DAMAGES The Code Commission explains that: The present code (Spanish civil code then in force) has

but a few general principles on the measure of damages. Moreover, practically the only damages in the present Code are compensatory ones and those agreed upon in a penal clause. Moral damages are not expressly recognized in the present Civil Code, although in one instance injury to reputation - such damages have been allowed by the Supreme Court of Spain, and some Spanish jurist believe that moral damages are allowable. The Supreme Court of the Philippines had awarded moral damages in few cases. The measure of damages is of far reaching importance in every legal system. Upon it depends the just compensation for every wrong or breach of contract. The Commission therefore, deemed it advisable to include a Title on Damages, which embodies some principles of the American law on the subject. The American courts have developed abundant rules and principles upon the adjudication of damages. The provisions on Damages are NEW except articles 2200, 2201, 2209, and 2212. Introduction The fundamental principle of the law on damages is that one injured by a breach of a contract and by a wrongful or negligent act or omission shall have a fair and just compensation, commensurate with the loss sustained as a consequences of the defendants act. General rule: Actual pecuniary compensation, whether the action is based on a contract or in tort - Generally, the damages awarded should be equal to, and precisely commensurate with the injury sustained. - Recovery of damages are framed with reference to just rights of BOTH PARTIES, not merely what may be right for an injured person to receive, but also what is just to compel the other party to pay, to accord just compensation for the injury. Concept As used in the Civil Code. Damages may mean either: 1. The injury or loss caused to another by the violation of his legal rights; or 2. The sum of money which the law awards or imposes as pecuniary compensation, recompense, or satisfaction for a injury done or wrong sustained as a consequence either of a breach of contractual obligation or a tortious act.

with the loss sustained as a consequence of the defendants act. Purpose Damages are awarded to compensate the plaintiff for the loss or injury that he suffered, not to enrich him, or to impose a penalty on the wrongdoer. Law on damages-where found. The law governing damages is found in articles 2195 to 2235. Damage distinguish from Injury Injury refers to the illegal invasion of a legal right thus the legal wrong to be redressed. Damage is the lost, hurt, or harm which results from the injury or the amount of money to be awarded by the court to compensate for the loss or injury suffered. Principle of damnum absque injuria damage without injury Case: Farolan vs. SOLMAC March 13, 1991 Facts: The Bureau of Customs withheld the release of the importation of Solmacs plastic products considering that the shipment was different from what was authorized and importation of which is restricted, under LOI no. 658-B. Thereafter, Solmac filed the action for mandamus and injunction with the trial court, which ordered Farolan and Parayno to release the importation. The CA ordered Farolan and Parayno solidarily liable in their personal capacity to pay Solmac temperate damages, exemplary. Issue: WON they are liable for damages Held: The SC set aside and annulled the decision of the CA. It further ruled that when a public officer takes his oath of office, he binds himself to perform the duties of his office faithfully and to use reasonable skill and diligence and to act primarily for the benefit of the public. The petitioners acted in good faith in not immediately releasing the imported goods. These cellophane products were competing with locally manufactured products. Hence, the importation of which is restricted. Petitioners could not be said to have acted in bad faith in not immediately releasing the imported goods without obtaining the clarificatory guidelines. As public officers, they had the duty to see to it that the law there tasked to implement was faithfully complied with. Whatever damages they may have caused is in the nature of damnum absque injuria. The law affords no remedy for damages resulting from an act that does not amount to a legal wrong.

Case: Ong vs. Court of Appeals January 21, 1999 The SC held that the fundamental principle of the law on damages is: that one injured by a breach of contract or by a wrongful or negligent act or omission shall have a fair and just compensation, commensurate

General principles of recovery To warrant recovery; requisites -there must be both a right of action -a wrong inflicted by the defendant -a damage resulting to the plaintiff 1. An action for recovery of damages for the commission of an injury to a person is a personal action. Personal Action- one brought for the recovery of personal property, for the enforcement of some contract of recovery of damages for its breach or for the recovery of damages for the commission of an injury to the persons or property. Case: Pascual vs. Beltran October 27, 2006 Facts: Raymundo was charged with Conduct Grossly Prejudicial to the Best Interest of the Services/Gross Insubordination/Violation of Reasonable Office Rules and Regulations. The DOTC exonerated Raymundo of the charges. Raymundo filed an action for damages arising from Malicious Administrative suit against Pascual, primarily on the basis of the administrative complaint against her. During the trial, Pascual was represented by the OSG. Raymundo filed a motion to disqualify the OSG since no right or interest of the government is involved and that petitioner is sued in his private capacity. The trial court granted the motion of Raymundo stating that Pascual is being sued for acts which he committed in his official capacity but the cause of action is for torts, for which he may be held personally answerable. It is a suit for damages, the interest of the government is in no way involved so that the appearance of the SG is unjustified. Held: The SC affirmed the decision of the trial court. The OSG has no authority to represent Pascual in a civil suit for damages. The law allows a public official to be represented by the OSG in all civil, criminal and special proceedings, when such proceedings arise from the formers acts in his official capacity. In this case, petitioner was actually sued in his personal capacity. The complaint filed by Raymundo merely identified petitioner as Director of Telecommunications Office, but did not categorically state he was being sued in his official capacity. The reliefs sought by Raymundo are directed against Pascual personally and not his office. Raymundo is claiming directly from Pascual. Thus, the OSG has no authority to represent him in such civil suit for damages. 2. Damages and its amount must be proved Every judgment for damages, whether arising from a breach of contract or whether the result of some provision of law, must rest upon satisfactory proof of the existence in reality of the damages alleged to have been suffered. (Rubiso vs. Rivera 41 Phil. 39) Except in those cases where the law authorizes the imposition of punitive or exemplary damages, a party claiming damages must establish by competent evidence the amount of such damages and courts cannot give judgment for a greater amount than that actually prove. (Ventanilla vs. Centeno)

3. Only proximate, not remote, damages are recoverable. Proximate damages said to be such as are the ordinary and natural result of the omission or commission of acts of negligence, and such are usual and might have been reasonably expected or contemplated. Remote Damages the unusual unexpected result not reasonably to be anticipated from an accidental or unusual combination of circumstances-a result beyond and over which the negligent party has no control. In order to maintain an action for damages for injuries claimed to have been caused by a negligent or other tortuous or wrongful act or omission, it should be made to appear that such act or omission was the proximate cause of the injuries complained of. The damages the plaintiff is entitled to recover in a civil action for damages are, in the absence of any statutory modification of the rule, such only as are the natural and probable consequences of the wrongful act or breach of contract. Those which naturally and proximately flow from the original wrongful act. TEST: whether the facts shown constitute a continuous succession of events so linked together as to make a natural whole or whether there was a new and independent cause intervening between the wrong and the injury. 4. Speculative damages NOT recoverable Alleged injuries or losses that are uncertain or contingent cannot be used as a basis of recovery for TORT or contract actions. An individual cannot be compensated for mere speculative probability of future loss unless he can prove that such negative consequences can reasonably be expected to occur. The amount of damages sought in a lawsuit need not be established with absolute certainty provided they are anticipated with reasonable certainty. Thus, in an action of ejectment, damages claimed by plaintiff on the basis of interest that could have been realized had the lands been converted into a subdivision and sold were too speculative to sustain an award, in the absence of evidence that the lands could have been sold at the price claimed and the purchase money collected.(M.M. Tuason & co. vs. De Guzman) 5. Duty of the injured party to minimize damages The party suffering loss or injury must exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission in question. (Article 2203) A party cannot recover for loss which s/he could have avoided or mitigated through his/her reasonable efforts. A person injured by the wrongful acts of another has a duty to mitigate or minimize the damages and must protect himself/herself if s/he can do so with reasonable effort or at minimal expense, and can recover from the delinquent party only such damages as s/he could not, with reasonable effort, have avoided.

General Provisions ARTICLE 2195: The provsions of this Title shall be respectively applicable to all obligations mentioned in article 1157. Article 1157: sources of obligations 1. Law 2. Contracts 3. Quasi-contracts 4. Delicts and 5. Quasi-delicts. Classification of Damages: ARTICLE 2197: Damages may be: 1. 2. 3. 4. 5. 6. Actual or compensatory Moral Nominal Temperate or moderate Liquated or Exemplary or corrective.

Ordinary Damages Found in all breaches of contract where there are no special circumstances to distinguish the case specially from other contracts. In all such cases the damages recoverable are such as naturally and generally would result from such a breach, according to the usual course of things. These damages constitute the direct loss suffered by the aggrieved party. They are estimated on the basis of circumstances prevailing on the date of the breach of the contract. Generally inherent in a breach of Typical contract

Illustration: In contracts for 'sale and purchase', the general rule as regards measures of damages is that the damages would be assessed on the difference between the contract price and the market price on the date of breach. A agreed to deliver 100 bags of rice at P90 per bag on a future date and finding that the market price on that date has risen to P95 a bag, he refused to deliver them. In a suit for damages by the buyer for breach of contract for delivery of goods, it was held that the measure of damages is the difference between the contract price and the market price i.e. P5 per bag. If, however, the thing contracted is not available in the market, the price of the nearest and best available substitute may be taken into account in calculating damage. In the absence of market at the place of delivery, market price of the nearest place or price prevailing in the controlling market is to be considered. Special Damages Those which exist because of SPECIAL circumstances and for which a debtor in GOOD FAITH can be held liable only if he had been previously informed of such circumstances.

Actual Damages adequate compensation only for pecuniary loss actually suffered by the plaintiff as he has duly proved (Article 2199). The components of actual damages are: a. value of loss and unrealized profit (Article 2200), b. loss of earning capacity for personal injury suffered (Article 2205), c. injury to plaintiffs business standing or commercial credit, attorneys fees (Article 2208) and d. interest (Article 2209) Moral Damages damages, though incapable of pecuniary estimation, are designed to compensate and alleviate in some way the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury unjustly caused a person. (Article 2217) Nominal Damages adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. (Article 2221) Temperate or moderate damages damages which may be recovered when the Court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. They are more than nominal but less than compensatory damages. (Article 2224) Liquidated Damages damages agreed upon by the parties to a contract, to be paid in case of breach thereof. (Article 2226) Liquidated damages, whether intended as an indemnity or penalty, shall be equitably reduced if they are iniquitous or unconscionable. (Article 2227) Exemplary Damages damages imposed by way of example or correction for the public good, in addition to the moral, temperate, liquidate or compensatory damages (Article 2229). Requirements: 1. Imposed by way of example in addition to other damages. 2. Cannot be recovered as a matter of right 3. The act complained of must be accompanied by bad faith. Concept of SPECIAL AND ORDINARY damages

Illustration: A taxi driver gave his taxi for repair to a mechanic informing him that unreasonable delays will result in loss of income of P100 per day. The mechanic unreasonably delays the repair of the taxi. The taxi driver is entitled to recover loss of income at the rate of P100 per day. If a carrier fails to deliver a movie film intended for showing at fiesta, it cannot be held liable for the extraordinary profits realizable at a fiesta showing, if it had not been told that the film had to be delivered in time for fiesta.(Mendoza vs. PAL, 90 Phil 836) Note: If a debtor is in BAD FAITH, special damages can be assessed against him even if he had NO knowledge of the special circumstances. It is enough that the damage can be reasonably attributed to the nonperformance of obligation.

Actual Damages

Cases: The rule is long and well settled that there must be pleading and proof of actual damages suffered for the same to be recovered. In addition to the fact that the amount of loss must be capable of proof, it must also be actually proven with a reasonable degree of certainty, premised upon competent proof or the best evidence obtainable. The burden of proof of the damage suffered is, consequently, imposed on the party claiming the same who should adduce the best evidence available in support thereof, like sales and delivery receipts, cash and check vouchers and other pieces of documentary evidence of the same nature. In the absence of corroborative evidence, it has been held that self-serving statements of account are not sufficient basis for an award of actual damages. Corollary to the principle that a claim for actual damages cannot be predicated on flimsy, remote, speculative, and insubstantial proof, courts are, likewise, required to state the factual bases of the award. (Oceaneering Contractors vs. Nestor N. Barretto, doing business as N.N.B. Lighterage) The burden of proof is on the party who would be defeated if no evidence would be presented on either side. He must establish his case by a preponderance of evidence which means that the evidence, as a whole, adduced by one side is superior to that of the other. In other words, damages cannot be presumed and courts, in making an award must point out specific facts that could afford a basis for measuring whatever compensatory or actual damages are borne. (PNOC Shipping vs CA) No official receipts were, however, presented to substantiate the claim. The victims wifes testimony cannot thus be considered as competent proof and cannot replace the probative value of official receipts to justify the award of actual damages, for jurisprudence instructs that the same must be duly substantiated by receipts. (People vs Sara G.R. No. 140618 Dec. 10, 2003) The photographs the petitioners presented as evidence show the extent of the damage done to the house, the tailoring shop and the petitioners appliances and equipment. Irrefutably, this damage was directly attributable to the drivers gross negligence in handling OMCs truck. Unfortunately, these photographs are not enough to establish the amount of the loss with certainty. (Tan vs OMC Carriers G.R. No. 190521 January 12, 2011) The claim of P70,000 as actual damages is supported merely by a list of expenses instead of official receipts. A list of expenses cannot replace receipts when the latter should have been issued as a matter of course in business transactions. Neither can the mere testimony on the amount spent suffice. It is necessary for a party seeking an award for actual damages to produce competent proof or the best evidence obtainable to justify such award. (People vs Guillera G.R. No. 175829 March 20, 2009) An estimate of the damage cost will not suffice. Private respondents failed to adduce adequate

Concept Article 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages. Actual or compensatory damages are those recoverable because of pecuniary loss actually suffered and duly proved by the plaintiff. Under Article 2199 of the Civil Code, actual or compensatory damages are those awarded in satisfaction of, or in recompense for, loss or injury sustained. They proceed from a sense of natural justice and are designed to repair the wrong that has been done, to compensate for the injury inflicted and not to impose a penalty. In actions based on torts or quasi-delicts, actual damages include all the natural and probable consequences of the act or omission complained of. (PNOC Shipping and Transport Corporation vs. CA G.R. No. 107518 October 8, 1998) Actual damages are compensation for an injury that will put the injured party in the position where it was before it was injured. They pertain to such injuries or losses that are actually sustained and susceptible of measurement. Except as provided by law or by stipulation, a party is entitled to an adequate compensation only for such pecuniary loss as it has duly proven. (Quisumbing vs MERALCO G.R. No. 142943 April 3, 2002)

Actual damages or compensatory damages: Is there a difference? In the first place, actual damages are not different from compensatory damages. Under Chapter 2, Title XVIII, Book IV of the Civil Code, actual and compensatory damages are synonymous; hence the title of the Chapter as well as Article 2199 thereof refer to them as actual or compensatory damages. (People vs Laceste, G.R. No. 127127 July 30, 1998) Civil Indemnity and Actual Damages Civil indemnity ex delicto is the indemnity authorized in our criminal law for the offended party, in the amount authorized by the prevailing judicial policy and apart from other proven actual damages, which itself is equivalent to actual or compensatory damages in civil law. This award stems from Art. 100 of the RPC which states, Every person criminally liable for a felony is also civilly liable. (People vs Jose Pepito Combate G.R. No. 189301 December 15, 2010) Requisites 1. Plead for/allege actual damages However, when a prayer mentions only exemplary damages, moral damages, and attorneys fees and such further relief that is deemed just and equitable, such phrase may include actual damages if and when they are proved. 2. Proof of actual damages suffered Actual damages, to be recoverable, must not only be capable of proof, but must actually be proved with a reasonable degree of certainty.

and competent proof of the pecuniary loss they actually incurred. Private respondents merely sustained an estimated amount needed for the repair of the roof of their subject building. What is more, whether the necessary repairs were caused only by petitioners alleged negligence in the maintenance of its school building, or included the ordinary wear and tear of the house itself, is an essential question that remains indeterminable. (Southeastern College, Inc. v. Court of Appeals) Components Article 2200. Indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain. Value of the loss suffered (dao emergente) loss of what a person already possesses Example:

"lucrum cessans," are not to be granted on the basis of mere speculation, conjecture, or surmise, but rather by reference to some reasonably definite standard such as market value, established experience, or direct inference from known circumstances. However, when the existence of a loss is established, absolute certainty as to its amount is not required. The benefit to be derived from a contract which one of the parties has absolutely failed to perform is of necessity to some extent, a matter of speculation, but the injured party is not to be denied for that reason alone. He must produce the best evidence of which his case is susceptible and if that evidence warrants the inference that he has been damaged by the loss of profits which he might with reasonable certainty have anticipated but for the defendant's wrongful act, he is entitled to recover. (Producers Bank of the Philippines vs. CA and Spouses Chua) Loss of earning capacity for personal injury suffered (Art. 2205) Note:

Destruction of things Fines or penalties that had to be paid Rents and agricultural products not received Cost of medical procedures to restore the injured person to his or her former condition (this award necessitates expert testimony on the cost of possible restorative medical procedure.) A scar resulting from the infliction of injury on the face of a woman gave rise to a legitimate claim for restoration to her conditio ante, granted P15,000 as actual damages for plastic surgery. It bears emphasis that the said amount was based on expert testimony. (Gatchalian v. Delim) Note: Where goods are destroyed by the wrongful act of the defendant, the plaintiff is entitled to their value at the time of destruction, that is, normally, the sum of money which he would have to pay in the market for identical or essentially similar goods, plus in a proper case damages for the loss of use during the period before replacement. (PNOC Shipping and Transport Corporation vs. Court of Appeals and Maria Efigenia Fishing Corporation) Profits which are not obtained or realized (lucro cesante) failure to receive as a benefit that which would have pertained to him Example:

Article 2205 of the New Civil Code allows the recovery of damages for "loss or impairment of earning capacity in cases of temporary or permanent personal injury." Such damages covers the loss sustained by the dependents or heirs of the deceased, consisting of the support they would have received from him had he not died because of the negligent act of another. The loss is not equivalent to the entire earnings of the deceased, but only that portion that he would have used to support his dependents or heirs. Hence, we deduct from his gross earnings the necessary expenses supposed to be used by the deceased for his own needs. In fixing the amount of that support, we must reckon with the necessary expenses of his own living, which should be deducted from his earnings. Thus, it has been consistently held that earning capacity, as an element of damages to ones estate for his death by wrongful act is necessarily his net earning capacity or his capacity to acquire money, less the necessary expense for his own living. Stated otherwise, the amount recoverable is not loss of the entire earning, but rather the loss of that portion of the earnings which the beneficiary would have received. In other words, only net earnings, not gross earning are to be considered that is, the total of the earnings less expenses necessary in the creation of such earnings or income and less living and other incidental expenses. (Magbanua vs Tabusares citing Villa Rey Transit, Inc. vs. CA) By way of exception, damages for loss of earning capacity may be awarded despite the absence of documentary evidence when:

Profits that could have been earned had there been no interruption on the plaintiffs business Interest on rentals not paid Lost income because the self-employed plaintiff cannot work

1. The deceased is self-employed and earning less than the minimum wage under current labor laws, in which case, 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. Injury to plaintiffs business standing or commercial credit (Art. 2205)

Note: There are two kinds of actual or compensatory damages one is the loss of what a person already possesses, and the other is the failure to receive as a benefit that which would have pertained to him. In the latter instance, the familiar rule is that damages consisting of unrealized profits, frequently referred as "ganacias frustradas" or

"The financial credit of a businessman is a prized and valuable asset, it being a significant part of the foundation of his business. Any adverse reflection thereon constitutes some financial loss to him." (Leopoldo Araneta vs. Bank of America) Attorneys fees (Art. 2208) 2 Concepts: 1. Ordinary concept reasonable compensation paid to a lawyer by his client for the legal services rendered. 2. Extraordinary concept awarded by the court as indemnity for damages to be paid by the losing party to the prevailing party, such that, in any of the cases provided by law where such award can be made (Art. 2208), the amount is payable not to the lawyer but to the client, unless they have agreed that the award shall pertain to the lawyer as additional compensation or as part thereof. 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; 2. When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; 3. In criminal cases of malicious prosecution against the plaintiff; 4. In case of a clearly unfounded civil action or proceeding against the plaintiff; 5. Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim; 6. In actions for legal support; 7. In actions for the recovery of wages of household helpers, laborers and skilled workers; 8. In actions for indemnity under workmen's compensation and employer's liability laws; 9. In a separate civil action to recover civil liability arising from a crime; 10. When at least double judicial costs are awarded; 11. In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered. In all cases, the attorney's fees and expenses of litigation must be reasonable. Note: Generally, attorneys fees are not a proper element of damages, for it is not a sound public policy to place a premium on the right to litigate. An award of attorneys fees lies within the discretion of the court and depends upon the circumstances of each cases. However, it requires factual, legal and equitable justification; its basis cannot be left to speculation or conjecture. (Dutch Boy Philippines vs Seniel G.R. No. 170008 January 19, 2009)

Attorney's fees as part of damages are not meant to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. The award of attorney's fees is the exception rather than the general rule. Consequently, the reason for the award must be stated in the text of the courts decision. If it is stated only in the dispositive portion of the decision, the same must be disallowed. (Madrid vs Mapoy, G.R. No. 150887 August 14, 2009) It is true that, in No. 11 of Article 2208, recovery of counsel fees is allowed "where the court deems it just and equitable that attorneys' fees and expenses of litigation should be recovered", but even in such cases the conclusion must be borne out by findings of facts and law. What is just and equitable in a given case is not a mere matter of feeling but of demonstration. This is especially true since the last part of Article 2208 expressly adds that the "attorneys' fees and expenses of litigation must be reasonable". Hence, the exercise of judicial discretion in the award of attorneys' fees under Article 2208 (11) of the Civil Code demands a factual, legal, or equitable justification upon the basis of which the court exercises its discretion. (Buan vs Camaganacan G.R. No. L-21569 February 28, 1966) Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorneys fees may not be awarded where no sufficient showing of bad faith could be reflected in a partys persistence in a case other than an erroneous conviction of the righteousness of his cause. (DBP vs Traverse Development Corp. G.R. No. 169293 October 5, 2011) The Court has established a set standards in fixing the amount of attorney's fees:

1. Amount and character of the services rendered; 2. Labor, time and trouble involved; 3. The nature and importance of the litigation or business in which the services were rendered; 4. The responsibility imposed; 5. The amount of money or the value of the property affected by the controversy or involved in the employment; 6. The skill and experience called for in the performance of the services; 7. The professional character and social standing of the attorney; 8. The results secured, it being a recognized rule that an attorney may properly charge a much larger fee when it is contingent than when it is not. (These factors approximate those enumerated in Rule 20.01 of the Code of Professional Responsibility) Interest (Art. 2209) Kinds: 1. Agreed interest provided for by the terms of a contract to be paid before its breach. Also called contractual interest or monetary interest (interest for the use of money) 2. Interest by way of damages interest allowed in actions for breach of contract or tort for the unlawful detention of money already due. It is allowed as a result

of the justice of the individual case and as compensation to the injured party. Often called moratory interest (interest for the delay) General Rule: Interest is allowed as a matter of right for failure to pay liquidated claims when due Unliquidated claims will bar the granting of interest Reason: The person liable did not know what amount he owed and therefore should not be charged interest for not paying an unknown sum Exception: HOWEVER, if a claim otherwise unliquidated is ascertainable by mathematical computation, interest is allowed as though the claim were liquidated (Sunga-Chan vs CA GR 164401 June 25, 2008) Rate of Interest (EASTERN SHIPPING LINES vs CA, G.R. No. 97412 July 12, 1994) 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 12% 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 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

Moral Damages

A. Concept Article 2217 of the New Civil Code: Moral damages includes physical suffering, mental anguish, freight, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendants wrongful act or omission. B. Purpose of Awarding Moral Damages: To compensate the claimant for the injury suffered and not to impose penalty on the wrongdoer. It is not meant to enrich a person at the expense of the other, but are awarded to enable the injure party to obtain means, diversions, or amusement that will serve to alleviate the moral suffering the person has undergone. It is aimed at restoration, as much as possible, of the spiritual status quo ante. C. Requisites: 1. Evidence that plaintiff suffered: physical suffering, mental anguish, freight serious anxiety besmirched reputation, wounded feelings, moral shock, social humiliation, similar injury

2. Culpable act or omission factually established 3. Proof that the wrongful act or omission of the defendant is the proximate cause of the damages sustained by the claimant. If there is no proof upon which the claim for moral damages could be based, it could not be out rightly awarded. 4. The case is predicated on any of the instances expressed or envisioned by Article 2219 and Article 2220 of the Civil Code. Illustrative Cases Pagsuyuin vs IACGR No. 72121, February 6, 1991 Facts: A certain Mrs. Schlander was able to secure a loan from Manila Banking Corporation secured by real estate mortgage of two properties of Salud Pagsuyuin upon a forged power of attorney allegedly signed by the latter. Thereafter, Saluds cousins Rafael and Peregrina offered to settle the loan if Salud will allow Peregrina to stay free of charge in the leased premises and Salud will repay the amount with interest. Consequently two documents were allegedly executed involving the transfer of properties of Salud to Peregrina

and Rafael. Salud denied having executed the deeds alleging that she was in Batangas at that time. Furthermore, the witnesses to the instrument also denied their signatures. Salud then filed for a complaint against her two cousins alleging that her signature and those of the witnesses were obtained thru fraud and trickery. The RTC ruled in favor of Salud. Among others, it awarded the award of P20,000.00 as moral damages. The IAC affirmed the decision but reduced the award of moral damages to P5,000.00. Issue: Whether or not the award of moral damages is warranted Ruling: Yes. For moral damages to be awarded, it is essential that the claimant must have satisfactorily proved during trial the existence of the factual basis of the damages and its causal connection with adverse partys acts. The wrongful act attributable to the petitioners which is the employment of fraud is the proximate cause of the mental anguish suffered by Salud.

Facts: Tommy Ferrer was found guilty attempted homicide for attacking Ricardo Ferrer and frustrated homicide for his attack on Roque Ferrer. Among others, he was ordered to pay moral damages of P10,000.00 to Roque and P8,000.00 to Ricardo. Issue: Whether the awards are proper. Ruling: While no proof of pecuniary loss is necessary, it is essential that the claimant should satisfactorily provide factual basis for the alleged moral injury. In the case of Roque, the award is in order since he testified that suffered pain even at the time that he was being discharged from the hospital. However, in the case of Ricardo, the award is unsubstantiated, because he did not satisfy on any emotional distress, mental anguish or even physical suffering which he suffered as a result of the crime. 2. Quasi-delicts causing physical injuries Illustrative Case:

MERALCO vs TEAM Electronics Corp, GR No. 131723, December 13, 2007 Facts: MERALCO is the supplier of electricity to two of TEAMs buildings. A surprise inspection by petitioner was conducted wherein they found out that two meter were tampered and did not register the actual power consumption. Petitioner then demanded payment and when the respondent failed to pay. They disconnected the electric supply. Defendant filed for a complaint for damages. The RTC ruled in favor of TEAM and ordered MERALCO to pay among others, moral damages of P500, 000.00. The CA affirmed the RTC. Issue: Whether or not damages moral damages should be awarded. Ruling: No. The claim of moral damages was premised on the damage to its goodwill and reputation. A corporation can recover moral damage when its reputation is debased, resulting in its humiliation in the business realms. However it is imperative for the claimant to present proof to justify the award. It is essential to prove the existence of the factual basis of the damage and its causal relation to petitioners acts. In the present case, the records are bereft of any evidence that the name or reputation has been debased as a result of petitioners acts. Besides, the trial court simply awarded moral damages in the dispositive portion of its decision without stating the basis thereof.

RT Transport Corporation vs Pante, September 15, 2009 Due to a vehicular incident, the respondent sustained a laceration in the frontal area with fracture of the right humerus. He underwent an operation for the fracture, and after a few years of rest, he had to undergo a second operation. He suffered physical pain, mental anguish and anxiety as a result of the vehicular accident. The Court awarded P50,000.00 3. Seduction, abduction, rape, or other lascivious acts Note: Victim may recover Parents may also recover 4. Adultery or concubinage 5. Illegal or arbitrary detention or arrest 6. Illegal search 7. Libel, slander, or any other forms of defamation 8. Malicious prosecution 9. Article 309: Any person who shows disrespect to the dead, or wrongfully interferes with a funeral shall be liable to the family of the deceased for damages, material and moral. Note: Action may be brought by the following persons in this particular order: spouse; descendants; ascendants; brothers and sisters. 10. Acts referred in the following articles: a. Article 21: Willful cause of loss or injury in a manner contrary to public policy, good customs, or public policy b. Article 26: Illustrative Case Interference

D. When Can Moral Damages be Recovered: Article 2219 1. A criminal offense resulting in physical injuries Illustrative Case: Ferrer vs People, February 22, 2006

Radio Communications of the Philippines vs Verchez, January 31, 2006 Facts: Grace sent a telegram to her sister Zenaida through petitioner company. She was asking for financial assistance for their mother. RCPI failed to deliver the telegram. Issue: Whether there is basis for moral damages. Ruling: Yes. The source is not Article 26: Meddling with or disturbing the private life or family relations of another. The negligence of RCPI disturbed the peace of mind not only of Grace but of the whole family. It disrupted the filial tranquility among them as they blamed each other for failing to respond swiftly to an emergency. The tortuous omissions complained were therefore e analogous to the acts mentioned in Article 26. c. Article 27 malfeasance, misfeasance, nonfeasance of official duty d. Article 28: unfair competition

period of their loans. Also, they issued a notice in the Manila Bulletin. The RTC, among others, moral damages of P20, 000.00 . The CA affirmed in toto. Issue: Whether moral damages should be awarded. Ruling: No. Moral damages are not generally recoverable in culpa contractual except when bad faith supervenes and is proven. It may be that gross negligence may sometimes amount to bad faith. In the present case, the cause of action of the respondents arose merely from simple negligence. The trial court categorically found that due to an oversight, the defendants mistakenly renewed the first loan. Defendants action must be vitiated by bad faith or that there is willful intent to injure. Moral damages cannot arise from simple negligence.

Northwest Oreint Philippines vs CA, June 8, 1990 Facts: As a graduation gift from their parents, Annette, Joy, and Marilou were given a trip abroad. They flew to Hongkong where they will wait for their plane tickets to Tokyo and US. In Manila, the parents went to the agent of petitioner to purchase said tickets and were assure that the tickets will be delivered to the children. When Annette and Marilou claimed the ticket, they found our that there was a miscomputation and they have to pay additional $261.60 per ticket. They requested that the Manila Office be contacted but they were arrogantly rejected in the presence of may persons. Having no other choice, they paid. Issue: Whether moral damages should be awarded.

e. Article 29: filing of a dependent civil action because of an acquittal in the criminal case based on reasonable doubt f. Article 30: filing of a dependent civil action arising from criminal offense, and no criminal proceedings are instituted during the pendency of the civil case g. Article 32: violations of constitutional rights

h. Article 34: refusal or failure of a police officer to render aid and protection in case of danger to life or property i. Article 35: criminal offense 11. Article 2220: Willful injury to property may be a legal ground for awarding 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 of in bad faith. Illustrative Case Enrico Villanueva and Ever Pawnshop vs Spouses Salvador Facts: Spouses Salvador secured two loans from Ever pawnshop secured by two pledges. The Salvadors failed to redeem the pawned jewelry. Thereafter, Ever Pawnshop issued a notice in Manila Bulletin announcing an auction sale on the very day of auction itself. The Salvador filed a complaint for damages arising from the sale without notice of the two sets of jewelry pledged. Petitioner alleged that they reminded the Salvadors of the maturity date and redemption in case of non-prosecution of a

Ruling: Yes. While the miscomputation was not unfamiliar, the negligence imposed upon them a needless burden who had gone on their trio precisely to enjoy themselves. Worse, the manner of treatment was far from acceptable. The employees should have been polite if not sympathetic to the two young girls in the foreign land. Instead, they were hostile, overbearing. The girls testified that they were treated coldly and arrogantly. They were not accorded courtesy but were humiliated. These acts taken in totality constitutes more than mere negligence and assumed the dimension of bad faith. There is clear malice, manifested in the contemptuous disregard of the passengers protest and the abrupt rejection of their request. E. Considerations in Awarding Damages General Rule: Each case must be governed by its peculiar circumstances. there is no hard and fast rules in determining the proper amount. Guidelines Used by Supreme Court in some cases (Jurisprudence):

1. Moral damages must be proportionate to the suffering inflicted. RCPI and Globe Mackay and Radio Corporation vs Rufus Rodriguez, GR No. 83768, February 28, 1990 Facts: Rufus Rodriguez sent two telegrams via RCPI. The first was sent to Sudan advising Taha of his arrival in Sudan for an international conference. The second was sent to US addressed to Merger, the Secretary of the organization. These two telegrams were not delivered and RCPI did not inform Rodriguez of nondelivery. When Rodriguez arrived in Sudan, nobody was waiting for him and was forced to sleep at the airport by lining five (5) chairs together and lay down his luggage near him. The conference also had to be cancelled because the Merger was absent. RCPI blames Rodriguez for the non-delivery of the two telegrams. Regarding the first telegram, the complete address was not given. As to the second telegram, Merger already moved from her old address and it was Rodriguezs fault for not verifying the address. Rodriguez filed for complaint for damages. The RTC, among others awarded P100, 000.00. The CA affirmed. Issue: Whether moral damages should be awarded. Ruling: Yes. Records show that an earlier telegram to Taha bearing the incomplete address was received by the latter. As to the second telegram, the company as a public utility should ascertain that messages are delivered and in cases of undelivered messages, the sender must be given notice of non-delivery. However, the amount awarded is unconscionable and excessive. Moral damages are emphatically not intended to enrich a complainant at the expense of defendant. They are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone, by reason of the defendants culpable action. The award of moral damages must be proportionate to the suffering inflicted. The respondent is not entirely blameless. Anybody who is involved in international conference and meetings knows that a telegram is not adequate preparation. He cannot simply send a telegram and assume that every preparation will proceed as he anticipates it. The amount of P10,000.00 as moral damages in favor of the respondent would be reasonable considering the facts and circumstances. 2. Social and financial standing Bankard vs Dr. Antonio Novak Feliciano Facts: Dr. Feliciano is the holder of PCIBank Mastercard with an extension line issued to his wife, Marietta. While in Canada, he tried to use the card to pay for breakfast bill but it was dishonored. Thus, it was the guests doctors who had to pay for the bill. He

immediately inquired on the cause of dishonor and denied not having paid his bills. The next day, he met with one of the doctors to reimburse the bill and thereafter went to a prestigious mall. Respondent again tried to use his card but was dishonored to his embarrassment. The card was confiscated. Respondent filed for complaint for damages for breach of contractual rights and damages. He alleged that as a result of the incident, he suffered social humiliation, embarrassment and besmirched reputation. Petitioner claimed that they were diligent before suspending the use of card. They alleged that there was a report of counterfeit transaction of the extension line, thus they cancelled it as well as the principal line. They also tried to call the respondent but he was not home. The RTC awarded, among others, moral damages of P1,000,000.00. The CA reduced the same to P800, 000.00. Issue: Whether moral damages should be awarded. Ruling: Yes. Moral damages by be recovered in culpa contractual when the defendant acted in bad faith or with malice in the breach of contract. Malice or bad faith implies moral obliquity or a conscious design to do a wrongful act for a dishonest purpose. However, intentional design need not to be always present. Bad faith under Art 2220 includes gross negligence amounting to bad faith or in wanton disregard of his contractual obligation. Petitioner was not diligent in its efforts at personally contacting the respondent. It only tried to call once, and contended to leave a message. Before the incident, the petitioner still has three days to inform the respondent. Evidence show that respondent is a cardholder in good standing for 10 years. The attendant circumstances show that there is gross negligence amounting to bad faith As to the amount, it is reduce to P500,000.00. Moral damages are not meant to enrich the complainant at the expense of the defendants and should be commensurate with the actual loss or injury suffered 4. Moral feelings and personal pride of claimant

5. Discretion of the court but said discretion should be just and reasonable, not founded upon the whims and caprices of the judge. Illustrative Case Siga-an vs Villanueva, January 20, 2009 Respondent testified that she experienced sleepless nights and wounded feelings when petitioner refused to return the around paid as interest despite repeated demands. Moral damages is justified. However the P300,000.00 is exorbitant and must be equitably reduced. The assessment of damages is left to the discretion of the court but this discretion is limited by the principle that the amount awarded should not be

palpably excessive as to indicate that it was the result of prejudice or corruption on the part of the trial court. The amount of P150,000.00 as moral damages was declared to be fair, reasonable, and proportionate to the injury suffered. Article 2218: In the adjudication of moral damages, the sentimental value of property, real or personal may be considered.

When Awarded: Article 2222. The court may award nominal damages in every obligation arising from any source enumerated in Art. 1157 (law, contracts, quasi-contracts, acts or omissions punished by law, and quasi-delicts), or in every case where any property right has been invaded. Obligations for violation of which NOMINAL DAMAGES may be awarded: 1) Invasion of a legal right. 2) Torts. 3) Breach of contract. 4) Personal injury action. 5) Invasion of property. 6) Breach of duty by a public officer. A. Adjudication of NOMINAL DAMAGES: Article 2223. The adjudication of nominal damages shall preclude further contest upon the right involved and all accessory questions, as between the parties to the suit, or their respective heirs and assigns. Effect of adjudication of NOMINAL DAMAGES: 1) Nominal damages cannot co-exist with actual or compensatory damages. They are awarded only if there is no proof of actual damages. 2) Where the court has already award compensatory damages, the award of nominal damages is unnecessary and improper. 3) Where the interests of the stockholders were already represented by the corporation itself, which was the proper party plaintiff, and no cause of action accruing to them separately from the corporation is alleged in the complaint, other than for moral damages to the corporation and no appeal from such ruling has been taken, also rules out the claim for nominal damages and exemplary damages to the stockholders. ILLUSTRATIVE CASES: SPS. EMMA VER REYES and RAMON REYES, Petitioners, vs. IRENE MONTEMAYOR and THE REGISTER OF DEEDS OF CAVITE, Respondents. Facts: On 18 February 1994, petitioners filed a Complaint for Reconveyance. They alleged in their Complaint that they were the owners of a parcel of land and that they consistently paying real estate taxes of said property since their acquisition. Petitioners asserted that private respondent was able to cause the issuance of TCT No. T-369793 in her name by presenting a simulated and fictitious Deed of Absolute Sale. The signatures of the sellers, spouses Cuevas were forged in the said Deed. Hence, petitioners prayed for the cancellation of TCT No. T-369793 in private respondents name; the issuance of a new certificate of title in petitioners names; the award of nominal damages of P50,000.00 and exemplary damages of P100,000.00, by reason of the fraud employed by private respondent in having the subject property registered in her name; the award of attorneys fees of not less than P50,000; and the costs of suit. Private respondent said she purchased the subject property for value and in good faith and had been in possession thereof. Private respondent insisted that she had a better title to the subject property, since she was the first registrant of its sale. Issue:

NOMINAL DAMAGES Concept: Article 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. They are those recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind, or where, from the nature of the case, there has been some injury arising from a breach of contract or legal duty but the amount thereof has not been or cannot be shown. The law infers some damage from the breach of an agreement or invasion of a right, and if no evidence is given of any particular amount of loss, it declares the right by awarding what it terms nominal damages. Its allowance is generally based on the ground that every injury from its very nature legally imports damage. Any award which is not of any significant amount but is given primarily as a courts recognition of the justness or rightness of a claim is a nominal award. The assessment of nominal damages is left to the discretion of the court according to the circumstances of the case. Generally, nominal damages by their nature are small sums fixed by the court without regard to the extent of the harm done to the injured party. Nominal damages is a substantial claim, if based upon the violation of a legal right; in such case, the law presumes damage although actual or compensatory damages are not proven. Nominal damages are damages in name only and not in fact, and are allowed, not as an equivalent of wrong inflicted, but simply in recognition of the existence of a technical injury. Nominal damages are really a symbolic award given to the plaintiff when liability of the defendant is established but the amount of the harm done is not measurable or even demonstrable. The award indicates that the defendant committed a wrong and it serves to clarify or vindicate the rights of the plaintiff.

Whether or not petitioners are entitled to nominal damages Ruling: Yes. Evidence on record reveals that the spouses Cuevas, the previous owners of the subject property, did not sell the said property to private respondent. Private respondents unabashed confession that she knew of the dubiousness of her title from the very beginning is contrary to the concept of good faith. Since private respondents fraudulent registration of the subject property in her name violated petitioners right to remain in peaceful possession of the subject property, petitioners are entitled to nominal damages under Article 2221 of the Civil Code, which provides: Nominal damages are adjudicated in order that a right of the plaintiff which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. TEMPERATE OR MODERARE DAMAGES

payment of actual, compensatory, and moral damages, as a result of her daughters death. When PNR did not respond, Ethel Brunty and Garcia, filed a complaint for damages against the PNR before the RTC of Manila. Issue: Whether or not the respondents are entitled to temperate or moderate damages. Ruling: Yes. This Court has previously determined the liability of the PNR for damages for its failure to put warning devices. Such failure is evidence of negligence and disregard of the safety of the public. In view of the foregoing, this court affirms the decision of the CA as well as its conclusion to petitioners negligence. As the heirs of Rhonda Brunty undeniably incurred expenses for the wake and burial of the latter, this Court deem it proper to award temperate damages in the amount of P25,000.00 pursuant to prevailing jurisprudence. This is in lieu of actual damages as it would be unfair for the victims heirs to get nothing, despite the death of their kin, for the reason alone that they cannot produce receipts. PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. HONORATO C. BELTRAN, JR., accused-appellant. Facts: Appellant was found guilty beyond reasonable doubt of the crime of murder. Appellant is further directed to indemnify the heirs of the victim in the sum of P61,000.00 as actual damages, among others. On appeal, the CA affirmed with modification the decision of the RTC. Appellant is ordered to pay the heirs P18,525.00 as actual damages. Issue: Whether or not the CA gravely erred in modifying the actual damages Ruling: Normita claimed that she spent a total amount of P61,080 for the burial and funeral expenses of Norman. However, the receipts on record shows that only an amount of P18,420.82 was spent. Her claim of expenses for the food, drinks, flowers, chairs and tables during the funeral and burial of Norman, as well as the traditional 40 days prayer thereafter, were not supported by any receipts. These expenses are merely written, listed, and signed by her in one sheet of yellow paper, and submitted as evidence in the trial court. Thus, as general rule, she is entitled only to an amount of P18,420.82 since actual damages may be awarded only if there are receipts to support the same. However, in the case of People v. Dela Cruz, this Court declared that when actual damages proven by receipts during the trial amount to less than P25,000.00, such as in the present case, the award of temperate damages for P25,000.00, is justified in lieu of actual damages for a lesser amount. This Court ratiocinated therein that it was anomalous and unfair that the heirs of the victim who tried but succeeded in proving actual damages to less P25,000.00 only would be in a worse situation than those who might have presented no receipts at all but would be entitled to P25,000.00 temperate damages. Thus, instead of P18,420.82, an amount of P25,000.00 as temperate damages should be awarded to the heirs of Norman.

Concept: Article 2224. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount can not, from the nature of the case, be prove with certainty. Reason for allowing Temperate or Moderate Damages. In some States of the American Union, temperate damages are allowed. There are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there has been such loss. For instance, injury to ones commercial credit or to the goodwill of a business firm is often hard to show with certainty in terms of money. Should damages be denied for that reason? The judge should be empowered to calculate moderate damages in such cases, rather than that the plaintiff should suffer, without redress, from the defendants wrongful act. Article 2225. Temperate damages reasonable under the circumstances. must be

Amount of temperate or moderate damages. 1) Reasonable under the circumstances. 2) Evidence of some pecuniary loss. 3) In case of death without evidence to prove damages. ILLUSTRATIVE CASES: PHILIPPINE NATIONAL RAILWAYS, Petitioner, vs. ETHEL BRUNTY and JUAN MANUEL M. GARCIA, Respondents. Facts: Rhonda Brunty together with her Filipino host Garcia, traveled to Baguio City on board a Mercedes Benz sedan, driven by Mercelita. On the way, their car collided with PNR Train No. T-71. Mercelita and Brunty were killed. Garcia suffered severe head injuries. Thereafter, Ethel Brunty, sent a letter to PNR demanding

LIQUIDATED DAMAGES

Concept: Article 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. Article 2228. When the breach of the contract committed by the defendant is not the one contemplated by the parties in agreeing upon the liquidated damages, the law shall determine the measure of damages, and not the stipulation. Liquidated Damages distinguished from Penalty Clause: As distinguished from liquidated damages, a penalty is a sum inserted in a contract, not as the measure of compensation for its breach, but rather as a punishment for default, or by way of security for actual damages which may be sustained by reason of nonperformance. It involves the idea of punishment. A penalty is an agreement to pay a stipulated sum on breach of contract, irrespective of the damage sustained. Its essence is a payment of money stipulated as a deterrent to the offending party, while the essence of liquidated damages is genuine covenanted preestimate of damages. A. Determining Character of stipulated sum: The question of whether a stipulated sum is a penalty or for liquidated damages is answered by the application of one or more aspects of the following rule: (1)LIQUIDATED DAMAGES. A stipulated sum is for liquidated damages only: a. Where the damages which the parties might reasonably anticipate are difficult to ascertain because of their indefiniteness or uncertainty; and b. Where the mount stipulated is either reasonable estimate of the damages which would probably be caused by a breach or is reasonably proportionate to the damages which have actually been caused by the breach. (2) PENALTY. Ordinarily, a stipulated sum will be regarded as a penalty: a. Where it is an evident that the sum was fixed to evade the usury laws, or any other statute, or to cloak oppression; b. Where the defaulting party is rendered liable for the same amount whether the breach is total or partial, or where the sum is set without regard to the extent of performance where, in the nature of promises, the extent of the performance would be important in determining the amount of actual damages which would result; and

c. Where the contract provides for the payment of a fine in addition to the amount of any damage caused by a breach, such fine cannot be considered as liquidated damages but must be regarded as penalty which cannot be recovered. (3)PARTLY LIQUIDATED DAMAGES AND PARTLY PENALTY. A stipulation in a contract to forfeit a certain sum for a breach of its terms cannot be separated, and a part discarded as a penalty, and the remainder treated as liquidated damages. But the parties to a contract may agree that certain elements for damages for its breach which are difficult to estimate shall be covered by a provision for liquidated damages and that other elements shall be ascertained in the usual manner. ILLUSTRATIVE CASE: H.L. CARLOS CONSTRUCTION, INC., petitioner, vs. MARINA PROPERTIES CORPORATION, JESUS K. TYPOCO SR. and TAN YU, respondents. Facts: Marina Properties Corporation (MPC) entered into a contract with H.L. Carlos Construction, Inc. (HLC) to construct Phase III of a condominium complex for a total consideration of P38,580,609.00, within a period of 365 days from receipt of Notice to Proceed. The original completion date of the project was May 16, 1989, but it was extended to October 31, 1989 with a grace period until November 30, 1989. On December 15, 1989, HLC instituted a case for sum of money against MPC seeking the payment of various sums with an aggregate amount of P14 million pesos for unpaid labor escalation costs, change orders and material price escalations. This was granted by the RTC. On appeal, the CA held that respondents were not liable for escalations in the cost of labor and construction materials, because the contract between the parties was for a lump sum consideration, which did not allow for cost escalation, and petitioner failed to show any basis for the award sought. Furthermore, the CA ruled that petitioner was liable for actual and liquidated damages. The latter had abandoned the project prior to its completion; hence, MPC contracted out the work to another entity and incurred actual damages in excess of the remaining balance of the contract price. In addition, the Construction Contract had stipulated payment of liquidated damages in an amount equivalent to 1/1000 of the contract price for each calendar day of delay. Hence, this Petition. Issue: Whether or not the petitioner is liable for liquidated damages Ruling: Yes. Liquidated damages are those that the parties agree to be paid in case of a breach. As worded, the amount agreed upon answers for damages suffered by the owner due to delays in the completion of the project. Under Philippine laws, these damages take the nature of penalties. A penal clause is an accessory

undertaking to assume greater liability in case of a breach. It is attached to an obligation in order to ensure performance. Thus, as held by the CA, petitioner is bound to pay liquidated damages for 92 days, or from the expiration of the grace period in the Amended Contract until February 1, 1990, when it effectively abandoned the project. Exemplary/Corrective Damages Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damage Exemplary or corrective damages are generally defined or described as damages which are given in enhancement merely of the ordinary damages on account of the wanton, reckless, malicious or oppressive character of the acts complained of. Such damages go beyond the actual damages suffered in the case; they are allowed as a punishment of the defendant and as a deterrent to others. Nature of Exemplary Damages 1. Accessory Damage A mere accessory to other forms of damages except to nominal.

exemplary damages may be awarded, Article 2229, the main provision, lays down the very basis of the award. Cases: People of the Philippines v. Tubongbanua Facts: The lower court found the accused guilty for the crime of murder and order the award of actual, moral, exemplary, and temperate. The CA appreciated the aggravating circumstances of evident premeditation and abuse of superior strength but disregarded dwelling and insult to rank, sex and age of the victim for this are amendments to the information after the presentation of the prosecution of its evidence. Issue: Is the award of exemplary damages proper? Held: Yes. Article 2230 of the Civil Code specifically states that exemplary damages may be imposed when the crime was committed with one or more aggravating circumstances, as in this case. Moreover, as an example and deterrent to future similar transgressions, the court finds that an award of P25,000.00 for exemplary damages is proper. Palaganas vs. People of the Philippines As was previously established, a special aggravating circumstance cannot be offset by an ordinary mitigating circumstance. Voluntary surrender of petitioner in this case is merely an ordinary mitigating circumstance. Thus, it cannot offset the special aggravating circumstance of use of unlicensed firearm. Exemplary damages should be awarded in this case since the presence of special aggravating circumstance of use of unlicensed firearm was already established. Based on prevailing jurisprudence, the award of exemplary damages for homicide is P25,000.00. People of the Philippines v. Gannaban Facts:

2. May or May not be granted Depends upon the necessity of setting an example for public good

3. Form of deterrent To avoid repetition of the same act by anyone

Purpose To deter the commission of similar acts in future and to allow the courts to correct behavior that can have grave and deleterious consequences to society and not to enrich one party or impoverish another. When Recoverable Art. 2230. In criminal offenses, exemplary damages as a part of the civil liability may be imposed when the crime was committed with one or more aggravating circumstances. Such damages are separate and distinct from fines and shall be paid to the offended party. Generally Exemplary Damages cannot be awarded in criminal offences if there is no aggravating circumstance. 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. Being corrective in nature, exemplary damages, therefore, can be awarded, not only in the presence of an aggravating circumstance, but also where the circumstances of the case show the highly reprehensible or outrageous conduct of the offender. In much the same way as Article 2230 prescribes an instance when

The trial court found the accused to be guilty for the rape and death of the victim and ordered him to pay, among others, exemplary damages. Issue: Is the award of the trial court of exemplary damages proper? Held: No. The exemplary damages of P 50,000.00 awarded by the trial court should be deleted there being no proof of aggravating circumstance. NOTE: Fines - imposed by the court w/c is payable to the State Exemplary - one payable to the injured party

B. Art. 2231- In quasi-delicts exemplary damages may be granted if the defendant acted with gross negligence. Gross Negligence Tantamount to bad faith

Exemplary damages are granted if the defendant is shown to have been guilty of gross negligence as to approximate malice. Even if there is gross negligence the grant is not automatic. It is still subject to the discretion of the court. Can an employer be held liable for the acts of his employees? As a general rule an employer is not liable for exemplary damages based upon the wrongful act of his employee because exemplary damages punish the intent and this cannot be presumed on the part of the employer. Exception: when he participated in the doing of such wrongful act, has previously authorized or subsequently ratified it with full knowledge of the fact and if it was found out that he was negligent in the selection and supervision of its employees. In Construction Development vs. Estrella, the petitioners driver was found driving recklessly at the time its truck rammed the BLTB bus. Petitioner, who has direct and primary liability for the negligent conduct of its subordinates, was also found negligent in the selection and supervision of its employees. Thus the award of exemplary damages was held proper. Case: German Marine Agencies Inc. Vs NLRC, 350 SCRA 641 Facts: The ship radio officer was taken ill while the ship was in New Zealand. Despite notice thereof by the ships captain, the ship proceeded with the voyage and reached the Philippines in 10 days and yet the sick radio officer was not immediately taken to hospital for medical treatment. Held: Ship owner is liable for moral damages for the physical suffering and mental anguish caused to Radio Officer. P50,000 in moral damages is proper. As the fact of negligence of the ships captain was not only shown to have existed but it was deliberately perpetrated by the arbitrary refusal to commit the ailing radio officer to a hospital in New Zealand or at the nearest port resulting to his permanent partial disability, the award of exemplary damages for P50,000 is adequate and reasonable. In this case the awarding of the exemplary damages is to serve a correction as well as an example for ship owners to look after the welfare of their employees first to that of their customers-cargo-owner. C. Art. 2232 -In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton fraudulent, reckless, oppressive, or malevolent manner. Fraudulent if act is tainted with deception or injurious misrepresentation of which the plaintiff is unaware. Oppressive when it is arbitrary compulsive Malevolent done in bad faith Case:

Adelaida Amado and Heirs of Amado v. Salvador Facts: Salvador alleges that in or around September 1979, Judge Amado agreed to sell to him the subject property for P60.00 per square meter, or in the total sum of P66,360.00, payable in cash or construction materials which would be delivered to Judge Amado, or to whomsoever the latter wished during his lifetime. Salvador though failed to state the terms of payment, such as the period within which the payment was supposed to be completed, or how much of the payment should be made in cash. The petitioners maintain that the cash advances and the various construction materials were received by Judge Amado from Salvador in connection with a loan agreement, and not as payment for the sale of the subject property. The RTC dismissed Salvadors complaint. The trial court observed that it was not indicated in the documentary evidence presented by Salvador that the money and construction materials were intended as payment for the subject property. The CA reversed the decision of the RTC and ordered the petitioners to execute a Deed of Sale in favor of Salvador. The court likewise order the payment of damages (P100,000.00 as moral damages P100,000.00 as exemplary damages and costs of suits). Issue: Was the award of exemplary damages proper? Held: Absent the valid sale agreement between Salvador and Judge Amado, the formers possession of the subject property hinges on the permission and goodwill of Judge Amado and the petitioners, as his successors-in-interest. Thus, there is no more basis for Salvador and his brother, Lamberto Salvador, to retain possession over it, and such possession must now be fully surrendered to the petitioners. The award of exemplary damages is improper. Exemplary damages are awarded only when a wrongful act is accompanied by bad faith or when the guilty party acted in a wanton, fraudulent, reckless or malevolent manner. Moreover, where a party is not entitled to actual or moral damages, an award of exemplary damages is likewise baseless. As this Court has found, petitioners refusal to turn over the subject property to Salvador is justified and cannot be the basis for the award of exemplary damages. Requisites Art. 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they should be adjudicated. Art. 2234. While the amount of the exemplary damages need not be proved, 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 case liquidated damages have been agreed upon, although no proof of loss is necessary in order that such liquidated damages may be recovered, nevertheless, before the court may consider the question of granting exemplary in addition to the liquidated damages, the plaintiff must show that he would been

titled to moral, temperate or compensatory damages were it not for the stipulation for liquidated damages. First They may be imposed by way of example or correction only in addition, to compensatory damages, and cannot be recovered as a matter of right, their determination depending upon the amount of compensatory damages that may be awarded to the claimant. Exemplary damages cannot be claimed as a matter of right. It is a mere additional to other forms of damages which the court may or may not grant. The amount of exemplary damages need not be proven because its determination depends upon the amount of compensatory damages that may be awarded to the claimant. If the amount of exemplary damages need not be proved, it need not also be alleged, and the reason is obvious because it is merely incidental or dependent upon what the court may award as compensatory damages. It follows as a necessary consequence that the amount of exemplary damages need not be pleaded in the complaint because the same cannot be predetermined. *Second The claimant must first establish his right to moral, temperate, liquidated or compensatory damages. While the court has discretion to grant it is however, required of the aggrieved party to establish evidence that he is entitled to compensatory, moral or temperate damages. Third The wrongful act must be accompanied by bad faith, and the award should be allowed only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.

be awarded. Without the award of moral damages, there can be no award of exemplary damages, or attorney's fees. Art. 2235. A stipulation whereby exemplary damages are renounced in advance shall be null and void. Impliedly, exemplary damages already determined and granted by the court in a final judgment may be renounced by the winning party in the case.

Case: PACQUING, CENTENO, GUERRA, DUPILAD, JR., CENTENO, REBLORA and RAYMUNDO ANDRADE v. COCA-COLA PHILIPPINES, INC. Facts: On October 22, 1996, petitioners filed a Complaint against respondent for unfair labor practice and illegal dismissal with claims for regularization, recovery of benefits under the Collective Bargaining Agreement (CBA), moral and exemplary damages, and attorney's fees. Issues: Is the award of damages proper? Held: On the claim for moral and exemplary damages, there is no basis to award the same. Moral and exemplary damages are recoverable only where the dismissal of an employee was attended by bad faith or fraud, or constituted an act oppressive to labor, or were done in a manner contrary to morals, good customs or public policy. The person claiming moral damages must prove the existence of bad faith by clear and convincing evidence, for the law always presumes good faith. Petitioners failed to prove bad faith, fraud or ill motive on the part of respondent. Moral damages cannot