G.R. No.

L-12191 October 14, 1918

JOSE CANGCO, plaintiff-appellant,
vs.
MANILA RAILROAD CO., defendant-appellee.

FISHER, J.:

At the time of the occurrence which gave rise to this litigation the plaintiff, Jose Cangco, was in the employment of Manila
Railroad Company in the capacity of clerk, with a monthly wage of P25. He lived in the pueblo of San Mateo, in the
province of Rizal, which is located upon the line of the defendant railroad company; and in coming daily by train to the
company's office in the city of Manila where he worked, he used a pass, supplied by the company, which entitled him to
ride upon the company's trains free of charge. Upon the occasion in question, January 20, 1915, the plaintiff arose from
his seat in the second class-car where he was riding and, making, his exit through the door, took his position upon the
steps of the coach, seizing the upright guardrail with his right hand for support.

On the side of the train where passengers alight at the San Mateo station there is a cement platform which begins to rise
with a moderate gradient some distance away from the company's office and extends along in front of said office for a
distance sufficient to cover the length of several coaches. As the train slowed down another passenger, named Emilio
Zuñiga, also an employee of the railroad company, got off the same car, alighting safely at the point where the platform
begins to rise from the level of the ground. When the train had proceeded a little farther the plaintiff Jose Cangco stepped
off also, but one or both of his feet came in contact with a sack of watermelons with the result that his feet slipped from
under him and he fell violently on the platform. His body at once rolled from the platform and was drawn under the moving
car, where his right arm was badly crushed and lacerated. It appears that after the plaintiff alighted from the train the car
moved forward possibly six meters before it came to a full stop.

The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad station was lighted dimly by a single
light located some distance away, objects on the platform where the accident occurred were difficult to discern especially
to a person emerging from a lighted car.

The explanation of the presence of a sack of melons on the platform where the plaintiff alighted is found in the fact that it
was the customary season for harvesting these melons and a large lot had been brought to the station for the shipment to
the market. They were contained in numerous sacks which has been piled on the platform in a row one upon another. The
testimony shows that this row of sacks was so placed of melons and the edge of platform; and it is clear that the fall of the
plaintiff was due to the fact that his foot alighted upon one of these melons at the moment he stepped upon the platform.
His statement that he failed to see these objects in the darkness is readily to be credited.

The plaintiff was drawn from under the car in an unconscious condition, and it appeared that the injuries which he had
received were very serious. He was therefore brought at once to a certain hospital in the city of Manila where an
examination was made and his arm was amputated. The result of this operation was unsatisfactory, and the plaintiff was
then carried to another hospital where a second operation was performed and the member was again amputated higher
up near the shoulder. It appears in evidence that the plaintiff expended the sum of P790.25 in the form of medical and
surgical fees and for other expenses in connection with the process of his curation.

Upon August 31, 1915, he instituted this proceeding in the Court of First Instance of the city of Manila to recover damages
of the defendant company, founding his action upon the negligence of the servants and employees of the defendant in
placing the sacks of melons upon the platform and leaving them so placed as to be a menace to the security of passenger
alighting from the company's trains. At the hearing in the Court of First Instance, his Honor, the trial judge, found the facts
substantially as above stated, and drew therefrom his conclusion to the effect that, although negligence was attributable to
the defendant by reason of the fact that the sacks of melons were so placed as to obstruct passengers passing to and
from the cars, nevertheless, the plaintiff himself had failed to use due caution in alighting from the coach and was
therefore precluded form recovering. Judgment was accordingly entered in favor of the defendant company, and the
plaintiff appealed.

It can not be doubted that the employees of the railroad company were guilty of negligence in piling these sacks on the
platform in the manner above stated; that their presence caused the plaintiff to fall as he alighted from the train; and that
they therefore constituted an effective legal cause of the injuries sustained by the plaintiff. It necessarily follows that the
defendant company is liable for the damage thereby occasioned unless recovery is barred by the plaintiff's own
contributory negligence. In resolving this problem it is necessary that each of these conceptions of liability, to-wit, the
primary responsibility of the defendant company and the contributory negligence of the plaintiff should be separately
examined.
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It is important to note that the foundation of the legal liability of the defendant is the contract of carriage, and that the
obligation to respond for the damage which plaintiff has suffered arises, if at all, from the breach of that contract by reason
of the failure of defendant to exercise due care in its performance. That is to say, its liability is direct and immediate,
differing essentially, in legal viewpoint from that presumptive responsibility for the negligence of its servants, imposed by
article 1903 of the Civil Code, which can be rebutted by proof of the exercise of due care in their selection and
supervision. Article 1903 of the Civil Code is not applicable to obligations arising ex contractu, but only to extra-contractual
obligations — or to use the technical form of expression, that article relates only to culpa aquiliana and not to culpa
contractual.

Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code, clearly points out this
distinction, which was also recognized by this Court in its decision in the case of Rakes vs. Atlantic, Gulf and Pacific Co.
(7 Phil. rep., 359). In commenting upon article 1093 Manresa clearly points out the difference between "culpa, substantive
and independent, which of itself constitutes the source of an obligation between persons not formerly connected by any
legal tie" and culpa considered as an accident in the performance of an obligation already existing . . . ."

In the Rakes case (supra) the decision of this court was made to rest squarely upon the proposition that article 1903 of the
Civil Code is not applicable to acts of negligence which constitute the breach of a contract.

Upon this point the Court said:

The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are understood to be those not
growing out of pre-existing duties of the parties to one another. But where relations already formed give rise to
duties, whether springing from contract or quasi-contract, then breaches of those duties are subject to article
1101, 1103, and 1104 of the same code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at 365.)

This distinction is of the utmost importance. The liability, which, under the Spanish law, is, in certain cases imposed upon
employers with respect to damages occasioned by the negligence of their employees to persons to whom they are not
bound by contract, is not based, as in the English Common Law, upon the principle of respondeat superior — if it were,
the master would be liable in every case and unconditionally — but upon the principle announced in article 1902 of the
Civil Code, which imposes upon all persons who by their fault or negligence, do injury to another, the obligation of making
good the damage caused. One who places a powerful automobile in the hands of a servant whom he knows to be
ignorant of the method of managing such a vehicle, is himself guilty of an act of negligence which makes him liable for all
the consequences of his imprudence. The obligation to make good the damage arises at the very instant that the unskillful
servant, while acting within the scope of his employment causes the injury. The liability of the master is personal and
direct. But, if the master has not been guilty of any negligence whatever in the selection and direction of the servant, he is
not liable for the acts of the latter, whatever done within the scope of his employment or not, if the damage done by the
servant does not amount to a breach of the contract between the master and the person injured.

It is not accurate to say that proof of diligence and care in the selection and control of the servant relieves the master from
liability for the latter's acts — on the contrary, that proof shows that the responsibility has never existed. As Manresa says
(vol. 8, p. 68) the liability arising from extra-contractual culpa is always based upon a voluntary act or omission which,
without willful intent, but by mere negligence or inattention, has caused damage to another. A master who exercises all
possible care in the selection of his servant, taking into consideration the qualifications they should possess for the
discharge of the duties which it is his purpose to confide to them, and directs them with equal diligence, thereby performs
his duty to third persons to whom he is bound by no contractual ties, and he incurs no liability whatever if, by reason of the
negligence of his servants, even within the scope of their employment, such third person suffer damage. True it is that
under article 1903 of the Civil Code the law creates a presumption that he has been negligent in the selection or direction
of his servant, but the presumption is rebuttable and yield to proof of due care and diligence in this respect.

The supreme court of Porto Rico, in interpreting identical provisions, as found in the Porto Rico Code, has held that these
articles are applicable to cases of extra-contractual culpa exclusively. (Carmona vs. Cuesta, 20 Porto Rico Reports, 215.)

This distinction was again made patent by this Court in its decision in the case of Bahia vs. Litonjua and Leynes, (30 Phil.
rep., 624), which was an action brought upon the theory of the extra-contractual liability of the defendant to respond for
the damage caused by the carelessness of his employee while acting within the scope of his employment. The Court,
after citing the last paragraph of article 1903 of the Civil Code, said:

From this article two things are apparent: (1) That when an injury is caused by the negligence of a servant or
employee there instantly arises a presumption of law that there was negligence on the part of the master or
employer either in selection of the servant or employee, or in supervision over him after the selection, or both; and
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 (2) that that presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It follows
necessarily that if the employer shows to the satisfaction of the court that in selection and supervision he has
exercised the care and diligence of a good father of a family, the presumption is overcome and he is relieved from
liability.

This theory bases the responsibility of the master ultimately on his own negligence and not on that of his servant.
This is the notable peculiarity of the Spanish law of negligence. It is, of course, in striking contrast to the American
doctrine that, in relations with strangers, the negligence of the servant in conclusively the negligence of the
master.

The opinion there expressed by this Court, to the effect that in case of extra-contractual culpa based upon negligence, it is
necessary that there shall have been some fault attributable to the defendant personally, and that the last paragraph of
article 1903 merely establishes a rebuttable presumption, is in complete accord with the authoritative opinion of Manresa,
who says (vol. 12, p. 611) that the liability created by article 1903 is imposed by reason of the breach of the duties
inherent in the special relations of authority or superiority existing between the person called upon to repair the damage
and the one who, by his act or omission, was the cause of it.

On the other hand, the liability of masters and employers for the negligent acts or omissions of their servants or agents,
when such acts or omissions cause damages which amount to the breach of a contact, is not based upon a mere
presumption of the master's negligence in their selection or control, and proof of exercise of the utmost diligence and care
in this regard does not relieve the master of his liability for the breach of his contract.

Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual obligation has its source in
the breach or omission of those mutual duties which civilized society imposes upon it members, or which arise from these
relations, other than contractual, of certain members of society to others, generally embraced in the concept of status. The
legal rights of each member of society constitute the measure of the corresponding legal duties, mainly negative in
character, which the existence of those rights imposes upon all other members of society. The breach of these general
duties whether due to willful intent or to mere inattention, if productive of injury, give rise to an obligation to indemnify the
injured party. The fundamental distinction between obligations of this character and those which arise from contract, rests
upon the fact that in cases of non-contractual obligation it is the wrongful or negligent act or omission itself which creates
the vinculum juris, whereas in contractual relations the vinculum exists independently of the breach of the voluntary duty
assumed by the parties when entering into the contractual relation.

With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is competent for the
legislature to elect — and our Legislature has so elected — whom such an obligation is imposed is morally culpable, or,
on the contrary, for reasons of public policy, to extend that liability, without regard to the lack of moral culpability, so as to
include responsibility for the negligence of those person who acts or mission are imputable, by a legal fiction, to others
who are in a position to exercise an absolute or limited control over them. The legislature which adopted our Civil Code
has elected to limit extra-contractual liability — with certain well-defined exceptions — to cases in which moral culpability
can be directly imputed to the persons to be charged. This moral responsibility may consist in having failed to exercise
due care in the selection and control of one's agents or servants, or in the control of persons who, by reason of their
status, occupy a position of dependency with respect to the person made liable for their conduct.

The position of a natural or juridical person who has undertaken by contract to render service to another, is wholly
different from that to which article 1903 relates. When the sources of the obligation upon which plaintiff's cause of action
depends is a negligent act or omission, the burden of proof rests upon plaintiff to prove the negligence — if he does not
his action fails. But when the facts averred show a contractual undertaking by defendant for the benefit of plaintiff, and it is
alleged that plaintiff has failed or refused to perform the contract, it is not necessary for plaintiff to specify in his pleadings
whether the breach of the contract is due to willful fault or to negligence on the part of the defendant, or of his servants or
agents. Proof of the contract and of its nonperformance is sufficient prima facie to warrant a recovery.

As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor should assume the
burden of proof of its existence, as the only fact upon which his action is based; while on the contrary, in a case of
negligence which presupposes the existence of a contractual obligation, if the creditor shows that it exists and
that it has been broken, it is not necessary for him to prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).

As it is not necessary for the plaintiff in an action for the breach of a contract to show that the breach was due to the
negligent conduct of defendant or of his servants, even though such be in fact the actual cause of the breach, it is obvious
that proof on the part of defendant that the negligence or omission of his servants or agents caused the breach of the
contract would not constitute a defense to the action. If the negligence of servants or agents could be invoked as a means
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of discharging the liability arising from contract, the anomalous result would be that person acting through the medium of
agents or servants in the performance of their contracts, would be in a better position than those acting in person. If one
delivers a valuable watch to watchmaker who contract to repair it, and the bailee, by a personal negligent act causes its
destruction, he is unquestionably liable. Would it be logical to free him from his liability for the breach of his contract,
which involves the duty to exercise due care in the preservation of the watch, if he shows that it was his servant whose
negligence caused the injury? If such a theory could be accepted, juridical persons would enjoy practically complete
immunity from damages arising from the breach of their contracts if caused by negligent acts as such juridical persons
can of necessity only act through agents or servants, and it would no doubt be true in most instances that reasonable care
had been taken in selection and direction of such servants. If one delivers securities to a banking corporation as collateral,
and they are lost by reason of the negligence of some clerk employed by the bank, would it be just and reasonable to
permit the bank to relieve itself of liability for the breach of its contract to return the collateral upon the payment of the debt
by proving that due care had been exercised in the selection and direction of the clerk?

This distinction between culpa aquiliana, as the source of an obligation, and culpa contractual as a mere incident to the
performance of a contract has frequently been recognized by the supreme court of Spain. (Sentencias of June 27, 1894;
November 20, 1896; and December 13, 1896.) In the decisions of November 20, 1896, it appeared that plaintiff's action
arose ex contractu, but that defendant sought to avail himself of the provisions of article 1902 of the Civil Code as a
defense. The Spanish Supreme Court rejected defendant's contention, saying:

These are not cases of injury caused, without any pre-existing obligation, by fault or negligence, such as those to
which article 1902 of the Civil Code relates, but of damages caused by the defendant's failure to carry out the
undertakings imposed by the contracts . . . .

A brief review of the earlier decision of this court involving the liability of employers for damage done by the negligent acts
of their servants will show that in no case has the court ever decided that the negligence of the defendant's servants has
been held to constitute a defense to an action for damages for breach of contract.

In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage was not liable for the
damages caused by the negligence of his driver. In that case the court commented on the fact that no evidence had been
adduced in the trial court that the defendant had been negligent in the employment of the driver, or that he had any
knowledge of his lack of skill or carefulness.

In the case of Baer Senior & Co's Successors vs. Compania Maritima (6 Phil. Rep., 215), the plaintiff sued the defendant
for damages caused by the loss of a barge belonging to plaintiff which was allowed to get adrift by the negligence of
defendant's servants in the course of the performance of a contract of towage. The court held, citing Manresa (vol. 8, pp.
29, 69) that if the "obligation of the defendant grew out of a contract made between it and the plaintiff . . . we do not think
that the provisions of articles 1902 and 1903 are applicable to the case."

In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to recover damages for the
personal injuries caused by the negligence of defendant's chauffeur while driving defendant's automobile in which
defendant was riding at the time. The court found that the damages were caused by the negligence of the driver of the
automobile, but held that the master was not liable, although he was present at the time, saying:

. . . unless the negligent acts of the driver are continued for a length of time as to give the owner a reasonable
opportunity to observe them and to direct the driver to desist therefrom. . . . The act complained of must be
continued in the presence of the owner for such length of time that the owner by his acquiescence, makes the
driver's acts his own.

In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage & Taxicab Co. (33 Phil. Rep., 8), it is true that the
court rested its conclusion as to the liability of the defendant upon article 1903, although the facts disclosed that the injury
complaint of by plaintiff constituted a breach of the duty to him arising out of the contract of transportation. The express
ground of the decision in this case was that article 1903, in dealing with the liability of a master for the negligent acts of his
servants "makes the distinction between private individuals and public enterprise;" that as to the latter the law creates a
rebuttable presumption of negligence in the selection or direction of servants; and that in the particular case the
presumption of negligence had not been overcome.

It is evident, therefore that in its decision Yamada case, the court treated plaintiff's action as though founded in tort rather
than as based upon the breach of the contract of carriage, and an examination of the pleadings and of the briefs shows
that the questions of law were in fact discussed upon this theory. Viewed from the standpoint of the defendant the
practical result must have been the same in any event. The proof disclosed beyond doubt that the defendant's servant
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was grossly negligent and that his negligence was the proximate cause of plaintiff's injury. It also affirmatively appeared
that defendant had been guilty of negligence in its failure to exercise proper discretion in the direction of the servant.
Defendant was, therefore, liable for the injury suffered by plaintiff, whether the breach of the duty were to be regarded as
constituting culpa aquiliana or culpa contractual. As Manresa points out (vol. 8, pp. 29 and 69) whether negligence occurs
an incident in the course of the performance of a contractual undertaking or its itself the source of an extra-contractual
undertaking obligation, its essential characteristics are identical. There is always an act or omission productive of damage
due to carelessness or inattention on the part of the defendant. Consequently, when the court holds that a defendant is
liable in damages for having failed to exercise due care, either directly, or in failing to exercise proper care in the selection
and direction of his servants, the practical result is identical in either case. Therefore, it follows that it is not to be inferred,
because the court held in the Yamada case that defendant was liable for the damages negligently caused by its servants
to a person to whom it was bound by contract, and made reference to the fact that the defendant was negligent in the
selection and control of its servants, that in such a case the court would have held that it would have been a good defense
to the action, if presented squarely upon the theory of the breach of the contract, for defendant to have proved that it did in
fact exercise care in the selection and control of the servant.

The true explanation of such cases is to be found by directing the attention to the relative spheres of contractual and
extra-contractual obligations. The field of non- contractual obligation is much more broader than that of contractual
obligations, comprising, as it does, the whole extent of juridical human relations. These two fields, figuratively speaking,
concentric; that is to say, the mere fact that a person is bound to another by contract does not relieve him from extra-
contractual liability to such person. When such a contractual relation exists the obligor may break the contract under such
conditions that the same act which constitutes the source of an extra-contractual obligation had no contract existed
between the parties.

The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry him in safety and to provide
safe means of entering and leaving its trains (civil code, article 1258). That duty, being contractual, was direct and
immediate, and its non-performance could not be excused by proof that the fault was morally imputable to defendant's
servants.

The railroad company's defense involves the assumption that even granting that the negligent conduct of its servants in
placing an obstruction upon the platform was a breach of its contractual obligation to maintain safe means of approaching
and leaving its trains, the direct and proximate cause of the injury suffered by plaintiff was his own contributory negligence
in failing to wait until the train had come to a complete stop before alighting. Under the doctrine of comparative negligence
announced in the Rakes case (supra), if the accident was caused by plaintiff's own negligence, no liability is imposed
upon defendant's negligence and plaintiff's negligence merely contributed to his injury, the damages should be
apportioned. It is, therefore, important to ascertain if defendant was in fact guilty of negligence.

It may be admitted that had plaintiff waited until the train had come to a full stop before alighting, the particular injury
suffered by him could not have occurred. Defendant contends, and cites many authorities in support of the contention,
that it is negligence per se for a passenger to alight from a moving train. We are not disposed to subscribe to this doctrine
in its absolute form. We are of the opinion that this proposition is too badly stated and is at variance with the experience of
every-day life. In this particular instance, that the train was barely moving when plaintiff alighted is shown conclusively by
the fact that it came to stop within six meters from the place where he stepped from it. Thousands of person alight from
trains under these conditions every day of the year, and sustain no injury where the company has kept its platform free
from dangerous obstructions. There is no reason to believe that plaintiff would have suffered any injury whatever in
alighting as he did had it not been for defendant's negligent failure to perform its duty to provide a safe alighting place.

We are of the opinion that the correct doctrine relating to this subject is that expressed in Thompson's work on Negligence
(vol. 3, sec. 3010) as follows:

The test by which to determine whether the passenger has been guilty of negligence in attempting to alight from a
moving railway train, is that of ordinary or reasonable care. It is to be considered whether an ordinarily prudent
person, of the age, sex and condition of the passenger, would have acted as the passenger acted under the
circumstances disclosed by the evidence. This care has been defined to be, not the care which may or should be
used by the prudent man generally, but the care which a man of ordinary prudence would use under similar
circumstances, to avoid injury." (Thompson, Commentaries on Negligence, vol. 3, sec. 3010.)

Or, it we prefer to adopt the mode of exposition used by this court in Picart vs. Smith (37 Phil. rep., 809), we may say that
the test is this; Was there anything in the circumstances surrounding the plaintiff at the time he alighted from the train
which would have admonished a person of average prudence that to get off the train under the conditions then existing

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was dangerous? If so, the plaintiff should have desisted from alighting; and his failure so to desist was contributory
negligence.1awph!l.net

As the case now before us presents itself, the only fact from which a conclusion can be drawn to the effect that plaintiff
was guilty of contributory negligence is that he stepped off the car without being able to discern clearly the condition of the
platform and while the train was yet slowly moving. In considering the situation thus presented, it should not be
overlooked that the plaintiff was, as we find, ignorant of the fact that the obstruction which was caused by the sacks of
melons piled on the platform existed; and as the defendant was bound by reason of its duty as a public carrier to afford to
its passengers facilities for safe egress from its trains, the plaintiff had a right to assume, in the absence of some
circumstance to warn him to the contrary, that the platform was clear. The place, as we have already stated, was dark, or
dimly lighted, and this also is proof of a failure upon the part of the defendant in the performance of a duty owing by it to
the plaintiff; for if it were by any possibility concede that it had right to pile these sacks in the path of alighting passengers,
the placing of them adequately so that their presence would be revealed.

As pertinent to the question of contributory negligence on the part of the plaintiff in this case the following circumstances
are to be noted: The company's platform was constructed upon a level higher than that of the roadbed and the
surrounding ground. The distance from the steps of the car to the spot where the alighting passenger would place his feet
on the platform was thus reduced, thereby decreasing the risk incident to stepping off. The nature of the platform,
constructed as it was of cement material, also assured to the passenger a stable and even surface on which to alight.
Furthermore, the plaintiff was possessed of the vigor and agility of young manhood, and it was by no means so risky for
him to get off while the train was yet moving as the same act would have been in an aged or feeble person. In determining
the question of contributory negligence in performing such act — that is to say, whether the passenger acted prudently or
recklessly — the age, sex, and physical condition of the passenger are circumstances necessarily affecting the safety of
the passenger, and should be considered. Women, it has been observed, as a general rule are less capable than men of
alighting with safety under such conditions, as the nature of their wearing apparel obstructs the free movement of the
limbs. Again, it may be noted that the place was perfectly familiar to the plaintiff as it was his daily custom to get on and of
the train at this station. There could, therefore, be no uncertainty in his mind with regard either to the length of the step
which he was required to take or the character of the platform where he was alighting. Our conclusion is that the conduct
of the plaintiff in undertaking to alight while the train was yet slightly under way was not characterized by imprudence and
that therefore he was not guilty of contributory negligence.

The evidence shows that the plaintiff, at the time of the accident, was earning P25 a month as a copyist clerk, and that the
injuries he has suffered have permanently disabled him from continuing that employment. Defendant has not shown that
any other gainful occupation is open to plaintiff. His expectancy of life, according to the standard mortality tables, is
approximately thirty-three years. We are of the opinion that a fair compensation for the damage suffered by him for his
permanent disability is the sum of P2,500, and that he is also entitled to recover of defendant the additional sum of
P790.25 for medical attention, hospital services, and other incidental expenditures connected with the treatment of his
injuries.

The decision of lower court is reversed, and judgment is hereby rendered plaintiff for the sum of P3,290.25, and for the
costs of both instances. So ordered.

Arellano, C.J., Torres, Street and Avanceña, JJ., concur.

Separate Opinions

MALCOLM, J., dissenting:

With one sentence in the majority decision, we are of full accord, namely, "It may be admitted that had plaintiff waited until
the train had come to a full stop before alighting, the particular injury suffered by him could not have occurred." With the
general rule relative to a passenger's contributory negligence, we are likewise in full accord, namely, "An attempt to alight
from a moving train is negligence per se." Adding these two points together, should be absolved from the complaint, and
judgment affirmed.

G.R. No. 170141 April 22, 2008

JAPAN AIRLINES, petitioner,
vs.
JESUS SIMANGAN, respondent.
DECISION
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REYES R.T., J.:

WHEN an airline issues a ticket to a passenger confirmed on a particular flight on a certain date, a contract of carriage
arises, and the passenger has every right to expect that he would fly on that flight and on that date. If he does not, then
the carrier opens itself to a suit for breach of contract of carriage.1

The power to admit or not an alien into the country is a sovereign act which cannot be interfered with even by Japan
Airlines (JAL).2

In this petition for review on certiorari,3 petitioner JAL appeals the: (1) Decision4 dated May 31, 2005 of the Court of
Appeals (CA) ordering it to pay respondent Jesus Simangan moral and exemplary damages; and (2) Resolution5 of the
same court dated September 28, 2005 denying JAL's motion for reconsideration.

The Facts

In 1991, respondent Jesus Simangan decided to donate a kidney to his ailing cousin, Loreto Simangan, in UCLA School
of Medicine in Los Angeles, California, U.S.A. Upon request of UCLA, respondent undertook a series of laboratory tests at
the National Kidney Institute in Quezon City to verify whether his blood and tissue type are compatible with
Loreto's.6 Fortunately, said tests proved that respondent's blood and tissue type were well-matched with Loreto's.7

Respondent needed to go to the United States to complete his preliminary work-up and donation surgery. Hence, to
facilitate respondent's travel to the United States, UCLA wrote a letter to the American Consulate in Manila to arrange for
his visa. In due time, respondent was issued an emergency U.S. visa by the American Embassy in Manila. 8

Having obtained an emergency U.S. visa, respondent purchased a round trip plane ticket from petitioner JAL for
US$1,485.00 and was issued the corresponding boarding pass. 9 He was scheduled to a particular flight bound for Los
Angeles, California, U.S.A. via Narita, Japan.10

On July 29, 1992, the date of his flight, respondent went to Ninoy Aquino International Airport in the company of several
relatives and friends.11 He was allowed to check-in at JAL's counter.12 His plane ticket, boarding pass, travel authority and
personal articles were subjected to rigid immigration and security routines. 13 After passing through said immigration and
security procedures, respondent was allowed by JAL to enter its airplane. 14

While inside the airplane, JAL's airline crew suspected respondent of carrying a falsified travel document and imputed that
he would only use the trip to the United States as a pretext to stay and work in Japan.15 The stewardess asked
respondent to show his travel documents. Shortly after, the stewardess along with a Japanese and a Filipino haughtily
ordered him to stand up and leave the plane.16 Respondent protested, explaining that he was issued a U.S. visa. Just to
allow him to board the plane, he pleaded with JAL to closely monitor his movements when the aircraft stops over in
Narita.17 His pleas were ignored. He was then constrained to go out of the plane. 18In a nutshell, respondent was bumped
off the flight.

Respondent went to JAL's ground office and waited there for three hours. Meanwhile, the plane took off and he was left
behind.19 Afterwards, he was informed that his travel documents were, indeed, in order. 20 Respondent was refunded the
cost of his plane ticket less the sum of US$500.00 which was deducted by JAL. 21 Subsequently, respondent's U.S. visa
was cancelled.22

Displeased by the turn of events, respondent filed an action for damages against JAL with the Regional Trial Court (RTC)
in Valenzuela City, docketed as Civil Case No. 4195-V-93. He claimed he was not able to donate his kidney to Loreto; and
that he suffered terrible embarrassment and mental anguish. 23 He prayed that he be awarded P3 million as moral
damages, P1.5 million as exemplary damages and P500,000.00 as attorney's fees.24

JAL denied the material allegations of the complaint. It argued, among others, that its failure to allow respondent to fly on
his scheduled departure was due to "a need for his travel documents to be authenticated by the United States
Embassy"25 because no one from JAL's airport staff had encountered a parole visa before. 26 It posited that the
authentication required additional time; that respondent was advised to take the flight the following day, July 30, 1992.
JAL alleged that respondent agreed to be rebooked on July 30, 1992. 27

JAL also lodged a counterclaim anchored on respondent's alleged wrongful institution of the complaint. It prayed for
litigation expenses, exemplary damages and attorney's fees.28
Page 7 of 71
On September 21, 2000, the RTC presided by Judge Floro P. Alejo rendered its decision in favor of respondent (plaintiff),
disposing as follows:

WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the amount
of P1,000,000.00 as moral damages, the amount of P500,000.00 as exemplary damages and the amount
of P250,000.00 as attorney's fees, plus the cost of suit. 29

The RTC explained:

In summarily and insolently ordering the plaintiff to disembark while the latter was already settled in his assigned
seat, the defendant violated the contract of carriage; that when the plaintiff was ordered out of the plane under the
pretext that the genuineness of his travel documents would be verified it had caused him embarrassment and
besmirched reputation; and that when the plaintiff was finally not allowed to take the flight, he suffered more
wounded feelings and social humiliation for which the plaintiff was asking to be awarded moral and exemplary
damages as well as attorney's fees.

The reason given by the defendant that what prompted them to investigate the genuineness of the travel
documents of the plaintiff was that the plaintiff was not then carrying a regular visa but just a letter does not
appear satisfactory. The defendant is engaged in transporting passengers by plane from country to country and is
therefore conversant with the travel documents. The defendant should not be allowed to pretend, to the prejudice
of the plaintiff not to know that the travel documents of the plaintiff are valid documents to allow him entry in the
United States.

The foregoing act of the defendant in ordering the plaintiff to deplane while already settled in his assigned seat
clearly demonstrated that the defendant breached its contract of carriage with the plaintiff as passenger in bad
faith and as such the plaintiff is entitled to moral and exemplary damages as well as to an award of attorney's
fees.30

Disagreeing with the RTC judgment, JAL appealed to the CA contending that it is not guilty of breach of contract of
carriage, hence, not liable for damages.31 It posited that it is the one entitled to recover on its counterclaim. 32

CA Ruling

In a Decision33 dated May 31, 2005, the CA affirmed the decision of the RTC with modification in that it lowered the
amount of moral and exemplary damages and deleted the award of attorney's fees. The fallo of the CA decision reads:

WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. Appellant JAPAN AIR LINES is
ordered to pay appellee JESUS SIMANGAN the reduced sums, as follows: Five Hundred Thousand Pesos
(P500,000.00) as moral damages, and Two Hundred Fifty Thousand Pesos (P250,000.00) as exemplary
damages. The award of attorney's fees is hereby DELETED.34

The CA elucidated that since JAL issued to respondent a round trip plane ticket for a lawful consideration, "there arose a
perfected contract between them."35 It found that respondent was "haughtily ejected" 36 by JAL and that "he was certainly
embarrassed and humiliated"37 when, in the presence of other passengers, JAL's airline staff "shouted at him to stand up
and arrogantly asked him to produce his travel papers, without the least courtesy every human being is entitled to"; 38 and
that "he was compelled to deplane on the grounds that his papers were fake."39

The CA ratiocinated:

While the protection of passengers must take precedence over convenience, the implementation of security measures
must be attended by basic courtesies.

In fact, breach of the contract of carriage creates against the carrier a presumption of liability, by a simple proof of
injury, relieving the injured passenger of the duty to establish the fault of the carrier or of his employees; and
placing on the carrier the burden to prove that it was due to an unforeseen event or to force majeure.

That appellee possessed bogus travel documents and that he might stay illegally in Japan are allegations without
substantiation. Also, appellant's attempt to rebook appellee the following day was too late and did not relieve it
from liability. The damage had been done. Besides, its belated theory of novation, i.e., that appellant's original
Page 8 of 71
 obligation to carry appellee to Narita and Los Angeles on July 29, 1992 was extinguished by novation when
appellant and appellant agreed that appellee will instead take appellant's flight to Narita on the following day, July
30, 1992, deserves little attention. It is inappropriate at bar. Questions not taken up during the trial cannot be
raised for the first time on appeal.40 (Underscoring ours and citations were omitted)

Citing Ortigas, Jr. v. Lufthansa German Airlines,41 the CA declared that "(i)n contracts of common carriage, inattention and
lack of care on the part of the carrier resulting in the failure of the passenger to be accommodated in the class contracted
for amounts to bad faith or fraud which entitles the passengers to the award of moral damages in accordance with Article
2220 of the Civil Code."42

Nevertheless, the CA modified the damages awarded by the RTC. It explained:

Fundamental in the law on damages is that one injured by a breach of a contract, or by a wrongful or negligent act
or omission shall have a fair and just compensation commensurate to the loss sustained as consequence of the
defendant's act. Being discretionary on the court, the amount, however, should not be palpably and scandalously
excessive.

Here, the trial court's award of P1,000,000.00 as moral damages appears to be overblown. No other proof of
appellee's social standing, profession, financial capabilities was presented except that he was single and a
businessman. To Us, the sum of 500,000.00 is just and fair. For, moral damages are emphatically not intended to
enrich a complainant at the expense of the defendant. They are awarded only to enable the injured party to obtain
means, diversion or amusements that will serve to alleviate the moral suffering he has undergone, by reason of
the defendant's culpable action.

Moreover, the grant of P500,000.00 as exemplary damages needs to be reduced to a reasonable level. The
award of exemplary damages is designed to permit the courts to mould behavior that has socially deleterious
consequences and its imposition is required by public policy to suppress the wanton acts of the offender. Hence,
the sum of P250,000.00 is adequate under the circumstances.

The award of P250,000.00 as attorney's fees lacks factual basis. Appellee was definitely compelled to litigate in
protecting his rights and in seeking relief from appellant's misdeeds. Yet, the record is devoid of evidence to show
the cost of the services of his counsel and/or the actual expenses incurred in prosecuting his action. 43(Citations
were omitted)

When JAL's motion for reconsideration was denied, it resorted to the petition at bar.

Issues

JAL poses the following issues -

I.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT WAS ENTITLED
TO MORAL DAMAGES, CONSIDERING THAT:

A. JAL WAS NOT GUILTY OF BREACH OF CONTRACT.

B. MORAL DAMAGES MAY BE AWARDED IN BREACH OF CONTRACT CASES ONLY WHEN THE
BREACH IS ATTENDED BY FRAUD OR BAD FAITH. ASSUMING ARGUENDO THAT JAL WAS
GUILTY OF BREACH, JAL DID NOT ACT FRAUDULENTLY OR IN BAD FAITH AS TO ENTITLE
RESPONDENT TO MORAL DAMAGES.

C. THE LAW DISTINGUISHES A CONTRACTUAL BREACH EFFECTED IN GOOD FAITH FROM ONE
ATTENDED BY BAD FAITH.

II.

Page 9 of 71
 WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT WAS ENTITLED
TO EXEMPLARY DAMAGES CONSIDERING THAT:

A. EXEMPLARY DAMAGES ARE NOT RECOVERABLE IN BREACH OF CONTRACT OF CARRIAGE

UNLESS THE CARRIER IS GUILTY OF WANTON, FRAUDULENT, RECKLESS, OPPRESSIVE OR
MALEVOLENT CONDUCT.

B. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL DID NOT ACT IN A WANTON
FRAUDULENT, RECKLESS, OPPRESSIVE OR MALEVOLENT MANNER AS TO ENTITLE
RESPONDENT TO EXEMPLARY DAMAGES.

III.

ASSUMING ARGUENDO THAT RESPONDENT WAS ENTITLED TO AN AWARD OF DAMAGES, WHETHER

OR NOT THE COURT OF APPEALS AWARD OF P750,000 IN DAMAGES WAS EXCESSIVEAND
UNPRECEDENTED.

IV.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING FOR JAL ON
ITS COUNTERCLAIM.44 (Underscoring Ours)

Basically, there are three (3) issues to resolve here: (1) whether or not JAL is guilty of contract of carriage; (2) whether or
not respondent is entitled to moral and exemplary damages; and (3) whether or not JAL is entitled to its counterclaim for
damages.

Our Ruling

This Court is not a trier of facts.

Chiefly, the issues are factual. The RTC findings of facts were affirmed by the CA. The CA also gave its nod to the
reasoning of the RTC except as to the awards of damages, which were reduced, and that of attorney's fees, which was
deleted.

We are not a trier of facts. We generally rely upon, and are bound by, the conclusions on this matter of the lower courts,
which are better equipped and have better opportunity to assess the evidence first-hand, including the testimony of the
witnesses.45

We have repeatedly held that the findings of fact of the CA are final and conclusive and cannot be reviewed on appeal to
the Supreme Court provided they are based on substantial evidence. 46 We have no jurisdiction, as a rule, to reverse their
findings.47 Among the exceptions to this rule are: (a) when the conclusion is a finding grounded entirely on speculations,
surmises or conjectures; (b) when the inference made is manifestly mistaken, absurd or impossible; (c) where there is
grave abuse of discretion; (d) when the judgment is based on a misapprehension of facts; (e) when the findings of facts
are conflicting; (f) when the CA, in making its findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee.48

The said exceptions, which are being invoked by JAL, are not found here. There is no indication that the findings of the
CA are contrary to the evidence on record or that vital testimonies of JAL's witnesses were disregarded. Neither did the
CA commit misapprehension of facts nor did it fail to consider relevant facts. Likewise, there was no grave abuse of
discretion in the appreciation of facts or mistaken and absurd inferences.

We thus sustain the coherent facts as established by the courts below, there being no sufficient showing that the said
courts committed reversible error in reaching their conclusions.

JAL is guilty of breach of

contract of carriage.

Page 10 of 71
That respondent purchased a round trip plane ticket from JAL and was issued the corresponding boarding pass is
uncontroverted.49 His plane ticket, boarding pass, travel authority and personal articles were subjected to rigid immigration
and security procedure.50 After passing through said immigration and security procedure, he was allowed by JAL to enter
its airplane to fly to Los Angeles, California, U.S.A. via Narita, Japan.51 Concisely, there was a contract of carriage
between JAL and respondent.

Nevertheless, JAL made respondent get off the plane on his scheduled departure on July 29, 1992. He was not allowed
by JAL to fly. JAL thus failed to comply with its obligation under the contract of carriage.

JAL justifies its action by arguing that there was "a need to verify the authenticity of respondent's travel document."52 It
alleged that no one from its airport staff had encountered a parole visa before. 53 It further contended that respondent
agreed to fly the next day so that it could first verify his travel document, hence, there was novation. 54 It maintained that it
was not guilty of breach of contract of carriage as respondent was not able to travel to the United States due to his own
voluntary desistance.55

We cannot agree. JAL did not allow respondent to fly. It informed respondent that there was a need to first check the
authenticity of his travel documents with the U.S. Embassy. 56 As admitted by JAL, "the flight could not wait for Mr.
Simangan because it was ready to depart."57

Since JAL definitely declared that the flight could not wait for respondent, it gave respondent no choice but to be left
behind. The latter was unceremoniously bumped off despite his protestations and valid travel documents and
notwithstanding his contract of carriage with JAL. Damage had already been done when respondent was offered to fly the
next day on July 30, 1992. Said offer did not cure JAL's default.

Considering that respondent was forced to get out of the plane and left behind against his will, he could not have freely
consented to be rebooked the next day. In short, he did not agree to the alleged novation. Since novation implies a waiver
of the right the creditor had before the novation, such waiver must be express. 58 It cannot be supposed, without clear
proof, that respondent had willingly done away with his right to fly on July 29, 1992.

Moreover, the reason behind the bumping off incident, as found by the RTC and CA, was that JAL personnel imputed that
respondent would only use the trip to the United States as a pretext to stay and work in Japan. 59

Apart from the fact that respondent's plane ticket, boarding pass, travel authority and personal articles already passed the
rigid immigration and security routines,60 JAL, as a common carrier, ought to know the kind of valid travel documents
respondent carried. As provided in Article 1755 of the New Civil Code: "A common carrier is bound to carry the
passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons,
with a due regard for all the circumstances."61 Thus, We find untenable JAL's defense of "verification of respondent's
documents" in its breach of contract of carriage.

It bears repeating that the power to admit or not an alien into the country is a sovereign act which cannot be interfered
with even by JAL.62

In an action for breach of contract of carriage, all that is required of plaintiff is to prove the existence of such contract and
its non-performance by the carrier through the latter's failure to carry the passenger safely to his destination.63Respondent
has complied with these twin requisites.

Respondent is entitled to moral and exemplary damages and attorney's fees plus legal interest.

With reference to moral damages, JAL alleged that they are not recoverable in actions ex contractu except only when the
breach is attended by fraud or bad faith. It is contended that it did not act fraudulently or in bad faith towards respondent,
hence, it may not be held liable for moral damages.

As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract for it is
not one of the items enumerated under Article 2219 of the Civil Code.64 As an exception, such damages are recoverable:
(1) in cases in which the mishap results in the death of a passenger, as provided in Article 1764, in relation to Article
2206(3) of the Civil Code; and (2) in the cases in which the carrier is guilty of fraud or bad faith, as provided in Article
2220.65

Page 11 of 71
The acts committed by JAL against respondent amounts to bad faith. As found by the RTC, JAL breached its contract of
carriage with respondent in bad faith. JAL personnel summarily and insolently ordered respondent to disembark while the
latter was already settled in his assigned seat. He was ordered out of the plane under the alleged reason that the
genuineness of his travel documents should be verified.

These findings of facts were upheld by the CA, to wit:

x x x he was haughtily ejected by appellant. He was certainly embarrassed and humiliated when, in the presence
of other passengers, the appellant's airline staff shouted at him to stand up and arrogantly asked him to produce
his travel papers, without the least courtesy every human being is entitled to. Then, he was compelled to deplane
on the grounds that his papers were fake. His protestation of having been issued a U.S. visa coupled with his plea
to appellant to closely monitor his movements when the aircraft stops over in Narita, were ignored. Worse, he was
made to wait for many hours at the office of appellant only to be told later that he has valid travel
documents.66 (Underscoring ours)

Clearly, JAL is liable for moral damages. It is firmly settled that moral damages are recoverable in suits predicated on
breach of a contract of carriage where it is proved that the carrier was guilty of fraud or bad faith, as in this case.
Inattention to and lack of care for the interests of its passengers who are entitled to its utmost consideration, particularly
as to their convenience, amount to bad faith which entitles the passenger to an award of moral damages. What the law
considers as bad faith which may furnish the ground for an award of moral damages would be bad faith in securing the
contract and in the execution thereof, as well as in the enforcement of its terms, or any other kind of deceit. 67

JAL is also liable for exemplary damages as its above-mentioned acts constitute wanton, oppressive and malevolent acts
against respondent. Exemplary damages, which are awarded by way of example or correction for the public good, may be
recovered in contractual obligations, as in this case, if defendant acted in wanton, fraudulent, reckless, oppressive, or
malevolent manner.68

Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is socially deleterious in
its consequence by creating negative incentives or deterrents against such behaviour. In requiring compliance with the
standard of extraordinary diligence, a standard which is, in fact, that of the highest possible degree of diligence, from
common carriers and in creating a presumption of negligence against them, the law seeks to compel them to control their
employees, to tame their reckless instincts and to force them to take adequate care of human beings and their property. 69

Neglect or malfeasance of the carrier's employees could give ground for an action for damages. Passengers have a right
to be treated by the carrier's employees with kindness, respect, courtesy and due consideration and are entitled to be
protected against personal misconduct, injurious language, indignities and abuses from such employees.70

The assessment of P500,000.00 as moral damages and P100,000.00 as exemplary damages in respondent's favor is, in
Our view, reasonable and realistic. This award is reasonably sufficient to indemnify him for the humiliation and
embarrassment he suffered. This also serves as an example to discourage the repetition of similar oppressive acts.

With respect to attorney's fees, they may be awarded when defendant's act or omission has compelled plaintiff to litigate
with third persons or to incur expenses to protect his interest. 71 The Court, in Construction Development Corporation of
the Philippines v. Estrella,72 citing Traders Royal Bank Employees Union-Independent v. National Labor Relations
Commission,73 elucidated thus:

There are two commonly accepted concepts of attorney's fees, the so-called ordinary and extraordinary. In its
ordinary concept, an attorney's fee is the reasonable compensation paid to a lawyer by his client for the legal
services he has rendered to the latter. The basis of this compensation is the fact of his employment by and his
agreement with the client.

In its extraordinary concept, an attorney's fee is an indemnity for damages ordered by the court to be paid
by the losing party in a litigation. The basis of this is any of the cases provided by law where such award can
be made, such as those authorized in Article 2208, Civil Code, and 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.74

It was therefore erroneous for the CA to delete the award of attorney's fees on the ground that the record is devoid of
evidence to show the cost of the services of respondent's counsel. The amount is actually discretionary upon the Court so

Page 12 of 71
long as it passes the test of reasonableness. They may be recovered as actual or compensatory damages when
exemplary damages are awarded and whenever the court deems it just and equitable, 75 as in this case.

Considering the factual backdrop of this case, attorney's fees in the amount of P200,000.00 is reasonably modest.

The above liabilities of JAL in the total amount of P800,000.00 earn legal interest pursuant to the Court's ruling
in Construction Development Corporation of the Philippines v. Estrella,76 citing Eastern Shipping Lines, Inc. v. Court of
Appeals,77 to wit:

Regarding the imposition of legal interest at the rate of 6% from the time of the filing of the complaint, we held
in Eastern Shipping Lines, Inc. v. Court of Appeals, that 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 payment of
interest in the concept of actual and compensatory damages, subject to the following rules, to wit -

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.78 (Emphasis supplied and citations omitted)

Accordingly, in addition to the said total amount of P800,000.00, JAL is liable to pay respondent legal interest. Pursuant to
the above ruling of the Court, the legal interest is 6% and it shall be reckoned from September 21, 2000 when the RTC
rendered its judgment. From the time this Decision becomes final and executory, the interest rate shall be 12% until its
satisfaction.

JAL is not entitled to its counterclaim for damages.

The counterclaim of JAL in its Answer79 is a compulsory counterclaim for damages and attorney's fees arising from the
filing of the complaint. There is no mention of any other counter claims.

This compulsory counterclaim of JAL arising from the filing of the complaint may not be granted inasmuch as the
complaint against it is obviously not malicious or unfounded. It was filed by respondent precisely to claim his right to
damages against JAL. Well-settled is the rule that the commencement of an action does not per se make the action
wrongful and subject the action to damages, for the law could not have meant to impose a penalty on the right to litigate. 80

We reiterate case law that if damages result from a party's exercise of a right, it is damnum absque injuria.81 Lawful acts
give rise to no injury. Walang perhuwisyong maaring idulot ang paggamit sa sariling karapatan.

During the trial, however, JAL presented a witness who testified that JAL suffered further damages. Allegedly, respondent
caused the publications of his subject complaint against JAL in the newspaper for which JAL suffered damages. 82

Page 13 of 71
Although these additional damages allegedly suffered by JAL were not incorporated in its Answer as they arose
subsequent to its filing, JAL's witness was able to testify on the same before the RTC. 83 Hence, although these issues
were not raised by the pleadings, they shall be treated in all respects as if they had been raised in the pleadings.

As provided in Section 5, Rule 10 of the Rules of Court, "(w)hen issues not raised by the pleadings are tried with the
express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings."

Nevertheless, JAL's counterclaim cannot be granted.

JAL is a common carrier. JAL's business is mainly with the traveling public. It invites people to avail themselves of the
comforts and advantages it offers.84 Since JAL deals with the public, its bumping off of respondent without a valid reason
naturally drew public attention and generated a public issue.

The publications involved matters about which the public has the right to be informed because they relate to a public
issue. This public issue or concern is a legitimate topic of a public comment that may be validly published.

Assuming that respondent, indeed, caused the publication of his complaint, he may not be held liable for damages for it.
The constitutional guarantee of freedom of the speech and of the press includes fair commentaries on matters of public
interest. This is explained by the Court in Borjal v. Court of Appeals,85 to wit:

To reiterate, fair commentaries on matters of public interest are privileged and constitute a valid defense in an
action for libel or slander. The doctrine of fair comment means that while in general every discreditable imputation
publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved, and
every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a
public person in his public capacity, it is not necessarily actionable. In order that such discreditable imputation to a
public official may be actionable, it must either be a false allegation of fact or a comment based on a false
supposition. If the comment is an expression of opinion, based on established facts, then it is immaterial that the
opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.86 (Citations omitted and
underscoring ours)

Even though JAL is not a public official, the rule on privileged commentaries on matters of public interest applies to it. The
privilege applies not only to public officials but extends to a great variety of subjects, and includes matters of public
concern, public men, and candidates for office.87

Hence, pursuant to the Borjal case, there must be an actual malice in order that a discreditable imputation to a public
person in his public capacity or to a public official may be actionable. To be considered malicious, the libelous statements
must be shown to have been written or published with the knowledge that they are false or in reckless disregard of
whether they are false or not.88

Considering that the published articles involve matters of public interest and that its expressed opinion is not malicious but
based on established facts, the imputations against JAL are not actionable. Therefore, JAL may not claim damages for
them.

WHEREFORE, the petition is DENIED. The appealed Decision of the Court of Appeals is AFFIRMED WITH
MODIFICATION. As modified, petitioner Japan Airlines is ordered to pay respondent Jesus Simangan the following:
(1) P500,000.00 as moral damages; (2) P100,000.00 as exemplary damages; and (3) P200,000.00 as attorney's fees.

The total amount adjudged shall earn legal interest at the rate of 6% per annum from the date of judgment of the Regional
Trial Court on September 21, 2000 until the finality of this Decision. From the time this Decision becomes final and
executory, the unpaid amount, if any, shall earn legal interest at the rate of 12% per annum until its satisfaction.

SO ORDERED.

G.R. No. L-44748 August 29, 1986

Page 14 of 71
RADIO COMMUNICATIONS OF THE PHILS., INC. (RCPI). petitioner,
vs.
COURT OF APPEALS and LORETO DIONELA, respondents.

O. Pythogoras Oliver for respondents.

PARAS, J.:

Before Us, is a Petition for Review by certiorari of the decision of the Court of Appeals, modifying the decision of the trial
court in a civil case for recovery of damages against petitioner corporation by reducing the award to private respondent
Loreto Dionela of moral damages from P40,000 to Pl5,000, and attorney's fees from P3,000 to P2,000.

The basis of the complaint against the defendant corporation is a telegram sent through its Manila Office to the offended
party, Loreto Dionela, reading as follows:

176 AS JR 1215PM 9 PAID MANDALUYONG JUL 22-66 LORETO DIONELA CABANGAN LEGASPI
CITY

WIRE ARRIVAL OF CHECK FER

LORETO DIONELA-CABANGAN-WIRE ARRIVAL OF CHECK-PER

115 PM

SA IYO WALANG PAKINABANG DUMATING KA DIYAN-WALA-KANG PADALA DITO KAHIT BULBUL

MO

(p. 19, Annex "A")

Plaintiff-respondent Loreto Dionela alleges that the defamatory words on the telegram sent to him not only wounded his
feelings but also caused him undue embarrassment and affected adversely his business as well because other people
have come to know of said defamatory words. Defendant corporation as a defense, alleges that the additional words in
Tagalog was a private joke between the sending and receiving operators and that they were not addressed to or intended
for plaintiff and therefore did not form part of the telegram and that the Tagalog words are not defamatory. The telegram
sent through its facilities was received in its station at Legaspi City. Nobody other than the operator manned the teletype
machine which automatically receives telegrams being transmitted. The said telegram was detached from the machine
and placed inside a sealed envelope and delivered to plaintiff, obviously as is. The additional words in Tagalog were
never noticed and were included in the telegram when delivered.

The trial court in finding for the plaintiff ruled as follows:

There is no question that the additional words in Tagalog are libelous. They clearly impute a vice or
defect of the plaintiff. Whether or not they were intended for the plaintiff, the effect on the plaintiff is the
same. Any person reading the additional words in Tagalog will naturally think that they refer to the
addressee, the plaintiff. There is no indication from the face of the telegram that the additional words in
Tagalog were sent as a private joke between the operators of the defendant.

The defendant is sued directly not as an employer. The business of the defendant is to transmit
telegrams. It will open the door to frauds and allow the defendant to act with impunity if it can escape
liability by the simple expedient of showing that its employees acted beyond the scope of their assigned
tasks.

The liability of the defendant is predicated not only on Article 33 of the Civil Code of the Philippines but on
the following articles of said Code:

Page 15 of 71
 ART. 19.- Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.

ART. 20.-Every person who, contrary to law, wilfully or negligently causes damage to another, shall
indemnify the latter for the same.

There is sufficient publication of the libelous Tagalog words. The office file of the defendant containing
copies of telegrams received are open and held together only by a metal fastener. Moreover, they are
open to view and inspection by third parties.

It follows that the plaintiff is entitled to damages and attorney's fees. The plaintiff is a businessman. The
libelous Tagalog words must have affected his business and social standing in the community. The Court
fixes the amount of P40,000.00 as the reasonable amount of moral damages and the amount of
P3,000.00 as attorney's fee which the defendant should pay the plaintiff. (pp. 15-16, Record on Appeal)

The respondent appellate court in its assailed decision confirming the aforegoing findings of the lower court stated:

The proximate cause, therefore, resulting in injury to appellee, was the failure of the appellant to take the
necessary or precautionary steps to avoid the occurrence of the humiliating incident now complained of.
The company had not imposed any safeguard against such eventualities and this void in its operating
procedure does not speak well of its concern for their clientele's interests. Negligence here is very patent.
This negligence is imputable to appellant and not to its employees.

The claim that there was no publication of the libelous words in Tagalog is also without merit. The fact
that a carbon copy of the telegram was filed among other telegrams and left to hang for the public to see,
open for inspection by a third party is sufficient publication. It would have been otherwise perhaps had the
telegram been placed and kept in a secured place where no one may have had a chance to read it
without appellee's permission.

The additional Tagalog words at the bottom of the telegram are, as correctly found by the lower court,
libelous per se, and from which malice may be presumed in the absence of any showing of good intention
and justifiable motive on the part of the appellant. The law implies damages in this instance (Quemel vs.
Court of Appeals, L-22794, January 16, 1968; 22 SCRA 44). The award of P40,000.00 as moral damages
is hereby reduced to P15,000.00 and for attorney's fees the amount of P2,000.00 is awarded. (pp. 22-23,
record)

After a motion for reconsideration was denied by the appellate court, petitioner came to Us with the following:

ASSIGNMENT OF ERRORS

The Honorable Court of Appeals erred in holding that Petitioner-employer should answer directly and
primarily for the civil liability arising from the criminal act of its employee.

II

The Honorable Court of Appeals erred in holding that there was sufficient publication of the alleged
libelous telegram in question, as contemplated by law on libel.

III

The Honorable Court of Appeals erred in holding that the liability of petitioner-company-employer is
predicated on Articles 19 and 20 of the Civil Code, Articles on Human Relations.

IV

The Honorable Court of Appeals erred in awarding Atty's. fees. (p. 4, Record)
Page 16 of 71
Petitioner's contentions do not merit our consideration. The action for damages was filed in the lower court directly against
respondent corporation not as an employer subsidiarily liable under the provisions of Article 1161 of the New Civil Code in
relation to Art. 103 of the Revised Penal Code. The cause of action of the private respondent is based on Arts. 19 and 20
of the New Civil Code (supra). As well as on respondent's breach of contract thru the negligence of its own employees. 1

Petitioner is a domestic corporation engaged in the business of receiving and transmitting messages. Everytime a person
transmits a message through the facilities of the petitioner, a contract is entered into. Upon receipt of the rate or fee fixed,
the petitioner undertakes to transmit the message accurately. There is no question that in the case at bar, libelous matters
were included in the message transmitted, without the consent or knowledge of the sender. There is a clear case of
breach of contract by the petitioner in adding extraneous and libelous matters in the message sent to the private
respondent. As a corporation, the petitioner can act only through its employees. Hence the acts of its employees in
receiving and transmitting messages are the acts of the petitioner. To hold that the petitioner is not liable directly for the
acts of its employees in the pursuit of petitioner's business is to deprive the general public availing of the services of the
petitioner of an effective and adequate remedy. In most cases, negligence must be proved in order that plaintiff may
recover. However, since negligence may be hard to substantiate in some cases, we may apply the doctrine of RES IPSA
LOQUITUR (the thing speaks for itself), by considering the presence of facts or circumstances surrounding the injury.

WHEREFORE, premises considered, the judgment of the appellate court is hereby AFFIRMED.

SO ORDERED.

Feria (Chairman), Fernan, Alampay, and Gutierrez, Jr., JJ., concur.

Footnotes

1 In contracts the negligence of the employee (servant) is the negligence of the employer (master). This
is the master and servant rule.

G.R. No. 98695 January 27, 1993

JUAN J. SYQUIA, CORAZON C. SYQUIA, CARLOTA C. SYQUIA, CARLOS C. SYQUIA and ANTHONY C.
SYQUIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, and THE MANILA MEMORIAL PARK CEMETERY, INC., respondents.

Pacis & Reyes Law Offices for petitioners.

Augusto S. San Pedro & Ari-Ben C. Sebastian for private respondents.

CAMPOS, JR., J.:

Herein petitioners, Juan J. Syquia and Corazon C. Syquia, Carlota C. Syquia, Carlos C. Syquia, and Anthony Syquia,
were the parents and siblings, respectively, of the deceased Vicente Juan Syquia. On March 5, 1979, they filed a
complaint1 in the then Court of First Instance against herein private respondent, Manila Memorial Park Cemetery, Inc. for
recovery of damages arising from breach of contract and/or quasi-delict. The trial court dismissed the complaint.

The antecedent facts, as gathered by the respondent Court, are as follows:

On March 5, 1979, Juan, Corazon, Carlota and Anthony all surnamed Syquia, plaintiff-appellants herein,
filed a complaint for damages against defendant-appellee, Manila Memorial Park Cemetery, Inc.

The complaint alleged among others, that pursuant to a Deed of Sale (Contract No. 6885) dated August
27, 1969 and Interment Order No. 7106 dated July 21, 1978 executed between plaintiff-appellant Juan J.
Syquia and defendant-appellee, the former, father of deceased Vicente Juan J. Syquia authorized and
Page 17 of 71
 instructed defendant-appellee to inter the remains of deceased in the Manila Memorial Park Cemetery in
the morning of July 25, 1978 conformably and in accordance with defendant-appellant's (sic) interment
procedures; that on September 4, 1978, preparatory to transferring the said remains to a newly
purchased family plot also at the Manila Memorial Park Cemetery, the concrete vault encasing the coffin
of the deceased was removed from its niche underground with the assistance of certain employees of
defendant-appellant (sic); that as the concrete vault was being raised to the surface, plaintiffs-appellants
discovered that the concrete vault had a hole approximately three (3) inches in diameter near the bottom
of one of the walls closing out the width of the vault on one end and that for a certain length of time (one
hour, more or less), water drained out of the hole; that because of the aforesaid discovery, plaintiffs-
appellants became agitated and upset with concern that the water which had collected inside the vault
might have risen as it in fact did rise, to the level of the coffin and flooded the same as well as the
remains of the deceased with ill effects thereto; that pursuant to an authority granted by the Municipal
Court of Parañaque, Metro Manila on September 14, 1978, plaintiffs-appellants with the assistance of
licensed morticians and certain personnel of defendant-appellant (sic) caused the opening of the concrete
vault on September 15, 1978; that upon opening the vault, the following became apparent to the plaintiffs-
appellants: (a) the interior walls of the concrete vault showed evidence of total flooding; (b) the coffin was
entirely damaged by water, filth and silt causing the wooden parts to warp and separate and to crack the
viewing glass panel located directly above the head and torso of the deceased; (c) the entire lining of the
coffin, the clothing of the deceased, and the exposed parts of the deceased's remains were damaged and
soiled by the action of the water and silt and were also coated with filth.

Due to the alleged unlawful and malicious breach by the defendant-appellee of its obligation to deliver a
defect-free concrete vault designed to protect the remains of the deceased and the coffin against the
elements which resulted in the desecration of deceased's grave and in the alternative, because of
defendant-appellee's gross negligence conformably to Article 2176 of the New Civil Code in failing to seal
the concrete vault, the complaint prayed that judgment be rendered ordering defendant-appellee to pay
plaintiffs-appellants P30,000.00 for actual damages, P500,000.00 for moral damages, exemplary
damages in the amount determined by the court, 20% of defendant-appellee's total liability as attorney's
fees, and expenses of litigation and costs of suit.2

In dismissing the complaint, the trial court held that the contract between the parties did not guarantee that the cement
vault would be waterproof; that there could be no quasi-delict because the defendant was not guilty of any fault or
negligence, and because there was a pre-existing contractual relation between the Syquias and defendant Manila
Memorial Park Cemetery, Inc.. The trial court also noted that the father himself, Juan Syquia, chose the gravesite despite
knowing that said area had to be constantly sprinkled with water to keep the grass green and that water would eventually
seep through the vault. The trial court also accepted the explanation given by defendant for boring a hole at the bottom
side of the vault: "The hole had to be bored through the concrete vault because if it has no hole the vault will (sic) float and
the grave would be filled with water and the digging would caved (sic) in the earth, the earth would caved (sic) in the (sic)
fill up the grave."3

From this judgment, the Syquias appealed. They alleged that the trial court erred in holding that the contract allowed the
flooding of the vault; that there was no desecration; that the boring of the hole was justifiable; and in not awarding
damages.

The Court of Appeals in the Decision4 dated December 7, 1990 however, affirmed the judgment of dismissal. Petitioner's
motion for reconsideration was denied in a Resolution dated April 25, 1991. 5

Unsatisfied with the respondent Court's decision, the Syquias filed the instant petition. They allege herein that the Court of
Appeals committed the following errors when it:

1. held that the contract and the Rules and Resolutions of private respondent allowed the flooding of the
vault and the entrance thereto of filth and silt;

2. held that the act of boring a hole was justifiable and corollarily, when it held that no act of desecration
was committed;

3. overlooked and refused to consider relevant, undisputed facts, such as those which have been
stipulated upon by the parties, testified to by private respondent's witnesses, and admitted in the answer,
which could have justified a different conclusion;

Page 18 of 71
 4. held that there was no tort because of a pre-existing contract and the absence of fault/negligence; and

5. did not award the P25,000.00 actual damages which was agreed upon by the parties, moral and
exemplary damages, and attorney's fees.

At the bottom of the entire proceedings is the act of boring a hole by private respondent on the vault of the deceased kin
of the bereaved petitioners. The latter allege that such act was either a breach of private respondent's contractual
obligation to provide a sealed vault, or, in the alternative, a negligent act which constituted a quasi-delict. Nonetheless,
petitioners claim that whatever kind of negligence private respondent has committed, the latter is liable for desecrating the
grave of petitioners' dead.

In the instant case, We are called upon to determine whether the Manila Memorial Park Cemetery, Inc., breached its
contract with petitioners; or, alternatively, whether private respondent was guilty of a tort.

We understand the feelings of petitioners and empathize with them. Unfortunately, however, We are more inclined to
answer the foregoing questions in the negative. There is not enough ground, both in fact and in law, to justify a reversal of
the decision of the respondent Court and to uphold the pleas of the petitioners.

With respect to herein petitioners' averment that private respondent has committed culpa aquiliana, the Court of Appeals
found no negligent act on the part of private respondent to justify an award of damages against it. Although a pre-existing
contractual relation between the parties does not preclude the existence of a culpa aquiliana, We find no reason to
disregard the respondent's Court finding that there was no negligence.

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict . . . . (Emphasis supplied).

In this case, it has been established that the Syquias and the Manila Memorial Park Cemetery, Inc., entered into a
contract entitled "Deed of Sale and Certificate of Perpetual Care"6 on August 27, 1969. That agreement governed
the relations of the parties and defined their respective rights and obligations. Hence, had there been actual
negligence on the part of the Manila Memorial Park Cemetery, Inc., it would be held liable not for a quasi-
delict or culpa aquiliana, but for culpa contractual as provided by Article 1170 of the Civil Code, to wit:

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.

The Manila Memorial Park Cemetery, Inc. bound itself to provide the concrete box to be send in the interment. Rule 17 of
the Rules and Regulations of private respondent provides that:

Rule 17. Every earth interment shall be made enclosed in a concrete box, or in an outer wall of stone,
brick or concrete, the actual installment of which shall be made by the employees of the Association.7

Pursuant to this above-mentioned Rule, a concrete vault was provided on July 27, 1978, the day before the interment, and
was, on the same day, installed by private respondent's employees in the grave which was dug earlier. After the burial,
the vault was covered by a cement lid.

Petitioners however claim that private respondent breached its contract with them as the latter held out in the brochure it
distributed that the . . . lot may hold single or double internment (sic) underground in sealed concrete vault."8 Petitioners
claim that the vault provided by private respondent was not sealed, that is, not waterproof. Consequently, water seeped
through the cement enclosure and damaged everything inside it.

We do not agree. There was no stipulation in the Deed of Sale and Certificate of Perpetual Care and in the Rules and
Regulations of the Manila Memorial Park Cemetery, Inc. that the vault would be waterproof. Private respondent's witness,
Mr. Dexter Heuschkel, explained that the term "sealed" meant "closed."9 On the other hand, the word "seal" is defined as .
. . any of various closures or fastenings . . . that cannot be opened without rupture and that serve as a check against
tampering or unauthorized opening." 10 The meaning that has been given by private respondent to the word conforms with
the cited dictionary definition. Moreover, it is also quite clear that "sealed" cannot be equated with "waterproof". Well
settled is the rule that when the terms of the contract are clear and leave no doubt as to the intention of the contracting

Page 19 of 71
parties, then the literal meaning of the stipulation shall control. 11 Contracts should be interpreted according to their literal
meaning and should not be interpreted beyond their obvious intendment. 12 As ruled by the respondent Court:

When plaintiff-appellant Juan J. Syquia affixed his signature to the Deed of Sale (Exhibit "A") and the
attached Rules and Regulations (Exhibit "1"), it can be assumed that he has accepted defendant-
appellee's undertaking to merely provide a concrete vault. He can not now claim that said concrete vault
must in addition, also be waterproofed (sic). It is basic that the parties are bound by the terms of their
contract, which is the law between them (Rizal Commercial Banking Corporation vs. Court of Appeals, et
al. 178 SCRA 739). Where there is nothing in the contract which is contrary to law, morals, good customs,
public order, or public policy, the validity of the contract must be sustained (Phil. American Insurance Co.
vs. Judge Pineda, 175 SCRA 416). Consonant with this ruling, a contracting party cannot incur a liability
more than what is expressly specified in his undertaking. It cannot be extended by implication, beyond the
terms of the contract (Rizal Commercial Banking Corporation vs. Court of Appeals, supra). And as a rule
of evidence, where the terms of an agreement are reduced to writing, the document itself, being
constituted by the parties as the expositor of their intentions, is the only instrument of evidence in respect
of that agreement which the law will recognize, so long as its (sic) exists for the purpose of evidence
(Starkie, Ev., pp. 648, 655, Kasheenath vs. Chundy, 5 W.R. 68 cited in Francisco, Revised Rules of Court
in the Phil. p. 153, 1973 Ed.). And if the terms of the contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control (Santos vs. CA, et
al., G. R. No. 83664, Nov. 13, 1989; Prudential Bank & Trust Co. vs. Community Builders Co., Inc., 165
SCRA 285; Balatero vs. IAC, 154 SCRA 530). 13

We hold, therefore, that private respondent did not breach the tenor of its obligation to the Syquias. While this may be so,
can private respondent be liable for culpa aquiliana for boring the hole on the vault? It cannot be denied that the hole
made possible the entry of more water and soil than was natural had there been no hole.

The law defines negligence as the "omission of that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the place." 14 In the absence of stipulation or legal
provision providing the contrary, the diligence to be observed in the performance of the obligation is that which is
expected of a good father of a family.

The circumstances surrounding the commission of the assailed act — boring of the hole — negate the allegation of
negligence. The reason for the act was explained by Henry Flores, Interment Foreman, who said that:

Q It has been established in this particular case that a certain Vicente Juan Syquia was
interred on July 25, 1978 at the Parañaque Cemetery of the Manila Memorial Park
Cemetery, Inc., will you please tell the Hon. Court what or whether you have participation
in connection with said internment (sic)?

A A day before Juan (sic) Syquia was buried our personnel dug a grave. After digging the
next morning a vault was taken and placed in the grave and when the vault was placed
on the grave a hole was placed on the vault so that water could come into the vault
because it was raining heavily then because the vault has no hole the vault will float and
the grave would be filled with water and the digging would caved (sic) in and the earth,
the earth would (sic) caved in and fill up the grave. 15 (Emphasis ours)

Except for the foreman's opinion that the concrete vault may float should there be a heavy rainfall, from the above-
mentioned explanation, private respondent has exercised the diligence of a good father of a family in preventing the
accumulation of water inside the vault which would have resulted in the caving in of earth around the grave filling the
same with earth.

Thus, finding no evidence of negligence on the part of private respondent, We find no reason to award damages in favor
of petitioners.

In the light of the foregoing facts, and construed in the language of the applicable laws and jurisprudence, We are
constrained to AFFIRM in toto the decision of the respondent Court of Appeals dated December 7, 1990. No costs.

SO ORDERED.

Page 20 of 71
G.R. No. 108164 February 23, 1995

FAR EAST BANK AND TRUST COMPANY, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, LUIS A. LUNA and CLARITA S. LUNA, respondents.

VITUG, J.:

Some time in October 1986, private respondent Luis A. Luna applied for, and was accorded, a FAREASTCARD issued by
petitioner Far East Bank and Trust Company ("FEBTC") at its Pasig Branch. Upon his request, the bank also issued a
supplemental card to private respondent Clarita S. Luna.

In August 1988, Clarita lost her credit card. FEBTC was forthwith informed. In order to replace the lost card, Clarita
submitted an affidavit of loss. In cases of this nature, the bank's internal security procedures and policy would appear to
be to meanwhile so record the lost card, along with the principal card, as a "Hot Card" or "Cancelled Card" in its master
file.

On 06 October 1988, Luis tendered a despedida lunch for a close friend, a Filipino-American, and another guest at the
Bahia Rooftop Restaurant of the Hotel Intercontinental Manila. To pay for the lunch, Luis presented his FAREASTCARD
to the attending waiter who promptly had it verified through a telephone call to the bank's Credit Card Department. Since
the card was not honored, Luis was forced to pay in cash the bill amounting to P588.13. Naturally, Luis felt embarrassed
by this incident.

In a letter, dated 11 October 1988, private respondent Luis Luna, through counsel, demanded from FEBTC the payment
of damages. Adrian V. Festejo, a vice-president of the bank, expressed the bank's apologies to Luis. In his letter, dated 03
November 1988, Festejo, in part, said:

In cases when a card is reported to our office as lost, FAREASTCARD undertakes the necessary action to avert
its unauthorized use (such as tagging the card as hotlisted), as it is always our intention to protect our
cardholders.

An investigation of your case however, revealed that FAREASTCARD failed to inform you about its security
policy. Furthermore, an overzealous employee of the Bank's Credit Card Department did not consider the
possibility that it may have been you who was presenting the card at that time (for which reason, the unfortunate
incident occurred). 1

Festejo also sent a letter to the Manager of the Bahia Rooftop Restaurant to assure the latter that private respondents
were "very valued clients" of FEBTC. William Anthony King, Food and Beverage Manager of the Intercontinental Hotel,
wrote back to say that the credibility of private respondent had never been "in question." A copy of this reply was sent to
Luis by Festejo.

Still evidently feeling aggrieved, private respondents, on 05 December 1988, filed a complaint for damages with the
Regional Trial Court ("RTC") of Pasig against FEBTC.

On 30 March 1990, the RTC of Pasig, given the foregoing factual settings, rendered a decision ordering FEBTC to pay
private respondents (a) P300,000.00 moral damages; (b) P50,000.00 exemplary damages; and (c) P20,000.00 attorney's
fees.

On appeal to the Court of Appeals, the appellate court affirmed the decision of the trial court.

Its motion for reconsideration having been denied by the appellate court, FEBTC has come to this Court with this petition
for review.

There is merit in this appeal.

Page 21 of 71
In culpa contractual, moral damages may be recovered where the defendant is shown to have acted in bad faith or with
malice in the breach of the contract. 2 The Civil Code provides:

Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find
that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where
the defendant acted fraudulently or in bad faith. (Emphasis supplied)

Bad faith, in this context, includes gross, but not simple, negligence.3 Exceptionally, in a contract of carriage, moral
damages are also allowed in case of death of a passenger attributable to the fault (which is presumed 4 ) of the common
carrier.5

Concededly, the bank was remiss in indeed neglecting to personally inform Luis of his own card's cancellation. Nothing in
the findings of the trial court and the appellate court, however, can sufficiently indicate any deliberate intent on the part of
FEBTC to cause harm to private respondents. Neither could FEBTC's negligence in failing to give personal notice to Luis
be considered so gross as to amount to malice or bad faith.

Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral
obliquity; it is different from the negative idea of negligence in that malice or bad faith contemplates a state of mind
affirmatively operating with furtive design or ill will.6

We are not unaware of the previous rulings of this Court, such as in American Express International, Inc., vs. Intermediate
Appellate Court (167 SCRA 209) and Bank of Philippine Islands vs. Intermediate Appellate Court (206 SCRA 408),
sanctioning the application of Article 21, in relation to Article 2217 and Article 2219 7 of the Civil Code to a contractual
breach similar to the case at bench. Article 21 states:

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.

Article 21 of the Code, it should be observed, contemplates a conscious act to cause harm. Thus, even if we are to
assume that the provision could properly relate to a breach of contract, its application can be warranted only when the
defendant's disregard of his contractual obligation is so deliberate as to approximate a degree of misconduct certainly no
less worse than fraud or bad faith. Most importantly, Article 21 is a mere declaration of a general principle in human
relations that clearly must, in any case, give way to the specific provision of Article 2220 of the Civil Code authorizing the
grant of moral damages in culpa contractual solely when the breach is due to fraud or bad faith.

Mr. Justice Jose B.L. Reyes, in his ponencia in Fores vs. Miranda8 explained with great clarity the predominance that we
should give to Article 2220 in contractual relations; we quote:

Anent the moral damages ordered to be paid to the respondent, the same must be discarded. We have
repeatedly ruled (Cachero vs. Manila Yellow Taxicab Co. Inc., 101 Phil. 523; 54 Off. Gaz., [26], 6599; Necesito, et
al. vs. Paras, 104 Phil., 75; 56 Off. Gaz., [23] 4023), that moral damages are not recoverable in damage actions
predicated on a breach of the contract of transportation, in view of Articles 2219 and 2220 of the new Civil Code,
which provide as follows:

Art. 2219. Moral damages may be recovered in the following and analogous cases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

xxx xxx xxx

Art. 2220. Wilful 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.

By contrasting the provisions of these two articles it immediately becomes apparent that:

Page 22 of 71
 (a) In case of breach of contract (including one of transportation) proof of bad faith or fraud (dolus), i.e., wanton or
deliberately injurious conduct, is essential to justify an award of moral damages; and

(b) That a breach of contract can not be considered included in the descriptive term "analogous cases" used in
Art. 2219; not only because Art. 2220 specifically provides for the damages that are caused contractual breach,
but because the definition of quasi-delict in Art. 2176 of the Code expressly excludes the cases where there is a
"preexisitng contractual relations between the parties."

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

The exception to the basic rule of damages now under consideration is a mishap resulting in the death of a
passenger, in which case Article 1764 makes the common carrier expressly subject to the rule of Art. 2206, that
entitles the spouse, descendants and ascendants of the deceased passenger to "demand moral damages for
mental anguish by reason of the death of the deceased" (Necesito vs. Paras, 104 Phil. 84, Resolution on motion
to reconsider, September 11, 1958). But the exceptional rule of Art. 1764 makes it all the more evident that where
the injured passenger does not die, moral damages are not recoverable unless it is proved that the carrier was
guilty of malice or bad faith. We think it is clear that the mere carelessness of the carrier's driver does not per
se constitute or justify an inference of malice or bad faith on the part of the carrier; and in the case at bar there is
no other evidence of such malice to support the award of moral damages by the Court of Appeals. To award
moral damages for breach of contract, therefore, without proof of bad faith or malice on the part of the defendant,
as required by Art. 2220, would be to violate the clear provisions of the law, and constitute unwarranted judicial
legislation.

xxx xxx xxx

The distinction between fraud, bad faith or malice in the sense of deliberate or wanton wrong doing and
negligence (as mere carelessness) is too fundamental in our law to be ignored (Arts. 1170-1172); their
consequences being clearly differentiated by the Code.

Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good
faith is liable shall be those that are the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation.

It is to be presumed, in the absence of statutory provision to the contrary, that this difference was in the mind of
the lawmakers when in Art. 2220 they limited recovery of moral damages to breaches of contract in bad faith. It is
true that negligence may be occasionally so gross as to amount to malice; but the fact must be shown in
evidence, and a carrier's bad faith is not to be lightly inferred from a mere finding that the contract was breached
through negligence of the carrier's employees.

The Court has not in the process overlooked another rule that a quasi-delict can be the cause for breaching a contract
that might thereby permit the application of applicable principles on tort 9 even where there is a pre-existing contract
between the plaintiff and the defendant (Phil. Airlines vs. Court of Appeals, 106 SCRA 143; Singson vs. Bank of Phil.
Islands, 23 SCRA 1117; and Air France vs. Carrascoso, 18 SCRA 155). This doctrine, unfortunately, cannot improve
private respondents' case for it can aptly govern only where the act or omission complained of would constitute an
actionable tort independently of the contract. The test (whether a quasi-delict can be deemed to underlie the breach of a
contract) can be stated thusly: Where, without a pre-existing contract between two parties, an act or omission can
nonetheless amount to an actionable tort by itself, the fact that the parties are contractually bound is no bar to the
application of quasi-delict provisions to the case. Here, private respondents' damage claim is predicated solely on their
contractual relationship; without such agreement, the act or omission complained of cannot by itself be held to stand as a
separate cause of action or as an independent actionable tort.

Page 23 of 71
The Court finds, therefore, the award of moral damages made by the court a quo, affirmed by the appellate court, to be
inordinate and substantially devoid of legal basis.

Exemplary or corrective damages, in turn, are intended to serve as an example or as correction for the public good in
addition to moral, temperate, liquidated or compensatory damages (Art. 2229, Civil Code; see Prudenciado vs. Alliance
Transport System, 148 SCRA 440; Lopez vs. Pan American World Airways, 16 SCRA 431). In criminal offenses,
exemplary damages are imposed when the crime is committed with one or more aggravating circumstances (Art. 2230,
Civil Code). In quasi-delicts, such damages are granted if the defendant is shown to have been so guilty of gross
negligence as to approximate malice (See Art. 2231, Civil Code; CLLC E.G. Gochangco Workers Union vs. NLRC, 161
SCRA 655; Globe Mackay Cable and Radio Corp. vs. CA, 176 SCRA 778). In contracts and quasi-contracts, the court
may award exemplary damages if the defendant is found to have acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner (Art. 2232, Civil Code; PNB vs. Gen. Acceptance and Finance Corp., 161 SCRA 449).

Given the above premises and the factual circumstances here obtaining, it would also be just as arduous to sustain the
exemplary damages granted by the courts below (see De Leon vs. Court of Appeals, 165 SCRA 166).

Nevertheless, the bank's failure, even perhaps inadvertent, to honor its credit card issued to private respondent Luis
should entitle him to recover a measure of damages sanctioned under Article 2221 of the Civil Code providing thusly:

Art. 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.

Reasonable attorney's fees may be recovered where the court deems such recovery to be just and equitable (Art. 2208,
Civil Code). We see no issue of sound discretion on the part of the appellate court in allowing the award thereof by the
trial court.

WHEREFORE, the petition for review is given due course. The appealed decision is MODIFIED by deleting the award of
moral and exemplary damages to private respondents; in its stead, petitioner is ordered to pay private respondent Luis A.
Luna an amount of P5,000.00 by way of nominal damages. In all other respects, the appealed decision is AFFIRMED. No
costs.

SO ORDERED.

G.R. No. 156109 November 18, 2004

KHRISTINE REA M. REGINO, Assisted and Represented by ARMANDO REGINO, petitioner,

vs.
PANGASINAN COLLEGES OF SCIENCE AND TECHNOLOGY, RACHELLE A. GAMUROT and ELISSA
BALADAD, respondents.

DECISION

PANGANIBAN, J.:

Upon enrolment, students and their school enter upon a reciprocal contract. The students agree to abide by the standards
of academic performance and codes of conduct, issued usually in the form of manuals that are distributed to the enrollees
at the start of the school term. Further, the school informs them of the itemized fees they are expected to pay.
Consequently, it cannot, after the enrolment of a student, vary the terms of the contract. It cannot require fees other than
those it specified upon enrolment.

The Case
Page 24 of 71
Before the Court is a Petition for Review under Rule 45,1 seeking to nullify the July 12, 20022 and the November 22,
20023 Orders of the Regional Trial Court (RTC) of Urdaneta City, Pangasinan (Branch 48) in Civil Case No. U-7541. The
decretal portion of the first assailed Order reads:

"WHEREFORE, the Court GRANTS the instant motion to dismiss for lack of cause of action." 4

The second challenged Order denied petitioner's Motion for Reconsideration.

The Facts

Petitioner Khristine Rea M. Regino was a first year computer science student at Respondent Pangasinan Colleges of
Science and Technology (PCST). Reared in a poor family, Regino went to college mainly through the financial support of
her relatives. During the second semester of school year 2001-2002, she enrolled in logic and statistics subjects under
Respondents Rachelle A. Gamurot and Elissa Baladad, respectively, as teachers.

In February 2002, PCST held a fund raising campaign dubbed the "Rave Party and Dance Revolution," the proceeds of
which were to go to the construction of the school's tennis and volleyball courts. Each student was required to pay for two
tickets at the price of P100 each. The project was allegedly implemented by recompensing students who purchased
tickets with additional points in their test scores; those who refused to pay were denied the opportunity to take the final
examinations.

Financially strapped and prohibited by her religion from attending dance parties and celebrations, Regino refused to pay
for the tickets. On March 14 and March 15, 2002, the scheduled dates of the final examinations in logic and statistics, her
teachers -- Respondents Rachelle A. Gamurot and Elissa Baladad -- allegedly disallowed her from taking the tests.
According to petitioner, Gamurot made her sit out her logic class while her classmates were taking their examinations.
The next day, Baladad, after announcing to the entire class that she was not permitting petitioner and another student to
take their statistics examinations for failing to pay for their tickets, allegedly ejected them from the classroom. Petitioner's
pleas ostensibly went unheeded by Gamurot and Baladad, who unrelentingly defended their positions as compliance with
PCST's policy.

On April 25, 2002, petitioner filed, as a pauper litigant, a Complaint 5 for damages against PCST, Gamurot and Baladad. In
her Complaint, she prayed for P500,000 as nominal damages; P500,000 as moral damages; at least P1,000,000 as
exemplary damages; P250,000 as actual damages; plus the costs of litigation and attorney's fees.

On May 30, 2002, respondents filed a Motion to Dismiss 6 on the ground of petitioner's failure to exhaust administrative
remedies. According to respondents, the question raised involved the determination of the wisdom of an administrative
policy of the PCST; hence, the case should have been initiated before the proper administrative body, the Commission of
Higher Education (CHED).

In her Comment to respondents' Motion, petitioner argued that prior exhaustion of administrative remedies was
unnecessary, because her action was not administrative in nature, but one purely for damages arising from respondents'
breach of the laws on human relations. As such, jurisdiction lay with the courts.

On July 12, 2002, the RTC dismissed the Complaint for lack of cause of action.

Ruling of the Regional Trial Court

In granting respondents' Motion to Dismiss, the trial court noted that the instant controversy involved a higher institution of
learning, two of its faculty members and one of its students. It added that Section 54 of the Education Act of 1982 vested
in the Commission on Higher Education (CHED) the supervision and regulation of tertiary schools. Thus, it ruled that the
CHED, not the courts, had jurisdiction over the controversy.7

In its dispositive portion, the assailed Order dismissed the Complaint for "lack of cause of action" without, however,
explaining this ground.

Aggrieved, petitioner filed the present Petition on pure questions of law. 8

Issues

Page 25 of 71
In her Memorandum, petitioner raises the following issues for our consideration:

"Whether or not the principle of exhaustion of administrative remedies applies in a civil action exclusively for
damages based on violation of the human relation provisions of the Civil Code, filed by a student against her
former school.

"Whether or not there is a need for prior declaration of invalidity of a certain school administrative policy by the
Commission on Higher Education (CHED) before a former student can successfully maintain an action exclusively
for damages in regular courts.

"Whether or not the Commission on Higher Education (CHED) has exclusive original jurisdiction over actions for
damages based upon violation of the Civil Code provisions on human relations filed by a student against the
school."9

All of the foregoing point to one issue -- whether the doctrine of exhaustion of administrative remedies is applicable. The
Court, however, sees a second issue which, though not expressly raised by petitioner, was impliedly contained in her
Petition: whether the Complaint stated sufficient cause(s) of action.

The Court's Ruling

The Petition is meritorious.

First Issue:

Exhaustion of Administrative Remedies

Respondents anchored their Motion to Dismiss on petitioner's alleged failure to exhaust administrative remedies before
resorting to the RTC. According to them, the determination of the controversy hinge on the validity, the wisdom and the
propriety of PCST's academic policy. Thus, the Complaint should have been lodged in the CHED, the administrative body
tasked under Republic Act No. 7722 to implement the state policy to "protect, foster and promote the right of all citizens to
affordable quality education at all levels and to take appropriate steps to ensure that education is accessible to all." 10

Petitioner counters that the doctrine finds no relevance to the present case since she is praying for damages, a remedy
beyond the domain of the CHED and well within the jurisdiction of the courts. 11

Petitioner is correct. First, the doctrine of exhaustion of administrative remedies has no bearing on the present case. In
Factoran Jr. v. CA,12 the Court had occasion to elucidate on the rationale behind this doctrine:

"The doctrine of exhaustion of administrative remedies is basic. Courts, for reasons of law, comity, and
convenience, should not entertain suits unless the available administrative remedies have first been resorted to
and the proper authorities have been given the appropriate opportunity to act and correct their alleged errors, if
any, committed in the administrative forum. x x x.13 "

Petitioner is not asking for the reversal of the policies of PCST. Neither is she demanding it to allow her to take her final
examinations; she was already enrolled in another educational institution. A reversal of the acts complained of would not
adequately redress her grievances; under the circumstances, the consequences of respondents' acts could no longer be
undone or rectified.

Second, exhaustion of administrative remedies is applicable when there is competence on the part of the administrative
body to act upon the matter complained of.14 Administrative agencies are not courts; they are neither part of the judicial
system, nor are they deemed judicial tribunals.15 Specifically, the CHED does not have the power to award
damages.16 Hence, petitioner could not have commenced her case before the Commission.

Third, the exhaustion doctrine admits of exceptions, one of which arises when the issue is purely legal and well within the
jurisdiction of the trial court.17 Petitioner's action for damages inevitably calls for the application and the interpretation of
the Civil Code, a function that falls within the jurisdiction of the courts. 18

Second Issue:

Page 26 of 71
 Cause of Action

Sufficient Causes of Action Stated in the Allegations in the Complaint

As a rule, every complaint must sufficiently allege a cause of action; failure to do so warrants its dismissal. 19 A complaint is
said to assert a sufficient cause of action if, admitting what appears solely on its face to be correct, the plaintiff would be
entitled to the relief prayed for. Assuming the facts that are alleged to be true, the court should be able to render a valid
judgment in accordance with the prayer in the complaint.20

A motion to dismiss based on lack of cause of action hypothetically admits the truth of the alleged facts. In their Motion to
Dismiss, respondents did not dispute any of petitioner's allegations, and they admitted that "x x x the crux of plaintiff's
cause of action is the determination of whether or not the assessment of P100 per ticket is excessive or
oppressive."21 They thereby premised their prayer for dismissal on the Complaint's alleged failure to state a cause of
action. Thus, a reexamination of the Complaint is in order.

The Complaint contains the following factual allegations:

"10. In the second week of February 2002, defendant Rachelle A. Gamurot, in connivance with PCST, forced
plaintiff and her classmates to buy or take two tickets each, x x x;

"11. Plaintiff and many of her classmates objected to the forced distribution and selling of tickets to them but the
said defendant warned them that if they refused [to] take or pay the price of the two tickets they would not be
allowed at all to take the final examinations;

"12. As if to add insult to injury, defendant Rachelle A. Gamurot bribed students with additional fifty points or so in
their test score in her subject just to unjustly influence and compel them into taking the tickets;

"13. Despite the students' refusal, they were forced to take the tickets because [of] defendant Rachelle A.
Gamurot's coercion and act of intimidation, but still many of them including the plaintiff did not attend the dance
party imposed upon them by defendants PCST and Rachelle A. Gamurot;

"14. Plaintiff was not able to pay the price of her own two tickets because aside form the fact that she could not
afford to pay them it is also against her religious practice as a member of a certain religious congregation to be
attending dance parties and celebrations;

"15. On March 14, 2002, before defendant Rachelle A. Gamurot gave her class its final examination in the subject
'Logic' she warned that students who had not paid the tickets would not be allowed to participate in the
examination, for which threat and intimidation many students were eventually forced to make payments:

"16. Because plaintiff could not afford to pay, defendant Rachelle A. Gamurot inhumanly made plaintiff sit out the
class but the defendant did not allow her to take her final examination in 'Logic;'

"17. On March 15, 2002 just before the giving of the final examination in the subject 'Statistics,' defendant Elissa
Baladad, in connivance with defendants Rachelle A. Gamurot and PCST, announced in the classroom that she
was not allowing plaintiff and another student to take the examination for their failure and refusal to pay the price
of the tickets, and thenceforth she ejected plaintiff and the other student from the classroom;

"18. Plaintiff pleaded for a chance to take the examination but all defendants could say was that the prohibition to
give the examinations to non-paying students was an administrative decision;

"19. Plaintiff has already paid her tuition fees and other obligations in the school;

"20. That the above-cited incident was not a first since PCST also did another forced distribution of tickets to its
students in the first semester of school year 2001-2002; x x x " 22

The foregoing allegations show two causes of action; first, breach of contract; and second, liability for tort.

Page 27 of 71
Reciprocity of the
School-Student Contract

In Alcuaz v. PSBA,23 the Court characterized the relationship between the school and the student as a contract, in which
"a student, once admitted by the school is considered enrolled for one semester." 24 Two years later, in Non v. Dames
II,25 the Court modified the "termination of contract theory" in Alcuaz by holding that the contractual relationship between
the school and the student is not only semestral in duration, but for the entire period the latter are expected to complete
it."26 Except for the variance in the period during which the contractual relationship is considered to subsist, both Alcuaz
and Non were unanimous in characterizing the school-student relationship as contractual in nature.

The school-student relationship is also reciprocal. Thus, it has consequences appurtenant to and inherent in all contracts
of such kind -- it gives rise to bilateral or reciprocal rights and obligations. The school undertakes to provide students with
education sufficient to enable them to pursue higher education or a profession. On the other hand, the students agree to
abide by the academic requirements of the school and to observe its rules and regulations.27

The terms of the school-student contract are defined at the moment of its inception -- upon enrolment of the student.
Standards of academic performance and the code of behavior and discipline are usually set forth in manuals distributed to
new students at the start of every school year. Further, schools inform prospective enrollees the amount of fees and the
terms of payment.

In practice, students are normally required to make a down payment upon enrollment, with the balance to be paid before
every preliminary, midterm and final examination. Their failure to pay their financial obligation is regarded as a valid
ground for the school to deny them the opportunity to take these examinations.

The foregoing practice does not merely ensure compliance with financial obligations; it also underlines the importance of
major examinations. Failure to take a major examination is usually fatal to the students' promotion to the next grade or to
graduation. Examination results form a significant basis for their final grades. These tests are usually a primary and an
indispensable requisite to their elevation to the next educational level and, ultimately, to their completion of a course.

Education is not a measurable commodity. It is not possible to determine who is "better educated" than another.
Nevertheless, a student's grades are an accepted approximation of what would otherwise be an intangible product of
countless hours of study. The importance of grades cannot be discounted in a setting where education is generally the
gate pass to employment opportunities and better life; such grades are often the means by which a prospective employer
measures whether a job applicant has acquired the necessary tools or skills for a particular profession or trade.

Thus, students expect that upon their payment of tuition fees, satisfaction of the set academic standards, completion of
academic requirements and observance of school rules and regulations, the school would reward them by recognizing
their "completion" of the course enrolled in.

The obligation on the part of the school has been established in Magtibay v. Garcia, 28 Licup v. University of San
Carlos29 and Ateneo de Manila University v. Garcia,30 in which the Court held that, barring any violation of the rules on the
part of the students, an institution of higher learning has a contractual obligation to afford its students a fair opportunity to
complete the course they seek to pursue.

We recognize the need of a school to fund its facilities and to meet astronomical operating costs; this is a reality in running
it. Crystal v. Cebu International School31 upheld the imposition by respondent school of a "land purchase deposit" in the
amount of P50,000 per student to be used for the "purchase of a piece of land and for the construction of new buildings
and other facilities x x x which the school would transfer [to] and occupy after the expiration of its lease contract over its
present site."

The amount was refundable after the student graduated or left the school. After noting that the imposition of the fee was
made only after prior consultation and approval by the parents of the students, the Court held that the school committed
no actionable wrong in refusing to admit the children of the petitioners therein for their failure to pay the "land purchase
deposit" and the 2.5 percent monthly surcharge thereon.

In the present case, PCST imposed the assailed revenue-raising measure belatedly, in the middle of the semester. It
exacted the dance party fee as a condition for the students' taking the final examinations, and ultimately for its recognition
of their ability to finish a course. The fee, however, was not part of the school-student contract entered into at the start of
the school year. Hence, it could not be unilaterally imposed to the prejudice of the enrollees.

Page 28 of 71
Such contract is by no means an ordinary one. In Non, we stressed that the school-student contract "is imbued with public
interest, considering the high priority given by the Constitution to education and the grant to the State of supervisory and
regulatory powers over all educational institutions."32 Sections 5 (1) and (3) of Article XIV of the 1987 Constitution provide:

"The State shall protect and promote the right of all citizens to quality education at all levels and shall take
appropriate steps to make such declaration accessible to all.

"Every student has a right to select a profession or course of study, subject to fair, reasonable and equitable
admission and academic requirements."

The same state policy resonates in Section 9(2) of BP 232, otherwise known as the Education Act of 1982:

"Section 9. Rights of Students in School. – In addition to other rights, and subject to the limitations prescribed by
law and regulations, students and pupils in all schools shall enjoy the following rights:

xxx xxx xxx

(2) The right to freely choose their field of study subject to existing curricula and to continue their course
therein up to graduation, except in cases of academic deficiency, or violation of disciplinary regulations."

Liability for Tort

In her Complaint, petitioner also charged that private respondents "inhumanly punish students x x x by reason only of their
poverty, religious practice or lowly station in life, which inculcated upon [petitioner] the feelings of guilt, disgrace and
unworthiness;"33 as a result of such punishment, she was allegedly unable to finish any of her subjects for the second
semester of that school year and had to lag behind in her studies by a full year. The acts of respondents supposedly
caused her extreme humiliation, mental agony and "demoralization of unimaginable proportions" in violation of Articles 19,
21 and 26 of the Civil Code. These provisions of the law state thus:

"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."

"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."

"Article 26. Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and
other persons. The following and similar acts, though they may not constitute a criminal offense, shall produce a
cause of action for damages, prevention and other relief:

(1) Prying into the privacy of another's residence;

(2) Meddling with or disturbing the private life or family relations of another;

(3) Intriguing to cause another to be alienated from his friends;

(4) Vexing or humiliating another on account of his beliefs, lowly station in life, place of birth, physical
defect, or other personal condition."

Generally, liability for tort arises only between parties not otherwise bound by a contract. An academic institution,
however, may be held liable for tort even if it has an existing contract with its students, since the act that violated the
contract may also be a tort. We ruled thus in PSBA vs. CA,34 from which we quote:

"x x x A perusal of Article 2176 [of the Civil Code] shows that obligations arising from quasi-delicts or tort, also
known as extra-contractual obligations, arise only between parties not otherwise bound by contract, whether
express or implied. However, this impression has not prevented this Court from determining the existence of a tort
even when there obtains a contract. In Air France v. Carrascoso (124 Phil. 722), the private respondent was
awarded damages for his unwarranted expulsion from a first-class seat aboard the petitioner airline. It is noted,
however, that the Court referred to the petitioner-airline's liability as one arising from tort, not one arising form a
Page 29 of 71
 contract of carriage. In effect, Air France is authority for the view that liability from tort may exist even if there is a
contract, for the act that breaks the contract may be also a tort. x x x This view was not all that revolutionary, for
even as early as 1918, this Court was already of a similar mind. In Cangco v. Manila Railroad (38 Phil. 780), Mr.
Justice Fisher elucidated thus: 'x x x. When such a contractual relation exists the obligor may break the contract
under such conditions that the same act which constitutes a breach of the contract would have constituted the
source of an extra-contractual obligation had no contract existed between the parties.'

"Immediately what comes to mind is the chapter of the Civil Code on Human Relations, particularly Article 21 x x
x."35

Academic Freedom

In their Memorandum, respondents harp on their right to "academic freedom." We are not impressed. According to
present jurisprudence, academic freedom encompasses the independence of an academic institution to determine for
itself (1) who may teach, (2) what may be taught, (3) how it shall teach, and (4) who may be admitted to study. 36In Garcia
v. the Faculty Admission Committee, Loyola School of Theology,37 the Court upheld the respondent therein when it denied
a female student's admission to theological studies in a seminary for prospective priests. The Court defined the freedom
of an academic institution thus: "to decide for itself aims and objectives and how best to attain them x x x free from outside
coercion or interference save possibly when overriding public welfare calls for some restraint." 38

In Tangonan v. Paño,39 the Court upheld, in the name of academic freedom, the right of the school to refuse readmission
of a nursing student who had been enrolled on probation, and who had failed her nursing subjects. These instances
notwithstanding, the Court has emphasized that once a school has, in the name of academic freedom, set its standards,
these should be meticulously observed and should not be used to discriminate against certain students.40 After accepting
them upon enrollment, the school cannot renege on its contractual obligation on grounds other than those made known to,
and accepted by, students at the start of the school year.

In sum, the Court holds that the Complaint alleges sufficient causes of action against respondents, and that it should not
have been summarily dismissed. Needless to say, the Court is not holding respondents liable for the acts complained of.
That will have to be ruled upon in due course by the court a quo.

WHEREFORE, the Petition is hereby GRANTED, and the assailed Orders REVERSED. The trial court is DIRECTED to
reinstate the Complaint and, with all deliberate speed, to continue the proceedings in Civil Case No. U-7541. No costs.

SO ORDERED.

G.R. No. 74041 July 29, 1987

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
ROGELIO LIGON y TRIAS and FERNANDO GABAT y ALMERA, accused,
FERNANDO GABAT y ALMERA, accused-appellant.

YAP, J.:

This is an appeal from the judgment of the Regional Trial Court of Manila, Branch XX, rendered on February 17, 1986,
convicting the accused-appellant, Fernando Gabat, of the crime of Robbery with Homicide and sentencing him
to reclusion perpetua. The victim was Jose Rosales y Ortiz, a ,Seventeen-year old working student who was earning his
keep as a cigarette vendor. He was allegedly robbed of Es cigarette box containing cigarettes worth P300.00 more or
less.1

Only Fernando Gabat was arrested and brought to trial and convicted. The other accused, Rogelio Ligon, was never
apprehended and is still at large.

The fatal incident happened on a Sunday, October 23, 1983 at about 6:10 p.m. The accused, Fernando Gabat, was riding
in a 1978 Volkswagen Kombi owned by his father, Antonio Gabat, and driven by the other accused, Rogelio Ligon. The
Kombi was coming from Espana Street going towards the direction of Quiapo. Fernando Gabat was seated beside the
driver, in the front seat by the window on the right side of the Kombi. At the intersection of Quezon Boulevard and Lerma
Street before turning left towards the underpass at C.M. Recto Avenue, the Kombi had to stop as the traffic light was red.
Page 30 of 71
While waiting for the traffic light to change, Fernando Gabat beckoned a cigarette vendor, Jose Rosales y Ortiz (Rosales
for short) to buy some cigarettes from him. Rosales approached the Kombi and handed Gabat two sticks of cigarettes.
While this transaction was occurring, the traffic light changed to green, and the Kombi driven by Rogelio Ligon suddenly
moved forward. As to what precisely happened between Gabat and Rosales at the crucial moment, and immediately
thereafter, is the subject of conflicting versions by the prosecution and the defense. It is not controverted, however, that as
the Kombi continued to speed towards Quiapo, Rosales clung to the window of the Kombi but apparently lost his grip and
fell down on the pavement. Rosales was rushed by some bystanders to the Philippine General Hospital, where he was
treated for multiple physical injuries and was confined thereat until his death on October 30, 1983.

Following close behind the Kombi at the time of the incident was a taxicab driven by Prudencio Castillo. He was behind
the Kombi, at a distance of about three meters, travelling on the same lane in a slightly oblique position ("a little bit to the
right").2 As the Kombi did not stop after the victim fell down on the pavement near the foot of the underpass, Castillo
pursued it as it sped towards Roxas Boulevard, beeping his horn to make the driver stop. When they reached the Luneta
near the Rizal monument, Castillo saw an owner-type jeep with two persons in it. He sought their assistance in chasing
the Kombi, telling them "nakaaksidente ng tao."3 The two men in the jeep joined the chase and at the intersection of Vito
Cruz and Roxas Boulevard, Castillo was able to overtake the Kombi when the traffic light turned red. He immediately
blocked the Kombi while the jeep pulled up right behind it. The two men on board the jeep turned out to be police officers,
Patrolmen Leonardo Pugao and Peter Ignacio. They drew their guns and told the driver, Rogelio Ligon, and his
companion, Fernando Gabat, to alight from the Kombi. It was found out that there was a third person inside the Kombi, a
certain Rodolfo Primicias who was sleeping at the rear seat.4The three were all brought by the police officers to the
Western Police District and turned over to Pfc. Fernan Payuan. The taxicab driver, Prudencio Castillo, also went along
with them. The written statements of Castillo and Rodolfo Primicias were taken by the traffic investigator, Pfc. Fernan
Payuan.5 Payuan also prepared a Traffic Accident Report, dated October 23, 1983. 6 Fernando Gabat and Rodolfo
Primicias were released early morning the following day, but Rogelio Ligon was detained and turned over to the City
Fiscal's Office for further investigation.

Investigating Fiscal Alfredo Cantos, filed an information in court against Rogelio Ligon dated December 6, 1983 charging
him with Homicide thru Reckless Imprudence.7 Six months later, however, or on June 28, 1984, Assistant Fiscal Cantos
filed another information against Rogelio Ligon and Fernando Gabat for Robbery with Homicide.8 He filed the latter
information on the basis of a Supplemental Affidavit of Prudencio Castillo 9 and a joint affidavit of Armando Espino and
Romeo Castil, cigarette vendors, who allegedly witnessed the incident on October 23, 1983. 10These affidavits were
already prepared and merely sworn to before Fiscal Cantos on January 17, 1984.

On October 31, 1983, an autopsy was conducted by the medico-legal officer of the National Bureau of Investigation, Dr.
Orlando V. Salvador, who stated in his autopsy report that the cause of death of Rosales was "pneumonia hypostatic,
bilateral, secondary to traumatic injuries of the head."11

The prosecution tried to establish, through the sole testimony of the taxicab driver, Prudencio Castillo, that Gabat grabbed
the box of cigarettes from Rosales and pried loose the latter's hand from the window of the Kombi, resulting in the latter
falling down and hitting the pavement. In its decision, the trial court summarized the testimony of Castillo as follows: At
about 6:00 o'clock in the evening of October 23, 1983, Castillo was then driving his taxicab along Lerma Street near Far
Eastern University, and at the intersection of Lerma and Quezon Boulevard, the traffic light changed from green to red.
The vehicular traffic stopped and Prudencio Castillo's taxi was right behind a Volkswagen Kombi. While waiting for the
traffic light to change to green, Castillo Idly watched the Volkswagen Kombi and saw Gabat, the passenger sitting beside
the driver, signal to a cigarette vendor. The cigarette vendor, Rosales, approached the right side of the Kombi. While
Rosales was handing the cigarettes to Gabat, the traffic light suddenly changed to green. When the Kombi moved
forward, Gabat suddenly grabbed the cigarette box held by Rosales. Taken aback, Jose Rosales ran beside the Kombi
and was able to hold on to the windowsill of the right front door with his right hand. While Rosales was clinging to the
windowsill, with both feet off the ground, the Kombi continued to speed towards the C.M. Recto underpass. Castillo, who
was closely following the Kombi, then saw Gabat forcibly remove the hand of Rosales from the windowsill and the latter
fell face down on Quezon Boulevard near the Recto underpass.12

The version of the defense, on the other hand, was summarized by the court as follows: On the date and time in question,
Fernando Gabat, 31 years old, an underwriter, was on board the Volkswagen Kombi driven by Rogelio Ligon. The Kombi
had to stop at the intersection of Lerma Street and Quezon Boulevard when the traffic light turned red. Fernando Gabat,
who wanted to buy cigarettes, called a cigarette vendor who approached the right side of the Kombi. Gabat bought two
sticks of cigarettes and handed to the cigarette vendor, Rosales, a P5.00 bill. In order to change the P5.00 big, Rosales
placed his cigarette box containing assorted cigarettes on the windowsill of the front door of the Kombi between the arm of
Gabat and the window frame. Suddenly, the traffic light changed from red to green and Rogelio Ligon moved the vehicle
forward, heedless of the transaction between Gabat and the cigarette vendor. As the vehicle sped onward, the cigarette
box which was squeezed between the right arm of Gabat and the window frame fell inside the Kombi. Rosales then ran
Page 31 of 71
beside the vehicle and clung to the windowsill of the moving vehicle. Gabat testified that when he saw the cigarette
vendor clinging on the side of the front door, he told Ligon to veer to the right in order that Rosales could get off at the
sidewalk. However, Gabat declared, that Ligon said that it could not be done because of the moving vehicular traffic.
Then, while the vehicle slowed down and Ligon was maneuvering to the right in an attempt to go toward the sidewalk,
Rosales lost his grip on the window frame and fell to the pavement of Quezon Boulevard. Gabat allegedly shouted at
Ligon to stop but Ligon replied that they should go on to Las Pinas and report the incident to the parents of Gabat, and
later they would come back to the scene of the incident. However, while the Kombi was speeding along Dewey Boulevard,
it was blocked by the taxi of Prudencio Castillo and a jeep driven by policemen. Gabat and Ligon were brought to police
headquarters, but neither of them executed any written statement.13

The trial court gave full credence to the prosecution's version, stating that there can be no doubt that Gabat forcibly took
or grabbed the cigarette box from Rosales because, otherwise, there could be no reason for the latter to run after the
Kombi and hang on to its window. The court also believed Castillo's testimony that Gabat forcibly removed or pried off the
right hand of Rosales from the windowsill of the Kombi, otherwise, the latter could not have fallen down, having already
been able to balance himself on the stepboard.

On the other hand, the trial court dismissed as incredible the testimony of Gabat that the cigarette vendor placed the
cigarette box on the windowsill of the Kombi, holding it with his left hand, while he was trying to get from his pocket the
change for the 5-peso bill of Gabat. The court said that it is of common knowledge that cigarette vendors plying their trade
in the streets do not let go of their cigarette box; no vendor lets go of his precious box of cigarettes in order to change a
peso bin given by a customer.

As a rule, the findings of fact of the trial court are accorded great respect and are not disturbed on appeal, unless it is
shows that the findings are not supported by the evidence, or the court failed to consider certain material facts and
circumstances in its evaluation of the evidence. In the case at bar, a careful review of the record shows that certain
material facts and circumstances had been overlooked by the trial court which, if taken into account, would alter the result
of the case in that they would introduce an element of reasonable doubt which would entitle the accused to acquittal.

While the prosecution witness, Castillo, may be a disinterested witness with no motive, according to the court a quo,
"other than to see that justice be done," his testimony, even if not tainted with bias, is not entirely free from doubt because
his observation of the event could have been faulty or mistaken. The taxicab which Castillo was driving was lower in
height compared to the Kombi in which Gabat was riding-a fact admitted by Castillo at the trial.14Judicial notice may also
be taken of the fact that the rear windshield of the 1978 Volkswagen Kombi is on the upper portion, occupying
approximately one-third (1/3) of the rear end of the vehicle, thus making it visually difficult for Castillo to observe clearly
what transpired inside the Kombi at the front end where Gabat was seated. These are circumstances which must be taken
into consideration in evaluating Castillo's testimony as to what exactly happened between Gabat and the cigarette vendor
during that crucial moment before the latter fell down. As the taxicab was right behind the Kombi, following it at a distance
of about three meters, Castillo's line of vision was partially obstructed by the back part of the Kombi. His testimony that he
saw Gabat grab the cigarette box from Rosales and forcibly pry loose the latter's hand from the windowsill of the Kombi is
thus subject to a reasonable doubt, specially considering that this occurrence happened in just a matter of seconds, and
both vehicles during that time were moving fast in the traffic.

We find it significant that in his statement given to the police that very evening, 15 Castillo did not mention that he saw
Gabat forcibly prying off the hand of Rosales from the windowsill of the Kombi, although the police report prepared by the
investigating officer, Pfc. Fermin M. Payuan, on the same date, stated that when the traffic signal changed to green and
the driver stepped on the gas, the cigarette box of the cigarette vendor (Rosales) was grabbed by the passenger Gabat
and "instantly the former clung to the door and was dragged at a distance while at the same time the latter punched the
vendor's arm until the same (sic) fell to the pavement," thus showing that during the police investigation Castillo must
have given a statement to the police which indicated that Gabat did something to cause Rosales to fall from the Kombi.16 It
was by way of a supplementary affidavit prepared by the lawyer of the complainant and sworn to by Castillo before the
Assistant City Fiscal on January 17, 1984 that this vital detail was added. This supplementary affidavit was made the
basis for filing another information charging both Gabat and the driver with the crime of Robbery with Homicide.

Considering the above circumstances, the Court is not convinced with moral certainty that the guilt of the accused
Fernando Gabat has been established beyond reasonable doubt. In our view, the quantum of proof necessary to sustain
Gabat's conviction of so serious a crime as robbery with homicide has not been met in this case. He is therefore entitled to
acquittal on reasonable doubt.

However, it does not follow that a person who is not criminally liable is also free from civil liability.1avvphi1 While the guilt
of the accused in a criminal prosecution must be established beyond reasonable doubt, only a preponderance of evidence
Page 32 of 71
is required in a civil action for damages.17 The judgment of acquittal extinguishes the civil liability of the accused only when
it includes a declaration that the facts from which the civil liability might arise did not exist. 18

The reason for the provisions of Article 29 of the Civil Code, which provides that the acquittal of the accused on the
ground that his guilt has not been proved beyond reasonable doubt does not necessarily exempt him from civil liability for
the same act or omission, has been explained by the Code Commission as follows:

The old rule that the acquittal of the accused in a criminal case also releases him from civil liability is one of the
most serious flaws in the Philippine legal system. It has given rise to numberless instances of miscarriage of
justice, where the acquittal was due to a reasonable doubt in the mind of the court as to the guilt of the accused.
The reasoning followed is that inasmuch as the civil responsibility is derived from the criminal offense, when the
latter is not proved, civil liability cannot be demanded.

This is one of those cases where confused thinking leads to unfortunate and deplorable consequences. Such
reasoning fails to draw a clear line of demarcation between criminal liability and civil responsibility, and to
determine the logical result of the distinction. The two liabilities are separate and distinct from each other. One
affects the social order and the other, private rights. One is for the punishment or correction of the offender while
the other is for reparation of damages suffered by the aggrieved party. The two responsibilities are so different
from each other that article 1813 of the present (Spanish) Civil Code reads thus: "There may be a compromise
upon the civil action arising from a crime; but the public action for the imposition of the legal penalty shall not
thereby be extinguished." It is just and proper that, for the purposes of the imprisonment of or fine upon the
accused, the offense should be proved beyond reasonable doubt. But for the purpose of indemnifying the
complaining party, why should the offense also be proved beyond reasonable doubt? Is not the invasion or
violation of every private right to be proved only by a preponderance of evidence? Is the right of the aggrieved
person any less private because the wrongful act is also punishable by the criminal law?

For these reasons, the Commission recommends the adoption of the reform under discussion. It will correct a
serious defect in our law. It will close up an inexhaustible source of injustice a cause for disillusionment on the
part of the innumerable persons injured or wronged. 19

In the instant case, we find that a preponderance of evidence exists sufficient to establish the facts from which the civil
liability of Gabat arises. On the basis of the trial court's evaluation of the testimonies of both prosecution and defense
witnesses at the trial and applying the quantum of proof required in civil cases, we find that a preponderance of evidence
establishes that Gabat by his act and omission with fault and negligence caused damage to Rosales and should answer
civilly for the damage done. Gabat's wilfull act of calling Rosales, the cigarette vendor, to the middle of a busy street to
buy two sticks of cigarettes set the chain of events which led to the death of Rosales. Through fault and negligence,
Gabat (1) failed to prevent the driver from moving forward while the purchase was completed; (2) failed to help Rosales
while the latter clung precariously to the moving vehicle, and (3) did not enforce his order to the driver to stop. Finally,
Gabat acquiesced in the driver's act of speeding away, instead of stopping and picking up the injured victim. These
proven facts taken together are firm bases for finding Gabat civilly liable under the Civil Code 20 for the damage done to
Rosales.

WHEREFORE, judgment is rendered acquitting the appellant Gabat for the crime of Robbery with Homicide. However, he
is hereby held civilly liable for his acts and omissions, there being fault or negligence, and sentenced to indemnify the
heirs of Jose Rosales y Ortiz in the amount of P15.000.00 for the latter's death, P1,733.35 for hospital and medical
expenses, and P4,100.00 for funeral expenses. The alleged loss of income amounting to P20,000.00, not being supported
by sufficient evidence, is DENIED. Costs de officio.

SO ORDERED.

G.R. No. 75357 November 27, 1987

RUFO MAURICIO CONSTRUCTION and/or RUFO MAURICIO, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT, and PEOPLE OF THE PHILIPPINES, respondents.

PARAS, J :

Page 33 of 71
Illustre Cabiliza was charged before the Regional Trial Court of the 5th Judicial Region, Branch II, Legaspi City with
homicide and damage to property through reckless imprudence, in an information which reads-

That on or about the 20th day of September, 1979, in the city of Legaspi, Philippines, and within the
jurisdiction of this Honorable Court, the above-named accused, being then the driver of an Izusu dump
truck, bearing Plate No. WD-224 T Philippines "79, belonging to and owned by RUFO MAURICIO
CONSTRUCTIONS, did then and there willfully, unlawfully and feloniously drive, operate and manage the
said vehicle in a reckless and imprudent manner without taking the necessary precaution to prevent
and/or avoid accident to persons and/or damage to property, and without regard to traffic rules and
regulations, causing as a result of his carelessness and imprudence the said vehicle that he was driving
to sideswipe and hit a Colt Gallant with Plate No. AC -206 S Pilipinas "79, driven and owned by the late
JUDGE ARSENIO SOLIDUM, thereby inflicting injuries upon the said Judge Arsenio Solidum which
directly caused his untimely death, and further causing damage to the said Colt Gallant in the amount of
Thirty Thousand (P30,000.00) PESOS, Philippine Currency to the damage and prejudice of the late
Judge Arsenio Solidum and/or his family, and likewise causing damage to the house owned by PABLO
NAVARRA, to the damage and prejudice of the said Pablo Navarro.

CONTRARY TO LAW. (Rollo, pp. 74-75)

After arraignment and trial on the merits, Cabiliza was convicted of the crime charged in a Decision dated October 12,
1983, the dispositive portion of which reads —

WHEREFORE, this Court finds accused Illustre Cabiliza guilty beyond reasonable doubt of the crime of
homicide and damage to property thru reckless imprudence and hereby sentences him to suffer the
indeterminate penalty of two (2) years and four (4) months, as minimum to six (6) years, as maximum
of prision correccional to indemnify the heirs of the deceased Judge Arsenio G. Solidum, the sum of
P115,723.05 as actual and compensatory damages, Pl,447,200.00 for the loss of earning capacity of the
deceased; P200,000.00 as moral damages; and P20,000.00 as exemplary damages, and to pay the
costs. (Rollo, p. 75)

The aforesaid judgment was promulgated on November 9, 1983. On November 11, 1983, Cabiliza filed a Notice of
Appeal. But he did not live to pursue his appeal as he died on January 5, 1984. A notice of death dated February 4, 1984
was filed by his counsel Atty. Eustaquio S. Beltran. In the same notice of death, Atty. Beltran manifested the intention of
Rufo Mauricio, as employer of Cabiliza to proceed with the case on appeal pursuant to his right as employer who is
subsidiarily liable.

On March 5, 1984, the lower court issued an Order requiring the heirs of Cabiliza to appear and to substitute him as
appellant with respect to the civil aspect of the case.

On motion of the heirs of the victim, the lower court in its order dated August 23, 1984 ordered the issuance of a writ of
execution and accordingly on the same date, the Branch Clerk of Court issued a writ.

The writ of execution was however returned unsatisfied per Sheriff's return of service dated September 3, 1984, because
Cabiliza was found insolvent. A certificate of insolvency was issued by the Register of Deeds of the Province of Cagayan
and by the Municipal Assessor of Claveria Cagayan where Cabiliza appears to be a permanent resident.

On September 3, 1984, the victim's widow, Mrs. Aurora Solidum, filed a motion for the issuance of a subsidiary writ of
execution to be enforced against the employer of Cabiliza, Rufo Mauricio and/or Rufo Mauricio Construction Co., which
was granted by the court in its order dated September 6, 1984. A subsidiary writ of execution was issued by the Clerk of
Court also on September 6, 1984.

On September 12, 1984, Rufo Mauricio thru his counsel Atty. Beltran filed a motion to quash the subsidiary writ of
execution. Resolution of this motion was held in abeyance.

Meanwhile, Rufo Mauricio, as the employer of Cabiliza pursued the latter's appeal before the Intermediate Appellate Court
(AC-G.R. No. 01829). He interposed the following assignment of errors —

Page 34 of 71
 THE LOWER COURT ERRED IN CONCLUDING THAT THE ACCUSED WAS GROSSLY NEGLIGENT
AND IMPRUDENT IN TRYING TO OVERTAKE ANOTHER TRUCK WHEN THERE WAS AN ON
COMING CAR FROM THE OPPOSITE DIRECTION;

II

THE LOWER COURT ERRED IN NOT CONCLUDING THAT THE PROXIMATE CAUSE OF THE
COLLISION RESULTING IN DEATH OF JUDGE ARSENIO SOLIDUM AND DAMAGE TO HIS CAR,
WAS DUE TO THE LATTER'S GROSS NEGLIGENCE AND IMPRUDENCE IN INVADING THE
PROPER LANE OF THE ISUZU DUMP TRUCK OWNED BY RUFO MAURICIO CONSTRUCTION;

III

THE LOWER COURT ERRED IN AWARDING THE TOTAL OF P 1,782,923.05 DAMAGES IN FAVOR
OF THE COMPLAIN ANTS;

IV

THE LOWER COURT ERRED IN NOT DISMISSING THE INFORMATION AGAINST THE ACCUSED
UPON PROOF OF HIS DEATH AND IN NOT RELEASING THE EMPLOYER RUFO MAURICIO
CONSTRUCTIONS AND/OR RUFO MAURICIO FROM LIABILITY;

THE LOWER COURT ERRED IN NOT GIVING APPELLANT RUFO MAURICIO AND/OR RUFO
MAURICIO CONSTRUCTION A DAY IN COURT TO RESIST THE DAMAGES BEING CLAIMED BY
THE HEIRS OF THE VICTIM.

On April 8, 1986, the Intermediate Appellate Court promulgated its now assailed Decision, 1 the pertinent portion of which
reads —

We find that the proper amount of damages for loss of earnings based on Life expectancy of the
deceased is Pl,082,223.84. In this respect, the trial court's findings is modified. The Judgment appealed
from is affirmed in all other aspects.

WHEREFORE, with the afore-mentioned modifications, the appealed Judgment is AFFIRMED. (Rollo, p.
86)

Rufo Mauricio filed a motion for reconsideration which was denied for lack of merit in the Resolution of the Intermediate
Appellate Court dated July 18, 1986.

The said Decision and Resolution are the subject of the present petition. Petitioner contends that —

1. The dismissal of the criminal case against the accused employee wipes out not only the employee's
primary civil liability, but also his employer's subsidiary liability for such criminal negligence, because:

a. The criminal case is based on Article 100 of the Revised Penal Code wherein criminal
liability and the exemption of criminal liability implies exemption from civil liability arising
from crime.

b. The civil liability of the employer petitioner is based, if any, on quasi-delict, since the
accused was exempted from criminal liability.

2. Exemplary damages cannot be imposed upon an employer who at the time of the alleged incident was
not present nor inside the vehicle involved in the accident.

3. The petitioner employer cannot be condemned (to pay) an exhorbitant amount of damages to the tune
of P1,417,946.89, without giving him opportunity to cross examine the witness supporting such claim and
Page 35 of 71
 affording him opportunity to adduce evidence to resist the claim, because that would be deprivation of
property without due process of law, repugnant to the Freedom Constitution.

4. The Honorable Intermediate Appellate Court misapplied the facts contrary to the physical evidence and
relied on conjectures and surmises that depicted a different picture of the accident when the evidence
shows that it was the victim who was negligent at the time of the accident. (Rollo, pp. 18-19)

The first contention of petitioner that the death of the accused-employee wipes out not only the employee's primary civil
liability but also his employer's subsidiary liability is without merit. The death of the accused during the pendency of his
appeal or before the judgment of conviction (rendered against him by the lower court) became final and executory
extinguished his criminal liability meaning his obligation to serve the imprisonment imposed and his pecuniary liability for
fines, but not his civil liability should the liability or obligation arise (not from a crime, for here, no crime was committed, the
accused not having been convicted by final judgment, and therefore still regarded as innocent) but from a quasi-
delict (See Arts. 2176 and 2177, Civil Code), as in this case. The liability of the employer here would not be subsidiary
but solidary with his driver (unless said employer can prove there was no negligence on his part at all, that is, if he can
prove due diligence in the selection and supervision of his driver). (See 8th par. of Art. 2180, Art. 2194, Civil Code; also
People vs. Navoa, 132 SCRA 412; People vs. Tirol, 102 SCRA 558; People vs. Sandaydiego 82 SCRA 120).

Inasmuch as the employer (petitioner herein) was not a party in the criminal case, and to grant him his day in court for the
purpose of cross-examining the prosecution witnesses on their testimonies on the driver's alleged negligence and the
amount of damages to which the heirs of the victim are entitled, as well as to introduce any evidence or witnesses he may
care to present in his defense, the hearing on the motion to quash the subsidiary writ of execution must be reopened
precisely for the purpose adverted to hereinabove.

PREMISES CONSIDERED, the assailed decision of the appellate court is hereby SET ASIDE, and this case is
REMANDED to the trial court for the hearing adverted to in the next preceding paragraph.

SO ORDERED.

G.R. No. 108017 April 3, 1995

MARIA BENITA A. DULAY, in her own behalf and in behalf of the minor children KRIZTEEN ELIZABETH,
BEVERLY MARIE and NAPOLEON II, all surnamed DULAY, petitioners,
vs.
THE COURT OF APPEALS, Former Eighth Division, HON. TEODORO P. REGINO, in his capacity as Presiding
Judge of the Regional Trial Court National Capital Region, Quezon City, Br. 84, SAFEGUARD INVESTIGATION
AND SECURITY CO., INC., and SUPERGUARD SECURITY CORPORATION, respondents.

BIDIN, J.:

This petition for certiorari prays for the reversal of the decision of the Court of Appeals dated October 29, 1991 in CA-G.R.
CV No. 24646 which affirmed the order of the Regional Trial Court dismissing Civil Case No. Q-89-1751, and its resolution
dated November 17, 1991 denying herein, petitioner's motion for reconsideration.

The antecedent facts of the case are as follows:

On December 7, 1988, an altercation between Benigno Torzuela and Atty. Napoleon Dulay occurred at the "Big Bang Sa
Alabang," Alabang Village, Muntinlupa as a result of which Benigno Torzuela, the security guard on duty at the said
carnival, shot and killed Atty. Napoleon Dulay.

Herein petitioner Maria Benita A. Dulay, widow of the deceased Napoleon Dulay, in her own behalf and in behalf of her
minor children, filed on February 8, 1989 an action for damages against Benigno Torzuela and herein private respondents
Safeguard Investigation and Security Co., Inc., ("SAFEGUARD") and/or Superguard Security Corp. ("SUPERGUARD"),
alleged employers of defendant Torzuela. The complaint, docketed as Civil Case No. Q-89-1751 among others alleges
the following:

1. . . .
Page 36 of 71
 Defendants SAFEGUARD INVESTIGATION AND SECURITY CO., INC., (Defendant Safeguard) and
SUPERGUARD SECURITY CORPORATION (Defendant Superguard) are corporations duly organized
and existing in accordance with Philippine laws, with offices at 10th Floor, Manufacturers Building, Inc.,
Plaza Santa Cruz, Manila. They are impleaded as alternative defendants for, while the former appears to
be the employer of defendant BENIGNO TORZUELA (defendant TORZUELA), the latter impliedly
acknowledged responsibility for the acts of defendant TORZUELA by extending its sympathies to
plaintiffs.

Defendant BENIGNO TORZUELA is of legal age, an employee of defendant SAFEGUARD and/or

defendant SUPERGUARD and, at the time of the incident complained of, was under their control and
supervision. . . .

3. On December 7, 1988 at around 8:00 a.m., defendant TORZUELA, while he was on duty as security
guard at the "Big Bang sa Alabang," Alabang Village, Muntinlupa, Metro Manila shot and killed
NAPOLEON V. DULAY with a .38 caliber revolver belonging to defendant SAFEGUARD, and/or
SUPERGUARD (per Police Report dated January 7, 1989, copy attached as Annex A);

4. The incident resulting in the death of NAPOLEON V. DULAY was due to the concurring negligence of
the defendants. Defendant TORZUELA'S wanton and reckless discharge of the firearm issued to him by
defendant SAFEGUARD and/or SUPERGUARD was the immediate and proximate cause of the injury,
while the negligence of defendant SAFEGUARD and/or SUPERGUARD consists in its having failed to
exercise the diligence of a good father of a family in the supervision and control of its employee to avoid
the injury.

xxx xxx xxx

(Rollo, pp. 117-118)

Petitioners prayed for actual, compensatory, moral and exemplary damages, and attorney's fees. The said Civil Case No.
Q-89-1751 was raffled to Branch 84 of the Regional Trial Court of Quezon City, presided by respondent Judge Teodoro
Regino.

On March 2, 1989, private respondent SUPERGUARD filed a Motion to Dismiss on the ground that the complaint does
not state a valid cause of action. SUPERGUARD claimed that Torzuela's act of shooting Dulay was beyond the scope of
his duties, and that since the alleged act of shooting was committed with deliberate intent (dolo), the civil liability therefor
is governed by Article 100 of the Revised Penal Code, which states:

Art. 100. Civil liability of a person guilty of a felony. — Every person criminally liable for a felony is also
civilly liable.

Respondent SUPERGUARD further alleged that a complaint for damages based on negligence under Article 2176 of the
New Civil Code, such as the one filed by petitioners, cannot lie, since the civil liability under Article 2176 applies only to
quasi-offenses under Article 365 of the Revised Penal Code. In addition, the private respondent argued that petitioners'
filing of the complaint is premature considering that the conviction of Torzuela in a criminal case is a condition sine qua
non for the employer's subsidiary liability (Rollo, p. 55-59).

Respondent SAFEGUARD also filed a motion praying that it be excluded as defendant on the ground that defendant
Torzuela is not one of its employees (Rollo, p. 96).

Petitioners opposed both motions, stating that their cause of action against the private respondents is based on their
liability under Article 2180 of the New Civil Code, which provides:

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

Page 37 of 71
 Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business or an
industry.

xxx xxx xxx

(Emphasis supplied)

Petitioners contended that a suit against alternative defendants is allowed under Rule 3, Section 13 of the Rules of Court.
Therefore, the inclusion of private respondents as alternative defendants in the complaint is justified by the following: the
Initial Investigation Report prepared by Pat. Mario Tubon showing that Torzuela is an employee of SAFEGUARD; and
through overt acts, SUPERGUARD extended its sympathies to petitioners (Rollo, pp. 64 and 98).

Meanwhile, an Information dated March 21, 1989 charging Benigno Torzuela with homicide was filed before the Regional
Trial Court of Makati and was docketed as Criminal Case No. 89-1896.

On April 13, 1989, respondent Judge Regino issued an order granting SUPERGUARD'S motion to dismiss and
SAFEGUARD'S motion for exclusion as defendant. The respondent judge held that the complaint did not state facts
necessary or sufficient to constitute a quasi-delict since it does not mention any negligence on the part of Torzuela in
shooting Napoleon Dulay or that the same was done in the performance of his duties. Respondent judge ruled that mere
allegations of the concurring negligence of the defendants (private respondents herein) without stating the facts showing
such negligence are mere conclusions of law (Rollo, p. 106). Respondent judge also declared that the complaint was one
for damages founded on crimes punishable under Articles 100 and 103 of the Revised Penal Code as distinguished from
those arising from, quasi-delict. The dispositive portion of the order dated April 13, 1989 states:

WHEREFORE, this Court holds that in view of the material and ultimate facts alleged in the verified
complaint and in accordance with the applicable law on the matter as well as precedents laid down by the
Supreme Court, the complaint against the alternative defendants Superguard Security Corporation and
Safeguard Investigation and Security Co., Inc., must be and (sic) it is hereby dismissed. (Rollo, p. 110)

The above order was affirmed by the respondent court and petitioners' motion for reconsideration thereof was denied.

Petitioners take exception to the assailed decision and insist that quasi-delicts are not limited to acts of negligence but
also cover acts that are intentional and voluntary, citing Andamo v. IAC (191 SCRA 195 [1990]). Thus, petitioners insist
that Torzuela' s act of shooting Napoleon Dulay constitutes a quasi-delict actionable under Article 2176 of the New Civil
Code.

Petitioners further contend that under Article 2180 of the New Civil Code, private respondents are primarily liable for their
negligence either in the selection or supervision of their employees. This liability is independent of the employee's own
liability for fault or negligence and is distinct from the subsidiary civil liability under Article 103 of the Revised Penal Code.
The civil action against the employer may therefore proceed independently of the criminal action pursuant to Rule 111
Section 3 of the Rules of Court. Petitioners submit that the question of whether Torzuela is an employee of respondent
SUPERGUARD or SAFEGUARD would be better resolved after trial.

Moreover, petitioners argue that Torzuela's act of shooting Dulay is also actionable under Article 33 of the New Civil
Code, to wit:

Art. 33. In cases of defamation, fraud, and physical injuries, a civil action for damages, entirely separate
and distinct from the criminal action, may be brought by the injured party. Such civil action shall proceed
independently of the criminal prosecution, and shall require only a preponderance of evidence. (Emphasis
supplied)

In the same vein, petitioners cite Section 3, Rule 111 of the Rules of Court which provides:

Rule 111. . . . .

Sec. 3. When civil action may proceed independently — In the cases provided for in Articles 32, 33, 34
and 2176 of the Civil Code of the Philippines, the independent civil action which has been reserved may

Page 38 of 71
 be brought by the offended party, shall proceed independently of the criminal action, and shall require
only a preponderance of evidence. (Emphasis supplied)

The term "physical injuries" under Article 33 has been held to include consummated, frustrated and attempted homicide.
Thus, petitioners maintain that Torzuela's prior conviction is unnecessary since the civil action can proceed independently
of the criminal action. On the other hand, it is the private respondents' argument that since the act was not committed with
negligence, the petitioners have no cause of action under Articles 2116 and 2177 of the New Civil Code. The civil action
contemplated in Article 2177 is not applicable to acts committed with deliberate intent, but only applies to quasi-offenses
under Article 365 of the Revised Penal Code. Torzuela's act of shooting Atty. Dulay to death, aside from being purely
personal, was done with deliberate intent and could not have been part of his duties as security guard. And since Article
2180 of the New Civil Code covers only: acts done within the scope of the employee's assigned tasks, the private
respondents cannot be held liable for damages.

We find for petitioners.

It is undisputed that Benigno Torzuela is being prosecuted for homicide for the fatal shooting of Napoleon Dulay. Rule 111
of the Rules on Criminal Procedure provides:

Sec. 1. Institution of criminal and civil actions. When a criminal action is instituted, the civil action for the
recovery of civil liability is impliedly instituted with the criminal action, unless the offended party waives the
civil action , reserves his right to institute it separately or institutes the civil action prior to the criminal
action.

Such civil action includes recovery of indemnity under the Revised Penal Code, and damages under
Articles 32, 33, 34, and 2176 of the Civil Code of the Philippines arising from the same act or omission of
the accused. (Emphasis supplied)

It is well-settled that the filing of an independent civil action before the prosecution in the criminal action presents evidence
is even far better than a compliance with the requirement of express reservation (Yakult Philippines v. Court of Appeals,
190 SCRA 357 [1990]). This is precisely what the petitioners opted to do in this case. However, the private respondents
opposed the civil action on the ground that the same is founded on a delict and not on a quasi-delict as the shooting was
not attended by negligence. What is in dispute therefore is the nature of the petitioner's cause of action.

The nature of a cause of action is determined by the facts alleged in the complaint as constituting the cause of action
(Republic v. Estenzo, 158 SCRA 282 [1988]). The purpose of an action or suit and the law to govern it is to be determined
not by the claim of the party filing the action, made in his argument or brief, but rather by the complaint itself, its
allegations and prayer for relief. (De Tavera v. Philippine Tuberculosis Society, 112 SCRA 243 [1982]). An examination of
the complaint in the present case would show that the plaintiffs, petitioners herein, are invoking their right to recover
damages against the private respondents for their vicarious responsibility for the injury caused by Benigno Torzuela's act
of shooting and killing Napoleon Dulay, as stated in paragraphs 1 and 2 of the complaint.

Article 2176 of the New Civil Code provides:

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

Contrary to the theory of private respondents, there is no justification for limiting the scope of Article 2176 of the Civil
Code to acts or omissions resulting from negligence. Well-entrenched is the doctrine that article 2176 covers not only acts
committed with negligence, but also acts which are voluntary and intentional. As far back as the definitive case of Elcano
v. Hill (77 SCRA 98 [1977]), this Court already held that:

. . . Article 2176, where it refers to "fault or negligence," covers not only acts "not punishable by law" but
also acts criminal in character; whether intentional and voluntary or negligent. Consequently, a separate
civil action against the offender in a criminal act, whether or not he is criminally prosecuted and found
guilty or acquitted, provided that the offended party is not allowed, if he is actually charged also criminally,
to recover damages on both scores, and would be entitled in such eventuality only to the bigger award of
the two, assuming the awards made in the two cases vary. In other words, the extinction of civil liability
referred to in Par. (e) of Section 3, Rule 111, refers exclusively to civil liability founded on Article 100 of

Page 39 of 71
 the Revised Penal Code, whereas the civil liability for the same act considered as quasi-delict only and
not as a crime is not extinguished even by a declaration in the criminal case that the criminal act charged
has not happened or has not been committed by the accused. Briefly stated, We here hold, in reiteration
of Garcia, that culpa aquiliana includes voluntary and negligent acts which may be punishable by law.
(Emphasis supplied)

The same doctrine was echoed in the case of Andamo v. Intermediate Appellate Court (191 SCRA 195 [1990]), wherein
the Court held:

Article 2176, whenever it refers to "fault or negligence," covers not only acts criminal in character, whether
intentional and voluntary or negligent. Consequently, a civil action lies against the offender in a criminal
act, whether or not he is prosecuted or found guilty or acquitted, provided that the offended party is not
allowed, (if the tortfeasor is actually also charged criminally), to recover damages on both scores, and
would be entitled in such eventuality only to the bigger award of the two, assuming the awards made in
the two cases vary. [citing Virata v. Ochoa, 81 SCRA 472] (Emphasis supplied)

Private respondents submit that the word "intentional" in the Andamo case is inaccurate obiter, and should be read as
"voluntary" since intent cannot be coupled with negligence as defined by Article 365 of the Revised Penal Code. In the
absence of more substantial reasons, this Court will not disturb the above doctrine on the coverage of Article 2176.

Private respondents further aver that Article 33 of the New Civil Code applies only to injuries intentionally committed
pursuant to the ruling in Marcia v. CA (120 SCRA 193 [1983]), and that the actions for damages allowed thereunder
are ex-delicto. However, the term "physical injuries" in Article 33 has already been construed to include bodily injuries
causing death (Capuno v. Pepsi-Cola Bottling Co. of the Philippines, 121 Phil. 638 [1965); Carandang v. Santiago, 97
Phil. 94 [1955]). It is not the crime of physical injuries defined in the Revised Penal Code. It includes not only physical
injuries but also consummated, frustrated, and attempted homicide (Madeja v. Caro, 126 SCRA 293 [1983]). Although in
the Marcia case (supra), it was held that no independent civil action may be filed under Article 33 where the crime is the
result of criminal negligence, it must be noted however, that Torzuela, the accused in the case at bar, is charged with
homicide, not with reckless imprudence, whereas the defendant in Marcia was charged with reckless imprudence.
Therefore, in this case, a civil action based on Article 33 lies.

Private respondents also contend that their liability is subsidiary under the Revised Penal Code; and that they are not
liable for Torzuela's act which is beyond the scope of his duties as a security guard. It having been established that the
instant action is not ex-delicto, petitioners may proceed directly against Torzuela and the private respondents. Under
Article 2180 of the New Civil Code as aforequoted, when an injury is caused by the negligence of the employee, there
instantly arises a presumption of law that there was negligence on the part of the master or employer either in the
selection of the servant or employee, or in supervision over him after selection or both (Layugan v. Intermediate Appellate
Court, 167 SCRA 363 [1988]). The liability of the employer under Article 2180 is direct and immediate; it is not conditioned
upon prior recourse against the negligent employee and a prior showing of the insolvency of such employee (Kapalaran
Bus Lines v. Coronado, 176 SCRA 792 [1989]). Therefore, it is incumbent upon the private respondents to prove that they
exercised the diligence of a good father of a family in the selection and supervision of their employee.

Since Article 2176 covers not only acts of negligence but also acts which are intentional and voluntary, it was therefore
erroneous on the part of the trial court to dismiss petitioner's complaint simply because it failed to make allegations of
attendant negligence attributable to private respondents.

With respect to the issue of whether the complaint at hand states a sufficient cause of action, the general rule is that the
allegations in a complaint are sufficient to constitute a cause of action against the defendants if, admitting the facts
alleged, the court can render a valid judgment upon the same in accordance with the prayer therein. A cause of action
exist if the following elements are present, namely: (1) a right in favor of the plaintiff by whatever means and under
whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such
right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach
of the obligation of the defendant to the plaintiff for which the latter may maintain an action for recovery of damages (Del
Bros Hotel Corporation v. CA, 210 SCRA 33 [1992]); Development Bank of the Philippines v. Pundogar, 218 SCRA 118
[1993])

This Court finds, under the foregoing premises, that the complaint sufficiently alleged an actionable breach on the part of
the defendant Torzuela and respondents SUPERGUARD and/or SAFEGUARD. It is enough that the complaint alleged
that Benigno Torzuela shot Napoleon Dulay resulting in the latter's death; that the shooting occurred while Torzuela was
on duty; and that either SUPERGUARD and/or SAFEGUARD was Torzuela's employer and responsible for his acts. This
Page 40 of 71
does not operate however, to establish that the defendants below are liable. Whether or not the shooting was actually
reckless and wanton or attended by negligence and whether it was actually done within the scope of Torzuela's duties;
whether the private respondents SUPERGUARD and/or SAFEGUARD failed to exercise the diligence of a good father of
a family; and whether the defendants are actually liable, are questions which can be better resolved after trial on the
merits where each party can present evidence to prove their respective allegations and defenses. In determining whether
the allegations of a complaint are sufficient to support a cause of action, it must be borne in mind that the complaint does
not have to establish or allege the facts proving the existence of a cause of action at the outset; this will have to be done
at the trial on the merits of the case (Del Bros Hotel Corporation v. CA, supra). If the allegations in a complaint can furnish
a sufficient basis by which the complaint can be maintained, the same should not be dismissed regardless of the defenses
that may be assessed by the defendants (Rava Dev't. Corp. v. CA, 211 SCRA 152 [1992] citing Consolidated Bank &
Trust Corporation v. Court of Appeals, 197 SCRA 663 [1991]). To sustain a motion to dismiss for lack of cause of action,
the complaint must show that the claim for relief does not exist rather than that a claim has been defectively stated, is
ambiguous, indefinite or uncertain (Azur v. Provincial Board, 27 SCRA 50 [1969]). Since the petitioners clearly sustained
an injury to their rights under the law, it would be more just to allow them to present evidence of such injury.

WHEREFORE, premises considered, the petition for review is hereby GRANTED. The decision of the Court of Appeals as
well as the Order of the Regional Trial Court dated April 13, 1989 are hereby REVERSED and SET ASIDE. Civil Case No.
Q-89-1751 is remanded to the Regional Trial Court for trial on the merits. This decision is immediately executory.

SO ORDERED.

G.R. No. 150793 November 19, 2004

FRANCIS CHUA, petitioner,

vs.
HON. COURT OF APPEALS and LYDIA C. HAO, respondents.

DECISION

QUISUMBING, J.:

Petitioner assails the Decision,1 dated June 14, 2001, of the Court of Appeals in CA-G.R. SP No. 57070, affirming the
Order, dated October 5, 1999, of the Regional Trial Court (RTC) of Manila, Branch 19. The RTC reversed the Order,
dated April 26, 1999, of the Metropolitan Trial Court (MeTC) of Manila, Branch 22. Also challenged by herein petitioner is
the CA Resolution,2 dated November 20, 2001, denying his Motion for Reconsideration.

The facts, as culled from the records, are as follows:

On February 28, 1996, private respondent Lydia Hao, treasurer of Siena Realty Corporation, filed a complaint-affidavit
with the City Prosecutor of Manila charging Francis Chua and his wife, Elsa Chua, of four counts of falsification of public
documents pursuant to Article 1723 in relation to Article 1714 of the Revised Penal Code. The charge reads:

That on or about May 13, 1994, in the City of Manila, Philippines, the said accused, being then a private
individual, did then and there willfully, unlawfully and feloniously commit acts of falsification upon a public
document, to wit: the said accused prepared, certified, and falsified the Minutes of the Annual Stockholders
meeting of the Board of Directors of the Siena Realty Corporation, duly notarized before a Notary Public, Atty.
Juanito G. Garcia and entered in his Notarial Registry as Doc No. 109, Page 22, Book No. IV and Series of 1994,
and therefore, a public document, by making or causing it to appear in said Minutes of the Annual Stockholders
Meeting that one LYDIA HAO CHUA was present and has participated in said proceedings, when in truth and in
fact, as the said accused fully well knew that said Lydia C. Hao was never present during the Annual
Stockholders Meeting held on April 30, 1994 and neither has participated in the proceedings thereof to the
prejudice of public interest and in violation of public faith and destruction of truth as therein proclaimed.

Page 41 of 71
 CONTRARY TO LAW.5

Thereafter, the City Prosecutor filed the Information docketed as Criminal Case No. 285721 6 for falsification of public
document, before the Metropolitan Trial Court (MeTC) of Manila, Branch 22, against Francis Chua but dismissed the
accusation against Elsa Chua.

Herein petitioner, Francis Chua, was arraigned and trial ensued thereafter.

During the trial in the MeTC, private prosecutors Atty. Evelyn Sua-Kho and Atty. Ariel Bruno Rivera appeared as private
prosecutors and presented Hao as their first witness.

After Hao's testimony, Chua moved to exclude complainant's counsels as private prosecutors in the case on the ground
that Hao failed to allege and prove any civil liability in the case.

In an Order, dated April 26, 1999, the MeTC granted Chua's motion and ordered the complainant's counsels to be
excluded from actively prosecuting Criminal Case No. 285721. Hao moved for reconsideration but it was denied.

Hence, Hao filed a petition for certiorari docketed as SCA No. 99-94846,7 entitled Lydia C. Hao, in her own behalf and for
the benefit of Siena Realty Corporation v. Francis Chua, and the Honorable Hipolito dela Vega, Presiding Judge, Branch
22, Metropolitan Trial Court of Manila, before the Regional Trial Court (RTC) of Manila, Branch 19.

The RTC gave due course to the petition and on October 5, 1999, the RTC in an order reversed the MeTC Order. The
dispositive portion reads:

WHEREFORE, the petition is GRANTED. The respondent Court is ordered to allow the intervention of the private
prosecutors in behalf of petitioner Lydia C. Hao in the prosecution of the civil aspect of Crim. Case No. 285721,
before Br. 22 [MeTC], Manila, allowing Attys. Evelyn Sua-Kho and Ariel Bruno Rivera to actively participate in the
proceedings.

SO ORDERED.8

Chua moved for reconsideration which was denied.

Dissatisfied, Chua filed before the Court of Appeals a petition for certiorari. The petition alleged that the lower court acted
with grave abuse of discretion in: (1) refusing to consider material facts; (2) allowing Siena Realty Corporation to be
impleaded as co-petitioner in SCA No. 99-94846 although it was not a party to the criminal complaint in Criminal Case No.
285721; and (3) effectively amending the information against the accused in violation of his constitutional rights.

On June 14, 2001, the appellate court promulgated its assailed Decision denying the petition, thus:

WHEREFORE, premises considered, the petition is hereby DENIED DUE COURSE and DISMISSED. The Order,
dated October 5, 1999 as well as the Order, dated December 3, 1999, are hereby AFFIRMED in toto.

SO ORDERED.9

Petitioner had argued before the Court of Appeals that respondent had no authority whatsoever to bring a suit in behalf of
the Corporation since there was no Board Resolution authorizing her to file the suit.

For her part, respondent Hao claimed that the suit was brought under the concept of a derivative suit. Respondent
maintained that when the directors or trustees refused to file a suit even when there was a demand from stockholders, a
derivative suit was allowed.

The Court of Appeals held that the action was indeed a derivative suit, for it alleged that petitioner falsified documents
pertaining to projects of the corporation and made it appear that the petitioner was a stockholder and a director of the
corporation. According to the appellate court, the corporation was a necessary party to the petition filed with the RTC and
even if private respondent filed the criminal case, her act should not divest the Corporation of its right to be a party and
present its own claim for damages.

Page 42 of 71
Petitioner moved for reconsideration but it was denied in a Resolution dated November 20, 2001.

Hence, this petition alleging that the Court of Appeals committed reversible errors:

I. … IN RULING THAT LYDIA HAO'S FILING OF CRIMINAL CASE NO. 285721 WAS IN THE NATURE OF A
DERIVATIVE SUIT

II. … IN UPHOLDING THE RULING OF JUDGE DAGUNA THAT SIENA REALTY WAS A PROPER
PETITIONER IN SCA NO. [99-94846]

III. … IN UPHOLDING JUDGE DAGUNA'S DECISION ALLOWING LYDIA HAO'S COUNSEL TO CONTINUE AS
PRIVATE PROSECUTORS IN CRIMINAL CASE NO. 285721

IV. … IN [OMITTING] TO CONSIDER AND RULE UPON THE ISSUE THAT JUDGE DAGUNA ACTED IN
GRAVE ABUSE OF DISCRETION IN NOT DISMISSING THE PETITION IN SCA NO. [99-94846] FOR BEING A
SHAM PLEADING.10

The pertinent issues in this petition are the following: (1) Is the criminal complaint in the nature of a derivative suit? (2) Is
Siena Realty Corporation a proper petitioner in SCA No. 99-94846? and (3) Should private prosecutors be allowed to
actively participate in the trial of Criminal Case No. 285721.

On the first issue, petitioner claims that the Court of Appeals erred when (1) it sustained the lower court in giving due
course to respondent's petition in SCA No. 99-94846 despite the fact that the Corporation was not the private complainant
in Criminal Case No. 285721, and (2) when it ruled that Criminal Case No. 285721 was in the nature of a derivative suit.

Petitioner avers that a derivative suit is by nature peculiar only to intra-corporate proceedings and cannot be made part of
a criminal action. He cites the case of Western Institute of Technology, Inc. v. Salas, 11 where the court said that an appeal
on the civil aspect of a criminal case cannot be treated as a derivative suit. Petitioner asserts that in this case, the civil
aspect of a criminal case cannot be treated as a derivative suit, considering that Siena Realty Corporation was not the
private complainant.

Petitioner misapprehends our ruling in Western Institute. In that case, we said:

Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases Nos.
37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public document. Among the basic
requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the
corporation must allege in his complaint before the proper forum that he is suing on a derivative cause of action
on behalf of the corporation and all other shareholders similarly situated who wish to join. . . .This was not
complied with by the petitioners either in their complaint before the court a quo nor in the instant petition which, in
part, merely states that "this is a petition for review on certiorari on pure questions of law to set aside a portion of
the RTC decision in Criminal Cases Nos. 37097 and 37098" since the trial court's judgment of acquittal failed to
impose civil liability against the private respondents. By no amount of equity considerations, if at all deserved, can
a mere appeal on the civil aspect of a criminal case be treated as a derivative suit. 12

Moreover, in Western Institute, we said that a mere appeal in the civil aspect cannot be treated as a derivative suit
because the appeal lacked the basic requirement that it must be alleged in the complaint that the shareholder is suing on
a derivative cause of action for and in behalf of the corporation and other shareholders who wish to join.

Under Section 3613 of the Corporation Code, read in relation to Section 23,14 where a corporation is an injured party, its
power to sue is lodged with its board of directors or trustees.15 An individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he holds stocks in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the control of the corporation. In
such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest.16

A derivative action is a suit by a shareholder to enforce a corporate cause of action. The corporation is a necessary party
to the suit. And the relief which is granted is a judgment against a third person in favor of the corporation. Similarly, if a
corporation has a defense to an action against it and is not asserting it, a stockholder may intervene and defend on behalf
of the corporation.17

Page 43 of 71
Under the Revised Penal Code, every person criminally liable for a felony is also civilly liable. 18 When a criminal action is
instituted, the civil action for the recovery of civil liability arising from the offense charged shall be deemed instituted with
the criminal action, unless the offended party waives the civil action, reserves the right to institute it separately or institutes
the civil action prior to the criminal action.19

In Criminal Case No. 285721, the complaint was instituted by respondent against petitioner for falsifying corporate
documents whose subject concerns corporate projects of Siena Realty Corporation. Clearly, Siena Realty Corporation is
an offended party. Hence, Siena Realty Corporation has a cause of action. And the civil case for the corporate cause of
action is deemed instituted in the criminal action.

However, the board of directors of the corporation in this case did not institute the action against petitioner. Private
respondent was the one who instituted the action. Private respondent asserts that she filed a derivative suit in behalf of
the corporation. This assertion is inaccurate. Not every suit filed in behalf of the corporation is a derivative suit. For a
derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege
in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders
similarly situated who may wish to join him in the suit.20 It is a condition sine qua non that the corporation be impleaded as
a party because not only is the corporation an indispensable party, but it is also the present rule that it must be served
with process. The judgment must be made binding upon the corporation in order that the corporation may get the benefit
of the suit and may not bring subsequent suit against the same defendants for the same cause of action. In other words,
the corporation must be joined as party because it is its cause of action that is being litigated and because judgment must
be a res adjudicata against it.21

In the criminal complaint filed by herein respondent, nowhere is it stated that she is filing the same in behalf and for the
benefit of the corporation. Thus, the criminal complaint including the civil aspect thereof could not be deemed in the nature
of a derivative suit.

We turn now to the second issue, is the corporation a proper party in the petition for certiorari under Rule 65 before the
RTC? Note that the case was titled "Lydia C. Hao, in her own behalf and for the benefit of Siena Realty Corporation v.
Francis Chua, and the Honorable Hipolito dela Vega, Presiding Judge, Branch 22, Metropolitan Trial Court of Manila."
Petitioner before us now claims that the corporation is not a private complainant in Criminal Case No. 285721, and thus
cannot be included as appellant in SCA No. 99-94846.

Petitioner invokes the case of Ciudad Real & Dev't. Corporation v. Court of Appeals. 22 In Ciudad Real, it was ruled that the
Court of Appeals committed grave abuse of discretion when it upheld the standing of Magdiwang Realty Corporation as a
party to the petition for certiorari, even though it was not a party-in-interest in the civil case before the lower court.

In the present case, respondent claims that the complaint was filed by her not only in her personal capacity, but likewise
for the benefit of the corporation. Additionally, she avers that she has exhausted all remedies available to her before she
instituted the case, not only to claim damages for herself but also to recover the damages caused to the company.

Under Rule 65 of the Rules of Civil Procedure,23 when a trial court commits a grave abuse of discretion amounting to lack
or excess of jurisdiction, the person aggrieved can file a special civil action for certiorari. The aggrieved parties in such a
case are the State and the private offended party or complainant.24

In a string of cases, we consistently ruled that only a party-in-interest or those aggrieved may file certiorari cases. It is
settled that the offended parties in criminal cases have sufficient interest and personality as "person(s) aggrieved" to file
special civil action of prohibition and certiorari.25

In Ciudad Real, cited by petitioner, we held that the appellate court committed grave abuse of discretion when it
sanctioned the standing of a corporation to join said petition for certiorari, despite the finality of the trial court's denial of its
Motion for Intervention and the subsequent Motion to Substitute and/or Join as Party/Plaintiff.

Note, however, that in Pastor, Jr. v. Court of Appeals 26 we held that if aggrieved, even a non-party may institute a petition
for certiorari. In that case, petitioner was the holder in her own right of three mining claims and could file a petition for
certiorari, the fastest and most feasible remedy since she could not intervene in the probate of her father-in-law's estate.27

In the instant case, we find that the recourse of the complainant to the respondent Court of Appeals was proper. The
petition was brought in her own name and in behalf of the Corporation. Although, the corporation was not a complainant in
the criminal action, the subject of the falsification was the corporation's project and the falsified documents were corporate

Page 44 of 71
documents. Therefore, the corporation is a proper party in the petition for certiorari because the proceedings in the
criminal case directly and adversely affected the corporation.

We turn now to the third issue. Did the Court of Appeals and the lower court err in allowing private prosecutors to actively
participate in the trial of Criminal Case No. 285721?

Petitioner cites the case of Tan, Jr. v. Gallardo,28 holding that where from the nature of the offense or where the law
defining and punishing the offense charged does not provide for an indemnity, the offended party may not intervene in the
prosecution of the offense.

Petitioner's contention lacks merit. Generally, the basis of civil liability arising from crime is the fundamental postulate that
every man criminally liable is also civilly liable. When a person commits a crime he offends two entities namely (1) the
society in which he lives in or the political entity called the State whose law he has violated; and (2) the individual member
of the society whose person, right, honor, chastity or property has been actually or directly injured or damaged by the
same punishable act or omission. An act or omission is felonious because it is punishable by law, it gives rise to civil
liability not so much because it is a crime but because it caused damage to another. Additionally, what gives rise to the
civil liability is really the obligation and the moral duty of everyone to repair or make whole the damage caused to another
by reason of his own act or omission, whether done intentionally or negligently. The indemnity which a person is
sentenced to pay forms an integral part of the penalty imposed by law for the commission of the crime. 29 The civil action
involves the civil liability arising from the offense charged which includes restitution, reparation of the damage caused, and
indemnification for consequential damages.30

Under the Rules, where the civil action for recovery of civil liability is instituted in the criminal action pursuant to Rule 111,
the offended party may intervene by counsel in the prosecution of the offense. 31 Rule 111(a) of the Rules of Criminal
Procedure provides that, "[w]hen a criminal action is instituted, the civil action arising from the offense charged shall be
deemed instituted with the criminal action unless the offended party waives the civil action, reserves the right to institute it
separately, or institutes the civil action prior to the criminal action."

Private respondent did not waive the civil action, nor did she reserve the right to institute it separately, nor institute the civil
action for damages arising from the offense charged. Thus, we find that the private prosecutors can intervene in the trial
of the criminal action.

Petitioner avers, however, that respondent's testimony in the inferior court did not establish nor prove any damages
personally sustained by her as a result of petitioner's alleged acts of falsification. Petitioner adds that since no personal
damages were proven therein, then the participation of her counsel as private prosecutors, who were supposed to pursue
the civil aspect of a criminal case, is not necessary and is without basis.

When the civil action is instituted with the criminal action, evidence should be taken of the damages claimed and the court
should determine who are the persons entitled to such indemnity. The civil liability arising from the crime may be
determined in the criminal proceedings if the offended party does not waive to have it adjudged or does not reserve the
right to institute a separate civil action against the defendant. Accordingly, if there is no waiver or reservation of civil
liability, evidence should be allowed to establish the extent of injuries suffered. 32

In the case before us, there was neither a waiver nor a reservation made; nor did the offended party institute a separate
civil action. It follows that evidence should be allowed in the criminal proceedings to establish the civil liability arising from
the offense committed, and the private offended party has the right to intervene through the private prosecutors.

WHEREFORE, the instant petition is DENIED. The Decision, dated June 14, 2001, and the Resolution, dated November
20, 2001, of the Court of Appeals in CA-G.R. SP No. 57070, affirming the Order, dated October 5, 1999, of the Regional
Trial Court (RTC) of Manila, Branch 19, are AFFIRMED. Accordingly, the private prosecutors are hereby allowed to
intervene in behalf of private respondent Lydia Hao in the prosecution of the civil aspect of Criminal Case No. 285721
before Branch 22, of Metropolitan Trial Court (MeTC) of Manila. Costs against petitioner.

SO ORDERED.

G.R. No. 163753 January 15, 2014

Page 45 of 71
DR. ENCARNACION C. LUMANTAS, M.D., Petitioner,
vs.
HANZ CALAPIZ, REPRESENTED BY HIS PARENTS, HILARIO CALAPIZ, JR. and HERLITA CALAPIZ,Respondent.

DECISION

BERSAMIN, J.:

The acquittal of the accused does not necessarily mean his absolution from civil liability.

The Case

In this appeal, an accused desires the reversal of the decision promulgated on February 20, 2003,1 whereby the Court of
Appeals (CA) affirmed the judgment rendered on August 6, 1999 by the Regional Trial Court (RTC), Branch 13, in
Oroquieta City ordering him to pay moral damages despite his acquittal of the crime of reckless imprudence resulting in
serious physical injuries charged against him.2

Antecedents

On January 16, 1995, Spouses Hilario Calapiz, Jr. and Herlita Calapiz brought their 8-year-old son, Hanz Calapiz (Hanz),
to the Misamis Occidental Provincial Hospital, Oroquieta City, for an emergency appendectomy. Hanz was attended to by
the petitioner, who suggested to the parents that Hanz also undergo circumcision at no added cost to spare him the pain.
With the parents’ consent, the petitioner performed the coronal type of circumcision on Hanz after his appendectomy. On
the following day, Hanz complained of pain in his penis, which exhibited blisters. His testicles were swollen. The parents
noticed that the child urinated abnormally after the petitioner forcibly removed the catheter, but the petitioner dismissed
the abnormality as normal. On January 30, 1995, Hanz was discharged from the hospital over his parents’ protestations,
and was directed to continue taking antibiotics.

On February 8, 1995, Hanz was confined in a hospital because of the abscess formation between the base and the shaft
of his penis. Presuming that the ulceration was brought about by Hanz’s appendicitis, the petitioner referred him to Dr.
Henry Go, an urologist, who diagnosed the boy to have a damaged urethra. Thus, Hanz underwent cystostomy, and
thereafter was operated on three times to repair his damaged urethra.

When his damaged urethra could not be fully repaired and reconstructed, Hanz’s parents brought a criminal charge
against the petitioner for reckless imprudence resulting to serious physical injuries. On April 17, 1997, the
information3 was filed in the Municipal Trial Court in Cities of Oroquieta City (MTCC), to which the latter pleaded not guilty
on May 22, 1998.4 Under the order of April 30, 1999, the case was transferred to the RTC pursuant to Supreme Court
Circular No. 11-99.5

At the trial, the Prosecution presented several witnesses, including Dr. Rufino Agudera as an expert witness and as the
physician who had operated on Hanz twice to repair the damaged urethra. Dr. Agudera testified that Hanz had been
diagnosed to have urethral stricture and cavernosal injury left secondary to trauma that had necessitated the conduct of
two operations to strengthen and to lengthen the urethra. Although satisfactorily explaining that the injury to the urethra
had been caused by trauma, Dr. Agudera could not determine the kind of trauma that had caused the injury.

In his defense, the petitioner denied the charge. He contended that at the time of his examination of Hanz on January 16,
1995, he had found an accumulation of pus at the vicinity of the appendix two to three inches from the penis that had
required immediate surgical operation; that after performing the appendectomy, he had circumcised Hanz with his
parents’ consent by using a congo instrument, thereby debunking the parents’ claim that their child had been cauterized;
that he had then cleared Hanz on January 27, 1995 once his fever had subsided; that he had found no complications
when Hanz returned for his follow up check-up on February 2, 1995; and that the abscess formation between the base
and the shaft of the penis had been brought about by Hanz’s burst appendicitis.

Ruling of the RTC

In its decision rendered on August 6, 1999,6 the RTC acquitted the petitioner of the crime charged for insufficiency of the
evidence. It held that the Prosecution’s evidence did not show the required standard of care to be observed by other
members of the medical profession under similar circumstances. Nonetheless, the RTC ruled that the petitioner was liable

Page 46 of 71
for moral damages because there was a preponderance of evidence showing that Hanz had received the injurious trauma
from his circumcision by the petitioner. The decision disposed as follows:

WHEREFORE, for insufficiency of evidence, this court renders judgment acquitting the accused, Dr. Encarnacion
Lumantas, of reckless imprudence resulting in serious physical injuries, but ordering him to pay Hanz Calapiz ₱50,000.00
as moral damages. No costs.

SO ORDERED.

Ruling of the CA

On appeal, the CA affirmed the RTC,7 sustaining the award of moral damages. It opined that even if the petitioner had
been acquitted of the crime charged, the acquittal did not necessarily mean that he had not incurred civil liability
considering that the Prosecution had preponderantly established the sufferings of Hanz as the result of the circumcision.

The petitioner moved for reconsideration, but the CA denied the motion on April 28, 2004. 8

Hence, this appeal.

Issue

Whether the CA erred in affirming the petitioner’s civil liability despite his acquittal of the crime of reckless imprudence
resulting in serious physical injuries.

Ruling

The petition for review lacks merit.

It is axiomatic that every person criminally liable for a felony is also civilly liable.9 Nevertheless, the acquittal of an accused
of the crime charged does not necessarily extinguish his civil liability. In Manantan v. Court of Appeals,10the Court
elucidates on the two kinds of acquittal recognized by our law as well as on the different effects of acquittal on the civil
liability of the accused, viz:

Our law recognizes two kinds of acquittal, with different effects on the civil liability of the accused.1âwphi1 First is an
acquittal on the ground that the accused is not the author of the act or omission complained of. This instance closes the
door to civil liability, for a person who has been found to be not the perpetrator of any act or omission cannot and can
never be held liable for such act or omission. There being no delict, civil liability ex delicto is out of the question, and the
civil action, if any, which may be instituted must be based on grounds other than the delict complained of. This is the
situation contemplated in Rule 111 of the Rules of Court. The second instance is an acquittal based on reasonable doubt
on the guilt of the accused. In this case, even if the guilt of the accused has not been satisfactorily established, he is not
exempt from civil liability which may be proved by preponderance of evidence only.

The Rules of Court requires that in case of an acquittal, the judgment shall state "whether the evidence of the prosecution
absolutely failed to prove the guilt of the accused or merely failed to prove his guilt beyond reasonable doubt. In either
case, the judgment shall determine if the act or omission from which the civil liability might arise did not exist." 11

Conformably with the foregoing, therefore, the acquittal of an accused does not prevent a judgment from still being
rendered against him on the civil aspect of the criminal case unless the court finds and declares that the fact from which
the civil liability might arise did not exist.

Although it found the Prosecution’s evidence insufficient to sustain a judgment of conviction against the petitioner for the
crime charged, the RTC did not err in determining and adjudging his civil liability for the same act complained of based on
mere preponderance of evidence.12 In this connection, the Court reminds that the acquittal for insufficiency of the
evidence did not require that the complainant’s recovery of civil liability should be through the institution of a separate civil
action for that purpose.13

The petitioner’s contention that he could not be held civilly liable because there was no proof of his negligence deserves
scant consideration. The failure of the Prosecution to prove his criminal negligence with moral certainty did not forbid a

Page 47 of 71
finding against him that there was preponderant evidence of his negligence to hold him civilly liable. 14With the RTC and
the CA both finding that Hanz had sustained the injurious trauma from the hands of the petitioner on the occasion of or
incidental to the circumcision, and that the trauma could have been avoided, the Court must concur with their uniform
findings. In that regard, the Court need not analyze and weigh again the evidence considered in the proceedings a quo.
The Court, by virtue of its not being a trier of facts, should now accord the highest respect to the factual findings of the trial
court as affirmed by the CA in the absence of a clear showing by the petitioner that such findings were tainted with
arbitrariness, capriciousness or palpable error.

Every person is entitled to the physical integrity of his body.1âwphi1 Although we have long advocated the view that any
physical injury, like the loss or diminution of the use of any part of one’s body, is not equatable to a pecuniary loss, and is
not susceptible of exact monetary estimation, civil damages should be assessed once that integrity has been violated.
The assessment is but an imperfect estimation of the true value of one’s body. The usual practice is to award moral
damages for the physical injuries sustained.15 In Hanz’s case, the undesirable outcome of the circumcision performed by
the petitioner forced the young child to endure several other procedures on his penis in order to repair his damaged
urethra. Surely, his physical and moral sufferings properly warranted the amount of ₱50,000.00 awarded as moral
damages.

Many years have gone by since Hanz suffered the injury. Interest of 6% per annum should then be imposed on the award
as a sincere means of adjusting the value of the award to a level that is not only reasonable but just and commensurate.
Unless we make the adjustment in the permissible manner by prescribing legal interest on the award, his sufferings would
be unduly compounded. For that purpose, the reckoning of interest should be from the filing of the criminal information on
April 17, 1997, the making of the judicial demand for the liability of the petitioner.

WHEREFORE, the Court AFFIRMS the decision promulgated on February 20, 2003, with the modification that legal
interest of 6% per annum to start from April 17, 1997 is imposed on the award of:₱50,000.00 as moral damages; and
ORDERS the petitioner to pay the costs of suit.

SO ORDERED.

G.R. No. 122823 November 25, 1999

SEA COMMERCIAL COMPANY, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, JAMANDRE INDUSTRIES, INC. and TIRSO JAMANDRE, respondents.

GONZAGA-REYES, J.:

In this petition for review by certiorari, SEA Commercial Company, Inc. (SEACOM) assails the decision of the Court of
Appeals in CA-G.R. CV NO. 31263 affirming in toto the decision of the Regional Trial Court of Manila, Branch 5, in Civil
Case No. 122391, in favor of Jamandre Industries, Inc. (JII) et al., the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the defendant and against the plaintiff, ordering
the plaintiff:

1) To pay defendant the sum of P66,156.15 (minus 18,843.85) with legal interest thereon, from the date
of the filing of the counterclaim until fully paid;

2) To pay defendant P2,000.00 as moral and exemplary damages;

3) To pay attorney's fees in the sum of P10,000.00; and

4) To pay the costs of this suit.

SO ORDERED.

Page 48 of 71
SEACOM is a corporation engaged in the business of selling and distributing agricultural machinery, products and
equipment. On September 20, 1966, SEACOM and JII entered into a dealership agreement whereby SEACOM appointed
JII as its exclusive dealer in the City and Province of Iloilo 1. Tirso Jamandre executed a suretyship agreement binding
himself jointly and severally with JII to pay for all obligations of JII to SEACOM 2. The agreement was subsequently
amended to include Capiz in the territorial coverage and to make the dealership agreement on a non-exclusive basis 3 . In
the course of the dealership agreement, JII allegedly incurred a balance of P18,843.85 for unpaid deliveries, and
SEACOM brought action to recover said amount plus interest and attorney's fees.

JII filed an Answer denying the obligation and interposing a counterclaim for damages representing unrealized profits
when JII sold to the Farm System Development Corporation (FSDC) twenty one (21) units of Mitsubishi power tillers. In
the counterclaim, JII alleged that as a dealer in Capiz, JII contracted to sell in 1977 twenty-four (24) units of Mitsubishi
power tillers to a group of farmers to be financed by said corporation, which fact JII allegedly made known to petitioner,
but the latter taking advantage of said information and in bad faith, went directly to FSDC and dealt with it and sold twenty
one (21) units of said tractors, thereby depriving JII of unrealized profit of eighty-five thousand four hundred fifteen and
61/100 pesos (P85,415.61).

The trial court rendered its decision on January 24, 1990 ordering JII to pay SEACOM the amount of Eighteen Thousand
Eight Hundred Forty Three and 85/100 (P18,843.85) representing its outstanding obligation. The trial court likewise
granted JII's counterclaim for unrealized profits, and for moral and exemplary damages and attorney' fees as above
quoted.

SEACOM appealed the decision on the counterclaim.

The Court of Appeals held that while there exists no agency relationship between SEACOM and JII, SEACOM is liable for
damages and unrealized profits to JII.

This Court, however, is convinced that with or without the existence of an agency relationship between
appellant SEACOM and appellee JII and notwithstanding the error committed by the lower court in finding
that an agency relationship existed between appellant and defendant corporation the former is liable for
the unrealized profits which the latter could have gained had not appellant unjustly stepped in and in bad
faith unethically intervened.

It should be emphasized that the very purpose of the dealership agreement is for SEACOM to have JII as
its dealer to sell its products in the provinces of Capiz and Iloilo. In view of this agreement, the second
assigned error that the lower court erred in holding that appellant learned of the FSDC transaction from
defendant JII is clearly immaterial and devoid of merit. The fact that the dealership is on a non-exclusive
basis does not entitle appellant SEACOM to join the fray as against its dealer. To do so, is to violate the
norms of conduct enjoined by Art. 19 of the Civil Code. By virtue of such agreement, the competition in
the market as regards the sale of farm equipment shall be between JII, as the dealer of SEACOM and
other companies, not as against SEACOM itself. However, SEACOM, not satisfied with the presence of
its dealer JII in the market, joined the competition even as the against the latter and, therefore, changed
the scenario of the competition thereby rendering inutile the dealership agreement which they entered
into the manifest prejudice of JII. Hence, the trial court was correct when it applied Art. 19 of the Civil
Code in the case at bar in that appellant SEACOM acted in bad faith when it competed with its own
dealer as regards the sale of farm machineries, thereby depriving appellee JII of the opportunity to gain a
clear profit of P85,000.00.

and affirmed the judgment appealed from in toto.

Hence this petition for review on certiorari, which submits the following reasons for the allowance thereof:

THE RESPONDENT COURT OF APPEALS DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT

IN ACCORDANCE WITH LAW AND JURISPRUDENCE, CONSIDERING THAT:

THE RESPONDENT COURT OF APPEALS GARAVELY ERRED IN RULING THAT PETITIONER IS

LIABLE TO PAY DAMAGES AND UNREALIZED PROFITS TO THE PRIVATE RESPONDENTS
DESPITE THE FACT THAT NO AGENCY RELATIONSHIP EXISTS BETWEEN THEM.

Page 49 of 71
 B

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PETITIONER ACTED
IN BAD FAITH AGAINST THE PRIVATE RESPONDENT CORPORATION DESPITE THE FACT THAT
SAID RULING IS CONTRARY TO THE EVIDENCE ON RECORD.

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE NON-
EXCLUSIVITY CLAUSE IN THE DEALERSHIP AGREEMENT EXECUTED BETWEEN THE
PETITIONER AND PRIVATE RESPONDENT CORPORATION PRECLUDES THE PETITIONER FROM
COMPETING WITH THE PRIVATE RESPONDENT CORPORAITON.

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PRIVATE

RESPONDENT IS ENTITLED TO UNREALIZED PROFITS, MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY'S FEES. 4

Petitioner SEACOM disputes the conclusion of the Court of Appeals that despite the fact that no agency relationship
existed between the parties, the SEACOM is still liable in damages and unrealized profits for the reason that it acted in
bad faith. Petitioner SEACOM invokes the non-exclusivity clause in the dealership agreement and claims that the
transaction with FSDC was concluded pursuant to a public bidding and not on the basis of alleged information it received
from private respondent Tirso Jamandre. Moreover, petitioner SEACOM claims that it did not underprice its products
during the public bidding wherein both SEACOM and JII participated. Petitioner also disputes the award of moral
damages to JII which is a corporation, in the absence of any evidence that the said corporation had a good reputation
which was debased.

Private respondents in their comment, contends that the four assigned errors raise mixed questions of fact and law and
are therefore beyond the jurisdiction of the Supreme Court which may take cognizance of only questions of law. The
assigned errors were also refuted to secure affirmance of the appealed decision. JII maintains that the bidding set by
FSDC on March 24, 1997 was scheduled after the demonstration conducted by JII, and after JII informed SEACOM about
the preference of the farmers to buy Mitsubishi tillers. JII further rebuts the SEACOM's contention that the transaction with
FSDC was pursuant to a public bidding with full disclosure to the public and private respondent JII considering that JII had
nothing to do with the list of 37 bidders and cannot be bound by the listing made by SEACOM's employee; moreover, JII
did not participate in the bidding not having been informed about it. Furthermore, the price at which SEACOM sold to
FSDC was lower than the price it gave to JII. Also, even if the dealership agreement was not exclusive, it was breached
when petitioner in bad faith sold directly to FSDC with whom JII had previously offered the subject farm equipment. With
respect to the awards of moral and exemplary damages, JII seeks an affirmation of the ruling of the Court of Appeals
justifying the awards.

SEACOM filed Reply defending the jurisdiction of this Court over the instant petition since the decision of the Court of
Appeals was "based on a misapprehension of facts". SEACOM insists that FSDC's purchase was made pursuant to a
public bidding, and even if SEACOM did not participate thereon, JII would not necessarily have closed the deal since thirty
seven (37) bidders participated. SEACOM contends that no evidence was presented to prove that the bidding was a
fraudulent scheme of SEACOM and FSDC. SEACOM further controverts JII's contention that JII did not take part in the
bidding as Tirso Jamandre was one of the bidders and that SEACOM underpriced its products to entice FSDC to buy
directly from it. In fine, JII is not entitled to the award of unrealized profits and damages.

In its Rejoinder, private responder insist that there is an agency relationship, citing the evidence showing that credit
memos and not cash vouchers were issued to JII by SEACOM for every delivery from November 26, 1976 to December
24, 1978. Private respondents maintain that SEACOM "torpedoed the emerging deal between JII and FSDC after being
informed about it by JII by dealing directly with FSDC at a lower price" and after betraying JII, SEACOM would cover up
the deceit by conniving with FSDC to post up a "sham public bidding.

SEACOM's sur-rejoinder contains basically a reiteration of its contention in previous pleadings. Additionally, it is
contended that private respondents are barred from questioning in their Rejoinder, the finding of the Court of Appeals that
there is no agency relationship between the parties since this matter was not raised as error in their comment.

Page 50 of 71
The core issue is whether SEACOM acted in bad faith when it competed with its own dealer as regards the sale of farm
machineries to FSDC.

Both the trial court and the Court of Appeals held affirmatively; the trial court found that JII was an agent of SEACOM and
the act of SEACOM in dealing directly with FSDC was unfair and unjust to its agent, and that there was fraud in the
transaction between FSDC and SEACOM to the prejudice of JII. On the other hand, the Court of Appeals ruled that there
was no agency relationship between the parties but SEACOM is nevertheless liable in damages for having acted in bad
faith when it competed with its own dealer in the sale of the farm machineries to FSDC. Both courts invoke as basis for
the award Article 19 of the Civil Code which reads as follows:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due and observe honesty and good faith.

The principle of abuse of rights stated in the above article, departs from the classical theory that "he who uses a right
injures no one". The modern tendency is to depart from the classical and traditional theory, and to grant indemnity for
damages in cases where there is an abuse of rights, even when the act is not illicit. 5

Art. 19 was intended to expand the concept of torts by granting adequate legal remedy for the untold number of moral
wrongs which is impossible for human foresight to provide specifically in statutory law. 6 If mere fault or negligence in
one's acts can make him liable for damages for injury caused thereby, with more reason should abuse or bad faith make
him liable. The absence of good faith is essential to abuse of right. Good faith is an honest intention to abstain from taking
any unconscientious advantage of another, even through the forms or technicalities of the law, together with an absence
of all information or belief of fact which would render the transaction unconscientious. In business relations, it means good
faith as understood by men of affairs. 7

While Article 19 may have been intended as a mere declaration of

principle 8, the "cardinal law on human conduct" expressed in said article has given rise to certain rules, e.g. that where a
person exercises his rights but does so arbitrarily or unjustly or performs his duties in a manner that is not in keeping with
honesty and good faith, he opens himself to liability. 9 The elements of an abuse of rights under Article 19 are: (1) there is
a legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent of prejudicing or injuring
another. 10

The issue whether JII is "entitled to recovery on its counterclaim for unrealized profit in the twenty one (21) units of
Mitsubishi power tillers sold by SEACOM to FSDC" was resolved by the trial court in favor of JII on the basis of
documentary evidence 11 showing that (1) JII has informed SEACOM as early as February 1977 of the promotions
undertaken by JII for the sale of 24 contracted units to FSDC and in connection therewith, requested a 50% discount to
make the price competitive, and to increase the warranty period for eight months to one year. In said letter Jamandre
clarified that they were not amenable to SEACOM's offering directly to FSDC" and to be only given the usual overriding
commission as "we have considerable investments on this transaction". (2) In response, the general sales manager of
SEACOM declined to give the requested 50% discount and offered a "less 30% less 10% up to end March . . . on cash
before delivery basis", granted the requested extension of the warranty period and stated that "we are glad to note that
you have quite a number of units pending with the FSDC."

The trial court ruled that with said information, SEACOM dealt directly with FSDC and offered its units at a lower price,
leaving FSDC "no choice but to accept the said offer of (SEACOM)".

In affirming the judgment of the of the trial court, the Court of Appeals held that by virtue of the dealership agreement the
competition in the market as regards the sale of farm equipment shall be between JII, as the dealer of SEACOM, and
other companies, not as against SEACOM itself, the Court stated:

However, SEACOM not satisfied with the presence of its dealer JII in the market, joined the competition
even as against the latter, and thereby changed the scenario of the competition thereby rendering inutile
the dealership agreement which they entered into to the manifest prejudice of JII. Hence the trial court
trial court was correct when it applied Art. 19 of the Civil Code in the case at bar in that appellant
SEACOM acted in bad faith when it competed with its own dealer as regards the sale of farm
machineries, thereby depriving appellee JII of the opportunity to gain a clear profit of P85,000.00.

We find no cogent reason to overturn the factual finding of the two courts that SEACOM joined the bidding for the sale of
the farm equipment after it was informed that JII was already promoting the sales of said equipment to the FSDC.

Page 51 of 71
Moreover, the conclusion of the trial court that the SEACOM offered FSDC a lower price than the price offered by JII to
FSDC is supported by the evidence: the price offered by JII to FSDC is P27,167 per unit 12 but the prices at which
SEACOM sold to FSDC were at P22,867.00 for Model CT 83-2, P21,093.50 for model CT 83-E, and P18,979.25 for
model CT 534. The fact that SEACOM may have offered to JII, in lieu of a requested 50% discount, a discount effectively
translating to 37% of the list price and actually sold to FSDC at 35% less than the list price 13does not detract from the fact
that by participating in the bidding of FSDC, it actually competed with its own dealer who had earlier conducted
demonstrations and promoted its own products for the sale of the very same equipment, Exh. "N" for the plaintiff confirms
that both SEACOM and Jamandre participated in the bidding. 14 However, the SEACOM was awarded the contract
directly from Manila. 15 The testimony of Tirso Jamandre that JII was the sole representative of SEACOM in the local
demonstrations to convince the farmers and cooperative officers to accept the Mitsubishi brand of equipment in
preference to other brands, was unrebutted by SEACOM.

Clearly, the bad faith of SEACOM was established. By appointing as a dealer of its agricultural equipment, SEACOM
recognized the role and undertaking of JII to promote and sell said equipment. Under the dealership agreement, JII was to
act as a middleman to sell SEACOM's products, in its area of operations, i.e. Iloilo and Capiz provinces, to the exclusion
of other places, 16 to send its men to Manila for training on repair, servicing and installation of the items to be handled by
it, and to comply with other personnel and vehicle requirements intended for the benefit of the dealership. 17 After being
informed of the demonstrations JII had conducted to promote the sales of SEACOM equipment, including the operations
at JII's expense conducted for five months, and the approval of its facilities (service and parts) by FSDC, 18 SEACOM
participated in the bidding for the said equipment at a lower price, placing itself in direct competition with its own dealer.
The actuations of SEACOM are tainted by bad faith.

Even if the dealership agreement was amended to make it on a non-exclusive basis, 19 SEACOM may not exercise its
right unjustly or in a manner that is not in keeping with honesty or good faith; otherwise it opens itself to liability under the
abuse of right rule embodied in Article 19 of the Civil Code above-quoted. This provision, together with the succeeding
article on human relation, was intended to embody certain basic principles "that are to be observed for the rightful
relationship between human being. and for the stability of the social order." 20 What is sought to be written into the law is
the pervading principle of equity and justice above strict legalism. 21

We accordingly resolve to affirm the award for unrealized profits. The Court of Appeals noted that the trial court failed to
specify to which the two appellees the award for moral and exemplary damages in granted. However, in view of the fact
that moral damages are not as a general rule granted to a corporation, and that Tirso Jamandre was the one who testified
on his feeling very aggrieved and on his mental anguish and sleepless nights thinking of how SEACOM "dealt with us
behind (our) backs", 22 the award should go to defendant Jamandre, President of JII.

WHEREFORE. the judgment appealed from is AFFIRMED with the modification that the award of P2,000.00 in moral and
exemplary damages shall be paid to defendant Tirso Jamandre.

Costs against appellant.

SO ORDERED.

G.R. No. 81262 August 25, 1989

GLOBE MACKAY CABLE AND RADIO CORP., and HERBERT C. HENDRY, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and RESTITUTO M. TOBIAS, respondents.

Atencia & Arias Law Offices for petitioners.

Romulo C. Felizmena for private respondent.

CORTES, J.:

Private respondent Restituto M. Tobias was employed by petitioner Globe Mackay Cable and Radio Corporation (GLOBE
MACKAY) in a dual capacity as a purchasing agent and administrative assistant to the engineering operations manager.

Page 52 of 71
In 1972, GLOBE MACKAY discovered fictitious purchases and other fraudulent transactions for which it lost several
thousands of pesos.

According to private respondent it was he who actually discovered the anomalies and reported them on November 10,
1972 to his immediate superior Eduardo T. Ferraren and to petitioner Herbert C. Hendry who was then the Executive
Vice-President and General Manager of GLOBE MACKAY.

On November 11, 1972, one day after private respondent Tobias made the report, petitioner Hendry confronted him by
stating that he was the number one suspect, and ordered him to take a one week forced leave, not to communicate with
the office, to leave his table drawers open, and to leave the office keys.

On November 20, 1972, when private respondent Tobias returned to work after the forced leave, petitioner Hendry went
up to him and called him a "crook" and a "swindler." Tobias was then ordered to take a lie detector test. He was also
instructed to submit specimen of his handwriting, signature, and initials for examination by the police investigators to
determine his complicity in the anomalies.

On December 6,1972, the Manila police investigators submitted a laboratory crime report (Exh. "A") clearing private
respondent of participation in the anomalies.

Not satisfied with the police report, petitioners hired a private investigator, retired Col. Jose G. Fernandez, who on
December 10, 1972, submitted a report (Exh. "2") finding Tobias guilty. This report however expressly stated that further
investigation was still to be conducted.

Nevertheless, on December 12, 1972, petitioner Hendry issued a memorandum suspending Tobias from work preparatory
to the filing of criminal charges against him.

On December 19,1972, Lt. Dioscoro V. Tagle, Metro Manila Police Chief Document Examiner, after investigating other
documents pertaining to the alleged anomalous transactions, submitted a second laboratory crime report (Exh. "B")
reiterating his previous finding that the handwritings, signatures, and initials appearing in the checks and other documents
involved in the fraudulent transactions were not those of Tobias. The lie detector tests conducted on Tobias also yielded
negative results.

Notwithstanding the two police reports exculpating Tobias from the anomalies and the fact that the report of the private
investigator, was, by its own terms, not yet complete, petitioners filed with the City Fiscal of Manila a complaint for estafa
through falsification of commercial documents, later amended to just estafa. Subsequently five other criminal complaints
were filed against Tobias, four of which were for estafa through Falsification of commercial document while the fifth was
for of Article 290 of' the Revised Penal Code (Discovering Secrets Through Seizure of Correspondence).lâwphî1.ñèt Two
of these complaints were refiled with the Judge Advocate General's Office, which however, remanded them to the fiscal's
office. All of the six criminal complaints were dismissed by the fiscal. Petitioners appealed four of the fiscal's resolutions
dismissing the criminal complaints with the Secretary of Justice, who, however, affirmed their dismissal.

In the meantime, on January 17, 1973, Tobias received a notice (Exh. "F") from petitioners that his employment has been
terminated effective December 13, 1972. Whereupon, Tobias filed a complaint for illegal dismissal. The labor arbiter
dismissed the complaint. On appeal, the National Labor Relations Commission (NLRC) reversed the labor arbiter's
decision. However, the Secretary of Labor, acting on petitioners' appeal from the NLRC ruling, reinstated the labor
arbiter's decision. Tobias appealed the Secretary of Labor's order with the Office of the President. During the pendency of
the appeal with said office, petitioners and private respondent Tobias entered into a compromise agreement regarding the
latter's complaint for illegal dismissal.

Unemployed, Tobias sought employment with the Republic Telephone Company (RETELCO). However, petitioner
Hendry, without being asked by RETELCO, wrote a letter to the latter stating that Tobias was dismissed by GLOBE
MACKAY due to dishonesty.

Private respondent Tobias filed a civil case for damages anchored on alleged unlawful, malicious, oppressive, and
abusive acts of petitioners. Petitioner Hendry, claiming illness, did not testify during the hearings. The Regional Trial Court
(RTC) of Manila, Branch IX, through Judge Manuel T. Reyes rendered judgment in favor of private respondent by ordering
petitioners to pay him eighty thousand pesos (P80,000.00) as actual damages, two hundred thousand pesos
(P200,000.00) as moral damages, twenty thousand pesos (P20,000.00) as exemplary damages, thirty thousand pesos
(P30,000.00) as attorney's fees, and costs. Petitioners appealed the RTC decision to the Court of Appeals. On the other

Page 53 of 71
hand, Tobias appealed as to the amount of damages. However, the Court of Appeals, an a decision dated August 31,
1987 affirmed the RTC decision in toto. Petitioners' motion for reconsideration having been denied, the instant petition for
review on certiorari was filed.

The main issue in this case is whether or not petitioners are liable for damages to private respondent.

Petitioners contend that they could not be made liable for damages in the lawful exercise of their right to dismiss private
respondent.

On the other hand, private respondent contends that because of petitioners' abusive manner in dismissing him as well as
for the inhuman treatment he got from them, the Petitioners must indemnify him for the damage that he had suffered.

One of the more notable innovations of the New Civil Code is the codification of "some basic principles that are to be
observed for the rightful relationship between human beings and for the stability of the social order." [REPORT ON THE
CODE COMMISSION ON THE PROPOSED CIVIL CODE OF THE PHILIPPINES, p. 39]. The framers of the Code,
seeking to remedy the defect of the old Code which merely stated the effects of the law, but failed to draw out its spirit,
incorporated certain fundamental precepts which were "designed to indicate certain norms that spring from the fountain of
good conscience" and which were also meant to serve as "guides for human conduct [that] should run as golden threads
through society, to the end that law may approach its supreme ideal, which is the sway and dominance of justice" (Id.)
Foremost among these principles is that pronounced in Article 19 which provides:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.

This article, known to contain what is commonly referred to as the principle of abuse of rights, sets certain standards
which must be observed not only in the exercise of one's rights but also in the performance of one's duties. These
standards are the following: to act with justice; to give everyone his due; and to observe honesty and good faith. The law,
therefore, recognizes a primordial limitation on all rights; that in their exercise, the norms of human conduct set forth in
Article 19 must be observed. A right, though by itself legal because recognized or granted by law as such, may
nevertheless become the source of some illegality. When a right is exercised in a manner which does not conform with
the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the
wrongdoer must be held responsible. But while Article 19 lays down a rule of conduct for the government of human
relations and for the maintenance of social order, it does not provide a remedy for its violation. Generally, an action for
damages under either Article 20 or Article 21 would be proper.

Article 20, which pertains to damage arising from a violation of law, provides that:

Art. 20. Every person who contrary to law, wilfully or negligently causes damage to another, shall
indemnify the latter for the same.

However, in the case at bar, petitioners claim that they did not violate any provision of law since they were merely
exercising their legal right to dismiss private respondent. This does not, however, leave private respondent with no relief
because Article 21 of the Civil Code provides that:

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.

This article, adopted to remedy the "countless gaps in the statutes, which leave so many victims of moral wrongs helpless,
even though they have actually suffered material and moral injury" [Id.] should "vouchsafe adequate legal remedy for that
untold number of moral wrongs which it is impossible for human foresight to provide for specifically in the statutes" [Id. it p.
40; See also PNB v. CA, G.R. No. L-27155, May 18,1978, 83 SCRA 237, 247].

In determining whether or not the principle of abuse of rights may be invoked, there is no rigid test which can be applied.
While the Court has not hesitated to apply Article 19 whether the legal and factual circumstances called for its application
[See for e.g., Velayo v. Shell Co. of the Phil., Ltd., 100 Phil. 186 (1956); PNB v. CA, supra; Grand Union Supermarket,
Inc. v. Espino, Jr., G.R. No. L-48250, December 28, 1979, 94 SCRA 953; PAL v. CA, G.R. No. L-46558, July 31,1981,106
SCRA 391; United General Industries, Inc, v. Paler G.R. No. L-30205, March 15,1982,112 SCRA 404; Rubio v. CA, G.R.
No. 50911, August 21, 1987, 153 SCRA 183] the question of whether or not the principle of abuse of rights has been
violated resulting in damages under Article 20 or Article 21 or other applicable provision of law, depends on the
Page 54 of 71
circumstances of each case. And in the instant case, the Court, after examining the record and considering certain
significant circumstances, finds that all petitioners have indeed abused the right that they invoke, causing damage to
private respondent and for which the latter must now be indemnified.

The trial court made a finding that notwithstanding the fact that it was private respondent Tobias who reported the
possible existence of anomalous transactions, petitioner Hendry "showed belligerence and told plaintiff (private
respondent herein) that he was the number one suspect and to take a one week vacation leave, not to communicate with
the office, to leave his table drawers open, and to leave his keys to said defendant (petitioner Hendry)" [RTC Decision, p.
2; Rollo, p. 232]. This, petitioners do not dispute. But regardless of whether or not it was private respondent Tobias who
reported the anomalies to petitioners, the latter's reaction towards the former upon uncovering the anomalies was less
than civil. An employer who harbors suspicions that an employee has committed dishonesty might be justified in taking
the appropriate action such as ordering an investigation and directing the employee to go on a leave. Firmness and the
resolve to uncover the truth would also be expected from such employer. But the high-handed treatment accorded Tobias
by petitioners was certainly uncalled for. And this reprehensible attitude of petitioners was to continue when private
respondent returned to work on November 20, 1972 after his one week forced leave. Upon reporting for work, Tobias was
confronted by Hendry who said. "Tobby, you are the crook and swindler in this company." Considering that the first report
made by the police investigators was submitted only on December 10, 1972 [See Exh. A] the statement made by
petitioner Hendry was baseless. The imputation of guilt without basis and the pattern of harassment during the
investigations of Tobias transgress the standards of human conduct set forth in Article 19 of the Civil Code. The Court has
already ruled that the right of the employer to dismiss an employee should not be confused with the manner in which the
right is exercised and the effects flowing therefrom. If the dismissal is done abusively, then the employer is liable for
damages to the employee [Quisaba v. Sta. Ines-Melale Veneer and Plywood Inc., G.R. No. L-38088, August 30, 1974, 58
SCRA 771; See also Philippine Refining Co., Inc. v. Garcia, G.R. No. L-21871, September 27,1966, 18 SCRA 107] Under
the circumstances of the instant case, the petitioners clearly failed to exercise in a legitimate manner their right to dismiss
Tobias, giving the latter the right to recover damages under Article 19 in relation to Article 21 of the Civil Code.

But petitioners were not content with just dismissing Tobias. Several other tortious acts were committed by petitioners
against Tobias after the latter's termination from work. Towards the latter part of January, 1973, after the filing of the first
of six criminal complaints against Tobias, the latter talked to Hendry to protest the actions taken against him. In response,
Hendry cut short Tobias' protestations by telling him to just confess or else the company would file a hundred more cases
against him until he landed in jail. Hendry added that, "You Filipinos cannot be trusted." The threat unmasked petitioner's
bad faith in the various actions taken against Tobias. On the other hand, the scornful remark about Filipinos as well as
Hendry's earlier statements about Tobias being a "crook" and "swindler" are clear violations of 'Tobias' personal dignity
[See Article 26, Civil Code].

The next tortious act committed by petitioners was the writing of a letter to RETELCO sometime in October 1974, stating
that Tobias had been dismissed by GLOBE MACKAY due to dishonesty. Because of the letter, Tobias failed to gain
employment with RETELCO and as a result of which, Tobias remained unemployed for a longer period of time. For this
further damage suffered by Tobias, petitioners must likewise be held liable for damages consistent with Article 2176 of the
Civil Code. Petitioners, however, contend that they have a "moral, if not legal, duty to forewarn other employers of the kind
of employee the plaintiff (private respondent herein) was." [Petition, p. 14; Rollo, p. 15]. Petitioners further claim that "it is
the accepted moral and societal obligation of every man to advise or warn his fellowmen of any threat or danger to the
latter's life, honor or property. And this includes warning one's brethren of the possible dangers involved in dealing with, or
accepting into confidence, a man whose honesty and integrity is suspect" [Id.]. These arguments, rather than justify
petitioners' act, reveal a seeming obsession to prevent Tobias from getting a job, even after almost two years from the
time Tobias was dismissed.

Finally, there is the matter of the filing by petitioners of six criminal complaints against Tobias. Petitioners contend that
there is no case against them for malicious prosecution and that they cannot be "penalized for exercising their right and
prerogative of seeking justice by filing criminal complaints against an employee who was their principal suspect in the
commission of forgeries and in the perpetration of anomalous transactions which defrauded them of substantial sums of
money" [Petition, p. 10, Rollo, p. 11].

While sound principles of justice and public policy dictate that persons shall have free resort to the courts for redress of
wrongs and vindication of their rights [Buenaventura v. Sto. Domingo, 103 Phil. 239 (1958)], the right to institute criminal
prosecutions can not be exercised maliciously and in bad faith [Ventura v. Bernabe, G.R. No. L-26760, April 30, 1971, 38
SCRA 5871.] Hence, in Yutuk V. Manila Electric Co., G.R. No. L-13016, May 31, 1961, 2 SCRA 337, the Court held that
the right to file criminal complaints should not be used as a weapon to force an alleged debtor to pay an indebtedness. To
do so would be a clear perversion of the function of the criminal processes and of the courts of justice. And in Hawpia CA,
G.R. No. L-20047, June 30, 1967. 20 SCRA 536 the Court upheld the judgment against the petitioner for actual and moral

Page 55 of 71
damages and attorney's fees after making a finding that petitioner, with persistence, filed at least six criminal complaints
against respondent, all of which were dismissed.

To constitute malicious prosecution, there must be proof that the prosecution was prompted by a design to vex and
humiliate a person and that it was initiated deliberately by the defendant knowing that the charges were false and
groundless [Manila Gas Corporation v. CA, G.R. No. L-44190, October 30,1980, 100 SCRA 602]. Concededly, the filing of
a suit by itself, does not render a person liable for malicious prosecution [Inhelder Corporation v. CA, G.R. No. 52358,
May 301983122 SCRA 576]. The mere dismissal by the fiscal of the criminal complaint is not a ground for an award of
damages for malicious prosecution if there is no competent evidence to show that the complainant had acted in bad faith
[Sison v. David, G.R. No. L-11268, January 28,1961, 1 SCRA 60].

In the instant case, however, the trial court made a finding that petitioners acted in bad faith in filing the criminal
complaints against Tobias, observing that:

xxx

Defendants (petitioners herein) filed with the Fiscal's Office of Manila a total of six (6) criminal cases, five
(5) of which were for estafa thru falsification of commercial document and one for violation of Art. 290 of
the Revised Penal Code "discovering secrets thru seizure of correspondence," and all were dismissed for
insufficiency or lack of evidence." The dismissal of four (4) of the cases was appealed to the Ministry of
Justice, but said Ministry invariably sustained the dismissal of the cases. As above adverted to, two of
these cases were refiled with the Judge Advocate General's Office of the Armed Forces of the Philippines
to railroad plaintiffs arrest and detention in the military stockade, but this was frustrated by a presidential
decree transferring criminal cases involving civilians to the civil courts.

xxx

To be sure, when despite the two (2) police reports embodying the findings of Lt. Dioscoro Tagle, Chief
Document Examiner of the Manila Police Department, clearing plaintiff of participation or involvement in
the fraudulent transactions complained of, despite the negative results of the lie detector tests which
defendants compelled plaintiff to undergo, and although the police investigation was "still under follow-up
and a supplementary report will be submitted after all the evidence has been gathered," defendants
hastily filed six (6) criminal cases with the city Fiscal's Office of Manila, five (5) for estafa thru falsification
of commercial document and one (1) for violation of Art. 290 of the Revised Penal Code, so much so that
as was to be expected, all six (6) cases were dismissed, with one of the investigating fiscals, Asst. Fiscal
de Guia, commenting in one case that, "Indeed, the haphazard way this case was investigated is evident.
Evident likewise is the flurry and haste in the filing of this case against respondent Tobias," there can be
no mistaking that defendants would not but be motivated by malicious and unlawful intent to harass,
oppress, and cause damage to plaintiff.

xxx

[RTC Decision, pp. 5-6; Rollo, pp. 235-236].

In addition to the observations made by the trial court, the Court finds it significant that the criminal complaints were filed
during the pendency of the illegal dismissal case filed by Tobias against petitioners. This explains the haste in which the
complaints were filed, which the trial court earlier noted. But petitioners, to prove their good faith, point to the fact that only
six complaints were filed against Tobias when they could have allegedly filed one hundred cases, considering the number
of anomalous transactions committed against GLOBE MACKAY. However, petitioners' good faith is belied by the threat
made by Hendry after the filing of the first complaint that one hundred more cases would be filed against Tobias. In effect,
the possible filing of one hundred more cases was made to hang like the sword of Damocles over the head of Tobias. In
fine, considering the haste in which the criminal complaints were filed, the fact that they were filed during the pendency of
the illegal dismissal case against petitioners, the threat made by Hendry, the fact that the cases were filed notwithstanding
the two police reports exculpating Tobias from involvement in the anomalies committed against GLOBE MACKAY,
coupled by the eventual dismissal of all the cases, the Court is led into no other conclusion than that petitioners were
motivated by malicious intent in filing the six criminal complaints against Tobias.

Petitioners next contend that the award of damages was excessive. In the complaint filed against petitioners, Tobias
prayed for the following: one hundred thousand pesos (P100,000.00) as actual damages; fifty thousand pesos

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(P50,000.00) as exemplary damages; eight hundred thousand pesos (P800,000.00) as moral damages; fifty thousand
pesos (P50,000.00) as attorney's fees; and costs. The trial court, after making a computation of the damages incurred by
Tobias [See RTC Decision, pp. 7-8; Rollo, pp. 154-1551, awarded him the following: eighty thousand pesos (P80,000.00)
as actual damages; two hundred thousand pesos (P200,000.00) as moral damages; twenty thousand pesos (P20,000.00)
as exemplary damages; thirty thousand pesos (P30,000.00) as attorney's fees; and, costs. It must be underscored that
petitioners have been guilty of committing several actionable tortious acts, i.e., the abusive manner in which they
dismissed Tobias from work including the baseless imputation of guilt and the harassment during the investigations; the
defamatory language heaped on Tobias as well as the scornful remark on Filipinos; the poison letter sent to RETELCO
which resulted in Tobias' loss of possible employment; and, the malicious filing of the criminal complaints. Considering the
extent of the damage wrought on Tobias, the Court finds that, contrary to petitioners' contention, the amount of damages
awarded to Tobias was reasonable under the circumstances.

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

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

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

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

WHEREFORE, the petition is hereby DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 09055 is
AFFIRMED.

SO ORDERED.

G.R. No. 161188 June 13, 2008

Heirs of PURISIMA NALA, represented by their attorney-in-fact EFEGENIA DIGNA DUYAN, petitioners,
vs.
ARTEMIO CABANSAG, respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

This is a petition for review under Rule 45 of the Rules of Court assailing the Court of Appeals (CA) Decision 1 dated
December 19, 2002 and Resolution2 dated October 28, 2003, dismissing petitioners' appeal and affirming with
modification the Regional Trial Court (RTC) Decision dated August 10, 1994 rendered in Civil Case No. Q-91-10541.

The facts of the case are as follows:

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Artemio Cabansag (respondent) filed Civil Case No. Q-91-10541 for damages in October 1991. According to respondent,
he bought a 50-square meter property from spouses Eugenio Gomez, Jr. and Felisa Duyan Gomez on July 23, 1990. Said
property is part of a 400-square meter lot registered in the name of the Gomez spouses. In October 1991, he received a
demand letter from Atty. Alexander del Prado (Atty. Del Prado), in behalf of Purisima Nala (Nala), asking for the payment
of rentals from 1987 to 1991 until he leaves the premises, as said property is owned by Nala, failing which criminal and
civil actions will be filed against him. Another demand letter was sent on May 14, 1991. Because of such demands,
respondent suffered damages and was constrained to file the case against Nala and Atty. Del Prado. 3

Atty. Del Prado claimed that he sent the demand letters in good faith and that he was merely acting in behalf of his client,
Nala, who disputed respondent's claim of ownership. Nala alleged that said property is part of an 800-square meter
property owned by her late husband, Eulogio Duyan, which was subsequently divided into two parts. The 400-square
meter property was conveyed to spouses Gomez in a fictitious deed of sale, with the agreement that it will be merely held
by them in trust for the Duyan's children. Said property is covered by Transfer Certificate of Title (TCT) No. 281115 in the
name of spouses Gomez. Nala also claimed that respondent is only renting the property which he occupies. 4

After trial, the RTC of Quezon City, Branch 93, rendered its Decision on August 10, 1994, in favor of respondent. The
dispositive portion of the Decision provides:

WHEREFORE, premises considered, by preponderance of evidence, the Court finds in favor of the plaintiff and
hereby orders the defendants, jointly and severally, to pay plaintiff the following:

1. P150,000.00 by way of moral damages;

2. P30,000.00 by way of exemplary damages;

3. P20,000.00 as and for reasonable attorney's fees and other litigation expenses; and

4. to pay the costs.

SO ORDERED.5

Nala and Atty. Del Prado appealed to the CA. The herein assailed CA Decision dated December 19, 2002 affirmed the
RTC Decision with modification, thus:

WHEREFORE, premises considered, the instant appeal is hereby DISMISSED. The assailed decision of the
Regional Trial Court, Branch 93, Quezon City, in Civil Case No. Q-91-10541 is heretofore AFFIRMED with
MODIFICATION. Defendants-appellants are ordered to pay, jointly and severally, plaintiff-appellee the amount
of P30,000.00 by way of moral damages. It is further ordered to pay him exemplary damages in the amount
of P10,000.00 and P10,000.00, attorney's fees.

SO ORDERED.6

In affirming the RTC Decision, the CA took note of the Decision dated September 5, 1994 rendered by the RTC of
Quezon City, Branch 80, dismissing Civil Case No. 91-8821, an action for reconveyance of real property and cancellation
of TCT No. 281115 with damages, filed by Nala against spouses Gomez. 7

Hence, herein petition by the heirs of Nala (petitioners) 8 with the following assignment of errors:

a) Respondent Court of Appeals erred in not considering the right of Purisima Nala to assert her rights and
interest over the property.

b) Respondent Court of Appeals erred in not considering the Decision rendered by the Court of Appeals in the
case for reconveyance which upheld the rights and interest of Purisima Nala and her children over a certain
parcel of land, a portion of which is subject of the present case.

c) Respondent Court of Appeals erred in awarding damages and attorney's fees without any basis.9

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Atty. Del Prado filed a motion for extension of time to file his separate petition but it was denied by the Court per its
Resolution dated January 19, 2004 issued in G.R. No. 160829.

Petitioners argue that their predecessor-in-interest had every right to protect and assert her interests over the property.
Nala had no knowledge that the property was sold by spouses Gomez to respondent when the demand letters were sent.
What she was aware of was the fact that spouses Gomez were managing the rentals on the property by virtue of the
implied trust created between them and Eulogio Duyan. When spouses Gomez failed to remit the rentals and claimed
ownership of the property, it was then that Nala decided to procure the services of legal counsel to protect their rights over
the property.

Petitioners also contend that it was error for the CA to take note of the RTC Decision in Civil Case No. 91-8821 without
further noting that the CA had already reversed and set aside said RTC Decision and ordered reconveyance of the
property to Nala and her children in a Decision dated March 8, 2000 rendered in CA-G.R. CV No. 49163. Petitioners also
argue that respondent did not substantiate his claim for damages.

Preliminarily, the Court notes that both the RTC and the CA failed to indicate the particular provision of law under which it
held petitioners liable for damages. Nevertheless, based on the allegations in respondent's complaint, it may be gathered
that the basis for his claim for damages is Article 19 of the Civil Code, which provides:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.

The foregoing provision sets the standards which may be observed not only in the exercise of one's rights but also in the
performance of one's duties. When a right is exercised in a manner which does not conform with the norms enshrined in
Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be held
responsible. But a right, though by itself legal because recognized or granted by law as such, may nevertheless become
the source of some illegality. A person should be protected only when he acts in the legitimate exercise of his right; that is,
when he acts with prudence and in good faith, but not when he acts with negligence or abuse. There is an abuse of right
when it is exercised only for the purpose of prejudicing or injuring another. The exercise of a right must be in accordance
with the purpose for which it was established, and must not be excessive or unduly harsh; there must be no intention to
injure another.[10]

In order to be liable for damages under the abuse of rights principle, the following requisites must concur: (a) the
existence of a legal right or duty; (b) which is exercised in bad faith; and (c) for the sole intent of prejudicing or injuring
another.11

It should be stressed that malice or bad faith is at the core of Article 19 of the Civil Code. Good faith is presumed, and he
who alleges bad faith has the duty to prove the same.12 Bad faith, on the other hand, does not simply connote bad
judgment to simple negligence, dishonest purpose or some moral obloquy and conscious doing of a wrong, or a breach of
known duty due to some motives or interest or ill will that partakes of the nature of fraud. Malice connotes ill will or spite
and speaks not in response to duty. It implies an intention to do ulterior and unjustifiable harm. 13

In the present case, there is nothing on record which will prove that Nala and her counsel, Atty. Del Prado, acted in bad
faith or malice in sending the demand letters to respondent. In the first place, there was ground for Nala's actions since
she believed that the property was owned by her husband Eulogio Duyan and that respondent was illegally occupying the
same. She had no knowledge that spouses Gomez violated the trust imposed on them by Eulogio and surreptitiously sold
a portion of the property to respondent. It was only after respondent filed the case for damages against Nala that she
learned of such sale. The bare fact that respondent claims ownership over the property does not give rise to the
conclusion that the sending of the demand letters by Nala was done in bad faith. Absent any evidence presented by
respondent, bad faith or malice could not be attributed to petitioner since Nala was only trying to protect their interests
over the property.

Moreover, respondent failed to show that Nala and Atty. Del Prado's acts were done with the sole intention of prejudicing
and injuring him. It may be true that respondent suffered mental anguish, serious anxiety and sleepless nights when he
received the demand letters; however, there is a material distinction between damages and injury. Injury is the legal
invasion of a legal right while damage is the hurt, loss or harm which results from the injury. 14Thus, there can be damage
without injury in those instances in which the loss or harm was not the result of a violation of a legal duty. In such cases,
the consequences must be borne by the injured person alone; the law affords no remedy for damages resulting from an
act which does not amount to a legal injury or wrong. These situations are often called damnum absque injuria.15

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Nala was acting well within her rights when she instructed Atty. Del Prado to send the demand letters. She had to take all
the necessary legal steps to enforce her legal/equitable rights over the property occupied by respondent. One who makes
use of his own legal right does no injury.16 Thus, whatever damages are suffered by respondent should be borne solely by
him.

Nala's acts in protecting her rights over the property find further solid ground in the fact that the property has already been
ordered reconveyed to her and her heirs. In its Decision dated March 8, 2000 in CA-G.R. CV No. 49163, the CA reversed
and set aside the RTC's Decision and ordered the reconveyance of the property to petitioners, and TCT No. 281115 was
declared canceled. Said CA Decision was affirmed by this Court in its Decision dated March 18, 2005 in G.R. No. 144148,
which became final and executory on July 27, 2005.

WHEREFORE, the petition is GRANTED. The Decision dated December 19, 2002 and Resolution dated October 28,
2003 rendered by the Court of Appeals in CA-G.R. CV No. 48580 are NULLIFIED. Civil Case No. Q-91-10541
is DISMISSED for lack of merit.

Costs against respondent.

SO ORDERED.

G.R. No. 154259 February 28, 2005

NIKKO HOTEL MANILA GARDEN and RUBY LIM, petitioners,

vs.
ROBERTO REYES, a.k.a. "AMAY BISAYA," respondent.

DECISION

CHICO-NAZARIO, J.:

In this petition for review on certiorari, petitioners Nikko Hotel Manila Garden (Hotel Nikko)1 and Ruby Lim assail the
Decision2 of the Court of Appeals dated 26 November 2001 reversing the Decision 3 of the Regional Trial Court (RTC) of
Quezon City, Branch 104, as well as the Resolution4 of the Court of Appeals dated 09 July 2002 which denied petitioners’
motion for reconsideration.

The cause of action before the trial court was one for damages brought under the human relations provisions of the New
Civil Code. Plaintiff thereat (respondent herein) Roberto Reyes, more popularly known by the screen name "Amay
Bisaya," alleged that at around 6:00 o’clock in the evening of 13 October 1994, while he was having coffee at the lobby of
Hotel Nikko,5 he was spotted by his friend of several years, Dr. Violeta Filart, who then approached him. 6 Mrs. Filart invited
him to join her in a party at the hotel’s penthouse in celebration of the natal day of the hotel’s manager, Mr. Masakazu
Tsuruoka.7 Mr. Reyes asked if she could vouch for him for which she replied: "of course."8Mr. Reyes then went up with the
party of Dr. Filart carrying the basket of fruits which was the latter’s present for the celebrant.9 At the penthouse, they first
had their picture taken with the celebrant after which Mr. Reyes sat with the party of Dr. Filart.10 After a couple of hours,
when the buffet dinner was ready, Mr. Reyes lined-up at the buffet table but, to his great shock, shame and
embarrassment, he was stopped by petitioner herein, Ruby Lim, who claimed to speak for Hotel Nikko as Executive
Secretary thereof.11 In a loud voice and within the presence and hearing of the other guests who were making a queue at
the buffet table, Ruby Lim told him to leave the party ("huwag ka nang kumain, hindi ka imbitado, bumaba ka na
lang").12 Mr. Reyes tried to explain that he was invited by Dr. Filart.13 Dr. Filart, who was within hearing distance, however,
completely ignored him thus adding to his shame and humiliation.14 Not long after, while he was still recovering from the
traumatic experience, a Makati policeman approached and asked him to step out of the hotel.15 Like a common criminal,
he was escorted out of the party by the policeman.16 Claiming damages, Mr. Reyes asked for One Million Pesos actual
damages, One Million Pesos moral and/or exemplary damages and Two Hundred Thousand Pesos attorney’s fees. 17

Ruby Lim, for her part, admitted having asked Mr. Reyes to leave the party but not under the ignominious circumstance
painted by the latter. Ms. Lim narrated that she was the Hotel’s Executive Secretary for the past twenty (20) years.18 One
of her functions included organizing the birthday party of the hotel’s former General Manager, Mr. Tsuruoka.19 The year
1994 was no different. For Mr. Tsuruoka’s party, Ms. Lim generated an exclusive guest list and extended invitations
accordingly.20 The guest list was limited to approximately sixty (60) of Mr. Tsuruoka’s closest friends and some hotel
employees and that Mr. Reyes was not one of those invited.21 At the party, Ms. Lim first noticed Mr. Reyes at the bar
counter ordering a drink.22 Mindful of Mr. Tsuruoka’s wishes to keep the party intimate, Ms. Lim approached Mr. Boy

Page 60 of 71
Miller, the "captain waiter," to inquire as to the presence of Mr. Reyes who was not invited. 23 Mr. Miller replied that he saw
Mr. Reyes with the group of Dr. Filart.24 As Dr. Filart was engaged in conversation with another guest and as Ms. Lim did
not want to interrupt, she inquired instead from the sister of Dr. Filart, Ms. Zenaida Fruto, who told her that Dr. Filart did
not invite Mr. Reyes.25 Ms. Lim then requested Ms. Fruto to tell Mr. Reyes to leave the party as he was not invited. 26 Mr.
Reyes, however, lingered prompting Ms. Lim to inquire from Ms. Fruto who said that Mr. Reyes did not want to
leave.27 When Ms. Lim turned around, she saw Mr. Reyes conversing with a Captain Batung whom she later
approached.28 Believing that Captain Batung and Mr. Reyes knew each other, Ms. Lim requested from him the same favor
from Ms. Fruto, i.e., for Captain Batung to tell Mr. Reyes to leave the party as he was not invited. 29 Still, Mr. Reyes
lingered. When Ms. Lim spotted Mr. Reyes by the buffet table, she decided to speak to him herself as there were no other
guests in the immediate vicinity.30However, as Mr. Reyes was already helping himself to the food, she decided to
wait.31 When Mr. Reyes went to a corner and started to eat, Ms. Lim approached him and said: "alam ninyo, hindo ho
kayo dapat nandito. Pero total nakakuha na ho kayo ng pagkain, ubusin na lang ninyo at pagkatapos kung pwede lang po
umalis na kayo."32 She then turned around trusting that Mr. Reyes would show enough decency to leave, but to her
surprise, he began screaming and making a big scene, and even threatened to dump food on her. 33 1awphi1.nét

Dr. Violeta Filart, the third defendant in the complaint before the lower court, also gave her version of the story to the
effect that she never invited Mr. Reyes to the party.34 According to her, it was Mr. Reyes who volunteered to carry the
basket of fruits intended for the celebrant as he was likewise going to take the elevator, not to the penthouse but to
Altitude 49.35 When they reached the penthouse, she reminded Mr. Reyes to go down as he was not properly dressed and
was not invited.36 All the while, she thought that Mr. Reyes already left the place, but she later saw him at the bar talking to
Col. Batung.37 Then there was a commotion and she saw Mr. Reyes shouting. 38 She ignored Mr. Reyes.39 She was
embarrassed and did not want the celebrant to think that she invited him. 40

After trial on the merits, the court a quo dismissed the complaint,41 giving more credence to the testimony of Ms. Lim that
she was discreet in asking Mr. Reyes to leave the party. The trial court likewise ratiocinated that Mr. Reyes assumed the
risk of being thrown out of the party as he was uninvited:

Plaintiff had no business being at the party because he was not a guest of Mr. Tsuruoka, the birthday celebrant. He
assumed the risk of being asked to leave for attending a party to which he was not invited by the host. Damages are
pecuniary consequences which the law imposes for the breach of some duty or the violation of some right. Thus, no
recovery can be had against defendants Nikko Hotel and Ruby Lim because he himself was at fault (Garciano v. Court of
Appeals, 212 SCRA 436). He knew that it was not the party of defendant Violeta Filart even if she allowed him to join her
and took responsibility for his attendance at the party. His action against defendants Nikko Hotel and Ruby Lim must
therefore fail.42

On appeal, the Court of Appeals reversed the ruling of the trial court as it found more commanding of belief the testimony
of Mr. Reyes that Ms. Lim ordered him to leave in a loud voice within hearing distance of several guests:

In putting appellant in a very embarrassing situation, telling him that he should not finish his food and to leave the place
within the hearing distance of other guests is an act which is contrary to morals, good customs . . ., for which appellees
should compensate the appellant for the damage suffered by the latter as a consequence therefore (Art. 21, New Civil
Code). The liability arises from the acts which are in themselves legal or not prohibited, but contrary to morals or good
customs. Conversely, even in the exercise of a formal right, [one] cannot with impunity intentionally cause damage to
another in a manner contrary to morals or good customs.43

The Court of Appeals likewise ruled that the actuation of Ms. Lim in approaching several people to inquire into the
presence of Mr. Reyes exposed the latter to ridicule and was uncalled for as she should have approached Dr. Filart first
and both of them should have talked to Mr. Reyes in private:

Said acts of appellee Lim are uncalled for. What should have been done by appellee Lim was to approach appellee Mrs.
Filart and together they should have told appellant Reyes in private that the latter should leave the party as the celebrant
only wanted close friends around. It is necessary that Mrs. Filart be the one to approach appellant because it was she
who invited appellant in that occasion. Were it not for Mrs. Filart’s invitation, appellant could not have suffered such
humiliation. For that, appellee Filart is equally liable.

...

The acts of [appellee] Lim are causes of action which are predicated upon mere rudeness or lack of consideration of one
person, which calls not only protection of human dignity but respect of such dignity. Under Article 20 of the Civil Code,
every person who violates this duty becomes liable for damages, especially if said acts were attended by malice or bad
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faith. Bad faith does not simply connote bad judgment or simple negligence. It imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of a known duty to some motive or interest or ill-will that partakes of
the nature of fraud (Cojuangco, Jr. v. CA, et al., 309 SCRA 603). 44

Consequently, the Court of Appeals imposed upon Hotel Nikko, Ruby Lim and Dr. Violeta Filart the solidary obligation to
pay Mr. Reyes (1) exemplary damages in the amount of Two Hundred Thousand Pesos (P200,000); (2) moral damages in
the amount of Two Hundred Thousand Pesos (P200,000); and (3) attorney’s fees in the amount of Ten Thousand Pesos
(P10,000).45 On motion for reconsideration, the Court of Appeals affirmed its earlier decision as the argument raised in the
motion had "been amply discussed and passed upon in the decision sought to be reconsidered." 46

Thus, the instant petition for review. Hotel Nikko and Ruby Lim contend that the Court of Appeals seriously erred in –

I.

… NOT APPLYING THE DOCTRINE OF VOLENTI NON FIT INJURIA CONSIDERING THAT BY ITS OWN FINDINGS,
AMAY BISAYA WAS A GATE-CRASHER

II.

… HOLDING HOTEL NIKKO AND RUBY LIM JOINTLY AND SEVERALLY LIABLE WITH DR. FILART FOR DAMAGES
SINCE BY ITS OWN RULING, AMAY BISAYA "COULD NOT HAVE SUFFERED SUCH HUMILIATION," "WERE IT NOT
FOR DR. FILART’S INVITATION"

III.

… DEPARTING FROM THE FINDINGS OF FACT OF THE TRIAL COURT AS REGARDS THE CIRCUMSTANCES
THAT ALLEGEDLY CAUSED THE HUMILIATION OF AMAY BISAYA

IV.

… IN CONCLUDING THAT AMAY BISAYA WAS TREATED UNJUSTLY BECAUSE OF HIS POVERTY, CONSIDERING
THAT THIS WAS NEVER AN ISSUE AND NO EVIDENCE WAS PRESENTED IN THIS REGARD

V.

… IN FAILING TO PASS UPON THE ISSUE ON THE DEFECTS OF THE APPELLANT’S BRIEF, THEREBY
DEPARTING FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS

Petitioners Lim and Hotel Nikko contend that pursuant to the doctrine of volenti non fit injuria, they cannot be made liable
for damages as respondent Reyes assumed the risk of being asked to leave (and being embarrassed and humiliated in
the process) as he was a "gate-crasher."

The doctrine of volenti non fit injuria ("to which a person assents is not esteemed in law as injury"47 ) refers to self-inflicted
injury48 or to the consent to injury49 which precludes the recovery of damages by one who has knowingly and voluntarily
exposed himself to danger, even if he is not negligent in doing so.50 As formulated by petitioners, however, this doctrine
does not find application to the case at bar because even if respondent Reyes assumed the risk of being asked to leave
the party, petitioners, under Articles 19 and 21 of the New Civil Code, were still under obligation to treat him fairly in order
not to expose him to unnecessary ridicule and shame.

Thus, the threshold issue is whether or not Ruby Lim acted abusively in asking Roberto Reyes, a.k.a. "Amay Bisaya," to
leave the party where he was not invited by the celebrant thereof thereby becoming liable under Articles 19 and 21 of the
Civil Code. Parenthetically, and if Ruby Lim were so liable, whether or not Hotel Nikko, as her employer, is solidarily liable
with her.

As the trial court and the appellate court reached divergent and irreconcilable conclusions concerning the same facts and
evidence of the case, this Court is left without choice but to use its latent power to review such findings of facts. Indeed,
the general rule is that we are not a trier of facts as our jurisdiction is limited to reviewing and revising errors of law. 51 One
of the exceptions to this general rule, however, obtains herein as the findings of the Court of Appeals are contrary to those

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of the trial court.52 The lower court ruled that Ms. Lim did not abuse her right to ask Mr. Reyes to leave the party as she
talked to him politely and discreetly. The appellate court, on the other hand, held that Ms. Lim is liable for damages as she
needlessly embarrassed Mr. Reyes by telling him not to finish his food and to leave the place within hearing distance of
the other guests. Both courts, however, were in agreement that it was Dr. Filart’s invitation that brought Mr. Reyes to the
party.

The consequential question then is: Which version is credible?

From an in depth review of the evidence, we find more credible the lower court’s findings of fact.

First, let us put things in the proper perspective.

We are dealing with a formal party in a posh, five-star hotel,53 for-invitation-only, thrown for the hotel’s former Manager, a
Japanese national. Then came a person who was clearly uninvited (by the celebrant)54 and who could not just disappear
into the crowd as his face is known by many, being an actor. While he was already spotted by the organizer of the party,
Ms. Lim, the very person who generated the guest list, it did not yet appear that the celebrant was aware of his presence.
Ms. Lim, mindful of the celebrant’s instruction to keep the party intimate, would naturally want to get rid of the "gate-
crasher" in the most hush-hush manner in order not to call attention to a glitch in an otherwise seamless affair and, in the
process, risk the displeasure of the celebrant, her former boss. To unnecessarily call attention to the presence of Mr.
Reyes would certainly reflect badly on Ms. Lim’s ability to follow the instructions of the celebrant to invite only his close
friends and some of the hotel’s personnel. Mr. Reyes, upon whom the burden rests to prove that indeed Ms. Lim loudly
and rudely ordered him to leave, could not offer any satisfactory explanation why Ms. Lim would do that and risk ruining a
formal and intimate affair. On the contrary, Mr. Reyes, on cross-examination, had unwittingly sealed his fate by admitting
that when Ms. Lim talked to him, she was very close. Close enough for him to kiss:

Q: And, Mr. Reyes, you testified that Miss Lim approached you while you were at the buffet table? How close was
she when she approached you?

A: Very close because we nearly kissed each other.

Q: And yet, she shouted for you to go down? She was that close and she shouted?

A: Yes. She said, "wag kang kumain, hindi ka imbitado dito, bumaba ka na lang."

Q: So, you are testifying that she did this in a loud voice?

...

A: Yes. If it is not loud, it will not be heard by many.55

In the absence of any proof of motive on the part of Ms. Lim to humiliate Mr. Reyes and expose him to ridicule and
shame, it is highly unlikely that she would shout at him from a very close distance. Ms. Lim having been in the hotel
business for twenty years wherein being polite and discreet are virtues to be emulated, the testimony of Mr. Reyes that
she acted to the contrary does not inspire belief and is indeed incredible. Thus, the lower court was correct in observing
that –

Considering the closeness of defendant Lim to plaintiff when the request for the latter to leave the party was made such
that they nearly kissed each other, the request was meant to be heard by him only and there could have been no intention
on her part to cause embarrassment to him. It was plaintiff’s reaction to the request that must have made the other guests
aware of what transpired between them. . .

Had plaintiff simply left the party as requested, there was no need for the police to take him out. 56

Moreover, another problem with Mr. Reyes’s version of the story is that it is unsupported. It is a basic rule in civil cases
that he who alleges proves. Mr. Reyes, however, had not presented any witness to back his story up. All his witnesses –
Danny Rodinas, Pepito Guerrero and Alexander Silva - proved only that it was Dr. Filart who invited him to the party.57

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Ms. Lim, not having abused her right to ask Mr. Reyes to leave the party to which he was not invited, cannot be made
liable to pay for damages under Articles 19 and 21 of the Civil Code. Necessarily, neither can her employer, Hotel Nikko,
be held liable as its liability springs from that of its employee. 58

Article 19, known to contain what is commonly referred to as the principle of abuse of rights, 59 is not a panacea for all
human hurts and social grievances. Article 19 states:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.1awphi1.nét

Elsewhere, we explained that when "a right is exercised in a manner which does not conform with the norms enshrined in
Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be
responsible."60 The object of this article, therefore, is to set certain standards which must be observed not only in the
exercise of one’s rights but also in the performance of one’s duties.61 These standards are the following: act with justice,
give everyone his due and observe honesty and good faith.62 Its antithesis, necessarily, is any act evincing bad faith or
intent to injure. Its elements are the following: (1) There is a legal right or duty; (2) which is exercised in bad faith; (3) for
the sole intent of prejudicing or injuring another.63 When Article 19 is violated, an action for damages is proper under
Articles 20 or 21 of the Civil Code. Article 20 pertains to damages arising from a violation of law64 which does not obtain
herein as Ms. Lim was perfectly within her right to ask Mr. Reyes to leave. Article 21, on the other hand, states:

Art. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for the damage.

Article 2165 refers to acts contra bonus mores and has the following elements: (1) There is an act which is legal; (2) but
which is contrary to morals, good custom, public order, or public policy; and (3) it is done with intent to injure.66

A common theme runs through Articles 19 and 21, 67 and that is, the act complained of must be intentional.68

As applied to herein case and as earlier discussed, Mr. Reyes has not shown that Ms. Lim was driven by animosity
against him. These two people did not know each other personally before the evening of 13 October 1994, thus, Mr.
Reyes had nothing to offer for an explanation for Ms. Lim’s alleged abusive conduct except the statement that Ms. Lim,
being "single at 44 years old," had a "very strong bias and prejudice against (Mr. Reyes) possibly influenced by her
associates in her work at the hotel with foreign businessmen."69 The lameness of this argument need not be belabored.
Suffice it to say that a complaint based on Articles 19 and 21 of the Civil Code must necessarily fail if it has nothing to
recommend it but innuendos and conjectures.

Parenthetically, the manner by which Ms. Lim asked Mr. Reyes to leave was likewise acceptable and humane under the
circumstances. In this regard, we cannot put our imprimatur on the appellate court’s declaration that Ms. Lim’s act of
personally approaching Mr. Reyes (without first verifying from Mrs. Filart if indeed she invited Mr. Reyes) gave rise to a
cause of action "predicated upon mere rudeness or lack of consideration of one person, which calls not only protection of
human dignity but respect of such dignity."70 Without proof of any ill-motive on her part, Ms. Lim’s act of by-passing Mrs.
Filart cannot amount to abusive conduct especially because she did inquire from Mrs. Filart’s companion who told her that
Mrs. Filart did not invite Mr. Reyes.71 If at all, Ms. Lim is guilty only of bad judgment which, if done with good intentions,
cannot amount to bad faith.

Not being liable for both actual and moral damages, neither can petitioners Lim and Hotel Nikko be made answerable for
exemplary damages72 especially for the reason stated by the Court of Appeals. The Court of Appeals held –

Not a few of the rich people treat the poor with contempt because of the latter’s lowly station in life.l^vvphi1.net This has to
be limited somewhere. In a democracy, such a limit must be established. Social equality is not sought by the legal
provisions under consideration, but due regard for decency and propriety (Code Commission, pp. 33-34). And by way of
example or correction for public good and to avert further commission of such acts, exemplary damages should be
imposed upon appellees.73

The fundamental fallacy in the above-quoted findings is that it runs counter with the very facts of the case and the
evidence on hand.l^vvphi1.net It is not disputed that at the time of the incident in question, Mr. Reyes was "an actor of
long standing; a co-host of a radio program over DZRH; a Board Member of the Music Singer Composer (MUSICO)
chaired by popular singer Imelda Papin; a showbiz Coordinator of Citizen Crime Watch; and 1992 official candidate of the
KBL Party for Governor of Bohol; and an awardee of a number of humanitarian organizations of the Philippines."74 During

Page 64 of 71
his direct examination on rebuttal, Mr. Reyes stressed that he had income 75 and nowhere did he say otherwise. On the
other hand, the records are bereft of any information as to the social and economic standing of petitioner Ruby Lim.
Consequently, the conclusion reached by the appellate court cannot withstand scrutiny as it is without basis.

All told, and as far as Ms. Lim and Hotel Nikko are concerned, any damage which Mr. Reyes might have suffered through
Ms. Lim’s exercise of a legitimate right done within the bounds of propriety and good faith, must be his to bear alone.

WHEREFORE, premises considered, the petition filed by Ruby Lim and Nikko Hotel Manila Garden is GRANTED. The
Decision of the Court of Appeals dated 26 November 2001 and its Resolution dated 09 July 2002 are hereby REVERSED
and SET ASIDE. The Decision of the Regional Trial Court of Quezon City, Branch 104, dated 26 April 1999 is hereby
AFFIRMED. No costs.

SO ORDERED.

G.R. No. 201675 June 19, 2013

JUANITO ANG, for and in behalf of SUNRISE MARKETING (BACOLOD), INC.,* Petitioner,
vs.
SPOUSES ROBERTO and RACHEL ANG, Respondents.

DECISION

CARPIO, J.:

The Case

This petition for review1 assails the Decision2 of the Court of Appeals-Cebu (CA-Cebu) dated 20 September 2011 in CA-
G.R. SP No. 05546. The CA-Cebu reversed and set aside the Order3 of the Regional Trial Court, Branch 53, Bacolod City
(RTC Bacolod) dated 27 September 2010 in Commercial Court Case No. 09-070 entitled Sunrise Marketing (Bacolod),
Inc., represented by Juanita Ang -v: Spouses Roberto and Rachel Ang.

The Facts

Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly registered corporation owned by the Ang family. 4 Its current
stockholders and their respective stockholdings are as follows: 5

Stockholder Number of Shares

Juanito Ang 8,750

Anecita Ang 1,250

Jeannevie Ang 2,500

Roberto Ang 8,750

Rachel Ang 3,750

Total 25,000

Juanito Ang (Juanito) and Roberto Ang (Roberto) are siblings. Anecita Limoco-Ang (Anecita) is Juanito’s wife and
Jeannevie is their daughter. Roberto was elected President of SMBI, while Juanito was elected as its Vice President.
Rachel Lu-Ang (Rachel) and Anecita are SMBI’s Corporate Secretary and Treasurer, respectively.

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On 31 July 1995, Nancy Ang (Nancy), the sister of Juanito and Roberto, and her husband, Theodore Ang (Theodore),
agreed to extend a loan to settle the obligations of SMBI and other corporations owned by the Ang family, specifically
Bayshore Aqua Culture Corporation, Oceanside Marine Resources and JR Aqua Venture. 6 Nancy and Theodore issued a
check in the amount of $1,000,000.00 payable to "Juanito Ang and/or Anecita Ang and/or Roberto Ang and/or Rachel
Ang." Nancy was a former stockholder of SMBI, but she no longer appears in SMBI’s General Information Sheets as early
as 1996.7 Nancy and Theodore are now currently residing in the United States. There was no written loan agreement, in
view of the close relationship between the parties. Part of the loan was also used to purchase real properties for SMBI, for
Juanito, and for Roberto.8

On 22 December 2005, SMBI increased its authorized capital stock to ₱10,000,000.00. The Certificate of Increase of
Capital Stock was signed by Juanito, Anecita, Roberto, and Rachel as directors of SMBI. 9 Juanito claimed, however, that
the increase of SMBI’s capital stock was done in contravention of the Corporation Code. 10 According to Juanito, when he
and Anecita left for Canada:

x x x Sps. Roberto and Rachel Ang took over the active management of [SMBI]. Through the employment of sugar coated
words, they were able to successfully manipulate the stocks sharings between themselves at 50-50 under the condition
that the procedures mandated by the Corporation Code on increase of capital stock be strictly observed (valid Board
Meeting). No such meeting of the Board to increase capital stock materialized. It was more of an accommodation to buy
peace x x x.11

Juanito claimed that payments to Nancy and Theodore ceased sometime after 2006. On 24 November 2008, Nancy and
Theodore, through their counsel here in the Philippines, sent a demand letter to "Spouses Juanito L. Ang/Anecita L. Ang
and Spouses Roberto L. Ang/Rachel L. Ang" for payment of the principal amounting to $1,000,000.00 plus interest at ten
percent (10%) per annum, for a total of $2,585,577.37 within ten days from receipt of the letter. 12 Roberto and Rachel
then sent a letter to Nancy and Theodore’s counsel on 5 January 2009, saying that they are not complying with the
demand letter because they have not personally contracted a loan from Nancy and Theodore.

On 8 January 2009, Juanito and Anecita executed a Deed of Acknowledgment and Settlement Agreement (Settlement
Agreement) and an Extra-Judicial Real Estate Mortgage (Mortgage). Under the foregoing instruments, Juanito and
Anecita admitted that they, together with Roberto and Rachel, obtained a loan from Nancy and Theodore for
$1,000,000.00 on 31 July 1995 and such loan shall be secured by:

a) Juanito and Anecita’s fifty percent share over a parcel of land registered in the name of SMBI;

b) a parcel of land registered in the name of Juanito Ang;

c) Juanito’s fifty percent share in 7 parcels of land registered in his and Roberto’s name;

d) a parcel of land registered in the name of Roberto;

e) a parcel of land registered in the name of Rachel; and

f) Roberto and Rachel’s fifty percent share in 2 parcels of land registered in the name of their son, Livingstone L.
Ang (Livingstone), and in another lot registered in the name of Livingstone and Alvin Limoco Ang. 13

A certain Kenneth C. Locsin (Locsin) signed on behalf of Nancy and Theodore, under a Special Power of Attorney which
was not attached as part of the Settlement Agreement or the Mortgage, nor included in the records of this case.

Thereafter, Juanito filed a "Stockholder Derivative Suit with prayer for an ex-parte Writ of Attachment/Receivership"
(Complaint) before the RTC Bacolod on 29 January 2009. He alleged that "the intentional and malicious refusal of
defendant Sps. Roberto and Rachel Ang to settle their 50% share x x x of the total obligation x x x will definitely affect the
financial viability of plaintiff SMBI."14 Juanito also claimed that he has been "illegally excluded from the management and
participation in the business of [SMBI through] force, violence and intimidation" and that Rachel and Roberto have seized
and carted away SMBI’s records from its office.15

The Complaint sought the following reliefs:

a) Issuance of an ex-parte Writ of Attachment and/or Garnishment, with a Break Open Order covering the assets
of the spouses Roberto and Rachel Ang, or any interest they may have against third parties;
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 b) Placement of SMBI under Receivership pending resolution of the case;

c) Enforcement of Juanito’s right to actively participate in the management of SMBI;

d) Issuance of an Order compelling the Spouses Roberto and Rachel Ang to:

i. Render an accounting of the utilization of the loan amounting to $2,585,577.37 or ₱120,229,347.26;

ii. Pay fifty percent of the aforementioned loan, amounting to ₱60,114,673.62;

iii. Explain why Nancy was removed as a stockholder as far as SMBI’s reportorial requirements with the
SEC are concerned;

iv. Restore Juanito’s right to actively manage the affairs of the corporation; and

v. Pay attorney’s fees amounting to ₱20,000.00.

On 29 January 2009, the RTC Bacolod issued an Order16 granting the application for an ex-parte writ of attachment and
break open order. Atty. Jerry Basiao, who filed an application for appointment as Receiver of SMBI, was directed by the
RTC Bacolod to furnish the required Receivership Bond.17 On the same date, Roberto and Rachel moved to quash the
writ of attachment and set aside the break open order and appointment of receiver. 18 They claimed that these were issued
in violation of their right to due process:

Records of this case would show that the complaint was filed before the RTC Bacolod at 2:50 p.m. of January 29, 2009. x
x x Counsel for the defendant-spouses went to the RTC Bacolod at around 3:00 p.m. on January 29, 2009 to inquire on
the status of the case and was informed that the last pleading on record is his entry of appearance with the conformity of
the defendant Rachel Ang. Counsel was however informed by the clerk of court that the Honorable Judge has already
issued an order directing the issuance of the writ of preliminary attachment, receivership and break open order but said
order was not officially released yet x x x. Due to the undersigned counsel’s insistence, however, said clerk of court of this
Honorable Court furnished him a copy of said order x x x. The clerk of court and the clerk in charge of civil cases assured
counsel that no writ of preliminary attachment was prepared or issued x x x. Despite such assurance x x x [and counsel’s
advice that they shall move to quash the order the following morning], that afternoon, the clerk of court x x x clandestinely,
hurriedly and surreptitiously, for reasons known only to her, x x x prepared the writ of attachment x x x. 19

In her Verified Answer Ad Cautelam which was filed on 10 February 2009, Rachel prayed that the Complaint be dismissed
as it was not a bona fide derivative suit as defined under the Interim Rules of Procedure for Intra-Corporate
Controversies20 (Interim Rules). According to Rachel, the Complaint, although labelled as a derivative suit, is actually a
collection suit since the real party in interest is not SMBI, but Nancy and Theodore:

The cause of action does not devolve on the corporation as the alleged harm or wrong pertains to the right of the Sps.
Theodore and Nancy Ang, as creditors, to collect the amount allegedly owed to them. x x x

xxxx

That the instant suit is for the benefit of a non-stockholder and not the corporation is obvious when the primary relief
prayed for in the Complaint which is for the defendants "to pay the amount of Php 60,114,673.62 plus interest which is
50% of the loan obligations of plaintff [SMBI] to its creditor Sps. Theodore and Nancy Ang." Otherwise stated, the instant
suit is nothing but a complaint for sum of money shamelessly masked as a derivative suit. 21

Rachel also argued that the Complaint failed to allege that Juanito "exerted all reasonable efforts to exhaust all intra-
corporate remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation to obtain
the relief he desires," as required by the Interim Rules.

During cross-examination, Juanito admitted that there was no prior demand for accounting or liquidation nor any written
objection to SMBI’s increase of capital stock. He also conceded that the loan was extended by persons who are not
stockholders of SMBI. Thus, Rachel filed a Motion for Preliminary Hearing on Affirmative Defenses on 27 November 2009,
arguing that in view of Juanito’s admissions, the Complaint should be dismissed pursuant to Section 1 of the Interim
Rules. Juanito filed his Opposition thereto on 8 January 2010,22 arguing that applying this Court’s ruling in Hi-Yield Realty,

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Inc. v. Court of Appeals,23 the requirement for exhaustion of intra-corporate remedies is no longer needed when the
corporation itself is "under the complete control of the persons against whom the suit is filed." Juanito also alleged that he
and Anecita were deceived into signing checks to pay off bogus loans purportedly extended by Rachel’s relatives in favor
of SMBI. Some of the checks were payable to cash, and were allegedly deposited in Rachel’s personal account. 24 He also
claimed that Rachel’s Motion is disallowed under the Interim Rules.

On 9 February 2009, Juanito moved that Rachel and her daughter, Em Ang (Em), as well as their counsel, Atty. Filomeno
Tan, Jr. (Atty. Tan) be held in contempt. Juanito claimed that on the date the writ of attachment and break open order
were issued, Atty. Tan, accompanied by Rachel and Em, "arrogantly demanded from the Clerk in charge of Civil Cases
that he be furnished a copy of the [said orders] x x x otherwise he will tear the records of the subject commercial case."
Juanito also accused Atty. Tan of surreptitiously photocopying the said orders prior to service of the summons, Complaint,
Writ of Attachment and Attachment Bond. According to Juanito, the purpose of obtaning a copy of the orders was to
thwart its implementation. Thus, when the authorities proceeded to the SMBI premises to enforce the orders, they found
that the place was padlocked, and that all corporate documents and records were missing. On 14 December 2010, the
Sheriff and other RTC Bacolod employees then filed a Verified Complaint against Atty. Tan before this Court, which also
contained the foregoing allegations.25

Rachel then filed a Reply on 27 January 2010, claiming that Juanito’s reliance on the Hi-Yield case is misplaced:

The facts x x x of this case are strikingly different from that in Hi-Yield Realty. In that case, the Supreme Court noted that
the complaining stockholder was a minority stockholder. However, in the case at bar, Juanito Ang is one of the biggest
stockholders of [SMBI]. x x x He is a member of [SMBI’s] Board of Directors and is even the vice-president thereof.
Furthermore, in Hi-Yield Realty, the Supreme Court noted that the complaining stockholder was excluded from the affairs
of the corporation. However, the evidence thus far presented, particularly Juanito Ang’s admission, show that he and his
wife, Anecita, participate in the disbursement of [SMBI’s] funds x x x. 26

Juanito filed his Rejoinder on 2 March 2010.

The Ruling of the RTC Bacolod

On 27 September 2010, the RTC Bacolod issued an Order which stated that:

WHEREFORE, premises considered, the court hereby rules that the present action is a DERIVATIVE SUIT and the
Motion to Dismiss based on Affirmative Defenses raised by defendants is DENIED for lack of merit.27

The RTC Bacolod found that the issuance of the checks to settle the purported obligations to Rachel’s relatives, as well as
the removal of Nancy as a stockholder in SMBI’s records as filed with the SEC, shows that Rachel and Roberto
committed fraud. The Order likewise stated that the requirement of exhaustion of intra-corporate remedies is no longer
necessary since Rachel and Roberto exercised complete control over SMBI.

Aggrieved, Rachel filed a Petition for Certiorari with the CA-Cebu.

The Ruling of the CA-Cebu

On 20 September 2011, the CA-Cebu promulgated its Decision which reversed and set aside the Order of the RTC
Bacolod dated 27 September 2010. According to the CA-Cebu, the Complaint filed by Juanito should be dismissed
because it is a harassment suit, and not a valid derivative suit as defined under the Interim Rules. The CA-Cebu also
found that Juanito failed to exhaust intra-corporate remedies and that the loan extended by Nancy and Theodore was not
SMBI’s corporate obligation. There is nothing on record to show that non-payment of the loan will result in any damage or
prejudice to SMBI.

Juanito then filed a Motion for Reconsideration with Prayer for Voluntary Inhibition on 28 October 2011. In his Motion,
Juanito pointed out that Rachel filed her Petition for Certiorari without previously filing a Motion for Reconsideration,
warranting the dismissal of the said Petition. The CA-Cebu denied the Motion.

Hence, this petition.

The Issues

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The issues raised in the instant petition are:

<

p align="justify">I. Whether based on the allegations of the complaint, the nature of the case is one of a derivative
suit or not.

Corollary to the above, whether the Honorable Court of Appeals erred x x x in ordering the dismissal of the
Complaint on the ground that the case is not a derivative suit.

II. Whether the Honorable Court of Appeals x x x seriously erred in considering evidence aliunde, that is, other
than the four corners of the complaint, in determining the nature of the complaint, in utter violation of the doctrine
that the jurisdiction is determined by law and allegations of the complaint alone.

III. Granting arguendo, but without necessarily admitting that the complaint is not one of a derivative suit, but only
an ordinary civil action, whether the Honorable Court of Appeals x x x gravely erred in dismissing the petition
entirely, when the Regional Trial Court a quo has jurisdiction also over the case as an ordinary civil action, and
can just proceed to hear the same as such.28

The Ruling of this Court

The petition has no merit.

We uphold the CA-Cebu’s finding that the Complaint is not a derivative suit. A derivative suit is an action brought by a
stockholder on behalf of the corporation to enforce corporate rights against the corporation’s directors, officers or other
insiders.29 Under Sections 2330 and 3631 of the Corporation Code, the directors or officers, as provided under the by-
laws,32 have the right to decide whether or not a corporation should sue. Since these directors or officers will never be
willing to sue themselves, or impugn their wrongful or fraudulent decisions, stockholders are permitted by law to bring an
action in the name of the corporation to hold these directors and officers accountable.33 In derivative suits, the real party
ininterest is the corporation, while the stockholder is a mere nominal party.

This Court, in Yu v. Yukayguan,34 explained:

The Court has recognized that a stockholder’s right to institute a derivative suit is not based on any express provision of
the Corporation Code, or even the Securities Regulation Code, but is impliedly recognized when the said laws make
corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their
fiduciary duties. Hence, a stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a
special injury to him for which he is otherwise without redress. In effect, the suit is an action for specific performance of an
obligation owed by the corporation to the stockholders to assist its rights of action when the corporation has been put in
default by the wrongful refusal of the directors or management to make suitable measures for its protection. The basis of a
stockholder’s suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its
institution. (Emphasis in the original)

Section 1, Rule 8 of the Interim Rules imposes the following requirements for derivative suits:

(1) The person filing the suit must be a stockholder or member at the time the acts or transactions subject of the
action occurred and the time the action was filed;

(2) He must have exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation
or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; and

(4) The suit is not a nuisance or harassment suit.

Applying the foregoing, we find that the Complaint is not a derivative suit. The Complaint failed to show how the acts of
Rachel and Roberto resulted in any detriment to SMBI. The CA-Cebu correctly concluded that the loan was not a

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corporate obligation, but a personal debt of the Ang brothers and their spouses. The check was issued to "Juanito Ang
and/or Anecita Ang and/or Roberto Ang and/or Rachel Ang" and not SMBI. The proceeds of the loan were used for
payment of the obligations of the other corporations owned by the Angs as well as the purchase of real properties for the
Ang brothers. SMBI was never a party to the Settlement Agreement or the Mortgage. It was never named as a co-debtor
or guarantor of the loan. Both instruments were executed by Juanito and Anecita in their personal capacity, and not in
their capacity as directors or officers of SMBI. Thus, SMBI is under no legal obligation to satisfy the obligation.

The fact that Juanito and Anecita attempted to constitute a mortgage over "their" share in a corporate asset cannot affect
SMBI. The Civil Code provides that in order for a mortgage to be valid, the mortgagor must be the "absolute owner of the
thing x x x mortgaged."35 Corporate assets may be mortgaged by authorized directors or officers on behalf of the
corporation as owner, "as the transaction of the lawful business of the corporation may reasonably and necessarily
require."36 However, the wording of the Mortgage reveals that it was signed by Juanito and Anecita in their personal
capacity as the "owners" of a pro-indiviso share in SMBI’s land and not on behalf of SMBI:

This Mortgage is made and executed by and between:

Spouses JUANITO and ANECITA ANG, of legal age, Filipino citizens, residents of Sunrise Marketing Building at Hilado
Street, Capitol Shopping Center, Bacolod City, hereinafter referred to as the MORTGAGORS;

Spouses THEODORE and NANCY ANG, x x x hereinafter referred to as the MORTGAGEES represented in this instance
through their attorney-in-fact, Mr. Kenneth Locsin;

xxxx

In order to ensure payment x x x the MORTGAGORS hereby CONVEY unto the MORTGAGEES by way of EXTRA-
JUDICIAL REAL ESTATE MORTGAGE their 50% rights and interests over the following real properties to wit:

a. Those registered in the name of SUNRISE MARKETING (BACOLOD), INC. x x x

x x x x37 (Emphasis supplied)

Juanito and Anecita, as stockholders of SMBI, are not co-owners of SMBI assets. They do not own pro-indiviso shares,
and therefore, cannot mortgage the same except in their capacity as directors or officers of SMBI.

We also find that there is insufficient evidence to suggest that Roberto and Rachel fraudulently and wrongfully removed
Nancy as a stockholder in SMBI’s reportorial requirements. As early as 2005, when SMBI increased its capital stock,
Juanito and Anecita already knew that Nancy was not listed as a stockholder of SMBI. However, they attempted to rectify
the error only in 2009, when the Complaint was filed. That it took four years for them to make any attempt to question
Nancy’s exclusion as stockholder negates their allegation of fraud.

Since damage to the corporation was not sufficiently proven by Juanito, the Complaint cannot be considered a bona fide
derivative suit. A derivative suit is one that seeks redress for injury to the corporation, and not the stockholder. No such
injury was proven in this case.

The Complaint also failed to allege that all available corporate remedies under the articles of incorporation, by-laws, laws
or rules governing the corporation were exhausted, as required under the Interim Rules. The CA-Cebu, applying our ruling
in the Yu case, pointed out:

x x x No written demand was ever made for the board of directors to address private respondent Juanito Ang’s
concerns.1âwphi1

The fact that [SMBI] is a family corporation does not exempt private respondent Juanito Ang from complying with the
Interim Rules. In the x x x Yu case, the Supreme Court held that a family corporation is not exempt from complying with
the clear requirements and formalities of the rules for filing a derivative suit. There is nothing in the pertinent laws or rules
which state that there is a distinction between x x x family corporations x x x and other types of corporations in the
institution by a stockholder of a derivative suit.38

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Furthermore, there was no allegation that there was an attempt to remove Rachel or Roberto as director or officer of
SMBI, as permitted under the Corporation Code and the by-laws of the corporation. Thus, the Complaint failed to satisfy
the requirements for a derivative suit under the

Interim Rules.

The CA-Cebu correctly ruled that the Complaint should be dismissed since it is a nuisance or harassment suit under
Section 1(b) of the Interim Rules. Section 1(b) thereof provides:

b) Prohibition against nuisance and harassment suits. - Nuisance and harassment suits are prohibited. In determining
whether a suit is a nuisance or harassment suit, the court shall consider, among others, the following:

(1) The extent of the shareholding or interest of the initiating stockholder or member;

(2) Subject matter of the suit;

(3) Legal and factual basis of the complaint;

(4) Availability of appraisal rights for the act or acts complained of; and

(5) Prejudice or damage to the corporation, partnership, or association in relation to the relief sought.

In case of nuisance or harassment suits, the court may, motu proprio or upon motion, forthwith dismiss the case.

Records show that Juanito, apart from being Vice President, owns the highest number of shares, equal to those owned by
Roberto. Also, as explained earlier, there appears to be no damage to SMBI if the loan extended by Nancy and Theodore
remains unpaid. The CA-Cebu correctly concluded that "a plain reading of the allegations in the Complaint would readily
show that the case x x x was mainly filed to collect a debt allegedly extended by the spouses Theodore and Nancy Ang to
[SMBI]. Thus, the aggrieved party is not SMBI x x x but the spouses Theodore and Nancy Ang, who are not even x x x
stockholders."39

WHEREFORE, we DENY the petition. We AFFIRM the 20 September 2011 Decision of the Court of Appeals-Cebu in CA-
G.R. SP No. 05546.

SO ORDERED.

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