allowed upon damages
awarded for breach of contract." Here, given the gravity of the breach of the contract of carriage causing the serious
injury to the leg of Colipano that resulted in its amputation, the Court deems it just and equitable to award interest from
the date of the RTC decision. Since the award of damages was given by the RTC in its Decision dated October 27, 2006,
the interest on the amount awarded shall be deemed to run beginning October 27, 2006.
As to the rate of interest, in Eastern Shipping Lines, Inc. v. Court of Appeals,60 the Court ruled that "[w]hen an obligation,
not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum."61 Further, upon finality of the judgment awarding a
sum of money, the rate of interest shall be 12% per annum from such finality until satisfaction because the interim
period is considered a forbearance of credit.62 Subsequently, in Nacar v. Gallery Frames,63 the rate of legal interest for
loans or forbearance of any money, goods or credits and the rate allowed in judgments was lowered from 12% to 6%.
Thus, the applicable rate of interest to the award of damages to Colipano is 6%.
WHEREFORE, premises considered, the petition for review is hereby PARTLY GRANTED. As to petitioner Vicente Castro,
the Decision of the Court of Appeals dated September 30, 2013 is REVERSED and SET ASIDE and the complaint against
him is dismissed for lack of cause of action. As to petitioner Jose Sanico, the Decision of the Court of Appeals is
hereby AFFIRMED with MODIFICATIONS, Petitioner Jose Sanico is liable and ordered to pay respondent Werherlina
Colipano the following amounts:Actual damages in the amount of P2,098.80;
Compensatory damages for loss of income in the amount of P212,000.00;
Interest on the total amount of the damages awarded in 1 and 2 at the rate of 6% per annum reckoned from October 27,
2006 until finality of this Decision. The total amount of the foregoing shall, in turn, earn interest at the rate of 6% per
annum from finality of this Decision until full payment thereof.
SO ORDERED.
G.R. No. 167615
SPOUSES ALEXANDER AND JULIE LAM, Doing Business Under the Name and Style
"COLORKWIK LABORATORIES" AND "COLORKWIK PHOTO SUPPLY", Petitioners,
vs.
KODAK PHILIPPINES, LTD., Respondent.
DECISION
LEONEN, J.:
This is a Petition for Review on Certiorari filed on April 20, 2005 assailing the March 30, 2005
Decision and September 9, 2005 Amended Decision of the Court of Appeals, which modified the
February 26, 1999 Decision of the Regional Trial Court by reducing the amount of damages
awarded to petitioners Spouses Alexander and Julie Lam (Lam Spouses). The Lam Spouses
argue that respondent Kodak Philippines, Ltd.’s breach of their contract of sale entitles them to
damages more than the amount awarded by the Court of Appeals.
1
2
3
4
5
I
On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an agreement
(Letter Agreement) for the sale of three (3) units of the Kodak Minilab System 22XL (Minilab
Equipment) in the amount of ₱1,796,000.00 per unit, with the following terms:
6
7
This confirms our verbal agreement for Kodak Phils., Ltd. To provide Colorkwik Laboratories, Inc.
with three (3) units Kodak Minilab System 22XL . . . for your proposed outlets in Rizal Avenue
(Manila), Tagum (Davao del Norte), and your existing Multicolor photo counter in Cotabato City
under the following terms and conditions:
1. Said Minilab Equipment packages will avail a total of 19% multiple order discount based on
prevailing equipment price provided said equipment packages will be purchased not later than
June 30, 1992.
2. 19% Multiple Order Discount shall be applied in the form of merchandise and delivered in
advance immediately after signing of the contract.
* Also includes start-up packages worth P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be payable in 48 monthly installments at THIRTY FIVE
THOUSAND PESOS (P35,000.00) inclusive of 24% interest rate for the first 12 months; the
balance shall be re-amortized for the remaining 36 months and the prevailing interest shall be
applied.
5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at ONE MILLION
SEVEN HUNDRED NINETY SIX THOUSAND PESOS.
6. Price is subject to change without prior notice.
*Secured with PDCs; 1st monthly amortization due 45 days after installation[.]
8
On January 15, 1992, Kodak Philippines, Ltd. delivered one (1) unit of the Minilab Equipment in
Tagum, Davao Province. The delivered unit was installed by Noritsu representatives on March 9,
1992. The Lam Spouses issued postdated checks amounting to ₱35,000.00 each for 12 months
as payment for the first delivered unit, with the first check due on March 31, 1992.
9
10
11
The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the check dated March 31,
1992 allegedly due to insufficiency of funds. The same request was made for the check due on
April 30, 1992. However, both checks were negotiated by Kodak Philippines, Ltd. and were
honored by the depository bank. The 10 other checks were subsequently dishonored after the
Lam Spouses ordered the depository bank to stop payment.
12
13
14
Kodak Philippines, Ltd. canceled the sale and demanded that the Lam Spouses return the unit it
delivered together with its accessories. The Lam Spouses ignored the demand but also
rescinded the contract through the letter dated November 18, 1992 on account of Kodak
Philippines, Ltd.’s failure to deliver the two (2) remaining Minilab Equipment units.
15
16
On November 25, 1992, Kodak Philippines, Ltd. filed a Complaint for replevin and/or recovery of
sum of money. The case was raffled to Branch 61 of the Regional Trial Court, Makati City. The
Summons and a copy of Kodak Philippines, Ltd.’s Complaint was personally served on the Lam
Spouses.
17
18
The Lam Spouses failed to appear during the pre-trial conference and submit their pre-trial brief
despite being given extensions. Thus, on July 30, 1993, they were declared in default. Kodak
Philippines, Ltd. presented evidence ex-parte. The trial court issued the Decision in favor of
Kodak Philippines, Ltd. ordering the seizure of the Minilab Equipment, which included the lone
delivered unit, its standard accessories, and a separate generator set. Based on this Decision,
Kodak Philippines, Ltd. was able to obtain a writ of seizure on December 16, 1992 for the Minilab
Equipment installed at the Lam Spouses’ outlet in Tagum, Davao Province. The writ was
enforced on December 21, 1992, and Kodak Philippines, Ltd. gained possession of the Minilab
Equipment unit, accessories, and the generator set.
19
20
21
22
23
24
The Lam Spouses then filed before the Court of Appeals a Petition to Set Aside the Orders issued
by the trial court dated July 30, 1993 and August 13, 1993. These Orders were subsequently set
aside by the Court of Appeals Ninth Division, and the case was remanded to the trial court for
pre-trial.
25
On September 12, 1995, an Urgent Motion for Inhibition was filed against Judge Fernando V.
Gorospe, Jr., who had issued the writ of seizure. The ground for the motion for inhibition was
not provided. Nevertheless, Judge Fernando V. Gorospe Jr. inhibited himself, and the case was
reassigned to Branch 65 of the Regional Trial Court, Makati City on October 3, 1995.
26
27
28
In the Decision dated February 26, 1999, the Regional Trial Court found that Kodak Philippines,
Ltd. defaulted in the performance of its obligation under its Letter Agreement with the Lam
Spouses. It held that Kodak Philippines, Ltd.’s failure to deliver two (2) out of the three (3) units of
the Minilab Equipment caused the Lam Spouses to stop paying for the rest of the
installments. The trial court noted that while the Letter Agreement did not specify a period within
which the delivery of all units was to be made, the Civil Code provides "reasonable time" as the
standard period for compliance:
29
30
The second paragraph of Article 1521 of the Civil Code provides:
Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for
sending them is fixed, the seller is bound to send them within a reasonable time.
What constitutes reasonable time is dependent on the circumstances availing both on the part of
the seller and the buyer. In this case, delivery of the first unit was made five (5) days after the date
of the agreement. Delivery of the other two (2) units, however, was never made despite the lapse
of at least three (3) months.
31
Kodak Philippines, Ltd. failed to give a sufficient explanation for its failure to deliver all three (3)
purchased units within a reasonable time.
32
The trial court found:
Kodak would have the court believe that it did not deliver the other two (2) units due to the failure
of defendants to make good the installments subsequent to the second. The court is not
convinced. First of all, there should have been simultaneous delivery on account of the
circumstances surrounding the transaction. . . . Even after the first delivery . . . no delivery was
made despite repeated demands from the defendants and despite the fact no installments were
due. Then in March and in April (three and four months respectively from the date of the
agreement and the first delivery) when the installments due were both honored, still no delivery
was made.
Second, although it might be said that Kodak was testing the waters with just one delivery determining first defendants’ capacity to pay - it was not at liberty to do so. It is implicit in the letter
agreement that delivery within a reasonable time was of the essence and failure to so deliver
within a reasonable time and despite demand would render the vendor in default.
....
Third, at least two (2) checks were honored. If indeed Kodak refused delivery on account of
defendants’ inability to pay, non-delivery during the two (2) months that payments were honored is
unjustified.
33
Nevertheless, the trial court also ruled that when the Lam Spouses accepted delivery of the first
unit, they became liable for the fair value of the goods received:
On the other hand, defendants accepted delivery of one (1) unit. Under Article 1522 of the Civil
Code, in the event the buyer accepts incomplete delivery and uses the goods so delivered, not
then knowing that there would not be any further delivery by the seller, the buyer shall be liable
only for the fair value to him of the goods received. In other words, the buyer is still liable for the
value of the property received. Defendants were under obligation to pay the amount of the unit.
Failure of delivery of the other units did not thereby give unto them the right to suspend payment
on the unit delivered. Indeed, in incomplete deliveries, the buyer has the remedy of refusing
payment unless delivery is first made. In this case though, payment for the two undelivered units
have not even commenced; the installments made were for only one (1) unit.
Hence, Kodak is right to retrieve the unit delivered.
34
The Lam Spouses were under obligation to pay for the amount of one unit, and the failure to
deliver the remaining units did not give them the right to suspend payment for the unit already
delivered. However, the trial court held that since Kodak Philippines, Ltd. had elected to cancel
the sale and retrieve the delivered unit, it could no longer seek payment for any deterioration that
the unit may have suffered while under the custody of the Lam Spouses.
35
36
As to the generator set, the trial court ruled that Kodak Philippines, Ltd. attempted to mislead the
court by claiming that it had delivered the generator set with its accessories to the Lam Spouses,
when the evidence showed that the Lam Spouses had purchased it from Davao Ken Trading, not
from Kodak Philippines, Ltd. Thus, the generator set that Kodak Philippines, Ltd. wrongfully took
from the Lam Spouses should be replaced.
37
38
The dispositive portion of the Regional Trial Court Decision reads:
PREMISES CONSIDERED, the case is hereby dismissed. Plaintiff is ordered to pay the following:
1) PHP 130,000.00 representing the amount of the generator set, plus legal interest at 12% per
annum from December 1992 until fully paid; and
2) PHP 1,300,000.00 as actual expenses in the renovation of the Tagum, Davao and Rizal Ave.,
Manila outlets.
SO ORDERED.
39
On March 31, 1999, the Lam Spouses filed their Notice of Partial Appeal, raising as an issue the
Regional Trial Court’s failure to order Kodak Philippines, Ltd. to pay: (1) ₱2,040,000 in actual
damages; (2) ₱50,000,000 in moral damages; (3) ₱20,000,000 in exemplary damages; (4)
₱353,000 in attorney’s fees; and (5) ₱300,000 as litigation expenses. The Lam Spouses did not
appeal the Regional Trial Court’s award for the generator set and the renovation expenses.
40
41
Kodak Philippines, Ltd. also filed an appeal. However, the Court of Appeals dismissed it on
December 16, 2002 for Kodak Philippines, Ltd.’s failure to file its appellant’s brief, without
prejudice to the continuation of the Lam Spouses’ appeal. The Court of Appeals’ December 16,
2002 Resolution denying Kodak Philippines, Ltd.’s appeal became final and executory on January
4, 2003.
42
43
44
In the Decision dated March 30, 2005, the Court of Appeals Special Fourteenth Division modified
the February 26, 1999 Decision of the Regional Trial Court:
45
WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February 1999 of the
Regional Trial Court, Branch 65 in Civil Case No. 92-3442 is hereby MODIFIED.
Plaintiff-appellant is ordered to pay the following:
1. P130,000.00 representing the amount of the generator set, plus legal interest at 12% per
annum from December 1992 until fully paid; and
2. P440,000.00 as actual damages;
3. P25,000.00 as moral damages; and
4. P50,000.00 as exemplary damages.
SO ORDERED. (Emphasis supplied)
46
The Court of Appeals agreed with the trial court’s Decision, but extensively discussed the basis
for the modification of the dispositive portion.
The Court of Appeals ruled that the Letter Agreement executed by the parties showed that their
obligations were susceptible of partial performance. Under Article 1225 of the New Civil Code,
their obligations are divisible:
In determining the divisibility of an obligation, the following factors may be considered, to wit: (1)
the will or intention of the parties, which may be expressed or presumed; (2) the objective or
purpose of the stipulated prestation; (3) the nature of the thing; and (4) provisions of law affecting
the prestation.
Applying the foregoing factors to this case, We found that the intention of the parties is to be
bound separately for each Minilab Equipment to be delivered as shown by the separate purchase
price for each of the item, by the acceptance of Sps. Lam of separate deliveries for the first
Minilab Equipment and for those of the remaining two and the separate payment arrangements
for each of the equipment. Under this premise, Sps. Lam shall be liable for the entire amount of
the purchase price of the Minilab
Equipment delivered considering that Kodak had already completely fulfilled its obligation to
deliver the same. . . .
Third, it is also evident that the contract is one that is severable in character as demonstrated by
the separate purchase price for each of the minilab equipment. "If the part to be performed by one
party consists in several distinct and separate items and the price is apportioned to each of them,
the contract will generally be held to be severable. In such case, each distinct stipulation relating
to a separate subject matter will be treated as a separate contract." Considering this, Kodak's
breach of its obligation to deliver the other two (2) equipment cannot bar its recovery for the full
payment of the equipment already delivered. As far as Kodak is concerned, it had already fully
complied with its separable obligation to deliver the first unit of Minilab Equipment. (Emphasis
supplied)
47
The Court of Appeals held that the issuance of a writ of replevin is proper insofar as the delivered
Minilab Equipment unit and its standard accessories are concerned, since Kodak Philippines, Ltd.
had the right to possess it:
48
The purchase price of said equipment is P1,796,000.00 which, under the agreement is payable
with forty eight (48) monthly amortization. It is undisputed that Sps. Lam made payments which
amounted to Two Hundred Seventy Thousand Pesos (P270,000.00) through the following checks:
Metrobank Check Nos. 00892620 and 00892621 dated 31 March 1992 and 30 April 1992
respectively in the amount of Thirty Five Thousand Pesos (P35,000.00) each, and BPI Family
Check dated 31 July 1992 amounting to Two Hundred Thousand Pesos (P200,000.00). This
being the case, Sps. Lam are still liable to Kodak in the amount of One Million Five Hundred
Twenty Six Thousand Pesos (P1,526,000.00), which is payable in several monthly amortization,
pursuant to the Letter Agreement. However, Sps. Lam admitted that sometime in May 1992, they
had already ordered their drawee bank to stop the payment on all the other checks they had
issued to Kodak as payment for the Minilab Equipment delivered to them. Clearly then, Kodak
ha[d] the right to repossess the said equipment, through this replevin suit. Sps. Lam cannot
excuse themselves from paying in full the purchase price of the equipment delivered to them on
account of Kodak’s breach of the contract to deliver the other two (2) Minilab Equipment, as
contemplated in the Letter Agreement. (Emphasis supplied)
49
Echoing the ruling of the trial court, the Court of Appeals held that the liability of the Lam Spouses
to pay the remaining balance for the first delivered unit is based on the second sentence of Article
1592 of the New Civil Code. The Lam Spouses’ receipt and use of the Minilab Equipment before
they knew that Kodak Philippines, Ltd. would not deliver the two (2) remaining units has made
them liable for the unpaid portion of the purchase price.
50
51
The Court of Appeals noted that Kodak Philippines, Ltd. sought the rescission of its contract with
the Lam Spouses in the letter dated October 14, 1992. The rescission was based on Article 1191
of the New Civil Code, which provides: "The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is incumbent upon him." In its letter,
Kodak Philippines, Ltd. demanded that the Lam Spouses surrender the lone delivered unit of
Minilab Equipment along with its standard accessories.
52
53
54
The Court of Appeals likewise noted that the Lam Spouses rescinded the contract through its
letter dated November 18, 1992 on account of Kodak Philippines, Inc.’s breach of the parties’
agreement to deliver the two (2) remaining units.
55
As a result of this rescission under Article 1191, the Court of Appeals ruled that "both parties must
be restored to their original situation, as far as practicable, as if the contract was never entered
into." The Court of Appeals ratiocinated that Article 1191 had the effect of extinguishing the
obligatory relation as if one was never created:
56
57
To rescind is to declare a contract void in its inception and to put an end to it as though it never
were. It is not merely to terminate it and to release parties from further obligations to each other
but abrogate it from the beginning and restore parties to relative positions which they would have
occupied had no contract been made.
58
The Lam Spouses were ordered to relinquish possession of the Minilab Equipment unit and its
standard accessories, while Kodak Philippines, Ltd. was ordered to return the amount of
₱270,000.00, tendered by the Lam Spouses as partial payment.
59
As to the actual damages sought by the parties, the Court of Appeals found that the Lam Spouses
were able to substantiate the following:
Incentive fee paid to Mr. Ruales in the amount of P100,000.00; the rider to the contract of lease
which made the Sps. Lam liable, by way of advance payment, in the amount of P40,000.00, the
same being intended for the repair of the flooring of the leased premises; and lastly, the payment
of P300,000.00, as compromise agreement for the pre-termination of the contract of lease with
Ruales.
60
The total amount is ₱440,000.00. The Court of Appeals found that all other claims made by the
Lam Spouses were not supported by evidence, either through official receipts or check
payments.
61
As regards the generator set improperly seized from Kodak Philippines, Ltd. on the basis of the
writ of replevin, the Court of Appeals found that there was no basis for the Lam Spouses’ claim for
reasonable rental of ₱5,000.00. It held that the trial court’s award of 12% interest, in addition to
the cost of the generator set in the amount of ₱130,000.00, is sufficient compensation for
whatever damage the Lam Spouses suffered on account of its improper seizure.
62
The Court of Appeals also ruled on the Lam Spouses’ entitlement to moral and exemplary
damages, as well as attorney’s fees and litigation expenses:
In seeking recovery of the Minilab Equipment, Kodak cannot be considered to have manifested
bad faith and malevolence because as earlier ruled upon, it was well within its right to do the same.
However, with respect to the seizure of the generator set, where Kodak misrepresented to the
court a quo its alleged right over the said item, Kodak’s bad faith and abuse of judicial processes
become self-evident. Considering the off-setting circumstances attendant, the amount of
P25,000.00 by way of moral damages is considered sufficient.
In addition, so as to serve as an example to the public that an application for replevin should not
be accompanied by any false claims and misrepresentation, the amount of P50,000.00 by way of
exemplary damages should be pegged against Kodak.
With respect to the attorney’s fees and litigation expenses, We find that there is no basis to award
Sps. Lam the amount sought for.
63
Kodak Philippines, Ltd. moved for reconsideration of the Court of Appeals Decision, but it was
denied for lack of merit. However, the Court of Appeals noted that the Lam Spouses’ Opposition
correctly pointed out that the additional award of ₱270,000.00 made by the trial court was not
mentioned in the decretal portion of the March 30, 2005 Decision:
64
Going over the Decision, specifically page 12 thereof, the Court noted that, in addition to the
amount of Two Hundred Seventy Thousand (P270,000.00) which plaintiff-appellant should return
to the defendantsappellants, the Court also ruled that defendants-appellants should, in turn,
relinquish possession of the Minilab Equipment and the standard accessories to plaintiff-appellant.
Inadvertently, these material items were not mentioned in the decretal portion of the Decision.
Hence, the proper correction should herein be made.
65
The Lam Spouses filed this Petition for Review on April 14, 2005. On the other hand, Kodak
Philippines, Ltd. filed its Motion for Reconsideration before the Court of Appeals on April 22,
2005.
66
While the Petition for Review on Certiorari filed by the Lam Spouses was pending before this court,
the Court of Appeals Special Fourteenth Division, acting on Kodak Philippines, Ltd.’s Motion for
Reconsideration, issued the Amended Decision dated September 9, 2005. The dispositive
portion of the Decision reads:
67
WHEREFORE, premises considered, this Court resolved that:
A. Plaintiff-appellant’s Motion for Reconsideration is hereby DENIED for lack of merit.
B. The decretal portion of the 30 March 2005 Decision should now read as follows:
"WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February 1999 of
the
Regional
Trial
Court,
Branch
65
in
Civil
Cases
No.
92-3442
is
hereby MODIFIED. Plaintiff-appellant is ordered to pay the following:
a. P270,000.00 representing the partial payment made on the Minilab equipment.
b. P130,000.00 representing the amount of the generator set, plus legal interest at 12% per
annum from December 1992 until fully paid;
c. P440,000.00 as actual damages;
d. P25,000.00 as moral damages; and
e. P50,000.00 as exemplary damages.
Upon the other hand, defendants-appellants are hereby ordered to return to plaintiff-appellant the
Minilab equipment and the standard accessories delivered by plaintiff-appellant.
SO ORDERED."
SO ORDERED. (Emphasis in the original)
68
Upon receiving the Amended Decision of the Court of Appeals, Kodak Philippines, Ltd. filed a
Motion for Extension of Time to File an Appeal by Certiorari under Rule 45 of the 1997 Rules of
Civil Procedure before this court.
69
This was docketed as G.R. No. 169639. In the Motion for Consolidation dated November 2, 2005,
the Lam Spouses moved that G.R. No. 167615 and G.R. No. 169639 be consolidated since both
involved the same parties, issues, transactions, and essential facts and circumstances.
70
In the Resolution dated November 16, 2005, this court noted the Lam Spouses’ September 23
and September 30, 2005 Manifestations praying that the Court of Appeals’ September 9, 2005
Amended Decision be considered in the resolution of the Petition for Review on Certiorari. It also
granted the Lam Spouses’ Motion for Consolidation.
71
72
In the Resolution dated September 20, 2006, this court deconsolidated G.R No. 167615 from
G.R. No. 169639 and declared G.R. No. 169639 closed and terminated since Kodak Philippines,
Ltd. failed to file its Petition for Review.
73
II
We resolve the following issues:
First, whether the contract between petitioners Spouses Alexander and Julie Lam and respondent
Kodak Philippines, Ltd. pertained to obligations that are severable, divisible, and susceptible of
partial performance under Article 1225 of the New Civil Code; and
Second, upon rescission of the contract, what the parties are entitled to under Article 1190 and
Article 1522 of the New Civil Code.
Petitioners argue that the Letter Agreement it executed with respondent for three (3) Minilab
Equipment units was not severable, divisible, and susceptible of partial performance.
Respondent’s recovery of the delivered unit was unjustified.
74
Petitioners assert that the obligations of the parties were not susceptible of partial performance
since the Letter Agreement was for a package deal consisting of three (3) units. For the delivery
of these units, petitioners were obliged to pay 48 monthly payments, the total of which constituted
one debt. Having relied on respondent’s assurance that the three units would be delivered at the
same time, petitioners simultaneously rented and renovated three stores in anticipation of
simultaneous operations. Petitioners argue that the divisibility of the object does not necessarily
determine the divisibility of the obligation since the latter is tested against its susceptibility to a
partial performance. They argue that even if the object is susceptible of separate deliveries, the
transaction is indivisible if the parties intended the realization of all parts of the agreed obligation.
75
76
77
78
79
Petitioners support the claim that it was the parties’ intention to have an indivisible agreement by
asserting that the payments they made to respondent were intended to be applied to the whole
package of three units. The postdated checks were also intended as initial payment for the whole
package. The separate purchase price for each item was merely intended to particularize the unit
prices, not to negate the indivisible nature of their transaction. As to the issue of delivery,
petitioners claim that their acceptance of separate deliveries of the units was solely due to the
constraints faced by respondent, who had sole control over delivery matters.
80
81
82
83
With the obligation being indivisible, petitioners argue that respondent’s failure to comply with its
obligation to deliver the two (2) remaining Minilab Equipment units amounted to a breach.
Petitioners claim that the breach entitled them to the remedy of rescission and damages under
Article 1191 of the New Civil Code.
84
Petitioners also argue that they are entitled to moral damages more than the ₱50,000.00 awarded
by the Court of Appeals since respondent’s wrongful act of accusing them of non-payment of their
obligations caused them sleepless nights, mental anguish, and wounded feelings. They further
claim that, to serve as an example for the public good, they are entitled to exemplary damages as
respondent, in making false allegations, acted in evident bad faith and in a wanton, oppressive,
capricious, and malevolent manner.
85
86
Petitioners also assert that they are entitled to attorney’s fees and litigation expenses under
Article 2208 of the New Civil Code since respondent’s act of bringing a suit against them was
baseless and malicious. This prompted them to engage the services of a lawyer.
87
Respondent argues that the parties’ Letter Agreement contained divisible obligations susceptible
of partial performance as defined by Article 1225 of the New Civil Code. In respondent’s view, it
was the intention of the parties to be bound separately for each individually priced Minilab
Equipment unit to be delivered to different outlets:
88
89
The three (3) Minilab Equipment are intended by petitioners LAM for install[a]tion at their Tagum,
Davao del Norte, Sta. Cruz, Manila and Cotabato City outlets. Each of these units [is] independent
from one another, as many of them may perform its own job without the other. Clearly the
objective or purpose of the prestation, the obligation is divisible.
The nature of each unit of the three (3) Minilab Equipment is such that one can perform its own
functions, without awaiting for the other units to perform and complete its job. So much so, the
nature of the object of the Letter Agreement is susceptible of partial performance, thus the
obligation is divisible.
90
With the contract being severable in character, respondent argues that it performed its obligation
when it delivered one unit of the Minilab Equipment. Since each unit could perform on its own,
there was no need to await the delivery of the other units to complete its job. Respondent then is
of the view that when petitioners ordered the depository bank to stop payment of the issued
checks covering the first delivered unit, they violated their obligations under the Letter Agreement
since respondent was already entitled to full payment.
91
92
93
Respondent also argues that petitioners benefited from the use of the Minilab Equipment for 10
months—from March to December 1992— despite having paid only two (2) monthly
installments. Respondent avers that the two monthly installments amounting to ₱70,000.00
94
should be the subject of an offset against the amount the Court of Appeals awarded to
petitioners.
95
Respondent further avers that petitioners have no basis for claiming damages since the seizure
and recovery of the Minilab Equipment was not in bad faith and respondent was well within its
right.
96
III
The Letter Agreement contained an indivisible obligation.
Both parties rely on the Letter Agreement as basis of their respective obligations. Written by
respondent’s Jeffrey T. Go and Antonio V. Mines and addressed to petitioner Alexander Lam, the
Letter Agreement contemplated a "package deal" involving three (3) units of the Kodak Minilab
System 22XL, with the following terms and conditions:
97
This confirms our verbal agreement for Kodak Phils., Ltd. to provide Colorkwik Laboratories, Inc.
with three (3) units Kodak Minilab System 22XL . . . for your proposed outlets in Rizal Avenue
(Manila), Tagum (Davao del Norte), and your existing Multicolor photo counter in Cotabato City
under the following terms and conditions:
1. Said Minilab Equipment packages will avail a total of 19% multiple order discount based on
prevailing equipment price provided said equipment packages will be purchased not later than
June 30, 1992.
2. 19% Multiple Order Discount shall be applied in the form of merchandise and delivered in
advance immediately after signing of the contract.
* Also includes start-up packages worth P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be payable in 48 monthly installments at THIRTY FIVE
THOUSAND PESOS (P35,000.00) inclusive of 24% interest rate for the first 12 months; the
balance shall be re-amortized for the remaining 36 months and the prevailing interest shall be
applied.
5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at ONE MILLION
SEVEN HUNDRED NINETY SIX THOUSAND PESOS.
6. Price is subject to change without prior notice.
*Secured with PDCs; 1st monthly amortization due 45 days after installation[.]
98
Based on the foregoing, the intention of the parties is for there to be a single transaction covering
all three (3) units of the Minilab Equipment. Respondent’s obligation was to deliver all products
purchased under a "package," and, in turn, petitioners’ obligation was to pay for the total purchase
price, payable in installments.
The intention of the parties to bind themselves to an indivisible obligation can be further discerned
through their direct acts in relation to the package deal. There was only one agreement covering
all three (3) units of the Minilab Equipment and their accessories. The Letter Agreement specified
only one purpose for the buyer, which was to obtain these units for three different outlets. If the
intention of the parties were to have a divisible contract, then separate agreements could have
been made for each Minilab Equipment unit instead of covering all three in one package deal.
Furthermore, the 19% multiple order discount as contained in the Letter Agreement was applied
to all three acquired units. The "no downpayment" term contained in the Letter Agreement was
99
also applicable to all the Minilab Equipment units. Lastly, the fourth clause of the Letter
Agreement clearly referred to the object of the contract as "Minilab Equipment Package."
In ruling that the contract between the parties intended to cover divisible obligations, the Court of
Appeals highlighted: (a) the separate purchase price of each item; (b) petitioners’ acceptance of
separate deliveries of the units; and (c) the separate payment arrangements for each
unit. However, through the specified terms and conditions, the tenor of the Letter Agreement
indicated an intention for a single transaction. This intent must prevail even though the articles
involved are physically separable and capable of being paid for and delivered individually,
consistent with the New Civil Code:
100
Article 1225. For the purposes of the preceding articles, obligations to give definite things and
those which are not susceptible of partial performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are
susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an obligation is indivisible
if so provided by law or intended by the parties. (Emphasis supplied)
In Nazareno v. Court of Appeals, the indivisibility of an obligation is tested against whether it can
be the subject of partial performance:
101
An obligation is indivisible when it cannot be validly performed in parts, whatever may be the
nature of the thing which is the object thereof. The indivisibility refers to the prestation and not to
the object thereof. In the present case, the Deed of Sale of January 29, 1970 supposedly
conveyed the six lots to Natividad. The obligation is clearly indivisible because the performance of
the contract cannot be done in parts, otherwise the value of what is transferred is diminished.
Petitioners are therefore mistaken in basing the indivisibility of a contract on the number of
obligors. (Emphasis supplied, citation omitted)
102
There is no indication in the Letter Agreement that the units petitioners ordered were covered by
three (3) separate transactions. The factors considered by the Court of Appeals are mere
incidents of the execution of the obligation, which is to deliver three units of the Minilab Equipment
on the part of respondent and payment for all three on the part of petitioners. The intention to
create an indivisible contract is apparent from the benefits that the Letter Agreement afforded to
both parties. Petitioners were given the 19% discount on account of a multiple order, with the
discount being equally applicable to all units that they sought to acquire. The provision on "no
downpayment" was also applicable to all units. Respondent, in turn, was entitled to payment of all
three Minilab Equipment units, payable by installments.
IV
With both parties opting for rescission of the contract under Article 1191, the Court of Appeals
correctly ordered for restitution.
The contract between the parties is one of sale, where one party obligates himself or herself to
transfer the ownership and deliver a determinate thing, while the other pays a certain price in
money or its equivalent. A contract of sale is perfected upon the meeting of minds as to the
object and the price, and the parties may reciprocally demand the performance of their respective
obligations from that point on.
103
104
The Court of Appeals correctly noted that respondent had rescinded the parties’ Letter Agreement
through the letter dated October 14, 1992. It likewise noted petitioners’ rescission through the
letter dated November 18, 1992. This rescission from both parties is founded on Article 1191 of
the New Civil Code:
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106
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfilment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfilment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of
a period.
Rescission under Article 1191 has the effect of mutual restitution. In Velarde v. Court of
Appeals:
107
108
Rescission abrogates the contract from its inception and requires a mutual restitution of benefits
received.
....
Rescission creates the obligation to return the object of the contract. It can be carried out only
when the one who demands rescission can return whatever he may be obliged to restore. To
rescind is to declare a contract void at its inception and to put an end to it as though it never was.
It is not merely to terminate it and release the parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties to their relative positions as if no contract
has been made. (Emphasis supplied, citations omitted)
109
The Court of Appeals correctly ruled that both parties must be restored to their original situation as
far as practicable, as if the contract was never entered into. Petitioners must relinquish
possession of the delivered Minilab Equipment unit and accessories, while respondent must
return the amount tendered by petitioners as partial payment for the unit received. Further,
respondent cannot claim that the two (2) monthly installments should be offset against the amount
awarded by the Court of Appeals to petitioners because the effect of rescission under Article 1191
is to bring the parties back to their original positions before the contract was entered into. Also
in Velarde:
As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the
automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply.
Instead, Civil Code provisions shall govern and regulate the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual
restitution is required to bring back the parties to their original situation prior to the inception of the
contract. Accordingly, the initial payment of ₱800,000 and the corresponding mortgage payments
in the amounts of ₱27,225, ₱23,000 and ₱23,925 (totaling ₱874,150.00) advanced by petitioners
should be returned by private respondents, lest the latter unjustly enrich themselves at the
expense of the former. (Emphasis supplied)
110
When rescission is sought under Article 1191 of the Civil Code, it need not be judicially invoked
because the power to resolve is implied in reciprocal obligations. The right to resolve allows an
injured party to minimize the damages he or she may suffer on account of the other party’s failure
to perform what is incumbent upon him or her. When a party fails to comply with his or her
obligation, the other party’s right to resolve the contract is triggered. The resolution immediately
produces legal effects if the non-performing party does not question the resolution. Court
intervention only becomes necessary when the party who allegedly failed to comply with his or her
obligation disputes the resolution of the contract. Since both parties in this case have exercised
their right to resolve under Article 1191, there is no need for a judicial decree before the resolution
produces effects.
111
112
113
114
115
V
The issue of damages is a factual one. A petition for review on certiorari under Rule 45 shall only
pertain to questions of law. It is not the duty of this court to re-evaluate the evidence adduced
before the lower courts. Furthermore, unless the petition clearly shows that there is grave abuse
of discretion, the findings of fact of the trial court as affirmed by the Court of Appeals are
conclusive upon this court. In Lorzano v. Tabayag, Jr.:
116
117
118
119
For a question to be one of law, the same must not involve an examination of the probative value
of the evidence presented by the litigants or any of them. The resolution of the issue must rest
solely on what the law provides on the given set of circumstances. Once it is clear that the issue
invites a review of the evidence presented, the question posed is one of fact.
....
For the same reason, we would ordinarily disregard the petitioner’s allegation as to the propriety
of the award of moral damages and attorney’s fees in favor of the respondent as it is a question of
fact. Thus, questions on whether or not there was a preponderance of evidence to justify the
award of damages or whether or not there was a causal connection between the given set of facts
and the damage suffered by the private complainant or whether or not the act from which civil
liability might arise exists are questions of fact.
Essentially, the petitioner is questioning the award of moral damages and attorney’s fees in favor
of the respondent as the same is supposedly not fully supported by evidence. However, in the
final analysis, the question of whether the said award is fully supported by evidence is a factual
question as it would necessitate whether the evidence adduced in support of the same has any
probative value. For a question to be one of law, it must involve no examination of the probative
value of the evidence presented by the litigants or any of them. (Emphasis supplied, citations
omitted)
120
The damages awarded by the Court of Appeals were supported by documentary
evidence. Petitioners failed to show any reason why the factual determination of the Court of
Appeals must be reviewed, especially in light of their failure to produce receipts or check
payments to support their other claim for actual damages.
121
122
Furthermore, the actual damages amounting to ₱2,040,000.00 being sought by petitioners must
be tempered on account of their own failure to pay the rest of the installments for the delivered
unit. This failure on their part is a breach of their obligation, for which the liability of respondent, for
its failure to deliver the remaining units, shall be equitably tempered on account of Article 1192 of
the New Civil Code. In Central Bank of the Philippines v. Court of Appeals:
123
124
125
Since both parties were in default in the performance of their respective reciprocal obligations,
that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and
Sulpicio M. Tolentino failed to comply with his obligation to pay his ₱17,000.00 debt within 3 years
as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts.
WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is
offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges,
for not paying his overdue ₱17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his
₱17,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M.
Tolentino derived some benefit for his use of the ₱17,000.00, it is just that he should account for
the interest thereon. (Emphasis supplied)
126
The award for moral and exemplary damages also appears to be sufficient. Moral damages are
granted to alleviate the moral suffering suffered by a party due to an act of another, but it is not
intended to enrich the victim at the defendant’s expense. It is not meant to punish the culpable
party and, therefore, must always be reasonable vis-a-vis the injury caused. Exemplary
damages, on the other hand, are awarded when the injurious act is attended by bad faith. In this
127
128
129
case, respondent was found to have misrepresented its right over the generator set that was
seized. As such, it is properly liable for exemplary damages as an example to the public.
130
However, the dispositive portion of the Court of Appeals Amended Decision dated September 9,
2005 must be modified to include the recovery of attorney’s fees and costs of suit in favor of
petitioners. In Sunbanun v. Go:
131
Furthermore, we affirm the award of exemplary damages and attorney’s fees. Exemplary
damages may be awarded when a wrongful act is accompanied by bad faith or when the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner which would
justify an award of exemplary damages under Article 2232 of the Civil Code. Since the award of
exemplary damages is proper in this case, attorney’s fees and cost of the suit may also be
recovered as provided under Article 2208 of the Civil Code. (Emphasis supplied, citation
omitted)
132
Based on the amount awarded for moral and exemplary damages, it is reasonable to award
petitioners ₱20,000.00 as attorney’s fees.
WHEREFORE, the Petition is DENIED. The Amended Decision dated September 9, 2005
is AFFIRMED with MODIFICATION. Respondent Kodak Philippines, Ltd. is ordered to pay
petitioners Alexander and Julie Lam:
(a) P270,000.00, representing the partial payment made on the Minilab Equipment;
(b) P130,000.00, representing the amount of the generator set, plus legal interest at 12% .per
annum from December 1992 until fully paid;
(c) P440,000.00 as actual damages;
(d) P25,000.00 as moral damages;
(e) P50,000.00 as exemplary damages; and
(f) P20,000.00 as attorney's fees.
Petitioners are ordered to return the Kodak Minilab System 22XL unit and its standard
accessories to respondent.
SO ORDERED.